What changed in this filing

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2021-02-25 compared with 2020-03-25 · 309 added, 322 removed, 575 unchanged (52% of the section changed)

23 unchanged sentences

Other long-term assets

Liabilities, Redeemable Convertible Preferred Stock, and Stockholders’ Equity (Deficit)

Liabilities and Stockholders’ Equity

Current liabilities

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Contract liabilities

Short-term debt

Total current liabilities

Redeemable convertible preferred stock warrant liability

Long-term operating lease liabilities

Other long-term liabilities

1 unchanged sentence

Commitments and Contingencies (Note 12)

Redeemable convertible preferred stock

Stockholders’ equity (deficit)

Common stock, $0.0001 par value — 200,000,000 shares authorized and 31,243,029 shares issued and outstanding as of December 31, 2019;

102,700,000 shares authorized and 3,085,307 shares issued and outstanding as of December 31, 2018

Stockholders’ equity

Preferred stock, $0.0001 par value — 10,000,000 shares authorized;

Common stock, $0.0001 par value — 200,000,000 shares authorized;

39,105,548 and 31,243,029 shares issued and outstanding at December 31, 2020 and 2019, respectively

Additional paid-in capital

Accumulated other comprehensive loss

Accumulated other comprehensive income (loss)

Accumulated deficit

Total stockholders’ equity (deficit)

Total liabilities, redeemable convertible preferred stock, and stockholders’ equity (deficit)

Total stockholders’ equity

Total liabilities and stockholders’ equity

See accompanying notes to consolidated financial statements.

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Loss on debt extinguishment

Other (expense) income, net

Other income (expense), net

Loss before income taxes

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Comprehensive

Balance—December 31, 2016

Proceeds from exercise of stock options

Stock-based compensation

Foreign currency translation adjustment

Income (Loss)

Balance—December 31, 2017

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Issuance of common stock warrants

Elimination of fractional shares upon reverse stock split (see Notes 2 and 8)

Elimination of fractional shares upon reverse stock split (see Note 8)

Exercise of common stock warrants

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Proceeds from exercise of stock options

Proceeds from ESPP purchase

Proceeds from Employee Stock Purchase Plan purchases

Stock-based compensation

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Balance—December 31, 2019

Proceeds from follow-on offering, net of expenses

Exercise of common stock warrants

Proceeds from exercise of stock options

Proceeds from Employee Stock Purchase Plan purchases

Restricted stock units vested

Stock-based compensation

Foreign currency translation adjustment

Unrealized gain on available-for-sale debt securities

Balance—December 31, 2020

See accompanying notes to consolidated financial statements

PERSONALIS, INC.

C ONSOLIDATED STATEMENTS OF CASH FLOWS

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

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Depreciation and amortization

Noncash operating lease cost

Stock-based compensation expense

Noncash operating lease cost

Amortization of premium (discount) on short-term investments

Loss on debt extinguishment

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Accounts receivable

Inventories and other deferred costs

Prepaid expenses and other assets

Inventory and other deferred costs

Prepaid expenses and other current assets

Accounts payable

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Contract liabilities

Operating lease liabilities

Other long-term liabilities

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Cash flows from investing activities:

Purchase of available-for-sale debt securities

Purchases of available-for-sale debt securities

Proceeds from maturities of available-for-sale debt securities

Purchase of property and equipment

Purchases of property and equipment

Net cash used in investing activities

Cash flows from financing activities:

Proceeds from initial public offering, net of underwriting discounts and commissions

Payment of costs related to initial public offering

Proceeds from public offerings, net of underwriting discounts and commissions

Payments of costs related to public offerings

Proceeds from exercise or settlement of equity awards

Proceeds from borrowings

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Debt extinguishment costs

Proceeds from issuance of common stock under ESPP

Proceeds from exercise of stock options

Net cash provided by (used in) financing activities

Effect of exchange rates on cash flows and cash equivalents

Net increase (decrease) in cash and cash equivalents

Net change in cash and cash equivalents

Cash and cash equivalents, beginning of period

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Company and Nature of Business

Description of Business

Personalis, Inc.

(the “Company”) was incorporated in Delaware on February 21, 2011 and began operations in September 2011.

The Company formed a wholly owned subsidiary, Personalis (UK) Ltd., in August 2013.

The Company formed a wholly owned subsidiary, Personalis (UK) Ltd., in August 2013 and a wholly owned subsidiary, Shanghai Personalis Biotechnology Co., Ltd.

(which is referred to as “Personalis (Shanghai) Ltd” herein), in October 2020.

The Company is a growing cancer genomics company transforming the development of next-generation therapies by providing more comprehensive molecular data about each patient’s cancer and immune response.

The Company provides sequencing and data analysis services to support the development of cancer therapies.

The Company also provides sequencing and data analysis services to support population sequencing initiatives, which accounts for the majority of revenues.

Cancer genomic services are sold primarily to pharmaceutical companies, biopharmaceutical companies, universities, non-profits, and government entities, while services for population sequencing initiatives are sold primarily to government entities.

The principal markets for the Company’s services are the United States and Europe.

In June 2020, the Company began partnering with a clinical genomics and life sciences company headquartered in China as a means to expand business operations into China.

The Company operates and manages its business as one reportable operating segment, which is the sale of sequencing and data analysis services.

Significant Risks and Uncertainties

The Company has incurred net operating losses each year since inception.

As of December 31, 2019, the Company had an accumulated deficit of $140.6 million.

In June 2019, the Company completed an initial public offering (“IPO”) of its common stock and raised proceeds of $139.8 million, after deducting underwriting discounts, commissions and offering expenses.

Management believes that these proceeds combined with existing sources of liquidity will be sufficient to fund operations for at least one year from the issuance of these consolidated financial statements.

However, there can be no assurance that additional financing will not be required or that the Company will be successful in raising additional capital on terms that are acceptable to the Company.

If the Company requires but is unable to obtain additional funding, the Company could be required to modify, delay, or abandon some of its planned future expansion or expenditures or reduce some of its ongoing operating costs, which could harm its business, operating results, financial condition, and ability to achieve its intended business objectives.

Approval of Amended and Restated Certificate of Incorporation

An amended and restated certificate of incorporation, which authorized 200,000,000 shares of common stock and 10,000,000 shares of preferred stock, became effective in June 2019 in connection with the closing of the Company’s IPO.

As of December 31, 2019 no shares of preferred stock are outstanding.

The Company has incurred losses to date and expects to incur additional losses for the foreseeable future.

The Company continues to invest the majority of its resources in the development and growth of its business, including investments in product development and sales and marketing efforts.

The Company’s activities have been financed to date primarily through the sale of equity securities and cash from operations .

Summary of Significant Accounting Policies

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The consolidated financial statements include the accounts of Personalis, Inc.

and its wholly owned subsidiary, Personalis (UK) Ltd.

and its wholly owned subsidiaries, Personalis (UK) Ltd.

and Personalis (Shanghai) Ltd.

All intercompany balances and transactions have been eliminated in consolidation.

The Company began presenting “Long-term operating lease liabilities” and “Operating lease liabilities” separately in the consolidated balance sheets and consolidated statements of cash flows, respectively, in 2020.

Amounts reported in previous periods were reclassified to conform to the current presentation.

Use of Estimates

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Initial Public Offering

On June 20, 2019, the Company completed an IPO in which it issued and sold 9,109,725 shares of its common stock at a public offering price of $17.00 per share.

On June 24, 2019, the Company completed an initial public offering (“IPO”) in which it issued and sold 9,109,725 shares of its common stock at a public offering price of $17.00 per share.

The Company received net proceeds of $139.8 million after deducting underwriting discounts, commissions and offering expenses.

Offering expenses were $4.2 million and consisted of fees and expenses incurred in connection with the sale of the Company’s common stock in the IPO, including legal, accounting, printing, and other IPO-related costs, all of which were paid by December 31, 2019.

A warrant to purchase 188,643 shares of our common stock was exercised prior to completion of the IPO.

In addition, in connection with the IPO, all shares of the Company’s then-outstanding redeemable convertible preferred stock were automatically converted into 18,474,703 shares of the Company’s common stock, and all then-outstanding warrants to purchase the Company’s convertible preferred stock were automatically converted into warrants to purchase 84,585 shares of the Company’s common stock, of which 62,096 are still outstanding as of December 31, 2019 (see Note 10).

In addition, in connection with the IPO, all shares of the Company’s then-outstanding redeemable convertible preferred stock were automatically

converted into 18,474,703 shares of the Company’s common stock, and all then-outstanding warrants to purchase the Company’s convertible preferred stock were automatically converted into warrants to purchase 84,585 shares of the Company’s common stock , all of which were exercised as of December 31, 2020 ( see Note 10).

Follow-On Offering

On August 14, 2020, the Company completed a follow-on offering in which it issued and sold 6,578,947 shares of its common stock at a public offering price of $19.00 per share.

The Company received net proceeds of $117.1 million after deducting underwriting discounts, commissions, and offering expenses.

Offering expenses were $0.4 million consisting of legal, accounting, printing and other offering-related costs.

Concentration of Credit Risk and Other Risks and Uncertainties

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The Company has not experienced any material losses related to receivables from individual customers, or groups of customers.

The Company maintains an allowance for doubtful accounts, which was $0.1 million and zero as of December 31, 2019 and 2018, respectively.

The Company maintains an allowance for doubtful accounts, which was $0.1 million as of December 31, 2020 and 2019.

During the year ended December 31, 2019, bad debt expense was $0.1 million and included in selling, general and administrative expenses.

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Year Ended December 31,

As of December 31,

Merck & Co., Inc.

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At contract inception, once a contract is determined to be within the scope of the new revenue standard, the Company assesses whether individual goods or services promised within each contract are distinct and, therefore, represent separate performance obligations.

The Company derives revenues from sequencing and data analysis services to support the development of personalized cancer vaccines and other next-generation cancer immunotherapies.

The Company derives revenues from sequencing and data analysis services to support the development of personalized cancer vaccines and other next-generation cancer immunotherapies , as well as to support population sequencing initiatives .

The Company’s contracts are in the form of a combination of signed agreements, statements of work, and/or purchase orders.

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Costs of Revenues

The Company’s costs of revenues primarily consist of production materials, personnel costs (e.g., salaries, bonuses, benefit, and stock-based compensation), cost of expensed equipment, consumables and laboratory supplies, information technology (“IT”) and facility costs, and depreciation and service maintenance contracts on capitalized equipment.

Costs of revenues consist of raw materials costs, personnel costs (salaries, bonuses, benefits, payroll taxes, and stock-based compensation), laboratory supplies and consumables, depreciation and maintenance on equipment, and allocated facilities and information technology costs.

Research and Development Expenses

The Company charges research and development costs to expenses as incurred, including lab and automation development costs.

The expenses primarily consist of employee-related costs (including stock-based compensation), laboratory and automation supplies and equipment, and related depreciation and amortization expenses.

The expenses primarily consist of personnel costs (salaries, bonuses, stock-based compensation, payroll taxes, and benefits), laboratory supplies and consumables, costs of purchasing samples for research purposes, depreciation and maintenance on equipment, and allocated facilities and information technology costs.

Stock-Based Compensation

For options granted to employees, non-employees, and directors, stock-based compensation is measured at grant date based on the fair value of the award.

The Company determines the grant-date fair value of the options using the Black-Scholes option-pricing model.

The Company determines fair value of restricted stock unit awards using the closing market price of the Company’s common stock on the date of grant.

The grant-date fair value of awards is amortized over the employees’ requisite service period or

the non-employees ’ vesting period as the goods are received or services rendered.

The Company determines the grant-date fair value of the options using the Black-Scholes option-pricing model, except for certain performance-based awards for which an alternative valuation method may be used.

The Company determines the fair value of restricted stock unit awards using the closing market price of the Company’s common stock on the date of grant.

The grant-date fair value of awards is amortized over the employees’ requisite service period on a straight-line basis, or the non-employees’ vesting period as the goods are received or services rendered.

Forfeitures are accounted for as they occur.

Additionally, the Company’s 2019 Employee Stock Purchase Plan is dee med to be a compensatory plan and therefore is included in stock-based compensation expense.

Additionally, the Company’s 2019 Employee Stock Purchase Plan is deemed to be a compensatory plan and therefore is included in stock-based compensation expense.

Inputs used in Black-Scholes option-pricing models to measure fair value of options are summarized as follows:

Expected Term.

The expected term is calculated using the simplified method, which is available if there is insufficient historical data about exercise patterns and post-vesting employment termination behavior.

The simplified method is based on the vesting period and the contractual term for each grant, or for each vesting tranche for awards with graded vesting.

The midpoint of the vesting date and the maximum contractual expiration date is used as the expected term under this method.

For awards with multiple vesting tranches, the times from grant until the midpoints for each of the tranches may be averaged to provide an overall expected term.

Expected Volatility.

The Company used an average historical stock price volatility of a peer group of publicly traded companies to be representative of its expected future stock price volatility, as the Company did not have sufficient trading history for its common stock.

For purposes of identifying these peer companies, the Company considered the industry, stage of development, size, and financial leverage of potential comparable companies.

For each grant, the Company measured historical volatility over a period equivalent to the expected term.

Risk-Free Interest Rate.

The risk-free interest rate is based on the implied yield currently available on U.S.

Treasury zero-coupon issues with remaining terms equivalent to the expected term of a stock award.

Expected Dividend Rate.

The Company has not paid and does not anticipate paying any dividends in the near future .

Accordingly, the Company has estimated the dividend yield to be zero .

Foreign Currency Translation

The functional currency of the Company’s foreign subsidiary is the British pounds sterling.

In preparing its consolidated financial statements, the Company is required to translate the financial statements of this subsidiary from British pounds sterling to U.S.

Accordingly, monetary assets and liabilities of the Company’s subsidiary are remeasured using exchange rates in effect at the end of the period.

Costs in the local currency are remeasured using average exchange rates for the period, except for costs related to those consolidated balance sheet items that are remeasured using historical exchange rates.

Since the Company’s functional currency is deemed to be the local currency, any gain or loss associated with the translation of its consolidated financial statements is included as a component of stockholders’ equity (deficit), in accumulated other comprehensive income (loss).

The Company considers the functional currencies of its foreign subsidiaries to be the local currency.

Assets and liabilities recorded in foreign currencies are translated at the exchange rate as of the balance sheet date, and costs and expenses are translated at average exchange rates in effect during the period.

Equity transactions are translated using historical exchange rates.

The effects of foreign currency translation adjustments are recorded as a separate component of accumulated other comprehensive income (loss) in the consolidated balance sheets.

Comprehensive Loss

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Diluted net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock and potentially dilutive securities outstanding for the period.

For purposes of the diluted net loss per share calculation, the redeemable convertible preferred stock, convertible preferred stock warrants, common stock warrants, common stock subject to repurchase, and stock options are considered to be potentially dilutive securities.

For purposes of the diluted net loss per share calculation, the redeemable convertible preferred stock, convertible preferred stock warrants, common stock warrants, common stock subject to repurchase, and equity awards are considered to be potentially dilutive securities.

Basic and diluted net loss attributable to common stockholders per share is presented in conformity with the two-class method required for participating securities as the redeemable convertible preferred stock is considered a participating security.

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Cash equivalents also include commercial paper, which are marketable debt securities recorded at fair value and accounted for in the same manner as other marketable debt securities described below.

Shor t-term Investments

Short-term Investments

The Company’s investments in marketable debt securities are classified as available-for-sale and recorded at fair value.

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agency bonds, commercial paper, corporate bonds, asset-backed securities, and U.S.

Unrealized gains and losses are included in accumulated other comprehensive loss in stockholders’ equity (deficit).

Unrealized gains and losses are included in accumulated other comprehensive income (loss) in stockholders’ equity.

Any discount or premium arising at purchase is accreted or amortized to interest income or expense.

Realized gains and losses and declines in fair value, if any, judged to be other-than-temporary are reported in other (expense) income, net.

When securities are sold, any associated unrealized gain or loss initially recorded as a separate component of stockholders’ equity (deficit) is reclassified out of stockholders’ equity (deficit) on a specific-identification basis and recorded in earnings for the period.

Realized gains and losses and declines in fair value, if any, judged to be other than temporary are reported in other income (expense), net.

When securities are sold, any associated unrealized gain or loss initially recorded as a separate component of stockholders’ equity is reclassified out of stockholders’ equity on a specific-identification basis and recorded in earnings for the period .

The Company periodically evaluates whether declines in fair values of its investments below their book values are other-than-temporary.

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Inventory and Other Deferred Costs

Inventories, consisting of supplies used in the Company’s sequencing and data analysis contracts, are valued at the lower of cost or net realizable value.

Inventory, consisting of supplies used in the Company’s genomic analysis contracts, are valued at the lower of cost or net realizable value.

Cost is determined using actual costs, on a first-in, first-out basis.

Other deferred costs relate to work in process for costs incurred on sequencing and data analysis contracts that have not been completed or recognized as revenues.

Other deferred costs relate to work in process for costs incurred on genomic analysis contracts that have not been completed or recognized as revenues.

Other deferred costs represent materials used in sequencing services, labor, and overhead allocations.

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Upon retirement or sale, the cost and related accumulated depreciation and amortization are removed from the consolidated balance sheet, and the resulting gain or loss is reflected in the consolidated statements of operations.

Maintenance and repairs that are not considered improvements and do not extend the useful lives of the assets are charged to operations as incurred.

Maintenance and repairs that are not considered improvements and do not extend the useful lives of the assets are charged to expense as incurred.

Construction-in-process assets consist primarily of computer equipment and machinery and equipment that have not yet been placed in service.

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Once the assets are placed into service, assets are reclassified to the appropriate asset class based on their nature and depreciated in accordance with the useful lives above.

Internally used software, whether purchased or developed, is capitalized at cost and amortized on a straight-line basis over its estimated useful life.

Costs associated with internally developed software are expensed until the point at which the project has reached the development stage.

Subsequent additions, modifications, or upgrades to internal-use software are capitalized only to the extent that they provide additional functionality.

Software maintenance and training costs are expensed in the period in which they are incurred.

The capitalization of software requires judgment in determining when a project has reached the development stage and the period over which the Company expects to benefit from the use of that software.

Compound Derivative Instrument

The convertible notes issued in June 2017 (see Note 6) contained embedded features that provided the lenders with multiple settlement alternatives.

Certain of these settlement features provided the lenders a right to a fixed number of the Company’s shares upon conversion of the notes (the “conversion option”).

Other settlement features provided the lenders the right or the obligation to receive cash or a variable number of shares upon the completion of a capital-raising transaction, change of control, or default of the Company (the “redemption features”).

Certain conversion and redemption features embedded in the convertible notes met the requirements for separate accounting and were accounted for as a single, compound derivative instrument.

The compound derivative instrument was recorded at fair value at inception and was subject to remeasurement to fair value at each consolidated balance sheet date, with the change in fair value reflected as other (expense) income in the consolidated statements of operations.

The compound derivative instrument was recorded as a compound derivative liability at fair value, which was $0.5 million as of the issuance date and zero and $0.7 million as of December 31, 2018 and 2017, respectively (see Note 5).

Upon modification of the convertible notes on August 20, 2018 (see Note 6), the compound derivative instrument was eliminated.

The Company categorizes leases with contractual terms longer than twelve months as either operating or finance leases.

Finance leases are generally those leases that allow the Company to substantially utilize or pay for the entire asset over its estimated life.

All other leases are categorized as operating leases.

As of December 31, 2020, the Company had no finance leases.

Certain lease contracts include obligations to pay for other services, such as maintenance.

The Company elected to account for these other services as a component of the lease (i.e., the Company elected the practical expedient not to separate lease and non-lease components).

Lease liabilities are recognized at the present value of the fixed lease payments, reduced by landlord incentives, using a discount rate based on the Company’s current borrowing rate at the lease commencement date, adjusted for various factors including level of collateralization and term (the “incremental borrowing rate”), unless the rate implicit in the lease is readily determinable.

The current portion of lease liabilities is included in “Accrued and other current liabilities.” Lease assets are recognized based on the initial present value of the fixed lease payments, reduced by landlord incentives, plus any direct costs from executing the leases or lease prepayments reclassified from “Other long-term assets” upon lease commencement.

Lease assets are presented as “Operating lease right-of-use assets” as a long-term asset.

Leasehold improvements are capitalized at cost and amortized over the lesser of their expected useful life or the lease term.

Costs associated with operating lease assets are recognized on a straight-line basis within operating expenses over the term of the lease.

The Company has made an accounting policy election not to recognize right-of-use assets and lease liabilities that arise from leases with a term of 12 months or less.

Lease payments are recognized as an expense on a straight-line basis over the lease term.

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In May 2014, the FASB issued Accounting Standard Update (“ASU”) No.

2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU No.

Subsequently, the FASB also issued ASU No.

2015-14, Revenue from Contracts with Customers (Topic 606), which adjusted the effective date of ASU No.

2016-08, Revenue from Contracts with Customers (Topic 606):

Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which amends the principal-versus-agent implementation guidance and illustrations in ASU No.

2016-10, Revenue from Contracts with Customers (Topic 606):

Identifying Performance Obligations and Licensing, which clarifies identifying performance obligation and licensing implementation guidance and illustrations in ASU No.

2016-12, Revenue from Contracts with Customers (Topic 606):

Narrow-Scope Improvements and Practical Expedients, which addresses implementation issues and is intended to reduce the cost and complexity of applying the new revenue standard in ASU No.

2014-09 (collectively, the “Revenue ASUs”).

The Revenue ASUs provide an accounting standard for a single comprehensive model for use in accounting for revenues arising from contracts with customers and supersedes most current revenue recognition guidance.

The accounting standard is effective for interim and annual periods beginning after December 15, 2017.

The guidance permits two methods of adoption:

retrospectively to

each prior reporting period presented (the full retrospective method), or retrospectively with the cumulati ve effect of initially applying the guidance recognized at the date of initial application (the modified retrospective method).

The Company performed a detailed review of its revenue agreements and assessed the differences in accounting for such contracts under this guidance compared with previous revenue accounting standards.

On January 1, 2017, the Company early adopted ASU No.

2014-09 using the full retrospective method.

The adoption of this standard did not have a material impact on the Company’s consol idated financial statements.

Results for all periods presented are under ASC Topic 606.

In February 2016, the FASB issued ASU No.

2016-02, Leases (Topic 842) (“ASU No.

In July 2018, the FASB issued ASU No.

2018-10, Codification Improvements to Topic 842, Leases, which provides clarification to ASU 2016-02.

These ASUs (collectively, the “new lease standard”) require an entity to recognize a lease liability and a right-of-use (“ROU”) asset on the balance sheet for leases with lease terms of more than 12 months.

Lessor accounting is largely unchanged, while lessees will no longer be provided with a source of off-balance sheet financing.

This guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.

In July 2018, the FASB issued ASU No.

2018-11, Leases (Topic 842) —Targeted Improvements, which allows entities to elect a modified retrospective transition method where entities may continue to apply the existing lease guidance during the comparative periods and apply the new lease requirements through a cumulative effect adjustment in the period of adoption rather than in the earliest period presented.

On January 1, 2019, the Company adopted ASU No.

2016-02, and its associated amendments using the modified retrospective transition method by applying the new standard to all leases existing at the date of initial application and not restating comparative periods.

There was no cumulative-effect adjustment recorded to retained earnings upon adoption.

Under the standard, a lessee is required to recognize a lease liability and ROU asset for all leases.

The new guidance also modified the classification criteria and requires additional disclosures to enable users of financial statements to understand the amount, timing, and uncertainty of cash flows arising from leases.

Consistent with current guidance, a lessee’s recognition, measurement, and presentation of expenses and cash flows arising from a lease continues to depend primarily on its classification.

The Company elected the package of practical expedients permitted under the transition guidance, which allowed the Company to carryforward its historical lease classification, its assessment as to whether a contract was or contains a lease, and its initial direct costs for any leases that existed prior to January 1, 2019.

The Company also elected the practical expedient not to separate lease and non-lease components.

In addition, the Company elected the short-term lease exception as a practical expedient.

At the date of adoption, the Company derecognized a deferred rent liability in the amount of $0.3 million, and recognized a ROU asset and respective lease liability in the amount of $1.7 million and $2.0 million, respectively.

As of December 31, 2019, lease liabilities in the amount of $1.4 million and $0.6 million are included in “Accrued and other current liabilities” and “Other long-term liabilities,” respectively.

New Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326):

In June 2016, the FASB issued Accounting Standards Update (“ASU”) No.

2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments, which amends the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables.

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Contract Assets and Liabilities

The Company had no contract assets as of December 31, 2019 and 2018.

Contract assets as of December 31, 2020 were immaterial.

The Company had no contract assets as of December 31, 2019.

The Company’s contract liabilities consist of customer deposits in excess of revenues recognized and are presented as current liabilities in the consolidated balance sheets.

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Revenues allocated to remaining performance obligations represent contracted revenues that have not yet been recognized (“contracted not recognized revenues”), which include VA MVP contract liabilities and amounts that will be invoiced and recognized as revenues in future periods.

Contracted not recognized revenues were $68.8 million as of December 31, 2019, which we expect to recognize as revenues over the next 15 months.

Contracted not recognized revenues were $43.5 million as of December 31, 2020, which the Company expects to recognize as revenues within approximately three quarters.

The Company has elected the optional exemption that allows for the exclusion of contracts with an original expected duration of one year or less.

Balance Sheet Details

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Leasehold improvement

Capitalized software costs

Computer software costs

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Accrued compensation

Operating lease right-of-use liabilities

Operating lease liabilities

Accrued liabilities

Accrued taxes

Accrued interest

Deferred rent

Other current liabilities

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The following tables show the Company’s financial assets and liabilities measured at fair value on a recurring basis and the level of inputs used in such measurements as of December 31, 2020 and 2019 (in thousands):

As of December 31, 2019

December 31, 2020

Adjusted Cost

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agency securities

Asset-backed securities

Total short-term investments

Total assets measured at fair value

As of December 31, 2018

December 31, 2019

Adjusted Cost

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Money market funds

Commercial paper

Total cash and cash equivalents

Short-term investments:

Commercial paper

government securities

Corporate debt securities

agency securities

Asset-backed securities

Total short-term investments

Total assets measured at fair value

Long-term liabilities

Convertible preferred stock warrants liability

Total liabilities measured at fair value

There have been no realized gains or losses on sales of marketable securities for the periods presented.

The Company began investing in marketable debt securities during the third quarter of 2019 and, therefore, no security has been in an unrealized loss position for 12 months or greater.

No security has been in an unrealized loss position for 12 months or greater.

The Company determined that it did have the ability and intent to hold all marketable securities that have been in a continuous loss position until maturity or recovery.

As of December 31, 2020, the Company does not consider any of its marketable debt securities to be other-than-temporarily impaired.

The Company’s marketable debt securities at December 31 , 2019 have maturities due in one year or l ess, except for debt securities with an aggregate cost basis and fair value of $ 3.0 million that have maturities of 13 months.

The Company’s marketable debt securities at December 31, 2020 have maturities due in one year or less, except for debt securities with an aggregate cost basis and fair value of $21.1 million that have maturities ranging from 14 months to 23 months.

The Black-Scholes option-pricing model was used to estimate the fair value of the convertible preferred stock warrants at the date of issuance and at each subsequent consolidated balance sheet date.

The fair value of the convertible preferred stock warrants was also estimated at the time of conversion to common stock warrants (see Note 10).

Under this option-pricing model, convertible preferred stock warrants were valued by creating a series of call options with exercise prices based on the liquidation preferences and conversion terms of each equity class.

Under this option-pricing model, convertible preferred stock warrants were valued by creating a series of call options with exercise prices based on the liquidation preferences and

conversion terms of each equity class.

The values of the redeemable convertible preferred stock and common stock are inferred by analyzing these options.

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55.56% - 56.42%

56.07% - 69.87%

Risk-free interest rate

2.58% - 3.01%

1.97% - 2.33%

Dividend yield

The fair value of the compound derivative instrument was estimated at the date of inception in June 2017 and at each subsequent consolidated balance sheet date using a hybrid method that combines probability-weighted and with-or-without methods using unobservable inputs, which are classified as Level 3 within the fair value hierarchy.

The primary inputs for this approach included the probability of achieving various settlement scenarios that provide the lenders the right or the obligation to receive cash or a variable number of shares upon the completion of a capital transaction.

The probability assumptions related to estimating various settlement scenarios as of December 31, 2018 and 2017, and the inception date ranged between 0.2% and 70%, and a discount rate of 35.1% was applied to estimated future cash flows.

After the initial measurement, changes in the fair value of this compound derivative were recorded in other income (expense), net.

The following table sets forth a summary of the changes in the fair value of the Company’s Level 3 financial instruments (in thousands):

Balance — December 31, 2017

Issuance of convertible preferred stock warrants

Initial fair value of derivative liability

Change in fair value

Balance—December 31, 2017

Initial fair value of derivative asset

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Balance — December 31, 2019

Amounts outstanding under the Company’s financing arrangements consisted of the following (in thousands):

Credit agreement

Revolving Loan

Total principal payments due

Reduction in carrying value

Total amounts outstanding

Current portion

Long-Term portion

There were no amounts outstanding under financing arrangements as of December 31, 2020 or 2019.

Below are descriptions of borrowings that were outstanding for at least part of either the year ended December 31, 2019 or the year ended December 31, 2018.

In September 2014, the Company entered into a loan and security agreement with Silicon Valley Bank to borrow up to $3.0 million under an equipment loan to be secured by the equipment financed (the “Term Loan”).

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The Term Loan required 12 interest-only payments, followed by 36 equal monthly installments of principal, plus interest, which began on October 3, 2015.

In connection with the Term Loan, the Company issued to the bank a warrant exercisable for ten years from the date of grant to purchase 22,489 shares of the Company’s Series B redeemable convertible preferred stock at an exercise price of $4.60 per share (see Note 10).

The estimated fair value of the warrants upon draw down of $0.1 million was based on the Black-Scholes option-pricing model.

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The debt-carrying value reduction was accreted using the effective interest method as additional interest expense over the contractual period of four years for the Term Loan.

On September 30, 2018, the Term Loan was repaid in full.

Revolving Loan

In June 2017, the Company entered into a $10.0 million revolving loan and security agreement (the “Revolving Loan”) with TriplePoint Capital LLC (“TriplePoint”).

Borrowings under the Revolving Loan bear an interest rate of prime, plus 6.75%.

The Revolving Loan also has a 5.5% end of term loan payment on the highest outstanding principal amount.

The Revolving Loan requires monthly interest-only payments until the maturity date.

The Revolving Loan’s original maturity date was December 31, 2018, and in December 2018 the maturity date was further extended until March 22, 2019.

Upon determining that the change in cash flows between the previous and current credit facility was not greater than 10%, the Company accounted for the transaction as a debt modification.

As of December 31, 2018, the Company’s outstanding principal under the Revolving Loan was $5.0 million and $5.0 million was available to borrow.

In connection with the Revolving Loan, the Company issued to TriplePoint a warrant to purchase up to 62,096 shares of the Company’s Series C redeemable convertible preferred stock at an exercise price of $8.052 per share exercisable for seven years from June 28, 2017 (see Note 10).

The estimated fair value of the warrant upon draw down of $0.1 million was based on the Black-Scholes option-pricing model.

The Company recorded the fair value of the warrant at issuance as a reduction in the debt-carrying value and as a warrant liability.

The debt-carrying value reduction was accreted using the effective interest method as additional interest expense over the contractual period of 1.5 years for the Revolving Loan.

The Revolving Loan had an effective interest rate of 19.22% per year.

The Revolving Loan interest expense for the year ended December 31, 2018 was $0.9 million.

Interest expense for the year ended December 31, 2019 was not material.

The Company accrued $0.2 million as of December 31, 2018 related to accretion of final payment due at maturity per the agreement using the effective interest rate method.

On March 22, 2019, this Revolving Loan was repaid in full.

Growth Capital Loan

On March 22, 2019, the Company entered into a growth capital loan (the “Growth Capital Loan”) with TriplePoint to provide for a $20.0 million growth capital loan facility and as of June 30, 2019, had drawn down the full $20.0 million available under the facility.

The Company used $5.1 million of the Growth Capital Loan to repay, in its entirety, all amounts outstanding under the Revolving Loan.

Borrowings under the Growth Capital Loan bore interest at a floating rate of prime, plus 5.00%, for borrowings up to $15.0 million and the prime rate plus 6.50% for borrowings greater than $15.0 million.

Under the agreement, the Company was required to make monthly interest-only payments through April 1, 2020 and was required to make 36 equal monthly payments of principal, plus accrued interest, from April 1, 2020 through March 1, 2023, when all unpaid principal and interest was to become due and payable.

The agreement allowed voluntary prepayment of all, but not part, of the outstanding principal at any time prior to the maturity date, subject to a prepayment fee of 1.00% of the outstanding balance if prepaid in months one through 12 of the loan term.

In addition to the final payment, the Company paid an amount equal to 2.75% of each principal amount drawn under this growth capital loan facility.

In connection with the Growth Capital Loan, the Company issued a warrant to purchase 65,502 shares of common stock to TriplePoint at an exercise price of $9.16 per share exercisable for seven years from March 22, 2019.

The Company recorded the issuance-date fair value of the warrant of $0.6 million and fees paid to TriplePoint of $0.3 million as a debt discount, which was amortized over the term of the Growth Capital Loan using the effective interest method.

Upon issuance, the Growth Capital Loan had an effective interest rate of 15.23% per year.

Interest expense for the year ended December 31, 2018 was $0.1 million.

On August 14, 2019, the Company paid off the Growth Capital Loan in its entirety.

In connection with this debt repayment, the Company recorded a $1.7 million loss on extinguishment of debt in the consolidated statements of operations.

On September 30, 2018, the Term Loan was repaid in full.

Convertible Notes

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Under the terms of the Convertible Notes agreement, the Convertible Notes bore interest of 8.00% per annum, with a maturity date of June 28, 2018.

In the event that the Company issued and sold shares of its equity securities (the “Equity Securities”) to Investors on or before the maturity date in an equity financing with total proceeds to the Company of not less than $10 million (including the conversion of the Convertible Notes or other convertible securities issued for capital raising purposes) (a “Qualified Financing”), then the outstanding principal amount of the Convertible Notes and any unpaid accrued interest would have automatically converted in whole without any further action by the holder into such Equity Securities sold in the Qualified Financing at a conversion price equal to the price paid per share for Equity Securities by the Investors in the Qualified Financing multiplied by 0.8.

purposes) (a “Qualified Financing”), then the outstanding principal amount of the Convertible Notes and any unpaid accrued interest would have automatically converted in whole without any further action by the holder into such Equity Securities sold in the Qualified Financing at a conversion price equal to the price paid per share for Equity Securities by the Investors in the Qualified Financing multiplied by 0.8 .

If the Company consummated a change of control while the Convertible Notes remained outstanding, the Company would have repaid the holders in cash an amount equal to 150 % of the outstanding principal amount of the Convertible Notes, plus any unpaid accrued interest on the original principal.

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Certain conversion and redemption features of the Convertible Notes met the requirements for separate accounting and were accounted for as a single, compound derivative instrument.

The compound derivative instrument was recorded at fair value at inception and was subject to remeasurement to fair value at each consolidated balance sheet date, with any changes in fair value recognized in the consolidated statements of operations as other (expense) income, net.

The estimated fair value of the compound derivative instrument was $0.5 million at issuance and was recorded as a reduction in the carrying value of the Convertible Notes and as a single, compound derivative liability.

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The term change was deemed substantial and was accounted for as a debt extinguishment.

In connection with the debt extinguishment on August 20, 2018, the fair value of the Convertible Notes was allocated between the new carrying amount of the Convertible Notes and accrued interest o f $13.4 million, and an equity component of $0.8 million, which resulted in a credit to additional paid-in capital.

In connection with the debt extinguishment on August 20, 2018, the fair value of the Convertible Notes was allocated between the new carrying amount of the Convertible Notes and accrued interest of $13.4 million, and an equity component of $0.8 million, which resulted in a credit to additional paid-in capital.

Upon modification, the compound derivative asset was eliminated.

A $0.8 million loss on debt extinguishment was also recorded in the consoli dated statements of operations.

A $0.8 million loss on debt extinguishment was also recorded in the consolidated statements of operations.

The new carrying value of Convertible Notes was accreted using the effective interest method as interest expense over the new contractual period of one month.

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The Convertible Notes interest expense for the year ended December 31, 2018 was $0.9 million.

Operating Lease Obligations

In February 2015, the Company entered into a noncancelable operating lease for approximately 31,280 square feet of space used for its current laboratory and office space.

The lease expires on November 30, 2020 and includes an option to extend the term for a period of three years immediately following the expiration of the term with rent payments equal to then current fair market rental for the space.

For the 2018 periods presented, the Company recognized rent expense on a straight-line basis over the noncancelable lease term.

The Company’s rent expense was $1.1 million for the year ended December 31, 2018.

Revolving Loan

In June 2017, the Company entered into a $10.0 million revolving loan and security agreement (the “Revolving Loan”) with TriplePoint Capital LLC (“TriplePoint”).

The Company borrowed $5.0 million under the Revolving Loan.

Borrowings under the Revolving Loan bear an interest rate of prime, plus 6.75%.

The Revolving Loan also has a 5.5% end of term loan payment on the highest outstanding principal amount.

The Revolving Loan requires monthly interest-only payments until the maturity date.

The Revolving Loan’s original maturity date was December 31, 2018, and in December 2018 the maturity date was further extended until March 22, 2019.

Upon determining that the change in cash flows between the previous and revised credit facility was not greater than 10%, the Company accounted for the transaction as a debt modification.

In connection with the Revolving Loan, the Company issued to TriplePoint a warrant to purchase up to 62,096 shares of the Company’s Series C redeemable convertible preferred stock at an exercise price of $8.052 per share, which was exercised in August 2020 (see Note 10).

The estimated fair value of the warrant upon draw down of $0.1 million was based on the Black-Scholes option-pricing model.

The Company recorded the fair value of the warrant at issuance as a reduction in the debt-carrying value and as a warrant liability.

The debt-carrying value reduction was accreted using the effective interest method as additional interest expense over the contractual period of 1.5 years for the Revolving Loan.

The Revolving Loan had an effective interest rate of 19.22% per year.

Interest expense was $0.2 million and $0.9 million for the years ended December 31, 2019 and 2018, respectively.

On March 22, 2019, this Revolving Loan was repaid in full.

Growth Capital Loan

On March 22, 2019, the Company entered into a growth capital loan (the “Growth Capital Loan”) with TriplePoint to provide for a $20.0 million growth capital loan facility and had drawn down the full $20.0 million available under the facility.

The Company used $5.1 million of the Growth Capital Loan to repay, in its entirety, all amounts outstanding under the Revolving Loan.

Borrowings under the Growth Capital Loan bore interest at a floating rate of prime, plus 5.00% for borrowings up to $15.0 million and the prime rate plus 6.50% for borrowings greater than $15.0 million.

In addition to the final payment, the Company paid an amount equal to 2.75% of each principal amount drawn under this Growth Capital Loan facility.

In connection with the Growth Capital Loan, the Company issued a warrant to purchase 65,502 shares of common stock to TriplePoint at an exercise price of $9.16 per share, which was exercised in August 2020 (see Note 11).

Upon issuance, the Growth Capital Loan had an effective interest rate of 15.23% per year.

Interest expense for the year ended December 31, 2019 was $1.0 million.

On August 14, 2019, the Company paid off the Growth Capital Loan in its entirety.

In connection with this debt repayment, the Company recorded a $1.7 million loss on extinguishment of debt in the consolidated statements of operations.

In February 2015, the Company entered into a noncancelable operating lease for approximately 31,280 square feet of space used for its current laboratory and corporate headquarters.

In April 2020, the Company extended the lease term.

The lease expires on November 30, 2027 and includes an option to extend the term for a period of three years with rent payments equal to then current fair market rental for the space.

The Company determined the extension option is not reasonably certain to be exercised.

The lease contains a leasehold improvement incentive and escalating rent payments.

In August 2019, the Company entered into a noncancelable operating lease for a co-located data center space.

The lease expires on September 1, 2022 and includes an option to extend the term for a period of three years immediately following the expiration of the term with rent payments to be negotiated upon such a renewal.

The Company adopted the new lease standard as of January 1, 2019.

In determining the present value of lease payments, the Company uses its incremental borrowing rate based on the information available at the lease commencement date if the rate implicit in the lease is not readily determinable.

At the date of adoption, the Company determined the amounts of lease liability related to the laboratory and office space lease using a discount rate of 8.0%, which represented the Company’s incremental borrowing rate.

The Company determines its incremental borrowing rate for lease liability using its current borrowing rate, adjusted for various factors including level of collateralization and term.

With respect to the lease for co-located data center space, the Company determined the amounts of lease liability using a discount rate of 6.6%, and the Company recognized a $1.1 million operating lease right-of-use asset and lease liabi lity on the lease commencement date in September 2019.

The Company determined that the optional renewal periods for both leases were not reasonably certain to be exercised as of the lease commencement dates.

As a result, the optional renewal periods were not recognized as part of the right-of-use asset or lease liability.

Operating lease cost for the year ended December 31, 2019 was $1.1 million.

Cash paid for operating lease liabilities, included in cash flow from operating activities in the Consolidated Statement of Cash Flows was $1.2 million for the year ended December 31, 2019.

As of December 31, 2019, the weighted average remaining lease term for the operating leases was 1.8 years and the weighted average incremental borrowing rate was 7.3%.

Future minimum noncancelable operating lease payments at December 31, 2018, determined in accordance with the Company’s historical lease accounting standard (ASC 840), were as follows (in thousands):

Total future minimum lease payments

Future minimum lease payments under noncancelable operating leases as of December 31, 2019 were as follows (in thousands):

The lease expires on August 31, 2022 and includes an option to extend the term for a period of three years immediately following the expiration of the term with rent payments to be negotiated upon such a renewal.

The Company determined the extension is not reasonably certain to be exercised.

In April 2020, the lease was modified to increase the data center space available for the Company’s use for the remainder of the lease term.

Operating lease cost for the years ended December 31, 2020 and 2019 was $2.3 million and $1.1 million, respectively.

As of December 31, 2020, the Company’s operating leases had a weighted-average remaining lease term of 6.4 years and a weighted-average discount rate of 10.7%.

The Company’s discount rates are based on estimates of its incremental borrowing rate, as the discount rates implicit in the Company’s lease cannot be readily determined.

Future lease payments under operating leases as of December 31, 2020 were as follows (in thousands):

2026 and thereafter

Total future minimum lease payments

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Present value of future minimum lease payments

Current portion of operating lease liabilities

Operating lease liabilities - noncurrent

current portion of operating lease liability

Long-term operating lease liabilities

Cash paid for operating lease liabilities, included in cash flow from operating activities in the Consolidated Statement of Cash Flows, for the years ended December 31, 2020 and 2019, was $1.7 million and $1.2 million, respectively.

Right-of-use assets obtained in exchange for new operating lease liabilities, during 2020 and 2019, were $9.8 million and $2.8 million, respectively, including the impact of adopting ASU 2016-02, Leases (Topic 842) in the first quarter of 2019.

Redeemable Convertible Preferred Stock

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December 31, 2018

(in thousands, except share and per share data)

Shares Issued

(in thousands)

Total redeemable convertible preferred stock

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Stock-Based Compensation

2011 Equity Incentive Plan and 2019 Equity Incentive Plan

2011 Equity Incentive Plan

In 2011, the Company established its 2011 Equity Incentive Plan (the “2011 Plan”) that provided for the granting of stock options to employees and nonemployees of the Company.

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The ISOs could be granted at a price per share not less than the fair value at the date of grant.

The exercise price of an ISO granted to a 10% stockholder was not less than 110% of the estimated fair value of the shares on the date of grant, as determined by the board of directors (the “Board”).

Options granted to new hires generally vested over a four-year period, with 25% vesting at the end of one year and the remaining vesting monthly thereafter;

options granted as merit awards generally vested monthly over a four-year period.

For stock option grants issued prior to December 31, 2015, the Company allowed employees to exercise options granted under the 2011 Plan prior to vesting (early exercise of stock options).

The unvested shares are subject to the Company’s repurchase rights at the original purchase price.

The unvested shares were subject to the Company’s repurchase rights at the original purchase price.

Initially, the proceeds were recorded as an accrued liability from the early exercise of stock options and reclassified to common stock as the Company’s repurchase rights lapsed.

There were zero and 262 unvested shares subject to the Company’s repurchase rights as of December 31, 2019 and 2018, respectively.

The Company’s Board adopted and the Company’s stockholders approved the Company’s 2019 Equity Incentive Plan (the “2019 Plan”) in May 2019 and June 2019, respectively.

There were no unvested shares subject to the Company’s repurchase rights as of December 31, 2020 and 2019.

2019 Equity Incentive Plan

The Company’s board of directors adopted and the Company’s stockholders approved the 2019 Equity Incentive Plan (the “2019 Plan”) in May 2019 and June 2019, respectively.

The 2019 Plan became effective in June 2019 in connection with the Company’s IPO, and no further grants will be made under the 2011 Plan.

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The 2019 Plan provides for the grant of ISOs, NSOs, stock appreciation rights, restricted stock awards, RSUs, performance-based stock awards, and other forms of equity compensation.

Additionally, the 2019 Plan provides for the grant of performance cash awa rds.

Additionally, the 2019 Plan provides for the grant of performance cash awards.

ISOs may be granted only to the Company’s employees and to any of the Company’s parent or subsidiary corporation’s employees.

All other awards may be granted to employees, including officers, and to non-employee directors and consultants of the Compan y and any of the Company’s affiliates.

The exercise price of a stock option generally cannot be less than 100% of the fair market value of our common stock on the date of grant.

All other awards may be granted to employees, including officers, and to non-employee directors and consultants of the Company and any of the Company’s affiliates.

The exercise price of a stock option generally cannot be less than 100% of the fair market value of the Company’s common stock on the date of grant.

Options under the 2019 Plan may be granted for periods of up to 10 years.

At December 31, 2018 there were 4,647,839 shares of common stock available for issuance under the 2011 Plan.

At December 31, 2019 there were 4,474,057 shares of common stock available for issuance under the 2011 Plan and 2,769,721 available for issuance under the 2019 Plan.

2020 Inducement Plan

The Compensation Committee of the Company’s board of directors adopted the 2020 Inducement Plan (the “Inducement Plan”) in May 2020, which became effective upon adoption.

The Inducement Plan was adopted without stockholder approval, as permitted by the Nasdaq Stock Market rules.

The Inducement Plan provides for the grant of equity-based awards, including NSOs, stock appreciation rights, restricted stock awards, RSUs, performance-based stock awards, and other forms of equity compensation, and its terms are substantially similar to the stockholder-approved 2019 Plan.

In accordance with relevant Nasdaq Listing Rules, awards under the Inducement Plan may only be made to individuals not previously employees or non-employee directors of the

Company (or following such individuals’ bona fide period of non-employment with the Company), as an inducement material to the individuals entry into employment with the Company.

2019 Employee Stock Purchase Plan

The Company’s board of directors adopted and the Company’s stockholders approved the 2019 Employee Stock Purchase Plan (the “ESPP”) in May 2019 and June 2019, respectively.

Subject to any plan limitations, the ESPP allows eligible employees to contribute, normally through payroll deductions, up to 15% of their earnings for the purchase of the Company’s common stock at a discounted price per share.

The price at which common stock is purchased under the ESPP is equal to 85% of the fair market value of the Company’s common stock on the first or last day of the offering period, whichever is lower.

The ESPP provides for separate six-month offering periods beginning on May 1 and November 1 of each year.

Shares of common stock available for issuance under the Company’s equity incentive plans at December 31, 2020 and December 31, 2019 were as follows:

Reserved for issuance upon exercise of options outstanding under the 2011 Plan

Reserved for issuance upon exercise or settlement of awards outstanding under the 2019 Plan

Reserved and available for issuance under the 2019 Plan

Reserved for issuance upon exercise or settlement of awards outstanding under the Inducement Plan

Reserved and available for issuance under the Inducement Plan

Reserved and available for issuance under the ESPP

Total number of shares reserved

Stock Option Activity

A summary of the Company’s stock option activity under the 2011 Plan and 2019 Plan for the year ended December 31, 2019 is as follows:

A summary of the Company’s stock option activity (excluding performance-based stock option activity summarized further below) under the 2011 Plan, 2019 Plan, and Inducement Plan for the years ended December 31, 2020, 2019 and 2018 is as follows:

Outstanding Options

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Options vested and exercisable as of December 31, 2020

Options granted to new hires generally vest over a four-year period, with 25% vesting at the end of one year and the remaining vesting monthly thereafter.

Options granted as merit awards generally vest monthly over a three- or four-year period.

The aggregate intrinsic value of unexercised stock options is calculated as the difference between the closing price of the Company’s common stock of $36.61 on December 31, 2020 and the exercise prices of the underlying stock options.

Out-of-the money stock options are excluded from the aggregate intrinsic value.

The weighted-average grant date fair value of options granted was $8.00, $5.68, and $2.44 per share for the twelve months ended December 31, 2019, 2018, and 2017, respectively.

The weighted-average grant date fair value of options granted was $7.17, $8.00, and $5.68 per share for the years ended December 31, 2020, 2019, and 2018, respectively.

As of December 31, 2020, the unrecognized stock-based compensation of unvested options was $13.3 million, which is expected to be recognized over a weighted-average period of 2.7 years.

Restricted Stock Units Activity

A summary of the Company’s RSUs activity under the 2019 Plan for the year ended December 31, 2019 is as follows:

Unvested Restricted Stock Units

(in thousands, except share and per share data)

Weighted-Average

Balance—December 31, 2018

RSUs cancelled

Balance—December 31, 2019

The Company granted RSUs to employees to receive shares of the Company’s common stock.

The RSUs awarded are subject to each individual’s continued service to the Company through each applicable vesting date over a three-year period.

The Company accounted for the fair value of the RSUs using the closing market price of the Company’s common stock on the date of grant.

The aggregate fair value of unvested RSUs is calculated using the closing price of the Company’s common stock of $10.90 on December 31, 2019.

Amortization of stock-based compensation expense related to RSUs in 2019 was not material.

As of December 31, 2019, the unrecognized stock-based compensation of unvested RSUs was $1.0 million, which is expected to be recognized over a weighted-average period of 2.9 years.

Valuation of Stock Options

The Company estimated the fair value of stock options using the Black-Scholes option-pricing model.

The Company estimated the fair value of stock options (excluding performance-based stock options discussed below) using the Black-Scholes option-pricing model.

The fair value of stock options is recognized on a straight-line basis over the requisite service periods of the awards.

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Dividend yield

Expected Term.

The expected term is calculated using the simplified method, which is available if there is insufficient historical data about exercise patterns and post-vesting employment termination behavior.

The simplified method is based on the vesting period and the contractual term for each grant, or for each vesting tranche for awards with graded vesting.

The midpoint of the vesting date and the maximum contractual expiration date is used as the expected term under this method.

For awards with multiple vesting tranches, the times from grant until the midpoints for each of the tranches may be averaged to provide an overall expected term.

Expected Volatility.

For purposes of identifying these peer companies, the Company considered the industry, stage of development, size, and financial leverage of potential comparable companies.

For each grant, the Company measured historical volatility over a period equivalent to the expected term.

Performance-Based Stock Option Activity

Pursuant to the 2019 Plan, in March 2020, the Company’s board of directors granted the Company’s Chief Executive Officer a performance-based stock option (“PSO”) to purchase 421,000 shares of common stock.

The PSO was subject to the Chief Executive Officer’s continued service to the Company through the date of vesting and, if the performance condition were not met within 10 years from the date of grant, the PSO would be canceled.

The shares subject to the PSO would vest in full if the Company’s average market capitalization is equal to or greater than $1 billion over a 30 calendar day period.

Upon a change in control, the vesting of the shares subject to the PSO would accelerate on a pro rata basis based on the price per share in such change in control transaction multiplied by the price per share at such time divided by $1 billion, with up to 100% of the shares eligible for such accelerated vesting.

A summary of the Company’s performance-based stock option activity under the 2019 Plan for the year ended December 31, 2020 is as follows:

Outstanding Performance-Based Options

(in thousands, except share and per share data)

Exercise Price

Balance—December 31, 2019

Options granted

Options exercised

Options cancelled

Balance—December 31, 2020

Options vested and exercisable as of December 31, 2020

During the last quarter of 2020, the Company’s average market capitalization was equal to or greater than $1 billion over a 30 calendar day period and the PSO vested in full.

As of December 31, 2020, there is no remaining unrecognized stock-based compensation cost.

Valuation of Performance-Based Stock Options

The Company estimated the fair value of the PSO using a Monte Carlo Model and the following assumptions and estimates:

Performance period (in years)

Derived service period (in years)

Risk-free interest rate

The risk-free interest rate is based on the implied yield currently available on U.S.

Treasury zero-coupon issues with remaining terms equivalent to the expected term of a stock award.

Expected Dividend Yield.

The Company has not paid and does not anticipate paying any dividends in the near future.

Accordingly, the Company has estimated the dividend yield to be zero.

2019 Employee Stock Purchase Plan

In May 2019, the Board adopted the 2019 Employee Stock Purchase Plan (the “ESPP”), which was approved by the Company’s stockholders in June 2019.

A total of 250,000 shares of common stock are initially reserved for issuance under the ESPP.

The number of shares may be increased in accordance with the terms of the ESPP.

Except for the initial offering period, the ESPP provides for separate six-month offering periods beginning on May 1 and November 1 of each year.

The initial offering period ran from June 20, 2019 through October 31, 2019.

During the year ended December 31 , 2019, 77 , 68 4 shares of common stock were purchased under the ESPP.

The total compensation expense related to the ESPP for the year ended December 31 , 2019 was $ 0.3 million.

The following range of assumptions were used to calculate stock-based compensation for each sto ck purchase right granted under the ESPP:

weighted-average expected life of 0.37 – 0.5 years;

Dividend yield

Estimated fair value (per share)

Restricted Stock Units Activity

A summary of the Company’s RSU activity under the 2019 Plan and Inducement Plan for the years ended December 31, 2020 and 2019 is as follows:

Unvested Restricted Stock Units

(in thousands, except share and per share data)

Balance—December 31, 2018

RSUs cancelled

Balance—December 31, 2019

RSUs cancelled

Balance—December 31, 2020

The Company granted RSUs to employees to receive shares of the Company’s common stock.

The RSUs awarded are subject to each individual’s continued service to the Company through each applicable vesting date.

RSUs granted to new hires generally vest annually over a four-year period.

RSUs granted as merit awards generally vest semi-annually over a three-year period, or in some cases quarterly over a three-year period.

The Company accounted for the fair value of the RSUs using the closing market price of the Company’s common stock on the date of grant.

The aggregate fair value of unvested RSUs is calculated using the closing price of the Company’s common stock of $36.61 on December 31, 2020.

As of December 31, 2020, the unrecognized stock-based compensation cost of unvested RSUs was $5.9 million, which is expected to be recognized over a weighted-average period of 2.9 years.

The Company’s default tax withholding method for RSUs is the sell-to-cover method, in which shares with a market value equivalent to the tax withholding obligation are sold on behalf of the holder of the RSUs upon vesting and settlement to cover the tax withholding liability and the cash proceeds from such sales are remitted by the Company to taxing authorities.

ESPP Activity and Valuation

During the years ended December 31, 2020 and 2019, 164,164 and 77,684 shares of common stock were purchased, respectively, under the ESPP.

The following assumptions were used to calculate the stock-based compensation for each stock purchase right granted under the ESPP during 2020:

expected term of 0.5 years;

expected volatility of 65.15 – 102.10%;

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and a zero dividend yield.

The resulting grant-date fair values were $8.12 and $4.29.

The following assumptions were used to calculate the stock-based compensation for each stock purchase right granted under the ESPP during 2019:

expected term of 0.4 – 0.5 years;

expected volatility of 59.06 – 59.91%;

risk-free interest rate of 1.6% - 2.1%;

and a zero dividend yield.

The resulting grant-date fair values were $3.48 and $5.01.

Stock-based Compensation Expense

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Total stock-based compensation expense

During the year ended December 31, 2019, 67,418 shares with performance conditions vested.

The awards were subject to two vesting criteria:

(i) a time-based service criterion, and (ii) a performance criterion of an initial public offering, which were met in connection with our June 20, 2019 IPO.

The Company recognized $0.3 million of stock-based compensation expense for all such awards.

During the years ended December 31, 2018 and 2017, no shares with performance conditions vested and no stock-based compensation expense was recognized related to shares with performance conditions.

The following is a summary of stock-based compensation expense by function (in thousands):

Year Ended December 31,

Stock options

Performance-based stock options

Total stock-based compensation expense

Redeemable Convertible Preferred Stock Warrants

In September 2014, in connection with the Term Loan (see Note 6), the Company issued a warrant to purchase 22,489 shares of its Series B redeemable convertible preferred stock at an exercise price of $4.60 per share.

The estimated fair value of the Series B convertible preferred stock warrant on the date of issuance of $0.1 million was recorded as a debt reduction.

As of the issuance date, the fair value of the Series B convertible preferred stock warrant was calculated using the Black-Scholes option-pricing model and was based on a contractual term of ten years, a risk-free interest rate of 2.52%, expected volatility of 66.53%, and 0% expected dividend yield.

In June 2017, as additional consideration for the Revolving Loan (see Note 6), the Company issued a warrant to purchase up to 62,096 shares of its Series C redeemable convertible preferred stock at an exercise price of $8.052, subject to certain adjustments, such as any stock splits, stock dividends, recapitalizations, reclassifications, combinations, or similar transactions.

The remaining term of the Series C convertible preferred stock warrant is seven years from June 28, 2017.

The estimated fair value of the Series C convertible preferred stock warrant on the date of issuance of $0.1 million was recorded as a debt reduction.

As of the issuance date, the fair value of the Series C convertible preferred stock warrant was calculated using the Black-Scholes option-pricing model and was based on a contractual term of seven years, a risk-free interest rate of 1.97%, expected volatility of 64.33%, and 0% expected dividend yield.

At initial recognition, the convertible preferred stock warrants were recorded at their estimated fair values and were subject to remeasurement at each consolidated balance sheet date, with changes in fair value recognized as a component of net income.

As of December 31, 2018, the fair values of the convertible preferred stock warrants were calculated to be $0.7 million.

At initial recognition, the convertible preferred stock warrants were recorded at their estimated fair values ($0.1 million each initially) and were subject to remeasurement at each consolidated balance sheet date, with changes in fair value recognized as a component of net income.

See Note 5 for the estimated fair values and changes in fair values relating to periods presented.

Immediately prior to the closing of the Company’s IPO, the redeemable convertible preferred stock warrants automatically converted to common stock warrants.

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The fair value transferred to additional paid-in capital was $2.1 million.

Subsequent to the conversion to a common stock warrant and before the end of the Company’s second quarter ended June 30, 2019, the common stock warrant for 22,489 shares was exercised.

As a result, the Company issued 19,069 shares of common stock as the contract allows a net share settlement.

Separately, the common stock warrant issued in June 2017 for 62,096 shares was still outstanding as of December 31, 2019.

Co mmon Stock Warrants

Subsequent to the conversion to a common stock warrant and before the end of the Company’s second quarter ended June 30, 2019, the warrant for 22,489 shares was exercised.

The Company issued 19,069 shares of common stock as the warrant allowed a net share settlement.

Separately, the warrant for 62,096 shares issued in June 2017 was exercised in August 2020.

The Company issued 40,357 shares of common stock as the warrant allowed for a net share settlement.

Common Stock Warrants

In connection with the sale of Series A redeemable convertible preferred stock in August 2011, the Company issued a warrant to purchase 188,643 shares of common stock to an investor who purchased Series A redeemable convertible preferred stock in August 2011 at an exercise price of $0.04 per share.

The Company recorded the issuance-date fair value of the warrant of $0.1 million in equity as the warrant met all criteria for equity classification.

The common stock warrant was exercised in June 2019 prior to the Company’s IPO and is no longer outstanding as of December 31, 2019.

In connection with the Growth Capital Loan agreement (see Note 6), the Company issued a warrant to purchase 65,502 shares of common stock to the lender at an exercise price of $9.16 per share exercisable for seven years from March 22, 2019.

The common stock warrant was exercised in June 2019 prior to the Company’s IPO and is no longer outstanding.

In connection with the Growth Capital Loan agreement (see Note 6), the Company issued a warrant to purchase 65,502 shares of common stock to the lender at an exercise price of $9.16 per share.

The Company recorded the issuance-date fair value of the warrant of $0.6 million in equity as the warrant met all criteria for equity classification.

The warrant is still outstanding as of December 31, 2019.

The warrant was exercised in September 2020 and is no longer outstanding.

The Company issued 39,415 shares of common stock as the warrant allowed for a net share settlement.

Commitments and Contingencies

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Basic net loss per share is computed by dividing the net loss by the weighted-average number of common shares outstanding for the period.

Because the Company reported a net loss for the years ended December 31, 2019, 2018, and 2017, the number of shares used to calculate diluted net loss per common share is the same as the number of shares used to calculate basic net loss per common share for those periods presented because the potentially dilutive shares would have been antidilutive if included in the calculation.

Because the Company reported a net loss for all periods presented, the number of shares used to calculate diluted net loss per common share is the same as the number of shares used to calculate basic net loss per common share for those periods presented because the potentially dilutive shares would have been antidilutive if included in the calculation.

The following table sets forth the computation of basic and diluted net loss per share attributable to common stockholders (in thousands, except share and per share data):

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Redeemable convertible preferred stock

Conversion of Convertible Notes (1)

Common stock warrants

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Options to purchase common stock

Unvested early exercised common stock options

Unvested restricted stock units

Employee stock purchase plan

(1 ) Calculated as $12.2 million principal and $0.5 million accrued but unpaid interest as of December 31, 2017.

Unvested early exercised common stock options

For financial reporting purposes, loss before income taxes includes the following components (in thousands):

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Provision for income taxes

Income tax provision related to continuing operations differ from the amounts computed by applying the statutory income tax rate of 21% to pretax loss in 2019 and 2018;

and 35% to pretax loss in 2017 as follows (in thousands):

Income tax provision related to continuing operations differ from the amounts computed by applying the statutory income tax rate of 21% to pretax loss in 2020, 2019, and 2018 as follows:

Year Ended December 31,

Federal statutory rate

Expected tax (benefit) at federal statutory rate

Change in valuation allowance

Rate impact due to tax reform

Stock-based compensation

Research and development credit

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Tax Law Changes

Tax Cuts and Jobs Act (the “Tax Act”) was enacted on December 22, 2017.

The Tax Act reduced the U.S.

federal corporate tax rate from 35% in 2017 to 21% in 2018, required companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred, and created new taxes on certain foreign sourced earnings.

For the year ended December 31, 2017, the Company remeasured its deferred tax assets and liabilities based on the change in the federal rate to 21%.

At December 31, 2018, the Company had completed its accounting for the Tax Act, which, other than the decrease in its gross deferred tax assets, did not have a material impact on the Company’s financial statements.

On March 27, 2020, the U.S.

government enacted the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), which includes several U.S.

income tax provisions related to, among other things, net operating loss carrybacks, alternative minimum tax credits, modifications to interest expense limitations, and an option to defer payroll tax payments for a limited period.

Based on the guidance in the CARES Act, the Company deferred the payment of $0.7 million of certain payroll taxes to be paid in the future.

The other provisions of the CARES Act did not have a significant impact on the Company’s consolidated financial statements.

Deferred Tax Assets and Liabilities

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Significant components of the Company’s deferred tax assets for federal and state income taxes are as follows (in thousands):

As of December 31,

Deferred tax assets:

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Net deferred tax liabilities

Realization of our deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain.

Because of our lack of U.S.

Realization of deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain.

Because of the Company’s lack of U.S.

earnings history, the net U.S.

deferred tax assets have been fully offset by a valuation allowance.

The valuation allowance increased by $7.6 million and $4.5 million for the years ended December 31, 2019 and 2018, respectively.

The valuation allowance increased by $16.8 million and $7.6 million during the years ended December 31, 2020 and 2019, respectively.

Net Operating Loss and Tax Credit Carryforwards

As of December 31, 2019, the Company had net operating loss carryforwards for federal income tax purposes of approximately $114.9 million, portions of which will begin to expire in 2031.

As of December 31, 2020, the Company had a net operating loss carryforward for federal income tax purposes of approximately $159.2 million, portions of which will begin to expire in 2031.

The Company had a total state net operating loss carryforward of approximately $112.7 million, which will begin to expire in 2031.

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The annual limitations may result in the expiration of net operating losses and credits before utilization.

The Company has federal credits of approximately $3.0 million, which will begin to expire in 2031 and state research credits of approximately $3.2 million, which have no expiration date.

As of December 31, 2020, t he Company has federal credits of approximately $ 4.2 million, which will begin to expire in 2031 and state research credits of approximately $ 4.3 million , which have no expiration date.

These tax credits are subject to the same limitations discussed above.

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federal income tax returns and various state income tax returns.

Because of net operating losses and research credit carryovers, substantially all of the Company’s tax years remain open to examination.

Because of net operating losses and research credit carryovers, substantially all the Company’s tax years remain open to examination.

The Company has the following activity relating to unrecognized tax benefits (in thousands):

As of December 31,

Beginning balance

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Although it is reasonably possible that certain unrecognized tax benefits may increase or decrease within the next 12 months due to tax examination changes, settlement activities, expirations of statute of limitations, or the impact on recognition and measurement considerations related to the results of published tax cases or other similar activities, the Company does not anticipate any significant changes to unrecognized tax benefits over the next 12 months.

During the years ended December 31, 2019, 2018, and 2017, no significant interest or penalties were required to be recognized relating to unrecognized tax benefits.

Selected Quarterly Financial Information (Unaudited)

The following tables show a summary of the Company’s quarterly financial information for each of the four quarters of 2019 and 2018 (in thousands, except per share amounts):

For the Three Months Ended (Unaudited)

September 30,

Basic and diluted earnings per share

For the Three Months Ended (Unaudited)

September 30,

Basic and diluted earnings per share

REPORT OF INDEPENDENT REG ISTERED PUBLIC ACCOUNTING FIRM

During the years ended December 31, 2020, 2019, and 2018, no interest or penalties were required to be recognized relating to unrecognized tax benefits.

Subsequent Events

Subsequent to the annual period ended December 31, 2020 covered by this Annual Report, on January 29, 2021, we completed a follow-on offering in which we issued and sold 3,950,000 shares of common stock at a public offering price of $38.00 per share.

We received net proceeds of $141.1 million after deducting underwriting discounts and commissions.

The underwriters of the offering exercised their option to purchase an additional 592,500 shares shortly thereafter, resulting in additional net proceeds to us of $21.2 million after deducting underwriting discounts and commissions.

In total, we raised net proceeds of $162.3 million after deducting underwriting discounts and commissions.

We also incurred an estimated $0.4 million of offering expenses, including legal, accounting, printing and other offering-related costs.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of Personalis, Inc.

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We have audited the accompanying consolidated balance sheets of Personalis, Inc.

and subsidiary (the "Company") as of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive loss, redeemable convertible preferred stock and stockholders' equity (deficit), and cash flows for each of the three years in the period ended December 31, 2019, and the related notes (collectively referred to as the "financial statements").

and subsidiaries (the "Company") as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive loss, redeemable convertible preferred stock and stockholders' equity (deficit), and cash flows for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

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San Jose, California

March 25, 2020

February 25, 2021

We have served as the Company's auditor since 2018.

Changes in and Disagreements With Accou ntants on Accounting and Financial Disclosure.

Changes in and Disagreements w ith Accou ntants on Accounting and Financial Disclosure.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7A. Quantitative and Qualitative Disclosures About Market Risk