Seer, Inc. 10-K

Item 8. Financial Statements and Supplementary Data Page Report of Independent Registered Public Accounting Firm 95 Consolidated Balance Sheets 96 Consolidated Statements of Operations and Comprehensive Loss 97 Consolidated Statements of Changes in Stockholders’ Equity 98 Consolidated Statements of Cash Flows 99 Notes to Consolidated Financial Statements 100 94 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of Seer, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Seer, Inc. and subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations and comprehensive loss, changes in stockholders' equity, and cash flows for each of the two 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 two years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ DELOITTE & TOUCHE LLP San Francisco, California March 29, 2021 We have served as the Company’s auditor since 2018. 95 SEER, INC. Consolidated Balance Sheets (in thousands, except share and per share amounts) December 31, 2020 2019 ASSETS Current assets: Cash and cash equivalents $ 333,585 $ 17,485 Investments 98,278 68,535 Inventory 551 — Other receivables 163 326 Other receivables, related parties 99 — Prepaid expenses and other current assets 452 460 Total current assets 433,128 86,806 Property and equipment, net 8,441 5,687 Restricted cash 343 343 Other assets 407 400 Total assets $ 442,319 $ 93,236 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 2,115 $ 701 Accrued expenses 5,147 2,119 Accrued research and development 396 650 Deferred revenue 250 175 Deferred rent, current 186 170 Total current liabilities 8,094 3,815 Deferred rent, net of current portion 1,899 1,673 Other noncurrent liabilities 717 69 Total liabilities 10,710 5,557 Commitments (Note 10) Stockholders’ equity: Convertible preferred stock, $0.00001 par value; zero and 22,173,245 shares authorized as of December 31, 2020 and 2019, respectively; zero and 22,173,216 shares issued and outstanding as of December 31, 2020 and 2019, respectively — 107,953 Preferred stock, $0.00001 par value; 5,000,000 and zero shares authorized as of December 31, 2020 and 2019, respectively; zero shares issued and outstanding as of December 31, 2020 and 2019, respectively — — Class A common stock, $0.00001 par value; 94,000,000 and 42,757,009 shares authorized as of December 31, 2020 and 2019, respectively; 53,395,319 and 2,847,893 shares issued and outstanding as of December 31, 2020 and 2019, respectively; 1 — Class B common stock, $0.00001 par value; 6,000,000 and 9,345,794 shares authorized as of December 31, 2020 and 2019, respectively; 5,865,732 and 9,345,874 shares issued and outstanding as of December 31, 2020 and 2019, respectively; — — Additional paid-in capital 486,915 2,288 Accumulated other comprehensive income 54 24 Accumulated deficit (55,361) (22,586) Total stockholders’ equity 431,609 87,679 Total liabilities and stockholders’ equity $ 442,319 $ 93,236 The accompanying notes are an integral part of these consolidated financial statements. 96 SEER, INC. Consolidated Statements of Operations and Comprehensive Loss (in thousands, except share and per share amounts) Year Ended December 31, 2020 2019 Revenue: Research revenue $ 292 $ 58 Grant revenue 364 58 Total revenue 656 116 Operating expenses: Research and development 18,942 12,393 General and administrative 15,363 4,606 Total operating expenses 34,305 16,999 Loss from operations (33,649) (16,883) Other income (expense): Interest income 883 850 Interest expense — (5) Other expense (9) — Total other income 874 845 Net loss $ (32,775) $ (16,038) Other comprehensive income: Unrealized gain on available-for-sale securities 30 24 Comprehensive loss $ (32,745) $ (16,014) Net loss per share attributable to common stockholders, basic and diluted $ (2.48) $ (2.31) Weighted-average common shares outstanding, basic and diluted 13,216,657 6,952,419 The accompanying notes are an integral part of these consolidated financial statements. 97 SEER, INC. Consolidated Statements of Changes in Stockholders’ Equity (in thousands, except share amounts) Convertible Preferred Stock Class A and Class B Common Stock Additional Paid in Capital Accumulated Deficit Accumulated Other Comprehensive Income Total Shares Amount Shares Amount Balance at December 31, 2018 10,994,225 $ 35,812 12,204,686 $ — $ 711 $ (6,548) $ — $ 29,975 Issuance of Class A common stock from exercise of options — — 133,850 — — — — — Repurchase of Class A common stock — — (144,859) — — — — — Vesting of early exercised stock options and restricted common stock — — — — 20 — — 20 Issuance of Series C convertible preferred stock, net of issuance costs of $153 3,271,023 17,347 — — — — — 17,347 Issuance of Series D convertible preferred stock, net of issuance costs of $206 7,849,737 54,389 — — — — — 54,389 Issuance of Series D convertible preferred stock upon extinguishment of convertible notes 58,231 405 — — — — — 405 Stock-based compensation — — — 1,557 — — 1,557 Other comprehensive income — — — — — 24 24 Net loss — — — — (16,038) — (16,038) Balance at December 31, 2019 22,173,216 107,953 12,193,677 — 2,288 (22,586) 24 87,679 Issuance of Class A common stock from exercise of options — 725,579 — 145 — — 145 Repurchase of Class A common stock — — (382,360) — — — — — Vesting of early exercised stock options and restricted common stock — — — — 185 — — 185 Issuance of Series D-1 convertible preferred stock, net of issuance costs of $104 6,853,571 54,896 — — — — — 54,896 Issuance of Class A common stock upon initial public offering, net of issuance costs of $17,277 — — 10,592,106 — 183,866 — — 183,866 Issuance of Class A common stock in connection with private placement, net of issuance costs of $4,725 — — 7,105,262 — 130,275 — — 130,275 Conversion of convertible preferred stock into Class A common stock (29,026,787) (162,849) 29,026,787 1 162,848 — — — Stock-based compensation — — — — 7,348 — — 7,348 Distribution of PrognomIQ shares — — — — (40) — — (40) Other comprehensive income — — — — — — 30 30 30 Net loss — — — — — (32,775) — (32,775) Balance at December 31, 2020 — $ — 59,261,051 $ 1 $ 486,915 $ (55,361) $ 54 $ 431,609 The accompanying notes are an integral part of these consolidated financial statements. 98 SEER, INC. Consolidated Statements of Cash Flows (in thousands) Year Ended December 31, 2020 2019 OPERATING ACTIVITIES Net loss $ (32,775) $ (16,038) Adjustments to reconcile net loss to net cash used in operating activities: Stock-based compensation 7,348 1,557 Depreciation and amortization 1,606 701 Net amortization of premium (accretion of discount) on available-for-sale securities 261 (259) Non-cash interest expense and other adjustments 10 5 Changes in operating assets and liabilities: Other receivables 64 (257) Prepaid expenses and other current assets 8 (270) Inventory (551) — Other assets (7) (276) Accounts payable 912 218 Deferred revenue 75 175 Deferred rent 242 66 Accrued expenses 2,036 761 Accrued research and development (254) 494 Other noncurrent liabilities 197 50 Net cash used in operating activities (20,828) (13,073) INVESTING ACTIVITIES Purchases of property and equipment (4,534) (4,131) Purchase of available-for-sale securities (87,724) (92,002) Proceeds from maturities of available-for-sale securities 57,750 23,750 Investment in equity method investee (50) Net cash used in investing activities (34,558) (72,383) FINANCING ACTIVITIES Repurchase of Class A common stock (13) (6) Proceeds from exercise of Class A common stock options including early exercised options 1,265 6 Proceeds from issuance of Series C convertible preferred stock, net of issuance costs — 17,347 Proceeds from issuance of Series D convertible preferred stock, net of issuance costs — 54,584 Proceeds from issuance of Series D-1 convertible preferred stock, net of issuance costs 54,896 — Proceeds from issuance of Class A common stock upon initial public offering, net of issuance costs 185,063 — Proceeds of issuance of Class A common stock in private placement 130,275 — Proceeds from issuance of convertible notes — 400 Net cash provided by financing activities 371,486 72,331 Net increase (decrease) in cash, cash equivalents and restricted cash 316,100 (13,125) Cash, cash equivalents and restricted cash, beginning of period 17,828 30,953 Cash, cash equivalents and restricted cash, end of period $ 333,928 $ 17,828 SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES Property and equipment purchases included in accounts payable $ 115 $ 81 Property and equipment purchases included in accrued expenses $ 58 $ 266 Issuance of Series D convertible preferred stock upon extinguishment of convertible notes $ — $ 405 Conversion of convertible preferred stock into common stock upon initial public offering $ 162,848 $ — Convertible preferred stock issuance costs included in accrued expenses $ — $ 195 Tenant improvements paid by landlord $ — $ 1,787 Offering costs in accounts payable $ 468 $ — Offering costs in accrued expenses $ 729 $ — The accompanying notes are an integral part of these consolidated financial statements. 99 SEER, INC. Notes to Consolidated Financial Statements 1. ORGANIZATION AND DESCRIPTION OF THE BUSINESS Seer, Inc. (the Company) was incorporated in Delaware on March 16, 2017, and is based in Redwood City, California. In December 2020, the Company formed the wholly-owned subsidiary, Seer Securities Corporation, located in Massachusetts. The Company is a life sciences company focused on capturing deep molecular insights from the proteome to enable novel insights and breakthroughs in the understanding of biology and disease. Since inception, the Company has devoted its efforts principally to research and development of its technology and product candidates, recruiting management and technical staff, acquiring operating assets, and raising capital. The Company is subject to a number of risks, similar to other early-stage life science companies, including, but not limited to, raising additional capital, development and commercialization of its products, development by its competitors of new technological innovations, protection of its intellectual property, and market acceptance of its products. Initial Public Offering The Company’s registration statement on Form S-1 related to its initial public offering (IPO) was declared effective on December 3, 2020 by the Securities and Exchange Commission (SEC), and the Company’s Class A common stock began trading on the Nasdaq Global Select Market on December 4, 2020. On December 8, 2020, the Company completed its IPO, in which the Company sold 10,592,106 shares of Class A common stock, including 1,381,579 shares of Class A common stock that were offered and sold pursuant to the full exercise of the underwriters’ option to purchase additional shares, at a price to the public of $19.00 per share. Including the option exercise, the Company received net proceeds of $183.9 million after deducting offering costs, underwriting discounts, and commissions of $17.4 million. Immediately prior to the completion of the IPO, all of the outstanding convertible preferred stock converted into an aggregate of 29,026,787 shares of Class A common stock. In addition, the Company filed its amended and restated certificate of incorporation which authorizes a total of 94,000,000 shares of Class A common stock, 6,000,000 shares of Class B common stock, and 5,000,000 shares of preferred stock. Concurrent with the IPO, the Company issued 7,105,262 shares of its common stock in a private placement for net proceeds of $130.3 million after deducting offering costs, underwriting discounts and commissions of $4.7 million. In addition, 526,315 shares of Class B common stock converted into Class A common stock in connection with the sale of such shares by an existing shareholder in a secondary transaction and 2,803,737 shares of Class B common stock were voluntarily converted to an equal amount of Class A common stock. Upon the closing of the IPO, the Company recognized $0.3 million of cumulative stock-based compensation associated with the RSUs that begin vesting upon the achievement of a performance condition satisfied on the IPO for the service period rendered from the date of grant through the completion of the IPO. Public Offering On February 1, 2021, the Company completed an underwritten public offering (Follow-On Offering) of 1,650,000 shares of its Class A common stock at a public offering price of $67.00 per share (see Note 14). The Company received net proceeds of $103.1 million after deducting offering costs, underwriting discounts, and commissions of $7.5 million. Reverse Stock Split In November 2020, the Company’s board of directors approved an amended and restated certificate of incorporation to effect a reverse split of shares of the Company’s common stock and convertible preferred stock on a 1-for-2.14 basis (the Reverse Stock Split) effective as of November 25, 2020. The par values of the common stock and convertible preferred stock were not adjusted as a result of the Reverse Stock Split. All references to common stock, options to purchase common stock, restricted stock awards, restricted stock units, convertible preferred stock, share data, per share data, and related information contained in the consolidated financial statements have been retrospectively adjusted to reflect the effect of the Reverse Stock Split for all periods presented. 100 SEER, INC. Notes to Consolidated Financial Statements Liquidity As of December 31, 2020, the Company has incurred significant losses and has had negative cash flows from operations. As of December 31, 2020, the Company had cash, cash equivalents and investments of $431.9 million and an accumulated deficit of $55.4 million. Management expects to continue to incur significant expenses for the foreseeable future and to incur operating losses in the near term while the Company makes investments to support its anticipated growth. The Company believes that its cash and cash equivalents balance as of December 31, 2020 provides sufficient capital resources to continue its operations for at least 12 months from the issuance date of the accompanying consolidated financial statements. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION Basis of Presentation The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). The Company has issued shares of Class A common stock herein referred to as “Class A common stock” or “Class A” and Class B common stock herein referred to as “Class B common stock” or “Class B,” and collectively as “common stock.” The consolidated financial statements include the accounts of Seer, Inc. and its wholly-owned subsidiary. All intercompany transactions and balances have been eliminated. Use of Estimates The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates and assumptions, including, but not limited to, those related to the fair value of common stock, stock-based compensation, accrued research and development expenses, useful lives and valuation of property and equipment, income tax uncertainties, and tax valuation allowances. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from those estimates. Concentration of Credit Risk and Other Risks and Uncertainties Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash, cash equivalents, and available-for-sale securities. The Company maintains bank deposits in federally insured financial institutions, and these deposits may exceed federally insured limits. The Company is exposed to credit risk in the event of default by the financial institutions holding its cash and cash equivalents and issuers of investments to the extent recorded in the consolidated balance sheets. The Company is subject to a number of risks similar to other early-stage life science companies, including, but not limited to its reliance on third parties to obtain its clinical samples, competitors developing new technological innovations, the need to successfully commercialize and gain market acceptance of the Company’s products, protection of its proprietary technology, and the need to secure and maintain adequate manufacturing arrangements with third parties. If the Company does not successfully commercialize or partner any of its products, it will be unable to generate product revenue or achieve profitability. Impact of the COVID-19 Pandemic As a result of the COVID-19 pandemic (COVID-19), the Company’s operations experienced disruptions and restrictions on employees’ ability to work and on the hiring of additional personnel, particularly as a result of preventive and precautionary measures taken by the Company and some of its suppliers and other service providers. In particular, some of the Company’s laboratory material and equipment suppliers, collaborators, and service 101 SEER, INC. Notes to Consolidated Financial Statements providers used in the performance of its research activities and phased commercial launch plan have been similarly impacted by COVID-19, which may limit the Company’s ability to achieve its planned progress. COVID-19 has adversely affected the broader economy and financial markets, resulting in an economic downturn that could affect the Company’s financing prospects. Continued disruptions from COVID-19 could harm the Company’s operations and the Company cannot anticipate all the ways in which it could be adversely impacted by health epidemics such as COVID-19. The COVID-19 pandemic has mainly impacted the progress of research and development activities due to the limited ability of the Company’s employees to access laboratories during times of statewide quarantine and on some of its suppliers who have experienced a surge in demand for their products resulting in supply delays for critical hardware, instrumentation and medical and testing supplies used for product development. The Company continues to monitor and assess the effects of the COVID-19 pandemic on its business, financial condition, results of operations and cash flows. Variable Interest Entities and Voting Interest Entities The Company consolidates those entities in which it has direct, or indirect controlling financial interest based on either the Variable Interest Entity (VIE) model or the Voting Interest Entity (VOE) model. VIEs are primarily entities that, by design, either lack sufficient equity-at-risk to finance their activities without additional subordinated financial support from other parties or whose equity-at-risk holders, as a group, lack one or more of the following characteristics: (i) direct or indirect ability to make decisions (ii) obligation to absorb expected losses or (iii) right to receive expected residual returns. VIEs must be evaluated quantitatively and qualitatively to determine the primary beneficiary, which is the reporting entity that has (a) the power to direct activities of a VIE that most significantly impact the VIE’s economic performance and (b) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. The primary beneficiary of a VIE is required to consolidate the assets and liabilities of the VIE. To determine a VIE’s primary beneficiary, the Company performs a qualitative assessment to determine which party, if any, has the power to direct activities of the VIE and the obligation to absorb its losses or receive its benefits. This assessment involves identifying the activities that most significantly impact the VIE’s economic performance and determining whether the Company, or another party, have the power to direct those activities. To assess whether the Company has the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance, the Company considers all the facts and circumstances, including its role in establishing the VIE and its ongoing rights and responsibilities. In general, the parties that make the most significant decisions affecting the VIE (management and representation on the board of directors) and have the right to unilaterally remove those decision-makers are deemed to have the power to direct the activities of a VIE. To assess whether the Company has the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE, the Company considers all of its economic interests, which typically include equity investments in preferred and common stock that are deemed to be variable interests in the VIE. This assessment requires the Company to apply judgment in determining whether these interests, in the aggregate, are considered potentially significant to the VIE. Factors considered in assessing the significance include: the design of the VIE, including its capitalization structure; subordination of interests; payment priority; relative share of interests held across various classes within the VIE’s capital structure; and the reasons why the interests are held by the Company. At the VIE’s inception, the Company determines whether it is the primary beneficiary and if the VIE should be consolidated based on the facts and circumstances. The Company then performs on-going reassessments of the VIE based on reconsideration events and reevaluates whether a change to the consolidation conclusion is required at each reporting period. Entities that do not qualify as a VIE are assessed for consolidation under the VOE model. Under the VOE model, the Company consolidates the entity if it determines that it, directly or indirectly, has greater than 50% of the voting shares and that other equity holders do not have substantive voting, participating or liquidation rights. 102 SEER, INC. Notes to Consolidated Financial Statements Equity Method Investments The Company utilizes the equity method to account for investments when it possesses the ability to exercise significant influence, but not control, over the operating and financial decisions of the investee. In applying the equity method, the Company records the investment at cost and subsequently increases or decreases the carrying amount of the investment by its proportionate share of the net earnings or losses and other comprehensive income of the investee based on its percentage of common stock ownership during the respective reporting period. Payments to investees such as additional investments and payments from investees such as dividends are recorded as adjustments to the carrying value of the investment. In the event that net losses of the investee reduce the carrying amount to zero, no additional net losses are recorded unless the Company makes additional investment in the investee, has guaranteed obligations of the investee, or is otherwise committed to provide further financial support for the investee. As of December 31, 2020, the Company has an equity method investment in PrognomIQ. Refer to Note 11 for additional information. Cash, Cash Equivalents and Restricted Cash The Company considers all highly liquid investments with an original maturity of three months or less at the date of purchase to be cash equivalents. As of December 31, 2020 and 2019, all amounts recorded as cash and cash equivalents consist of money market funds and are stated at fair value. Restricted cash as of December 31, 2020 and 2019 represents cash held by a financial institution as security for a letter of credit issued to the lessor for one of the Company’s operating leases and is classified as non-current. The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated balance sheets that sum to the total of the same amounts shown in the consolidated statements of cash flows (in thousands): December 31, 2020 2019 Cash and cash equivalents $ 333,585 $ 17,485 Restricted cash 343 343 Total cash, cash equivalents and restricted cash $ 333,928 $ 17,828 Segment Information The Company operates as a single operating segment. The Company’s chief operating decision maker, its Chief Executive Officer, manages the Company’s operations on a consolidated basis for the purposes of allocating resources, making operating decisions and evaluating financial performance. Investments The Company has designated all investments, which includes U.S. Treasury securities, as available-for-sale, and therefore, such investments are reported at fair value, with unrealized gains and losses excluded from earnings and reported as a component of other comprehensive loss. The cost of available-for-sale securities is adjusted for the amortization of premiums and accretion of discounts to expected maturity. Such amortization and accretion are included in other income (expense) on the consolidated statements of operations and comprehensive loss. Realized gains and losses and interest income on available-for-sale securities are also included in other income (expense). The cost of securities sold is based on the specific identification method. The Company includes all of its available-for-sale securities in current assets. The Company determines the appropriate classification of its investments in debt securities at the time of purchase and reevaluates such designation at each balance sheet date. Available-for-sale securities with original maturities beyond three months at the date of purchase are classified as current based on their availability for use in current operations. 103 SEER, INC. Notes to Consolidated Financial Statements All of the Company’s investments are subject to a periodic impairment review. The Company recognizes an impairment charge when a decline in the fair value of its investments below the cost basis is judged to be other than temporary. Factors considered in determining whether a loss is temporary include the length of time and extent to which an investment’s fair value has been less than its cost basis, the financial condition and near-term prospects of the investee, extent of the loss related to credit of the issuer, the expected cash flows from the security, the Company’s intent to sell the security and whether or not the Company will be required to sell the security before the recovery of its amortized cost. During the year ended December 31, 2019, the Company did not recognize any impairment charges on its investments. Any unrealized losses on available-for-sale debt securities that are attributed to credit risk are recorded to the consolidated statements of operations and comprehensive loss through an allowance for credit losses. During the year ended December 31, 2020, the Company did not recognize any such impairment charges on its investments. Inventory Inventory is recorded at the lower of standard cost, which approximates actual cost on a weighted-average basis, or net realizable value. Provisions for slow-moving, excess or obsolete inventories are recorded when required to reduce inventory values to their estimated net realizable values based on product expiration, development plans, or quality issues. As of December 31, 2020, all inventory consists of finished goods. Property and Equipment Property and equipment are recorded at cost, net of accumulated depreciation and amortization. Depreciation is recorded using the straight-line method over the estimated useful lives of the assets, generally three to five years. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation and amortization are removed from the consolidated balance sheet and any resulting gain or loss is included as a part of income (loss) from operations within the consolidated statements of operations and comprehensive loss. Leasehold improvements are capitalized and amortized over the shorter of the lease term or the estimated useful life of the related asset. Major replacements and improvements are capitalized, while general repairs and maintenance are expensed as incurred. Construction-in-process assets consist primarily of tools and equipment that have not yet been placed in service. These assets are stated at cost and are not depreciated. Once the assets are placed into service, assets are reclassified to the appropriate asset class on their nature and depreciated in accordance with the useful lives above. Impairment of Long-Lived Assets The Company evaluates the carrying amount of its long-lived assets whenever events or changes in circumstances indicate that the assets may not be recoverable. If indicators of impairment exist and the undiscounted future net cash flows expected to be generated by such assets are less than the carrying amount of the asset, an impairment loss is recorded to write the asset down to its estimated fair value based on a discounted future cash flow approach or quoted market values. There have been no such impairment losses for the periods presented. Leases The Company may enter into lease agreements that are classified as either operating or capital leases. The Company enters into lease agreements for its administrative and laboratory facilities, which are classified as operating leases. When lease agreements include rent abatement and rent escalation clauses, the Company records a deferred rent liability. The Company records rent expense on a straight-line basis over the term of the lease from the date that it obtains the legal right to use and control the leased space and records the difference between cash rent payments and the recognition of rent expense as a deferred rent liability. Lease agreements may also include tenant improvement allowances from landlords. The Company recognizes these allowances as a leasehold incentive obligation included in deferred rent on the consolidated balance sheets and amortizes it on a straight-line basis over the life of the lease. Building improvements made with lease incentives or tenant allowances are capitalized as leasehold improvements and included in property and equipment on the consolidated balance sheets. 104 SEER, INC. Notes to Consolidated Financial Statements Revenue Recognition Research Revenue The Company recognizes revenue when control of the services is transferred to its customers in an amount that reflects the consideration it expects to receive from its customers in exchange for those products and services. This process involves identifying the contract with a customer, determining the performance obligations in the contract, determining the contract price, allocating the contract price to the distinct performance obligations in the contract, and recognizing revenue when the performance obligations have been satisfied. A performance obligation is considered distinct from other obligations in a contract when it provides a benefit to the customer either on its own or together with other resources that are readily available to the customer and is separately identified in the contract. The Company considers a performance obligation satisfied once it has transferred control of a good or service to the customer, meaning the customer has the ability to use and obtain the benefit of the good or service. The Company recognizes revenue for research and development services contracts when control is transferred, which is upon completion of the services and when results of the services have been transferred to the customer. Upfront payments and fees received are recorded as deferred revenue until the Company performs its obligations under its arrangements. Amounts payable to the Company are recorded as other receivables when its right to consideration is unconditional. The Company does not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the customer and the transfer of the promised goods or services to the customer will be one year or less. Grant Revenue Grant revenue represents funding under cost reimbursement programs from federal foundation sources for qualified research and development activities performed by the Company and are not based on estimates that are subject to change. Grants received are assessed to determine if the agreement should be accounted for as an exchange transaction or a contribution. An agreement is accounted for as a contribution if the resource provider does not receive commensurate value in return for the assets transferred. Such amounts are recorded as revenue as grant-funded activities are performed up to the amount of expenses incurred. Any advance funding payments are recorded as deferred revenue until the activities are performed. Research and Development Expenses Research and development costs, which includes cost associated with performing services under research and development service contracts and research and development of the Company’s technology and product candidates, are expensed as incurred. Research and development expenses primarily consist of employee compensation, including stock-based compensation, and related benefits, laboratory supplies, consulting costs, costs related to clinical studies for the collection of biological samples for research use and allocated costs, including rent, depreciation, information technology, and utilities. Advance payments for goods or services for future research and development activities are deferred as prepaid expenses and expensed as the goods are delivered or the related services are performed. Accrued Research and Development Expenses Goods or services for research and development activities that have not yet been invoiced are recorded as liabilities within accrued research and development on the consolidated balance sheets. The Company estimates clinical discovery studies expenses based on the services performed related to clinical studies for the collection of biological samples for research use. In accruing service fees, the Company estimates the period over which services will be performed and the level of effort to be expended in each period. These estimates are based on communications with the service provider and the Company’s estimates of services performed based on information available at each balance sheet date determined through analysis with internal personnel and external service providers as to the progress or stage of completion of the associated services. Although the Company does not expect its estimates to be materially different from amounts actually incurred, the Company’s estimate of the status and timing of services performed relative to the actual status and timing of services performed may vary. Through 105 SEER, INC. Notes to Consolidated Financial Statements December 31, 2020, there have been no material differences from the Company’s estimated accrued research and development expenses to actual expenses. General and Administrative General and administrative expenses include employee compensation, including stock-based compensation, and related benefits for executive management, finance, legal, administration and human resources, allocated costs, including rent, depreciation, information technology, utilities, professional service fees, and other general overhead costs to support the Company’s operations. Stock-Based Compensation The Company accounts for stock-based compensation, including from restricted common stock awards (RSAs), grants of restricted stock units (RSUs), and stock options that may be settled in shares of our common stock, based on the fair values of the equity instruments issued. The fair value is determined on the measurement date, which is generally the date of grant. The fair value of RSAs is the difference between the fair value of the underlying stock at the measurement date and the purchase price. The fair value of RSUs is the fair value of the underlying stock at the measurement date. The fair value for our stock option awards is determined at the grant date using the Black-Scholes valuation model. The fair value of share-based payment awards is recognized as expense on a straight-line basis over the requisite service period in which the awards are expected to vest. Forfeitures are accounted for in the period in which they occur. Share-based payment awards that include a service condition and a performance condition are expected to vest when the performance condition is probable of being met. The Black-Scholes model considers several variables and assumptions in estimating the fair value of stock-based awards that require judgment, for which changes if they occur can materially affect the resulting estimates of fair value. These assumptions include the per share fair value of the underlying common stock, exercise price, expected term, risk-free interest rate, expected annual dividend yield, and the expected stock price volatility over the expected term as follows: Fair Value of Common Stock For grants prior to the Company’s IPO in December 2020, the grant-date fair market value of the shares of common stock underlying stock options was determined by the Company’s Board of Directors with assistance of third-party valuation specialists. Because there has been no public market for the Company’s common stock, the Board of Directors exercises reasonable judgment and considers a number of objective and subjective factors to determine the best estimate of the fair market value, which include important developments in the Company’s operations, the prices at which the Company sold shares of its convertible preferred stock, the rights, preferences and privileges of the Company’s convertible preferred stock relative to those of the Company’s common stock, actual operating results, financial performance, external market conditions in the life sciences industry, general U.S. market conditions, equity market conditions of comparable public companies, and the lack of marketability of the Company’s common stock. For all grants subsequent to the IPO, the fair value of common stock was determined by using the closing price per share of common stock as reported on the Nasdaq Global Select Market. Expected Volatility The Company had no publicly available stock price information prior to its IPO and limited publicly available stock price information subsequent to its IPO and therefore the Company has used the historical volatility of the stock price of similar publicly traded peer companies. The historical volatility is calculated based on a period of time commensurate with the expected term assumptions. Expected Term For stock options granted to employees and directors, the expected term is calculated using the simplified method for “plain vanilla” stock option awards. The expected term for stock options granted to non-employees is the contractual term. 106 SEER, INC. Notes to Consolidated Financial Statements Risk-Free Interest Rate The risk-free interest rate is based on the yield available on U.S. Treasury zero-coupon issues similar in duration to the expected term of the equity-settled award. Expected Dividends The expected dividend yield is assumed to be zero as the Company has never paid dividends and has no current plans to pay dividends on its common stock. Income Taxes The Company accounts for income taxes using the asset and liability method. The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is recorded for deferred tax assets if it is more likely than not that some portion or all of the deferred tax assets will not be realized. In evaluating the ability to recover its deferred income tax assets, the Company considers all available positive and negative evidence, including its operating results, ongoing tax planning, and forecasts of future taxable income on a jurisdiction-by-jurisdiction basis. In the event the Company determines that it would be able to realize its deferred income tax assets in the future in excess of their net recorded amount, it would make an adjustment to the valuation allowance that would reduce the provision for income taxes. Conversely, in the event that all or part of the net deferred tax assets are determined not to be realizable in the future, an adjustment to the valuation allowance would increase the provision for income taxes in the period when such determination is made. The Company records uncertain tax positions in accordance with Accounting Standards Codification (ASC) 740 on the basis of a two-step process in which (1) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more likely than 50 percent likely to be realized. Interest and penalties related to unrecognized tax benefits are included within the provision for income tax. At both December 31, 2020 and 2019, there were no interest and penalties. Net Loss Per Share Attributable to Common Stockholders Net loss per share of common stock is computed using the two-class method required for multiple classes of common stock and participating securities based upon their respective rights to receive dividends as if all income for the period has been distributed. The rights, including the liquidation and dividend rights and sharing of losses, of the Class A and Class B common stock are identical, other than voting rights. As the liquidation and dividend rights and sharing of losses are identical, the undistributed earnings are allocated on a proportionate basis and the resulting net loss per share attributed to common stockholders is therefore the same for Class A and Class B common stock on an individual or combined basis. The Company’s participating securities include the Company’s convertible preferred stock, as the holders are entitled to receive noncumulative dividends on a pari passu basis in the event that a dividend is paid on common stock. The Company also considers any shares issued on the early exercise of stock options subject to repurchase to be participating securities because holders of such shares have non-forfeitable dividend rights in the event a dividend is paid on common stock. The holders of convertible preferred stock, as well as the holders of early exercised shares subject to repurchase, do not have a contractual obligation to share in losses. Basic net loss per share attributable to common stockholders is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period, adjusted for outstanding shares that are subject to repurchase. 107 SEER, INC. Notes to Consolidated Financial Statements Diluted net loss per share is computed by giving effect to all potentially dilutive securities outstanding for the period using the treasury stock method or the if-converted method based on the nature of such securities. For periods in which the Company reports net losses, diluted net loss per common share attributable to common stockholders is the same as basic net loss per common share attributable to common stockholders, because potentially dilutive common shares are not assumed to have been issued if their effect is anti-dilutive. Commitments and Contingencies Liabilities for loss contingencies arising from claims, assessments, litigation, fines, penalties, and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred. Comprehensive Loss Comprehensive loss is comprised of net loss and changes in accumulated other comprehensive income on the Company’s available-for-sale investments related to unrealized gains and losses. Fair Value Measurement Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability, or an exit price, in the principal or most advantageous market for that asset or liability in an orderly transaction between market participants on the measurement date. Fair value measurement establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs, where available, and minimize the use of unobservable inputs when measuring fair value. The Company determined the fair value of financial assets and liabilities using the fair value hierarchy that describes three levels of inputs that may be used to measure fair value, as follows: Level 1—Quoted prices in active markets for identical assets and liabilities; Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The carrying amount of the Company’s other receivables, prepaid expenses, other current assets, accounts payable, and accrued expenses approximate fair value due to their short maturities. Recently Adopted Accounting Pronouncements 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 requires that financial assets measured at amortized cost be presented at the net amount expected to be collected. Unrealized losses on available-for-sale debt securities that are attributed to credit risk are recorded through earnings rather than to other comprehensive income. Credit losses relating to available-for-sale debt securities are now recorded through an allowance for credit losses. The Company adopted this standard as of January 1, 2020, and the adoption of this standard did not result in a cumulative effect adjustment as of the date of the adoption. 108 SEER, INC. Notes to Consolidated Financial Statements On June 20, 2018, the FASB issued ASU No. 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Non-employee Share-Based Payment Accounting, to reduce cost and complexity and to improve financial reporting for share-based payments issued to non-employees. The Company adopted this standard for the year ended December 31, 2020, which did not have a material impact to its consolidated financial statements. In August 2018, the FASB issued ASU No. 2018-13, Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which amends ASC 820, Fair Value Measurement . This standard modifies the disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosures. The Company adopted this standard as of January 1, 2020, which did not have a material impact on its consolidated financial statements. Recently Issued Accounting Pronouncements Not Yet Adopted In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) . This standard clarifies the definition of a lease and requires a lessee to recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-to-use asset representing its right to use the underlying asset for the lease term. In November 2019, the FASB issued ASU No. 2019-10 which extends the effective date of ASU No. 2016-02 for non-public business entities, including smaller reporting companies, to fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. While the Company has not yet quantified the impact, these adjustments will increase total assets and total liabilities relative to such amounts reported prior to adoption. In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which is intended to simplify the accounting for income taxes. This standard removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing standards to improve consistent application. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Additionally, an entity that elects early adoption must adopt all the amendments in the same period. The Company does not expect a material impact of this standard on its consolidated financial statements and related disclosures. In January 2020, the FASB issued ASU No. 2020-01, Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) . This standard clarifies the interaction between accounting standards related to equity securities, equity method investments, and certain derivative instruments. This standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company is currently assessing the impact does not expect a material impact of this standard on its consolidated financial statements and related disclosures. 109 SEER, INC. Notes to Consolidated Financial Statements 3. FAIR VALUE MEASUREMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS The following tables set forth the fair value of the Company’s financial assets that were measured at fair value on a recurring basis by level within the fair value hierarchy (in thousands). December 31, 2020 Level 1 Level 2 Level 3 Total Assets: Classification: Money market funds Cash and cash equivalents $ 333,585 $ — $ — $ 333,585 U.S. Treasury securities Investments — 98,278 — 98,278 Total assets measured at fair value $ 333,585 $ 98,278 $ — $ 431,863 December 31, 2019 Level 1 Level 2 Level 3 Total Assets: Classification: Money market funds Cash and cash equivalents $ 17,485 $ — $ — $ 17,485 U.S. Treasury securities Investments — 68,535 — 68,535 Total assets measured at fair value $ 17,485 $ 68,535 $ — $ 86,020 There were no financial liabilities measured at fair value. The Company classifies money market funds within Level 1 of the fair value hierarchy because they are valued using bank balances or quoted market prices. The Company classifies its investments in U.S. Treasury securities (Treasury bills, Treasury notes, and Treasury bonds) as Level 2 instruments and obtains fair value from an independent pricing service, which may use quoted market prices for identical or comparable instruments or model-driven valuations using observable market data or inputs corroborated by observable market data. The following is a summary of the Company’s cash equivalents and investments and the gross unrealized holding gains and losses (in thousands): December 31, 2020 Amortized Cost Basis Unrealized Gains Unrealized Losses Fair Value Assets: Money market funds $ 333,585 $ — $ — $ 333,585 U.S. Treasury securities 98,223 57 (2) 98,278 Total $ 431,808 $ 57 $ (2) $ 431,863 December 31, 2019 Amortized Cost Basis Unrealized Gains Unrealized Losses Fair Value Assets: Money market funds $ 17,485 $ — $ — $ 17,485 U.S. Treasury securities 68,511 27 (3) 68,535 Total $ 85,996 $ 27 $ (3) $ 86,020 As of December 31, 2020 and 2019, unrealized losses on available-for-sale investments are not attributable to credit risk and are considered to be temporary. The Company believes it is more likely than not that investments in an unrealized loss position will be held until maturity or the recovery of the cost basis of the investment. To date, the Company has not recorded any impairment charges on marketable securities related to other-than-temporary 110 SEER, INC. Notes to Consolidated Financial Statements declines in market value. As of December 31, 2020 and 2019, the weighted-average remaining maturity of the Company’s investment portfolio was less than one year. 4. OTHER FINANCIAL STATEMENT INFORMATION Other Receivables Other receivables consist of the following (in thousands): December 31, 2020 2019 Interest receivable $ 120 $ 313 Grant receivable — 13 Other 142 — Total other receivables $ 262 $ 326 Property and Equipment, Net Property and equipment, net consists of the following (in thousands): December 31, 2020 2019 Laboratory equipment $ 8,075 $ 3,788 Computer equipment and software 182 113 Furniture and fixtures 241 236 Leasehold improvements 2,294 2,295 Property and equipment 10,792 6,432 Less: accumulated depreciation and amortization 2,351 745 Total property and equipment, net $ 8,441 $ 5,687 Depreciation and amortization expense related to property and equipment was $1.6 million and $0.7 million for the years ended December 31, 2020 and 2019, respectively. Accrued Expenses Accrued expenses consist of the following (in thousands): December 31, 2020 2019 Accrued compensation $ 2,866 $ 1,336 Accrued professional services 1,074 349 Accrued property and equipment — 266 Restricted stock liability, current 484 — Other 723 168 Total accrued expenses $ 5,147 $ 2,119 5. REVENUE AND DEFERRED REVENUE As of December 31, 2020 and 2019, the Company recorded $0.3 million and $0.2 million of deferred revenue related to the following agreements. 111 SEER, INC. Notes to Consolidated Financial Statements Research Agreements In February 2019, the Company entered into a sponsored research agreement with a biotechnology company under which the Company is required to execute certain research and development activities as well as optional research and development activities if elected by the customer for total consideration payable of $0.4 million. During the year ended December 31, 2020 and 2019, the Company recognized research revenue of $0.3 million, which includes amounts deferred as of December 31, 2019, and $0.1 million with respect to the research agreement. In March 2020, the Company entered into a sponsored research agreement with a pharmaceutical company under which the Company is required to execute certain research and development activities for total consideration payable of $0.5 million, of which $0.3 million was received and recorded as deferred revenue as of December 31, 2020. During the year ended December 31, 2020, the Company did not recognize any research revenue with respect to the research agreement. NIH Grant In August 2019, the Company received a notice of a Small Business Innovation Research grant award from the National Institutes of Health, which will provide funding of approximately $1.1 million to the Company for its development of research applications. In June 2020, the Company received a notice that additional grant consideration of $0.9 million will be awarded. During the year ended December 31, 2020 and 2019, the Company recognized grant revenue of $0.4 million and $0.1 million with respect to the award. 6. CONVERTIBLE NOTES In May 2019, the Company issued an aggregate of $0.4 million in convertible promissory notes (Notes) that accrue interest at a rate of 2.37% per annum and mature 10 years from the date of issuance. Upon the closing of the Company’s Series D convertible preferred stock offering in November 2019, the Notes were redeemed whereby all of the outstanding principal and accrued interest were converted into 58,231 shares of Series D convertible preferred stock at a conversion price of $6.96 per share, which was the issuance price of the Series D convertible preferred stock. The redemption of the Notes was accounted for as a debt extinguishment, and there was no gain or loss on extinguishment recorded. 7. CAPITAL STOCK AND STOCKHOLDERS’ EQUITY As of December 31, 2020, the Company is authorized to issue 105,000,000 shares of capital stock consisting of 94,000,000 shares of Class A common stock, 6,000,000 shares of Class B common stock, and 5,000,000 shares of preferred stock. Convertible Preferred Stock Convertible preferred stock consists of the following: December 31, 2019 Issue Price Shares Authorized Shares Issued and Outstanding Net Carrying Value Aggregate Liquidation Preference (in thousands, except share and per share data) Series A $ 1.95 3,087,477 3,087,468 $ 5,918 $ 6,000 Series B 3.80 7,906,761 7,906,757 29,894 30,000 Series C 5.35 3,271,028 3,271,023 17,347 17,500 Series D 6.96 7,907,979 7,907,968 54,794 55,000 Total 22,173,245 22,173,216 $ 107,953 $ 108,500 In May 2020, the Company issued 6,853,571 shares of its Series D-1 convertible preferred stock in May 2020 at a price per share of $8.03 for net proceeds of $54.9 million. Immediately prior to the completion of the IPO, all of 112 SEER, INC. Notes to Consolidated Financial Statements the outstanding convertible preferred stock converted into an aggregate of 29,026,787 shares of Class A common stock. Common Stock Common stock issued and outstanding is as follows: December 31, 2020 2019 Class A common stock 53,395,319 2,847,893 Class B common stock 5,865,732 9,345,784 Total common stock issued and outstanding 59,261,051 12,193,677 Class A and Class B common stock have a par value of $0.00001 per share. Holders of Class A common stock are entitled to one vote per share and holders of Class B common stock are entitled to 10 votes per share. Class B common shares are convertible to Class A common shares at any time at the option of the holder on a one-for-one basis. Holders of common stock are entitled to dividends as declared by the Board of Directors, subject to rights of holders of all classes of stock outstanding having priority rights as to dividends. There have been no dividends declared to date. 8. EQUITY INCENTIVE PLANS In 2017, the Company adopted the 2017 Stock Incentive Plan (2017 Plan), which provided for the granting of awards to employees, directors, and consultants of the Company. Awards issuable under the Plan include incentive stock options (ISO), nonqualified stock options (NSO), and restricted stock awards. In 2020, the Company adopted the 2020 RSU Equity Incentive Plan (2020 RSU Plan), which provided for the granting of RSUs to certain employees of the Company. In 2020, the Company adopted the 2020 Equity Incentive Plan (2020 Plan), which became effective in connection with the IPO. The Company’s 2017 Plan and 2020 RSU Plan were terminated in connection with the IPO and no further grants will be made under the 2017 Plan and 2020 RSU Plan from the date that the 2020 Plan became effective. Stock options to purchase the Company’s Class A common stock may be granted at a price not less than the fair market value of the Company’s Class A common stock at the date of grant in the case of both NSOs and ISOs, except for grants of stock options to an employee or non-employee with options who owns more than 10% of the voting power of all classes of stock of the Company, in which case the exercise price shall be no less than 110% of the fair market value per Class A common stock on the grant date. The exercise price for an ISO cannot be less than the fair market value of the Class A common stock on the grant date. Stock options granted under the 2017 Plan and 2020 Plan generally vest over four years and expire no later than 10 years from the date of grant. 5,336,569 shares of Class A common stock were initially reserved for issuance under the 2020 Plan, which includes 516,710 shares that remained available for issuance under the 2017 Plan. As of December 31, 2020, there are 3,782,850 shares of Class A common stock available for issuance under the 2020 Plan. 113 SEER, INC. Notes to Consolidated Financial Statements Stock option activity under the 2017 Plan and 2020 Plan is as follows: Options Outstanding Weighted Average Exercise Price Weighted Average Remaining Term (Years) Aggregate Intrinsic Value (in thousands) Balance - December 31, 2019 2,176,102 $ 0.84 8.86 4,051 Options granted 8,940,283 6.07 Options exercised (725,579) 1.74 Options cancelled and forfeited (839,701) 2.15 Balance - December 31, 2020 9,551,105 $ 5.55 8.99 $ 483,194 Vested and exercisable, December 31, 2020 1,349,357 $ 1.53 6.80 $ 73,693 The weighted-average grant-date fair value of stock options granted to employees during the years ended December 31, 2020 and 2019, was $4.26 and $1.61 per share, respectively. The total intrinsic value of stock options exercised during the years ended December 31, 2020 and 2019, was $1.6 million and $0.2 million, respectively. Determination of Fair Value The fair value of stock options granted to employees, directors, and non-employees is calculated using the Black-Scholes option pricing model using the following assumptions: Year Ended December 31, 2020 2019 Risk-free interest rate 0.3% - 1.6% 1.8% - 2.6% Expected volatility 62.2% - 70.6% 74.7% - 77.7% Expected term (in years) 5.00 - 10.00 5.28 - 9.49 Expected dividend yield — — Restricted Stock Certain stock options granted under the 2017 Plan provide stock option holders the right to exercise unvested stock options in exchange for restricted shares of Class A common stock. The Company has also issued restricted shares of Class A common stock to employees and directors under the 2017 Plan. The restricted shares of Class A common stock related to early exercised stock options and restricted shares of Class A common stock awards are subject to repurchase by the Company at the original purchase price in the event that the optionee’s employment is terminated prior to the shares vesting. The consideration received for early exercised stock options and for shares sold pursuant to restricted stock purchase agreements is recorded as a liability on the consolidated balance sheets and reclassified to stockholders’ equity as the shares vest. The activity of restricted shares of Class A common stock under the 2017 Plan is as follows: Number of Shares Weighted-Average Grant Date Fair Value Unvested at December 31, 2019 1,499,715 0.75 Granted 448,881 3.02 Repurchased (382,360) 1.08 Vested (790,595) 0.88 Unvested at December 31, 2020 775,641 1.77 The fair value of the restricted shares of Class A common stock that vested during the years ended December 31, 2020 and 2019, was $0.4 million and $0.3 million, respectively. 114 SEER, INC. Notes to Consolidated Financial Statements RSUs During the year ended December 31, 2020, the Company granted certain employees 491,318 RSUs under the 2020 RSU Plan and 2020 Plan that entitle the holders to receive shares of Class A common stock upon vesting. The weighted-average grant date fair value of the RSUs was $7.91 per share. The RSUs vest upon satisfaction of both a service condition and a performance condition that was satisfied upon the closing of the IPO. The RSUs generally vest over a two- or three-year period in two equal installments at the one-year anniversary and two- or three-year anniversary of the vesting start date, which is either the date of the IPO or January 1, 2021. No RSUs vested or were forfeited during the year ended December 31, 2020, and there were no RSUs granted prior to 2020. The Company recorded $0.5 million in stock-based compensation for RSUs during the year ended December 31, 2020, which includes $0.3 million of cumulative stock-based compensation upon the IPO for the service period rendered from the date of grant through the completion of the IPO. Employee Stock Purchase Plan In November 2020, the Company’s board of directors adopted the 2020 Employee Stock Purchase Plan (ESPP), which was subsequently approved by the Company’s stockholders and became effective in connection with the IPO. A total of 602,570 shares of Class A common stock were reserved for issuance under the ESPP. The first offering period has not commenced as of December 31, 2020 and there is no stock-based compensation related to the ESPP for the year ended December 31, 2020. Stock-Based Compensation The following table summarizes the components of stock-based compensation recognized in the Company’s consolidated statements of operations and comprehensive loss (in thousands): Year Ended December 31, 2020 2019 Research and development $ 899 $ 766 General and administrative 6,449 791 Total stock-based compensation $ 7,348 $ 1,557 As of December 31, 2020, the total unrecognized stock-based compensation related to unvested stock options, restricted stock awards, and restricted stock units was $37.4 million, which the Company expects to recognize over a remaining weighted-average period of 1.88 years. In connection with the PrognomIQ transaction (see Note 11) and pursuant to the anti-dilution provisions included in the 2017 Plan, certain adjustments were made to the number and exercise price of the outstanding awards granted to the Company’s employees and directors to maintain the aggregate intrinsic value of the awards at the date of the transaction, which were accounted for as a modification of the awards. Except for the number of the adjusted awards, the material terms of the awards remained unchanged, and the awards continue to vest over their original vesting period. The impact of these adjustments did not have a material impact on the Company’s consolidated financial statements for the year ended December 31, 2020. In October 2020, in connection with the transition of our former Chief Business Officer to a consulting role, the vesting of 461,876 share-based awards were accelerated. An additional 76,304 options to purchase Class A common stock are expected to vest over the term of the consulting agreement pursuant to the terms and conditions of the original options. The total amount of stock-based compensation associated with the modification is $2.8 million, of which $2.3 million was recorded on the date of the modification. 115 SEER, INC. Notes to Consolidated Financial Statements 9. EMPLOYEE BENEFIT PLANS The Company sponsors a qualified 401(k) defined contribution plan covering eligible employees. Participants may contribute a portion of their annual compensation limited to a maximum annual amount set by the Internal Revenue Service. There were no employer contributions under this plan for fiscal 2020 and 2019. 10. COMMITMENTS Facility Lease Agreement On March 1, 2018, the Company entered into an 18-month sublease agreement for its facility in South San Francisco, California. In March 2019, the Company extended the lease term until December 31, 2019. On January 4, 2019, the Company entered into a new lease agreement for office and laboratory space in Redwood City, California. The lease term commenced in November 2019 and ends on September 30, 2029. As of December 31, 2019, the Company had moved into this facility and no longer occupied the facility in South San Francisco. In connection with the lease, the Company maintains a letter of credit issued to the lessor in the amount of $0.3 million, which is secured by restricted cash that is classified as non-current at December 31, 2020 and 2019 based on the term of the underlying lease. The Company entered into an amendment to the lease agreement with respect to its facility in Redwood City, California in June 2020. The amendment is accounted for as a new operating lease. The amendment makes certain changes to the original lease, including (i) additional office and laboratory space in the same building (Expansion Premises) and (ii) an extension of the expiration date of the original lease to 127.5 months following the delivery date of the Expansion Premises, which is estimated to be September 1, 2021. The amendment provides for annual base rent for the Expansion Premises of approximately $0.9 million in the first year of the lease term (subject to an abatement period of nine months), which increases on an annual basis to approximately $1.2 million in the final year of the lease term. The amendment also provides for tenant incentives in the amount of $2.4 million. Under the amendment, the Company retains its original option to renew the lease for an additional five-year term, at then-current market rates. During the period from the lease amendment commencement until the earlier of one month after occupancy of the Expansion Premises or September 2021, the Company will be provided with temporary space. The Company is not required to pay additional rent for the temporary space, but is required to pay property taxes, insurance and normal maintenance costs with respect to the temporary space. Rent expense was $0.7 million and $0.6 million for the years ended December 31, 2020 and 2019, respectively. The Company is required to pay property taxes, insurance, and normal maintenance costs for the facility and will be required to pay any increases over the base year of these expenses. As of December 31, 2020, future minimum commitments under the Company’s non-cancelable facility operating lease are as follows: Years ending December 31, (in thousands) 2021 $ 795 2022 1,279 2023 1,783 2024 1,833 2025 1,884 Thereafter 12,792 Total $ 20,366 116 SEER, INC. Notes to Consolidated Financial Statements Guarantees and Indemnifications In the normal course of business, the Company enters into agreements that contain a variety of representations and provide for general indemnification. The Company’s exposure under these agreements is unknown because it involves claims that may be made against the Company in the future. The Company has entered into indemnification agreements with certain directors and officers that require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of the status or service as directors or officers. To date, the Company has not paid any claims or been required to defend any action related to its indemnification obligations. As of December 31, 2020 and 2019, the Company does not have any material indemnification claims that were probable or reasonably possible and consequently has not recorded related liabilities. Contingencies From time to time, the Company may become involved in legal proceedings arising in the ordinary course of business. The Company is not currently a party to any material legal proceedings. 11. PROGNOMIQ, INC. In August 2020, the Company formed a new entity, PrognomIQ, Inc. (PrognomIQ), and entered into a stock purchase agreement with PrognomIQ, pursuant to which the Company transferred to PrognomIQ certain assets that comprise the Company’s human diagnostics activities in exchange for all the outstanding equity interests of PrognomIQ. The Company subsequently completed a pro-rata distribution to its stockholders of most of the shares of capital stock of PrognomIQ. Following the distribution in August 2020, and a subsequent $55.0 million equity financing of PrognomIQ by outside investors, the Company retained a non-controlling equity interest consisting of all the outstanding shares of PrognomIQ’s common stock and representing approximately 19% of total equity interests of PrognomIQ as of December 31, 2020. The Company has accounted for the transfer of certain assets to PrognomIQ as a common control transaction based on the carrying value of the net assets transferred and therefore there was no gain or loss recorded. The carrying value of the net assets transferred to PrognomIQ was nil, except for a cash contribution of $0.1 million. The Company has concluded that as of the time of the transaction and as of the $55.0 million equity financing of PrognomIQ by outside investors, which was determined to be a VIE reconsideration event, PrognomIQ is a VIE due to its reliance on future financing and insufficient equity investment at risk. However, the Company is not the primary beneficiary of the VIE as it does not have the power to direct the activities that most significantly impact the economic performance of PrognomIQ and does not have control over the PrognomIQ board of directors. In performing this analysis, the Company considered its explicit and implicit arrangements with PrognomIQ, a related party, and determined its maximum financial statement exposure related to the investment was its initial investment of $0.1 million. The Company has determined that it has the ability to exercise significant influence over PrognomIQ and therefore has accounted for its investment in PrognomIQ using the equity method. During the year ended December 31, 2020, the carrying value of the Company’s investment in PrognomIQ was reduced to nil after recognizing net losses based on its percentage of ownership in PrognomIQ. In connection with the transaction, Omid Farokhzad, the Company’s Chief Executive Officer and Chairman of the Board, was appointed as the chair of PrognomIQ’s board of directors. Additionally, Philip Ma resigned from his position as the Company’s Chief Business Officer and transitioned to the full-time Chief Executive Officer of PrognomIQ, effective October 15, 2020. PrognomIQ constitutes a related party and as of December 31, 2020, the Company recorded $0.1 million in other receivables, related parties on the consolidated balance sheet representing amounts due for general transition services and support provided. 117 SEER, INC. Notes to Consolidated Financial Statements The Company's pro-rata distribution to its stockholders of most of the shares of capital stock of PrognomIQ resulted in a taxable gain of $6.4 million in August 2020. Due to the net loss incurred for the year ended December 31, 2020, the Company's net operating loss carryforwards, and the full valuation allowance recorded against the Company's net deferred tax assets, there is no income tax expense reflected on the consolidated statement of operations and comprehensive loss for the year ended December 31, 2020 related to this distribution. 12. NET LOSS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS The following table shows the computation of basic and diluted net loss per share (in thousands, except share and per share data): Year Ended December 31, 2020 2019 Numerator: Net loss attributable to common stockholders $ (32,775) $ (16,038) Denominator: Weighted-average common shares used in computing net loss per share attributable to common stockholders, basic and diluted 13,216,657 6,952,419 Net loss per share attributable to common stockholders, basic and diluted $ (2.48) $ (2.31) The following outstanding shares of potentially dilutive securities were excluded from the computation of diluted net loss per share attributable to common stockholders for the periods presented, because including them would have been anti-dilutive (on an as-converted basis): December 31, 2020 2019 Convertible preferred stock — 22,173,216 Class A common stock options issued and outstanding 9,551,105 2,176,102 Restricted common stock subject to future vesting 775,641 3,552,409 Restricted stock units 491,318 — Total 10,818,064 27,901,727 13. INCOME TAXES Income tax expense differs from the amount computed by applying the statutory federal income tax rate due to the following (in thousands): Year Ended December 31, 2020 2019 Federal tax benefits at statutory rate $ (6,859) $ (3,347) State taxes, net of federal benefit (1,065) (1,264) Change in valuation allowance 6,248 4,760 Permanent differences 557 204 Gain on PrognomIQ transaction 1,392 — Research and development credits (104) (246) Other (169) (107) Total income tax expense $ — $ — 118 SEER, INC. Notes to Consolidated Financial Statements Deferred income tax reflects the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The categories that give rise to components of the deferred tax assets are as follows (in thousands): December 31, 2020 2019 Deferred tax assets: Net operating loss carryforwards $ 9,374 $ 4,991 Accrued expenses and reserves 1,336 788 Research and development credits 534 470 Stock-based compensation 1,782 442 Other 13 13 Gross deferred tax assets 13,039 6,704 Less valuation allowance (12,443) (6,195) Net deferred tax assets $ 596 $ 509 Deferred tax liabilities: Fixed assets and intangibles (596) (509) Gross deferred tax liabilities (596) (509) Total net deferred tax assets (liabilities) $ — $ — The tax benefit of net operating losses, temporary differences, and credit carryforwards are recorded as an asset to the extent that management assesses that realization is “more likely than not.” Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of existing deferred. A significant piece of objective negative evidence evaluated was the cumulative loss incurred since the Company’s incorporation in 2017. Such objective evidence limits the ability to consider other subjective evidence, such as our projections for future growth. On the basis of this evaluation, as of December 31, 2020 and 2019, a full valuation allowance has been recorded against the Company’s net deferred tax assets. The amount of the net deferred tax assets considered realizable, could be adjusted as estimates of future taxable income during the carryforward period are reduced or increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as our projections for growth. For the years ended December 31, 2020 and 2019, the net changes in the net valuation allowance were an increase of $6.2 million and an increase of $4.8 million, respectively. As of December 31, 2020 and 2019, the Company had federal net operating loss carryforwards of approximately $36.2 million and $18.4 million, respectively, which will carry forward indefinitely. At December 31, 2020 and 2019, the Company had state net operating loss carryforwards of approximately $33.0 million and $16.7 million, respectively, which will begin to expire in 2031 for state tax purposes. As of December 31, 2020 and 2019, the Company had federal research and development credit carryforwards of approximately $0.2 million and $0.4 million, respectively, which begin to expire in 2037 and state research and development credit carryforwards of approximately $0.7 million and $0.5 million, respectively, which will carry forward indefinitely. Utilization of the Company’s federal and state net operating loss and tax credit carryforwards may be subject to an annual limitation in the event that there is a change in ownership as provided by Section 382 of the Internal Revenue Code and similar state codes. Such limitation could result in a deferral or expiration of the utilization of the net operating loss and tax credit carryforwards. The Company has not performed a Section 382 study in the current year. The Company does not believe that per Section 382 there will be a deferral or limitation on the utilization of the net operating loss and tax credit carryforwards. As of December 31, 2020 and 2019, the Company had unrecognized tax benefits of approximately $0.3 million and $0.3 million, respectively. The amount of unrecognized tax benefits is not expected to significantly change over the next 12 months. If recognized, unrecognized tax benefits would not have an impact on the Company’s effective 119 SEER, INC. Notes to Consolidated Financial Statements tax rate due to the Company’s full valuation allowance position. The beginning and ending unrecognized tax benefits amounts is as follows (in thousands): December 31, 2020 2019 Beginning balance $ 264 $ 89 Change related to prior year provisions (80) (59) Change related to current year provisions 153 234 Ending balance $ 337 $ 264 It is the Company’s policy to include any assessed penalties and interest expense related to income taxes as a component of other expense and interest expense, respectively, as necessary. Management determined that no accrual for interest and penalties was required as of December 31, 2020. For year ended December 31, 2020 and 2019, the Company did not record an income tax expense. The Company will continue to maintain a full valuation allowance against its deferred tax assets as the Company believes it is more likely than not that the related deferred tax asset will not be realized. As a result, the Company’s income tax expense will remain at nil as no items that are either estimated or discrete items would impact the tax expense for the period. On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (CARES) Act was enacted and signed into law. U.S. GAAP requires recognition of the tax effects of new legislation during the reporting period that includes the enactment date. The CARES Act includes changes to the tax provisions that benefits business entities and makes certain technical corrections to the 2017 Tax Cuts and Jobs Act. The tax relief measures for businesses include a five-year net operating loss carryback, suspension of the annual deduction limitation of 80% of taxable income from net operating losses generated in a tax year beginning after December 31, 2017, changes to the deductibility of interest, acceleration of alternative minimum tax credit refunds, payroll tax relief, and a technical correction to allow accelerated deductions for qualified improvement property. The CARES Act also provides other non-tax benefits to assist those impacted by the COVID-19 pandemic. The Company evaluated the impact of the CARES Act and determined that its adoption did not have a material impact to the income tax provision for the year ended December 31, 2020. All tax returns will remain open for examination by the federal and state taxing authorities for three and four years, respectively, from the date of utilization of any net operating loss carryforwards or research and development credits. 14. SUBSEQUENT EVENTS On February 1, 2021, the Company completed the Follow-On Offering of 1,650,000 shares of its Class A common stock at a public offering price of $67.00 per share. The Company received net proceeds of $103.1 million after deducting offering costs, underwriting discounts, and commissions of $7.5 million. Existing stockholders of the Company sold 2,662,500 shares of Class A common stock in the Follow-On Offering including the underwriters’ option to purchase an additional 562,500 shares of Class A common stock at the public offering price. The Company did not receive any proceeds from the sale of shares by existing stockholders. 120 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure None. 121