What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-03-01 compared with 2021-03-29 · 321 added, 231 removed, 538 unchanged (51% of the section changed)

Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (PCAOB ID 34 )

Consolidated Balance Sheets

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

To the shareholders 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”).

and subsidiary (the "Company") as of December 31, 2021 and 2020, 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, 2021, 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, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 1, 2022, expressed an unqualified opinion on the Company's internal control over financial reporting.

Change in Accounting Principle

As discussed in Note 2 to the financial statements, the Company has changed its method of accounting for leases effective January 1, 2021 due to the adoption of Financial Accounting Standards Board (“FASB”) Accounting Standard Update (“ASU”) Topic 842, Leases (“ASC 842”), using the modified retrospective approach.

Basis for Opinion

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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.

We are a public accounting firm registered with the 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.

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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.

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We believe that our audits provide a reasonable basis for our opinion.

/s/ DELOITTE & TOUCHE LLP

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Revenue – Revenue Recognition – Product and Services - Refer to Notes 2 and 5 to the financial statements

Critical Audit Matter Description

The Company generates revenue from sales of products and services.

The Company’s product, the Proteograph Product Suite, consists of an instrument with embedded software essential to the instrument’s functionality, and consumables as well as platform evaluation agreements.

The Company’s services primarily consist of the generation and analysis of proteomic data.

The Company recognizes revenue when control of the products and services are transferred to its customers in an amount that reflects the consideration it expects to be entitled to receive from its customers in exchange for those products and services.

This process involves identifying the contract with a customer, determining performance obligations in the contract, determining the transaction price, allocating the transaction price to the distinct performance obligations in the contract, and recognizing revenue when the performance obligations have been satisfied.

For the year ended December 31, 2021, the Company recognized product and services revenue of $6.4 million.

The Company regularly enters into contracts that include various combinations of products and services, which are generally distinct and accounted for as separate performance obligations.

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 distinct within the context of 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 direct the use and obtain substantially all the economic benefits from the good or service.

In instances where right of payment or transfer of title is contingent upon the customer’s acceptance of the product, revenue is deferred until all acceptance criteria have been met.

The transaction price is allocated to each performance obligation in proportion to its standalone selling price.

The Company determines the standalone selling price using average selling prices with consideration of current market conditions.

If the product or service has no history of sales or if the sales volume is not sufficient, the Company relies upon prices set by management, adjusted for applicable discounts.

Given the significant judgments made by management to determine whether various combinations of products and services are distinct and accounted for as separate performance obligations, whether performance obligations have been satisfied, and the standalone selling price of performance obligations, performing audit procedures to evaluate the reasonableness of management’s judgments in the recognition of product and services revenue required a high degree of auditor judgment and an increased extent of effort, including the involvement of more experienced engagement team members.

We have identified the revenue recognition of product and services revenue a critical audit matter.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the significant judgments made by management in the recognition of products and services revenue included the following, among others:

◦ We tested the operating effectiveness of controls over the Company’s revenue recognition process, including those over management’s determination of distinct performance obligations, determination of the timing of revenue recognition when performance obligations are satisfied, and determination of the standalone selling prices of performance obligations.

◦ We evaluated the reasonableness of the Company’s significant accounting policies related to product and services revenue recognition.

◦ We selected a sample of recorded product and services revenue transactions and performed the following procedures:

▪ Obtained and read customer source documents such as contracts, master agreements, and/or amendments thereto, to evaluate if relevant contractual terms have been appropriately identified and considered by management in making revenue recognition judgments.

▪ Evaluated management’s application of the Company’s accounting policy and tested revenue recognition for the distinct performance obligations by comparing management’s judgments to the underlying source documents.

▪ Tested the mathematical accuracy of management’s calculations of product and services revenue.

▪ Evaluated the appropriateness of management’s determination of the timing of revenue recognition and obtained third party evidence of transfer of control of the products and services to the customer.

◦ We evaluated the reasonableness of management’s determination of standalone selling prices by performing the following:

▪ Evaluated the application of the Company’s accounting policy and mathematical accuracy of the determined standalone selling prices.

▪ Tested the completeness and accuracy of the source data used in management’s calculations.

/s/ Deloitte and Touche LLP

San Francisco, California

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Cash and cash equivalents $ 232,813 $ 333,585

Investments 98,278 68,535

Inventory 551 —

Short-term investments 167,261 98,278

Accounts receivable, net 2,495 —

Related party receivables 1,283 99

Other receivables 366 163

Other receivables, related parties 99 —

Inventory 4,145 551

Prepaid expenses and other current assets 3,336 452

Total current assets 411,699 433,128

Long-term investments 93,186 —

Operating lease right-of-use assets 20,142 —

Property and equipment, net 13,087 8,441

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Deferred rent, current — 186

Operating lease liabilities, current 864 —

Total current liabilities 13,423 8,094

Deferred rent, net of current portion — 1,899

Operating lease liabilities, net of current portion 22,459 —

Other noncurrent liabilities 341 717

Total liabilities 36,223 10,710

Commitments (Note 10)

Commitments and contingencies (Note 9)

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 — —

5,000,000 shares authorized as of December 31, 2021 and 2020;

zero shares issued and outstanding as of December 31, 2021 and 2020

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;

94,000,000 shares authorized as of December 31, 2021 and 2020;

57,493,005 and 53,395,319 shares issued and outstanding as of December 31, 2021 and 2020, respectively;

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;

6,000,000 shares authorized as of December 31, 2021 and 2020;

4,522,478 and 5,865,732 shares issued and outstanding as of December 31, 2021 and 2020, respectively;

Additional paid-in capital 629,981 486,915

Accumulated other comprehensive income 54 24

Accumulated other comprehensive income (loss) ( 536 ) 54

Accumulated deficit ( 126,530 ) ( 55,361 )

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Year Ended December 31,

Research revenue $ 292 $ 58

Grant revenue 364 58

Product $ 3,577 $ —

Service 500 —

Related party 2,317 —

Grant and other 223 656

Total revenue 6,617 656

Cost of revenue:

Product 2,300 —

Related party 863 —

Total cost of revenue 3,205 —

Gross profit 3,412 656

Operating expenses:

Research and development 29,121 18,942

General and administrative 15,363 4,606

Selling, general and administrative 45,764 15,363

Total operating expenses 74,885 34,305

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Net loss $ ( 71,169 ) $ ( 32,775 )

Other comprehensive income:

Unrealized gain on available-for-sale securities 30 24

Other comprehensive income (loss):

Unrealized gain (loss) on available-for-sale securities ( 590 ) 30

Comprehensive loss $ ( 71,759 ) $ ( 32,745 )

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Class A and Class B

Additional Paid in Capital Accumulated Deficit Accumulated Other Comprehensive Income Total

Additional Paid in Capital Accumulated Deficit Accumulated Other Comprehensive Income (Loss) Total

Shares Amount Shares Amount

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— — — — 185 — — 185

Issuance of Series C convertible preferred stock, net of issuance costs of $153

3,271,023 17,347 — — — — — 17,347

Issuance of Series D-1 convertible preferred stock, net of issuance costs of $ 104

6,853,571 54,896 — — — — — 54,896

Issuance of Series D convertible preferred stock upon extinguishment of convertible notes

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

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Balance at December 31, 2020 — — 59,261,051 1 486,915 ( 55,361 ) 54 431,609

Issuance of Class A common stock from exercise of options

Issuance of Class A common stock from exercise of options and release of restricted stock units

— — 1,107,059 — 1,885 — — 1,885

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— — — — 470 — — 470

Issuance of Series D-1 convertible preferred stock, net of issuance costs of $104

Issuance of Class A common stock upon follow-on offering, net of issuance costs of $ 7,591

— — 1,650,000 — 102,959 — — 102,959

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 — — —

Issuance of Class A common stock in connection with employee stock purchase plan — — 17,929 — 422 — — 422

Return of profit — — — — 11,403 — — 11,403

Stock-based compensation — — — — 25,927 — — 25,927

Distribution of PrognomIQ shares — — — — (40) — — (40)

Other comprehensive income — — — — — — 30 30 30

Other comprehensive loss — — — — — — ( 590 ) ( 590 )

Net loss — — — — — ( 71,169 ) — ( 71,169 )

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Depreciation and amortization 2,558 1,606

Net amortization of premium (accretion of discount) on available-for-sale securities 261 (259)

Net amortization of premium on available-for-sale securities 1,197 261

Non-cash interest expense and other adjustments — 10

Non-cash operating lease expense 1,005 —

Changes in operating assets and liabilities:

Accounts receivable, net ( 2,495 ) —

Related party receivables ( 1,184 ) —

Other receivables ( 203 ) 64

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Accrued research and development 627 ( 254 )

Operating lease liabilities 91 —

Other noncurrent liabilities ( 135 ) 197

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FINANCING ACTIVITIES

Proceeds from issuance of common stock upon follow-on public offering, net of issuance costs 102,959 —

Proceeds from return of profit

Repurchase of Class A common stock ( 35 ) ( 13 )

Proceeds from exercise of Class A common stock options including early exercised options

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 common stock in connection with employee stock purchase plan 422 —

Proceeds from issuance of Series D-1 convertible preferred stock, net of issuance costs — 54,896

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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 116,634 371,486

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Cash, cash equivalents and restricted cash, end of period $ 233,337 $ 333,928

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Cash paid for income taxes $ 645 $ —

SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES

Property and equipment purchases included in accounts payable $ 186 $ 115

Property and equipment purchases included in accrued expenses $ 269 $ 58

Issuance of Series D convertible preferred stock upon extinguishment of convertible notes $ — $ 405

Lease liability obtained in exchange for right-of-use assets $ 23,232 $ —

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

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ORGANIZATION AND DESCRIPTION OF THE BUSINESS

(the Company) was incorporated in Delaware on March 16, 2017, and is based in Redwood City, California.

(the Company) was incorporated in Delaware on March 16, 2017, and is headquartered 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.

Since inception, the Company has devoted its efforts principally to research, development and commercialization of its technology and products, 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, development and commercialization of its products, market acceptance of its products, development by its competitors of new technological innovations, protection of its intellectual property, and raising additional capital.

Initial Public Offering

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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.

Concurrent with the IPO, the Company issued 7,105,262 shares of its Class A 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).

On February 1, 2021, the Company completed an underwritten public 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 $ 103.0 million after deducting offering costs, underwriting discounts, and commissions of $ 7.6 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.

Notes to Consolidated Financial Statements

As of December 31, 2021, the Company has incurred significant losses and has had negative cash flows from operations.

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All intercompany transactions and balances have been eliminated.

Notes to Consolidated Financial Statements

Use of Estimates

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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.

On an ongoing basis, the Company evaluates its estimates and assumptions, including, but not limited to, those related to the determination of stand-alone selling price for revenue recognition, the fair value of common stock, stock-based compensation, accrued research and development expenses, allowance for credit losses, inventory valuation, 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.

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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.

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash, cash equivalents, and investments.

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.

In fiscal year 2021, two customers accounted for 35 % and 12 % of the Company’s total revenue.

In fiscal year 2020, total revenue was immaterial.

As of December 31, 2021, there were three customers which represented 34 %, 23 %, and 19 % of the total accounts receivable balance.

As of December 31, 2020, total accounts receivable were immaterial..

The Company is subject to a number of risks similar to other early-stage life science companies, including, but not limited to its 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 product inventory through its own manufacturing and through 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 sufficient to 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

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.

In particular, some of the Company’s laboratory material and equipment suppliers, collaborators, and service 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.

In addition, Company personnel have experienced delays in accessing customers in certain countries with strict COVID-19 policies to provide installation and training services.

COVID-19 has adversely affected the broader economy, which 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 COVID-19 pandemic has mainly impacted some of the Company’s 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 and commercialization.

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.

Notes to Consolidated Financial Statements

Variable Interest Entities and Voting Interest Entities

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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.

Notes to Consolidated Financial Statements

Equity Method Investments

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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.

Notes to Consolidated Financial Statements

As of December 31, 2021, the Company has an equity method investment in PrognomIQ.

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As of December 31, 2021 and 2020, 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.

Restricted cash as of December 31, 2021 and 2020 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 noncurrent.

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):

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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.

Notes to Consolidated Financial Statements

As of December 31, 2021, the Company classifies its available-for-sale securities as short-term investments or long-term investments based on the remaining contractual maturity of the securities.

All of the Company’s investments are subject to a periodic impairment review.

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During the year ended December 31, 2021, the Company did not recognize any such impairment charges on its investments.

Inventory is recorded at the lower of standard cost, which approximates actual cost on a weighted-average basis, or net realizable value.

Notes to Consolidated Financial Statements

Accounts Receivable, Net

Accounts receivable consist of amounts due from customers for the sales of products and services, net of any allowance for credit losses.

The Company’s expected loss allowance methodology for receivables is developed using its historical collection experience, current and future economic market conditions and a review of the current aging status and financial condition of its customers.

Specific allowance amounts are established to record the appropriate allowance for customers that have an identified risk of default.

General allowance amounts are established based upon an assessment of expected credit losses for the Company’s receivables by aging category.

Balances are written off when they are ultimately determined to be uncollectible.

There was no allowance for credit losses related to accounts receivable as of December 31, 2021 and 2020.

Inventory is recorded at the lower of standard cost, which approximates actual cost on a weighted-average basis, or net realizable value, on a first-in, first-out basis.

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.

The Company writes down specifically identified unusable, obsolete, slow-moving or known unsalable inventory in the period that it is first recognized by using a number of factors including product expiration dates, open and unfulfilled orders and sales forecasts.

Any write-down of its inventory to net realizable value establishes a new cost basis and will be maintained even if certain circumstances suggest that the inventory is recoverable in subsequent periods.

Costs associated with the write-down of inventory are recorded to cost of revenue on the Company’s consolidated statements of operations.

Property and Equipment

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There have been no such impairment losses for the periods presented.

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.

The Company adopted Accounting Standards Codification (ASC) Topic 842, Leases (ASC 842) during the fourth quarter of 2021 effective as of January 1, 2021, as discussed below in the section titled Recently Adopted Accounting Pronouncements.

Under ASC 842, the Company determines if an arrangement is or contains a lease at contract inception.

Operating lease right-of-use (ROU) assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease.

Operating lease ROU assets and liabilities are recognized based on the present value of lease payments over the lease term at the commencement date of the lease.

ROU assets also include any initial direct costs incurred and any lease payments made at or before the lease commencement date, less any lease incentive received.

Notes to Consolidated Financial Statements

uses its incremental borrowing rate in determining the present value of lease payments based on the information available at the date of lease commencement.

The incremental borrowing rate reflects the rate of interest that a lessee would have to pay to borrow, on a collateralized basis over a similar term, an amount equal to the lease payments in a similar economic environment.

Lease expense for an operating lease is recognized on a straight-line basis over the lease term.

The Company elected to not separate non-lease components from the associated lease components and to not recognize right-of-use assets and lease liabilities for leases with a term of twelve months or less.

Variable lease payments are primarily related to property taxes, insurance and common area maintenance, and are recognized as lease costs when incurred.

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.

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

The Company generates revenue from sales of products and services.

The Company’s product, the Proteograph Product Suite, consists of an instrument with embedded software essential to the instrument's functionality, and consumables as well as platform evaluation agreements.

The Company began recognizing revenue from shipments of its Proteograph Product Suite during the second quarter of 2021.

The service revenue primarily consists of revenue received from the generation and analysis of proteomic data on behalf of the customer and revenue is recognized upon delivery of the reports.

The Company recognizes revenue when control of the products and services is transferred to its customers in an amount that reflects the consideration it expects to be entitled 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 transaction price, allocating the transaction price to the distinct performance obligations in the contract, and recognizing revenue when the performance obligations have been satisfied.

In instances where right of payment or transfer of title is contingent upon the customer’s acceptance of the product, revenue is deferred until all acceptance criteria have been met.

Revenue is recorded net of discounts and sales taxes collected on behalf of governmental authorities.

Customers are invoiced generally upon shipment, or upon order for services, and payment is typically due within 30 or 60 days.

Cash received from customers in advance of product shipment or providing services is recorded as a contract liability.

The Company’s contracts with its customers generally do not include rights of return or a significant financing component.

The Company elected the practical expedient to account for shipping and handling activities that occur after the customer has obtained control as a fulfillment activity and not a separate performance obligation.

The Company expenses incremental costs of obtaining a contract as and when incurred if the expected amortization period is one year or less or the amount is immaterial.

The Company excludes from the transaction price all taxes assessed by a governmental authority on revenue-producing transactions that are collected by the Company from a customer.

The Company regularly enters into contracts that include various combinations of products and services, which are generally distinct and accounted for as separate performance obligations.

The transaction price is allocated to each performance obligation in proportion to its standalone selling price.

The Company determines the standalone selling price using average selling prices with consideration of current market conditions.

If the product or service has no history of sales or if the sales volume is not sufficient, the Company relies upon prices set by management, adjusted for applicable discounts.

Grant and Other 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.

Grants received are assessed to determine if the agreement should be accounted for as an exchange

Notes to Consolidated Financial Statements

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.

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Any advance funding payments are recorded as deferred revenue until the activities are performed.

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.

Shipping and Handling Costs

Shipping and handling costs are included in cost of revenue.

Research and Development Expenses

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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.

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.

Through December 31, 2021, 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.

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, insurance, utilities, professional service fees, and other general overhead costs to support the Company’s operations.

Stock-Based Compensation

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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.

The fair value for our stock option awards is determined at the grant date using the Black-

Notes to Consolidated Financial Statements

Scholes valuation model.

For share-based payment awards that vest subject to the satisfaction of a service requirement, the fair value of the awards is recognized as expense on a straight-line basis over the requisite service period in which the awards are expected to vest.

For share-based payment awards with performance-based vesting conditions, the fair value of the awards is recognized as expense using the accelerated attribution method over the vesting period.

Forfeitures are accounted for in the period in which they occur.

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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.

Because there was no public market for the Company’s common stock, the Board of Directors exercised reasonable judgment and considered 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.

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The expected term for stock options granted to non-employees is the contractual term.

Notes to Consolidated Financial Statements

Risk-Free Interest Rate

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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.

Deferred tax assets and liabilities are determined based on the difference between

Notes to Consolidated Financial Statements

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.

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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.

The Company records uncertain tax positions in accordance with ASC 740, Income Taxes 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.

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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.

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.

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.

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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.

Comprehensive loss is comprised of net loss and changes in accumulated other comprehensive income and loss on the Company’s available-for-sale investments related to unrealized gains and losses.

Notes to Consolidated Financial Statements

Fair Value Measurement

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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.

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.

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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.

The Company adopted this standard as of January 1, 2021, which did not have a material impact on its financial statements as of the adoption date.

In January 2020, the FASB issued ASU No.

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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.

The Company adopted this standard as of January 1, 2021, which did not have a material impact on its financial statements as of the adoption date.

In February 2016, the FASB issued ASU No.

2016-02, Leases (Topic 842) .

Since the Company ceased to be an emerging growth company as of December 31, 2021, the Company adopted this standard during the fourth quarter of 2021 effective as of January 1, 2021, using the modified retrospective method by applying the new standard to all leases existing as of the effective date and not restating comparative periods.

The Company elected the practical expedients to not reassess whether any expired or existing contracts are or contain leases, carry forward its historical lease classification and not reassess initial direct costs for existing leases.

The Company also elected the practical expedient to use hindsight in determining the lease term and in assessing impairment of the Company’s ROU assets upon transition.

The impact of adoption and additional disclosures required by the standard have been included in “Significant Accounting Policies - Leases” above and in Note 9.

Upon adoption of ASC 842 effective January 1, 2021, the Company recorded an operating ROU asset of $ 5.7 million, operating lease liabilities of $ 7.8 million and derecognized deferred rent of $ 2.1 million.

Prior period amounts before January 1, 2021 have not been adjusted and continue to be reported in accordance with the Company’s historical accounting under previous lease guidance, ASC 840:

Leases (Topic 840) .

Notes to Consolidated Financial Statements

Recently Issued Accounting Pronouncements Not Yet Adopted

In November 2021, the FASB issued ASU No.

2021-10, Government Assistance (ASC Topic 832):

Disclosures by Business Entities about Government Assistance .

This standard requires annual disclosures that increase the transparency of transactions involving government grants, including the type of transactions, the accounting for those transactions and the effect of those transactions on an entity’s financial statements.

This standard is effective for fiscal years beginning after December 15, 2021, with early adoption permitted.

The Company does not expect this standard to have a material impact on its consolidated financial statements and related disclosures.

FAIR VALUE MEASUREMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS

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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 money market funds within Level 1 of the fair value hierarchy because they are valued using 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 carrying amount of the Company’s accounts receivable, other receivables, prepaid expenses and other current assets, accounts payable, and accrued expenses approximate fair value due to their short maturities.

Notes to Consolidated Financial Statements

The following is a summary of the Company’s cash equivalents and investments and the gross unrealized holding gains and losses (in thousands):

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As of December 31, 2021 and 2020, unrealized losses on available-for-sale investments are not attributable to credit risk and are considered to be temporary.

No investments have been in a continuous unrealized loss position for 12 months or longer.

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

To date, the Company has not recorded any impairment charges on marketable securities related to other-than-temporary declines in market value.

As of December 31, 2021, $ 93.2 million of available-for-sale investments had remaining maturities between one and two years .

The remainder of the available-for-sale investments have a remaining maturity of one year or less.

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.

OTHER FINANCIAL STATEMENT INFORMATION

Other Receivables

Other receivables consist of the following (in thousands):

Interest receivable $ 120 $ 313

Grant receivable — 13

Total other receivables $ 262 $ 326

Inventory consists of the following (in thousands):

Raw materials $ 1,836 $ —

Work-in-progress 221 —

Finished goods 2,088 551

Total inventory $ 4,145 $ 551

Property and Equipment, Net

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Leasehold improvements 2,449 2,294

Construction-in-progress 784 —

Property and equipment 17,995 10,792

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Accrued Expenses

Accrued expenses consist of the following (in thousands):

Accrued expenses consists of the following (in thousands):

Accrued compensation $ 4,730 $ 2,866

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Accrued property and equipment 269 —

Accrued taxes 457 —

Restricted stock liability, current 220 484

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Total accrued expenses $ 7,371 $ 5,147

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.

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.

REVENUE AND DEFERRED REVENUE

Product revenue consists of instrument with embedded software essential to the instrument's functionality, consumables and platform evaluation agreements.

Service revenue primarily consists of revenue received from the generation and analysis of proteomic data on behalf of the customer.

Related party revenue is comprised of both the sale of products and services performed for PrognomIQ, as further discussed in Note 10.

Grant revenues consist of services performed specifically for the reimbursement of research-related expenses.

Product Revenue

For the year ended December 31, 2021 and 2020, the Company recognized $ 3.6 million and $ 0 of product revenue to non-related customers.

As of December 31, 2021 and 2020, the Company recorded $ 0.4 million and $ 0 of deferred revenue related to product sales.

Service Revenue

For the year ended December 31, 2021 and 2020 the Company recognized $ 0.5 million and $ 0 of service revenue to non-related customers.

In March 2020, the Company entered into a sponsored research service agreement with a pharmaceutical company for a total consideration of $ 0.5 million of which $ 0.3 million was received and recorded as deferred revenue as of December 31, 2020.

All of these deferred service revenues were recognized during the year ended December 31, 2021.

As of December 31, 2021, there were $ 0 of deferred service revenue.

Deferred revenue activity for the year ended December 31, 2021 and 2020 are as follows (in thousands):

Balance, beginning of period $ 250 $ —

Additions 376 250

Revenue recognized ( 250 ) —

Balance, end of period $ 376 $ 250

Transaction price allocated to remaining performance obligations represents contracted revenue that has not yet been recognized, which includes deferred revenue and non-cancelable amounts that will be invoiced and recognized as revenues in future periods.

The Company expects to recognize substantially all of the remaining transaction price in the next 12 months.

In fiscal year 2021, 21 % of our total revenue was generated outside of the United States, primarily from countries in Asia.

In fiscal year 2020, no revenues were generated outside of the United States.

Grant and other revenue

In February 2019, the Company entered into a sponsored research agreement with a biotechnology company under which the Company was required to execute certain research and development activities.

During the year ended December 31, 2021 and 2020, the Company recognized research revenue of $ 0 and $ 0.3 million, with respect to this research agreement.

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.

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During the year ended December 31, 2021 and 2020, the Company recognized grant revenue of $ 0.2 million and $ 0.4 million with respect to the award.

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.

Notes to Consolidated Financial Statements

CAPITAL STOCK AND STOCKHOLDERS’ EQUITY

As of December 31, 2021, 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

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 issued and outstanding is as follows:

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There have been no dividends declared to date.

Common stock issued and outstanding on the consolidated balance sheets and consolidated statements of changes in stockholders' equity includes shares related to early exercised options and restricted stock that are subject to repurchase.

In the first quarter of 2021, the Company received $ 11.4 million related to the return of short-swing profits from one of its beneficial owners.

These proceeds are recognized as a capital contribution from stockholders as an increase to additional paid-in capital on the consolidated statements of changes in stockholders’ equity and as cash provided by financing activities on the consolidated statements of cash flows.

EQUITY INCENTIVE PLANS

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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

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.

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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.

As of December 31, 2021, there are 8,299,622 shares of

Notes to Consolidated Financial Statements

Stock option activity under the 2017 Plan and 2020 Plan is as follows:

Class A common stock reserved for issuance under the 2020 Plan, 5,129,240 shares of which are available for issuance in connection with grants of future awards.

Stock option activity for the year ended December 31, 2021 is as follows:

Options Outstanding

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The total intrinsic value of stock options exercised during the years ended December 31, 2021 and 2020, was $ 46.5 million and $ 1.6 million, respectively.

Determination of Fair Value

As of December 31, 2021, the total unrecognized stock-based compensation related to unvested stock options was $ 60.8 million, which the Company expects to recognize over a remaining weighted-average period of 2.71 years.

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:

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0.6 % - 1.4 %

0.3 % - 1.6 %

Expected volatility

62.5 % - 71.4 %

Expected term (in years)

62.2 % - 70.6 %

Expected term (in years)

Expected dividend yield

Restricted Stock

Restricted Stock Awards

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.

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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:

Notes to Consolidated Financial Statements

The activity of restricted shares of Class A common stock for the year ended December 31, 2021 is as follows:

Number of Shares

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Unvested at December 31, 2021 174,300 $ 1.43

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.

Notes to Consolidated Financial Statements

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.

Restricted Stock Units

The Company has granted RSUs under the 2020 RSU Plan and the 2020 Plan.

Restricted stock units (“RSUs”) are share awards that entitle the holder to receive freely tradable shares of the Company’s common stock upon vesting.

The RSUs cannot be transferred and the awards are subject to forfeiture if the holder’s employment terminates prior to the release of the vesting restrictions.

The fair value of the RSUs is equal to the closing price of the Company’s common stock on the grant date.

The RSUs generally vest over a two - to three-year period from the vesting start date.

RSU activity for the year ended December 31, 2021 is as follows:

Number of Shares

Weighted-Average

Balance at December 31, 2020 491,318 $ 7.91

Granted 325,378 51.98

( 66,544 ) 14.12

( 9,786 ) 24.70

Balance at December 31, 2021

740,366 $ 26.49

As of December 31, 2021, the total unrecognized stock-based compensation related to RSUs was $ 14.4 million, which the Company expects to recognize over a remaining weighted-average period of 1.72 years.

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.

The ESPP permits participants to purchase common stock through payroll deductions of up to 15 % of their eligible compensation.

A total of 1,195,327 shares of Class A common stock are reserved for issuance under the ESPP as of December 31, 2021.

During the year ended December 31, 2021, 17,929 shares of Class A common stock were issued under the ESPP.

As of December 31, 2021, the total unrecognized stock-based compensation related to the ESPP was $ 0.2 million, which the Company expects to recognize over a remaining weighted-average period of 0.37 years.

Notes to Consolidated Financial Statements

The fair value of the ESPP shares is estimated using the Black-Scholes option pricing model, based on the following assumptions:

December 31, 2021

Risk-free interest rate

Expected volatility

56.9 % - 67.4 %

Expected term (in years)

Expected dividend yield

Stock-Based Compensation

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Year Ended December 31,

Cost of revenue $ 1,800 $ —

Research and development 4,422 899

General and administrative 6,449 791

Selling, general and administrative 19,705 6,449

Total stock-based compensation $ 25,927 $ 7,348

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.

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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.

Notes to Consolidated Financial Statements

EMPLOYEE BENEFIT PLANS

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There were no employer contributions under this plan for fiscal 2021 and 2020.

COMMITMENTS AND CONTINGENCIES

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:

On January 4, 2019, the Company entered into a lease agreement for office and laboratory space in Redwood City, California.

The lease term commenced in November 2019 and was set to end on September 30, 2029.

The Company entered into an amendment to the lease agreement in June 2020 that makes certain changes to the original lease, including (i) additional office and laboratory space in the same building (the 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 in the first quarter of 2022.

The Company entered into another amendment to the lease agreement in April 2021 that further expanded the office and laboratory space and commenced in May 2021.

The same lease term applies to all space leased under the lease and its amendments and the Company has an option to renew all such leased space for an additional five-year term at then-current market rates.

In connection with the lease and its amendments, the Company maintains a letter of credit issued to the lessor in the amount of $ 0.5 million and $ 0.3 million as of December 31, 2021 and 2020, respectively, which is secured by restricted cash that is classified as noncurrent at each date based on the term of the underlying lease.

Notes to Consolidated Financial Statements

During the period from June 2020 through May 2021, the Company was provided with temporary space.

The Company was not required to pay additional rent for the temporary space, but was required to pay property taxes, insurance and normal maintenance costs with respect to the temporary space.

On January 1, 2021, the Company adopted ASC 842 and the following disclosures as of and for the year ended December 31, 2021 are presented under ASC 842.

As of December 31, 2021, the remaining weighted-average lease term was 10.8 years and the weighted-average incremental borrowing rate used to determine the operating lease liabilities was 5.9 %.

During the year ended December 31, 2021, the Company incurred $ 2.8 million of lease costs, of which $ 0.1 million is related to the Company’s short-term lease and $ 0.7 million is related to variable lease payments, which are primarily comprised of common area maintenance and include costs associated with the temporary space.

During the year ended December 31, 2020, the Company incurred $ 0.7 million in rent expense.

As of December 31, 2021, future minimum commitments under the Company’s non-cancelable facility operating lease, in accordance with ASC 842, are as follows:

Years ending December 31, (in thousands)

Thereafter 18,495

Total undiscounted future minimum lease payments 31,969

Present value adjustment for minimum lease commitments ( 8,646 )

Total operating lease liabilities $ 23,323

The total undiscounted future minimum lease payments associated with the Expansion Premises are approximately $ 10.5 million and are not included in the table above.

The Company has not recognized an ROU asset or aggregate lease liability as of December 31, 2021 for the Expansion Premises as the Company did not control the underlying assets at any time during the year ended December 31, 2021.

As of December 31, 2020, future minimum commitments under the Company’s non-cancelable facility operating lease, in accordance with ASC 840, Lease Accounting, are as follows:

Years ending December 31, (in thousands)

Thereafter 12,792

Total $ 20,366

Purchase Commitments and Obligations

The Company has certain purchase commitments related to its inventory management with certain manufacturing suppliers wherein the Company is required to purchase the amounts forecasted in a blanket purchase order within a certain time period.

The contractual obligations represent future cash commitments and liabilities under agreements with third parties and exclude orders for goods and services entered into in the normal course of business that are not

Notes to Consolidated Financial Statements

enforceable or subject to change.

These outstanding commitments amounted to $ 5.5 million and $ 3.1 million as of December 31, 2021 and 2020, respectively.

Guarantees and Indemnifications

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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.

The Company has concluded that 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.

PrognomIQ constitutes a related party and, as of December 31, 2021 and 2020, the Company recorded $ 1.3 million and $ 0.1 million in related party receivables, respectively, on the consolidated balance sheets representing amounts due from product sales and services and for general transition services and support provided.

Revenue received from PrognomIQ is recorded as related party revenue on the consolidated statements of operations and comprehensive loss and is comprised of the sale of instruments and consumables, and services performed.

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.

NET LOSS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS

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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):

Convertible preferred stock — 22,173,216

Class A common stock options issued and outstanding 9,832,924 9,551,105

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Change in valuation allowance 17,751 6,248

Stock-based compensation tax deduction over book expense ( 2,790 ) —

Permanent differences ( 47 ) 557

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Research and development credits ( 1,697 ) ( 104 )

Executive compensation limitations 2,806 —

Other 139 ( 169 )

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Stock-based compensation 4,198 1,782

Lease liabilities

Gross deferred tax assets 36,023 13,039

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Fixed assets and intangibles ( 490 ) ( 596 )

Right-of-use assets

Gross deferred tax liabilities ( 5,829 ) ( 596 )

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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.

Notes to Consolidated Financial Statements

As of December 31, 2021 and 2020, the Company had unrecognized tax benefits of approximately $ 0.8 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

Notes to Consolidated Financial Statements

tax rate due to the Company’s full valuation allowance position.

If recognized, unrecognized tax benefits would not have an impact on the Company’s effective tax rate due to the Company’s full valuation allowance position.

The beginning and ending unrecognized tax benefits amounts is as follows (in thousands):

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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.

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.

On March 27, 2020 and December 27, 2020, the United States enacted the Coronavirus Aid, Relief, and Economic Security (CARES) Act and the Consolidated Appropriation Act (CAA), respectively, as a result of the Coronavirus pandemic, which contain among other things, numerous income tax provisions.

Some of these tax provisions are expected to be effective retroactively for years ending before the date of enactment.

The Company has evaluated the current legislation and at this time, does not anticipate the CARES Act or the CCA to have a material impact on its consolidated financial statements for the year ended December 31, 2021.

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.

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.

There were no events subsequent from December 31, 2021 through March 1, 2022, the date at which the financial statements as of and for the years ended December 31, 2021 and 2020 were available to be issued.

Changes in and Disagreements With Accountants 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 8. Financial Statements and Supplementary Data