What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2023-03-06 compared with 2022-03-01 · 206 added, 208 removed, 651 unchanged (39% of the section changed)

10 unchanged sentences

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

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").

and subsidiaries (the "Company") as of December 31, 2022 and 2021, 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, 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022, 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

1 unchanged sentence

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 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 Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

1 unchanged sentence

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.

11 unchanged sentences

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.

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, 2022, the Company recognized product and services revenue of $14.7 million.

10 unchanged sentences

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 tested the design and implementation 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.

32 unchanged sentences

Accrued expenses 8,298 8,394

Accrued research and development 1,023 396

Deferred revenue 133 376

Deferred rent, current — 186

Operating lease liabilities, current 1,842 864

Other current liabilities 207 —

Total current liabilities 12,584 13,423

Deferred rent, net of current portion — 1,899

Operating lease liabilities, net of current portion 28,032 22,459

13 unchanged sentences

Additional paid-in capital 667,739 629,981

Accumulated other comprehensive income (loss) ( 536 ) 54

Accumulated other comprehensive loss ( 1,251 ) ( 536 )

Accumulated deficit ( 219,496 ) ( 126,530 )

12 unchanged sentences

Product 5,459 2,300

Service 495 42

Related party 1,989 863

Grant and other 457 —

Total cost of revenue 8,400 3,205

11 unchanged sentences

Net loss $ ( 92,966 ) $ ( 71,169 )

Other comprehensive income (loss):

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

Other comprehensive loss:

Unrealized loss on available-for-sale securities ( 715 ) ( 590 )

Comprehensive loss $ ( 93,681 ) $ ( 71,759 )

4 unchanged sentences

(in thousands, except share amounts)

Convertible Preferred Stock

Class A and Class B

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

Shares Amount Shares Amount

Shares Amount

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

2 unchanged sentences

— — 470 — — 470

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

6,853,571 54,896 — — — — — 54,896

Issuance of Class A common stock upon initial public offering, net of issuance costs of $ 17,277

— — 10,592,106 — 183,866 — — 183,866

Issuance of Class A common stock in connection with private placement, net of issuance costs of $ 4,725

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

1,650,000 — 102,959 — — 102,959

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

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

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

5 unchanged sentences

— — 172 — — 172

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 in connection with employee stock purchase plan 107,499 — 775 — — 775

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

Stock-based compensation — — 33,673 — — 33,673

11 unchanged sentences

Depreciation and amortization 3,942 2,558

Loss on disposal of property and equipment 332 —

Net amortization of premium on available-for-sale securities ( 833 ) 1,197

Non-cash interest expense and other adjustments — 10

Provision for inventory excess and obsolescence 507 —

Non-cash operating lease expense 1,959 1,005

12 unchanged sentences

Operating lease liabilities ( 304 ) 91

Other current liabilities 207 —

Other noncurrent liabilities 4 ( 135 )

2 unchanged sentences

Purchases of property and equipment ( 10,265 ) ( 6,922 )

Proceeds from disposal of property and equipment 170 —

Purchase of available-for-sale securities ( 366,268 ) ( 279,956 )

Proceeds from maturities of available-for-sale securities 253,645 116,000

Investment in equity method investee — ( 50 )

Net cash used in investing activities ( 122,718 ) ( 170,878 )

5 unchanged sentences

Proceeds from issuance of common stock in connection with employee stock purchase plan 775 422

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

Proceeds from issuance of Class A common stock upon initial public offering, net of issuance costs — 185,063

Proceeds of issuance of Class A common stock in private placement — 130,275

Net cash provided by financing activities 3,893 116,634

Net increase (decrease) in cash, cash equivalents and restricted cash ( 100,591 ) 316,100

Net decrease in cash, cash equivalents and restricted cash ( 179,605 ) ( 100,591 )

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

5 unchanged sentences

Property and equipment purchases included in accrued expenses $ 300 $ 269

Inventory transferred to property and equipment $ 928 $ —

Lease liability obtained in exchange for right-of-use assets $ 6,855 $ 23,232

Conversion of convertible preferred stock into common stock upon initial public offering $ — $ 162,848

Offering costs in accounts payable $ — $ 468

Offering costs in accrued expenses $ — $ 729

The accompanying notes are an integral part of these consolidated financial statements.

3 unchanged sentences

In December 2020, the Company formed the wholly-owned subsidiary, Seer Securities Corporation, located in Massachusetts.

On May 25, 2022, the Company incorporated Seer Bio UK Limited, a wholly-owned subsidiary, under the laws of United Kingdom.

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.

1 unchanged sentence

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

The Company’s registration statement on Form S-1 related to its initial public offering (IPO) was declared effective on December 3, 2020 by the Securities and Exchange Commission (SEC), and the Company’s Class A common stock began trading on the Nasdaq Global Select Market on December 4, 2020.

On December 8, 2020, the Company completed its IPO, in which the Company sold 10,592,106 shares of Class A common stock, including 1,381,579 shares of Class A common stock that were offered and sold pursuant to the full exercise of the underwriters’ option to purchase additional shares, at a price to the public of $ 19.00 per share.

Including the option exercise, the Company received net proceeds of $ 183.9 million after deducting offering costs, underwriting discounts, and commissions of $ 17.4 million.

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.

Public Offering

2 unchanged sentences

As of December 31, 2022, the Company has incurred significant losses and has had negative cash flows from operations.

As of December 31, 2021, the Company had cash, cash equivalents and investments of $ 493.3 million and an accumulated deficit of $ 126.5 million.

As of December 31, 2022, the Company had cash and cash equivalents and investments of $ 426.4 million and an accumulated deficit of $ 219.5 million.

Management expects to continue to incur significant expenses for the foreseeable future and to incur operating losses in the near term while the Company makes investments to support its anticipated growth.

The Company believes that its cash and cash equivalents balance as of December 31, 2021 provides sufficient capital resources to continue its operations for at least 12 months from the issuance date of the accompanying consolidated financial statements.

The Company believes that its cash and cash equivalents and investments as of December 31, 2022 provides sufficient capital resources to continue its operations for at least 12 months from the issuance date of the accompanying consolidated financial statements.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION

Basis of Presentation

Basis of Presentation and Principles of Consolidation

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S.

The Company has issued shares of Class A common stock herein referred to as “Class A common stock” or “Class A” and Class B common stock herein referred to as “Class B common stock” or “Class B,” and collectively as “common stock.” The consolidated financial statements include the accounts of Seer, Inc.

and its wholly-owned subsidiary.

and its wholly-owned subsidiaries.

All intercompany transactions and balances have been eliminated.

Notes to Consolidated Financial Statements

Use of Estimates

1 unchanged sentence

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 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.

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 for accounts receivables and unbilled receivables, inventory valuation, receivable from investment in sales-type leases, operating lease right-of use assets and liabilities, useful lives and valuation of property and equipment, income tax uncertainties, and tax valuation allowances.

Notes to Consolidated Financial Statements

values of assets and liabilities that are not readily apparent from other sources.

Actual results may differ materially from those estimates.

3 unchanged sentences

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.

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 recognized revenue from a related party that represented 32 % and 35 % of the Company’s total revenue in 2022 and 2021, respectively.

In addition, the Company recognized revenue that represented 12 % of total revenue from one customer in 2021.

In fiscal year 2022, 26 % of the total revenue was generated outside of the United States, primarily from countries in Asia and Europe.

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

As of December 31, 2022, there were three customers which represented 25 %, 12 %, and 10 % of the total accounts receivable balance, including related party receivables.

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

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.

1 unchanged sentence

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 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.

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.

The Company’s personnel has experienced delays in accessing customers in certain countries with strict COVID-19 policies to provide installation and training services.

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 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

4 unchanged sentences

The primary beneficiary of a VIE is required to consolidate the assets and liabilities of the VIE.

To determine a VIE’s primary beneficiary, the Company performs a qualitative assessment to determine which party, if any, has the power to direct activities of the VIE and the obligation to absorb its losses or receive its benefits.

Notes to Consolidated Financial Statements

This assessment involves identifying the activities that most significantly impact the VIE’s economic performance and determining whether the Company, or another party, have the power to direct those activities.

18 unchanged sentences

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, 2022, the Company has an equity method investment in PrognomiQ.

4 unchanged sentences

Restricted cash as of December 31, 2022 and 2021 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.

Notes to Consolidated Financial Statements

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):

6 unchanged sentences

The Company has designated all investments, which includes U.S.

Treasury securities, as available-for-sale, and therefore, such investments are reported at fair value, with unrealized gains and losses excluded from earnings and reported as a component of other comprehensive loss.

Treasury securities and commercial paper as available-for-sale, and therefore, such investments are reported at fair value, with unrealized gains and losses excluded from earnings and reported as a component of other comprehensive loss.

The cost of available-for-sale securities is adjusted for the amortization of premiums and accretion of discounts to expected maturity.

10 unchanged sentences

During the year ended December 31, 2022, the Company did not recognize any such impairment charges on its investments.

Notes to Consolidated Financial Statements

Accounts Receivable, Net

1 unchanged sentence

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.

There was $ 30,000 and no allowance for credit losses related to accounts receivable as of December 31, 2022 and 2021, respectively.

Notes to Consolidated Financial Statements

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.

5 unchanged sentences

Property and equipment are recorded at cost, net of accumulated depreciation and amortization.

Depreciation is recorded using the straight-line method over the estimated useful lives of the assets, generally three to five years .

When assets are retired or otherwise disposed of, the cost and related accumulated depreciation and amortization are removed from the consolidated balance sheet and any resulting gain or loss is included as a part of income (loss) from operations within the consolidated statements of operations and comprehensive loss.

Depreciation is recorded using the straight-line method over the estimated useful lives of the assets.

Estimated useful lives for financial reporting purposes are as follows:

laboratory equipment and furniture and fixtures, five years and computer equipment and software, three years .

Leasehold improvements are capitalized and amortized over the shorter of the lease term or the estimated useful life of the related asset.

3 unchanged sentences

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

Impairment of Long-Lived Assets

2 unchanged sentences

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

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.

The Company adopted Accounting Standards Codification (ASC) Topic 842, Leases (ASC 842) during the fourth quarter of 2021 effective as of January 1, 2021.

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

2 unchanged sentences

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 Company 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.

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

Variable lease payments

Notes to Consolidated Financial Statements

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

A portion of the revenue relates to lease arrangements where the Company is the lessor.

Standalone lease arrangements are outside the scope of ASC Topic 606, Revenue Contracts with Customers , and are therefore accounted for in accordance with ASC Topic 842.

Each of these contracts is evaluated as a lease arrangement, either as an operating lease or a sales-type lease using the lease classification guidance.

In a lease arrangement that is a multiple-element arrangement that contains equipment leases and the supply of consumables, the revenue associated with the instrument rental is treated under the lease accounting standard ASC 842, whereas the revenue associated with the consumables, the non-lease component, is recognized in accordance with the ASC 606 revenue standard.

The total consideration in a lease arrangement is allocated between lease and non-lease components on their relative stand-alone selling prices.

The stand-alone selling price is based on the price the Company would sell that promised good or service separately to a customer.

If a stand-alone price is not available for a component, it should be estimated using the best information available.

Revenue Recognition

7 unchanged sentences

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.

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

1 unchanged sentence

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’s contracts with its customers generally do not include rights of return.

At times, the Company may enter into arrangements with payment terms which exceed one year from the transfer of control of the product or service.

In such cases, the Company assesses whether the arrangement contains a significant financing component.

If a significant financing component exists, the transaction price is adjusted for the financing portion of the arrangement, which is recorded as interest income over the payment term using the effective interest method.

The Company does not assess whether a significant financing component exists when, at contract inception, the period between the transfer of control to a customer and final payment is one year or less.

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.

2 unchanged sentences

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 transaction price is allocated to each

Notes to Consolidated Financial Statements

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.

2 unchanged sentences

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

Notes to Consolidated Financial Statements

transaction or a contribution.

Grants received are assessed to determine if the agreement should be accounted for as an exchange transaction or a contribution.

An agreement is accounted for as a contribution if the resource provider does not receive commensurate value in return for the assets transferred.

4 unchanged sentences

Amounts payable to the Company are recorded as other receivables when its right to consideration is unconditional.

A portion of the Company’s revenue relates to lease arrangements.

Standalone lease arrangements are outside the scope of ASC 606 and are therefore accounted for in accordance with ASC 842.

Each of these contracts is evaluated as a lease arrangement, either as an operating lease or a sales-type lease using the lease classification guidance.

Shipping and Handling Costs

1 unchanged sentence

Research and Development Expenses

Research and development costs, which includes cost associated with performing services under research and development service contracts and research and development of the Company’s technology and product candidates, are expensed as incurred.

Research and development expenses primarily consist of employee compensation, including stock-based compensation, and related benefits, laboratory supplies, consulting costs, costs related to clinical studies for the collection of biological samples for research use and allocated costs, including rent, depreciation, information technology, and utilities.

Research and development costs, which includes costs associated with performing services under research and development service contracts and research and development of the Company’s technology and product candidates, are expensed as incurred.

Research and development expenses primarily consist of employee compensation, including stock-based compensation, and related benefits, laboratory supplies, consulting costs, costs related to clinical studies for the collection of biological samples for research use and allocated costs, rent, depreciation, information technology, and utilities.

Advance payments for goods or services for future research and development activities are deferred as prepaid expenses and expensed as the goods are delivered or the related services are performed.

6 unchanged sentences

Through December 31, 2022, there have been no material differences from the Company’s estimated accrued research and development expenses to actual expenses.

Notes to Consolidated Financial Statements

General and Administrative

5 unchanged sentences

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-

Notes to Consolidated Financial Statements

Scholes valuation model.

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

15 unchanged sentences

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

Notes to Consolidated Financial Statements

Risk-Free Interest Rate

5 unchanged sentences

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

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.

Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.

A valuation allowance is recorded for deferred tax assets if it is more likely than not that some portion or all of the deferred tax assets will not be realized.

4 unchanged sentences

Interest and penalties related to unrecognized tax benefits are included within the provision for income tax.

At both December 31, 2021 and 2020, there were no interest and penalties.

For the years ended December 31, 2022 and 2021, there were no interest and penalties.

Net Loss Per Share Attributable to Common Stockholders

6 unchanged sentences

Diluted net loss per share is computed by giving effect to all potentially dilutive securities outstanding for the period using the treasury stock method or the if-converted method based on the nature of such securities.

For periods in which the Company reports net losses, diluted net loss per common share attributable to common stockholders is the same as basic net loss per common share attributable to common stockholders, because potentially dilutive common shares are not assumed to have been issued if their effect is anti-dilutive.

For periods in which the Company reports net losses, diluted net loss per common share attributable to common stockholders is the

Notes to Consolidated Financial Statements

same as basic net loss per common share attributable to common stockholders, because potentially dilutive common shares are not assumed to have been issued if their effect is anti-dilutive.

Commitments and Contingencies

2 unchanged sentences

Comprehensive Loss

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

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

Fair Value Measurement

8 unchanged sentences

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.

Prior Period Reclassifications

The Company included accrued research and development within accrued expenses for the prior period in order to conform to current year presentation for the Company’s consolidated balance sheets.

This reclassification had no effect on the Company’s previously reported financial position.

Recently Adopted Accounting Pronouncements

In December 2019, the FASB issued ASU No.

2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes, which is intended to simplify the accounting for income taxes.

This standard removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing standards to improve consistent application.

The 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.

2020-01, Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) .

This standard clarifies the interaction between accounting standards related to equity securities, equity method investments, and certain derivative instruments.

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) .

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.

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.

In November 2021, the FASB issued Accounting Standards Update (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.

Disclosures by Business Entities about Government Assistance, which contains amendments that require annual disclosures about government that are accounted for by applying a grant or contribution accounting model.

The amendments set forth in this ASU are effective for all entities for annual periods beginning after December 15, 2021.

Early application of the amendments in this ASU is permitted.

The Company adopted this standard prospectively on January 1, 2022, which did not have a material impact on its financial statements as of the adoption date.

Notes to Consolidated Financial Statements

FAIR VALUE MEASUREMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS

2 unchanged sentences

Level 1 Level 2 Level 3 Total

Classification:

Cash equivalents:

Money market funds

Cash and cash equivalents $ 232,813 $ — $ — $ 232,813

Treasury securities Investments — 260,447 — 260,447

Total assets measured at fair value

$ 53,208 $ — $ — $ 53,208

Total cash equivalents 53,208 — — 53,208

Treasury securities — 227,692 — 227,692

Non-Treasury securities — 10,702 — 10,702

Commercial paper — 55,433 — 55,433

Corporate debt securities — 79,361 — 79,361

Total investments — 373,188 — 373,188

Total assets measured at fair value $ 53,208 $ 373,188 $ — $ 426,396

December 31, 2021

Level 1 Level 2 Level 3 Total

Classification:

Cash equivalents:

Money market funds

Cash and cash equivalents $ 333,585 $ — $ — $ 333,585

Treasury securities Investments — 98,278 — 98,278

Total assets measured at fair value

$ 232,813 $ — $ — $ 232,813

Total cash equivalents 232,813 — — 232,813

Treasury securities — 260,447 — 260,447

Total investments — 260,447 — 260,447

Total assets measured at fair value $ 232,813 $ 260,447 $ — $ 493,260

There were no financial liabilities measured at fair value.

7 unchanged sentences

Amortized Cost Basis Unrealized Gains Unrealized Losses Fair Value

Cash equivalents:

Money market funds

$ 53,208 $ — $ — $ 53,208

Total cash equivalents 53,208 — — 53,208

Treasury securities 228,563 25 ( 896 ) 227,692

Total $ 493,796 $ — $ ( 536 ) $ 493,260

Non-Treasury securities 10,699 6 ( 3 ) 10,702

Commercial paper 55,561 3 ( 131 ) 55,433

Corporate debt securities 79,616 6 ( 261 ) 79,361

Total investments 374,439 40 ( 1,291 ) 373,188

Total assets measured at fair value

$ 427,647 $ 40 $ ( 1,291 ) $ 426,396

December 31, 2021

Amortized Cost Basis Unrealized Gains Unrealized Losses Fair Value

Cash equivalents:

Money market funds

$ 232,813 $ — $ — $ 232,813

Total cash equivalents 232,813 — — 232,813

Treasury securities

Total $ 431,808 $ 57 $ ( 2 ) $ 431,863

260,983 — ( 536 ) 260,447

Total investments 260,983 — ( 536 ) 260,447

Total assets measured at fair value $ 493,796 $ — $ ( 536 ) $ 493,260

As of December 31, 2022 and 2021, 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.

Approximately $ 0.8 million of the Company’s 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.

2 unchanged sentences

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

As of December 31, 2022 and 2021, the Company recorded $ 0.6 million and $ 0.3 million of accrued interest, respectively, related to its available-for-sale investments and is presented as other receivables on the consolidated balance sheets.

Notes to Consolidated Financial Statements

21 unchanged sentences

Accrued property and equipment 300 269

Accrued research and development 235 1,023

Accrued taxes 335 457

Restricted stock liability, current 220 484

Other 967 1,527

4 unchanged sentences

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.

Related party revenue is comprised of both the sale of products and services performed for related parties, as further discussed in Note 11.

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.

For the years ended December 31, 2022 and 2021, the Company recognized $ 8.6 million and $ 3.6 million of product revenue to non-related customers, respectively.

As of December 31, 2022 and 2021, the Company recorded $ 34,000 and $ 0.4 million of deferred revenue related to product sales, respectively.

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.

For the years ended December 31, 2022 and 2021 the Company recognized $ 0.9 million and $ 0.5 million of service revenue to non-related customers, respectively.

As of December 31, 2022 and 2021, there were $ 0.1 million and $ 0 of deferred service revenue, respectively.

Deferred revenue activity for the year ended December 31, 2022 and 2021 are as follows (in thousands):

4 unchanged sentences

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.

As of December 31, 2022, $ 2.0 million of revenue is expected to be recognized from the remaining performance obligations, of which 66 % is expected to be recognized within 12 months, and the remainder thereafter.

Grant Revenue

In August 2019, the Company received a notice of a Small Business Innovation Research grant award from the National Institutes of Health, which will provide funding of approximately $ 1.1 million to the Company for its development of research applications.

In June 2020, the Company received a notice that additional grant consideration of $ 0.9 million will be awarded.

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

Notes to Consolidated Financial Statements

For the years ended December 31, 2022 and 2021, the Company recognized grant revenue of $ 0.3 million and $ 0.2 million with respect to the award.

CAPITAL STOCK AND STOCKHOLDERS’ EQUITY

As of December 31, 2022, 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.

Notes to Consolidated Financial Statements

Common stock issued and outstanding is as follows:

21 unchanged sentences

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, 2021, there are 8,299,622 shares of

As of December 31, 2022, there are 11,400,396 shares of Class A common stock reserved for issuance under the 2020 Plan, 5,649,834 shares of which are available for issuance in connection with grants of future awards.

Notes to Consolidated Financial Statements

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, 2022 is as follows:

2 unchanged sentences

Aggregate Intrinsic Value (in thousands)

Balance - December 31, 2020 9,551,105 $ 5.55 8.99 $ 483,194

Balance at December 31, 2021

9,832,924 $ 12.49 8.48 $ 139,143

Options granted 3,356,254 13.53

Options exercised ( 974,307 ) 3.22

Options cancelled and forfeited ( 355,708 ) 19.64

Balance - December 31, 2021 9,832,924 $ 12.49 8.48 $ 139,143

Options forfeited

( 2,000,441 ) 11.55

Balance at December 31, 2022

10,214,430 $ 13.90 8.00 $ 12,685

Vested and exercisable, December 31, 2022

14 unchanged sentences

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.

The Company has also issued restricted shares of Class A common stock to employees and directors under the 2017 Plan.

The restricted shares of Class A common stock related to early exercised stock options and restricted shares of Class A common stock awards are subject to repurchase by the Company at the original purchase price in the event that the optionee’s employment is terminated prior to the shares vesting.

The consideration received for early exercised stock options and for shares sold pursuant to restricted stock purchase agreements is recorded as a liability on the consolidated balance sheets and reclassified to stockholders’ equity as the shares vest.

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

Weighted-Average

Unvested at December 31, 2020 775,641 $ 1.77

Granted 10,728 1.66

Repurchased ( 20,556 ) 1.14

Vested ( 591,513 ) 1.89

Unvested at December 31, 2021 174,300 $ 1.43

Certain stock options granted provide stock option holders the right to exercise unvested stock options in exchange for restricted shares of Class A common stock.

The Company has also issued restricted shares of Class A common stock to employees and directors.

There were 60,787 shares and 174,300 shares of restricted stock that were unvested and subject to repurchase as of December 31, 2022 and 2021, respectively.

Restricted Stock Units

2 unchanged sentences

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 fair value of the RSUs is equal to the closing price of the Company’s

Notes to Consolidated Financial Statements

common stock on the grant date.

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

3 unchanged sentences

Balance at December 31, 2021

740,366 $ 26.49

Granted 1,738,125 14.61

10 unchanged sentences

As of December 31, 2022, 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

Year Ended December 31,

Risk-free interest rate

1 unchanged sentence

79.1 %- 88.5 %

56.9 % - 67.4 %

Expected term (in years)

7 unchanged sentences

Total stock-based compensation $ 33,673 $ 25,927

In October 2020, in connection with the transition of our former Chief Business Officer to a consulting role, the vesting of 461,876 share-based awards were accelerated.

An additional 76,304 options to purchase Class A common stock are expected to vest over the term of the consulting agreement pursuant to the terms and conditions of the original options.

The total amount of stock-based compensation associated with the modification is $ 2.8 million, of which $ 2.3 million was recorded on the date of the modification.

Notes to Consolidated Financial Statements

In February 2022, in connection with a leave of absence taken by one of the Company’s executives, a total of 1,330,892 share-based awards were modified to extend the overall term and change the timing of the vesting of the awards.

The total incremental stock-based compensation associated with the modification is $ 0.9 million, which will be recognized over the next eight years .

On June 21, 2022, the Company’s Board of Directors approved an option repricing to reduce the exercise price of certain vested, outstanding, and unexercised stock options with an exercise price greater than $ 19.00 per share that were held by employees who were not members of the Board of Directors or officers for purposes of Section 16 of the Securities Exchange Act of 1934, as amended (“Non-Section 16 employees”) to $ 19.00 per share, which was the Company’s initial public offering price.

The Board of Directors also approved the repricing of certain unvested, outstanding, and unexercised stock options with an exercise price greater than $ 19.00 per share that were held by Non-Section 16 e mployees to $ 7.40 per share, which was the closing price of the Company’s Class A common stock on the Nasdaq Global Select Market on the date of the approval of the repricing.

Except for the exercise price, the amended stock options have the same terms and conditions (including vesting schedule, number of shares, and expiration date) and will continue to be governed by the terms of the 2020 Equity Incentive Plan.

As a result of the option repricing, the Company recorded $ 4.8 million of incremental compensation expense during the year ended December 31, 2022.

The total unrecognized incremental stock-based compensation associated with the option repricing is $ 1.8 million, which will be recognized over the next three years .

EMPLOYEE BENEFIT PLANS

1 unchanged sentence

Participants may contribute a portion of their annual compensation limited to a maximum annual amount set by the Internal Revenue Service.

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

COMMITMENTS AND CONTINGENCIES

Facility Lease Agreement

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.

In 2022, the Company implemented a 401(k) match program.

During fiscal years 2022 and 2021, the Company contributed $ 0.4 million and $ 0 , respectively, to the 401(k) plan.

As a lessee, the Company leases office and laboratory space in Redwood City, California.

The lease term commenced in November 2019 and was set to end in September 2032.

The Company has an option to renew all leased space for an additional five-year term at then-current market rates.

In connection with the lease, the Company maintains a letter of credit issued to the lessor in the amount of $ 0.5 million as of December 31, 2022 and 2021, respectively, which is secured by restricted cash and is presented as noncurrent at each date based on the term of the underlying lease.

In addition, the Company leases approximately 6,000 square of office space in San Diego, California under a lease that runs through September 2024.

As of December 31, 2022, the remaining weighted-average lease term was 9.8 years and the weighted-average incremental borrowing rate used to determine the operating lease liabilities was 6.2 %.

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, 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 %.

For the years ended December 31, 2022 and December 31, 2021, the Company incurred $ 4.6 million and $ 2.8 million of lease costs, respectively, of which $ 0.3 million and $ 0.1 million is related to the Company’s short-term lease and $ 0.6 million and $ 0.7 million is related to variable lease payments, respectively.

The variable lease payments are primarily comprised of common area maintenance and include costs associated with the temporary space.

Cash paid for amounts included in the measurement of operating lease liabilities for the years ended December 31, 2022 and December 31, 2021 were $ 2.2 million and $ 0.9 million, respectively, and were included in net cash used in operating activities in the Company’s consolidated statements of cash flows.

Notes to Consolidated Financial Statements

As of December 31, 2022, future minimum commitments under the Company’s non-cancelable facility operating lease, in accordance with ASC 842, are as follows:

4 unchanged sentences

Total operating lease liabilities $ 29,874

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

As a lessor, the Company has contracts for equipment leased to customers.

The Company accounts for the non-lease component under the revenue recognition ASC 606 guidance and the lease component under ASC 842 guidance.

For an arrangement that has been classified as a sales-type lease, revenue is recognized when the transfer of control of the underlying leased asset has occurred and the net investment lease recorded, which is calculated at the present value of the remaining lease payments due from the lessee.

Revenue related to lease components from sales-type leases is presented as grant and other revenue and was $ 0.5 million and none for the year ended December 31, 2022 and 2021, respectively.

As of December 31, 2022 and 2021, lease receivables related to sales-type leases were $ 0.5 million and none , respectively, and is presented as prepaid expenses and other current assets on the consolidated balance sheets.

COMMITMENTS AND CONTINGENCIES

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 $ 5.7 million and $ 5.5 million as of December 31, 2022 and 2021, respectively.

8 unchanged sentences

The Company is not currently a party to any material legal proceedings.

PROGNOMIQ, INC.

Notes to Consolidated Financial Statements

RELATED PARTY TRANSACTIONS

In August 2020, the Company formed a new entity, PrognomiQ, Inc.

4 unchanged sentences

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.

During the year ended December 31, 2022 and 2021, 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.

PrognomiQ constitutes a related party and, as of December 31, 2022 and 2021, the Company recorded $ 1.5 million and $ 1.3 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

For the year ended December 31, 2022 and 2021, the Company recognized revenue of $ 5.0 million and $ 2.3 million, respectively, from PrognomiQ and is presented 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.

During 2022, a member of the Company’s directors served as a board member and an executive officer at a company that is a customer of the Company.

As of December 31, 2022, the Company recorded $ 0.3 million in related party receivables, on the consolidated balance sheets, representing revenue from products sales.

Revenue recognized from the sale of consumables was $ 0.3 million and is presented as related party revenue on the consolidated statements of operations and comprehensive loss.

The Company has a contract for equipment leased to this customer that has been classified as a sales-type lease.

As of December 31, 2022, the lease receivables related to the sales-type lease is $ 0.2 million and is presented as prepaid expenses and other current assets on the consolidated balance sheets.

NET LOSS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS

6 unchanged sentences

$ ( 1.49 ) $ ( 1.17 )

Notes to Consolidated Financial Statements

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):

2 unchanged sentences

Restricted stock units 1,650,976 740,366

Estimated ESPP shares to be issued 127,041 41,205

Total 12,053,234 10,788,795

6 unchanged sentences

Permanent differences 615 ( 47 )

Gain on PrognomIQ transaction — 1,392

Research and development credits ( 1,920 ) ( 1,697 )

2 unchanged sentences

Total income tax expense $ — $ —

Notes to Consolidated Financial Statements

Deferred income tax reflects the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

The categories that give rise to components of the deferred tax assets are as follows (in thousands):

Notes to Consolidated Financial Statements

Deferred tax assets:

4 unchanged sentences

Lease liabilities

Capitalized research and development 7,819 —

Gross deferred tax assets 62,134 36,023

5 unchanged sentences

Right-of-use assets

( 6,927 ) ( 5,339 )

Gross deferred tax liabilities ( 7,143 ) ( 5,829 )

2 unchanged sentences

A significant piece of objective negative evidence evaluated was the cumulative loss incurred since the Company’s incorporation in 2017.

Such objective evidence limits the ability to consider other subjective evidence, such as our projections for future growth.

On the basis of this evaluation, as of December 31, 2021 and 2020, a full valuation allowance has been recorded against the Company’s net deferred tax assets.

The amount of the net deferred tax assets considered realizable, could be adjusted as estimates of future taxable income during the carryforward period are reduced or increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as our projections for growth.

Such objective evidence limits the ability to recorded against the Company's net deferred tax assets.

For the years ended December 31, 2022 and 2021, the net changes in the net valuation allowance were an increase of $ 25.0 million and an increase of $ 18.0 million, respectively.

As of December 31, 2021 and 2020, the Company had federal net operating loss carryforwards of approximately $ 94.0 million and $ 36.2 million, respectively, which will carry forward indefinitely.

As of December 31, 2022 and 2021, the Company had federal net operating loss carryforwards of approximately $ 119.4 million and $ 94.0 million, respectively, which will carry forward indefinitely for federal tax purposes.

At December 31, 2022 and 2021, the Company had state net operating loss carryforwards of approximately $ 122.5 million and $ 84.5 million, respectively, which will begin to expire in 2035 for state tax purposes.

4 unchanged sentences

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, 2022 and 2021, the Company had unrecognized tax benefits of approximately $ 1.6 million and $ 0.8 million, respectively.

2 unchanged sentences

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

Notes to Consolidated Financial Statements

Beginning balance $ 839 $ 337

7 unchanged sentences

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 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.

The Tax Cuts and Jobs Act included a change in the treatment of research and development (R&D) expenditures for tax purposes under Section 174.

Effective for tax years beginning after December 31, 2021, specified R&D expenditures must undergo a 5-year amortization period for domestic spend and a 15-year amortization period for foreign spend.

Prior to the effective date (2021 tax year and prior), taxpayers were able to immediately expense R&D costs under Section 174(a) or had the option to capitalize and amortize R&D expenditures over a 5-year recovery period under Section 174(b).

The Company is estimating 2022 capitalization of U.S R&D expenditures net of 2022 amortization of approximately $ 37.2 million (an add back to estimated 2022 US taxable income).

The Company has no foreign R&D expenses.

On August 16, 2022, President Biden signed the Inflation Reduction Act into law, which includes implementation of a new alternative minimum tax, an excise tax on stock buybacks, and significant tax incentives for energy and climate initiatives, among other provisions.

The Company does not anticipate these provisions to have a material impact on its consolidated financial statements.

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

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.

The Company evaluated subsequent events from December 31, 2022, the date of these consolidated financial statements, through March 6, 2023, which represents the date the financial statements were available to be issued for events requiring recording or disclosure in the financial statements for the year ended December 31, 2022.

The Company concluded that no events have occurred that would require recognition or disclosure in the consolidated financial statements

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