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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion of our financial condition and results of operations should be read together with our audited financial statements and related notes and other financial information included elsewhere in this Annual Report on Form 10-K and our audited financial statements and notes thereto and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our final prospectus dated October 29, 2020 that forms a part of our Registration Statement on Form S-1 (File No. 333-249260), as filed with the Securities and Exchange Commission (SEC) pursuant to Rule 424(b) under the Securities Act of 1933, as amended (the “Securities Act”), on October 29, 2020 (Prospectus).

In addition to historical financial information, this discussion and other parts of this report contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, based upon current expectations that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in the section titled “Risk Factors” under Part II, Item 1A below. Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results and events to differ from those anticipated.

These statements are based upon information available to us as of the date of this Annual Report on Form 10-K, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements, like all statements in this report, speak only as of their date, and we undertake no obligation to update or revise these statements in light of future developments. These statements are inherently uncertain, and investors are cautioned not to unduly rely upon these statements.

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A), is provided to supplement the financial statements and the related notes in Part II - Item 8 of this Annual Report on Form10-K. We intend for this discussion to provide you with information that will assist you in understanding our financial statements, the changes in key items in those financial statements from year to year and the primary factors that accounted for those changes. Data for the years ended December 31, 2020 and 2019 has been derived from our audited financial statements included in this Annual Report on Form 10-K.

Overview

We are a leading data-driven diagnostic solutions company leveraging state of the art technologies with our proprietary AI platform to discover, develop, and commercialize solutions for clinical unmet needs, with a primary focus in lung disease. By combining a technology agnostic approach with a holistic view of the patient’s disease state, we believe our solutions provide physicians with greater insights to help personalize their patient’s care and meaningfully improve disease detection, evaluation, and treatment. Our unique approach to precision medicine provides timely and actionable clinical information, which we believe helps improve overall patient outcomes and lowers the overall healthcare cost by reducing the use of ineffective and unnecessary treatments and procedures. In addition to our diagnostic tests, we provide biopharmaceutical companies with services that include diagnostic research, clinical trial testing, and the discovery, development, and commercialization of companion diagnostics.

Our core belief is that no single technology will answer all clinical questions that we encounter. Therefore, we employ multiple technologies, including genomics, transcriptomics, proteomics, and radiomics, and leverage our proprietary AI platform, the Diagnostic Cortex, to discover innovative diagnostic tests for clinical use. The Diagnostic Cortex is an extensively validated deep learning platform optimized for the discovery of diagnostic tests, which we believe overcomes standard machine learning challenges faced in life sciences research. Our data-driven and technology agnostic approach is designed to enable us to discover diagnostic tests that answer critical clinical questions faced by physicians, researchers, and biopharmaceutical companies.

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We continuously incorporate new market insights and patient data to enhance our platform through a data-driven learning loop. We regularly engage with our customers, key opinion leaders, and scientific experts to stay ahead of the rapidly evolving diagnostic and therapeutic landscape to identify additional clinical unmet needs where a diagnostic test could help improve patient care. Additionally, we incorporate clinical and molecular profiling data from our commercial clinical testing, research studies, clinical trials, and biopharmaceutical customers or academic partnerships, to continue to advance our platform. We have over 140,000 samples and data in our biobank, including tumor profiles and immune profiles, which are used for both internal and external research and development initiatives.

We have commercialized six diagnostic tests which are currently available for use by physicians. Our Nodify XL2 and Nodify CDT tests, marketed as part of our Nodify Lung Nodule Risk Assessment testing strategy, assess the risk of lung cancer to help identify the most appropriate treatment pathway. We believe we are the only company to offer two commercial blood-based tests to help physicians reclassify risk of malignancy in patients with suspicious lung nodules. Our GeneStrat and VeriStrat tests, marketed as part of our Biodesix Lung Reflex testing strategy, are used following diagnosis of lung cancer to measure the presence of mutations in the tumor and the state of the patient’s immune system to establish the patient’s prognosis and help guide treatment decisions. The GeneStrat tumor profiling test and the VeriStrat immune profiling test have a three-day average turnaround time, providing physicians with timely results to facilitate treatment decisions. In response to the COVID-19 pandemic, through our partnership with Bio-Rad, we commercialized the Biodesix WorkSafe testing program. Our scientific diagnostic expertise, technologies, and existing commercial infrastructure enabled us to rapidly commercialize two FDA EUA authorized tests, a part of our customizable program. Both diagnostic tests are owned and were developed by Bio-Rad and Bio-Rad has granted us permission to utilize both tests for commercial diagnostic services. HHS Secretary Azar declared a public health emergency for COVID-19 in February 2020 which justified the authorization of emergency use of diagnostic tests for the detection and/or diagnosis of COVID-19. The Bio-Rad SARS-CoV-2 ddPCR test and the Platelia SARS-CoV-2 Total Ab test have been granted FDA EUA pursuant to the current emergency declaration. The Bio-Rad SARS-CoV- 2 ddPCR test was FDA EUA authorized on May 1, 2020, authorizing performance of the test in laboratories certified under Clinical Laboratory Improvement Amendments (CLIA) to perform high complexity tests. The second test is the Platelia SARS-CoV-2 Total Ab test, which is an antibody test intended for detecting a B-cell immune response to SARS-CoV-2, indicating recent or prior infection. The Platelia SARS-CoV-2 Total Ab test was FDA EUA authorized on April 29, 2020. Medical products that are granted an EUA are only permitted to commercialize their products under the terms and conditions provided in the authorization. The FDA may revoke an EUA where it is determined that the underlying health emergency no longer exists or warrants such authorization, if the conditions for the issuance of the EUA are no longer met, or if other circumstances make revocation appropriate to protect the public health or safety, and we cannot predict how long the EUAs for the SARS-CoV-2 tests will remain in place. Using the Bio-Rad SARS-CoV-2 ddPCR test and the Platelia SARS-CoV-2 Total Ab test, we operate and have commercialized the Biodesix WorkSafe testing program.

Prior to using the Bio-Rad tests as part of our testing program, we performed feasibility, verification, and validation studies, including developing software for process automation, sample accessioning, data management and reporting, all required to demonstrate the test operated as claimed by the manufacturer and as required by our certifying regulatory agencies for high complexity laboratory testing. We secured independent reference specimens run with EUA tests to validate these tests as fit for diagnostic use in our laboratories. Post-launch development support for these tests have included improvements in on-boarding new personnel, logistics of sample collection, sample receipt and data reporting, all required to support our testing program. Additional releases of the laboratory data management software are ongoing and planned for the foreseeable future.

These tests are utilized by healthcare providers, including hospitals and nursing homes, and are also offered to businesses and educational systems to assist in their back-to-work or back-to-school strategies. Recently we announced multiple partnerships for COVID-19 testing, and have entered into an agreement with the State of Colorado to be one of the diagnostic companies to support widespread COVID-19 testing for the State. Additionally, we recently announced that we will oversee and manage onsite testing and validating testing for the Big Ten Conference athletic competitions.

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In addition to the six diagnostic tests currently on the market, we perform over 30 assays for research use as part of our laboratory services that have been used by over 50 biopharmaceutical customers and academic partners. All of our diagnostic testing is performed at one of our two certified, high-complexity clinical laboratories in Boulder, Colorado and De Soto, Kansas.

Since our inception, we have performed over 285,000 tests and continue to generate a large and growing body of clinical evidence consisting of over 275 clinical and scientific peer-reviewed publications and presentations. Through ongoing study of each of our tests, we continue to grow our depth of understanding of disease biology and the broad utility of each of our tests. We believe we are poised for rapid growth by leveraging our scientific development and laboratory operations expertise along with our commercial infrastructure which includes sales, marketing, reimbursement, and regulatory affairs.

In the United States, we market our tests to clinical customers through our targeted sales organization, which includes sales representatives that are engaged in sales efforts and promotional activities primarily to pulmonologists, oncologists, cancer centers and nodule clinics. We market our tests and services to biopharmaceutical customers globally through our targeted business development team, which promotes the broad utility of our tests and testing capabilities throughout drug development and commercialization which is of value to pharmaceutical companies and their drug-development process.

We have funded our operations to date principally from net proceeds from an initial public offering of our common stock, the sale of convertible preferred stock, revenue from diagnostic testing and services, and the incurrence of indebtedness. We had cash and cash equivalents of $62.1 million and $5.3 million as of December 31, 2020 and 2019, respectively.

Factors Affecting Our Performance

We believe there are several important factors that have impacted our operating performance and results of operations, including:

Historically, we have experienced situations where commercial payers proactively reduced the amounts they were willing to reimburse for our tests, and in other situations, commercial payers have determined that the amounts they previously paid were too high and have sought to recover those perceived excess payments by deducting such amounts from payments otherwise being made. When we contract to serve as a participating provider, reimbursements are made pursuant to a negotiated fee schedule and are limited to only covered indications. Becoming a participating provider generally results in higher reimbursement for covered indications and lack of reimbursement for non-covered indications. As a result, the impact of becoming a participating provider with a specific payer will vary. If we are not able to obtain or maintain coverage and adequate reimbursement from third-party payers, we may not be able to effectively increase our testing volume and revenue as expected. Additionally, retrospective reimbursement adjustments can negatively impact our revenue and cause our financial results to fluctuate.

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Our clinical research has resulted in over 80 peer-reviewed publications for our tests. In addition to clinical studies, we are collaborating with investigators from multiple academic cancer centers. We believe these studies are critical to gaining physician adoption and driving favorable coverage decisions by payers and expect our investments in research and development to increase. Further we also expect to increase our research and development expenses to fund further innovation and develop new clinically relevant tests.

While each of these areas present significant opportunities for us, they also pose significant risks and challenges that we must address. See Part II, Item 1A. “Risk Factors” for more information.

COVID-19 Pandemic

The COVID-19 pandemic has disrupted, and we expect will continue to disrupt, our lung diagnostic testing operations. To protect the health and well-being of our workforce, partners, vendors and customers, we provide voluntary COVID-19 testing for employees working on-site, implemented social distance and building entry policies at work, restricted travel and facility visits, and followed the States of Colorado and Kansas’ public health orders and the guidance from the Centers for Disease Control and Prevention. Employees who can perform their duties remotely are asked to work from home and those on site are asked to follow our social distance guidelines. Our sales, marketing and business development efforts have also been constrained by our operational response to the COVID-19 pandemic due to travel restrictions. We expect to continue to adjust our operational norms to help slow the spread of COVID-19 in the coming months, including complying with government directives and guidelines as they are modified and supplemented.

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The COVID-19 pandemic negatively affected, and we expect will continue to negatively affect, our lung diagnostic testing-relatedrevenue and our clinical studies. For example, cancer patients may have more limited access to hospitals, healthcare providers and medical resources asthey take steps to control the spread of COVID-19. Our biopharmaceutical customers are facing challenges in recruiting patients and in conducting clinicaltrials to advance their pipelines, for which our tests could be utilized. As a result of the COVID-19 pandemic, beginning in the latter half of March 2020,we have received fewer samples for non-COVID-19 testing on a daily average basis from our clinical andbiopharmaceutical customers than before theoutbreak of the COVID-19 pandemic. Further, our clinical studies, such as our ongoing INSIGHT study and our recently launched ALTITUDE study, aswell as our arrangements with our biopharmaceutical customers, are expected to take longer to complete than what we expected before the outbreak of theCOVID-19 pandemic.

Conversely, we are also experiencing a substantial increase in revenues related to an increase in the demand for our Biodesix WorkSafe testing program, our COVID-19 testing program. We expect that our costs to expand capacity for COVID-19 testing will increase for the first quarter of 2021 and we expect that the revenue that we generate from this expansion will comprise a significant portion of our revenue for these periods. However, there is no assurance that our COVID-19 testing program will continue to be accepted by the market or that other diagnostic tests will become more accepted, produce quicker results or are more accurate. Further, the longevity and extent of the COVID-19 pandemic is uncertain. If the pandemic were to dissipate, whether due to a significant decrease in new infections, due to acquiring herd immunity based on previous natural infection, and the availability and rapid distribution of vaccines, the evolution of variant strains that impact diagnostic test performance, or otherwise, the need for a COVID-19 test could decrease significantly and this could have an adverse effect on our results of operations and profitability. As a result, the increase in revenue due to any increase in demand for these diagnostic tests may not be indicative of our future revenue. See Part II., Item 1A. “Risk Factors” for a description of how the COVID-19 pandemic may adversely affect our business, financial condition and results of operations.

2020 Financial and Operational Highlights

Our fiscal year corresponds to a calendar year. The Company generated record revenue in fiscal 2020 of $45.6 million, representing an increase of 86%, of which $27.0 million was associated with the three-month period ended December 31, 2020.

The following were significant developments affecting our business, capital structure and liquidity during the year ended December 31, 2020:

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Components of Operating Results

Revenues

We derive our revenue from two primary sources: (i) providing diagnostic testing in the clinical setting (Diagnostic Tests); and (ii) providing biopharmaceutical companies with services that include diagnostic research, clinical research, clinical trial testing, development and testing services generally provided outside the clinical setting and governed by individual contracts with third parties as well as development and commercialization of companion diagnostics (Services).

Diagnostic Tests

Diagnostic test revenue is generated from delivery of results from our diagnostic tests. In the United States, we performed tests as both an in- network and out-of-network service provider depending on the test performed and the contracted status of the insurer. We provide diagnostic tests in two primary categories (i) lung diagnostics testing and (ii) COVID-19 testing.

We consider diagnostic testing to be completed upon the delivery of test results to our customer, either the prescribing physician or third-party to which we contracted for services to be performed, which is considered the performance obligation. The fees for such services are billed either to a third party such as Medicare, medical facilities, commercial insurance payers, or to the patient. We determine the transaction price related to our contracts by considering the nature of the payer, the historical amount of time until payment by a payer and historical price concessions granted to groups of customers.

Services

Services revenue is generated from the delivery of our on-market tests, pipeline tests, custom diagnostic testing, and other scientific services for a purpose as defined by any individual customer. At times we collaborate with large biopharmaceutical companies in an attempt to discover biomarkers that would be helpful in their drug development or marketing. The performance obligations and related revenue for these sales is defined by a written agreement between us and our customer. These services are generally completed upon the delivery of testing results, or other contractually defined milestone(s), to the customer, which is considered the performance obligation. Customers for these services are typically large pharmaceutical companies where collectability is reasonably assured and therefore revenue is accrued upon completion of the performance obligations. Revenue derived from services is often unpredictable and can cause dramatic swings in our overall net revenue line from quarter to quarter.

Operating Expenses

Direct costs and expenses

Cost of diagnostic testing generally consists of cost of materials, direct labor, including bonus, employee benefits, equipment and infrastructure expenses associated with acquiring and processing test samples, including sample accessioning, test performance, quality control analyses, charges to collect and transport samples; curation of test results for physicians; and in some cases, license or royalty fees due to third parties. Costs associated with performing our tests are recorded as the tests are processed regardless of whether revenue was recognized with respect to the tests. Infrastructure expenses include depreciation of laboratory equipment, rent costs, amortization of leasehold improvements and information technology costs. Royalties for licensed technology are calculated as a percentage of revenues generated using the associated technology and recorded as expense at the time the related revenue is recognized. One-time royalty payments related to signing of license agreements or other milestones, such as issuance of new patents, are amortized to expense over the expected useful life of the patents. While we do not believe the technologies underlying these licenses are necessary to permit us to provide our tests, we do believe these technologies are potentially valuable and of possible strategic importance to us or our competitors. Under these license agreements, we are obligated to pay aggregate royalties ranging from 1% to 8% of sales in which the patents or know-how are used in the product or service sold, sometimes subject to minimum annual royalties or fees in certain agreements.

We expect the aggregate cost of diagnostic testing to increase in line with the increase in the number of tests we perform, but the cost per test to decrease modestly over time due to the efficiencies we may gain as test volume increases, and from automation and other cost reductions.

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Cost of services includes costs incurred for the performance of development services requested by our customers. Costs of development services willvary depending on the nature, timing and scope of customer projects.

Research and development

Research and development expenses consist of costs incurred to develop technology and include salaries and benefits, reagents and supplies used in research and development laboratory work, infrastructure expenses, including allocated facility occupancy and information technology costs, contract services, clinical studies, other outside costs and costs to develop our technology capabilities. Research and development expenses account for a significant portion of our operating expenses and consist primarily of external and internal costs incurred in connection with the discovery and development of our product candidates.

External expenses include: (i) payments to third parties in connection with the clinical development of our product candidates, including contract research organizations and consultants; (ii) the cost of manufacturing products for use in our preclinical studies and clinical trials, including payments to contract manufacturing organizations (CMOs) and consultants; (iii) scientific development services, consulting research fees and for sponsored research arrangements with third parties; (iv) laboratory supplies; and (v) allocated facilities, depreciation and other expenses, which include direct or allocated expenses for IT, rent and maintenance of facilities. External expenses are recognized based on an evaluation of the progress to completion of specific tasks using information provided to us by our service providers or our estimate of the level of service that has been performed at each reporting date. We track external costs by the stage of program, clinical or preclinical.

Internal expenses include employee-related costs, including salaries and related benefits for employees engaged in research and development functions. We do not track internal costs by product candidate because these costs are deployed across multiple programs and, as such, are not separately classified.

Research and development costs are expensed as incurred. Payments made prior to the receipt of goods or services to be used in research and development are deferred and recognized as expense in the period in which the related goods are received or services are rendered. Costs to develop our technology capabilities are recorded as research and development.

We expect our research and development expenses to increase as we continue to innovate and develop additional products and expand our data management resources. As our services revenue grows, an increasing portion of research and development dollars are expected to be allocated to cost of goods for biopharma service contracts. This expense, though expected to increase in dollars, is expected to decrease as a percentage of revenue in the long term, though it may fluctuate as a percentage of our revenues from period to period due to the timing and extent of these expenses.

Sales, marketing, general and administrative

Our sales and marketing expenses are expensed as incurred and include costs associated with our sales organization, including our direct sales force and sales management, client services, marketing and reimbursement, as well as business development personnel who are focused on our biopharmaceutical customers. These expenses consist primarily of salaries, commissions, bonuses, employee benefits, and travel, as well as marketing and educational activities and allocated overhead expenses. We expect our sales and marketing expenses to increase in dollars as we expand our sales force, increase our presence within the United States, and increase our marketing activities to drive further awareness and adoption of our tests and our future products. These expenses, though expected to increase in dollars, are expected to decrease as a percentage of revenue in the long term, though they may fluctuate as a percentage of our revenues from period to period due to the timing and extent of these expenses.

Our general and administrative expenses include costs for our executive, accounting, finance, legal and human resources functions. These expenses consist principally of salaries, bonuses, employee benefits, and travel, as well as professional services fees such as consulting, audit, tax and legal fees, and general corporate costs and allocated overhead expenses. We expect that our general and administrative expenses will continue to increase in dollars, primarily due to increased headcount and costs associated with operating as a public company, including expenses related to legal, accounting, regulatory, maintaining compliance with exchange listing and requirements of the SEC, director and officer insurance premiums and investor relations. These expenses, though expected to increase in dollars, are expected to decrease as a percentage of revenue in the long term, though they may fluctuate as a percentage from period to period due to the timing and extent of these expenses.

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Change in Fair Value of Contingent Consideration

In connection with the purchase transaction of Integrated Diagnostics, Inc. (Indi), we recorded contingent consideration pertaining to the amounts potentially payable to Indi shareholder pursuant to the terms of the asset purchase agreement. The fair value of contingent consideration is assessed at each balance sheet date and changes, if any, to the fair value are recognized as operating expenses within the statement of operations. The estimated fair value of the contingent consideration is based upon significant assumptions including probability of successful achievement of a product gross margin target, the estimated timing in which the gross margin target is achieved, and discount rates. The estimated fair value could materially differ from actual values or fair values determined using different assumptions.

Interest Expense and Interest Income

Interest expense consists of cash and non-cash interest from our term loan, payroll protection program loan, and convertible debt. Our convertible debt, along with the related accrued interest, was automatically converted to 1,848,280 shares of our common stock upon completion of our initial public offering in October 2020. Principal payments for our term loan are scheduled to begin in March 2021. Interest income consists of income earned on our cash and cash equivalents. Our interest income has increased primarily as a result of investment of the net proceeds from our recent offering.

Results of Operations

The following table sets forth the significant components of our results of operations for the periods presented (in thousands, except percentages):

Year Ended December, Change

Operating expenses

Change in fair value of contingent consideration 818 4,114 (3,296 ) (80 )

Other income (expense)

Change in fair value of put option liability — (2,000 ) 2,000 (100 )

Revenues

We generate revenue from our diagnostic tests and services that we provide. Our revenues for the periods indicated were as follows (in thousands, except percentages):

Year Ended December, Change

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Total revenue was $45.6 million for the year ended December 31, 2020 as compared to $24.6 million for the year ended December 31, 2019, an increase of $21.0 million, or 86%.

Diagnostic test revenue increased to $40.9 million for the year ended December 31, 2020, as compared to $17.3 million for year ended December 31, 2019, an increase of $23.6 million or 136%. This increase was primarily attributable to the deployment of COVID-19 testing which generated $28.3 million of revenue and was partially offset by a decline in our lung diagnostic test volumes, which declined by $4.7 million or 27% as health care practitioners, including pulmonologists, were increasingly diverted to pandemic-related care. In addition, the Company sales efforts continued to be impacted by the reduction in travel and other COVID-19 pandemic related restrictions.

Services revenue decreased to $4.6 million for the year ended December 31, 2020 compared to $7.2 million for the prior year ended December 31, 2019, a decrease of $2.6 million or 36%, due primarily to a reduction in business development activities which was negatively impacted by the COVID-19 pandemic similar to the reduction we experienced in our lung diagnostic testing revenue.

Direct Costs and Expenses

Direct costs and expenses related to revenue were $22.0 million for the year ended December 31, 2020 compared to $6.1 million for the prior year ended December 31, 2019, an increase of $16.0 million or 262%. The increase in direct costs and expenses were primarily driven by costs associated with the delivery of our COVID-19 tests as well as the release of our Nodify CDT test, offset in part by decreases costs related to our remaining lung diagnostic test costs.

Research and Development

Research and development expenses were relatively consistent year over year with $10.8 million for the year ended December 31, 2020 as compared to $10.5 million for the prior year ended December 31, 2019, an increase of $0.3 million, or 3%. The overall increase in cost was attributable to an increase in internal costs primarily associated with variable compensation tied to fiscal 2020 performance measures slightly offset by a decrease in external costs.

The following table summarizes our external and internal costs for the years ended December 31, 2020 and 2019 (in thousands, except percentages):

Year Ended December, Change

External expenses:

Sales, Marketing, General and Administrative

Sales, marketing, general and administrative expenses were $34.9 million for the year ended December 31, 2020 compared to $30.6 million for the prior year ended December 31, 2019, an increase of $4.2 million, or 14%, as a result of variable compensation tied to fiscal 2020 performance measures, including the Company’s bonus to equity program for senior executives offset by reductions in employee related costs associated with COVID-19 pandemic restrictions.

Change in Fair Value of Contingent Consideration

Change in fair value of contingent consideration was $0.8 million for the year ended December 31, 2020 compared to $4.1 million for the year ended December 31, 2019, a net decrease of $3.3 million or 80%. The amounts recorded for change in fair value reflect the passage of time, as well as estimates regarding the period in which targets that trigger the payment of contingent consideration will be achieved and subsequently paid.

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Interest Expense

Interest expense was $7.6 million for the year ended December 31, 2020 compared to $3.0 million for the year ended December 31, 2019, an increase of $4.6 million, or 153%. This increase was due to the addition of interest expense related to convertible notes issued to certain shareholders from August 2019 through March 2020, including the non-cash interest expense of $4.4 million associated with the full amortization of debt discount resulting from the conversion discounts included in the convertible note terms, interest on our existing term loan, and interest on our payroll protection plan loan. Cash and non-cash interest expense for the twelve-month period ended December 31, 2020 was $1.8 million and $5.8 million, respectively.

Change in Fair Value of Warrant Liability

During the twelve-month period ended December 31, 2020, we recognized a charge for the change in estimated fair value of our warrant liability related to warrants issued in connection with our Series G preferred stock of $1.3 million, compared to a charge of $0.1 million during fiscal year 2019, a change of $1.2 million. Effective with the closing of our initial public offering in October 2020, the warrants to purchase Series G preferred stock were automatically converted to warrants to acquire common stock and the carrying value of the warrants of $1.6 million were reclassified to additional paid-in capital.

Change in Fair Value of Put Option Liability

During 2019, we issued $13.0 million in convertible debt with terms that provided conversion rate discounts to the note holders in certain situations, including upon the completion of an initial public offering. The conversion discounts created a put option liability that was accounted for separately from the convertible debt instrument and reflected as a liability in our balance sheet. Subsequent to the initial measurement of the put option liability, changes in the estimated fair value will be reflected as other income or expense in the statement of operations. During 2019, we recorded a $2 million increase in the fair value of the put option liability as other expense due to the increase in the conversion discount rate provided to note holders resulting from an amendment to terms of the convertible debt issued in August and September 2019. There were no changes to the fair value of the put option liability that was recorded during 2020.

Other Income and Expense, net

Other income, net, during fiscal 2020 and fiscal 2019 was income of $0.4 million and $1.1 million, respectively, a decrease of $0.7 million or 61%. The decrease was due primarily to proceeds from a non-recurring legal settlement received in fiscal 2019.

Liquidity and Capital Resources

We are an emerging growth company and, as such, have yet to generate positive cash flow from operations. We have funded our operating activities primarily through financing activities, such as debt and equity offerings. In October 2020, we completed an initial public offering, resulting in net proceeds of approximately $63.8 million after deducting offering costs, underwriting discounts and commissions. As of December 31, 2020 we held cash and cash equivalents of $62.1 million. We believe that our existing cash, cash equivalents, and cash generated from sales of our products and services will be sufficient to meet our anticipated needs for at least the next 12 months from the date of our most recent audited financial statements, including amounts due under our PPP loan. The Company currently intends to repay the PPP loan in accordance with the underlying terms and conditions.

We expect to continue to incur significant expenses for the foreseeable future and to incur operating losses in the near term while we make investments to support our anticipated growth. We may raise additional capital through the issuance of additional equity financing, debt financings or other sources. If this financing is not available to us at adequate levels, we may need to reevaluate our operating plans. If we do raise additional capital through public or private equity offerings, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our existing stockholders’ rights. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.

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Cash Flows

The following summarizes our cash flows for the periods indicated (in thousands):

Year Ended December 31,

Net cash flows (used in) provided by:

Net increase in cash and cash equivalents and restricted cash $ 56,838 $ (626 )

2020 compared to 2019

Our cash flows resulted in a net increase in cash of $56.8 million during the year ended December 31, 2020. The net cash used in operating activities decreased by approximately $0.4 million, primarily due to a year-over-year increase in non-cash charges of: (i) $4.1 million associated with the increased amortization of convertible notes debt discount resulting from our initial public offering; (ii) $3.5 million associated with the increased share-based compensation expense from achieving performance thresholds for our 2020 bonus to equity program; (iii) $1.1 million associated with an increase in the expense recorded as a change in estimated fair value of warrant liability partially offset by; (iv) a $3.3 million reduction in the year-over-year change in the estimated fair value of contingent consideration; and (v) a $3.2 million net reduction in operating assets and liabilities

Net cash used in investing activities during the year ended December 31, 2020 totaled $2.9 million, an increase of $1.1 million compared to the same period in 2019. The increase in net cash used in investing activities was primarily due to an increase of $0.8 million in the purchases of research equipment and patent costs, and payments made for Oncimmune assets acquired of $0.3 million.

Net cash provided by financing activities during the year ended December 31, 2020 totaled $81.1 million, an increase of $58.2 million compared to the same period in 2019. The net cash provided by financing activities for the year ended December 31, 2020 primarily resulted from $72.0 million gross proceeds from our initial public offering, $13.0 million in proceeds from the issuance of convertible notes payable, $1.3 million proceeds from stock option exercises, and $3.1 from proceeds from our paycheck protection program note payable, offset in part by equity issuance costs associated with our initial public offering of $8.2 million. The net cash provided by financing activities for the year ended December 31, 2019 primarily resulted from $10.0 million in proceeds from the issuance of our Series H Preferred Stock and $13.0 million in proceeds from the issuance of convertible notes payable.

Contractual Obligations and Commitments

The following table summarizes our non-cancelable contractual obligations and commitments as of December 31, 2020 (in thousands):

Payments due by period (1)

Total Less than 1 year 1 to 3 years 4 to 5 years More than 5 years

Operating lease obligations (2) $ 1,539 $ 703 $ 836 $ — $ —

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In connection with the purchase transaction of Integrated Diagnostics, Inc., we recorded contingent consideration pertaining to the amounts potentially payable to Integrated Diagnostics’ shareholder pursuant to the terms of the asset purchase agreement. The estimated fair value of contingent consideration is assessed at each balance sheet date and changes, if any, to the fair value are recognized as operating expenses within the statement of operations. The estimated fair value of the contingent consideration is based upon significant assumptions including probability of successful achievement of the Milestone, the estimated timing in which the Milestone is achieved, and discount rates. The estimated fair value could materially differ from actual values or fair values determined using different assumptions. At December 31, 2020, the amount that would be due in cash at the option of the seller at the time the Milestone is met would be approximately $37 million.

Off-Balance Sheet Arrangements

None.

Critical Accounting Policies and Significant Judgments and Estimates

In accordance with accounting principles generally accepted in the United States, we are required to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Certain of these estimates significantly influence the portrayal of our financial condition and results of operations and require us to make difficult, subjective or complex judgments. Our critical accounting policies primarily relate to our fair value estimates, and are described in greater detail in Note 1 to our financial statements in Part 8 of this Annual Report on Form 10-K.

Revenue Recognition

We recognize revenue when our customers obtain control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for our goods or services. To determine revenue recognition for our arrangements with our customers, we perform a five-step process, which includes: (i) identifying the contract(s) with a customer; (ii) identifying the performance obligations in the contract; (iii) determining the transaction price; (iv) allocating the transaction price to the performance obligations in the contract; and (v) recognizing revenue when (or as) we satisfy our performance obligations.

Diagnostic service revenues are recognized upon completion of our performance obligation to the deliver test results to our customer, either the prescribing physician or third-party to which we contracted for services to be performed. Testing services revenues are recognized upon completion of our performance obligation to deliver testing results for assay development and testing services.

Change in Fair Value of Contingent Consideration

In connection with the purchase transaction with Integrated Diagnostics, Inc. (Indi), we recorded contingent consideration pertaining to the amounts potentially payable to Indi’s shareholder pursuant to the terms of the asset purchase agreement. The fair value of contingent consideration is assessed at each balance sheet date and changes, if any, to the fair value are recognized as operating expenses within the statements of operations.

The estimated fair value of the contingent consideration is based upon significant assumptions including probabilities of successful achievement of product gross margin targets, the estimated timing in which achievement of the product gross margin target is expected, and discount rates. The estimated fair value could materially differ from actual values or fair values determined using different assumptions.

Share-based Compensation and Grant Date Fair Value

Share-based compensation related to stock options granted to our employees, directors and non-employees is measured at the grant date based on the fair value of the award. For our service-based awards, the fair value of each award is recognized as expense on a straight-line basis over the requisite service period, which is generally the vesting period of the respective awards. Compensation expense for share-based awards with performance conditions is recognized based upon the probability the performance conditions will be met as defined in the grant. Restricted stock unit option awards are measured at their grant date fair value using the closing price of our common stock on the date of grant and recognized to expense on a straight-line basis over the vesting period of each award. We estimate forfeitures and adjust these estimates to actual forfeitures as they occur.

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We use the Black-Scholes option-pricing model to estimate the fair value of our share-based option awards, which requires assumptions to be made related to expected term of an award, expected volatility, the risk-free rate andexpected dividend yield.Following the completion of our initial public offering, our Board of Directors has determined the fair value of our common stock is based on our closing price asreported on the date of grant on the primary stock exchange on which our common stock is traded.

Prior to our initial public offering in October 2020, the fair value of our common stock was determined by our Board of Directors in accordance with the methodologies outlined in the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation Practice Aid (Practice Aid). In doing so, our Board of Directors determined the best estimate of fair value of our common stock, exercising reasonable judgment and considering numerous objective and subjective factors, by first determining the enterprise value of our business, and then allocating the value among the various classes of our equity securities to derive a per share value of our common stock.

Recently Issued Accounting Pronouncements

In February 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-2, Leases (Topic 842), which requires lessees to recognize a right-of-use asset and corresponding lease liability on the balance sheet for substantially all leases. The ASU is effective for us for beginning January 1, 2022. We expect to recognize right-of-use assets and lease obligations in our balance sheets upon adoption using the modified retrospective method as permitted by ASU No. 2018-11, Leases (Topic 842): Targeted Improvements. We do not currently expect adoption of this standard will have a significant effect on our results of operations or cash flows.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments. This ASU requires measurement and recognition of expected credit losses for financial assets. This guidance will become effective for us beginning January 1, 2022 with early adoption permitted. We have not yet begun evaluating the potential effect of this standard on our financial statements.

Implications of Being an Emerging Growth Company and Smaller Reporting Company

We are an “emerging growth company” within the meaning of the Jumpstart Our Business Startups Act (JOBS Act). As an emerging growth company, we may take advantage of certain exemptions from various public company reporting requirements, including the requirement that our internal control over financial reporting be audited by our independent registered public accounting firm pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), certain requirements related to the disclosure of executive compensation in our periodic reports and proxy statements, the requirement that we hold a nonbinding advisory vote on executive compensation and any golden parachute payments. We may take advantage of these exemptions until we are no longer an emerging growth company. Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act, for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.

We have elected to take advantage of the extended transition period to comply with new or revised accounting standards and to adopt certain of the reduced disclosure requirements available to emerging growth companies. As a result of the accounting standards election, we will not be subject to the same implementation timing for new or revised accounting standards as other public companies that are not emerging growth companies, which may make comparison of our financials to those of other public companies more difficult.

We will remain an emerging growth company until the earliest to occur of (i) the last day of the fiscal year in which we have more than $1.07 billion in annual revenue; (ii) the date we qualify as a “large accelerated filer,” with at least $700 million of equity securities held by non-affiliates; (iii) the date on which we have issued, in any three-year period, more than $1.0 billion in non-convertible debt securities; and (iv) until December 31, 2025 (the year ended December 31st following the fifth anniversary of our initial public offering.

Additionally, we are a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. We will remain a smaller reporting company until the last day of the fiscal year in which: (i) the market value of our common shares held by non-affiliates exceeds $250 million as of the end of that year’s second fiscal quarter, or (ii) our annual revenues exceeded $100 million during such completed fiscal year and the market value of our common shares held by non-affiliates exceeds $700 million as of the end of that year’s second fiscal quarter.

114

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

We are exposed to market risk in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates.

Interest Rate Risk

We are exposed to market risk for changes in interest rates related primarily to our cash and cash equivalents, marketable securities and our indebtedness. We consider all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents. We continually monitor our positions with, and the credit quality of, the financial institutions with which we invest.

Periodically throughout the year, we have maintained balances in various operating accounts in excess of federally insured limits. Included in cash and cash equivalents are funds held in a bank savings account of $58.8 million and $4.7 million at December 31, 2020 and 2019, respectively. As of December 31, 2020, a hypothetical 100 basis point increase in interest rates would not have a material impact on our investment portfolio, financial position or results of operations.

Item 8. Financial Statements and Supplementary Data.

The financial statements and supplementary data are as set forth in the index to the financial statements on page F-1.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

We maintain "disclosure controls and procedures," as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, or Exchange Act, that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Our disclosure controls and procedures have been designed to meet reasonable assurance standards. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Based on their evaluation as of the end of the period covered by this Annual Report on Form 10-K, our Chief Executive Officer and Chief Financial Officer have concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

This annual report does not include a report of management's assessment regarding internal control over financial reporting or an attestation report of our registered public accounting firm due to a transition period established by rules of the Securities and Exchange Commission for newly public companies.

Item 9B. Other Information.

None.

115

PART III

Item 10. Directors, Executive Officers and Corporate Governance.

The information required by this item with respect to directors is incorporated by reference from the information under the caption "Election of Directors" contained in our Proxy Statement to be filed with the Securities and Exchange Commission in connection with the solicitation of proxies for our 2020 Annual Meeting of Stockholders to be held on May 26, 2021. Certain information required by this item concerning executive officers is set forth in Part I of this Report under the caption "Executive Officers of the Registrant" and is incorporated herein by reference.

Item 405 of Regulation S-K calls for disclosure of any known late filing or failure by an insider to file a report required by Section 16(a) of the Exchange Act. This disclosure is contained in the section entitled "Section 16(a) Beneficial Ownership Reporting Compliance" in the Proxy Statement and is incorporated herein by reference.

We have adopted a Code of Business Conduct and Ethics that applies to all of our officers and employees, including our President and Chief Executive Officer, our Chief Financial Officer and other employees who perform financial or accounting functions. The Code of Business Conduct and Ethics sets forth the basic principles that guide the business conduct of our employees. Stockholders may request a free copy of our Code of Business Conduct and Ethics by contacting Biodesix, Inc., Attention: Chief Financial Officer, 2970 Wilderness Place, Suite 100, Boulder, Colorado 80301.

To date, there have been no waivers under our Code of Business Conduct and Ethics. We intend to disclose future amendments to certain provisions of our Code of Business Conduct and Ethics or waivers of such Codes granted to executive officers and directors on our website at http://www.biodesix.com within four business days following the date of such amendment or waiver.

Our Board of Directors has appointed an Audit Committee, comprised of Ms. Jean Franchi, as Chairwoman, Mr. Hany Massarany and Dr. Matthew Strobeck. The Board of Directors has determined that Ms. Franchi qualifies as an Audit Committee Financial Expert under the definition outlined by the Securities and Exchange Commission. In addition, each of the members of the Audit Committee qualifies as an "independent director" under the current rules of The NASDAQ Stock Market and Securities and Exchange Commission rules and regulations.

Item 11. Executive Compensation.

The information required by this item is incorporated by reference from the information under the captions "Election of Directors—Director Compensation" and "Executive Compensation" contained in the Company’s definitiveProxy Statement for the 2021 Annual Meeting of Stockholders and is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The information required by this item is incorporated by reference from the information under the captions "Security Ownership of Certain Beneficial Owners and Management" and "Executive Compensation—Equity Compensation Plan Information" contained in the Company’s definitive Proxy Statement for the 2021 Annual Meeting of Stockholders and is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

The information required by this item is incorporated by reference from the information under the caption "Election of Directors—Certain Relationships and Related Transactions" and "—Director Independence" contained in the Company’s definitive Proxy Statement for the 2021 Annual Meeting of Stockholders and is incorporated herein by reference.

Item 14. Principal Accounting Fees and Services.

The information required by this item is incorporated by reference from the information under the caption "Ratification of the Appointment of Independent Registered Public Accounting Firm—Principal Accountant Fees and Services" contained in the Company’s definitive Proxy Statement for the 2021 Annual Meeting of Stockholders and is incorporated herein by reference.

116

PART IV

Item 15. Exhibits, Financial Statement Schedules.

(a) Documents filed as a part of the report.

1. Financial Statements

Reference is made to the Index to Financial Statements of Biodesix, Inc. included in Item 8 of Part II hereof

2. Financial Statement Schedules

All schedules have been omitted because they are not required, not applicable, or the required information is included in the financial statements or notes thereto.

(b) Exhibits.

Item 16. Form 10-K Summary

Not applicable.

117

Exhibit Index

Exhibit Number Description

118

119

120

23.1 Consent of independent registered public accounting firm.

24.1 Power of Attorney (included on the signature page of this Form 10-K).

121

101.SCH* Inline XBRL Taxonomy Extension Schema Document

101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB* Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document

104 Cover Page Interactive Data File (embedded within the Inline XBRL document)

+ Indicates management contract or compensatory plan.

* Filed herewith.

** Previously filed.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

Biodesix, Inc.

Date: March 16, 2021 By: /s/ ROBIN HARPER COWIE

Robin Harper Cowie

Chief Financial Officer, Secretary and Treasurer

POWER OF ATTORNEY

Each person whose signature appears below constitutes and appoints Scott Hutton and Robin Harper Cowie, and each of them, his or her true and lawful agent, proxy and attorney-in-fact, with full power of substitution and resubstitution,for him or her and in his or her name, place and stead, in any and all capacities, to file with the Securities and Exchange Commission this Form 10-K and any and all amendments and exhibits thereto, and all documents in connection therewith, granting unto each such attorney-in-fact and agent full power and authority to do and perform each and every act and thing necessary or appropriate to be done, as fully for all intents and purposes as he or she might or could do in person, hereby approving, ratifying and confirming all that such agent, proxy and attorney-in-fact or any of his or her substitutes may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.

Name Title Date

Scott Hutton

Robin Harper Cowie

/s/ JOHN PATIENCE Chairman and Director March 16, 2021

John Patience

/s/ JEAN FRANCHI Director March 16, 2021

Jean Franchi

/s/ HANY MASSARANY Director March 16, 2021

Hany Massarany

/s/ JACK SCHULER Director March 16, 2021

Jack Schuler

/s/ MATTHEW STROBECK Director March 16, 2021

Matthew Strobeck, Ph.D.

/s/ CHARLES WATTS Director March 16, 2021

Charles Watts M.D.

123

Item 8. Financial Statements and Supplementary Data

BIODESIX, Inc.

INDEX TO FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm F-2

Statements of Operations for the Years ended December 31, 2020 and 2019 F-4

Statements of Cash Flows for the Years ended December 31, 2020 and 2019 F-6

Notes to Financial Statements F-8

F-1

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of

Biodesix, Inc.:

Opinion on the Financial Statements

We have audited the accompanying balance sheets of Biodesix, Inc. (the Company) as of December 31, 2020 and 2019, the related statements of operations, convertible preferred stock and stockholders’ equity (deficit), and cash flows for each of the years in the two‐year period ended December 31, 2020, and the related notes (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the two‐year period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ KPMG LLP

We have served as the Company’s auditor since 2016

Denver, Colorado

March 16, 2021

F-2

BIODESIX, INC.

Balance Sheets

(in thousands, except share data)

As of December 31,

Assets

Current assets

Non‐current assets

Other long-term assets 3,461 90

Liabilities, Convertible Preferred Stock and Stockholders' Equity (Deficit)

Current liabilities

Put option liability — 3,261

Non‐current liabilities

Warrant liability — 329

Other long-term liabilities 1,921 358

Commitments and contingencies

Convertible preferred stock

Stockholders' equity (deficit)

The accompanying Notes are an integral part of these financial statements.

F-3

BIODESIX, INC.

Statements of Operations

(in thousands, except per share data)

Year Ended December 31,

Operating expenses:

Sales, marketing, general and administrative 34,857 30,637

Change in fair value of contingent consideration 818 4,114

Other income (expense):

Interest income 18 55

Change in fair value of warrant liability (1,252 ) (104 )

Change in fair value of put option liability — (2,000 )

Net loss per share, basic and diluted $ (6.48 ) $ (126.97 )

Weighted-average shares outstanding, basic and diluted 4,838 242

The accompanying Notes are an integral part of these financial statements.

F-4

BIODESIX, INC.

Statements of Convertible Preferred Stock and Stockholders' Equity (Deficit)

(in thousands)

Shares Amount Shares Amount Capital Deficit Deficit

Common stock issued upon exercise of stock options — — 40 — 47 — 47

Stock‐based compensation expense — — — — 170 — 170

Net loss and comprehensive loss — — — — — (30,726 ) (30,726 )

Common stock issued upon exercise of stock options — — 368 — 1,340 — 1,340

Stock‐based compensation expense — — — — 3,709 — 3,709

Net loss and comprehensive loss — — — — — (31,350 ) (31,350 )

The accompanying Notes are an integral part of these financial statements.

F-5

BIODESIX, INC.

Statements of Cash Flows

(in thousands)

Year Ended December 31,

Cash flows from operating activities

Depreciation and amortization 2,903 2,793

Amortization of convertible notes debt discount 4,389 262

Stock‐based compensation expense 3,709 170

Change in fair value of warrant liability 1,252 104

Change in contingent consideration 818 4,114

Change in fair value of put option — 2,000

Accrued interest on notes payable and convertible notes payable 1,226 799

Amortization of debt issuance costs 144 144

Provision for doubtful accounts 296 246

Loss on disposals of assets 48 13

Other current assets (6,588 ) 1

Other long-term assets and liabilities (1,808 ) 16

Accounts payable and other accrued liabilities 11,654 1,193

Cash flows from investing activities

Purchase of property and equipment (1,945 ) (1,310 )

Patent costs and intangible asset acquisition, net (232 ) (106 )

Payments to acquire Oncimmune assets (750 ) (456 )

Cash flows from financing activities

Proceeds from initial public offering 72,000 —

Proceeds from exercise of common stock options 1,340 47

Proceeds from issuance of series H preferred stock — 10,000

Proceeds from issuances of convertible notes payable 12,955 13,044

Proceeds from paycheck protection program note payable 3,085 —

Equity financing costs (8,243 ) (3 )

Cash, cash equivalents, and restricted cash ‐ beginning of period 5,468 6,094

Cash, cash equivalents, and restricted cash ‐ end of period $ 62,306 $ 5,468

The accompanying Notes are an integral part of these financial statements.

F-6

BIODESIX, INC.

Statements of Cash Flows

(in thousands)

(Continued from the previous page)

Supplemental cash flow information:

Year Ended December 31,

Conversion of preferred stock into common stock $ 193,959 $ —

Conversion of convertible notes and accrued interest into common stock 26,616 —

Reclassification of put option liability to additional paid-in capital 6,650 —

Value of put option recorded at issuance of convertible debt payable 3,389 1,261

Reclassification of warrant liability to additional paid-in capital 1,624 —

Accrued business combination payments — 750

Cash paid for income taxes — —

The accompanying Notes are an integral part of these financial statements.

F-7

BIODESIX, INC.

Notes to Financial Statements

Note 1 – Organization and Description of Business

Biodesix, Inc. (the “Company”, “Biodesix”, “we” and “our”), formerly Elston Technologies, Inc., was incorporated in Delaware in 2005. The Company’s headquarters are in Colorado, with laboratories in Colorado and Kansas. The Company conducts all of its operations within a single legal entity. Biodesix is a data-driven diagnostic solutions company leveraging state of the art technologies with its proprietary artificial intelligence platform to discover, develop, and commercialize solutions for clinical unmet needs, with a primary focus in lung disease. In addition to diagnostic tests, the Company provides biopharmaceutical companies with services that include diagnostic research, clinical trial testing, and the discovery, development, and commercialization of companion diagnostics.

The Company performs its blood-based diagnostic tests for lung cancer in its laboratory facilities, which are located in Boulder, Colorado and De Soto, Kansas. In May 2020, the Federal Drug Administration (FDA) authorized performance of Bio-Rad SARS-CoV-2 Droplet DigitalTM polymerase chain reaction (ddPCR) test to detect Coronavirus Disease 2019 (COVID-19) infection. In April 2020, the FDA authorized our Platelia SARS-CoV-2 Total Ab test to detect COVID-19 antibodies. Medical products that are granted an Emergency Use Authorization (EUA) are only permitted to commercialize their products under the terms and conditions provided in the authorization. The FDA may revoke an EUA where it is determined that the underlying health emergency no longer exists or warrants such authorization, if the conditions for the issuance of the EUA are no longer met, or if other circumstances make revocation appropriate to protect the public health or safety.

Blood-Based Lung Tests

The Company offers four blood-based lung cancer tests across the lung cancer continuum of care:

COVID-19 Tests

Using the Bio-Rad SARS-CoV-2 ddPCR test and the Platelia SARS-CoV-2 Total Ab tests, we operate and have commercialized the Biodesix WorkSafe testingprogram. The Company offers two SARS-CoV-2 tests:

These tests are utilized by healthcare providers, including hospitals and nursing homes, and are also offered to businesses and educational systems to assist in their back-to-work or back-to-school strategies, a crucial element of restarting economic activity.

In developing the Company's products, the Company has built or gained access to unique biorepositories, proprietary technology, and bioinformatics that it believes are important to the development of new targeted therapies, determining clinical trial eligibility and guiding treatment selection.

F-8

All of the Company’s testing services are made available through its clinical laboratories.

Reverse Stock Split

On October 19, 2020, the Company obtained approval of an amended and restated certificate of incorporation effecting a 0.1684664-for-1 reverse stock split of its issued and outstanding common stock as converted. All common shares, stock options, and per share information presented in these financial statements and notes thereto have been adjusted, where applicable, to reflect the reverse stock split on a retroactive basis for all periods presented.

Approval of Amended and Restated Certificate of Incorporation

In October 2020, the Company’s Board of Directors and stockholders approved an amended and restated certificate of incorporation, which authorized 200,000,000 shares of common stock, par value $0.001 per share, and 5,000,000 shares of preferred stock, par value $0.001 per share. The amended and restated certificate of incorporation became effective on October 30, 2020.

Initial Public Offering

On October 27, 2020, the Company completed its initial public offering, in which it issued and sold 4,000,000 shares of its common stock at a public offering price of $18.00 per share. The Company received net proceeds of $63.8 million after deducting underwriting discounts and commissions and offering expenses payable by the Company. In addition, in connection with the initial public offering, all shares of the Company’s then-outstanding convertible preferred stock and convertible notes payable were automatically converted into 21,939,025 shares of common stock, and all then outstanding warrants to purchase the Company’s Series G convertible preferred stock were automatically converted into warrants to purchase 103,326 shares of the Company’s common stock.

Note 2 – Summary of Significant Accounting Policies

Basis of Presentation

The Company’s financial statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP). The 2019 balance sheet has been updated to reflect an increase in goodwill and a reduction in accumulated deficit of $3.4 million related to the correction of an immaterial error recorded as part of the acquisition of Integrated Diagnostics, Inc. in 2018. The Company determined that the reduction in the preexisting valuation allowance resulting from the acquisition should have been reflected as an income benefit within the tax provision rather than as a reduction in goodwill. The correction of the immaterial error had no impact on our 2020 or 2019 results of operations.

Certain prior period amounts have been reclassified to conform to the current period presentation.

Segment Reporting

The chief operating decision maker for the Company is the Chief Executive Officer, who reviews financial information for purposes of allocating resources and assessing financial performance. The Company has a single operating segment focused on providing diagnostic testing services to customers. Substantially all of the Company’s revenue and all long-lived assets were derived or located in the United States for the years ended December 31, 2020 and 2019.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Significant items subject to such estimates include: revenue recognition; the useful lives of property and equipment; the recoverability of long-lived assets; the estimation of the fair value of intangible assets; the valuation of contingent consideration related to a business combination; stock options; income tax uncertainties, including a valuation allowance for deferred tax assets; and contingencies. The Company bases these estimates on historical and anticipated results, trends, and various other assumptions that the Company believes are reasonable under the circumstances, including assumptions as to future events. These estimates form the basis for making judgments about the carrying values of assets and liabilities and recognized revenue and expenses that are not readily apparent from other sources. Actual results could differ from those estimates and assumptions.

F-9

Revenue Recognition

The Company generates revenues from (i) diagnostic tests and (ii) assay development and testing services (services revenue).

Diagnostic test revenues consist of blood-based lung tests and COVID-19 tests, which are recognized in the amount expected to be received in exchange for diagnostic tests when the diagnostic tests are delivered. The Company determines the transaction price related to its blood-based lung diagnostic test contracts using a portfolio approach by considering the nature of the payer and historical price concessions granted to groups of customers. The transaction price associated with COVID-19 testing arrangements are determined on the basis of the individual contract with each customer.

Services revenue consists of various types of tests or other scientific services for a purpose as defined by any individual customer, which are often larger biopharmaceutical companies, as defined by a written agreement between the Company and the customer. These services are generally completed upon the delivery of testing results, or achievement of contractual milestone(s) as defined in the customer agreements. Revenue for these services is recognized upon delivery of the completed test results, or upon completion of the contractual milestone(s).

The Company recognizes revenues related to blood-based lung diagnostic billings based on estimates of the amounts ultimately expected to be collected from customers on a portfolio approach as discussed above. In determining the amount to accrue for a delivered test, the Company considers factors such as payment history, payer coverage, whether there is a reimbursement contract between the payer and the Company, payment as a percentage of agreed upon rate (if applicable), amount paid per test and any current developments or changes that could impact reimbursement. Variable consideration, if any, is estimated based on an analysis of historical experience and adjusted as better estimates become available. These estimates require significant judgment by management.

The Company also provides services to patients with whom the Company does not have contracts as defined in Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC 606). The Company recognizes revenue for these patients when contracts as defined in ASC 606 are established at the amount of consideration to which it expects to be entitled, or when the Company receives substantially all of the consideration subsequent to satisfaction and delivery of the performance obligations.

See Note 13 — Revenue for additional information.

Deferred Revenue

Deferred revenue consists of payments received for research, development, and testing services fees received prior to the completion of performance of these tests and services. As of December 31, 2020, deferred revenue also includes $2.8 million in a Medicare advance payment on testing services which can either be paid back or earned back starting 1 year from receipt.

Direct Costs and Expenses

The components of our cost of diagnostic tests and testing services consist of cost of materials, direct labor, including bonus, benefit and stock-based compensation, depreciation of laboratory equipment, rent costs, amortization of leasehold improvements and information technology costs associated with acquiring and processing test samples, including sample accessioning, test performance, quality control analyses, charges to collect and transport samples; curation of test results for physicians; and in some cases, license or royalty fees due to third parties.

Royalties for licensed technology are calculated as a percentage of revenues generated using the associated technology and recorded as expense at the time the related revenue is recognized. One-time royalty payments related to signing of license agreements or other milestones, such as issuance of new patents, are amortized to expense over the expected useful life of the patents. Costs associated with performing tests are expensed as the test is processed regardless of whether and when revenue is recognized with respect to that test.

F-10

Research and Development Expenses

Research and development expenses include external and internal costs incurred to develop our technology, collect clinical samples, and conduct clinical studies to develop and support our products. External costs consist primarily of payments to clinical trial sites, sample acquisition costs and laboratory supplies purchased in connection with the Company’s discovery and preclinical activities, process development and clinical development activities. Internal costs consist primarily of salaries and benefits, reagents and supplies used in research and development laboratory work, infrastructure expenses, including allocated facility occupancy and information technology costs.

The Company estimates and accrues its expenses resulting from its obligations under contracts with vendors and consultants in connection with conducting research and development activities. The financial terms of these contracts vary from contract to contract and may result in payments that do not match the periods over which materials or services are provided under such contracts. The Company’s estimates depend on the timeliness and accuracy of the data provided by consultants and vendors regarding the status of each activity. The Company periodically evaluates the estimates to determine if adjustments are necessary or appropriate based on information received. Research and development costs are expensed as incurred.

Sales, Marketing, General and Administrative Expenses

Selling expenses consist primarily of costs associated with our sales organization, including our direct sales force and sales management, client services, marketing, and reimbursement, as well as business development personnel who are focused on our biopharmaceutical customers. These expenses consist primarily of salaries, commissions, bonuses, employee benefits, travel, and stock-based compensation, as well as marketing and educational activities and allocated overhead expenses.

Sales, marketing, general and administrative expenses also include costs for our marketing and sales organizations, and other functions including finance, legal, human resources, and information technology.

These expenses consist principally of salaries, bonuses, employee benefits, travel, and stock-based compensation, as well as professional services fees such as consulting, audit, tax and legal fees, and general corporate costs and allocated overhead expenses.

Concentrations of Credit Risk and Other Uncertainties

Substantially all of the Company’s cash and cash equivalents are deposited with one major financial institution in the United States. The Company continually monitors its positions with, and the credit quality of, the financial institution with which it holds cash. Periodically throughout the year, the Company has maintained balances in various operating accounts in excess of federally insured limits. The Company has not experienced any losses on its deposits of cash and cash equivalents.

Several of the components of the Company's sample collection kit and test reagents, and certain test systems and related test kits are obtained from single-source suppliers. If these single-source suppliers fail to satisfy the Company's requirements on a timely basis, it could suffer delays in being able to deliver its diagnostic solutions, a possible loss of revenue, or incur higher costs, any of which could adversely affect its operating results.

The Company’s customers in excess of 10% of total revenue, and their related revenue as a percentage of total revenue were as follows:

Year Ended

The Big Ten Conference 30 %

Centura Healthcare 17 %

Percent of total revenue 47 %

F-11

One customer, Covance, exceeded 10% of total revenue during 2019, representing 21% of total revenue. In addition to the above table, we collect reimbursement on behalf of customers covered by Medicare, which accounted for 17% and 36% of the Company’s total revenue for the years ended December 31, 2020 and 2019, respectively. The Company is subject to credit risk from its accounts receivable related to services provided to its customers. The Company does not perform evaluations of customers' financial condition and does not require collateral. The Company’s third-party payors and other customers in excess of 10% of accounts receivable, and their related accounts receivable as a percentage of total accounts receivable were as follows:

As of December 31,

The Big Ten Conference 35 % — %

Centura Healthcare 24 % — %

Medicare 6 % 18 %

Covance Central Laboratory Services 2 % 43 %

Janssen Research and Development, LLC 5 % 12 %

Pfizer, Inc 4 % 10 %

Percent of total accounts receivable 76 % 83 %

Cash and Cash Equivalents

Cash equivalents consist of short-term, highly-liquid instruments with an original maturity of three months or less from the date of purchase.

Restricted Cash

Restricted cash consists of deposits related to the Company’s corporate credit card and a letter of credit related to an operating lease agreement. As of December 31, 2020 and 2019, the Company had $0.2 million restricted cash, respectively, which was included in ‘Other current assets’ in the accompanying balance sheets.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are stated at the amount management expects to collect from customers based on their outstanding invoices. Management reviews accounts receivable quarterly to determine if any receivable will potentially be uncollectible and to estimate the amount of allowance for doubtful accounts necessary to reduce accounts receivable to its estimated net realizable value based on historical experience, customer creditworthiness, facts, and circumstances specific to outstanding balances, and payment terms. The Company’s allowance for doubtful accounts was $0.2 million as of December 31, 2020 and 2019.

Inventory

Inventory consists primarily of material supplies, which are consumed in the performance of testing services and charged to cost of sales. Inventory is stated at cost and reported within ‘Other current assets’ in the balance sheet and were $3.2 million and $0.8 million as of December 31, 2020 and 2019, respectively.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally between three and five years. Leasehold improvements are amortized using the straight-line method over the shorter of the estimated useful life of the asset or the term of the lease. Maintenance and repairs are charged to expense as incurred, and improvements and betterments are capitalized. When assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the balance sheet and any resulting gain or loss is reflected in the statements of operations and comprehensive loss in the period realized.

F-12

Long-lived assets to be held and used are evaluated for impairment when events or circumstances indicate the carrying value of a long-lived asset or asset group is less than the undiscounted cash flows from the use and eventual disposition over its remaining useful life. The Company assesses recoverability by comparing the sum or projected undiscounted cash flows from the use and eventual disposition of the asset or asset group to it carrying value, and records an impairment loss if the carrying value is greater than the undiscounted future cash flows. There were no impairments for the years ended December 31, 2020 or 2019.

Intangible Assets

Intangible assets primarily consist of intangible assets acquired as part of business combinations, external costs associated with patent applications that are expected to be successful, and trademark costs. Finite-lived intangibles are stated at cost, net of accumulated amortization. The Company amortizes finite-lived intangible assets using the straight-line method over their estimated useful lives of 9 to 10 years, based on management's estimate of the period over which their economic benefits will be realized, product life and patent life. Trademarks are considered indefinite lived and are not amortized.

Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate a reduction to fair value below their carrying amounts. There were no impairments for the years ended December 31, 2020 or 2019.

Goodwill

Goodwill represents the excess of purchase price over amounts allocated to acquired assets and liabilities assumed in business combinations. The carrying value of goodwill is evaluated for impairment at least annually or more frequently when events or circumstances occur indicate a potential for impairment. The annual impairment test is performed on the last day of our fourth quarter. Prior to performing a quantitative evaluation, an assessment of qualitative factors may be performed to determine whether it is more likely than not that the fair value of the reporting unit exceeds its carrying value. In the event the Company determines that it is more likely than not the carrying value of our single reporting unit is higher than its estimated fair value, quantitative testing is performed comparing recorded values to estimated fair values. If impairment is present, the impairment loss is measured as the excess of the recorded goodwill over its implied fair value. There were no impairments for the years ended December 31, 2020 or 2019.

Fair Value of Financial Instruments

U.S. GAAP for fair value establishes a hierarchy that prioritizes fair value measurements based on the types of inputs used for the various valuation techniques (market approach, income approach, and cost approach). We utilize a combination of market and income approaches to value our financial instruments. Our financial assets and liabilities are measured using inputs from the three levels of the fair value hierarchy. Fair value measurements are categorized within the fair value hierarchy based upon the lowest level of the most significant inputs used to determine fair value. The three levels of the hierarchy and the related inputs are as follows:

Level Inputs

2 Unadjusted quoted prices in active markets for similar assets and liabilities;

Inputs other than quoted prices that are observable for the asset or liability.

3 Unobservable inputs for the asset or liability.

The carrying amounts of certain financial instruments including cash and cash equivalents, accounts receivable, prepaid expenses and other current assets, accounts payable and accrued liabilities approximate fair value due to their relatively short maturities.

See Note 5 — Fair Value for further discussion related to estimated fair value measurements.

F-13

Contingent Consideration

In connection with the purchase transaction with Integrated Diagnostics, Inc. (Indi), the Company recorded contingent consideration for amounts potentially payable to Indi’s shareholder pursuant to the terms of the asset purchase agreement. The fair value of contingent consideration is assessed at each balance sheet date and changes, if any, to the fair value are recognized as operating expenses within the statements of operations. The estimated fair value of the contingent consideration is based upon significant assumptions including the probability of successful achievement of product gross margin targets included in the acquisition agreement, the estimated timing of achievement of the product gross margin targets, and discount rates. The estimated fair value could materially differ from actual values or fair values determined using different assumptions.

Warrant Liability

Prior to the completion of the Company’s initial public offering in October 2020, certain warrants issued to purchase convertible preferred stock were classified as liabilities with changes in the estimated fair value of these liabilities recognized in our results of operations. Upon completion of the Company’s initial public offering in October 2020, the warrants were automatically converted to warrants to purchase common stock. Accordingly, the warrants were remeasured to an estimate of fair value and recognized in our results of operations and then reclassified to additional paid-in capital.

Put Option Liability

During 2020 and 2019, the Company issued convertible debtwith terms that provided for a conversion rate to the convertible debtholders that was more favorable than the price that other investors would pay for common stock in certain situations, including the completion of an initial public offering. As a result, the convertible debt is a financial instrument that was bifurcated into two instruments, a debt obligation and a put option liability, which represented the estimated fair value of the favorable conversion rate. The estimated fair value of the put option liability was separated from the convertible debt at inception and reported as a liability and debt discount, and amortized to interest expense. As a result of our initial public offering, the convertible debt was automatically converted to common stock and the put option liability was remeasured to an estimate of fair value and recognized in our results of operations and then reclassified to additional paid-in capital.

Share‐Based Compensation

Stock Options

The Company grants service condition and performance condition stock options. Stock options are granted with exercise prices equal to the fair market value of our common stock on the date of grant. The grant date fair value of each employee stock option is estimated on the date of grant using the Black-Scholes option-pricing model, which requires the use of assumptions, including the expected term of the option, expected volatility of our stock price, expected dividend yield, and the risk-free interest rate, among others. These assumptions involve inherent uncertainties including market conditions and employee behavior that are generally outside of the Company’s control. Service condition stock options are expensed based on the grant date fair value of the awards using the straight-line method over the requisite service period, adjusted for forfeitures as they occur. Performance-condition stock options vest based on achievement of multiple weighted performance goals, certification of performance achievement by the Compensation Committee of the Board of Directors, and continued service. For performance-condition stock options, compensation expense is updated for our expected performance level against performance goals at the end of each reporting period, which involves judgment as to achievement of certain performance metrics.

Prior to our initial public offering in October 2020, the fair value of our common stock was determined by the Board of Directors in accordance with the methodologies outlined in the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation Practice Aid (Practice Aid). In doing so, the Board of Directors determined the best estimate of fair value of our common stock, exercising reasonable judgment and considering numerous objective and subjective factors, by first determining the enterprise value of our business, and then allocating the value among the various classes of our equity securities to derive a per share value of our common stock. Subsequent to the Company’s initial public offering, the fair value of the Company’s common stock is determined based on its traded market price.

F-14

Restricted Stock Units (RSUs)

The Company grants service-condition RSUs. As a result of our initial public offering, the grant date fair values of these RSUs are based on the closing market price of our common stock on the grant date. The service-condition RSUs vest based on continued service with compensation expense, net of forfeitures, recognized on a straight-line basis over the requisite service period.

See Note 14 — Share-Based Compensation for additional information related to share-based compensation.

Net Loss per Common Share

Basic net loss per common share is calculated by dividing net loss by the weighted-average number of common shares outstanding during the period, without consideration of common stock equivalents. Diluted net loss per common share is computed by dividing net loss by the weighted-average number of common share equivalents outstanding for the period, if dilutive, using the treasury stock method. Potentially dilutive securities consisting of options to purchase common stock, warrants to purchase common stock, restricted stock units and shares subject to purchase under our employee stock purchase plan were excluded from the calculation of diluted net loss per common share because their effect would be anti-dilutive for all periods presented.

Until the Company’s initial public offering in October 2020, basic and diluted net loss attributable to common stockholders per share was calculated using the two-class method. The net loss was attributable entirely to common stockholders because the participating securities did not have a contractual obligation to share in the Company’s losses. As the Company has reported a net loss for all periods presented, diluted net loss per common share is the same as basic net loss per common share for all periods presented.

Note 3 – Recent Accounting Pronouncements

Recently Issued Accounting Standards Not Yet Adopted

In February 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-2, Leases (Topic 842), which requires lessees to recognize a right-of-use asset and corresponding lease liability, including leases currently accounted for as operating leases. The ASU is effective for the Company for interim and annual periods beginning January 1, 2022. The Company expects to recognize right-of-use assets and lease obligations in its balance sheet upon adoption using the modified retrospective method as permitted by ASU No. 2018-11, Leases (Topic 842): Targeted Improvements. The Company does not currently expect adoption of this standard will have a significant effect on its statements of operations or cash flows.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments. This ASU requires measurement and recognition of expected credit losses for financial assets. This guidance will become effective for the Company beginning January 1, 2022 with early adoption permitted. The Company has not yet begun evaluating the potential effect of this standard on its financial statements.

Note 4 – Business Combinations

Oncimmune Limited

On October 31, 2019, the Company purchased select assets and liabilities from Oncimmune Limited (Oncimmune) for total consideration of $1.2 million payable in quarterly installments commencing 30 days following the closing of the transaction. Concurrent with the Oncimmune purchase, the Company acquired an exclusive option to license rights within the United States to an additional indication for their product for $9.0 million. In September 2020, we notified Oncimmune that we would not exercise this option for the expansion of the field of use. As of December 31, 2020, the Company had paid the full $1.2 million consideration.

The acquisition was accounted for as business combination and resulted in the recognition of goodwill of $0.8 million representing expected synergies, including expected increases in future revenues as a result of expansion of the acquired technology into additional markets, and lower expected operating expenses. The Company finalized its purchase price allocation of the transaction as of December 31, 2019.

F-15

The following table summarizes the aggregate consideration paid by the Company and the allocation of the purchase price to assets acquired and liabilities assumed (in thousands):

Total fair value of consideration transferred $ 1,206

Deposit $ 6

Inventory 14

Property and equipment 241

Purchase option 121

Accrued liabilities (3 )

Integrated Diagnostics, Inc.

On June 30, 2018, the Company purchased select assets and liabilities from Integrated Diagnostics, Inc. (Indi) for total consideration of $27.6 million, consisting of $8.0 million in the Company’s Series G Preferred Stock and contingent consideration with an initial estimated fair value of $19.6 million. The acquisition was accounted for as a business combination and resulted in goodwill of $14.2 million representing expected synergies, including increases in future revenues as a result of expansion of the acquired technology into additional markets, and lower operating expenses.

The contingent consideration arrangement requires additional consideration to be paid by the Company to Indi upon attainment of a three-consecutive month gross margin target of $2.0 million within the seven-year period after the acquisition date. If the gross margin target is met, the Company is required to issue 2,520,108 shares of common stock. For the six months following the achievement of the gross margin target, Indi has the option to require the Company to redeem these common shares for $37.0 million in cash over eight equal quarterly installments. If Indi elects to not exercise its option, the Company has 12 months to repurchase the common stock in two equal and consecutive quarterly cash installments totaling $37.0 million.

Note 5 - Fair Value

Recurring Fair Value Measurements

Our borrowing instruments are recorded at their carrying values in the balance sheets, which may differ from their respective fair values. The fair values of outstanding borrowings, which are classified as Level 2, approximate their carrying values at December 31, 2020 and 2019, based on interest rates currently available for similar borrowings and were:

As of December 31,

Carrying Value Fair Value Carrying Value Fair Value

F-16

The financial liabilities that are measured and recorded at estimated fair value on a recurring basis consist of our contingent consideration associated with our acquisition of Indi, and prior to the completion of our initial public offering in October 2020, the warrant liability and put option liability granted to certain holders of our convertible preferred stock and debt instruments, which were accounted for as liabilities and remeasured through our statements of operations. The table below presents the reported fair values of these liabilities, all of which are classified as Level 3 in the fair value hierarchy, as of the dates indicated (in thousands):

As of December 31,

Put option liability — 3,261

Warrant liability — 372

Contingent value rights — 60

The following table presents the changes in these financial liabilities for the year ended December 31, 2020 (in thousands):

Additions — 3,389 — —

Reclassified to additional paid-in capital — (6,650 ) (1,624 ) —

Ending balances $ 29,932 $ — $ — $ —

Contingent Consideration

In connection with the acquisition of Indi, the Company recorded contingent consideration for amounts contingently payable to Indi's selling shareholders pursuant to the Asset Purchase Agreement (See Note 4 – Business Combinations). The significant unobservable inputs used in the measurement of fair value include the probability of successful achievement of the specified product gross margin targets, the period in which the targets are expected to be achieved, and discount rates which ranged from 12.2% to 13.5%. Significant increases or decreases in any of these inputs would result in a significantly higher or lower fair value measurement.

Contingent consideration is recorded in the balance sheets as long-term liabilities. The net change to contingent consideration during the years ended December 31, 2020 and 2019 was an increase of $0.8 million and $4.1 million, respectively, and are recorded as operating expenses in the statements of operations.

Put Option Liability

The put option liability was valued based on the calculated returns as a result of the various discounts included in the Company’s convertible notes payable and the related probability assessments of the various settlement scenarios. During 2020, the Company recognized an addition to the put option liability of $3.4 million in connection with a favorable conversion rate granted to holders of issued convertible debt. The put option liability was settled upon the closing of the Company’s initial public offering in October 2020 and reclassified to additional paid-in capital.

Warrant Liability

In connection with entering into the 2018 Notes, the Company issued to the lender a warrant to purchase 613,333 shares of Series G convertible preferred stock, at an exercise price of $0.75 per share, subject to adjustment upon specified dilutive issuances. The warrant was immediately exercisable upon issuance and expires on February 23, 2028. The estimated fair value of the warrant on the issuance date of $0.3 million was recorded as a debt discount and as a preferred stock warrant liability. Through the effective date of the Company’s initial public offering, the Series G warrants were remeasured to an estimate of fair value using a Black Scholes pricing model. As a result of the Company’s initial public offering, the preferred stock warrants were automatically converted to warrants to purchase 103,326 shares of common stock with a weighted average exercise price of $4.46 and were also transferred to additional paid-in capital. During 2020, the Company recorded an increase in the value of the warrant liability of $1.3 million.

F-17

Contingent Value Rights

In addition to the shares of Series F Preferred Stock that were issued in January 2016, investors who purchased more than their pro‐rata amount in the financing described above received a calculated number of contingent value rights (CVRs). In connection with the Series F financing, the Company issued 3,999 CVRs originally valued at $0.5 million. One CVR represents 0.00375% of the Company’s interest in the drug ficlatuzumab. The initial estimated value of the CVRs were recorded as a liability and as a reduction to the Series F proceeds. Upon receipt by the Company or a milestone, royalty, or any other type of payment from the Company’s ownership rights in the drug, the Company was required to make a cash payment to the CVR holders equal to 15% of net proceeds, as defined. In September 2020, the Company exercised its opt-out right with AVEO Oncology (AVEO) for the payment of 50% of development and regulatory costs for ficlatuzumab. As a result, the CVRs were settled effective December 2, 2020. See Note 17 – Commitments and Contingencies for a discussion of the Co-Development Agreement with AVEO.

Non-Financial Assets and Liabilities

Our non-financial assets, which primarily consist of property and equipment, goodwill, and other intangible assets, are not required to be carried at fair value on a recurring basis and are reported at carrying value. There were no changes to the valuation methods during the periods presented.

Note 6 – Property and Equipment

Property and equipment consist of the following (in thousands):

As of December 31,

Construction in process 381 592

Less accumulated depreciation (6,724 ) (6,386 )

Total property and equipment, net $ 3,178 $ 2,120

Depreciation expense related to property and equipment, reported in ‘Direct costs and expenses’ and ‘Sales, marketing, general and administrative’ was:

Year ended December 31,

Direct costs and expenses $ 361 $ 183

Sales, marketing, general and administrative 478 636

Disposals of Property and Equipment

Gains on disposal of property and equipment were not significant for the years ended December 31, 2020 and 2019, and are included in ‘Sales, marketing, general and administrative’ in the statements of operations.

F-18

Note 7 – Goodwill and Intangible Assets

Goodwill

Changes in goodwill for the years ended December 31, 2020 and 2019 were (in thousands):

Attributable to acquisition of Oncimmune, Ltd. 827

Intangible Assets, Net

Intangible assets consist of the following (in thousands):

Intangible assets subject to amortization

Intangible assets not subject to amortization

Amortization expense related to definite-lived intangible assets was (in thousands):

Year ended December 31,

Direct costs and expenses $ 13 $ 15

Sales, marketing, general and administrative 2,051 1,959

Future estimated amortization expense of intangible assets is (in thousands):

There have been no impairments of intangible assets for the twelve-month periods ended December 31, 2020 and December 31, 2019.

F-19

Note 8 – Accrued Liabilities

Amounts reported in ‘Accrued liabilities’ in the balance sheets were (in thousands):

December 31,

Compensation related accruals $ 3,975 $ 1,165

Accrued clinical trial expense 715 620

Warrant liability, current - 43

Total accrued liabilities $ 7,789 $ 4,180

Note 9 – Debt

Notes Payable

Long-term notes payable were as follows (in thousands):

As of December 31,

Payroll protection plan 3,107 —

Convertible notes payable — 13,159

Unamortized debt discount and debt issuance costs (313 ) (1,458 )

In February 2018, the Company issued long-term debt of $23.0 million to Innovatus Life Sciences Lending Fund (Innovatus or Lender) (the 2018 Notes). Innovatus is also a holder of the Company’s common stock.

At the time of issuance, the Company paid a facility fee of $0.2 million and issued a warrant to Innovatus, with an initial estimated fair value of $0.3 million, for the purchase of 613,333 shares of Series G preferred stock. The facility fee and the estimated warrant fair value were recorded as debt discount and is amortized to interest expense over the term of the 2018 Notes. The 2018 Notes bear annual interest at 10%, of which 7.5% is payable in cash, with the remaining 2.5% added to principal through December 31, 2020. Total interest added to principal was $1.7 million and $1.1 million as of December 31, 2020 and 2019, respectively. Commencing March 2021 and continuing through the maturity date February 2023, the outstanding principal is repayable in 24 equal monthly installments.

The loan may be prepaid by the Company at any time, subject to a prepayment penalty of up to 3% of the principal amount, depending on the date of prepayment. Upon payment of the 2018 Notes at maturity or prepayment on any earlier date, unless waived, a 2% back-end facility fee will apply to the amounts paid or prepaid. The 2% fee is recognized as additional interest expense over the loan term. The 2018 Notes are senior to all of the Company’s other indebtedness including any contingent consideration payable to Indi.

The 2018 Notes contain customary affirmative covenants, and contain negative covenants limiting the ability of the Company to, among other things, incur future debt, transfer assets except for the ordinary course of business, make acquisitions, make certain restricted payments, or to sell assets, subject to certain exceptions. In addition, the 2018 Notes require the Company to comply with a minimum daily liquidity covenant and a rolling monthly revenue requirement. Failure to comply with the covenants and loan requirements may result in early amortization of the loan in a 24- or 36-month payment schedule. As of December 31, 2020, the Company was in compliance with all terms and covenants.

The Company granted the Lender a security interest in all of the Company’s assets through a pledge and security agreement, patent security agreement and trademark security agreement, each between the Company and the Lender.

F-20

Paycheck Protection Program Note Payable

In April 2020, the Company entered into a loan pursuant to the Paycheck Protection Program under the CARES Act, as administered by the U.S. Small Business Administration (the SBA). The loan, in the principal amount of $3.1 million (the PPP Loan), was disbursed by JPMorgan Chase Bank (JPM) pursuant to a Paycheck Protection Program Promissory Note and Agreement (the Note and Agreement).

The PPP Loan matures on the two-year anniversary of the funding date, April 2022, and bears interest at a fixed rate of 1.00% per annum. Monthly principal and interest payments, less the amount of any potential forgiveness (as discussed below), will commence in September 2021. The Company did not provide any collateral or guarantees in connection with the PPP Loan, nor did the Company pay any facility charge to obtain the PPP Loan. The Note and Agreement provides for customary events of default, including those relating to failure to make payment, bankruptcy, breaches of representations and material adverse effects. The Company may prepay the principal of the PPP Loan at any time without incurring any prepayment charges.

All or a portion of the PPP Loan may be forgiven by the SBA and JPM upon application by the Company. Under the CARES Act, loan forgiveness is available for the sum of documented payroll costs, covered rent payments, and covered utilities during the eight-week period beginning on the approval date of the PPP Loan. For purposes of the CARES Act, payroll costs exclude compensation of an individual employee earning more than $100,000, prorated annually. Not more than 40% of the forgiven amount may be for non-payroll costs. Forgiveness is reduced if full-time headcount declines, or if salaries and wages for employees with salaries of $100,000 or less annually are reduced by more than 25%. The Company currently intends to repay the PPP loan in accordance with the underlying terms and conditions. To the extent we elect to seek forgiveness, the Company cannot assure that the PPP Loan will be forgiven, in whole or in part. If the loan is forgiven in part or in whole, and legal release is received, the Company will reduce the liability by the amount forgiven and record a gain on extinguishment in the statements of operations.

Convertible Notes Payable

March 2020 Notes

In March 2020, the Company issued $10.0 million of convertible notes primarily to existing stockholders that were originally scheduled to mature in August 2020 (the March 2020 Notes). In August 2020, the Company and its lenders agreed to extend the maturity date to June 30, 2021. The March 2020 Notes were issued in two tranches of $5.0 million, with the first in March 2020 and the second in June 2020. Interest on the March 2020 Notes was 3% per annum, payable in full upon maturity through conversion to Series H Preferred Stock at 80% of the original issuance price of $1.15 per share. Under the terms of the March 2020 Notes, on or before the maturity date and if the March 2020 Notes are unpaid, the outstanding principal and unpaid accrued interest under the March 2020 Notes shall be automatically converted into common stock in an initial public offering at a conversion price of 80% of the per share price of common stock sold in the initial public offering. The discount on the automatic conversion was separated from the March 2020 Notes and reported as a debt discount and put option liability of $2.5 million and was amortized over the term of the March 2020 Notes. Following the closing of the initial public offering in October 2020, the March 2020 Notes were automatically converted into 703,503 shares of common stock at a conversion price of $14.40, or 80% of the initial public offering price per common share.

December 2019 Notes

In December 2019, the Company issued $6.0 million of convertible notes primarily to existing preferred shareholders that were originally scheduled to mature in August 2020 (the December 2019 Notes). In August 2020, the Company and its lenders agreed to extend the maturity date to June 30, 2021. The December 2019 Notes were issued in two tranches of $3.0 million, the first in December 2019 and the second in February 2020. Interest on the December 2019 Notes was 3% per annum and payable in full upon maturity through the conversion to Series H Preferred Stock at 80% of the original issuance price of $1.15 per share. Under the terms of the December 2019 Notes, on or before the maturity date and if the December 2019 Notes are unpaid, the outstanding principal and unpaid accrued interest under the December 2019 Notes shall be automatically converted into common stock in an initial public offering at a conversion price of 80% of the per share price of common stock sold in the initial public offering. The discount on the automatic conversion was separated from the December 2019 Notes and reported as a debt discount and put option liability of $1.5 million and was amortized over the term of the December 2019 Notes. Following the closing of the initial public offering in October 2020, the December 2019 Notes were automatically converted into 426,386 shares of common stock at a conversion price of $14.40, or 80% of the initial public offering price per common share.

F-21

August 2019 Notes

In August and September 2019 (the August 2019 Notes), the Company issued $10.0 million of convertible notes primarily to existing preferred shareholders that were originally scheduled to mature in August 2020. In August 2020, the Company and its lenders agreed to extend the maturity date to June 30, 2021. Interest on the August 2019 Notes was 3% per annum and payable in full upon maturity through the conversion to Series H Preferred Stock at 95% of the original issuance price of $1.15 per share. Under the terms of the August 2019 Notes, on or before the maturity date and if the August 2019 Notes are unpaid, the outstanding principal and unpaid accrued interest under the August 2019 Notes shall be automatically converted into common stock in an initial public offering at a conversion price of 95% of the per share price of common stock sold in the initial public offering.In connection with the issuance of the December 2019 Notes, the conversion price on the August 2019 Notes was amended to 80%. The initial discount on the automatic conversion created an initial put option liability of $0.5 million that was separated from the August 2019 Notes. The amendment to the conversion price of the August 2019 Notes in December 2019 resulted in an increase to the put option liability of $2.0 million to a total estimated value of $2.5 million as of December 31, 2019. The increase in the value of the put option liability was reflected as a change in put option in the 2019 statement of operations. Following the closing of the initial public offering in October 2020, the August 2019 Notes were automatically converted into 718,391 shares of common stock at a conversion price of $14.40, or 80% of the initial public offering price per common share.

Scheduled principal repayments (maturities) of long-term obligations as of December 31, 2020 were as follows (in thousands):

Year Ending December 31, As of December 31, 2020

Thereafter —

Note 10 – Convertible Preferred Stock

The Company had issued convertible preferred stock from time to time to fund its operations and to make acquisitions. In February and March 2019, the Company issued 8,695,621 shares of Series H Preferred Stock at $1.15 per share for total cash proceeds of $10.0 million.

The Company’s convertible preferred stock was reported as temporary equity in the Company’s balance sheet because the preferred shareholders held a majority of the Company’s Board of Directors seats and as a result could have caused certain events to occur outside of the Company’s control, with the result the Company could have been obligated to redeem the convertible preferred stock.

Immediately prior to the Company’s initial public offering and as of December 31, 2019, the Company had issued 118,766,273 convertible preferred shares. On October 27, 2020, upon closing of the Company’s initial public offering, each outstanding share of Series A-1 Preferred Stock, Series A-2 Preferred Stock, Series A-3 Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, Series F Preferred Stock, Series G Preferred Stock and Series H Preferred Stock automatically converted into 0.1684664 share of common stock; and each share of Series B-1 Preferred Stock automatically converted into 0.196 shares of common stock. In the aggregate, all Series of preferred stock were converted into 20,090,745 shares of common stock. As a result, as of December 31, 2020 there are no longer any series of convertible preferred stock outstanding.

F-22

Note 11 – Warrants to Purchase Convertible Preferred Stock

The Company issued warrants to purchase shares of convertible preferred stock in conjunction with the sale of certain of the convertible preferred shares and issuance of debt. The estimated grant date fair value as well as the estimated fair value at each reporting date of the warrants was determined using the Black‐Scholes option pricing model with weighted average assumptions substantially consistent with those disclosed for stock options (see Note 14 – Shared Based Compensation), other than term, which is the contractual term of the warrant and the use of the exercise price and estimated fair value of the underlying series of convertible preferred stock. At December 31, 2019 and through the closing of the Company’s initial public offering, the preferred warrants were classified as liabilities with estimated fair value remeasured at each reporting date reported within in the accompanying statements of operations.

The following table presents the activity for convertible preferred stock warrants (in thousands, except weighted average exercise price):

Series E Series G

Granted — — — —

Forfeited/canceled (925 ) (5.00 ) — —

Exercised — — — —

Outstanding ‐ December 31, 2020 — $ — $ — $ —

Upon closing of the Company’s initial public offering, the then outstanding Series G convertible preferred stock was automatically converted to common stock and the outstanding warrants to purchase Series G convertible preferred stock were automatically converted to warrants to purchase 103,326 shares of common stock at $4.46 per share and expire in February 2028. The warrants were remeasured to an estimate of fair value as of the initial public offering with the change in fair value of $1.3 million recognized in our statements of operations. The carrying value of the warrants was reclassified to additional paid-in capital as a result of the initial public offering.

Note 12 – Equity

Common Stock

The Company’s Restated Certificate of Incorporation authorizes the Company to issue up to 200,000,000 shares of common stock with a par value of $0.001 per share. The holder of each share of common stock is entitled to one vote per share. The common shareholders are entitled to dividends whenever funds and assets are legally available and when and if declared by the Board of Directors. The Company is currently subject to restrictions on the payment of dividends (see Note 9 - Debt) and no dividends have been declared as of December 31, 2020.

On October 27, 2020, the Company issued and sold 4,000,000 shares of common stock in a registered initial public offering at a price to the public of $18.00 per share. The net proceeds to the Company were approximately $63.8 million, after deducting underwriting discounts and commissions of $5.0 million and direct offering expenses of approximately $3.2 million.

Preferred Stock

The Company’s Restated Certificate of Incorporation authorizes the Company to issue up to 5,000,000 shares of preferred stock with a par value of $0.001 per share. As of December 31, 2020, no shares of preferred stock were issued or outstanding.

F-23

Note 13 - Revenue

The Company’s revenue is generated from (i) diagnostic tests and (ii) assay development and testing services. Diagnostic test revenues consist of blood-based lung tests and COVID-19 tests, which are recognized in the amount expected to be received in exchange for diagnostic tests when the diagnostic tests are delivered. The Company conducts diagnostic tests and delivers the completed test results to the prescribing physician or patient, as applicable. The fees for diagnostic tests are billed either to a third party such as Medicare, medical facilities, commercial insurance payers, or to the patient. The Company determines the transaction price related to its diagnostic test contracts by considering the nature of the payer and historical price concessions granted to groups of customers. For diagnostic test revenue, the Company estimates the transaction price, which is the amount of consideration it expects to be entitled to receive in exchange for providing services based on its historical collection experience, using a portfolio approach. The Company recognizes revenues for diagnostic tests upon delivery of the tests to the physicians requesting the tests or patient, as applicable.

Services revenue consists of on-market tests, pipeline tests, custom diagnostic testing, and other scientific services for a purpose as defined by any individual customer, which is often with large biopharmaceutical companies. The performance obligations and related revenue for these sales is defined by a written agreement between the Company and the customer. These services are generally completed upon the delivery of testing results, or other contractually defined milestone(s), to the customer. Revenue for these services is recognized upon delivery of the completed test results, or upon completion of the contractual milestone(s).

Revenues consisted of the following (in thousands):

Year Ended December 31,

The Company’s fiscal 2020 diagnostic test revenue consists of $28.3 million in COVID-19 test revenue, which began in late fiscal 2020, and $12.6 million in lung diagnostic revenue.

Contract Liabilities

Contract liabilities consist of cash payments from customers received in advance of delivery (advance deposits). As products are shipped and control transfers, the Company recognizes the deferred revenue in ‘Revenues’ in the statements of operations. At January 1 and December 31, 2020, $1.3 million and $3.5 million, respectively, of advance deposits were reported in ‘Deferred revenue’ in the accompanying balance sheets. Of the $1.3 million in deferred revenue recorded at January 1, 2020, $0.7 million was recognized in revenues during the year ended December 31, 2020. The deferred revenue of $3.5 million at December 31, 2020 is expected to be recognized in revenues during 2021 as test results are delivered.

Note 14 – Share Based Compensation

2016 Equity Incentive Plan and Predecessor 2006 Equity Incentive Plan

In February 2016, the Company adopted the 2016 Equity Incentive Plan (2016 Plan) as a successor to and continuation of the prior 2006 Equity Incentive Plan (2006 Plan). The 2016 Plan provides for the grant of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock awards, restricted stock units, and other stock awards to directors, employees, and consultants. Awards granted under the 2016 Plan or the 2006 Plan that expired or otherwise terminated, or were forfeited, cancelled, or repurchased by the Company, became available for future issuance under the 2016 Plan. In addition, shares subject to an award were withheld to satisfy a participant’s tax withholding obligations, or were reacquired by the Company as consideration for the exercise or purchase price of a stock award also became available for future issuance under the 2016 Incentive Plan.

F-24

2020 Equity Incentive Plan

Effective upon the closing of our initial public offering, the Company’s Board of Directors approved the 2020 Equity Incentive Plan (2020 Plan), which replaced the 2016 Plan. The 2020 Plan provides for the grant of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock awards, restricted stock units, performance awards and other stock awards. Officers, directors, employees, consultants, agents, and independent contractors who provide services to the Company may receive awards. The terms of all awards are governed by an agreement between the Company and the recipients, as administered and approved by the Compensation Committee of the Board of Directors.

Employee Stock Purchase Plan

Effective with our initial public offering in October 2020, the Company’s Board of Directors and its stockholders approved the Company’s Employee Stock Purchase Plan (ESPP). A total of 338,106 shares of our common stock have been reserved for issuance under the ESPP. The maximum number of shares of our common stock available under the ESPP will automatically increase on the first trading day of each calendar year, commencing January 2021, by an amount equal to the lesser of (i) 1% of the shares of our common stock issued and outstanding on December 31 of the immediately preceding calendar year, and (ii) an amount determined by our Board of Directors.

Subject to any plan limitations, the ESPP allows eligible employees to contribute, normally through payroll deductions, up to 15% of their earnings for the purchase of the Company’s common stock at a discounted price per share. The price at which common stock is purchased under the ESPP is equal to 85% of the fair market value of the Company’s common stock on the first or last day of the offering period, whichever is lower. No employee may participate in an offering period if the employee owns 5% or more of the total combined voting power or value of the Company’s stock.The initial offering period will commence from January 1, 2021 through August 31, 2021. On a going forward basis, the ESPP provides for successive six-month offering periods beginning on September 1st and March 1st of each year.

Shares Reserved Subject to All Plans

The number of shares reserved for issuance under the 2020 Plan is 1,893,395, plus an annual increase added on the first day of each calendar year, beginning with the calendar year ending December 31, 2022, and continuing until, and including, the calendar year ending December 31, 2030. The annual increase will be equal to the lesser of (i) 4% of the number of shares of our common stock issued and outstanding as of December 31st of the immediately preceding calendar year and (ii) such lesser amount determined by the Board of Directors. Up to 1,893,395 shares of our common stock that may be issued under the 2020 Plan may be issued in satisfaction of incentive stock option awards.

Under the 2006 Plan, the Company is authorized to grant incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock awards and restricted stock units up to 831,389 total award shares.No additional awards may be granted under the 2006 Plan. Unallocated shares under the 2006 Plan were added to the shares available for issuance under the 2016 Plan.