SERA US Equity☆

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

You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Form 10-K, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the “Risk Factors” section of this Form 10-K, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Investors and others should note that we routinely use the Investors section of our website to announce material information to investors and the marketplace. While not all of the information that we post on the Investors section of our website is of a material nature, some information could be deemed to be material. Accordingly, we encourage investors, the media, and others interested in us to review the information that we share on the Investors section of our website, www.seraprognostics.com/investors/.

Overview

We are a women’s health company utilizing our proprietary proteomics and bioinformatics platform to discover, develop, and commercialize clinically meaningful and economically impactful biomarker tests, with an initial focus on improving pregnancy outcomes. We believe that our method of combining the disciplines of proteomics and bioinformatics with rigorous clinical testing and economic analysis enables us to provide physicians and patients with actionable data and information designed to result in better maternal and neonatal health at lower cost. Our vision is to deliver pivotal and actionable information to pregnant women, their physicians, and health care payers to significantly improve maternal and

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neonatal health and to dramatically reduce health care costs. We have built an advanced, proprietary, and scalable proteomics and bioinformatics platform to characterize the biology of pregnancy and to discover and validate key protein biomarkers found in blood that are highly accurate predictors of dynamic changes that occur during pregnancy. By incorporating our proprietary technology platform into our rigorous data-driven development process, we have created a differentiated approach for effectively addressing major conditions of pregnancy. We envision that our comprehensive approach will enable us to fully characterize one of the most important periods in the lives of women and children, and will help to improve their well-being. Our goal is to develop and commercialize tests that inform important decisions during all pregnancies. We also believe that the work we perform in pregnancy can ultimately be leveraged more broadly to address other areas in medicine and health care.

Our first commercial product, the PreTRM test, is the only broadly validated, commercially available blood-based biomarker test to accurately predict the risk of a premature delivery, also known as preterm birth. The PreTRM test is a non-invasive blood test given to a pregnant woman, carrying a single fetus, during week 19 or 20 of gestation that provides an accurate prediction of the expectant mother’s risk of delivering spontaneously before 37 weeks’ gestation. Our commercialization strategy includes conducting clinical trials to demonstrate the health and economic benefits of early and accurate detection of preterm birth risk coupled with well-recognized interventions in higher risk patients. Anthem, Inc., or Anthem, whose health plans cover more than 10% of U.S. pregnancies annually, will make our PreTRM test available to eligible pregnant members as part of a multi-year contract. Anthem is the nation’s second largest health insurer with greater than 43 million members nationwide. Through this collaboration, a significant number of physicians and patients in the U.S. gain access to early and accurate predictions of preterm birth to enable more informed decision-making during pregnancy. Sera believes that its commercial collaboration with Anthem further validates the clinical and economic value of its PreTRM test and significantly de-risks initial commercialization. Sera further expects this provides a pathway for broader market adoption through subsequent coverage decisions by major payers. We are actively discovering and developing several additional biomarker tests to predict other major conditions of pregnancy, such as preeclampsia, and gestational diabetes, among others, that have the potential to offer significant health benefits to women and their babies.

There are approximately 140 million births globally each year. Of these, it is estimated that as many as 25% are affected by various complications, including: preterm birth, preeclampsia, fetal growth restriction, stillbirth, hypertension of pregnancy, gestational diabetes, and others. In the United States, there are approximately 3.6 million births annually, and over 10% of those pregnancies result in preterm births with profound short- and long-term health consequences to the mother and baby. These health consequences are estimated to lead to associated costs of approximately $25 billion annually in the United States. Traditional methods to detect prematurity risk in time for proactive management have been limited and fail to identify the vast majority of women who will deliver prematurely. We believe our actionable blood-based biomarker test for prematurity risk can enable patients, physicians, and payers to more proactively manage and mitigate the complications and associated costs of prematurity. Given that pregnancy is the launch point for the future health of babies and a key determinant in the future health of mothers and babies, we believe this area is ripe for innovation and better tools to improve patient outcomes.

Our operations are located in Salt Lake City, Utah, including a CLIA-certified laboratory. Since our inception, we have devoted the majority of our efforts and resources to performing research and development, acquiring product rights, raising capital, establishing facilities, conducting clinical trials, and establishing commercial operations to market the PreTRM test. During this period, we have incurred annual net losses. We have largely funded our operations with proceeds from the sale and issuance of convertible preferred stock, debt financings, bank loans, and the sale and issuance of Class A common stock in our IPO. We completed our IPO in July 2021 and issued 4,687,500 shares of our Class A common stock at a price of $16.00 per share for net proceeds of approximately $66.6 million, after deducting underwriting discounts and commissions and offering expenses payable by us. See Note 10—Capital Structure for additional details about the IPO.

We have incurred significant operating losses since inception. Our net losses were $35.0 million and $19.8 million for the years ended December 31, 2021 and 2020, respectively. We expect to incur significant additional operating losses and negative cash flows for the foreseeable future, principally as a result of our commercialization activities for the PreTRM test, and to support additional clinical studies, publications, and anticipated research and development activities.

We had no significant commercial revenue for the years ended December 31, 2021 and 2020, and we have no recurring sources of licensing or other revenue. We have signed an agreement with Anthem, pursuant to which Anthem will purchase our PreTRM test, and we continue to negotiate private payer insurance contracts that could eventually result in revenues. If we are unable to secure payer contracts that result in significant revenues or access additional funds, we may be required to delay, scale back or abandon some, or all, of our development programs and other operations. Until such time as we can generate significant revenue from the sales of our products, if ever, we may need to continue to finance our

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cash needs through equity offerings, debt financings or other capital sources, potentially including collaborations or other similar arrangements. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making acquisitions or capital expenditures or declaring dividends and may require the issuance of warrants. If we raise additional funds through collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may have to significantly delay, reduce, or eliminate some or all of our product development or future commercialization efforts, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

Our ability to access capital when needed is not assured and, if not achieved on a timely basis, will materially harm our business, financial condition, and results of operations.

Impact of COVID-19

The degree to which COVID-19 impacts our future business operations, research and development programs, and financial condition will depend on future developments, including the ultimate duration and/or severity of the outbreak and any resurgences, actions by government authorities to contain the spread of the virus, the effectiveness of vaccines against the virus, and when and to what extent normal economic and operating conditions can resume. The ability of our employees and other business partners to travel and conduct other routine business activity has been and is likely to continue to be disrupted or adversely affected. The primary impacts to our business have been the early cessation of enrollment in our Serum Assessment of Preterm Birth Outcomes Compared to Historical Controls study, or the AVERT PRETERM TRIAL study, in March 2020, the delayed commencement of enrollment in our PRIME study until November 2020, and limited access to ordering clinicians as we have initiated the commercialization of our PreTRM test. Enrollment of 2,800 PRIME study patients is expected in late 2022, and the interim analysis is expected to occur in the first half of 2023, depending on disruption due to COVID-19 conditions. However, our laboratory has remained operational and, to the extent possible, we are conducting our other business operations with necessary or advisable modifications to employee travel and many of our employees working remotely. We will continue to actively monitor the rapidly evolving situation related to COVID-19 and may take further actions that alter our operations, including those that may be required by federal, state or local authorities, or that we determine are in the best interests of our employees and other third parties with whom we do business. At this point, the extent to which the COVID-19 pandemic may affect our business, operations, and development timelines and plans, including the resulting impact on our expenditures and capital needs, remains uncertain and is subject to change.

Collaboration Agreement with Anthem

On February 17, 2021, we entered into a Commercial Collaboration Agreement with Anthem relating to the commercialization of the PreTRM test. Under the agreement, we will provide PreTRM tests to eligible individuals enrolled in, or serviced or covered by, the health insurance products of Anthem. Pursuant to the agreement, Anthem will purchase a certain minimum number of tests from us for each of the first three years of the term of the agreement. Additionally, Anthem has agreed to pay us a certain minimum amount per year for the first three years of the term of the Commercial Collaboration Agreement. Anthem has been participating in our PRIME study, and at the conclusion of the PRIME study, we agreed to enter into Anthem’s standard lab provider agreement with longer term commercial pricing.

Factors Affecting Our Performance

We believe there are several important factors that have impacted, and that we expect will continue to impact, our operating performance and results of operations, including:

•our ability to further increase the use and adoption of the PreTRM test;

•our ability to develop and successfully commercialize new products and services in the future;

•the continued development of the market for proteomics and bioinformatics;

•our ability to secure payer contracts that result in significant revenues or to access additional funds, including our ability to perform our obligations under our agreement with Anthem;

•raising substantial additional capital to continue operations and execute on our business plan, until such time as we can generate significant revenue from the sales of our products, if ever;

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•obtaining and maintaining intellectual property protection for our technology and products; and

•other factors described in the “Risk Factors” section and elsewhere in this report.

Key Components of Our Results of Operations

Revenues

We expect to derive substantially all of our revenue in the near term from sales of the PreTRM test. To date, we have not generated material revenues from the commercial sale of the PreTRM test. We have signed an agreement with Anthem and we continue to engage with other commercial payers to close additional contracts. These additional contracts could enable an upfront negotiated reimbursement rate which could eventually result in revenues when health care providers order the PreTRM test.

Operating Expenses

Cost of Revenue

Cost of revenue reflects the aggregate costs incurred in delivering the proteomic testing results to clinicians and includes expenses for third-party specimen collection and shipping costs, as well as our lab personnel, materials and supplies, equipment and infrastructure expenses associated with clinical testing, and allocated overhead including rent and equipment depreciation. We expect costs of revenue will generally move in line with the sales of the PreTRM test.

Research and Development Expenses

Research and development expenses consist of costs incurred for our research activities and development of our product candidates. These expenses include:

•clinical studies;

•laboratory processes;

•research and bioinformatic activities;

•biobanking and publication efforts;

•personnel-related expenses, including salaries, payroll taxes, employee benefits, and stock-based compensation charges for employees engaged in these research and development activities;

•direct clinical study expenses incurred under agreements with clinical study sites or contract research organizations;

•consultants engaged in our research and development efforts;

•laboratory materials and supplies;

•facilities costs; and

•depreciation, amortization, and other direct and allocated expenses, including rent, insurance, and other operating costs, incurred as a result of our research and development activities.

We expense all research and development costs, both internal and external, in the period in which they are incurred. We expect that our research and development expenses will continue to increase for the foreseeable future as we support additional clinical studies, publications, and other product development activities.

Selling and Marketing Expenses

Selling and marketing expenses consist primarily of salaries, payroll taxes, employee benefits, and stock-based compensation charges for sales, marketing, and payer access personnel. Other significant costs include travel, consulting, public relations, and legal costs related to commercial efforts. We expect selling and marketing expenses to increase in the future as we incur additional expenses associated with the commercialization activities for the PreTRM test and related initiatives. Based on our commercial collaboration with Anthem, we initially deployed our U.S. based specialty OB-GYN commercial sales force to cover the key states where Anthem has a significant market share. We expect to expand our

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dedicated sales force into additional territories in the United States to cover the entire U.S. OB-GYN sales channel over time as we enter into contracts with payers and employers.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries, payroll taxes, employee benefits, and stock-based compensation charges for personnel in executive, finance, information technology, human resources, and other administrative functions. Other significant costs include facilities, corporate and intellectual property legal fees, accounting, insurance, consulting, and other professional fees.

We anticipate that our general and administrative expenses will increase in the future as we construct the appropriate infrastructure to support expanded commercialization efforts and ongoing research and development activities. We expect increased expenses related to audit, tax, and legal services associated with maintaining compliance with SEC requirements, as well as increased director and officer insurance premiums, board of director fees, and investor relations costs associated with operating as a public company for the whole year.

Interest Expense

Interest expense represents interest expense incurred on our loans payable and convertible promissory note, amortization of a discount feature on a convertible promissory note, and periodic fair value adjustments on certain liabilities. As of December 31, 2021, we had no outstanding debt.

Other Income (Expense), Net

Other income (expense), net consists of interest earned on our cash, cash equivalents, and marketable securities, periodic fair value adjustments on certain liabilities, and other gains and losses.

Results of Operations

The results of operations presented below should be reviewed in conjunction with the financial statements and related notes included elsewhere in this report.

Comparison of the Years Ended December 31, 2021 and 2020

The following table summarizes our results of operations for the years ended December 31, 2021 and 2020:

Year Ended December 31,

(in thousands)

Operating expenses:

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Research and Development Expenses

The following table summarizes our research and development expenses for the years ended December 31, 2021 and 2020:

Year Ended December 31,

(in thousands)

Research and development expenses:

The $3.2 million increase was due to a $1.5 million increase in laboratory operations costs, a $1.2 million increase in clinical study costs, and a $0.6 million increase in research and bioinformatics expenses. The $1.5 million increase in laboratory operations costs is primarily due to a $0.7 million increase in lab supplies, a $0.5 million increase in stock-based compensation expense, and a $0.4 million increase in personnel costs driven by increased headcount, partially offset by a $0.2 million decrease in depreciation expense. The $1.2 million increase in clinical study costs is primarily due to a $0.7 million increase resulting from the increased enrollment and site setup activity in the PRIME study, a $0.4 million increase in personnel costs driven by increased headcount, and a $0.1 million increase in stock-based compensation expense. The $0.6 million increase in research and bioinformatics expenses was primarily due to an increase of $0.4 million in personnel costs driven by increased headcount, a $0.1 million increase in consulting costs, and a $0.1 million increase in stock-based compensation expense.

Selling and Marketing Expenses

The $6.7 million increase was due primarily to increases of $4.1 million in personnel-related costs driven by increased headcount, $0.8 million of consulting and outside services related to developing payer and reimbursement strategies for the PreTRM test, $0.7 million of marketing programs and materials development, $0.5 million of increased stock-based compensation expense, and $0.4 million of travel costs driven by increased headcount and sales activity.

General and Administrative Expenses

The $7.5 million increase was due primarily to increases of $2.3 million of personnel expenses driven by increased headcount, $1.3 million of professional services and fees related to public company compliance, $1.1 million of stock-based compensation expense, $1.1 million of director and officer insurance costs which increased as a result of our becoming a public company, $0.8 million of recruiting fees, and $0.5 million of legal expenses.

Interest Expense

The $1.1 million decrease in interest expense between periods was due primarily to a decrease of $1.4 million in interest expense as a result of the repayment of all outstanding debt in the first quarter of 2021, partially offset by a $0.3 million increase in interest expense related to fair value adjustments on certain liabilities.

Other Income (Expense), net

The $1.2 million increase in other income (expense) was primarily due to a $1.1 million gain on extinguishment of the PPP loan, which was forgiven in June 2021.

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Liquidity and Capital Resources

Sources of Liquidity

Since inception, we have not generated a significant amount of commercial revenue from product sales or any other sources and have incurred significant operating losses and negative cash flows from operations. We anticipate that we will continue to incur net losses for the foreseeable future. We have financed our operations primarily through proceeds from the sale and issuance of convertible preferred stock and convertible notes, bank loans, and the sale and issuance of Class A common stock in our IPO, which was completed in July 2021. See Note 10—Capital Structure for additional details about the IPO. As of December 31, 2021, we had cash and cash equivalents of $58.9 million, available-for-sale securities of $81.0 million, and our accumulated deficit was $166.5 million.

Cash Flows

The following table summarizes our cash flows for the periods indicated:

Year Ended December 31,

(in thousands)

Net cash provided by (used in):

Net increase (decrease) in cash and cash equivalents $ 45,399 $ (7,857)

Operating Activities

The net cash used in operating activities during the year ended December 31, 2021 was primarily due to a net loss of $35.0 million, partially offset by non-cash charges of $3.4 million. The net cash used in operating activities during the year ended December 31, 2020 was primarily due to a net loss of $19.8 million and a decrease in operating assets and liabilities of $0.3 million, partially offset by non-cash charges of $3.3 million.

Investing Activities

Net cash used in investing activities was $82.6 million for the year ended December 31, 2021, representing $82.1 million in purchases of marketable securities and $1.3 million in purchases of property and equipment, partially offset by proceeds from maturities and sales of marketable securities of $0.8 million. Net cash used in investing activities was $0.1 million for the year ended December 31, 2020, representing purchases of property and equipment.

Financing Activities

Net cash provided by financing activities for the year ended December 31, 2021 was primarily due to net proceeds of $100.1 million from the sale of Series E convertible preferred stock, including $1.1 million allocated to common stock warrants issued in connection with the sale of Series E convertible preferred stock, net proceeds of $66.6 million from our IPO, and $0.6 million in proceeds from options exercised, partially offset by $3.1 million and $4.5 million of loan and note repayments, respectively. Net cash provided by financing activities for the year ended December 31, 2020 was primarily due to $10.7 million of net proceeds from the sale of Series D convertible preferred stock and proceeds of $1.1 million from a loan payable, partially offset by $2.7 million of note repayments.

Future Funding Requirements

We expect to incur significant additional operating losses and negative cash flows for the foreseeable future. We expect our losses in the future to arise principally as a result of our commercialization activities for the PreTRM test, and to support additional clinical studies and anticipated research and development activities. We had no significant commercial revenue for the years ended December 31, 2021 and 2020, and we have no recurring sources of licensing or other revenue. There can be no assurance that we will eventually achieve significant revenues or profitability, or if achieved, can sustain

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either on a continuing basis. If we are unable to achieve significant revenues or raise additional funding, when needed, we may not be able to continue the development or commercialization of our diagnostic products and could be required to delay, scale back, or abandon some or all of our development programs and other operations. No assurance can be given that we will be successful in raising the required capital at reasonable cost and at the required times, or at all. Any additional equity financing may not be available on favorable terms, most likely will be dilutive to our current stockholders, and debt financing, if available, may involve restrictive covenants and dilutive financing instruments. Further, our operating plan may change, and we may need additional funds to meet operational needs and capital requirements for product development and commercialization sooner than planned. We currently have no credit facility or committed sources of capital. Our future funding requirements will depend on many factors, including the following:

•the timing, receipt, and amount of sales, if any, from the PreTRM test;

•the cost and timing of establishing sales, marketing, and other commercialization capabilities in the United States and abroad;

•our ability to develop and commercialize other products;

•the terms and timing of any collaborative, licensing, and other arrangements that we may establish;

•the cost, timing, and outcomes of regulatory approvals;

•the scope, rate of progress, results, and cost of our clinical studies, and other related activities;

•the cost of preparing, filing, prosecuting, defending, and enforcing any patent claims and other intellectual property rights;

•the extent to which we acquire or invest in businesses, products or technologies, although we currently have no commitments or agreements relating to any of these types of transactions;

•partnerships and other strategic options for our product and other product candidates; and

•other factors described in the “Risk Factors” section and elsewhere in this report.

We believe that our existing cash and cash equivalents will enable us to fund our operating expenses and capital expenditure requirements for at least the next 12 months.

Contractual Obligations and Commitments

Our material cash requirements include the following contractual and other obligations.

Leases

We have lease arrangements for certain equipment and facilities. As of December 31, 2021, we had future minimum lease payments of $0.7 million, with $0.7 million payable within 12 months.

Consulting Agreement

We have a consulting agreement with Blue Ox Healthcare Partners, LLC, or Blue Ox, to advise us on development of strategies with the goal to obtain widespread insurance coverage for the PreTRM test. As of December 31, 2021, we had future minimum payments under this agreement of $1.3 million, with $0.6 million payable within 12 months.

Off-Balance Sheet Arrangements

Since our inception, we have not engaged in any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

Critical Accounting Policies, Significant Judgments and Use of Estimates

Our management’s discussion and analysis of financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenue and expenses incurred during the reporting periods. Our estimates are based on our historical experience

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and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.

Stock-based Compensation

We maintain a stock-based compensation plan as a long-term incentive for employees and non-employee consultants. The plan allows for the issuance of incentive stock options and non-qualified stock options.

We recognize stock-based compensation expense for stock options on a straight-line basis over the requisite service period and estimate forfeitures based on historical evidence. Our stock-based compensation costs are based upon the grant date fair value of options estimated using the Black-Scholes option pricing model. Input assumptions used in calculating the fair value of stock-based awards represent management’s estimates and involve inherent uncertainties and the application of management’s judgment. These input assumptions include the expected term of the awards, the expected common stock price volatility over the term of the awards, risk-free interest rates, and the expected dividend yield. Changes in the assumptions can materially affect the fair value and ultimately how much stock-based compensation expense is recognized. We will continue to use judgment in evaluating the expected volatility, expected terms, and interest rates utilized for out stock-based compensation expense calculations on a prospective basis.

Prior to our IPO in July 2021, the fair value of our common stock underlying stock-based awards was estimated on each grant date by our board of directors. In order to determine the fair value of our common stock underlying option grants, our board of directors considered, among other things, valuations of our common stock prepared by an unrelated third-party valuation firm in accordance with the guidance provided by the American Institute of Certified Public Accountants Practice Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation. Prior to our IPO, we considered the fair value of our common stock, an input to the option pricing models, to be a critical accounting policy.

For all option grants subsequent to our IPO in July 2021, the fair value of our Class A common stock was determined by using the closing price per share of our Class A common stock as reported on Nasdaq.

Emerging Growth Company and Smaller Reporting Company Status

We are an emerging growth company, or EGC, as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. We elected to use the extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that we (1) are no longer an EGC or (2) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies, reduce disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and are exempt from the requirements of holding a nonbinding advisory vote on executive compensation and any golden parachute payments not previously approved. As an EGC, we are also not required to have our internal control over financial reporting audited by our independent registered public accounting firm pursuant to Section 404 of the Sarbanes-Oxley Act. As a result, our financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates and we are not required to provide auditor attestation regarding requirements of Section 404(b) of Sarbanes-Oxley.

We will remain an EGC until the earliest to occur of: (1) the last day of the fiscal year in which we have at least $1.07 billion in annual revenue; (2) the last day of the fiscal year in which we are deemed to be a “large accelerated filer,” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, (the "Exchange Act"), which would occur if the market value of our common stock held by non-affiliates exceeded $700.0 million as of the last business day of the second fiscal quarter of such year; (3) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period; and (4) December 31, 2026.

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We are also a “smaller reporting company” as defined in the Exchange Act. We may continue to be a smaller reporting company even after we are no longer an emerging growth company. We may take advantage of certain of the scaled disclosures available to smaller reporting companies until the fiscal year following the determination that the market value of our voting and non-voting common stock held by non-affiliates is more than $250 million measured on the last business day of our second fiscal quarter, or our annual revenues are less than $100 million during the most recently completed fiscal year and the market value of our voting and non-voting common stock held by non-affiliates is more than $700 million measured on the last business day of our second fiscal quarter.

Recent Accounting Pronouncements

A description of recent accounting pronouncements that may potentially impact our financial position, results of operations or cash flows is disclosed in Note 2—Significant Accounting Policies, appearing in Part II, Item 8 of this Annual Report on Form 10-K.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk

Our exposure to changes in interest rates relates primarily to interest earned and market value on our cash and cash equivalents and marketable securities.

Our cash and cash equivalents and marketable securities consist of cash held in banks, money market funds, commercial paper, U.S. government securities, U.S. federal agency securities and investment grade corporate securities. Our investment policy and strategy are focused on preservation of capital and supporting our liquidity requirements. Changes in U.S. interest rates affect the interest earned on our cash and cash equivalents and marketable securities, and the market value of those securities. A hypothetical 100 basis point increase in interest rates would have resulted in a decrease of $0.6 million in the market value of our available-for-sale debt securities as of December 31, 2021. Any realized gains or losses resulting from such interest rate changes would only occur if we sold the investments prior to maturity.

Foreign Currency

We do not regularly incur expenses with vendors outside the United States or that are denominated in currencies other than the U.S. dollar. We may incur such expenses in the future at which point exchange rate fluctuations might adversely affect our expenses, results of operations, financial position and cash flows. To date, exchange rate fluctuations have not had a material effect on our results of operations.

Effects of Inflation

Inflation generally affects us by increasing our costs of labor, laboratory supplies, and clinical trials. We do not believe inflation has had a material effect on our results of operations during the periods presented and do not anticipate a material impact going forward.

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Item 8. Financial Statements and Supplementary Data

INDEX TO FINANCIAL STATEMENTS

Page

Report of Independent Registered Public Accounting Firm (PCAOB ID: 42) 91

Balance Sheets 92

Statements of Operations and Comprehensive Loss 93

Statements of Convertible Preferred Stock and Stockholders' Equity (Deficit) 94

Statements of Cash Flows 95

Notes to Financial Statements 96

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Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Sera Prognostics, Inc.

Opinion on the Financial Statements

We have audited the accompanying balance sheets of Sera Prognostics, Inc. (the Company) as of December 31, 2021 and 2020, the related statements of operations and comprehensive loss, convertible preferred stock and stockholders’ equity (deficit) and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for the years then ended 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 the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2012.

Salt Lake City, Utah

March 29, 2022

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SERA PROGNOSTICS, INC.

Balance Sheets

(in thousands, except share and per share data)

December 31,

Assets

Current assets:

Marketable securities 46,183 —

Accounts receivable 27 2

Other receivables 3,116 —

Prepaid expenses and other current assets 1,993 198

Property and equipment, net 1,773 965

Long-term marketable securities 34,848 —

Liabilities, convertible preferred stock, and stockholders' equity (deficit)

Current liabilities:

Accrued and other current liabilities 3,885 1,577

Accrued interest on convertible note — 996

Deferred rent, current portion 139 130

Capital lease obligation, current portion 74 69

Deferred revenue 3,116 —

Convertible promissory note, current portion — 4,353

Loans payable, current portion — 3,676

Deferred rent — 139

Loans payable, net of current portion — 348

Preferred stock warrant liability — 474

Capital lease obligation, net of current portion 54 127

Commitments and contingencies (Note 13)

Convertible preferred stock:

Stockholders' equity (deficit):

Accumulated other comprehensive loss (183) —

The accompanying notes are an integral part of the financial statements

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SERA PROGNOSTICS, INC.

Statements of Operations and Comprehensive Loss

(in thousands, except share and per share data)

Year Ended December 31,

Operating expenses:

Cost of revenue 37 11

Other income (expense), net 1,132 (38)

Net loss per share, basic and diluted $ (2.33) $ (12.76)

Other comprehensive loss:

Unrealized loss on available-for-sale debt securities $ (183) $ —

Total other comprehensive loss (183) —

The accompanying notes are an integral part of the financial statements

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SERA PROGNOSTICS, INC.

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

(in thousands, except share and per share data)

Shares Amount Shares Amount Shares Amount

Stock-based compensation expense — — — — — — 726 — — 726

Stock warrant exercises — — — — 22,372 — — — — —

Stock-based compensation expense — — — — — — 3,130 — — 3,130

Other comprehensive loss — — — — — — — (183) — (183)

The accompanying notes are an integral part of the financial statements

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SERA PROGNOSTICS, INC.

Statements of Cash Flows

(in thousands)

Year EndedDecember 31,

Cash flows from operating activities

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization 659 895

Gain on extinguishment of PPP loan (1,050) —

Changes in operating assets and liabilities:

Accounts receivable (25) (2)

Other receivables (3,116) —

Prepaid expenses and other assets (1,880) (62)

Accrued and other current liabilities 1,388 174

Deferred revenue 3,116 —

Net cash used in operating activities (31,636) (16,868)

Cash flows from investing activities

Purchases of marketable securities (82,055) —

Proceeds from maturities and sales of marketable securities 800 —

Purchases of property and equipment (1,304) (149)

Net cash used in investing activities (82,559) (149)

Cash flows from financing activities

Proceeds from exercise of stock options 592 176

Proceeds from loan payable — 1,050

Payment of convertible note payable (4,494) (2,667)

Payment of loan payable (3,100) —

Capital lease principal payments (70) (85)

Net cash provided by financing activities 159,594 9,160

Net increase (decrease) in cash and cash equivalents 45,399 (7,857)

Cash and cash equivalents at beginning of period 13,533 21,390

Cash and cash equivalents at end of period $ 58,932 $ 13,533

Supplemental disclosure of cash flow information

Cash paid for interest $ 1,188 $ 250

Supplemental disclosure of non-cash investing and financing information

Purchases of property and equipment in accounts payable and accruals $ 154 $ 33

The accompanying notes are an integral part of the financial statements

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SERA PROGNOSTICS, INC.

Notes to Financial Statements

1. Description of Business and Financial Condition

Sera Prognostics, Inc. (the “Company”) is a women’s health company utilizing its proprietary proteomics and bioinformatics platform to discover, develop, and commercialize biomarker tests with an initial focus on improving pregnancy outcomes. The Company was incorporated in the State of Delaware on January 17, 2008 and its operations are located in Salt Lake City, Utah, including a Clinical Laboratory Improvement Amendments (“CLIA”)-certified laboratory.

Since its inception, the Company’s activities have consisted of performing research and development, conducting clinical studies, acquiring product rights, raising capital, establishing facilities, and organizing commercial operations to market the PreTRM test.

Liquidity and Capital Resources

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business.

The Company has incurred net losses and negative cash flows from operations since inception and had an accumulated deficit of $166.5 million as of December 31, 2021. The Company’s management expects the Company to incur significant additional operating losses and negative cash flows for the foreseeable future, principally as a result of the Company’s commercialization activities for the PreTRM test, and to support additional clinical and preclinical trials and anticipated research and development activities. The Company had no significant commercial product revenue for the year ended December 31, 2021 and has no recurring sources of licensing or other revenue. There can be no assurance that the Company will eventually achieve significant revenues or profitability to sustain operations, or if achieved, can sustain either on a continuing basis. If the Company is unable to achieve significant revenues or raise additional funds, when needed, it may not be able to continue the development or commercialization of its diagnostic products and could be required to delay, scale back, or abandon some or all of its development programs and other operations. No assurance can be given that the Company will be successful in raising the required capital on reasonable terms and at the required times, or at all. Any additional equity financing, if available to the Company, may not be available on favorable terms and may be dilutive to current stockholders, and any debt financing, if available, may involve restrictive covenants and dilutive financing instruments. The Company’s future operations are highly dependent on a combination of factors, including (i) the successful commercial launch and market acceptance of the PreTRM test; (ii) the success of clinical trials and other research and development programs; (iii) the development of competitive products by other biotechnology and laboratory companies; (iv) the Company’s ability to manage growth of the organization; (v) the Company’s ability to protect its intellectual property, technology, and products; and, ultimately (vi) the timely and successful completion of any additional financing.

The principal sources of the Company’s working capital to date have been the proceeds from the sale and issuance of convertible preferred stock and convertible notes, bank loans, and the sale and issuance of Class A common stock in an initial public offering ("IPO"), which was completed in July 2021. See Note 10—Capital Structure for additional details about the IPO. As of December 31, 2021, the Company had approximately $58.9 million in cash and cash equivalents and $81.0 million of marketable securities classified as available-for-sale. See Note 3—Cash, Cash Equivalents and Marketable Securities.

The Company believes that its existing financial resources are sufficient to continue operating activities at least 12 months from the issuance date of these financial statements.

2. Significant Accounting Policies

Basis of Presentation

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Any reference in these notes to applicable accounting guidance is meant to refer to the authoritative U.S. GAAP included in the Accounting Standards Codification (“ASC”), and Accounting Standards Updates (“ASU”) issued by the Financial Accounting Standards Board (“FASB”).

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Reverse Stock Split

On June 30, 2021, the Company’s board of directors (the “Board of Directors”) approved a 1-for-2.079 reverse stock split of the Company’s common stock and redeemable convertible preferred stock, which was effective by amendment to the Company’s charter on July 7, 2021. The par value and authorized shares of the common stock and redeemable convertible preferred stock were not adjusted as a result of the reverse stock split. All issued and outstanding common stock, warrants, options to purchase common stock and per share amounts contained in the financial statements have been retroactively adjusted to give effect to the reverse stock split for all periods presented.

Use of Estimates

The preparation of the financial statements in conformity with U.S. GAAP requires the Company’s management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, the Company evaluates its estimates, including those related to the determination of fair value of its stock options, fair value of its common and preferred stock warrants, fair value of its marketable securities, valuation of deferred tax assets resulting from net operating losses, and useful lives of property and equipment. 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. Actual results could differ materially from those estimates.

The COVID-19 pandemic and the rapidly evolving actions of governments, private sector participants and the public in an effort to contain the spread of the COVID-19 virus and address its impacts have intensified and have had significant direct and indirect effects on businesses and commerce. The extent to which the COVID-19 pandemic may impact the Company’s business, financial condition, cash flows, and results of operations, in particular, will depend on future developments that are highly uncertain, many of which are outside the Company’s control. Such developments include the availability and effectiveness of actions taken to contain or treat COVID-19, the ultimate geographic spread and duration of the pandemic, the extent and duration of a resurgence of the COVID-19 virus and variant strains thereof, new information concerning the severity of the COVID-19 virus, the effectiveness and intensity of measures to contain the COVID-19 virus and the economic impact of the pandemic and the reactions to it. Such developments, among others, depending on their nature, duration, and intensity, could have a significant adverse effect on the Company’s business, financial condition, cash flows, and results of operations.

There were no significant estimates contained in the preparation of the Company’s financial statements or impacts to the Company’s financial statements for the year ended December 31, 2021 that were a direct result of the COVID-19 pandemic. The Company is not aware of any specific event or circumstance that would require an update to its estimates, judgments and assumptions or a revision of the carrying value of the Company’s assets or liabilities as of the date of the financial statements.

Cash and cash equivalents

The Company considers all highly liquid financial instruments with maturities of 90 days or less at the date of purchase to be cash equivalents. As of December 31, 2021, cash and cash equivalents consisted of cash, money market funds, and commercial paper. As of December 31, 2020, cash and cash equivalents consisted of cash and money market funds. Cash and cash equivalents are stated at fair value.

Marketable Securities

The Company has classified its marketable securities, all of which are debt securities, as available-for-sale securities. These securities are carried at estimated fair value with any unrealized gains and losses, net of the related tax effect, included in accumulated other comprehensive loss in stockholders' equity (deficit) until realized. Gains and losses on marketable security transactions are reported on the specific-identification method.

A decline in the fair value of any available-for-sale security below cost that is deemed other than temporary results in a charge to other income (expense), net. The Company reviews several factors to determine whether a loss is other than temporary. These factors include but are not limited to: (i) the extent to which the fair value is less than cost and the cause for the fair value decline, (ii) the financial condition and near term prospects of the Company, (iii) the length of time a security is in an unrealized loss position and (iv) the Company's ability to hold the security for a period of time sufficient to allow for any anticipated recovery in fair value.

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Concentration of credit risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and marketable securities. The Company maintains bank deposits in accounts at federally insured financial institutions and these deposits may exceed federally insured limits. The Company is exposed to credit risk in the event of default by the financial institution holding its cash to the extent recorded in the balance sheet. The Company has not experienced any losses on its deposits of cash. The Company's cash equivalents consist of money market funds and investment grade commercial paper. Marketable securities consist of investments in U.S. government securities, U.S. federal agency securities, and investment grade corporate securities. The Company's investment portfolio in corporate debt securities is highly liquid and diversified among individual issuers. The Company did not experience any credit losses related to its investment portfolio for the year ended December 31, 2021.

Property and Equipment

Property and equipment are recorded at cost less accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method over the shorter of estimated useful lives of the assets or the respective lease term. The estimated useful life of each asset category is as follows:

Computer equipment 3 years

Software 3 years

Machinery and equipment 5 years

Furniture and fixtures 5 years

Leasehold improvements Shorter of useful life or remaining lease term

Amortization expense of assets acquired through capital leases is included in depreciation and amortization expense in the accompanying statements of operations and comprehensive loss. Costs of repairs and maintenance that do not extend the useful life or improve the related assets are expensed as incurred. Costs of major replacements or improvements are capitalized. When assets are sold, or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and any gain or loss is included in operating expense.

Leases

The Company rents its facilities under an operating lease agreement and recognizes related rent expense on a straight-line basis over the term of the lease. The lease agreement contains an incentive allowance, rent holidays, scheduled rent increases, and renewal options. Rent holidays and scheduled rent increases are included in the determination of rent expense to be recorded over the lease term. Renewals are not assumed in the determination of the lease term unless they are deemed to be reasonably assured at the inception of the lease. The Company recognizes rent expense beginning on the date it obtains the legal right to use and control the leased space.

Deferred Revenue

The Company recognizes deferred revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers ("ASC 606"). Deferred revenue is recognized when a customer pays consideration, or the Company has a right to an amount of consideration that is unconditional before the Company transfers the good or service to the customer. The Company's deferred revenue balance as of December 31, 2021 relates to certain contractual minimum payments received by the Company as part of its commercial collaboration agreements. Deferred revenue is recognized as revenue when the Company delivers PreTRM test results to customers pursuant to its commercial collaboration agreements.

Revenue Recognition

Revenue is generated from the sale of PreTRM tests. The Company recognizes revenue based on accounting standards applied to determine the measurement of revenue and timing of when it is recognized. The Company applies a five-step approach to: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company applies the five-step model when it is probable that the entity will collect the consideration it is entitled to in exchange for fulfilling its performance

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obligation. The Company recognizes revenue upon delivery of test results, which it considers to be the only performance obligation, and allocates all of the transaction price to this performance obligation.

Cost of Revenue

Cost of revenue reflects the aggregate costs incurred in delivering the proteomic testing results to clinicians and includes expenses for third-party specimen collection and shipping costs, as well as the Company’s lab personnel, materials and supplies, equipment and infrastructure expenses associated with clinical testing, and allocated overhead including rent and equipment depreciation. Costs associated with performing the Company’s tests are recorded as the tests are processed regardless of whether and when revenue is recognized with respect to such tests.

Research and Development Expenses

The Company expenses all research and development costs as they are incurred. Research and development expenses consist primarily of personnel costs, stock-based compensation charges, clinical trial costs, and third-party contracted services associated with research and development. The Company recognizes expense associated with third-party contracted services based on the completion of activities as specified in the applicable contracts. Costs incurred under contracts with clinical sites are generally accrued as patient encounters occur, consistent with the terms outlined in the associated contract. Upon termination of contracts with third parties, the Company’s obligations are limited to costs incurred or committed to date. As a result, accrued research and development expenses represent the estimated contractual liability to third parties at the reported period.

Stock-based Compensation

The Company recognizes stock-based compensation for all stock-based awards in accordance with ASC 718, Compensation-Stock Compensation, which requires an entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award.

The Company estimates the fair value of share-based awards issued under its employee compensation plans using the Black-Scholes option pricing model. Input assumptions used in calculating the fair value of stock-based awards represent management’s estimates and involve inherent uncertainties and the application of management’s judgment. These input assumptions include the expected term of the awards, the expected common stock price volatility over the term of the awards, risk-free interest rates, and the expected dividend yield.

Prior to the Company's IPO in July 2021, the fair value of the Company's common stock underlying stock-based awards was estimated on each grant date by the Board of Directors. In order to determine the fair value of the Company's common stock underlying option grants, the Board of Directors considered, among other things, valuations of the Company's common stock prepared by an unrelated third-party valuation firm in accordance with the guidance provided by the American Institute of Certified Public Accountants Practice Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation. For all option grants subsequent to the Company's IPO in July 2021, the fair value of the Company's Class A common stock was determined by using the closing price per share of the Company's Class A common stock as reported on Nasdaq. The Company uses the simplified calculation of expected life. Volatility is based on an average of the historical volatility of the Company's common stock and the volatilities of the common stock of select comparable publicly-traded entities with characteristics similar to those of the Company. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected life of the option. Forfeitures are estimated at the time of grant based on the Company’s historical experience and are adjusted as necessary. The fair value of equity awards is recognized as compensation cost on a straight-line basis by the Company over the employee’s requisite service period (vesting period). All stock-based compensation costs are recorded in the statements of operations and comprehensive loss based upon the underlying employee’s role within the Company.

Income Taxes

The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

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The Company recognizes deferred tax assets to the extent that it believes these assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If the Company determines that it would be able to realize its deferred tax assets in the future in excess of their net recorded amount, the Company would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.

The Company records uncertain tax positions in accordance with ASC 740 on the basis of a two-step process whereby (1) it determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, it recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

The Company recognizes interest and penalties related to unrecognized tax benefits within the income tax expense line in the accompanying statements of operations and comprehensive loss. Any accrued interest and penalties related to uncertain tax positions will be reflected as a liability in the balance sheets.

Retirement Savings Plan

The Company sponsors a 401(k) plan that covers all of the Company's eligible employees. Employees may contribute to the plan amounts of their pre-tax salary subject to statutory limitations. Annually, the Board of Directors determines the amount, if any, of a Company match. The Company did not provide a match for the years ended December 31, 2021 and 2020.

Segments

The Company operates as one operating segment, which is developing and commercializing its medical diagnostic products. The Company’s chief operating decision maker, its chief executive officer, reviews financial information on an aggregate basis for making decisions regarding resource allocation and assessing performance.

Comprehensive Loss

Comprehensive loss consists of net loss and other gains and losses affecting stockholders’ equity (deficit) that, under U.S. GAAP, are excluded from net loss. For the year ended December 31, 2021, comprehensive loss includes unrealized losses on the Company's available-for-sale debt securities. For the year ended December 31, 2020, comprehensive loss was the same as net loss.

Net Loss per Share

Basic net loss per share is calculated by dividing net loss by the weighted-average number of shares of common stock outstanding for the period, without consideration of potentially dilutive securities. Diluted net loss per share is computed by dividing net loss by the weighted-average number of shares of common stock and potentially dilutive securities outstanding for the period. For purposes of the diluted net loss per share calculation, stock options and warrants to purchase common stock are considered to be potentially dilutive securities. For periods in which the Company reports a net loss, all potentially dilutive shares are anti-dilutive and are therefore excluded from the calculation of diluted net loss per share.

After the Company's IPO, the Company has two classes of common stock and calculates net loss per share using the two-class method. The rights, including the liquidation and dividend rights, of the holders of the Company's Class A and Class B common stock are identical, except with respect to voting and conversion. The undistributed earnings for each period are allocated based on the contractual participation rights of the Class A and Class B common shares as if the earnings for the period had been distributed. As the liquidation and dividend rights are identical, the undistributed earnings are allocated on a proportionate basis and the resulting amount per share for Class A and Class B common stock was the same for the year ended December 31, 2021.

The Company issued certain shares of convertible preferred stock that were outstanding until the Company's IPO and were concluded to be participating securities. For the year ended December 31, 2020, there was only one class of common stock outstanding. Due to the presence of participating securities, the Company calculated net loss per share for the year ended December 31, 2020 using the more dilutive of the treasury stock or the two-class method. For periods presented in

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which the Company reports a net loss, the losses are not allocated to the participating securities. As the Company reported a net loss for the year ended December 31, 2020, diluted net loss per share was the same as basic net loss per share, since dilutive common shares are not assumed to have been issued if their effect is anti-dilutive.

Emerging Growth Company Status

The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it is (a) no longer an emerging growth company or (b) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, these financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.

Recently Issued Accounting Pronouncements Not Yet Adopted

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). Under the new guidance, lessees will be required to recognize a lease liability and a right-of-use asset for all leases (with the exception of short-term leases) at the commencement date. The standard was effective for public entities for fiscal years beginning after December 15, 2018 and for private companies for fiscal years beginning after December 15, 2021. The Company expects to adopt this new standard on January 1, 2022 and currently anticipates approximately $0.6 million of new lease liabilities and $0.5 million of new right-of-use assets related to its operating leases to be recorded as of the adoption date.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This standard removes certain exceptions for investments, intra-period allocations and interim calculations, and adds guidance to reduce complexity in accounting for income taxes. This standard will be effective for the Company on January 1, 2022, with early adoption permitted. The Company is currently evaluating the potential impact this standard may have on its financial statements and disclosures.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The objective of the standard is to provide information about expected credit losses on financial instruments at each reporting date and to change how other-than-temporary impairments on investment securities are recorded. The guidance is effective for the Company beginning on January 1, 2023, with early adoption permitted. The Company is currently evaluating the impact the standard may have on its financial statements and related disclosures.

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants, and the SEC did not, or are not believed by the Company’s management to, have a material impact on the Company’s financial position, results of operations or cash flows.

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3.Cash, Cash Equivalents and Marketable Securities

The Company has classified its marketable securities as available-for-sale. The Company's cash, cash equivalents and marketable securities by major security type as of December 31, 2021 were as follows (in thousands):

Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value

Cash and cash equivalents:

Cash $ 70 $ — $ — $ 70

Current marketable securities:

Long-term marketable securities:

Corporate debt securities 520 — (3) 517

The Company had no marketable securities as of December 31, 2020. As of December 31, 2021, the Company had no available-for-sale debt securities that had been in a continuous unrealized loss position for a period greater than 12 months. The Company determined that no available-for-sale securities were other-than-temporarily impaired as of December 31, 2021. The Company attributes the declines in the fair value of its available-for-sale securities to normal market and interest rate fluctuations. The declines in fair value are not attributed to declines in credit quality. The Company does not intend to sell investments while they are in an unrealized loss position and does not believe that it is more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity.

The Company's marketable securities classified by contractual maturities as of December 31, 2021 were as follows (in thousands):

Amortized Cost Fair Value

Due after one year through five years 35,001 34,848

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4. Property and Equipment

The following table presents the components of property and equipment, net, as of December 31, 2021 and 2020 (in thousands):

December 31,

Less accumulated depreciation and amortization (5,967) (5,362)

Property and equipment, net $ 1,773 $ 965

As of December 31, 2021 and 2020, $3.0 million of the Company’s laboratory equipment was subject to capital leases, which had recorded accumulated amortization of $2.9 million and $2.6 million, respectively. Associated amortization expense, included with depreciation expense, for the years ended December 31, 2021 and 2020 totaled $0.3 million and $0.6 million, respectively.

Depreciation and amortization expense was $0.7 million and $0.9 million for the years ended December 31, 2021 and 2020, respectively.

5. Accrued and Other Current Liabilities

The following table presents the components of accrued and other current liabilities as of December 31, 2021 and 2020 (in thousands):

December 31,

Bank loan final payment fee — 100

Other current liabilities 927 191

Total accrued and other current liabilities $ 3,885 $ 1,577

6. Other Income (Expense), net

The following table presents the components of other income (expense), net, for the years ended December 31, 2021 and 2020 (in thousands):

Year EndedDecember 31,

Interest income $ 145 $ 42

Fair value remeasurements (15) (80)

Gain on extinguishment of PPP loan 1,050 —

Other losses, net (48) —

Other income (expense), net $ 1,132 $ (38)

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7. Loans and Convertible Promissory Notes

Bank Loan

In 2014, through a Loan and Security Agreement (the “Loan Agreement”) with a bank, the Company obtained a term loan for $10.0 million. The Loan Agreement, as amended, had a final repayment date of September 1, 2021. Repayment of amounts borrowed were paid in equal monthly installments of principal, plus all accrued interest. The loan bore interest, on the outstanding daily balance, equal to the greater of 1.0% above the Prime Rate then in effect, or 4.75%. In addition, the Loan Agreement required a Final Payment Fee (as defined in the Loan Agreement) equal to one-percent of the aggregate principal amount borrowed, or $0.1 million. In March 2021, the Company repaid the outstanding principal of $2.0 million, accrued interest of $6 thousand, and the Final Payment Fee of $0.1 million related to this loan.

Convertible Promissory Note

In February 2019, the Company authorized the issuance of a $6.4 million subordinated convertible promissory note (the “February 2019 Convertible Note”) to a current stockholder, bearing 12% interest and a maturity date of February 26, 2021, to provide liquidity and additional working capital. On February 15, 2021, the maturity date was extended to March 28, 2021. The February 2019 Convertible Note was convertible at the option of the holder into shares of Series D Convertible Preferred Stock at a conversion price equal to 80% of the issuance price of the Series D Convertible Preferred Stock of $9.03 per share. In July 2019, $1.9 million of the $6.4 million February 2019 Convertible Note’s principal and $0.1 million of accrued interest were converted into 277,507 shares of the Company’s Series D Preferred Stock.

The conversion feature of the February 2019 Convertible Note met the requirements for separate accounting and was recognized as a liability at the measurement date fair value of $2.4 million, subject to remeasurement to fair value, with any changes in estimated fair value recognized as a component of other income (expense), net. A corresponding discount, which reduced the carrying value of the February 2019 Convertible Note, was also recorded. The unamortized discount was written off in proportion to the partial conversion, with the remaining discount accreted to interest expense until maturity. The Company recognized additional interest expense of $0.1 million and $0.8 million from accretion of the discount during the years ended December 31, 2021 and 2020, respectively.

On March 24, 2021, the Company repaid the outstanding principal of $4.5 million and accrued interest of $1.1 million related to the February 2019 Convertible Note.

Paycheck Protection Loan

In April 2020, the Company obtained a $1.1 million loan through the Bank under the Paycheck Protection Program (“PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), as amended. The loan’s purpose was to maintain payroll and make rent and utilities payments as specified under the terms of the PPP. Under the PPP, borrowers may apply for loan forgiveness if the funds are used for payroll costs, mortgage interest, rent, and utilities payments over a specified term following receipt of the loan funds. During the term of the agreement, the Company utilized the loan funds for forgivable purposes and applied for forgiveness. In June 2021, the outstanding $1.1 million PPP loan was forgiven and removed from the Company’s balance sheet. As a result of the forgiveness of the PPP loan, a $1.1 million gain on extinguishment was recorded in other income (expense), net for the year ended December 31, 2021.

8. Fair Value Measurements

As of December 31, 2021 and 2020, the carrying amounts of the Company’s receivables, prepaid and other current assets, accounts payable, and accrued and other current liabilities approximate their fair values, principally due to the short-term nature of the assets and liabilities. The recorded values of the capital leases approximate fair value as the interest rates approximate market interest rates.

The Company follows a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. The three levels of the fair value hierarchy are as follows:

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Level 1 inputs are observable, quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company can access at the measurement date.

Level 2 inputs are observable inputs other than quoted prices included in Level 1 that are observable either directly or indirectly or quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 inputs are unobservable inputs in which there is little or no market data, which require the Company to develop its own assumptions.

Concurrent with the Company's IPO, the outstanding preferred stock warrants were converted to common stock warrants. As such, there were no preferred stock warrants outstanding at December 31, 2021. Immediately prior to the conversion, the Company adjusted the fair value of the preferred stock warrants using the Black-Scholes option pricing model based on the publicly available fair value of the Company's common stock on the pricing date of the Company's IPO along with other significant unobservable inputs. The fair value of the preferred stock warrant liability was then reclassified to equity upon conversion.

In prior periods, the Company’s convertible preferred stock warrant liability was valued using Level 3 inputs in a Black-Scholes option pricing model (see Note 12 — Warrants). The Company, utilizing a third-party valuation firm to assist with the estimation of the fair value of common stock, employed a hybrid method of option-pricing model (OPM) and Probability-Weighted Expected Return Method (“PWERM”). Under the hybrid OPM and PWERM approach, the per share value calculated under OPM and PWERM were weighted based on expected exit outcomes and the quality of the information specific to each allocation methodology to arrive at a final estimated fair value per share of the common stock before a discount for lack of marketability was applied. This model also calculated the fair value of the other classes of equity, including preferred shares. This estimated preferred stock value, along with other significant unobservable inputs, was an input into a Black-Scholes option pricing model, which calculated the fair value of the preferred stock warrant liability.

The other significant unobservable inputs in this calculation were the remaining expected term, which considered the timing of a liquidation event that would net settle the awards before their contractual term expired, and the expected equity volatility, which is a statistical measure of the dispersion of returns for a given security. Volatility was determined based on select comparable public guideline companies in the same business sector. The following table summarizes the significant unobservable inputs used to value the Company’s preferred stock warrant liability:

Range Weighted-Average

Fair value per share of common stock $7.09 - $15.29 $ 9.49

Expected term (in years) 1.7 - 9.1 5.3

Significant increases (decreases) in the term would have resulted in significantly higher (lower) fair value measurements. Significant increases (decreases) in the volatility would have resulted in significantly higher (lower) fair value measurements.

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The following table shows the Company’s assets measured at fair value on a recurring basis by level within the fair value hierarchy (in thousands) as of December 31, 2021:

Level 1 Level 2 Level 3

Assets:

Cash equivalents:

Money market funds $ 4,021 $ — $ —

Commercial paper — 54,841 —

Marketable securities:

Commercial paper — 39,672 —

Corporate debt securities — 7,028 —

U.S. federal agency securities — 25,675 —

U.S. government securities — 8,656 —

The following table shows the Company’s assets and liabilities measured at fair value on a recurring basis by level within the fair value hierarchy (in thousands) as of December 31, 2020:

Level 1 Level 2 Level 3

Assets:

Cash equivalents $ 13,533 $ — $ —

Liabilities:

Warrant liability — — 474

A table providing a roll forward of the fair value of the Company’s convertible preferred stock warrant liability for the year ended December 31, 2021 is included in Note 12 — Warrants.

9. Related Party Transactions

In January 2017, Laboratory Corporation of America (“LabCorp”) and the Company entered into a strategic commercialization agreement contemporaneously with LabCorp’s participation in the Company’s sale of Series C Convertible Preferred Stock, par value $0.0001 per share. Under the agreement with LabCorp, amended in 2018, LabCorp is a non-exclusive distributor of the PreTRM test and performs certain specimen collection, processing and shipping services, for a fee. The Company paid fees related to this agreement of less than $0.1 million for each of the years ended December 31, 2021 and 2020.

In July 2019, the Company entered into a consulting agreement with Blue Ox Healthcare Partners, LLC (“Blue Ox”) to advise the Company on development of strategies with the goal to obtain widespread insurance coverage for the PreTRM test. Contemporaneously with the consulting agreement, Blue Ox participated in the initial closing of the Series D Convertible Preferred Stock financing in July 2019. In October 2021, the Company entered into an additional consulting agreement with Blue Ox to advise the Company on development of strategies with the goal of increasing Medicaid coverage of the PreTRM test. Payments for this additional consulting agreement are based on the achievement of specific milestones. The Company paid fees related to these consulting agreements of $0.6 million and $0.4 million for the years ended December 31, 2021 and 2020, respectively.

In June 2019, the Company entered into a master services agreement with Healthcore, Inc., a wholly-owned subsidiary of Anthem, Inc. (“Anthem”). This agreement covers a range of research projects, including Healthcore’s role as a contract research organization for the Prematurity Risk Assessment Combined With Clinical Interventions for Improving Neonatal outcoMEs (“PRIME”) study. The Company paid fees related to this agreement of $1.8 million and $1.2 million for the years ended December 31, 2021 and 2020, respectively. In November 2020, the Company entered into a Laboratory Services Agreement with Anthem related to the PRIME study. This agreement provides a contracted rate for certain tests performed pursuant to the study. The Company recognized revenues related to this agreement of $56 thousand for the year ended December 31, 2021.

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In February 2021, the Company entered into a Commercial Collaboration Agreement with Anthem and its affiliates (the “Commercial Collaboration Agreement”). The Commercial Collaboration Agreement provides defined payment within a defined period for use of the PreTRM test within Anthem’s network of covered members. Pursuant to the Commercial Collaboration Agreement, Anthem will purchase a certain minimum number of tests for each of the first three years of the term of the Commercial Collaboration Agreement. Additionally, Anthem has agreed to pay a certain minimum amount per year for the first three years of the term of the Commercial Collaboration Agreement. As of December 31, 2021, the Company recorded $3.1 million in other receivables related to such minimum payments, which was received in January 2022. The Company has also agreed to develop a sales, marketing, and customer service program, and to provide training and marketing to duly licensed physicians specializing in obstetrics and gynecology or family medicine, or licensed nurse midwives, at the reasonable request of Anthem.

The Company and Anthem have agreed to form a Joint Operating Committee to oversee the relationship, comprised of two voting members each from Anthem and the Company. The Company will submit monthly invoices to Anthem for the sale of the PreTRM test at the negotiated rates. Anthem has been participating in the Company’s PRIME study and at the conclusion of the PRIME study, under the Commercial Collaboration Agreement, the Company has agreed to enter into Anthem’s standard lab provider agreement. Unless earlier terminated due to breach, the Commercial Collaboration Agreement will remain in effect until the later of (a) the third anniversary of the effective date or (b) the date on which Anthem has purchased a fixed number of PreTRM tests as agreed by the parties.

The Commercial Collaboration Agreement with Anthem is considered to be within the scope of ASC Topic 808, Collaborative Arrangements (“ASC 808”), as the parties are active participants and exposed to the risks and rewards of the collaborative activity. The Company determined the PreTRM tests to be a performance obligation for which Anthem is a customer and a unit of account within the scope of ASC 606. The associated transaction price is based on the contractual minimum number of tests and the agreed upon defined payment amount per test. The transaction price was allocated to this single performance obligation, which will be recognized upon delivery of test results expected to occur over the term of the agreement. All other items promised to Anthem are immaterial in the context of the Commercial Collaboration Agreement. There were no material revenues related to the Commercial Collaboration Agreement for the year ended December 31, 2021.

10. Capital Structure

On July 19, 2021, the Company completed its IPO and issued 4,687,500 shares of its Class A common stock at a price of $16.00 per share for net proceeds of approximately $66.6 million, after deducting underwriting discounts and commissions and offering expenses payable by the Company. In connection with the IPO, all shares of convertible preferred stock converted into 22,434,130 shares of Class A common stock and 1,405,259 shares of Class B common stock.

Common Stock

The Company has two authorized classes of common stock, Class A and Class B. The rights of the holders of Class A and Class B common stock are identical, except with respect to voting and conversion. Each share of Class A common stock is entitled to one vote and shares of Class B common stock are non-voting. Each share of Class B common stock may be converted at any time to one share of Class A common stock at the option of its holder, subject to the ownership limitations provided for in the Company's amended and restated certificate of incorporation.

The Company is authorized to issue up to 150,000,000 shares of Class A common stock, par value $0.0001 per share and 1,500,000 shares of Class B common stock, par value $0.0001 per share. There were 29,368,867 and 1,700,625 shares of Class A common stock issued and outstanding at December 31, 2021 and 2020, respectively. There were 1,405,259 and 0 shares of Class B common stock issued and outstanding at December 31, 2021 and 2020, respectively.

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The following shares of Class A common stock were reserved for future issuance:

December 31,

Senior convertible preferred stock — 5,737,440

Junior convertible preferred stock — 9,819,480

Shares issuable under convertible note — 665,699

Warrants to purchase convertible preferred stock — 81,543

As of December 31, 2021, all deferred offering costs related to the Company's IPO, totaling $3.1 million, had been reclassified to additional paid-in capital. As of December 31, 2020, approximately $26 thousand of deferred offering costs related to an equity offering were recorded within other assets.

Convertible Preferred Stock

In connection with the IPO, all shares of convertible preferred stock converted into 22,434,130 shares of Class A common stock and 1,405,259 shares of Class B common stock. No new convertible preferred stock has been issued since the IPO, and as such, there was no convertible preferred stock outstanding as of December 31, 2021.

Authorized, issued and outstanding convertible preferred stock and its principal terms as of December 31, 2020 were as follows (in thousands, except share and per share amounts):

In connection with various preferred stock financings, the Company issued warrants to purchase common stock and warrants to purchase preferred stock. See Note 12 — Warrants for additional details.

Preferred Stock

The Company is authorized to issue up to 5,000,000 shares of preferred stock, par value $0.0001 per share. There were no preferred shares outstanding at December 31, 2021.

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11. Stock-Based Compensation

Equity Incentive Plans

In November 2011, the Company established the 2011 Employee, Director and Consultant Equity Incentive Plan (the “2011 Plan”) and reserved shares of the Company’s common stock for sale and issuance under the 2011 Plan. The 2011 Plan provides for the grant of incentive and non-statutory stock options as well as restricted stock to employees, non-employee directors, and consultants of the Company, which are to be granted at a price that is not less than 100% of the fair value of the stock at the date of grant. Options and restricted stock generally vest over a four-year period and options generally expire ten years from the date of grant. Options are exercisable only to the extent vested. The 2011 Plan terminated in November 2021, and accordingly, no additional shares are available for grant under the 2011 Plan. The 2011 Plan continues to govern outstanding awards granted under the plan.

The 2021 Equity Incentive Plan (the “2021 Plan”) was adopted by the Board of Directors on June 30, 2021, approved by the Company’s stockholders in July 2021 and became effective in connection with the closing of the IPO. The 2021 Plan provides for the grant of incentive and non-statutory stock options as well as restricted stock to employees, directors and consultants of the Company. Options and restricted stock generally vest over a four-year period and options generally expire ten years from the date of grant. Options are exercisable only to the extent vested. A total of 3,966,162 shares of Class A common stock were initially reserved for issuance under the 2021 Plan. The number of shares of Class A common stock reserved for issuance under the 2021 Plan will also be increased pursuant to provisions for annual automatic increases. In addition, any shares that otherwise would be returned to the 2011 Plan as a result of the expiration or cancellation of stock options may be added to the 2021 Plan. As of December 31, 2021, there were 3,136,737 shares of the Company's Class A common stock that were available for future grants under the 2021 Plan.

The 2021 Employee Stock Purchase Plan (the “2021 ESPP”) was adopted by the Board of Directors on June 30, 2021, approved by the Company’s stockholders in July 2021 and became effective in connection with the closing of the IPO. A total of 305,089 shares of Class A common stock were initially reserved for issuance under the 2021 ESPP. In addition, the number of shares reserved for future issuance under the 2021 ESPP will be increased pursuant to provisions for annual automatic evergreen increases. As of December 31, 2021, no shares had been granted under the 2021 ESPP.

Stock Options

Unless otherwise noted, references to “options” in the subsequent disclosures, refers to the combined incentive and non-statutory stock options issued as employee and non-employee stock-based compensation, and authorized under the 2011 Plan and the 2021 Plan. The following table summarizes information about these options granted and outstanding:

The weighted-average grant date fair value of options granted during the years ended December 31, 2021 and 2020 was $5.64 and $0.93 per share, respectively. The total aggregate intrinsic value of options exercised during the years ended December 31, 2021 and 2020 was $3.3 million and $0.1 million, respectively. The total fair value of options vested for the years ended December 31, 2021 and 2020 was $2.2 million and $0.6 million, respectively.

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The fair values calculated using the Black-Scholes option pricing model were estimated on each grant date using the following assumptions:

Year EndedDecember 31,

Risk-free interest rate 0.8% - 1.6% 0.4% - 1.2%

Expected dividend yield — % — %

The following table presents the impact of stock-based compensation expense in the statements of operations for the periods indicated (in thousands):

Year EndedDecember 31,

Research and development expense $ 1,046 $ 235

Sales and marketing expense 657 139

General and administrative expense 1,427 352

Total employee stock-based compensation $ 3,130 $ 726

At December 31, 2021, there was $12.2 million of unrecognized stock-based compensation cost related to unvested stock options which is expected to be recognized over a weighted average period of 3.1 years.

12. Warrants

Warrants to purchase common stock

A certain investor of Series E Convertible Preferred Stock also received 722,223 warrants to purchase shares of Class A common stock of the Company at a price of $20.77 per share. Because these warrants are equity classified, the Company allocated the relative fair value of the cash proceeds between the Series E Convertible Preferred Stock and the warrants. Proceeds allocated to these common stock warrants on a relative fair value basis, calculated using the Black-Scholes option pricing model, were $1.1 million and were recognized as a component of additional paid-in capital in the accompanying financial statements. As an equity instrument, these warrants are not required to be remeasured to their fair value each reporting period.

Concurrent with the Company's IPO, all outstanding preferred stock warrants were converted to an equal number of Class A common stock warrants. Converted warrants retained the same exercise prices.

All outstanding common stock warrants were exercisable immediately when granted. All outstanding common stock warrants are exercisable for shares of Class A common stock. The Company's common stock warrants outstanding were as follows:

Number of Warrants Outstanding as of:

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The following is a summary of the Company's common stock warrant activity for the year ended December 31, 2021:

Number of Warrants

Issued in connection with sale of Series E convertible preferred stock 722,223

Exercised, net shares issued (22,372)

Cancelled for net exercise (12,500)

Warrants to purchase preferred stock

In connection with the issuance of Series D Convertible Preferred Stock, the Company issued warrants to purchase shares of Series D Convertible Preferred Stock. These warrants were exercisable for cash immediately when granted, and had a ten-year expiration. The initial fair value of these warrants was calculated using the Black-Scholes option pricing model and recorded as a reduction to additional paid-in capital and a corresponding preferred stock warrant liability.

Any changes in the fair value of this warrant liability are recorded in other income (expense), net. Total adjustments to the fair value of this warrant liability resulted in other expense of $15 thousand and $0.1 million during the years ended December 31, 2021 and 2020, respectively.

In connection with various debt financings, refinancing, and amendments to the Loan Agreement with the Bank, the Company has, from time to time, issued warrants to purchase shares of convertible preferred stock. Each of these warrants were exercisable for cash immediately when granted and had a ten-year expiration. The initial fair value of each these warrants was calculated using the Black-Scholes option pricing model and recorded as a reduction to the carrying value of the bank loan payable and a corresponding preferred stock liability in the year of issuance. Any changes in the fair value of these warrant liabilities are recorded in interest expense. Total adjustments to the fair value of these warrant liabilities during the years ended December 31, 2021 and 2020 resulted in $0.4 million and $0.2 million of interest expense, respectively.

Concurrent with the Company's IPO, all outstanding preferred stock warrants were converted to an equal number of Class A common stock warrants. Immediately prior to the conversion, the Company adjusted the preferred stock warrant liability to fair value. See Note 8—Fair Value Measurements. The fair value of the preferred stock warrant liability was then reclassified to equity upon conversion to common stock warrants. As such, there were no outstanding warrants to purchase convertible preferred stock as of December 31, 2021, and no corresponding preferred stock warrant liability. The following table summarizes the warrants to purchase convertible preferred stock and the fair value as of December 31, 2020 (in thousands, except share and per share amounts):

Fair Value as of

Series Grant Date Number ofWarrants ExercisePrice December 31,2020

As of December 31, 2020, the fair value of preferred stock warrants outstanding was $0.5 million and was recorded in warrant liability as a long-term liability in the accompanying balance sheets.

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The following is a summary of the Company’s preferred stock warrant liability activity for the year ended December 31, 2021 (in thousands):

Warrant LiabilityOutstanding

Outstanding — December 31, 2021 $ —

13. Commitments and Contingencies

Operating Leases

The Company leases a total of approximately 24,100 square feet of office and laboratory space under a single non-cancelable operating lease with a termination date of December 31, 2022. Under the terms of the lease agreement, the Company has an option to renew the lease for one additional five-year rental period. The lease included a tenant improvement allowance from the landlord for structural and cosmetic changes to the new space. The tenant improvements were completed and delivery of possession occurred on September 1, 2018. The tenant improvement allowance has been accounted for as a liability of the Company within deferred rent and is amortized monthly as a reduction to rent expense. A corresponding leasehold improvement asset has been recorded with monthly depreciation being recorded as depreciation expense.

Scheduled base rent increases of 3% occur annually each August. The Company recognizes rent expense on a straight-line basis over the term of the operating lease. The difference in actual amounts paid and amounts recorded as rent expense during the period was recorded as deferred rent on the accompanying balance sheets. For the years ended December 31, 2021 and 2020, the Company recognized rent expense of $0.4 million. Amounts classified as deferred rent at December 31, 2021 and 2020 totaled $0.1 million and $0.3 million, respectively.

Capital Leases

The full value of all leased equipment, including advance payments, are classified as assets on the Company’s balance sheets. The portion of the future payments designated as principal repayment are classified as a capital lease obligation. As of December 31, 2021, the Company classified the aggregate amount of scheduled capital lease obligation payments due within twelve months of the date of the financial statements, $0.1 million, as a current liability, and the remaining $0.1 million due thereafter, in other liabilities.

The following table presents the Company’s future minimum lease payments as of December 31, 2021 (in thousands):

Operating leases $ 604 $ — $ — $ 604

Indemnification

The Company has agreed to indemnify its officers and directors for certain events or occurrences, while the officer or director is or was serving at the Company’s request in such capacity. The maximum amount of potential future indemnification is unlimited; however, the Company purchases director and officer insurance coverage that provides for corporate reimbursements of covered obligations that limits the Company’s exposure and enables it to recover a portion of potential future amounts paid. The Company is unable to reasonably estimate the maximum amount that could be payable under these arrangements since these obligations are not capped but are conditional to the unique facts and circumstances involved. Accordingly, the Company has no liabilities recorded for these agreements as of December 31, 2021 and 2020. The Company has never incurred costs to defend lawsuits or settle claims related to these indemnification agreements.

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Employee Agreements

The Company has signed various employment agreements with key executives pursuant to which if their employment is terminated by the Company without cause or by the employees for good reason, or following a change of control of the Company, the employees are entitled to receive certain benefits, including severance payments, accelerated vesting of stock and stock options, and certain insurance benefits.

Legal Matters

The Company is not currently a party to any material litigation or other material legal proceedings. The Company may, from time to time, be involved in various legal proceedings arising from the normal course of business activities, and an unfavorable resolution of any of these matters could materially affect the Company’s future results of operations, cash flows, or financial position.

14. Income Taxes

The Company has not recorded any income tax expense for the years ended December 31, 2021 and 2020 due to its history of operating losses.

The provision for income taxes includes the following components for the years ended December 31, 2021 and 2020 (in thousands):

Year EndedDecember 31,

Current:

Federal $ — $ —

State — —

Total current benefit (provision) $ — $ —

Deferred:

Change in valuation allowance (9,288) (5,156)

Total deferred benefit (provision) $ — $ —

Total income tax benefit (provision) $ — $ —

The benefit (provision) for income taxes differs from the amount computed at federal statutory rates as follows (in thousands):

Year Ended December 31,

State income taxes, net of federal benefit 998 2.85 % 1,065 5.36 %

State net operating loss carryforward true up (72) (0.21) % 49 0.25 %

Change in statutory rates (16) (0.05) % — — %

PPP loan forgiveness 221 0.63 % — — %

Income tax benefit (provision) $ — — % $ — — %

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Significant components of the Company’s net deferred income tax assets (liabilities) are as follows (in thousands):

December 31,

Deferred tax assets:

Equity-based compensation 628 220

Depreciation and amortization 5 —

Total deferred tax asset before allowance 43,153 33,908

Total deferred tax asset — 44

Deferred tax liabilities:

Depreciation and amortization — (44)

Net deferred tax assets $ — $ —

Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. A significant piece of objective negative evidence evaluated is the cumulative loss incurred since inception. Such objective evidence limits the ability to consider other subjective evidence such as the Company’s projections for future growth.

On the basis of this evaluation, a full valuation allowance of $43.2 million and $33.9 million has been recorded as of December 31, 2021 and 2020, respectively, as it is more likely than not that the deferred tax assets will not be realized. The valuation allowance increased by $9.3 million and $5.2 million for the years ended December 31, 2021 and 2020, respectively. Accordingly, there is no tax benefit presented in the accompanying financial statements.

The Company is subject to minimum taxes in several of the state jurisdictions where it files income tax returns. The amounts paid are immaterial and not presented above as a component of the current state tax provision.

As of December 31, 2021, the Company had U.S. federal and state net operating loss carryforwards of approximately $159.9 million and $96.0 million, respectively. Of the federal net operating loss carryforward amount, $89.6 million can be carried forward indefinitely, while the remainder begins to expire after 2028, if not utilized. The state net operating loss carryforward amounts begin to expire at various dates after 2023.

Because of the change of ownership provisions of the Tax Reform Act of 1986, use of a portion of the Company’s NOL and tax credit carryforwards may be limited in future periods. Further, a portion of the carryforwards may expire before being applied to reduce future income tax liabilities. There are currently no federal or state tax audits in progress. All prior tax years remain subject to examination by Federal and State of Utah authorities due to the existence of net operating loss carryforwards.

The Company recognizes the tax benefit of an uncertain tax position only if it is more likely than not that a tax position will be sustained upon examination by the appropriate taxing authorities, based on technical merits. The reversal of the uncertain tax positions would not affect the Company’s effective tax rate to the extent that it continues to maintain a full valuation allowance against its deferred tax assets. As of December 31, 2021 and 2020, the Company did not record any material interest expense or penalties related to uncertain tax positions or the settlement of audits for prior periods. The

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Company does not expect a significant increase or decrease in its uncertain tax positions within the next 12 months. A reconciliation of the beginning and ending amount of uncertain tax positions (in thousands):

Year EndedDecember 31,

Balance at the beginning of the year $ 1,354 $ 1,152

Gross increases—prior period — —

Gross increases—current period 294 202

Balance at the end of the year $ 1,648 $ 1,354

15. Net loss per share

For the year ended December 31, 2021, the Company calculated net loss per share of Class A and Class B common stock using the two-class method. For periods in which the Company reports a net loss, all potentially dilutive shares are anti-dilutive and are therefore excluded from the calculation of diluted net loss per share. For the year ended December 31, 2021, the Company reported a net loss and as such, basic and diluted net loss per share are the same.

The rights, including the liquidation and dividend rights, of the holders of the Company's Class A and Class B common stock are identical, except with respect to voting and conversion. The undistributed earnings for each period are allocated based on the contractual participation rights of the Class A and Class B common shares as if the earnings for the period had been distributed. As the liquidation and dividend rights are identical, the undistributed earnings are allocated on a proportionate basis and the resulting amount per share for Class A and Class B common stock was the same for the year ended December 31, 2021.

The Company issued certain shares of convertible preferred stock that were outstanding until the Company's IPO and were concluded to be participating securities. For the year ended December 31, 2020, there was only one class of common stock outstanding. Due to the presence of participating securities, the Company calculated net loss per share for the year ended December 31, 2020 using the more dilutive of the treasury stock or the two-class method. For periods presented in which the Company reports a net loss, the losses are not allocated to the participating securities. As the Company reported a net loss during the year ended December 31, 2020, diluted net loss per share was the same as basic net loss per share, since dilutive common shares are not assumed to have been issued if their effect is anti-dilutive. The preferred stock converted to common stock in July 2021 as part of the Company's IPO. See Note 10—Capital Structure for additional details.

The following table sets forth the computation of basic and diluted net loss per share of Class A and Class B common stock for the year ended December 31, 2021 (in thousands, except share and per share amounts):

Class A Class B

Weighted average common stock outstanding, basic and diluted 14,364,040 639,104

Net loss per share — basic and diluted $ (2.33) $ (2.33)

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The following table sets forth the computation of the basic and diluted net loss per share for the year ended December 31, 2020 (in thousands, except share and per share amounts):

Weighted average common stock outstanding, basic and diluted 1,555,745

Net loss per share — basic and diluted $ (12.76)

The Company excluded the following potentially dilutive securities, presented based on amounts outstanding at each period end, from the computation of diluted net loss per share for the periods indicated because their impact would have been anti-dilutive:

December 31,

Junior convertible preferred stock — 9,819,480

Senior convertible preferred stock — 5,737,440

Shares issuable under convertible note — 665,699

Warrants to purchase convertible preferred stock — 81,543

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosures

None.

Item 9A. Controls and Procedures