UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2022

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from

Commission File Number: 001-40047

Talis Biomedical Corporation

(Exact Name of Registrant as Specified in its Charter)

Delaware (State or other jurisdiction of incorporation or organization)		46-3122255 (I.R.S. Employer Identification No.)
3400 Bridge Parkway Redwood City, California		94065
(Address of principal executive offices)		(Zip Code)
(650) 433-3000
(Registrant’s telephone number, including area code)
	230 Constitution Drive Menlo Park, California, 94025
(Former name, former address, and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.0001 par value per share	TLIS	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of July 27, 2022, there were 56,482,894 shares of the Registrant’s common stock and preferred stock outstanding, consisting of 26,619,220 shares of common stock and 29,863,674 shares of Series 1 convertible preferred stock, which is a voting common stock equivalent, subject to certain limitations.

Table of Contents

		Page
	SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS	1
	Summary of Risk Factors	3
PART I.	FINANCIAL INFORMATION	4
Item 1.	Financial Statements	4
	Condensed Balance Sheets at June 30, 2022 (unaudited) and December 31, 2021	4
	Condensed Statements of Operations and Comprehensive Loss for the Three and Six Months Ended June 30, 2022 and 2021 (unaudited)	5
	Condensed Statements of Convertible Preferred Stock and Stockholders’ Equity (deficit) for the Three and Six Months Ended June 30, 2022 and 2021 (unaudited)	6
	Condensed Statements of Cash Flows for the Six Months Ended June 30, 2022 and 2021 (unaudited)	7
	Notes to Condensed Financial Statements (unaudited)	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28
Item 4.	Controls and Procedures	28
PART II.	OTHER INFORMATION	29
Item 1.	Legal Proceedings	29
Item 1A.	Risk Factors	29
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	73
Item 3.	Defaults Upon Senior Securities	73
Item 4.	Mine Safety Disclosures	73
Item 5.	Other Information	73
Item 6.	Exhibits	75
Signatures		76

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Special Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q (this Quarterly Report) contains forward-looking statements. The forward-looking statements are contained principally in the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These statements relate to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Forward-looking statements include, but are not limited to, statements about:

•our expectations regarding our revenue, expenses and other operating results;

•the timing or outcome of any of our domestic and international regulatory submissions;

•our planned regulatory clearance pathways;

•our efforts to successfully develop and commercialize our products and services, including our ability to successfully conduct clinical trials and studies and expand our product menu;

•our expectations of the reliability, accuracy and performance of our products and services, as well as expectations of the benefits to patients, clinicians and providers of our products and services;

•future investments in our business, our anticipated capital expenditures and our estimates regarding our capital requirements, future revenues, expenses, reimbursement rates and needs for additional financing;

•impact from future regulatory, judicial, and legislative changes or developments in the United States and foreign countries;

•our ability to maintain and utilize our commercial capabilities and acquire customers;

•our expectations regarding our sales models;

•the costs and success of our research and development efforts;

•our ability to increase demand for our products and services, obtain and maintain favorable coverage and reimbursement determinations from third-party payers and expand geographically;

•the performance of our third-party suppliers and manufacturers;

•our ability to retain and recruit personnel and maintain our culture;

•the impact of the ongoing COVID-19 pandemic, including the resurgence of cases related to the spread of new variants, on our business, clinical trials, financial conditions, liquidity and results of operations;

•our ability to compete effectively with existing competitors and new market entrants;

•the impact on our business of economic or political events or trends;

•the size and growth potential of the markets for our products and services, and our ability to serve those markets; and

•the rate and degree of market acceptance of our products and services.

In some cases, you can identify these statements by terms such as “anticipate,” “believe,” “could,” “estimate,” “expects,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would” or the negative of those terms, and similar expressions that convey uncertainty of future events or outcomes. These forward-looking statements reflect our management’s beliefs and views with respect to future events and are based on estimates and assumptions as of the date of this Quarterly Report and are subject to risks and uncertainties. In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements. We discuss many of the risks associated with the forward-looking statements in this Quarterly Report in greater detail under the heading “Risk Factors.” Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. Given these uncertainties, you should not place undue reliance on these forward-looking statements. You should carefully read this Quarterly Report and the documents that we reference in this Quarterly Report and have filed as exhibits to this Quarterly Report completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of the forward-looking statements in this Quarterly Report by these cautionary statements. Except as required by law, we assume no

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obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, whether as a result of new information, future events or otherwise.

2

Summary of Risk Factors

Below is a summary of material factors that make an investment in our common stock speculative or risky. Importantly, this summary does not address all of the risks and uncertainties that we face. Additional discussion of the risks and uncertainties summarized in this risk factor summary, as well as other risks and uncertainties that we face, can be found under “Risk Factors” in Part II, Item 1A of this Quarterly Report. The below summary is qualified in its entirety by that more complete discussion of such risks and uncertainties. You should carefully consider the risks and uncertainties described under “Risk Factors” in Part II, Item 1A of this Quarterly Report as part of your evaluation of an investment in our common stock.

•We have realigned our business strategy from primarily responding to the COVID-19 pandemic with our Talis One COVID-19 Test System to focusing on women's health and STI assays, including CT/NG, which will require pursuing marketing authorization through the FDA’s standard 510(k) clearance process. We may not be able to obtain marketing authorization for these assays, which would adversely affect our business, financial condition and results of operations.

•We will likely need to raise additional capital to fund our existing operations, further develop our diagnostic platform, commercialize new products, and expand our operations.

•We rely on a significant number of third-party manufacturers and suppliers for our instrument and cartridges, which reliance has created and may continue to create delays due to the complexity of our manufacturing lines and supply chain, as well as exposure to manufacturing and supply limitations or interruptions and quality and quantity issues.

•We may be unable to validate our manufacturing for the Talis One instrument and cartridges at scale, which may impact our ability to support our research and development pipeline.

•We have no or limited experience in developing, marketing and commercializing diagnostic platforms and tests, and we are continuing to evaluate the sales model for the Talis One system, which may make it difficult to evaluate the success of our business and to assess our future viability.

•We may not be able to sell our remaining inventory of the Antigen Tests at a profit, or at all.

•The COVID-19 pandemic has and could continue to materially adversely affect our business, financial condition and results of operations.

•If our products do not perform as expected, including due to errors, defects or reliability issues, our reputation and market acceptance of our products could be harmed, and our operating results, reputation and business will suffer.

•Our commercial success could be compromised if our customers do not receive coverage and adequate reimbursement for our products.

•Modifications to our products may require new 510(k) clearances, PMA approvals, or other marketing authorizations, or may require us to cease marketing or recall the modified products until clearances, approvals, or other marketing authorizations are obtained.

•If we are not able to obtain, maintain, defend or enforce patent and other intellectual property protection for products, or if the scope of the patent and other intellectual property protection obtained is not sufficiently broad, our competitors could develop and commercialize products and technology similar or identical to ours, which could have a material adverse effect on our competitive position, business, financial conditions, results of operations, and prospects.

•Some of our intellectual property has been discovered through government funded programs and thus may be subject to federal regulations such as “march-in” rights, certain reporting requirements and a preference for U.S.-based companies, and compliance with such regulations may limit our exclusive rights and our ability to contract with non-U.S. manufacturers.

•We have incurred significant losses since our inception, and we anticipate that we will continue to incur losses for the foreseeable future, which could harm our future business prospects.

•If we are unable to regain compliance with the listing requirements of the Nasdaq Global Market, our common stock may be delisted from the Nasdaq Global Market which could have a material adverse effect on our financial condition and could make it more difficult for you to sell your shares.

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Talis Biomedical Corporation

Condensed Balance Sheets

(in thousands, except for shares and par value)

	June 30,			December 31,
	2022			2021
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	165,373		$	232,545
Accounts receivable, net		636			183
Inventory		2,219			—
Prepaid expenses and other current assets		5,738			3,387
Total current assets		173,966			236,115
Property and equipment, net		10,157			10,528
Operating lease right-of-use-assets		35,791			12,907
Other long-term assets		1,776			6,278
Total assets	$	221,690		$	265,828
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	3,978		$	5,122
Accrued compensation		5,052			6,369
Accrued liabilities		2,539			6,383
Operating lease liabilities, current portion		2,334			1,232
Total current liabilities		13,903			19,106
Operating lease liabilities, long-term portion		30,768			12,745
Total liabilities	$	44,671		$	31,851
Commitments and contingencies (Note 6)
Stockholders’ equity:
Series 1 convertible preferred stock, $0.0001 par value—60,000,000 shares authorized and 29,863,674 shares issued and outstanding as of June 30, 2022 and December 31, 2021; aggregate liquidation preference of $3 as of June 30, 2022 and December 31, 2021		3			3
Common stock, $0.0001 par value; 200,000,000 shares authorized as of June 30, 2022 and December 31, 2021; 26,618,920 and 26,408,031 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively		3			3
Additional paid-in capital		602,017			598,913
Accumulated deficit		(425,004	)		(364,942	)
Total stockholders’ equity		177,019			233,977
Total liabilities and stockholders’ equity	$	221,690		$	265,828

See accompanying notes to the unaudited condensed financial statements

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Talis Biomedical Corporation

Condensed Statements of Operations and Comprehensive Loss (Unaudited)

(in thousands, except for share and per share amounts)

	Three Months Ended June 30,						Six Months Ended June 30,
	2022			2021			2022			2021
Revenue
Grant revenue	$	70		$	117		$	944		$	7,117
Product revenue, net		502			—			2,815			—
Total revenue, net		572			117			3,759			7,117
Cost of product sold		1,302			—			4,823			—
Gross profit (loss)		(730	)		117			(1,064	)		7,117
Operating expenses:
Research and development		17,365			54,495			38,068			114,688
Selling, general and administrative		9,178			9,983			21,108			17,310
Total operating expenses		26,543			64,478			59,176			131,998
Loss from operations		(27,273	)		(64,361	)		(60,240	)		(124,881	)
Other income (expense), net		262			(111	)		178			(83	)
Net loss and comprehensive loss	$	(27,011	)	$	(64,472	)	$	(60,062	)	$	(124,964	)
Net loss per share, basic and diluted	$	(1.01	)	$	(2.51	)	$	(2.26	)	$	(6.44	)
Weighted average shares used in the calculation of net loss per share, basic and diluted		26,618,920			25,648,151			26,544,375			19,414,066

See accompanying notes to the unaudited condensed financial statements

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Talis Biomedical Corporation

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

(in thousands, except for share amounts)

	Series 1 Convertible Preferred Stock				Common Stock				Additional Paid-in		Accumulated			Stockholders’
	Shares		Value		Shares		Value		Capital		Deficit			Equity
Balance at December 31, 2021		29,863,674	$	3		26,408,031	$	3	$	598,913	$	(364,942	)	$	233,977
Issuance of Common Stock upon exercise of stock options		—		—		65,862		—		98		—			98
Issuance of Common Stock pursuant to employee stock purchase plan		—		—		145,027		—		216		—			216
Stock-based compensation expense		—		—		—		—		1,545		—			1,545
Net loss		—		—		—		—		—		(33,051	)		(33,051	)
Balance at March 31, 2022		29,863,674	$	3		26,618,920	$	3	$	600,772	$	(397,993	)	$	202,785
Stock-based compensation expense		—		—		—		—		1,245		—			1,245
Net loss		—		—		—		—		—		(27,011	)		(27,011	)
Balance at June 30, 2022		29,863,674	$	3		26,618,920	$	3	$	602,017	$	(425,004	)	$	177,019

	Convertible Preferred Stock						Series 1 Convertible Preferred Stock				Common Stock				Additional Paid-in		Accumulated			Stockholders’
	Shares			Value			Shares		Value		Shares		Value		Capital		Deficit			Equity (Deficit)
Balance at December 31, 2020		53,509,351		$	290,945			—		—		2,126,254	$	—	$	64,335	$	(172,906	)	$	(108,571	)
Issuance of Common Stock upon exercise of stock options		—			—			—		—		85,895		—		131		—			131
Issuance of Common Stock upon initial public offering, net of issuance costs of $21,349		—			—			—		—		15,870,000		2		232,546		—			232,548
Conversion of convertible preferred stock into common stock and Series 1 convertible preferred stock upon initial public offering		(53,509,351	)		(290,945	)		29,863,674		3		7,555,432		—		290,942		—			290,945
Stock-based compensation expense		—			—			—		—		—		—		1,772		—			1,772
Net loss		—			—			—		—		—		—		—		(60,492	)		(60,492	)
Balance at March 31, 2021		—		$	—			29,863,674	$	3		25,637,581	$	2	$	589,726	$	(233,398	)	$	356,333
Issuance of Common Stock upon exercise of stock options		—			—			—		—		52,792		—		80		—			80
Stock-based compensation expense		—			—			—		—		—		—		1,791		—			1,791
Net loss		—			—			—		—		—		—		—		(64,472	)		(64,472	)
Balance at June 30, 2021		—		$	—			29,863,674	$	3		25,690,373	$	2	$	591,597	$	(297,870	)	$	293,732

See accompanying notes to the unaudited condensed financial statements

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Talis Biomedical Corporation

Condensed Statements of Cash Flows (Unaudited)

(in thousands)

	Six Months Ended June 30,
	2022			2021
Operating activities
Net loss	$	(60,062	)	$	(124,964	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation		2,790			3,563
Depreciation and amortization		1,343			410
Non-cash lease expense		1,008			528
Changes in operating assets and liabilities:
Accounts receivable		(453	)		354
Inventory		(2,219	)		—
Prepaid expenses and other current assets		(2,350	)		(103	)
Prepaid research and development		—			9,583
Other long-term assets		980			(981	)
Accounts payable		(1,144	)		6,633
Accrued expenses and other liabilities		(5,429	)		49,428
Lease liabilities		(235	)		(346	)
Net cash used in operating activities	$	(65,771	)	$	(55,895	)
Investing activities
Purchase of property and equipment		(706	)		(1,120	)
Net cash used in investing activities	$	(706	)	$	(1,120	)
Financing activities
Proceeds from initial public offering, net of issuance costs		—			232,546
Proceeds from stock option exercises		98			211
Proceeds from stock issuances pursuant to employee stock purchase plan		216			—
Net cash provided by financing activities	$	314		$	232,757
Net (decrease) increase in cash, cash equivalents and restricted cash		(66,163	)		175,742
Cash, cash equivalents and restricted cash at beginning of period		233,312			173,133
Cash, cash equivalents and restricted cash at end of period	$	167,149		$	348,875
Supplemental disclosure of noncash investing and financing activities
Right-of-use asset obtained in exchange for lease liability	$	19,245		$	13,499
Property and equipment purchases included in accounts payable and accrued expenses	$	265		$	354
Remeasurement of operating lease right-of-use asset for lease modification	$	—		$	208

The following table provides a reconciliation of the cash, cash equivalents and restricted cash balances as of each of the periods shown above:

	Six Months Ended June 30,
	2022		2021
Cash and cash equivalents	$	165,373	$	313,458
Restricted cash		—		34,650
Restricted cash – other long-term assets		1,776		767
Total cash, cash equivalents and restricted cash	$	167,149	$	348,875

See accompanying notes to the unaudited condensed financial statements

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Talis Biomedical Corporation

Notes to Condensed Financial Statements (Unaudited)

1. Organization and nature of business

Talis Biomedical Corporation (the Company) is a molecular diagnostic company focused on advancing health equity and outcomes through the delivery of accurate infectious disease testing in the moment of need, at the point of care. The Company plans to develop and commercialize innovative products on its sample-to-answer Talis One system to enable accurate, low cost, and rapid molecular testing. In November 2021, the U.S. Food and Drug Administration (FDA) granted Emergency Use Authorization (EUA) for use of the stand-alone Talis One COVID-19 assay in a variety of healthcare settings, and on May 12, 2022, we received the CE Mark certification under the European In-Vitro Diagnostic Devices Directive (IVDD) for the stand-alone Talis One COVID-19 assay. In January 2022, the Company began to act as an authorized distributor for third-party COVID-19 antigen tests (Antigen Tests). Upon selling its limited remaining Antigen Tests, the Company intends to conclude this program. The Company was incorporated in 2013 under the general laws of the State of Delaware and is based in Redwood City, California (CA) and Chicago, Illinois (IL).

Initial Public Offering

In February 2021, the Company completed an initial public offering (IPO) in which the Company issued and sold 13,800,000 shares of common stock at a public offering price of $16.00 per share, with an additional 2,070,000 shares sold pursuant to the underwriters' full exercise of their option to purchase additional shares. The aggregate proceeds received by the Company from the IPO was $232.5 million after deducting underwriting discounts, commissions and offering expenses of approximately $21.3 million. Upon the closing of the IPO, affiliated preferred shares with a carrying value of $225.4 million were converted into 29,863,674 Series 1 convertible preferred stock. The remaining outstanding convertible preferred shares were converted into 7,555,432 shares of common stock.

Liquidity

The Company has incurred significant losses and negative cash flows since inception, including a net loss of $60.1 million for the six months ended June 30, 2022. As of June 30, 2022, the Company had unrestricted cash and cash equivalents of $165.4 million and $1.8 million of restricted cash held within other long-term assets on the condensed balance sheet.

Management expects to continue to incur additional substantial losses in the foreseeable future as a result of the Company’s research and development activities and commercialization of the Talis One system. The Company’s activities are subject to significant risks and uncertainties, including failing to secure additional funding to continue to operationalize the Company’s current technology and to advance the development of its products. The Company expects its existing unrestricted cash and cash equivalents as of June 30, 2022 will be sufficient to fund its operations through at least one year from the date these condensed financial statements are issued. The Company expects to finance its future operations with its existing unrestricted cash and cash equivalents and through strategic financing opportunities that could include, but are not limited to, future offerings of its equity, grant agreements, or the incurrence of debt. However, there is no guarantee that any of these strategic or financing opportunities will be executed or realized on favorable terms, if at all, and some could be dilutive to existing stockholders. The Company’s ability to raise additional capital through either the issuance of equity or debt, is dependent on a number of factors including, but not limited to, the demand for the Company, which itself is subject to a number of development and business risks and uncertainties, as well as the uncertainty that the Company would be able to raise such additional capital at a price or on terms that are favorable to the Company.

In March 2022, we implemented a reduction in force designed to reduce our operating expenses, preserve cash and align our remaining resources to focus on, among other things, developing internal manufacturing expertise to support the commercial launch of the Talis One system. We incurred $1.0 million of expenses during the six months ended June 30, 2022 related to the reduction in force, substantially all of which consisted of charges related to the staff reduction, including cash expenditures and other costs.

2. Summary of significant accounting policies

Basis of presentation

The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) for interim financial reporting. Accordingly, these unaudited condensed financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. These unaudited condensed financial statements include all adjustments necessary to fairly state the financial position and the results of our operations and cash flows for interim periods in accordance with GAAP. All such adjustments are of a normal, recurring nature. The results for any interim period are not necessarily indicative of the results that may be expected for the year ending December 31, 2022 or for any future period.

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The condensed balance sheets presented as of December 31, 2021 has been derived from the audited financial statements as of that date. The condensed financial statements and notes as presented do not contain all information that is included in the annual financial statements and notes thereto of the Company. The condensed financial statements and notes included in this Quarterly Report should be read in conjunction with the financial statements and notes included in the Company’s 2021 Annual Report on Form 10-K (Annual Report) filed with the SEC.

The significant accounting policies used in preparation of these condensed financial statements for the six months ended June 30, 2022 are consistent with those described in our Annual Report.

Use of estimates

The preparation of financial statements in conformity with GAAP requires management to make judgments, estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The Company bases its estimates and judgments on historical experience and on various other assumptions, including knowledge about current events and expectations about actions the Company may take in the future, that the Company believes are reasonable under the circumstances. Significant estimates include, but are not limited to, recoverability of long-lived assets, accrued research and development costs, inventory valuation reserves, estimation of variable consideration, stock-based compensation expense, the measurement of right-of-use assets and lease liabilities, allowance for doubtful accounts, and uncertain tax positions. Actual results could vary from the amounts derived from management’s estimates and assumptions.

Reclassifications

The accompanying condensed statements of cash flows for the six month period ended June 30, 2021 and the accompanying condensed balance sheets for the year ended December 31, 2021 reflects the Company's reclassification of grants receivables and unbilled grants receivables to accounts receivable, to conform to the presentation of the current period.

Accounts receivable, net

Accounts receivable include trade receivables, unbilled receivables and grant receivables. The allowance for doubtful accounts reflects the current estimate of credit losses expected to be incurred over the life of the accounts receivable. The Company considers various factors in establishing, monitoring, and adjusting its allowance for doubtful accounts, including the aging of the accounts and aging trends and specific exposures related to particular customers. Accounts receivable are charged off after all reasonable means to collect the full amount have been exhausted. The Company has an immaterial allowance for doubtful accounts as of June 30, 2022.

Concentration of credit risk and other risks and uncertainties

Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, restricted cash, and accounts receivables. The Company’s cash is deposited in accounts at large financial institutions and its cash equivalents are primarily held in prime and U.S. government money market funds. The Company believes it is not exposed to significant credit risk due to the financial strength of the depository institutions in which the cash and cash equivalents are held.

The Company is subject to risks common to companies in the diagnostics industry including, but not limited to, uncertainties related to commercialization of products, regulatory approvals, and protection of intellectual property rights.

The COVID-19 pandemic continues to drive volatility in global economic conditions as governments around the world implement various measures to slow and control the ongoing spread of the virus. Resurgences in COVID-19 infections or new strains of the virus may affect our operations. We continue to evaluate the potential impact of the COVID-19 pandemic on our current and future business and operations, including our expenses and clinical trials, as well as on our industry and the healthcare system.

The Company is dependent on key suppliers for certain manufacturing and research and development activities. An interruption in the supply of these materials could temporarily impact the Company’s ability to commercialize, manufacture inventory and perform research and development, testing and clinical trials related to its products. The Company is also dependent on its manufacturing partners and third party logistic partner that are critical to its ability to supply product to its end customers.

Inventory

Inventory, which consists of finished goods, is valued at the lower of cost or net realizable value. The Company determines the cost of inventory using the first-in, first-out method. Lower of cost or net realizable value is evaluated by considering obsolescence, excessive levels of inventory, deterioration and other factors.

In order to assess the ultimate realization of inventories, the Company is required to make judgments as to future demand requirements compared to current or committed inventory levels. The Company periodically reviews its inventories for shelf life, excess or obsolescence and writes-down obsolete or otherwise unmarketable inventory to its estimated net realizable value. If the actual net realizable value is less than the carrying value, or if it is determined that inventory utilization will further diminish based on

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estimates of demand, additional inventory write-downs may be required. Amounts written-down due to inventory are recorded in cost of product sold and a new lower-cost basis for the inventory is established. Excess and obsolete inventory is primarily based on estimated forecasted sales, usage levels, and expiration dates.

Revenue Recognition

Product revenue, net

The Company generates revenues from its sales of third-party Antigen Tests. The Company obtains control of the product and assumes inventory risk before it is transferred to the customer and therefore reports revenue on the gross amount billed to the customer. The Company has recognized sales from two primary customer types: (i) direct customers including hospitals, urgent care centers, physician, public health and retail clinics, and (ii) sub-distributors.

The Company recognizes revenue under Accounting Standards Codification Topic 606 (ASC 606), Revenue from Contracts with Customers, when a customer obtains control of promised goods or services, with a transaction price that reflects the consideration which the entity expects to receive in exchange for those goods or services. Transaction price does not include amounts subject to uncertainties unless it is probable that there will be no significant reversal of revenue when the uncertainty is resolved. If necessary, revenue is recorded net of variable consideration based on the amounts the Company expects to be earned or to be claimed on the related sales. The Company estimates the amount of its product sales that may result in returns or in price adjustments and records this estimate as a reduction of revenue in the period the related product revenue is recognized. The returned assets cannot be re-sold and have no value to the Company.

The Company identifies the contract with a customer and determines the performance obligations and the contract price. The contract price is allocated to the distinct performance obligations in the contract and revenue is recognized when the performance obligations have been satisfied. A performance obligation is considered to be satisfied once the control of a product is transferred to the customer or the service is provided to the customer, meaning the customer has the ability to use and obtain the benefit of the goods or service, generally at product shipment.

The Company recognizes receivables in an amount expected to be collected in a transaction. The Company’s payment terms are generally net 30 days of billing. Contracts do not contain significant financing components based on the typical period of time between delivery of products and collection of contract consideration. Certain types of customers may pay in advance of product delivery. In those instances, payment and delivery typically occur in the same month. The Company invoices its customers upon shipment of product and records its sales upon shipment in accordance with its standard terms and conditions, unless underlying customer contracts specify otherwise. When necessary, the Company invoices and collects sales tax from its customers for sales of products. The Company has elected to exclude sales tax from the measurement of the transaction price.

Contract balances

A receivable is recognized in the period the Company delivers goods or provides services or when the Company’s right to consideration is unconditional. The Company usually does not record contract assets because the Company has an unconditional right to payment upon satisfaction of the performance obligation, and therefore, a receivable is more commonly recorded than a contract asset. Receivables from contracts with customers are included within accounts receivable, net on the condensed balance sheets.

Contract liabilities include payments received in advance of performance under a contract and are satisfied as the associated revenue is recognized. When performance obligations are not transferred to a customer at the end of a reporting period, cash received associated with the amount allocated to those performance obligations is reflected as contract liabilities on the condensed balance sheets and is deferred until control of these performance obligations is transferred to the customer. There are no contract liabilities as of June 30, 2022.

Contract costs

Under ASC 606, the Company is required to capitalize incremental costs to obtain customer contracts if the costs relate directly to a contract that can be specifically identified and expect to be recovered. These costs are required to be amortized to expense consistent with the transfer of the goods or services to the customer to which the asset relates. As a practical expedient, the Company recognizes any incremental costs to obtain a contract as an expense when incurred if the amortization period of the asset is one year or less. The Company did not have any capitalized contract costs for the six months ended June 30, 2022.

Costs of product sold

Costs of product sold include material costs, direct labor, provisions for inventory write-downs and shipping and handling costs incurred. The Company reports product shipment costs within cost of products sold in the accompanying statements of operations.

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New accounting pronouncements

Recently adopted accounting standards

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses to require the measurement of expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable forecasts. The main objective of this ASU is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The Company early adopted ASU 2016-13 on January 1, 2022 with no