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, 2021

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.)
230 Constitution Drive Menlo Park, California 94025		94025
(Address of principal executive officers)		(Zip Code)
Registrant’s telephone number, including area code:
	(650) 433-3000

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 August 6, 2021, there were 55,554,597 shares of the Registrant’s common stock and preferred stock outstanding, consisting of 25,690,923 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	2
PART I.	FINANCIAL INFORMATION	3
Item 1.	Financial Statements	3
	Condensed Balance Sheets at June 30, 2021 (unaudited) and December 31, 2020	3
	Condensed Statements of Operations and Comprehensive Loss for the Three and Six Months Ended June 30, 2021 and 2020 (unaudited)	4
	Condensed Statements of Convertible Preferred Stock and Stockholders’ Equity (deficit) for the Three and Six Months Ended June 30, 2021 and 2020 (unaudited)	5
	Condensed Statements of Cash Flows for the Six Months Ended June 30, 2021 and 2020 (unaudited)	6
	Notes to Condensed Financial Statements (unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
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	81
Item 3.	Defaults Upon Senior Securities	81
Item 4.	Mine Safety Disclosures	81
Item 5.	Other Information	81
Item 6.	Exhibits	82
Signatures		83

i

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 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 establish a sales force and acquire customers;

• our expectations regarding our sales models;

• the costs and success of our marketing efforts, and our ability to promote our brand;

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

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

• our ability to successfully develop additional revenue opportunities and expand our product and service offerings, including our recently launched offerings;

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

• our ability to effectively manage our growth, including our ability to retain and recruit personnel, and maintain our culture;

• 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 the registration statement, of which this Quarterly Report is a part, 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 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.

1

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.

• There can be no assurance that the COVID-19 test we are developing for the detection of the SARS-CoV-2 virus will be granted an Emergency Use Authorization (EUA) by the U.S. Food and Drug Administration (FDA). If no EUA is granted or, once granted, it is revoked or the emergency declaration is terminated, we will be unable to sell this product in the near future and will be required to pursue 510(k) clearance or other marketing authorization, which would likely be a lengthy and expensive process.

• We may not be able to obtain marketing authorization for our Talis One system or for any test.

• We contract with a significant number of third parties for the manufacturing and supply of products, which supply may become limited or interrupted or may not be of satisfactory quality and quantity.

• We have no products approved for commercial sale. 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.

• The COVID-19 pandemic could 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.

• We may be unable to manage our growth effectively, which could make it difficult to execute our business strategy.

• We may rely on a small number of customers for a significant portion of our revenue, which may materially adversely affect our financial condition and results of operations.

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

• Modifications to our marketed products may require new EUAs, 510(k) clearances, pre-market 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.

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

2

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,
	2021			2020
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	313,458		$	138,483
Restricted cash		34,650			34,650
Grants receivable		—			238
Unbilled grants receivable		117			233
Prepaid research and development expenses		2,431			12,014
Prepaid expenses and other current assets		3,209			3,106
Total current assets		353,865			188,724
Property and equipment, net		10,178			9,114
Operating lease right-of-use-assets		13,747			567
Other long-term assets		1,748			—
Total assets	$	379,538		$	198,405
Liabilities and Stockholders’ Equity (Deficit)
Current liabilities:
Accounts payable	$	11,695		$	4,906
Accrued compensation		5,291			2,738
Accrued liabilities		54,761			7,694
Operating lease liabilities, current portion		882			693
Total current liabilities		72,629			16,031
Operating lease liabilities, long-term portion		13,177			—
Total liabilities	$	85,806		$	16,031
Commitments and contingencies (Note 6)
Convertible preferred stock, $0.0001 par value—no shares authorized as of June 30, 2021 and 229,296,908 shares authorized as of December 31, 2020; no shares issued and outstanding as of June 30, 2021 and 53,509,351 shares issued and outstanding as of December 31, 2020; no aggregate liquidation preference of as of June 30, 2021 and $475,617 as of December 31, 2020		—			290,945
Stockholders’ equity (deficit):
Series 1 convertible preferred stock, $0.0001 par value—60,000,000 and 57,324,227 shares authorized as of June 30, 2021 and December 31, 2020, respectively; 29,863,674 and no Series 1 convertible preferred stock issued and outstanding as of June 30, 2021 and December 31, 2020, respectively; aggregate liquidation preference of $3 as of June 30, 2021 and none as of December 31, 2020		3			—
Common stock, $0.0001 par value; 200,000,000 and 230,000,000 shares authorized at June 30, 2021 and December 31, 2020, respectively; 25,690,373 and 2,126,254 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively		2			—
Additional paid-in capital		591,597			64,335
Accumulated deficit		(297,870	)		(172,906	)
Total stockholders’ equity (deficit)		293,732			(108,571	)
Total liabilities, convertible preferred stock and stockholders’ equity	$	379,538		$	198,405

See accompanying notes to the unaudited condensed financial statements

3

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,
	2021			2020			2021			2020
Grant revenue	$	117		$	820		$	7,117		$	1,219
Operating expenses:
Research and development		54,495			8,184			114,688			13,898
Selling, general and administrative		9,983			2,660			17,310			4,740
Total operating expenses		64,478			10,844			131,998			18,638
Loss from operations		(64,361	)		(10,024	)		(124,881	)		(17,419	)
Other expense, net		(111	)		(22	)		(83	)		(1	)
Net loss and comprehensive loss	$	(64,472	)	$	(10,046	)	$	(124,964	)	$	(17,420	)
Net loss per share, basic and diluted	$	(2.51	)	$	(4.75	)	$	(6.44	)	$	(8.23	)
Weighted average shares used in the calculation of net loss per share, basic and diluted		25,648,151			2,116,623			19,414,066			2,116,437

See accompanying notes to the unaudited condensed financial statements

4

Talis Biomedical Corporation

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

(in thousands, except for share amounts)

	Convertible Preferred Stock						Series 1 Convertible Preferred Stock				Common Stock				Additional Paid-in		Accumulated			Stockholders’ Equity
	Shares			Value			Shares		Value		Shares		Value		Capital		Deficit			(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

	Convertible Preferred Stock					Common Stock				Additional Paid-in		Accumulated			Stockholders’
	Shares			Value		Shares		Value		Capital		Deficit			Deficit
Balance at December 31, 2019		37,871,430		$	42,755		2,115,583	$	—	$	60,636	$	(81,776	)	$	(21,140	)
Issuance of Common Stock upon exercise of stock options		—			—		483		—		5		—			5
Stock-based compensation expense		—			—		—		—		681		—			681
Net loss		—			—		—		—		—		(7,374	)		(7,374	)
Balance at March 31, 2020		37,871,430		$	42,755		2,116,066	$	—	$	61,322	$	(89,150	)	$	(27,828	)
Issuance of Common Stock upon exercise of stock options		—			—		2,557		—		1					1
Proceeds from second tranche of Series C-1 convertible preferred stock, net of issuance costs of $24		—			18,333		—		—		—		—			—
Proceeds from second tranche of Series D-1 convertible preferred stock, net of issuance costs of $3		—			1,884		—		—		—		—			—
Proceeds from second tranche of Series D-2 convertible preferred stock, net of issuance costs of $6		—			4,710		—		—		—		—			—
Cancellation of third tranche of Series C-1 convertible preferred stock		(9,314,766	)		—		—		—		—		—			—
Cancellation of third tranche of Series D-1 convertible preferred stock		(955,666	)		—		—		—		—		—			—
Cancellation of third tranche of Series D-2 convertible preferred stock		(2,387,171	)		—		—		—		—		—			—
Issuance of Series E-1 convertible preferred stock, net of issuance costs of $48		513,746			3,831		—		—		—		—			—
Issuance of Series E-2 convertible preferred stock, net of issuance costs of $233		11,187,189			82,776		—		—		—		—			—
Stock-based compensation expense		—			—		—		—		407		—			407
Net loss		—			—		—		—		—		(10,046	)		(10,046	)
Balance at June 30, 2020		36,914,762		$	154,289		2,118,623	$	—	$	61,730	$	(99,196	)	$	(37,466	)

See accompanying notes to the unaudited condensed financial statements

5

Talis Biomedical Corporation

Condensed Statements of Cash Flows (Unaudited)

(in thousands)

	Six Months Ended June 30,
	2021			2020
Operating activities
Net loss	$	(124,964	)	$	(17,420	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation		3,563			1,088
Depreciation and amortization		410			378
Non-cash lease expense		528			278
Changes in operating assets and liabilities:
Unbilled grants receivable		116			1,213
Grants receivable		238			—
Prepaid expenses and other current assets		(103	)		119
Prepaid research and development		9,583			(3,422	)
Other long-term assets		(981	)		(249	)
Accounts payable		6,633			4,012
Accrued expenses and other liabilities		49,428			(3,141	)
Lease liabilities		(346	)		(391	)
Net cash used in operating activities	$	(55,895	)	$	(17,535	)
Investing activities
Purchase of property and equipment		(1,120	)		(337	)
Net cash used in investing activities	$	(1,120	)	$	(337	)
Financing activities
Proceeds from initial public offering, net of issuance costs		232,546			—
Proceeds from stock option exercises		211			6
Proceeds from the issuance of preferred stock, net of issuance costs		—			111,534
Net cash provided by financing activities	$	232,757		$	111,540
Net increase in cash, cash equivalents and restricted cash		175,742			93,668
Cash, cash equivalents and restricted cash at beginning of period		173,133			21,604
Cash, cash equivalents and restricted cash at end of period	$	348,875		$	115,272
Supplemental disclosure of noncash investing and financing activities
Property and equipment purchases included in accounts payable and accrued expenses	$	354		$	301
Right-of-use assets obtained in exchange for operating lease liabilities	$	13,499		$	743
Remeasurement of operating lease right-of-use asset for lease modification	$	208		$	417

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

	Six Months Ended June 30,
	2021		2020
Cash and cash equivalents	$	313,458	$	115,272
Restricted cash		34,650		—
Restricted cash equivalent - other long-term assets		767		—
Total cash, cash equivalents and restricted cash	$	348,875	$	115,272

See accompanying notes to the unaudited condensed financial statements

6

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 transforming diagnostic testing through innovative molecular diagnostic products that enable customers to deploy accurate, reliable, low cost and rapid point-of-care testing for infectious diseases and other conditions. The Company was incorporated in 2013 under the general laws of the State of Delaware and is based in Menlo Park, California (CA) and Chicago, Illinois (IL).

Initial Public Offering and Reverse Stock Split

In February 2021, the Company amended and restated its amended and restated certificate of incorporation to effect a 1-for-1.43 reverse split (2021 Reverse Split) of shares of the Company’s common stock. The par value and authorized shares of common stock were not adjusted as a result of the 2021 Reverse Split. Shares of the Company’s convertible preferred stock were not subject to the 2021 Reverse Split but have been converted at the same rate as the reverse split. All of the share and per share information included in the accompanying condensed financial statements has been retroactively adjusted to reflect the 2021 Reverse Split.

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, convertible preferred stock held by Baker Bros. Advisors LP, a related party, and its affiliates, were converted into 29,863,674 Series 1 convertible preferred stock. The remaining outstanding convertible preferred stock were converted into 7,555,432 shares of common stock.

Liquidity

The Company has incurred significant losses and negative cash flows since inception, including net losses of $125.0 million for the six months ended June 30, 2021. As of June 30, 2021, the Company had unrestricted cash and cash equivalents of $313.5 million and $35.4 million of restricted cash. In July 2021, the Company paid $29.6 million to a contract manufacturing organization and was relieved of the standby letter of credit (LOC), releasing $34.7 million of collateral (see Note 11).

Management expects to continue to incur additional substantial losses in the foreseeable future as a result of the Company’s research and development activities. 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, 2021 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 restricted and unrestricted cash 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.

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, they 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, 2021 or for any future period.

The condensed balance sheet presented as of December 31, 2020, has been derived from the audited financial statements as of that date. The condensed financial statements and notes are presented do not contain all information that is included in the annual financial

7

statements and notes thereto of the Company. The condensed financial statements and notes included in this report should be read in conjunction with the financial statements and notes included in the Company’s 2020 Annual Report on Form 10-K filed with the SEC.

Use of estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make judgments, estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. These estimates form the basis for judgments the Company makes about the carrying values of assets and liabilities that are not readily apparent from other sources. The Company bases its estimates and judgments on historical experience and on various other assumptions that the Company believes are reasonable under the circumstances. These estimates are based on management’s knowledge about current events and expectations about actions the Company may undertake in the future. Significant estimates include, but are not limited to, recovery of long-lived assets, stock-based compensation expense, research and development accruals, the measurement of right-of-use assets and lease liabilities, uncertain tax positions, and the fair value of common stock prior to the Company’s IPO. Actual results could vary from the amounts derived from management’s estimates and assumptions.

Reclassifications

The accompanying condensed balance sheet as of June 30, 2021 and December 31, 2020 reflects the Company’s reclassification of accrued compensation out of accrued expenses and other liabilities to conform with current year presentation.

Cash and cash equivalents

The Company considers cash equivalents to be highly liquid investments with an original maturity at purchase of three months or less. These cash equivalents include holdings in money market funds that are invested in U.S. Treasury obligations which are stated at fair value. Prior to April 1, 2021, the Company only carried cash on its condensed balance sheets.

Deferred initial public offering costs

The Company capitalizes certain direct incremental legal, consulting, banking, and accounting fees primarily relating to the Company’s IPO. After consummation of the IPO, which closed on February 17, 2021, these costs were recorded in stockholders' equity as a reduction of additional paid-in capital. As of December 31, 2020, the Company recorded deferred offering costs of $2.4 million recorded within other current assets on the balance sheet.

Restricted cash

Restricted cash consists of cash that serves as collateral for the Company’s standby letters of credit (see Note 6). Any cash that is legally restricted from use is classified as restricted cash. If the purpose of restricted cash relates to acquiring a long-term asset, liquidating a long-term liability, or is otherwise unavailable for a period longer than one year from the balance sheet date, the restricted cash is classified as a long-term asset, otherwise, restricted cash is included in current assets in the balance sheet.

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, cash equivalents, restricted cash, and grant receivables. The Company’s cash is deposited in accounts at large financial institutions and its cash equivalents are primarily held in prime and United States 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 is held and government grant funded nature of the Company’s grant receivables.

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.

In December 2019, a novel strain of coronavirus, which causes the disease known as COVID-19, was reported to have surfaced in Wuhan, China. Since then, COVID-19 coronavirus has spread globally. In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. The COVID-19 pandemic has and may continue to impact the Company’s third-party manufacturers and suppliers, which could disrupt its supply chain or the availability or cost of materials. The effects of the public health directives and the Company’s work-from-home policies may negatively impact productivity, disrupt its business and delay clinical programs and timelines and future clinical trials, the magnitude of which will depend, in part, on the length and severity of the restrictions and other limitations on the Company’s ability to conduct business in the ordinary course. These and similar, and perhaps more severe, disruptions in the Company’s operations could negatively impact business, results of operations and financial condition, including its ability to obtain financing. To date, the Company has not incurred impairment losses in the carrying values of its assets as a result of the pandemic and is not aware of any specific related event or circumstance that would require the Company to revise its estimates reflected in these condensed financial statements.

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The Company has developed its COVID-19 test in direct response to the pandemic and has been awarded a contract from the NIH for Phase 2 of its Rapid Acceleration of Diagnostics (RADx) initiative. These developments may mitigate risks that could affect the Company’s ability to complete its clinical trials in a timely manner, delay the initiation and/or enrollment of any future clinical trials, disrupt regulatory activities or have other adverse effects on its business and operations.

The Company cannot be certain what the overall impact of the COVID-19 pandemic will be on its business and prospects. The extent to which the COVID-19 pandemic will further directly or indirectly impact its business, results of operations, financial condition and liquidity, including planned and future clinical trials and research and development costs, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19, the actions taken to contain or treat it, and the duration and intensity of the related effects. In addition, the Company could see some limitations on employee resources that would otherwise be focused on its operation, including but not limited to sickness of employees or their families, the desire of employees to avoid contact with large groups of people, and increased reliance on working from home. If the financial markets and/or the overall economy are impacted for an extended period, the Company’s business, financial condition, results of operations and prospects may be adversely affected.

Income taxes

On March 11, 2021, the President signed the American Rescue Plan Act of 2021 (ARPA) into law.  ARPA includes several provisions, such as measures that extend and expand the employee retention credit, previously enacted under the Coronavirus Aid, Relief and Economic Security Act (CARES Act), through December 31, 2021. The enactment of ARPA did not have a material impact on our condensed financial statements.

Research and development costs

Research and development costs are expensed as incurred. Research and development expenses include certain payroll and personnel expenses, laboratory supplies, consulting costs, external contract research and development expenses, allocated overhead and facility occupancy costs. Costs to develop the Company’s technologies, including software, are recorded as research and development expense except for costs that meet the criteria to be capitalized as internal-use software costs.

The Company does not capitalize pre-launch inventory costs until future commercialization is considered probable and the future economic benefit is expected to be realized. Capitalizing pre-launch inventory costs will not occur prior to obtaining an Emergency Use Authorization (EUA) or other U.S Food and Drug Administration (FDA) marketing authorization unless the regulatory review process has progressed to a point that objective and persuasive evidence of regulatory approval is sufficiently probable, and future economic benefit can be asserted. The Company records such costs as research and development expenses, or if used in marketing evaluations records such costs as selling, general and administrative expenses.

In 2020, the Company began developing production lines to automate the production of its Talis One cartridges for the COVID-19 assay with the intention to scale-up its manufacturing capabilities to meet the high demand expected in response to the COVID-19 pandemic. Approximately $92.8 million of the high capacity production equipment acquired as part of the Company’s effort to scale-up its manufacturing capacity, is highly specialized for the manufacturing of the Company’s Talis One cartridges and was determined not to have an alternative future use, of which $