Lucira Health, Inc. - Quarter Report: 2022 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

For the quarterly period ended March 31, 2022

OR

For the transition period from to

Commission File Number: 001-39976

Lucira Health, Inc.

(Exact Name of Registrant as Specified in its Charter)

Registrant’s telephone number, including area code: (510) 350-8071

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

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.

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 May 11, 2022, the number of shares of registrant’s common stock, par value $0.001 per share, outstanding was 39,867,972.

Table of Contents

Where You Can Find More Information

Investors and others should note that we announce material financial and other information using our investor relations website, press releases, U.S. Securities and Exchange Commission, or SEC, filings and public conference calls and webcasts. We also post supplemental materials on the Press Release section of our investor relations website at https://ir.lucirahealth.com/. Except as specifically noted herein, information on or accessible through our website is not, and will not be deemed to be, a part of this Quarterly Report on Form 10-Q, or Quarterly Report, or incorporated by reference into any other filings we may make with the SEC.

i

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, which statements involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this Quarterly Report, including statements regarding our future results of operations or financial condition; business strategy and plans; and objectives of management for future operations, including our statements regarding the benefits and timing of the roll out of new technology, are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will,” or “would” or the negative of these words or other similar terms or expressions. Forward-looking statements contained in this Quarterly Report include, but are not limited to, statements about:

You should not rely on forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, and operating results. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors described in the section titled “Risk Factors” and elsewhere in

ii

this Quarterly Report. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report. The results, events, and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this Quarterly Report. While we believe that such information provides a reasonable basis for these statements, that information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements.

The forward-looking statements made in this Quarterly Report relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report to reflect events or circumstances after the date of this Quarterly Report or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments.

You should read this Quarterly Report and the documents that we reference in our Annual Report on Form 10-K, filed with the SEC on March 31, 2022, or 2021 Annual Report, as exhibits to this Quarterly Report with the understanding that our actual future results, levels of activity, performance, and events and circumstances may be materially different from what we expect.

“Lucira Health,” “Lucira,” the Lucira Health logo and our other registered or common law trade names, trademarks or service marks appearing in this Quarterly Report are our property. Trade names, trademarks and service marks of other companies appearing in this Quarterly Report are the property of their respective owners. We do not intend our use or display of other companies’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, these other companies. Solely for convenience, the trademarks and tradenames referred to in this Quarterly Report appear without the ® and ™ symbols, but those references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights, or the right of the applicable licensor to these trademarks and tradenames.

iii

SUMMARY OF RISKS ASSOCIATED WITH OUR BUSINESS

Our business is subject to numerous risks and uncertainties that you should consider before investing in our company. These risks are described more fully under Part I, Item 1A, “Risk Factors” in this Quarterly Report. These risks include, but are not limited to, the following:

iv

v

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

LUCIRA HEALTH, INC.

CONDENSED BALANCE SHEETS

(Unaudited)

(In thousands, except share and per share data)

(1) The balance sheet as of December 31, 2021 is derived from the audited financial statements as of that date

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

1

LUCIRA HEALTH, INC.

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except share and per share data)

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

2

LUCIRA HEALTH, INC.

CONDENSED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK

AND STOCKHOLDERS’ EQUITY

(Unaudited)

(In thousands, except share data)

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

3

LUCIRA HEALTH, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

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

4

LUCIRA HEALTH, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

(In thousands, except share and per share data)  

Note 1. Organization

Description of Business

Lucira Health, Inc. (the “Company”) was incorporated under the laws of the state of Delaware on February 20, 2013 under the name DiAssess Inc. The Company changed its name to Lucira Health, Inc. in January 2020. The Company is located in Emeryville, California.

The Company is a medical technology company with a mission to bring central laboratory quality testing for infectious diseases in the home and point of care settings. The Company has developed a testing platform that produces high-complexity-laboratory-accurate molecular testing in a single-use and user-friendly test kit that is powered by two AA batteries and fits in the palm of a hand. The Company’s initial focus is within respiratory diseases, and initially for COVID-19 and influenza Types A and B indications.

On November 17, 2020, the Company received an Emergency Use Authorization (“EUA”) from the Food and Drug Administration (“FDA”) for (1) prescription at-home use with self-collected nasal swab specimens in individuals aged 14 and older who are suspected of COVID-19 by their healthcare provider and (2) use at the point-of-care (“POC”), with self-collected nasal swab specimens in individuals aged 14 and older, and in individuals aged 13 and under when the specimen is collected by a healthcare provider at the POC. People who are suspected of COVID-19 are those who are either symptomatic or are thought to have been exposed to COVID-19. On April 9, 2021, the Company received its first FDA EUA authorization for over-the-counter (“OTC”) non-prescription use among symptomatic and asymptomatic individuals aged 14 and older (with self-collection) and children aged two to 13 (with parent collection).

Liquidity and Going Concern

Net income for the three months ended March 31, 2022 was $13.1 million, whereas for all prior periods since the Company’s inception, the Company has incurred recurring losses and negative cash flows from operating activities. The Company anticipates that it may continue to incur net losses into the foreseeable future. As of March 31, 2022, the Company had $120.6 million in cash and an accumulated deficit of $115.5 million. The Company generated net sales of $90.5 million in the three months ended March 31, 2022. On February 4, 2022, the Company closed a debt financing of up to $80.0 million. The first tranche of $30.0 million was funded upon close. See Note 10 Long-term Debt.

The Company believes that cash as of March 31, 2022, anticipated cash flows from operations, and available cash draws from the loan agreement described in Note 10 Long-term Debt will be sufficient to fund its planned operations for a period of at least 12 months from the date of the issuance of the accompanying condensed financial statements.

The ability to continue as a going concern is dependent upon the Company generating revenue and profit in the future and/or upon obtaining necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. The Company may raise additional capital through the issuance of equity securities, debt financings or other sources in order to further implement its business plan. However, if such financing is not available when needed and at adequate levels, the Company will need to reevaluate its operating plan and may be required to delay the development of new test kits.

Note 2. Summary of Significant Accounting Policies

Basis of Presentation

The Company’s financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), and applicable rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for interim financial information and pursuant to the instructions of the SEC on Form 10-Q and Article 10 of Regulation S-X of the SEC. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the management’s opinion, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of the results of operations and cash flows for the periods presented have been included.

The accompanying condensed balance sheet as of March 31, 2022, the condensed statements of operations for the three months ended March 31, 2022 and 2021, the statements of redeemable convertible preferred stock and stockholders’ equity for the

5

three months ended March 31, 2022 and 2021, and the condensed statements of cash flows for the three months ended March 31, 2022 and 2021 are unaudited. The unaudited interim condensed financial statements have been prepared on the same basis as the audited annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair presentation of the Company’s financial position as of March 31, 2022 and the results of its operations and cash flows for the three months ended March 31, 2022 and 2021. The financial data and other information disclosed in these notes related to the three months ended March 31, 2022 and 2021 are unaudited. The results for the three months ended March 31, 2022 are not necessarily indicative of results to be expected for the year ending December 31, 2022, any other interim periods, or any future year or period. These condensed financial statements and accompanying notes should be read in conjunction with the audited financial statements and notes thereto in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as filed with the SEC on March 31, 2022.

Use of Estimates

Significant estimates and assumptions made in the accompanying financial statements include, but are not limited to recognition of stock-based compensation, incremental borrowing rate, revenue recognition, inventory valuation, sales returns, warranty reserves, allowance for doubtful accounts, accrued research and development costs, uncertain tax positions, the recoverability of its long-lived assets and the valuation of deferred tax assets. The Company evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors and adjusts those estimates and assumptions when facts and circumstances dictate. Actual results could materially differ from those estimates.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current period presentation. The impact of these reclassifications was not material to the condensed financial statements for the periods presented.

Cash, and Restricted Cash Equivalents

The Company considers highly liquid investments purchased with a remaining maturity date upon acquisition of three months or less to be cash equivalents and are stated at cost, which approximates fair value. As of March 31, 2022 and December 31, 2021, the Company held cash equivalents of $120.6 million and $106.0 million, respectively.

As of March 31, 2022, the Company held a restricted cash balance of $1.2 million which was used to secure a standby letter of credit in relation to the Company’s operating lease agreement entered into in March 2022 for a facility in Vista California. The cash was deposited in a money market account with maturities of three months or less, with automatic renewal. The standby letter of credit is subject to annual automatic renewal over the term of the lease. The restricted cash equivalents are recorded as a long-term asset on the condensed balance sheets as of March 31, 2022, due to the long-term nature of the underlying obligation.

Fair Value Measurements

The carrying value of the Company’s cash, accounts receivable, other receivable, prepaid expenses, other current assets, accounts payable and accrued liabilities approximate fair value due to the short-term nature of these items.

Fair value is defined as the exchange price that would be received for an asset or an exit price paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.

The fair value hierarchy defines a three-level valuation hierarchy for disclosure of fair value measurements as follows:

6

The categorization of a financial instrument within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

Inventories Produced in Preparation for Product Launches

The Company capitalizes inventories produced in preparation for product launches sufficient to support estimated initial market demand. Typically, capitalization of such inventory begins when positive results have been obtained for the clinical trials that the Company determines are necessary to support regulatory approval, uncertainties regarding ultimate regulatory approval have been significantly reduced and the Company has determined it is probable that these capitalized costs will provide future economic benefit in excess of capitalized costs. The factors considered by the Company in evaluating these uncertainties include the receipt and analysis of positive clinical test results for the underlying product, results from meetings with the relevant regulatory authorities prior to the filing of regulatory applications, and the submission of the regulatory application. The Company closely monitors the status of each respective product within the regulatory approval process, including all relevant communication with regulatory authorities. If the Company is aware of any specific material risks or contingencies other than the normal regulatory review and approval process or if there are any specific issues identified relating to safety, efficacy, manufacturing, marketing or labeling, the related inventory would generally not be capitalized.

For inventories that are capitalized in preparation of product launch, anticipated future sales, expected approval date and shelf lives are evaluated in assessing realizability. The shelf life of a product is determined as part of the regulatory approval process; however, in evaluating whether to capitalize pre-launch inventory production costs, the Company considers the product stability data of all of the pre-approval production to date to determine whether there is adequate expected shelf life for the capitalized pre-launch production costs.

Inventories

The Company values its inventory at the lower of cost or net realizable value and determines the cost of inventory using standard costs which closely resembles 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. Inventory held as of March 31, 2022 is in the form of raw materials, work in process and finished goods.

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 that estimated by the Company, or if it is determined that inventory utilization will further diminish based on estimates of demand, additional inventory write-downs may be required. Amounts written-down due to unmarketable inventory are recorded in cost of revenue and a new lower-cost basis for the inventory is established.

Warranty

The Company offers a standard product warranty that its products will perform as intended upon the date of original delivery for a reasonable period of time, which typically coincides with product shelf life. The Company has the obligation, at its option, to either refund, repair or replace a defective product. At the time revenue is recognized, an estimate of future warranty costs is recorded as a component of cost of products sold. The estimate of future warranty costs is based on historical as well as current product failure rates, service delivery costs incurred in correcting product failures, and warranty policies. The Company regularly reviews these estimates to assess the appropriateness of the Company’s recorded warranty liabilities and adjust the amounts as necessary. As of March 31, 2022 and December 31, 2021, the accrued liability for warranty returns was not significant.

Property and Equipment, Net

Property and equipment are stated at cost, net of depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally between three and seven years. Leasehold improvements are amortized on a straight-line basis over the lesser of the estimated useful life of the asset or the remaining term of the related lease. Maintenance and repairs are charged to expense as incurred, and improvements and betterments are capitalized. When assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the condensed balance sheets and any resulting gain or loss is reflected in other income or expense in the condensed statements of operations in the period realized.

7

Leases

The Company determines if an arrangement is a lease at inception and if so, determines whether the lease qualifies as operating or finance. Operating leases are included in operating lease right-of-use (“ROU”) assets and operating lease liabilities on the condensed balance sheets. The Company did not have any finance leases as of March 31, 2022 and December 31, 2021.

ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at lease commencement date based on the present value of lease payments over the lease term. When the Company’s leases do not provide an implicit rate, an incremental borrowing rate is used based on the information available at commencement dates in determining the present value of lease payments. The Company uses the implicit rate when readily determinable. Operating lease ROU assets also include any lease payments made and exclude lease incentives when paid by the Company or on the Company’s behalf. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that it will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

The Company has lease agreements with lease and non-lease components. The Company elected to not separate lease and non-lease components for all of its building leases. The Company also made an accounting policy election to recognize lease expense for leases with a term of 12 months or less on a straight-line basis over the lease term and not recognize ROU assets or lease liabilities for such leases.

Impairment of Long-Lived Assets

The Company’s long-lived assets are comprised principally of its property and equipment, including leasehold improvements and ROU assets.

The Company reviews long-lived assets whenever events or changes in circumstances indicate that the carrying amount of the asset group may not be fully recoverable. The Company identifies impairments related to long-lived assets when management determines that the remaining carrying value will not be realized through future use. The Company evaluates events or circumstances, including competition in the markets where it operates, that would indicate the carrying value of assets may not be fully recoverable. If an event or circumstance is identified indicating carrying value may not be recoverable, the sum of future undiscounted cash flows is compared to the carrying value. If the carrying value exceeds the future undiscounted cash flows, the carrying value of the asset is reduced to fair value, with the difference recorded as an impairment charge. Assets are evaluated for impairment on an individual basis, which management believes is the lowest level for which there are identifiable cash flows. The Company evaluates assets for impairment by assessing if long-lived assets will be sold or otherwise disposed of significantly before the end of their previously estimated useful life as its primary indicator of potential impairment. The fair value of assets is determined as the present value of the estimated future cash flows, adjusted as necessary for market participant factors. Any required impairment loss would be recorded as a reduction in the carrying value of the related asset and a charge to operating expense.   

Debt Issuance Costs, Debt Discount and Detachable Debt-Related Warrants

As described in Note 10, Long-term Debt, the Company entered into a term loan credit facility with Silicon Valley Bank. (“SVB”) and Hercules Capital, Inc., (“Hercules”) during the three months ended March 31, 2022. Costs incurred to issue debt are deferred and recorded as a reduction of the debt balance the accompanying condensed balance sheets. Debt discounts related to the relative fair value of warrants issued in conjunction with the debt are also recorded as a reduction of the debt balance and accreted over the expected term of the debt to interest expense using the effective interest method.

Redeemable Convertible Preferred Stock

The Company’s shares of preferred stock were assessed at issuance for classification and redemption features requiring bifurcation. The Company’s preferred stock was not mandatorily redeemable. The Company presents as temporary equity any stock which (i) the Company undertakes to redeem at a fixed or determinable price on the fixed or determinable date or dates; (ii) is redeemable at the option of the holders, or (iii) has conditions for redemption which are not solely within the control of the Company. The Company’s preferred stock was redeemable if the Company had not been dissolved within 90 days following the occurrence of certain deemed liquidation events, which the Company determined was not solely within its control and thus had classified shares of redeemable convertible preferred stock as temporary equity until such time as the conditions were removed or lapse. The Company initially recorded redeemable convertible preferred stock at fair value, net of issuance costs.

In connection with the IPO on February 9, 2021, all outstanding shares of redeemable convertible preferred stock converted into 23,978,747 shares of common stock.

8

Deferred Offering Costs

The Company capitalized certain legal, professional accounting and other third-party fees that are directly associated with in-process equity financings, including the IPO, as deferred offering costs until such financings are consummated. After consummation of the financing, these costs are recorded as a reduction of the proceeds received from the equity financing. If a planned equity financing is abandoned, the deferred offering costs are expensed immediately as a charge to operating expenses in the condensed statements of operations. There was $2.2 million of deferred offering costs related to the Company’s IPO recorded as other current assets on the Company’s condensed balance sheets as of December 31, 2020. The Company recorded additional offering costs between December 31, 2020 and February 9, 2021 and recorded $3.7 million as an offset to the IPO proceeds as additional paid-in capital on the closing date.

Revenue Recognition

The Company recognizes revenue under Accounting Standards Codification (“ASC”) Topic 606 (“ASC 606”), “Revenue from Contracts with Customers” when a customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the Company performs the following five steps:

Under ASC 606, assuming all other revenue recognition criteria have been met, the Company will recognize revenue for arrangements upon the transfer of risk and title of the Company’s products and upon customer obtaining control of the product, which occurs at a point in time and is generally upon shipment to the customer, unless terms of contractual arrangements with customers state otherwise in which case the control is transferred upon completion of delivery and customer acceptance of products. Upon transfer of risk and title to the customer, no further performance obligations by the Company to the customer after shipment of the product are present.

Revenue is measured based on the amount of consideration that the Company expects to be entitled to, which considers both fixed and variable consideration. Variable consideration is included in the transaction price only to the extent that it is probable that a significant reversal of revenue will not occur. Transaction price is impacted by variable consideration such as discounts, allowances and constraints placed on revenue due to uncertainty. The Company's performance obligations relate to contracts with a duration of less than one year. The Company elected to apply the practical expedient provided in ASC 606, therefore, the Company is not required to disclose the aggregate amount of transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period.

Collection of the Company’s net revenue generally occurs within 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 consideration. Collections of revenue from customers in the Company’s e-commerce channel generally occurs instantaneously or within a few days as customers pay using credit cards. Customers in certain countries outside of the United States pay in advance of product delivery. In those instances, payment and delivery typically occur in the same month.

Costs to obtain or fulfill a contract are currently expensed when incurred because the Company’s performance obligation is satisfied at a point in time. These costs are recorded as cost of products sold in the condensed statements of operations.

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. In those instances, the Company records revenue upon delivery and upon customer acceptance of products to customers when control of products is transferred to customers.

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.

Shipping and Handling Costs

Shipping and handling costs are included in cost of goods sold.

9

Research and Development Grants

     The Company may earn grant income for performing tasks under certain research and development agreements with governmental agencies. Grant income derived from reimbursement of direct out-of-pocket expenses, overhead allocations and fringe benefits for research costs associated with government contracts and grants are recorded at the gross amount within other income. The costs associated with these reimbursements are reflected as a component of research and development expense in the condensed statements of operations.   

The Company records a receivable included in other current assets on the condensed balance sheets, which consists of billed and unbilled amounts earned from various government grants for costs incurred prior to the period end under reimbursement contracts. The amounts are billed to the respective government agencies. As collection is deemed probable, no allowance for doubtful accounts has been established. If amounts become uncollectible, they are recorded as operating expense in the condensed statements of operations. As of March 31, 2022 and December 31, 2021, grant income for the three months ended March 31, 2022 and 2021 was not significant and unbilled amounts as of March 31, 2022 and December 31, 2021, were not significant. 

Research and Development

Costs associated with research and development activities are expensed as incurred and include, but are not limited to, personnel-related expenses including stock-based compensation expense, materials, laboratory supplies, consulting costs, costs associated with setting up and conducting clinical studies and allocated overhead including rent and utilities.

The Company records accrued expenses for estimated costs of its research and development activities conducted by third-party service providers, which include clinical trial activities. The Company records the estimated costs of research and development activities based upon the estimated value of services or supplies provided but not yet invoiced and include these costs in accrued liabilities in the condensed balance sheets and within research and development expense in the condensed statements of operations. The Company records accrued expenses for these costs based on factors such as estimates of the work completed or supplies received and in accordance with agreements established with these vendors. Any payments made in advance of services or supplies provided are recorded as prepaid assets, which are expensed as the services or supplies are received.

The Company estimates the amount of work completed through discussions with internal personnel and external service providers as to the progress or stage of completion of the services and the agreed-upon fee to be paid for such services. Such estimates in determining the accrued balance in each reporting period are subject to management judgment. As actual costs become known, the Company adjusts its accrued estimates.

Advertising and Marketing Costs

Costs associated with advertising and marketing activities are expensed as incurred. Total advertising and marketing costs were $0.1 million for the three months ended March 31, 2022, compared to $0.4 million in 2021, and are included in selling, general and administrative expenses in the accompanying condensed statements of operations.

Stock-Based Compensation

The Company’s stock-based awards consist of stock options issued to employees and non-employees, restricted stock units issued to employees and shares of the Company’s common stock purchased by employee participants in the Employee Stock Purchase Plan. The Company measures the estimated fair value of the stock-based awards on the date of grant and recognizes compensation expense for those awards over the requisite service period, which is generally the vesting period of the respective awards. The Company records expense for awards with service-based vesting using the straight-line method. The Company accounts for forfeitures as they occur. The fair value of the common stock is based on the closing price of the common stock on the date of grant as reported on the Nasdaq Global Select Market.

The Company classifies stock-based compensation expense in its condensed statements of operations in the same manner in which the award recipient’s cash compensation costs are classified. The fair value of the common stock is based on the closing price of the common stock on the date of grant as reported on the Nasdaq Global Select Market.

The fair value of each stock option is estimated on the date of grant using the Black-Scholes option pricing model. The Black-Scholes option-pricing model requires the use of a number of complex assumptions including the fair value of the common stock, expected volatility, risk-free interest rate, expected dividends, and expected term of the option.

10

The Company determines the expected stock volatility using a weighted-average of the historical volatility of a group of guideline companies that issued options with substantially similar terms, and expects to continue to do so until such time as the Company has adequate historical data regarding the volatility of its own traded stock price. The expected term of the Company’s stock options has been determined utilizing the simplified method for awards that qualify as “plain-vanilla” options. The expected term was estimated using the simplified method for employee stock options since the Company does not have adequate historical exercise data to estimate the expected term. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. The Company has not paid, and does not anticipate paying, cash dividends on its common stock; therefore, the expected dividend yield is assumed to be zero.

Provision for 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 statements and tax basis 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.

The Company recognizes net deferred tax assets to the extent that the Company believes these assets are more likely than not to be realized. In making such a determination, management 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 management determines that the Company would be able to realize its deferred tax assets in the future in excess of their net recorded amount, management would adjust the deferred tax asset valuation allowance, which would reduce the provision for income taxes.

The Company records uncertain tax positions on the basis of a two-step process whereby (i) management 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 (ii) for those tax positions that meet the more-likely-than-not recognition threshold, management recognizes the largest amount of tax benefit that is more than 50% likely to be realized upon ultimate settlement with the related tax authority. The Company recognizes interest and penalties related to unrecognized tax benefits within income tax expense. Any accrued interest and penalties are included within the related tax liability.

Segment Reporting

The Company has determined that the Chief Executive Officer is its Chief Operating Decision Maker. The Company’s Chief Executive Officer reviews financial information presented on an aggregate basis for the purposes of assessing the performance and making decisions on how to allocate resources. Accordingly, the Company has determined that it operates in a single operating and reportable segment, which is the business of designing, manufacturing and selling of disposable test kits.

Recent Accounting Pronouncements

From time to time, new accounting pronouncements, or Accounting Standard Updates (“ASU”) are issued by the Financial Accounting Standards Board (“FASB”), or other standard setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed, the impact of recently issued standards that are not yet effective will not have a material impact on the Company’s financial position or results of operations upon adoption.

The Company is an emerging growth company (“EGC”) as defined in the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”) and may take advantage of reduced reporting requirements that are otherwise applicable to public companies. Section 107 of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies are required to comply with those standards. This means that when a standard is issued or revised and it has different application dates for public and nonpublic companies, the Company has the option to adopt the new or revised standard at the time nonpublic companies adopt the new or revised standard and can do so until such time that the Company either (i) irrevocably elects to “opt out” of such extended transition period or (ii) no longer qualifies as an emerging growth company. The Company has elected to use the extended transition period for complying with new or revised accounting standards unless the Company otherwise early adopts select standards.

Recently Adopted Accounting Standards

11

In August 2020, the FASB issued Accounting Standard Update (the “ASU”) No. 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. The ASU also removes certain settlement conditions that are required for equity-linked contracts to qualify for the derivative scope exception and it also simplifies the diluted earnings per share calculation in certain areas. The Company early adopted the ASU on January 1, 2022. Adoption of the ASU did not impact the Company’s financial position, results of operations or cash flows.

Recent Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires companies to measure credit losses utilizing a methodology that reflects expected credit losses and requires a consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The standard is effective for fiscal years beginning after December 15, 2022, with early adoption permitted. The Company expects to adopt this ASU beginning January 1, 2023. The Company is evaluating the potential impact of this standard on its financial statements.

Note 3. Net Sales

All of the Company’s net sales has been derived from sales of its test kits through its healthcare, business-to-business, international and direct-to-consumer channels. Since receiving the initial EUA in the fourth quarter of 2020, the Company marketed its test products to physicians and licensed healthcare providers through its healthcare channel in the United States. On April 9, 2021, the Company received its first FDA EUA authorization for OTC non-prescription use and expanded its marketing to include domestic testing providers, distributors, businesses within its business-to-business channel, and direct-to-consumer through its partnerships with e-commerce sales and distribution platforms. During 2021, the Company also received authorization and began selling tests through international distributors in Canada, Taiwan, Singapore, and Israel.

The following table sets forth the Company’s net sales by channel:

The following table sets forth the Company’s net sales by geographic area based on the customers’ locations:

Note 4. Concentration of Credit Risk and Significant Suppliers

Financial instruments that potentially subject the Company to credit risk consist principally of cash and restricted cash equivalents held by financial institutions, other receivables and account receivables. Substantially all of the Company’s cash and restricted cash equivalents are held at one financial institution that management believes is of high credit quality. Such deposits may, at times, exceed federally insured limits.

As of March 31, 2022, four customers had outstanding accounts receivable due of 10% or greater of the Company’s accounts receivable.

12

For the three months ended March 31, 2022 and 2021, the following customers represented 10% or more of the Company’s net sales:

The Company is dependent on one contract manufacturer for commercial manufacturing of the Company’s test kits, key suppliers for certain laboratory materials and inventory items and certain key partners for distribution and fulfillment of customer orders. An interruption in the supply of these materials or disruption of the fulfillment and distribution operations, could temporarily impact the Company’s ability to manufacture its commercial inventory and perform development, testing and clinical trials related to its products.

As of March 31, 2022, the Company had non-cancellable purchase commitments of $92.1 million, consisting primarily of $47.9 million of raw material purchase commitments, and $12.2 million asset and equipment related to expanding the Company’s manufacturing capacity and automation, and $3.9 million related to non-commercial services, and $28.1 million pursuant to the manufacturing services agreement, (the “Jabil MSA”), with Jabil Inc., (“Jabil”), and technical services agreement with Jabil, (the “Jabil TSA”). Under the Jabil MSA, the Company is obligated to provide, on a monthly basis, a rolling 12-month forecast to Jabil as well as 12-months of historical aggregate end customer demand at the finished product level, when available, which will be used to constitute written purchase orders from the Company, and the Company is obligated to purchase the quantity of products that is required by the first four months of each forecast. 

Note 5. Fair Value Measurements

The Company’s restricted cash equivalents are measured at fair value on recurring basis and is classified as Level 1 input. Restricted cash equivalents are a money market account that the Company opened in August 2020. The following tables summarize the Company’s financial assets and liabilities measured at fair value on a recurring basis by level within the fair value hierarchy.

The Company did not have any financial instruments measured at fair value on a recurring basis as of March 31, 2022.

13

The change in the fair value of the derivative liabilities and convertible notes accounted for at fair value is summarized below.

In order to determine the fair value of the convertible notes issued in December 2020, (the “2020B Notes”), the Company utilized the probability-weighted expected return method (“PWERM”). The PWERM relies on a forward-looking analysis to determine the fair value. Under this method, discrete future outcomes, including an IPO and non-IPO scenarios, are weighted based on the estimated probability of each scenario. The PWERM is used when discrete future outcomes can be predicted with reasonable certainty based on a probability distribution. The fair value estimate relied upon in the PWERM scenario was based on likelihood of achieving four liquidity events, (i) an initial public offering, (ii) merger or acquisition of the Company given prevailing market conditions, (iii) change of control, (iv) maturity of the convertible notes. Estimates and assumptions impacting the fair value measurement include future value under the various conversion scenarios, discount rate, discount period, discount factor and probability of occurrence of each scenario, as best estimated by management. The estimated future value of the notes for each scenario is then discounted to present value using a discount rate. The future value was determined based on the estimated term to the event from valuation date as determined by management. The exit value in an IPO scenario was based on banker indications as well as an analysis of guideline companies that went public within the past few years that are broadly comparable to the Company. The exit value of an M&A scenario is determined by management with an estimated premium applied to the IPO value estimate. The discount rate, discount period, and probability of the occurrence of liquidity scenarios are estimates made by the management.

The convertible notes were measured at fair value upon extinguishment on February 9, 2021 in connection with the Company’s IPO.

Note 6. Inventory

Inventory consist of the following:

Note 7. Property and Equipment, Net

Depreciation and amortization expense was $1.6 million, for the three months ended March 31, 2022, compared to $0.2 million for the three months ended March 31, 2021, respectively. During the three months ended March 31, 2022, the Company deployed $0.2 million of assets into production from construction-in-progress, with the major portion of the remaining balance expected to be placed in service in the second half of 2022. Construction-in-progress is related to the setup of manufacturing infrastructure and the purchase of long lead time manufacturing equipment as the Company grows its manufacturing capacity and

14

invests in semi-automation and automation. Construction-in-progress amounts recorded are not subject to depreciation as such assets are not yet available for their intended use.

The following table sets forth the Company’s long-lived assets, including right-of-use assets by geographic area:

Note 8. Other Financial Information

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable consist primarily of amounts due to the Company related to product sales. It is the practice of the Company to provide for uncollectible accounts in the period the accounts are determined to be uncollectible.

The following table summarizes the activity in the allowance for doubtful accounts:

Other Receivables

The other receivable balance as of March 31, 2022 and December 31, 2021 represents amounts due from Jabil, the manufacturer of the Company’s test kits in connection with procurement of component parts.

Prepaid Expenses

The following table summarizes the components of prepaid expenses:

As of March 31, 2022 and December 31, 2021, Prepaid expenses include $5.8 million and $9.4 million, respectively, of advanced payments related to procurement of inventories of components such as circuit boards to be used in assembling test kits.   

15

Accrued Liabilities

Accrued liabilities consist of the following:

Note 9. Leases

The Company has operating leases for corporate offices, operations and research and development facilities. These leases have remaining lease terms of 1 to 3 years. The lease of operations and research and development facilities includes costs for utilities and common area maintenance which are not included in the calculation of lease payments.

In July 2021, the Company entered into an operating lease agreement for space within a building in Emeryville, California. The lease commenced on July 6, 2021 and has a lease term expiring on June 30, 2024 with two options to extend the lease term for a period of 3 years each.

In August 2021, the Company entered into an operating lease agreement for space within a building in San Jose. The lease commenced on August 30, 2021 and has a 2-year term with an auto renewal for another 2-year period upon expiration of every such bi-annual term. The Company amended the original operating lease for San Jose, in September 2021 and December 2021, to increase the amount of leased space.

On March 15, 2022, the Company executed a lease for an 82,000 square foot facility in Vista, California. The term of the lease is 126 months with options to extend five years and includes lease incentives of an initial rent-free period. The Company will make monthly rent payments, which will approximate $1.3 million per year over the term of the lease. The Company took possession of the facility on April 1, 2022 to begin tenant improvements and expects completion and assumption of full occupancy by August 2022. Under the terms of the operating lease, the Company has been provided tenant improvement allowances of up to $0.8 million. In conjunction with and under the terms of the operating lease agreement, the Company entered into a $1.2 million Standby Letter of Credit as guarantee of the Company’s payment of the tenant improvements and on-going rent payments over the term of the lease. The Company will account for the lease as an operating lease as of April 1, 2022, the commencement date under ASC Topic 842, Leases, and will record a right-of use asset representing the Company’s right to use the underlying asset over the lease term and lease liability representing the Company’s obligation to make lease payments arising from the lease.

Leases with an initial term of 12 months or less are not recorded on the condensed balance sheets, and the Company recognizes lease expense for these leases on a straight-line basis over the lease terms. Operating leases with terms greater than 12 months are included in operating lease ROU assets and operating lease liabilities in the Company’s condensed balance sheets as of March 31, 2022 and December 31, 2021. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

16

The Company’s ROU assets and operating lease liabilities as of March 31, 2022 do not include the recognition of the new lease facility in Vista, California, which will be recorded as of April 1, 2022. Maturities of lease liabilities as of March 31, 2022, are as follows:

The Company made operating lease payments of $0.5 million and $0.1 million during the three months ended March 31, 2022 and 2021, respectively, which are included as cash flow from operating activities on the condensed statements of cash flows.

Additional information related to the Company’s leases was as follows:

In March 2022, the Company executed an amendment with the lessor of two of its facility leases which included an extension of the expiration date of the original leased premise for one location and a reduction of the lease term on another location, such that the lease terms are coterminous on June 30, 2022. Upon the execution of the amendment, which was deemed to be a lease modification, the Company remeasured the lease liability and corresponding right-of-use asset as of the effective date of the amendment to reflect the extended term and recorded $0.2 million a reduction of the respective right-of-use assets and lease liabilities as of the effective date of the amendments.    

Note 10. Long-term Debt

On February 4, 2022, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with Hercules in its capacity as administrative agent and collateral agent, and Hercules and SVB as lenders.

The Loan Agreement provides for up to $80.0 million in borrowing capacity (the Term Loans”) available in four tranches. The first tranche consists of term loans in an aggregate principal amount of $30.0 million, all of which was funded to the Company on the closing date. The Company intends to use the proceeds of the Term Loans for working capital and general corporate purposes.

The second tranche, not to exceed $20.0 million, is available for draw at the Company’s option beginning September 1, 2022, and on or prior to March 31, 2023, subject to the terms of the Loan Agreement and the tranche two draw test, defined as the achievement by the Company of net product revenue of at least $75.0 million, measured on a trailing six-month basis as of the Company’s most recent financial statements provided to the lenders. Loan advances under tranche two will be made in increments of $5.0 million. The third tranche of up to $15.0 million will be available for draw on or after June 15, 2023, subject to the terms of the Loan Agreement and the tranche three draw test, defined as the achievement by the Company of net product revenue of at least $250.0 million, measured on a trailing twelve-month basis as of the Company’s most recent financial statements provided to the lenders. Loan advances under the third tranche will be made in increments of $5.0 million. The fourth tranche of up to $15.0 million will be available for draw on or after March 15, 2024, subject to the terms and conditions of the Loan Agreement and approval by the investment committees of each of the lenders.

17

The Term Loans will mature on February 1, 2026 and bear interest at an annual rate the greater of 5.50% plus the prime rate (as reported in the Wall Street Journal) and 8.75%. As of March 31, 2022, the interest rate was 9.0%. For the three months ended March 31, 2022, the Company recorded $0.5 million of interest expense related to the Term Loans, which included $0.1 million of non-cash interest of amortization of the loan discount. The Term Loans are interest only, paid monthly, up to September 1, 2024, after which the interest-only period may be extended, provided there has been no event of default or a continuing event of default and the Company has submitted sufficient evidence, satisfactory to the lenders, that the Company has achieved the Tranche Three Draw Test. After the interest only period, monthly principal and interest payments are required over the remaining term of the loans to the maturity date. The Company may prepay all or a portion of the outstanding term loan advances including principal and accrued and unpaid interest, subject to a prepayment fee of 3% of the principal advance being prepaid if within 12 months of the initial advance closing date, 2% if within 24 months of the advance closing date and 1% if within 36 months of the advance closing date. An end of term charge of 5.25% of the Term Loans advanced will be due upon prepayment or repayment.      

The Loan Agreement contains customary events of default, representations and warranties and covenants, including financial covenants requiring the Company to maintain certain minimum cash and revenue levels upon the occurrence of specified events. As of March 31, 2022, the Company was in compliance with the financial covenants of the Loan Agreement. Lenders have participation and notice rights in an amount up to $5.0 million for the future sale and issuance of the Company’s capital stock that is broadly marketed to multiple investors.

The Company has granted a senior security interest in all of the Company’s right, title, and interest in, to and under substantially all of Company’s personal property and other assets, excluding intellectual property. Notwithstanding the foregoing, the Company’s intellectual property will automatically be included within the assets securing the Term Loans to the extent necessary to permit perfection of the Lender’s security interests for rights to payment and proceeds from the sale, licensing or disposition of the Company’s intellectual property (the “Rights to Payment”) if a judicial authority holds that a security interest in the Rights to Payment requires a security interest in the underlying intellectual property.

In connection with entering into the Loan Agreement, the Company issued warrants to Hercules (the “Hercules Warrant”) and to SVB (the “SVB Warrant” and together with the Hercules Warrant, the “Warrants”). The number of shares of the Company’s common stock subject to the Hercules Warrant is equal to the quotient derived by dividing the amount equal to 1.00% times the aggregate principal amount of term loan advances made and funded under the Loan Agreement by the exercise price of $5.03 per share. The number of shares of the Company’s common stock subject to the SVB Warrant is equal to 1.00% multiplied by the aggregate amount of the term loan advances made and funded under the Loan Agreement divided by the $5.03 per share. In conjunction with the first tranche advance of $30.0 million SVB and Hercules each hold Warrants to purchase for 59,642 shares of the Company’s common stock. Each warrant is exercisable for a period of seven years from issuance at a per-share exercise price equal to $5.03. The Warrants, which met equity classification, were recognized as a component of permanent stockholders’ equity within additional paid-in-capital on the condensed balance sheets and were recorded at the issuance date using a relative fair value allocation method. The Company valued the Warrants at issuance, which resulted in a discount on the Term Loan, and allocated the proceeds from the loan proportionately to the Term Loan and to the Warrants, of which $0.5 million was allocated to the Warrants.

The Company determined the fair value of the Warrants as of February 4, 2022 using the Black-Scholes option pricing model and applying the following assumptions:

Because the Company does not have sufficient trading price history of its common stock, the volatility was based on historical trading price of a select peer group of publicly traded companies.

In connection with entering into the Loan Agreement, the Company incurred $1.2 million of debt issuance costs, including commitment and legal fees in connection with the Loan Agreement, fees paid directly to the lenders and other direct third-party costs. Total issuance costs also include the fair value allocated to the Warrants and the end of term fee of $1.6 million, for $3.3 million of issuance costs. The Company allocated $2.7 million of the total issuance costs to the first term loan advance and recorded the issuance costs as unamortized discount, which is being amortized to non-cash interest expense over the term of the loan using the

18

effective interest method. The remaining $0.6 million of issuance costs associated with unfunded loan advances are recorded as other assets on the condensed balance sheets and will be allocated to debt discount as the future tranche is funded. If future available tranches are not funded, these debt issuance costs will be charged to interest expense in the period. The $1.6 million end of term fee is included in the contractual cash flows and is accreted to interest expense using the effective interest method over the term of the loan.

The effective interest rate on the Term Loans, including the discount and the accretion of the final end of term payment, was 11.42% as of March 31, 2022.

Balance sheet information related to the Term Loans is as follows:

Note 11. Convertible Notes Payable

IPO and Conversion of Convertible Notes Payable

On February 9, 2021, upon the closing of the Company’s Initial Public Offering (“IPO”), certain then outstanding convertible notes payable and accrued interest automatically converted into shares of common stock at a conversion price equal to 80% of the IPO price per share, which resulted in the issuance of 1,470,947 shares of common stock.

Note 12. Capital Stock

Redeemable Convertible Preferred Stock and Initial Public Offering

On February 9, 2021, in connection with the closing of the IPO, all shares of redeemable convertible preferred stock converted into 23,978,747 shares of common stock.

Preferred Stock

Under its amended and restated certificate of incorporation, the Company’s Board of directors (the “Board”) may, without further action by the Company’s stockholders, fix the rights, preferences, privileges and restrictions of up to an aggregate of 10,000,000 shares of preferred stock in one or more series and authorize their issuance. These rights, preferences and privileges could include dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences and the number of shares constituting any series or the designation of such series, any or all of which may be greater than the rights of common stock. Any issuance of preferred stock could adversely affect the voting power of holders of common stock and the likelihood that such holders would receive dividend payments and payments on liquidation. In addition, the issuance of preferred stock could have the effect of delaying, deterring or preventing a change of control or other corporate action. No shares of preferred stock were issued or outstanding as of March 31, 2022.

Common Stock

Under its amended and restated certificate of incorporation, the Company is authorized to issue 200,000,000 shares of common stock, having a par value per share of $0.001.   

Common stockholders are entitled to dividends as and when declared by the Board, subject to the rights of holders of all classes of stock outstanding having priority rights as to dividends. There have been no dividends declared to date. The holder of each share of common stock is entitled to one vote.

The Company had shares of common stock reserved for future issuance upon the exercise or conversion of the following: 

19

Note 13. Equity Incentive Plan

In January 2021, the Board adopted the 2021 Equity Incentive Plan (the “2021 Plan”). The stockholders approved the 2021 Plan in January 2021, and it became effective upon the execution of the underwriting agreement for the IPO on February 4, 2021. Under the 2021 Plan, the Company may grant stock options, stock appreciation rights, restricted stock, restricted stock units, and other stock or cash-based awards to individuals who are then employees, officers, directors or consultants of the Company. A total of 5,200,000 shares of common stock were approved to be initially reserved for issuance under the 2021 Plan. In addition, the number of shares of common stock available for issuance under the 2021 Plan will be automatically increased on the first day of each calendar year during the ten-year term of the 2021 Plan, beginning with January 1, 2022 and ending with January 1, 2031, by an amount equal to 5% of the outstanding number of shares of common stock on December 31 of the preceding calendar year or such lesser amount as determined by the Board. On January 1, 2022, the number of shares available for issuance under the 2021 Plan was automatically increased by 1,983,182 shares.

In April 2022, the Board approved the 2022 Inducement Plan, (the “Inducement Plan”) a non-stockholder approved stock plan, in order to award stock options, restricted stock units and other awards as allowed under the Inducement Plan as an inducement to potential new employees and directors of the Company. Under the Inducement Plan, 3,500,000 shares were approved and available for future issuance. As of March 31, 2022, no awards had been granted or were outstanding.

The stock-based compensation expense for the Company’s equity incentive plans was allocated as follows:

Total stock-based compensation expense by type of award was as follows:

20

Total compensation costs as of March 31, 2022 related to non-vested awards to be recognized in future periods was $24.4 million and is expected to be recognized over the weighted-average period of 3.26 years.

Stock Options

A summary of stock option activity for the three months ended March 31, 2022 is as follows:

Total options vested during the three months ended March 31, 2022 was 321,501, with an aggregate fair value of $0.5 million. The aggregate intrinsic value of options exercised was $0.2 million for the three months ended March 31, 2022. Total compensation costs as of March 31, 2022 related to option awards to be recognized in future periods was $3.3 million and is expected to be recognized over the weighted average period of 2.15 years for such options

The Company did not grant any options during the three months ended March 31, 2022. The weighted-average grant date fair value of the options granted was $7.52 per share for the three months ended March 31, 2021, as calculated using the Black-Scholes option-pricing model with the following assumptions on a weighted-average basis:

Common stock fair value—Prior to the IPO the fair value of the Company’s common stock was determined by the Board with assistance from management. The Board determined the fair value of common stock by considering independent valuation reports and a number of objective and subjective factors, including valuations of comparable companies, sales of redeemable convertible preferred stock, operating and financial performance, the lack of liquidity of the Company’s common stock and the general and industry-specific economic outlook. Following the closing of the IPO, the fair value of the Company’s common stock on the date of grant is the closing price of the common stock as reported on the Nasdaq Global Select Market.

Dividend yield of zero—The Company has not declared or paid dividends.

Risk-free interest rates—The Company applied the risk-free interest rate based on the U.S. Treasury yield for the expected term of the option.

Expected term—The Company calculated the expected term as the average of the contractual term of the option and the vesting period for its employee stock options.

Expected volatility—Since the Company does not have sufficient stock price history to estimate the expected volatility of its shares, the expected volatility is calculated based on the average volatility for a peer group in the industry in which the Company does business.

21

Restricted Stock Units

Restricted stock units (“RSUs”) are generally subject to a 4 year vesting period, with 25% of the shares vesting approximately one year from the vesting commencement date and quarterly thereafter over the remaining vesting term.

The Company had the following activity for RSUs for the three months ended March 31, 2022:

Total compensation costs as of March 31, 2022 related to RSUs to be recognized in future periods was $21.1 million and is expected to be recognized over the weighted average period of 3.45 years.

Employee Stock Purchase Plan

The Employee Stock Purchase Plan, {the “ESPP), provides eligible employees with an opportunity to purchase common stock from the Company at a discount through accumulated payroll deductions. Under the ESPP, the Board may specify offerings but generally provides for a duration of 6 months, currently for which each six-month offering periods are February and August. In February 2021, the Company’s employees enrolled in the offering period (“first offering”) to purchase a variable number of shares of its common stock under the ESPP at the purchase date.

The purchase price is specified pursuant to each offering, but cannot, under the terms of the ESPP, be less than 85% of the lower of the fair market value per share of the Company's common stock on either the offering date or on the purchase date. The ESPP also includes a six month look-back provision for the purchase price of the stock price on the purchase date is less than the stock price on the offering date.

In January 2022, the Board authorized an increase of 396,636 additional shares available for issuance under the ESPP. As of March 31, 2022, the Company had 632,378 shares available for issuance under the ESPP. Pursuant to the ESPP, the Company issued 77,811 shares of common stock at a weighted average price per share of $3.86 during the three months ended March 31, 2022. Cash received from purchases under the ESPP for the three months ended March 31, 2022 was $0.3 million.

The fair value of shares to be issued under the Company’s ESPP was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions on a weighted-average basis for the three months ended March 31, 2022 and 2021:

Note 14. Provision for Income Taxes

The Company recorded provision for income taxes of $0.3 million and $0.0 for the three months ended March 31, 2022 and 2021, which primarily consisted of state taxes. For the three months ended March 31, 2021, the Company’s provision for income taxes primarily consisted of state franchise taxes and were insignificant. Income taxes were accounted for under the asset and liability

22

method. Deferred tax assets and liabilities were recognized for the future tax consequences attributable to differences between the carrying amounts of existing assets and liabilities in the financial statements and their respective tax bases using tax rates expected to be in effect during the years in which the basis differences reverse.

The Company believes it is more likely than not that its federal and state net deferred tax assets will not be fully realized. In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of its deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. A valuation allowance is recorded for loss carryforwards and other deferred tax assets where it is more likely than not that such deferred tax assets will not be realized. Accordingly, the Company continues to maintain a valuation allowance against all of its U.S. net deferred tax assets as of March 31, 2022. The Company will continue to maintain a full valuation allowance against its net federal and state deferred tax assets until there is sufficient evidence to support recoverability of its deferred tax assets.

As of March 31, 2022, the Company had total uncertain tax benefits of $0.8 million related to R&D credits, which is recorded as a reduction of the deferred tax assets related credit carryforwards. The Company does not anticipate a material change to its unrecognized tax benefits over the next twelve months. It is the Company's policy to account for interest and penalties related to uncertain tax positions as interest expenses and selling, general and administrative expense, respectively, in its condensed statements of operations. No interest or penalty have been recorded related to the uncertain tax positions.

The Company is subject to U.S. federal and state income tax as well as to income tax in multiple state jurisdictions. In the normal course of business, the Company is subject to examination by tax authorities.  As of the date of the financial statements, there are no tax examination in progress. The statute of limitations for tax years ended after December 31, 2014 is open for federal and state tax purposes.

Note 15. Net Income (Loss) Per Share

Basic net income (loss) per share attributable to common stockholders is calculated by dividing the net income (loss) attributable to common stockholders by the weighted-average number of common stock outstanding during the period. Diluted net income (loss) per share attributable to common stockholders is computed by dividing the net income (loss) attributable to common stockholders by the weighted-average number of common stock equivalents of potentially diluted securities outstanding for the period determined using the treasury-stock and if-converted methods. Potentially dilutive common stock equivalents are comprised of options and restricted stock units outstanding under the Company’s stock option plan. For the three months ended March 31, 2021, there was no difference in the number of shares used to calculate basic and diluted shares outstanding as the inclusion of the potentially dilutive securities would be anti-dilutive.

The following table summarizes the Company’s net income (loss) per share:

23

Potentially dilutive securities not included in the calculation of diluted net income (loss) per share because to do so would be anti-dilutive are as follows (in common stock equivalent shares):

Note 16. Commitments and Contingencies

Commitments

License Agreement with Eiken Chemical Co., Ltd.

In July 2020, the Company entered into a patent license agreement (“Eiken Agreement”), with Eiken Chemical Co., Ltd. (“Eiken”). Pursuant to the terms of the Eiken Agreement, Eiken granted the Company a royalty bearing non-transferable, non-assignable, sublicensable (to the Company’s affiliates), non-exclusive license under certain patents, which the Company refers to collectively as the Eiken Licensed Patents, relating, in part, to loop-mediated isothermal amplification, to develop, make, use, sell, offer for sale and dispose of any reagent, product, kit, device, equipment and/or system for nucleic acid-based in-vitro diagnostic tests for detection of SARS-CoV-2, which causes COVID-19, which the Company collectively refers to as the Initial Licensed Products, in the United States. The Company also has limited have-made rights with respect to the Eiken Licensed Patents.

The Company is obligated to pay a royalty in the low single-digit percentage on total net sales of all Licensed Products, that will be recorded as a cost of goods sold. Royalty expense for the three months ended March 31, 2022 and 2021, was $2.5 million and $0.1 million.

On March 8, 2022, the Company provided notice of termination of the Eiken Agreement. Termination will be effective May 12, 2022. The Company terminated the Eiken Agreement because certain Eiken Licensed Patents have expired, all of which are locations in which the Company operates. Following termination of the Eiken Agreement, the Company will not be required to make any future royalty payments under the Eiken Agreement.

Technology Services Agreement with Jabil

On September 10, 2020, the Company entered into the Jabil TSA, pursuant to which Jabil will use commercially reasonable efforts to perform certain technical services related to the development of components, assemblies and systems in relation to each project under the agreement as set forth in one or more statement of work, which may include the Company’s COVID-19 test kit and any of its future product candidates.

Manufacturing Services Agreement with Jabil

On September 10, 2020, the Company entered into the Jabil MSA, pursuant to which Jabil will manufacture, test, pack and ship certain electronic assemblies and systems in accordance with the Company’s specifications. Jabil may not subcontract any of its manufacturing services under the Jabil MSA without the Company’s prior written consent. The Company is obligated to provide, on a monthly basis, a rolling 12-month forecast to Jabil as well as 12-months of historical aggregate end customer demand at the finished product level, when available, which will be used to constitute written purchase orders from the Company, and the Company is obligated to purchase the quantity of products that is required by the first four months of each forecast. Jabil is entitled to reject any purchase orders that are not placed in accordance with the forecast.

The Company had $28.1 million of non-cancellable purchase commitments pursuant to the manufacturing services agreement (the “Jabil MSA”), with Jabil Inc. (the “Jabil”), and technical services agreement with Jabil (the “Jabil TSA”). Under the Jabil MSA, the Company is obligated to provide, on a monthly basis, a rolling 12-month forecast to Jabil as well as 12-months of historical aggregate end customer demand at the finished product level, when available, which will be used to constitute written purchase orders from the Company, and the Company is obligated to purchase the quantity of products that is required by the first four months of each forecast.

24

Other Commitments

As of March 31, 2022, the Company had non-cancellable purchase commitments of $64.0 million, consisting primarily of $47.9 million of raw material purchase commitments, and $12.2 million asset and equipment related to expanding its manufacturing capacity and automation, and $3.9 million related to non-commercial services.

Indemnification

In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and may provide for general indemnifications. The Company’s exposure under these agreements is unknown because it involves claims that may be made against the Company in the future but have not yet been made. To date, the Company has not been subject to any claims or required to defend any action related to its indemnification obligations.

The Company’s amended and restated certificate of incorporation contains provisions limiting the liability of directors, and its amended and restated bylaws provide that the Company will indemnify each of its directors to the fullest extent permitted under Delaware law. The Company’s amended and restated certificate of incorporation and amended and restated bylaws also provide the Board with discretion to indemnify its officers and employees when determined appropriate by the Board. In addition, the Company has entered and expects to continue to enter into agreements to indemnify its directors and executive officers.

Legal Proceedings

From time to time, the Company may become involved in legal proceedings arising out of the ordinary course of its business. Management is currently not aware of any matters that would be expected to have a material adverse effect on the financial position, results of operations or cash flows of the Company.

Note 17. Related Parties

The Company incurred less than $0.1 million in expenses with individuals related to a former executive officer or its Board of Directors during both the three months ended March 31, 2022 and 2021. Additionally, the Company recorded revenues of $0.0 million and less than $0.1 million from individuals or companies related to an executive officer or its Board during the three months ended March 31, 2022 and 2021, respectively.  

Note 18. Subsequent Event

On May 6, 2022, the Company received the CE Mark for professional use for both its COVID-19 and combination COVID-19 and influenza test kits, clearing them for sale and distribution in the European Union.

On May 11, 2022, the Company submitted its request for EUA authorization from the FDA for prescription at-home use of its combination COVID-19 and influenza test, for those individuals with suspected COVID-19 or influenza.

25

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The condensed financial statements and this Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 2021 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our 2021 Annual Report. In addition to historical information, this discussion and analysis contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These forward-looking statements are subject to risks and uncertainties, including those set forth under “Part I. Item 1A. Risk Factors” in our 2021 Annual Report, “Part II. Item 1A. Risk Factors” in this Quarterly Report, and elsewhere in this Quarterly Report, that could cause actual results to differ materially from historical results or anticipated results.

When used in this Quarterly Report, all references to "Lucira," the "company," "we," "our" and "us" refer to Lucira Health, Inc.

Overview

We are a medical technology company on a mission to bring central laboratory quality testing for infectious diseases into the home and point of care settings. We aim to have disposable, single use test kit platform replace central lab testing for accurately diagnosing infectious diseases leading to faster treatment and better disease control outcomes. We believe that society benefits from real-time and accurate disease detection in order to deploy time-sensitive therapeutic treatments for the individual and reduce spread of infection in the community. Currently, the United States relies on centralized lab testing for accurate disease detection. We believe testing labs are too geographically centralized, rely too heavily on instrumented equipment, and are expensive and difficult to access. With our polymerase chain reaction, or PCR-quality technology, we offer decentralized and accessible single-use testing for infectious diseases. Our test kits are coupled with our digital platform, LUCI PASS, which is designed to securely deliver a clinically relevant test result to users, healthcare providers, and to required public health authorities. We plan on developing and commercializing lab quality single-use test kits for several infectious diseases and have started by commercializing our PCR-quality COVID-19 test kits.

The COVID-19 pandemic has placed unprecedented pressure on the current U.S. healthcare system. We believe the pandemic demonstrated that the infectious disease testing infrastructure in the United States was too quickly overwhelmed to efficiently and reliably detect COVID-19 early enough to drive effective treatment and better patient outcomes. To suppress the spread of infection in the population, we believe testing should be fast, accurate, and away from other people so as to reduce potential transmission. While PCR lab testing for COVID-19 is trusted and accurate, it is slow, inconvenient and centralized. Rapid at-home antigen testing for COVID-19 is fast and decentralized but the test method has accuracy challenges, especially in the face of variants. There are widespread reports of people receiving negative test results from rapid antigen test kits only to receive a positive PCR result days later from the lab. We believe false negative results from rapid antigen testing can create a false sense of security, confuse the public, and lead to increased infection rates.

With our platform, we are reimagining current infectious disease testing through innovative test kits that are designed to deliver on-the-spot testing with PCR-quality in a single-use, portable, and easy-to-use format. Our platform is designed to produce assays that combine the accuracy and reliability of PCR tests and the accessibility and ease of use of antigen tests. Our molecular test kits are designed to be diagnostically definitive, unlike the antigen tests on the market today. Importantly, our tests also provide a platform for both symptomatic and asymptomatic individuals to easily check their COVID-19 infection status in 30 minutes or less, thus providing a testing solution that can be utilized at high scale as we begin navigating a new normal living with COVID-19 as an endemic disease.

While people have tested to prevent spread of infection through isolation and hoped for recovery, we believe that moving forward, people will seek PCR-quality at-home tests to treat infection as quickly as possible. We believe this new “test to treat” paradigm will become increasingly important as COVID-19 becomes endemic. This is because new therapies for COVID-19 infection are now available contingent upon accurate and early testing. We believe our test kits can play an important role in facilitating a “test to treat” paradigm because our tests are PCR-quality and therefore able to detect infection early, which can lead to early therapy and potentially better outcomes. This is because PCR lab testing is understood to detect viral genetic material at the earliest stages of infection because it amplifies trace amounts of virus DNA. Rapid antigen tests are understood to be less sensitive because antigen tests do not amplify the virus. A person must have first produced enough antigens in their body to return a positive result, which could be up to seven days into their infectious stage and mostly past the time for an anti-viral to be effective. We believe this leads to potential delays in detection and a potential loss of trust in rapid antigen test results.

Our first commercially available PCR-quality diagnostic test was the LUCIRA COVID-19 All-In-One Test Kit, which received EUA from the FDA for prescription use in at-home and point-of-care, or POC, settings. Our COVID-19 test kit was the first

26

at-home self-test to receive FDA EUA authorization, and remains the only FDA EUA authorized single-use molecular test for at-home use. On April 9, 2021, we received our first FDA EUA authorization for over the counter, or OTC, non-prescription use among symptomatic and asymptomatic individuals aged 14 and older (with self-collection) and children aged 2-13 (with parent collection) and launched LUCI PASS, our digital platform designed to securely record and share verified test results via text messaging. The LUCIRA CHECK IT COVID-19 Test Kit utilizes identical components to the LUCIRA COVID-19 All-In-One Test Kit and both are referred to as test kits or COVID-19 test kits. We have since received authorization from Health Canada, PSAR approval by Singapore’s Health Sciences Authority, approval from the Taiwan Ministry of Health and Welfare for emergency use, and approved registration from Israel for our COVID-19 test kit. In the second half of 2022, we hope to obtain several new regulatory approvals including extending our EUA authorization into full FDA approval via de novo application and submissions to the United Kingdom and Australia to further extend access to international markets.