| Summary of Significant Accounting Policies | Note 2 — Summary of Significant Accounting Policies Basis of Presentation The condensed consolidated
financial statements and accompanying notes include the accounts of SomaLogic and our wholly-owned subsidiaries. All intercompany transactions
and balances have been eliminated in consolidation. The accompanying condensed consolidated financial statements have been prepared in
accordance with GAAP for interim financial information. Any reference in these notes to applicable guidance is meant to refer to the
authoritative GAAP as found in the Accounting Standards Codification (“ ASC ASUs FASB Certain information and
disclosures normally included in consolidated financial statements prepared in accordance with GAAP have been condensed or omitted. Accordingly,
these condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements as
of and for the year ended December 31, 2021 included in the 2021 Form 10-K. These unaudited condensed
consolidated financial statements have been prepared on the same basis as our annual consolidated financial statements and, in the opinion
of management, reflect all adjustments, which include normal recurring adjustments considered necessary for a fair presentation of interim
financial information, to present fairly the Company’s condensed consolidated financial position and its results of operations
and cash flows. The results of operations for the periods presented are not necessarily indicative of the results to be expected for
the year ending December 31, 2022 or for any other future annual or interim period. Certain reclassifications
have been made to prior period amounts to conform to the current presentation. Use of Estimates The preparation of financial
statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods. Actual results
could differ from those estimates. Significant estimates and assumptions reflected in these financial statements include, but are not
limited to, revenue recognition, inventory valuation, incremental borrowing rates used in the determination of lease assets and liabilities,
the valuation of stock-based compensation awards, warrant liabilities valuations, and earn-out liability valuations. We base our estimates
on current facts, historical and anticipated results, trends, and other relevant assumptions that we believe are reasonable under the
circumstances. Actual results could differ from these estimates, and such differences could be material to the Company’s consolidated
financial position and results of operations. Concentration of Credit Risk and Other Risks and Uncertainties Financial instruments
that potentially expose the Company to concentrations of credit risk consist principally of cash and cash equivalents, investments, and
accounts receivable. Our cash and cash equivalents are deposited with high-quality financial institutions. Deposits at these institutions
may, at times, exceed federally insured limits. Significant customers
are those that represent more than 10% of the Company’s total revenues or gross accounts receivable balances for the periods and
as of each balance sheet date presented. For each significant customer, revenue as a percentage of total revenues and gross accounts
receivable as a percentage of total gross accounts receivable as of the periods presented were as follows:
Accounts Receivable Revenue
June 30, December 31, Three months
ended June 30, Six months ended June 30,
2022 2021 2022 2021 2022 2021
Customer A * 10 % * 22 % 25 % 22 %
Customer B * * * 14 % * 25 %
Customer C 28 % 20 % * 10 % 10 % 13 %
Customer D * 26 % * * * *
* less than 10% International sales entail
a variety of risks, including currency exchange fluctuations, longer payment cycles, and greater difficulty in accounts receivable collection.
The risks of international sales are mitigated in part by the fact that contracts are in U.S. dollars. Customers outside the United States
collectively represent 33% and 31% of the Company’s revenues for the three months ended June 30, 2022 and 2021, respectively,
and 40% and 28% for the six months ended June 30, 2022 and 2021, respectively. Customers outside of the United States collectively
represented 24% and 18% of the Company’s gross accounts receivable balance as of June 30, 2022 and December 31, 2021,
respectively. Certain components included
in our products require customization and are obtained from a single source or a limited number of suppliers. Leases Following the adoption
of ASU 2016-02, Leases (Topic 842) ASC 842 ROU ROU
assets and operating lease liabilities are recognized based on the present value of the future
lease payments over the lease term at commencement date. As the implicit rate in the Company's
leases is generally unknown, the Company uses its incremental borrowing rate based on the
information available at the lease commencement date in determining the present value of
future lease payments. The Company gives consideration to its credit risk, term of the lease,
total lease payments and adjusts for the impacts of collateral, as necessary, when calculating
its incremental borrowing rates. Operating lease ROU assets
include lease incentives and initial direct costs incurred. When the lease incentives specify a maximum level of reimbursement and we
are reasonably certain to incur reimbursable costs equal to or exceeding this level, we include the lease incentive in the measurement
of the ROU assets and lease liabilities at commencement. The lease terms may include options to extend or terminate the lease when it
is reasonably certain the Company will exercise any such options. Lease costs for our operating leases are recognized on a straight-line
basis within operating expenses over the lease term in the condensed consolidated statements of operations and comprehensive loss. We have lease agreements
with lease and non-lease components. However, we have elected the practical expedient to not separate lease and non-lease components
for all of our existing classes of assets. Therefore, the lease and non-lease components are accounted for as a single lease component.
We have also elected to not apply the recognition requirement to any short-term leases with a term of 12 months or less. We monitor for events
or changes in circumstances that may require a reassessment or impairment of our leases, at which time our ROU assets for operating leases
may be reduced by impairment losses. Warrant Liabilities During February 2021,
in connection with CMLS II’s initial public offering, CMLS II issued 5,519,991 warrants (the “ Public Warrants Private Placement Warrants Warrants We classify the Warrants
as liabilities on our condensed balance sheets as these instruments are precluded from being indexed to our own stock given that the
terms allow for a settlement adjustment that does not meet the scope for the fixed-for-fixed exception in ASC 815, Derivatives and
Hedging ASC 815 Earn-Out Liability As a result of the Business
Combination, additional shares of Common Stock were provided to SomaLogic Operating shareholders and to certain employees and directors
of SomaLogic (“ Earn-Out Service Providers Earn-Out
Shares Triggering
Event The Earn-Out Shares were
recognized as a liability in accordance with ASC 815. The liability was included as part of the consideration transferred in the Business
Combination and was recorded at fair value. The earn-out liability is remeasured at the end of each reporting period, with subsequent
changes in fair value recognized within change in fair value of earn-out liability in the condensed consolidated statements of operations
and comprehensive loss. Revenue Recognition The Company recognizes
revenue from sales to customers under ASC 606, Revenue from Contracts with Customers ASC 606 The Company recognizes
revenue when or as control of promised goods or services is transferred to the Company’s customers, in an amount that reflects
the consideration the Company expects to be entitled to in exchange for those goods or services. Sales, value add, and other taxes collected
concurrent with revenue-producing activities are excluded from revenue and products are sold without the right of return. Payment terms may vary
by customer, are based on customary commercial terms, and are generally less than one year. The Company does not adjust revenue for the
effects of a significant financing component for contracts where the period between the transfer of the good or service and collection
is one year or less. The Company expenses incremental costs to obtain a contract when incurred since the amortization period of the asset
that would otherwise be recognized is one year or less. Assay Services Revenue The Company generates
assay services revenue primarily from the sale of SomaScan ® ® ® ®
® The delivery of each
assay data report is a separate performance obligation. For arrangements with multiple performance obligations, the transaction price
must be allocated to each performance obligation based on its relative standalone selling price. Judgment is required to determine the
standalone selling price for each distinct performance obligation as there are few directly comparable products in the market and factors
such as customer size are factored into the determination of selling price. We determine standalone selling prices based on amounts invoiced
to customers in observable transactions. Product Revenue Product revenue primarily
consists of equipment and kit sales to customers who assay samples in their own laboratories. Equipment is generally accounted for as
a bundle with installation, qualification and training services. Revenue is recognized over time based on the progress made toward achieving
the performance obligation utilizing input methods, including costs and labor hours incurred. The Company receives fixed consideration
per kit and revenue from kit sales is recognized upon transfer of control to the customer. Shipping and handling costs billed to customers
are included in product revenue in the condensed consolidated statements of operations and comprehensive loss. Collaboration Revenue In July 2011, NEC Corporation
(“ NEC SAA ® ® ® The Company determined
that the SAA met the criteria set forth in ASC 808, Collaborative Arrangements ASC 808 In March 2020, NEC and
the Company mutually terminated the SAA and concurrently the Company and NEC Solution Innovators, Ltd. (“ NES ® Collaboration Agreements (i) Research and
Development Activities The Company determined
that NES is not a customer with respect to the research and development activities associated with the collaboration arrangement under
ASC 808. The Company’s efforts related to the research and development activities are incurred consistently throughout the
performance period. As a result, the Company recognizes revenue from these activities over time on a straight-line basis and records
revenue in collaboration revenue in the condensed consolidated statements of operations and comprehensive loss. (ii) Assay Services The Company determined
that NES is a customer for the assay services performance obligation, which should be accounted for using the criteria under ASC 606.
The Company receives a fixed fee (standalone selling price) per sample in exchange for assaying samples, which is a service performed
for other customers in the ordinary course of business. This performance obligation is recognized at a point in time when the assay data
report is delivered to the customer and recorded in assay services revenue in the condensed consolidated statements of operations and
comprehensive loss. (iii) License of
Intellectual Property The Company determined
that NES is a customer for the license performance obligation, which should be accounted for using the criteria under ASC 606. The
Company receives royalties based on NES’ net sales and determined the allocation of royalties solely to this performance obligation
is consistent with the objectives in ASC 606. This performance obligation was satisfied at the beginning of the license term. Subject
to the sales and usage-based royalty exception, revenue is recognized in the period in which the subsequent sale or usage has occurred.
Royalties are recorded in other revenue in the condensed consolidated statements of operations and comprehensive loss. Other Revenue Other revenue includes
royalty revenue and revenue received from research grants. The Company recognizes royalty revenue for fees paid by customers in return
for the exclusive license to make, use or sell certain licensed products in certain geographic areas. These fees are equivalent to a
percentage of the customer’s related revenues. The Company recognizes revenue for sales-based or usage-based royalties promised
in exchange for a license of intellectual property when the later of the following events occurs: (i) the subsequent sale or usage
occurs, or (ii) the performance obligation to which some or all of the sales-based or usage-based royalty has been satisfied. As
such, revenue is recognized in the period in which the subsequent sale or usage has occurred. In June 2008, the
Company and New England Biolabs, Inc. (“ NEB Grant revenue represents
funding under cost reimbursement programs from government agencies and non-profit foundations for qualified research and development
activities performed by the Company. The Company recognizes grant revenue when it is reasonably assured that the grant funding will be
received as evidenced through the existence of a grant arrangement, amounts eligible for reimbursement are determinable and have been
incurred, the applicable conditions under the grant arrangements have been met, and collectability of amounts due is reasonably assured.
The classification of costs incurred related to grants is based on the nature of the activities performed by the Company. Grant revenue
is recognized when the related costs are incurred and recorded in other revenue in the condensed consolidated statements of operations
and comprehensive loss. Illumina Cambridge,
Ltd. On December 31,
2021, the Company entered into a multi-year arrangement with Illumina Cambridge, Ltd. (“ Illumina Agreement NGS Bundled SomaScan Technology Material Right Bundled SomaScan Technology SSP Material Right: Contract Modification:
As a result, the Company
determined that there were three new performance obligations (total of five performance obligations): (1) equipment bundle that includes
customization services, integration services, system qualification services, site initiation services and training (“ Equipment
Bundle Equipment Bundle:
Qualification Kits:
Support Services:
During the three and
six months ended June 30, 2022, the Company recognized $0.1 million of revenue pursuant to the Illumina Agreement. Restricted Cash Restricted cash represents
cash on deposit with a financial institution as security for letters of credit outstanding for the benefit of the landlords related to
operating leases. The restricted cash is classified as other long-term assets on the condensed consolidated balance sheets based on the
terms of the underlying leases. As of June 30, 2022 and December 31, 2021, the restricted cash on deposit was $4.9 million
and $0.8 million, respectively. Segment Information The Company has one operating
segment. The Company’s chief operating decision maker (the “ CODM Other Significant Accounting Policies Our significant accounting
policies are described in our 2021 Form 10-K. There have been no significant changes to those policies. Recent Accounting Pronouncements We are an “emerging
growth company” as defined in the Jumpstart Our Business Startups Act of 2012, as amended (the “ JOBS Act Recently Adopted Accounting Standards Leases. Leases (Topic 842) Revenue from Contracts with
Customers (Topic 606) and Leases (Topic 842): Effective Dates for Certain Entities We adopted ASU 2016-02,
as amended, on January 1, 2022 using a modified retrospective approach and elected to apply the legacy lease guidance and disclosure
requirements (“ ASC 840 We elected the package
of transition practical expedients, permitting us to not reassess our prior conclusions about lease identification, lease classification
and initial direct costs. The new lease standard
impacted our condensed consolidated balance sheets as a result of the ROU assets and operating lease liabilities, but did not impact
our condensed consolidated statements of operations or condensed consolidated statements of cash flows. The adoption did not require
any cumulative-effect adjustments to opening accumulated deficit. We currently have no finance leases. Upon adoption, we recorded $4.1
million of ROU assets, $1.0 million of current operating lease liabilities, and $3.6 million of non-current operating lease liabilities. For more information
on our leases, refer to Note 5, Leases Income Taxes. Income Taxes (Topic 740): Simplifying the Accounting for Income
Taxes Accounting Standards Not Yet Adopted Financial Instruments
Credit Losses Financial Instruments — Credit
Losses (Topic 326): Measurement of Credit Losses on Financial Instruments Financial Instrum Credit
Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates, Convertible Debt,
Contracts in an Entity’s Own Equity and EPS Debt - Debt with Conversion and
Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in an Entity’s Own Equity (Subtopic 815-40): Accounting
for Convertible Instruments and Contracts in an Entity’s Own Equity Derivatives and Hedging: Contracts in Entity's Own Equity | Note 2 — Summary of Significant Accounting Policies Basis of Presentation The consolidated financial
statements and accompanying notes include the accounts of SomaLogic and our wholly-owned subsidiaries. All intercompany transactions
and balances have been eliminated in consolidation. The accompanying consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States (“ GAAP ASC ASUs FASB Basis for Financial Balances
After the Business Combination The Business Combination
was accounted for as a reverse recapitalization in accordance with GAAP. Under this method of accounting, CMLS II is treated as the “acquired”
company for financial reporting purposes and Old SomaLogic is treated as the accounting acquirer. This determination was primarily based
on the following:
● the Old SomaLogic
stockholders hold the majority of voting rights in the Company;
● Old SomaLogic
had the right to designate a majority of members of the board of directors of the Company
immediately after giving effect to the Business Combination;
● the senior management
of Old SomaLogic comprises the senior management of the Company; and
● the operations
of Old SomaLogic comprise the ongoing operations of the Company. Accordingly, for accounting
purposes, our financial statements represent a continuation of the financial statements of Old SomaLogic with the Business Combination
being treated as the equivalent of Old SomaLogic issuing stock for the net assets of the CMLS II, accompanied by a recapitalization.
The net assets of Old SomaLogic are stated at historical cost, with no goodwill or other intangible assets recorded. In connection with the
Business Combination each share of Old SomaLogic Class B common stock (including shares of Old SomaLogic Class B common stock resulting
from the deemed conversion of Old SomaLogic redeemable convertible preferred stock) converted into the right to receive 0.8381 shares
(the “ Exchange Ratio Common Stock Certain reclassifications
have been made to prior period amounts to conform to the current presentation. Correction of Error
in Previously Reported 2021 Interim Consolidated Financial Statements In connection with our
year-end financial close process and related preparation of our 2021 Annual Report on Form 10-K, a misstatement of net loss per share
was identified in our previously filed 2021 unaudited interim consolidated financial statements for the quarter and year-to date periods
ended September 30, 2021 related to the calculation of the weighted average shares outstanding used as the denominator to calculate net
loss per share in the condensed consolidated statements of operations and comprehensive loss. The weighted average shares outstanding
was inconsistent with the presentation of outstanding common stock in the consolidated balance sheets and statements of stockholders’
equity, which reflected the recapitalization of common stock based on the Exchange Ratio retrospectively to the earliest period presented.
For further information, see Note 19, Correction of Error in Previously Reported 2021 Interim Financial Statements (Unaudited) Use of Estimates The preparation of financial
statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods. Actual results
could differ from those estimates. Significant estimates and assumptions reflected in these financial statements include, but are not
limited to, revenue recognition, inventory valuation, compound derivative liability valuation, the valuation of stock-based compensation
awards, warrant liabilities valuations, and earn-out liability valuations. We base our estimates on current facts, historical and anticipated
results, trends, and other relevant assumptions that we believe are reasonable under the circumstances. Actual results could differ from
these estimates, and such differences could be material to the Company’s consolidated financial position and results of operations. Concentration of Credit
Risk and Other Risks and Uncertainties Financial instruments that
potentially expose the Company to concentrations of credit risk consist principally of cash and cash equivalents, investments, and accounts
receivable. Our cash and cash equivalents are deposited with high-quality financial institutions. Deposits at these institutions may,
at times, exceed federally insured limits. Significant customers are those that represent
more than 10% of the Company’s total revenues or gross accounts receivable balances for the periods and as of each balance sheet
date presented. For each significant customer, revenue as a percentage of total revenues and gross accounts receivable as a percentage
of total gross accounts receivable as of the periods presented were as follows:
Accounts Receivable Revenue
December 31, Year Ended December 31,
2021 2020 2021 2020
Customer A 10 % 26 % 21 % 30 %
Customer B * 11 % 13 % 26 %
Customer C 20 % 25 % 10 % *
Customer D 26 % 16 % * *
* less than 10% International sales entail
a variety of risks, including currency exchange fluctuations, longer payment cycles, and greater difficulty in accounts receivable collection.
The risks of international sales are mitigated in part by the fact that contracts are in U.S. dollars. Customers outside the United States
collectively represent 31% and 35% of the Company’s revenues for the years ended December 31, 2021 and 2020, respectively.
Customers outside of the United States collectively represented 18% and 23% of the Company’s gross accounts receivable balance
as of December 31, 2021 and 2020, respectively. Certain components included
in our products require customization and are obtained from a single source or a limited number of suppliers. Foreign Currency Translation The functional currency
of the Company’s foreign subsidiary is the British pound sterling. In preparing its consolidated financial statements, the Company
is required to translate the financial statements of this subsidiary from British pounds sterling to U.S. dollars. Accordingly, the assets
and liabilities of the Company’s subsidiary are translated into U.S. dollars at current exchange rates and the results of operations
are translated at the average exchange rates for the period. Since the Company’s functional currency is deemed to be the local
currency, any gain or loss associated with the translation of its consolidated financial statements is included in other comprehensive
income (loss) in the consolidated statements of operations and comprehensive loss. Net foreign currency transaction gains (losses) were
not significant for the years ended December 31, 2021 and 2020. Cash and Cash Equivalents Cash and cash equivalents
consist of cash deposits and short-term, highly liquid investments that are readily convertible into cash, with original maturities of
three months or less. Cash equivalents consist primarily of amounts invested in money market funds and commercial paper and are stated
at fair value. Restricted Cash Restricted cash represents
cash on deposit with a financial institution as security for a letter of credit outstanding for the benefit of the landlord related to
an operating lease for one of the Company’s laboratory facilities. The restricted cash is classified as a long-term asset on the
consolidated balance sheets based on the term of the underlying lease. Investments The Company has designated
all investments, which consist of U.S. Treasury securities, asset-backed securities, commercial paper, and corporate bonds, as available-for-sale
securities. Available-for-sale securities are reported at fair value on the consolidated balance sheets, with unrealized gains and losses
excluded from earnings and reported as a component of other comprehensive (loss) income. Realized gains and losses, amortization of premiums
and discounts, and interest and dividends earned on available-for-sale securities are included in interest income and other in the consolidated
statements of operations and comprehensive loss. The cost of investments for purposes of computing realized and unrealized gains and
losses is based on the specific identification method. The Company determines the appropriate classification of its debt securities at
the time of purchase based on their maturities and re-evaluates such classification at each balance sheet date. A decline in the fair value
of a security below its cost that is deemed to be other-than-temporary is recorded as interest income and other, net and results in the
establishment of a new basis for the security. Factors evaluated to determine if an investment is other-than-temporarily impaired include
significant deterioration in earnings performance, credit rating, asset quality or business prospects of the issuer; adverse changes
in the general market conditions in which the issuer operates; the Company’s intent to sell the security, and whether or not the
Company will be required to sell the security before the recovery of its amortized cost. Fair Value Measurements Fair value is defined as
the exchange price that would be received for an asset or paid to transfer a liability, or the exit price, in the principal or most advantageous
market for that asset or liability to be transferred in an orderly transaction between market participants on the measurement date. ASC
820, Fair Value Measurements
● Level 1 —
Quoted prices in active markets for identical assets or liabilities;
● Level 2 —
Observable inputs other than Level 1 prices, such as quoted prices for similar assets or
liabilities, quoted prices in markets that are not active, or other inputs that are observable
or can be corroborated by observable market data for substantially the full term of the assets
or liabilities;
● Level 3 —
Unobservable inputs that are supported by little or no market activity and that are significant
to the fair value of the assets or liabilities. A financial instrument categorization
within the hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Our financial instruments
consist of Level 1, Level 2, and Level 3 assets and liabilities. The carrying amounts of certain financial instruments, including cash
and cash equivalents, accounts receivable, accounts payable, and accrued liabilities, approximate fair value due to their relatively
short-term maturities. Accounts Receivable
and Allowance for Doubtful Accounts Accounts receivable are
stated at the amount management expects to collect from customers based on their outstanding invoices. We review accounts receivable
regularly to determine if any receivable may not be collectible. Management estimates the amount of the allowance for doubtful accounts
necessary to reduce accounts receivable to its estimated net realizable value by analyzing the status of significant past due receivables
and current and historical bad debt trends. The Company writes off accounts receivable against the allowance when it determines a balance
is uncollectible and ceases collection efforts. We did not write off any material accounts receivable balances during the years ended
December 31, 2021 and 2020. Accounts receivable consisted
of the following:
December 31,
(in thousands) 2021 2020
Accounts receivable $ 17,146 $ 17,529
Less: allowance for doubtful accounts (72 ) (80 )
Accounts receivable, net $ 17,074 $ 17,449 Inventory Inventory is stated at the
lower of cost (on a first-in, first-out basis) or net realizable value. Cost is determined using a standard cost system, whereby the
standard costs are updated periodically to reflect current costs. The Company estimates the recoverability of inventory by referencing
estimates of future demands and product life cycles, including expiration. The Company periodically analyzes its inventory levels to
identify inventory that may expire prior to expected usage, no longer meets quality specifications, or has a cost basis in excess of
its estimated net realizable value and records a charge to cost of revenue for such inventory as appropriate. The value of inventory
that is not expected to be used within 12 months of the balance sheet date is classified as non-current inventory in the accompanying
consolidated balance sheets. Deferred Costs of
Services Deferred costs of services
relate to costs incurred to run customer samples through the SomaScan® assay. These costs are deferred until the final report is
provided to the customer and the related revenue is recognized. Property and Equipment Property and equipment is
stated at cost, less accumulated depreciation and amortization. Additions and improvements that extend the lives of the assets are capitalized,
while expenditures for repairs and maintenance are expensed as incurred. Depreciation for property and equipment is recorded on a straight-line
basis over the estimated useful lives of the assets, which we estimate to be: lab equipment, 1 to 5 years; computer equipment, 3 years;
furniture and fixtures, 4 years; and software, the shorter of 5 years or its useful life. Leasehold improvements are amortized over the
shorter of the life of the lease term or the estimated useful life of the assets. The Company capitalizes
certain internal and external costs related to the acquisition and development of internal use software during the application development
stages of projects. When the software is ready for its intended use, the Company amortizes these costs using the straight-line method
over the estimated useful life of the asset. Costs incurred during the preliminary project or the post-implementation/operation stages
of the project are expensed as incurred. Costs for capital assets
not yet placed into service are capitalized as construction in progress and depreciated once placed into service. Upon retirement or
sale, the cost of assets disposed of and the related accumulated depreciation and amortization are removed from the accounts and any
resulting gain or loss is included in loss from operations. Impairment of Long-Lived
Assets The Company evaluates a
long-lived asset (or asset group) for impairment whenever events or changes in circumstances indicate that the carrying value of the
asset (or asset group) may not be recoverable. If indicators of impairment exist and the undiscounted future cash flows that the asset
is expected to generate are less than the carrying value of the asset, an impairment loss is recorded to write down the asset to its
estimated fair value based on a discounted cash flow approach. There were no impairment losses recorded for the years ended December 31,
2021 and 2020. Leases Leases are reviewed and
classified as capital or operating at their inception in accordance with ASC 840, Leases Warrant Liabilities
During February 2021,
in connection with CMLS II’s initial public offering, CMLS II issued 5,519,991 warrants (the “ Public Warrants Private Placement Warrants Warrants We classify the Warrants
as liabilities on our consolidated balance sheets as these instruments are precluded from being indexed to our own stock given that the
terms allow for a settlement adjustment that does not meet the scope for the fixed-for-fixed exception in ASC 815, Derivatives and
Hedging ASC 815 Stockholders’ Equity Earn-Out Liability As a result of the Business
Combination, the Company recognized Earn-Out Shares (defined below) contingently issuable to former stockholders of Old SomaLogic as
a liability in accordance with ASC 815. The liability was included as part of the consideration transferred in the Business Combination
and was recorded at fair value. The earn-out liability is remeasured at the end of each reporting period, with subsequent changes in
fair value recognized within change in fair value of earn-out liability in the consolidated statements of operations and comprehensive
loss. See Note 3, Business Combination Revenue Recognition The Company recognizes
revenue from sales to customers under ASC 606, Revenue from Contracts with Customers ASC 606 The Company recognizes revenue
when or as control of promised goods or services is transferred to the Company’s customers, in an amount that reflects the consideration
the Company expects to be entitled to in exchange for those goods or services. Sales, value add, and other taxes collected concurrent
with revenue-producing activities are excluded from revenue and products are sold without the right of return. Payment terms may vary by
customer, are based on customary commercial terms, and are generally less than one year. The Company does not adjust revenue for the
effects of a significant financing component for contracts where the period between the transfer of the good or service and collection
is one year or less. The Company expenses incremental costs to obtain a contract when incurred since the amortization period of the asset
that would otherwise be recognized is one year or less. Assay Services Revenue The Company generates assay
services revenue primarily from the sale of SomaScan® services. SomaScan® service revenue is derived from performing the SomaScan®
assay on customer samples to generate data on protein biomarkers. Revenue from SomaScan® services is recognized at the time the analysis
data or report is delivered to the customer, which is when control has been transferred to the customer. SomaScan® services are sold
at a fixed price per sample without any volume discounts, rebates, or refunds. The delivery of each assay
data report is a separate performance obligation. For arrangements with multiple performance obligations, the transaction price must
be allocated to each performance obligation based on its relative standalone selling price. Judgment is required to determine the standalone
selling price for each distinct performance obligation as there are few directly comparable products in the market and factors such as
customer size are factored into the determination of selling price. We determine standalone selling prices based on amounts invoiced
to customers in observable transactions. Product Revenue Product revenue primarily
consists of kit sales to customers who assay samples in their own laboratories. The Company receives a fixed price per kit and revenue
from product sales is recognized upon transfer of control to the customer. The principal terms of sale are freight on board (“ FOB Collaboration Revenue In July 2011, NEC Corporation
(“ NEC SAA The Company determined
that the SAA met the criteria set forth in ASC 808, Collaborative Arrangements ASC 808 In March 2020, NEC and
the Company mutually terminated the SAA and concurrently the Company and NEC Solution Innovators, Ltd. (“ NES Collaboration Agreements (i) Research and Development
Activities The Company determined that
NES is not a customer with respect to the research and development activities associated with the collaboration arrangement under ASC 808.
The Company’s efforts related to the research and development activities are incurred consistently throughout the performance period.
As a result, the Company recognizes revenue from these activities over time on a straight-line basis and records revenue in collaboration
revenue in the consolidated statements of operations and comprehensive loss. (ii) Assay Services The Company determined that
NES is a customer for the assay services performance obligation, which should be accounted for using the criteria under ASC 606.
The Company receives a fixed fee (standalone selling price) per sample in exchange for assaying samples, which is a service performed
for other customers in the ordinary course of business. This performance obligation is recognized at a point in time when the assay data
report is delivered to the customer and recorded in assay services revenue in the consolidated statements of operations and comprehensive
loss. (iii) License of Intellectual
Property The Company determined that
NES is a customer for the license performance obligation, which should be accounted for using the criteria under ASC 606. The Company
receives royalties based on NES’ net sales and determined the allocation of royalties solely to this performance obligation is
consistent with the objectives in ASC 606. This performance obligation was satisfied at the beginning of the license term. Subject
to the sales and usage-based royalty exception, revenue is recognized in the period in which the subsequent sale or usage has occurred.
Royalties are recorded in other revenue in the consolidated statements of operations and comprehensive loss. Other Revenue Other revenue includes royalty
revenue and revenue received from research grants. The Company recognizes royalty revenue for fees paid by customers in return for the
exclusive license to make, use or sell certain licensed products in certain geographic areas. These fees are equivalent to a percentage
of the customer’s related revenues. The Company recognizes revenue for sales-based or usage-based royalties promised in exchange
for a license of intellectual property when the later of the following events occurs: (i) the subsequent sale or usage occurs, or
(ii) the performance obligation to which some or all of the sales-based or usage-based royalty has been satisfied. As such, revenue
is recognized in the period in which the subsequent sale or usage has occurred. In June 2008, the
Company and New England Biolabs, Inc. (“ NEB Grant revenue represents
funding under cost reimbursement programs from government agencies and non-profit foundations for qualified research and development
activities performed by the Company. The Company recognizes grant revenue when it is reasonably assured that the grant funding will be
received as evidenced through the existence of a grant arrangement, amounts eligible for reimbursement are determinable and have been
incurred, the applicable conditions under the grant arrangements have been met, and collectability of amounts due is reasonably assured.
The classification of costs incurred related to grants is based on the nature of the activities performed by the Company. Grant revenue
is recognized when the related costs are incurred and recorded in other revenue in the consolidated statements of operations and comprehensive
loss. Cost of Assay Services
Revenue Cost of assay services revenue
consists of raw materials and production costs, salaries and other personnel costs, overhead and other direct costs related to assay
services revenue. It also includes provisions for excess or obsolete inventory and costs for production variances, such as yield losses,
material usages, spending and capacity variances. Cost of assay services revenue also includes royalty fees that the Company owes to
third parties related to assay services. Cost of Product Revenue Cost of product revenue
consists primarily of raw materials and production costs, salaries and other personnel costs, overhead and other direct costs related
to product revenue. Cost of product revenue is recognized in the period the related revenue is recognized. Shipping and handling costs
incurred for product shipments are included in cost of product revenue in the consolidated statements of operations and comprehensive
loss. Cost of product revenue also includes royalty fees that the Company owes to third parties related to the sale of products. Research and Development Research and development
expenses, consisting primarily of salaries and benefits, laboratory supplies, clinical study costs, consulting fees and related costs,
are expensed as incurred. Selling, General and
Administrative Selling expenses consist
primarily of personnel and marketing related costs and are expensed as the related costs are incurred. Advertising costs totaled approximately
$0.7 million and $0.2 million during the years ended December 31, 2021 and 2020, respectively. General and administrative
expenses consist primarily of personnel costs for the Company’s finance, human resources, business development and general management,
as well as professional services, such as legal and accounting services. General and administrative expenses are expensed as incurred. Income Taxes The provision for income
taxes is included in interest income and other, net in the consolidated statements of operations and comprehensive loss. Deferred income tax assets
and liabilities are recognized for tax consequences in future years attributable to differences between the tax bases of assets and liabilities
and their respective financial reporting amounts, based on enacted tax laws and statutory tax rates applicable to the periods in which
these temporary differences are expected to reverse. The Company evaluates the need to establish or release a valuation allowance based
upon expected levels of taxable income, future reversals of existing temporary differences, tax planning strategies, and recent financial
operations. Valuation allowances are established to reduce deferred tax assets to the amount expected to be more likely than not realized
in the future. The effect of income tax
positions is recognized only when it is more likely than not to be sustained. Interest and penalties associated with uncertain tax positions
are recorded in interest income and other, net in the consolidated statements of operations and comprehensive loss. We made an accounting policy
election to treat the tax effects of the global intangible low-taxed income as a component of interest income and other, net in the period
incurred. Stock-Based Compensation The Company incurs stock-based
compensation expense related to its stock options, and we recognize stock-based employee compensation, net of an estimated forfeiture
rate, over the employee’s requisite service period, which is generally the vesting period, on a straight-line basis. The Company utilizes the
Black-Scholes valuation model for estimating the fair value of stock options granted. The fair value of each option is estimated on the
date of grant. Set forth below are the
assumptions used in valuing the stock options granted and a discussion of the Company’s methodology for developing each of the
assumptions used:
● Expected dividend yield — The Company did not pay regular dividends on its common stock and does not anticipate paying any dividends in the foreseeable future. Therefore, the Company used an expected dividend yield of zero in the option valuation model.
● Expected volatility — Volatility
is a measure of the amount by which a financial variable, such as share price, has fluctuated
(historical volatility) or is expected to fluctuate (expected volatility) during a period.
The Company analyzes the volatility used by similar public companies at a similar stage of
development to estimate expected volatility. The comparable companies are chosen based on
their similar size, stage in the life cycle or area of specialty.
● Risk-free interest
rate — We use a range of United States Treasury rates with a term
that most closely resembles the expected life of the option as of the date of which the option
was granted.
● Expected average
life of options — The expected life assumption is the expected time to
exercise. The Company uses a simplified method to develop this assumption, which uses the
average of the vesting period and the contractual terms. Fair Value of Common
Stock The grant date fair value
of the shares of common stock underlying stock options had historically been determined by the Company’s Board of Directors with
assistance of third-party valuation specialists prior to the Business Combination. Because there was no public market for the Company’s
common stock, the Board of Directors exercised reasonable judgment and considered a number of objective and subjective factors, combined
with management’s judgments, to determine the best estimate of the fair value, which include financial condition and actual operating
results; the progress of the Company’s research and development efforts; its stage of development; business strategy; the rights,
preferences and privileges of the Company’s redeemable convertible preferred stock relative to those of the Company’s common
stock; the prices at which the Company sold shares of its redeemable convertible preferred stock; equity market conditions of comparable
public companies; general U.S. market conditions; and the lack of marketability of our common stock. Following the Business Combination,
the grant date fair values of these awards are determined based on the closing price of the Company’s common stock on the date
of the grant. Comprehensive Loss Comprehensive loss is comprised
of net loss and other comprehensive loss. Other comprehensive loss refers to gains and losses that are recorded as an element of stockholders’
equity but excluded from net loss. Our other comprehensive loss consists of foreign currency translation adjustments and net unrealized
gain or losses on investments in available-for-sale securities. Net Loss Per Shar Basic net loss per share
is computed by dividing net loss by the weighted average number of shares of common stock issued and outstanding during the period. Diluted
net loss per share is similarly computed, except that the denominator includes the effect of contingently issuable shares, warrants,
and stock options, using the treasury stock method, if including such potential shares of common stock is dilutive. Segment Information The Company has one operating
segment. The Company’s chief operating decision maker (the “ CODM Recent Accounting
Pronouncements We are an “emerging
growth company” as defined in the Jumpstart Our Business Startups Act of 2012, as amended (the “ JOBS Act Accounting Standards
Not Yet Adopted Leases. Leases (Topic 842) Revenue from Contracts with
Customers (Topic 606) and Leases (Topic 842): Effective Dates for Certain Entities The Company will adopt ASU
2016-02, as amended, using a modified retrospective approach as permitted under ASU 2018-11, which allows the Company to apply the legacy
lease guidance and disclosure requirements in the comparative periods presented prior to the year of adoption. No cumulative-effect adjustment
to retained earnings is expected to be recognized upon adoption of ASU 2016-02. As part of the adoption,
the Company will elect the short-term lease recognition policy election for all leases with a term of 12 months or less, and as such,
no right-of-use assets or lease liabilities will be recorded on the balance sheet for these leases. The Company also expects to elect
the following practical expedients:
● the package of
transition practical expedients, permitting the Company to not reassess its prior conclusions
about lease identification, lease classification and initial direct costs; and
● the practical
expedient to not separate lease and non-lease components. We are finalizing our implementation
of ASU 2016-02, but expect the adoption will result in increases to long-term assets, current liabilities and long-term liabilities on
its consolidated balance sheets, related to the recognition of right-of-use assets and lease liabilities, and will require additional
disclosures of key information related to its leases in the footnotes to the consolidated financial statements. As part of our implementation
procedures, we have identified long-term leases for certain asset classes, including corporate office space. As of December 31, 2021,
the Company’s undiscounted obligations for operating leases in the Company’s future minimum lease table totaled approximately
$5.5 million (see Note 9, Commitments and Contingencies Income Taxes. Income Taxes (Topic 740): Simplifying the Accounting for Income
Taxes Financial Instruments
Credit Losses Financial Instruments — Credit
Losses (Topic 326): Measurement of Credit Losses on Financial Instruments Financial Instrum Credit
Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates, |
