Commitments and Contingencies

6 Months Ended

Jun. 30, 2024

Commitments and Contingencies Disclosure [Abstract]

6. Commitments and contingencies

Operating leases

During the first quarter of 2024, the Company abandoned the Redwood City, CA facility and consolidated all of its operations to its Chicago office. The Company recorded long-lived asset impairment charges related to right-of-use asset for its Redwood City laboratory and office facility of $3.9 million during the first quarter of 2024. There were no impairment charges related to right-of-use assets recorded during the three and six months ended June 30, 2023. Refer to Note 2, “Long-lived asset impairment” for more information.

The undiscounted future lease payments for operating leases as of June 30, 2024 are as follows (in thousands):


	Operating Leases
2024 (remainder)		1,497
2025		3,055
2026		3,144
2027		3,235
2028		3,329
2029 and thereafter		9,177
Total future minimum lease payments		23,437
Less: imputed interest		(4,637	)
Present value of operating lease liabilities		18,800
Less: current portion of lease liabilities		(2,923	)
Noncurrent portion of lease liabilities	$	15,877

Standby letters of credit

In January 2022, in conjunction with the Company’s former Redwood City, CA operating lease, the Company entered into a standby letter of credit (LOC) in the amount of $1.0 million to secure the lease through its expiration. In March 2023, the Company entered into a lease termination agreement with the landlord of its former Redwood City, CA facility, which accelerated the lease termination date to May 12, 2023. The Company is required to maintain a cash balance of $1.0 million as collateral for the LOC until all criteria in the termination agreement have been met. During the third quarter of 2023 all the criteria in the termination agreement were met and the landlord released the LOC of $1.0 million, which is now classified within cash and cash equivalents on the condensed balance sheet at June 30, 2024 as compared to restricted cash at June 30, 2023.

In March 2023, the Company entered into a sublease for a future laboratory and office space in a Redwood City, CA facility. The Company is required to hold a LOC in the amount of $0.7 million to secure this lease through expiration. The Company is required to maintain a cash balance of $0.7 million as collateral for the LOC, which was classified as restricted cash and included other long-term assets on the balance sheet at December 31, 2023, because it was restricted for a period longer than one year from the balance sheet date. During the three months ended June 30, 2024, the sub-landlord drew down the full amount of this LOC to pay outstanding rent and other costs due under this sublease. The Company did not replenish the LOC and therefore it is no longer maintaining a cash balance of $0.7 million as collateral for the LOC. See the “Contingencies” section within Note 6 for more information.

In conjunction with the Chicago, IL laboratory and office space lease, the Company is required to hold an additional LOC in the amount of $0.8 million to secure this lease through its expiration. The Company is required to maintain a cash balance of $0.8 million as collateral for the LOC, which is classified as restricted cash and included other long-term assets on the condensed balance sheet at June 30, 2024, because it is restricted for a period longer than one year from the balance sheet date. There has been no drawdown from the LOC for the Chicago, IL laboratory and office space lease through June 30, 2024.

Indemnification agreements

In the ordinary course of business, the Company may provide indemnification of varying scope and terms to vendors, lessors, customers and other parties with respect to certain matters including, but not limited to, losses arising out of breach of such agreements or from intellectual property infringement claims made by third parties. The Company also provides indemnification to

directors and officers of the Company to the maximum extent permitted under applicable Delaware law. The maximum potential amount of future payments that the Company could be required to make under these indemnification agreements is, in many cases, unlimited. As of June 30, 2024, the Company has not incurred any material costs as a result of such indemnifications and is not currently aware of any indemnification claims other than potential claims that may arise in connection with the Company’s ongoing securities class action litigation.

Contingencies

The Company is party to certain legal matters arising in the ordinary course of its business. In addition, third parties may, from time to time, assert claims against us in the form of letters and other communications. The Company records a provision for contingent losses when it is both probable that a liability has been incurred at the date of the financial statements and the amount of the loss can be reasonably estimated. When management determines that it is not probable, but rather reasonably possible that a liability has been incurred at the date of the financial statements, management discloses such contingencies and the possible loss or range of loss if such estimate can be made. Any estimated range is based on currently available information and involves elements of judgment and significant uncertainties. Circumstances change over time and actual results may vary significantly from estimates.

On or about January 7, 2022, John Modrak filed a class action in the United States District Court for the Northern District of California against the Company, certain of its officers and directors, and J.P. Morgan Securities LLC, BofA Securities, Inc., Piper Sandler & Co., and BTIG, LLC, underwriters of the Company’s February 2021 initial public offering (“IPO”), captioned as Modrak v. Talis Biomedical Corp., et al., No. 3:22-cv-00105, purportedly on behalf of shareholders who purchased shares of the Company’s stock that were registered in the Company’s IPO. On February 18, 2022, Karen Mitcham filed a substantively identical lawsuit in the same court captioned as Mitcham v. Talis Biomedical Corp., et al., No. 3:22-cv-01039-JD, against the Company, and the same officers and directors as the Modrak lawsuit. These two cases were consolidated and co-lead plaintiffs were appointed as mandated by the applicable federal securities laws. On December 9, 2022, the Court granted the Company’s motion to dismiss and gave plaintiffs leave to amend their consolidated complaint. On January 13, 2023, the plaintiffs filed an amended complaint, asserting claims for violation of Section 11 of the Securities Act of 1933 (“Securities Act”) against all defendants and Section 15 of the Securities Act against the individual defendants. The amended complaint alleges that the Company’s registration statement and prospectus issued in connection with the Company’s IPO was false and misleading, and omitted to state material adverse facts, related to (1) instrument manufacturing, (2) the reliability and accuracy of the Company’s Talis One COVID-19 test, and (3) the comparator test used in the Company’s primary study in support of its EUA application for the Talis One COVID-19 Test System. The amended complaint seeks unspecified damages under Sections 11 and 15 of the Securities Act, reasonable attorneys’ fees, and other costs. The amended complaint does not assert claims against the above referenced underwriters. On April 28, 2023, the Court denied our motion to dismiss. On February 9, 2024, the Court certified the class and appointed plaintiff Martin Dugan as class representative. Discovery is ongoing. Trial is currently set for February 24, 2025. The Company has not recorded an accrual related to this matter as of June 30, 2024 as it determined that any such loss contingency was not probable or reasonably estimable.

On or about March 29, 2024, Kriya Therapeutics, Inc., filed an action in the Superior Court of the State of California, County of San Mateo, against the Company captioned Kriya Therapeutics, Inc. v. Talis Biomedical Corporation, Case No. 24-CIV-01947. The complaint alleges that the Company breached the March 2023 sublease for laboratory and office space in its current Redwood City, CA facility referenced above by: (i) allegedly failing to pay rent and other costs allegedly due under the sublease; (ii) allegedly abandoning the premises; and (iii) allegedly failing to maintain certain maintenance agreements for the premises. The complaint seeks unspecified damages, pre- and post-judgment interest, costs of suit including attorneys’ fees and other unspecified costs. The Company responded to the complaint on June 7, 2024. The Company filed an answer with affirmative defenses disputing the claims and allegations asserted in the complaint including the unspecified damages, pre- and post-judgment interest, costs of suit including attorneys’ fees and other unspecified costs that Kriya Therapeutics, Inc. is seeking. The Company also filed a cross-complaint against Kriya Therapeutics, Inc., asserting claims for fraud and breach of March 2023 sublease, among others. The Company seeks unspecified damages, a judicial declaration that Kriya Therapeutics, Inc. is in breach of the sublease and the Company has no further obligations under the sublease, and for rescission of the sublease, among other relief. On August 7, 2024, Kriya Therapeutics, Inc., filed an answer with affirmative defenses disputing the claims and allegations in the Company’s cross-complaint. By order dated August 13, 2024, the Superior Court set an initial case management conference for January 2, 2025. No trial date has been set in the action. The Company has not recorded an accrual related to this matter as of June 30, 2024 as it determined that any such loss contingency was not probable or reasonably estimable.

Other than the litigation matters discussed above, the Company currently does not believe that the ultimate outcome of any of the matters is probable or reasonably estimable, or that these matters will have a material adverse effect on its business; however, the results of litigation and claims are inherently unpredictable. Regardless of the outcome, litigation and other negotiations can have an adverse impact on the Company because of litigation and settlement costs, diversion of management resources and other factors. Legal costs are expensed as incurred.

Talis Biomedical Corp 10-Q