AbCellera Biologics Inc. 10-K

Item 9A. Controls and Procedures. Disclosure Controls and Procedures Our “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, are designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures are designed to ensure that information required to be disclosed is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, to allow timely decisions regarding required disclosure. The Chief Executive Officer (CEO) and the Chief Financial Officer (CFO), with assistance from other members of management, have reviewed the effectiveness of our disclosure controls and procedures as of December 31, 2021 and, based on their evaluation, have concluded that the disclosure controls and procedures were effective as of such date. Management’s Annual Report on Internal Control Over Financial Reporting Management of the Company is responsible for establishing and maintaining adequate internal controls over financial reporting for the Company as defined in Rule 13a-15(f) under the Exchange Act. The Company’s internal control over financial reporting is a process designed under the supervision of the Company’s CEO and CFO, overseen by the Company’s Board of Directors and implemented by the Company’s management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with U.S. generally accepted accounting principles, and the requirements of the SEC. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with policies and procedures may deteriorate. Under the supervision of and with the participation of our management, we assessed the effectiveness of our internal control over financial reporting as of December 31, 2021, using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework (2013). As disclosed in Part II Item 9A Controls and Procedures in our Annual Report on Form 10-K for the year ended December, 31, 2020, a material weakness in internal control over financial reporting was identified in prior periods which was the result of a material adjustment in our financial statements, due to an overstatement of lease liability upon adoption of ASU 2016-02, as well as certain other adjustments as of and for the years ended December 31, 2018 and 2019. During 2021, to remediate the previously reported material weakness in internal controls over financial reporting, we designed and implemented new controls, enhanced existing controls, hired additional accounting and finance resources with public company and US GAAP experience, improved reporting processes, and enhanced related supporting technology. During the fourth quarter of 2021, we completed our testing of the operating effectiveness of the implemented controls and found them to be effective. As a result, the CEO and CFO have concluded that the material weakness has been remediated as of December 31, 2021. Attestation Report of Independent Registered Public Accounting Firm The effectiveness of our internal control over financial reporting as of December 31, 2021 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their report included elsewhere in this Annual Report on Form 10-K. Changes in Internal Control over Financial Reporting Except for changes in connection with the implementation of our remediation efforts, described above, there have been no other changes to internal control over financial reporting, that occurred during the fourth quarter of 2021 that materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting. Item 9B. Other Information. None. 96 Item 9C. Disclosure Regarding Foreign Ju risdictions that Prevent Inspections . Not applicable. 97 PART III Item 10. Directors, Executive Officers and Corporate Governance. The information required by this item will be included in our definitive proxy statement with respect to our 2021 Annual Meeting of Shareholders to be filed with the SEC, and is incorporated herein by reference. Item 11. Executive Compensation. The information required by this item will be included in our definitive proxy statement with respect to our 2021 Annual Meeting of Shareholders to be filed with the SEC, and is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. The information required by this item will be included in our definitive proxy statement with respect to our 2021 Annual Meeting of Shareholders to be filed with the SEC, and is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions, and Director Independence. The information required by this item will be included in our definitive proxy statement with respect to our 2021 Annual Meeting of Shareholders to be filed with the SEC, and is incorporated herein by reference. Item 14. Principal Accounting Fees and Services. Our independent public accounting firm is KPMG LLP, Vancouver, BC, Canada, PCAOB Auditor ID 85 . The information required by this item will be included in our definitive proxy statement with respect to our 2021 Annual Meeting of Shareholders to be filed with the SEC, and is incorporated herein by reference. 98 PART IV Item 15. Exhibits, Financial Statement Schedules. (a) The following documents are filed as part of this Annual Report on Form 10-K: 1) The consolidated financial statements filed as part of this Annual Report on Form 10-K are listed in the “Index to Consolidated Financial Statements” under Part II, Item 8 of this Annual Report on Form 10-K. 2) No schedules are submitted because they are not applicable, not required or because information is included in the consolidated financial statements or the notes thereto. 3) The exhibits required by Item 601 of Regulation S-K and Item 15(b) of this Annual Report on Form 10‑K are listed in the Exhibit Index immediately preceding the signature page of this Annual Report on Form 10‑K. The exhibits listed in the Exhibit Index are incorporated by reference herein. Item 16. Form 10-K Summary None. Exhibit Index. Exhibit No. Description 3.1 Articles of the Registrant, as currently in effect (incorporated by reference to Exhibit 3.1 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2020 filed on March 30, 2021). 4.1 Amended and Restated Investors Rights Agreement among the Registrant and certain of its shareholders, dated March 23, 2020 (incorporated by reference to Exhibit 4.1 of the Registrant’s Registration Statement on Form S-1, as amended (File No. 333-250838) filed on November 20, 2020). 4.2 Form of Specimen Common Share Certificate (incorporated by reference to Exhibit 4.2 of the Registrant’s Registration Statement on Form S-1, as amended (File No. 333-250838) filed on December 7, 2020). 4.3 Description of Securities (incorporated by reference to Exhibit 4.3 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2020 filed on March 30, 2021). 10.1 Lease between 0775021 BC Ltd. and the Registrant dated June 2, 2017, as amended (incorporated by reference to Exhibit 10.1 of the Registrant’s Registration Statement on Form S-1, as amended (File No. 333-250838) filed on November 20, 2020). 10.2 † Research Collaboration and License Agreement between the Registrant and Eli Lilly and Company, dated March 11, 2020 (incorporated by reference to Exhibit 10.2 of the Registrant’s Registration Statement on Form S-1, as amended (File No. 333-250838) filed on November 20, 2020). 10.3 † Patent License Agreement between the U.S. Department of Health and Human Services, as represented by National Institute of Allergy and Infectious Diseases and the Registrant, dated May 4, 2020 (incorporated by reference to Exhibit 10.3 of the Registrant’s Registration Statement on Form S-1, as amended (File No. 333-250838) filed on November 20, 2020). 10.4 † License Agreement between the Board of Trustees of the Leland Stanford Junior University and Lineage Biosciences Inc., dated February 11, 2015 (incorporated by reference to Exhibit 10.4 of the Registrant’s Registration Statement on Form S-1, as amended (File No. 333-250838) filed on November 20, 2020) . 10.5 † Amendment No. 1 to License Agreement between the Board of Trustees of the Leland Stanford Junior University and Lineage Biosciences Inc., dated March 22, 2017 (incorporated by reference to Exhibit 10.5 of the Registrant’s Registration Statement on Form S-1, as amended (File No. 333-250838) filed on November 20, 2020). 10.6 † License Agreement between the University of British Columbia and the Registrant dated December 16, 2013 (incorporated by reference to Exhibit 10.6 of the Registrant’s Registration Statement on Form S-1, as amended (File No. 333-250838) filed on November 20, 2020). 10.7 † Strategic Innovation Fund Agreement between the Registrant and her Majesty the Queen in right of Canada as represented by the Minister of Industry, dated April 11, 2020 (incorporated by reference to Exhibit 10.7 of the Registrant’s Registration Statement on Form S-1, as amended (File No. 333-250838) filed on November 20, 2020). 99 10.8 # Employment Agreement between the Registrant and Carl L. G. Hansen, Ph.D., dated August 1, 2019, as amended (incorporated by reference to Exhibit 10.8 of the Registrant’s Registration Statement on Form S-1, as amended (File No. 333-250838) filed on December 7, 2020). 10.9 # Employment Agreement between the Registrant and Andrew Booth, dated April 12, 2019 (incorporated by reference to Exhibit 10.9 of the Registrant’s Registration Statement on Form S-1, as amended (File No. 333-250838) filed on December 7, 2020). 10.10 # Employment Agreement between the Registrant and Tryn Stimart, dated July 10, 2019 (incorporated by reference to Exhibit 10.10 of the Registrant’s Registration Statement on Form S-1, as amended (File No. 333-250838) filed on December 7, 2020). 10.11 # Employment Agreement between the Registrant and Véronique Lecault, Ph.D., dated December 20, 2016, as amended (incorporated by reference to Exhibit 10.11 of the Registrant’s Registration Statement on Form S-1, as amended (File No. 333-250838) filed on December 7, 2020). 10.12 # Sixth Amended and Restated Stock Option Plan, and form of award agreement thereunder (incorporated by reference to Exhibit 10.12 of the Registrant’s Registration Statement on Form S-1, as amended (File No. 333-250838) filed on December 7, 2020). 10.13 # 2020 Share Option and Incentive Plan and forms of award agreements thereunder (incorporated by reference to Exhibit 10.13 of the Registrant’s Registration Statement on Form S-1, as amended (File No. 333-250838) filed on December 7, 2020). 10.14 # Senior Executive Cash Incentive Bonus Plan (incorporated by reference to Exhibit 10.14 of the Registrant’s Registration Statement on Form S-1, as amended (File No. 333-250838) filed on December 7, 2020). 10.15 # 2020 Employee Share Purchase Plan (incorporated by reference to Exhibit 10.15 of the Registrant’s Registration Statement on Form S-1 (File No. 333-250838) filed on December 7, 2020). 10.16 # Executive Severance Plan (incorporated by reference to Exhibit 10.16 of the Registrant’s Registration Statement on Form S-1, as amended (File No. 333-250838) filed on December 7, 2020). 10.17 # Form of Director and Officer Indemnification Agreement (incorporated by reference to Exhibit 10.17 of the Registrant’s Registration Statement on Form S-1 (File No. 333-250838) filed on December 7, 2020). 21.1 Subsidiaries of the Registrant (incorporated by reference to Exhibit 21.1 of the Registrant’s Registration Statement on Form S-1, as amended (File No. 333-250838) filed on December 7, 2020). 23.1* Consent of KPMG LLP, Independent Registered Public Accounting Firm 31.1* Certification of Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2* Certification of Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1* Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2* Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 101.INS* Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. 101.SCH* Inline XBRL Taxonomy Extension Schema Document 101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document 101.LAB* Inline XBRL Taxonomy Extension Label Linkbase Document 101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document 104 Cover Page Interactive Data File (embedded within the Inline XBRL document) * Filed herewith † Portions of this exhibit (indicated by asterisks) have been omitted in accordance with the rules of the Securities and Exchange Commission. 100 # Indicates a management contract or any compensatory plan, contract or arrangement. 101 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this annual report to be signed on its behalf by the undersigned, thereunto duly authorized . ABCELLERA BIOLOGICS INC. Date: February 25, 2022 By: /s/ Carl L. G. Hansen Carl L.G. Hansen, Ph.D. Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated. Name Title Date /s/ Carl L. G. Hansen Chief Executive Officer and Director ( Principal Executive Officer ) February 25, 2022 Carl L. G. Hansen, Ph.D. /s/ Andrew Booth Chief Financial Officer ( Principal Financial Officer and Principal Accounting Officer ) February 25, 2022 Andrew Booth /s/ Véronique Lecault Director February 25, 2022 Véronique Lecault, Ph.D. /s/ Andrew Lo Director February 25, 2022 Andrew Lo, Ph.D. /s/ Michael Hayden Director February 25, 2022 Michael Hayden, Ph.D. /s/ John S. Montalbano Director February 25, 2022 John S. Montalbano /s/ Peter Thiel Director February 25, 2022 Peter Thiel 102 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm F-2 Consolidated Balance Sheets as of December 31, 2020 and 2021 F-5 Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) for the Years ended December 31, 2019, 2020 and 2021 F-6 Consolidated Statements of Stockholders’ Equity for the Years ended December 31, 2019, 2020 and 2021 F-7 Consolidated Statements of Cash Flows for the Years ended December 31, 2019, 2020 and 2021 F-8 Notes to Consolidated Financial Statements F-9 F-1 Report of Independent Registered Public Accounting Firm To the Shareholders and Board of Directors AbCellera Biologics Inc.: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of AbCellera Biologics Inc. and subsidiaries (the Company) as of December 31, 2021 and 2020, the related consolidated statements of income (loss) and comprehensive income (loss), stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 25, 2022 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Initial measurement of the fair value of contingent consideration and acquired intangible assets related to a business combination As discussed in Note 21 to the consolidated financial statements, the purchase consideration associated with the business combination with TetraGenetics, Inc. (TetraGenetics) included potential milestone payments based on the achievement of specified technical milestones and additional development and commercial milestone payments related to successfully developed therapeutics (contingent consideration). The aggregate fair value of the purchase consideration is allocated across the estimated net tangible assets acquired, intangible assets with the residual amount allocated to goodwill. The Company estimated the fair value of the contingent consideration to be $35,100 thousand, and estimated the fair value of the intangible assets, which includes technology and in process research and development intangibles, to be $43,300 thousand (acquired intangible assets). We identified the assessment of the initial measurement of the fair value of contingent consideration and the acquired intangible assets in the TetraGenetics business combination as a critical audit matter. Evaluating the key assumptions, including certain non-observable inputs, such as the probabilities of successful achievement of technical, development, and commercial milestones, forecasted revenues and discount rates involved a high degree of auditor judgment. Changes in these key F-2 assumptions could have a significant impact on the measurement of the contingent consideration and of the acquired intangible assets recognized on acquisition . The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s process for determining the fair value of the contingent consideration and of the acquired intangible assets. These included an internal control related to the development of the key assumptions. We evaluated the probabilities of successful achievement of technical, development, and commercial milestones assumptions used in the Company’s model by comparing them to relevant and reliable publicly available third-party data and studies. We evaluated the Company’s forecasted revenues by comparing them to relevant and reliable third-party industry data. We performed sensitivity analyses and assessed the impact of possible changes to the key assumptions on the fair value of the contingent consideration and the acquired intangible assets. We involved valuation professionals with specialized skills and knowledge, who assisted in evaluating the Company’s discount rates by comparing them against discount rate ranges that were independently developed using publicly available market data for comparable entities. /s/ KPMG LLP Chartered Professional Accountants We have served as the Company’s auditor since 2017. Vancouver, Canada February 25, 2022 F-3 Report of Independent Registered Public Accounting Firm To the Shareholders and Board of Directors AbCellera Biologics Inc.: Opinion on Internal Control Over Financial Reporting We have audited AbCellera Biologics Inc.’s and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2021 and 2020, the related consolidated statements of income (loss) and comprehensive income (loss), stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes (collectively, the consolidated financial statements), and our report dated February 25, 2022 expressed an unqualified opinion on those consolidated financial statements. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ KPMG LLP Chartered Professional Accountants Vancouver, Canada February 25, 2022 F-4 AbCellera Biologics Inc. Consolidated Balance Sheets (Expressed in thousands of U.S. dollars except share data) December 31, 2020 December 31, 2021 Assets Current assets: Cash and cash equivalents $ 594,116 $ 476,142 Marketable securities - 246,835 Total cash, cash equivalents, and marketable securities 594,116 722,977 Accounts and accrued receivable 213,239 160,576 Restricted cash - 25,000 Other current assets 5,970 21,247 Total current assets 813,325 929,800 Long-term assets: Property and equipment, net 17,923 111,616 Intangible assets, net 115,153 148,392 Goodwill 31,500 47,806 Investments in and loans to equity accounted investees 19,247 50,313 Other long-term assets 8,388 30,642 Total long-term assets 192,211 388,769 Total assets $ 1,005,536 $ 1,318,569 Liabilities and shareholders' equity Current liabilities: Accounts payable and other liabilities $ 20,195 $ 32,017 Current portion of contingent consideration payable 13,411 22,934 Income taxes payable 36,152 35,683 Accrued royalties payable 27,143 22,506 Deferred revenue 6,589 7,536 Total current liabilities 103,490 120,676 Long-term liabilities: Operating lease liability 3,715 36,413 Deferred revenue and grant funding 25,894 60,758 Contingent consideration payable 9,148 35,886 Deferred tax liability 26,161 37,370 Other long-term liabilities 6,620 1,733 Total long-term liabilities 71,538 172,160 Total liabilities 175,028 292,836 Commitments and contingencies Shareholders' equity: Common shares: no par value, unlimited authorized shares at December 31, 2020 and 2021: 269,497,768 and 283,257,104 shares issued and outstanding at December 31, 2020 and 2021 respectively 710,387 722,430 Additional paid-in capital 5,919 35,357 Accumulated other comprehensive income - 280 Accumulated earnings 114,202 267,666 Total shareholders' equity 830,508 1,025,733 Total liabilities and shareholders' equity $ 1,005,536 $ 1,318,569 The accompanying notes are an integral part of these consolidated financial statements. F-5 AbCellera Biologics Inc. Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) (Expressed in thousands of U.S. dollars except share and per share data) Year Ended December 31, 2019 2020 2021 Revenue: Research fees $ 11,612 $ 19,848 $ 19,076 Licensing revenue - - 20,778 Milestone payments - 15,000 8,000 Royalty revenue - 198,307 327,349 Total revenue 11,612 233,155 375,203 Operating expenses: Royalty fees - 27,143 45,516 Research and development ( 1) 10,113 29,393 62,062 Sales and marketing ( 1) 1,263 3,842 6,913 General and administrative ( 1) 2,749 11,910 41,848 Depreciation and amortization 1,604 4,836 14,451 Total operating expenses 15,729 77,124 170,790 Income (loss) from operations ( 4,117 ) 156,031 204,413 Other (income) expense Interest income ( 155 ) ( 293 ) ( 3,330 ) Interest and other expense 209 6,511 5,225 Foreign exchange (gain) loss ( 186 ) 300 855 Grants and incentives ( 1,774 ) ( 8,320 ) ( 17,486 ) Total other income ( 1,906 ) ( 1,802 ) ( 14,736 ) Net earnings (loss) before income tax ( 2,211 ) 157,833 219,149 Income tax expense - 38,915 65,685 Net earnings (loss) $ ( 2,211 ) $ 118,918 $ 153,464 Foreign currency translation adjustment - - 280 Comprehensive income (loss) $ ( 2,211 ) $ 118,918 $ 153,744 Net earnings (loss) per share attributable to common shareholders Basic $ ( 0.01 ) $ 0.53 $ 0.56 Diluted $ ( 0.01 ) $ 0.45 $ 0.48 Weighted-average common shares outstanding Basic 151,327,560 159,195,023 275,763,745 Diluted 151,327,560 263,129,765 318,294,236 The accompanying notes are an integral part of these consolidated financial statements. 1 Exclusive of depreciation and amortization F-6 AbCellera Biologics Inc. Consolidated Statements of Stockholders’ Equity (Expressed in thousands U.S. dollars except share data) Series A1 Preferred Shares Series A2 Preferred Shares Common Shares Additional Paid-in Accumulated Earnings Accumulated Other Comprehensive Total Shareholders' Shares Amount Shares Amount Shares Amount Capital (Deficit) Income Equity December 31, 2018 2,105,264 $ 7,557 - $ - 150,941,382 $ 5,074 $ 1,483 $ ( 2,505 ) $ - $ 11,609 Shares issued under stock option plan - - - - 740,000 48 ( 23 ) - - 25 Issuance costs - ( 11 ) - - - - - - - ( 11 ) Stock-based compensation expense - - - - - - 840 - - 840 Net loss - - - - - - - ( 2,211 ) - ( 2,211 ) December 31, 2019 2,105,264 $ 7,546 - $ - 151,681,382 $ 5,122 $ 2,300 $ ( 4,716 ) $ 10,252 Issuance of Series A2 preferred shares - - 6,017,784 74,662 - - - - - 74,662 Shares issued under stock option plan - - - - 2,719,882 1,450 ( 508 ) - - 942 Stock-based compensation expense - - - - - - 4,127 - - 4,127 Issuance of common shares upon initial public offering, net of issuance costs of $ 32,609 (net of tax $ 8,462 ) - - - - 27,772,500 531,302 - - - 531,302 Conversion of Series A1 and A2 preferred shares ( 2,105,264 ) ( 7,546 ) ( 6,017,784 ) ( 74,662 ) 81,230,480 82,208 - - - - Conversion of convertible note - - - - 6,093,524 90,305 - - - 90,305 Net earnings - - - - - - - 118,918 - 118,918 December 31, 2020 - $ - - $ - 269,497,768 $ 710,387 $ 5,919 $ 114,202 $ - $ 830,508 Shares issued under stock option plan and other - - - - 13,759,336 12,043 ( 5,477 ) - - 6,566 Stock-based compensation expense - - - - - - 29,240 - - 29,240 Reclassification of liability classified options - - - - - - 5,675 - - 5,675 Foreign currency translation adjustment - - - - - - - - 280 280 Net earnings - - - - - - - 153,464 153,464 December 31, 2021 - $ - - $ - 283,257,104 $ 722,430 $ 35,357 $ 267,666 $ 280 $ 1,025,733 The accompanying notes are an integral part of these consolidated financial statements. F-7 AbCellera Biologics Inc. Consolidated Statements of Cash Flows (Expressed in thousands of U.S. dollars) December 31, 2019 December 31, 2020 December 31, 2021 Cash flows from operating activities: Net earnings (loss) $ ( 2,211 ) $ 118,918 $ 153,464 Cash flows from operating activities: Depreciation of property and equipment 1,604 2,317 4,403 Amortization of intangible assets - 2,519 10,062 Amortization of operating lease right-of-use assets 243 435 2,785 Stock-based compensation 890 8,397 30,646 Deferred tax expense - 2,098 ( 2,018 ) Other 194 4,707 3,570 Changes in operating assets and liabilities: Accounts and accrued research fees receivable ( 1,803 ) ( 5,467 ) ( 37,386 ) Accrued royalties receivable - ( 197,553 ) 59,864 Income taxes payable - 36,412 ( 13,530 ) Accounts payable and accrued liabilities 150 6,601 1,400 Operating lease liabilities 2,784 ( 350 ) ( 778 ) Deferred revenue ( 6 ) 21,810 8,624 Accrued royalties payable - 27,143 ( 4,637 ) Deferred grant revenue - ( 6,763 ) 30,718 Other operating assets and liabilities 849 1,466 ( 2,603 ) Net cash provided by operating activities 2,694 22,690 244,584 Cash flows from investing activities: Purchases of property and equipment ( 3,997 ) ( 9,673 ) ( 58,452 ) Purchase of intangible assets - ( 5,000 ) - Repayment (issuance) of related party loans ( 1,783 ) 1,783 - Purchase of marketable securities - - ( 274,710 ) Proceeds from marketable securities - - 27,608 Receipt of grant funding - - 32,621 Acquisitions, net of cash acquired - ( 87,643 ) ( 11,457 ) Long-term investments and other assets - - ( 17,534 ) Investment in and loans to equity accounted investees - ( 19,247 ) ( 30,323 ) Net cash used in investing activities ( 5,780 ) ( 119,780 ) ( 332,247 ) Cash flows from financing activities: Repayment of long-term debt ( 399 ) ( 19,942 ) ( 1,823 ) Proceeds from long-term debt 193 15,490 872 Proceeds from convertible debentures - 89,990 - Payment of contingent consideration - - ( 2,550 ) Payment of liability for in-licensing agreement - - ( 5,000 ) Short-term borrowings 387 ( 387 ) - Issuance of common shares pursuant to exercise of stock options and other 25 1,000 4,615 Net proceeds from issuance of common shares - 522,840 - Proceeds from issuance of preferred shares - series A1 and A2 financing ( 11 ) 74,662 - Net cash provided by (used in) financing activities 195 683,653 ( 3,886 ) Effect of exchange rate changes on cash and cash equivalents - - ( 1,425 ) Increase (decrease) in cash and cash equivalents ( 2,891 ) 586,563 ( 92,974 ) Cash and cash equivalents and restricted cash, beginning of year 10,444 7,553 594,116 Cash and cash equivalents and restricted cash, end of year $ 7,553 $ 594,116 $ 501,142 Supplemental disclosure of non-cash investing and financing activities: Property and equipment purchases in accounts payable 35 656 5,397 Right-of-use assets obtained in exchange for operating lease obligation 2,830 1,679 36,638 Purchase of intangible assets in exchange for in-licensing agreement payable - 9,060 - The accompanying notes are an integral part of these consolidated financial statements. F-8 AbCellera Biologics Inc. Notes to Consolidated Financial Statements (Expressed in thousands of U.S. dollars except share and per share data) 1. Nature of operations AbCellera Biologics Inc.’s (the “Company”) mission is to improve health with technologies that transform the way that antibody-based therapies are discovered. The Company aims to become the centralized operating system for next generation antibody discovery. The Company’s full-stack, AI-powered antibody discovery platform searches and analyzes the database of natural immune systems to find antibodies that can be developed as drugs. The Company believes its technology increases the speed and the probability of success of therapeutic antibody discovery, including enabling discovery against targets that may otherwise be intractable. Rather than advancing its own clinical pipeline of drug candidates, the Company forges partnerships with drug developers of all sizes, from large cap pharmaceutical to small biotechnology companies. 2. Basis of presentation These consolidated financial statements are presented in U.S. dollars and have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). All intercompany transactions and balances have been eliminated. All amounts expressed in the consolidated financial statements of the Company and the accompanying notes thereto are expressed in thousands of U.S. dollars, except for share and per share data and where otherwise indicated. References to “$” are to U.S. dollars and references to “C$” and “CAD” are to Canadian dollars. Initial public offering The Company’s registration statement on Form S-1 related to its initial public offering (“IPO”) was declared effective on December 10, 2020, by the SEC, and the Company’s common shares began trading on the Nasdaq on December 11, 2020. Upon close of the IPO, the Company sold 27,772,500 common shares at a price to the public of $ 20.00 per share. The Company received gross proceeds of $ 555.5 million, or aggregate net proceeds of $ 522.8 million, after deducting offering costs, underwriting discounts and commissions. Immediately prior to the completion of the IPO, all convertible preferred stock and notes then outstanding converted into an equivalent number of shares of common shares. On December 4, 2020, the Board of Directors of the Company approved a 1 -for-10 forward stock split of its issued and outstanding common shares and stock options, which was affected on December 4, 2020. All share and per share information in these consolidated financial statements has been retroactively restated to reflect the stock split. 3. Significant accounting policies Principles of Consolidation The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries and variable interest entities (“VIE”) when the Company possesses both (1) the power to direct the economically significant activities of the entity and (2) the obligation to absorb losses of, or the right to receive benefits from, the entity that could potentially be significant to that entity. Intercompany accounts and transactions have been eliminated. In 2021, the Company entered into a participation agreement with a segregated accounts company for purposes of Director and Officer’s insurance. The Company contributed $ 25.0 million to the segregated account, representing the Company’s maximum loss exposure under the participation agreement, for security for a letter of credit issued to a third-party insurer. As the funds cannot be transferred to other parts of the Company, the funds are presented as Restricted Cash. Use of estimates The preparation of the consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Areas of significant estimates include, but are not limited to, revenue recognition including estimated timing of completion of performance obligations and F-9 determining whether an option for additional goods or services represents a material right, the fair value of acquired intangible assets, and contingent consideration payable , and the estimates of stock-based compensation awards. The Company bases its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates when there are changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results could significantly differ from those estimates. COVID-19 Pandemic With the global spread of the ongoing COVID-19 pandemic, the Company has implemented business continuity plans designed to address and mitigate the impact of the COVID-19 pandemic on its employees and its business. The Company has taken measures to secure its research and development activities, while work in its laboratories and facilities has been re-organized to reduce risk of COVID-19 transmission. Given the global economic impact, the overall disruption of global healthcare systems and the other risks and uncertainties associated with the pandemic, the Company’s business, financial condition, and results of operations could be materially adversely affected. The Company continues to closely monitor the COVID-19 pandemic as it evolves its business continuity plans and response strategy. As of the date of these financial statements, the Company is not aware of any specific event or circumstance that would require the Company to update its estimates, assumptions and judgments or revise the carrying value of its assets or liabilities. Actual results could differ from these estimates, and any such differences may be material to the Company’s financial statements. Revenue recognition The Company accounts for revenue from contracts with customers, which includes the identification and assessment of the goods and/or services promised within a contract to evaluate which promises are distinct from each other. The terms of our arrangements generally include the payment of one or more of the following: (i) non-refundable, up-front fixed fees, (ii) fixed fees for ‘discovery’ research support, (iii) fixed technology assignment fees, (iv) fixed payments based on the achievement of specified development and/or commercial milestones, (v) royalties on net sales by the customer of licensed products, and in some cases, (vi) early termination penalties, and (vii) reimbursements for costs incurred to fulfill the contract with the customer at cost or at cost plus an agreed upon mark-up. Promises that are not distinct at contract inception are combined into a single performance obligation. An option to acquire additional goods and/or services is evaluated on both quantitative and qualitative aspects to determine if such an option provides a material right to the customer that it would not have received without entering into the contract. If so, the option is accounted for as a separate performance obligation. If not, the option is considered a marketing offer and is accounted for as a separate contract upon the customer’s election. The transaction price generally includes fixed fees due at contract inception as well as fixed fees payable at the beginning and end of different phases of the discovery research support services performed. Where a fixed fee due at contract inception is an option to obtain additional goods or services and is considered to be a material right, we allocate the transaction price to the optional goods or services we expect to provide to the corresponding consideration we expect to receive. The Company utilizes either the expected value method or the most likely amount method to estimate the amount of variable consideration to include in the transaction price, as most appropriate in the circumstances. With respect to development and commercial milestone payments, at the inception of the arrangement, the Company evaluates whether the associated event is considered probable of achievement and estimate the amount to be included in the transaction price using the most likely amount method. In determining the transaction price the Company constrains the transaction price for variable consideration to limit its inclusion so that it only includes the amount that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. The Company allocates the transaction price to each performance obligation identified in the contract based on relative observable standalone selling prices. Revenue is recognized based on the amount of the transaction price that is allocated to each respective performance obligation when or as the performance obligation is satisfied by transferring a promised good and/or service to the customer. The Company generally uses output methods to measure the progress toward satisfaction of performance obligations that are satisfied over time. Due to different types of end customers and nature of work involved, revenue contracts require formal inspection and approval of experiments and research plans at each stage of work, therefore, the output method is the most faithful depiction of the Company’s performance. Royalty revenue is recognized in the period in which the obligation is satisfied and the corresponding sales by our corporate partners occur. F-10 For the licenses to our intellectual property the Company recognizes revenue from non-refundable, up-front fees when the license is transferred to the customer and the customer is able to use and benefit from the license. Collaborative Arrangements We may enter into collaborative and other similar arrangements with respect to the development and commercialization of potential drug candidates. Collaborative arrangements are contractual agreements with third parties that involve a joint operating activity, typically a research and/or commercialization effort, where both we and our partner are active participants in the activity and are exposed to the significant risks and rewards of the activity. Our rights and obligations under our collaborative arrangements vary and typically involve the partners to jointly perform research and development activities and/or participate together in commercializing, marketing, promoting, manufacturing and/or distributing a drug product. These arrangements typically include milestone as well as royalty or profit-share payments, contingent upon the occurrence of certain future events linked to the success of the asset in development, as well as expense reimbursements from or payments to the collaboration partner . The Company considers the nature and contractual terms of arrangements and assesses whether an arrangement involves a joint operating activity pursuant to which the Company is an active participant and is exposed to significant risks and rewards dependent on the commercial success of the activity as described under ASC 808, Collaborative Arrangements ( ASC 808). For arrangements determined to be within the scope of ASC 808 where a collaborative partner is not a customer for certain research and development activities, the Company accounts for payments received for the reimbursement of research and development costs as a contra-expense in the period such expenses are incurred. If payments from the collaborative partner to the Company represent consideration from a customer in exchange for distinct goods and services provided, then the Company accounts for those payments within the scope of ASC 606. The Company applied ASC 606 to all arrangements to date. Segmented and Enterprise-wide information The Company manages its operations as a single operating segment for the purposes of assessing performance and making operating decisions. The Company’s focus is on the discovery and development of antibodies. The Company’s revenues from external customers in which the services originated were in Canada in 2019 and 2020. In 2021, $ 353.4 million and $ 21.8 million of revenues originated from services in Canada and the U.S., respectively. Of the Company’s long-term assets at December 31, 2020, $ 133.7 million was in the U.S. and $ 58.5 million was in Canada. Of the Company’s long-term assets at December 31, 2021, $ 200.3 million was in the US, $ 159.5 million in Canada, and $ 28.9 million in other foreign countries. Government grants and credits Government grants are recognized when there is reasonable assurance that the grant will be received, and all associated conditions will be complied with. Reimbursements of eligible expenditures pursuant to government assistance programs are recorded when the related costs have been incurred and there is reasonable assurance regarding collection of the claim. The Company recognizes the benefits of refundable government investment tax credits for scientific research and development expenditures in the year the qualifying expenditure is made providing there is reasonable assurance of recoverability. The Company records the investment tax credits based on its estimates of amounts expected to be recovered. Government grants and credits received for expenditures on eligible research, development and capital expenditures are recognized ratably over the benefit period of the related expenditure for which the grants are intended to compensate in other income. Grant claims not settled by the balance sheet date are recorded as receivables provided their receipt is probable. The determination of the amount of the claim and the corresponding receivable amount requires management judgement and interpretation of eligible expenditures in accordance with the terms of the programs. The reimbursement claims submitted by the Company are subject to review by the relevant government agencies. The Company has used its best judgement and understanding of the related program agreements in determining the receivable amount. F-11 Functional currency The reporting currency of the Company and its subsidiaries is the U.S. dollar. The functional currency of the Company and its subsidiaries is the U.S. dollar, and for the Dayhu JV and Beedie JV, is the Canadian Dollar. Transactions in foreign currencies are translated to the functional currency at exchange rates at the date of the transactions. Period end balances of monetary assets and liabilities in foreign currencies are translated to the functional currency using the period end foreign currency rates. Foreign currency gains and losses are recognized in the consolidated statements of income (loss). The functional currency of the Dayhu JV and Beedie JV is Canadian dollars and are translated into US dollars using the period-end exchange rate for assets and liabilities and the average exchange rates during the period for revenues, expenses, gains and losses. Foreign exchange gains or losses arising from the translation of these joint ventures’ assets and liabilities are included in “Other comprehensive income”. Cash and cash equivalents and restricted cash Cash and cash equivalents are defined as cash on hand and deposits held with banks with maturity dates of less than three months. Cash and cash equivalents that are restricted as to withdrawal or usage, in accordance with specific commercial arrangements, are presented as restricted cash on the consolidated balance sheet. At December 31, 2020 we had $ 593.7 million cash, $ 0.4 million cash equivalents, and $ nil restricted cash. At December 31, 2021 we had $ 100.5 million cash, $ 375.6 million cash equivalents and $ 25.0 million restricted cash. Marketable Securities The Company’s marketable securities consist of U.S. government agency securities, certificates of deposit, commercial paper, non-U.S. government agency securities, and asset-backed securities. The Company has classified and accounted for these marketable securities as held-for-trading and they are reported at fair value with unrealized gains and losses reported as other (income) expense on the consolidated statement of income (loss) and comprehensive income (loss). Accounts receivable The Company has trade receivables which are recorded at the invoiced amount and do not bear interest. The Company evaluates the collectability of accounts receivable on a regular basis based on economic assessment of market conditions and review of customer financial history. There was no allowance for doubtful accounts recorded as of December 31, 2020 and 2021. Property and equipment Property and equipment are recorded at cost less accumulated depreciation. Expenditures for major additions and improvements to property and equipment are capitalized and repairs and maintenance costs are expensed as incurred. Excluding land and assets not yet placed into service, p roperty and equipment are amortized using the straight-line method over the estimated useful lives of the property and equipment as follows: Asset Rate Computer equipment 3 years Laboratory equipment 5 years Office furniture and equipment 5 years Leasehold improvements Shorter of lease term or estimated useful life Estimated useful lives are periodically assessed to determine if changes are appropriate. When assets are retired or otherwise disposed of, the cost of these assets and related accumulated depreciation or amortization are removed from the accounts and any resulting gains or losses are included in loss from operations in the period of disposal. Costs for capital assets not yet placed into service are capitalized as construction-in-progress and depreciated once placed into service. Intangible assets Costs incurred to acquire patents and to prosecute and maintain intellectual property rights are expensed as incurred to general and administrative expense due to the uncertainty surrounding the drug development process and the uncertainty of future benefits. F-12 Patents, and intellectual property acquired from third parties are capitalized and amortized over the remaining life of the patent, if related to approved products or if there are alternative future uses for the underlying technology. No patent or intellectual property costs have been capitalized to date. In process research and development (IPR&D) will be amortized on completion of IPR&D activities. Acquired IPR&D represent the fair value assigned to research and development assets that have not reached technological feasibility. IPR&D is classified as an indefinite-lived intangible asset and is not amortized. All research and development costs incurred subsequent to the acquisition of IPR&D are expensed as incurred. Definite lived intangible assets are amortized using the straight-line method over the estimated useful lives of the assets as follows: Asset Useful Life License 3 - 10 years Technology 20 years Impairment of long-lived assets The Company assesses the recoverability of its long-lived assets, including property and equipment and intangible assets subject to amortization, for indicators of impairment on each reporting date. If events or changes in circumstances indicate impairment, the Company measures recoverability by a comparison of the asset’s carrying amount to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of the asset exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the asset. When quoted market prices are not available, the Company uses the expected future cash flows discounted at a rate commensurate with the risks associated with the recovery of the asset as an estimate of fair value. No indicators of impairment were identified at the respective balance sheet dates. Indefinite-lived intangible assets are tested annually for impairment as of October 1, and between annual tests if indicators of potential impairment exist. The Company has the option of performing a qualitative assessment to first determine whether the quantitative impairment test is necessary. This involves an assessment of qualitative factors to determine the existence of events or circumstances that would indicate whether it is more likely than not that the carrying amount of the indefinite-lived intangible asset is less than its fair value. If the qualitative assessment indicates it is not more likely than not that the carrying amount is less than its fair value, a quantitative impairment test is not required. Where a quantitative impairment test is required, the procedure is to compare the indefinite-lived intangible asset’s fair value with its carrying amount. An impairment loss is recognized as the difference between the indefinite-lived intangible asset’s carrying amount and its fair value. Based on our qualitative assessment, the Company determined there were no potential indicators of impairment of our indefinite-lived intangible assets. Leases The Company determines if an arrangement is a lease at its inception. After determination of lease arrangement, the Company identifies whether the lease arrangement consists of any non-lease component. The company account for lease components (e.g., rental payments) separately from non-lease components (e.g., common area maintenance costs). Lease component is considered in operating leases, whereas non-lease component is accounted for separately in profit and loss. Such non-lease component is accounted for ratably over a straight-line basis over the duration of lease period. Operating leases are included in operating lease right-of-use assets, accrued liabilities, and long-term operating lease liabilities in our consolidated balance sheet. Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease liabilities and right-of-use assets are recognized at commencement date based on the present value of lease payments over the lease term. The Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments if an explicit rate is not available. Rent expense, included as part of general and administrative expense, for lease payments is recognized on a straight-line basis over the lease term. The operating lease right-of-use assets also includes any rent prepayments, lease incentives upon receipt, and straight-line rent expense impacts, which represent the differences between its operating lease liabilities and right-of-use assets. The initial recognition of the lease obligation and right-of-use asset excludes leases that have a remaining lease term of 12 months or less on the date of acquisition . For the years ended December 31, 2020 and December 31, 2021, all of our leases are classified as operating leases. Research and development costs Research and development costs are expensed in the period incurred. These costs related to spending for partner projects in addition to internal platform development programs and include required materials, salaries and benefits including stock-based compensation, and service contracts. These costs exclude depreciation and amortization. F-13 Royalty fees Royalty fees consist of certain contractual royalty payments to our strategic partners upon receipt of royalty revenue based on our customers third-party net sales. Royalty fees are recorded when the third-party sale occurs. Income taxes The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets (“DTAs”) and deferred tax liabilities (“DTLs”) for the expected future tax consequences of events that have been included in the financial statements. Under this method, DTAs and DTLs are determined on the basis of the differences between the financial statement and tax bases of assets and liabilities by 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 DTAs and DTLs is recognized in income in the period that includes the enactment date. A valuation allowance against deferred tax assets is recorded if, based on the weight of the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The Company recognizes uncertain tax positions in accordance with Accounting Standards Codification (“ASC”) 740 on the basis of a two-step process in which (1) the Company 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 (2) for those tax positions that meet the more-likely-than-not recognition threshold, they are measured as the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. Income tax credit (“ITC”) policy The Company earns income tax credits (ITCs) in jurisdictions in which it incurs eligible research and development expenditures. The Company uses the flow-through method to account for ITCs. Under this method, the ITCs subject to income tax accounting are recognized as a reduction to income tax expense in the year they are earned. Stock-based compensation The Company accounts for awards of stock options and shares to directors, employees, consultants, and non-employees using the fair value method. Under this method, stock-based compensation expense is measured at the fair value at the date of grant and is expensed over the award’s vesting period. The requisite service period generally equals the vesting period of the awards. Equity classified awards are measured using their grant date fair value. Liability classified awards are initially measured using their grant date fair value and are subsequently re-measured to fair value at each balance sheet date until exercised or cancelled, with changes in fair value recognized as compensation cost for the period. For equity classified awards, a corresponding increase in additional paid-in capital is recorded when stock-based compensation is recognized. When stock options are exercised, share capital is credited by the sum of the consideration received and the related portion of the stock-based compensation previously recorded in additional paid-in capital. The effects of forfeitures of options and share awards are accounted for as they occur. Awards with an exercise price which is not denominated in: (a) the currency of a market in which a substantial portion of the Company’s equity securities traded, (b) the currency in which the individual’s pay is denominated, or (c) the Company’s functional currency, are classified as liabilities. Business combinations and goodwill Business combinations are accounted for using the acquisition method. The fair value of total purchase consideration is allocated to the fair values of identifiable tangible and intangible assets acquired and liabilities assumed, with the remaining amount being classified as goodwill. All assets, liabilities and contingent liabilities acquired or assumed in a business combination are recorded at their fair values at the date of acquisition. If the Company’s interest in the fair value of the acquiree’s net identifiable assets exceeds the cost of the acquisition, the excess is recognized in earnings or loss immediately. Transaction costs that are incurred in connection with a business combination, other than costs associated with the issuance of debt or equity securities, are expensed as incurred. F-14 Goodwill is evaluated for impairment on an annual basis as of October 1, or more frequently if an indicator of impairment is present. As part of the impairment evaluation, the Company may elect to perform an assessment of qualitative factors. If this qualitative assessment indicates that it is more likely than not that the fair value of the reporting unit that includes the goodwill is less than its carrying value, then a quantitative impairment test would be prepared to compare this fair value to the carrying value and record an impairment charge if the carrying value exceeds the fair value. At October 1, 2021, the Company performed a qualitative assessment for its annual impairment test of goodwill after concluding that it was not more likely than not that the fair value of the reporting unit was less than its carrying value. Consequently, the quantitative impairment test was not required. The Company concluded that there were no impairment indicators related to goodwill during the remainder of 2021. Equity method investments The Company accounts for its investments in equity-accounted joint ventures using the equity method. Under the equity method, the initial cost of the investment is adjusted for subsequent additional investments and the Company’s proportionate share of earnings or losses and distributions. The Company does not control the equity-accounted investments and as a result, the Company does not have the unilateral ability to determine whether cash generated by its equity-accounted investees is retained within the equity-investee or is distributed to the Company and other owners. In addition, equity-accounted investees do not control the timing of such distributions to the Company and other owners. The Company evaluates its investments in joint ventures for impairment when events or circumstances indicate that the carrying value of such investments may have experienced an other-than-temporary decline in value below carrying value. If the estimated fair value is less than the carrying value, the carrying value is written down to its estimated fair value and the resulting impairment is recorded in the Company’s consolidated statements of income (loss). Net earnings (loss) per share The Company follows the two-class method when computing net earnings (loss) per share as the Company has issued shares that meet the definition of participating securities. The two-class method determines net earnings (loss) per share for each class of common and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings. The two-class method requires income available to common shareholders for the period to be allocated between common and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed. Basic net earnings (loss) per share attributable to common shareholders is computed by dividing the net income (loss) attributable to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted net earnings (loss) attributable to common shareholders is computed by adjusting net income (loss) attributable to common shareholders to reallocate undistributed earnings based on the potential impact of dilutive securities. Diluted net earnings (loss) per share attributable to common shareholders is computed by dividing the diluted net income (loss) attributable to common shareholders by the weighted-average number of common shares outstanding for the period, including potential dilutive common shares. For purpose of this calculation, outstanding stock options and convertible preferred shares and notes are considered potential dilutive common shares. The Company’s convertible preferred shares, all of which converted prior to the completion of our IPO in 2020, contractually entitle the holders of such shares to participate in dividends but do not contractually require the holders of such shares to participate in losses of the Company. Accordingly, in periods in which the Company reports a net loss attributable to common shareholders, such losses are not allocated to such participating securities. In periods in which the Company reported a net loss attributable to common shareholders, diluted net loss per share attributable to common shareholders is the same as basic net loss per share attributable to common shareholders, since dilutive common shares are not assumed to have been issued if their effect is anti-dilutive. 4. Changes in significant accounting policies Recent accounting pronouncements adopted There was no adoption of any new accounting standards that had a significant impact on the consolidated financial statements. Recent accounting pronouncements not yet adopted The Company has reviewed recent accounting pronouncements and concluded that they are either not applicable to the Company or that no material impact is expected in the consolidated financial statements as a result of future adoption. F-15 5. Net earnings (loss) per share Basic and diluted net earnings (loss) per share attributable to common shareholders was calculated as follows: Year Ended December 31, 2019 2020 2021 Basic earnings (loss) per share Net earnings (loss) $ ( 2,211 ) $ 118,918 $ 153,464 Less: earnings allocated to Preferred Shareholders ( 1) - ( 33,817 ) - Net earnings (loss) attributable to common shareholders - basic $ ( 2,211 ) $ 85,101 $ 153,464 Weighted-average common shares outstanding - basic 151,327,560 159,195,023 275,763,745 Net earnings (loss) per share attributable to common shareholders - basic $ ( 0.01 ) $ 0.53 $ 0.56 Diluted earnings (loss) per share Net earnings (loss) attributable to common shareholders - diluted $ ( 2,211 ) $ 118,918 $ 153,464 Weighted-average common shares outstanding - basic 151,327,560 159,195,023 275,763,745 Convertible Preferred Shares - 63,260,090 - Stock options and RSUs - 40,674,652 42,530,491 Weighted-average common shares outstanding - diluted 151,327,560 263,129,765 318,294,236 Net earnings (loss) per share attributable to common shareholders - diluted $ ( 0.01 ) $ 0.45 $ 0.48 1 The Company’s preferred shares were all converted prior to the IPO in 2020. The Company excluded the following potential common shares, presented based on amounts outstanding at each period end, from the computation of diluted net earnings (loss) per share attributable to common shareholders for the periods indicated because including them would have had an anti-dilutive effect: Year Ended December 31, 2019 2020 2021 Options to purchase common shares and RSUs 37,359,000 - 908,409 Convertible preferred shares 21,052,640 - - Total potential common shares excluded 58,411,640 - 908,409 6. Other assets Other current assets consisted of the following: December 31, 2020 2021 Taxes receivable $ 489 $ 14,282 Prepaid expenses and other 4,073 5,293 Materials and supplies 1,408 1,672 Total other current assets $ 5,970 $ 21,247 Other long-term assets consisted of the following: December 31, 2020 2021 Investments - other $ 780 $ 6,764 Prepaid expenses 675 2,875 Security deposit 1,035 13,595 Deferred tax asset 5,898 7,408 Total other long-term assets $ 8,388 $ 30,642 F-16 7. Property and equipment, net Property and equipment, net consisted of the following: December 31, 2020 2021 Computers $ 6,324 $ 7,843 Land - 33,044 Laboratory equipment 9,542 18,805 Leasehold improvements 3,708 23,962 Operating lease right-of-use assets 3,935 37,788 Property and equipment 23,509 121,442 Less accumulated depreciation ( 5,586 ) ( 9,826 ) Property and equipment, net $ 17,923 $ 111,616 At December 31, 2020 and December 31, 2021, leasehold improvements include tenant improvements in progress that have not commenced depreciation in the amount of $nil and $ 19.8 million, respectively. Depreciation expense on property and equipment for the years ended December 31, 2019, 2020 and 2021 was $ 1.6 million, $ 2.3 million and $ 4.4 million, respectively. 8. Intangible assets and goodwill Intangible Assets Intangible assets consisted of the following: December 31, 2020 Gross carrying amount Accumulated amortization Net book value License $ 35,873 $ 2,191 $ 33,682 Technology 41,400 329 41,071 IPR&D 40,400 - 40,400 $ 117,673 $ 2,520 $ 115,153 December 31, 2021 Gross carrying amount Accumulated amortization Net book value License $ 35,873 $ 9,994 $ 25,879 Technology 52,700 2,587 50,113 IPR&D 72,400 - 72,400 $ 160,973 $ 12,581 $ 148,392 There was no balance of intangible assets, or related amortization expense, for the year ended 2019. Amortization expense related to intangible assets was $ 2.5 million and $ 10.1 million for the years ended December 31, 2020 and 2021, respectfully, and is reflected within Depreciation and amortization expense on the consolidated statement of income (loss) and comprehensive income (loss). At December 31, 2021, amortization expense on intangible assets is estimated to be as follows for each of the next five years: Amortization Expense 2022 $ 10,425 2023 10,425 2024 5,610 2025 4,041 2026 4,041 $ 34,542 F-17 In March 2020, the Company entered into an agreement with Alloy Therapeutics (Alloy) to use the ATX-Gx™ humanized mice platform to enable in vivo human antibody discovery for its partner programs. Under the terms of the agreement, the Company will offer its biotech and pharma partners access to ATX-Gx™, Alloy’s proprietary suite of immunocompetent transgenic mice, for use in any antibody discovery program and against any therapeutic target. The agreement provides for future alternative use to the Company and as such the corresponding value has been recorded as an intangible asset. The asset will be amortized on a straight-line basis over the 10 -year term of the license agreement with Alloy. The acquisition of $ 14.1 million consists of an initial cash payment of $ 5.0 million, with two additional $ 5.0 million installment payments paid in twelve and twenty-four months , respectively. The estimated fair value of the non-current portion of the financial obligation was determined by discounting future principal and interest amounts at estimated interest rates expected to be available to the Company with an interest rate of 10.98 %. Amortization expense is reflected within Depreciation and amortization expense on the consolidated statement of income (loss). Goodwill Goodwill consisted of the following: Net carry amount Balance at December 31, 2019 $ - Additions 31,500 Balance at December 31, 2020 1 $ 31,500 Additions 16,306 Balance at December 31, 2021 1 $ 47,806 1 Accumulated impairment as at December 31, 2020 and 2021 was $nil. 9. Investments in and loans to equity accounted investees The Company has entered into two joint ventures as part of the construction of future office and laboratory headquarters. During 2020, the Company entered into a joint venture with Dayhu (Dayhu JV). At December 31, 2021, the equity investment balance of $ 19.6 million represents the contributions made since inception. In March, 2021, the Company entered into the Beedie joint venture (Beedie JV). To date the equity investment balance of $ 12.7 million represents contributions made since inception into the Beedie JV. To date, the Company has recorded immaterial amounts of proportionate income or loss with respect to either venture. In March, 2021, th e Company made a commitment of up to CAD $ 82.7 million ($ 61.5 million) to the Dayhu JV to fund the construction at a rate referenced to an applicable Canadian bank prime rate plus 0.6 %, and repayment on the earlier of thirty months from the date of initial advancement and September 1, 2023 , or upon the trigger of certain liquidity events as defined in the agreement. The loan is secured by the underlying land and future assets of the joint venture. At December 31, 2021, the outstanding related party loan balance was $ 18.0 million to the joint venture. 10. Accounts payable and other liabilities Accounts payable and other liabilities consisted of the following: December 31, 2020 2021 Accounts payable and accrued liabilities $ 7,320 $ 14,924 Liability for in-licensing agreement 5,000 4,933 Operating lease liability 675 3,652 Liability classified options 4,270 - Payroll liabilities 1,988 4,035 Current portion of deferred grant funding 942 4,473 Total accounts payable and other liabilities $ 20,195 $ 32,017 F-18 11. Other long term liabilities OrbiMed Debt Facility In March 2020, the Company entered into a senior secured credit agreement (the “Credit Agreement”) with OrbiMed Royalty & Credit Opportunities III, LP (“OrbiMed”), which provided for term debt in an aggregate amount of $ 30.0 million, which matures on March 23, 2025 (a 5 year term). As of June 30, 2020, the Company had $ 15.0 million of borrowings outstanding under the Credit Agreement. Borrowings under the Credit Agreement bear interest at a rate per annum equal to an applicable margin of 6.00 % plus the higher of (a) the London Inter-bank Offered Rate (LIBOR) for the applicable interest period and (b) 1.75 %. In July 2020, the outstanding loan was repaid in full, the Credit Agreement retired, and all associated security with the Credit Agreement was released. The Company incurred approximately $ 3.7 million in combined cancellation fees and legal fees on early retirement of the Credit Agreement which has been classified in interest and other (income) expense on the consolidated statements of income (loss) and comprehensive income (loss). The Company was in compliance with all covenants under the Credit Agreement up to the date of retirement. 12. Shareholders’ Equity Common Shares As of December 31, 2020 and 2021, the Company’s articles of the corporation, as amended and restated, authorized the Company to issue unlimited voting common shares, each with no par value per share. The voting, dividend, and liquidation rights of the holders of the Company’s common shares are subject to and qualified by the rights, powers and preferences of the holders of the Series A preferred shares set forth below. As of each balance sheet date, common shares consisted of the following: December 31, 2020 December 31, 2021 Shares authorized Shares issued and outstanding Shares authorized Shares issued and outstanding Common shares Unlimited 269,497,768 Unlimited 283,257,104 Each voting common share entitles the holder to one vote on all matters submitted to a vote of the Company’s shareholders. Common shareholders are entitled to receive dividends, if any, as may be declared by the board of directors, subject to the preferential dividend rights of the preferred shares. Through December 31, 2021, no cash dividends had been declared or paid by the Company. Series A1 Preferred shares On August 3, 2018, the Company entered into an investment agreement with DCVC Bio, L.P. for gross proceeds of CAD $ 10.0 million ($ 7.7 million) in exchange for 2,105,264 shares. Total proceeds received net of financing costs were $ 7.6 million. The Series A1 preferred shares are voting and are convertible, at any time and from time to time at the option of its holder, into fully paid and non-assessable common shares at a 1:10 ratio, subject to appropriate adjustment for splits, dividends, other similar recapitalization and the like. Conversion of preferred shares to common shares is mandatory in the event of a Qualified Initial Public Offering with proceeds of at least $ 70.0 million. The holders of the Series A1 preferred shares are entitled to vote, together with the holders of common shares, as a single class, on all matters submitted to the shareholders for a vote and are entitled to the number of votes equal to the number of common shares into which the Series A1 preferred shares could convert on the record date for determination of shareholders entitled to vote. The holders of the Series A1 preferred shares are entitled to receive noncumulative dividends, as and if declared by the board of directors (the “Preferred Dividend”). The Company may not pay any dividends on common shares of the Company unless the holders of Preferred Shares then outstanding first receive, or simultaneously receive, the Preferred Dividend on each outstanding Series A1 preferred share and a dividend on each outstanding Series A1 preferred share in an amount at least equal to the product of the dividend F-19 payable on each share of such class or series determined, if applicable, as if all shares of such class or series had been converted into common shares. To the date of conversion , no cash dividends had been declared or paid by the Company. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company or Deemed Liquidation Event, the holders of Series A1 Preferred Shares then outstanding are entitled to a 1x non-participating liquidation preference. Due to the various rights and privileges within the existing Series A1 Preferred and Common shareholder agreements, the Company concluded triggering a deemed liquidation event is within the control of the Company, and therefore the Series A1 Preferred Shares are classified as permanent equity. Series A2 preferred shares On March 23, 2020, the Company entered into an investment agreement with certain shareholders for gross proceeds of $ 75.0 million in exchange for 6,017,784 shares. Total proceeds received net of financing costs were $ 74.7 million. The Series A2 preferred shares are voting and are convertible, at any time and from time to time at the option of its holder, into fully paid and non-assessable common shares at a 1:10 ratio, subject to appropriate adjustment for splits, dividends, other similar recapitalization and the like. Conversion of preferred shares to common shares is mandatory in the event of a Qualified Initial Public Offering with proceeds of at least $ 70.0 million. The holders of the Series A2 preferred shares are entitled to vote, together with the holders of common shares, as a single class, on all matters submitted to the shareholders for a vote and are entitled to the number of votes equal to the number of common shares into which the Series A2 preferred shares could convert on the record date for determination of shareholders entitled to vote. The holders of the Series A2 preferred shares are entitled to receive noncumulative dividends, as and if declared by the board of directors (the “Preferred Dividend”). The Company may not pay any dividends on common shares of the Company unless the holders of Preferred Shares then outstanding first receive, or simultaneously receive, the Preferred Dividend on each outstanding Series A2 preferred share and a dividend on each outstanding Series A2 preferred share in an amount at least equal to the product of the dividend payable on each share of such class or series determined, if applicable, as if all shares of such class or series had been converted into common shares. To the date of conversion, no cash dividends had been declared or paid by the Company. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company or Deemed Liquidation Event, the holders of Series A2 Preferred Shares then outstanding are entitled to a 1x non-participating liquidation preference. In addition, holders of the Series A2 Preferred Shares are eligible to demand redemption of their shares in the event of certain deemed liquidation events, as defined the agreement. Due to the various rights and privileges within the existing Series A2 Preferred and Common shareholder agreements, the Company concluded triggering a deemed liquidation event is within the control of the Company, and therefore the Series A2 Preferred Shares are classified as permanent equity. Immediately prior to the completion of our IPO, all Series A1 and A2 Preferred shares converted to an equal number of common shares. Stock-based compensation Sixth Amended and Restated Stock Option Plan: We maintain the AbCellera Biologics Inc. Sixth Amended and Restated Stock Option Plan, our Pre-IPO Plan, which was most recently approved by our board of directors on November 18, 2020. The Pre-IPO Plan allows for the grant of options (and for U.S. participants, either incentive stock options and/or nonstatutory stock options) to employees, directors, and consultants, subject in each case to compliance with applicable tax laws. Our 2020 Plan became effective on the date immediately prior to the date on which our initial S-1 registration statement was declared effective by the SEC on December 10, 2020. As a result, we do not expect to grant any additional awards under the Pre-IPO Plan following that date. Any awards granted under the Pre-IPO Plan will remain subject to the terms of our Pre-IPO Plan and applicable award agreements. Options were granted under the Company’s Pre-IPO Plan in Canadian dollars and were converted to U.S dollars for administrative convenience in 2021. F-20 In March 2021, substantially all employee option holders whose awards were liability-classified elected to convert the currency of their option exercise price from Canadian dollars to U.S. dollars for administrative convenience. As a result of the modification, $ 5.7 million was reclassified from liability to equity. 2020 Share Option and Incentive Plan: Our 2020 Share option and Incentive Plan, or 2020 Plan, was approved by our board of directors on November 18, 2020 and approved by our shareholders on December 1, 2020, and became effective on the date immediately prior to the date on which our initial S-1 registration statement was declared effective by the SEC on December 10, 2020. The 2020 Plan replaced our Pre-IPO Plan, as our board of directors will not make additional awards under the Pre-IPO Plan following our IPO. The shares we issue under the 2020 Plan will be authorized but unissued shares or shares that we reacquire. The common shares underlying any awards that are forfeited, cancelled, held back upon exercise or settlement of an award to satisfy the exercise price or tax withholding, reacquired by us prior to vesting, satisfied without any issuance of shares, expire or are otherwise terminated (other than by exercise) under the 2020 Plan and the Pre-IPO Plan will be added back to the common shares available for issuance under the 2020 Plan. The maximum aggregate number of common shares that may be issued as incentive share options may not exceed the Initial Limit cumulatively increased on January 1, 2022, and on each January 1 thereafter by the lesser of (i) the Annual Increase for such year or (ii) 21,280,000 common shares. As of December 31, 2021, the number of shares available for issuance under the 2020 Plan was 15,154,407 , which includes awards granted and outstanding under the Pre-IPO Plan that are forfeited after December 10, 2020. Restricted Share Units During the year ended December 31, 2021, the Company granted Restricted Share Units (RSUs) to certain employees that vest over a period of four years , in the amount of one-quarter each year on the anniversary of the grant date. RSUs are equity-settled on each vesting date, subject to the grantee’s continued employment with the Company on the vesting date. The fair value of RSUs granted was calculated by using the Company’s closing stock price on the grant date. The following table summarizes the Company’s stock options granted under the Pre-IPO Plan: Number of Shares Weighted- Average Exercise Price 1 Weighted- Average Contractual Term (years) Outstanding as of December 31, 2020 53,204,810 $ 0.71 7.67 Granted - - Exercised ( 13,759,336 ) 0.29 Forfeited ( 239,167 ) 0.54 Outstanding as of December 31, 2021 39,206,307 $ 0.86 7.02 Options exercisable as of December 31, 2021 19,063,249 $ 0.54 6.04 1 Pre-IPO plan options were historically granted in CAD. In 2021, all Pre-IPO employee option holders converted the currency of their option exercise price from Canadian dollars to U.S. dollars for administrative convenience. The following table summarizes the Company’s stock options granted under the 2020 Plan: Number of Shares Weighted- Average Exercise Price Weighted- Average Remaining Contractual Term (years) Outstanding as of December 31, 2020 1,260,840 $ 20.00 9.95 Granted 4,063,703 18.98 Exercised - - Forfeited ( 40,196 ) 23.12 Outstanding as of December 31, 2021 5,284,347 $ 19.19 9.56 Options exercisable as of December 31, 2021 302,510 $ 20.00 8.94 F-21 The weighted average grant date fair value per share of options granted during 2019, 2020, and 2021 was $ 0.26 , $ 3.95 and $ 12.31 , respectively. The intrinsic value of options exercised during 2019, 2020, and 2021 was $nil, $ 6.8 million and $ 295.6 million, respectively. As of December 31, 2021, there was $ 100.3 million of unrecognized compensation cost related to unvested stock options granted under the Plans, which is expected to be recognized over a weighted average period of 1.84 years. The following table summarizes the Company’s RSUs granted under the 2020 Plan: Number of Shares Weighted- Average Grant Date Fair Value Outstanding as of December 31, 2020 - $ - Granted 1,093,517 23.65 Vested and settled - - Forfeited ( 13,104 ) 26.15 Outstanding as of December 31, 2021 1,080,413 $ 23.62 As of December 31, 2021, there was $ 22.0 million of unamortized RSU expense that will be recognized over a weighted average period of 3.65 years. Stock-based compensation expense was classified in the consolidated statements of income (loss) and comprehensive income (loss) as follows: Year ended December 31, 2019 2020 2021 Research and development expenses $ 606 $ 5,365 $ 15,663 Sales and marketing expenses 85 1,691 2,120 General and administrative expenses 199 1,341 12,863 $ 890 $ 8,397 $ 30,646 The fair value of each option award is determined on the date of grant using the Black-Scholes option pricing model. The weighted-average valuation assumptions for stock options granted in the period are as follows: Year ended December 31, 2019 2020 2021 Average risk-free interest rate 1 1.60 % 0.64 % 1.23 % Expected volatility 2 100 % 79 % 72 % Average expected term (years) 3 6.25 6.11 6.21 Expected dividend yield 4 0.00 % 0.00 % 0.00 % Weighted average fair value of options granted 5 $ 0.34 $ 5.60 $ 12.31 The weighted-average valuation assumptions for liability classified stock options outstanding at December 31, 2021 are as follows: Year ended December 31, 2019 2020 2021 Average risk-free interest rate 1 - 0.46 % - Expected volatility 2 - 75 % - Average expected term (years) 3 - 6.25 - Expected dividend yield 4 - 0.00 % - Weighted average fair value of options granted 5 - $ 37.44 - (1) This rate is from federal government marketable bonds for each option grant during the year, having a term that most closely resembles the expected life of the option. F-22 (2) Volatility is a measure of the amount by which a financial variable such as a share price has fluctuated (historical volatility) or is expected to fluctuate (expected volatility) during a period. As the Company does not yet have sufficient history of its own volatility, the Company has identified several public entities of similar complexity and stage of development and calculates historical volatility using the volatility of these companies. (3) This is the period of time that the options granted are expected to remain unexercised. Options granted have a maximum term of ten years . The Company uses the simplified method to calculate the average expected term, which represents the average of the vesting period and the contractual term. (4) No dividends have been paid by the Company yet. (5) The Company granted stock options at exercise prices not less than the fair value of its common shares as determined by the Board, with input from management. Management estimated the fair value of its common shares based on a number of objective and subjective factors, including internal valuations, external market considerations affecting the biotechnology industry and the historic prices at which the Company sold common shares. At December 31, 2020, there were 1,012,000 liability classified options outstanding, of which $ 4.3 million was included in other liabilities. At December 31, 2021 there were no liability classified options outstanding. 13. Revenue The disaggregated revenue categories are presented on the face of the statements of income (loss) and comprehensive income (loss). Deferred Revenue Deferred revenue represents payments received for performance obligations not yet satisfied and are presented as current or long-term in the accompanying balance sheets based on the expected timing of satisfaction of the underlying goods and/or services. Deferred revenue outstanding at each respective period is as follows: December 31, 2020 2021 Deferred revenue ( 26,321 ) ( 34,954 ) During the years ended December 31, 2019, 2020 and 2021, the Company recognized $ 2.1 million, $ 3.0 million and $ 4.7 million, respectively, of revenue that had been included in deferred revenue in the previous year. In March of 2020, the Company entered into a research collaboration and license agreement with Eli Lilly pursuant to which the Company will perform discovery research for several targets for Eli Lilly to develop and commercialize. Under the agreement, the Company is entitled to receive an aggregate of up to $ 29.0 million of milestone payments as well as royalties in the low single digits based on net sales for non-COVID-19 targets and in the low- to mid-teens for aggregate sales below $ 125.0 million and mid-teens to mid-twenties on aggregate sales above $ 125.0 million. The agreement resulted in an initial upfront payment of $ 26.7 million, of which $ 21.9 million was included in deferred revenue at December 31, 2020. For the year ended December 31, 2021, the Company received an additional $ 1.7 million in payments, for total payments received in respect of this agreement of $ 28.4 million. The Company recognized $ 3.2 million of revenue in the year ended December 31, 2021. The Company expects to recognize approximately $ 4.9 million in revenue in the next 12 months related to these payments under the agreement. Of the remaining deferred revenue balance of $ 14.5 million, which is related to various other agreements, approximately $ 2.7 million is expected to be recognized in revenue in the next 12 months. License Revenue For the years ended December 31, 2020 and December 31, 2021, the Company recognized $nil and $ 20.8 million, respectively, from license revenue relating to license of the Trianni platform. F-23 14. Government Funding In 2020 the Company received a funding commitment from the Government of Canada under Innovation, Science and Economic Development’s (ISED) Strategic Innovation Fund (SIF) for a total of CAD $ 175.6 million ($ 125.6 million) which is intended to support research and development efforts related to the discovery of antibodies for use drugs to treat COVID-19, and to build technology and manufacturing infrastructure for antibody therapies against future pandemic threats. Since inception, the Company incurred $ 59.5 million in expenditures in respect of the SIF grant funding. $ 37.9 million relates to spending under phase 1 of the agreement and such amounts are not repayable, and $ 21.6 million was claimed in respect of phase 2 of the funding commitment. Repayment on phase 2 of the funding is conditional on achieving certain revenue thresholds over a specified period of time as prescribed in the agreement. The funding and its associated conditional repayment is not and will not be secured by any of the Company’s assets, and includes certain non-financial covenants and restrictive covenants on dividend payments or other shareholder distributions that would prevent the Company in satisfying its obligations under the arrangement. As of December 31, 2021, no amounts have been accrued related to the repayment terms as the conditions are estimated to be non-probable at December 31, 2021. For the year ended December 31, 2021, the Company incurred $ 47.1 million in expenditures in respect of the SIF grant funding. Of the total spend during the year, $ 13.8 million relates to research and development expenditures and is reflected in other income on the consolidated statements of income (loss) and comprehensive income (loss). The remaining $ 33.3 million is attributable to capital asset expenditures and is amortized into other income over the average asset life of five years . Unamortized amounts are included in other liabilities and other long-term liabilities on the consolidated balance sheets. The balance of SIF grant funding included in the balance of accounts and accrued receivable is $ 12.9 million and $ 14.8 million at December 31, 2020 and 2021, respectively. 15. Income taxes a. For financial reporting purposes, income before income taxes includes the following components: December 31, 2019 2020 2021 Canadian $ ( 2,015 ) $ 163,077 $ 211,471 Foreign ( 196 ) ( 5,244 ) 7,678 Total $ ( 2,211 ) $ 157,833 $ 219,149 The expense (benefit) for income taxes consists of: December 31, 2019 2020 2021 Current Canadian $ - $ 36,931 $ 60,498 Foreign - ( 114 ) 7,248 - 36,817 67,746 Deferred and other: Canadian - 2,461 ( 1,342 ) Foreign - ( 363 ) ( 719 ) - 2,098 ( 2,061 ) Income tax expense $ - $ 38,915 $ 65,685 December 31, 2019 2020 2021 Current tax expense $ - $ 36,817 $ 67,746 Deferred tax expense (benefit) - 2,098 ( 2,061 ) Total tax expense $ - $ 38,915 $ 65,685 F-24 b. The consolidated effective income tax rate differs from the expected Canadian statutory tax rate of 27% (2019, 2020, 2021: 27%). Reconciliation between the expected tax rate on income from operations and the statutory tax rate was as follows: December 31, 2019 2020 2021 Net earnings (loss) before income taxes $ ( 2,211 ) $ 157,833 $ 219,149 Combined statutory tax rate 27 % 27 % 27 % Expected income tax expense (recovery) at statutory rates ( 597 ) 42,615 59,170 Stock-based compensation 254 1,934 7,007 Change in valuation allowance 854 ( 680 ) 5,007 Change for under accrual 49 36 1 Change due to SR&ED ( 510 ) ( 1,698 ) ( 4,809 ) Foreign exchange ( 9 ) ( 4,048 ) 47 Other ( 41 ) 756 ( 738 ) Income tax expense $ - $ 38,915 $ 65,685 c. Deferred income tax assets (“DTAs”) and liabilities (“DTLs”) result from the temporary differences between assets and liabilities recognized for financial statement and income tax purposes. The significant components of the Company’s deferred income tax assets and liabilities were as follows: December 31, 2020 2021 Deferred tax assets: Long-term debt $ 2,590 $ 6,293 Financing fee 6,786 6,575 Operating lease liability 1,182 5,299 Deferred revenue - 4,768 Net operating losses carried forward 408 4,996 Research and development deductions and credits - - Other 949 3,019 11,915 30,950 Deferred tax liabilities: Property and equipment $ ( 707 ) $ ( 3,256 ) Land - ( 2,135 ) Intangibles ( 26,300 ) ( 36,866 ) Operating lease right-of-use assets ( 1,084 ) ( 4,732 ) Government funding receivable ( 3,279 ) ( 3,029 ) Other ( 41 ) ( 1,661 ) ( 31,411 ) ( 51,679 ) ( 19,496 ) ( 20,729 ) Less: valuation allowance ( 767 ) ( 9,233 ) Net deferred tax asset (liability) ( 20,263 ) ( 29,962 ) Deferred tax asset 11,148 21,717 Deferred tax liability ( 31,411 ) ( 51,679 ) Net deferred tax assets (liability) $ ( 20,263 ) $ ( 29,962 ) Amounts recognized in the Company's consolidated balance sheet as of December 31, 2020 and 2021 comprise of $ 5.9 and $ 7.4 million, respectively, included in other long-term assets and $ 26.2 and $ 37.4 million, respectively, as deferred tax liability. Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing DTAs. A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the three-year period ended December 31, 2021 in the United States. Such objective evidence limits the ability to consider other subjective evidence, such as our projections for future growth. F-25 On the basis of this evaluation, valuation allowances of $ 0.8 million and $ 9.2 million as of December 31, 2020 and 2021, respectively, have been recorded to recognize only the portion of the DTA that is more likely than not to be realized against DTL that reverses in carryforward period. The amount of the DTA considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased or if objective negative evidence in the form of cumulative losses is longer present and additional weight is given to subjective evidence such as our projections for growth. d. The Company does not have any Canadian non-capital loss carried forward and has utilized all investment tax credits from the prior taxation years in 2020. The Company had no unclaimed tax deductions for scientific research and experimental development. The Company had operating losses carried forward related to foreign operations of approximately $ 1.5 million, $ 1.5 million and $ 18.2 million as of December 31, 2019, 2020 and 2021 respectively. Certain tax attributes are subject to an annual limitation as a result of the acquisitions of Lineage and TetraGenetics which constitute a change of ownership as defined under IRC Section 382. Certain operating losses available for the foreign subsidiary deferred tax assets can be carried forward indefinitely while the rest expire ranging from 2034 to 2037. Expiry date Net Operating Loss 2034 $ 1,929 2035 1,449 2036 941 2037 1,231 Indefinite 7,284 Total amount $ 12,834 e. As of December 31, 2021, the Company has immaterial accumulated undistributed earnings generated by foreign subsidiaries. The Company has not provided a deferred liability for the income taxes associated with its foreign investments because it is the Company’s intention to indefinitely reinvest in its foreign investments. f. A reconciliation of total unrecognized tax benefits for the years ended December 31, 2019, 2020 and 2021 were as follows: 2019 2020 2021 January 1 balance $ 448 $ 387 $ 109 Gross increase - tax position in prior period - - - Gross increase - tax position in current period 387 109 - Gross decrease - tax position in current period ( 448 ) ( 387 ) ( 109 ) December 31 balance $ 387 $ 109 $ - Included in the balance of unrecognized tax benefits at December 31, 2019, 2020 and 2021 are potential benefits of $ nil that, if recognized, would affect the effective tax rate on income from operations. Recognition of these potential benefits would result in a deferred tax asset in the form of undeducted SR&ED expenditures or tax credits available for carry-forward, which would be subject to a valuation allowance based on conditions existing at the reporting date. Net operating losses arising in tax years ending after December 31, 2017 can be carried over to each taxable year following the tax year of loss indefinitely. Under the Coronavirus Aid, Relief, and Economic Security Act, losses incurred effective 2021 can only be used to offset 80% of taxable income. The Company is subject to taxation primarily in Canada and the United States. Further, while the statute of limitations in each jurisdiction where an income tax return has been filed generally limits the examination period, as a result of loss carry-forwards, the limitation period for examination generally does not expire until several years after the loss carry-forwards are utilized. Tax years ranging from 2017 to 2021 remain subject to Canadian income tax examinations. Tax years ranging from 2017 to 2021 remain subject to U.S. income tax examinations. Other than routine audits done by tax authorities for tax credits and tax refunds that the Company has claimed, management is not aware of any other material income tax examination currently in progress by any taxing jurisdiction. 16. Leases The Company leases office and laboratory facilities in Vancouver, Canada and Sydney, Australia, and Cambridge, United Kingdom and Boston, USA. F-26 The majority of the Company's operating leases have a fixed term with a remaining life between one month and 20 years, with renewal options included in the contracts. The leases have varying contract terms, escalation clauses and renewal options. Generally, there are no restrictions placed upon the lessee by entering into these leases, other than restrictions on use of property, sub-letting and alterations. At the inception of a lease, the Company determines whether it is reasonably certain to exercise a renewal option and includes the options in the determination of the lease term and the lease liability where it is reasonably certain to exercise the option. If the Company's intention is to exercise an option subsequent to the commencement of the lease, the Company will re-assess the lease term. T he balance sheet classification of the Company's lease liabilities was as follows: December 31, 2020 December 31, 2021 Operating lease liabilities: Current portion $ 675 $ 3,652 Long-term portion 3,715 36,413 Total operating lease liabilities $ 4,390 $ 40,065 At December 31, 2021, the future minimum lease payments of the Company’s operating lease liabilities were as follows: Amount 2022 $ 4,623 2023 4,796 2024 5,070 2025 4,980 2026 4,694 Thereafter 22,133 As of December 31, 2021, the weighted-average remaining lease term is 9.3 years and the discount rate used to determine the operating lease liabilities was approximately 3.3 %. The Company incurred total operating lease expenses, including fixed lease payments and non-lease components, of $ 0.6 million, $ 1.1 million and $ 4.1 million during the years ended December 31, 2019, 2020 and 2021, respectively. 17. Financial Instruments The Company categorizes its financial assets and liabilities measured at fair value into a three-level hierarchy established by U.S. GAAP that prioritizes those inputs to valuation techniques used to measure fair value based on the degree to which they are observable. The three levels of the fair value hierarchy are as follows: Level 1 inputs are quoted prices in active markets for identical assets and liabilities; Level 2 inputs, other than quoted prices included within Level 1, are observable for the asset or liability either directly or indirectly; and Level 3 inputs are not observable in the market. The Company’s financial instruments consist of cash and cash equivalents, restricted cash, marketable securities, accounts receivable, loans to related parties, accounts payable and accrued liabilities and royalties payable, and contingent consideration payable. The carrying values of cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued liabilities, royalties payable, and related party loans approximate their fair values. Contingent Consideration Contingent consideration related to business acquisitions is recorded at fair value on the acquisition date and adjusted on a recurring basis for changes in its fair value. Changes in the fair value of contingent consideration liabilities can result from changes in anticipated payments and changes in assumed discount periods and rates. These inputs are unobservable in the market and are therefore categorized as Level 3 inputs. Further information related to the Trianni and TetraGenetics contingent consideration is disclosed in Note 21. There were no changes to the valuation technique and inputs used in these fair value measurements since acquisition. The following table presents the changes in fair value of the liability for contingent consideration: F-27 December 31, 2021 (in thousands) Liability at beginning of the period Additions Increase (decrease) in fair value of liability for contingent consideration Repayment of contingent consideration Liability at end of the year Trianni $ 22,559 $ - $ 2,925 $ ( 2,550 ) $ 22,934 TetraGenetics $ - $ 35,100 $ 786 $ - $ 35,886 Contingent consideration balance as of December 31, 2020 was $ 22.6 million with immaterial fair value changes for the year ended December 31, 2020. Marketable Securities In the third quarter of 2021, the Company purchased high credit quality marketable securities as part of the Company’s cash management strategy, as these securities are viewed as being available to support the Company’s current operations. Level 2 marketable securities in the fair value hierarchy were based on quoted market prices to the extent available or alternative pricing sources and models utilizing market observable inputs to determine fair value. There were no transfers between Level 1, Level 2 and Level 3 during the period. The following table presents information about the Company’s marketable securities that are measured at fair value on a recurring basis and indicates the level of the fair value hierarchy used to determine such fair values: Fair Value Measurements at December 31, 2021: Level 1 Level 2 Level 3 Total Marketable securities U.S. government agencies $ 10,100 $ - $ - $ 10,100 Certificate of deposit - 8,699 - 8,699 Commercial paper - 6,726 - 6,726 Corporate bonds - 172,046 - 172,046 Non-U.S. government agencies - 25,480 - 25,480 Asset backed securities - 23,784 - 23,784 $ 10,100 $ 236,735 $ - $ 246,835 18. Commitments and contingencies From time to time, the Company may become involved in routine litigation arising in the ordinary course of business. At each reporting date, the Company evaluates whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under the provisions of the authoritative guidance that addresses accounting for contingencies. The Company does not have contingency reserves established for any litigation liabilities and any the costs related to such legal proceedings are expensed as incurred. The Company may enter into certain agreements with strategic partners in the ordinary course of operations that may include contractual milestone payments related to the achievement of pre-specified research, development, regulatory and commercialization events and indemnification provisions, which are common in such agreements. Pursuant to the agreements, the Company may be obligated to make research and development and regulatory milestone payments upon the occurrence of certain events and upon receipt of royalty payments in the low single-digits to mid-twenties based on certain net sales targets. During 2020, the Company expensed approximately $ 27.1 million related to such obligations, of which $ 27.1 F-28 million is included in current liabilities. For the year ended December 31, 2021, the Company expensed $ 45.5 million related to such obligations, of which $ 22.5 million is included in current liabilities. There were no such payments prior to 2020. Excluding the lease arrangements as accounted for in Note 16 – Leases, the Company has the following additional commitments in respect of several leased facilities where the lease commencement dates are subsequent to December 31, 2021: Amount 2022 $ 314 2023 5,362 2024 5,072 2025 12,268 2026 12,270 Thereafter 222,425 19. Financial Risk Management Concentration of Credit Risk Financial instruments that potentially subject the Company to a concentration of credit risk consist primarily of cash and cash equivalents, restricted cash, and accounts and accrued receivable. Cash and cash equivalents and restricted cash are invested with the primary objective being the preservation of capital and maintenance of liquidity. The guidelines on the quality of financial instruments that the Company believes minimizes the exposure to concentration of credit risk. The Company limits its exposure to credit loss by placing its cash and cash equivalents with multiple high credit quality financial institutions. The Company’s exposure to credit risk for accounts and accrued receivables is indicated by the carrying value of its accounts receivable and accrued receivables. We review our trade receivables, accrued revenue, and accrued royalties and reserve for amounts if collectability is no longer reasonably assured based on an assessment of various factors including historical loss rates and expectations of forward-looking loss estimates. Any adjustments made to our historical loss experience reflect current differences in asset-specific risk characteristics and current economic conditions. At December 31, 2020 and 2021, accounts and accrued royalty receivable amounts were due from seven and thirteen customers, respectively. For the year ended December 31, 2020, we recognized milestone and royalty revenue totaling $ 213.3 million, exclusively from our partnership with Lilly, of which $ 198.3 million was receivable at December 31, 2020. For the year ended December 31, 2021 we recognized milestone payments of $ 7.0 million and royalty revenue totaling $ 327.3 million, exclusively from our partnership with Lilly, of which $ 138.4 million was a receivable at December 31, 2021. Interest Rate Risk The Company’s interest rate risk is primarily attributable to its cash and cash equivalents, restricted cash, marketable securities, long term contingent consideration payable and long term operating lease liability. As of December 31, 2021, the Company had cash and cash equivalents of $ 476.1 million, restricted cash of $ 25.0 million, and marketable securities of $ 246.8 million, a majority of which was maintained in high credit quality and liquid held for trading marketable securities, bank accounts and term deposits. The Company’s interest rate risk is affected by changes in the general level of interest rates, particularly because the majority the Company’s investments are short-term in nature. Due to record low interest rates and the short-term duration of the Company’s cash and cash equivalent holdings and marketable securities and the low risk profile of the marketable securities, a 10 % change in interest rates would not have a material effect on the fair market value of cash, cash equivalents, restricted cash, and marketable securities. The Company also has the ability to hold the marketable securities until maturity, and therefore, the Company would not expect the Company’s operating results or cash flows to be affected to any significant degree by the effect of a sudden change in market interest rates. The Company does not enter into investments for trading or speculative purposes and has not used any derivative financial instruments to manage interest rate exposure. The Company is further exposed to the risk that the fair value of the contingent consideration payable and operating lease liability will vary as a result of changes in market interest rates. In order to manage funding needs or capital structure goals, the Company may enter into arrangements that are subject to either fixed market interest rates set at the time of issue or floating rates determined by ongoing market conditions. Debt subject to variable interest rates exposes the Company to variability in interest F-29 expense, while debt subject to fixed interest rates exposes the Company to variability in the fair value of debt. To manage interest rate exposure, the Company accesses various sources of financing and manages borrowings in line with debt ratings, liquidity needs, maturity schedule, and currency and interest rate profiles. Foreign Currency Risk The Company holds cash primarily in U.S. and Canadian dollars. The Company had Canadian denominated cash and cash equivalents of CAD $ 0.9 million and CAD $ 8.2 million at December 31, 2020 and 2021, respectively. The Company incurs certain operating expenses and accounts payable in currencies other than the U.S. dollar, primarily in Canadian dollars, and accordingly is subject to foreign exchange risk due to fluctuations in exchange rates. The Company does not use derivative instruments to hedge exposure to foreign exchange risk. The operating results and financial position of the Company are reported in U.S. dollars in the Company’s consolidated financial statements. The fluctuation of the U.S. dollar relative to the Canadian dollar will have an impact on the reported balances for net assets, net earnings (loss) and shareholders’ equity in the Company’s consolidated financial statements. Counterparty Risk For the year ended December 31, 2020, three of our partners accounted for 35 %, 25 % and 14 % of our research fees revenue. Our partnership with Lilly constituted one of the partnerships that generated 10 % or more of our consolidated revenues. For the year ended December 31, 2021, four of our partners accounted for 29 %, 17 %, 11 %, and 10 % of our research fee revenue. Our partnership with Lilly constituted one of the partnerships that generated 10 % or more of our consolidated revenues. 20. Related party transactions Other than the related party loan between the Company and the Dayhu JV disclosed in Note 9, the Company had the following transactions with related parties: a) Chief Executive Officer (“CEO”) of the Company was the recipient of a personal loan of CAD $ 2.0 million ($ 1.5 million) from the, Company during the year ended December 31, 2019 for the purposes of financing the purchase of a residential property. The loan is interest bearing at an annual interest rate of 3.54 %. The loan was repaid in full in 2020 . b) The General Counsel of the Company was the recipient of a loan of $ 0.2 million during the year ended December 31, 2019. The loan is interest bearing at an annual interest rate of 3.95 % and has a term to maturity of 3.33 years. The loan was repaid in full in 2020 . 21. Acquisitions OrthoMab In June 2020, the Company acquired rights to the OrthoMab bispecific platform from Dualogics, LLC for $ 4.0 million. The acquisition represents a group of similar assets sourced from the agreement. All the fair value associated with the agreement is concentrated in a group of similar assets and is not considered a business in accordance with ASC 805-10-55-5A. The Company does not reasonably expect the platform acquired will be used to receive economic benefit in an alternative manner, nor does the acquisition agreement provide for any future economic benefit to the Company from the rights retained by Dualogics, LLC. The Company therefore accounted for the right to the Dualogics, LLC platform acquired under the agreement as an acquisition of an asset and recognized $ 4.0 million as research and development expenses under ASC 730 . Trianni On November 3, 2020 , the Company completed a business combination with Trianni, Inc. (“Trianni”), a biotechnology company with a humanized rodent platform, in which we were the acquirer. To fund the merger, on October 30, 2020 AbCellera entered into convertible note agreement wherein AbCellera issued convertible notes in consideration of $ 90.0 million. Issuance costs associated with the convertible notes was immaterial. The convertible notes mature five years from the date of issuance and bear no interest for the first twelve months and bear five percent ( 5 %) interest per annum thereafter. Interest is payable annually starting twenty-four months from the date of issuance until maturity. Upon a liquidity event, such as an IPO, if occurred within 6 months of the issue date, then immediately prior to the liquidity event, noteholders may convert the principal amount of the note into common shares of the company at 85 % of the IPO issue price of F-30 common shares. The convertible notes are also convertible at the option of the holders on the interest commencement date, which is 12 months after the issuance date. The number of common shares to be issued will be equal to 800,000 common shares (for certain specified investors) plus the number of common shares determined by dividing (i) the aggregate of the outstanding principal of the convertible note by (ii) AbCellera’s pre-money valuation of as defined in the agreement divided by the aggregate number of our common shares outstanding at the time of conversion. W e determined that no value should be assigned to the embedded derivatives and that there was no beneficial conversion feature . Immediately prior to the completion of our IPO, the convertible notes were converted into 6,093,524 common shares of the Company in accordance with the terms of the convertible note agreement. The convertible note was fully extinguished upon conversion and the carrying value of the convertible note was reclassified into common shares. The acquisition date fair value of the final purchase price consideration transferred consisted of the following: Estimated Purchase Price Consideration Estimated Fair Value Closing Payment $ 97,432 (i) Earn-out payment 21,782 (ii) $ 119,214 (i) Pursuant to the merger agreement, the initial purchase price is $ 90.0 million adjusted for certain closing adjustments for working capital, indebtedness, transaction and other expenses as well as payments to Trianni option holders for the cancellation and extinguishment of Trianni options. (ii) Represents the estimated fair value of the earn-out payments related to the specific customer license ending on April 9, 2024. T he estimated fair value was categorized within Level 3 of the fair value hierarchy and determined by estimating the payout of 85 % of the expected future net cash flows associated to the specific customer license during the earn-out period ending on April 9, 2024. The significant assumptions inherent in the development of the value include the amount and timing of projected future net revenues received by us from the specific customer license, and the discount rate selected to measure the risks inherent in the future cash flows, which was approximately 22 %. In accordance with the acquisition method of accounting, the purchase price of Trianni has been allocated to the acquired assets and assumed liabilities based on their estimated acquisition date fair values. The fair value estimates were based on income, estimates and other analyses. The excess of the total consideration over the estimated fair value of the amounts initially assigned to the identifiable assets acquired and liabilities assumed has been recorded as goodwill, which is not deductible for income tax purposes. The goodwill balance represents the combined company’s expectations of the strategic opportunities available to it as a result of the merger, as well as other synergies that will be derived from the merger. Goodwill also reflects the requirement to record deferred tax balances for the difference between the assigned values and the tax bases of assets acquired and liabilities assumed in the business combination. Total transaction costs expensed in the statement of income (loss) and comprehensive income (loss) was immaterial. F-31 During the period ended December 31, 2021, the Company has recorded immaterial adjustments to the preliminary allocation of the purchase price for the finalization of working capital adjustments, income taxes, and the resulting impact to goodwill. The following table summarizes the final purchase price allocation for the Trianni transaction: Fair value of assets and liabilities acquired Purchase Price Allocation Cash and cash equivalents $ 8,282 Other current assets 2,794 Total current assets 11,076 Other assets 221 Intangibles 103,582 (i) Goodwill 30,944 (ii) Total assets 145,823 Current liabilities 92 Deferred income tax liability 26,517 (ii) Total liabilities 26,609 Estimated fair value of net identifiable assets acquired and liabilities assumed $ 119,214 (i) The estimated fair value of and useful lives of the intangible assets acquired is as follows: Estimated fair value (a) Estimated useful lives in years (b) License $ 21,782 3 Technology 41,400 20 IPR&D 40,400 (c) $ 103,582 (a) The estimated fair values were categorized within Level 3 of the fair value hierarchy and were determined using an income-based approach, which was based on the present value of the future estimated after-tax cash flows attributable to each intangible asset. The significant assumptions inherent in the development of the values, from the perspective of a market participant, include the amount and timing of projected future cash flows (including revenue, regulatory success and profitability), and the discount rate selected to measure the risks inherent in the future cash flows, which was between 19 %- 22 %. (b) The estimate of the useful life was based on an analysis of the expected use of the asset by us, any legal, regulatory or contractual provisions that may limit the useful life, the effects of obsolescence, competition and other relevant economic factors, and consideration of the expected cash flows used to measure the fair value of the intangible asset (c) IPR&D assets are indefinite life intangible assets at the time of acquisition and will be amortized upon completion of IPR&D activities. (ii) Goodwill represents the excess of the estimated purchase price over the estimated fair value of Trianni’s identifiable assets acquired and liabilities assumed. Goodwill also reflects the requirement to record deferred tax balances for the difference between the assigned values and the tax bases of assets acquired and liabilities assumed in the business combination. Goodwill is not deductible for tax purposes. Net earnings (loss) for the period in the Consolidated Statement of Income and Comprehensive Income includes immaterial amount of Trianni revenue and net loss of approximately $ 1.8 million from the acquisition date to the year ended December 31, 2020. F-32 Unaudited Pro Forma Financial Information The following unaudited pro forma financial information presents consolidated results assuming the acquisition of Trianni occurred January 1, 2019. Years Ended December 31, 2019 2020 Sales $ 15,770 $ 239,410 Net income (loss) ( 10,878 ) 115,088 TetraGenetics On September 10, 2021, the Company completed a business combination with TetraGenetics, Inc. (“TetraGenetics”), a biotechnology company with a proprietary platform for generating recombinant human ion channels and other transmembrane proteins. The Company acquired 100 % of the issued and outstanding shares of TetraGenetics in exchange for: upfront cash consideration of $ 12.5 million adjusted for certain closing amounts; potential milestone payments up to $ 37.5 million based on the achievement of technical milestones, and additional development and commercial milestone payments related to successfully developed therapeutics. The Company deposited an additional $ 12.5 million in escrow included as part of other long-term assets subject to release to the former shareholders of TetraGenetics upon the achievement of certain technical milestones. The estimated fair value of the potential milestone payouts have been included in the preliminary purchase price consideration. F-33 The acquisition date fair value of the preliminary purchase price consideration consisted of the following: Estimated Fair Value Closing consideration $ 12,926 (i) Contingent consideration 35,100 (ii) $ 48,026 i) Pursuant to the merger agreement, the initial cash consideration adjusted for certain preliminary closing adjustments. ii) Represents the estimated fair value of the contingent consideration related to potentially successful milestone events. The estimated fair value was categorized within Level 3 of the fair value hierarchy and determined by estimating the expected future cash flows associated with the potential milestone events. The significant assumptions inherent in estimating the fair value include the amount and timing of projected future cash flows, risk adjusted for various factors including probability of success and discounted at an 8.0 % discount rate to estimate the present value of the risk adjusted future cash flows. In accordance with the acquisition method of accounting, the purchase price of TetraGenetics has been allocated to the acquired assets and assumed liabilities based on their estimated acquisition date fair values. The fair value estimates were based on income, estimates and other analyses. The excess of the total consideration over the estimated fair value of the amounts initially assigned to the identifiable assets acquired and liabilities assumed has been recorded as goodwill, which is not deductible for income tax purposes. The goodwill balance represents the assembled workforce acquired, the combined company’s expectations of the strategic opportunities available as a result of the merger, and other synergies that will be derived from the merger. As of December 31, 2021, the Company had not yet fully completed the analysis to assign fair values to all assets acquired and liabilities assumed, and therefore the purchase price allocation is preliminary. The remaining items include the finalization of working capital adjustments, income taxes, and resulting impacts to goodwill. The preliminary purchase price allocation will be subject to further refinement as the Company continues to refine its estimates and assumptions based on information available at the acquisition date. These refinements may result in material changes to the estimated fair value of assets acquired and liabilities assumed. The purchase price allocation adjustments can be made throughout the end of the Company’s measurement period, which is not to exceed one year from the acquisition date. Total transaction costs expensed in the statement of income (loss) and comprehensive income (loss) were immaterial. During the three-months ended December 31, 2021, the Company has refined immaterial adjustments to the preliminary allocation of the purchase price for finalization of intangible assets, working capital adjustments, income taxes, and the resulting impact to goodwill. The following table summarizes the preliminary purchase price allocation for the TetraGenetics transaction as of September 10, 2021: Fair value of assets and liabilities acquired Purchase Price Allocation Other assets, including cash of $ 955 2,632 Intangibles 43,300 (i) Goodwill 16,906 (ii) Total assets 62,838 Other liabilities 2,984 Deferred tax liability 11,830 Total liabilities 14,814 Estimated fair value of net identifiable assets acquired and liabilities assumed $ 48,024 F-34 (i) The estimated fair value and useful lives of the intangible assets acquired is as follows: Estimated fair value (a) Estimated useful lives in years (b) Technology $ 11,300 20 IPR&D 32,000 (c) $ 43,300 (a) The estimated fair values were categorized within Level 3 of the fair value hierarchy and were determined using an income-based approach, which was based on the present value of the future estimated after-tax cash flows attributable to each intangible asset. The significant assumptions inherent in estimating the fair values, from the perspective of a market participant, include the amount and timing of projected future after-tax cash flows including revenue, operating costs, milestone and regulatory success, obsolescence, and profitability. The discount rate selected to present value the future after-tax cash flows attributable to the Technology is a 20.1 % fully risked discount rate. A de-risked discount rate of 8.0 % was used to present value the probability of success risk adjusted after-tax cash flows attributable to the IPR&D. (b) The estimate of the useful life was based on an analysis of the expected use of the asset by the Company, any legal, regulatory or contractual provisions that may limit the useful life, the effects of obsolescence, competition and other relevant economic factors, and consideration of the expected cash flows used to measure the fair value of the intangible asset. (c) IPR&D assets are indefinite life intangible assets at the time of acquisition and will be amortized upon completion of IPR&D activities. (ii) Goodwill represents the excess of the estimated purchase price over the estimated fair value of TetraGenetics’ identifiable assets acquired and liabilities assumed. The Company has not provided post acquisition and pro forma information relating to the pre-acquisition period as it is not material. F-35