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Item 8. Financial Statements and Supplementary Data

2023-03-30 compared with 2022-03-22 · 360 added, 362 removed, 620 unchanged (54% of the section changed)

Financial Statements and Supplementary Data

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm (PCAOB ID:

Consolidated Balance Sheet s as of December 31, 2021 and 2020

Consolidated Balance Sheets as of December 31, 202 2 and 202 1

Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 202 2 and 202 1

Consolidated Statements of Changes in Redeemable Convertible Preferred Stock and Units and Other Stockholders’ and Members' Deficit for the years ended December 31, 2021 and 2020

Consolidated Statement s of Cash Flows for the years ended December 31, 2021 and 2020

Consolidated Statements of Changes in Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the years ended December 31, 2022 and 2021

Consolidated Statements of Cash Flows for the years ended December 31, 202 2 and 202 1

Notes to the Consolidated Financial Statements

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Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Absci Corporation and subsidiaries (the Company) as of December 31, 2021 and 2020, the related consolidated statements of operations and comprehensive loss, changes in redeemable convertible preferred stock and units and other stockholders’ and members’ deficit, and cash flows for each of the two years in the period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”).

We have audited the accompanying consolidated balance sheets of Absci Corporation (the Company) as of December 31, 2022 and 2021, the related consolidated statements of operations and comprehensive loss, changes in redeemable convertible preferred stock and stockholders’ equity (deficit), and cash flows for each of the two years in the period ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022, in conformity with U.S.

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Restricted cash 15,023 10,513

Receivables under development arrangements 1,425 1,594

Short-term investments 104,476 —

Receivables under development arrangements, net 1,550 1,425

Prepaid expenses and other current assets 5,859 8,572

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TOTAL ASSETS $ 321,008 $ 426,195

LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND OTHER STOCKHOLDERS' DEFICIT

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

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Accrued expenses 20,481 17,434

Loans payable — 632

Long-term debt, current 2,400 903

Operating lease obligations, current 1,502 770

Financing lease obligations, current 2,785 1,475

Deferred revenue, current 1,353 2,630

Long-term debt 2,946 2,400

Operating lease obligations 1,690 1,502

Financing lease obligations 2,296 2,785

Deferred revenue 445 1,353

Total current liabilities 30,270 33,859

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Commitments (See Note 10)

Redeemable convertible preferred stock, $ 0.0001 par value;

0 and 13,845,050 shares authorized as of December 31, 2021 and December 31, 2020, respectively;

0 and 13,752,043 issued and outstanding as of December 31, 2021 and December 31, 2020 respectively;

liquidation preference of $ 203,095 as of December 31, 2020;

STOCKHOLDERS' DEFICIT

STOCKHOLDERS' EQUITY

Preferred stock, $ 0.0001 par value;

10,000,000 and 0 shares authorized as of December 31, 2021 and December 31, 2020, respectively;

0 shares issued and outstanding as of December 31, 2021 and December 31, 2020, respectively

10,000,000 shares authorized as of December 31, 2022 and December 31, 2021;

0 shares issued and outstanding as of December 31, 2022 and December 31, 2021

Common stock, $ 0.0001 par value;

500,000,000 and 72,668,200 shares authorized as of December 31, 2021 and December 31, 2020, respectively;

500,000,000 shares authorized as of December 31, 2022 and December 31, 2021;

92,411,103 and 92,648,036 shares issued and outstanding as of December 31, 2022 and December 31, 2021, respectively

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Accumulated other comprehensive loss ( 120 ) ( 13 )

TOTAL OTHER STOCKHOLDERS' DEFICIT 366,107 ( 89,428 )

TOTAL LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND OTHER STOCKHOLDERS' DEFICIT $ 426,195 $ 88,569

TOTAL STOCKHOLDERS' EQUITY 274,414 366,107

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 321,008 $ 426,195

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

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Operating loss ( 106,750 ) ( 75,238 )

Other expense

Other income (expense)

Interest expense ( 972 ) ( 3,432 )

Other expense, net ( 31,189 ) ( 418 )

Total other expense, net ( 34,621 ) ( 1,052 )

Other income (expense), net 2,357 ( 31,189 )

Total other income (expense), net 1,385 ( 34,621 )

Loss before income taxes ( 105,365 ) ( 109,859 )

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Net loss ( 104,904 ) ( 100,960 )

Adjustment of redeemable preferred units and stock — ( 34,336 )

Cumulative undeclared preferred stock dividends — ( 2,284 )

Net loss applicable to common stockholders and unitholders $ ( 103,244 ) $ ( 49,469 )

Net loss per share attributable to common stockholders and unitholders:

Net loss applicable to common stockholders $ ( 104,904 ) $ ( 103,244 )

Net loss per share attributable to common stockholders:

Basic and diluted $ ( 1.15 ) $ ( 2.08 )

Weighted-average common shares and units outstanding:

Weighted-average common shares outstanding:

Basic and diluted 90,845,629 49,685,194

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Foreign currency translation adjustments ( 66 ) ( 13 )

Unrealized loss on investments ( 41 ) —

Comprehensive loss $ ( 105,011 ) $ ( 100,973 )

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ABSCI CORPORATION

STATEMENTS OF CHANGES IN REDEEMABLE CONVERTIBLE PREFERRED STOCK AND UNITS AND OTHER STOCKHOLDERS’ AND MEMBERS’

(In thousands, except for unit, share, per unit, and per share data) Redeemable Convertible

Preferred Units Redeemable Convertible

Preferred Stock Common Units Common Stock Additional Paid-In Capital Accumulated Deficit Accumulated Other Comprehensive Loss Total Stockholders’ and Members'

Units Amount Shares Amount Units Amount Shares Amount

December 31, 2019 9,964,572 $ 52,763 — $ — 15,215,724 $ 2 — $ — $ 215 $ ( 41,376 ) $ — $ ( 41,159 )

Issuance of Class D preferred units, net of issuance costs 473,952 4,625 — — — — — — — — — —

Increase in preferred unit redemption value — 34,336 — — — — — — — ( 34,336 ) — ( 34,336 )

Conversion of preferred and common units to shares

( 10,438,524 ) ( 91,724 ) 10,438,524 91,724 ( 15,215,724 ) ( 2 ) 15,215,724 2 — — — —

Issuance of Class E preferred stock, net of issuance costs — — 3,313,519 64,709 — — — — — — — —

Issuance of Restricted stock — — — — — — 2,671,907 — — — — —

Stock-based compensation — — — — — — — — 420 — — 420

Net loss — — — — — — — — — ( 14,353 ) — ( 14,353 )

December 31, 2020 — $ — 13,752,043 $ 156,433 — $ — 17,887,631 $ 2 $ 635 $ ( 90,065 ) $ — $ ( 89,428 )

STATEMENTS OF CHANGES IN REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’

EQUITY (DEFICIT)

(In thousands, except for share and per share data) Redeemable Convertible

Preferred Stock Common Stock Additional Paid-In Capital Accumulated Deficit Accumulated Other Comprehensive Loss Total Stockholders’

Equity (Deficit)

Shares Amount Shares Amount

Balances - December 31, 2020 13,752,043 $ 156,433 17,887,631 $ 2 $ 635 $ ( 90,065 ) $ — $ ( 89,428 )

Issuance of Series E preferred stock, net of issuance costs 254,886 4,944 — — — — — —

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Issuance of shares in acquisitions — — 3,222,504 — 14,259 — — 14,259

Issuance of common shares upon initial public offering, net of issuance costs of $ 3,766

— — — — — — 14,375,000 1 210,133 — — 210,134

Issuance of common shares upon initial public offering, net of issuance costs — — 14,375,000 1 210,133 — — 210,134

Conversion of convertible note — — 9,732,593 1 155,721 — — 155,722

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Conversion of warrant liability — — — — 4,822 — — 4,822

Foreign currency translation adjustments — — — — — — ( 13 ) ( 13 )

Issuance of shares upon warrant exercise — — 307,211 — 93 — — 93

Net loss — — — — — ( 100,960 ) — ( 100,960 )

Balances - December 31, 2021 — — 92,648,036 $ 9 $ 557,136 $ ( 191,025 ) $ ( 13 ) $ 366,107

Issuance of shares under stock plans, net of shares withheld for tax payments — — 552,913 — 656 — — 656

Stock-based compensation — — — — 12,662 — — 12,662

Repurchase and forfeiture of common stock — — ( 789,846 ) — — — — —

Foreign currency translation adjustments — — — — — — ( 66 ) ( 66 )

Unrealized loss on investments — — — — — — ( 41 ) ( 41 )

Net loss — — — — — ( 104,904 ) — ( 104,904 )

December 31, 2021 — $ — — $ — — $ — 92,648,036 $ 9 $ 557,136 $ ( 191,025 ) $ ( 13 ) $ 366,107

Balances - December 31, 2022 — — 92,411,103 $ 9 $ 570,454 $ ( 295,929 ) $ ( 120 ) $ 274,414

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

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Deferred income taxes ( 505 ) ( 8,901 )

Share-based compensation 10,608 420

Stock-based compensation 12,540 10,608

Change in fair value of convertible promissory notes — 30,722

Gain on extinguishment of loan payable ( 636 ) —

Loss on disposal and impairment of assets 948 363

Foreign exchange transaction losses (gains) ( 11 ) —

Accretion of discount on short-term investments ( 688 ) —

Other 721 301

Preferred stock warrant liability expense — 4,124

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Investment in equity securities — ( 1,200 )

Investment in short-term investments ( 108,590 ) —

Proceeds from maturities of short-term investments 5,000 —

Proceeds from sales of property and equipment 133 —

Proceeds from property insurance settlements 650 —

Net cash used in investing activities ( 126,982 ) ( 67,377 )

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Proceeds from issuance of long-term debt 12,031 —

Proceeds from notes payable — 632

Principal payments on long-term debt ( 4,651 ) ( 1,600 )

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Net cash provided by financing activities 5,237 336,193

Net increase (decrease) in cash, cash equivalents, and restricted cash 208,218 57,832

Net (decrease) increase in cash, cash equivalents, and restricted cash ( 203,084 ) 208,218

Cash, cash equivalents and restricted cash - Beginning of year 279,926 71,708

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Property and equipment purchases included in accounts payable 123 5,565

Increase in redemption value of convertible preferred stock — 34,336

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

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Organization and nature of operations

Absci Corporation (the “Company”) has developed an integrated drug creation platform (the “Integrated Drug Creation Platform”) by merging deep learning artificial intelligence and synthetic biology.

The Integrated Drug Creation Platform enables the creation of biologics by unifying the drug discovery and cell line development processes into one process.

Absci Corporation (the “Company”) is a generative AI drug creation company harnessing deep learning and synthetic biology to expand the therapeutic potential of proteins.

Absci leverages its integrated drug creation platform (the “Integrated Drug Creation Platform”) to identify novel drug targets and create promising biotherapeutic candidates.

The Company was organized in the State of Oregon in August 2011 as a limited liability company and converted to a limited liability company (“LLC”) in Delaware in April 2016.

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Initial Public Offering

In July 2021, we completed our initial public offering (IPO) and issued 14.4 million shares of our common stock, including 1.9 million shares pursuant to the full exercise of the underwriters’ option to purchase additional shares, at a price of $ 16.00 per share and received net proceeds of $ 210.1 million from the IPO.

In July 2021, the Company completed its initial public offering (the “IPO”) and issued 14.4 million shares of its common stock, including 1.9 million shares pursuant to the full exercise of the underwriters’ option to purchase additional shares, at a price of $ 16.00 per share and received net proceeds of $ 210.1 million from the IPO.

Immediately prior to the completion of the IPO, all shares of redeemable convertible preferred stock then outstanding were converted into 46.3 million shares of common stock and all convertible notes issued in March 2021 were converted into 9.7 million shares of common stock.

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The financial statements have also been retroactively adjusted to reflect a proportional adjustment to the conversion ratio for each series of preferred stock that was effected in connection with the forward stock split.

LLC Conversion

In conjunction with the LLC Conversion as of October 15, 2020, (i) all of the Company’s outstanding common units converted on a 1 -for-1 basis into shares of common stock, par value $ 0.0001 ;

and (ii) all of the Company’s outstanding redeemable preferred units converted on a 1 -for-1 basis into shares of redeemable convertible preferred stock, par value $ 0.0001 .

Prior to the LLC Conversion, the Company had issued incentive units to certain employees, directors, and consultants.

The outstanding vested incentive units converted on a net issuance basis into shares of common stock and the outstanding unvested incentive units converted on a net issuance basis into restricted common stock.

All vesting provisions remained the same following the LLC

ABSCI CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Stock-based compensation for further discussion of the LLC Conversion’s impact on the Company’s stock-based compensation plans.

Summary of significant accounting policies

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The Company has eliminated all intercompany transactions and accounts.

ABSCI CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Emerging growth company

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Actual results could differ from those estimates.

ABSCI CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Segment information

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The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.

Cash and cash equivalents consist of deposits with commercial banks in checking and interest-bearing accounts, highly liquid money market funds, and U.S.

Treasury securities.

Restricted cash represents amounts pledged as collateral for future property lease payments via standby letters of credit (see Note 10:

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Acquisitions).

Accounts receivable

Accounts receivable consists of amounts due from partners for services performed.

ABSCI CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company’s short-term investments may include funds invested in highly liquid money market funds, U.S.

Treasury securities and corporate debt securities with original maturities at the date of purchase greater than three months but less than one year.

These investments are classified as available-for-sale debt securities, which are recorded at fair value based on quoted prices in active markets.

If the estimated fair value of a debt security is below its amortized cost basis, the Company evaluates whether it is more likely than not that the Company will be required to sell the security before its anticipated recovery in market value and whether credit losses exist for the related securities.

A credit loss exists if the present value of expected cash flows is less than the amortized cost basis of the security.

Credit-related losses are recognized as an allowance for credit losses on the balance sheet with a corresponding adjustment to earnings.

Unrealized gains and losses that are unrelated to credit deterioration are reported in accumulated other comprehensive loss.

Purchase premiums and discounts are recognized as interest income using the interest method over the terms of the securities.

Realized gains and losses, and declines in fair value deemed to be other than temporary, are reflected in our consolidated statements of operations and comprehensive loss.

The Company uses the specific identification method to compute gains and losses on investments.

Receivables under development arrangements and allowances for credit losses

Receivables under development arrangements consist of amounts due from partners for services performed, net of estimates for credit allowance.

The Company reviews accounts receivable for credit impairment and regularly analyzes the status of significant past due receivables to determine if any will potentially be uncollectible to estimate the amount of allowance necessary to reduce accounts receivable to its estimated net realizable value.

To date, no allowance has been necessary.

See contract asset discussion below regarding unbilled receivables.

Credit losses are included in selling, general and administrative expenses on the consolidated statements of operations and comprehensive loss.

See contract asset discussion in Note 3:

Revenue Recognition regarding unbilled receivables.

Fair value of financial instruments

Certain assets and liabilities are carried at fair value under US GAAP and consist principally of a fee in-lieu of warrant issuance, a warrant to purchase convertible preferred stock and convertible promissory notes.

Certain assets and liabilities are carried at fair value under US GAAP.

The carrying amounts of cash equivalents, accounts payable, and accrued liabilities approximate their related fair values due to the short-term nature of these instruments.

The Company measures certain financial assets at fair value on a recurring basis, including available-for-sale debt securities, which are recorded at fair value based on quoted prices in active markets.

None of the Company’s non-financial assets or liabilities are recorded at fair value on a recurring basis.

As permitted under Accounting Standards Codification (“ASC”) 825, Financial Instruments, (“ASC 825”), the Company has elected the fair value option to account for its convertible promissory notes issued during the year ended December 31, 2021.

In accordance with ASC 825, the Company records these convertible promissory notes at fair value on its consolidated balance sheet.

Changes in fair value of the warrant to purchase convertible preferred stock and the convertible promissory notes are recorded in the consolidated statements of operations and comprehensive loss.

As permitted under Accounting Standards Codification (“ASC”) 825, Financial Instruments, (“ASC 825”), the Company elected the fair value option to account for its convertible promissory notes issued during the year ended December 31, 2021.

In accordance with ASC 825, the Company recorded these convertible promissory notes at fair value on its consolidated balance sheet.

Changes in fair value of the warrant to purchase convertible preferred stock and the convertible promissory notes were recorded in the consolidated statements of operations and comprehensive loss.

As a result of applying the fair value option, direct costs and fees related to the convertible promissory notes were recognized as incurred and not deferred.

There are significant judgments and estimates inherent in the determination of the fair value of these liabilities.

There are significant judgments and estimates inherent in the determination of the fair value of certain liabilities.

If the Company had made different assumptions including, among others, those related to the timing and probability of various corporate scenarios, discount rates, volatilities and exit valuations, the carrying values of the fee in lieu of warrant, warrant liability, and net loss and net loss per common share could have been significantly different.

ABSCI CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Prior to its IPO, the Company primarily utilized the probability of a liquidity event and the expected IPO price to estimate fair value of the fee-in-lieu of warrant liability, the convertible note, and the preferred stock warrant liability.

Concentration risk

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The Company has not experienced any losses on these accounts.

For the years ended December 31, 2021 and 2020, two partners represented approximately 73 % and 77 % of technology development revenue, respectively.

For the years ended December 31, 2022 and 2021, three partners represented approximately 98 % and two partners represented approximately 73 % of technology development revenue, respectively.

As of December 31, 2022, two partners represented approximately 100 % of total receivables under technology development arrangements.

As of December 31, 2021, four partners represented approximately 84 % of total receivables under technology development arrangements.

As of December 31, 2020, one partner represented approximately 93 % of total receivables under technology development arrangements.

The Company purchases from and relies on two vendors for specific equipment and consumables which are critical to its operations.

While there are alternative types of equipment that could be used, switching vendors would require significant capital investment, long lead times and significant training and validation.

ABSCI CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Supplies, comprised principally of supplies and other materials used in the lab, are stated at the lower of cost or net realizable value and using the first-in, first-out method, applied on a consistent basis.

Supplies, comprised principally of supplies and other materials used in the Company’s laboratory, are stated at the lower of cost or net realizable value and using the first-in, first-out method, applied on a consistent basis.

The supplies inventory is included in prepaid expenses and other current assets on the consolidated balance sheet.

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Leasehold improvements are amortized over the shorter of the term of the lease or the estimated useful lives of the assets.

When assets are sold or otherwise disposed of, the cost and related accumulated depreciation or amortization are removed from their respective accounts, and the resulting gain or loss is reported as income or expense in the consolidated statements of operations and comprehensive loss.

When assets are sold or otherwise disposed of, the cost and related accumulated depreciation or amortization are removed from their respective accounts, and the resulting gain or loss is reported as operating expense in the consolidated statements of operations and comprehensive loss.

Impairment of long-lived assets

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Recoverability is measured by comparison of the carrying amount to the future undiscounted net cash flows expected to result from the use of the asset and its eventual disposition.

If these estimated cash flows were less than the carrying amount of the asset, an impairment loss would be recognized in order to write down the asset to its estimated fair value.

During the year ended December 31, 2021, the Company recognized $ 0.6 million in impairment expense of certain operating lease right-of-use assets and $ 0.3 million in impairment of leasehold improvements, resulting from the discontinued use of certain leased facilities.

There were no such impairments of long-lived assets during the year ended December 31, 2020.

If these estimated cash flows were less than the carrying amount of the asset, an impairment loss would be recognized in order to write down the asset to its estimated fair value and reported as operating expense in the consolidated statements of operations and comprehensive loss.

Goodwill is evaluated for impairment on an annual basis as of October 1, or more frequently if an indicator of impairment is present.

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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.

Redeemable convertible preferred units and stock warrant liability

Outstanding warrants that were related to the Company’s redeemable convertible preferred units and redeemable convertible preferred stock were classified as liabilities on the consolidated balance sheets.

As the warrants were exercisable for redeemable convertible preferred units and redeemable convertible preferred stock, the Company has recognized a liability for the fair value of its warrants on the consolidated balance sheets upon issuance and subsequently remeasures the liability to fair value at the end of each reporting period until the earlier of the expiration or exercise of the warrants.

Redeemable convertible preferred stock warrant liability

Outstanding warrants that were related to the Company’s redeemable convertible preferred stock were classified as liabilities on the consolidated balance sheets.

As the warrants were exercisable for redeemable convertible preferred stock, prior to its IPO, the Company recognized a liability for the fair value of its warrants on the consolidated balance sheets upon issuance and subsequently remeasured the liability to fair

ABSCI CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

value at the end of each reporting period until the earlier of the expiration or exercise of the warrants.

Redeemable convertible preferred stock for further discussion.

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The Company considers a performance obligation satisfied once control of a good or service has been transferred to the customer, meaning the customer has the ability to use and obtain the benefit of the good or service.

Technology development revenue includes revenue

ABSCI CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

associated to the development and technology readiness phases of technology development agreements.

Technology development revenue includes revenue associated to the development and technology readiness phases of technology development agreements.

The Company refers to its customers as “partners” when describing their relationship in an agreement.

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Any variable consideration is constrained to the extent that it is probable that a significant reversal of cumulative revenue will not occur.

Depending on the specific terms of the arrangement, the Company either recognizes revenue over time or at a point in time.

While there is no alternative use to the Company for the asset created, the agreement’s terms vary as to whether an enforceable right to payment exists for performance completed as of that date.

Primarily all of the Company’s contracts with its partners include an enforceable right to payment.

While there is no alternative use to the Company for the asset created, the agreement’s terms vary as to whether an enforceable right to payment exists for performance completed as of that date.

The Company measures progress toward the completion of the performance obligations satisfied over time using an input method based on an overall estimate of the effort incurred to date at each reporting period to satisfy a performance obligation.

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In certain technology development agreements that require a portion of the contract consideration to be received in advance at the commencement of the contract, such advance payment is initially recorded as a contract liability.

KBI BioPharma, Inc.

Collaboration agreement

In December 2019, the Company executed a four-year Joint Marketing Agreement (“JMA”) with KBI BioPharma, Inc.

(“KBI”) to co-promote technologies through joint marketing efforts.

The JMA provides for a non-refundable upfront payment of $ 0.8 million and milestone payments of $ 2.8 million in the aggregate, of which $ 2.3 million had been received as of December 31, 2021, upon the achievement of specific milestones.

Upfront payments that relate to ongoing collaboration efforts required throughout the contract term such as joint marketing are recognized ratably throughout the contract term.

The Company fully constrains revenue associated with the milestone payments until the specified milestones are probable of achievement.

Additionally, KBI is obligated to make royalty payments to the Company during the fourth year of the JMA representing a percentage of its sales generated through the arrangement.

Any costs incurred to KBI through the duration of the JMA are recognized as a reduction to collaboration revenue in the period in which they are incurred.

In September 2021, the JMA was amended to shorten the term to approximately three years , while all remaining payments, including potential royalty payments, were replaced with a one-time fee due from KBI in the amount of $ 0.3 million.

The Company determined the remaining services were distinct from those provided prior to the modification and therefore recognizes the total remaining transaction price prospectively over the remaining contractual term.

As of December 31, 2021 and December 31, 2020, deferred revenue related to the JMA was $ 1.2 million and $ 1.8 million, respectively.

Contract balances

Contract assets are generated when contractual billing schedules differ from revenue recognition timing and the Company records a contract receivable when it has an unconditional right to consideration.

As of December 31, 2021 and December 31, 2020, contract assets were $ 0.6 million and $ 0.1 million, respectively.

Contract liabilities are recorded in deferred revenue when cash payments are received or due in advance of the satisfaction of performance obligations.

As of December 31, 2021 and December 31, 2020, contract liabilities were $ 1.4 million and $ 2.6 million, respectively.

During the years ended December 31, 2021 and 2020, the Company recognized $ 1.5 million and $ 0.2 million, respectively, as revenue that had been included in deferred revenue at the beginning of the period.

ABSCI CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Prior to the LLC Conversion, all income tax effects of the Company's operations were passed through to its members individually.

Accordingly, the accompanying financial statements do not include any income tax effects for the Company prior to the LLC Conversion date, and the Company had no unrecognized income tax benefits, nor any interest or penalties associated with unrecognized income tax benefits, accrued or expensed as of and for the period from January 1, 2020 through October 15, 2020.

Following the LLC Conversion, the Company accounts for income taxes using the asset and liability method whereby deferred tax asset and liability accounts are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that are currently in effect.

Contract assets are included in receivables under development arrangements on the consolidated balance sheets.

The Company accounts for income taxes using the asset and liability method whereby deferred tax asset and liability accounts are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that are currently in effect.

Valuation allowances are established where necessary to reduce deferred tax assets to the amounts expected to be realized.

The Company files income tax returns in the federal and various state tax jurisdictions.

The Company files income tax returns in federal, state and various foreign tax jurisdictions.

The Company recognizes interest and penalties related to income tax matters as a component of tax expense.

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At the inception of a contractual arrangement, the Company determines whether the contract contains a lease by assessing whether there is an identified asset and whether the contract conveys the right to control the use of the identified asset in exchange for consideration over a period of time.

If both criteria are met, the Company records the associated lease liability and corresponding right-of-use asset upon commencement of the lease using the implicit rate or a discount rate based on a credit adjusted secured borrowing rate commensurate with the term of the lease.

If both criteria are met, the Company records the associated lease liability and corresponding right-of-use asset upon commencement

ABSCI CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

of the lease using the implicit rate or a discount rate based on a credit adjusted secured borrowing rate commensurate with the term of the lease.

The Company additionally evaluates leases at their inception to determine if they are to be accounted for as an operating lease or a finance lease.

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Research and development expenses

Research and development expenses include the cost of materials, personnel-related costs (comprised of salaries, benefits and share-based compensation), consulting fees and allocated facility costs associated with both the Company’s execution of technology development agreements and collaboration agreements, as well as ongoing development of the Integrated Drug Creation Platform and other technologies.

Allocated facility costs include facility occupancy and information technology costs.

The Company derives improvements to its platform from both types of activities.

The Company has not historically tracked its research and development expenses on a partner-by-partner basis or on a program-by-program basis.

ABSCI CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Research and development expenses include the cost of materials, personnel-related costs (comprised of salaries, benefits and share-based compensation) for personnel performing research and development functions, consulting fees, equipment and allocated facility costs (including occupancy and information technology).

These expenses are exclusive of depreciation and amortization.

Research and development activities consist of continued development of the Company’s Integrated Drug Creation Platform, internal pipeline, target discovery and technology development for partners.

The Company derives improvements to its platform from each type of activity.

Research and development efforts apply to the Company’s platform broadly and across programs.

Stock-based compensation

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Prior to the LLC Conversion, the Company also granted phantom units which due to the presence of an exercise condition contingent upon a liquidity event, the Company determined that it was not probable that the phantom units would become exercisable.

Net Loss Per Share Attributable to Common Stockholders and Unitholders

Net Loss Per Share Attributable to Common Stockholders

Basic and diluted net loss per common share is calculated by dividing net loss by the weighted-average number of common shares outstanding during the period, without consideration for common stock equivalents.

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The new guidance eliminates two of the three models in ASC 470-20 that require separating embedded conversion features from convertible instruments.

As a result, only conversion features accounted for under the substantial premium model in ASC 470-20 and those that require bifurcation in accordance with ASC 815-15 will be accounted for separately.

As a result, only conversion features accounted for under the substantial premium model in ASC 470-20 and those that require bifurcation in accordance with

ABSCI CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ASC 815-15 will be accounted for separately.

For contracts in an entity’s own equity, the new guidance eliminates some of the requirements in ASC 815-40 for equity classification.

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The Company adopted this standard as of January 1, 2021, and the adoption of this standard did not have a material impact on its consolidated financial statements.

Recently issued accounting pronouncements, not yet adopted

In December 2019, the FASB issued amended guidance on the accounting and reporting of income taxes.

The guidance is intended to simplify the accounting for income taxes by removing exceptions related to certain intraperiod tax allocations and deferred tax liabilities;

clarifying guidance primarily related to evaluating the step-up tax basis for goodwill in a business combination;

and reflecting enacted changes in tax laws or rates in the annual effective tax rate.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes.

The amended guidance is effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022.

Early adoption is permitted.

The application of the amendments in the new guidance are to be applied on a retrospective basis, on a modified retrospective basis through a cumulative-effect adjustment to retained earnings or prospectively, depending on the amendment.

The Company is currently evaluating the impact of the potential adoption of this guidance on its consolidated financial statements.

The Company adopted this standard in 2022 on a prospective basis.

The adoption did not have a material impact on its consolidated financial statements.

Revenue recognition

Contract balances

Contract assets are generated when contractual billing schedules differ from revenue recognition timing and the Company records a contract asset when it has an unconditional right to consideration.

As of December 31, 2022 and December 31, 2021, contract assets were $ 1.1 million and $ 0.6 million, respectively.

Contract liabilities are recorded in deferred revenue when cash payments are received or due in advance of the satisfaction of performance obligations.

As of December 31, 2022 and December 31, 2021, contract liabilities were $ 0.4 million and $ 1.4 million, respectively.

During the years ended December 31, 2022 and 2021, the Company recognized $ 1.4 million and $ 1.5 million, respectively, as revenue that had been included in deferred revenue at the beginning of the period.

KBI BioPharma, Inc.

Collaboration agreement

In December 2019, the Company executed a four-year Joint Marketing Agreement (“JMA”) with KBI BioPharma, Inc.

(“KBI”) to co-promote technologies through joint marketing efforts.

In September 2021, the JMA was amended to shorten the term to approximately three years , ending in October 2022.

Pursuant to the JMA, the Company received a non-refundable upfront payment of $ 0.8 million and milestone and other payments of $ 2.6 million in the aggregate upon the achievement of specific milestones.

Acquisition of Denovium

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(“Denovium”), an artificial intelligence deep learning company focused on protein discovery and design.

The Company is integrating Denovium’s technology into its Integrated Drug Creation Platform.

The Company integrated Denovium’s technology into its Integrated Drug Creation Platform.

The acquisition has been accounted for as a business combination.

ABSCI CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Pursuant to the terms of the agreement, the Company acquired all outstanding equity of Denovium for estimated total consideration of $ 3.0 million, which consists of (in thousands):

Pursuant to the terms of the agreement, the Company acquired all outstanding equity of Denovium for estimated total consideration of $ 3.0 million, which consisted of (in thousands):

Cash consideration $ 2,670

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Total purchase consideration $ 3,038

Cash consideration includes a $ 2.5 million upfront payment and a payment for working capital adjustments.

Cash consideration included a $ 2.5 million upfront payment and a payment for working capital adjustments.

In addition to the $ 2.5 million paid upfront, $ 2.5 million was placed into escrow subject to the continued service and/or employment of Denovium’s co-founders over a one-year period.

This amount is not included in the total consideration and is accounted for as compensation expense over the one-year service period, and is included in current restricted cash and accrued expenses on the consolidated balance sheet as of December 31, 2021.

This amount is not included in the total consideration and is accounted for as compensation expense over the one-year service period, and was included in current restricted cash and accrued expenses on the consolidated balance sheet as of December 31, 2021.

The $ 2.5 million deferred payment was disbursed from escrow in January 2022.

ABSCI CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company issued 1,010,296 shares of its common stock to the Denovium co-founders, of which 80 % or 808,238 shares is subject to a Stock Restriction Agreement and vests monthly over a four-year term subject to a service condition.

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Denovium Engine $ 2,507 5

ABSCI CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Acquisition of Totient

On June 4, 2021, the Company entered into a merger agreement with Totient, Inc.

(“Totient”), under which, at the effective time, a wholly owned entity, or Merger Sub, merged with Totient, with Merger Sub surviving as a wholly owned subsidiary of the Company.

Pursuant to the merger agreement, at closing, Totient shareholders became eligible to receive an aggregate payment of $ 55.0 million in cash, of which $ 40.0 million in cash was paid at closing, subject to customary purchase price adjustments and escrow restrictions, and $ 15.0 million in cash shall be paid upon the achievement of expected milestones, and 2,212,208 shares of the Company’s common stock.

The $ 40.0 million cash consideration includes $ 8.0 million of deferred cash payment, due in one year , which is held in escrow and included in current restricted cash and accrued expenses on the consolidated balance sheet as of December 31, 2021.

All common stock issued is unrestricted, except for those shares granted to certain members of Totient’s management, of which 25 % of the shares issued were vested upon the closing of the transaction and the remaining 75 % will vest over 2.5 years, in six month installments subject to their continuing service relationships with the Company.

The following table summarizes the preliminary purchase price (in thousands):

(“Totient”), a discovery company harnessing human immune responses to identify novel antibodies and their therapeutic targets.

Pursuant to the merger agreement, at closing, Totient shareholders became eligible to receive an aggregate payment of $ 55.0 million in cash, of which $ 40.0 million in cash was paid at closing, subject to customary purchase price adjustments and escrow restrictions, and $ 15.0 million in cash shall be paid upon the achievement of specified milestones, and 2,212,208 shares of the Company’s common stock.

The $ 40.0 million cash consideration included $ 8.0 million of deferred cash payment, due in one year .

This amount was included in current restricted cash and accrued expenses on the consolidated balance sheet as of December 31, 2021.

The $ 8.0 million of deferred cash payment was disbursed from escrow in June 2022.

All common stock issued is unrestricted, except for those shares granted to certain members of Totient’s management, of which 25 % of the shares issued were vested upon the closing of the transaction and the remaining 75 % will vest over 2.5 years, in six-month installments subject to their respective continuing service relationships with the Company.

In October 2022, 540,229 restricted shares were forfeited back to the Company due to certain former members of Totient’s management’s service relationship ceasing.

ABSCI CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes the purchase price (in thousands):

Estimated cash payment to Totient stockholders $ 35,368 (i)

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(ii) Pursuant to the merger agreement, 2,212,208 shares of common stock issued in payment to Totient stockholders with 1,282,747 vesting immediately and therefore included in the purchase price consideration.

The remaining 929,461 shares will vest ratably, every six months over 5 equal installments of a 2.5 years service period and will be expensed over the service period.

These shares are subject to a stock restriction agreement that requires certain key Totient executives to maintain a continued service relationship throughout the service period.

(iii) Represents the estimated fair value of the contingent consideration that is payable upon the achievement of the milestone of (i) Absci’s entering into one or more definitive commercialization agreements, or technology partnering or licensing agreements, or collaboration agreements, with third parties using, or related to, Totient’s technology, a target discovered or identified by using Totient’s technology, or a peptide, protein complex or amino acid sequence assembled using Totient’s technology, including any Totient product or enabled product, pursuant to which (a) Absci is entitled to receive at least $ 2.0 million in aggregate upfront cash or equity payments (provided, that the minimum upfront payment under any individual agreement shall be $ 1.0 million and (b) an option for a license or a license or similar right is granted to the third party;

or (ii) first commercial sale of a Totient product or enabled product.

(iii) Represents the estimated fair value of the contingent consideration that is payable upon the achievement of the milestone of (A) Absci’s entering into one or more definitive commercialization agreements, or technology partnering or licensing agreements, or collaboration agreements, with third parties using, or related to, Totient’s technology, a target discovered or identified by using Totient’s technology, or a peptide, protein complex or amino acid sequence assembled using Totient’s technology, including any Totient product or enabled product, pursuant to which (I) Absci is entitled to receive at least $ 2.0 million in aggregate upfront cash or equity payments (provided, that the minimum upfront payment under any individual agreement shall be $ 1.0 million and (II) an option for a license or a license or similar right is granted to the third party;

or (B) first commercial sale of a Totient product or enabled product.

The fair value estimate is based on a probability-weighted approach and will be updated as we obtain more information.

The $ 12.0 million of contingent consideration is included in Other long-term liabilities on the consolidated balance sheet as of December 31, 2021.

The $ 12.0 million of contingent consideration originally measured was adjusted to reflect the increased probability of achievement.

As of December 31, 2022 the fair value is $ 12.8 million and is included in accrued expenses on the consolidated balance sheet.

Changes in the contingent consideration liability fair value are reflected within research and development expenses on the consolidated statement of operations and comprehensive loss.

ABSCI CORPORATION

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Accrued expenses 6,588

Operating lease obligations, current 122

Operating lease obligations 122

Total current liabilities 6,788

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(ii) 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.

Until finalization, the Company’s analysis to assign fair values to all assets acquired and liabilities assumed is preliminary.

The remaining items include the finalization of working capital adjustments, income taxes and contingent consideration liability, and the resulting impact 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.

The effect of measurement period adjustments to the estimated amounts

As of March 31, 2022, the Company had fully completed the analysis to assign fair values to all assets acquired and liabilities assumed and recorded no adjustments to the preliminary purchase price allocation in the year ended December 31, 2022.

During the year ended December 31, 2021, the Company recorded adjustments to goodwill of $ 1.6 million primarily related to deferred taxes.

The Company’s results of operations for the year ended December 31, 2022 include the operating results of Totient within the consolidated statement of operations and comprehensive loss.

The operating results of

ABSCI CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

will be reflected on a prospective basis.

During the year ended December 31, 2021, the Company recorded adjustments to goodwill of $ 1.6 million primarily related to deferred taxes.

Acquisition costs of $ 0.9 million were included in the consolidated statement of operations and comprehensive loss as selling, general and administrative.

The Company’s results of operations for the year ended December 31, 2021 include the operating results of Totient since the date of acquisition, within the consolidated statement of operations and comprehensive loss.

The unaudited financial information in the table below summarizes the combined results of operations of the Company and Totient on a pro forma basis, as though the companies had been combined as of January 1, 2020.

Totient are included within the consolidated statement of operations and comprehensive loss from June 4, 2021 through December 31, 2021 for the year ended December 31, 2021.

Acquisition costs of $ 0.9 million were included in the consolidated statement of operations and comprehensive loss as selling, general and administrative for the year ended December 31, 2021.

The financial information in the table below summarizes the combined results of operations of the Company and Totient on a pro forma basis, as though the companies had been combined as of January 1, 2020.

These pro forma results were based on estimates and assumptions, which we believe are reasonable.

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The pro forma financial information includes adjustments to share-based compensation expense, amortization for acquired intangible assets, interest expense, and transaction costs, and related tax effects.

The pro forma financial information for the years ended December 31, 2021 and 2020 combines our results, which include the results of Totient subsequent to June 4, 2021, and the historical results for Totient for the periods prior to acquisition.

The pro forma results for the year ended December 31, 2020 also include material nonrecurring adjustments for $ 0.9 million of acquisition related costs incurred and $ 1.6 million of costs related to the acceleration of stock appreciation right (“SAR”) and Employee Stock Ownership Plan awards due to preexisting change in control provisions.

The pro forma financial information for the year ended December 31, 2021 combines the Company’s results, which include the results of Totient subsequent to June 4, 2021, and the historical results for Totient for the periods prior to acquisition.

The following table summarizes the pro forma financial information (in thousands):

For the Years Ended December 31,

Net loss applicable to common stockholders and unitholders $ ( 113,119 ) $ ( 60,701 )

For the year ended December 31, 2021

Net loss applicable to common stockholders $ ( 113,119 )

Cash equivalents, marketable securities and deposits are classified as available-for-sale and are, therefore, recorded at fair value on the consolidated balance sheet, with any unrealized gains and losses reported in accumulated other comprehensive income (loss), which is reflected as a separate component of stockholders’ equity in the Company’s consolidated balance sheet, until realized.

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.

The amortized cost and fair value of investments are as follows (in thousands):

December 31, 2022

Amortized cost Gross unrealized gains Gross unrealized losses Fair market value

Money market funds $ 5,050 $ — $ — $ 5,050

Certificates of deposit 27,740 — — 27,740

treasury bills 76,777 2 ( 43 ) 76,736

Total $ 109,567 $ 2 $ ( 43 ) $ 109,526

Classified as:

Cash equivalents $ 5,050

Short-term investments 104,476

Long-term investments —

Total $ 109,526

Investments held as of December 31, 2022 consist of cash equivalents with contractual maturities of three months or less and U.S.

treasury bills with original maturities between four and six months.

Proceeds and interest income from maturities of U.S.

treasury bills were $ 85.0 million and $ 0.4 million, respectively, for the year ended December 31, 2022.

Unrealized gains and losses on securities were primarily due to changes in interest rates.

There are no investments in a continuous unrealized loss position for more than twelve months as of December 31, 2022.

The Company does not intend to sell securities that are in an unrealized loss

ABSCI CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

position and believes that it is not more likely than not that it will be required to sell these securities before recovery of amortized cost.

The Company held no investments as of December 31, 2021.

Property and equipment, net

Property and equipment as of December 31, 2021 and 2020 consists of the following (in thousands):

Property and equipment consists of the following (in thousands):

December 31, December 31,

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Depreciation expense was $ 9.7 million and $ 4.5 million for the years ended December 31, 2022 and 2021, respectively.

Goodwill and Intangibles, net

In January 2021, the Company completed its acquisition of the common stock of Denovium, Inc.(“Denovium”), an artificial intelligence deep learning company focused on protein discovery and design.

The Company integrated Denovium’s technology into its Integrated Drug Creation Platform.

Goodwill arising from the acquisition was attributable to the assembled workforce and expected synergies between the Integrated Drug Creation Platform and the Denovium Engine (“AI Engine”).

In June 2021, the Company entered into a merger agreement with Totient, Inc.

(“Totient”), a discovery company harnessing human immune responses to identify novel antibodies and their therapeutic targets, surviving as a wholly owned subsidiary of the Company.

Goodwill represents the excess of the estimated purchase price over the estimated fair value of Totient’s identifiable assets acquired and liabilities assumed.

Refer to Note 4:

Acquisitions for further information.

Goodwill is as follows (in thousands):

December 31, December 31,

Denovium $ 1,055 $ 1,055

Totient 20,280 20,280

Goodwill $ 21,335 $ 21,335

Goodwill is tested for impairment on an annual basis in the fourth quarter, or sooner if an indicator of impairment exists.

The Company may elect to first assess qualitative factors to determine whether it is more-likely-than-not that the fair value of goodwill at the reporting unit level is less than the carrying amount.

The qualitative assessment includes consideration of relevant events and circumstances that would affect the Company’s single reporting unit, including macroeconomic, industry and market conditions, overall financial performance, and trends in the market price of the Company’s common stock.

The Company performed its annual goodwill impairment test on October 1, 2022 utilizing the qualitative assessment allowable under ASC 350 Intangibles – Goodwill and Other at the reporting unit level.

This analysis included comparing the entity’s carrying amount to its estimated fair value, including an estimated control premium.

The Company’s annual qualitative assessment determined that a quantitative analysis was

ABSCI CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Goodwill and Intangibles, net

The roll forward of goodwill was as follows (in thousands):

Balance, December 31, 2020 $ —

Goodwill acquired related to acquisition of Denovium 1,055

Goodwill acquired related to acquisition of Totient 20,280

Balance, December 31, 2021 $ 21,335

The Company performed its annual goodwill impairment test on October 1, 2021 utilizing the qualitative assessment allowable under ASC 350 Intangibles – Goodwill and Other to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value.

This qualitative assessment may include, but is not limited to, reviewing factors such as macroeconomic considerations, industry and market trends, cost factors, entity-specific financial performance and other events, such as changes in the Company’s management, strategy and primary user base.

If based on a review of qualitative factors, it is more likely than not that the fair value of a reporting unit is less than its carrying value, a quantitative impairment test is performed by comparing the fair value of a reporting unit with its carrying amount.

Based on our review of the qualitative factors, the Company determined that a quantitative impairment analysis was not necessary.

Based on the results of the Company’s annual impairment test, we concluded that goodwill was not impaired.

There were no impairment losses netted against the goodwill balance at any date.

Intangible assets consisted of the following:

December 31, 2021

Gross Assets Accumulated Amortization Net

not necessary.

There were no impairment losses netted against the goodwill balance for the years ended December 31, 2022 and 2021.

Intangible assets are as follows (in thousands):

December 31, 2022 December 31, 2021

Gross Assets Accumulated Amortization Net Gross Assets Accumulated Amortization Net

Denovium Engine 2,507 ( 975 ) 1,532 2,507 ( 473 ) 2,034

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Intangible assets, net $ 57,107 $ ( 5,485 ) $ 51,622 $ 57,107 $ ( 2,115 ) $ 54,992

There was no balance of intangible assets, or related amortization expense, for the year ended December 31, 2020.

Amortization expense related to intangible assets was $ 2.1 million for the year ended December 31, 2021 and is reflected within depreciation and amortization expense on the consolidated statement of operations and comprehensive 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 related to intangible assets was $ 3.4 million and $ 2.1 million for the years ended December 31, 2022 and 2021, respectively, and is reflected within depreciation and amortization expense on the consolidated statement of operations and comprehensive loss.

Future amortization expense for the Company’s intangible assets as of December 31, 2022 are estimated as follows (in thousands):

Years Ending December 31:

Thereafter 38,615

Long-term debt and other borrowings

Loan and Security Agreement (“LSA”)

In June 2018, the Company signed a Loan and Security Agreement (“LSA”) with Bridge Bank (“Bank”), a di vision of Western Alliance Bank.

The purpose of the LSA was to provide long-term financing to the

The purpose of the LSA was to provide long-term financing to the Company through term loans available for borrowing in three tranches up to a maximum of $ 3.0 million through December 2019 upon the attainment of certain milestones as delineated in the LSA.

The first tranche of $ 0.3 million was borrowed in 2018.

Interest on outstanding borrowings under the LSA was charged at a rate of 6 % per annum.

This loan was secured by substantially all tangible assets of the Company;

intellectual property was excluded from the secured collateral but was subject to a negative pledge in favor of the Bank.

The Company was permitted to prepay all, but not less than all, of the term loans at any time upon 10 days written notice, with a prepayment premium beginning at 1.0 % initially and declining to 0% after May 11, 2022.

The Company was required to pay a final payment equal to 3 % of the principal amount funded, which was payable upon the earliest to occur of (i) the maturity date, (ii) acceleration and (iii) the prepayment of the loan.

The Company was required to pay a fee of 3.5 % of the aggregate amount of term loans funded by Bank under the LSA within three business days of a sale or other disposition of substantially all of the Company’s assets, a merger or consolidation, a change in control or an initial public offering.

This fee became payable upon completion of the Company’s IPO on July 26, 2021 and was paid during the year ended December 31, 2021.

This loan was scheduled to originally mature in May 2022, at which time all outstanding principal and accrued and unpaid interest was due and payable.

ABSCI CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Company through term loans available for borrowing in three tranches up to a maximum of $ 3.0 million through December 2019 upon the attainment of certain milestones as delineated in the LSA.

The first tranche of $ 0.3 million was borrowed in 2018.

The Company was obligated to make interest-only payments until the amortization date of June 28, 2019 and after that date to make principal and interest payments.

Interest on outstanding borrowings under the LSA is charged at a rate of 6 % per annum.

This loan was scheduled to originally matured in May 2022, at which time all outstanding principal and accrued and unpaid interest is due and payable.

This loan is secured by substantially all tangible assets of the Company;

intellectual property is excluded from the secured collateral but is subject to a negative pledge in favor of the Bank.

In March 2019, the Company entered into a first amendment to the LSA that increased total borrowings to $ 3.0 million and added a financial liquidity covenant.

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In May 2020, the Company entered into a second amendment to the LSA that increased total borrowings to $ 5.0 million.

The amortization date was extended to May 1, 2021 except, if a certain revenue and new contract bo okings milestone is achieved, the amortization date is extended to November 1, 2021.

The maturity date of the loan was extended to May 11, 2024.

The amendment was accounted for as a debt modification and no gain or loss was recognized in the Company’s financial statements.

As part of the second amendment, the Company paid a one-time amendment fee and a pro-rated final payment in connection with the amendment.

The final payment represents an additional principal payment and is accounted for as a debt discount that will be accreted through the maturity date of the loan based on the effective interest method.

The second amendment extended the term of the fee to May 11, 2030.

In August 2020, the Company entered into a third amendment to the LSA that waived an event of default due to failure to meet a financial covenant.

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This amendment modified the term loan’s maturity date to June 16, 2023.

The Company may prepay all, but not less than all, of the term loans at any time upon 10 days written notice, with a prepayment premium beginning at 1.0 % initially and declining to 0 % after May 11, 2022.

The Company is also required to pay a final payment equal to 3 % of the principal amount funded, which is payable upon the earliest to occur of (i) the maturity date, (ii) acceleration and (iii) the prepayment of the loan.

As part of the second amendment, the Company paid a one-time amendment fee and a pro-rated final payment in connection with the amendment.

In connection with entering into the LSA in June 2018, the Company entered into an agreement whereby the Company is required to pay a fee of 3.5 % of the aggregate amount of term loans funded by Bank under the LSA within three business days of a sale or other disposition of substantially all of the Company’s assets, a merger or consolidation, a change in control or an initial public offering.

Concurrent with the second amendment, the Company and the Bank entered into an amended agreement which extended the term of the fee to May 11, 2030.

This fee became payable upon completion of the Company’s IPO on July 26, 2021 and was paid during the year ended December 31, 2021.

Under the LSA (as amended), the Company is subject to a financial covenant.

The covenant, as amended, requires that the Company maintain at all times either (a) unrestricted cash and cash equivalents in an amount equal to or greater than the Company’s monthly cash burn or (b) trailing 6-month revenue of at least 80 % of the Company’s revenue projections (over the same 6-month period) determined using the lender’s measurement method.

As of December 31, 2021, the Company was in compliance with this financial covenant.

As of December 31, 2021, the outstanding principal balance under the LSA was $ 3.4 million .

ABSCI CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Future maturities of the amounts outstanding under the LSA as of December 31, 2021 are as follows (in thousands):

Years ending December 31:

Total principal, including final fee 3,550

amount representing debt discounts and issuance costs ( 26 )

Total long-term debt $ 3,524

The carrying amount of the long-term debt approximates fair value.

In May 2020, the Company received a PPP loan pursuant to the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) in the amount of $ 0.6 million.

The loan had a two-year term and bore a fixed interest rate of 1 %.

Under the terms of the CARES Act, the loan was eligible to be forgiven, in part or whole, if the proceeds were used to retain and pay employees and for other qualifying expenditures.

In February 2021, the Company received notification from the Small Business Administration that they approved the forgiveness of the full $ 0.6 million PPP loan and a gain on extinguishment in this amount was recorded as other income in the consolidated statement of operations and comprehensive loss.

In February 2022, the Company entered into a sixth amendment to the LSA.

This amendment modified various definitions and terms within the agreement, with no adjustments to the financial terms.

In June 2022, the Company paid off the remaining $ 2.4 million outstanding balance of the LSA.

Con vertible Notes

In March 2021, the Company entered into a Note Purchase Agreement to issue and sell $ 125.0 million convertible promissory notes (the “2021 Notes”) to certain investors.

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Immediately prior to the completion of the IPO, all outstanding principal under the 2021 Notes and the related accrued interest expense were converted into an aggregate of 9,732,593 shares of our common stock based on an initial public offering price of $ 16.00 per share.

In December 2020, the Company entered into a lease agreement for a new 61,607 square foot facility in Vancouver, Washington.

The lease term commenced in December 2020 and initially was set to end in April 2026, with the Company’s option to renew through April 2031.

The lease agreement provides for annual base rent of approximately $ 1.2 million in the first year of the lease term which increases on an annual basis to approximately $ 1.5 million in the final year of the initial lease term.

As part of the lease agreement, the lessor provided tenant incentives in the amount of $ 2.5 million.

In March 2021, the Company entered into an amendment to its lease agreement with respect to its new facility currently under construction.

The amendment made certain changes to the original lease, including (i) the addition of 16,367 square feet of office and laboratory space at the same site (“Expansion Premises”) and (ii) an extension of the expiration date of the original lease by 24 months following the rent commencement date of April 1, 2021.

The amendment provides for annual base rent for the Expansion Premises of approximately $ 0.3 million in the first year of the lease term, which increases on an annual basis to approximately $ 0.4 million in the final year of the lease term.

The amendment also provides for additional tenant incentives in the amount of $ 0.7 million.

Additionally, with the execution of this amendment, the Company obtained a one-time option to terminate the lease for the original premises and Expansion Premises after five years .

All other terms of the lease amendment for the Expansion Premises are consistent with the

Equipment Financing

In 2022, the Company received a total of $ 12.0 million of proceeds from equipment financing arrangements.

Terms of the agreements require monthly payments over 42 - 48 month maturities with imputed interest rates ranging 8 %- 10 %.

All outstanding principal and accrued and unpaid interest are due and payable at maturity.

These loans are secured by certain tangible assets of the Company and include certain financial liquidity covenants.

The Company was in compliance with all applicable financial covenants as of December 31, 2022.

The carrying amount of the long-term debt approximates fair value.

ABSCI CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

existing new facility lease agreement.

Under the amendment, the Company retains its original option to renew the lease for an additional five-year term, at then-current market rates.

In conjunction with the new facility lease and lease amendment, the Company entered into an agreement with a construction company for purposes of building out the facility and customizations for a total estimated cost of approximately $ 24.5 million.

The Company moved into its new facility in May 2021 and has completed its move out of its prior office and laboratory facility, for which the Company’s lease continues through August 2024.

During the fourth quarter of 2021, the Company determined it would no longer utilize the prior office and facility and is currently evaluating different options with the lessor.

As a result, during the year ended December 31, 2021, the Company recognized $ 0.6 million in impairment expense of certain operating lease right-of-use assets and $ 0.3 million in impairment of leasehold improvements.

Future undiscounted payments for the Company’s financing liabilities as of December 31, 2022 are as follows (in thousands):

Years ending December 31:

Total future payments 12,604

Imputed interest ( 1,674 )

Total long-term debt $ 10,930

Facility leases

The Company leases its corporate headquarters and primary research and development facility located in Vancouver, Washington in a 77,974 square foot facility that includes general administrative office and laboratory space.

The corporate headquarters lease commenced in December 2020 and ends in April 2028, with an option to renew the lease for an additional five-year term, at then-current market rates.

The lease agreement provides for annual base rent of approximately $ 1.4 million in the first year of the lease term which increases on an annual basis to approximately $ 2.0 million in the final year of the initial lease term.

As part of the lease agreement, the lessor provided tenant incentives in the amount of $ 3.1 million.

The Company has a one-time option to terminate the lease after five years .

The Company moved from its former office and laboratory facility during the second quarter of 2021, for which the Company’s lease continues through August 2024.

The Company determined it would no longer utilize the space and during the years ended December 31, 2022 and 2021, the Company recognized $ 0.4 million and $ 0.9 million, respectively, in impairment expense of certain operating lease right-of-use assets and related leasehold improvements resulting from the discontinued use.

For each of the Company’s facility lease agreements, the Company is responsible for taxes, insurance and maintenance costs.

The Company leases certain laboratory equipment under finance leases.

Property and equipment includes approximately $ 8.8 million and $ 4.3 million of assets under finance leases as of December 31, 2021 and 2020, respectively.

Accumulated depreciation related to assets under finance leases was approximately $ 1.8 million and $ 0.9 million as of December 31, 2021 and 2020, respectively.

The components of lease expense were as follows (in thousands):

The components of lease expense are as follows (in thousands):

For the Years Ended December 31,

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$ 2,549 $ 2,360

Equipment leases

The Company leases certain laboratory equipment under finance leases.

Property and equipment includes approximately $ 7.0 million and $ 8.8 million of assets under finance leases as of December 31, 2022 and December 31, 2021, respectively.

Accumulated depreciation related to assets under finance leases was approximately $ 3.1 million and $ 1.8 million as of December 31, 2022 and December 31, 2021, respectively.

ABSCI CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Future undiscounted lease payments for the Company’s lease liabilities as of December 31, 2022 are as follows (in thousands):

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2025 1,873 86

Thereafter 672 —

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Imputed interest ( 2,002 ) ( 187 )

Lease incentive ( 34 ) —

Present value of lease liabilities $ 9,007 $ 3,046

ABSCI CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Additional information related to the Company’s leases as of December 31, 2021 and 2020 is as follows:

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

December 31, 2022 December 31, 2021

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The Company had not previously accreted the convertible preferred stock to its redemption value since the shares were not redeemable and redemption was not deemed to be probable.

The following table summarizes the authorized, issued, and outstanding redeemable convertible preferred stock of the Company as of December 31, 2020 (in thousands, except share and per share data):

December 31, 2020

Shares Authorized Shares Issued and Outstanding Issuance Price per Share Net Proceeds Liquidation Preference

Convertible Preferred Stock:

Junior 1,573,547 1,573,547 $ 1.00 $ 1,462 $ 1,989

Series A-1 2,793,007 2,700,000 1.00 2,700 3,453

Series A-2 1,500,000 1,500,000 1.00 1,500 1,885

Series B 1,372,549 1,372,549 1.53 2,065 2,526

Series C 1,760,252 1,760,252 6.95 11,979 14,110

Series D 1,532,176 1,532,176 9.79 14,951 15,852

Series E 3,313,519 3,313,519 19.62 64,709 163,280

Total convertible preferred stock 13,845,050 13,752,043 $ 99,366 $ 203,095

Immediately prior to the completion of the IPO, all shares of redeemable convertible preferred stock then outstanding were converted into 46,266,256 shares of common stock.

ABSCI CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Preferred stock warrants

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This warrant was exchanged for a warrant to purchase Class A-1 preferred stock at equivalent terms in October 2020.

Because the underlying shares are redeemable for conditions outside of the Company’s control, the warrant was classified within other long-term liabilities on the consolidated balance sheets and recognized at fair value at each reporting period with the change in fair value recorded in other expense on the consolidated statement of operations and comprehensive loss prior to the IPO.

The balance was included in other long-term liabilities on the consolidated balance sheet prior to the IPO.

Because the underlying shares are redeemable for conditions outside of the Company’s control, the

ABSCI CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

warrant was classified within other long-term liabilities on the consolidated balance sheets and recognized at fair value at each reporting period with the change in fair value recorded in other expense on the consolidated statement of operations and comprehensive loss prior to the IPO.

The warrant was converted into a warrant to purchase 307,211 shares of the Company’s common stock upon the closing of the IPO.

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Prior to the LLC Conversion, the Company granted incentive units and phantom units under its 2015 Equity-Based Incentive Plan (“2015 Plan”) to employees and non-employee service providers.

In October 2020, in conjunction with the LLC Conversion, the Company adopted the 2020 Stock Option and Grant Plan (“2020 Plan”) under which it granted stock options, restricted shares, and SARs as replacement awards for outstanding awards under the 2015 Plan and as new awards to incentivize employee service.

In October 2020, in conjunction with the LLC Conversion, the Company adopted the 2020 Stock Option and Grant Plan (“2020 Plan”) under which it granted stock options, restricted shares, and stock appreciation rights (“SARs”) as replacement awards for outstanding awards under the 2015 Plan and as new awards to incentivize employee service.

Upon completion of the IPO, the Company adopted the 2021 Stock Option and Incentive Plan (“2021 Plan”).

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Accordingly, the restricted shares are measured at the grant date fair value of the incentive units.

Shares of restricted stock that do not vest are subject to our right of repurchase or forfeiture.

Shares of restricted stock that do not vest are subject to the Company’s right of repurchase or forfeiture.

In connection with its acquisitions of Denovium and Totient, the Company issued restricted shares of common stock that vest over time subject to continued service.

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Unvested as of December 31, 2021 2,585,670

Granted 2,441,129

Repurchased ( 789,846 )

Vested ( 782,516 )

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As of December 31, 2022, there was $ 2.3 million of unrecognized compensation expense related to the restricted shares expected to be recognized over a remaining weighted-average period of 2.0 years.

During the year ended December 31, 2022, the Company granted 68,175 shares of restricted stock units to certain employees and consultants under the 2021 Plan.

As of December 31, 2022, 36,129 shares of these restricted stock units were outstanding and unvested.

As of December 31, 2022, total unrecognized stock-based compensation related to these restricted stock units was $ 0.3 million, which the Company expects to recognize over a remaining weighted average period of 2.6 years.

ABSCI CORPORATION

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The stock options vest based on a service condition, generally over a 4-year term beginning with the vesting commencement date of the exchanged phantom units.

The aggregate intrinsic value of the 394,736 SARs outstanding as of December 31, 2021 is $ 3.2 million based on the estimated fair value of common stock of $ 8.20 .

The Company recognizes expense associated with the cash payment rights within stock-based compensation and began to make payments in February 2022 for vested rights.

As cash payment rights continue to vest, payments are made monthly.

The aggregate intrinsic value of the 394,736 SARs outstanding as of December 31, 2022 is $ 0.8 million based on the Company’s closing stock price of $ 2.10 per share as reported on the Nasdaq Global Select Market on such date.

ABSCI CORPORATION

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Canceled/ Forfeited ( 3,192,316 ) 5.22

Expired ( 277,651 ) 5.84

Outstanding at December 31, 2022 11,429,399 4.49 8.4 2,949

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The weighted-average grant date fair value of stock options granted during the years ended December 31, 2022 and 2021 was $ 3.18 and $ 4.28 , respectively.

The fair value of options vested during the years ended December 31, 2021 and 2020 was $ 2.4 million and $ 0.1 million, respectively.

The grant date fair value of options vested during the years ended December 31, 2022 and 2021 was $ 9.6 million and $ 2.4 million, respectively.

The intrinsic value of options exercised, which represents the value of the Company’s common stock at the time of exercise in excess of the exercise price, was $ 2.1 million during the year ended December 31, 2022.

As of December 31, 2022, total unrecognized stock-based compensation related to stock options was $ 24.9 million, which the Company expects to recognize over a remaining weighted average period of 2.9 years.

Under the 2020 Plan and 2021 Plan, the Company has also granted a limited quantity of cash-settled stock appreciation rights to certain international-based employees and consultants.

As of December 31, 2021, 100,881 of these stock appreciation rights were outstanding with a weighted average exercise price of $ 4.97 .

As of December 31, 2021, the Company had recognized a liability of $ 0.1 million classified within other long-term liabilities on the consolidated balance sheets and total unrecognized stock-based compensation related to these cash-settled stock appreciation rights was $ 0.7 million, which the Company expects to recognize over a remaining weighted average period of 3.5 years.

Under the 2020 Plan and 2021 Plan, the Company has also granted a limited quantity of cash-settled SARs to certain employees and consultants based outside the United States.

As of December 31, 2022, 127,846 of these SARs were outstanding with a weighted average exercise price of $ 5.72 per share.

The fair value is remeasured at the end of each reporting period based on the Company’s stock price, with remeasurements reflected as an adjustment to compensation expense in the consolidated statements of operations and comprehensive loss.

As of December 31, 2022 and December 31, 2021, the Company had recognized $ 0.0 million and $ 0.1 million, respectively, classified within other long-term liabilities on the consolidated balance sheets.

Determination of Fair Value

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The Company estimated the fair value of its common stock underlying the stock-based awards when performing fair value calculations using the Black-Scholes option pricing model.

Because the Company’s common stock was not publicly traded during the periods prior to the IPO, the fair value of its common stock underlying the stock-based awards was determined on each grant date by management and approved by the Board, considering the most recently available third-party valuation of the Company’s common stock for those periods.

During the periods prior to the IPO, the fair value of its common stock underlying the stock-based awards was determined on each grant date by management and approved by the Board, considering the most recently available third-party valuation of the Company’s common stock for those periods.

For all grants subsequent to the IPO, the fair value of common stock was determined by using the closing price per share of common stock as reported on the Nasdaq Global Select Market.

All options to purchase shares of the Company’s common stock are intended to be granted with an exercise price per share no less than the fair value per share of the common stock underlying those options on the date of grant, based on the information known to the Company on the date of grant.

The Company’s determination of the value of its common stock was performed using methodologies, approaches and assumptions consistent with the American Institute of Certified Public Accountants (“AICPA”), Audit and Accounting Practice Aid Series:

During the periods prior to the IPO, the Company’s determination of the value of its common stock was performed using methodologies, approaches and assumptions consistent with the American Institute of Certified Public Accountants (“AICPA”), Audit and Accounting Practice Aid Series:

Valuation of Privately Held Company Equity Securities Issued as Compensation (“AICPA Practice Aid”).

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• external market conditions affecting the life sciences and biotechnology industry sectors;

and global economic conditions;

• the likelihood of achieving a liquidity event for the holders of the Company’s common stock, given prevailing market conditions;

• US and global economic conditions;

ABSCI CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

• the likelihood of achieving a liquidity event for the holders of the Company’s common stock, given prevailing market conditions;

• the market value and volatility of comparable companies.

1 unchanged sentence

The cost approach establishes the value of an enterprise based on the cost of reproducing or replacing the property less depreciation and functional or economic obsolescence, if present.

The income approach establishes the value of an enterprise based on the present value of future cash flows that are reasonably reflective of our future operations, discounting to the present value with an appropriate risk adjusted discount rate or capitalization rate.

The market approach is based on the assumption that the value of an asset is equal to the value of a substitute asset with the same characteristics.

The income approach established the value of an enterprise based on the present value of future cash flows that were reasonably reflective of our future operations, discounting to the present value with an appropriate risk adjusted discount rate or capitalization rate.

The market approach was based on the assumption that the value of an asset is equal to the value of a substitute asset with the same characteristics.

In accordance with the AICPA Practice Aid, the Company considered the various methods for allocating the enterprise value to determine the fair value of its common stock at the valuation date.

Under the option pricing method (“OPM”), shares are valued by creating a series of call options with exercise prices based on the liquidation preferences and conversion terms of each equity class.

The value of the common stock is inferred by analyzing these options.

The probability weighted expected return method (“PWERM”) is a scenario-based analysis that estimates the value per share based on the probability-weighted present value of expected future investment returns, considering each of the possible outcomes available to us, as well as the economic and control rights of each share class.

Starting in 2020 and until the IPO in July 2021, the Company used a hybrid method to determine the estimated fair value of its common stock, which included both the OPM and PWERM models.

Under the option pricing method (“OPM”), shares were valued by creating a series of call options with exercise prices based on the liquidation preferences and conversion terms of each equity class.

The value of the common stock was inferred by analyzing these options.

The probability weighted expected return method (“PWERM”) was a scenario-based analysis that estimated the value per share based on the probability-weighted present value of expected future investment returns, considering each of the possible outcomes available, as well as the economic and control rights of each share class.

Until the IPO in July 2021, the Company used a hybrid method to determine the estimated fair value of its common stock, which included both the OPM and PWERM models.

In June 2021, the Company increased the number of shares of common stock reserved for future issuance under the 2020 Plan to 11,980,029 .

In July 2021, upon the completion of IPO, the Company adopted the 2021 Plan.

The number of shares of common stock initially reserved for future issuance under the 2021 Plan is 8,133,750 .

The number of shares of common stock initially reserved for future issuance under the 2021 Plan was 8,133,750 .

On January 1, 2022, the number of shares of common stock reserved for future issuance under the 2021 Plan was increased by 4,632,401 shares pursuant to an automatic annual increase.

As of December 31, 2022, 8,874,295 shares were available for issuance under the 2021 Plan.

Employee Stock Purchase Plan

In July 2021, the Company’s board of directors adopted the 2021 Employee Stock Purchase Plan (“2021 ESPP”), which was subsequently approved by the Company’s stockholders and became effective in connection with the IPO.

In July 2021, the Board adopted the 2021 Employee Stock Purchase Plan (“2021 ESPP”), which was subsequently approved by the Company’s stockholders and became effective in connection with the IPO.

A total of 903,750 shares of common stock were reserved for issuance under the 2021 ESPP.

The first offering period has not commenced as of December 31, 2021 and there is no stock-based compensation related to the 2021 ESPP for the period ended December 31, 2021.

The ESPP allows eligible employees to purchase shares of the Company’s common stock through payroll deductions of up to 15 % of their regular compensation at a discount of 85 % of the fair market value of the Company’s common stock on the first day or last day, whichever is less, of the applicable offering period, subject to any plan limitations.

The first offering period commenced in October 2022, and, as of December 31, 2022, no shares of common stock had been issued under the 2021 ESPP.

Fair Value Measurements

US GAAP defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis.

The Financial Accounting Standards Board (“FASB”) has defined fair value to establish a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis.

Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.

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Observable inputs such as quoted prices in active markets.

ABSCI CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly.

1 unchanged sentence

When quoted market prices are available in active markets, the fair value of assets and liabilities is estimated within Level 1 of the valuation hierarchy.

If quoted prices are not available, then fair values are estimated by using pricing models, quoted prices of assets and liabilities with similar characteristics, or discounted cash flows, within Level 2 of the valuation

ABSCI CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In cases where Level 1 or Level 2 inputs are not available, the fair values are estimated by using inputs within Level 3 of the hierarchy.

As part of the Class A-1 funding in 2016, a warrant for the purchase of 93,007 Class A-1 Preferred Units at an exercise price of $ 1 per unit and exercisable at any time before April 2026 was granted to an investor.

This warrant was exchanged for a warrant to purchase Series A-1 preferred stock at equivalent terms in October 2020 (Note 9:

Redeemable convertible preferred stock).

The value for the warrant was based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy.

During 2018, the Company entered into an agreement whereby the Company is required to pay a fee of 3.5 % of the aggregate amount of term loans funded by Bank under the LSA within three business days of a sale or other disposition of substantially all of the Company’s assets, a merger or consolidation, a change in control or an initial public offering (Note 6:

Long-term debt and other borrowings).

This agreement has been accounted for as a freestanding derivative under ASC 815, Derivatives and is remeasured to its fair value at the end of each reporting period.

The value for the fee (“Fee in lieu of warrant”) is based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy.

Except for short-term investments, the 2021 Notes and the warrant, none of the Company’s assets or liabilities are recorded at fair value on a recurring basis.

The following table summarizes the Company’s assets and liabilities measured at fair value on a recurring basis as of December 31, 2021 and December 31, 2020 (in thousands):

The following tables summarize the Company’s assets and liabilities measured at fair value on a recurring basis as of December 31, 2022 and December 31, 2021 (in thousands):

December 31, 2022

Level 1 Level 2 Level 3 Total

Debt Securities:

Money market funds $ 5,050 $ — $ — $ 5,050

Certificates of deposit 27,740 — — 27,740

treasury bills 76,736 — — 76,736

Equity Securities:

Equity securities without RDFV — — 1,200 1,200

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Level 1 Level 2 Level 3 Total

Fee in-lieu of warrant $ — $ — $ 22 $ 22

Preferred stock warrant liability — — 698 698

Equity securities without RDFV $ — $ — $ 1,200 $ 1,200

Total assets $ — $ — $ 1,200 $ 1,200

Contingent consideration $ — $ — $ 12,000 $ 12,000

Total liabilities $ — $ — $ 12,000 $ 12,000

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The following table provides reconciliation for all liabilities measured at fair value using significant unobservable inputs (Level 3) for the year ended December 31, 2022 (in thousands):

Fee in-lieu of warrant Convertible promissory notes Preferred stock warrant liability Contingent consideration Total liabilities

Contingent consideration Total liabilities

Balance at December 31, 2021 $ 12,000 $ 12,000

Fair value at issuance — 125,000 — 12,000 137,000

Change in fair value during 2022 750 750

Conversion or payment at IPO ( 196 ) ( 155,722 ) ( 4,822 ) — ( 160,740 )

Balance at December 31, 2022 $ 12,750 $ 12,750

Based on the probability of a liquidity event, the Company primarily utilized the expected IPO price to estimate the fair value of the preferred stock warrant liability through the IPO date.

The warrant was converted into a warrant to purchase 307,211 shares of the Company’s common stock upon the closing of the IPO and was exercised to purchase common stock during the period ended December 31, 2021 following the IPO.

The fee-in-lieu of warrant liability is measured based on management’s estimate of the probability of a liquidity event, the estimated timing thereof, and a discount rate.

The fee-in-lieu of warrant was paid during the period ended December 31, 2021 following the IPO.

The Company measured the fair value of the 2021 Notes at issuance using the transaction price.

For the period from the issuance date through the IPO date, the Company increased the estimated fair value based on the increased probability of an IPO.

The 2021 Notes converted to common stock during the period ended December 31, 2021 immediately prior to the IPO.

The contingent consideration liability is related to the Totient acquisition and is included in Other long-term liabilities on the consolidated balance sheet as of December 31, 2021.

Refer to Note 3:

Acquisitions for further information.

We review trading activity and pricing for our available-for-sale securities as of the measurement date.

The fair value of equity securities without readily determinable fair market values (“RDFV”) is determined based on cost, less any impairment, plus or minus changes in fair value resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer.

These securities are classified as Level 3 in the fair value hierarchy outlined above.

The contingent consideration liability is related to the Totient acquisition and is included in accrued expenses on the consolidated balance sheet as of December 31, 2022.

The change in fair value of the contingent consideration liability is included within research and development expense on the consolidated statement of operations for the year ended December 31, 2022.

Refer to Note 4:

Acquisitions for further information.

There are significant judgments, assumptions and estimates inherent in the determination of the fair value of each of the instruments described above.

These include determination of a valuation method and selection of the possible outcomes available to the Company, including the determination of timing and expected future investment returns for such scenarios.

Prior to the IPO, the Company considered the equity value of an initial public offering using market transactions and determined the expected value of a stay private scenario using the income approach, which was based on assumptions regarding the Company’s future operating performance.

The related judgments, assumptions and estimates are highly interrelated and changes in any one assumption could necessitate changes in another.

In particular, any changes in the probability of a particular outcome would require a related change to the probability of another outcome.

In addition, the fair value of the 2021 Notes is derived using assumptions that are consistent with the assumptions used to value the Company’s common stock, the fee in-lieu of warrant and the warrant.

In the future, depending on the valuation approaches used and the expected timing and weighting of each, the inputs described above, or other inputs, may have a greater or lesser impact on the Company’s estimates of fair value.

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Participants may contribute, on a pre-tax or post-tax basis, a percentage of their annual compensation, not to exceed a maximum contribution amount pursuant to Section 401(k) of the Internal Revenue Code.

The Company match is 100 % of the employees’ first contribution of 3 %, plus 50 % of the next 2 % of eligible compensation contributed by the employee, up to a maximum Company match of 4 % of

ABSCI CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

compensation for each employee.

The Company match is 100 % of the employees’ first contribution of 3 %, plus 50 % of the next 2 % of eligible compensation contributed by the employee, up to a maximum Company match of 4 % of compensation for each employee.

The Company contributed $ 1.0 million and $ 0.6 million for the years ended December 31, 2022 and 2021, respectively.

Related Party Transactions

The Company is party to a joint development agreement with AGC, Inc., the parent company of the employer of one of the Company’s former directors (resignation effective April 2021) .

No revenue was recognized under the agreement during 2021 through April 2021.

Revenue recognized under the agreement f or the year ended December 31, 2020 was $ 0.2 million.

Th e Company has the opportunity to earn additional revenues under the agreement if pre-determined milestones are achieved.

During the period ended December 31, 2021, the employer of one of the Company’s board members exercised a warrant to purchase 307,211 shares of the Company’s common stock.

The Company’s total cash proceeds from the warrant’s exercise was $ 0.1 million.

Net loss per share attributable to common stockholders and unitholders

Basic net loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period.

The following table sets forth the computation of the Company’s basic and diluted net loss per share attributable to common unitholders and stockholders (in thousands, except share and per share amounts):

During the year ended December 31, 2021, Phoenix Venture Partners II, L.P.

exercised a warrant to purchase 307,211 shares of the Company’s common stock at an exercise price of $ 0.3027 per share, resulting in total cash proceeds to the Company of $ 0.1 million.

Zachariah Jonasson, a member of the Board, is a principal of Phoenix Venture Partners II, L.P.

ABSCI CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Net loss per share attributable to common stockholders

Basic net loss per share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding during the period.

The following table sets forth the computation of the Company’s basic and diluted net loss per share attributable to common stockholders (in thousands, except share and per share amounts):

For the Years Ended December 31,

Net loss $ ( 104,904 ) $ ( 100,960 )

Adjustment of redeemable convertible preferred stock and units — ( 34,336 )

Cumulative undeclared preferred stock dividends — ( 2,284 )

Net loss available to common stockholder and unitholders $ ( 103,244 ) $ ( 49,469 )

Weighted-average common shares and units outstanding 49,685,194 15,494,908

Net loss available to common stockholder $ ( 104,904 ) $ ( 103,244 )

Weighted-average common shares outstanding 90,845,629 49,685,194

Net loss per share, basic and diluted $ ( 1.15 ) $ ( 2.08 )

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

Redeemable convertible preferred stock and units outstanding 25,489,573 45,424,373

Redeemable convertible preferred stock and unit warrants 189,377 307,211

For the Years Ended December 31,

Redeemable convertible preferred stock — 25,489,573

Redeemable convertible preferred stock warrants — 189,377

Stock options 10,751,992 6,379,236

Restricted stock units 47,086 —

Unvested restricted stock 1,859,446 2,616,641

for information regarding

ABSCI CORPORATION

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Provision for Income Taxes:

The Company was classified as a partnership, and was therefore a pass-through entity, for U.S.

income tax purposes through the LLC Conversion on October 15, 2020.

The Company was classified as a partnership, and was therefore a pass-through entity, for US income tax purposes through the LLC Conversion on October 15, 2020.

The Company incurred net losses for the years ended December 31, 2022 and 2021.

The significant components of income tax for the years ended December 31 are as follows (in thousands):

The significant components of income tax benefit are as follows (in thousands):

Years Ended December 31,

Federal $ — $ —

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Total $ ( 461 ) $ ( 8,899 )

The income tax benefit for the years ended December 31, 2022 and 2021 primarily relate to change in valuation allowance offset by state taxes and taxes in foreign jurisdictions.

The provision for income taxes results in effective tax rates which are different than the federal income tax statutory rate.

The nature of the differences for the years ended December 31, 2021 and 2020 were as follows:

Expected federal income tax 21.0 % 21.0 %

State income taxes after credits 4.8 4.2

Tax-effect of change in entity status 0.3 ( 3.7 )

Change in valuation allowance ( 9.1 ) ( 3.3 )

Research and development credits 0.6 0.1

The following include the nature of the differences for the years ended December 31, 2022 and 2021:

Statutory federal income tax rate 21.0 % 21.0 %

State income taxes, net of federal benefits 5.9 4.8

Tax contingencies, net of reversals ( 0.6 ) —

Section 162(m) limitation ( 0.2 ) —

Stock-based compensation ( 0.5 ) ( 0.9 )

Revaluation of warrant liability ( 1.0 ) ( 0.2 )

Research and development credits 2.4 0.6

Return-to-provision 0.6 —

Change in valuation allowance ( 27.1 ) ( 9.1 )

Change in fair value of convertible promissory notes — ( 6.6 )

Loss allocable to pre-incorporation period — ( 17.7 )

Tax-effect of change in entity status — 0.3

Revaluation of warrant liability — ( 1.0 )

Other ( 1.1 ) ( 1.0 )

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Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of the assets and liabilities for financial reporting purposes and amounts used for income tax purposes.

Significant components of the Company’s deferred income tax assets and liabilities are as follows at December 31, 2021 and 2020 (in thousands):

Significant components of the Company’s deferred income tax assets and liabilities as of December 31, 2022 and 2021 are as follows (in thousands):

Deferred tax assets:

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Research and development credits 3,835 698

Capitalized research and development expenses 13,350 —

Stock-based compensation 3,498 1,342

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Deferred tax liabilities:

Depreciation and amortization ( 15,221 ) ( 520 )

Right-of-Use Lease ( 2,540 ) ( 1,130 )

Property and equipment ( 1,971 ) ( 1,054 )

Intangibles ( 13,800 ) ( 14,167 )

Right-of-use lease asset ( 2,125 ) ( 2,540 )

Gross deferred tax liabilities ( 17,896 ) ( 17,761 )

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NOLs generated prior to 2018 are eligible to be carried forward up to 20 years.

State net operating losses can be carried forward for 5 to 20 years depending on the jurisdiction and will begin to expire in years 2025 to 2040.

State net operating losses can be carried forward for 5 to 20 years depending on the jurisdiction and will begin to expire in years 2035-2042.

The company also has Federal research credit carryforwards of approximately $ 3.8 million that will begin to expire in 2039.

We file federal and certain state income tax returns, which provide varying statutes of limitations on assessments.

However, because of NOL carryforwards, substantially all tax years since the Company’s incorporation remain open to federal and state tax examination.

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred assets will be realized.

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Evaluating the need for a valuation allowance for deferred tax assets often requires judgment and analysis of all the positive and negative evidence available, including cumulative losses in recent years and projected future taxable income, to determine whether all or some portion of the deferred tax assets will not be realized.

As of December 31, 2021, the Company has utilized a full valuation allowance to offset the net deferred tax assets as the Company believes it is not more likely than not that the net deferred tax assets will be fully realizable.

As of December 31, 2022, the Company has recorded a full valuation allowance to offset the net deferred tax assets as the Company believes it is not more likely than not that the net deferred tax assets will be fully realizable.

The valuation allowance increased $ 28.5 million during the year ended December 31, 2022 and $ 10.0 million during the year ended December 31, 2021.

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A formal Section 382 study was not performed through December 31, 2022.

The Company has not recognized withholding tax accrual for the undistributed earnings of its foreign operations as the Company considers these earning to be indefinitely reinvested.

ABSCI CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We recognize the effect of income tax positions only if those positions are more likely than not of being sustained.

We had unrecognized tax benefits of $ 0.7 million as of December 31, 2021 and no unrecognized tax benefits as of December 31, 2020.

We recognize penalties and interest related to unrecognized tax benefits as a component of income tax expense.

The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained.

The Company had unrecognized tax benefits of $ 1.4 million as of December 31, 2022 and $ 0.7 million unrecognized tax benefits as of December 31, 2021.

The Company recognizes penalties and interest related to unrecognized tax benefits as a component of income tax expense.

As of December 31, 2022 and December 31, 2021, there are no accrued penalties or interest recorded in the financial statements.

All unrecognized tax benefits would currently not have an impact on the effective rate if recognized.

The following is a reconciliation of our unrecognized tax benefits:

The following is a reconciliation of the Company’s unrecognized tax benefits (in thousands):

Balance at January 1 $ 698 $ —

Additions Based On Tax Positions Related to Current Year 641 698

Additions Based On Prior Tax Positions 51 —

Reductions For Tax Positions In Prior Years — —

Settlements —

Balance at December 31 $ 1,390 $ 698

The Company does not anticipate any significant increases or decreases in its uncertain tax positions within the next twelve months.

As of December 31, 2022 the Company’s statutes of limitations are open for all federal and state years filed after the years ended December 31, 2019 and 2018, respectively.

Net operating loss and credit carryforwards from all years are subject to examination and adjustments for the three years following the year in which the carryforwards are utilized.

The Company is not currently under Internal Revenue Service or state examination.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosures

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data