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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to __________
Commission file number 001-40646
ABSCI CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
85-3383487
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
18105 SE Mill Plain Blvd
Vancouver, WA

98683
(Address of Principal Executive Offices)
(Zip Code)
(360) 949-1041
Registrant's telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock. $0.0001 par value ABSIThe Nasdaq Global Select Market
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.    Yes  o    No  x
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes   x  No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).        Yes        N ☒
The registrant had outstanding 92,557,233 shares of $0.0001 par value common stock as of August 31, 2021


Table of Contents
Table of Contents
Page No.
Item 1.
Item 6.


Table of Contents
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q includes “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements that may relate to our plans, objectives, goals, strategies, future events, future revenue or performance, capital expenditures, financing needs and other information that is not historical information. Many of these statements appear, in particular, under the headings “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors.” Forward-looking statements can often be identified by the use of terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other comparable terminology. In addition, any statements or information that refer to expectations, beliefs, plans, projections, objectives, performance or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking. In particular, these forward-looking statements include, but are not limited to:
our expectations regarding our further development of, successful application of, and the rate and degree of market acceptance of, our Integrated Drug Creation Platform;
our expectations regarding the markets for our services and technologies, including the growth rate of the biologics and next-generation biologics markets;
our ability to attract new partners and enter into technology development agreements that contain milestone and royalty obligations in favor of us;
the potential to receive revenue for the achievement of milestones and royalties under agreements for sales of products originating from our Integrated Drug Creation Platform;
our ability to enter into license agreements with the partners in our existing Active Programs for which our partners do not have current milestone and royalty obligations;
our ability to manage and grow our business by expanding our relationships with existing partners or introducing our Integrated Drug Creation Platform to new partners;
our expectations regarding our current and future partners’ continued development of, and ability to commercialize, biologic drugs generated utilizing our platform;
our estimates of our expenses, ongoing losses, future revenue, capital requirements and our need for or ability to obtain additional funding before we can expect to generate any revenue;
our estimates of the sufficiency of our cash resources;
our ability to establish, maintain or expand collaborations, partnerships or strategic relationships;
our ability to provide our partners with a full biologic drug discovery and cell line development solution from target to IND-ready, including non-standard amino acid incorporation capabilities;
our ability to obtain and maintain intellectual property protection for our platform, products and technologies, the duration of such protection and our ability to operate our business without infringing on the intellectual property rights of others;
our ability to attract, hire and retain key personnel and to manage our future growth effectively;
our expectations regarding use of our cash and cash equivalents, including the proceeds from our initial public offering;
our financial performance;
the volatility of the trading price of our common stock;
our competitive position and the development of and projections relating to our competitors or our industry;
the potential impact of the ongoing COVID-19 pandemic, including the Delta variant, on our business or operations;
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the impact of laws and regulations;
our expectations regarding the time during which we will be an emerging growth company under the JOBS Act; and
our expectations about market trends.
We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions, and expectations disclosed in the forward-looking statements we make. Moreover, we operate in a competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, collaborations, joint ventures, or investments we may make or enter into.
You should read this Quarterly Report and the documents that we file with the Securities and Exchange Commission, or the SEC, with the understanding that our actual future results may be materially different from what we expect. The forward-looking statements contained in this Quarterly Report are made as of the date of this Quarterly Report, and we do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
Except as otherwise indicated, references in this Quarterly Report on Form 10-Q to “Absci,” the “Company,” “we,” “us” and “our” refer to Absci Corporation and its subsidiaries.
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Part I Financial Information
Item 1. Financial Statements
ABSCI CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
June 30,December 31,
(In thousands, except for share and per share data)20212020
ASSETS
Current assets:
Cash and cash equivalents$99,450 $69,867 
Restricted cash10,501  
Receivables under development arrangements545 1,594 
Prepaid expenses and other current assets1,895 1,773 
Total current assets112,391 73,234 
Operating lease right-of-use assets7,638 4,476 
Property and equipment, net37,802 8,909 
Intangibles, net56,677  
Goodwill22,893  
Restricted cash16,846 1,841 
Other assets2,823 109 
TOTAL ASSETS$257,070 $88,569 
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND OTHER STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable$9,004 $2,116 
Accrued expenses14,000 1,569 
Loans payable 632 
Long-term debt, current1,577 903 
Operating lease obligations, current1,419 770 
Financing lease obligations, current1,984 1,475 
Deferred revenue, current1,775 2,630 
Total current liabilities29,759 10,095 
Convertible promissory notes150,107  
Long-term debt - net of current portion3,352 4,141 
Operating lease obligations - net of current portion8,978 3,813 
Finance lease obligations - net of current portion3,203 2,766 
Deferred tax, net5,228  
Deferred revenue839  
Other long-term liabilities18,489 749 
TOTAL LIABILITIES219,955 21,564 
Commitments (See Note 7)
Redeemable convertible preferred stock, $0.0001 par value; 14,099,936 and 13,845,050 shares authorized as of June 30, 2021 and December 31, 2020, respectively; 14,006,929 and 13,752,043 issued and outstanding as of June 30, 2021 and December 31, 2020 respectively; liquidation preference of $218,510 and $203,095 as of June 30, 2021 and December 31, 2020, respectively
161,377 156,433 
OTHER STOCKHOLDERS' DEFICIT
Common stock, $0.0001 par value; 78,320,000 and 72,668,200 shares authorized as of June 30, 2021 and December 31, 2020, respectively; 21,876,173 and 17,887,631 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively
2 2 
Additional paid-in capital17,972 635 
Accumulated deficit(142,225)(90,065)
Accumulated other comprehensive income (loss)(11) 
TOTAL OTHER STOCKHOLDERS' DEFICIT(124,262)(89,428)
TOTAL LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND OTHER STOCKHOLDERS' DEFICIT$257,070 $88,569 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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ABSCI CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (unaudited)
For the Three Months Ended June 30,For the Six Months Ended June 30,
(In thousands, except for share and per share data)2021202020212020
Revenues
Technology development revenue$592 $517 $1,532 $1,042 
Collaboration revenue136 47 259 94 
Total revenues728 564 1,791 1,136 
Operating expenses
Research and development11,040 2,252 18,090 4,159 
Selling, general and administrative5,179 861 9,864 1,832 
Depreciation and amortization1,201 265 1,677 449 
Total operating expenses17,420 3,378 29,631 6,440 
Operating loss(16,692)(2,814)(27,840)(5,304)
Other income (expense)
Interest expense(2,009)(189)(2,464)(287)
Other income (expense), net(28,114)(5)(27,950)(75)
Total other expense, net(30,123)(194)(30,414)(362)
Loss before income taxes(46,815)(3,008)(58,254)(5,666)
Income tax benefit5,617  6,094  
Net loss(41,198)(3,008)(52,160)(5,666)
Adjustment of redeemable preferred units and stock (13,967) (25,121)
Cumulative undeclared preferred stock dividends(1,047) (2,042) 
Net loss applicable to common stockholders and unitholders$(42,245)$(16,975)$(54,202)$(30,787)
Net loss per share attributable to common stockholders and unitholders:
Basic and diluted
$(2.39)$(1.12)$(3.13)$(2.02)
Weighted-average common shares and units outstanding:
Basic and diluted
17,641,147 15,215,747 17,312,437 15,215,747 
Comprehensive loss:
Net loss$(41,198)$(3,008)$(52,160)$(5,666)
Foreign currency translation adjustments(11) (11) 
Comprehensive loss$(41,209)$(3,008)$(52,171)$(5,666)
The accompanying notes are an integral part of these condensed consolidated financial statements
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ABSCI CORPORATION
STATEMENTS OF CHANGES IN REDEEMABLE CONVERTIBLE PREFERRED STOCK AND UNITS AND OTHER STOCKHOLDERS’ AND MEMBERS’
DEFICIT (UNAUDITED)
(In thousands, except for share and per share data)Redeemable Convertible
Preferred Stock
Common StockAdditional Paid-In CapitalAccumulated DeficitAccumulated Other Comprehensive Income (Loss)Condensed Total Stockholders’
Deficit
SharesAmountSharesAmount
Balances - December 31, 202013,752,043 $156,433 17,887,631 $2 $635 $(90,065)$— $(89,428)
Issuance of Series E preferred stock, net of issuance costs254,886 4,944 — — — — — — 
Issuance of restricted stock— — 703,425 — — — — — 
Stock-based compensation— — — — 1,519 — — 1,519 
Issuance of shares in acquisition of Denovium— — 1,010,296 — 368 — — 368 
Net loss— — — — — (10,962)— (10,962)
Balances - March 31, 202114,006,929 $161,377 19,601,352 $2 $2,522 $(101,027)$— $(98,503)
Issuance of shares upon option exercise— — 62,613  69 — — 69 
Stock-based compensation— — — — 1,490 — — 1,490 
Issuance of shares in acquisition of Totient— — 2,212,208 — 13,891 — — 13,891 
Foreign currency translation adjustments— — — — — — (11)(11)
Net loss— — — — — (41,198) (41,198)
Balances - June 30, 202114,006,929 $161,377 21,876,173 $2 $17,972 $(142,225)$(11)$(124,262)
(In thousands, except for unit and per unit data)Redeemable Convertible
Preferred Units
Common UnitsAdditional Paid-In CapitalAccumulated DeficitAccumulated Other Comprehensive Income (Loss)Condensed Total Members'
Deficit
UnitsAmountUnitsAmount
Balances - December 31, 20199,964,572 $52,763 15,215,724 $2 $215 $(41,376)$— $(41,159)
Issuance of Class D preferred units, net of issuance costs102,146 994 — — — — — — 
Increase in preferred unit redemption value— 11,154 — — — (11,154)— (11,154)
Stock-based compensation— — — — 8 — — 8 
Net loss— — — — — (2,658)— (2,658)
Balances - March 31, 202010,066,718 $64,911 15,215,724 $2 $223 $(55,188)$— $(54,963)
Issuance of Class D preferred units, net of issuance costs371,806 3,631 — — — — — — 
Increase in preferred unit redemption value— 13,967 — — — (13,967)— (13,967)
Stock-based compensation— — — — 58 — — 58 
Net loss— — — — — (3,008)— (3,008)
Balances - June 30, 202010,438,524 $82,509 15,215,724 $2 $281 $(72,163)$— $(71,880)
The accompanying notes are an integral part of these condensed consolidated financial statements.
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ABSCI CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Six Months Ended June 30,
(In thousands)20212020
Cash Flows From Operating Activities
Net loss(52,160)(5,666)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization1,677 449 
Deferred income taxes(6,094) 
Share-based compensation3,593 66 
Change in fair value of convertible promissory notes25,107  
Gain on extinguishment of loan payable(636) 
Loss on disposal of assets 2 
Foreign exchange transaction losses (gains)(11) 
Preferred stock warrant liability expense3,440 159 
Changes in operating assets and liabilities:
Receivables under development arrangements1,109 (366)
Prepaid expenses and other current assets(921)(229)
Operating lease right-of-use assets and liabilities2,653 11 
Other long-term assets(1,853)(64)
Accounts payable2,744 17 
Accrued expenses and other liabilities(404)(50)
Deferred revenue(16)(70)
Net cash used in operating activities(21,772)(5,741)
Cash Flows From Investing Activities
Purchases of property and equipment(24,111)(526)
Acquisitions, net of cash acquired(28,130) 
Net cash used in investing activities(52,241)(526)
Cash Flows From Financing Activities
Proceeds from issuance of redeemable convertible preferred units and stock, net of issuance costs4,944 4,625 
Proceeds from issuance of long-term debt 2,598 
Proceeds from notes payable 632 
Principal payments on long-term debt(139)(500)
Principal payments on finance lease obligations(772)(463)
Proceeds from issuance of common stock69  
Proceeds from issuance of convertible promissory notes125,000  
Net cash provided by financing activities129,102 6,892 
Net increase (decrease) in cash, cash equivalents, and restricted cash55,089 625 
Cash, cash equivalents and restricted cash - Beginning of year71,708 13,876 
Cash, cash equivalents, and restricted cash - End of period$126,797 $14,501 
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for interest$315 $194 
Supplemental Disclosure of Non-Cash Investing and Financing Activities
Property and equipment purchased under finance lease$1,729 $2,906 
Right-of-use assets obtained in exchange for operating lease obligation3,330  
Cash paid for amounts included in the measurement of operating lease liabilities508 211 
Property and equipment purchases included in accounts payable4,187 204 
Deferred offering costs included in accounts payable825  
Increase in redemption value of convertible preferred stock 25,121 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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ABSCI CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.Organization and nature of operations
Absci Corporation (the “Company”) has developed an integrated drug creation platform that enables the creation of biologics by unifying the drug discovery and cell line development processes into one process. 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. In October 2020, the Company converted from a Delaware LLC to a Delaware corporation (the “LLC Conversion”). The Company’s headquarters are located in Vancouver, Washington.
Authorized shares of common stock
In June 2021, the Company’s board of directors (the “Board”) and stockholders increased the number of authorized shares of common stock to 78,320,000.
Initial Public Offering
On July 21, 2021, the Company’s registration statement on Form S-1 for its initial public offering (the “IPO”) was declared effective by the Securities and Exchange Commission (the “SEC”), and the shares of its common stock commenced trading on the Nasdaq Global Select Market on July 22, 2021. The IPO closed on July 26, 2021, pursuant to which the Company issued and sold 14,375,000 shares of its common stock, including the full exercise of the underwriters’ 30-day option to purchase additional shares, at a public offering price of $16.00 per share. The Company received total net proceeds of approximately $210.3 million from the IPO, after deducting underwriting discounts and commissions of $16.1 million, and offering costs of approximately $3.6 million, of which $2.6 million was incurred as of June 30, 2021. 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 and all convertible notes issued in March 2021 were converted into 9,732,593 shares of common stock. The unaudited condensed financial statements as of June 30, 2021, including share and per share amounts, do not include proceeds from or shares issued in the IPO as it occurred after June 30, 2021.
Stock split
On July 16, 2021, the Board and stockholders approved an amendment to the Company’s amended and restated certificate of incorporation to effect a forward stock split of the Company’s issued and outstanding common stock at a 3.3031-to-1 ratio, which was effected on July 19, 2021. The par value and convertible preferred stock were not adjusted as a result of the forward stock split. All issued and outstanding common stock, options to purchase common stock and units, and per share and unit amounts contained in the financial statements have been retroactively adjusted to reflect the forward stock split for all periods presented. 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 Conversion. See Note 9: Stock based compensation for further discussion of the LLC Conversion’s impact on the Company’s stock-based compensation plans.
Unaudited Interim Financial Information
The accompanying interim condensed consolidated balance sheet as of June 30, 2021, the condensed consolidated statements of operations and comprehensive loss, condensed consolidated changes in redeemable convertible preferred stock and units and other stockholders’ and members’ deficit, and condensed consolidated statements of cash flows for the periods ended June 30, 2021 and 2020 and the
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ABSCI CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
related footnote disclosures are unaudited. In management’s opinion, the unaudited interim financial statements have been prepared on the same basis as the audited financial statements and include all adjustments, which include only normal recurring adjustments, necessary for the fair presentation of the Company’s financial position as of June 30, 2021 and its results of operations and cash flows for the periods ended June 30, 2021 and 2020 in accordance with accounting principles generally accepted in the United States (“US GAAP”). The results for the three and six months ended June 30, 2021 are not necessarily indicative of the results expected for the full fiscal year or any other interim period. The condensed consolidated balance sheet at December 31, 2020 has been derived from the audited financial statements at that date but does not include all disclosures required by US GAAP for complete financial statements. Because all of the disclosures required by US GAAP for complete financial statements are not included herein, these unaudited condensed consolidated financial statements and the notes accompanying them should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2020 included in the Company’s final prospectus for the IPO filed with the SEC on July 23, 2021 pursuant to Rule 424(b)(4) relating to the Company’s Registration Statement on Form S-1, as amended (File No. 333-257553).
2.Summary of significant accounting policies
Basis of presentation
The condensed consolidated financial statements are prepared in accordance with US GAAP as defined by the Financial Accounting Standards Board (“FASB”). The condensed consolidated financial statements include the Company’s wholly-owned subsidiaries and entities under its control. The Company has eliminated all intercompany transactions and accounts.
Emerging growth company
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
Business combinations
The Company utilizes the acquisition method of accounting for business combinations and allocates the purchase price of an acquisition to the various tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. The Company primarily establishes fair value using the replacement cost approach or the income approach based upon a discounted cash flow model. The replacement cost approach measures the value of an asset by the cost to reconstruct or replace it with another of like utility. The income approach requires the use of many assumptions and estimates including future revenues and expenses, as well as discount factors and income tax rates. Other estimates include:
The use of carrying value as a proxy for fair values of fixed assets and liabilities assumed from the target; and
Fair values of intangible assets and contingent consideration.
While the Company uses best estimates and assumptions as part of the purchase price allocation process to accurately value assets acquired and liabilities assumed at the business acquisition date, these estimates and assumptions are inherently uncertain and subject to refinement. As a result, during the purchase price measurement period, which is no more than one year from the business acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Business combinations also require the Company to estimate the useful life of certain intangible assets acquired and this estimate requires significant judgment.
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ABSCI CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Use of estimates
The preparation of financial statements in accordance with US GAAP requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Such estimates include, but are not limited to, revenue recognition including estimated timing of the satisfaction of performance obligations, purchase price allocations in conjunction with business combinations, and the fair value of stock-based compensation awards. The Company bases its estimates on historical experiences, and other relevant factors that it believes to be reasonable under the circumstances. Actual results could differ from those estimates.
Segment information
The Company operates as a single operating segment. The Company’s chief operating decision maker, its Chief Executive Officer, manages the Company’s operations on a consolidated basis for the purposes of allocating resources, making operating decisions and evaluating performance.
Cash, cash equivalents and restricted cash
The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.
Restricted cash represents amounts pledged as collateral for future property lease payments via standby letters of credit (see Note 6) and amounts held in escrow related to the acquisitions (see Note 3).
Accounts receivable
Accounts receivable consists of amounts due from partners for services performed. 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.
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. 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. 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 six months ended June 30, 2021. In accordance with ASC 825, the Company records these convertible promissory notes at fair value on its balance sheet. Changes in fair value of the warrant to purchase convertible preferred stock and the convertible promissory notes are recorded in the 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. 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.
Concentration risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, restricted cash, and receivables under development arrangements. The Company maintains its cash and cash equivalents and restricted cash in bank accounts, which at times may exceed federally insured limits. The Company has not experienced any losses on these accounts. For the three
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ABSCI CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
and six months ended June 30, 2021, three partners represented approximately 95% and 97% of technology development revenue, respectively. For the three and six months ended June 30, 2020, three and four partners, respectively, represented 90% and 85% of technology development revenue, respectively.
As of June 30, 2021, two partners represented approximately 100% 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.
Property and equipment, net
Property and equipment are stated at cost less accumulated depreciation and amortization. Additions and improvements to property and equipment are capitalized. The costs of maintenance and repairs are expensed as incurred. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the underlying assets, which vary from 3 to 7 years. 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 statements of operations and comprehensive loss.
Deferred Offering Costs
The Company has deferred offering costs consisting of legal and accounting fees directly attributable to its IPO. The deferred offering costs were offset against the proceeds received following the completion of the Company’s IPO. As of June 30, 2021, $2.6 million of deferred offering costs were recorded within other long-term assets on the balance sheet.
Impairment of long-lived assets
Management reviews long-lived assets for possible impairment whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable. 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. There have been no such impairments of long-lived assets during the three months and six months ended June 30, 2021 and 2020.
Redeemable convertible preferred unit and stock warrant liability
Outstanding warrants that are related to the Company’s redeemable convertible preferred units and redeemable convertible preferred stock are classified as liabilities on the balance sheets. As the warrants are 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 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.
Revenue recognition
The Company recognizes revenue when control of its products and services are transferred to its customers in an amount that reflects the consideration expected to be received in exchange for those products and services. This process involves identifying the contract with a customer, determining the performance obligations in the contract, determining the contract price, allocating the contract price to the distinct performance obligations in the contract, and recognizing revenue when or as the performance obligations are satisfied. A performance obligation is considered distinct from other obligations in a contract when it provides a benefit to the customer either on its own or together with other resources that are readily available to the customer and is separately identified in the contract. The Company considers a performance obligation satisfied once control of a good or service has been transferred to the customer, meaning the
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ABSCI CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
customer has the ability to use and obtain the benefit of the good or service. 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.
Technology development revenue
The Company’s Technology Development Agreements (“TDAs”) generally include multiple phases of Cell Line Development (“CLD”) such as library design, assay development, strain screening, fermentation optimization, purification, and analytics that all represent a single performance obligation. These agreements may include options for additional goods and services such as readying the technology to transfer to the partner and licensing terms. The transaction prices for these arrangements include fixed and variable consideration for the single performance obligation as well as variable consideration for success-based achievements. 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.
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. This method provides an appropriate depiction of completed progress toward fulfilling its performance obligations for each respective arrangement. 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 June 30, 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. As of June 30, 2021 and December 31, 2020, deferred revenue related to the JMA was $1.4 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 June 30, 2021 and December 31, 2020, contract assets were $0.1 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 June 30, 2021 and December 31, 2020, contract liabilities were $2.6 million and $2.6 million, respectively. During the three and six months ended June 30, 2021, the Company recognized $0.1 million and $1.1 million, respectively, as revenue that had been included in deferred revenue at the beginning of the period. During the three and six months ended June 30, 2020, the Company recognized $0.0 million and $0.1 million, respectively, as revenue that had been included in deferred revenue at the beginning of the period.
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Income taxes
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 year ended December 31, 2019 and the period from January 1, 2020 through October 5, 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. 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 recognizes interest and penalties related to income tax matters as a component of tax expense. The Company did not record any interest or penalties related to income tax during the three and six months ended June 30, 2021.
Leases
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.
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. Operating lease assets represent a right to use an underlying asset for the lease term and operating lease liabilities represent an obligation to make lease payments arising from the lease. Operating lease obligations with a term greater than one year and their corresponding right-of-use assets are recognized on the balance sheet at the commencement date of the lease based on the present value of lease payments over the expected lease term. Certain adjustments to the right-of-use asset may be required for items such as initial direct costs paid or incentives received.
As the Company’s operating leases do not typically provide an implicit rate, the Company utilizes the appropriate incremental borrowing rate, determined as the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term and in a similar economic environment. The lease cost is recognized on a straight-line basis over the lease term and variable lease payments are recognized as operating expenses in the period in which the obligation for those payments is incurred. Variable lease payments primarily include common area maintenance, utilities, real estate taxes, insurance and other operating costs that are passed on from the lessor in proportion to the space leased by the Company.
The Company accounts for its finance leases by calculating an implied interest rate in the lease contract and recognizing a finance lease right of use asset and lease liability. The right of use asset is recognized in property and equipment, net, in the asset category in which the underlying asset relates. The lease liability is recognized in the condensed consolidated balance sheet as a finance lease obligation.
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 Company’s 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.
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Stock-based compensation
Stock-based compensation includes compensation expense for incentive units, restricted stock, and stock option grants to employees and is measured on the grant date based on the fair value of the award and recognized on a straight-line basis over the requisite service period. The fair value of options to purchase common stock are measured using the Black-Scholes option-pricing model. The Company accounts for forfeitures as they occur. 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
The Company calculates basic and diluted net loss per share attributable to common stockholders and unitholders in conformity with the two-class method required for companies with participating securities. The Company considers its redeemable convertible preferred stock and units to be participating securities. In the event a dividend is declared or paid on common stock and units, holders of redeemable convertible preferred stock and units are entitled to a share of such dividend in proportion to the holders of common stock and units on an as-if converted basis. Under the two-class method, basic net loss per share attributable to common stockholder and unitholder is calculated by dividing the net loss attributable to common stockholder and unitholder by the weighted-average number of shares of common stock and units outstanding for the period. Net loss attributable to common stockholders and unitholders is determined by allocating undistributed earnings between common and preferred stockholders and unitholders. The diluted net loss per share attributable to common stockholders and unitholders is computed by giving effect to all potential dilutive common stock and unit equivalents outstanding for the period determined using the treasury stock method. The net loss attributable to common stockholders and unitholders was not allocated to the redeemable convertible preferred stock and units under the two-class method as the redeemable convertible preferred stock and units do not have a contractual obligation to share in the Company’s losses. For purposes of this calculation, redeemable convertible preferred stock and units, redeemable convertible preferred stock and unit warrants, incentive (formerly incentive units) and non-qualified stock options are considered common stock equivalents but have been excluded from the calculation of diluted net loss per share attributable to common stockholders and unitholders as their effect is anti-dilutive.
Recently Adopted Accounting Pronouncements
In August 2020, the FASB issued ASU No. 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU No. 2020-06”). 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. For contracts in an entity’s own equity, the new guidance eliminates some of the requirements in ASC 815-40 for equity classification. The guidance also addresses how convertible instruments are accounted for in the diluted earnings per share calculation and requires enhanced disclosures about the terms of convertible instruments and contracts in an entity’s own equity. ASU 2020-06 is effective for the Company after December 15, 2023. Early adoption is permitted for fiscal periods beginning after December 15, 2020. The Company adopted this standard as of January 1, 2021, and the adoption of this standard did not impact its condensed 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. 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
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prospectively, depending on the amendment. The Company is currently evaluating the impact of adoption on its condensed consolidated financial statements.
3.Acquisitions
Acquisition of Denovium
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 intends to integrate Denovium’s technology into its Integrated Drug Creation Platform. The acquisition has been accounted for as a business combination.
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):
Cash consideration$2,670 
Equity consideration368 
Total purchase consideration$3,038 
Cash consideration includes 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.
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. The fair value of these shares of $1.5 million will be recognized as compensation cost over the four-year service period. The remaining 20%, or 202,058 shares, vested immediately and is included in the total consideration.
The following table summarizes the allocation of the purchase consideration to the fair value of the assets acquired and liabilities assumed (in thousands):
Cash and cash equivalents$158 
Accounts receivable59 
Other current assets1 
Intangible assets2,507 
Goodwill1,055 
TOTAL ASSETS3,780 
Accounts payable and accrued expenses109 
Deferred tax liability633 
TOTAL LIABILITIES742 
Fair value of net assets acquired and liabilities assumed$3,038 
Goodwill arising from the acquisition of $1.1 million was attributable to the assembled workforce and expected synergies between the Company’s Integrated Drug Creation Platform and the Denovium Engine. The goodwill is not deductible for tax purposes. As of June 30, 2021, the Company had not yet fully completed the analysis to assign fair values to all assets acquired and liabilities assumed, and therefore the purchase price allocation is preliminary. The remaining items include the finalization of working capital adjustments, income taxes, and 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.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table reflects the estimated fair values of the identified intangible assets of Denovium and their respective weighted-average estimated amortization periods.
Estimated Fair Value (in thousands)Estimated Amortization Period (years)
Denovium Engine$2,507 5
$2,507 

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 condensed consolidated balance sheet as of June 30, 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 two years, six months, in installments each six months subject to their continuing service relationships with the Company.
The following table summarizes the preliminary purchase price (in thousands):
Estimated cash payment to Totient stockholders$35,368 (i)
Estimated stock payment to Totient stockholders13,891 (ii)
Estimated cash payment contingent on achieving specified milestone12,000 (iii)
Total$61,259 
(i)Pursuant to the merger agreement, the initial purchase price includes $40.0 million of cash adjusted for the agreed upon working capital value which includes the payment of Totient’s transaction and other expenses as well as payments to Totient stock option holders for the cancellation and extinguishment of Totient stock options.
(ii)Pursuant to the merger agreement, 2,212,208 common shares 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 Absci 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. These values are based on the most recent estimate of the fair value available 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 condensed consolidated balance sheet as of June 30, 2021.
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The following table summarizes the initial allocation of the preliminary estimated consideration to the identifiable assets and liabilities acquired by us as of June 4, 2021 (in thousands).
Current assets:
Cash and cash equivalents$1,751 
Prepaid expenses and other current assets141 
Total current assets1,892 
Operating lease right-of-use assets266 
Property and equipment, net118 
Goodwill21,838 (i)
Intangible assets54,600 (ii)
Other assets23 
TOTAL ASSETS78,737 
Current liabilities:
Accounts payable78 
Accrued expenses6,420 
Operating lease obligations, current122 
Total current liabilities6,620 
Operating lease obligations - net of current portion144 
Deferred tax, net10,690 
Other long-term liabilities24 
TOTAL LIABILITIES17,478 
Fair value of net assets acquired and liabilities assumed$61,259 
(i)Goodwill represents the excess of the estimated purchase price over the estimated fair value of Totient’s identifiable assets acquired and liabilities assumed. Goodwill also reflects the requirement to record deferred tax balances for the difference between the assigned values and the tax bases of assets acquired and liabilities assumed in the business combination. Goodwill is not deductible for tax purposes.
(ii)The estimated fair value of and useful lives of the intangible assets acquired is as follows:

Estimated fair value (in thousands)(a)
Estimated useful lives (in years)(b)
Monoclonal antibody library$46,300 20
Developed software platform and the related methods patents8,300 15
Total$54,600 
(a)The estimated fair values were categorized within Level 3 of the fair value hierarchy and were determined using an income-based approach, which was based on the present value of the future estimated after-tax cash flows attributable to each intangible asset. The significant assumptions inherent in the development of the values, from the perspective of a market participant, include the amount and timing of projected future cash flows (including revenue, regulatory success and profitability), and the discount rate selected to measure the risks inherent in the future cash flows, which was between 18%-23%. These fair values are based on the most recent estimate of the fair value available and will be updated as we obtain more information.
(b)The estimate of the useful life was based on an analysis of the expected use of the asset by us, any legal, regulatory or contractual provisions that may limit the useful life, the effects of obsolescence, competition and other relevant economic factors, and consideration of the expected cash flows used to measure the fair value of the intangible asset.
The Company has not yet fully completed the analysis to assign fair values to all assets acquired and liabilities assumed, and therefore the purchase price allocation is preliminary. The remaining items include the finalization of working capital adjustments, income taxes, valuation of identifiable intangible assets 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.
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Acquisition costs of $0.9 million were included in the Unaudited Consolidated Statement of Operations and Other Comprehensive Loss as selling, general and administrative. The Company’s results of operations for the three and six months ended June 30, 2021 include the operating results of Totient since the date of acquisition, within the Unaudited Consolidated Statement of Operations.
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. These pro forma results were based on estimates and assumptions, which we believe are reasonable. The pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of our fiscal year 2020. 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 three and six months ended June 30, 2021 and June 30, 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 six months ended June 30, 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 following table summarizes the pro forma financial information (in thousands):

For the Three Months Ended June 30,For the Six Months Ended June 30,
2021202020212020
Net loss applicable to common stockholders and unitholders$(47,035)$(19,465)$(61,116)$(38,410)

4.Property and equipment, net
Property and equipment as of June 30, 2021 and December 31, 2020 consists of the following (in thousands):
June 30,December 31,
20212020
Construction in progress$1,890 $ 
Lab Equipment18,418 8,578 
Software244 188 
Furniture, Fixtures and Other3,060 472
Leasehold Improvements17,755 2,016 
Total Cost41,367 11,254 
Less accumulated depreciation and amortization(3,565)(2,345)
Property and equipment, net$37,802 $8,909 
Depreciation expense was $0.9 million and $1.2 million for the three and six months ended June 30, 2021, respectively. Depreciation expense was $0.3 million and $0.4 million for the three and six months ended June 30, 2020, respectively.
5.Long-term debt and other borrowings
In June 2018, the Company signed a Loan and Security Agreement (“LSA”) with Bridge Bank (“Bank”), a division of Western Alliance Bank. 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
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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. The amendment was accounted for as a debt modification and no gain or loss was recognized in the Company’s financial statements.
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 bookings 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.
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. The amendment also expanded the definition of permitted indebtedness to include Payroll Protection Plan (“PPP”) loans, and modified financial and restrictive covenants.
In February 2021, the Company entered into a fourth amendment to the LSA. This amendment gave effect to the Company’s conversion to a corporation and its purchase of Denovium, including permitting certain cash and equity consideration linked to continued employment and service requirements, and adding Denovium as co-borrower to the LSA.
In June 2021, the Company entered into a fifth amendment to the LSA. 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. 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.
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 the 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.
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 June 30, 2021, the Company was in compliance with this financial covenant.
As of June 30, 2021, the outstanding principal balance under the LSA was $4.9 million.
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
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 Condensed Consolidated Statement of Operations.
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. The 2021 Notes bore interest at 6% per annum and had a maturity date in September 2023, or earlier upon certain events of default. The Company was not permitted to prepay the 2021 Notes without the consent of the holders of a majority in interest of the outstanding 2021 Notes (the “Majority Noteholders”). The terms of the 2021 Notes provided that they would automatically convert, upon the first of the following transactions to occur, into: (i) shares of the Company’s common stock upon a qualified initial public offering (“QIPO”) or a qualified merger with a Special Purpose Acquisition Company (“SPAC”); or (ii) shares of the Company’s preferred stock in the event of a qualified equity financing in which the Company raises gross proceeds of $30 million or more through sale of preferred stock. The 2021 Notes were also convertible into shares of the Company’s capital stock issued in a non-qualifying financing transaction upon the election of the Noteholders. The 2021 Notes were convertible at a conversion price equal to the lower of (i) a per share price equal to 82% of the per share price paid by the new investors in such qualified financing, QIPO or SPAC transaction or (ii) the price per share calculated on the basis of a pre-money valuation of the Company of $1.5 billion divided by the aggregate number of shares of common stock of the Company deemed outstanding on an as-converted, fully diluted basis including (a) all shares reserved under the Company’s stock option plan and (b) 50% of additional shares reserved in connection with any expansion of the option pool as a result of the transaction, as of immediately prior to such qualified financing, public offering, or conversion event (“Cap Price”). In the event of a non-qualified financing, the 2021 Notes were convertible at the Cap Price. In the event of a Deemed Liquidation Event, the outstanding balance would either (a) be repaid in cash in an amount equal to the sum of the outstanding balance plus 50% of the original principal amount of the Note or (b) be converted into that number of shares of a new series of preferred stock of the Company at the Cap Price. On or after the Maturity Date, at the option of the Noteholder, the outstanding balance would either (a) be repaid in cash in an amount equal to the outstanding balance or (b) be converted into that number of shares of a new preferred stock of the Company at the Cap Price.
Due to certain embedded features within the 2021 Notes, the Company elected to account for these notes, including all of their embedded features, under the fair value option. The Company has elected to recognize interest expense based on the 6% per annum coupon rate of the Notes, which is is included in Other long-term liabilities on the Condensed Consolidated Balance Sheet.
6.Leases
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 makes 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 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.
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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 $21.0 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. The Company is currently evaluating the prior facility lease and determining its best 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 $7.2 million and $4.3 million of assets under finance leases as of June 30, 2021 and December 31, 2020, respectively. Accumulated depreciation related to assets under finance leases was approximately $1.3 million and $0.9 million as of June 30, 2021 and December 31, 2020, respectively.
Future undiscounted lease payments for the Company’s lease liabilities as of June 30, 2021 are as follows (in thousands):
Operating leases
Finance leases
2021 (six months remaining)$1,123 $1,139 
20222,294 2,293 
20232,293 1,555 
20242,135 600 
20251,873 50 
Thereafter4,751  
Total future lease payments14,469 5,637 
Less: Imputed interest(3,268)(450)
Less: Lease incentive(804) 
Present value of lease liabilities$10,397 $5,187 
Additional information related to the Company’s leases as of June 30, 2021 and December 31, 2020 is as follows:
June 30, 2021December 31, 2020
Weighted average remaining lease term (in years)
Operating leases6.54.9
Finance leases2.63.0
Weighted average discount rate
Operating leases8 %8 %
Finance leases7 %7 %
7.Commitments and contingencies
As of June 30, 2021, future lease payments are secured by irrevocable standby letters of credit totaling $1.8 million. The irrevocable standby letters of credit are expected to be pledged for the full lease terms which extend through 2024 and 2028 for each of the Company’s facility leases.
In the ordinary course of business, the Company is a party to claims and legal proceedings. The Company records a provision for contingent losses when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Based on currently available information, management does
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ABSCI CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
not believe that the ultimate outcome of these unresolved matters is probable or estimable and not likely, individually and in the aggregate, to have a material adverse effect on the Company’s financial position, results of operations or cash flows. However, litigation is subject to inherent uncertainties and management’s view of these matters may change in the future. Were an unfavorable outcome to occur, there exists the possibility of a material adverse impact on the Company’s financial position, results of operations or cash flows for the period in which the unfavorable outcome occurs, and potentially in future periods.
8.Redeemable convertible preferred stock
Redeemable Convertible Preferred Stock
The following table summarizes the authorized, issued, and outstanding redeemable convertible preferred stock of the Company as of June 30, 2021 (in thousands, except share and per share data):
June 30, 2021
Shares AuthorizedShares Issued and OutstandingIssuance Price per ShareNet ProceedsLiquidation Preference
Convertible Preferred Stock:
Junior1,573,5471,573,547$1.00 $1,462 $1,991 
Series A-12,793,0072,700,0001.00 2,700 3,456 
Series A-21,500,0001,500,0001.00 1,500 1,887 
Series B1,372,5491,372,5491.53 2,065 2,589 
Series C1,760,2521,760,2526.95 11,979 14,467 
Series D1,532,176