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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 September 30, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For transition period from    to
Commission File Number 001-40090
SOMALOGIC, INC.
(Exact name of registrant as specified in its charter)
Delaware85-4298912
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
2945 Wilderness Place
Boulder, Colorado 80301
(303) 625-9000
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, $0.0001 par valueSLGC
Nasdaq Capital Market
Warrants to purchase Common StockSLGCW
Nasdaq Capital 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. YesNo
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filerNon-accelerated filerSmaller reporting companyEmerging 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 Exchange Act): YesNo
As of November 4, 2022, there were approximately 187,525,985 shares of the registrant's common stock outstanding.



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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
The information in this Quarterly Report on Form 10-Q includes “forward-looking statements” within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. All statements, other than statements of historical fact included in or incorporated by reference into this Quarterly Report on Form 10-Q, regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. When used in this report, the words ““will be,” “will,” “expect,” “anticipate,” “continue,” “project,” “believe,” “plan,” “could,” “estimate,” “forecast,” “guidance,” “intend,” “may,” “plan,” “possible,” “potential,” “predict,” “pursue,” “should,” “target” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. These forward-looking statements are based on management’s current expectations and assumptions about future events and are based on currently available information as to the outcome and timing of future events.
These statements include, but are not limited to the following:
the occurrence of any event, change or other circumstances, including the outcome of any legal proceedings that may be instituted against the Company;
the ability to maintain the listing of the Company’s Common Stock on the Nasdaq;
the risk of disruption, including to the Company’s information technology systems, to the Company’s current plans and operations;
the ability to protect the Company’s intellectual property;
the Company’s plans to engage in acquisition activities and the anticipated impact of such activities on the Company’s financial results;
the impact of the procurement and budgetary cycles of customers;
the ability to recognize the anticipated benefits of the Company’s business, which may be affected by, among other things, competition and the ability to grow and manage growth profitably and retain its key employees;
costs related to the Company’s business;
changes in applicable laws or regulations;
the ability of the Company to raise financing in the future;
the success, cost and timing of the Company’s product development, sales and marketing, and research and development activities;
the Company’s ability to obtain and maintain regulatory approval for its products, and any related restrictions and limitations of any approved product;
the Company’s ability to maintain existing license agreements and manufacturing arrangements;
the Company’s ability to attract or retain sales and distribution partners;
the Company’s ability to compete with other companies currently marketing or engaged in the development of products and services that serve customers engaged in proteomic analysis, many of which have greater financial and marketing resources than the Company;
the size and growth potential of the markets for the Company’s products, and the ability of each to serve those markets, either alone or in partnership with others;
the Company’s estimates regarding expenses, future revenue, capital requirements and needs for additional financing;
the ability to use net operating losses and certain other tax attributes;
the Company’s financial performance; and
the impact of the COVID-19 pandemic on the Company.
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The forward-looking statements contained in this Quarterly Report on Form 10-Q are based on the Company’s current expectations and beliefs concerning future developments and their potential effects on the Company. There can be no assurance that future developments affecting the Company will be those that the Company has anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond the Company’s control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described under section entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021. Should one or more of these risks or uncertainties materialize, or should any of the assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. The Company will not and does not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

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PART 1 – FINANCIAL INFORMATION
Item 1. Financial Statements
SomaLogic, Inc.
Condensed Consolidated Balance Sheets
Unaudited
(in thousands, except share data)
September 30, 2022December 31, 2021
ASSETS
Current assets
Cash and cash equivalents
$380,374 $439,488 
Investments
185,963 218,218 
Accounts receivable, net
25,050 17,074 
Inventory
18,499 11,213 
Deferred costs of services
1,217 462 
Prepaid expenses and other current assets
10,157 5,097 
Total current assets
621,260 691,552 
Non-current inventory
3,810 4,085 
Accounts receivable, net of current portion10,383  
Property and equipment, net of accumulated depreciation of $17,416 and $15,244 as of September 30, 2022 and December 31, 2021, respectively
19,910 9,557 
Other long-term assets
5,716 908 
Intangible assets16,700  
Goodwill10,465  
Total assets
$688,244 $706,102 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable
$20,295 $15,089 
Accrued liabilities
16,324 11,109 
Deferred revenue
3,611 3,021 
Other current liabilities
2,445 66 
Total current liabilities
42,675 29,285 
Warrant liabilities4,635 35,181 
Earn-out liability136 26,885 
Deferred revenue, net of current portion
32,015 2,364 
Other long-term liabilities
6,113 363 
Total liabilities
85,574 94,078 
Commitments and contingencies (Note 9)
Stockholders’ equity
Preferred stock, $0.0001 par value; 1,000,000 shares authorized; no shares issued and outstanding at September 30, 2022 and December 31, 2021
  
Common stock, $0.0001 par value; 600,000,000 shares authorized; 187,495,940 and 181,552,241 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively
19 18 
Additional paid-in capital
1,162,444 1,110,991 
Accumulated other comprehensive loss
(974)(72)
Accumulated deficit
(558,819)(498,913)
Total stockholders’ equity
602,670 612,024 
Total liabilities and stockholders’ equity
$688,244 $706,102 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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SomaLogic, Inc.
Condensed Consolidated Statements of Operations and Comprehensive Loss
Unaudited
(in thousands, except share and per share amounts)

Three Months Ended September 30,Nine Months Ended September 30,
 2022202120222021
Revenue
 
Assay services revenue
 $17,574 $17,499 $47,305 $48,308 
Product revenue
 1,051 75 2,218 730 
Collaboration revenue
 763 763 2,288 2,288 
Other revenue
 22,325 1,655 27,026 7,306 
Total revenue
 41,713 19,992 78,837 58,632 
Operating expenses
 
Cost of assay services revenue
 11,264 8,737 29,215 22,548 
Cost of product revenue
 406 33 1,184 452 
Research and development
 19,419 15,596 50,855 32,304 
Selling, general and administrative
 51,236 20,632 118,863 48,274 
Total operating expenses
 82,325 44,998 200,117 103,578 
Loss from operations (40,612)(25,006)(121,280)(44,946)
Other income (expense)
 
Interest income and other, net
 2,417 55 3,456 126 
Interest expense
  (2) (1,324)
Change in fair value of warrant liabilities3,371 (8,111)30,547 (8,111)
Change in fair value of earn-out liability1,260 (5,662)26,749 (5,662)
Loss on extinguishment of debt, net
  (2,693) (4,323)
Total other income (expense) 7,048 (16,413)60,752 (19,294)
Net loss before income tax benefit$(33,564)$(41,419)$(60,528)$(64,240)
Income tax benefit622  622  
Net loss $(32,942)$(41,419)$(59,906)$(64,240)
Other comprehensive loss 
Net unrealized loss on available-for-sale securities $(13)$(15)$(874)$(7)
Foreign currency translation loss (14)(4)(28)(3)
Total other comprehensive loss (27)(19)(902)(10)
Comprehensive loss
 $(32,969)$(41,438)$(60,808)$(64,250)
Net loss per share, basic and diluted
 $(0.18)$(0.30)$(0.33)$(0.53)
Weighted-average shares outstanding, basic and diluted
 184,407,874137,176,228183,209,213122,268,443
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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SomaLogic, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
Unaudited
(in thousands, except share amounts)

Three Months Ended September 30, 2022
Common StockTreasury StockAdditional Paid-In CapitalAccumulated Other Comprehensive LossAccumulated DeficitTotal Stockholders’ Equity (Deficit)
SharesAmountSharesAmount
Balance at June 30, 2022183,453,324 $18  $ $1,134,024 $(947)$(525,877)$607,218 
Issuance of Common Stock upon vesting of RSUs12,031 — — — — — — — 
Issuance of Common Stock upon exercise of options113 — — — — — — — 
Stock-based compensation— — — — 16,588 — — 16,588 
Issuance of Common Stock upon Palamedrix acquisition4,030,472 1 — — 11,832 — — 11,833 
Net unrealized loss on available-for-sale securities— — — — — (13)— (13)
Foreign currency translation loss— — — — — (14)— (14)
Net loss— — — — — — (32,942)(32,942)
Balance at September 30, 2022187,495,940 $19  $ $1,162,444 $(974)$(558,819)$602,670 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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SomaLogic, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
Unaudited
(in thousands, except share amounts)
Three Months Ended September 30, 2021
Common StockTreasury StockAdditional Paid-In CapitalAccumulated Other Comprehensive Income (Loss)Accumulated
Deficit
Total Stockholders’ Equity (Deficit)
SharesAmountSharesAmount
Balance at June 30, 202174,817,828 $748 (131,344)$(408)$405,583 $7 $(434,187)$(28,257)
Retrospective application of recapitalization40,553,701 (737)131,344 408 202,445 — — 202,116 
Balance at June 30, 2021115,371,529 11   608,028 7 (434,187)173,859 
Issuance of Common Stock upon exercise of options19,116 — — — 63 — — 63 
Issuance of Common Stock for services12,342 — — — 273 — — 273 
Issuance of Common Stock upon conversion of convertible debt571,642 — — — 4,631 — — 4,631 
Stock-based compensation— — — — 11,742 — — 11,742 
Issuance of Common Stock upon Business Combination, net of transaction costs of $31,511
28,689,748 3 — — 119,568 — — 119,571 
Issuance of Common Stock upon PIPE Investment, net of transaction costs of $7,802
36,500,000 4 — — 357,194 — — 357,198 
Net unrealized gain on available-for-sale securities— — — — — (15)— (15)
Foreign currency translation loss— — — — — (4)— (4)
Net loss— — — — — — (41,419)(41,419)
Balance at September 30, 2021181,164,377 $18  $ $1,101,499 $(12)$(475,606)$625,899 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


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SomaLogic, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
Unaudited
(in thousands, except share amounts)
Nine Months Ended September 30, 2022
Common StockTreasury StockAdditional Paid-In CapitalAccumulated Other Comprehensive LossAccumulated DeficitTotal Stockholders’ Equity (Deficit)
SharesAmountSharesAmount
Balance at December 31, 2021181,552,241 $18  $ $1,110,991 $(72)$(498,913)$612,024 
Issuance of Common Stock upon vesting of RSUs12,031 — — — — — — — 
Issuance of Common Stock upon exercise of options1,866,669 — — — 4,752 — — 4,752 
Shares issued under employee stock purchase plan34,527 — — — 133 — — 133 
Issuance of Common Stock for services— — — — 50 — — 50 
Stock-based compensation— — — — 34,686 — — 34,686 
Issuance of Common Stock upon Palamedrix acquisition4,030,472 1 — — 11,832 — — 11,833 
Net unrealized loss on available-for-sale securities— — — — — (874)— (874)
Foreign currency translation loss— — — — — (28)— (28)
Net loss— — — — — — (59,906)(59,906)
Balance at September 30, 2022187,495,940 $19  $ $1,162,444 $(974)$(558,819)$602,670 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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SomaLogic, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
Unaudited
(in thousands, except share amounts)
Nine Months Ended September 30, 2021
Common StockTreasury StockAdditional Paid-In CapitalAccumulated Other Comprehensive LossAccumulated
Deficit
Total Stockholders’ Equity (Deficit)
SharesAmountSharesAmount
Balance at December 31, 202073,481,228 $735 (113,220)$(352)$394,786 $(2)$(411,366)$(16,199)
Retrospective application of recapitalization40,785,287 (724)113,220 352 202,488 — — 202,116 
Balance at December 31, 2020114,266,515 $11  $ $597,274 $(2)$(411,366)$185,917 
Issuance of Common Stock upon exercise of options976,582 — — — 2,855 — — 2,855 
Issuance of Common Stock for services175,079 — — — 537 — — 537 
Common stock issued upon conversion of convertible debt571,642 — — — 4,631 — — 4,631 
Stock-based compensation— — — — 19,496 — — 19,496 
Surrender of shares in cashless exercise(15,189)— — — (56)— — (56)
Issuance of Common Stock upon Business Combination, net of transaction costs of $31,511
28,689,748 3 — — 119,568 — — 119,571 
Issuance of Common Stock upon PIPE Investment, net of transaction costs of $7,802
36,500,000 4 — — 357,194 — — 357,198 
Net unrealized gain on available-for-sale securities— — — — — (7)— (7)
Foreign currency translation loss— — — — — (3)— (3)
Net loss— — — — — — (64,240)(64,240)
Balance at September 30, 2021181,164,377 $18  $ $1,101,499 $(12)$(475,606)$625,899 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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SomaLogic, Inc.
Condensed Consolidated Statements of Cash Flows
Unaudited
(in thousands)
Nine Months Ended September 30,
 20222021
Operating activities
    
Net loss $(59,906)$(64,240)
Adjustments to reconcile net loss to cash used in operating activities: 
Stock-based compensation expense 35,025 20,700 
Depreciation and amortization 2,890 1,909 
Amortization of debt issuance costs, discounts and premiums  258 
Noncash lease expense(157) 
Change in fair value of compound derivative liability  7 
Change in fair value of warrant liabilities (30,547)8,111 
Change in fair value of earn-out liability(26,749)5,662 
Amortization of premium (accretion of discount) on available-for-sale securities, net(382)276 
Provision for excess and obsolete inventory287 623 
Recovery of doubtful accounts(2)(14)
Loss on extinguishment of debt, net 4,323 
Loss on disposal of assets 927  
Paid-in-kind interest  165 
Other (6)11 
Deferred income taxes(622) 
Changes in operating assets and liabilities: 
Accounts receivable (18,357)2,773 
Inventory(7,298)(2,035)
Deferred costs of services(755)567 
Prepaid expenses and other current assets (178)(4,228)
Other long-term assets (113) 
Accounts payable 4,187 1,992 
Deferred revenue 30,241 1,448 
Accrued and other liabilities 5,570 (2)
Payment of paid-in-kind interest on extinguishment of debt  (752)
Net cash used in operating activities (65,945)(22,446)
Investing activities 
Palamedrix acquisition, net of cash acquired of $2,521
(13,256) 
Proceeds from sale of property and equipment  8 
Purchase of property and equipment (11,886)(3,021)
Purchase of available-for-sale securities (186,687)(241,891)
Proceeds from maturities of available-for-sale securities 218,450 74,567 
Net cash provided by (used in) investing activities 6,621 (170,337)
Financing activities 
Repayment of long-term debt  (36,512)
Proceeds from PIPE Investment, net of transaction costs  357,198 
Proceeds from Business Combination, net of transaction costs  173,601 
Proceeds from stock-based compensation plans4,885 2,801 
Net cash provided by financing activities 4,885 497,088 
Effect of exchange rates on cash, cash equivalents and restricted cash (41)(11)
Net (decrease) increase in cash, cash equivalents and restricted cash (54,480)304,294 
Cash, cash equivalents and restricted cash at beginning of period 440,268 165,194 
Cash, cash equivalents and restricted cash at end of period $385,788 $469,488 
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SomaLogic, Inc.
Condensed Consolidated Statements of Cash Flows
Unaudited
(in thousands)
Nine Months Ended September 30,
 20222021
Supplemental cash flow information: 
Cash paid for interest $ $1,627 
Supplemental disclosure of non-cash investing and financing activities: 
Purchase of property and equipment included in accounts payable $954 $1,471 
Operating lease assets obtained in exchange for lease obligations5,318  
Issuance of Common Stock upon Palamedrix Acquisition11,832 — 
Consideration payable for acquisition1,448  
Issuance of Common Stock upon Business Combination— 151,082 
Surrender of shares in cashless exercise  56 
Issuance of Common Stock for services 50 535 
Transaction costs included in accounts payable  743 
Forgiveness of Paycheck Protection Program loan and accrued interest  3,561 
Issuance of Common Stock for conversion of convertible debt 4,631 
Reconciliation of cash, cash equivalents and restricted cash 
Cash and cash equivalents $380,374 $468,708 
Restricted cash included in prepaid expenses and other current assets4,631  
Restricted cash included in other long-term assets 783 780 
Total cash, cash equivalents and restricted cash at end of period $385,788 $469,488 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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SomaLogic, Inc.
Notes to Condensed Consolidated Financial Statements
Unaudited

Note 1 — Description of Business
Organization and Operations
SomaLogic, Inc. (“SomaLogic” or the “Company”) was originally incorporated in Delaware on December 15, 2020 as a special purpose acquisition company under the name CM Life Sciences II Inc. (“CMLS II”) for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, or similar business combination with one or more businesses.
On September 1, 2021 (the “Closing Date”), we consummated the business combination (the “Business Combination”) of SomaLogic Operating Co. Inc. (“SomaLogic Operating”), a Delaware corporation formed on October 13, 1999, wherein SomaLogic Operating became a wholly-owned subsidiary of CMLS II. In connection with the closing of the Business Combination, we changed our name from CM Life Sciences II Inc. to SomaLogic, Inc.
The Business Combination was accounted for as a reverse recapitalization in accordance with U.S. generally accepted accounting principles (“GAAP”). Under this method of accounting, CMLS II was treated as the “acquired” company for financial reporting purposes and SomaLogic Operating was treated as the accounting acquirer. Accordingly, for accounting purposes, our financial statements represent a continuation of the financial statements of SomaLogic Operating with the Business Combination being treated as the equivalent of SomaLogic Operating issuing stock for the net assets of CMLS II, accompanied by a recapitalization. The net assets of SomaLogic Operating are stated at historical cost, with no goodwill or other intangible assets recorded. Operations prior to the Business Combination in these financial statements are those of SomaLogic Operating. The recapitalization of our Common Stock is reflected retrospectively to the earliest period presented, and is utilized for calculating net loss per share in all prior periods presented.
Other than information discussed herein, there have been no significant changes to our description of business and Business Combination disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Form 10-K”).
We are a protein biomarker discovery and clinical diagnostics company that develops slow off-rate modified aptamers (“SOMAmers®”), which are modified nucleic acid-based protein binding reagents that are specific for their cognate protein, and offer proprietary SomaScan® services, which provide multiplex protein detection and quantification of protein levels in complex biological samples. The SOMAmers®/SomaScan® technology enables researchers to analyze various types of biological samples for protein biomarker signatures, which can be utilized in drug discovery and development. Biomarker discoveries from SomaScan® can lead to diagnostic applications in various areas of diseases including cardiovascular and metabolic disease, nonalcoholic steatohepatitis, and wellness, among others.
Unless the context otherwise requires, the terms “we”, “us”, “our”, “SomaLogic" and “the Company" refer to SomaLogic, Inc. and its consolidated subsidiaries.
COVID-19 Pandemic
The Company is subject to ongoing uncertainty concerning the Coronavirus Disease 2019 (“COVID-19”) pandemic, including its length and severity and its effect on the Company’s business. Our suppliers have been impacted by the COVID-19 pandemic, and we have experienced supply delays for certain equipment, instrumentation, and other supplies that we use for our services and products.
The COVID-19 pandemic continues to be dynamic and near-term challenges across the economy remain. The Company expects continued volatility and unpredictability related to the impact of COVID-19 on business results. The Company continues to actively monitor the pandemic and will continue to take appropriate steps to mitigate the adverse impacts on the business posed by the on-going spread of COVID-19.
Note 2 — Summary of Significant Accounting Policies
Basis of Presentation
The condensed consolidated financial statements and accompanying notes include the accounts of SomaLogic and our wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. The accompanying condensed consolidated financial statements have been prepared in accordance with GAAP for interim financial information. Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASUs”) of the Financial Accounting Standards Board (“FASB”).
Certain information and disclosures normally included in consolidated financial statements prepared in accordance with GAAP have been condensed or omitted. Accordingly, these condensed consolidated financial statements should be
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SomaLogic, Inc.
Notes to Condensed Consolidated Financial Statements
Unaudited
read in conjunction with our audited consolidated financial statements as of and for the year ended December 31, 2021 included in the 2021 Form 10-K.
These unaudited condensed consolidated financial statements have been prepared on the same basis as our annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include normal recurring adjustments considered necessary for a fair presentation of interim financial information, to present fairly the Company’s condensed consolidated financial position and its results of operations and cash flows. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the year ending December 31, 2022 or for any other future annual or interim period.
Certain reclassifications have been made to prior period amounts to conform to the current presentation.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods. Actual results could differ from those estimates. Significant estimates and assumptions reflected in these financial statements include, but are not limited to, revenue recognition, discount rates used in the determination of significant financing component, inventory valuation, incremental borrowing rates used in the determination of lease assets and liabilities, the valuation of stock-based compensation awards, intangible asset valuations, contingent consideration valuations, warrant liabilities valuations, and earn-out liability valuations. We base our estimates on current facts, historical and anticipated results, trends, and other relevant assumptions that we believe are reasonable under the circumstances. Actual results could differ from these estimates, and such differences could be material to the Company’s consolidated financial position and results of operations.
Concentration of Credit Risk and Other Risks and Uncertainties
Financial instruments that potentially expose the Company to concentrations of credit risk consist principally of cash and cash equivalents, investments, and accounts receivable. The Company does not require collateral or other security related to its receivables. Our cash and cash equivalents are deposited with high-quality financial institutions. Deposits at these institutions may, at times, exceed federally insured limits.
Significant customers are those that represent more than 10% of the Company’s total revenues or gross accounts receivable balances for the periods in the consolidated statements of operations and as of each balance sheet date presented, respectively. For each significant customer, revenue as a percentage of total revenues and gross accounts receivable as a percentage of total gross accounts receivable as of the periods presented were as follows:
Accounts Receivable Revenue
 September 30, 2022December 31, 2021 Three months ended September 30,Nine months ended September 30,
  2022202120222021
Customer A
12%10%13%27%19%24%
Customer B
*****17%
Customer C
63%20%53%*33%11%
Customer D
*26%****
*    less than 10%
International sales entail a variety of risks, including currency exchange fluctuations, longer payment cycles, and greater difficulty in accounts receivable collection. Customers outside the United States collectively represent 28% and 44% of the Company’s revenues for the three months ended September 30, 2022 and 2021, respectively, and 33% and 34% for the nine months ended September 30, 2022 and 2021, respectively. Customers outside of the United States collectively represented 21% and 18% of the Company’s gross accounts receivable balance as of September 30, 2022 and December 31, 2021, respectively.
Certain components included in our products require customization and are obtained from a single source or a limited number of suppliers.

Business Combination
The Company accounts for business combinations using the acquisition method of accounting in accordance with ASC 805, “Business Combinations.” A business combination is one that combines inputs and processes to create outputs, and where substantially all of the fair value of assets acquired is not concentrated in a single identifiable asset or group of similar identifiable assets. Identifiable assets acquired and liabilities assumed are recorded at their acquisition date fair
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SomaLogic, Inc.
Notes to Condensed Consolidated Financial Statements
Unaudited
values. When determining the fair values of assets acquired and liabilities assumed, management makes significant estimates and assumptions. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities assumed is recorded as goodwill. Acquisition related costs are expensed as incurred and included in selling, general and administrative expenses in the condensed consolidated statements of operations and comprehensive loss. See Note 4, Business Combinations, for additional detail.

In-process research and development
Acquired in-process research and development (“IPR&D”) relates to substantial research and development efforts that are incomplete at the acquisition date. IPR&D intangible assets are considered indefinite-lived until the completion or abandonment of the associated research and development efforts. During the development phase, these assets are not amortized but are tested for impairment annually or more frequently if events or changes in circumstances indicate that it is more likely than not that the asset is impaired. Once the IPR&D activities are completed, the intangible asset is amortized over its useful life on a straight-line basis.

Goodwill
Goodwill is the difference between the total consideration paid in a business combination and the fair value of the net identifiable assets acquired. Goodwill is not amortized but is tested for impairment on an annual basis and in interim periods if events or changes in circumstances indicate that it is more likely than not that the fair value of a reporting unit is below its carrying amount. All of the Company’s goodwill is assigned to its one operating segment.
The Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount, including goodwill. If, after assessing the totality of events or circumstances, the Company determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then the quantitative goodwill impairment test is unnecessary. For the quantitative goodwill impairment test, the fair value of the reporting unit is compared to its carrying value and an impairment is recorded for the excess carrying value over fair value, not to exceed the carrying amount of goodwill. There were no goodwill impairment losses recorded in any period presented.

Impairment of long-lived assets
The Company evaluates a long-lived asset (or asset group) for impairment whenever events or changes in circumstances indicate that the carrying value of the asset (or asset group) may not be recoverable. If indicators of impairment exist and the undiscounted future cash flows that the asset is expected to generate are less than they carrying value of the asset, an impairment loss is recorded to write down the asset to its estimated fair value based on a discounted cash flow approach.
Leases
Following the adoption of ASU 2016-02, Leases (Topic 842), on January 1, 2022, we determine if an arrangement is a lease at inception of the contract. Operating lease right-of-use (“ROU”) assets are included in other long-term assets, and operating lease liabilities are included in other current liabilities and other long-term liabilities in the condensed consolidated balance sheets.
ROU assets and operating lease liabilities are recognized based on the present value of the future lease payments over the lease term at commencement date. As the implicit rate in the Company's leases is generally unknown, the Company uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future lease payments. The Company gives consideration to its credit risk, term of the lease, total lease payments and adjusts for the impacts of collateral, as necessary, when calculating its incremental borrowing rates.
Operating lease ROU assets include lease incentives and initial direct costs incurred. When the lease incentives specify a maximum level of reimbursement and we are reasonably certain to incur reimbursable costs equal to or exceeding this level, we include the lease incentive in the measurement of the ROU assets and lease liabilities at commencement. The lease terms may include options to extend or terminate the lease when it is reasonably certain the Company will exercise any such options. Lease costs for our operating leases are recognized on a straight-line basis within operating expenses over the lease term in the condensed consolidated statements of operations and comprehensive loss.
We have lease agreements with lease and non-lease components. However, we have elected the practical expedient to not separate lease and non-lease components for all of our existing classes of assets. Therefore, the lease and non-lease components are accounted for as a single lease component. We have also elected to not apply the recognition requirement to any short-term leases with a term of 12 months or less.
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SomaLogic, Inc.
Notes to Condensed Consolidated Financial Statements
Unaudited
We monitor for events or changes in circumstances that may require a reassessment or impairment of our leases, at which time our ROU assets for operating leases may be reduced by impairment losses.
Warrant Liabilities
During February 2021, in connection with CMLS II’s initial public offering, CMLS II issued 5,519,991 warrants (the “Public Warrants”) to purchase shares of Common Stock at $11.50 per share. Simultaneously, with the consummation of the CMLS II initial public offering, CMLS II issued 5,013,333 warrants through a private placement (the “Private Placement Warrants”, and together with the Public Warrants, the “Warrants”) to purchase shares of Common Stock at $11.50 per share. All of the Warrants were outstanding as of September 30, 2022.
We classify the Warrants as liabilities on our condensed balance sheets as these instruments are precluded from being indexed to our own stock given that the terms allow for a settlement adjustment that does not meet the scope for the fixed-for-fixed exception in ASC 815, Derivatives and Hedging. Since the Warrants meet the definition of a derivative under ASC 815-40, the Company recorded these warrants as long-term liabilities at fair value on the date of the Business Combination, with subsequent changes in their respective fair values recognized within change in fair value of warrant liabilities in the condensed consolidated statements of operations and comprehensive loss at each reporting date.
Earn-Out Liability
As a result of the Business Combination, additional shares of Common Stock were provided to SomaLogic Operating shareholders and to certain employees and directors of SomaLogic (“Earn-Out Service Providers”) of up to 3,500,125 and 1,499,875, respectively (the “Earn-Out Shares”). The Earn-Out Shares are payable if the price of our Common Stock is greater than or equal to $20.00 for a period of at least 20 out of 30 consecutive trading days at any time between the 13- and 24-month anniversary of the Closing Date (the “Triggering Event”). Any Earn-Out Shares issuable to an Earn-Out Service Provider shall be issued only if such individual continues to provide services (whether as an employee or director) through the date of occurrence of the corresponding Triggering Event (or a change in control acceleration event, if applicable) that causes such Earn-Out Shares to become issuable. Any Earn-Out Shares that are forfeited pursuant to the preceding sentence shall be reallocated to the SomaLogic Operating shareholders in accordance with their respective pro rata Earn-Out Shares.
The Earn-Out Shares granted to shareholders were recognized as a liability in accordance with ASC 815. The liability was included as part of the consideration transferred in the Business Combination and was recorded at fair value. The earn-out liability is remeasured at the end of each reporting period, with subsequent changes in fair value recognized within change in fair value of earn-out liability in the condensed consolidated statements of operations and comprehensive loss.
See Note 12, Stock-based Compensation, for additional information regarding Earn-Out Shares granted to Earn-Out Service Providers.
Revenue Recognition
The Company recognizes revenue from sales to customers under ASC 606, Revenue from Contracts with Customers (“ASC 606”). ASC 606 provides a five-step model for recognizing revenue that includes identifying the contract with a customer, identifying the performance obligations in the contract, determining the transaction price, allocating the transaction price to the performance obligations, and recognizing revenue when, or as, an entity satisfies a performance obligation.
The Company recognizes revenue when or as control of promised goods or services is transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. Sales, value add, and other taxes collected concurrent with revenue-producing activities are excluded from revenue and products are sold without the right of return.
Payment terms may vary by customer, are based on customary commercial terms, and are generally less than one year. The Company does not adjust revenue for the effects of a significant financing component for contracts where the period between the transfer of the good or service and collection is one year or less. The Company expenses incremental costs to obtain a contract when incurred since the amortization period of the asset that would otherwise be recognized is one year or less.
Assay Services Revenue
The Company generates assay services revenue primarily from the sale of SomaScan® services. SomaScan® service revenue is derived from performing the SomaScan® assay on customer samples to generate data on protein biomarkers. Revenue from SomaScan® services is recognized at the time the analysis data or report is delivered to the customer,
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SomaLogic, Inc.
Notes to Condensed Consolidated Financial Statements
Unaudited
which is when control has been transferred to the customer. SomaScan® services are sold at a fixed price per sample without any volume discounts, rebates, or refunds.
The delivery of each assay data report is a separate performance obligation. For arrangements with multiple performance obligations, the transaction price must be allocated to each performance obligation based on its relative standalone selling price. Judgment is required to determine the standalone selling price for each distinct performance obligation as there are few directly comparable products in the market and factors such as customer size are factored into the determination of selling price. We determine standalone selling prices based on amounts invoiced to customers in observable transactions.
Product Revenue
Product revenue primarily consists of equipment and kit sales to customers who assay samples in their own laboratories. Equipment is generally accounted for as a bundle with installation, qualification and training services. Revenue is recognized over time based on the progress made toward achieving the performance obligation utilizing input methods, including costs incurred. The Company receives fixed consideration per kit and revenue from kit sales is recognized upon transfer of control to the customer. Shipping and handling costs billed to customers are included in product revenue in the condensed consolidated statements of operations and comprehensive loss.
Collaboration Revenue
In July 2011, NEC Corporation (“NEC”) and the Company entered into a Strategic Alliance Agreement (the “SAA”) to develop a professional software tool to enable SomaScan® customers to easily access and interpret the highly multiplexed proteomic data generated by SomaLogic’s SomaScan® assay technology in the United States. To support this development, NEC made an upfront payment of $12.0 million and SomaLogic agreed to pay NEC a perpetual royalty on certain SomaScan® revenues. This agreement include