MANAGEMENT REPORT OF VAPOTHERM INC AND ANALYSIS OF THE FINANCIAL POSITION AND OPERATING RESULTS (Form 10-Q)

The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our unaudited condensed
consolidated financial statements for the fiscal quarter ended September 30,
2021, included elsewhere in this Quarterly Report on Form 10-Q. In addition to
historical financial information, the following discussion and analysis contains
forward-looking statements that involve risks, uncertainties and assumptions.
Some of the numbers included herein have been rounded for the convenience of
presentation. Our actual results may differ materially from those anticipated in
these forward-looking statements as a result of many factors, including those
discussed under the "Risk Factors" section of our 2020 Form 10-K filed with the
SEC on February 24, 2021 and in our Quarterly Reports on Form 10-Q, including
this Quarterly Report on Form 10-Q for the quarterly period ended September 30,
2021.



Vapotherm is a global medical technology company primarily focused on the
development and commercialization of our proprietary High Velocity Therapy
products that are used to treat patients of all ages suffering from respiratory
distress. Our High Velocity Therapy products deliver non-invasive ventilatory
support by providing heated, humidified and oxygenated air at a high velocity to
patients through a comfortable small-bore nasal interface. Our Precision Flow
systems, which use High Velocity Therapy technology, are clinically validated
alternatives to, and address many limitations of, the current standard of care
for the treatment of respiratory distress in a hospital setting. As of September
30, 2021, more than 3.2 million patients have been treated with our Precision
Flow systems, and we have a global installed base of over 34,000 capital units.

The efficacy of our products is supported by a significant body of clinical
evidence across multiple patient populations suffering from respiratory
distress. We have developed the only high velocity nasal insufflation device
clinically validated as an alternative to non-invasive positive pressure
ventilation ("NiPPV") while addressing many of its limitations, evidenced in
part by our sponsored 204 patient, multisite randomized controlled trial in the
Emergency Department which was published in the July 2018 issue of Annals of
Emergency Medicine. In April 2020 Heart and Lung, the Journal of Cardiopulmonary
and Acute Care, published a subgroup analysis from this ED study that showed
High Velocity Therapy may provide ventilatory support similar to NiPPV in
patients presenting with acute hypercapnic respiratory failure. In February
2021, Critical Care Explorations published a multi-center, prospective
observational case study that showed High Velocity Therapy was an effective tool
for reducing the respiratory rate in COPD patients with acute hypercapnic
respiratory failure.

Our business was significantly transformed during 2020 due to increased demand
for our High Velocity Therapy technology for treatment of COVID-19 patients, as
evidenced by year over year revenue growth of 161.4% from 2019 to 2020. The
COVID-19 pandemic contributed to this transformation in at least two primary
ways. First, it resulted in increased awareness of High Velocity Therapy,,
including recognition by the CDC, WHO, NIH, Society for Critical Care Medicine,
American College of Emergency Physicians, and the Chinese, German, Italian, and
Australian thoracic societies of High Velocity Therapy as an appropriate first
line therapy for those suffering from low oxygen levels. Second, many
respiratory distress patients who require ventilatory support are initially
treated in a hospital's ED with the goal of stabilizing these patients with a
non-invasive ventilation therapy so their underlying condition can be treated.
Our existing focus on hospital emergency departments as an effective entry point
for our products resulted in our systems being in the right place at the right
time when the COVID-19 pandemic hit. This exposed a significant number of new
physicians to the efficacy of our High Velocity Therapy technology, especially
as they were able to see patients moved out of the emergency room and into lower
acuity settings in the hospital after receiving our High Velocity Therapy. We
expect that increased awareness among physicians of the efficacy of our High
Velocity Therapy to treat patients in respiratory distress, whether they are
hypoxic or hypercapnic, will result in expanded use of our products in a variety
of settings.



We currently offer four versions of our Precision Flow systems: Precision Flow
Hi-VNI, Precision Flow Plus, Precision Flow Classic and Precision Flow Heliox.
In certain countries outside of the United States we currently offer our Oxygen
Assist Module, which was fully launched in the United Kingdom, select European
markets, and Israel in late 2020 and is now available in 21 countries. Our
Oxygen Assist Module, in addition to disposables, includes subscription-based
revenue which increases the revenue per installed unit. The Oxygen Assist Module
can be used with all versions of our Precision Flow systems except for the
Precision Flow Heliox. The Oxygen Assist Module is designed to help clinicians
maintain a patient's pulse oxygen saturation ("SpO2") within a target SpO2 range
over a greater period of time while requiring significantly fewer manual
adjustments to the equipment. Maintenance of the prescribed oxygen saturation
range may reduce the health risks associated with dosing too much, or too
little, oxygen. In neonates, these risks include visual or developmental
impairment or death.



The Oxygen Assist Module was granted Breakthrough Device Designation by the FDA
on April 2, 2020 for the following indication: Oxygen Assist Module is an
optional module used only with the Vapotherm Precision Flow and is indicated for
on-demand titration of oxygen into warm humidified breathing gases delivered to
spontaneously breathing patients based on continuous non-invasive monitoring of
pulse oxygen saturation. Oxygen Assist Module is intended to treat pediatric
patients (neonates and infants

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?1000g) in monitored clinical environments (e.g., the NICU). We are continuing
to work with FDA through the Breakthrough Device program to make our Oxygen
Assist Module available in the United States, with the first step being an
investigational device exemption for pediatric evaluation of the Oxygen Assist
Module in the United States. Our IDE clinical study was approved on April 29,
2021. We began enrollment in this clinical study in the third quarter of 2021.



During the third quarter of 2021, we received FDA 510(k) clearance for our next
generation High Velocity Therapy system, which we call HVT 2.0. The HVT 2.0 is
targeted for a limited market release in the fourth quarter of 2021. The HVT 2.0
represents the next generation of High Velocity Therapy. The system retains the
core High Velocity Therapy competencies of the current Precision Flow platform
and, with an internal blower, is designed to eliminate the need for wall air.
With a variable oxygen connection (tank, wall or concentrator), the HVT 2.0
system is designed to support patients wherever they need respiratory support,
including outside of the hospital in a home or future use in a field transport
setting. A large intuitive display with touchscreen operation, on screen
troubleshooting guidance, and a fully assembled disposable are designed to
minimize clinician time spent on operating the equipment so they can focus on
their patient. We recently received a positive assessment from our Notified Body
for the HVT 2.0, allowing us to affix the CE mark and sell HVT 2.0 in the
European Union.

Historically, we have generated revenue primarily from sales of the disposable
products utilized with our proprietary Precision Flow systems and our Oxygen
Assist Module, and to a lesser extent, from the sale or lease of the capital
units themselves. However, due to demand for our High Velocity Therapy
technology during the COVID-19 pandemic, we generated revenue primarily from
sales of our Precision Flow systems in 2020, which although putting pressure on
our margins also resulted in a 72.8% increase in our installed base, which we
expect will drive future recurring disposable revenue. The significant increase
in U.S. hospitalizations experienced as a result of the Delta variant of
COVID-19 during the third quarter of 2021 had a direct positive impact on our
disposable sales and turn rates. The extent to which the COVID-19 pandemic will
impact our business during the remainder of 2021 and beyond will depend on
future developments, which are highly uncertain and cannot be predicted,
including new information which may emerge concerning the severity of COVID-19
and variants of the virus, and the actions taken to treat or contain COVID-19 or
to otherwise limit its impact, the availability, adoption and effectiveness of
vaccines, among other factors. For example, as vaccinations increase and
COVID-19 hospitalizations decrease in the U.S., we would expect to see overall
demand for our High Velocity Therapy products decrease from the higher than
historical levels we experienced during the height of the COVID-19 pandemic. As
the COVID-19 pandemic winds down, we expect to sell fewer capital units as a
percentage of our revenues, especially in the United States, and expect our
revenue mix between capital and disposable sales to begin to normalize back to
historical levels. Also, worldwide precautionary measures taken to reduce the
spread of COVID-19 infections have impacted, and may continue to impact, the
incidence of flu and flu-related illnesses, which have negatively impacted and
could continue to negatively impact our future revenue.

We sell our Precision Flow systems to hospitals through a direct sales
organization in the United States, the United Kingdom and Germany and we sell
our Precision Flow systems through distributors in other select European
countries outside of these three countries. Our Oxygen Assist Module is sold
through a direct sales organization in the United Kingdom and Germany and
through distributors in Europe and the Middle East. We expanded the commercial
launch of our Oxygen Assist Module throughout the United Kingdom, Europe, and
the Middle East in the first quarter of 2021. In addition, we employ field-based
clinical educators who focus on medical education and training in the effective
use of our products and help facilitate increased adoption and utilization, most
recently through our 1H1D (One Hospital One Day) strategy. We focus on
physicians, respiratory therapists and nurses who work in acute hospital
settings, including the ED and adult, pediatric and neonatal ICUs. Our
relationship with these clinicians is particularly important, as it enables our
products to follow patients through the care continuum. As of September 30,
2021, we have sold our Precision Flow systems to over 2,000 hospitals across the
United States, where they have been primarily deployed in the ICU setting.

Since inception, we have financed our operations primarily through sales of our
equity securities, sales of our Precision Flow systems and their associated
disposables, and amounts borrowed under our credit facilities. We have devoted
the majority of our resources to research and development activities related to
our Precision Flow systems, Oxygen Assist Module and HVT 2.0, including
regulatory initiatives, and sales and marketing activities. We have invested
heavily in our sales and marketing function by increasing the number of sales
representatives and clinical educators to facilitate adoption and increase
utilization of our High Velocity Therapy products and expanded our digital
marketing initiatives and medical education programs, including our Vapotherm
Academy which was instrumental during the pandemic and used to train more than
33,000 caregivers during 2020 and the first nine months of 2021.

On November 13, 2020, we acquired HGE Health Care Solutions LLC ("HGE"). We
undertook the acquisition to expand our capabilities by providing a remote
monitoring platform designed to empower respiratory patients with chronic
obstructive pulmonary disease ("COPD"), as well as payors and providers, to
manage day-to-day symptoms, prevent exacerbations, lower costs and improve
patient quality of life. HGE was rebranded to Vapotherm Access during the second
quarter of 2021. Our initial product launch, Vapotherm Access - Post Care is
intended to manage COPD patients after discharge and seek to lower 30-day
readmission rates. We believe this is important since a hospital typically`
incurs a penalty on its entire book of Center for Medicare & Medicaid Services

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company if its 30-day readmission rate is greater than the we national average. We hope to learn from this new product as we continue to make significant investments in our Vapotherm Access offerings beyond Post Care.

On November 2, 2021, HGE completed an acquisition of all outstanding interests
in PCI Management Group LLC for total consideration of $1.2 million in
cash. Concurrently, we formed Vapotherm Access Care Management Network LLC, a
subsidiary of HGE. We undertook these activities to form a value-based
enterprise that will enter into value-based contracts with third-party payors
for the care of patients with respiratory disease and the provision of Vapotherm
Access services.

We intend to continue to make significant investments in our sales and marketing
organization by increasing the number of U.S. sales representatives, expanding
the number of clinical educators internationally along with our international
marketing programs and expanding worldwide direct to clinician digital marketing
efforts to help facilitate further adoption among existing hospital accounts as
well as broaden awareness of our products to new hospitals. We also expect to
continue to make investments in research and development, regulatory affairs,
and clinical studies to develop future generations of our High Velocity Therapy
products, support regulatory submissions, and demonstrate the clinical efficacy
of our new products. In addition, we have continued to make improvements and
adjustments to our production capacity in response to high demand for our
products and labor shortages, including recently engaging a third-party
manufacturer to manufacture and assemble certain of our products at its facility
in Tijuana, Mexico and hiring several temporary production workers. While these
actions put pressure on our gross margins during the third quarter of 2021, and
we expect will continue to put pressure during the remainder of 2021, we
anticipate long-term benefits of these actions. Because of these and other
factors, we expect to continue to incur net losses for the next several years
and we expect to require additional funding, which may include future equity and
debt financings.





Results of Operations



                                               Three Months Ended               Nine Months Ended
                                                  September 30,                   September 30,
                                              2021             2020           2021             2020
                                                                 (in thousands)
Net revenue                                $   38,115       $   30,559     $   91,048       $   84,826
Cost of revenue                                19,291           15,049         45,649           42,491
Gross profit                                   18,824           15,510         45,399           42,335
Operating expenses
Research and development                        3,979            4,745         13,466           12,002
Sales and marketing                            20,465           15,932         47,169           44,107
General and administrative                      7,262            6,047         23,948           16,925
Total operating expenses                       31,706           26,724         84,583           73,034
Loss from operations                          (12,882 )        (11,214 )      (39,184 )        (30,699 )
Other expense, net                               (684 )         (1,228 )       (2,056 )         (3,619 )
Net loss                                   $  (13,566 )     $  (12,442 )   $  (41,240 )     $  (34,318 )




Revenue



                                           Three Months Ended September 30,
                                          2021                            2020                       Change
                                          (in thousands, except percentages)
                                Amount       % of Revenue       Amount      % of Revenue         $            %
Product Revenue:
Capital Equipment             $   13,331              35.0 %   $ 15,245              49.9 %   $ (1,914 )      -12.6 %
Disposables                       21,674              56.8 %     13,044              42.7 %      8,630         66.2 %
Subtotal Product Revenue          35,005              91.8 %     28,289              92.6 %      6,716         23.7 %
Lease Revenue
Capital Equipment             $    1,294               3.4 %   $  1,129               3.7 %   $    165         14.6 %
Other                                488               1.3 %        524               1.7 %        (36 )       -6.9 %
Service and Other Revenue          1,328               3.5 %        617               2.0 %        711        115.2 %
Total Net Revenue             $   38,115             100.0 %   $ 30,559             100.0 %   $  7,556         24.7 %




Net revenue increased $7.6 million, or 24.7%, to $38.1 million for the third
quarter of 2021 compared to $30.6 million for the third quarter of 2020. The
increase in net revenue was primarily attributable to a $8.6 million increase in
disposables revenue, partially

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offset by a $1.9 million decrease in capital equipment revenue. Disposable
revenue increased 66.2% in the third quarter of 2021 primarily driven by higher
volume in the United States due to a surge of the COVID-19 pandemic in the
United States and a larger installed base of Precision Flow units, and to a
lesser extent, an increase in average selling prices. Capital equipment revenue
decreased 12.6% in the third quarter of 2021 primarily due to decreased sales of
our Precision Flow units in the United States. Lease revenue was fairly
consistent in the third quarter of 2021 compared to the same period in the prior
year. The increase in service and other revenue in the third quarter of 2021 is
primarily the result of Vapotherm Access revenue as a result of the HGE
acquisition in the fourth quarter of 2020.

Information on net income by geographic area is summarized as follows:


                                           Three Months Ended September 30,
                                          2021                            2020                       Change
                                          (in thousands, except percentages)
                                Amount       % of Revenue       Amount      % of Revenue         $            %
United States                 $   32,950              86.4 %   $ 25,526              83.5 %   $  7,424         29.1 %
International                      5,165              13.6 %      5,033              16.5 %        132          2.6 %
Total Net Revenue             $   38,115             100.0 %   $ 30,559             100.0 %   $  7,556         24.7 %




Net revenue generated in the United States increased $7.4 million, or 29.1%, to
$33.0 million for the third quarter of 2021, compared to $25.5 million for the
third quarter of 2020. Net revenue generated in our International markets
increased $0.1 million, or 2.6%, to $5.2 million for the third quarter of 2021,
compared to $5.0 million for the third quarter of 2020. United States net
revenue increase was primarily driven by an increase in the volume of
disposables sold period over period due to a surge of the COVID-19 pandemic
during the current year period and a larger installed base of Precision Flow
units. International net revenue was relatively consistent during the third
quarter of 2021 compared to the third quarter of 2020.



                                           Nine Months Ended September 30,
                                         2021                           2020                        Change
                                                       (in thousands, except percentages)
                               Amount      % of Revenue       Amount      % of Revenue          $            %
Product Revenue:
Capital                       $ 29,519              32.4 %   $ 39,548              46.6 %   $ (10,029 )      -25.4 %
Disposables                     51,624              56.7 %     38,637              45.6 %      12,987         33.6 %
Subtotal Product Revenue        81,143              89.1 %     78,185              92.2 %       2,958          3.8 %
Lease Revenue
Capital Equipment                3,601               4.0 %      3,407               4.0 %         194          5.7 %
Other                            1,619               1.8 %      1,427               1.7 %         192         13.5 %
Service and Other Revenue        4,685               5.1 %      1,807               2.1 %       2,878        159.3 %
Total Net Revenue             $ 91,048             100.0 %   $ 84,826             100.0 %   $   6,222          7.3 %




Net revenue increased $6.2 million, or 7.3%, to $91.0 million for the first nine
months of 2021 compared to $84.8 million for the first nine months of 2020. The
increase in net revenue was primarily attributable to a $13.0 million and $2.9
million increase in disposable and service and other revenue, respectively,
partially offset by a $10.0 million decrease in capital equipment revenue.
Disposable revenue increased 33.6% in the first nine months of 2021 primarily
driven by an increase in the worldwide installed base of Precision Flow units,
higher United States volume due to a surge of the COVID-19 pandemic, a larger
installed base of Precision Flow units, and higher average selling prices in the
United States. The increase in service and other revenue in the first nine
months of 2021 is primarily the result of Vapotherm Access revenue as a result
of the HGE acquisition in the fourth quarter of 2020. Capital equipment revenue
decreased 25.4% in the first nine months of 2021 primarily due to decreased
sales of our Precision Flow units.





                                 Nine Months Ended September 30,
                               2021                           2020                      Change
                                           (in thousands, except percentages)
                     Amount      % of Revenue       Amount      % of Revenue         $          %
United States       $ 66,349              72.9 %   $ 65,549              77.3 %   $   800        1.2 %
International         24,699              27.1 %     19,277              22.7 %     5,422       28.1 %
Total Net Revenue   $ 91,048             100.0 %   $ 84,826             100.0 %   $ 6,222        7.3 %


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Net revenue generated in the United States increased $0.8 million, or 1.2%, to
$66.3 million for the first nine months of 2021, compared to $65.5 million for
the first nine months of 2020. The increase in net revenue in the United States
was primarily due to an increase in the number of disposables sold period over
period due to continued COVID-19 pandemic demand and a higher installed base,
partially offset by a decrease in volume of sales of capital equipment. Net
revenue generated in our International markets increased $5.4 million, or 28.1%,
to $24.7 million for the first nine months of 2021, compared to $19.3 million
for the first nine months of 2020. International net revenue growth was
primarily driven by an increase in the number of disposables sold period over
period. International net revenue growth was also driven by increased volume of
sales of capital equipment due to continued COVID-19 pandemic demand, which
growth was partially offset by decreased average selling prices for the first
nine months of 2021 compared to the first nine months of 2020.

Cost of revenue and gross profit



Cost of revenue increased $4.2 million, or 28.2%, to $19.3 million in the third
quarter of 2021 compared to $15.0 million in the third quarter of 2020. Cost of
revenue increased $3.2 million, or 7.4%, to $45.6 million in the first nine
months of 2021 compared to $42.5 million in the first nine months of 2020. These
increases were primarily due to higher materials and labor costs due to an
increase in sales volumes of our disposables related to the surge in the
COVID-19 pandemic in the United States and the current labor shortage.



Gross profit decreased to 49.4% in the third quarter of 2021 compared to 50.8%
in the third quarter of 2020. Gross profit margin was negatively impacted by
certain one-time charges related to the transfer of certain activities to our
contract manufacturer, partially offset by increased labor and overhead
absorption due to higher disposable volumes in the third quarter of 2021
compared to the third quarter of 2020. Third quarter 2021 gross profit was also
positively impacted by geography mix with higher gross profit margins realized
on United States sales. Gross profit remained consistent at 49.9% in both the
first nine months of 2021 and 2020.

Research and development costs

Research and development expenses decreased $0.8 million, or 16.1%, to
$4.0 million in the third quarter of 2021 compared to $4.7 million in the third
quarter of 2020. As a percentage of revenue, research and development expenses
decreased to 10.4% in the third quarter of 2021 compared to 15.5% in the third
quarter of 2020.

Research and development expenses increased $1.5 million, or 12.2%, to
$13.5 million in the first nine months of 2021 compared to $12.0 million in the
first nine months of 2020. As a percentage of revenue, research and development
expenses increased to 14.8% in the first nine months of 2021 compared to 14.1%
in the first nine months of 2020.

The decrease in research and development expenses in the third quarter of 2021
compared to the third quarter of 2020 was primarily due to decreased prototype,
tooling, and patent-related costs. The increase in research and development
expenses for the first nine months of 2021 compared to the first nine months of
2020 was primarily due to increased product development costs associated with
the development of our future generation High Velocity systems, increased
employee-related expenses and stock-based compensation, and increased
patent-related costs.

Sales and marketing costs

Sales and marketing expenses increased $4.5 million, or 28.5%, to $20.5 million
in the third quarter of 2021 compared to $15.9 million in the third quarter of
2020. As a percentage of revenue, sales and marketing expenses increased to
53.7% in the third quarter of 2021 compared to 52.1% in the third quarter of
2020.

Sales and marketing expenses increased $3.1 million, or 6.9%, to $47.2 million
in the first nine months of 2021 compared to $44.1 million in the first nine
months of 2020. As a percentage of revenue, sales and marketing expenses
decreased to 51.8% in the first nine months of 2021 compared to 52.0% in the
first nine months of 2020.

The increase in sales and marketing expenses for both comparison periods was
primarily due to increased sales commission expenses, employee-related expenses,
stock-based compensation, travel expenses and increased spend on marketing
materials.

General and administrative expenses

General and administrative expenses increased $1.2 million, or 20.1%, to
$7.3 million in the third quarter of 2021 compared to $6.0 million in the third
quarter of 2020. As a percentage of revenue, general and administrative expenses
decreased to 19.1% in the third quarter of 2021 compared to 19.8% in the third
quarter of 2020.

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General and administrative costs increased $ 7.0 million, or 41.5%, to
$ 23.9 million in the first nine months of 2021 compared to $ 16.9 million in the first nine months of 2020. As a percentage of revenue, general and administrative expenses increased to 26.3% in the first nine months of 2021 from 20.0% in the first nine months of 2020 .

The increase in general and administrative expenses for both comparison periods
was primarily due to increases in employee-related expenses and stock-based
compensation and increased insurance, legal, rent and annual event costs,
partially offset by changes in the value of contingent consideration. The
increase in the first nine months of 2021 also related to increased audit and
compliance related costs and bank service charges, partially offset by a
reduction in reserves for uncollectible accounts receivable.

Other expenses, net

Other expense, net decreased $0.5 million, or 44.3%, to $0.7 million in the
third quarter of 2021 compared to $1.2 million in the third quarter of 2020.
Other expense, net decreased $1.6 million, or 43.2%, to $2.1 million in the
first nine months of 2021 compared to $3.6 million in the first nine months of
2020. The decrease in other expense, net in both the third quarter and first
nine months of 2021 was primarily due to a decrease in interest expense due to
lower average interest rates on outstanding borrowings in 2021 compared to the
same periods in 2020 and, to a lesser extent, was also due to lower average
outstanding borrowings on the revolving facility in 2021 compared to 2020.

Liquidity and capital resources

As of September 30, 2021, we had cash, cash equivalents and restricted cash of
$70.6 million, working capital of $86.6 million and an accumulated deficit of
$358.2 million. Our primary sources of capital to date have been from sales of
our equity securities, sales of our Precision Flow systems and their associated
disposables and amounts borrowed under credit facilities. Since inception, we
have raised a total of $371.9 million in net proceeds from sales of our equity
securities.

We believe that our existing cash resources and availability under our revolving
facility described below will be sufficient to meet our capital requirements and
fund our operations for at least the next 12 months. If these sources are
insufficient to satisfy our liquidity requirements, we may seek to sell
additional equity securities or enter new debt financing arrangements. If we
raise additional funds by issuing equity securities, our stockholders would
experience dilution. Additional debt financing, if available, may involve
covenants restricting our operations or our ability to incur additional debt.
Any additional debt or equity financing that we raise may contain terms that are
not favorable to us or our stockholders. Additional financing may not be
available at all or may be available only in amounts or on terms unacceptable to
us. If we are unable to obtain additional financing, we may be required to delay
the development, commercialization and marketing of our products and services.

Cash flow

The following table presents a summary of our cash flows for the periods
indicated:



                                                             Nine Months Ended September 30,
                                                               2021                   2020
                                                                     (in thousands)
Net cash provided by (used in):
Operating activities                                     $        (39,222 )     $        (32,109 )
Investing activities                                               (4,814 )               (5,944 )
Financing activities                                                 (907 )              105,451

Effect of exchange rate on cash, cash equivalents and restricted cash

                                                        (5 )                  (37 )
Net increase (decrease) in cash, cash equivalents and
restricted cash                                          $        (44,948 )     $         67,361




Operating Activities

The net cash used in operating activities was $39.2 million in the first nine
months of 2021 and consisted primarily of a net loss of $41.2 million and an
increase in net operating assets of $10.0 million, partially offset by
$12.0 million in non-cash charges.

The net cash used in operating activities was $32.1 million in the first nine
months of 2020 and consisted primarily of a net loss of $34.3 million and an
increase in net operating assets of $6.6 million, partially offset by $8.8
million in non-cash charges. Non-cash charges for both periods consisted
primarily of stock-based compensation expense, depreciation and amortization,
and non-cash lease expense.

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Investment activities

The net cash used in investing activities for the first nine months of 2021 and 2020 consists of purchases of property, plant and equipment of $ 4.8 million and $ 5.9 million, respectively.

Fundraising activities

Net cash used in financing activities was $0.9 million in the first nine months
of 2021 and consisted primarily of repayments on our revolving loan facility of
$3.2 million, partially offset by proceeds received from the exercise of stock
options of $1.4 million and proceeds from common stock issuances in connections
with our ESPP of $0.9 million.

Net cash provided by financing activities was $105.5 million in the first nine
months of 2020 and consisted of proceeds from the issuance of common stock in
connection with public and at-the-market offerings of $94.2 million and $9.9
million, respectively, borrowings of $1.0 million under our prior short-term
line of credit, and proceeds from common stock issuances in connection with our
ESPP and stock option exercises of $0.4 million and $0.5 million, respectively,
partially offset by common stock offering costs of $0.5 million.



Credit facilities

On October 21, 2020, we entered into a Loan and Security Agreement (the "Loan
Agreement") with Canadian Imperial Bank of Commerce Innovation Banking ("CIBC")
which provides for a revolving loan facility of $12.0 million (the "Revolving
Facility") and a term loan facility of $40.0 million (the "Term Facility" and,
together with the Revolving Facility, the "Facilities"). The proceeds of the
Facilities were used to repay our former term loan facility and revolving line
of credit, which are described in more detail below. As of September 30, 2021,
we had $1.7 million and $40.0 million of outstanding borrowings under our
Revolving Facility and Term Facility, respectively.

The Revolving Facility will mature on October 21, 2022 and may be renewed on an
annual basis thereafter by mutual agreement of us and CIBC. The Revolving
Facility bears interest at a floating rate per annum equal to the Wall Street
Journal ("WSJ") Prime Rate plus 1.0% and is subject to a floor of 3.25%. At
September 30, 2021, the interest rate was 4.25%. The outstanding balance under
the Revolving Facility was $1.7 million at September 30, 2021 and there were
letters of credit of $1.2 million outstanding at September 30, 2021.
Availability under the Revolving Facility is determined based on eligible
receivables reduced by letters of credit outstanding. At September 30, 2021,
there was $9.1 million of additional borrowings available under the Revolving
Facility.

The Term Facility will mature on October 21, 2025. Advances under the Term
Facility bear interest at a floating rate equal to the WSJ Prime Rate plus 2.5%
and is subject to a floor of 3.25%. At September 30, 2021, the interest rate was
5.75%. The outstanding balance was $40.0 million at September 30, 2021. The Loan
Agreement provides for interest-only payments on the Term Facility for the first
36 months through October 21, 2023. Thereafter, amortization payments on the
Term Facility will be payable monthly in 24 equal installments. The Term
Facility may not be prepaid prior to October 21, 2021 without prepaying all of
the interest that otherwise would have been payable on the Term Facility during
the period commencing on October 21, 2020 and ending on October 21, 2021, plus a
prepayment charge of 2.0%. Thereafter, the Term Facility may be prepaid in full,
subject to a prepayment charge of (i) 2.0%, if such prepayment occurs after
October 21, 2021 but on or prior to October 21, 2022, and (ii) 1.0%, if such
prepayment occurs after October 21, 2022 but on or prior to October 21,
2023. The Term Facility and Revolving Facility are secured by a lien on
substantially all of our assets, including intellectual property.

The Loan Agreement contains customary covenants and representations, including,
without limitation, a minimum revenue covenant equal to 80% of each year's
annual operating plan (tested on a trailing twelve month basis at the end of
each fiscal quarter) and other financial covenants, reporting obligations, and
limitations on dispositions, changes in business or ownership, mergers or
acquisitions, indebtedness, encumbrances, distributions and investments,
transactions with affiliates and capital expenditures.

The events of default under the Loan Agreement include, without limitation, and
subject to customary grace periods, (1) our failure to make any payments of
principal or interest under the Loan Agreement or other loan documents, (2) our
breach or default in the performance of any covenant under the Loan Agreement,
(3) the occurrence of a material adverse effect or an event that is reasonably
likely to result in a material adverse effect, (4) the existence of an
attachment or levy on a material portion of our or our subsidiaries' funds, (5)
our insolvency or bankruptcy, or (6) the occurrence of certain material defaults
with respect to any other of our indebtedness in excess of $500,000. If an event
of default occurs, CIBC is entitled to take enforcement action, including
acceleration of amounts due under the Loan Agreement. The Loan Agreement also
contains other customary provisions, such as expense reimbursement and
confidentiality. CIBC has indemnification rights and the right to assign the
Facilities, subject to customary restrictions.

From September 30, 2021, we were in compliance with all of the covenants in the loan agreement.

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On October 21, 2020, we used $40 million of the Term Facility, approximately
$4.9 million of the Revolving Facility, and approximately $6.3 million of cash
on hand to pay off all obligations owing under, and to terminate, both our prior
Credit Agreement and Guaranty, as amended (the "Amended Credit Agreement and
Guaranty"), with Perceptive Credit Holdings II, LP ("Perceptive") and our
Business Financing Agreement, as amended (the "Amended Revolver Agreement") with
Western Alliance Bank. As a result of the termination of the Amended Credit
Agreement and Guaranty and the Amended Revolver Agreement, we recorded a loss on
extinguishment of debt of $4.2 million, which included the prepayment penalty,
exit fees, write-off of the remaining unamortized deferred financing costs, and
legal fees, during the fourth quarter of 2020.



Market Agreement

On December 20, 2019, we entered into an Open Market Sales Agreement (the "ATM
Agreement") with Jefferies LLC ("Jefferies") under which we may offer and sell
our common stock having aggregate sales proceeds of up to $50.0 million from
time to time through Jefferies as our sales agent. We did not sell any shares of
our common stock during the nine months ended September 30, 2021. The ATM
Agreement will remain in full force and effect until terminated by either party
pursuant to the terms of the agreement or such date that the maximum offering
amount has been sold in accordance with the terms of the agreement. As of
September 30, 2021, there was approximately $39.8 million in remaining capacity
under this program.



Contractual Obligations



The following table presents a summary of our contractual obligations as of
September 30, 2021:





                                                             Payments Due by Period
                                                 Less Than                                         More Than
                                    Total         1 Year         1 - 3 Years       3-5 Years        5 Years
Amounts Reflected in Condensed
Consolidated Balance Sheet:
Revolving Credit Facility          $  1,726     $         -     $       1,726     $         -     $          -
Term Facility                        40,000               -            17,600          22,400                -
Operating Leases                      8,259           2,360             4,778           1,121                -
Amounts Not Reflected in Condensed
Consolidated Balance Sheet:
Interest on Debt (a)                  7,279           2,300             4,179             800                -
Purchase Commitments (b)              5,855           5,855                 -               -                -
Total                              $ 63,119     $    10,515     $      28,283     $    24,321     $          -



(a) Represents interest on our revolving credit facility and term facility.

          See discussion in Note 8 to our condensed consolidated financial
          statements.

(b) Represents non-cancellable purchase commitments for stocks, capital

facilities and services.

Off-balance sheet provisions

We have no off-balance sheet arrangements, as defined by applicable regulations of the SECOND, which have or are reasonably likely to have a present or future material effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.

Critical accounting conventions and estimates

The preparation of the condensed financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported in
the condensed financial statements and accompanying notes included elsewhere in
this Quarterly Report on Form 10-Q. Management believes that such estimates have
been based on reasonable and supportable assumptions and the resulting estimates
are reasonable for use in the preparation of the condensed financial statements.
Actual results could differ from these estimates.

Critical accounting policies are defined as those that are reflective of
significant judgements and uncertainties, the most important and pervasive
accounting policies used and areas most sensitive to material changes from
external factors. The critical accounting policies that we believe affect our
more significant judgements and estimates used in the preparation of our
condensed consolidated financial statements presented in this Quarterly Report
on Form 10-Q are described in Management's Discussion and Analysis of Financial
Condition and Results of Operations and in the Notes to our Consolidated
Financial Statements included in our Annual Report on Form 10-K for the year
ended December 31, 2020.

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Recent accounting positions

A discussion of recent accounting pronouncements is included in Note 2 to our
condensed consolidated financial statements included elsewhere in this Quarterly
Report on Form 10-Q.

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Kayleen C. Rice

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