AKOYA BIOSCIENCES: Discussion and analysis by management of the financial situation and the results of operations (form 10-Q)

You should read the following discussion and analysis of financial condition and
results of operations together with our consolidated financial statements and
related notes included elsewhere in this Quarterly Report on Form 10-Q and our
audited consolidated financial statements and notes thereto and management's
discussion and analysis of financial condition and results of operations for the
fiscal year ended December 31, 2020 included in the Prospectus. Our actual
results could differ materially from those anticipated in these forward-looking
statements as a result of various factors, including those in the Prospectus, as
referred to in the section titled "Risk Factors" under Part II, Item 1A below.
Please also see the section titled "Special note regarding forward looking
statements."

Overview

We are an innovative life sciences technology company delivering spatial biology
solutions focused on transforming discovery and clinical research. Our mission
is to deliver a revolutionary new class of spatially derived biomarkers that
empower life sciences researchers to better understand disease and clinicians to
improve patient outcomes. Spatial biology refers to a rapidly evolving
technology that enables academic and biopharma scientists to detect and map the
distribution of cell types and biomarkers across whole tissue samples at single
cell resolution, enabling advancements in their understanding of disease
progression and patient response to therapy. Through our CODEX and Phenoptics
platforms, reagents, software and services, we offer end-to -end solutions to
perform tissue analysis and spatial phenotyping across the full continuum, from
discovery through translational and clinical research.

Our spatial biology solutions measure cells and proteins by providing biomarker
data in its spatial context while preserving tissue integrity. Biomarkers are
objective measures that capture what is happening in a cell or tissue at a given
moment. Current genomic and proteomic methods, such as next-generation
sequencing (NGS), single-cell analysis, flow cytometry and mass spectrometry,
are providing meaningful data but require the destruction of the tissue sample
for analysis. While valuable and broadly adopted, these approaches allow
scientists to analyze the biomarkers and cells that comprise the tissue but do
not provide the fundamental information about tissue structure, cellular
interactions and the localized measurements of key biomarkers. Furthermore,
current non-destructive tissue analysis and histological methods provide some
limited spatial information, but only measure a minimal number of biomarkers at
a time and require expert pathologist interpretation. Our platforms address
these limitations by providing end-to-end solutions that enable researchers to
quantitatively interrogate a large number of biomarkers and cell types across a
tissue section at single cell resolution. The result is a detailed and
computable map of the tissue sample that thoroughly captures the underlying
tissue dynamics and interactions between key cell types and biomarkers, a
process now referred to as spatial phenotyping. We believe that we are the only
business with the breadth of platform capabilities that enable researchers to do
a deep exploratory and discovery study, and then further advance and scale their
study through translational and clinical phases, thereby helping to provide a
broad scope of understanding of human biology, disease progression and response
to therapy.

We offer two distinct platforms for spatial phenotyping, each designed to serve
the unique needs of our customers in the discovery, translational and clinical
markets. The first, CODEX, is an ultra-high parameter and cost-effective
platform ideally suited for discovery research with the ability to identify more
than 40 biomarkers in a tissue sample. The second, Phenoptics, is a high-
throughput platform with the automation and robustness needed for translational
and clinical applications. Both offer seamless and integrated workflow solutions
for our customers, including important benefits such as flexible sample types,
automated sample processing, scalability, comprehensive data analysis and
software solutions and dedicated field and applications support. With these
platforms, our customers are performing spatial phenotyping to further advance
their understanding of diseases such as cancer, neurological and autoimmune
disorders, and many other therapeutic areas.

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For the three and six months ended June 30, 2021 and 2020, the revenues of North America accounted for approximately 49%, 46%, 40% and 42% of our revenues, respectively.

From June 30, 2021, we employed a sales team of 87 employees, many with significant industrial and technical experience. We follow a direct sales model in North America and EMEA, while selling through third party distributors and resellers in APAC.

We focus a substantial portion of our resources on research and development, as
well as on business development and sales and marketing. Our research and
development efforts are geared towards developing new instruments and assay
capabilities, as well as new reagent kits, to meet both our customers' needs and
to address new markets. We intend to continue making significant investments in
this area for the foreseeable future. We also intend to continue to make
investments in building our sales team and marketing our products and services
to potential customers.

We generally outsource all of our production manufacturing. Design work,
prototyping and pilot manufacturing are performed in-house before outsourcing to
third party contract manufacturers. Our outsourced production strategy is
intended to drive cost leverage and scale, and avoid the high capital outlays
and fixed costs related to constructing and operating a manufacturing facility.
The contract manufacturers of our systems and reagent kits are located in the
United States and Asia. Certain of our suppliers of components and materials are
single source suppliers. We manufacture and assemble certain instrument
components in-house.

As of the date of this Quarterly Report on Form 10-Q, we have financed our
operations primarily from the issuance and sale of convertible preferred stock
and borrowings under our long-term debt agreement, and our IPO. We have incurred
net losses in each year since our inception in 2015. Our net losses were $5.6
million, $13.6 million, $4.6 million and $6.7 million for the three and
six months ended June 30, 2021 and 2020, respectively. We expect to continue to
incur significant expenses and operating losses for the foreseeable future. We
expect our expenses will increase substantially in connection with our ongoing
activities, as we:

? attract, hire and retain qualified personnel, including the expansion of our

business capacities and organizations;

? market and sell new and existing solutions and services;

? invest in processes and infrastructure to grow our business;

? support research and development to introduce new solutions;

? extend, protect and defend our intellectual property; and

? acquire complementary businesses or technologies to support the growth of our

company.

Key factors affecting our results of operations and future performance

There are a number of factors that have had an impact, and we believe they will continue to have an impact, on our business, results of operations and growth. Our ability to successfully address these factors is subject to various risks and uncertainties, including those described under “Risk Factors”.

Expansion of our installed base

We are focused on increasing sales of our CODEX and Phenoptics platforms to new
and existing customers. Our financial performance has historically been driven
by, and will continue to be impacted by, the volume of instrument sales.
Additionally, instrument sales are a leading indicator of future recurring
revenue from consumables and services. Our operating results and growth
prospects will be dependent in part on our ability to increase our instrument
installed

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base as we further penetrate existing markets and expand or deliver new features and solutions that attract new markets.

We believe our market is still evolving and relatively underpenetrated. As
spatial biology is further validated through rapid acceleration of peer-reviewed
publications and growing adoption by the life sciences research market, we
believe we have an opportunity to significantly increase our installed base. In
order to capitalize on this opportunity to drive adoption of our platforms
across the entire market, we intend to expand our global sales and marketing
organizations, increase the scale of our outbound marketing activities, invest
in commercial channel infrastructure and deliver new, market-leading solutions
to our customers. In addition, we regularly solicit feedback from our customers
in order to enhance our solutions and their applications for life sciences
research, which we believe will drive increased adoption of our platforms as
they better serve our customers' needs.

Drive incremental extraction

We believe that expansion of our installed base to new and existing customers
will drive an increase in our recurring reagent and instrument service revenue.
In addition, as our research and development team identifies and launches new
applications and biomarker targets, we expect to increase incremental pull
through on our existing and new instrument installed base. Recurring revenue was
46%, 40%, 34%, and 35% of total revenue for the three and six months ended June
30, 2021 and 2020, respectively. Our recurring revenue as a percentage of total
product and service revenue will vary based upon new device placements in the
period. As our installed base expands, we expect recurring revenue on an
absolute basis to increase and become an increasingly important contributor to
our revenue.

Improve the revenue mix and gross margin

Our revenues come mainly from sales of our platforms, consumables, software and services. The composition of our income will fluctuate from period to period, in particular the income generated by the sale of instruments. As our installed base grows, we expect revenue from consumables and instrument services to make up a larger percentage of total revenue.

Our margins are higher for those instruments and consumables that we sell
directly to customers compared to those sold through distributors. While we do
not currently intend to terminate our distributor relationships, we plan to
increase our direct sales capabilities in certain geographies which we believe
will improve our gross margins.

Future instrument and consumable selling prices and gross margins may fluctuate
due to a variety of factors, including the introduction by others of competing
products and solutions. We aim to mitigate downward pressure on our average
selling prices by increasing the value proposition offered by our instruments
and consumables, primarily by expanding the applications for our devices and
increasing the quantity and quality of data that can be obtained using our
consumables.

Impact of COVID-19

In March 2020, COVID-19 was declared a global pandemic by the World Health
Organization. In the following weeks, many states and counties across the United
States responded by implementing a number of measures designed to prevent its
spread, including stay-at -home or shelter-in- place orders, quarantines and
closure of all non- essential businesses. While conditions appear to be
improving, particularly as more people get vaccinated, the impact of this
pandemic has been and will likely continue to be extensive in many aspects of
society, which has resulted in and will likely continue to result in significant
disruptions to the global economy, as well as businesses and capital markets
around the world.

Impacts in 2020 and 2021 to our business as a result of COVID-19 include
disruptions to our manufacturing operations and supply chain caused by facility
closures, reductions in operating hours, staggered shifts and other social
distancing efforts, decreased productivity and unavailability of materials or
components, limitations on our employees' and customers' ability to travel, and
delays in product installations, trainings or shipments to and from affected
countries and within the United States. In light of the uncertain and rapidly
evolving situation relating to the spread of COVID-19, we have taken
precautionary measures intended to minimize the risk of the virus to our
employees, our customers and

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the communities in which we operate, including temporarily closing our offices
to visitors and limiting the number of employees in our offices to those that
are deemed essential for manufacturing and research purposes beginning in Spring
2020. As COVID-19 related restrictions ease and more people get vaccinated, we
have begun the process of transitioning those personnel who are comfortable
working in an office setting back to our corporate office facility, but a
significant number of our personnel continue to work from home. We also expect
that customer, employee and industry events may return in-person if COVID-19
related restrictions continue to ease.

Disruptions in our customers' operations have impacted and may continue to
impact our business. For example, laboratory shutdowns and reduced capital spend
by our customers have negatively impacted our instrument and reagent sales. We
are focused on navigating the challenges presented by COVID-19, with a primary
focus on preserving our liquidity and managing our cash flows by taking
preemptive action to enhance our ability to meet our short-term liquidity needs.
To address actual and expected reductions in revenue and cash flows, we reduced
our discretionary spending.

We do not yet know the net impact that the COVID-19 pandemic may have on our
business and cannot guarantee that it will not be materially negative. Although
we continue to monitor the situation and may adjust our current policies as more
information and public health guidance become available, the ongoing effects of
the COVID -19 pandemic and/or the precautionary measures that we have adopted
may create operational and other challenges, any of which could harm our
business and results of operations. While we maintain an inventory of finished
products and raw materials used in our products, a prolonged pandemic could lead
to shortages in the raw materials necessary to manufacture our products. If we
experience a prolonged disruption in our manufacturing, supply chains or
commercial operations, or if demand for our products is significantly reduced as
a result of the COVID-19 pandemic, we would expect to experience a material
adverse impact on our business, financial condition, results of operations and
prospects.

Historically, a significant portion of our field sales, customer training events
and other application services have been conducted in person, and the rollout of
our new products has historically been supported by our participation at
industry conferences. As a result of the COVID- 19 pandemic, and the
precautionary measures that we have adopted, substantially all of our field
sales and professional services activities have been conducted remotely for over
a year, which has resulted in a decrease in our travel expenditures. However, we
expect our travel expenditures to increase in the future as COVID-19
restrictions ease, which could negatively impact our financial condition and
results of operations. As of the date of this Quarterly Report on Form 10-Q, we
do not yet know the extent of the negative impact of such restrictions and
precautionary measures on our ability to attract new customers or retain and
expand our relationships with existing customers over the near and long term.
The length of time and full extent to which the COVID-19 pandemic may directly
or indirectly impact our business, results of operations and financial condition
will depend on future developments that are highly uncertain, subject to change
and difficult to predict.

License Agreements

In November 2015, we entered into an exclusive (equity) agreement with Stanford,
pursuant to which Stanford granted us an exclusive, worldwide, sublicensable
(subject to certain requirements) license under certain patent rights to make,
use, import and commercialize products for diagnostic, industrial and research
and development purposes. We agreed to pay annual license maintenance fees
ranging from $20 thousand to $50 thousand for the royalty-bearing license to
certain patents. We also issued a total of 91,559 shares of Class B common stock
pursuant to the agreement in 2015, which were recorded at fair value at the date
of issuance. We are required to pay royalties on net sales of products that are
covered by patent rights under the agreement at a rate of 2.25%, subject to
reductions and offsets in certain circumstances, as well as a portion of any of
our sublicensing income.

In September 2018, in connection with the acquisition of the Phenoptics
technology from PKI, we entered into a license and royalty agreement with PKI,
Cambridge Research & Instrumentation, Inc., and VisEn Medical Inc., pursuant to
which such parties granted us an exclusive, nontransferable, sublicensable
(subject to certain conditions) license under certain patent rights and know-how
to make, use, import and commercialize Phenoptics products and services. We are
required to pay royalties on net sales of products and services that are covered
by patent rights under the agreement at a rate ranging from 1.0% to 7.0%.

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Key Business Metrics

We regularly review the number of instrument placements and cumulative
instrument placement as key metrics to evaluate our business, measure our
performance, identify trends affecting our business, develop financial
projections, and make strategic decisions. We believe that these metrics are
representative of our current business; however, we anticipate these will change
or may be substituted for additional or different metrics as our business grows.

During the three and six months ended June 30, 2021 and 2020, our instrument placements were as follows:

                            Three months ended        Six months ended
                                June 30,                 June 30,
                            2021          2020       2021         2020
Instrument Placements:          31            25         68           57




Our instruments are sold globally to leading biopharma companies and top
research institutions and medical centers. Our quarterly instrument placements
fluctuate considerably from period-to-period due to the type and size of our
customers and their procurement and budgeting cycles. We expect continued
fluctuations in our quarterly period-to-period number of instrument placements.

We believe our instrument placements are important metrics to measure our
business because together they are driven by our ability to secure new customers
and drive adoption of our CODEX and Phenoptics platforms and provide insights
into anticipated recurring revenue for consumables and instrument services.

Components of operating results

Income

Product turnover

We generate product revenue from the sale of our instruments, consumables and
software products. Instrument sales accounted for 58%, 63%, 72% and 73% of our
product revenue for the three and six months ended June 30, 2021 and 2020,
respectively. Consumables revenue accounted for 40%, 33%, 24% and 24% of our
product revenue for the three and six months ended June 30, 2021 and 2020,
respectively.

Our current instrument offerings include our CODEX platform and our Phenoptics
platform. Our sales process with customers is often long and involves multiple
levels of approvals. As a result, the revenue for our platforms can vary
significantly from period-to- period and has been, and may continue to be,
concentrated in a small number of customers in any given period.

We sell our instruments directly to customers and through distributors. Each of
our instrument sales drives various streams of recurring revenue comprised of
consumable product sales and instrument services.

Service and other income

We primarily generate service and other revenue from instrument service, which
generally consists of sales of extended service contracts, in addition to
installation and training, as well as from our laboratory services operation,
where we provide sample testing services to customers utilizing our in-house lab
operation.

We offer our customers extended warranty and service plans for our platforms.
Our extended warranty and service plans are offered for periods beyond the
standard one-year warranty that all customers receive. These extended warranty
and service plans generally have fixed fees and terms ranging from one to four
additional years. We recognize revenue

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the sale of the extended warranty and service plans during the respective coverage period, which approximates the service effort provided by us.

The Company records shipping and handling billed to customers as service and
other revenue and the related costs in cost of service and other revenue in the
consolidated statement of operations.

During the three and six months ended June 30, 2021 and 2020, respectively, our revenues were comprised of the following sources:

                               Three months ended        Six months ended
                                   June 30,                 June 30,
($ in thousands)                2021         2020        2021        2020
Revenue:
Product revenue              $    10,719    $ 6,186    $ 20,682    $ 15,115
Service and other revenue          2,352      2,374       4,601       4,466
Total revenue                $    13,071    $ 8,560    $ 25,283    $ 19,581



We sell our products all over the world. We sell directly to end customers in North America and EMEA and we sell through third party distributors and resellers in the APAC region.

Cost of goods sold, gross profit and gross margin

Product cost of revenue primarily consists of costs for finished goods (both
instruments and reagents) produced by our contract manufacturers, and associated
freight, shipping and handling costs for products shipped to customers, salaries
and other personnel costs, and other direct costs related to those sales
recognized as product revenue in the period. Cost of goods sold for services and
other primarily consists of salaries and other personnel costs, travel related
to services provided, costs of servicing equipment at customer sites, and all
personnel and related costs for our laboratory services operation.

We expect that our cost of goods sold will increase or decrease to the extent
that our revenue increases and decreases and depending on the mix of revenue in
any specific period.

Gross profit is calculated as revenue less cost of goods sold. Gross margin is
gross profit expressed as a percentage of revenue. Our gross profit in future
periods will depend on a variety of factors, including: market conditions that
may impact our pricing, sales mix among instruments, sales mix changes among
consumables, excess and obsolete inventories, costs we pay our contract
manufacturers for their services, our cost structure for lab service operations
relative to volume, and product warranty obligations. Our gross profit in future
periods will also vary based upon our channel mix and may decrease based upon
our distribution channels.

Gross profit was $ 8.1 million compared to $ 5.3 million for the three months ended June 30, 2021 and 2020, respectively, and $ 15.5 million compared to $ 12.0 million for the six months ended June 30, 2021 and 2020 respectively.

Operating Expenses

Research and development. Research and development costs primarily consist of
salaries, benefits, engineering/design costs, laboratory supplies, and materials
expenses for employees and third parties engaged in research and product
development. We expense all research and development costs in the period in
which they are incurred.

We plan to continue to invest in our research and development efforts, including
hiring additional employees, to enhance existing products and develop new
products. As a result, we expect that our research and development expenses will
continue to increase in absolute dollars in future periods. We expect these
expenses to vary from period to period as a percentage of revenue.

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Selling, general and administrative. Our selling, general and administrative
expenses primarily consist of salaries and benefits for employees in our
executive, accounting and finance, legal expenses related to intellectual
property, sales and marketing, operations, and human resource functions as well
as professional services fees, such as consulting, audit, tax and legal fees,
general corporate costs, commercial sales functions, marketing, travel expenses,
facilities, IT, and allocated overhead expenses. We expect that our sales,
general and administrative expenses will continue to increase in absolute
dollars after our IPO, primarily due to increased headcount to support
anticipated growth in the business and due to incremental costs associated with
operating as a public company. Additionally, we expect an increase in absolute
dollars as we expand our commercial sales, marketing and business development
teams, increase our presence globally and increase marketing activities to drive
awareness and adoption of our platform. We expect these expenses to vary from
period to period as a percentage of revenue.

Change in fair value of contingent consideration. On September 28, 2018, the
Company acquired substantially all the assets of the Quantitative Pathology
Solutions ("QPS") division of PKI. As part of the acquisition, on September 28,
2018, the Company entered into a License Agreement (the "Ancillary Agreements")
with PKI. Under the terms of the License Agreement, the Company agreed to pay
PKI certain royalties as a percentage of future sales of products from the QPS
division, in exchange for a perpetual license of the right to produce and sell
QPS products. This contingent consideration is subject to remeasurement.

Depreciation and amortization. Depreciation and amortization expenses primarily
consist of depreciation of property and equipment and amortization of acquired
intangibles.

Other income (expense)

Interest charges. Interest expense is primarily comprised of interest related to borrowings under our debt obligations.

Change in fair value of warrant liability. Prior to our IPO, we classified our
outstanding warrant to purchase shares of our Series D redeemable convertible
preferred stock as a liability on our balance sheets at its estimated fair value
since the underlying redeemable convertible preferred stock was classified as
temporary equity. At the end of each reporting period, changes in the estimated
fair value during the period were recorded as a component of other income
(expense). In connection with our IPO, this warrant was adjusted to become a
warrant to purchase shares of our common stock and met the criteria to be
classified within stockholders' equity; therefore, the warrant was no longer
subject to liability accounting. Accordingly, the fair value of the warrant
liability was reclassified to stockholders' equity.

Gain on extinction of debt. The gain on the extinction of the debt is linked to the cancellation of our PPP loan.

Other expenses, net. Other net charges consist mainly of franchise tax and exchange gains and losses.

Income tax benefit (provision)

Our benefit (provision) for income taxes consists primarily of foreign taxes and
state minimum taxes in the United States. As we expand the scale and scope of
our international business activities, any changes in the United States and
foreign taxation of such activities may increase our overall provision for
income taxes in the future.

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Results of operations
The results of operations presented below should be reviewed in conjunction with
the consolidated financial statements and notes included elsewhere in the
Quarterly Report on Form 10-Q. The following tables set forth our results of
operations for the periods presented:


                                                      Three months ended         Six months ended
                                                          June 30,                   June 30,
($ in thousands)                                      2021         2020          2021         2020
Product revenue                                     $  10,719    $   6,186    $   20,682    $  15,115
Service and other revenue                               2,352        2,374         4,601        4,466
Total revenue                                          13,071        8,560        25,283       19,581
Cost of goods sold:
Cost of product revenue                             $   3,180    $   2,538    $    6,787    $   6,004
Cost of service and other revenue                       1,757          752 
       2,957        1,611
Total cost of goods sold                                4,937        3,290         9,744        7,615
Gross profit                                            8,134        5,270        15,539       11,966
Operating expenses:
Selling, general and administrative                    10,066        5,105        18,245       11,454
Research and development                                2,947        2,420         6,139        4,792
Change in fair value of contingent consideration          400          655 
         826        (906)
Depreciation and amortization                           1,099          922         2,108        1,821
Total operating expenses                               14,512        9,102        27,318       17,161
Loss from operations                                  (6,378)      (3,832)      (11,779)      (5,195)
Other income (expense):
Interest expense, net                                   (757)        (658)       (1,508)      (1,295)
Change in fair value of warrant liability               (858)            -       (2,728)            -
Gain on extinguishment of debt                          2,476            -         2,476            -
Other expense, net                                       (52)         (56)         (118)        (161)
Loss before benefit (provision) for income taxes      (5,569)      (4,546)      (13,657)      (6,651)
Benefit (provision) for income taxes                        6         (39) 
          12         (77)
Net loss                                            $ (5,563)    $ (4,585)    $ (13,645)    $ (6,728)



Comparison of the three months ended June 30, 2021 and 2020

Revenue


                                          Three months ended
                                              June 30,               Change

(in thousands of dollars, except percentages) 2021 2020 Amount

 %
Product revenue                         $    10,719    $ 6,186     4,533     73 %
Service and other revenue                     2,352      2,374      (22)    (1) %
Total revenue                           $    13,071    $ 8,560     4,511     53 %




Product revenue increased by $4.5 million, or 73%, for the three months ended
June 30, 2021, compared to the three months ended June 30, 2020. The increase
was primarily driven by a $2.8 million increase in consumable revenue resulting
from a larger installed base of 618 systems as of June 30, 2021, as compared to
489 systems as of June 30, 2020, and a $1.8 million increase in instrument
revenue resulting from 31 new system placements during the three months ended
June 30, 2021, compared to 25 new system placements for the three months ended
June 30, 2020.

Service and other revenue remained fairly flat for the three months ended
June 30, 2021, compared to the three months ended June 30, 2020. The change was
primarily due to a $0.4 million decrease relating to lab services operations,
offset by a $0.3 increase from instrument service, primarily driven by the
increase in our installed base and customers renewing their service and warranty
contracts, and a $0.1 increase to shipping revenue.

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Costs of goods sold, gross profit and gross margin


                                          Three months ended
                                              June 30,                

Change

(in thousands of dollars, except percentages) 2021 2020 Amount

%

Cost of product revenue                 $    3,180     $ 2,538    $   642     25 %
Cost of service and other revenue            1,757         752      1,005  
 134 %
Total cost of goods sold                $    4,937     $ 3,290    $ 1,647     50 %
Gross profit                            $    8,134     $ 5,270    $ 2,864     54 %
Gross margin                                    62 %        62 %




Cost of product revenue increased by $0.6 million, or 25%, for the three months
ended June 30, 2021, compared to the three months ended June 30, 2020. The
increase in cost of product revenue was primarily driven by costs associated
with increased instrument and consumable sales, partially offset by a change of
mix in instrument revenue as compared to consumables revenue. Cost of service
and other revenue increased by $1.0 million, or 134%, for the three months ended
June 30, 2021, compared to the three months ended June 30, 2020. The increase
was primarily due to increases in costs of shipping associated with higher
instrument sales, as well as increases in extended warranty costs as there were
higher customer renewals due to the maturity of the installed base.

Gross profit increased by $2.9 million, or 54%, and gross margin remained
consistent for the three months ended June 30, 2021 as compared to the
three months ended June 30, 2020, primarily due to a higher mix of consumables
revenue driven by a higher install base. Additionally, the Company recorded a
$0.2 million reduction to cost of goods sold in the three months ended June 30,
2021, associated with the employee retention credit.

Operating Expenses

Selling, general and administrative expenses


                                          Three months ended
                                              June 30,               Change

(in thousands of dollars, except percentages) 2021 2020 Amount

%

Selling, general and administrative expenses $ 10,066 $ 5,105 $ 4,961

 97 %




Selling, general and administrative expense increased by $5.0 million, or 97%,
for the three months ended June 30, 2021, compared to the three months ended
June 30, 2020. The increase was primarily due to a $2.2 million increase in
professional fees and other third-party fees, which are largely incremental
costs of operating a public business, including increased marketing, legal,
accounting, insurance, and other consulting costs. Additionally, there was a
$1.5 million increase in personnel-related expenses due to an increase in
headcount to support the growth in our overall operations in anticipation of and
subsequent to our IPO, net of $1.6 million credit associated with the employee
retention credit. Remaining increases are due to higher costs in recruiting,
facilities, supplies, software licenses and subscriptions, and other related
costs.

Research and development


                                          Three months ended
                                              June 30,                Change

(in thousands of dollars, except percentages) 2021 2020 Amount

  %
Research and development                $    2,947     $ 2,420    $    527    22 %



Research and development expense increased by $0.5 million, or 22%, for the
three months ended June 30, 2021, compared to the year ended June 30, 2020. The
increase was primarily due to a $0.6 million increase in third-party consulting
and lab supplies consumed as the Company has ramped up its efforts in
anticipation of and subsequent to the IPO. Additionally, net of the impact of
the employee retention credit of $1.0 million, current period personnel-related
expenses were approximately flat quarter-over-quarter. On a gross basis there
was an increase in personnel-related expenses resulting from increased
headcount.

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Change in fair value of contingent consideration


                                                       Three months ended
                                                           June 30,         

Change

($ in thousands, except percentages)                  2021           2020  

Amount% Change in fair value of contingent consideration $ 400 $ 655 (255) $ (39)%

Change in the fair value of the contingent consideration less $ 0.3 million, or 39%, for the three months ended June 30, 2021, compared to the three months ended June 30, 2020, due to the reassessment of the current period.

Depreciation and amortization


                                          Three months ended
                                              June 30,                Change

(in thousands of dollars, except percentages) 2021 2020 Amount

  %
Depreciation and amortization           $     1,099     $  922    $    177    19 %




The $0.2 million increase in depreciation and amortization expense was primarily
related to an increase in property and equipment as of June 30, 2021 as compared
to June 30, 2020.

Interest expense


                                           Three months ended
                                               June 30,                Change
($ in thousands, except percentages)      2021           2020       Amount 
   %
Interest expense                        $     757      $     658    $    99    15 %



Interest expense increased by $ 0.1 million, or 15%, for the three months ended
June 30, 2021, compared to the three months ended June 30, 2020.

The increase is mainly explained by the increase in debt levels from the June 30, 2021 compared to June 30, 2020.

Change in fair value of liability related to warrants


                                               Three months ended
                                                    June 30,                

Change

($ in thousands, except percentages)            2021           2020      Amount      %
Change in fair value of warrant liability    $       858       $   -    $  
 858    100 %




Change in fair value of warrant liability increased by $0.9 million, or 100%,
for the three months ended June 30, 2021, compared to the three months ended
June 30, 2020 due to current period remeasurement.

Gain on debt extinction


                                          Three months ended
                                               June 30,                

Change

(in thousands of dollars, except percentages) 2021 2020 Amount

%

Gain on debt extinction $ 2,476 $ – $ 2,476

  100 %





Gain on debt extinction increased by $ 2.5 million, i.e. 100%, for the three months ended June 30, 2021, compared to the three months ended June 30, 2020 due to the cancellation of our PPP loan in the second quarter of 2021.


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Other expense, net


                                          Three months ended
                                              June 30,                Change
($ in thousands, except percentages)      2021           2020      Amount  
   %
Other expense, net                      $      52       $   56    $    (4)    (7) %



Other net expenses less $ 4.0 thousand for the three months ended
June 30, 2021, compared to the three months ended June 30, 2020.

Comparison of the six months ended June 30, 2021 and 2020

Revenue


                                          Six months ended
                                             June 30,              Change
($ in thousands, except percentages)      2021        2020      Amount    %
Product revenue                         $ 20,682    $ 15,115     5,567    37 %
Service and other revenue                  4,601       4,466       135     3 %
Total revenue                           $ 25,283    $ 19,581     5,702    29 %



Product revenue increased by $5.6 million, or 37%, for the six months ended
June 30, 2021, compared to the six months ended June 30, 2020. The increase was
primarily driven by a $3.3 million increase in consumable revenue resulting from
a larger installed base as of 618 systems as of June 30, 2021, as compared to
489 systems as of June 30, 2020, a $2.0 million increase in instrument revenue
resulting from 68 new system placements during the six months ended June 30,
2021, compared to 57 new system placements for the six months ended June 30,
2020, as well as a $0.3 million increase in standalone software products due to
incremental third party software sales completed during the six months ended
June 30, 2021.

Service and other revenue increased by $0.1 million, or 3%, for the six months
ended June 30, 2021, compared to the six months ended June 30, 2020. The growth
was primarily due a $0.9 increase from instrument service during the six months
ended June 30, 2021, primarily driven by the increase in our installed base and
customers renewing their service and warranty contracts, offset by a $0.9
million decrease relating to our lab services operations.

Costs of goods sold, gross profit and gross margin


                                          Six months ended
                                             June 30,              Change

(in thousands of dollars, except percentages) 2021 2020 Amount% Cost of product sales

                 $  6,787    $  6,004    $   783    13 %
Cost of service and other revenue          2,957       1,611      1,346   
84 %
Total cost of goods sold                $  9,744    $  7,615    $ 2,129    28 %
Gross profit                            $ 15,539    $ 11,966    $ 3,573    30 %
Gross margin                                  61 %        61 %




Cost of product revenue increased by $0.8 million, or 13%, for the six months
ended June 30, 2021, compared to the six months ended June 30, 2020. The
increase in cost of product revenue was primarily driven by costs associated
with increased instrument and consumable sales, partially offset by a change of
mix in instrument revenue as compared to consumables revenue. Cost of service
and other revenue increased by $1.3 million, or 84%, for the six months ended
June 30, 2021, compared to the six months ended June 30, 2020. The increase was
primarily due to increases in costs of shipping associated with higher
instrument sales, as well as increases in extended warranty costs as there were
higher customer renewals due to maturity of the installed base.

Gross margin increased by $ 3.6 million, or 30%, and the gross margin remained stable for the half-year ended June 30, 2021 compared to the closed semester June 30, 2020, mainly due to a higher mix of consumables

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revenue driven by a higher install base. Additionally, the Company recorded a
$0.2 million reduction to cost of goods sold in the six months ended June 30,
2021, associated with the employee retention credit.

Operating Expenses

Selling, general and administrative expenses


                                          Six months ended
                                             June 30,              Change

(in thousands of dollars, except percentages) 2021 2020 Amount% Sales, general and administrative expenses $ 18,245 $ 11,454 $ 6,791 59%




Selling, general and administrative expense increased by $6.8 million, or 59%,
for the six months ended June 30, 2021, compared to the six months ended
June 30, 2021. The increase was primarily due to a $2.7 million increase in
professional fees and other third-party fees, which are largely incremental
costs of operating a public business, including increased marketing, legal,
accounting, insurance, and other consulting costs. Additionally, there was a
$2.7 million in personnel-related expenses due to an increase in headcount to
support the growth in our overall operations in anticipation of our IPO, net of
$1.6 million associated with the employee retention credit. Remaining increases
due to higher costs in recruiting, facilities, supplies, software licenses and
subscriptions, and other related costs.

Research and development


                                          Six months ended
                                             June 30,              Change

(in thousands of dollars, except percentages) 2021 2020 Amount% Research and development

                $   6,139    $ 4,792    $ 1,347    28 %



Research and development expense increased by $1.3 million, or 28%, for the
six months ended June 30, 2021, compared to the year ended June 30, 2020. The
increase was primarily due to a $0.7 million increase in lab supplies consumed
as the Company has ramped up its efforts in anticipation of and subsequent to
our IPO, a $0.2 million increase in personnel- related expenses, resulting from
increased headcount, which was partially offset by $1.0 million associated with
the employee retention credit, as well as other immaterial increases.

Change in fair value of contingent consideration


                                                      Six months ended
                                                          June 30,          

Change

($ in thousands, except percentages)                  2021         2020      Amount       %
Change in fair value of contingent consideration    $    826     $  (906)  
 $ 1,732    (191) %



Change in fair value of contingent consideration increased by $1.7 million, or
191%, for the six months ended June 30, 2021, compared to the six months ended
June 30, 2020 due to current period remeasurement.

Depreciation and amortization


                                          Six months ended
                                             June 30,               Change

(in thousands of dollars, except percentages) 2021 2020 Amount% Depreciation

           $   2,108    $ 1,821    $    287    16 %




The $0.3 million increase in depreciation and amortization expense was primarily
related to an increase in property and equipment as of June 30, in 2021 as
compared to June 30, 2020.



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  Table of Contents

Interest expense


                                          Six months ended
                                             June 30,               Change

(in thousands of dollars, except percentages) 2021 2020 Amount% Interest expense

                        $   1,508    $ 1,295    $    213    16 %



Interest expense increased by $ 0.2 million, i.e. 16%, for the six months ended
June 30, 2021, compared to the closed semester June 30, 2020.

The increase is mainly explained by the increase in debt levels from the June 30, 2021 compared to June 30, 2020.

Change in fair value of liability related to warrants


                                                Six months ended
                                                   June 30,                

Change

($ in thousands, except percentages)            2021          2020     

Amount% Change in fair value of liability related to warrants $ 2,728 $ – $ 2,728 100%

Change in the fair value of the liability of the warrants increased by $ 2.7 million, i.e. 100%, for the six months ended June 30, 2021, compared to the closed semester
June 30, 2020 due to the reassessment of the current period.

Gain on debt extinction


                                           Six months ended
                                              June 30,                

Change

(in thousands of dollars, except percentages) 2021 2020 Amount

%

Gain on debt extinction $ 2,476 $ – $ 2,476

 100 %





Gain on debt extinction increased by $ 2.5 million, i.e. 100%, for the six months ended June 30, 2021, compared to the closed semester June 30, 2020
due to the cancellation of our PPP loan in the second quarter of 2021.


Other expense, net


                                          Six months ended
                                             June 30,               Change

(in thousands of dollars, except percentages) 2021 2020 Amount% Other charges, net

                      $    118      $  161    $  (43)    (27) %



Other net expenses less $ 43,000 for the six months ended June 30, 2021, compared to the closed semester June 30, 2020.

Liquidity and capital resources

From June 30, 2021, we had about $ 135.5 million in cash and cash equivalents which were mainly held in we short-term bank deposit accounts.

Since our inception, we have experienced losses and negative cash flows from
operations, and as of June 30, 2021, we had a consolidated net loss of $13.6
million and an accumulated deficit of $66.8 million. We have primarily relied on
equity and debt financings to fund our operations to date.

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Contents

We expect to incur additional operating losses in the foreseeable future as we
continue to invest in the research and development of our product offerings,
commercialize and launch platforms, and expand into new markets. Based on our
current business plan, we believe the net proceeds from the IPO, together with
our existing cash and cash equivalents and anticipated cash flows from
operations will be sufficient to meet our working capital and capital
expenditure needs over at least the next 12 months following the date of this
Quarterly Report on Form 10-Q.

Our future capital requirements will depend on many factors, including, but not
limited to our ability to successfully commercialize and launch products, and to
achieve a level of sales adequate to support our cost structure. If we are
unable to execute on our business plan and adequately fund operations, or if the
business plan requires a level of spending in excess of cash resources, we will
have to seek additional equity or debt financing. If additional financings are
required from outside sources, we may not be able to raise it on terms
acceptable to us or at all. If we are unable to raise additional capital when
desired, our business, financial condition, results of operations and prospects
could be adversely affected.

Sources of Liquidity

Since our inception, we have financed our operations primarily from the issuance
and sale of our convertible preferred stock and borrowings under long-term debt
agreements. In April 2021, we completed our IPO, resulting in the receipt of
aggregate proceeds of $138.6 million, net of offering costs, underwriter
discounts and commissions of $12.8 million.

Financing of convertible preferred shares

By June 30, 2021, we collected a total of $ 60.5 million from the issuance and sale of convertible preferred shares, net of costs associated with such financings. More recently, in 2019, we issued Series D convertible preferred shares for gross proceeds of $ 25.0 million. All preferred shares converted into ordinary shares immediately before the IPO.

Payroll Protection Program Loan

During April 2020, we received a $2.48 million small business loan under the
Payroll Protection Program, part of the Coronavirus Aid, Relief and Economic
Security Act, the CARES Act. We expect a portion of the loan to be forgiven
under the provisions of the program. See "Risks Related to Our Business and
Strategy - We received economic stimulus funding under the CARES Act." The PPP
Loan was forgiven in June 2021.

Mid-Cap Trust Term Loan

In October 2020, we entered into the Midcap Trust Term Loan, for a $37.5 million
credit facility, consisting of a senior, secured term loan to refinance all
existing indebtedness with Innovatus. We realized $32.5 million in aggregate
proceeds as a result of the debt financing. The term of the Midcap Trust Term
Loan is interest only for 36-months followed by 24-months of straight-line
amortization with a final maturity date of October 27, 2025. Interest on the
outstanding balance of the Midcap Trust Term Loan shall be payable monthly in
arrears at an annual rate of one-month LIBOR plus 6.35%, subject to a LIBOR
floor of 1.50%.

The Midcap Trust Term Loan is subject to a minimum income financial commitment measuring our rolling income over the past twelve months, tested on a monthly basis.

The Midcap Trust Term Loan is collateralized by substantially all of our assets.
The agreement contains customary negative covenants that limit our ability to,
among other things, incur additional indebtedness, grant liens, make
investments, repurchase stock, pay dividends, transfer assets and merge or
consolidate with any other entity or to acquire all or substantially all the
capital stock or property of another entity. The agreement also contains
customary affirmative covenants, including requirements to, among other things,
deliver audited financial statements. If we default under the Midcap Trust Term
Loan and if the default is not cured or waived, the lender could cause any
amounts outstanding to be payable immediately. Under certain circumstances, the
lender could also exercise its rights with respect to the collateral

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Contents

guarantee such loans. In addition, such a default would limit our ability to obtain additional financing, which could adversely affect our cash flow and liquidity.

We were in compliance with all of the covenants of the Midcap Trust Term Loan on the date
June 30, 2021.

Cash flows

The following table summarizes our cash flows for the periods presented:

                                                                  Six months ended
                                                                      June 30,
($ in thousands)                                                  2021         2020
Net cash provided by (used in):
Operating activities                                           $ (16,819)    $ (2,956)
Investing activities                                              (1,854)      (2,023)
Financing activities                                              136,930        (241)
Net increase (decrease) in cash, cash equivalents, and
restricted cash                                                $  118,257    $ (5,220)




Operating activities

Net cash used in operating activities increased by $13.9 million to $16.8
million in the six months ended June 30, 2021 compared to $3.0 million in the
six months ended June 30, 2020. This increase is attributable to a net loss of
$13.6 million, offset by non-cash charges of $4.9 million. Non-cash charges
primarily consisted of $2.7 million in change in fair value of warrant
liability, $2.2 million of depreciation and amortization, $0.8 million in change
in fair value of contingent consideration, and $0.2 million of non-cash interest
expense, offset by $2.5 million gain on extinguishment of debt.

Investment activities

Net cash used in investing activities was $1.9 million in the six months ended
June 30, 2021 compared to $2.0 million during the six months ended June 30,
2020. The decrease was primarily driven by purchases of property and equipment
of $1.9 million.

Financing activities
Net cash provided by (used in) financing activities was $136.9 thousand for the
six months ended June 30, 2021 compared with ($0.2) million for the six months
ended June 30, 2020. In April of 2021, the Company received $138.6 million in
net IPO proceeds, after deducting underwriting discounts and commissions and
other offering expenses. During the six months ended June 30, 2021, we paid out
$1.6 million in contingent consideration as compared to $2.6 million during the
six months ended June 30, 2020. Remaining changes were immaterial.

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