STANDARD BIOTOOLS INC. (LAB) FY 2021 MD&A

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to help the reader understand the results of operations and financial condition of Fluidigm. MD&A is provided as a supplement to, and should be read together with our consolidated financial statements and the notes to those statements included elsewhere in this Form 10-K. This discussion contains forward-looking statements based on our current expectations, assumptions, estimates and projections about Fluidigm and our industry. These forward-looking statements involve risks and uncertainties. Our actual results could differ materially from those indicated in these forward-looking statements as a result of certain factors, as more fully described in “Risk factors” in Item 1A of this Form 10-K, in this Item 7, and elsewhere in this Form 10-K. Except as may be required by law, we undertake no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.

Overview

Fluidigm improves life by driving meaningful insights in health and disease. Our innovative technologies explore the biological complexities of disease to advance human health through research, diagnostics and clinical applications. We create, manufacture, and market a range of products and services, including instruments, consumables, reagents and software that are used by researchers and clinical labs worldwide. Our customers are leading academic and government laboratories, as well as pharmaceutical, biotechnology, plant and animal research organizations, and clinical laboratories worldwide. Together with our customers, we strive to increase the quality of life for all.

We distribute our systems through our direct sales force and support organizations located in North America, Europe, and Asia-Pacific, and through distributors or sales agents in several European, Latin American, Middle Eastern, and Asia-Pacific countries. Our manufacturing operations are located in Singapore and Canada. Our facility in Singapore manufactures our integrated fluidic circuits (IFCs) as well as our microfluidics instruments, which are assembled by our contract manufacturer located within our Singapore facility. Our mass cytometry instruments, assays and reagents are manufactured at our facility in Canada. In 2021, we manufactured microfluidics reagents in our facilities in Canada and South San Francisco as well as through U.S.-based third-party contract manufacturers for reagent manufacturing.

Our total revenue was $130.6 million in 2021 compared to $138.1 million and $117.2 million in 2020 and 2019, respectively. Product and service revenue was $126.3 million in 2021 compared to $122.5 million and $116.7 million in 2020 and 2019, respectively. We have incurred significant net losses since our inception in 1999 and, as of December 31, 2021, our accumulated deficit was $736.0 million.

Recent Developments

In 2020, we were awarded the NIH Contract under the RADx program to support the expansion of our production capacity and throughput capabilities for COVID-19 testing with our microfluidics technology. As of December 31, 2021, we have achieved the required milestones and have received the total NIH Contract value of $34.0 million. Proceeds from the NIH Contract have been primarily used for capital expenditures to expand production capacity and, to a lesser extent, to offset applicable operating costs. With the funding from the NIH Contract, IFC manufacturing capacity increased from 12,000 IFCs per month to 36,000 IFCs per month in our Singapore facility.

As vaccines and alternative testing options for the coronavirus have become more available and the perceived threat of the pandemic began to recede in 2021, the demand for our COVID-19 testing products slowed, resulting in a corresponding decline in COVID-19 testing revenue in 2021, compared to the third and fourth quarters of 2020. The pandemic also negatively impacted our base business revenue, which excludes COVID-19 related revenue. It is difficult to predict the impact of new strains of the coronavirus on our business or the impact they may have on the research priorities of our customers. For additional information on the various risks posed by the pandemic, refer to Part I, Item 1A- Risk Factors of this Form 10-K.

Global logistics and supply chain disruptions resulted in component delays and supply constraints with some of our suppliers. While some of these issues have been resolved, shortages of certain components have resulted in longer component order lead times to meet future demand. We expect to be able to meet product demand in 2022, but continued supply disruptions of components or materials or our inability to obtain components, materials, or assembly services from alternate sources could impact our ability to meet the ongoing demand of our customers.

On August 2, 2021, the Company amended its Loan and Security Agreement dated as of August 2, 2018, between the Company and Silicon Valley Bank (SVB) (the Amendment). The Amendment extends the maturity date of our $15.0 million revolving credit facility (Revolving Credit Facility) by one year, to August 2, 2023, and also provides for a term loan facility in an aggregate principal amount of $10.0 million (the Term Loan Facility). The stated maturity date of the Term Loan Facility is July 1, 2025, however if, as of June 1, 2024, the principal amount of our convertible debt exceeds $0.6 million or if the maturity date of our 2019 Notes has not been extended beyond January 1, 2026, then the maturity date of the Term Loan Facility will be

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on June 1, 2024. There were $6.8 million of advances outstanding under the Revolving Credit Facility at December 31, 2021. The Term Loan Facility was fully drawn as of December 31, 2021.

Strategic Investment Transaction

On January 23, 2022, the Company entered into (i) a Loan Agreement (the Casdin Loan Agreement) with Casdin Private Growth Equity Fund II, L.P. and Casdin Partners Master Fund, L.P. (collectively, Casdin) and (ii) a Loan Agreement (the Viking Loan Agreement, and together with the Casdin Loan Agreement, the Bridge Loan Agreements) with Viking Global Opportunities Illiquid Investments Sub-Master LP and Viking Global Opportunities Drawdown (Aggregator) LP (collectively, Viking and, together with Casdin, the Purchasers and each, a Purchaser). Each Bridge Loan Agreement provides for a $12.5 million term loan to the Company (each, a Bridge Loan and collectively, the Bridge Loans). Subject to approval by the Company’s stockholders, upon the issuance of the shares of Series B Preferred Stock (as defined below) pursuant to the Purchase Agreements (as defined below), the Bridge Loans will be automatically converted into a number of shares of Series B-1 Preferred Stock (as defined below) or Series B-2 Preferred Stock (as defined below), as applicable, in accordance with the terms of the Bridge Loan Agreements. The Bridge Loans were fully drawn on January 24, 2022. The proceeds of the Bridge Loans may be used for working capital and general corporate purposes.

Also on January 23, 2022, the Company entered into separate Series B Convertible Preferred Stock Purchase Agreements (the Purchase Agreements) with each of the Purchasers pursuant to which, among other things, at the closing of the transactions contemplated thereby, and on the terms and subject to the conditions set forth therein, including the approval of the Company’s stockholders, the Company will issue and sell an aggregate of $225 million of convertible preferred stock, consisting of: (i) 112,500 shares of the Company's Series B-1 Convertible Preferred Stock, par value $0.001 per share (the Series B-1 Preferred Stock), at a purchase price of $1,000.00 per share to Casdin, and (ii) 112,500 shares of the Company’s Series B-2 Convertible Preferred Stock, par value $0.001 per share (the Series B-2 Preferred Stock, and together with the Series B-1 Preferred Stock, the Series B Preferred Stock) at a purchase price of $1,000.00 per share to Viking (clauses (i) and (ii), the Preferred Equity Financing, and together with the issuance of shares of Series B Preferred Stock in connection with the conversion of the Bridge Loans, the Private Placement Issuance). The Series B Preferred Stock to be purchased by Casdin and Viking pursuant to the Purchase Agreements is in addition to any Series B Preferred Stock to be issued upon conversion of outstanding amounts under the Bridge Loan Agreements. The proceeds of the Preferred Equity Transactions will be used by the Company for expenses related to the Preferred Equity Transactions, as well as working capital, general corporate purposes and merger and acquisition opportunities that the Company may identify from time to time.

In connection with the Private Placement Issuance, the Company will change its name to “Standard BioTools Inc.” and Dr. Michael Egholm will be appointed as the Company’s President and Chief Executive Officer and as a member of our Board of Directors (the Board), each occurring upon the closing of the transactions contemplated by the Purchase Agreements (Closing). Dr. Egholm will succeed Chris Linthwaite, who will continue as the Company’s Chief Executive Officer until the earlier of the Closing or May 15, 2022.

The Closing is subject to customary closing conditions for a transaction of this nature, including approval by the Company’s stockholders of the issuance of the Series B Preferred Stock in connection with the Private Placement Issuance. Each Private Placement Issuance is also conditioned on the substantially contemporaneous consummation of the other Private Placement Issuance.

The Company’s Board has called a special meeting to be held on March 25, 2022 (the Special Meeting) to ask the Company’s stockholders to consider, vote upon and approve (i) a proposal to amend the Company’s Eighth Amended and Restated Certificate of Incorporation (the Charter) to, among other things, increase the number of shares of common stock, par value $0.001 per share, of the Company (Common Stock) that the Company is authorized to issue from two hundred million (200,000,000) shares to four hundred million (400,000,000) shares and to change the Company’s name to Standard BioTools Inc. (together, the Charter Amendment Proposal); and (ii) to approve the issuance of (A) the Series B-1 Preferred Stock and the Series B-2 Preferred Stock pursuant to the Purchase Agreements, (B) the Series B-1 Preferred Stock and the Series B-2 Preferred Stock issuable pursuant to the terms of the Bridge Loan Agreements and (C) the Common Stock issuable upon the conversion of the Series B Preferred Stock (clauses (A) through (C), the Private Placement Issuance Proposal). The Private Placement Issuance Proposal is conditioned on the approval of the Charter Amendment Proposal. The Charter Amendment Proposal is conditioned on the approval of the Private Placement Issuance Proposal. If both proposals do not receive the requisite vote for approval, neither the Charter Amendment Proposal nor the Private Placement Issuance Proposal will take effect. The parties have agreed that they will not be obligated to close the Private Placement Issuance if the Charter Amendment Proposal has not been approved at the Special Meeting.

If the Charter Amendment Proposal and the Private Placement Issuance Proposal are not approved by the Company’s stockholders at the Special Meeting or the Purchase Agreements otherwise terminated, then the Bridge Loans will become

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convertible, at each lender’s option, into Common Stock at an initial conversion rate of 352.1126 shares of Common Stock per $1,000 of conversion amount, subject to the cap set forth in the Bridge Loan Agreements. The conversion rate is subject to customary adjustments as set forth in the Bridge Loan Agreements. The Bridge Loans bear interest (i) from and including the effective date of the Bridge Loan Agreements to but excluding March 1, 2022, at 10%, (ii) from and including March 1, 2022 to but excluding June 1, 2022, at 12%, (iii) from and including June 1, 2022 to but excluding September 1, 2022, at 14%, and (iv) from and including September 1, 2022 and thereafter, at 16%. Interest accrues daily and is payable in kind by adding the accrued interest to the outstanding principal amount on the last date of each month. The Bridge Loans mature on the 91st calendar day after the latest maturity date of the loans borrowed under the Company’s Loan and Security Agreement, dated as of August 2, 2018, with Silicon Valley Bank, and the principal, together with accrued and unpaid interest, is due on the maturity date.

Going Concern

For this annual report, we performed an assessment to determine whether there are conditions or events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern for at least the twelve-month period following the date the financial statements were issued. As of December 31, 2021, we had $29.5 million in cash, cash equivalents and restricted cash. Due to an extended strategic review process related to the pending Private Placement Issuance, we were unable in 2021 to implement certain cash management actions, including potential financing and/or cost reduction initiatives. Further, we have incurred, and expect to continue to incur, negative cash flows in pursuit of our business plans for at least the twelve-month period following the date the financial statements were issued. As a result, we believe that our current level of cash and cash equivalents, together with committed financing facilities, are not sufficient to fund ongoing operations for at least the twelve-month period following the date the financial statements were issued. The existence of these conditions raises substantial doubt about our ability to continue as a going concern for the twelve-month period following the date the financial statements were issued.

Our ability to continue as a going concern is dependent upon our success in obtaining additional equity or debt financing, attaining further operating efficiencies, reducing expenditures and ultimately, generating significant revenue growth. We are evaluating strategies to obtain the required additional funding for future operations including the potential consummation of the $225 million Private Placement Issuance, which is contingent on stockholder approval and satisfaction of customary closing conditions. In the event the proposed investment does not occur, we would need to obtain the required additional funding for future operations from alternative sources. These sources may include, but are not limited to, equity financing, debt or other financing arrangements, and restructuring of operations to grow revenues and decrease expenses. Our plans to raise additional capital, including our ability to consummate the Private Placement Issuance, or take the other actions to address the doubt regarding our ability to continue as a going concern, may not be successful. There can be no assurance that we would be able to obtain additional liquidity when needed or under acceptable terms, if at all. Our financial results discussed below do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.

Critical Accounting Policies, Significant Judgments and Estimates

Our consolidated financial statements and the related notes included elsewhere in this Form 10-K are prepared in accordance with accounting principles generally accepted in the United States. The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions believed to be reasonable, which together form the basis for making judgments about the carrying values of assets and liabilities. We assessed certain accounting matters that generally require consideration of forecasted financial information, including the unknown impact of COVID-19 pandemic. These accounting matters included, but were not limited to, our inventory and related reserves, and the carrying value of goodwill and other long-lived assets. Actual results could differ materially from these estimates and could have a material adverse effect on our consolidated financial statements. The full extent to which the COVID-19 pandemic impacts our business, results of operations and financial condition will depend on numerous evolving factors including, but not limited to, the magnitude and duration of the pandemic, the extent to which it will impact worldwide macroeconomic conditions, including the speed of recovery, and governmental and business reactions to the pandemic.

We believe that the following critical accounting policies involve a greater degree of judgment and complexity than our other accounting policies. Accordingly, these are the policies we believe are the most critical to understanding and evaluating our audited 2021 consolidated financial statements.

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Revenue Recognition

We generate revenue primarily from the sale of our products and services. Product revenue is derived from the sale of instruments and consumables, including IFCs, assays and reagents. Service revenue is primarily derived from the sale of instrument service contracts, repairs, installation, training and other specialized product support services. We also generate revenue from product development agreements, license and royalty agreements and grants. Revenue is reported net of any sales, use and value-added taxes we collect from customers as required by government authorities. Research and development cost includes costs associated with development and grant revenue.

We recognize revenue based on the amount of consideration we expect to receive in exchange for the goods and services we transfer to the customer. Our commercial arrangements typically include multiple distinct products and services, and we allocate revenue to these performance obligations based on their relative standalone selling prices. Standalone selling prices (SSP) are generally determined using observable data from recent transactions. In cases where sufficient data is not available, we estimate a product’s SSP using a cost plus a margin approach or by applying a discount to the product’s list price.

Product Revenue

We recognize product revenue at the point in time when control of the goods passes to the customer and we have an enforceable right to payment. This generally occurs either when the product is shipped from one of our facilities or when it arrives at the customer’s facility, based on the contractual terms. Customers generally do not have a unilateral right to return products after delivery. Invoices are generally issued at shipment and generally become due in 30 to 60 days.

Service Revenue

We recognize revenue from repairs, maintenance, installation, training and other specialized product support services at the point in time the work is completed. Installation and training services are generally billed in advance of service. Repairs and other services are generally billed at the point the work is completed.

Revenue associated with instrument service contracts is recognized on a straight-line basis over the life of the agreement, which is generally one to three years. We believe this time-elapsed approach is appropriate for service contracts because we provide services on demand throughout the term of the agreement. Invoices are generally issued in advance of service on a monthly, quarterly, annual or multi-year basis. Payments made in advance of service are reported on our consolidated balance sheet as deferred revenue.

Development Revenue

We have entered and may continue to enter into development agreements with third parties that provide for up-front and periodic milestone payments. Our development agreements may include more than one performance obligation. At the inception of the contract, we assess whether each obligation represents a separate performance obligation or whether such obligations should be combined as a single performance obligation. The transaction price for each development agreement is determined based on the amount of consideration we expect to be entitled to for satisfying all performance obligations within the agreement.

We assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue. In arrangements where we satisfy performance obligation(s) over time, we recognize development revenue using an input method that determines the extent of our progress toward completion by comparing the actual costs incurred to the total expected cost. As part of the accounting for these arrangements, we develop estimates and assumptions that require judgment to determine the transaction price and progress towards completion. We review these estimates at the end of each reporting period using the best available information, revise the estimates as necessary, and recognize revenue commensurate with our progress toward completion.

We may also generate revenue from development or collaboration agreements that do not include upfront or milestone-based payments. For these types of arrangements, we generally recognize revenue over time as the development services are provided.

Other Revenue

Other revenue consists of license revenue, royalty revenue, and grant revenue. We recognize revenue from license agreements when the license is transferred to the customer and the customer is able to use and benefit from the license. For contracts that include sales-based royalties, we recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied.

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We receive grants from various entities to perform research and development activities over contractually defined periods. Grant revenue is not accounted for under ASC 606 Revenue from Contracts with Customers, as the grant agreement is not with a customer. As there is no authoritative U.S. GAAP guidance for grants awarded to for-profit entities, we have applied the guidance in ASC 958 Not-for-Profit Entities by analogy. Revenue is generally recognized provided that the conditions under which the grants were provided have been met and any remaining performance obligations are perfunctory.

Product Warranties

We generally provide a one-year warranty on our instruments and establish a liability for the estimated cost of the obligation at the time the product is shipped. We periodically review our warranty liability and record adjustments based on specific terms provided to customers and our overall historical experience with usage. This expense is recorded as a component of cost of product revenue in the consolidated statements of operations.

Significant Judgments

Applying the revenue recognition practices discussed above often requires significant judgment. Significant judgment is required when interpreting commercial terms in sales agreements and determining when control of goods and services passes to the customer. Judgment is also required when identifying performance obligations, estimating SSP and allocating purchase consideration in agreements that include multiple performance obligations. Any material changes created by errors in judgment could have a material effect on our operating results and overall financial condition.

Accounts Receivable, net

Trade accounts receivable are recorded at net invoice value. We review our exposure to accounts receivable and provide allowances of specific amounts if collectability is no longer reasonably assured based on historical experience and specific customer collection issues. We evaluate such allowances on a regular basis and adjust them as needed. Judgment is required in determining the amounts of any such allowances.

Inventories, net

Inventories are stated at the lower of cost (on a first-in, first-out basis) or net realizable value. Inventory costs include direct materials, direct labor, and normal manufacturing overhead. We regularly review inventory for excess and obsolete products and components. Significant judgment is required in determining provisions for slow-moving, excess, and obsolete inventories which are recorded when required to reduce inventory values to their estimated net realizable values based on product life cycle, development plans, product expiration, and quality issues.

Leases

We determine if an arrangement is a lease, or contains a lease, at inception. Operating leases are included in operating lease right-of-use (ROU) assets, net and current and non-current operating lease liabilities in our consolidated balance sheets. ROU assets represent our right-to-use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we generally use our incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date. Significant judgment is required in determining the incremental collateralized borrowing rate. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

We elected the short-term lease recognition exemption for all leases that qualify. For those leases that qualify, we will not recognize ROU assets or lease liabilities for leases with an initial lease term of one year or less. We also elected not to separate lease and nonlease components for our building leases. The nonlease components are generally variable in nature and are expected to represent most of our variable lease costs. Variable costs are expensed as incurred. We have taken a portfolio approach for our vehicle leases by country.

Business Combinations, Goodwill, Intangible Assets and Other Long-Lived Assets

We have completed acquisitions of businesses in the past and may acquire additional businesses or technologies in the future. The results of businesses acquired in a business combination are included in our consolidated financial statements from the date of acquisition. We allocate the purchase price, which is the sum of the consideration provided in a business combination, to the identifiable assets and liabilities of the acquired business at their acquisition date fair values. Determining the fair value of assets acquired and liabilities assumed requires management to use significant judgment and estimates, including the selection of valuation methodologies and estimates of future revenue.

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Goodwill, which has an indefinite useful life, represents the excess of cost over fair value of net assets acquired. Our intangible assets include developed technology, patents and licenses. The cost of identifiable intangible assets with finite lives is generally amortized on a straight-line basis over the assets’ respective estimated useful lives. Judgment is needed to assess the factors that could indicate an impairment of our intangible assets.

Goodwill and intangible assets with indefinite lives are not subject to amortization but are tested for impairment on an annual basis during the fourth quarter or whenever events or changes in circumstances indicate the carrying amount of these assets may not be recoverable. Events or changes in circumstances that could affect the likelihood that we will be required to recognize an impairment charge include, but are not limited to, declines in our stock price or market capitalization, economic downturns and other macroeconomic events, including the current COVID-19 pandemic, declines in our market share or revenues, and an increase in our losses, rapid changes in technology, failure to achieve the benefits of capacity increases and utilization, significant litigation arising out of an acquisition, or other matters. Any impairment charges could have a material adverse effect on our operating results and net asset value in the quarter in which we recognize the impairment charge.

In evaluating our goodwill and intangible assets with indefinite lives for indications of impairment, we first conduct an assessment of qualitative factors to determine whether it is more likely than not that the fair value of our reporting unit is less than its carrying amount. If we determine that it is more likely than not that the fair value of our reporting unit is less than its carrying amount, we compare the fair value of our reporting unit to its carrying value. If the fair value of our reporting unit exceeds its carrying value, goodwill is not considered impaired and no further analysis is required. If the carrying value of the reporting unit exceeds its fair value, then an impairment loss equal to the difference would be recorded to goodwill. We did not recognize any impairment of goodwill for any of the periods presented herein.

We evaluate our long-lived assets, including finite-lived intangibles, for indicators of possible impairment when events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. If any indicator of impairment exists, we assess the recoverability of the affected long-lived assets by determining whether the carrying value of the asset can be recovered through undiscounted future operating cash flows. If impairment is indicated, we estimate the asset’s fair value using future discounted cash flows associated with the use of the asset and adjust the carrying value of the asset accordingly. We did not recognize any impairment of intangibles for 2021 or 2020. In 2019, we recognized an impairment charge of $0.4 million on patents and licenses that were not used in the current products and were not expected to be used in future product offerings.

Deferred Grant Income

In September 2020, we executed a definitive contract with the National Institutes of Health (NIH) for a project under the NIH Rapid Acceleration of Diagnostics (RADx) program. The definitive contract, which amended the letter contract we entered into with NIH in July 2020 (collectively the NIH Contract), has a total value of up to $34.0 million upon the achievement of certain milestones, which were achieved and accepted by the NIH as of December 31, 2021. Proceeds from the NIH Contract have been and will be used primarily to expand production capacity and throughput capabilities.

Accounting for the NIH Contract does not fall under ASC 606, Revenue from Contracts with Customers, as the NIH will not benefit directly from our expansion or product development. As there is no authoritative guidance under U.S. GAAP on accounting for government assistance to for-profit business entities, we applied International Accounting Standards (IAS) 20, Accounting for Government Grants and Disclosure of Government Assistance, by analogy when accounting for the NIH Contract payments to Fluidigm.

The NIH Contract proceeds used for production capacity expansion meet the definition of grants related to assets as the primary purpose for the payments is to fund the purchase and construction of capital assets to scale up production capacity. Under IAS 20, government grants related to assets are presented in the statement of financial position either by setting up the grant as deferred income or by deducting the grant in arriving at the carrying amount of the asset. Either of these two methods of presentation of grants related to assets in financial statements are regarded as acceptable alternatives under IAS 20. We have elected to record the grants received as deferred income using the first method.

Under IAS 20, grant proceeds are recognized when there is reasonable assurance the conditions of the grant will be met and the grant will be received. With the NIH Contract, this occurred when either each milestone was accepted by NIH or management concluded the conditions of the grant were substantially met. Deferred grant income related to production capacity expansion is being amortized over the period of depreciation for the related assets as a reduction of depreciation expense. Grant income related to reimbursement of operating costs is recorded as a reduction of those expenses incurred to date. Grant proceeds that exceed the cost of the capital expenditures and expenses expected to be incurred are recorded in other non-operating income.

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Term Loan, net

On August 2, 2021, we entered into a Fourth Agreement to our Loan and Security Agreement (the Amendment) with Silicon Valley Bank. The Amendment extended the maturity date of our $15.0 million Revolving Credit Facility by one year, to August 2, 2023, and provided for a term loan facility in an aggregate principal amount up to $10.0 million (Term Loan Facility). As of December 31, 2021, the Term Loan Facility was fully drawn. Interest is payable monthly and principal balances are required to be repaid in 24 equal monthly installments beginning on August 1, 2023. In addition, a final payment equal to 6.5% of the original principal amount of each advance is due on the earlier of the maturity date or the date the advance is repaid. The final payment is being accreted to the carrying value of the term loan through the expected maturity of July 1, 2025 using the effective interest method. Debt issuance costs were recorded as an offset to the carrying value of the loan and are amortized over the expected term using the effective interest method. The carrying value of the term loan includes the outstanding principal amount and the cumulative accreted final payment, less unamortized debt issuance costs. Amortization of the debt issuance costs and accretion of the final payment are reflected in interest expense.

Convertible Notes, net

In February 2014, we closed an underwritten public offering of $201.3 million aggregate principal amount of our 2.75% Senior Convertible Notes due 2034 (2014 Notes). In March 2018, we entered into separate privately negotiated transactions with certain holders of our 2014 Notes to exchange $150.0 million in aggregate principal amount of the 2014 Notes for our 2.75% Exchange Convertible Senior Notes due 2034 (2018 Notes). In the first quarter of 2019, the 2018 Notes were converted into 19.5 million shares of our common stock and the 2018 Notes were retired. We recorded a loss of $9.0 million on the retirement of the 2018 Notes at conversion in the first quarter of 2019. We determined the fair value of the 2018 Notes using valuation techniques that required us to make assumptions related to the implied discount rate.

In November 2019, we closed a private placement for $55.0 million aggregate principal amount of our 5.25% Senior Convertible Notes due 2024 (2019 Notes). The majority of the issuance proceeds were used to retire approximately $50.2 million of aggregate principal amount of our 2014 Notes. We recorded a loss of $3.0 million on the extinguishment of the 2014 Notes in the fourth quarter of 2019. This amount represented the difference between the fair value of the 2019 Notes used to extinguish the debt and the carrying value of the 2014 Notes, including unamortized debt issuance costs.

As provided by the indenture governing the 2014 Notes, in February 2021, holders of $0.5 million of the 2014 Notes required us to repurchase their notes at 100% of the principal amount plus accrued and unpaid interest. We recorded a loss of $9 thousand on the extinguishment of those notes, representing the difference between the price paid to extinguish the 2014 Notes and their carrying value, including unamortized debt issuance costs.

Offering-related costs, including underwriting costs, on the 2014 Notes and 2019 Notes were capitalized as debt issuance costs, recorded as an offset to the carrying value of the related Notes, and are amortized over the expected term of the related Notes using the effective interest method.

Stock-Based Compensation

Our board of directors sets the terms, conditions, and restrictions related to our Employee Stock Purchase Plan (ESPP) and the grant of stock options, restricted share units (RSUs) and performance-based awards (PSUs) under our various stock-based plans. Our board of directors determines the number of awards to grant and sets the vesting criteria. For PSUs, our board of directors sets the performance objectives and other vesting provisions in determining the number of shares or value of performance units and performance shares that will be paid out. Such payout will be a function of the extent to which performance objectives or other vesting provisions have been achieved.

We recognize compensation costs for all stock-based awards, including stock options, RSUs, PSUs and stock purchased under our ESPP, based on the grant date fair value of the award. We recognize stock-based compensation expense on a straight-line basis over the requisite service periods for non-performance-based awards. For RSUs, fair value is measured based on the closing fair market value of our common stock on the date of grant. For PSUs with a market condition, we use a Monte Carlo simulation pricing model to incorporate the market condition effects at our grant date. The Monte Carlo pricing model requires inputs which are subjective and generally requires judgment by us. For PSUs with performance conditions, stock-based compensation expense is recognized over the requisite service period when the achievement of each individual performance goal becomes probable.

The fair value of options and stock purchases under ESPP on the grant date is estimated using the Black-Scholes option-pricing model, which requires the use of certain subjective assumptions, including expected term, volatility, risk-free interest rate and the fair value of our common stock. These assumptions generally require judgment. We determine the expected volatility based on our historical stock price volatility generally commensurate with the estimated expected term of the stock awards. The expected term of an award is based on historical forfeiture experience, exercise activity, and the terms and

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conditions of the stock awards. The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of grant for zero coupon U.S. Treasury notes with maturities approximately equal to each grant’s expected term. We account for forfeitures as they occur.

Income Taxes

We use the asset and liability method to account for income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Valuation allowances are provided when the expected realization of deferred tax assets does not meet a “more likely than not” criterion. We make estimates and judgments about our future taxable income that are based on assumptions that are consistent with our plans and estimates. Should the actual amounts differ from our estimates, the amount of our valuation allowance could be materially impacted. Changes in these estimates may result in significant increases or decreases to our tax provision in a period in which such estimates are changed, which in turn would affect net income or loss.

We recognize the financial statement effects of a tax position when it is more likely than not, based on the technical merits, that the position will be sustained upon examination. Any interest and penalties related to uncertain tax positions are reflected in the income tax provision.

Recent Accounting Changes and Accounting Pronouncements

Adoption of New Accounting Guidance

In November 2019, the FASB issued ASU 2019-12-Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this update improve consistent application of and simplify U.S. GAAP for Topic 740 by clarifying and amending existing guidance for, among other items, intra-period allocation, reporting tax law changes and losses in interim periods, state and local taxes not fully based on income and recognition of deferred tax liability related to certain transactions. There is also new guidance related to consolidated group reporting and tax impacts resulting from business combinations. The new guidance is effective for fiscal years beginning after December 15, 2020. The adoption of the new guidance did not have a significant impact on our financial results.

Recent Accounting Pronouncements

In August 2020, the FASB issued ASU 2020-06 Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The amendments in this update reduce the number of accounting models for convertible instruments and allows more contracts to qualify for equity classification, which is expected to result in more convertible instruments being accounted for as a single unit, rather than being bifurcated between debt and equity. The new guidance is effective for fiscal years beginning after December 15, 2021. The adoption of the new guidance is not expected to have a significant impact on our financial results.

In November 2021, the FASB issued ASU 2021-10-Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance. The amendment is effective for annual periods beginning after December 15, 2021. The amendment establishes financial disclosure requirements for business entities that receive government assistance that they account for by analogizing to a grant or contribution model because there is no specific authoritative guidance under U.S. GAAP that applies to the transaction. Entities that receive this type of assistance should include the following information in their annual report: (1) the nature of the transaction, (2) the significant terms and conditions, (3) the accounting treatment, (4) the line items on the balance sheet and income statement that are affected along with (5) the respective amounts that have been recorded. We are currently evaluating the impact the new standard will have on the disclosures included in our consolidated financial statements.

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Results of Operations

The following table presents our historical consolidated statements of operations data for the years ended December 31, 2021, 2020, and 2019, and as a percentage of total revenue for the respective years (in thousands):

Revenue

We generate revenue primarily from the sale of our products and services and by entering into product development agreements, license and royalty agreements, and grants. Our product revenue consists of sales of instruments and consumables. Consumables revenue is largely driven by the size of our installed base of instruments and the annual level of pull-through per instrument. Service revenue is linked to the sales and active installed base of our instruments as our service revenue primarily consists of post-warranty service contracts, preventive maintenance plans, instrument parts, installation and training. We sell our products to leading academic and government laboratories, as well as pharmaceutical, biotechnology, clinical, plant and animal research organizations and clinical laboratories worldwide.

Development Revenue. Effective March 31, 2020, we signed an OEM Supply and Development Agreement (Development Agreement) with a customer. Under the Development Agreement, Fluidigm developed products based on its microfluidics technology. The Development Agreement provided up-front and periodic milestone payments during the development stage, which was completed in the third quarter of 2021, and on-going annual payments of $0.4 million for sustaining efforts. We recognized $2.6 million and $8.8 million of development revenue from the agreement for the years ended December 31, 2021 and 2020, respectively. Costs associated with the Development Agreement were recorded in research and development expense in the consolidated statement of operations.

Grant Revenue. We receive grants to perform research and development activities over contractually defined periods. Grant revenue is attributable to a grant agreement entered into in the second half of 2019, which was completed in the third quarter of 2021. Costs associated with the arrangement were recorded in research and development expense in the consolidated statement of operations.

License Revenue. In March 2020, we entered into an agreement to settle intellectual property infringement claims and received a $3.5 million payment in exchange for a perpetual license to certain of our intellectual property. The settlement was accounted for as a multi-element arrangement. Accordingly, $3.1 million of the proceeds was recognized in 2020 as license revenue and $0.4 million was offset against legal costs.

No single customer represented more than 10% of our total revenue for 2021 and 2020. Revenue from our five largest customers was 23% for both the years ended December 31, 2021 and 2020, respectively.

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The following table presents our revenue by source for the years ended December 31, 2021, 2020, and 2019, and as a percentage of total revenue for the respective years (in thousands):

The following table presents our total revenue by geographic area of our customers and as a percentage of total revenue for each year presented (in thousands):

The Americas revenue includes revenue generated in the United States of $60.2 million, $72.0 million, and $43.4 million for 2021, 2020 and 2019, respectively. Asia-Pacific revenue includes sales to customers in China of $12.5 million, $11.1 million and $15.4 million for 2021, 2020 and 2019, respectively. There was no foreign country or jurisdiction with sales in excess of 10% of total revenue in 2021, 2020, and 2019, except for China in 2019.

The following section includes management discussion and analysis for the fiscal year ended December 31, 2021. Refer to Part I Item 7 of the Annual Report on Form 10-K for the fiscal year ended December 31, 2020 filed with the SEC on February 25, 2021, for a discussion of the comparative results for 2020 and 2019, which discussion of comparative results is incorporated by reference into this Form 10-K.

Total Revenue. Total revenue decreased by $7.6 million, or 5%, for the twelve months ended December 31, 2021, compared to the twelve months ended December 31, 2020, driven primarily by lower development, grant and license revenue, partially offset by higher service revenue. Product revenue was essentially unchanged year over year.

Americas revenue declined by $10.7 million, or 14%, for the twelve months ended December 31, 2021, compared to the twelve months ended December 31, 2020, driven by lower development, grant and license revenue, and lower unit sales of instruments, partially offset by higher consumables and service revenue. The decline in instrument revenue in 2021 is attributable to reduced demand for the analytical test instruments used in COVID-19 test applications following the initial wave of investments by testing laboratories in 2020. The reduction in development revenue and grant revenue reflects the completion of the underlying contracts in 2021 and the associated deceleration of project activity. The reduction in license revenue is attributable to the non-recurring nature of the 2020 settlement agreement discussed above. In Asia-Pacific, revenue decreased by $1.8 million, or 7%, primarily due to lower unit sales of mass cytometry instruments, partially offset by increased microfluidics consumable revenues. EMEA revenue increased by $4.9 million, or 13%, primarily driven by higher unit sales of mass cytometry instruments. A weaker U.S. dollar contributed 2.6 percentage points of the 13 percentage point increase in EMEA revenue in 2021. Changes in foreign exchange rates increased total company revenues by 0.7 percentage points for the year ended December 31, 2021, compared to the year ended December 31, 2020.

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Product and Service Revenue

The following tables present the split of product and service revenue between mass cytometry and microfluidic product categories and as a percentage of the respective category’s total product and service revenue for each year presented (in thousands):

Mass cytometry product and service revenue increased $5.5 million, or 9%, for the twelve months ended December 31, 2021, compared to the twelve months ended December 31, 2020. Product revenue increased $2.4 million, or 5%, primarily due to sales of the new CyTOF XT system, which was launched in May 2021, along with growth in our imaging platforms, partially offset by lower Helios sales. Lower average unit selling prices partially offset the increased unit volume of mass cytometry instruments by $4.3 million. Service revenue increased $3.1 million, or 20%, year over year, driven by the growing number of service contracts and mass cytometry instrument installations.

Microfluidics product and service revenue decreased $1.8 million, or 3%, during the twelve months ended December 31, 2021 compared to the twelve months ended December 31, 2020. The decline in 2021 is attributable to lower COVID-19 testing revenue, primarily lower instrument revenue. Excluding COVID-19 related revenue, base microfluidics product and service revenue increased $6.7 million, or 18%, due to the launch of our OEM instrument and higher consumables revenue.

We expect the average selling prices of our products to fluctuate over time based on market conditions, product mix, and currency fluctuations.

Product and Service Cost, Product and Service Gross Profit, and Product and Service Margin

Cost of product revenue includes manufacturing costs incurred in the production process, including component materials, labor and overhead, installation, packaging, and delivery costs. In addition, cost of product revenue includes amortization of developed technology and intangibles, royalty costs for licensed technologies included in our products, warranty, provisions for slow-moving and obsolete inventory, and stock-based compensation expense. Our cost of product revenue and related product margin may fluctuate depending on the capacity utilization of our manufacturing facilities in response to market conditions and the demand for our products.

Cost of service revenue includes direct labor hours, overhead, and instrument parts. Our cost of service revenue and related service margin may fluctuate depending on the variability in material and labor costs of servicing instruments.

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The following table presents our product and service cost, product and service gross profit, and product and service margin for each year presented (in thousands):

Product and service margin decreased by 3.8 percentage points for the year ended December 31, 2021 compared to the year ended December 31, 2020. Product and service margins were impacted by lower average selling prices for mass cytometry instruments, unfavorable product mix from sales of our OEM instrument and lower COVID-19 consumables sales, and the absence of COVID-19 related government subsidies.

Operating Expenses

The following table presents our operating expenses for each year presented (in thousands):

Research and Development

Research and development expense consists primarily of compensation-related costs, product development and material expenses, and other allocated facilities and information technology expenses. Our research and development efforts have focused primarily on enhancing our technologies and supporting development and commercialization of new and existing products and services. Research and development expense also includes costs incurred in conjunction with research grants and development arrangements. We have made substantial investments in research and development since our inception and expect to continue to do so.

Research and development expense increased by $1.5 million, or 4%, to $37.9 million for 2021 compared to $36.5 million for 2020. Salaries and benefit costs increased primarily due to the absence of 2020 temporary salary reductions and COVID-19 related government subsidies, as well as higher headcount and merit increases, partially offset by lower variable employee compensation. Consulting costs increased by $0.8 million due to projects related to development agreements and grants.

Selling, General and Administrative

Selling, general and administrative expense consists primarily of personnel costs for our sales and marketing, business development, finance, legal, human resources, information technology, and general management, as well as professional services, such as legal and accounting services.

Selling, general and administrative expense increased by $1.0 million, or 1%, to $98.9 million for 2021 compared to $97.9 million for 2020. Marketing expenses increased $2.8 million primarily due to marketing campaigns and market research to support new product launches. Sales expenses increased $1.9 million driven by higher compensation and benefits as well as higher travel as we returned to more normal pre-COVID-19 pandemic spending levels. Partially offsetting these increases were lower general and administrative costs. General and administrative expenses fell primarily due to lower variable compensation and lower litigation costs.

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Interest Expense and Other Non-Operating Items

The following table presents these items for each year presented (in thousands):

The increase in interest expense for the twelve months ended December 31, 2021 compared to the twelve months ended December 31, 2020 is due to the $10.0 million Term Loans which commenced in August 2021.

In 2021, we recognized $7.1 million of proceeds under the NIH Contract in excess of amounts expected to be spent for capital expenditures and operating expenses.

In February 2021, as provided by the indenture governing the 2014 Notes, holders of $0.5 million of the 2014 Notes required us to repurchase their notes at 100% of the principal amount plus accrued and unpaid interest. We recorded a loss of $9 thousand on the extinguishment of those notes, representing the difference between the price paid to extinguish the 2014 Notes and their carrying value, including unamortized debt issuance costs.

Other income, net primarily consists of interest income and gains or losses on foreign exchange. Other income, net, of $0.5 million for 2021 is primarily attributable to the settlement of claims, partially offset by $0.2 million of foreign exchange losses.

Income Tax Benefit

Our tax provision is generally driven by three components: (i) tax provision from our foreign operations, (ii) tax benefits from the amortization of acquisition-related intangible assets, and (iii) discrete items, such as changes in valuation allowances or adjustments upon finalization of tax returns. Depending on the relative value of these components, we can have either a tax benefit or expense for any given period.

We recorded a tax benefit of $4.4 million, or an effective tax rate benefit of 6.9%, for the year ended December 31, 2021 compared to a tax benefit of $1.1 million, or an effective tax rate benefit of 2.0%, for the year ended December 31, 2020. The tax benefit in both years was principally due to the tax benefit from the amortization of our acquisition-related deferred tax liabilities of $3.1 million. The increased benefit in 2021 compared to 2020 was due to lower current year profits and increased tax benefits on capital expenditures and research activities in certain of our foreign operations, as well as adjustments related to the finalization of 2020 tax returns.

Liquidity, Capital Resources and Going Concern

Sources of Liquidity

As of December 31, 2021, our principal sources of liquidity consisted of $28.5 million of cash and cash equivalents, as well as $1.0 million of restricted cash. The borrowing base under our Revolving Credit Facility was $9.4 million. With advances outstanding of $6.8 million, availability under the Revolving Credit Facility was $2.5 million as of December 31, 2021.

Purchase obligations consist of contractual and legally binding commitments to purchase goods and services. The majority of our contracts are cancellable with little or no notice or penalty. However, once a vendor has incurred costs to fulfill a contract with us, and which costs cannot be otherwise deployed, we are liable for those costs upon cancellation. For example, if a supplier has purchased raw materials to produce a good for us, and those goods cannot be returned or otherwise used by our vendor, we are obligated to reimburse them for the costs they incurred. These include purchase commitments with our contract manufacturers and suppliers. As of December 31, 2021, these purchase commitments totaled $20.4 million. In addition, we have certain non-cancellable commitments with service providers that are not material in the aggregate. As of December 31, 2021, we had contractual purchase commitments for capital expenditures of $1.6 million for 2022, and we expect our total capital expenditures to be above that amount.

We have additional obligations as part of our ordinary course of business, beyond those committed for capital expenditures and other purchase obligations and commitments for purchases of goods and services. For example, see Note 9 Debt within our

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consolidated financial statements for information about our short-term and long-term debt obligations and see Note 10 Leases within our consolidated financial statements for information about our lease obligations. Note 17 Commitments and Contingencies within our consolidated financial statements included elsewhere in this Annual Report contains information about our various contractual and legally binding purchase commitments to purchase goods and services discussed above. The expected timing of payments of our obligations is estimated based on current information. Timing of payments and actual amounts paid may be different, depending on the timing of receipt of goods or services, or changes to agreed-upon amounts for some obligations. In addition, some of our future purchasing needs are not current contractual obligations and are therefore not included in the amounts above. For example, some of these requirements are not handled through binding contracts or are fulfilled by vendors on a purchase order basis within short time horizons.

We have entered into several license and patent agreements. Under these agreements, we pay annual license maintenance fees, non-refundable license issuance fees, and royalties as a percentage of net sales for the sale or sublicense of products using the licensed technology. Future payments related to these license agreements have not been included in the contractual obligations table above as the period of time over which the future license payments will be required to be made, and the amount of such payments, are indeterminable. We do not expect the license payments to be material in any particular year.

The following table presents our cash flow summary for each year presented (in thousands):

Net Cash Used in Operating Activities. We derive cash flows from operations primarily from cash collected from the sale of our products and services, license agreements and grants. Our cash flows from operating activities are also significantly influenced by our use of cash for operating expenses and working capital to support the business. We have historically experienced negative cash flows from operating activities as we have expanded our business and built our infrastructure domestically and internationally.

Net cash used in operating activities in 2021 was $44.1 million and consisted of net loss of $59.2 million, less non-cash items of $35.1 million and cash used in assets and liabilities, net, of $19.9 million. Non-cash items included stock-based compensation expense and depreciation and amortization. The cash used in assets and liabilities, net was primarily attributable to a reduction of accrued compensation and liabilities of $8.7 million from bonus payments made in the first quarter of 2021, and an increase in inventories, net of $4.8 million.

Net cash used in operating activities in 2020 was $15.4 million and consisted of net loss of $53.0 million less non-cash adjustments of $35.2 million, and a net cash provided by assets and liabilities of $2.4 million. Increases in inventories, net and accounts receivable, net balances represent working capital increases due to higher revenues were more than offset by higher incentive compensation and other accruals.

Net cash used in operating activities in 2019 was $35.2 million and consisted of net loss of $64.8 million less non-cash adjustments of $43.2 million, and a net cash used in assets and liabilities of $13.6 million. Non-cash items primarily included a loss from extinguishment of debt of $12.0 million as well as stock-based compensation and depreciation and amortization. The net increase in assets and liabilities was primarily due to lower accrued liabilities for retention bonuses and other variable compensation.

Net Cash Provided by (Used in) Investing Activities. Our primary investing activities consist of purchases, sales, and maturities of our short-term investments and capital expenditures for manufacturing, laboratory, computer equipment and software to support our infrastructure and workforce. We expect to continue to incur costs for capital expenditures to improve manufacturing efficiencies and strengthen information technology and network security. However, we may choose to decrease or defer certain capital expenditures and development activities, while further optimizing our organization.

Net cash used in investing activities in 2021 was $11.9 million. Capital expenditures of $13.3 million were incurred primarily to expand our microfluidics IFC production capacity in Singapore related to the NIH Contract. Total proceeds from the NIH Contract were $8.6 million in 2021, of which $1.3 million is expected to be used for the Singapore facility expansion.

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Net cash provided by investing activities in 2020 was $40.0 million and includes $36.8 million of proceeds from the sales and maturities of investments as well as $21.0 million of proceeds from the NIH Contract, reflecting the portion of the proceeds from the NIH Contract attributable to the capacity expansion. These inflows were partially offset by capital expenditures of $12.7 million, including $10.2 million of capital expenditures funded by the NIH Contract to expand our Singapore manufacturing facility, and $5.2 million of net cash paid for the InstruNor acquisition. Total proceeds from the NIH Contract received were $25.4 million in 2020.

Net cash used in investing activities in 2019 was $39.3 million, which included purchases of investments of $62.4 million and capital expenditures of $2.5 million to support our commercial and manufacturing operations, partially offset by proceeds from maturities of investments of $25.6 million.

Net Cash Provided by Financing Activities. Net cash provided by financing activities totaled $16.0 million in 2021. The principal sources of cash were $10.0 million of advances drawn against our new Term Loan Facility with Silicon Valley Bank, advances under the revolving credit agreement of $6.8 million, and $1.3 million of ESPP proceeds. Partially offsetting these sources was $1.8 million of withholding tax payments related to net share settlement of equity awards and the $0.5 million repurchase of 2014 Notes in February 2021.

We generated cash from financing activities of $20.9 million during 2020. Proceeds from our ATM equity offering were $20.1 million, net of commissions and offering costs. Proceeds from our ESPP program and stock options exercises were largely offset by payments of debt issuance costs and income tax withholding related to net share settlement of equity awards.

We generated cash from financing activities of $2.8 million during 2019. $51.8 million of proceeds from a new $55.0 million debt issuance were used to retire 2014 Notes, as discussed below in more detail. Payments of debt and equity issuance costs of $1.9 million were partially offset by cash inflows from equity programs.

Capital Resources and Going Concern

At December 31, 2021 and December 31, 2020, our working capital, excluding deferred revenues, current, and deferred grant income, current and restricted cash, was $38.0 million and $79.8 million, respectively, including cash and cash equivalents of $28.5 million and $68.5 million, respectively. We had no short-term investments at December 31, 2021 and December 31, 2020.

In February 2014, we closed an underwritten public offering of our 2014 Notes. Pursuant to the Indenture governing the 2014 Notes, holders of the 2014 Notes have the right, subject to certain conditions specified in such indenture, to require the Company to repurchase all or a portion of their 2014 Notes on each of February 6, 2021, February 6, 2024, and February 6, 2029, at a repurchase price in cash equal to 100% of the principal amount of the 2014 Notes plus accrued and unpaid interest. On February 6, 2021, holders of $0.5 million of the 2014 Notes caused us to repurchase their notes in accordance with this provision leaving $0.6 million of 2014 Notes outstanding at December 31, 2021.

In November 2019, we closed a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of $55.0 million aggregate principal amount of our 2019 Notes. The 2019 Notes bear interest at 5.25% per annum, payable semiannually on June 1 and December 1 of each year, beginning on June 1, 2020. The Notes will mature on December 1, 2024, unless earlier repurchased or converted pursuant to their terms. The 2019 Notes will be convertible at the option of the holder at any point prior to close of business on the second scheduled trading day preceding the maturity date. The initial conversion rate of the 2019 Notes is 344.8276 shares of the Company’s common stock per $1,000 principal amount of 2019 Notes (which is equivalent to an initial conversion price of $2.90 per share). The conversion rate will be subject to adjustment upon the occurrence of certain specified events but will not be adjusted for any accrued and unpaid interest.

The 2019 Notes will also be convertible at our option upon certain conditions in accordance with the terms of the indenture governing the 2019 Notes. On or after December 1, 2021 to December 1, 2022, if the price of the Company’s common stock has equaled or exceeded 150% of the Conversion Price (as defined in the indenture, currently $2.90, subject to adjustment) for a specified number of days (Issuer’s Conversion Option), we may, at our option, elect to convert the 2019 Notes in whole but not in part into shares of the Company, determined in accordance with the terms of the indenture. On or after December 1, 2022, if the price of the Company’s common stock has equaled or exceeded 130% of the Conversion Price then in effect for a specified number of days, we may, at our option, elect to convert the 2019 Notes in whole but not in part into shares of the Company, determined in accordance with the terms of the indenture.

The foregoing summaries of the 2014 Notes and the 2019 Notes are not complete and are qualified in their entirety by the applicable indentures, forms of global notes, and other agreements and documents filed with the SEC.

On August 2, 2018, we entered into a Loan and Security Agreement with SVB (the Credit Agreement) for our Revolving Credit Facility, which provides for secured revolving loans in an aggregate amount of up to $15.0 million. In August 2021, we

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amended our Revolving Credit Facility to extend the maturity date to August 2, 2023 and to provide for a new $10.0 million Term Loan Facility (the Term Loan Facility and, together with the Revolving Credit Facility, the Credit Facility). The Credit Facility is collateralized by substantially all our property, other than intellectual property. The maturity date of the Term Loan Facility is July 1, 2025, subject to the following condition: in the event the principal amount of our convertible debt exceeds $0.6 million as of June 1, 2024 or if the maturity date of our 2019 Notes has not been extended beyond January 1, 2026 by that date, then the maturity date of the Term Loan Facility will be June 1, 2024.

As of December 31, 2021, the Term Loan Facility was fully drawn. Interest on the term loan accrues on the outstanding principal amount thereof at the greater of (i) a floating per annum rate equal to three quarters of one percentage point (0.75%) above the prime rate (as customarily defined), or 4% with a final payment equal to 6.5% of the aggregate original principal amounts of each term loan advance due on the earlier of the maturity date of the Term Loan Facility, the acceleration of the term loan advances or any prepayment of a term loan advance. Interest is payable monthly. The principal amount of the term loan advances is repayable beginning on August 1, 2023, in twenty-four equal monthly installments of principal plus monthly payments of accrued interest. The Amendment also added a financial covenant to the Credit Facility, requiring us to maintain a minimum Adjusted Quick Ratio (as defined in the Amendment) of at least 1.25 to 1.00.

As of December 31, 2021, the total borrowing base under the Revolving Credit Facility was $9.4 million. We had $6.8 million drawn, leaving $2.5 million available. We were in compliance with all the terms and conditions of the Revolving Credit Agreement governing the Revolving Credit Facility as of December 31, 2021, except in one instance where non-compliance was subsequently waived. See Note 9 to our consolidated financial statements for more information about the Revolving Credit Facility.

Since our inception, we have financed our negative cash flow from operations primarily through equity offerings and the issuance of debt instruments. For this annual report, we performed an assessment to determine whether there are conditions or events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern for at least the twelve-month period following the date the financial statements were issued. As of December 31, 2021, we had $29.5 million in cash, cash equivalents and restricted cash. Due to an extended strategic review process related to the pending Private Placement Issuance, we were unable in 2021 to implement certain cash management actions, including potential financing and/or cost reduction initiatives. Further, we have incurred, and expect to continue to incur, significant costs in pursuit of our business plans. As a result, we believe that our current level of cash and cash equivalents, together with committed financing facilities, are not sufficient to fund ongoing operations for at least the twelve-month period after the financial statements were issued. The existence of these conditions raises substantial doubt about our ability to continue as a going concern for at least the twelve-month period following the date the financial statements were issued.

Our ability to continue as a going concern is dependent upon our ability to obtain additional equity or debt financing, attain further operating efficiencies, reduce expenditures and ultimately, generate significant revenue growth. Our plans to raise additional capital, including our ability to consummate the Private Placement Issuance, or take other actions to address the doubt regarding our ability to continue as a going concern, may not be successful. There can be no assurance that the Company would be able to obtain additional liquidity when needed or under acceptable terms, if at all. Refer to “Risk Factors – As disclosed in footnote two of our consolidated financial statements, and referenced in our independent registered public accounting firm’s report, we believe that our current level of cash and cash equivalents, together with committed financing facilities, are not sufficient to fund ongoing operations for at least the twelve-month period after the financial statements were issued. The existence of these conditions raises substantial doubt about our ability to continue as a “going concern” for at least the twelve-month period following the date the financial statements were issued..’”