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Item 7. Management’s Discussion and Analysis

2022-02-24 compared with 2021-02-24 · 150 added, 124 removed, 334 unchanged (45% of the section changed)

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We are a leading precision medicine company focused on the discovery, development and commercialization of clinically differentiated, high-value diagnostic solutions for transplant patients and caregivers.

We offer testing services, products, and digital healthcare solutions along the pre- and post-transplant patient journey, and we are a leading provider of genomics-based information for transplant patients.

We offer testing services, products and patient and digital healthcare solutions along the pre- and post-transplant patient journey, and we are a leading provider of genomics-based information for transplant patients.

Testing Services

AlloSure Kidney, our transplant surveillance solution, was commercially launched in October 2017 and is our dd-cfDNA offering built on a NGS platform.

In transplantation, 109 papers from 55 studies globally have shown the value of dd-cfDNA in the management of solid organ transplantation.

In transplantation, more than 100 papers from over 50 studies globally have shown the value of dd-cfDNA in the management of solid organ transplantation.

AlloSure Kidney is able to discriminate dd-cfDNA from recipient-cell-free DNA, targeting polymorphisms between donor and recipient.

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The Medicare reimbursement rate for AlloSure Kidney is $2,841.

AlloSure Kidney has received positive coverage decisions from BCBS of South Carolina, BCBS of Kansas City and Capital Health, and is reimbursed by other private payers on a case-by-case basis.

AlloSure Kidney has received positive coverage decisions from several commercial payers, and is reimbursed by other private payers on a case-by-case basis.

Multiple studies have demonstrated that significant allograft injury can occur in the absence of changes in serum creatinine.

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AlloSure Kidney provides a non-invasive test, assessing allograft injury that enables more frequent, quantitative and safer assessment of allograft rejection and injury status.

Beyond allograft rejection, the assessment of molecular inflammation has shown further utility in the assessment of proteinuria, the formation of DSAs, and as a surrogate predictive measure of eGFR decline.

Beyond allograft rejection, the assessment of molecular inflammation has shown further utility in the assessment of proteinuria, the formation of De Novo donor specific antibodies, or DSAs, and as a surrogate predictive measure of estimated glomerular filtration rate, or eGFR, decline.

Monitoring of graft injury through AlloSure Kidney allows clinicians to optimize allograft biopsies, identify allograft injury and guide immunosuppression management more accurately.

Since the analytical validation paper in the Journal of Molecular Diagnostics in 2016 before the commercial launch of AlloSure Kidney, there has been an increasing body of evidence supports the use of AlloSure Kidney dd-cfDNA in the assessment and surveillance of kidney transplants.

Since the analytical validation paper in the Journal of Molecular Diagnostics in 2016 before the commercial launch of AlloSure Kidney, there has been an increasing body of evidence supporting the use of AlloSure Kidney dd-cfDNA in the assessment and surveillance of kidney transplants.

Bloom et al evaluated 102 kidney recipients and demonstrated that dd-cfDNA levels could discriminate accurately and non-invasively distinguish rejection from other types of graft injury.

In contrast, serum creatinine has AUC of 50%, showing no significant difference between patients with and without rejection.

In contrast, serum creatinine has area under the curve of 50%, showing no significant difference between patients with and without rejection.

Multiple publications and abstracts have shown AlloSure Kidney’s value in the management of BK viremia, as well as numerous pathologies that cause molecular inflammation and injury such as DSAs and eGFR decline.

Most recently its utility in the assessment of T-cell mediated rejection (TCMR) 1A and borderline rejection has also been published in the AJT.

Most recently its utility in the assessment of T-cell mediated rejection (TCMR) 1A and borderline rejection was published in the American Journal of Transplant, or AJT, and the outcomes of 1,000 patients was published in Kidney International.

The prospective multicenter trial, the K-OAR study, has enrolled over 1,700 patients, with plans to survey patients with AlloSure Kidney for 3 years and provide further clinical utility of AlloSure Kidney in the surveillance of kidney transplant recipients.

KidneyCare combines the dd-cfDNA analysis of AlloSure Kidney with the gene expression profiling technology of AlloMap Kidney and the predictive artificial intelligence technology of KidneyCare iBox in one surveillance solution.

We have not yet made any applications to private payers for reimbursement coverage of AlloMap Kidney or KidneyCare iBox.

We have not yet made any applications to private payers for reimbursement coverage of AlloMap Kidney or iBox.

In September 2019, we announced the enrollment of the first patient in the OKRA study, which is an extension of the K-OAR study.

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We believe the use of AlloMap Heart, in conjunction with other clinical indicators, can help healthcare providers and their patients better manage long-term care following a heart transplant, can improve patient care by helping healthcare providers avoid the use of unnecessary, invasive surveillance biopsies and may help to determine the appropriate dosage levels of immunosuppressants.

In 2008, AlloMap Heart received 510(k) clearance from the FDA for marketing and sale as a test to aid in the identification of heart transplant recipients, who have a low probability of moderate/severe acute cellular rejection at the time of testing, in conjunction with standard clinical assessment.

In 2008, AlloMap Heart received 510(k) clearance from the U.S.

Food and Drug Administration for marketing and sale as a test to aid in the identification of heart transplant recipients, who have a low probability of moderate/severe acute cellular rejection at the time of testing, in conjunction with standard clinical assessment.

AlloMap Heart has been a covered service for Medicare beneficiaries since January 1, 2006.

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AlloMap Heart has also received positive coverage decisions for reimbursement from many of the largest U.S.

private payers, including Aetna, Anthem, Cigna, HCSC, Humana, Kaiser, several BCBS plans and UnitedHealthcare.

In October 2020, AlloSure Heart received a final Palmetto MolDx Medicare coverage decision for AlloSure Heart.

private payers.

In October 2020, we received a final Palmetto MolDx Medicare coverage decision for AlloSure Heart.

In November 2020, Noridian Healthcare Solutions, our Medicare Administrative Contractor, issued a parallel coverage policy granting coverage when used in conjunction with AlloMap Heart, which became effective in December 2020.

The Medicare reimbursement rate for AlloSure Heart is currently $2,753.

AlloSure Heart has received positive coverage decisions from several commercial payers.

We have also successfully completed several landmark clinical trials in the transplant field demonstrating the clinical utility of AlloMap Heart for surveillance of heart transplant recipients.

We initially established the analytical and clinical validity of AlloMap Heart based on our CARGO study, which was published in the AJT.

A subsequent clinical utility trial, IMAGE, published in The New England Journal of Medicine, demonstrated that clinical outcomes in recipients managed with AlloMap Heart surveillance were equivalent (non-inferior) to outcomes in recipients managed with biopsies.

We initially established the analytical and clinical validity of AlloMap Heart based on our Cardiac Allograft Rejection Gene Expression Observational (Deng, M.

et al., Am J Transplantation 2006) study, which was published in the AJT.

A subsequent clinical utility trial, Invasive Monitoring Attenuation through Gene Expression (Pham MX et al., N.

Med., 2010), published in The New England Journal of Medicine, demonstrated that clinical outcomes in recipients managed with AlloMap Heart surveillance were equivalent (non-inferior) to outcomes in recipients managed with biopsies.

The results of our clinical trials have also been presented at major medical society congresses.

AlloMap Heart is now recommended as part of the ISHLT guidelines.

AlloMap Heart is now recommended as part of the ISHLT (International Society for Heart and Lung Transplantation) guidelines.

HeartCare includes the gene expression profiling technology of AlloMap Heart with the dd-cfDNA analysis of AlloSure Heart in one surveillance solution.

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(i) AlloMap Heart – a measure of immune activation, and (ii) AlloSure Heart – a measure of graft injury.

Clinical validation data from the D-OAR was published in AJT in 2019.

Clinical validation data from the Donor-Derived Cell-Free DNA-Outcomes AlloMap Registry (NCT02178943), or D-OAR, was published in the AJT in 2019.

D-OAR was an observational, prospective, multicenter study to characterize the AlloSure Heart dd-cfDNA in a routine, clinical surveillance setting with heart transplant recipients.

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One of these studies, launched in April 2020, is the ALARM study, or AlloSure Lung Allograft Remote Monitoring, with Johns Hopkins University, where the impact of AlloSure Lung combined with RemoTraC will be measured.

AlloSure Lung applies proprietary NGS technology to measure dd-cfDNA from the donor lung in the recipient bloodstream to monitor graft injury.

AlloSure Lung applies proprietary NGS technology to measure dd-cfDNA from the donor lung in the

recipient bloodstream to monitor graft injury.

In June 2020, we submitted an application to the Palmetto MolDx Technology Assessment program seeking coverage and reimbursement for AlloSure Lung.

In October 2021, we launched AlloSure Lung as part of the CHEST 2021 Annual Meeting.

We have gained early adoption with some commercial payers.

Cellular Therapy

In April 2020, we initiated a research partnership for AlloCell, a surveillance solution that monitors the level of engraftment and persistence of allogeneic cells for patients who have received cell therapy transplants.

AlloCell will initially be commercialized through collaborative research agreements with biopharma companies developing cell therapies.

AlloCell is being commercialized through research agreements with biopharma companies developing cell therapies.

In 2021, we executed multiple additional agreements with biopharma therapeutics companies to use AlloCell in research and clinical studies.

In July 2021, we launched the Assessing Chimerism and Relapse of Bone marrow/ HCT transplant using AlloHeme Testing, or ACROBAT, study.

The ACROBAT study is a prospective, multicenter, observational cohort study to evaluate the use of AlloHeme, a microchimerism NGS tool to predict post-transplant relapse in patients with allogeneic hematopoietic cell transplants, or HCT.

We develop, manufacture, market and sell products that increase the chance of successful transplants by facilitating a better match between a solid organ or stem cell donor and a recipient, and help to provide post-transplant surveillance of these recipients.

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Olerup SSP is used to type HLA alleles based on the SSP technology.

Olerup SBT is a complete product range for sequence-based typing of HLA alleles.

On May 4, 2018, we entered into the Illumina Agreement, which provides us with worldwide distribution, development and commercialization rights to Illumina’s NGS products and technologies for use in transplantation diagnostic testing.

On May 4, 2018, we entered into a license and collaboration agreement with Illumina, Inc., or Illumina, which provides us with worldwide distribution, development and commercialization rights to Illumina’s NGS products and technologies for use in transplantation diagnostic testing.

On June 1, 2018, we became the exclusive worldwide distributor of Illumina’s TruSight HLA product line.

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This technology has the potential to provide better sensitivity and data analysis compared to current solutions on the market.

In March 2021, we acquired certain assets of BFS Molecular S.R.L., or BFS Molecular, a software company focused on NGS-based patient testing solutions.

BFS Molecular brings extensive software and algorithm development capabilities for NGS transplant surveillance products.

Patient and Digital Solutions

In 2019, we began providing digital solutions to transplant centers following the acquisitions of Ottr, Inc.

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On May 7, 2019, we acquired 100% of the outstanding common stock of Ottr, Inc.

was formed in 1993 and is a leading provider of the Ottr software, which provides comprehensive solutions for transplant patient management.

The Ottr software enables integration with EMR systems, including Cerner and Epic, providing patient surveillance management tools and outcomes data to transplant centers.

was formed in 1993 and is a leading provider of transplant patient management software, or the Ottr software, which provides comprehensive solutions for transplant patient management.

The Ottr software enables integration with electronic medical records, or EMR, systems, including Cerner and Epic, providing patient surveillance management tools and outcomes data to transplant centers.

On August 26, 2019, we acquired 100% of the outstanding common stock of XynManagement.

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In September 2020 we launched AlloCare, a mobile app that provides a patient-centric resource for transplant recipients to manage medication adherence, coordinate with Patient Care Managers for AlloSure scheduling and measure health metrics.

In January 2021, we acquired TransChart for cash.

In January 2021, we acquired TransChart LLC, or TransChart.

TransChart provides EMR software to hospitals throughout the United States to care for patients who have or may need an organ transplant.

TransChart builds on our digital offerings, which include Ottr transplant electronic medical record software and XynQAPI transplant quality management solutions.

As part of our acquisition of TransChart in January 2021, we acquired Tx Access, a cloud-based service that allows nephrologists and dialysis centers to electronically submit referrals to transplant programs, closely follow and assist patients through the transplant waitlist process, and ultimately, through transplantation.

In June 2021, we acquired the Transplant Hero patient application.

The application helps patients manage their medications through alarms and interactive logging of medication events.

Also in June 2021, we entered into a strategic agreement with OrganX to develop clinical decision support tools across the transplant patient journey.

Together, we and OrganX will develop advanced analytics that integrate AlloSure, the first transplant specific dd-cfDNA assay, with large transplant databases to provide clinical data solutions.

This partnership delivers the next level of innovation beyond multi-modality by incorporating a variety of clinical inputs to create a universal composite scoring system.

In November 2021, we acquired MedActionPlan.com LLC, or MedActionPlan, a New Jersey-based provider of medication safety, medication adherence and patient education.

MedActionPlan is a leader in patient medication management for transplant patients and beyond.

In December 2021, we acquired the Transplant Pharmacy, or TTP, a transplant focused pharmacy located in Mississippi.

TTP provides individualized transplant pharmacy services for patients at multiple transplant centers located throughout the U.S.

COVID-19 Impact

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As a response to the COVID-19 pandemic, and to enable immune-compromised transplant patients to continue to have their blood drawn, in late March 2020, we launched RemoTraC, a remote home-based blood draw solution using mobile phlebotomy for AlloSure and AlloMap surveillance tests, as well as for other standard monitoring tests.

To date, more than 150 transplant centers can offer RemoTraC to their patients and over 6,000 kidney, heart and lung transplant patients have enrolled.

To date, more than 200 transplant and nephrology centers can offer RemoTraC to their patients and over 11,000 kidney, heart and lung transplant patients have enrolled.

Based on existing and new relationships with partners, we have established a nationwide network of more than 10,000 mobile phlebotomists.

Following the introduction of RemoTraC and with the easing of stay-at-home restrictions and the opening up of many hospitals to non-COVID-19 patients, our testing services volumes returned to levels consistent with those experienced immediately prior to the COVID-19 pandemic, and volumes continued to be at or above those levels since May 2020.

In spite of the resurgence of COVID-19 infection rates, which resulted in increased stay-at-home and renewed travel restrictions, we did not experience a decrease in testing services volumes.

Our product business experienced a reduction in forecasted sales volume throughout the second and third quarters of 2020, as we were unable to undertake onsite discussions and demonstrations of our recently launched NGS products, including AlloSeq Tx 17, which was awarded CE mark authorization in May 2020.

Our product business maintained normal sales volumes during the fourth quarter of 2020.

Our product business regained normalized sales volumes during the fourth quarter of 2020.

We are maintaining our testing, manufacturing, and distribution facilities while implementing specific protocols to reduce contact among our employees.

In areas where COVID-19 impacts healthcare operations, our field-based sales and clinical support teams are supporting providers through telephone and online platforms.

In August 2020, the state of California released revised criteria for loosening and tightening restrictions on certain activities on generally a county-by-county basis.

Under the updated executive orders, San Mateo County, where our laboratory and headquarters are located, continues to be subject to certain restrictions.

These orders and others may be further modified, amended and adopted depending upon the COVID-19 transmission rates in our county and state, as well as other factors.

In areas where COVID-19 impacts healthcare operations, our field-based sales and clinical support teams are supporting providers through virtual platforms.

Although the executive orders that placed certain restrictions on operations in San Mateo County and the State of California, where our laboratory and headquarters are located, were lifted effective June 15, 2021, new orders or restrictions may be adopted in the future depending upon the COVID-19 transmission rates in our county and state, as well as other factors.

In addition, we have created a COVID-19 task force that is responsible for crisis decision making, employee communications, enforcing pre-arrival temperature checking, daily health check-ins and enhanced safety training/protocols in our offices for employees that do not work from home.

Due to COVID-19, quarantines, shelter-in-place and similar government orders, or the perception that such orders, shutdowns or other restrictions on the conduct of business operations could occur or could impact personnel at third-party suppliers in the United States and other countries, or the availability or cost of materials, there may be disruptions in our supply chain.

Any manufacturing supply interruption of materials could adversely affect our ability to conduct ongoing and future research and testing activities.

manufacturing supply interruption of materials could adversely affect our ability to conduct ongoing and future research and testing activities.

In addition, our clinical studies may be affected by the COVID-19 pandemic.

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Financial Operations Overview

We derive our revenue from testing services, products sales and digital and other revenues.

We derive our revenue from testing services, products sales, patient and digital solutions revenues.

Revenue is recorded considering a five-step revenue recognition model that includes identifying the contract with a customer, identifying the performance obligations in the contract, determining the transaction price, allocating the transaction price to the performance obligations and recognizing revenue when, or as, an entity satisfies a performance obligation.

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and (v) how quickly we can successfully commercialize new product offerings.

We currently market testing services to healthcare providers through our direct sales force that targets transplant centers and their physicians, coordinators and nurse practitioners.

We currently market testing services to healthcare providers through our direct sales force that targets transplant centers and their physicians, coordinators and nurse practitioners as well as general nephrologists managing transplant recipients.

The healthcare providers that order the tests and on whose behalf we provide our testing services are generally not responsible for the payment of these services.

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Product Revenue

Our product revenue is derived primarily from sales of AlloSeq Tx, Olerup SSP, QTYPE and TruSight products.

Our product revenue is derived primarily from sales of AlloSeq Tx, Olerup SSP and QTYPE products.

Product revenue represented 9%, 10% and 15% of total revenue for the years ended December 31, 2021, 2020 and 2019, respectively.

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There are no further performance obligations related to a contract and revenue is recognized at the point of delivery consistent with the terms of the contract or purchase order.

Digital and Other Revenue

Our digital and other revenue is mainly derived from sales of our Ottr software and XynQAPI licenses and services and other licensing agreements.

Digital and other revenue represented 5%, 3% and 1% of total revenue for the years ended December 31, 2020, 2019 and 2018, respectively.

Patient and Digital Solutions Revenue

Our patient and digital solutions revenue is mainly derived from sales of our Ottr software, XynQAPI, MedActionPlan, TTP, TransChart and Tx Access licenses, services and SaaS agreements across the digital portfolio.

Patient and digital solutions revenue represented 3%, 5% and 3% of total revenue for the years ended December 31, 2021, 2020 and 2019, respectively.

Critical Accounting Policies and Significant Judgments and Estimates

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Revenue Recognition

We recognize revenue from testing services, product sales and digital and other revenue in the amount that reflects the consideration which it expects to be entitled in exchange for goods or services as it transfers control to its customers.

We recognize revenue from testing services, product sales and patient and digital solutions in the amount that reflects the consideration which it expects to be entitled in exchange for goods or services as it transfers control to its customers.

Revenue is recorded considering a five-step revenue recognition model that includes identifying the contract with a customer, identifying the performance obligations in the contract, determining the transaction price, allocating the transaction price to the performance obligations, and recognizing revenue when, or as, an entity satisfies a performance obligation.

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Transaction prices are determinable and products are delivered and risk of loss passed to the customer upon either shipping or delivery, as per the terms of the agreement.

Digital and Other Revenue

Digital revenue is mainly derived from perpetual software license agreements entered into with various transplant centers (customers).

The main performance obligations in connection with our perpetual software license agreement are the following:

(i) implementation services and delivery of the perpetual software license are considered a single performance obligation, (ii) post contract support ("PCS").

Patient and Digital Solutions Revenue

Patient and digital solutions revenue is mainly derived from a combination of SaaS and perpetual software license agreements entered into with various transplant centers (customers).

The main performance obligations in connection with our SaaS and perpetual software license agreement are the following:

(i) implementation services and delivery of the perpetual software license are considered a single performance obligation, (ii) post contract support.

We allocate the transaction price to each performance obligation based on relative stand-alone selling prices of each distinct performance obligation.

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We record deferred revenue in relation to these agreements when cash payments are received, or invoices are issued in advance of our performance, and generally recognize revenue over the contractual term, as performance obligations are fulfilled.

In addition, we derive digital revenue from software subscriptions.

In addition, we derive patient and digital solutions revenue from software subscriptions and medication sales.

We generally bill software subscription fees in advance.

Revenue from software subscriptions is deferred and recognized ratably over the subscription term.

Revenue from software subscriptions is deferred and recognized ratably over the

subscription term.

The medication sales revenue is recognized based on the negotiated contract price with the governmental, commercial and non-commercial payers with any applicable patient co-pay.

Stock-based Compensation

We use the Black-Scholes Model, which requires the use of estimates such as stock price volatility and expected option lives, to value employee stock options.

We estimate the expected option lives using historical data, estimate volatility using our own historical stock prices, estimate risk-free rates using the implied yield currently available in the U.S.

Treasury zero-coupon issues with a remaining term equal to the expected option lives, and estimate dividend yield using our expectations and historical data.

The fair value of each restricted stock unit is calculated based upon the closing price of our common stock on the date of the grant.

We use the straight-line attribution method for recognizing compensation expense.

Compensation expense is recognized on awards ultimately expected to vest and reduced for forfeitures that are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

Forfeitures are estimated based on our historical experience.

Compensation expense for stock options issued to nonemployees is calculated using the Black-Scholes Model and is recorded over the service performance period using the straight-line attribution method.

Options subject to vesting are required to be periodically remeasured over their service performance period, which is generally the same as the vesting period.

Business Combinations

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Acquired Intangible Assets

Amortizable intangible assets include customer relationships, developed technology, trademarks, contracts and acquired in-process technology assets acquired as part of a business combination.

Amortizable intangible assets include customer relationships, developed technology, commercialization rights, trademarks and in-process technology assets acquired as part of a business combination or asset acquisition.

Intangible assets subject to amortization are amortized over their estimated useful lives.

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and (iii) valuation metrics involving similar companies that are publicly-traded and acquisitions of similar companies, if available.

If this qualitative assessment indicates that it is more likely than not that an impairment exists, or if we decide to bypass this option, we proceed to perform the quantitative assessment.

If this qualitative assessment indicates that it is more

likely than not that an impairment exists, or if we decide to bypass this option, we proceed to perform the quantitative assessment.

The quantitative assessment consists of a comparison between the estimated fair value of our reporting unit and its respective carrying amount including goodwill.

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In connection with our annual goodwill assessment on December 1, 2021, we performed a qualitative assessment taking into consideration past, current and projected future earnings, recent trends and market conditions;

and its market capitalization.

and our market capitalization.

Based on this analysis, we concluded that it was more likely than not that the fair value of the reporting unit exceeded its carrying amount.

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We have not identified any such impairment losses to date.

Common Stock Warrants

Common stock warrants issued with debt, equity or as standalone financing instruments are recorded as either liabilities or equity in accordance with the respective accounting guidance.

Warrants recorded as equity are recorded at their relative fair value determined at the issuance date and are not remeasured after that.

Warrants recorded as liabilities are recorded at their fair value and remeasured on each reporting date with changes recorded in change in estimated fair value of common stock warrant liability and derivative liability in the consolidated statements of operations.

We utilize a binomial-lattice pricing model, or the Monte Carlo Simulation Model, that involves a market condition simulation to estimate the fair value of the warrants.

The application of the Monte Carlo Simulation Model requires the use of a number of complex assumptions including our stock price, expected life of the warrants, stock price volatility determined from our historical stock prices and stock prices of peer companies in the diagnostics industry, and risk-free rates based on the implied yield currently available in the U.S.

Treasury zero-coupon issues with a remaining term equal to the expected life of the warrants.

Increases (decreases) in these assumptions result in a directionally similar impact to the fair value of the common stock warrant liability.

Recently Issued Accounting Standards

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Similarly, the ability to recruit and retain patients and principal investigators and site staff who, as healthcare providers, may have heightened exposure to COVID-19, may adversely impact our clinical trial operations.

The Number of AlloMap Heart, AlloSure Kidney and AlloSure Heart Tests We Receive and Report

The growth of our testing services business is tied to the number of AlloSure Kidney, AlloMap Heart and AlloSure Heart patient samples we receive and patient results we report.

The Number of AlloMap Heart, AlloSure Lung, AlloSure Kidney and AlloSure Heart Tests We Receive and Report

The growth of our testing services business is tied to the number of AlloSure Kidney, AlloSure Lung, AlloMap Heart and AlloSure Heart patient samples we receive and patient results we report.

We incur costs in connection with collecting and shipping all samples and a portion of the costs when we cannot ultimately issue a report.

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Reimbursement for AlloMap Heart

AlloMap Heart test volume and the corresponding reimbursement revenue has generally increased over time since the launch of AlloMap Heart, as the ISHLT included AlloMap in guidelines, payers adopted coverage policies and many payers no longer consider AlloMap Heart to be experimental and investigational.

AlloMap Heart test volume and the corresponding reimbursement revenue has generally increased over time since the launch of AlloMap Heart, as the ISHLT included AlloMap in guidelines, payers adopted coverage policies and no longer consider AlloMap Heart to be experimental and investigational.

The rate at which our tests are covered and reimbursed has, and is expected to continue to vary by payer.

Revenue growth depends on our ability to maintain Medicare and third party payer reimbursement, and to expand utilization by healthcare providers.

PAMA included a substantial new payment system for clinical laboratory tests under the CLFS.

Under PAMA, laboratories that receive the majority of their Medicare revenues from payments made under the CLFS would report initially and then on a subsequent three-year basis thereafter (or annually for ADLTs), private payer payment rates and volumes for their tests.

The Protecting Access to Medicare Act of 2014, or PAMA, included a substantial new payment system for clinical laboratory tests under the Clinical Laboratory Fee Schedule, or CLFS.

Under PAMA, laboratories that receive the majority of their Medicare revenues from payments made under the CLFS would report initially and then on a subsequent three-year basis thereafter (or annually for advanced diagnostic laboratory tests, or ADLTs), private payer payment rates and volumes for their tests.

The final PAMA ruling was issued June 17, 2016 indicating that data for reporting for the new PAMA process would begin in 2017 and the new market based rates took effect on January 1, 2018.

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The CARES Act freezes current (2020) CMS CLFS rates through 2021.

Further, the CARES Act delays the reporting cycle under PAMA to January 1 and March 31, 2025, and the preceding data collection period will become January 1 through June 30, 2024.

Further, the CARES Act delays the reporting cycle under PAMA to January 1 and March 31, 2022.

The next data collection period will become January 1 through June 30, 2024.

AlloMap Heart has also received positive coverage decisions for reimbursement from many of the largest U.S.

private payers, including Aetna, Anthem, Cigna, HCSC, Humana, Kaiser Foundation Health Plan, Inc., several BCBS plans and UnitedHealthcare.

private payers.

Reimbursement for AlloSure Kidney

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Reimbursement for AlloSure Heart

In October 2020, AlloSure Heart received a final Palmetto MolDx Medicare coverage decision for AlloSure Heart.

In October 2020, we received a final Palmetto MolDx Medicare coverage decision for AlloSure Heart.

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We develop, manufacture, market and sell products that increase the chance of successful transplants by facilitating a better match between a donor and a recipient of stem cells and solid organs.

QTYPE enables speed and precision in HLA typing at a low to intermediate resolution for samples that require a fast turn-around-time and uses real-time polymerase chain reaction, or PCR, methodology.

QTYPE enables speed and precision in HLA typing at a low to intermediate resolution for samples that require a fast turn-around-time and uses real-time PCR methodology.

QTYPE received CE mark certification on April 10, 2018.

Olerup SSP is used to type HLA alleles based on the SSP technology.

Olerup SBT is a complete product range for sequence-based typing of HLA alleles.

On May 4, 2018, we entered into the Illumina Agreement, which provides us with worldwide distribution, development and commercialization rights to Illumina’s NGS product line for use in transplantation diagnostic testing.

On May 4, 2018, we entered into a license and collaboration agreement with Illumina, which provides us with worldwide distribution, development and commercialization rights to Illumina's NGS product line for use in transplantation diagnostic testing.

As a result, on June 1, 2018, we became the exclusive worldwide distributor of Illumina’s TruSight HLA product line.

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AlloSeq Tx, a high-resolution HLA typing solution, AlloSeq cfDNA, our surveillance solution designed to measure dd-cfDNA in blood to detect active rejection in transplant recipients, and AlloSeq HCT, a NGS solution for chimerism testing for stem cell transplant recipients.

In September 2019, we commercially launched AlloSeq cfDNA, our surveillance solution designed to measure dd-cfDNA in blood to detect active rejection in transplant recipients, and we received CE mark authorization on January 20, 2020.

In September 2019, we commercially launched AlloSeq cfDNA, our surveillance solution designed to measure dd-cfDNA in blood to detect active rejection in transplant recipients, which received CE mark authorization on January 20, 2020.

Our ability to increase the clinical uptake for AlloSeq cfDNA will be a result of multiple factors, including local clinical education, customer lab technical proficiency and levels of country-specific reimbursement.

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In June 2020, we commercially launched AlloSeq HCT, a NGS solution for chimerism testing for stem cell transplant recipients.

This technology can provide better sensitivity and data analysis compared to current solutions on the market.

Continued Growth of Digital Sales

The growth of our digital revenues is tied to the continued successful implementation of our Ottr and XynQAPI software businesses, as well as continued support and maintenance of existing Ottr, Inc.

This technology has the potential to provide better sensitivity and data analysis compared to current solutions on the market.

Continued Growth of Patient and Digital Sales

The growth of our patient and digital revenues is tied to the continued successful implementation of our Ottr, MedActionPlan and XynQAPI software businesses, as well as continued support and maintenance of existing MedActionPlan, Ottr, Inc.

and XynManagement customers.

The Ottr software and XynQAPI are currently implemented in multiple locations in the U.S.

The Ottr software, TransChart, Tx Access and XynQAPI are currently implemented in multiple locations in the U.S.

The Ottr software implementation and XynQAPI implementation and support teams are based in Omaha, Nebraska.

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Product revenue 26,832 19,302 7,530

Digital and other revenue 9,282 4,239 5,043

Patient and digital solutions 10,280 9,282 998

Total revenue 296,397 192,194 104,203

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Cost of product 18,930 13,847 5,083

Cost of digital and other 5,338 2,914 2,424

Cost of patient and digital solutions 7,208 5,338 1,870

Research and development 76,525 48,941 27,584

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Other income (expense):

Interest income (expense), net 271 985 (714)

Interest income, net 160 271 (111)

Change in estimated fair value of common stock

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Other expense, net (2,628) (811) (1,817)

Total other income 2,778 585 2,193

Total other (expense) income (2,362) 2,778 (5,140)

Loss before income taxes (32,088) (19,750) (12,338)

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Product Revenue

Product revenue increased by $1.0 million, or 6%, for the year ended December 31, 2020, compared to the same period in 2019.

Our product business was impacted by a reduction in forecasted sales volume throughout the second and third quarters of 2020 due to COVID-19, as there were delays in onsite discussions and demonstrations of recently launched NGS products, including AlloSeq Tx 17, which was awarded CE mark authorization in May 2020.

Sales volumes began to recover in the fourth quarter of 2020.

Digital and Other Revenue

Digital and other revenue increased by $5.0 million, or 119%, during the year ended December 31, 2020, compared to the year ended December 31, 2019, primarily due to the new Ottr software implementations and our acquisitions of Ottr, Inc.

in May 2019 and XynManagement in August 2019.

Product revenue increased by $7.5 million, or 39%, for the year ended December 31, 2021, compared to the same period in 2020, primarily due to growth from the NGS typing products.

Patient and Digital Solutions Revenue

Patient and digital solutions revenue increased by $1.0 million, or 11%, during the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily due to the acquisitions of TransChart in January 2021, MedActionPlan in November 2021 and TTP in December 2021.

Cost of Testing Services

Cost of testing services increased by $14.3 million, or 48%, for the year ended December 31, 2020, compared to the year ended December 31, 2019, primarily due to an increase in testing volume, the cost of providing RemoTraC and increased utilization of mobile phlebotomy.

Cost of testing services increased by $27.3 million, or 62%, for the year ended December 31, 2021, compared to the year ended December 31, 2020.

The increase is primarily due to increased testing volume, the related increased reagents, consumables and shipping expenses, increased personnel-related costs and increased stock-based compensation expense.

Cost of Product

Cost of product increased by $0.9 million , or 7%, for the year ended December 31, 2020, compared to the year ended December 31, 2019.

The increase is primarily due to increased sales and amortization of intangibles.

Cost of Digital and Other

Cost of digital and other increased by $2.4 million, or 83%, for the year ended December 31, 2020, compared to the year ended December 31, 2019, primarily due to the acquisitions of Ottr, Inc.

in Ma y 2019 and XynManagement in August 2019.

Cost of product increased by $5.1 million , or 37%, for the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily due to increased product revenue, personnel-related costs and stock-based compensation expense.

Cost of Patient and Digital Solutions

Cost of patient and digital solutions increased by $1.9 million, or 35%, for the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily due to the acquisitions of TransChart in January 2021, MedActionPlan in November 2021 and TTP in December 2021, and an increase in personnel-related costs and amortization of newly acquired intangibles.

Research and Development

Research and development expenses increased by $18.2 million, or 59%, for the year ended December 31, 2020, compared to the year ended December 31, 2019, primarily due to an increase in personnel-related costs of $7.8 million, an increase of $4.8 million in clinical studies, an increase in consulting and outside service fees of $2.7 million, an increase in reagents and consumables of $2.4 million and an increase in license and collaboration fees of $1.1 million, partially offset by lower travel costs of $0.4 million.

Research and development expenses increased by $27.6 million, or 56%, for the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily due to an increase in headcount and personnel-related costs of $9.8 million, an increase in consulting and professional fees of $3.9 million, an increase in clinical studies of $2.6 million, an increase in stock-based compensation expense of $2.5 million, an increase in software expense of $1.6 million and an increase in partnership and collaboration fees of $1.6 million.

Sales and Marketing

Sales and marketing expenses increased by approximately $15.0 million, or 38%, for the year ended December 31, 2020, compared to the year ended December 31, 2019, primarily due to an increase in personnel-related costs of $9.9 million, stock-based compensation expense of $1.8 million, $1.8 million of speaker programs and sponsorships and consulting and outside service fees of $1.1 million.

Sales and marketing expenses increased by $23.4 million, or 43%, for the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily due to an increase in headcount and personnel-related costs of $12.1 million, an increase in stock-based compensation expense of $5.5 million, an increase in travel costs of $1.9 million and an increase in consulting and professional fees of $1.9 million.

General and Administrative

General and administrative expenses increased by $12.3 million, or 34%, for the year ended December 31, 2020, compared to the year ended December 31, 2019.

This increase was primarily due to legal fees of $6.0 million related to litigation and general legal expenses, an increase of $4.5 million in personnel-related costs, an increase of $2.1 million of consulting and outside service fees and $0.5 million of software expense, partially offset by lower stock-based compensation expense of $1.2 million.

General and administrative expenses increased by $26.2 million, or 54%, for the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily due to an increase in legal expenses in connection with litigation related to intellectual property and false advertising matters as well as information requests from the Department of Justice and the SEC, of $10.3 million, an increase in consulting and professional fees of $4.0 million, an increase in stock-based compensation expense of $3.8 million, an increase in headcount and personnel-related costs of $2.4 million, an increase in software expense and IT infrastructure of $1.3 million and an increase in audit fees of $0.9 million.

Change in Estimated Fair Value of Common Stock Warrant Liability

The change in estimated fair value of common stock warrant liability decreased from income of $0.3 million for the year ended December 31, 2019 to an expense of $1.5 million for the year ended December 31, 2020, resulting in a net change of $1.8 million.

The change in estimated fair value of common stock warrant liability increased from an expense of $1.5 million for the year ended December 31, 2020 to income of $0.1 million for the year ended December 31, 2021, resulting in a net change of $1.6 million.

The $0.1 million income in the year ended December 31, 2021 reflects a remeasurement gain of $0.3 million for the change in the fair value of our common stock warrant liability and a remeasurement charge of $0.2 million for warrants exercised during the year.

In the year ended December 31, 2021, warrants to purchase approximately 3,000 shares of common stock with an average exercise price of $1.12 per share were exercised for cash proceeds of $4 thousand.

The $1.5 million expense in the year ended December 31, 2020 reflects a remeasurement gain of $6.2 million for the change in the fair value of our common stock warrant liability and a remeasurement charge of $7.7 million for warrants exercised during the year.

In the year ended December 31, 2020, warrants to purchase approximately 314,000 shares of common stock with an average exercise price of $1.12 per share were exercised.

The expense for the change in estimated fair value of common stock warrants decreased by $23.3 million, or 101%, for the year ended December 31, 2019, compared to the same period in 2018.

The income in 2019 was $0.3 million, comprised of a $3.4 million remeasurement gain related to the change in fair value of our common stock warrant liability, partially offset by a $3.1 million remeasurement charge for warrants exercised during the period.

CARES Act Provider Relief Fund

The CARES Act Provider Relief Fund increased by $4.8 million, or 100%, for the year ended December 31, 2020, compared to the year ended December 31, 2019, primarily due to the CARES Act payment we received in April 2020.

The CARES Act Provider Relief Fund decreased by $4.8 million, or 100%, for the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily due to the CARES Act payment we received in April 2020.

Other Expense, Net

Other expense, net increased by $1.8 million, or 224%, for the year ended December 31, 2021, compared to the same period in 2020, primarily due to the unrealized loss on our minority investment in Miromatrix Medical, Inc.

and foreign currency exchange rate losses.

Income Tax Benefit

For the year ended December 31, 2020, we recorded an income tax benefit of $1.0 million on a loss before income taxes of $19.8 million primarily attributable to the recognition of deferred tax assets from foreign losses and recognition of previous unrecognized tax benefits.

The effective tax rate for the year ended December 31, 2020 differs from the federal statutory tax rate as a result of the income tax expense related to non-deductible executive compensation and the increase in valuation allowance.

For the year ended December 31, 2021, we recorded an income tax benefit of $1.4 million on a loss before income taxes of $32.1 million, which was primarily attributable to the recognition of deferred tax assets from foreign losses and the income tax benefit related to the acquisition of TTP.

The effective tax rate for the year ended December 31, 2021 differs from the federal statutory tax rate as a result of the income tax expense related to non-deductible executive compensation and the decrease in valuation allowance.

For the year ended December 31, 2020, we recorded an income tax benefit of $1.0 million on a loss before income taxes of $19.8 million, primarily attributable to the recognition of deferred tax assets from foreign losses and recognition of previous unrecognized tax benefits.

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Comparison of the Years Ended December 31, 2020 and 2019

For a discussion regarding our financial condition and results of operations for the year ended December 31, 2019 as compared to the year ended December 31, 2018, please refer to the discussion under the heading “Results of Operations—Comparison of the Ended December 31, 2019 and 2018” in Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, filed with the SEC on February 28, 2020.

For a discussion regarding our financial condition and results of operations for the year ended December 31, 2020 as compared to the year ended December 31, 2019, please refer to the discussion under the heading “Results of Operations—Comparison of the Years Ended December 31, 2020 and 2019” in Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, filed with the SEC on February 24, 2021.

Liquidity and Capital Resources

We have incurred significant losses and negative cash flows from operations since our inception and had an accumulated deficit of $383.2 million at December 31, 2021.

As of December 31, 2020, we had cash, cash equivalents and marketable securities of $224.7 million, and no debt outstanding.

As of December 31, 2021, we had cash and cash equivalents of $348.5 million, and no debt outstanding.

The spread of COVID-19, which has caused a broad impact globally, may materially affect us economically.

While the potential economic impact brought by, and the duration of, COVID-19 may be difficult to assess or predict, a widespread pandemic could result in significant disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity.

While the potential economic impact brought by, and the duration of, COVID-19 may be difficult to assess or predict, a continued widespread pandemic could result in significant disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity.

Since March 31, 2020, and in response to the outbreak of the COVID-19 pandemic, we have increased our cash and cash equivalents.

With our continuing growth, we may require additional financing in the future to fund working capital and our future products developments.

With our continuing growth, we may require additional financing in the future to fund working capital and our development of future products.

Additional financing might include issuance of equity securities, including through underwritten public offerings or “at-the-market” offerings, debt offerings or financings or a combination of these financings.

There can be no assurance that we will be successful in acquiring additional funding at levels sufficient to fund our operations or on terms favorable to us.

We believe our existing cash balance and expected cash from existing operations, including cash from current license agreements and future license and collaboration agreements, or a combination of these, will be sufficient to meet our anticipated cash requirements for the next 12 months, as well as beyond the next 12 months.

CMS Accelerated and Advance Payment Program for Medicare Providers

On March 27, 2020, the U.S.

government enacted the CARES Act.

Pursuant to the CARES Act, CMS expanded its current Accelerated and Advance Payment Program in order to increase cash flow to providers of services and suppliers impacted by the COVID-19 pandemic.

CMS was authorized to provide accelerated or advance payments during the period of the public health emergency to any Medicare provider who submits a request to the appropriate Medicare Administrative Contractor and meets the required qualifications.

government enacted the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act.

Pursuant to the CARES Act, the Centers for Medicare & Medicaid Services, or CMS, expanded its Accelerated and Advance Payment Program in order to increase cash flow to providers of services and suppliers impacted by the COVID-19 pandemic.

CMS was authorized to provide accelerated or advance payments during the period of the public health emergency to any Medicare provider who submitted a request to the appropriate Medicare Administrative Contractor and met the required qualifications.

During April 2020, we received an advance payment from CMS of approximately $20.5 million and recorded the payment as Deferred revenue - CMS advance payment on our consolidated balance sheet.

During December 2020, we reassessed the Deferred revenue - CMS advance payment and determined to repay the entire amount in January 2021.

During December 2020, we reassessed the Deferred revenue - CMS advance payment and repaid the entire amount in January 2021.

We recorded the amount as Refund liability - CMS advance payment on the consolidated balance sheet as of December 31, 2020.

On January 19, 2021, we repaid the CMS advance payment of approximately $20.5 million to CMS in full.

At-the-Market Equity Offering

On August 31, 2018, we entered into a sales agreement, or the Sales Agreement, with Jefferies, LLC, or Jefferies, as sales agent, pursuant to which we may offer and sell, from time to time, through Jefferies, up to $50.0 million in shares of our common stock, by any method permitted by law deemed to be an “at-the-market” offering as defined in Rule 415 promulgated under the Securities Act of 1933, as amended.

On August 31, 2018, we entered into a sales agreement, or the Sales Agreement, with Jefferies, LLC, as sales agent, or Jefferies, pursuant to which we could offer and sell, from time to time, through Jefferies, up to $50.0 million in shares of our common stock, by any method permitted by law deemed to be an “at-the-market” offering as defined in Rule 415 promulgated under the Securities Act of 1933, as amended.

During April 2020, we issued and sold 1,000,000 shares of our common stock under the Sales Agreement.

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During April 2020, we received a payment of approximately $4.8 million, representing our portion of the initial tranche of funds, recorded in other income (expense), net on the consolidated statement of operations.

Underwritten Public Offering of Common Stock

We are complying with the key terms and provisions of the CARES Act Provider Relief Fund, which includes, among other things, the requirement that we maintain appropriate records and cost documentation.

During the quarter ended September 30, 2021, we were notified by HHS that the Provider Relief Fund Reporting Portal was open for reporting on the use of Provider Relief Fund payments, and we completed and submitted a report indicating our use of the funds we received pursuant to the CARES Act.

June 2020 Underwritten Public Offering of Common Stock

On June 15, 2020, we sold 4,492,187 shares of common stock (which included shares sold pursuant to the underwriters’ full exercise of an overallotment option granted to the underwriters in connection with the offering) through an underwritten public offering at a price of $32.00 per share for aggregate net proceeds of $134.6 million.

Public Offering of Common Stock

January 2021 Underwritten Public Offering of Common Stock

On January 25, 2021, we sold 1,923,077 shares of our common stock through an underwritten public offering at a public offering price of $91.00 per share.

The net proceeds to us from the offering were approximately $164.0 million, after deducting underwriting discounts and commissions and estimated offering expenses.

On February 11, 2021, we sold 288,461 shares of our common stock pursuant to the underwriters' full exercise of an overallotment option granted to the underwriters in connection with the offering.

On February 11, 2021, we sold 288,461 shares of our common stock pursuant to the underwriters' full exercise of an overallotment option granted to the underwriters in connection with the January 2021 offering.

The net proceeds to us from the full exercise of the underwriters' overallotment option were approximately $24.7 million.

The aggregate net proceeds to us, including shares sold pursuant to the underwriters' full exercise of the overallotment option, were approximately $188.7 million, after deducting underwriting discounts and commissions and estimated offering expenses.

The following table summarizes our cash flows for the years ended December 31, 2021, 2020 and 2019:

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(in thousands)

Net cash provided by (used in):

Net cash (used in) provided by:

Operating activities $ (19,294) $ 33,431 $ (2,769)

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Cash Flows from Operating Activities

Net cash provided by (used in) operating activities consists of net loss, adjusted for certain noncash items in the consolidated statements of operations and changes in operating assets and liabilities.

Net cash (used in) provided by operating activities consists of net loss, adjusted for certain noncash items in the consolidated statements of operations and changes in operating assets and liabilities.

Net cash used in operating activities for the year ended December 31, 2021 was $19.3 million.

Our net loss of $30.7 million was our primary use of cash in operating activities.

Our net loss also included the following noncash items:

$36.1 million in stock-based compensation expense, $8.8 million of depreciation and amortization expense, amortization of right-of-use assets of $3.1 million, loss on disposal of property and equipment of $2.4 million, unrealized loss on long-term marketable equity

securities of $1.7 million and amortization of premium on short-term marketable securities, net of $1.1 million.

Cash used in operating activities was also due to an increase in accounts receivable of $24.4 million and a decrease in Refund liability - CMS advance payment of $20.5 million.

Cash used in operating activities was partially offset by an increase in net operating assets of $3.9 million.

Net cash provided by operating activities for the year ended December 31, 2020 was $33.4 million.

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Net operating assets decreased by $3.1 million, offset by an increase in Refund liability - CMS advance payment of $20.5 million.

Net cash used in operating activities for the year ended December 31, 2019 was $2.8 million.

Our net loss of $22.0 million was our primary use of cash in operating activities and included the following noncash items:

$22.4 million stock-based compensation expense, $5.5 million of depreciation and amortization expense, $1.6 million non-cash lease expense and other miscellaneous items totaling $0.1 million.

Net operating assets and liabilities decreased by $10.4 million.

Cash Flows from Investing Activities

For the year ended December 31, 2021, net cash provided by investing activities was $47.7 million and primarily related to proceeds of $88.9 million for the maturities of short-term marketable securities.

These proceeds were partially offset by the acquisitions, net of cash acquired, for TransChart, MedActionPlan and TTP of $15.4 million, $5.5 million related to the purchase of long-term marketable securities, $13.6 million related to additions of capital expenditures, net and $6.7 million related to payments for acquired intangibles.

For the year ended December 31, 2020, net cash used in investing activities was $100.4 million and consisted of $90.0 million related to the purchase of marketable securities, $7.1 million related to additions of capital expenditures, net, $2.0 million related to payments for the license and commercialization agreement with Cibiltech and $1.3 million related to payments for acquired intangibles.

For the year ended December 31, 2019, net cash used in investing activities was $22.6 million and consisted of $18.2 million for the acquisition of Ottr, Inc.

and XynManagement, $2.2 million related to additions of capital expenditures, $1.2 million related to the acquisition of intangible assets, and $1.0 million related to our investment in equity securities.

Cash Flows from Financing Activities

Net cash provided by financing activities for the year ended December 31, 2021 was $185.6 million and primarily related to $188.9 million of proceeds from the issuance of shares of common stock in an underwritten offering, net of issuance costs, proceeds from exercises of stock options of $12.8 million and proceeds from issuances of shares of common stock under our employee stock purchase plan of $2.1 million.

These proceeds were partially offset by taxes paid related to net share settlements of restricted stock units of $18.1 million.

Net cash provided by financing activities for the year ended December 31, 2020 was $163.1 million and primarily related to $134.7 million of proceeds from the issuance of shares of common stock in an underwritten offering, net of issuance costs, $23.5 million of proceeds from the issuance of shares of common stock in an “at-the-market” equity offering, net of issuance costs, proceeds from exercises of stock options of $8.0 million, proceeds from issuances of shares of common stock under our employee stock purchase plan of $1.4 million and proceeds from exercises of warrants of $0.4 million.

These proceeds were partially offset by taxes paid related to net share settlements of restricted stock units of $4.5 million.

Net cash used by financing activities for the year ended December 31, 2019 was $0.1 million and primarily related to $4.2 million of taxes paid related to the net share settlement of restricted stock units and other miscellaneous payments totaling $0.3 million, offset by $3.6 million cash proceeds from the exercise of stock options, and $0.8 million cash proceeds from issuance of common stock under employee stock purchase plan.

For a discussion regarding our cash flows for the year ended December 31, 2019, please refer to the discussion under the heading “Results of Operations—Liquidity and Capital Resources” in Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, filed with the SEC on February 24, 2020.

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Foreign Operations

The accompanying consolidated balance sheets contain certain recorded assets in foreign countries, namely Sweden, Austria and Australia.

The accompanying consolidated balance sheets contain certain recorded assets in foreign countries, namely Stockholm, Sweden and Fremantle, Australia.

Although these countries are considered economically stable and we have experienced no notable burden from foreign exchange transactions, export duties or government regulations, unanticipated events in foreign countries could have a material adverse effect on our operations.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis