What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-08-05 compared with 2025-05-15 · 107 added, 56 removed, 151 unchanged (52% of the section changed)

24 unchanged sentences

Recent Developments

As of September 30, 2024, we determined the first operating performance milestone of the earnout shares was achieved resulting in the vesting of 1,250,000 earnout shares, of which 1,160,906 shares of our common stock were issued to applicable personnel on January 7, 2025.

Fair Value Transactions in Connection with Merger

4 unchanged sentences

Liability as of

June 30, 2025

December 31, 2024

Earnout liability

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Total liabilities measured at fair value

Other income (expense) related to instruments recorded at fair value during the three months ended March 31, 2025 and 2024

$ (30,371,318 )

Private Placement and Public Warrants in Connection with Merger

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The purpose of this reduced exercise price was to potentially raise proceeds received from the exercise of such warrants, if any, for working capital and general corporate purposes.

As of March 31, 2025, there were 515,000 private placement warrants and 16,145,210 public warrants outstanding.

As of June 30, 2025, there were 515,000 private placement warrants and 16,145,110 public warrants outstanding.

Key Performance Indicators

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Results of Operations

The following table sets forth key components of our results of operations during the three months ended March 31, 2025 and 2024.

The following table sets forth key components of our results of operations during the three months ended June 30, 2025 and 2024.

(dollars in thousands)

Three Months Ended March 31,

Three Months Ended June 30,

Cost of net revenues

4 unchanged sentences

Other income (expense):

(Loss) gain from change in fair value of earnout liability

(Loss) gain change in fair value of warrant liability

Gain from change in fair value of convertible debt

Interest income (expense), net

Other expense

Total (other expense) income, net

(Loss) income before income taxes

Provision for income taxes

Net (loss) income

Net Revenues — Net revenues for the three months ended June 30, 2025 decreased $4,254,000 to $2,147,000 as compared to $6,401,000 for the three months ended June 30, 2024, as a result of purchase orders from various federal government agency customers totaling over $13 million which we primarily shipped in the three months ended June 30, 2024.

On January 20, 2025, President Trump signed an executive order creating an advisory commission, the Department of Government Efficiency to reform federal government processes and reduce expenditures.

Pressures on and uncertainty surrounding the U.S.

federal government’s budget, and potential changes in budgetary priorities and spending levels, could adversely affect staffing levels and the funding for government projects.

Disruptions in how the government agencies operate due to these policies are materially affecting our business.

Cost of Net Revenues — Cost of net revenues primarily consists of product costs and post customer support.

For the three months ended June 30, 2025, cost of sales decreased $1,281,000 to $614,000 as compared to $1,895,000 for the three months ended June 30, 2024.

The decrease was due to lower sales, offset by product mix with decreased equipment purchases during the three months ended June 30, 2025.

Research and Development Expenses — Research and development expenses for the three months ended June 30, 2025 increased $38,000 to $741,000 as compared to $703,000 for the three months ended June 30, 2024.

The increase was due to increased expenses for product development in the United States and Taiwan.

Selling, General and Administrative Expenses — Selling, general and administrative expenses for the three months ended June 30, 2025 decreased $13,000 to $2,814,000.

Other (Expense) Income — Other expense for the three months ended June 30, 2025 was $21,735,000 as compared to other income of $17,486,000 for the three months ended June 30, 2024.

Other expense for the three months ended June 30, 2025 consisted of (i) loss from change in fair value of earnout liability of $7,302,000;

(ii) loss from change in fair value of warrant liability of $14,494,000;

and (iii) other income of $61,000.

The loss from change in fair value of various financial instruments was primarily the result of an increase in our stock price.

Other income for the three months ended June 30, 2024 consisted of (i) gain from change in fair value of warrant liability of $1,542,000;

(ii) gain from change in fair value of earnout liability of $14,877,000;

(iii) gain from change in fair value of convertible debt of $1,527,000;

and offset by (iv) interest expense $421,000;

and (v) other expense of $39,000.

Net (Loss) Income — Net loss for the three months ended June 30, 2025 was $23,757,000 as compared to a net income of $18,462,000 for the three months ended June 30, 2024.

The net loss primarily related to noncash expenses of $22,264,000.

Noncash items included (i) loss from change in warrant liability of $14,494,000;

(ii) loss from change in earnout liability of $7,301,000;

(iii) stock based compensation of $372,000;

and (iv) net amortization of operating lease right of use asset of $97,000.

The net income for the three months ended June 30, 2024 primarily related to noncash items of $16,894,000.

Noncash items included (i) stock based compensation of $262,000;

(ii) net amortization of operating lease right of use asset of $71,000;

(iii) issuance of common stock for services of $198,000;

(iv) noncash interest expense of $521,000;

(v) gain from change in warrant liability of $1,542,000;

(vi) gain from change in earnout liability of $14,877,000;

and (vii) gain from change in fair value of convertible note of $1,527,000.

The following table sets forth key components of our results of operations during the six months ended June 30, 2025 and 2024.

(dollars in thousands)

Six Months Ended June 30,

Cost of net revenues

Research and development expenses

Selling, general and administrative expenses

Total operating expenses

Operating loss

Other income (expense):

Gain (loss) from change in fair value of earnout liability

3 unchanged sentences

Interest income (expense), net

Other expense

Total income (other expense), net

Income (loss) before income taxes

(Loss) income before income taxes

Provision for income taxes

Net income (loss)

Net Revenues — Net revenues for the three months ended March 31, 2025 decreased $5,072,000 to $5,503,000 as compared to $10,575,000 for the three months ended March 31, 2024, as a result of purchase orders from various federal government agency customers totaling over $13 million which we primarily shipped in the three months ended March 31, 2024.

Net Revenues — Net revenues for the six months ended June 30, 2025 decreased $9,326,000 to $7,650,000 as compared to $16,976,000 for the six months ended June 30, 2024, as a result of purchase orders from various federal government agency customers totaling over $13 million which we primarily shipped in the six months ended June 30, 2024.

On January 20, 2025, President Trump signed an executive order creating an advisory commission, the Department of Government Efficiency to reform federal government processes and reduce expenditures.

3 unchanged sentences

Cost of Net Revenues — Cost of net revenues primarily consists of product costs and post customer support.

For the three months ended March 31, 2025, cost of sales decreased $4,679,000 to $3,268,000 as compared to $7,947,000 for the three months ended March 31, 2024.

The decrease was due to lower sales, offset by product mix with decreased equipment purchases during the three months ended March 31, 2025.

Research and Development Expenses — Research and development expenses for the three months ended March 31, 2025 increased $24,000 to $719,000 as compared to $695,000 for the three months ended March 31, 2024.

The increase was due to increased expenses for product development.

Selling, General and Administrative Expenses — Selling, general and administrative expenses for the three months ended March 31, 2025 decreased $105,000 to $3,230,000 as compared to $3,335,000 for the three months ended March 31, 2024.

The decrease was due to (i) reduced professional service expenses of $211,000;

(ii) reduced insurance expenses of $154,000;

(iii) offset increased stock based compensation of $159,000;

(iv) increased sales and marketing expenses of $147,000 related to expanded trade shows;

and other reduced operating expenses of $46,000.

Other Income (Expense) — Other income for the three months ended March 31, 2025 was $25,422,000 as compared to other expense of $30,562,000 for the three months ended March 31, 2024.

Other income for the three months ended March 31, 2025 consisted of (i) gain from change in fair value of earnout liability of $9,824,000;

For the six months ended June 30, 2025, cost of sales decreased $5,960,000 to $3,882,000 as compared to $9,842,000 for the six months ended June 30, 2024.

The decrease was due to lower sales, offset by product mix with decreased equipment purchases during the six months ended June 30, 2025.

Research and Development Expenses — Research and development expenses for the six months ended June 30, 2025 increased $62,000 to $1,460,000 as compared to $1,398,000 for the six months ended June 30, 2024.

The increase was due to increased expenses for product development in the United States and Taiwan.

Selling, General and Administrative Expenses — Selling, general and administrative expenses for the six months ended June 30, 2025 decreased $118,000 to $6,044,000 as compared to $6,162,000 for the six months ended June 30, 2024.

Other Income (Expense) — Other income for the six months ended June 30, 2025 was $3,687,000 as compared to other expense of $13,076,000 for the six months ended June 30, 2024.

Other income for the six months ended June 30, 2025 consisted of (i) gain from change in fair value of earnout liability of $2,522,000;

(ii) gain from change in fair value of warrant liability of $1,027,000;

(iii) other income of $77,000.

The gain from change in fair value of various financial instruments was primarily the result of a decrease in our stock price.

Other expense for the three months ended March 31, 2024 consisted of (i) loss from change in fair value of warrant liability of $6,847,000;

and (iii) other income of $138,000.

The gain from change in fair value of various financial instruments was primarily the result of an increase in our stock price.

Other expense for the six months ended June 30, 2024 consisted of (i) loss from change in fair value of warrant liability of $5,305,000;

(ii) loss from change in fair value of earnout liability of $6,608,000;

1 unchanged sentence

(iv) loss on note conversion of $159,000;

and (iv) noncash interest of $32,000.

Net Income (Loss ) — Net income for the three months ended March 31, 2025 was $23,708,000 as compared to a net loss of $31,964,000 for the three months ended March 31, 2024.

(v) interest expense of $453,000;

and (vi) other interest of $39,000.

Net (Loss) Income — Net loss for the six months ended June 30, 2025 was $49,000 as compared to a net loss of $13,502,000 for the six months ended June 30, 2024.

The net income primarily related to noncash items of $2,569,000.

Noncash items included (i) gain from change in warrant liability of $1,027,000;

and (ii) gain from change in earnout liability of $9,823,000;

(ii) gain from change in earnout liability of 2,522,000;

and offset by (iii) stock based compensation of $800,000;

and (iv) net amortization of operating lease right of use asset of $83,000.

The net loss for the three months ended March 31, 2024 primarily related to noncash charges of $30,881,000.

Noncash charges include (i) depreciation of $2,000;

and (ix) net amortization of operating lease right of use asset of $180,000.

The net loss for the six months ended June 30, 2024 primarily related to noncash items of $13,987,000.

Noncash items included (i) depreciation of $2,000;

(ii) stock based compensation of $531,000;

(iii) net amortization of operating lease right of use asset of $151,000;

(iv) loss from change in warrant liability of $6,847,000;

(v) loss from change in earnout liability of $21,485,000;

(vi) loss from change in fair value of convertible note of $2,039,000;

and (vii) loss on note conversions of $159,000.

Liquidity and Capital Resources as of March 31, 2025 and 2024

(iv) issuance of common stock for services of $198,000;

(v) noncash interest expense of $521,000;

(vi) loss from change in warrant liability of $5,305,000;

(vii) loss from change in earnout liability of $6,608,000;

(viii) loss from change in fair value of convertible note of $512,000;

and (ix) loss on note conversions of $159,000.

Liquidity and Capital Resources as of June 30, 2025 and 2024

Liquidity is our ability to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis.

Significant factors in the management of liquidity are funds generated by operations, levels of accounts receivable and accounts payable and capital expenditures.

We have incurred losses from operations in the past few years and had an accumulated deficit of $8.8 million as of March 31, 2025.

We have incurred losses from operations in the past few years and had an accumulated deficit of $75.0 million as of June 30, 2025.

In September 2024, we closed an $8.0 million public offering with approximately $7.3 million in net proceeds.

In December 2024, we received net proceeds of approximately $7.4 million from the exercise of warrants related to an inducement offer agreement.

We formally evaluated our liquidity and cash position in May 2025 when preparing the March 31, 2025 Form 10-Q consolidated financial statements.

During this process, we analyzed our cash requirements and operations at least through May 2026 and determined that, based upon our current available cash and operations, we have no substantial doubt about our ability to continue as a going concern.

We formally evaluated our liquidity and cash position in August 2025 when preparing the June 30, 2025 Form 10-Q consolidated financial statements.

During this process, we analyzed our cash requirements and operations at least through August 2026 and determined that, based upon our current available cash and operations, we have no substantial doubt about our ability to continue as a going concern.

Our assessment of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement and involves risks and uncertainties.

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Operating Activities

Net cash used in operating activities for the three months ended March 31, 2025 was $2,098,000.

This amount was primarily related to (i) net income of $23,708,000;

and offset by (ii) net working capital reductions of $973,000 (including a $713,000 reduction in deferred revenues);

and (iii) noncash items of $24,833,000.

Net cash used in operating activities for the six months ended June 30, 2025 was $3,919,000.

This amount was primarily related to (i) net loss of $49,000;

(ii) net working capital reductions of $1,301,000 (including a $606,000 reduction in deferred revenues);

and offset by (iii) noncash items of $2,569,000.

Noncash items included (iv) gain from change in warrant liability of $1,027,000;

and (v) gain from change in earnout liability of $9,823,000;

(v) gain from change in earnout liability of 2,522,000;

and offset by (vi) stock based compensation of $800,000;

and (vii) net amortization of operating lease right of use asset of $180,000.

Net cash used in operating activities for the three months ended March 31, 2024 was $1,695,000.

Net cash used in operating activities for the six months ended June 30, 2024 was $4,147,000.

This amount was primarily related to (i) net loss of $13,502,000;

and (ii) net working capital reductions of $4,632,000;

offset by (iii) noncash charges of $30,881,000.

Noncash charges include (iv) depreciation of $2,000;

offset by (iii) noncash items of $13,987,000.

Noncash items included (iv) depreciation of $2,000;

(v) stock based compensation of $531,000;

(vi) net amortization of operating lease right of use asset of $151,000;

(vii) loss from change in warrant liability of $6,847,000;

(viii) loss from change in earnout liability of $21,485,000;

(ix) loss from change in fair value of convertible note of $2,039,000;

and (x) loss on note conversions of $159,000.

(vii) issuance of common stock for services of $198,000;

(viii) noncash interest expense of $521,000;

(ix) loss from change in warrant liability of $5,305,000;

(x) loss from change in earnout liability of $6,608,000;

(xi) loss from change in fair value of convertible note of $512,000;

and (xii) loss on note conversions of $159,000.

Financing Activities

Net cash used in financing activities for the three months ended March 31, 2025 was $497,000 and consisted of (i) repayment of advances by founders of $600,000;

Net cash used in financing activities for the six months ended June 30, 2025 was $1,182,000 and consisted of (i) repayment of advances by founders of $1,300,000;

and offset by (ii) net proceeds from exercise of warrants of $60,000;

and (iii) proceeds from stock option exercises of $58,000.

Net cash provided by financing activities for the three months ended March 31, 2024 was $293,000 and consisted proceeds from warrant exercise.

Net cash provided by financing activities for the six months ended June 30, 2024 was $1,240,000 and consisted of (i) proceeds from warrant exercise of $293,000;

(ii) advances from founders of $800,000;

and (iii) proceeds from stock option exercises of $147,000.

Contractual Obligations and Commitments

5 unchanged sentences

There is a one three year option to extend the lease based on the fair market rate on October 31, 2027, which we expect to exercise.

On February 29, 2024, we extended an office lease in Moorestown, North Carolina.

We leased 3,621 square feet and the net monthly payment is $6,488.

On August 27, 2024, we extended the lease, which expired on February 28, 2025.

On February 1, 2025, we entered into an office lease in Mooresville, North Carolina.

12 unchanged sentences

We believe that the significant accounting policies described in “ Note 2, Summary of Significant Accounting Policies ” to our audited consolidated financial statements are accurate and complete.

The critical accounting estimates and policies during the three months ended March 31, 2025 have not materially changed to those discussed in our Annual Report on Form 10-K for the year ended December 31, 2024.

The critical accounting estimates and policies during the six months ended June 30, 2025 have not materially changed to those discussed in our Annual Report on Form 10-K for the year ended December 31, 2024.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

1 unchanged sentence

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-Q

Item 2. Management’s Discussion and Analysis