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Item 5. Market for Registrant’s Common Equity

2022-03-11 compared with 2021-03-31 · 24 added, 976 removed, 9 unchanged (99% of the section changed)

Market for Registrant’s Common Equity, Related

Stockholder Matters and Issuer Purchases of Equity Securities.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Certain Information Regarding the Trading of Our Common Stock

Our common stock trades under the symbol “MASS”

on the Nasdaq Global Market.

Trading of our common stock commenced on December 18, 2020 in connection with our initial public offering,

Our common stock trades under the symbol “MASS” on the Nasdaq Global Market.

Trading of our common stock commenced on December 18, 2020 in connection with our initial public offering, or IPO.

Prior to that time, there was no established public market for our common stock.

Holders of Our Common Stock

As of February 28, 2021, there were approximately

72 holders of record of our common stock.

The actual number of holders of our common stock is greater than this number of record holders

and includes stockholders who are beneficial owners, but whose shares are held in “street name”

by brokers or held by other

“nominees”.

The number of holders of record also does not include stockholders whose shares may be held in trust by other

As of March 4, 2022, there were approximately 28 holders of record of our common stock.

The actual number of holders of our common stock is greater than this number of record holders and includes stockholders who are beneficial owners, but whose shares are held in “street name” by brokers or held by other “nominees”.

The number of holders of record also does not include stockholders whose shares may be held in trust by other entities.

Securities Authorized for Issuance Under Equity Compensation Plans

Information about our equity compensation plans

will be included in our definitive proxy statement to be filed with the SEC with respect to our 2021 Annual Meeting of Stockholders and

is incorporated herein by reference.

Information about our equity compensation plans will be included in our definitive proxy statement to be filed with the SEC with respect to our 2022 Annual Meeting of Stockholders and is incorporated herein by reference.

Recent Sales of Unregistered Equity Securities

below is information regarding securities issued or granted by us during the period covered by this Annual Report on Form 10-K that

were not registered under the Securities Act.

The information presented in this Item 5 gives effect to a 1-for-1.6271 reverse stock split,

which became effective on December 11, 2020.

of Common Stock upon Conversion of Preferred Stock

On December 22, 2020, upon the closing of

our IPO, all 23,905,267 shares of our then-outstanding convertible preferred stock automatically converted into 14,691,929 shares of common

The issuance of such common shares was exempt from the registration requirements of the Securities Act, pursuant to Section 3(a)(9) of

the Securities Act, involving an exchange of securities exchanged by the issuer with its existing security holders exclusively where no

commission or other remuneration is paid or given directly or indirectly for soliciting such exchange.

No underwriters were involved in

this issuance of shares.

Grants and Exercises of Stock Options and Warrants

During the period covered by this Annual

Report on Form 10-K, we granted options to purchase an aggregate of 1,176,606 shares of common stock, with exercise prices

ranging from $1.05 to $7.91 per share, to directors, employees and consultants pursuant to our 2012 Stock Option and Grant Plan, or the

During 2020, an aggregate of 43,432 shares of common stock were issued upon the exercise of stock options pursuant to the 2012

Plan, with exercise prices ranging from $0.53 to $1.75 per share.

During the period covered by this Annual

Report on Form 10-K, we granted options to purchase an aggregate of 57,640 shares of common stock, with an exercise price

of $20.00 per share, to directors pursuant to our 2020 Stock Option and Incentive Plan, or 2020 Plan.

During 2020, no shares of common

stock were issued upon the exercise of stock options pursuant to the 2020 Plan.

During 2020, an aggregate of 55,994 shares of

common stock were issued upon the exercise of warrants, in each case pursuant to cashless exercises permitted by the terms of the warrant,

and with underlying exercise prices ranging from $2.93 to $10.23 per share.

No underwriters were involved in the foregoing

issuance of securities.

The issuances of the securities described above were deemed to be exempt from registration pursuant to Section 4(a)(2) of

the Securities Act or Rule 701 promulgated under the Securities Act as transactions pursuant to compensatory benefit plans.

of common stock issued upon the exercise of stock options or warrants are deemed to be restricted securities.

All recipients either received

adequate information about us or had access, through employment or other relationships, to such information.

We did not issue or grant any equity securities during the period covered by this Annual Report on Form 10-K that were not registered under the Securities Act.

Use of Proceeds from Initial Public Offering

On December 22, 2020, we

completed the IPO of our common stock pursuant to which we issued and sold 7,475,000 shares of our common stock, inclusive of 975,000

shares we sold pursuant to the full exercise of the underwriters’

option to purchase additional shares, at a price to the public

of $20.00 per share.

The offer and sale of all of the

shares of our common stock in our IPO were registered under the Securities Act pursuant to a registration statement on Form S-1,

as amended (File No.

333-250954), which was declared effective by the SEC on December 17, 2020, and a registration statement

on Form S-1MEF (File No.

On December 22, 2020, we completed the IPO of our common stock pursuant to which we issued and sold 7,475,000 shares of our common stock, inclusive of 975,000 shares we sold pursuant to the full exercise of the underwriters’ option to purchase additional shares, at a price to the public of $20.00 per share.

The offer and sale of all of the shares of our common stock in our IPO were registered under the Securities Act pursuant to a registration statement on Form S-1, as amended (File No.

333-250954), which was declared effective by the SEC on December 17, 2020, and a registration statement on Form S-1MEF (File No.

333-251441), which was automatically effective upon filing with the SEC on December 17, 2020.

Following the sale of all of the shares offered in connection with the closing of our IPO, the offering terminated.

Cowen and Company,

LLC and SVB Leerink LLC acted as lead book-running managers, and William Blair & Company, L.L.C.

and Stifel, Nicolaus &

Company, Incorporated acted as book-running managers for the IPO.

We received aggregate gross proceeds

from our IPO of $149.5 million, or aggregate net proceeds of $136.6 million after deducting underwriting discounts and commissions and

other offering expenses.

None of the underwriting discounts and commissions or offering expenses were incurred or paid, directly or indirectly,

to directors or officers of ours or their associates or to persons owning 10% or more of our common stock or to any of our affiliates.

We had not used any of the net

proceeds from the IPO as of December 31, 2020 because the IPO had recently closed on December 22, 2020.

There has been no material

change in our planned use of the net proceeds from the IPO as described in the final prospectus filed pursuant to Rule 424(b)(4) under

the Securities Act, with the SEC, on December 18, 2020.

Cowen and Company, LLC and SVB Leerink LLC acted as lead book-running managers, and William Blair & Company, L.L.C.

and Stifel, Nicolaus & Company, Incorporated acted as book-running managers for the IPO.

We received aggregate gross proceeds from our IPO of $149.5 million, or aggregate net proceeds of $136.6 million after deducting underwriting discounts and commissions and other offering expenses.

None of the underwriting discounts and commissions or offering expenses were incurred or paid, directly or indirectly, to directors or officers of ours or their associates or to persons owning 10% or more of our common stock or to any of our affiliates.

Cash used since the IPO is described elsewhere in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our periodic reports filed with the SEC.

There has been no material change in the planned use of IPO proceeds from that described in the final prospectus for the IPO filed with the SEC pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended, on December 18, 2020.

Issuer Purchases of Equity Securities

purchase any of our registered equity securities during the period covered by this Annual Report on Form 10-K.

We have never declared or paid any cash dividends

on our common stock or any other securities.

We anticipate that we will retain all available funds and any future earnings, if any, for

use in the operation of our business and do not anticipate paying cash dividends in the foreseeable future.

Our ability to pay cash dividends

is currently restricted by the terms of our 2021 Revolver with Signature Bank.

In addition, the terms of any future debt instruments may

also materially restrict our ability to pay dividends on our common stock.

Payment of future cash dividends, if any, will be at the discretion

of the board of directors after taking into account various factors, including our financial condition, operating results, current and

anticipated cash needs, the requirements of current or then-existing debt instruments and other factors the board of directors deems relevant .

Selected Financial

We are a smaller reporting company, as defined

in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, for this reporting period and are not required to provide the

information required under this item.

Management’s Discussion and Analysis of Financial

Condition and Results of Operations.

The following discussion and analysis of our

financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes

appearing in Part II, Item 8 of this Annual Report on Form 10-K.

Some of the information contained in this discussion and

analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy

for our business, includes forward-looking statements that involve risks and uncertainties.

As a result of many factors, including those

factors set forth in the ‘‘Risk Factors’’

section of this Annual Report on Form 10-K, our actual results

could differ materially from the results described in, or implied by, the forward-looking statements contained in the following discussion

and analysis.

We have developed an innovative

suite of purpose-built handheld and desktop mass spectrometry, or Mass Spec, devices for the point-of-need.

Leveraging our proprietary

platform technology, we make the extraordinary analytical power of Mass Spec available in devices that are significantly smaller and more

accessible than conventional laboratory instruments.

Our Mass Spec devices are used at the point-of-need to interrogate unknown and invisible

materials and provide quick, actionable answers to directly address some of the most critical problems in life sciences research, bioprocessing,

industrial biotech, forensics and adjacent markets.

We create simplified measurement

devices that our customers can use as accurate tools where and when their work needs to be done, rather than overly complex and centralized

analytical instrumentation.

We believe the insights and answers our devices provide will accelerate workflows, reduce costs, and offer

transformational opportunities for our end users.

Front-line workers rely upon our

handheld devices to combat the opioid crisis and detect counterfeit pharmaceuticals and illicit materials in the air or on surfaces at

levels 1,000 times below their lethal dose.

Our desktop devices are accelerating development and production of biotherapeutics by identifying

and quantifying extracellular species in bioprocessing critical to cell health and productivity.

They sit alongside bioreactors and fermenters

producing drug candidates, functional proteins, cell and gene therapies, and synthetic biology derived products.

We believe the insights

and answers our devices provide accelerate workflows, reduce costs, and offer transformational opportunities for our end users.

“products”

as used in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations”

refers to the MX908, Rebel and ZipChip Interface.

Since inception,

we have focused substantially all of our resources on designing, developing and building our proprietary Mass Spec platform and associated

technologies, supporting software improvements and data analysis, organizing and staffing our company, planning our business, raising

capital, and providing general and administrative support for these operations.

To date, we have funded our operations primarily with

proceeds from sales of preferred stock and borrowings under loan agreements and, most recently, with proceeds from our initial

public offering, or IPO.

On December 22, 2020, we completed our IPO, pursuant to which we issued and sold 7,475,000 shares of common

stock, inclusive of 975,000 shares pursuant to the full exercise of the underwriters’

option to purchase additional shares.

net proceeds of $136.6 million after deducting underwriting discounts and commissions and other offering costs.

Since our inception, we have incurred

significant operating losses.

Our ability to generate revenue sufficient to achieve profitability will depend on the successful further

development and commercialization of our products.

We generated revenue of $26.9 million and $18.0 million for the years ended December 31,

2020 and 2019, respectively, and incurred net losses of $12.8 million and $13.4 million for those same years.

As of December 31,

2020, we had an accumulated deficit of $78.5 million.

We expect to continue to incur net losses as we focus on growing commercial sales

of our products in both the United States and international markets, including growing our sales teams, scaling our manufacturing operations,

continuing research and development efforts to develop new products and further enhance our existing products.

Further, we expect to incur

additional costs associated with operating as a public company.

As a result, we will need substantial additional funding for expenses

related to our operating activities, including selling, general and administrative expenses and research and development expenses.

Because of the numerous risks

and uncertainties associated with product development and commercialization, we are unable to accurately predict the timing or amount

of increased expenses or when, or if, we will be able to achieve or maintain profitability.

Until such time, if ever, as we can generate

substantial revenue sufficient to achieve profitability, we expect to finance our operations through a combination of equity offerings,

debt financings and strategic alliances.

We may be unable to raise additional funds or enter into such other agreements or arrangements

when needed on favorable terms, or at all.

If we are unable to raise capital or enter into such agreements as, and when, needed, we may

have to significantly delay, scale back or discontinue the further development and commercialization efforts of one or more of our products,

or may be forced to reduce or terminate our operations.

We believe that our existing cash

and cash equivalents, will enable us to fund our operating expenses, capital expenditure requirements and debt service payments into 2023.

We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than

Liquidity and Capital Resources .”

In December 2019, a novel

strain of coronavirus, or COVID-19, emerged in Wuhan, Hubei Province, China.

Less than four months later, in March 2020, the World

Health Organization declared COVID-19 a pandemic, and the virus has now spread to many other countries and regions and every state within

the United States, including Massachusetts, where our primary offices and manufacturing facility are located.

The impact of this pandemic

has been and will likely continue to be extensive in many aspects of society, which has resulted in and will likely continue to result

in significant disruptions to the global economy, as well as businesses and capital markets around the world.

Impacts in 2020 to our business

as a result of COVID-19 include disruptions to our manufacturing operations and supply chain caused by facility closures, reductions in

operating hours, staggered shifts and other social distancing efforts, decreased productivity and unavailability of materials or components,

limitations on our employees’

and customers’

ability to travel, and delays in product installations, trainings or shipments

to and from affected countries and within the United States.

In light of the uncertain and rapidly evolving situation relating to the

spread of COVID-19, we have taken precautionary measures intended to minimize the risk of the virus to our employees, our customers and

the communities in which we operate, including temporarily closing our offices to visitors and limiting the number of employees in our

offices to those that are deemed essential for manufacturing and research purposes, as well as virtualizing, postponing or canceling customer,

employee and industry events.

In addition, during 2020, we temporarily reduced the manufacturing and distribution of our products at our

facility in Boston, Massachusetts.

Disruptions in our customers’

operations have impacted and may continue to impact our business.

For example, laboratory shutdowns and reduced capital spend have negatively

impacted our ZipChip Interface and consumables sales, resulting in a decrease in ZipChip Interface sales from 2019 to 2020.

decrease did not significantly impact our total revenue in 2020, the impact could be more significant in the future.

We are focused on

navigating the challenges presented by COVID-19, with a primary focus on preserving our liquidity and managing our cash flows by taking

preemptive action to enhance our ability to meet our short-term liquidity needs.

To address actual and expected reductions in revenue

and cash flows, we reduced our discretionary spending and reduced payroll costs through temporary employee furloughs and salary reductions.

Starting in July 2020, we reinstated our furloughed employees and pay rates.

We do not yet know the net impact

that the COVID-19 pandemic may have on our business and cannot guarantee that it will not be materially negative.

Although we continue

to monitor the situation and may adjust our current policies as more information and public health guidance become available, the ongoing

effects of the COVID-19 pandemic and/or the precautionary measures that we have adopted may create operational and other challenges, any

of which could harm our business and results of operations.

While we maintain an inventory of finished products and raw materials used

in our products, a prolonged pandemic could lead to shortages in the raw materials necessary to manufacture our products.

If we experience

a prolonged disruption in our manufacturing, supply chains or commercial operations, or if demand for our products is significantly reduced

as a result of the COVID-19 pandemic, we would expect to experience a material adverse impact on our business, financial condition, results

of operations and prospects.

Historically, a significant portion

of our field sales, customer training events and other application services have been conducted in person, and the rollout of our new

products has historically been supported by our participation at industry conferences.

Currently, as a result of the work and travel restrictions

related to the COVID-19 pandemic, and the precautionary measures that we have adopted, substantially all of our field sales and professional

services activities are being conducted remotely, which has resulted in a decrease in our travel expenditures.

However, we expect our

travel expenditures to increase in the future, which could negatively impact our financial condition and results of operations.

not yet know the extent of the negative impact of such restrictions and precautionary measures on our ability to attract new customers

or retain and expand our relationships with existing customers over the near and long term.

Factors affecting our performance

We believe that our financial

performance has been and in the foreseeable future will continue to be primarily driven by the following factors.

While each of these

factors presents significant opportunities for our business, they also pose important challenges that we must successfully address in

order to sustain our growth and improve our results of operations.

Our ability to successfully address the factors below is subject to

various risks and uncertainties, including those described under the heading “

Risk Factors.

Our financial performance has

largely been driven by, and in the future will continue to be impacted by, the rate of sales of our handheld and desktop devices.

focuses on device sales as an indicator of current business success and a leading indicator of likely future recurring revenue from consumables

and services.

We expect our device sales to continue to grow as we increase penetration in our existing markets and expand into, or offer

new features and solutions that appeal to, new markets.

We plan to grow our device sales

in the coming years through multiple strategies including expanding our sales efforts domestically and globally and continuing to enhance

the underlying technology and applications for life sciences research related to our Rebel and ZipChip Interface.

As part of this strategy

and in an effort to increase the rate of sales of our devices, we increased our sales force by 60% from January 1, 2019 through December 31,

2020, with 16 commissionable sales representatives as of December 31, 2020.

We regularly solicit feedback from our customers and

focus our research and development efforts on enhancing our devices and enabling our customers to use additional applications that address

their needs, which we believe in turn helps to drive additional sales of our devices and consumables.

Our sales process varies considerably

depending upon the type of customer to whom we are selling.

Historically, our handheld devices have been used by state, federal and foreign

governments and governmental agencies.

Our sales process with government customers is often long and involves multiple levels of approvals,

testing and, in some cases, trials.

Device orders from a government customer are typically large orders and can be impacted by the timing

of their capital budgets.

As a result, the revenue for our handheld devices can vary significantly from period-to-period and has been

and may continue to be concentrated in a small number of customers in any given period.

Our desktop devices are typically

used by the pharmaceutical, biotechnology and academia markets.

Our sales cycles within these markets tend to vary based on the size of

the customer and the number of devices they purchase.

Our shortest sales cycles are typically for small laboratories and individual researchers

where, in some cases, we receive purchase orders from these customers within three months.

Our sales process with other institutions can

be longer with most customers submitting purchase orders within six to twelve months.

Given the variability of our sales cycle, we have

in the past experienced, and likely will in the future experience, fluctuations in our desktop device sales on a period-to-period basis.

Additionally, we have experienced and may continue to experience the impact of laboratory shutdowns related to COVID-19 on device and

consumable sales to these markets.

Recurring revenue

We regularly assess trends relating

to recurring revenue which includes consumables and services based on our product offerings, our customer base and our understanding of

how our customers use our products.

Consumables and service revenue was 14% and 15% of total product and service revenue for the years

ended December 31, 2020 and 2019, respectively.

Our recurring revenue as a percentage of total product and service revenue will vary

based upon new device placements in the period.

As our device installed base expands, recurring revenue on an absolute basis is expected

to increase and over time should be an increasingly important contributor to our revenue.

Revenue from the sales of consumables

will vary by type of device.

We expect that consumables and service revenue as a percentage of the original device price to be higher

for our desktop devices (Rebel and ZipChip Interface) than for our handheld device (MX908).

While we sell single-use swab samplers for

MX908 to be used in liquid and solid materials analysis, there are a number of other applications that the MX908 can be used for that

do not require consumables.

Rebel and ZipChip Interface require consumables kits for all areas of operations.

Currently, Rebel customers,

who are actively utilizing the device, are consuming on average one 200-sample kit per month;

however, Rebel is a new product and purchasing

patterns related to our consumables kits are evolving.

We expect that the number of kits sold per month will vary over the short term.

In time, we expect Rebel consumables kits sales to become more consistent as our installed base grows and our customers establish usage

At maximum potential capacity, with continuous operation, the Rebel can consume approximately one 200-sample kit per day.

Revenue mix and gross margin

Our revenue is derived from sales

of our devices, consumables and services.

There will be fluctuations in mix between devices and consumables from period-to-period.

time, as our device installed base grows and we see adoption of Rebel, we expect consumables revenue to constitute a larger percentage

of product and service revenue.

However, the percentage will be subject to fluctuation based upon our handheld sales in a period.

our selling price and, consequently, our margins, are higher for those devices and consumables that we sell directly to customers as compared

to those that we sell through distributors.

While we expect the mix of direct sales as compared to sales through distributors to remain

relatively constant in the near term, we are currently evaluating increasing our direct sales capabilities in certain geographies.

Future device and consumable selling

prices and gross margins may fluctuate due to a variety of factors, including the introduction by others of competing products and solutions.

We aim to mitigate downward pressure on our average selling prices by increasing the value proposition offered by our devices and consumables,

primarily by expanding the applications for our devices and increasing the quantity and quality of data that can be obtained using our

Product adoption

We monitor our customers’

stage of adoption of our products to provide insight into the timing of future potential sales and to help us formulate financial projections.

Typical stages of adoption include testing, trials, pilot and deployment as follows:

Testing—a customer is actively engaged with internal or external testing of our products.

This may include an onsite or virtual

demonstration with a salesperson, a customer submitting samples for testing in one of our facilities or testing by a third party.

Trials—a customer has committed to a trial of one of our products, which may include a defined

period to assess functionality of the device in their operational environment (in the field or onsite within the customer’s facility).

Pilot—a customer commits to the purchase of an initial quantity of devices to deploy in their operational environment to assess

a broader opportunity that may grow to tens or hundreds of devices.

Deployment—a customer has completed testing, a trial, and/or a pilot and intends to roll out the

technology across their enterprise (either at a site or throughout the entire organization).

Key Business Metrics

We regularly review the number

of product placements and cumulative product placement as key metrics to evaluate our business, measure our performance, identify trends

affecting our business, formulate financial projections, and make strategic decisions.

We believe that these metrics are representative

of our current business;

however, we anticipate these will change or may be substituted for additional or different metrics as our business

During the years ended December 31,

2020 and 2019, our product placements (units recognized as revenue) by device type were as follows:

Year Ended December 31,

Product Placements:

ZipChip Interface

Total placements

The number of product placements

vary considerably from period-to-period due to the type and size of our customers and concentrations among larger government customers

as described above.

We also have been impacted by laboratory shutdowns related to COVID-19.

We expect continued fluctuations in our period-to-period

number of product placements.

As of December 31, 2020 and

2019, our cumulative product placements consisted of the following number of devices:

Cumulative Product Placements:

ZipChip Interface

Cumulative Product Placements

of Our Results of Operations

Product and Service Revenue

We generate product and service

revenue from the sale of our devices and recurring revenue from the sale of consumables and services.

Device sales accounted for 86% and

85% of our product and service revenue for the years ended December 31, 2020 and 2019, respectively.

Consumables and service revenue

accounted for 14% and 15% of our product and service revenue for the years ended December 31, 2020 and 2019, respectively.

Our current device offerings include:

Handheld devices—MX908;

Desktop devices—Rebel and ZipChip Interface.

We sell our devices directly to

customers and through distributors.

Each of our device sales drives various streams of recurring revenue comprised of consumable product

sales and service revenue.

Our consumables consist of:

MX908—accessories and swabs;

Rebel—consumables kit with a microfluidic chip and standards;

ZipChip Interface—microfluidic chip, reagent and assay kits.

Rebel and ZipChip Interface consumables

can only be used with our devices and there are no alternative after-market options that can be used as a substitute.

Each chip is used

for a defined number of samples (or runs).

We recognize revenue from the sale of consumables as the consumable products are shipped.

We also offer our customers extended

warranty and service plans.

Our extended warranty and service plans are offered for periods beyond the standard one-year warranty that

all of our customers receive.

These extended warranty and service plans generally have fixed fees and terms ranging from one additional

year to four additional years.

We recognize revenue from the sale of extended warranty and service plans over the respective coverage

period, which approximates the service effort provided by us.

We expect consumables and service

revenue to increase in future periods as our installed base grows and we are able to generate recurring sales.

Licenses and contract revenue

License and contract agreements

are arrangements whereby we provide engineering services for the development of our technology platform for specific programs or new and

expanding applications of our technologies for future commercial endeavors.

Our license and contract agreements are with the U.S.

and commercial entities (who may be contracting with the government).

Contracts typically include compensation for labor effort and materials

incurred related to the deliverables under the contract.

Our license and contract revenue was primarily related to one customer during

the years ended December 31, 2020 and 2019.

During the years ended December 31,

2020 and 2019, our revenue was comprised of revenue from the following sources:

Year Ended December 31,

(in thousands)

Product and service revenue:

Device sales revenue

Consumables and service revenue

Total product and service revenue

License and contract revenue

Total revenue

Our product and service revenue

is comprised of sales of our handheld and desktop devices and related consumables and service contracts to end-users in the government,

pharmaceuticals/biotechnology and academia markets as follows:

Year Ended December 31,

(in thousands)

Product and Service Revenue by Device:

Total product and service revenue

Year Ended December 31,

(in thousands)

Product and Service Revenue by Market:

Pharmaceutical/Biotechnology

Total product and service revenue

We sell our products primarily

in the United States;

however, we are expanding our global sales efforts as we see traction in our products and assess market needs.

majority of our international sales are through a distribution channel.

Cost of Revenue, Gross Profit and Gross Margin

Product cost of revenue primarily

consists of costs for raw material parts and associated freight, shipping and handling costs, royalties, contract manufacturer costs,

salaries and other personnel costs, overhead and other direct costs related to those sales recognized as product revenue in the period.

Cost of revenue for services primarily

consists of salaries and other personnel costs, travel related to services provided, facility costs associated with training, warranties

and other costs of servicing equipment on a return-to-factory basis and at customer sites.

License and contract cost of revenue primarily

consists of salaries and other personnel costs, materials, travel and other direct costs related to the revenue recognized in the period.

The license and contract cost of revenue will vary based upon the type of contract, including whether it is primarily for development

services or for both materials and development services.

We expect that our cost of revenue

will increase or decrease to the extent that our revenue increases and decreases and depending on how many contracts we have ongoing at

any given point in time and the stage of those contracts.

Gross profit is calculated as

revenue less cost of revenue.

Gross profit margin is gross profit expressed as a percentage of revenue.

Our gross profit in future periods

will depend on a variety of factors, including:

market conditions that may impact our pricing, sales mix among devices, sales mix changes

among consumables, excess and obsolete inventories, our cost structure for manufacturing operations relative to volume, and product warranty

Our gross profit in future periods will vary based upon our channel mix and may decrease based upon our distribution channels

and the potential to establish original equipment manufacturing channels for certain components of our technology platform which would

have a lower gross margin.

We expect that our gross profit

margin for product and service will increase over the long term as our sales and production volumes increase and our cost per unit decreases

due to efficiencies of scale.

We intend to use our design, engineering and manufacturing capabilities to further advance and improve the

efficiency of our manufacturing, which we believe will reduce costs and increase our gross margin.

We expect that our gross profit margin

for license and contract will remain consistent for our contracts that are cost reimbursement contracts.

Operating Expenses

Research and development expenses

consist primarily of costs incurred for our research activities, product development, hardware and software engineering and consultant

services and other costs associated with our technology platform and products, which include:

employee-related expenses, including salaries, related benefits and stock-based compensation expense

for employees engaged in research and hardware and software development functions;

the cost of maintaining and improving our product designs, including third party development costs for

new products and materials for prototypes;

research materials and supplies;

facilities, depreciation and other expenses, which include direct and allocated expenses for rent and

maintenance of facilities and insurance.

We believe that our continued

investment in research and development is essential to our long-term competitive position and expect these expenses to increase in future

Selling, general and administrative expenses

Selling, general and administrative

expenses consist primarily of salaries and other personnel costs, and stock-based compensation for our sales and marketing, finance, legal,

human resources and general management, as well as professional services, such as legal, audit and accounting services.

We expect selling,

general and administrative expenses to increase in future periods as the number of sales, sales application specialists and marketing

and administrative personnel grows and we continue to introduce new products, invest in demonstration equipment, broaden our customer

base and grow our business.

We also anticipate that we will incur increased accounting, audit, legal, regulatory, compliance and director

and officer insurance costs as well as investor and public relations expenses associated with operating as a public company.

Other Income (Expense)

Interest expense

Interest expense consists of interest

expense associated with outstanding borrowings under our loan and security agreements and the amortization of deferred financing costs

and debt discounts associated with such arrangements.

In 2019, our interest expense also included our loss on debt extinguishment resulting

from the early repayment of debt and end of term payment with proceeds from a new debt facility.

Other income (expense), net

Other income (expense),

net consists primarily of the change in fair value of our redeemable convertible preferred stock warrants.

We classified warrants for

the purchase of shares of our redeemable convertible preferred stock as a liability on our consolidated balance sheets as these warrants

were freestanding financial instruments that may have required us to transfer assets upon exercise.

The warrant liability was initially

recorded at fair value upon the date of issuance of each warrant and was subsequently remeasured to fair value at each reporting date.

Changes in the fair value of the warrant liability were recognized as a component of other income (expense), net in the consolidated statements

of operations and comprehensive loss.

On December 22, 2020, immediately prior to the closing of our IPO, the warrants to purchase

preferred stock were converted into warrants to purchase common stock, and the fair value of the warrant liability at that time was reclassified

to additional paid-in capital.

As a result, subsequent to the closing of our IPO, we no longer remeasure the fair value of the warrant

liability at each reporting date.

Other income (expense), net also

consists of miscellaneous other income and expense unrelated to our core operations.

Provision for Income Taxes

We have not recorded any

federal or state income tax benefits for the net operating losses we have incurred in each year or for the research and

development tax credits we generated in the United States, as we believe, based upon the weight of available evidence, that it is

more likely than not that all of our net operating loss carryforwards and tax credits will not be realized.

As of December 31,

2020, we had U.S.

federal and state net operating loss carryforwards of $59.2 million and $35.9 million, respectively, which may be

available to offset future taxable income and begin to expire in 2032 and 2025, respectively, of which $24.8 million of federal net operating losses do not expire.

As of December 31, 2020, we

also had U.S.

federal and state research and development tax credit carryforwards of $4.1 million and $2.3 million, respectively,

which may be available to offset future tax liabilities and begin to expire in 2032 and 2029, respectively.

We have recorded a full

valuation allowance against our net deferred tax assets at each balance sheet date.

Results of Operations

The results of operations

presented below should be reviewed in conjunction with the consolidated financial statements and notes included elsewhere in this Annual

Report on Form 10-K .

The following tables set forth our results of operations for the periods presented:

Comparison of the Years ended December 31,

2020 and 2019

The following table summarizes our results of

operations for the years ended December 31, 2020 and 2019:

Year Ended December 31,

(in thousands)

Product and service revenue

License and contract revenue

Total revenue

Cost of revenue:

Product and service cost of revenue

License and contract cost of revenue

Total cost of revenue

Operating expenses:

Research and development

Selling, general and administrative

Total operating expenses

Loss from operations

Other income (expense):

Interest expense

Other income (expense), net

Total other expense, net

Revenue, Cost of revenue and Gross profit

Product and service

Year Ended December 31,

(dollars in thousands)

Product and service revenue

Product and service cost of revenue

Gross profit margin

Our product and service revenue

is comprised of revenue from sales of devices and related consumables and service as follows:

Year Ended December 31,

(dollars in thousands)

Device sales revenue

Consumables and service revenue

Total product and service revenue

Product and service revenue increased

by $9.4 million, or 61%, for the year ended December 31, 2020, compared to the year ended December 31, 2019.

Device sales accounted

for 86% and 85% of our product and service revenue for the years ended December 31, 2020 and 2019, respectively.

Consumables and

service revenue accounted for 14% and 15% of our product and service revenue for the years ended December 31, 2020 and 2019, respectively.

The increase in device sales of $8.2 million was primarily due to an increase of $7.1 million in handheld device sales driven by

180 MX908s delivered to a government customer in the year ended December 31, 2020.

We also had a $2.3 million increase in device

sales related to our desktop products primarily due to a 20 unit increase in Rebel sales in the year ended December 31, 2020, partially

offset by a decrease in sales of our ZipChip Interfaces.

We commercially launched Rebel in the fourth quarter of 2019.

The decrease of

17 ZipChip Interfaces was primarily a result of laboratory shutdowns and reduced capital spend related to COVID-19.

Consumables and service

revenue increased by $1.2 million primarily due to an increase in service revenue of $0.7 million and an increase in Rebel kit

Product and service cost of revenue

increased by $2.0 million, or 22%, for the year ended December 31, 2020, compared to the year ended December 31, 2019.

in product and service cost of revenue was primarily related to a $2.5 million increase in materials and manufacturing costs related to

volume increases, partially offset by a $0.5 million decrease in salaries and related costs as a result of our temporary furloughs related

Product and service gross profit

increased by $7.4 million, or 118%, and gross profit margin increased by 14 percentage points for the year ended December 31, 2020

as compared to the year ended December 31, 2019, primarily due to MX908 sales volume which leveraged our fixed costs related to our

manufacturing facility.

License and contract

Year Ended December 31,

(dollars in thousands)

License and contract revenue

License and contract cost of revenue

Gross profit margin

License and contract revenue decreased

by $0.5 million, or 19%, for the year ended December 31, 2020, compared to the year ended December 31, 2019.

License revenue

decreased by $0.3 million due to a contract that ended in 2019.

There was also a decrease in revenue related to activities under our subcontract

agreement with a commercial entity that holds a U.S.

government prime contract being $0.2 million lower in the year ended December 31,

2020 compared to the year ended December 31, 2019.

License and contract cost of revenue

increased $0.1 million, or 17% for the year ended December 31, 2020, compared to the year ended December 31, 2019 due to the

mix within our contracts and specific costs incurred to support the contract deliverables.

License and contract gross profit

decreased by $0.6 million, or 32%, and gross profit margin decreased by 12 percentage points for the year ended December 31, 2020

as compared to the year ended December 31, 2019, primarily due to the reduction in license revenue and the mix in contract deliverables

during the year ended December 31, 2020.

Operating Expenses

Research and development

Year Ended December 31,

(dollars in thousands)

Research and development expenses

Percentage of total revenue

Our research and development expenses

were $8.2 million for the year ended December 31, 2020, a decrease of $0.8 million from research and development expenses

of $9.0 million for the year ended December 31, 2019.

The decrease was due primarily to a $0.5 million decrease in materials

spend and consulting costs primarily associated with the development and testing of our Rebel as we commercially launched the Rebel in

the fourth quarter of 2019, and a $0.2 million decrease in travel expenses related to COVID-19.

Selling, general and administrative expenses

Year Ended December 31,

(dollars in thousands)

Selling, general and administrative expenses

Percentage of total revenue

Our selling, general and administrative

expenses were $12.5 million for the year ended December 31, 2020, an increase of $1.2 million from selling, general and administrative

expenses of $11.3 million for the year ended December 31, 2019.

The increase was due primarily to a $1.8 million increase in salaries

and related costs as a result of expanding our sales force and sales commissions for increased product and service revenue during the

year ended December 31, 2020 and a $1.3 million increase in professional fees related to our preparations to operate as a public

company, supporting our growing business and market research support.

These investments were partially offset by a $0.7 million decrease

in travel expenses and a $0.2 million decrease in tradeshows and related marketing, both mainly related to COVID-19, a $0.3 million reduction

in legal fees related to an abandoned debt refinancing during the first quarter of 2019, and a $0.7 million decrease related to our commercial

services agreement liability due to the fact that with our IPO, there is no longer a requirement to make any future payments under this

agreement and therefore the fair value of the liability is zero.

Other Income (Expense)

Interest expense

Interest expense was $1.0 million

for the year ended December 31, 2020, a decrease of $0.5 million from interest expense of $1.5 million for the year ended

December 31, 2019.

Interest expense for the year ended December 31, 2019 included a loss on extinguishment of debt of $0.3 million.

Interest expense also decreased due to a lower interest rate on our new credit facility entered into in August 2019 compared to our

previous debt facility, partially offset by an increase in debt.

Our previous loan and security agreement was outstanding through August 2019,

when we terminated and repaid in full the borrowings under that agreement of $10.0 million and entered into a new credit agreement

with Signature Bank for borrowings of $15.0 million.

Other income (expense), net

Other income (expense), net included

other expense of $6.1 million for the year ended December 31, 2020 and other income of $0.1 million for the year ended December 31,

2019 consisting of the change in the fair value of our preferred stock warrant liability during these periods.

The increase in fair value

of the warrant liability during the year ended December 31, 2020 was primarily due to the increase in the value of the underlying

shares from January 1, 2020 through December 22, 2020, the date of the conversion of the warrants.

On December 22, 2020,

immediately prior to the closing of our IPO, the warrants to purchase preferred stock were converted into warrants to purchase common

stock, and the fair value of the warrant liability at that time was reclassified to common stock.

As a result, subsequent to the closing

of our IPO, we no longer remeasure the fair value of the warrant liability at each reporting date.

Other income (expense), net also

included interest income of $0.1 million and $0.2 million for the years ended December 31, 2020 and 2019, respectively.

Liquidity and Capital Resources

Since our inception,

we have incurred significant operating losses.

To date, we have funded our operations primarily with proceeds from sales of redeemable

preferred stock, borrowings under loan agreements and revenue from sales of our products and services and license and contract revenue

and, most recently, with proceeds from our IPO .

As of December 31, 2020, we had cash and cash equivalents

of $159.2 million.

We believe that our existing cash and cash equivalents will enable us to fund our operating expenses, capital expenditure

requirements and debt service payments into 2023.

We have based this estimate on

assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect.

Our future funding

requirements will depend on many factors, including:

market uptake of our products, including the Rebel, which we launched commercially in the fourth quarter of 2019;

the cost and timing of establishing additional sales, marketing and distribution capabilities;

the cost of our research and development activities and timely launch of new features and products

the success of our existing collaborations and our ability to enter into additional collaborations in the future;

the effect of competing technological and market developments;

the level of our selling, general and administrative expenses.

As of December 31, 2020,

we had a Loan and Security Agreement entered into in August 2019, or the 2019 Loan, with Signature Bank, or the Lender.

Loan provided for up to $15.0 million in borrowings, of which the entire $15.0 million was borrowed in 2019.

The 2019 Loan called for

monthly interest-only payments through February 28, 2021, followed by 30 monthly payments of principal and interest commencing March 1,

The 2019 Loan was scheduled to mature on August 1, 2023 and bore interest at an annual rate equal to the greater of (i) 0.5%

plus the Wall Street Journal prime rate, or (ii) 6.0%.

The 2019 Loan was secured by a lien on our assets.

The 2019 Loan included

financial covenants and required us to maintain a balance of unrestricted cash at the Lender in an amount not less than $3.0 million.

The 2019 Loan also contained negative covenants restricting our activities, including limitations on dispositions, mergers or acquisitions;

encumbering or granted in a security interest in our intellectual property, incurring indebtedness or liens, paying dividends, making

certain investments and certain other business transactions.

As of December 31, 2020, we were in compliance with all covenants under

the 2019 Loan.

On March 11, 2021, we entered

into an Amended and Restated Loan and Security Agreement, or the 2021 Revolver, with the Lender to replace the 2019 Loan.

This agreement

created a revolving line of credit totaling $25.0 million and eliminated the existing term loan.

Borrowings under the revolving line of

credit bear interest at an annual rate equal to the greater of (i) one-half percent (0.5%) above the prime rate or (ii) 4.0%

and mature on March 11, 2024.

Borrowings are collateralized by substantially all of our property, excluding intellectual property,

which is subject to a negative pledge.

The 2021 Revolver subjects us to various customary covenants, including requirements as to financial

reporting and financial covenants (including an unrestricted minimum cash level of $10.0 million), and restrictions on our ability to

dispose of our business or property, to change our line of business, to liquidate or dissolve, to enter into any change in control transaction,

to merge or consolidate with any other entity or to acquire all or substantially all the capital stock or property of another entity,

to incur additional indebtedness, to incur liens on our property, to pay any dividends or make other distributions on capital stock other

than dividends payable solely in capital stock, to redeem capital stock, to enter into in-bound licensing agreements, to engage in transactions

with affiliates, and to encumber our intellectual property.

Events of default under the 2021 Revolver include failure to make payments

when due, insolvency events, failure to comply with covenants or material adverse events with respect to us.

Upon the occurrence of an

event of default and until such event of default is no longer continuing, the annual interest rate will be 5.0% above the otherwise applicable

The terms of the 2021 Revolver

required that the existing term loan outstanding under the 2019 Loan be repaid with an advance under the line of credit.

on March 11, 2021, we used $14.5 million of proceeds from the revolving line of credit to repay all amounts then due on the existing

We may seek additional funding

through private or public equity financings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing

arrangements.

We cannot assure you that we will be able to obtain additional funds on acceptable terms, or at all.

If we raise additional

funds by issuing equity or equity-linked securities, our stockholders may experience dilution.

Future debt financing, if available, may

involve covenants, in addition to our existing covenants, restricting our operations or our ability to incur additional debt or potentially

limiting our ability to obtain new debt financing or the refinance of our existing debt.

Any debt or equity financing that we raise may

contain terms that are not favorable to us or our stockholders.

If we raise additional funds through collaboration and licensing arrangements

with third parties, it may be necessary to relinquish some rights to our technologies or our products, or grant licenses on terms that

are not favorable to us.

If we do not have or are not able to obtain sufficient funds, we may have to delay development or commercialization

of our products.

We also may have to reduce marketing, customer support or other resources devoted to our products or cease operations.

The following table summarizes

our sources and uses of cash for each of the periods presented:

Year Ended December 31,

(in thousands)

Cash provided by (used in) operating activities

Cash used in investing activities

Cash provided by financing activities

Net increase in cash and cash equivalents

Operating Activities

During the year ended December 31,

2020, net cash provided by operating activities was $4.1 million, primarily consisting of net cash provided by changes in our operating

assets and liabilities of $10.0 million and non-cash charges of $6.9 million, partially offset by our net loss of $12.8 million.

provided by changes in our operating assets and liabilities for the year ended December 31, 2020 consisted primarily of an increase

in deferred revenue of $9.6 million and an increase in accounts payable and accrued expenses of $2.0 million, partially offset by a $1.8

million increase in accounts receivable and a $0.2 million increase in prepaid expenses and other current and non-current assets.

During the year ended December 31,

2019, operating activities used $11.0 million of cash, primarily resulting from our net loss of $13.4 million, partially offset by non-cash

charges of $1.6 million and net cash provided by changes in our operating assets and liabilities of $0.7 million.

Net cash provided by

changes in our operating assets and liabilities for the year ended December 31, 2019 consisted primarily of a $2.1 million decrease

in unbilled receivables, an increase in deferred revenue of $0.7 million and a $0.7 million increase in the net effect of our right-of-use

operating assets and operating lease liabilities, partially offset by a $1.9 million increase in inventory and a $0.9 million increase

in accounts receivable.

Investing Activities

During the year ended December 31,

2020, net cash used in investing activities was less than $0.1 million, due to purchases of property and equipment.

During the year ended December 31,

2019, net cash used in investing activities was $0.4 million, due to purchases of property and equipment.

Financing Activities

Cash provided by

financing activities during the year ended December 31, 2020, was $137.2 million, consisting primarily of net proceeds of $139.0

million from the issuance of common stock in our IPO that closed in December 2020, partially offset by payments of offering costs

related to our IPO.

We also received proceeds from a Paycheck Protection Program loan of $2.2 million in the second

quarter of 2020, which we then fully repaid in the same period.

During the year ended December 31,

2019, net cash provided by financing activities was $22.2 million, consisting primarily of net proceeds from the issuance of our Series E

redeemable preferred stock of $17.3 million and net proceeds from borrowings under our credit agreement with Signature Bank of $15.0 million,

partially offset by the repayment of our previously outstanding borrowings under our loan and security agreement of $10.0 million.

Contractual Obligations and Commitments

The following table summarizes

our contractual obligations as of December 31, 2020, and the effects that such obligations are expected to have on our liquidity

and cash flows in future periods:

Payments Due by Period

(in thousands)

Operating lease commitments(1)

Debt obligations(2)

(1) Amounts in the table reflect payments due for our lease of office and manufacturing space under operating lease agreements that expire

at various dates through September 2025.

(2) Amounts in the table reflect the contractually required principal and interest payments payable under our 2019 Loan, under which borrowings

bear interest at a variable rate.

For purposes of this table, the interest due under the Credit Agreement was calculated using an assumed

interest rate of 6.0% per annum, which was the interest rate in effect as of December 31, 2020.

In connection with the refinancing

of the outstanding borrowings under the 2019 Loan in March 2021, our existing debt obligations were repaid with proceeds from our

2021 Revolver, which matures in March 2024 and bears interest at an annual rate equal to the

greater of (i) one-half percent (0.5 %) above the prime rate or (ii) 4.0% .

Purchase orders or contracts for the purchase

of supplies and other goods and services are not included in the table above.

We are not able to determine the aggregate amount of such

purchase orders that represent contractual obligations, as purchase orders may represent authorizations to purchase rather than binding

Our purchase orders are based on our current procurement or development needs and are fulfilled by our vendors within short

time horizons.

We have also entered into license agreements under

which we are obligated to make royalty payments in the 2% to 5% range, subject to a minimum royalty fee of $0.1 million annually.

not included future payments under these agreements in the table of contractual obligations above since the payment obligations under

these agreements are contingent upon generating product sales.

We have not included annual minimum royalty payments in the table above

because, although the amounts and timing are known, we cannot currently determine the final termination date of the agreement and, as

a result, we cannot determine the total amounts of such payments we will be required to make under the agreements.

Critical Accounting Policies and Significant Judgments and Estimates

Our consolidated financial statements

are prepared in accordance with generally accepted accounting principles in the United States, or GAAP.

The preparation of our consolidated

financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities,

revenue, costs and expenses and the disclosure of contingent assets and liabilities in our consolidated financial statements.

our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances,

the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent

from other sources.

We evaluate our estimates and assumptions on an ongoing basis.

Our actual results may differ from these estimates

under different assumptions or conditions.

While our significant

accounting policies are described in more detail in Note 2 to our consolidated financial statements included elsewhere in this Annual

Report on Form 10-K , we believe that the following accounting policies are those most critical to the

judgments and estimates used in the preparation of our consolidated financial statements.

Revenue Recognition

We recognize revenue from sales

to customers under Accounting Standards Codification 606, Revenue from Contracts with Customers, or ASC 606 by applying the following

(1) identification of the contract, or contracts, with a customer, (2) identification of the performance obligations

in the contract, (3) determination of the transaction price, (4) allocation of the transaction price to the performance obligations

in the contract and (5) recognition of revenue when, or as, performance obligations are satisfied.

Product and Service Revenue

We derive revenue primarily from

the sale of handheld and desktop products and related consumables and services.

Revenue is recognized when control of the promised products

consumables or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange

for those products, consumables or services (the transaction price).

A performance obligation is a promise in a contract to transfer a

distinct product or service to a customer and is the unit of accounting under ASC 606.

For devices and consumables sold by us, control

transfers to the customer at a point in time.

To indicate the transfer of control, we must have a present right to payment, legal title

must have passed to the customer, the customer must have the significant risks and rewards of ownership, and where acceptance is other

than perfunctory, the customer must have accepted the product or service.

Our principal terms of sale are freight on board, or FOB, shipping

point, or equivalent, and, as such, we primarily transfer control and record revenue for product sales upon shipment.

Sales arrangements

with delivery terms that are not FOB shipping point are not recognized upon shipment and the transfer of control for revenue recognition

is evaluated based on the associated shipping terms and customer obligations.

If a performance obligation to the customer with respect

to a sales transaction remains to be fulfilled following shipment (typically installation or acceptance by the customer), revenue recognition

for that performance obligation is deferred until such commitments have been fulfilled.

For extended warranty and support, control transfers

to the customer over the term of the arrangement.

Revenue for extended warranty and support is recognized based upon the period of time

elapsed under the arrangement as this period represents the transfer of benefits or services under the agreement.

For a contract with multiple performance

obligations, we allocate the contract’s transaction price to each performance obligation on a relative standalone selling price

basis using our best estimate of the standalone selling price of each distinct product or service in the contract.

The primary method

used to estimate standalone selling price is the price observed in standalone sales to customers;

however, when prices in standalone sales

are not available we may use third party pricing for similar products or services or estimate the standalone selling price, which is set

by management.

Allocation of the transaction price is determined at the contract’s inception.

License and Contract Revenue

We generate revenue from short

and long-term contracts associated with the design and development and delivery of detection devices or related design and support services.

To date, these contracts are primarily with the U.S.

government or commercial entities contracting with the U.S.

government, but we have

also had such contracts with commercial partners.

Our contracts with the U.S.

government typically are subject to the Federal Acquisition

Regulation, or FAR, and are priced based on estimated or actual costs of producing goods or providing services.

The FAR provides guidance

on the types of costs that are allowable in establishing prices for goods or services provided under U.S.

government contracts.

government contracts is based on the specific negotiations with each customer.

Under the typical payment terms

government fixed-price contracts, the customer pays in accordance with the terms of the specific agreement, but generally through

progress payments.

If these progress payments are made in advance, these payments are recorded as a contract liability, classified as

deferred revenue within the accompanying consolidated balance sheet, until we provide the underlying services.

government cost-type

contracts, the customer generally pays for actual costs incurred within a short period of time.

For contracts with commercial partners,

payments are made in accordance with the terms of the specific agreement.

For agreements which call for milestone payments, to the extent

we do not conclude that it is probable that a significant reversal of cumulative revenue will occur, a contract asset is generated until

we are permitted to bill for costs incurred, which is classified as unbilled receivables in the accompanying consolidated balance sheet.

In some cases, payments received in advance under license agreements are recorded as deferred revenue and recognized over the respective

contract term, absent any other performance obligations.

Generally, revenue for long-term

contracts is recognized based upon the cost-to-cost measure of progress, provided that we meet the criteria associated with transferring

control of the good or service over time such as not creating an asset with an alternative use and having an enforceable right to payment

for completed performance.

However, we evaluate the proper revenue recognition on a contract by contract basis, as each contract generally

contains terms specific to the underlying agreement which result in differing performance obligations and payment terms (cost plus, fixed

price agreements among others).

For revenue recognized under the cost-to-cost measure of progress basis, we continually assess total costs

expected to be incurred and if such costs require adjustment to the measure of progress, we record such adjustment as a change in estimate

on a cumulative catch-up basis in the period of adjustment.

We include the unconstrained amount

of consideration in the transaction price.

The amount included in the transaction price is constrained to the amount for which it is probable

that a significant reversal of cumulative revenue recognized will not occur.

At the end of each subsequent reporting period, as required

by ASC 606, we re-evaluate the estimated consideration included in the transaction price and any related constraint, and if necessary,

adjust our estimate of the overall transaction price.

Any such adjustments are recorded on a cumulative catch-up basis in the period of

Distribution Channels

A majority of our revenue is generated

by sales in conjunction with our distribution partners, such as our international distributors and in the United States for end customers

where a government contract is required or a customer has a pre-existing relationship.

When we transact with a distribution partner, our

contractual arrangement is with the partner and not with the end-use customer.

Whether we transact business with and receive the order

from a distribution partner or directly from an end-use customer, our revenue recognition policy and resulting pattern of revenue recognition

for the order are the same.

Stock-Based Compensation

We measure stock-based option

awards granted to employees, consultants and directors based on their fair value on the date of grant using the Black-Scholes option-pricing

Compensation expense for those awards is recognized, net of estimated forfeitures, over the requisite service period, which is

generally the vesting period of the respective award.

The straight-line method of expense recognition is applied to all awards with service-only

conditions, while the graded vesting method is applied to all grants with both service and performance conditions.

The Black-Scholes option-pricing

model uses as inputs the fair value of our common stock and assumptions we make for the volatility of our common stock, the expected term

of our common stock options, the risk-free interest rate for a period that approximates the expected term of our common stock options,

and our expected dividend yield.

Valuation of Warrants to Purchase Preferred Stock

We classified warrants to purchase

shares of our redeemable preferred stock as liabilities on our balance sheets as these warrants were free-standing financial instruments

that could have required us to transfer assets upon exercise.

The warrant liability associated with each of these warrants was initially

recorded at fair value on the issuance date of each warrant and was subsequently remeasured to fair value at each balance sheet date.

Changes in fair value of the warrants were recognized as a component of other income (expense) in our consolidated statements of operations

and comprehensive loss.

We recognized changes in fair value of each warrant comprising the warrant liability until each respective warrant

was exercised, expired or qualified for equity classification.

We utilized the Black-Scholes

option-pricing model, which incorporated assumptions and estimates to value the preferred stock warrants.

We assessed these assumptions

and estimates on a quarterly basis as additional information impacting the assumptions was obtained.

Estimates and assumptions impacting

the fair value measurement included the fair value per share of the underlying redeemable preferred stock, the remaining contractual term

of the warrants, risk-free interest rate, expected dividend yield and expected volatility of the price of the underlying preferred stock.

We determined the fair value per share of the underlying preferred stock by taking into consideration our most recent sales of our preferred

stock as well as additional factors that we deemed relevant.

Prior to our IPO, we were a private company and lacked company-specific historical

and implied volatility information of our stock.

Therefore, we estimated expected stock volatility based on the historical volatility

of publicly traded peer companies for a term equal to the remaining contractual term of the warrants.

The risk-free interest rate was

determined by reference to the U.S.

Treasury yield curve for time periods approximately equal to the remaining contractual term of the

We have estimated a 0% dividend yield based on the expected dividend yield and the fact that we have never paid or declared

On December 22, 2020, immediately

prior to the closing of our IPO, the warrants to purchase preferred stock were converted into warrants to purchase common stock, and the

fair value of the warrant liability at that time was reclassified to common stock.

As a result, subsequent to the closing of our IPO,

we no longer remeasure the fair value of the warrant liability at each reporting date.

Valuation of Inventory

Inventory is valued at the lower

of cost or net realizable value.

Cost is computed using the first-in, first-out method.

We regularly review inventory quantities on-hand

for excess and obsolete inventory and, when circumstances indicate, record charges to write down inventories to their estimated net realizable

value, after evaluating historical sales, future demand, market conditions and expected product life cycles.

Such charges are classified

as cost of revenue in the consolidated statements of operations and comprehensive loss.

Any write-down of inventory to net realizable

value creates a new cost basis.

Off-Balance Sheet Arrangements

We did not have during the periods presented,

and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the Securities

and Exchange Commission.

Recently Issued Accounting Pronouncements

A description of recently issued accounting pronouncements

that may potentially impact our financial position and results of operations is disclosed in Note 2 to our audited consolidated financial

statements appearing in Part II, Item 8 of this Annual Report on Form 10-K.

Inflation Risk

During the last two years, inflation and changing

prices have not had a material effect on our business.

We are unable to predict whether inflation or changing prices will materially affect

our business in the foreseeable future.

Quantitative and Qualitative Disclosures About Market

We are a smaller reporting company, as defined

in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, for this reporting period and are not required to provide the

information required under this item.

We did not purchase any of our registered equity securities during the period covered by this Annual Report on Form 10-K.

We have never declared or paid any cash dividends on our common stock or any other securities.

We anticipate that we will retain all available funds and any future earnings, if any, for use in the operation of our business and do not anticipate paying cash dividends in the foreseeable future.

Our ability to pay cash dividends is currently restricted by the terms of our 2021 Revolver with Signature Bank.

In addition, the terms of any future debt instruments may also materially restrict our ability to pay dividends on our common stock.

Payment of future cash dividends, if any, will be at the discretion of the board of directors after taking into account various factors, including our financial condition, operating results, current and anticipated cash needs, the requirements of current or then-existing debt instruments and other factors the board of directors deems relevant .

Not applicable.

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 5. Market for Registrant’s Common Equity