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Item 7. Management’s Discussion and Analysis

2025-03-07 compared with 2024-03-08 · 138 added, 163 removed, 341 unchanged (47% of the section changed)

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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 devices for point-of-need chemical and biochemical analysis.

Leveraging our proprietary mass spectrometry, or Mass Spec, microfluidics, and analytics and machine learning technologies, we make devices that are significantly smaller and more accessible than conventional laboratory instruments.

Our 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, pharma/biopharma, forensics and adjacent markets.

The term “products” as used in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” refers to the Maverick, MX908, Rebel, ZipChip Interface, and Maven and related sampling devices.

We have developed an innovative suite of purpose-built handheld and desktop devices for point-of-need chemical analysis.

Leveraging complementary analytical technologies including our proprietary mass spectrometry, or Mass Spec, microfluidics, and analytics and machine learning technologies, we make devices that are significantly smaller and more accessible than conventional laboratory instruments.

Our 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 forensics, bioprocessing, pharma/biopharma, life science research 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.

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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.

First responders also utilize our handheld devices to detect and identify thousands of hazardous bulk materials.

Our desktop devices are accelerating development and production of biotherapeutics by identifying and quantifying extracellular species in bioprocessing critical to cell health and productivity.

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

On August 3, 2022, we completed our acquisition of 100% of the registered share capital of Trace Analytics GmbH, renamed 908 Devices GmbH, pursuant to a share purchase and transfer agreement, for a total purchase price consideration of $17.3 million, comprised of (i) a $14.4 million initial cash payment, (ii) up to $2.0 million contingent cash consideration upon achievement of certain milestones over a twenty-four-month period and (iii) $0.9 million contingent pension liability holdback to be released upon discharging or transferring of such liability from 908 Devices GmbH.

908 Devices GmbH is a leading provider of online analysis systems for biotech applications in research, development and production.

908 Devices GmbH’s products are used for monitoring and control of complex processes in industrial pharmaceutical productions under continuous measurement conditions.

We expect to integrate acquired sampling technology within future product offerings.

The term “products” as used in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” refers to the MX908, ThreatID, ProtectIR, XplorIR, Rebel, ZipChip Interface, Maverick, Maven and related sampling devices.

On April 29, 2024, we entered into an Equity Purchase Agreement, or the Purchase Agreement, with RedWave, CAM3 HoldCo, LLC, a Connecticut limited liability company, or Seller Entity, each of the holders of outstanding equity interests of Seller Entity, or the Beneficial Sellers, and the other parties thereto, pursuant to which we purchased all of the outstanding equity interests of RedWave, and the transaction closed on the same day.

The purchase price included an initial payment of $45.0 million in cash and 1,497,171 unregistered shares of the Company’s common stock, which reflects closing adjustments relating to working capital, cash and debt adjustments.

The cash consideration is subject to additional working capital, cash, debt, and transaction expense adjustments.

RedWave is a leading provider of portable Fourier Transform Infrared, or FTIR, spectroscopic analyzers for rapid chemical identification of bulk materials.

FTIR, an optical spectroscopy technology, is highly regarded for its specific substance identification abilities across a broad range of bulk materials.

This acquisition provides us with an expanded portfolio of handheld chemical analysis devices for forensic workflows that quickly detect and identify unknown solids, liquids, vapors, and aerosols at the point of need.

In addition, RedWave bolsters our desktop portfolio with a line of accessories for pharma Process Analytical Technology, or PAT, and industrial Quality Control applications.

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 $50.2 million and $46.9 million for the years ended December 31, 2023 and 2022, respectively, and incurred net losses of $36.4 million and $33.6 million for those same years.

We generated revenue of $59.6 million and $50.2 million for the years ended December 31, 2024 and 2023, respectively,

and incurred net losses of $72.2 million and $36.4 million for those same years.

As of December 31, 2024, we had an accumulated deficit of $242.8 million.

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Further, we expect to incur additional costs associated with operating as a public company.

result, we may need additional funding for expenses related to our operating activities, including selling, general and administrative expenses and research and development expenses.

As a result, we may need 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.

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See “ Liquidity and Capital Resources .”

Restructuring and Strategic Re-Alignment

In November 2024, we announced an organizational restructuring to strengthen operational efficiencies.

As part of the organizational restructuring, and to reduce our annual cash burn, we implemented an approximately 11% workforce reduction to rationalize our bioprocessing and life science instrumentation investments in sales, marketing and research and development during the current slower growth market environment.

In addition, throughout 2025 we are planning to transition manufacturing operations from Massachusetts to North Carolina and Connecticut.

For the year ended December 31, 2024, we incurred approximately $0.7 million of expenses related to this organizational restructuring.

These expenses were substantially for cash payments of severance and employee benefits and were paid as of December 31, 2024.

This organizational restructuring was substantially completed in December 2024 and there were no related accrued liabilities on the consolidated balance sheets as of December 31, 2024.

The Company has not yet incurred any facility or other exit costs for transitioning manufacturing operations from Massachusetts to North Carolina and Connecticut, however we expect to incur costs related to moving our manufacturing operations in 2025.

Global Economic Conditions

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These developments and the potential worsening of other macro-economic conditions present risks for us, and our suppliers and customers.

For example, general inflation in the United States, EMEA and other geographies has recently been at levels not experienced in recent decades, which has led to higher prices for our raw materials and other inputs, as well as higher salaries and travel expenses, which could continue to negatively impact our business by increasing our cost of sales and operating expenses.

For example, general inflation in the United States, Europe, the Middle East and other geographies has recently been at levels not experienced in recent decades, which has led to higher prices for our raw materials and other inputs, as well as higher salaries and travel expenses, which could continue to negatively impact our business by increasing our cost of sales and operating expenses.

General inflation could also negatively impact our business if it leads to spending pressure and decreased available capital for our customers to deploy to purchase our products and services.

In addition, the United States Federal Reserve has raised, and may again raise, interest rates in response to concerns about inflation.

In addition, while the United States Federal Reserve has recently begun to lower interest rates, it has over the past couple of years raised, and may again raise, interest rates in response to concerns about inflation.

Inflation, together with increased interest rates, may cause our customers to reduce or delay orders for our goods and services thereby causing a decrease in or change in timing of sales of our products and services.

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We cannot accurately predict the full impact of current macroeconomic factors on the budgets and capital expenditures of our customers, or the timing of the normalization of customer purchasing patterns.

We are closely monitoring the ongoing military conflict between Russia and Ukraine, and the ongoing hostilities in Israel and the Gaza Strip.

Although we do not directly source any material products or supplies from Russia, Ukraine, Israel or the Gaza Strip, our customers in Europe and the Middle East could be impacted by extended conflicts or an escalation of these conflicts into neighboring countries.

We are closely monitoring the ongoing military conflict between Russia and Ukraine, and the ongoing hostilities in Israel, Lebanon, and the Gaza Strip and other locations in the Middle East.

Although we do not directly source any material products or supplies from Russia, Ukraine, Israel, Lebanon or the Gaza Strip, our customers in Europe and the Middle East could be impacted by extended conflicts or an escalation of these conflicts into neighboring countries.

While it is difficult to predict all of the impacts these global economic events and continued inflationary and interest rate pressures will have on our business and to predict the effects of these factors on our customers’ spending in the near term, we believe the long-term opportunity that we see for our products and services remain unchanged.

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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 Maverick, Rebel, ZipChip Interface, and Maven and related sampling devices.

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 bioprocessing and life sciences research related to our Maverick, Rebel, ZipChip Interface, and Maven and related sampling devices.

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.

Our handheld device orders relate to our MX908 as well as components for the Aerosol and Vapor Chemical Agent Detectors (“AVCAD”) sold to our channel partner.

Historically, our handheld devices have been used by state, federal and foreign governments and governmental agencies.

Our handheld device orders relate to our MX908, ThreatID, ProtectIR, and XplorIR, as well as components for the Aerosol and Vapor Chemical Agent Detectors (“AVCAD”) sold to our channel partner.

Historically, our handheld devices have been used by municipal, 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.

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.

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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.

Recurring revenue was 33% and 35% of total product and service revenue for the years ended December 31, 2023 and 2022, respectively.

Our recurring revenue as a percentage of total product and service revenue will vary based upon new device placements in the period.

Recurring revenue was 39% and 33% of total revenue for the years ended December 31, 2024 and 2023, respectively.

Our recurring revenue as a percentage of total 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 recurring revenue as a percentage of the original device price to be higher for our desktop devices (Rebel, ZipChip Interface, Maverick, Maven and related sampling devices) 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.

ThreatID, ProtectIR, and XplorIR do not have 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 approximately half a 200-sample kit per month.

however, Rebel is a relatively 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 patterns.

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

With continuous operation, the Rebel is capable of consuming approximately one 200-sample kit per day.

Maverick devices require consumables, probes and standards for all areas of operations.

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

Over 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.

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

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

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Year Ended December 31,

Product 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.

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Components 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 67% and 65% of our product and service revenue for the years ended December 31, 2023 and 2022, respectively.

Consumables and service revenue accounted for 33% and 35% of our product and service revenue for the years ended December 31, 2023 and 2022, respectively.

We generate product and service revenue from the sale of our devices and recurring revenue from the sale of consumables and contract revenue.

Device sales accounted for 61% and 67% of our total revenue for the years ended December 31, 2024 and 2023, respectively.

Consumables and contract revenue accounted for 39% and 33% of our total revenue for the years ended December 31, 2024 and 2023, respectively.

Our current device offerings include:

● Handheld devices—MX908 and AVCAD components;

● Desktop devices—Rebel, ZipChip Interface, Maverick, and Maven and related sampling devices.

● Handheld devices— MX908 ThreatID, ProtectIR, XplorIR and AVCAD components;

● Desktop devices—Rebel and ZipChip Interface, Maverick, and Maven and related sampling devices.

We sell our devices directly to customers and through channel partners.

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

Each of our device sales drives various streams of recurring revenue comprised of consumable and accessory product sales and service revenue.

Our consumables consist of:

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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.

Contract revenue

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.

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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, 2023 and 2022.

Our contract revenue was primarily related to one customer during the years ended December 31, 2024 and 2023.

During the years ended December 31, 2024 and 2023, our revenue was comprised of revenue from the following sources (in thousands):

Year Ended December 31,

Product and service revenue:

Device sales revenue

Consumables and service revenue

Total product and service revenue

Recurring revenue

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 (in thousands):

Our revenue is comprised of sales of our handheld and desktop devices and related consumables, service contracts and contract revenue to end-users in the government, pharmaceuticals/biotechnology and academia markets as follows (in thousands):

Year Ended December 31,

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Academia and other

Total product and service revenue

Total revenue

We sell our products primarily in the United States;

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

The majority of our international sales are through channel partners and to a lesser extent, starting in 2023, through our 908 Devices GmbH subsidiary for our desktop sales in Europe and the United Kingdom.

The majority of our international sales are through contractual arrangements with channel partners.

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, amortization of intangibles 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.

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 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.

Cost of product 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, amortization of intangibles and other direct costs related to those sales recognized as product revenue in the period.

Cost of service and contract revenue 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.

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

Gross profit is calculated as revenue less cost of revenue.

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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 expect that our gross profit margin 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 contract will remain consistent for our contracts that are cost reimbursement contracts.

Operating Expenses

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● 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 periods.

We believe that our continued investment in research and development is essential to our long-term competitive position.

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, amortization of customer relationship and tradename intangibles 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.

We expect, but cannot guarantee, that annual selling, general and administrative expenses will not increase significantly over the next 12 to 14 months.

Change in fair value of contingent consideration

Change in fair value of contingent consideration represents the change in fair value of the contingent consideration obligation included in contingent consideration on the consolidated balance sheets as of the end of each period.

Remeasurement of the contingent consideration obligation is done each quarter and the carrying value of the obligation is adjusted to the current fair value through our consolidated statements of operations.

Goodwill impairment

Goodwill impairment is the result of the fair value of our single reporting unit being less than its carrying value.

The goodwill impairments in 2024 resulted from sustained decreases in our publicly quoted share price and market capitalization and as of December 31, 2024 our goodwill was reduced to zero.

Other Income (Expense)

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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 and have recorded a full valuation allowance against our net deferred assets, 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.

We recognized an income tax benefit of $0.2 million and $0 during the years ended December 31, 2023 and 2022, respectively.

We recognized an income tax benefit of $0.3 million and $0.2 million during the years ended December 31, 2024 and 2023, respectively.

The income tax benefit recognized during the year ended December 31, 2024 primarily resulted from a reduction in the deferred tax liabilities recorded as part of our acquisition of 908 Devices GmbH.

As of December 31, 2023, we had gross federal and state operating loss carryforwards of $108.2 million and $77.4 million, respectively, which may be available to offset future taxable income and begin to expire in 2032 and 2025, respectively, of which $73.8 million of federal gross operating losses do not expire.

As of December 31, 2023, we also had U.S.

As of December 31, 2024, the Company had gross federal and state operating loss carryforwards of $127.9 million and $92.5 million, respectively, which may be available to offset future taxable income and begin to expire in 2032 and 2025, respectively, of which $93.5 million of federal gross operating losses do not expire.

As of December 31, 2024, the Company also had U.S.

federal and state research and development tax credit carryforwards of $8.6 million and $4.8 million, respectively, which may be available to offset future tax liabilities and begin to expire in 2032 and 2030, respectively.

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Product revenue

Service revenue

Contract revenue

Service and contract revenue

Total revenue

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Product cost of revenue

Service cost of revenue

Contract cost of revenue

Service and contract cost of revenue

Total cost of revenue

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Selling, general and administrative

Change in fair value of contingent consideration

Goodwill impairment

Total operating expenses

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Product revenue increased by $3.7 million, or 9%, for the year ended December 31, 2024, compared to the year ended December 31, 2023.

The increase was primarily related to an increase in handheld sales of $5.8 million, which was due to an increase of $7.9 million in handheld device sales, primarily related to a 32 unit increase in MX908 device placements and shipments of AVCAD components under our subcontract agreement with a commercial entity that holds a U.S.

government prime contract, offset in part by a $2.2 million decrease in consumables and accessories, primarily related to Aero module shipments, an accessory for the MX908, to the US Army in the year ended December 31, 2022

that were not repeated in 2023.

The increase in handheld revenue was offset in part by a decrease of $4.1 million in desktop sales for the year ended December 31, 2023 compared to the year ended December 31, 2022, which was primarily related to a decrease of $3.4 million in desktop device revenue, offset in part by an increase in desktop consumables and accessories for the year ended December 31, 2023.

The decrease in device revenue was driven by a 35 unit decrease in Rebel device placements and an 11 unit decrease in ZipChip Interface placements compared to 2022, offset in part by new product shipments for Maven and Maverick.

The increase was primarily related to $9.8 million in product revenue from our recently acquired FTIR products.

This increase was offset in part by a $3.2 million decrease in MX908 related handheld product revenue, mainly due to fewer device placements, a $1.8 million decrease from component shipments under our subcontract agreement with a commercial entity that holds a U.S.

government prime contract, as well as a $0.9 million decrease in desktop product revenue, mainly due to the mix of devices and three fewer desktop device placements, for the year ended December 31, 2024.

Product cost of revenue increased by $3.2 million, or 17%, for the year ended December 31, 2024, compared to the year ended December 31, 2023.

The increase in product cost of revenue was primarily related to additional volume and material costs for product shipped of approximately $0.9 million, as well as $0.5 million in higher materials and supplies consumed in warranty obligations related primarily to part replacements, $0.3 million in intangibles amortization, and $0.3 million in higher provisions for excess and obsolete materials.

The increase in product cost of revenue was primarily related to a $2.3 million increase in production costs related to the higher product revenues, $1.7 million in higher intangible amortization and $1.1 million in higher personnel related costs, partly related to our RedWave acquisition.

These increases were offset in part by a $1.3 million increase in labor and overhead absorption related to the level of production builds and a $0.9 million decrease in materials and supplies consumed in production related activities.

Product gross profit increased by $0.5 million, or 2%, and gross profit margin decreased by 3% for the year ended December 31, 2024, as compared to the year ended December 31, 2023.

The increase in product gross profit was, primarily due to the increased volume in sales.

The decrease in product gross profit margin percentage of 3% is driven primarily by three factors.

These factors, each of which resulted in an approximate 1% decrease in product gross profit margin, were:

an increase in materials and supplies used in warranty obligations, an increase in the provision for excess and obsolete materials, and higher non-cash charges for intangible amortization.

Our service revenue is comprised of revenue from sales of extended warranty and service plans and customer training as follows:

Year Ended December 31,

(dollars in thousands)

Service revenue

Service cost of revenue

Gross profit margin

Service revenue increased by $2.7 million, or 38%, for the year ended December 31, 2023, compared to the year ended December 31, 2022.

The increase was primarily related to an increase in handheld service revenues related to extended service contracts for MX908 devices and to a lesser extent increases in handheld training revenue and revenue from desktop service arrangements.

Service cost of revenue increased by $2.0 million, or 44%, for the year ended December 31, 2023, compared to the year ended December 31, 2022.

The increase in service cost of revenue was primarily related to a $0.5 million increase in fees paid to contract trainers used to support the higher handheld training revenue, a $0.4 million increase in materials related to servicing the installed base, a $0.2 million increase in stock based compensation and an increase in personnel costs to support the increase in service revenue.

Service gross profit increased by $0.7 million, or 28%, and gross profit margin decreased by 3% for the year ended December 31, 2023, as compared to the year ended December 31, 2022, primarily due to the increase in materials shipped under service arrangements and an increase in the use of independent contract trainers versus internal resources to meet the increased demand for handheld training.

The increase in product gross profit was primarily due to the higher product revenue volume, net of favorable timing of production and lower material costs, offset in part by increases in intangible amortization and other production related costs for the year ended December 31, 2024.

Service and Contract

Our service and contract revenue is comprised of revenue from sales of extended warranty and service plans and customer training as follows:

Year Ended December 31,

(dollars in thousands)

Contract revenue

Contract cost of revenue

Service and contract revenue

Service and contract cost of revenue

Gross profit margin

Contract revenue decreased by $2.0 million, or 84%, for the year ended December 31, 2023, compared to the year ended December 31, 2022.

The majority of contract revenue, for the years ended December 31, 2023 and 2022, was related to activities under our subcontract agreement with a commercial entity that holds a U.S.

government prime contract, which was concluded in the second quarter of 2023 and represented a decrease of $1.3 million in contract revenue for the year ended December 31, 2023.

The decrease in contract revenue for the year ended December 31, 2023 is also related to the completion of work in 2022 related to a prime contract directly with the U.S.

government and a subcontract agreement with a commercial entity that holds a U.K.

government prime contract.

Contract cost of revenue decreased by $0.3 million, or 75% for the year ended December 31, 2023, compared to the year ended December 31, 2022.

The decrease was primarily due to lower material costs with the subcontract agreement with a commercial entity that holds a U.S.

government prime contract compared to the contract deliverables for the prime contract held directly with the U.S.

government and a subcontract agreement with a commercial entity that holds a U.K.

government prime contract for the year ended December 31, 2022.

Contract gross profit decreased by $1.7 million and gross profit margin decreased by 10% for the year ended December 31, 2023 as compared to the year ended December 31, 2022, primarily due to the mix in contract deliverables, including a mix of materials with lower costs during the year ended December 31, 2022, which resulted in a higher gross profit margin for that period, as compared to the year ended December 31, 2023.

Service and contract revenue increased by $5.7 million, or 57%, for the year ended December 31, 2024, compared to the year ended December 31, 2023.

The increase was primarily related to an increase in handheld service revenues related to extended service contracts and training for MX908 devices and to a lesser extent our recently acquired FTIR products, as well as a $0.6 million increase in desktop service revenue.

During the year ended December 31, 2024, we recognized contract revenue with three new commercial entities.

Contract revenue for the year ended December 31,

2023 was related to activities under our subcontract agreement with a commercial entity that holds a U.S.

government prime contract, which was concluded in the second quarter of 2023.

Service and contract cost of revenue increased by $1.7 million, or 25%, for the year ended December 31, 2024, compared to the year ended December 31, 2023.

The increase in service cost of revenue was primarily related to a $0.8 million increase in personnel and other operating costs, partly related to our RedWave acquisition, a $0.4 million increase in material costs and contract trainers, and a $0.1 million increase related to stock-based compensation.

Service and contract gross profit increased by 114%, and gross profit margin increased by thirteen percentage points for the year ended December 31, 2024, as compared to the year ended December 31, 2023, primarily due to an increase in service volume related to extended service contracts and training revenue, leveraging our investments in personal and service infrastructure.

Operating Expenses

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Our research and development expenses were $25.5 million for the year ended December 31, 2024, an increase of $3.6 million from research and development expenses of $21.9 million for the year ended December 31, 2023.

The increase was due primarily to a $2.2 million increase in salaries and related costs from growing our headcount in 2023, a $1.0 million increase in stock-based compensation, and a $1.0 million increase in occupancy related expenses, mainly related to our new facility in North Carolina.

The increase was mainly due to the increased expenses from the RedWave acquisition and was due primarily to a $2.0 million increase in personnel and related costs, a $0.8 million increase in stock-based compensation, a $0.5 million increase in project spend related to materials and consulting, and a $0.2 million increase in depreciation and occupancy related expenses, mainly related to our facilities in Connecticut and North Carolina.

Selling, general and administrative expenses

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Our selling, general and administrative expenses were $53.6 million for the year ended December 31, 2024, an increase of $7.6 million from selling, general and administrative expenses of $46.1 million for the year ended December 31, 2023.

The increase was due primarily to a $1.1 million increase in salaries and related costs from growing our headcount in 2023, a $1.3 million increase in stock-based compensation, a $1.1 million increase in commissions earned, primarily related to handheld device sales, a $0.4 million increase related to software subscriptions and dues, a $0.4 million increase in provision for credit losses and a $0.2 million increase in acquisition-related costs for intangible amortization and accretion and valuation of contingent milestones.

These increases were partially offset by a $1.3 million decrease in insurance costs, primarily related to our director and officers insurance premiums that decreased with market rates for 2023 and a $1.0 million decrease in professional fees for legal, audit, tax and other related costs, partly related to costs incurred with our acquisition of Trace Analytics GmbH during the year ended December 31, 2022.

The increase was partly due to the increased expenses from the RedWave acquisition and was due primarily to a $2.4 million increase in banker, legal and accounting fees, mainly related to the RedWave acquisition of RedWave, a $2.5 million increase in salaries and related costs, a $1.0 million increase in stock-based compensation, a $0.7 million increase in consulting, legal and related costs not related to the RedWave acquisition, a $0.5 million increase in travel and related costs, a $0.3 million increase in material spend, a $0.2 million increase in trade shows and a $0.4 million increase across all other operating costs.

These increases were partially offset by a $0.3 million decrease in insurance costs and a $0.2 million decrease in provisions for bad debts.

Change in fair value of contingent consideration

Year Ended December 31,

(dollars in thousands)

Change in fair value of contingent consideration

Percentage of total revenue

The key assumptions, such as revenue projections, equity volatility rate of the Company, revenue volatility rate and discount rate are utilized to estimate the fair value of the contingent consideration under Monte Carlo simulation.

The decline in such key assumptions resulted in a decrease to the fair value of the contingent consideration obligation for the year ended December 31, 2024 of a credit of $13.2 million from the RedWave acquisition date fair value.

Specifically, the decrease to the fair value of contingent consideration was primarily due to the change in revenue projections from operating decisions made post-acquisition and sustained decreases in the Company’s publicly quoted share price during the third and fourth quarters of 2024.

For the year ended December 31, 2023, a charge of $0.1 million was recorded to increase the value of the contingent consideration liability related to the Trace acquisition.

Goodwill impairment

Year Ended December 31,

(dollars in thousands)

Goodwill impairment

Percentage of total revenue

As a result of sustained decreases in our publicly quoted share price and market capitalization, a $40.7 million goodwill impairment was recorded for the year ended December 31, 2024.

Other Income (Expense)

Interest income

Interest income increased by $4.4 million for the year ended December 31, 2023 from $2.0 million for the year ended December 31, 2022.

The increase was due primarily to higher interest rates on our interest bearing accounts and interest earned on our marketable securities, which were purchase during the year ended December 31, 2023.

Interest income decreased by $2.0 million for the year ended December 31, 2024 from $6.5 million for the year ended December 31, 2023.

The decrease was due to the lower cash, cash equivalent and marketable securities balance, primarily due to the average balance during the year ended December 31, 2024, compared to the year ended December 31, 2023, primarily due to the use of cash with the RedWave acquisition.

Interest expense

Interest expense increased by $0.1 million for the year ended December 31, 2023 from $0.1 million for the year ended December 31, 2022.

The increase was primarily due to costs incurred in March 2023 related to the write-off of deferred financing costs on our 2022 Revolver, which was in default and later amended in August 2023.

Interest expense decreased by $0.2 million for the year ended December 31, 2024 from $0.2 million for the year ended December 31, 2023.

The decrease was primarily due to costs incurred in March 2023 related to the write-off of deferred financing costs on our 2022 Revolver, which was in default and later amended in August 2023.

Other income (expense), net

Other expense, net was $0.1 million for the year ended December 31, 2023 and did not change materially from $0.1 million for the year ended December 31, 2022.

Other expense, net for the year ended December 31, 2024 did not change materially from the year ended December 31, 2023.

Benefit for Income Taxes

Benefit for income taxes increased by $0.2 million for the year ended December 31, 2023, from $0.0 million for the year ended December 31, 2022.

The income tax benefit recognized during the year ended December 31, 2023 primarily resulted from a reduction in the deferred tax liabilities recorded as part of our acquisition of 908 Devices GmbH.

Benefit for income taxes increased by $0.1 million for the year ended December 31, 2024 from $0.2 million from the year ended December 31, 2023.

The income tax benefit recognized during the periods was primarily resulting from a reduction in the deferred tax liabilities recorded as part of our acquisition of 908 Devices GmbH.

Liquidity and Capital Resources

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● the level of our selling, general and administrative expenses.

On March 11, 2021, we entered into an Amended and Restated Loan and Security Agreement, or the 2021 Revolver, with Signature Bank, to replace our 2019 Loan and Security Agreement, or the 2019 Loan.

The 2021 Revolver 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 rate.

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.

Accordingly, 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 term loan.

We also borrowed an additional $0.5 million from the 2021 Revolver in March 2021.

On November 2, 2022, we satisfied in full all of our obligations and voluntarily terminated 2021 Revolver.

We did not incur any early termination penalties in connection with the termination of the 2021 Revolver.

No amounts were outstanding upon termination of the 2021 Revolver.

On November 2, 2022, we entered into a Loan and Security Agreement, or the 2022 Revolver, with Silicon Valley Bank, or the Lender.

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The revolving line of credit under the 2022 Revolver was scheduled to terminate on November 2, 2025.

The 2022 Revolver also contained certain financial covenants, including a requirement that the amount of unrestricted and unencumbered cash minus advances under the 2022 Revolver was not less than the amount equal to the

greater of (i) $10.0 million or (ii) nine (9) months of cash burn.

The 2022 Revolver contained customary representations and warranties, as well as certain non-financial covenants, including limitations on, among other things, our ability to change the principal nature of our business, dispose of our business or property, engage in any change of control transaction, merge or consolidate with any other entity or to acquire all or substantially all the capital stock or property of another entity, incur additional indebtedness or liens, pay dividends or make other distributions on capital stock, redeem our capital stock, engage in transactions with affiliates or otherwise encumber our intellectual property, in each case, subject to customary exceptions.

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As a result of the transfer of the Company’s cash, cash equivalents and marketable securities, the Company was in default, of its financial covenants under the 2022 Revolver.

The Company recorded a loss on extinguishment of $0.5 million in the three months ended March 31, 2023, which was included in interest expense in the condensed consolidated statements of operations.

The Company recorded a loss on extinguishment of $0.5 million in the three months ended March 31, 2023, which was included in interest expense in the consolidated statements of operations.

On August 4, 2023, we entered into a Default Waiver and First Amendment to Loan and Security Agreement with the Lender, or the Amended 2022 Revolver, in which the Lender waived its rights and remedies against the Company and amended the 2022 Revolver.

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The revolving line of credit under the Amended 2022 Revolver terminates on November 3, 2025.

As of December 31, 2023, there were no balances outstanding under the Amended 2022 Revolver.

As of December 31, 2024 and 2023, there were no balances outstanding under the Amended 2022 Revolver.

Pursuant to the Amended 2022 Revolver, the Lender waived filing any legal action or instituting or enforcing any rights and remedies it may have had against the Company in connection with the Company’s failing to maintain all of its operating accounts, depository accounts and excess cash with the Lender, as previously required under the 2022 Revolver.

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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.

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.

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Cash used in investing activities

Cash (used in) provided by financing activities

Cash used in financing activities

Effect of foreign exchange rate changes on cash and cash equivalents

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During the year ended December 31, 2024, net cash used in operating activities was $30.2 million, primarily resulting from our net loss of $72.2 million and net cash used in changes in our operating assets and liabilities of $2.5 million, partially offset by noncash charges of $44.5 million.

Net cash used in changes in our operating assets and liabilities for the year ended December 31, 2024, consisted primarily of a $2.9 million decrease from changes in accounts receivable and a $1.7 million decrease from changes in inventory, partially offset by a $2.3 million increase from changes in accounts payable and accrued expenses.

Noncash changes consisted primarily of a $40.7 million goodwill impairment charge and $11.8 million in stock-based compensation charges, partially offset by $13.2 million from the change in fair value of contingent consideration.

During the year ended December 31, 2023, net cash used in operating activities was $25.1 million, primarily resulting from our net loss of $36.4 million and net cash used in changes in our operating assets and liabilities of $1.6 million, partially offset by noncash charges of $12.9 million.

Net cash used in changes in our operating assets and liabilities for the year ended December 31, 2023, consisted primarily of a $3.9 million decrease from changes in inventory and a $1.6 million decrease from changes in operating lease liabilities, partially offset by a $1.7 million increase from changes in right-of-use operating lease assets, a $2.0 million increase from changes in accounts payable and accrued expenses and a $0.7 million increase from changes in account receivable.

During the year ended December 31, 2022, net cash used in operating activities was $21.0 million, primarily resulting from our net loss of $33.6 million, partially offset by net cash provided by changes in our operating assets and liabilities of $3.3 million and noncash charges of $9.3 million.

Net cash provided by changes in our operating assets and liabilities for the year ended December 31, 2022, consisted primarily of a $5.9 million increase from changes in account receivable, a $1.9 million increase from changes in deferred revenue and a $1.2 million increase in right-of-use operating lease assets, partially offset by a $5.5 million decrease from changes in inventory and a $1.3 million decrease from operating lease liabilities.

Investing Activities

During the year ended December 31, 2024, net cash used in investing activities was $46.3 million, due to cash paid with the acquisition of RedWave of $44.8 million and $0.6 million in purchases of property and equipment.

In addition, $55.5 million in cash was used for purchases of marketable securities, partially offset by $54.6 million in proceeds from maturities of marketable securities.

During the year ended December 31, 2023, net cash used in investing activities was $26.4 million, due to $48.9 million in purchases of marketable securities, partially offset by $24.5 million in proceeds from maturities of marketable securities and $2.0 million in purchases of property and equipment.

During the year ended December 31, 2022, net cash used in investing activities was $15.8 million, due primarily to $13.8 million used with the acquisition of Trace Analytics GmbH that occurred in August 2022 and $2.0 million in purchases of other property and equipment.

Financing Activities

consideration related to the release of the $0.9 million assignment of the pension liability in connection with our acquisition of Trace Analytics GmbH and the $0.2 million initial fair value of contingent consideration, related to the $0.5 million initial milestone achievement in August 2023, that was paid in 2023.

Cash provided by financing activities during the year ended December 31, 2022, was $1.2 million, consisting primarily of proceeds from the issuance of common stock upon option exercises.

We also paid off and drew down $60.0 million under the 2022 Revolver and 2021 Revolver, resulting in no net proceeds during the year ended December 31, 2022.

Cash used in financing activities during the year ended December 31, 2024, was $0.4 million, due primarily to a $0.5 million payment for contingent consideration earned with our acquisition of Trace Analytics GmbH.

Cash used in financing activities during the year ended December 31, 2023, was $15.9 million, consisting primarily of the repayment of $15.0 million outstanding under the 2022 Revolver and $1.1 million in payments for contingent consideration related to the release of the $0.9 million assignment of the pension liability in connection with our acquisition of Trace Analytics GmbH and the $0.2 million initial fair value of contingent consideration, related to the $0.5 million initial milestone achievement in August 2023, that was paid in 2023.

Contractual Obligations

We have operating lease obligations for office space and certain equipment, which have remaining lease terms ranging from two to seven years.

We have operating lease obligations for office space and certain equipment, which have remaining lease terms ranging from less than one year to nine years.

The total future minimum payments under such leases are $8.5 million as of December 31, 2024, of which $2.3 million is expected to be paid in 2025.

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We have not included future payments under this agreement in the table of contractual obligations above since the payment obligations under this agreement are contingent upon generating product sales.

During the fiscal years ended December 31, 2023 and 2022, we made no cash contributions to our foreign pension plan, assumed as a part of Trace Analytics GmbH acquisition.

During the year ended December 31, 2023, we made no cash contributions to our foreign pension plan, assumed as a part of Trace Analytics GmbH acquisition.

The plan was transferred and the Company was released from the pension obligation in April 2023.

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(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.

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;

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Allocation of the transaction price is determined at the contract’s inception and is not updated to reflect changes between contract inception and when the 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).

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.

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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.

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.

The pricing for non-U.S.

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

Under the typical payment terms of U.S.

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.

From time to time, 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.

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).

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.

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Any write-down of inventory to net realizable value creates a new cost basis.

Goodwill and Long-Lived Assets

Goodwill is not amortized, but is evaluated for impairment on an annual basis, or on an interim basis when events or changes in circumstances indicate that the carrying value may not be recoverable.

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We test goodwill for impairment at the reporting unit level, which is the operating segment, in the fourth quarter of every year.

We have the option of performing a qualitative assessment to determine whether further impairment testing

is necessary before performing the quantitative assessment.

We have the option of performing a qualitative assessment to determine whether further impairment testing is necessary before performing the quantitative assessment.

If as a result of the quantitative assessment, it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, a quantitative impairment test will be required.

The quantitative goodwill impairment test requires the management to estimate and compare the fair value of the reporting unit with its carrying value.

The quantitative goodwill impairment test requires management to estimate and compare the fair value of the reporting unit with its carrying value.

If the fair value of the reporting unit exceeds the carrying value of the net assets, goodwill is not impaired.

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We estimate the fair value of the contingent consideration earnouts using the Monte Carlo Simulation or probability weighted scenario depending on the nature of the contingent consideration and update the fair value of the contingent consideration at each reporting period based on the estimated probability of achieving the earnout targets and applying a discount rate that captures the risk associated with the expected contingent payments.

To the extent that these estimates change in the future regarding the likelihood of achieving these targets, we may need to record material adjustments to our accrued contingent consideration.

To the extent that these estimates change in the future regarding the likelihood of achieving these targets, we may need to record material adjustments to

our accrued contingent consideration.

Such changes in the fair value of contingent consideration are recorded as contingent consideration expense or income in the consolidated statements of operations.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis