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Item 2. Management’s Discussion and Analysis

2024-11-08 compared with 2024-08-13 · 129 added, 123 removed, 169 unchanged (60% of the section changed)

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We typically recognize revenue when products are shipped.

We generated revenue of $9.6 million during the three months ended June 30, 2024, which represents a decrease of $1.9 million compared to revenue of $11.5 million during the three months ended June 30, 2023.

For the three months ended June 30, 2024 and 2023, only 4.0% and 3.9%, respectively, of our revenue was generated from customers located outside of the United States.

We generated revenue of $18.9 million during the six months ended June 30, 2024, which represents a decrease of $1.7 million compared to revenue of $20.6 million during the six months ended June 30, 2023.

Excluding revenue of $2.7 million from a single large Clinical Solutions order that was delivered during the three and six months ended June 30, 2023, total revenue was up 9% and 5% for the three and six months ended June 30, 2024, compared to the three and six months ended June 30, 2023, respectively.

For the six months ended June 30, 2024 and 2023, only 4.3% and 4.1%, respectively, of our revenue was generated from customers located outside of the United States.

We generated revenue of $9.6 million during the three months ended September 30, 2024, which represents an increase of $1.4 million compared to revenue of $8.2 million during the three months ended September 30, 2023.

For the three months ended September 30, 2024 and 2023, only 5.4% and 4.2%, respectively, of our revenue was generated from customers located outside of the United States.

We generated revenue of $28.5 million during the nine months ended September 30, 2024, which represents a decrease of $0.3 million compared to revenue of $28.8 million during the nine months ended September 30, 2023.

For the nine months ended September 30, 2024 and 2023, only 4.7% and 4.1%, respectively, of our revenue was generated from customers located outside of the United States.

Our sales outside of the United States are denominated in U.S.

We had an operating loss of $5.1 million during the three months ended June 30, 2024, compared to an operating loss of $7.0 million during the three months ended June 30, 2023.

We had an operating loss of $13.1 million during the six months ended June 30, 2024, compared to an operating loss of $15.9 million during the six months ended June 30, 2023.

We had an operating loss of $7.4 million during the three months ended September 30, 2024, compared to an operating loss of $8.8 million during the three months ended September 30, 2023.

We had an operating loss of $20.5 million during the nine months ended September 30, 2024, compared to an operating loss of $24.7 million during the nine months ended September 30, 2023.

While our expenses may fluctuate over the short term, we expect our expenses will continue to increase in future periods, but at a slower rate, in connection with our ongoing activities as we:

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has risen to levels not experienced in recent decades.

General inflation, including rising prices for our raw materials and other inputs, as well as rising salaries and other expenses, negatively impact our business by increasing our cost of sales and operating expenses.

In addition, the U.S.

Federal Reserve has raised, and may again raise, interest rates in response to concerns about inflation.

While the rate of inflation has moderated in 2024, general inflation, including rising prices for our raw materials and other inputs, as well as rising salaries and other expenses, negatively impact our business by increasing our cost of sales and operating expenses.

In addition, during 2023 and early 2024, the U.S.

Federal Reserve has raised interest rates in response to concerns about inflation, and although the U.S.

Federal Reserve lowered interest rates in September of 2024, the direction and timing of future interest rate changes remains uncertain.

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

We cannot predict the impact of future inflation and interest rate increases on the results of our operations.

We cannot predict the impact of future inflation and interest rate changes on the results of our operations.

For further information regarding the impact of these economic factors on the Company, please see the risk factors identified in Part I, Item 1A, Risk Factors, of our 2023 Annual Report on Form 10-K.

Results of Operations

Comparison of the Three Months Ended June 30, 2024, and Three Months Ended June 30, 2023

The following tables set forth our results of operations for the three months ended June 30, 2024 and 2023 (dollars in thousands):

For the Three Months Ended June 30,

Comparison of the Three Months Ended September 30, 2024, and Three Months Ended September 30, 2023

The following tables set forth our results of operations for the three months ended September 30, 2024 and 2023 (dollars in thousands):

For the Three Months Ended September 30,

Cost of sales

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Amortization of intangible assets

Long-lived assets impairment

Total operating expenses

2 unchanged sentences

Interest expense, net

Loss on extinguishment of debt

Other income, net

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(Benefit from) provision for income taxes

Our revenue disaggregated by product category for the three months ended June 30, 2024 and 2023, was as follows (dollars in thousands):

For the Three Months Ended June 30,

Our revenue disaggregated by product category for the three months ended September 30, 2024 and 2023, was as follows (dollars in thousands):

For the Three Months Ended September 30,

Lab Essentials

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Total revenue

Total revenue was $9.6 million and $11.5 million for the three months ended June 30, 2024 and 2023, respectively.

Excluding revenue of $2.7 million from a single large Clinical Solutions order that was delivered during the three months ended June 30, 2023, total revenue was up 9% and Clinical Solutions revenue was up 66%.

Lab Essentials revenue was $7 .6 million in each of the three months ended June 30, 2024 and 2023.

Lab Essentials revenue was consistent as an increase in number of customers was offset by a similar decline in average revenue per customer.

Clinical Solutions revenue was $1 .6 million for the three months ended June 30, 2024, a decrease of $2 .1 million, or 57 .2 %, compared to $3.7 million for the three months ended June 30, 2023.

The decrease in Clinical Solutions revenue was attributable to lower average revenue per customer, partially offset by an increased number of customers.

Our revenue disaggregated by geographic region, for the three months ended June 30, 2024 and 2023, was as follows (dollars in thousands):

For the Three Months Ended June 30,

Total revenue was $9.6 million and $8.2 million for the three months ended September 30, 2024 and 2023, respectively.

Lab Essentials revenue was $7 .2 million for the three months ended September 30, 2024, a decrease of $0.1 million, or 1.6%, compared to $7.3 million for the three months ended September 30, 2023.

The decrease in Lab Essentials revenue was attributable to lower average revenue per customer, partially offset by an increased number of customers.

Clinical Solutions revenue was $2 .0 million for the three months ended September 30, 2024, an increase of $1 .4 million, or 229 .0 %, compared to $0.6 million for the three months ended September 30, 2023.

The increase in Clinical Solutions revenue was primarily attributable to an increased number of customers and, to a lesser extent, higher average revenue per customer.

Our revenue disaggregated by geographic region, for the three months ended September 30, 2024 and 2023, was as follows (dollars in thousands):

For the Three Months Ended September 30,

United States

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Revenue from U.S.

sales was $9 .2 million and $11 .1 million for the three months ended June 30, 2024 and 2023, respectively.

sales was $9 .1 million and $7 .8 million for the three months ended September 30, 2024 and 2023, respectively.

Revenue from U.S.

sales as a percentage of our total revenue was consistent period over period, representing 96.0% and 96 .1 % of our total revenue during the three months ended June 30, 2024 and 2023, respectively.

Revenue from international sales was $0 .4 million and $0.5 million for the three months ended June 30, 2024 and 2023, respectively.

Revenue from international sales as a percentage of our total revenue was also consistent, representing 4 .0 % and 3 .9 % of our total revenue during the three months ended June 30, 2024 and 2023, respectively.

Our gross profit for the three months ended June 30, 2024 and 2023, was as follows (dollars in thousands):

For the Three Months Ended June 30,

sales as a percentage of our total revenue was consistent period over period, representing 94.6% and 95 .8 % of our total revenue during the three months ended September 30, 2024 and 2023, respectively.

Revenue from international sales was $0 .5 million and $0.3 million for the three months ended September 30, 2024 and 2023, respectively.

Revenue from international sales as a percentage of our total revenue was also consistent period over period, representing 5 .4 % and 4.2% of our total revenue during the three months ended September 30, 2024 and 2023, respectively.

Our gross profit for the three months ended September 30, 2024 and 2023, was as follows (dollars in thousands):

For the Three Months Ended September 30,

Cost of sales

Gross profit %

Gross profit percentage was 29 .2 % and 43.9% for the three months ended June 30, 2024 and 2023, respectively.

The decrease in gross profit percentage was primarily driven by lower Clinical Solutions revenue and increased overhead costs, largely depreciation expense following the completion of our new manufacturing facility in the prior year, partially offset by reduced headcount.

Gross profit percentage was 0 .9 % and 18.0% for the three months ended September 30, 2024 and 2023, respectively.

The decrease in gross profit percentage was primarily driven by $2.8 million of non-recurring and non-cash charges related to the disposal of expired inventory and write down of excess inventory created in the second half of 2022 when we increased production to meet high demand.

Excluding the $2.8 million of non-recurring and non-cash charges, the gross profit percentage for the three months ended September 30, 2024, would have been 29.8%, or an increase of more than 10% primarily driven by higher Clinical Solutions revenue coupled with reduced headcount.

Operating expenses

Our operating expenses for the three months ended June 30, 2024 and 2023, were as follows (dollars in thousands):

For the Three Months Ended June 30,

Our operating expenses for the three months ended September 30, 2024 and 2023, were as follows (dollars in thousands):

For the Three Months Ended September 30,

Research and development

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Amortization of intangible assets

Long-lived assets impairment

Total operating expenses

Research and development expenses were $0 .7 million and $1 .5 million for the three months ended June 30, 2024 and 2023, respectively.

Research and development expenses were $0 .6 million and $1 .4 million for the three months ended September 30, 2024 and 2023, respectively.

The decrease was primarily driven by reduced headcount and supplies expense.

Sales and marketing expenses were $1 .5 million and $2.2 million for the three months ended June 30, 2024 and 2023, respectively.

Sales and marketing expenses were $1 .6 million and $2.4 million for the three months ended September 30, 2024 and 2023, respectively.

The decrease was primarily driven by reduced headcount.

General and administrative expenses were $5.5 million and $5.9 million for the three months ended June 30, 2024 and 2023, respectively.

The decrease was driven by reduced headcount and spending, primarily on professional fees, partially offset by increased facility costs.

Amortization of intangible assets was consistent at $0.3 million for each of the three months ended June 30, 2024 and 2023.

We incurred a $2.2 million impairment charge related to long-lived assets for the three months ended June 30, 2023, with no comparable charges for the three months ended June 30, 2024.

Refer to “Notes to Financial Statements—Note 6—Property, Plant, and Equipment, Net,” in our 2023 Annual Report on Form 10-K for details regarding the impairment.

General and administrative expenses were $5.0 million and $6.1 million for the three months ended September 30, 2024 and 2023, respectively.

Excluding the one-time, non-recurring charge of $0.4 million related to the write-off of ATM Facility costs during the three months ended September 30, 2023, general and administrative expenses decreased $0.8 million compared to the three months ended September 30, 2023.

The decrease was driven by reduced spending, primarily in professional fees and insurance.

Amortization of intangible assets was consistent at $0.3 million for each of the three months ended September 30, 2024 and 2023.

Other expenses, net

Our other expenses, net for the three months ended June 30, 2024 and 2023, were as follows (dollars in thousands):

For the Three Months Ended June 30,

Our other expenses, net for the three months ended September 30, 2024 and 2023, were as follows (dollars in thousands):

For the Three Months Ended September 30,

Interest expense, net

Loss on extinguishment of debt

Other income, net

Total other expenses, net

Total other expenses, net was $0.3 million and $0.1 million for the three months ended June 30, 2024 and 2023, respectively.

The increase in total other expenses, net was primarily due to lower amounts of interest capitalized.

Additionally, interest expense was lower due to a lower debt balance outstanding despite higher interest rates, partially offset by lower interest income earned on short-term liquid investments.

Capitalized interest costs were zero and $0.3 million for the three months ended June 30, 2024 and 2023, respectively.

Total other expenses, net was $0.1 million and $1.4 million for the three months ended September 30, 2024 and 2023, respectively.

The decrease in total other expenses, net was primarily due to the $0.8 million loss on extinguishment of debt incurred during the three months ended September 30, 2023.

Additionally, interest expense was lower due to a lower debt balance outstanding despite higher interest rates, partially offset by higher interest income earned on short-term liquid investments.

(Benefit from) provision for income taxes

Our (benefit from) and provision for income taxes for the three months ended June 30, 2024 and 2023, was as follows (dollars in thousands):

For the Three Months Ended June 30,

Our (benefit from) and provision for income taxes for the three months ended September 30, 2024 and 2023, was as follows (dollars in thousands):

For the Three Months Ended September 30,

(Benefit from) provision for income taxes

Effective tax rate

Our benefit from income taxes was not significant for the three months ended June 30, 2024, and our provision for income taxes was not significant for the three months ended June 30, 2023.

The effective tax rates for the three months ended June 30, 2024 and 2023 were 0.1% and (0.2)%, respectively.

Our benefit from income taxes was not significant for the three months ended September 30, 2024, and our provision for income taxes was not significant for the three months ended September 30, 2023.

The effective tax rates for the three months ended September 30, 2024 and 2023 were 0.1% and (0.1)%, respectively.

The effective tax rates differ from the federal statutory rate primarily due to operating losses not expected to produce an income tax benefit.

Comparison of the Six Months Ended June 30, 2024, and Six Months Ended June 30, 2023

The following tables set forth our results of operations for the six months ended June 30, 2024 and 2023 (dollars in thousands):

For the Six Months Ended June 30,

Comparison of the Nine Months Ended September 30, 2024, and Nine Months Ended September 30, 2023

The following tables set forth our results of operations for the nine months ended September 30, 2024 and 2023 (dollars in thousands):

For the Nine Months Ended September 30,

Cost of sales

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Interest expense, net

Loss on extinguishment of debt

Other income, net

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Loss before income taxes

Benefit from income taxes

Our revenue disaggregated by product category for the six months ended June 30, 2024 and 2023, was as follows (dollars in thousands):

For the Six Months Ended June 30,

(Benefit from) provision for income taxes

Our revenue disaggregated by product category for the nine months ended September 30, 2024 and 2023, was as follows (dollars in thousands):

For the Nine Months Ended September 30,

Lab Essentials

1 unchanged sentence

Total revenue

Total revenue was $18.9 million and $20.6 million for the six months ended June 30, 2024 and 2023, respectively.

Excluding revenue of $2.7 million from a single large Clinical Solutions order that was delivered during the six months ended June 30, 2023, total revenue was up 5% and Clinical Solutions revenue was up 29%.

Lab Essentials revenue was $14 .9 million for the six months ended June 30, 2024, an increase of $0.1 million, or 0.4%, compared to $14.8 million for the six months ended June 30, 2023.

Lab Essentials revenue was consistent as the increase in number of customers was offset by a similar decline in average revenue per customer.

Clinical Solutions revenue was $3 .3 million for the six months ended June 30, 2024, a decrease of $2 .0 million, or 37 .6 %, compared to $5.3 million for the six months ended June 30, 2023.

Total revenue was $28.5 million and $28.8 million for the nine months ended September 30, 2024 and 2023, respectively.

Lab Essentials revenue was $22 .1 million in each of the nine months ended September 30, 2024 and 2023.

Lab Essentials revenue was consistent as the decline in average revenue per customer was offset by a similar increase in number of customers.

Clinical Solutions revenue was $5 .2 million for the nine months ended September 30, 2024, a decrease of $0 .6 million, or 10 .4 %, compared to $5.9 million for the nine months ended September 30, 2023.

The decrease in Clinical Solutions revenue was attributable to lower average revenue per customer, partially offset by an increased number of customers.

Our revenue disaggregated by geographic region, for the six months ended June 30, 2024 and 2023, was as follows (dollars in thousands):

For the Six Months Ended June 30,

Excluding revenue of $2.7 million from a single large order, Clinical Solutions revenue was up 66% for the nine months ended September 30, 2024.

Our revenue disaggregated by geographic region, for the nine months ended September 30, 2024 and 2023, was as follows (dollars in thousands):

For the Nine Months Ended September 30,

United States

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Revenue from U.S.

sales was $18 .1 million and $19 .8 million for the six months ended June 30, 2024 and 2023, respectively.

sales was $27 .2 million and $27.6 million for the nine months ended September 30, 2024 and 2023, respectively.

Revenue from U.S.

sales as a percentage of our total revenue was consistent period over period, representing 95.7% and 95 .9 % of our total revenue during the six months ended June 30, 2024 and 2023, respectively.

Revenue from international sales was $0 .8 million in each of the six months ended June 30, 2024 and 2023.

Revenue from international sales as a percentage of our total revenue was also consistent, representing 4 .3 % and 4 .1 % of our total revenue during the six months ended June 30, 2024 and 2023, respectively.

Our gross profit for the six months ended June 30, 2024 and 2023, was as follows (dollars in thousands):

For the Six Months Ended June 30,

sales as a percentage of our total revenue was consistent period over period, representing 95.3% and 95 .9 % of our total revenue during the nine months ended September 30, 2024 and 2023, respectively.

Revenue from international sales was $1 .3 million and $1.2 million for the nine months ended September 30, 2024 and 2023, respectively.

Revenue from international sales as a percentage of our total revenue was also consistent period over period, representing 4 .7 % and 4 .1 % of our total revenue during the nine months ended September 30, 2024 and 2023, respectively.

Our gross profit for the nine months ended September 30, 2024 and 2023, was as follows (dollars in thousands):

For the Nine Months Ended September 30,

Cost of sales

Gross profit %

Gross profit percentage was 26 .5 % and 36.3% for the six months ended June 30, 2024 and 2023, respectively.

Gross profit percentage was 17 .9 % and 31.1% for the nine months ended September 30, 2024 and 2023, respectively.

Excluding the $2.8 million of non-recurring and non-cash charges, gross profit for the nine months ended September 30, 2024, would have been 27.6%.

The decrease in gross profit was also driven by increased overhead costs, largely depreciation expense following the completion of our new manufacturing facility in the prior year, which were partially offset by reduced headcount.

Operating expenses

Our operating expenses for the six months ended June 30, 2024 and 2023, were as follows (dollars in thousands):

For the Six Months Ended June 30,

Our operating expenses for the nine months ended September 30, 2024 and 2023, were as follows (dollars in thousands):

For the Nine Months Ended September 30,

Research and development

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Total operating expenses

Research and development expenses were $1 .5 million and $2 .9 million for the six months ended June 30, 2024 and 2023, respectively.

Research and development expenses were $2 .2 million and $4.3 million for the nine months ended September 30, 2024 and 2023, respectively.

The decrease was primarily driven by reduced headcount and supplies expense.

Sales and marketing expenses were $3 .1 million and $4.5 million for the six months ended June 30, 2024 and 2023, respectively.

Sales and marketing expenses were $4 .8 million and $6.9 million for the nine months ended September 30, 2024 and 2023, respectively.

The decrease was primarily driven by reduced headcount.

General and administrative expenses were $12.9 million and $13.3 million for the six months ended June 30, 2024 and 2023, respectively.

Excluding the one-time, non-recurring charges related to the reduction in workforce of $1.3 million and $0.7 million for the six months ended June 30, 2024 and 2023, respectively, general and administrative expenses decreased $1.0 million.

General and administrative expenses were $17.8 million and $19.4 million for the nine months ended September 30, 2024 and 2023, respectively.

Excluding the one-time, non-recurring charges related to the reduction in workforce of $1.3 million for the nine months ended September 30, 2024 and the non-recurring charges related to the reduction in workforce of $0.7 million and the $0.4 million write off related to ATM Facility costs during the nine months ended September 30, 2023, general and administrative expenses decreased $1.8 million compared to the nine months ended September 30, 2023.

The decrease was driven by reduced headcount and spending, primarily on professional fees and insurance, partially offset by increased stock-based compensation expense related to the stock option repricing as well as facility costs.

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Stock-Based Compensation” for a more detailed discussion of the stock option repricing.

Amortization of intangible assets was consistent at $0.6 million for each of the six months ended June 30, 2024 and 2023.

We incurred a $2.2 million impairment charge related to long-lived assets for the six months ended June 30, 2023, with no comparable charges for the six months ended June 30, 2024.

Amortization of intangible assets was consistent at $0.9 million for each of the nine months ended September 30, 2024 and 2023.

We incurred a $2.2 million impairment charge related to long-lived assets for the nine months ended September 30, 2023, with no comparable charges for the nine months ended September 30, 2024.

Refer to “Notes to Financial Statements—Note 6—Property, Plant, and Equipment, Net,” in our 2023 Annual Report on Form 10-K for details regarding the impairment.

Other expenses, net

Our other expenses, net for the six months ended June 30, 2024 and 2023, were as follows (dollars in thousands):

For the Six Months Ended June 30,

Our other expenses, net for the nine months ended September 30, 2024 and 2023, were as follows (dollars in thousands):

For the Nine Months Ended September 30,

Interest expense, net

Loss on extinguishment of debt

Other income, net

Total other expenses, net

Total other expenses, net was $0.4 million and not significant for the six months ended June 30, 2024 and 2023, respectively.

The increase in total other expenses, net was primarily due to lower interest capitalized.

Additionally, interest expense was lower due to a lower debt balance outstanding despite higher interest rates, partially offset by lower interest income earned on short-term liquid investments.

Capitalized interest costs were zero and $0.9 million for the six months ended June 30, 2024 and 2023, respectively.

Benefit from income taxes

Our benefit from income taxes for the six months ended June 30, 2024 and 2023, was as follows (dollars in thousands):

For the Six Months Ended June 30,

Benefit from income taxes

Total other expenses, net was $0.6 million and $1.4 million for the nine months ended September 30, 2024 and 2023, respectively.

The decrease in total other expenses, net was primarily due to the $0.8 million loss on extinguishment of debt incurred during the nine months ended September 30, 2023 coupled with lower interest capitalized.

Additionally, interest expense was lower due to a lower debt balance outstanding despite higher interest rates, partially offset by higher interest income earned on short-term liquid investments.

Capitalized interest costs were zero and $0.9 million for the nine months ended September 30, 2024 and 2023, respectively.

(Benefit from) provision for income taxes

Our (benefit from) and provision for income taxes for the nine months ended September 30, 2024 and 2023, was as follows (dollars in thousands):

For the Nine Months Ended September 30,

(Benefit from) provision for income taxes

Effective tax rate

Our benefit from income taxes was not significant in either of the six months ended June 30, 2024 and 2023.

The effective tax rates for the six months ended June 30, 2024 and 2023 were 0.3% and 0.0%, respectively.

Our benefit from income taxes was not significant for the nine months ended September 30, 2024, and our provision for income taxes was not significant for the nine months ended September 30, 2023.

The effective tax rates for the nine months ended September 30, 2024 and 2023 were 0.2% and (0.0)%, respectively.

The effective tax rates differ from the federal statutory rate primarily due to operating losses not expected to produce an income tax benefit.

Liquidity and Capital Resources

The primary sources of financing for our operations were our (i) initial public offering, which we completed in June 2021 (IPO) and resulted in net proceeds to us of $99.1 million, (ii) registered direct offering and concurrent private placement completed in September 2023 (collectively, the September 2023 Offerings), which resulted in aggregate gross proceeds of $22.9 million before deducting offering expenses of $0.4 million and the prepayment of $10.0 million owed under the Term Loan as discussed below, and (iii) private placement completed in July 2024 (the July 2024 Offering), which resulted in aggregate gross proceeds of $15.4 million before deducting offering expenses payable by the Company.

The primary sources of financing for our operations are our (i) initial public offering, which we completed in June 2021 (IPO) and resulted in net proceeds to us of $99.1 million, (ii) registered direct offering and concurrent private placement completed in September 2023 (collectively, the September 2023 Offerings), which resulted in aggregate gross proceeds of $22.9 million before deducting offering expenses of $0.4 million and the prepayment of $10.0 million owed under the Term Loan as discussed below, and (iii) private placement completed in July 2024 (the July 2024 Offering), which resulted in aggregate gross proceeds of $15.4 million before deducting offering expenses payable by the Company.

To facilitate our expected growth, we have used our sources of liquidity to make investments to expand our operations and increase capacity, and may continue to do so in the future.

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Our principal liquidity requirements are to fund our operations and capital expenditures.

During the three and six months ended June 30, 2024, we incurred net losses of $5.4 million and $13.5 million, respectively.

In addition, as of June 30, 2024, we had an accumulated deficit of $105.2 million and $12.1 million in borrowings outstanding under our Term Loan (defined below).

As of June 30, 2024, we had $27.9 million of working capital, which included $18.6 million in cash and cash equivalents.

As of June 30, 2024, we had an outstanding principal amount of $12.1 million under a senior secured term loan (the Term Loan) pursuant to Amendment No.

During the three and nine months ended September 30, 2024, we incurred net losses of $7.6 million and $21.0 million, respectively.

In addition, as of September 30, 2024, we had an accumulated deficit of $112.8 million and $12.1 million in borrowings outstanding under our Term Loan (defined below).

As of September 30, 2024, we had $36.2 million of working capital, which included $31.7 million in cash and cash equivalents and short-term investments.

As of September 30, 2024, we had an outstanding principal amount of $12.1 million under a senior secured term loan (the Term Loan) pursuant to Amendment No.

5 to our Credit Agreement with MidCap Financial Trust (MidCap).

On March 8, 2024, we entered into limited waivers and amendments (collectively Amendment No.

5, or, as amended, the Amended Credit Agreement ) which includes a waiver from MidCap of the revenue covenant violations for each of the periods ending November 30, 2023 and January 31, 2024.

5, or, as amended, the Amended Credit Agreement ) which

includes a waiver from MidCap of the revenue covenant violations for each of the periods ending November 30, 2023 and January 31, 2024.

Amendment No.

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Amendment No.

5 also removed those requirements for the periods ending January 31, 2025 through December 31, 2025, instead requiring that for each applicable twelve-month period ending after December 31, 2024, the Company’s minimum net revenue requirement will be determined by MidCap in its reasonable discretion in consultation with the Company’s senior management and based on financial statements and projections delivered to MidCap in accordance with the financial reporting requirements in the Amended Credit Agreement, so long as the minimum net revenue requirements for those periods shall not be less than the greater of (x) the applicable minimum net revenue requirement for the twelve-month period ending on the last day of the immediately preceding month and (y) $34.0 million.

5 also removed those requirements for the periods ending January 31, 2025 through December 31, 2025, instead requiring that for each applicable twelve-month period ending after December 31, 2024, our minimum net revenue requirement will be determined by MidCap in its reasonable discretion in consultation with the our senior management and based on financial statements and projections delivered to MidCap in accordance with the financial reporting requirements in the Amended Credit Agreement, so long as the minimum net revenue requirements for those periods shall not be less than the greater of (x) the applicable minimum net revenue requirement for the twelve-month period ending on the last day of the immediately preceding month and (y) $34.0 million.

In addition, Amendment No.

5 also removed the advance rate for finished goods inventory in the determination of the borrowing base for the Revolving Loan and increased the minimum cash requirement from $9.0 million to $10.0 million.

5 also removed the advance rate for finished goods inventory in the determination of the borrowing base for the Revolver and increased the minimum cash requirement from $9.0 million to $10.0 million.

Under the terms of the Amended Credit Agreement, cash and cash equivalents as well as short-term investments in U.S.

Treasuries are included in the determination of the minimum cash covenant.

Finally, Amendment No.

5 conditions the next borrowing under the Revolving Loan on the Company achieving net revenue for the preceding twelve-month period of at least $38.0 million down from $45.0 million.

“Notes to Financial Statements—Note 10—Long-term Debt, Net,” for a more detailed discussion of the material terms of our Amended Credit Agreement.

We were in compliance with our financial covenants under the terms of the Amended Credit Agreement as of June 30, 2024.

As a result of recent business improvements and actions taken by management in the current fiscal year to amend our credit agreement, reduce operating costs, and raise additional capital, management believes that there is no longer substantial doubt about our ability to continue as a going concern for the twelve-month period following the date on which the accompanying unaudited financial statements are being issued.

5 conditions the next borrowing under the Revolver on the Company achieving net revenue for the preceding twelve-month period of at least $38.0 million down from $45.0 million.

S ee “Notes to Financial Statements—Note 10—Long-term Debt, Net,” for a more detailed discussion of the material terms of our Amended Credit Agreement.

We were in compliance with our financial covenants under the terms of the Amended Credit Agreement as of September 30, 2024.

As a result of recent business improvements, benefits from the Amended Credit Agreement, and actions taken by management in the current fiscal year to reduce operating costs, and raise additional capital, management believes that there is no longer substantial doubt about our ability to continue as a going concern for the twelve-month period following the date on which the accompanying unaudited financial statements are being issued.

However, debt service requirements in the future require that we continue to execute our plans both in terms of operations and financial results.

Additionally, unforeseen events or changes in assumptions may occur and result in material differences between our future financial results or forecasts and the current financial forecast, and those differences could result in management concluding in the future that there is substantial doubt about our ability to continue as a going concern based upon the new information.

Additionally, unforeseen events or changes in assumptions may occur and result in material differences between our future financial results or forecasts and the current financial forecast, and those differences could result in management concluding in the future, as it has in the past, that there is substantial doubt about our ability to continue as a going concern based upon the new information.

We also have an ATM Facility under which we may offer and sell, from time to time, shares of our common stock having aggregate gross proceeds of up to $50.0 million.

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See “Notes to Financial Statements—Note 11—Stockholder’s Equity,” for a more detailed discussion of the material terms of our ATM Facility.

As of June 30, 2024, our material cash requirements from known contractual obligations and commitments relate primarily to operating leases for our office, manufacturing, warehouse, and distribution facilities.

As of September 30, 2024, our material cash requirements from known contractual obligations and commitments relate primarily to operating leases for our office, manufacturing, warehouse, and distribution facilities.

See “Notes to Financial Statements—Note 7—Leases,” for a discussion of our lease obligations reflected on our balance sheet.

The following table sets forth, for the periods indicated, net cash flows used in operating activities, used in investing activities, and used in financing activities (in thousands):

For the Six Months Ended June 30,

For the Nine Months Ended September 30,

Net cash used in operating activities

Net cash used in investing activities

Net cash used in financing activities

Net cash provided by financing activities

Net decrease in cash and cash equivalents

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Net cash used in operating activities consists primarily of net loss adjusted for certain non-cash items (including depreciation and amortization, bad debt expense, deferred taxes, loss on disposal of property, plant, and equipment, inventory reserve, amortization of debt issuance costs, and stock-based compensation expense), and the effect of changes in working capital and other activities.

Net cash used in operating activities was $9.4 million for the six months ended June 30, 2024, which primarily consisted of net loss of $13.5 million plus net adjustments for non-cash charges of $6.6 million, offset by net changes in operating assets and liabilities of $2.6 million.

The primary non-cash adjustments to net loss included $3.3 million of depreciation and amortization, $2.1 million of stock-based compensation, and $0.9 million provision for inventory.

The main drivers of the changes in operating assets and liabilities were a $1.8 million decrease in accrued liabilities, a $0.7 million increase in accounts receivable, a $0.4 million decrease in accounts payable, and a $0.3 million increase in inventories, partially offset by a $0.4 million decrease in prepaid expenses and other current assets and a $0.2 million decrease other non-current assets.

Net cash used in operating activities was $11.5 million for the six months ended June 30, 2023, which primarily consisted of net loss of $16.0 million plus net adjustments for non-cash charges of $7.0 million, offset by net changes in operating assets and liabilities of $2.5 million.

The primary non-cash adjustments to net loss included $2.4 million of depreciation and amortization, $2.2 million impairment charge related to long-lived assets, $2.1 million of stock-based compensation, and $0.2 million amortization of debt financing costs.

The main drivers of the changes in operating assets and liabilities were a $1.4 million decrease in accounts payable, $1.2 million decrease in accrued liabilities, $1.1 million increase in contract assets, and a $0.3 increase in accounts receivable, partially offset by a $1.0 million decrease in prepaid expenses and other current assets, a $0.2 million decrease other non-current assets, and a $0.2 million decrease in inventories.

Net cash used in operating activities was $11.5 million for the nine months ended September 30, 2024, which primarily consisted of net loss of $21.0 million plus net adjustments for non-cash charges of $12.4 million, offset by net changes in operating assets and liabilities of $2.9 million.

The primary non-cash adjustments to net loss included $4.9 million of depreciation and amortization, a $4.2 million provision for inventory, $2.9 million of stock-based compensation, and $0.3 million of amortization of debt financing costs.

The main drivers of the changes in operating assets and liabilities were a $0.9 million increase in prepaid and other current assets, a $0.7 million decrease in accrued liabilities, a $0.7 million increase in accounts receivable, a $0.4 million decrease in accounts payable, and a $0.3 million increase in inventories, partially offset by a $0.3 million decrease other non-current assets.

Net cash used in operating activities was $15.9 million for the nine months ended September 30, 2023, which primarily consisted of net loss of $26.1 million plus net adjustments for non-cash charges of $10.8 million, offset by net changes in operating assets and liabilities of $0.6 million.

The primary non-cash adjustments to net loss included $4.0 million of depreciation and amortization, $3.1 million of stock-based compensation, a $2.2 million impairment charge related to long-lived assets, $0.8 million loss on extinguishment of debt, and $0.4 million in amortization of debt financing costs.

The main drivers of the changes in operating assets and liabilities were a $0.9 million decrease in accounts payable, a $0.7 million increase in accounts receivable, a $0.7 million increase in prepaid expenses and other current assets, partially offset by a $0.8 million increase in accrued liabilities, a $0.6 million decrease in inventories, and a $0.3 million decrease other non-current assets.

Investing Activities

Net cash used in investing activities was $0.1 million for the six months ended June 30, 2024, which consisted of purchases of property, plant, and equipment of $0.2 million, partially offset by proceeds from the sale of certain long-lived assets of $0.1 million.

Net cash used in investing activities was $6.7 million for the six months ended June 30, 2023, which consisted of purchases of property, plant, and equipment.

Net cash used in investing activities was $25.9 million for the nine months ended September 30, 2024, which consisted of purchases of short-term investments of $25.4 million and purchases of property, plant, and equipment of $0.6 million, partially offset by proceeds from the sale of certain long-lived assets of $0.1 million.

Net cash used in investing activities was $7.6 million for the nine months ended September 30, 2023, which consisted of purchases of property, plant, and equipment.

Financing Activities

Net cash used in financing activities was $0.4 million for the six months ended June 30, 2024, which was primarily attributable to repayments of financed insurance premiums of $0.4 million, partially offset by proceeds of $0.1 million from the issuance of common stock under our employee stock purchase plan.

Net cash used in financing activities was $0.2 million for the six months ended June 30, 2023, which was primarily attributable to the payment of ATM Facility costs of $0.4 million, partially offset by proceeds of $0.1 million from the exercise of stock options and $0.1 million from issuance of common stock under our employee stock purchase plan.

Net cash used in financing activities was $10.5 million for the nine months ended September 30, 2024, which was primarily attributable to net proceeds from the July 2024 Offering of $15.2 million, proceeds from financed insurance premiums of $0.4 million and proceeds of $0.1 million from the issuance of common stock under our employee stock purchase plan, partially offset by the repayment of financed insurance premiums of $0.6 million.

Net cash provided by financing activities was $13.4 million for the nine months ended September 30, 2023, which was primarily attributable to proceeds from the September 2023 Offerings of $22.9 million and proceeds from financed insurance premiums of $1.0 million, partially offset by repayment of long-term debt of $10.0 million, repayment of financed insurance premiums of $0.3 million and payment of offering costs of $0.4 million related to the ATM Facility.

We also received proceeds of $0.1 million from the exercise of stock options and $0.1 million from issuance of common stock under our employee stock purchase plan.

Critical Accounting Policies and Estimates

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We have elected to avail ourselves of this exemption from adopting new or revised accounting standards, and, therefore, we will not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies or that have opted out of using such extended transition period, which may make comparison of our financial statements with those of other public companies more difficult.

We may take advantage of these reporting exemptions until we no longer qualify as an emerging growth company, or, with respect to adoption of certain new or revised accounting standards, until we irrevocably elect to opt out of using the extended transition period.

We may take advantage of these reporting

exemptions until we no longer qualify as an emerging growth company, or, with respect to adoption of certain new or revised accounting standards, until we irrevocably elect to opt out of using the extended transition period.

Under the JOBS Act, we will remain an emerging growth company until the earliest to occur of:

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We may continue to be a smaller reporting company even after we are no longer an emerging growth company.

completed fiscal year or (ii) the market value of our voting and non-voting common stock held by non-affiliates equals or exceeds $700.0 million measured on the last business day of our most recently completed second fiscal quarter.

We may take advantage of certain of the scaled disclosures available to smaller reporting companies until the fiscal year following the determination that (i) the market value of our voting and non-voting common stock held by non-affiliates equals or exceeds $250.0 million measured on the last business day of our most recently completed second fiscal quarter, and our annual revenues are more than $100.0 million during the most recently completed fiscal year or (ii) the market value of our voting and non-voting common stock held by non-affiliates equals or exceeds $700.0 million measured on the last business day of our most recently completed second fiscal quarter.

Recent Accounting Pronouncements

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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-Q

Item 2. Management’s Discussion and Analysis