# 908 Devices Inc.: Form 10-Q for the period ended Sep 30, 2022

- Company: [908 Devices Inc.](/companies/mass.md) (CIK 1555279)
- Form: 10-Q
- Filed: 2022-11-14
- Accepted by EDGAR: Nov 14, 2022, 14:16 ET
- Period: 2022-09-30
- Accession: 0001558370-22-017620
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1555279/000155837022017620/mass-20220930x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1555279/000155837022017620/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2022-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2022-07-01 to 2022-09-30 | $15.8m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2022-01-01 to 2022-09-30 | $35.2m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2022-07-01 to 2022-09-30 | $6.5m | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2022-01-01 to 2022-09-30 | $15.1m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2022-07-01 to 2022-09-30 | $9.3m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2022-01-01 to 2022-09-30 | $20.1m | us-gaap:GrossProfit |
| Research and development | 3 months, 2022-07-01 to 2022-09-30 | $4.7m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2022-01-01 to 2022-09-30 | $12.9m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2022-07-01 to 2022-09-30 | $11.8m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2022-01-01 to 2022-09-30 | $32.3m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2022-07-01 to 2022-09-30 | −$7.2m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2022-01-01 to 2022-09-30 | −$25.0m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2022-07-01 to 2022-09-30 | $33.0k | us-gaap:InterestExpense |
| Interest expense | 9 months, 2022-01-01 to 2022-09-30 | $68.0k | us-gaap:InterestExpense |
| Net income | 3 months, 2022-07-01 to 2022-09-30 | −$6.3m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2022-01-01 to 2022-09-30 | −$23.8m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2022-07-01 to 2022-09-30 | −$0.20 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2022-01-01 to 2022-09-30 | −$0.76 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2022-07-01 to 2022-09-30 | −$0.20 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2022-01-01 to 2022-09-30 | −$0.76 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2022-07-01 to 2022-09-30 | 31,606,484 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2022-01-01 to 2022-09-30 | 31,441,611 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2022-01-01 to 2022-09-30 | −$15.8m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2022-01-01 to 2022-09-30 | $1.4m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2022-09-30 | $193.7m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2022-09-30 | $223.9m | us-gaap:AssetsCurrent |
| Total assets | at 2022-09-30 | $249.3m | us-gaap:Assets |
| Current liabilities | at 2022-09-30 | $19.1m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2022-09-30 | $52.8m | us-gaap:Liabilities |
| Long-term debt | at 2022-09-30 | $15.0m | us-gaap:LongTermDebtNoncurrent |
| Shareholders' equity | at 2022-09-30 | $196.5m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 68,994 characters.

*The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on March 11, 2022 (“2021 Form 10-K”). Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in “Item 1.A. Risk Factors” section of our 2021 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.*

### Overview

We have developed an innovative suite of purpose-built handheld and desktop mass spectrometry, or Mass Spec, devices for the point-of-need. Leveraging our proprietary platform technology, we make the extraordinary analytical power of Mass Spec available in devices that are significantly smaller and more accessible than conventional laboratory instruments. Our Mass Spec devices are used at the point-of-need to interrogate unknown and invisible materials and provide quick, actionable answers to directly address some of the most critical problems in life sciences research, bioprocessing, industrial biotech, forensics and adjacent markets.

We create simplified measurement devices that our customers can use as accurate tools where and when their work needs to be done, rather than overly complex and centralized analytical instrumentation. We believe the insights and answers our devices provide will accelerate workflows, reduce costs, and offer transformational opportunities for our end users.

Front-line workers rely upon our handheld devices to combat the opioid crisis and detect counterfeit pharmaceuticals and illicit materials in the air or on surfaces at levels 1,000 times below their lethal dose. Our desktop devices are accelerating development and production of biotherapeutics by identifying and quantifying extracellular species in bioprocessing critical to cell health and productivity. They sit alongside bioreactors and fermenters producing drug candidates, functional proteins, cell and gene therapies, and synthetic biology derived products. We believe the insights and answers our devices provide accelerate workflows, reduce costs, and offer transformational opportunities for our end users. The term “products” as used in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” refers to the MX908, Rebel and ZipChip Interface.

Since inception, we have focused substantially all of our resources on designing, developing and building our proprietary Mass Spec platform and associated technologies, supporting software improvements and data analysis, organizing and staffing our company, planning our business, raising capital, and providing general and administrative support for these operations. To date, we have funded our operations primarily with proceeds from sales of preferred stock and borrowings under loan agreements and, more recently, with the proceeds from two public equity offerings. On December 22, 2020, we completed our initial public offering, or IPO, pursuant to which we issued and sold 7,475,000 shares of common stock, inclusive of 975,000 shares pursuant to the full exercise of the underwriters’ option to purchase additional shares. We received net proceeds of $136.6 million after deducting underwriting discounts and commissions and other offering costs. On November 15, 2021, we completed an underwritten public offering, pursuant to which we issued and sold 3,150,000 shares of common stock at a public offering price of $32.00 per share, or the November 2021 Offering. We received net proceeds of $94.4 million after deducting underwriting discounts and commissions and other offering costs.

On August 3, 2022, we entered into a share purchase and transfer agreement and completed our acquisition of 100% of the registered share capital of Trace, 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 Trace. Trace is a leading provider of online analysis systems for biotech applications in research, development and production. Trace’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.

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 $35.2 million and $26.4 million for the nine months ended September 30, 2022 and 2021, respectively, and incurred net losses of $23.8 million and $18.7 million for those same periods. As of September 30, 2022, we had an accumulated deficit of $124.4 million. We expect to continue to incur net losses as we focus on growing commercial sales of our products in both the United States and international markets, including growing our sales teams, scaling our manufacturing operations, continuing research and development efforts to develop new products and further enhance our existing products. Further, we expect to incur additional costs associated with operating as a public company. As a result, we 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. Until such time, if ever, as we can generate substantial revenue sufficient to achieve profitability, we expect to finance our operations through a combination of equity offerings, debt financings and strategic alliances. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If we are unable to raise capital or enter into such agreements as, and when, needed, we may have to significantly delay, scale back or discontinue the further development and commercialization efforts of one or more of our products, or may be forced to reduce or terminate our operations.

We believe that our existing cash and cash equivalents and revenue from product and service, will enable us to fund our operating expenses, capital expenditure requirements and debt service payments for at least the next 12 months. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. See “*Liquidity and Capital Resources.”*

### Economic Uncertainty and Rising Inflation

We are closely monitoring increased economic uncertainty in the United States and abroad. General inflation in the United States, Europe, EMEA and other geographies 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 travel expenses, negatively impact our business by increasing our cost of sales and operating expenses. General inflation also negatively impacts our business by decreasing the capital available 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. 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. The impact of future inflation and interest rate fluctuations on the results of our operations cannot be accurately predicted.

### COVID-19

In December 2019, a novel strain of coronavirus, or COVID-19, emerged in Wuhan, Hubei Province, China. Less than four months later, in March 2020, the World Health Organization declared COVID-19 a pandemic. The situation surrounding the COVID-19 pandemic remains fluid and the full extent of the impact of the COVID-19 pandemic on our business will depend on certain developments including the duration and severity of the pandemic, the emergence of new variants that may continue to prolong the pandemic, the amount of time it will take for normal economic activity to resume, future government actions that may be taken, the impact on consumer activity and behaviors and the effect on our customers, employees, suppliers, partners and stockholders, all of which are uncertain and cannot be predicted. For example, in 2021, we experienced extended lead times on our supply chain, limitations on travel for our employees and customers, and delays in product installations, trainings, or shipments to and from affected countries, and we recorded an increase to our allowance for doubtful accounts of $1.7 million for a customer in the Middle East where due to the credit and economic conditions, including the impact of COVID-19, we determined that it is probable that collection will not occur. Although we continue to monitor the situation and may adjust our current policies as more information and public health guidance become available, the ongoing effects of the COVID-19 pandemic and/or the precautionary measures that we have adopted may create operational and other challenges, any of which could harm our business and results of operations. While we maintain an inventory of finished products and raw materials used in our products, a prolonged pandemic could lead to shortages in the raw materials necessary to manufacture our products. If we experience a prolonged disruption in our manufacturing, supply chains or commercial operations, or if demand for our products or our customers’ ability to make payments is significantly reduced as a result of the COVID-19 pandemic, we would expect to experience a material adverse impact on our business, financial condition, results of operations and prospects.

Historically, a significant portion of our field sales, customer training events and other application services have been conducted in person, and the rollout of our new products has historically been supported by our participation at industry conferences. Any prolonged restrictive measures put in place in order to control the spread of COVID-19, including new variants, or other adverse public health developments in any of our targeted markets may have a material and adverse effect on our business operations and results of operations. We do not yet know the extent of the negative impact of such restrictions and precautionary measures, including the lifting of our travel restrictions in limited circumstances, on our ability to attract new customers or retain and expand our relationships with existing customers over the near and long term.

### Factors Affecting Our Performance

We believe that our financial performance has been and in the foreseeable future will continue to be primarily driven by the following factors. While each of these factors presents significant opportunities for our business, they also pose important challenges that we must successfully address to sustain our growth and improve our results of operations. Our ability to successfully address the factors below is subject to various risks and uncertainties.

### Device sales

Our financial performance has largely been driven by, and in the future will continue to be impacted by, the rate of sales of our handheld and desktop devices. Management focuses on device sales as an indicator of current business success and a leading indicator of likely future recurring revenue from consumables and services. We expect our device sales to continue to grow as we increase penetration in our existing markets and expand into, or offer new features and solutions that appeal to, new markets.

We plan to grow our device sales in the coming years through multiple strategies including expanding our sales efforts domestically and globally and continuing to enhance the underlying technology and applications for life sciences research related to our Rebel and ZipChip Interface. We regularly solicit feedback from our customers and focus our research and development efforts on enhancing our devices and enabling our customers to use additional applications that address their needs, which we believe in turn helps to drive additional sales of our devices and consumables.

Our sales process varies considerably depending upon the type of customer to whom we are selling. Historically, our handheld devices have been used by state, federal and foreign governments and governmental agencies. Our sales process with government customers is often long and involves multiple levels of approvals, testing and, in some cases, trials. Device orders from a government customer are typically large orders and can be impacted by the timing of their capital budgets. As a result, the revenue for our handheld devices can vary significantly from period-to-period and has been and may continue to be concentrated in a small number of customers in any given period.

Our desktop devices are typically used by the pharmaceutical, biotechnology and academia markets. Our sales cycles within these markets tend to vary based on the size of the customer and the number of devices they purchase. Our shortest sales cycles are typically for small laboratories and individual researchers where, in some cases, we receive purchase orders from these customers within three months. Our sales process with other institutions can be longer with most customers submitting purchase orders within six to twelve months. Given the variability of our sales cycle, we have in the past experienced, and likely will in the future experience, fluctuations in our desktop device sales on a period-to-period basis. Additionally, we have experienced and may continue to experience the impact of laboratory shutdowns related to COVID-19 on device and consumable sales to these markets.

### Recurring revenue

We regularly assess trends relating to recurring revenue which includes consumables and services based on our product offerings, our customer base and our understanding of how our customers use our products. Consumables and service revenue was 29% and 21% of total product and service revenue for the nine months ended September 30, 2022 and 2021, respectively. Our recurring revenue as a percentage of total product and service revenue will vary based upon new device placements in the period. As our device installed base expands, recurring revenue on an absolute basis is expected to increase and over time should be an increasingly important contributor to our revenue.

Revenue from the sales of consumables will vary by type of device. We expect that recurring revenue as a percentage of the original device price to be higher for our desktop devices (Rebel and ZipChip Interface) than for our handheld device (MX908). While we sell single-use swab samplers for MX908 to be used in liquid and solid materials analysis, there are a number of other applications that the MX908 can be used for that do not require consumables. Rebel and ZipChip Interface require consumables kits for all areas of operations. Currently, Rebel customers, who are actively utilizing the device, are consuming on average one 200-sample kit per month; however, Rebel is a new product and purchasing patterns related to our consumables kits are evolving. We expect that the number of kits sold per month will vary over the short term. In time, we expect Rebel consumables kits sales to become more consistent as our installed base grows and our customers establish usage patterns. At maximum potential capacity, with continuous operation, the Rebel can consume approximately one 200-sample kit per day.

### Revenue mix and gross margin

Our revenue is derived from sales of our devices, consumables and services. There will be fluctuations in mix between devices and consumables from period-to-period. 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. However, the percentage will be subject to fluctuation based upon our handheld sales in a period. In addition, our selling price and, consequently, our margins, are higher for those devices and consumables that we sell directly to customers as compared to those that we sell through distributors. While we expect the mix of direct sales as compared to sales through distributors to remain relatively constant in the near term, we are currently evaluating increasing our direct sales capabilities in certain geographies.

Future device and consumable selling prices and gross margins may fluctuate due to a variety of factors, including the introduction by others of competing products and solutions. We aim to mitigate downward pressure on our average selling prices by increasing the value proposition offered by our devices and consumables, primarily by expanding the applications for our devices and increasing the quantity and quality of data that can be obtained using our consumables.

### Product adoption

We monitor our customers’ stage of adoption of our products to provide insight into the timing of future potential sales and to help us formulate financial projections. Typical stages of adoption include testing, trials, pilot and deployment as follows:

- Testing—a customer is actively engaged with internal or external testing of our products. This may include an onsite or virtual demonstration with a salesperson, a customer submitting samples for testing in one of our facilities or testing by a third party.
- Trials—a customer has committed to a trial of one of our products, which may include a defined period to assess functionality of the device in their operational environment (in the field or onsite within the customer’s facility).
- Pilot—a customer commits to the purchase of an initial quantity of devices to deploy in their operational environment to assess a broader opportunity that may grow to tens or hundreds of devices.
- Deployment—a customer has completed testing, a trial, and/or a pilot and intends to roll out the technology across their enterprise (either at a site or throughout the entire organization).

### Key Business Metrics

We regularly review the number of product placements and cumulative product placements as key metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections, and make strategic decisions. We believe that these metrics are representative of our current business; however, we anticipate these will change or may be substituted for additional or different metrics as our business grows.

During the three and nine months ended September 30, 2022 and 2021, our product placements (units recognized as revenue) by device type were as follows:

| ​ ​ ​ ​ ​ Product Placements: ​ | ​ ​ Three Months Ended September 30, 2022 ​ ​ | ​ ​ ​ 2021 ​ | ​ ​ Nine Months Ended September 30, 2022 ​ ​ | ​ ​ ​ 2021 ​ ​ |
| --- | ---: | ---: | ---: | ---: |
| MX908 | 150 | 164 | 315 | 301 |
| Rebel | 18 | 13 | 47 | 34 |
| ZipChip Interface | 7 | 7 | 20 | 18 |
| Total Product Placements | 175 | 184 | 382 | 353 |

The number of product placements vary considerably from period-to-period due to the type and size of our customers and concentrations among larger government customers as described above. We expect continued fluctuations in our period-to-period number of product placements.

Our cumulative product placements consist of the following number of devices:

| ​ ​ ​ ​ ​ Cumulative Product Placements: ​ | ​ ​ September 30, 2022 ​ ​ | ​ ​ ​ 2021 ​ ​ |
| --- | ---: | ---: |
| MX908 | 1,965 | 1,459 |
| Rebel | 147 | 80 |
| ZipChip Interface | 205 | 175 |
| Cumulative Product Placements | 2,317 | 1,714 |

### Components of Our Results of Operations

### Revenue

#### 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 71% and 79% of our product and service revenue for the nine months ended September 30, 2022 and 2021, respectively. Consumables and service revenue accounted for 29% and 21% of our product and service revenue for the nine months ended September 30, 2022 and 2021, respectively.

Our current device offerings include:

- Handheld devices—MX908; and
- Desktop devices—Rebel and ZipChip Interface.

We sell our devices directly to customers and through distributors. Each of our device sales drives various streams of recurring revenue comprised of consumable product sales and service revenue.

Our consumables consist of:

- MX908—accessories and swabs;
- Rebel—consumables kit with a microfluidic chip and standards; and
- ZipChip Interface—microfluidic chip, reagent and assay kits.

Rebel and ZipChip Interface consumables can only be used with our devices and there are no alternative after-market options that can be used as a substitute. Each chip is used for a defined number of samples (or runs). We recognize revenue from the sale of consumables as the consumable products are shipped.

We also offer our customers extended warranty and service plans. Our extended warranty and service plans are offered for periods beyond the standard one-year warranty that all of our customers receive. These extended warranty and service plans generally have fixed fees and terms ranging from one additional year to four additional years. We recognize revenue from the sale of extended warranty and service plans over the respective coverage period, which approximates the service effort provided by us.

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

#### Licenses and contract revenue

License and contract agreements are arrangements whereby we provide engineering services for the development of our technology platform for specific programs or new and expanding applications of our technologies for future commercial endeavors. Our license and contract agreements are with the U.S. government and commercial entities (who may be contracting with the government). Contracts typically include compensation for labor effort and materials incurred related to the deliverables under the contract. Our license and contract revenue was primarily related to two customers during the three and nine months ended September 30, 2022 and one customer during the three and nine months ended September 30, 2021.

During the three and nine months ended September 30, 2022 and 2021, our revenue was comprised of revenue from the following sources:

| ​ ​ ​ Product and service revenue: | ​ ​ | ​ ​ Three Months Ended September 30, 2022 ​ | ​ | ​ ​ 2021 ​ | ​ ​ | ​ ​ Nine Months Ended September 30, 2022 ​ | ​ | ​ ​ 2021 ​ | ​ ​ ​ ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- |
| Device sales revenue | ​ | $10,952 | ​ | $10,075 | ​ | $24,239 | ​ | $20,167 | ​ |
| Consumables and service revenue | ​ | 4,485 | ​ | 2,210 | ​ | 9,835 | ​ | 5,390 | ​ |
| Total product and service revenue | ​ | 15,437 | ​ | 12,285 | ​ | 34,074 | ​ | 25,557 | ​ |
| License and contract revenue | ​ | 360 | ​ | 260 | ​ | 1,135 | ​ | 808 | ​ |
| Total revenue | ​ | $15,797 | ​ | $12,545 | ​ | $35,209 | ​ | $26,365 | ​ |

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:

| ​ ​ ​ | ​ ​ Three Months Ended September 30, 2022 | ​ | ​ ​ 2021 | ​ ​ | ​ ​ Nine Months Ended September 30, 2022 | ​ | ​ ​ 2021 | ​ ​ ​ |
| --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- |
| Government | $11,069 | ​ | $9,505 | ​ | $22,788 | ​ | $18,018 | ​ |
| Pharmaceutical/Biotechnology | ​ 4,327 | ​ | 2,766 | ​ | ​ 11,032 | ​ | 7,475 | ​ |
| Academia | ​ 41 | ​ | 14 | ​ | ​ 254 | ​ | 64 | ​ |
| Total product and service revenue | $15,437 | ​ | $12,285 | ​ | $34,074 | ​ | $25,557 | ​ |

We sell our products primarily in the United States; however, we continue 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 a distribution channel.

### Cost of Revenue, Gross Profit and Gross Margin

Product cost of revenue primarily consists of costs for raw material parts and associated freight, shipping and handling costs, royalties, contract manufacturer costs, salaries and other personnel costs, overhead, 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. License and contract cost of revenue primarily consists of salaries and other personnel costs, materials, travel and other direct costs related to the revenue recognized in the period. The license and contract cost of revenue will vary based upon the type of contract, including whether it is primarily for development services or for both materials and development services.

We expect that our cost of revenue will increase or decrease to the extent that our revenue increases and decreases and depending on how many contracts we have ongoing at any given point in time and the stage of those contracts.

Gross profit is calculated as revenue less cost of revenue. Gross profit margin is gross profit expressed as a percentage of revenue. Our gross profit in future periods will depend on a variety of factors, including: market conditions that may impact our pricing, sales mix among devices, sales mix changes among consumables, excess and obsolete inventories, our cost structure for manufacturing operations relative to volume, and product warranty obligations. Our gross profit in future periods will vary based upon our channel mix and may decrease based upon our distribution channels and the potential to establish original equipment manufacturing channels for certain components of our technology platform which would have a lower gross margin.

We expect that our gross profit margin for product and service will increase over the long term as our sales and production volumes increase and our cost per unit decreases due to efficiencies of scale. We intend to use our design, engineering and manufacturing capabilities to further advance and improve the efficiency of our manufacturing, which we believe will reduce costs and increase our gross margin. We expect that our gross profit margin for license and contract will remain consistent for our contracts that are cost reimbursement contracts.

### Operating Expenses

#### Research and development expenses

Research and development expenses consist primarily of costs incurred for our research activities, product development, hardware and software engineering and consultant services and other costs associated with our technology platform and products, which include:

- employee-related expenses, including salaries, related benefits and stock-based compensation expense for employees engaged in research and hardware and software development functions;
- the cost of maintaining and improving our product designs, including third party development costs for new products and materials for prototypes;
- research materials and supplies; and
- 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.

#### 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.

### Other Income (Expense)

#### Interest expense

Interest expense consists of interest expense associated with outstanding borrowings under our loan and security agreements and the amortization of deferred financing costs and debt discounts associated with such arrangements.

#### Other income (expense), net

Other income (expense), net consists of interest income from our cash and cash equivalents, miscellaneous other income and expense unrelated to our core operations.

### Provision for Income Taxes

We have not recorded any U.S. federal or state income tax benefits for the net operating losses we have incurred in each year or for the research and development tax credits we generated in the United States, as we believe, based upon the weight of available evidence, that it is more likely than not that all of our net operating loss carryforwards and tax credits will not be realized. As of December 31, 2021, we had U.S. federal and state net operating loss carryforwards of $80.4 million and $52.3 million, respectively, which may be available to offset future taxable income and begin to expire in 2032 and 2025, respectively, of which $46.0 million of federal net operating losses do not expire. As of December 31, 2021, we also had U.S. federal and state research and development tax credit carryforwards of $4.8 million and $2.7 million, respectively, which may be available to offset future tax liabilities and begin to expire in 2032 and 2029, respectively. We have recorded a full valuation allowance against our net deferred tax assets at each balance sheet date.

In August 2022, the U.S. Inflation Reduction Act (the Act) was enacted into law. The Act includes various tax provisions, including an excise tax on stock repurchases, expanded tax credits for clean energy incentives and a corporate alternative minimum tax that generally applies to U.S. corporations with adjusted financial statement income in excess of $1.0 billion. We do not expect the Act to have a material impact on our condensed consolidated financial statements.

### Results of Operations

### Comparison of the Three months ended September 30, 2022 and 2021

The following table summarizes our results of operations for the three months ended September 30, 2022 and 2021:

*(in thousands)*

| ​ ​ ​ ​ Revenue: | ​ ​ ​ | ​ ​ Three Months Ended September 30, 2022 ​ | ​ | ​ ​ 2021 ​ | ​ ​ | ​ ​ ​ ​ Change ​ |
| --- | --- | ---: | --- | ---: | --- | ---: |
| Product and service revenue | ​ | $15,437 | ​ | $12,285 | ​ | $3,152 |
| License and contract revenue | ​ | 360 | ​ | 260 | ​ | 100 |
| Total revenue | ​ | 15,797 | ​ | 12,545 | ​ | 3,252 |
| Cost of revenue: | ​ |  | ​ |  | ​ |  |
| Product and service cost of revenue | ​ | 6,366 | ​ | 5,656 | ​ | 710 |
| License and contract cost of revenue | ​ | 93 | ​ | 77 | ​ | 16 |
| Total cost of revenue | ​ | 6,459 | ​ | 5,733 | ​ | 726 |
| Gross profit | ​ | 9,338 | ​ | 6,812 | ​ | 2,526 |
| Operating expenses: | ​ |  | ​ |  | ​ |  |
| Research and development | ​ | 4,666 | ​ | 3,302 | ​ | 1,364 |
| Selling, general and administrative | ​ | 11,826 | ​ | 8,786 | ​ | 3,040 |
| Total operating expenses | ​ | 16,492 | ​ | 12,088 | ​ | 4,404 |
| Loss from operations | ​ | (7,154) | ​ | (5,276) | ​ | (1,878) |
| Other income (expense): | ​ |  | ​ |  | ​ |  |
| Interest expense | ​ | (33) | ​ | (31) | ​ | (2) |
| Other income, net | ​ | 928 | ​ | 122 | ​ | 806 |
| Total other income, net | ​ | 895 | ​ | 91 | ​ | 804 |
| Net loss | ​ | $(6,259) | ​ | $(5,185) | ​ | $(1,074) |

### Revenue, Cost of Revenue and Gross Profit

#### Product and service

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

*(dollars in thousands)*

| ​ ​ ​ ​ | ​ ​ ​ | ​ ​ ​ Three Months Ended September 30, 2022 | ​ ​ ​ ​ 2021 | ​ ​ ​ Change Amount% | ​ ​ ​ ​ ​ |
| --- | --- | ---: | ---: | ---: | ---: |
| Product and service revenue | ​ | $15,437 ​ | $12,285 ​ | $3,152 | 26% |
| Product and service cost of revenue | ​ | 6,366 ​ | 5,656 ​ | 710 | 13% |
| Gross profit | ​ | $9,071 ​ | $6,629 ​ | $2,442 | 37% |
| Gross profit margin | ​ | 59% | 54% | 5% | ​ ​ |

*(dollars in thousands)*

| ​ ​ ​ ​ | ​ ​ ​ | ​ ​ Three Months Ended September 30, 2022 | ​ | ​ ​ 2021 | ​ ​ | ​ ​ Change Amount% | ​ ​ ​ ​ ​ ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | ---: |
| Device sales revenue |  | $10,952 | ​ | $10,075 | ​ | $877 | 9% |
| Consumables and service revenue |  | ​ 4,485 | ​ | 2,210 | ​ | 2,275 | 103% |
| Total product and service revenue | ​ | $15,437 | ​ | $12,285 | ​ | $3,152 | 26% |

Product and service revenue increased by $3.2 million, or 26%, for the three months ended September 30, 2022, compared to the three months ended September 30, 2021. Device sales accounted for 71% and 82% of our product and service revenue for the three months ended September 30, 2022 and 2021, respectively. The increase in device sales of $0.9 million was primarily due to an increase of $1.0 million in desktop device sales, primarily related to a five unit increase in Rebel devices and a higher average selling price for desktop devices based upon distributor mix and annual list price increases. Consumables and service revenue increased by $2.3 million primarily due to an increase in consumables of $1.3 million driven by aero modules and handheld consumable kits and a $1.0 million increase in service revenue which was related to approximately 100% growth in service for both handheld and desktops.

Product and service cost of revenue increased by $0.7 million, or 13%, for the three months ended September 30, 2022, compared to the three months ended September 30, 2021. The increase in product and service cost of revenue was primarily related to $0.4 million in costs from higher product volume, a $0.3 million increase in salaries and related costs, and a $0.1 million increase in intangible amortization offset in part by a decrease in royalty obligations and timing of the capitalization of labor and overhead from the build of devices within the quarter.

Product and service gross profit increased by $2.4 million, or 37%, and gross profit margin increased by five percentage points for the three months ended September 30, 2022 as compared to the three months ended September 30, 2021, primarily due to $1.0 million in higher service revenue and higher average selling prices for our MX908 and Rebel devices, offset in part by the higher personnel and operating costs.

#### License and contract

*(dollars in thousands)*

| ​ ​ ​ ​ | ​ ​ ​ | ​ ​ ​ Three Months Ended September 30, 2022 | ​ ​ ​ ​ 2021 | ​ ​ ​ Change Amount% | ​ ​ ​ ​ ​ |
| --- | --- | ---: | ---: | ---: | ---: |
| License and contract revenue | ​ | $360 ​ | $260 ​ | $100 | 38% |
| License and contract cost of revenue | ​ | 93 ​ | 77 ​ | 16 | 21% |
| Gross profit | ​ | $267 ​ | $183 ​ | $84 | 46% |
| Gross profit margin | ​ | ​ 74% | ​ 70% | ​ 4% | ​ ​ |

License and contract revenue increased by $0.1 million, or 38%, for the three months ended September 30, 2022, compared to the three months ended September 30, 2021. The majority of license and contract revenue in the three months ended September 30, 2022 and 2021, was related to activities under our subcontract agreement with a commercial entity that holds a U.S. government prime contract.

License and contract cost of revenue was relatively unchanged in absolute dollars, but was an increase of 21% for the three months ended September 30, 2022, compared to the three months ended September 30, 2021.

License and contract gross profit increased and gross profit margin increased by four percentage points for the three months ended September 30, 2022 as compared to the three months ended September 30, 2021, primarily due to the mix in contract deliverables, including a mix of labor versus materials during the three months ended September 30, 2022, which resulted in a slightly higher gross profit margin percentage.

### Operating Expenses

#### Research and development

*(dollars in thousands)*

| ​ ​ ​ ​ | ​ ​ ​ | ​ ​ ​ Three Months Ended September 30, 2022 | ​ ​ ​ ​ 2021 | ​ ​ Change Amount% | ​ | ​ ​ ​ ​ ​ |
| --- | --- | ---: | ---: | ---: | --- | ---: |
| Research and development expenses | ​ | $4,666 ​ | $3,302 | $1,364 |  | 41% |
| Percentage of total revenue | ​ | 30% | 26% | ​ | ​ | ​ ​ |

Our research and development expenses were $4.7 million for the three months ended September 30, 2022, an increase of $1.4 million from research and development expenses of $3.3 million for the three months ended September 30, 2021. The increase was due primarily to a $0.7 million increase in salaries and related costs from growing headcount, a $0.3 million increase in stock-based compensation and a $0.2 million increase in materials and supplies related to product development efforts.

#### Selling, general and administrative expenses

*(dollars in thousands)*

| ​ ​ ​ ​ | ​ ​ ​ | ​ ​ ​ Three Months Ended September 30, 2022 | ​ ​ ​ ​ 2021 | ​ ​ Change Amount% | ​ | ​ ​ ​ ​ ​ |
| --- | --- | ---: | ---: | ---: | --- | ---: |
| Selling, general and administrative expenses | ​ | $11,826 ​ | $8,786 ​ | $3,040 |  | 35% |
| Percentage of total revenue | ​ | 75% | 70% | ​ ​ | ​ | ​ ​ |

Our selling, general and administrative expenses were $11.8 million for the three months ended September 30, 2022, an increase of $3.0 million from selling, general and administrative expenses of $8.8 million for the three months ended September 30, 2021. The increase was due primarily to a $1.5 million increase in salaries and related costs from growing headcount, a $0.8 million increase in stock-based compensation, a $0.5 million increase in travel expenses, a $0.1 million in intangibles amortization and a $0.1 million net increase in all other costs.

### Other Income (Expense)

#### Interest expense

Interest expense was relatively unchanged for the three months ended September 30, 2022 compared to the three months ended September 30, 2021.

O*ther income (expense), net*

Other income, net was $0.9 million for the three months ended September 30, 2022, an increase of $0.8 million from other income, net of $0.1 million for the three months ended September 30, 2021. The increase was primarily due to our higher cash and cash equivalent balances from the proceeds from the November 2021 Offering as well as higher interest rates on our interest bearing accounts based upon recent increases in the market.

### Comparison of the Nine months ended September 30, 2022 and 2021

The following table summarizes our results of operations for the nine months ended September 30, 2022 and 2021:

*(in thousands)*

| ​ ​ ​ ​ Revenue: | ​ ​ ​ ​ | ​ ​ Nine Months Ended September 30, 2022 ​ | ​ ​ | ​ ​ 2021 ​ | ​ ​ ​ | ​ ​ ​ ​ Change ​ |
| --- | --- | ---: | --- | ---: | --- | ---: |
| Product and service revenue | ​ | $34,074 | ​ | $25,557 | ​ | $8,517 |
| License and contract revenue | ​ | 1,135 | ​ | 808 | ​ | 327 |
| Total revenue | ​ | 35,209 | ​ | 26,365 | ​ | 8,844 |
| Cost of revenue: | ​ |  | ​ |  | ​ |  |
| Product and service cost of revenue | ​ | 14,768 | ​ | 12,062 | ​ | 2,706 |
| License and contract cost of revenue | ​ | 340 | ​ | 204 | ​ | 136 |
| Total cost of revenue | ​ | 15,108 | ​ | 12,266 | ​ | 2,842 |
| Gross profit | ​ | 20,101 | ​ | 14,099 | ​ | 6,002 |
| Operating expenses: | ​ |  | ​ | ​ | ​ |  |
| Research and development | ​ | 12,864 | ​ | 9,322 | ​ | 3,542 |
| Selling, general and administrative | ​ | 32,281 | ​ | 23,318 | ​ | 8,963 |
| Total operating expenses | ​ | 45,145 | ​ | 32,640 | ​ | 12,505 |
| Loss from operations | ​ | (25,044) | ​ | (18,541) | ​ | (6,503) |
| Other income (expense): | ​ |  | ​ |  | ​ |  |
| Interest expense | ​ | (68) | ​ | (446) | ​ | 378 |
| Other income, net | ​ | ​ 1,340 | ​ | 283 | ​ | 1,057 |
| Total other income (expense), net | ​ | 1,272 | ​ | (163) | ​ | 1,435 |
| Net loss | ​ | $(23,772) | ​ | $(18,704) | ​ | $(5,068) |

### Revenue, Cost of Revenue and Gross Profit

#### Product and service

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

*(dollars in thousands)*

| ​ ​ ​ ​ | ​ ​ ​ | ​ ​ ​ Nine Months Ended September 30, 2022 | ​ ​ ​ ​ 2021 | ​ ​ ​ Change Amount% | ​ ​ |
| --- | --- | ---: | ---: | ---: | ---: |
| Product and service revenue | ​ | $34,074 ​ | $25,557 ​ | $8,517 | 33% |
| Product and service cost of revenue | ​ | 14,768 ​ | 12,062 ​ | 2,706 | 22% |
| Gross profit | ​ | $19,306 ​ | $13,495 ​ | $5,811 | 43% |
| Gross profit margin | ​ | 57% | 53% | 4% | ​ |

*(dollars in thousands)*

| ​ ​ ​ ​ | ​ ​ ​ | ​ ​ Nine Months Ended September 30, 2022 | ​ | ​ ​ 2021 | ​ ​ | ​ ​ Change Amount% | ​ ​ ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | ---: |
| Device sales revenue | ​ | $24,239 | ​ | $20,167 | ​ | $4,072 | 20% |
| Consumables and service revenue | ​ | ​ 9,835 | ​ | 5,390 | ​ | 4,445 | 82% |
| Total product and service revenue | ​ | $34,074 | ​ | $25,557 | ​ | $8,517 | 33% |

Product and service revenue increased by $8.5 million, or 33%, for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021. Device sales accounted for 71% and 79% of our product and service revenue for the nine months ended September 30, 2022 and 2021, respectively. Consumables and service revenue accounted for 29% and 21% of our product and service revenue for the nine months ended September 30, 2022 and 2021, respectively. The increase in device sales of $4.1 million was primarily due to an increase of $2.5 million in desktop device sales, representing a 15 unit increase, primarily related to Rebel device placements driven by adoption of our technology within process development labs to obtain information and analytics within their bioprocessing batches. The increase in device sales was also due to an increase of $1.6 million in handheld device sales for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, attributable to a 14 unit increase in sales of our handheld products, mainly driven by an increase in state and local placements in the United States as a result of funding to address detection capabilities with the opioid epidemic. Consumables and service revenue increased by $4.4 million primarily due to a $2.7 million increase in service revenue and a $1.3 million increase in handheld aero modules, accessories and consumables sales.

Product and service cost of revenue increased by $2.7 million, or 22%, for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021. The increase in product and service cost of revenue was primarily related to $1.3 million in costs from higher product volume, a $1.1 million increase in salaries and related costs from growing headcount, a $0.2 million increase in stock-based compensation and $0.1 million in intangibles amortization.

Product and service gross profit increased by $5.8 million, or 43%, and gross profit margin increased by four percentage points for the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021, primarily due to $2.7 million in higher service revenue, as well as higher product revenue volume and favorable product mix and pricing, offset in part by the higher personnel and operating costs to support the higher volume.

#### License and contract

*(dollars in thousands)*

| ​ ​ ​ ​ | ​ ​ ​ | ​ ​ ​ Nine Months Ended September 30, 2022 | ​ ​ ​ ​ 2021 | ​ ​ ​ Change Amount% | ​ ​ |
| --- | --- | ---: | ---: | ---: | ---: |
| License and contract revenue | ​ | $1,135 ​ | $808 ​ | $327 | 40% |
| License and contract cost of revenue | ​ | 340 ​ | 204 ​ | 136 | 67% |
| Gross profit | ​ | $795 ​ | $604 ​ | $191 | 32% |
| Gross profit margin | ​ | 70% | ​ 75% | ​ (5)% | ​ |

License and contract revenue increased by $0.3 million, or 40%, for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021. The majority of license and contract revenue, for the nine months ended September 2022 and 2021, was related to activities under our subcontract agreement with a commercial entity that holds a U.S. government prime contract. The increase in license and contract revenue for the nine months ended September 30, 2022 is primarily related to a $0.3 million increase in revenue related work performed under a prime contract held directly with the U.S. government.

License and contract cost of revenue increased by $0.1 million, or 67% for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021 due to mix of contract deliverables across the current contracts. The mix of contract deliverables for the nine months ended September 30, 2022 had higher material costs as part of the contract deliverables for the prime contract held directly with the U.S. government compared to the nine months ended September 30, 2021.

License and contract gross profit increased by $0.2 million and gross profit margin decreased by five percentage points for the nine months ended September 30, 2022 as compared to the three months ended September 30, 2021, primarily due to the mix in contract deliverables, including a mix of materials with higher costs during the nine months ended September 30, 2022 which resulted in a lower gross profit margin for that period, as compared to the nine months ended September 30, 2021.

### Operating Expenses

#### Research and development

*(dollars in thousands)*

| ​ ​ ​ ​ | ​ ​ ​ | ​ ​ ​ Nine Months Ended September 30, 2022 | ​ ​ ​ ​ 2021 | ​ ​ Change Amount% | ​ ​ ​ |
| --- | --- | ---: | ---: | ---: | ---: |
| Research and development expenses | ​ | $12,864 ​ | $9,322 ​ | $3,542 | 38% |
| Percentage of total revenue | ​ | 37% | 35% |  | ​ |

Our research and development expenses were $12.9 million for the nine months ended September 30, 2022, an increase of $3.5 million from research and development expenses of $9.3 million for the nine months ended September 30, 2021. The increase was due primarily to a $2.2 million increase in salaries and related costs from growing headcount, a $0.9 million increase in stock-based compensation and a $0.3 million increase in materials and supplies related to product development efforts.

#### Selling, general and administrative expenses

*(dollars in thousands)*

| ​ ​ ​ ​ | ​ ​ ​ | ​ ​ ​ Nine Months Ended September 30, 2022 | ​ ​ ​ ​ 2021 | ​ ​ Change Amount% | ​ ​ ​ |
| --- | --- | ---: | ---: | ---: | ---: |
| Selling, general and administrative expenses | ​ | $32,281 ​ | $23,318 ​ | $8,963 | 38% |
| Percentage of total revenue | ​ | 92% | 88% |  | ​ |

Our selling, general and administrative expenses were $32.3 million for the nine months ended September 30, 2022, an increase of $9.0 million from selling, general and administrative expenses of $23.3 million for the nine months ended September 30, 2021. The increase was due primarily to a $5.3 million increase in salaries and related costs from growing headcount, a $2.5 million increase in stock-based compensation, a $1.2 million increase in travel expenses, a $0.5 million increase in IT related subscription fees, a $0.4 million increase in marketing activities, a $0.1 million in intangibles amortization and a $0.8 million net increase in all other costs. These increases were partially offset by a $1.8 million decrease in allowance for bad debt recorded in the nine months ended September 30, 2021.

### Other Income (Expense)

#### Interest expense

Interest expense decreased by $0.4 million for the nine months ended September 30, 2022, from $0.4 million for the nine months ended September 30, 2021. The decrease was primarily due to lower average outstanding borrowings during the nine months ended September 30, 2022 and a loss on extinguishment of debt of $0.2 million recorded for the comparative prior year period.

#### Other income (expense), net

Other income (expense), net increased by $1.0 million for the nine months ended September 30, 2022, from $0.3 million for the nine months ended September 30, 2021. The increase was primarily due to a $1.0 million increase in interest earned from our higher cash and cash equivalent balances from the proceeds from the November 2021 Offering, as well as higher interest rates on our interest bearing accounts.

### Liquidity and Capital Resources

Since our inception, we have incurred significant operating losses. To date, we have funded our operations primarily with proceeds from sales of redeemable preferred stock, borrowings under loan agreements and revenue from sales of our products and services and license and contract revenue, proceeds from our IPO in December 2020, and, most recently, with proceeds from the November 2021 Offering. As of September 30, 2022, we had cash and cash equivalents of $193.7 million. We believe that our existing cash and cash equivalents will enable us to fund our operating expenses, capital expenditure requirements and debt service payments for at least the next twelve months.

We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect. Our future funding requirements will depend on many factors, including:

- market uptake of our products and growth into new and existing markets;
- the cost of our research and development efforts to expand the applications of our current devices and to create enhanced products with our platform of technologies;
- the cost of expanding our commercial operations, including distribution capabilities, and accelerating planned investments, such as hiring additional support, service, and sales management in Europe, Asia Pacific and Latin America, bolstering our infrastructure in these regions;
- the cost of acquiring complementary businesses, products, services or technologies, when and if required;
- the success of our existing collaborations and our ability to enter additional collaborations in the future;
- the effect of competing technological and market developments; and
- 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. The amount outstanding under the 2021 Revolver at September 30, 2022 of $15 million was repaid in October 2022 and no amounts were outstanding upon termination of the 2021 Revolver.

On November 2, 2022, we entered into a Loan and Security Agreement (the “2022 Revolver”), by and between, 908 Devices Inc., as borrower, and Silicon Valley Bank, as lender.

The 2022 Revolver provides for a revolving line of credit of up to $35.0 million. We are permitted to make interest-only payments on the revolving line of credit through November 2, 2025, at which time all outstanding indebtedness shall be immediately due and payable. The outstanding principal amount of any advance shall accrue interest at a floating rate per annum equal to the greater of (i) three and one-half percent (3.50%) and (ii) the “prime rate” as published in The Wall Street Journal for the relevant period minus one-half percent (0.50%). Our obligations under the 2022 Revolver are secured by substantially all of our assets, excluding our intellectual property, which is subject to a negative pledge. The revolving line of credit under the 2022 Revolver terminates on November 2, 2025. As of November 2, 2022, no amounts were outstanding under the 2022 Revolver.

The 2022 Revolver also contains certain financial covenants, including a requirement that the amount of unrestricted and unencumbered cash minus advances under the 2022 Revolver, is 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 contains 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.

We may seek additional funding through private or public equity financings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements. We cannot assure you that we will be able to obtain additional funds on acceptable terms, or at all. If we raise additional funds by issuing equity or equity-linked securities, our stockholders may experience dilution. Future debt financing, if available, may involve covenants, in addition to our existing covenants, restricting our operations or our ability to incur additional debt or potentially limiting our ability to obtain new debt financing or the refinance of our existing debt.

Any debt or equity financing that we raise may contain terms that are not favorable to us or our stockholders. If we raise additional funds through collaboration and licensing arrangements with third parties, it may be necessary to relinquish some rights to our technologies or our products, or grant licenses on terms that are not favorable to us. If we do not have or are not able to obtain sufficient funds, we may have to delay development or commercialization of our products. We also may have to reduce marketing, customer support or other resources devoted to our products or cease operations.

### Cash Flows

The following table summarizes our sources and uses of cash for each of the periods presented:

*(in thousands)*

| ​ ​ ​ ​ | ​ ​ ​ | ​ ​ Nine Months Ended September 30, 2022 | ​ | ​ ​ 2021 |
| --- | --- | ---: | --- | ---: |
| Cash used in operating activities | ​ | $(15,814) | ​ | $(19,862) |
| Cash used in investing activities | ​ | (15,195) | ​ | (683) |
| Cash provided by financing activities | ​ | 768 | ​ | 193 |
| Net decrease in cash, cash equivalents and restricted cash | ​ | $(30,241) | ​ | $(20,352) |

#### Operating Activities

During the nine months ended September 30, 2022, net cash used in operating activities was $15.8 million, primarily resulting from our net loss of $23.8 million, partially offset by net cash provided by changes in our operating assets and liabilities of $1.7 million and noncash charges of $6.3 million. Net cash provided by changes in our operating assets and liabilities for the nine months ended September 30, 2022 consisted primarily of a $2.5 million increase from changes in deferred revenue and a $2.2 million increase from changes in prepaid expenses and other current assets, $1.3 million increase from changes in account receivable, partially offset by a $4.1 million decrease from changes in inventory.

During the nine months ended September 30, 2021, net cash used in operating activities was $19.9 million, primarily resulting from our net loss of $18.7 million and net cash used by changes in our operating assets and liabilities of $5.4 million, partially offset by noncash charges of $4.2 million. Net cash used by changes in our operating assets and liabilities for the nine months ended September 30, 2021 consisted primarily of a $4.4 million decrease from changes in inventory, a $3.2 million decrease from changes in accounts receivable and a $2.7 million decrease from changes in prepaid expenses and other current and non-current assets, partially offset by a $3.6 million increase from changes in deferred revenue and a $1.4 million increase from changes in account payable and accrued expenses.

#### Investing Activities

During the nine months ended September 30, 2022, net cash used in investing activities was $15.2 million, due to $13.8 million increase from the acquisition of Trace occurred in August, 2022 and purchases of other property and equipment.

During the nine months ended September 30, 2021, net cash used in investing activities was $0.7 million, due to purchases of property and equipment.

#### Financing Activities

Cash provided by financing activities during the nine months ended September 30, 2022, was $0.8 million, consisting primarily of proceeds from issuance of common stock upon option exercises. We also paid off and drew down $45.0 million under the 2021 Revolver resulting in no net proceeds by September 30, 2022.

Cash provided by financing activities during the nine months ended September 30, 2021, was $0.2 million, consisting primarily of payments of offering costs related to our IPO, partially offset by proceeds from issuance of common stock upon option exercise. We also received net proceeds from borrowings under the 2021 Revolver of $15.0 million. We used proceeds of $14.5 million from the revolving line of credit to repay our previously outstanding borrowings under our loan and security agreement. Prior to repayment of our loan and security agreement, we had made principal payments of $0.5 million.

### Critical Accounting Policies and Significant Judgments and Estimates

Our condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States, or GAAP. The preparation of our condensed consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, costs and expenses and the disclosure of contingent assets and liabilities in our condensed consolidated financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.

We believe the following new critical accounting policies and estimates to be both those most important to the portrayal of our financial position and results of operations and those that require the most estimation and subjective judgment:

### Goodwill

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. In assessing the recoverability of goodwill, we must make assumptions regarding the estimated future cash flows, and other factors, to determine the fair value of these assets. If these estimates or their related assumptions change in the future, we may be required to record impairment charges against these assets in the reporting period in which the impairment is determined.

We test goodwill for impairment at the reporting unit level, which is the operating segment. 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. If the fair value of the reporting unit exceeds the carrying value of the net assets, goodwill is not impaired. If the fair value of the reporting unit is less than the carrying value, the difference is recorded as an impairment loss up to the amount of goodwill.

We review other long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset or an asset group may not be recoverable. In evaluating long-lived assets for recoverability, we estimate the future cash flows that are expected from the use of each assets. Impairment losses are measured and recorded for the excess of an asset's carrying value over its fair value. To determine the fair value of long-lived assets, we utilize the valuation technique or techniques deemed most appropriate based on the nature of the asset or asset group, which may include the use of quoted market prices, prices for similar assets or other valuation techniques such as discounted future cash flows or earnings.

### Business combination

Under the acquisition method of accounting, we generally recognize the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values on the date of acquisition. The fair values assigned, defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing market participants, are based on estimates and assumptions determined by management. The excess consideration over the aggregate value of tangible and intangible assets, net of liabilities assumed, is recorded as goodwill. These valuations require significant estimates and assumptions, especially with respect to intangible assets.

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

We use the income approach to determine the fair value of certain identifiable intangible assets including customer relationships and developed technology. This approach determines fair value by estimating after-tax cash flows attributable to these assets over their respective useful lives and then discounting these after-tax cash flows back to a present value. We base our assumptions on estimates of future cash flows, expected growth rates, expected trends in technology, probabilities of customer renewals, etc. We base the discount rates used to arrive at a present value as of the date of acquisition on the time value of money and certain industry-specific risk factors. We believe the estimated purchased customer relationships, developed technology, software and trade name amounts determined represent the fair value at the date of acquisition and do not exceed the amount a third-party would pay for the assets.

If the actual results differ from the estimates and judgments used in these estimates, the amounts recorded in the financial statements may be exposed to potential impairment of the intangible assets and goodwill. The determination of fair value is considered a critical accounting estimate because the valuation techniques mentioned use significant estimates and assumptions, including projected future revenues, a hypothetical royalty rate, the expected economic life of the asset, tax rates and a discount rate that reflects the level of risk associated with the future earnings attributable to the asset.

During the measurement period, which is up to one year from the acquisition date, adjustments to the assets acquired and liabilities assumed may be recorded, with the corresponding offset to goodwill.

For a further discussion of our critical accounting policies, please refer to Note 2 to our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2021. There were no significant changes to our critical accounting policies for the nine months ended September 30, 2022, except as discussed above.

### Recently Issued Accounting Pronouncements

A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q and is incorporated herein by reference.

## Market risk

As filed, 215 characters.

We are a smaller reporting company, as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, for this reporting period and are not required to provide the information required under this item.

## Controls and procedures

As filed, 3,149 characters.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a- 15(e) and 15d- 15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act), as of the end of the period covered by this Quarterly Report on Form 10-Q. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and our management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q, our principal executive officer and principal financial officer have concluded that as of such date, our disclosure controls and procedures were effective at a reasonable assurance level.

### Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, except for as described below.

During this quarterly period, we completed our first acquisition and accounted for the acquisition as a purchase of a business under U.S. GAAP. Under the acquisition method of accounting, the acquired assets have been recorded as of the acquisition date, at their respective fair values, and consolidated with our assets. We implemented new and enhanced controls to verify the appropriateness of authorities given during the acquisition process and to capture the complete and accurate purchase accounting considerations are given to contingent consideration and other assets acquired and liabilities assumed. We also implemented new controls to value appropriate goodwill and intangible assets that arose from the acquisition and is enhancing controls for accurate and complete subsequent measurements of such assets, including periodic fair value measurements and impairment assessments.

## Risk factors

As filed, 9,454 characters.

Our operations and financial results are subject to various risks and uncertainties. A detailed discussion of the risks that affect our business is included in the section titled “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on March 11, 2022, or 2021 Annual Report. There are no material changes to our risk factors discussed in our 2021 Annual Report, except as set forth below.

***Our loan and security agreement contains covenants, which restrict our operating activities, and we may be required to repay the outstanding indebtedness in an event of default, which could have a material adverse effect on our business, financial condition, results of operations, and prospects.***

On November 2, 2022, we entered into a Loan and Security Agreement, or the 2022 Revolver, with Silicon Valley Bank, or the Lender. This agreement created a revolving line of credit totaling $35.0 million and replaced the prior $25.0 million revolving line of credit. The 2022 Revolver subjects us to various customary covenants, including requirements as to financial reporting and financial covenants (including a requirement that the amount of unrestricted and unencumbered cash minus advances under the 2022 Revolver, is not less than the amount equal to the greater of (i) $10.0 million or (ii) nine (9) months of cash burn), and restrictions on 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.

We are permitted to make interest-only payments on the revolving line of credit through November 2, 2025, at which time all outstanding indebtedness shall be immediately due and payable. However, we may be required to repay the outstanding indebtedness under the revolving line of credit if an event of default occurs under the 2022 Revolver. An event of default will occur if, among other things, we fail to make required payments under the 2022 Revolver; we breach any of our covenants under the 2022 Revolver, subject to specified cure periods with respect to certain breaches; the Lender determines that a material adverse change (as defined in the 2022 Revolver) has occurred; we or our assets become subject to certain legal proceedings, such as bankruptcy proceedings; we are unable to pay our debts as they become due; or we default on contracts with third parties which would permit the third party to accelerate the maturity of such indebtedness above certain thresholds or that could have a material adverse effect on our business or operations. We may not have enough available cash or be able to raise additional funds through equity or debt financings to repay such indebtedness at the time any such event of default occurs. In such a case, we may be required to delay, limit, reduce or terminate our product development or operations or grant to others rights to develop and market products that we would otherwise prefer to develop and market ourselves. The Lender could also exercise its rights as secured lender to take possession of and to dispose of the collateral securing the revolving line of credit, which collateral includes substantially all of our property (excluding intellectual property, which is subject to a negative pledge). Our business, financial condition, results of operations, and prospects could be materially adversely affected as a result of any of these events.

***Raising additional capital may cause dilution to our existing stockholders or restrict our operations.***

We may in the future seek additional capital through a combination of public and private equity offerings, debt financings, strategic partnerships and alliances and licensing arrangements in the future to fund our operations. We, and indirectly, our stockholders, will bear the cost of issuing and servicing such securities. Because our decision to issue debt or equity securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing, or nature of any future offerings. Our decision to issue debt or equity securities will also depend on contractual, legal, and other restrictions that may limit our ability to raise additional capital. For example, the terms of our 2022 Revolver prohibit, subject to certain exceptions, our ability to incur additional indebtedness. To the extent that we raise additional capital through the sale of equity or debt securities, your ownership interest will be diluted and the terms may include liquidation or other preferences that adversely affect your rights as a stockholder. The incurrence of indebtedness would result in increased fixed payment obligations and could involve restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights, and other operating restrictions that could adversely impact our ability to conduct our business. Certain of the foregoing transactions may require us to obtain stockholder approval, which we may not be able to obtain.

***We may engage in future acquisitions that could disrupt our business, cause dilution to our stockholders and harm our financial condition and operating results.***

On August 3, 2022, we entered into a share purchase and transfer agreement and completed its acquisition of 100% of the registered share capital of TRACE Analytics GmbH, a German limited liability company located in Braunschweig, Germany (Trace), for total potential purchase price consideration of $17.3 million, comprised of (i) a $14.4 million initial cash payment plus (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 Trace.

In the future, we may acquire additional companies, assets or technologies in an effort to complement our existing offerings or enhance our market position. We currently have no plans, proposals or arrangements with respect to any acquisition. We may not be able to find additional suitable acquisition candidates and we may not be able to complete additional acquisitions on favorable terms, if at all. The Trace acquisition, and any future acquisitions we make could subject us to a number of risks, including:

- the purchase price we pay could significantly deplete our cash reserves, impair our future operating flexibility or result in dilution to our existing stockholders;
- we may find that the acquired company, assets or technology does not further improve our financial and strategic position as planned;
- we may find that we overpaid for the company, asset or technology, or that the economic conditions underlying our acquisition have changed;
- we may have difficulty integrating the operations and personnel of the acquired company;
- we may have difficulty retaining the employees with the technical skills needed to enhance and provide services with respect to the acquired assets or technologies;
- the acquisition may be viewed negatively by customers, financial markets, or investors;
- we may have difficulty incorporating the acquired technologies or products with our existing products;
- we may encounter difficulty entering and competing in new product or geographic markets;
- we may encounter a competitive response, including price competition or intellectual property litigation;
- we may have product liability, customer liability or intellectual property liability associated with the sale of the acquired company’s products;
- we may be subject to litigation by terminated employees or third parties;
- we may incur debt and restructuring charges;
- we may acquire goodwill and other intangible assets that are subject to impairment tests, which could result in future impairment charges;
- our ongoing business and management’s attention may be disrupted or diverted by transition or integration issues and the complexity of managing geographically or culturally diverse enterprises; and
- our due diligence process may fail to identify significant existing issues with the target company’s product quality, product architecture, financial disclosures, accounting practices, internal controls, legal contingencies, intellectual property and other matters.

Any acquisitions of businesses, technologies, products or services may not generate sufficient revenue to offset the associated costs of the acquisitions or may result in other adverse effects, which could have a material adverse effect on our business, operating results, and financial condition.

In addition, negotiations for acquisitions or investments that are not ultimately consummated could result in significant diversion of management time, as well as substantial out-of-pocket costs, any of which could have a material adverse effect on our business, operating results and financial condition.

Filed Nov 14, 2022.
Source: SEC EDGAR, the filing index for accession 0001558370-22-017620. Last ingested by Listed: Oct 24, 2026, 15:13 ET. No prices; not investment advice.