908 Devices Inc.: Form 10-Q for the period ended Jun 30, 2025

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, 2024, as filed with the SEC on March 7, 2025, or the 2024 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 2024 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 devices for point-of-need chemical analysis. Leveraging complementary analytical technologies including our proprietary mass spectrometry, or Mass Spec, and FTIR, an optical spectroscopy technology and analytics and machine learning technologies, we make devices that are significantly smaller and more accessible than conventional laboratory instruments. Our devices are used at the point-of-need to interrogate unknown and invisible materials and provide quick, actionable answers to directly address vital health and safety applications, including the fentanyl and illicit drug crisis, toxic carcinogen exposure, and global security threats.

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. First responders also utilize our handheld devices to detect and identify thousands of hazardous bulk materials. The term “products” as used in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” refers to the MX908, ThreatID, ProtectIR, XplorIR, VipIR and related devices.

On March 4, 2025, the Company completed the sale of its Desktop Portfolio to Repligen. The Company has determined the sale of the Desktop Portfolio represents a strategic shift that will have a major effect on its business and therefore met the criteria for classification as discontinued operations in the first quarter of 2025. Accordingly, the Desktop Portfolio is reported as discontinued operations in accordance with ASC 205-20, Discontinued Operations. The related assets and liabilities of the Desktop Portfolio are classified as assets and liabilities of discontinued operations in the consolidated balance sheets and the results of operations from the Desktop Portfolio as discontinued operations in the consolidated statements of operations. Applicable amounts in prior years have been recast to conform to this discontinued operations presentation. The Company recognized a gain on the sale of the Desktop Portfolio upon closing.

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 from continuing operations of $24.8 million and $18.9 million for the six months ended June 30, 2025 and 2024, respectively, and incurred net losses of $22.7 million and $13.5 million for those same periods. As of June 30, 2025, we had an accumulated deficit of $212.5 million. We expect to continue to incur net losses as we focus on growing sales of our products in both the United States and international markets, scaling our manufacturing operations, continuing research and development efforts to develop new products and further enhance our existing products. 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 available cash, 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.”

Global Economic Conditions

We are continuing to closely monitor macroeconomic factors, including, but not limited to, continued inflationary and interest rate pressures, changes in countries’ trade policies and tariffs, challenging capital market conditions and the limited availability of financing alternatives, which may have an impact on our business, results of operations and financial results.

We are closely monitoring continued economic uncertainty in the United States and abroad, including volatility in the global markets and the rise and fluctuations in inflation and interest rates. These developments and the potential worsening of other macroeconomic conditions present risks for us, our suppliers and customers. For example, general inflation in the United States, Europe, the Middle East and other geographies has recently been at levels not experienced in recent decades, which has led to higher prices for our raw materials and other inputs, as well as higher salaries and travel expenses, which could continue to negatively impact our business by increasing our cost of sales and operating expenses. General inflation could also negatively impact our business if it leads to spending pressure and decreased available capital for our customers to deploy to purchase our products and services.

In addition, while the United States Federal Reserve has recently begun to lower interest rates, it has over the past couple of years raised, and may again raise, interest rates in response to concerns about inflation. Inflation, together with increased interest rates, may cause our customers to reduce or delay orders for our goods and services thereby causing a decrease in or change in timing of sales of our products and services. The impact of future inflation and interest rate fluctuations on the results of our operations cannot be accurately predicted.

Challenging capital market conditions and the limited availability of financing alternatives, together with inflationary and interest rates pressures, and other economic uncertainty, including as a result of changes in countries’ trade policies and tariffs, may contribute to more cautious spending by our customers. Certain of our customers may evaluate their inventory levels, cash on hand and path to profitability, and institute cost controls and take other actions to reduce or delay purchases of our products and services. We cannot accurately predict the full impact of current macroeconomic factors on the budgets and capital expenditures of our customers, or the timing of the normalization of customer purchasing patterns.

We are closely monitoring the ongoing military conflict between Russia and Ukraine, and the ongoing hostilities in Israel, Iran, and the Gaza Strip and other locations in the Middle East. Although we do not directly source any material products or supplies from Russia, Ukraine, Israel, Iran or the Gaza Strip, our customers in Europe and the Middle East could be impacted by extended conflicts or an escalation of these conflicts into neighboring countries.

We are also closely monitoring recently revised tariffs on parts and components imported into the U.S., as well as reciprocal tariffs recently implemented by non-U.S. countries where we export our finished products. We do not expect these tariffs to materially impact our business or results of operations in fiscal 2025. Nonetheless, we will continue to review and assess how the currently announced and any other additional tariffs may affect our business, results of operations or financial condition in the future.

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

For further discussion of the possible impacts of these global factors and other risks on our business, see Part I, Item 1A, “Risk Factors,” of our 2024 Form 10-K.

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 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 our handheld devices. We regularly solicit feedback from our customers and focus our research and development efforts on enhancing our devices and enabling our customers to use additional applications that address their needs, which we believe in turn helps to drive additional sales of our devices and consumables.

Our handheld device orders relate to our MX908, ThreatID, ProtectIR, XplorIR and VipIR, as well as components for the Aerosol and Vapor Chemical Agent Detectors, or AVCAD, sold to our channel partner. Historically, our handheld devices have been used by municipal, state, federal and foreign governments and governmental agencies. Our sales process with government customers is often long and involves multiple levels of approvals, testing and, in some cases, trials. Device orders from a government customer are typically large orders and can be impacted by the timing of their capital budgets. 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.

Recurring revenue

We regularly assess trends relating to recurring revenue which includes consumables, accessories and services based on our product offerings, our customer base and our understanding of how our customers use our products. Recurring revenue was 36% and 35% of total revenue for the six months ended June 30, 2025 and 2024, respectively. Our recurring revenue as a percentage of total revenue will vary based upon new device placements in the period. As our device installed base expands, recurring revenue on an absolute basis is expected to increase and over time should be an increasingly important contributor to our revenue.

Recurring revenue is primarily from service revenue and accessories. Consumable revenue is mainly related to single-use swab samplers for MX908 to be used in liquid and solid materials analysis, but there are a number of other applications that the MX908 can be used for that do not require consumables. ThreatID, ProtectIR, XplorIR and VipIR do not have consumables.

Revenue mix and gross margin

Our revenue is derived from sales of our devices, consumables, accessories and services. There will be fluctuations in the mix between devices and recurring from period-to-period. Over time, as our device installed base grows, we expect service revenue to constitute a larger percentage of total revenue. However, the percentage will be subject to fluctuation based upon our handheld sales in a period. In addition, our selling price and, consequently, our margins, are higher for those devices and recurring revenue that we sell directly to customers as compared to those that we sell through channel partners. While we expect the mix of direct sales as compared to sales through channel partners to remain relatively constant in the near term, we may consider increasing our direct sales capabilities in certain geographies based upon identified opportunities.

Future device and recurring 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 and accessories, 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’ stages 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 the functionality of the device in their operational environment (in the field or onsite within the customer’s facility).
• Pilot - a customer commits to the purchase of an initial quantity of devices to deploy in their operational environment to assess a broader opportunity that may grow to tens or hundreds of devices.
• Deployment - a customer has completed testing, a trial, and/or a pilot and intends to roll out the technology across their enterprise (either at a site or throughout the entire organization).

Key Business Metrics

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

During the three and six months ended June 30, 2025 and 2024, our product placements (units recognized as revenue) were as follows:

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:

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, accessories and services. Device sales accounted for 63% and 65% of our total revenue for the six months ended June 30, 2025 and 2024, respectively. Recurring revenue accounted for 36% and 35% of our total revenue for the six months ended June 30, 2025 and 2024, respectively.

Our current device offerings include:

• Handheld devices— MX908 ThreatID, ProtectIR, XplorIR, VipIR and AVCAD components

We sell our devices directly to customers and through channel partners. Each of our device sales drives various streams of recurring revenue comprised of consumable and accessory product sales and service revenue. Our consumables consist primarily of accessories and swabs for MX908.

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.

Contract revenue

Contract agreements are arrangements whereby we provide engineering services for the development of our technology platform for specific programs or new and expanding applications of our technologies for future commercial endeavors. Our 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 contract revenue was related to one customer during the six months ended June 30, 2025.

During the three and six months ended June 30, 2025 and 2024, our revenue was comprised of revenue from the following sources:

Our product and service revenue is comprised of sales of our devices and related consumables, accessories and service contracts to end-users in the government, pharmaceutical and industrial markets as follows:

We sell our products primarily in the United States; however, we will 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. Contract cost of revenue primarily consists of salaries and other personnel costs, materials, travel and other direct costs related to the revenue recognized in the period. The contract cost of revenue will vary based upon the type of contract, including whether it is primarily for development services or for both materials and development services.

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

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 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.
• Rent expense and passthrough costs, reimbursable by Repligen, incurred in performing duties under the TSA.

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

Selling, general and administrative expenses

Selling, general and administrative expenses consist primarily of salaries and other personnel costs, and stock-based compensation for our sales and marketing, finance, legal, human resources and general management, as well as professional services, such as legal, audit and accounting services, and director and officer insurance costs as well as investor and public relations expenses associated with operating as a public company.

We expect selling, general and administrative expenses, amortization of customer relationship and tradename intangibles to stabilize in future periods as we execute our strategic transformation as outlined in our restructuring plan.

Beginning in the first quarter of 2025, general and administrative expenses also include rent expense and passthrough costs, reimbursable by Repligen, incurred in performing duties under the TSA.

Change in fair value of contingent consideration

Change in fair value of contingent consideration represents the change in fair value of the contingent consideration obligation included in contingent consideration on the consolidated balance sheets as of the end of each period. Remeasurement of the contingent consideration obligation is done each quarter and the carrying value of the obligation is adjusted to the current fair value through our consolidated statements of comprehensive income (loss).

Other Income (Expense)

Interest income

Interest income consists of interest earned on our invested cash, cash equivalents and marketable securities balances.

Income from Transition Services Agreement, net

Income from transition services agreement, net represents service charges provided to Repligen to facilitate the transition of the Desktop Portfolio, net of directly identifiable personnel related costs. The scope of transition services includes the provision of certain manufacturing services, research and development support and certain administrative functions related to the Desktop Portfolio. In addition, the Transition Services Agreement by and between the Company and Repligen, dated as of March 4, 2025, or the TSA, provides Repligen with access to the Company’s facility in Boston, Massachusetts. The services and obligations under the TSA were substantially completed, and access to the Company’s facility was terminated, as of June 30, 2025.

Other income (expense), net

Other income (expense), net consists of miscellaneous other income and expense unrelated to our core operations, interest expense associated with the amortization of deferred financing costs and debt discounts associated with our loan and security agreements.

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 and have recorded a full valuation allowance against our net deferred assets, as we believe, based upon the weight of available evidence, that it is more likely than not that all of our net operating loss carryforwards and tax credits will not be realized.

As of December 31, 2024, the Company had gross federal and state operating loss carryforwards of $127.9 million and $92.5 million, respectively, which may be available to offset future taxable income and begin to expire in 2032 and 2025, respectively, of which $93.5 million of federal gross operating losses do not expire. As of December 31, 2024, the Company also had U.S. federal and state research and development tax credit carryforwards of $8.6 million and $4.8 million, respectively, which may be available to offset future tax liabilities and begin to expire in 2032 and 2030, respectively.

Utilization of the net operating loss and research and development tax credit carryforwards may be subject to a substantial annual limitation under Sections 382 and 383 of the Internal Revenue Code of 1986 due to ownership changes that have occurred previously or that could occur in the future. These ownership changes may limit the amount of carryforwards that can be utilized annually to offset future taxable income. In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of certain shareholders or public groups in the stock of a corporation by more than 50% over a three-year period. Since its formation, the Company has raised capital through the issuance of capital stock on several occasions. These financings, combined with the purchasing shareholders' subsequent disposition of those shares, may have resulted in a change of control or could result in a change of control in the future upon subsequent disposition. The Company conducted an analysis to determine if historical changes in ownership through March, 2025 would limit or otherwise restrict its ability to utilize these net operating loss and research and development credit carryforwards. As a result of this analysis, the Company does not believe there are any significant limitations on its ability to utilize these carryforwards. However, future changes in ownership after March 2025 could affect the limitation in future years. Any limitation may result in expiration of a portion of the net operating loss or research and development credit carryforwards before utilization.

Results of Operations

Unless otherwise noted, all amounts included below relate to continuing operations. The results of operations from the Desktop Portfolio are classified as discontinued operations in the consolidated statements of operations. Applicable amounts in prior years have been recast to conform to this presentation.

Comparison of the three months ended June 30, 2025 and 2024

The following table summarizes our results of operations for the three months ended June 30, 2025 and 2024:

(in thousands)

Revenue, Cost of Revenue and Gross Profit

Product

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

(dollars in thousands)

Product revenue increased by $1.0 million, or 12%, for the three months ended June 30, 2025, compared to the three months ended June 30, 2024. The increase was primarily related to product revenue from FTIR products, partly due to the impact of ownership for the full quarter in 2025 compared to two months in 2024. This increase was offset by a decrease in MX908 product revenue, mainly related to fewer device sales in the three months ended June 30, 2025 compared to the three months ended June 30, 2024.

Product cost of revenue increased by $1.3 million, or 32%, for the three months ended June 30, 2025, compared to the three months ended June 30, 2024. The increase in product cost of revenue was primarily related to an increase in production costs related to the higher product revenues, $0.3 in higher warranty costs, $0.2 million in higher intangible amortization, and $0.5 million in higher personnel related costs, partly related to our RedWave acquisition of CAM2 Technologies, LLC (d/b/a RedWave Technology), or RedWave, offset in part by $0.3 million in higher absorption related to the buildup of devices, prior to the facility move in the second quarter of 2025.

Product gross profit decreased by $0.3 million, or 6%, and gross profit margin decreased by nine percentage points for the three months ended June 30, 2025, as compared to the three months ended June 30, 2024. The decrease in product gross profit was primarily due to the impact of higher costs, including a $0.3 million increase in warranty costs, a $0.2 million increase in intangible amortization, and a $0.2 million increase in severance and retention costs, offset in part by the higher product volume for the three months ended June 30, 2025, which drove the decrease in gross profit margin.

Service and Contract revenue

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

(dollars in thousands)

Service and contract revenue increased by $0.5 million, or 19%, for the three months ended June 30, 2025, compared to the three months ended June 30, 2024. The increase was primarily related to an increase in service revenues related to extended service contracts for MX908 devices.

Service and contract cost of revenue increased by $0.1 million, or 6%, for the three months ended June 30, 2025, compared to the three months ended June 30, 2024. The increase in service cost of revenue was primarily related to an increase in personnel related costs.

Service gross profit increased by $0.5 million, or 28%, and gross profit margin increased by four percentage points for the three months ended June 30, 2025, as compared to the three months ended June 30, 2024, primarily due to an increase in service volume related to training and extended service contracts, leveraging our investments in personnel and service infrastructure.

Operating Expenses

Research and development

(dollars in thousands)

Our research and development expenses were $4.4 million for the three months ended June 30, 2025, an increase of $0.8 million from research and development expenses of $3.6 million for the three months ended June 30, 2024. The increase was partly due to the increased expenses from the RedWave acquisition and was due primarily to a $0.4 million increase in personnel and related costs, a $0.3 million increase in project expenditure related to materials and consulting, and a $0.2 million increase in severance and retention costs.

Selling, general and administrative expenses

(dollars in thousands)

Our selling, general and administrative expenses were $10.3 million for the three months ended June 30, 2025, a decrease of $0.8 million from selling, general and administrative expenses of $11.1 million for the three months ended June 30, 2024. The decrease was due primarily to a $2.0 million decrease in deal costs related to the RedWave acquisition in the prior year, and a $0.2 million decrease in commissions, offset in part by a $0.9 million increase related to facility shut down and moving costs, a $0.4 million increase in payroll and related costs, mainly related to our acquisition of RedWave, and $0.4 million in higher consulting, legal and accounting related costs.

Change in fair value of contingent consideration

The fair value of contingent consideration increased by $6.8 million, due to an increase in the projections for FTIR revenue, including the recent product launch of VipIR, and the increase in the Company’s publicly quoted share price during the three months ended June 30, 2025.

Other Income

Interest income

Interest income for the three months ended June 30, 2025 did not change materially from the three months ended June 30, 2024.

Income from transition services agreement, net

Income from the transition services agreement, net was $1.2 million for the three months ended June 30, 2025.

Other expense (income), net

Other expense, net for the three months ended June 30, 2025 did not change materially from the three months ended June 30, 2024.

Comparison of the six months ended June 30, 2025 and 2024

The following table summarizes our results of operations for the six months ended June 30, 2025 and 2024:

(in thousands)

Revenue, Cost of Revenue and Gross Profit

Product

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

(dollars in thousands)

Product revenue increased by $4.3 million, or 31%, for the six months ended June 30, 2025, compared to the three months ended June 30, 2024. The increase was primarily related to $5.8 million in product revenue from our FTIR products that were acquired on April 29, 2024. This increase was offset in part by a $1.3 million decrease in program product revenue related to our AVCAD program, pursuant to which we had component shipments under our subcontract agreement with a commercial entity in the six months ended June 30, 2024.

Product cost of revenue increased by $3.6 million, or 56%, for the six months ended June 30, 2025, compared to the six months ended June 30, 2024. The increase in product cost of revenue was primarily related to an increase in production costs related to the higher product revenues, $0.8 in higher intangible amortization, and $0.9 million in higher personnel related costs, partly related to our RedWave acquisition and $0.3 million related to severance and retention costs.

Product gross profit increased by $0.7 million, or 10%, and gross profit margin decreased by eight percentage points for the six months ended June 30, 2025, as compared to the six months ended June 30, 2024. The increase in product gross profit was primarily due to the higher product revenue volume, offset in part by the impact of lower margin international sales, an increase in intangible amortization and higher personnel related costs for the six months ended June 30, 2025, which drove the decrease in gross profit margin.

Service and Contract revenue

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

(dollars in thousands)

Service and contract revenue increased by $1.6 million, or 31%, for the six months ended June 30, 2025, compared to the three months ended June 30, 2024. The increase was primarily related to an increase in handheld service revenues related to extended service contracts for MX908 devices and $0.6 million in service revenue related to our FTIR products. Contract revenue for the six months ended June 30, 2025 was $0.1 million compared to zero in the six months ended June 30, 2024.

Service and contract cost of revenue increased by $0.5 million, or 20%, for the six months ended June 30, 2025, compared to the six months ended June 30, 2024. The increase in service cost of revenue was primarily related to a $0.5 million increase in personnel related costs.

Service gross profit increased by $1.1 million, or 42%, and gross profit margin increased by five percentage points for the six months ended June 30, 2025, as compared to the six months ended June 30, 2024, primarily due to an increase in service volume related to training and extended service contracts, leveraging our investments in personnel and service infrastructure.

Operating Expenses

Research and development

(dollars in thousands)

Our research and development expenses were $8.2 million for the six months ended June 30, 2025, an increase of $1.4 million from research and development expenses of $6.9 million for the six months ended June 30, 2024. The increase was partly due to the increased expenses from the RedWave acquisition and was due primarily to a $0.7 million increase in project expenditure related to materials and consulting, a $0.3 million increase in personnel and related costs, and a $0.3 million increase in severance and retention costs.

Selling, general and administrative expenses

(dollars in thousands)

Our selling, general and administrative expenses were $20.6 million for the six months ended June 30, 2025, an increase of $1.3 million from selling, general and administrative expenses of $19.3 million for the six months ended June 30, 2024. The increase was partly due to the increased expenses from the RedWave acquisition and was due primarily to a $1.2 million increase in payroll and related costs, mainly related to our acquisition of RedWave, a $0.6 million charge for transaction bonuses earned with the Desktop Portfolio divestiture, a $0.9 million increase related to facility shut down and moving costs, a $0.4 million increase in non-cash stock based compensation and a $0.3 million increase in other expenses including intangible amortization, depreciation and operating expenses, offset in part by $2.2 million in lower consulting, legal and accounting related costs incurred with the RedWave acquisition during the six months ended June 30, 2024.

Change in fair value of contingent consideration

The fair value of contingent consideration increased by $9.3 million, due to an increase in the projections for FTIR revenue, including the recent product launch of VipIR, and the increase in the Company’s publicly quoted share price during the six months ended June 30, 2025.

Other Income

Interest income

Interest income decreased by $0.9 million for the six months ended June 30, 2025 from $2.9 million for the six months ended June 30, 2024. The decrease was due to the lower cash, cash equivalent and marketable securities balance, primarily due to the average balance during the six months ended June 30, 2025, compared to the six months ended June 30, 2024.

Income from transition services agreement, net

Income from the transition services agreement, net was $1.6 million for the six months ended June 30, 2025.

Other expense (income), net

Other expense, net for the six months ended June 30, 2025 did not change materially from the six months ended June 30, 2024.

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 contract revenue, proceeds from our initial public offering in December 2020, and proceeds from an underwritten public offering in November 2021 and proceeds from the Desktop Portfolio divesture. As of June 30, 2025, we had cash, cash equivalents and marketable securities of $118.6 million, inclusive of the proceeds from the recent Desktop Portfolio divesture. We believe that our existing cash, cash equivalents and marketable securities 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 August 4, 2023, the Company entered into a Default Waiver and First Amendment to Loan and Security Agreement (the “Amended 2022 Revolver”), by and between, the Company, as borrower, and Silicon Valley Bank, a division of First Citizens Bank, or SVB, as lender. The Amended 2022 Revolver provides for a revolving line of credit of up to $10.0 million. The Company is permitted to make interest-only payments on the revolving line of credit through November 3, 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) four and one-half percent (4.50%) and (ii) the “prime rate” as published in The Wall Street Journal for the relevant period minus one-half percent (0.50%). The Company’s obligations under the Amended 2022 Revolver are secured by substantially all of the Company’s assets, excluding its intellectual property, which is subject to a negative pledge. The revolving line of credit under the Amended 2022 Revolver terminates on November 3, 2025.

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

The Amended 2022 Revolver also contains certain financial covenants, including a requirement that the Company maintain $20.0 million on account at or through SVB and the amount of unrestricted and unencumbered cash minus advances under the Amended 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 Amended 2022 Revolver contains customary representations and warranties, as well as certain non-financial covenants, including limitations on, among other things, the Company’s ability to change the principal nature of its business, dispose of the Company’s 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 the Company’s capital stock, engage in transactions with affiliates or otherwise encumber the Company’s 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, channel partner 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)

Operating Activities

During the six months ended June 30, 2025, net cash used in operating activities was $20.8 million, primarily resulting from noncash income of $40.0 million, partially offset by our net income of $30.3 million and net cash used in changes in our operating assets and liabilities of $11.1 million. Noncash charges consisted primarily of a $56.2 million increase from the gain on sale of Desktop Portfolio, net of transaction costs, partially offset by a $9.3 million increase from the change in fair value of contingent consideration. Net cash used in changes in our operating assets and liabilities of $11.1 million consisted primarily of a $5.6 million decrease from changes in accounts payable and accrued expenses, a $5.2 million decrease from changes in inventory and a $3.3 million decrease from changes in prepaid expenses and other current assets, partially offset by a $5.3 million increase from changes in account receivable, net.

During the six months ended June 30, 2024, net cash used in operating activities was $22.4 million, primarily resulting from our net loss of $23.5 million and net cash used in changes in our operating assets and liabilities of $6.7 million, partially offset by noncash charges of $7.8 million. Net cash used in changes in our operating assets and liabilities for the six months ended June 30, 2024, consisted primarily of a $3.1 million decrease from changes in inventory, a $1.7 million decrease from changes in deferred revenue, and a $1.4 million decrease from changes in accounts payable and accrued expenses, partially offset by a $0.7 million increase from changes in prepaid expenses and other current assets.

Investing Activities

During the six months ended June 30, 2025, net cash provided by investing activities was $38.7 million, due primarily to $69.9 million of proceeds from the sale of the Desktop Portfolio and $28.5 million of proceeds from the maturity of marketable securities, partially offset by $59.4 million in purchases of marketable securities.

During the six months ended June 30, 2024, net cash used in investing activities was $50.9 million, due to $44.8 million increase from the acquisition of RedWave and a $30.2 million increase from purchases of marketable securities, partially offset by $24.4 million of proceeds from maturities of marketable securities.

Financing Activities

Cash used in financing activities during the six months ended June 30, 2025 was $0.3 million, consisting primarily of payments for withholding taxes on vested equity awards.

Cash used in financing activities during the six months ended June 30, 2024 was $0.9 million, consisting primarily of $1.0 million in payments for withholding taxes on vested equity awards and $0.4 million of contingent consideration related to the release of the $0.5 million milestone paid in February 2024, partially offset by $0.5 million of proceeds from the issuance of common stock.

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.

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 2024 Report on Form 10-K. There were no significant changes to our critical accounting policies for the three and six months ended June 30, 2025.

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.

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

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 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 SEC’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.

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 the 2024 Form 10-K. There have been no material changes to our risk factors during the three and six months ended June 30, 2025 from those discussed in our 2024 Form 10-K.