Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~August 1,~~November 6, 2023, the registrant had ~~52,691,607~~54,278,123 shares of common stock, $0.001 par value per share, outstanding.

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the ~~"Securities Act"~~“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the ~~"Exchange Act"~~“Exchange Act”), that involve risks and uncertainties, including statements based on our current expectations, assumptions, estimates and projections about future events, our business, financial condition, results of operations and prospects, our industry and the regulatory environment in which we operate. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would” or the negative of those terms, or other comparable terms intended to identify statements about the future. The forward-looking statements included herein are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. These risks and uncertainties, all of which are difficult or impossible to predict accurately and many of which are beyond our control, include, but are not limited to those described in Item 1A. Risk Factors of this Quarterly Report on Form 10-Q, Item 1A. Risk Factors of our Annual Report on Form 10-K for fiscal year 2022 and in the filings we make with the Securities and Exchange Commission (the ~~"SEC"~~“SEC”) from time to time.

We operate in a very competitive and rapidly changing environment. New risks emerge from time to time and it is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in, or implied by, any forward-looking statements.

The forward-looking statements included herein are based on current expectations of our management based on available information and are believed to be reasonable. In light of the significant risks and uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that such results will be achieved. You are cautioned not to place undue reliance on the forward-looking statements included in this Quarterly Report on Form

10-Q, which speak only as of the date of this document. We do not intend, and undertake no obligation, to update or revise these

forward-looking statements to reflect events or circumstances after the date of this document or to reflect the occurrence of unanticipated events, except as required by law.

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

2. Summary Accounting Policies and Recent Accounting Pronouncements

The accounting policies followed by the Company are set forth in Part II, Item 8, Note 2, Summary of Accounting Policies, of the Notes to Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make informed estimates, judgements and assumptions that affect the reported amounts in the unaudited condensed consolidated financial statements and disclosures in the accompanying notes, including estimates of probable losses and expenses, as of the date of the accompanying unaudited condensed

consolidated financial statements. Management considers many factors in selecting appropriate financial accounting policies and in developing the estimates and assumptions that are used in the preparation of these unaudited condensed consolidated financial statements. Management must apply significant judgment in this process. In addition, other factors may affect estimates, including the expected business and operational changes, the sensitivity and volatility associated with the assumptions used in developing estimates, and whether historical trends are expected to be representative of future trends. The estimation process often may yield a range of potentially reasonable estimates of the ultimate future outcomes, and management must select an amount that falls within that range of reasonable estimates. Actual results could differ materially from the estimates and assumptions used in the preparation of the accompanying unaudited condensed consolidated financial statements under different assumptions or conditions.

Inventory

Inventory consists of finished products, work-in-process and raw materials and is valued at the lower of cost or net realizable value. Cost may include materials, labor and manufacturing overhead. Cost is determined by the first in, first out inventory method. The carrying value of inventory is reviewed for potential impairment whenever indicators suggest that the cost of inventory exceeds the carrying value and management adjusts the inventory to its net realizable value. The Company also periodically evaluates inventory for estimated losses from excess quantities and obsolescence and writes down the cost of inventory to net realizable value at the time such determinations are made. Net realizable value is determined using the estimated selling price, in the ordinary course of business, less estimated costs of completion and disposal.

Long-Lived Assets

The Company reviews its long-lived assets, which includes definite-lived intangibles, long-lived fixed assets and lease right-of-use assets, for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Factors that could trigger an impairment review include significant under-performance relative to ~~complete~~expected historical or projected future operating results, significant changes in the manner of the Company’s use of the acquired assets or the strategy for the Company’s overall business or significant negative industry or economic trends. If this evaluation indicates that the value of the long-lived asset may be impaired, the Company makes an assessment of the recoverability of the net carrying value of the asset over its remaining useful life. If this assessment indicates that the long-lived asset is not recoverable, based on the estimated undiscounted future cash flows of the technology over the remaining useful life, the Company reduces the net carrying value of the related asset to fair value and ~~dispose.~~may adjust the remaining useful life. An impairment analysis is subjective and assumptions regarding future growth rates and operating expense levels can have a significant impact on the expected future cash flows and impairment analysis.

In the third quarter of 2023, the significant decline in the Company's market capitalization was a triggering event, which resulted in the performance of an interim long-lived assets impairment assessment. The interim assessment indicated that the carrying amount of the Company's definite-lived intangible and long-lived fixed assets in its Product segment would not be recoverable. As a result, the Company recognized an impairment charge of $1.0 million to a definite-lived intangible, developed technology, which was recorded in operating expenses on the Condensed Consolidated Statements of Operations, and an impairment charge of $2.3 million to property and equipment, of which, $1.3 million was recorded in cost of sales and the remainder was recorded in operating expenses on the Condensed Consolidated Statements of Operations. No impairment of lease right-of-use assets was recognized as the fair value of the lease right-of-use assets exceeds their carrying amount.

Goodwill

Goodwill represents the excess of cost over fair value of identified assets acquired and liabilities assumed by the Company in an acquisition of a business. The determination of the value of goodwill and intangible assets arising from a business combination requires extensive use of accounting estimates and judgments to allocate the purchase price to the fair value of the net tangible and intangible assets acquired. The Company recorded $8.5 million of goodwill in conjunction with the acquisition of TDO.

The Company performs its goodwill impairment analysis at the reporting unit level, which aligns with the Company’s reporting structure and availability of discrete financial information. The Company performs its annual impairment analysis by either comparing a reporting unit’s estimated fair value to its carrying amount or doing a qualitative assessment of a reporting unit’s fair value from the last quantitative assessment to determine if there is potential impairment. The Company may do a qualitative assessment when the results of the previous quantitative test indicated the reporting unit’s estimated fair value was significantly in excess of the carrying value of its net assets and it does not believe there have been significant changes in the reporting unit’s operations that would significantly decrease its estimated fair value or significantly increase its net assets. If a quantitative assessment is performed, the evaluation includes management projections of future cash flows and/or use of a market approach by considering market values of comparable companies. Key assumptions for these projections include revenue growth, future gross and operating margin growth, and the weighted cost of capital and terminal growth rates. Revenue and margin growth are based on increased sales of new and existing products as the Company maintains investments in research and development. Additional value creators may include increased efficiencies from capital spending. The resulting cash flows are discounted using a weighted average cost of capital. Operating

mechanisms and requirements to ensure that growth and efficiency assumptions will ultimately be realized are also considered in the evaluation.

The Company’s annual evaluation for impairment of goodwill consists of the software reporting unit from which the goodwill originated. The Company's annual goodwill testing is determined to be performed as of October 31. However, given the significant decline in the Company's market capitalization in the third quarter of 2023, the Company completed an evaluation for impairment as of September 30, 2023, using a quantitative assessment and determined that no impairment existed.

The assumptions used in the estimate of fair value are generally consistent with the past performance of the Company and are also consistent with the projections and assumptions that are used in current operating plans. The assumptions are subject to change as a result of changing economic and competitive conditions.

Revenue Recognition

Contracts with Customers

The Company recognizes revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods and services. Specifically, the Company applies the following five core principles to recognize revenue: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when, or as, the Company satisfies a performance obligation.

Product revenue is generated from sales of the GentleWave Console and related PIs and accessories. Software revenue is generated from sales of TDO's endodontist practice management software licenses. The Company’s products are sold primarily in the United States and Canada directly to customers through its field sales force.

Performance Obligations

The Company’s performance obligations primarily arise from the manufacture and delivery of the GentleWave System, related PIs and accessories, and the delivery or license of TDO software and related ancillary services. Payment terms are typically on open credit terms consistent with industry practice and do not have significant financing components. Consideration may be variable based on volume.

The Company considers the individual deliverables in its product offering as separate performance obligations and assesses whether each promised good or service is distinct. The total contract transaction price is determined based on the consideration expected to be received, based on the stated value in contractual arrangements or the estimated cash to be collected in no-contracted arrangements, and is allocated to the identified performance obligations based upon the relative standalone selling prices of the performance obligations. The stand-alone selling price is based on an observable price offered to other comparable customers. The Company estimates the standalone selling price using the market assessment approach considering market conditions and entity-specific factors including, but not limited to, features and functionality of the products and services, geographies, type of customer and market conditions. The Company regularly reviews and updates standalone selling prices as necessary. The consideration the Company receives in exchange for its goods or services is only recognized when it is probable that a significant reversal will not occur. The consideration to which the Company expects to be entitled includes a stated list price, less various forms of variable consideration. The Company estimates related variable consideration at the point of sale, including discounts, product returns, refunds, and other similar obligations.

Revenue is recognized over time when the customer simultaneously receives and consumes the benefits provided by the Company’s performance. Revenue is recognized at a point in time if the criteria for recognizing revenue over time are not met, and the Company has transferred control of the goods to the customer. Product revenue is recognized at a point in time when the Company has transferred control to the customer, which is generally when title of the goods transfers to the customer. Software is licensed via delivery to the customer or via a service arrangement under which cloud-based access is provided on a subscription basis (software-as-a-service). When a fixed up-front license fee is received in exchange for the delivery of software, revenue is recognized at the point in time when the delivery of the software has occurred. When software is licensed on a subscription basis, revenue is recognized over the respective license period.

The Company also sells extended service contracts on its GentleWave Systems. Sales of extended service contracts are recorded as deferred revenue until such time as the standard warranty expires, which is generally up to two years from the date of sale. Service contract revenue is recognized on a straight-line basis over time consistent with the life of the related service contract in proportion to the costs incurred in fulfilling performance obligations under the service contract.

Revenue for technical support and other services is recognized ratably over the performance obligation period.

The Company generally does not experience returns. If necessary, a provision is recorded for estimated sales returns and allowances and is deducted from gross product revenue to arrive at net product revenue in the period the related revenue is recorded. These estimates are based on historical sales returns and allowances and other known factors. Actual returns and claims in any future period are inherently uncertain and thus may differ from these estimates. If actual or expected future returns and claims are significantly

greater or lower than the reserves established, a reduction or increase to revenue will be recorded in the period in which such a determination is made.

All non-income government-assessed taxes (sales and use taxes) collected from the Company’s customers and remitted to governmental agencies are recorded in accrued expenses until they are remitted to the government agency.

The Company has adopted the practical expedient permitting the direct expensing of costs incurred to obtain contracts where the amortization of such costs would occur over one year or less, and it applied to substantially all the Company’s contracts.

Contract liabilities

The Company recognizes a contract liability when a customer pays for goods or services for which the Company has not yet transferred control. The balances of the Company’s contract liabilities are as follows:


	June 30,		December 31,		September 30,		December 31,
	2023		2022		2023		2022
	(in thousands)				(in thousands)
Extended service contracts	$	391	$	336	$	629	$	336
Subscription software licenses		445		481		169		481
Total contract liabilities		836		817		798		817
Less: long-term portion		133		—		221		—
Contract liabilities – current	$	703	$	817	$	577	$	817

Contract liabilities are included within other current liabilities and other long-term liabilities in the accompanying unaudited condensed consolidated balance sheets. Revenue recognized ~~during~~for each of the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022 that was included in the contract liability balance as of December 31, 2022 and 2021 was $0.8 ~~million and $0.6~~ ~~million, respectively .~~million.

Disaggregation of revenue

The Company disaggregates revenue from contracts with customers by segment and by the timing of when goods and services are transferred, which depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected.

The following table provides information regarding revenues disaggregated by segment and the timing of when goods and services are transferred:


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022		2023		2022		2023		2022
	(in thousands)								(in thousands)
Product revenue recognized at a point in time	$	8,617	$	8,266	$	17,141	$	15,293	$	7,934	$	7,616	$	25,075	$	22,909
Product revenue recognized over time		146		176		300		352		229		179		529		531
Software revenue recognized at a point in time		617		545		1,066		764		507		469		1,573		1,233
Software revenue recognized over time		1,663		1,560		3,260		3,171		1,736		1,582		4,996		4,753
Total	$	11,043	$	10,547	$	21,767	$	19,580	$	10,406	$	9,846	$	32,173	$	29,426

No individual customer accounted for more than 10% of sales for the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022.

Warranty Reserve

The Company provides a standard warranty on its GentleWave Systems for a specified period of time. For the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022, GentleWave Systems sold were covered by the warranty for a period of up to two years from the date of sale. Estimated warranty costs are recorded as a liability at the time of delivery with a corresponding provision to cost of sales. Warranty accruals are estimated based on the current product costs, the Company’s historical experience, management’s expectations of future conditions and standard maintenance schedules. The Company evaluates this reserve on a regular basis and makes adjustments as necessary.

The following table provides a reconciliation of the change in estimated warranty liabilities for the three and ~~six~~nine months ended ~~June~~September 30, 2023 and 2022:

1012


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2023			2022			2023			2022			2023			2022			2023			2022
	(in thousands)												(in thousands)
Balance at beginning of period	$	1,757		$	1,615		$	1,930		$	1,620		$	1,579		$	1,730		$	1,930		$	1,620
Provision for warranties issued		205			470			400			780			170			328			570			1,108
Warranty costs incurred		(383	)		(355	)		(751	)		(670	)		(384	)		(350	)		(1,135	)		(1,020	)
Balance at end of period	$	1,579		$	1,730		$	1,579		$	1,730		$	1,365		$	1,708		$	1,365		$	1,708
Current portion							$	1,302		$	1,219								$	1,228		$	1,212
Non-current portion								277			511									137			496
Total							$	1,579		$	1,730								$	1,365		$	1,708

The warranty liability, current and non-current, are included in other current liabilities and other liabilities, respectively, on the unaudited condensed consolidated balance sheets.

Recent Accounting Pronouncements

Changes to GAAP are established by the Financial Accounting Standards Board (“FASB”) in the form of accounting standards updates (“ASU”). ASUs not listed below were assessed and determined not to be applicable or are expected to have minimal impact on the Company’s unaudited condensed consolidated financial statements.

Accounting Pronouncement Recently Adopted

In October 2021, the FASB, issued Accounting Standards Update No. 2021-08, Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires an entity (acquirer) to recognize and measure contract assets and liabilities acquired in a business combination in accordance with Topic 606, Revenue from Contracts with Customers. This update is effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years, with early adoption permitted. The amendments should be applied prospectively to business combinations occurring on or after the effective date of the amendments. The Company early adopted the ASU on January 1, 2023. The adoption did not have an impact on the Company's unaudited condensed consolidated financial statements. The Company will evaluate the impact for each business combination transaction completed hereafter.

Amortization expense was $~~0.3~~0.5 million for each of the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022, with approximately $~~0.1~~0.2 million amortization expense recorded in cost of sales and $~~0.2~~0.3 million recorded in selling, general and administrative expenses in the accompanying unaudited condensed consolidated statements of operations and comprehensive loss.

4. Fair Value of Financial Instruments

The Company applies fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The Company’s financial instruments consist principally of cash, cash equivalents, short-term investments, accounts receivable, accounts payable, operating lease liabilities, warrant liabilities and a term loan. Fair value is measured as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market. Valuation techniques that are consistent with the market, income or cost approach are used to measure fair value.

The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three levels:

Level 1 – Observable inputs such as unadjusted quoted prices in active markets that are accessible at the measurement date for identical unrestricted assets or liabilities the Company has the ability to access.

Level 2 – Inputs (other than quoted prices included within Level 1) that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

Level 3 – Unobservable inputs that are significant to the fair value measurement and reflect the reporting entity’s use of significant management judgment and assumptions when there is little or no market data. Level 3 assets and liabilities include

those whose fair value measurements are determined using pricing models, discounted cash flow methodologies or similar valuation techniques and significant management judgment or estimation. These include the Black-Scholes option-pricing model which uses inputs such as expected volatility, risk-free interest rate and expected term to determine fair market valuation.

Assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurements. The Company reviews the fair value hierarchy classification at each reporting date. Changes in the ability to observe valuation inputs may result in a reclassification of levels for certain assets or liabilities within the fair value hierarchy. The Company did not have any transfers of assets and liabilities between the levels of the fair value measurement hierarchy during the periods presented.

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, and certain accrued expenses approximate fair value due to the short-term nature of these items. Accordingly, the Company estimates that the recorded amounts approximate fair market value.

The following table provides the assets and liabilities measured at fair value on a recurring basis and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such value at ~~June~~September 30, 2023 and December 31, 2022:


	June 30, 2023								September 30, 2023
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in thousands)								(in thousands)
Assets:
Cash equivalents:
Money market funds	$	11,676	$	11,676	$	—	$	—	$	10,635	$	10,635	$	—	$	—
Total cash equivalents at fair value		11,676		11,676		—		—		10,635		10,635		—		—
Short-term investments:
U.S. treasury securities		24,811		24,811		—		—		20,538		20,538		—		—
Commercial paper and corporate bonds		21,083		—		21,083		—		14,549		—		14,549		—
U.S. government agency bonds		7,426		—		7,426		—		8,762		—		8,762		—
Total short-term investments at fair value		53,320		24,811		28,509		—		43,849		20,538		23,311		—
Total assets at fair value	$	64,996	$	36,487	$	28,509	$	—	$	54,484	$	31,173	$	23,311	$	—

June 30, 2023

Fair
Value

Cost
Basis

Amounts Recognized in Accumulated Other Comprehensive Loss

Unrealized Gains

Unrealized Losses

(in thousands)

Available-for-sale securities:

U.S. treasury securities

$
24,811

$
24,828

$
—

$
(17
)
Commercial paper and corporate bonds

21,083

21,092

—

(9
)
U.S. government agency bonds

7,426

7,430

2

(6
)
Total available-for-sale securities at fair value

$
53,320

$
53,350

$
2

$
(32
)

December 31, 2022

Fair Value

Quoted Prices in Active Markets for Identical Assets
(Level 1)

Significant Other Observable Inputs
(Level 2)

Significant Unobservable Inputs
(Level 3)

(in thousands)

Assets:

Cash equivalents:

Money market funds

$
12,253

$
12,253

$
—

$
—

Commercial paper

1,998

—

1,998

—

U.S. government agency bonds

1,991

—

1,991

—

Total cash equivalents at fair value

16,242

12,253

3,989

—

Short-term investments:

U.S. treasury securities

33,622

33,622

—

—

Commercial paper and corporate bonds

40,162

—

40,162

—

Total short-term investments at fair value

73,784

33,622

40,162

—

Total assets at fair value

$
90,026

$
45,875

$
44,151

$
—


	September 30, 2023
	Fair Value		Cost Basis		Amounts Recognized in Accumulated Other Comprehensive Loss
					Unrealized Gains		Unrealized Losses
	(in thousands)
Available-for-sale securities:
U.S. treasury securities	$	20,538	$	20,540	$	1	$	(3	)
Commercial paper and corporate bonds		14,549		14,549		—		-
U.S. government agency bonds		8,762		8,766		—		(4	)
Total available-for-sale securities at fair value	$	43,849	$	43,855	$	1	$	(7	)

1315


	December 31, 2022
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in thousands)
Assets:
Cash equivalents:
Money market funds	$	12,253	$	12,253	$	—	$	—
Commercial paper		1,998		—		1,998		—
U.S. government agency bonds		1,991		—		1,991		—
Total cash equivalents at fair value		16,242		12,253		3,989		—
Short-term investments:
U.S. treasury securities		33,622		33,622		—		—
Commercial paper and corporate bonds		40,162		—		40,162		—
Total short-term investments at fair value		73,784		33,622		40,162		—
Total assets at fair value	$	90,026	$	45,875	$	44,151	$	—


	December 31, 2022
	Fair Value		Cost Basis		Amounts Recognized in Accumulated Other Comprehensive Loss
					Unrealized Gains		Unrealized Losses
	(in thousands)
Available-for-sale securities:
U.S. treasury securities	$	33,622	$	33,676	$	—	$	(54	)
Commercial paper and corporate bonds		40,162		40,169		—		(7	)
Total available-for-sale securities at fair value	$	73,784	$	73,845	$	—	$	(61	)

Money market funds and U.S. Treasury securities are highly liquid investments and are actively traded. The pricing information on these investment instruments is readily available and can be independently validated as of the measurement date. This approach results in the classification of these securities as Level 1 of the fair value hierarchy.

Commercial paper, U.S. government agency bonds and corporate bonds are measured at fair value using Level 2 inputs. The Company reviews trading activity and pricing for these investments as of each measurement date. When sufficient quoted pricing for identical securities is not available, the Company uses market pricing and other observable market inputs for similar securities obtained from third party data providers. These inputs represent quoted prices for similar assets in active markets or these inputs have been derived from observable market data. This approach results in the classification of these securities as Level 2 of the fair value hierarchy.

The weighted-average grant-date fair value of options granted during the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022 was $0.83 and $1.16 per share, respectively.

The total fair value of shares vested during the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022 was $$$~~1.6~~2.1 million and $~~1.8~~2.6 million, respectively, in each period.

Certain stock option grants under the 2017 Stock Incentive Plan (the “2017 Plan”) allow the recipient to exercise the options prior to the options becoming fully vested. Under the 2017 Plan, the Company retains the right to repurchase shares of its common shares that have been issued upon early exercise of options at the original issue price. During the three and ~~six~~nine months ended ~~June~~September 30, 2023, the Company did not repurchase any shares. There was no material number of shares of common stock subject to repurchase as of ~~June~~September 30, 2023. Cash received for the early exercise of unvested stock options is initially recorded as a liability and released to equity over the vesting period. There were no early exercised stock options during the three and ~~six~~nine months ended ~~June~~September 30, 2023. During the three and ~~six~~nine months ended ~~June~~September 30, 2022, early exercised stock options vested were immaterial.

7. Leases

The Company leases office space under operating leases with expirations ranging from March 2025 to December 2026, some of which include rent escalations or an option to extend the lease for up to three years per renewal. The exercise of lease renewal options is at the sole discretion of the Company.

As of ~~June~~September 30, 2023, the Company has not entered into any leases that have not yet commenced that would entitle the Company to significant rights or create additional obligations.

The Company determines whether a contract is or contains a lease at the inception of the contract. A contract will be deemed to be or contain a lease if the contract conveys the right to control and direct the use of identified property, plant, or equipment for a period of time in exchange for consideration. The Company generally must also have the right to obtain substantially all of the economic benefits from the use of the property, plant, and equipment.

The Company has elected the practical expedient to not separate its lease component from non-lease component for its real estate leases. The Company has elected the practical expedient not to apply the lease recognition requirements to short-term leases with an initial term of 12 months or less.

The Company uses either its incremental borrowing rate or the implicit rate in the lease agreement as the basis to calculate the present value of future lease payments at lease commencement. The incremental borrowing rate represents the rate the Company would have to pay to borrow funds on a collateralized basis over a similar term and in a similar economic environment.

Future minimum lease payments under these leases are as follows:


	Lease Amounts			Lease Amounts
	(in thousands)			(in thousands)
2023 (remaining six months)	$	628
2023 (remaining three months)				$	251
2024		1,555			1,555
2025		1,010			1,010
2026		645			645
Total future minimum lease payments		3,838			3,461
Less: Imputed Interest		(416	)		(345	)
Present value of operating lease liabilities	$	3,422		$	3,116
Less: Current portion		1,290			1,334
Long-term operating lease liabilities	$	2,132		$	1,782

Weighted average remaining lease term in years		2.77			2.54
Weighted average discount rate		8.80	%		8.81	%

Variable operating lease expenses consist primarily of real estate taxes and insurance. The components of lease expense and related cash flows were as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
	(in thousands)
Rent expense	$	373	$	319	$	1,140	$	956
Variable lease costs		17		26		81		79
Total	$	390	$	345	$	1,221	$	1,035

Cash paid for operating leases	$	382	$	321	$	1,140	$	951

Three Months Ended June 30,

Six Months Ended June 30,

2023

2022

2023

2022

(in thousands)

Rent expense

$
381

$
320

$
767

$
637

Variable lease costs

32

27

64

53

Total

$
413

$
347

$
831

$
690

Cash paid for operating leases

$
382

$
317

$
758

$
630


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022		2023		2022		2023		2022
	(in thousands)				(in thousands)				(in thousands)				(in thousands)
Cost of sales	$	68	$	58	$	138	$	116	$	67	$	58	$	205	$	174
Selling, general and administrative		345		289		693		574		323		287		1,016		861
Total	$	413	$	347	$	831	$	690	$	390	$	345	$	1,221	$	1,035

8. Commitments and Contingencies

Contingencies

The Company is subject to claims and assessments from time to time in the ordinary course of business, including without limitation, actions with respect to intellectual property, employment, regulatory, product liability and contractual matters. In connection with these proceedings or matters, the Company regularly assesses the probability and amount (or range) of possible issues based on the developments in these proceedings or matters. A liability is recorded in the accompanying unaudited condensed consolidated financial statements if it is determined that it is probable that a loss has been incurred, and that the amount (or range) of the loss can be reasonably estimated. The Company’s management does not believe that any such matters, individually or in ~~the~~ aggregate, will have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows.

Listing Notice from NYSE

In late September 2023, the Company’s share price had fallen below the NYSE's listing standard threshold and therefore the Company received notice of non-compliance from the NYSE. As required by the NYSE, we notified the NYSE of our plan to cure and restore our compliance with the NYSE's continued listing standard no later than our next annual meeting, currently schedule no later than June 2024. There is no assurance that we will cure and restore our compliance or, if cured and restored, remain in compliance with such requirement or other NYSE continued listing standards in the future.

9. Term Loan

Perceptive loan

On April 6, 2022, the Company entered into Amendment No. 1 (the “First Amendment”) to the Amended and Restated Credit Agreement and Guaranty with Perceptive (the “Perceptive Loan Agreement”). The First Amendment extended the borrowing deadline for the first tranche of $10.0 million of delayed-draw term loans from December 31, 2021 to September 30, 2022 and the borrowing deadline for the second tranche of $10.0 million delayed-draw term loans from March 31, 2022 to June 30, 2023. The Company borrowed the extended first tranche of $10.0 million in July 2022, receiving net proceeds of $9.9 million, and forfeited the extended second tranche on June 30, 2023.

As a condition to entering into the First Amendment, on April 6, 2022, the Company also amended the warrants previously issued to Perceptive and certain of its affiliates to purchase an aggregate of 304,105 shares of its common stock. Such warrants were amended solely to reduce the exercise price of the warrants to $12.00 per share. In August 2022, a portion of these warrants representing 153,421 shares were transferred to a third party and its affiliates.

For the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022, the interest rate for amounts borrowed under the Perceptive Loan Agreement, as amended, was the greater of the one-month LIBOR and 2.00% plus the applicable margin of 9.25%. On January 13, 2023, the Company entered into Amendment No. 2 (the ~~"Second Amendment"~~“Second Amendment”) to the Perceptive Loan Agreement to replace the existing benchmark rate from the one-month LIBOR with a one-month Secured Overnight Financing Rate ~~("SOFR"~~(“SOFR”). All other terms remain unchanged onin the ~~original agreement.~~Perceptive Loan Agreement.

For the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022, the effective interest rate of the Perceptive loan was ~~17.23~~17.39% and ~~14.70~~14.31%, respectively. As of ~~June~~September 30, 2023 and 2022, the fair value of the Perceptive loan approximates its carrying amount.

Future principal repayments on the Perceptive ~~loan~~Loan Agreement as of ~~June~~September 30, 2023, are as follows:


	Principal
	(in thousands)
2026	$	40,000
Total	$	40,000

The Perceptive Loan Agreement, as amended, contains events of default, including, without limitation, upon: (i) failure to make a payment pursuant to the terms of the agreement; (ii) violation of certain covenants; (iii) payment or other defaults on other indebtedness; (iv) material adverse change in the business or change in control; (v) insolvency; (vi) significant judgments; (vii) incorrectness of representations and warranties; (viii) regulatory matters; and (ix) failure by us to maintain a valid and perfected lien on the collateral securing the borrowing. The Perceptive Loan Agreement, as amended, includes financial covenants that require the Company to (i) maintain, at all times, a minimum aggregate balance of $3.0 million in cash in one or more controlled accounts, and (ii) satisfy certain minimum revenue thresholds, measured for the consecutive 12-month periods ending on each calendar quarter-end until June 30, 2026. These thresholds progressively increase over time, ranging from $26.4 million for the consecutive 12-month periods ending September 30, 2021 to $95.3 million for the consecutive 12-month periods ending June 30, 2026. Specifically, the minimum revenue thresholds for the consecutive 12-months period ending on ~~June~~September 30, 2024 and ~~September 30,~~December 31, 2024, are $~~47.2~~52.0 million and $~~52.0~~58.6 million, respectively. Failure to satisfy these ~~financial~~ covenants would constitute an event of default under the ~~agreement. For~~agreement, as amended. In the ~~six months ended June~~event of an event of default, the lender may terminate its commitments and declare all amounts outstanding under the Perceptive Loan Agreement, as amended, immediately due and payable, together with accrued interest and all fees and other obligations. The amount of such repayment will include payment of any prepayment premium applicable due to the time of such payment. In addition, upon the occurrence and during the continuance of any event of default, the applicable margin will increase by 3.00% per annum to 12.25%. As of September 30, 2023, ~~the Company was~~we were in compliance with all ~~financial~~ covenants and conditions required by the outstanding Perceptive Loan Agreement, as ~~amended~~.amended.

10. Income Taxes

The Company maintains a full valuation allowance against its net deferred tax assets as of ~~June~~September 30, 2023 based on the current assessment that it is not more likely than not these future benefits will be realized before expiration. No material income tax expense

or benefit has been recorded given the valuation allowance position and projected taxable losses in the jurisdictions where the Company files income tax returns. The Company has not experienced any significant increases or decreases to its unrecognized tax benefits since December 31, 2022 and does not expect any within the next 12 months.

The Company monitors changes to the tax laws in the states it conducts business and files corporate income tax returns.

Utilization of the net operating loss carryforwards may be subject to substantial annual limitation due to ownership change limitations that may have occurred or that could occur in the future, as required by Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), as well as similar state provisions. These ownership changes may limit the amount of net operating loss carryforwards that can be utilized annually to offset future taxable income and tax, respectively. In general, an “ownership change,” as defined by Section 382 of the Code, results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percentage points of the outstanding stock of a company by certain stockholders or public groups. The Company has not completed an analysis regarding the limitation of net operating loss and R&D credit carryforwards as of ~~June~~September 30, 2023.

The Company is subject to U.S. federal and various states income taxes. The federal returns for tax years 2020 through 2022 remain open to examination and the state returns remain subject to examination for tax years 2019 through 2022. Carryforward attributes that were generated in years where the statute of limitations is closed may still be adjusted upon examination by the Internal Revenue Service or other respective tax authorities. All other state jurisdictions remain open to examination.

11. Segment Information

The Company operates and reports its results in two business segments, Product and Software. The Company reports segment information based on the management approach. The management approach designates the internal reporting used by the Company's chief operating decision maker ~~("CODM"~~(“CODM”) for decision making and performance assessment as the basis for determining the Company’s reportable segments. The performance measures of the Company’s reportable segments are primarily income (loss) from operations. Income (loss) from operations for each segment includes all revenues, related cost of net revenues, gross margin and operating expenses directly attributable to the segment.

The Company’s Product segment includes sales of the Company's GentleWave System console and related accessories and instruments.

The Company’s Software segment includes sales of the Company's traditional software licenses for practice management software to enable an integrated digital office for endodontists.

The following tables present the Company’s segment information for the three and ~~six~~nine months ended ~~June~~September 30, 2023 and 2022. ~~Cost of sales in~~

In the Product segment, for the three months ended September 30, 2023, the Company recognized a total impairment charge of $3.4 million for long lived assets, of which, $1.3 million was recorded in cost of sales and the remainder in operating expenses. For the nine months ended September 30, 2023, in addition to the impairment charges, cost of sales included a $~~1.7~~2.9 million charge related to inventory in the second quarter of 2023 due to reduced sales ~~volumes~~ of our legacy GentleWave Console (“Gen 3”) and the ~~Company's~~phase-out of our molar and pre-molar legacy ~~Gen3 console and~~procedure instruments.


	Three months ended September 30,										Three months ended September 30,
	2023										2022
	(in thousands, except percentage data)
	Product			Software				Total			Product			Software			Total
Revenue	$	8,163		$	2,243			$	10,406		$	7,795		$	2,051		$	9,846
Cost of sales:
Product and software		5,938			681				6,619			6,875			653			7,528
Impairment of long-lived assets		1,341			—				1,341			—			—			—
Total cost of sales		7,279			681				7,960			6,875			653			7,528
Gross profit		884			1,562				2,446			920			1,398			2,318
Gross margin		11	%		70	%			24	%		12	%		68	%		24	%
Operating expenses:
Selling, general and administrative		12,847			595				13,442			12,141			445			12,586
Research and development		2,551			498				3,049			3,891			437			4,328
Impairment of long-lived assets		2,051			—				2,051			—			—			—
Total operating expenses		17,449			1,093		—		18,542			16,032			882			16,914
Income (loss) from operations	$	(16,565	)	$	469			$	(16,096	)	$	(15,112	)	$	516		$	(14,596	)

1821

~~a $1.2~~ ~~million charge due to phasing out the Company's legacy procedure instruments, the molar and anterior pre-molar as the Company moves to the CleanFlow procedure instruments.~~

2023

2022

(in thousands, except percentage data)

Product

Software

Total

Product

Software

Total

Revenue

$
8,763

$
2,280

$
11,043

$
8,442

$
2,105

$
10,547

Cost of sales

9,248

697

9,945

7,385

609

7,994

Gross profit

(485
)

1,583

1,098

1,057

1,496

2,553

Gross margin

-6
%

69
%

10
%

13
%

71
%

24
%
Operating expenses:

Selling, general and administrative

14,109

642

14,751

12,243

579

12,822

Research and development

2,764

534

3,298

3,552

466

4,018

Total operating expenses

16,873

1,176

18,049

15,795

1,045

16,840

Income (loss) from operations

$
(17,358
)

$
407

$
(16,951
)

$
(14,738
)

$
451

$
(14,287
)


																			Nine months ended September 30,									Nine months ended September 30,
	2023									2022									2023									2022
	(in thousands, except percentage data)																		(in thousands, except percentage data)
	Product			Software			Total			Product			Software			Total			Product			Software			Total			Product			Software			Total
Revenue	$	17,441		$	4,326		$	21,767		$	15,645		$	3,935		$	19,580		$	25,604		$	6,569		$	32,173		$	23,440		$	5,986		$	29,426
Cost of sales		15,948			1,375			17,323			13,463			1,285			14,748
Cost of sales:
Product and software																				21,886			2,056			23,942			20,338			1,938			22,276
Impairment of long-lived assets																				1,341			—			1,341			—			—			—
Total cost of sales																				23,227			2,056			25,283			20,338			1,938			22,276
Gross profit		1,493			2,951			4,444			2,182			2,650			4,832			2,377			4,513			6,890			3,102			4,048			7,150
Gross margin		9	%		68	%		20	%		14	%		67	%		25	%		9	%		69	%		21	%		13	%		68	%		24	%
Operating expenses:
Selling, general and administrative		28,223			1,194			29,417			23,770			1,037			24,807			41,070			1,789			42,859			35,911			1,482			37,393
Research and development		5,691			1,101			6,792			7,983			885			8,868			8,242			1,599			9,841			11,874			1,322			13,196
Impairment of long-lived assets																				2,051			—			2,051			—			—			—
Total operating expenses		33,914			2,295			36,209			31,753			1,922			33,675			51,363			3,388			54,751			47,785			2,804			50,589
Income (loss) from operations	$	(32,421	)	$	656		$	(31,765	)	$	(29,571	)	$	728		$	(28,843	)	$	(48,986	)	$	1,125		$	(47,861	)	$	(44,683	)	$	1,244		$	(43,439	)

Segment Assets:


	As of June 30, 2023		As of December 31, 2022		As of September 30, 2023		As of December 31, 2022
	(in thousands)				(in thousands)
Product	$	93,209	$	125,713	$	77,446	$	125,713
Software		10,929		11,572		10,881		11,572
Total	$	104,138	$	137,285	$	88,327	$	137,285

12. Net Loss Per Share

The following table sets forth the computation of basic and diluted net loss per share attributable to common stockholders for the periods presented:


	Three Months Ended June 30,						Six Months Ended June 30,						Three months ended September 30,						Nine Months Ended September 30,
	2023			2022			2023			2022			2023			2022			2023			2022
	(in thousands, except shares and per share data)						(in thousands, except shares and per share data)						(in thousands, except shares and per share data)						(in thousands, except shares and per share data)
Numerator:
Net loss	$	(17,690	)	$	(15,137	)	$	(33,061	)	$	(30,659	)	$	(16,980	)	$	(15,539	)	$	(50,041	)	$	(46,198	)
Denominator:
Weighted-average shares outstanding – basic and diluted		93,684,289			26,468,515			93,538,676			26,437,058			94,286,107			33,116,536			93,790,557			28,688,018
Net loss per share – basic and diluted	$	(0.19	)	$	(0.57	)	$	(0.35	)	$	(1.16	)	$	(0.18	)	$	(0.47	)	$	(0.53	)	$	(1.61	)

The pre-funded warrants to purchase an aggregate of 43.3 million shares of common stock are considered outstanding for the purposes of computing loss per share and are included in the calculation of basic and diluted shares outstanding above.

The following potentially dilutive securities were excluded from the computation of diluted net loss per share calculations for the periods presented because the impact of including them would be anti-dilutive:


	Six Months Ended June 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Stock options		2,767,267		3,024,956		2,532,033		2,985,032
RSUs		5,258,808		2,702,762		4,627,059		2,935,934
Warrants		331,503		331,503		331,503		331,503
Total		8,357,578		6,059,221		7,490,595		6,252,469

2022

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes to those statements included elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes thereto included in Part II, Item 8 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed in Item 1A. Risk Factors in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 and in the filings we make with the Securities and Exchange Commission (the “SEC”) from time to time. See “Cautionary Note Regarding Forward-Looking Statements.”

Overview

We are a commercial-stage medical technology company focused on saving teeth from tooth decay, the most prevalent chronic disease globally. We have developed and manufacture the GentleWave® System, an innovative technology platform designed to treat tooth decay by cleaning and disinfecting the microscopic spaces within teeth without the need to remove tooth structure. The GentleWave System employs a sterilized, single-use procedure instrument ~~("PI"~~(“PI”), to transform root canal therapy ~~("RCT"~~(“RCT”), by addressing the limitations of conventional methods.

The clinical benefits of our GentleWave System when compared to conventional methods of RCT include improved clinical outcomes, such as superior cleaning that is independent of root canal complexity and tooth anatomy, high and rapid rates of healing and minimal to no post- operative pain. In addition to the clinical benefits, the GentleWave System can improve the workflow and economics of dental practices. We began scaling commercialization of our current technology in 2017 and are focused on establishing the GentleWave Procedure as the standard of care for RCT.

Our GentleWave System represents an innovative technology platform and approach to RCT. The GentleWave System is a Class II device and has received 510(k) clearance from the FDA for preparing, cleaning, and irrigating teeth indicated for RCT. The key components of our GentleWave System are a sophisticated and mobile console and a pre-packaged, sterilized, single-use PI. The GentleWave System utilizes a proprietary mechanism of action that is designed to combine procedure fluid optimization, broad-spectrum acoustic energy and advanced fluid dynamics to efficiently and effectively reach microscopic spaces within teeth and dissolve and remove tissue and bacteria with minimal or no removal of tooth structure. We have invested significant resources in establishing a broad intellectual property portfolio that protects the GentleWave Procedure and its unique mechanism of action, as well as future capabilities under development. In 2022, we launched the GentleWave G4 System bringing expanded capabilities and capacity to our technology. We believe our GentleWave System transforms the patient and dental practitioner experience and addresses many of the limitations of conventional RCT.

In the ~~United States~~US and Canada, our direct sales force markets and sells the GentleWave System to dental practitioners performing a high volume of root canals as part of their practice. Our commercial strategy and sales model involves a focus on driving adoption of our GentleWave System by increasing our installed base of consoles and maximizing recurring PI revenue through increased utilization. We have been and will continue to expand the size of our sales and clinician support teams to support our efforts of driving adoption and utilization of the GentleWave System. We plan to pursue marketing authorizations and similar certifications to enable marketing and engage in other market access initiatives over time in attractive international regions in which we see significant potential opportunity.

As of ~~June~~September 30, 2023, we had an installed base of approximately 1,040 GentleWave Systems. We generated revenue of ~~$21.8~~$32.2 million and incurred a net loss of ~~$33.1~~$50.0 million for the ~~six~~nine months ended ~~June~~September 30, 2023, compared to revenue of ~~$19.6~~$29.4 million and a net loss of ~~$30.7~~$46.2 million for the ~~six~~nine months ended ~~June~~September 30, 2022. As of ~~June~~September 30, 2023, we had cash and cash equivalents and short-term investments of ~~$65.9~~$55.9 million, an accumulated deficit of ~~$402.2~~$419.1 million, and $40.0 million in principal outstanding under our term loan facility. In the ~~three~~nine months ended ~~June~~September 30, 2023, we received all of the $4.4 million payment of Employee Retention Credit ~~("ERC"~~(“ERC”) recognized in other income in 2022.

We expect to continue to incur net losses for the next several years. We expect to continue to make significant investments in our sales and marketing organization by increasing the number of U.S. and Canadian sales representatives, expanding our international marketing programs and expanding direct to clinician digital marketing efforts to help facilitate further adoption among existing accounts and to broaden awareness and adoption of our products to new clinicians. We also expect to continue to make investments in research and development, regulatory affairs and clinical studies to develop future generations of our GentleWave products, support regulatory submissions and demonstrate the clinical efficacy of our new products. Moreover, we incur additional expenses as a result of operating as a public company, including legal, accounting, insurance, exchange listing and SEC compliance, investor relations, and other administrative and professional services expenses. As a result of these expenses, we ~~may~~will likely require additional financing to fund our operations and planned growth.

2123

We believe that our cash and cash equivalents and short-term investments will be sufficient to meet our capital requirements and fund our operations through at least the next 12 months from the date of this Quarterly Report on Form 10-Q. We may also seek additional ~~financing opportunistically.~~financing. We may seek to raise any additional capital by entering into partnerships or through public or private equity offerings or debt financings, credit or loan facilities or a combination of one or more of these funding sources. The sale of equity or convertible debt securities may result in dilution to our stockholders and, in the case of preferred equity securities or convertible debt, those securities could provide for rights, preferences or privileges senior to those of our common stock. Debt financing, if available, may involve covenants restricting our operations or our ability to incur additional debt. Any debt financing or additional equity that we raise may contain terms that are not favorable to us or our stockholders. If we raise additional capital through collaboration agreements, licensing or divestiture arrangements, or marketing and distribution arrangements, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product or grant licenses that may not be favorable to us. Additional financing may not be available at all, or in amounts or on terms unacceptable to us.

Factors Affecting Our Performance and Key Business Metrics

We believe there are several important factors that impact our operating performance and results of operations. We also regularly review several operating and financial metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate our business plan and make strategic decisions. We believe the following factors and key business metrics are important indicators of our performance:

•

Installed base of GentleWave Systems: We have initially focused on driving adoption of the GentleWave Procedure among endodontists in the United States and Canada. To drive further adoption of our system, we ~~will continue to~~may increase our team of capital sales representatives, who are focused on system placement by directly engaging with dental practitioners and educating them about the compelling value proposition of the GentleWave Procedure. Our sales force leverages third-party data of root canal procedure volumes by practitioner, in order to enable us to efficiently and effectively identify target accounts. We believe that our current targeting strategy identifies a well-defined customer base that is accessible by our direct sales organization.

•

System utilization: Our revenue is significantly impacted by the utilization of our GentleWave System. Our objective is to establish the GentleWave Procedure as the standard of care for RCT. We intend to increase awareness of the GentleWave Procedure among dental practitioners and, in select markets where we establish a large installed base, directly with patients through various targeted direct-to-patient marketing initiatives, showcasing the benefits and points of difference of the GentleWave Procedure. We believe that once patients become aware of the GentleWave Procedure, they will seek the GentleWave Procedure over conventional RCT. We believe these initiatives will drive a greater volume of root canal procedures to dental practitioners who offer the GentleWave Procedure, thereby increasing utilization of our system.

•

Gross margins: Our results of operations depend, in part, on our ability to increase our gross margins by more effectively managing our costs to produce our GentleWave Console and single-use PIs, and to scale our manufacturing operations efficiently. Our gross margin has also been impacted by the reserve of obsolete inventory and the impairment of long-lived assets. We expect to realize operating leverage through increased scale efficiencies as our commercial operations grow. We are undertaking continuous margin improvement programs, including implementing lean manufacturing methods and working with our suppliers to reduce material costs. We have also executed several product design improvements to reduce product cost. ~~For example,~~In April 2022, we ~~expect the~~launched CleanFlow PI, ~~launched in 2022~~which is designed to ~~have~~improve PI's applicability and effectiveness and has had a positive impact on the gross margin profile of our single-use PIs. In the third quarter of 2023, we announced that the CleanFlow PI can be used on anterior teeth and launched the second generation CleanFlow PI, which included an optimized design and enhanced matrix system for better effectiveness and ease of use. We expect CleanFlow PI to substantially replace the legacy PI starting 2024. We anticipate that the combination of these strategies will ~~drive~~continue driving margin improvement.

•

Commercial organization: As of ~~June~~September 30, 2023, our sales and customer support team consisted of approximately 8779 employees. We intend to continue to make investments in our commercial organization by increasing the number of employees in our commercial organization, as well as by expanding our marketing and training programs, to help facilitate further adoption of our products among existing and new customer accounts. Successfully recruiting and training a sufficient number of sales and customer support employees is required to achieve growth at the rate we expect. The rate at which we grow our commercial organization and the speed at which newly hired personnel become effective can impact our revenue growth and our costs incurred in anticipation of such growth.

Effects of the Macroeconomic Environment

Our unaudited condensed consolidated financial statements as of and for the ~~six~~nine months ended ~~June~~September 30, 2023 reflect our estimate of the impact of the macroeconomic environment, including the impact of inflation and higher interest rates. The duration and scope of these conditions cannot be predicted; therefore, the extent to which these conditions will directly or indirectly impact our business, results of operations and financial condition, is uncertain. We are not aware of any specific event or circumstance that would

require an update to our estimates, judgments and assumptions or a revision of the carrying value of our assets or liabilities as of the date of this ~~filing.~~filing, except the impairment of long-lived assets disclosed in this Quarterly Report on Form 10-Q .

22Listing Notice from the NYSE

In late September 2023, our share price had fallen below the NYSE's listing standard threshold and therefore we received notice of non-compliance from the NYSE. As required by the NYSE, we notified the NYSE of our plan to cure and restore our compliance with the NYSE's continued listing standard no later than our next annual meeting, currently scheduled no later than June 2024. There is no assurance that we will cure and restore our compliance or, if cured and restored, remain in compliance with such requirement or other NYSE continued listing standards in the future.

Components of Our Results of Operations

Revenue

Our revenue consists primarily of product revenue and software revenue. We generate product revenue on the capital sale of our GentleWave Console and recurring sales of our single-use PIs and accessories. To a lesser extent, we also derive product revenue from service and repair and extended warranty contracts with our existing customers. Software revenue relates to fees we receive for licensing our TDO practice management tool to dental practitioners. We expect our product revenue to increase in absolute dollars as we increase adoption and utilization of our GentleWave System, though revenues may fluctuate from quarter to quarter.

Cost of Sales and Gross Margin

Cost of sales consists primarily of manufacturing overhead costs, material costs, and direct labor to produce our products, warranty, provisions for slow-moving and obsolete inventory, and other direct costs such as shipping and software support. A significant portion of our cost of sales currently consists of manufacturing overhead costs. These overhead costs include personnel compensation, including stock-based compensation expenses, facilities, the cost of production equipment and operations supervision, quality control, material procurement and intangible assets amortization. We provide up to a two-year warranty on capital equipment upon initial sale, and we establish a reserve for warranty repairs based on historical warranty repair costs incurred. Provisions for warranty obligations, which are included in cost of sales, are provided for at the time of shipment. We expect our cost of sales to increase in absolute dollars for the foreseeable future primarily as, and to the extent, our revenue grows, partially offset by lower unit product costs, though it may fluctuate from period to period.

We calculate gross margin as gross profit divided by revenue. Our gross margin has been and ~~will~~may continue to be affected by a variety of factors, primarily, product mix and the resulting average selling prices, production volumes, manufacturing costs and product yields, ~~and~~ the implementation of cost reduction ~~strategies.~~strategies, the reserve of obsolete inventory and the impairment of long-lived assets. Our software gross margin is generally higher than our product gross margin. As a result of these factors, we expect gross margin may fluctuate from period to period. We are engaged in various efforts to improve our gross margin by reducing unit product costs to the extent our production volumes increase, as well as through product design improvements, reducing material costs through negotiations with suppliers and optimizing the manufacturing process and reducing the costs to service our installed base.

Operating Expenses

Selling, General and Administrative

Selling, general and administrative ("(“SG~~&A"~~&A”) expenses consist primarily of personnel compensation, including stock-based compensation, related to selling, marketing, professional education, administration, finance, information technology, legal, and human resource functions. SG&A expenses also include commissions, training, travel expenses, promotional activities, conferences, trade shows, professional services fees, audit fees, legal fees, insurance costs and general corporate expenses including allocated facilities-related expenses. We expect our SG&A expenses to increase in absolute dollars for the foreseeable future as we expand our commercial infrastructure and incur additional fees associated with operating as a public company, including legal, accounting, insurance, exchange listing and SEC compliance, investor relations, and other administrative and professional services expenses, though it may fluctuate from period to period. However, over time, we expect our SG&A expenses to decrease as a percentage of revenue.

Research and Development

Research and development ("(“R~~&D"~~&D”) expenses consist primarily of costs incurred for proprietary R&D programs, and include costs of product engineering, product development, regulatory affairs, consulting services, materials, and depreciation, as well as other costs associated with products and technologies being developed. These expenses include employee and non-employee compensation, including stock-based compensation, supplies, materials, consulting, related travel expenses and facilities expenses. We expect our

R&D expenses to moderate in absolute dollars for the foreseeable future as we continue to develop, enhance, and commercialize new products and technologies. However, we expect our R&D expenses as a percentage of revenue to vary over time depending on the level and timing of initiating new product development efforts.

Impairment of Long-lived Assets

Long-lived assets include definite-lived intangibles, long-lived fixed assets and lease right-of-use assets. An impairment charge of long-lived assets is recognized when an assessment of potential impairment indicates that an asset's carrying amount is not recoverable. The carrying amount of the asset is reduced to its estimated fair value based on discounted cash flow analysis. An impairment analysis is subjective and assumptions regarding future growth rates and operating expense levels can have a significant impact on the expected future cash flows and impairment analysis.

Other Income (Expense), Net

Other (expense) income, net, consists primarily of interest expense under our outstanding term loan and investment income.

Results of Operations

Comparison of Three and ~~Six Months~~Nine months Ended ~~June~~September 30, 2023 and 2022

The following tables present our results of operations for the three months ended ~~June~~September 30, 2023 and 2022, together with the dollar and percentage change in those items:


	Three Months Ended September 30,						Change
	2023			2022			$			%
	(in thousands, except percentages)
Revenue	$	10,406		$	9,846			560			6	%
Cost of sales:
Product and software		6,619			7,528			(909	)		(12	)%
Impairment of long-lived assets		1,341			—			1,341			100	%
Total cost of sales		7,960			7,528			432			6	%
Gross profit		2,446			2,318			128			6	%
Gross margin		24	%		24	%
Operating expenses:
Selling, general and administrative		13,442			12,586			856			7	%
Research and development		3,049			4,328			(1,279	)		(30	)%
Impairment of long-lived assets		2,051			—			2,051			100	%
Total operating expenses		18,542			16,914			1,628			10	%
Loss from operations		(16,096	)		(14,596	)		(1,500	)		10	%
Other income (expense), net:
Interest and financing costs, net		(884	)		(943	)		59			(6	)%
Loss before income tax expense		(16,980	)		(15,539	)		(1,441	)		9	%
Income tax expense		—			—			—			—
Net loss	$	(16,980	)	$	(15,539	)		(1,441	)		9	%

The following table shows our results of operations for the nine months ended September 30, 2023 and 2022, together with the dollar and percentage change in those items:

2326

Three Months Ended June 30,

Change

2023

2022

$

%

(in thousands, except percentages)

Revenue

$
11,043

$
10,547

496

5
%
Cost of sales

9,945

7,994

1,951

24
%
Gross profit

1,098

2,553

(1,455
)

(57
)%
Gross margin

10
%

24
%

Operating expenses:

Selling, general and administrative

14,751

12,822

1,929

15
%
Research and development

3,298

4,018

(720
)

(18
)%
Total operating expenses

18,049

16,840

1,209

7
%
Loss from operations

(16,951
)

(14,287
)

(2,664
)

19
%
Other income (expense), net:

Interest and financing costs, net

(739
)

(850
)

111

(13
)%
Loss before income tax benefit

(17,690
)

(15,137
)

(2,553
)

17
%
Income tax expense

—

—

—

—

Net loss

$
(17,690
)

$
(15,137
)

(2,553
)

17
%

~~The following table shows our results of operations for the six months ended June 30, 2023 and 2022, together with the dollar and percentage change in those items:~~


	Six Months Ended June 30,						Change						Nine Months Ended September 30,						Change
	2023			2022			$			%			2023			2022			$			%
	(in thousands, except percentages)												(in thousands, except percentages)
Revenue	$	21,767		$	19,580			2,187			11	%	$	32,173		$	29,426			2,747			9	%
Cost of sales		17,323			14,748			2,575			17	%
Cost of sales:
Product and software														23,942			22,276			1,666			7	%
Impairment of long-lived assets														1,341			—			1,341			100	%
Total cost of sales														25,283			22,276			3,007			13	%
Gross profit		4,444			4,832			(388	)		(8	)%		6,890			7,150			(260	)		(4	)%
Gross margin		20	%		25	%								21	%		24	%
Operating expenses:
Selling, general and administrative		29,417			24,807			4,610			19	%		42,859			37,393			5,466			15	%
Research and development		6,792			8,868			(2,076	)		(23	)%		9,841			13,196			(3,355	)		(25	)%
Impairment of long-lived assets														2,051			—			2,051			100	%
Total operating expenses		36,209			33,675			2,534			8	%		54,751			50,589			4,162			8	%
Loss from operations		(31,765	)		(28,843	)		(2,922	)		10	%		(47,861	)		(43,439	)		(4,422	)		10	%
Other expense, net:
Interest and financing costs, net		(1,296	)		(1,816	)		520			(29	)%		(2,180	)		(2,759	)		579			(21	)%
Loss before income tax expense		(33,061	)		(30,659	)		(2,402	)		8	%		(50,041	)		(46,198	)		(3,843	)		8	%
Income tax expense		—			—			—			—			—			—			—			—
Net loss	$	(33,061	)	$	(30,659	)		(2,402	)		8	%	$	(50,041	)	$	(46,198	)		(3,843	)		8	%

Revenue

The following table shows our breakdown of revenue for the three and ~~six~~nine months ended ~~June~~September 30, 2023 and 2022, together with the dollar and percentage change in those items:


	Three Months Ended June 30,				Change					Three Months Ended September 30,				Change
	2023		2022		$		%			2023		2022		$		%
	(in thousands, except percentages)									(in thousands, except percentages)
Product revenue	$	8,763	$	8,442		321		4	%	$	8,163	$	7,795		368		5	%
Software revenue		2,280		2,105		175		8	%		2,243		2,051		192		9	%
Total revenue	$	11,043	$	10,547		496		5	%	$	10,406	$	9,846		560		6	%


	Six Months Ended June 30,				Change					Nine Months Ended September 30,				Change
	2023		2022		$		%			2023		2022		$		%
	(in thousands, except percentages)									(in thousands, except percentages)
Product revenue	$	17,441	$	15,645		1,796		11	%	$	25,604	$	23,440		2,164		9	%
Software revenue		4,326		3,935		391		10	%		6,569		5,986		583		10	%
Total revenue	$	21,767	$	19,580		2,187		11	%	$	32,173	$	29,426		2,747		9	%

Total revenue increased ~~$0.5~~$0.6 million, or 5%6%, and ~~$2.2~~$2.7 million, or ~~11%~~9%, for the three months and ~~six~~nine months ended ~~June~~September 30, 2023, respectively, from the comparable periods in the prior year.

Product revenue increased ~~$0.3~~$0.4 million, or 4%5%, for the three months ended ~~June~~September 30, 2023 compared to the prior year period, which was primarily driven by an increase in the average selling price of PIs of approximately ~~17%~~11%, partially offset by a decrease in ~~Consoles~~PI sales volumes. For the three months ended ~~June~~September 30, 2023, we generated ~~$2.2~~$2.1 million, ~~$5.6~~$5.1 million and ~~$1.0~~$0.9 million from the sale of GentleWave Consoles, PIs and other products, respectively, compared ~~to$2.7~~to $2.1 million, $4.8 million and ~~$0.9~~$0.8 million, respectively, for the three months ended ~~June~~September 30, 2022.

Software revenue increased $0.2 million, or 8%9%, for the three months ended ~~June~~September 30, 2023 compared to the prior year period, which was primarily due to a higher number of customer subscriptions.

Product revenue increased ~~$1.8~~$2.2 million, or ~~11%~~9%, for the ~~six~~nine months ended ~~June~~September 30, 2023 compared to the prior year period, which was primarily driven by an increase in the average selling price of PIs of approximately ~~13%~~12%, as well as an increase in PI sales volumes of approximately ~~10%~~5%, partially offset by a decrease in Consoles sales volume. For the ~~six~~nine months ended ~~June~~September 30, 2023, we generated ~~$4.2~~$6.3 million, $16.4 million, and $2.9 million ~~and~~ ~~$11.3 million~~from the sale of GentleWave Consoles, PIs and ~~PIs,~~other products, respectively, compared to ~~$4.8~~$6.9 million, $13.9 million and ~~$9.1~~$2.6 million, respectively, for the ~~six~~nine months ended ~~June~~September 30, 2022.

Software revenue increased ~~$0.4~~$0.6 million, or 10%, for the ~~six~~nine months ended ~~June~~September 30, 2023 compared to the prior year period, which was primarily due to a higher number of customer subscriptions.

Cost of ~~sales~~Sales and Gross ~~margin~~Margin

Cost of sales increased $0.4 million, or 6%, for the three months ended September 30, 2023 compared to the prior year period, which was primarily driven by a $1.3 million charge due to impairment of long-lived assets, partially offset by lower costs of CleanFlow PIs on a per unit basis as compared to our legacy PI products, as well as improved operational efficiencies in console service cost. There were no significant changes in the Software segment cost of sales.

Cost of sales increased ~~$2.0~~$3.0 million, or ~~24%, and $2.6 million, or 17%~~13%, for the ~~three and six~~nine months ended ~~June~~September 30, 2023 ~~respectively, from the comparable periods in~~compared to the prior ~~year. The~~year period. In addition to the $1.3 million impairment charges, the increase was ~~primarily~~ driven by a ~~$1.7~~$2.9 million charge related to inventory in the second quarter of 2023 due to reduced sales ~~volumes~~ of our legacy GentleWave Console ~~("Gen3")~~(,“Gen 3”) and ~~a $1.2 million charge due to phasing out~~the phase-out of our ~~legacy procedure instruments, the~~ molar and pre-molar ~~as we move to the CleanFlow~~legacy procedure instruments. These ~~charges~~increases were partially offset by lower cost of CleanFlow PIs on per unit basis as compared to our legacy PI ~~products.~~products, as well as improved operational efficiencies. There were no significant changes in the Software segment cost of sales.

Gross margin ~~decreased 14% and 4%~~remained relatively flat for the three months and ~~six~~was slightly lower for the nine months ended ~~June~~September 30, 2023 ~~respectively, from the comparable periods in~~compared to the prior year period, which was primarily due to the aforementioned ~~charges to~~changes in cost of ~~sales and higher console cost on per unit basis, partially offset by higher PI average selling price and lower PI cost on per unit basis.~~sales.

Selling, ~~general~~General and ~~administrative expenses~~Administrative Expenses

SG&A expenses increased ~~$1.9~~$0.9 million or ~~15%~~7%, and ~~$4.6~~$5.5 million, or ~~19%~~15%, for the three and ~~six~~nine months ended ~~June~~September 30, 2023, respectively, from the comparable period in the prior year. ~~The~~For the three months ended September 30, 2023, the increase was primarily driven by ~~changes in our Product segment due to~~ higher employee-related compensation and benefit expenses as a result of ~~approximately $0.7 million for~~ the ~~three~~expansion of our commercial infrastructure. For the nine months ~~period~~ended September 30, 2023, the increase was attributed to higher salaries and ~~approximately $2.5 million in the six month period,~~wages, including stock-based compensation, ~~and~~ recruiting expenses, and legal fees, as a result of the expansion of our commercial infrastructure and our general and administrative functions. There were no significant changes in ~~the Software segment~~ selling, general and administrative ~~expenses.~~expenses in the Software segment.

Research and ~~development expenses~~Development Expenses

R&D expenses decreased ~~$0.7~~$1.3 million or ~~18% and $2.1 million, or 23%,~~ 30% for the three ~~and six~~ months ended ~~June~~September 30, 2023 ~~respectively, from the comparable period in~~compared to the prior year, period, which was primarily driven by lower spending on product development and outside services in the Product segment.

R&D expenses decreased $3.4 million, or 25%, for the nine months ended September 30, 2023, respectively, from the comparable period in the prior year, which was primarily driven by approximately $2.2 million in lower spending on product development and outside services in the Product segment, as well as a lower headcount.

There were no significant changes in any major components of the R&D expenses in the Software segment as described in the Components of Our Results of Operations above.

Impairment of Long-lived Assets

In the Product segment, for the three and nine months ended September 30, 2023, the Company recognized a total impairment charge of $3.4 million for long-lived assets, of which $1.3 million was recorded in cost of sales and the remainder in operating expenses.

Other ~~expense,~~Expense, net

Total other expense net for the three and ~~six~~nine months ended ~~June~~September 30, 2023 decreased compared to the prior year periods, mainly due to interest income from our short-term investments.

Liquidity and Capital Resources

Sources of liquidity

We have incurred significant operating losses and negative cash flows from operations since our inception, and we anticipate that we will continue to incur net losses for the next several years.

On September 27, 2022, we completed a private placement (the ~~"Private Placement"~~“Private Placement”), issuing an aggregate of approximately 23.0 million shares of our common stock at a purchase price of $0.95 per share and pre-funded warrants to purchase an aggregate of 43.3 million shares of our common stock at a purchase price of $0.949 per pre-funded warrant. The pre-funded warrants have an exercise price of $0.001 per share of common stock, are immediately exercisable and will remain exercisable until exercised in full. The aggregate net proceeds from the Private Placement, after deducting placement agent fees and other offering expenses, were $59.0 million.

As of ~~June~~September 30, 2023, we had cash and cash equivalents and short-term investments of ~~$65.9~~$55.9 million, an accumulated deficit of ~~$402.2~~$419.1 million, and $40.0 million in principal outstanding under our term loan facility. For ~~the three and six~~nine months ended ~~June~~September 30, 2023 and 2022, our net losses from operations were ~~$33.1~~$50.0 million and ~~$30.7~~$46.2 million, respectively, and our net cash used in operating activities was ~~$26.3~~$36.6 million and ~~$31.5~~$46.8 million, respectively.

On March 10, 2023, the California Department of Financial Protection and Innovation shut down Silicon Valley Bank ~~(SVB)~~(“SVB”) due to liquidity concerns and appointed the Federal Deposit Insurance Corporation ~~(FDIC)~~(“FDIC”) as receiver. On March, 27, 2023, SVB began operating as a division of First Citizens Bank. As of ~~June~~September 30, 2023, we held approximately ~~$0.9~~$1.1 million in operating accounts at SVB. Our remaining cash and cash equivalents and short-term investments, consisting of money market funds, high-grade corporate securities, and U.S. government backed securities, reside in custodial accounts held by U.S. Bank. There has been no disruption to the Company's operations.

Funding requirements

We expect that our operating expenses tomay increase for the foreseeable future as we continue to invest in expanding our sales and marketing infrastructure programs to both drive and support anticipated sales growth and product development. In addition, we expect that our general and administrative expenses tomay increase for the foreseeable future asif we hire personnel and expand our infrastructure to both drive and support the anticipated growth in our organization. We ~~will~~may also incur additional expenses asif we increase the size of our administrative function to support the growth of our business and operations as a public company. The timing and amount of our operating expenditures will depend on many factors, including:

•

the degree and rate of market acceptance of our current and future products and the GentleWave Procedure;

•

the scope and timing of investment in our sales force and expansion of our commercial organization;

•

the impact of the macroeconomic environment, including as a result of inflation and rising interest rates, the war in Ukraine, the war in Israel, or any other pandemic, epidemic or infectious disease outbreak, on our business;

•

the cost of our research and development activities;

•

the cost and timing of additional regulatory clearances or approvals;

•

the costs associated with any product recall that may occur;

•

the costs associated with the manufacturing of our products at increased production levels;

•

the costs of attaining, defending and enforcing our intellectual property rights;

•

whether we acquire third-party companies, products or technologies;

•

the terms and timing of any other collaborative, licensing and other arrangements that we may establish;

•

the scope, rate of progress and cost of our current or future clinical trials and registries;

•

the emergence of competing new products, technologies or alternative treatments or other adverse market developments;

•

the rate at which we expand internationally;

•

our ability to raise additional funds to finance our operations;

•

debt service requirements; and

•

the cost associated with being a public company.

Our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report have been prepared assuming we will continue to operate as a going concern, which contemplates the realization of assets and settlement of liabilities in the normal course of business, and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from uncertainty related to our ability to continue as a going concern. Based upon our current operating plan, we believe that our cash and cash equivalents and short-term investments will be sufficient to meet our capital requirements and fund our operations through at least the next 12 months from the date of this Quarterly Report. If the our actual ~~operating expenses~~revenue is significantly ~~exceed~~less than our operating plan, ~~or our debt financing arrangements become unavailable because~~we may fail to satisfy certain ~~borrowing requirements are not met~~financial covenants which would constitute an event of default under the Perceptive Loan Agreement, as amended, which may further cause the lender to terminate its commitments and declare all amounts outstanding under the Perceptive Loan Agreement, as amended, immediately due and payable, together with accrued interest and all fees and other obligations (see Note 9, “Term Loan,”) of our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q),. If our actual operating expenses significantly exceed our operating plan, we may have to significantly delay or scale back our operations to reduce working capital ~~requirements, and~~requirements. Under these circumstances, substantial uncertainty would exist with respect to our ability to continue as a going concern. In addition, we would prioritize necessary and appropriate steps to enable the continued operations of the business and preservation of the value of our assets beyond the next 12 months, including but not limited to, actions such as reducing personnel-related costs and delaying or curtailing certain of our commercial efforts, development activities and other discretionary expenditures that are within our control. These reductions in expenditures, if required, may have an adverse impact on our ability to achieve certain of our planned objectives in fiscal year ~~2023.~~2023 and beyond.

We have based this estimate on estimates and assumptions that may prove to be wrong, and we may need to utilize additional available capital resources or seek additional ~~financing opportunistically.~~financing. Our ability to continue as a going concern is dependent upon our ability to successfully secure sources of financing and ultimately achieve profitable operations. If our existing capital resources are insufficient to satisfy our liquidity requirements, we may seek to sell additional public or private equity or debt securities or obtain an additional credit facility. The sale of equity or convertible debt securities may result in dilution to our stockholders and, in the case of

preferred equity securities or convertible debt, those securities could provide for rights, preferences or privileges senior to those of our common

stock. Debt financing, if available, may involve covenants restricting our operations or our ability to incur additional debt. Any debt financing or additional equity that we raise may contain terms that are not favorable to us or our stockholders. If we raise additional capital through collaboration agreements, licensing or divestiture arrangements, or marketing and distribution arrangements, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product or grant licenses that may not be favorable to us. Additional financing may not be available at all, or in amounts or on terms unacceptable to us.

Indebtedness

On April 6, 2022, we entered into Amendment No. 1 (the “First Amendment”) to the Amended and Restated Credit Agreement and Guaranty (the “Perceptive Loan Agreement”) with Perceptive Credit Holdings III, LP (“Perceptive”). The First Amendment extended the borrowing deadline for the first tranche of $10.0 million of delayed-draw term loans from December 31, 2021 to September 30, 2022, and also extended the borrowing deadline for the second tranche of $10.0 million delayed-draw term loans from March 31, 2022 to ~~June~~September 30, 2023. We borrowed the extended first tranche of $10.0 million in July 2022, receiving net proceeds of $9.9 million, and forfeited the extended tranche on ~~June~~September 30, 2023.

As a condition to entering into the First Amendment, on April 6, 2022, we also amended the warrants previously issued to Perceptive and certain of its affiliates to purchase an aggregate of 304,105 shares of our common stock. Such warrants were amended solely to reduce the exercise price of the warrants to $12.00 per share. In August 2022, a portion of these warrants representing 153,421 shares were transferred to a third party and its affiliates.

For the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022, the interest rate for amounts borrowed under the Perceptive Loan Agreement, as amended, was the greater of the 1-month LIBOR and 2.00% plus the applicable margin of 9.25%. On January 13, 2023, we entered into Amendment No. 2 (the ~~"Second Amendment"~~“Second Amendment”) to the Perceptive Loan Agreement, as amended, to replace the existing benchmark rate from the one-month LIBOR with a one-month Secured Overnight Financing Rate ~~("SOFR"~~(“SOFR”). All other terms remain unchanged onin the ~~original agreement.~~Perceptive Loan Agreement.

In connection with entering into the Perceptive Loan Agreement, we also entered into an amended and restated security agreement and granted a security interest in substantially all of our assets. We are permitted to make voluntary prepayments, subject to a scaled prepayment premium that ranges from 7.0% to 1.0% of the aggregate principal amount outstanding on such prepayment date for prepayments made after August 23, 2022 and before August 23, 2025. No prepayment premium is required for payments made after August 23, 2025.

The Perceptive Loan Agreement, as amended, contains events of default, including, without limitation, events of default upon: (i) failure to make a payment pursuant to the terms of the agreement; (ii) violation of certain covenants; (iii) payment or other defaults on other indebtedness; (iv) material adverse change in the business or change in control; (v) insolvency; (vi) significant judgments; (vii) incorrectness of representations and warranties; (viii) regulatory matters; and (ix) failure by us to maintain a valid and perfected lien on the collateral securing the borrowing. In the event of an event of default, the lender may terminate its commitments and declare all amounts outstanding under the Perceptive Loan Agreement, as amended, immediately due and payable, together with accrued interest and all fees and other obligations. The amount of such repayment will include payment of any prepayment premium applicable due to the time of such payment. In addition, upon the occurrence and during the continuance of any event of default, the applicable margin will increase by 3.00% per annum to 12.25%.

As of ~~June~~September 30, 2023, we had an aggregate principal balance of $40.0 million outstanding under the Perceptive Loan Agreement, as amended, and we were in compliance with all covenants and conditions under such agreement.

Summary statement of cash flows

The following table summarizes our statement of cash flows:


	Six Months Ended June 30,						Nine Months Ended September 30,
	2023			2022			2023			2022
	(in thousands)						(in thousands)
Net cash provided by (used in) :
Net cash provided by (used in)-:
Operating activities	$	(26,341	)	$	(31,503	)	$	(36,557	)	$	(46,826	)
Investing activities		21,140			(35,049	)		30,979			(37,995	)
Financing activities		103			(491	)		3			68,692
Net decrease in cash and cash equivalents	$	(5,098	)	$	(67,043	)	$	(5,575	)	$	(16,129	)

Operating Activities

Net cash used in operating activities was ~~$26.3~~$36.6 million for the ~~six~~nine months ended ~~June~~September 30, 2023, primarily consisting of a net loss of ~~$33.1~~$50.0 million as adjusted for non-cash items of ~~$4.7~~$10.3 million, as well as a net change in our net operating assets and liabilities of ~~$2.0~~$3.1 million. Non-cash items primarily consisted of ~~$2.0~~$5.8 million in stock-based compensation, $3.4 million impairment of long-lived assets and $3.0 million in depreciation and ~~amortization and $4.0 million in stock-based compensation.~~amortization. Changes in our net operating assets and liabilities year-over-year, ~~was~~were primarily due to a $4.4 million cash receipts of ERC refund and ~~$2.3~~a $4.1 million decrease in inventory due to ~~increase in inventory reserves for legacy products,~~managing production level, partially offset by increase in accounts receivable, prepaid expenses, accrued compensation and accounts payable attributable to timing of payment.

Net cash used in operating activities was ~~$31.5~~$46.8 million for the ~~six~~nine months ended ~~June~~September 30, 2022, primarily consisting of net loss of ~~$30.7~~$46.2 million as adjusted for non-cash items of ~~$4.5~~$7.3 million, partially offset by a net change in our net operating assets and liabilities of ~~$5.8~~$7.9 million. Non-cash items primarily consisted of ~~$1.6~~$5.1 million in stock-based compensation and $2.4 million in depreciation and ~~amortization and $3.3 million in stock-based compensation.~~amortization. The change in our net operating assets and liabilities was primarily due to a ~~$4.5~~$7.1 million increase in inventory held due to higher production and changes in prepaid expenses and other assets, accounts payable, accrued expenses and accrued compensation attributable to timing of payment.

Investing Activities

Net cash provided by investing activities was ~~$21.1~~$31.0 million for the ~~six~~nine months ended ~~June~~September 30, 2023, as a result of proceeds from maturities of available-for-sale securities partially offset by the purchases of available-for-sale securities and property and equipment. Net cash used in investing activities was ~~$35.0~~$38.0 million for the ~~six~~nine months ended ~~June~~September 30, 2022, as a ~~result~~result of purchases of available-for-sale securities and property and ~~equipment.~~equipment, partially offset by proceeds from maturities of available-for-sale securities.

Financing Activities

Net cash ~~used in~~provided by financing activities for the ~~six~~nine months ended ~~June~~September 30, 2023 was immaterial. Net cash ~~used~~provided by financing activities was ~~$0.5~~$68.7 million for the ~~six~~nine months ~~ended June~~ended September 30, 2022, primarily resulting from net proceeds received from the ~~payment of~~Private Placement and borrowing under the ~~remainder of the IPO fees and contingent earnout.~~Perceptive Loan Agreement, as amended.

Critical Accounting Policies and Estimates

Our management’s discussion and analysis of financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles ~~("GAAP"~~(“GAAP”). The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, the revenue generated, and expenses incurred, and related disclosures, during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions and any such differences may be material.

There were no material changes to our critical accounting policies or in the methodology used for estimates from those described in ~~"Management's~~“Management's Discussion and Analysis of Financial Condition and Results of ~~Operations"~~Operations” included in our Annual Report on Form 10-K filed with the SEC on March 8, 2023.

JOBS Act Accounting Election and Smaller Reporting Company Status

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the ~~"JOBS Act"~~“JOBS Act”). As such, we are eligible for exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies, including, but not limited to, presenting only two years of audited financial statements in addition to any required unaudited interim financial statements with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure in this Quarterly Report on Form 10-Q, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation, and an exemption from the requirements to obtain a non-binding advisory vote on executive compensation or golden parachute arrangements. We have elected to take advantage of certain of the reduced disclosure obligations in this Quarterly Report on Form 10-Q and may elect to take advantage of other reduced reporting requirements in our future filings with the SEC. As a result, the information that we provide to our stockholders may be different than you might receive from other public reporting companies in which you hold equity interests.

In addition, the JOBS Act permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We have elected to avail ourselves of this exemption and, therefore, for new or revised accounting standards applicable to public companies, we may delay adopting new or revised accounting standards until those standards would otherwise apply to private companies.

We will remain an emerging growth company until the earliest of (1) the last day of our first fiscal year (a) following the fifth anniversary of our IPO, which closed on November 2, 2021, (b) in which we have total annual gross revenues of at least $1.07 billion or (c) in which we are deemed to be a large accelerated filer, as defined in Rule 12b-2 under the Exchange Act, ~~of 1934,~~ as amended, which means the market value of our common stock that is held by non-affiliates exceeds $700 million as of the end of the second quarter of the prior fiscal year, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.

We are also a “smaller reporting company” as defined in Rule 12b-2 under the Exchange Act. We may continue to be a smaller reporting company even after we no longer qualify as an emerging growth company. We may take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled disclosures for so long as our voting and non-voting common stock held by non-affiliates is less than $250 million measured on the last business day of our second fiscal quarter, or our annual revenue is less than $100 million during the most recently completed fiscal year and our voting and non-voting common stock held by non-affiliates is less than $700 million measured on the last business day of our second fiscal quarter.

Recent Accounting Pronouncements

See Note 2, Summary of Accounting Policies and Recent Accounting Pronouncements, to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management, under the supervision and with the participation of our Chief Executive Officer (principal executive officer) and our Chief Financial Officer (principal financial officer), conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, ~~of 1934,~~ as amended, as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of ~~June~~September 30, 2023.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by ~~Rule~~Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the quarter ended ~~June~~September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on the Effectiveness of Controls

Control systems, no matter how well conceived and operated, are designed to provide a reasonable, but not an absolute, level of assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have

been detected. Because of the inherent limitations in any control system, misstatements due to error or fraud may occur and not be detected.

3032

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

From time to time, we may become involved in various claims and legal proceedings. Regardless of outcome, litigation and other legal and administrative proceedings can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors. We are currently not a party to any legal proceedings the outcome of which, if determined adversely to us, would individually or in the aggregate have a material adverse effect on our business, financial condition, and results of operations.

Item 1A. Risk Factors.

We have described under the heading “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 and under the heading “Risk Factors” in Part II, Item 1A of our Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2023 risks and uncertainties that could cause our actual results of operations and financial condition to vary materially from past, or from anticipated future, results of operations and financial condition. These risks and uncertainties are not the only risks facing us. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also adversely affect our business, financial condition, results of operations or the market price of our common stock. Except as set forth below, there have been no material changes to the risk factors previously described in our 2022 Annual Report on Form 10-K.

We ~~maintain cash deposits~~are not in ~~excess~~compliance with the continued listing standard set forth in Section 802.01C of ~~federally insured limits. Adverse developments affecting financial institutions, including bank failures, could adversely affect~~the NYSE, and as a result, our ~~liquidity and financial performance.~~common stock may be delisted from the NYSE.

Our common stock is currently listed on the NYSE. We ~~regularly maintain domestic cash deposits in Federal Deposit Insurance Corporation (“FDIC”) insured banks,~~may fail to comply with the continued listing requirements of the NYSE, which exceed the FDIC insurance limits. Bank failures, events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, or concerns or rumors about such events, may lead to widespread demands for customer withdrawals and liquidity constraints that may result in ~~market-wide liquidity problems.~~the delisting of our common stock. The ~~failure~~NYSE continued listing requirements require, among other things, that the minimum trading price of ~~a bank, or other adverse conditions~~our common stock does not fall below $1.00 for 30 consecutive trading days. On September 28, 2023, we were notified that we were not in compliance with this requirement. Under the ~~financial or credit markets impacting financial institutions at which~~NYSE’s rules, we ~~maintain balances, could adversely impact~~have six months following receipt of the notification to regain compliance with the minimum trading price requirement. If we are unable to cure this deficiency within this cure period, the NYSE may initiate procedures to suspend and delist our ~~liquidity~~common stock. We notified the NYSE of our plan to cure and ~~financial performance. There~~restore our compliance with the NYSE’s continued listing standard no later than our next annual meeting, currently scheduled no later than June 2024. While we plan to review all available options, our common stock share price may not meet the applicable requirements during the cure period, and there can be no ~~assurance~~assurances that further options to cure the deficiency that we may consider can or will be effectuated as an alternative to proceeding to delisting. Additionally, the NYSE has other continued listing standards that we are at risk of violating. For example, continued declines in our ~~deposits~~stock price could result in ~~excess~~a delisting under the NYSE’s “abnormally low” price level standard, which the NYSE views to be an average global market capitalization over a consecutive 30 trading-day period of less than $15.0 million. There is no available cure for these deficiencies. Currently, our market capitalization is trading below this mandated minimum threshold. On November 6, 2023, our per share trading price closed at $0.27, and we had a market capitalization of approximately $14.7 million.

A delisting of our common stock could negatively impact our company and stockholders, including by reducing the willingness of stockholders to hold our common stock because of the ~~FDIC or other comparable insurance limits will be backstopped~~resulting decreased price, liquidity and trading of our common stock, limited availability of price quotations, and reduced news and analyst coverage. These developments may also require brokers trading in our common stock to adhere to more stringent rules and may limit our ability to raise additional capital by ~~the U.S. government~~issuing additional shares of common stock in the ~~future or that any bank or~~future. Delisting may adversely impact the perception of our financial ~~institution~~condition, cause reputational harm with ~~which we do~~investors, our employees and parties conducting business ~~will be able~~with us, and limit our access to ~~obtain needed liquidity from other banks, government institutions or by acquisition~~debt and equity financing. The perceived decrease in ~~the event~~value of ~~a future failure or liquidity crisis.~~employee equity incentive awards may reduce their effectiveness in encouraging performance and retention.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

None.

Item 5. Other Information.

None.

Item 6. Exhibits.

3134

The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q unless otherwise stated.


		Incorporated by Reference
Exhibit Number	Description	Form	File No.	Exhibit	Filing Date	Filed / Furnished Herewith
3.1	Amended and Restated Certificate of Incorporation	8-K	001-40988	3.1	11/2/2021
3.2	Amended and Restated Bylaws	8-K	001-40988	3.2	11/2/2021
4.1	Form of Certificate of Common Stock	S-1/A	333-260136	4.1	10/25/2021
4.2	Fifth Amended and Restated Voting Agreement by and among Sonendo, Inc. and the investors listed therein	S-1/A	333-260136	4.2	10/25/2021
4.3	Third Amended and Restated Investors’ Rights Agreement by and among Sonendo, Inc. and the investors listed therein	S-1	333-260136	4.3	10/8/2021
4.4	Warrant to purchase Series C-1 preferred stock, issued to Oxford Finance LLC on December 31, 2013	S-1	333-260136	4.4	10/8/2021
4.5	Warrant to purchase Series C-1 preferred stock, issued to Oxford Finance LLC on June 30, 2014	S-1	333-260136	4.5	10/8/2021
4.6	Warrant to purchase Series C-1 preferred stock, issued to Oxford Finance LLC on December 31, 2014	S-1	333-260136	4.6	10/8/2021
4.7	Warrant to purchase Series D preferred stock	S-1	333-260136	4.7	10/8/2021
4.8	Warrant to purchase Series E preferred stock (2018)	S-1	333-260136	4.8	10/8/2021
4.9	Warrant to purchase Series E preferred stock (2019)	S-1	333-260136	4.9	10/8/2021
4.10	Warrant to purchase Series E preferred stock (2021)	S-1	333-260136	4.10	10/8/2021
4.11	Credit Agreement Warrant to Purchase Stock	8-K	001-40988	4.1	4/7/2022
4.12	Schedule to Exhibit 4.11 - Form of Credit Agreement Warrant to Purchase Stock	8-K	001-40988	4.2	4/7/2022
4.13	Description of Common Stock	10-K	001-40988	4.11	3/23/2022
31.1	Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.					*
31.2	Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.					*
32.1	Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.					*
32.2	Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.					*
101.INS	Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.					*
101.SCH	Inline XBRL Taxonomy Extension Schema Document					*

3235


101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document	*
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document	*
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document	*
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document	*
104	Cover Page Interactive Data File (embedded within the Inline XBRL document)	*

* Filed or furnished herewith.

3336

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	Sonendo, Inc.


Date: ~~August 9,~~November 8, 2023	By:	/s/ Bjarne Bergheim
		Bjarne Bergheim
		President, Chief Executive Officer and Director
		(principal executive officer)


Date: ~~August 9,~~November 8, 2023	By:	/s/ Michael P. Watts
		Michael P. Watts
		Chief Financial Officer
		(principal financial and accounting officer)

3437


Delaware	20-5041718
( State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
26061 Merit Circle, Suite 102 Laguna Hills, CA	92653
(Address of principal executive offices)	(Zip Code)


Large accelerated filer	☐	Accelerated filer
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☒


	June 30,			December 31,			September 30,			December 31,
	2023			2022			2023			2022
	(Unaudited)						(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	12,567		$	17,665		$	12,090		$	17,665
Short-term investments		53,320			73,784			43,849			73,784
Accounts receivable, net		6,308			5,798			5,600			5,798
Inventory		13,161			15,462			11,442			15,462
Prepaid expenses and other current assets		1,854			8,397			2,510			8,397
Total current assets		87,210			121,106			75,491			121,106
Property and equipment, net		2,777			2,860			216			2,860
Operating lease right-of-use assets		3,619			2,455			3,300			2,455
Intangible assets, net		1,960			2,292			748			2,292
Goodwill		8,454			8,454			8,454			8,454
Other assets		118			118			118			118
Total assets	$	104,138		$	137,285		$	88,327		$	137,285
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,092		$	4,438		$	950		$	4,438
Accrued expenses		4,235			5,357			3,817			5,357
Accrued compensation		2,690			3,616			3,110			3,616
Operating lease liabilities		1,290			1,114			1,334			1,114
Other current liabilities		2,038			2,191			1,840			2,191
Total current liabilities		11,345			16,716			11,051			16,716
Operating lease liabilities, net of current		2,132			1,095			1,782			1,095
Term loan, net of current		37,043			36,746
Term loan, net								37,202			36,746
Other liabilities		574			773			512			773
Total liabilities		51,094			55,330			50,547			55,330
Commitments and contingencies (Note 8)
Stockholders’ equity:
Preferred stock, $0.001 par value; authorized —10,000,000 shares; issued and outstanding - none		—			—			—			—
Common stock, $0.001 par value; authorized — 500,000,000 shares; issued and outstanding— 52,659,684 shares as of June 30, 2023 and 49,974,281 shares as of December 31, 2022		53			50
Common stock, $0.001 par value; authorized — 500,000,000 shares; issued and outstanding— 52,971,301 shares as of September 30, 2023 and 49,974,281 shares as of December 31, 2022								53			50
Additional paid-in-capital		455,176			451,060			456,868			451,060
Accumulated other comprehensive loss		(30	)		(61	)		(6	)		(61	)
Accumulated deficit		(402,155	)		(369,094	)		(419,135	)		(369,094	)
Total stockholders’ equity		53,044			81,955			37,780			81,955
Total liabilities and stockholders’ equity	$	104,138		$	137,285		$	88,327		$	137,285


	Six Months Ended June 30,						Nine Months Ended September 30,
	2023			2022			2023			2022
Cash flows from operating activities:
Net loss	$	(33,061	)	$	(30,659	)	$	(50,041	)	$	(46,198	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		710			477			1,094			744
Amortization of intangible assets		331			332			498			498
Amortization of right-of-use lease assets		628			552			947			829
Impairment of long-lived assets								3,392			—
Stock-based compensation		4,001			3,348			5,785			5,071
Amortization of debt issuance costs		297			226			456			327
Accretion of available for sale securities, net		(1,272	)		—
Other non-cash operating activities, net								(1,831	)		(158	)
Changes in operating assets and liabilities:
Accounts receivable, net		(510	)		(732	)		198			(833	)
Inventory		2,301			(4,503	)		4,073			(7,086	)
Prepaid expenses and other assets		6,543			(458	)		5,887			641
Accounts payable		(3,346	)		(623	)		(3,494	)		(1,039	)
Accrued expenses and other liabilities		(2,056	)		642			(2,996	)		(409	)
Deferred revenue		19			(149	)		(19	)		204
Accrued compensation		(926	)		44			(506	)		583
Net cash used in operating activities		(26,341	)		(31,503	)		(36,557	)		(46,826	)
Cash flows from investing activities:
Purchases of available-for-sale securities		(30,733	)		(34,255	)		(49,978	)		(45,664	)
Proceeds from maturities of available-for-sale securities		52,500			—			81,800			8,700
Purchases of property and equipment		(627	)		(794	)		(843	)		(1,031	)
Net cash provided by (used in) investing activities		21,140			(35,049	)		30,979			(37,995	)
Financing activities:
Payment of common stock issuance costs		—			(598	)
Proceeds from issuance of common stock, net of issuance costs								—			20,623
Proceeds from debt, net of issuance costs								—			9,850
Payment of common stock IPO issuance costs								—			(598	)
Issuance of stock under employee stock plans		117			250			117			252
Taxes paid on vested stock awards under employee stock plans								(92	)		—
Proceeds from exercise of pre-funded warrants		1			—			1			38,722
Payment of contingent earnout		—			(117	)		—			(117	)
Principal repayments on finance lease		(15	)		(26	)		(23	)		(40	)
Net cash provided by (used in) financing activities		103			(491	)
Net cash provided by financing activities								3			68,692
Net decrease in cash and cash equivalents		(5,098	)		(67,043	)		(5,575	)		(16,129	)
Cash and cash equivalents at beginning of period		17,665			84,641			17,665			84,641
Cash and cash equivalents at end of period	$	12,567		$	17,598		$	12,090		$	68,512

Supplemental disclosures of cash flow information:
Cash paid for:
Interest	$	2,828		$	1,706		$	4,319		$	2,804
Supplemental schedule of non-cash investing and financing activities:
Operating lease right-of-use assets obtained in exchange for lease liabilities	$	1,792		$	223		$	1,792		$	223


	June 30,		December 31,		September 30,		December 31,
	2023		2022		2023		2022
	(in thousands)				(in thousands)
Raw materials	$	7,589	$	9,269	$	6,733	$	9,269
Work in process		143		427		569		427
Finished goods		5,429		5,766		4,140		5,766
Total inventory	$	13,161	$	15,462	$	11,442	$	15,462


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


		Page
	Cautionary Note Regarding Forward-Looking Statements	1

PART I.	FINANCIAL INFORMATION	3

Item 1.	Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Operations and Comprehensive Loss	4
	Condensed Consolidated Statements of Stockholders’ Equity	5
	Condensed Consolidated Statements of Cash Flows	67
	Notes to Condensed Consolidated Financial Statements	78
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2123
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2932
Item 4.	Controls and Procedures	2932

PART II.	OTHER INFORMATION	3133

Item 1.	Legal Proceedings	3133
Item 1A.	Risk Factors	3133
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3133
Item 3.	Defaults Upon Senior Securities	3133
Item 4.	Mine Safety Disclosures	3133
Item 5.	Other Information	3133
Item 6.	Exhibits	3134
Signatures		3437


	Common Stock				Additional			Accumulated						Total			Common Stock				Additional			Accumulated						Total
					Paid-In			Other			Accumulated			Stockholders’							Paid-In			Other			Accumulated			Stockholders’
	Shares		Amount		Capital			Comprehensive Loss			Deficit			Equity			Shares		Amount		Capital			Comprehensive Loss			Deficit			Equity
Balance at December 31, 2022		49,974,281	$	50	$	451,060		$	(61	)	$	(369,094	)	$	81,955			49,974,281	$	50	$	451,060		$	(61	)	$	(369,094	)	$	81,955
Employee stock plans		216,105		—		—			—			—			—			216,105		—		—			—			—			—
Stock-based compensation		—		—		1,942			—			—			1,942			—		—		1,942			—			—			1,942
Exercise of pre-funded warrants		1,062,080		1		—			—			—			1			1,062,080		1		—			—			—			1
Unrealized gain on short-term investments		—		—		—			56			—			56			—		—		—			56			—			56
Net loss		—		—		—			—			(15,371	)		(15,371	)		—		—		—			—			(15,371	)		(15,371	)
Balance at March 31, 2023		51,252,466	$	51	$	453,002		$	(5	)	$	(384,465	)	$	68,583			51,252,466	$	51	$	453,002		$	(5	)	$	(384,465	)	$	68,583
Employee stock plans		698,016		1		116			—			—			117			698,016		1		116			—			—			117
Stock-based compensation		—		—		2,059			—			—			2,059			—		—		2,059			—			—			2,059
Exercise of pre-funded warrants		709,202		1		(1	)		—			—			—			709,202		1		(1	)		—			—			—
Unrealized loss on short-term investments		—		—		—			(25	)		—			(25	)		—		—		—			(25	)		—			(25	)
Net loss		—		—		—			—			(17,690	)		(17,690	)		—		—		—			—			(17,690	)		(17,690	)
Balance at June 30, 2023		52,659,684	$	53	$	455,176		$	(30	)	$	(402,155	)	$	53,044			52,659,684	$	53	$	455,176		$	(30	)	$	(402,155	)	$	53,044
Employee stock plans																		264,809		—		(92	)		—			—			(92	)
Stock-based compensation																		—		—		1,784			—			—			1,784
Exercise of pre-funded warrants																		46,808		—		—			—			—			—
Unrealized gain on short-term investments																		—		—		—			24			—			24
Net loss																		—		—		—			—			(16,980	)		(16,980	)
Balance at September 30, 2023																		52,971,301	$	53	$	456,868		$	(6	)	$	(419,135	)	$	37,780


	June 30, 2023							September 30, 2023
	Weighted Average Amortization Period	Gross		Accumulated Amortization		Net		Weighted Average Amortization Period	Gross		Accumulated Amortization		Net
	(in years)	(in thousands)						(in years)	(in thousands)
Developed Technology (5 - 10 years)	4.0	$	2,445	$	1,301	$	1,144
Developed technology (5 - 10 years)								1.6	$	1,110	$	1,101	$	9
Customer relationships (7 years)	2.8		1,910		1,285		625	4		1,910		1,353		557
Tradenames (10 years)	0.8		360		169		191	1.1		360		178		182
Total intangible assets	7.6	$	4,715	$	2,755	$	1,960	6.7	$	3,380	$	2,632	$	748


	Future Intangible Asset Amortization Expenses		Future Intangible Asset Amortization Expenses
	(in thousands)		(in thousands)
2023 (remaining six months)	$	286
2023 (remaining three months)			$	86
2024		442		309
2025		386		252
2026		169		36
2027 and thereafter		677		65
Total future amortization expense	$	1,960	$	748


	Unamortized Compensation Costs		Weighted Average Service Period	Unamortized Compensation Costs		Weighted Average Service Period
	(in thousands)		(years)	(in thousands)		(years)
Options	$	4,022	1.93	$	3,422,242	1.71
RSUs		11,821	3.04		10,341,736	2.8
Total unamortized compensation cost	$	15,843		$	13,763,978


	Number of Shares			Weighted Average Exercise Price Per Share		Weighted- Average Remaining Contractual Life		Aggregate Intrinsic Value		Number of Shares			Weighted Average Exercise Price Per Share		Weighted- Average Remaining Contractual Life		Aggregate Intrinsic Value
						(in years)		(in thousands)							(in years)		(in thousands)
Options outstanding, December 31, 2022		2,756,368		$	2.83			$	1,510		2,756,368		$	2.83			$	1,510
Granted		195,120		$	1.08						195,120		$	1.08
Forfeited		(85,338	)	$	2.35						(320,299	)	$	2.35
Expired		(98,883	)	$	1.14			$	9		(99,156	)	$	1.14			$	9
Options outstanding, June 30, 2023		2,767,267		$	2.79		6.9	$	62
Options vested and exercisable, June 30, 2023		2,003,220		$	2.66		6.2	$	7
Vested and expected to vest after June 30, 2023		2,701,112		$	2.76		6.8	$	62
Options outstanding, September 30, 2023											2,532,033		$	2.83		6.6	$	—
Options vested and exercisable, September 30, 2023											1,839,527		$	2.70		6.0	$	—
Vested and expected to vest after September 30, 2023											2,474,615		$	2.80		6.6	$	—


	Number of Shares		Weighted Average Grant Date Fair Value		Number of Shares		Weighted Average Grant Date Fair Value
Non-vested Options, December 31, 2022		1,118,088	$	6.23		1,118,088	$	6.23
Non-vested Options, June 30, 2023		764,047	$	6.46
Non-vested Options, September 30, 2023						692,506	$	6.33