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, 2023,~~May 2, 2024, the registrant had ~~52,691,607~~70,455,399 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~~2023 and in the filings we make with 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~~Company’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2022.~~2023.

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 ~~to complete~~of completion and ~~dispose.~~disposal.

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~~Revenue recorded from continuing operations 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.~~accessories and services on its GentleWave Console. 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 from continuing operations primarily arise from the manufacture and delivery of the GentleWave System, related PIs and accessories, and ~~the delivery or license~~to a lesser extent, performance of ~~TDO software and related ancillary services.~~service contracts on its GentleWave Consoles. 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 significant 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,

2023

2022

(in thousands)

Extended service contracts

$
391

$
336

Subscription software licenses

445

481

Total contract liabilities

836

817

Less: long-term portion

133

—

Contract liabilities – current

$
703

$
817


	March 31,		December 31,
	2024		2023
	(in thousands)
Total contract liabilities - extended service contracts	$	1,048	$	920
Less: long-term portion		281		302
Contract liabilities – current	$	767	$	618

Contract liabilities are included within other current liabilities and other long-term liabilities in the accompanying unaudited condensed consolidated balance sheets. Revenue recognized during the ~~six~~three months ended ~~June 30,~~March 31, 2024 and 2023 ~~and 2022~~ that was included in the contract liability balance as of December 31, ~~2022~~2023 and ~~2021~~2022 was $~~0.8~~0.2 million and $~~0.6~~0.1 million, ~~respectively .~~respectively.

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~~revenues and the timing of when goods and services are transferred:

Three Months Ended June 30,

Six Months Ended June 30,

2023

2022

2023

2022

(in thousands)

Product revenue recognized at a point in time

$
8,617

$
8,266

$
17,141

$
15,293

Product revenue recognized over time

146

176

300

352

Software revenue recognized at a point in time

617

545

1,066

764

Software revenue recognized over time

1,663

1,560

3,260

3,171

Total

$
11,043

$
10,547

$
21,767

$
19,580


	Three Months Ended March 31,
	2024		2023
	(in thousands)
Product revenue recognized at a point in time	$	6,730	$	8,524
Service revenue recognized over time		317		154
Total revenue	$	7,047	$	8,678

No individual customer accounted for more than 10% of sales for the ~~six~~three months ended ~~June 30, 2023~~March 31, 2024 and ~~2022.~~2023.

Warranty Reserve

The Company provides a standard warranty on its GentleWave Systems for a specified period of time. For the ~~six~~three months ended ~~June 30,~~March 31, 2024 and 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~~ months ended ~~June 30, 2023~~March 31, 2024 and ~~2022:~~2023:


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended March 31,
	2023			2022			2023			2022			2024			2023
	(in thousands)												(in thousands)
Balance at beginning of period	$	1,757		$	1,615		$	1,930		$	1,620		$	1,269		$	1,930
Provision for warranties issued		205			470			400			780			200			195
Warranty costs incurred		(383	)		(355	)		(751	)		(670	)		(427	)		(368	)
Balance at end of period	$	1,579		$	1,730		$	1,579		$	1,730		$	1,042		$	1,757
Current portion							$	1,302		$	1,219		$	980		$	1,335
Non-current portion								277			511			62			422
Total							$	1,579		$	1,730		$	1,042		$	1,757

The warranty ~~liability,~~liabilities, 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 None.~~adopted~~ ~~the ASU on~~ ~~January 1, 2023. The adoption did~~ no~~t 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.~~

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 30, 2023~~March 31, 2024 and December 31, ~~2022:~~2023:


	June 30, 2023								March 31, 2024
	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	$	—	$	—	$	17,671	$	17,671	$	—	$	—
Total cash equivalents at fair value		11,676		11,676		—		—		17,671		17,671		—		—
Short-term investments:
U.S. treasury securities		24,811		24,811		—		—		5,697		5,697		—		—
Commercial paper and corporate bonds		21,083		—		21,083		—		9,312		—		9,312		—
U.S. government agency bonds		7,426		—		7,426		—
Total short-term investments at fair value		53,320		24,811		28,509		—		15,009		5,697		9,312		—
Total assets at fair value	$	64,996	$	36,487	$	28,509	$	—	$	32,680	$	23,368	$	9,312	$	—


	June 30, 2023									March 31, 2024
	Fair Value		Cost Basis		Amounts Recognized in Accumulated Other Comprehensive Loss					Fair Value		Cost Basis		Amounts Recognized in Accumulated Other Comprehensive Loss
					Unrealized Gains		Unrealized Losses							Unrealized Gains		Unrealized Losses
	(in thousands)									(in thousands)
Available-for-sale securities:
U.S. treasury securities	$	24,811	$	24,828	$	—	$	(17	)	$	5,697	$	5,697	$	—	$	—
Commercial paper and corporate bonds		21,083		21,092		—		(9	)	$	9,312		9,313		1		(2	)
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	)	$	15,009	$	15,010	$	1	$	(2	)


	December 31, 2022								December 31, 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	$	12,253	$	12,253	$	—	$	—	$	10,761	$	10,761	$	—	$	—
Commercial paper		1,998		—		1,998		—
U.S. government agency bonds		1,991		—		1,991		—
Corporate Bonds										1,827		—		1,827		—
Total cash equivalents at fair value		16,242		12,253		3,989		—		12,588		10,761		1,827		—
Short-term investments:
U.S. treasury securities		33,622		33,622		—		—		14,826		14,826		—		—
Commercial paper and corporate bonds		40,162		—		40,162		—		13,204		—		13,204		—
U.S. government agency bonds										4,743		—		4,743		—
Total short-term investments at fair value		73,784		33,622		40,162		—		32,773		14,826		17,947		—
Total assets at fair value	$	90,026	$	45,875	$	44,151	$	—	$	45,361	$	25,587	$	19,774	$	—

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~~There were no options granted during the ~~six~~three months ended ~~June 30, 2023~~March 31, 2024 and ~~2022 was $0.83~~ ~~and $1.16~~ ~~per share, respectively.~~2023.

The total fair value of shares vested during the ~~six~~three months ended ~~June 30,~~March 31, 2024 and 2023 ~~and 2022~~ was $$$~~1.6~~0.3 million and $~~1.8~~0.7 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~~ months ended ~~June 30, 2023,~~March 31, 2024, the Company did not repurchase any shares. There was no material number of shares of common stock subject to repurchase as of ~~June 30, 2023.~~March 31, 2024. 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~~ months ended ~~June 30,~~March 31, 2024 and 2023. ~~During the three and six months ended June 30, 2022, early exercised stock options vested were immaterial.~~

During the three months ended March 31, 2024, vested RSUs included a total of 589,487 aforementioned immediately vested outstanding RSUs.

7.8. Leases

The Company leases office space under operating leases with expirations ranging from March 2025 to ~~December 2026,~~March 2028, 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 30, 2023,~~March 31, 2024, the Company has not entered into any new 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

(in thousands)

2023 (remaining six months)

$
628

2024

1,555

2025

1,010

2026

645

Total future minimum lease payments

3,838

Less: Imputed Interest

(416
)
Present value of operating lease liabilities

$
3,422

Less: Current portion

1,290

Long-term operating lease liabilities

$
2,132

Weighted average remaining lease term in years

2.77

Weighted average discount rate

8.80
%


	Lease Amounts
	(in thousands)
2024 (remaining nine months)	$	937
2025		1,008
2026		892
2027		480
2028		122
Total future minimum lease payments		3,439
Less: Imputed Interest		(379	)
Present value of operating lease liabilities	$	3,060
Less: Current portion		1,172
Long-term operating lease liabilities	$	1,888

Weighted average remaining lease term in years		3.08
Weighted average discount rate		8.24	%

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 March 31,
	2024		2023
	(in thousands)
Rent expense	$	356	$	386
Variable lease costs		—		32
Total	$	356	$	418

Cash paid for operating leases	$	370	$	376

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 March 31,
	2023		2022		2023		2022		2024		2023
	(in thousands)				(in thousands)				(in thousands)
Cost of sales	$	68	$	58	$	138	$	116	$	80	$	70
Selling, general and administrative		345		289		693		574		276		348
Total	$	413	$	347	$	831	$	690	$	356	$	418

8.9. 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.

9.10. 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 months ended June 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 Amended and Restated Credit Agreement and Guaranty by and among the Company, the Subsidiary Guarantors party thereto, the Lenders party thereto and Perceptive (the “Amended Perceptive Loan ~~Agreement~~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 on the original agreement.For the three months ended March 31, 2024 and 2023, the interest rate for amounts borrowed under the Amended Perceptive Loan Agreement was the greater of the one-month SOFR and 2.00% plus the applicable margin of 9.25%.

On March 1, 2024, the Company entered into Amendment No. 3 (the “Third Amendment”) to the Amended Perceptive Loan Agreement. Pursuant to the Third Amendment, the Company made a one-time $15.0 million principal repayment on March 1, 2024, and agreed to make an amortization payment of $1.8 million on the outstanding principal on March 31, 2024 and make monthly amortization payments on the outstanding principal each in the amount of $0.9 million on each payment date commencing on April 30, 2024. Accordingly, $1.0 million of the unamortized debt issuance costs were expensed.

For the ~~six~~three months ended ~~June 30,~~March 31, 2024 and 2023, ~~and 2022~~, the effective interest rate of the Amended Perceptive ~~loan~~Loan, was ~~17.23~~21.22% and ~~14.70~~16.71%, respectively. As of ~~June 30,~~March 31, 2024 and 2023,~~and 2022,~~ the fair value of the Amended Perceptive ~~loan~~Loan approximates its carrying amount.

~~Future~~Pursuant to the Third Amendment, future principal repayments onand the net carrying value of the Perceptive ~~loan~~Loan as of ~~June 30, 2023~~,March 31, 2024, are as follows:


	Principal		Principal
	(in thousands)		(in thousands)
Remaining 9 months of 2024			$	8,100
2025				10,800
2026	$	40,000		4,300
Total	$	40,000
Total principal payment				23,200
Debt discounts				(1,489	)
Net carrying value			$	21,711

The Company is 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 Amended 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. Based on the Amended Perceptive Loan Agreement, the Company has granted a security interest in substantially all of its assets.

The Amended Perceptive Loan Agreement 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) pursuant to the Third Amendment, 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 $~~2026 as follows:~~26.4~~


For 12-month Period Ending	Revenue
	(in thousands)
March 31, 2024	$	39,000
June 30, 2024	$	35,500
September 30, 2024	$	33,000
December 31, 2024	$	31,500
March 31, 2025	$	31,000
June 30, 2025	$	33,000
September 30, 2025	$	35,935
December 31, 2025	$	40,160
March 31, 2026	$	44,950
June 30, 2026	$	51,500

~~million for~~

Pursuant to the ~~consecutive 12-month periods ending September 30, 2021~~Third Amendment, the lender also waived the covenant requiring the absence of any “going concern” or like qualification or exception or any qualification or exception as to $~~95.3~~ ~~million for~~ the ~~consecutive 12-month periods ending June 30, 2026. Specifically,~~scope of the ~~minimum revenue thresholds for~~audit, solely with respect to the ~~consecutive 12-months period~~fiscal year ending on ~~June 30, 2024 and September 30, 2024, are $~~December 31, 2023.

~~47.2~~ ~~million and $52.0~~ ~~million, respectively.~~ Failure to satisfy ~~these financial~~any covenants would constitute an event of default under the ~~agreement. For~~Amended Perceptive Loan Agreement. In the ~~six months~~event of an event of default, the lender may terminate its commitments and declare all amounts outstanding under the Amended Perceptive Loan Agreement 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%.

Total revenue generated from continuing and discontinued operations for the 12-months period ended ~~June 30, 2023,~~March 31, 2024 was $41.6 million, and cash and cash equivalents and short term investment balance was $33.6 million as of March 31, 2024. As such, the Company was in compliance with all financial covenants and conditions ~~required by~~under the ~~outstanding~~Amended Perceptive Loan Agreement as ~~amended~~.of March 31, 2024.

~~10.~~11. Income Taxes

The Company maintains a full valuation allowance against its net deferred tax assets as of ~~June 30, 2023~~March 31, 2024 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~~2023 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 30, 2023.~~March 31, 2024.

The Company is subject to U.S. federal and various states income taxes. The federal returns for tax years ~~2020~~2021 through ~~2022~~2023 remain open to examination and the state returns remain subject to examination for tax years ~~2019~~2020 through ~~2022~~2023. 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.~~12. Segment Information

The Company ~~operates~~previously operated and ~~reports~~reported its results in two business segments, Product and Software. ~~The Company reports~~Software segment ~~information based on~~assets included goodwill and intangible assets, which were derecognized in connection with the management approach. The management approach designates the internal reporting used by the Company's chief operating decision maker ("CODM") for decision making and performance assessment as the basis for determining the Company’s reportable segments. The performance measuresdivestiture of the ~~Company’s reportable segments are primarily income (loss) from operations. Income (loss) from~~software business on March 1, 2024. Following the divestiture, there were no substantial assets or operations ~~for each segment includes all revenues, related cost~~ of ~~net revenues, gross margin and operating expenses directly attributable to~~ the software segment.

The ~~Company’s Product~~software segment ~~includes sales~~was reported as Discontinued Operations as of ~~the Company's GentleWave System console~~March 31, 2024, and ~~related accessories and instruments.~~

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

~~The following tables present the Company’s segment~~all periods in this report. For more information, ~~for the three and six months ended~~ ~~June 30, 2023 and 2022. Cost of sales in the Product segment included a $1.7~~ ~~million charge due to reduced sales volumes of the Company's legacy Gen3 console and~~see Note 3 “Discontinued Operations.”

~~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
)

2023

2022

(in thousands, except percentage data)

Product

Software

Total

Product

Software

Total

Revenue

$
17,441

$
4,326

$
21,767

$
15,645

$
3,935

$
19,580

Cost of sales

15,948

1,375

17,323

13,463

1,285

14,748

Gross profit

1,493

2,951

4,444

2,182

2,650

4,832

Gross margin

9
%

68
%

20
%

14
%

67
%

25
%
Operating expenses:

Selling, general and administrative

28,223

1,194

29,417

23,770

1,037

24,807

Research and development

5,691

1,101

6,792

7,983

885

8,868

Total operating expenses

33,914

2,295

36,209

31,753

1,922

33,675

Income (loss) from operations

$
(32,421
)

$
656

$
(31,765
)

$
(29,571
)

$
728

$
(28,843
)

~~Segment Assets:~~

As of June 30, 2023

As of December 31, 2022

(in thousands)

Product

$
93,209

$
125,713

Software

10,929

11,572

Total

$
104,138

$
137,285

~~12.~~13. 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 March 31,
	2023			2022			2023			2022			2024			2023
	(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:
Loss from continuing operations, net of tax													$	(12,189	)	$	(15,642	)
Income from discontinued operations, net of tax														5,427		271
Net loss	$	(17,690	)	$	(15,137	)	$	(33,061	)	$	(30,659	)	$	(6,762	)	$	(15,371	)
Denominator:
Weighted-average shares outstanding – basic and diluted		93,684,289			26,468,515			93,538,676			26,437,058			94,822,835			93,391,444
Net loss per share – basic and diluted	$	(0.19	)	$	(0.57	)	$	(0.35	)	$	(1.16	)	$	(0.07	)	$	(0.16	)

~~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,

2023

2022

Stock options

2,767,267

3,024,956

RSUs

5,258,808

2,702,762

Warrants

331,503

331,503

Total

8,357,578

6,059,221


	Three Months Ended March 31,
	2024		2023
Stock options		2,150,519		2,748,494
RSUs		2,383,773		5,598,529
Warrants		323,284		331,503
Total		4,857,576		8,678,526

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.~~2023. 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~~2023 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"), 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 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 30, 2023,~~March 31, 2024, we had an installed base of approximately ~~1,040~~1,142 GentleWave Systems. We generated revenue of ~~$21.8~~$7.0 million and incurred a net loss of ~~$33.1~~$12.2 million from continuing operations for the ~~six~~three months ended ~~June 30, 2023,~~March 31, 2024, compared to revenue of ~~$19.6~~$8.7 million and a net loss of ~~$30.7~~$15.6 million for the ~~six~~three months ended ~~June 30, 2022.~~March 31, 2023. As of ~~June 30, 2023,~~March 31, 2024, we had cash and cash equivalents and short-term investments of ~~$65.9~~$33.6 million, an accumulated deficit of ~~$402.2~~$436.8 million, and ~~$40.0~~$23.2 million in principal outstanding under our term loan facility.~~In the three months ended June 30, 2023, we received all of the $4.4 million payment of Employee Retention Credit ("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,~~including 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 will continue to 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~~ require additional financing to fund our operations and planned growth.

~~We believe that our cash and cash equivalents and short-term investments will be sufficient~~Our ability to ~~meet our capital requirements and fund our operations through at least the next 12 months from the date of this Quarterly Report~~continue as a going concern depends on ~~Form 10-Q.~~ We may also seek additional financing opportunistically. 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~~continue to commercialize our products, achieve and maintain profitable operations, as well as the adherence to conditions of outstanding term loans (see Note 10 to the Condensed Consolidated Financial Statements). We will require additional ~~debt. Any debt~~ financing ~~or additional equity~~in order to fund our future expected negative cash flows. There is a

material uncertainty that raises substantial doubt about our ability to continue as a going concern and, therefore, that we ~~raise~~ may ~~contain terms that are not favorable~~be unable to ~~us or~~realize our ~~stockholders. If~~assets and discharge our liabilities in the normal course of business (see Liquidity and Capital Resources section).

On March 1, 2024, we ~~raise additional capital through collaboration agreements, licensing or divestiture arrangements, or marketing~~divested our TDO software segment by selling substantially all the assets and ~~distribution arrangements, we may have to relinquish valuable rights to~~liabilities of TDO, 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~~wholly owned subsidiary, for approximately $16.0 million, with $15.0 million received upon closing and the balance due in ~~amounts or~~approximately 12 months. A gain of $5.7 million on ~~terms unacceptable to us.~~sale of the software business was recorded in income from discontinued operations.

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 ~~increase~~restructure 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,~~PI, and to scale our manufacturing operations efficiently. We ~~expect to realize operating leverage through increased scale efficiencies as our commercial operations grow. We~~ are undertaking continuous margin improvement programs, including simplifying our product offering to one PI that can be used across various platforms, 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, we expect the~~ CleanFlow PI ~~launched~~is now our leading PI and we have phased out the legacy PI designed for molar teeth (a “Molar PI”), anteriors and premolars (an “APM PI”) substantially in ~~2022 to have a positive impact on the gross margin profile of our single-use PIs.~~early 2024. We anticipate that the combination of these strategies will ~~drive~~continue driving margin improvement.

•

Commercial organization: As of ~~June 30, 2023,~~March 31, 2024, our sales and customer support team consisted of approximately 87 54employees. We intend to continue to ~~make investments in~~re-prioritize our commercial organization ~~by increasing~~to increase 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~~effectiveness of our commercial organization ~~and the speed at which newly hired personnel become effective~~re-prioritization 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~~three months ended ~~June 30, 2023~~March 31, 2024 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.

22Stock Listing

Due to our failure to comply with the continued listing standards set forth in the NYSE’s Listed Company Manual, our common stock was suspended from trading on the NYSE effective at the opening of business Eastern Standard Time on November 22, 2023. We commenced trading on the OTCQX on the same day. We withdrew our request for an appeal and our common stock was delisted from the NYSE, which may negatively impact our stockholders and the trading price and liquidity of our common stock.

Components of Our Results of Operations

As discussed in Note 3, “Discontinued Operations” to the accompanying unaudited Condensed Consolidated Financial Statements in Part I of this Quarterly Report on Form 10-Q, on March 1, 2024, we divested our software segment by selling substantially all assets

and liabilities of TDO Software, Inc, our wholly owned subsidiary. The sale met the criteria to be accounted for as a discontinued operation as required by Accounting Standards Codification (“ASC”) 205-20. Accordingly, the financial results of the software business are reported as discontinued operations in the accompanying unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss for all periods presented. Our Condensed Consolidated Statements of Cash Flows include the financial results of the software business for the three months ended March 31, 2024 and 2023.

Revenue

Our revenue from continuing operations consists primarily of product ~~revenue~~ and ~~software~~service 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 and service revenue to increase in absolute dollars as we increase adoption and utilization of our GentleWave System, though revenues may fluctuate from quarter to quarter. We also expect the growth of recurring sales of our single-use PI and accessories to outpace the growth of capital sales of our GentleWave Console. Prior period financial statements have been recast so that software revenue is included in the discontinued operations.

Cost of Sales and Gross Margin

Cost of sales from continuing operations 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~~depreciation, operations supervision, quality control, material procurement, ~~and~~ intangible assets ~~amortization.~~amortization and impairment of long-lived assets. We provide ~~up to~~ a ~~two-year~~one-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. Prior period financial statements have been recast so that software cost of sales is included in the discontinued operations.

We calculate gross margin as gross profit divided by revenue. Our gross margin has been and will 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. Our previous software segment gross margin is generally higher than our product gross margin. ~~As a result of these factors, we~~Prior period financial statements have been recast to exclude the software segment from continuing operations. We expect gross margin ~~may~~to fluctuate ~~from period~~in the short term, however, to ~~period.~~increase year over year. 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~~decrease in absolute dollars for the foreseeable future as we ~~expand~~implement our cost saving measures, re-prioritize our commercial infrastructure, become more efficient in the general and ~~incur additional fees associated with operating as a public company, including legal, accounting, insurance, exchange listing~~administrative functions, and ~~SEC compliance, investor relations, and other administrative and professional services expenses,~~have divested our software segment, 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~~decrease in absolute dollars for the foreseeable future as we ~~continue~~become more efficient in our effort to develop, enhance, and commercialize new products and ~~technologies.~~technologies, and have divested our software segment. 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.~~income in our continuing operations.

Income from Discontinued Operations

Income from discontinued operations consists primarily of (loss) income from TDO software business and gain from sale of TDO assets and liabilities.

Results of Operations

Comparison of Three ~~and Six~~ Months Ended ~~June 30,~~March 31, 2024 and 2023 ~~and 2022~~

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

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~~three months ended ~~June 30,~~March 31, 2024 and 2023, ~~and 2022,~~ together with the dollar and percentage change in those items:


	Six Months Ended June 30,						Change						Three Months Ended March 31,						Change
	2023			2022			$			%			2024			2023			$			%
	(in thousands, except percentages)												(in thousands, except percentages)
Revenue	$	21,767		$	19,580			2,187			11	%
Revenue, net														7,047			8,678			(1,631	)		(19	)%
Cost of sales		17,323			14,748			2,575			17	%
Product														4,900			6,700			(1,800	)		(27	)%
Impairment of long-lived assets														146			—			146			100	%
Total cost of sales														5,046			6,700			(1,654	)		(25	)%
Gross profit		4,444			4,832			(388	)		(8	)%		2,001			1,978			23			1	%
Gross margin		20	%		25	%								28	%		23	%
Operating expenses:
Selling, general and administrative		29,417			24,807			4,610			19	%		10,061			14,114			(4,053	)		(29	)%
Research and development		6,792			8,868			(2,076	)		(23	)%		2,189			2,927			(738	)		(25	)%
Total operating expenses		36,209			33,675			2,534			8	%		12,250			17,041			(4,791	)		(28	)%
Loss from operations		(31,765	)		(28,843	)		(2,922	)		10	%
Other expense, net:
Operating loss														(10,249	)		(15,063	)		4,814			(32	)%
Other income (expense), net:
Interest and financing costs, net		(1,296	)		(1,816	)		520			(29	)%		(1,940	)		(579	)		(1,361	)		235	%
Loss before income tax expense		(33,061	)		(30,659	)		(2,402	)		8	%		(12,189	)		(15,642	)		3,453			(22	)%
Income tax expense		—			—			—			—			—			—			—			—
Loss from continued operations, net of tax														(12,189	)		(15,642	)
Income from discontinued operations, net of tax														5,427			271			5,156			1903	%
Net loss	$	(33,061	)	$	(30,659	)		(2,402	)		8	%	$	(6,762	)	$	(15,371	)		8,609			(56	)%

Revenue

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

Three Months Ended June 30,

Change

2023

2022

$

%

(in thousands, except percentages)

Product revenue

$
8,763

$
8,442

321

4
%
Software revenue

2,280

2,105

175

8
%
Total revenue

$
11,043

$
10,547

496

5
%

Six Months Ended June 30,

Change

2023

2022

$

%

(in thousands, except percentages)

Product revenue

$
17,441

$
15,645

1,796

11
%
Software revenue

4,326

3,935

391

10
%
Total revenue

$
21,767

$
19,580

2,187

11
%

~~Total revenu~~e ~~increased $0.5~~Revenue from continuing operations decreased $1.6 million, or ~~5%, and $2.2 million, or 11%~~19%, for the three months ~~and six months~~ ended ~~June 30, 2023, respectively,~~March 31, 2024 from the comparable ~~periods~~period in the prior ~~year.~~

~~Product revenue~~year, ~~increased $0.3 million, or 4%,~~ ~~for the three months ended June 30, 2023~~ ~~compared to~~ ~~the prior year period~~, which was primarily driven by lower sales volumes in PIs, partially offset by an increase in the average selling price of PIs ofby approximately ~~17%, partially offset by a decrease in Consoles sales volumes.~~ 6%.For the three months ended ~~June 30, 2023,~~March 31, 2024, we generated ~~$2.2~~ $1.8 million ~~$5.6 million~~ and ~~$1.0~~ $4.2 million from the sale of GentleWave ~~Consoles,~~consoles and PIs, ~~and other products,~~ respectively, compared ~~to$2.7 million, $4.8~~to $2.0 million and ~~$0.9~~$5.7 million, respectively, for the three months ended ~~June 30, 2022.~~March 31, 2023.

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

~~Product revenue~~ ~~increased $1.8 million, or 11%,~~ ~~for the six months ended June 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%, as well as an increase in PI sales volumes of approximately 10%, partially offset by a decrease in Consoles sales volume. ~~For the six months ended June 30, 2023, we~~ ~~generated~~ ~~$4.2 million~~ ~~and~~ ~~$11.3 million~~ ~~from the sale of GentleWave Consoles and PIs, respectively, compared to $4.8 million and $9.1 million, respectively, for the six months ended June 30, 2022.~~

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

Cost of sales and Gross margin

Cost of sales ~~increased $2.0~~from continuing operations decreased $1.8 million, or ~~24%, and $2.6 million, or 17%~~27%, for the three ~~and six~~ months ended ~~June 30, 2023, respectively,~~March 31, 2024 from the comparable ~~periods~~period in the prior ~~year. The increase~~year, which was primarily ~~driven by a $1.7 million charge due~~attributable to ~~reduced sales volumes of our legacy~~ ~~GentleWave Console ("Gen3"), and a $1.2 million charge due to phasing out our legacy procedure instruments, the molar and pre-molar as we move to the CleanFlow procedure instruments. These charges were~~lower PI volume sold. The decrease is partially offset by ~~lower cost~~expenses of ~~CleanFlow PIs on per unit basis as compared~~$0.3 million recognized relating to ~~our legacy PI products. There were no significant changes~~the immediate vesting of RSUs granted to certain non-executive employees in the ~~Software segment cost of sales.~~three months ended March 31, 2024.

Gross margin ~~decreased 14% and 4%~~increased 6% for the three months ~~and six months~~ ended ~~June 30, 2023, respectively,~~March 31, 2024 from the comparable ~~periods~~period in the prior year, primarily due to ~~the aforementioned charges to 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.

Selling, general and administrative expenses

SG&A expenses ~~increased $1.9~~decreased $4.1 million, or ~~15%, and $4.6 million, or 19%~~29%, for the three ~~and six~~ months ended ~~June 30, 2023, respectively,~~March 31, 2024 from the comparable period in the prior ~~year. The increase was~~year, primarily driven by ~~changes~~an approximately $2.5 million decrease in ~~our Product segment due to higher~~ employee-related compensation and benefit expenses, ~~of approximately $0.7 million for the three months period and approximately $2.5 million in the six month period,~~ including stock-based compensation, and recruiting expenses, as a result of the ~~expansion~~reduction in headcount. The decrease was also attributed lower marketing spending as we re-prioritize our commercial organization to increase the adoption of our ~~commercial infrastructure~~products among existing and ~~our general and administrative functions. There were no significant changes~~new customer accounts. The decrease is partially offset by expenses of $0.8 million recognized relating to the immediate vesting of RSUs granted to certain non-executive employees in the ~~Software segment selling, general and administrative expenses.~~three months ended March 31, 2024.

Research and development expenses

R&D expenses decreased $0.7 million, or ~~18% and $2.1 million, or 23%~~25%, for the three ~~and six~~ months ended ~~June 30, 2023, respectively,~~March 31, 2024 from the comparable period in the prior year, which was primarily driven by decrease in employee related compensation and benefit expenses due to lower ~~spending on product development and outside services~~headcount. The decrease is partially offset by expenses of $0.4 million recognized relating to the immediate vesting of RSUs granted to certain non-executive employees in the Product segment, as well as 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.three months ended March 31, 2024.

Other expense, net

Total other expense, net for the three ~~and six~~ months ended ~~June 30, 2023~~March 31, 2024 ~~decreased~~increased compared to the prior year periods, mainly due to ~~interest income~~a $1.0 million expense of the unamortized debt issuance costs of our term loan resulting from ~~our short-term investments~~the principal prepayment.

.Income from Discontinued Operations

Income from discontinued operations for the three months ended March 31, 2024 consists primarily of gain of $5.7 million from sale of TDO assets and liabilities and loss from TDO software business for the period from January 1, 2024 to March 1, 2024, which includes expenses of $0.3 million recognized relating to the immediate vesting of RSUs granted to certain non-executive employees.

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 30, 2023,~~March 31, 2024, we had cash and cash equivalents and short-term investments of ~~$65.9~~$33.6 million, an accumulated deficit of ~~$402.2~~$436.8 million, and ~~$40.0~~$23.2 million in principal outstanding under our term loan facility. For the three ~~and six~~ months ended ~~June 30,~~March 31, 2024 and 2023, ~~and 2022,~~ our net losses from continuing operations were ~~$33.1~~$12.2 million and ~~$30.7~~$15.6 million, respectively, and our net cash used in operating activities was ~~$26.3~~$10.7 million and ~~$31.5~~$17.0 million, respectively.

On March 10, 2023, the California Department of Financial Protection and Innovation shut down Silicon Valley Bank (SVB) due to liquidity concerns and appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. On March, 27, 2023, SVB began operating as a division of First Citizens Bank. As of June 30, 2023, we held approximately $0.9 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 our operating expenses to ~~increase~~decrease for the foreseeable future as we ~~continue to invest~~implement our cost saving measures, re-prioritize our commercial infrastructure, become more efficient in ~~expanding our sales~~the R&D and ~~marketing infrastructure programs to both drive and support anticipated sales growth and product development. In addition, we expect our~~ general and administrative ~~expenses~~functions, and have divested our software segment, though it may fluctuate from period to increase for the foreseeable future as we hire personnel and expand our infrastructure to both drive and support the anticipated growth in our organization. We will also incur additional expenses as we increase the size of our administrative function to support the growth of our business and operations as a public company.period. 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;~~force;

•

the impact of the macroeconomic environment, including as a result of inflation and rising interest rates, the war in Ukraine and the Gaza strip, 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 our actual operating expenses significantly exceed our operating plan or our debt financing arrangements become unavailable because certain borrowing requirements are not met (see Note 9 of our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q), we may have to significantly delay or scale back our operations to reduce working capital requirements, and 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.

~~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.~~ Our ability to continue as a going concern ~~is dependent upon~~depends on our ability to ~~successfully secure sources~~continue to commercialize our products, achieve and maintain profitable operations, as well as the adherence to conditions of the outstanding term loan (see Note 10 to the Condensed Consolidated Financial Statements). Without additional financing, we will have insufficient liquidity to achieve further commercialization of our products and ~~ultimately achieve profitable operations. If~~maintain compliance with our ~~existing capital resources are insufficient~~loan covenants. Due to ~~satisfy~~these conditions, there is substantial doubt about our ~~liquidity requirements,~~ability to continue as a going concern and, therefore, we may ~~seek~~be unable to ~~sell~~realize our assets and discharge our liabilities in the normal course of business.

We will require additional ~~public or private equity or debt securities or obtain an additional credit facility. The sale~~financing in order to fund future expected negative cash flows. Due to our failure to comply with the continued listing standards set forth in the NYSE’s Listed Company Manual, our common stock was suspended from trading on the NYSE effective at the opening of ~~equity or convertible debt securities~~business Eastern Standard Time on November 22, 2023. We commenced trading on the OTCQX on the same day. In April 2024, we withdrew the request to appeal the NYSE’s delisting determination and our common stock was delisted from the NYSE, which may ~~result in dilution to~~negatively impact our stockholders and in the ~~case~~trading price and liquidity of our common stock.

~~preferred equity securities or convertible debt, those securities could provide for rights, preferences or privileges senior to those~~Over-the-counter markets are more limited than the NYSE, and it is likely that there will be significantly less liquidity in the trading of our common stock. ~~Debt financing, if~~The delisting of our common stock from the NYSE could have material adverse effects on our business, financial condition and results of operations due to, among other things:

•

reduced trading liquidity and market prices for our common and preferred stock ;

•

decreased number of institutional and other investors willing to hold or acquire our stock, coverage by securities analysts, market making activity and information available ~~may involve covenants~~concerning trading prices and volume, as well as fewer broker-dealers willing to execute trades in our stock, thereby further restricting ~~our operations or~~ our ability to ~~incur~~obtain equity financing;

•

resulting event of default or noncompliance under certain of our debt facilities and other agreements; and

•

reduced ability to retain, attract and motivate our directors, officers and employees by means of equity compensation.

Delisting our common stock from the NYSE may adversely impact our liquidity, impair our stockholders’ ability to buy and sell our common stock, impair our ability to raise capital, and the market price of our common stock could decrease. Delisting our common stock could also adversely impact the perception of our financial condition and have additional ~~debt. Any debt financing~~negative ramifications, including further loss of confidence by our employees, the loss of institutional investor interest and fewer business opportunities.

We have active plans to mitigate these conditions. Specifically, we plan to reduce negative cash flow through operating expense reductions. We are evaluating multiple opportunities, which may include soliciting external investment or ~~additional equity~~seeking strategic partnerships. Additionally, as detailed in Note 3 to the Consolidated Financial Statements, we closed on the sale of TDO and renegotiated our covenant requirements with our lender, among other terms, which resulted in us remitting $15 million of principal payments on our outstanding borrowings. Our plans are subject to inherent risks and uncertainties and there can be no assurance that ~~we raise may contain terms~~our plans can be effectively implemented and, therefore, 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 notthe conditions can be ~~favorable to us. Additional financing may not be available at all, or in amounts or on terms unacceptable to us.~~effectively mitigated.

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 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 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 months ended June 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 the Second Amendment ~~No. 2 (the "Second Amendment")~~ to the Amended 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 on the original agreement.For the three months ended March 31, 2024 and 2023, the interest rate for amounts borrowed under the Amended Perceptive Loan Agreement was the greater of the one-month SOFR and 2.00% plus the applicable margin of 9.25%.

~~In connection with entering into~~On March 1, 2024, we entered to the Third Amendment to the Amended Perceptive Loan Agreement. Pursuant to the Third Amendment, the Company made a one-time $15.0 million principal repayment on March 1, 2024, and agreed to make an amortization

payment of $1.8 million on the outstanding principal on March 31, 2024 and make monthly amortization payments on the outstanding principal amount each in the amount of $0.9 million on each payment date commencing on April 30, 2024. Accordingly, $1.0 million of the unamortized debt issuance costs were expensed.

For the three months ended March 31, 2024 and 2023, the effective interest rate of the Amended Perceptive Loan, was 21.22% and 16.71%, respectively. As of March 31, 2024 and 2023, the fair value of the Amended Perceptive Loan approximates its carrying amount.

The Third Amendment also modified certain covenants included in the Amended Perceptive Loan Agreement and released all liens granted to the TDO software assets. Future principal repayments and the net carrying value of the Perceptive Loan, ~~Agreement, we also entered into an amended and restated security agreement and granted a security interest in substantially all~~as of ~~our assets.~~ December 31, 2023, are as follows:


	Principal
	(in thousands)
Remaining 9 months of 2024	$	8,100
2025		10,800
2026		4,300
Total principal payment		23,200
Debt discounts		(1,489	)
Net carrying value	$	21,711

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 Amended 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 30, 2024 and September 30, 2024, are $47.2 million and $52.0 million, respectively. Failure to satisfy these financial covenants would constitute an event of default under the agreement, as amended.

~~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. Based on the Amended Perceptive Loan Agreement, we have granted a security interest in substantially all of our assets.

The Amended Perceptive Loan Agreement includes financial covenants that require us to (i) maintain, at all times, a minimum aggregate balance of $3.0 million in cash in one or more controlled accounts, and (ii) pursuant to the Third Amendment, satisfy certain minimum revenue thresholds, measured for the consecutive 12-month periods ending on each calendar quarter-end until June 30, 2026 as follows:


For 12-month Period Ending	Revenue
	(in thousands)
March 31, 2024	$	39,000
June 30, 2024	$	35,500
September 30, 2024	$	33,000
December 31, 2024	$	31,500
March 31, 2025	$	31,000
June 30, 2025	$	33,000
September 30, 2025	$	35,935
December 31, 2025	$	40,160
March 31, 2026	$	44,950
June 30, 2026	$	51,500

Pursuant to the Third Amendment, the lender also waived the covenant requiring the absence of any “going concern” or like qualification or exception or any qualification or exception as to the scope of the audit, solely with respect to the fiscal year ending on December 31, 2023.

Failure to satisfy any covenants would constitute an event of default under the Amended Perceptive Loan Agreement. In the event of an event of default, the lender may terminate its commitments and declare all amounts outstanding under the Amended 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%.

Revenue generated from continuing and discontinued operations for the 12-months period ended March 31, 2024 was $41.6 million, and cash and cash equivalents and short term investment balance was $33.6 million as of March 31, 2024. As ~~of June 30, 2023, we had an aggregate principal balance of $40.0 million outstanding under the Perceptive Loan Agreement, as amended, and~~such, we were in compliance with all financial covenants and conditions under ~~such agreement.~~

the agreement as of March 31, 2024.

Summary statement of cash flows

The following table summarizes our statement of cash flows:


	Six Months Ended June 30,						Three Months Ended March 31,
	2023			2022			2024			2023
	(in thousands)						(in thousands)
Net cash provided by (used in) :
Operating activities	$	(26,341	)	$	(31,503	)	$	(10,689	)	$	(16,976	)
Investing activities		21,140			(35,049	)		32,073			11,965
Financing activities		103			(491	)		(16,813	)		(6	)
Net decrease in cash and cash equivalents	$	(5,098	)	$	(67,043	)
Net increase (decrease) in cash and cash equivalents							$	4,571		$	(5,017	)

Operating Activities

Net cash used in operating activities was ~~$26.3~~$10.7 million for the ~~six~~three months ended ~~June 30, 2023,~~March 31, 2024, primarily consisting of net loss of ~~$33.1~~$6.8 million and gain on sales of discontinued operations of $5.7 million, as adjusted for non-cash items of ~~$4.7~~$4.4 million, ~~as well as~~partially offset by a net change in our net operating assets and liabilities of ~~$2.0~~$2.6 million. Non-cash items primarily consisted of ~~$2.0~~$2.9 million in stock-based compensation and $1.1 million of amortization of debt issuance costs. Changes in our net operating assets and liabilities year-over-year, was primarily due to a $1.4 million increase inventory due to managing production level, $1.0 million increase in accrued expenses and other liabilities on payments to vendors and a $1.0 million increase in accrued compensation due to year-end bonus payout, partially offset by changes in accounts receivable, prepaid expenses and other assets and accounts payable attributable to timing of payment.

Net cash used in operating activities was $17.0 million for the three months ended March 31, 2023, primarily consisting of net loss of $15.2 million as adjusted for non-cash items of $2.3 million and a net change in our net operating assets and liabilities of $3.9 million. Non-cash items primarily consisted of $0.7 million in depreciation and amortization and ~~$4.0~~$1.9 million in stock-based compensation. Changes in our net operating assets and liabilities year-over-year, was primarily due to a ~~$4.4~~$1.7 million ~~cash receipts of ERC refund~~increase in accrued expenses and ~~$2.3~~other liabilities on payments to vendors and a $1.2 million ~~decrease~~increase in ~~inventory~~accrued compensation due to ~~increase in inventory reserves for legacy products, 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 million for the six months ended June 30, 2022, primarily consisting of net loss of $30.7 million as adjusted for non-cash items of $4.5 million, partially offset by a net changeyear-end bonus payout. Changes in our net operating assets and liabilities ~~of $5.8 million. Non-cash items primarily consisted of $1.6 million~~also resulted from changes in ~~depreciation and amortization and $3.3 million in stock-based compensation. The change in our net operating assets and liabilities was primarily due to a $4.5 million increase in~~accounts receivable, inventory, ~~held due to higher production and changes in~~ prepaid expenses and other assets and accounts payable ~~accrued expenses and accrued compensation~~ attributable to timing of payment.

Investing Activities

Net cash provided by investing activities was ~~$21.1~~$32.1 million for the ~~six~~three months ended ~~June 30,~~March 31, 2024, as a result of $18.0 million proceeds from maturities of available-for-sale securities and $14.2 million net proceeds from sale of discontinued operations, partially offset by the purchases of property and equipment. Net cash provided by investing activities was $12.0 million for the three months ended March 31, 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 million for the six months ended June 30, 2022, as a result of purchases of~~ ~~available-for-sale securities~~ ~~and property and equipment.~~

Financing Activities

Net cash used in financing activities was $16.8 million for the ~~six~~three months ended ~~June 30, 2023 was immaterial.~~March 31, 2024, primarily due to principal repayment on our term loan. Net cash used byin financing activities ~~was $0.5 million~~ for the ~~six~~three months ended ~~June 30, 2022, primarily resulting from the payment of the remainder of the IPO fees and contingent earnout.~~March 31, 2024 was immaterial.

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.~~11, 2024.

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 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 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 30,~~March 31, 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 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the quarter ended ~~June 30,~~March 31, 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.

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~~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~~2023 Annual Report on Form 10-K.

We maintain cash deposits in excess of federally insured limits. Adverse developments affecting financial institutions, including bank failures, could adversely affect our liquidity and financial performance.

We regularly maintain domestic cash deposits in Federal Deposit Insurance Corporation (“FDIC”) insured banks, 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 failure of a bank, or other adverse conditions in the financial or credit markets impacting financial institutions at which we maintain balances, could adversely impact our liquidity and financial performance. There can be no assurance that our deposits in excess of the FDIC or other comparable insurance limits will be backstopped by the U.S. government in the future or that any bank or financial institution with which we do business will be able to obtain needed liquidity from other banks, government institutions or by acquisition in the event of a future failure or liquidity crisis.

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.~~During the quarter ended March 31, 2024, no director or officer, as defined in Rule 16a-1(f), adopted or terminated a "Rule 10b5-1 trading arrangement" or a "non-Rule 10b5-1 trading arrangement," each as defined in Regulation S-K Item 408.

Item 6. Exhibits.

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						Incorporated by Reference
Exhibit Number	Description	Form	File No.	Exhibit	Filing Date	Filed / Furnished Herewith	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		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		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		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		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		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		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		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		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		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		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		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		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		Description of Common Stock	10-K	001-40988	4.11	3/23/2022
4.12	Schedule to Exhibit 4.11 - Form of Credit Agreement Warrant to Purchase Stock	8-K	001-40988	4.2	4/7/2022		Credit Agreement Warrant to Purchase Stock	8-K	001-40988	4.1	4/7/2022
4.13	Description of Common Stock	10-K	001-40988	4.11	3/23/2022		Schedule to Exhibit 4.11 - Form of Credit Agreement Warrant to Purchase Stock	8-K	001-40988	4.2	4/7/2022
4.14							Form of Credit Agreement Warrant to Purchase Stock (Warberg entities)	10-Q	001-40988	4.11	8/10/2022
4.15							Schedule to Exhibit 4.14 - Holders of Credit Agreement Warrants to Purchase Common Stock (Warberg entities)	10-Q	001-40988	4.12	8/10/2022
4.16							Form of Indenture for Senior Debt Securities	S-3	333-270366	4.6	3/8/2023
4.17							Form of Indenture for Subordinated Debt Securities	S-3	333-270366	4.7	3/8/2023
10.1							Offer Letter, dated March 18, 2024, between Sonendo, Inc. and Chris Guo
10.2							Asset Purchase Agreement, between TDO Software, Inc., Valsoft Corporation Inc. and Aspire USA LLC, effective as of March 1, 2024	8-K	001-40988	10.2	3/5/2024
10.3							Amendment No. 3 to Amended and Restated Credit Agreement and Guaranty, dated as of March 1, 2024, by and between Sonendo, Inc. and Perceptive Credit	8-K	001-40988	10.2	3/5/2024
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.					*	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					*


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	*
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.

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, 2023~~May 8, 2024	By:	/s/ Bjarne Bergheim
		Bjarne Bergheim
		President, Chief Executive Officer and Director
		(principal executive officer)


Date: ~~August 9, 2023~~May 8, 2024	By:	/s/ ~~Michael P. Watts~~Chris Guo
		~~Michael P. Watts~~Chris Guo
		Interim Chief Financial Officer
		(principal financial and accounting officer)


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,			March 31,			December 31,
	2023			2022			2024			2023
	(Unaudited)						(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	12,567		$	17,665		$	18,580		$	14,009
Short-term investments		53,320			73,784			15,009			32,773
Accounts receivable, net		6,308			5,798			4,176			4,790
Inventory		13,161			15,462			12,116			11,074
Prepaid expenses and other current assets		1,854			8,397			1,611			1,969
Current assets of discontinued operations								1,162			656
Total current assets		87,210			121,106			52,654			65,271
Property and equipment, net		2,777			2,860			767			461
Operating lease right-of-use assets		3,619			2,455			3,227			2,703
Intangible assets, net		1,960			2,292
Goodwill		8,454			8,454
Other assets		118			118			127			128
Non-current assets of discontinued operations								—			9,597
Total assets	$	104,138		$	137,285		$	56,775		$	78,160
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,092		$	4,438		$	916		$	1,142
Accrued expenses		4,235			5,357			2,737			3,072
Accrued compensation		2,690			3,616			1,470			2,413
Operating lease liabilities		1,290			1,114			1,172			1,250
Current portion of term loan								10,800			24,900
Other current liabilities		2,038			2,191			1,786			1,844
Current liabilities of discontinued operations								73			700
Total current liabilities		11,345			16,716			18,954			35,321
Operating lease liabilities, net of current		2,132			1,095			1,888			1,423
Term loan, net of current		37,043			36,746			10,911			12,467
Other liabilities		574			773			491			530
Total liabilities		51,094			55,330			32,244			49,741
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— 70,449,873 shares as of March 31, 2024 and 63,547,467 shares as of December 31, 2023								70			64
Additional paid-in-capital		455,176			451,060			461,237			458,357
Accumulated other comprehensive loss		(30	)		(61	)		(1	)		11
Accumulated deficit		(402,155	)		(369,094	)		(436,775	)		(430,013	)
Total stockholders’ equity		53,044			81,955			24,531			28,419
Total liabilities and stockholders’ equity	$	104,138		$	137,285		$	56,775		$	78,160


	Six Months Ended June 30,						Three Months Ended March 31,
	2023			2022			2024			2023
Cash flows from operating activities:
Net loss	$	(33,061	)	$	(30,659	)	$	(6,762	)	$	(15,371	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		710			477			64			339
Amortization of intangible assets		331			332			51			166
Amortization of right-of-use lease assets		628			552			322			325
Impairment of long-lived assets								146			—
Stock-based compensation		4,001			3,348			2,890			1,942
Amortization of debt issuance costs		297			226			1,144			146
Accretion of available for sale securities, net		(1,272	)		—			(264	)		(634	)
Gain on sale of discontinued operations								(5,703	)		—
Changes in operating assets and liabilities:
Accounts receivable, net		(510	)		(732	)		906			(634	)
Inventory		2,301			(4,503	)		(1,403	)		(561	)
Prepaid expenses and other assets		6,543			(458	)		812			(694	)
Accounts payable		(3,346	)		(623	)		(260	)		896
Accrued expenses and other liabilities		(2,056	)		642			(1,492	)		(1,614	)
Deferred revenue		19			(149	)		128			(95	)
Accrued compensation		(926	)		44			(1,268	)		(1,187	)
Net cash used in operating activities		(26,341	)		(31,503	)		(10,689	)		(16,976	)
Cash flows from investing activities:
Purchases of available-for-sale securities		(30,733	)		(34,255	)		—			(15,125	)
Proceeds from maturities of available-for-sale securities		52,500			—			18,015			27,300
Purchases of property and equipment		(627	)		(794	)		(146	)		(210	)
Net cash provided by (used in) investing activities		21,140			(35,049	)
Proceeds from sale of discontinued operations, net								14,204			—
Net cash provided by investing activities								32,073			11,965
Financing activities:
Payment of common stock issuance costs		—			(598	)
Issuance of stock under employee stock plans		117			250
Principal repayments on term loan								(16,800	)		—
Tax paid on vested stock awards under employee stock plan								(4	)		—
Principal repayments on finance lease								(9	)		(7	)
Proceeds from exercise of pre-funded warrants		1			—			—			1
Payment of contingent earnout		—			(117	)
Principal repayments on finance lease		(15	)		(26	)
Net cash provided by (used in) financing activities		103			(491	)
Net decrease in cash and cash equivalents		(5,098	)		(67,043	)
Net cash used in financing activities								(16,813	)		(6	)
Net increase (decrease) in cash and cash equivalents								4,571			(5,017	)
Cash and cash equivalents at beginning of period		17,665			84,641			14,009			17,665
Cash and cash equivalents at end of period	$	12,567		$	17,598		$	18,580		$	12,648

Supplemental disclosures of cash flow information:
Cash paid for:
Interest	$	2,828		$	1,706		$	1,300		$	1,387
Supplemental schedule of non-cash investing and financing activities:
Operating lease right-of-use assets obtained in exchange for lease liabilities	$	1,792		$	223		$	826		$	1,802


	March 31, 2024		December 31, 2023
	(in thousands)
Current assets:	$	1,162	$	656
Non-current assets:
Intangible assets, net		—		661
Goodwill		—		8,454
Other		—		482
Total assets of discontinued operations	$	1,162	$	10,253

Current liabilities:
Accounts payable		—		34
Accrued expenses		53		194
Accrued compensation		20		345
Operating lease liabilities		—		127
Total liabilities of discontinued operations	$	73	$	700


☒	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	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29
Item 4.	Controls and Procedures	29

PART II.	OTHER INFORMATION	31

Item 1.	Legal Proceedings	31
Item 1A.	Risk Factors	31
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31
Item 3.	Defaults Upon Senior Securities	31
Item 4.	Mine Safety Disclosures	31
Item 5.	Other Information	31
Item 6.	Exhibits	31
Signatures		34


	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
Balance at December 31, 2023																		63,547,467	$	64	$	458,357		$	11		$	(430,013	)	$	28,419
Employee stock plans		216,105		—		—			—			—			—			790,524		—		(4	)		—			—			(4	)
Stock-based compensation		—		—		1,942			—			—			1,942			—		—		2,890			—			—			2,890
Exercise of pre-funded warrants		1,062,080		1		—			—			—			1			6,111,882		6		(6	)		—			—			—
Unrealized gain on short-term investments		—		—		—			56			—			56					—		—			(12	)		—			(12	)
Net loss		—		—		—			—			(15,371	)		(15,371	)				—		—			—			(6,762	)		(6,762	)
Balance at March 31, 2023		51,252,466	$	51	$	453,002		$	(5	)	$	(384,465	)	$	68,583
Employee stock plans		698,016		1		116			—			—			117
Stock-based compensation		—		—		2,059			—			—			2,059
Exercise of pre-funded warrants		709,202		1		(1	)		—			—			—
Unrealized loss on short-term investments		—		—		—			(25	)		—			(25	)
Net loss		—		—		—			—			(17,690	)		(17,690	)
Balance at June 30, 2023		52,659,684	$	53	$	455,176		$	(30	)	$	(402,155	)	$	53,044
Balance at March 31, 2024																		70,449,873	$	70	$	461,237		$	(1	)	$	(436,775	)	$	24,531


	June 30, 2023
	Weighted Average Amortization Period	Gross		Accumulated Amortization		Net
	(in years)	(in thousands)
Developed Technology (5 - 10 years)	4.0	$	2,445	$	1,301	$	1,144
Customer relationships (7 years)	2.8		1,910		1,285		625
Tradenames (10 years)	0.8		360		169		191
Total intangible assets	7.6	$	4,715	$	2,755	$	1,960


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


	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	$	1,672	1.4
RSUs		11,821	3.04		5,427	2.4
Total unamortized compensation cost	$	15,843		$	7,099


	Number of Shares			Weighted Average Exercise Price Per Share		Weighted- Average Remaining Contractual Life		Aggregate Intrinsic Value
						(in years)		(in thousands)
Options outstanding, December 31, 2022		2,756,368		$	2.83			$	1,510
Granted		195,120		$	1.08
Forfeited		(85,338	)	$	2.35
Expired		(98,883	)	$	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


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


	Number of Shares		Weighted Average Grant Date Fair Value
Non-vested Options, December 31, 2023		461,287	$	5.33
Non-vested Options, March 31, 2024		407,031	$	1.36


	Number of Shares			Weighted Average Grant Date Fair Value
RSUs outstanding, December 31, 2022		2,858,649		$	4.49
Granted		3,516,198		$	1.58
Vested		(793,389	)	$	3.55
Forfeited		(322,650	)	$	4.61
RSUs outstanding, June 30, 2023		5,258,808		$	2.68


	Number of Shares			Weighted Average Grant Date Fair Value
RSUs outstanding, December 31, 2023		3,342,621		$	2.60
Granted		—			—
Vested		(813,349	)	$	3.26
Forfeited		(145,499	)	$	1.81
RSUs outstanding, March 31, 2024		2,383,773		$	2.42


	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	)


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