SONX 10-K & 10-Q changes, risk factors and insider trading

We have incurred significant net losses in each reporting period since our inception and expect to continue to incur net losses for the foreseeable future. For the years ended December 31, 20232024 and 2022,2023, we had net losses of $60.9$33.5 million and $57.1$62.5 million, respectively. Prior to our initial public offering (the “IPO”), we financed our operations primarily through net proceeds from the sale of our redeemable convertible preferred stock in private placements, indebtedness, including our credit agreement and, to a lesser extent, product and software revenue from sales of our GentleWave System and TDO software business. The losses and accumulated deficit have primarily been due to the substantial investments we have made to develop our products and software, costs related to our sales and marketing efforts, including costs related to clinical and regulatory initiatives to obtain marketing clearance or approval, and infrastructure improvements.

reduceda tradinglimited liquidityavailability andof market pricesquotations for our common and preferred stock ;

Our revenue is primarily generated from sales of our GentleWave Console and the accompanying single-use PIs and, until recently, the TDO software segment, and our business, financial condition and results of operations are therefore highly dependent on the success of our remaining offerings.

To date, substantially all of our revenue has been derived from sales of our GentleWave Console and the accompanying single-use PIs, as well as our TDO software. On March 1, 2024, we divested our software segment by selling substantially all assets and liabilities of TDO Software, Inc.PIs. Our GentleWave Console and the accompanying single-use PIs are used to deliver the GentleWave Procedure. We began scaled commercialization of our current suite of products in the United States in 2017 and dental practitioner awareness of, and experience with, our products has been and is currently limited. As a result, our products currently have limited product and brand recognition within the dental industry as an alternative to the conventional methods of performing RCT. We do not have a long history operating as a commercial company,company successfully, and the novelty of our products, together with our limited commercialization experience, makes it difficult to evaluate our current business and predict our future prospects with precision. These factors also make it difficult for us to forecast our financial performance and future growth, and such forecasts are subject to a number of uncertainties, including those outside of our control.

Our TDO software segment historically represented 21%a andsubstantial 20%source of totalour revenues for fiscal years ended December 31, 2023 and 2022, respectively.revenues. By divesting our TDO software segment, we will no longer have the assets that generated these revenues and, unless we are able to increase our revenues through organic growth or acquisitions, our revenues following the disposition will be lower than they have been for these historical periods.

Our TDO practice management software is designed to improve practice workflow and seamlessly integrate with the GentleWave System. As a result of the divestiture of our TDO software segment and that the TDO software willis benow operated by a third party, potential customers may be less likely to commit to purchases of our GentleWave System.

As of December 31, 2023,2024, there was $40.0$15.1 million of outstanding principal under our amended and restated credit agreement with Perceptive Credit Holdings III, LP.Agreement. Our indebtedness under this agreement is secured by substantially all of our assets. See the section of this Annual Report titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Indebtedness.”

The amendedCredit and restated credit agreementAgreement contains customary representations and warranties and affirmative covenants and also contains certain restrictive covenants, related to, among others, limitations on the incurrence of additional debt, liens and other encumbrances on property, fundamental changes and acquisitions, including mergers, consolidations and liquidations, changes to our type of business, use of cash and investment activities, dividends and other payments in respect of our capital stock, payments and prepayments of certain debt, changes in our fiscal year, sales of assets transactions with affiliates, licensing arrangements, modifications to material agreements and foundational documents, sale and leaseback arrangements and handling of hazardous materials. The amendedCredit and restated credit agreementAgreement also 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) satisfy certain minimum revenue thresholds, measured for the 12 consecutive month period on each calendar quarter-end until JuneDecember 30,31, 2026. See Note 910 to the consolidated financial statements for details.

Failure to satisfy these financial covenants would constitute an event of default under the agreement.Credit Agreement. These covenants may restrict our current and future operations, particularly our ability to respond to certain changes in our business or industry, or take future actions.

The amendedCredit and restated credit agreementAgreement also contains customary events of default. If we fail to comply with our affirmative and restrictive covenants, including the financial covenants, payments or other terms of the agreement, our lender could declare an event of default, which would give it the right to terminate its commitments and declare all amounts outstanding under the 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%. In addition, our lender would have the right to proceed against the assets we provided as collateral. If the debt under the amendedCredit and restated credit agreementAgreement were accelerated, we may not have sufficient cash or be able to sell sufficient assets to repay this debt, which would harm our business and financial condition. There is a material uncertainty that raise substantial doubt about our ability to continue as a going concern and, therefore, that we may be unable to realize our assets and discharge our liabilities in the normal course of business.

On March 1, 2024, we entered tointo Amendment No. 3 to the amendedCredit and restated credit agreement.Agreement. Pursuant to this amendment, we 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. The Third Amendment also modified certain covenants included in the Amended Perceptive Loan Agreement and released all liens granted to the TDO software assets. On February 28, 2025, we entered into the Fourth Amendment to the Credit Agreement. The Fourth Amendment amended the Credit Agreement, to, among other things (i) initially defer the amortization payment due February 28, 2025 to March 31, 2025 (the “February Amortization Payment”), (ii) waive the February Amortization Payment and each other amortization payment which would come due on or prior to September 30, 2025, and (iii) waive each amortization payment which would come due after September 30, 2025 until March 31, 2026. The deferrals and waivers provided in the Fourth Amendment, including those described above, are subject to various conditions subsequent, including, among other things, certain near-term equity financings and capital-raising transactions, each with minimum gross proceed requirements, as well as certain mandatory prepayment obligations associated with such equity financing and capital-raising requirements, as outlined in the Fourth Amendment. There can be no assurance, however, that we will timely execute such financing transactions or execute at all. If we are unable to execute such financing transactions pursuant to the conditions in the Fourth Amendment, the applicable monthly principal payments will again be required. See Note 10 to the consolidated financial statements for details. We may need to further refinance or secure separate financing in order to repay amounts outstanding when due, however, no assurance can be given that ana further extension or waiver will be granted, that we will be able to renegotiate the terms of the agreement with the lender or that we will be able to secure separate debt or equity financing on favorable terms, if at all.

We maywill need additional funding beyond the capital resources currently available to us to finance our planned operations, and may not be able to raise capital when needed, which could force us to delay, reduce or eliminate one or more of our product development programs and future commercialization efforts.

As of December 31, 2023, we had cash and cash equivalents and short-term investments of $46.8 million, an accumulated deficit of $430.0 million and a $40 million outstanding principle under our term loan facility, of which $24.9 million will be repaid by the end of 2024. There is a material uncertainty that raise substantial doubt about our ability to continue as a going concern and, therefore, that we may be unable to realize our assets and discharge our liabilities in the normal course of business.

Our clinician and dental customers typically bill third-party payors for the costs and fees associated with the procedures in which our products are used. Because there is often no separate reimbursement for supplies used in a root canal procedure or for the purchase of the capital equipment needed to perform a procedure, the additional cost associated with the use of our products can affect the profit margin of the dental practitioner. Some of our target customers may be unwilling to adopt our products in light of potential additional associated cost. In addition, clinicians that perform the procedure may be subject to reimbursement claim denials upon submission of the claim. Clinicians may also be subject to recovery of overpayments if a payor makes payment for the claim and subsequently determines that the payor’s coding, billing or coverage policies were not followed. These events, or any other decline in the amount payors are willing to reimburse our clinician and dental customers, could make it difficult for existing customers to continue using or to adopt our products and could create additional pricing pressure for us. If we are forced to lower the prices we charge for our products, our gross margins will decrease, which could have a material adverse effect on our business, financial condition and results of operations and impair our ability to grow our business.

We are highly dependent on our senior management, including our chief executive officer, Bjarne Bergheim, and other key personnel. The chief operating officer and the chief commercial officer departed in 2023, and the chief financial officer and the chief talent officer resigned in March2024. 2024.TheirWe recruited a chief financial officer in June 2024, and other positions were replaced by new roles to continue to focus on operational improvement, innovation and commercial strategy. In addition, a director of our board resigned in March 2024 and another director of our board opted not to stand for reelection in our annual shareholder meeting in June 2024. Our success will depend on our ability to retain senior management and to attract, recruit, retain, manage and motivate qualified personnel in the future, including sales and marketing professionals, scientists, clinical specialists, engineers and other highly skilled personnel and to integrate current and additional personnel in all departments. The loss of members of our senior management, sales and marketing professionals, scientists, clinical and regulatory specialists and engineers could result in delays in product development and harm our business. If we are not successful in attracting and retaining highly qualified personnel, it would have a material adverse effect on our business, financial condition and results of operations.

As of December 31, 2024 and 2023, we had U.S. federal and state net operating loss (“NOL”) carryforwards of approximately $361.2$370.6 million and $205.1$361.2 million, respectively, and U.S. federal and state research and development credit carryforwards of $4.1 million and $4.6 million, respectively. Certain federal NOLs incurred in taxable years beginning before December 31, 2018, and certain state NOLs will begin to expire in the calendar year 2026, unless previously utilized. In addition, certain federal research and development credit carryforwards will begin to expire in the calendar year 2032. NOL carryforwards and research and development credit carryforwards subject to expiration could expire unused and be unavailable to offset future taxable income or income tax liabilities, as applicable. Federal NOLs incurred in taxable years beginning after December 31, 2017 may be carried forward indefinitely, but the utilization of such federal NOLs to offset taxable income in taxable years beginning after December 31, 2020 is limited to 80% of current year taxable income. For state income tax purposes, the extent to which states will conform to federal laws is uncertain and there may be periods during which the use of NOL carryforwards is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed. For example, California imposed limits on the usability of California State NOLs and tax credits in tax years beginning after 2019 and before 2022.

In general, under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (the “Code”), a corporation that undergoes an “ownership change,” generally defined as a greater than 50 percentage point cumulative change by value in its equity ownership by certain stockholders (or groups of stockholders) over a rolling three-year period, is subject to limitations on its ability to utilize its pre-change NOL carryforwards and its pre-change research and development credit carryforwards (and certain other tax attributes) to offset post- change taxable income or income tax liabilities, as applicable. Similar rules may apply under state tax laws. Although we have not completed a formal analysis as to whether past ownership changes have resulted in limitations on our use of our NOL carryforwards and research and development credit carryforwards under Sections 382 and 383 of the Code, we expect our IPO in November 2021 and private placementplacements in September 2022 and any private placements in 2025 to trigger an ownership change and result in such limitations going forward. In addition, future changes in our stock ownership, some of which might be beyond our control, could also result in ownership changes under Sections 382 and 383 of the Code. For the foregoing reasons, we may not be able to utilize a material portion of our NOL carryforwards or research and development credit carryforwards, even if we attain profitability.

The ACA contained a number of provisions, including those governing enrollment in federal healthcare programs, reimbursement changes and fraud and abuse measures, all of which have impacted existing government healthcare programs and will result in the development of new programs. Since its enactment, there have been numerous amendments to the ACA and revisions to implementing regulations, along with judicial, executive and Congressional challenges to certain aspects of the ACA. On June 17, 2021, the Supreme Court ruled that states and individuals lacked standing to challenge the constitutionality of the ACA’s individual mandate, post-repeal of its associated tax penalty. Additionally, during his term, President Biden has issued executive orders instructing certain governmental agencies to review their existing policies and practices to identify ways to expand the availability of affordable health coverage, to improve the quality of coverage, to strengthen benefits, and to help more Americans enroll in quality health coverage. Additional legislative changes, regulatory changes and judicial challenges related to the ACA remain possible. We cannot predict what effect these and further changes related to the ACA, including under the BidenTrump administration, will have on our business.

In addition, FDA regulations and guidance are often revised or reinterpreted by the FDA in ways that may significantly affect our business and our products. Any new statutes, regulations or revisions or reinterpretations of existing regulations may impose additional costs or lengthen review times of any future products or make it more difficult to obtain clearance or approval for, manufacture, market or distribute our products. WeFinally, cannotwith determinethe what effect changeschange in regulations,presidential statutes,administration legalin interpretation2025, there is substantial uncertainty as to how, if at all, the new administration will seek to modify or policies,revise whenthe requirements and ifpolicies promulgated,of enactedthe orFDA adoptedand mayother regulatory agencies with jurisdiction over our products. Since the start of the new congressional session and presidential administration, substantial volatility and uncertainty have onsurrounded our business inboth the future.present Suchactivities changesof could,federal amongregulatory otheragencies things,and require:their additionalfuture, testingincluding priorpotential reductions to obtainingthe clearanceregulatory oragencies’, approval;such changesas toFDA’s, manufacturing methods; recall, replacement or discontinuance of our products; or additional record keeping.workforce.

Disruptions at the FDA and foreign regulatory agencies caused by funding shortages or globalunexpected healthpersonnel concernsoverhaul could hinder their ability to hire and retain key leadership and other personnel, or otherwise prevent new products and services from being developed or commercialized in a timely manner, which could negatively impact our business.

In addition, certain state laws govern the privacy and security of health-related and other personal information in certain circumstances, some of which may be more stringent, broader in scope or offer greater individual rights with respect to protected health information than HIPAA, many of which may differ from each other, thus, complicating compliance efforts. Such laws and regulations will be subject to interpretation by various courts and other governmental authorities, thus creating potentially complex compliance issues for us and our future customers and strategic partners. Failure to comply with these laws, where applicable, can result in the imposition of significant civil and/or criminal penalties and private litigation. For example, California enacted the CCPA, which creates individual privacy rights for California consumers (as defined in the law), including the right to opt out of certain disclosures of their information, and places increased privacy and security obligations on entities handling certain personal data of consumers or households and may apply to us in the future. The CCPA also creates a private right of action with statutory damages for certain data breaches, thereby potentially increasing risks associated with a data breach. Further, the CPRA imposes additional data protection obligations on covered businesses, including additional consumer rights processes, limitations on data uses, new audit requirements for higher risk data, and opt outs for certain uses of sensitive data. ItThe willCPRA also createcreated a new California data protection agency authorized to issue substantive regulations and could result in increased privacy and information security enforcement. The majority of the provisions went into effect on January 1, 2023, and additional compliance investment and potential business process changes may be required. In order to comply, we must inform consumers of their right to opt-out of the sale of their personal information, display a “Do Not Sell or Share My Personal Information” link, and timely and efficiently comply bywith opt-out requests. The enactment of the CCPA and CPRA could markmarked the beginning of a trend toward more stringent privacy legislation in the United States, as other states or the federal government may follow California’s lead and increase protections for U.S. residents. Similar laws have passed in nineteen other states including Virginia, Colorado, Connecticut, and Utah. For example, the Virginia Consumer Data Protection Act took effect on January 1, 2023. The CCPA has already prompted a number of proposals for new federal and state privacy legislation that, if passed, could increase our potential liability, add layers of complexity to compliance in the U.S. market, increase compliance costs and adversely affect our business.

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 willplan to 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 December 31, 2023, we had an installed base of approximately 1,134 GentleWave Systems that had performed a milestone of more than 1.3 million GentleWave patient procedures since commercialization. We generated revenue of $43.9$31.7 million and a net loss of $60.9$33.5 million from continuing operations for the year ended December 31, 20232024 compared to revenue of $41.7$34.6 million and a net loss of $57.1$62.5 million from continuing operations for the year ended December 31, 2022.2023. As of December 31, 2023,2024, we had cash and cash equivalents and short-term investments of $46.8$11.6 million, an accumulated deficit of $430.0$458.0 million, and $40.0$15.1 million in principal outstanding under our term loan facility, $24.9 million of which will be repaid by the end of 2024.facility.

We expect to continue to incur net losses for the next several years. We expect to continue to make investments in our sales and marketing organization, including increasingplans theto number of U.S. and Canadian sales representatives, expandingexpand 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,For the time being, 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 and other expenses, we will require additional financing to fund our operations and planned growth.

Our ability to continue as a going concern depends on our ability to successfully secure additional financing, continue to commercialize our products, achieve and maintain profitable operations, as well as the adherence to conditions of outstanding term loans (see Note 910 to the Consolidated Financial Statements). WeWithout additional financing, we will requirehave additionalinsufficient financing in orderliquidity to fundachieve further commercialization of our futureproducts expectedand negativemaintain cashcompliance flows.with our loan covenants. There is a material uncertainty that raises substantial doubt about our ability to continue as a going concern and, therefore, that we may be unable to realize our assets and discharge our liabilities in the normal course of business (see Liquidity and Capital Resources section).

On March 1, 2024, we divested our TDO softwareSoftware segment that we owned through TDO, by selling substantially all the assets and liabilities of TDO Software, Inc,TDO, our wholly owned subsidiary, for approximately $16.0 million, with $15.0 million received upon closing and the balance due in approximately 12 months.months post-closing. A gain of $5.7 million on sale of the Software business was recorded in income from discontinued operations. We received the remaining payment of $1.0 million at the end of February 2025.

Installed base of GentleWave Systems: We have focused on driving adoption of the GentleWave Procedure among endodontists and general practitioners in the United States and Canada. To drive further adoption of our system,products, we willmay continue to 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.representatives. We believe that our current targeting strategy identifies a well-defined customer base that is accessible by our direct sales organization.

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 PI, and to scale our manufacturing operations efficiently. We are undertaking continuous margincost improvementsaving programs, including simplifyingimplementation our product offering to one PI that can be used across various platforms, implementingof lean manufacturing methods and working with our suppliers to reduce material costs. We launchedcurrently theoffer only CleanFlow PI in April 2022. In August 2023, we received CleanFlow's FDA clearance to include anterior teeth. CleanFlow PI includes an optimized design and enhanced matrix system for better effectiveness and ease of use. CleanFlow PI is now our leadingcustomers. PI and we haveWe phased out the legacy PI and accessories designed for molar teeth (a "“Molar PI"”), and anteriors and premolars (an "“APM PI"”) substantially in early2024. 2024.CleanFlow PI has a lower cost to manufacture on per unit basis compared to the legacy Molar PI and APM PI. We anticipate that the combination of these strategies will continue driving gross margin improvement.

Commercial organization: As of December 31, 2023,2024, our sales and customer support team consisted of approximately 6135 employees. We intend to continue to re-prioritize our commercial organization to increase the 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 effectiveness of our commercial organization re-priotizationre-prioritization can impact our revenue growth and our costs incurred in anticipation of such growth.

Our revenue hasfrom consistedcontinuing operations consists primarily of product revenue and softwareservice revenue. We generate product revenue on the capital sale of our GentleWave Console and recurring sales of our single-use PIPIs and accessories. To a lesser extent, we also derive product revenue from service and repair and extended warranty contracts with our existing customers. 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 salesales of our GentleWave Console. Prior period financial statements have been recast so that Software revenue relatesis to fees we receive for licensing our TDO practice management tool to dental practitioners. We expect our consolidated revenue to decrease as we have divested our software segmentincluded in March 2024. See discussion of the divestiturediscontinued of our software segment in Overview in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.operations.

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, production equipment depreciation, operations supervision, quality control, material procurement, intangible assets amortization and impairment of long-lived assets. We provide a 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 manufacturing and warranty 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 softwareformer Software segment gross margin iswas generally higher than our product gross margin. AsPrior aperiod resultfinancial ofstatements thesehave factorsbeen andrecast ourto divestitureexclude ofthe our softwareSoftware segment infrom Marchcontinuing 2024,operations. weWe expect gross margin to fluctuate in the short term,term however,and to moderately 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.

Selling, GeneralSelling and AdministrativeMarketing

Selling, generalSelling and administrative (“SG&A”)marketing expenses consist primarily of personnel compensation, including stock-based compensation, related to selling, marketing, and professional education,education administration,functions. finance, information technology, legal,Selling and human resource functions. SG&Amarketing expenses also include commissions, training, travel expenses, promotional activities, conferences, trade shows, and professional services fees, audit fees, legal fees, insurance costs and general corporate expenses including allocated facilities-related expenses.fees. We expect our SG&Aselling and marketing expenses to continue to decrease in absolute dollars forin 2025 compared to the foreseeableprior futureyear asperiods wedue implementto ourthe benefits derived from recently adopted cost saving measures,measures re-prioritizeand additional measures we expect to adopt in the future, including reductions in headcount, the reprioritization of our commercial infrastructure, becomeand morelower efficientspending inon the generalsales and administrativemarketing functions,programs and have divested our software segment,initiatives, though it may fluctuate from period to period.

Research and development (“R&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 continue to decrease in absolute dollars forin 2025 compared to the foreseeableprior year periods due to the benefits derived from recently adopted cost saving measures and additional measures we expect to adopt in the future as we become more efficient in our effortefforts to develop, enhance, and commercialize new products and technologies, and have divested our software segment.technologies. However, we expect our R&D expenses as a percentage of revenue to vary over time depending on the level and timing of initiating new product development efforts.

Interest Expense and Other (Expense) Income, NetIncome

OtherInterest (expense) income,and net,other income consists primarily of interest expense under our outstanding term loan, investment income,loan and recognitioninterest ofincome anfrom employerinvestments retentionin creditmarketable (“ERC”) under The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act.securities.

Revenue from continuing operations decreased $2.9 million, or 8%, in 2024 from 2023, which was primarily driven by decrease in PI sales volume of approximately 16% and lower average selling price of GentleWave consoles, partially offset by an increase in extended service contracts revenue. For the year ended December 31, 2023,2024, we generated $9.2$8.7 million and $21.6$18.5 million from the sale of GentleWave Consoles and PIs, respectively, compared to $10.8$9.2 million and $18.9$21.6 million, respectively, for the year ended December 31, 2022.2023.

Selling, generalSelling and administrativemarketing expenses

On November 22, 2023, the NYSE suspended trading of our common stock and announced its intention to commence proceedings to delist our common stock from the NYSE and our common stock commenced trading on the OTCQX on the same day. We appealed the NYSE’s delisting determination, but subsequently withdrew our request for an appeal on April 11, 2024. As a result, on April 11, 2024, our common stock was delisted from the NYSE. On June 4, 2024, we were notified by the OTC, that our common stock closed below $0.10 for more than 30 consecutive calendar days and no longer meets the Standards for Continued Qualification for the OTCQX. If we do not regain compliance within the allotted compliance period, OTC will provide notice that our common stock will be moved from OTCQX to the OTC Pink market.

We intend to monitor the closing bid price of our commonmarket stockcapitalization and consider our available options to resolve the noncompliance with the bidmarket pricecapitalization requirement. There can be no assurance that we will be able to regain compliance with the bidmarket pricecapitalization requirement or will otherwise be in compliance with other OTCQX listing criteria. If our common stock is moved to OTC Pink market, it could be more difficult to buy or sell our common stock and to obtain accurate quotations, and the price of our common stock could suffer a material decline. The move to OTC Pink market could also impair the liquidity of our common stock and could harm our ability to raise capital through alternative financing sources on terms acceptable to us, or at all, and may result in potential loss of confidence by investors, employees, and fewer business development opportunities.

As of JuneSeptember 30, 2024, we hadmaintained an installedactive user base of approximatelymore 1,155than GentleWave800 Systems.customers. We generated revenue of $15.4$23.4 million and incurred a net loss of $19.6$27.2 million from continuing operations for the sixnine months ended JuneSeptember 30, 2024, compared to revenue of $17.4$25.6 million and a net loss of $33.7$51.2 million for the sixnine months ended JuneSeptember 30, 2023. As of JuneSeptember 30, 2024, we had cash and cash equivalents and short-term investments of $24.2$17.3 million, an accumulated deficit of $444.1$451.7 million, and $20.5$17.8 million in principal outstanding under our term loan facility.

Our ability to continue as a going concern depends on our ability to successfully secure additional financing, 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). Without additional financing, we will have insufficient liquidity to achieve further commercialization of our products and maintain compliance with our loan covenants. There is a material uncertainty that raises substantial doubt about our ability to continue as a going concern and, therefore, that we may be unable to realize our assets and discharge our liabilities in the normal course of business (see Liquidity and Capital Resources section).

Commercial organization: As of JuneSeptember 30, 2024, our sales and customer support team consisted of approximately 45 employees. We intend to continue to re-prioritize our commercial organization to increase the 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 effectiveness of our commercial organization re-prioritization can impact our revenue growth and our costs incurred in anticipation of such growth.

Our unaudited condensed consolidated financial statements as of and for the sixnine months ended JuneSeptember 30, 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.

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. 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 sixnine months ended JuneSeptember 30, 2024 and 2023.

OtherInterest (and other expense) income, net, consists primarily of interest expense under our outstanding term loan and interest income from investments in marketable securities.

Comparison of Three and SixNine Months Ended JuneSeptember 30, 2024 and 2023

The following table shows our results of operations for the three months ended JuneSeptember 30, 2024 and 2023, together with the dollar and percentage change in those items:

The following table shows our results of operations for the sixnine months ended JuneSeptember 30, 2024 and 2023, together with the dollar and percentage change in those items:

Revenue from continuing operations decreased $0.4$0.1 million, or 5%,2%, for the three months ended JuneSeptember 30, 2024 from the comparable period in the prior year, which was primarily driven by lower salesaverage volumesselling price in PIs,GentleWave consoles, partially offset by an increase in sales of GentleWave consoles and an increase in extended service contracts revenue. For the three months ended JuneSeptember 30, 2024, we generated $2.4$1.9 million and $4.7$5.1 million from the sale of GentleWave consoles and PIs, respectively, compared to $2.2$2.1 million and $5.6$5.1 million respectively, for the three months ended JuneSeptember 30, 2023.

Revenue from continuing operations decreased $2.1$2.2 million, or 12%,9%, for the sixnine months ended JuneSeptember 30, 2024 from the comparable period in the prior year, which was driven by lower sales volumes in PIs,PIs and lower average selling price in GentleWave consoles, partially offset by an increase in salesextended ofservice GentleWavecontract consoles and in the average selling price of PIs.revenue. For the sixnine months ended JuneSeptember 30, 2024, we generated $4.2$6.1 million and $8.9$14.0 million from the sale of GentleWave consoles and PIs, respectively, compared to $4.2$6.3 million and $11.3$16.4 million, respectively, for the sixnine months ended JuneSeptember 30, 2023.

GrossCost marginof sales decreased $8.3 million, or 36%, for the threenine months ended JuneSeptember 30, 2024 increasedcompared to 37.5% from (5.5%) for the comparable period in the prior year,year period, which was primarily duedriven toby lower manufacturing costs for PIs and GentleWave consoles and lower excess and obsolete inventory charges and a decrease in manufacturing costs for GentleWave consoles and PIs.charges. For the threenine months ended JuneSeptember 30, 2024, we recorded $0.2$0.3 million of excess and obsolete inventory charges related to phasing out our legacy GentleWave Console ("“Gen3"”) and our legacy molar and anterior pre-molar procedure instruments. For the threenine months ended JuneSeptember 30, 2023, we recorded $2.9 million of excess and obsolete inventory charges due to reduced sales volumes of our Gen3 and the phasing out of our legacy molar and anterior pre-molar procedure instruments.instruments, as well as a $1.3 million charge due to impairment of long-lived assets.

Selling and marketing expenses decreased $3.6$3.3 million, or 47%,48%, for the three months ended JuneSeptember 30, 2024 from the comparable period in the prior year, primarily driven by an approximately $2.6$2.0 million decrease in employee-related compensation and benefit expenses, including stock-based compensation as a result of the reduction in headcount. The decrease was also attributed lower marketing spending as we re-prioritize our commercial organization to increase the adoption of our products among existing and new customer accounts.

Selling and marketing expenses decreased $6.5$9.8 million, or 41%,43%, for the sixnine months ended JuneSeptember 30, 2024 from the comparable period in the prior year, primarily driven by an approximately $4.6$5.7 million decrease in employee-related compensation and benefit expenses, including stock-based compensation, as a result of the previously disclosed reduction in headcount. The decrease was also attributed lower marketing spending as we re-prioritize our commercial organization to increase the adoption of our products among existing and new customer accounts. The decrease is partially offset by expenses of $0.6 million recognized relating to the immediateaccelerated vesting of restricted stock units (“RSUs”) granted to certain non-executive employees in the sixnine months ended JuneSeptember 30, 2024.

General and administrative expenses decreased $3.5$2.8 million, or 28%,37%, for the sixthree months ended JuneSeptember 30, 2024 from the comparable period in the prior year, primarily driven by decrease in employee-related compensation and benefit expenses, including stock-based compensation, recruiting, travelcompensation and officerecruiting expenses, as a result of the reduction in headcount.Theheadcount. The decrease iswas also driven by an impairment charge of $1.8 million for long-lived assets recorded in the prior year period. This decrease was partially offset by the transaction and financing expenses of $0.2$0.9 million recognized relatingrelated to the immediateBiolase vestingacquisition of RSUs granted to certain non-executive employeesincurred in the sixthree months ended JuneSeptember 30, 2024.

R&D expenses decreased $1.2 million, or 43%, and $1.9$3.1 million, or 34%,37%, respectively, for the three and sixnine months ended JuneSeptember 30, 2024 from the comparable period in the prior year, which was primarily driven by a decrease in employee related compensation and benefit expenses due to lower headcount. The decrease for the sixnine months period is partially offset by expenses of $0.4 million recognized relating to the immediateaccelerated vesting of RSUs granted to certain non-executive employees in the sixnine months ended JuneSeptember 30, 2024.

OtherInterest expense,and netother expense

TotalInterest and other expense, netexpense for the three and nine months ended JuneSeptember 30, 2024 wasdecreased essentially$0.1 unchangedmillion, or 16%, from the comparable period in the prior year, mainly due to a $0.5 million decrease in interest income resulting from lower amounts of short-term investments, offset by lower interest expense resulting from principal repayments on our term loan.

TotalInterest and other expense, netexpense for the sixnine months ended JuneSeptember 30, 2024 decreased $1.4$1.2 million, or 105%,56%, from the comparable period in the prior year, mainly due to $1.2$1.4 million of expense for accelerated amortization of debt issuance costs resulting from the principal prepayment on our term loan in March 2024.

Income from discontinued operations for the sixnine months ended JuneSeptember 30, 2024 consists primarily of gain of $5.7 million from sale of TDO’s assets and liabilities and loss from TDO’s software business for the period from January 1, 2024 to March 1, 2024, which includes expenses of $0.3 million recognized relating to the immediateaccelerated vesting of RSUs granted to certain non-executive employees.

We have active plans to mitigate these conditions.conditions, Specifically,including we planplans to further reduce negative cash flow through additional operating expense reductions. We are also actively exploring financing options, including a combination of debt, equity, and non-dilutive sources. Additionally, as detailed in Note 3 to the Consolidated Financial Statements, we closed on the sale of TDO in March 2024, 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 our plans can be effectively implemented and, therefore, that the conditions can be effectively mitigated.

On January 13, 2023, we entered into the Amendment No. 2 (the “Second Amendment”) to the Amended and Restated Credit Agreement and Guaranty by and among us, Pipstek, LLC, as the Subsidiary Guarantor, and Perceptive Credit Holdings III, LP, as the Collateral Agent and the Required Lender (the “Amended Perceptive Loan Agreement”)to replace the existing benchmark rate from the one-month LIBOR with a one-month Secured Overnight Financing Rate (“SOFR”). All other terms remain unchanged on the original agreement. For the three months ended JuneSeptember 30, 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%.

For the sixnine months ended JuneSeptember 30, 2024 and 2023, the effective interest rate of the loan pursuant to the Amended Perceptive Loan Agreement, was 21.22% and 16.71%, respectively. As of JuneSeptember 30, 2024 and 2023, the fair value of the loan pursuant to the Amended Perceptive Loan Agreement approximates its carrying amount.