tza ROC
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number:
(Exact Name of Registrant as Specified in its Charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer |
(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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OTC Markets |
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.
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).
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.
Large accelerated filer |
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Accelerated filer |
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☒ |
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Smaller reporting company |
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Emerging growth company |
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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 2, 2024, the registrant had
Table of Contents
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Page |
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1 |
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PART I. |
3 |
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Item 1. |
3 |
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3 |
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Condensed Consolidated Statements of Operations and Comprehensive Loss |
4 |
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5 |
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6 |
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7 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
22 |
Item 3. |
32 |
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Item 4. |
32 |
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PART II. |
34 |
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Item 1. |
34 |
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Item 1A. |
34 |
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Item 2. |
35 |
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Item 3. |
35 |
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Item 4. |
35 |
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Item 5. |
35 |
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Item 6. |
35 |
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38 |
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i
Cautionary Note Regarding Forward-Looking Statements
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”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “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 2023 and in the filings we make with Securities and Exchange Commission (the “SEC”) from time to time.
1
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.
2
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
SONENDO, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par value and share data)
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June 30, |
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December 31, |
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2024 |
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2023 |
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(Unaudited) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Short-term investments |
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Accounts receivable, net |
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Inventory |
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Prepaid expenses and other current assets |
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Current assets of discontinued operations |
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Total current assets |
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Property and equipment, net |
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Operating lease right-of-use assets |
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Other assets |
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Non-current assets of discontinued operations |
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— |
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Total assets |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued compensation |
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Other accrued expenses |
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Operating lease liabilities |
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Current portion of term loan |
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Other current liabilities |
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Current liabilities of discontinued operations |
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— |
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Total current liabilities |
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Operating lease liabilities, net of current |
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Term loan, net of current |
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Other liabilities |
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Total liabilities |
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Stockholders’ equity: |
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Preferred stock, $ |
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Common stock, $ |
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Additional paid-in-capital |
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Accumulated other comprehensive (loss) gain |
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( |
) |
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Accumulated deficit |
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( |
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( |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
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$ |
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$ |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
SONENDO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS AND COMPREHENSIVE LOSS
(unaudited)
(in thousands, except share and per share amounts)
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Three Months Ended June 30, |
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Six Months Ended June 30, |
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2024 |
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2023 |
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2024 |
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2023 |
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Revenue, net |
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$ |
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$ |
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$ |
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$ |
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Cost of sales |
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Gross profit (loss) |
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( |
) |
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Operating expenses: |
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Selling and marketing |
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General and administrative |
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Research and development |
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Total operating expenses |
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Operating loss |
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( |
) |
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( |
) |
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( |
) |
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( |
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Other expense, net: |
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Interest and financing costs, net |
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( |
) |
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( |
) |
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( |
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( |
) |
Loss before income tax expense |
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( |
) |
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( |
) |
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( |
) |
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( |
) |
Income tax expense |
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— |
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— |
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— |
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— |
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Loss from continuing operations, net of tax |
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( |
) |
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( |
) |
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( |
) |
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( |
) |
Income from discontinued operations, net of tax |
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Net loss |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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Other comprehensive income (net of tax): |
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Unrealized (loss) gain on short-term investments |
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( |
) |
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( |
) |
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( |
) |
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Comprehensive loss |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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$ |
( |
) |
Net loss per share from continuing operations – basic and diluted |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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$ |
( |
) |
Net income per share from discontinued operations – basic and diluted |
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$ |
— |
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$ |
— |
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$ |
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$ |
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Net loss per share – basic and diluted |
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$ |
( |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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Weighted-average shares outstanding – basic and diluted |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
SONENDO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(unaudited)
(in thousands, except shares amount)
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Common Stock |
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Additional |
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Accumulated |
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Total |
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Paid-In |
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Other |
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Accumulated |
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Stockholders’ |
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Shares |
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Amount |
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Capital |
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Comprehensive Loss |
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Deficit |
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Equity |
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Balance at December 31, 2023 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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Employee stock plans |
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— |
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( |
) |
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— |
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— |
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( |
) |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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Exercise of pre-funded warrants |
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( |
) |
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— |
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— |
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— |
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Unrealized gain on short-term investments |
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— |
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— |
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— |
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( |
) |
|
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— |
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( |
) |
Net loss |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
Balance at March 31, 2024 |
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$ |
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$ |
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$ |
( |
) |
|
$ |
( |
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$ |
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Employee stock plans |
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— |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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Exercise of pre-funded warrants |
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( |
) |
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— |
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— |
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— |
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Unrealized loss on short-term investments |
|
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— |
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— |
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— |
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( |
) |
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— |
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( |
) |
Net loss |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
Balance at June 30, 2024 |
|
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$ |
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$ |
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$ |
( |
) |
|
$ |
( |
) |
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$ |
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Common Stock |
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Additional |
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Accumulated |
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Total |
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Paid-In |
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Other |
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Accumulated |
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Stockholders’ |
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Shares |
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Amount |
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Capital |
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Comprehensive Loss |
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Deficit |
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Equity |
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Balance at December 31, 2022 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
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Employee stock plans |
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— |
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— |
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— |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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Exercise of pre-funded warrants |
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— |
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— |
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— |
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Unrealized gain on short-term investments |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
Balance at March 31, 2023 |
|
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$ |
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$ |
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$ |
( |
) |
|
$ |
( |
) |
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$ |
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Employee stock plans |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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Exercise of pre-funded warrants |
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( |
) |
|
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— |
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— |
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— |
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Unrealized loss on short-term investments |
|
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— |
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— |
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|
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— |
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( |
) |
|
|
— |
|
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|
( |
) |
Net loss |
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— |
|
|
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— |
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— |
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— |
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|
|
( |
) |
|
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( |
) |
Balance at June 30, 2023 |
|
|
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|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
SONENDO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
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Six Months Ended June 30, |
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2024 |
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2023 |
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Cash flows from operating activities: |
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Net loss |
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$ |
( |
) |
|
$ |
( |
) |
Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation |
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Amortization of intangible assets |
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Amortization of right-of-use lease assets |
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Excess and obsolete inventory provisions |
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Impairment of long-lived assets |
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— |
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Stock-based compensation |
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Amortization of debt issuance costs |
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Accretion of available for sale securities, net |
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( |
) |
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( |
) |
Gain on sale of discontinued operations |
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( |
) |
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— |
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Changes in operating assets and liabilities: |
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Accounts receivable, net |
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( |
) |
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Inventory |
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( |
) |
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( |
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Prepaid expenses and other assets |
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Accounts payable |
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( |
) |
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( |
) |
Other accrued expenses and other liabilities |
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( |
) |
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( |
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Deferred revenue |
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Accrued compensation |
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( |
) |
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( |
) |
Net cash used in operating activities |
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( |
) |
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( |
) |
Cash flows from investing activities: |
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Purchases of available-for-sale securities |
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( |
) |
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( |
) |
Proceeds from maturities of available-for-sale securities |
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Purchases of property and equipment |
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( |
) |
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( |
) |
Proceeds from sale of discontinued operations, net |
|
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— |
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Net cash provided by investing activities |
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Financing activities: |
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Principal repayments on term loan |
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( |
) |
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— |
|
Tax paid on vested stock awards under employee stock plan |
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( |
) |
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— |
|
Issuance of stock under employee stock plans |
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— |
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Proceeds from exercise of pre-funded warrants |
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— |
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|
Principal repayments on finance lease |
|
|
( |
) |
|
|
( |
) |
Net cash provided by (used in) financing activities |
|
|
( |
) |
|
|
|
|
Net decrease in cash and cash equivalents |
|
|
|
|
|
( |
) |
|
Cash and cash equivalents at beginning of period |
|
|
|
|
|
|
||
Cash and cash equivalents at end of period |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
||
Cash paid for: |
|
|
|
|
|
|
||
Interest |
|
$ |
|
|
$ |
|
||
Supplemental schedule of non-cash investing and financing activities: |
|
|
|
|
|
|
||
Operating lease right-of-use assets obtained in exchange for lease liabilities |
|
$ |
|
|
$ |
|
||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
SONENDO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Organization and Basis of Presentation
Description of Business
Sonendo, Inc. (the “Company” or “we” and “our”) was incorporated in June 2006 pursuant to the laws of the State of Delaware under the name Dentatek Corporation. In March 2011, the Company changed its name to Sonendo, Inc. The Company is a medical technology company that has developed and is commercializing the GentleWave System to treat tooth decay. The Company’s principal market is the United States (“U.S.”). The Company’s products include the GentleWave System, which is cleared by the U.S. Food and Drug Administration (the “FDA”) for sale in the U.S. and approved by Health Canada in Canada, along with the system’s sterilized, single-use procedure instruments (“PIs”).
Basis of Presentation
The Company’s financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to Form 10-Q and Article 10 of SEC Regulation S-X on a consistent basis with the Company’s annual financial statements and in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, considered necessary for a fair statement of the Company’s financial information. Accordingly, the accompanying unaudited condensed consolidated financial statements do not include all of the information and notes required by GAAP for complete financial statements. The condensed consolidated balance sheet as of December 31, 2023 included herein was derived from the audited financial statements as of that date. The results of operations included in these condensed consolidated financial statements are not necessarily indicative of the results of operations to be expected for the year, any other interim period, or for any other future annual or interim period. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed, consolidated, or omitted. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023 filed with the SEC on March 11, 2024.
As discussed in Note 3, “Discontinued Operations”, on March 1, 2024, the Company divested its software segment by selling substantially all assets and liabilities of TDO Software, Inc, its 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. The Company's Condensed Consolidated Statements of Cash Flows include the financial results of the software business for the six months ended June 30, 2024 and 2023. All amounts and disclosure included in the Notes to condensed consolidated financial statements reflect only the Company's continuing operations unless otherwise noted.
Liquidity and Going Concern
On September 27, 2022, the Company completed a private placement (the “Private Placement”), issuing an aggregate of approximately
As of June 30, 2024, the Company had cash and cash equivalents and short-term investments of $
The Company has a limited operating history, and the revenue and income potential of the Company’s business and market are unproven. The Company has experienced net losses and negative cash flows from operations since its inception and as of June 30, 2024 had an accumulated deficit of $
7
The accompanying unaudited condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The unaudited condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.
The Company’s ability to continue as a going concern depends on its ability to continue to commercialize its products, achieve and maintain profitable operations, as well as the adherence to conditions of the outstanding term loan as amended in March 2024 (see Note 10). Without additional financing, the Company will have insufficient liquidity to achieve further commercialization of our products and maintain compliance with our loan covenants. Due to these conditions, there is substantial doubt about the Company’s ability to continue as a going concern and, therefore, it may be unable to realize its assets and discharge its liabilities in the normal course of business.
The Company will require additional financing in order to fund its future expected negative cash flows. Due to its 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. The Company commenced trading on the OTCQX on the same day. In April 2024, the Company withdrew its request to appeal and the NYSE and our common stock has been delisted from the NYSE, which may negatively impact the Company’s stockholders and the trading price and liquidity of its common stock. 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 the Company’s common stock. The delisting of the Company’s common stock from the NYSE could have material adverse effects on its business, financial condition and results of operations. On June 4, 2024, the Company received notice from OTC that the Company’s common stock no longer met the Standards for Continued Qualification for the OTCQX per the OTCQX Rules for U.S. Companies section 3.2.b.1 because the Company’s stock bid price closed below $
The Company has active plans to mitigate these conditions. Specifically, the Company has been taking steps and plans to further reduce negative cash flow through additional operating expense reductions. The Company is also actively exploring financing options, including a combination of debt, equity, and non-dilutive sources. Additionally, as detailed in Note 3 and Note 10, in March 2024, the Company closed on the sale of TDO Software, Inc. (“TDO”) and renegotiated its covenant requirements with its lender, among other terms, which resulted in the Company remitting $
Effects of the Macroeconomic Environment
The Company’s unaudited condensed consolidated financial statements as of and for the three and six months ended June 30, 2024 reflect the Company’s estimates of the impact of the macroeconomic environment, including the impact of inflation and higher interest rates. The duration and the scope of these conditions cannot be predicted; therefore, the extent to which these conditions will directly or indirectly impact the Company’s business, results of operations and financial condition, is uncertain. The Company is not aware of any specific event or circumstance that would require an update to its estimates, judgments and assumptions or a revision of the carrying value of the Company’s assets or liabilities as of the date of this filing.
Operating Segments
The Company previously had
Emerging Growth Company Status
The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company has elected to avail itself of
8
this exemption and, therefore, for new or revised accounting standards applicable to public companies, the Company will be subject to an extended transition period until those standards would otherwise apply to private companies.
2. Summary Accounting Policies and Recent Accounting Pronouncements
The accounting policies followed by the Company are set forth in Part II, Item 8, Note 2, Summary of Accounting Policies, of the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 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 of completion and 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.
Revenue recorded from continuing operations is generated from sales of the GentleWave Console and related PIs and 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 to a lesser extent, performance of 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
9
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. Sales of extended service contracts are recorded as deferred revenue until such time as the standard warranty expires, which is generally up to
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
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, |
|
||
|
|
2024 |
|
|
2023 |
|
||
|
|
(in thousands) |
|
|||||
Total contract liabilities - extended service contracts |
|
$ |
|
|
$ |
|
||
Less: long-term portion |
|
|
|
|
|
|
||
Contract liabilities – current |
|
$ |
|
|
$ |
|
||
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 months ended June 30, 2024 and 2023 that was included in the contract liability balance as of December 31, 2023 and 2022 was $
Disaggregation of revenue
The Company disaggregates revenue from contracts with customers 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 disaggregated revenues and the timing of when goods and services are transferred:
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
|
|
(in thousands) |
|
|||||||||||||
Product revenue recognized at a point in time |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Service revenue recognized over time |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Warranty Reserve
The Company provides a standard warranty on its GentleWave Systems for a specified period of time. For the six months ended June 30, 2024 and 2023, GentleWave Systems sold were covered by the warranty for a period of up to
10
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 six months ended June 30, 2024 and 2023:
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
|
(in thousands) |
|
|||||||||||||
Balance at beginning of period |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Provision for warranties issued |
|
|
|
|
|
|
|
|
|
|
|
||||
Changes in estimate of pre-existing warranty |
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
Warranty costs incurred |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Balance at end of period |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Current portion |
|
|
|
|
|
|
$ |
|
|
$ |
|
||||
Non-current portion |
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
|
|
|
|
|
$ |
|
|
$ |
|
||||
The warranty 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.
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The amendments require disclosure of specific categories in the rate reconciliation and provides additional information for reconciling items that meet a quantitative threshold and further disaggregation of income taxes paid for individually significant jurisdictions. The ASU is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company does not expect the adoption to have a material impact on its Consolidated Financial Statements.
3. Discontinued Operations
On March 1, 2024, the Company entered into an Asset Purchase Agreement by and among TDO, Valsoft Corporation Inc., a Quebec corporation, and Aspire USA LLC, a Delaware limited liability company and affiliate of Valsoft (collectively “Valsoft”), pursuant to which TDO agreed to sell to Valsoft substantially all the assets and liabilities relating to the Company’s software segment. As consideration for the transaction, Valsoft agreed to pay TDO approximately $
11
The divestiture met the criteria to be accounted for as a discontinued operation as of March 31, 2024. Accordingly, the operating results of the discontinued operations for the three and six months ended June 30, 2024 and 2023, respectively, are presented in the Condensed Consolidated Statements of Operations and Comprehensive Loss within income from discontinued operations as follows:
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
|
|
(in thousands) |
|
|
(in thousands) |
|
||||||||||
Revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Cost of sales |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Gross profit |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
General and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Selling and marketing |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|||
Research and development |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|||
Income (loss) from discontinued operations, net of tax |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Other income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Gain on sale of discontinued operations, net of tax |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
Net income from discontinued operations |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
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 following table presented assets and liabilities of discontinued operations as of June 30, 2024 and December 31, 2023:
|
|
June 30, 2024 |
|
|
December 31, 2023 |
|
||
|
|
(in thousands) |
|
|||||
Current assets: |
|
$ |
|
|
$ |
|
||
Non-current assets: |
|
|
|
|
|
|
||
Intangible assets, net |
|
|
— |
|
|
|
|
|
Goodwill |
|
|
— |
|
|
|
|
|
Other |
|
|
— |
|
|
|
|
|
Total assets of discontinued operations |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Current liabilities: |
|
|
|
|
|
|
||
Accounts payable |
|
$ |
— |
|
|
$ |
|
|
Accrued expenses |
|
|
— |
|
|
|
|
|
Accrued compensation |
|
|
— |
|
|
|
|
|
Operating lease liabilities |
|
|
— |
|
|
|
|
|
Total liabilities of discontinued operations |
|
$ |
— |
|
|
$ |
|
|
Depreciation and amortization of long-lived assets, stock-based compensation expense and capital expenditures of discontinued operations were not material for each of the three and six months ended June 30, 2024 and 2023.
4. Balance Sheet Components
Inventory
Inventory consisted of the following:
|
|
June 30, |
|
|
December 31, |
|
||
|
|
2024 |
|
|
2023 |
|
||
|
|
(in thousands) |
|
|||||
Raw materials |
|
$ |
|
|
$ |
|
||
Work in process |
|
|
|
|
|
|
||
Finished goods |
|
|
|
|
|
|
||
Total inventory |
|
$ |
|
|
$ |
|
||
The balance of the reserve of excess and obsolete inventory was $
12
of $
5. 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, 2024 and December 31, 2023:
|
|
June 30, 2024 |
|
|||||||||||||
|
|
Fair Value |
|
|
Quoted Prices in Active Markets for Identical Assets |
|
|
Significant Other Observable Inputs |
|
|
Significant Unobservable Inputs |
|
||||
|
|
(in thousands) |
|
|||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Money market funds |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
||
Corporate bonds |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
U.S. treasury securities |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||
Total cash equivalents at fair value |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|||
Short-term investments: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||
Commercial paper and |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
Total short-term investments at fair value |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|||
Total assets at fair value |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|||
13
|
|
June 30, 2024 |
|
|||||||||||||
|
|
Fair |
|
|
Cost |
|
|
Amounts Recognized in Accumulated Other Comprehensive Loss |
|
|||||||
|
|
|
|
|
|
|
|
Unrealized Gains |
|
|
Unrealized Losses |
|
||||
|
|
(in thousands) |
|
|||||||||||||
Available-for-sale securities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. treasury securities |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
||
Commercial paper and corporate bonds |
|
|
|
|
|
|
|
|
— |
|
|
|
( |
) |
||
Total available-for-sale securities at fair value |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
( |
) |
||
|
|
December 31, 2023 |
|
|||||||||||||
|
|
Fair Value |
|
|
Quoted Prices in Active Markets for Identical Assets |
|
|
Significant Other Observable Inputs |
|
|
Significant Unobservable Inputs |
|
||||
|
|
(in thousands) |
|
|||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Money market funds |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
||
Corporate Bonds |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
Total cash equivalents at fair value |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|||
Short-term investments: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||
Commercial paper and |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
U.S. |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
Total short-term investments at fair value |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|||
Total assets at fair value |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|||
|
|
December 31, 2023 |
|
|||||||||||||
|
|
Fair |
|
|
Cost |
|
|
Amounts Recognized in Accumulated Other Comprehensive Loss |
|
|||||||
|
|
|
|
|
|
|
|
Unrealized Gains |
|
|
Unrealized Losses |
|
||||
|
|
(in thousands) |
|
|||||||||||||
Available-for-sale securities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. Treasury securities |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Commercial paper and corporate bonds |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|||
U.S. government agency bonds |
|
|
|
|
|
|
|
|
— |
|
|
|
( |
) |
||
Total available-for-sale securities at fair value |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|||
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.
6. Stockholders’ Equity
Warrants
In April 2022, the Company amended its term loan and the warrants previously issued to Perceptive Credit Holdings III, LP (“Perceptive”) and certain of its affiliates to purchase an aggregate of
Warrants issued and outstanding at June 30, 2024 and December 31, 2023 included
14
On September 27, 2022, the Company completed the Private Placement, issuing an aggregate of approximately
The pre-funded warrants include a provision whereby the exercisability of the warrants may be limited if, upon exercise, the warrant holder or any of its affiliates would beneficially own more than
The pre-funded warrants are classified as equity and are accounted for as a component of additional paid-in capital at the time of issuance. The pre-funded warrants are included in the calculation of basic and diluted loss per share. Pursuant to the terms and conditions of the purchase agreements entered into by the Purchasers, the Company was obligated to file a registration statement with the SEC registering the resale by the Purchasers of the shares of common stock issued to them in the Private Placement and the shares of common stock to be issued to them upon exercise of the pre-funded warrants issued to them in the Private Placement within 45 days of the closing of the Private Placement. On November 4, 2022, the Company filed a registration statement on Form S-3 (File No. 333-268174), as required under the purchase agreements, and the registration statement was declared effective by the SEC on November 16, 2022.
7. Stock Based Compensation
Stock-based Compensation Expenses
The following tables present the Company’s stock-based compensation for stock-settled awards by type (i.e., stock options and restricted stock units (“RSUs”)) granted under the Company’s incentive plans, and rights to purchase shares of common stock issued under the Company’s Employee Stock Purchase Plan (“ESPP”) and financial statement lines included in the accompanying unaudited condensed consolidated statement of operations and comprehensive loss for the three and six months ended June 30:
|
|
Three months ended June 30, |
|
|
Six months ended June 30, |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
|
|
(in thousands) |
|
|||||||||||||
Options |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
RSUs |
|
|
|
|
|
|
|
|
|
|
|
|
||||
ESPP |
|
|
— |
|
|
|
|
|
— |
|
|
|
||||
Total stock-based compensation expense |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
15
|
|
Three months ended June 30, |
|
|||||||||||||||||||||
|
|
2024 |
|
|
2023 |
|
||||||||||||||||||
|
|
Continuing operations |
|
|
Discontinued operations |
|
|
Total |
|
|
Continuing operations |
|
|
Discontinued operations |
|
|
Total |
|
||||||
|
|
(in thousands) |
|
|||||||||||||||||||||
Cost of sales |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Selling and marketing |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
General and administrative |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Research and development |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total stock-based compensation expense |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
Six months ended June 30, |
|
|||||||||||||||||||||
|
|
2024 |
|
|
2023 |
|
||||||||||||||||||
|
|
Continuing operations |
|
|
Discontinued operations |
|
|
Total |
|
|
Continuing operations |
|
|
Discontinued operations |
|
|
Total |
|
||||||
|
|
(in thousands) |
|
|||||||||||||||||||||
Cost of sales |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Selling and marketing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
General and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Research and development |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total stock-based compensation expense |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
During the six months ended June 30, 2024, the Company immediately vested
During the six months ended June 30, 2024, the Company immediately vested
Compensation cost related to unvested stock options and RSUs will generally be amortized on a straight-line basis over the remaining average service period.
|
|
Unamortized Compensation Costs |
|
|
Weighted Average Service Period |
|
||
|
|
(in thousands) |
|
|
(years) |
|
||
Options |
|
$ |
|
|
|
|
||
RSUs |
|
|
|
|
|
|
||
Total unamortized compensation cost |
|
$ |
|
|
|
|
||
Plan Activities
The following table summarizes stock option activity under the Company’s incentive plans:
|
|
Number |
|
|
Weighted |
|
|
Weighted- Average Remaining Contractual Life |
|
|
Aggregate Intrinsic Value |
|
||||
|
|
|
|
|
|
|
|
(in years) |
|
|
(in thousands) |
|
||||
Options outstanding, December 31, 2023 |
|
|
|
|
$ |
|
|
|
|
|
$ |
— |
|
|||
Forfeited/Expired |
|
|
( |
) |
|
$ |
|
|
|
|
|
|
|
|||
Options outstanding, June 30, 2024 |
|
|
|
|
$ |
|
|
|
|
|
$ |
— |
|
|||
Options vested and exercisable, June 30, 2024 |
|
|
|
|
$ |
|
|
|
|
|
$ |
— |
|
|||
There were
The following table summarizes the non-vested stock options that were outstanding as of June 30, 2024 and December 31, 2023:
16
|
|
Number of Shares |
|
|
Weighted |
|
||
Non-vested Options, December 31, 2023 |
|
|
|
|
$ |
|
||
Non-vested Options, June 30, 2024 |
|
|
|
|
$ |
|
||
The total fair value of shares vested during the six months ended June 30, 2024 and 2023 was $
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 six months ended June 30, 2024, the Company did not repurchase any shares. There was not a material number of shares of common stock subject to repurchase as of June 30, 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 six months ended June 30, 2024 and 2023.
The following table summarizes RSU activity under the Company’s incentive plans:
|
|
Number |
|
|
Weighted |
|
||
RSUs outstanding, December 31, 2023 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
$ |
|
||
Vested |
|
|
( |
) |
|
$ |
|
|
Forfeited |
|
|
( |
) |
|
$ |
|
|
RSUs outstanding, June 30, 2024 |
|
|
|
|
$ |
|
||
During the six months ended June 30, 2024, vested RSUs included a total of
8. Leases
During the six months ended June 30, 2024,
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:
17
|
|
Lease Amounts |
|
|
|
|
(in thousands) |
|
|
2024 (remaining six months) |
|
$ |
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
Total future minimum lease payments |
|
|
|
|
Less: Imputed Interest |
|
|
( |
) |
Present value of operating lease liabilities |
|
$ |
|
|
Less: Current portion |
|
|
|
|
Long-term operating lease liabilities |
|
$ |
|
|
|
|
|
|
|
Weighted average remaining lease term in years |
|
|
|
|
Weighted average discount rate |
|
|
% |
|
|
|
|
|
|
Variable operating lease expenses consist primarily of real estate taxes and insurance.
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
|
|
(in thousands) |
|
|||||||||||||
Rent expense |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Variable lease costs |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
|
|
(in thousands) |
|
|||||||||||||
Cost of sales |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
General and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash paid for operating leases |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
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.
10. Term Loan
Perceptive loan
On January 13, 2023, the Company entered into Amendment No. 2 (the “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”) 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 six months ended June 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
18
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 $
For the six months ended June 30, 2024 and 2023, the effective interest rate of the Amended Perceptive Loan, was
Pursuant to the Third Amendment, future principal repayments and the net carrying value of the Perceptive Loan as of June 30, 2024, are as follows:
|
|
Principal |
|
|
|
|
(in thousands) |
|
|
Remaining 6 months of 2024 |
|
$ |
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
Total principal payment |
|
|
|
|
Debt discounts |
|
|
( |
) |
Net carrying value |
|
$ |
|
|
The Company is permitted to make voluntary prepayments, subject to a scaled prepayment premium that ranges from
The Amended Perceptive Loan Agreement 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 $
For 12-month Period Ending |
|
Revenue |
|
|
|
|
(in thousands) |
|
|
June 30, 2024 |
|
$ |
|
|
September 30, 2024 |
|
$ |
|
|
December 31, 2024 |
|
$ |
|
|
March 31, 2025 |
|
$ |
|
|
June 30, 2025 |
|
$ |
|
|
September 30, 2025 |
|
$ |
|
|
December 31, 2025 |
|
$ |
|
|
March 31, 2026 |
|
$ |
|
|
June 30, 2026 |
|
$ |
|
|
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 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
Total revenue generated from continuing and discontinued operations for the 12-months period ended June 30, 2024 was $
19
Company was in compliance with all financial covenants and conditions under the Amended Perceptive Loan Agreement as of June 30, 2024.
11. Income Taxes
The Company maintains a full valuation allowance against its net deferred tax assets as of June 30, 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, 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
The Company is subject to U.S. federal and various states income taxes. The federal returns for tax years remain open to examination and the state returns remain subject to examination for tax years . 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.
12. Segment Information
The Company previously operated and reported its results in two business segments, Product and Software. Software segment assets included goodwill and intangible assets, which were derecognized in connection with the divestiture of the software business on March 1, 2024. Following the divestiture, there were
The software segment was reported as discontinued operations as of June 30, 2024, and is presented as such for all periods in this report. For more information, see Note 3 “Discontinued Operations.”
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, |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
|
|
(in thousands, except shares and per share data) |
|
|
(in thousands, except shares and per share data) |
|
||||||||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Loss from continuing operations, net of tax |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Income from discontinued operations, net of tax |
|
|
|
|
|
|
|
|
||||||||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted-average shares outstanding – basic and diluted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net loss per share – basic and diluted |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
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:
20
|
|
Six Months Ended June 30, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Stock options |
|
|
|
|
|
|
||
RSUs |
|
|
|
|
|
|
||
Warrants |
|
|
|
|
|
|
||
Total |
|
|
|
|
|
|
||
21
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, 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, 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”), 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. 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 expect 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 June 30, 2024, we had an installed base of approximately 1,155 GentleWave Systems. We generated revenue of $15.4 million and incurred a net loss of $19.6 million from continuing operations for the six months ended June 30, 2024, compared to revenue of $17.4 million and a net loss of $33.7 million for the six months ended June 30, 2023. As of June 30, 2024, we had cash and cash equivalents and short-term investments of $24.2 million, an accumulated deficit of $444.1 million, and $20.5 million in principal outstanding under our term loan 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 potentially 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 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 require additional financing to fund our operations and planned growth.
Our ability to continue as a going concern depends on our ability to 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
22
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 software segment which we owned through TDO Software, Inc. (“TDO”), our wholly-owned subsidiary, by selling substantially all the assets and liabilities of TDO, our wholly owned subsidiary, for approximately $16.0 million, with $15.0 million received upon closing and the balance due approximately 12 months post-closing. A gain of $5.7 million on 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:
Effects of the Macroeconomic Environment
Our unaudited condensed consolidated financial statements as of and for the six months ended June 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.
Stock 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. On June 4, 2024, we received notice from OTC that our common stock did not met the Standards for Continued Qualification for the OTCQX per the OTCQX Rules for U.S. Companies section 3.2.b.1 because our stock’s bid price closed below $0.10 for more than 30 consecutive calendar days. We have a cure period of 180 calendar days to regain compliance, which expires December 2, 2024. If our common
23
stock’s bid price does not stay at or above the $0.10 minimum for ten consecutive trading days during the cure period, then our common stock will be moved from OTCQX to the OTC Pink market. The OTCQX Rules also requires us to have a market capitalization of at least $5 million for at least one of every 30 consecutive calendar days. On June 10, 2024, the Company’s shareholders approved an amendment to the Company’s Amended and Restated Certificate of Incorporation to effect a reverse stock split of the Company’s issued shares of common stock, at a specific ratio, ranging from 1:10 to 1:200, at the discretion of the Company’s board of directors at any time prior to the Company’s 2025 annual meeting of stockholders, with the exact ratio to be determined by the Company’s board of directors without further approval or authorization of the Company’s stockholders. Our Board of Directors is evaluating the merits and timing to effect a reverse stock split.
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. 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 six months ended June 30, 2024 and 2023.
Revenue
Our revenue from continuing operations consists primarily of product and 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 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 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, 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 previous software segment gross margin is generally higher than our product gross margin. Prior period financial statements have been recast to exclude the software segment from continuing operations. We expect gross margin to fluctuate in the short term and to 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 and Marketing
Selling and marketing expenses consist primarily of personnel compensation, including stock-based compensation, related to selling, marketing, and professional education functions. Selling and marketing expenses also include commissions, training, travel expenses, promotional activities, conferences, trade shows, and professional services fees. We expect our selling and marketing expenses to decrease in absolute dollars compared to the prior year periods for the remainder of 2024 and in 2025 based on the benefits derived from recently adopted cost saving measures and additional measures we expect to adopt in the future, including reductions in
24
headcount and the reprioritization of our commercial infrastructure, and lower spending on sales and marketing programs and initiatives, though it may fluctuate from period to period.
General and Administrative
General and administrative expenses consist primarily of personnel compensation, including stock-based compensation, related to administration, finance, information technology, legal, and human resource functions. SG&A expenses also include travel expenses, professional services fees, audit fees, legal fees, insurance costs and general corporate expenses including allocated facilities-related expenses. We expect our G&A expenses to decrease in absolute dollars compared to the prior year periods for the remainder of 2024 and in 2025 based on the benefits derived from recently adopted cost saving measures and additional measures we expect to adopt in the future, including reductions in headcount and lower spending on general and administrative programs, though it may fluctuate from period to period.
Research and Development
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 decrease in absolute dollars compared to the prior year periods for the remainder of 2024 and in 2025 based on 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 efforts to develop, enhance, and commercialize new products and technologies. However, we expect our R&D expenses as a percentage of revenue to vary over time depending on the level and timing of initiating new product development efforts.
Impairment of Long-lived Assets
Long-lived assets include definite-lived intangibles, long-lived fixed assets and lease right-of-use assets. An impairment charge of long-lived assets is recognized when an assessment of potential impairment indicates that an asset’s carrying amount is not recoverable. The carrying amount of the asset is reduced to its estimated fair value based on discounted cash flow analysis. An impairment analysis is subjective and assumptions regarding future growth rates and operating expense levels can have a significant impact on the expected future cash flows and impairment analysis.
Other Income (Expense), Net
Other (expense) income, net, consists primarily of interest expense under our outstanding term loan and interest income from investments in marketable securities.
Income from Discontinued Operations
Income from discontinued operations consists primarily of income (loss) from TDO’s software business and gain from sale of TDO’s assets and liabilities.
Results of Operations
Comparison of Three and Six Months Ended June 30, 2024 and 2023
The following table shows our results of operations for the three months ended June 30, 2024 and 2023, together with the dollar and percentage change in those items:
25
|
|
Three Months Ended June 30, |
|
|
Change |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
$ |
|
|
% |
|
||||
|
|
(in thousands, except percentages) |
|
|||||||||||||
Revenue, net |
|
$ |
8,314 |
|
|
$ |
8,763 |
|
|
|
(449 |
) |
|
|
(5 |
)% |
Cost of sales |
|
|
5,198 |
|
|
|
9,248 |
|
|
|
(4,050 |
) |
|
|
(44 |
)% |
Gross profit (loss) |
|
|
3,116 |
|
|
|
(485 |
) |
|
|
3,601 |
|
|
|
(742 |
)% |
Gross margin |
|
|
37 |
% |
|
|
(6 |
)% |
|
|
|
|
|
|
||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Selling and marketing |
|
|
4,072 |
|
|
|
7,693 |
|
|
|
(3,621 |
) |
|
|
(47 |
)% |
General and administrative |
|
|
4,163 |
|
|
|
6,416 |
|
|
|
(2,253 |
) |
|
|
(35 |
)% |
Research and development |
|
|
1,568 |
|
|
|
2,764 |
|
|
|
(1,196 |
) |
|
|
(43 |
)% |
Total operating expenses |
|
|
9,803 |
|
|
|
16,873 |
|
|
|
(7,070 |
) |
|
|
(42 |
)% |
Operating loss |
|
|
(6,687 |
) |
|
|
(17,358 |
) |
|
|
10,671 |
|
|
|
(61 |
)% |
Other expense, net: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest and financing costs, net |
|
|
(759 |
) |
|
|
(739 |
) |
|
|
(20 |
) |
|
|
3 |
% |
Loss before income tax expense |
|
|
(7,446 |
) |
|
|
(18,097 |
) |
|
|
10,651 |
|
|
|
(59 |
)% |
Income tax expense |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Loss from continued operations, net of tax |
|
|
(7,446 |
) |
|
|
(18,097 |
) |
|
|
10,651 |
|
|
|
(59 |
)% |
Income from discontinued operations, net of tax |
|
|
81 |
|
|
|
407 |
|
|
|
(326 |
) |
|
|
(80 |
)% |
Net loss |
|
$ |
(7,365 |
) |
|
$ |
(17,690 |
) |
|
|
10,325 |
|
|
|
(58 |
)% |
The following table shows our results of operations for the six months ended June 30, 2024 and 2023, together with the dollar and percentage change in those items:
|
|
Six Months Ended June 30, |
|
|
Change |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
$ |
|
|
% |
|
||||
|
|
(in thousands, except percentages) |
|
|||||||||||||
Revenue, net |
|
$ |
15,361 |
|
|
$ |
17,441 |
|
|
|
(2,080 |
) |
|
|
(12 |
)% |
Cost of sales |
|
|
10,244 |
|
|
|
15,948 |
|
|
|
(5,704 |
) |
|
|
(36 |
)% |
Gross profit |
|
|
5,117 |
|
|
|
1,493 |
|
|
|
3,624 |
|
|
|
243 |
% |
Gross margin |
|
|
33 |
% |
|
|
9 |
% |
|
|
|
|
|
|
||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Selling and marketing |
|
|
9,216 |
|
|
|
15,674 |
|
|
|
(6,458 |
) |
|
|
(41 |
)% |
General and administrative |
|
|
9,080 |
|
|
|
12,549 |
|
|
|
(3,469 |
) |
|
|
(28 |
)% |
Research and development |
|
|
3,757 |
|
|
|
5,691 |
|
|
|
(1,934 |
) |
|
|
(34 |
)% |
Total operating expenses |
|
|
22,053 |
|
|
|
33,914 |
|
|
|
(11,861 |
) |
|
|
(35 |
)% |
Operating loss |
|
|
(16,936 |
) |
|
|
(32,421 |
) |
|
|
15,485 |
|
|
|
(48 |
)% |
Other expense, net: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest and financing costs, net |
|
|
(2,699 |
) |
|
|
(1,318 |
) |
|
|
(1,381 |
) |
|
|
105 |
% |
Loss before income tax expense |
|
|
(19,635 |
) |
|
|
(33,739 |
) |
|
|
14,104 |
|
|
|
(42 |
)% |
Income tax expense |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Loss from continued operations, net of tax |
|
|
(19,635 |
) |
|
|
(33,739 |
) |
|
|
14,104 |
|
|
|
(42 |
)% |
Income from discontinued operations, net of tax |
|
|
5,508 |
|
|
|
678 |
|
|
|
4,830 |
|
|
|
712 |
% |
Net loss |
|
$ |
(14,127 |
) |
|
$ |
(33,061 |
) |
|
|
18,934 |
|
|
|
(57 |
)% |
Revenue
Revenue from continuing operations decreased $0.4 million, or 5%, for the three months ended June 30, 2024 from the comparable period in the prior year, which was primarily driven by lower sales volumes in PIs, partially offset by an increase in sales of GentleWave consoles and an increase in extended service contracts revenue. For the three months ended June 30, 2024, we generated $2.4 million and $4.7 million from the sale of GentleWave consoles and PIs, respectively, compared to $2.2 million and $5.6 million respectively, for the three months ended June 30, 2023.
Revenue from continuing operations decreased $2.1 million, or 12%, for the six months ended June 30, 2024 from the comparable period in the prior year, which was driven by lower sales volumes in PIs, partially offset by an increase in sales of GentleWave consoles and in the average selling price of PIs. For the six months ended June 30, 2024, we generated $4.2 million and $8.9 million from the sale of GentleWave consoles and PIs, respectively, compared to $4.2 million and $11.3 million, respectively, for the six months ended June 30, 2023.
Cost of sales and Gross margin
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Gross margin for the three months ended June 30, 2024 increased to 37.5% from (5.5%) for the comparable period in the prior year, primarily due to lower excess and obsolete inventory charges and a decrease in manufacturing costs for GentleWave consoles and PIs. For the three months ended June 30, 2024, we recorded $0.2 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 three months ended June 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.
Gross margin for the six months ended June 30, 2024 increased to 33.3% from 8.6% for the comparable period in the prior year, primarily due to the aforementioned lower excess and obsolete inventory charges and a decrease in manufacturing costs for GentleWave consoles and PIs, partially offset by higher stock-based compensation. We recognized $0.3 million of stock-based compensation during the six months ended June 30, 224 relating to the immediate vesting of RSUs granted to certain non-executive employees.
Selling and marketing expenses
Selling and marketing expenses decreased $3.6 million, or 47%, for the three months ended June 30, 2024 from the comparable period in the prior year, primarily driven by an approximately $2.6 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 million, or 41%, for the six months ended June 30, 2024 from the comparable period in the prior year, primarily driven by an approximately $4.6 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. The decrease is partially offset by expenses of $0.6 million recognized relating to the immediate vesting of RSUs granted to certain non-executive employees in the six months ended June 30, 2024.
General and administrative expenses
General and administrative expenses decreased $2.3 million, or 35%, for the three months ended June 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 and recruiting expenses, as a result of the reduction in headcount.
General and administrative expenses decreased $3.5 million, or 28%, for the six months ended June 30, 2024 from the comparable period in the prior year, primarily driven by decrease in employee-related compensation and expenses, including stock-based compensation, recruiting, travel and office expenses, as a result of the reduction in headcount.The decrease is partially offset by expenses of $0.2 million recognized relating to the immediate vesting of RSUs granted to certain non-executive employees in the six months ended June 30, 2024.
Research and development expenses
R&D expenses decreased $1.2 million, or 43%, and $1.9 million, or 34%, for the three and six months ended June 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 six months period 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 six months ended June 30, 2024.
Other expense, net
Total other expense, net for the three months ended June 30, 2024 was essentially unchanged 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.
Total other expense, net for the six months ended June 30, 2024 decreased $1.4 million, or 105%, from the comparable period in the prior year, mainly due to $1.2 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
Income from discontinued operations for the six months ended June 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 immediate vesting of RSUs granted to certain non-executive employees.
27
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 losses for the next several years.
On September 27, 2022, we completed a private placement (the “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, 2024, we had cash and cash equivalents and short-term investments of $24.2 million, an accumulated deficit of $444.1 million, and $20.5 million in principal outstanding under our term loan facility. For the six months ended June 30, 2024 and 2023, our net losses from continuing operations were $19.6 million and $33.7 million, respectively, and our net cash used in operating activities was $17.4 million and $26.3 million, respectively.
Funding requirements
We expect our operating expenses from continuing operations to continue to decrease compared to the prior year period for the remainder of 2024 and in 2025 based on the benefits derived from recently adopted cost saving measures and additional measures we expect to adopt in the future, including reductions in headcount and the reprioritization of our commercial infrastructure, and lower spending on selling, marketing, R&D and general and administrative programs and functions, though it may fluctuate from period to period. The timing and amount of our operating expenditures will depend on many factors, including:
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.
Our ability to continue as a going concern depends on our ability to 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 maintain compliance with our loan covenants. Due to these conditions, there is a material uncertainty that raises substantial doubt about our ability to continue as a going concern and, therefore, we may be unable to realize our assets and discharge our liabilities in the normal course of business.
We will require additional 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 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 negatively impact our stockholders and the trading price and liquidity of our common stock. On
28
On June 4, 2024, we received notice from OTC that our common stock did not met the Standards for Continued Qualification for the OTCQX per the OTCQX Rules for U.S. Companies section 3.2.b.1 because our stock’s bid price closed below $0.10 for more than 30 consecutive calendar days. We have a cure period of 180 calendar days to regain compliance, which expires December 2, 2024. If our common stock’s bid price does not stay at or above the $0.10 minimum for ten consecutive trading days during the cure period, then our common stock will be moved from OTCQX to the OTC Pink market. The OTCQX Rules also requires us to have a market capitalization of at least $5 million for at least one of every 30 consecutive calendar days. On June 10, 2024, the Company’s shareholders approved an amendment to the Company’s Amended and Restated Certificate of Incorporation to effect a reverse stock split of the Company’s issued shares of common stock, at a specific ratio, ranging from 1:10 to 1:200, at the discretion of the Company’s board of directors at any time prior to the Company’s 2025 annual meeting of stockholders, with the exact ratio to be determined by the Company’s board of directors without further approval or authorization of the Company’s stockholders. Our Board of Directors is evaluating the merits and timing to effect a reverse stock split.
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. The delisting of our common stock from the NYSE, and the potential move from the OTCQX to the OTC Pink market, could have material adverse effects on our business, financial condition and results of operations due to, among other things:
Delisting our common stock from the NYSE, and the potential move from the OTCQX to the OTC Pink market, 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 or potential move from the OTCQX to the OTC Pink market could also adversely impact the perception of our financial condition and have additional 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 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.
Indebtedness
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 June 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%.
On March 1, 2024, we entered to the Amendment No. 3 to the Amended Perceptive Loan Agreement (the “Third Amendment”). Pursuant to the Third Amendment, we made a one-time $15.0 million principal repayment on March 1, 2024, and made an amortization payment of $1.8 million on the outstanding principal on March 31, 2024 and we agreed to 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 six months ended June 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 June 30, 2024 and 2023, the fair value of the loan pursuant to the Amended Perceptive Loan Agreement 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’s software assets. Future principal repayments and the net carrying value of the Perceptive Loan, as of June 30, 2024, are as follows:
29
|
|
Principal |
|
|
|
|
(in thousands) |
|
|
Remaining 6 months of 2024 |
|
$ |
5,400 |
|
2025 |
|
|
10,800 |
|
2026 |
|
|
4,300 |
|
Total principal payment |
|
|
20,500 |
|
Debt discounts |
|
|
(1,189 |
) |
Net carrying value |
|
$ |
19,311 |
|
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 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, 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) |
|
|
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 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 June 30, 2024 was $38.9 million, and the cash and cash equivalents and short term investment balance was $24.2 million as of June 30, 2024. As such, we were in compliance with all financial covenants and conditions under the agreement as of June 30, 2024.
30
Summary statement of cash flows
The following table summarizes our statement of cash flows:
|
|
Six Months Ended June 30, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
|
|
(in thousands) |
|
|||||
Net cash provided by (used in) : |
|
|
|
|
|
|
||
Operating activities |
|
$ |
(17,407 |
) |
|
$ |
(26,341 |
) |
Investing activities |
|
|
38,623 |
|
|
|
21,140 |
|
Financing activities |
|
|
(19,522 |
) |
|
|
103 |
|
Net increase (decrease) in cash and cash equivalents |
|
$ |
1,694 |
|
|
$ |
(5,098 |
) |
Operating Activities
Net cash used in operating activities was $17.4 million for the six months ended June 30, 2024, primarily consisting of net loss of $14.1 million and gain on sales of discontinued operations of $5.7 million, as adjusted for non-cash items of $0.2 million, partially offset by a net change in our net operating assets and liabilities of $3.5 million. Non-cash items primarily consisted of $3.6 million in stock-based compensation and $1.4 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, $3.0 million decrease in accrued expenses and other liabilities on payments to vendors and a $1.2 million decrease in accrued compensation due to 2023 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 $26.3 million for the six months ended June 30, 2023, primarily consisting of net loss of $33.1 million as adjusted for non-cash items of $4.7 million, as well as a net change in our net operating assets and liabilities of $2.0 million. Non-cash items primarily consisted of $2.0 million in depreciation and amortization and $4.0 million in stock-based compensation. Changes in our net operating assets and liabilities year-over-year, was primarily due to $4.4 million in cash receipts of employee retention credit refunds, partially offset by increase in accounts receivable, inventory, accrued compensation and accounts payable attributable to timing of payment.
Investing Activities
Net cash provided by investing activities was $38.6 million for the six months ended June 30, 2024, as a result of $26.7 million in 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 available-for-sale securities.
Net cash provided by investing activities was $21.1 million for the six months ended June 30, 2023, as a result of proceeds from maturities of available-for-sale securities partially offset by the purchases of available-for-sale securities and property and equipment.
Financing Activities
Net cash used in financing activities was $19.5 million for the six months ended June 30, 2024, primarily due to principal repayments on our term loan. Net cash used in financing activities for the six months ended June 30, 2023 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”). 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 Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K filed with the SEC on March 11, 2024.
31
JOBS Act Accounting Election and Smaller Reporting Company Status
We are an “emerging growth company,” as defined in the 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, 2024.
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, 2024 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
32
been detected. Because of the inherent limitations in any control system, misstatements due to error or fraud may occur and not be detected.
33
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, 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 2023 Annual Report on Form 10-K.
Our securities trade on the OTCQX, which could affect our securities’ market price and liquidity.
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 common stock and consider our available options to resolve the noncompliance with the bid price requirement. There can be no assurance that we will be able to regain compliance with the bid price 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.
While we are evaluating possible alternatives in light of the NYSE delisting and OTC noncompliance notice, including applying to list our common stock under an alternative national securities exchange, we cannot assure you that we will be able to demonstrate compliance required for such listing. We will be required to demonstrate compliance with an applicable exchange’s initial listing requirements, which are generally more rigorous than an exchange’s continued listing requirements, in order to qualify for listing our securities.
Additionally, we could face significant material adverse consequences from trading on the OTC platform (as compared to our prior listing on NYSE), including:
The National Securities Markets Improvement Act of 1996, which is a federal statute, prevents or preempts states from regulating the sale of certain securities, which are referred to as “covered securities.” Our common stock no longer qualify as “covered securities” under such statute, due to the delisting from the NYSE. We are therefore subject to regulation in each state in which we offer our common stock, which may negatively impact our ability to consummate any future offering of our common stock.
In addition, our common stock may be defined as a “penny stock” under Rule 3a51-1 under the Exchange Act. “Penny stocks” are subject to Rule 15g-9, which imposes additional sales practice requirements on broker-dealers that sell low-priced securities to persons other than established customers and institutional accredited investors. For transactions covered by this rule, a broker-dealer must make a special suitability determination for the purchaser and have received the purchaser’s written consent to the transaction prior to
34
sale. Consequently, the rule may affect the ability of broker-dealers to sell our common stock and affect the ability of holders to sell our common stock in the secondary market. To the extent our common stock is subject to the penny stock regulations, the market liquidity for our common stock will be adversely affected.
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.
During the quarter ended June 30, 2024, no director or officer, as defined in Rule 16a-1(f),
Item 6. Exhibits.
35
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q unless otherwise stated.
|
|
Incorporated by Reference |
|
|||
Exhibit Number |
Description |
Form |
File No. |
Exhibit |
Filing Date |
Filed / Furnished Herewith |
3.1 |
8-K |
001-40988 |
3.1 |
11/2/2021 |
|
|
3.2 |
8-K |
001-40988 |
3.2 |
11/2/2021 |
|
|
4.1 |
S-1/A |
333-260136 |
4.1 |
10/25/2021 |
|
|
4.2 |
S-1/A |
333-260136 |
4.2 |
10/25/2021 |
|
|
4.3 |
S-1 |
333-260136 |
4.3 |
10/8/2021 |
|
|
4.4 |
Warrant to purchase Series C-1 preferred stock, issued to Oxford Finance LLC on December 31, 2013 |
S-1 |
333-260136 |
4.4 |
10/8/2021 |
|
4.5 |
Warrant to purchase Series C-1 preferred stock, issued to Oxford Finance LLC on June 30, 2014 |
S-1 |
333-260136 |
4.5 |
10/8/2021 |
|
4.6 |
Warrant to purchase Series C-1 preferred stock, issued to Oxford Finance LLC on December 31, 2014 |
S-1 |
333-260136 |
4.6 |
10/8/2021 |
|
4.7 |
S-1 |
333-260136 |
4.7 |
10/8/2021 |
|
|
4.8 |
S-1 |
333-260136 |
4.8 |
10/8/2021 |
|
|
4.9 |
S-1 |
333-260136 |
4.9 |
10/8/2021 |
|
|
4.10 |
S-1 |
333-260136 |
4.10 |
10/8/2021 |
|
|
4.11 |
10-K |
001-40988 |
4.11 |
3/23/2022 |
|
|
4.12 |
8-K |
001-40988 |
4.1 |
4/7/2022 |
|
|
4.13 |
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 |
10-Q |
001-40988 |
4.12 |
8/10/2022 |
|
|
4.16 |
S-3 |
333-270366 |
4.6 |
3/8/2023 |
|
|
4.17 |
S-3 |
333-270366 |
4.7 |
3/8/2023 |
|
|
10.1 |
Employment Letter, dated as of June 3, 2024, by and between Sonendo, Inc. and John Bostjancic |
8-K |
001-40988 |
10.1 |
6/5/2024 |
|
10.2 |
Amendment to the 2023 Employment Inducement Incentive Award Plan |
8-K |
001-40988 |
10.4 |
6/5/2024 |
|
10.3 |
8-K |
001-40988 |
10.2 |
3/5/2024 |
|
|
31.1 |
|
|
|
|
* |
|
36
31.2 |
|
|
|
|
* |
|
32.1 |
|
|
|
|
* |
|
32.2 |
|
|
|
|
* |
|
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.
37
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 7, 2024 |
|
By: |
/s/ Bjarne Bergheim |
|
|
|
Bjarne Bergheim |
|
|
|
President, Chief Executive Officer and Director |
|
|
|
(principal executive officer) |
|
|
|
|
|
|
|
|
Date: August 7, 2024 |
|
By: |
/s/ John Bostjancic |
|
|
|
John Bostjancic |
|
|
|
Chief Financial Officer |
|
|
|
(principal financial and accounting officer) |
38