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Item 7. Management’s Discussion and Analysis

2025-02-27 compared with 2024-03-28 · 168 added, 64 removed, 37 unchanged (86% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

We have developed our wireless power networks technology (“WPNT”), consisting of semiconductor chipsets, software controls, hardware designs and antennas, that enable radio frequency (“RF”) based charging for Internet of Things (“IoT”) devices.

Our WPNT has a broad spectrum of capabilities to enable the next generation of wireless power networks, delivering power and data in a seamless device portfolio.

This includes near field and at-a-distance wireless charging, with multiple power levels at various distances.

The initial IoT applications we are targeting are RF tags for asset tracking and cold chain applications, electronic shelf labeling (“ESL”), and IoT sensors for retail, industrial, healthcare, and logistics markets.

We believe our technology is innovative in its approach, in that we are developing solutions that charge IoT devices using RF technology.

To date, we have developed and released to production multiple transmitters and receivers, including prototypes and partner production designs.

The transmitters vary based on form factor and power specifications and frequencies, while the receivers are designed to support a myriad of wireless charging applications including:

We have developed a scalable, over-the-air WPN technology that integrates advanced semiconductor chipsets, software controls, hardware designs, and antenna systems to enable RF-based charging for IoT devices.

Our WPN technology provides a comprehensive suite of capabilities designed to power the next generation of wireless energy networks, seamlessly delivering power and data across diverse, battery-free device ecosystems.

This innovation enhances operational visibility, control, and intelligent business automation.

Our solutions support both near-field and at-a-distance wireless charging, supplying power at multiple levels across varying distances.

By enabling continuous wireless power transmission, our transmitter and receiver technologies facilitate the use of battery-free IoT devices, transforming asset and inventory tracking across multiple industries.

Key applications include retail sensors, electronic shelf labels, asset trackers, air quality monitors, motion detectors, and other smart monitoring solutions.

We believe our technology represents a breakthrough in wireless power delivery, offering a differentiated approach to charging IoT devices via RF technology.

To date, we have developed and released multiple transmitter and receiver solutions, including prototypes and partner production designs.

Our transmitters vary in form factor, power specifications, and operating frequencies, while our receivers are engineered to support a wide range of wireless charging applications across multiple device categories.

Cold Chain, Asset Tracking, Medical IoT

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Retail and Industrial IoT

The first end product featuring our technology entered the market in 2019.

We started shipping our first at-a-distance wireless PowerBridges for commercial IoT applications in the fourth quarter of 2021, and we expect additional wireless power enabled products to be released as we move our business forward.

The first WPN-enabled end product featuring our technology entered the market in 2019.

In the fourth quarter of 2021, we commenced shipments of our first at-a-distance wireless PowerBridge transmitter systems for commercial IoT applications and proof-of-concept deployments.

As we continue to innovate our technology applications, we anticipate the release of additional wireless power-enabled products.

Impact of Current Global Economic Conditions on Our Business

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We are closely monitoring the impact of these factors on all aspects of our business, including their impact on our operations, financial position, cash flows, inventory, supply chains, global regulatory approvals, purchasing trends, customer payments, and the industry in general, in addition to the impact on our employees.

Recent Developments

Effective March 24, 2024, Cesar Johnston is no longer serving as President and Chief Executive Officer of the Company.

Johnston will remain a member of the Company’s Board of Directors.

The Board has initiated a search to identify a permanent successor as chief executive officer of the Company.

In addition, as of March 24, 2024, the Board appointed Mallorie Burak to also serve as interim principal executive officer until the appointment of a permanent replacement chief executive officer for the Company.

The Board also established an Office of the Chair, composed of Reynette Au, Chair of the Board, and Ms.

The Office of the Chair will oversee strategic planning and direction of the Company, working closely with the Board, the senior leadership team, and other stakeholders to deliver the strategic mission of the Company.

Critical Accounting Estimates and Policies

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Use of Estimates.

The preparation of financial statements in conformity with U.S.

The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America (“U.S.

GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the financial statements as well as the reported expenses during the reporting periods.

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Going Concern.

ASC 205-40 Presentation of Financial Statements - Going Concern , requires management to assess our ability to continue as a going concern.

Accounting Standards Codification (“ASC”) 205-40 Presentation of Financial Statements - Going Concern , requires management to assess our ability to continue as a going concern.

In accordance with this guidance, we have evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that the financial statements are issued.

We have determined that there was substantial doubt about our ability to continue as a going concern, but it was alleviated based on financing received in 2025, as well as current operating levels and further cost reductions implemented in the first quarter of 2025.

We anticipate cash flows generated from operations and our cash and cash equivalents will be sufficient to meet our liquidity needs for at least the next 12 months.

Determining the extent to which conditions or events raise substantial doubt about our ability to continue as a going concern requires significant judgment and estimation by us.

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However, such assumptions are inherently uncertain and actual results could differ materially from those estimates.

We account for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in ASC 480, “Distinguishing Liabilities from Equity” (“ASC 480”), and ASC 815, “Derivatives and Hedging” (“ASC 815”).

The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s common stock, among other conditions for equity classification.

This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.

For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance.

For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded as a liability at their initial fair value on the date of issuance, and each balance sheet date thereafter.

Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the statements of operations.

The fair value of the warrants is estimated using an appropriate valuation model.

Such warrant classification is also subject to re-evaluation at each reporting period.

Offering costs associated with warrants classified as liabilities are expensed as incurred and are presented as offering cost related to warrant liability in the statement of operations.

Offering costs associated with the sale of warrants classified as equity are charged against proceeds.

Revenue Recognition.

We follow ASC 606, “Revenue from Contracts with Customers” (“Topic 606”).

In accordance with Topic 606, we recognize revenue using the following five-step approach:

Identify the contract with the customer.

Identify the performance obligations in the contract.

Determine the transaction price of the contract.

Allocate the transaction price to the performance obligations of the contract.

Recognize revenue when or as the performance obligations are satisfied.

Our revenue consists of its single segment of wireless charging system solutions.

The wireless charging system revenue consists of revenue from product development projects and production-level systems.

We record revenue associated with product development projects that we enter into with certain customers.

In general, these product development projects are complex, and we do not have certainty about our ability to achieve the project milestones.

The achievement of a milestone is dependent on our performance obligation and requires acceptance by the customer.

We recognize this revenue at the point in time at which the performance obligation is met.

The payment associated with achieving the performance obligation is generally commensurate with our effort or the value of the deliverable and is nonrefundable.

Any deferred revenue is recognized upon achievement of the performance obligation or expiration of a support agreement.

Results of Operations

Costs and Expenses

Cost of revenue consists of direct materials, direct labor and overhead for our production-level wireless charging systems.

Research and development expenses include costs associated with our efforts to develop our technology, including personnel compensation, consulting, engineering supplies and components, intellectual property costs, regulatory expense and general office expenses specifically related to the research and development department.

Research and development expenses include costs associated with our efforts to develop our technology, including personnel

compensation, consulting, engineering supplies and components, intellectual property costs, regulatory expense and general office expenses specifically related to the research and development department.

Sales and marketing expenses include costs associated with selling and marketing our technology to our customers, including personnel compensation, public relations, graphic design, tradeshow, engineering supplies utilized by the sales team and general office expenses specifically related to the sale and marketing department.

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For the Years Ended December 31, 2024 and 2023

During 2023 and 2022, we recorded revenue of $474,184 and $851,321, respectively.

The decrease in revenue in 2023 is primarily due to a decrease in production-level systems sales volume.

Costs and expenses are made up of cost of revenue, research and development, sales and marketing, general and administrative and severance expense.

Operating expenses for 2023 and 2022 were $22,573,929 and $27,537,646, respectively.

The following table sets forth selected Condensed Statements of Operations data (in thousands) and such data as a percentage of revenue:

For the year ended December 31,

Cost of revenue

Cost of revenue was $279,083 and $1,277,565, respectively, for 2023 and 2022.

The decrease of $998,482 is primarily due to a decrease in sales volume.

Research and Development Expenses.

Research and development costs for 2023 and 2022 were $10,810,570 and $12,497,781, respectively.

The $1,687,211 decrease in research and development expenses in 2023 is primarily due to a $476,065 decrease in stock-based compensation from older awards becoming fully expensed prior to the current year, a $368,844 decrease in engineering supplies, components and chip development due to project timing, a $208,929 decrease in consulting and third-party services, a $147,763 decrease in patent legal fees, a $143,700 decrease in recruiting expense, a $101,972 decrease in postage, a $93,430 decrease in regulatory testing and a $77,992 decrease in regulatory legal fees.

Sales and Marketing Expenses.

Sales and marketing expenses for 2023 and 2022 were $3,852,393 and $4,884,959, respectively.

The $1,032,566 decrease in sales and marketing expenses in 2023 is primarily due to a $366,181 decrease in compensation, consisting of a $286,222 decrease in payroll costs due to a lower headcount within the department and a $79,959 decrease in stock-based compensation, a $188,879 decrease in engineering supplies and components used by sales and marketing staff for customer demonstrations, an $85,280 decrease in tradeshow costs, an $80,720 decrease in recruiting expense, a $65,384 decrease in legal fees, a $61,882 decrease in depreciation, a $53,237 decrease in bad debt expense and a $43,886 decrease in supplies and general office expense.

General and Administrative Expenses.

General and administrative costs for 2023 and 2022 were $7,272,464 and $8,078,950, respectively.

The $806,486 decrease in general and administrative expense in 2023 is primarily due to a $722,294 decrease in compensation, consisting of an $432,254 decrease in stock-based compensation primarily due to reduced expense recorded for Board of Directors and executive equity awards and a $290,040 decrease in payroll costs primarily due to the departure of the former Acting Chief Financial Officer during 2023, a $151,844 decrease in recruiting expense, a $144,729 decrease in insurance premiums, a $101,972 decrease in postage, a $62,772 decrease in supplies and general office expense, a $57,258 decrease in training, dues and subscriptions, a $25,285 decrease in travel costs and a $23,110 decrease in Board of Director fees, partially offset by a $263,781 increase in legal fees, a $156,037 increase in investor relations, consulting and third party services expenses, an $83,107 increase in accounting and audit fees and a $41,857 increase in annual meeting expense.

Operating expenses:

Research and development

Sales and marketing

General and administrative

Severance expense

Severance expense for 2023 and 2022 was $359,419 and $798,391, respectively.

During 2023, severance expense was incurred in connection with the resignation of the former Acting Chief Financial Officer and the departure of six other employees.

During 2022, severance expense was incurred in connection with the separation agreement with our former Senior Vice President of Marketing and Business Development.

Total operating expenses

Loss from operations

Loss from operations for 2023 and 2022 was $22,099,745 and $26,686,325, respectively, primarily due to the factors described above.

Offering Costs from Warrant Liability.

Offering costs related to warrant liability were $591,670 during 2023.

We did not have a warrant liability as of December 31, 2022.

Other income (expense), net:

Offering costs related to warrant liability

Change in fair value of warrant liability

Other income resulting from the change in fair value of the warrant liability was $2,515,425 during 2023.

We did not have a warrant liability as of December 31, 2022.

Interest Income.

Interest income for 2023 was $809,227, compared to $411,065 for 2022, primarily due to higher interest rates for our money market account.

As a result of the factors described above, net loss for 2023 was $19,366,763, compared to $26,275,260 for 2022.

Interest income, net

Loss on extinguishment of short-term debt

Other expense

Total other income (expense), net

During 2024 and 2023, we recorded revenue of $0.8 million and $0.5 million, respectively.

The increase in revenue in 2024 is primarily due to an increase in commercial sales of our PowerBridge transmitters, driven primarily by the delivery of transmitters to fulfill an initial order from a Fortune 10 retailer in the fourth quarter of 2024.

In contrast, revenue recorded for 2023 was primarily attributable to engineering services, integrated circuit sales, and PowerBridge transmitters for use in proofs of concept.

Cost of Revenue:

For the year ended December 31,

Cost of revenue

Percent of total revenue

Cost of revenue was $0.8 million and $0.3 million, respectively, for 2024 and 2023.

The increase is primarily due to the cost of transmitters sold, as the initial sales of 2-watt PowerBridge transmitters that were shipped during 2024 were built in-house.

We believe the cost of producing these transmitters will decrease in future quarters, as we utilize a contract manufacturer to build in larger production volumes.

During 2023, revenue generated by transmitter sales represented a small percentage of the total revenue for that period, as the revenue for 2023 consisted mainly of non-recurring engineering fees for which the associated cost was included in research and development costs.

Operating expenses and Loss from Operations.

Operating expenses are made up of research and development, sales and marketing, general and administrative, and severance expense.

Loss from operations was $18.4 million and $22.1 million, respectively, for 2024 and 2023.

Research and Development Costs:

For the year ended December 31,

Research and development

Percent of total revenue

Research and development costs for 2024 and 2023 were $8.3 million and $10.8 million, respectively.

The decrease of $2.5 million is primarily due to a $1.7 million decrease in employee compensation, consisting primarily of a $1.3 million decrease in personnel-related expenses and a $0.4 million decrease in stock-based compensation, a $0.2 million decrease in legal fees pertaining to patents, a $0.2 million decrease in software and maintenance costs, a $0.1 million decrease in test development costs, a $0.1 million decrease in consulting and third-party expenses and a $0.1 million decrease in travel and miscellaneous office expenses.

Sales and Marketing Costs:

For the year ended December 31,

Sales and marketing

Percent of total revenue

Sales and marketing costs for 2024 and 2023 were $3.1 million and $3.9 million, respectively.

The decrease of $0.8 million is primarily due to a $0.8 million decrease in employee compensation, consisting of a $0.7 million decrease in personnel-related expenses due to a lower headcount within the department and a $0.1 million decrease in stock-based compensation, a $0.1 million decrease in tradeshow expense and a $0.1 million decrease in software, travel and miscellaneous office expenses, partially offset by a $0.2 million increase in consulting, third-party and public relations fees.

General and Administrative Costs:

For the year ended December 31,

General and administrative

Percent of total revenue

General and administrative costs for 2024 and 2023 were $5.7 million and $7.3 million, respectively.

The decrease of $1.6 million is primarily due to a $0.5 million decrease in stock-based compensation, a $0.5 million decrease in consulting and third-party service fees, a $0.4 million decrease in insurance premiums, a $0.2 million decrease in accounting and auditing fees, a $0.1 million decrease in legal fees, a $0.1 million decrease in computer software and support, a $0.1 million decrease in annual meeting costs and a $0.1 million decrease in travel and miscellaneous office expenses, partially offset by a $0.3 million increase in stock registration expense and a $0.1 million increase in public relations and investor relations expenses.

Severance Expense:

For the year ended December 31,

Severance expense

Percent of total revenue

Severance expense for 2024 and 2023 was $1.4 million and $0.4 million, respectively.

The increase of $1.0 million is primarily due to the departure of the former CEO during 2024 for which $1.2 million in severance expense was recorded, partially offset by $0.3 million in severance expense recorded during 2023 due to the departure of the former CFO.

Other income (expense), net:

For the year ended December 31,

Offering costs related to warrant liability

Change in fair value of warrant liability

Interest income, net

Loss on extinguishment of short-term debt

Other expense

Total other income (expense), net

Offering costs related to warrant liability were $0.6 million during 2023.

We did not incur such cost during 2024.

Other income resulting from the change in fair value of the warrant liability was $0.3 million during 2024 and $2.5 million during 2023.

The changes for both periods were due to a lower market value of our common stock.

Net interest income for 2024 was $0, as $0.2 million in interest income from our money market account, offset $0.2 million in interest expense from a short-term loan.

Interest income of $0.8 million during 2023 was from interest earned from our money market account.

Loss on extinguishment of short-term debt was $0.2 million during 2024.

We did not incur such cost during 2023.

As a result of the factors described above, net loss for 2024 was $18.4 million, compared to $19.4 million for 2023.

Liquidity and Capital Resources

During 2023 and 2022, we recorded revenue of $474,184 and $851,321, respectively.

We incurred a net loss of $19,366,763 and $26,275,260 for 2023 and 2022, respectively.

Net cash used in operating activities was $19,248,510 and $23,636,747 for 2023 and 2022, respectively.

We are currently meeting our liquidity requirements through the proceeds of securities offerings that raised net proceeds of $27,043,751 during 2021, $744,787 during 2022 and $6,916,775 during 2023, along with proceeds of $94,640 from the sale of stock to our CEO Cesar Johnston during 2023, contributions to the ESPP of $72,930 during 2023 and payments received from customers.

We believe our current cash on hand, together with the expected sale of common stock through registered offerings and pursuant to our ATM offering program during 2024, implementation of cost and expense reductions and anticipated revenues, will be sufficient to fund our operations through March 2025.

Although we intend to continue our research and development activities, there can be no assurance that our available resources will be sufficient to enable us to generate revenues sufficient to sustain operations.

Accordingly, we may pursue additional financing, which could include offerings of equity or debt securities, bank financings, commercial agreements with customers or strategic partners, and other alternatives, depending upon market conditions.

There is no assurance that such financing would be available on terms that we would find acceptable, or at all.

During 2023, cash flows used in operating activities were $19,248,510, consisting of a net loss of $19,366,763, less adjustments to reconcile net loss to net cash used in operating activities aggregating $816,144 (principally stock-based compensation of $1,677,950, amortization of operating lease ROU assets of $719,827, issuance costs allocated to warrant liability of $591,670, depreciation and amortization expense of $187,209 and inventory net realizable adjustment of $167,413, partially offset by a decrease in fair value of the warrant liability of $2,515,425), a $705,895 decrease in operating lease liabilities, a $536,477 decrease in accrued expenses, a $491,230 increase in inventory and a $282,918 decrease in accrued severance, partially offset by a $978,569 increase in accounts payable, a $288,406 increase in prepaid expenses and other current assets and a $54,299 decrease in accounts receivable.

During 2022, cash flows used in operating activities were $23,636,747, consisting of a net loss of $26,275,260, less non-cash expenses aggregating $3,936,182 (representing principally stock-based compensation of $2,918,817, decrease in right-of-use lease assets of $730,452 and depreciation and amortization expense of $246,156), a $770,031 decrease in operating lease liabilities, a $558,923 decrease in accrued severance, a $305,192 decrease in accounts payable and a $105,821 increase in inventory, partially offset by a $267,097 increase in accrued expense and a $99,512 decrease in accounts receivable.

During 2023 and 2022, cash flows used in investing activities were $187,078 and $164,994, respectively.

The cash used in 2022 primarily consisted of the purchases of new testing equipment and website redesign.

The cash used in 2022 primarily consisted of purchases of components to build new testing equipment and the purchases of engineering software licenses.

During 2023, cash flows provided by financing activities were $7,084,345, which consisted of $4,239,584 in net proceeds from the sale of shares of our common stock pursuant to our ATM offering program, $2,677,191 in net proceeds from the issuance and sale of common stock and warrants in registered offerings, $94,640 in net proceeds from the sale of common stock to the Chief Executive Officer and $72,930 in proceeds from the ESPP.

During 2022, cash flows provided by financing activities were $1,017,620, which consisted of $744,787 in net proceeds from the sale of shares of our common stock pursuant to our ATM offering program and proceeds from contributions to the ESPP of $272,833.

Quantitative and Qualitati ve Disclosures About Market Risk.

In the ordinary course of business, we may be exposed to certain market risks, such as interest rates.

However, after an assessment of these risks to our operations, we do not believe that the primary market risk exposures (within the meaning of Regulation S-K Item 305) will have any material adverse impact on our financial position, results of operations or cash flows for the next fiscal year.

During 2024 and 2023, we recorded revenue of $0.8 million and $0.5 million, respectively.

We incurred a net loss of $18.4 million and $19.4 million for 2024 and 2023, respectively.

Net cash used in operating activities was $17.6 million and $19.2 million for 2024 and 2023, respectively.

As of December 31, 2024, we had cash on hand of $1.4 million.

We are currently meeting our liquidity requirements through the proceeds of securities offerings in at-the-market (ATM) offerings that raised net proceeds of $3.2 million during 2024 and $13.4 million during 2025 through February 25, 2025, as well as through a short-term loan on which we have a payable balance due of approximately $0.8 million as of December 31, 2024.

As of February 25, 2025, the Company had $11.7 million in cash on hand.

Based on current operating levels and further cost reduction efforts implemented in the first quarter of 2025, we believe we have sufficient cash on hand to fund the next 12 months of operations.

As we gain traction in the market with our new technology and continue to invest capital in transitioning and scaling the business from research and development of new technologies to commercial production, there can be no assurance that our available resources and revenue generated from our business operations will be sufficient to sustain our operations.

Accordingly, we expect to pursue additional financing, which could include offerings of equity or debt securities, bank financing, commercial agreements with customers or strategic partners, and other alternatives, depending upon market conditions.

There is no assurance that such financing will be available on terms that we would find acceptable, or at all.

If we are unsuccessful in implementing this plan, we will be required to make further cost and expense reductions or modifications to our on-going and strategic plans.

February 2024 Equity Offering

On February 15, 2024, we entered into a securities purchase agreement with an institutional investor, providing for the issuance and sale by us, in a registered direct offering (the “February 2024 Offering”), of (i) 570,000 shares of our common stock, (ii) pre-funded warrants to purchase up to 450,409 shares of common stock, and (iii) warrants to purchase up to an aggregate of 1,020,409 shares of common stock.

Each share of common stock and pre-funded warrant was offered and sold together with an accompanying warrant at a combined price of $1.96 per share of common stock or pre-funded warrant, as applicable.

The pre-funded warrants were

exercised at a price of $0.001 per share during April 2024.

The other warrants to purchase 1,020,409 shares of common stock are still outstanding and have an exercise price of $1.84 per share.

These warrants expire five years from the date of issuance.

We received net proceeds of approximately $1.8 million from the February 2024 Offering, after deducting placement agent fees and estimated offering expenses.

ATM Offering Program

On June 21, 2024, we entered into the At the Market Offering Agreement with H.C.

Wainwright & Co., LLC, as sales agent, pursuant to which we could issue and sell of up to $3.45 million in shares of our common stock (the “ATM Program”).

During the three months and year ended December 31, 2024, we sold 5,634,585 shares and 6,851,753 shares, respectively, of our common stock under the Current ATM Program for net proceeds of approximately $2.4 million and $3.1 million, respectively (net of commissions and other related offering expenses of approximately $0.1 million and $0.3 million, respectively).

After December 31, 2024, we settled sales of an additional 16,584,405 shares of our common stock for net proceeds of approximately $13.4 million (net of $0.7 million in commissions and issuance costs) under the ATM Program.

These sales settled between January 2, 2025 and February 12, 2025.

On February 13, 2025, we filed a prospectus supplement covering the offering, issuance and sale of an additional $80.0 million in shares of our common stock under the ATM Program.

Between February 21, 2025 and February 26, 2025, the Company settled sales of 252,040 shares of common stock for net proceeds of approximately $38,000 under the ATM Program pursuant to the prospectus supplement filed on February 13, 2025.

Agile Subordinated Loan Agreement

Effective October 1, 2024, we entered into a subordinated business loan agreement (the “Original Loan Agreement”) with Agile Capital Funding, LLC and Agile Lending, LLC (collectively, the “Lender”), which provided for an initial term loan of $525,000, with the ability to receive additional term loans of up to $1.6 million, subject to certain conditions (such loans, the “Term Loan”).

Principal and interest on the initial term loan in the aggregate amount of $756,000 was to be repaid in weekly payments of $27,000 commencing on October 14, 2024, and fully repaid on or before the maturity date of April 21, 2025.

The Term Loan would be expressly subordinated to our obligations on certain senior indebtedness as provided in the Original Loan Agreement.

Effective only upon the occurrence and continuance of an event of default under the Loan Agreement, we would grant the Lender a security interest in certain collateral, excluding intellectual property, of Energous Corporation as set forth in the Original Loan Agreement.

Effective November 5, 2024, we entered into an amended subordinated business loan agreement with the Lender (the “Amended Loan Agreement”) to refinance the Term Loan.

The Amended Loan Agreement provides for a new term loan of $997,000, with the ability to receive additional term loans of up to $1.6 million, subject to certain conditions (such new loans, the “New Term Loan”).

Principal and interest on the initial new term loan in the aggregate amount of $1,415,740 is to be repaid in weekly payments of approximately $39,000 and fully repaid on or before the maturity date of July 17, 2025.

The proceeds of the New Term Loan were allocated to cover the administrative fee of $48,000 and to repay in full the Term Loan as described above, which had a carrying amount of $429,000 and settlement value of $648,000 on November 5, 2024, and the remaining proceeds will be utilized for working capital.

The New Term Loan will be expressly subordinated to our obligations on certain senior indebtedness of the Company as provided in the Amended Loan Agreement.

The Amended Loan Agreement replaces the Original Loan Agreement and otherwise contains substantially the same terms as the Original Loan Agreement.

As of December 31, 2024, we had a short-term loan payable balance of approximately $0.8 million.

We recorded interest expense of approximately $0.2 million related to the Original Loan Agreement and the Amended Loan Agreement.

We recorded a loss on the extinguishment of debt of approximately $0.2 million related to the Original Loan Agreement.

The payment multiplier on the current loan is 1.42.

An administrative fee of $25,000 was paid on the Original Loan agreement and an administrative fee of $48,000 was paid on the Amended Loan Agreement.

Regulation A Offering

On October 11, 2024, we filed a Regulation A Offering Statement on Form 1-A with an offering of a maximum of 5,000,000 Units (the “Regulation A Offering”), with each Unit consisting of one share of Series A Convertible Preferred Stock (initially

convertible into two shares of common stock) and three common stock purchase warrants, two to each purchase one share of common stock at an exercise price of $1.50 per share and one to purchase one share of common stock at $2.00 per share, for an aggregate of 5,000,000 shares of Series A Convertible Preferred Stock (and 10,000,000 shares of common stock underlying the shares of Series A Convertible Preferred Stock) and warrants to purchase up to an aggregate of 10,000,000 shares of common stock at an exercise price of $1.50 per share and 5,000,000 shares of common stock at an exercise price of $2.00 per share, at an offering price of $1.50 per Unit, for a maximum offering amount of $7,500,000.

The Regulation A Offering Statement was qualified by the SEC on November 22, 2024.

As of December 31, 2024, no closings have occurred on the Regulation A Offering.

Our prepaid expense and other current assets balance as of December 31, 2024 includes $0.3 million in prepaid expenses related to the Regulation A Offering.

During 2024, cash flows used in operating activities were $17.6 million, consisting of a net loss of $18.4 million, less adjustments to reconcile net loss to net cash used in operating activities aggregating $1.1 million (principally stock-based compensation of $0.8 million, depreciation and amortization expense of $0.2 million, loss on extinguishment of short-term debt of $0.2 million, issuance of common stock to consultant of $0.1 million and accrued interest of $0.1 million, partially offset by change in fair value of warrant liability of $0.3 million), a $0.5 million decrease in operating lease liabilities, a $0.2 million decrease in accrued expenses, a $0.1 million decrease in accrued severance expense and a $0.1 million increase in inventory, partially offset by $0.7 million decrease in operating lease right-of-use assets.

During 2023, cash flows used in operating activities were $19.3 million, consisting of a net loss of $19.4 million, less adjustments to reconcile net loss to net cash used in operating activities aggregating $0.1 million (principally stock-based compensation of $1.7 million, issuance costs allocated to warrant liability of $0.6 million, depreciation and amortization expense of $0.2 million and inventory net realizable adjustment of $0.2 million, partially offset by a decrease in fair value of the warrant liability of $2.5 million), a $0.7 million decrease in operating lease liabilities, a $0.5 million decrease in accrued expenses, a $0.5 million increase in inventory and a $0.3 million decrease in accrued severance, partially offset by a $1.0 million increase in accounts payable, a $0.7 decrease in operating lease right-of-use assets, a $0.3 million increase in prepaid expenses and other current assets and a $0.1 million decrease in accounts receivable.

During 2024 and 2023, cash flows used in investing activities were $0.1 million and $0.2 million, respectively.

The cash used in 2024 and 2023 was for the purchases of testing and computer equipment.

During 2024, cash flows provided by financing activities were $5.1 million, which primarily consisted of $3.2 million in net proceeds from the sale of shares of our common stock under the ATM Program, $1.8 million in net proceeds from a registered direct offering that included the sale of common stock, pre-funded warrants and warrants and net borrowings of $0.8 million from a short-term loan, partially offset by $0.3 million in repayments of financed insurance and $0.3 million in repayments of a short-term loan.

During 2023, cash flows provided by financing activities were $7.1 million, which consisted of $4.2 million in net proceeds from the sale of shares of our common stock under our prior at-the-market offering program, $2.7 million in net proceeds from the issuance and sale of common stock and warrants, $0.1 million in proceeds from a direct sale of common stock to the former Chief Executive Officer and $0.1 million in proceeds from the ESPP.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis