SANUWAVE Health, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. The filing was signed May 26, 2022. SANUWAVE develops and commercializes noninvasive shock-wave and ultrasound technologies for wound care, including dermaPACE and UltraMIST. Financial figures below are in thousands of dollars unless otherwise stated.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Revenue | $3,195 | $2,116; up 51% |
| Gross profit / gross margin | $2,306 / 72.2% | $1,061 / 50.1% |
| Operating loss | $(1,338) | $(4,394) |
| Net loss | $(4,423) | $(4,937) |
| Cash used by operating activities | $(3,132) | $(3,344) |
| Cash at quarter-end | $313 | $96 at March 31, 2021 |
- Revenue growth was attributed mainly to UltraMIST device and single-use accessory sales. Management said the higher gross margin reflected a greater mix of higher-margin accessories and discontinuation of lower-margin biologics sales.
- General and administrative expense fell 31.7% to $2,141, primarily due to lower registration penalties and legal fees. Research and development expense fell 63.0% to $166; selling and marketing expense was down 3.7% to $1,715.
- Other expense included $3,076 of interest expense and a $3,434 loss on debt issuance, partly offset by a $3,482 gain from changes in fair value of derivative liabilities. The fair-value gain is not operating revenue.
- Cash flow from investing activities was $360 provided, including proceeds from asset disposition; financing activities provided $2,470, primarily related to the NH note financing.
- At March 31, current assets were $3,409 and current liabilities were $53,231, a working capital deficit of approximately $49,822. Total liabilities were $54,403, against total assets of $17,014.
- Debt carrying value was $25,471, including $24,664 classified as current; the filing reports senior secured and convertible notes in default. The senior secured note had $18,000 principal and a 20.5% interest rate. Accrued interest was $3,417, including related-party interest.
- Common shares outstanding rose to 517.2 million from 481.6 million at year-end. The company reported 205.1 million warrants outstanding at March 31.
Material changes, outlook, and risks
- Going concern: Recurring losses, dependence on additional financing, and defaults on notes raise substantial doubt about the company’s ability to continue as a going concern for at least 12 months from the filing. Management said it planned to seek capital during 2022 through strategic partners, licensing, warrant conversion, equity, or debt. Financing may not be available on acceptable terms, may significantly dilute shareholders, or may fail altogether; the company could then need to curtail or discontinue operations.
- Debt and financing: In February 2022, SANUWAVE amended its financing with NH Expansion Credit Fund, including a $3.0 million note extension and associated equity and warrants. The company recorded a $3.4 million issuance loss because the fair value of shares and warrants issued exceeded the note’s face value.
- Subsequent financing: On May 19, 2022, the company paid the remaining $400 of a prior advance and received $545 in cash under an agreement to sell $1.0 million of future receipts. It must remit at least $59 weekly for 24 weeks, beginning May 23, and issued 5.6 million warrants with a $0.18 exercise price.
- Operating risks: Management said COVID-19 and supply-chain disruption had negatively affected and could continue to affect sales and operations. The company relies on single suppliers for many product components; one vendor represented 19% of purchases in Q1 2022. Customer concentration included one customer at 11% of quarterly revenue.
- Contingency: Celularity alleged in 2021 that SANUWAVE was not complying with a license agreement; SANUWAVE disputed the allegation and asserted counterclaims. The filing said the outcome and potential impact were uncertain.
- Controls: Management concluded disclosure controls and internal control over financial reporting were ineffective at March 31, 2022, citing material weaknesses in technical accounting resources and design and testing of accounting and IT controls. Remediation efforts were underway, but the company gave no assurance they would be sufficient.
- Management outlook: The company expected operating losses to continue over the next few years while commercializing dermaPACE and developing its technology. It provided no quantified revenue or earnings guidance.
Most important facts for investors to verify
- Whether SANUWAVE can raise sufficient capital to address the going-concern uncertainty and fund operations.
- The status, cure terms, and consequences of defaults on senior secured and convertible notes, including actual debt and accrued-interest obligations.
- Cash burn, weekly remittances under the May 2022 future-receipts agreement, and whether available cash can meet near-term obligations.
- Whether revenue growth and the reported margin improvement are sustainable, including product mix, customer concentration, and supplier continuity.
- Progress resolving the Celularity dispute and remediating the disclosed control weaknesses.
- The filing’s cover page marked “No” for both the required-report filing and Interactive Data File submission checks; investors may wish to confirm the context and compliance status.