SANUWAVE Health, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; balance-sheet comparisons are with December 31, 2020. The filing was signed December 13, 2021. SANUWAVE develops and commercializes regenerative medical technologies, including dermaPACE for diabetic foot ulcers. Its August 2020 acquisition of UltraMIST expanded its advanced wound-care products.
Financial performance
Amounts below are in millions of dollars unless otherwise stated.
| Metric | Q1 2021 | Q1 2020 / comparison |
|---|---|---|
| Revenue | $2.116 | $0.149; up about $1.967, primarily from UltraMIST devices and accessories |
| Cost of revenue | $1.055 | $0.130 |
| Gross profit and margin | $1.061; 50% | $0.019; 13% |
| Operating expenses | $5.455 | $2.815 |
| Operating loss | $(4.394) | $(2.796) |
| Net loss | $(4.937) | $(3.002) |
| Basic and diluted loss per share | $(0.01) | $(0.01), rounded |
| Cash used in operating activities | $(3.344) | $(2.646) |
| Cash at quarter-end | $0.096 | $2.437 at December 31, 2020 |
Selling and marketing expense rose to $1.780 million from $0.608 million, and general and administrative expense rose to $3.321 million from $1.920 million. Management attributed the increases mainly to the larger post-acquisition organization; G&A also included about $0.791 million of registration-statement penalty accruals and $0.176 million of acquired-intangible amortization.
Financial position and funding
- Total assets were $20.279 million and total liabilities were $36.912 million at March 31; stockholders’ deficit was $16.633 million.
- Current assets were $5.163 million versus current liabilities of $35.388 million. Cash was just $0.096 million; accounts receivable were $1.727 million and inventory was $2.935 million.
- Debt included a $15 million senior secured note, carried at $10.903 million after unamortized discounts and issuance costs, and a $4 million Celularity seller note. The senior secured note was in default for failure to meet minimum-liquidity provisions. The filing also reports other notes in default; some maturities and defaults occurred after quarter-end, as described in the notes.
- Financing activities provided $1.112 million, principally from a $1.033 million SBA/PPP loan and a $0.125 million related-party deposit. The SBA loan was potentially forgivable subject to program requirements.
- Common shares outstanding increased from 470.7 million at year-end to 481.6 million at March 31, including 10.925 million shares issued in a cashless warrant exercise.
Management outlook, risks, and unusual items
- Going concern: Recurring losses and debt defaults raised substantial doubt about the company’s ability to continue as a going concern for at least twelve months. Management said additional financing was necessary and contemplated strategic investment, licensing or partnerships, warrants, equity, convertible securities, or debt. It warned that funding may not be available on acceptable terms, could materially dilute shareholders, and failure to secure it could force significant curtailment or discontinuation of operations.
- Cash-use estimates: Management estimated operating cash use of approximately $0.3–$0.5 million per month in Q2 2021 and $0.25–$0.4 million per month in the second half of 2021. These are estimates, not reported results.
- Subsequent financing and defaults: After quarter-end, the company entered into Leviston convertible-note financing, a receivables factoring facility, September convertible-note financing, and a future-receipts financing arrangement. The filing reports registration-statement breaches and defaults on Leviston and September notes, associated default interest and registration penalties, and additional director advances. These arrangements carry repayment, dilution, and/or cash-flow implications.
- Supplier and license disputes: Celularity alleged a breach of the UltraMIST-related license agreement in May 2021; SANUWAVE disputed the allegation. In September, Minnetronix cancelled an UltraMIST device purchase order after production delays and sought an additional $0.320 million in cancellation fees; SANUWAVE disputed aspects of the notice. Outcomes and impacts were uncertain.
- Other business risks: Management said COVID-19 could continue to reduce demand and disrupt hospitals, clinical activity, supply channels, and marketing. The company relied on single suppliers for many components; one vendor accounted for 55% of Q1 purchases. A customer accounted for 15% of quarter-end receivables.
- Controls and reporting: Management concluded disclosure controls and internal control over financial reporting were ineffective at March 31, citing material weaknesses involving technical accounting expertise and resources, vendor-service financial instruments, and incomplete accounting and IT controls. Remediation efforts were underway, with no assurance they would succeed.
- Filing-status flag: The cover page marks “No” for having filed all required Exchange Act reports in the preceding 12 months and for submitting all required Interactive Data Files. Investors should check the filing history and related compliance status.
Important facts for investors to verify
- Whether the company secured sufficient additional capital and met obligations under the senior secured note and subsequent financing agreements.
- Current cash, operating burn, debt maturities, default interest, registration penalties, and any dilution from convertible notes or warrants.
- Resolution and financial consequences of the Celularity license dispute and Minnetronix purchase-order cancellation.
- Whether UltraMIST production, sales, and margins can be sustained, and whether customer and supplier concentration has changed.
- Progress in remediating material weaknesses and bringing required SEC filings and interactive data submissions current.