SANUWAVE Health, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited consolidated results. SANUWAVE commercializes noninvasive medical systems, including UltraMIST and PACE, for tissue repair and regeneration.
Financial results
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Revenue | $3.775 million | $3.195 million |
| Gross profit / margin | $2.513 million / 67% | $2.306 million / 72% |
| Operating loss | $1.978 million | $1.956 million |
| Net loss | $13.080 million | $5.101 million |
| Basic and diluted loss per share | $0.02 | $0.01 |
| Cash used in operating activities | $0.371 million | $3.132 million |
- Revenue increased 18%, primarily from continued growth in UltraMIST system sales. Product revenue was $3.492 million; rental income was $0.283 million.
- Cost of revenue rose 42%, faster than revenue, and gross margin fell five percentage points. Management attributed the decline to higher third-party manufacturing costs.
- Operating expenses increased 5% to $4.491 million. General and administrative expense rose 25% to $2.759 million, mainly on higher professional, legal, audit, and consulting fees. Selling and marketing expense fell 18% and R&D fell 21%, which management attributed to cost reductions.
- Net loss increased by $7.979 million. Other expense was $11.102 million versus $3.145 million a year earlier, including a $6.797 million loss from changes in fair value of derivative liabilities. Interest expense, including related-party interest, was $4.278 million versus $3.192 million.
Balance sheet, debt, and liquidity
- Cash was $0.106 million at March 31, down from $1.153 million at December 31, 2022. Current assets were $4.517 million against current liabilities of $70.651 million, a $66.134 million working-capital deficit.
- Senior secured debt had a $14.996 million carrying value and was classified as current and in default for breach of minimum-liquidity provisions. The company reported a 17% cash interest rate at March 31 and was accruing an additional 5% default interest.
- Convertible promissory notes had a combined carrying value of $24.567 million, including $7.614 million attributable to related parties on the balance sheet. Certain acquisition and related-party notes were also in default. The 2022 convertible notes bear 15% interest and have a stated $0.04 conversion price, subject to adjustment.
- Operating cash use improved year over year, but cash declined by $1.047 million during the quarter. Financing activities used $0.654 million, primarily reflecting net payments to the factoring agent.
- Accumulated deficit was $207.322 million; stockholders’ deficit was $53.791 million.
Material changes, outlook, and risks
- Management and the auditor-related financial statements identify substantial doubt about SANUWAVE’s ability to continue as a going concern for at least 12 months from filing. Management planned to seek 2023 funding through warrant conversions, equity or convertible-security issuance, or debt; success, timing, and terms are uncertain and could materially dilute shareholders. Failure to raise funds could require curtailing or discontinuing operations.
- After quarter-end, on May 9, 2023, the company issued approximately $1.2 million of notes and warrants covering approximately 30.7 million shares at each of two stated exercise prices, $0.067 and $0.04. The notes bear 15% interest, are convertible at $0.04 subject to adjustment, and are secured but subordinated to the senior lender.
- Warrant liabilities increased to $9.264 million from $1.416 million, with a $7.848 million remeasurement loss. Fair-value changes are estimates using Level 3 inputs and materially affected reported earnings.
- The company reported ineffective disclosure controls and internal control over financial reporting, citing weaknesses in accounting expertise and resources for complex transactions and insufficiently designed accounting and IT controls. Remediation work was ongoing; management said the weaknesses were not yet remediated.
- A dispute with Celularity concerns alleged noncompliance with the UltraMIST acquisition license agreement. SANUWAVE disputes the allegation; the outcome and potential impact were unclear. The company also relies on a limited supplier base; one vendor represented 20% of purchases in Q1 2023.
- No specific financial guidance was provided. Management emphasized commercialization of UltraMIST and PACE and the need for additional capital. The filing states that reported Q1 results are not necessarily indicative of full-year results.
Key facts for investors to verify
- Whether the company can obtain sufficient financing, on what terms, and whether it can meet obligations while senior debt remains in default.
- How manufacturing cost increases, product demand, and commercialization efforts affect revenue growth and gross margins.
- The status and potential financial or operational consequences of the Celularity dispute and supplier dependencies.
- Progress in remediating material weaknesses and whether controls become effective after sustained testing.
- Potential dilution from outstanding warrants and convertible notes. The filing reports 548,737,651 shares outstanding as of May 10, but the March 31 balance sheet reports 555,637,651; investors should verify this share-count discrepancy.