SANUWAVE Health, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Financial statements are unaudited. The report was signed February 28, 2022.
Business context and results
SANUWAVE develops and commercializes noninvasive medical technologies, including dermaPACE for diabetic foot ulcers and UltraMIST for wound care. UltraMIST was acquired in August 2020; management attributed much of the 2021 revenue increase to UltraMIST devices and single-use accessories.
| Metric (USD millions, except per-share data) | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | 3.725 | 1.366 | 8.750 | 1.598 |
| Gross profit / margin | 2.170 / 58.3% | 0.765 / 56.0% | 5.092 / 58.2% | 0.787 / 49.2% |
| Operating loss | (3.335) | (6.369) | (11.775) | (12.437) |
| Net loss | (4.252) | (12.638) | (17.804) | (19.273) |
| Basic and diluted loss per share | (0.01) | (0.03) | (0.03) | (0.06) |
Q3 selling and marketing expense rose to $2.150 million from $1.373 million, while general and administrative expense fell to $3.058 million from $5.329 million. For the nine-month period, selling and marketing expense rose to $6.450 million from $2.414 million; general and administrative expense declined to $9.494 million from $9.826 million. Management cited higher post-acquisition commercial staffing and marketing costs, partly offset by lower professional fees and registration-penalty expense versus the prior-year period.
Cash, liquidity, and debt
- Cash was $327,000 at September 30, 2021, down from $2.437 million at December 31, 2020. Nine-month operating cash use was $6.506 million; investing cash use was $441,000; financing provided $4.890 million.
- Current assets were $4.696 million versus current liabilities of $47.305 million. Total liabilities were $48.686 million, against total assets of $19.182 million; stockholders’ deficit was $29.504 million.
- Debt carrying value was $24.175 million, including $23.233 million classified as current. The senior secured note, the $4 million Celularity seller note, Leviston/Five Institutions notes, and related-party convertible notes were reported in default. Senior secured debt carried a 12.25% stated rate plus default interest; other note terms and default rates vary.
- The company had $5.670 million of warrant liabilities. It also used factoring of receivables at a stated equivalent annual rate of 14.4%–15.0%, and future-receipts financing requiring weekly remittances.
- Management reported average operating cash use declining from about $1.1 million per month in Q1 to about $400,000 per month in Q3, and estimated Q4 2021 use of $250,000–$500,000 per month.
Changes, outlook, and key risks
- Management stated that recurring losses and debt defaults raised substantial doubt about the company’s ability to continue as a going concern for at least 12 months. It planned to seek 2022 funding through strategic partners, licensing, warrant conversions, equity, convertible securities, or debt. Funding was not assured and could substantially dilute shareholders; failure to obtain it could require curtailing or discontinuing operations.
- COVID-19 was expected to continue weighing on demand, supply channels, hospital and clinic activity, and clinical trials; the impact’s size and duration were uncertain.
- A Celularity license dispute remained unresolved. A supplier cancelled an UltraMIST production order after delays and sought fees; SANUWAVE accrued $311,000 and was disputing aspects of the notice. The filing also describes a remaining purchase commitment of approximately $1.1 million.
- Revenue depended on a limited supplier base; one vendor represented 52% of Q3 purchases. One customer represented 14% of receivables at quarter end.
- Accrued expenses included $1.950 million of registration penalties. The company had not filed a required Leviston registration statement; related agreements provide for penalties and default interest.
- Other unusual items included a $3.572 million year-to-date loss on debt issuance, a $1.599 million gain from derivative-liability fair-value changes, and a $460,000 gain from SBA Loan #1 forgiveness.
- Disclosure controls and internal control over financial reporting were deemed ineffective, with material weaknesses involving complex accounting, financial instruments, and accounting/IT processes. Remediation efforts were underway, with no assurance they would be sufficient.
- Subsequent to quarter end, the company disclosed additional financing and transactions, including a December future-receipts arrangement, a February 2022 $3 million secured-note amendment, and an agreement to sell designated leased UltraMIST equipment for approximately $798,000. These were not September 30 balances.
Most important facts for investors to verify
- Whether the company obtained sufficient financing to meet near-term obligations and address going-concern uncertainty.
- Current status and consequences of the defaults, registration penalties, and creditor arrangements.
- Whether the Celularity and Minnetronix disputes affect UltraMIST supply, production, or sales.
- Cash burn, collections, factoring costs, and weekly remittances under future-receipts financing.
- Potential dilution from outstanding warrants, convertible debt, and subsequent financing transactions; the filing reported 496,528,712 shares outstanding as of February 25, 2022.
- The filing’s cover page marked “No” for having filed all required reports during the preceding 12 months and for submitting all required Interactive Data Files; investors should verify reporting status and controls remediation.