SANUWAVE Health, Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. Financial statements are audited and prepared under U.S. GAAP. Amounts below are in U.S. dollars; financial statement figures are generally in millions unless stated otherwise.
Business context
SANUWAVE develops and sells noninvasive ultrasound and acoustic shock-wave medical systems, principally for wound care. Its main products are UltraMIST and PACE; UltraMIST generated 90% of revenue in both 2023 and 2022. Sales are primarily in the United States.
Financial performance and liquidity
| Metric | FY2023 | FY2022 |
|---|---|---|
| Revenue | $20.4 million | $16.7 million |
| Gross profit / margin | $14.4 million / 70% | $12.4 million / 74% |
| Operating loss | $0.5 million | $9.0 million |
| Net loss | $25.8 million | $10.3 million |
| Net loss per share, basic and diluted | $0.03 | $0.02 |
| Cash used in operating activities | $4.5 million | $17.2 million |
| Cash at year-end | $1.8 million | $1.2 million |
Revenue rose 22%, driven by higher disposable volumes and prices and 28% growth in system revenue. Gross margin fell four percentage points, which management attributed largely to one-time inventory write-offs and costs associated with growth and relieving inventory constraints. Operating expenses declined to $14.9 million from $21.4 million, primarily through lower general, administrative, selling, and marketing costs. The net loss widened mainly because a $16.7 million derivative fair-value gain in 2022 became a $9.6 million loss in 2023, alongside higher interest expense. These fair-value changes are non-cash.
Operating cash use improved year over year, but the company reported an accumulated deficit of $220.0 million. At December 31, 2023, total assets were $22.4 million and total liabilities were $65.6 million, including $64.8 million of current liabilities. Cash was $1.8 million. Senior secured debt had a $21.6 million principal balance and was in default; the balance-sheet carrying value was $18.3 million. The filing reports $7.1 million carrying value for convertible notes and $4.6 million for asset-backed notes. Interest expense was $15.6 million.
Management reported Adjusted EBITDA, a non-GAAP measure, of negative $1.2 million for 2023 versus negative $7.1 million for 2022. It should not be treated as a substitute for GAAP results or cash flow.
Material changes and financing
- Common shares outstanding increased from 548.7 million at year-end 2022 to 1.141 billion at year-end 2023. During 2023, approximately 578.9 million shares were issued to settle principal and interest on 2022 convertible notes.
- Cash from financing activities was $5.2 million, versus $17.4 million in 2022. The company also issued asset-backed notes in 2023; the notes carried a 33.33% original issue discount and matured in January 2024, with related conversion and warrant arrangements.
- Debt defaults and recurring losses led management and the auditor to conclude that substantial doubt exists about the company’s ability to continue as a going concern for at least 12 months from the filing. Management expects additional capital, primarily through the proposed business combination, but gives no assurance that financing will be available on acceptable terms or on time.
Outlook, transactions, risks, and unusual items
- Business combination: The proposed merger with SEP Acquisition Corp. was approved by SANUWAVE stockholders on February 21, 2024. Closing remained conditional, including on SEPA having at least $12 million in cash and cash equivalents. The filing stated no PIPE financing commitments had been obtained. The termination date was extended to April 30, 2024. The transaction’s closing and financing were not assured.
- Debt defaults: The company was in default on its senior secured note’s minimum-liquidity covenant and on matured Celularity and HealthTronics notes. The senior lender could declare its debt immediately due if compliance was not regained by the stated deadline. Defaults carry additional default interest. Management expected the merger closing to help restore compliance.
- Dilution and funding: The filing describes extensive outstanding warrants and convertible securities and warns that further equity or convertible financing could substantially dilute existing holders. It also describes restrictions on incurring certain additional debt following private placements.
- Post-period patent transaction: In March 2024, SANUWAVE granted an exclusive license to a portfolio of intravascular shock-wave patents for a one-time $2.5 million payment, with an option for the licensee to acquire the patents for an additional single-digit-million-dollar payment. The option’s exercise is not assured.
- Other contingencies: The company disclosed an unresolved dispute with Celularity concerning the UltraMIST-related license arrangements; the potential impact was unclear. It also disclosed a $670,000 contingent advisor termination payment upon merger closing.
- Controls and reporting: Management concluded disclosure controls and internal control over financial reporting were ineffective at year-end 2023, citing material weaknesses in accounting expertise and resources, complex financial instrument accounting, and accounting and IT controls. Remediation was ongoing and not yet complete.
- Commercial risks: Key risks include dependence on third-party reimbursement and product acceptance, intense competition, single-source suppliers for many components, FDA and international regulatory requirements, and the company’s limited trading liquidity. Management provided no specific numerical revenue or profit guidance.
The independent auditor issued an unqualified opinion on the financial statements but included a going-concern explanatory paragraph. Valuation of embedded conversion options and warrant liabilities was identified as a critical audit matter.
Important facts for investors to verify
- Whether the merger closed, whether the $12 million minimum-cash condition was met or waived, and the actual post-transaction cash available to the combined company.
- Current status, balances, default terms, and repayment or conversion treatment of the senior secured, Celularity, HealthTronics, and asset-backed obligations.
- Post-period share count and potential dilution from conversions, warrants, options, and merger consideration; confirm the applicable exchange ratios and securities issued.
- Whether the March 2024 patent license option was exercised and how proceeds were used, as well as the status of the Celularity dispute and contingent advisor fee.
- Progress in remediating material weaknesses and any subsequent changes to financial reporting controls.
- Whether revenue growth, gross-margin pressure, reimbursement access, and inventory availability persisted after year-end.