SANUWAVE Health Inc(SNWV) - 2025 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) The company faces substantial doubt about its going concern ability due to an accumulated deficit, negative working capital, and maturing debt, despite achieving operating income - The company has an accumulated deficit, negative working capital, and its Senior Secured Note is due in September 2025, raising substantial doubt about its ability to continue as a going concern for 12 months from the filing date35 - Achieved operating income during the three and six months ended June 30, 2025, and the prior fiscal year ended December 31, 2024, due to revenue growth initiatives and a capital raise36 - A one-for-three hundred seventy-five (1:375) reverse stock split of common stock was effected on October 18, 2024, impacting all share and per-share amounts presented33 Condensed Consolidated Balance Sheets Balance Sheet Summary (in thousands) | Metric (in thousands) | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :---------------- | | Cash and cash equivalents | $8,496 | $10,237 | | Total Current Assets | $20,168 | $18,397 | | Total Non-current Assets | $12,878 | $11,722 | | Total Assets | $33,046 | $30,119 | | Total Current Liabilities | $46,501 | $42,345 | | Total Non-current Liabilities | $1,320 | $491 | | Total Liabilities | $47,821 | $42,836 | | Total Stockholders' Deficit | $(14,775) | $(12,717) | Condensed Consolidated Statements of Comprehensive Loss Statements of Comprehensive Loss Summary (in thousands) | Metric (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Revenue | $10,164 | $7,162 | $19,506 | $12,948 | | Gross Margin | $7,958 | $5,240 | $15,342 | $9,442 | | Operating Income | $1,877 | $1,992 | $2,863 | $942 | | Net Income (Loss) | $1,055 | $6,561 | $(4,621) | $2,033 | | Basic EPS | $0.12 | $2.08 | $(0.54) | $0.65 | | Diluted EPS | $0.01 | $1.77 | $(0.54) | $0.55 | Condensed Consolidated Statements of Stockholders' Deficit Statements of Stockholders' Deficit Summary (in thousands) | Metric (in thousands) | Balances as of Dec 31, 2024 | Six Months Ended June 30, 2025 | Balances as of June 30, 2025 | | :-------------------- | :-------------------------- | :----------------------------- | :--------------------------- | | Common Stock Par Value | $9 | $0 | $9 | | Additional Paid-in Capital | $238,685 | $2,563 | $241,248 | | Accumulated Deficit | $(251,421) | $(4,621) | $(256,042) | | Total Stockholders' Deficit | $(12,717) | $(2,058) | $(14,775) | Condensed Consolidated Statements of Cash Flows Statements of Cash Flows Summary (in thousands) | Metric (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :----------------------------- | :----------------------------- | | Net Cash Flows (Used in) Provided by Operating Activities | $(524) | $432 | | Net Cash Flows Used in Investing Activities | $(1,321) | $(206) | | Net Cash Flows Provided by Financing Activities | $104 | $316 | | Net Change in Cash During Period | $(1,741) | $663 | | Cash at End of Period | $8,496 | $2,460 | - Cash used in operating activities for the six months ended June 30, 2025, totaled $0.5 million, primarily due to a net loss of $4.6 million and a $4.1 million decrease in net operating assets, partially offset by non-cash charges for derivative liabilities ($3.9 million), stock-based compensation ($2.1 million), and debt amortization ($1.1 million)148 - Cash used in investing activities for the six months ended June 30, 2025, totaled $1.3 million, primarily for purchases of property and equipment, including $0.9 million for leasehold improvements at the new headquarters150 Notes to Unaudited Condensed Consolidated Financial Statements - SANUWAVE Health, Inc. commercializes patented regenerative medicine utilizing noninvasive ultrasound or shockwaves to promote tissue repair and regeneration29 - Substantial doubt exists regarding the company's ability to continue as a going concern due to an accumulated deficit, negative working capital, and the Senior Secured Note maturing in September 2025. Management is actively engaged in discussions to refinance this debt35 37 - Revenue is recognized from system sales, consumables, parts (point-in-time), licensing fees (varying with agreement terms), and other services like warranties and repairs43 44 45 - The company is evaluating ASU 2024-03 (Expense Disaggregation Disclosures) and adopted ASU 2023-09 (Improvements to Income Tax Disclosures) in Q1 2025 with no material impact53 55 - The Merger Agreement with SEP Acquisition Corp. was terminated on June 25, 202457 Allowance for Credit Losses (in thousands) | (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------ | :----------------------------- | :----------------------------- | | Allowance for credit losses, Dec 31 | $1,147 | $1,237 | | Provision for credit losses | $136 | $113 | | Write-offs | $(5) | $(156) | | Allowance for credit losses, June 30 | $1,278 | $1,194 | Inventory Details (in thousands) | (in thousands) | June 30, 2025 | December 31, 2024 | | :-------------- | :------------ | :---------------- | | Finished goods | $3,202 | $386 | | Parts and accessories | $2,709 | $3,763 | | Total Inventory | $5,911 | $4,149 | - A new operating lease for the company's headquarters commenced on March 28, 2025, for 5.5 years, with an initial right-of-use asset and lease liability of $0.4 million. Lease incentives totaling $586 thousand were received61 64 Operating Lease Liabilities (in thousands) | (in thousands) | Operating Leases (Present Value) | | :------------- | :------------------------------- | | Total Lease Payments | $1,433 | | Imputed interest | $(377) | | Present value of lease liabilities | $1,056 | - The principal amount of senior secured debt increased to $27.3 million at June 30, 2025, from $26.9 million at December 31, 2024. The Senior Secured Note matures on September 20, 2025, and the company was in compliance with all covenants as of June 30, 202568 71 77 Debt Amortization and Interest Expense (in millions) | (in millions) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :------------------------------------------ | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Amortization of debt issuance costs and debt discount | $0.6 | $2.1 | $1.1 | $4.0 | | Interest expense | $1.9 | $1.4 | $3.7 | $3.1 | - Total accrued expenses decreased to $3.3 million at June 30, 2025, from $4.7 million at December 31, 2024, primarily due to a decrease in employee compensation accruals80 - The warrant liability increased to $12.0 million at June 30, 2025, from $8.1 million at December 31, 2024, with fair value determined using the Black-Scholes valuation model81 Warrant Liability Fair Value (in thousands, except per share data) | (in thousands, except per share data) | Balance at Dec 31, 2024 | Change in fair value | Balance at June 30, 2025 | | :------------------------------------ | :---------------------- | :------------------- | :----------------------- | | Warrant Liability Fair Value | $8,107 | $3,911 | $12,018 | | Warrants Outstanding | 390 | - | 390 | | Fair Value per Share | $20.79 | - | $30.82 | - All remaining outstanding convertible notes payable and related party notes converted to 591,802 shares of common stock on October 18, 2024, totaling $8.9 million in principal and interest87 Revenue by Type (in thousands) | Revenue Type (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Consumables and parts revenue | $6,692 | $4,951 | $12,780 | $9,258 | | System revenue | $3,445 | $2,112 | $6,643 | $3,484 | | License fees and other | $10 | $15 | $15 | $20 | | Product Revenue | $10,147 | $7,078 | $19,438 | $12,762 | | Rental Income | $17 | $84 | $68 | $186 | | Total Revenue | $10,164 | $7,162 | $19,506 | $12,948 | - The 2024 Equity Incentive Plan authorized 1,376,556 shares. During the six months ended June 30, 2025, 65,500 performance- and market-based option awards were granted, with 5,500 shares forfeited. Total unrecognized compensation cost was $9.9 million, expected to be recognized over a weighted average period of 2.48 years93 95 97 102 Stock Compensation Expense (in thousands) | Stock Compensation Expense (in thousands) | 3 Months Ended June 30, 2025 | 6 Months Ended June 30, 2025 | | :---------------------------------------- | :----------------------------- | :----------------------------- | | Cost of revenues | $9 | $18 | | General and administrative | $905 | $1,706 | | Selling and marketing | $208 | $366 | | Research and development | $10 | $26 | | Total expense | $1,132 | $2,116 | Stock Options Activity (in thousands, except price) | Stock Options Activity (in thousands, except price) | Number of Options | Weighted Average Exercise Price | | :-------------------------------------------------- | :---------------- | :------------------------------ | | Outstanding, December 31, 2024 | 1,137 | $15.97 | | Granted | 342 | $28.75 | | Exercised | (17) | $14.89 | | Forfeited | (153) | $19.45 | | Outstanding, June 30, 2025 | 1,309 | $17.53 | EPS Metrics (in thousands, except per share data) | EPS Metric (in thousands, except per share data) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :----------------------------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Basic Net Income (Loss) | $1,055 | $6,561 | $(4,621) | $2,033 | | Diluted Net Income (Loss) | $65 | $6,561 | $(4,621) | $2,033 | | Basic EPS | $0.12 | $2.08 | $(0.54) | $0.65 | | Diluted EPS | $0.01 | $1.77 | $(0.54) | $0.55 | - The company purchases most product component materials from single suppliers, posing a risk of disruption if a supplier is lost110 Major Vendor Purchases Percentage | Major Vendor Purchases | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :--------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Vendor A | 19% | 32% | 22% | 20% | | Vendor B | 10% | -% | 11% | -% | - In March 2024, the company received a one-time payment of $2.5 million for an exclusive license and option agreement related to a portfolio of patents in intravascular shockwave applications111 - No pending legal proceedings are believed to have a material adverse effect on the company's business, consolidated financial position, results of operations, or cash flows115 - The company operates in one reportable segment engaged in the design and sale of medical devices, with revenue primarily generated in the United States116 153 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Revenue grew significantly, but net income declined due to the absence of prior non-recurring gains, despite improved operating income Revenue Performance (in millions) | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | Change ($) | Change (%) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change ($) | Change (%) | | :----- | :----------------------------- | :----------------------------- | :--------- | :--------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | Revenue | $10.2 million | $7.2 million | $3.0 million | 42% | $19.5 million | $12.9 million | $6.6 million | 51% | Net Income (Loss) Performance (in millions) | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | Change ($) | Change (%) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change ($) | Change (%) | | :----- | :----------------------------- | :----------------------------- | :--------- | :--------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | Net Income (Loss) | $1.1 million | $6.6 million | $(5.5) million | -84% | $(4.6) million | $2.0 million | $(6.7) million | -327% | - Operating income for the three months ended June 30, 2025, was $1.9 million (flat YoY), and for the six months, it was $2.9 million (up $1.9 million YoY), driven by increased revenue and gross margin123 124 Net Income, EBITDA, and Adjusted EBITDA (in thousands) | Metric (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Net Income (Loss) | $1,055 | $6,561 | $(4,621) | $2,033 | | EBITDA | $3,228 | $10,606 | $(322) | $9,856 | | Adjusted EBITDA | $3,370 | $1,457 | $5,705 | $1,398 | - Increase in net sales primarily driven by a 29% increase in UltraMIST disposables sold (3 months) and 31% (6 months), and a 61% increase in UltraMIST systems sold (3 months) and 86% (6 months), along with improved pricing131 - Gross profit as a percentage of revenues increased to 78% (3 months) and 79% (6 months) in 2025, up from 73% in 2024, due to improved pricing initiatives on UltraMIST systems and applicators132 133 - General and administrative expenses increased by 120% ($2.2 million) for the three months and 54% ($3.0 million) for the six months, primarily due to increased headcount expenses and non-cash stock-based compensation133 134 - Selling and marketing expenses increased by 62% ($0.6 million) for the three months and 41% ($0.9 million) for the six months, mainly due to increased headcount expenses (including commissions) and non-cash stock-based compensation135 136 - Other (expense) income, net, decreased by $5.4 million (3 months) and $8.6 million (6 months) to a net expense, primarily due to the absence of a gain on extinguishment of debt and a decrease from the change in fair value of derivative liabilities, partially offset by decreased interest expense139 140 - The company has an accumulated deficit of $256.0 million and negative working capital, with the Senior Secured Note due in September 2025, raising substantial doubt about its going concern ability. Management is actively engaged in debt refinancing discussions141 142 145 Cash Flow Summary (in thousands) | Cash Flow Activity (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Operating Activities | $(524) | $432 | | Investing Activities | $(1,321) | $(206) | | Financing Activities | $104 | $316 | - Inflation affects expenses such as employee compensation, office space leasing costs, and research and development charges, which may not be readily recoverable, potentially impacting the company's consolidated financial condition and results of operations154 Item 3. Quantitative and Qualitative Disclosures About Market Risk As a "smaller reporting company," the registrant is exempt from providing market risk disclosures Item 4. Controls and Procedures Disclosure controls and internal control over financial reporting were ineffective due to material weaknesses in accounting and IT processes - Disclosure controls and procedures were not operating effectively as of June 30, 2025157 - Material weaknesses identified include a lack of internal controls over key accounting and IT processes (e.g., Equity, Financial Reporting, Accounts Payable, Revenue, Cash, Debt, IT General Controls) and insufficient expertise to properly apply U.S. GAAP to complex and non-routine transactions158 159 - The remediation plan includes implementing and enhancing internal controls, contracting for external valuation, hiring a Director of Internal Audit, deploying Governance, Risk, and Compliance software, hiring additional personnel, segregating duties, and collaborating with an external vendor to enhance IT general controls160 161 163 PART II – OTHER INFORMATION Item 1. Legal Proceedings No pending legal proceedings are expected to have a material adverse effect on the company's business - For information regarding legal proceedings, refer to Note 17 to the condensed consolidated financial statements. The company does not believe there are any pending legal proceedings that will have a material adverse effect on its business115 167 Item 1A. Risk Factors Updated risk factors highlight a new limitation on net operating loss carryforwards due to ownership shifts - An IRC Section 382 analysis showed that $44.2 million of the company's net operating loss (NOL) tax attributes would expire before becoming available under the limitation as a result of shifts in ownership169 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or use of proceeds were reported during the period Item 3. Defaults Upon Senior Securities This item is not applicable to the company for the reporting period Item 4. Mine Safety Disclosures This item is not applicable to the company for the reporting period Item 5. Other Information No directors or officers adopted or terminated Rule 10b5-1 trading arrangements during the quarter - None of the company's directors or officers adopted or terminated any contract, instruction, or written plan for the purchase or sale of securities intended to satisfy the affirmative defense conditions of Rule 10b5-1 trading arrangements of the Exchange Act during the three months ended June 30, 2025173 Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, covering merger agreements and corporate governance documents - Key exhibits include the Agreement and Plan of Merger and its amendments, Articles of Incorporation and amendments, Amended and Restated Bylaws, Certificates of Designation for various Preferred Stock series, and Rule 13a-14(a)/15d-14(a) and Section 1350 Certifications174 175 SIGNATURES