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Share Name | Share Symbol | Market | Type |
---|---|---|---|
SANUWAVE Health Inc (QB) | USOTC:SNWV | OTCMarkets | Common Stock |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 0.022 | 0.0202 | 0.0225 | 0.023 | 0.0219 | 0.023 | 736,000 | 21:00:00 |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
|
|
|
(State or other jurisdiction of incorporation or organization)
|
(I.R.S. Employer Identification No.)
|
|
|
|
(Address of principal executive offices)
|
(Zip Code)
|
Title of each class
|
Trading Symbol(s)
|
Name of each exchange on which
registered
|
None
|
N/A
|
N/A |
Large accelerated filer ☐
|
Accelerated filer ☐
|
|
|
Smaller reporting company
|
|
Emerging growth company
|
|
Page
|
|
PART I – FINANCIAL INFORMATION
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Item 1.
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4 |
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4 |
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5 |
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6 |
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8 |
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9 |
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Item 2.
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18 |
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Item 3.
|
23 |
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Item 4.
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23 |
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PART II – OTHER INFORMATION
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Item 1.
|
24 |
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Item 1A.
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24 |
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Item 2.
|
25 |
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Item 3.
|
26 |
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Item 4.
|
26 |
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Item 5.
|
26 |
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Item 6.
|
26 |
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28 |
September 30, 2023
|
December 31, 2022
|
|||||||
ASSETS
|
||||||||
Current Assets:
|
||||||||
Cash
|
$
|
|
$
|
|
||||
Accounts receivable, net of allowance of $
|
|
|
||||||
Inventory
|
|
|
||||||
Prepaid expenses and other current assets
|
|
|
||||||
Total Current Assets
|
|
|
||||||
Property, equipment and other, net
|
|
|
||||||
Intangible assets, net
|
|
|
||||||
Goodwill
|
|
|
||||||
Total Non-current Assets | ||||||||
Total Assets
|
$
|
|
$
|
|
||||
LIABILITIES
|
||||||||
Current Liabilities:
|
||||||||
Senior secured debt, in default
|
$
|
|
$
|
|
||||
Convertible promissory notes payable
|
||||||||
Convertible promissory notes payable, related parties
|
||||||||
Asset-backed secured promissory notes
|
||||||||
Asset-backed secured promissory notes, related parties
|
||||||||
Accounts payable
|
|
|
||||||
Accrued expenses
|
|
|
||||||
Factoring liabilities
|
||||||||
Warrant liability
|
|
|
||||||
Accrued interest
|
|
|
||||||
Accrued interest, related parties
|
|
|
||||||
Current portion of contract liabilities
|
|
|
||||||
Other
|
|
|
||||||
Total Current Liabilities
|
|
|
||||||
Non-current Liabilities
|
||||||||
Lease liabilities
|
|
|
||||||
Contract liabilities
|
|
|
||||||
Deferred tax liability
|
|
|
||||||
Total Non-currrent Liabilities
|
|
|
||||||
Total Liabilities
|
$
|
|
$
|
|
||||
Commitments and Contingencies (Footnote 13)
|
||||||||
STOCKHOLDERS’ DEFICIT
|
||||||||
Preferred Stock, par value $
|
$
|
|
$
|
|
||||
Common stock, par value $
|
|
|
||||||
Additional paid-in capital
|
|
|
||||||
Accumulated deficit
|
(
|
)
|
(
|
)
|
||||
Accumulated other comprehensive loss
|
(
|
)
|
(
|
)
|
||||
Total Stockholders’ Deficit
|
(
|
)
|
(
|
)
|
||||
Total Liabilities and Stockholders’ Deficit
|
$
|
|
$
|
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
|||||||||||||||
2023
|
2022
|
2023
|
2022
|
|||||||||||||
Revenue
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
Cost of Revenues
|
|
|
|
|
||||||||||||
Gross Margin
|
|
|
|
|
||||||||||||
Operating Expenses:
|
||||||||||||||||
General and administrative
|
||||||||||||||||
Selling and marketing
|
||||||||||||||||
Research and development
|
|
|
|
|
||||||||||||
Depreciation and amortization
|
||||||||||||||||
Total Operating Expenses
|
|
|
|
|
||||||||||||
Operating Loss
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||
Other (Expense)/Income:
|
||||||||||||||||
Interest expense
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||
Interest expense, related party
|
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Change in fair value of derivative liabilities
|
(
|
)
|
|
(
|
)
|
|
||||||||||
Loss on issuance of debt
|
|
|
|
(
|
)
|
|||||||||||
Loss on extinguishment of debt
|
( |
) | ( |
) | ||||||||||||
Other (expense) income
|
( |
) | ( |
) | ||||||||||||
Total Other (Expense)/Income
|
(
|
)
|
|
(
|
)
|
|
||||||||||
Net Loss before Income Taxes
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||
Provision for Income Taxes
|
|
|
|
|
||||||||||||
Net Loss
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||
|
||||||||||||||||
Other Comprehensive Loss |
||||||||||||||||
Foreign currency translation adjustments
|
|
|
(
|
)
|
|
|||||||||||
Total Comprehensive Loss
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
||||
Loss per Share:
|
||||||||||||||||
Basic and diluted
|
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
Weighted average shares outstanding |
||||||||||||||||
Basic and diluted
|
Three Months Ended September 30, 2023
|
||||||||||||||||||||||||
Common Stock
|
||||||||||||||||||||||||
Number of
|
Accumulated
|
|||||||||||||||||||||||
Shares
|
Other | |||||||||||||||||||||||
Issued and
|
Additional Paid-
|
Accumulated
|
Comprehensive | |||||||||||||||||||||
Outstanding
|
Par Value
|
in Capital
|
Deficit | Loss | Total |
|||||||||||||||||||
Balances as of June 30, 2023
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
||||||||||
Shares issued for settlement of debt
|
|
|
|
|
||||||||||||||||||||
Net loss
|
-
|
|
|
(
|
)
|
|
(
|
)
|
||||||||||||||||
Foreign currency translation adjustment | - | |||||||||||||||||||||||
Balances as of September 30, 2023
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
Three Months Ended September 30, 2022
|
||||||||||||||||||||||||
Common Stock
|
||||||||||||||||||||||||
Number of
|
Accumulated
|
|||||||||||||||||||||||
Shares | Other | |||||||||||||||||||||||
Issued and
|
Additional Paid-
|
Accumulated
|
Comprehensive | |||||||||||||||||||||
Outstanding |
Par Value
|
in Capital
|
Deficit | Loss | Total | |||||||||||||||||||
Balances as of June 30, 2022
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
||||||||||
Shares issued for settlement of debt and warrants
|
||||||||||||||||||||||||
Net loss
|
-
|
|
|
(
|
)
|
|
(
|
)
|
||||||||||||||||
Balances as of September 30, 2022
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
Nine Months Ended September 30, 2023
|
||||||||||||||||||||||||
|
Common Stock
|
|||||||||||||||||||||||
Number of | Accumulated | |||||||||||||||||||||||
Shares | Other | |||||||||||||||||||||||
Issued and | Additional Paid- | Accumulated |
Comprehensive
|
|||||||||||||||||||||
Outstanding |
Par Value |
in Capital | Deficit | Loss | Total |
|||||||||||||||||||
|
||||||||||||||||||||||||
Balances as of December 31, 2022
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
||||||||||
Shares issued for services
|
|
|
|
|
|
|
||||||||||||||||||
Shares issued for settlement of debt
|
||||||||||||||||||||||||
Net loss
|
-
|
( |
) | ( |
) | |||||||||||||||||||
Foreign currency translation adjustment
|
-
|
|
|
|
(
|
)
|
(
|
)
|
||||||||||||||||
|
||||||||||||||||||||||||
Balances as of September 30, 2023
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
Nine Months Ended September 30, 2022
|
||||||||||||||||||||||||
|
Common Stock
|
|||||||||||||||||||||||
Number of | Accumulated | |||||||||||||||||||||||
Shares | Other | |||||||||||||||||||||||
Issued and | Additional Paid- | Accumulated | Comprehensive | |||||||||||||||||||||
Outstanding | Par Value | in Capital | Deficit | Loss | Total | |||||||||||||||||||
|
||||||||||||||||||||||||
Balances as of December 31, 2021
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
||||||||||
Cashless warrant exercise
|
|
|
|
|
|
|
||||||||||||||||||
Warrant exercise
|
||||||||||||||||||||||||
Shares issued in conjunction with Note Payable
|
||||||||||||||||||||||||
Shares issued for settlement of debt and warrants
|
||||||||||||||||||||||||
Shsares issued for services
|
||||||||||||||||||||||||
Net loss
|
-
|
|
|
(
|
)
|
|
(
|
)
|
||||||||||||||||
Foreign currency translation adjustment
|
-
|
|
|
|
|
|
||||||||||||||||||
|
||||||||||||||||||||||||
Balances as of September 30, 2022
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
Nine Months Ended September 30,
|
||||||||
2023
|
2022
|
|||||||
Cash Flows - Operating Activities:
|
||||||||
Net loss
|
$
|
(
|
)
|
$
|
(
|
)
|
||
Adjustments to reconcile net loss to net cash used by operating activities
|
||||||||
Depreciation and amortization
|
|
|
||||||
Bad debt expense
|
|
|
||||||
Shares issued for services
|
||||||||
Change in fair value of derivative liabilities
|
(
|
)
|
||||||
Loss on extinguishment of debt
|
||||||||
Loss on issuance of debt
|
||||||||
Amortization of debt issuance costs and original issue discount
|
|
|
||||||
Accrued interest
|
|
|
||||||
Gain on sale of property and equipment, net
|
||||||||
Changes in operating assets and liabilities
|
||||||||
Accounts receivable - trade
|
|
|
||||||
Inventory
|
(
|
)
|
|
|||||
Prepaid expenses and other assets
|
(
|
)
|
(
|
)
|
||||
Accounts payable
|
|
(
|
)
|
|||||
Accrued expenses
|
(
|
)
|
(
|
)
|
||||
Contract liabilities
|
|
(
|
)
|
|||||
Net Cash Used in Operating Activities
|
(
|
)
|
(
|
)
|
||||
Cash Flows - Investing Activities
|
||||||||
Proceeds from sale of property and equipment
|
|
|
||||||
Purchase of property and equipment
|
( |
) | ||||||
Net Cash Flows (Used in)/Provided by Investing Activities
|
(
|
)
|
|
|||||
Cash Flows - Financing Activities
|
||||||||
Proceeds from senior promissory notes
|
||||||||
Proceeds from convertible promissory notes payable
|
||||||||
Proceeds from bridge notes payable
|
||||||||
Payments
to factoring agent, net
|
( |
) | ( |
) | ||||
Proceeds from warrant exercises
|
|
|
||||||
Payments of principal on finance leases
|
(
|
)
|
(
|
)
|
||||
Payments of principal on convertible promissory notes and SBA loans
|
( |
) | ||||||
Net Cash Flows Provided by Financing Activities
|
|
|
||||||
Effect of Exchange Rates on Cash
|
(
|
)
|
(
|
)
|
||||
Net Change in Cash During Period |
(
|
)
|
|
|||||
Cash at Beginning of Period
|
|
|
||||||
Cash at End of Period
|
$
|
|
$
|
|
||||
Supplemental Information:
|
||||||||
Cash paid for interest
|
$
|
|
$
|
|
||||
Non-cash Investing and Financing Activities:
|
||||||||
Warrants issued in conjunction with senior secured promissory note payable and convertible promissory notes payable
|
$ | $ | ||||||
Conversion of convertible notes payable to common stock
|
||||||||
Common shares issued for advisory shares
|
||||||||
Embedded conversion feature on convertible promissory notes payable and bridge notes payable
|
( |
) | ||||||
Reclassification of warrant liability due to cashless warrant exercise
|
||||||||
Working capital balances refinanced into convertible notes payable
|
||||||||
Settlement of debt and warrants with stock
|
||||||||
Common shares issued in conjunction with senior secured promissory note payable
|
1.
|
Nature of the Business and Basis of Presentation
|
2. |
Going Concern
|
3. |
Summary of Significant Accounting Policies
|
4. |
Merger Agreement
|
• |
Merger Sub will merge with and into
the Company, with the Company being the surviving company following the merger.
|
• |
Each issued and outstanding share of
the Company’s common stock, will automatically be converted into Class A common stock of SEPA, par value $
|
• |
Outstanding convertible securities
of the Company will be assumed by SEPA and will be converted into the right to receive Class A Common Stock of SEPA.
|
5. |
Loss per Share
|
Three Months Ended
|
Nine Months Ended | |||||||||||||||
(in Thousands) |
September 30, 2023
|
September 30, 2022
|
September 30, 2023 |
September 30, 2022
|
||||||||||||
Weighted average shares outstanding
|
||||||||||||||||
Common shares
|
|
|
||||||||||||||
Common shares issuable assuming exercise of nominally priced warrants
|
|
|
||||||||||||||
Weighted average shares outstanding
|
|
|
Nine Months Ended | ||||||||
(in Thousands) |
September 30, 2023
|
September 30, 2022
|
||||||
Common stock options
|
|
|
||||||
Common stock purchase warrants
|
|
|
||||||
Convertible notes payable
|
|
|
||||||
|
|
6. |
Accrued Expenses
|
(in Thousands)
|
September 30, 2023
|
December 31, 2022
|
||||||
Registration penalties
|
$
|
|
$
|
|
||||
License fees
|
|
|
||||||
Director and professional fees |
|
|
||||||
Employee compensation |
||||||||
Other
|
|
|
||||||
|
$
|
|
$
|
|
7. |
Senior Secured Debt, In Default
|
September 30,
2023
|
December 31, 2022
|
|||||||||||||||||||||||||||||||
(in thousands)
|
Principal
|
Debt Discount
|
Carrying Value
|
Accrued Interest
|
Principal
|
Debt Discount
|
Carrying Value
|
Accrued Interest
|
||||||||||||||||||||||||
Senior secured debt
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
|
8. |
Convertible Promissory Notes Payable
|
|
As of September 30, 2023
|
|||||||||||||||||||
(In thousands, except conversion price)
|
Conversion
Price
|
Principal
|
Remaining
Debt Discount
|
Remaining
Embedded
Conversion
Option
|
Carrying Value
|
|||||||||||||||
Acquisition convertible promissory note, in default
|
$
|
|
|
|
|
|
||||||||||||||
Convertible promissory notes payable, related parties, in default
|
$
|
|
|
|
|
|
||||||||||||||
2022 convertible notes payable
|
$
|
|
|
(
|
)
|
|
|
|||||||||||||
2022 convertible notes payable, related parties
|
$
|
|
|
(
|
)
|
|
|
|||||||||||||
Total Convertible Promissory Notes Payable
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
|
|
As of December 31, 2022
|
|||||||||||||||||||
(In thousands, except conversion price)
|
Conversion
Price
|
Principal
|
Remaining
Debt Discount
|
Remaining
Embedded
Conversion
Option
|
Carrying
Value
|
|||||||||||||||
Acquisition convertible promissory note, in default
|
$
|
|
|
|
|
|
||||||||||||||
Convertible promissory note, related party, in default
|
$
|
|
|
|
|
|
||||||||||||||
2022 convertible notes payable
|
$
|
|
|
(
|
)
|
|
|
|||||||||||||
2022 convertible notes payable, related parties
|
$
|
|
|
(
|
)
|
|
|
|||||||||||||
Total Convertible Promissory Notes Payable
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
|
9. |
Asset-Backed Secured Promissory Notes
|
September 30, 2023
|
||||||||||||||||
(In thousands)
|
Principal
|
Debt Discount
|
Embedded Derivative
|
Carrying
Value
|
||||||||||||
ABS promissory notes
|
|
|
|
(
|
)
|
|
|
|
|
|||||||
ABS promissory notes, related parties
|
|
(
|
)
|
|
|
|||||||||||
Total ABS Promissory Notes
|
|
|
|
(
|
)
|
|
|
|
|
10. |
Fair Value Measurements
|
Fair value measured at September 30,
2023
|
||||||||||||||||
Fair value at
|
Quoted prices in
active markets
|
Significant other
observable inputs
|
Significant
unobservable inputs
|
|||||||||||||
(in thousands) |
September 30, 2023
|
(Level 1)
|
(Level 2)
|
(Level 3)
|
||||||||||||
Warrant liability
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
Embedded conversion derivatives
|
|
|
|
|
||||||||||||
Total fair value
|
$ |
|
$ |
|
$ |
|
$ |
|
Fair value measured at December 31, 2022
|
||||||||||||||||
Fair value at |
Quoted prices in
active markets
|
Significant other
observable inputs
|
Significant
unobservable inputs
|
|||||||||||||
(in thousands) |
December 31, 2022
|
(Level 1)
|
(Level 2)
|
(Level 3)
|
||||||||||||
Warrant liability
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
Embedded conversion derivatives
|
|
|
|
|
||||||||||||
Total fair value
|
$
|
|
$
|
|
$
|
|
$
|
|
Initial Valuation |
December 31,
|
|||||||
May 2023 |
2022
|
|||||||
Weighted average remaining life in years
|
|
|||||||
Weighted average volatility
|
% |
|
%
|
|||||
Value of underlying shares
|
$ |
$
|
|
|||||
Weighted average risk free interest rate
|
% |
|
%
|
|||||
Expected dividend yield
|
% |
|
%
|
Warrants
|
Fair Value
|
Fair Value
|
||||||||||
(in thousands, except per share data)
|
Outstanding
|
per Share
|
(in thousands)
|
|||||||||
Balance at December 31, 2022
|
|
$
|
|
$
|
|
|||||||
Issuance |
||||||||||||
Loss on remeasurement of warrant liability
|
|
|
||||||||||
Balance at September 30, 2023
|
|
$
|
|
$
|
|
Initial Valuation |
|
|||||||
May 2023 |
December 31, 2022 |
|||||||
Conversion Price(1)
|
$ |
$
|
|
|||||
Value of underlying shares
|
$ |
$
|
|
|||||
Interest Rate (annual) (2)
|
% |
|
%
|
|||||
Volatility (annual) (3)
|
% |
|
%
|
|||||
Time to Maturity (Years)
|
|
(1) |
|
(2) |
|
(3) |
|
(in thousands)
|
Conversion
Liability
|
|||
Balance December 31, 2022
|
$
|
|
||
Initial value of new issuance
|
( |
) | ||
Change in fair value
|
|
|||
Balance September 30, 2023
|
$
|
|
11. |
Revenue
|
Three Months Ended September 30, 2023
|
Three Months Ended September 30, 2022
|
|||||||||||||||||||||||
United States
|
International
|
Total
|
United States
|
International
|
Total
|
|||||||||||||||||||
Consumables and parts revenue
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||
System revenue
|
|
|
|
|
|
|
||||||||||||||||||
License fees and other
|
|
|
|
|
|
|
||||||||||||||||||
Product Revenue
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||
Rental Income
|
|
|
|
|
|
|
||||||||||||||||||
Total Revenue
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
Nine Months Ended September 30, 2023
|
Nine Months Ended September 30, 2022
|
|||||||||||||||||||||||
United States
|
International
|
Total
|
United States
|
International
|
Total
|
|||||||||||||||||||
Consumables and parts revenue
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||
System revenue
|
|
|
|
|
|
|
||||||||||||||||||
License fees and other
|
|
|
|
|
|
|
||||||||||||||||||
Product Revenue
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||
Rental Income
|
|
|
|
|
|
|
||||||||||||||||||
Total Revenue
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
12. |
Concentration of Credit Risk and Limited Suppliers
|
Accounts receivable:
|
September 30, 2023
|
December 31, 2022
|
||||||
Customer A
|
|
%
|
|
Three Months Ended
|
Nine Months
Ended
|
|||||||||||||||
September 30, 2023
|
September 30, 2022
|
September 30, 2023
|
September 30, 2022
|
|||||||||||||
Purchases:
|
||||||||||||||||
Vendor A
|
|
%
|
|
%
|
|
%
|
|
%
|
||||||||
Vendor B
|
|
%
|
n/a
|
|
%
|
n/a
|
||||||||||
Vendor C
|
% | n/a | % | n/a |
13. |
Commitments and Contingencies
|
• |
Merger Sub will merge with and into the Company, with the Company being the surviving company following the merger.
|
• |
Each issued and outstanding share of the Company common stock will automatically be converted into Class A common stock of SEPA, par value $0.0001 per share, at the Conversion Ratio (as defined in the
Merger Agreement); and
|
• |
Outstanding Company convertible securities of the Company will be assumed by SEPA and will be converted into the right to receive Class A Common Stock of SEPA.
|
• |
holders of 80% or more of the Company’s convertible notes with a maturity date occurring after the date of the Closing (the “Closing Date”), measured by number of shares of our common stock into
which such convertible notes may be converted, agreeing to convert their convertible notes into shares of common stock immediately prior to the Effective Time.
|
• |
holders of 80% or more of the Company’s warrants that would be outstanding on the Closing Date, measured by number of shares of our common stock subject to all such warrants in the aggregate, agreeing to
convert their warrants into shares of common stock immediately prior to the Effective Time.
|
• |
SEPA having, at the Closing, at least $12,000,000 in cash and cash equivalents, including funds remaining in the trust account (after giving effect to the completion and payment of any redemptions) and
the proceeds of any private placement in SEPA.
|
•
|
Do not reflect every expenditure, future requirements for capital expenditures or contractual commitments.
|
•
|
Do not reflect all changes in our working capital needs.
|
•
|
Do not reflect interest expense, or the amount necessary to service our outstanding debt.
|
|
Three months ended September 30,
|
Nine months ended September 30,
|
||||||||||||||
(in thousands)
|
2023
|
2022
|
2023
|
2022
|
||||||||||||
|
||||||||||||||||
Net (Loss)/Income
|
$
|
(23,700
|
)
|
$
|
(1,139
|
)
|
$
|
(44,042
|
)
|
$
|
(4,596
|
)
|
||||
Non-GAAP Adjustments:
|
||||||||||||||||
Interest expense
|
3,845
|
3,821
|
12,504
|
9,972
|
||||||||||||
Depreciation and amortization
|
266
|
235
|
780
|
681
|
||||||||||||
EBITDA
|
(19,589
|
)
|
2,917
|
(30,758
|
)
|
6,057
|
||||||||||
Non-GAAP Adjustments for Adjusted EBITDA:
|
||||||||||||||||
Change in fair value of derivative liabilities
|
19,325
|
(5,252
|
)
|
29,943
|
(16,597
|
)
|
||||||||||
Other non-cash or one-time charges:
|
||||||||||||||||
Release of historical accrued employee compensation expenses
|
-
|
-
|
(1,250
|
)
|
-
|
|||||||||||
Shares for Services
|
-
|
-
|
224
|
888
|
||||||||||||
Loss on issuance of debt
|
-
|
-
|
-
|
3,434
|
||||||||||||
Loss on extinguishment of debt
|
-
|
86
|
-
|
297
|
||||||||||||
Adjusted EBITDA
|
$
|
(264
|
)
|
$
|
(2,249
|
)
|
$
|
(1,841
|
)
|
$
|
(5,921
|
)
|
|
For the Three Months Ended
|
For the Nine Months Ended
|
||||||||||||||||||||||||||||||
|
September 30,
|
Change
|
September 30,
|
Change
|
||||||||||||||||||||||||||||
(in Thousands)
|
2023
|
2022
|
$ |
%
|
2023
|
2022
|
$ |
|
%
|
|||||||||||||||||||||||
Revenues:
|
||||||||||||||||||||||||||||||||
Total Revenue
|
$
|
4,953
|
$
|
4,166
|
$
|
787
|
19
|
%
|
$
|
13,404
|
$
|
11,242
|
$
|
2,162
|
19
|
%
|
||||||||||||||||
Cost of Revenues
|
1,412
|
1,157
|
255
|
22
|
%
|
3,876
|
3,141
|
735
|
23
|
%
|
||||||||||||||||||||||
Gross Margin
|
3,541
|
3,009
|
532
|
18
|
%
|
9,528
|
8,101
|
1,427
|
18
|
%
|
||||||||||||||||||||||
Gross Margin Percentage
|
71
|
%
|
72
|
%
|
-1
|
%
|
71
|
%
|
72
|
%
|
-1
|
%
|
||||||||||||||||||||
Operating Expenses:
|
||||||||||||||||||||||||||||||||
General and administrative
|
2,681
|
3,498
|
(817
|
)
|
-23
|
%
|
6,678
|
9,484
|
(2,806
|
)
|
-30
|
%
|
||||||||||||||||||||
Selling and marketing
|
1,039
|
1,650
|
(611
|
)
|
-37
|
%
|
3,430
|
5,037
|
(1,607
|
)
|
-32
|
%
|
||||||||||||||||||||
Research and development
|
165
|
157
|
8
|
5
|
%
|
436
|
494
|
(58
|
)
|
-12
|
%
|
|||||||||||||||||||||
Depreciation and amortization
|
187
|
189
|
(2
|
)
|
-1
|
%
|
563
|
575
|
(12
|
)
|
-2
|
%
|
||||||||||||||||||||
Operating Loss
|
(531
|
)
|
(2,485
|
)
|
1,954
|
-79
|
%
|
(1,579
|
)
|
(7,489
|
)
|
5,910
|
-79
|
%
|
||||||||||||||||||
Other Income (Expense), net
|
(23,169
|
)
|
1,346
|
(24,515
|
)
|
nm
|
(42,463
|
)
|
2,893
|
(45,356
|
)
|
nm
|
||||||||||||||||||||
Net Loss
|
$ |
(23,700
|
) |
$
|
(1,139
|
)
|
(22,561
|
)
|
nm
|
$ |
(44,042
|
) |
$
|
(4,596
|
)
|
(39,446
|
)
|
nm
|
|
For the three months
ended September 30,
|
Change
|
For the nine months
ended September 30,
|
Change
|
||||||||||||||||||||||||||||
|
2023
|
2022
|
$ |
|
%
|
2023
|
2022
|
$ |
|
%
|
||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||
Interest expense
|
$
|
(3,845
|
)
|
$
|
(3,821
|
)
|
$
|
(24
|
)
|
1
|
%
|
$
|
(12,504
|
)
|
$
|
(9,972
|
)
|
$
|
(2,532
|
)
|
25
|
%
|
||||||||||
Change in fair value of derivatives
|
(19,325
|
)
|
5,252
|
(24,577
|
)
|
-468
|
%
|
(29,943
|
)
|
16,597
|
(46,540
|
)
|
-280
|
%
|
||||||||||||||||||
Loss on issuance of debt
|
-
|
-
|
-
|
nm
|
-
|
(3,434
|
)
|
3,434
|
nm
|
|||||||||||||||||||||||
Loss on extinguishment of debt
|
-
|
(86
|
)
|
86
|
nm
|
-
|
(297
|
)
|
297
|
nm
|
||||||||||||||||||||||
Other expense
|
1
|
1
|
-
|
nm
|
(16
|
)
|
(1
|
)
|
(15
|
)
|
nm
|
|||||||||||||||||||||
Other (expense)/income, net
|
$
|
(23,169
|
)
|
$
|
1,346
|
$
|
(24,515
|
)
|
-1821
|
%
|
$
|
(42,463
|
)
|
$
|
2,893
|
$
|
(45,356
|
)
|
-1568
|
%
|
For the nine months ended September 30,
|
||||||||
(in Thousands)
|
2023
|
2022
|
||||||
Cash flows used by operating activities
|
$
|
(3,253
|
)
|
$
|
(13,176
|
)
|
||
Cash flows (used by) provided by investing activities
|
$
|
(156
|
)
|
$
|
1,022
|
|||
Cash flows provided by financing activities
|
$
|
3,356
|
$
|
12,664
|
Item 3. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
Item 4. |
CONTROLS AND PROCEDURES
|
1. |
Expertise and resources to analyze and properly apply U.S. GAAP to complex and non-routine transactions such as complex financial instruments and derivatives and complex sales distributing agreements with
select vendors.
|
2. |
A lack of internal resources to analyze and properly apply U.S. GAAP to accounting for financial instruments included in service agreements with select vendors.
|
3. |
The Company has failed to design and implement controls around all accounting and IT processes and procedures and, as such, we believe that all its accounting and IT processes and procedures need to be
re-designed and tested for operating effectiveness.
|
Item 1. |
LEGAL PROCEEDINGS.
|
Item 1A. |
RISK FACTORS.
|
• |
its employees may experience uncertainty about their future roles, which might adversely affect the Combined Company’s ability to retain and hire key personnel and other employees;
|
• |
customers, suppliers, business partners and other parties with which the Company maintains business relationships may experience uncertainty about its future and seek alternative relationships with third parties, seek to alter their
business relationships with the Company or fail to extend an existing relationship with the Company; and
|
• |
the Company continues to expand and will continue to expend significant costs, fees and expenses for professional services and transaction costs in connection with the proposed Business Combination.
|
Item 2. |
UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES.
|
Item 3. |
DEFAULTS UPON SENIOR SECURITIES.
|
Item 4. |
MINE SAFETY DISCLOSURES.
|
Item 5. |
OTHER INFORMATION.
|
Item 6. |
EXHIBITS
|
Exhibit No.
|
Description
|
Agreement and Plan of Merger, dated as of August 23, 2023, by and among SEP Acquisition Corp., SEP Acquisition Holdings Inc., and SANUWAVE Health, Inc. (Incorporated by reference to Exhibit 2.1 to the Form 8-K filed with the SEC on
August 23, 2023).
|
|
Articles of Incorporation (Incorporated by reference to Exhibit 3.1 to the Form 10-SB filed with the SEC on December 18, 2007).
|
|
Certificate of Amendment to the Articles of Incorporation (Incorporated by reference to Appendix A to the Definitive Schedule 14C filed with the SEC on October 16, 2009).
|
|
Certificate of Amendment to the Articles of Incorporation (Incorporated by reference to Exhibit A to the Definitive Schedule 14C filed with the SEC on April 16, 2012).
|
|
Bylaws (Incorporated by reference to Exhibit 3.02 to the Form 10-SB filed with the SEC on December 18, 2007).
|
|
Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Preferred Stock of the Company dated March 14, 2014 (Incorporated by reference to Exhibit 3.1 to the Form 8-K filed with the SEC on March 18,
2014).
|
|
Certificate of Amendment to the Articles of Incorporation, dated September 8, 2015 (Incorporated by reference to Exhibit 3.6 to the Form 10-K filed with the SEC on March 30, 2016).
|
|
Preferred Stock of the Company dated January 12, 2016 (Incorporated by reference to Exhibit 3.1 to the Form 8-K filed with the SEC on January 19, 2016).
|
|
Preferred Stock of the Company dated January 31, 2020 (Incorporated by reference to Exhibit 3.1 to the Form 8-K filed with the SEC on February 6, 2020).
|
|
Certificate of Designation of Preferences, Rights and Limitations of Series C Convertible Preferred Stock of the Company dated January 31, 2020 (Incorporated by reference to Exhibit 3.1 to the Form 8-K filed with the SEC on February 6,
2020).
|
|
Certificate of Designation of Series D Convertible Preferred Stock (Incorporated by reference to Exhibit 3.1 to the Form 8-K filed with the SEC on May 20, 2020).
|
|
Certificate of Amendment of the Articles of Incorporation (Incorporated by reference to Exhibit 3.1 to the Form 8-K filed with the SEC on January 5, 2021).
|
|
Certificate of Amendment of the Articles of Incorporation, dated January 31, 2023 (Incorporated by reference to Exhibit 3.12 to the Form S-1/A filed with the SEC on January 31, 2023).
|
|
Form of Asset-Backed Secured Promissory Note issued to certain purchasers, dated July 21, 2023 (Incorporated by reference to Exhibit 4.1 to the Form 8-K filed with the SEC on July 26, 2023).
|
|
Security Agreement, dated July 21, 2023, by and among the Company and certain lenders (Incorporated by reference to Exhibit 10.1 to the Form 8-K filed with the SEC on July 26, 2023).
|
Subordination Agreement, dated July 21, 2023, by and among the Company, NH Expansion Credit Fund Holdings LP and certain creditors (Incorporated by reference to Exhibit 10.2 to the Form 8-K filed with the SEC on July 26, 2023).
|
|
Side Letter, dated July 21, 2023, by and among the Company and certain purchasers (Incorporated by reference to Exhibit 10.3 to the Form 8-K filed with the SEC on July 26, 2023).
|
|
Offer Letter, dated July 20, 2023, by and between the Company and Andrew Walko (Incorporated by reference to Exhibit 10.1 to the Form 8-K filed with the SEC on July 31, 2023).
|
|
Non-Compete and Confidentiality Agreement, dated July 31, 2023, by and between the Company and Andrew Walko (Incorporated by reference to Exhibit 10.2 to the Form 8-K filed with the SEC on July 31, 2023).
|
|
Form of Voting Agreement, dated as of August 23, 2023, by and among SEP Acquisition Corp., SANUWAVE Health, Inc., and the stockholder of SANUWAVE Health, Inc. party thereto (Incorporated by reference to Exhibit 10.1 to the Form 8-K
filed with the SEC on August 23, 2023).
|
|
|
Sponsor Voting Agreement, dated as of August 23, 2023, by and among Mercury Sponsor Group I LLC, SEP Acquisition Corp., and SANUWAVE Health, Inc. (Incorporated by reference to Exhibit 10.2 to the Form 8-K filed with the SEC on August
23, 2023).
|
Form of Lock-Up Agreement, dated as of August 23, 2023, by and between SEP Acquisition Corp. and the stockholder of SANUWAVE Health, Inc. party thereto (Incorporated by reference to Exhibit 10.3 to the Form 8-K filed with the SEC on August 23, 2023). | |
Section 1350 Certification of the Principal Executive Officer.
|
|
Section 1350 Certification of the Chief Financial Officer.
|
|
101.INS*
|
XBRL Instance.
|
101.SCH*
|
XBRL Taxonomy Extension Schema.
|
101.CAL*
|
XBRL Taxonomy Extension Calculation.
|
101.DEF*
|
XBRL Taxonomy Extension Definition.
|
101.LAB*
|
XBRL Taxonomy Extension Labels.
|
101.PRE*
|
XBRL Taxonomy Extension Presentation.
|
104
|
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
|
SANUWAVE HEALTH, INC.
|
|||
Dated: November 9, 2023
|
By:
|
/s/ Morgan Frank
|
|
Morgan Frank
|
|||
Chief Executive Officer
(Duly Authorized Officer and Principal Executive Officer)
|
|||
Dated: November 9, 2023
|
By:
|
/s/ Toni Rinow
|
|
Toni Rinow
|
|||
Chief Financial Officer
(Principal Financial and Accounting Officer)
|
1. |
I have reviewed this quarterly report on Form 10-Q of SANUWAVE Health, Inc.;
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by this report;
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this report;
|
4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
|
d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in
the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the
registrant’s board of directors (or persons performing the equivalent functions):
|
a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and
|
b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
Date: November 9, 2023
|
|
/s/ Morgan Frank
|
|
Morgan Frank
|
|
Chief Executive Officer
|
|
(Principal Executive Officer)
|
1. |
I have reviewed this quarterly report on Form 10-Q of SANUWAVE Health, Inc.;
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by this report;
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this report;
|
4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
|
d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in
the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the
registrant’s board of directors (or persons performing the equivalent functions):
|
a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and
|
b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
Date: November 9, 2023
|
|
/s/ Toni Rinow
|
|
Toni Rinow
|
|
Chief Financial Officer
|
|
(Principal Financial Officer and Principal Accounting Officer)
|
1. |
The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
|
2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.
|
Date: November 9, 2023
|
|
/s/ Morgan Frank
|
|
Morgan Frank
|
|
Chief Executive Officer
|
|
(Principal Executive Officer)
|
1. |
The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
|
2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.
|
Date: November 9, 2023
|
|
/s/ Toni Rinow
|
|
Toni Rinow
|
|
Chief Financial Officer
|
|
(Principal Financial Officer and Principal Accounting Officer)
|
Nature of the Business and Basis of Presentation |
9 Months Ended | ||
---|---|---|---|
Sep. 30, 2023 | |||
Nature of the Business and Basis of Presentation [Abstract] | |||
Nature of the Business and Basis of Presentation |
SANUWAVE Health, Inc. and subsidiaries (“SANUWAVE” or the “Company”) is focused on the commercialization of its patented noninvasive and
biological response activating medical systems for the repair and regeneration of skin, musculoskeletal tissue, and vascular structures.
Basis of Presentation – The accompanying unaudited condensed consolidated financial
statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8-03 of
Regulation S-X. Accordingly, these condensed consolidated financial statements do not include all the information and disclosures required by U.S. GAAP for comprehensive financial statements.
The financial information as of September 30, 2023, and for the three and nine months ended September 30, 2023, and 2022 is unaudited; however, in
the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair statement have been included. Operating results for the three and nine months ended September 30, 2023, are not necessarily
indicative of the results that may be expected for any other interim period or for the year ending December 31, 2023.
The condensed consolidated balance sheet on December 31, 2022, has been derived from the audited consolidated financial statements at that date but
does not include all the information and disclosures required by U.S. GAAP for comprehensive financial statements. These financial statements should be read in conjunction with the Company’s December 31, 2022, Annual Report on Form 10-K filed
with the SEC on March 31, 2023 (the “2022 Annual Report”).
Reclassifications - Certain accounts in the prior period condensed consolidated financial statements have been reclassified to conform to the
presentation of the current period condensed consolidated financial statements. These reclassifications had no effect on the previously reported operating results.
|
Going Concern |
9 Months Ended | ||
---|---|---|---|
Sep. 30, 2023 | |||
Going Concern [Abstract] | |||
Going Concern |
The recurring losses from operations, the events of default on the Company’s notes payable, and dependency upon future issuances of equity or other
financing to fund ongoing operations have raised substantial doubt as to our ability to continue as a going concern for a period of at least twelve months from the filing of this Form 10-Q. The Company expects to devote substantial resources for the commercialization of UltraMIST and PACE systems which will require additional capital resources to
remain a going concern.
Management’s plans are to obtain additional capital in 2023, or early 2024, primarily through closing the Merger, as defined in Note 4. For additional information regarding the Merger, please see Note 4. The Company could also obtain additional capital through the conversion of outstanding warrants, issuance of common or
preferred stock, securities convertible into common stock, or secured or unsecured debt. These possibilities, to the extent available, may be on terms that result in significant dilution to the Company’s existing stockholders. In addition, there
can be no assurances that the Company’s plans to obtain additional capital will be successful on the terms or timeline it expects, or at all. If these efforts are unsuccessful, the Company may be required to significantly curtail or discontinue
operations or, if available, obtain funds through financing transactions with unfavorable terms.
The accompanying condensed consolidated financial statements have been prepared in conformity with U.S. GAAP, which contemplate continuation of
the Company as a going concern and the realization of assets and satisfaction of liabilities in the normal course of business. The carrying amounts of assets and liabilities presented in the condensed consolidated financial statements do not
necessarily purport to represent realizable or settlement values. The condensed consolidated financial statements do not include any adjustment that might result from the outcome of this uncertainty. The Company’s condensed consolidated financial
statements do not include any adjustments relating to the recoverability of assets and classification of assets and liabilities that might be necessary should the Company be unable to continue as a going concern.
|
Summary of Significant Accounting Policies |
9 Months Ended | ||
---|---|---|---|
Sep. 30, 2023 | |||
Summary of Significant Accounting Policies [Abstract] | |||
Summary of Significant Accounting Policies |
Significant accounting policies followed by the Company are summarized below and should be read in conjunction with those described in Note 4 of
the consolidated financial statements in our 2022 Annual Report.
Estimates – These condensed consolidated financial statements have been prepared in
accordance with U.S. GAAP. Because a precise determination of assets and liabilities, and correspondingly revenues and expenses, depend on future events, the preparation of condensed consolidated financial statements for any period necessarily
involves the use of estimates and assumptions. Actual amounts may differ from these estimates. These condensed consolidated financial statements have, in management’s opinion, been properly prepared within reasonable limits of materiality and
within the framework of the accounting policies summarized herein.
Significant estimates include the recording of allowances for doubtful accounts, the net realizable value of inventory, useful lives of
long-lived assets, fair value of goodwill and other intangible assets, the determination of the valuation allowances for deferred taxes, estimated fair value of stock-based compensation, and the estimated fair value of financial instruments,
including warrants and embedded conversion options.
Revenue Recognition - The core principle of Accounting Standards Codification (“ASC”) Topic 606 “Revenue from
Contracts with Customers” (“ASC 606”) requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an
amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The Company allocates the transaction price to all contractual performance obligations included in the contract. If a
contract has more than one performance obligation, we allocate the transaction price to each performance obligation based on standalone selling price, which depicts the amount of consideration we expect to be entitled in exchange for
satisfying each performance obligation. The Company recognizes revenue primarily from the following types of contracts:
System Sales, Accessory and Part Sales - System sales, accessory and part sales include devices and applicators (new and refurbished).
Performance obligations are satisfied at the point in time when the customer obtains control of the goods, which is generally at the point in time that the product is shipped.
Licensing Fees - Licensing transactions include distribution licenses and intellectual property licenses. Licensing revenue is recognized as the Company satisfies
its performance obligations, which may vary with the terms of the licensing agreement.
Other Revenue - Other revenue primarily includes warranties, repairs, and billed freight. The Company allocates the device sales price to the
product and the embedded warranty by reference to the stand-alone extended warranty price. Warranty revenue is recognized over the time that the Company satisfies its performance obligations, which is generally the warranty term.
Repairs (parts and labor) and billed freight revenue are recognized at the point in time that the service is performed, or the product is shipped, respectively.
Deferred Offering Costs - Deferred stock offering costs represent
amounts paid for legal, consulting, and other offering expenses directly attributable to the offering of securities in conjunction with the recapitalization under the Merger Agreement, as defined in Note 4 and further described in Note 4 and
are deferred and charged against the gross proceeds of the offering. In the event of a significant delay or cancellation of a planned offering of securities, all the costs would be expensed. As of September 30, 2023, $732 thousand in Merger costs were deferred until the closing of the Merger.
Recent Accounting Pronouncements – In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit
Losses on Financial Instruments, which was subsequently revised by ASU 2018-19. The ASU introduces a new model for assessing impairment of most financial assets. Entities are required to use a forward-looking expected loss model, which
replaces the current incurred loss model, resulting in earlier recognition of allowance for losses. The Company adopted this ASU in January 2023, and there was no material impact on the condensed consolidated financial statements.
|
Merger Agreement |
9 Months Ended | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2023 | ||||||||||||
Merger Agreement [Abstract] | ||||||||||||
Merger Agreement |
On August 23, 2023, the
Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) by and among SEP Acquisition Corp., a Delaware corporation (“SEPA”), SEP Acquisition Holdings Inc., a Nevada corporation and a wholly owned subsidiary of
SEPA (“Merger Sub”). Pursuant to the terms of the Merger Agreement, a business combination between the Company and SEPA (the “Merger”) will be affected. More specifically, and as described in greater detail below, at the effective
time of the Merger (the “Effective Time”):
If the Merger Agreement is consummated SEPA will acquire 100% of the Company’s issued and outstanding equity securities. The proposed merger will be accounted for as a “reverse recapitalization” in
accordance with US GAAP. Under the reserve recapitalization model, the transaction will be treated as the Company issuing equity for the net assets of SEPA, with no goodwill or intangible assets recorded. Under this method of accounting, SEPA
will be treated as the acquired company for financial reporting purposes. This determination is primarily based on the fact that following the merger, the Company’s stockholders are expected to have a majority voting power of the combined
company, approximately 69 – 70%,
the Company will comprise all of the ongoing operations of the combined company, Company representatives will comprise a majority of the governing body of the combined company, and the Company’s senior management will comprise all of the senior
management of the combined company. As a result of the merger, SEAQP will be renamed Sanuwave Health, Inc.
Merger Consideration - The consideration to be delivered to
the Company’s securityholders by SEPA in connection with the
consummation of the Merger (the “Closing”) will consist solely of 7,793,000 shares of Class A Common Stock and, in the case of certain
Securityholders, of securities convertible into or exercisable for new shares of Class A Common Stock reserved for issuance from the merger consideration (the “Merger Consideration”). The Merger Consideration deliverable to the Company’s stockholders will be allocated pro rata based on their ownership after giving effect to the required conversion or exercise, as
applicable, of all the outstanding convertible notes, in-the-money options, and in-the-money warrants immediately prior to the Closing.
Out-of-the-money options
and out-of-the-money warrants will be assumed by SEPA and converted into options or warrants, respectively, exercisable for shares of Class A Common Stock based on the Conversion Ratio; however, such out-of-the-money options and warrants shall not be
reserved for issuance from the Merger Consideration.
Conditions to Closing - The Merger Agreement contains customary conditions to Closing, including the following mutual conditions of the
parties (unless waived): (i) approval of the stockholders of the Company and SEPA; (ii) approvals of any required governmental authorities; (iii) no law or order preventing the Transactions; (iv) the filing of the Charter Amendments; (v) the
appointment of SEPA’s post-closing board of directors; (vi) the Registration Statement having been declared effective by the SEC; (vii) approval of the Class A Common Stock of SEPA for listing on Nasdaq; (viii) holders of 80% or more of the Company’s convertible notes with a maturity date occurring after the date of the Closing (the “Closing Date”), measured by
number of shares into which such convertible notes may be converted, agreeing to convert their convertible notes into shares common stock immediately prior to the Effective Time; and (ix) holders of 80% or more of the Company’s warrants that would be outstanding on the Closing Date, measured by number of shares subject to all such warrants in the aggregate, agreeing to
convert their warrants into shares of common stock immediately prior to the Effective Time.
In addition, unless
waived by the Company, the obligations of the Company to consummate the business combination are subject to the satisfaction of the following additional Closing conditions, in addition to the delivery by SEPA of customary certificates and other
Closing deliverables: (ii) SEPA having performed in all material respects its obligations and complied in all material respects with its covenants and agreements under the Merger Agreement required to be performed or complied with by it on or prior
to the Closing Date; (iii) SEPA having delivered a fairness opinion of the Purchaser Financial Advisor (as defined in the Merger Agreement), in form and substance reasonably satisfactory to the Company; (iv) SEPA having, at the Closing, at least $12,000,000 in cash and cash equivalents, including funds remaining in the trust account (after giving effect to the completion and payment of any
redemptions) and the proceeds of any PIPE Investment; and other customary conditions to Closing as defined in the Merger Agreement.
|
Loss per Share |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loss per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loss per Share |
Diluted net loss per share is calculated by dividing the net loss attributable to common stockholders by the weighted average number of shares
outstanding for the three and nine months ended September 30, 2023, and 2022. The weighted average number of shares outstanding includes outstanding common stock and shares issuable for nominal consideration. Accordingly, warrants issued with a $0.01 per share exercise price, are included in weighted average shares outstanding as follows:
Diluted net loss per share is computed by dividing the net loss attributable to common stockholders by the
weighted average number of shares of common stock and diluted common stock equivalents outstanding. To the extent that securities are “anti-dilutive,” they are excluded from the calculation of diluted net loss per share. As a result of the
net loss for the three and nine months ended September 30, 2023, and nine months ended September 30, 2022, all potentially dilutive shares in such periods were anti-dilutive and therefore excluded from the computation of diluted net loss
per share. As a result of the net loss for the three months ended September 30, 2022, all dilutive shares were included in the computation of diluted net income per share.Anti-dilutive equity securities consisted of the following for the nine months ended
September 30, 2023, and 2022, respectively:
|
Accrued Expenses |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accrued Expenses [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accrued Expenses |
Accrued expenses consist of the following:
|
Senior Secured Debt, In Default |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Senior Secured Debt, In Default [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Senior Secured Debt, In Default |
The following table summarizes outstanding senior secured debt, in default:
Senior secured promissory note payable, in default (“Senior
Secured Note”) – In
August 2020, the Company entered into a Note and Warrant Purchase and Security Agreement (the “NWPSA”). In accordance with the NWPSA, the Company issued a $15 million Senior Secured Promissory Note Payable (the “Senior Secured Note”) and a warrant exercisable for shares of the Company’s common stock in exchange for cash to support operations, repay outstanding
debt and close on the acquisition of the UltraMIST assets from Celularity Inc. (Celularity) among other transactions.
In February 2022,
the Company entered into a Second Amendment to Note and Warrant Purchase and Security Agreement (the “Second NWPSA”) for $3.0
million, for a total of $18.0 million outstanding. Along with the issuance of the note, the Company also issued warrants to purchase
16.2 million shares of common stock with an exercise price of $0.18 and 20.6 million shares of common stock. Since the
combined fair value of the warrants and common stock issued as part of the Second NWPSA exceeded the face value of the note, the additional amount beyond the face value was recorded as a loss on issuance totaling $3.4 million.
Interest is charged
at the greater of the prime rate or 3% plus 9%. The principal increases at a rate of 3% of the outstanding principal balance (PIK interest) on
each quarterly interest payment date. The original maturity date of the Senior Secured Note is September 20, 2025, and it can be prepaid.
As of September 30,
2023, the Company is in default on the minimum liquidity provisions in the Senior Secured Note and, as a result, it is classified in current liabilities in the accompanying condensed consolidated balance sheets. The Company is accruing interest
at the default interest rate of an incremental 5%.
In June 2023, the Company entered into a Fourth Amendment to the NWPSA, which provides the Company an extension of
the holder forbearing from exercising the remedies arising from the existing defaults to the earlier of the occurrence of an event of default and December 31, 2023. The amendment also added a consent fee of 2% of the original principal amount of the NWPSA, payable in cash at maturity, and defers interest that would otherwise have been due on June 30,
2023, and September 30, 2023. The interest will instead be compounded and added to the principal amount of the notes and bear interest at a rate of 20.25%
per annum. The amendment also requires the Company to complete an equity financing that results in gross cash proceeds of at least $2.5
million by July 15, 2023. This financing successfully closed on July 21, 2023, as further described in Note 9.
The debt issuance costs, and debt discount related to the Senior Secured Note were capitalized as a reduction in the
principal amount and are being amortized to interest expense over the life of the Senior Secured Note. Interest expense for the three and nine months ended September 30, 2023, totaled $1.8 and $5.1 million, respectively. Interest expense for the
three and nine months ended September 30, 2022, totaled $1.4 and $3.7 million, respectively.
|
Convertible Promissory Notes Payable |
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Sep. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Convertible Promissory Notes Payable [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Convertible Promissory Notes Payable |
The following two tables summarize outstanding notes payable as of September 30,
2023, and December 31, 2022:
2022 Convertible Notes Payable and 2022 Convertible Notes
Payable, Related Parties – In August 2022, November 2022, and May 2023, the Company entered into Securities Purchase Agreements (the “Purchase Agreements”), for the sale in a private placement of (i) Future Advance Convertible Promissory
Notes (the “Notes”) in an aggregate principal amount of approximately $16.2 million in August approximately $4.0
million in November, and approximately $1.2 million in May (ii) Common Stock Purchase Warrants to purchase an additional 535.1 million shares of common stock with an exercise price of $0.067 per share and (iii) Common
Stock Purchase Warrants to purchase an additional 535.1 million shares of common stock with an exercise price of $0.04 per share. Interest expense for the three and nine months ended September 30, 2023, totaled $1.3 million and $6.0 million, respectively.
Pursuant to the Notes, the Company promised to pay in cash
and/or in shares of common stock, at a conversion price of $0.04 (the “Conversion Price”), the principal amount and interest at a
rate of 15% per annum on any outstanding principal. The Conversion Price of the Notes is subject to adjustment, including if the
Company issues or sells shares of common stock for a price per share less than the Conversion Price of the Notes or if the Company lists its shares of common stock on The Nasdaq Capital Market and the average volume weighted average price of
such common stock for the preceding such listing is less than $0.04 per share; provided, however, that the Conversion Price shall never be less than $0.01. The Notes contain customary events of default and covenants, including limitations on incurrences of indebtedness and liens.
Pursuant to the Notes issued in August 2022 and November 2022,
the Company agreed to reduce its outstanding shares via a reverse stock split to provide the number of authorized and unissued shares of common stock sufficient to permit the conversion of these Notes on or before December 31, 2022. However,
the Company obtained a waiver of this requirement through December 31, 2023, from all holders of the August 2022 and November 2022 Notes and amended its Articles of Incorporation to increase its number of authorized shares of common stock
from 800,000,000 to 2,500,000,000.
In
August 2023, the Company utilized its election to convert the August issued 2022 Convertible Notes Payable into shares of common stock upon the Notes’ maturity. The $16.2 million in principal and $2.4 million in interest were converted to
464,440,813 shares of common stock.
|
Asset-Backed Secured Promissory Notes |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Asset-Backed Secured Promissory Notes [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Asset-Backed Secured Promissory Notes |
In July 2023, the
Company issued Asset-Backed Secured Promissory Notes (the “ABS Promissory Notes”) in an aggregate principal amount of $4.6 million to
certain accredited investors (the “Purchasers”) at an original issue discount of 33.33%. The ABS Promissory Notes bear an interest rate
of 0% per annum and mature on January 21, 2024 (the “Maturity Date”). The Company received total proceeds of approximately $3.0 million. The Company entered
into a Security Agreement providing for a continuing and unconditional security interest in any and all property of the Company. This security interest is subordinate to the Senior Secured Debt described in Note 7. Interest expense for the three
and nine months ended September 30, 2023, totaled $0.4 million.
The Company and the
Purchasers also entered into a side letter pursuant to which the parties agreed that upon the Maturity Date, or upon a fundamental transaction as defined by the ABS Promissory Notes, the Company will issue each Purchaser a Future Advance
Convertible Promissory Note with the same principal amount as the principal amount of such Purchasers’ ABS Promissory Notes, plus any accrued and unpaid interest and two Common Stock Purchase Warrants, substantially in the forms of the Notes and Common Stock Purchase Warrants disclosed in Note 8.
In evaluating the accounting for the ABS Promissory Notes and Side Letter (the “Side Letter”), pursuant to relevant guidance, the Side Letter was determined to not represent a freestanding financial instrument as it is not
legally detachable and separately exercisable. The redemption features under the Side Letter are considered embedded derivatives, including a right for contingent redemption upon an event of default, automatic redemption
upon maturity of the ABS Promissory Notes, and redemption is triggered upon a fundamental transaction. As a result, the Company determined these features met the criteria of an embedded derivative.
|
Fair Value Measurements |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Measurements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Measurements |
The Company uses various inputs to measure the outstanding warrants and certain embedded conversion features associated with a convertible debt on a recurring basis to determine the fair value of the liabilities.
The following tables classify the Company’s liabilities measured at fair value on a recurring basis into the fair value hierarchy:
There were no
transfers among Levels 1, 2 or 3 during the three and nine months ended September 30, 2023, and 2022. Both observable and unobservable inputs were used to determine the fair value of positions that the Company has classified within the Level 3 category. Unrealized
gains and losses associated with liabilities within the Level 3 category include changes in fair value that were attributable to both observable (e.g. changes in market interest rates) and unobservable (e.g., changes in unobservable long-dated
volatilities) inputs.
Warrant Liability
The Company’s liability classified warrants as of September 30, 2023, were valued using a probability weighted expected value considering the Merger Agreement and the previous Black Scholes valuation model, with significant value stemming
from the Merger Agreement. Significant inputs under the Merger Agreement valuation included the expected exchange ratio 0.0033, the
value of SEPA’s Class A Common Stock, the expected timing of the closing of the Merger (estimated by December 31, 2023), and the probability of the Merger closing (85% probability).
Significant inputs related to the Company’s liability
classified warrants using the Black Scholes model, are listed below.
A summary of the warrant liability
activity for the nine months ended September 30, 2023, is as follows:
Embedded
Conversion Liability
Certain convertible notes include a conversion option that
meets the definition of a derivative liability and, accordingly, is required to be bifurcated. The fair value for the embedded derivative liability at issuance for the ABS Promissory Notes was estimated as the difference in fair value of the
ABS Promissory Notes, including the conversion obligation under the Side Letter and the value of the ABS Promissory Notes in the absence of the conversion obligation. The value of the ABS Promissory Notes without the conversion obligation was
estimated using a discounted cash flow analysis with an estimated market yield.
The Company’s embedded
conversion liability as of September 30, 2023, was valued using a probability weighted expected value considering the Merger Agreement and the previous Black Scholes model, with significant value being assigned to the Merger Agreement
assumptions. Significant inputs included the expected exchange ratio (0.0033), value of SEPA class A common stock, expected timing of the closing of the merger (estimated by December 31, 2023), and probability of the merger transaction closing
(85% probability).
The
fair value of conversion option liability assumptions under the Black Scholes model, are listed below.
A summary of the conversion liability
activity is as follows:
|
Revenue |
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Sep. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenue [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenue |
The
disaggregation of revenue is based on type and geographical region. The following table presents revenue from contracts with customers:
|
Concentration of Credit Risk and Limited Suppliers |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Concentration of Credit Risk and Limited Suppliers [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Concentration of Credit Risk and Limited Suppliers |
Major customers
are defined as customers whose accounts receivable, or sales individually consist of more than 10% of total trade receivables or total sales, respectively. The percentage of accounts receivable from major customers of the Company for the
periods indicated were as follows:
The
Company currently purchases most of its product component materials from single suppliers and the loss of any of these suppliers could result in a disruption in the Company’s production. The percentage of purchases from major vendors of the
Company that exceeded ten percent of total purchases for the three and nine months ended September 30, 2023, and 2022 were as follows:
|
Commitments and Contingencies |
9 Months Ended | ||
---|---|---|---|
Sep. 30, 2023 | |||
Commitments and Contingencies [Abstract] | |||
Commitments and Contingencies |
In the ordinary course of business, the Company from time to time becomes
involved in various legal proceedings involving a variety of matters. The Company does not believe there are any pending legal proceedings that will have a material adverse effect on the Company’s business, consolidated financial position,
results of operations, or cash flows. However, the outcome of such legal matters is inherently unpredictable and subject to significant uncertainties. The Company expenses legal fees in the period in which they are incurred.
Acquisition dispute – In May 2021, the Company received notification alleging that it is not in compliance with the license agreement with Celularity entered into in connection with the acquisition of the UltraMIST assets. The Company has responded and
asserted that the Company is not in breach and that the supplier has breached various agreements. It is too early to determine the outcome of this matter. Any potential impact on the Company cannot be fully determined at this time and there
is no guarantee that the dispute will be resolved in a manner beneficial to the Company.
|
Summary of Significant Accounting Policies (Policies) |
9 Months Ended |
---|---|
Sep. 30, 2023 | |
Summary of Significant Accounting Policies [Abstract] | |
Estimates |
Estimates – These condensed consolidated financial statements have been prepared in
accordance with U.S. GAAP. Because a precise determination of assets and liabilities, and correspondingly revenues and expenses, depend on future events, the preparation of condensed consolidated financial statements for any period necessarily
involves the use of estimates and assumptions. Actual amounts may differ from these estimates. These condensed consolidated financial statements have, in management’s opinion, been properly prepared within reasonable limits of materiality and
within the framework of the accounting policies summarized herein.
Significant estimates include the recording of allowances for doubtful accounts, the net realizable value of inventory, useful lives of
long-lived assets, fair value of goodwill and other intangible assets, the determination of the valuation allowances for deferred taxes, estimated fair value of stock-based compensation, and the estimated fair value of financial instruments,
including warrants and embedded conversion options.
|
Revenue Recognition |
Revenue Recognition - The core principle of Accounting Standards Codification (“ASC”) Topic 606 “Revenue from
Contracts with Customers” (“ASC 606”) requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an
amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The Company allocates the transaction price to all contractual performance obligations included in the contract. If a
contract has more than one performance obligation, we allocate the transaction price to each performance obligation based on standalone selling price, which depicts the amount of consideration we expect to be entitled in exchange for
satisfying each performance obligation. The Company recognizes revenue primarily from the following types of contracts:
System Sales, Accessory and Part Sales - System sales, accessory and part sales include devices and applicators (new and refurbished).
Performance obligations are satisfied at the point in time when the customer obtains control of the goods, which is generally at the point in time that the product is shipped.
Licensing Fees - Licensing transactions include distribution licenses and intellectual property licenses. Licensing revenue is recognized as the Company satisfies
its performance obligations, which may vary with the terms of the licensing agreement.
Other Revenue - Other revenue primarily includes warranties, repairs, and billed freight. The Company allocates the device sales price to the
product and the embedded warranty by reference to the stand-alone extended warranty price. Warranty revenue is recognized over the time that the Company satisfies its performance obligations, which is generally the warranty term.
Repairs (parts and labor) and billed freight revenue are recognized at the point in time that the service is performed, or the product is shipped, respectively.
|
Deferred Offering Costs |
Deferred Offering Costs - Deferred stock offering costs represent
amounts paid for legal, consulting, and other offering expenses directly attributable to the offering of securities in conjunction with the recapitalization under the Merger Agreement, as defined in Note 4 and further described in Note 4 and
are deferred and charged against the gross proceeds of the offering. In the event of a significant delay or cancellation of a planned offering of securities, all the costs would be expensed. As of September 30, 2023, $732 thousand in Merger costs were deferred until the closing of the Merger.
|
Recent Accounting Pronouncements |
Recent Accounting Pronouncements – In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit
Losses on Financial Instruments, which was subsequently revised by ASU 2018-19. The ASU introduces a new model for assessing impairment of most financial assets. Entities are required to use a forward-looking expected loss model, which
replaces the current incurred loss model, resulting in earlier recognition of allowance for losses. The Company adopted this ASU in January 2023, and there was no material impact on the condensed consolidated financial statements.
|
Loss per Share (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loss per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Weighted Average Shares Outstanding | Accordingly, warrants issued with a $0.01 per share exercise price, are included in weighted average shares outstanding as follows:
|
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Anti-dilutive Equity Securities | Anti-dilutive equity securities consisted of the following for the nine months ended
September 30, 2023, and 2022, respectively:
|
Accrued Expenses (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accrued Expenses [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accrued Expenses |
Accrued expenses consist of the following:
|
Senior Secured Debt, in Default (Tables) |
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Sep. 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Senior Secured Debt, In Default [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Outstanding Secured Debt |
The following table summarizes outstanding senior secured debt, in default:
|
Convertible Promissory Notes Payable (Tables) |
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Sep. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Convertible Promissory Notes Payable [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Outstanding Notes Payable |
The following two tables summarize outstanding notes payable as of September 30,
2023, and December 31, 2022:
|
Asset-Backed Secured Promissory Notes (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Asset-Backed Secured Promissory Notes [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
ABS Promissory Notes | The redemption features under the Side Letter are considered embedded derivatives, including a right for contingent redemption upon an event of default, automatic redemption
upon maturity of the ABS Promissory Notes, and redemption is triggered upon a fundamental transaction. As a result, the Company determined these features met the criteria of an embedded derivative.
|
Fair Value Measurements (Tables) |
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Sep. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Measurements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Liabilities Measured at Fair Value on Recurring Basis |
The following tables classify the Company’s liabilities measured at fair value on a recurring basis into the fair value hierarchy:
|
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Fair Value of Warrant Liabilities Using Black-Scholes Model |
Significant inputs related to the Company’s liability
classified warrants using the Black Scholes model, are listed below.
A summary of the warrant liability
activity for the nine months ended September 30, 2023, is as follows:
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Fair Value of Conversion Option Liabilities Using Black-Scholes Model |
The
fair value of conversion option liability assumptions under the Black Scholes model, are listed below.
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Summary of Conversion Liability Activity |
A summary of the conversion liability
activity is as follows:
|
Revenue (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenue [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Disaggregation of Revenue |
The
disaggregation of revenue is based on type and geographical region. The following table presents revenue from contracts with customers:
|
Concentration of Credit Risk and Limited Suppliers (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Concentration of Credit Risk and Limited Suppliers [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Concentration of Credit Risk and Limited Suppliers |
Major customers
are defined as customers whose accounts receivable, or sales individually consist of more than 10% of total trade receivables or total sales, respectively. The percentage of accounts receivable from major customers of the Company for the
periods indicated were as follows:
The
Company currently purchases most of its product component materials from single suppliers and the loss of any of these suppliers could result in a disruption in the Company’s production. The percentage of purchases from major vendors of the
Company that exceeded ten percent of total purchases for the three and nine months ended September 30, 2023, and 2022 were as follows:
|
Summary of Significant Accounting Policies (Details) $ in Thousands |
Sep. 30, 2023
USD ($)
|
---|---|
Deferred Offering Costs [Abstract] | |
Deferred merger costs | $ 732 |
Merger Agreement (Details) - USD ($) |
Aug. 23, 2023 |
Sep. 30, 2023 |
Dec. 31, 2022 |
---|---|---|---|
Merger Agreement [Abstract] | |||
Common stock, par value (in dollars per share) | $ 0.001 | $ 0.001 | |
Cash and cash equivalents | $ 1,095,000 | $ 1,153,000 | |
SEP Acquisition Corp. [Member] | |||
Merger Agreement [Abstract] | |||
Percentage of acquired equity | 100.00% | ||
SEP Acquisition Corp. [Member] | Minimum [Member] | |||
Merger Agreement [Abstract] | |||
Percentage of convertible notes | 80.00% | ||
Percentage of warrants outstanding | 80.00% | ||
Cash and cash equivalents | $ 12,000,000 | ||
Percentage of acquired equity | 69.00% | ||
SEP Acquisition Corp. [Member] | Maximum [Member] | |||
Merger Agreement [Abstract] | |||
Percentage of acquired equity | 70.00% | ||
Class A Common Stock [Member] | SEP Acquisition Corp. [Member] | |||
Merger Agreement [Abstract] | |||
Common stock, par value (in dollars per share) | $ 0.0001 | ||
Number of shares issued for business consideration (in shares) | 7,793,000 |
Loss per Share, Weighted Average Shares Outstanding (Details) - $ / shares |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
Sep. 30, 2023 |
Sep. 30, 2022 |
|
Loss per Share [Abstract] | ||||
Warrant exercise price (in dollars per share) | $ 0.01 | |||
Weighted Average Shares Outstanding [Abstract] | ||||
Weighted average shares outstanding (in shares) | 892,956,020 | 561,069,625 | 683,771,214 | 542,484,779 |
Common Shares [Member] | ||||
Weighted Average Shares Outstanding [Abstract] | ||||
Weighted average shares outstanding (in shares) | 871,265,000 | 540,584,000 | 662,080,000 | 519,127,000 |
Common Shares Issuable Assuming Exercise of Nominally Priced Warrants [Member] | ||||
Weighted Average Shares Outstanding [Abstract] | ||||
Weighted average shares outstanding (in shares) | 21,691,000 | 20,486,000 | 21,691,000 | 23,358,000 |
Loss per Share, Anti Dilutive Equity Securities (Details) - shares shares in Thousands |
9 Months Ended | |
---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
|
Anti-dilutive Securities [Abstract] | ||
Anti-dilutive equity securities (in shares) | 1,350,464 | 1,489,633 |
Common Stock Options [Member] | ||
Anti-dilutive Securities [Abstract] | ||
Anti-dilutive equity securities (in shares) | 19,136 | 21,246 |
Common Stock Purchase Warrants [Member] | ||
Anti-dilutive Securities [Abstract] | ||
Anti-dilutive equity securities (in shares) | 1,106,819 | 984,799 |
Convertible Notes Payable [Member] | ||
Anti-dilutive Securities [Abstract] | ||
Anti-dilutive equity securities (in shares) | 224,509 | 483,588 |
Accrued Expenses (Details) - USD ($) $ in Thousands |
Sep. 30, 2023 |
Dec. 31, 2022 |
---|---|---|
Accrued Expense [Abstract] | ||
Registration penalties | $ 1,583 | $ 1,583 |
License fees | 892 | 892 |
Director and professional fees | 1,177 | 586 |
Employee compensation | 2,665 | 4,585 |
Other | 42 | 866 |
Total accrued expenses | $ 6,359 | $ 8,512 |
Senior Secured Debt, in Default, Outstanding Secured Debt (Details) - USD ($) $ in Thousands |
Sep. 30, 2023 |
Dec. 31, 2022 |
Aug. 31, 2020 |
---|---|---|---|
Senior Secured Debt [Abstract] | |||
Carrying value | $ 17,645 | $ 14,416 | |
Senior Secured Debt [Member] | |||
Senior Secured Debt [Abstract] | |||
Principal amount | 21,399 | 19,211 | $ 15,000 |
Debt discount | (3,754) | (4,795) | |
Carrying value | 17,645 | 14,416 | |
Accrued interest | $ 2,636 | $ 1,890 |
Asset-Backed Secured Promissory Notes, Summary (Details) - ABS Promissory Notes [Member] $ in Thousands |
1 Months Ended | 3 Months Ended | 9 Months Ended |
---|---|---|---|
Jul. 31, 2023
USD ($)
Warrant
|
Sep. 30, 2023
USD ($)
|
Sep. 30, 2023
USD ($)
|
|
Notes Payable [Abstract] | |||
Aggregate principal amount | $ 4,600 | $ 4,584 | $ 4,584 |
Percentage of original issue discount | 33.33% | ||
Interest rate percentage | 0.00% | ||
Maturity date | Jan. 21, 2024 | ||
Total proceeds | $ 3,000 | ||
Interest expense | $ 400 | $ 400 | |
Number of common stock purchase warrants | Warrant | 2 |
Asset-Backed Secured Promissory Notes , ABS Promissory Notes (Details) - USD ($) $ in Thousands |
Sep. 30, 2023 |
Jul. 31, 2023 |
Dec. 31, 2022 |
---|---|---|---|
ABS Promissory Notes [Member] | |||
Notes Payable [Abstract] | |||
Principal amount | $ 4,584 | $ 4,600 | |
Debt discount | (558) | ||
Embedded derivative | 5,644 | ||
Carrying value | 9,670 | ||
Nonrelated Party [Member] | |||
Notes Payable [Abstract] | |||
Carrying value | 6,576 | $ 0 | |
Nonrelated Party [Member] | ABS Promissory Notes [Member] | |||
Notes Payable [Abstract] | |||
Principal amount | 3,122 | ||
Debt discount | (379) | ||
Embedded derivative | 3,833 | ||
Carrying value | 6,576 | ||
Related Party [Member] | |||
Notes Payable [Abstract] | |||
Carrying value | 3,094 | $ 0 | |
Related Party [Member] | ABS Promissory Notes [Member] | |||
Notes Payable [Abstract] | |||
Principal amount | 1,462 | ||
Debt discount | (179) | ||
Embedded derivative | 1,811 | ||
Carrying value | $ 3,094 |
Revenue, Disaggregation of Revenue (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
Sep. 30, 2023 |
Sep. 30, 2022 |
|
Disaggregation of Revenue [Abstract] | ||||
Product Revenue | $ 4,821 | $ 3,919 | $ 12,727 | $ 10,307 |
Rental Income | 132 | 247 | 677 | 935 |
Total Revenue | 4,953 | 4,166 | 13,404 | 11,242 |
Consumables and Parts Revenue [Member] | ||||
Disaggregation of Revenue [Abstract] | ||||
Product Revenue | 3,158 | 3,012 | 8,696 | 7,866 |
System Revenue [Member] | ||||
Disaggregation of Revenue [Abstract] | ||||
Product Revenue | 1,625 | 902 | 3,895 | 2,408 |
License Fees and Other [Member] | ||||
Disaggregation of Revenue [Abstract] | ||||
Product Revenue | 38 | 5 | 136 | 33 |
United States [Member] | ||||
Disaggregation of Revenue [Abstract] | ||||
Product Revenue | 4,778 | 3,880 | 12,504 | 10,247 |
Rental Income | 132 | 247 | 677 | 935 |
Total Revenue | 4,910 | 4,127 | 13,181 | 11,182 |
United States [Member] | Consumables and Parts Revenue [Member] | ||||
Disaggregation of Revenue [Abstract] | ||||
Product Revenue | 3,133 | 2,978 | 8,620 | 7,836 |
United States [Member] | System Revenue [Member] | ||||
Disaggregation of Revenue [Abstract] | ||||
Product Revenue | 1,607 | 902 | 3,763 | 2,392 |
United States [Member] | License Fees and Other [Member] | ||||
Disaggregation of Revenue [Abstract] | ||||
Product Revenue | 38 | 0 | 121 | 19 |
International [Member] | ||||
Disaggregation of Revenue [Abstract] | ||||
Product Revenue | 43 | 39 | 223 | 60 |
Rental Income | 0 | 0 | 0 | 0 |
Total Revenue | 43 | 39 | 223 | 60 |
International [Member] | Consumables and Parts Revenue [Member] | ||||
Disaggregation of Revenue [Abstract] | ||||
Product Revenue | 25 | 34 | 76 | 30 |
International [Member] | System Revenue [Member] | ||||
Disaggregation of Revenue [Abstract] | ||||
Product Revenue | 18 | 0 | 132 | 16 |
International [Member] | License Fees and Other [Member] | ||||
Disaggregation of Revenue [Abstract] | ||||
Product Revenue | $ 0 | $ 5 | $ 15 | $ 14 |
Concentration of Credit Risk and Limited Suppliers (Details) |
3 Months Ended | 9 Months Ended | 12 Months Ended | ||
---|---|---|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
Sep. 30, 2023 |
Sep. 30, 2022 |
Dec. 31, 2022 |
|
Accounts Receivable [Member] | Customer Concentration Risk [Member] | Customer A [Member] | |||||
Concentration of Credit Risk and Limited Suppliers [Abstract] | |||||
Concentration risk, percentage | 10.00% | 0.00% | |||
Purchases [Member] | Supplier Concentration Risk [Member] | Vendor A [Member] | |||||
Concentration of Credit Risk and Limited Suppliers [Abstract] | |||||
Concentration risk, percentage | 22.00% | 18.00% | 19.00% | 18.00% | |
Purchases [Member] | Supplier Concentration Risk [Member] | Vendor B [Member] | |||||
Concentration of Credit Risk and Limited Suppliers [Abstract] | |||||
Concentration risk, percentage | 23.00% | 16.00% | |||
Purchases [Member] | Supplier Concentration Risk [Member] | Vendor C [Member] | |||||
Concentration of Credit Risk and Limited Suppliers [Abstract] | |||||
Concentration risk, percentage | 20.00% | 10.00% |
1 Year SANUWAVE Health (QB) Chart |
1 Month SANUWAVE Health (QB) Chart |
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