Group 1 - Sanuwave Health, Inc. will host a live conference call on May 9, 2025, at 8:30 AM (ET) to present its Q1 2025 financial results [1][2] - The company specializes in next-generation FDA-approved wound care products and is focused on the research, development, and commercialization of non-invasive medical systems [2][3] - Sanuwave's product portfolio includes regenerative medicine products aimed at restoring normal healing processes in various medical conditions [3] Group 2 - The conference call will provide access via toll-free and international numbers, with a replay available until May 30, 2025 [1][2] - Materials related to the conference call will be accessible on the company's investor website [2] - Sanuwave applies patented energy transfer technologies in multiple fields, including wound healing and orthopedic conditions [3]

Financial Results - Sanuwave Health, Inc. announced preliminary financial results for Q1 2025 on April 8, 2025[4] - The press release detailing financial results is attached as Exhibit 99.1[6] - The report indicates that the information provided is not deemed "filed" under the Securities Exchange Act of 1934[5] Company Information - The company is registered under the trading symbol SNWV on The Nasdaq Stock Market LLC[2] - The Chief Financial Officer, Peter Sorensen, signed the report on behalf of the company[10]

Revenue Performance - Q4 2024 revenues reached $10.3 million, a 47% increase from Q4 2023, marking an all-time quarterly record for the company[1] - Full year 2024 revenues totaled $32.6 million, up 60% from $20.4 million in 2023, exceeding the full year guidance of 50% growth[10] - Total revenue for 2024 increased to $32,634,000, representing a 60% growth compared to $20,398,000 in 2023[31] Profitability Metrics - Gross margin for Q4 2024 was 77.9%, compared to 69.1% in Q4 2023, and full year gross margin was 75.2%, up from 70.4% in 2023[2][3] - Operating income for Q4 2024 was $2.5 million, a 143% increase from Q4 2023, while full year operating income was $5.4 million, an increase of $6.0 million compared to 2023[4][10] - Gross margin improved to $24,550,000, up from $14,363,000 in the previous year, indicating a significant increase in profitability[31] - Operating income for 2024 was $5,417,000, a turnaround from an operating loss of $540,000 in 2023[31] Sales and Product Performance - The company sold 135 UltraMist® systems in Q4 2024, up from 79 in Q4 2023, and total systems sold in 2024 reached 374, compared to 211 in 2023[5][10] - UltraMist® consumables revenue increased by 59% to $5.9 million in Q4 2024, representing 58% of overall revenues for the quarter[5] Future Guidance - The company forecasts Q1 2025 revenue between $8.4 million and $9.0 million, indicating a 45-55% increase from Q1 2024, and full year 2025 revenue guidance of $48-50 million, a 47-53% increase from 2024[4][8] Financial Position - Total current assets rose to $18,397,000, a 88% increase from $9,784,000 in 2023[28] - Total liabilities decreased to $42,836,000, down 35% from $65,594,000 in 2023[29] - Cash and cash equivalents at the end of 2024 were $10,237,000, a substantial increase from $1,797,000 in 2023[28] Net Loss and Stock Activity - The company experienced a net loss of $12.7 million in Q4 2024, compared to a net profit of $18.2 million in Q4 2023, primarily due to changes in the fair value of derivative liabilities[5] - Net loss for 2024 was $31,372,000, compared to a net loss of $25,807,000 in 2023, reflecting ongoing challenges[31] - Basic and diluted net loss per share improved to $(7.03) from $(12.19) in 2023, indicating a relative improvement in performance[31] - The company issued 1,248,489 shares of common stock, raising $10,300,000 in 2024[35] - Stock-based compensation increased to $1,514,000 in 2024, compared to no expenses recorded in 2023[35] Capital Structure Changes - The company completed a 1-for-375 reverse stock split and raised $10.3 million in a private placement, simplifying its capital structure[9] EBITDA Performance - Adjusted EBITDA for Q4 2024 was $3.7 million, compared to $0.7 million in Q4 2023, reflecting an improvement of $3.0 million[5]

Financial Performance - Total revenues for the year ended December 31, 2024, reached $32.6 million, a 60% increase from $20.4 million in 2023[15]. - The company incurred a net loss of $31.4 million and $25.8 million for the years ended December 31, 2024, and 2023, respectively[94]. - Gross margins increased to 75% in 2024, up from 70% in 2023[188]. - Operating income surged by 1103% to $5.4 million for the year ended December 31, 2024, compared to an operating loss of $0.5 million in 2023[188]. - The net loss for the year ended December 31, 2024, was $31.4 million, or $7.03 per basic and diluted share, compared to a net loss of $25.8 million, or $12.19 per share, in 2023[189]. - The company had an accumulated deficit of $251 million as of December 31, 2024, indicating ongoing financial challenges[203]. - Cash flows from operating activities improved to $2.5 million in 2024, compared to a negative $4.5 million in 2023[205]. - The company received proceeds of $12.1 million from financing activities in 2024, compared to $6.0 million in 2023, while paying off $5.0 million in outstanding debt[207]. - Management is actively seeking to refinance significant debt due in September 2025 to improve liquidity and support ongoing operations[209]. Product and Market Overview - UltraMIST systems and consumables accounted for approximately 98% of 2024 revenues, up from 90% in 2023[15]. - Over 1,000 UltraMIST systems were in the field as of December 31, 2024[27]. - The wound care market in the United States exceeds $45 billion annually, with expectations for continued expansion due to an aging population and rising incidences of chronic conditions[31]. - The UltraMIST system is cleared by the FDA for various wound types, including diabetic foot ulcers and surgical wounds[19]. - Consumables revenues constituted approximately 61% of total revenues in 2024, expected to remain the largest revenue stream[27]. - The company aims to improve patient outcomes by providing cost-effective, easy-to-use technology that integrates into healthcare workflows[38]. Regulatory and Compliance - The FDA requires that all medical devices, including those from the Company, must receive approval or clearance before marketing in the U.S., which involves extensive regulation[63]. - The Company is currently registered as a Small Business Manufacturer with the FDA, which allows for reduced fees, but may lose this status if revenues exceed a certain threshold[68]. - The Company has successfully completed a MDSAP surveillance audit in September 2024, with the certificate valid for three years[75]. - The Company is subject to ongoing FDA inspections to ensure compliance with regulatory requirements, which also apply to suppliers and contract manufacturers[71]. - The company is subject to extensive regulation by governmental authorities, including the FDA, which could disrupt production or distribution if compliance issues are identified[124]. - Regulatory approval for products may be withdrawn at any time, which could lead to significant operational disruptions[127]. - The company must obtain adequate reimbursement for its approved products; failure to do so may limit market viability[130]. Competition and Market Position - The Company believes its PACE technology has a competitive advantage in the advanced wound care market compared to existing technologies, potentially providing better value for patients and caregivers[60]. - UltraMIST is considered to have a competitive edge over other low-frequency ultrasound technologies due to its broad medical indications and patient tolerability, especially for painful wounds[62]. - The company faces competition from established medical device, pharmaceutical, and biotechnology companies, which have greater financial resources and expertise[105]. - The company relies on intellectual property protection, and any failure to adequately protect these rights could materially affect its competitive position[147]. Operational Challenges - The company has identified material weaknesses in its internal control over financial reporting, which could result in material misstatements of its consolidated financial statements[97]. - The company has experienced negative operating cash flows since inception, primarily funded through sales of capital stock and promissory notes[101]. - The company depends on suppliers for product component materials, with many components produced by a single supplier, posing a risk to production continuity[106]. - The company may experience difficulties with manufacturing yields and quality control, which could delay product availability and increase expenses[115]. - Future growth will impose significant added responsibilities on management, including the need to recruit and integrate additional employees[116]. Legal and Compliance Risks - Violations of the Federal Anti-Kickback Statute could result in substantial penalties and exclusion from federal healthcare programs, impacting the company's operations[136]. - The company is subject to potential liability under the Federal False Claims Act if it fails to comply with documentation, coding, and billing rules[137]. - The company faces risks related to investigations or litigation alleging violations of the Federal Anti-Kickback Statute and False Claims Act, which could adversely affect its business operations[138]. - Noncompliance with HIPAA and state-specific privacy laws may increase operational costs and could have a material adverse effect on the company's financial condition[139]. - The company anticipates incurring substantial operational and financial costs related to breach notifications under HIPAA and the HITECH Act[140]. - The company is subject to various governmental reviews and audits, which could result in significant costs and adversely impact its financial condition[143]. - The medical device industry is heavily regulated, and failure to comply with FDA regulations could lead to enforcement sanctions and recalls, adversely affecting the company's operations[144]. Employee and Corporate Structure - The company has a total of 46 full-time employees in the United States as of December 31, 2024, with seven engaged in research and development[89]. - The company has not experienced a material information security breach incident, but future incidents could have a material impact on its business strategy[176]. - The company is subject to various legal proceedings but does not believe any will have a material adverse effect on its business[178]. Future Plans and Strategies - The company plans to build a direct sales force and distribution network to market UltraMIST in the U.S. and assess potential international expansion[34]. - The company plans to obtain additional capital in 2025 through the issuance of common or preferred stock, convertible securities, or debt[95]. - The company may seek to expand operations and product lines through acquisitions, which would likely increase capital requirements[104]. - Less than 1% of the company's revenue comes from international sources, indicating limited current international operations[118].

Financial Performance - Q3 2024 revenues reached $9.4 million, an increase of 89% compared to $5.0 million in Q3 2023, marking an all-time quarterly record for the company[1][5] - Gross margin for Q3 2024 was 75.5%, up from 71.5% in Q3 2023[2][5] - Operating income for Q3 2024 was $2.0 million, an increase of $2.5 million compared to a loss of $0.5 million in Q3 2023[2][5] - Year-to-date net loss for 2024 was $18.6 million, significantly improved from a net loss of $44.0 million in the same period of 2023[5] - Adjusted EBITDA for Q3 2024 was $2.1 million, compared to a loss of $0.3 million in Q3 2023, reflecting an improvement of $2.4 million[5][21] - Revenue for the three months ended September 30, 2024, was $9,360,000, representing a 88.5% increase from $4,953,000 in the same period of 2023[27] - Operating income for the three months ended September 30, 2024, was $1,953,000, a significant improvement from an operating loss of $531,000 in the same period of 2023[27] - Net loss for the three months ended September 30, 2024, was $20,657,000, a decrease from a net loss of $23,700,000 in the same period of 2023[27] - Net loss for the nine months ended September 30, 2024, was $18,624,000, an improvement from a net loss of $44,042,000 in the same period of 2023[32] Revenue Forecast - The company expects Q4 2024 revenue to be between $9.7 million and $10.5 million, representing a 40-50% increase from Q4 2023[7] - The company forecasts total revenues for 2024 to exceed $32 million, representing a 57% increase compared to the full year 2023[7] Product Sales - The company sold 124 UltraMist® systems in Q3 2024, up from 55 in Q3 2023 and 72 in Q2 2024[5] - UltraMist® consumables revenue increased by 75% to $5.4 million, accounting for 58% of total revenues in Q3 2024[5] Cash Flow and Liquidity - Net cash provided by operating activities was $1,714,000, compared to a net cash used of $3,253,000 in the prior year[32] - Cash at the end of the period increased to $3,259,000 from $1,095,000 in the previous year[32] - The company reported a net change in cash during the period of $1,462,000, compared to a decrease of $58,000 in the prior year[32] Debt and Liabilities - Total liabilities and stockholders' deficit as of September 30, 2024, was $21,844,000, down from $22,416,000 at the end of 2023[26] - The accumulated deficit increased to $(238,673,000) as of September 30, 2024, from $(220,049,000) at the end of 2023[26] - The company reported a gain on extinguishment of debt of $5,205,000 during the nine months ended September 30, 2024[27] - Cash paid for interest increased to $3,189,000 from $984,000 year-over-year[32] - The company capitalized default interest into senior secured debt amounting to $3,850,000[33] - The conversion of asset-based secured promissory notes to convertible promissory notes amounted to $4,584,000[33] - The company issued shares for the settlement of debt totaling $1,412,000[32] Stock and Shareholder Information - The company raised $10.3 million in a private placement following a 1-for-375 reverse stock split on October 18, 2024[8] - The company had 3,150,062 shares issued and outstanding as of September 30, 2024, reflecting a reverse stock split effective October 18, 2024[26] - The company reported a basic and diluted net loss per share of $6.49 for the three months ended September 30, 2024, compared to $9.95 in the same period of 2023[27] Operating Expenses - Total operating expenses for the three months ended September 30, 2024, were $5,114,000, an increase from $4,072,000 in the same period of 2023[27] - The company reported a net cash flows used in investing activities were $254,000, compared to $156,000 in the previous year[32] - Warrants issued in conjunction with convertible promissory notes totaled $3,633,000, up from $570,000 in the previous period[33]

Financial Performance - Revenue for Q3 2024 was $9,360,000, representing a 88.5% increase from $4,953,000 in Q3 2023[20] - Gross margin for Q3 2024 was $7,067,000, compared to $3,541,000 in Q3 2023, indicating a significant improvement[20] - Net loss for Q3 2024 was $20,657,000, a decrease from a net loss of $23,700,000 in Q3 2023[20] - Operating income for Q3 2024 was $1,953,000, a turnaround from an operating loss of $531,000 in Q3 2023[20] - The company achieved a gross margin of 75.5% in Q3 2024, compared to 71.5% in Q3 2023[20] - For the nine months ended September 30, 2024, total revenue was $22,308,000, up from $13,404,000 in the same period of 2023, reflecting a growth of about 66%[77]. - Revenue for the three months ended September 30, 2024, totaled $9.4 million, an increase of 89% compared to $5.0 million for the same period in 2023[93] - Net loss for the three months ended September 30, 2024, was $20.7 million, a decrease from a net loss of $23.7 million for the same period in 2023[94] - Operating income for the three months ended September 30, 2024, totaled $2.0 million, an improvement of $2.5 million compared to the same period in 2023[94] - Gross margin as a percentage of revenue increased to 76% during the three months ended September 30, 2024, from 71% in the same period of 2023[103] Assets and Liabilities - Total current assets increased slightly to $9,904,000 as of September 30, 2024, from $9,784,000 at the end of 2023[13] - Total liabilities rose to $82,107,000 as of September 30, 2024, up from $65,594,000 at the end of 2023, primarily due to increased debt[15] - The company reported a total stockholders' deficit of $60,263,000 as of September 30, 2024, compared to $43,178,000 at the end of 2023[17] - Cash and cash equivalents increased to $3,259,000 as of September 30, 2024, from $1,797,000 at the end of 2023[13] - The company’s additional paid-in capital rose to $178,397,000 as of September 30, 2024, up from $176,979,000 at the end of 2023[17] - The total accrued expenses as of September 30, 2024, amounted to $5,241 thousand, a decrease from $5,999 thousand as of December 31, 2023[52] - Senior secured debt in default as of September 30, 2024, totaled $26,613 thousand, with a carrying value of $24,426 thousand after accounting for discounts[53] - Convertible notes payable as of September 30, 2024, totaled $9,091 thousand, with a carrying value of $7,655 thousand after accounting for debt discounts[60] Cash Flow - The company experienced a net cash provided by operating activities of $1,714 thousand for the nine months ended September 30, 2024, compared to a net cash used of $3,253 thousand in the same period of 2023, indicating a significant turnaround[27] - Cash provided by operating activities during the nine months ended September 30, 2024, totaled $1.7 million, an improvement from cash used of $3.3 million in the previous year, primarily due to a $2.5 million receipt from a license agreement[112] Capital and Financing - The company plans to focus on the commercialization of its UltraMIST and PACE systems, which will require additional capital resources to support ongoing operations[35] - The company completed a private placement of approximately 1.3 million shares at a price of $8.25 per share, resulting in gross proceeds of approximately $10.3 million[85] - The company plans to use the net proceeds from the private placement for working capital and general corporate purposes, including repayment of other indebtedness[86] - The company has a 90% probability of the Note and Warrant Exchange occurring, which significantly impacts the valuation of warrant liabilities[70] - The company plans to obtain additional capital in 2024 through various means, which may result in significant dilution to existing stockholders[111] Strategic Developments - The company terminated its Merger Agreement with SEP Acquisition Corp. on June 25, 2024, which may impact future strategic directions[49] - The merger with SEP Acquisition Corp. is part of SANUWAVE's strategy to expand its market presence and enhance shareholder value through consolidation[138] - The ongoing amendments to the merger agreement suggest a dynamic approach to strategic partnerships and market positioning within the healthcare sector[138] - The company is actively pursuing new financing arrangements, as evidenced by the various agreements filed in January 2024, aimed at supporting its operational and growth initiatives[140] Internal Controls and Compliance - The company identified three material weaknesses in internal control over financial reporting as of September 30, 2024, which could lead to material misstatements in financial statements[123] - Management has engaged a third-party consultant to enhance internal controls and plans to implement these controls throughout 2024[126] - The company is collaborating with an external vendor to improve IT general controls over its enterprise resource planning system[127] - The Chief Executive Officer and Chief Financial Officer have certified compliance with SEC regulations as of November 7, 2024, ensuring accountability in financial reporting[146] - The company is focused on compliance with the Securities Exchange Act of 1934, ensuring transparency and regulatory adherence in its financial disclosures[144] Market and Customer Insights - Major customer concentration included Customer A, which accounted for 15% of revenue for the three months ended September 30, 2024[78]. - Vendor A accounted for 33% of purchases for the three months ended September 30, 2024, up from 22% in the same period of 2023[78]. Other Financial Metrics - Interest expense for the nine months ended September 30, 2024, was $6.1 million, compared to $5.1 million for the same period in 2023, indicating an increase in interest obligations[59] - Interest expense for the three months ended September 30, 2024, totaled $1.5 million, compared to $1.3 million for the same period in 2023[61] - Other expense decreased by $0.6 million to $22.6 million for the three months ended September 30, 2024, compared to the same period in 2023, primarily due to a decrease in the change in fair value of derivatives expense of $0.5 million[108] - For the nine months ended September 30, 2024, other expense decreased by $20.9 million to $21.5 million, driven by a $12.3 million decrease in the change in fair value of derivatives expense and a non-recurring gain on extinguishment of debt of $5.3 million[109]

Financial Performance - Total revenue for Q2 2024 was $7,162,000, representing a 53.4% increase from $4,675,000 in Q2 2023[17] - Operating income for Q2 2024 was $1,992,000, compared to an operating income of $931,000 in Q2 2023[17] - Net income for Q2 2024 was $6,561,000, a significant recovery from a net loss of $7,262,000 in Q2 2023[17] - Revenue for the three months ended June 30, 2024, totaled $7.2 million, an increase of 53% compared to $4.7 million for the same period in 2023[78] - Net income for the three months ended June 30, 2024, was $6.6 million, compared to a net loss of $7.3 million for the same period in 2023[79] - Total revenue for the six months ended June 30, 2024, was $12.9 million, an increase of 53% compared to $8.5 million for the same period in 2023[78] - Net income for the six months ended June 30, 2024, was $2.0 million, compared to a net loss of $20.4 million for the same period in 2023[80] Assets and Liabilities - Total current assets decreased to $8,724,000 as of June 30, 2024, down from $9,784,000 at the end of 2023[12] - Current liabilities decreased to $59,965,000 from $64,755,000 at the end of 2023, indicating improved financial stability[12] - Total assets decreased to $21,013,000 as of June 30, 2024, down from $22,416,000 at the end of 2023[12] - Stockholders' deficit improved to $(39,606,000) as of June 30, 2024, compared to $(43,178,000) at the end of 2023[14] - Cash and cash equivalents increased to $2,460,000 from $1,797,000 at the end of 2023, indicating better liquidity[12] Cash Flow and Financing - The company reported a net cash provided by operating activities of $432,000 for the six months ended June 30, 2024, compared to a net cash used of $1,215,000 in the same period of 2023[25] - Cash at the end of the period increased to $2,460,000 from $1,182,000 at the beginning of the period, representing a net change in cash of $663,000[25] - The company plans to obtain additional capital through various means, including the conversion of outstanding warrants and issuance of common stock[33] - The company has raised concerns regarding its ability to continue as a going concern due to recurring losses and dependency on future financing[31] - The company terminated the Merger Agreement on June 25, 2024, which may impact its future capital raising efforts[44] Expenses and Margins - Gross margin improved to $5,240,000 in Q2 2024, up from $3,473,000 in Q2 2023, reflecting a gross margin percentage increase from 74.3% to 73.2%[17] - General and administrative expenses increased by $0.6 million, or 49%, for the three months ended June 30, 2024, primarily due to increased headcount expenses[92] - Research and development expenses increased by $0.1 million, or 40%, for the three months ended June 30, 2024, remaining at 3% of revenue[94] - Gross margin for the three months ended June 30, 2024, was 73%, a slight decrease from 74% in the same period of 2023[90] Shareholder Information - As of June 30, 2024, the total number of shares issued and outstanding increased to 1,181,272,961 from 1,140,559,527 as of December 31, 2023, reflecting an increase of approximately 3.6%[22] - Basic net income per share for the three months ended June 30, 2024, was $0.01, while diluted net income per share was $0.00, compared to a basic loss per share of $(0.01) and diluted loss per share of $(0.01) for the same period in 2023[46] - Total shares used for calculating basic income per share increased to 1,182,598 for the three months ended June 30, 2024, from 582,329 in the same period of 2023[46] Internal Controls and Compliance - The company has identified three material weaknesses in internal control over financial reporting as of June 30, 2024, which could lead to material misstatements in financial statements[109] - Management has hired a third-party consultant to enhance internal controls and perform a risk assessment over financial reporting processes[112] - The company plans to remediate identified material weaknesses throughout 2024, including hiring additional resources and redesigning accounting and IT processes[112] - The company lacks expertise in applying U.S. GAAP to complex transactions, which contributes to the identified material weaknesses[111] - The existence of material weaknesses requires significant time and expense for remediation, potentially affecting the company's financial statements and shareholder confidence[114] Legal and Regulatory Matters - The company has disclosed ongoing legal proceedings, which may impact its financial condition[117] - The company is exploring alternative options to seek an uplisting to a national exchange after terminating the Merger Agreement on June 25, 2024[82]

Financial Performance - Revenue for Q1 2024 was $5,786,000, representing a 53% increase from $3,775,000 in Q1 2023[16] - Gross margin improved to $4,202,000 in Q1 2024, compared to $2,513,000 in Q1 2023, indicating a significant enhancement in profitability[16] - Operating loss decreased to $1,050,000 in Q1 2024 from $1,978,000 in Q1 2023, reflecting improved operational efficiency[16] - Net loss for Q1 2024 was $4,528,000, a reduction from $13,080,000 in Q1 2023, showing progress in financial performance[16] - Revenue for the three months ended March 31, 2024, totaled $5.8 million, an increase of 53% compared to $3.8 million for the same period in 2023[70] - Net loss for the three months ended March 31, 2024, was $4.5 million, or $0.00 per basic and diluted share, compared to a net loss of $13.1 million, or $0.02 per basic and diluted share, for the same period in 2023[71] - Operating loss for the three months ended March 31, 2024, totaled $1.1 million, an improvement of $0.9 million compared to 2023[71] - Gross margin as a percentage of revenue improved to 73% for the three months ended March 31, 2024, compared to 67% for the same period in 2023, reflecting a 600 basis points increase[82] - The company reported a net loss of $4.5 million for the three months ended March 31, 2024, a 65% improvement from a net loss of $13.1 million in the same period of 2023[81] Assets and Liabilities - Total current assets increased to $10,831,000 as of March 31, 2024, up from $9,784,000 at the end of 2023[12] - Total liabilities rose to $70,919,000 as of March 31, 2024, compared to $65,594,000 at the end of 2023, indicating increased financial obligations[12] - Cash and cash equivalents at the end of Q1 2024 were $2,936,000, up from $1,797,000 at the end of 2023, reflecting improved liquidity[20] - As of March 31, 2024, the Company had $21.7 million in senior secured debt, with a carrying value of $18.9 million after accounting for discounts[49] - The Company has accrued expenses totaling $6.8 million as of March 31, 2024, compared to $6.0 million at the end of 2023[48] - Total Convertible Promissory Notes Payable as of March 31, 2024, amounted to $10.004 million, with a remaining debt discount of $3.042 million[55] Capital and Financing - The company plans to raise additional capital in 2024 primarily through a merger, which is critical for ongoing operations[29] - Management highlighted the need for substantial resources for the commercialization of UltraMIST and PACE systems, necessitating further capital[28] - The Company deferred $1.6 million in merger costs until the closing of the merger, which is part of the recapitalization under the Merger Agreement[36] - The Merger Agreement, entered into on August 23, 2023, will result in SEPA acquiring 100% of the Company's equity securities, with the Company's stockholders expected to hold approximately 69-70% of the combined company[39] - The Company issued 7,793,000 shares of Class A Common Stock as part of the Merger Consideration, allocated pro rata based on ownership after conversion of outstanding securities[40] - Management plans to obtain additional capital in 2024 primarily through the closure of the Merger, which is expected to enhance the company's capital resources[89] Expenses and Costs - General and administrative expenses rose by $0.9 million or 33% for the three months ended March 31, 2024, primarily due to severance costs and non-recurring legal settlements[83] - Research and development expenses increased by 24% for the three months ended March 31, 2024, while remaining flat at 3% of revenue[86] - Interest expense on the Senior Secured Note was $1.9 million for the three months ended March 31, 2024, compared to $1.6 million for the same period in 2023[54] - Interest expense for the three months ended March 31, 2024, totaled $1.6 million, compared to $2.3 million for the same period in 2023[55] - Other expense, net decreased by $7.6 million to $3.5 million for the three months ended March 31, 2024, primarily due to a decrease in the change in fair value of derivatives expense[87] Internal Controls and Compliance - The company has identified three material weaknesses in internal control over financial reporting, which could lead to material misstatements in financial statements[101] - As of March 31, 2024, the company's disclosure controls and procedures were not operating effectively, as concluded by the Chief Executive Officer and Chief Financial Officer[100] - Management is committed to remediating the identified material weaknesses and has engaged a third-party consultant to assist in designing and documenting internal controls[103] - The company plans to implement internal controls for high-risk processes throughout 2024, including hiring additional resources to segregate duties and mitigate risks[103] - The company lacks the expertise and resources to properly apply U.S. GAAP to complex transactions, which has contributed to the identified material weaknesses[106] - There have been no changes in internal control over financial reporting during the quarter ended March 31, 2024, that materially affect internal controls[107] - The company is working with an outside vendor to improve IT general controls over its enterprise resource planning system[104] - The existence of material weaknesses requires significant time and expense for remediation, which could adversely affect the company's financial reporting and stock price[105] Market and Economic Conditions - Inflation has increased expenses related to employee compensation, office space leasing, and research and development, potentially impacting the company's financial condition[97] - The company may discover additional material weaknesses that require further time and resources to remediate[103] Shareholder Impact - The company reported a significant increase in weighted average shares outstanding, rising to 1,162,250,687 in Q1 2024 from 575,028,811 in Q1 2023, indicating potential dilution for existing shareholders[16] - The Company reported a diluted net loss per share of $0.12 for the three months ended March 31, 2024, compared to a loss of $0.10 for the same period in 2023[45] - The weighted average number of shares outstanding increased to 1,162,251 thousand shares for the three months ended March 31, 2024, up from 575,029 thousand shares in the prior year[45]

Merger and Financial Condition - The Company has entered into a Merger Agreement with SEP Acquisition Corp., which will result in the issuance of 7,793,000 shares of Class A Common Stock of SEPA to holders of Company common stock and other securities[17]. - Approximately 95% of outstanding warrants and 100% of convertible notes have committed to exchange for an aggregate of 1,217,222,186 shares and 219,841,980 shares of common stock, respectively, prior to the Closing[18]. - The Merger Agreement includes a Minimum Cash Condition of at least $12,000,000, which must be satisfied for the Business Combination to be consummated[93]. - SEPA Stockholders elected to redeem 495,067 shares of Class A Common Stock, necessitating PIPE Investment to satisfy the Minimum Cash Condition[94]. - As of the filing date, no commitments have been made for the proposed financing from the PIPE Investment, creating uncertainty regarding the amount raised[95]. - The company is required to raise additional funds to finance operations and remain a going concern, indicating substantial doubt about its ability to continue for at least twelve months from the filing date[111]. - The company has a history of losses, raising concerns about the Combined Company's ability to achieve or maintain profitability[106]. - The company incurred a net loss of $25.8 million and $10.3 million for the years ended December 31, 2023, and 2022, respectively[112]. - The operating loss was reduced by 94% to $0.5 million for the year ended December 31, 2023, compared to $9.0 million in 2022[209]. - The net loss for 2023 was $25.8 million, or ($0.03) per share, compared to a net loss of $10.3 million, or ($0.02) per share, in 2022[209]. - Management aims to secure additional capital in early 2024 primarily through the merger, but current private placements restrict the ability to incur new debt[116][123]. Product Development and Technology - The dermaPACE system has received FDA approval and is aimed at treating diabetic foot ulcers, which are a leading cause of hospitalization among diabetic patients, leading to billions in healthcare expenditures annually[24]. - The UltraMIST system is FDA approved for treating various wound types, including diabetic foot ulcers and pressure ulcers, by promoting healing below the skin surface[21]. - The PACE technology is designed to activate healing through acoustic pressure shockwaves, promoting angiogenesis and tissue regeneration[22]. - The Company is focused on the commercialization of its patented, non-invasive medical systems for the repair and regeneration of skin, musculoskeletal tissue, and vascular structures[27]. - The Company has established a network of scientific advisors to assist in clinical and pre-clinical study design and product development[28]. - The Company has a manufacturing supply agreement with Minnetronix Medical for the generator and treatment wand components, ensuring compliance with quality standards[33]. - The Company’s facility in Eden Prairie, MN is FDA registered and ISO 13485:2016 certified, providing office, product development, quality control, and warehouse space[36]. - The company entered into a license agreement with HealthTronics in August 2005, acquiring certain assets and intellectual property related to orthopedic and other medical conditions[40]. - In August 2020, the company acquired all assets related to the MIST Therapy System and UltraMIST System from Celularity, including intellectual property and trademarks[44]. - The company has a perpetual, non-exclusive and royalty-free license to nine issued foreign patents, with some patents expiring as late as 2038[43][49]. - The company holds a diverse patent portfolio, including shockwave devices and ultrasound technologies, with expiration dates extending into the 2040s[48][52]. Regulatory Compliance and Risks - Medical devices require FDA authorization prior to marketing, either through a 510(k) clearance or a PMA approval, with 510(k) submissions needing to demonstrate substantial equivalence to legally marketed devices[65]. - The company must comply with extensive post-approval regulations, including quality systems regulation and specific controls based on device classification[68]. - The company is subject to various international regulations and product registration requirements, which may differ significantly from FDA requirements[75]. - The company is registered as a Small Business Manufacturer with the FDA, which subjects it to reduced fees; however, exceeding a certain revenue threshold may result in losing this status[67]. - The company is subject to extensive governmental regulation, including FDA approval, which could affect the commercialization of its products[106]. - The company faces significant transaction and transition costs related to the Business Combination, which may impact future financial performance[103]. - The company is subject to periodic reviews and audits from governmental and private payors, which could result in significant costs and adverse effects on business operations[157]. - Regulatory compliance is extensive, with potential consequences including fines, product recalls, and operational restrictions[139][140]. - The company anticipates increased operational costs due to compliance with HIPAA regulations as it expands its business[155][156]. - The company may face increased restrictions on reimbursement for its products, impacting market acceptance and future revenues[146]. - Non-compliance with the Federal Anti-Kickback Statute and False Claims Act could lead to severe penalties and exclusion from federal healthcare programs[151][152]. Competition and Market Environment - The advanced wound care market is competitive, with major players including Acelity and Organogenesis, but the company believes its PACE technology offers superior value[58]. - The company faces competition from various companies in the extracorporeal shockwave device market, but believes its PACE systems have a competitive advantage[59]. - The medical device industry is highly competitive, with significant risks from established companies with greater resources and rapid technological changes[126]. - The company may seek to expand operations through acquisitions, which would likely increase capital requirements[125]. - Less than 5% of the company's revenue comes from international sources, with no current plans for significant international expansion[137]. Financial Performance and Stock Information - The company achieved a revenue growth of 22%, reaching $20.4 million for the year ended December 31, 2023, compared to $16.7 million in 2022[208]. - Gross margins decreased to 70% in 2023 from 74% in 2022[208]. - The company has not paid dividends in 2023 or 2022 and does not anticipate paying any in the foreseeable future[205]. - As of December 31, 2023, there were 1,140,559,527 shares of common stock outstanding[204]. - The stock price is volatile, influenced by operating results, financing ability, and market fluctuations[178]. - There is currently a limited trading market for the company's common stock, affecting liquidity[181]. Internal Controls and Cybersecurity - The Company has identified material weaknesses in internal controls over financial reporting, which could lead to misstatements in financial statements if not remediated[119][120]. - The company has experienced cybersecurity breaches, including email spoofing, despite investments in data protection[135]. - The company has not experienced any material cybersecurity breaches, but acknowledges potential future risks[196]. - The company relies heavily on information technology systems, facing risks from cybersecurity breaches and data leakage[134]. Supply Chain and Operational Risks - The company faces supply chain risks, as many product components are sourced from single suppliers, which could disrupt production if issues arise[127][128]. - There are potential liabilities from product use that could result in financial loss, with current insurance coverage possibly insufficient to cover claims[133]. - The company may incur significant costs due to compliance with federal, state, and local environmental laws and regulations[159]. - The company faces potential liabilities related to the use of hazardous materials in its operations, which could exceed its resources[159].

Financial Performance - Total revenue for Q3 2023 was $4,953,000, representing a 19% increase from $4,166,000 in Q3 2022[18] - Gross margin improved to $3,541,000 in Q3 2023, up from $3,009,000 in Q3 2022, indicating a stronger operational efficiency[18] - Operating loss decreased to $531,000 in Q3 2023 compared to $2,485,000 in Q3 2022, reflecting improved cost management[18] - Net loss for Q3 2023 was $23,700,000, significantly higher than the $1,139,000 loss in Q3 2022, primarily due to increased interest expenses and changes in fair value of derivative liabilities[18] - For the nine months ended September 30, 2023, the company reported a net loss of $44,042,000, compared to a net loss of $4,596,000 for the same period in 2022[27] - Net cash used in operating activities was $3,253,000, a significant improvement from $13,176,000 in the prior year[27] - The company reported a basic and diluted loss per share of $0.03 for Q3 2023, compared to a loss of $0.00 in Q3 2022[18] - EBITDA for the three months ended September 30, 2023, was $(19.589) million, compared to $2.917 million in the same period of 2022[96] - Adjusted EBITDA for the three months ended September 30, 2023, was $(0.264) million, compared to $(2.249) million in the same period of 2022[96] Assets and Liabilities - Total current assets increased to $7,394,000 as of September 30, 2023, compared to $6,620,000 at the end of 2022, driven by higher inventory levels[14] - Total liabilities rose to $86,296,000 as of September 30, 2023, up from $60,883,000 at the end of 2022, largely due to increased senior secured debt[14] - The company’s accumulated deficit increased to $238,284,000 as of September 30, 2023, compared to $194,242,000 at the end of 2022[16] - Cash balance decreased to $1,095,000 as of September 30, 2023, down from $1,153,000 at the end of 2022, indicating liquidity challenges[14] Shareholder Information - The number of shares outstanding increased to 1,026,078,464 as of September 30, 2023, from 548,737,651 at the end of 2022, reflecting shares issued for debt settlement[21] - The merger agreement involves SEPA acquiring 100% of the company's issued and outstanding equity securities, with the company's stockholders expected to hold approximately 69-70% of the combined company[47] - The merger consideration will consist of 7,793,000 shares of Class A Common Stock, allocated pro rata based on ownership after the conversion of outstanding convertible notes[48] Merger and Capital Resources - The company expects to devote substantial resources for the commercialization of UltraMIST and PACE systems, which will require additional capital resources[34] - The company plans to obtain additional capital primarily through closing a merger, which is expected to provide necessary funding[35] - The company has deferred $732,000 in merger costs until the closing of the merger[44] - Management plans to obtain additional capital primarily through the closure of the merger, which is expected to add approximately $12 million of additional capital[107] - The Merger Agreement includes a Minimum Cash Condition of $12 million, which must be satisfied for the Business Combination to be completed[130] Internal Controls and Compliance - The company has identified material weaknesses in its internal control over financial reporting as of September 30, 2023, which management is actively working to remediate[120] - The company is working with an external vendor to improve internal controls and ensure compliance with U.S. GAAP[121] - The company has not made any changes to its internal control over financial reporting that materially affect its operations during the quarter ended September 30, 2023[126] Risks and Uncertainties - The company faces risks related to the Business Combination, including conditions that may not be satisfied in a timely manner[129] - The company cannot assure that the shares of the Combined Company's Class A Common Stock will be approved for listing on Nasdaq following the Closing[137] - The Combined Company must maintain a minimum market capitalization of $50,000,000 and at least 300 public shareholders to continue listing on Nasdaq[138] - Significant transaction and transition costs are expected due to the Business Combination, including legal, accounting, and consulting fees, which will be paid by the Combined Company after closing[141] - Uncertainty surrounding the Business Combination may disrupt relationships with customers, suppliers, and business partners, potentially affecting future operations[139] - The Company is subject to contractual restrictions that may limit its ability to pursue business opportunities until the Business Combination is completed[140] - There is a risk that employees may experience uncertainty about their future roles, impacting the ability to retain and hire key personnel[143] Expenses and Financial Management - General and administrative expenses decreased by $0.8 million or 23% for the three months ended September 30, 2023, compared to the same period in 2022[101] - Selling and marketing expenses decreased by $0.6 million or 37% for the three months ended September 30, 2023, compared to the same period in 2022[102] - Other expense, net increased by $24.5 million to $23.2 million for the three months ended September 30, 2023, compared to the same period for 2022[105] - Cash provided by financing activities was $3.4 million for the nine months ended September 30, 2023, primarily due to new bridge notes payable and convertible lending activities[109]