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Item 2. Management’s Discussion and Analysis

2025-05-08 compared with 2024-11-07 · 80 added, 89 removed, 76 unchanged (69% of the section changed)

2 unchanged sentences

Executive Summary

We continued to realize significant revenue growth during the three months ended September 30, 2024 , as compared to the same period in 2023 .

Revenue for the three months ended September 30, 2024 , totaled $9.4 million, an increase of 89% , as compared to $5.0 million for the same period of 2023 .

Revenue for the nine months ended September 30, 2024 , totaled $22.3 million, an increase of 66% , as compared to $13.4 million for the same period of 2023 .

Net loss for the three months ended September 30, 2024 , was $20.7 million compared to a net loss of $23.7 million for the same period in 2023 .

The decrease in our net loss for the three months ended September 30, 2024 , was primarily related to an increase in operating income and a decrease in change of fair value of derivative liabilities.

For the three months ended September 30, 2024 , our operating income totaled $2.0 million, which is an improvement of $2.5 million compared to the same period of 2023 .

Net loss for the nine months ended September 30, 2024 , was $18.6 million, compared to a net loss of $44.0 million for the same period in 2023 .

The decrease in our net loss for the nine months ended September 30, 2024 , was primarily related to an increase in operating income, a decrease in change of fair value of derivative liabilities, a gain on the extinguishment of debt, and a one-time receipt related a third-party license and option agreement.

For the nine months ended September 30, 2024 , our operating income totaled $2.9 million, which is an improvement of $4.5 million compared to the same period of 2023 .

All share numbers, including the number of shares underlying warrants, options and convertible debt, and per share amounts presented in these financial statements, including these footnotes reflect a one-for-three hundred seventy five (1:375) reverse stock split of the Company's common stock effected on October 18, 2024 (the "Reverse Stock Split").

The Company's authorized shares of common and preferred stock along with the par value did not change.

No fractional shares will be issued as a result of the reverse stock split.

Any fractional shares that would have resulted from the reverse stock split will be settled in cash.

The reverse stock split will affect all common stockholders uniformly and will not alter any stockholder's percentage interest in the Company's common stock, except to the extent that the reverse stock split results in some stockholders experiencing an adjustment of a fractional share as described above.

We continued to realize significant revenue growth during the three months ended March 31, 2025, as compared to the same period in 2024 .

Revenue for the three months ended March 31, 2025, totaled $9.3 million , an increase of 61% , as compared to $5.8 million for the same period of 2024 .

Net loss for the three months ended March 31, 2025, was $5.7 million compared to a net loss of $4.5 million for the same period in 2024 .

The increase in our net loss for the three months ended March 31, 2025, was primarily related to an increase in change of fair value of derivative liabilities.

For the three months ended March 31, 2025, our operating income totaled $1.0 million , which is an improvement of $2.0 million compared to the same period of 2024 .

Recent Developments

On March 7, 2025, our common stock began trading on The Nasdaq Global Market under the ticker symbol “SNWV.”

Non-GAAP Financial Measures

Throughout this Management’s Discussion and Analysis of Financial Condition and Results of Operations, we present certain financial measures that facilitate management's review of the operational performance of the Company and as a basis for strategic planning;

however, such financial measures are not presented in our financial statements prepared in accordance with accounting principles generally accepted in the United States ("U.S.

however, such financial measures are not presented in our financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S.”) (“U.S.

These financial measures are considered "non-GAAP financial measures" and are intended to supplement, and should not be considered as superior to, or a replacement for, financial measures presented in accordance with U.S.

The Company uses Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) and Adjusted EBITDA to assess its operating performance.

Adjusted EBITDA is Earnings before Interest, Taxes, Depreciation and Amortization adjusted for the change in fair value of derivatives and any significant non-cash or non-recurring one-time charges.

EBITDA and Adjusted EBITDA should not be considered as alternatives to net income as a measure of financial performance or any other performance measure derived in accordance with U.S.

GAAP, and they should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.

Adjusted EBITDA is Earnings before Interest, Taxes, Depreciation and Amortization adjusted for the change in fair value of derivatives and any significant non-cash or non-recurring infrequent charges.

EBITDA and Adjusted EBITDA should not be considered as alternatives to net loss as a measure of financial performance or any other performance measure derived in accordance with U.S.

GAAP, and they should not be construed as an inference that our future results will be unaffected by unusual or infrequent items.

These non-GAAP financial measures are presented in a consistent manner for each period, unless otherwise disclosed.

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These measures also help the Company to make operational and strategic decisions.

The Company believes that providing this information to investors, in addition to GAAP measures, allows them to see the Company’s results through the eyes of management, and to better understand its historical and future financial performance.

non-GAAP financial measures are also frequently used by analysts, investors, and other interested parties to evaluate companies in our industry, when considered alongside other U.S.

The Company believes that providing this information to investors, in addition to U.S.

GAAP measures, allows them to see the Company’s results through the eyes of management, and to better understand its historical and future financial performance.

These non-GAAP financial measures are also frequently used by analysts, investors, and other interested parties to evaluate companies in our industry, when considered alongside other U.S.

GAAP measures.

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GAAP to Non-GAAP Reconciliations section below, our non-GAAP financial measure excludes the impact of certain charges that contribute to our net loss.

Three Months Ended September 30, Nine Months Ended September 30,

Three Months Ended March 31,

(in thousands) 2025 2024

Net Income/(Loss) $ (20,657) $ (23,700) $ (18,624) $ (44,042)

Net (Loss) Income $ (5,676) $ (4,528)

Non-GAAP Adjustments:

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Change in fair value of derivative liabilities 4,901 2,501

Other non-cash or non-recurring charges:

Gain on extinguishment of debt - - (5,205) -

Other non-cash or infrequent charges:

Stock-based compensation 975 -

Loss on extinguishment of debt - 105

Severance agreement and legal settlement - 585

Release of historical accrued expenses - - (579) (1,250)

Shares for services - - - 224

License and option agreement - (2,500)

Prepaid legal fees expensed from termination of Merger Agreement - - 457 -

Adjusted EBITDA $ 2,326 $ (59)

Results of Operations

For the Three Months Ended For the Nine Months Ended

September 30, Change September 30, Change

Three Months Ended March 31, Change

(in thousands) 2025 2024 $ %

Total Revenue $ 9,360 $ 4,953 $ 4,407 89 % $ 22,308 $ 13,404 $ 8,904 66 %

Cost of Revenues 2,293 1,412 881 62 % 5,799 3,876 1,923 50 %

Revenue $ 9,342 $ 5,786 $ 3,556 61 %

Cost of revenue 1,958 1,584 374 24 %

Gross margin 7,384 4,202 3,182 76 %

Gross Margin % 76 % 71 % 401 bps 74 % 71 % 292 bps

Gross margin % 79 % 73 %

Operating expenses:

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Operating income (loss) 986 (1,050) 2,036 194 %

Other Income (Expense) (22,610) (23,169) 559 2 % (21,519) (42,463) 20,944 49 %

Net Income (Loss) $ (20,657) $ (23,700) $ 3,043 13 % $ (18,624) $ (44,042) $ 25,418 58 %

Revenues and Gross Margin

Revenues for the three month-period ended September 30, 2024 , were $9.4 million compared to $5.0 million for the same period of 2023 , an increase of $4.4 million, or 89% .

The increase was primarily driven by the continued increased sales of our UltraMIST® system.

The increase in revenues was partially due to an increase in the average selling price of our consumables and parts revenue of 26% year over year, and the remainder of the growth was related to an increase in the number of consumables and systems sold year over year.

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 .

Revenues for the nine month-period ended September 30, 2024 , were $22.3 million compared to $13.4 million for the same period of 2023 , an increase of $8.9 million, or 66% .

The increase was primarily driven by the continued increased sales of our UltraMIST® system.

The increase in revenues was due to an increase in the average selling price of our consumables and parts revenue year over year, and the remainder of the growth was related to an increase in the number of consumables and systems sold year over year.

Gross margin as a percentage of revenue increased to 74% during the nine months ended September 30, 2024 , from 71% in the same period of 2023 .

General and Administrative Expenses

General and administrative expenses decreased $0.1 million or 5% for the three months ended September 30, 2024 , compared with the same period of 2023 .

The decrease for the three months ended September 30, 2024 , was primarily due to a decrease in insurance and consulting costs.

General and administrative expenses increased $1.4 million, or 21%, for the nine months ended September 30, 2024 , compared with the same period of 2023 .

The increase for the nine months ended September 30, 2024 , was primarily due to severance costs, a non-recurring legal settlement, increased headcount expenses.

Selling and Marketing Expenses

Selling and marketing expenses increased by $1.2 million, or 112%, for the three months ended September 30, 2024 , as compared with the same period of 2023 .

The increase was primarily due to increased head count and commission expenses as the sales team and activity grew in comparison to the same period of 2023 .

Selling and marketing expenses increased by $1.0 million, or 30%, for the nine months ended September 30, 2024 , as compared with the same period of 2023 .

The increase was primarily due to increased head count and commission expenses as the sales team and activity grew in comparison to the same period of 2023 .

Research and Development Expenses

Research and development expenses decreased slightly for the three months ended September 30, 2024 , as compared with the same period of 2023 .

Research and development expenses as a percentage of revenue decreased to 1.7% during the three months ended September 30, 2024 , compared to 3.3% for the same period in 2023 .

Research and development expenses increased $83,000, or 19%, for the nine months ended September 30, 2024 , as compared with the same period of 2023 .

Research and development expenses as a percentage of revenue decreased to 2.3% during the nine months ended September 30, 2024 , compared to 3.2% for the same period in 2023 .

Other (Expense)/Income, net

Three months ended September 30, Change Nine months ended September 30, Change

(in thousands) 2024 2023 $ % 2024 2023 $ %

Other expense, net (6,662) (3,478) (3,184) -92 %

Net loss $ (5,676) $ (4,528) $ (1,148) -25 %

Revenues for the t hree months ended March 31, 2025, were $9.3 million , compared to $5.8 million for the same period of 2024 , an increase of $3.6 million or 61% .

The increase in net sales was primarily driven by the growth in quantity of UltraMIST ® disposables and systems sold as well as a strategic focus on price discipline.

The quantity of UltraMIST ® disposables sold increased by 32% in the t hree months ended March 31, 2025, as compared to the same period of 2024 .

The quantity of UltraMIST ® systems sold increased by 128% in the t hree months ended March 31, 2025, as compared to the same period of 2024.

Pricing of the UltraMIST ® system and disposables also showed growth in the t hree months ended March 31, 2025, as compared to the same period of 2024;

the average selling price of disposables increased 8% in the t hree months ended March 31, 2025, and the average selling price of systems increased 8% in the t hree months ended March 31,

Revenue from UltraMIST ® totaled 99% of total revenue in the t hree months ended March 31, 2025, and over 90% in the same period of 2024 .

Cost of Revenue

Cost of revenues for the t hree months ended March 31, 2025, was $2.0 million , compared to $1.6 million for the same period of 2024 .

Gross profit as a percentage of revenues was 79% for the t hree months ended March 31, 2025, compared to 73% for the same period in 2024 .

This increase in gross margin was largely driven by improved pricing initiatives on our UltraMIST ® systems and applicators.

General and Administrative

General and administrative expenses for the three months ended March 31, 2025, were $4.5 million as compared to $3.7 million for the same period of 2024, an increase of $0.8 million, or 22%.

The increase in the three months ended March 31, 2025, as compared to the same period of 2024, was primarily due to non-cash charges for stock-based compensation expense totaling $0.8 million.

Selling and Marketing

Selling and marketing expenses for the t hree months ended March 31, 2025, were $1.5 million as compared to $1.2 million for the same period of 2024 , an increase of $0.3 million , or 24% .

The year-over-year increase in sales and marketing expenses in the t hree months ended March 31, 2025, was largely driven by increased headcount and non-cash charges for stock-based compensation.

Research and Development

Research and development expenses for each of the t hree months ended March 31, 2025, and March 31, 2024, were $0.2 million.

The research and development costs in the t hree months ended March 31, 2025, remained approximately consistent with the costs in the same period of 2024 .

Other Income (Expense), net

Other expense, net consists of the following:

Three Months Ended March 31, Change

2025 2024 $ %

Interest expense $ (1,852) $ (3,560) $ 1,708 48 %

Gain on extinguishment of debt - - - nm 5,205 - 5,205 nm

Change in fair value of derivatives (18,849) (19,325) 476 2 % (17,633) (29,943) 12,310 41 %

Other (expense) income (100) 1 (101) nm 1,913 (16) 1,929 nm

Change in fair value of derivative liabilities (4,901) (2,501) (2,400) (96 %)

Loss on extinguishment of debt - (105) 105 nm

Other expense (1) (102) 101 99 %

Other income 92 2,790 (2,698) (97 %)

Other expense, net $ (6,662) $ (3,478) $ (3,184) (92 %)

nm - not meaningful

Other expense decreased by $0.6 million to $22.6 million for the three months ended September 30, 2024 , as compared to the same period for 2023 .

The change was primarily due to a decrease in change in fair value of derivatives expense of $0.5 million.

Other expense decreased by $20.9 million to $21.5 million for the nine months ended September 30, 2024 , as compared to the same period for 2023 .

The decrease was primarily due to a decrease in change in fair value of derivatives expense of $12.3 million, recognition of a non-recurring gain on extinguishment of debt of $5.3 million and the receipt of $2.5 million from a third-party license and option agreement.

Other expenses totaled $6.7 million for the t hree months ended March 31, 2025, as compared to $3.5 million for the same period of 2024 , an increase of $3.2 million .

The increase was primarily driven by a decrease in other income of $2.7 million and an increased loss from the change in the fair value of derivative liabilities of $2.4 million , partially offset by a decrease in interest expense of $1.7 million.

The change in fair value of derivative liability relates to valuation of warrants previously issued by the Company.

Other income for the three months ended March 31, 2024 mainly consists of the one-time payment of $2.5 million related to the Patent License as described in Note 16.

Liquidity and Capital Resources

Since inception, we have incurred losses from operations each year.

As of September 30, 2024 , we had an accumulated deficit of $239 million .

Historically, our operations have primarily been funded from the sale of capital stock, notes payable, and convertible debt securities.

The events of default on our senior secured debt and working capital deficit 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.

We expect to devote substantial resources for the commercialization of the UltraMIST and PACE systems which will require additional capital resources to remain a going concern.

Management’s plans may include obtaining additional capital in 2024.

We could 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 our existing stockholders.

In addition, there can be no assurances that our plans to obtain additional capital will be successful on the terms or timeline we expect, or at all.

If these efforts are unsuccessful, we may be required to significantly curtail or discontinue operations or, if available, obtain funds through financing transactions with unfavorable terms.

Statement of Cash Flows

For the nine months ended September 30,

As of March 31, 2025, we had an accumulated deficit of $257.1 million .

Historically, our operations have primarily been funded from the sale of capital stock, issuances of notes payable, and convertible debt securities.

The Company has incurred recurring operating losses in prior years, has negative working capital, and the Senior Secured Note becomes due in September 2025, which raises substantial doubt about our ability to continue as a going concern for a period of 12 months from the filing of the Form 10-Q.

During the current and prior fiscal year, the Company has achieved operating income, reflecting a significant improvement in its financial performance.

The Company is addressing its financial obligations, including the significant portion of debt that is coming due in September 2025.

Management is actively engaged in discussions with lenders and financial institutions to refinance this debt, which would extend the maturity of the debt and provide additional liquidity to support ongoing operations and strategic initiatives.

Although no assurances can be given that our plans to obtain refinancing will be successful or on the terms or timeline we expect, or at all, management believes that the actions taken to date, along with the planned initiatives, will enable the Company to meet its obligations as they become due and to continue as a going concern..

If these efforts are unsuccessful, we may be required to significantly curtail or discontinue operations or obtain funds through financing transactions with unfavorable terms.

The following table presents summarized cash flow information:

Three Months Ended March 31,

(in thousands) 2025 2024

Cash flows provided by (used in) operating activities $ 1,714 $ (3,253)

Cash flows (used in) provided by operating activities $ (1,517) $ 1,100

Cash flows used in investing activities $ (162) $ (114)

Cash flows provided by (used in) financing activities $ (119) $ 3,356

Cash provided by operating activities during the nine months ended September 30, 2024 , totaled $1.7 million as compared to cash used by operating activities of $3.3 million in the previous year period.

This improvement in cash provided by operations was primarily driven by the receipt of $2.5 million related to a license agreement and option agreement, the increase in revenues, and improvements in operations management including accounts receivable, inventory and accounts payable.

Cash flows (used in) provided by financing activities $ (57) $ 42

Cash used in operating activities for the three months ended March 31, 2025, totaled $1.5 million and consisted primarily of a net loss of $5.7 million and a decrease in net operating assets of $2.5 million, partially offset by non-cash charges of $4.9 million related to a change in the fair value of derivative liabilities, $1.0 million related to stock-based compensation expense, and $0.5 million related to amortization of debt issuance and debt discounts.

Net operating assets consisted primarily of inventory, accrued expenses, and accounts receivable to support the growth of our operations.

Cash provided by operating activities for the three months ended March 31, 2024 totaled $1.1 million and consisted primarily of a net loss of $4.5 million, partially offset by non-cash charges of $2.5 million related to a change in the fair value of derivative liabilities and $1.6 million related to amortization of debt issuance and debt discounts, as well as the receipt of $2.5 million related to the License and Option Agreement, as further discussed in Note 16 to the financial statements.

Critical Accounting Estimates

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The outcomes of these legal actions are not completely within our control and may not be known for prolonged periods of time.

In some actions, the enforcement agencies or private claimants seek damages that could require significant expenditures or result in lost revenues or limit our ability to conduct business in the applicable jurisdictions.

In some actions, the enforcement agencies or private

claimants seek damages that could require significant expenditures or result in lost revenues or limit our ability to conduct business in the applicable jurisdictions.

Estimating probable losses from our litigation and governmental proceedings is inherently difficult, particularly when the matters are in early procedural stages, with incomplete scientific facts or legal discovery;

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Our significant legal proceedings are discussed in Note 17 to the condensed consolidated financial statements.

Derivative Liabilities from Embedded Conversion Options and Warrants

The Company classified certain convertible instruments as having embedded conversion options which qualified as derivative financial instruments to be separately accounted for.

The Company also further determined that certain warrants also qualified as derivative financial instruments.

Derivative Liabilities from Warrants

The Company determined that certain warrants qualified as derivative financial instruments.

Various valuation models were used to estimate the fair value of these derivative financial instruments that are classified as derivative liabilities on the condensed consolidated balance sheets.

The models include subjective input assumptions that can materially affect the fair value estimates and as such are subject to uncertainty.

The Company's volatility is the most significant assumption and changes over time with the market.

Our significant input assumptions are discussed in Note 10 to the condensed consolidated financial statements.

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All significant expenses are generated in the United States and all significant assets are in the United States.

For further information on the Company's operating segment, refer to Note 18 to the condensed consolidated financial statements.

Effects of Inflation

Our assets are, to an extent, liquid in nature, so they are not significantly affected by inflation.

However, the rate of inflation, which has increased, affects expenses such as employee compensation, office space leasing costs and research and development charges, which may not be readily recoverable.

To the extent inflation results in rising interest rates and has other adverse effects on the market, it may adversely affect our condensed consolidated financial condition and results of operations.

However, the rate of inflation, which remains elevated, affects expenses such as employee compensation, office space leasing costs and research and development charges, which may not be readily recoverable.

To the extent inflation results in rising interest rates and has other adverse effects on the market, it may adversely affect our consolidated financial condition and results of operations.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis