SANUWAVE Health, Inc. 10-Q

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and the related notes appearing elsewhere in this report, and together with our audited consolidated financial statements, related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” as of and for the year ended December 31, 2024 included in our Annual Report on Form 10-K, filed with the SEC on March 20, 2025 (the “2024 Annual Report”). Executive Summary We continued to realize significant revenue growth during the three months ended September 30, 2025, as compared to the same period in 2024 . Revenue for the three months ended September 30, 2025, totaled $11.5 million , an increase of 22% , as compared to $9.4 million for the same period of 2024 . Revenue for the nine months ended September 30, 2025, totaled $31.0 million , an increase of 39% , as compared to $22.3 million for the same period of 2024 . Net income for the three months ended September 30, 2025, was $10.3 million compared to net loss of $20.7 million for the same period in 2024 . The increase in our net income for the three months ended September 30, 2025, was primarily related to the change in fair value of derivative liabilities of $6.1 million for the three months ended September 30, 2025 compared to a loss of $18.8 million for the three months ended September 30, 2024 and $5.2 million in other income for the three months ended September 30, 2025 compared to none for the three months ended September 30, 2024 . The change in fair value of derivative liability relates to the valuation of warrants previously issued by the Company. Other income for the three months ended September 30, 2025 mainly consists of the one-time payment of $5.0 million related to the patent purchase agreement as described in Note 15 of our condensed consolidated financial statements for the period. For the three months ended September 30, 2025, our operating income totaled $1.5 million compared to $2.0 million for the same period of 2024. The decrease in net income was mainly due to an increase in non-cash charges for stock-based compensation of $1.4 million for the three months ended September 30, 2025 as compared to the same period of 2024. Net income for the nine months ended September 30, 2025, was $5.7 million compared to a net loss of $18.6 million for the same period in 2024 . The increase in net income for the nine months ended September 30, 2025, was primarily related to the change in fair value of derivative liabilities of $2.2 million for the nine months ended September 30, 2025 compared to a loss of $17.6 million for the nine months ended September 30, 2024 and a decrease in interest expense in the nine months ended September 30, 2025 of $4.5 million compared to the same period of 2024. For the nine months ended September 30, 2025, our operating income totaled $4.3 million , which is an improvement of $1.4 million compared to the same period of 2024 . The increase in operating income was mainly driven by an increase in revenue and gross margin for the nine months ended September 30, 2025. 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.”) (“U.S. GAAP”). 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. GAAP. 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 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. The Company uses these measures for the purpose of evaluating its historical and prospective financial performance, as well as its performance relative to competitors. These measures also help the Company to make operational and strategic decisions. The Company believes 24 Table of Contents 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. EBITDA and Adjusted EBITDA have their limitations as analytical tools, and you should not consider them in isolation or as a substitute for analysis of our results as reported under U.S. GAAP. Some of these limitations are that EBITDA and Adjusted EBITDA: • 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. As presented in the U.S. GAAP to Non-GAAP Reconciliations section below, our non-GAAP financial measure excludes the impact of certain charges that contribute to our net income (loss). Three Months Ended September 30, Nine Months Ended September 30, (in thousands) 2025 2024 2025 2024 Net Income (Loss) $ 10,325 $ (20,657) $ 5,704 $ (18,624) Non-GAAP Adjustments: Interest expense 1,722 3,661 5,448 11,004 Depreciation and amortization 329 256 902 736 EBITDA 12,376 (16,740) 12,054 (6,884) Non-GAAP Adjustments for Adjusted EBITDA: Change in fair value of derivative liabilities (6,097) 18,849 (2,186) 17,633 Other non-cash or infrequent charges: Stock-based compensation 1,397 - 3,513 - Loss (Gain) on extinguishment of debt 477 - 477 (5,205) Loss on impairment of assets 196 - 196 - Severance agreement and legal settlement 113 - 113 585 Release of historical accrued expenses - - - (579) Gain on license and option agreement (5,000) - (5,000) (2,500) Prepaid legal fees expensed from termination of Merger Agreement - - - 457 Adjusted EBITDA $ 3,462 $ 2,109 $ 9,167 $ 3,507 25 Table of Contents Results of Operations Three Months Ended September 30, Change Nine Months Ended September 30, Change (in thousands) 2025 2024 $ % 2025 2024 $ % Revenue $ 11,451 $ 9,360 $ 2,091 22 % $ 30,957 $ 22,308 $ 8,649 39 % Cost of revenue 2,526 2,293 233 10 % 6,690 5,799 891 15 % Gross margin 8,925 7,067 1,858 26 % 24,267 16,509 7,758 47 % Gross margin % 78 % 76 % 78 % 74 % Operating expenses: General and administrative 4,810 2,545 2,265 89 % 13,316 8,059 5,257 65 % Selling and marketing 2,081 2,202 (121) -5 % 5,286 4,468 818 18 % Research and development 345 161 184 114 % 747 519 228 44 % Depreciation and amortization 222 206 16 8 % 588 568 20 4 % Operating income 1,467 1,953 (486) -25 % 4,330 2,895 1,435 50 % Other income (expense) 8,858 (22,610) 31,468 -139 % 1,374 (21,519) 22,893 -106 % Net income (loss) $ 10,325 $ (20,657) $ 30,982 -150 % $ 5,704 $ (18,624) $ 24,328 -131 % Revenue Revenues for the t hree months ended September 30, 2025, were $11.5 million , compared to $9.4 million for the same period of 2024 , an increase of $2.1 million or 22% . The increase in net sales was primarily driven by the growth in quantity of UltraMIST ® disposables and systems sold. The quantity of UltraMIST ® disposables sold increased by 23% in the t hree months ended September 30, 2025, as compared to the same period of 2024 . The quantity of UltraMIST ® systems sold increased by 25% in the t hree months ended September 30, 2025, as compared to the same period of 2024. Pricing of the UltraMIST ® disposables showed growth in the t hree months ended September 30, 2025, as compared to the same period of 2024; the average selling price of disposables increased 3% in the t hree months ended September 30, 2025. The average selling price of systems decreased 4% in the t hree months ended September 30, 2025. Revenue from UltraMIST ® totaled 99% of total revenue in the t hree months ended September 30, 2025, and over 99% in the same period of 2024 . Revenues for the nine months ended September 30, 2025, were $31.0 million , compared to $22.3 million for the same period of 2024 , an increase of $8.6 million or 39% . 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 28% in the nine months ended September 30, 2025, as compared to the same period of 2024 . The quantity of UltraMIST ® systems sold increased by 54% in the nine months ended September 30, 2025, as compared to the same period of 2024. Pricing of the UltraMIST ® system and disposables also showed growth in the nine months ended September 30, 2025, as compared to the same period of 2024; the average selling price of disposables increased 6% in the nine months ended September 30, 2025, and the average selling price of systems increased 1% in the nine months ended September 30, 2025. Revenue from UltraMIST ® totaled 99% of total revenue in the nine months ended September 30, 2025, and over 98% in the same period of 2024 . Cost of Revenues Cost of revenues for the t hree months ended September 30, 2025, was $2.5 million , compared to $2.3 million for the same period of 2024 . Gross profit as a percentage of revenues was 78% for the t hree months ended September 30, 2025, compared to 76% for the same period in 2024 . This increase in gross margin was largely driven by improved pricing initiatives on our UltraMIST ® systems and applicators as well as a decrease in the cost of systems. Cost of revenues for the nine months ended September 30, 2025, was $6.7 million , compared to $5.8 million for the same period of 2024 . Gross profit as a percentage of revenues was 78% for the nine months ended September 30, 2025, 26 Table of Contents compared to 74% 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 September 30, 2025, were $4.8 million as compared to $2.5 million for the same period of 2024, an increase of $2.3 million, or 89%. The increase in the three months ended September 30, 2025, as compared to the same period of 2024, was primarily due to non-cash charges for stock-based compensation totaling $1.2 million, increased headcount expenses of $0.5 million, legal expenses of $0.1 million, and software expenses of $0.1 million. General and administrative expenses for the nine months ended September 30, 2025, were $13.3 million as compared to $8.1 million for the same period of 2024, an increase of $5.3 million, or 65%. The increase in the nine months ended September 30, 2025, as compared to the same period of 2024, was primarily due to non-cash charges for stock-based compensation expense totaling $2.9 million, increased headcount expenses of $1.7 million, and public company costs of $0.3 million. Selling and Marketing Selling and marketing expenses for the t hree months ended September 30, 2025, were $2.1 million as compared to $2.2 million for the same period of 2024 , a decrease of $0.1 million , or 5% . The year-over-year decrease in sales and marketing expenses in the t hree months ended September 30, 2025, was primarily due to a decrease of $1.0 million in outside commission expense, partially offset by an increase in headcount expenses of $0.8 million. Selling and marketing expenses for the nine months ended September 30, 2025, were $5.3 million as compared to $4.5 million for the same period of 2024 , an increase of $0.8 million , or 18% . The year-over-year increase in sales and marketing expenses for the nine months ended September 30, 2025, was primarily due to increased headcount expenses of $2.2 million , partially offset by a decrease in outside commission expense of $1.3 million . Research and Development Research and development expenses for the three months ended September 30, 2025 were $0.3 million compared to $0.2 million for the three months ended September 30, 2024. The research and development costs in the t hree months ended September 30, 2025, remained approximately consistent with the costs in the same period of 2024. Research and development expenses for the nine months ended September 30, 2025 were $0.7 million compared to $0.5 million for the nine months ended September 30, 2024 . The research and development costs in the nine months ended September 30, 2025, remained approximately consistent with the costs in the same period of 2024. 27 Table of Contents Total Other Income (Expense) Other income (expense) consists of the following: Three Months Ended September 30, Change Nine Months Ended September 30, Change 2025 2024 $ % 2025 2024 $ % Interest expense $ (1,722) $ (3,661) $ 1,939 53 % $ (5,448) $ (11,004) $ 5,556 50 % Change in fair value of derivative liabilities 6,097 (18,849) 24,946 132 % 2,186 (17,633) 19,819 112 % Gain (Loss) on extinguishment of debt (477) - (477) - % (477) 5,205 (5,682) 109 % Loss on impairment of assets (196) - (196) - % (196) - (196) -% Other expense (14) (106) 92 87 % (42) (893) 851 95 % Other income 5,170 6 5,164 86067 % 5,351 2,806 2,545 91 % Total Other Income (Expense) $ 8,858 $ (22,610) $ 31,468 139 % $ 1,374 $ (21,519) $ 22,893 106 % Total other income (expense) increased by $31.5 million to other income of $8.9 million for the t hree months ended September 30, 2025, as compared to an expense of $22.6 million for the same period of 2024 . The increase was primarily driven by the change in fair value of derivative liabilities of $24.9 million and other income of $5.2 million. The change in fair value of derivative liability relates to the valuation of warrants previously issued by the Company. Other income for the three months ended September 30, 2025 mainly consists of the one-time payment of $5.0 million related to the patent purchase agreement as described in Note 15 of our condensed consolidated financial statements for the period. Total other income (expense) increased by $22.9 million to other income of $1.4 million for the nine months ended September 30, 2025, as compared to other expense of $21.5 million for the same period of 2024 . The increase was primarily driven by the change in fair value of derivative liabilities of $19.8 million, interest expense of $5.6 million, and other income of $2.5 million, partially offset by the gain on extinguishment of debt of $5.7 million. The change in fair value of derivative liability relates to the valuation of warrants previously issued by the Company. Other income for the nine months ended September 30, 2025 mainly consists of the one-time payment of $5.0 million related to the patent purchase agreement as described in Note 15 of our condensed consolidated financial statements for the period. Other income for the nine months ended September 30, 2024 mainly consists of the one-time payment of $2.5 million related to the Patent License agreement as described in Note 15 of our condensed consolidated financial statements for the period. Liquidity and Capital Resources From inception through the year ended December 31, 2023, we incurred losses from operations each year. As of September 30, 2025, we had an accumulated deficit of $245.7 million . Historically, our operations have primarily been funded from the sale of capital stock, issuances of notes payable, and convertible debt securities. We have incurred recurring net losses in prior years, currently have a significant accumulated deficit, and have experienced negative working capital. Previously, the scheduled maturity of the Senior Secured Note (as defined in Note 7) in September 2025 raised substantial doubt about our ability to continue as a going concern for a period of 12 months from the filing of the prior Form 10-Q. However, as described in Note 7 of our condensed consolidated financial statements for the period , we successfully refinanced our outstanding debt during the three months ended September 30, 2025. The refinancing extended the maturity of our debt and provided the option for additional liquidity to support ongoing operations through the s ecured revolving credit facility . In addition, the operating income achieved in the current year, the receipt of $5 million from the patent purchase agreement, and the capital raised from a private placement in October 2024 have all contributed to a significant improvement in our financial position. As discussed in Note 2, management has evaluated our ability to continue as a going concern in light of these developments. Based on the successful refinancing and other recent initiatives, management believes the Company has 28 Table of Contents sufficient resources to meet its obligations as they become due and to continue as a going concern for at least the next 12 months. We continue to monitor our financial position, liquidity, and compliance with debt covenants on an ongoing basis. Management remains focused on maintaining the Company’s improved financial position and operational momentum. While we continue to monitor our liquidity and capital resources closely, we believe that the successful refinancing of our debt, as described in Note 7, together with our recent operating income and capital initiatives, have significantly strengthened our ability to meet our obligations as they come due. As discussed in Note 2, these actions have alleviated the substantial doubt about our ability to continue as a going concern. We will continue to evaluate opportunities to further enhance our capital structure and support our growth strategy. Although we cannot predict all future events or guarantee that unforeseen circumstances will not arise, we are confident that the steps taken to date position the Company well to support ongoing operations and execute on our strategic objectives. The following table presents summarized cash flow information: Nine Months Ended September 30, (in thousands) 2025 2024 Cash flows provided by operating activities $ 557 $ 1,714 Cash flows provided by (used in) investing activities $ 3,154 $ (254) Cash flows used in financing activities $ (4,346) $ (119) Cash provided by operating activities for the nine months ended September 30, 2025, totaled $0.6 million and consisted primarily of net income of $5.7 million and an increase in net operating assets of $5.1 million, partially offset by non-cash charges of $3.5 million related to stock-based compensation expense, $2.2 million related to a change in the fair value of derivative liabilities, and $1.4 million related to amortization of debt issuance and debt discounts. Net operating assets consisted primarily of inventory, accrued expenses, prepaid expenses and accounts receivable to support the growth of our operations. Cash provided by operating activities for the nine months ended September 30, 2024 totaled $1.7 million and consisted primarily of a net loss of $18.6 million and a gain of extinguishment of debt of $5.2 million, partially offset by non-cash charges of $17.6 million related to a change in the fair value of derivative liabilities and $4.8 million related to amortization of debt issuance and debt discounts, as well as the receipt of $2.5 million related to the Patent License, as further discussed in Note 15 to the condensed consolidated financial statements. Cash provided by investing activities for the nine months ended September 30, 2025, totaled $3.2 million and consisted primarily of proceeds from the patent purchase agreement of $5.0 million partially offset by purchases of property and equipment of $1.8 million, of which $0.9 million was related to leasehold improvements at our new headquarters and $0.7 million was related to purchases of property and equipment related to manufacturing equipment. Cash used in investing activities for the nine months ended September 30, 2024 , totaled $0.3 million and primarily consisted of purchases of property and equipment related to manufacturing equipment. Cash used in financing activities for the nine months ended September 30, 2025, totaled $4.3 million and consisted primarily of paying off the Existing Debt as described in Note 7 to the condensed consolidated financial statements and offset by the proceeds of the secured term loan and secured revolving credit facility as also described in Note 7 to the condensed consolidated financial statements. Cash used in financing activities for the nine months ended September 30, 2024 , totaled $0.1 million and consisted primarily of payment of a note payable and offset by proceeds from a note payable. Critical Accounting Estimates We have used various accounting policies to prepare the condensed consolidated financial statements in accordance with U.S. GAAP. Our significant accounting policies are disclosed in Note 3 to the consolidated financial statements in Part II Item 8. “Financial Statements and Supplementary Data” in our 2024 Annual Report on Form 10-K filed with the SEC on March 20, 2025. The preparation of the condensed consolidated financial statements, in conformity with U.S. GAAP, requires us to use judgment in making estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. These estimates reflect our best judgment about economic and market conditions and the potential effects on the 29 Table of Contents valuation and/or carrying value of assets and liabilities based upon relevant information available. We base our estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Segment and Geographic Information We have determined that we have one operating segment. Our revenues are generated from sales primarily in the United States. 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 17 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 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. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide the information required under this item.