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Item 7. Management’s Discussion and Analysis

2026-03-26 compared with 2025-03-20 · 101 added, 75 removed, 104 unchanged (63% of the section changed)

4 unchanged sentences

"Financial Statements and Supplementary Data" in this Annual Report on Form 10-K.

Amounts reported in thousands within this annual report

are computed based on the amounts in thousands, and therefore, the sum of the components may not equal the total amount reported in thousands due to rounding.

This discussion has been updated to reflect the restatement of our previously issued financial statements for the quarters ended March 31, June 30, September 30, 2025, and the year ended 2024.

All amounts and discussions herein are based on the restated financial information.

Refer to Note 2 to the consolidated financial statements for further details regarding the nature and impact of the restatement.

Amounts reported in thousands within this annual report are computed based on the amounts in thousands, and therefore, the sum of the components may not equal the total amount reported in thousands due to rounding.

Executive Summary

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Gross margins also increased to 77% from 75% in 2024 .

As the Company continues to focus on profitable growth, we have also increased our operating income by 1103% to $5.4 million for the year ended December 31, 2024, compared to an operating loss of $0.5 million for the year ended December 31, 2023.

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 basic and diluted share, for the year ended December 31, 2023 , an increase of $5.6 million , which was largely driven by a non-cash change in the fair value of derivatives.

As the Company continues to focus on profitable growth, we have also increased our operating income by 29% to $4.9 million for the year ended December 31, 2025, compared to $3.8 million for the year ended December 31, 2024.

Net income for the year ended December 31, 2025 , was $11.8 million , or $1.38 per basic share and $0.41 per diluted share, compared to a net loss of $33.1 million , or $7.41 per basic and diluted share, for the year ended December 31, 2024 , an increase of $44.9 million , which was largely driven by a non-cash change in the fair value of derivatives and improved operational performance.

We believe these improvements set the stage for additional growth as we head into 2026.

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

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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.

EBITDA and Adjusted EBITDA should not be considered as alternatives to net income (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.

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• Do not reflect interest expense, or the amount necessary to service our outstanding debt.

As presented in the GAAP to Non-GAAP Reconciliations section below, our non-GAAP financial measures exclude the impact of certain charges that contribute to our net loss.

For the year ended

As presented in the GAAP to Non-GAAP Reconciliations section below, our non-GAAP financial measures exclude the impact of certain charges that contribute to our net income (loss).

For the Years Ended December 31,

(in thousands) 2025 2024

Net (Loss) Income $ (31,372) $ (25,807)

(As Restated)

Net Income (Loss) $ 11,813 $ (33,083)

Non-GAAP Adjustments:

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Other non-cash or infrequent charges:

Gain on extinguishment of debt (6,326) -

Stock-based compensation 4,850 1,514

Loss (Gain) on extinguishment of debt 477 (6,326)

Loss on impairment of assets 196 -

Severance agreement and legal settlement 202 741

Release of historical accrued expenses - (1,547)

Stock-based compensation 1,514 -

Shares issued for services - 224

License and option agreement (2,500) -

Gain on license and option agreement (5,000) (2,500)

Prepaid legal fees expensed from termination of Merger Agreement - 457

State and local sales tax 1

Sale and disposal of PACE product line 2

Adjusted EBITDA $ 13,632 $ 7,162

1 The charges represent a non-recurring state and local sales tax expense related to the restatement of prior period financial statements.

2 The charges represent the net amount of proceeds received of $0.4 million and inventory written down of $0.5 million, as part of the Company's sale and disposal of the PACE product line.

Results of Operations

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(in thousands) 2025 2024

(As Restated) $ %

Revenue $ 44,051 $ 32,634 $ 11,417 35 %

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Depreciation and amortization 880 789 91 12 %

Operating income (loss) 5,417 (540) 5,957 1103 %

Other expense, net (36,762) (25,263) (11,499) 46%

Operating Income 4,945 3,848 1,097 29 %

Total Other Income (Expense) 6,954 (36,904) 43,858 119 %

Income tax expense 86 27 59 219 %

Net loss $ (31,372) $ (25,807) $ (5,565) 22 %

Net Income (Loss) $ 11,813 $ (33,083) $ 44,896 136 %

Revenues for the year ended December 31, 2025 were $44.1 million , compared to $32.6 million for 2024 , an increase of $11.4 million or 35% .

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 37% in 2024 as compared to 2023 .

The quantity of UltraMIST ® systems sold increased by 77% in 2024 as compared to 2023.

Pricing of the UltraMIST ® system and disposables also showed growth in 2024 as compared to 2023;

disposables average selling price increased 21% in 2024 , and systems average selling price increased 10% in 2024 .

Revenue from UltraMIST ® totaled over 98% of total revenue in 2024 and 90% in 2023 .

The increase in revenue was primarily driven by higher sales volumes of UltraMIST® consumables and systems.

The quantity of UltraMIST® consumables sold increased 24%, and UltraMIST® systems sold increased by 67% in 2025 compared to 2024 .

Pricing trends also contributed to year-over-year performance.

The average selling price of UltraMIST® consumables increased 3% in 2025 compared to 2024.

In contrast, the average selling price of UltraMIST® systems declined by 3% , primarily due to a higher proportion of sales through resellers.

UltraMIST® systems sold through resellers comprised 34% of system sales in 2025 compared to no reseller system sales in 2024.

Expanding reseller sales supports faster placement of systems into customer facilities and contributes to growth in our active system base.

Cost of Revenue

Cost of revenues for the year ended December 31, 2024 was $8.1 million , compared to $6.0 million for 2023 .

Cost of revenues for the year ended December 31, 2025 were $10.1 million , compared to $8.1 million for 2024 .

Gross profit as a percentage of revenues was 77% for the year ended December 31, 2025 , compared to 75% for the same period in 2024 .

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

This increase in gross margin was largely driven by increased pricing on our UltraMIST® consumables and reductions in system cost of revenue, partially offset by a decrease in UltraMIST® system pricing, largely resulting from a higher reseller mix.

The average gross profit of systems sold increased 0.1% in 2025 compared to 2024.

General and Administrative

General and administrative expenses for the year ended December 31, 2025 were $19.4 million as compared to $12.9 million for 2024 , an increase of $6.5 million , or 50% .

The increase in 2024 as compared to 2023 was primarily due to increased headcount, severance and legal settlement expenses, and non-cash charges for stock-based compensation expense.

The increase in 2025 as compared to 2024 was primarily due to increased headcount expenses of $2.7 million , non-cash charges for stock-based compensation totaling $2.4 million , software expenses of $0.4 million , audit and tax professional expenses of $0.2 million , and public company costs of $0.2 million .

Selling and Marketing

Selling and marketing expenses for the year ended December 31, 2025 were $7.4 million as compared to $6.3 million for 2024 , an increase of $1.1 million , or 17% .

The year-over-year increase in sales and marketing expenses in 2024 was largely driven by increased commission expenses due to increased sales.

The year-over-year increase in sales and marketing expenses in 2025, was primarily driven by increased headcount expenses of $1.9 million , non-cash charges for stock-based compensation totaling $0.8 million , and consulting expenses of $0.5 million , partially offset by a decrease in outside commission expense of $1.9 million as our focus shifted toward a higher mix of resellers versus distributors.

Research and Development

Research and development expenses for the year ended December 31, 2025 were $1.4 million , compared to $0.7 million for 2024 .

The research and development costs in 2024 remained approximately consistent with the costs in 2023 .

The increase in research and development costs in 2025 as compared to 2024 , was largely driven by research and development (R&D) project expenses totaling $0.2 million, consulting expenses of $0.2 million, and patent legal fees of $0.2 million.

Other Income (Expense), net

Other expense, net consists of the following:

Other income (expense), net consists of the following:

For the Years Ended December 31, Change

2024 2023 $ %

(As Restated) $ %

Interest expense $ (6,246) $ (13,779) $ 7,533 (55%)

Change in fair value of derivatives (31,413) (9,621) (21,792) nm

Gain on extinguishment of debt 6,326 - 6,326 nm

Other expense (893) (19) (874) nm

Other income 2,855 - 2,855 nm

Other expense, net $ (36,762) $ (25,263) $ (11,499) nm

nm - not meaningful

Other expenses totaled $36.8 million for the year ended December 31, 2024 , as compared $25.3 million for 2023 , an increase of $11.5 million .

The increase was primarily driven by an increased loss from the change in the fair value of derivative liability of $21.8 million , partially offset by a gain on the extinguishment of debt of $6.3 million and other income of $2.5 million from a license and option agreement.

The change in fair value of the derivative liability mainly relates to warrants issued during 2024, 2023, and 2022 with the convertible debt.

That convertible debt and associated warrants were converted to common stock in October 2024, as further discussed in Note 16 to the consolidated financial statements in Part II, Item 8.

“Financial Statements and Supplementary Data”.

The gain on extinguishment of debt was mainly due to the settlement of outstanding notes to Celularity and HealthTronics, as further discussed in Note 10 to the consolidated financial statements in Part II, Item 8.

“Financial Statements and Supplementary Data”.

(Loss) Gain on extinguishment of debt (477) 6,326 (6,803) (108%)

Change in fair value of derivative liabilities 8,107 (31,413) 39,520 126%

Loss on impairment of assets (196) - (196) -%

Other expense (42) (893) 851 (95%)

Other income 5,808 2,855 2,953 103%

Total Other Income (Expense) $ 6,954 $ (36,904) $ 43,858 (119%)

Total other income for the year ended December 31, 2025 was $7.0 million , as compared to an expense of $36.9 million for 2024 , an increase of $43.9 million .

The increase was primarily driven by the change in fair value of derivative liabilities of $39.5 million , interest expense reduction of $7.5 million , and an other income increase of $3.0 million , partially offset by a change in the gain (loss) on extinguishment of debt of $6.8 million.

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

The reduction in interest expense is due to the conversion of previously issued notes that were exchanged for common stock in October 2024 as described in Note 13 of our consolidated financial statements, as well as a reduction in interest rate from the repayment of our Senior Secured Debt and issuance of our Term Loan as described in Note 9 of our consolidated financial statements.

Other income for 2025 mainly consists of the one-time payment of $5.0 million related to the patent purchase agreement as described in Note 20 of our consolidated financial statements.

Other income for 2024 mainly consists of the one-time payment of $2.5 million related to the Patent License agreement as described in Note 20 of our consolidated financial statements.

Liquidity and Capital Resources

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

From inception through the year ended December 31, 2024, we incurred losses from operations each year.

As of December 31, 2025 , we had an accumulated deficit of $242.7 million .

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

See Notes 1, 10, 11, 15, and 16, to the consolidated financial statements in Part II, Item 8.

“Financial Statements and Supplementary Data” in this Annual Report on Form 10-K for additional information regarding the Convertible Promissory Notes, Senior Secured Note, Reverse Stock Split, and the October 2024 transaction.

Historically, our operations have primarily been funded from the sale of capital stock, and 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 debt 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 our Quarterly Report on Form 10-Q for the quarter ended June 30, 2025.

However, as described in Note 9 of our consolidated financial statements , we successfully refinanced our outstanding debt during 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 2025, the receipt of $5.0 million from the patent purchase agreement as described in Note 20 of our consolidated financial statements , and the capital raised from a private placement in October 2024 as described in Note 14 of our consolidated financial statements, have all contributed to a significant improvement in our financial position.

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 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 9 of our consolidated financial statements, together with our recent operating income and capital initiatives, have significantly strengthened our ability to meet our obligations as they come due.

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:

For the period ended December 31,

For the years ended December 31,

(in thousands) 2025 2024

Cash flows provided by (used in) operating activities $ 2,455 $ (4,538)

Cash flows (used in) provided by investing activities $ (490) $ 21

Cash flows provided by financing activities $ 6,354 $ 5,211

(As Restated)

Cash flows provided by operating activities $ 3,876 $ 2,455

Cash flows provided by (used in) investing activities $ 3,433 $ (490)

Cash flows (used in) provided by financing activities $ (5,587) $ 6,354

Cash Flows from Operating Activities

We have improved our cash flow from operations in 2024 as compared to 2023, which was driven by increased emphasis on improved cash management and operating expense management.

Additional volatility in adjustments of cash flows from operations is the change in fair value of derivative liabilities connected to our convertible debt and warrants issued.

The Company recognized a loss on these liabilities of $31.4 million for the year ended December 31, 2024, as compared to a loss of $9.6 million for the year ended December 31, 2023.

Cash provided by operating activities for 2025 totaled $3.9 million.

The primary source was net income of $11.8 million, adjusted for non-cash items including stock-based compensation expense of $4.9 million, amortization of debt issuance costs and debt discounts of $1.5 million, depreciation and amortization of $1.3 million, a $0.5 million inventory write-off related to the disposal of PACE, $0.6 million in tenant improvement allowances received, and $0.9 million of other non-cash items.

These were partially offset by a non-cash gain of $8.1 million on the change in fair value of derivative liabilities, a $5.4 million non-cash gain on the sale of patents, and a $4.0 million net use of cash from changes in operating assets and liabilities, driven primarily by an increase in accounts receivable reflecting higher revenue activity and an increase in inventory due to a build up to support anticipated demand.

Cash provided by operating activities for 2024 totaled $2.5 million and consisted primarily of the change in fair value of derivative liabilities connected to our convertible debt and warrants issued.

The Company recognized a loss on these liabilities of $31.4 million for the year ended December 31, 2024.

Cash Flows from Investing Activities

Cash provided by investing activities for 2025 totaled $3.4 million , consisting of $5.4 million in proceeds from the sale of patents, partially offset by $1.9 million in purchases of property and equipment.

Cash used in investing activities for 2024 totaled $0.5 million , consisting entirely of purchases of property and equipment.

Cash Flows Provided by Financing Activities

Cash flows provided by financing activities increased while also paying off outstanding debt.

For the year ended December 31, 2024, we received proceeds of $12.1 million from the issuance of the convertible promissory notes, sales of common stock, and proceeds from promissory note payable as compared to $6.0 million for the year ended December 31, 2023.

In 2024, we paid off outstanding debt owed to Celularity, HealthTronics, and our factoring line of credit for a total of $5.0 million.

Going Concern

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-K.

During the current 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 will 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.

See Note 2 to the consolidated financial statements in Part II, Item 8.

“Financial Statements and Supplementary Data” in this Annual Report on Form 10-K for additional information on our ability to continue as a going concern.

Cash used in financing activities for 2025 totaled $5.6 million , consisting primarily of $27.7 million in payments on notes payable, $1.4 million in repayment of principal on the secured term loan, $0.4 million in debt issuance costs, and $0.2 million in principal payments on finance leases, partially offset by $23.0 million in proceeds from a new secured term loan,

$0.7 million in proceeds from the secured revolving credit facility, and $0.6 million in proceeds from exercises of stock options.

Cash provided by financing activities for 2024 totaled $6.4 million , consisting primarily of $10.3 million in proceeds from the sale of common stock, $1.3 million in proceeds from convertible promissory notes, and $0.5 million from secured promissory notes payable from a related party, partially offset by $3.5 million in payments on notes payable, $0.5 million in repayments of secured promissory notes payable to a related party, $1.5 million in payments to factoring, and $0.2 million in principal payments on finance leases.

Critical Accounting Estimates

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If a loss is reasonably possible but not known or probable, and may be reasonably estimated, the estimated loss or range of loss is disclosed.

The Company has reserved approximately $150 thousand for unasserted claims.

Our significant legal proceedings are discussed in Note 21 to the consolidated financial statements in Part II, Item 8.

“Financial Statements and Supplementary Data” in this Annual Report on Form 10-K.

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 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 13 to the consolidated financial statements in Part II, Item 8.

“Financial Statements and Supplementary Data” in this Annual Report on Form 10-K.

Sales Tax Nexus and Related Liabilities

During the fiscal year ended December 31, 2025, the Company completed its initial sales tax nexus study to evaluate its obligations to collect and remit sales tax across various state and local jurisdictions.

Determining the extent of the Company's sales tax nexus requires significant judgment regarding the nature of the Company's business activities in each jurisdiction, the applicability of economic nexus thresholds, specific customers and their exempt status, the interpretation of

state and local tax laws and regulations, which continue to evolve following South Dakota v.

Wayfair, Inc.

and subsequent legislative developments.

This can cause changes in the widely acceptable administrative practices of jurisdictions.

The Company recorded a liability for estimated sales tax obligations, including potential interest and penalties, arising from both current and prior periods, when an exposure is considered probable and the amount can be reasonably estimated.

Where the reasonable estimate of a probable liability is a range, and no amount within the range is a better estimate than any other, the minimum amount of the range is accrued.

Reasonably possible exposures identified in the study that do not meet the threshold for accrual are disclosed when material.

Given the inherent complexity of multistate tax compliance and the application of economic nexus rules, actual liabilities may differ materially from current estimates, depending on the outcome of ongoing or future reviews by state tax authorities.

Such differences may have a material impact on the Company's financial condition, results of operations, or cash flows.

Segment and Geographic Information

We have determined that we have one reportable 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 reportable segment, refer to Note 22 to the consolidated financial statements.

Effects of Inflation

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.

Recently Issued Accounting Standards

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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-K

Item 7. Management’s Discussion and Analysis