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, 2025, included in our Annual Report on Form 10-K, filed with the SEC on March 26, 2026 (the “2025 Annual Report”). Executive Summary Revenue for the three months ended June 30, 2026 totaled $9.7 million , a decrease of approximately 3% compared to $10.1 million for the same period in 2025 . Revenue for the six months ended June 30, 2026 totaled $19.4 million , approximately flat compared to $19.4 million for the same period in 2025 . Net loss for the three months ended June 30, 2026 was $0.7 million , compared to net income of $0.6 million for the same period in 2025 . The change from net income to a net loss was primarily attributable to an operating loss of $0.3 million in the current-year period, compared to operating income of $1.4 million in the prior-year period, reflecting higher operating expenses during the current-year period, including increased headcount costs, stock-based compensation, and research and development that outpaced a modestly lower gross margin on reduced revenue. Total other expense, net improved to $0.4 million from $0.9 million , as significantly lower interest expense more than offset the non-recurrence of a $1.0 million gain from the change in fair value of derivative liabilities recognized in the prior-year period. Net loss for the six months ended June 30, 2026 was $2.1 million , compared to a net loss of $5.6 million for the same period in 2025 . The reduction in net loss was driven principally by items below operating income, including the non-recurrence of a $3.9 million loss from the change in fair value of derivative liabilities recognized in the prior-year period and a $2.8 million decrease in interest expense following our September 2025 debt refinancing. These improvements were partially offset by a decline in operating results: our operating loss for the six months ended June 30, 2026 was $1.4 million , compared to operating income of $2.0 million for the same period in 2025 . The decline in operating results for the six months ended June 30, 2026 was primarily driven by higher operating expenses, including increased research and development, selling and marketing, and general and administrative spending, together with a slight decline in gross margin. 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 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. 24 Table of Contents 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 (loss) income. Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2026 2025 2026 2025 Net (Loss) Income $ (682) $ 551 $ (2,121) $ (5,567) Non-GAAP Adjustments: Interest expense 518 1,939 1,064 3,848 Depreciation and amortization 1 313 226 607 493 EBITDA 149 2,716 (450) (1,226) Non-GAAP Adjustments for Adjusted EBITDA: Change in fair value of derivative liabilities - (990) - 3,911 Other non-cash or infrequent charges: Stock-based compensation 1,572 1,132 3,143 2,116 State & local sales tax 2 (532) 329 (194) 705 Sale of excess inventory - - (220) - Adjusted EBITDA $ 1,189 $ 3,188 $ 2,279 $ 5,506 1 Depreciation and amortization excludes amortization of right-of-use (ROU) leases. Prior period amounts have been retroactively revised to conform to this presentation. This change had no effect on previously reported GAAP results. 2 The charges represent a non-recurring state and local sales tax expense related to the restatement of prior period financial statements. 25 Table of Contents Results of Operations Three Months Ended June 30, Change Six Months Ended June 30, Change (in thousands) 2026 2025 $ % 2026 2025 $ % Revenue $ 9,739 $ 10,054 $ (315) (3 %) $ 19,358 $19,387 $ (29) - % Cost of revenues 2,315 2,206 109 5 % 4,502 4,164 338 8 % Gross margin 7,424 7,848 (424) (5 %) 14,856 15,223 (367) (2 %) Gross margin % 76 % 78 % 77 % 79 % Operating expenses: General and administrative 4,902 4,368 534 12 % 10,152 9,211 941 10 % Selling and marketing 1,923 1,674 249 15 % 4,322 3,205 1,117 35 % Research and development 628 194 434 224 % 1,289 402 887 221 % Depreciation and amortization 251 174 77 44 % 497 366 131 36 % Operating (loss) income (280) 1,438 (1,718) -119 % (1,404) 2,039 (3,443) -169 % Other (expense) income (396) (887) 491 55 % (711) (7,606) 6,895 91 % Net (Loss) Income Before Income Taxes (676) 551 (1,227) -223 % (2,115) (5,567) 3,452 -62 % Income tax expense 6 - 6 100 % 6 - 6 100 % Net (loss) income $ (682) $ 551 $ (1,233) -224 % $ (2,121) $ (5,567) $ 3,446 62 % Revenue Revenues for the three months ended June 30, 2026 were $9.7 million, compared to $10.1 million for the same period of 2025, a decrease of $0.3 million, or 3%. The decrease was primarily driven by a decline in UltraMIST® system revenue, which decreased to $2.3 million from $3.4 million, or approximately 34%, partially offset by growth in consumables revenue, which increased to $7.3 million from $6.5 million, or approximately 12%. The decrease in UltraMIST® system revenue for the three months ended June 30, 2026 compared to the same period in 2025, was primarily driven by a 29% decline in unit volume, reflecting weaker capital sales due to financial pressures in the industry as well as increased availability of used UltraMIST® systems in the market. UltraMIST® system revenue was also impacted by a 9% decrease in average selling price, primarily due to a higher reseller mix. The increase in consumables revenue for the three months ended June 30, 2026 compared to the same period in 2025, was primarily driven by a 27% increase in unit volume, reflecting strong consumable utilization across our active installed base. This consumable growth was partially offset by a 11% decrease in average selling price due to a higher mix of reseller sales. Revenues for the six months ended June 30, 2026 were $19.4 million, approximately flat compared to $19.4 million for the same period of 2025. Consumables revenue increased to $14.0 million from $12.5 million, or approximately 11%, substantially offset by a decline in UltraMIST® system revenue to $5.2 million from $6.6 million, or approximately 22%. The decrease in UltraMIST® system revenue for the six months ended June 30, 2026 compared to the same period in 2025, was primarily driven by a 16% decline in unit volume, reflecting weaker capital sales due to financial pressures in the industry as well as increased availability of used UltraMIST® systems in the market. UltraMIST® system revenue was also impacted by an 8% decrease in average selling price, primarily due to a higher reseller mix. The increase in consumables revenue for the six months ended June 30, 2026, compared to the same period in 2025, was primarily driven by a 24% increase in unit volume, reflecting strong consumable utilization across our active installed base. This consumable growth was partially offset by an 8% decrease in average selling price due to a higher mix of reseller sales. Cost of Revenues Cost of revenues for the three months ended June 30, 2026 was $2.3 million, compared to $2.2 million for the same period of 2025. Gross margin as a percentage of revenues was 76% for the three months ended June 30, 2026, compared to 78% for the same period in 2025. The decline in gross margin percentage was primarily driven by a shift in revenue mix toward consumables sales and away from higher-margin system sales, lower average sales prices due to a higher reseller mix, and 26 Table of Contents an increase in personnel costs within cost of revenues for the three months ended June 30, 2026, compared to the same period in 2025. Cost of revenues for the six months ended June 30, 2026 was $4.5 million, compared to $4.2 million for the same period of 2025. Gross margin as a percentage of revenues was 77% for the six months ended June 30, 2026, compared to 79% for the same period in 2025. The decline in gross margin percentage was primarily driven by a shift in revenue mix toward consumables sales and away from higher-margin system sales and lower average sales prices due to a higher reseller mix, combined with increased personnel costs within cost of revenues. General and Administrative General and administrative expenses for the three months ended June 30, 2026 were $4.9 million, compared to $4.4 million for the same period of 2025, an increase of $0.5 million, or 12%. The increase was primarily due to higher personnel costs of $0.5 million (including stock-based compensation), higher legal and professional fees of $0.6 million, and increased bad debt expense of $0.2 million, partially offset by a $0.9 million reduction in state and local sales tax accruals. General and administrative expenses for the six months ended June 30, 2026 were $10.2 million, compared to $9.2 million for the same period of 2025, an increase of $0.9 million, or 10%. The increase was primarily due to higher personnel costs of $1.0 million (including stock-based compensation), higher legal and professional fees of $0.7 million, increased bad debt expense of $0.2 million, and increased software costs of $0.2 million, partially offset by a $0.9 million reduction in state and local sales tax accruals and lower public company costs of $0.3 million from initial Nasdaq listing fees in the six months ended June 30, 2025 that did not recur. Selling and Marketing Selling and marketing expenses for the three months ended June 30, 2026 were $1.9 million, compared to $1.7 million for the same period of 2025, an increase of $0.2 million, or 15%. The increase was primarily due to higher consulting costs of $0.2 million and increased travel costs of $0.1 million. Selling and marketing expenses for the six months ended June 30, 2026 were $4.3 million, compared to $3.2 million for the same period of 2025, an increase of $1.1 million, or 35%. The increase was primarily due to higher consulting costs of $0.6 million, increased personnel costs of $0.5 million (primarily higher salary expense and stock-based compensation), and increased travel costs of $0.2 million, partially offset by lower sales commissions of $0.3 million. Research and Development Research and development expenses for the three months ended June 30, 2026 were $0.6 million, compared to $0.2 million for the same period of 2025, an increase of $0.4 million. The increase was primarily due to higher personnel costs of $0.3 million, including increased stock-based compensation of $0.1 million, and higher consulting costs of $0.1 million. Research and development expenses for the six months ended June 30, 2026 were $1.3 million, compared to $0.4 million for the same period of 2025, an increase of $0.9 million. The increase was primarily due to higher personnel costs of $0.4 million, including increased stock-based compensation of $0.2 million, higher consulting costs of $0.4 million, and increased development project and software costs of $0.1 million. 27 Table of Contents Other (Expense) Income, net Other (expense) income, net consists of the following: Three Months Ended June 30, Change Six Months Ended June 30, Change 2026 2025 $ % 2026 2025 $ % Interest expense $ (518) $ (1,939) $ 1,421 73 % $ (1,064) $ (3,848) $ 2,784 72 % Change in fair value of derivative liabilities — 990 (990) 100 % — (3,911) 3,911 100 % Other expense (77) (27) (50) (185 %) (137) (28) (109) (389 %) Other income 199 89 110 124 % 490 181 309 171 % Total Other Expense, net $ (396) $ (887) $ 491 55 % $ (711) $ (7,606) $ 6,895 91 % Total Other Expense, net was $0.4 million for the three months ended June 30, 2026, compared to $0.9 million for the same period of 2025, a decrease in net expense of $0.5 million. The decrease was primarily driven by a $1.4 million reduction in interest expense, partially offset by the non-recurrence of a $1.0 million gain from the change in fair value of derivative liabilities recognized in the prior-year period. The change in fair value of derivative liabilities relates to the valuation of warrants previously issued by the Company. Total Other Expense, net was $0.7 million for the six months ended June 30, 2026, compared to $7.6 million for the same period of 2025, a decrease in net expense of $6.9 million. The decrease was primarily driven by the non-recurrence of a $3.9 million loss from the change in fair value of derivative liabilities recognized in the prior-year period, and a $2.8 million reduction in interest expense, reflecting the September 2025 refinancing of our senior secured debt. The change in fair value of derivative liabilities relates to the valuation of warrants previously issued by the Company. Liquidity and Capital Resources From inception through the year ended December 31, 2024, we incurred losses from operations each year, before achieving net income for the year ended December 31, 2025. As of June 30, 2026, we had an accumulated deficit of $244.8 million. Historically, our operations have primarily been funded from the sale of capital stock, issuances of notes payable, and convertible debt securities. During the third quarter of 2025, we entered into the JPM Credit Agreement, which provided a $23.0 million Term Loan and a $5.0 million Revolver, the proceeds of which were used to repay and terminate the Prior Debt, as described in Note 8 to the condensed consolidated financial statements. The JPM Credit Agreement extended the maturity of our debt obligations and provided additional liquidity through the Revolver. Together with the positive cash flow from operations generated in 2025 and the $5.0 million received in connection with the patent purchase agreement described in Note 14 of the condensed consolidated financial statements, these actions strengthened our liquidity position and capital structure. As of June 30, 2026, we had cash and cash equivalents of $9.4 million, $18.7 million outstanding under our Term Loan, and $0.7 million drawn under our Revolver. We were in compliance with all financial and other covenants under the JPM Credit Agreement as of June 30, 2026. Based on our current cash position, anticipated cash flows from operations, and availability under our Revolver, we believe we will have sufficient resources to meet our working capital needs, capital expenditures, and debt service obligations for at least the next twelve months from the date of issuance of these condensed consolidated financial statements. We continue to monitor our financial position, liquidity, and compliance with debt covenants on an ongoing basis. We intend to continue to evaluate opportunities to further enhance our capital structure and support our growth strategy. 28 Table of Contents The following table presents summarized cash flow information: Six Months Ended June 30, (in thousands) 2026 2025 Cash flows provided by (used in) operating activities $ 822 $ (524) Cash flows (used in) investing activities $ (606) $ (1,321) Cash flows (used in) provided by financing activities $ (2,798) $ 104 Cash Flows from Operating Activities Cash provided by operating activities for the six months ended June 30, 2026 totaled $0.8 million. This primarily reflected non-cash charges, including $3.1 million of stock-based compensation expense, $0.6 million of depreciation and amortization, $0.4 million of provision for credit losses, and $0.1 million of amortization of debt issuance costs and debt discounts, partially offset by a net loss of $2.1 million and a $1.4 million use of cash from changes in operating assets and liabilities. The change in operating assets and liabilities was driven primarily by increases in inventory and accounts receivable to support our operations. Cash used in operating activities for the six months ended June 30, 2025 totaled $0.5 million. This primarily reflected a net loss of $5.6 million, partially offset by non-cash charges of $3.9 million related to the change in fair value of derivative liabilities, $2.1 million of stock-based compensation expense, and $1.1 million related to amortization of debt issuance costs and debt discounts. Cash Flows from Investing Activities Cash used in investing activities for the six months ended June 30, 2026 totaled $0.6 million, consisting primarily of $0.4 million of purchases of property and equipment, including leasehold improvements at our headquarters, and $0.2 million of investment in capitalized software development. Cash used in investing activities for the six months ended June 30, 2025 totaled $1.3 million, and consisted entirely of purchases of property and equipment of $1.3 million, of which $0.9 million was related to leasehold improvements at our new headquarters. Cash Flows from Financing Activities Cash used in financing activities for the six months ended June 30, 2026 totaled $2.8 million, consisting primarily of $2.9 million in scheduled quarterly principal payments on the Term Loan under the JPM Credit Agreement, partially offset by $0.1 million in proceeds from stock option exercises. The increase in financing cash outflows reflects the transition from our prior non-amortizing Senior Secured Debt to the Term Loan, which requires quarterly principal payments that commenced on December 31, 2025. Cash provided by financing activities for the six months ended June 30, 2025 totaled $0.1 million, consisting of proceeds from stock option exercises, partially offset by payments on principal of finance leases. 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 16 to the condensed 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. 29 Table of Contents 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.