☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Nevada | 20-1176000 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
11495 Valley View Road Eden Prairie, MN | 55344 | |
(Address of principal executive offices) | (Zip Code) |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
None | N/A | N/A |
Large accelerated filer ☐ | Accelerated filer ☐ | |
Non-accelerated filer ☒ | Smaller reporting company ☒ | |
Emerging growth company ☐ |
Page | ||
PART I – FINANCIAL INFORMATION | ||
Item 1. | 4 | |
4 | ||
5 | ||
6 | ||
7 | ||
8 | ||
Item 2. | 15 | |
Item 3. | 18 | |
Item 4. | ||
PART II – OTHER INFORMATION | ||
Item 1. | 20 | |
Item 1A. | 20 | |
Item 2. | 20 | |
Item 3. | 20 | |
Item 4. | 20 | |
Item 5. | 20 | |
Item 6. | ||
23 |
March 31, 2023 | December 31, 2022 | March 31, 2024 | December 31, 2023 | |||||||||||||
ASSETS | ||||||||||||||||
Current Assets: | ||||||||||||||||
Cash | $ | 106 | $ | 1,153 | ||||||||||||
Accounts receivable, net of allowance of $1.2 and $1.0 million, respectively | 2,969 | 4,029 | ||||||||||||||
Cash and cash equivalent | $ | 2,936 | $ | 1,797 | ||||||||||||
Accounts receivable, net of allowance of $1,237, respectively | 3,008 | 3,314 | ||||||||||||||
Inventory | 1,071 | 868 | 2,461 | 2,951 | ||||||||||||
Prepaid expenses and other current assets | 371 | 570 | 2,426 | 1,722 | ||||||||||||
Total Current Assets | 4,517 | 6,620 | 10,831 | 9,784 | ||||||||||||
Property, Equipment and Other, net | 758 | 856 | ||||||||||||||
Intangible Assets, net | 4,962 | 5,137 | ||||||||||||||
Property, equipment and other, net | 975 | 938 | ||||||||||||||
Intangible assets, net | 4,258 | 4,434 | ||||||||||||||
Goodwill | 7,260 | 7,260 | 7,260 | 7,260 | ||||||||||||
Total Non-current Assets | 12,980 | 13,253 | 12,493 | 12,632 | ||||||||||||
Total Assets | $ | 17,497 | $ | 19,873 | $ | 23,324 | $ | 22,416 | ||||||||
LIABILITIES | ||||||||||||||||
Current Liabilities: | ||||||||||||||||
Senior secured debt, in default | $ | 14,996 | $ | 14,416 | $ | 18,910 | $ | 18,278 | ||||||||
Convertible promissory notes payable | 16,953 | 16,713 | 7,477 | 5,404 | ||||||||||||
Convertible promissory notes payable, related parties | 7,614 | 7,409 | 2,527 | 1,705 | ||||||||||||
Asset-backed secured promissory notes | - | 3,117 | ||||||||||||||
Asset-backed secured promissory notes, related parties | - | 1,458 | ||||||||||||||
Accounts payable | 5,264 | 4,400 | 5,062 | 5,705 | ||||||||||||
Accrued expenses | 8,550 | 8,512 | 6,849 | 5,999 | ||||||||||||
Due under factoring ageement | 1,631 | 2,130 | ||||||||||||||
Factoring liabilities | 1,561 | 1,490 | ||||||||||||||
Warrant liability | 9,264 | 1,416 | 19,818 | 14,447 | ||||||||||||
Accrued interest | 4,981 | 4,052 | 6,118 | 5,444 | ||||||||||||
Accrued interest, related parties | 1,081 | 788 | 786 | 669 | ||||||||||||
Current portion of contract liabilities | 62 | 60 | 107 | 92 | ||||||||||||
Other | 255 | 291 | 969 | 947 | ||||||||||||
Total Current Liabilities | 70,651 | 60,187 | 70,184 | 64,755 | ||||||||||||
Non-current Liabilities | ||||||||||||||||
Lease liabilities | 384 | 438 | 395 | 492 | ||||||||||||
Contract liabilities | 225 | 230 | 340 | 347 | ||||||||||||
Deferred tax liability | 28 | 28 | ||||||||||||||
Total Non-currrent Liabilities | 637 | 696 | ||||||||||||||
Total Non-current Liabilities | 735 | 839 | ||||||||||||||
Total Liabilities | $ | 71,288 | $ | 60,883 | $ | 70,919 | $ | 65,594 | ||||||||
Commitments and Contingencies (Footnote 11) | ||||||||||||||||
Commitments and Contingencies (Footnote 13) | ||||||||||||||||
STOCKHOLDERS’ DEFICIT | ||||||||||||||||
Preferred Stock, par value $0.001, 5,000,000 shares authorized; 6,175 shares Series A, 293 shares Series B, 90 shares Series C and 8 shares Series D no shares issued and outstanding at March 31, 2023 and December 31, 2022 | $ | - | $ | - | ||||||||||||
Common Stock, par value $0.001, 2,500,000,000 shares authorized; 555,637,651 and 548,737,651 issued and outstanding at March 31, 2023 December 31, 2022, respectively | 556 | 549 | ||||||||||||||
Additional Paid-in Capital | 153,046 | 152,750 | ||||||||||||||
Accumulated Deficit | (207,322 | ) | (194,242 | ) | ||||||||||||
Accumulated Other Comprehensive Loss | (71 | ) | (67 | ) | ||||||||||||
Preferred Stock, par value $0.001, 5,000,000 shares authorized; 6,175 shares Series A, 293 shares Series B, 90 shares Series C and 8 shares Series D no shares issued and outstanding at March 31, 2024 and December 31, 2022 | $ | - | $ | - | ||||||||||||
Common stock, par value $0.001, 2,500,000,000 shares authorized; 1,140,559,527 issued and outstanding at March 31, 2024 and December 31, 2023, respectively | 1,140 | 1,140 | ||||||||||||||
Additional paid-in capital | 175,842 | 175,842 | ||||||||||||||
Accumulated deficit | (224,577 | ) | (220,049 | ) | ||||||||||||
Accumulated other comprehensive loss | - | (111 | ) | |||||||||||||
Total Stockholders’ Deficit | (53,791 | ) | (41,010 | ) | (47,595 | ) | (43,178 | ) | ||||||||
Total Liabilities and Stockholders’ Deficit | $ | 17,497 | $ | 19,873 | $ | 23,324 | $ | 22,416 |
Three Months Ended March 31, | Three Months Ended March 31, | |||||||||||||||
2023 | 2022 | 2024 | 2023 | |||||||||||||
Revenue | $ | 3,775 | $ | 3,195 | $ | 5,786 | $ | 3,775 | ||||||||
Cost of Revenues | 1,262 | 889 | 1,584 | 1,262 | ||||||||||||
Gross Margin | 2,513 | 2,306 | 4,202 | 2,513 | ||||||||||||
Operating Expenses: | ||||||||||||||||
General and administrative | 2,759 | 2,205 | 3,675 | 2,759 | ||||||||||||
Selling and marketing | 1,412 | 1,715 | 1,232 | 1,412 | ||||||||||||
Research and development | 131 | 166 | 163 | 131 | ||||||||||||
Depreciation and amortization | 189 | 176 | 182 | 189 | ||||||||||||
Total Operating Expenses | 4,491 | 4,262 | 5,252 | 4,491 | ||||||||||||
Operating Loss | (1,978 | ) | (1,956 | ) | (1,050 | ) | (1,978 | ) | ||||||||
Other Income (Expense): | ||||||||||||||||
Other (Expense)/Income: | ||||||||||||||||
Interest expense | (3,512 | ) | (3,136 | ) | (3,237 | ) | (3,512 | ) | ||||||||
Interest expense, related party | (766 | ) | (56 | ) | (323 | ) | (766 | ) | ||||||||
Loss on extinguishment of debt | (105 | ) | - | |||||||||||||
Change in fair value of derivative liabilities | (6,797 | ) | 3,482 | (2,501 | ) | (6,797 | ) | |||||||||
Loss on issuance of debt | - | (3,434 | ) | |||||||||||||
Other expense | (27 | ) | - | (102 | ) | (27 | ) | |||||||||
Gain / (loss) on foreign currency exchange | - | (1 | ) | |||||||||||||
Other income | 2,790 | - | ||||||||||||||
Total Other Expense | (11,102 | ) | (3,145 | ) | (3,478 | ) | (11,102 | ) | ||||||||
Net Loss before Income Taxes | (13,080 | ) | (5,101 | ) | ||||||||||||
Provision for Income Taxes | - | - | ||||||||||||||
Net Loss | (13,080 | ) | (5,101 | ) | (4,528 | ) | (13,080 | ) | ||||||||
Other Comprehensive Loss | ||||||||||||||||
Foreign currency translation adjustments | (4 | ) | - | 111 | (4 | ) | ||||||||||
Total Comprehensive Loss | $ | (13,084 | ) | $ | (5,101 | ) | $ | (4,417 | ) | $ | (13,084 | ) | ||||
Loss per Share: | ||||||||||||||||
Basic and Diluted | $ | (0.02 | ) | $ | (0.01 | ) | ||||||||||
Weighted average shares outstanding, basic and diluted | 575,028,811 | 525,414,534 | ||||||||||||||
Basic and diluted | $ | (0.00 | ) | $ | (0.02 | ) | ||||||||||
Weighted average shares outstanding | ||||||||||||||||
Basic and diluted | 1,162,250,687 | 575,028,811 |
Three Months Ended March 31, 2023 | ||||||||||||||||||||||||||||||||
Preferred Stock | Common Stock | |||||||||||||||||||||||||||||||
Number of | Number of | Accumulated | ||||||||||||||||||||||||||||||
Shares | Shares | Other | ||||||||||||||||||||||||||||||
Issued and | Issued and | Additional Paid- | Accumulated | Comprehensive | ||||||||||||||||||||||||||||
Outstanding | Par Value | Outstanding | Par Value | in Capital | Deficit | Loss | Total | |||||||||||||||||||||||||
Balances as of December 31, 2022 | - | $ | - | 548,737,651 | $ | 549 | $ | 152,750 | $ | (194,242 | ) | $ | (67 | ) | $ | (41,010 | ) | |||||||||||||||
Shares issued for services | - | - | 6,900,000 | 7 | 296 | - | 303 | |||||||||||||||||||||||||
Net loss | - | - | - | - | - | (13,080 | ) | - | (13,080 | ) | ||||||||||||||||||||||
Foreign currency translation adjustment | - | - | - | - | - | - | (4 | ) | (4 | ) | ||||||||||||||||||||||
Balances as of March 31, 2023 | - | $ | - | 555,637,651 | $ | 556 | $ | 153,046 | $ | (207,322 | ) | $ | (71 | ) | $ | (53,791 | ) |
Three Months Ended March 31, 2024 | ||||||||||||||||||||||||
Common Stock | ||||||||||||||||||||||||
Number of | Accumulated | |||||||||||||||||||||||
Shares | Other | |||||||||||||||||||||||
Issued and | Additional Paid- | Accumulated | Comprehensive | |||||||||||||||||||||
Outstanding | Par Value | in Capital | Deficit | Loss | Total | |||||||||||||||||||
Balances as of December 31, 2023 | 1,140,559,527 | $ | 1,140 | $ | 175,842 | $ | (220,049 | ) | $ | (111 | ) | $ | (43,178 | ) | ||||||||||
Foreign currency translation adjustment | - | - | - | - | 111 | 111 | ||||||||||||||||||
Net loss | - | - | - | (4,528 | ) | - | (4,528 | ) | ||||||||||||||||
Balances as of March 31, 2024 | 1,140,559,527 | $ | 1,140 | $ | 175,842 | $ | (224,577 | ) | $ | - | $ | (47,595 | ) |
Three Months Ended March 31, 2022 | ||||||||||||||||||||||||||||||||
Preferred Stock | Common Stock | |||||||||||||||||||||||||||||||
Number of | Number of | Accumulated | ||||||||||||||||||||||||||||||
Shares | Shares | Other | ||||||||||||||||||||||||||||||
Issued and | Issued and | Additional Paid- | Accumulated | Comprehensive | ||||||||||||||||||||||||||||
Outstanding | Par Value | Outstanding | Par Value | in Capital | Deficit | Loss | Total | |||||||||||||||||||||||||
Balances as of December 31, 2021 | - | $ | - | 481,619,621 | $ | 482 | $ | 144,582 | $ | (183,949 | ) | $ | (73 | ) | $ | (38,958 | ) | |||||||||||||||
Cashless warrant exercise | - | - | 14,000,000 | 14 | 2,152 | - | - | 2,166 | ||||||||||||||||||||||||
Warrant exercise | - | - | 909,091 | 1 | 99 | - | - | 100 | ||||||||||||||||||||||||
Shares issued in conjunction with Note Payable | - | - | 20,666,993 | 20 | 3,700 | - | - | 3,720 | ||||||||||||||||||||||||
Net loss | - | - | - | - | - | (5,101 | ) | - | (5,101 | ) | ||||||||||||||||||||||
Foreign currency translation adjustment | - | - | - | - | - | - | 6 | 6 | ||||||||||||||||||||||||
Balances as of March 31, 2022 | - | $ | - | 517,195,705 | $ | 517 | $ | 150,533 | $ | (189,050 | ) | $ | (67 | ) | $ | (38,067 | ) |
Three Months Ended March 31, 2023 | ||||||||||||||||||||||||
Common Stock | ||||||||||||||||||||||||
Number of | Accumulated | |||||||||||||||||||||||
Shares | Other | |||||||||||||||||||||||
Issued and | Additional Paid- | Accumulated | Comprehensive | |||||||||||||||||||||
Outstanding | Par Value | in Capital | Deficit | Loss | Total | |||||||||||||||||||
Balances as of December 31, 2022 | 548,737,651 | $ | 549 | $ | 152,750 | $ | (194,242 | ) | $ | (67 | ) | $ | (41,010 | ) | ||||||||||
Shares issued for settlement of debt and warrants | 6,900,000 | 7 | 296 | - | - | 303 | ||||||||||||||||||
Foreign currency translation adjustment | - | - | - | - | (4 | ) | (4 | ) | ||||||||||||||||
Net loss | - | - | - | (13,080 | ) | - | (13,080 | ) | ||||||||||||||||
Balances as of March 31, 2023 | 555,637,651 | $ | 556 | $ | 153,046 | $ | (207,322 | ) | $ | (71 | ) | $ | (53,791 | ) |
Three Months Ended March 31, | Three Months Ended March 31, | |||||||||||||||
2023 | 2022 | 2024 | 2023 | |||||||||||||
Cash Flows - Operating Acivities: | ||||||||||||||||
Cash Flows - Operating Activities: | ||||||||||||||||
Net loss | $ | (13,080 | ) | $ | (5,101 | ) | $ | (4,528 | ) | $ | (13,080 | ) | ||||
Adjustments to reconcile net loss to net cash used by operating activities | ||||||||||||||||
Depreciation and Amortization | 259 | 191 | ||||||||||||||
Depreciation and amortization | 218 | 259 | ||||||||||||||
Bad debt expense | 156 | - | 147 | 156 | ||||||||||||
Loss on extinguishment of debt | 105 | - | ||||||||||||||
Change in fair value of derivative liabilities | 6,797 | (3,482 | ) | 2,501 | 6,797 | |||||||||||
Loss on issuance of debt | - | 3,434 | ||||||||||||||
Amortization of debt issuance costs and original issue discount | 1,931 | 889 | 1,553 | 1,931 | ||||||||||||
Accrued interest | 1,365 | 667 | 955 | 1,365 | ||||||||||||
Changes in operating assets and liabilities | ||||||||||||||||
Accounts receivable - trade | 906 | 804 | ||||||||||||||
Accounts receivable | 152 | 906 | ||||||||||||||
Inventory | (203 | ) | 39 | 490 | (203 | ) | ||||||||||
Prepaid expenses and other assets | 195 | 4 | 192 | 195 | ||||||||||||
Accounts payable | 864 | (866 | ) | (643 | ) | 864 | ||||||||||
Accrued expenses | 450 | 444 | (20 | ) | 450 | |||||||||||
Contract liabilties | (11 | ) | (155 | ) | ||||||||||||
Net Cash Used in Operating Activities | (371 | ) | (3,132 | ) | ||||||||||||
Contract liabilities | (22 | ) | (11 | ) | ||||||||||||
Net Cash Provided by/(Used) in Operating Activities | 1,100 | (371 | ) | |||||||||||||
Cash Flows - Investing Activities | ||||||||||||||||
Proceeds from sale of property and equipment | - | 360 | ||||||||||||||
Purchase of property and equipment | (18 | ) | - | (114 | ) | (18 | ) | |||||||||
Net Cash Flows Provided by (Used in) Investing Activities | (18 | ) | 360 | |||||||||||||
Net Cash Flows Used in Investing Activities | (114 | ) | (18 | ) | ||||||||||||
Cash Flows - Financing Activities | ||||||||||||||||
Proceeds from senior promissory notes | - | 2,940 | ||||||||||||||
Payments to factoring agent, net | (610 | ) | (505 | ) | ||||||||||||
Proceeds from warrant exercises | - | 100 | ||||||||||||||
Proceeds/(Payments) from factoring, net | 71 | (610 | ) | |||||||||||||
Payments of principal on finance leases | (44 | ) | (65 | ) | (29 | ) | (44 | ) | ||||||||
Net Cash Flows Provided by Financing Activities | (654 | ) | 2,470 | |||||||||||||
Net Cash Flows Provided by/ (Used in) Financing Activities | 42 | (654 | ) | |||||||||||||
Effect of Exchange Rates on Cash | (4 | ) | (4 | ) | 111 | (4 | ) | |||||||||
Net Change in Cash During Period | (1,047 | ) | (306 | ) | 1,139 | (1,047 | ) | |||||||||
Cash at Beginning of Period | 1,153 | 619 | 1,797 | 1,153 | ||||||||||||
Cash at End of Period | $ | 106 | $ | 313 | $ | 2,936 | $ | 106 | ||||||||
Supplemental Information: | ||||||||||||||||
Cash paid for interest | $ | 908 | $ | 574 | $ | 971 | $ | 908 | ||||||||
Non-cash Investing and Financing Activities: | ||||||||||||||||
Reclassification of warrant liability due to cashless warrant exercise | $ | - | $ | 2,167 | ||||||||||||
Warrants issued in conjunction with senior secured promissory note payable | - | 2,654 | ||||||||||||||
Common shares issued in conjunction with senior secured promissory note payable | - | 3,720 | ||||||||||||||
Warrants issued in conjunction with convertible promissory notes | 2,784 | - | ||||||||||||||
Conversion of asset-backed secured promissory notes to convertible promissory notes | 4,584 | - | ||||||||||||||
Common shares issued for advisory shares | 302 | - | - | 302 |
1. | Nature of the Business and Basis of Presentation |
2. | Going Concern |
3. | Summary of Significant Accounting Policies |
4. | Merger Agreement |
• | Merger Sub will merge with and into the Company, with the Company being the surviving company following the Merger. |
• | Each issued and outstanding share of the Company’s common stock, will automatically be converted into Class A common stock of SEPA, par value $0.0001 per share (the “Class A Common Stock”), at the Conversion Ratio (as defined in the Merger Agreement); and |
• | Outstanding convertible securities of the Company will be assumed by SEPA and will be converted into the right to receive Class A Common Stock of SEPA. |
Loss per Share |
Three Months Ended | ||||||||
(in Thousands) | March 31, 2024 | March 31, 2023 | ||||||
Weighted average shares outstanding | ||||||||
Common shares | 1,140,560 | 553,338 | ||||||
Common shares issuable assuming exercise of nominally priced warrants | 21,691 | 21,691 | ||||||
Weighted average shares outstanding | 1,162,251 | 575,029 |
Three Months Ended | ||||||||
(in Thousands) | March 31, 2023 | March 31, 2022 | ||||||
Weighted average shares outstanding | ||||||||
Common shares | 553,338 | 498,723 | ||||||
Common shares issuable assuming exercise of nominally priced warrants | 21,691 | 26,691 | ||||||
Weighted average shares outstanding | 575,029 | 525,415 |
Three Months Ended | ||||||||
(in Thousands) | March 31, 2023 | March 31, 2022 | ||||||
Common stock options | 19,286 | 31,759 | ||||||
Common stock purchase warrants | 1,186,522 | 183,435 | ||||||
Convertible notes payable | 624,577 | 94,172 | ||||||
1,830,385 | 309,366 |
Three Months Ended | ||||||||
(in thousands) | March 31, 2024 | March 31, 2023 | ||||||
Common stock options | 16,287 | 19,286 | ||||||
Common stock purchase warrants | 1,427,764 | 1,186,522 | ||||||
Convertible notes payable, including interest | 284,123 | 624,577 | ||||||
1,728,174 | 1,830,385 |
Accrued Expenses |
(in Thousands) | March 31, 2023 | December 31, 2022 | March 31, 2024 | December 31, 2023 | ||||||||||||
Registration penalties | $ | 1,583 | $ | 1,583 | $ | 1,583 | $ | 1,583 | ||||||||
License fees | 893 | 892 | 892 | 892 | ||||||||||||
Director and professional fees | 797 | 586 | ||||||||||||||
Board of directors fees | 1,072 | 942 | ||||||||||||||
Employee compensation | 4,223 | 4,585 | 2,449 | 2,298 | ||||||||||||
Other | 1,054 | 866 | 853 | 284 | ||||||||||||
$ | 8,550 | $ | 8,512 | $ | 6,849 | $ | 5,999 |
Senior Secured Debt, In Default |
March 31, 2023 | December 31, 2022 | March 31, 2024 | December 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
(in thousands) | Principal | Debt Discount | Carrying Value | Principal | Debt Discount | Carrying Value | Principal | Debt Discount | Carrying Value | Accrued Interest | Principal | Debt Discount | Carrying Value | Accrued Interest | ||||||||||||||||||||||||||||||||||||||||||
Senior secured debt | $ | 19,355 | $ | (4,359 | ) | $ | 14,996 | $ | 19,211 | $ | (4,795 | ) | $ | 14,416 | $ | 21,726 | $ | (2,816 | ) | $ | 18,910 | $ | 3,479 | $ | 21,562 | $ | (3,284 | ) | $ | 18,278 | $ | 3,206 |
Convertible Promissory Notes Payable |
As of March 31, 2023 | As of March 31, 2024 | |||||||||||||||||||||||||||||||||||
(In thousands, except conversion price) | Conversion Price | Principal | Remaining Debt Discount | Remaining Embedded Conversion Option | Carrying Value | Conversion Price | Principal | Remaining Debt Discount | Carrying Value | |||||||||||||||||||||||||||
Acquisition convertible promissory note, in default | $ | 0.10 | 4,000 | - | - | 4,000 | $ | 0.10 | 4,000 | - | 4,000 | |||||||||||||||||||||||||
Convertible promissory notes payable, related parties, in default | $ | 0.10 | 1,373 | - | - | 1,373 | ||||||||||||||||||||||||||||||
2022 convertible notes payable | $ | 0.04 | 13,615 | (1,532 | ) | 870 | 12,953 | |||||||||||||||||||||||||||||
2022 convertible notes payable, related parties | $ | 0.04 | 6,560 | (738 | ) | 419 | 6,241 | |||||||||||||||||||||||||||||
Historical convertible promissory notes payable, related parties, in default | $ | 0.10 | 1,373 | - | 1,373 | |||||||||||||||||||||||||||||||
Convertible notes payable | $ | 0.04 | 5,761 | (2,284 | ) | 3,477 | ||||||||||||||||||||||||||||||
Convertible notes payable, related parties | $ | 0.04 | 1,912 | (758 | ) | 1,154 | ||||||||||||||||||||||||||||||
Total Convertible Promissory Notes Payable | $ | 25,548 | $ | (2,270 | ) | $ | 1,289 | $ | 24,567 | $ | 13,046 | $ | (3,042 | ) | $ | 10,004 |
As of December 31, 2022 | ||||||||||||||||||||
(In thousands, except conversion price) | Conversion Price | Principal | Remaining Debt Discount | Remaining Embedded Conversion Option | Carrying Value | |||||||||||||||
Acquisition convertible promissory note, in default | $ | 0.10 | 4,000 | - | - | 4,000 | ||||||||||||||
Convertible promissory note, related party, in default | $ | 0.10 | 1,373 | - | - | 1,373 | ||||||||||||||
2022 convertible notes payable | $ | 0.04 | 13,660 | (2,532 | ) | 1,585 | 12,713 | |||||||||||||
2022 convertible notes payable, related parties | $ | 0.04 | 6,515 | (1,234 | ) | 755 | 6,036 | |||||||||||||
Total Convertible Promissory Notes | $ | 25,548 | $ | (3,766 | ) | $ | 2,340 | $ | 24,122 |
As of December 31, 2023 | ||||||||||||||||||||
(In thousands, except conversion price) | Conversion Price | Principal | Remaining Debt Discount | Remaining Embedded Conversion Option | Carrying Value | |||||||||||||||
Acquisition convertible promissory note, in default | $ | 0.10 | 4,000 | - | - | 4,000 | ||||||||||||||
Historical convertible promissory note, related party, in default | $ | 0.10 | 1,373 | - | - | 1,373 | ||||||||||||||
Convertible notes payable | $ | 0.04 | 2,639 | (1,235 | ) | - | 1,404 | |||||||||||||
Convertible notes payable, related parties | $ | 0.04 | 450 | (118 | ) | - | 332 | |||||||||||||
Total Convertible Promissory Notes Payable | $ | 8,462 | $ | (1,353 | ) | $ | - | $ | 7,109 |
9. | Asset-Backed Secured Promissory Notes |
Fair Value Measurements |
Fair value measured at March 31, 2023 | ||||||||||||||||||||||||||||||||
Quoted prices in | Significant other | Significant | Fair value measured at March 31, 2024 | |||||||||||||||||||||||||||||
Fair value at | active markets | observable inputs | unobservable inputs | Fair value at | Quoted prices in active markets | Significant other observable inputs | Significant unobservable inputs | |||||||||||||||||||||||||
(in thousands) | March 31, 2023 | (Level 1) | (Level 2) | (Level 3) | March 31, 2024 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||||||||||||||
Warrant liability | $ | 9,264 | $ | - | $ | - | $ | 9,264 | $ | 19,818 | $ | - | $ | - | $ | 19,818 | ||||||||||||||||
Embedded conversion option | 1,289 | - | - | 1,289 | ||||||||||||||||||||||||||||
Total fair value | $ | 10,553 | $ | - | $ | - | $ | 10,553 |
Fair value measured at December 31, 2022 | ||||||||||||||||||||||||||||||||
Quoted prices in | Significant other | Significant | Fair value measured at December 31, 2023 | |||||||||||||||||||||||||||||
Fair value at | active markets | observable inputs | unobservable inputs | Fair value at | Quoted prices in active markets | Significant other observable inputs | Significant unobservable inputs | |||||||||||||||||||||||||
(in thousands) | December 31, 2022 | (Level 1) | (Level 2) | (Level 3) | December 31, 2023 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||||||||||||||
Warrant liability | $ | 1,416 | $ | - | $ | - | $ | 1,416 | $ | 14,447 | $ | - | $ | - | $ | 14,447 | ||||||||||||||||
Embedded conversion option | 2,340 | - | - | 2,340 | 93 | - | - | 93 | ||||||||||||||||||||||||
Total fair value | $ | 3,756 | $ | - | $ | - | $ | 3,756 | $ | 14,540 | $ | - | $ | - | $ | 14,540 |
March 31, | December 31, | |||||||
2023 | 2022 | |||||||
Weighted average remaining life in years | 4.62 | 4.68 | ||||||
Weighted average volatility | 92 | % | 92 | % | ||||
Value of underlying shares | $ | 0.017 | $ | 0.005 | ||||
Weighted average risk free interest rate | 3.6 | % | 4.0 | % | ||||
Expected dividend yield | 0.00 | % | 0.00 | % |
Warrants | Fair Value | Fair Value | ||||||||||
(in thousands, except per share data) | Outstanding | per Share | (in thousands) | |||||||||
Balance at December 31, 2022 | 1,066,857 | $ | 0.06 | $ | 1,416 | |||||||
Loss on remeasurement of warrant liability | - | 7,848 | ||||||||||
Balance at March 31, 2023 | 1,066,857 | $ | 0.01 | $ | 9,264 |
Warrants | Fair Value | Fair Value | ||||||||||
(in thousands, except per share data) | Outstanding | per Share | (in thousands) | |||||||||
Balance at December 31, 2023 | 1,221,308 | $ | 0.01 | $ | 14,447 | |||||||
Issuance | 227,882 | 0.01 | 2,784 | |||||||||
Loss on remeasurement of warrant liability | - | 2,587 | ||||||||||
Balance at March 31, 2024 | 1,449,190 | $ | 0.01 | $ | 19,818 |
March 31, 2023 | December 31, 2022 | |||||||
Conversion Price(1) | $ | 0.04 | $ | 0.04 | ||||
Value of underlying shares | $ | 0.017 | $ | 0.005 | ||||
Interest Rate (annual) (2) | 4.77 | % | 4.64 | % | ||||
Volatility (annual) (3) | 162.30 | % | 503.00 | % | ||||
Time to Maturity (Years) | 0.35 | 0.60 |
(in thousands) | Conversion Liability | |||
Balance December 31, 2022 | $ | 2,340 | ||
Change in fair value | (1,051 | ) | ||
Balance March 31, 2023 | $ | 1,289 |
Revenue |
Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||
United States | International | Total | United States | International | Total | United States | International | Total | United States | International | Total | |||||||||||||||||||||||||||||||||||||
Accessory and parts revenue | $ | 2,574 | $ | 32 | $ | 2,606 | $ | 2,132 | $ | (4 | ) | $ | 2,128 | |||||||||||||||||||||||||||||||||||
Consumables and parts revenue | $ | 4,241 | $ | 66 | $ | 4,307 | $ | 2,574 | $ | 32 | $ | 2,606 | ||||||||||||||||||||||||||||||||||||
System revenue | 833 | 36 | 869 | 691 | 16 | 707 | 1,301 | 71 | 1,372 | 833 | 36 | 869 | ||||||||||||||||||||||||||||||||||||
License fees and other | 7 | 10 | 17 | 8 | 9 | 17 | - | 5 | 5 | 7 | 10 | 17 | ||||||||||||||||||||||||||||||||||||
Product Revenue | $ | 3,414 | $ | 78 | $ | 3,492 | $ | 2,831 | $ | 21 | $ | 2,852 | $ | 5,542 | $ | 142 | $ | 5,684 | $ | 3,414 | $ | 78 | $ | 3,492 | ||||||||||||||||||||||||
Rental Income | 283 | - | 283 | 343 | - | 343 | 102 | - | 102 | 283 | - | 283 | ||||||||||||||||||||||||||||||||||||
Total Revenue | $ | 3,697 | $ | 78 | $ | 3,775 | $ | 3,174 | $ | 21 | $ | 3,195 | $ | 5,644 | $ | 142 | $ | 5,786 | $ | 3,697 | $ | 78 | $ | 3,775 |
Concentration of Credit Risk and Limited Suppliers |
Three Months Ended | ||||||||
March 31, 2023 | March 31, 2022 | |||||||
Purchases: | ||||||||
Vendor A | 20 | % | 19 | % |
Three Months Ended | ||||||||
March 31, 2024 | March 31, 2023 | |||||||
Purchases: | ||||||||
Vendor A | - | % | 20 | % |
13. | License and Option Agreement |
14. | Commitments and Contingencies |
• | holders of 80% or more of the Company’s convertible notes with a maturity date occurring after the date of the Closing (the “Closing Date”), measured by number of shares of our common stock into which such convertible notes may be converted, agreeing to convert their convertible notes into shares of common stock immediately prior to the Effective Time. |
Three months ended March 31, | ||||||||
(in thousands) | 2024 | 2023 | ||||||
Net (Loss)/Income | $ | (4,528 | ) | $ | (13,084 | ) | ||
Non-GAAP Adjustments: | ||||||||
Interest expense | 3,560 | 4,278 | ||||||
Depreciation and amortization | 218 | 259 | ||||||
EBITDA | (750 | ) | (8,547 | ) | ||||
Non-GAAP Adjustments for Adjusted EBITDA: | ||||||||
Change in fair value of derivative liabilities | 2,501 | 6,797 | ||||||
Other non-cash or non-recurring charges: | ||||||||
Loss on extinguishment of debt | 105 | - | ||||||
Severance agreement and legal settlement | 585 | - | ||||||
License and option agreement | (2,500 | ) | - | |||||
Adjusted EBITDA | $ | (59 | ) | $ | (1,750 | ) |
For the Three Months Ended | For the Three Months Ended | |||||||||||||||||||||||||||||||
March 31, | Change | March 31, | Change | |||||||||||||||||||||||||||||
2023 | 2022 | $ | % | |||||||||||||||||||||||||||||
(in Thousands) | 2024 | 2023 | $ | % | ||||||||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||||||||||
Total Revenue | $ | 3,775 | $ | 3,195 | $ | 580 | 18 | % | $ | 5,786 | $ | 3,775 | $ | 2,011 | 53 | % | ||||||||||||||||
Cost of Revenues | 1,262 | 889 | 373 | 42 | % | 1,584 | 1,262 | 322 | 26 | % | ||||||||||||||||||||||
Gross Margin | 2,513 | 2,306 | 207 | 9 | % | 4,202 | 2,513 | 1,709 | 68 | % | ||||||||||||||||||||||
Gross Margin % | 73 | % | 67 | % | 600 bps | |||||||||||||||||||||||||||
Operating Expenses: | ||||||||||||||||||||||||||||||||
General and administrative | 2,759 | 2,205 | 554 | 25 | % | 3,675 | 2,759 | 916 | 33 | % | ||||||||||||||||||||||
Selling and marketing | 1,412 | 1,715 | (303 | ) | -18 | % | 1,232 | 1,412 | (180 | ) | -13 | % | ||||||||||||||||||||
Research and development | 131 | 166 | (35 | ) | -21 | % | ||||||||||||||||||||||||||
Research and Development | 163 | 131 | 32 | 24 | % | |||||||||||||||||||||||||||
Depreciation and amortization | 189 | 176 | 13 | 7 | % | 182 | 189 | (7 | ) | -4 | % | |||||||||||||||||||||
Operating Loss | (1,978 | ) | (1,956 | ) | (22 | ) | 1 | % | (1,050 | ) | (1,978 | ) | 928 | 47 | % | |||||||||||||||||
Other Income (Expense), net | (11,102 | ) | (3,145 | ) | (7,957 | ) | 253 | % | ||||||||||||||||||||||||
Other Expense | 3,478 | 11,102 | (7,624 | ) | -69 | % | ||||||||||||||||||||||||||
Net Loss | $ | (13,080 | ) | $ | (5,101 | ) | (7,979 | ) | 156 | % | $ | (4,528 | ) | $ | (13,080 | ) | 8,552 | 65 | % |
For the three months ended March 31, | Change | |||||||||||||||
2023 | 2022 | $ | % | |||||||||||||
Interest expense | $ | (4,278 | ) | $ | (3,192 | ) | $ | (1,086 | ) | 34 | % | |||||
Change in fair value of derivatives | (6,797 | ) | 3,482 | (10,279 | ) | -295 | % | |||||||||
Loss on issuance of debt | - | (3,434 | ) | 3,434 | nm | |||||||||||
Other expense | (27 | ) | - | (27 | ) | nm | ||||||||||
Loss on foreign currency exchange | - | (1 | ) | 1 | nm | |||||||||||
Other expense, net | $ | (11,102 | ) | $ | (3,145 | ) | $ | (7,957 | ) | 253 | % |
For the three months ended March 31, | Change | |||||||||||||||
2024 | 2023 | $ | % | |||||||||||||
Interest expense | $ | (3,560 | ) | $ | (4,278 | ) | $ | 718 | 17 | % | ||||||
Loss on extinguishment of debt | (105 | ) | - | (105 | ) | nm | ||||||||||
Change in fair value of derivatives | (2,501 | ) | (6,797 | ) | 4,296 | 63 | % | |||||||||
Other income / (expense) | 2,688 | (27 | ) | 2,715 | nm | |||||||||||
Other (expense)/income, net | $ | (3,478 | ) | $ | (11,102 | ) | $ | 7,624 | 69 | % |
For the three months ended March 31, | ||||||||
(in Thousands) | 2023 | 2022 | ||||||
Cash flows used by operating activities | $ | (371 | ) | $ | (3,132 | ) | ||
Cash flows (used by) provided by investing activities | $ | (18 | ) | $ | 360 | |||
Cash flows (used by) provided by financing activities | $ | (654 | ) | $ | 2,470 |
For the three months ended March 31, | ||||||||
(in thousands) | 2024 | 2023 | ||||||
Cash flows provided by (used by) operating activities | $ | 1,100 | $ | (371 | ) | |||
Cash flows used by investing activities | $ | (114 | ) | $ | (18 | ) | ||
Cash flows provided by (used in) financing activities | $ | 42 | $ | (654 | ) |
1. |
2. |
3. | The Company has failed to design and implement controls around all accounting and IT processes and procedures and, as such, we believe that all its accounting and IT processes and procedures need to be re-designed and tested for operating effectiveness. |
Item 2. | UNREGISTERED SALES OF EQUITY SECURITIES |
Item 6. | EXHIBITS |
Agreement and Plan of Merger, dated as of August 23, 2023, by and among SEP Acquisition Corp., SEP Acquisition Holdings Inc., and SANUWAVE Health, Inc. (Incorporated by reference to Exhibit | |
Amendment Number one to Agreement and Plan of Merger, dated February 27, 2024, by and between SEP Acquisition Corp. and Sanuwave Health, Inc. (Incorporated by reference to Exhibit 2.1 to the Form 8-K filed with the SEC on February 28, 2024). | |
Amendment Number Two to Agreement and Plan of Merger, dated as of April 25, 2024, by and between SEP Acquisition Corp. and Sanuwave Health, Inc. (Incorporated by reference to Exhibit 2.1 to the Form 8-K filed with the SEC on April 26, 2024). | |
Articles of Incorporation (Incorporated by reference to Exhibit 3.1 to the Form 10-SB filed with the SEC on December 18, 2007). | |
Certificate of Amendment to the Articles of Incorporation (Incorporated by reference to Appendix A to the Definitive Schedule 14C filed with the SEC on October 16, 2009). | |
Certificate of Amendment to the Articles of Incorporation (Incorporated by reference to Exhibit A to the Definitive Schedule 14C filed with the SEC on April 16, 2012). | |
Bylaws (Incorporated by reference to Exhibit 3.02 to the Form 10-SB filed with the SEC on December 18, 2007). | |
Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Preferred Stock of the Company dated March 14, 2014 (Incorporated by reference to Exhibit 3.1 to the Form 8-K filed with the SEC on March 18, 2014). | |
Certificate of Amendment to the Articles of Incorporation, dated September 8, 2015 (Incorporated by reference to Exhibit 3.6 to the Form 10-K filed with the SEC on March 30, 2016). | |
Certificate of Designation of Preferences, Rights and Limitations of Series B Convertible Preferred Stock of the Company dated January 12, 2016 (Incorporated by reference to Exhibit 3.1 to the Form 8-K filed with the SEC on January 19, 2016). | |
Certificate of Designation of Preferences, Rights and Limitations of Series C Convertible Preferred Stock of the Company dated January 31, 2020 (Incorporated by reference to Exhibit 3.1 to the Form 8-K filed with the SEC on February 6, 2020). |
Certificate of Designation of Preferences, Rights and Limitations of Series C Convertible Preferred Stock of the Company dated January 31, 2020 (Incorporated by reference to Exhibit 3.1 to the Form 8-K filed with the SEC on February 6, 2020). | |
Certificate of Designation of Series D Convertible Preferred Stock (Incorporated by reference to Exhibit 3.1 to the Form 8-K filed with the SEC on May 20, 2020). | |
Certificate of Amendment of the Articles of Incorporation (Incorporated by reference to Exhibit 3.1 to the Form 8-K filed with the SEC on January 5, 2021). | |
Certificate of Amendment of the Articles of Incorporation, dated January 31, 2023 (Incorporated by reference to Exhibit 3.12 to the Form S-1/A filed with the SEC on January 31, 2023). | |
Form of Future Advance Convertible Promissory Note issued to certain purchasers, dated January 21, 2024 (Incorporated by reference to Exhibit 4.1 to the Form 8-K filed with the SEC on January 25, 2024). | |
Forms of Common Stock Purchase Warrants issued to certain purchasers, dated January 21, 2024 (Incorporated by reference to Exhibit 4.2 to the Form 8-K filed with the SEC on January 25, 2024). | |
Securities Purchase Agreement, dated January 21, 2024, by and among the Company and the purchasers identified on the signature pages thereto (Incorporated by reference to Exhibit 10.1 to the Form 8-K filed with the SEC on January 25, 2024). | |
Security Agreement, dated January 21, 2024, by and among the Company and certain lenders (Incorporated by reference to Exhibit 10.2 to the Form 8-K filed with the SEC on January 25, 2024). | |
Subordination Agreement, dated January 21, 2024, by and among the Company, NH Expansion Credit Fund Holdings LP and certain creditors (Incorporated by reference to Exhibit 10.3 to the Form 8-K filed with the SEC on January 25, 2024). | |
Registration Rights Agreement, dated January 21, 2024, by and among the Company and certain lenders (Incorporated by reference to Exhibit 10.4 to the Form 8-K filed with the SEC on January 25, 2024). | |
Form of waiver letter with purchasers in January 2024 offering (Incorporated by reference to Exhibit 10.5 to the Form 8-K filed with the SEC on January 25, 2024). | |
Form of letter agreement with purchasers in January 2024 offering (Incorporated by reference to Exhibit 10.6 to the Form 8-K filed with the SEC on January 25, 2024). | |
Consent, Limited Waiver and Fifth Amendment to Note and Warrant Purchase Agreement with NH Expansion Credit Fund Holdings LP and the noteholders party thereto, dated March 6, 2024 (Incorporated by reference to Exhibit 10.7 to the Form 8-K filed with the SEC on March 7, 2024). | |
Separation and Release Agreement, dated March 29, 2024 (Incorporated by reference to Exhibit 10.1 to the Form 8-K filed with the SEC on April 1, 2024). |
Offer Letter of Peter Sorensen, dated March 26, 2024 (Incorporated by reference to Exhibit 10.2 to the Form 8-K filed with the SEC on April 1, 2024). |
Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer. | |
Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer. | |
Section 1350 Certification of the Principal Executive Officer. | |
Section 1350 Certification of the Chief Financial Officer. | |
101.INS* | XBRL Instance. |
101.SCH* | XBRL Taxonomy Extension Schema. |
101.CAL* | XBRL Taxonomy Extension Calculation. |
101.DEF* | XBRL Taxonomy Extension Definition. |
101.LAB* | XBRL Taxonomy Extension Labels. |
101.PRE* | XBRL Taxonomy Extension Presentation. |
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
SANUWAVE HEALTH, INC. | ||||
Dated: May | By: | |||
Morgan Frank | ||||
Chief Executive Officer | ||||
(Duly Authorized Officer and Principal Executive Officer) | ||||
Dated: May | By: | /s/ | ||
Peter Sorensen | ||||
Chief Financial Officer | ||||
(Principal Financial and Accounting Officer) |