SANUWAVE Health, Inc. (SNWV) FY 2022 MD&A
This page reproduces the company's own Item 7 MD&A text from the linked SEC filing. It is filer text, not grepcent analysis, scoring, or investment advice.
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations provides information management believes to be relevant to understanding the financial condition and results of
operations of the Company. The discussion focuses on our financial results of operations for years ended December 31, 2022, and 2021. You should read this discussion and analysis in conjunction with our consolidated financial statements and related
notes thereto on December 31, 2022, and 2021, and for years 2022, and 2021, which are presented within Part II Item 8. “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.
As discussed in Item 8. Financial Statements and Supplementary Data, in Note 3, we have restated our unaudited quarterly financial information for the quarter ended
March 31, 2022, quarter and six months ended June 30, 2022, and quarter and nine months ended September 30, 2022. Accordingly, Management’s Discussion and Analysis of Financial Condition and Results of Operations have been revised for the
effects of this restatement.
Executive Summary
We realized significant revenue growth during the year ended December 31, 2022, with a 29% growth in revenue to $16.7 million for the year ended December 31, 2022, as compared to $13.0 million in 2021. Gross margins
also increased to 74% from 62% in 2021. As the Company continues to focus on profitable growth, we have also reduced our operating loss by 37% to $9.0 million for the year ended December 31, 2022.
Net loss for the year ended December 31, 2022, was $10.3 million, or ($0.02) per basic and diluted share, compared to a net loss of $27.3 million, or ($0.05) per basic and diluted share, for the year ended December 31,
2021. We continue to focus on profitable growth and reduction in operating expenses. We believe these improvements sets the stage for additional growth as we head into 2023.
Results of Operations
The following table sets forth our consolidated statement of operations:
| For the Years Ended December 31, | Change | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (in thousands) | 2022 | 2021 | $ | % | ||||||||||||
| Revenue | 16,742 | $ | 13,010 | $ | 3,732 | 29 | % | |||||||||
| Cost of revenue | 4,331 | 4,986 | (655 | ) | -13 | % | ||||||||||
| Gross margin | 12,411 | 8,024 | 4,387 | 55 | % | |||||||||||
| Operating expenses: | ||||||||||||||||
| General and administrative | 12,556 | 11,690 | 866 | 7 | % | |||||||||||
| Selling and marketing | 7,474 | 8,591 | (1,117 | ) | -13 | % | ||||||||||
| Research and development | 567 | 1,101 | (534 | ) | -49 | % | ||||||||||
| Depreciation and amortization | 766 | 784 | (18 | ) | -2 | % | ||||||||||
| Operating loss | (8,952 | ) | (14,142 | ) | 5,190 | -37 | % | |||||||||
| Other income (expense), net | (1,339 | ) | (13,089 | ) | 11,750 | -90 | % | |||||||||
| Income tax expense | 2 | 28 | (26 | ) | -93 | % | ||||||||||
| Net loss | $ | (10,293 | ) | $ | (27,259 | ) | $ | 16,966 | -62 | % |
Revenue
Revenues for the year ended December 31, 2022, were $16.7 million, compared to $13.0 million for the same period in 2021, an increase of $3.7 million or 29%. The increase in net sales was primarily driven by the growth
of the UltraMIST® system.
Cost of Revenue
Cost of revenues for the year ended December 31, 2022, was $4.3 million, compared to $5.0 million for the same period in 2021. Gross profit as a percentage of revenues was 74% for the year ended December 31, 2022,
compared to 62% for the same period in 2021. The increase in gross profit as a percentage of revenues in 2022 was primarily due to the increase in sales of the UltraMIST system which has higher profit margins.
General and Administrative
General and administrative expenses for the year ended December 31, 2022, were $12.6 million as compared to $11.7 million for the same period in 2021, an increase of $0.9 million, or 7%. The increase in 2022 as
compared to 2021, was primarily due to the higher legal costs related to patent work and securities work.
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Selling and Marketing
Selling and marketing expenses for the year ended December 31, 2022, were $7.4 million as compared to $8.6 million for the same period in 2021, a decrease of $1.1 million, or 13%. The year-over-year decrease in sales
and marketing expenses in 2022 was a result of cost saving initiatives taken by management.
Research and Development
Research and development expenses for the year ended December 31, 2022, were $0.6 million, compared to $1.1 million for the same period in 2021. The decrease in research and development expenses in 2022, as compared to
2021, was primarily due to the reduction in employees.
Other Income (Expense), net
Other expense, net consists of the following:
| 2022 | 2021 | $ | % | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Interest expense | $ | (14,132 | ) | $ | (7,095 | ) | $ | (7,037 | ) | 99 | % | |||||
| Change in fair value of derivatives | 16,654 | (2,622 | ) | 19,276 | nm | |||||||||||
| Loss on issuance of debt | (3,434 | ) | (3,572 | ) | 138 | -4 | % | |||||||||
| Gain/(loss) on extinguishment of debt | (418 | ) | 204 | (622 | ) | nm | ||||||||||
| Loss on foreign currency exchange | (9 | ) | (4 | ) | (5 | ) | 125 | % | ||||||||
| Other expense, net | $ | (1,339 | ) | $ | (13,089 | ) | $ | 11,750 | -90 | % |
nm - not meaningful
Other expense totaled $1.3 million for the year ended December 31, 2022, as compared $13.1 million for the same period in 2021, a decrease of $11.8 million or 90%. The decrease was primarily driven by an increased gain
from the change in the fair value of derivative liability of $19.3 million, offset by increased interest expense of $7.0 million. The increased interest expense was the result of higher levels of debt outstanding during 2022, due to new issuances of
convertible debt, compared with 2021. The change in fair value of the derivative liability relates to warrants issued during 2022 with the convertible debt.
Liquidity and Capital Resources
Since inception, the Company has incurred losses from operations each year. As of December 31, 2022, we had an accumulated deficit of $194.2 million. Historically, our operations
have primarily been funded from the sale of capital stock, notes payable, and convertible debt securities. In August and November 2022, the Company raised new funding through two issuances of convertible notes payable with an aggregate principal
amount of $20.2 million, consisting of $16.0 million in newly raised capital and $4.2 million in refinanced accrued expenses, previous notes payable, and fees. The convertible notes bear interest at a rate of 15% per annum and have a conversion
price of $0.04 per share of common stock. The conversion price of the convertible notes is subject to adjustment, including if the Company issues or sells shares of common stock for a price per share less than the
conversion price of the convertible notes or if the Company lists its shares of common stock on The Nasdaq Capital Market and the average volume weighted average price of such common stock for the five trading days preceding such listing is less
than $0.04 per share; provided, however, that the conversion price shall never by less than $0.01.
The August and November 2022 financings also included two tranches of warrants, each of which is exercisable for an aggregate of 504.4 million shares of common stock at exercise prices of $0.04, and $0.067,
respectively. The exercise price of the warrants is subject to adjustment, including if the Company issues or sells shares of common stock or Share Equivalents (as defined in the warrants) for an effective
consideration price less than the exercise price of the warrants or if the Company lists its shares of common stock on The Nasdaq Capital Market and the average volume weighted average price of such common stock for the five trading days
preceding such listing is less than $0.04 per share; provided, however, that the exercise price of the warrants shall never be less than $0.01 per share. The warrants have a five-year term.
In August 2020, the Company issued a Senior Secured Promissory Note Payable (the “Senior Secured Note”) to NH Expansion Credit Fund Holdings L.P. pursuant to which the Company had outstanding debt of
$19.2 million as of December 31, 2022. Interest is charged at the greater of the prime rate or 3% plus 9%, paid quarterly. As of December 31, 2022, the Company is in default of the minimum liquidity provisions on the Senior Secured Note and, as a
result, is accruing interest at the default interest rate of an incremental 5%. Interest expense on the Senior Secured Note totaled $5.9 million and $3.1 million for the years ended December 31, 2022, and 2021, respectively.
See Notes 10 and 11 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 additional debt
commitments, the convertible notes and accompanying warrants issued in August and November 2022, and the Senior Secured Note.
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The following table presents summarized cash flow information:
| For the period ended December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| (in thousands) | 2022 | 2021 | ||||||
| Cash flows used by operating activities | $ | (17,169 | ) | $ | (6,409 | ) | ||
| Cash flows provided by (used by) investing activities | $ | 332 | $ | (529 | ) | |||
| Cash flows provided by financing activities | $ | 17,384 | $ | 5,121 |
Cash Flows from Operating Activities
The largest driver of cash flows from operations is the change in fair value of derivative liabilities connected to our convertible debt and warrants issued with the August and November 2022
financings. The Company recognized a gain on these liabilities of $16.7 million for the year ended December 31, 2022, and a loss totaling $2.6 million for the year ended December 31, 2021.
Cash Flows Provided by Financing Activities
Cash flows provided by financing activities increased primarily from the proceeds of $16.2 million from the issuance of the convertible promissory notes discussed above in this section, Liquidity and
Capital Resources.
Going Concern
The continuation of our business is dependent upon raising additional capital to fund operations. We expect to devote substantial resources for the expansion and continued
commercialization of our UltraMist and PACE systems, which will require additional capital resources. This, as well as the events of default on various notes payable, raise substantial doubt about our ability to continue as a going concern.
Management plans to obtain additional capital in 2023 through the conversion of outstanding warrants, issuance of common or preferred stock, securities convertible into common stock, or secured or unsecured debt. These possibilities, to the
extent available, may be on terms that result in significant dilution to our existing stockholders. Although no assurances can be given that our plans to obtain additional capital will be successful or on the terms or timeline we expect,
or at all, management believes that potential additional issuances of equity or other potential financing transactions, as discussed above, should provide the necessary funding for us over the next 12 months. If these
efforts are unsuccessful, we may be required to significantly curtail or discontinue operations or obtain funds through financing transactions with unfavorable terms.
The Company aims to achieve positive operating cash flows in the first half of 2023 as resources are devoted to grow revenue of the UltraMIST and PACE systems while managing
operating spend. We believe that sales growth and positive operating cash flows will be enabled by investment in new leadership in sales, operations, and finance departments and strategically managing spend to enable growth.
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.
Critical Accounting Policies and Estimates
We have used various accounting policies to prepare the consolidated financial statements in accordance with U.S. GAAP. Our significant accounting policies are disclosed in Note 4 to the consolidated financial
statements in Part II Item 8. “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K.
The preparation of the 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 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.
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The following accounting policies and estimates are deemed critical:
Litigation Contingencies
We may be involved in legal actions involving product liability, intellectual property and commercial disputes, tax disputes, and governmental proceedings and investigations. The outcomes of these legal actions are not
completely within our control and may not be known for prolonged periods of time. In some actions, the enforcement agencies or private claimants seek damages that could require significant expenditures or result in lost revenues or limit our ability
to conduct business in the applicable jurisdictions. Estimating probable losses from our litigation and governmental proceedings is inherently difficult, particularly when the matters are in early procedural stages, with incomplete scientific facts
or legal discovery; involve unsubstantiated or indeterminate claims for damages; potentially involve penalties, fines, or punitive damages; or could result in a change in business practice. The Company records a liability in the consolidated
financial statements for loss contingencies when a loss is known or considered probable, and the amount may be reasonably estimated. If the reasonable estimate of a known or probable loss is a range, and no amount within the range is a better
estimate than any other, the minimum amount of the range is accrued. 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. 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 Liability’s from Embedded Conversion Options and Warrants
The Company classified certain convertible instruments as having embedded conversion options which qualified as derivative financial instruments to be separately accounted for. The Company also
determined that certain warrants also qualified as derivative financial instruments. Various valuations 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 material assumptions for the selected subjective inputs have not changed for
the reporting period, except for the expected volatility, which is estimated based on the actual volatility during the most recent historical period equal to the remaining life of the instruments.
Valuation of Intangible Assets and Goodwill
When we acquire a business, the assets acquired, and liabilities assumed are recorded at their respective fair values at the acquisition date. Goodwill is the excess of the purchase price over the estimated fair value
of net assets of acquired businesses. Intangible assets primarily include patents, trademarks, and customer relationships. Determining the fair value of intangible assets acquired as part of a business combination requires us to make significant
estimates. These estimates include the amount and timing of projected future cash flows of each project or technology, the discount rate used to discount those cash flows to present value, and the assessment of the asset’s life cycle. The estimates
could be impacted by legal, technical, regulatory, economic, and competitive risks. The test for impairment of goodwill requires us to make several estimates to determine the fair value of the goodwill. Our estimates associated with the goodwill
impairment test are considered critical due to the amount of goodwill recorded on our consolidated balance sheets and the judgment required in determining fair value. We assess the impairment of goodwill at the consolidated level annually. We also
test definite-lived intangible assets for impairment when an event occurs, or circumstances change that would indicate the carrying amount of the assets or asset group may be impaired. We assess the impairment of indefinite-lived intangible assets
annually and whenever an event occurs, or circumstances change that would indicate that the carrying amount may be impaired. Our assessment for goodwill and intangible assets impairment is based on future cash flows that require significant judgment
with respect to future revenue and expense growth rates and other assumptions and estimates. We use estimates that are consistent with the highest and best use of the assets based on a market participant’s view of the assets being evaluated. Actual
results may differ from our estimates due to several factors including, among others, changes in competitive conditions, regulatory changes, results of clinical trials, and changes in worldwide economic conditions.
Recently Issued Accounting Standards
Information regarding new accounting pronouncements is included in Note 4 to the consolidated financial statements in Part II Item 8. “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K.
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Restatement of Interim Financial Statements
Results of Operations for the Three Months Ended March 31, 2022
| (In thousands) | Three Months ended March 31, | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2022 Restated | 2021 | $ Change | % Change | |||||||||||||
| Revenue | 3,195 | 2,116 | 1,079 | 51 | % | |||||||||||
| Cost of revenue | 889 | 1,055 | (166 | ) | -16 | % | ||||||||||
| Gross Margin | 2,306 | 1,061 | 1,245 | 117 | % | |||||||||||
| General and administrative | 2,205 | 3,129 | (924 | ) | -30 | % | ||||||||||
| Selling and marketing | 1,715 | 1,780 | (65 | ) | -4 | % | ||||||||||
| Research and development | 166 | 354 | (188 | ) | -53 | % | ||||||||||
| Depreciation and amortization | 176 | 192 | (16 | ) | -8 | % | ||||||||||
| Operating Loss | (1,956 | ) | (4,394 | ) | 2,438 | -55 | % | |||||||||
| Other Expense | (3,145 | ) | (527 | ) | (2,618 | ) | 497 | % | ||||||||
| Net Loss before income taxes | (5,101 | ) | (4,921 | ) | (180 | ) | 4 | % |
Revenues and Gross Margin
Revenues for the three months ended March 31, 2022, were $3.2 million compared to $2.1 million for the same period in 2021, an increase of $1.1
million. The increase was driven by sales of UltraMIST® devices and single-use accessories.
Gross margin as a percentage of revenue increased to 72.2% from 50.1% during the first quarter of 2022 as compared with the first quarter of the
prior year. The increase in gross margin percentages for the quarter was driven by higher sales of single-use accessories, which have a higher gross margin percentage, offset by the discontinuation of Biologics sales, which had a lower gross
margin percentage.
Operating Loss
Operating loss for the three months ended March 31, 2022, totaled $2.0 million loss compared to $4.4 million for the same period in 2021. The
decrease in operating loss is due to higher gross margin on UltraMIST as well as a decrease in operating expenses, primarily general and administrative and research and development.
General and administrative expenses decreased $0.9 million or 30% for the three-month period ended March 31, 2022, compared with the same period of
2021. This decrease was primarily due to registration penalties incurred in 2021 as well as a reduction in legal fees.
Research and development expenses decreased 53% to $166 thousand from $354 thousand during the first quarter of 2022 compared with the first quarter
of 2021. The decrease was primarily due to lower employee compensation in the first quarter of 2022.
Other Expense
Other expense increased for the three months ended March 31, 2022, by $2.6 million to $3.1 million, as compared to $0.5 million for the same period in 2021. This
increase in expenses is due to an increase in interest expense of $2.0 million, a loss on the issuance of debt of $3.4 million, partially offset by an increase in the change in fair value of derivatives of $2.8 million.
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Results of Operations for the Three and Six Months Ended June 30, 2022
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (in thousands) | 2022 Restated | 2021 | $ Change | % Change | 2022 Restated | 2021 | $ Change | % Change | ||||||||||||||||||||||||
| Revenue | 3,882 | 2,909 | 973 | 33 | % | 7,077 | 5,025 | 2,052 | 41 | % | ||||||||||||||||||||||
| Cost of revenues | 1,096 | 1,048 | 48 | 5 | % | 1,986 | 2,103 | (117 | ) | -6 | % | |||||||||||||||||||||
| Gross Margin | 2,786 | 1,861 | 925 | 50 | % | 5,091 | 2,922 | 2,169 | 74 | % | ||||||||||||||||||||||
| General and administrative | 3,730 | 2,923 | 807 | 28 | % | 5,935 | 6,045 | (110 | ) | -2 | % | |||||||||||||||||||||
| Selling and marketing | 1,672 | 2,520 | (848 | ) | -34 | % | 3,387 | 4,300 | (913 | ) | -21 | % | ||||||||||||||||||||
| Research and development | 171 | 272 | (101 | ) | -37 | % | 337 | 626 | (289 | ) | -46 | % | ||||||||||||||||||||
| Gain on disposal of assets | 51 | - | 51 | nm | 51 | - | 51 | nm | ||||||||||||||||||||||||
| Depreciation and amortization | 210 | 192 | 18 | 9 | % | 386 | 391 | (5 | ) | -1 | % | |||||||||||||||||||||
| Operating loss | (3,048 | ) | (4,046 | ) | 998 | -25 | % | (5,005 | ) | (8,440 | ) | 3,435 | -41 | % | ||||||||||||||||||
| Other income (expense), net | 4,693 | (4,563 | ) | 9,256 | -203 | % | 1,548 | (5,090 | ) | 6,638 | -130 | % | ||||||||||||||||||||
| Net income (loss) before taxes | 1,645 | (8,609 | ) | 10,254 | -119 | % | (3,457 | ) | (13,530 | ) | 10,073 | -74 | % |
Revenues and Gross Margin
Revenues for the three month-period ended June 30, 2022, were $3.9 million compared to $2.9 million for the same period of 2021, an increase of
$1.0 million. Revenues for the six months ended June 30, 2022, were $7.1 million compared to $5.0 million for the same period in 2021, an increase of $2.1 million. The increase for both periods was driven by the continued increased sales of
UltraMIST® devices and single-use accessories.
Gross margin as a percentage of revenue increased to 71.8% from 64.0% during three-month period ended June 30, 2022, as compared with the same
period of 2021, and to 71.9% from 58.1% during the six-month period ended June 30, 2022, as compared with the same period of 2021. The increase in gross margin percentages for the quarter was driven by higher sales of single-use accessories,
which have a higher gross margin percentage, offset by the discontinuation of Biologics sales in the first quarter of 2022, which had a lower gross margin percentage.
Operating Loss
Operating loss decreased $1.0 million to $3.0 million for the three months ended June 30, 2022 as compared to $4.0 million for the same period in
2021. This was due to a decrease in selling and marketing and research and development, partially offset by an increase in general and administrative expenses. Operating loss decreased $3.4 million to $5.0 million for the six months ended
June 30, 2022, as compared to $8.4 million for the same period in 2021. The decrease for the six months ended June 30, 2022, was due to a decrease in all operating expense categories.
General and administrative expenses increased $0.8 million to $3.7 million for the three-month periods ended June 30, 2022, as compared to $2.9
million for the same period in 2021. The increase is due to shares issued to consultants for services and an increase in legal fees for patents. General and administrative expenses decreased $0.1 million or 2% for the six-month period ended
June 30, 2022, compared with the same period of 2021. The decrease for the six-month period ended June 30, 2022, was primarily due to a reduction in the registration penalties and legal fees that were incurred during the same period in 2021.
Selling and marketing expenses decreased by $0.8 million or 34% for the three-month period ended June 30, 2022, as compared with the same period of
2021. Selling and marketing expenses decreased by $913 thousand or 21% for the six-month period ended June 30, 2022, as compared with the same period of 2021. The decrease was primarily due to a reduction in sales and marketing headcount during
2022.
Research and development expenses decreased 37% to $0.2 million from $0.3 million during the three-months period ended June 30, 2022, as compared
with the same period of 2021. Research and development expenses decreased 46% to $0.3 million from $0.6 million during the six-month period ended June 30, 2022, as compared with the same period of 2021. The decrease was primarily due to lower
employee compensation in 2022.
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Other Income (Expense), Net
Other income for the three months ended June 30, 2022, totaled $4.7 million as compared to $4.6 million expense for the same period in 2021. This change is
due to a gain recognized in the change in fair value of derivative liabilities totaling $7.9 million as compared to a loss totaling $0.5 million for the same period in 2021. This was partially offset by an increase in interest expense for
the three months ended June 30, 2022, of $1.5 million as compared to the same periods in 2021. Other income for the six months ended June 30, 2022, totaled $1.5million as compared to expense of $5.1 million for the same period in 2021.
This increase in other income was due to the gain recognized for the change in fair value of derivative liabilities totaling $11.3 million for the six months ended June 30, 2022, as compared to $44 thousand for the same period in 2021.
This was offset by an increase in interest expense totaling $3.5 million for the six months ended June 30, 2022.
Results of Operations for the Three and Nine Months Ended September 30, 2022
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (in thousands) | 2022 Restated | 2021 | $ Change | % Change | 2022 Restated | 2021 | $ Change | % Change | ||||||||||||||||||||||||
| Revenue | 4,166 | 3,725 | 441 | 12 | % | 11,242 | 8,750 | 2,492 | 28 | % | ||||||||||||||||||||||
| Cost of revenues | 1,157 | 1,555 | (398 | ) | -26 | % | 3,141 | 3,658 | (517 | ) | -14 | % | ||||||||||||||||||||
| Gross Margin | 3,009 | 2,170 | 839 | 39 | % | 8,101 | 5,092 | 3,009 | 59 | % | ||||||||||||||||||||||
| General and administrative | 3,498 | 2,864 | 634 | 22 | % | 9,433 | 8,909 | 524 | 6 | % | ||||||||||||||||||||||
| Selling and marketing | 1,650 | 2,150 | (500 | ) | -23 | % | 5,037 | 6,450 | (1,413 | ) | -22 | % | ||||||||||||||||||||
| Research and development | 157 | 297 | (140 | ) | -47 | % | 494 | 923 | (429 | ) | -46 | % | ||||||||||||||||||||
| Gain on disposal of assets | - | - | - | nm | 51 | - | 51 | nm | ||||||||||||||||||||||||
| Depreciation and amortization | 189 | 194 | (5 | ) | -3 | % | 575 | 585 | (10 | ) | -2 | % | ||||||||||||||||||||
| Operating loss | (2,485 | ) | (3,335 | ) | 850 | -25 | % | (7,489 | ) | (11,775 | ) | 4,286 | -36 | % | ||||||||||||||||||
| Other income (expense), net | 1,346 | (911 | ) | 2,257 | -248 | % | 2,893 | (6,001 | ) | 8,894 | -148 | % | ||||||||||||||||||||
| Net loss before taxes | (1,139 | ) | (4,246 | ) | 3,107 | -73 | % | (4,596 | ) | (17,776 | ) | 13,180 | -74 | % |
Revenues and Gross Margin
Revenues for the three month-period ended September 30, 2022, were $4.2 million compared to $3.7 million for the same period of 2021, an
increase of $0.4 million. Revenues for the nine months ended September 30, 2022, were $11.2 million compared to $8.7 million for the same period in 2021, an increase of $2.5 million. The increase for both periods was driven by the continued
increased sales of UltraMIST® devices and single-use accessories.
Gross margin as a percentage of revenue increased to 72.2% from 58.3% during the three-month period ended September 30, 2022, as compared with
the same period of 2021, and to 72.1% from 58.2% during the nine-month period ended September 30, 2022, as compared with the same period of 2021. The increases in gross margin percentage for the three and nine-months ended September 30,
2022, were driven by higher sales of single-use accessories, which have a higher gross margin percentage, and by the discontinuation of Biologics sales in the first quarter of 2022, which had a lower gross margin percentage.
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Operating Loss
Operating loss for the three months ended September 30, 2022 decreased $0.9 million or 25% to $2.5 million, as compared to $3.3 million for the
same period in 2021. Operating loss also decreased for the nine month period ending September 30, 2022, $4.3 million to $7.5 million operating loss, as compared to $11.8 million for the same period in 2021. The decreases in operating
expenses are due to decreases in selling and marketing and research and development, offset by increases in general and administrative expenses.
General and administrative expenses increased $634 thousand or 22% for the three-month period ended September 30, 2022, compared with the same
period of 2021. General and administrative expenses increased $524 thousand or 6% for the nine-month period ended September 30, 2022, compared with the same period of 2021. The increase for the three-months were primarily due to increased
accounting costs as we transition from contractors to permanent employees. The increase for the nine-month period ended September 30, 2022, were primarily due to consulting fees incurred in the second quarter and additional legal fees for
patents.
Selling and marketing expenses decreased by $500 thousand or 23% for the three-month period ended September 30, 2022, as compared with the same
period of 2021. Selling and marketing expenses decreased by $1.4 million or 22% for the nine-month period ended September 30, 2022, as compared with the same period of 2021. The decrease was primarily due to a reduction in sales and marketing
headcount during 2022 and increased cost management activities.
Research and development expenses decreased 47% to $157 thousand from $297 thousand during the three-month period ended September 30, 2022, as
compared with the same period of 2021. Research and development expense as a percentage of revenue decreased from 8% during the three-month period ended September 30, 2021, to 4% for the same period in 2022. Expense decreased 46% to $494
thousand, or 4% of revenue, from $923 thousand, or 11% of revenue, during the nine-month period ended September 30, 2022, as compared with the same period of 2021. These decreases were primarily due to improved cost management in 2022.
Other Income (Expense), Net
Other income for the three and nine months ended September 30, 2022, totaled $1.3 million and $2.9 million, respectively. This is an increase in income as
compared to expense for the three and nine months ended September 30, 2021, of $0.9 million and $6.0 million, respectively. The change in derivative liability fair value is the largest driver for the change from other expense in 2021 to other
income in 2022. The gain on derivative liabilities totaled $5.3 million and $16.6 million for the three and nine months ended September 30, 2022, respectively. As compared to $1.6 million for the three and nine months ended September 30,
2021, respectively. This was offset by increased interest expense, due to financings.