NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
March 31, 2020
1. Nature of
the Business
SANUWAVE Health,
Inc. and Subsidiaries (the “Company”) is a shock wave technology company using a patented
system of noninvasive, high-energy, acoustic shock waves for
regenerative medicine and other applications. The Company’s
initial focus is regenerative medicine – utilizing
noninvasive, acoustic shock waves to produce a biological response
resulting in the body healing itself through the repair and
regeneration of tissue, musculoskeletal and vascular structures.
The Company’s lead regenerative product in the United States
is the dermaPACE®
device, used for treating diabetic
foot ulcers, which was subject to two double-blinded, randomized
Phase III clinical studies. On December 28, 2017, the U.S.
FDA granted the Company’s request to classify the dermaPACE
System as a Class II device via the de novo process. As a result of
this decision, the Company was able to immediately market the
product for the treatment of Diabetic Foot Ulcers (DFU) as
described in the De Novo request, subject to the general control
provisions of the FD&C Act and the special controls identified
in this order.
The Company’s portfolio of healthcare
products and product candidates activate biologic signaling and
angiogenic responses, including new vascularization and
microcirculatory improvement, helping to restore the body’s
normal healing processes and regeneration. The Company is marketing
its dermaPACE System for treatment usage in the United States and
is able to generate revenue from sales of the European
Conformity Marking (CE Mark) devices and accessories in Europe,
Canada, Asia, and Asia/Pacific. The Company generates revenue
streams from dermaPACE treatments, product sales, licensing
transactions and other activities.
In
March 2020, the World Health Organization characterized COVID-19 as
a pandemic and the President of the United States declared the
COVID-19 outbreak a national emergency. Since then, the COVID-19
pandemic has rapidly spread across the globe and has already
resulted in significant volatility, uncertainty and economic
disruption. While the COVID-19 pandemic has not had a material
adverse financial impact on the Company’s operations to date,
the future impacts of the pandemic and any resulting economic
impact are largely unknown and rapidly evolving. It is difficult at
this time to predict the impact that COVID-19 will have on the
Company’s business, financial position and operating results
in future periods due to numerous uncertainties. The Company is
closely monitoring the impact of the pandemic on all aspects of its
business and operations.
Basis of Presentation
The accompanying unaudited condensed consolidated
financial statements of the Company have been prepared in
accordance with accounting principles generally accepted in the
United States of America for interim financial information and
with the instructions to Form 10-Q and Article 8-03 of
Regulation S-X. Accordingly, these condensed
consolidated financial statements do not include all the
information and footnotes required by U.S. GAAP for complete
financial statements. The financial information as of
March 31, 2020 and for the three
months ended March 31, 2020 and
2019 is unaudited; however, in the opinion of management, all
adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating
results for the three months ended March 31, 2020 are not
necessarily indicative of the results that may be expected for any
other interim period or for the year ending December 31,
2020.
The
condensed consolidated balance sheet at December 31, 2019 has
been derived from the audited consolidated financial statements at
that date but does not include all of the information and footnotes
required by U.S. GAAP for complete financial statements. These
financial statements should be read in conjunction with the
Company’s Form 10-K filed with the Securities and Exchange
Commission on March 30, 2020 (the “2019 Annual
Report”).
SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
March 31, 2020
2. Going Concern
The
Company does not currently generate significant recurring revenue
and will require additional capital during 2020. As of March 31,
2020, the Company had cash and cash
equivalents of $1,346,892. For the three months ended March
31, 2020, the net cash used by operating activities was $2,645,479.
The Company incurred a net loss of $3,001,148 for the three months
ended March 31, 2020. The operating losses and the events of
default on the Company’s short term notes payable (see Note
6) and the notes payable, related parties (see Note 8) raised
substantial doubt about the Company’s ability to continue as
a going concern for a period of at least twelve months from the
filing of this report.
The continuation of the Company’s business
is dependent upon raising additional capital to fund operations.
Management’s plans are to obtain additional capital through
investments by strategic partners for market opportunities, which
may include strategic partnerships or licensing arrangements, or
raise capital through the 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 the Company’s existing
shareholders. Although no assurances can be given,
management of the Company believes that potential additional
issuances of equity or other potential financing transactions as
discussed above should provide the necessary funding for the
Company to continue as a going concern. If these efforts are unsuccessful, the Company may
be forced to seek relief through a filing under the U.S. Bankruptcy
Code. The condensed consolidated financial statements do not
include any adjustments that might be necessary if the Company is
unable to continue as a going concern.
3.
Summary
of Significant Accounting Policies
The
significant accounting policies followed by the Company are
summarized below and should be read in conjunction with the 2019
Annual Report:
Principles of
consolidation - The condensed consolidated financial
statements include the accounts of the Company and its wholly-owned
subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
Estimates –
These condensed consolidated financial statements have been
prepared in accordance with U.S. GAAP. Because a precise
determination of assets and liabilities, and correspondingly
revenues and expenses, depend on future events, the preparation of
condensed consolidated financial statements for any period
necessarily involves the use of estimates and assumptions. Actual
amounts may differ from these estimates. These condensed
consolidated financial statements have, in management’s
opinion, been properly prepared within reasonable limits of
materiality and within the framework of the accounting policies
summarized herein. Significant estimates include the recording of
allowances for doubtful accounts, estimate of the net realizable
value of inventory, the determination of the valuation allowances
for deferred taxes, estimated fair value of stock-based
compensation, and estimated fair value of warrants.
Inventory -
Inventory consists of finished medical equipment and parts and is
stated at the lower of cost, which is valued using the first in,
first out (“FIFO”) method, or net realizable value less
allowance for selling and distribution expenses. The Company analyzes its inventory
levels and writes down inventory that has, or is expected to,
become obsolete. As of March 31, 2020, inventory consists of goods
of $308,501 and parts of $210,266 for a total inventory of
$518,767. As of December 31, 2019, inventory consisted of goods of
$357,264 and parts of $185,691 for a total inventory of
$542,955.
SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
March 31, 2020
3.
Summary
of Significant Accounting Policies (continued)
Preferred stock
– The Company evaluates Preferred Stock issuances for
liability or equity classification in accordance with the
provisions of ASC 480, Distinguishing Liabilities from Equity,
and determines appropriate equity or liability accounting
treatment. Additionally, the Company determines, if classified as
equity, whether it would be recorded as permanent or temporary
equity.
Sequencing policy
– The Company has granted certain options and warrants which,
upon settlement, may exceed the limit on the authorized number of
shares of common stock. The Company follows a sequencing policy for
which in the event partial reclassifications of contracts subject
to ASC 815-40-25 is necessary, due to the Company’s inability
to demonstrate it has sufficient authorized shares, shares will be
allocated on the basis of earliest issuance date of potentially
dilutive instruments with the earliest grants receiving first
allocation of shares. The Company evaluated such instruments and
determined that there was no impact to the Company’s
condensed consolidated financial statements.
Accrued
expenses consist of the following:
|
|
|
|
|
|
|
|
|
Accrued board of
director's fees
|
$356,667
|
$400,000
|
Shares
issuable
|
200,000
|
-
|
Accrued legal and
professional fees
|
173,387
|
134,970
|
Accrued executive
severance
|
158,500
|
154,000
|
Accrued
travel
|
122,500
|
120,000
|
Accrued outside
services
|
100,033
|
108,033
|
Accrued
inventory
|
50,275
|
167,050
|
Accrued clinical
study expenses
|
13,650
|
13,650
|
Accrued
other
|
1,223
|
13,406
|
|
$1,176,235
|
$1,111,109
|
As of
March 31, 2020, the Company has contract assets and liabilities
from contracts with customers (see Note 13).
Contract
liabilities consist of the following:
|
|
|
|
|
|
|
|
|
Service
agreement
|
$110,855
|
$133,510
|
License
fees
|
500,000
|
500,000
|
Other
|
6,291
|
6,291
|
Total
Contract liabilities
|
617,146
|
639,801
|
Non-Current
|
(61,938)
|
(573,224)
|
Total
Current
|
$555,208
|
$66,577
|
SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
March 31, 2020
5.
Contract
liabilities (continued)
The
timing of the Company’s revenue recognition may differ from
the timing of payment by its customers. A receivable is recorded
when revenue is recognized prior to payment and the Company has an
unconditional right to payment. Alternatively, when payment
precedes the satisfaction of performance obligations, the Company
records a contract liability (deferred revenue) until the
performance obligations are satisfied. Of the aggregate contract
liability balances as of March 31, 2020, the Company expects to
satisfy its remaining performance obligations associated with
$555,208 and $61,938 of contract liability balances within the next
twelve months and following thirty-five months, respectively. Of
the aggregate contract liability balances as of December 31, 2019,
the Company expects to satisfy its remaining performance
obligations associated with $66,577 and $573,224 of contract
liability balances within the next twelve months and following
thirty-eight months, respectively.
6.
Short
term notes payable
During
the three months ended March 31, 2020, the Company converted
$263,984 of the short term notes payable into 1,820,461 shares of
common stock.
7.
Advances
from related parties
Due to the timing
of receipt of cash and issuance of the Company’s common stock
the funds have been recorded as advances from related parties and
will be properly recorded as equity when the common stock is
issued.
Advances from related parties totaled $16,000 at
March 31, 2020.
8.
Notes
payable, related parties
The
notes payable, related parties as amended were issued in
conjunction with the Company’s purchase of the orthopedic
division of HealthTronics, Inc. The notes payable, related parties
bear interest at 8% per annum, as amended. All remaining unpaid
accrued interest and principal was due on December 31, 2018, as
amended. HealthTronics, Inc. is a related party because it is a
shareholder in the Company and has a security agreement with the
Company detailed below.
The Company is a party to a security
agreement with HealthTronics, Inc. to provide a first security
interest in the assets of the Company. During any period when
an Event of Default occurs, the applicable interest rate shall
increase by 2% per annum. Events of Default under the notes
payable, related parties have occurred and are continuing on
account of the failure of SANUWAVE, Inc., a Delaware corporation, a
wholly owned subsidiary of the Company and the borrower under the
notes payable, related parties, to make the required payments of
interest which were due on December 31, 2016, March 31, 2017, June
30, 2017, September 30, 2017, December 31, 2017, June 30, 2018,
September 30, 2018, December 31, 2018, March 31, 2019, June 30,
2019, September 30, 2019, December 31, 2019 and March 31, 2020
(collectively, the “Defaults”). As a result of the
Defaults, the notes payable, related parties have been accruing
interest at the rate of 10% per annum since January 2, 2017 and
continue to accrue interest at such rate. The Company will be
required to make mandatory prepayments of principal on the notes
payable, related parties equal to 20% of the proceeds received by
the Company through the issuance or sale of any equity securities
in cash or through the licensing of the Company’s patents or
other intellectual property rights. The Company has not made the mandatory prepayments
of principal to HealthTronics, Inc. on the notes payable, related
parties as amended from proceeds received through the issuance or
sale of any equity securities in cash through March 31,
2020.
The
notes payable, related parties had an aggregate outstanding
principal balance of $5,372,743 at March 31, 2020 and December 31,
2019.
Accrued
interest, related parties currently payable totaled $2,042,541 at
March 31, 2020 and $1,859,977 at December 31, 2019. Interest
expense on notes payable, related parties totaled $182,564 and
$219,687 for the three months ended March 31, 2020 and 2019,
respectively.
As
of March 31, 2020, we are in default under the notes, as amended,
and as a result HealthTronics, Inc. could, among other rights and
remedies, exercise its rights under its first priority security
interest in our assets. We are in negotiations with HealthTronics,
Inc. to address the event of default.
SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
March 31, 2020
On
February 6, 2020, the Company entered into a Series C Preferred
Stock Purchase Agreement (the “Purchase Agreement”)
with certain accredited investors for the sale by the Company in a
private placement of an aggregate of 90 shares of the
Company’s Series C Convertible Preferred Stock, par value
$0.001 per share at a stated value equal to $25,000 per share (the
“Series C Preferred Stock”), for an aggregate total
purchase price of $2,250,000.
Subject
to the terms of the Certificate of Designation, each share of
Series C Preferred Stock is convertible into shares of Common Stock
of the Company at a rate equal to the stated value of such share of
Series C Preferred Stock of $25,000, divided by the conversion
price of $0.14 per share (subject to adjustment from time to time
upon the occurrence of certain events as described in the
Certificate of Designation). The Certificate of Designation became
effective upon filing with the Secretary of State of the State of
Nevada. If all outstanding shares of Series C Preferred Stock were
converted into Common Stock at the original conversion rate, such
shares would convert into an aggregate of 16,071,429 shares of
Common Stock. On January 31, 2020, the Company filed a Certificate
of Designation of Preferences, Right and Limitations of Series C
Convertible Preferred Stock of the Company with the Nevada
Secretary of State which amended our Articles of Incorporation to
designate 90 shares of our preferred stock as Series C Convertible
Preferred Stock.
Notwithstanding the
foregoing, the Series C Preferred Stock is not currently
convertible into shares of Common Stock because the Company does
not currently have sufficient authorized and unissued shares of its
Common Stock to permit conversion in full of all issued and
outstanding shares of Series C Preferred Stock. Accordingly, the
Certificate of Designation provides that the Series C Preferred
Stock is only convertible into Common Stock once the Company amends
its Articles of Incorporation to increase its authorized and
unissued Common Stock to an amount sufficient to permit such
conversion of the Series C Preferred Stock. Each investor has
agreed in the Purchase Agreement that such investor will, within
five business days following such amendment to the Articles of
Incorporation, convert all of such investor’s shares of
Series C Preferred Stock into shares of Common Stock.
The
Certificate of Designation provides that if the Company has not
obtained the approval of its shareholders to amend the
Company’s Articles of Incorporation to increase the
authorized shares of Common Stock sufficient to permit such
conversion, or if such amendment has not otherwise been filed with
the Nevada Secretary of State on or before December 31, 2020
(either such event, an “Authorization Failure”), then
the Company shall be required to redeem all outstanding shares of
Series C Preferred Stock for a per-share redemption price, payable
in cash in a single installment not later than thirty (30) days
following the date of such Authorization Failure, equal to the
greater of (a) two hundred percent (200%) of the stated value of
such share, and (b)(i) the volume-weighted average sale price of a
share of Common Stock reported on the trading market on which the
Common Stock is then traded for the thirty (30) consecutive trading
days immediately preceding the date of such Authorization Failure,
multiplied by (ii) the number of shares of Common Stock such share
of Series C Preferred Stock would otherwise be convertible into as
of such date had such Authorization Failure not occurred. The
closing of the private placement occurred on February 6, 2020 and
the preferred stock was recorded in temporary equity on the related
condensed consolidated balance sheet at fair value of $2,250,000.
Ninety shares of the Series C Preferred Stock have been issued as
of March 31, 2020.
Warrant Exercises
During the three months ended March 31,
2020, the Company issued 1,000,000
shares of Common Stock upon the exercise of 1,000,000 Class P
Warrant to purchase shares of stock and an exercise price of $0.01
per share under the terms of the respective warrant
agreement.
SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
March 31, 2020
10.
Equity
transactions (continued)
Conversion of liabilities
During
the three months ended March 31, 2020, the Company issued 1,820,461
shares of Common Stock upon the conversion of short term notes
payable in the principal and accrued interest amount of $263,984
with the receipt of notices of Class L warrant exercises, all
pursuant to the terms of the short term notes payable.
Conversion of advances from related parties
During
the three months ended March 31, 2020, the Company issued 62,811
shares of Common Stock upon the conversion of advances from related
parties in the amount of $2,098 with the receipt of notice of
Series A Warrant exercise to purchase shares of stock under the
terms of the respective warrant agreement.
Consulting Agreement
In
January 2020, the Company entered into a six month consulting
agreement for which the fee for the services was to be paid with
Common Stock. The number of shares to be paid with Common Stock was
1,000,000 earned upon signing and an additional 1,000,000 upon
agreement by both consultant and the Company no later than May 1,
2020. The Company issued 1,000,000 shares in March 2020. The fair
value of the shares of $200,000 was recorded as a non-cash general
and administrative expense during the period ended March 31, 2020.
Subsequent to March 31, 2020, the remaining 1,000,000 shares were
issued to the consultant.
A
summary of the warrant activity during the three months ended March
31, 2020 is presented as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant class
|
|
|
|
|
|
|
|
|
|
|
|
Class K
Warrants
|
7,200,000
|
-
|
-
|
-
|
7,200,000
|
Class O
Warrants
|
909,091
|
-
|
-
|
-
|
909,091
|
Class P
Warrants
|
1,365,000
|
-
|
(1,000,000)
|
(100,000)
|
265,000
|
|
9,474,091
|
-
|
(1,000,000)
|
(100,000)
|
8,374,091
|
A
summary of the warrant exercise price per share and expiration date
is presented as follows:
|
|
Expiration
|
|
|
date
|
|
|
|
Class K
Warrants
|
$0.08
|
June
2025
|
Class K
Warrants
|
$0.11
|
August
2027
|
Class O
Warrants
|
$0.11
|
January
2022
|
Class P
Warrants
|
$0.20
|
June
2024
|
The Company has
616,667 Class L Warrants that have been exercised but the common
stock has not yet been issued. The cash for these issuable shares
was previously received and recorded in Advances from related
parties and Short term notes payable.
The
estimated fair value of the Class K Warrants at the date of grant
was $36,989 and recorded as debt discount, which is accreted to
interest expense through the maturity date of the related notes
payable, related parties.
SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
March 31, 2020
The
estimated fair values were determined using a binomial option
pricing model based on various assumptions. The
Company’s derivative liabilities have been classified as
Level 3 instruments and are adjusted to reflect estimated fair
value at each period end, with any decrease or increase in the
estimated fair value being recorded in other income or expense
accordingly, as adjustments to the fair value of derivative
liabilities.
12.
Commitments
and contingencies
Operating Leases
The
Company is a party to certain operating leases. The Company has
entered into a lease agreement, as amended, for office space for
office, research and development, quality control, production and
warehouse space which expires on December 31, 2021. Under the terms
of the lease, the Company pays monthly rent of $14,651, subject to
a 3% adjustment on an annual basis.
For
leases where the Company is the lessee, ROU assets represent the
Company’s right to use an underlying asset for the lease term
and lease liabilities represent an obligation to make lease
payments arising from the lease. ROU assets and lease liabilities
are recognized at the lease commencement date (except we used the
practical expedients and recorded the outstanding operating lease
at January 1, 2019) based on the present value of lease payments
over the lease term. As the Company’s lease did not provide
an implicit interest rate, the Company used the equivalent
borrowing rate for a secured financing with the term of that equal
to the remaining life of the lease at inception. The lease terms
used to calculate the ROU asset and related lease liability did not
include options to extend or termination of the lease; there are
none and there is no reasonable certainty that the Company would
extend the lease at expiration. Lease expense for operating leases
is recognized on a straight-line basis over the lease term as an
operating expense. The Company has lease agreements which require
payments for lease and non-lease components and has elected to
account for these as separate lease components. Non-leasing
components are not included in the ROU asset.
Right
of use assets and Lease liability – right of use consist of
the following:
|
|
|
|
|
|
Right of use
assets
|
$283,456
|
|
|
|
|
|
|
Lease liability -
right of use
|
|
Current
portion
|
$176,397
|
Long
term portion
|
139,333
|
|
$315,730
|
SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
March 31, 2020
12.
Commitments
and contingencies (continued)
As of
March 31, 2020, the maturities of the Company’s lease
liability – right of use which have initial or remaining
lease terms in excess of one year consist of the
following:
Year ending December
31,
|
|
2020
(remainder)
|
$144,377
|
2021
|
197,462
|
Total lease
payments
|
341,839
|
Less: Present value
adjustment
|
(26,109)
|
Lease liability -
right of use
|
$315,730
|
As of
March 31, 2020, the Company’s operating lease had a weighted
average remaining lease term of 1.75 years and a weighted average
discount rate of 7%.
Rent
expense for the three months ended March 31, 2020 and 2019 was $52,330 and
$52,838, respectively.
Financing Lease
For
leases where the Company is the lessee, ROU assets represent the
Company’s right to use an underlying asset for the lease term
and lease liabilities represent an obligation to make lease
payments arising from the lease. ROU assets and lease liabilities
are recognized at the lease commencement date based on the present
value of lease payments over the lease term. The present value of
the lease payment exceeds 90% of the sales price of the equipment,
therefore this lease will be considered a financing lease is
included in Property and equipment, net on our Condensed
Consolidated Balance Sheets. Lease expense will be recognized as
payment of financing lease, depreciation expense and interest
expense.
Right
of use assets and Lease liability – right of use consist of
the following:
|
|
|
|
|
|
Right of use
assets
|
$504,352
|
|
|
|
|
|
|
Lease liability -
right of use
|
|
Current
portion
|
$159,789
|
Long
term portion
|
332,641
|
|
$492,430
|
SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
March 31, 2020
12.
Commitments
and contingencies (continued)
As of
March 31, 2020, the maturities of the Company’s lease
liability – right of use which have initial or remaining
lease terms in excess of one year consist of the
following:
Year ending December
31,
|
|
2020
(remainder)
|
$159,490
|
2021
|
212,652
|
2022
|
177,852
|
2023
|
12,903
|
Total
|
$562,897
|
As of
March 31, 2020, the Company’s financing leases had a weighted
average remaining lease term of 2.65 years based on annualized base
payments expiring through 2022 and a weighted average discount rate
of 13.2%.
As of
March 31, 2020, the Company did not have additional operating or
financing leases that have yet commenced.
Litigation
The
Company is a defendant in various legal actions, claims and
proceedings arising in the ordinary course of business, including
claims related to breach of contracts and intellectual property
matters resulting from our business activities. As with most
actions such as these, an estimation of any possible and/or
ultimate liability cannot always be determined. We believe that all
pending claims, if adversely decided, would not have a material
adverse effect on our business, financial position or results of
operations.
The
Company accounts for revenue in accordance with ASC 606, which we
adopted beginning January 1, 2018, using the modified retrospective
method. The
core principle of ASC 606 requires that an entity recognize revenue
to depict the transfer of promised goods or services to customers
in an amount that reflects the consideration to which the company
expects to be entitled in exchange for those goods or services. ASC
606 defines a five-step process to achieve this core principle and,
in doing so, it is possible more judgment and estimates may be
required within the revenue recognition process than required under
GAAP, including identifying performance obligations in the
contract, estimating the amount of variable consideration to
include in the transaction price and allocating the transaction
price to each separate performance obligation.
SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
March 31, 2020
Pursuant to ASC
606, we apply the following the five-step model:
1.
Identify the contract(s) with a customer. A contract with a
customer exists when (i) we enter into an enforceable contract with
a customer that defines each party’s rights regarding the
goods to be transferred and identifies the payment terms related to
these goods, (ii) the contract has commercial substance and, (iii)
we determine that collection of substantially all consideration for
services that are transferred is probable based on the
customer’s intent and ability to pay the promised
consideration.
2. Identify
the performance obligation(s) in the contract. If a contract
promises to transfer more than one good or service to a customer,
each good or service constitutes a separate performance obligation
if the good or service is distinct or capable of being
distinct.
3. Determine
the transaction price. The transaction price is the amount of
consideration to which the entity expects to be entitled in
exchanging the promised goods or services to the
customer.
4. Allocate
the transaction price to the performance obligations in the
contract. For a contract that has more than one performance
obligation, an entity should allocate the transaction price to each
performance obligation in an amount that depicts the amount of
consideration to which an entity expects to be entitled in exchange
for satisfying each performance obligation.
5. Recognize
revenue when (or as) the Company satisfies a performance
obligation. For each performance obligation, an entity should
determine whether the entity satisfies the performance obligation
at a point in time or over time. Appropriate methods of measuring
progress include output methods and input methods.
The
Company recognizes revenue primarily from the following types of
contracts:
Product sales
Product
sales include devices and applicators (new and refurbished).
Performance obligations are satisfied at the point in time when the
customer obtains control of the goods, which is generally at the
point in time that the product is shipped.
Procedure revenue
from the dermaPACE System is not material to the condensed
consolidated financial statements as of March 31,
2020.
Licensing transactions
Licensing
transactions include distribution licenses and intellectual
property licenses. Licensing revenue is recognized as the Company
satisfies its performance obligations, which may vary with the
terms of the licensing agreement.
SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
March 31, 2020
Other activities
Other
activities primarily include warranties, repairs and billed
freight. Device product sales are bundled with an initial
one-year warranty and the Company offers a separately priced
second-year warranty. The Company allocates the device sales
price to the product and the embedded warranty by reference to the
stand-alone extended warranty price. Because the warranty
represents a stand-ready obligation, revenue is recognized over the
time period that the Company satisfies its performance obligations,
which is generally the warranty term. Repairs (parts and labor) and
billed freight revenue are recognized at the point in time that the
service is performed, or the product is shipped,
respectively.
Disaggregation of Revenue
The
disaggregation of revenue is based on geographical region. The
following table presents revenue from contracts with customers for
the three months ended March 31, 2020 and 2019:
|
Three months ended March 31,
2020
|
|
|
|
|
|
|
|
|
Product
|
$33,655
|
$40,904
|
$74,559
|
License
fees
|
-
|
10,000
|
10,000
|
Other
Revenue
|
541
|
63,492
|
64,033
|
|
$34,196
|
$114,396
|
$148,592
|
Three months ended March 31,
2019
|
|
|
|
|
|
|
$17,678
|
$46,887
|
$64,565
|
6,250
|
100,000
|
106,250
|
-
|
7,148
|
7,148
|
$23,928
|
$154,035
|
$177,963
|
Management
routinely assesses the financial strength of its customers and, as
a consequence, believes accounts receivable are stated at the net
realizable value and credit risk exposure is limited. Two
distributors accounted for 66% and 9% of revenues for the three
months ended March 31, 2020 and 10% and 0% of accounts receivable
at March 31, 2020. Three distributors accounted for 58%, 11% and
10% of revenues for the three months ended March 31, 2019 and 39%,
5% and 0% of accounts receivable at March 31, 2019.
14.
Related
party transactions
During
the three months ended March 31, 2020 and 2019, the Company
recorded $13,105 and $17,678, respectively, in revenue from an
entity owned by A. Michael Stolarski, a member of the
Company’s board of directors and an existing shareholder of
the Company. Contract liabilities includes a balance at March 31,
2020 and 2019, of $104,048 and $138,887, respectively from this
related party.
15.
Stock-based
compensation
During the three
months ended March 31, 2020, the Company granted to employees
options to purchase 100,000 shares of common stock under a
previously issued incentive plan. The options have an exercise
price of $0.26 per share for an aggregate grant date value of
approximately $21,900. The options vested upon issuance and have a
term of ten years.
The
range of exercise prices for options was $0.04 to $2.00 for options
outstanding at March 31, 2020 and December 31, 2019, respectively.
The aggregate intrinsic value for all vested and exercisable
options was $1,565,916 and $2,085,866 at March 31, 2020 and
December 31, 2019, respectively.
The
weighted average remaining contractual term for outstanding
exercisable stock options was 6.4 and 6.6 years as of March 31,
2019 and December 31, 2019, respectively.
SANUWAVE HEALTH, INC. AND
SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
March 31, 2020
16.
Earnings
(loss) per share
Basic
net loss per share is computed by dividing the net loss
attributable to common stockholders by the weighted average number
of shares of common stock outstanding for the
period. Diluted net loss per share reflects the
potential dilution that could occur if securities or other
instruments to issue common stock were exercised or converted into
common stock. Potentially dilutive securities are excluded from the
computation of diluted net loss per share as their inclusive would
be anti-dilutive and consist of the following:
|
|
|
|
|
|
|
|
|
Stock
options
|
34,403,385
|
31,703,385
|
Warrants
|
8,374,091
|
98,728,335
|
Short term notes
payable
|
2,250,000
|
-
|
Preferred stock
conversion
|
16,071,429
|
-
|
Convertible
promissory notes
|
-
|
25,058,432
|
Anti-dilutive equity
securities
|
61,098,905
|
155,490,152
|
The Company
evaluates events that occur after the year-end date through the
date the financial statements are available to be
issued.