SANUWAVE Health, Inc. 10-Q/A

Item 1. FINANCIAL STATEMENTS 2 Table of Contents SANUWAVE HEALTH, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS September 30, 2020 December 31, 2019 (As Restated) ASSETS (Unaudited) CURRENT ASSETS Cash and cash equivalents $ 5,391,591 $ 1,760,455 Accounts receivable, net of allowance for doubtful accounts of $32,558 in 2020 and $72,376 in 2019 1,395,815 75,543 Inventory 2,539,475 542,955 Prepaid expenses and other current assets 627,751 125,405 TOTAL CURRENT ASSETS 9,954,632 2,504,358 PROPERTY AND EQUIPMENT, net 979,673 512,042 RIGHT OF USE ASSETS, net 442,197 323,661 OTHER INTANGIBLE ASSETS, net 7,259,795 - GOODWILL 14,198,799 - OTHER ASSETS 31,010 41,931 TOTAL ASSETS $ 32,866,106 $ 3,381,992 LIABILITIES CURRENT LIABILITIES Accounts payable $ 2,322,192 $ 1,439,413 Accrued expenses 1,603,543 1,111,109 Accrued employee compensation 2,544,768 1,452,910 Warrant Liability 17,546,260 - Convertible promissory notes payable 4,000,000 - Convertible promissory notes, related parties 1,596,254 - SBA loans 321,821 - Accrued interest 354,062 - Operating lease liability 251,372 173,270 Finance lease liability 187,416 121,634 Contract liabilities 65,037 66,577 Accrued interest, related parties 28,864 1,859,977 Notes payable, related parties, net - 5,372,743 Short term notes payable - 587,233 Line of credit, related parties - 212,388 Advances from related parties - 18,098 TOTAL CURRENT LIABILITIES 30,821,589 12,415,352 NON-CURRENT LIABILITIES Promissory note payable 10,448,039 - SBA loans 142,514 - Finance lease liability 284,588 271,240 Operating lease liability 222,815 185,777 Contract liabilities 45,519 573,224 TOTAL NON-CURRENT LIABILITIES 11,143,475 1,030,241 TOTAL LIABILITIES 41,965,064 13,445,593 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' DEFICIT PREFERRED STOCK, par value $0.001, 5,000,000 shares authorized; 6,175 and 293 shares designated Series A and Series B, respectively - - COMMON STOCK, par value $0.001, 600,000,000 (Note 18) shares authorized; 466,094,621 and 293,780,400 issued and outstanding in 2020 and 2019, respectively 466,095 293,781 ADDITIONAL PAID-IN CAPITAL 135,521,907 115,457,808 ACCUMULATED DEFICIT (145,025,761 ) (125,752,956 ) ACCUMULATED OTHER COMPREHENSIVE LOSS (61,199 ) (62,234 ) TOTAL STOCKHOLDERS' DEFICIT (9,098,958 ) (10,063,601 ) TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 32,866,106 $ 3,381,992 The accompanying notes to condensed consolidated financial statements are an integral part of these statements. 3 Table of Contents SANUWAVE HEALTH, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED) Three Months Ended September 30, 2020 Three Months Ended September 30, 2019 Nine Months Ended September 30, 2020 Nine Months Ended September 30, 2019 (As Restated) (As Restated) REVENUES Product $ 1,321,248 $ 158,855 $ 1,465,147 $ 444,087 License fees 29,447 16,250 39,447 189,307 Other revenue 616,201 22,535 694,194 59,185 TOTAL REVENUES 1,966,896 197,640 2,198,788 692,579 COST OF REVENUES Product 533,629 91,179 637,369 334,749 Other 14,777 31,744 26,261 67,908 TOTAL COST OF REVENUES 548,406 122,923 663,630 402,657 GROSS MARGIN 1,418,490 74,717 1,535,158 289,922 OPERATING EXPENSES Research and development 432,155 299,903 983,816 867,825 Selling and marketing 1,373,476 335,472 2,414,477 901,031 General and administrative 5,054,508 1,802,659 9,529,218 4,746,519 Amortization 244,626 - 244,626 - Depreciation 82,493 22,338 200,282 40,150 TOTAL OPERATING EXPENSES 7,187,258 2,460,372 13,372,419 6,555,525 OPERATING LOSS (5,768,768 ) (2,385,655 ) (11,837,261 ) (6,265,603 ) OTHER INCOME (EXPENSE) Gain or (Loss) on warrant liability (5,590,806 ) - (5,590,806 ) 227,669 Loss on extinguishment of debt (503,234 ) - (503,234 ) - Interest expense (690,659 ) (182,001 ) (878,331 ) (1,120,440 ) Interest expense, related party (61,334 ) (175,522 ) (431,070 ) (508,193 ) Loss on foreign currency exchange (23,836 ) (4,840 ) (32,103 ) (13,199 ) TOTAL OTHER INCOME (EXPENSE), NET (6,869,869 ) (362,363 ) (7,435,544 ) (1,414,163 ) NET LOSS (12,638,637 ) (2,748,018 ) (19,272,805 ) (7,679,766 ) OTHER COMPREHENSIVE INCOME (LOSS) Foreign currency translation adjustments 2,792 (14,061 ) 869 13,152 TOTAL COMPREHENSIVE LOSS $ (12,635,845 ) $ (2,762,079 ) $ (19,271,936 ) $ (7,666,614 ) LOSS PER SHARE: Net loss - basic and diluted $ (0.03 ) $ (0.01 ) $ (0.06 ) $ (0.04 ) Weighted average shares outstanding - basic and diluted 384,502,450 211,423,362 326,405,397 181,088,995 The accompanying notes to condensed consolidated financial statements are an integral part of these statements. 4 Table of Contents SANUWAVE HEALTH, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT (UNAUDITED) Preferred Stock Common Stock Number of Shares Issued and Outstanding Par Value Number of Shares Issued and Outstanding Par Value Additional Paid- in Capital Accumulated Deficit Accumulated Other Comprehensive Loss Total Balances as of Janaury 1, 2019 - $ - 155,665,138 $ 155,665 $ 101,153,882 $ (116,602,778 ) $ (62,868 ) $ (15,356,099 ) Net loss - - - - - (2,197,317 ) - (2,197,317 ) Cashless warrant exercises - - 704,108 704 (704 ) - - - Proceeds from warrant exercise - - 620,000 620 52,580 - - 53,200 Conversion of short term notes and convertible notes payable - - 3,333,334 3,334 263,333 - - 266,667 Reclassification of warrant liability to equity due to adoption of ASU 2017-11 - - - - 262,339 1,279,661 - 1,542,000 Foreign currency translation adjustment - - - - - - (2,398 ) (2,398 ) Balances as of March 31, 2019 - $ - 160,322,580 $ 160,323 $ 101,731,430 $ (117,520,434 ) $ (65,266 ) $ (15,693,947 ) Net loss - - - - - (2,734,431 ) - (2,734,431 ) Cashless warrant exercises - - 2,997,375 2,997 13,003 - - 16,000 Proceeds from warrant exercise - - 17,051,769 17,052 1,333,005 - - 1,350,057 Other warrant exercise - - 5,804,167 5,804 451,697 457,501 Conversion of short term notes and convertible notes payable - - 2,475,000 2,475 177,525 - - 180,000 Stock-based compensation - - - - 31,758 - - 31,758 Warrants issued for consulting services - - - - 36,067 - - 36,067 Foreign currency translation adjustment - - - - - - 1,489 1,489 Balances as of June 30, 2019 - $ - 188,650,891 $ 188,651 $ 103,774,485 $ (120,254,865 ) $ (63,777 ) $ (16,355,506 ) Net loss - - - - - (2,748,018 ) - (2,748,018 ) Cashless warrant exercises - - 1,710,674 1,711 18,289 - - 20,000 Proceeds from warrant exercise - - 10,506,593 10,506 961,528 - - 972,034 Other warrant exercise - - 40,355,006 40,355 4,014,500 - - 4,054,855 Conversion of line of credit, related parties to equity - - 4,545,455 4,545 495,455 - - 500,000 Stock-based compensation - - - - 224,400 - - 224,400 Foreign currency translation adjustment - - - - - - 14,061 14,061 Balances as of September 30, 2019 - $ - 245,768,619 $ 245,768 $ 109,488,657 $ (123,002,883 ) $ (49,716 ) $ (13,318,174 ) As Restated Balances as of Janaury 1, 2020 - $ - 293,780,400 $ 293,781 $ 115,457,808 $ (125,752,956 ) $ (62,234 ) $ (10,063,601 ) Net loss - - - - - (3,001,148 ) - (3,001,148 ) Proceeds from warrant exercise - - 1,000,000 1,000 9,000 - - 10,000 Shares issued for services - - 1,000,000 1,000 199,000 - - 200,000 Stock-based compensation - - - - 21,900 - - 21,900 Conversion of short term notes - - 1,820,461 1,820 262,164 - - 263,984 Conversion of advances from related parties - - 62,811 63 2,035 - - 2,098 Foreign currency translation adjustment - - - - - - 4,826 4,826 Balances as of March 31, 2020 - $ - 297,663,672 $ 297,664 $ 115,951,907 $ (128,754,104 ) $ (57,408 ) $ (12,561,941 ) Net loss - - - - - (3,633,020 ) - (3,633,020 ) Proceeds from PIPE - - 1,071,428 1,071 148,929 - - 150,000 Proceeds from stock option exercise - - 225,000 225 44,025 - - 44,250 Beneficial conversion feature on convertible debt - - - - 560,682 - - 560,682 Shares issued for services - - 2,200,000 2,200 515,300 - - 517,500 Conversion of short term notes and settlements - - 759,328 759 89,986 - - 90,745 Conversion of advances from related parties - - 200,000 200 15,800 - - 16,000 Foreign currency translation adjustment - - - - - - (6,749 ) (6,749 ) Balances as of June 30, 2020 - $ - 302,119,428 $ 302,119 $ 117,326,629 $ (132,387,124 ) $ (64,157 ) $ (14,822,533 ) Net loss (As Restated) - - - - - (12,638,637 ) - (12,638,637 ) Proceeds from PIPE (As Restated) - - 123,550,000 123,550 12,408,966 - - 12,532,516 LGH Warrant Liability (As Restated) (249,049 ) (249,049 ) Series C Preferred Conversion - - 16,071,390 16,072 2,233,928 - - 2,250,000 Series D Preferred Conversion - - 1,428,568 1,429 198,571 - - 200,000 Shares issued for services - - 5,000,000 5,000 1,075,000 - - 1,080,000 Inducement shares issued 200,000 200 44,540 44,740 Conversion of short term notes and settlements - - 2,250,000 2,250 207,750 - - 210,000 Conversion of notes payable, related parties to equity - - 15,475,235 15,475 2,275,572 - - 2,291,047 Foreign currency translation adjustment - - - - - - 2,958 2,958 Balances as of September 30, 2020 (As Restated) - $ - 466,094,621 $ 466,095 $ 135,521,907 $ (145,025,761 ) $ (61,199 ) $ (9,098,958 ) The accompanying notes to condensed consolidated financial statements are an integral part of these statements. 5 Table of Contents SANUWAVE HEALTH, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Nine Months Ended September 30, 2020 (As Restated) Nine Months Ended September 30, 2019 CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (19,272,805 ) $ (7,679,766 ) Adjustments to reconcile net loss to net cash used by operating activities Amortization of intangibles 244,626 - Depreciation 200,282 40,150 Bad Debt Expense (39,818 ) (18,835 ) Share-based payment 21,900 256,158 Shares issued for services 1,797,500 - Shares issued for inducement shares 44,740 - Loss on extinguishment of debt 503,234 - Warrants issued for consulting services - 36,067 Gain or (Loss) on warrant liability 5,590,806 (227,669 ) Amortization of debt issuance costs 214,431 - Accrued interest 191,031 1,139,904 Interest payable, related parties 696,208 508,193 Amortization of operating leases (3,396 ) (14,634 ) Waived proceeds from warrant exercise - 36,000 Changes in operating assets and liabilities Accounts receivable - trade (1,280,454 ) 197,301 Inventory (136,555 ) 66,884 Prepaid expenses (502,346 ) (83,007 ) Due from related parties - 1,228 Other assets 10,921 (13,567 ) Operating leases - 9,513 Financing leases 1,980 Accounts payable 882,779 118,908 Accrued expenses 492,434 127,586 Accrued employee compensation 1,091,858 863,400 Contract liabilties (529,245 ) (48,425 ) NET CASH USED BY OPERATING ACTIVITIES (9,779,889 ) (4,684,611 ) CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of UltraMIST (Note 4) (20,000,000 ) - Purchases of property and equipment (39,142 ) (28,990 ) NET CASH USED BY INVESTING ACTIVITIES (20,039,142 ) (28,990 ) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from sale of convertible preferred stock 2,450,000 - Proceeds from convertible promissory note 1,100,000 - Proceeds from SBA loan 614,335 - Proceeds from PIPE offering 21,456,468 - Proceeds from senior promissory notes 13,346,547 Proceeds from stock option exercise 44,250 90,000 Proceeds from short term note - 1,215,000 Proceeds from warrant exercise 10,000 1,378,142 Advances from related parties - 2,055,414 Payments of debt (5,457,663 ) Payments of principal on finance leases (114,806 ) - NET CASH PROVIDED BY FINANCING ACTIVITIES 33,449,131 4,738,556 EFFECT OF EXCHANGE RATES ON CASH 1,036 13,152 NET INCREASE IN CASH AND CASH EQUIVALENTS 3,631,136 38,107 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,760,455 364,549 CASH AND CASH EQUIVALENTS, END OF PERIOD $ 5,391,591 $ 402,656 NONCASH INVESTING AND FINANCING ACTIVITIES Acquisition of UltraMIST partially financed with convertible promissory note $ 4,000,000 - Conversion of short term notes payable to equity $ 564,729 $ 2,860,769 Other warrant exercise - $ 924,649 Conversion of line of credit, related parties to equity - $ 680,000 Conversion of advances from related party to equity $ 18,098 - Additions to right of use assets from new finance lease liabilities $ 127,611 - Beneficial conversion feature on convertible debt $ 560,682 - Reclassification of warrant liability to equity - $ 1,542,000 Accounts payable and Accrued employee compensation converted to equity - $ 36,500 Conversion of convertible promissory notes to equity - $ 1,918,254 The accompanying notes to condensed consolidated financial statements are an integral part of these statements. 6 Table of Contents SANUWAVE HEALTH, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2020 1. Nature of the Business SANUWAVE Health, Inc. and Subsidiaries (the “Company”) is focused on the research, development, and commercialization of its patented noninvasive and biological response activating medical systems for the repair and regeneration of skin, musculoskeletal tissue, and vascular structures. Through its recent acquisition of Celularity’s UltraMIST® assets, SANUWAVE now combines two highly complementary and market-cleared energy transfer technologies and two human tissue biologic products, which creates a platform of scale with an end-to-end product offering in the advanced wound care market. 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. Food and Drug Administration (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. On August 6, 2020 the Company entered into an Asset Purchase Agreement with Celularity Inc. (“Celularity”) pursuant to which the Company acquired Celularity’s UltraMIST assets, as more fully described in Note 4. The UltraMIST® System is a proprietary technology cleared by the FDA for the promotion of wound healing through wound cleansing and maintenance debridement combined with ultrasound energy deposited inside the wound that stimulated tissue regeneration. In connection with the Asset Purchase Agreement, on August 6, 2020, the Company entered into a license and marketing agreement with Celularity pursuant to which Celularity granted to the Company a license to the Celularity wound care biologic products, Biovance® and Interfyl® (the “License Agreement”). The License Agreement provides the Company with an exclusive license to use, market, distribute and sell Biovance® in the “Field” and “Territory” (each as defined in the License Agreement), and a non-exclusive license to use, market, distribute and sell Interfyl® in the Field in the Territory. The License Agreement has an initial five year term, after which it automatically renews for additional one year periods, unless either party gives written notice at least 180 days prior to the expiration of the current term. The Company’s portfolio of regenerative medicine products and product candidates activate tissue regeneration biological signaling and angiogenic responses, producing new vascularization and microcirculatory improvement combined with tissue growth which helps restore the body’s normal healing processes. The Company applies and researches its patented energy transfer technologies in wound healing, orthopedic/spine, plastic/cosmetic and cardiac/endovascular conditions. 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. The primary impact of the COVID-19 pandemic has been seen in our dermaPACE System placements in the United States as our treatment is not widely recognized as an “essential” service. In addition, stay-at-home policies deployed to combat the spread of COVID-19 has greatly constrained visits to wound care centers, doctor’s offices and hospitals since late March 2020 and continuing as of this filing and have therefore delayed placements of new devices that were included in our revenue forecast. 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 including its recent acquired assets. 7 Table of Contents SANUWAVE HEALTH, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2020 1. Nature of the Business (continued) 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. Generally Accepted Accounting Principles (“GAAP”) for complete financial statements. The financial information as of September 30, 2020 and for the three and nine months ended September 30, 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 and nine months ended September 30, 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”). 2. Going Concern The Company does not currently generate significant recurring revenue and may require additional capital during 2020. As of September 30, 2020, the Company had cash and cash equivalents of $5,391,591. For the nine months ended September 30, 2020, the net cash used by operating activities was $9,779,889. The Company incurred a restated net loss of $19,272,805 for the nine months ended September 30, 2020. Such factors raise 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. 8 Table of Contents SANUWAVE HEALTH, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2020 3 Summary of Significant Accounting Policies (continued) 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 the estimated fair value of stock-based compensation, debt discounts and warrants, and valuation of acquired assets related to the acquisition of UltraMIST (Note 4). Fair value of financial instruments - The carrying values of accounts payable, and other short-term obligations approximate their fair values, principally because of the short-term maturities of these instruments. The Company has adopted ASC 820-10, Fair Value Measurements , which defines fair value, establishes a framework for measuring fair value and requires disclosures about fair value measurements. The framework that is set forth in this standard is applicable to the fair value measurements where it is permitted or required under other accounting pronouncements. The ASC 820-10 hierarchy ranks the quality and reliability of inputs, or assumptions, used in the determination of fair value and requires financial assets and liabilities carried at fair value to be classified and disclosed in one of the following three categories: Level 1 - Observable inputs that reflect quoted prices (unadjusted) in active markets for identical assets and liabilities; Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and Level 3 - Unobservable inputs that are not corroborated by market data, therefore requiring the Company to develop its own assumptions. The Company recognizes all derivatives on the balance sheet at fair value. The fair value of the warrant liability is determined based on a lattice solution, binomial approach pricing model, and includes the use of unobservable inputs such as the expected term, anticipated volatility and risk-free interest rate, and therefore is classified within level 3 of the fair value hierarchy. (See Note 14). The Company’s notes payable approximate fair value because the terms are substantially similar to comparable debt in the marketplace. 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 September 30, 2020, inventory consists of goods of $2,273,436 and parts of $266,039 for a total inventory of $2,539,475. As of December 31, 2019, inventory consisted of goods of $357,264 and parts of $185,691 for a total inventory of $542,955. 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. 9 Table of Contents SANUWAVE HEALTH, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2020 3 Summary of Significant Accounting Policies (continued) 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. On August 6, 2020, the Company issued shares of common stock, convertible debt and warrants exercisable into shares of common stock in connection with a private placement funding and Senior Notes. In the event that all outstanding convertible securities were converted into shares of common stock of the Company, the Company would exceed the total number of shares authorized for issuance in the Company’s Articles of Incorporation. The Company has applied its sequencing policy to and determined that all convertible securities are convertible into shares of common stock other than warrants to purchase 64,119,742 shares of common stock issued on August 6, 2020. These warrants were valued at $8,656,165 at August 6, 2020 and recorded as a liability in the condensed consolidated balance sheet. Convertible instruments and liabilities related to warrants issued – The Company evaluates its convertible instruments to determine if those contracts or embedded components of those contracts qualify as derivative financial instruments to be separately accounted for in accordance with FASB ASC 815 “Derivatives and Hedging” (“ASC 815”). The accounting treatment of derivative financial instruments requires that the Company record embedded conversion options (“ECOs”) and any related freestanding instruments at their fair values as of the inception date of the agreement and at fair value as of each subsequent balance sheet date. Any change in fair value is recorded as non-operating, non-cash income or expense for each reporting period at each balance sheet date. Conversion options are recorded as a discount to the host instrument and are amortized as amortization of debt discount on the consolidated statements of operations over the life of the underlying instrument. The Company reassesses the classification of its derivative instruments at each balance sheet date. If the classification changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification. A binomial model was used to estimate the fair value of the ECOs of warrants 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. The expected volatility is estimated based on the actual volatility during the most recent historical period of time equal to the weighted average life of the instruments. Recent Accounting Pronouncements In August 2020, FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for convertible instruments by removing the separation models for (1) convertible debt with a cash conversion feature and (2) convertible instruments with a beneficial conversion feature and simplifies the guidance for determining whether a conversion feature is a derivative. As a result, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost. These changes will reduce reported interest expense and increase reported net income for entities that have issued a convertible instrument that was bifurcated according to previously existing rules. In addition, ASU 2020-06 requires the application of the if-converted method for calculating diluted earnings per share and the treasury stock method will be no longer available. The new guidance is effective for fiscal years beginning after December 15, 2021, with early adoption permitted no earlier than fiscal years beginning after December 15, 2020. The Company is currently evaluating the impact of ASU 2020-06 on its condensed consolidated financial statements. 10 Table of Contents SANUWAVE HEALTH, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2020 4. Asset Purchase Agreement On August 6, 2020, the Company entered into an asset purchase agreement (the “Asset Purchase Agreement”) with Celularity pursuant to which the Company acquired (the “Transaction”) Celularity’s UltraMIST assets (“UltraMIST”, or the “Assets”). The acquisition provides the Company with a robust product offering in the advanced wound care market and gives the Company an end-to-end advanced wound care product portfolio that addresses the entire care pathway. The aggregate consideration paid for the Assets was $24,000,000, which consisted of (i) a cash payment of $18,890,000, (ii) the issuance of a convertible promissory note to Celularity in the principal amount of $4,000,000 (the “Seller Note”), and (iii) a credit of $1,110,000 for the previous payment made by the Company to Celularity pursuant to that certain letter of intent between the Company and Celularity dated June 7, 2020. In connection with the Asset Purchase Agreement, on August 6, 2020, the Company entered into a license and marketing agreement with Celularity pursuant to which Celularity granted to the Company a license to the Celularity wound care biologic products, Biovance® and Interfyl® (the “License Agreement”). The License Agreement provides the Company with an exclusive license to use, market, distribute and sell Biovance® in the “Field” and “Territory” (each as defined in the License Agreement), and a non-exclusive license to use, market, distribute and sell Interfyl® in the Field in the Territory. The License Agreement has an initial five year term, after which it automatically renews for additional one year periods, unless either party gives written notice at least 180 days prior to the expiration of the current term. The Company evaluated whether the Transaction should be accounted for as an asset acquisition or a business combination and determined that the Transaction met the definition of a business per Accounting Standard Update (ASU) 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. The Company has treated the transaction as a business combination and applied the related accounting guidance as required, using the acquisition method and a fair value model. The tables below present the fair value of the consideration exchanged and the preliminary estimates of the fair value of assets acquired of UltraMIST. Due to the limited amount of time since the UltraMIST acquisition, the valuation of the acquired assets is preliminary and subject to change. The Company is still evaluating the income tax effects of the transaction. Purchase consideration August 6, 2020 Cash paid at closing $ 18,890,000 Seller convertible note 4,000,000 Previous cash deposit pursuant to letter of intent 1,110,000 Total $ 24,000,000 Net assets acquired Fair Value at August 6, 2020 Inventory $ 1,859,965 Property, plant and equipment 436,815 Intangible assets (a) 14,443,425 Goodwill (b) 7,259,795 Total $ 24,000,000 11 Table of Contents SANUWAVE HEALTH, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2020 4. Asset Purchase Agreement (continued) (a) Intangible assets, as provided in the table below, are recorded at estimated fair value. The estimated fair value of the acquired customer relationships is based on a variation of the income valuation approach and is determined using the multi-period excess earnings method. The estimated fair value of the acquired patent and trade names is based on a variation of the income valuation approach known as the relief from royalty method. The estimated useful lives for intangible assets were determined based upon the remaining useful economic lives of the intangible assets that are expected to contribute directly or indirectly to future cash flows. Estimated Fair Value Estimated Weighted Average Life (Years) Customer relationships - UltraMIST $ 3,820,000 7 Customer relationships - Biologics 7,618,100 7 Patent 2,311,825 19 Trade names 693,500 19 $ 14,443,425 (b) Goodwill represents the excess of the total purchase consideration over fair value of the assets recognized and represents the future economic benefits that we believe will result from combining the operations of Sanuwave and UltraMIST, including expected future synergies and operating efficiencies. Goodwill resulting from the Transaction has been assigned to the Company’s lone operating segment. None of the goodwill recognized is expected to be deductible for income tax purposes. Acquisition and related costs During the three and nine months ended September 30, 2020, acquisition costs of $995,353 and $1,084,994, respectively, were expensed as incurred and included in general and administrative expenses in the Condensed Consolidated Statement of Comprehensive Loss. Such costs include professional fees of advisors and integration and synergy costs related to the combination of UltraMIST and Sanuwave. Additionally, $1,653,453 of debt issuance costs related to the NWPSA Senior Debt described in Note 7 were capitalized as a reduction in the principal amount of a promissory note on the Condensed Consolidated Balance Sheet. These debt issuance costs are amortized to interest expense over the life of the NWPSA Senior Debt. Unaudited actual and pro forma information The following unaudited pro forma information has been prepared by combining the historical results of Sanuwave and historical results of UltraMIST. The unaudited pro forma combined financial data for all periods presented were adjusted to give effect to pro forma events that are directly attributable to the aforementioned transaction and are factually supportable. The adjustments are based on information available to the Company at this time. Accordingly, the adjustments are subject to change and the impact of such changes may be material. The unaudited pro forma results do not include any incremental cost savings that may result from the integration. The unaudited combined pro forma information is for informational purposes only and is not necessarily indicative of what the combined company's results actually would have been had the acquisition been completed as of the beginning of the periods as indicated. In addition, the unaudited pro forma information does not purport to project the future results of the combined company. 12 Table of Contents SANUWAVE HEALTH, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2020 4. Asset Purchase Agreement (continued) The acquired Assets were consolidated into our financial statements starting on the acquisition date. The total revenues and net loss of UltraMIST consolidated into our financial statements since the date of acquisition through September 30, 2020 were $1,206,847 and $1,509,943, respectively. The following financial information presents our results as if the Transaction had occurred on January 1, 2019: Three Months Ended Nine Months Ended September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019 (restated) (restated) Total revenue $ 2,770,646 $ 2,325,640 $ 5,973,538 $ 6,810,404 Net loss $ (12,549,181 ) $ (4,863,590 ) $ (23,869,495 ) $ (14,855,293 ) Significant adjustments to the pro forma information above include recognition of non-recurring direct incremental acquisition costs in the nine months ended September 30, 2019 and exclusion of those costs from all other periods presented; recognition of the Biovance® license fee pursuant to the License Agreement; increase in interest expense related to the NWPSA Senior Debt Notes described in Note 7, the Seller Note described in Note 8, the HealthTronics Note described in Note 8, and the Stolarski Note described in Note 10; increase in depreciation expense related to the fair value adjustment of acquired property and equipment; and amortization associated with an estimate of the acquired intangible assets. 5. Accrued expenses Accrued expenses consist of the following: September 30, 2020 December 31, 2019 Accrued outside services $ 615,547 $ 108,033 Accrued legal and professional fees 370,985 134,970 Accrued board of director’s fees 260,000 400,000 Accrued executive severance 167,500 154,000 Accrued travel 120,000 120,000 Accrued inventory 50,275 167,050 Accrued clinical study expenses 13,650 13,650 Accrued other 5,586 13,406 $ 1,603,543 $ 1,111,109 13 Table of Contents SANUWAVE HEALTH, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2020 6. Contract liabilities As of September 30, 2020, the Company has contract assets and liabilities from contracts with customers (see Note 16). Contract liabilities consist of the following: September 30, 2020 December 31, 2019 Service agreement $ 77,538 $ 133,510 License fees - 500,000 Devices 22,500 - Other 10,518 6,291 Total Contract liabilities 110,556 639,801 Non-Current (45,519 ) (573,224 ) Total Current $ 65,037 $ 66,577 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 September 30, 2020, the Company expects to satisfy its remaining performance obligations associated with $65,037 and $45,519 of contract liability balances within the next twelve months and following thirty-two 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. 14 Table of Contents SANUWAVE HEALTH, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2020 7. Senior promissory notes On August 6, 2020, the Company entered into a Note and Warrant Purchase and Security Agreement (the “NWPSA”), with the noteholder party thereto and NH Expansion Credit Fund Holdings LP, as agent. As a result, the Company issued a $15,000,000 Secured Promissory Note (the “Senior Notes”) and Warrant exercisable into shares of the Company’s common stock (the “Warrant”) in exchange for cash to support operations, repay outstanding debt and close on the acquisition of the UltraMIST assets from Celularity, among other transactions. The Company received net proceeds from issuing the Notes and NH Warrant of $13,346,547. The NWPSA provides for (i) the sale and purchase of secured notes in an aggregate original principal amount of $15 million and (ii) the issuance of 13,091,160 warrants equal to 2.0% of the fully-diluted common stock of the Company as of the issue date. The warrant has an exercise price of $0.01 per share and a 10 year term (Note 11). The warrant agreement contains a put option. Upon payment in full of the Note, the holder has the ability to require the Company to purchase the warrants from the holder for cash. Accordingly, the warrant has been classified as a derivative liability. The holder has the option to exercise the put any time between the payment of the Note and the expiration of the warrants. The Note has a maturity date of September 30, 2025 and accrues interest at a rate that is the sum of: (a) the greater of the quarter end prime rate or 3% plus (b) 9%, due in quarterly arrears. The Senior Notes are secured by substantially all assets of the Company including in the event of default placing bank accounts under a control agreement, copyrights, trademarks, patents, applications, registered and unregistered, licenses, designs, held or acquired after August 6, 2020 by the Company. The NWPSA contains several default conditions, including non-monetary default events including misrepresentations and material adverse changes. In the case of default, the agent has the right to declare the Senior Notes immediately due, not extend further credit, take actions to protect security (title changes), demand and take possession of the books, and is appointed an Attorney in Fact in certain conditions. Covenants include restrictions on dispositions, mergers or acquisitions, incurring indebtedness and minimum liquidity provisions. As of September 30, 2020, the Company was in compliance with all financial covenants under the NWPSA. The Company recorded a current warrant liability of $3,050,240 for the fair value of the warrant. The outstanding balance of the Note at September 30, 2020 was $10,448,039 and accrued interest of $280,729. Further, as of September 30, 2020, the Company had unamortized debt issuance costs of $1,600,115. 8. Convertible promissory notes (Restated) On August 6, 2020, the Company entered into an asset purchase agreement with Celularity Inc., described in Note 4 pursuant to which the Company acquired Celularity’s UltraMIST assets. A portion of the aggregate consideration of $24,000,000 paid for the assets included the issuance of a promissory note to Celularity in the principal amount of $4,000,000. The Seller Note has a maturity date of August 6, 2021 and accrues interest at a rate equal to 12.0% per annum. In the event that the Seller Note has not been repaid prior to January 1, 2021, Celularity may elect to convert the outstanding principal amount plus any accrued but unpaid interest thereon into shares of the Company’s common stock, at a conversion price of $0.10 per share. As this conversion option is contingent on a future event, the conversion option has not been bifurcated from the host instrument as of September 30, 2020. The Seller Note is expressly subordinate to the NWPSA “Senior Debt” described in Note 7. The Company may prepay the outstanding principal balance, together with any accrued but unpaid interest without premium or penalty. As of September 30, 2020, $4,000,000 remained outstanding and had accrued interest of $73,333. 15 Table of Contents SANUWAVE HEALTH, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2020 8. Convertible promissory notes (Restated) (continued) On June 5, 2020, the Company entered into a Securities Purchase Agreement with investor LGH Investments LLC (the “Investor”) for (i) a Promissory Note (the “Convertible Promissory Note”) in the original principal amount of $1,210,000, convertible into shares of common stock, (ii) warrants entitling the Investor to acquire 1,075,000 shares of common stock (the “Warrants”) and (iii) 200,000 restricted common shares in the Company as an inducement grant (the “Inducement Shares”). Such note contained certain default provisions, as defined, resulting in net proceeds of $1,100,000. As part of the Securities Purchase Agreement, the Company established a reserve of shares of its authorized but unissued and unreserved common stock in the amount of 11,000,000 shares for purposes of exercise of the Warrant or conversion of the Convertible Promissory Note. The Convertible Promissory Note matures on February 5, 2021 and includes a one-time interest charge of 8% to be applied on the issuance date to the original principal amount. The Investor can convert the Convertible Promissory Note and interest at any time prior to maturity to the number of shares of common stock, equal to the amount obtained by dividing (i) the amount of the unpaid principal and interest on the note by (ii) $0.25. The Warrants have an exercise price of $0.35 per share and have a term of five years and recorded as a derivative liability (see Footnote 12). With respect to the Inducement Shares, in the event the Company’s share price has declined on the date on which the Investor seeks to have the restricted legend removed on such shares, the Company agrees to issue the Investor additional shares such that the aggregate value of the Inducement Shares equals the aggregate value of the Inducement Shares as of June 5, 2020. The Inducement Shares were issued on September 11, 2020 and included in common stock and additional paid in capital. On August 6, 2020, the Company repaid all amounts owing to LGH Investments, LLC in the original principal amount of $1,210,000. As a result, all obligations of the Company under the convertible promissory note have been terminated. The Company recorded a loss on extinguishment of debt of approximately $503,234 during the three and nine months ended September 30, 2020. The Warrants issued to LGH Investments, as more fully described in Note 11, contain certain ratchet provisions with respect to subsequent issuances of securities by the Company at a price below the exercise price of such warrants. As a result of certain dilutive issuances of securities by the Company during the third quarter of 2020, the exercise price of the Warrants decreased to $0.01 per share and the number of shares subject to the Warrants increased to 35,000,000 shares as of September 30, 2020. A Derivative Liability – Warrant was recorded for this decrease in exercise price with the offset to loss on warrant liability. 9. SBA Loans On May 28, 2020, the Company received proceeds from a loan in the approximate amount of $460,000 (the “PPP Loan”) from Truist Bank, as lender, pursuant to the Paycheck Protection Program (“PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (15 U.S.C. 636(a)(36)) (the “CARES Act”). The PPP Loan matures on May 28, 2022 and bears interest at a rate of 1% per annum. Commencing December 12, 2020, the Company is required to pay the lender equal monthly payments of principal and interest. The PPP Loan is evidenced by a promissory note dated May 28, 2020 (the “Note”), which contains customary events of default relating to, among other things, payment defaults and breaches of representations, warranties and covenants. The PPP Loan may be prepaid by the Company at any time prior to maturity with no prepayment penalties. 16 Table of Contents SANUWAVE HEALTH, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2020 9. SBA Loans (continued) All or a portion of the PPP Loan may be forgiven by the U.S. Small Business Administration (“SBA”) upon application by the Company beginning 60 days but not later than 120 days after loan approval and upon documentation of expenditures in accordance with the SBA requirements. The ultimate forgiveness of the PPP Loan is also predicated upon regulatory authorities concurring with management’s good faith assessment that the current economic uncertainty made the loan request necessary to support ongoing operations. If, despite the Company’s good-faith belief that given the circumstances the Company satisfied all eligibility requirements for the PPP Loan, the Company is later determined to have violated any applicable laws or regulations or it is otherwise determined that the Company was ineligible to receive the PPP Loan, the Company may be required to repay the PPP Loan in its entirety and/or be subject to additional penalties. In the event the PPP Loan, or any portion thereof, is forgiven pursuant to the PPP, the amount forgiven is applied to outstanding principal. Under the terms of the PPP Loan, the Company may be eligible for full or partial loan forgiveness in the third quarter of 2020. The Company plans to complete the application for loan forgiveness in the fourth quarter of 2020, however, no assurance is provided that the Company will apply for, or obtain forgiveness for, any portion of the PPP Loan. As of September 30, 2020, $321,821 is classified as current and $142,514 is classified as non-current. On June 10, 2020, the Company secured a loan offered by the U.S. Small Business Administration (SBA) under its Economic Injury Disaster Loan (“EIDL”) assistance program in light of the impact of COVID-19 pandemic on the Company’s business. The principal amount of this loan was $150,000 and interest accrued at the rate of 3.75% per annum. This loan was paid off in full on August 5, 2020 with proceeds from the NWPSA Senior Notes as part of the conditions of that agreement. 10. Convertible notes payable, related parties and 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 to provide a first security interest in the assets of the Company. An Event of Default under the notes payable, related parties occurred on December 31, 2016 (“Default”). As a result of the Default, the notes payable, related parties accrued interest at the rate of 10% per annum since January 2, 2017 through August 5, 2020. On August 6, 2020, the Company entered into a letter agreement (the “HealthTronics Agreement”) with HealthTronics, Inc. (“HealthTronics”), pursuant to which the Company paid off all outstanding debt due and owed to HealthTronics. Pursuant to the HealthTronics Agreement, as consideration for the extinguishment of the debt due and owed to HealthTronics, (i) the Company paid to HealthTronics an amount in cash equal to $4,000,000, (ii) HealthTronics exercised all of its outstanding Class K Warrants to purchase 7,200,000 shares of common stock, (iii) the Company issued to HealthTronics a convertible promissory note in the principal amount of $1,372,743, and (iv) the Company and HealthTronics entered into a Securities Purchase Agreement dated August 6, 2020 pursuant to which the Company issued to HealthTronics an aggregate of 8,275,235 shares of common stock and an accompanying Class E warrant to purchase up to an additional 8,275,235 shares of common stock. The warrant has an exercise price of $0.25 per share and a three year term. 17 Table of Contents SANUWAVE HEALTH, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2020 10. Convertible notes payable, related parties and Notes payable, related parties (continued) The convertible promissory note, with principal amount of $1,372,743, matures on August 6, 2021 and accrues interest at a rate equal to 12.0% per annum. In the event that the Seller Note has not been repaid prior to January 1, 2021, Healthronics may elect to convert the outstanding principal amount plus any accrued but unpaid interest thereon into shares of the Company’s common stock, at a conversion price of $0.10 per share. As this conversion option is contingent, the conversion option has not been bifurcated from the host instrument as of September 30, 2020. The convertible promissory note is expressly subordinate to the NWPSA “Senior Notes” described in Note 8. The Company may prepay the outstanding principal balance, together with any accrued but unpaid interest without premium or penalty. As of September 30, 2020, $1,372,743 remained outstanding and had accrued interest of $24,822. The notes payable, related parties were fully paid off as of September 30, 2020 due to the letter agreement described above and had an aggregate outstanding principal balance of $5,372,743 at December 31, 2019. The related accrued interest, related parties currently payable totaled $1,859,977 at December 31, 2019. Interest expense on notes payable, related parties totaled $61,334 and $175,522 for the three months ended September 30, 2020 and 2019, respectively and $431,070 and $508,193 for the nine months ended September 30, 2020 and 2019, respectively. On August 6, 2020, the Company terminated that certain line of credit agreement with A. Michael Stolarski, a member of the Company’s board of directors, dated December 29, 2017 and as amended November 12, 2018, in the amount of $1,000,000 (the “Stolarski Line of Credit”). As consideration for the termination of the Stolarski Line of Credit, the Company issued to A. Michael Stolarski a convertible promissory note in the principal amount of $223,511 (the “Stolarski Note”). The Stolarski Note has a maturity date of August 6, 2021 and accrues interest at a rate equal to 12.0% per annum. In the event that the Stolarski Note has not been repaid prior to January 1, 2021, the holder may elect to convert the outstanding principal amount plus any accrued by unpaid interest thereon into shares of common stock at a conversion price of $0.10 per share. 11. Warrant Liabilities (Restated) On August 6, 2020, the Company, issued 132,816,250 warrants to investors and the placement agent in connection with a private placement offering (Note 14). Additionally, on that date, the Company issued 13,091,160 warrants to the holder of the Senior Notes (Note 7) and 8,275,235 warrants to settle certain outstanding debt (Note 10). At the time of issuance of the warrants, if all outstanding convertible securities were converted into shares of common stock, the Company would have exceeded its available authorized shares of common stock of 600,000,000 shares. If all outstanding convertible securities were converted into shares of common stock, the Company would have 713,439,897 shares issued and outstanding. As a result of the limits on the Company’s authorized shares, a portion of the Company’s obligations under the warrants have been determined to be a liability. The Company determined that these warrants are free standing financial instruments that are legally detachable and separately exercisable from the common stock included in the public share offering. Management also determined that the warrants are puttable for cash upon a fundamental transaction at the option of the holder and as such required classification as a liability pursuant to ASC 480 “Distinguishing Liabilities from Equity” . In accordance with the accounting guidance, 111,210,902 of the outstanding warrants are recognized as a warrant liability on the balance sheet and are measured at their inception date fair value and subsequently re-measured at each reporting period with changes being recorded as a component of other income in the statement of operations. 18 Table of Contents SANUWAVE HEALTH, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2020 11. Warrant Liabilities (continued) The fair value of the warrant liabilities was measured using the binomial model. Significant inputs into the model at the inception and reporting period measurement dates are as follows: Private Placement Warrants Binomial Assumptions Issuance date (1) August 6, 2020 Period ended September 30, 2020 Exercise Price (1) $ 0.25 $ 0.25 Warrant Expiration Date (1) August 6, 2023 August 6, 2023 Stock Price (2) $ 0.24 $ 0.22 Interest Rate (annual) (3) 0.13 % 0.16 % Volatility (annual) (4) 91.49 % 88.96 % Time to Maturity (Years) 3 3 Calculated fair value per share $ 0.135 $ 0.119 (1) Based on the terms provided in the warrant agreement to purchase common stock of the Company. dated August 6, 2020. (2) Based on the trading value of common stock of the Company. as of August 6, 2020 and each presented period ending date. (3) Interest rate for U.S. Treasury Bonds, as of August 6, 2020 and each presented period ending date, as published by the U.S. Federal Reserve. (4) Based on the historical daily volatility of the Company as of August 6, 2020 and each presented period ending date. NH Expansion Warrants: Binomial Assumptions Issuance date (1) August 6, 2020 Period ended September 30, 2020 Exercise Price (1) $ 0.01 $ 0.01 Warrant Expiration Date (1) August 6, 2030 August 6, 2030 Stock Price (2) $ 0.24 $ 0.22 Interest Rate (annual) (3) 0.21 % 0.69 % Volatility (annual) (4) 102.09 % 184.77 % Time to Maturity (Years) 10 10 Calculated fair value per share $ 0.233 $ 0.22 ( 1) Based on the terms provided in the warrant agreement to purchase common stock of the Company dated August 6, 2020. (2) Based on the trading value of common stock of the Company as of August 6, 2020 and each presented period ending date. (3) Interest rate for U.S. Treasury Bonds, as of August 6, 2020 and each presented period ending date, as published by the U.S. Federal Reserve. (4) Based on the historical daily volatility of the Company as of August 6, 2020 and each presented period ending date. On August 6, 2020, the Company consummated a series of transactions, involving the issuance of common stock and various equity-linked instruments, each of which constitutes a dilutive issuance in the LGH Warrant Agreement (see Note 8) which triggered the ratchet provision, with the effect of decreasing the warrant’s exercise price to $0.01. With the reduction of the warrant exercise price from the initial $0.35 to $0.01 per share, in order to maintain the $350,000 aggregate exercise amount in effect prior to the adjustment (1,000,000 warrant shares with an exercise price of $0.35), as required by the ratchet provision, the Company was required to increase the number of warrant shares to 35,000,000, thereby entitling LGH to purchase 35,000,000 shares of the Company’s common stock at $0.01 per share. The Company determined that these warrants meet the definition of a derivative liability. Pursuant to this conclusion, the warrant was recorded as derivative liability at inception, initially measured at its fair value, and subsequently remeasured at fair value at each reporting date, with changes in the fair value reported in earnings. 19 Table of Contents The derivative liabilities are considered Level 3 liabilities on the fair value hierarchy as the determination of fair value includes various assumptions about future activities and the Company’s stock prices and historical volatility as inputs. The fair value of the derivative warrant liability was measured using the Black Scholes Merton (“BSM") option pricing model. Given the plain vanilla nature of the Warrant terms, including the absence of any exercise contingencies, the BSM sufficiently captures the terms of the Warrant as inputs to the valuation and produces a value that is not materially different from a binomial/lattice model using the following assumptions: LGH Binomial Assumptions Issuance date (1) 5-Jun-20 Period ended 30-Jun-20 Ratchet Date (5) 6-Aug-20 Period ended 30-Sep-20 Exercise Price (1) $ 0.35 $ 0.35 $ 0.01 $ 0.01 Warrant Expiration Date (1) 5-Jun-25 5-Jun-25 5-Jun-25 5-Jun-25 Stock Price (2) $ 0.27 $ 0.2625 $ 0.2437 $ 0.22 Interest Rate (annual) (3) 0.29 % 0.29 % 0.20 % 0.26 % Volatility (annual) (4) 107 % 107 % 103 % 101 % Time to Maturity (Years) 5 4.93 4.83 4.68 Calculated fair value per share $ 0.25 $ 0.25 $ 0.24 $ 0.21 ( 1) Based on the terms provided in the warrant agreement to purchase common stock of the Company dated June 5, 2020. (2) Based on the trading value of common stock of the Company as of June 5, 2020 and each presented period ending date. (3) Interest rate for U.S. Treasury Bonds, as of June 5, 2020, and each presented period ending date, as published by the U.S. Federal Reserve. (4) Based on the historical daily volatility of the Company as of June 6, 2020, and each presented period ending date. (5 ) Based on the terms provided in the warrant agreement to purchase common stock at date of the ratchet trigger August 6, 2020. The warrants outstanding and fair values at each of the respective valuation dates are summarized below: Warrant Liability Warrants Outstanding Fair Value per Share Fair Value Fair Value at remeasurement date of June 30, 2020 1,000,000 0.249 $ 249,049 Additional Warrants classified as Liabilities August 6, 2020 111,210,902 0.206 22,888,017 Fair Value at date of August 6, 2020 112,210,902 0.206 $ 23,137,066 Gain or (Loss) on warrant liability (5,590,806 ) Fair Value as of period ended September 30, 2020 112,210,902 0.156 17,546,260 During the three and nine months ending September 30, 2020, the Company recorded a loss on changes in fair value of warrant liability of $ 5,590,806, respectively. During the three and nine months ending September 30, 2019, there were no warrant liabilities or corresponding changes in valuation. 20 Table of Contents SANUWAVE HEALTH, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2020 12. Preferred Stock On February 6, 2020, the Company entered into a Series C Preferred Stock Purchase Agreement (the “Series C 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. 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. On May 14, 2020, the Company entered into a Series D Preferred Stock Purchase Agreement (the “Series D Purchase Agreement”) with certain accredited investors for the sale by the Company in a private placement of an aggregate of eight shares of the Company’s Series D Convertible Preferred Stock, par value $0.001 per share at a stated value equal to $25,000 per share (the “Series D Preferred Stock”), for an aggregate total purchase price of $200,000. On May 14, 2020, the Company filed a Certificate of Designation of Preferences, Right and Limitations of Series D Convertible Preferred Stock of the Company with the Nevada Secretary of State which amended our Articles of Incorporation to designate eight shares of our preferred stock as Series D Convertible Preferred Stock. Subject to the terms of the Certificates of Designation, each share of Series C Preferred Stock and Series D 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 and Series D 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 Certificates 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 and Series D Preferred Stock were converted into common stock at the original conversion rate, such shares would convert into an aggregate of 17,500,000 shares of common stock. On July 23, 2020, in connection with the Company’s 2020 Annual Meeting of Stockholders, the Company’s stockholders approved, among other matters, an amendment to the Company’s Articles of Incorporation to increase the number of authorized shares of common stock from 355,000,000 to 600,000,000. On September 20, 2020, Series C and D holders converted their preferred shares into 17,499,958 shares of common stock. 13. Equity transactions Approval of reverse split of common stock On July 23, 2020, in connection with the Company’s 2020 Annual Meeting of Stockholders, the Company’s stockholders approved the Company to amend the Company’s Articles of Incorporation to effect a reverse split of the Company’s outstanding common stock at a ratio of between 1-for-10 and 1-for-50, with the exact ratio to be determined by the board of directors of the Company in its sole discretion. As of the filing of this 10-Q report, the Company has not effected a reverse split of its stock. 21 Table of Contents SANUWAVE HEALTH, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2020 13. Equity transactions (continued) Warrant Exercises During the nine months ended September 30, 2020, the Company issued 1,000,000 shares of common stock upon the exercise of 1,000,000 Class P Warrants to purchase shares of stock and an exercise price of $0.01 per share under the terms of the respective warrant agreement. During the nine months ended September 30, 2020, the Company issued 7,200,000 shares of common stock to a related party upon the exercise of Class K Warrants upon the conversion of accrued interest related to a note payable, related party totaling $636,000, as described in Note 10. Conversion of liabilities During the nine months ended September 30, 2020, the Company issued 2,579,789 shares of common stock upon the conversion of short term notes payable in the principal and accrued interest amount of $354,729 with the receipt of notices of Class L warrant exercises, all pursuant to the terms of the short term notes payable. During the nine months ended September 30, 2020, the Company issued 2,250,000 shares of common stock upon the conversion of short term notes payable in the principal and accrued interest amount of $210,000 pursuant to the terms of the short term notes payable. During the nine months ended September 30, 2020, the Company issued 15,475,235 shares of common stock to a related party upon the conversion of accrued interest related to a note payable, related party totaling $2,291,047, as described in Note 10. Conversion of advances from related parties During the nine months ended September 30, 2020, the Company issued 262,811 shares of common stock upon the conversion of advances from related parties in the amount of $18,098 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 nine 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 and 1,000,000 shares in April 2020. The fair value of the shares of $380,000 was recorded as a non-cash general and administrative expense during the nine months ended September 30, 2020. The consulting agreement was extended to November 30, 2020 with an additional 2,000,000 common stock shares issued for services in August and September 2020. The fair value of the shares of $450,000 was recorded as a non-cash general and administrative expense during the nine months ended September 30, 2020. The Company entered into a separate agreement for investor relations services for which the fee was paid with common stock. The Company issued 3,000,000 common stock shares with a fair value of $630,000 which was recorded as a non-cash general and administrative expense during the nine months ended September 30, 2020. 22 Table of Contents SANUWAVE HEALTH, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2020 13. Equity transactions (continued) PIPE Offering (Restated) On December 11, 2019, the Company entered into a common stock Purchase Agreement with certain investors for the sale by the Company in a private placement of an aggregate of up to 21,071,143 shares of its common stock at a purchase price of $0.14 per share. During the nine months ended September 30, 2020, the Company issued 1,071,428 shares of common stock in conjunction with this offering and received $150,000 in cash proceeds. On August 6, 2020, the Company entered into a Securities Purchase Agreement in connection with the acquisition of UltraMIST, as discussed in Note 4, and issued 123,550,000 shares of common stock and accompanying Class E Warrants to purchase up to an additional 123,550,000 shares of common stock to certain investors for an aggregate purchase price of $0.20 per share of common stock and accompanying Warrant. It also issued Class E Warrants to a third-party placement agent to purchase up to 9,266,250 shares of common stock on the same terms as the Warrants. The Warrants have an exercise price of $0.25 per share and a three year term. The private placement generated net proceeds of $21,456,468. The shares of common stock issued in the private placement have a par value of $0.001, resulting in an increase to common stock of $123,550. Since at the date of issuance the Company did not have a sufficient number of authorized shares to satisfy the Warrants in the event that they were exercised (and all other outstanding convertible securities were converted into shares of common stock) which could cause the net cash settlement of the Warrants, the Company recorded a liability of $ 8,656,165 for the fair value of the Warrants that were in excess of the available authorized shares. The Company recorded the residual amount of $ 12,408,966 from the net proceeds to stockholders’ equity. Inducement Shares During the nine months ended September 30, 2020, the Company issued 200,000 shares of common stock related to the June 5, 2020, Securities Purchase Agreement with LGH Investments, LLC, as described in Note 10. Stock Option Exercise During the nine months ended September 30, 2020, the Company issued 225,000 shares of common stock upon the exercise of stock options resulting in net proceeds of $44,250. Litigation Settlement During the nine months ended September 30, 2020, the Company issued 200,000 shares of restricted common stock upon the settlement of outstanding litigation. The fair value of the shares of $50,000 was recorded as a non-cash general and administrative expense during the nine months ended September 30, 2020. 23 Table of Contents SANUWAVE HEALTH, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2020 14. Warrants (Restated) A summary of the warrant activity during the nine months ended September 30, 2020 is presented as follows: Warrant class Outstanding as of December 31, 2019 Issued Exercised Expired Outstanding as of September 30, 2020 Class E Warrants - 141,091,485 - - 141,091,485 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 LGH Warrant - 35,000,000 - - 35,000,000 NH Warrant - 13,091,160 - - 13,091,160 9,474,091 189,182,645 (8,200,000 ) (100,000 ) 190,356,736 A summary of the warrant exercise price per share and expiration date is presented as follows: Exercise price/share Expiration date Class E Warrants $ 0.25 August 2023 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 LGH Warrant $ 0.01 June 2025 NH Warrant $ 0.01 August 2030 The fair value of the common stock purchase warrants is estimated on the date of grant using the Black-Scholes option pricing model which approximates the binomial model using the following weighted average assumptions for the three and nine months ended September 30, 2020: Weighted average contractual terms in years 1.3 Weighted average risk free interest rate 0.15 % Weighted average volatility 92.76 % 15. 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. 24 Table of Contents SANUWAVE HEALTH, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2020 15. Commitments and contingencies (continued) 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: September 30, 2020 Right of use assets $ 442,197 September 30, 2020 Lease liability - right of use Current portion $ 251,372 Long term portion 222,815 $ 474,187 As of September 30, 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, Amount 2020 (remainder) $ 71,918 2021 290,552 2022 96,195 2023 68,017 2024 8,028 2025 3,345 Total lease payments 538,055 Less: Present value adjustment (63,868 ) Lease liability - right of use $ 474,187 25 Table of Contents SANUWAVE HEALTH, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2020 15. Commitments and contingencies (continued) As of September 30, 2020, the Company’s operating lease had a weighted average remaining lease term of 2.5 years and a weighted average discount rate of 12%. Rent expense for the three months ended September 30, 2020 and 2019 was $84,115 and $49,217, respectively, and for the nine months ended September 30, 2020 and 2019 was $201,991 and $148,172, 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: September 30, 2020 Right of use assets $ 462,405 September 30, 2020 Lease liability - right of use Current portion $ 187,416 Long term portion 284,588 $ 472,004 As of September 30, 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, Amount 2020 (remainder) $ 58,648 2021 234,593 2022 199,793 2023 18,388 Total $ 511,422 As of September 30, 2020, the Company’s financing leases had a weighted average remaining lease term of 2.7 years based on annualized base payments expiring through 2023 and a weighted average discount rate of 12.6%. As of September 30, 2020, the Company did not have additional operating or financing leases that have yet commenced. 26 Table of Contents SANUWAVE HEALTH, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2020 15. Commitments and contingencies (continued) Litigation From time to time, the Company is subject to 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. The Company believes that all pending claims, if adversely decided, would not have a material adverse effect on our business, financial position or results of operations. 16. Revenue The Company accounts for revenue in accordance with ASC 606. Disaggregation of Revenue The disaggregation of revenue is based on geographical region. The following table presents revenue from contracts with customers for the three and nine months ended September 30, 2020 and 2019: Three Months Ended September 30, 2020 Three Months Ended September 30, 2019 United States International Total United States International Total Product $ 1,301,942 $ 19,306 $ 1,321,248 $ 9,832 $ 149,023 $ 158,855 License fees - 29,447 29,447 6,250 10,000 16,250 Other Revenue 7,811 608,390 616,201 25 22,510 22,535 $ 1,309,753 $ 657,143 $ 1,966,896 $ 16,107 $ 181,533 $ 197,640 Nine Months Ended September 30, 2020 Nine Months Ended September 30, 2019 United States International Total United States International Total Product $ 1,398,672 $ 66,475 $ 1,465,147 $ 147,999 $ 296,088 $ 444,087 License fees - 39,447 39,447 18,750 170,557 189,307 Other Revenue 7,486 686,708 694,194 25 59,160 59,185 $ 1,406,158 $ 792,630 $ 2,198,788 $ 166,774 $ 525,805 $ 692,579 The Company’s partner in the joint venture agreement in Brazil, the IDIC Group, will have the right to receive prioritized dividends until the full reimbursement of the $600,000 partnership fee and expenses incurred in the formation of the joint venture company. 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. 17. Related party transactions During the three and nine months ended September 30, 2020 and 2019, the Company recorded $10,105 and $10,682, respectively, and $36,315 and $148,849 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 September 30, 2020 and 2019 of $80,838 from this related party. 27 Table of Contents SANUWAVE HEALTH, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2020 18. Stock-based compensation During the nine months ended September 30, 2020, 60,000 stock options to purchase the Company’s common stock were forfeited due to termination and 1,500,000 stock options to purchase the Company’s common stock expired without exercise. The range of exercise prices for options was $0.04 to $2.00 for options outstanding at September 30, 2020 and December 31, 2019, respectively. The aggregate intrinsic value for all vested and exercisable options was $1,994,741 and $2,085,866 at September 30, 2020 and December 31, 2019, respectively. The weighted average remaining contractual term for outstanding exercisable stock options was 6.14 and 6.6 years as of September 30, 2020 and December 31, 2019, respectively. 19. 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: September 30, 2020 September 30, 2019 Stock options 32,618,385 33,683,385 Warrants 190,356,736 12,854,091 Convertible promissory notes 56,988,540 9,204,160 Shares issuable - 14,617,225 Anti-dilutive equity securities 279,963,661 70,358,861 20. Restatement of financial statements On February 12, 2021, the Company determined an error in the accounting for certain of the Company’s warrants previously issued. Such warrants should have been reflected as liabilities on the condensed consolidated balance sheets included in the Original 10-Q, rather than as a component of equity. Specifically, the Company’s financial statements as of and for the three and nine months ended September 30, 2020, contained the following errors: (i) understatement of derivative warrant liability of $8,225,956 (ii) understatement of weighted average shares outstanding of 82,383,022 for the three months ended September 30, 2020 and 2,674,538 for the nine months ended September 30, 2020 and (iii) understatement of the Net Loss on the Statement of Operations of $6,626,907. 28 Table of Contents SANUWAVE HEALTH, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2020 20. Restatement of financial statements (continued) The effects of the adjustments on the Company’s previously issued financial statements as of and for the three and nine months ended September 30, 2020 are summarized as follows: As of September 30, 2020 Originally Reported Restatement Adjustment As Restated LIABILITIES CURRENT LIABILITIES Warrant Liability 6,440,249 11,106,011 17,546,260 TOTAL CURRENT LIABILITIES 19,715,578 11,106,011 30,821,589 NON - CURRENT LIABILITIES Warrant Liability 2,880,055 (2,880,055 ) - TOTAL NON-CURRENT LIABILITIES 14,023,530 (2,880,055 ) 11,143,475 TOTAL LIABILITIES 33,739,108 8,225,956 41,965,064 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' DEFICIT ADDITIONAL PAID-IN CAPITAL 137,120,956 (1,599,049 ) 135,521,907 ACCUMULATED DEFICIT (138,398,688 ) (6,626,907 ) (145,025,761 ) TOTAL STOCKHOLDERS' DEFICIT (873,002 ) (8,225,956 ) (9,098,958 ) TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 32,866,106 $ (0 ) $ 32,866,106 Three Months Ended September 30, 2020 Originally Reported Restatement Adjustment As Restated OTHER INCOME (EXPENSES) Gain or (Loss) on warrant derivative liability 1,036,101 (6,626,907 ) (5,590,806 ) TOTAL OTHER INCOME (EXPENSES) (242,962 ) (6,626,907 ) (6,869,869 ) NET LOSS (6,011,730 ) (6,626,907 ) (12,638,637 ) TOTAL COMPREHENSIVE LOSS $ (6,008,938 ) $ (6,626,907 ) $ (12,635,845 ) LOSS PER SHARE Net loss - basic and diluted $ (0.02 ) $ (0.01 ) $ (0.03 ) Weighed average shares outstanding - basic and diluted 302,119,428 82,383,022 384,502,450 Nine Months Ended September 30, 2020 Originally Reported Restatement Adjustment As Restated OTHER INCOME (EXPENSES) Loss on warrant liability 1,036,101 (6,626,907 ) (5,590,806 ) TOTAL OTHER INCOME (EXPENSES) (808,637 ) (6,626,907 ) (7,435,544 ) NET LOSS (12,645,898 ) (6,626,907 ) (19,272,805 ) TOTAL COMPREHENSIVE LOSS $ (12,645,029 ) $ (6,626,907 ) $ (19,271,936 ) LOSS PER SHARE Net loss - basic and diluted $ (0.04 ) $ (0.02 ) $ (0.06 ) Weighed average shares outstanding - basic and diluted 323,730,859 2,674,538 326,405,397 Nine Months Ended September 30, 2020 Originally Reported Restatement Adjustment As Restated CASH FLOWS FROM OPERATING ACTIVITIES Net loss (12,645,898 ) (6,626,907 ) (19,272,805 ) Gain or (Loss) on warrant liability (1,036,101 ) 6,626,907 5,590,806 NET CASH USED BY OPERATING ACTVITIES (9,779,889 ) - (9,779,889 ) 29 Table of Contents SANUWAVE HEALTH, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2020 21. Subsequent events The Company evaluates events that have occurred after the balance sheet date but before the financial statements are issued. Option Exercise Subsequent to September 30, 2020, the Company issued 100,000 shares of common stock upon the exercise of 100,000 stock options to purchase shares of stock under the terms of the respective option agreement. Shares issued for services Subsequent to September 30, 2020, the Company issued 1,000,000 shares of common stock for consulting services previously rendered. 22. Supplier Dispute In May 2021, the Company received notification that it is not in compliance with the License Agreement discussed in Note 6. The Company is in the process of reviewing the notification and preparing a response. It is too early to determine the outcome of this matter. Any potential impact to the Company cannot be fully determined at this time. 30 Table of Contents