What changed in this filing

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Item 1. Financial Statements

2022-01-14 compared with 2021-12-13 · 643 added, 409 removed, 258 unchanged (80% of the section changed)

4 unchanged sentences

(In thousands except share data)

March 31, 2021

June 30, 2021

December 31, 2020

13 unchanged sentences

Accrued employee compensation

Due under factoring agreement

Warrant liability

9 unchanged sentences

Deferred tax liability

Total Non-currrent Liabilities

Total Non-current Liabilities

Total Liabilities

3 unchanged sentences

and 8 shares designated Series A, Series B, Series C and Series D, respectively;

no shares issued and

outstanding at March 31, 2021 and December 31, 2020

no shares issued and outstanding at June 30 , 2021 and December 31 , 2020

Common Stock, par value $ 0.001 , 800,000,000 shares authorized;

481,619,621 and 470,694,621 issued and outstanding at March 31, 2021 and December 31, 2020, respectively

and 470,694,621 issued and outstanding at June 30 , 2021 and December 31 , 2020 , respectively

Additional Paid-in Capital

3 unchanged sentences

Total Liabilities and Stockholders’ Deficit

The accompanying notes to condensed consolidated financial

statements are an integral part of these statements.

The accompanying notes to condensed consolidated financial statements are an integral part of these statements.

SANUWAVE HEALTH, INC.

2 unchanged sentences

(In thousands except share data)

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Accessory and parts revenue

License fees and other

Total Revenues

Total Revenue

Cost of Revenues

Operating Expenses:

Research and development

Selling and marketing

General and administrative

Selling and marketing

Research and development

Total Operating Expenses

Operating Loss

Other Income (Expense), net

Change in fair value of warrant liability

Other Income (Expense):

Interest expense

Change in fair value of derivative liabilities

Interest expense, related party

Loss on foreign currency exchange

Loss on issuance of debt

Gain / (loss) on foreign currency exchange

Other Income (Expense), net

7 unchanged sentences

Weighted average shares outstanding, basic and diluted

The accompanying notes to condensed consolidated financial

statements are an integral part of these statements.

The accompanying notes to condensed consolidated financial statements are an integral part of these statements.

SANUWAVE HEALTH, INC.

2 unchanged sentences

(In thousands except share data)

Three Months Ended June 30, 2021

Preferred Stock

1 unchanged sentence

Comprehensive

Balances as of March 31, 2021

Foreign currency translation adjustment

Balances as of June 30, 2021

Three Months Ended June 30, 2020

Preferred Stock

Additional Paid-

Comprehensive

Balances as of March 31, 2020

Conversion of short term notes and convertible notes payable

Conversion of advances from related parties

Shares issued for services

Proceeds from PIPE offering, net of offering costs

Proceeds from stock option exercise

Beneficial conversion feature on convertible debt

Foreign currency translation adjustment

Balances as of June 30, 2020

The accompanying notes to condensed consolidated financial statements are an integral part of these statements.

SANUWAVE HEALTH, INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(In thousands except share data)

Six Months Ended June 30, 2021

Preferred Stock

Additional Paid-

Comprehensive

Balances as of December 31, 2020

2 unchanged sentences

Foreign currency translation adjustment

Balances as of March 31, 2021

Balances as of June 30, 2021

Six Months Ended June 30, 2020

Preferred Stock

Additional Paid-

Comprehensive

Balances as of December 31, 2019

Proceeds from warrant exercise

Conversion of short term notes and convertible notes payable

Conversion of advances from related parties

Shares issued for services

Proceeds from PIPE offering, net of offering costs

Stock-based compensation

Conversion of short term notes

Conversion of advances from related parties

Proceeds from stock option exercise

Beneficial conversion feature on convertible debt

Foreign currency translation adjustment

Balances as of March 31, 2020

The accompanying notes to condensed consolidated financial

statements are an integral part of these statements.

Balances as of June 30, 2020

The accompanying notes to condensed consolidated financial statements are an integral part of these statements.

SANUWAVE HEALTH, INC.

2 unchanged sentences

(In thousands)

Three Months Ended March 31,

Cash Flows - Operating Acivities:

Six Months Ended June 30,

Cash Flows - Operating Activities:

Adjustments to reconcile net loss to net cash used by operating activities

3 unchanged sentences

Deferred taxes

Change in warrant valuation

Amortization of debt issuance costs and original issue discount

Change in fair value of derivative liabilities

Loss on issuance of debt

Amortization of debt issuance costs

Amortization of debt discount

Accrued interest

7 unchanged sentences

Accrued employee compensation

Contract liabilties

Net Cash Used by Operating Activities

Contract liabilities

Net Cash Used in Operating Activities

Cash Flows - Investing Activities

Purchases of property and equipment

Net Cash Flows Used by Investing Activities

Net Cash Flows Used in Investing Activities

Cash Flows - Financing Activities

Proceeds from sale of convertible preferred stock

Proceeds from convertible promissory notes

Proceeds from SBA loan

Proceeds from PIPE offering, net of offering costs

Proceeds from stock option exercises

Proceeds from factoring

Proceeds from warrant exercises

Proceeds from related party deposits

Proceeds from related party advances

Payments of principal on finance leases

7 unchanged sentences

Non-cash Investing and Financing Activities:

Cashless warrant exercise

Reclassification of warrant liability due to cashless warrant exercise

Conversion of short-term notes payable to equity

Conversion of advamces from related parties to equity

Conversion of advances from related parties to equity

Additions to right of use assets from new finance lease liabilities

The accompanying notes to condensed consolidated financial

statements are an integral part of these statements.

Embedded conversion option with issuances of convertible debt

Warrant issuance in conjunction with convertible notes

The accompanying notes to condensed consolidated financial statements are an integral part of these statements.

SANUWAVE HEALTH, INC.

1 unchanged sentence

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021

June 30, 2021

Nature of the Business and Basis of Presentation

SANUWAVE Health, Inc.

and Subsidiaries (“SANUWAVE” or 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.

The Company’s lead regenerative product in the United States is the dermaPACE® device used for treating diabetic foot ulcers.

and Subsidiaries (“SANUWAVE” or 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.

The Company’s lead regenerative product in the United States is the dermaPACE®

device used for treating diabetic foot ulcers.

Through the Company’s acquisition, on August 6, 2020, of the UltraMIST® assets from Celularity, Inc.

(“Celularity”), 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.

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 (“U.S.

GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8-03 of Regulation S-X.

(“Celularity”), 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.

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 (“U.S.

GAAP”) 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 disclosures required by U.S.

GAAP for comprehensive financial statements.

The financial information as of March 31, 2021 and for the three months ended March 31, 2021 and 2020 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, 2021 are not necessarily indicative of the results that may be expected for any other interim period or for the year ending

December 31, 2021.

The Condensed Consolidated Balance Sheet at December 31, 2020 has been derived from the audited Consolidated Financial Statements at that date but does not include all of the information and

disclosures required by U.S.

financial information as of June 30 , 2021 and for the three and six month ended June 30 , 2021 and 2020 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 six months ended June 30, 2021 are not necessarily indicative of the results that may

be expected for any other interim period or for the year ending December 31, 2021.

The Condensed Consolidated Balance Sheet at December 31, 2020 has been derived from the audited Consolidated Financial Statements at that date

but does not include all of the information and disclosures required by U.S.

GAAP for comprehensive financial statements.

These financial statements should be read in conjunction with the Company’s December 31, 2020 Annual Report on Form 10-K filed with the SEC on October 21, 2021 (the “2020

Annual Report”).

Reclassifications – Certain accounts in the prior period Condensed Consolidated Financial Statements have been reclassified to conform to the presentation

of the current year Condensed Consolidated Financial Statements.

Accessory and parts revenue for the quarter ended March 31, 2020 contains $63 thousand of revenue that was reclassified from other revenue.

In addition, $41 thousand of depreciation

expense related to rental devices was reclassified from operating expenses to cost of revenues for the quarter ended March 31, 2020.

These financial statements should be read in conjunction with the Company’s December 31, 2020 Annual Report on Form 10-K

filed with the SEC on October 21, 2021 (the “2020 Annual Report”).

Reclassifications – Certain accounts in the prior period Condensed Consolidated Financial Statements have

been reclassified to conform to the presentation of the current year Condensed Consolidated Financial Statements.

Accessory and parts revenue for the three and six months ended June 30, 2020, respectively, contains $ 76 thousand and $ 13 thousand of revenue

that was reclassified from other revenue.

In addition, $ 53 thousand and $ 94 thousand of depreciation expense related to rental devices was reclassified from operating expenses to cost of revenues for the three and six months ended June 30, 2020,

respectively.

These reclassifications had no effect on the previously reported operating results.

Covid-19 – The worldwide spread of the COVID-19 virus has resulted and is expected to result in a global slowdown of economic activity

which has, and is likely to continue to, decrease demand for a broad variety of products, including from our customers, while also disrupting supply channels and marketing activities for an unknown period of time until the disease is contained.

Also, the pandemic may cause continued or additional actions by hospitals and clinics such as limiting elective procedures and treatments and limiting clinical trial activities and data monitoring.

We expect all of these factors to continue to

have a negative impact on our sales and our results of operations, the size and duration of which we are currently unable to predict.

Going Concern

Our recurring losses from operations and dependency upon future issuances of equity or other financing to fund ongoing operations have raised substantial doubt as to our ability to continue as a

Covid-19 – The worldwide spread of the COVID-19 virus has resulted and is expected

to result in a global slowdown of economic activity which has, and is likely to continue to, decrease demand for a broad variety of products, including from our customers, while also disrupting supply channels and marketing activities for an

unknown period of time until the disease is contained.

Also, the pandemic may cause continued or additional actions by hospitals and clinics such as limiting elective procedures and treatments and limiting clinical trial activities and data

We expect all of these factors to continue to have a negative impact on our sales and our results of operations, the size and duration of which we are currently unable to predict.

Going Concern

Our recurring losses from operations and dependency upon future issuances of equity or other financing to fund ongoing operations have raised

substantial doubt as to our ability to continue as a going concern.

We will be required to raise additional funds to finance our operations and remain a going concern;

we may not be able to do so, and/or the terms of any financings may not be advantageous to us.

we may not be able to do so, and/or the terms of any financings may not be

advantageous to us.

The continuation of our business is dependent upon raising additional capital.

We expect to devote substantial resources for the commercialization of the dermaPACE system and will continue to

research and develop the non-medical uses of the PACE technology, both of which will require additional capital resources.

The operating losses and the events of default on the Company’s notes payable indicate 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 Form 10-Q.

We expect to devote substantial resources for the

commercialization of the dermaPACE system and intend to continue to research and develop the non-medical uses of the PACE technology, both of which will require additional capital resources.

The operating losses and the events of default on the

Company’s notes payable indicate 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 Quarterly Report on Form 10-Q.

The continuation of our business is dependent upon raising additional capital to fund operations.

Management’s plans are to obtain additional capital in 2022 through investments by strategic

partners for market opportunities, which may include strategic partnerships or licensing arrangements, or raise capital through the conversion of outstanding warrants, issuance of common or preferred stock, securities convertible into common stock,

or secured or unsecured debt.

Management’s plans are to obtain additional

capital in 2022 through investments by strategic partners for market opportunities, which may include strategic partnerships or licensing arrangements, or raise capital through the conversion of outstanding warrants, issuance of common or

preferred stock, securities convertible into common stock, or secured or unsecured debt.

These possibilities, to the extent available, may be on terms that result in significant dilution to our existing shareholders.

In addition, there can be no assurances that our plans to obtain additional capital will

be successful on the terms or timeline we expect, or at all.

Although no assurances can be given, management believes that potential additional issuances of equity or other potential financing transactions as discussed above should provide the

necessary funding for us.

If these efforts are unsuccessful, we may be required to significantly curtail or discontinue operations or, if available, obtain funds through financing transactions with unfavorable terms.

In addition, there can be

no assurances that our plans to obtain additional capital will be successful on the terms or timeline we expect, or at all.

Although no assurances can be given, management believes that potential additional issuances of equity or other potential

financing transactions as discussed above should provide the necessary funding for us.

If these efforts are unsuccessful, we may be required to significantly curtail or discontinue operations or, if available, obtain funds through financing

transactions with unfavorable terms.

The accompanying Condensed Consolidated Financial Statements have been prepared in conformity with U.S.

GAAP, which contemplate continuation of the Company as a going concern and the realization

of assets and satisfaction of liabilities in the normal course of business.

The carrying amounts of assets and liabilities presented in the Condensed Consolidated Financial Statements do not necessarily purport to represent realizable or settlement

GAAP, which contemplate continuation of

the Company as a going concern and the realization of assets and satisfaction of liabilities in the normal course of business.

The carrying amounts of assets and liabilities presented in the Condensed Consolidated Financial Statements do not

necessarily purport to represent realizable or settlement values.

The Condensed Consolidated Financial Statements do not include any adjustment that might result from the outcome of this uncertainty.

Our Condensed Consolidated Financial Statements do not include any adjustments relating to the

recoverability of assets and classification of assets and liabilities that might be necessary should we be unable to continue as a going concern.

Our Condensed Consolidated Financial

Statements do not include any adjustments relating to the recoverability of assets and classification of assets and liabilities that might be necessary should we be unable to continue as a going concern.

Summary of Significant Accounting Policies

Significant accounting policies followed by the Company are summarized below and should be read in conjunction with those described in Note 3 to the Consolidated Financial Statements in our 2020

Annual Report.

Estimates – These Condensed Consolidated Financial Statements have been prepared in accordance with U.S.

Because a precise

determination of assets and liabilities, and correspondingly revenues and expenses, depend on future events, the preparation of consolidated financial statements for any period necessarily involves the use of estimates and assumptions.

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

Significant estimates include the recording of allowances for doubtful accounts, the net realizable value of inventory, useful lives of long-lived assets, fair value of goodwill and other

intangible assets, the determination of the valuation allowances for deferred taxes and the estimated fair value of warrants.

Concentration of credit risk and limited suppliers – Major customers are defined as customers whose accounts receivable

or sales individually consist of more than ten percent of total trade receivables or total sales, respectively.

The percentage of accounts receivable and sales from major customers of the Company for the periods indicated were as follows:

March 31, 2021

December 31, 2020

Accounts Receivable:

Three Months Ended

March 31, 2021

March 31, 2020

The Company currently purchases most of its product component materials from single suppliers and the loss of any of these suppliers could result in a disruption in our production.

The percentage of purchases from major vendors of the Company that exceeded ten percent of total purchases for the three months ended March 31, 2021 and 2020 were as follows:

Three Months Ended

March 31, 2021

March 31, 2020

Goodwill and Other Intangible Assets – Goodwill represents the excess of the purchase price over the fair value of assets acquired and liabilities assumed.

Significant accounting policies followed by the Company are summarized below and should be read in conjunction with those described in Note 3 to

the Consolidated Financial Statements in our 2020 Annual Report.

Estimates – These Condensed Consolidated Financial Statements have been prepared in

accordance with U.S.

Because a precise determination of assets and liabilities, and correspondingly revenues and expenses, depend on future events, the preparation of 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, the net realizable value of inventory, useful lives of

long-lived assets, fair value of goodwill and other intangible assets, the determination of the valuation allowances for deferred taxes and the estimated fair value of embedded derivatives, including warrants and embedded conversion options on

convertible debt issuances.

Goodwill and Other Intangible Assets – Goodwill represents the excess of the purchase price over the fair

value of assets acquired and liabilities assumed.

The Company accounts for goodwill under ASC Topic 350, Intangibles-Goodwill and Other .

The Company tests goodwill for impairment annually, or more frequently whenever events or circumstances indicate

impairment may exist.

The Company tests goodwill for impairment annually, or more

frequently whenever events or circumstances indicate impairment may exist.

Goodwill is stated at cost less accumulated impairment losses.

The Company completes its goodwill impairment test annually in the fourth quarter.

Intangible assets arising from the Company’s acquisition are amortized on a

straight‑line basis over the estimated useful life of each asset.

Intangible assets arising

from the Company’s acquisition are amortized on a straight‑line basis over the estimated useful life of each asset.

Customer relationships have a useful life of seven years .

Patents and tradenames have a useful life of nineteen years .

At December 31, 2020, the

Company determined that intangible assets related to certain customer relationships was impaired.

No additional impairment was indicated at March 31, 2021.

Recent Accounting Pronouncements – In August 2020, Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update

(“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.

Fair value of financial

instruments - The carrying values of accounts payable, and other short-term obligations approximate their fair values, because of the short-term maturities of these instruments.

utilizes the guidance of ASC Topic 820-10, Fair Value Measurements (“ASC 820-10”), 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;

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 Condensed

Consolidated Balance Sheet at fair value.

The fair value of the LGH warrant liability is determined based on a bionomial approach pricing model at issuance and, thereafter, on a Black Scholes model.

The fair value of the embedded

conversion option is based on a binomial pricing model at issuance and thereafter.

The fair values of the NH and Leviston warrant liabilities are based on a Black Scholes model at issuance and thereafter.

The Company’s usage of the Black

Scholes model approximates the bionomial approach pricing model.

Each of the pricing models 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.

Recent Accounting Pronouncements – In August 2020, Financial Accounting Standards

Board (“FASB”) issued Accounting Standards Update (“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.

Effective January 1, 2021, the Company elected to early adopt ASU 2020-06 using the modified retrospective method.

The adoption of ASU 2020-06 had no impact previously reported financial position or

operating results.

In May 2021, the FASB issued ASU 2021-04, Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options Earnings Per Share

(Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40).

This ASU reduces diversity in an

issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange.

This ASU provides guidance for a modification or an

exchange of a freestanding equity-classified written call option that is not within the scope of another Topic.

The adoption of ASU 2020-06 had no

impact previously reported financial position or operating results.

In May 2021, the FASB issued ASU 2021-04, Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding

Equity-Classified Written Call Options Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity

(Subtopic 815-40).

This ASU reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or

This ASU provides guidance for a modification or an exchange of a freestanding equity-classified written call option that is not within the scope of another Topic.

It specifically addresses:

(1) how an entity should treat a modification of the terms or conditions or an exchange of a freestanding

(1) how an entity should treat a

modification of the terms or conditions or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange;

(2) how an entity should measure the effect of a modification or an

exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange;

and (3) how an entity should recognize the effect of a modification or an exchange of a freestanding

equity-classified written call option that remains equity classified after modification or exchange.

(2) how an entity should measure the effect of a modification or an exchange of a freestanding equity-classified written call option that remains

equity classified after modification or exchange;

and (3) how an entity should recognize the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or

This ASU will be effective for all entities for fiscal years beginning after December 15, 2021.

An entity should apply the amendments prospectively to modifications or exchanges occurring on or after the effective date of the

An entity should apply the amendments

prospectively to modifications or exchanges occurring on or after the effective date of the amendments.

Early adoption is permitted, including adoption in an interim period.

The adoption of ASU 2021-04 is not expected to have a material impact on the Company’s financial statements or disclosures.

In December 2019, the FASB issued ASU 2019-12 Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes.

ASU 2019-12 simplifies the

accounting for income taxes in several areas including calculating taxes in an interim period, clarifying how to account for taxes that are partially based on income and requiring an entity to reflect the effect of an enacted change in tax laws or

rates in the annual effective tax rate computation in the interim period that includes the enactment date.

This amendment is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years.

adopted ASU 2019-12 effective January 1, 2021 with no impact on previously reported financial position or operating results.

The adoption of ASU 2021-04 is not expected to have a material impact

on the Company’s financial statements or disclosures.

In December 2019, the FASB issued ASU 2019-12 Income Taxes (Topic 740) Simplifying the Accounting for Income

ASU 2019-12 simplifies the accounting for income taxes in several areas including calculating taxes in an interim period, clarifying how to account for taxes that are partially based on income and requiring an entity to reflect

the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date.

This amendment is effective for fiscal years beginning after December 15, 2020, and interim

periods within those fiscal years.

The Company adopted ASU 2019-12 effective January 1, 2021 with no impact on previously reported financial position or operating results.

In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350) Simplifying the Test for Goodwill Impairment.

The amendments in ASU 2017-04 modified the testing that an entity should

perform for its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount.

An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the

reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.

Additionally, an entity should consider income tax effects from any tax-deductible goodwill on the carrying

amount of the reporting unit when measuring the goodwill impairment loss, if applicable.

This amendment is effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years.

The amendments in ASU

2017-04 modified the testing that an entity should perform for its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount.

An entity should recognize an impairment charge for the

amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.

Additionally, an entity should consider income tax

effects from any tax-deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable.

This amendment is effective for fiscal years beginning after December 15, 2022, and interim

periods within those fiscal years.

Early adoption is permitted.

2 unchanged sentences

Loss per Share

The net loss per share is calculated by dividing the net loss attributable to common stockholders by the weighted average number of shares outstanding for the three months ended March 31, 2021

In accordance with ASC Topic 260-10-45-13, Earnings Per Share , the weighted average of number of shares outstanding includes outstanding common stock and shares issuable for nominal

consideration.

Accordingly, warrants issued with a $0.01 per share exercise price, are included in weighted average shares outstanding as follows:

The net loss per share is calculated by dividing the net loss attributable to common stockholders by the weighted average number of shares

outstanding for the three and six months ended June 30, 2021 and 2020.

In accordance with ASC Topic 260-10-45-13, Earnings Per Share , the weighted average of number of shares outstanding includes

outstanding common stock and shares issuable for nominal consideration.

Accordingly, warrants issued with a $ 0.01 per share exercise

price, are included in weighted average shares outstanding as follows:

Three Months Ended

Six Months Ended

June 30, 2021

June 30, 2020

June 30, 2021

June 30, 2020

Weighted average shares outstanding

Common shares

Common shares issuable assuming excercise of nominally priced warrants

Common shares issuable assuming exercise of nominally priced warrants

Weighted average shares outstanding

Diluted net loss per share would be computed by dividing the net loss attributable to common stockholders by the weighted average number of shares of common stock and dilutive common stock

equivalents outstanding.

Diluted net loss per share would be computed by dividing the net loss attributable to common stockholders by the weighted average number of

shares of common stock and dilutive common stock equivalents outstanding.

To the extent that securities are “anti-dilutive,” they are excluded from the calculation of diluted net loss per share.

As a result of the net loss for the three months ended March 31, 2021 and 2020, all potentially

dilutive shares were anti-dilutive and therefore excluded from the computation of diluted net loss per share.

Anti-dilutive equity securities consist of the following at March 31, 2021 and 2020, respectively:

As a result of the net loss for the three and

six months ended June 30, 2021 and 2020, all potentially dilutive shares were anti-dilutive and therefore excluded from the computation of diluted net loss per share.

Anti-dilutive equity securities consist of the following at June 30, 2021 and 2020, respectively (in

Common stock options

3 unchanged sentences

Convertible preferred stock

Inventory consists of the following at March 31, 2021 and December 31, 2020 (in thousands):

Inventory consists of the following at June 30, 2021 and December 31, 2020 (in thousands):

Inventory - finished goods

2 unchanged sentences

Accrued Expenses

Accrued expenses consist of the following at March 31, 2021 and December 31, 2020 (in thousands):

Accrued expenses consist of the following at June 30, 2021 and December 31, 2020 (in thousands):

Outside services

4 unchanged sentences

Inventory purchases

There was no activity in the warranty reserve during the three months ended March 31, 2021.

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, 2021 and 2020 (in thousands):

Three Months Ended March 31, 2021

Three Months Ended March 31, 2020

There was no activity in the

warranty reserve during the three and six months ended June 30, 2021.

Disaggregation of Revenue - The disaggregation of revenue is based on geographical

The following tables present

revenue from contracts with customers for the three and six months ended June 30, 2021 and 2020 (in thousands):

Three Months Ended June 30, 2021

Three Months Ended June 30, 2020

United States

4 unchanged sentences

License fees and other

Contract liabilities - As of March 31, 2021 and December 31, 2020, the Company has contract liabilities from contracts with customers

as follows (in thousands):

Six Months Ended June 30, 2021

Six Months Ended June 30, 2020

United States

International

United States

International

Accessories and parts

License fees and other

Contract liabilities - As of June 30, 2021 and December 31, 2020, the Company has contract liabilities from contracts

with customers as follows (in thousands):

Service agreements

3 unchanged sentences

Non-current contract liabilities

During the three months ended March 31, 2021 and 2020, the Company recognized revenue related to these contract liabilities of $8 thousand and $22 thousand, respectively, that were in the

During the three months ended June 30, 2021 and 2020, the Company recognized revenue related to these contract liabilities of $ 8 thousand and $ 17 thousand,

respectively, that were included in the beginning contract liability balances for each of those periods.

During the six months ended June 30, 2021 and 2020, the Company recognized revenue related to these contract liabilities of $ 16 thousand and $ 39 thousand, respectively, that were included in the

beginning contract liability balances for each of those periods .

Debt with Related Parties

Debt with related parties at March 31, 2021 and December 31, 2020 consisted of the following (in thousands):

Maturity Date

Stated Interest

Convertible promissory notes (HealthTronics), related parties, in default

Convertible promissory notes (Stolarski), related parties, in default

Total debt with related parties

Convertible promissory notes payable (HealthTronics), in default – On August 6, 2020, the Company issued to HealthTronics, Inc.

convertible note payable in the amount of $1.4 million (the “HealthTronics Note”).

The HealthTronics Note matured on August 6, 2021 and was not repaid.

The Company’s failure to pay the outstanding principal balance when due constituted an event of

default under the terms of the HealthTronics Note and, accordingly, it began accruing additional interest of 2.0% in addition to the 12.0% stated interest rate, as of the date of the default.

The convertible promissory note is expressly subordinate

to the Senior Secured Notes (as defined in Note 9).

As the Seller Note (as defined in Note 9) was not repaid prior to January 1, 2021, HealthTronics 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.

The Company evaluated embedded conversion features within the convertible promissory note and determined that the conversion feature does not require to be

Upon adoption of ASC 2020-6 effective January 1, 2021, the convertible promissory note is accounted for as a single liability due to the elimination of the beneficial conversion feature accounting model.

Convertible promissory notes payable (Stolarski), in default – On August 6, 2020, issued to A.

Michael Stolarski, a member of the board

of directors and an existing shareholder, a convertible promissory note in the principal amount of $223 thousand (the “Stolarski Note”).

The Stolarski Note matured on August 6, 2021 and was not repaid.

The Company’s failure to pay the outstanding

principal balance when due constituted an event of default under the terms of the Stolarski Note and, accordingly, it began accruing additional interest of 2.0% in addition to the 12.0% initial rate, as of the date of the default.

On March 31, 2021

and December 31, 2020 accrued interest of $17 thousand and $11 thousand, respectively, remained outstanding on the Stolarski Note.

As the Stolarski Note was not 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.

The Company evaluated embedded conversion features within the convertible promissory note and determined that the conversion feature does not require to be bifurcated.

Upon adoption of ASC 2020-6

effective January 1, 2021, the convertible promissory note is accounted for as a single liability due to the elimination of the beneficial conversion feature accounting model.

Debt with Unaffiliated Parties

Debt with unaffiliated parties at March 31, 2021 and December 31, 2020 consisted of the following (in thousands):

Maturity Date

Stated Interest

The following table summarizes the changes in contract liabilities during the six months ended June 30, 2021 (in thousands):

Six Months Ended

June 30, 2021

Beginning balance

Service agreement additions

Deposit on future equipment purchases

Revenue recognized

Total contract liabilities

Less current portion

Non-current contract liabilities

Concentration of Credit Risk and Limited Suppliers

Major customers are defined as customers whose

accounts receivable or sales individually consist of more than ten percent of total trade receivables or total sales, respectively.

The percentage of accounts receivable and sales from major customers of the Company for

the periods indicated were as follows:

June 30, 2021

December 31, 2020

Accounts Receivable:

Three Months Ended

June 30, 2021

June 30, 2020

June 30, 2021

June 30, 2020

The Company currently purchases most of its

product component materials from single suppliers and the loss of any of these suppliers could result in a disruption in our production.

The percentage of purchases from major vendors of the Company that exceeded ten

percent of total purchases for the three and six months ended June 30, 2021 and 2020 were as follows:

Three Months Ended

June 30, 2021

June 30, 2020

June 30, 2021

June 30, 2020

Accounts Receivable Factoring

On June 17, 2021, the Company entered into a factoring agreement with Goodman Capital Finance (“Goodman”), an unrelated third party, pursuant to

which the Company may sell certain of its accounts receivable to Goodman for 86.25 % of the value of the receivable.

Advances available

under the facility are capped at the lesser of $ 3.0 million or a formula amount, as defined in the agreement.

Interest on advances is

assessed at a fixed amount upon funding, which is equivalent to an annualized rate of 15.0 % for the first 30 days , and daily thereafter at an annualized rate of 14.4 %.

The agreement’s term is one month and automatically renews for additional one-month periods, unless either party provides 30 days ’ notice of

The accounts receivable are sold with recourse back to the Company, which means that the Company bears the risk of non-payment by the account debtor.

As of June 30, 2021, the Company had transferred to Goodman approximately $ 1.3 million of accounts receivable balances.

Notes Payable

The following two tables summarize outstanding notes payable as of June 30, 2021 and December 31, 2020, respectively (in thousands):

Kind Interest

Default Interest

Senior secured promissory note payable, in default

Debt issuance costs

Debt discount

Convertible promissory note payable, in default

Convertible promissory notes payable, in default:

Seller Note issued 8/6/2020

Leviston Note issued 4/20/2021

Leviston Note issued 5/14/2021

Total convertible promisory notes payable, in default

Convertible promissory notes payable, related parties, in default:

Convertible promissory notes (HealthTronics), related parties

Convertible promissory notes (Stolarski), related parties

Total convertible promisory notes payable, related parties, in default

February 20, 2026

Total SBA loans outstanding

Total debt outstanding, including amounts in default

current maturities, including notes in default

Debt with unafffiliated parties, long-term

Senior secured promissory note payable, in default (“Senior Secured Note”) - On August 6, 2020, the Company entered into a Note and Warrant Purchase and Security Agreement (the

“NWPSA”), with NH Expansion Credit Fund Holdings LP, as noteholder and agent.

In accordance with the NWPSA, the Company issued a $15 million Senior Secured Promissory Note Payable (the “Senior Secured Note”) and a warrant exercisable into shares

of the Company’s common stock (the “NH Expansion 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.

As of December 31,

2020, the Company was in default of the minimum liquidity provisions on the Senior Secured Note.

As of March 31, 2021, the Company remains in default of the minimum liquidity provisions on the Senior Secured Note, and, as a result, it is

classified in current liabilities in the accompanying Condensed Consolidated Balance Sheets.

Total long-term debt as of June 30, 2021

Kind Interest

Senior secured promissory note

payable, in default

Convertible promissory notes payable, in default:

Seller Note issued 8/6/2020

Convertible promissory notes payable, related parties, in default:

Convertible promissory notes (HealthTronics), related parties

Convertible promissory notes (Stolarski), related parties

Total convertible promisory notes payable, related parties, in default

Total debt outstanding, including amounts in default

current maturities, including notes in default

Total long-term debt as of December 31, 2020

Senior secured promissory note payable, in default (“Senior Secured Note”) - On August 6, 2020, the

Company entered into a Note and Warrant Purchase and Security Agreement (the “NWPSA”), with NH Expansion Credit Fund Holdings LP, as noteholder and agent.

In accordance with the NWPSA, the Company issued a $ 15 million Senior Secured Promissory Note Payable (the “Senior Secured Note”) and a warrant exercisable into shares of the Company’s common stock (the

“NH Expansion 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.

As of December 31, 2020, the Company was in default of the

minimum liquidity provisions on the Senior Secured Note.

As of June 30, 2021, the Company remains in default of the minimum liquidity provisions on the Senior Secured Note, and, as a result, it is classified in current liabilities in the

accompanying Condensed Consolidated Balance Sheets.

As a result of the default, the Company is accruing interest at the default interest note of an incremental 5 %.

The debt issuance costs and debt discount related to the Senior Secured Note were capitalized as a reduction in the principal amount and are being amortized to interest expense over the life of

the Senior Secured Note.

The amortization of the debt issuance costs and debt discount for the three months ended March 31, 2021 was $228 thousand and is included in interest expense.

Accrued interest related to the Senior Secured Note was $666

thousand and $642 thousand at March 31, 2021 and December 31, 2020, respectively.

Interest expense on the Senior Secured Note was $760 thousand for the three months ended March 31, 2021.

Convertible promissory notes payable, in default (“Seller Note”) - On August 6, 2020, the Company entered into an asset purchase agreement with Celularity

to acquire Celularity’s UltraMIST assets.

A portion of the aggregate consideration of $24 million paid for the assets included the issuance of a promissory note to Celularity in the principal amount of $4 million (the “Seller Note”).

Note matured on August 6, 2021 and was not repaid.

The Company’s failure to pay the outstanding principal balance when due constituted an event of default under the terms of the Seller Note and, accordingly, it began accruing additional interest of

The debt issuance costs and debt discount related to the Senior Secured Note were capitalized as a reduction in the principal amount and are being

amortized to interest expense over the life of the Senior Secured Note.

The amortization of the debt issuance costs and debt discount for the three and six months ended June 30, 2021 was $ 227 thousand and $ 445 , respectively, and is included in interest expense.

Accrued interest related to the Senior Secured Note was $ 950 thousand and $ 642 thousand at June 30, 2021 and December 31, 2020, respectively.

Interest expense on the Senior Secured Note was $ 773 thousand and $ 1.5 million for the three months and six months ended June

30, 2021, respectively.

Convertible promissory notes payable, in default (“Seller Note”) - On August 6, 2020, the Company entered

into an asset purchase agreement with Celularity to acquire Celularity’s UltraMIST assets.

A portion of the aggregate consideration of $ 24

million paid for the assets included the issuance of a promissory note to Celularity in the principal amount of $ 4 million (the “Seller

The Seller Note matured on August 6, 2021 and was not repaid.

The Company’s failure to pay the outstanding principal balance

when due constituted an event of default under the terms of the Seller Note and, accordingly, it began accruing additional interest of 5.0 %

in addition to the 12.0 % initial rate, as of the date of the default.

As of March 31, 2021 and December 31, 2020, the Seller Notes had outstanding accrued interest of $312 thousand and $192 thousand, respectively.

As of June 30, 2021 and December 31, 2020, the Seller Notes had

outstanding accrued interest of $ 432 thousand and $ 192 thousand, respectively.

The Company evaluated embedded conversion features within the convertible promissory note and determined that the conversion feature does not require to be

April 2021 Securities Purchase Agreement and

Warrants (In default) - On April 20, 2021, the Company entered into a Securities Purchase Agreement (the “Leviston Purchase Agreement”), with Leviston Resources, LLC, an

accredited investor (“Leviston”) for the sale by the Company in a private placement (the “Private Placement”) of (i) the Company’s future advance convertible promissory note in an aggregate principal amount of up to $ 3.4 million (the “Leviston Note”) and (ii) a warrant to purchase an additional 16,666,667 shares of common stock of the Company (the “Leviston Warrant”).

The Leviston Warrant has an exercise price of $ 0.18 per share and a four-year term.

The closing of the Private

Placement occurred on April 20, 2021 (the “Leviston Closing Date”).

As noted above, on April 20, 2021, the Company issued the Leviston Note to the Purchaser in an aggregate principal amount of up to $ 3.4 million (the “Aggregate Amount”), which shall be advanced in disbursements by the Purchaser (“Leviston Disbursements”), as set forth in the

Leviston Note.

On May 14, 2021, the Leviston Note was amended to increase the Aggregate Amount to $ 4.2 million.

On April 21, 2021,

the Purchaser advanced a Leviston Disbursement of $ 750 thousand, which is net of an original issue discount of 8 %.

On May 14, 2021, the Purchaser advanced a second Leviston Disbursement of $ 750 thousand, also net of an original issue discount of 8 %.

A $ 250 thousand Leviston Disbursement was made on September 3, 2021, which was subject to the same terms and conditions of the April and May Leviston

Disbursements.

Warrant issuances to Leviston in April and May 2021

On each of April

20, 2021 and May 14, 2021, the Company also issued 3,968,254 warrants to Leviston for a total of 7,936,508 shares of common stock.

The Leviston Warrants 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, the Company determined that these warrants meet the definition of a derivative liability.

See details of the associated warrant issuances at Note 11 – Warrants.

Embedded Conversion Option

The disbursements made in April and May 2021 under the

Leviston Notes included a Conversion Option that meets the definition of a derivative liability and, accordingly, is required to be bifurcated.

The fair value of Conversion Option liability was determined by using a binomial pricing model.

Issuance date (1)

Binomial Assumptions

April 20, 2021

June 30, 2021

Conversion Price (1)

Interest Rate (annual) (2)

Volatility (annual) (3)

Time to Maturity (Years)

Fair Value of Conversion Option

(1) Based on the terms provided in Convertible Promissory notes dated April 20 and May 14, 2021.

(2) Interest rate for U.S.

Treasury Bonds, as of each presented period ending date, as published by the U.S.

Federal Reserve.

(3) Based on the historical daily volatility of the Company as of each presented period ending date.

Interest rates on Leviston Notes, Conversion Option, and Loss on Issuance

The Leviston Disbursements in April and May 2021 bear interest at the rate of 5 % per annum and the default rate of 15 %.

The Leviston Note contains a conversion option (“Conversion Option”) and because it is in default, the Leviston Note it is convertible into common shares of the Company at a conversion price of 75 % of the lowest VWAP during the ten trading days ending on

the conversion date.

The Conversion Option within the Leviston Note is required to be bifurcated at fair value, which was approximately $ 1.4

million on the April disbursement and $ 1.4 million on the May disbursement, and which resulted in additional debt discount being

recorded at each disbursement date.

Because the combined fair value of the Leviston Warrants and the Conversion Option exceed the face value of the note, the additional amount beyond the face value is recorded as a loss on issuance of $ 1.4 million on the April disbursement and $ 1.1

million on the May disbursement.

The remaining disbursements up to the Aggregate Amount are subject to the satisfaction of certain terms and conditions set forth in the

Leviston Note.

Leviston Disbursements bear an interest at a rate of five percent ( 5 %) per annum and have a maturity date of twelve ( 12 ) months from the date of issuance.

The Leviston Note is convertible at the option of the holder into shares of the common stock of the Company at

a conversion price per share equal to the lesser of (i) $ 0.18 , and (ii) ninety percent ( 90 %) of the closing price for a share of common stock reported on the OTCQB on the effective date of the Registration Statement (as defined below).

The Leviston Note contains customary events of default and covenants, including limitations on incurrences of indebtedness and liens.

Pursuant to the

Leviston Purchase Agreement, the Company has agreed, within a reasonable period of time following the Leviston Closing Date, and in any event prior to any Leviston Disbursement under the Leviston Note subsequent to the initial Leviston

Disbursement, to enter into a security agreement in favor of the Leviston, securing the Company’s obligations under the Leviston Note.

The rights of Leviston to receive payments under the Leviston Note are subordinate to the rights of North Haven Expansion pursuant to a

subordination agreement, that the Company and Leviston entered into with North Haven Expansion on April 20, 2021, in connection with the Private Placement (the “Subordination Agreement”).

In connection with the Leviston Purchase Agreement, the Company entered into a registration rights agreement with the Leviston on April 20,

2021 (the “Leviston Registration Rights Agreement”) pursuant to which the Company agreed to file a registration statement (the “Registration Statement”) with the SEC no later than thirty days following the Leviston Closing Date for the

registration of 100% of the maximum number of the shares issuable upon conversion of the Leviston Note and exercise of the Leviston Warrants issued pursuant to the Leviston Purchase Agreement (the “Leviston Registrable Securities”).

shall use its best efforts to keep the Registration Statement continuously effective under the Securities Act of 1933, as amended (the “Securities Act”), until all Leviston Registrable Securities have been sold, or may be sold without the

requirement to be in compliance with Rule 144(c)(1) of the Securities Act and otherwise without restriction or limitation pursuant to Rule 144 of the Securities Act, as determined by the counsel to the Company.

The Company has yet to file the

Registration Statement and, under the terms of the Leviston Registration Rights Agreement, it is obligated to pay in cash a one-time aggregate amount of $ 250 thousand to the holders of the Leviston Notes, plus 1% of the outstanding principal for each 30-day period during which the Company continues not to have in-place an effective

Registration Statement.

August 31, 2021, Leviston notified the Company that it was in default of the Leviston Purchase Agreement effective June 11, 2021 for failure to timely file a Registration Statement.

From the date of the default, interest on the amounts due

to Leviston is calculated at the default interest rate of 15 % in addition to the registration penalties stated above.

Convertible promissory notes payable (HealthTronics), in default – On August 6,

2020, the Company issued to HealthTronics, Inc.

a convertible note payable in the amount of $ 1.4 million (the “HealthTronics

The HealthTronics Note matured on August 6, 2021 and was not repaid.

The Company’s failure to pay the outstanding

principal balance when due constituted an event of default under the terms of the HealthTronics Note and, accordingly, it began accruing additional interest of 2.0 % in addition to the 12.0 % stated interest rate, as of the date of

The convertible promissory note is expressly subordinate to the Senior Secured Notes.

The Company may prepay the outstanding principal balance, together with any accrued but unpaid interest without premium or penalty.

2021 and December 31, 2020 accrued interest of $ 148 thousand and $ 66 thousand, respectively, remained outstanding on the HealthTronics Note.

As the Seller Note (as defined in Note 10) was not repaid prior to January 1, 2021, HealthTronics 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

The Company evaluated embedded conversion features within the convertible promissory note and determined that the conversion feature does not require to be bifurcated.

Upon adoption of ASC 2020-6 effective January 1, 2021, the convertible

promissory note is accounted for as a single liability due to the elimination of the beneficial conversion feature accounting model.

SBA Loan #1 - The Company received a letter from the Small Business Administration (“SBA”) dated August 27, 2021 forgiving

approximately $454 thousand of the SBA Loan #1 principal and $6 thousand of interest.

As of March 31, 2021, all of the $464 thousand balance outstanding is classified as current.

As of December 31, 2020, $320 thousand is classified as current

and $142 thousand is classified as non-current.

SBA Loan #2 – On February 20, 2021, the Company received proceeds from a second SBA loan (“SBA Loan #2”) in the amount of $1.03

million from Northeast Bank, as lender, pursuant to the Paycheck Protection Program (“PPP”) under the CARES Act.

Upon adoption of ASC 2020-6 effective January 1, 2021, the

convertible promissory note is accounted for as a single liability due to the elimination of the beneficial conversion feature accounting model.

Convertible promissory notes payable (Stolarski), in default – On August 6,

2020, the Company issued to A.

Michael Stolarski, a member of the board of directors and an existing shareholder, a convertible promissory note in the principal amount of $ 223 thousand (the “Stolarski Note”).

The Stolarski Note matured on August 6, 2021

and was not repaid.

The Company’s failure to pay the outstanding principal balance when due constituted an event of default under the terms of the Stolarski Note and, accordingly, it began accruing additional interest of 2.0 % in addition to the 12.0 %

initial rate, as of the date of the default.

On June 30, 2021 and December 31, 2020 accrued interest of $ 24 thousand and $ 11 thousand, respectively, remained outstanding on the Stolarski Note.

The Stolarski Note is expressly subordinate to the Senior Secured Notes.

The Company may prepay the outstanding principal balance, together with any accrued but unpaid interest without premium or penalty.

As the Stolarski Note was not repaid prior to January 1, 2021, the holder may elect to convert the outstanding principal amount plus any accrued but unpaid interest

thereon into shares of common stock at a conversion price of $ 0.10 per share.

The Company evaluated embedded conversion features within

the convertible promissory note and determined that the conversion feature does not require to be bifurcated.

Upon adoption of ASC 2020-6 effective January 1, 2021, the convertible promissory note is accounted for as a single liability due to the

elimination of the beneficial conversion feature accounting model.

SBA Loan #1 - The Company received a letter from the Small Business Administration

(“SBA”) dated August 27, 2021 forgiving approximately $ 454 thousand of the SBA Loan #1 principal and $ 6 thousand of interest.

As of June 30, 2021, all of the $ 464

thousand balance outstanding is classified as current.

As of December 31, 2020, $ 320 thousand is classified as current and $ 142 thousand is classified as non-current.

SBA Loan #2 – On February 20, 2021, the Company received proceeds from a second SBA

loan (“SBA Loan #2”) in the amount of $ 1.03 million from Northeast Bank, as lender, pursuant to the Paycheck Protection Program (“PPP”)

under the CARES Act.

SBA Loan #2 is evidenced by a promissory note that matures on February 20, 2026 and bears interest of 1 % per annum.

Equal monthly

payments of principal and interest commence in June 2022, after both a 24-week “covered period” and a 10-month “deferment period,” as defined in the promissory note and current SBA regulations.

The SBA Loan #2 contains customary events of default

relating to, among other things, payment defaults and breaches of representations, warranties and covenants.

Equal monthly payments

of principal and interest commence in June 2022, after both a 24 -week “covered period” and a 10 -month “deferment period,” as defined in the promissory note and current SBA regulations.

The SBA Loan #2 contains customary events of default relating to, among other

things, payment defaults and breaches of representations, warranties and covenants.

The SBA Loan #2 may be prepaid by the Company at any time prior to maturity with no penalties.

All or a portion of SBA Loan #2 may be fully or partially forgiven by the SBA upon application by the Company not later than June 2022 in accordance with SBA regulations.

forgiveness of SBA Loan #2 is also contingent 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 SBA Loan #2, 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 SBA Loan #2, the Company may be required to repay SBA Loan #2 in its entirety and/or be subject to additional penalties.

In the event SBA Loan #2, or any portion thereof, is forgiven pursuant to the PPP, the amount

forgiven is applied to outstanding principal.

As of March 31, 2021, the entire $1,033 thousand loan balance outstanding is included in non-current liabilities in the accompanying Condensed Consolidated Balance Sheets.

A summary of the warrant activity during the three months ended March 31, 2021 is as follows:

All or a portion of SBA Loan #2 may be fully or partially forgiven by the SBA upon application by the Company not later than June 2022 in

accordance with SBA regulations.

The ultimate forgiveness of SBA Loan #2 is also contingent 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 SBA Loan #2, 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 SBA Loan #2, the Company may be required to repay SBA Loan #2 in its entirety and/or be subject to additional penalties.

In the event SBA Loan #2, or any portion

thereof, is forgiven pursuant to the PPP, the amount forgiven is applied to outstanding principal.

As of June 30, 2021, $ 23 thousand

is included in current liabilities and the remainder of the $ 1.0 million loan balance is included in non-current liabilities in the

accompanying Condensed Consolidated Balance Sheets.

A summary of the warrant activity during the six months ended June 30, 2021 is as follows:

Warrant class

3 unchanged sentences

NH Expansion Warrant

On February 3, 2021, the Company issued 10,925,000 shares of its common stock to LGH upon the cashless exercise of 11,400,000 of the LGH Warrants under the terms of the warrant agreement.

this cashless exercise, 23,600,000 of LGH Warrants remain outstanding.

Leviston Warrants - April 2021

Leviston Warrants - May 2021

On February 3, 2021, the Company issued 10,925,000

shares of its common stock to LGH upon the cashless exercise of 11,400,000 of the LGH Warrants under the terms of the warrant

After this cashless exercise, 23,600,000 of LGH Warrants remain outstanding.

Warrant Liabilities

A summary of the warrant liability activity for the three months ended March 31, 2021 is as follows:

A summary of the warrant liability activity for the six months ended June 30, 2021 is as follows:

Balance December 31, 2020

Cashless exercise of LGH Warrants

Warrants classified as liabilities

Gain on remeasurement of warrant liability

Balance March 31, 2021

NH Expansion Warrants -- Significant Black Scholes valuation model inputs related to the NH Expansion Warrants at March 31, 2021 and

December 31, 2020 are as follows:

Balance June 30, 2021

NH Expansion Warrants -- Significant Black Scholes valuation model inputs related to

the NH Expansion Warrants at June 30, 2021 and December 31, 2020 are as follows:

Black Scholes option pricing model

March 31,2021

June 30, 2021

December 31, 2020

7 unchanged sentences

Calculated fair value per share

( 1) Based on the terms provided in the warrant agreement to

purchase common stock of the Company dated August 6, 2020.

Based on the terms provided in the warrant agreement to purchase common

stock of the Company dated August 6, 2020.

Interest rate for U.S.

Treasury Bonds, as of each presented period ending date, as

published by the U.S.

Treasury Bonds, as of each presented period

ending date, as published by the U.S.

Federal Reserve.

1 unchanged sentence

presented period ending date.

LGH Warrants – On June 5, 2020, the Company entered into a securities purchase agreement with investor LGH Investments LLC ("LGH") for

warrants entitling LGH to acquire 1,075,000 shares of common stock (the “LGH Warrants”), among other things.

The LGH Warrants 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 on August 6, 2020, the exercise price of the LGH Warrants decreased to $0.01 per share and the number of shares subject to the LGH Warrants

increased to 35,000,000 shares.

As a result, the Company determined that these warrants meet the definition of a derivative liability.

The fair value of the LGH Warrant liabilities was determined using the Black-Scholes option pricing model which

approximates the binomial pricing model.

Significant inputs into the model at March 31, 2021 and December 31, 2020 are as follows:

LGH Warrants – On June 5, 2020, the Company entered into a securities purchase

agreement with investor LGH Investments LLC ("LGH") for warrants entitling LGH to acquire 1,075,000 shares of common stock (the “LGH

Warrants”), among other things.

The LGH Warrants 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 on August 6, 2020, the exercise price of the LGH Warrants decreased to $ 0.01 per share and the number of

shares subject to the LGH Warrants increased to 35,000,000 shares.

As a result, the Company determined that these warrants meet the

definition of a derivative liability.

The fair value of the LGH Warrant liabilities was determined using the Black-Scholes option pricing model which approximates the binomial pricing model.

Significant inputs into the model at June 30, 2021 and

December 31, 2020 are as follows:

Black Scholes option pricing model

March 31, 2021

June 30, 2021

December 31, 2020

Exercise Price (1)

Warrant Expiration Date (1)

Interest Rate (annual) (2)

2 unchanged sentences

Calculated fair value per share

Based on the terms provided in the warrant agreement to purchase common stock of the Company dated August 6, 2020.

Based on the terms provided in the warrant agreement to purchase common

stock of the Company dated August 6, 2020.

Interest rate for U.S.

Treasury Bonds, as of each presented period ending

date, as published by the U.S.

Federal Reserve.

Based on the historical daily volatility of the Company as of each

presented period ending date.

Leviston Warrants – As disclosed in Note 11 -Warrants, on each of April 20, 2021 and May 14, 2021, the Company issued 3,968,254 warrants to Leviston entitling them to acquire a total of 7,936,508

shares of common stock.

The Leviston Warrants 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, the Company determined that

these warrants meet the definition of a derivative liability.

The fair value of the Leviston Warrant liabilities was determined using the Black-Scholes option pricing model which approximates the binomial pricing model.

Significant inputs

into the model at June 30, 2021 and 2021 issuance dates are as follows:

Issuance date (1)

Black Scholes option pricing model

April 20, 2021

June 30, 2021

Exercise Price (1)

Interest Rate (annual) (2)

Volatility (annual) (3)

Time to Maturity (Years)

Calculated fair value per share

Based on the terms provided in the warrant

agreement to purchase common stock of the Company dated April 20, 2021.

Interest rate for U.S.

Treasury Bonds, as of each presented period ending date, as published by the U.S.

1 unchanged sentence

Based on the historical daily volatility of the Company as of each presented period ending date.

The following is a summary of the Company’s right of use assets and lease liabilities at March 31, 2021 and December 31, 2020 (in thousands):

March 31, 2021

Issuance date (1)

Black Scholes option pricing model

June 30, 2021

Exercise Price (1)

Interest Rate (annual) (2)

Volatility (annual) (3)

Time to Maturity (Years)

Calculated fair value per share

Based on the terms provided in the warrant agreement to purchase common

stock of the Company dated May 14, 2021.

Interest rate for U.S.

Treasury Bonds, as of each presented period ending date, as published by the U.S.

Federal Reserve.

Based on the historical daily volatility of the Company as of each presented period ending date.

The following is a summary of the Company’s right of use assets and lease liabilities at June 30, 2021 and December 31, 2020 (in thousands):

June 30, 2021

December 31, 2020

5 unchanged sentences

Lease Liabilities

Total lease costs for the three months ended March 31, 2021 and 2020 are as follows (in thousands):

Total lease costs for the six months ended June 30, 2021 and 2020 are as follows (in thousands):

Finance lease costs:

3 unchanged sentences

Total lease costs

The following summarizes cash paid for amounts included in the measurement of lease liabilities as well as the related right-of-use assets obtained for the three months ended March 31, 2021 and

2020 (in thousands):

Cash paid for amouonts included in measurement of lease liabilities:

The following summarizes cash paid for amounts included in the measurement of lease liabilities as well as the related right-of-use assets

obtained for the six months ended June 30, 2021 and 2020 (in thousands):

Cash paid for amounts included in measurement of lease liabilities:

Operating cash flows from finance leases

Operating cash flows from operating leases

Operating Leases - As of March 31, 2021, the maturities of the Company’s operating lease liability, which have initial or remaining

lease terms in excess of one year, consist of the following (in thousands):

Operating Leases - As of June 30, 2021, the maturities of the Company’s operating lease liability, which have

initial or remaining lease terms in excess of one year, consist of the following (in thousands):

Year ending December 31,

3 unchanged sentences

Lease liability

As of March 31, 2021, the Company’s operating leases had a weighted average remaining lease term of 1.9 years and a weighted average discount rate of 10.0%.

Rent expense for the three months ended March 31, 2021 and 2020 was $83 thousand and $52 thousand, respectively.

Financing Lease - As of March 31, 2021, the maturities of the Company’s financing lease liability, which have initial or remaining

lease terms in excess of one year, consist of the following (in thousands):

As of June 30, 2021, the Company’s operating leases had a weighted average remaining lease term of 1.8 years and a weighted average discount rate of 10.4 %.

Rent expense for the three months ended June 30, 2021 and 2020 was $ 86 thousand and $ 52 thousand, respectively.

Rent expense for

the six months ended June 30, 2021 and 2020 was $ 169 thousand and $ 118 thousand, respectively.

Financing Lease - As of June 30, 2021, the maturities of the Company’s financing lease liability, which have initial or

remaining lease terms in excess of one year, consist of the following (in thousands):

Year ending December 31,

3 unchanged sentences

Lease liability

As of March31, 2021, the Company’s financing leases had a weighted average remaining lease term of 2.0 years based on annualized base payments expiring through 2023 and a weighted average

discount rate of 13.2%.

As of March 31, 2021, the Company did not have additional operating or financing leases that have yet commenced.

As of June 30, 2021, the Company’s financing leases had a weighted average remaining lease term of 1.5 years based on annualized base payments expiring through 2023 and a weighted average discount rate of 13.2 %.

As of June 30, 2021, the Company did not have additional operating or financing leases that have yet commenced.

Contingencies

Supplier disputes - In May 2021, the Company received notification alleging that it is not in

compliance with the license agreement with Celularity entered into in connection with the acquisition of the UltraMIST assets.

The Company has responded and asserted that the Company is not in breach and that the supplier has breached various

Supplier disputes - In May 2021, the Company

received notification alleging that it is not in compliance with the license agreement with Celularity entered into in connection with the acquisition of the UltraMIST assets.

The Company has responded and asserted that the Company is not in

breach and that the supplier has breached various agreements.

It is too early to determine the outcome of this matter.

Any potential impact to the Company cannot be fully determined at this time and there is no guarantee that the dispute will be

resolved in a manner beneficial to the Company or at all.

As part of the Asset Purchase Agreement on August 6, 2020, the Company assumed obligations for a purchase order for UltraMIST devices from Celularity’s vendor Minnetronix.

purchase order had a remaining purchase commitment of approximately $1.1 million.

Any potential impact to the Company cannot be fully determined at this time and

there is no guarantee that the dispute will be resolved in a manner beneficial to the Company or at all.

As part of the Asset Purchase Agreement on August 6, 2020, the Company assumed obligations for a purchase order for UltraMIST

devices from Celularity’s vendor Minnetronix.

This purchase order had a remaining purchase commitment of approximately $ 1.1 million.

The purchase order also calls for production delay fees of 1.25 % of the committed inventory if the Company delays production.

There is also a cancelation clause of

20% of the remaining balance in the event that the Company delays production for more than six months.

On September 23, 2021, Minnetronix notified the Company that it was cancelling the purchase order for the UltraMIST devices as a result of

the Company delaying production more than six months.

is also a cancelation clause of 20 % of the remaining balance in the event that the Company delays production for more than six months .

On September 23, 2021, Minnetronix notified the Company that it was cancelling the purchase order for the UltraMIST devices as a result

of the Company delaying production more than six months.

This notification includes fees and charges for the cancellation of the purchase order of an additional $ 320 thousand.

The Company expects to be able to resume

production upon paying this obligation.

While the Company is disputing certain aspects of this termination notice and is continuing to engage with Minnetronix regarding resolution of this matter, including reinstatement of the purchase order,

there is no guarantee that the dispute will be resolved in a manner beneficial to the Company or at all.

The Company expects to be able to resume production upon paying this obligation.

While the Company is disputing certain aspects of this termination notice and

is continuing to engage with Minnetronix regarding resolution of this matter, including reinstatement of the purchase order, there is no guarantee that the dispute will be resolved in a manner beneficial to the Company or at all.

Related Party Transactions

On February 13, 2018, the Company entered into an Agreement for Purchase and Sale, Limited Exclusive Distribution and Royalties, and Servicing and Repairs with Premier Shockwave Wound Care, Inc.,

a Georgia Corporation (“PSWC”), and Premier Shockwave, Inc., a Georgia Corporation (“PS”).

On February 13, 2018, the Company entered into an Agreement for Purchase and Sale, Limited Exclusive Distribution and Royalties, and Servicing

and Repairs with Premier Shockwave Wound Care, Inc., a Georgia Corporation (“PSWC”), and Premier Shockwave, Inc., a Georgia Corporation (“PS”).

Each of PS and PSWC is owned by A.

Michael Stolarski, a member of the Company’s board of directors and an existing shareholder of the Company The agreement

provides for the purchase by PSWC and PS of dermaPACE System and related equipment sold by the Company along with limited but exclusive distribution rights to provide dermaPACE Systems to certain governmental healthcare facilities and the agreement

contains provisions whereby in the event of a change of control of the Company (as defined in the agreement), the stockholders of PSWC have the right and option to cause the Company to purchase all of the stock of PSWC, and whereby the Company has

the right and option to purchase all issued and outstanding shares of PSWC, in each case based upon certain defined purchase price provisions and other terms.

During the three months ended March 31, 2021 and 2020, the Company recorded $8 thousand and $13 thousand, respectively, in revenue from an entity owned by this related party.

contract liabilities includes a balance of $63 thousand at March 31, 2021 and $69 thousand at December 31, 2020 from this related party.

In March 2021, PSWC paid the Company $125 thousand as a deposit for future purchase of new medical equipment.

Please see Note 16 – Subsequent Events in the accompanying Condensed Consolidated

Financial Statements for discussion of advances from directors in October 2021.

The provision for income taxes of $16 thousand and deferred tax liability are related to the goodwill of $7.3 million recorded as part of the acquisition

of the Celularity assets and is known as a “naked credit”.

Michael Stolarski, a member of the Company’s board of directors and

an existing shareholder of the Company The agreement provides for the purchase by PSWC and PS of dermaPACE System and related equipment sold by the Company along with limited but exclusive distribution rights to provide dermaPACE Systems to

certain governmental healthcare facilities and the agreement contains provisions whereby in the event of a change of control of the Company (as defined in the agreement), the stockholders of PSWC have the right and option to cause the Company to

purchase all of the stock of PSWC, and whereby the Company has the right and option to purchase all issued and outstanding shares of PSWC, in each case based upon certain defined purchase price provisions and other terms.

During the three months ended June 30, 2021 and 2020, the Company recorded $ 8 thousand and $ 13 thousand, respectively, in revenue from an

entity owned by this related party.

During the six months ended June 30, 2021 and 2020, respectively, the Company recorded $ 16 thousand

and $ 26 thousand in revenue from this entity.

In addition, contract liabilities includes a balance of $ 54 thousand at June 30, 2021 and $ 69

thousand at December 31, 2020 from this related party.

In March 2021, PSWC paid the Company $ 125

thousand as a deposit for future purchase of new medical equipment.

Please see Note 17 – Subsequent Events in the accompanying Condensed Consolidated Financial Statements for discussion of advances from member of our board of directors in

October 2021.

The provision for income taxes of $ 6 thousand and $ 22 thousand, for the three months and six months ended June

30, 2021 and the deferred tax liability are related to the goodwill of $ 7.3 million recorded as part of the acquisition of the

Celularity assets and is known as a “naked credit”.

The goodwill was assigned an indefinite life for book purposes but is deductible for income tax purposes over a fifteen-year life.

As a result, the deferred tax liability has an indefinite

life and cannot be used as a source of taxable income to support the realization of other deferred tax assets.

As a result, the deferred tax liability has an indefinite life and cannot be used as a source of taxable income to support the realization of other deferred tax assets.

Subsequent Events

April 2021 Securities Purchase Agreement and Warrants (In default) - On April 20, 2021, the Company entered into a Securities

Purchase Agreement (the “Leviston Purchase Agreement”), with Leviston Resources, LLC, an accredited investor (“Leviston”) for the sale by the Company in a private placement (the “Private Placement”) of (i) the Company’s future advance convertible

promissory note in an aggregate principal amount of up to $3.4 million (the “Leviston Note”) and (ii) a warrant to purchase an additional 16,666,667 shares of common stock of the Company (the “Leviston Warrant”).

The Leviston Warrant has an

exercise price of $0.18 per share and a four-year term.

The closing of the Private Placement occurred on April 20, 2021 (the “Leviston Closing Date”).

As noted above, on April 20, 2021, the Company issued the Leviston Note to the Purchaser in an aggregate principal amount of up to $3.4 million (the “Aggregate Amount”), which shall be advanced

in disbursements by the Purchaser (“Leviston Disbursements”), as set forth in the Leviston Note.

On May 14, 2021, the Leviston Note was amended to increase the Aggregate Amount to $4.2 million.

On April 21, 2021, the Purchaser advanced a Leviston

Disbursement of $750 thousand, which is net of an original issue discount of 8%.

Subsequent to April 21, 2021 the Purchaser made two additional disbursements, net of 8% original issue discounts, totaling $1.0 million, $750 thousand on May 14,

2021 and $250 thousand on September 3, 2021.

The remaining disbursements up to the Aggregate Amount are subject to the satisfaction of certain terms and conditions set forth in the Leviston Note.

Leviston Disbursements bear an interest at a rate

of five percent (5%) per annum and have a maturity date of twelve (12) months from the date of issuance.

The Leviston Note is convertible at the option of the holder into shares of the common stock of the Company at a conversion price per share

equal to the lesser of (i) $0.18, and (ii) ninety percent (90%) of the closing price for a share of common stock reported on the OTCQB on the effective date of the Registration Statement (as defined below).

The Leviston Note contains customary events of default and covenants, including limitations on incurrences of indebtedness and liens.

Pursuant to the Leviston Purchase Agreement, the Company has agreed, within a reasonable period of time following the Leviston Closing Date, and in any event prior to any Leviston Disbursement

under the Leviston Note subsequent to the initial Leviston Disbursement, to enter into a security agreement in favor of the Leviston, securing the Company’s obligations under the Leviston Note.

The rights of Leviston to receive payments under the Leviston Note are subordinate to the rights of North Haven Expansion pursuant to a subordination agreement, that the Company and Leviston

entered into with North Haven Expansion on April 20, 2021, in connection with the Private Placement (the “Subordination Agreement”).

In connection with the Leviston Purchase Agreement, the Company entered into a registration rights agreement with the Leviston on April 20, 2021 (the “Leviston Registration Rights Agreement”)

pursuant to which the Company agreed to file a registration statement (the “Registration Statement”) with the SEC no later than thirty days following the Leviston Closing Date for the registration of 100% of the maximum number of the shares

issuable upon conversion of the Leviston Note and exercise of the Leviston Warrants issued pursuant to the Leviston Purchase Agreement (the “Leviston Registrable Securities”).

The Company shall use its best efforts to keep the Registration

Statement continuously effective under the Securities Act of 1933, as amended (the “Securities Act”), until all Leviston Registrable Securities have been sold, or may be sold without the requirement to be in compliance with Rule 144(c)(1) of the

Securities Act and otherwise without restriction or limitation pursuant to Rule 144 of the Securities Act, as determined by the counsel to the Company.

The Company has yet to file the Registration Statement and, under the terms of the Leviston

Registration Rights Agreement, it is obligated to pay in cash a one-time aggregate amount of $250 thousand to the holders of the Leviston Notes, plus 1% of the outstanding principal for each 30-day period during which the Company continues not to

have in-place an effective Registration Statement.

On August 31, 2021, Leviston notified the Company that it was in default of the Leviston Purchase Agreement effective June 11, 2021 for failure to timely file a Registration Statement.

date of the default, interest on the amounts due to Leviston is calculated at the default interest rate of 15% in addition to the registration penalties stated above.

June 2021 Accounts Receivable Factoring Agreement – On June 17, 2021, the Company entered into a factoring agreement with Goodman

Capital Finance (“Goodman”), an unrelated third party, pursuant to which the Company may sell certain of its accounts receivable to Goodman for 86.25% of the value of the receivable.

Advances available under the facility are capped at the lesser

of $3.0 million or a formula amount, as defined in the agreement.

The agreement’s term is one month and automatically renews for additional one-month periods, unless either party provides 30 days’ notice of termination.

The accounts receivable

are sold with recourse back to the Company, which means that the Company bears the risk of non-payment by the account debtor.

September 2021 Securities Purchase Agreement and Warrants (In default) - On September 3, 2021, the Company entered into Securities

Purchase Agreements (the “September 2021 Purchase Agreements”), with certain accredited investors (collectively, the “September 2021 Purchasers”) for the sale by the Company in a private placement (the “September 2021 Private Placement”) of (i) the

Company’s future advance convertible promissory notes in an aggregate principal amount of up to $543 thousand (the “September 2021 Notes”) and (ii) warrants to purchase an additional 2,777,779 shares of common stock of the Company (the “September

2021 Warrants”).

The September 2021 Warrants have an exercise price of $0.18 per share and a five-year term.

The closing of the September 2021 Private Placement occurred on September 7, 2021 (the “September 2021 Purchasers Closing Date”).

Under the terms of the September 2021 Purchase Agreements, the aggregate principal amount of the September 2021 Notes of up to $543 thousand (the “Aggregate Amount”), may be advanced in

disbursements by the September 2021 Purchasers (“September 2021 Purchasers Disbursements”), as set forth in the September 2021 Notes.

The September 2021 Purchasers Disbursements bear an interest at a rate of five percent (5%) per annum and have a

maturity date of twelve (12) months from the date of issuance.

Each September 2021 Note is convertible at the option of the holder into shares of common stock of the Company at a conversion price per share equal to (A) until the date of

effectiveness of the Registration Statement, $0.18 and (B) after the date of effectiveness of the Registration Statement, the lesser of (i) $0.18, (ii) ninety percent (90%) of the closing price for a share of common stock reported on the OTCQB on

the effective date of the Registration Statement or (iii) 75% of the lowest volume weighted average price, as defined,, which shall be no lower than $0.01.

The September 2021 Notes contain customary events of default and covenants, including

limitations on incurrences of indebtedness and liens.

Pursuant to each September 2021 Purchase Agreement, the Company entered into a security agreement in favor of the applicable September 2021 Purchaser, securing the Company’s obligations under the

applicable September 2021 Note.

The rights of each September 2021 Purchaser to receive payments under their respective note is subordinate to the rights of North Haven Expansion pursuant to a Subordination Agreement, that the Company and each

September 2021 Purchaser entered into with North Haven Expansion in connection with the September 2021 Private Placement.

In connection with each September 2021 Purchase Agreement, the Company entered into a registration rights agreement with the September 2021 Purchasers on September 3, 2021 (the “September 2021

Purchasers Registration Rights Agreement”) pursuant to which the Company has agreed to file a Registration Statement no later than ninety (90) days following the September 2021 Purchasers Closing Date for the registration of 100% of the maximum

number of the shares issuable upon conversion of the September 2021 Notes and exercise of the September 2021 Warrants issued pursuant to such September 2021 Purchase Agreement (the “September 2021 Purchasers Registrable Securities”).

shall use its best efforts to keep the Registration Statement continuously effective under the Securities Act of 1933, as amended, until all September 2021 Purchasers Registrable Securities have been sold, or may be sold without the requirement to

be in compliance with Rule 144(c)(1) of the Securities Act and otherwise without restriction or limitation pursuant to Rule 144 of the Securities Act, as determined by the counsel to the Company.

The September 2021 Notes were in default as of October 25, 2021 and, accordingly, on that date, interest began accruing at the default rate of 15% in addition to registration penalties per the September 2021 Purchasers Registration Rights

The Company has yet to file the Registration Statement, and under the terms of the September 2021 Registration Rights Agreement, it is obligated to pay in cash a one-time aggregate amount of

$250 thousand to the holders of the September 2021 Notes, plus 1% of the outstanding principal for each 30-day period during which the Company continues not to have in-place an effective Registration Statement.

As a result of this breach of the

September 2021 Registration Rights Agreement, interest on the September 2021 Notes accrues at the default interest rate of 15%.

September 2021 Advances on Future Receipts Financing – On September 27, 2021, the Company received $703 thousand in cash proceeds

related to its entry into a non-recourse agreement for the sale of $1.0 million of future receipts to GCF Resources LLC (“GCF”).

In conjunction with the 24-week agreement, the Company is obligated to remit to GCF a minimum of $59 thousand of

receipts each week, with the sum of the first four payments occurring at closing, which was September 27, 2021.

After taking into account the payments made at closing, the Company will record an initial liability of $763 thousand and a debt

discount of approximately $60 thousand, which represents the original issue discount and the fees paid in conjunction with the financing.

The debt discount will be amortized to interest expense over the life of the agreement.

The Company began

making the required minimum weekly October 25, 2021 and is obligated to continue through March 7, 2022.

September 2021 Securities Purchase Agreement and Warrants (In default) - On

September 3, 2021, the Company entered into Securities Purchase Agreements (the “September 2021 Purchase Agreements”), with certain accredited investors (collectively, the “September 2021 Purchasers”) for the sale by the Company in a private

placement (the “September 2021 Private Placement”) of (i) the Company’s future advance convertible promissory notes in an aggregate principal amount of up to $ 543 thousand (the “September 2021 Notes”) and (ii) warrants to purchase an additional 2,777,779

shares of common stock of the Company (the “September 2021 Warrants”).

The September 2021 Warrants have an exercise price of $ 0.18 per

share and a five-year term.

The closing of the September 2021 Private Placement occurred on September 7, 2021 (the “September 2021

Purchasers Closing Date”).

Under the terms of the September 2021 Purchase Agreements, the aggregate principal amount of the September 2021 Notes of up to $ 543 thousand (the “Aggregate Amount”), may be advanced in disbursements by the September 2021 Purchasers (“September 2021 Purchasers Disbursements”),

as set forth in the September 2021 Notes.

The September 2021 Purchasers Disbursements bear an interest at a rate of five percent ( 5 %) per annum and have a maturity date of twelve ( 12 )

months from the date of issuance.

Each September 2021 Note is convertible at the option of the holder into shares of common stock of the Company at a conversion price per share equal to (A) until the date of effectiveness of the Registration

Statement, $ 0.18 and (B) after the date of effectiveness of the Registration Statement, the lesser of (i) $ 0.18 , (ii) ninety percent ( 90 %) of the closing price for a share of common stock reported on the OTCQB on the effective date of the Registration Statement or (iii) 75 % of the lowest volume weighted average price, as defined,, which shall be no lower than $ 0.01 .

The September 2021 Notes contain customary events of default and covenants, including limitations on incurrences of indebtedness and liens.

Pursuant to each September 2021 Purchase Agreement, the Company entered into a security agreement in favor of the applicable September 2021

Purchaser, securing the Company’s obligations under the applicable September 2021 Note.

The rights of each September 2021 Purchaser to receive payments under their respective note is subordinate to the rights of North Haven Expansion pursuant to

a Subordination Agreement, that the Company and each September 2021 Purchaser entered into with North Haven Expansion in connection with the September 2021 Private Placement.

In connection with each September 2021 Purchase Agreement, the Company entered into a registration rights agreement with the September 2021

Purchasers on September 3, 2021 (the “September 2021 Purchasers Registration Rights Agreement”) pursuant to which the Company has agreed to file a Registration Statement no later than ninety (90) days following the September 2021 Purchasers

Closing Date for the registration of 100% of the maximum number of the shares issuable upon conversion of the September 2021 Notes and exercise of the September 2021 Warrants issued pursuant to such September 2021 Purchase Agreement (the

“September 2021 Purchasers Registrable Securities”).

The Company shall use its best efforts to keep the Registration Statement continuously effective under the Securities Act of 1933, as amended, until all September 2021 Purchasers Registrable

Securities have been sold, or may be sold without the requirement to be in compliance with Rule 144(c)(1) of the Securities Act and otherwise without restriction or limitation pursuant to Rule 144 of the Securities Act, as determined by the

counsel to the Company.

The September 2021 Notes were in default as of October 25, 2021 and, accordingly, on that date, interest began accruing at the default rate of 15 % in addition to registration penalties per the September 2021 Purchasers Registration Rights Agreement.

The Company has yet to file the Registration Statement, and under the terms of the September 2021 Registration Rights Agreement, it is

obligated to pay in cash a one-time aggregate amount of $250 thousand to the holders of the September 2021 Notes, plus 1% of the outstanding principal for each 30-day period during which the Company continues not to have in-place an effective

Registration Statement.

As a result of this breach of the September 2021 Registration Rights Agreement, interest on the September 2021 Notes accrues at the default interest rate of 15 %.

September 2021 and December 2021 Advances on Future Receipts Financing – On

September 27, 2021, the Company received $ 703 thousand in cash proceeds related to its entry into a non-recourse agreement for the sale

of $ 1.0 million of future receipts to GCF Resources LLC (“GCF”).

In conjunction with the 24 -week agreement, the Company is obligated to remit to GCF a minimum of $ 59

thousand of receipts each week, with the sum of the first four payments occurring at closing, which was September 27, 2021.

taking into account the payments made at closing, the Company will record an initial liability of $ 763 thousand and a debt discount of

approximately $ 60 thousand, which represents the original issue discount and the fees paid in conjunction with the financing.

discount will be amortized to interest expense over the life of the agreement.

The Company began making the required minimum weekly payments October 25, 2021.

At closing, the Company also issued warrants to purchase 5,555,556 shares of the Company’s common stock to affiliates of GCF.

The warrants have an exercise price of $ 0.18 per share and expire four years after issuance.

On December 22, 2021, the Company paid off the remaining balance of $ 650

thousand from the September 27, 2021 advance and received $ 758 thousand in cash proceeds related to its entry into a non-recourse

agreement for the sale of $ 1.5 million of future receipts to GCF.

In conjunction with the 24 -week agreement, the Company is obligated to remit to GCF a minimum of $ 59

thousand of receipts each week for the first six weeks and receipts of $ 98 thousand for the remaining 18 weeks.

After considering

the payments made at closing, the Company will record an initial liability of $ 1.5 million and a debt discount of approximately $ 90 thousand, which represents the original issue discount and the fees paid in conjunction with the financing.

The debt discount will be amortized

to interest expense over the life of the agreement.

The Company will begin making the required minimum weekly payments January 3, 2022 and is obligated to continue through June 13, 2022.

At closing, the Company also issued warrants to

purchase 8,333,334 shares of the Company’s common stock to affiliates of GCF.

The warrants have an exercise price of $ 0.18 per share and expire four years after issuance.

October 2021 Advances from Directors - On October 27, 2021 the Company received $ 50 thousand in advances from related parties;

thousand from NightWatch Capital Advisors, LLC, a company controlled by John Nemelka, a shareholder and member of the Company’s board of directors, (the “Nemelka Advance”) and $ 25 thousand from A.

Michael Stolarski, also a shareholder and member of

the Company’s board of directors (the “Stolarski Advance”).

Michael Stolarski, also a shareholder and member of the Company’s board of directors (the “Stolarski Advance”).

In exchange for the Nemelka Advance, the Company issued to NightWatch Capital Advisors, LLC a promissory note in the principal amount of $ 25 thousand (the “Nemelka Note”).

The Nemelka Note

The Nemelka Note matures on June 30, 2022 and accrues interest at a rate equal to 15.0 % per annum.

exchange for the Stolarski Advance, as well as the $ 125 thousand deposit received in March 2021 by the Company (see Note 16), the

Company issued to Mr.

Stolarski a promissory note in the principal amount of $ 150 thousand (“Stolarski Note #2”).

Stolarski Note #2

matures on June 30, 2022 and accrues interest at a rate equal to 15.0 % per annum.

In exchange for the Stolarski Advance, as well as the $125 thousand deposit received in March 2021 by the Company (see Note 14), the Company issued to Mr.

a promissory note in the principal amount of $150 thousand (“Stolarski Note #2”).

Stolarski Note #2 matures on June 30, 2022 and accrues interest at a rate equal to 15.0% per annum.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements