SANUWAVE Health, Inc. 10-K

Item 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Page Consolidated Financial Statements Report of Independent Registered Public Accounting Firm (PCAOB ID: 688 ) F-1 Consolidated Balance Sheets as of December 31, 2021 and 2020 F-3 Consolidated Statements of Comprehensive Loss for the years ended December 31, 2021 and 2020 F-4 Consolidated Statements of Stockholders’ Deficit for the years ended December 31, 2021 and 2020 F-5 Consolidated Statements of Cash Flows for the years ended December 31, 2021 and 2020 F-6 Notes to Consolidated Financial Statements F-7 55 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and Board of Directors of SANUWAVE Health, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of SANUWAVE Health, Inc. (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of comprehensive loss, stockholders’ deficit and cash flows for each of the two years in the period ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America. Explanatory Paragraph – Going Concern The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 2, the Company has incurred significant losses and needs to raise additional funds to meet its obligations and sustain its operations and the occurrence of the events of default on the Company’s debt. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters. /s/ Marcum LLP Marcum LLP We have served as the Company’s auditor since 2018. New York, NY May 13, 2022 F-1 Table of Contents PART I -- FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS SANUWAVE HEALTH, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 2021 and 2020 (In thousands except share data) 2021 2020 ASSETS Current Assets: Cash $ 619 $ 2,437 Accounts receivable, net of allowance for doubtful accounts of $ 785 in 2021 and $ 343 in 2020 2,415 2,356 Inventory 1,040 2,956 Prepaid expenses and other current assets 326 179 Total Current Assets 4,400 7,928 Property and Equipment, net 668 471 Right of Use Assets, net 344 795 Other Intangible Assets, net 5,841 6,545 Goodwill 7,260 7,260 Other Assets 106 28 Total Assets $ 18,619 $ 23,027 LIABILITIES Current Liabilities: Senior secured promissory note payable, in default $ 11,586 $ 10,676 Convertible promissory notes payable, in default 11,601 4,000 Convertible promissory notes, related parties, in default 1,596 1,596 Advances on future cash receipts 446 - Accounts payable 7,644 4,454 Accrued expenses 4,394 2,127 Accrued employee compensation 4,247 2,541 Due under factoring agreement 1,737 - Warrant liability 9,614 8,855 Current portion of SBA loans 158 321 Accrued interest 2,521 1,021 Accrued interest, related parties 289 77 Current portion of lease liabilities 268 451 Current portion of contract liabilities 48 32 Other 114 23 Total Current Liabilities 56,263 36,174 Non-current Liabilities SBA loans 875 143 Lease liabilities 118 391 Contract liabilities 293 37 Deferred tax liability 28 - Total Non-current Liabilities 1,314 571 Total Liabilities 57,577 36,745 Commitments and Contingencies (Footnote 19) STOCKHOLDERS’ DEFICIT Preferred Stock, par value $ 0.001 , 5,000,000 shares authorized; 6,175 , 293 , 90 and 8 shares designated Series A, Series B, Series C and Series D, respectively; no shares issued and outstanding at December 31, 2021 and 2020 - - Common Stock, par value $ 0.001 , 800,000,000 shares authorized; 481,619,621 and 470,694,621 issued and outstanding at December 31, 2021 and 2020 , respectively 482 471 Additional Paid-in Capital 144,582 142,563 Accumulated Deficit ( 183,949 ) ( 156,690 ) Accumulated Other Comprehensive Loss ( 73 ) ( 62 ) Total Stockholders’ Deficit ( 38,958 ) ( 13,718 ) Total Liabilities and Stockholders’ Deficit $ 18,619 $ 23,027 The accompanying notes to consolidated financial statements are an integral part of these statements. F-2 Table of Contents SANUWAVE HEALTH, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS Years Ended December 31, 2021 and 2020 (In thousands except share data) 2021 2020 Revenues: Accessory and parts revenue $ 8,072 $ 1,209 Product 3,116 2,267 Rental income 1,627 429 License fees and other 195 152 Total Revenue 13,010 4,057 Cost of Revenues 4,986 1,162 Gross Margin 8,024 2,895 Operating Expenses: General and administrative 11,690 13,723 Selling and marketing 8,591 5,160 Research and development 1,101 1,246 Impairment of intangible assets - 7,185 Depreciation and amortization 784 781 Total Operating Expenses 22,166 28,095 Operating Loss ( 14,142 ) ( 25,200 ) Other Income (Expense): Interest expense ( 6,883 ) ( 2,025 ) Interest expense, related party ( 212 ) ( 516 ) Partnership fee income - 600 Change in fair value of derivative liabilities ( 2,622 ) ( 3,193 ) Loss on issuance of debt ( 3,572 ) - Gain / (loss) on extinguishment of debt 204 ( 565 ) Gain / (loss) on foreign currency exchange ( 4 ) ( 38 ) Other Income (Expense), net ( 13,089 ) ( 5,737 ) Net Loss before Income Taxes ( 27,231 ) ( 30,937 ) Income tax expense 28 - Net Loss ( 27,259 ) ( 30,937 ) Other Comprehensive Loss Foreign currency translation adjustments ( 11 ) - Total Comprehensive Loss $ ( 27,270 ) $ ( 30,937 ) Loss per Share: Net loss per share, basic and diluted $ ( 0.05 ) $ ( 0.08 ) Weighted average shares outstanding, basic and diluted 518,355,642 378,128,645 The accompanying notes to consolidated financial statements are an integral part of these statements. F-3 Table of Contents SANUWAVE HEALTH, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT (UNAUDITED) (In thousands except share data) Preferred Stock Common Stock Number of Shares Issued and Outstanding Par Value Number of Shares Issued and Outstanding Par Value Additional Paid- in Capital Accumulated Deficit Accumulated Other Comprehensive Loss Total Balances as of December 31, 2019 - $ - 293,780,400 $ 294 $ 115,458 $ ( 125,753 ) $ ( 62 ) $ ( 10,063 ) Net loss - - - - - ( 30,937 ) - ( 30,937 ) Proceeds from warrant exercise - - 1,000,000 1 9 - - 10 Conversion of short term notes and convertible notes payable - - 4,829,789 5 560 - - 565 Reclassification of warrant liability to equity - - - - 6,293 - - 6,293 Conversion of advances from related parties - - 262,811 - 18 - - 18 Conversion of notes payable, related parties - - 15,475,235 15 2,276 - - 2,291 Shares issued for services - - 12,700,000 13 2,533 - - 2,546 Proceeds from PIPE offering, net of offering costs - - 124,621,428 125 12,558 - - 12,683 Stock-based compensation - - - - 22 - - 22 Proceeds from stock option exercise - - 325,000 - 48 - - 48 Beneficial conversion feature on convertible debt - - - - 561 - - 561 LGH warrant liability - - - - ( 249 ) - - ( 249 ) Series C and Series D preferred stock converted to common stock - - 17,499,958 18 2,432 - - 2,450 Inducement shares issued - - 200,000 - 44 - - 44 Foreign currency translation adjustment - - - - - - - - Balances as of December 31, 2020 - $ - 470,694,621 $ 471 $ 142,563 $ ( 156,690 ) $ ( 62 ) $ ( 13,718 ) Cashless warrant exercise - - 10,925,000 11 ( 11 ) - - - Reclassification of warrant liability due to cashless warrant exercise - - - - 2,030 - - 2,030 Net loss - - - - - ( 27,259 ) - ( 27,259 ) Foreign currency translation adjustment - - - - - - ( 11 ) ( 11 ) Balances as of December 31, 2021 - $ - 481,619,621 $ 482 $ 144,582 $ ( 183,949 ) $ ( 73 ) $ ( 38,958 ) The accompanying notes to consolidated financial statements are an integral part of these statements. F-4 Table of Contents SANUWAVE HEALTH, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, 2021 and 2020 (In thousands) 2021 2020 Cash Flows - Operating Activities: Net loss $ ( 27,259 ) $ ( 30,937 ) Adjustments to reconcile net loss to net cash used by operating activities Amortization of intangibles 704 713 Depreciation 532 299 Bad debt expense 442 302 Impairment of intangible assets - 7,185 Stock-based compensation - 22 Shares issued for services - 2,546 Shares issued for inducement - 45 Gain/loss on extinguishment of debt ( 204 ) 565 Income tax expense 28 - Change in fair value of derivative liabilities 2,622 3,193 Loss on issuance of debt 3,572 - Amortization of debt issuance costs and original issue discount 3,226 484 Accrued interest 1,506 1,098 Interest payable, related parties 212 401 Changes in operating assets and liabilities Accounts receivable - trade ( 395 ) ( 2,582 ) Inventory 1,916 ( 553 ) Prepaid expenses ( 118 ) ( 54 ) Other assets ( 111 ) 13 Operating leases - ( 6 ) Accounts payable 3,181 3,015 Accrued expenses 1,818 1,169 Accrued employee compensation 1,837 934 Contract liabilties 82 ( 570 ) Net Cash Used by Operating Activities ( 6,409 ) ( 12,718 ) Cash Flows - Investing Activities Acquisition of UltraMIST, net of $ 4,000,000 note payable to seller - ( 20,000 ) Purchases of property and equipment ( 529 ) ( 53 ) Net Cash Flows Used by Investing Activities ( 529 ) ( 20,053 ) Cash Flows - Financing Activities Proceeds from sale of convertible preferred stock - 2,450 Proceeds from convertible promissory notes 1,928 1,100 Proceeds from SBA loan 1,033 614 Proceeds from PIPE offering, net of offering costs - 21,456 Proceeds from senior secured promissory notes 940 13,347 Proceeds from stock option exercises - 48 Proceeds from factoring 1,737 - Proceeds from warrant exercises - 10 Advances from related parties 175 23 Repayments of debt principal on convertible promissory notes, related parties, convertible promissory notes and SBA loans ( 493 ) ( 5,458 ) Payments of principal on finance leases ( 199 ) ( 143 ) Net Cash Flows Provided by Financing Activities 5,121 33,447 Effect of Exchange Rates on Cash ( 1 ) - Net Change in Cash During Period ( 1,818 ) 676 Cash at Beginning of Period 2,437 1,761 Cash at End of Period $ 619 $ 2,437 Supplemental Information: Cash paid for interest $ 2,580 $ 436 Non-cash Investing and Financing Activities: Reclassification of warrant liabilities to equity $ 2,030 $ 6,293 Embedded conversion feature on convertible debt 4,138 561 Warrant issuance in conjunction with advances on future cash receipts 1,227 - Warrant issuance in conjunction with convertible notes 1,055 - Acquisition of UltraMIST partially financed with convertible promissory note - 4,000 Conversion of notes payable, related parties - 2,291 Series C and Series D preferred stock converted to common stock - 2,450 Exchange line of credit and notes payable, related parties, for convertible promissory notes, related partes - 1,596 Conversion of short-term notes payable to equity - 565 Conversion of advance from related parties - 18 The accompanying notes to consolidated financial statements are an integral part of these statements. F-5 Table of Contents SANUWAVE HEALTH, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2021 and 2020 1. 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. 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 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”). The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. The functional currencies of the Company’s foreign operations are their local currencies. The financial statements of the Company’s foreign subsidiary have been translated into United States dollars. All balance sheet accounts have been translated using the exchange rates in effect at the balance sheet date. Income statement amounts have been translated using the average exchange rate for the year. Translation adjustments are reported in other comprehensive loss in the consolidated statements of comprehensive loss and as cumulative translation adjustments in accumulated other comprehensive loss in the consolidated balance sheets. Reclassification – Certain accounts in the prior period Consolidated Financial Statements have been reclassified to conform to the presentation of the current year consolidated financial statements. Accrued executive severance at December 31, 2020 of $ 154 thousand was reclassified from accrued expenses to accrued employee compensation. This reclassification had no effect on the previously reported operating results. COVID-19 – The worldwide spread of the COVID-19 virus resulted in a global slowdown of economic activity which is likely to decrease demand for a broad variety of products, including from our customers. We have experienced a disruption of our supply channels which will continue for an unknown period of time until the global supply chain can return to the pre- disease status. 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. These factors have had and we expect that they will 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. 2. 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. The continuation of our business is dependent upon raising additional capital. We expect to devote substantial resources for the commercialization of the dermaPACE 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-K. F-6 Table of Contents 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. 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 obtain funds through financing transactions with unfavorable terms. The accompanying 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 consolidated financial statements do not necessarily purport to represent realizable or settlement values. The consolidated financial statements do not include any adjustment that might result from the outcome of this uncertainty. Our 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. 3. Summary of Significant Accounting Policies The significant accounting policies followed by the Company are summarized below: Estimates – These consolidated financial statements have been prepared in accordance with U.S. GAAP. Because a precise determination of assets and liabilities, and correspondingly revenues and expenses, depend on future events, the preparation of consolidated financial statements for any period necessarily involves the use of estimates and assumptions. Actual amounts may differ from these estimates. These 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, estimated fair value of stock-based compensation, and the estimated fair value of embedded derivatives, including warrants and embedded conversion options. Cash - The Company maintains its cash in bank accounts which may exceed federally insured limits. Accounts receivable - Accounts receivable are stated at the amount management expects to collect from outstanding balances. Management provides for probable uncollectible amounts through a charge to earnings based on its assessment of the current status of individual accounts. Receivables are generally considered past due if greater than 60 days old. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the allowance for doubtful accounts. Concentration of credit risk - Management routinely assesses the financial strength of its customers and, as a consequence, believes accounts receivable are stated at the net realizable value and credit risk exposure is limited. Inventory - Inventory consists of purchased medical equipment and parts and is stated at the lower of cost, which is valued using the first in, first out (“FIFO”) method, or net realizable value less allowance for selling and distribution expenses. The Company analyzes its inventory levels and writes down inventory that has, or is expected to, become obsolete. F-7 Property and equipment – Property and equipment is recorded at cost, net of accumulated depreciation. The costs of additions and betterments are capitalized and expenditures for repairs and maintenance, which do not extend the economic useful life of the related assets, are expensed. The straight-line method of depreciation is used for computing depreciation on property and equipment over the following estimated useful lives: Estimated Useful Life Machines and equipment 3 years Office and computer equipment 3 years Medical devices on rent 5 - 15 years Software 2 years Furniture and fixtures 3 years 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. Goodwill is stated at cost less accumulated impairment losses. The Company completes its goodwill impairment test annually in the fourth quarter. The Company performed a qualitative evaluation at the reporting unit level and determined there was no Goodwill impairment for the year ended December 31, 2021. 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. See Note 8 for additional discussion of this impairment. The Company has determined that there were no impairment to goodwill or intangible assets for the year ended December 31, 2021. Impairment of long-lived assets – The Company reviews long-lived assets for impairment whenever facts and circumstances indicate that the carrying amounts of the assets may not be recoverable. An impairment loss is recognized only if the carrying amount of the asset is not recoverable and exceeds its fair value. Recoverability of assets to be held and used is measured by comparing the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the asset’s carrying value is not recoverable, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds its fair value. The Company determines fair value by using a combination of comparable market values and discounted cash flows, as appropriate. Except for the impairment of the intangible assets discussed above, the Company determined that no impairment of long-lived assets was indicated at December 31, 2021. Leases – We determine whether an arrangement is a lease at inception. When our lease arrangements include lease and non-lease components, we account for lease and non-lease components (e.g. common area maintenance) separately based on their relative standalone prices. For leases where the Company is the lessee, Right of Use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent an obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. As the Company’s leases did not provide an implicit interest rate, the Company used the equivalent borrowing rate for a secured financing with the term of equal to the remaining life of the lease at inception. Any lease arrangements with an initial term of 12 months or less are not recorded on our consolidated balance sheet, and we recognize lease costs for these lease arrangements on a straight-line basis over the lease term. In the event a lease arrangement would provide us with options to exercise one or more renewal terms or to terminate the lease arrangement, we would include these options when we are reasonably certain to exercise them in the lease term used to establish our right of use assets and lease liabilities. None of our lease agreements include an option to purchase the leased asset, residual value guarantees, or material restrictive covenants. F-8 Table of Contents 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. The Company 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: and Level 3 – Unobservable inputs that are not corroborated by market data, therefore requiring the Company to develop its own assumptions. Preferred stock – The Company evaluates preferred stock issuances for liability or equity classification in accordance with the provisions of ASC Topic 480, Distinguishing Liabilities from Equity , and determines appropriate equity or liability accounting treatment. Additionally, the Company determines, if classified as equity, whether it would be recorded as permanent or temporary equity. Sequencing policy – The Company follows sequencing policy for which in the event partial reclassifications of contracts subject to ASC Topic 815-40-25, Derivatives and Hedging , is necessary, due to the Company’s inability to demonstrate it has sufficient authorized shares, shares will be allocated on the basis of earliest issuance date of potentially dilutive instruments with the earliest grants receiving first allocation of shares. Convertible instruments and liabilities related to warrants issued – The Company evaluates its convertible instruments to determine if those contracts, or embedded components of those contracts, qualify as derivative financial instruments to be separately accounted for in accordance with ASC Topic 815 “Derivatives and Hedging” (“ASC 815”). The accounting treatment of derivative financial instruments requires that the Company record embedded conversion options (“ECOs”) and any related freestanding instruments at their fair values as of the inception date of the agreement and at fair value as of each subsequent balance sheet date. Any change in fair value is recorded as non-operating, non-cash income or expense for each reporting period at each balance sheet date. Conversion options are recorded as a discount to the host instrument and are amortized as amortization of debt discount on the consolidated statements of comprehensive loss over the life of the underlying instrument. The Company reassesses the classification of its derivative instruments at each balance sheet date. If the classification changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification. A binomial model was used to estimate the fair value of the ECOs of warrants that are classified as derivative liabilities on the consolidated balance sheets. The models include subjective input assumptions that can materially affect the fair value estimates. The expected volatility is estimated based on the actual volatility during the most recent historical period of time equal to the weighted average life of the instruments. F-9 Table of Contents Warrants related to debt issued – The Company records a warrant discount related to warrants issued with debt at fair value and recognizes the cost using the straight-line method, which approximates the effective interest method, over the term of the related debt as interest expense, which is reported in the Other Income (Expense) section in our consolidated statements of comprehensive loss. This warrant discount is reported as a reduction of the related debt liability. Beneficial conversion feature on convertible debt - The Company records a beneficial conversion feature related convertible debt at fair value and recognizes the cost using the straight-line method, which approximates the effective interest method, over the term of the related debt as interest expense in the accompanying Consolidated Statements of Comprehensive Loss. This beneficial conversion feature is reported as a reduction of the related debt liability in the accompanying Consolidated Balance Sheet. Segment information - We have determined that we have one operating segment. Our revenues are generated from sales in United States, Europe, Canada, Asia and Asia/Pacific. All significant expenses are generated in the United States and all significant assets are located in the United States. Revenue Recognition – We recognize revenue in accordance with two different Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) standards: 1) Topic 606 and 2) Topic 842. Topic 606 The core principle of ASC Topic 606 “Revenue from Contracts with Customers” (“ASC 606”) requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. ASC 606 defines a five-step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than required under previous U.S. GAAP, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. In accordance with ASC 606, we apply the following the five-step model: 1. Identify the contract(s) with a customer. A contract with a customer exists when (i) we enter into an enforceable contract with a customer that defines each party’s rights regarding the goods to be transferred and identifies the payment terms related to these goods, (ii) the contract has commercial substance and, (iii) we determine that collection of substantially all consideration for services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration. 2. Identify the performance obligation(s) in the contract. If a contract promises to transfer more than one good or service to a customer, each good or service constitutes a separate performance obligation if the good or service is distinct or capable of being distinct. 3. Determine the transaction price. The transaction price is the amount of consideration to which we expect to be entitled in exchanging the promised goods or services to the customer. 4. Allocate the transaction price to the performance obligations in the contract. For a contract that has more than one performance obligation, we allocate the transaction price to each performance obligation in an amount that depicts the amount of consideration to which we expect to be entitled in exchange for satisfying each performance obligation. 5. Recognize revenue when (or as) the Company satisfies a performance obligation. For each performance obligation, we determine whether we satisfy the performance obligation at a point in time or over time. Appropriate methods of measuring progress include output methods and input methods. F-10 Table of Contents The Company recognizes revenue primarily from the following types of contracts under ASC 606: Product Sales and Accessory and Part Sales - Product sales and accessory and part sales include devices and applicators (new and refurbished). Performance obligations are satisfied at the point in time when the customer obtains control of the goods, which is generally at the point in time that the product is shipped. Licensing Fees - Licensing transactions include distribution licenses and intellectual property licenses. Licensing revenue is recognized as the Company satisfies its performance obligations, which may vary with the terms of the licensing agreement. Other Revenue - Other revenue primarily includes warranties, repairs and billed freight. Device product sales are bundled with an initial one-year warranty and the Company offers a separately priced second-year warranty. The Company allocates the device sales price to the product and the embedded warranty by reference to the stand-alone extended warranty price. Because the warranty represents a stand-ready obligation, revenue is recognized over the time period that the Company satisfies its performance obligations, which is generally the warranty term. Repairs (parts and labor) and billed freight revenue are recognized at the point in time that the service is performed, or the product is shipped, respectively. Topic 842 The Company recognizes revenue primarily from the following types of contracts under ASC 842: Rental and Pay per Use Income - Rental revenue represents revenues earned from renting equipment either on a monthly basis or on a pay per use. We account for these rental contracts as operating leases and revenue will be recognized on a straight-line basis in the period billed to the customer. However, under the pay per use agreement, the Company will earn revenues based on the number of times the device is used. The lease terms are included in our contracts, and the determination of whether our contracts contain leases generally does not require significant assumptions or judgments. In some cases, a rental contract may contain a rental purchase option, whereby the customer has an option to purchase the rented equipment at the end of the term for a specified price. Revenues related to the rental contract will be accounted for as an operating lease as the option to purchase is not reasonably certain to be exercised. Lessees do not provide residual value guarantees on rented equipment. Shipping and handling costs - Shipping charges billed to customers are included in revenues. Shipping and handling costs incurred have been recorded in cost of revenues. Research and development - Research and development costs are expensed as incurred. Research and development costs include payments to third parties that specifically relate to the Company’s products in clinical development, such as payments to contract research organizations, consulting fees for FDA submissions, universities performing non-medical related research and insurance premiums for clinical studies and non-medical research. In addition, employee costs (salaries, payroll taxes, benefits and travel) for employees of the clinical affairs, and research and development departments are classified as research and development costs. Comprehensive income (loss) – Comprehensive income (loss) results from the translation of the Company’s foreign entity’s financial statements from their functional currency to U.S. dollars for consolidation in the accompanying consolidated financial statements. F-11 Table of Contents 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 on the Company’s previously reported financial position or operating results. In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments , which was subsequently revised by ASU 2018-19. The ASU introduces a new model for assessing impairment of most financial assets. Entities will be required to use a forward-looking expected loss model, which will replace the current incurred loss model, which will result in earlier recognition of allowance for losses. The ASU is effective for annual reporting periods beginning after January 2023 with early adoption permitted. The Company is currently evaluating the impact of ASU 2016-13 on its consolidated financial statements. 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. 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. Early adoption is permitted. The Company adopted ASU 2017-04 effective January 1, 2021. The adoption of this guidance did not impact our results of operations or financial position. In May 2021, the FASB issued Accounting Standards Update (“ ASU ”) 2021-04, 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. It specifically addresses: (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. This ASU will be effective for us on January 1, 2022. 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 Company is currently evaluating the effect the adoption of this ASU will have on our consolidated financial statements. F-12 Table of Contents 4. 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 years ended December 31, 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: 2021 2020 Weighted average shares outstanding Common shares 481,619,621 359,880,132 Common shares issuable assuming excercise of nominally priced warrants 36,736,021 18,248,513 Weighted average shares outstanding 518,355,642 378,128,645 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 years ended December 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 December 31, 2021 and 2020, respectively (dollars in thousands): 2021 2020 Common stock options 31,760 31,938 Common stock purchase warrants 168,192 142,266 Convertible notes payable 90,380 58,657 290,332 232,861 5. Asset Purchase Agreement On August 6, 2020, the Company completed an asset purchase agreement (the “Asset Purchase Agreement”) with Celularity pursuant to which the Company acquired (the “Transaction”) Celularity’s UltraMIST® assets (“UltraMIST®”, or the “Assets”). The acquisition provides the Company with a robust product offering in the advanced wound care market and gives the Company an end-to-end advanced wound care product portfolio that addresses the entire care pathway. The aggregate consideration paid for the Assets was $ 24.0 million, which consisted of (i) a cash payment of $ 18.9 million, (ii) the issuance of a convertible promissory note to Celularity in the principal amount of $ 4.0 million (the “Seller Note”), and (iii) a credit of $ 1.1 million for the previous payment made by the Company to Celularity pursuant to that certain letter of intent between the Company and Celularity dated June 7, 2020. In connection with the Asset Purchase Agreement, on August 6, 2020, we entered into a license and marketing agreement with Celularity pursuant to which Celularity granted to the Company a license to the Celularity wound care biologic products, Biovance® and Interfyl® (the “License Agreement”). The License Agreement provides the Company with an exclusive license to use, market, distribute and sell Biovance® in the field and territory, as defined in the License Agreement, and a non-exclusive license to use, market, distribute and sell Interfyl® in the field and in the territory. The License Agreement has an initial five-year term, after which it automatically renews for additional one-year periods, unless either party provides written notice at least 180 days prior to the expiration of the current term. The license agreement calls for prepaid minimum quarterly upfront royalty of $ 446 thousand of payments for Biovance which are credited against sales in that quarter. At December 31, 2021 and 2020 the Company had accrued $ 893 thousand and $ 336 thousand of license fees, respectively. Royalties are based on a transfer price for each Biovance product and sales are reported on a quarterly basis to Celularity. In the event of sales in excess of the quarterly minimums, any additional royalties are due at that time. F-13 Table of Contents The Company evaluated the transaction and has accounted for it as a business combination and applied the related accounting guidance as required, using the acquisition method and a fair value model. The tables below present the consideration paid to Celularity and the fair value of the Assets acquired on August 6, 2020 (dollars in thousands): Purchase Consideration Cash paid at closing $ 18.9 Cash paid pursuant to letter of intent 1.1 Note payable to seller 4.0 Total Consideration $ 24.0 Fair Value of Net Assets Acquired Inventory $ 1.9 Property and equipment 0.4 Intangible assets (1) 14.4 Goodwill (2) 7.3 Total fair value of net assets acquired $ 24.0 1. Intangible assets, as summarized below, are recorded at their estimated fair value. The estimated fair value of the acquired customer relationships is determined using the multi-period excess earnings method. At December 31, 2020, the Company determined that intangible assets related to certain customer relationships was impaired. See Note 8 for additional discussion of this impairment. The estimated fair value of the acquired patent and trade names is based on a relief from royalty method. The estimated useful lives for intangible assets were determined based on the remaining useful economic lives of the intangible assets that are expected to contribute directly or indirectly to future cash flows. 2. Goodwill represents the excess of the total purchase consideration over fair value of the assets recognized and represents the future economic benefits that we believe will result from combining the operations of SANUWAVE and UltraMIST®, including expected future synergies and operating efficiencies. Goodwill resulting from the Transaction has been assigned to the Company’s lone operating segment. Goodwill is not subject to amortization and is tested for impairment annually and whenever events or changes in circumstances indicate that impairment may have occurred. The goodwill recognized is expected to be deductible for income tax purposes (dollars in thousands). Intantible Assets Fair Value Useful Life (Years) Customer relationships - UltraMIST® $ 3.8 7 Customer relationahips - Biologics 7.6 7 Patent 2.3 19 Trade names 0.7 19 Total intangible assets $ 14.4 Acquisition and related costs - During the year ended December 31, 2020, acquisition costs of $ 1.1 million were expensed as incurred and included in general and administrative expenses in the consolidated statements of comprehensive loss. Such costs include professional fees of advisors and integration and synergy costs related to the combination of UltraMIST® and SANUWAVE. Table of Contents Pro forma impact of acquisition – The table below shows summarized unaudited pro forma combined operating results of the Company for the year ended December 31, 2020 as if the UltraMIST® business acquisition had occurred on the same terms as of January 1, 2020. Pro forma adjustments have been made related to amortization of intangibles, interest expense, and income tax expense for the year ended December 31, 2020. The pro forma financial information does not reflect revenue opportunities and cost savings which the Company expected to realize as a result of the acquisition or estimates of charges related to the integration activity. Year Ended December 31 (unaudited) 2020 Total revenues $ 7.8 Net Loss ( 35.6 ) The unaudited pro forma combined results of operations were prepared using the acquisition method of accounting and are based on the historical financial operating results of the Company and UltraMIST®. Except to the extent realized in the year ended December 31, 2020, the unaudited pro forma information does not reflect any cost savings, operating synergies and other benefits that the Company may achieve as a result of the acquisition, or the expenses to be incurred to achieve these savings, operating synergies and other benefits. In addition, except to the extent recognized in the years ended December 31, 2020, the unaudited pro forma information does not reflect the costs to integrate the operations of UltraMIST® within the Company. The acquired Assets were consolidated into our financial statements starting on the acquisition date. The total revenues and operating income of UltraMIST® consolidated into our financial statements since the date of acquisition through December 31, 2020 were $ 3.6 million and $ 467 thousand. 6. Inventory Inventory consists of the following at December 31, 2021 and 2020 (dollars in thousands): 2021 2020 Inventory - finished goods $ 335 $ 1,146 Inventory - parts and accessories 705 1,810 Total inventory $ 1,040 $ 2,956 7. Property and Equipment Property and equipment consists of the following at December 31, 2021 and 2020 (dollars in thousands): 2021 2020 Machines and equipment $ 190 $ 278 Office and computer equipment 316 245 Medical devices on rent 806 513 Software 38 38 Furniture and fixtures 27 23 Other assets 102 3 Total 1,479 1,100 Accumulated depreciation ( 811 ) ( 629 ) Net property and equipment $ 668 $ 471 Depreciation expense was $ 182 thousand and $ 98 thousand for the years ended December 31, 2021 and 2020, respectively. F-15 Table of Contents 8. Goodwill and Other Intangible Assets Changes in the carrying value of goodwill and other intangible assets during the year ended December 31, 2021 consist of the following activity: December 31, 2020 Amortization Impairment December 31, 2021 Weighted average useful life (in years) Goodwill $ 7,260 $ - $ - $ 7,260 - Intangible assets subject to amortization Customer relationships - UltraMIST $ 3,603 $ ( 546 ) $ - $ 3,057 2.9 Patent 2,263 ( 121 ) - 2,142 6.4 Trade names 679 ( 37 ) - 642 1.9 Other intangible assets $ 6,545 $ ( 704 ) $ - $ 5,841 3.8 Future amortization expense is expected to be the following: Year ending December 31, Amortization 2022 704 2023 704 2024 704 2025 704 2026 704 Thereafter 2,321 $ 5,841 Impairment – During the fourth quarter of 2020, the Company determined that the intangible asset for customer relationships related to the biological products was impaired due to significant shortfalls in sales of the products during that period compared with the sales projections used to determine the fair value the intangible asset as of the August 6, 2020 acquisition date. The Company does not expect sales of biological products to sufficiently recover. The estimated fair value of the customer relationships at the acquisition date and at December 31, 2020 were determined using the multi-period excess earnings method. At December 31, 2020, the Company recorded a $ 7.2 million impairment charge for this intangible asset in the consolidated statements of comprehensive loss. 9. Accrued expenses Accrued expenses consist of the following at December 31, 2021 and 2020: 2021 2020 Registration penalties $ 1,950 $ 264 License fees 893 336 Board of director’s fees 507 320 Legal and professional fees 221 196 Other 823 1,011 $ 4,394 $ 2,127 F-16 Table of Contents 10. Revenue Disaggregation of Revenue - The disaggregation of revenue is based on geographical region. The following table presents revenue from contracts with customers for the years ended December 31, 2021 and 2020 (dollars in thousands): Year ended December 31, 2021 Year ended December 31, 2020 United States International Total United States International Total Accessory and parts revenue $ 7,770 $ 302 $ 8,072 $ 1,121 $ 88 $ 1,209 Product 2,766 350 3,116 2,179 88 2,267 License fees and other 135 60 195 - 152 152 Topic 606 Revenue $ 10,671 $ 712 $ 11,383 $ 3,300 $ 328 $ 3,628 Rental income 1,627 - 1,627 429 - 429 Topic 842 Revenue $ 1,627 $ - $ 1,627 $ 429 $ - $ 429 Total Revenue $ 12,298 $ 712 $ 13,010 $ 3,729 $ 328 $ 4,057 Contract liabilities - As of December 31, 2021 and 2020, the Company has contract liabilities from contracts with customers as follows (dollars in thousands): December 31, 2021 December 31, 2020 Service agreements $ 137 $ 69 Deposit on future equipment purchases 204 - Total contract liabilities 341 69 Less: current portion ( 48 ) ( 32 ) Non-current contract liabilities $ 293 $ 37 During the years ended December 31, 2021 and 2020, the Company recognized revenue related to these contract liabilities of $ 32 thousand and $ 61 thousand, respectively, that were included in the beginning contract liability balances for each of those periods. The following table summarizes the changes in contract liabilities during the year ended December 31, 2021 and 2020 (dollars in thousands): Year ended December 31, 2021 Year ended December 31, 2020 Beginning balance $ 69 $ 128 New service agreement additions 100 2 Deposit on future equipment purchases 204 - Revenue recognized ( 32 ) ( 61 ) Total contract liabilities 341 69 Less current portion ( 48 ) ( 32 ) Non-current contract liabilities $ 293 $ 37 11. 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 from major customers of the Company for the ended December 31, 2021 and 2020 were as follows: December 31, 2021 December 31, 2020 Accounts Receivable: Customer A 24 % n/a Customer B 16 % 46 % F-17 Table of Contents 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 years ended December 31, 2021 and 2020 were as follows: December 31, 2021 December 31, 2020 Purchases: Vendor A 50 % n/a Vendor B 21 % n/a Vendor C n/a 35 % Vendor D n/a 22 % Vendor E n/a 11 % 12. Accounts Receivable Factoring Receivable amount transferred at 12/31/2021 2,026 Reserve amount held ( 289 ) Funds due to factoring at 12/31/2021 1,737 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 receivables 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 termination. The accounts receivable are sold with recourse back to the Company, therefore the Company accounts for the arrangement as traditional financing. F-18 Table of Contents 13. Notes payable The following two tables summarize outstanding notes payable as of December 31, 2021 and December 31, 2020 (in thousands): Maturity Date Interest Rate Conversion Price Principal Remaining Debt Discount Remaining Embedded Conversion Option Carrying Value Senior secured promissory note payable, in default In default 20.25 % n/a $ 15,000 ( 3,414 ) - $ 11,586 Convertible promisory notes payable, in default In default 15.4 % $ 0.1071 6,445 ( 1,099 ) 6,255 11,601 Convertible promisory notes payable, related parties, in default In default 14.0 % $ 0.10 1,596 - - 1,596 SBA loan #2 February 20, 2026 1.00 % n/a 1,033 - - 1,033 Advances on future cash receipts March 11, 2022 n/a n/a 1,500 ( 1,054 ) - 446 Total debt outstanding, including amounts in default 25,574 ( 5,567 ) 6,255 26,262 Less: current maturities, including notes in default ( 24,699 ) 5,567 ( 6,255 ) ( 25,387 ) Total long-term debt as of December 31, 2021 $ 875 $ - $ - $ 875 F-19 Table of Contents Maturity Date Stated Interest Rate Conversion Price Principal Remaining Debt Discount Carrying Value Senior secured promissory note payable, in default In default 20.25 % n/a $ 15,000 ( 4,324 ) $ 10,676 Convertible promissory notes payable, in default: Seller Note In default 17.00 % $ 0.10 4,000 - 4,000 Convertible promissory notes payable, related parties, in default: Convertible promissory notes (HealthTronics), related parties In default 14.0 % $ 0.10 1,596 - 1,596 SBA loan #1 May 28, 2022 1.00 % n/a 464 - 464 Total debt outstanding, including amounts in default 21,060 ( 4,324 ) 16,736 Less: current maturities, including notes in default ( 20,917 ) 4,324 ( 16,593 ) Total long-term debt as of December 31, 2020 $ 143 $ - $ 143 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 December 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 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 twelve months ended December 31, 2021 was $ 910 thousand and is included in interest expense. Accrued interest related to the Senior Secured Note was $ 1.6 million and $ 642 thousand at December 31, 2021 and December 31, 2020, respectively. Interest expense on the Senior Secured Note was $ 3.1 million and $ 1.5 million for the years ended December 31, 2021 and 2020, 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 Note”). 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 December 31, 2021 and December 31, 2020, the Seller Notes had outstanding accrued interest of $ 761 thousand and $ 192 thousand, respectively. F-20 Table of Contents 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. 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. In addition, a $ 500 thousand disbursement was made on September 3, 2021 in accordance with notes issued to five institutional investors (the “Five Institutions’ Notes”), which were subject to substantially the same terms and conditions as the Leviston Disbursements. Accrued interest related to the Securities Purchase Agreement and Warrants was $ 169 thousand at December 31, 2021. Interest expense on the Securities Purchase Agreement and Warrants was $ 169 thousand for the year ended December 31, 2021. December 2021 Advance on Future Receipts Financing - 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. The Company has evaluated the terms of the warrants and after review has determined that these warrants meet the definition of a derivative liability and accordingly, were recorded as additional discount against the debt at issuance. Warrant issuances to Leviston and Five Institutions’ in April, May and September 2021 On April 20, 2021, May 14, 2021 and September 3, 2021, respectively, Leviston was issued 3,968,254 , 3,968,254 and 1,322,751 , warrants for shares of common stock. On September 3, 2021, the Company also issued a total of 2,777,779 warrants for shares of common stock to Five Institutions. After evaluating the terms of the warrants the Company determined that these warrants meet the definition of a derivative liability and accordingly, were recorded as additional discount against the debt at issuance. See details of the associated warrant issuances at Note 15 – Warrant Liabilities. Embedded Conversion Option Liability The disbursements made in April, May and September 2021 under the Leviston Notes and the Five Institutions’ 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 (dollars in thousands): Valuation at December 31, 2021 Principal Conversion Price (1) Interest Rate (annual) (2) Volatility (annual) (3) Time to Maturity (Years) Fair Value of Conversion Option Leviston Issuances $ 1,902 0.109 0.16 % 303.20 % 0.4 $ 5,204 Five Institution Issuances 544 0.109 0.26 % 249.00 % 0.7 1,051 $ 2,446 $ 6,255 (1) Based on the terms provided in the warrant agreement to purchase common stock of the Company as of December 31, 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. Valuation at issue dates Principal Conversion Price (1) Interest Rate (annual) (2) Volatility (annual) (3) Time to Maturity (Years) Fair Value of Conversion Option Leviston Issuances $ 1,902 0.18 0.07 % 73.10 % 1.0 $ 3,206 Five Institution Issuances 544 0.18 0.08 % 80.10 % 1.0 932 $ 2,446 $ 4,138 (1) Based on the terms provided in the warrant agreement to purchase common stock of the Company on the stated issuance dates. (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. F-21 Table of Contents Interest rates on Leviston and Five Institutions’ Notes, Conversion Option, and Loss on Issuance The Leviston Disbursements and Five Institutions’ Disbursements in April, May and September 2021, bear interest at the rate of 5 % per annum and the default rate of 15 %. The Leviston Note and Five Institutions’ Notes contains a conversion option (“Conversion Option”) and because they are in default, the Leviston and Five Institutions’ Notes are 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. For the Five Institutions’ Note this conversion rate shall be no lower than $ 0.01 . The Conversion Option within the Leviston and Five Institutions’ Notes are 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 $ 1.4 million on the September disbursements, which resulted in additional debt discounts being recorded at each disbursement date. Because the combined fair value of the applicable warrants and conversion option exceeded 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 and $ 1.1 million on the September disbursement. The remaining disbursements up to the Aggregate Amount are subject to the satisfaction of certain terms and conditions set forth in the applicable notes. The 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 and Five Institutions’ Notes are 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 and Five Institutions’ Note contains customary events of default and covenants, including limitations on incurrences of indebtedness and liens. Pursuant to the Leviston Purchase Agreement and purchase agreements with the Five Institutions (the “Five Institutions’ Purchase Agreements”), the Company has agreed, within a reasonable period of time following the applicable 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 or the Five Institutions, as applicable, securing the Company’s obligations under the applicable notes. The rights of Leviston and the Five Institutions to receive payments under the applicable notes are subordinate to the rights of North Haven Expansion pursuant to the subordination agreements that the Company and Leviston, and the Company and the Five Institutions entered into with North Haven Expansion on April 20, 2021 and September 3, 2021, respectively, 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. 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. The Company also entered into registration rights agreements with each of the Five Institutions on September 3, 2021. The terms and conditions of the Five Institutions’ registration rights agreements are substantially similar to the Leviston Registration Rights Agreement, with two exceptions: (1) the Five Institutions may be entitled to a pro-rata share of the $ 250 thousand one-time aggregate amount (approximately $ 56 thousand) and (2) the 1% of outstanding principal payment amount for each 30-day period is capped at 5 % of outstanding principal. F-22 Table of Contents 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 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. The Company may prepay the outstanding principal balance, together with any accrued but unpaid interest without premium or penalty. On December 31, 2021 and December 31, 2020, accrued interest of $ 241 thousand and $ 66 thousand, respectively, remained outstanding on the HealthTronics Note. As the Seller Note 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 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. 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 December 31, 2021 and December 31, 2020 accrued interest of $ 41 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. 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 recorded 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 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. The Company determined that these warrants meet the definition of a derivative liability and accordingly, were recorded as additional discount against the debt at issuance. 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, which resulted in the Company recognizing a gain on extinguishment of debt of $ 460 thousand during the third quarter of 2021. 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. The SBA Loan #2 may be prepaid by the Company at any time prior to maturity with no penalties. F-23 Table of Contents 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 December 31, 2021, $ 158 thousand is included in current liabilities and the remainder of the $ 875 thousand loan balance is included in non-current liabilities in the accompanying consolidated balance sheets. 14. Common Stock Purchase Warrants A summary of the warrant activity during the years December 31, 2021 and 2020 is as follows: Warrants Weighted Average Exercise Price per share Weighted Average Remaining Contractual Life (years) Warrants at December 31, 2019 9,474,091 $ 0.11 5.03 Issuances 189,182,645 0.19 Exercised ( 8,200,000 ) 0.10 Forfeited or expired ( 100,000 ) 0.20 Outstanding at December 31, 2020 190,356,736 $ 0.19 3.43 Issuances 25,925,928 0.18 Exercised ( 11,400,000 ) 0.01 Forfeited or expired - - Outstanding at December 31, 2021 204,882,664 $ 0.20 2.54 On February 3, 2021, the Company issued 10,925,000 shares of its commons stock to LGH upon the cashless exercise of 11,400,000 of the LGH Warrants under the terms of the warrant agreement. After this cashless exercise, 23,600,000 of LGH Warrants remain outstanding. F-24 Table of Contents 15. Fair Value Measurements In accordance with ASC 820 (Fair Value Measurements and Disclosures), the Company uses various inputs to measure the outstanding warrants and certain embedded conversion features associated with a convertible debt on a recurring basis to determine the fair value of the liability. The following table classifies the Company’s liabilities measured at fair value on a recurring basis into the fair value hierarchy as of December 31, 2021 and 2020 (in thousands): Fair value measured at December 31, 2021 Quoted prices in Significant other Significant Fair value at active markets observable inputs unobservable inputs December 31, 2021 (Level 1) (Level 2) (Level 3) Warrant liability $ 9,614 $ - $ - $ 9,614 Embedded conversion option 6,255 - - 6,255 Total fair value 15,869 - - 15,869 Fair value measured at December 31, 2020 Quoted prices in Significant other Significant Fair value at active markets observable inputs unobservable inputs December 31, 2020 (Level 1) (Level 2) (Level 3) Warrant liability $ 8,855 - - 8,855 Embedded conversion option - - - - Total fair value 8,855 - - 8,855 There were no transfers between Level 1, 2 or three during the years ended December 31, 2021 and 2020. The following table presents changes in Level 3 liabilities measured at fair value for the years ended December 31, 2021 and 2020. Both observable and unobservable inputs were used to determine the fair value of positions that the Company has classified within the Level 3 category. Unrealized gains and losses associated with liabilities within the Level 3 category include changes in fair value that were attributable to both observable (e.g. changes in market interest rates) and unobservable (e.g., changes in unobservable long-dated volatilities) inputs (in thousands): Warrant Liability Embedded Conversion Feature Total Balance December 31, 2019 $ - $ - $ - Warrants classified as liabilities 11,955 - 11,955 Warrants reclassified as equity ( 6,293 ) - ( 6,293 ) Change in fair value 3,193 - 3,193 Balance December 31, 2020 $ 8,855 $ - $ 8,855 Cashless exercise ( 2,030 ) - ( 2,030 ) Warrants classified as liabilities 2,282 - 2,282 Transfer to convertible feature - 4,139 4,139 Change in fair value 507 2,116 2,623 Balance December, 2021 $ 9,614 $ 6,255 $ 15,869 A summary of the warrant liability activity for the year ended December 31, 2021 is as follows: Warrants Outstanding Fair Value per Share Fair Value Balance December 31, 2019 - $ - $ - Warrants classified as liabilities 112,210,902 0.11 11,955,454 Warrants reclassified as Equity ( 64,119,742 ) 0.10 ( 6,292,695 ) Gain on remeasurement of warrant liability - 3,192,620 Balance December 31, 2020 48,091,160 $ 0.18 $ 8,855,379 Cashless exercise of LGH Warrants ( 11,400,000 ) 0.18 ( 2,030,052 ) Warrants classified as liabilities 25,926,028 0.10 2,282,262 Gain on remeasurement of warrant liability - 506,545 Balance December, 2021 62,617,188 $ 0.15 $ 9,614,134 Significant Black Scholes valuation model inputs related to the Company’s different Warrants at December 31, 2021 and 2020 are listed below . 2021 2020 Weighted average expected life in years 4.67 7.00 Weighted average volatility 116 % 121 % Weighted average risk free interest rate 1.2 % 0.5 % Expected dividend yield 0.00 % 0.00 % 16. Leases The following is a summary of the Company’s right of use assets and lease liabilities at December, 2021 and 2020 (in thousands): December 31, 2021 December 31, 2020 Operating Leases Financing Leases Total Operating Leases Financing Leases Total Right of use assets $ 725 $ 626 $ 1,351 $ 725 $ 644 $ 1,369 Less: Accumulated amortization ( 574 ) ( 433 ) ( 1,007 ) ( 339 ) ( 235 ) ( 574 ) Right of use assets, net $ 151 $ 193 $ 344 $ 386 $ 409 $ 795 Lease liabilities $ 157 $ 229 $ 386 $ 415 $ 427 $ 842 Less: current portion ( 83 ) ( 185 ) ( 268 ) ( 257 ) ( 194 ) ( 451 ) Lease Liabilities $ 74 $ 44 $ 118 $ 158 $ 233 $ 391 Total lease costs for the years ended December 31, 2021 and 2020 are as follows (in thousands): 2021 2020 Finance lease costs: Amortization of right-of-use assets $ 217 $ 94 Interest on lease liabilities 41 33 Operating lease costs 350 118 Total lease costs $ 608 $ 245 F-26 Table of Contents 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 years ended December 31, 2021 and 2020 (in thousands): 2021 2020 Cash paid for amounts included in measurement of lease liabilities: Operating cash flows from finance leases $ ( 234 ) $ ( 103 ) Operating cash flows from operating leases $ ( 350 ) $ ( 118 ) Operating Leases - As of December 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): Amount Year ending December 31, 2022 $ 96 2023 68 2024 11 Total lease payments 175 Less: Present value adjustment ( 18 ) Lease liability $ 157 As of December 31, 2021, the Company’s operating leases had a weighted average remaining lease term of 1.1 years and a weighted average discount rate of 12.0 %. Rent expense for the years ended December 31, 2021 and 2020 was $ 362 thousand and $ 297 thousand, respectively. Financing Lease - As of December 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): Amount Year ending December 31, 2022 $ 200 2023 18 Total lease payments 218 Present value adjustment 11 Lease liability $ 229 As of December 31, 2021, the Company’s financing leases had a weighted average remaining lease term of 1.0 years based on annualized base payments expiring through 2023 and a weighted average discount rate of 13.2 %. As of December 31, 2021, the Company did not have additional operating or financing leases that have yet commenced. 17. Common Stock On July 23, 2020, in connection with the Company’s 2020 Annual Meeting of Stockholders, the Company’s stockholders approved, among other matters, an amendment to the Company’s Articles of Incorporation to increase the number of authorized shares of common stock from 355,000,000 to 600,000,000 . Also on July 23, 2020, the Company’s stockholders approved the Company to amend the Company’s Articles of Incorporation to effect a reverse split of the Company’s outstanding common stock at a ratio of between 1-for- 10 and 1-for- 50 , with the exact ratio to be determined by the board of directors of the Company in its sole discretion. The Company has not yet effected a reverse split of its stock. F-27 Table of Contents On December 30, 2020, the Company held a special meeting of stockholders (the “Special Meeting”). At the Special Meeting, the Company’s stockholders approved an amendment to the Company’s Articles of Incorporation, as amended, to increase the number of authorized shares of its common stock, par value $ 0.001 per share, to 800,000,000 , and the Company filed a Certificate of Amendment to its Articles of Incorporation, as amended with the Secretary of State of the State of Nevada on December 30, 2020 to reflect this amendment, which became effective on December 30, 2020. 18. Preferred Stock On January 31, 2020, the Company filed a Certificate of Designation of Preferences, Right and Limitations of Series C Convertible Preferred Stock of the Company with the Nevada Secretary of State which amended our Articles of Incorporation to designate 90 shares of our preferred stock as Series C Convertible Preferred Stock. On February 6, 2020, the Company entered into a Series C Preferred Stock Purchase Agreement (the “Series C Purchase Agreement”) with certain accredited investors for the sale by the Company in a private placement of an aggregate of 90 shares of the Company’s Series C Convertible Preferred Stock, par value $ 0.001 per share at a stated value equal to $ 25 thousand per share, for an aggregate total purchase price of $ 2.3 million. On May 14, 2020, the Company filed a Certificate of Designation of Preferences, Right and Limitations of Series D Convertible Preferred Stock of the Company with the Nevada Secretary of State which amended our Articles of Incorporation to designate eight shares of our preferred stock as Series D Convertible Preferred Stock. On May 14, 2020, the Company entered into a Series D Preferred Stock Purchase Agreement (the “Series D Purchase Agreement”) with certain accredited investors for the sale by the Company in a private placement of an aggregate of eight shares of the Company’s Series D Convertible Preferred Stock, par value $ 0.001 per share at a stated value equal to $ 25 thousand per share (the “Series D Preferred Stock”), for an aggregate total purchase price of $ 200 thousand. Subject to the terms of the Certificates of Designation, each share of Series C Preferred Stock and Series D Preferred Stock is convertible into shares of common stock of the Company at a rate equal to the stated value of such share of Series C Preferred Stock and Series D Preferred Stock of $ 25 thousand, divided by the conversion price of $ 0.14 per share (subject to adjustment from time to time upon the occurrence of certain events as described in the Certificate of Designation). The Certificates of Designation became effective upon filing with the Secretary of State of the State of Nevada. If all outstanding shares of Series C Preferred Stock and Series D Preferred Stock were converted into common stock at the original conversion rate, such shares would convert into an aggregate of 17,500,000 shares of common stock. On September 20, 2020, the Series C and D holders converted their preferred shares into 17,499,958 shares of common stock. F-28 Table of Contents 19. Commitments and Contingencies In the ordinary course of business, the Company from time to time becomes involved in various legal proceedings involving a variety of matters. The Company does not believe there are any pending legal proceedings that will have a material adverse effect on the Company’s business, consolidated financial position, results of operations, or cash flows. However, the outcome of such legal matters is inherently unpredictable and subject to significant uncertainties. The Companies expenses legal fees in the period in which they are occurred. 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 . 20. Related party transactions February 2018 dermaPACE® Purchase - 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 a 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 in exchange for the payment of certain royalties to the Company. The agreement also 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. The purchase price for this agreement is 5.5 times the annualized EBITDA for the six months trailing the change of control plus the book value of the equipment and working capital. During the years ended December 31, 2021 and 2020, respectively, the Company recorded $ 32 thousand and $ 45 thousand in revenue from this entity. In addition, contract liabilities include a balance of $ 38 thousand at December 31, 2021 and $ 70 thousand at December 31, 2020 from this related party. March 2021 Future Purchase of Equipment - In March 2021, PSWC paid the Company $ 125 thousand as a deposit for future purchase of new medical equipment. July 2021 dermaPACE® Purchase - On July 1, 2021, the Company purchased unused DermaPace equipment and applicator inventory from PSWC for $ 127 thousand. As of December 31, 2021, $ 127 thousand is included in accounts payable on the consolidated balance sheets related to this transaction. July 2021 Rental Equipment Agreement - Also, effective July 1, 2021, the Company entered into a short-term equipment rental agreement with PSWC, whereby the Company obtained DermaPace equipment from PSWC for $ 3,600 per month. October 2021 Advance from Director – On October 27, 2021 the Company received $ 25 thousand from A. Michael Stolarski (the “Stolarski Advance”). In exchange for the Stolarski Advance, as well as the $ 125 thousand deposit received in March 2021, the Company issued to Mr. Stolarski a promissory note in the principal amount of $ 150 thousand (“Stolarski Note #2”). The Stolarski Note #2 matures on June 30, 2022 and accrues interest at a rate equal to 15.0 % per annum. April 2022 Advance from Director - On April 1, 2022 the Company entered into an Advance Agreement with a related party, A. Michael Stolarski, also a shareholder and member of the Company’s board of directors, in the amount of $ 250 thousand (“Stolarski Advance”). F-29 Table of Contents The Stolarski Advance has 18 UltraMIST® systems used as collateral (the “Collateral”) and the Company has agreed to repurchase the Collateral at $ 256 thousand. 21. Stock-based compensation On November 1, 2010, the Company approved the Amended and Restated 2006 Stock Incentive Plan of SANUWAVE Health, Inc. effective as of January 1, 2010 (the “Stock Incentive Plan”). The Stock Incentive Plan permits grants of awards to selected employees, directors and advisors of the Company in the form of restricted stock or options to purchase shares of common stock. Options granted may include non-statutory options as well as qualified incentive stock options. The Stock Incentive Plan is currently administered by the board of directors of the Company. The Stock Incentive Plan gives broad powers to the board of directors of the Company to administer and interpret the particular form and conditions of each option. The stock options granted under the Stock Incentive Plan are non-statutory options which generally vest over a period of up to three years and have a ten-year term. The options are granted at an exercise price determined by the board of directors of the Company to be the fair market value of the common stock on the date of the grant. As of December 31, 2021 and 2020, the Stock Incentive Plan reserved a total of 35,000,000 and 35,000,000 , respectively, shares of common stock for grant. The following is a summary of the activity of the Stock Incentive Plan for the years ended December 31, 2021 and 2020: Options Weighted Average Exercise Price per share Weighted Average Remaining Contractual Life (years) Aggregate Intrinsic Value Outstanding at December 31, 2019 34,303,385 $ 0.28 6.62 $ 981,088 Granted 100,000 0.26 Exercised ( 325,000 ) 0.15 Forfeited or expired ( 2,140,000 ) 0.71 Outstanding at December 31, 2020 31,938,385 0.26 5.94 $ 1,372,116 Granted - - Exercised - - Forfeited or expired ( 179,000 ) 0.18 Outstanding at December 31, 2021 31,759,385 0.26 4.92 $ 1,056,236 Vested and exercisable at December 31, 2021 31,409,385 $ 0.26 4.92 $ 1,056,236 On December 31, 2021, there were 3,240,615 shares of common stock available for grant under the Stock Incentive Plan. The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model using the following weighted average assumptions for the year ended December 31, 2020 is shown below: F-30 Table of Contents 2020 Weighted average expected life in years 5.00 Weighted average volatility 124 % Weighted average risk free interest rate 1.6 % Expected dividend yield 0.00 % For the years ended December 31, 2021 and 2020, the Company recognized $ 0 thousand and $ 22 thousand, respectively, as compensation cost related to options granted. The compensation cost is included in operating expenses in the accompanying consolidated statements of comprehensive loss. As of December 31, 2021 and 2020, there are no unamortized compensation costs related to options granted. 22. Joint ventures On December 13, 2019, the Company entered into a joint venture agreement (the “Agreement”) with Universus Global Advisors LLC, a limited liability company organized under the laws of the State of Delaware (“Universus”), Versani Health Consulting Consultoria em Gestão de Negócios EIRELI, an empresa individual de responsabilidade limitada organized under the laws of Brazil (“Versani”), Curacus Limited, a private limited company organized under the laws of England and Wales (“Curacus”), and certain individual citizens of Brazil and the Czech Republic (the individuals together with Curacus, the “IDIC Group”). The principal purpose of the joint venture company will be to manufacture, import, use, sell, and distribute, on an exclusive basis in Brazil, dermaPACE devices and wound kits consisting of a standard ultrasound gel and custom size sterile sleeves used for the treatment of various acute and chronic wounds using extracorporeal shockwave therapy technology. The joint venture company will also provide treatments related to the dermaPACE devices. The IDIC Group has agreed to pay to the Company a partnership fee in the total amount of $ 600,000 for the granting of exclusive territorial rights to the joint venture company to distribute the dermaPACE devices and wound kits in Brazil. The $ 600,000 partnership fee was received and recognized as nonoperating income during the year ended December 31, 2020. The IDIC Group will also have the right to receive prioritized dividends until full reimbursement of the partnership fee and expenses incurred in the formation of the joint venture company, which are required to be paid by the IDIC Group. F-31 Table of Contents 23. Income taxes The Company files income tax returns in the United States federal jurisdiction and various state and foreign jurisdictions. The Company is subject to United States federal and state income tax examinations by tax authorities for any years that have net operating losses open until the net operating losses are used. The components of the net loss before income taxes for the years ended December 31, 2021 and 2020 are as follows (dollars in thousands): 2021 2020 Domestic $ ( 27,208 ) $ ( 30,945 ) Foreign ( 23 ) 8 Net loss before income taxes $ ( 27,231 ) $ ( 30,937 ) In accordance with ASC Topic 740, Income Taxes (“ASC 740”), the Company accounts for income taxes utilizing the asset and liability method. Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is provided for the deferred tax assets, including loss carryforwards, when it is more likely than not that some portion or all of a deferred tax asset will not be realized. On March 27, 2020, the CARES Act was enacted in response to COVID-19 pandemic. Under ASC 740, the effects of changes in tax rates and laws are recognized in the period which the new legislation is enacted. The CARES Act made various tax law changes including among other things (i) increasing the limitation under Section 163(j) of the Internal Revenue Code of 1986, as amended (the “IRC”) for 2019 and 2020 to permit additional expensing of interest (ii) enacting a technical correction so that qualified improvement property can be immediately expensed under IRC Section 168(k), (iii) making modifications to the federal net operating loss rules including permitting federal net operating losses incurred in 2018, 2019, and 2020 to be carried back to the five preceding taxable years in order to generate a refund of previously paid income taxes and (iv) enhancing the recoverability of alternative minimum tax credits. The CARES Act did not have a material impact on the Company. The income tax provision (benefit) from continuing operations consists of the following at December 31, 2021 and 2020 (dollars in thousands): Current: 2021 2020 Federal $ - $ - State 28 - Foreign - - 28 - Deferred: Federal ( 5,038 ) ( 5,420 ) State ( 869 ) ( 964 ) Foreign 4 1 Change in valuation allowance 5,903 6,383 $ 28 $ - At December 31, 2021 and 2020, the Company did no t have any undistributed earnings of our foreign subsidiaries. As a result, no additional income or withholding taxes have been provided for. The Company does not anticipate any impacts of the global intangible low taxed income (“GILTI”) and base erosion anti-abuse tax (“BEAT”) and as such, the Company has not recorded any impact associated with either GILTI or BEAT. The income tax provision (benefit) amounts differ from the amounts computed by applying the United States federal statutory income tax rate of 21 % for the years ended December 31, 2021 and 2020 to pretax loss from operations as a result of the following for the years ended December 31, 2021 and 2020 (dollars in thousands): F-32 Table of Contents 2021 2020 Tax expense (benefit) at statutory rate $ ( 5,718 ) $ ( 6,498 ) Increase (reduction) in income taxes resulting from: State income taxes (benefits), net of federal benefit ( 837 ) ( 913 ) Non-deductible gain on warrant adjustment valuation 417 670 Income from foreign subsidiaries - 2 Change in valuation allowance 5,903 6,383 Registration penalties 354 - Other ( 91 ) 356 Income tax expense (benefit) $ 28 $ - The tax effects of temporary differences that give rise to the deferred tax assets at December 31, 2021 and 2020 are as follows (dollars in thousands): 2021 2020 Deferred tax assets: Net operating loss carryforwards $ 33,238 $ 28,048 Net operating loss carryforwards - foreign 23 19 Excess of tax basis over book value of property and equipment 14 8 Excess of tax basis over book value of intangible assets 1,632 1,811 Stock-based compensation 1,613 1,613 Accrued employee compensation 698 427 Capitalized equity costs 49 49 Net change in reserve accounts 898 287 38,165 32,262 Valuation allowance ( 38,165 ) ( 32,262 ) Net deferred tax asset $ - $ - Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. In assessing the realization of deferred tax assets, management considers, whether it is “more likely than not”, that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences representing net future deductible amounts become deductible. ASC 740 requires that a valuation allowance be established when it is “more likely than not” that all, or a portion of, deferred tax assets will not be realized. A review of all available positive and negative evidence needs to be considered, including the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies. After consideration of all the information available, management believes that uncertainty exists with respect to future realization of its deferred tax assets and has, therefore, established a full valuation allowance as of December 31, 2021 and 2020. The Company’s ability to use its net operating loss carryforwards could be limited and subject to annual limitations. Since a full analysis under Section 382 of the Internal Revenue Code has not been performed, the Company may realize a “more than 50% change in ownership” which could limit its ability to use its net operating loss carryforwards accumulated to date to reduce future taxable income and tax liabilities. Additionally, because United States tax laws limit the time during which net operating loss carryforwards may be applied against future taxable income and tax liabilities, the Company may not be able to take advantage of all or portions of its net operating loss carryforwards for federal income tax purposes. The federal and state net operating loss carryforwards of approximately $ 77.9 million from years ending December 31, 2005 through December 31, 2017 will begin to expire in 2025 . The federal and state net operating loss carryforward for the years ended December 31, 2018 through 2021 of approximately $ 56.5 million will not expire. The foreign net operating loss carryforward at December 31, 2019 of $ 0.1 million will begin to expire in 2024 . F-33 Table of Contents A provision of ASC 740 specifies that companies are to account for uncertainties in income tax reporting, and prescribes a methodology for recognizing, reversing, and measuring the tax benefits of a tax position taken, or expected to be taken, in a tax return. ASC 740 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Company’s tax returns to determine whether the tax positions would “more-likely-than-not” be sustained if challenged by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the current year. Management has evaluated and concluded that there were no material uncertain tax positions requiring recognition in the Company’s consolidated financial statements as of December 31, 2021 and 2020. The Company does not expect any significant changes in the unrecognized tax benefits within twelve months of the reporting date. The Company will recognize in income tax expense, interest and penalties related to income tax matters. For the years ended December 31, 2021 and 2020, the Company did no t have any amounts recorded for interest and penalties. 24. Subsequent events Warrant Exercises – The Company received $ 0.1 million in proceeds related to the exercise of 15.9 million warrants (cash and cashless) and issued 14.9 million shares. Second Amendment to Note and Warrant Purchase and Security Agreement - The Company received $ 3.0 million in proceeds related to the issuance of a $ 3.0 million dollar note, 20.7 million Advisor shares, and 15.5 million warrants with an exercise price of $ 0.18 and a 10 year term . F-34 Table of Contents Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None