What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-03-31 compared with 2022-05-13 · 977 added, 984 removed, 286 unchanged (87% of the section changed)

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Item 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Consolidated Financial Statements

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of

To the Stockholders 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.

“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

Opinion on the Financial

We have audited the accompanying consolidated balance sheets of

SANUWAVE Health, Inc.

(the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of comprehensive loss, stockholders’ deficit and cash flows for each of the two years in the period ended December 31, 2022, 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, 2022 and 2021, and the results of

its operations and its cash flows for each of the two years in the period ended December 31, 2022, 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 recurring 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.

securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

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.

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.

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.

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

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.

The critical audit

matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material

to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are

not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Valuation of Financial

Instruments (2022 Convertible Promissory Notes and Warrant Liability)

Critical Audit Matter

As described in Notes 11 and 13 to the consolidated financial statements, the Company entered into a Securities Purchase Agreements for the sale in

a private placement of (i) Future Advance Convertible Promissory Notes in an aggregate principal amount of $16.2 million in August and $4.0 million in November, (ii) Common Stock Purchase Warrants to purchase 504.4 million shares of common

stock with an exercise price of $0.067 per share and (iii) Common Stock Purchase Warrants to purchase 504.4 million shares of common stock with an exercise price of $0.04 per share.

The Company determined certain embedded conversion features

associated with the 2022 Convertible Promissory Notes were required to be bifurcated and recorded at fair value.

The warrants issued in connection with the 2022 Convertible Promissory Notes were recorded at fair value.

The Company utilized

the Black-Scholes model to determine the fair value of the embedded conversion option and warrant liability which consist of all liability warrants utilizing key inputs including discounted stock price and implied volatility.

The principal considerations for our determination that the valuation of the 2022 Convertible Promissory Notes and Warrant Liability is a critical audit matter

are the significant judgment by management in determining the fair value of the embedded conversion option and warrant liability;

this in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and

evaluating management’s significant assumptions related to the discounted stock price and implied volatility.

Also, the audit effort involved the use of professionals with specialized skill and knowledge.

How the Critical

Audit Matter was Addressed in the Audit

Our audit procedures related to the valuation of the 2022 Convertible Promissory Notes and Warrant Liability included the following, among others:

We obtained an understanding of the design of the Company's controls over the valuation of the 2022 Convertible Promissory Notes and Warrant Liability, including controls over management's review

of the valuation model and the significant assumptions used in determining the fair value of the embedded conversion option of the 2022 Convertible Promissory Notes and Warrant Liability.

With assistance of our valuation specialists, we audited the fair value of the embedded conversion option and warrant liability, valuation methodology, and key assumptions used in determining the

fair value of the embedded conversion option of the 2022 Convertible Promissory Notes and Warrant Liability by:

Evaluating the appropriateness of the valuation model and techniques used in determining the fair value;

Assessing the significant valuation assumption inputs of discounted stock price and implied volatility are consistent with those that would be used by market participants through the testing of

source information, checking the mathematical accuracy of the calculation, and developing independent estimates and comparing to those selected by management, where applicable;

Recalculating the fair value that management arrived to verify it was reasonable.

We audited the completeness and accuracy of the underlying data supporting the significant valuation assumption inputs.

/s/ Marcum LLP

We have served as the Company’s auditor since 2018.

March 31, 2023

PART I - FINANCIAL INFORMATION

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AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

BALANCE SHEETS

December 31, 2022 and 2021

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Current Assets:

Accounts receivable, net of allowance for doubtful accounts of $ 785 in 2021 and $ 343 in 2020

Accounts receivable, net of allowance of $ 1,037 in 2022 and $ 785 in 2021

Prepaid expenses and other current assets

Total Current Assets

Property and Equipment, net

Right of Use Assets, net

Other Intangible Assets, net

Non-Current Assets:

Property, equipment and right of use assets, net

Intangible assets, net

Total Non-Current Assets

Current Liabilities:

Senior secured promissory note payable, in default

Convertible promissory notes payable, in default

Convertible promissory notes, related parties, in default

Advances on future cash receipts

Senior secured debt, in default

Convertible promissory notes

Convertible promissory note, related parties

Factoring liabilities

Accounts payable

Accrued expenses

Accrued employee compensation

Due under factoring agreement

Warrant liability

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Accrued interest, related parties

Current portion of lease liabilities

Current portion of contract liabilities

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Non-Current Liabilities:

Lease liabilities

Contract liabilities

Lease liabilities

Deferred tax liability

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Preferred stock, par value $ 0.001 , 5,000,000 shares authorized, 6,175

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

no shares issued and outstanding at December 31, 2021

Series A, 293 Series B, 90

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

no shares issues and outstanding at 2022 and 2021

Common stock, par value $ 0.001 , 2,500,000,000 shares authorized, 548,737,651

481,619,621 and

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

and 481,619,621 issued and outstanding at 2022 and 2021 , respectively

Additional paid-in capital

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AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

CONSOLIDATED STATEMENTS OF

COMPREHENSIVE LOSS

Years ended December 31, 2022

(In thousands except share data)

Accessory and parts revenue

Rental income

License fees and other

Total Revenue

(In thousands, except share and per share data)

Cost of revenues

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Research and development

Impairment of intangible assets

Depreciation and amortization

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Interest expense, related party

Partnership fee income

Change in fair value of derivative liabilities

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Gain/(loss) on extinguishment of debt

Gain / (loss) on foreign currency exchange

Other Income (Expense), net

Loss on foreign currency exchange

Total Other Expense

Net Loss Before Income Taxes

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AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

CONSOLIDATED STATEMENTS OF

STOCKHOLDERS’ DEFICIT

(In thousands except share data)

Preferred Stock

Shares Issued and

Additional Paid-

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Balances as of December 31, 2020

Proceeds from warrant exercise

Conversion of short term notes and convertible notes payable

Reclassification of warrant liability to equity

Conversion of advances from related parties

Conversion of notes payable, related parties

Shares issued for services

Proceeds from PIPE offering, net of offering costs

Stock-based compensation

Proceeds from stock option exercise

Beneficial conversion feature on convertible debt

LGH warrant liability

Series C and Series D preferred stock converted to common stock

Inducement shares issued

Foreign currency translation adjustment

Balances as of December 31, 2020

Cashless warrant exercise

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Balances as of December 31, 2021

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

Cashless warrant exercise

Warrant exercise

Shares issued in conjunction with senior note

Shares issued for settlement of debt and warrants

Shares issued for services

Foreign currency translation adjustment

Balance as of December 31, 2022

The accompanying notes to the consolidated financial statemetns are an integral part of these financial statements

SANUWAVE HEALTH, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

CONSOLIDATED STATEMENTS OF

Years ended December 31, 2022

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

Amortization of intangibles

Depreciation and amortization

Bad debt expense

Impairment of intangible assets

Stock-based compensation

Shares issued for services

Shares issued for inducement

Gain/loss on extinguishment of debt

Income tax expense

Change in fair value of derivative liabilities

Change in fair value of derivative liabilites

Loss on issuance of debt

Amortization of debt issuance costs and original issue discount

Accrued interest

Interest payable, related parties

Changes in operating assets and liabilities

Accounts receivable - trade

Prepaid expenses

Operating leases

Amortization of debt issuance and debt discounts

Changes in operating assets and liablities:

Accounts receivable

Inventory, prepaid expenses and other assets

Accounts payable

Accrued expenses

Accrued employee compensation

Contract liabilties

Accrued interest and accrued interest, related parties

Accrued expenses and contract liabilities

Net Cash Used by Operating Activities

Cash Flows - Investing Activities

Acquisition of UltraMIST, net of $ 4,000,000 note payable to seller

Purchases of property and equipment

Cash Flows - Investing Activites

Purchase (proceeds from sale) of property and equipment

Net Cash Flows Used by Investing Activities

Cash Flows - Financing Activities

Proceeds from sale of convertible preferred stock

Proceeds from convertible promissory notes

Proceeds from SBA loan

Proceeds from PIPE offering, net of offering costs

Proceeds from senior secured promissory notes

Proceeds from stock option exercises

Proceeds from convertible promisorry notes

Proceeds from SBA loans

Proceeds from senior secured promissory note

Proceeds from factoring

Proceeds from warrant exercises

Advances from related parties

Repayments of debt principal on convertible promissory notes, related parties, convertible promissory notes and SBA loans

Payments of principal on finance leases

Proceeds from short term borrowings

Repayments of debt principal

Principal payments on finance leases

Net Cash Flows Provided by Financing Activities

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Non-Cash Investing and Financing Activities:

Reclassification of warrant liabilities to equity

Reclassification of warrant liabilities to equity due to cashless warrant exercise

Settlement of debt and warrants with stock

Working capital balances refinanced into convertible promissory notes

Embedded conversion feature on convertible debt

Common shares issued in conjunction with senior secured debt

Warrant issuance in conjunction with advances on future cash receipts

Warrant issuance in conjunction with convertible notes

Acquisition of UltraMIST partially financed with convertible promissory note

Conversion of notes payable, related parties

Series C and Series D preferred stock converted to common stock

Exchange line of credit and notes payable, related parties, for convertible promissory notes, related partes

Conversion of short-term notes payable to equity

Conversion of advance from related parties

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

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

SANUWAVE HEALTH, INC.

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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.

and Subsidiaries (“SANUWAVE” or the “Company”) is focused on the commercialization of its patented noninvasive and

biological response activating medical systems for the repair and regeneration of skin, musculoskeletal tissue, and vascular structures.

Basis of Presentation - The accompanying consolidated financial statements of the

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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

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.

Segment information - We have determined that we have one operating segment.

Our revenues are primarily generated from sales in

the United States.

All significant expenses are generated, and all significant assets are located in the United States.

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.

These reclassifications

had no effect on the previously reported operating results.

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.

Our recurring losses from operations and dependency upon future issuances of

equity or other financing to fund ongoing operations have raised substantial doubt as to our ability to continue as a going concern.

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

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

advantageous to us.

we may not be

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

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

We expect to devote substantial resources for the

commercialization of the dermaPACE 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.

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.

expect to devote substantial resources for the expansion and continued commercialization of our UltraMIST and PACE systems 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 Annual Report on Form 10-K.

Management’s plans are to obtain additional capital in 2023 through the conversion

of outstanding warrants, issuance of common or preferred stock, securities convertible into common stock, or secured or unsecured debt.

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

existing stockholders.

Although no assurances can be given, management believes that potential additional issuances of equity or other potential financing transactions if obtained as discussed above should provide the necessary funding for us.

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.

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.

Restatement of Previously Issued Financial Statements

During the preparation of this

Annual Report on Form 10-K, the Company determined that it had not appropriately accounted for certain transactions under US GAAP.

These transactions included shares issued for services, which caused general and administrative expense to be

understated, and the sale of assets under a financing agreement, which a gain on sale was recognized and overstated.

Also, during the preparation of this Annual Report on Form 10-K it was discovered that certain vendor invoices were not

properly recorded, causing general and administrative expense to be understated in prior periods, interest calculation on senior debt, which caused interest expense to be understated, and an inventory adjustment was posted improperly, which

caused cost of revenues to be understated.

In accordance with Staff Accounting Bulletin (“SAB”) 99, Materiality, and SAB 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, the Company evaluated the materiality of

the errors from qualitative and quantitative perspectives, individually and in aggregate, and concluded that the errors were material to the Consolidated Financial Statements for the quarters ending March 31, 2022, June 30, 2022, and September

Management restated the impacted financial statements for the quarters ended March 31, 2022, the quarter and six-months ending June 30, 2022, and the quarter and nine-months ending September 30, 2022.

Refer to Note 22 for restated

quarterly financial statements.

Summary of Significant Accounting

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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.

Significant estimates include the recording of allowances for doubtful accounts, the net realizable value of inventory, fair value of goodwill

and 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.

Accounts receivable — Accounts receivable are stated at the amount management expects to collect from

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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.

Management routinely assesses the financial strength of its customers and,

consequently, 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.

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.

straight-line method of depreciation is used for computing depreciation on property and equipment over the following estimated useful lives:

Machines and equipment

Office and computer equipment

Medical devices on rent

Furniture and fixtures

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.

stated at the lower of average 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.

Goodwill — Goodwill represents the excess of the purchase price over the fair value of assets acquired

and liabilities assumed.

The Company accounts for goodwill under Accounting Standards Codification (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,

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

performed a qualitative evaluation at the reporting unit level and determined there was no goodwill impairment as of December 31,

2022, and 2021.

Intangible Assets — 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.

and tradenames have a useful life of nineteen years .

Impairment of long-lived assets – The Company reviews long-lived assets for

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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

When our lease arrangements include lease and non-lease components, we account for lease and non-lease components (e.g.

Leases – The Company determines whether an arrangement is a

lease at inception.

When lease arrangements include lease and non-lease components, the Company accounts for lease and non-lease components (e.g.

common area maintenance) separately based on their relative standalone prices.

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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.

Any lease arrangements with an initial term of 12 months or less are not recorded on our consolidated balance sheets, and

the Company recognizes 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 ROU assets and lease liabilities.

None of our lease agreements include an option to purchase the leased asset,

residual value guarantees, or material restrictive covenants.

The Company has other lease arrangements that are adjusted periodically based on an inflation index or rate.

The future variability of

these payments and adjustments are unknown, and therefore they are not included as minimum lease payments used to determine ROU assets and lease liabilities.

Variable rental payments are recognized in the period in which the obligation is

Fair value of financial instruments - The carrying values of accounts payable, and

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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

Sequencing policy – The Company follows a 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.

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.

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.

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:

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.

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.

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.

Allocate the transaction price to the performance obligations in the

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.

Recognize revenue when (or as) the Company satisfies a performance

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.

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.

be allocated based on earliest issuance date of potentially dilutive instruments with the earliest grants receiving first allocation of shares.

Convertible promissory notes – 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”

The accounting treatment of derivative financial instruments requires that the Company record embedded conversion options 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

If the classification changes because of events during the period, the contract is reclassified as of the date of the event that caused the reclassification.

Debt discount – The Company records a debt 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 debt discount is reported as a reduction of the related debt liability.

Contract Liabilities – Device product sales are bundled with an initial one-year warranty and the Company

offers a separately priced multi-year warranty.

Because the warranty represents an obligation, revenue is deferred as a contract liability and recognized over the time that the Company satisfies its performance obligations, which is generally

the warranty term.

Revenue Recognition - 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.

The Company allocates the transaction price to all contractual performance

obligations included in the contract.

If a contract has more than one performance obligation, we allocate the transaction price to each performance obligation based on standalone selling price, which depicts the amount of consideration we expect

to be entitled in exchange for satisfying each performance obligation.

The Company recognizes revenue primarily from the following types of contracts:

System Sales, Accessory and Part Sales - System sales, 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

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.

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.

The Company allocates the device sales price to the product and the embedded warranty by reference to the stand-alone extended warranty

Warranty revenue is recognized over the time 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.

Shipping and handling costs - Shipping charges billed to customers are included in

Shipping and handling costs incurred have been recorded in cost of revenues.

Shipping and handling costs incurred have been recorded in cost of goods sold totaled $ 324 thousand and $ 377 thousand for the years ended December 31, 2022, and 2021, respectively.

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.

Research and development costs include costs of research, engineering, and technical activities to develop a new product, researching an expanded product use or making significant improvements to existing products, including the costs of clinical

Stock-based compensation - The Company uses the fair value method of accounting for its employee stock option program.

Stock-based compensation expense for all stock-based payment awards is based on the estimated fair value of the award measured on the grant date.

The Company recognizes the estimated fair value of the award as compensation cost on a

straight-line basis over the requisite service period of the award, which is generally the option vesting term.

The Company generally issues new shares of common stock to satisfy option and warrant exercises.

The expected life of options granted represent the period of time that options granted are expected to be outstanding and are derived

from the contractual terms of the options granted calculated under the simplified method.

The risk-free rate for periods within the contractual life of the option is based on the United States Treasury yield curve in effect at the time of the

The expected volatility is based on the average volatility of the Company’s common stock.

The expected dividend yield is based on our historical dividend experience, however, since our inception, we have not declared dividends.

Forfeitures are recognized as they occur.

Comprehensive income (loss) – Comprehensive income (loss) results from the

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Recent Accounting Pronouncements –

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.

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

In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-13, Financial

Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments , which was subsequently revised by ASU 2018-19.

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.

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

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:

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

Entities will be required to use a forward-looking expected loss model, which will replace the current incurred loss model,

resulting 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.

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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:

Weighted average shares outstanding

Accordingly, warrants issued with a $ 0.01 per share exercise price, are included in weighted average

shares outstanding as follows:

(in thousands)

December 31, 2022

December 31, 2021

Common shares

Common shares issuable assuming excercise of nominally priced warrants

Common shares issuable assuming exercise of nominally priced warrants

Weighted Average Shares Outstanding

4 unchanged sentences

December 31, 2022, and 2021, 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

Anti-dilutive equity securities consist of the following:

(in thousands)

December 31, 2022

December 31, 2021

Common stock options

Common stock purchase warrants

Convertible notes payable

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.

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

Purchase Consideration

Cash paid at closing

Cash paid pursuant to letter of intent

Note payable to seller

Total Consideration

Fair Value of Net Assets Acquired

Property and equipment

Intangible assets (1)

Total fair value of net assets acquired

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.

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.

recognized is expected to be deductible for income tax purposes (dollars in thousands).

Intantible Assets

Customer relationships - UltraMIST®

Customer relationahips - Biologics

Total intangible assets

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.

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

Total revenues

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.

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

Inventory - finished goods

Inventory - parts and accessories

Convertible notes payable, including interest

Inventory consisted of the following:

(in thousands)

December 31, 2022

December 31, 2021

Finished goods

Parts and accessories

Reserve for slow moving inventory

Total Inventory

Property and Equipment

Property and equipment consists of the following at December 31, 2021 and 2020 (dollars in thousands):

Machines and equipment

Office and computer equipment

Medical devices on rent

Furniture and fixtures

Accumulated depreciation

Net property and equipment

Depreciation expense was $ 182

thousand and $ 98 thousand for the years ended December 31, 2021 and 2020, respectively.

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:

Intangible Assets

Carrying value of intangible assets consist of the following:

December 31, 2022

2 unchanged sentences

Life (in years)

Intangible assets subject to amortization

Customer relationships - UltraMIST

Other intangible assets

Future amortization expense is expected to be the following:

Year ending December 31,

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.

Accrued expenses

Accrued expenses consist of the following at December 31, 2021 and 2020:

Registration penalties

Board of director’s fees

Legal and professional fees

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

(in thousands)

Definite-lived Intangibles

Customer relationships

Intangible Assets

Amortization expense for each of the years ended December 31, 2022, and 2021 totaled $ 704 thousand.

Future amortization expense is expected

to be the following (dollars in thousands):

Year ended December 31,

United States

International

United States

International

Accessory and parts revenue

License fees and other

Topic 606 Revenue

Rental income

Topic 842 Revenue

Total Revenue

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

follows (dollars in thousands):

Service agreements

Deposit on future equipment purchases

Total contract liabilities

current portion

Non-current contract liabilities

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):

Accrued Expenses

Accrued expenses consisted of the following:

(in thousands)

December 31, 2022

December 31, 2021

Beginning balance

New service agreement additions

Deposit on future equipment purchases

Revenue recognized

Total contract liabilities

Less current portion

Non-current contract liabilities

Concentration of Credit Risk and

Limited Suppliers

Major customers are defined as customers whose accounts receivable, or sales individually consist of more than ten percent of total trade

receivables or total sales, respectively.

The percentage of accounts receivable from major customers of the Company for the ended December 31, 2021 and 2020 were as follows:

Registration penalties

Board of directors fees

Employee compensation

Total Accrued Expenses

Factoring Liabilities

In June 2021, the Company entered into a factoring agreement with 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 is sold with recourse back to the Company,

therefore, the Company accounts for the arrangement as traditional financing.

(In thousands)

December 31, 2022

December 31, 2021

Accounts Receivable:

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:

Receivables transferred

Reserve amount held

Traditional factoring liability

Advances on future cash receipts

Factoring liability

Senior Secured Debt, in Default

The following table summarizes outstanding senior secured debt:

December 31, 2022

December 31, 2021

Accounts Receivable Factoring

Receivable amount transferred at 12/31/2021

Reserve amount held

Funds due to factoring at 12/31/2021

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.

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

(In thousands)

Senior secured debt

Senior secured promissory note payable, in default (“Senior Secured Note”) – In August 2020, the Company entered into a Note and Warrant Purchase and Security Agreement (the “NWPSA”).

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 in exchange for cash to

support operations, repay outstanding debt and close on the acquisition of the UltraMIST assets from Celularity Inc.

(Celularity) among other transactions.

In February 2022, the

Company entered into a Second Amendment to Note and Warrant Purchase and Security Agreement (the “Second NWPSA”) for $ 3.0 million, for

a total of $ 18.0 million outstanding.

Along with the issuance of the note, the Company also issued warrants to purchase 16.2 million shares of common stock with an exercise price of $ 0.18 and 20.6 million shares of common stock.

Since the combined fair value of the warrants and

common stock issued as part of the Second NWPSA exceeded the face value of the note, the additional amount beyond the face value was recorded as a loss on issuance totaling $ 3.4 million.

Interest is charged

at the greater of prime rate or 3 % plus 9 %,

paid quarterly .

Principal increases at a rate of 3 % of the outstanding principal balance (PIK interest) on each quarterly interest payment date.

Original maturity date of the Senior Secured Note is September 20, 2025, and it can be prepaid.

In June 2022, the

Company entered into the Third Amendment to the Note and Warrant Purchase and Security Agreement (the “Third NWPSA”).

The Third NWPSA provides for (i) the extension of the agent’s and holder’s forbearance of exercising its remedies arising from

Existing Defaults (as defined in the NWPSA) to the earlier of (x) the occurrence of an Event of Default (as defined in the NWPSA) or (y) August 30, 2022, and (ii) the extension to file a registration statement with the Securities and Exchange

Commission to register the resale of the Advisor Shares (as defined in the NWPSA) no later than August 30, 2022.

As of December 31, 2022, the Company is in default of the minimum liquidity

provisions in the Senior Secured Note and, as a result, it is classified in current liabilities in the accompanying consolidated balance sheets.

The Company is accruing interest at the default interest rate 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, included in interest expense, for the years

ended December 31, 2022, and 2021, totaled $ 1.6 million and $ 910 thousand, respectively.

Accrued interest related to the Senior Secured Note was $ 1.9 million and $ 1.6 million on December 31, 2022, and December 31, 2021, respectively.

expense on the Senior Secured Note totaled $ 5.9 million and $ 3.1 million for the years ended December 31, 2022, and 2021, respectively.

Convertible Promissory Notes and Convertible Promissory Notes, Related Parties

December 31, 2022

(In thousands, except conversion price)

Conversion Price

Remaining Embedded Conversion Option

Carrying Value

Senior secured promissory note payable, in default

Convertible promisory notes payable, in default

Convertible promisory notes payable, related parties, in default

February 20, 2026

Advances on future cash receipts

March 11, 2022

Total debt outstanding, including amounts in default

current maturities, including notes in default

Total long-term debt as of December 31, 2021

Maturity Date

Acquisition convertible promissory note, in default

Convertible promissory note, related party, in default

2022 Convertible notes payable

2022 Convertible notes payable, related parties

Total Convertible promissory notes

December 31, 2021

(In thousands, except conversion price)

Conversion Price

Carrying Value

Senior secured promissory note payable, in default

Convertible promissory notes payable, in default:

Convertible promissory notes payable, related parties, in default:

Convertible promissory notes (HealthTronics), related parties

Total debt outstanding, including amounts in default

current maturities, including notes in default

Total long-term debt as of December 31, 2020

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

August 6, 2020, the Company entered into a Note and Warrant Purchase and Security Agreement (the “NWPSA”), with NH Expansion Credit Fund Holdings LP, as noteholder and agent.

“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”).

2021 Convertible promissory notes payable

Acquisition convertible promissory note, in default

Convertible promissory note payable, related parties, in default

Total Convertible Promissory Notes

2022 Convertible Notes Payable and 2022

Convertible Notes Payable, Related Parties - In August 2022 and November

2022, the Company entered into a Securities Purchase Agreements (the “Purchase Agreements”), for the sale in a private placement of (i) Future Advance Convertible Promissory Notes (the “Notes”) in an aggregate principal amount of $ 16.2 million in August and $ 4.0

million in November, (ii) Common Stock Purchase Warrants to purchase an additional 504.4 million shares of common stock with an

exercise price of $ 0.067 per share and (iii) Common Stock Purchase Warrants to purchase an additional 504.4 million shares of common stock with an exercise price of $ 0.04 per share.

The Company paid issuance costs totaling approximately $ 1.4 million.

expense for the year ended December 31, 2022, totaled $ 4.4 million, $ 1.2 million in contractual interest expense and $ 3.2

million in amortization of debt discount and issuance costs.

Pursuant to the Notes, the Company promised to pay in cash and/or in shares of

common stock, at a conversion price of $ 0.04 (the “Conversion Price”), the principal amount and interest at a rate of 15 % per annum on any outstanding principal.

The Conversion Price of the Notes is subject to adjustment, including if the Company issues or sells

shares of common stock for a price per share less than the Conversion Price of the Notes or if the Company lists its shares of common stock on The Nasdaq Capital Market and the average volume weighted average price of such common stock for the five trading days preceding such listing is less than $ 0.04

provided, however, that the Conversion Price shall never by less than $ 0.01 .

The Notes contain customary events of default

and covenants, including limitations on incurrences of indebtedness and liens.

In addition, pursuant to the Notes, the Company agreed to reduce its outstanding shares via a reverse stock split to provide the number of authorized and unissued

shares of common stock sufficient to permit the conversion of these Notes on or before December 31, 2022.

However, the Company obtained a waiver of this requirement through December 31, 2023 from all holders of the Notes and amended its Articles

of Incorporation to increase its number of authorized shares of common stock from 800,000,000 to 2,500,000,000 .

Acquisition Convertible promissory notes payable - In August 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.

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.

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

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

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”).

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

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

Interest Rate

Time to Maturity

Fair Value of

Leviston Issuances

Five Institution Issuances

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

the Company as of December 31, 2021.

Interest rate for U.S.

Treasury Bonds, as of each presented period ending date,

as published by the U.S.

Federal Reserve.

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

period ending date.

Valuation at issue dates

Interest Rate

Time to Maturity

Fair Value of

Leviston Issuances

Five Institution Issuances

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

of the Company on the stated issuance dates.

Interest rate for U.S.

Treasury Bonds, as of each presented period ending

date, as published by the U.S.

Federal Reserve.

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

presented period ending date.

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 .

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”).

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.

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

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.

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.

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.

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”)

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, 2022, and 2021, the Seller Notes had outstanding accrued interest of $ 1.5 million and $ 761 thousand, respectively.

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, related party - In August 2020, the Company issued a convertible promissory note payable in the amount of $ 1.4 million.

The note matured on August 6, 2021 , and was not

repaid and is currently in default.

As of December 31, 2022, and 2021, the note had outstanding accrued interest of $ 444 thousand and $ 241 thousand, respectively.

2021 Convertible Promissory Notes Payable – Previously, the Company entered into a Securities Purchase Agreement (the “2021 Purchase Agreement”) for the sale by the Company in a private

placement (the “2021 Private Placement”) of (i) the Company’s future advance convertible promissory note in an aggregate principal amount of up to $ 3.4

million, later amended to $ 4.2 million and (ii) a warrant to purchase up to an additional 16,666,667 shares of common stock of the Company.

The warrants had an exercise price of $ 0.18 per share and a four-year term.

Advances totaled $ 1.9 million and warrants to purchase 9.3

million shares were outstanding prior to the settlement discussed below.

In addition, the Company issued notes to five institutional investors totaling approximately $ 0.5 million, which were

subject to substantially the same terms and conditions as the Purchase Agreement.

Warrants to purchase 2.8 million shares of common

stock with an exercise price of $ 0.18 per share were issued and outstanding prior to the settlement discussed below.

Upon the closing of the Private Placement in August 2022, the 2021 Convertible Promissory Notes Payable were paid and

settled in full using proceeds from the Private Placement.

The settlement payment included cash totaling $ 3.9 million, which included

accrued interest and penalties, and the issuance of Company shares of common stock totaling 19.4 million shares.

surrendered the outstanding warrants to the Company.

The Company recognized a $ 0.9 million loss on extinguishment of debt during the

year ended December 31, 2022.

In February 2021, the Company received

proceeds from a U.S.

Small Business Administration (SBA) loan in the amount of $ 1.0 million pursuant to the Paycheck Protection Program

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.

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.

Common Stock Purchase Warrants

A summary of the warrant activity during the years December 31, 2021 and 2020 is as follows:

Exercise Price

Weighted Average

Contractual Life

Warrants at December 31, 2019

Forfeited or expired

Outstanding at December 31, 2020

Forfeited or expired

Outstanding at December 31, 2021

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

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

The SBA Loan was evidenced by a promissory note that matured on February 20, 2026 , and bears interest of 1 % per annum.

The SBA loan contained customary events of default relating to, among other things, payment defaults and breaches of representations,

warranties and covenants.

All or a portion of SBA loan 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 Company received approval of the loan forgiveness

application and recognized a gain on the extinguishment totaling $ 1.0 million during the year ended December 31, 2022.

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

Fair value measured at December 31, 2021

Quoted prices in

Significant other

Fair value at

active markets

observable inputs

unobservable inputs

December 31, 2021

The Company uses various

inputs to measure the outstanding warrants and certain embedded conversion features associated with convertible debt on a recurring basis to determine the fair value of the liabilities.

The following table classifies the Company’s

liabilities measured at fair value on a recurring basis into the fair value hierarchy:

Fair value measurement at December 31, 2022

(in thousands)

Warrant liability

Embedded conversion option

Conversion option

Total Fair Value

Fair value measured at December 31, 2020

Quoted prices in

Significant other

Fair value at

active markets

observable inputs

unobservable inputs

December 31, 2020

Fair value measurement at December 31, 2021

(in thousands)

Warrant liability

Embedded conversion option

Conversion option

Total Fair Value

There were no transfers between Level 1, 2 or three

There were no transfers between Level 1, 2, or 3,

during the years ended December 31, 2022, and 2021.

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):

Both observable and unobservable in puts were used to determine fair value of the positions that the Company classified within the Level 3 category.

Unrealized gains and losses associated with the

liabilities within the Level 3 category include changes in fair value that were attributable to both observable and unobservable inputs.

Warrant Liability

Significant Black Scholes valuation model inputs related to the Company’s warrants are listed below:

December 31, 2022

December 31, 2021

Weighted average expected life in years

Weighted average volatility

Value of underlying shares

Weighted average risk free interest rate

Expected dividend yield

A summary of the Level 3 warrant activity is as follows:

(in thousands, except per share data)

Warrant Liability

Balance December 31, 2020

Warrants classified as liabilities

Warrants reclassified as equity

Cashless exercise

Issuance of warrants classified as liabilities

Change in fair value

Balance December 31, 2021

Cashless exercise

Warrants classified as liabilities

Transfer to convertible feature

Warrants exercised

Issuance of warrants classified as liabilities

Change in fair value

Balance December 31, 2022

A summary of the warrant liability activity for the year ended December 31, 2021 is as follows:

Embedded Conversion

Certain convertible notes

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

The fair value of the conversion option was valued using the Black-Scholes model as of December 31, 2022, and the

binomial pricing model as of December 31, 2021.

Significant inputs related to the Level 3 fair value determination are as follows:

Initial Valuation Assumptions

Year End Valuation Assumptions

Convertible Notes

November 2022

Convertible Notes

December 31, 2022

December 31, 2021

Conversion price (1)

Value of underlying shares

Interest Rate (annual) (2)

Volatility (annual) (3)

Time to maturity

Based on the terms provided in the convertible promissory note

agreements to convert to common stock of the Company

Interest rate for U.S.

Treasury Bonds, as of each presented period

ending date, as published by the U.S.

Federal Reserve.

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

presented period ending date.

As of December 31, 2022 the Company applied a discount rate to the historical volatility.

A summary of the conversion option liability activity is as follows:

(in thousands)

Balance December 31, 2020

Warrants classified as liabilities

Warrants reclassified as Equity

Gain on remeasurement of warrant liability

Convertible feature

Change in fair value

Balance December 31, 2021

Cashless exercise of LGH Warrants

Warrants classified as liabilities

Gain on remeasurement of warrant liability

Issuance of Convertible Notes

Settlement of convertible notes

Change in fair value

Balance December 31, 2022

Significant Black Scholes valuation model inputs related to the Company’s different Warrants at December 31, 2021 and 2020 are listed below .

Weighted average expected life in years

Weighted average volatility

Weighted average risk free interest rate

Expected dividend yield

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

Contract Liabilities

The Company has contract liabilities from contracts with customers as follows:

During the years ended December 31, 2022, and 2021, the Company recognized revenue related to these

contract liabilities of $ 253 thousand and $ 32

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:

Year Ended December 31,

(in thousands)

Beginning balance

New service agreements

Deposit on future equipment purchases

Revenue recognized

Total Contract Liabilities

Common Stock Purchase Warrants

A summary of the warrant activity is as follows:

(in thousands, except per share data)

Exercise Price

Warrants at December 31, 2020

Forfeited or expired

Outstanding at December 31, 2021

Forfeited or expired

Outstanding at December 31, 2022

On February 3, 2021, the Company issued 10,925,000 shares of its commons stock to a third party upon the cashless exercise of 11,400,000 of common stock warrants under the terms of the warrant agreement.

In December 2022, the Company’s stockholders approved, an amendment to the Company’s Articles of Incorporation to increase the number of authorized

shares of common stock from 800,000,000 to 2,500,000,000 .

In January 2023, the Company filed the amendment to the Articles of Incorporation with the state of Nevada to affect the increase in authorized shares.

Also in December 2022, the Company’s stockholders approved the Company to amend the Company’s Articles of Incorporation to affect a reverse stock

split of the Company’s outstanding common stock at a reverse stock split ratio ranging from any whole number between 1-for- 50 and

1-for- 100 , with the exact ratio to be determined by the board of directors of the Company in its sole discretion.

The Company has not

yet affected a reverse stock split of its common stock.

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 were as follows:

Accounts Receivable:

December 31, 2022

December 31, 2021

Right of use assets

Accumulated amortization

Right of use assets, net

Lease liabilities

current portion

Lease Liabilities

Total lease costs for the years ended December 31, 2021 and 2020 are as follows (in thousands):

Finance lease costs:

Amortization of right-of-use assets

Interest on lease liabilities

Operating lease costs

Total lease costs

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

obtained for the years ended December 31, 2021 and 2020 (in thousands):

Cash paid for amounts included in measurement of lease liabilities:

Operating cash flows from finance leases

Operating cash flows from operating leases

Operating Leases - As of 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):

Year ending December 31,

Total lease payments

Present value adjustment

Lease liability

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):

Year ending December 31,

Total lease payments

Present value adjustment

Lease liability

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.

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.

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.

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

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.

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 .

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.

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

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”).

The Stolarski Advance has 18

UltraMIST® systems used as collateral (the “Collateral”) and the Company has agreed to repurchase the Collateral at $ 256 thousand.

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 were as follows:

Year ended December 31,

The disaggregation of revenue is based on type and geographical region.

The following table presents revenue from contracts with customers:

Year ended December 31, 2022

Year ended December 31, 2021

United States

International

United States

International

Accessory and parts revenue

System revenue

License fees and other

Product Revenue

Rental Income

Total Revenue

Stock-Based Compensation

5 unchanged sentences

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:

Exercise Price

Weighted Average

Contractual Life

Intrinsic Value

Outstanding at December 31, 2019

Forfeited or expired

Outstanding at December 31, 2020

Forfeited or expired

Outstanding at December 31, 2021

Vested and exercisable at December 31, 2021

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:

Weighted average expected life in years

Weighted average volatility

Weighted average risk free interest rate

Expected dividend yield

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.

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.

The Stock Incentive Plan is 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 form and conditions of each option.

The stock options granted under the Stock Incentive Plan are generally 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, 2022, and 2021, the Stock Incentive Plan reserved a total of 35,000,000 shares of common stock for grant.

On December 31, 2022, there were 3,240,615 shares of common stock available for grant under the Stock Incentive Plan.

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

The components of the net loss before income taxes are as follows:

Year ended December 31,

(In thousands)

4 unchanged sentences

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

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):

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 a deferred tax asset will not be

The income tax provision (benefit) from continuing operations consists of the following:

(In thousands)

December 31, 2022

December 31, 2021

Current Tax Provision

Change in valuation allowance

At December 31, 2021 and 2020, the Company did no t have any undistributed earnings of our foreign subsidiaries.

Deferred Tax Provision

As of December 31, 2022, and 2021, 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.

2 unchanged sentences

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):

Tax expense (benefit) at statutory rate

income tax rate of 21 % for the years ended December 31, 2022, and 2021.

Adjustments to determine income tax expense are as follow:

(In thousands)

Years ended December 31,

Tax benefit at statutory rate

Increase (reduction) in income taxes resulting from:

State income taxes (benefits), net of federal benefit

State incomes tax benefits, net of federal benefit

Non-deductible gain on warrant adjustment valuation

Income from foreign subsidiaries

Change in valuation allowance

Registration penalties

Income tax expense (benefit)

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):

Registration penalites

Income Tax Expense

The tax effects of temporary differences that give rise to the deferred tax assets are as follows:

(In thousands)

December 31, 2022

December 31, 2021

Deferred Tax Assets

3 unchanged sentences

Excess of tax basis over book value of intangible assets

Lease liability

Stock-based compensation

1 unchanged sentence

Capitalized equity costs

Capitalized research and development

Net change in reserve accounts

Gross deferred tax asset

Valuation Allowance

Net Deferred Tax Asset

Deferred Tax Liabilities

Right-of-use asset

Gross deferred tax liability

On August 16, 2022, the U.S.

government enacted the Inflation Reduction Act of 2022 (the “Inflation Reduction Act”) into law.

The Inflation Reduction Act imposes

an excise tax of 1% on the fair market value of net stock repurchases made after December 31, 2022.

The impact of this provision will be dependent on the extent of share repurchases made in future periods.

We continue to analyze the impacts of

the Inflation Reduction Act;

however, it is not expected to have a material impact on our financial statements.

Additionally, the Inflation Reduction Act includes a new corporate alternative minimum tax which is not currently applicable to the

The Tax Cuts and Jobs Act (“TCJA”) requires taxpayers to capitalize and amortize research and development (“R&D”) expenditures under

section 174 for tax years beginning after December 31, 2021.

This rule became effective for the Company during 2022 and resulted in capitalized R&D costs of $ 0.6 million as of December 31, 2022.

The Company will amortize these costs for tax purposes over five years

for R&D performed in the U.S.

and over 15 years for R&D performed outside the U.S.

In 2022, all R&D was performed in the

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and

6 unchanged sentences

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

The Company’s ability to use its net operating loss carryforwards could be limited and subject to annual limitations.

3 unchanged sentences

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 .

The Federal net operating loss carryforwards of approximately $ 159.7 million from years ending December 31, 2005, through December 31, 2017, will begin to expire in 2025 .

The Federal net operating loss carryforward for the years ended December 31, 2018, through 2022 of approximately $ 81.8 million will not expire.

The state net operating loss carryforwards of approximately $ 70.5

million from years ending December 31, 2005, through December 31, 2022, will expire at various dates through 2042 .

The foreign net

operating loss carryforward on December 31, 2022, of $ 0.1 million will begin to expire in 2024 .

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.

ASC 740 requires the evaluation of tax positions taken or expected to be taken while 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, 2022, and 2021.

The Company does

not expect any significant changes in the unrecognized tax benefits within twelve months of the reporting date.

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.

1 unchanged sentence

and 2021, the Company did no t have any amounts recorded for interest and penalties.

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 .

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL

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.

Acquisition Dispute

The Company received notification alleging that it is not in compliance with the license agreement with Celularity entered 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.

Lease Commitments

As of December 31, 2022, the maturities of the Company’s operating and financing leases, which have initial or remaining lease terms more than one year, consist of the following:

(In thousands)

Year ended December 31,

Total Lease Payments

Restatement of Previously Issued Interim Condensed Consolidated Financial Statements

The following tables present the impact of the restatement adjustments disclosed in Note 3 – Restatement of Previously Issued Financial Statements, to the previously

reported financial information as of and for the periods ended March 31, 2022, June 30, 2022, and September 30, 2022.

Restated Statements of Stockholders’ Equity are not presented as all impacted items on those statements, Net Income (Loss),

Accumulated deficit, and Total stockholders’ equity, are presented within the following tables.

SANUWAVE HEALTH, INC.

AND SUBSIDIARIES

RESTATED CONDENSED CONSOLIDATED BALANCE SHEETS

March 31, 2022

(In thousands, except share data)

Current Assets:

Accounts receivable, net of allowance of $ 785

Prepaid expenses and other current assets

Total Current Assets

Property, Equipment, net

Right of use assets, net

Other Intangible Assets, net

Current Liabilities:

Senior secured promissory note payable, in default

Convertible promissory notes payable, in default

Convertible promissory notes, related parties, in default

Advances on future cash receipts

Accounts payable

Accrued expenses

Accrued employee compensation

Due under factoring agreement

Warrant liability

Current portion of SBA loans

Accrued interest

Accrued interest, related parties

Current portion of lease liabilities

Current portion of contract liabilities

Total Current Liabilities

Non-current Liabilities

Lease liabilities

Contract liabilities

Deferred tax liability

Total Non-current Liabilities

Total Liabilities

STOCKHOLDERS’ DEFICIT

Preferred Stock

Additional Paid-in Capital

Accumulated Deficit

Accumulated Other Comprehensive Loss

Total Stockholders’ Deficit

Total Liabilities and Stockholders’ Deficit

SANUWAVE HEALTH, INC.

AND SUBSIDIARIES

RESTATED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands except share data)

Three Months Ended March 31, 2022

Accessory and parts revenue

Rental Income

License fees and other

Total Revenue

Cost of Revenues

Operating Expenses:

General and administrative

Selling and marketing

Research and development

Gain on disposal of assets

Depreciation and amortization

Total Operating Expenses

Operating Loss

Other Income (Expense):

Interest expense

Interest expense, related party

Change in fair value of derivative liabilities

Loss on issuance of debt

Gain / (loss) on foreign currency exchange

Other Expense, net

Net Loss before Income Taxes

Provision for Income Taxes

Other Comprehensive Loss

Foreign currency translation adjustments

Total Comprehensive Loss

Loss per Share:

Net loss per share, basic and diluted

Weighted average shares outstanding, basic and diluted

SANUWAVE HEALTH, INC.

AND SUBSIDIARIES

RESTATED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

Three Months Ended March 31, 2022

Cash Flows - Operating Activities:

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

Amortization of intangibles

Change in fair value of derivative liabilities

Loss on issuance of debt

Amortization of debt issuance costs and original issue discount

Accrued interest

Interest payable, related parties

Changes in operating assets and liabilities

Accounts receivable - trade

Prepaid expenses

Operating leases

Accounts payable

Accrued expenses

Accrued employee compensation

Contract liabilities

Net Cash Used by Operating Activities

Cash Flows - Investing Activities

Disposition of property and equipment

Net Cash Flows Provided by (Used in) Investing Activities

Cash Flows - Financing Activities

Proceeds from senior promissory notes

Payments for factoring

Proceeds from warrant exercises

Payments of principal on finance leases

Net Cash Flows Provided by Financing Activities

Effect of Exchange Rates on Cash

Net Change in Cash During Period

Cash at Beginning of Period

Cash at End of Period

Supplemental Information:

Cash paid for interest

Non-cash Investing and Financing Activities:

Reclassification of warrant liability due to cashless warrant exercise

Warrants issued in conjunction with senior secured promissory note payable

Common shares issued in conjunction with senior secured promissory note payable

SANUWAVE HEALTH, INC.

AND SUBSIDIARIES

RESTATED CONDENSED CONSOLIDATED BALANCE SHEETS

June 30, 2022

(In thousands, except share data)

Current Assets:

Accounts receivable, net of allowance for doubtful accounts of $ 0.8

million, respectively

Prepaid expenses and other current assets

Total Current Assets

Property, Equipment and Other, net

Other Intangible Assets, net

Current Liabilities:

Senior secured promissory note payable, in default

Convertible promissory notes payable, in default

Convertible promissory notes, related parties, in default

Short-term loans

Advances on future cash receipts

Accounts payable

Accrued expenses

Accrued employee compensation

Due under factoring agreement

Warrant liability

Current portion of SBA loans

Accrued interest

Accrued interest, related parties

Current portion of lease liabilities

Current portion of contract liabilities

Total Current Liabilities

Non-current Liabilities

Lease liabilities

Contract liabilities

Deferred tax liability

Total Non-current Liabilities

Total Liabilities

STOCKHOLDERS’ DEFICIT

Preferred Stock

Additional Paid-in Capital

Accumulated Deficit

Accumulated Other Comprehensive Loss

Total Stockholders’ Deficit

Total Liabilities and Stockholders’ Deficit

SANUWAVE HEALTH, INC.

AND SUBSIDIARIES

RESTATED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands except share data)

Three Months Ended June 30, 2022

Six Months Ended June 30, 2022

Accessory and parts revenue

Rental Income

License fees and other

Total Revenue

Cost of Revenues

Operating Expenses:

General and administrative

Selling and marketing

Research and development

Gain on disposal of assets

Depreciation and amortization

Total Operating Expenses

Operating Loss

Other Income (Expense):

Interest expense

Interest expense, related party

Change in fair value of derivative liabilities

Loss on issuance of debt

Loss on extinguishment of debt

Gain / (loss) on foreign currency exchange

Other Income (Expense), net

Net Income (loss) before Income Taxes

Provision for Income Taxes

Net Income (loss)

Other Comprehensive Income (Loss)

Foreign currency translation adjustments

Total Comprehensive Income (Loss)

Gain (loss) per Share:

Weighted average shares outstanding;

Basic and Diluted

SANUWAVE HEALTH, INC.

AND SUBSIDIARIES

RESTATED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

Six Months Ended June 30, 2022

Cash Flows - Operating Activities:

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

Amortization of intangibles

Bad debt expense

Income tax expense

Shares issued for service

Loss in extinguishment of debt

Gain on sale of property and equipment, net

Change in fair value of derivative liabilities

Loss on issuance of debt

Amortization of debt issuance costs and original issue discount

Accrued interest

Interest payable, related parties

Changes in operating assets and liabilities

Accounts receivable - trade

Prepaid expenses

Accounts payable

Accrued expenses

Accrued employee compensation

Contract liabilities

Net Cash Used by Operating Activities

Cash Flows - Investing Activities

Proceeds from sale of property and equipment

Net Cash Flows Used in Investing Activities

Cash Flows - Financing Activities

Proceeds from senior promissory notes

Proceeds from short term notes

Proceeds from factoring

Proceeds from warrant exercises

Payments of principal on finance leases

Proceeds from related party advances

Net Cash Flows Provided by Financing Activities

Effect of Exchange Rates on Cash

Net Change in Cash During Period

Cash at Beginning of Period

Cash at End of Period

Supplemental Information:

Cash paid for interest

Non-cash Investing and Financing Activities:

Reclassification of warrant liability due to cashless warrant exercise

Warrants issued in conjunction with senior secured promissory note payable

Common shares issued in conjunction with senior secured promissory note payable

SANUWAVE HEALTH, INC.

AND SUBSIDIARIES

RESTATED CONDENSED CONSOLIDATED BALANCE SHEETS

September 30, 2022

(In thousands, except share data)

Accounts receivable, net of allowance of $ 0.8

million, respectively

Prepaid expenses and other current assets

Total Current Assets

Property and Equipment and Other, net

Other Intangible Assets, net

Current Liabilities:

Senior secured promissory note payable, in default

Convertible promissory notes payable, in default

Convertible promissory notes, related parties, in default

Advances on future cash receipts

Accounts payable

Accrued expenses

Accrued employee compensation

Due under factoring agreement

Warrant liability

Accrued interest

Accrued interest, related parties

Current portion of lease and contract liabilities

Total Current Liabilities

Non-current Liabilities

Lease liabilities

Contract liabilities

Deferred tax liability

Total Non-current Liabilities

Total Liabilities

STOCKHOLDERS’ DEFICIT

Preferred Stock

Additional Paid-in Capital

Accumulated Deficit

Accumulated Other Comprehensive Loss

Total Stockholders’ Deficit

Total Liabilities and Stockholders’ Deficit

SANUWAVE HEALTH, INC.

AND SUBSIDIARIES

RESTATED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands except share data)

Three Months Ended September 30, 2022

Nine Months Ended September 30, 2022

Accessory and parts revenue

Rental Income

License fees and other

Total Revenue

Cost of Revenues

Operating Expenses:

General and administrative

Selling and marketing

Research and development

Gain on disposal of assets

Depreciation and amortization

Total Operating Expenses

Operating Loss

Other Income (Expense):

Interest expense

Interest expense, related party

Change in fair value of derivative liabilities

Loss on issuance of debt

Loss on extinguishment of debt

Gain / (loss) on foreign currency exchange

Other Income (Expense), net

Net Loss before Income Taxes

Provision for Income Taxes

Net Income (loss)

Other Comprehensive Income (Loss)

Foreign currency translation adjustments

Total Comprehensive Income (Loss)

Loss per Share:

Basic and Diluted

Weighted average shares outstanding, basic and diluted

SANUWAVE HEALTH, INC.

AND SUBSIDIARIES

RESTATED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

Nine Months Ended September 30, 2022

Cash Flows - Operating Activities:

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

Depreciation and Amortization

Bad debt expense

Shares issued for service

Loss on extinguishment of debt

Gain on sale of property and equipment, net

Change in fair value of derivative liabilities

Loss on issuance of debt

Amortization of debt issuance costs and original issue discount

Accrued interest

Interest payable, related parties

Changes in operating assets and liabilities

Accounts receivable - trade

Prepaid expenses and other assets

Accounts payable

Accrued expenses

Accrued employee compensation

Contract liabilities

Net Cash Used by Operating Activities

Cash Flows - Investing Activities

Disposition of property and equipment

Net Cash Flows Provided by (Used in) Investing Activities

Cash Flows - Financing Activities

Proceeds from senior promissory notes

Proceeds from convertible promissory notes

Proceeds from short term notes

Payments for factoring

Proceeds from warrant exercises

Payments of principal on finance leases

Payments of principal on convertible promissory notes and SBA loans

Net Cash Flows Provided by Financing Activities

Effect of Exchange Rates on Cash

Net Change in Cash During Period

Cash at Beginning of Period

Cash at End of Period

Supplemental Information:

Cash paid for interest

Non-cash Investing and Financing Activities:

Reclassification of warrant liability due to cashless warrant exercise

Settlement of debt and warrants with stock

Warrants issued in conjunction with senior secured promissory note payable

Common shares issued in conjunction with senior secured promissory note payable

Embedded conversion option with issuances of convertible debt

Working capital balances refinanced into Convertible notes payable

Warrant issuance in conjunction with convertible debt

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data