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Item 8. Financial Statements and Supplementary Data

2024-03-21 compared with 2023-03-31 · 336 added, 633 removed, 630 unchanged (61% of the section changed)

Item 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Consolidated Financial Statements

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and

Board of Directors of

SANUWAVE Health, Inc.

Opinion on the Financial

We have audited the accompanying consolidated balance sheets of

To the Stockholders and Board of Directors 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.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of SANUWAVE Health, Inc.

(the “Company”) as of December 31, 2023 and 2022, the

related consolidated statements of comprehensive loss, stockholders’ deficit, and cash flows for each of the two years in the period ended December 31, 2023, 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, 2023 and 2022, and the results of its operations and its cash

flows for each of the two years in the period ended December 31, 2023, 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

As more fully described in Note 2, the Company has incurred recurring losses and needs to raise additional funds to meet its obligations, sustain its operations, and to resolve the events of default on the Company’s debt.

conditions raise substantial doubt about the Company's ability to continue as a going concern.

Management's plans in regard to these matters are also described in Note 2.

The consolidated financial statements do not include any adjustments that

might result from the outcome of this uncertainty.

Basis for Opinion

These financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company's financial statements based on our audits.

We are a public

accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules

and regulations of the Securities and Exchange Commission and the PCAOB.

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.

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.

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

our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.

Accordingly, we

express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing

procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and

significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

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;

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 (Embedded Conversion Options and Warrant Liability)

Critical Audit Matter Description

As described in Notes 11, 12, and 13 to the consolidated financial statements, the Company has entered into Securities Purchase Agreements and Asset-Backed Secured

Promissory Notes (the “Transactions”).

The Company determined certain embedded conversion features associated with the Transactions were required to be bifurcated and recorded at fair value.

The warrants issued in connection with the Transactions

were also recorded at fair value.

The fair value of the embedded conversion options and the warrant liability were valued using valuation techniques and key inputs as described in the footnotes.

The principal considerations for our determination that the valuation of the embedded conversion options and warrant liability is a critical audit matter were the

significant judgments made by management in determining the fair value of the embedded conversion options 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.

evaluating management’s significant assumptions.

The audit also 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 financial instruments included the following, among others:

We obtained an understanding of the design of the Company's controls over valuation of financial instruments, including controls over management's review of the valuation

models, and the significant assumptions used in determining the fair value of the financial instruments.

With assistance of our valuation specialists, we audited the fair value of the embedded conversion options and warrant liability, valuation methodology, and key

assumptions used in determining the fair value of the embedded conversion options and warrant liability by:

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

Assessing the reasonableness of the significant valuation inputs, including the probability weighted expected value considering the merger agreement with SEPA Acquisition

(“SEPA”), the risk adjusted expected exchange ratio, the value of SEPA’s Class A common stock, the expected timing of the closing of the merger, and the probability of the merger closing;

Assessing that the significant valuation assumption inputs, in the Black Scholes valuation model, of the 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, developing independent estimates and comparing to those selected by management, where applicable, and recalculating

management’s fair value, verifying it was reasonable.

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

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Current Assets:

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

Accounts receivable, net of allowance of $ 1,237 and $ 1,037 , respectively

Prepaid expenses and other current assets

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Senior secured debt, in default

Convertible promissory notes

Convertible promissory note, related parties

Factoring liabilities

Convertible promissory notes payable

Convertible promissory notes payable, related parties

Asset-backed secured promissory notes payable

Asset-backed secured promissory notes payable, related parties

Accounts payable

Accrued expenses

Factoring liabilities

Warrant liability

Current portion of SBA loans

Accrued interest

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Non-Current Liabilities:

Contract liabilities

Lease liabilities

Deferred tax liability

Contract liabilities

Total Non-Current Liabilities

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

SANUWAVE HEALTH, INC.

SAUWAVE HEALTH, INC.

AND SUBSIDIARIES

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Loss on issuance of debt

Gain/(loss) on extinguishment of debt

Loss on foreign currency exchange

Loss on extinguishment of debt

Other expense

Total Other Expense

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Additional Paid-

Comprehensive

Balances as of December 31, 2020

Cashless warrant exercise

Reclassification of warrant liability due to cashless warrant exercise

Foreign currency translation adjustment

Accumulated Other Comprehensive

Balances as of December 31, 2021

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Foreign currency translation adjustment

Balances as of December 31, 2022

Shares issued for services

Shares issued for settlement of August 2022 debt

Shares issued for settlement of November 2022 debt

Foreign currency translation adjustment

Balance as of December 31, 2023

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

1,140,559,527

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

SANUWAVE HEALTH, INC.

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Income tax expense

Change in fair value of derivative liabilites

Change in fair value of derivative liabilities

Loss on issuance of debt

Amortization of debt issuance and debt discounts

Changes in operating assets and liablities:

Changes in operating assets and liabilities

Accounts receivable

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Net Cash Used by Operating Activities

Cash Flows - Investing Activites

Purchase (proceeds from sale) of property and equipment

Net Cash Flows Used by Investing Activities

Cash Flows - Investing Activities

Proceeds from sale of property and equipment

Net Cash Flows Provided by Investing Activities

Cash Flows - Financing Activities

Proceeds from convertible promisorry notes

Proceeds from SBA loans

Proceeds from convertible promissory notes

Proceeds from asset-backed secured promissory notes payable

Proceeds from senior secured promissory note

Proceeds from factoring

(Payments)/Proceeds from factoring

Proceeds from warrant exercises

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Non-Cash Investing and Financing Activities:

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

Warrants issued in conjunction with senior secured promissory note payable and convertible promissory notes

Conversion of convertible notes payable and accrued interest to common stock

Embedded conversion feature on convertible debt

Common shares issued for advisory shares

Settlement of debt and warrants with stock

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

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

Reclassification of warrant liabilities to equity due to cashless warrant exercise

Working capital balances refinanced into convertible notes payable

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

SANUWAVE HEALTH, INC.

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December 31, 2023 and 2022

Nature of the Business and Basis of

Nature of the Business and Basis of Presentation

SANUWAVE Health, Inc.

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.

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

Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries.

significant intercompany accounts and transactions have been eliminated.

GAAP”) and with the instructions to for 10-K and Regulation S-X.

The consolidated financial statements include the

accounts of the Company and its wholly owned subsidiaries.

All significant intercompany accounts and transactions have been eliminated.

The functional currencies of the Company’s foreign operations are their local currencies.

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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.

Our recurring losses from operations, the events of default on the Company’s notes

payable, 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 for a period of 12 months from the filing of the Form 10-K.

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

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

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

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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.

Management’s plans are to obtain additional capital in 2024 primarily through the

closure of the Merger Agreement, as described in Note 4.

The Company could also obtain funding 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.

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

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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

Summary of Significant Accounting Policies

The significant accounting policies followed by the Company are summarized below:

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accounting policies summarized herein.

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.

Significant estimates include the recording of allowances for credit losses, the net realizable value of inventory, fair value of goodwill and

intangible assets, the determination of the valuation allowances for deferred taxes, litigation contingencies, estimated fair value of stock-based compensation, and the estimated fair value of embedded financial instruments, including warrants

and embedded conversion options.

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

outstanding balances.

Management provides for probable uncollectible amounts through a charge to earnings based on its assessment of the current status of individual accounts.

Receivables are generally considered past due if greater than 60 days

Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the allowance for doubtful accounts.

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.

The Company maintains an allowance for credit losses to provide for the estimated amount of receivables that will not be fully collected.

The allowance is based on the assessment of the following factors:

creditworthiness;

historical payment experience;

age of outstanding receivables.

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

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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

System Sales, Consumables and Part Sales - System sales, accessory and part sales include devices and applicators (new and

refurbished).

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

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.

Shipping and handling costs incurred have been recorded in cost of goods sold totaling $ 484 thousand and $ 324 thousand for the years ended December 31, 2023, and 2022, respectively.

Research and development - Research and development costs are expensed as incurred.

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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

The expected life of options granted represents 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.

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dollars for consolidation in the accompanying consolidated financial statements.

Recent Accounting Pronouncements –

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.

The ASU introduces a new model for assessing impairment of most financial assets.

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

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.

New accounting pronouncements - In

December 2023, the FASB issued ASC Update No.

2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures.

2023-09 aims to enhance the transparency and decision usefulness of income tax disclosures.

modifies the rules on income tax disclosures to require entities to disclose (1) specific categories in the rate reconciliation, (2) the income or loss from continuing operations before income tax expense or benefit (separated between domestic

and foreign) and (3) income tax expense or benefit from continuing operations (separated by federal, state, and foreign).

ASU 2023-09 also requires entities to disclose their income tax payments to international, federal, state and local

jurisdictions, among other changes.

2023-09 is effective for fiscal years beginning after December 15, 2024.

We expect to adopt Update No.

2023-09 prospectively.

We are currently evaluating the potential impact of adopting this new

guidance on our consolidated financial statements and related disclosures.

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.

The ASU introduces a new model for assessing impairment of

most financial assets.

Entities are required to use a forward-looking expected loss model, which replaces the current incurred loss model, resulting in earlier recognition of allowance for losses.

The Company adopted this ASU in January 2023,

and there was no material impact on the consolidated financial statements.

Merger Agreement

On August 23, 2023, the Company entered into an

Agreement and Plan of Merger (the “ Merger Agreement ”) by and among SEP Acquisition Corp., a Delaware corporation (“ SEPA ”), SEP Acquisition Holdings Inc., a Nevada corporation and a wholly owned subsidiary of SEPA (“ Merger Sub ”).

Pursuant to the terms of the Merger Agreement, a business combination between the Company and SEPA (the “ Merger ”) will be affected.

More specifically, and as described in greater detail below, at the effective time of the Merger (the “ Effective

Merger Sub will merge with and into the Company, with the Company being the surviving company following the merger.

Each issued and outstanding share of the Company’s common stock, will automatically be converted into Class A common stock of SEPA, par value $ 0.0001 per share (the “Class A Common Stock”), at the Conversion Ratio (as defined in the Merger Agreement);

Outstanding convertible securities of the Company will be assumed by SEPA and will be converted into the right to receive Class A Common Stock of SEPA.

If the Merger Agreement is consummated SEPA will acquire 100 % of the Company’s issued and outstanding equity securities.

The proposed merger will be accounted for as a “reverse recapitalization” in accordance

with US GAAP.

Under the reverse recapitalization model, the transaction will be treated as the Company issuing equity for the net assets of SEPA, with no goodwill or intangible assets recorded.

Under this method of accounting, SEPA will be treated

as the acquired company for financial reporting purposes.

This determination is primarily based on the fact that following the merger, the Company’s stockholders are expected to have a majority voting power of the combined company, approximately 69 – 70 %, the Company will comprise all of

the ongoing operations of the combined company, Company representatives will comprise a majority of the governing body of the combined company, and the Company’s senior management will comprise all of the senior management of the combined company.

As a result of the merger, SEPA will be renamed Sanuwave Health, Inc.

Merger Consideration -

The consideration to be delivered to the Company’s securityholders by SEPA in connection with the consummation of the Merger (the “Closing”) will consist solely of 7,793,000 shares of Class A Common Stock and, in the case of certain Securityholders, of securities convertible into or exercisable for new shares of Class A Common Stock

reserved for issuance from the merger consideration (the “Merger Consideration”).

The Merger Consideration deliverable to the Company’s stockholders will be allocated pro rata based on their ownership after giving effect to the required conversion

or exercise, as applicable, of all the outstanding convertible notes, in-the-money options, and in-the-money warrants immediately prior to the Closing.

Out-of-the-money options and out-of-the-money warrants will be assumed by SEPA and converted into options or warrants,

respectively, exercisable for shares of Class A Common Stock based on the Conversion Ratio;

however, such out-of-the-money options and warrants shall not be reserved for issuance from the Merger Consideration.

Conditions to Closing - The Merger Agreement contains customary conditions to Closing, including the following mutual

conditions of the parties (unless waived):

(i) approval of the stockholders of the Company and SEPA;

(ii) approvals of any required governmental authorities;

(iii) no law or order preventing the Transactions;

(iv) the filing of the Charter

(v) the appointment of SEPA’s post-closing board of directors;

(vi) the Registration Statement having been declared effective by the SEC;

(vii) approval of the Class A Common Stock of SEPA for listing on Nasdaq;

(viii) holders of 80 % or more of the Company’s convertible notes with a maturity date occurring after the date of the Closing (the “ Closing Date ”), measured by

number of shares into which such convertible notes may be converted, agreeing to convert their convertible notes into shares common stock immediately prior to the Effective Time;

and (ix) holders of 80 % or more of the Company’s warrants that would be outstanding on the Closing Date, measured by number of shares subject to all such warrants in the aggregate, agreeing to

convert their warrants into shares of common stock immediately prior to the Effective Time.

In addition, unless waived by the Company, the obligations of the Company to

consummate the business combination are subject to the satisfaction of the following additional Closing conditions, in addition to the delivery by SEPA of customary certificates and other Closing deliverables:

(ii) SEPA having performed in all

material respects its obligations and complied in all material respects with its covenants and agreements under the Merger Agreement required to be performed or complied with by it on or prior to the Closing Date;

(iii) SEPA having delivered a

fairness opinion of the Purchaser Financial Advisor (as defined in the Merger Agreement), in form and substance reasonably satisfactory to the Company;

(iv) SEPA having, at the Closing, at least $ 12,000,000 in cash and cash equivalents, including funds remaining in the trust account (after giving effect to the completion and payment of any redemptions) and the proceeds of

any PIPE Investment;

and other customary conditions to Closing as defined in the Merger Agreement.

In February 2024, the Company amended the Merger Agreement to extend the date after which the Company or SEPA, in its discretion, can elect to terminate the Merger

Agreement if any of the conditions to closing of the other party have not been met or waived, from February 28, 2024 to April 30, 2024.

Loss per Share

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Weighted Average Shares Outstanding

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

shares of common stock and dilutive common stock equivalents outstanding.

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

common stock and dilutive common stock equivalents outstanding.

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

As a result of the net loss for the years ended

December 31, 2022, and 2021, all potentially dilutive shares were anti-dilutive and therefore excluded from the computation of diluted net loss per share.

As a result of the net loss for the years ended December 31,

2023, and 2022, 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:

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Intangible Assets

Carrying value of intangible assets consist of the following:

Carrying value of intangible assets consisted of the following:

December 31, 2023

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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):

Amortization expense for each of the years ended December 31, 2023, and 2022 totaled $ 704

Future amortization expense is expected to be the following (dollars in thousands):

Year ended December 31,

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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.

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)

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Reserve amount held

Traditional factoring liability

Advances on future cash receipts

Factoring liability

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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.

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

(Celularity) among other transactions.

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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.

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.

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

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

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

In June 2022, the

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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

In June 2023, the Company entered into a

Fourth Amendment to the NWPSA, which provides the Company an extension of the holder forbearing from exercising the remedies arising from the existing defaults to the earlier of the occurrence of an event of default and December 31, 2023.

amendment also added a consent fee of 2 % of the original principal amount of the NWPSA, payable in cash at maturity, accounted for

as additional debt issuance costs.

The amendment also defers interest that would otherwise have been due on June 30, 2023, and September 30, 2023.

The interest will instead be compounded and added to the principal amount of the notes and bear

interest at a rate of 20.25 % per annum.

The amendment also requires the Company to complete an equity financing that results in

gross cash proceeds of at least $ 2.5 million by July 15, 2023.

This financing successfully closed on July 21, 2023.

In March 2024, the Company entered into a Consent, Limited Waiver and Fifth

Amendment to Note and Warrant Purchase Agreement (the “Fifth Amendment”).

The Fifth Amendment provides (i) consent to enter into a License and Option Agreement and consummation of the License and Option Transaction (as disclosed in Note 22)

(ii) a waiver of any event of default that may occur under the NWPSA, because of the License and Option Agreement or License and Option Transaction and (iii) amended the NWPSA to release certain patents from the collateral.

Amendment also provides for a forbearance of exercising remedies in connection with certain existing events of default under the NWPSA until the earlier of (x) the occurrence of another event of default under the NWPSA and (y) April 30, 2024.

During the forbearance period, the outstanding obligations under the NWPSA continue to accrue interest at the default rate.

As of December 31, 2023, the Company is in default on 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.

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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.

Accrued interest related to the Senior Secured Note was $ 3.2 million and $ 1.9 million on December 31, 2023, and December 31, 2022,

respectively.

Interest expense on the Senior Secured Note totaled $ 6.9 million and $ 5.9 million for the years ended December 31, 2023, and 2022, respectively.

Convertible Promissory Notes and Convertible Promissory Notes, Related Parties

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(In thousands, except conversion price)

Conversion Price

Acquisition convertible promissory note, in default

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(In thousands, except conversion price)

Conversion Price

2021 Convertible promissory notes payable

Acquisition convertible promissory note, in default

Acquistion convertible promissory note, in default

Convertible promissory note payable, related parties, in default

2022 Convertible notes payable

2022 Convertible notes payable, related parties

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.

Convertible Notes Payable, Related Parties - In August 2022 , November 2022, May 2023 and December 2023, 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 2022,$ 4.0 million in November 2022,

$ 1.2 million in May 2023, and $ 1.9

million in December 2023 (ii) Common Stock Purchase Warrants to purchase an additional 581.6 million shares of common stock with

an exercise price of $ 0.067 per share and (iii) Common Stock Purchase Warrants to purchase an additional 581.6 million shares of common stock with an exercise price of $ 0.04 per share.

Interest expense for the years ended December 31, 2023 and 2022, totaled $ 6.4

million and $ 4.4 million, respectively.

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

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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 .

In August 2023 and November 2023, the Company utilized its election to convert

the August and November issued 2022 Convertible Notes Payable into shares of common stock upon the Notes’ maturity.

The August notes totaling $ 16.2

million in principal and $ 2.4 million in interest were converted to 464,440,813 shares of common stock.

The November notes totaling $ 4.0 million

in principal and $ 0.6 million in interest were converted to 114,481,063 shares of common stock.

Acquisition Convertible promissory notes payable - In August 2020, the Company entered into an asset purchase agreement with Celularity to acquire Celularity’s UltraMIST assets.

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

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

accordingly, it began accruing additional interest of 5.0 % in addition to the 12.0 % initial rate, as of the date of the default.

As of December 31, 2022, and 2021, the Seller Notes had outstanding accrued interest of $ 1.5 million and $ 761 thousand, respectively.

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, 2023, and 2022, the Seller Notes had outstanding accrued interest of $ 2.2 million and $ 1.5 million , respectively.

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

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As of December 31, 2023, and 2022, the note had outstanding accrued interest of $ 636 thousand and $ 444 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.

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.

In October 2023, the Company signed a settlement letter agreement for the payment of $ 1.4 million principal to settle this convertible note.

Payment is due on the earlier of March 31, 2024, or the closing of the Merger described in

If the Company fails to make payment, the lender retains all rights with respect to the convertible promissory note.

Asset-Backed Secured Promissory

In July 2023,

the Company issued Asset-Backed Secured Promissory Notes (the “ABS Promissory Notes”) in an aggregate principal amount of $ 4.6 million

to certain accredited investors (the “Purchasers”) at an original issue discount of 33.33 %.

The ABS Promissory Notes bear an interest

rate of 0 % per annum and mature on January 21, 2024 (the “Maturity Date”).

The Company received total proceeds of approximately $ 3.0 million.

entered into a Security Agreement providing for a continuing and unconditional security interest in any and all property of the Company.

This security interest is subordinate to the Senior Secured Debt described in Note 10.

Interest expense for

the year ended December 31, 2023, totaled $ 812 thousand.

The Company and

the Purchasers also entered into a side letter pursuant to which the parties agreed that upon the Maturity Date, or upon a fundamental transaction as defined by the ABS Promissory Notes, the Company will issue each Purchaser a Future Advance

Convertible Promissory Note with the same principal amount as the principal amount of such Purchasers’ ABS Promissory Notes, plus any accrued and unpaid interest and two Common Stock Purchase Warrants, substantially in the forms of the Notes and Common Stock Purchase Warrants disclosed in Note 11.

In evaluating the accounting for the ABS Promissory Notes and Side Letter (the “Side Letter”), pursuant to relevant guidance, the Side Letter was determined to not represent a freestanding financial instrument as it is not

legally detachable and separately exercisable.

The redemption features under the Side Letter are considered embedded derivatives, including a right for contingent redemption upon an event of default, automatic redemption

upon maturity of the ABS Promissory Notes, and redemption is triggered upon a fundamental transaction.

As a result, the Company determined these features met the criteria of an embedded derivative.

December 31, 2023

(In thousands)

ABS promissory notes

ABS promissory notes, related parties

Total ABS Promissory Notes

Fair Value Measurements

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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:

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, 2023

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during the years ended December 31, 2023, and 2022.

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

Both observable and unobservable inputs 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

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Warrant Liability

The Company’s liability classified warrants as of December 31, 2023, and initial valuation of December 2023 warrants, were valued using a probability weighted expected value considering the Merger Agreement and the

previous Black Scholes valuation model, with significant value stemming from the Merger Agreement.

Significant inputs under the Merger Agreement valuation included the risk adjusted expected exchange ratio ( 0.003 ), the value of SEPA’s Class A Common Stock, the expected timing of the closing of the Merger (estimated by February 29, 2024), and the probability of the Merger closing ( 90 % probability).

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

December 31, 2022

Initial Valuation

May 2023 Issuance

December 31, 2022

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Cashless exercise

Issuance of warrants classified as liabilities

Issuance of warrants classified as liablities

Change in fair value

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Warrants exercised

Issuance of warrants classified as liabilities

Issuance of warrants classified as liablities

Change in fair value

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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

The fair value for the embedded derivative liability at issuance for the ABS Promissory Notes was estimated as the

difference in fair value of the ABS Promissory Notes, including the conversion obligation under the Side Letter and the value of the ABS Promissory Notes in the absence of the conversion obligation.

The value of the ABS Promissory Notes

without the conversion obligation was estimated using a discounted cash flow analysis with an estimated market yield.

The Company’s embedded

conversion liability for the initial valuation of the December 2023 financing, and as of December 31, 2023, was valued using a probability weighted expected value considering the Merger Agreement and the previous Black Scholes model, with

significant value being assigned to the Merger Agreement assumptions.

Significant inputs included the risk adjusted expected exchange ratio ( 0.003 ),

value of SEPA class A common stock, expected timing of the closing of the merger (estimated by February 29, 2024), and probability of the merger transaction closing ( 90 % probability).

fair value of conversion option liability assumptions for initial valuation of May 2023, and December 31, 2022, under the Black Scholes model are listed below:

Initial Valuation

May 2023 Issuance

December 31, 2022

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Balance December 31, 2021

Convertible feature

Issuance of Convertible Notes

Settlement of convertible notes

Change in fair value

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Issuance of Convertible Notes

Settlement of convertible notes

Change in fair value

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New service agreements

Deposit on future equipment purchases

Revenue recognized

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Outstanding at December 31, 2023

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

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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

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

receivable or total sales, respectively.

There were no accounts receivable concentrations on December 31, 2023, or 2022.

The Company currently purchases most of its product component materials from single suppliers and the loss of any of these suppliers could

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International

Accessory and parts revenue

Consumables and parts revenue

System revenue

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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:

The income tax provision (benefit)

from continuing operations consists of the following:

(In thousands)

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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.

The Company does not anticipate any impacts

of the global intangible low taxed income (“GILTI”) and base erosion anti-abuse tax (“BEAT”) and as such, the Company has not recorded any impact associated with either GILTI or BEAT.

of December 31, 2023, and 2022, the Company did no t have any undistributed earnings of our foreign subsidiaries.

As a result, no

additional income or withholding taxes have been provided for.

The Company does not anticipate any impacts of the global intangible low taxed income (“GILTI”) and base erosion anti-abuse tax (“BEAT”) and as such, the Company has not recorded any

impact associated with either GILTI or BEAT.

The income tax provision (benefit) amounts differ from the amounts computed by applying the United States Federal statutory

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Increase (reduction) in income taxes resulting from:

State incomes tax benefits, net of federal benefit

State income tax benefits, net of federal benefit

Non-deductible gain on warrant adjustment valuation

Change in valuation allowance

Registration penalites

Registration penalties

Income Tax Expense

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The Companies expenses legal fees in the period in which they are occurred.

In February 2024, the Company entered into a termination agreement with an advisor to agree on termination fees owed with respect to a previous

engagement agreement.

The company agreed to a contingent payment of $670 thousand upon the closure of the Merger disclosed in note 4.

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.

In May 2022, 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.

Any potential impact to

the Company cannot be fully determined at this time.

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:

As of December 31, 2023, the maturities of the Company’s operating and financing leases, which have initial or remaining lease terms more than one year, consist of the

(In thousands)

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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

Subsequent Event

In March 2024, the Company entered into an exclusive license and option agreement (the “License and Option Agreement”) with a third party licensee (the “Licensee”) in connection with a portfolio of Sanuwave, Inc.

patents related to the field of

intravascular shockwave applications (the “Patents”).

In exchange for a one-time payment of $ 2.5 million, Sanuwave, Inc.

Licensee an exclusive license to the Patents and an option to acquire the Patents for an additional one-time payment in the single-digit millions of dollars.

If the Licensee does not exercise its option to acquire the Patents during a specified

option period, the license terminates and all rights revert back to Sanuwave, Inc.

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