What changed in this filing

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Item 1. Financial Statements

2024-11-07 compared with 2024-08-12 · 192 added, 229 removed, 296 unchanged (59% of the section changed)

4 unchanged sentences

(In thousands, except share data)

June 30, 2024 December 31, 2023

September 30, 2024 December 31, 2023

Current Assets:

Cash and cash equivalent $ 3,259 $ 1,797

$ 2,460 $ 1,797

Accounts receivable, net of allowance of $ 1,194 and $ 1,237 , as of June 30, 2024 and December 31, 2023, respectively

Accounts receivable, net of allowance of $ 1,056 and $ 1,237 , as of September 30, 2024 and December 31, 2023, respectively

Inventory 3,431 2,951

Prepaid expenses and other current assets 378 1,722

2 unchanged sentences

Intangible assets, net 3,906 4,434

Goodwill 7,260 7,260

Total Non-current Assets 11,940 12,632

12,289 12,632

$ 21,013 $ 22,416

Total Assets $ 21,844 $ 22,416

Current Liabilities:

Senior secured debt, in default $ 24,426 $ 18,278

$ 23,424 $ 18,278

Convertible promissory notes payable 4,817 5,404

Convertible promissory notes payable, related parties 2,838 1,705

Asset-backed secured promissory notes

Asset-backed secured promissory notes payable - 3,117

Asset-backed secured promissory notes, related parties - 1,458

4 unchanged sentences

Warrant liability 35,509 14,447

16,864 14,447

Accrued interest 643 5,444

1 unchanged sentence

Current portion of contract liabilities 137 92

Other 375 947

Total Current Liabilities 81,513 64,755

59,965 64,755

Non-current Liabilities

Lease liabilities

Contract liabilities

Lease liabilities, less current portion 236 492

Contract liabilities, less current portion 358 347

Total Non-current Liabilities 594 839

Total Liabilities $ 82,107 $ 65,594

$ 60,619 $ 65,594

Commitments and Contingencies (Footnote 14)

Commitments and Contingencies (Note 14)

STOCKHOLDERS’ DEFICIT

1 unchanged sentence

6,175 shares Series A, 293 shares Series B, 90 shares Series C and 8 shares Series D authorized;

no shares issued and outstanding at June 30, 2024 and December 31, 2023

no shares issued and outstanding at September 30, 2024 and December 31, 2023

Common stock, par value $ 0.001 , 2,500,000,000 shares authorized;

1,181,272,961 and 1,140,559,527 issued and outstanding at June 30, 2024 and December 31, 2023, respectively

3,150,062 and 3,041,492 issued and outstanding at September 30, 2024 and December 31, 2023, respectively *

Additional paid-in capital 178,397 176,979

177,218 175,842

Accumulated deficit ( 238,673 ) ( 220,049 )

( 218,016 ) ( 220,049 )

Accumulated other comprehensive income (loss) 10 ( 111 )

Total Stockholders’ Deficit ( 60,263 ) ( 43,178 )

( 39,606 ) ( 43,178 )

Total Liabilities and Stockholders’ Deficit $ 21,844 $ 22,416

$ 21,013 $ 22,416

* Reflects a one-for-three hundred seventy-five (1:375) reverse stock split of the outstanding shares of the Company's common stock effected on October 18, 2024

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

3 unchanged sentences

(In thousands, except share and per share data)

Three Months Ended June 30, Six Months Ended June 30,

2024 2023 2024 2023

Three Months Ended September 30, Nine Months Ended September 30,

2024 2023 2024 2023

Revenue $ 9,360 $ 4,953 $ 22,308 $ 13,404

Cost of Revenues 2,293 1,412 5,799 3,876

1,922 1,202 3,506 2,464

5,240 3,473 9,442 5,986

Gross Margin 7,067 3,541 16,509 9,528

Operating Expenses:

General and administrative 2,545 2,681 8,059 6,678

1,839 1,238 5,514 3,997

Selling and marketing 2,202 1,039 4,468 3,430

1,034 978 2,266 2,390

Research and development 161 165 519 436

195 139 358 270

Depreciation and amortization 206 187 568 563

180 187 362 376

Total Operating Expenses 5,114 4,072 13,614 11,107

3,248 2,542 8,500 7,033

Operating Income (Loss) 1,953 ( 531 ) 2,895 ( 1,579 )

1,992 931 942 ( 1,047 )

Other (Expense)/Income:

Other Income (Expense):

Interest expense ( 3,315 ) ( 2,907 ) ( 9,948 ) ( 10,125 )

( 3,396 ) ( 3,706 ) ( 6,633 ) ( 7,218 )

Interest expense, related party ( 346 ) ( 938 ) ( 1,056 ) ( 2,379 )

( 387 ) ( 675 ) ( 710 ) ( 1,441 )

Gain on extinguishment of debt - - 5,205 -

5,310 - 5,205 -

Change in fair value of derivative liabilities ( 18,849 ) ( 19,325 ) ( 17,633 ) ( 29,943 )

3,717 ( 3,821 ) 1,216 ( 10,618 )

Other expense ( 106 ) - ( 893 ) ( 16 )

( 685 ) 9 ( 787 ) ( 18 )

Total Other Income (Expense)

4,569 ( 8,193 ) 1,091 ( 19,295 )

Net Income (Loss)

6,561 ( 7,262 ) 2,033 ( 20,342 )

Total Other Expense ( 22,610 ) ( 23,169 ) ( 21,519 ) ( 42,463 )

Net Loss ( 20,657 ) ( 23,700 ) ( 18,624 ) ( 44,042 )

Other Comprehensive Loss

Foreign currency translation adjustments - 7 121 ( 6 )

10 ( 9 ) 121 ( 13 )

Total Comprehensive Income (Loss)

$ 6,571 $ ( 7,271 ) $ 2,154 $ ( 20,355 )

Net income (loss) per share:

$ 0.01 $ ( 0.01 ) $ — $ ( 0.04 )

$ — $ ( 0.01 ) $ — $ ( 0.04 )

Number of shares used in per share calculation:

1,182,598 582,329 1,172,424 579,179

1,387,688 582,329 1,373,899 579,179

Total Comprehensive Loss $ ( 20,657 ) $ ( 23,693 ) $ ( 18,503 ) $ ( 44,048 )

Net Loss per share:

Basic and Diluted * $ ( 6.49 ) $ ( 9.95 ) $ ( 5.92 ) $ ( 24.15 )

Weighted average shares outstanding:

Basic and Diluted * 3,185 2,381 3,146 1,823

* R eflects a one-for-three hundred seventy-five (1:375) reverse stock split of the outstanding shares of the Company's common stock effected on October 18, 2024

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

3 unchanged sentences

(In thousands, except share data)

Three Months Ended June 30, 2024

Additional Paid-

Comprehensive

Balances as of March 31, 2024 1,140,559,527 $ 1,140 $ 175,842 $ ( 224,577 ) $ - $ ( 47,595 )

Shares issued for settlement of warrants 5,414,815 6 - - - 6

Shares issued for settlement of debt 35,298,619 36 1,376 - - 1,412

Foreign currency translation adjustment

- - - - 10 10

- - - 6,561 - 6,561

Three Months Ended September 30, 2024

Number of Shares

Issued and Outstanding Par Value Additional Paid-

in Capital Accumulated

Deficit Accumulated Other Comprehensive

Balances as of June 30, 2024 3,150,062 $ 3 $ 178,397 $ ( 218,016 ) $ 10 $ ( 39,606 )

Three Months Ended June 30, 2023

Additional Paid-

Comprehensive

Balances as of March 31, 2023 555,637,651 $ 556 $ 153,046 $ ( 207,322 ) $ ( 71 ) $ ( 53,791 )

Shares issued for services

- - - ( 20,657 ) - ( 20,657 )

Foreign currency translation adjustment

- - - - ( 9 ) ( 9 )

- - - ( 7,262 ) - ( 7,262 )

Balances as of September 30, 2024 3,150,062 $ 3 $ 178,397 $ ( 238,673 ) $ 10 $ ( 60,263 )

Three Months Ended September 30, 2023

Number of Shares

Issued and Outstanding Par Value Additional Paid-

in Capital Accumulated Deficit Accumulated Other Comprehensive

Balances as of June 30, 2023 1,497,700 $ 2 $ 153,824 $ ( 214,584 ) $ ( 80 ) $ ( 60,838 )

Shares issued for settlement of debt 1,238,509 1 18,576 - - 18,577

Foreign currency translation adjustment - - - - 7 7

Net loss - - - ( 23,700 ) - ( 23,700 )

Balances as of September 30, 2023 2,736,209 $ 3 $ 172,400 $ ( 238,284 ) $ ( 73 ) $ ( 65,954 )

* Reflects a one-for-three hundred seventy-five (1:375) reverse stock split of the outstanding shares of the Company's common stock effected on October 18, 2024

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

3 unchanged sentences

(In thousands, except share data)

Six Months Ended June 30, 2024

Additional Paid-

Comprehensive

Nine Months Ended September 30,

Number of Shares

Issued and Outstanding Par Value Additional Paid-

in Capital Accumulated

Deficit Accumulated Other Comprehensive

Balances as of December 31, 2023 3,041,492 $ 3 $ 176,979 $ ( 220,049 ) $ ( 111 ) $ ( 43,178 )

1 unchanged sentence

Shares issued for settlement of debt 94,130 - 1,412 - - 1,412

35,298,619 36 1,376 - - 1,412

Foreign currency translation adjustment - - - - 121 121

- - - ( 18,624 ) - ( 18,624 )

- - - 2,033 - 2,033

Balances as of June 30, 2024 1,181,272,961 $ 1,182 $ 177,218 $ ( 218,016 ) $ 10 $ ( 39,606 )

Six Months Ended June 30, 2023

Additional Paid-

Comprehensive

Balances as of September 30, 2024 3,150,062 $ 3 $ 178,397 $ ( 238,673 ) $ 10 $ ( 60,263 )

Nine Months Ended September 30, 2023

Number of Shares

Issued and Outstanding Par Value Additional Paid-

in Capital Accumulated Deficit Accumulated Other Comprehensive

Balances as of December 31, 2022 1,463,300 $ 1 $ 153,298 $ ( 194,242 ) $ ( 67 ) $ ( 41,010 )

Shares issued for services 34,400 1 526 - - 527

12,900,000 13 514 - - 527

Shares issued for settlement of debt 1,238,509 1 18,576 - - 18,577

Foreign currency translation adjustment - - - - ( 6 ) ( 6 )

- - - - ( 13 ) ( 13 )

- - - ( 20,342 ) - ( 20,342 )

Balances as of June 30, 2023 561,637,651 $ 562 $ 153,264 $ ( 214,584 ) $ ( 80 ) $ ( 60,838 )

Net loss - - - ( 44,042 ) - ( 44,042 )

Balances as of September 30, 2023 2,736,209 $ 3 $ 172,400 $ ( 238,284 ) $ ( 73 ) $ ( 65,954 )

* Reflects a one-for-three hundred seventy five (1:375) reverse stock split of the outstanding shares of the Company's common stock effected on October 18, 2024

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

3 unchanged sentences

(In thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Cash Flows - Operating Activities:

Net Income (Loss)

$ 2,033 $ ( 20,342 )

Net Loss $ ( 18,624 ) $ ( 44,042 )

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

4 unchanged sentences

Change in fair value of derivative liabilities 17,633 29,943

( 1,216 ) 10,618

Amortization of debt issuance costs and original issue discount 4,792 5,656

2 unchanged sentences

Accounts receivable 66 253

Inventory ( 480 ) ( 844 )

Prepaid expenses and other assets 225 ( 487 )

Accounts payable ( 1,013 ) 464

( 1,259 ) 718

Accrued expenses 763 ( 1,326 )

328 ( 1,337 )

Contract liabilities

Net Cash Provided by (Used in) Operating Activities 1,714 ( 3,253 )

432 ( 1,215 )

Cash Flows - Investing Activities

Proceeds from sale of property and equipment - 13

Purchase of property and equipment

1 unchanged sentence

Net Cash Flows Used in Investing Activities ( 254 ) ( 156 )

( 206 ) ( 169 )

Cash Flows - Financing Activities

5 unchanged sentences

Proceeds (Payments) from factoring, net 449 ( 710 )

831 ( 1,167 )

Payments of principal on finance leases ( 193 ) ( 130 )

( 140 ) ( 85 )

Net Cash Flow Provided by Financing Activities

Net Cash Flow (Used in) Provided by Financing Activities ( 119 ) 3,356

Effect of Exchange Rates on Cash 121 ( 5 )

5 unchanged sentences

Cash paid for interest $ 3,189 $ 984

$ 2,055 $ 908

Non-cash Investing and Financing Activities:

2 unchanged sentences

Warrants issued in conjunction with convertible promissory notes 3,633 570

Conversion of convertible notes payable to common stock - 18,577

Capitalize default interest into senior secured debt 3,850 -

6 unchanged sentences

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2024

September 30, 2024

Nature of the Business and Basis of Presentation

5 unchanged sentences

GAAP for comprehensive financial statements.

The financial information as of June 30, 2024, and for the three and six months ended June 30, 2024, and 2023 is unaudited;

The financial information as of September 30, 2024, and for the three and nine months ended September 30, 2024, and 2023 is unaudited;

however, in the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair statement have been included.

Operating results for the three and six months ended June 30, 2024, are not necessarily indicative of the results that may be expected for any other interim period or for the year ending December 31, 2024.

Operating results for the three and nine months ended September 30, 2024, are not necessarily indicative of the results that may be expected for any other interim period or for the year ending December 31, 2024.

The condensed consolidated balance sheet on December 31, 2023, has been derived from the audited consolidated financial statements at that date but does not include all the information and disclosures required by U.S.

1 unchanged sentence

These financial statements should be read in conjunction with the Company’s December 31, 2023, Annual Report on Form 10-K filed with the SEC on March 21, 2024 (the “2023 Annual Report”).

Reverse Stock Split - All share numbers, including the number of shares underlying warrants, options and convertible debt, and per share amounts presented in these financial statements, including these footnotes reflect a one-for-three hundred seventy five (1:375) reverse stock split of the outstanding shares of the Company's common stock effected on October 18, 2024 (the "Reverse Stock Split").

The Company's authorized shares of common and preferred stock along with the par value did not change.

No fractional shares will be issued as a result of the reverse stock split.

Any fractional shares that would have resulted from the reverse stock split will be settled in cash.

The reverse stock split will affect all common stockholders uniformly and will not alter any stockholder's percentage interest in the Company's common stock, except to the extent that the reverse stock split results in some stockholders experiencing an adjustment of a fractional share as described above.

Going Concern

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 at least twelve months from the filing of this Form 10-Q.

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

The events of default on the Company’s senior secured debt as of September 30, 2024 and the working capital deficit have raised substantial doubt as to our ability to continue as a going concern for a period of at least twelve months from the filing of this Form 10-Q.

We may 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 financing may not be advantageous to us.

4 unchanged sentences

These possibilities, to the extent available, may be on terms that result in significant dilution to the Company’s existing stockholders.

In addition, there can be no assurances that the Company’s plans to obtain additional capital will be successful on the terms or timeline it expects, or at all.

In addition, there can be no assurances that any plans to obtain additional capital will be successful on the terms or timeline the Company expects, or at all.

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

The accompanying condensed consolidated financial statements have been prepared in conformity with U.S.

GAAP, which contemplate continuation of the Company as a going concern and the realization of assets and satisfaction of liabilities in the normal course of business.

GAAP, which contemplate continuation of the Company as a going concern and the realization of assets and satisfaction of liabilities in

the normal course of business.

The carrying amounts of assets and liabilities presented in the condensed consolidated financial statements do not necessarily purport to represent realizable or settlement values.

10 unchanged sentences

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.

If a contract has more than one performance obligation, we allocate the transaction price to each performance obligation based on stand-alone 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:

5 unchanged sentences

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.

Deferred Offering Costs - Deferred stock offering costs represent amounts paid for legal, consulting, and other offering expenses directly attributable to the offering of securities in conjunction with the recapitalization under the Merger Agreement, as defined and further described in Note 4, and are deferred and charged against the gross proceeds of the offering.

Deferred Offering Costs - Deferred stock offering costs represent amounts paid for legal, consulting, and other offering expenses directly attributable to the offering of securities in conjunction with the recapitalization under the Merger Agreement (as defined in Note 4), as defined and further described in Note 4, and are deferred and charged against the gross proceeds of the offering.

In the event of a significant delay or cancellation of a planned offering of securities, all the costs would be expensed.

In June 2024, the Company terminated the Merger Agreement and the deferred offering costs of $ 0.5 million were expensed.

Recent Accounting Pronouncements - In December 2023, the Financial Accounting Standards Board issued ASC Update No.

2023-09, Income Taxes (Topic 740):

Recent Accounting Pronouncements - In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (ASU) No.

2023-07, Segment Reporting (Topic 280), Improvements to Reportable Segment Disclosures which will require companies to disclose significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”).

The pronouncement is effective for annual filings for the year ended December 31, 2024.

The Company is still assessing the impact of the adoption of this standard but does not expect it to have a material impact on its results of operations, financial position or cash flows.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures.

7 unchanged sentences

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.

On August 23, 2023, the Company entered into an Agreement and Plan of Merger (the “ Merger Agreement ”) with SEP Acquisition Corp., a Delaware corporation (“ SEPA ”), and SEP Acquisition Holdings Inc., a Nevada corporation and a wholly owned subsidiary of SEPA.

Pursuant to the terms of the Merger Agreement, a business combination between the Company and SEPA was to be effected.

On June 25, 2024, the Company delivered a notice to SEPA terminating the Merger Agreement.

Net Income (Loss) per Share

Basic net income (loss) per share is computed based on the weighted average number of shares outstanding including nominally priced warrants.

Diluted net income (loss) per share is computed by dividing the net income (loss) attributable to common stockholders by the weighted average number of shares of common stock and dilutive common stock equivalents outstanding.

Diluted net income (loss) per share is calculated based on the weighted average of ordinary shares outstanding and the number of additional shares that would have been outstanding if the potentially dilutive securities had been issued.

The Company uses the treasury stock method to calculate the number of shares for the nominally priced warrants, and the as-converted method to calculate the number of shares for the convertible promissory notes.

The following table sets forth the computation of basic and diluted net income (loss) per share attributable to the shareholders of the Company:

Three Months Ended Six Months Ended

(in Thousands, except per share data) June 30, 2024 June 30, 2023 June 30, 2024 June 30, 2023

Net Income (Loss)

$ 6,561 $ ( 7,262 ) $ 2,033 $ ( 20,342 )

Number of shares used in per share calculation:

Net Loss per Share

Basic net loss per share is calculated by dividing the net loss attributable to common stockholders by the weighted average number of shares outstanding for the three and nine months ended September 30, 2024 and 2023.

The weighted average number of shares outstanding includes outstanding common stock and shares issuable for nominal consideration.

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

Three Months Ended Nine Months Ended

(in thousands) September 30, 2024 September 30, 2023 September 30, 2024 September 30, 2023

Weighted average shares outstanding

Common shares 3,150 2,323 3,103 1,765

Common shares issuable assuming exercise of nominally priced warrants 35 58 43 58

Total shares used for calculating basic income (loss) per share

1,182,598 582,329 1,172,424 579,179

Weighted-average effect of dilutive securities:

Common shares issuable on convertible promissory notes including interest

205,090 — 201,475 —

Total shares for purposes of calculating diluted net income (loss) per share

1,387,688 582,329 1,373,899 579,179

Net income (loss) per share:

Basic $ 0.01 $ ( 0.01 ) $ — $ ( 0.04 )

Diluted $ — $ ( 0.01 ) $ — $ ( 0.04 )

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

As a result of the net loss for the six months ended June 30, 2023, all potentially dilutive shares in such periods were anti-dilutive and therefore excluded from the computation of diluted net loss per share.

Six Months Ended

(in thousands)

June 30, 2024 June 30, 2023

Weighted average shares outstanding 3,185 2,381 3,146 1,823

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 each the three and nine months ended September 30, 2024 and 2023, all potentially dilutive shares in such periods were anti-dilutive and therefore excluded from the computation of diluted net loss per share.

Nine Months Ended

(in thousands) September 30, 2024 September 30, 2023

Common stock options 42 51

15,737 19,136

Common stock purchase warrants 3,963 2,951

1,492,500 1,247,911

Convertible notes payable, including interest

20,566 677,050

1,528,803 1,944,097

Accrued Expenses

1 unchanged sentence

(in thousands)

June 30, 2024 December 31, 2023

September 30, 2024 December 31, 2023

Registration penalties $ 1,583 $ 1,583

6 unchanged sentences

The following table summarizes outstanding senior secured debt, in default:

June 30, 2024 December 31, 2023

(in thousands)

Debt Discount

Carrying Value

Accrued Interest

Debt Discount

Carrying Value

Accrued Interest

September 30, 2024 December 31, 2023

(in thousands) Principal Debt Discount Carrying Value Accrued Interest Principal Debt Discount Carrying Value Accrued Interest

Senior secured debt $ 26,613 $ ( 2,187 ) $ 24,426 - $ 21,562 $ ( 3,284 ) $ 18,278 $ 3,206

$ 26,079 $ ( 2,655 ) $ 23,424 $ — $ 21,562 $ ( 3,284 ) $ 18,278 $ 3,206

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”).

2 unchanged sentences

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.

Along with the issuance of the note, the Company also issued warrants to purchase 43,200 shares of common stock with an exercise price of $ 67.50 and 54,933 shares of common stock.

Interest is charged at the greater of the prime rate or 3 % plus 9 %.

3 unchanged sentences

The Fifth Amendment provides (i) consent to enter into a License and Option Agreement and consummation of a License and Option Transaction 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.

The Fifth 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 June 30, 2024, 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 condensed consolidated balance sheets.

The Company is accruing interest at the default interest rate of an incremental 5 %.

As of September 30, 2024, 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 condensed consolidated balance sheets.

As of September 30, 2024 , the Company was 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 three and six months ended June 30, 2024, totaled $ 2.1 million and $ 4.0 million, respectively.

Interest expense on the Senior Secured Note totaled $ 1.7 million and $ 3.3 million for the three and six months ended June 30, 2023, respectively.

The following table summarizes the amortization and interest expense related to the Senior Secured Note:

Three Months Ended Nine Months Ended

(In millions) September 30, 2024 September 30, 2023 September 30, 2024 September 30, 2023

Amortization of debt issuance costs and debt discount, included in interest expense $ 0.5 $ 0.5 $ 1.4 $ 1.4

Interest expense $ 2.1 $ 1.8 $ 6.1 $ 5.1

On July 15, 2024, the Company entered into the Sixth Amendment to Note and Warrant Purchase and Security Agreement (the “Sixth Amendment”), which was a modification of debt.

1 unchanged sentence

On and after April 1, 2024, for each fiscal quarter during which any interest is payable in cash, deferred interest and default interest shall be calculated based on the principal amount of the Senior Secured Note as of the beginning of the quarter and shall include any default interest accrued to date.

The Sixth 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 occurence of another event of default under the NWPSA and (y) December 31, 2024.

The Sixth 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 or (y) December 31, 2024.

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

Promissory Notes Payable

The following two tables summarize outstanding notes payable as of June 30, 2024, and December 31, 2023:

As of June 30, 2024

(In thousands, except conversion price)

The following two tables summarize outstanding notes payable as of September 30, 2024, and December 31, 2023:

As of September 30, 2024

(In thousands, except conversion price) Conversion

Principal Remaining

Debt Discount

1 unchanged sentence

Historical convertible promissory notes payable, related parties, in default $ 37.50 1,373 - - 1,373

$ 0.10 1,373 - 1,373

Convertible notes payable $ 15.00 6,056 ( 1,401 ) 162 4,817

$ 0.04 6,082 ( 2,129 ) 3,953

Convertible notes payable, related parties $ 15.00 1,662 ( 240 ) 43 1,465

$ 0.04 1,662 ( 581 ) 1,081

Total Convertible Promissory Notes Payable $ 9,091 $ ( 1,641 ) $ 205 $ 7,655

$ 9,117 $ ( 2,710 ) $ 6,407

As of December 31, 2023

(In thousands, except conversion price)

Debt Discount

(In thousands, except conversion price) Conversion

Principal Remaining

Debt Discount Carrying

Acquisition convertible promissory note, in default $ 37.50 4,000 - 4,000

$ 0.10 4,000 - 4,000

Historical convertible promissory note, related party, in default $ 37.50 1,373 - 1,373

$ 0.10 1,373 - 1,373

Convertible notes payable $ 15.00 2,639 ( 1,235 ) 1,404

$ 0.04 2,639 ( 1,235 ) 1,404

Convertible notes payable, related parties $ 15.00 450 ( 118 ) 332

$ 0.04 450 ( 118 ) 332

Total Convertible Promissory Notes Payable

$ 8,462 $ ( 1,353 ) $ 7,109

Convertible Notes Payable and Convertible Notes Payable, Related Parties – In August 2022, November 2022, May 2023, December 2023, January 2024, and June 2024, the Company entered into 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 approximately $ 16.2 million in August, approximately $ 4.0 million in November, $ 1.2 million in May, $ 1.9 million in December 2023, $ 4.6 million in January 2024 related to the conversion of the Asset-Backed Secured Promissory Notes (described in Note 9) and $ 1.3 million in June 2024 (ii) Common Stock Purchase Warrants to purchase an additional 728.1 million shares of common stock with an exercise price of $ 0.067 per share and (iii) Common Stock Purchase Warrants to purchase an additional 728.1 million shares of common stock with an exercise price of $ 0.04 per share.

Interest expense for the three and six months ended June 30, 2024, totaled $ 1.2 million and $ 2.8 million, respectively.

Interest expense for the three and six months ended June 30, 2023, totaled $ 2.4 million and $ 4.6 million, respectively.

aggregate principal amount of approximately $ 16.2 million in August 2022, approximately $ 4.0 million in November 2022, $ 1.2 million in May 2023, $ 1.9 million in December 2023, $ 4.6 million in January 2024 related to the conversion of the Asset-Backed Secured Promissory Notes (described in Note 9) and $ 1.3 million in June 2024 (ii) Common Stock Purchase Warrants to purchase an additional 1.9 million shares of common stock with an exercise price of $ 25.13 per share and (iii) Common Stock Purchase Warrants to purchase an additional 1.9 million shares of common stock with an exercise price of $ 15.00 per share.

Interest expense for the three and nine months ended September 30, 2024, totaled $ 1.5 million and $ 4.3 million, respectively.

Interest expense for the three and nine months ended September 30, 2023 , totaled $ 1.3 million and $ 6.0 million, respectively.

The Notes have a term of 12 months from the date of issue.

Pursuant to the Notes, the Company promised to pay in cash and/or in shares of common stock, at a conversion price of $ 15.00 (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 per

provided, however, that the Conversion Price shall never be less than $ 3.75 .

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

In May 2024 the Company utilized its election to convert the May issued Convertible Notes Payable into shares of common stock upon the Notes' maturity.

The May notes totaling $ 1.2 million in principal and $ 0.2 million interest were converted to 35,298,619 shares of common stock.

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

In May 2024 the Company utilized its election to convert the May issued Notes into shares of common stock upon the Notes' maturity.

The May notes totaling $ 1.2 million in principal and $ 0.2 million interest were converted to 0.1 million shares of common stock.

Promissory Note Payable, Related Parties - In June 2024 the Company entered into a $ 0.5 million promissory note with a related party.

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This security interest is subordinate to the Senior Secured Debt described in Note 7.

Interest expense for the six months ended June 30, 2024, totaled $ 0.1 million prior to conversion at the Maturity Date.

On January 21, 2024, pursuant to the side letter, which the parties agreed that upon the Maturity Date, the Company will issue each Purchaser a Convertible Note Payable with the same principal amount as the principal amount of such Purchasers’ ABS Promissory Notes.

Interest expense for the nine months ended September 30, 2024, totaled $ 0.1 million prior to conversion at the Maturity Date.

On January 21, 2024, pursuant to the side letter, the Company issued each Purchaser a Convertible Note Payable with the same principal amount as the principal amount of such Purchasers’ ABS Promissory Notes.

Pursuance to this side letter the ABS Promissory Notes converted to convertible promissory notes, as described in Note 8.

The Company recorded a net loss on extinguishment of debt totaling $ 0.1 million for the six months ended June 30, 2024 .

The Company recorded a net loss on extinguishment of debt totaling $ 0.1 million for the nine months ended September 30, 2024 .

Fair Value Measurements

1 unchanged sentence

The following tables classify the Company’s liabilities measured at fair value on a recurring basis into the fair value hierarchy:

Fair value measured at June 30, 2024

Fair value measured at September 30, 2024

(in thousands)

Fair value at

June 30, 2024 Quoted prices in

September 30, 2024 Quoted prices in

active markets

3 unchanged sentences

Warrant liability $ 35,509 $ - $ - $ 35,509

$ 16,864 $ - $ - $ 16,864

Embedded conversion option

Total fair value $ 35,714 $ - $ - $ 35,714

Fair value measured at December 31, 2023

3 unchanged sentences

active markets

Significant other

(Level 1) Significant other

observable inputs

1 unchanged sentence

Warrant liability $ 14,447 $ - $ - $ 14,447

$ 14,447 $ - $ - $ 14,447

Embedded conversion option

Total fair value $ 14,540 $ - $ - $ 14,540

$ 14,540 $ - $ - $ 14,540

There were no transfers among Levels 1, 2 or 3 during the three and six months ended June 30, 2024, and 2023.

There were no transfers among Levels 1, 2 or 3 during the three and nine months ended September 30, 2024, and 2023.

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.

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.

Warrant Liability

The Company’s liability classified warrants as of June 30, 2024, and the value of initial warrant liability from the June financing, were valued using a probability weighted expected value considering the proposed reverse stock split of the Company's common stock (the "Reverse Stock Split") that will effectuate the exchange of Notes and Common Stock Purchase Warrants for shares of the Company's common stock (the "Note and Warrant Exchange"), and the previous Black Scholes valuation model, with significant value stemming from the Note and Warrant Exchange.

Significant inputs under the Note and Warrant Exchange included the expected exchange ratio of 0.90 for $ 0.04 warrants and 0.85 for $ 0.067 warrants, the value of the Company’s common stock, the expected timing of the closing of the proxy vote for the Reverse Stock Split of a 500 :1 to 300 :1 reverse split (estimated by August 15, 2024), and the probability of the Note and Warrant Exchange occurring ( 85 % probability).

The Company’s liability classified warrants as of September 30, 2024, and the value of the initial warrant liability from the June financing, were valued using a probability weighted expected value considering the proposed reverse stock split of the Company's common stock (the "Reverse Stock Split") that will effectuate the exchange of Notes and Common Stock Purchase Warrants for shares of the Company's common stock (the "Note and Warrant Exchange"), and the previous Black Scholes valuation model, with significant value stemming from the Note and Warrant Exchange.

Significant inputs under the Note and Warrant Exchange included the expected exchange ratio of 0.90 for $ 15.00 warrants and 0.85 for $ 25.13 warrants, the value of the Company’s common stock, the expected timing of the Reverse Stock Split effectuating, and the probability of the Note and Warrant Exchange occurring ( 90 % probability).

The Company’s liability classified warrants as of December 31, 2023 and the value of initial warrant liability from the conversion of the ABS Promissory Notes, 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 expected exchange ratio 0.003 , 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.

A summary of the warrant liability activity for the six months ended June 30, 2024, is as follows:

(in thousands, except per share data)

A summary of the warrant liability activity for the nine months ended September 30, 2024, is as follows:

(in thousands, except per share data) Warrants

Outstanding Fair Value

per Share Fair Value

(in thousands)

Balance at December 31, 2023 3,257 $ 4.44 $ 14,447

292,882 0.01 3,633

Issuance 781 4.65 3,633

Exercised warrants ( 23 ) 3.75 -

( 8,600 ) $ 0.01 —

Gain on remeasurement of warrant liability

Balance at June 30, 2024 1,505,590 $ 0.01 $ 16,864

Loss on remeasurement of warrant liability - 17,429

Balance at September 30, 2024 4,015 $ 8.84 $ 35,509

Embedded Conversion Option Liability

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 for the conversion option liability was valued using a probability weighted expected value considering the proposed Reverse Stock Split of the Company's common stock that will effectuate the Note and Warrant Exchange, and the previous Black Scholes valuation model, with significant value stemming from the Note and Warrant Exchange.

A summary of the conversion option liability activity for the nine months ended September 30, 2024, is as follows:

(in thousands, except per share data) Conversion Options

Balance at December 31, 2023 $ 93

Loss on remeasurement of conversion liability 112

Balance at September 30, 2024 $ 205

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

The following table presents revenue from contracts with customers:

Three Months Ended June 30, 2024 Three Months Ended June 30, 2023

United States

International

United States

International

Three Months Ended September 30, 2024 Three Months Ended September 30, 2023

United States International Total United States International Total

Consumables and parts revenue $ 5,611 $ 9 $ 5,620 $ 3,133 $ 25 $ 3,158

$ 4,920 $ 31 $ 4,951 $ 2,913 $ 18 $ 2,931

System revenue 3,649 12 3,661 1,607 18 1,625

2,112 - 2,112 1,323 79 1,402

License fees and other - 10 10 38 - 38

- 15 15 75 5 80

Product Revenue $ 9,260 $ 31 $ 9,291 $ 4,778 $ 43 $ 4,821

$ 7,032 $ 46 $ 7,078 $ 4,311 $ 102 $ 4,413

Rental Income 69 - 69 132 - 132

84 - 84 262 - 262

Total Revenue $ 9,329 $ 31 $ 9,360 $ 4,910 $ 43 $ 4,953

$ 7,116 $ 46 $ 7,162 $ 4,573 $ 102 $ 4,675

Six Months Ended June 30, 2024 Six Months Ended June 30, 2023

United States

International

United States

International

Nine Months Ended September 30, Nine Months Ended September 30, 2023

United States International Total United States International Total

Consumables and parts revenue $ 14,773 $ 106 $ 14,879 $ 8,620 $ 76 $ 8,696

$ 9,161 $ 97 $ 9,258 $ 5,487 $ 50 $ 5,537

System revenue 7,061 83 7,144 3,763 132 3,895

3,413 71 3,484 2,157 115 2,272

License fees and other - 30 30 121 15 136

- 20 20 81 15 96

Product Revenue $ 21,834 $ 219 $ 22,053 $ 12,504 $ 223 $ 12,727

$ 12,574 $ 188 $ 12,762 $ 7,725 $ 180 $ 7,905

Rental Income 255 - 255 677 - 677

186 - 186 545 - 545

Total Revenue $ 22,089 $ 219 $ 22,308 $ 13,181 $ 223 $ 13,404

$ 12,760 $ 188 $ 12,948 $ 8,270 $ 180 $ 8,450

Concentration of Credit Risk and Limited Suppliers

Concentration of Credit Risks and Limited Suppliers

Major customers are defined as customers whose accounts receivable or sales individually consist of more than 10% of trade receivables or total sales, respectively.

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

Three Months Ended Nine Months Ended

September 30, 2024 September 30, 2023 September 30, 2024 September 30, 2023

Customer A 15 % n/a n/a n/a

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 the Company’s production.

The percentage of purchases from major vendors of the Company that exceeded ten percent of total purchases for the three and six months ended June 30, 2024, and 2023 were as follows:

Three Months Ended Six Months Ended

June 30, 2024 June 30, 2023 June 30, 2024 June 30, 2023

32 % 13 % 20 % 17 %

n/a 16 % n/a 11 %

The percentage of purchases from major vendors of the Company that exceeded ten percent of total purchases for the three and nine months ended September 30, 2024, and 2023 were as follows:

Three Months Ended Nine Months Ended

September 30, 2024 September 30, 2023 September 30, 2024 September 30, 2023

Vendor A 33 % 22 % 25 % 19 %

Vendor B n/a 23 % n/a 16 %

Vendor C n/a 20 % n/a 10 %

License and Option Agreement

In March 2024, the Company entered into an exclusive license and option agreement with a third-party licensee in connection with a portfolio of Sanuwave, Inc.

patents related to the field of intravascular shockwave applications.

The Company received a one-time payment of $ 2.5 million related to this patent license, which was recorded in other income during the six months ended June 30, 2024.

Sanuwave, Inc.

granted the 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.

In March 2024, the Company entered into an exclusive license and option agreement (the "Patent License") with a third-party licensee in connection with a portfolio of patents related to the field of intravascular shockwave applications.

The Company received a one-time payment of $ 2.5 million related to this Patent License, which was recorded in other income during the nine months ended September 30, 2024.

The Company granted the Licensee an exclusive license to the patents and an option to acquire the patents for an additional one-time payment in the mid single-digit millions of dollars for a period of 3 years following the effective date of the Agreement.

Upon acquisition of the patents, the Licensee will distribute any resulting proceeds to the Company, including but not limited to any royalties, license fees, settlement payments, or other proceeds generated from the licensing or assertion of the patents, in accordance with a revenue sharing agreement.

If the Licensee does not exercise its option to acquire the Patents during a specified option period of 3 years from the effective date of the Agreement, the license terminates, a supplement license fee is owed, and all rights revert back to the Company.

Contingent Consideration - T he Company considers such royalties, license fees, settlement payments, or other proceeds as variable or contingent consideration.

The Company determined that the amount of variable consideration would be constrained until the period the uncertainty related to the consideration is relieved.

Commitments and Contingencies

8 unchanged sentences

The Company has settled this dispute in June 2024 for a settlement amount of $ 2.2 million, which resulted in the removal of $ 4.0 million in convertible promissory note payable, $ 2.4 million in accrued interest, $ 0.9 million of accrued expenses, $ 0.5 million of other liabilities, and $ 0.4 million in accounts receivable, which resulted in the recognition of a gain on extinguishment of debt of $ 5.3 million.

Subsequent Event

On July 18, 2024, the Company commenced the Consent Solicitation from its stockholders with respect to the following proposals which were approved on August 7, 2024:

To approve an amendment to the Company's Articles of Incorporation to effect 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-300 and 1-for-500, subject to and as determined by the Board.

To approve the SANUWAVE Health, Inc.

Subsequent Events

Consent and Limited Waiver

On October 17, 2024, the Company entered into a Consent and Limited Waiver to Note and Warrant Purchase and Security Agreement (the “Consent and Limited Waiver”) with respect to that certain NWPSA, with the noteholders party thereto (the “Holders”) and NH Expansion Credit Fund Holdings LP, as agent (the “Agent”).

The Agent and the Holders agreed to continue to forbear upon exercising remedies in connection with certain existing events of default under the NWPSA until the earlier of (x) the occurrence of an event of default and (y) December 31, 2024.

The Consent and Limited Waiver also consents to the repayment in full of amounts owed to HealthTronics, Inc.

(“HealthTronics”) pursuant to the Convertible Promissory Note, dated as of August 6, 2020, by and between the Company and HealthTronics, in the original principal amount of approximately $ 1.4 million (the “HealthTronics Note”);

the Private Placement (as defined below) and the Reverse Stock Split if the Company has at least $ 5.0 million of liquidity following such transactions, which is required pursuant to the minimum liquidity covenant in the NWPSA.

The Agent and the Holders have also agreed that any existing event of default that exists due to the Company’s failure to meet the minimum liquidity covenant will be waived if the conditions set forth in the Consent and Limited Waiver, including at least $ 5.0 million of liquidity following such transactions, are met.

As a condition to the effectiveness of the Consent and Limited Waiver, the Agent exercised, on a cashless basis, all warrants issued by the Company to the Agent in exchange for the issuance of 146,302 shares (the “NWPSA Shares”) of the Company’s common stock following the Reverse Stock Split.

Private Placement of Common Stock

On October 16, 2024, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with the purchasers (the “Purchasers”), for the private placement (the “Private Placement”) of approximately 1.3 million shares (the “Shares”) of common stock at a purchase price of $ 8.25 per share, in each case, after adjustment to reflect the Reverse Stock Split.

The Private Placement closed on October 18, 2024, and aggregate gross proceeds were approximately $ 10.3 million, before deducting offering expenses.

The Company used the net proceeds from the Private Placement to pay all amounts owed pursuant to the Consent and Limited Waiver and that certain letter agreement, dated as of August 8, 2024, between the Company and HealthTronics with respect to the HealthTronics Note, and intends to use the remaining net proceeds for working capital and general corporate purposes, which may include the repayment of other indebtedness.

In addition, on October 16, 2024, the Company and the Purchasers entered into a registration rights agreement (the “Registration Rights Agreement”), pursuant to which the Company agreed to file the registration statement with the SEC on or before December 17, 2024 (subject to certain exceptions) for purposes of registering the resale of the Placement Shares, to use its commercially reasonable efforts to have such registration statement declared effective within the time period set forth in the Registration Rights Agreement, and to keep the registration statement effective until the date that all Placement Shares have been sold, thereunder or pursuant to Rule 144.

The HealthTronics Note was paid in full on October 22, 2024 and all related defaults were thus cured.

Note and Warrant Exchange

On October 18, 2024, effective upon the implementation of the Reverse Stock Split, the Company issued an aggregate of 3,989,456 shares of common stock in exchange for all outstanding Notes and Common Stock Purchase Warrants (“Warrants”) issued by the Company in private placements in August 2022, November 2022, May 2023, December 2023, January 2024 and June 2024.

Pursuant to the Note and Warrant Exchange, (i) each outstanding Note was fully accelerated to maturity (with 15 % interest paid on the outstanding principal) and then converted (per the terms of the Note) into shares of common stock at $ 15.00 per share, (ii) each Warrant with an exercise price of $ 15.00 per share was exchanged for 0.0024 shares of Common Stock per share subject to such Warrant, and (iii) each Warrant with an exercise price of $ 25.13 per share was exchanged for approximately 0.0023 shares of Common Stock per share subject to such Warrant.

2024 Equity Incentive Plan

On October 18, 2024, the Company registered approximately 1.4 million shares of common stock available for issuance under the 2024 Equity Incentive Plan.

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

What changed 10-Q

Item 1. Financial Statements