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Item 8. Financial Statements and Supplementary Data

2025-03-20 compared with 2024-03-21 · 509 added, 611 removed, 355 unchanged (76% of the section changed)

12 unchanged sentences

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.

(the “Company”) and Subsidiaries as of December 31, 2024 and 2023, the related consolidated statements of comprehensive loss, stockholders’ deficit, and cash flows for each of the two years in the period ended December 31, 2024, 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, 2024 and 2023, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2024, 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.

The accompanying 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, has negative working capital, and needs to refinance its debt to meet its obligations and sustain its operations.

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.

The 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.

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.

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

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance

about whether the financial statements are free of material misstatement, whether due to error or fraud.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

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

Accordingly, we

express no such opinion.

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

procedures that respond to those risks.

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

Accordingly, we express no such opinion.

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

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

Our audits also included evaluating the accounting principles used and

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

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:

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)

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 (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.

As described in Note 13 to the consolidated financial statements, the Company has entered into warrant agreements accounted for as a liability and recorded at fair value.

The fair value of the warrant liability was valued using valuation techniques and key inputs as described in the footnotes.

The principal considerations for our determination that the valuation of the warrant liability is a critical audit matter were the significant judgments made by management in determining the fair value of the 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.

The audit also involved the use of professionals with specialized skill and knowledge.

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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:

▪ 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 warrant liability, valuation methodology, and key assumptions used in determining the fair value of the 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

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

(“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.

Assessing the reasonableness of the significant valuation inputs, including the probability weighted expected value considering the reverse stock split of the Company’s common stock (the “Reverse Stock Split”), the expected exchange ratio, the value of the Company’s common stock, the expected timing of the effectuating of the Reverse Stock Split, and the probability of the Reverse Stock Split occurring;

Assessing that the significant valuation assumption inputs in the Black Scholes valuation model of the 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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March 20, 2025

PART I - FINANCIAL INFORMATION

FINANCIAL STATEMENTS

SANUWAVE HEALTH, INC.

AND SUBSIDIARIES

BALANCE SHEETS

CONSOLIDATED BALANCE SHEETS

December 31, 2024 and 2023

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Current Assets:

Cash and cash equivalents $ 10,237 $ 1,797

Accounts receivable, net of allowance of $ 1,147 and $ 1,237 , respectively

Inventory 4,149 2,951

Prepaid expenses and other current assets 682 1,722

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Intangible assets, net 3,730 4,434

Goodwill 7,260 7,260

Total Non-Current Assets 11,722 12,632

Total Assets $ 30,119 $ 22,416

Current Liabilities:

Senior secured debt, in default

Senior secured debt $ 25,305 $ 18,278

Convertible promissory notes payable - 5,404

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Current portion of contract liabilities 193 92

Other 334 947

Total Current Liabilities 42,345 64,755

Non-Current Liabilities:

Lease liabilities

Contract liabilities

Lease liabilities, less current portion 191 492

Contract liabilities, less current portion 300 347

Total Non-Current Liabilities 491 839

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STOCKHOLDERS’ DEFICIT

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

Series A, 293 Series B, 90

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

Preferred stock, par value $ 0.001 , 5,000,000 shares authorized, 6,175 Series A, 293 Series B, 90 Series C, and 8 Series D designated shares, respectively;

no shares issues and outstanding at 2024 and 2023

Common stock, par value $ 0.001 , 2,500,000,000 shares authorized, 1,140,559,527

and 548,737,651 issued and outstanding at 2023 and 2022 , respectively

Common stock, par value $ 0.001 , 2,500,000,000 shares authorized, 8,543,686 and 3,041,492 issued and outstanding at 2024 and 2023, respectively *

Additional paid-in capital 238,685 176,979

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Total Liabilities and Stockholders’ Deficit $ 30,119 $ 22,416

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

SAUWAVE HEALTH, INC.

* 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 consolidated financial statements are an integral part of these financial statements.

SANUWAVE HEALTH, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF

COMPREHENSIVE LOSS

Years ended December 31, 2023

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

Years ended December 31, 2024 and 2023

(In thousands, except share and per share data) 2024 2023

Revenue $ 32,634 $ 20,398

Cost of revenues 8,084 6,035

Gross Margin 24,550 14,363

Operating Expenses:

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Total Operating Expenses 19,133 14,903

Operating Loss

Operating Income (Loss) 5,417 ( 540 )

Other Income (Expense)

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Change in fair value of derivative liabilities ( 31,413 ) ( 9,621 )

Loss on issuance of debt

Loss on extinguishment of debt

Gain on extinguishment of debt 6,326 -

Other expense ( 893 ) ( 19 )

Other income 2,855 -

Total Other Expense ( 36,762 ) ( 25,263 )

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Income tax expense 27 4

Net Loss $ ( 31,372 ) $ ( 25,807 )

Other Comprehensive Loss

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Total Comprehensive Loss $ ( 31,251 ) $ ( 25,851 )

Loss per Share:

Net loss per share, basic and diluted

Weighted average shares outstanding, basic and diluted

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

Net Loss per share:

Basic and Diluted * $ ( 7.03 ) $ ( 12.19 )

Weighted average shares outstanding:

Basic and Diluted * 4,462,883 2,116,936

* 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 consolidated financial statements are an integral part of these financial statements.

SANUWAVE HEALTH, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF

STOCKHOLDERS’ DEFICIT

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(In thousands, except share data)

Shares Issued and

Additional Paid-

Accumulated Other Comprehensive

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 )

Cashless warrant exercise

Warrant exercise

Shares issued in conjunction with senior note

Shares issued for settlement of debt and warrants

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

Shares issued for settlement of debt 1,543,792 1 23,155 - - 23,156

Foreign currency translation adjustment - - - - ( 44 ) ( 44 )

Net loss - - - ( 25,807 ) - ( 25,807 )

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

Shares issued for services

Shares issued for settlement of August 2022 debt

Shares issued for settlement of November 2022 debt

Sale of common stock 1,248,489 1 10,299 - - 10,300

Shares issued for settlement of warrants 3,558,396 4 41,380 - - 41,384

Shares issued for settlement of debt 685,737 1 8,513 - - 8,514

Stock-based compensation 9,572 - 1,514 - - 1,514

Foreign currency translation adjustment - - - - 121 121

Net loss - - - ( 31,372 ) - ( 31,372 )

Balance as of December 31, 2024 8,543,686 $ 9 $ 238,685 $ ( 251,421 ) $ 10 $ ( 12,717 )

1,140,559,527

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

* 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 consolidated financial statements are an integral part of these financial statements.

SANUWAVE HEALTH, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF

Years ended December 31, 2023

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years ended December 31, 2024 and 2023

(In thousands) 2024 2023

Cash Flows - Operating Activities:

Net loss $ ( 31,372 ) $ ( 25,807 )

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

Stock-based compensation 1,514 -

Depreciation and amortization 1,145 1,028

Bad debt expense

Reserve for credit losses 77 781

Shares issued for services - 224

Gain/loss on extinguishment of debt

Gain on extinguishment of debt ( 6,326 ) -

Income tax expense - 4

Change in fair value of derivative liabilities 31,413 9,621

Loss on issuance of debt

Amortization of debt issuance and debt discounts 5,520 6,911

Accrued interest and accrued interest, related parties 3,387 6,306

Changes in operating assets and liabilities

Accounts receivable ( 486 ) ( 53 )

Inventory, prepaid expenses and other assets

Inventory ( 1,198 ) ( 2,800 )

Prepaid expenses and other assets ( 79 ) ( 206 )

Accounts payable ( 1,422 ) 1,546

Accrued interest and accrued interest, related parties

Accrued expenses and contract liabilities 282 ( 2,093 )

Net Cash Used by Operating Activities

Net Cash Provided by (Used in) Operating Activities 2,455 ( 4,538 )

Cash Flows - Investing Activities

Proceeds from sale of property and equipment - 21

Net Cash Flows Provided by Investing Activities

Purchases of property and equipment ( 490 ) -

Net Cash Flows (Used in) Provided by Investing Activities ( 490 ) 21

Cash Flows - Financing Activities

Proceeds from convertible promissory notes 1,300 3,026

Payment of note payable ( 3,548 ) -

Proceeds from asset-backed secured promissory notes payable - 2,994

Proceeds from senior secured promissory note

(Payments)/Proceeds from factoring

Proceeds from warrant exercises

Proceeds from short term borrowings

Repayments of debt principal

Proceeds from secured promissory notes payable, related party 500 -

Payments to secured promissory notes payable, related party ( 500 ) -

Payments to factoring ( 1,490 ) ( 639 )

Proceeds from sale of common stock 10,300 -

Principal payments on finance leases ( 208 ) ( 170 )

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Non-Cash Investing and Financing Activities:

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

Shares issued for settlement of debt $ 8,513 $ -

Write off deferred merger costs 1,225 -

Warrants issued in conjunction with senior secured promissory note payable and convertible promissory notes payable 3,557 1,682

Conversion of warrants to common stock 41,380 -

Conversion of convertible notes payable and accrued interest to common stock - 23,156

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Common shares issued for advisory shares - 302

Settlement of debt and warrants with stock

Common shares issued in conjunction with senior secured debt

Warrant issuance in conjunction with convertible notes

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.

Capitalize default interest into senior secured debt 3,850 -

Conversion of asset-based secured promissory notes to convertible promissory notes 4,584 -

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

SANUWAVE HEALTH, INC.

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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.

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.

and Subsidiaries (“Sanuwave” or the “Company”) is focused on the commercialization of its patented regenerative medicine utilizing noninvasive ultrasound or shockwaves to produce a biological response promoting the repair and regeneration of tissue, musculoskeletal, 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.

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.

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

All significant intercompany accounts and transactions have been eliminated.

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

The financial statements of the Company’s foreign subsidiary have been

translated into United States dollars.

The financial statements of the Company’s foreign subsidiary have been translated into United States dollars.

All balance sheet accounts have been translated using the exchange rates in effect at the balance sheet date.

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Translation adjustments are reported in other comprehensive loss in the consolidated statements of comprehensive loss and as cumulative translation adjustments in accumulated other comprehensive loss in the consolidated balance sheets.

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

Our revenues are primarily generated from sales in

the United States.

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

Reclassification - Certain accounts in the prior period consolidated financial statements have been reclassified to conform to the presentation of the current year consolidated financial statements.

These reclassifications

had no effect on the previously reported operating results.

Reverse Stock Split - All share numbers, including the number of shares underlying warrants, options and convertible debt, and per share amounts presented in these consolidated 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 were issued as a result of the reverse stock split.

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

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

Reclassification - Certain accounts in the prior period consolidated statement of cash flows have been reclassified to conform to the presentation of the current year consolidated financial statements.

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

Going Concern

Our recurring losses from operations, 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.

expect to devote substantial resources for the expansion and continued commercialization of our UltraMIST and PACE systems which will require additional capital resources.

The operating losses and the events of default on the Company’s notes

payable indicate substantial doubt about the Company’s ability to continue as a going concern for a period of at least twelve months from the filing of this Annual Report on Form 10-K.

Management’s plans are to obtain additional capital in 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

conformity with U.S.

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

The carrying amounts of assets and liabilities presented

in the consolidated financial statements do not necessarily purport to represent realizable or settlement values.

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

The Company has incurred recurring operating losses in prior years, has negative working capital, and its Senior Secured Note becomes due in September 2025, which raises substantial doubt as to its ability to continue as a going concern for a period of 12 months from the filing of the Form 10-K.

During the current fiscal year, the Company has achieved operating income for the year ended 2024 , reflecting a significant improvement in its financial performance.

This turnaround is attributable to several strategic initiatives, primarily revenue growth initiatives and a capital raise from the Private Placement, which have positively impacted the Company's operations.

Despite the positive operating income in the current year, the Company continues to monitor its financial position closely.

In addition to the operational improvements, the Company is addressing its financial obligations, including the significant portion of debt that is coming due in September 2025.

Management is actively engaged in discussions with lenders and financial institutions to refinance this debt, which will extend the maturity of the debt and provide additional liquidity to support ongoing operations and strategic initiatives.

Management acknowledges that it must continue to execute its strategic initiatives effectively to ensure long-term financial stability.

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

The consolidated financial statements do not include any adjustment that might result from the outcome of this uncertainty.

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

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

Summary of Significant Accounting Policies

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

Estimates – These consolidated financial statements have been prepared in accordance

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

estimates and assumptions.

Estimates - These consolidated financial statements have been prepared in accordance with U.S.

Actual amounts may differ from these estimates.

These consolidated financial statements have, in management’s opinion, been properly prepared within reasonable limits of materiality and within the framework of the

accounting policies summarized herein.

Significant estimates include the recording of allowances for 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.

These consolidated financial statements have, in management’s opinion, been properly prepared within reasonable limits of materiality and within the framework of the accounting policies summarized herein.

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

Cash and cash equivalents - Cash and cash equivalents consist of cash on hand and demand deposits.

These investments are highly liquid and readily convertible to known amounts of cash with insignificant risk of changes in value.

The Company classifies all such highly liquid instruments that are not restricted as cash equivalents.

Cash equivalents are stated at cost, which approximates fair value due to their short-term nature.

For purposes of the statement of cash flows, the Company considers cash and cash equivalents to include cash on hand and demand deposits.

Accounts receivable - Accounts receivable are stated at the amount management expects to collect from outstanding balances.

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;

customer 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

stated at the lower of average cost, which is valued using the first in, first out (“FIFO”) method, or net realizable value less allowance for selling and distribution expenses.

The Company analyzes its inventory levels and writes down inventory

that has, or is expected to, become obsolete.

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

and liabilities assumed.

The Company accounts for goodwill under Accounting Standards Codification (ASC) Topic 350, Intangibles-Goodwill and Other .

The Company tests goodwill for impairment annually, or

more frequently whenever events or circumstances indicate impairment may exist.

Goodwill is stated at cost less accumulated impairment losses.

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.

Allowance for credit losses roll forward - The roll-forward of the allowance for credit losses is as follows:

(in millions) 2024 2023

Allowance for credit losses, January 1 $ 1.2 $ 1.0

Provision for credit losses 0.3 0.8

Write-offs ( 0.4 ) ( 0.6 )

Allowance for credit losses, December 31 $ 1.1 $ 1.2

Property, plant, and equipment (PPE) - PPE is initially recorded at cost, which includes all expenditures directly attributable to bringing the asset into working condition for its intended use.

Subsequent to initial recognition, PPE is carried at cost less accumulated depreciation and any impairment losses.

Depreciation is computed using the straight-line method over the estimated useful lives of the assets, with no residual value for most assets.

The estimated useful lives and residual values of assets are reviewed periodically and adjusted if necessary.

Major improvements and enhancements that extend the useful life of PPE are capitalized, while routine repairs and maintenance are expensed as incurred.

Inventory - Inventory consists of purchased medical equipment and parts and is stated at the lower of average cost, which is valued using the first in, first out (“FIFO”) method, or net realizable value less allowance for selling and distribution expenses.

The Company analyzes its inventory levels and writes down inventory that has, or is expected to, become obsolete.

Goodwill - Goodwill represents the excess of the purchase price over the fair value of assets acquired and liabilities assumed.

The Company accounts for goodwill under Accounting Standards Codification (ASC) Topic 350, Intangibles-

Goodwill and Other .

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

Goodwill is stated at cost less impairment losses.

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

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

2023, and 2022.

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

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

The Company performed a qualitative evaluation at the reporting unit level and determined there was no goodwill impairment as of December 31, 2024 , and 2023 .

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

Customer relationships have a useful life of seven years .

and tradenames have a useful life of nineteen years .

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

impairment whenever facts and circumstances indicate that the carrying amounts of the assets may not be recoverable.

Patents and tradenames have a useful life of nineteen years .

Impairment of long-lived assets - The Company annually reviews long-lived assets for impairment whenever facts and circumstances indicate that the carrying amounts of the assets may not be recoverable.

An impairment loss is recognized only if the carrying amount of the asset is not recoverable and exceeds its fair value.

Recoverability of assets to be held and used is measured by comparing the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset.

If the asset’s carrying value is not recoverable, an

impairment charge is recognized for the amount by which the carrying amount of the asset exceeds its fair value.

If the asset’s carrying value is not recoverable, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds its fair value.

The Company determines fair value by using a combination of comparable market values and discounted cash flows, as appropriate.

Leases – The Company determines whether an arrangement is a

lease at inception.

There were no impairments in 2024 and 2023.

Leases - The Company determines whether an arrangement is a lease at inception.

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

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

For leases where the Company is the lessee, Right of Use (“ROU”) assets represent the Company’s right to use an underlying

asset for the lease term and lease liabilities represent an obligation to make lease payments arising from the lease.

ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over

the lease term.

For leases where the Company is the lessee, Right of Use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent an obligation to make lease payments arising from the lease.

ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term.

As the Company’s leases did not provide an implicit interest rate, the Company used the equivalent borrowing rate for a secured financing with the term of equal to the remaining life of the lease at inception.

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

the Company recognizes lease costs for these lease arrangements on a straight-line basis over the lease term.

In the event a lease arrangement would provide us with options to exercise one or more renewal terms or to terminate the lease

arrangement, we would include these options when we are reasonably certain to exercise them in the lease term used to establish ROU assets and lease liabilities.

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

residual value guarantees, or material restrictive covenants.

Any lease arrangements with an initial term of 12 months or less are not recorded on our consolidated balance sheets, and the Company recognizes lease costs for these lease arrangements on a straight-line basis over the lease term.

In the event a lease arrangement would provide us with options to exercise one or more renewal terms or to terminate the lease arrangement, we would include these options when we are reasonably certain to exercise them in the lease term used to establish ROU assets and lease liabilities.

None of our lease agreements include an option to purchase the leased asset, residual value guarantees, or material restrictive covenants.

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

The future variability of

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

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

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

other short-term obligations approximate their fair values, because of the short-term maturities of these instruments.

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

defines fair value, establishes a framework for measuring fair value and requires disclosures about fair value measurements.

The framework that is set forth in this standard is applicable to the fair value measurements where it is permitted or

required under other accounting pronouncements.

The ASC 820-10 hierarchy ranks the quality and reliability of inputs, or assumptions, used in the determination of fair value and requires

financial assets and liabilities carried at fair value to be classified and disclosed in one of the following three categories:

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

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

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

The Company utilizes the guidance of ASC Topic 820-10, Fair Value Measurements (“ASC 820-10”), which defines fair value, establishes a framework for measuring fair value and requires disclosures about fair value measurements.

The framework that is set forth in this standard is applicable to the fair value measurements where it is permitted or required under other accounting pronouncements.

The ASC 820-10 hierarchy ranks the quality and reliability of inputs, or assumptions, used in the determination of fair value and requires financial assets and liabilities carried at fair value to be classified and disclosed in one of the following three categories:

Level 1 – Observable inputs that reflect quoted prices (unadjusted) in active markets for identical assets and liabilities:

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Level 3 – Unobservable inputs that are not corroborated by market data, therefore requiring the Company to develop its own assumptions.

Sequencing policy – The Company follows a sequencing policy for which in the event

partial reclassifications of contracts subject to ASC Topic 815-40-25, Derivatives and Hedging , is necessary, due to the Company’s inability to demonstrate it has sufficient authorized shares, shares will

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

Convertible promissory notes – The Company evaluates its convertible instruments to

determine if those contracts, or embedded components of those contracts, qualify as derivative financial instruments to be separately accounted for in accordance with ASC Topic 815 “Derivatives and Hedging”

The accounting treatment of derivative financial instruments requires that the Company record embedded conversion options and any related freestanding instruments at their fair values as of the inception date of the agreement and at

fair value as of each subsequent balance sheet date.

Convertible promissory notes – The Company evaluates its convertible instruments to determine if those contracts, or embedded components of those contracts, qualify as derivative financial instruments to be separately accounted for in accordance with ASC Topic 815 “Derivatives and Hedging” (“ASC 815”).

Any change in fair value is recorded as non-operating, non-cash income or expense for each reporting period at each balance sheet date.

Conversion options are recorded as a discount to the host

instrument and are amortized as amortization of debt discount on the consolidated statements of comprehensive loss over the life of the underlying instrument.

The Company reassesses the classification of its derivative instruments at each balance

Conversion options are recorded as a discount to the host instrument and are amortized as amortization of debt discount on the consolidated statements of comprehensive loss over the life of the underlying instrument.

The Company reassesses the classification of its derivative instruments at each balance sheet date.

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

Debt discount – The Company records a debt discount related to warrants issued with

debt at fair value and recognizes the cost using the straight-line method, which approximates the effective interest method, over the term of the related debt as interest expense, which is reported in the Other Income (Expense) section in our

consolidated statements of comprehensive loss.

Debt discount – The Company records a debt discount related to warrants issued with debt at fair value and recognizes the cost using the straight-line method, which approximates the effective interest method, over the term of the related debt as interest expense, which is reported in the Other Income (Expense) section in our consolidated statements of comprehensive loss.

This debt discount is reported as a reduction of the related debt liability.

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

offers a separately priced multi-year warranty.

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

the warranty term.

Revenue Recognition - The core principle of ASC Topic 606 “Revenue from Contracts with Customers” (“ASC 606”) requires that an entity recognize revenue to depict the transfer of promised

goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services.

The Company allocates the transaction price to all contractual performance

obligations included in the contract.

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

to be entitled in exchange for satisfying each performance obligation.

Contract liabilities – Device product sales are bundled with an initial one-year warranty and the Company offers a separately priced multi-year warranty.

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

Segment reporting - The Company operates as a single reporting entity and has determined that it has one reportable segment.

This conclusion is based on the fact that the Company's chief operating decision maker (“CODM”), who is the Chief Executive Officer (“CEO”), reviews the financial information and makes decisions about resource allocation and performance assessment on a consolidated basis.

The Company's operations are managed and evaluated as a single business unit, and the nature of the products and services, production processes, and customer base are similar across the entire organization.

The Company is engaged in the business of designing and selling medical devices.

The products and services offered by the Company are integrated and interrelated, and the Company does not have discrete financial information for different business lines that would qualify as separate operating segments.

All significant accounting policies, including those related to revenue recognition, inventory valuation, property, plant, and equipment, and other key areas, are applied consistently across the entire organization.

Revenue recognition - The core principle of ASC Topic 606 “Revenue from Contracts with Customers” (“ASC 606”) requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services.

The Company allocates the transaction price to all contractual performance obligations included in the contract.

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

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

refurbished).

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

Performance obligations are satisfied at the point in time when the customer obtains control of the goods, which is generally at the point in time that the product is shipped.

Licensing Fees - Licensing transactions include distribution licenses and intellectual property licenses.

Licensing revenue is recognized as the Company satisfies its performance obligations, which may vary with the terms of the

licensing agreement.

Licensing revenue is recognized as the Company satisfies its performance obligations, which may vary with the terms of the licensing agreement.

Other Revenue - Other revenue primarily includes warranties, repairs, and billed freight.

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

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

Warranty revenue is recognized over the time that the Company satisfies its performance obligations, which is generally the warranty term.

Repairs (parts and labor) and billed freight revenue are recognized at the point in time that the

service is performed, or the product is shipped, respectively.

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

Repairs (parts and labor) and billed freight revenue are recognized at the point in time that the service is performed, or the product is shipped, respectively.

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

Shipping and handling costs incurred have been recorded in cost of goods sold totaling $ 482 thousand and $ 484 thousand for the years ended December 31, 2024 , and 2023 , respectively.

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

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

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

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

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

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

The Company recognizes the estimated fair value of the award as compensation cost on a straight-line basis over the requisite service period of the award, which is generally the option vesting term.

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

The expected life of options granted 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.

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

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

The expected 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.

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

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

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

Forfeitures are recognized as they occur.

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

translation of the Company’s foreign entity’s financial statements from their functional currency to U.S.

Comprehensive income (loss) - Comprehensive income (loss) results from the translation of the Company’s foreign entity’s financial statements from their functional currency to U.S.

dollars for consolidation in the accompanying consolidated financial statements.

New accounting pronouncements - In

December 2023, the FASB issued ASC Update No.

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), 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.

New accounting pronouncements

ASU 2024-03, Disaggregation of Income Statement Expenses

In November 2024, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2024-03, Income Statement - Reporting Comprehensive Income (Topic 220):

Expense Disaggregation Disclosures to improve the disclosures about a public entity’s expenses and provide more detailed information about the types of expenses in commonly presented expense captions such as inventory purchases, employee compensation, depreciation and intangible asset amortization.

The disclosure requirements must be applied retrospectively to all prior periods presented in the financial statements.

The effective date for the standard is for fiscal years beginning after December 15, 2026 and interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted.

The Company is currently evaluating the effects adoption of this guidance will have on the consolidated financial statements.

ASU 2023-09, Improvements to Income Tax Disclosures

In December 2023 , the FASB issued ASC Update No.

2023-09, Income Taxes (Topic 740):

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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 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.

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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.

We are currently evaluating the potential impact of adopting this new guidance on our consolidated financial statements and related disclosures.

Recently adopted accounting pronouncements

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures, requiring public entities to disclose information about their reportable segments’ significant expenses and other segment items on an interim and annual basis.

Public entities with a single reportable segment are required to apply the disclosure requirements in ASU 2023-07, as well as all existing segment disclosures and reconciliation requirements in ASC 280 on an interim and annual basis.

The Company adopted ASU 2023-07 during the year ended December 31, 2024 and was retroactively applied to December 31, 2023.

See Note 22 for further detail.

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.

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.

Loss per Share

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

outstanding for the years ended December 31, 2023, and 2022.

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

stock and shares issuable for nominal consideration.

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

shares outstanding as follows:

(in thousands)

December 31, 2023

December 31, 2022

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 years ended December 31, 2024 , and 2023 .

The weighted average of number of shares outstanding includes outstanding common stock and shares issuable for nominal consideration as follows:

(in thousands) December 31, 2024 December 31, 2023

Common shares 4,463 2,059

Common shares issuable assuming exercise of nominally priced warrants

Common shares issuable assuming exercise of nominally priced warrants and options - 58

Weighted Average Shares Outstanding 4,463 2,117

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.

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,

2023, and 2022, 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, 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.

Anti-dilutive equity securities consist of the following:

(in thousands)

December 31, 2023

December 31, 2022

(in thousands) December 31, 2024 December 31, 2023

Common stock options 1,137 44

Restricted stock units- unvested 5 -

Common stock purchase warrants 53 3,200

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Inventory consisted of the following:

(in thousands)

December 31, 2023

December 31, 2022

(in thousands) December 31, 2024 December 31, 2023

Finished goods $ 386 $ 416

Parts and accessories 3,763 2,535

Reserve for slow moving inventory

Total Inventory $ 4,149 $ 2,951

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Carrying value of intangible assets consisted of the following:

December 31, 2023

December 31, 2022

December 31, 2024 December 31, 2023 Weighted-

Average Useful

Life (in years)

(in thousands)

(in thousands) Gross Accumulated

Amortization Gross Accumulated

Definite-lived Intangibles

Customer relationships $ 3,820 $ ( 2,400 ) $ 3,820 $ ( 1,854 ) 2.7

Patent 2,312 ( 535 ) 2,312 ( 413 ) 14.7

Tradenames 693 ( 160 ) 693 ( 124 ) 14.7

Intangible Assets $ 6,825 $ ( 3,095 ) $ 6,825 $ ( 2,391 ) 10.1

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

Amortization expense for each of the years ended December 31, 2024 , and 2023 totaled $ 704 thousand.

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

Year ended December 31,

Year ended December 31, Amortization

Thereafter 1,519

Accrued Expenses

Accrued expenses consisted of the following:

(in thousands)

December 31, 2023

December 31, 2022

(in thousands) December 31, 2024 December 31, 2023

Registration penalties $ 1,583 $ 1,583

License fees - 892

Board of directors fees 249 942

Employee compensation 2,232 2,298

Other 614 284

Total Accrued Expenses $ 4,678 $ 5,999

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

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

thereafter at an annualized rate of 14.4 %.

The agreement’s term is one month and automatically renews for additional one-month periods, unless

either party provides 30 days’ notice of termination.

The accounts receivable is sold with recourse back to the Company, therefore, the

Company accounts for the arrangement as traditional financing.

(In thousands)

December 31, 2023

December 31, 2022

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

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

The accounts receivable is sold with recourse back to the Company, therefore, the Company accounts for the arrangement as traditional financing.

The factoring asset is shown within Accounts receivable on the Company's consolidated balance sheets.

(In thousands) December 31, 2024 December 31, 2023

Receivables transferred $ 16 $ ( 1,794 )

Reserve amount held 220 304

Factoring liability

Senior Secured Debt, in Default

Factoring asset (liability) $ 236 $ ( 1,490 )

Senior Secured Debt

The following table summarizes outstanding senior secured debt:

December 31, 2023

December 31, 2022

(In thousands)

December 31, 2024 December 31, 2023

(In thousands) Principal Debt

Discount Carrying

Value Principal Debt

Discount Carrying

Senior secured debt $ 26,898 $ ( 1,593 ) $ 25,305 $ 21,562 $ ( 3,284 ) $ 18,278

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”).

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

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

In accordance with the NWPSA, the Company issued a $ 15 million Senior Secured Promissory Note Payable (the “Senior Secured Note”) and a warrant exercisable into shares of the Company’s common stock in exchange for cash to support operations, repay outstanding debt and close on the acquisition of the UltraMIST assets from Celularity Inc.

(Celularity) among other transactions.

In February 2022, the

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

a total of $ 18.0 million outstanding.

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

Since the combined fair value

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

Interest is charged

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

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 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 %, 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

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

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

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

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

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.

In June 2022, the Company entered into the Third Amendment to the Note and Warrant Purchase and Security Agreement (the “Third NWPSA”).

The Third NWPSA provides for (i) the extension of the agent’s and holder’s forbearance of exercising its remedies arising from Existing Defaults (as defined in the NWPSA) to the earlier of (x) the occurrence of an Event of Default (as defined in the NWPSA) or (y) August 30, 2022, and (ii) the extension to file a registration statement with the Securities and Exchange Commission to register the resale of the Advisor Shares (as defined in the NWPSA) no later than August 30, 2022.

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, 2024 .

The 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.

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.

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 (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.

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 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.

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

The debt issuance costs, and debt discount related to the Senior Secured Note were

capitalized as a reduction in the principal amount and are being amortized to interest expense over the life of the Senior Secured Note.

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.

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.

The Sixth Amendment added, as of June 30, 2024, a consent fee of $ 0.7 million to the principal amount of the Senior Secured Note issued pursuant to the NWPSA.

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 occurrence of another event of default under the NWPSA or (y) December 31, 2024.

During the forbearance period, the outstanding obligations under the NWPSA accrued interest at the default rate.

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 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;

gross proceeds from the sale of common stock of at least $ 9.0 million in a private placement (for further details on this private placement transaction, see Note 16) 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 of the Company’s common stock following the Reverse Stock Split.

As of December 31, 2024 , the Company is no longer in default and is in compliance with all covenants in the Senior Secured Note.

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.

Twelve Months Ended

(In millions) December 31, 2024 December 31, 2023

Amortization of debt issuance costs and debt discount, included in interest expense $ 2.1 $ 1.5

Interest expense $ 8.1 $ 6.9

Accrued interest related to the Senior Secured Note was $ 0.0 million and $ 3.2 million on December 31, 2024 , and December 31, 2023 , respectively.

Interest expense on the Senior Secured Note totaled $ 8.1 million and $ 6.9 million for the years ended December 31, 2024 , and 2023 , respectively.

Convertible Promissory Notes and Convertible Promissory Notes, Related Parties

Promissory Notes Payable

December 31, 2023

(In thousands, except conversion price)

(In thousands, except conversion price) Conversion

Price Principal Debt

Discount Conversion

Option Carrying

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

Convertible promissory note, related party, in default

2022 Convertible notes payable

2022 Convertible notes payable, related parties

Total Convertible promissory notes

December 31, 2022

(In thousands, except conversion price)

Acquistion convertible promissory note, in default

Convertible promissory note payable, related parties, in default $ 37.50 1,373 - - 1,373

2 unchanged sentences

Total Convertible Promissory Notes $ 8,462 $ ( 1,353 ) $ - $ 7,109

2022 Convertible Notes Payable and 2022

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

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

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

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

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 $ 16.2 million in August 2022 , $ 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 12), 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 years ended December 31, 2024 and 2023 , totaled $ 5.0 million and $ 6.4 million, respectively.

Pursuant to the Notes, the Company promised to pay in cash and/or in shares of common stock, at a conversion price of $ 15 (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 $ 15 per share;

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

The Notes contain customary events of default

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

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.

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

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

In August 2023 and November 2023 , the Company utilized its election to convert the August and November issued Notes 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 1,238,508 shares of common stock.

The November Notes totaling $ 4.0 million in principal and $ 0.6 million in interest were converted to 305,282 shares of common stock.

In May 2024, the Company utilized its election to convert the May 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.

All remaining outstanding convertible notes payable and convertible notes payable related party converted on October 18, 2024 to 591,802 shares of common stock.

The outstanding principal and interest converted totaled $ 8.9 million.

The Company recognized a $ 0.3 million gain on conversion of the Notes.

Promissory note payable, related parties - In June 2024 the Company entered into a $ 0.5 million promissory note with a related party.

Interest was accrued at 12 % with an original maturity date of December 3, 2024.

The Note was paid in full with accrued interest in October 2024.

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

A portion of the aggregate

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

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

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

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

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

As of December 31, 2023, and 2022, the Seller Notes had outstanding accrued interest of $ 2.2 million and $ 1.5 million , 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, 2024 , and 2023 , the Seller Note had outstanding accrued interest of $ 0 and $ 1.5 million, respectively.

This Seller Note was settled in 2024 for a cash payment of $ 2.2 million.

See Note 21 for additional disclosures regarding the settlement of the Seller Note.

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

Upon adoption of

ASC 2020-06 effective January 1, 2021, the convertible promissory note is accounted for as a single liability due to the elimination of the beneficial conversion feature accounting model.

Upon adoption of ASU 2020-06 effective January 1, 2021, the convertible promissory note is accounted for as a single liability due to the elimination of the beneficial conversion feature accounting model.

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

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

repaid and is currently in default.

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

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 note matured on August 6, 2021, and was not repaid was in default.

As of December 31, 2024 , and 2023 , the note had outstanding accrued interest of $ 0 and $ 444 thousand, respectively.

The convertible promissory note was settled in 2024 for a cash payment of $ 1.4 million, which resulted in a gain on the extinguishment of debt of $ 0.8 million and a reduction in accrued interest of $ 0.8 million.

Asset-Backed Secured Promissory Notes

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.

The Company 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.

Interest expense for the year ended December 31, 2024 , totaled $ 0.1 million.

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.

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 11.

The Company recorded a net loss on extinguishment of debt totaling $ 0.1 million for the twelve months ended December 31, 2024.

December 31, 2023

(In thousands)

(In thousands) Principal Debt

Discount Embedded

Derivative Carrying

ABS promissory notes $ 3,122 $ ( 53 ) $ 48 $ 3,117

2 unchanged sentences

Fair Value Measurements

The Company uses various

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

The following table classifies the Company’s liabilities

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

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

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

Fair value measurement at December 31, 2024

(in thousands)

(in thousands) Fair value Quoted

(Level 1) Significant

(Level 2) Significant

Warrant liability $ 8,107 - - $ 8,107

Conversion option

Total Fair Value $ 8,107 $ - $ - $ 8,107

Fair value measurement at December 31, 2023

(in thousands)

(in thousands) Fair value Quoted

(Level 1) Significant

(Level 2) Significant

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

1 unchanged sentence

Total Fair Value $ 14,540 $ - $ - $ 14,540

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

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

There were no transfers between Level 1, 2, or 3, during the years ended December 31, 2024 , and 2023 .

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

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

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

Warrant Liability

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).

The Company's liability classified warrants as of December 31, 2024 were valued using the Black Scholes valuation model.

The Company’s initial valuation of warrant liability from the June 2024 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 would 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 then-current probability of the Merger closing.

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

Initial Valuation

May 2023 Issuance

December 31, 2024

5 unchanged sentences

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

(in thousands, except per share data)

Warrant Liability

(in thousands, except per share data) Warrants

Outstanding Fair Value

per Share Warrant Liability

Balance December 31, 2022 2,845 $ 0.50 $ 1,416

Cashless exercise

Issuance of warrants classified as liablities

Issuance of warrants classified as liabilities 412 4.02 1,655

Change in fair value - - 11,376

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

Warrants exercised

Issuance of warrants classified as liablities

Issuance of warrants classified as liabilities 781 4.55 3,557

Exercised ( 102 ) 6.01 ( 613 )

Converted to equity ( 3,883 ) 10.50 ( 40,772 )

Change in fair value - - 31,488

Balance December 31, 2024 53 $ 152.96 $ 8,107

Embedded Conversion

Certain convertible notes

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

The fair value 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

Conversion price (1)

Value of underlying shares

Interest Rate (annual) (2)

Volatility (annual) (3)

Time to maturity

Based on the terms provided in the convertible promissory note

agreements to convert to common stock of the Company

Interest rate for U.S.

Treasury Bonds, as of each presented period

ending date, as published by the U.S.

Federal Reserve.

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

presented period ending date.

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

Embedded Conversion Option

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 of the June 2024 transaction was valued using a

probability weighted expected value considering the proposed Reverse Stock Split of the Company's common stock that would effectuate 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 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).

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 (estimated by February 29, 2024), and the probability of the then-current Merger closing ( 90 % probability).

In October 2024, the Company exchanged all outstanding convertible notes for Common Stock as part of the Note and Warrant Exchange, see Note 11.

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

(in thousands)

(in thousands) Conversion

Balance December 31, 2022 $ 2,340

Issuance of Convertible Notes ( 519 )

Settlement of convertible notes

Change in fair value ( 1,728 )

1 unchanged sentence

Issuance of Convertible Notes 8

Settlement of convertible notes ( 26 )

Change in fair value ( 75 )

1 unchanged sentence

Contract Liabilities

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

During the years ended December 31, 2023, and 2022, the Company recognized revenue related to these

contract liabilities of $ 60 thousand and $ 253

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

During the years ended December 31, 2024 , and 2023 , the Company recognized revenue related to these contract liabilities of $ 95 thousand and $ 60 thousand, respectively, that were included in the beginning contract liability balances for each of those periods.

The following table summarizes the changes in contract liabilities:

7 unchanged sentences

A summary of the warrant activity is as follows:

(in thousands, except per share data)

Exercise Price

(in thousands, except per share data) Warrants Weighted

Exercise Price Weighted

Warrants at December 31, 2022 3,221 $ 26.25 3.55

Issuances 412 22.50

Forfeited or expired ( 376 ) -

Outstanding at December 31, 2023 3,257 $ 22.50 4.01

Issuances 781 20.06

Exercised ( 107 ) 29.45

Converted ( 3,883 ) 20.06

Forfeited or expired 5 -

Outstanding at December 31, 2024 53 $ 4.05 0.86

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

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

In December 2022 , the Company’s stockholders approved an amendment to the Company’s Articles of Incorporation to increase the number of authorized shares of common stock from 800,000,000 to 2,500,000,000 .

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

Private Investment in Public Equity (PIPE) Transaction

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 $ 0.1 million 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 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.

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

receivable or total sales, respectively.

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

There were no accounts receivable concentrations on December 31, 2024 , or 2023 .

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

result in a disruption in our production.

Cash equivalents are financial instruments that potentially subject the Company to concentration of credit risk.

As of December 31, 2024, the Company's cash equivalent securities were largely comprised of money market funds.

Company’s cash accounts are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000 per financial institution in the United States.

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

The percentage of purchases from major vendors of the Company that exceeded ten percent of total purchases were as follows:

Year ended December 31,

Vendor A 26 % 19 %

Vendor B 0 % 19 %

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

The following table presents revenue from contracts with customers:

Year ended December 31, 2023

Year ended December 31, 2022

United States

International

United States

International

Year ended December 31, 2024 Year ended December 31, 2023

United States International Total United States International Total

Consumables and parts revenue $ 21,024 $ 112 $ 21,136 $ 13,143 $ 79 $ 13,222

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Stock-Based Compensation

On October 22, 2024, the Company granted stock options under the Company’s 2024 Equity Incentive Plan (the “2024 Plan”).

The 2024 Plan authorizes the issuance of 1,376,556 shares.

Stock options issued under the 2024 Plan generally vest over a three-year period, expire 10 years after the grant date, and are forfeited upon separation from the Company.

Shares vest over a 3 year period.

On November 1, 2010, the Company approved the Amended and Restated 2006 Stock Incentive Plan of SANUWAVE Health, Inc.

effective as of January 1,

2010 (the “Stock Incentive Plan”).

The Stock Incentive Plan permits grants of awards to selected employees, directors, and advisors of the Company in the form of restricted stock or options to purchase shares of common stock.

Options granted may

include non-statutory options as well as qualified incentive stock options.

effective as of January 1, 2010 (the “Stock Incentive Plan”).

Upon the approval of the 2024 Plan by the Company's stockholders, no further awards will be made under the Stock Incentive Plan.

The Stock Incentive Plan permitted grants of awards to selected employees, directors, and advisors of the Company in the form of restricted stock or options to purchase shares of common stock.

Options granted may include non-statutory options as well as qualified incentive stock options.

The Stock Incentive Plan is administered by the board of directors of the Company.

The Stock Incentive Plan gives broad powers to the board of directors of the Company to

administer and interpret the form and conditions of each option.

The stock options granted under the Stock Incentive Plan are generally non-statutory options which generally vest over a period of up to three years and have a ten-year term.

The options are granted

at an exercise price determined by the board of directors of the Company to be the fair market value of the common stock on the date of the grant.

As of December 31, 2023, and 2022, the Stock Incentive Plan reserved a total of 35,000,000 shares of common stock for grant.

On December 31, 2023, there were 5,598,216 shares of common stock available for grant under the Stock Incentive Plan.

The Stock Incentive Plan gives broad powers to the board of directors of the Company to administer and interpret the form and conditions of each option.

The following table presents stock compensation expense recognized by the Company for the year ended December 31, 2024.

Total unrecognized compensation cost related to equity awards as of December 31, 2024 was $ 8.3 million and is expected to be recognized over the next 3 years.

The Company recognizes compensation expense on a straight-line basis over the requisite service period, net of actual forfeitures.

Year ended December 31,

(in thousands) 2024

General and administrative $ 1,514

Total expense $ 1,514

The following table presents a summary of stock options award activity during the year ended December 31, 2024:

Number of Options (in thousands) Weighted Average Exercise Price Weighted Average Remaining Contractual Term (Years) Aggregate Intrinsic Value (in thousands)

Outstanding 43 $ 51.55 3.4 $ -

Granted 1,119

Forfeited ( 25 )

Outstanding, December 31, 2024 1,137 $ 15.97 9.5 $ 9,305

Exercisable, December 31, 2024 117 $ 28.71 6.8 $ 641

Valuation Information for Stock-Based Compensation

The fair value of each stock option award during the year ended December 31, 2024 was based on the closing price of the Company's common stock on the date of the grant.

Expected volatility was based on 100% of the historical realized volatilities of peer companies.

The risk-free interest rate was based on the implied yield for U.S.

Treasury zero-coupon issue with the remaining term equal to the expected term.

The expected holding period was calculated using the simplified method.

No dividend was assumed as the Company does not pay regular dividends on its common stock and does not anticipate paying any dividends in the foreseeable future.

The Company's policy is to recognize forfeitures as they occur.

The weighted average assumptions used in the Black-Scholes option pricing model in valuing stock options granted in the year ended December 31, 2024 are summarized in the table below:

Fair value at grant date $ 14.54

Expected volatility 63 %

Risk-free interest rate 4 %

Expected holding period, in years 6.05

Dividend yield 0 %

The following table presents a summary of restricted stock unit activity during the year ended December 31, 2024:

Number of Options (in thousands) Weighted Average Grant Date Fair Price

Unvested 5 $ 13.03

Vested 9 13.03

Total December 31, 2024 14 $ 13.03

The Company files income tax returns in the United States Federal jurisdiction and various state and foreign jurisdictions.

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(In thousands) 2024 2023

Domestic $ ( 31,319 ) $ ( 25,783 )

Foreign ( 26 ) ( 20 )

Net loss before income taxes $ ( 31,345 ) $ ( 25,803 )

In accordance with ASC Topic 740, Income Taxes (“ASC 740”), the Company accounts for income taxes

utilizing the asset and liability method.

Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that

will be in effect when the differences are expected to reverse.

A valuation allowance is provided for the deferred tax assets, including loss carryforwards, when it is more likely than not that some portion or all a deferred tax asset will not be

The income tax provision (benefit)

from continuing operations consists of the following:

(In thousands)

December 31, 2023

December 31, 2022

In accordance with ASC Topic 740, Income Taxes (“ASC 740”), the Company accounts for income taxes utilizing the asset and liability method.

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 realized.

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

(In thousands) December 31, 2024 December 31, 2023

Federal $ - $ -

Current Tax Provision $ 27 $ 4

Federal $ ( 1,157 ) $ ( 3,564 )

State ( 328 ) ( 459 )

Foreign ( 10 ) ( 3 )

Change in valuation allowance 1,495 4,026

Deferred Tax Provision $ - $ -

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

income tax rate of 21 % for the years ended December 31, 2023, and 2022.

As of December 31, 2024 , and 2023 , the Company did not have any undistributed earnings of our foreign subsidiaries.

As a result, no additional income or withholding taxes have been provided for.

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

The income tax provision (benefit) amounts differ from the amounts computed by applying the United States Federal statutory income tax rate of 21% for the years ended December 31, 2024 , and 2023 .

Adjustments to determine income tax expense are as follow:

(In thousands)

Years ended December 31,

(In thousands) Years ended December 31,

Tax benefit at statutory rate $ ( 6,582 ) $ ( 5,485 )

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Registration penalties - -

Accrual to Return 1,264 -

Other 215 ( 332 )

Income Tax Expense $ 27 $ 4

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

(In thousands)

December 31, 2023

December 31, 2022

(In thousands) December 31, 2024 December 31, 2023

Deferred Tax Assets

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Right-of-use asset ( 95 ) ( 180 )

Reserve for credit losses ( 20 ) -

Gross deferred tax liability ( 115 ) ( 180 )

On August 16, 2022, the U.S.

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

The Inflation Reduction Act imposes

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

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

We continue to analyze the impacts of

the Inflation Reduction Act;

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

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

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

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

TOTAL $ - $ -

The Tax Cuts and Jobs Act (“TCJA”) requires taxpayers to capitalize and amortize research and development (“R&D”) expenditures under section 174 for tax years beginning after December 31, 2021 .

This rule became effective for the Company during 2022 and resulted in capitalized R&D costs of $ 2.2 million as of December 31, 2024 .

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

for R&D performed in the U.S.

The Company will amortize these costs for tax purposes over five years for R&D performed in the U.S.

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

In 2023, all R&D was performed in the

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

liabilities for financial reporting purposes and the amounts used for income tax purposes.

In assessing the realization of deferred tax assets, management considers, whether it is “more likely than not”, that some portion or all of the deferred

tax assets will not be realized.

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences representing net future deductible amounts become

ASC 740 requires that a valuation allowance be established when it is “more likely than not” that all, or a portion of,

deferred tax assets will not be realized.

A review of all available positive and negative evidence needs to be considered, including the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies.

After consideration of all the information available, management believes that uncertainty exists with respect to future realization of its deferred tax assets and has, therefore, established a full valuation allowance as of December 31, 2023,

In 2024 , all R&D was performed in the U.S.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

In assessing the realization of deferred tax assets, management considers, whether it is “more likely than not”, that some portion or all of the deferred tax assets will not be realized.

ASC 740 requires that a valuation allowance be established when it is “more likely than not” that all, or a portion of, deferred tax assets will not be realized.

A review of all available positive and negative evidence needs to be considered,

including the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies.

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

a full analysis under Section 382 of the Internal Revenue Code has not been performed, the Company may realize a “more than 50% change in ownership” which could limit its ability to use its net operating loss carryforwards accumulated to date to

reduce future taxable income and tax liabilities.

Additionally, because United States tax laws limit the time during which net operating loss carryforwards may be applied against future taxable income and tax liabilities, the Company may not be

able to take advantage of all or portions of its net operating loss carryforwards for Federal income tax purposes.

The Federal net operating loss carryforwards of approximately $ 77.9 million from years ending December 31, 2005, through December 31, 2017, will begin to expire in 2025 .

Since a full analysis under Section 382 of the Internal Revenue Code has not been performed, the Company may realize a “more than 50% change in ownership” which could limit its ability to use its net operating loss carryforwards accumulated to date to reduce future taxable income and tax liabilities.

Additionally, because United States tax laws limit the time during which net operating loss carryforwards may be applied against future taxable income and tax liabilities, the Company may not be able to take advantage of all or portions of its net operating loss carryforwards for Federal income tax purposes.

The Federal net operating loss carryforwards of approximately $ 77.9 million from years ended December 31, 2005, through December 31, 2017 , will begin to expire in 2025 .

The Federal net operating loss carryforward for the years ended December 31, 2018, through 2024 of approximately $ 95.9 million will not expire.

The state net operating loss carryforwards of approximately $ 75.1

million from years ending December 31, 2005, through December 31, 2023, will expire at various dates through 2043 .

The foreign net

operating loss carryforward on December 31, 2023, of $ 0.1 million will begin to expire in 2024 .

A provision of ASC 740 specifies that companies are to account for uncertainties in income tax reporting, and prescribes a methodology for

recognizing, reversing, and measuring the tax benefits of a tax position taken, or expected to be taken, in a tax return.

ASC 740 requires the evaluation of tax positions taken or expected to be taken while preparing the Company’s tax returns to

determine whether the tax positions would “more-likely-than-not” be sustained if challenged by the applicable tax authority.

Tax positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the

current year.

The state net operating loss carryforwards of approximately $ 73.9 million from years ending December 31, 2005, through December 31, 2024 , will expire at various dates through 2044 .

A provision of ASC 740 specifies that companies are to account for uncertainties in income tax reporting, and prescribes a methodology for recognizing, reversing, and measuring the tax benefits of a tax position taken, or expected to be taken, in a tax return.

ASC 740 requires the evaluation of tax positions taken or expected to be taken while preparing the Company’s tax returns to determine whether the tax positions would “more-likely-than-not” be sustained if challenged by the applicable tax authority.

Tax positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the current year.

Management has evaluated and concluded that there were no material uncertain tax positions requiring recognition in the Company’s consolidated financial statements as of December 31, 2024 , and 2023 .

The Company does not expect any

significant changes in the unrecognized tax benefits within twelve months of the reporting date.

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

The Company will recognize in income tax expense, interest and penalties related to income tax matters.

For the years ended December 31, 2023,

and 2022, the Company did no t have any amounts recorded for interest and penalties.

For the years ended December 31, 2024 , and 2023 , the Company did not have any amounts recorded for interest and penalties.

The Company is subject to taxation in the United States, various state jurisdictions and Switzerland.

The Company is subject to income tax examination by U.S.

and state tax authorities for the year ended December 31, 2021 and forward and foreign tax authorities for the year ended December 31, 2020 and forward.

However, to the extent allowed by law, the taxing authorities may have the right to examine prior periods where net operating losses were generated and carried forward, and make adjustments up to the amount of the net operating losses utilized in open tax years.

Commitments and Contingencies

In the ordinary course of business, the Company from time to time becomes involved in various legal proceedings involving a variety of matters.

The Company does not

believe there are any pending legal proceedings that will have a material adverse effect on the Company’s business, consolidated financial position, results of operations, or cash flows.

However, the outcome of such legal matters is inherently

unpredictable and subject to significant uncertainties.

The Company does not believe there are any pending legal proceedings that will have a material adverse effect on the Company’s business, consolidated financial position, results of operations, or cash flows.

However, the outcome of such legal matters is inherently unpredictable and subject to significant uncertainties.

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

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.

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 $ 0.7 million upon the closure of the Merger as disclosed in Note 4.

Upon the Company's termination of the Merger Agreement in June 2024, the related contingent consideration liability was derecognized.

Acquisition Dispute

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.

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 settled this dispute in June 2024 for a cash payment 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.

Lease Commitments

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)

As of December 31, 2024 , the maturities of the Company’s operating and financing leases, which have initial or remaining lease terms more than one year, consist of the following:

(In thousands) Operating

Leases Finance

Year ended December 31,

2025 $ 122 $ 179

Total Lease Payments $ 248 $ 223

Segment Information

The Company operates in one reportable segment engaged in the design and sale of medical devices.

The accounting policies of the one reportable segment are the same as those described in the summary of significant accounting policies.

The CODM assesses performance for the reportable segment and decides how to allocate resources primarily based on gross profit that is also reported on the consolidated statements of comprehensive loss.

The measure of segment assets is reported on the consolidated balance sheets as total consolidated assets.

The CODM uses gross profit to evaluate income generated from segment assets (return on assets) in deciding whether to reinvest profits or to apply them to other parts of the entity.

Net (loss) income is used to monitor budget versus actual results.

The CODM also uses net (loss) income in competitive analysis by benchmarking to competitors.

The competitive analysis along with the monitoring of budgeted versus actual results are used in assessing performance of the segment and in establishing management’s compensation.

Management has determined that Morgan Frank, CEO, is the CODM.

The following table sets forth our consolidated statement of operations used by the CODM:

For the Years Ended December 31,

(in thousands) 2024 2023

Revenue $ 32,634 $ 20,398

Cost of revenue 8,084 6,035

Gross margin 24,550 14,363

Operating expenses:

General and administrative 11,348 8,674

Selling and marketing 6,323 4,898

Research and development 673 579

Depreciation and amortization 789 752

Operating income (loss) 5,417 ( 540 )

Other expense, net ( 36,762 ) ( 25,263 )

Income tax expense 27 4

Net loss $ ( 31,372 ) $ ( 25,807 )

License and Option Agreement

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 - The 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.

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.

On March 3, 2025, the Company received a letter from the Listing Qualifications Staff of the Nasdaq Stock Market LLC ('Nasdaq") approving the uplisting of the Company's common stock.

Trading of the Company's common stock on Nasdaq commenced on March 7, 2025 under the ticker symbol "SNWV".

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What changed 10-K

Item 8. Financial Statements and Supplementary Data