UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 20172022

☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to

Commission File Number 000-52985

SANUWAVE Health, Inc.
(Exact name of registrant as specified in its charter)

Nevada
20-1176000
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)

3360 Martin Farm11495 Valley View Road Suite 100
Suwanee, GAEden Prairie, MN
3002455344
(Address of principal executive offices)(Zip Code)

(770) 419-7525
(Registrant'sRegistrant’s telephone number, including area code)

3360 Martin Farm Road, Suite 100
Suwanee, GA, 30024
(Former name, former address and former fiscal year, if changes since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each classTrading Symbol(s)
Name of each exchange on which
registered
None
N/A
N/A

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    ☒  Yes  ☐ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    ☒ Yes  ☐  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act (Check one):Act:

Large accelerated filer ☐Accelerated filer ☐
Non-accelerated filer ☐☒Smaller reporting company  ☒
(Do not check if a smaller reporting company) Emerging growth company  ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes   ☐     YesNo  ☒  No

As of November 10, 2017,2022 there were issued and outstanding 139,249,926548,737,651 shares of the registrant’s common stock, $0.001 par value.value per share.


 
SANUWAVE Health, Inc.
 
Table of Contents
 
 Page
PART I – FINANCIAL INFORMATION
  
Item 1.4
   
 4
   
 5
   
 6
68
   
 79
   
Item 2.2317
   
Item 3.3221
   
Item 4.3221
   
PART II – OTHER INFORMATION
 
Item 1.22
Item 1A.22
Item 2.22
Item 3.22
Item 4.22
Item 5.22
Item 6.3323
   
 SIGNATURES3425
 
2

Table of Contents
Special Note Regarding Forward-Looking Statements
 
This Quarterly Report on Form 10-Q of SANUWAVE Health, Inc. and its subsidiaries (“SANUWAVE” or the “Company”) contains forward-looking statements. All statements in this Quarterly Report on Form 10-Q, including those made by the management of the Company, other than statements of historical fact, are forward-looking statements. Examples of forward-looking statements include statements regardingregarding: the potential impact of the COVID-19 pandemic on our business, results of operations, liquidity, and operations, including the effect of governmental lockdowns, restrictions and new regulations on our operations and processes, including the execution of clinical trials; the Company’s future financial results, the Company’s near term cash requirements and cash sources, clinical trial results, regulatory approvals, operating results, business strategies,and projected costs, products, competitive positions,costs; market acceptance of and demand for UltraMIST®, dermaPACE® and our product candidates; management’s plans and objectives for future operations,operations; industry trends; regulatory actions that could adversely affect the price of or demand for our approved products; our intellectual property portfolio; our business, marketing and industry trends.manufacturing capacity and strategy; estimates regarding our capital requirements, the anticipated timing of the need for additional funds, and our expectations regarding future capital-raising transactions, including through investments by strategic partners for market opportunities, which may include strategic partnerships or licensing agreements, or raising capital through the conversion of outstanding warrants or issuances of securities; product liability claims; economic conditions that could adversely affect the level of demand for or cost of our products; timing of clinical studies and eventual U.S. Food and Drug Administration (“FDA”) approval of our products; financial markets; the competitive environment; supplier and customer disputes; and our plans to remediate our material weaknesses in our disclosure controls and procedures and our internal control over financial reporting. These forward-looking statements are based on management’s estimates, projections, and assumptions as of the date hereof and include the assumptions that underlie such statements. Forward-looking statements may contain words such as “may,” “will,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential” and “continue,” the negative of these terms, or other comparable terminology. Any expectations based on these forward-looking statements are subject to risks and uncertainties and other important factors, including those discussed in the reports we file with the Securities and Exchange Commission (the “SEC”), specifically the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016,2021, filed on March 31, 2017 and in the Company’s Quarterly Reports on Form 10-Q.May 13, 2022. Other risks and uncertainties are and will be disclosed in the Company’s prior and futuresubsequent SEC filings. These and many other factors could affect the Company’s future financial condition and operating results and could cause actual results to differ materially from expectations based on forward-looking statements made in this document or elsewhere by the Company or on its behalf. The Company undertakes no obligation to revise or update any forward-looking statements. The following information should be read in conjunction with the financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016,2021, filed on March 31, 2017.May 13, 2022.
 
Except as otherwise indicated by the context, references in this Quarterly Report on Form 10-Q to “we,” “us” and “our” are to the consolidated business of the Company.

3
Table of Contents

PART I —-- FINANCIAL INFORMATION

Item1. FINANCIAL STATEMENTS (UNAUDITED)
ITEM 1.FINANCIAL STATEMENTS
 
SANUWAVE HEALTH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In thousands, except share data)

  September 30, 2022  December 31, 2021 
ASSETS      
Current Assets:      
Cash 
$
1,112
  
$
619
 
Accounts receivable, net of allowance for doubtful accounts of $0.8 million, respectively
  
2,403
   
2,415
 
Inventory  
1,413
   
1,040
 
Prepaid expenses and other current assets  
1,935
   
326
 
Total Current Assets  
6,863
   
4,400
 
Property, Equipment and Other, net  
673
   
1,118
 
Other Intangible Assets, net  
5,313
   
5,841
 
Goodwill  
7,260
   
7,260
 
Total Assets 
$
20,109
  
$
18,619
 
         
LIABILITIES        
Current Liabilities:        
Senior secured promissory note payable, in default 
$
12,773
  
$
11,586
 
Convertible promissory notes payable, in default  
4,000
   
11,601
 
Convertible promissory notes, related parties, in default  
1,373
   
1,596
 
Convertible promissory notes payable
  9,174   - 
Convertible promissory notes payable, related parties
  4,485   - 
Advances on future cash receipts
  194   446 
Accounts payable  
5,055
   
7,644
 
Accrued expenses  
4,100
   
4,394
 
Accrued employee compensation  
3,792
   
4,247
 
Due under factoring ageement
  1,510   1,737 
Warrant liability  
1,196
   
9,614
 
Current portion of SBA loans  
-
   
158
 
Accrued interest  
3,988
   
2,521
 
Accrued interest, related parties  
546
   
289
 
Current portion of lease and contract liabilities  
249
   
316
 
Other  
30
   
114
 
Total Current Liabilities  
52,465
   
56,263
 
Non-current Liabilities        
SBA loans  
-
   
875
 
Lease liabilities  
263
   
118
 
Contract liabilities  
205
   
293
 
Deferred tax liability  
28
   
28
 
Total Non-current Liabilities  
496
   
1,314
 
Total Liabilities  
52,961
   
57,577
 
         
Commitments and Contingencies (Footnote 11)
  
   
 
         
STOCKHOLDERS’ DEFICIT        
         
Preferred Stock, par value $0.001, 5,000,000 shares authorized; 6,175 shares Series A, 293 shares Series B, 90 shares Series C and 8 shares Series D no shares issued and outstanding at September 30, 2022 and December 31, 2021
  
-
   
-
 
Common Stock, par value $0.001, 800,000,000 shares authorized; 548,737,651 and 481,619,621 issued and outstanding at September 30, 2022 December 31, 2021, respectively
  
549
   
482
 
Additional Paid-in Capital  
152,750
   
144,582
 
Accumulated Deficit  
(186,084
)
  
(183,949
)
Accumulated Other Comprehensive Loss  
(67
)
  
(73
)
Total Stockholders’ Deficit  
(32,852
)
  
(38,958
)
Total Liabilities and Stockholders’ Deficit 
$
20,109
  
$
18,619
 

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

(UNAUDITED)4
Table of Contents
SANUWAVE HEALTH, INC. AND SUBSIDIARIES
 
 
 September 30,
 
 
 December 31,
 
 
 
2017
 
 
2016
 
ASSETS
 
 
 
 
 
 
CURRENT ASSETS
 
 
 
 
 
 
Cash and cash equivalents
 $40,226 
 $133,571 
Accounts receivable, net of allowance for doubtful accounts
    
    
of $123,026 in 2017 and $35,196 in 2016
  172,119 
  460,799 
Inventory, net
  176,109 
  231,953 
Prepaid expenses
  103,539 
  87,823 
TOTAL CURRENT ASSETS
  491,993 
  914,146 
 
    
    
PROPERTY AND EQUIPMENT, at cost, less accumulated depreciation (Note 4)
  59,395 
  76,938 
 
    
    
OTHER ASSETS
  13,922 
  13,786 
TOTAL ASSETS
 $565,310 
 $1,004,870 
 
    
    
   LIABILITIES  
    
    
CURRENT LIABILITIES
    
    
Accounts payable
 $1,435,431 
 $712,964 
Accrued expenses (Note 5)
  459,735 
  375,088 
Accrued employee compensation
  65,154 
  64,860 
Advances from related parties and accredited investors (Note 6)
  751,616 
  - 
Interest payable, related parties (Note 7)
  535,125 
  109,426 
Short term loan, net (Note 8)
  100,000 
  47,440 
Warrant liability (Note 12)
  1,058,202 
  1,242,120 
Notes payable, related parties, net (Note 7)
  5,183,310 
  5,364,572 
TOTAL LIABILITIES
  9,588,573 
  7,916,470 
 
    
    
COMMITMENTS AND CONTINGENCIES (Note 13)
    
    
 
    
    
   STOCKHOLDERS' DEFICIT  
    
    
PREFERRED STOCK, SERIES A CONVERTIBLE, par value $0.001,
    
    
6,175 authorized; 6,175 shares issued and 0 shares outstanding
    
    
in 2017 and 2016 (Note 11)
  - 
  - 
 
    
    
PREFERRED STOCK, SERIES B CONVERTIBLE, par value $0.001,
    
    
293 authorized; 293 shares issued and 0 shares outstanding
    
    
in 2017 and 2016, respectively (Note 11)
  - 
  - 
 
    
    
PREFERRED STOCK - UNDESIGNATED, par value $0.001, 4,993,532
    
    
shares authorized; no shares issued and outstanding (Note 11)
  - 
  - 
 
    
    
COMMON STOCK, par value $0.001, 350,000,000 shares authorized;
    
    
139,099,843 and 137,219,968 issued and outstanding in 2017 and
    
    
2016, respectively (Note 10)
  139,100 
  137,220 
 
    
    
ADDITIONAL PAID-IN CAPITAL
  93,077,145 
  92,436,697 
 
    
    
ACCUMULATED DEFICIT
  (102,194,242)
  (99,433,448)
 
    
    
ACCUMULATED OTHER COMPREHENSIVE LOSS
  (45,266)
  (52,069)
TOTAL STOCKHOLDERS' DEFICIT
  (9,023,263)
  (6,911,600)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT
 $565,310 
 $1,004,870 
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
(In thousands, except share data)
  Three Months Ended September 30,  Nine Months Ended September 30, 
  2022
  2021
  2022
  2021
 
Revenues:            
Accessory and parts revenue $3,012  $2,067  $7,866  $5,645 
Product  902   1,299   2,408   2,066 
Rental Income
  247   333   935   864 
License fees and other  5   26   33   175 
Total Revenue  4,166   3,725   11,242   8,750 
                 
Cost of Revenues  606   1,555   2,590   3,658 
                 
Gross Margin  3,560   2,170   8,652   5,092 
                 
Operating Expenses:                
General and administrative  3,404   2,864   8,482   8,909 
Selling and marketing  1,650   2,150   5,037   6,450 
Research and development  157   297   494   923 
Gain on disposal of assets
  -   -   (690)  - 
Depreciation and amortization
  189   194   575   585 
Total Operating Expenses  5,400   5,505   13,898   16,867 
                 
Operating Loss  (1,840)  (3,335)  (5,246)  (11,775)
                 
Other Income (Expense):                
Interest expense  (3,301)  (1,781)  (9,203)  (4,340)
Interest expense, related party
  (439)  (55)  (551)  (150)
Change in fair value of derivative liabilities
  5,252   1,555   16,597   1,599 
Loss on issuance of debt  -   (1,088)  (3,434)  (3,572)
Gain / (loss) on extinguishment of debt
  (86)  460   (297)  460 
Gain / (loss) on foreign currency exchange  1   (2)  (1)  2 
Other Income (Expense), net  1,427   (911)  3,111   (6,001)
                 
Net Loss before Income Taxes  (413)  (4,246)  (2,135)  (17,776)
                 
Provision for Income Taxes  -   6   -   28 
                 
Net Loss
  (413)  (4,252)  (2,135)  (17,804)

                
Other Comprehensive Loss
                
Foreign currency translation adjustments  -   -   -   (12)
Total Comprehensive Loss $(413) $(4,252) $(2,135) $(17,816)
                 
Loss per Share:                
 Basic and Diluted
 $(0.00) 
$(0.01) $(0.00) $(0.03)
                 
Weighted average shares outstanding, basic and diluted
                
Basic and Diluted  561,069,625   518,310,781   542,484,779   518,370,156 

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

5
SANUWAVE HEALTH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
(UNAUDITED)
(In thousands, except share data)

Three Months Ended September 30, 2022 
  Preferred Stock  Common Stock             
  Number of     Number of           Accumulated    
  Shares     Shares           Other    
  Issued and     Issued and     Additional Paid-  Accumulated  Comprehensive    
  Outstanding  Par Value  Outstanding  Par Value  in Capital  Deficit  Loss  Total
 
                         
Balances as of June 30, 2022
  
-
  
$
-
   
529,293,205
  
$
529
  
$
151,409
  
$
(185,671
)
 
$
(67
)
 
$
(33,800
)
Shares issued for settlement of debt and warrants  
-
   
-
   
19,444,446
   
20
   
1,341
           
1,361
 
Net loss
  
-
   
-
   
-
   
-
   
-
   
(413
)
  
-
   
(413
)
Balances as of September 30, 2022
  
-
  
$
-
   
548,737,651
  
$
549
  
$
152,750
  
$
(186,084
)
 
$
(67
)
 
$
(32,852
)

Three Months Ended September 30, 2021 
  Preferred Stock  Common Stock             
  Number of     Number of           Accumulated    
  Shares     Shares           Other    
  Issued and     Issued and     Additional Paid-  Accumulated  Comprehensive    
  Outstanding  Par Value  Outstanding  Par Value  in Capital  Deficit  Loss  Total 
                         
Balances as of June 30, 2021
  
-
  
$
-
   
481,619,621
  
$
482
  
$
144,582
  
$
(170,242
)
 
$
(74
)
 
$
(25,252
)
Net loss  
-
   
-
   
-
   
-
   
-
   
(4,252
)
  
-
   
(4,252
)
Balances as of September 30, 2021
  
-
  
$
-
   
481,619,621
  
$
482
  
$
144,582
  
$
(174,494
)
 
$
(74
)
 
$
(29,504
)

The accompanying notes to condensed consolidated financial statements are an integral part of these financial statements.
 
6
Table of Contents
SANUWAVE HEALTH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
(UNAUDITED)
(In thousands except share data)
Nine Months Ended September 30, 2022 
 
 Preferred Stock  Common Stock             
  Number of     Number of           Accumulated    
  Shares     Shares           Other    
  Issued and     Issued and     Additional Paid-  Accumulated  
Comprehensive
    
  Outstanding  Par Value
  Outstanding
  Par Value
  in Capital  Deficit  Loss  Total
 
 
                        
Balances as of December 31, 2021
  
-
  
$
-
   
481,619,621
  
$
482
  
$
144,582
  
$
(183,949
)
 
$
(73
)
 
$
(38,958
)
Cashless warrant exercise      
-
   
14,000,000
   
14
   
2,152
   
-
   
-
   
2,166
 
Warrant exercise  
-
   
-
   
909,091
   
1
   
99
   
-
   
-
   
100
 
Shares issued in conjuction with Note Payable  
-
   
-
   
20,666,993
   
20
   
3,700
   
-
   
-
   
3,720
 
Shared issed for settlement of debt and warrants
  -   -   19,444,446   20   1,341   -   -   1,361 
Shares issued for services          
12,097,500
   
12
   
876
   
-
   
-
   
888
 
Net loss  
-
   
-
   
-
   
-
   
-
   
(2,135
)
  
-
   
(2,135
)
Foreign currency translation adjustment  
-
   
-
   
-
   
-
   
-
   
-
   
6
   
6
 
 
                                
Balances as of September 30, 2022
  
-
  
$
-
   
548,737,651
  
$
549
  
$
152,750
  
$
(186,084
)
 
$
(67
)
 
$
(32,852
)

Nine Months Ended September 30, 2021 
 
 Preferred Stock  Common Stock             
  Number of     Number of           Accumulated    
  Shares     Shares           Other    
  Issued and     Issued and     Additional Paid-  Accumulated  Comprehensive    
   Outstanding   Par Value   Outstanding   Par Value   in Capital   Deficit   Loss   Total 
 
                        
Balances as of December 31, 2020
  
-
  
$
-
   
470,694,621
  
$
471
  
$
142,563
  
$
(156,690
)
 
$
(62
)
 
$
(13,718
)
Cashless warrant exercise  
-
   
-
   
10,925,000
   
11
   
(11
)
  
-
   
-
   
-
 
Reclassification of warrant liability due to cashless warrant exercise  
-
   
-
   
-
   
-
   
2,030
   
-
   
-
   
2,030
 
Net loss  
-
   
-
   
-
   
-
   
-
   
(17,804
)
  
-
   
(17,804
)
Foreign currency translation adjustment  
-
   
-
   
-
   
-
   
-
   
-
   
(12
)
  
(12
)
 
                                
Balances as of September 30, 2021
  
-
  
$
-
   
481,619,621
  
$
482
  
$
144,582
  
$
(174,494
)
 
$
(74
)
 
$
(29,504
)

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

7
Table of Contents
SANUWAVE HEALTH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)

  Nine Months Ended September 30, 
  2022
  2021
 
Cash Flows - Operating Acivities:      
Net loss
 
$
(2,135
)
 
$
(17,804
)
Adjustments to reconcile net loss to net cash used by operating activities        
Depreciation and Amortization  
681
   
970
 
Bad debt expense  
62
   
307
 
Income tax expense  
-
   28
 
Shares issued for service  888   - 
Loss (Gain) on extinguishment of debt  297   (460)
Gain on sale of property and equipment, net
  (690)  -
 
Change in fair value of derivative liabilities
  (16,597)  
(1,599
)
Loss on issuance of debt
  3,434   3,572 
Amortization of debt issuance costs and original issue discount
  
2,998
   
1,418
 
Accrued interest  
1,618
   
929
 
Interest payable, related parties  
168
   
150
 
Changes in operating assets and liabilities        
Accounts receivable - trade  
69
   
(345
)
Inventory  
(373
)
  
1,430
 
Prepaid expenses and other assets  
(1,437
)
  
(355
)
Accounts payable  
(1,863
)
  
2,656
 
Accrued expenses  
271
   
1,652
 
Accrued employee compensation  
(473
)
  
885
 
Contract liabilties
  
(94
)
  
60
 
Net Cash Used in Operating Activities  
(13,176
)
  
(6,506
)
         
Cash Flows - Investing Activities        
Proceeds from sale of property and equipment  
1,022
   
-
 
Purchase of property and equipment
  -   (441)
Net Cash Flows Provided by (Used in) Investing Activities  
1,022
   
(441
)
         
Cash Flows - Financing Activities        
Proceeds from senior promissory notes
  2,940   940 
Proceeds from short term notes  
640
   
125
 
Proceeds from factoring, net
  (227)  1,244 
Proceeds from SBA loan
  -   1,033 
Proceeds from warrant exercises  
100
   
-
 
Proceeds from convertible promissory notes
  12,366   1,928 
Payments of principal on finance leases  
(174
)
  
(143
)
Payments of principal on convertible promissory notes, related parties, convertible promissory notes and SBA loans  (2,981)  (237)
Net Cash Flows Provided by Financing Activities  
12,664
   
4,890
 
         
Effect of Exchange Rates on Cash  
(17
)
  
(53
)
         
Net Change in Cash During Period  
493
   
(2,110
)
         
Cash at Beginning of Period  
619
   
2,437
 
Cash at End of Period 
$
1,112
  
$
327
 
         
Supplemental Information:        
Cash paid for interest 
$
3,345
  
$
1,993
 
         
Non-cash Investing and Financing Activities:        
Reclassification of warrant liability due to cashless warrant exercise 
$
2,166
  
$
2,030
 
Settlement of debt and warrants with stock
  1,361  $- 
Warrants issued in conjunction with senior secured promissory note payable
  2,654   - 
Common shares issued in conjunction with senior secured promissory note payable
  3,720   - 
Embedded conversion option with issuances of convertible debt  2,309   2,740 
 Working capital balances refinanced into Convertible notes payable  2,273   - 
Warrant issuance in conjunction with convertible debt  1,463   758 

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

8

SANUWAVE HEALTH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(UNAUDITED)
 
 
 Three Months Ended
 
 
 Three Months Ended
 
 
 Nine Months Ended
 
 
 Nine Months Ended
 
 
 
 September 30,
 
 
 September 30,
 
 
 September 30,
 
 
 September 30,
 
 
 
2017
 
 
2016
 
 
2017
 
 
2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
REVENUES
 $161,585 
 $255,652 
 $422,199 
 $728,382 
 
    
    
    
    
COST OF REVENUES (exclusive of depreciation and amortization shown below)
  61,684 
  98,678 
  141,523 
  249,847 
 
    
    
    
    
OPERATING EXPENSES
    
    
    
    
Research and development
  266,837 
  266,473 
  965,084 
  1,052,595 
General and administrative
  475,377 
  645,863 
  1,875,891 
  1,734,891 
Depreciation
  5,465 
  1,554 
  17,543 
  3,227 
Amortization
  - 
  76,689 
  - 
  230,067 
Gain on sale of property and equipment
  - 
  - 
  - 
  (1,000)
TOTAL OPERATING EXPENSES
  747,679 
  990,579 
  2,858,518 
  3,019,780 
 
    
    
    
    
OPERATING LOSS
  (647,778)
  (833,605)
  (2,577,842)
  (2,541,245)
 
    
    
    
    
OTHER INCOME (EXPENSE)
    
    
    
    
(Loss) Gain on warrant valuation adjustment and conversion
  (41,681)
  (43,536)
  316,952 
  (812,983)
Interest expense, net
  (160,978)
  (259,302)
  (496,997)
  (623,066)
Loss on foreign currency exchange
  (888)
  (3,367)
  (2,907)
  (9,215)
TOTAL OTHER INCOME (EXPENSE), NET
  (203,547)
  (306,205)
  (182,952)
  (1,445,264)
 
    
    
    
    
NET LOSS
  (851,325)
  (1,139,810)
  (2,760,794)
  (3,986,509)
 
    
    
    
    
OTHER COMPREHENSIVE INCOME (LOSS)
    
    
    
    
Foreign currency translation adjustments
  20,570 
  (2,268)
  6,803 
  (4,980)
TOTAL COMPREHENSIVE LOSS
 $(830,755)
 $(1,142,078)
 $(2,753,991)
 $(3,991,489)
 
    
    
    
    
LOSS PER SHARE:
    
    
    
    
Net loss - basic and diluted
 $(0.01)
 $(0.01)
 $(0.02)
 $(0.04)
 
    
    
    
    
Weighted average shares outstanding - basic and diluted
  139,099,843 
  115,528,604 
  138,711,527 
  97,798,261 
 The accompanying notes to condensed consolidated financial statements are an integral part of these statements.

SANUWAVE HEALTH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 
 
 Nine Months Ended
 
 
 Nine Months Ended
 
 
 
 September 30,
 
 
 September 30,
 
 
 
2017
 
 
2016
 
 
 
 
 
 
 
 
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
 
 
 
Net loss
 $(2,760,794)
 $(3,986,509)
  Adjustments to reconcile net loss to net cash used by operating activities
    
    
    to net cash used by operating activities
    
    
Depreciation
  17,543 
  3,227 
Change in allowance for doubtful accounts
  87,830 
  15,376 
Amortization
  - 
  230,067 
Stock-based compensation - employees, directors and advisors
  482,295 
  116,550 
(Gain) Loss on warrant valuation adjustment
  (316,952)
  812,982 
Amortization of debt discount
  71,298 
  18,548 
Amortization of debt issuance costs
  - 
  114,522 
Loss on conversion option of promissory note payable
  - 
  75,422 
Loss on conversion option of convertible debenture
  - 
  50,100 
Stock issued for consulting services
  - 
  43,540 
Gain on sale of property and equipment
  - 
  (1,000)
Changes in assets - (increase)/decrease
    
    
     Accounts receivable - trade
  200,850 
  (82,219)
     Inventory
  55,844 
  17,922 
     Prepaid expenses
  (15,716)
  755 
     Other
  (136)
  (2,843)
Changes in liabilities - increase/(decrease)
    
    
     Accounts payable
  722,467 
  (133,173)
     Accrued expenses
  84,647 
  60,369 
     Accrued employee compensation
  294 
  209,465 
     Interest payable, related parties
  425,699 
  (239,803)
     Promissory notes, accrued interest
  - 
  (32,271)
NET CASH USED BY OPERATING ACTIVITIES
  (944,831)
  (2,708,973)
 
    
    
CASH FLOWS FROM INVESTING ACTIVITIES
    
    
Proceeds from sale of property and equipment
  - 
  1,000 
Purchases of property and equipment
  - 
  (7,878)
NET CASH USED BY INVESTING ACTIVITIES
  - 
  (6,878)
 
    
    
CASH FLOWS FROM FINANCING ACTIVITIES
    
    
Proceeds from warrant exercise
  93,067 
  32,000 
Advances from related parties and accredited investors
  751,616 
  - 
Proceeds from 2016 Public Offering, net
  - 
  1,596,855 
Proceeds from 2016 Private Offering, net
  - 
  1,528,200 
Proceeds from convertible promissory notes, net
  - 
  106,000 
Proceeds from convertible debenture, net
  - 
  175,000 
Payment of convertible promissory notes
  - 
  (155,750)
Payment of convertible debenture
  - 
  (210,000)
NET CASH PROVIDED BY FINANCING ACTIVITIES
  844,683 
  3,072,305 
 
    
    
EFFECT OF EXCHANGE RATES ON CASH
  6,803 
  (4,980)
 
    
    
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
  (93,345)
  351,474 
 
    
    
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
  133,571 
  152,930 
CASH AND CASH EQUIVALENTS, END OF PERIOD
 $40,226 
 $504,404 
 
    
    
SUPPLEMENTAL INFORMATION
    
    
Cash paid for interest, related parties
 $- 
 $630,549 
 
    
    
NONCASH INVESTING ACTIVITIES
    
    
Cashless warrant conversion
 $66,966 
 $- 
 The accompanying notes to condensed consolidated financial statements are an integral part of these statements.

SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 20172022

1. Nature of the Business
1.
Nature of the Business and Basis of Presentation

SANUWAVE Health, Inc. and subsidiaries (theSubsidiaries (“SANUWAVE” or the “Company”) is an acoustic shock wave technology company using afocused on the research, development, and commercialization of its patented system of noninvasive high-energy, acoustic pressure shock waves for regenerative medicine and other applications. The Company’s initial focus is regenerative medicine – utilizing noninvasive (extracorporeal), acoustic shock waves to produce a biological response resulting in the body healing itself throughactivating medical systems for the repair and regeneration of skin, musculoskeletal tissue, musculoskeletal and vascular structures. The Company’s lead regenerative product in the United States is the dermaPACE®dermaPACE® device used for treating diabetic foot ulcers,ulcers.

Through the Company’s acquisition, on August 6, 2020, of the UltraMIST® assets from Celularity, Inc. (“Celularity”), SANUWAVE now combines two highly complementary and market-cleared energy transfer technologies and two human tissue biologic products, which was subject to two double-blinded, randomized Phase III clinical studies. creates a platform of scale with an end-to-end product offering in the advanced wound care market.

Basis of Presentation – The resultsaccompanying unaudited condensed consolidated financial statements of these clinical studies were submitted to the U.S. Food and Drug Administration (“FDA”)Company have been prepared in late July 2016, after our in-person meeting to discuss the submission strategy.
The Company’s portfolio of healthcare products and product candidates activate biologic signaling and angiogenic responses, including new vascularization and microcirculatory improvement, helping to restore the body’s normal healing processes and regeneration. The Company intends to apply its Pulsed Acoustic Cellular Expression (PACE®) technology in wound healing, orthopedic, plastic/cosmetic and cardiac conditions. The Company currently does not market any commercial products for saleaccordance with accounting principles generally accepted in the United States. Revenues are from salesStates of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8-03 of Regulation S-X. Accordingly, these condensed consolidated financial statements do not include all the information and disclosures required by U.S. GAAP for comprehensive financial statements. Certain accounts in the prior period condensed consolidated financial statements have been reclassified to conform to the presentation of the European Conformity Marking (“CE Mark”) devices and accessories in Europe, Canada, Asia and Asia/Pacific.
2. Going Concern
current period condensed consolidated financial statements. These reclassifications had no effect on the previously reported operating results. The Company does not currently generate significant recurring revenue and will require additional capital during the thirdfourth quarter of 2017. Asfinancial information as of September 30, 2017,2022, and for the Company had an accumulated deficit of $102,194,242three andcash and cash equivalents of $40,226. For the nine months ended September 30, 20172022, and 2016,2021 is unaudited; however, in the net cash used by operating activities was $944,831opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and $2,708,973, respectively. The Company incurred a net loss of $2,760,794 for the nine months ended September 30, 2017 and a net loss2022, are not necessarily indicative of $6,439,040the results that may be expected for any other interim period or for the year endedending December 31, 2016. 2022.
The operatingcondensed consolidated balance sheet on December 31, 2021, has been derived from the audited consolidated financial statements at that date but does not include all the information and disclosures required by U.S. GAAP for comprehensive financial statements. These financial statements should be read in conjunction with the Company’s December 31, 2021, Annual Report on Form 10-K filed with the SEC on May 13, 2022 (the “2021 Annual Report”).

2.Going Concern

Our recurring losses andfrom operations, the Eventsevents of Defaultdefault on the NotesCompany’s notes payable, related parties (see Note 7) create an uncertainty about the Company’sand 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.concern for a period of at least twelve months from the filing of this Form 10-Q. We will be required to raise additional funds to finance our operations and remain a going concern; we may not be able to do so, and/or the terms of any financings may not be advantageous to us.
 
The continuation of the Company’sour business is dependent upon raising additional capital. We expect to devote substantial resources for the commercialization of the dermaPACE device and will continue to research and develop the non-medical uses of the PACE technology, both of which will require additional capital during the fourth quarter of 2017 to fund operations. resources.
Management’s plans are to obtain additional capital in 20172022 through investments by strategic partners for market opportunities, which may include strategic partnerships or licensing arrangements, or raise capital through the conversion of outstanding warrants, the 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 the Company’sour existing shareholders. Although In addition, there can be no assurances canthat our plans to obtain additional capital will be given, management ofsuccessful on the Company believes that potential additional issuances of equityterms or other potential financing transactions as discussed above should provide the necessary funding for the Company to continue as a going concern. timeline we expect, or at all. If these efforts are unsuccessful, we may be required to significantly curtail or discontinue operations or, if available, obtain funds through financing transactions with unfavorable terms.

9
The accompanying condensed consolidated financial statements have been prepared in conformity with U.S. GAAP, which contemplate continuation of the Company may be forcedas a going concern and the realization of assets and satisfaction of liabilities in the normal course of business. The carrying amounts of assets and liabilities presented in the condensed consolidated financial statements do not necessarily purport to seek relief through a filing underrepresent realizable or settlement values. The condensed consolidated financial statements do not include any adjustment that might result from the U.S. Bankruptcy Code. Theoutcome of this uncertainty. Our condensed consolidated financial statements do not include any adjustments relating to the recoverability of assets and classification of assets and liabilities that might be necessary if the Company isshould we be unable to continue as a going concern.

3.
3.Summary of Significant Accounting Policies

Significant Accounting Policiesaccounting policies followed by the Company are summarized below and should be read in conjunction with those described in Note 3 to the consolidated financial statements in our 2021 Annual Report.

Basis of Presentation
The accompanying unauditedEstimates – These condensed consolidated financial statements of the Company have been prepared in accordance with United States generally accepted accounting principles for interim financial informationU.S. GAAP. Because a precise determination of assets and withliabilities, and correspondingly revenues and expenses, depend on future events, the instructions to Form 10-Q and Article 8-03preparation of Regulation S-X.  Accordingly, these condensed consolidated financial statements do notfor any period necessarily involves the use of estimates and assumptions. Actual amounts may differ from these estimates. These condensed 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 all the informationrecording of allowances for doubtful accounts, the net realizable value of inventory, useful lives of long-lived assets, fair value of goodwill and footnotes requiredother intangible assets, the determination of the valuation allowances for deferred taxes, estimated fair value of stock-based compensation, and the estimated fair value of financial instruments, including warrants and embedded conversion options.

4.Loss per Share

The net loss per share is calculated by United States generally accepted accounting principles for complete financial statements. The financial information asdividing the net loss attributable to common stockholders by the weighted average number of September 30, 2017 andshares outstanding for the three and nine months ended September 30, 20172022, and 2016 is unaudited; however, in the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.  Operating results for the three and nine month periods ended September 30, 2017 are not necessarily indicative of the results that may be expected for any other interim period or for the year ending December 31, 2017.

SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017
3. Summary of Significant Accounting Policies (continued)
The condensed consolidated balance sheet at December 31, 2016 has been derived from the audited consolidated financial statements at that date, but does not include all of the information and footnotes required by United States generally accepted accounting principles for complete financial statements.
Significant Accounting Policies
For further information and a summary of significant accounting policies, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, filed2021. In accordance with the SEC on March 31, 2017.  
Recently Issued Accounting Standards
New accounting pronouncements are issued by the Financial Standards Board (“FASB”) or other standards setting bodies that the Company adopts according to the various timetables the FASB specifies. The Company does not expect the adoption of recently issued accounting pronouncements to have a significant impact on the Company’s results of operations, financial position or cash flow.
In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09), which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. The standard is effective for annual periods beginning after December 15, 2017, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). In July 2015, the FASB confirmed a one-year delay in the effective date of ASU 2014-09, making the effective date for the Company the first quarter of fiscal 2018 instead of the current effective date, which was the first quarter of fiscal 2017. This one year deferral was issued by the FASB in ASU 2015-14, Revenue from Contracts with Customers (Topic 606.codification (“ASC”). The Company can elect to adopt the provisions of ASU 2014-09 for annual periods beginning after December 31, 2017, including interim periods within that reporting period. The FASB also agreed to allow entities to choose to adopt the standard as of the original effective date. The Company will adopt the standard effective January 1, 2018 and currently anticipates using the retrospective approach with the cumulative effect of initially adopting the new accounting standard at the date of adoption. The Company has completed a high-level impact assessment and has commenced an in-depth evaluation of the adoption impact, which involves the review of pre-existing customer contracts and arrangements. The Company is still in the process of evaluating the impact that the pending adoption of the new standard will have on these contracts and transactions. The new standard will require the Company to include expanded qualitative and quantitative disclosures relating to the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers, including specific judgments and estimates used by management.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires lessees to recognize most leases on the balance sheet. The provisions of this guidance are effective for the annual periods beginning after December 15, 2018, and interim periods within those years, with early adoption permitted. Management is evaluating the requirements of this guidance and has not yet determined the impact of the pending adoption on the Company’s financial position or results of operations.

SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017
3. Summary of Significant Accounting Policies (continued)
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments (Topic 230). This ASU will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. The ASU will be effective for fiscal years beginning after December 15, 2017. This standard will require adoption on a retrospective basis unless it is impracticable to apply, in which case it would be required to apply the amendments prospectively as of the earliest date practicable. Management is evaluating the requirements of this guidance and has not yet determined the impact of the adoption on the Company’s financial position or results of operations.
In July 2017, the FASB issued ASU No. 2017-11, Topic 260-10-45-13, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480): Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement, the weighted average of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. Part I of this ASU addresses the complexity and reporting burden associated with the accounting for freestanding and embedded instruments with down round features as liabilities subject to fair value measurement. Part II of this ASU addresses the difficulty of navigating Topic 480. Part I of this ASU will be effective for fiscal years beginning after December 15, 2018. Early adoption is permitted for an entity in an interim or annual period. Management is evaluating the requirements of this guidance and has not yet determined the impact of the pending adoption on the Company’s financial position or results of operations.
4. Property and equipment
Property and equipment consists of the following:
 
 
 September 30,
 
 
 December 31,
 
 
 
2017
 
 
2016
 
 
 
 
 
 
 
 
Machines and equipment
 $240,295 
 $240,295 
Office and computer equipment
  156,860 
  156,860 
Devices
  82,204 
  82,204 
Software
  34,528 
  34,528 
Furniture and fixtures
  16,019 
  16,019 
Other assets
  2,259 
  2,259 
    Total
  532,165 
  532,165 
Accumulated depreciation
  (472,770)
  (455,227)
    Net property and equipment
 $59,395 
 $76,938 
Depreciation expense was $5,465 and $1,554 for the three months ended September 30, 2017 and 2016, respectively and $17,543 and $3,227 for the nine months ended September 30, 2017 and 2016, respectively.

SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017
5. Accrued expenses
Accrued expenses consist of the following:
 
 
 September 30,
 
 
 December 31,
 
 
 
2017
 
 
2016
 
 
 
 
 
 
 
 
Accrued executive severance
 $100,000 
 $100,000 
Accrued board of director's fees
  95,000 
  16,000 
Accrued audit and tax preparation
  83,095 
  100,000 
Accrued outside services
  53,912 
  31,533 
Deferred rent
  44,594 
  41,341 
Accrued clinical expenses
  23,650 
  13,650 
Deferred revenue
  21,060 
  18,810 
Accrued travel and entertainment
  20,000 
  - 
Accrued legal professional fees
  13,609 
  45,000 
Accrued other
  4,815 
  8,754 
     Total Accrued expenses
 $459,735 
 $375,088 
6. Advances from related parties
The Company has received cash advances from related parties and accredited investors to help fund the Company’s operations. These advances are a part of a subscription agreement that the Company is offering to issue convertible promissory notes. As of September 30, 2017, the Company had received $751,616 from related parties and accredited investors.
10% Convertible Promissory Notes
On March 27, 2017, the Company began offering subscriptions for 10% convertible promissory notes (the “10% Convertible Promissory Notes”) to selected accredited investors. Up to $2,500,000 aggregate principal amount of 10% Convertible Promissory Notes are being offered by the Company. The Company is currently working on completing this offering.
The 10% Convertible Promissory Notes have a six month term from the subscription date and the note holders can convert the 10% Convertible Promissory Notes at any time during the term to the number of shares of Common Stock equal to the amount obtained by dividing (i) the amount of unpaid principal and accrued interest on the note by (ii) $0.11. The 10% Convertible Promissory Notes include a warrant agreement (the “Class N Warrant Agreement”) to purchase Common Stock equal to the amount obtained by dividing the (i) sum of the principal amount, by (ii) $0.11. The Class N Warrant Agreement expires March 17, 2019.
On November 3, 2017, the Company issued $1,124,440 in 10% Convertible Promissory Notes to related parties and accredited investors and issued 10,222,180 Class N Warrants. The fair value of the Class N Warrants will be calculated and recorded in November 2017. On November 3, 2017, Premier Shockwave Inc., a company owned by Anthony Michael Stolarski, a member of the Company’s board of directors and an existing shareholder of the Company, purchased $330,000 of the 10% Convertible Promissory Notes and was issued 3,000,000 Class N Warrants.
The Company, the related parties and the accredited investors are executing and delivering the 10% Convertible Promissory Notes and the Class N Warrants in reliance upon the exemption from securities registration afforded by Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D (“Regulation D”).
Pursuant to the terms of a Registration Rights Agreement that the Company entered with the accredited investors in connection with the 10% Convertible Promissory Note, the Company is required to file a registration statement that covers the shares of Common Stock issuable upon conversion of the 10% Convertible Promissory Notes or upon exercise of the Class N Warrants. The failure on the part of the Company to satisfy certain deadlines described in the Registration Rights Agreement may subject the Company to payment of certain monetary penalties.
7. Notes payable, related parties
The notes payable, related parties were issued in conjunction with the Company’s purchase of the orthopedic division of HealthTronics, Inc. on August 1, 2005. The notes payable, related parties bore interest at 6% per annum. Quarterly interest through June 30, 2010 was accrued and added to the principal balance. Interest was paid quarterly in arrears beginning September 30, 2010. All remaining unpaid accrued interest and principal was due August 1, 2015.
On June 15, 2015, the Company and HealthTronics, Inc. entered into an amendment (the “Note Amendment”) to amend certain provisions of the notes payable, related parties. The Note Amendment provided for the extension of the due date to January 31, 2017. In the period ending March 31, 2016, the Company reclassified the outstanding principal balance from non-current liabilities to current liabilities. In connection with the Note Amendment, the Company entered into a security agreement with HealthTronics, Inc. to provide a first security interest in the assets of the Company. The notes payable, related parties will bear interest at 8% per annum effective August 1, 2015 and during any period when an Event of Default occurs, the applicable interest rate shall increase by 2% per annum. Events of Default under the notes payable, related parties have occurred and are continuing on account of the failure of SANUWAVE, Inc., a Delaware corporation, a wholly owned subsidiary of the Company and the borrower under the notes payable, related parties, to make the required payments of interest which were due on December 31, 2016, March 31, 2017, June 30, 2017, and September 30, 2017 (collectively, the “Defaults”). As a result of the Defaults, the notes payable, related parties have been accruing interest at the rate of 10% per annum since January 12, 2017 and continue to accrue interest at such rate. The Company will be required to make mandatory prepayments of principal on the notes payable, related parties equal to 20% of the proceeds received by the Company through the issuance or sale of any equity securities in cash or through the licensing of the Company’s patents or other intellectual property rights.

SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017
7. Notes payable, related parties (continued)
On June 28, 2016, the Company and HealthTronics, Inc. entered into a second amendment (the “Second Amendment”) to amend certain provisions of the notes payable, related parties. The Second Amendment provides for the extension of the due date to January 31, 2018.
On August 3, 2017, the Company and HealthTronics, Inc. entered into a third amendment (the “Third Amendment”) to amend certain provisions of the notes payable, related parties. The Third Amendment provides for the extension of the due date to December 31, 2018 and revision of the mandatory prepayment provisions.
The notes payable, related parties had an aggregate netincludes outstanding principal balance of $5,183,310, net of $189,433 debt discount, at September 30, 2017 and $5,364,572, net of $8,171 debt discount, at December 31, 2016, respectively.
In addition, the Company, in connection with the Note Amendment, issued to HealthTronics, Inc. on June 15, 2015, a total of 3,310,000 warrants (the “Class K Warrants”) to purchase shares of the Company’s common stock, $0.001 par value (the “Common Stock”), at an exercise price of $0.55 per share, subject to certain anti-dilution protection. Each Class K Warrant represents the right to purchase one share of Common Stock. The warrants vested upon issuance and expire after ten years. The fair value of these warrants on the date of issuance was $0.0112 per warrant and $36,989 was recorded as a debt discount to be amortized over the life of the amendment.
In addition, the Company, in connection with the Second Amendment, issued to HealthTronics, Inc. on June 28, 2016, an additional 1,890,000 Class K Warrants to purchase shares of the Company’s Common Stock at an exercise price of $0.08 per share, subject to certain anti-dilution protection. The exercise price of the 3,310,000 Class K Warrants issued on June 15, 2015 was decreased to $0.08 per share. The fair value of these warrants on the date of issuance was $0.005 per warrant and $9,214 was recorded as a debt discount to be amortized over the life of the amendment.
In addition, the Company, in connection with the Third Amendment, issued to HealthTronics, Inc. on August 3, 2017, an additional 2,000,000 Class K Warrants to purchase shares of the Company’s Common Stock at an exercise price of $0.11 per share, subject to certain anti-dilution protection. The fair value of these warrants on the date of issuance was $0.10 per warrant and $200,000 was recorded as a debt discount to be amortized over the life of the amendment.
Accrued interest currently payable totaled $535,125 and $109,426 at September 30, 2017 and December 31, 2016, respectively. Interest expense on notes payable, related parties totaled $160,979 and $129,808 for the three months ended September 30, 2017 and 2016, respectively, and $444,437 and $390,746 for the nine months ended September 30, 2017 and 2016, respectively.
8. Short term loan
On December 21, 2016, the Company entered into a short term loan with Millennium Park Capital LLC (the “Holder”) in the principal amount of $100,000. The principal amount shall be due and payable on the date that substantial money is obtained from the Company’s Korean distributor or date that money is obtained from a new distributor. This short term note is currently in default.
In addition, the Company will issue to the Holder 500,000 warrants to purchase shares of the Company’s common stock, $0.001 par value (the “Common Stock”), at an exercise price of $0.17. Each warrant will represent the right to purchase one share of Common Stock. The warrants will vest upon issuance and have an expiration date of March 17, 2019. The fair value of the yet to be issued warrants on the date of issuance of the short term loan was $0.1168 per warrant, using the Black-Scholes option pricing model, and $58,400 was recorded as a debt discount to be amortized over the life of the short term loan.

SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017
9. Income taxes
The Company files income tax returns in the United States federal jurisdiction and various state and foreign jurisdictions. The Company is no longer subject to United States federal and state and non-United States income tax examinations by tax authorities for years before 2014.
At September 30, 2017, the Company had federal net operating loss (“NOL”) carryforwards for tax years through the year ended December 31, 2016, that will begin to expire in 2025. The use of deferred tax assets, including federal NOLs, is limited to future taxable earnings. Based on the required analysis of future taxable income under the provisions of ASC 740, Income Taxes, the Company’s management believes that there is not sufficient evidence at September 30, 2017 indicating that the results of operations will generate sufficient taxable income to realize the net deferred tax asset in years beyond 2017. As a result, a valuation allowance was provided for the entire net deferred tax asset related to future years, including NOL carryforwards.
The Company’s ability to use its NOL carryforwards could be limited and subject to annual limitations. In connection with future offerings, the Company may realize a “more than 50% change in ownership” which could further limit its ability to use its NOL carryforwards accumulated to date to reduce future taxable income and tax liabilities. Additionally, because United States tax laws limit the time during which NOL 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 NOL carryforwards for federal income tax purposes.
10. Equity transactions
Warrant Exercise
In April 2017, the Company issued 200,000 shares of common stock upon the exercise of 200,000 Class L Warrants to purchase shares of stock for $0.08 per share under the terms of the Class L Warrant Public Offering agreement. The Company received proceeds of $16,000.
On March 10, 2017, the Company issued 363,333 shares of common stock upon the exercise of 363,333 Class L Warrants to purchase shares of stock for $0.08 per share under the terms of the Class L Warrant Public Offering agreement. The Company received proceeds of $29,067.
On January 24, 2017, the Company issued 600,000 shares of common stock upon the exercise of 600,000 Class L Warrants to purchase shares of stock for $0.08 per share under the terms of the Class L Warrant Public Offering agreement. The Company received proceeds of $48,000.
On October 20, 2016, the Company issued 185,000 shares of common stock upon the exercise of 185,000 Class L Warrants to purchase shares of stock for $0.08 per share under the terms of the Class L Warrant agreement.
On October 14, 2016, the Company issued 258,333 shares of common stock upon the exercise of 258,333 Class L Warrants to purchase shares of stock for $0.08 per share under the terms of the Class L Warrant agreement.
On September 20, 2016, the Company issued 400,000 shares of common stock upon the exercise of 400,000 Class L Warrants to purchase shares of stock for $0.08 per share under the terms of the Class L Warrant agreement.
Cashless Warrant Exercise
On June 22, 2017, the Company issued 84,514 shares of common stock to Arthur Motch III upon the cashless exercise of 125,246 Series A Warrants to purchase shares of stock for $0.0334 per share based on a current market value of $0.1027 per share as determined under the terms of the Series A Warrant agreement.

SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017
10. Equity transactions (continued)
On March 13, 2017, the Company issued 297,035 shares of common stock to Lucas Hoppel upon the cashless exercise of 583,333 Class L Warrants to purchase shares of stock for $0.08 per share based on a current market value of $0.163 per share as determined under the terms of the Class L Warrant Private Offering agreement.
On February 6, 2017, the Company issued 80,804 shares of common stock to Intracoastal Capital, LLC upon the cashless exercise of 100,000 Series A Warrants to purchase shares of stock for $0.0334 per share based on a current market value of $0.174 per share as determined under the terms of the Series A Warrant agreement.
On February 2, 2017, the Company issued 158,240 shares of common stock to Intracoastal Capital, LLC upon the cashless exercise of 200,000 Series A Warrants to purchase shares of stock for $0.0334 per share based on a current market value of $0.17 per share as determined under the terms of the Series A Warrant agreement.
On January 26, 2017, the Company issued 79,998 shares of common stock to Intracoastal Capital, LLC upon the cashless exercise of 100,000 Series A Warrants to purchase shares of stock for $0.0334 per share based on a current market value of $0.1669 per share as determined under the terms of the Series A Warrant agreement.
On January 20, 2017, the Company issued 15,951 shares of common stock to Intracoastal Capital, LLC upon the cashless exercise of 20,000 Series A Warrants to purchase shares of stock for $0.0334 per share based on a current market value of $0.165 per share as determined under the terms of the Series A Warrant agreement.
On November 18, 2016, the Company issued 117,510 shares of common stock to DeMint Law, PLLC upon the cashless exercise of 143,400 Series A Warrants to purchase shares of stock for $0.0334 per share based on a current market value of $0.185 per share as determined under the terms of the Series A Warrant agreement.
On September 8, 2016, the Company issued 526,288 shares of common stock to Vigere Capital LP upon the cashless exercise of 971,667 Class M Warrants to purchase shares of stock for $0.06 per share based on a current market value of $0.11 per share as determined under the terms of the Class M Warrant agreement.
On August 23, 2016, the Company issued 343,434 shares of common stock to JDF Capital, Inc. upon the cashless exercise of 971,667 Class M Warrants to purchase shares of stock for $0.06 per share based on a current market value of $0.17 per share as determined under the terms of the Class M Warrant agreement.
On August 23, 2016, the Company issued 1,640,589 shares of common stock to JDF Capital, Inc. upon the cashless exercise of 4,641,667 Class J Warrants to purchase shares of stock for $0.06 per share based on a current market value of $0.17 per share as determined under the terms of the Class J Warrant agreement.
2016 Private Placement
On August 11, 2016, the Company began a private placement of securities (the “2016 Private Placement”) with select accredited investors in reliance upon the exemption from securities registration afforded by Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), an Rule 506 of Regulation D (“Regulation D”) as promulgated by the Securities and Exchange Commission under the Securities Act. The 2016 Private Placement offered Units (the “Units”) at a purchase price of $0.06 per Unit, with each Unit consisting of (i) one (1) share of Common Stock and, (ii) one (1) detachable warrant (the “Warrants”) to purchase one (1) share of Common Stock at an exercise price of $0.08 per share.
On August 25, 2016 and September 27, 2016 in conjunction with the 2016 Private Placement, the Company issued an aggregate of 22,766,667 and 5,533,334, respectively, shares of common stock for an aggregate purchase price of $1,366,000 and $332,000, respectively.

SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017
10. Equity transactions (continued)
The Company, in connection with the 2016 Private Placement, issued to the investors an aggregate of 28,300,001 warrants (the “Class L Warrants”) to purchase shares of common stock at an exercise price of $0.08 per share. Each Class L Warrant represents the right to purchase one share of Common Stock. The warrants vested upon issuance and expire on March 17, 2019.
Pursuant to the terms of a Registration Rights Agreement that the Company entered with the accredited investors in connection with the 2016 Private Placement, the Company is required to file a registration statement that covers the shares of Common Stock and the shares of common stock issuable upon exercise of the Warrants. The failure on the part of the Company to satisfy certain deadlines described in the Registration Rights Agreement may subject the Company to payment of certain monetary penalties.
Michael N. Nemelka, the brother of a member of the Company’s board of directors and an existing shareholder of the Company, was a purchaser in the 2016 Private Placement of $75,000. A. Michael Stolarski, a member of the Company’s board of directors and an existing shareholder of the Company, was a purchaser in the 2016 Private Placement of $60,000.
At the closing of the 2016 Private Placement, the Company paid West Park Capital, Inc., the placement agent for the equity offering, cash compensation of $169,800 based on the gross proceeds of the private placement and 2,830,000 Class L Warrants. 
Consulting Agreement
In August 2016, the Company entered into a consulting agreement for which the fee for the services performed was paid with Common Stock. The Company issued 435,392 shares of Common Stock to Vigere Capital LP under this agreement. The fair value of the Common Stock issued to the consultant, based upon the closing market price of the Common Stock at the date the Common Stock was issued, was recorded as a non-cash general and administrative expense in the amount of $43,539 for the three months ended September 30, 2016.
Convertible Debenture and Restricted Stock
On July 29, 2016, the Company entered into a financing transaction for the sale of a Convertible Debenture (the “Debenture”) in the principal amount of $200,000, with gross proceeds of $175,000 to the Company after payment of a 10% original issue discount. The offering was conducted pursuant to the exemption from registration provided by Section 4(a)(2) of the Act and Rule 506 of Regulation D thereunder. The Company did not utilize any form of general solicitation or general advertising in connection with the offering. The Debenture was offered and sold to one accredited investor (the “Investor”).
The Investor is entitled to, at any time or from time to time, commencing on the date that is one hundred fifty one (151) days from the Issuance Date set forth above convert the Conversion Amount into Conversion Shares, at a conversion price for each share of Common Stock equal to either (i) if the Company is Deposit/Withdrawal at Custodian (“DWAC”) Operational at the time of conversion, Seventy percent (70%) of the lowest closing bid price (as reported by Bloomberg LP) of Common Stock for the twenty (20) Trading Days immediately preceding the date of the date of conversion of the Debentures, or (ii) if either the Company is not DWAC Operational or the Common Stock is traded on the bottom tier OTC Pink (or, “pink sheets”) at the time of conversion, Sixty Five percent (65%) of the lowest closing bid price (as reported by Bloomberg LP) of the Common Stock for the twenty (20) Trading Days immediately preceding the date of conversion of the Debentures, subject in each case to equitable adjustments resulting from any stock splits, stock dividends, recapitalizations or similar events.
The Company recorded $124,900 in interest expense for the beneficial conversion feature of the debenture in December 2016.

SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017
10. Equity transactions (continued)
The Debenture is secured by the accounts receivable of the Company and, unless earlier redeemed, matures on the third anniversary date of issuance. The Company paid a commitment fee of $2,500 and issued 835,000 shares of Restricted Stock. The fair value of the Restricted Stock on the date of issuance was $0.06 and $50,100 was recorded as interest expense in July 2016.
In September 2016, the Company repaid the Debenture in full which totaled $210,000 with a Redemption Price of 105% of the sum of the Principal Amount per the agreement. The premium of $10,000 paid upon redemption was recorded as interest expense in September 2016.
2016 Equity Offering
On March 11, 2016, April 6, 2016, and April 15, 2016 in conjunction with an equity offering of securities (the “2016 Equity Offering”) with select accredited investors, the Company issued an aggregate of 25,495,835, 3,083,334 and 1,437,501, respectively, shares of common stock for an aggregate purchase price of $1,529,750, $185,000, and $86,200, respectively. The mandatory prepayment of principal on the notes payable, related parties equal to 20% of the proceeds received by the Company was waived by HealthTronics, Inc. for this 2016 Equity Offering.
The Company, in connection with the 2016 Equity Offering, issued to the investors an aggregate of 30,016,670 warrants (the “Class L Warrants”) to purchase shares of common stock at an exercise price of $0.08 per share. Each Class L Warrant represents the right to purchase one share of Common Stock. The warrants vested upon issuance and expire on March 17, 2019.
Pursuant to the terms of a Registration Rights Agreement that the Company entered into with the investors in connection with the 2016 Equity Offering, the Company is required to file a registration statement that covers the shares of common stock and the shares of common stock issuable upon exercise of the Class L Warrants. The registration statement was declared effective by the SEC on February 16, 2016.
Michael N. Nemelka, the brother offor nominal consideration. Accordingly, warrants issued with a member of the Company’s board of directors and an existing shareholder of the Company, was a purchaser in the 2016 Equity Offering of $100,000. A. Michael Stolarski, a member of the Company’s board of directors and an existing shareholder of the Company, was a purchaser in the 2016 Equity Offering of $75,000.
At the closing of the 2016 Equity Offering, the Company paid Newport Coast Securities, Inc., the placement agent for the equity offering, cash compensation of $180,095 based on the gross proceeds of the private placement and 3,001,667 Class L Warrants.  In addition, the Company paid an escrow fee of $4,000 and an attorney fee of $20,000 from the gross proceeds.
Series A Warrant Conversion
On January 13, 2016, the Company entered into an Exchange Agreement (the “Exchange Agreement”) with certain beneficial owners (the “Investors”) of Series A warrants (the “Warrants”) to purchase shares of Common Stock, pursuant to which the Investors exchanged (the “Exchange”) all of their respective Warrants for either (i) shares of Common Stock or (ii) shares of Common Stock and shares of the Company’s Series B Convertible Preferred Stock, $0.001 par value (the “Preferred Stock”).

SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017
10. Equity transactions (continued)
The Exchange was based on the following exchange ratio (the “Exchange Ratio”): 1 Series A Warrant = 0.4685 shares of capital stock. Investors who, as a result of the Exchange, owned in excess of 9.99% (the “Ownership Threshold”) of the outstanding Common Stock, received a mixture of Common Stock and shares of Preferred Stock. They received Common Stock up to the Ownership Threshold, and received shares of Preferred Stock beyond the Ownership Threshold (but the total shares of Common Stock and Preferred Stock issued to such holders was still based on the same Exchange Ratio). The relative rights, preferences, privileges and limitations of the Preferred Stock are as set forth in the Company’s Certificate of Designation of Series B Convertible Preferred Stock, which was filed with the Secretary of State of the State of Nevada on January 12, 2016 (the “Series B Certificate of Designation”).
In the Exchange, an aggregate number of 23,701,428 Warrants were exchanged for 7,447,954 shares of Common Stock and 293 shares of Preferred Stock. Pursuant to the Series B Certificate of Designation, each of the Preferred Stock shares is convertible into shares of Common Stock at an initial rate of 1 Preferred Stock share for 12,500 Common Stock shares, which conversion rate is subject to further adjustment as set forth in the Series B Certificate of Designation. Pursuant to the terms of the Series B Certificate of Designation, the holders of the Preferred Stock shares will generally be entitled to that number of votes as is equal to the number of shares of Common Stock into which the Preferred Stock may be converted as of the record date of such vote or consent, subject to the Beneficial Ownership Limitation.
In connection with entering into the Exchange Agreement, the Company also entered into a Registration Rights Agreement, dated January 13, 2016, with the Investors. The Registration Rights Agreement requires that the Company file with the SEC a registration statement to register for resale the shares of the Common Stock issued in connection with the Exchange and the Common Stock issuable upon conversion of the Preferred Stock shares (the “Preferred Stock Conversion Shares”). The registration statement was declared effective by the SEC on February 16, 2016.
11. Preferred Stock
The Company’s Articles of Incorporation authorize the issuance of up to 5,000,000 shares of “blank check” preferred stock with designations, rights and preferences as may be determined from time to time by the board of directors.  On January 12, 2016, the Company filed a Certificate of Designation of Preferences, Rights and Limitations for Series B Convertible Preferred Stock of the Company (the “Certificate of Designation”) with the Nevada Secretary of State. The Certificate of Designation amends the Company’s Articles of Incorporation to designate 293 shares of preferred stock, par value $0.001$0.01 per share exercise price, are included in weighted average shares outstanding as Series B Convertible Preferred Stock. The Series B Convertible Preferred Stock has a stated value of $1,000 per share. On January 13, 2016,follows (shares in connection with the Series A Warrant Conversion, the Company issued 293 shares of Series B Convertible Preferred Stock (for a more detailed discussion regarding the Series A Warrant Conversion, see Note 10).thousands):

Under the Certificate of Designation, holders of Series B Convertible Preferred Stock are entitled to receive dividends equal (on an as-if-converted-to-common-stock basis) to and in the same form as dividends (other than dividends in the form of common stock) actually paid on shares of the common stock when, as and if such dividends are paid. Such holders will participate on an equal basis per-share with holders of common stock in any distribution upon winding up, dissolution, or liquidation of the Company. Holders of Series B Convertible Preferred Stock are entitled to convert each share of Series A Convertible Preferred Stock into 2,000 shares of common stock, provided that after giving effect to such conversion, such holder, together with its affiliates, shall not beneficially own in excess of 9.99% of the number of shares of common stock outstanding (the “Beneficial Ownership Limitation”). Holders of the Series B Convertible Preferred Stock are entitled to vote on all matters affecting the holders of the common stock on an “as converted” basis, provided that such holder shall only vote such shares of Series B Convertible Preferred Stock eligible for conversion without exceeding the Beneficial Ownership Limitation.

 Three Months Ended  Nine Months Ended 
  September 30, 2022  September 30, 2021  September 30, 2022  September 30, 2021 
Weighted average shares outstanding            
Common shares  540,584   481,620   519,127   481,620 
Common shares issuable assuming exercise of nominally priced warrants  20,486   36,691   23,358   36,751 
Weighted average shares outstanding  561,070   518,311   542,485   518,370 

On April 29, 2016, the holders of Series B Convertible Preferred Stock converted the outstanding 293 shares of Series B Convertible Preferred Stock into 3,657,278 shares of common stock. As of April 29, 2016, there were no outstanding shares of Series B Convertible Preferred Stock.

SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017
11. Preferred Stock (continued)
On March 14, 2014, the Company filed a Certificate of Designation of Preferences, Rights and Limitations for Series A Convertible Preferred Stock of the Company (the “Certificate of Designation”) with the Nevada Secretary of State. The Certificate of Designation amends the Company’s Articles of Incorporation to designate 6,175 shares of preferred stock, par value $0.001Diluted net loss per share as Series A Convertible Preferred Stock. The Series A Convertible Preferred Stock has a stated value of $1,000 per share. On March 17, 2014, in connection with a Private Placement, the Company issued 6,175 shares of Series A Convertible Preferred Stock. As of January 6, 2015, there were no outstanding shares of Series A Convertible Preferred Stock.
12. Warrants
A summary of the warrant activity as of September 30, 2017 and December 31, 2016, and the changes during the nine months ended September 30, 2017, is presented as follows:
 
 
 Outstanding
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Outstanding
 
 
 
 as of
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 as of
 
 
 
 December 31,
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 September 30,
 
Warrant class
 
2016
 
 
 Issued
 
 
 Exercised
 
 
 Converted
 
 
 Expired
 
 
2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Class F Warrants
  300,000 
  - 
  - 
  - 
  - 
  300,000 
Class G Warrants
  1,503,409 
  - 
  - 
  - 
  - 
  1,503,409 
Class H Warrants
  1,988,095 
  - 
  - 
  - 
  - 
  1,988,095 
Class I Warrants
  1,043,646 
  - 
  - 
  - 
  - 
  1,043,646 
Class K Warrants
  5,200,000 
  2,000,000 
  - 
  - 
  - 
  7,200,000 
Class L Warrants
  65,945,005 
  - 
  (1,746,666)
  - 
  - 
  64,198,339 
Series A Warrants
  2,106,594 
  - 
  (545,246)
  - 
  - 
  1,561,348 
 
  78,086,749 
  2,000,000 
  (2,291,912)
  - 
  - 
  77,794,837 
A summary of the warrant exercise price per share and expiration date is presented as follows:
 Exercise
 Expiration
 price/share
date
Class F Warrants $ 0.35 February 2018
Class G Warrants $ 0.80 July 2018
Class H Warrants $ 0.80 July 2018
Class I Warrants $ 0.85 September 2018
Class K Warrants $ 0.08 June 2025
Class K Warrants $ 0.11 August 2027
Class L Warrants $ 0.08 March 2019
Series A Warrants $ 0.03 March 2019
The exercise price and the number of shares covered by the warrants willwould be adjusted if the Company has a stock split, if there is a recapitalization of the Company’s common stock, or if the Company consolidates with or merges into another company.

SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017
12. Warrants (continued)
The exercise price of the Class K Warrants and the Series A Warrants are subject to a “down-round” anti-dilution adjustment if the Company issues or is deemed to have issued certain securities at a price lower than the then applicable exercise price of the warrants.  The exercise price of the Series A Warrants was adjusted to $0.0334 due to the 2016 Equity Offering (see Note10). The Class K Warrants may be exercised on a physical settlement or on a cashless basis.  The Series A Warrants may be exercised on a physical settlement basis if a registration statement underlying the warrants is effective.  If a registration statement is not effective (or the prospectus contained therein is not available for use) for the resale by the holder of the Series A Warrants, then the holder may exercise the warrants on a cashless basis.
In February 2013, the Company issued 2,000,000 warrants to a consultant to purchase the Company’s common stock at $0.35 per share (the “Class F Warrants”). The five year Class F Warrants vest 300,000 on the date of grant and 1,700,000 upon the completion of a $5,000,000, or greater, capital raise on or prior to June 8, 2013. A capital raise was not completed for the requisite amount and the 1,700,000 Class F Warrants expired by their terms. The Company recorded the underlying cost of the 300,000 Class F Warrants as a cost of the Public Offering.
In June 2015, the Company, in connection with the Note Amendment (see Note 7), issued to HealthTronics, Inc. an aggregate total of 3,310,000 Class K Warrants to purchase shares of the Company’s common stock, $0.001 par value, at an exercise price of $0.55 per share, subject to certain anti-dilution protection. Each Class K Warrant represents the right to purchase one share of Common Stock. The warrants vested upon issuance and expire after ten years.
In June 2016, the Company, in connection with the Second Amendment (see Note 7), issued to HealthTronics, Inc., an additional 1,890,000 Class K Warrants to purchase shares of the Company’s Common Stock at an exercise price of $0.08 per share, subject to certain anti-dilution protection. The exercise price of the 3,310,000 Class K Warrants issued on June 15, 2015 was decreased to $0.08 per share. The warrants vested upon issuance and expire after ten years.
In August 2017, the Company, in connection with the Third Amendment (see Note 7), issued to HealthTronics, Inc., an additional 2,000,000 Class K Warrants to purchase shares of the Company’s Common Stock at an exercise price of $0.11 per share, subject to certain anti-dilution protection. The warrants vested upon issuance and expire after ten years.
The Class K Warrants, the Series A Warrants and the Series B Warrants are derivative financial instruments. The estimated fair value of the Class K Warrants at the date of grant was $36,989 and recorded as debt discount, which is accreted to interest expense through the maturity date of the related notes payable, related parties. The estimated fair values of the Series A Warrants and the Series B Warrants at the date of grant were $557,733 for the warrants issued in conjunction with the 2014 Private Placement and $47,974 for the warrants issued in conjunction with the 18% Convertible Promissory Notes. The fair value of the Series A Warrants and Series B Warrants were recorded as equity issuance costs in 2014, a reduction of additional paid-in capital. The Series B Warrants expired unexercised in March 2015.
The estimated fair values were determined using a binomial option pricing model based on various assumptions.  The Company’s derivative liabilities are adjusted to reflect estimated fair value at each period end, with any decrease or increase in the estimated fair value being recorded in other income or expense accordingly, as adjustments to the fair value of derivative liabilities.  Various factors are considered in the pricing models the Company uses to value the warrants, including the Company’s current common stock price, the remaining life of the warrants, the volatility of the Company’s common stock price, and the risk-free interest rate.  In addition, as of the valuation dates, management assessed the probabilities of future financing and other re-pricing events in the binominal valuation models.

SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017
12. Warrants (continued)
A summary of the changes in the warrant liability as of September 30, 2017 and December 31, 2016, and the changes during the three and nine months ended September 30, 2017, is presented as follows:
 
 
 Class K
 
 
 Series A
 
 
 
 
 
 
Warrants
 
 
Warrants
 
 
 Total
 
 
 
 
 
 
 
 
 
 
 
Warrant liability as of December 31, 2016
 $884,000 
 $358,120 
 $1,242,120 
Issued
  - 
  - 
  - 
Warrant redemption
  - 
  (57,372)
  (57,372)
Change in fair value
  (208,000)
  (115,223)
  (323,223)
Warrant liability as of March 31, 2017
 $676,000 
 $185,525 
 $861,525 
Issued
  - 
  - 
  - 
Warrant redemption
  - 
  (9,594)
  (9,594)
Change in fair value
  - 
  (35,410)
  (35,410)
Warrant liability as of June 30, 2017
 $676,000 
 $140,521 
 $816,521 
Issued
  200,000 
  - 
  200,000 
Warrant redemption
  - 
  - 
  - 
Change in fair value
  (52,000)
  93,681 
  41,681 
Warrant liability as of September 30, 2017
 $824,000 
 $234,202 
 $1,058,202 
13. Commitments and contingencies
Operating Leases
Rent expense for the three months ended September 30, 2017 and 2016, was $33,572 and $47,108, respectively and for the nine months ended September 30, 2017 and 2016 was $99,800 and $130,083, respectively. Minimum future lease payments under the operating lease consist of the following:
Year ending December 31,
 
 Amount
 
 
 
 
 
Remainder of 2017
 $33,507 
2018
  135,704 
2019
  139,775 
2020
  143,969 
2021
  148,288 
Total
 $601,243 
Litigation
The Company is involved in various legal matters that have arisen in the ordinary course of business. While the ultimate outcome of these matters is not presently determinable, it is the opinion of management that the resolution will not have a material adverse effect on the financial position or results of operations of the Company.

SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017
14. Stock-based compensation
On November 1, 2010, the Company approved the Amended and Restated 2006 Stock Incentive Plan of SANUWAVE Health, Inc. effective as of January 1, 2010 (the “Stock Incentive Plan”). The Stock Incentive Plan permits grants of awards to selected employees, directors and advisors of the Company in the form of restricted stock or options to purchase shares of common stock. Options granted may include non-statutory options as well as qualified incentive stock options. The Stock Incentive Plan is administered by the board of directors of the Company. The Stock Incentive Plan gives broad powers to the board of directors of the Company to administer and interpret the particular form and conditions of each option. The stock options granted under the Stock Incentive Plan are non-statutory options which generally vest over a period of up to three years and have a ten year term. The options are granted at an exercise price determined by the board of directors of the Company to be the fair market value of the common stock on the date of the grant. At September 30, 2017 and December 31, 2016, the Stock Incentive Plan reserved 22,500,000 shares of common stock for grant.
On June 15, 2017, the Company granted to the active employees, members of the board of directors and members of the Company’s Medical Advisory Board options to purchase 5,550,000 shares each of the Company’s common stock at an exercise price of $0.11 per share and vested upon issuance. Using the Black-Scholes option pricing model, management has determined that the options had a fair value per share of $0.0869 resulting in compensation expense of $482,295. Compensation cost was recognized upon grant.
On November 9, 2016, the Company granted to the active employees, members of the board of directors and two members of the Company’s Medical Advisory Board options to purchase 2,830,000 shares each of the Company’s common stock at an exercise price of $0.18 per share and vested upon issuance. Using the Black-Scholes option pricing model, management has determined that the options had a fair value per share of $0.1524 resulting in compensation expense of $431,292. Compensation cost was recognized upon grant.
On June 16, 2016, the Company granted to the active employees, members of the board of directors and two members of the Company’s Medical Advisory Board options to purchase 3,300,000 shares each of the Company’s common stock at an exercise price of $0.04 per share and vested upon issuance. Using the Black-Scholes option pricing model, management has determined that the options had a fair value per share of $0.0335 resulting in compensation expense of $110,550. Compensation cost was recognized upon grant.
The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model using the following weighted average assumptions for the nine months ended September 30, 2017 and the year ended December 31, 2016:
 
 
2017
 
 
2016
 
Weighted average expected life in years
  5.0 
  5.0 
Weighted average risk free interest rate
  1.76%
  1.28%
Weighted average volatility
  120.0%
  133.54%
Forfeiture rate
  0.0%
  0.0%
Expected dividend yield
  0.0%
  0.0%
The Company recognized as compensation cost for all outstanding stock options granted to employees, directors and advisors, $0 for each of the three months ended September 30, 2017 and 2016, and $482,295 and $116,550 for the nine months ended September 30, 2017 and 2016, respectively.

SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017
14. Stock-based compensation (continued)
A summary of option activity as of September 30, 2017 and December 31, 2016, and the changes during the three and nine months ended September 30, 2017, is presented as follows:
 
 
 
 
 
 Weighted
 
 
 
 
 
 
 Average
 
 
 
 
 
 
 Exercise Price
 
 
 
 Options
 
 
 per share
 
Outstanding as of December 31, 2016
  16,203,385 
 $0.38 
Granted
  - 
 $- 
Exercised
  - 
 $- 
Cancelled
  - 
 $- 
Forfeited or expired
  - 
 $- 
Outstanding as of March 31, 2017
  16,203,385 
 $0.38 
Granted
  5,550,000 
 $0.11 
Exercised
  - 
 $- 
Cancelled
  - 
 $- 
Forfeited or expired
  (160,000)
 $0.22 
Outstanding as of June 30, 2017
  21,593,385 
 $0.31 
Granted
  - 
 $- 
Exercised
  - 
 $- 
Cancelled
  - 
 $- 
Forfeited or expired
  - 
 $- 
Outstanding as of September 30, 2017
  21,593,385 
 $0.31 
 
    
    
 
    
    
Exercisable
  21,593,385 
 $0.31 
The range of exercise prices for options was $0.04 to $2.00 for options outstanding at September 30, 2017 and December 31, 2016, respectively. The aggregate intrinsic value for all vested and exercisable options was $1,027,516 and $702,500 at September 30, 2017 and December 31, 2016, respectively.
The weighted average remaining contractual term for outstanding exercisable stock options was 7.62 and 5.88 years as of September 30, 2017 and December 31, 2016, respectively.
15. Earnings (loss) per share
The Company calculates net income (loss) per share in accordance with ASC 260,Earnings Per Share.  Under the provisions of ASC 260, basic net income (loss) per share is computed by dividing the net income (loss) attributable to common stockholders for the period by the weighted average number of shares of common stock outstanding for the period.  Diluted net income (loss) per share is computed by dividing the net income (loss)loss attributable to common stockholders by the weighted average number of shares of common stock and dilutive common stock equivalents then outstanding. To the extent that securities are “anti-dilutive,” they are excluded from the calculation of diluted net income (loss)loss per share.
As a result of the net loss for the three and nine months ended September 30, 20172022, and 2016, respectively,2021, all potentially dilutive shares were anti-dilutive and therefore excluded from the computation of diluted net loss per share. The anti-dilutiveAnti-dilutive equity securities totaled 99,388,222 shares and 92,046,867 shares atconsist of the following for the nine months ended September 30, 20172022, and 2016,2021, respectively (in thousands):

  Nine Months Ended 
  
September 30, 2022
  
September 30, 2021
 
Common stock options
  
21,246
   
31,760
 
Common stock purchase warrants
  
984,799
   
159,858
 
Convertible notes payable
  
483,588
   
98,675
 
   
1,489,633
   
290,293
 

10
5.Accrued Expenses

Accrued expenses consist of the following on September 30,2022, and December 31,2021 (in thousands):

  2022
  2021
 
Registration penalties $1,593  $1,950 
License fees  893   893 
Board of director’s fees  663   507 
Other  951   1,044 
  $4,100  $4,394 

There was no activity in the warranty reserve during the nine months ended September 30,2022.

6.
Concentration of Credit Risk and Limited Suppliers

Major customers are defined as customers whose accounts receivable, or sales individually consist of more than ten percent of total trade receivables or total sales, respectively. The percentage of accounts receivable from major customers of the Company for the periods indicated were as follows:

  September 30, 2022  December 31, 2021 
Accounts Receivable:      
Customer A  
12
%
  
24
%
Customer B
  10%  16%

The Company currently purchases most of its product component materials from single suppliers and the loss of any of these suppliers could result in a disruption in our production. The percentage of purchases from major vendors of the Company that exceeded ten percent of total purchases for the three and nine months ended September 30,2022, and 2021 were as follows:

  Three Months Ended  Nine Months Ended 
  September 30, 2022  September 30, 2021  September 30, 2022  September 30, 2021 
Purchases:            
Vendor A  18%  52%  18%  46%
Vendor B  n/a   n/a   n/a   15%

11
Table of Contents
7.Notes Payable

 


The following two tables summarize outstanding notes payable as of September 30, 2022, and December 31, 2021 (dollars in thousands):

As of 09/30/2022 (dollars in thousands)Maturity Date Interest Rate  Conversion Price  Principal  Remaining Debt Discount  Remaining Embedded Conversion Option  Carrying Value 
Senior secured promissory note payableIn default
  
20.5
%
  
n/a
  $
18,000
  $
(5,227
)
 $
-
  $
12,773
 
2021 Convertible promissory notes payableIn default
  
17.0
%
 $
0.0538
   
4,000
   
-
   
-
   
4,000
 
Convertible promissory notes payable, related partiesIn default  
14.0
%
 $
0.10
   
1,373
   
-
   
-
   
1,373
 
Convertible notes payableAugust 5, 2023  
15.0
%
 $
0.04
   
10,849
   
(2,966
)
  
1,291
   
9,174
 
Convertible notes payable, related partiesAugust 5, 2023  
15.0
%
 $
0.04
   
5,305
  ��
(1,451
)
  
631
   
4,485
 
Advances on future cash receiptsIn default
  
n/a
   
n/a
   
296
   
(102
)
  
-
   
194
 
                          
Total short-term debt as of September 30, 2022, including notes in default
          $
39,823
  $
(9,746
)
 $
1,922
  $
31,999
 

As of 12/31/2021 (dollars in thousands)Maturity Date Interest Rate  Conversion Price  Principal  Remaining Debt Discount  Remaining Embedded Conversion Option  Carrying Value 
Senior secured promissory note payableIn default  
20.25
%
  
n/a
  
$
15,000
  
$
(3,414
)
 
$
-
  
$
11,586
 
2021 Convertible promissory notes payableIn default  
15.40
%
 
$
0.1071
   
6,445
   
(1,099
)
  
6,255
   
11,601
 
Convertible promissory notes payable, related partiesIn default  
14.0
%
 
$
0.10
   
1,596
   
-
   
-
   
1,596
 
SBA loan #2February 20, 2026  
1.00
%
  
n/a
   
1,033
   
-
   
-
   
1,033
 
Advances on future cash receiptsMarch 11, 2022  
n/a
   
n/a
   
1,500
   
(1,054
)
  
-
   
446
 
                         
Total debt outstanding, including amounts in default           
25,574
   
(5,567
)
  
6,255
   
26,262
 
                         
Less: current maturities, including notes in default           
(24,699
)
  
5,567
   
(6,255
)
  
(25,387
)
                         
Total long-term debt as of December 31, 2021          
$
875
  
$
-
  
$
-
  
$
875
 

 
SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017
16. Subsequent events
Brazil Joint Venture
On September 27, 2017, weSenior secured promissory note payable, in default - In August 2020, the Company entered into a binding term sheetNote and Warrant Purchase and Security Agreement (the “NWPSA”) with MundiMed Distribuidora Hospitalar LTDANH Expansion Credit Fund Holdings LP, as noteholder and agent. The Company issued a $15 million Senior Secured Promissory Note Payable and a warrant exercisable into shares of the Company’s common stock (the “NH Expansion Warrant”) in exchange for cash to support operations, repay outstanding debt and close on the acquisition of the UltraMIST® assets from Celularity, among other transactions.
(“MundiMed”


In February 2022, the Company entered into the Second Amendment to Note and Warrant Purchase and Security Agreement (the “Second NWPSA”), effective as for $3.0 million, for a total of $18.0 million outstanding, at an interest rate of 20.5% and maturity dates of September 25, 2017, for30, 2025. Because the combined fair value of the applicable warrants and common stock issued as part of this note exceeded the face value of the note, the additional amount beyond the face value is recorded as a joint venture for the manufacture, sale and distributionloss on issuance of our dermaPACE device. Under the binding term sheet, MundiMed will pay$3.4 million.


In June 2022, the Company an initial partnership fee, with monthly partnership fees payable thereafter overentered into the following eighteen months. Profits from the joint venture are distributed as follows: 45%Third Amendment to the Company, 45% to MundiMedNote and 5% each to LHS Latina Health Solutions Gestão Empresarial Ltda.Warrant Purchase and Universus Global Advisors LLC, who acted as advisorsSecurity 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 transaction. The initial partnership fee was received on October 6, 2017.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.
 
Cashless Warrant Exercise
12

Convertible Notes Payable and Convertible Notes Payable, Related Parties - On October 24, 2017,August 5, 2022, the Company issued 150,083entered into a Securities Purchase Agreement (the “Purchase Agreement”), for our sale in a private placement (the “Private Placement”) of (i) Future Advance Convertible Promissory Notes (the “Notes”) in an aggregate principal amount of $16.2 million, consisting of $12.3 million in newly raised capital and $3.8 million in refinanced accrued expenses, bridge notes payable, convertible promissory notes, related parties, and fees, (ii) Common Stock Purchase Warrants (the “First Warrants”) to purchase an additional 404.8 million shares of common stock with an exercise price of $0.067 per share and (iii)Common Stock Purchase Warrants (the “Second Warrants”) to purchase an additional 404.8 million shares of common stock with an exercise price of $0.04 per share. The Notes will be convertible and the First and Second Warrants exercisable at such time as the Company’s authorized and unissued shares of common stock are at a number sufficient to permit the exercise or conversion of all outstanding securities exercisable for, or convertible into, common stock. The Company paid issuance costs totaling approximately $1.4 million.


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 per share; provided, however, that the Conversion Price shall never by less than $0.01. The Notes contain customary events of default and covenants, including limitations on incurrences of indebtedness and liens.  As well as, the Company failing to reduce its outstanding shares via a reverse stock split to provide the number of authorized an unissued shares of common stock sufficient to permit the conversion of these notes on or before December 31, 2022.


May 2022 Advance on Future Receipts Financing – On May 19, 2022, the Company paid off the remaining balance of $400 thousand from the December 22, 2021, advance and received $545 thousand in cash proceeds related to its entry into a non-recourse agreement for the sale of $1.0 million of future receipts to GCF Resources LLC (“GCF”). In conjunction with the 24-week agreement, the Company is obligated to remit to GCF a minimum of $59 thousand of receipts each week for the twenty-four weeks. The Company began making the required minimum weekly payments May 23, 2022, and is obligated to continue through October 31, 2022. Because the combined fair value of the applicable warrants issued as part of this note exceeded the original payoff value of the note, the additional amount beyond the face value is recorded as a loss on extinguishment of $211 thousand in the statement of operations for the nine-months ended September 30, 2022.


2021 Convertible Promissory Notes Payable – Previously, the Company entered into a Securities Purchase Agreement (the “Leviston Purchase Agreement”), with Leviston Resources, LLC, an accredited investor (“Leviston”) for the sale by the Company in a private placement (the “Leviston Private Placement”) of (i) the Company’s future advance convertible promissory note in an aggregate principal amount of up to $3.4 million, later amended to $4.2 million (the “Leviston Note”) and (ii) a warrant to purchase up to an additional 16,666,667 shares of common stock of the Company (the “Leviston Warrants”). The Leviston Warrants had an exercise price of $0.18 per share and a four-year term.  Advances on the Leviston Notes totaled $1.9 million and warrants to purchase 9.3 million shares were outstanding prior to the settlement discussed below.



In addition, the Company issues notes to five institutional investors totaling approximately $0.5 million (the “Five Institutions’ Notes”), which were subject to substantially the same terms and conditions as the Leviston Purchase Agreement. Warrants to purchase 2.8 million shares of common stock with an exercise price of $0.18 per share were issued and outstanding prior to the settlement discussed below.



Upon the closing of the Private Placement in August 2022, the Leviston Notes and Five Institutions’ Notes were paid and settled in full using proceeds from the Private Placement. The settlement payment included cash totaling $3.9 million, which included accrued interest and penalties, and the issuance of Company shares of common stock totaling 19.4 million shares. The lenders surrendered the warrants to the Company. The Company recognized a $0.9 million loss on extinguishment of debt for the three month-period ended September 30, 2022.


SBA Loan #2 – In July 2022, the Company received confirmation that the loan forgiveness application had been approved, therefore, during the three-months ended September 30, 2022, the Company recognized a gain on loan extinguishment totaling $1.0 million.

13
Embedded Conversion Option Liability

The fair value of Conversion Option liability assumptions for the periods ended below:

  
At 09/30/2022
  
At 12/31/2021
 
Conversion Price(1)
 $0.04  $0.11 
         
Interest Rate (annual) (2)
  3.93%  0.18%
         
Volatility (annual) (3)
  393.20%  289.65%
         
Time to Maturity (Years)  0.85   0.50 

(1) Based on the terms provided in the debt agreement to purchase common stock of the Company as of September 30, 2022, and December 31, 2021.
(2) Interest rate for U.S. Treasury Bonds, as of each presented period ending date, as published by the U.S. Federal Reserve.
(3) Based on the historical daily volatility of the Company as of December 31, 2021.  Based on the historical weekly volatility of the Company with an applied discount rate of 7.5% as of September 30, 2022.

The fair value for the Conversion Option liability was determined using the Black Scholes method as of September 30, 2022. As of September 30, 2022, the value of the underlying shares used in the Black Scholes model was $0.005 per share stock price. A binomial pricing model was used to determine the fair value of the Conversion Option as of December 31, 2021. As of December 31, 2021, the stock price used in the binomial pricing model was $0.17 per share. This conversion liability was settled with the 2021 Convertible Promissory Notes payable in August 2022.

8.Common Stock Purchase Warrants

A summary of the warrant activity as of September 30,2022, is as follows (warrants in thousands):

     Weighted  Weighted Average 
     Average  Remaining 
     Exercise Price  Contractual Life 
  Warrants  per share  (years) 
Outstanding at December 31, 2021
  204,883  $0.20   2.54 
Exercised  (27,946)  0.01     
Issued  829,554   0.05     
Outstanding at September 30, 2022
  1,006,491  $0.08   5.00 

On January 31, 2022, the Company issued 14 million shares of its common stock to LGH Investments LLC (“LGH”) upon the cashless exercise of 300,166 Class L Warrants to purchasewarrants exercisable for 15.0 million shares of common stock for $0.08 per share based on a current market value of $0.16 per share as determined under the terms of the Class L Warrant Private Offeringwarrant agreement. After this cashless exercise, LGH owns warrants exercisable for 8.6 million shares of common stock. On February 28, 2022, the Company issued warrants exercisable for 16.1 million shares of common stock with an exercise price of $0.18 per share and an 8.6-year term as part of the Second NWPSA.
 
On August 5, 2022, as part of the Private Placement, the Company issued First Warrants to purchase an additional 404.8 million shares of common stock with an exercise price of $0.067 per share and Second Warrants to purchase an additional 404.8 million shares of common stock with an exercise price of $0.04 per share. The exercise price of the Warrants is subject to adjustment, including if we issue or sell shares of common stock or share equivalents (as defined in the Warrants) for an effective consideration price less than the exercise price of the Warrants or if the Company lists its shares of common stock on The Nasdaq Capital Market and the average volume weighted average price of such common stock for the five trading days preceding such listing is less than $0.04 per share; provided, however, that the exercise price of the Warrants shall never be less than $0.01 per share. The Warrants have a five-year term, and use a $0.005 per share stock price in the Black Scholes model as of September 30, 2022.

9.Fair Value Measurements

In accordance with ASC 820 (Fair Value Measurements and Disclosures), the Company uses various inputs to measure the outstanding warrants and certain embedded conversion features associated with a convertible debt on a recurring basis to determine the fair value of the liability.

14
Table of Contents
The following table classifies the Company’s liabilities measured at fair value on a recurring basis into the fair value hierarchy as of September 30, 2022, and December 31, 2021 (in thousands):

  Fair value measured at September 30, 2022 
     
Quoted prices in
  Significant other  Significant 
  Fair value at  
active markets
  observable inputs  unobservable inputs 
  September 30, 2022  (Level 1)  (Level 2)  (Level 3) 
Warrant liability $1,196  $-  $-  $1,196 
Embedded conversion option  1,922   -   -   1,922 
Total fair value $
3,118  $-  $
-  $
3,118 

  Fair value measured at December 31, 2021 
     Quoted prices in  Significant other  Significant 
  Fair value at  active markets  observable inputs  unobservable inputs 
  December 31, 2021  (Level 1)  (Level 2)  (Level 3) 
Warrant liability $9,614  $-  $-  $9,614 
Embedded conversion option  6,255   -   -   6,255 
Total fair value $15,869  $-  $-  $15,869 

There were no transfers between Level 1, 2 or 3 during the three and nine months ended September 30, 2022, and 2021.

The following table presents changes in Level 3 liabilities measured at fair value for the nine months ended September 30, 2022. Both observable and unobservable inputs were used to determine the fair value of positions that the Company has classified within the Level 3 category. Unrealized gains and losses associated with liabilities within the Level 3 category include changes in fair value that were attributable to both observable (e.g. changes in market interest rates) and unobservable (e.g., changes in unobservable long-dated volatilities) inputs (dollars in thousands):

  Warrant  Conversion    
  Liability  Feature  Total 
Balance at December 31, 2021 $9,614  $6,255  $15,869 
Issuance of Convertible Notes
  -   2,309   2,309 
Cashless exercise  (2,167)  -   (2,167)
Settlement of Convertible Notes
  (963)  (218)  (1,181)
Warrants issued  4,885   -   4,885 
Change in fair value  (10,173)  (6,424)  (16,597)
Balance at September 30, 2022
 $1,196  $1,922  $3,118 

A summary of the warrant liability activity for the nine months ended September 30, 2022, is as follows:

  Warrants  Fair Value  Fair Value
 
  Outstanding  per Share  (in thousands) 
Balance at December 31, 2021  62,617,188  $0.15  $9,614 
Warrants exercised  (27,037,038)  0.12   (3,130)
Warrants issued  829,553,984   0.01   4,885 
Gain on remeasurement of warrant liability  -       (10,173)
Balance at September 30, 2022
  865,134,134  $0.00  $1,196 

15
Table of Contents
Significant inputs related to the Company’s liability classified warrants are listed below.

  September 30,
  December 31,
  New Issuance
 
  2022  2021  at Issue Date 
Weighted average remaining life in years  4.89   4.67   5.00 
Weighted average volatility  87%  116%  85%
Weighted average risk free interest rate  4.0%  1.2%  2.9%
Expected dividend yield  0.00%  0.00%  0.00%

10.Commitments and Contingencies

In the ordinary course of business, the Company from time to time becomes involved in various legal proceedings involving a variety of matters. The Company does not believe there are any pending legal proceedings that will have a material adverse effect on the Company’s business, consolidated financial position, results of operations, or cash flows. However, the outcome of such legal matters is inherently unpredictable and subject to significant uncertainties. The Companies expenses legal fees in the period in which they are occurred.
 

Supplier disputes - In May 2021, the Company received notification alleging that it is not in compliance with the license agreement with Celularity entered into in connection with the acquisition of the UltraMIST® assets. The Company has responded and asserted that the Company is not in breach and that the supplier has breached various agreements. It is too early to determine the outcome of this matter. Any potential impact to the Company cannot be fully determined at this time and there is no guarantee that the dispute will be resolved in a manner beneficial to the Company.

11.Subsequent Events

On November 14, 2022, the Company issued (i) Notes in an aggregate principal amount of approximately $2 million, (ii) First Warrants to purchase approximately 45 million shares of common stock with an exercise price of $0.067 per share and (iii) Second Warrants to purchase approximately 45 million shares of common stock with an exercise price of $0.04 per share, in each case pursuant to the Purchase Agreement.

16
Item 2. 
Item 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and the related notes appearing elsewhere in this report, and together with our audited consolidated financial statements, related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” as of and for the year ended December 31, 20162021 included in our Annual Report on Form 10-K, filed with the SEC on March 31, 2017.May 13, 2022 (the “2021 Annual Report”).

Overview

We are a shock wave technology company using a patented system of noninvasive, high-energy, acoustic shock waves for regenerative medicine and other applications. Our initial focus is regenerative medicine – utilizing noninvasive, acoustic shock waves to produce a biological response resulting in the body healing itself through the repair and regeneration of tissue, musculoskeletal, and vascular structures.

Our lead regenerative product in the United States is the dermaPACE®dermaPACE® device, used for treating diabetic foot ulcers (“DFU”), which was subject to two double-blinded, randomized Phase III clinical studies. The results of these clinical studies were submitted toOn December 28, 2017, the U.S. Food and Drug Administration (FDA) in late July 2016, after our in-person meeting(“FDA”) granted the Company’s request to discussclassify the submission strategy,dermaPACE® System as a Class II device via the de novo process. As a result of this decision, the Company was able to immediately market the product for possible approvalthe treatment of DFU as described in the fourth quarterde novo request, subject to the general control provisions of 2017the Food, Drug and Cosmetic Act and the special controls identified in this order.

On August 6, 2020, we entered into an asset purchase agreement (the “Asset Purchase Agreement” or first quarter“Acquisition”) with Celularity Inc. (“Celularity”) pursuant to which we acquired Celularity’s UltraMIST® assets (“UltraMIST®” or the “Assets”). The UltraMIST® System provides through a fluid mist a low-frequency, non-contact, and pain free ultrasound energy deep inside the wound bed that promotes healing from within. The ultrasound acoustic waves promote healing by reducing inflammation and bacteria in the wound bed, while also increasing the growth of 2018.
Our portfolionew blood vessels to the area. The UltraMIST® System treatment must be administered by a healthcare professional. This proprietary technology has been cleared by the FDA for the promotion of healthcare products and product candidates activate biologic signaling and angiogenic responses, including new vascularization and microcirculatory improvement, helping to restore the body’s normal healing processes and regeneration. We intend to apply our Pulsed Acoustic Cellular Expression (PACE) technology in wound healing orthopedic, plastic/cosmeticthrough wound cleansing and cardiac conditions. We currently do not market any commercial products for sale inmaintenance debridement combined with ultrasound energy deposited inside the United States. We generate our revenues from sales of the European Conformity Marking (CE Mark) devices and accessories in Europe, Canada, Asia and Asia/Pacific.wound that stimulated tissue regeneration.
We believe we have demonstrated that our patented technology is safe and effective in stimulating healing in chronic conditions of the foot and the elbow through our United States FDA Class III PMA approved OssaTron® device, and in the stimulation of bone and chronic tendonitis regeneration in the musculoskeletal environment through the utilization of our OssaTron, Evotron®, and orthoPACE® devices in Europe and Asia. Our lead product candidate for the global wound care market, dermaPACE, has received the CE Mark allowing for commercial use on acute and chronic defects of the skin and subcutaneous soft tissue.
We are focused on developing our Pulsed Acoustic Cellular Expression (PACE) technology to activate healing in:
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wound conditions, including diabetic foot ulcers, venous and arterial ulcers, pressure sores, burns and other skin eruption conditions;
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orthopedic applications, such as eliminating chronic pain in joints from trauma, arthritis or tendons/ligaments inflammation, speeding the healing of fractures (including nonunion or delayed-union conditions), improving bone density in osteoporosis, fusing bones in the extremities and spine, and other potential sports injury applications;
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plastic/cosmetic applications such as cellulite smoothing, graft and transplant acceptance, skin tightening, scarring and other potential aesthetic uses; and
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cardiac applications for removing plaque due to atherosclerosis improving heart muscle performance.

In addition to healthcare uses, our high-energy, acoustic pressure shock waves, due to their powerful pressure gradients and localized cavitational effects, may have applications in secondary and tertiary oil exploitation, for cleaning industrial waters and food liquids and finally for maintenance of industrial installations by disrupting biofilms formation. Our business approach will be through licensing and/or partnership opportunities.

Recent Developments
On September 27, 2017,connection with the Asset Purchase Agreement, on August 6, 2020, we entered into a binding term sheetlicense and marketing agreement with MundiMed Distribuidora Hospitalar LTDA (“MundiMed”), effective as of September 25, 2017, for a joint venture for the manufacture, sale and distribution of our dermaPACE device. Under the binding term sheet, MundiMed will pay the Company an initial partnership fee, with monthly partnership fees payable thereafter over the following eighteen months. Profits from the joint venture are distributed as follows: 45%Celularity pursuant to which Celularity granted to the Company 45%a license to MundiMedthe Celularity wound care biologic products, Biovance® and 5% eachInterfyl® (the “License Agreement”). The License Agreement provides the Company with an exclusive license to LHS Latina Health Solutions Gestão Empresarial Ltda.use, market, distribute and Universus Global Advisors LLC, who acted as advisorssell Biovance® in the transaction. The initial partnership fee was received on October 6, 2017.
Clinical Trials“Field” and Marketing
The FDA granted approval of our Investigational Device Exemption (IDE) to conduct two double-blinded, randomized clinical trials utilizing our lead device product for the global wound care market, the dermaPACE device,“Territory” (each as defined in the treatment of diabetic foot ulcers.
License Agreement), and a non-exclusive license to use, market, distribute and sell Interfyl® in the Field and in the Territory. The dermaPACE system was evaluated using two studies under IDE G070103. The studies were designed as prospective, randomized, double-blind, parallel-group, sham-controlled, multi-center 24-week studiesLicense Agreement has an initial five-year term, after which it automatically renews for additional one-year periods, unless either party gives written notice at 39 centers. A total of 336 subjects were enrolled and treated with either dermaPACE plus conventional therapy or conventional therapy (a.k.a. standard of care) alone. Conventional therapy included, but was not limitedleast 180 days prior to debridement, saline-moistened gauze, and pressure reducing footwear. The objectivethe expiration of the studies was to comparecurrent term. In May 2021, the safetyCompany received notification alleging that it is not in compliance the License Agreement with Celularity. See further discussion in Note 10 – Commitments and efficacy of the dermaPACE device to sham-control application. The prospectively defined primary efficacy endpoint for the dermaPACE studies was the incidence of complete wound closure at 12 weeks post-initial application of the dermaPACE system (active or sham). Complete wound closure was defined as skin re-epithelialization without drainage or dressing requirements, confirmed over two consecutive visits within 12-weeks. If the wound was considered closed for the first time at the 12 week visit, then the next visit was used to confirm closure. Investigators continued to follow subjects and evaluate wound closure through 24 weeks.
The dermaPACE device completed its initial Phase III, IDE clinical trialContingencies in the United States for the treatment of diabetic foot ulcers in 2011 and a PMA application was filed with the FDA in July 2011. The patient enrollment for the second, supplemental clinical trial began in June 2013. We completed enrollment for the 130 patients in this second trial in November 2014 and suspended further enrollment at that time.
The only significant difference between the two studies was the number of applications of the dermaPACE device. Study one (DERM01; n=206) prescribed four (4) device applications/treatments over a two-week period, whereas, study two (DERM02; n=130) prescribed up to eight (8) device applications (4 within the first two weeks of randomization, and 1 treatment every two weeks thereafter up to a total of 8 treatments over a 10-week period). If the wound was determined closed by the PI during the treatment regimen, any further planned applications were not performed.
Between the two studies there were over 336 patients evaluated, with 172 patients treated with dermaPACE and 164 control group subjects with use of a non-functional device (sham). Both treatment groups received wound care consistent with the standard of care in addition to device application. Study subjects were enrolled using pre-determined inclusion/exclusion criteria in order to obtain a homogenous study population with chronic diabetes and a diabetic foot ulcer that has persisted a minimum of 30 days and its area is between 1cm2 and 16cm2, inclusive. Subjects were enrolled at Visit 1 and followed for a run-in period of two weeks. At two weeks (Visit 2 – Day 0), the first treatment was applied (either dermaPACE or Sham Control application). Applications with either dermaPACE or Sham Control were then made at Day 3 (Visit 3), Day 6 (Visit 4), and Day 9 (Visit 5) with the potential for 4 additional treatments in Study 2. Subject progress including wound size was then observed on a bi-weekly basis for up to 24 weeks at a total of 12 visits (Weeks 2-24; Visits 6-17).
A total of 336 patients were enrolled in the dermaPACE studies at 37 sites. The patients in the studies were followed for a total of 24 weeks. The studies’ primary endpoint, wound closure, was defined as “successful” if the skin was 100% reepithelialized at 12 weeks without drainage or dressing requirements confirmed at two consecutive study visits.

A summary of the key study findings were as follows:
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Patients treated with dermaPACE showed a strong positive trend in the primary endpoint of 100% wound closure. Treatment with dermaPACE increased the proportion of diabetic foot ulcers that closed within 12 weeks, although the rate of complete wound closure between dermaPACE and sham-control at 12 weeks in the intention-to-treat (ITT) population was not statistically significant at the 95% confidence level used throughout the study (p=0.320). There were 39 out of 172 (22.67%) dermaPACE subjects who achieved complete wound closure at 12 weeks compared with 30 out of 164 (18.29%) sham-control subjects.
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In addition to the originally proposed 12-week efficacy analysis, and in conjunction with the FDA agreement to analyze the efficacy analysis carried over the full 24 weeks of the study, we conducted a series of secondary analyses of the primary endpoint of complete wound closure at 12 weeks and at each subsequent study visit out to 24 weeks. The primary efficacy endpoint of complete wound closure reached statistical significance at 20 weeks in the ITT population with 61 (35.47%) dermaPACE subjects achieving complete wound closure compared with 40 (24.39%) of sham-control subjects (p=0.027). At the 24 week endpoint, the rate of wound closure in the dermaPACE® cohort was 37.8% compared to 26.2% for the control group, resulting in a p-value of 0.023.
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Within 6 weeks following the initial dermaPACE treatment, and consistently throughout the 24-week period, dermaPACE significantly reduced the size of the target ulcer compared with subjects randomized to receive sham-control (p<0.05).
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The proportion of patients with wound closure indicate a statistically significant difference between the dermaPACE and the control group in the proportion of subjects with the target-ulcer not closed over the course of the study (p-value=0.0346). Approximately 25% of dermaPACE® subjects reached wound closure per the study definition by day 84 (week 12). The same percentage in the control group (25%) did not reach wound closure until day 112 (week 16). These data indicate that in addition to the proportion of subjects reaching wound closure being higher in the dermaPACE® group, subjects are also reaching wound closure at a faster rate when dermaPACE is applied.
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dermaPACE demonstrated superior results in the prevention of wound expansion (≥ 10% increase in wound size), when compared to the control, over the course of the study at 12 weeks (18.0% versus 31.1%; p=0.005, respectively).
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Of the subjects who achieved complete wound closure at 12 weeks, the recurrence rate at 24 weeks was only 7.7% in the dermaPACE group compared with 11.6% in the sham-control group.
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Importantly, there were no meaningful statistical differences in the adverse event rates between the dermaPACE treated patients and the sham-control group. There were no issues regarding the tolerability of the treatment which suggests that a second course of treatment, if needed, is a clinically viable option. 
We retained Musculoskeletal Clinical Regulatory Advisers, LLC (MCRA) in January 2015 to lead the Company’s interactions and correspondence with the FDA for the dermaPACE. MCRA has successfully worked with the FDA on numerous Premarket Approvals (PMAs) for various musculoskeletal, restorative and general surgical devices since 2006.
In June 2015, we met with the FDA to discuss analysis strategy for the data for the supplemental clinical trial and for the combined data of the two studies. In addition to the original data analysis plan for wound closure at 12 weeks, we proposed to analyze wound closure data at time points beyond 12 weeks, up to and including 24 weeks as we had positive results in the first study of 206 patients completed in 2011 at the 20 week endpoint. The FDA agreed to the additional analyses and stressed that their review and eventual decision will be based upon the totality of the data, both for efficacy and safety.
In October 2015 after freezing and locking the data, we performed data analysis. At the 12 week endpoint a total of 39 out of 172 (22.7%) of dermaPACE patients had complete wound closure, compared to 30 out of 164 (18.3%) in the control group. As expected, there was no statistically significant difference in wound closure at the 12 week follow up between the dermaPACE and control group; however, in subsequent visits a trend towards significance was shown resulting in a significant difference by the 20 week endpoint that was maintained through the end of the study. At the 24 week endpoint, the rate of wound closure in the dermaPACE patients was 37.8% compared to 26.2% for the control group, resulting in a p-value of 0.023. Additionally, there were no serious or related adverse events associated with the dermaPACE treatment reported during the course of the two studies and there were no issues regarding the tolerability of the treatment.
In April 2016, we met with FDA to discuss the safety and efficacy results of the trial as well as to discuss various submission strategies. Specifically, we discussed the applicability of the dermaPACE device and the associated clinical trial results in regard to FDA’s de novo review process. We concluded the meeting by informing FDA that we intended to submit the results under the de novo process.
Working with MCRA, we submitted to FDA a de novo petition on July 23, 2016. Due to the strong safety profile of our device and the efficacy of the data showing statistical significance for wound closure for dermaPACE subjects at 20 weeks, we believe that the dermaPACE device should be considered for classification into Class II as there is no legally marketed predicate device and there is not an existing Class III classification regulation or one or more approved PMAs (which would have required a reclassification under Section 513(e) or (f)(3) of the FD&C Act). Should FDA determine that the criteria at section 513(a)(1)(A) of (B) of the FD&C Act are met, FDA will grant the de novo petition, in which case dermaPACE will be classified as Class II and may be marketed immediately.

Finally, our dermaPACE device has received the European CE Mark approval to treat acute and chronic defects of the skin and subcutaneous soft tissue, such as in the treatment of pressure ulcers, diabetic foot ulcers, burns, and traumatic and surgical wounds. The dermaPACE is also licensed for sale in Canada, Australia and New Zealand.
We are actively marketing the dermaPACE to the European Community, Canada and Asia/Pacific, utilizing distributors in select countries.
Financial Overview
Since inception in 2005, our operations have primarily been funded from the sale of capital stock and convertible debt securities.  At September 30, 2017, we had cash and cash equivalents totaling $40,226. Management expects the cash used in operations for the Company during 2017 will be devoted to the commercialization of the dermaPACE, assuming FDA approval in late 2017 or early 2018, and will continue to research and develop the non-medical uses of the product, both of which will require additional capital resources.
The continuation of our business is dependent upon raising additional capital during the fourth quarter of 2017 to fund operations. Management’s plans are to obtain additional capital in 2017 through investments by strategic partners for market opportunities, which may include strategic partnerships or licensing arrangements, or through the issuance of common or preferred stock, securities convertible into common stock, or secured or unsecured debt. These possibilities, to the extent available, may be on terms that result in significant dilution to our existing shareholders. Although no assurances can be given, management believes that potential additional issuances of equity or other potential financing transactions as discussed above should provide the necessary funding for us. If these efforts are unsuccessful, we may be forced to seek relief through a filing under the U.S. Bankruptcy Code. Ouraccompanying condensed 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.statements.
Since our inception, we have incurred losses from operations each year. As of September 30, 2017, we had an accumulated deficit of $102,194,242. Although the size and timing of our future operating losses are subject to significant uncertainty, we expect that operating losses will continue over the next several years as we continue to incur expenses related to seeking FDA approval for our dermaPACE device and then commercialization of the product when approval is received. Although no assurances can be given, we believe that potential additional issuances of equity, debt or other potential financing, as discussed above, will provide the necessary funding for us to continue as a going concern for the next year.
We cannot reasonably estimate the nature, timing and costs of the efforts necessary to complete the development and approval of, or the period in which material net cash flows are expected to be generated from, any of our products, due to the numerous risks and uncertainties associated with developing products, including the uncertainty of:
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the scope, rate of progress and cost of our clinical trials;
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future clinical trial results;
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the cost and timing of regulatory approvals;
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the establishment of successful marketing, sales and distribution;
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the cost and timing associated with establishing reimbursement for our products;
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the effects of competing technologies and market developments; and
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the industry demand and patient wellness behavior.
Any failure to complete the development of our product candidates in a timely manner, or any failure to successfully market and commercialize our product candidates, would have a material adverse effect on our operations, financial position and liquidity. A discussion of the risks and uncertainties associated with us and our business are set forth under the section entitled “Risk Factors – Risks Related to Our Business” in our Annual Report on Form 10-K for the year ended December 31, 2016, filed with the SEC on March 31, 2017.

Critical Accounting Policies and Estimates

The discussionManagement’s Discussion and analysisAnalysis of our financial conditionFinancial Condition and resultsResults of operations areOperations is based on our condensed consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles.U.S. GAAP. The preparation of our condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses.


On an ongoing basis, we evaluate our estimates and judgments, including those related to the recordingestimate of the allowances for doubtful accounts, estimated reserves for inventory, estimated useful life of property and equipment, the determination of the valuation allowance for deferred taxes, the estimated fair value of the warrant liability,embedded conversion options and the estimated fair value of stock-based compensation.warrants. We base our estimates on authoritative literature and pronouncements, historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions. The results of our operations for any historical period are not necessarily indicative of the results of our operations for any future period.

WhileIn addition, there are other items within our financial statements that require estimation but are not deemed critical as defined above. Changes in these and other items could still have a material impact upon our financial statements.

Our significant accounting policies are more fully described in Note 23 to our consolidated financial statements filed with our 2021 Annual Report on Form 10-K for the year ended December 31, 2016, filed with the SEC on March 31, 2017, we believe that the followingReport.

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For a description of recent accounting policies relatingand the impact on our financial statements, refer to revenue recognition, research and development costs, inventory valuation, liabilities related to warrants issued, stock-based compensation and income taxes are significant and; therefore, they are important to aid you in fully understanding and evaluating our reported financial results.
Revenue Recognition
Sales of medical devices, including related applicators and applicator kits, are recognized when shipped to the customer. Shipments under agreements with distributors are invoiced at a fixed price, are not subject to return, and payment for these shipments is not contingent on sales by the distributor. We recognize revenue on shipments to distributorsNote 3 in the same manner as with other customers. We recognize fees from services performed when the service is performed.accompanying condensed consolidated financial statements.

Research and Development CostsFinancial Overview

We expense costs associated with research and development activities as incurred. We evaluate payments made to suppliers, research collaborators and other vendors and determine the appropriate accounting treatment based on the nature of the services provided, the contractual terms, and the timing of the obligation. Research and development costs include payments to third parties that specifically relate to our products in clinical development, such as payments to contract research organizations and collaborators, clinical investigators, clinical monitors, clinical related consultants and insurance premiums for clinical studies. In addition, employee costs (salaries, payroll taxes, benefits and travel) for employees of the regulatory affairs, clinical affairs, quality assurance, and research and development departments are classified as research and development costs.
Inventory Valuation
We value our inventory at the lower of our actual cost or the current estimated market value. We regularly review existing inventory quantities and expiration dates of existing inventory to evaluate a provision for excess, expired, obsolete and scrapped inventory based primarily on our historical usage and anticipated future usage. Although we make every effort to ensure the accuracy of our forecasts of future product demand, any significant unanticipated change in demand or technological developments could have an impact on the value of our inventory and our reported operating results.
Inventory is carried at the lower of cost or net realizable value, which is valued using the first in, first out (FIFO) method, and consists primarily of devices and the component material for assembly of finished products, less reserves for obsolescence.
Liabilities related to Warrants Issued
We record certain common stock warrants we issued at fair value and recognize the change in the fair value of such warrants as a gain or loss, which we report in the Other Income (Expense) section in our Condensed Consolidated Statements of Comprehensive Loss. We report the warrants that we record at fair value as liabilities because they contain certain down-round provisions allowing for reduction of their exercise price. We estimate the fair value of these warrants using a binomial options pricing model.

Stock-based Compensation
The Stock Incentive Plan provides that stock options, and other equity interests or equity-based incentives, may be granted to key personnel, directors and advisors at the fair value of the common stock at the time the option is granted, which is approved by our board of directors. The maximum term of any option granted pursuant to the Stock Incentive Plan is ten years from the date of grant.
In accordance with ASC 718,Compensation – Stock Compensation, the fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model. The expected terms of options granted represent the period of time that options granted are estimated to be outstanding and are derived from the contractual terms of the options granted. We amortize the fair value of each option over each option’s vesting period.
Income Taxes
We account for income taxes utilizing the asset and liability method prescribed by the provisions of ASC 740,Income Taxes. Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is provided for the deferred tax assets, including loss carryforwards, when it is more likely than not that some portion or all of a deferred tax asset will not be realized.
We account for uncertain tax positions in accordance with the related provisions of ASC 740, Income Taxes. ASC 740 specifies the way public companies are to account for uncertainties in income tax reporting, and prescribes a methodology for recognizing, reversing, and measuring the tax benefits of a tax position taken, or expected to be taken, in a tax return. ASC 740 requires the evaluation of tax positions taken or expected to be taken in the course of preparing our 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.
Results of Operations for the Three Months ended September 30, 2017 and 2016 (Unaudited)
Revenues and Cost of Revenues
Revenues for the three months ended September 30, 2017 were $161,585, compared to $255,652 for the same period in 2016, a decrease of $94,067, or 37%. Revenues resulted primarily from sales in Europe, Asia and Asia/Pacific of our orthoPACE device and related applicators. The decrease in revenues for 2017 was due to lower sales of new orthoPACE devices and refurbishment of applicators in Europe and Asia/Pacific in 2017.
Cost of revenues for the three months ended September 30, 2017 were $61,684, compared to $98,678 for the same period in 2016. Gross profit as a percentage of revenues was 62% for the three months ended September 30, 2017, compared to 61% for the same period in 2016. The increase in gross profit as a percentage of revenues in 2017 was due to sale of devices in 2016, which have a lower gross margin than new and refurbishment of applicators.
Research and Development Expenses
Research and development expenses for the three months ended September 30, 2017 were $266,837, compared to $266,473 for the same period in 2016, an increase of $364. Research and development costs include payments to third parties that specifically relate to our products in clinical development, such as payments to contract research organizations, clinical investigators, clinical monitors, clinical related consultants and insurance premiums for clinical studies. In addition, employee costs (salaries, payroll taxes, benefits, and travel) for employees of the regulatory affairs, clinical affairs, quality assurance, and research and development departments are classified as research and development costs.

General and Administrative Expenses
General and administrative expenses for the three months ended September 30, 2017 were $475,377, as compared to $645,863 for the same period in 2016, a decrease of $170,486, or 26%. The decrease in general and administrative expenses was due to lower legal fees, lower salary and benefits as a result of reduced headcount and decrease in bad debt reserve.
Other Income (Expense)
Other income (expense) was a net expense of $203,547 for the three months ended September 30, 2017, as compared to $306,205 for the same period in 2016, a decrease in other expense of $102,658 or 34%. The decrease in other expense for 2017 was due to lower interest expense related to promissory notes in 2016.
Provision for Income Taxes
At September 30, 2017, we had federal net operating loss carryforwards through the year ended December 31, 2016 that will begin to expire in 2025. Our ability to use these net operating loss carryforwards to reduce our future federal income tax liabilities could be subject to annual limitations. In connection with possible future equity offerings, we may realize a “more than 50% change in ownership” which could further limit our ability to use our 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, we may not be able to take advantage of our net operating loss carryforwards for federal income tax purposes.
Net Loss
Provision for Income Taxes
At September 30, 2017, we had federal net operating loss carryforwards through the year ended December 31, 2016 that will begin to expire in 2025. Our ability to use these net operating loss carryforwards to reduce our future federal income tax liabilities could be subject to annual limitations. In connection with possible future equity offerings, we may realize a “more than 50% change in ownership” which could further limit our ability to use our 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, we may not be able to take advantage of our net operating loss carryforwards for federal income tax purposes.
Net Loss
Net loss for the three months ended September 30, 2017 was $851,325, or ($0.01) per basic and diluted share, compared to a net loss of $1,139,810, or ($0.01) per basic and diluted share, for the same period in 2016, a decrease in the net loss of $288,485, or 25%. The decrease in the net loss for 2017 was primarily due to lower general and administrative expenses as noted above as well as reduction of amortization expense.
We anticipate that our operating losses will continue over the next few years as we continue to incur expenses related to seeking FDA approval for our dermaPACE device for the treatment of diabetic foot ulcers and then commercialization of the product when approval is received. If we obtain such FDA approval and are able to successfully commercialize, market and distribute the dermaPACE device, we hope to partially or completely offset these losses in the future.
Results of Operations for the Nine Months ended September 30, 2017 and 2016 (Unaudited)
Revenues and Cost of Revenues
Revenues for the nine months ended September 30, 2017 were $422,199, compared to $728,382 for the same period in 2016, a decrease of $306,183, or 42%. Revenues resulted primarily from sales in Europe, Asia and Asia/Pacific of our orthoPACE device and related applicators. The decrease in revenues for 2017 was due to lower sales of new orthoPACE devices and applicators and lower applicator refurbishments in Europe and Asia/Pacific in 2017.
Cost of revenues for the nine months ended September 30, 2017 were $141,523, compared to $249,847 for the same period in 2016. Gross profit as a percentage of revenues was 66% for the nine months ended September 30, 2017 and 2016.
Research and Development Expenses
Research and development expenses for the nine months ended September 30, 2017 were $965,084, compared to $1,052,595 for the same period in 2016, a decrease of $87,511, or 8%. Research and development costs include payments to third parties that specifically relate to our products in clinical development, such as payments to contract research organizations, clinical investigators, clinical monitors, clinical related consultants and insurance premiums for clinical studies. In addition, employee costs (salaries, payroll taxes, benefits, and travel) for employees of the regulatory affairs, clinical affairs, quality assurance, and research and development departments are classified as research and development costs. Research and development expenses decreased in 2017 as a result of lower payments to consultants related to the de novo petition submission to the FDA in July 2016.

General and Administrative Expenses
General and administrative expenses for the nine months ended September 30, 2017 were $1,875,891, as compared to $1,734,891 for the same period in 2016, an increase of $141,000, or 8%. The increase in general and administrative expenses was due to non-cash stock compensation expense for stock options issued in June 2017 and increase in bad debt reserve which was partially offset by lower legal and investor relations fees.
Other Income (Expense)
Other income (expense) was a net expense of $182,952 for the nine months ended September 30, 2017, as compared to a net expense of $1,445,264 for the same period in 2016, a decrease in other expense of $1,262,312, or 87%. The decrease in other expense for 2017 was due to gain on warrant valuation and lower interest expense related to promissory notes in 2016.
Provision for Income Taxes
At September 30, 2017, we had federal net operating loss carryforwards through the year ended December 31, 2016 that will begin to expire in 2025. Our ability to use these net operating loss carryforwards to reduce our future federal income tax liabilities could be subject to annual limitations. In connection with possible future equity offerings, we may realize a “more than 50% change in ownership” which could further limit our ability to use our 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, we may not be able to take advantage of our net operating loss carryforwards for federal income tax purposes.
Net Loss
Provision for Income Taxes
At September 30, 2017, we had federal net operating loss carryforwards through the year ended December 31, 2016 that will begin to expire in 2025. Our ability to use these net operating loss carryforwards to reduce our future federal income tax liabilities could be subject to annual limitations. In connection with possible future equity offerings, we may realize a “more than 50% change in ownership” which could further limit our ability to use our 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, we may not be able to take advantage of our net operating loss carryforwards for federal income tax purposes.
Net Loss
Net loss for the nine months ended September 30, 2017 was $2,760,794, or ($0.02) per basic and diluted share, compared to a net loss of $3,986,509, or ($0.04) per basic and diluted share, for the same period in 2016, a decrease in the net loss of $1,225,715, or 31%. The decrease in the net loss for 2017 was primarily due to the gain on the warrant valuation and lower operating expenses as noted above.
We anticipate that our operating losses will continue over the next few years as we continue to incur expenses related to seeking FDA approval for our dermaPACE device for the treatment of diabetic foot ulcers and then commercialization of the product when approval is received. If we obtain such FDA approval and are able to successfully commercialize, market and distribute the dermaPACE device, we hope to partially or completely offset these losses in the future.
Liquidity and Capital Resources
Since inception in 2005, our operations have primarily been funded from the sale of capital stock, notes payable, and convertible debt securities. At September 30, 2017, we had cashWe have devoted and cash equivalents totaling $40,226. Management expects the cash used in operationsexpect to continue to devote substantial resources for the Company during 2017 will be devoted to the commercialization of the dermaPACE, assuming FDA approval in 2017,dermaPACE® System and willintend to continue to research and develop the non-medical uses of the product,PACE technology, both of which will require additional capital resources. At September 30, 2017,We also expect to require additional working capital as sales of our UltraMIST® product continue to grow.

Our recurring losses from operations, the events of default on the Company’s distributor in South Korea accounted for 78%notes payable and dependency upon future issuances of equity or other financing to fund ongoing operations create substantial doubt about the total outstanding accounts receivable. DueCompany’s ability to the political climate and uncertainty in South Korea, this distributor has not been able to finalize the expected sales in late 2016 and 2017 and therefore has been unable to pay the Company in a timely manner. The Company has accounted for 48% of their outstanding balancecontinue as a badgoing concern for a period of at least twelve months from the financial statement issuance date. Although no assurances can be given, we believe that potential additional issuances of equity, debt reserveor other potential financing may provide the necessary funding for us to continue as of September 30, 2017 and continues to work witha going concern for the distributor on a payment plan to get the distributor’s account current by December 31, 2017.next 12 months.


The continuation of our business is dependent upon raising additional capital during the fourth quarter of 2017 to fund operations. Management’s plans are to obtain additional capital in 20172022 through investments by strategic partners for market opportunities, which may include strategic partnerships or licensing arrangements, or raise capital through the conversion of outstanding warrants, the issuance of common or preferred stock, securities convertible into common stock, or secured or unsecured debt. These possibilities, to the extent available, may be on terms that result in significant dilution to our existing shareholders. Although In addition, there can be no assurances canthat our plans to obtain additional capital will be given, management believes that potential additional issuances of equitysuccessful on the terms or other potential financing transactions as discussed above should provide the necessary funding for us. timeline we expect, or at all. If these efforts are unsuccessful, we may be forcedrequired to seek reliefsignificantly curtail or discontinue operations or, if available, obtain funds through financing transactions with unfavorable terms.

The accompanying condensed consolidated financial statements have been prepared in conformity with U.S. GAAP, which contemplate continuation of the Company as a filing undergoing concern and the U.S. Bankruptcy Code.realization of assets and satisfaction of liabilities in the normal course of business. The carrying amounts of assets and liabilities presented in the condensed consolidated financial statements do not necessarily purport to represent realizable or settlement values. The condensed consolidated financial statements do not include any adjustment that might result from the outcome of this uncertainty. Our condensed 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.

We may also attempt to raise additional capital if there are favorable market conditions or other strategic considerations even ifSince our inception, we have sufficient fundsincurred losses from operations each year. As of September 30, 2022, we have an accumulated deficit of $186.1 million. We continue to incur expenses related to commercialization of our dermaPACE® system for planned operations. To the extent thattreatment of DFU in the United States. If we raise additional funds by issuance of equity securities, our shareholders will experience dilutioncan successfully commercialize, market, and distribute the dermaPACE® system, then we believe we may be requiredable to use somepartially or allcompletely offset these losses in the future with revenues from sales of our UltraMist® systems and applicators. Although no assurances can be given, we believe that potential additional issuances of equity, debt, or other potential financings, as discussed above, may provide the necessary funding for us to continue as a going concern for the next 12 months. We cannot reasonably estimate the nature, timing, and costs of the net proceeds to repay our indebtedness, and debt financings, if available, may involve restrictive covenants or may otherwise constrain our financial flexibility. To the extent that we raise additional funds through collaborative arrangements, it may beefforts necessary to relinquish some rights to our intellectual property or grant licenses on terms that are not favorable to us. In addition, payments made by potential collaborators or licensors generally will depend upon our achievement of negotiatedcomplete the development and approval of, or the period in which material net cash flows are expected to be generated from, any of our products, due to the numerous risks and uncertainties associated with developing and marketing products, including the uncertainty of:

• the scope, rate of progress and cost of our clinical trials;

• future clinical trial results;

• the cost and timing of regulatory milestones. Failureapprovals;

• supplier and customer disputes;

• the establishment of successful marketing, sales and distribution channels and partnerships, including our efforts to achieve these milestonesexpand our marketing, sales and distribution reach through joint ventures and other contractual arrangements;

• the cost and timing associated with establishing reimbursement for our products;

• the effects of competing technologies and market developments; and

• industry demand and patient wellness behavior.

18
Any failure to complete the development of our product candidates in a timely manner, or any failure to successfully market and commercialize our product candidates, would harmhave a material adverse effect on our future capital position.operations, financial position, and liquidity. A discussion of the risks and uncertainties associated with our business are set forth under the section entitled “Risk Factors – Risks Related to Our Business” in our 2021 Annual Report.

CashThe worldwide spread of the COVID-19 virus has resulted in a global slowdown of economic activity which has decreased demand for a broad variety of products, including from our customers. We have experienced a disruption of our supply channels which will continue for an unknown period until the global supply chain can return to pre- disease status. Also, the pandemic may cause continued or additional actions by hospitals and cash equivalents decreased by $93,345clinics such as limiting elective procedures and treatments and limiting clinical trial activities and data monitoring. These factors have had a negative impact on our sales and our results of operations.

Results of Operations

  For the Three Months Ended  For the Nine Months Ended 
  September 30,  Change  September 30,  Change 
  2022  2021  $  

%   
2022
   
2021
  $  
% 
Revenues:                            
Total Revenue 
$
4,166
  
$
3,725
  
$
441
   
12
%
 
$
11,242
  
$
8,750
  
$
2,492
   
28
%
Cost of Revenues  
606
   
1,555
   
(949
)
  
-61
%
  
2,590
   
3,658
   
(1,068
)
  
-29
%
Gross Margin  
3,560
   
2,170
   
1,390
   
64
%
  
8,652
   
5,092
   
3,560
   
70
%
Operating Expenses:                                
General and administrative  
3,404
   
2,864
   
540
   
19
%
  
8,482
   
8,909
   
(427
)
  
-5
%
Selling and marketing  
1,650
   
2,150
   
(500
)
  
-23
%
  
5,037
   
6,450
   
(1,413
)
  
-22
%
Research and development  
157
   
297
   
(140
)
  
-47
%
  
494
   
923
   
(429
)
  
-46
%
Gain on disposal of assets  
-
   
-
   
-
   
N/A
   
(690
)
  
-
   
(690
)
  
N/A
 
Depreciation and amortization  
189
   
194
   
(5
)
  
-3
%
  
575
   
585
   
(10
)
  
-2
%
Operating Loss  
(1,840
)
  
(3,335
)
  
1,495
   
-45
%
  
(5,246
)
  
(11,775
)
  
6,529
   
-55
%
Other Income (Expense), net  
1,427
   
(911
)
  
2,338
   
-257
%
  
3,111
   
(6,001
)
  
9,112
   
-152
%
Income tax expense  
-
   
(6
)
  
6
       
-
   
(28
)
  
28
     
Net Loss 
$
(413
)
 
$
(4,252
)
  
3,839
   
-90
%
 
$
(2,135
)
 
$
(17,804
)
  
15,669
   
-88
%

Revenues and Gross Margin

Revenues for the three month-period ended September 30, 2022, were $4.2 million compared to $3.7 million for the same period of 2021, an increase of $0.4 million. Revenues for the nine months ended September 30, 20172022, were $11.2 million compared to $8.7 million for the same period in 2021, an increase of $2.5 million. The increase for both periods was driven by the continued increased sales of UltraMIST® devices and single-use accessories.

Gross margin as a percentage of revenue increased to 85.5% from 58.3% during the three-month period ended September 30, 2022, as compared with the same period of 2021, and to 77.0% from 58.2% during the nine-month period ended September 30, 2022, as compared with the same period of 2021. The increases in gross margin percentage for the three and nine-months ended September 30, 2022, were driven by higher sales of single-use accessories, which have a higher gross margin percentage, and by the discontinuation of Biologics sales in the first quarter of 2022, which had a lower gross margin percentage.

General and Administrative Expenses

General and administrative expenses increased $540 thousand or 19% for the three-month period ended September 30, 2022, compared with the same period of 2021. General and administrative expenses decreased $427 thousand or 5% for the nine-month period ended September 30, 2022, compared with the same period of 2021. The increase for the three-month were primarily due to increased accounting costs as we transition from contractors to permanent employees.  The decrease for the nine-month period ended September 30, 2022, were primarily due to a reduction in the registration penalties and legal and license fees that were incurred during the same period in 2021.

Selling and Marketing Expenses

Selling and marketing expenses decreased by $500 thousand or 23% for the three-month period ended September 30, 2022, as compared with the same period of 2021. Selling and marketing expenses decreased by $1.4 million or 22% for the nine-month period ended September 30, 2022, as compared with the same period of 2021. The decrease was primarily due to a reduction in sales and marketing headcount during 2022 and increased by $351,474cost management activities.

19
Research and Development Expenses

Research and development expenses decreased 47% to $157 thousand from $297 thousand during the three-month period ended September 30, 2022, as compared with the same period of 2021. Research and development expense as a percentage of revenue decreased from 8% during the three-month period ended September 30, 2021, to 4% for the same period in 2022.  Expense decreased 46% to $494 thousand, or 4% of revenue, from $923 thousand, or 11% of revenue, during the nine-month period ended September 30, 2022, as compared with the same period of 2021. These decreases were primarily due to improved cost management in 2022.

Liquidity and Capital Resources

We expect to devote substantial resources for the commercialization of the dermaPACE® System and intend continue to research and develop the next generation of our technology as well as the non-medical uses of the PACE technology, both of which will require additional capital resources. 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 create substantial doubt about the Company’s ability to continue as a going concern for a period of at least twelve months from the financial issuance date. Historically, our operations have primarily been funded from the sale of capital stock, notes payable, and convertible debt securities. The continuation of our business is dependent upon raising additional capital to fund operations; we may not be able to do so, and/or the terms of any financings may not be advantageous to us.

On August 5, 2022, we entered into the Purchase Agreement for our sale in the Private Placement of (i) Notes in an aggregate principal amount of $16.2 million, consisting of $12.4 million in newly raised capital and $3.8 million in rolled forward accrued expenses, bridge notes payable, convertible promissory notes, related parties, and fees; (ii) First Warrants to purchase an additional 404.8 million shares of common stock with an exercise price of $0.067 per share and (iii) Second Warrants to purchase an additional 404.8 million shares of common stock with an exercise price of $0.04 per share. The Notes will be convertible and the Warrants exercisable at such time as our authorized and unissued shares of common stock are at a number sufficient to permit the exercise or conversion of all outstanding securities exercisable for, or convertible into, common stock.

During the nine months ended September 30, 2016. For the nine months ended September 30, 2017 and 2016, net2022, cash used by operating activities totaled approximately $13.2 million, which was $944,831 and $2,708,973, respectively, primarily consisting of compensation costs, research and development activities and general corporate operations. The decreaselargely by the change in the usefair value of cash for operatingthe derivative liabilities.

Cash provided by investing activities forduring the first nine months ended September 30, 2017, as compared toof 2022 consisted primarily of the same period for 2016,proceeds received from the sale of $1,764,142, or 65%, was primarily due to the decreased operating expensesproperty and increased payables in 2017. Net cashequipment of $1.0 million.

Cash provided by financing activities for the nine months ended September 30, 2017 was $93,067period consisted primarily of $12.4 million from the exerciseNotes issued in August 2022, of warrantswhich $3.0 million was used to settle old convertible debt, $2.9 million received in connection with the Second Amendment to Note and $751,616 from the advances from related parties for subscription agreements to be executedWarrant Purchase and Security Agreement in the fourth quarter. Net cash provided by financing activities for the nine months ended September 30, 2016 was $3,072,305, which consisted of the netFebruary 2022 and proceeds from the 2016 Public Offeringshort-term notes of $1,596,855, net proceeds from the 2016 Private Offering of $1,528,200 and proceeds of $32,000 from exercise of warrants and net payments of $84,750 of convertible debt.$0.6 million.

Segment and Geographic Information

We have determined that we are principally engaged inhave one operating segment. Our products are primarily used for the repair and regeneration of tissue, musculoskeletal and vascular structures in wound healing and orthopedic conditions. Our revenues are generated from sales primarily in the United States. International sales include sales in Europe, Canada, Middle East, Central America, South America, Asia, and Asia/Pacific. All significant expenses are generated in the United States and all significant assets are in the United States.

Contractual Obligations

Our major outstanding contractual obligations relate to our financing leases for rental equipment, operating leaseleases for our facility,facilities and office equipment, purchase and supplier obligations for product component materials and equipment, and our notes payable, related parties. We have disclosed these obligations inoutstanding debt. Please see our most recent2021 Annual Report on Form 10-K for the year ended December 31, 2016, as filed with the SEC on March 31, 2017.additional discussions of these obligations.

Off-Balance Sheet Arrangements

Since inception, we have not engaged in any off-balance sheet activities, including the use of structured finance, special purpose entities or variable interest entities.

Effects of Inflation

Due to the fact that our assets are, to an extent, liquid in nature, they are not significantly affected by inflation. However, the rate of inflation, which has been increasing, affects expenses such expenses as employee compensation, office space leasing costs and research and development charges, which may not be readily recoverable during the period of time that we are bringing the product candidates to market. To the extent inflation results in rising interest rates and has other adverse effects on the market, it may adversely affect our consolidated financial condition and results of operations.


20
Item 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a “smaller reporting company” as defined by Item 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not10 of Regulation S-K, we are not required to provide the information required under Regulation S-K for “smaller reporting companies”.
this item.

Item 4.CONTROLS AND PROCEDURES
Item 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act areis recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act areis accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

We carried out an evaluation under the supervision and with the participation of our management, including our Acting Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer and accounting officer), of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2017.2022. Based on this evaluation, the Acting Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not operating effectively as of September 30, 2017.2022. Our disclosure controls and procedures were not effective because of the “material weakness” described below.

A “material weakness” is defined under SEC rules as a deficiency, or a combinationAs of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that aSeptember 30, 2022, the Company has still identified the following material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis by the company’s internal controls. As a result of its review, management concluded that we had a material weakness in our internal control over financial reporting process for the lack of internalweaknesses:

The Company lacks expertise and resources to analyze and properly apply generally accepted accounting principlesU.S. GAAP to complex and non-routine transactions related to complex financial instruments and derivatives.
Management believes the material weakness identified above was due to the complex and non-routine nature of the Company’s complex financial instruments and derivatives.
Management’s Plan to Remediate Material Weakness
Management has developed a remediation plan to address the material weakness related to its processes and procedures surrounding the accounting for complex financial instruments and derivatives. Implementation of the remediation plan is in review by the Board of Director’s and could consist of, among other things, redesigning the procedures to enhance its identification, capture, review, approval and recording of contractual terms included in contractual debt and equity arrangements. Management is also pursuing obtaining additional interpretive guidance on identifying and accounting forsuch as complex financial instruments and derivatives and complex sales distribution agreements.
The Company lacks internal resources to analyze and properly apply U.S. GAAP to accounting for financial instruments included in service agreements with select vendors.
The Company has failed to design and implement controls around all of its accounting and IT processes and procedures and, as wellsuch, it believes that all of its accounting and IT processes and procedures need to re-designed and tested for operating effectiveness.

As a result, management concluded that its internal control over reporting was not effective as engaging, as necessary, an outside consultantof September 30, 2022.

Remediation Plan

During 2022, we engaged external consultants with appropriate experience applying U.S. GAAP technical accounting guidance, and we have hired additional accounting personnel both internal and external. We engaged external consultants and have begun hiring internal employees to review revenue recognition for new products, lease agreements, internal controls and related procedures and review of documentation of internal controls in addition to new equity and debt financing arrangements. Accounting memos were produced for all technical issues and reviewed with management. The Company will continue to implement and review new controls to address these issues.

We have also implemented cybersecurity training for all employees and redesign of procedures that cyber security breaches may impact and worked with our third-party IT vendor to develop a training plan for all existing and new employees related to cyber and implemented related controls around information technology infrastructure. Additional resources will be evaluated to assist inwith the applicationmanagement of United States GAAPIT controls and to complex transactions, includingmonitor our third-party IT vendor’s testing and monitoring efforts and where necessary implement new controls.

There is no assurance that the accounting for derivatives. These measures are intended bothdescribed above will be sufficient to addressremediate the previously identified material weakness and to enhance our overall internal control environment.weaknesses.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting that occurred during the period covered by this reportquarter ended September 30, 2022, that materially affect, or are reasonably likely to materially affect, our internal control over financial reporting. Management isreporting, except as disclosed in the process“Remediation Plan” above.

21

PART II — OTHER INFORMATION

Item 1.LEGAL PROCEEDINGS.

From time to time, the Company is subject to various legal actions, claims and proceedings arising in the ordinary course of business, including claims related to breach of contracts and intellectual property matters resulting from our business activities. As with most actions such as these, an estimation of any possible and/or ultimate liability cannot always be determined. The Company believes that all pending claims, if adversely decided, would not have a material adverse effect on our business, financial position or results of operations.

Item 1A.RISK FACTORS.

There have been no material changes from our risk factors as previously reported in the section entitled “Risk Factors – Risks Related to Our Business” in our 2021 Annual Report.

Item 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

None.

Item 3.DEFAULTS UPON SENIOR SECURITIES.

Not applicable.

Item 4.MINE SAFETY DISCLOSURES.

Not applicable.

Item 5.OTHER INFORMATION.

Because we are filing this Quarterly Report on Form 10-Q within four business days after the triggering event, we are making the following disclosure under this Item 5 instead of filing a Current Report on Form 8-K under Item 1.01, Entry into a Material Definitive Agreement; Item 2.03, Creation of a Direct Financial Obligation, or an Obligation under an Off-Balance Sheet Arrangement of a Registrant; and Item 3.02, Unregistered Sales of Equity Securities:

Securities Purchase Agreement and Common Stock Warrant

On November 14, 2022, SANUWAVE Health, Inc. (the “Company”) entered into a Securities Purchase Agreement (the “Purchase Agreement”), with the purchasers identified on the signature pages thereto (the “Purchasers”) for the sale by the Company in a private placement (the “Private Placement”) of (i) the Company’s future advance convertible promissory notes in an aggregate principal amount of approximately $2 million (the “Notes”), and (ii) warrants to purchase an additional approximately 45 million shares of common stock of the Company with an exercise price of $0.067 per share (the “First Warrants”) and (iii) warrants to purchase an additional approximately 45 million shares of common stock of the Company with an exercise price of $0.04 per share (the “Second Warrants,” collectively with the First Warrants, the "Warrants"). The Notes will be convertible and the Warrants exercisable on the earlier to occur of (1) completion of a reverse stock split and (2) December 31, 2022. The exercise price of the Warrants is subject to adjustment, including if the Company issues or sells shares of common stock or Share Equivalents (as defined in the Warrants) for an effective consideration price less than the exercise price of the Warrants or if the Company lists its shares of common stock on the Nasdaq Capital Market and the average volume weighted average price of such common stock for the five trading days preceding such listing is less than $0.04 per share; provided, however, that the exercise price of the Warrants shall never be less than $0.01 per share. The Warrants have a five-year term.

The foregoing descriptions of the Purchase Agreement and the Warrants do not purport to be complete and are qualified in their entirety by reference to the full text of the Purchase Agreement and the Warrants, which have materially consistent terms with Exhibit 4.1 and Exhibit 4.2, respectively, and are incorporated herein by reference.

Notes

As described above, on November 14, 2022, the Company issued Notes to the Purchasers in an aggregate principal amount of approximately $2 million. Pursuant to the Notes, the Company promised to pay each Purchaser, its designee or registered assigns (the “Holder”) in cash and/or in shares of common stock, at a conversion price of $0.04 (the "Conversion Price"), the principal amount (subject to reduction pursuant to the terms of the Note, the “Principal”) as may be advanced in disbursements (each, a “Disbursement” and together, the “Disbursements” with total principal of outstanding Disbursements equaling Principal), and to pay interest at a rate of fifteen percent (15%) per annum (“Interest”) on any outstanding Principal at the applicable Interest rate from the date of the Notes until the Notes are accelerated, converted, redeemed or otherwise. The Conversion Price of the Notes is subject to adjustment, including if the Company issues or sells shares of common stock for a price per share less than the Conversion Price of the Notes or if the Company lists its shares of common stock on the Nasdaq Capital Market and the average volume weighted average price of such common stock for the five trading days preceding such listing is less than $0.04 per share; provided, however, that the Conversion Price shall never by less than $0.01.

The Notes contain customary events of default and covenants, including limitations on incurrences of indebtedness and liens. As well as the Company failing to reduce its outstanding shares via a reverse stock split to provide the number of authorized and unissued shares of common stock sufficient to permit the conversion of these notes on or before December 31, 2022.

In connection with the Private Placement, on November 14, 2022, the Company entered into a security agreement in favor of each Purchaser to secure the Company’s obligations under the Notes (the “Security Agreement”).

The rights of each Purchaser to receive payments under its Notes are subordinate to the rights of NH Expansion Credit Fund Holdings LP (“North Haven Expansion”) pursuant to a subordination agreement, which the Company and the Purchasers entered into with North Haven Expansion on November 14, 2022, in connection with the Private Placement (the “Subordination Agreement”).

The foregoing descriptions of the Notes, the Subordination Agreement and the Security Agreement do not purport to be complete and are qualified in their entirety by reference to the full text of the Notes, the Subordination Agreement, and the Security Agreement, which have materially consistent terms as Exhibit 10.2, and is incorporated herein by reference.

22
Registration Rights Agreement

In connection with the Purchase Agreement, the Company entered into a registration rights agreement with the Purchasers on November 14, 2022 (the “Registration Rights Agreement”), pursuant to which the Company agreed to file a registration statement (the “Registration Statement”) with the Securities and Exchange Commission no later than sixty (60) days following the Closing Date to register the resale of the number of shares of common stock issuable upon conversion of the Notes and exercise of the Warrants issued pursuant to such Purchase Agreement (the “Registrable Securities”) and to cause the Registration Statement to become effective within one-hundred eighty (180) days following the Closing Date. The Company shall use its best efforts to keep the Registration Statement continuously effective under the Securities Act of 1933, as amended (the “Securities Act”), until all Registrable Securities have been sold, or may be sold without the requirement to be in compliance with Rule 144(c)(1) of the Securities Act and otherwise without restriction or limitation pursuant to Rule 144 of the Securities Act, as determined by the counsel to the Company.

The foregoing description of the Registration Rights Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Registration Rights Agreement, which have materially consistent terms as Exhibit 10.4, and is incorporated herein by reference.


Item 6.      EXHIBITS
Item 6.
EXHIBITS

Exhibit No.Description
3.1
Articles of Incorporation (Incorporated by reference to Exhibit 3.1 to the Form 10-SB filed with the SEC on December 18, 2007).
3.2
 
Description​Certificate of Amendment to the Articles of Incorporation (Incorporated by reference to Appendix A to the Definitive Schedule 14C filed with the SEC on October 16, 2009).
 
3.3
Certificate of Amendment to the Articles of Incorporation (Incorporated by reference to Appendix A to the Definitive Schedule 14C filed with the SEC on April 16, 2012).
3.4
Bylaws (Incorporated by reference to Exhibit 3.02 to the Form 10-SB filed with the SEC on December 18, 2007).
3.5
Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Preferred Stock of the Company dated March 14, 2014 (Incorporated by reference to Exhibit 3.1 to the Form 8-K filed with the SEC on March 18, 2014).
3.7
Certificate of Designation of Preferences, Rights and Limitations of Series B Convertible Preferred Stock of the Company dated January 12, 2016 (Incorporated by reference to Exhibit 3.1 to the Form 8-K filed with the SEC on January 19, 2016).
3.8
Certificate of Designation of Preferences, Rights and Limitations of Series C Convertible Preferred Stock of the Company dated January 31, 2020 (Incorporated by reference to Exhibit 3.1 to the Form 8-K filed with the SEC on February 6, 2020).
3.9
Certificate of Designation of Series D Convertible Preferred Stock (Incorporated by reference to Exhibit 3.1 to the Form 8-K filed with the SEC on May 20, 2020).
3.10
Certificate of Amendment of the Articles of Incorporation (Incorporated by reference to Exhibit 3.1 to the Form 8-K filed with the SEC on January 5, 2021).
 
4.1
Class K Warrant AgreementForm of Future Advance Convertible Promissory Note issued to certain purchasers, dated as of August 3, 2017, between SANUWAVE Health, Inc. and HealthTronics, Inc.5, 2022 (Incorporated by reference to Exhibit 4.1 to the Form 8-K filed with the SEC on August 4, 2017)8, 2022).

23
4.2
Form of Class N Warrant.Common Stock Purchase Warrant issued to certain purchasers, dated August 5, 2022 (Incorporated by reference to Form 8-K filed withExhibit 4.2 to the SEC on November 9, 2017).
10.1
Third Amendment to promissory notes entered into as of August 3, 2017 by and among SANUWAVE Health, Inc., SANUWAVE, Inc. and HealthTronics, Inc. (Incorporated by reference to Form 8-K filed with the SEC on August 4, 2017)8, 2022).
 
 
10.2*#
10.1
Binding Term Sheet for Joint VentureForm of Securities Purchase Agreement, between SANUWAVE Health, Inc.dated August 5, 2022, by and MundiMed Distribuidora Hospitalar LTDA effective as of September 25, 2017.among the Company and the purchasers identified on the signature pages thereto (Incorporated by reference to Exhibit 10.1 the Form 8-K filed with the SEC on August 8, 2022).
 
10.2
Form of Subordination Agreement, dated August 5, 2022, by and among the Company, NH Expansion Credit Fund Holdings LP and certain creditors (Incorporated by reference to Exhibit 10.2 the Form 8-K filed with the SEC on August 8, 2022).
 
10.3
Form of 10% Convertible Promissory Note,Security Agreement, dated August 5, 2022, by and among the Company and the accredited investors a party thereto, dated November 3, 2017.certain lenders (Incorporated by reference to Exhibit 10.3 to the Form 8-K filed with the SEC on November 9, 2017)August 8, 2022).
 
 
10.4
Form of Registration Rights Agreement, dated August 5, 2022, by and among the Company and the accredited investors a party thereto, dated November 3, 2017certain lenders (Incorporated by reference to Exhibit 10.4 to the Form 8-K filed with the SEC on November 9, 2017)August 8, 2022).
 
 
31.110.5*
Settlement Agreement, dated August 5, 2022, by and between the Company and Leviston Resources LLC (Incorporated by reference to Exhibit 10.5 to the Form 8-K filed with the SEC on August 8, 2022).
10.6
Offer Letter, dated April 7, 2022, by and between the Company and Dr. Toni Rinow (Incorporated by reference to Exhibit 10.1 to the Form 8-K filed with the SEC on August 19, 2022).
Rule 13a-14(a)/15d-14(a) Certification of the PrincipalChief Executive Officer.
 
 
Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer.
 
 
Section 1350 Certification of the Principal Executive Officer.
 
 
Section 1350 Certification of the Chief Financial Officer.
 
 
101.INS*†
XBRL Instance.
 
 
101.SCH*†
XBRL Taxonomy Extension Schema.
 
 
101.CAL*†
XBRL Taxonomy Extension Calculation.
 
 
101.DEF*†
XBRL Taxonomy Extension Definition.
 
 
101.LAB*†
XBRL Taxonomy Extension Labels.
 
 
101.PRE*†
XBRL Taxonomy Extension Presentation.
104Cover Page with Interactive Data File

*Filed herewith.
# Confidential treatment has been requested as to certain portions
24
† XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 SANUWAVE HEALTH, INC.
 
Dated: November 14, 2022By:
/s/ Kevin A. Richardson, II
Kevin A. Richardson, II

Chief Executive Officer
(Duly Authorized Officer and Principal Executive Officer)
   
Dated: November 14, 20172022By:
/s/ Kevin A. Richardson, II
Toni Rinow
 Toni Rinow
  Name: Kevin A. Richardson, II
Title: Acting Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
SignaturesCapacityDate
By: /s/Kevin A. Richardson, II
Acting Chief Executive Officer and Chairman of the Board of DirectorsNovember 14, 2017
Name: Kevin A. Richardson, II
(principal executive officer)
By: /s/Lisa E. Sundstrom
Chief Financial Officer
November 14, 2017
Name: Lisa E. Sundstrom
(principal financialPrincipal Financial and accounting officer)Accounting Officer)



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