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 SeptemberJune 30, 20172021

☐
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 Farm Road, Suite 100
Suwanee, GA
30024
(Address of principal executive offices)(Zip Code)

(770) 419-7525
(Registrant'sRegistrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of each classTrading Symbol(s)
Name of each exchange on which
registered
Common Stock, par value $0.001
SNWV

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):

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  ☒  No

As of NovemberJanuary 10, 2017,2022 there were issued and outstanding 139,249,926481,619,621 shares of the registrant’s common stock, $0.001 par value.


SANUWAVE Health, Inc. shares of common stock are traded on the OTC Expert Market under the symbol SNWV.

SANUWAVE Health, Inc.

Table of Contents

 Page
PART I – FINANCIAL INFORMATION
 
  
Item 1.
4
   
 4
   
 
Condensed Consolidated Statements of Comprehensive Loss for the three and ninesix months ended SeptemberJune 30, 20172021 and 20162020
5
   
 
Condensed Consolidated Statements of Stockholders’ Deficit for the three and six months ended June 30, 2021 and 2020
6
  
Condensed Consolidated Statements of Cash Flows for the ninesix months ended SeptemberJune 30, 20172021 and 20162020
68
   
 79
   
Item 2.
23
   
Item 3.
3228
   
Item 4.
3228
   
PART II – OTHER INFORMATION
 
Item 6.1.
3329
 
Item 1A.
29
Item 2.
30
Item 3.
30
Item 4.
30
Item 5.
30
Item 6.
31
   
 SIGNATURES3432


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 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, 2016,2020, filed on March 31, 2017October 21, 2021 and in the Company’s Quarterly Reports on Form 10-Q.  Other risks and uncertainties are and will be disclosed in the Company’s prior and future 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, 2016,2020, filed on March 31, 2017.October 21, 2021.

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.


PART I —-- FINANCIAL INFORMATION
Draft 12/2/2021
ITEM 1.FINANCIAL STATEMENTS
Item1. FINANCIAL STATEMENTS (UNAUDITED)
SANUWAVE HEALTH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In thousands except share data)

  June 30, 2021  December 31, 2020 
ASSETS      
Current Assets:      
Cash 
$
264
  
$
2,437
 
Accounts receivable, net of allowance for doubtful accounts of $583 in 2021 and $343 in 2020
  
1,888
   
2,356
 
Inventory  
2,436
   
2,956
 
Prepaid expenses and other current assets  
399
   
179
 
Total Current Assets  
4,987
   
7,928
 
Property and Equipment, net  
657
   
471
 
Right of Use Assets, net  
574
   
795
 
Other Intangible Assets, net  
6,193
   
6,545
 
Goodwill  
7,260
   
7,260
 
Other Assets  
70
   
28
 
Total Assets 
$
19,741
  
$
23,027
 
         
LIABILITIES        
Current Liabilities:        
Senior secured promissory note payable, in default 
$
11,131
  
$
10,676
 
Convertible promissory notes payable, in default  
7,108
   
4,000
 
Convertible promissory notes, related parties, in default  
1,596
   
1,596
 
Accounts payable  
5,929
   
4,454
 
Accrued expenses  
3,726
   
2,127
 
Accrued employee compensation  
3,093
   
2,541
 
Due under factoring agreement
  1,038   0 
Warrant liability  
7,434
   
8,855
 
Current portion of SBA loans  
487
   
321
 
Accrued interest  
1,411
   
1,021
 
Accrued interest, related parties  
172
   
77
 
Current portion of lease liabilities  
376
   
451
 
Current portion of contract liabilities  
33
   
32
 
Other  
0
   
23
 
Total Current Liabilities  
43,534
   
36,174
 
Non-current Liabilities        
SBA loans  
1,011
   
143
 
Lease liabilities  
245
   
391
 
Contract liabilities  
181
   
37
 
Deferred tax liability  
22
   
0
 
Total Non-current Liabilities  
1,459
   
571
 
Total Liabilities  
44,993
   
36,745
 
         
Contingencies  0   0 
         
STOCKHOLDERS’ DEFICIT        
         
Preferred Stock, par value $0.001, 5,000,000 shares authorized; 6,175, 293, 90 and 8 shares designated Series A, Series B, Series C and Series D, respectively; 0 shares issued and outstanding at June 30, 2021 and December 31, 2020
  
0
   
0
 
Common Stock, par value $0.001, 800,000,000 shares authorized; 481,619,621 and 470,694,621 issued and outstanding at June 30, 2021 and December 31, 2020, respectively
  
482
   
471
 
Additional Paid-in Capital  
144,582
   
142,563
 
Accumulated Deficit  
(170,242
)
  
(156,690
)
Accumulated Other Comprehensive Loss  
(74
)
  
(62
)
Total Stockholders’ Deficit  
(25,252
)
  
(13,718
)
Total Liabilities and Stockholders’ Deficit 
$
19,741
  
$
23,027
 

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

(UNAUDITED)4
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 LOSS
(UNAUDITED)
(In thousands except share data)
 
  Three Months Ended June 30,  Six Months Ended June 30, 
  2021
  2020
  2021
  2020
 
Revenues:            
Accessory and parts revenue $2,284  $13  $4,109  $76 
Product  514   69   767   144 
License fees and other  111   1   149   12 
Total Revenue  2,909   83   5,025   232 
                 
Cost of Revenues  1,048   79   2,103   209 
                 
Gross Margin  1,861   4   2,922   23 
                 
Operating Expenses:                
General and administrative  3,115
 
2,579   6,436   4,499 
Selling and marketing  2,520   433   4,300   1,041 
Research and development  272   265   626   551 
Total Operating Expenses  5,907   3,277   11,362   6,091 
                 
Operating Loss  (4,046)  (3,273)  (8,440)  (6,068)
                 
Other Income (Expense):                
Interest expense  (1,437)  (169)   (2,559)   (188) 
Change in fair value of derivative liabilities
  (591)  0  44  0
Interest expense, related party  (48)  (187)  (95)  (370)
Loss on issuance of debt  (2,484)  0   (2,484)  0 
Gain / (loss) on foreign currency exchange  (3)  (3)  4   (8)
Other Income (Expense), net  (4,563)  (359)  (5,090)  (566)
                 
Net Loss before Income Taxes  (8,609)  (3,632)  (13,530)  (6,634)
                 
Provision for Income Taxes  6   0   22   0 
                 
Net Loss  (8,615)  (3,632)  (13,552)  (6,634)
                 
Other Comprehensive Loss                
Foreign currency translation adjustments  (3)  (7)  (11)  (2)
                 
Total Comprehensive Loss $(8,618) $(3,639) $(13,563) $(6,636)
                 
Loss per Share:                
Net loss per share, basic and diluted $(0.02) $(0.01) $(0.03) $(0.02)
                 
Weighted average shares outstanding, basic and diluted  518,310,781
   299,497,960
   518,400,008
   297,856,870
 

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

5


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

  Three Months Ended June 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 March 31, 2021  0  $0   481,619,621  $482  $144,582  $(161,627) $(70) $(16,633)
Net loss  -   0   -   0   0   (8,615)  0   (8,615)
Foreign currency translation adjustment  -   0   -   0   0   0   (4)  (4)
Balances as of June 30, 2021  0  $0   481,619,621  $482  $144,582  $(170,242) $(74) $(25,252)

  Three Months Ended June 30, 2020 
  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 March 31, 2020  0  $0   297,663,672  $298  $115,952  $(128,754) $(58) $
(12,562)
Conversion of short term notes and convertible notes payable  0   0   759,328   1   90   0   0   91 
Conversion of advances from related parties  0   0   200,000   0   16   0   0   16 
Shares issued for services  0   0   2,200,000   2   515   0   0   517 
Proceeds from PIPE offering, net of offering costs  0   0   1,071,428   1   149   0   0   150 
Proceeds from stock option exercise  0   0   225,000   0   44   0   0   44 
Beneficial conversion feature on convertible debt  -   0   -   0   561   0   0   561 
Net loss  -   0   -   0   0   (3,632)  0   (3,632)
Foreign currency translation adjustment  -   0   -   0   0   0   (7)  (7)
Balances as of June 30, 2020  0  $0   302,119,428  $302  $117,327  $(132,386) $(65) $(14,822)

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

6

SANUWAVE HEALTH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSSTOCKHOLDERS’ DEFICIT
(UNAUDITED)
(In thousands except share data)
 
 
 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 
 $- 


  Six Months Ended June 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  0  $0   470,694,621  $471  $142,563  $(156,690) $(62) $(13,718)
Cashless warrant exercise  0   0   10,925,000   11   (11)  0   0   0 
Reclassification of warrant liability due to cashless warrant exercise  0   0   0   0   2,030   0   0   2,030 
Net loss  -   0   -   0   0   (13,552)  0   (13,552)
Foreign currency translation adjustment  -   0   -   0   0   0   (12)  (12)
                                 
Balances as of June 30, 2021  0  $0   481,619,621  $482  $144,582  $(170,242) $(74) $(25,252)


  Six Months Ended June 30, 2020 
  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, 2019  0  $0   293,780,400  $294  $115,458  $(125,752) $(62) $(10,062)
Proceeds from warrant exercise  0   0   1,000,000   1   9   0   0   10 
Conversion of short term notes and convertible notes payable  0   0   2,579,789   3   352   0   0   355 
Conversion of advances from related parties  0   0   262,811   0   19   0   0   19 
Shares issued for services  0   0   3,200,000   3   714   0   0   717 
Proceeds from PIPE offering, net of offering costs  0   0   1,071,428   1   149   0   0   150 
Stock-based compensation  -   0   -   0   21   0   0   21 
Proceeds from stock option exercise  0   0   225,000   0   44   0   0   44 
Beneficial conversion feature on convertible debt  -   0   -   0   561   0   0   561 
Net loss  -   0   -   0   0   (6,634)  0   (6,634)
Foreign currency translation adjustment  -   0   -   0   0   0   (3)  (3)
                                 
Balances as of June 30, 2020  0  $0   302,119,428  $302  $117,327  $(132,386) $(65) $(14,822)

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

7

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

  Six Months Ended June 30, 
  2021
  2020
 
Cash Flows - Operating Activities:      
Net loss 
$
(13,552
)
 
$
(6,634
)
Adjustments to reconcile net loss to net cash used by operating activities        
Amortization of intangibles  
352
   
0
 
Depreciation  
198
   
118
 
Bad debt expense  
240
   
183
 
Share-based payment  
0
   
739
 
Deferred taxes  
22
   
0
 
Change in fair value of derivative liabilities
  (44)  
0
 
Loss on issuance of debt
  2,484   0 
Amortization of debt issuance costs
  
455
   
70
 
       Amortization of debt discount
  264   0 
Accrued interest  
390
   
84
 
Interest payable, related parties  
95
   
370
 
Changes in operating assets and liabilities        
Accounts receivable - trade  
218
   
(218
)
Inventory  
521
   
(108
)
Prepaid expenses  
(191
)
  
(102
)
Other assets  (83)  
(1
)
Operating leases  
0
   
(6
)
Accounts payable  
1,475
   
360
 
Accrued expenses  
1,350
   
110
 
Accrued employee compensation  
553
   
557
 
Contract liabilities  
4
   
(34
)
Net Cash Used in Operating Activities  
(5,249
)
  
(4,512
)
         
Cash Flows - Investing Activities        
Purchases of property and equipment  
(277
)
  
(1,115
)
Net Cash Flows Used in Investing  Activities  
(277
)
  
(1,115
)
         
Cash Flows - Financing Activities        
Proceeds from sale of convertible preferred stock  
0
   
2,450
 
Proceeds from convertible promissory notes
  1,263   1,100 
Proceeds from SBA loan  
1,033
   
614
 
Proceeds from PIPE offering, net of offering costs
  0   150 
Proceeds from stock option exercises
  0   44 
Proceeds from factoring
  1,038   0 
Proceeds from warrant exercises  
0
   
10
 
Proceeds from related party advances
  
125
   
0
 
Payments of principal on finance leases  
(94
)
  
(69
)
Net Cash Flows Provided by Financing Activities  
3,365
   
4,299
 
         
Effect of Exchange Rates on Cash  
(12
)
  
(2
)
         
Net Change in Cash During Period  
(2,173
)
  
(1,330
)
         
Cash at Beginning of Period  
2,437
   
1,761
 
Cash at End of Period 
$
264
  
$
431
 
         
Supplemental Information:        
Cash paid for interest 
$
1,434
  
$
0
 
         
Non-cash Investing and Financing Activities:        
Reclassification of warrant liability due to cashless warrant exercise 
$
2,030
  
$
0
 
Conversion of short-term notes payable to equity  
0
   
355
 
Conversion of advances from related parties to equity  
0
   
18
 
Additions to right of use assets from new finance lease liabilities  
0
   
128
 
Embedded conversion option with issuances of convertible debt
  2,740   561 
Warrant issuance in conjunction with convertible notes
  758   0 

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

8
Table of Contents
SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SeptemberJune 30, 20172021

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 2 highly complementary and market-cleared energy transfer technologies and 2 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. RevenuesStates 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. The financial information as of June 30, 2021 and for the three and six month ended June 30, 2021 and 2020 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 six months ended June 30, 2021 are from salesnot necessarily indicative of the European Conformity Marking (“CE Mark”) devices and accessories in Europe, Canada, Asia and Asia/Pacific.results that may be expected for any other interim period or for the year ending December 31, 2021.

2. Going Concern
The CompanyCondensed Consolidated Balance Sheet at December 31, 2020 has been derived from the audited Consolidated Financial Statements at that date but does not include all of 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, 2020 Annual Report on Form 10-K filed with the SEC on October 21, 2021 (the “2020 Annual Report”).

Reclassifications – Certain accounts in the prior period Condensed Consolidated Financial Statements have been reclassified to conform to the presentation of the current year Condensed Consolidated Financial Statements.  Accessory and parts revenue for the three and six months ended June 30, 2020, respectively, contains $76 thousand and $13 thousand of revenue that was reclassified from other revenue.  In addition, $53 thousand and $94 thousand of depreciation expense related to rental devices was reclassified from operating expenses to cost of revenues for the three and six months ended June 30, 2020, respectively.   These reclassifications had no effect on the previously reported operating results.

Covid-19 – The worldwide spread of the COVID-19 virus has resulted and is expected to result in a global slowdown of economic activity which has, and is likely to continue to, decrease demand for a broad variety of products, including from our customers, while also disrupting supply channels and marketing activities for an unknown period of time until the disease is contained.  Also, the pandemic may cause continued or additional actions by hospitals and clinics such as limiting elective procedures and treatments and limiting clinical trial activities and data monitoring.  We expect all of these factors to continue to have a negative impact on our sales and our results of operations, the size and duration of which we are currently generate significantunable to predict.

2.Going Concern

Our recurring revenuelosses from operations and dependency upon future issuances of equity or other financing to fund ongoing operations have raised substantial doubt as to our ability to continue as a going concern. We will be required to raise additional funds to finance our operations and remain a going concern; we may not be able to do so, and/or the terms of any financings may not be advantageous to us.

9
The continuation of our business is dependent upon raising additional capital. We expect to devote substantial resources for the commercialization of the dermaPACE system and intend to continue to research and develop the non-medical uses of the PACE technology, both of which will require additional capital during the thirdfourth quarter of 2017. As of September 30, 2017, the Company had an accumulated deficit of $102,194,242 and cash and cash equivalents of $40,226. For the nine months ended September 30, 2017 and 2016, the net cash used by operating activities was $944,831 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 loss of $6,439,040 for the year ended December 31, 2016.resources.  The operating losses and the Eventsevents of Defaultdefault on the NotesCompany’s notes payable related parties (see Note 7) create an uncertaintyindicate substantial doubt about the Company’s ability to continue as a going concern.concern for a period of at least twelve months from the filing of this Quarterly Report on Form 10-Q.

The continuation of the Company’sour 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 the Company’sour existing shareholders.  In addition, there can be no assurances that our plans to obtain additional capital will be successful on the terms or timeline we expect, or at all.  Although no assurances can be given, management of the Company believes that potential additional issuances of equity or other potential financing transactions as discussed above should provide the necessary funding for the Company to continue as a going concern. us. 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.

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. The consolidated financial statementsoutcome 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 Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements ofaccounting 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 2020 Annual Report.

Estimates – These Condensed Consolidated Financial Statements 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 required by United States generally accepted accounting principlesother intangible assets, the determination of the valuation allowances for complete financial statements.deferred taxes and the estimated fair value of embedded derivatives, including warrants and embedded conversion options on convertible debt issuances.

10
Goodwill and Other Intangible Assets – Goodwill represents the excess of the purchase price over the fair value of assets acquired and liabilities assumed. The financial information as of September 30, 2017Company accounts for goodwill under ASC Topic 350, Intangibles-Goodwill and Other. The Company tests goodwill for the three and nine months ended September 30, 2017 and 2016impairment annually, or more frequently whenever events or circumstances indicate impairment may exist. Goodwill is unaudited; however,stated at cost less accumulated impairment losses. The Company completes its goodwill impairment test annually in the opinionfourth quarter. Intangible assets arising from the Company’s acquisition are amortized on a straight‑line basis over the estimated useful life of management, all adjustments (consistingeach asset. Customer relationships have a useful life of normal recurring accruals) considered necessary forseven years. Patents and tradenames have a useful life of nineteen years.

Fair value of financial instruments - The carrying values of accounts payable, and other short-term obligations approximate their fair presentation have been included.  Operating results for the three and nine month periods ended September 30, 2017 are not necessarily indicativevalues, because of the results that may be expected for any other interim period or for the year ending December 31, 2017.short-term maturities of these instruments.

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 sheetCompany utilizes the guidance of ASC Topic 820-10, Fair Value Measurements (“ASC 820-10”), which defines fair value, establishes a framework for measuring fair value and requires disclosures about fair value measurements. The framework that is set forth in this standard is applicable to the fair value measurements where it is permitted or required under other accounting pronouncements.

The ASC 820-10 hierarchy ranks the quality and reliability of inputs, or assumptions, used in the determination of fair value and requires financial assets and liabilities carried at December 31, 2016 has been derived from the audited consolidated financial statements at that date, but does not include allfair value to be classified and disclosed in one of the informationfollowing three categories:

•
Level 1 - Observable inputs that reflect quoted prices (unadjusted) in active markets for identical assets and liabilities;
•
Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and
•
Level 3 - Unobservable inputs that are not corroborated by market data, therefore requiring the Company to develop its own assumptions.
The Company recognizes all derivatives on the Condensed Consolidated Balance Sheet at fair value. The fair value of the LGH warrant liability is determined based on a bionomial approach pricing model at issuance and, footnotes required by United States generally accepted accounting principles for complete financial statements.thereafter, on a Black Scholes model. The fair value of the embedded conversion option is based on a binomial pricing model at issuance and thereafter.  The fair values of the NH and Leviston warrant liabilities are based on a Black Scholes model at issuance and thereafter.  The Company’s usage of the Black Scholes model approximates the bionomial approach pricing model. Each of the pricing models includes the use of unobservable inputs such as the expected term, anticipated volatility and risk-free interest rate, and therefore, is classified within Level 3 of the fair value hierarchy.

SignificantRecent 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, filed with the SEC on March 31, 2017.  
Recently IssuedPronouncements – In August 2020, Financial 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 (“ASU”) 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts with Customers (ASU 2014-09)in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which supersedes nearly allsimplifies the accounting for convertible instruments by removing the separation models for (1) convertible debt with a cash conversion feature and (2) convertible instruments with a beneficial conversion feature and simplifies the guidance for determining whether a conversion feature is a derivative. As a result, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost. These changes will reduce reported interest expense and increase reported net income for entities that have issued a convertible instrument that was bifurcated according to previously existing revenue recognition guidance under U.S. GAAP. The core principle ofrules. In addition, 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 reflecting2020-06 requires the application of the standard in each prior reporting period withif-converted method for calculating diluted earnings per share and 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.). 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 treasury stock method 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.be no longer available. 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. 2021, with early adoption permitted no earlier than fiscal years beginning after December 15, 2020. Effective January 1, 2021, the Company elected to early adopt ASU 2020-06 using the modified retrospective method.  The adoption of ASU 2020-06 had no impact previously reported financial position or operating results.

In May 2021, the FASB issued ASU 2021-04, Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40). This standardASU reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. This ASU provides guidance for a modification or an exchange of a freestanding equity-classified written call option that is not within the scope of another Topic. It specifically addresses: (1) how an entity should treat a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange; (2) how an entity should measure the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange; and (3) how an entity should recognize the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange. This ASU will require adoption on a retrospective basis unless it is impracticable to apply, in which case it would be required toeffective for all entities for fiscal years beginning after December 15, 2021. An entity should apply the amendments prospectively asto modifications or exchanges occurring on or after the effective date of the earliest date practicable. Managementamendments. Early adoption is evaluating the requirementspermitted, including adoption in an interim period. The adoption of this guidance and hasASU 2021-04 is not yet determined theexpected to have a material impact of the adoption on the Company’s financial positionstatements or resultsdisclosures.

11
Table of operations.
Contents
In July 2017,December 2019, the FASB issued ASU No. 2017-11, Earnings Per Share2019-12 Income Taxes (Topic 260); Distinguishing Liabilities from Equity (Topic 480): Derivatives and Hedging (Topic 815): (Part I)740) Simplifying the Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement 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 Income Taxes. ASU addresses the complexity and reporting burden associated with2019-12 simplifies the accounting for freestandingincome taxes in several areas including calculating taxes in an interim period, clarifying how to account for taxes that are partially based on income and embedded instruments with down round features as liabilities subjectrequiring an entity to fair value measurement. Part IIreflect the effect of this ASU addressesan enacted change in tax laws or rates in the difficulty of navigating Topic 480. Part I of this ASU will beannual effective tax rate computation in the interim period that includes the enactment date.  This amendment is effective for fiscal years beginning after December 15, 2018. Early adoption is permitted for an entity in an2020, and interim or annual period. Management is evaluating the requirements of this guidance and has not yet determined theperiods within those fiscal years. The Company adopted ASU 2019-12 effective January 1, 2021 with no impact of the pending adoption on the Company’spreviously reported financial position or results of operations.operating results.

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,In January 2017, the Company had received $751,616 from related partiesFASB issued ASU 2017-04, Intangibles—Goodwill and accredited investors.
10% Convertible Promissory Notes
On March 27, 2017, Other (Topic 350) Simplifying the Company began offering subscriptionsTest 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 offeredGoodwill Impairment. The amendments in ASU 2017-04 modified the testing that an entity should perform for its annual, or interim, goodwill impairment test 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 net 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 of 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 per share, 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, 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).
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.
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 $0.001 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 will 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 tocomparing the fair value of derivative liabilities.  Various factors are considered ina reporting unit with its carrying amount. An entity should recognize an impairment charge for the pricing modelsamount by which the Company usescarrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to valuethat reporting unit. Additionally, an entity should consider income tax effects from any tax-deductible goodwill on the warrants, including the Company’s current common stock price, the remaining lifecarrying amount of the warrants,reporting unit when measuring the volatility of the Company’s common stock price,goodwill impairment loss, if applicable. This amendment is effective for fiscal years beginning after December 15, 2022, 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,interim periods within those fiscal years. Early adoption 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
permitted. The Company is involved in various legal matters that have arisen in the ordinary courseadopted ASU 2017-04 effective January 1, 2021.  The adoption of business. While the ultimate outcome of these matters isthis guidance did not presently determinable, it is the opinion of management that the resolution will not have a material adverse effect on the financial position orimpact our results of operations of the Company.or financial position.


SANUWAVE HEALTH, INC. AND SUBSIDIARIES
4.Loss per Share
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)loss per share is computedcalculated by dividing the net income (loss)loss attributable to common stockholders for the period by the weighted average number of shares of common stock outstanding for the period.  three and six months ended June 30, 2021 and 2020.  In accordance with ASC Topic 260-10-45-13, Earnings Per Share, the weighted average of number of shares outstanding includes outstanding common stock and shares issuable for nominal consideration.  Accordingly, warrants issued with a $0.01 per share exercise price, are included in weighted average shares outstanding as follows:


 Three Months Ended  Six Months Ended 
  June 30, 2021  June 30, 2020  June 30, 2021  June 30, 2020 
Weighted average shares outstanding            
Common shares  481,619,621   299,497,960   481,619,621   297,856,870 
Common shares issuable assuming exercise of nominally priced warrants  36,691,160   0   36,780,387   0 
Weighted average shares outstanding  518,310,781   299,497,960   518,400,008   297,856,870 

Diluted net income (loss)loss per share iswould be 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 six months ended SeptemberJune 30, 20172021 and 2016, respectively,2020, 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 sharesconsist of the following at June 30, 2021 and 92,046,867 shares2020, respectively (in thousands):

  2021
  2020
 
Common stock options
  
31,760
   
34,169
 
Common stock purchase warrants
  
150,202
   
9,374
 
Convertible notes payable
  
74,155
   
5,227
 
Short-term notes payable
  
0
   
2,250
 
Convertible preferred stock
  
0
   
17,500
 
   
256,117
   
68,520
 
5.Inventory

Inventory consists of the following at SeptemberJune 30, 20172021 and 2016,December 31, 2020 (in thousands):

  2021
  2020
 
Inventory - finished goods 
$
1,991
  
$
2,276
 
Inventory - parts and accessories  
445
   
680
 
Total inventory 
$
2,436
  
$
2,956
 

12
6.Accrued Expenses

Accrued expenses consist of the following at June 30, 2021 and December 31, 2020 (in thousands):

  2021
  2020
 
Outside services 
$
135
  
$
347
 
License fees  
715
   
336
 
Board of director's fees  
437
   
320
 
Registration penalties  
1,849
   
264
 
Commissions  
0
   
239
 
Legal and professional fees  
107
   
197
 
Warranty reserve  
180
   
180
 
Inventory purchases  
87
   
91
 
Other  
216
   
153
 
  
$
3,726
  
$
2,127
 

There was 0 activity in the warranty reserve during the three and six months ended June 30, 2021.

7.Revenue

Disaggregation of Revenue - The disaggregation of revenue is based on geographical region. The following tables present revenue from contracts with customers for the three and six months ended June 30, 2021 and 2020 (in thousands):

  Three Months Ended June 30, 2021  Three Months Ended June 30, 2020 
  United States  International  Total  United States  International  Total 
Accessories and parts
 $2,214  $70  $2,284  $13  $0  $13 
Product
  
470
   
44
   
514
   
63
   
6
   
69
 
License fees and other
  
91
   
20
   
111
   
(12
)
  
13
   
1
 
  
$
2,775
  
$
134
  
$
2,909
  
$
64
  
$
19
  
$
83
 


 Six Months Ended June 30, 2021  Six Months Ended June 30, 2020 
  United States  International  Total  United States  International  Total 
Accessories and parts
 $3,903  $206  $4,109  $76  $0  $76 
Product  511   256   767   97   47   144 
License fees and other  124   25   149   (65)  77   12 
  $4,538  $487  $5,025  $108  $124  $232 

Contract liabilities -As of June 30, 2021 and December 31, 2020, the Company has contract liabilities from contracts with customers as follows (in thousands):

  
June 30,
2021
  
December 31,
2020
 
Service agreements 
$
89
  
$
69
 
Deposit on future equipment purchases  
125
   
0
 
Total contract liabilities  
214
   
69
 
Less: current portion  
(33
)
  
(32
)
Non-current contract liabilities 
$
181
  
$
37
 

During the three months ended June 30, 2021 and 2020, the Company recognized revenue related to these contract liabilities of $8 thousand and $17 thousand, respectively, that were included in the beginning contract liability balances for each of those periods. During the six months ended June 30, 2021 and 2020, the Company recognized revenue related to these contract liabilities of $16 thousand and $39 thousand, respectively, that were included in the beginning contract liability balances for each of those periods.

The following table summarizes the changes in contract liabilities during the six months ended June 30, 2021 (in thousands):

  Six Months Ended 
  June 30, 2021 
Beginning balance $69 
Service agreement additions  36 
Deposit on future equipment purchases  125 
Revenue recognized  (16)
Total contract liabilities  214 
Less current portion  (33)
Non-current contract liabilities $181 

13
8.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 and sales from major customers of the Company for the periods indicated were as follows:


  June 30, 2021  December 31, 2020 
Accounts Receivable:      
Customer A  
17
%
  
46
%

SANUWAVE HEALTH, INC. AND SUBSIDIARIES
  Three Months Ended  Six Months Ended 
  June 30, 2021  June 30, 2020  June 30, 2021  June 30, 2020 
Revenue:            
Customer B  n/a   45%  n/a   49%
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
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 six months ended June 30, 20172021 and 2020 were as follows:

  Three Months Ended  Six Months Ended 
  June 30, 2021  June 30, 2020  June 30, 2021  June 30, 2020 
Purchases:            
Vendor A  44%  n/a   43%  n/a 
Vendor B  38%  n/a   21%  n/a 
Vendor C  n/a   36%  n/a   29%
Vendor D  n/a   11%  n/a   22%
Vendor E  n/a   36%  n/a   19%
16. Subsequent events
Brazil Joint Venture

9.Accounts Receivable Factoring

On September 27, 2017, weJune 17, 2021, the Company entered into a binding term sheetfactoring agreement with MundiMed Distribuidora Hospitalar LTDA
Goodman Capital Finance (“MundiMed”Goodman”), effectivean unrelated third party, pursuant to which the Company may sell certain of its accounts receivable to Goodman for 86.25% of the value of the receivable. Advances available under the facility are capped at the lesser of $3.0 million or a formula amount, as defined in the agreement. Interest on advances is assessed at a fixed  amount upon funding, which is equivalent to an annualized rate of September 25, 2017, for a joint venture15.0% for the manufacture, salefirst 30 days, and distributiondaily thereafter at an annualized rate of our dermaPACE device. Under the binding14.4%. The agreement’s term sheet, MundiMed will pay the Company an initial partnership fee,is one month and automatically renews for additional one-month periods, unless either party provides 30 days’ notice of termination. The accounts receivable are sold with monthly partnership fees payable thereafter over the following eighteen months. Profits from the joint venture are distributed as follows: 45%recourse back to the Company, 45%which means that the Company bears the risk of non-payment by the account debtor.

As of June 30, 2021, the Company had transferred to MundiMedGoodman approximately $1.3 million of accounts receivable balances.

10.Notes Payable

The following two tables summarize outstanding notes payable as of June 30, 2021 and 5% each to LHS Latina Health Solutions Gestão Empresarial Ltda.December 31, 2020, respectively (in thousands):


Maturity
Date
 
Stated
Interest
Rate
  
Incremental
Payment in
Kind Interest
  
Incremental
Default
Interest
  
Conversion
Price
  Principal  
Remaining
Debt
Discount
  
Remaining
Embedded
Conversion
Option
  
Carrying
Value
 
Senior secured promissory note payable, in defaultIn default  12.25%  +3.00%  +5.00%  n/a  $15,000   (3,869)  0  $11,131 
Convertible promissory notes payable, in default:                                 
Seller Note issued 8/6/2020In default  12.00%  n/a   +5.00% $0.10   4,000   0   0   4,000 
Leviston Note issued 4/20/2021In default  5.00%  n/a   +10.00% $0.1361   815   (656) $
1,437   1,596 
Leviston Note issued 5/14/2021In default  5.00%  n/a   +10.00% $0.1361   815   (710)  1,407   1,512 
  Total convertible promisory notes payable, in default                   5,630   (1,366)  2,844   7,108 
                                  
Convertible promissory notes payable, related parties, in default:                                 
Convertible promissory notes (HealthTronics), related partiesIn default  12.0%  n/a   +2.0% $0.10   1,372   0   0   1,372 
Convertible promissory notes (Stolarski), related partiesIn default  12.0%  n/a   +2.0% $0.10   224   0   0   224 
  Total convertible promisory notes payable, related parties, in default                   1,596   0   0   1,596 
                                  
SBA loan #1May 28, 2022  1.00%  n/a   n/a   n/a   464   0   0   464 
SBA loan #2February 20, 2026  1.00%  n/a   n/a   n/a   1,034   0   0   1,034 
  Total SBA loans outstanding                   1,498   0   0   1,498 
                                  
Total debt outstanding, including amounts in default                   23,724   (5,235)  2,844   21,333 
                                  
Less:  current maturities, including notes in default                   (22,713)  5,235   (2,844)  (20,322)
                                  
Total long-term debt as of June 30, 2021
                  $1,011  $0  $0  $1,011 



Maturity
Date
 
Stated
Interest
Rate
  
Incremental
Payment in
Kind Interest
  
Incremental
Default
Interest
  
Conversion
Price
  Principal  
Remaining
Debt
Discount
  
Carrying
Value
 
Senior secured promissory note
payable, in default
In default  12.25%  +3.00%  +5.00%  n/a  $15,000   (4,324) $10,676 
Convertible promissory notes payable, in default:                             
Seller Note issued 8/6/2020In default  12.00%  n/a   +5.00% $0.10   4,000   0   4,000 
                              
Convertible promissory notes payable, related parties, in default:                             
Convertible promissory notes (HealthTronics), related partiesIn default  12.0%  n/a   +2.0% $0.10   1,372   0   1,372 
Convertible promissory notes (Stolarski), related partiesIn default  12.0%  n/a   +2.0% $0.10   224   0   224 
  Total convertible promisory notes payable, related parties, in default                   1,596   0   1,596 
                              
SBA loan #1May 28, 2022  1.00%  n/a   n/a   n/a   464   0   464 
                              
Total debt outstanding, including amounts in default                   21,060   (4,324)  16,736 
                              
Less:  current maturities, including notes in default                   (20,917)  4,324   (16,593)
                              
Total long-term debt as of December 31, 2020
                  $143  $0  $143 

Senior secured promissory note payable, in default (“Senior Secured Note”) - On August 6, 2020, the Company entered into a Note and Universus Global Advisors LLC, who actedWarrant Purchase and Security Agreement (the “NWPSA”), with NH Expansion Credit Fund Holdings LP, as advisors innoteholder and agent. In accordance with the transaction. The initial partnership fee was received on October 6, 2017.
Cashless Warrant Exercise
On October 24, 2017,NWPSA, the Company issued 150,083a $15 million Senior Secured Promissory Note Payable (the “Senior Secured Note”) 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.  As of December 31, 2020, the Company was in default of the minimum liquidity provisions on the Senior Secured Note. As of June 30, 2021, the Company remains in default of the minimum liquidity provisions on the Senior Secured Note, and, as a result, it is classified in current liabilities in the accompanying Condensed Consolidated Balance Sheets. As a result of the default, the Company is accruing interest at the default interest note of an incremental 5%.

The debt issuance costs and debt discount related to the Senior Secured Note were capitalized as a reduction in the principal amount and are being amortized to interest expense over the life of the Senior Secured Note.  The amortization of the debt issuance costs and debt discount for the three and six months ended June 30, 2021 was $227 thousand and $445, respectively, and is included in interest expense. Accrued interest related to the Senior Secured Note was $950 thousand and $642 thousand at June 30, 2021 and December 31, 2020, respectively.  Interest expense on the Senior Secured Note was $773 thousand and $1.5 million for the three months and six months ended June 30, 2021, respectively.

14
Convertible promissory notes payable, in default (“Seller Note”) - On August 6, 2020, the Company entered into an asset purchase agreement with Celularity to acquire Celularity’s UltraMIST assets. A portion of the aggregate consideration of $24 million paid for the assets included the issuance of a promissory note to Celularity in the principal amount of $4 million (the “Seller Note”). The Seller Note matured on August 6, 2021 and was not repaid. The Company’s failure to pay the outstanding principal balance when due constituted an event of default under the terms of the Seller Note and, accordingly, it began accruing additional interest of 5.0% in addition to the 12.0% initial rate, as of the date of the default. As of June 30, 2021 and December 31, 2020, the Seller Notes had outstanding accrued interest of $432 thousand and $192 thousand, respectively.

The Company evaluated embedded conversion features within the convertible promissory note and determined that the conversion feature does not require to be bifurcated.  Upon adoption of ASC 2020-6 effective January 1, 2021, the convertible promissory note is accounted for as a single liability due to the elimination of the beneficial conversion feature accounting model.

April 2021 Securities Purchase Agreement and Warrants (In default) - On April 20, 2021, the Company entered into a Securities Purchase Agreement (the “Leviston Purchase Agreement”), with Leviston Resources, LLC, an accredited investor (“Leviston”) for the sale by the Company in a private placement (the “Private Placement”) of (i) the Company’s future advance convertible promissory note in an aggregate principal amount of up to $3.4 million (the “Leviston Note”) and (ii) a warrant to purchase an additional 16,666,667 shares of common stock of the Company (the “Leviston Warrant”). The Leviston Warrant has an exercise price of $0.18 per share and a four-year term. The closing of the Private Placement occurred on April 20, 2021 (the “Leviston Closing Date”).

As noted above, on April 20, 2021, the Company issued the Leviston Note to the Purchaser in an aggregate principal amount of up to $3.4 million (the “Aggregate Amount”), which shall be advanced in disbursements by the Purchaser (“Leviston Disbursements”), as set forth in the Leviston Note. On May 14, 2021, the Leviston Note was amended to increase the Aggregate Amount to $4.2 million. On April 21, 2021, the Purchaser advanced a Leviston Disbursement of $750 thousand, which is net of an original issue discount of 8%. On May 14, 2021, the Purchaser advanced a second Leviston Disbursement of $750 thousand, also net of an original issue discount of 8%. A $250 thousand Leviston Disbursement was made on September 3, 2021, which was subject to the same terms and conditions of the April and May Leviston Disbursements.

15

Warrant issuances to Leviston in April and May 2021

On each of April 20, 2021 and May 14, 2021, the Company also issued 3,968,254 warrants to Leviston for a total of 7,936,508 shares of common stock.  The Leviston Warrants contain certain ratchet provisions with respect to subsequent issuances of securities by the Company at a price below the exercise price of such warrants.  As a result, the Company determined that these warrants meet the definition of a derivative liability.  See details of the associated warrant issuances at Note 11 – Warrants.

Embedded Conversion Option

The disbursements made in April and May 2021 under the Leviston Notes included a Conversion Option that meets the definition of a derivative liability and, accordingly, is required to be bifurcated. The fair value of Conversion Option liability was determined by using a binomial pricing model.

  
Issuance date (1)
  
Issuance date (1)
          
Binomial Assumptions April 20, 2021  May 14, 2021  June 30, 2021 Change
Principal $815,217  $815,217  $1,630,434 
Conversion Price(1)
 $0.18  $0.18  $0.1361   
Interest Rate (annual) (2)
  0.07%  0.06%  0.07%  
Volatility (annual) (3)
  69.60%  69.60%  77.20%  
Time to Maturity (Years)  1.0   1.0   0.9   
Fair Value of Conversion Option $1,354,858  $1,385,167  $2,844,636 104,611


(1) Based on the terms provided in Convertible Promissory notes dated April 20 and May 14, 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 each presented period ending date.



Interest rates on Leviston Notes, Conversion Option, and Loss on Issuance


The Leviston Disbursements in April and May 2021 bear interest at the rate of 5% per annum and the default rate of 15%.  The Leviston Note contains a conversion option (“Conversion Option”) and because it is in default, the Leviston Note it is convertible into common shares of the Company at a conversion price of 75% of the lowest VWAP during the 10 trading days ending on the conversion date.  The Conversion Option within the Leviston Note is required to be bifurcated at fair value, which was approximately $1.4 million on the April disbursement and $1.4 million on the May disbursement, and which resulted in additional debt discount being recorded at each disbursement date.  Because the combined fair value of the Leviston Warrants and the Conversion Option exceed the face value of the note, the additional amount beyond the face value is recorded as a loss on issuance of $1.4 million on the April disbursement and $1.1 million on the May disbursement. 

The remaining disbursements up to the Aggregate Amount are subject to the satisfaction of certain terms and conditions set forth in the Leviston Note. Leviston Disbursements bear an interest at a rate of five percent (5%) per annum and have a maturity date of twelve (12) months from the date of issuance. The Leviston Note is convertible at the option of the holder into shares of the common stock of the Company at a conversion price per share equal to the lesser of (i) $0.18, and (ii) ninety percent (90%) of the closing price for a share of common stock reported on the OTCQB on the effective date of the Registration Statement (as defined below).

The Leviston Note contains customary events of default and covenants, including limitations on incurrences of indebtedness and liens.

Pursuant to the Leviston Purchase Agreement, the Company has agreed, within a reasonable period of time following the Leviston Closing Date, and in any event prior to any Leviston Disbursement under the Leviston Note subsequent to the initial Leviston Disbursement, to enter into a security agreement in favor of the Leviston, securing the Company’s obligations under the Leviston Note.

The rights of Leviston to receive payments under the Leviston Note are subordinate to the rights of North Haven Expansion pursuant to a subordination agreement, that the Company and Leviston entered into with North Haven Expansion on April 20, 2021, in connection with the Private Placement (the “Subordination Agreement”).

In connection with the Leviston Purchase Agreement, the Company entered into a registration rights agreement with the Leviston on April 20, 2021 (the “Leviston Registration Rights Agreement”) pursuant to which the Company agreed to file a registration statement (the “Registration Statement”) with the SEC no later than thirty days following the Leviston Closing Date for the registration of 100% of the maximum number of the shares issuable upon conversion of the Leviston Note and exercise of the Leviston Warrants issued pursuant to the Leviston Purchase Agreement (the “Leviston Registrable Securities”). 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 Leviston Registrable Securities have been sold, or may be sold without the requirement to be in compliance with Rule 144(c)(1) of the Securities Act and otherwise without restriction or limitation pursuant to Rule 144 of the Securities Act, as determined by the counsel to the Company.  The Company has yet to file the Registration Statement and, under the terms of the Leviston Registration Rights Agreement, it is obligated to pay in cash a one-time aggregate amount of $250 thousand to the holders of the Leviston Notes, plus 1% of the outstanding principal for each 30-day period during which the Company continues not to have in-place an effective Registration Statement.

On August 31, 2021, Leviston notified the Company that it was in default of the Leviston Purchase Agreement effective June 11, 2021 for failure to timely file a Registration Statement. From the date of the default, interest on the amounts due to Leviston is calculated at the default interest rate of 15% in addition to the registration penalties stated above.

Convertible promissory notes payable (HealthTronics), in default – On August 6, 2020, the Company issued to HealthTronics, Inc. a convertible note payable in the amount of $1.4 million (the “HealthTronics Note”). The HealthTronics Note matured on August 6, 2021 and was not repaid. The Company’s failure to pay the outstanding principal balance when due constituted an event of default under the terms of the HealthTronics Note and, accordingly, it began accruing additional interest of 2.0% in addition to the 12.0% stated interest rate, as of the date of the default. The convertible promissory note is expressly subordinate to the Senior Secured Notes. The Company may prepay the outstanding principal balance, together with any accrued but unpaid interest without premium or penalty. On June 30, 2021 and December 31, 2020 accrued interest of $148 thousand and $66 thousand, respectively, remained outstanding on the HealthTronics Note.

As the Seller Note (as defined in Note 10) was not repaid prior to January 1, 2021, HealthTronics may elect to convert the outstanding principal amount plus any accrued but unpaid interest thereon into shares of the Company’s common stock, at a conversion price of $0.10 per share. The Company evaluated embedded conversion features within the convertible promissory note and determined that the conversion feature does not require to be bifurcated.  Upon adoption of ASC 2020-6 effective January 1, 2021, the convertible promissory note is accounted for as a single liability due to the elimination of the beneficial conversion feature accounting model.

Convertible promissory notes payable (Stolarski), in default – On August 6, 2020, the Company issued to A. Michael Stolarski, a member of the board of directors and an existing shareholder, a convertible promissory note in the principal amount of $223 thousand (the “Stolarski Note”). The Stolarski Note matured on August 6, 2021 and was not repaid. The Company’s failure to pay the outstanding principal balance when due constituted an event of default under the terms of the Stolarski Note and, accordingly, it began accruing additional interest of 2.0% in addition to the 12.0% initial rate, as of the date of the default. On June 30, 2021 and December 31, 2020 accrued interest of $24 thousand and $11 thousand, respectively, remained outstanding on the Stolarski Note. The Stolarski Note is expressly subordinate to the Senior Secured Notes. The Company may prepay the outstanding principal balance, together with any accrued but unpaid interest without premium or penalty.

As the Stolarski Note was not repaid prior to January 1, 2021, the holder may elect to convert the outstanding principal amount plus any accrued but unpaid interest thereon into shares of common stock at a conversion price of $0.10 per share. The Company evaluated embedded conversion features within the convertible promissory note and determined that the conversion feature does not require to be bifurcated.  Upon adoption of ASC 2020-6 effective January 1, 2021, the convertible promissory note is accounted for as a single liability due to the elimination of the beneficial conversion feature accounting model.

SBA Loan #1 - The Company received a letter from the Small Business Administration (“SBA”) dated August 27, 2021 forgiving approximately $454 thousand of the SBA Loan #1 principal and $6 thousand of interest.  As of June 30, 2021, all of the $464 thousand balance outstanding is classified as current.  As of December 31, 2020, $320 thousand is classified as current and $142 thousand is classified as non-current.

SBA Loan #2 – On February 20, 2021, the Company received proceeds from a second SBA loan (“SBA Loan #2”) in the amount of $1.03 million from Northeast Bank, as lender, pursuant to the Paycheck Protection Program (“PPP”) under the CARES Act. SBA Loan #2 is evidenced by a promissory note that matures on February 20, 2026 and bears interest of 1% per annum. Equal monthly payments of principal and interest commence in June 2022, after both a 24-week “covered period” and a 10-month “deferment period,” as defined in the promissory note and current SBA regulations. The SBA Loan #2 contains customary events of default relating to, among other things, payment defaults and breaches of representations, warranties and covenants. The SBA Loan #2 may be prepaid by the Company at any time prior to maturity with no penalties.

All or a portion of SBA Loan #2 may be fully or partially forgiven by the SBA upon application by the Company not later than June 2022 in accordance with SBA regulations.  The ultimate forgiveness of SBA Loan #2 is also contingent upon regulatory authorities concurring with management’s good faith assessment that the current economic uncertainty made the loan request necessary to support ongoing operations. If, despite the Company’s good-faith belief that given the circumstances the Company satisfied all eligibility requirements for SBA Loan #2, the Company is later determined to have violated any applicable laws or regulations or it is otherwise determined that the Company was ineligible to receive SBA Loan #2, the Company may be required to repay SBA Loan #2 in its entirety and/or be subject to additional penalties. In the event SBA Loan #2, or any portion thereof, is forgiven pursuant to the PPP, the amount forgiven is applied to outstanding principal.  As of June 30, 2021, $23 thousand is included in current liabilities and the remainder of the $1.0 million loan balance is included in non-current liabilities in the accompanying Condensed Consolidated Balance Sheets.
16
11.Warrants

A summary of the warrant activity during the six months ended June 30, 2021 is as follows:

Warrant class 
Outstanding
December 31,
2020
  Issuances
  Exercised  
Outstanding
June 30,
2021
  
Exercise
price/share
 
 Expiration
date
Class E Warrants  
141,091,485
   0   
0
   
141,091,485
  
$
0.25
 
August 2023
Class O Warrants  
909,091
   0   
0
   
909,091
   
0.11
 January 2022
Class P Warrants  
265,000
   0   
0
   
265,000
   
0.20
 June 2024
LGH Warrant  
35,000,000
   0   
(11,400,000
)
  
23,600,000
   
0.01
 June 2025
NH Expansion Warrant  
13,091,160
   0   
0
   
13,091,160
   
0.01
 August 2030
Leviston Warrants - April 2021
  0   3,968,254   0   3,968,254   0.18 April 2025
Leviston Warrants - May 2021  0   3,968,354   0   3,968,354   0.18 May 2025
Total  
190,356,736
   7,936,608   
(11,400,000
)
  
186,893,344
             

On February 3, 2021, the Company issued 10,925,000 shares of its common stock to LGH upon the cashless exercise of 300,166 Class L11,400,000 of the LGH Warrants to purchase shares of 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 Lwarrant agreement.  After this cashless exercise, 23,600,000 of LGH Warrants remain outstanding.

12.Warrant Liabilities

A summary of the warrant liability activity for the six months ended June 30, 2021 is as follows:

  
Warrants
Outstanding
  
Fair Value
per Share
  Fair Value 
Balance December 31, 2020  48,091,160  $0.18  $8,855,379 
Cashless exercise of LGH Warrants  (11,400,000)  0.18   (2,030,025)
Warrants classified as liabilities  7,936,508   0.10   757,141 
Gain on remeasurement of warrant liability  0       (148,046)
Balance June 30, 2021  44,627,668  $0.16  $7,434,449 

NH Expansion Warrants -- Significant Black Scholes valuation model inputs related to the NH Expansion Warrants at June 30, 2021 and December 31, 2020 are as follows:

Black Scholes option pricing model June 30, 2021  December 31, 2020 
Exercise Price(1)
 $0.01  $0.01 
Warrant Expiration Date (1)
 August 6, 2030  August 6, 2030 
Interest Rate (annual) (2)
  0.70%  0.65%
Volatility (annual) (3)
  130.20%  143.94%
Time to Maturity (Years)  9.1   9.6 
Calculated fair value per share $0.1800  $0.1891 

(1)Based on the terms provided in the warrant agreement to purchase common stock of the Company dated August 6, 2020.
(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 each presented period ending date.

17
LGH Warrants – On June 5, 2020, the Company entered into a securities purchase agreement with investor LGH Investments LLC ("LGH") for warrants entitling LGH to acquire 1,075,000 shares of common stock (the “LGH Warrants”), among other things. The LGH Warrants contain certain ratchet provisions with respect to subsequent issuances of securities by the Company at a price below the exercise price of such warrants. As a result of certain dilutive issuances of securities by the Company on August 6, 2020, the exercise price of the LGH Warrants decreased to $0.01 per share and the number of shares subject to the LGH Warrants increased to 35,000,000 shares. As a result, the Company determined that these warrants meet the definition of a derivative liability. The fair value of the LGH Warrant Private Offering agreement.liabilities was determined using the Black-Scholes option pricing model which approximates the binomial pricing model. Significant inputs into the model at June 30, 2021 and December 31, 2020 are as follows:

Black Scholes option pricing model June 30, 2021  December 31, 2020 
Exercise Price(1)
 $0.01  $0.01 
Interest Rate (annual) (2)
  0.37%  0.36%
Volatility (annual) (3)
  96.40%  99%
Time to Maturity (Years)  3.9   4.4 
Calculated fair value per share $0.1778  $0.1823 

(1)Based on the terms provided in the warrant agreement to purchase common stock of the Company dated August 6, 2020.
(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 each presented period ending date.


Leviston Warrants – As disclosed in Note 11 -Warrants, on each of April 20, 2021 and May 14, 2021, the Company issued 3,968,254 warrants to Leviston entitling them to acquire a total of 7,936,508 shares of common stock. The Leviston Warrants contain certain ratchet provisions with respect to subsequent issuances of securities by the Company at a price below the exercise price of such warrants. As a result, the Company determined that these warrants meet the definition of a derivative liability. The fair value of the Leviston Warrant liabilities was determined using the Black-Scholes option pricing model which approximates the binomial pricing model. Significant inputs into the model at June 30, 2021 and 2021 issuance dates are as follows:


  
Issuance date (1)
    
Black Scholes option pricing model
 April 20, 2021  June 30, 2021 
Exercise Price(1)
 $0.18  $0.18 
Interest Rate (annual) (2)
  0.56%  0.63%
Volatility (annual) (3)
  91.90%  89.60%
Time to Maturity (Years)  4.0   3.8 
Calculated fair value per share $0.0970  $0.111 



(1)Based on the terms provided in the warrant agreement to purchase common stock of the Company dated April 20, 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 each presented period ending date.


  
Issuance date (1)
    
Black Scholes option pricing model
 May 14, 2021  June 30, 2021 
Exercise Price(1)
 $0.18  $0.18 
Interest Rate (annual) (2)
  0.56%  0.63%
Volatility (annual) (3)
  90.3%  89.60%
Time to Maturity (Years)  3.9   3.8 
Calculated fair value per share $0.094  $0.111 



(1)Based on the terms provided in the warrant agreement to purchase common stock of the Company dated May 14, 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 each presented period ending date.

13.Leases

The following is a summary of the Company’s right of use assets and lease liabilities at June 30, 2021 and December 31, 2020 (in thousands):

  June 30, 2021  December 31, 2020 
  Operating  Financing     Operating  Financing    
   Leases  Leases  Total  Leases  Leases  Total 
Right of use assets 
$
725
  
$
644
  
$
1,369
  
$
725
  
$
644
  
$
1,369
 
Less: Accumulated amortization  
(454
)
  
(341
)
  
(795
)
  
(339
)
  
(235
)
  
(574
)
Right of use assets, net 
$
271
  
$
303
  
$
574
  
$
386
  
$
409
  
$
795
 
                         
Lease liabilities 
$
288
  
$
333
  
$
621
  
$
415
  
$
427
  
$
842
 
Less: current portion  
(170
)
  
(206
)
  
(376
)
  
(257
)
  
(194
)
  
(451
)
Lease Liabilities 
$
118
  
$
127
  
$
245
  
$
158
  
$
233
  
$
391
 

18
Total lease costs for the six months ended June 30, 2021 and 2020 are as follows (in thousands):

  2021
  2020
 
Finance lease costs:      
Amortization of right-of-use assets 
$
106
  
$
94
 
Interest on lease liabilities  
24
   
33
 
Operating lease costs  
169
   
118
 
Total lease costs 
$
299
  
$
245
 

The following summarizes cash paid for amounts included in the measurement of lease liabilities as well as the related right-of-use assets obtained for the six months ended June 30, 2021 and 2020 (in thousands):

  2021
  2020
 
Cash paid for amounts included in measurement of lease liabilities:      
Operating cash flows from finance leases 
$
(117
)
 
$
(103
)
Operating cash flows from operating leases 
$
(169
)
 
$
(118
)

Operating Leases - As of June 30, 2021, the maturities of the Company’s operating lease liability, which have initial or remaining lease terms in excess of one year, consist of the following (in thousands):

  Amount 
Year ending December 31,
   
2021 (remainder of year)
 
$
140
 
2022
  
94
 
2023
  
65
 
2024
  
8
 
2025
  
3
 
Total lease payments
  
310
 
Less: Present value adjustment
  
(22
)
Lease liability
 
$
288
 

As of June 30, 2021, the Company’s operating leases had a weighted average remaining lease term of 1.8 years and a weighted average discount rate of 10.4%.

Rent expense for the three months ended June 30, 2021 and 2020 was $86 thousand and $52 thousand, respectively. Rent expense for the six months ended June 30, 2021 and 2020 was $169 thousand and $118 thousand, respectively.

Financing Lease - As of June 30, 2021, the maturities of the Company’s financing lease liability, which have initial or remaining lease terms in excess of one year, consist of the following (in thousands):

  Amount 
Year ending December 31,   
2021 (remainder of year)
 
$
118
 
2022
  
200
 
2023
  
18
 
Total lease payments  
336
 
Less: Present value adjustment  
(3
)
Lease liability 
$
333
 

As of June 30, 2021, the Company’s financing leases had a weighted average remaining lease term of 1.5 years based on annualized base payments expiring through 2023 and a weighted average discount rate of 13.2%.

As of June 30, 2021, the Company did not have additional operating or financing leases that have yet commenced.

14.Contingencies

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

19
As part of the Asset Purchase Agreement on August 6, 2020, the Company assumed obligations for a purchase order for UltraMIST devices from Celularity’s vendor Minnetronix. This purchase order had a remaining purchase commitment of approximately $1.1 million. The purchase order also calls for production delay fees of 1.25% of the committed inventory if the Company delays production.  There is also a cancelation clause of 20% of the remaining balance in the event that the Company delays production for more than six months. On September 23, 2021, Minnetronix notified the Company that it was cancelling the purchase order for the UltraMIST devices as a result of the Company delaying production more than six months. This notification includes fees and charges for the cancellation of the purchase order of an additional $320 thousand. The Company expects to be able to resume production upon paying this obligation. While the Company is disputing certain aspects of this termination notice and is continuing to engage with Minnetronix regarding resolution of this matter, including reinstatement of the purchase order, there is no guarantee that the dispute will be resolved in a manner beneficial to the Company or at all.

15.Related Party Transactions

On February 13, 2018, the Company entered into an Agreement for Purchase and Sale, Limited Exclusive Distribution and Royalties, and Servicing and Repairs with Premier Shockwave Wound Care, Inc., a Georgia Corporation (“PSWC”), and Premier Shockwave, Inc., a Georgia Corporation (“PS”). Each of PS and PSWC is owned by A. Michael Stolarski, a member of the Company’s board of directors and an existing shareholder of the Company  The agreement provides for the purchase by PSWC and PS of dermaPACE System and related equipment sold by the Company along with limited but exclusive distribution rights to provide dermaPACE Systems to certain governmental healthcare facilities and the agreement contains provisions whereby in the event of a change of control of the Company (as defined in the agreement), the stockholders of PSWC have the right and option to cause the Company to purchase all of the stock of PSWC, and whereby the Company has the right and option to purchase all issued and outstanding shares of PSWC, in each case based upon certain defined purchase price provisions and other terms.

During the three months ended June 30, 2021 and 2020, the Company recorded $8 thousand and $13 thousand, respectively, in revenue from an entity owned by this related party. During the six months ended June 30, 2021 and 2020, respectively, the Company recorded $16 thousand and $26 thousand in revenue from this entity. In addition, contract liabilities includes a balance of $54 thousand at June 30, 2021 and $69 thousand at December 31, 2020 from this related party.

In March 2021, PSWC paid the Company $125 thousand as a deposit for future purchase of new medical equipment.  Please see Note 17 – Subsequent Events in the accompanying Condensed Consolidated Financial Statements for discussion of advances from member of our board of directors in October 2021.

16.Income Taxes

The provision for income taxes of $6 thousand and $22 thousand, for the three months and six months ended June 30, 2021 and the deferred tax liability are related to the goodwill of $7.3 million recorded as part of the acquisition of the Celularity assets and is known as a “naked credit”. The goodwill was assigned an indefinite life for book purposes but is deductible for income tax purposes over a fifteen-year life.  As a result, the deferred tax liability has an indefinite life and cannot be used as a source of taxable income to support the realization of other deferred tax assets.
 
17.Subsequent Events


September 2021 Securities Purchase Agreement and Warrants (In default) - On September 3, 2021, the Company entered into Securities Purchase Agreements (the “September 2021 Purchase Agreements”), with certain accredited investors (collectively, the “September 2021 Purchasers”) for the sale by the Company in a private placement (the “September 2021 Private Placement”) of (i) the Company’s future advance convertible promissory notes in an aggregate principal amount of up to $543 thousand (the “September 2021 Notes”) and (ii) warrants to purchase an additional 2,777,779 shares of common stock of the Company (the “September 2021 Warrants”). The September 2021 Warrants have an exercise price of $0.18 per share and a five-year term. The closing of the September 2021 Private Placement occurred on September 7, 2021 (the “September 2021 Purchasers Closing Date”).

20
Under the terms of the September 2021 Purchase Agreements, the aggregate principal amount of the September 2021 Notes of up to $543 thousand (the “Aggregate Amount”), may be advanced in disbursements by the September 2021 Purchasers (“September 2021 Purchasers Disbursements”), as set forth in the September 2021 Notes. The September 2021 Purchasers Disbursements bear an interest at a rate of 5percent (5%) per annum and have a maturity date of twelve (12) months from the date of issuance. Each September 2021 Note is convertible at the option of the holder into shares of common stock of the Company at a conversion price per share equal to (A) until the date of effectiveness of the Registration Statement, $0.18 and (B) after the date of effectiveness of the Registration Statement, the lesser of (i) $0.18, (ii) 90percent (90%) of the closing price for a share of common stock reported on the OTCQB on the effective date of the Registration Statement or (iii) 75% of the lowest volume weighted average price, as defined,, which shall be no lower than $0.01. The September 2021 Notes contain customary events of default and covenants, including limitations on incurrences of indebtedness and liens.

Pursuant to each September 2021 Purchase Agreement, the Company entered into a security agreement in favor of the applicable September 2021 Purchaser, securing the Company’s obligations under the applicable September 2021 Note. The rights of each September 2021 Purchaser to receive payments under their respective note is subordinate to the rights of North Haven Expansion pursuant to a Subordination Agreement, that the Company and each September 2021 Purchaser entered into with North Haven Expansion in connection with the September 2021 Private Placement.

In connection with each September 2021 Purchase Agreement, the Company entered into a registration rights agreement with the September 2021 Purchasers on September 3, 2021 (the “September 2021 Purchasers Registration Rights Agreement”) pursuant to which the Company has agreed to file a Registration Statement no later than ninety (90) days following the September 2021 Purchasers Closing Date for the registration of 100% of the maximum number of the shares issuable upon conversion of the September 2021 Notes and exercise of the September 2021 Warrants issued pursuant to such September 2021 Purchase Agreement (the “September 2021 Purchasers Registrable Securities”). The Company shall use its best efforts to keep the Registration Statement continuously effective under the Securities Act of 1933, as amended, until all September 2021 Purchasers 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 September 2021 Notes were in default as of October 25, 2021 and, accordingly, on that date, interest began accruing at the default rate of 15% in addition to registration penalties per the September 2021 Purchasers Registration Rights Agreement.

The Company has yet to file the Registration Statement, and under the terms of the September 2021 Registration Rights Agreement, it is obligated to pay in cash a one-time aggregate amount of $250 thousand to the holders of the September 2021 Notes, plus 1% of the outstanding principal for each 30-day period during which the Company continues not to have in-place an effective Registration Statement. As a result of this breach of the September 2021 Registration Rights Agreement, interest on the September 2021 Notes accrues at the default interest rate of 15%.

September 2021 and December 2021 Advances on Future Receipts Financing – On September 27, 2021, the Company received $703 thousand in cash proceeds related to its entry into a non-recourse agreement for the sale of $1.0 million of future receipts to GCF Resources LLC (“GCF”).   In conjunction with the 24-week agreement, the Company is obligated to remit to GCF a minimum of $59 thousand of receipts each week, with the sum of the first 4 payments occurring at closing, which was September 27, 2021.  After taking into account the payments made at closing, the Company will record an initial liability of $763 thousand and a debt discount of approximately $60 thousand, which represents the original issue discount and the fees paid in conjunction with the financing.  The debt discount will be amortized to interest expense over the life of the agreement.  The Company began making the required minimum weekly payments October 25, 2021.  At closing, the Company also issued warrants to purchase 5,555,556 shares of the Company’s common stock to affiliates of GCF.  The warrants have an exercise price of $0.18 per share and expire four years after issuance.

On December 22, 2021, the Company paid off the remaining balance of $650 thousand from the September 27, 2021 advance and received $758 thousand in cash proceeds related to its entry into a non-recourse agreement for the sale of $1.5 million of future receipts to GCF.   In conjunction with the 24-week agreement, the Company is obligated to remit to GCF a minimum of $59 thousand of receipts each week for the first 6 weeks and receipts of $98 thousand for the remaining 18 weeks.  After considering the payments made at closing, the Company will record an initial liability of $1.5 million and a debt discount of approximately $90 thousand, which represents the original issue discount and the fees paid in conjunction with the financing.  The debt discount will be amortized to interest expense over the life of the agreement.  The Company will begin making the required minimum weekly payments January 3, 2022 and is obligated to continue through June 13, 2022.  At closing, the Company also issued warrants to purchase 8,333,334 shares of the Company’s common stock to affiliates of GCF.  The warrants have an exercise price of $0.18 per share and expire four years after issuance.

21
October 2021 Advances from Directors - On October 27, 2021 the Company received $50 thousand in advances from related parties; $25 thousand from NightWatch Capital Advisors, LLC, a company controlled by John Nemelka, a shareholder and member of the Company’s board of directors, (the “Nemelka Advance”) and $25 thousand from A. Michael Stolarski, also a shareholder and member of the Company’s board of directors (the “Stolarski Advance”).

In exchange for the Nemelka Advance, the Company issued to NightWatch Capital Advisors, LLC a promissory note in the principal amount of $25 thousand (the “Nemelka Note”). The Nemelka Note matures on June 30, 2022 and accrues interest at a rate equal to 15.0% per annum.  In exchange for the Stolarski Advance, as well as the $125 thousand deposit received in March 2021 by the Company (see Note 16), the Company issued to Mr. Stolarski a promissory note in the principal amount of $150 thousand (“Stolarski Note #2”). Stolarski Note #2 matures on June 30, 2022 and accrues interest at a rate equal to 15.0% per annum.


22
Item 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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, 20162020 included in our Annual Report on Form 10-K, filed with the SEC on March 31, 2017.October 21, 2021 (the “2020 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 safety and efficacy ofCompany received notification alleging that it is not in compliance 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 trialLicense Agreement with Celularity. See further discussion in Note 15 - Contingencies in the United States for the treatmentaccompanying Condensed Consolidated Financial Statements.

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

Management’s Discussion and analysisAnalysis of our financial conditionFinancial Condition and resultsResults of operations areOperations is based on our consolidated financial statements,Condensed Consolidated Financial Statements, which have been prepared in accordance with United States generally accepted accounting principles.U.S. GAAP. The preparation of our consolidated financial statementsCondensed 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 recording of the allowances for doubtful accounts, estimated reserves fornet realizable value of inventory, estimated useful lifelives of propertylong-lived assets, fair value of goodwill and equipment,other intangible assets, the determination of the valuation allowance for deferred taxes, the estimated fair value of the warrant liability,warrants, and the estimated fair value of stock-based compensation. 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.
While our

Our significant accounting policies are more fully described in Note 23 to our consolidated financial statementsConsolidated Financial Statements filed with our 2020 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. 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.
Research and Development Costs
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 ouraccompanying 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.Financial Statements.


Financial Overview

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.

We incurred net losses of $30.9 million and $10.4 million for the years ended December 31, 2020 and 2019, respectively, and additional losses of approximately $13.6 million in the first six months of 2021. These factors and the events of default on the promissory notes discussed above create substantial doubt about the Company’s distributor in South Korea accountedability to continue as a going concern for 78%a period of at least twelve months from the financial statement issuance date. See Note 17 – Subsequent Events to the accompanying Condensed Consolidated Financial Statements for a discussion of the total outstanding accounts receivable. Duevarious events of default.

Our operating losses create substantial doubt about our 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. 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, 2017a going concern for the 12 months. See “Liquidity and continues to work with the distributor on a payment plan to get the distributor’s account current by December 31, 2017.Capital Resources” for further information regarding our financial condition.


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. In addition, there can be no assurances that our plans to obtain additional capital will be successful on the terms or timeline we expect, or at all. Although no assurances can be given, management believes that potential additional issuances of equity or other potential financing transactions as discussed above should provide the necessary funding for us. us for the next 12 months. 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.

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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. Our consolidatedrealization of assets and satisfaction of liabilities in the normal course of business. The carrying amounts of assets and liabilities presented in the 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 December 31, 2020, we had an accumulated deficit of $156.7 million. Although the size and timing of our future operating losses are subject to significant uncertainty, we anticipate that our operating losses will continue over the next few years as 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 dilutionare able to successfully commercialize, market and distribute the dermaPACE® system, then we believe we may be requiredable to use somepartially or completely 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 financing, 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 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 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 approvals;

• supplier and customer disputes;

• the establishment of successful marketing, sales and distribution channels and partnerships, including our efforts to expand 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

• 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 2020 Annual Report.

The worldwide spread of the COVID-19 virus has resulted and is expected to continue to result in a global slowdown of economic activity which is likely to continue to decrease demand for a broad variety of products, including from our customers, while also disrupting supply channels and marketing activities for an unknown period of time. Also, the pandemic may cause continued or additional actions by hospitals and clinics such as limiting elective procedures and treatments and limiting clinical trial activities and data monitoring. We expect all of these factors to continue to have a negative impact on our sales and our results of operations, the size and duration of which we are currently unable to predict.

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Results of Operations

Revenues and Gross Margin

Revenues for the three months ended June 30, 2021 were $2.9 million compared to $83 thousand for the same period in 2020, an increase of $2.8 million.  For the first two quarters of 2021, revenues were $5.0 million compared with $232 thousand for the comparable period of 2020.  The increases were primarily driven by 2021 sales of UltraMIST devices and single-use accessories.  The Company’s UltraMIST business began with the August 6, 2020 Acquisition. Please see Note 14 - Contingencies in the accompanying Condensed Consolidated Financial Statements for a description of a supplier dispute relating to UltraMIST.

Gross margin as a percentage of revenue increased to 64% from 5% during the second quarter of 2021 as compared with the second quarter of the prior year.  For the first six months of 2021 gross margin increased to 58% compared with 10% for the first six months of 2020. The increase in gross margin percentages for the both the quarter and year-to-date periods were driven by sales of UltraMIST products and accessories, which have higher gross margin percentages than do DuraPACE products and accessories.

Research and Development Expenses

Research and development expenses increased 3% to $272 thousand from $265 thousand during the second  quarter of 2021 compared with the second quarter of 2020.  For the first six months of 2021, research and development expenses increased 14% to $626 thousand from $551 thousand for the same period of 2020.  Increases for both the quarter and six-month periods were driven by higher employee compensation and benefits costs incurred by the larger, post-Acquisition organization, though these costs were partially offset by lower amounts paid to external parties for clinical studies and other research and development.

Selling and Marketing Expenses

Selling and marketing expenses increased $2.1 million or 482% and $3.3 million or 313% for the three and six-month periods ended June 30, 2021, respectively, versus the same periods of 2020. The expense increases were primarily driven by higher employee compensation, commissions, benefits, travel and marketing costs incurred by the larger, post-Acquisition organization as well as higher levels of revenues.

General and Administrative Expenses

General and administrative expenses increased $536 thousand or 21% and $1.9 million or 43% for the three and six-month periods ended June 30, 2021, respectively, compared with the same periods of 2020.  The primary drivers of these increases for the quarter and year-to-date periods, respectively, consist of approximately, $528 thousand and $1.3 million of expenses related to Registration Statement penalty accruals as well as approximately $176 thousand and $352 thousand of the increases for amortization of intangible assets related to the Acquisition on August 6, 2020.   Additionally, both the quarter and year-to-date periods reflect increases in bad debt, insurance and public company expenses as well as offsetting decreases in legal and other professional fees.

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. We incurred a net proceedsloss of $30.9 million and $10.4 million for the years ended December 31, 2020 and 2019, respectively, and incurred additional net losses in the six months  of 2021 of approximately $13.6 million. These factors and the events of default on the notes payable create substantial doubt about the Company’s ability to repaycontinue as a going concern for a period of at least twelve months from the financial issuance date. Historically, our indebtedness,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 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 maynot be necessary to relinquish some rights to our intellectual property or grant licenses on terms that are not favorableadvantageous to us. In addition, payments made by potential collaborators or licensors generally will depend upon our achievement

26
Cash and cash equivalents decreased by $93,345 forDuring the ninesix months ended SeptemberJune 30, 2017 and increased by $351,474 for the nine months ended September 30, 2016. For the nine months ended September 30, 2017 and 2016, net2021, cash used by operating activities totaled approximately $5.2 million, which was $944,831 and $2,708,973, respectively, primarily consisting of compensation costs, research and development activities and general corporate operations. The decrease indriven largely by the use of cashnet loss for operating activities for the nine months ended September 30, 2017, as compared to the same period for 2016,and was partially offset by increases in accounts payable and accrued expenses as well as decreases in accounts receivable and inventory. Cash used by investing activities during the first six months of $1,764,142, or 65%, was primarily due to the decreased operating expenses2021 consisted of purchases of property and increased payables in 2017. Net cashequipment of $277 thousand. Cash provided by financing activities for the nine months ended September 30, 2017 was $93,067period consisted primarily of $1.3 million of proceeds from the exerciseconvertible note issuances, $1.0 million in proceeds from a factoring accounts receivable, $1.0 million of warrants and $751,616proceeds from the advancesSBA Loan #2 as well as $125 thousand in proceeds from deposits from related parties and were offset by $94 thousand of principal payments on financing leases.

Cash used in operations averaged $1.1 million per month for subscription agreementsthe first quarter of 2021 and approximately $700 thousand for the second quarter.  Management anticipates cash usage for operations to be executed in the fourth quarter. Net cash provided by financing activitiesapproximately  $250 thousand to $500 thousand per month for the nine months ended September 30, 2016 was $3,072,305, which consistedsecond half of 2021 as resources are devoted to the commercialization of the net proceeds fromdermaPACE and UltraMIST products including hiring of new employees, expansion of our international business and continued research and development of the 2016 Public Offeringnext generation of $1,596,855, net proceeds fromour technology as well as non-medical uses of our technology. Management’s plans are to obtain additional capital in 2022 through investments by strategic partners for market opportunities, which may include strategic partnerships or licensing arrangements, or raise capital through the 2016 Private Offeringconversion of $1,528,200 and proceedsoutstanding warrants, issuance of $32,000 from exercisecommon 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 warrants and net payments of $84,750 of convertible debt.equity or other potential financing transactions as discussed above should provide the necessary funding for us for the next 12 months. 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.

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 in United States, 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 located 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 recent2020 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.


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Item 3.  
Item 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required under Regulation S-K for “smaller reporting companies”.
companies.”

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.October 11, 2021. 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 SeptemberJune 30, 2017.2021. Our disclosure controls and procedures were not effective because of the “material weakness” described below.below under “Management’s Annual Report on Internal Control over Financial Reporting.”

A “material weakness”Management’s Annual Report on Internal Control over Financial Reporting

Management is defined under SEC rules as a deficiency, or a combination of deficiencies, inresponsible for establishing and maintaining adequate internal control over financial reporting such that there(as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) for the Company.  The Company’s internal control over financial reporting is a process designed to provide reasonable possibility that a material misstatementassurance regarding the reliability of a company’s annual or interimfinancial reporting and the preparation of financial statements willfor external purposes in accordance with U.S. GAAP.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be prevented or detected on a timely basiseffective can provide only reasonable assurance of achieving their control objectives.

 Management, with the participation of the Chief Executive Officer (principal executive officer) and the Chief Financial Officer (principal financial and accounting officer), evaluated the effectiveness of the Company’s internal control over financial reporting as of October 11, 2021. In making this assessment, management used the criteria set forth by the company’s internal controls. As a resultCommittee of its review, management concluded that we had aSponsoring Organizations of the Treadway Commission in Internal Control — Integrated Framework (2013).

We previously reported three material weaknessweaknesses in our internal control over financial reporting process for theresulting from a lack of internal 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 as well as engaging, as necessary, an outside consultantand complex sales distribution agreements, a lack of internal resources to assistanalyze and properly apply U.S. GAAP to accounting for equity components of service agreements with select vendors and cybersecurity breaches from email spoofing in 2019. The Company remedied the applicationcybersecurity breaches and email spoofing in 2020.

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As of June 30, 2021 the Company has still identified the following material weaknesses:

The Company lacks expertise and resources to analyze and properly apply U.S. GAAP to complex and non-routine transactions including thesuch 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 derivatives. These measures are intendedfinancial 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 such, 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 of June 30, 2021.

Remediation Plan

During 2021, we engaged external consultants with appropriate experience applying GAAP technical accounting guidance, and we have hired additional accounting personnel both internal and external. We engaged external consultants 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. In addition, an additional employee was hired to assist with the management of IT controls and enhance internal IT resources. Going forward, this employee will monitor our third-party IT vendor’s testing and monitoring efforts and where necessary implement new controls as the Company grows. These internal controls have been documented and procedures implemented.

There is no assurance that the measures described above will be sufficient to remediate 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 June 30, 2021 that materially affect, or are reasonably likely to materially affect, our internal control over financial reporting. Management isreporting, except as disclosed in the process of designing changes to its controls as discussed above in Management’s Plan to Remediate Material Weakness.“Remediation Plan” above.


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.

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide the information required under this item.  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 2020 Annual Report.

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

Not applicable.

Item 3.DEFAULTS UPON SENIOR SECURITIES.

Not applicable.

Item 4.MINE SAFETY DISCLOSURES.

Not applicable.

Item 5.OTHER INFORMATION.

Not applicable.

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Item 6.      EXHIBITS
Item 6.
EXHIBITS

Exhibit No.
Description
 
 
Class K Warrant Agreement dated as of August 3, 2017, between SANUWAVE Health, Inc. and HealthTronics, Inc. (Incorporated by reference to Form 8-K filed with the SEC on August 4, 2017).
4.2
Form of Class N Warrant. (Incorporated by reference to Form 8-K filed with 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).
10.2*#
Binding Term Sheet for Joint Venture Agreement between SANUWAVE Health, Inc. and MundiMed Distribuidora Hospitalar LTDA effective as of September 25, 2017.
10.3
Form of 10% Convertible Promissory Note, by and among the Company and the accredited investors a party thereto, dated November 3, 2017. (Incorporated by reference to Form 8-K filed with the SEC on November 9, 2017).
10.4
 Form of Registration Rights Agreement, by and among the Company and the accredited investors a party thereto, dated November 3, 2017 (Incorporated by reference to Form 8-K filed with the SEC on November 9, 2017).
31.1*
Rule 13a-14(a)/15d-14(a) Certification of the Principal 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.INS*
101.SCH*†
XBRL Instance.Taxonomy Extension Schema.
 
101.CAL*†
XBRL Taxonomy Extension Calculation.
 
101.SCH*
101.DEF*†
XBRL Taxonomy Extension Schema.Definition.
 
101.LAB*†
XBRL Taxonomy Extension Labels.
 
101.CAL*
101.PRE*†
XBRL Taxonomy Extension Calculation.
101.DEF*†
XBRL Taxonomy Extension Definition.
101.LAB*†
XBRL Taxonomy Extension Labels.
101.PRE*†
XBRL Taxonomy Extension Presentation.

* Filed herewith.
# Confidential treatment has been requested as to certain portions of this exhibit, which portions have been omitted and Submitted separately to the Securities and Exchange Commission.** Furnished herewith.
† XBRL information is furnished andXBRL-related documents are not deemed filed or a part of a registration statement or prospectus for purposes of sectionssection 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, or otherwise subject the liabilities of these sections, and otherwise isare not subjectpart of any registration statement to liability under these sections.which they relate.


31
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:  NovemberJanuary 14, 2017
By:  2022
/s/ By: /s/ Kevin A. Richardson, II
 
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:

Signatures Capacity Date
     
By: /s//s/ Kevin A. Richardson, II
Name: Kevin A. Richardson, II
 Acting
Chief Executive Officer and Chairman of the Board of Directors
November 14, 2017
Name: Kevin A. Richardson, II
(principal executive officer)
 
(principal executive officer)January 14, 2022
     
By: /s//s/ Lisa E. Sundstrom
Name: Lisa E. Sundstrom
 Chief Financial Officer
November 14, 2017
Name: Lisa E. Sundstrom
(principal (principal financial and accounting officer)
 
January 14, 2022



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