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

FORM 10-Q10-Q/A
Amendment No. 1

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

For the quarterly period ended JuneSeptember 30, 2020

☐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)

Nevada20-1176000
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)

3360 Martin Farm Road, Suite 100
Suwanee, GA30024
(Address of principal executive offices)(Zip Code)

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

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 every Interactive Data File required to be submitted 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 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 ☒
 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

Securities registered pursuant to Section 12(b) of the Exchange Act: None

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

As of August 13, 2020,June 23, 2021, there were issued and outstanding 326,619,428 481,619,621 shares of the registrant’s common stock, $0.001 par value.

EXPLANATORY NOTE

This Amendment No. 1 to the Form 10-Q (this “Amendment”) amends the Quarterly Report on Form 10-Q of SANUWAVE Health, Inc. (the “Company”) for the quarterly period ended September 30, 2020 (the “Form 10-Q”), filed on November 23, 2020 with the Securities and Exchange Commission (the “SEC”). This Amendment restates the Company’s financial statements in order to correct an accounting error resulting in the underreporting the amount of warrant derivative liability. The error relates to the determination of the number of shares of common stock subject to a warrant issued by the Company in June 2020 as previously reported by the Company, which warrant contains certain anti-dilution adjustment provisions with respect to subsequent issuances of securities by the Company at a price below the exercise price of such warrant, warrant liability associated with the company not having enough authorized shares at the time those anti-dilution provision were triggered 
A summary of the accounting impact of these adjustments to the Company’s condensed consolidated unaudited financial statements as of and for the three and nine months ended September 30, 2020 is provided at “Note 20. Restatement of Financial Statements.” We have also added Note 22 which describes a non-compliance notification from a supplier, as well as reclassification of warrant liabilities to current.
 

Except as described in Notes 8, 11, 14, 20, 22, and the corresponding changes in Net Income and other changes as described above, no other changes have been made to the Company’s Interim Report on Form 10-Q for the three months ended September 30, 2020 (the “Original 10-Q”) except to update the latest number of outstanding shares on the cover page of this Form 10-Q/A. This Form 10-Q/A speaks as of the date of the Original Filing and does not reflect events that may have occurred after the date of the Original Filing or modify or update any disclosures that may have been affected by subsequent events.

In accordance with Rule 12b-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Company is also including with this Amendment certifications of the Company’s Chief Executive Officer and Chief Financial Officer (attached as Exhibits 31.1, 31.2, 32.1, and 32.2) dated as the date of the Amendment.

SANUWAVE Health, Inc.
Table of Contents

PART I – FINANCIAL INFORMATION
Page
 
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PART II – OTHER INFORMATION
 
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 2641
 
 
 2641
 
 
 2641
 
 
 2742
 
 
 2843

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 regarding: any expected benefits of the Celularity Inc. asset acquisition and its impact on the Company; 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, operating results, and projected costs; market acceptance of and demand for dermaPACE and our product candidates;success of future business development and acquisition activities;management’s plans and objectives for future operations; industry trends; regulatory actions that could adversely affect the price of or demand for our approved products;the successful filing with the Secretary of State of Nevada of amendments to our Articles of Incorporation to effect the changes approved by our stockholders at our 2020 Annual Meeting;our intellectual property portfolio; our business, marketing and 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 affect the level of demand for our products; timing of clinical studies and eventual FDA approval of our products; financial markets; the competitive environment; 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, “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, 2019, filed on March 30, 2020 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, 2019, filed on March 30, 2020.

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.

PARTPART I — FINANCIAL INFORMATION

Item 1.
FINANCIAL STATEMENTS

2

 Item 1. FINANCIAL STATEMENTS
Table of Contents
SANUWAVE HEALTH, INC. AND SUBSIDIARIES
CONDENSEDCONDENSED CONSOLIDATED BALANCE SHEETS

 
September 30,
2020
  
December 31,
2019
 
  (As Restated)    
ASSETS (Unaudited)    
CURRENT ASSETS
      
Cash and cash equivalents 
$
5,391,591
  
$
1,760,455
 
Accounts receivable, net of allowance for doubtful accounts of $32,558 in 2020 and $72,376 in 2019
  
1,395,815
   
75,543
 
Inventory  
2,539,475
   
542,955
 
Prepaid expenses and other current assets  
627,751
   
125,405
 
TOTAL CURRENT ASSETS  
9,954,632
   
2,504,358
 
         
PROPERTY AND EQUIPMENT, net
  
979,673
   
512,042
 
         
RIGHT OF USE ASSETS, net
  
442,197
   
323,661
 
         
OTHER INTANGIBLE ASSETS, net
  
7,259,795
   
-
 
         
GOODWILL
  
14,198,799
   
-
 
         
OTHER ASSETS
  
31,010
   
41,931
 
TOTAL ASSETS 
$
32,866,106
  
$
3,381,992
 
         
LIABILITIES        
CURRENT LIABILITIES
        
Accounts payable 
$
2,322,192
  
$
1,439,413
 
Accrued expenses  
1,603,543
   
1,111,109
 
Accrued employee compensation  
2,544,768
   
1,452,910
 
Warrant Liability  
17,546,260
   
-
 
Convertible promissory notes payable  
4,000,000
   
-
 
Convertible promissory notes, related parties  
1,596,254
   
-
 
SBA loans  
321,821
   
-
 
Accrued interest  
354,062
   
-
 
Operating lease liability  
251,372
   
173,270
 
Finance lease liability  
187,416
   
121,634
 
Contract liabilities  
65,037
   
66,577
 
Accrued interest, related parties  
28,864
   
1,859,977
 
Notes payable, related parties, net  
-
   
5,372,743
 
Short term notes payable  
-
   
587,233
 
Line of credit, related parties  
-
   
212,388
 
Advances from related parties  
-
   
18,098
 
TOTAL CURRENT LIABILITIES  
30,821,589
   
12,415,352
 
         
NON-CURRENT LIABILITIES
        
Promissory note payable  
10,448,039
   
-
 
SBA loans  
142,514
   
-
 
Finance lease liability  
284,588
   
271,240
 
Operating lease liability  
222,815
   
185,777
 
Contract liabilities  
45,519
   
573,224
 
TOTAL NON-CURRENT LIABILITIES  
11,143,475
   
1,030,241
 
TOTAL LIABILITIES  
41,965,064
   
13,445,593
 
         
COMMITMENTS AND CONTINGENCIES
        
         
STOCKHOLDERS' DEFICIT        
PREFERRED STOCK, par value $0.001, 5,000,000 shares authorized; 6,175 and 293 shares designated Series A and Series B, respectively
  
-
   
-
 

        
COMMON STOCK, par value $0.001, 600,000,000 (Note 18) shares authorized; 466,094,621 and 293,780,400 issued and
outstanding in 2020 and 2019, respectively
  
466,095
   
293,781
 
         
ADDITIONAL PAID-IN CAPITAL
  
135,521,907
   
115,457,808
 
         
ACCUMULATED DEFICIT
  
(145,025,761
)
  
(125,752,956
)
         
ACCUMULATED OTHER COMPREHENSIVE LOSS
  
(61,199
)
  
(62,234
)
TOTAL STOCKHOLDERS' DEFICIT  
(9,098,958
)
  
(10,063,601
)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT 
$
32,866,106
  
$
3,381,992
 

 
 
 June 30,
 
 
 December 31,
 
 
 
2020
 
 
2019
 
 ASSETS
 
 (Unaudited)
 
 
 
 
CURRENT ASSETS
 
 
 
 
 
 
Cash and cash equivalents
 $430,606 
 $1,760,455 
Accounts receivable, net of allowance for doubtful accounts
    
    
of $255,503 in 2020 and $72,376 in 2019
  110,501 
  75,543 
Inventory
  651,344 
  542,955 
Prepaid expenses and other current assets
  227,086 
  125,405 
TOTAL CURRENT ASSETS
  1,419,537 
  2,504,358 
 
    
    
PROPERTY AND EQUIPMENT, net
  591,064 
  512,042 
 
    
    
RIGHT OF USE ASSETS, net
  243,251 
  323,661 
 
    
    
 DEPOSITS
  1,110,000  
  -  
 
    
    
OTHER ASSETS
  43,096 
  41,931 
TOTAL ASSETS
 $3,406,948 
 $3,381,992 
 LIABILITIES
    
    
CURRENT LIABILITIES
    
    
Accounts payable
 $1,799,630 
 $1,439,413 
Accrued expenses
  1,221,214 
  1,111,109 
Accrued employee compensation
  2,010,610 
  1,452,910 
Contract liabilities
  551,755 
  66,577 
Operating lease liability
  179,524 
  173,270 
Finance lease liability
  181,371 
  121,634 
Convertible promissory notes, net
  705,980 
  - 
SBA Loans
  142,514 
  - 
Line of credit, related parties
  222,164 
  212,388 
Short term notes payable
  210,000 
  587,233 
Advances from related parties
  - 
  18,098 
Notes payable, related parties, net
  5,372,743 
  5,372,743 
Accrued interest, related parties
  2,229,713 
  1,859,977 
TOTAL CURRENT LIABILITIES
  14,827,218 
  12,415,352 
 
    
    
NON-CURRENT LIABILITIES
    
    
Contract liabilities
  53,782 
  573,224 
SBA loans   
  471,821  
  -  
Operating lease liability
  92,889 
  185,777 
Finance lease liability
  333,771 
  271,240 
TOTAL NON-CURRENT LIABILITIES
  952,263 
  1,030,241 
TOTAL LIABILITIES
  15,779,481 
  13,445,593 
 
    
    
COMMITMENTS AND CONTINGENCIES
    
    
 
    
    
 
REDEEMABLE PREFERRED STOCK, SERIES C CONVERTIBLE, par value $0.001,
 
    
90 designated; 90 shares issued and outstanding in 2020
  2,250,000 
  - 
 
    
    
 
REDEEMABLE PREFERRED STOCK, SERIES D CONVERTIBLE, par value $0.001,
 
    
8 designated; 8 shares issued and outstanding in 2020
  200,000 
  - 
 
    
    
 
    
    
 STOCKHOLDERS' DEFICIT
    
    
PREFERRED STOCK, par value $0.001, 5,000,000
    
    
shares authorized; 6,175 and 293 shares designated Series A and
  - 
  - 
Series B, respectively
    
    
 
    
    
COMMON STOCK, par value $0.001, 600,000,000 shares authorized (See Note 18);
    
    
302,119,428 and 293,780,400 issued and outstanding in 2020 and
    
    
2019, respectively
  302,119 
  293,781 
 
    
    
ADDITIONAL PAID-IN CAPITAL
  117,326,629 
  115,457,808 
 
    
    
ACCUMULATED DEFICIT
  (132,387,124)
  (125,752,956)
 
    
    
ACCUMULATED OTHER COMPREHENSIVE LOSS
  (64,157)
  (62,234)
TOTAL STOCKHOLDERS' DEFICIT
  (14,822,533)
  (10,063,601)
TOTAL LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS' DEFICIT
 $3,406,948 
 $3,381,992 
The accompanying notes to condensed consolidated financial statements are an integral part of these statements.
 
SANUWAVE HEALTH, INC. AND SUBSIDIARIES
CONDENSEDCONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(UNAUDITED)

  
Three Months Ended
September 30,
2020
  
Three Months Ended
September 30,
2019
  
Nine Months Ended
September 30,
2020
  
Nine Months Ended
September 30,
2019
 
  (As Restated)     (As Restated)    
             
REVENUES
            
Product $1,321,248  $158,855  $1,465,147  $444,087 
License fees  29,447   16,250   39,447   189,307 
Other revenue  616,201   22,535   694,194   59,185 
TOTAL REVENUES  1,966,896   197,640   2,198,788   692,579 
                 
COST OF REVENUES
                
Product  533,629   91,179   637,369   334,749 
Other  14,777   31,744   26,261   67,908 
TOTAL COST OF REVENUES  548,406   122,923   663,630   402,657 
                 
GROSS MARGIN
  1,418,490   74,717   1,535,158   289,922 
                 
OPERATING EXPENSES
                
Research and development  432,155   299,903   983,816   867,825 
Selling and marketing  1,373,476   335,472   2,414,477   901,031 
General and administrative  5,054,508   1,802,659   9,529,218   4,746,519 
Amortization  244,626   -   244,626   - 
Depreciation  82,493   22,338   200,282   40,150 
TOTAL OPERATING EXPENSES  7,187,258   2,460,372   13,372,419   6,555,525 
                 
OPERATING LOSS  (5,768,768)  (2,385,655)  (11,837,261)  (6,265,603)
                 
OTHER INCOME (EXPENSE)
                
Gain or (Loss) on warrant liability  (5,590,806)  -   (5,590,806)  227,669 
Loss on extinguishment of debt  (503,234)  -   (503,234)  - 
Interest expense  (690,659)  (182,001)  (878,331)  (1,120,440)
Interest expense, related party  (61,334)  (175,522)  (431,070)  (508,193)
Loss on foreign currency exchange  (23,836)  (4,840)  (32,103)  (13,199)
TOTAL OTHER INCOME (EXPENSE), NET  (6,869,869)  (362,363)  (7,435,544)  (1,414,163)
                 
NET LOSS  (12,638,637)  (2,748,018)  (19,272,805)  (7,679,766)
                 
OTHER COMPREHENSIVE INCOME (LOSS)
                
Foreign currency translation adjustments  2,792   (14,061)  869   13,152 
TOTAL COMPREHENSIVE LOSS $(12,635,845) $(2,762,079) $(19,271,936) $(7,666,614)
                 
LOSS PER SHARE:
                
Net loss - basic and diluted $(0.03) $(0.01) $(0.06) $(0.04)
                 
Weighted average shares outstanding - basic and diluted  384,502,450   211,423,362   326,405,397   181,088,995 

 
 
 Three Months Ended
 
 
 Three Months Ended
 
 
 Six Months Ended
 
 
 Six Months Ended
 
 
 
 June 30,
 
 
 June 30,
 
 
 June 30,
 
 
 June 30,
 
 
 
2020
 
 
2019
 
 
2020
 
 
2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
REVENUES
 
 
 
 
 
 
 
 
 
 
 
 
Product
 $69,341 
 $220,667 
 $143,900 
 $285,232 
License fees
  - 
  66,808 
  10,000 
  173,058 
Other revenue
  13,960 
  29,501 
  77,993 
  36,649 
TOTAL REVENUES
  83,301 
  316,976 
  231,893 
  494,939 
 
    
    
    
    
COST OF REVENUES
    
    
    
    
Product
  24,825 
  178,458 
  103,740 
  243,570 
Other
  1,522 
  7,423 
  11,484 
  36,164 
TOTAL COST OF REVENUES
  26,347 
  185,881 
  115,224 
  279,734 
 
    
    
    
    
GROSS MARGIN
  56,954 
  131,095 
  116,669 
  215,205 
 
    
    
    
    
OPERATING EXPENSES
    
    
    
    
Research and development
  264,907 
  307,273 
  551,661 
  567,922 
Selling and marketing
  433,151 
  407,477 
  1,041,001 
  565,559 
General and administrative
  2,566,793 
  1,426,405 
  4,474,710 
  2,943,860 
Depreciation
  64,766 
  9,455 
  117,789 
  17,812 
TOTAL OPERATING EXPENSES
  3,329,617 
  2,150,610 
  6,185,161 
  4,095,153 
 
    
    
    
    
OPERATING LOSS
  (3,272,663)
  (2,019,515)
  (6,068,492)
  (3,879,948)
 
    
    
    
    
OTHER INCOME (EXPENSE)
    
    
    
    
Gain on warrant valuation adjustment
  - 
  195,310 
  - 
  227,669 
Interest expense
  (168,941)
  (790,178)
  (187,673)
  (938,439)
Interest expense, related party
  (187,172)
  (112,984)
  (369,736)
  (332,671)
Loss on foreign currency exchange
  (4,244)
  (7,064)
  (8,267)
  (8,359)
TOTAL OTHER INCOME (EXPENSE), NET
  (360,357)
  (714,916)
  (565,676)
  (1,051,800)
 
    
    
    
    
NET LOSS
  (3,633,020)
  (2,734,431)
  (6,634,168)
  (4,931,748)
 
    
    
    
    
OTHER COMPREHENSIVE INCOME (LOSS)
    
    
    
    
Foreign currency translation adjustments
  (6,551)
  1,489 
  (1,923)
  (909)
TOTAL COMPREHENSIVE LOSS
 $(3,639,571)
 $(2,732,942)
 $(6,636,091)
 $(4,932,657)
 
    
    
    
    
LOSS PER SHARE:
    
    
    
    
Net loss - basic and diluted
 $(0.01)
 $(0.02)
 $(0.02)
 $(0.03)
 
    
    
    
    
Weighted average shares outstanding - basic and diluted
  299,497,960 
  174,730,747 
  297,856,870 
  165,921,811 
The accompanying notes to condensed consolidated financial statements are an integral part of these statements.

SANUWAVE HEALTH, INC. AND SUBSIDIARIES
CONDENSEDCONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(UNAUDITED)


 Preferred Stock  Common Stock             
 
Number of
Shares
Issued and
Outstanding
  

Par Value
  
Number of
Shares
Issued and
Outstanding
  

Par Value
    
Additional Paid-
in Capital
      
Accumulated
Deficit
    
Accumulated
Other
Comprehensive
Loss
     
Total

                         
Balances as of Janaury 1, 2019  -  $-   155,665,138  $155,665  $101,153,882  $(116,602,778) $(62,868) $(15,356,099)
Net loss  -   -   -   -   -   (2,197,317)  -   (2,197,317)
Cashless warrant exercises  -   -   704,108   704   (704)  -   -   - 
Proceeds from warrant exercise  -   -   620,000   620   52,580   -   -   53,200 
Conversion of short term notes and
convertible notes payable
  -   -   3,333,334   3,334   263,333   -   -   266,667 
Reclassification of warrant liability to equity
due to adoption of ASU 2017-11
  -   -   -   -   262,339   1,279,661   -   1,542,000 
Foreign currency translation adjustment  -   -   -   -   -   -   (2,398)  (2,398)
                                 
Balances as of March 31, 2019  -  $-   160,322,580  $160,323  $101,731,430  $(117,520,434) $(65,266) $(15,693,947)
Net loss  -   -   -   -   -   (2,734,431)  -   (2,734,431)
Cashless warrant exercises  -   -   2,997,375   2,997   13,003   -   -   16,000 
Proceeds from warrant exercise  -   -   17,051,769   17,052   1,333,005   -   -   1,350,057 
Other warrant exercise  -   -   5,804,167   5,804   451,697           457,501 
Conversion of short term notes and
convertible notes payable
  -   -   2,475,000   2,475   177,525   -   -   180,000 
Stock-based compensation  -   -   -   -   31,758   -   -   31,758 
Warrants issued for consulting services  -   -   -   -   36,067   -   -   36,067 
Foreign currency translation adjustment  -   -   -   -   -   -   1,489   1,489 
                                 
Balances as of June 30, 2019  -  $-   188,650,891  $188,651  $103,774,485  $(120,254,865) $(63,777) $(16,355,506)
Net loss  -   -   -   -   -   (2,748,018)  -   (2,748,018)
Cashless warrant exercises  -   -   1,710,674   1,711   18,289   -   -   20,000 
Proceeds from warrant exercise  -   -   10,506,593   10,506   961,528   -   -   972,034 
Other warrant exercise  -   -   40,355,006   40,355   4,014,500   -   -   4,054,855 
Conversion of line of credit, related
parties to equity
  -   -   4,545,455   4,545   495,455   -   -   500,000 
Stock-based compensation  -   -   -   -   224,400   -   -   224,400 
Foreign currency translation adjustment  -   -   -   -   -   -   14,061   14,061 
                                 
Balances as of September 30, 2019  -  $-   245,768,619  $245,768  $109,488,657  $(123,002,883) $(49,716) $(13,318,174)
                                 
                                 
                              As Restated 
Balances as of Janaury 1, 2020  -  $-   293,780,400  $293,781  $115,457,808  $(125,752,956) $(62,234) $(10,063,601)
Net loss  -   -   -   -   -   (3,001,148)  -   (3,001,148)
Proceeds from warrant exercise  -   -   1,000,000   1,000   9,000   -   -   10,000 
Shares issued for services  -   -   1,000,000   1,000   199,000   -   -   200,000 
Stock-based compensation  -   -   -   -   21,900   -   -   21,900 
Conversion of short term notes  -   -   1,820,461   1,820   262,164   -   -   263,984 
Conversion of advances from related parties  -   -   62,811   63   2,035   -   -   2,098 
Foreign currency translation adjustment  -   -   -   -   -   -   4,826   4,826 
                                 
Balances as of March 31, 2020  -  $-   297,663,672  $297,664  $115,951,907  $(128,754,104) $(57,408) $(12,561,941)
Net loss  -   -   -   -   -   (3,633,020)  -   (3,633,020)
Proceeds from PIPE  -   -   1,071,428   1,071   148,929   -   -   150,000 
Proceeds from stock option exercise  -   -   225,000   225   44,025   -   -   44,250 
Beneficial conversion feature on
convertible debt
  -   -   -   -   560,682   -   -   560,682 
Shares issued for services  -   -   2,200,000   2,200   515,300   -   -   517,500 
Conversion of short term notes and settlements  -   -   759,328   759   89,986   -   -   90,745 
Conversion of advances from related parties  -   -   200,000   200   15,800   -   -   16,000 
Foreign currency translation adjustment  -   -   -   -   -   -   (6,749)  (6,749)
                                 
Balances as of June 30, 2020  -  $-   302,119,428  $302,119  $117,326,629  $(132,387,124) $(64,157) $(14,822,533)
Net loss    (As Restated)  -   -   -   -   -   (12,638,637)  -   (12,638,637)
Proceeds from PIPE (As Restated)  -   -   123,550,000   123,550   12,408,966   -   -   12,532,516 
LGH Warrant Liability (As Restated)                  (249,049)          (249,049)
Series C Preferred Conversion  -   -   16,071,390   16,072   2,233,928   -   -   2,250,000 
Series D Preferred Conversion  -   -   1,428,568   1,429   198,571   -   -   200,000 
Shares issued for services  -   -   5,000,000   5,000   1,075,000   -   -   1,080,000 
Inducement shares issued          200,000   200   44,540           44,740 
Conversion of short term notes and settlements  -   -   2,250,000   2,250   207,750   -   -   210,000 
Conversion of notes payable, related
parties to equity
  -   -   15,475,235   15,475   2,275,572   -   -   2,291,047 
Foreign currency translation adjustment  -   -   -   -   -   -   2,958   2,958 
                                 
Balances as of September
30, 2020     (As Restated)
  -  $-   466,094,621  $466,095  $135,521,907  $(145,025,761) $(61,199) $(9,098,958)

 
 
Preferred Stock
 
 
Common Stock
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of
Shares Issued and Outstanding
 
 
Par Value
 
 
Number of Shares Issued and Outstanding
 
 
Par Value
 
 
Additional
Paid-in Capital
 
 
Accumulated
Deficit
 
 
Accumulated Other Comprehensive Loss
 
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balances as of Janaury 1, 2019
  - 
 $- 
  155,665,138 
 $155,665 
 $101,153,882 
 $(116,602,778)
 $(62,868)
 $(15,356,099)
Net loss
  - 
  - 
  - 
  - 
  - 
  (2,197,317)
  - 
  (2,197,317)
Cashless warrant exercises
  - 
  - 
  704,108 
  704 
  (704)
  - 
  - 
  - 
Proceeds from warrant exercise
  - 
  - 
  620,000 
  620 
  52,580 
  - 
  - 
  53,200 
Conversion of short term notes and convertible notes payable
  - 
  - 
  3,333,334 
  3,334 
  263,333 
  - 
  - 
  266,667 
Reclassification of warrant liability to equity due to adoption of ASU 2017-11
  - 
  - 
  - 
  - 
  262,339 
  1,279,661 
  - 
  1,542,000 
Foreign currency translation adjustment
  - 
  - 
  - 
  - 
  - 
  - 
  (2,398)
  (2,398)
 
    
    
    
    
    
    
    
    
Balances as of March 31, 2019
  - 
 $- 
  160,322,580 
 $160,323 
 $101,731,430 
 $(117,520,434)
 $(65,266)
 $(15,693,947)
Net loss
  - 
  - 
  - 
  - 
  - 
  (2,734,431)
  - 
  (2,734,431)
Cashless warrant exercises
  - 
  - 
  2,997,375 
  2,997 
  13,003 
  - 
  - 
  16,000 
Proceeds from warrant exercise
  - 
  - 
  17,051,769 
  17,052 
  1,333,005 
  - 
  - 
  1,350,057 
Other warrant exercise
  - 
  - 
  5,804,167 
  5,804 
  451,697 
    
    
  457,501 
Conversion of short term notes and convertible notes payable
  - 
  - 
  2,475,000 
  2,475 
  177,525 
  - 
  - 
  180,000 
Stock-based compensation
  - 
  - 
  - 
  - 
  31,758 
  - 
  - 
  31,758 
Warrants issued for consulting services
  - 
  - 
  - 
  - 
  36,067 
  - 
  - 
  36,067 
Foreign currency translation adjustment
  - 
  - 
  - 
  - 
  - 
  - 
  1,489 
  1,489 
 
    
    
    
    
    
    
    
    
Balances as of June 30, 2019
  - 
 $- 
  188,650,891 
 $188,651 
 $103,774,485 
 $(120,254,865)
 $(63,777)
 $(16,355,506)
 
    
    
    
    
    
    
    
    
Balances as of Janaury 1, 2020
  - 
 $- 
  293,780,400 
 $293,781 
 $115,457,808 
 $(125,752,956)
 $(62,234)
 $(10,063,601)
Net loss
  - 
  - 
  - 
  - 
  - 
  (3,001,148)
  - 
  (3,001,148)
Proceeds from warrant exercise
  - 
  - 
  1,000,000 
  1,000 
  9,000 
  - 
  - 
  10,000 
Shares issued for services
  - 
  - 
  1,000,000 
  1,000 
  199,000 
  - 
  - 
  200,000 
Stock-based compensation
  - 
  - 
  - 
  - 
  21,900 
  - 
  - 
  21,900 
Conversion of short term notes
  - 
  - 
  1,820,461 
  1,820 
  262,164 
  - 
  - 
  263,984 
Conversion of advances from related parties
  - 
  - 
  62,811 
  63 
  2,035 
  - 
  - 
  2,098 
Foreign currency translation adjustment
  - 
  - 
  - 
  - 
  - 
  - 
  4,826 
  4,826 
 
    
    
    
    
    
    
    
    
Balances as of March 31, 2020
  - 
 $- 
  297,663,672 
 $297,664 
 $115,951,907 
 $(128,754,104)
 $(57,408)
 $(12,561,941)
Net loss
  - 
  - 
  - 
  - 
  - 
  (3,633,020)
  - 
  (3,633,020)
Proceeds from PIPE
  - 
  - 
  1,071,428 
  1,071 
  148,929 
  - 
  - 
  150,000 
Proceeds from stock option exercise
  - 
  - 
  225,000 
  225 
  44,025 
  - 
  - 
  44,250 
Beneficial conversion feature on convertible debt
  - 
  - 
  - 
  - 
  560,682 
  - 
  - 
  560,682 
Shares issued for services
  - 
  - 
  2,200,000 
  2,200 
  515,300 
  - 
  - 
  517,500 
Conversion of short term notes
  - 
  - 
  759,328 
  759 
  89,986 
  - 
  - 
  90,745 
Conversion of advances from related parties
  - 
  - 
  200,000 
  200 
  15,800 
  - 
  - 
  16,000 
Foreign currency translation adjustment
  - 
  - 
  - 
  - 
  - 
  - 
  (6,749)
  (6,749)
 
    
    
    
    
    
    
    
    
Balances as of June 30, 2020
  - 
 $- 
  302,119,428 
 $302,119 
 $117,326,629 
 $(132,387,124)
 $(64,157)
 $(14,822,533)
The accompanying notes to condensed consolidated financial statements are an integral part of these statements.

SANUWAVE HEALTH, INC. AND SUBSIDIARIES
CONDENSEDCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)


  
Nine Months Ended
September 30,
2020
(As Restated)
  
Nine Months Ended
September 30,
2019
 
      
CASH FLOWS FROM OPERATING ACTIVITIES      
Net loss 
$
(19,272,805
)
 
$
(7,679,766
)
Adjustments to reconcile net loss to net cash used by operating activities
        
Amortization of intangibles  
244,626
   
-
 
Depreciation  
200,282
   
40,150
 
Bad Debt Expense  
(39,818
)
  
(18,835
)
Share-based payment  
21,900
   
256,158
 
Shares issued for services  
1,797,500
   
-
 
Shares issued for inducement shares  
44,740
   
-
 
Loss on extinguishment of debt  
503,234
   
-
 
Warrants issued for consulting services  
-
   
36,067
 
Gain or (Loss) on warrant liability  
5,590,806
   
(227,669
)
Amortization of debt issuance costs  
214,431
   
-
 
Accrued interest  
191,031
   
1,139,904
 
Interest payable, related parties  
696,208
   
508,193
 
Amortization of operating leases  
(3,396
)
  
(14,634
)
Waived proceeds from warrant exercise  
-
   
36,000
 
Changes in operating assets and liabilities        
Accounts receivable - trade  
(1,280,454
)
  
197,301
 
Inventory  
(136,555
)
  
66,884
 
Prepaid expenses  
(502,346
)
  
(83,007
)
Due from related parties  
-
   
1,228
 
Other assets  
10,921
   
(13,567
)
Operating leases  
-
   
9,513
 
Financing leases  
1,980
     
Accounts payable  
882,779
   
118,908
 
Accrued expenses  
492,434
   
127,586
 
Accrued employee compensation  
1,091,858
   
863,400
 
Contract liabilties  
(529,245
)
  
(48,425
)
NET CASH USED BY OPERATING ACTIVITIES  
(9,779,889
)
  
(4,684,611
)
         
CASH FLOWS FROM INVESTING ACTIVITIES        
Acquisition of UltraMIST (Note 4)  
(20,000,000
)
  
-
 
Purchases of property and equipment  
(39,142
)
  
(28,990
)
NET CASH USED BY INVESTING ACTIVITIES  
(20,039,142
)
  
(28,990
)
         
CASH FLOWS FROM FINANCING ACTIVITIES        
Proceeds from sale of convertible preferred stock  
2,450,000
   
-
 
Proceeds from convertible promissory note  
1,100,000
   
-
 
Proceeds from SBA loan  
614,335
   
-
 
Proceeds from PIPE offering  
21,456,468
   
-
 
Proceeds from senior promissory notes  
13,346,547
     
Proceeds from stock option exercise  
44,250
   
90,000
 
Proceeds from short term note  
-
   
1,215,000
 
Proceeds from warrant exercise  
10,000
   
1,378,142
 
Advances from related parties  
-
   
2,055,414
 
Payments of debt  
(5,457,663
)
    
Payments of principal on finance leases  
(114,806
)
  
-
 
NET CASH PROVIDED BY FINANCING ACTIVITIES  
33,449,131
   
4,738,556
 
         
EFFECT OF EXCHANGE RATES ON CASH  
1,036
   
13,152
 
         
NET INCREASE IN CASH AND CASH EQUIVALENTS  
3,631,136
   
38,107
 
         
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD  
1,760,455
   
364,549
 
CASH AND CASH EQUIVALENTS, END OF PERIOD 
$
5,391,591
  
$
402,656
 
         
NONCASH INVESTING AND FINANCING ACTIVITIES        
         
Acquisition of UltraMIST partially financed with convertible promissory note 
$
4,000,000
   
-
 
Conversion of short term notes payable to equity 
$
564,729
  
$
2,860,769
 
Other warrant exercise  
-
  
$
924,649
 
         
Conversion of line of credit, related parties to equity  
-
  
$
680,000
 
         
Conversion of advances from related party to equity 
$
18,098
   
-
 
         
Additions to right of use assets from new finance lease liabilities 
$
127,611
   
-
 
         
Beneficial conversion feature on convertible debt 
$
560,682
   
-
 
         
Reclassification of warrant liability to equity  
-
  
$
1,542,000
 
         
Accounts payable and Accrued employee compensation converted to equity  
-
  
$
36,500
 
         
Conversion of convertible promissory notes to equity  
-
  
$
1,918,254
 
 
 
 Six Months Ended
 
 
 Six Months Ended
 
 
 
 June 30,
 
 
 June 30,
 
 
 
2020
 
 
2019
 
 
 
 
 
 
 
 
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
 
 
 
Net loss
 $(6,634,168)
 $(4,931,748)
  Adjustments to reconcile net loss
    
    
    to net cash used by operating activities
    
    
Depreciation
  117,789 
  17,812 
Bad debt expense
  183,127 
  25,248 
Share-based payment
  739,400 
  67,825 
Amortization of debt issuance costs
  69,862 
  - 
Accrued interest
  84,072 
  936,658 
Interest payable, related parties
  369,736 
  332,671 
Amortization of operating leases
  (6,224)
  (3,471)
Waived proceeds from warrant exercise
  - 
  16,000 
Gain on warrant valuation adjustment
  - 
  (227,669)
Changes in operating assets and liabilities
    
    
     Accounts receivable - trade
  (218,085)
  34,485 
     Inventory
  (108,389)
  (66,112)
     Prepaid expenses
  (101,681)
  (126,505)
     Due from related parties
  - 
  1,228 
     Other assets
  (1,165)
  (7,070)
     Operating leases
  - 
  44,623 
     Accounts payable
  360,217 
  (135,916)
     Accrued expenses
  110,105 
  106,178 
     Accrued employee compensation
  557,700 
  525,487 
     Contract liabilties
  (34,264)
  3,642 
NET CASH USED BY OPERATING ACTIVITIES
  (4,511,968)
  (3,386,634)
 
    
    
CASH FLOWS FROM INVESTING ACTIVITIES
    
    
 
  (1,110,000)  
  -  
Purchases of property and equipment
  (4,855)
  (25,839)
NET CASH USED BY INVESTING ACTIVITIES
  (1,114,855)
  (25,839)
 
    
    
CASH FLOWS FROM FINANCING ACTIVITIES
    
    
Proceeds from sale of convertible preferred stock
  2,450,000 
  - 
Proceeds from convertible promissory note
  1,100,000 
  - 
Proceeds from SBA loan
  614,335 
  - 
Proceeds from PIPE offering
  150,000 
  - 
Proceeds from stock option exercise
  44,250 
  - 
Proceeds from short term note
  - 
  1,215,000 
Proceeds from warrant exercise
  10,000 
  1,403,257 
Advances from related parties
  - 
  585,022 
Payments of principal on finance leases
  (69,688)
  - 
NET CASH PROVIDED BY FINANCING ACTIVITIES
  4,298,897 
  3,203,279 
 
    
    
EFFECT OF EXCHANGE RATES ON CASH
  (1,923)
  (909)
 
    
    
NET DECREASE IN CASH AND CASH EQUIVALENTS
  (1,329,849)
  (210,103)
 
    
    
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
  1,760,455 
  364,549 
CASH AND CASH EQUIVALENTS, END OF PERIOD
 $430,606 
 $154,446 
 
    
    
NONCASH INVESTING AND FINANCING ACTIVITIES
    
    
Conversion of short term notes payable to equity
 $354,729 
 $724,168 
 
    
    
 
    
    
Conversion of advances from related parties to equity
 $18,098 
 $180,000 
 
    
    
 
    
    
Additions to right of use assets from new finance lease liabilities
 $127,611 
 $- 
 
    
    
 
    
    
Beneficial conversion feature on convertible debt
 $560,682 
 $- 
 
    
    
 
    
    
Reclassification of warrant liability to equity
 $- 
 $262,339 

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

SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTESNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JuneSeptember 30, 2020

1.Nature of the Business

1. Nature of the Business
SANUWAVE Health, Inc. and Subsidiaries (the “Company”) is a shock wave technology company using afocused on the research, development, and commercialization of its patented system of noninvasive high-energy, acoustic shock waves for regenerative medicine and other applications. The Company’s initial focus is regenerative medicine – utilizing noninvasive, 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. Through its recent acquisition of Celularity’s UltraMIST® assets, SANUWAVE now combines two highly complementary and market-cleared energy transfer technologies and two human tissue biologic products, which creates a platform of scale with an end-to-end product offering in the advanced wound care market.

The Company’s lead regenerative product in the United States is the dermaPACE®dermaPACE® device, used for treating diabetic foot ulcers, which was subject to two double-blinded, randomized Phase III clinical studies. On December 28, 2017, the U.S. FDAFood and Drug Administration (FDA) granted the Company’s request to classify the 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 the treatment of Diabetic Foot Ulcers (DFU) as described in the De Novo request, subject to the general control provisions of the FD&C Act and the special controls identified in this order.

On August 6, 2020 the Company entered into an Asset Purchase Agreement with Celularity Inc. (“Celularity”) pursuant to which the Company acquired Celularity’s UltraMIST assets, as more fully described in Note 4. The UltraMIST® System is a proprietary technology cleared by the FDA for the promotion of wound healing through wound cleansing and maintenance debridement combined with ultrasound energy deposited inside the wound that stimulated tissue regeneration.

In connection with the Asset Purchase Agreement, on August 6, 2020, the Company entered into a license and marketing agreement with Celularity pursuant to which Celularity granted to the Company a license to the Celularity wound care biologic products, Biovance® and Interfyl® (the “License Agreement”). The License Agreement provides the Company with an exclusive license to use, market, distribute and sell Biovance® in the “Field” and “Territory” (each as defined in the License Agreement), and a non-exclusive license to use, market, distribute and sell Interfyl® in the Field in the Territory. The License Agreement has an initial five year term, after which it automatically renews for additional one year periods, unless either party gives written notice at least 180 days prior to the expiration of the current term.

The Company’s portfolio of healthcareregenerative medicine products and product candidates activate biologictissue regeneration biological signaling and angiogenic responses, includingproducing new vascularization and microcirculatory improvement helping tocombined with tissue growth which helps restore the body’s normal healing processesprocesses. The Company applies and regeneration.researches its patented energy transfer technologies in wound healing, orthopedic/spine, plastic/cosmetic and cardiac/endovascular conditions. The Company is marketing its dermaPACE System for treatment usage in the United States and is able to generate revenue from sales of the European Conformity Marking (CE Mark) devices and accessories in Europe, Canada, Asia, and Asia/Pacific. The Company generates revenue streams from dermaPACE treatments, product sales, licensing transactions and other activities.

In March 2020, the World Health Organization characterized COVID-19 as a pandemic and the President of the United States declared the COVID-19 outbreak a national emergency. Since then, the COVID-19 pandemic has rapidly spread across the globe and has already resulted in significant volatility, uncertainty and economic disruption. The primary impact of the COVID-19 pandemic has been seen in our dermaPACE System placements in the United States as our treatment is not widely recognized as an “essential” service. In addition, stay-at-home policies deployed to combat the spread of COVID-19 has greatly constrained visits to wound care centers, doctor’s offices and hospitals since late March 2020 and continuing as of this filing and have therefore delayed placements of new devices that were included in our revenue forecast. The future impacts of the pandemic and any resulting economic impact are largely unknown and rapidly evolving. It is difficult at this time to predict the impact that COVID-19 will have on the Company’s business, financial position and operating results in future periods due to numerous uncertainties. The Company is closely monitoring the impact of the pandemic on all aspects of its business and operations.operations including its recent acquired assets.

On August 6,
7
SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020 the Company entered into an asset purchase agreement with Celularity Inc.(“Celularity”) pursuant to which the Company acquired Celularity’s UltraMIST assets, as more fully described in Note 18 to the Company’s condensed consolidated financial statements.

1.Nature of the Business (continued)

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America 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 footnotes required by U.S. GAAPGenerally Accepted Accounting Principles (“GAAP”) for complete financial statements. The financial information as of June September 30, 2020 and for the three and sixnine months ended June September 30, 2020 and 2019 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 sixnine months ended JuneSeptember 30, 2020 are not necessarily indicative of the results that may be expected for any other interim period or for the year ending December 31, 2020.

The condensed consolidated balance sheet at December 31, 2019 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. These financial statements should be read in conjunction with the Company’s Form 10-K filed with the Securities and Exchange Commission on March 30, 2020 (the “2019 Annual Report”).

2.Going Concern

2. Going Concern
The Company does not currently generate significant recurring revenue and willmay require additional capital during 2020. As of JuneSeptember 30, 2020, the Company had cash and cash equivalents of $430,606.$5,391,591. For the sixnine months ended JuneSeptember 30, 2020, the net cash used by operating activities was $4,511,968.$9,779,889. The Company incurred a restated net loss of $6,634,168$19,272,805 for the sixnine months ended JuneSeptember 30, 2020. The operating losses and the events of default on the Company’s short term notes payable (see Note 6) and the notes payable, related parties (see Note 9) raisedSuch factors raise substantial doubt about the Company’s ability to continue as a going concern for a period of at least twelve months from the filing of this report. Management is currently evaluating the impact on cash flows of the Company’s acquisition of certain assets of Celularity Inc., as more fully described in Note 18.

The continuation of the Company’s business is dependent upon raising additional capital to fund operations. Management’s plans are to obtain additional capital through investments by strategic partners for market opportunities, which may include strategic partnerships or licensing arrangements, or raise capital 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 the Company’s existing shareholders. 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. If these efforts are unsuccessful, the Company may be forced to seek relief through a filing under the U.S. Bankruptcy Code. The condensed consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

3Summary of Significant Accounting Policies
SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2020

3.            
Summary of Significant Accounting Policies
The significant accounting policies followed by the Company are summarized below and should be read in conjunction with the 2019 Annual Report:

Principles of consolidation - The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.

SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020

3Summary of Significant Accounting Policies (continued)

Estimates – These condensed consolidated financial statements have been prepared in accordance with U.S. GAAP. Because a precise determination of assets and liabilities, and correspondingly revenues and expenses, depend on future events, the preparation of condensed consolidated financial statements for 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 the recording of allowances for doubtful accounts, estimate of the net realizable value of inventory, the determination of the valuation allowances for deferred taxes and the estimated fair value of stock-based compensation, debt discounts and warrants.warrants, and valuation of acquired assets related to the acquisition of UltraMIST (Note 4).

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

The Company has adopted ASC 820-10, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value and requires disclosures about fair value measurements. The framework that is set forth in this standard is applicable to the fair value measurements where it is permitted or required under other accounting pronouncements.

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

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

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 balance sheet at fair value. The fair value of the warrant liability is determined based on a lattice solution, binomial approach pricing model, and 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. (See Note 14).

The Company’s notes payable approximate fair value because the terms are substantially similar to comparable debt in the marketplace.

Inventory - Inventory consists of finished medical equipment and parts and is stated at the lower of cost, which is valued using the first in, first out (“FIFO”) method, or net realizable value less allowance for selling and distribution expenses. The Company analyzes its inventory levels and writes down inventory that has, or is expected to, become obsolete. As of JuneSeptember 30, 2020, inventory consists of goods of $367,988$2,273,436 and parts of $283,356$266,039 for a total inventory of $651,344.$2,539,475. As of December 31, 2019, inventory consisted of goods of $357,264 and parts of $185,691 for a total inventory of $542,955.

Preferred stock – The Company evaluates Preferred Stock issuances for liability or equity classification in accordance with the provisions of ASC 480, Distinguishing Liabilities from Equity, and determines appropriate equity or liability accounting treatment. Additionally, the Company determines, if classified as equity, whether it would be recorded as permanent or temporary equity.

SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020

3Summary of Significant Accounting Policies (continued)

Sequencing policy – The Company has granted certain options and warrants which, upon settlement, may exceed the limit on the authorized number of shares of common stock. The Company follows a sequencing policy for which in the event partial reclassifications of contracts subject to ASC 815-40-25 is necessary, due to the Company’s inability to demonstrate it has sufficient authorized shares, shares will be allocated on the basis of earliest issuance date of potentially dilutive instruments with the earliest grants receiving first allocation of shares. On August 6, 2020, the Company issued shares of common stock, convertible debt and warrants exercisable into shares of common stock in connection with a private placement funding and Senior Notes. In the event that all outstanding convertible securities were converted into shares of common stock of the Company, the Company would exceed the total number of shares authorized for issuance in the Company’s Articles of Incorporation. The Company evaluated such instrumentshas applied its sequencing policy to and determined that there was no impactall convertible securities are convertible into shares of common stock other than warrants to purchase 64,119,742 shares of common stock issued on August 6, 2020.  These warrants were valued at $8,656,165 at August 6, 2020 and recorded as a liability in the condensed consolidated balance sheet.

Convertible instruments and liabilities related to warrants issued –  The Company evaluates its convertible instruments to determine if those contracts or embedded components of those contracts qualify as derivative financial instruments to be separately accounted for in accordance with FASB ASC 815 “Derivatives and Hedging” (“ASC 815”). The accounting treatment of derivative financial instruments requires that the Company record embedded conversion options (“ECOs”) and any related freestanding instruments at their fair values as of the inception date of the agreement and at fair value as of each subsequent balance sheet date. Any change in fair value is recorded as non-operating, non-cash income or expense for each reporting period at each balance sheet date. Conversion options are recorded as a discount to the Company’shost instrument and are amortized as amortization of debt discount on the consolidated statements of operations over the life of the underlying instrument. The Company reassesses the classification of its derivative instruments at each balance sheet date. If the classification changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification.  A binomial model was used to estimate the fair value of the ECOs of warrants that are classified as derivative liabilities on the consolidated balance sheets. The models include subjective input assumptions that can materially affect the fair value estimates. The expected volatility is estimated based on the actual volatility during the most recent historical period of time equal to the weighted average life of the instruments.

Recent Accounting Pronouncements

In August 2020, FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies 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 rules. In addition, ASU 2020-06 requires the application of the if-converted method for calculating diluted earnings per share and the treasury stock method will be no longer available. The new guidance is effective for fiscal years beginning after December 15, 2021, with early adoption permitted no earlier than fiscal years beginning after December 15, 2020. The Company is currently evaluating the impact of ASU 2020-06 on its condensed consolidated financial statements.

SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020

4.Asset Purchase Agreement

On August 6, 2020, the Company entered into an asset purchase agreement (the “Asset Purchase Agreement”) with Celularity pursuant to which the Company acquired (the “Transaction”) Celularity’s UltraMIST assets (“UltraMIST”, or the “Assets”). The acquisition provides the Company with a robust product offering in the advanced wound care market and gives the Company an end-to-end advanced wound care product portfolio that addresses the entire care pathway. The aggregate consideration paid for the Assets was $24,000,000, which consisted of (i) a cash payment of $18,890,000, (ii) the issuance of a convertible promissory note to Celularity in the principal amount of $4,000,000 (the “Seller Note”), and (iii) a credit of $1,110,000 for the previous payment made by the Company to Celularity pursuant to that certain letter of intent between the Company and Celularity dated June 7, 2020.

In connection with the Asset Purchase Agreement, on August 6, 2020, the Company entered into a license and marketing agreement with Celularity pursuant to which Celularity granted to the Company a license to the Celularity wound care biologic products, Biovance® and Interfyl® (the “License Agreement”). The License Agreement provides the Company with an exclusive license to use, market, distribute and sell Biovance® in the “Field” and “Territory” (each as defined in the License Agreement), and a non-exclusive license to use, market, distribute and sell Interfyl® in the Field in the Territory. The License Agreement has an initial five year term, after which it automatically renews for additional one year periods, unless either party gives written notice at least 180 days prior to the expiration of the current term.

The Company evaluated whether the Transaction should be accounted for as an asset acquisition or a business combination and determined that the Transaction met the definition of a business per Accounting Standard Update (ASU) 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. The Company has treated the transaction as a business combination and applied the related accounting guidance as required, using the acquisition method and a fair value model.

The tables below present the fair value of the consideration exchanged and the preliminary estimates of the fair value of assets acquired of UltraMIST.  Due to the limited amount of time since the UltraMIST acquisition, the valuation of the acquired assets is preliminary and subject to change.  The Company is still evaluating the income tax effects of the transaction.

Purchase consideration   
  August 6, 2020 
Cash paid at closing $18,890,000 
Seller convertible note  4,000,000 
Previous cash deposit pursuant to letter of intent  1,110,000 
Total $24,000,000 

Net assets acquired 
Fair Value at
August 6,
2020
 
Inventory $1,859,965 
Property, plant and equipment  436,815 
Intangible assets (a)
  14,443,425 
Goodwill (b)
  7,259,795 
Total $24,000,000 

4.            11
Accrued expenses
SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020

4.Asset Purchase Agreement (continued)

(a)Intangible assets, as provided in the table below, are recorded at estimated fair value.  The estimated fair value of the acquired customer relationships is based on a variation of the income valuation approach and is determined using the multi-period excess earnings method. The estimated fair value of the acquired patent and trade names is based on a variation of the income valuation approach known as the relief from royalty method. The estimated useful lives for intangible assets were determined based upon the remaining useful economic lives of the intangible assets that are expected to contribute directly or indirectly to future cash flows.


   Estimated Fair Value    
Estimated
Weighted
Average
Life
(Years)
  
Customer relationships - UltraMIST
 
$
3,820,000
   
7
 
Customer relationships - Biologics
  
7,618,100
   
7
 
Patent
  
2,311,825
   
19
 
Trade names
  
693,500
   
19
 
  
$
14,443,425
     

(b)Goodwill represents the excess of the total purchase consideration over fair value of the assets recognized and represents the future economic benefits that we believe will result from combining the operations of Sanuwave and UltraMIST, including expected future synergies and operating efficiencies. Goodwill resulting from the Transaction has been assigned to the Company’s lone operating segment. None of the goodwill recognized is expected to be deductible for income tax purposes.

Acquisition and related costs

During the three and nine months ended September 30, 2020, acquisition costs of $995,353 and $1,084,994, respectively, were expensed as incurred and included in general and administrative expenses in the Condensed Consolidated Statement of Comprehensive Loss. Such costs include professional fees of advisors and integration and synergy costs related to the combination of UltraMIST and Sanuwave. Additionally, $1,653,453 of debt issuance costs related to the NWPSA Senior Debt described in Note 7 were capitalized as a reduction in the principal amount of a promissory note on the Condensed Consolidated Balance Sheet. These debt issuance costs are amortized to interest expense over the life of the NWPSA Senior Debt.

Unaudited actual and pro forma information

The following unaudited pro forma information has been prepared by combining the historical results of Sanuwave and historical results of UltraMIST. The unaudited pro forma combined financial data for all periods presented were adjusted to give effect to pro forma events that are directly attributable to the aforementioned transaction and are factually supportable. The adjustments are based on information available to the Company at this time. Accordingly, the adjustments are subject to change and the impact of such changes may be material. The unaudited pro forma results do not include any incremental cost savings that may result from the integration.

The unaudited combined pro forma information is for informational purposes only and is not necessarily indicative of what the combined company's results actually would have been had the acquisition been completed as of the beginning of the periods as indicated. In addition, the unaudited pro forma information does not purport to project the future results of the combined company.

SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020

4.Asset Purchase Agreement (continued)

The acquired Assets were consolidated into our financial statements starting on the acquisition date. The total revenues and net loss of UltraMIST consolidated into our financial statements since the date of acquisition through September 30, 2020 were $1,206,847 and $1,509,943, respectively. The following financial information presents our results as if the Transaction had occurred on January 1, 2019:



Three Months Ended  Nine Months Ended 
September 30, 2020  September 30, 2019  September 30, 2020  September 30, 2019 
(restated)     (restated)    
             
Total revenue
 
$
2,770,646
  
$
2,325,640
  
$
5,973,538
  
$
6,810,404
 
Net loss
 
$
(12,549,181
)
 
$
(4,863,590
)
 
$
(23,869,495
)
 
$
(14,855,293
)

Significant adjustments to the pro forma information above include recognition of non-recurring direct incremental acquisition costs in the nine months ended September 30, 2019 and exclusion of those costs from all other periods presented; recognition of the Biovance® license fee pursuant to the License Agreement; increase in interest expense related to the NWPSA Senior Debt Notes described in Note 7, the Seller Note described in Note 8, the HealthTronics Note described in Note 8, and the Stolarski Note described in Note 10; increase in depreciation expense related to the fair value adjustment of acquired property and equipment; and amortization associated with an estimate of the acquired intangible assets.

5.Accrued expenses

Accrued expenses consist of the following:

 
 
 June 30,
2020
 
 
December 31,
2019
 
 
 
 
 
 
 
 
Accrued board of director's fees
 $416,667 
 $400,000 
Accrued legal and professional fees
  200,000 
  134,970 
Accrued executive severance
  313,000 
  154,000 
Accrued travel
  120,000 
  120,000 
Accrued outside services
  106,233 
  108,033 
Accrued inventory
  50,275 
  167,050 
Accrued clinical study expenses
  13,650 
  13,650 
Accrued other
  1,389 
  13,406 
 
 $1,221,214 
 $1,111,109 
  
September
30,
2020
  
December
31,
2019
 
Accrued outside services $615,547  $108,033 
Accrued legal and professional fees  370,985   134,970 
Accrued board of director’s fees  260,000   400,000 
Accrued executive severance  167,500   154,000 
Accrued travel  120,000   120,000 
Accrued inventory  50,275   167,050 
Accrued clinical study expenses  13,650   13,650 
Accrued other  5,586   13,406 
  $1,603,543  $1,111,109 

SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTESNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JuneSeptember 30, 2020

6.Contract liabilities
5.            
Contract liabilities

As of JuneSeptember 30, 2020, the Company has contract assets and liabilities from contracts with customers (see Note 14)16).

Contract liabilities consist of the following:

  
September
30,
2020
  
December
31,
2019
 
Service agreement $77,538  $133,510 
License fees  -   500,000 
Devices  22,500   - 
Other  10,518   6,291 
Total Contract liabilities  110,556   639,801 
Non-Current  (45,519)  (573,224)
Total Current $65,037  $66,577 
 
 
June 30,
2020
 
 
December 31,
2019
 
 
 
 
 
 
 
 
Service agreement
 $91,746 
 $133,510 
License fees
  500,000 
  500,000 
Other
  13,791 
  6,291 
     Total Contract liabilities
  605,537 
  639,801 
Non-Current
  (551,755)
  (573,224)
     Total Current
 $53,782 
 $66,577 

The timing of the Company’s revenue recognition may differ from the timing of payment by its customers. A receivable is recorded when revenue is recognized prior to payment and the Company has an unconditional right to payment. Alternatively, when payment precedes the satisfaction of performance obligations, the Company records a contract liability (deferred revenue) until the performance obligations are satisfied. Of the aggregate contract liability balances as of JuneSeptember 30, 2020, the Company expects to satisfy its remaining performance obligations associated with $551,755$65,037 and $53,782$45,519 of contract liability balances within the next twelve months and following thirty-two months, respectively. Of the aggregate contract liability balances as of December 31, 2019, the Company expects to satisfy its remaining performance obligations associated with $66,577 and $573,224 of contract liability balances within the next twelve months and following thirty-eight months, respectively.

6.            14
Short term notes payable
SANUWAVE HEALTH, INC. AND SUBSIDIARIES
DuringNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020

7.Senior promissory notes

On August 6, 2020, the six months ended JuneCompany entered into a Note and Warrant Purchase and Security Agreement (the “NWPSA”), with the noteholder party thereto and NH Expansion Credit Fund Holdings LP, as agent. As a result, the Company issued a $15,000,000 Secured Promissory Note (the “Senior Notes”) and Warrant exercisable into shares of the Company’s common stock (the “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. The Company received net proceeds from issuing the Notes and NH Warrant of $13,346,547. The NWPSA provides for (i) the sale and purchase of secured notes in an aggregate original principal amount of $15 million and (ii) the issuance of 13,091,160 warrants equal to 2.0% of the fully-diluted common stock of the Company as of the issue date. The warrant has an exercise price of $0.01 per share and a 10 year term (Note 11). The warrant agreement contains a put option. Upon payment in full of the Note, the holder has the ability to require the Company to purchase the warrants from the holder for cash. Accordingly, the warrant has been classified as a derivative liability. The holder has the option to exercise the put any time between the payment of the Note and the expiration of the warrants. The Note has a maturity date of September 30, 2025 and accrues interest at a rate that is the sum of: (a) the greater of the quarter end prime rate or 3% plus (b) 9%, due in quarterly arrears.  The Senior Notes are secured by substantially all assets of the Company including in the event of default placing bank accounts under a control agreement, copyrights, trademarks, patents, applications, registered and unregistered, licenses, designs, held or acquired after August 6, 2020 by the Company. The NWPSA contains several default conditions, including non-monetary default events including misrepresentations and material adverse changes. In the case of default, the agent has the right to declare the Senior Notes immediately due, not extend further credit, take actions to protect security (title changes), demand and take possession of the books, and is appointed an Attorney in Fact in certain conditions. Covenants include restrictions on dispositions, mergers or acquisitions, incurring indebtedness and minimum liquidity provisions. As of September 30, 2020, the Company converted $354,729was in compliance with all financial covenants under the NWPSA.

The Company recorded a current warrant liability of $3,050,240 for the fair value of the short-term notes payablewarrant. The outstanding balance of the Note at September 30, 2020 was $10,448,039 and accrued interest of $280,729. Further, as of September 30, 2020, the Company had unamortized debt issuance costs of $1,600,115.

8.Convertible promissory notes (Restated)

On August 6, 2020, the Company entered into 2,579,789an asset purchase agreement with Celularity Inc., described in Note 4 pursuant to which the Company acquired Celularity’s UltraMIST assets. A portion of the aggregate consideration of $24,000,000 paid for the assets included the issuance of a promissory note to Celularity in the principal amount of $4,000,000. The Seller Note has a maturity date of August 6, 2021 and accrues interest at a rate equal to 12.0% per annum. In the event that the Seller Note has not been repaid prior to January 1, 2021, Celularity may elect to convert the outstanding principal amount plus any accrued but unpaid interest thereon into shares of Companythe Company’s common stock, $0.001 par value (the “Common Stock”).at a conversion price of $0.10 per share. As this conversion option is contingent on a future event, the conversion option has not been bifurcated from the host instrument as of September 30, 2020. The Seller Note is expressly subordinate to the NWPSA “Senior Debt” described in Note 7. The Company may prepay the outstanding principal balance, together with any accrued but unpaid interest without premium or penalty. As of September 30, 2020, $4,000,000 remained outstanding and had accrued interest of $73,333.

15
7.            
Convertible promissory note
Table of Contents
SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020

8.Convertible promissory notes (Restated) (continued)

On June 5, 2020, the Company entered into a Securities Purchase Agreement with investor LGH Investments LLC (the “Investor”) for (i) a Promissory Note (the “Convertible Promissory Note”) in the original principal amount of $1,210,000, convertible into shares of Common Stock,common stock, (ii) warrants entitling the Investor to acquire 1,000,0001,075,000 shares of Common Stockcommon stock (the “Warrants”) and (iii) 200,000 restricted common shares in the Company as an inducement grant (the “Inducement Shares”). Such note contained certain default provisoins,provisions, as defined.defined, resulting in net proceeds of $1,100,000. As part of the Securities Purchase Agreement, the Company established a reserve of shares of its authorized but unissued and unreserved Common Stockcommon stock in the amount of 11,000,000 shares for purposes of exercise of the Warrant or conversion of the Convertible Promissory Note.
The Convertible Promissory Note matures on February 5, 2021 and includes a one-time interest charge of 8% to be applied on the issuance date to the original principal amount. The Investor can convert the Convertible Promissory Note and interest at any time prior to maturity to the number of shares of Common Stock,common stock, equal to the amount obtained by dividing (i) the amount of the unpaid principal and interest on the note by (ii) $0.25. The Warrants have an exercise price of $0.35 per share and have a term of five years. The exercise priceyears and number of shares subject to purchase under the Warrants are subject to full-ratchet adjustment upon the occurrence o certain                 dilutive issuancesrecorded as set forth in the Warrants.a derivative liability (see Footnote 12). With respect to the Inducement Shares, in the event the Company’s share price has declined on the date on which the Investor seeks to have the restricted legend removed on such shares, the Company agrees to issue the Investor additional shares such that the aggregate value of the Inducement Shares equals the aggregate value of the Inducement Shares as of June 5, 2020. The Inducement Shares were issued on September 11, 2020 and included in common stock and additional paid in capital.
On August 6, 2020, the Company repaid all amounts owing to LGH Investments, LLC in the original principal amount of $1,210,000. As a result, all obligations of the date of filingCompany under the Inducement Sharesconvertible promissory note have not yet been issued.
terminated. The Company recorded a loss on extinguishment of debt discountof approximately $503,234 during the three and original issuance discount aggregating $670,682nine months ended September 30, 2020. The Warrants issued to be amortized overLGH Investments, as more fully described in Note 11, contain certain ratchet provisions with respect to subsequent issuances of securities by the lifeCompany at a price below the exercise price of such warrants. As a result of certain dilutive issuances of securities by the Company during the third quarter of 2020, the exercise price of the Convertible Promissory Note.
The Convertible Promissory Note had an aggregate outstanding principal balanceWarrants decreased to $0.01 per share and the number of $705,980, netshares subject to the Warrants increased to 35,000,000 shares as of $600,820 beneficial conversion feature, warrant discount and original issuance discount costs at JuneSeptember 30, 2020.  As ofA Derivative Liability – Warrant was recorded for this decrease in exercise price with the date of this report, the note was repaid in full (See Note 18).
Interest expenseoffset to  loss on the Convertible Promissory Note totaled $166,663 for the six months ended June 30, 2020.
warrant liability.

9.SBA Loans

SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2020
8.            
SBA Loans
On May 28, 2020, the Company received proceeds from a loan in the approximate amount of $460,000 (the “PPP Loan”) from Truist Bank, as lender, pursuant to the Paycheck Protection Program (“PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (15 U.S.C. 636(a)(36)) (the “CARES Act”). The PPP Loan matures on May 28, 2022 and bears interest at a rate of 1% per annum. Commencing December 12, 2020, the Company is required to pay the lender equal monthly payments of principal and interest. The PPP Loan is evidenced by a promissory note dated May 28, 2020 (the “Note”), which contains customary events of default relating to, among other things, payment defaults and breaches of representations, warranties and covenants. The PPP Loan may be prepaid by the Company at any time prior to maturity with no prepayment penalties.

SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020

9.SBA Loans (continued)

All or a portion of the PPP Loan may be forgiven by the U.S. Small Business Administration (“SBA”) upon application by the Company beginning 60 days but not later than 120 days after loan approval and upon documentation of expenditures in accordance with the SBA requirements. The ultimate forgiveness of the PPP Loan is also predicated 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 the PPP Loan, 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 the PPP Loan, the Company may be required to repay the PPP Loan in its entirety and/or be subject to additional penalties. In the event the PPP Loan, or any portion thereof, is forgiven pursuant to the PPP, the amount forgiven is applied to outstanding principal.
Under the terms of the PPP Loan, the Company may be eligible for full or partial loan forgiveness in the third quarter of 2020. The Company plans to complete the application for loan forgiveness in the fourth quarter of 2020, however, no assurance is provided that the Company will apply for, or obtain forgiveness for, any portion of the PPP Loan.
As of JuneSeptember 30, 2020, $132,514$321,821 is classified as current and $321,821$142,514 is classified as non-current.

On June 10, 2020, the Company secured a loan offered by the U.S. Small Business Administration (SBA) under its Economic Injury Disaster Loan (“EIDL”) assistance program in light of the impact of COVID-19 pandemic on the Company’s business. The principal amount of this loan of $150,000. Interest accrueswas $150,000 and interest accrued at the rate of 3.75% per annum. Installment payments, including principal and interest, are due monthly beginning June 10, 2021. The balance of principal and interest is payable 30 yearsThis loan was paid off in full on August 5, 2020 with proceeds from the dateNWPSA Senior Notes as part of the EIDL. The EIDL is secured by a security interest on allconditions of the Company’s assets (See Note 9).that agreement.

10.Convertible notes payable, related parties and Notes payable, related parties
As of June 30, 2020, $150,000 is classified as non-current.
9.            
Notes payable, related parties

The notes payable, related parties as amended were issued in conjunction with the Company’s purchase of the orthopedic division of HealthTronics, Inc. The notes payable, related parties bear interest at 8% per annum, as amended. All remaining unpaid accrued interest and principal was due on December 31, 2018, as amended. HealthTronics, Inc. is a related party because it is a shareholder in the Company and has a security agreement with the Company detailed below.
The Company is a party to a security agreement with HealthTronics, Inc. to provide a first security interest in the assets of the Company. During any period when an Event of Default occurs, the applicable interest rate shall increase by 2% per annum. An Event of Default under the notes payable, related parties occurred on December 31, 2016 (“Default”). As a result of the Default, the notes payable, related parties have been accruingaccrued interest at the rate of 10% per annum since January 2, 2017 and continue to accrue interest at such rate. The Company will be required to make mandatory prepayments of principal onthrough August 5, 2020.

On August 6, 2020, 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. For the three months ended June 30, 2020, additional mandatory prepayments of principal and interest on the notes payable, related parties were due on June 30, 2020. The Company has not made the mandatory prepayments of principal to HealthTronics, Inc. on the notes payable, related parties as amended from proceeds received through the issuance or sale of any equity securities in cash through June 30, 2020.
The notes payable, related parties had an aggregate outstanding principal balance of $5,372,743 at June 30, 2020 and December 31, 2019.
Accrued interest, related parties currently payable totaled $2,229,713 at June 30, 2020 and $1,859,977 at December 31, 2019. Interest expense on notes payable, related parties totaled $187,172 and $112,984 for the three months ended June 30, 2020 and 2019, respectively and $369,736 and $332,671 for the six months ended June 30, 2020 and 2019, respectively.
As of June 30, 2020, we are in default under the notes, as amended, and as a result HealthTronics, Inc. could, among other rights and remedies, exercise its rights under its first priority security interest in our assets.  The Company entered into a letter agreement (the “HealthTronics Agreement”) with HealthTronics, Inc. (“HealthTronics”), pursuant to which the Company paid off all outstanding debt due and owed to HealthTronics. Pursuant to the HealthTronics (see Note 18).
Agreement, as consideration for the extinguishment of the debt due and owed to HealthTronics, (i) the Company paid to HealthTronics an amount in cash equal to $4,000,000, (ii) HealthTronics exercised all of its outstanding Class K Warrants to purchase 7,200,000 shares of common stock, (iii) the Company issued to HealthTronics a convertible promissory note in the principal amount of $1,372,743, and (iv) the Company and HealthTronics entered into a Securities Purchase Agreement dated August 6, 2020 pursuant to which the Company issued to HealthTronics an aggregate of 8,275,235 shares of common stock and an accompanying Class E warrant to purchase up to an additional 8,275,235 shares of common stock. The warrant has an exercise price of $0.25 per share and a three year term.

SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JuneSeptember 30, 2020
10.Convertible notes payable, related parties and Notes payable, related parties (continued)

The convertible promissory note, with principal amount of $1,372,743, matures on August 6, 2021 and accrues interest at a rate equal to 12.0% per annum.  In the event that the Seller Note has not been repaid prior to January 1, 2021, Healthronics 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. As this conversion option is contingent, the conversion option has not been bifurcated from the host instrument as of September 30, 2020. The convertible promissory note is expressly subordinate to the NWPSA “Senior Notes” described in Note 8. The Company may prepay the outstanding principal balance, together with any accrued but unpaid interest without premium or penalty. As of September 30, 2020, $1,372,743 remained outstanding and had accrued interest of $24,822.

The notes payable, related parties were fully paid off as of September 30, 2020 due to the letter agreement described above and had an aggregate outstanding principal balance of $5,372,743 at December 31, 2019. The related accrued interest, related parties currently payable totaled $1,859,977 at December 31, 2019. Interest expense on notes payable, related parties totaled $61,334 and $175,522 for the three months ended September 30, 2020 and 2019, respectively and $431,070 and $508,193 for the nine months ended September 30, 2020 and 2019, respectively.

On August 6, 2020, the Company terminated that certain line of credit agreement with A. Michael Stolarski, a member of the Company’s board of directors, dated December 29, 2017 and as amended November 12, 2018, in the amount of $1,000,000 (the “Stolarski Line of Credit”). As consideration for the termination of the Stolarski Line of Credit, the Company issued to A. Michael Stolarski a convertible promissory note in the principal amount of $223,511 (the “Stolarski Note”). The Stolarski Note has a maturity date of August 6, 2021 and accrues interest at a rate equal to 12.0% per annum. In the event that the Stolarski Note has not been repaid prior to January 1, 2021, the holder may elect to convert the outstanding principal amount plus any accrued by unpaid interest thereon into shares of common stock at a conversion price of $0.10 per share.

11.Warrant Liabilities (Restated)

On August 6, 2020, the Company, issued 132,816,250 warrants to investors and the placement agent in connection with a private placement offering (Note 14). Additionally, on that date, the Company issued 13,091,160 warrants to the holder of the Senior Notes (Note 7) and 8,275,235 warrants to settle certain outstanding debt (Note 10).

At the time of issuance of the warrants, if all outstanding convertible securities were converted into shares of common stock, the Company would have exceeded its available authorized shares of common stock of 600,000,000 shares. If all outstanding convertible securities were converted into shares of common stock, the Company would have 713,439,897 shares issued and outstanding.  As a result of the limits on the Company’s authorized shares, a portion of the Company’s obligations under the warrants have been determined to be a liability.

The Company determined that these warrants are free standing financial instruments that are legally detachable and separately exercisable from the common stock included in the public share offering. Management also determined that the warrants are puttable for cash upon a fundamental transaction at the option of the holder and as such required classification as a liability pursuant to ASC 480 “Distinguishing Liabilities from Equity”. In accordance with the accounting guidance, 111,210,902 of the outstanding warrants are recognized as a warrant liability on the balance sheet and are measured at their inception date fair value and subsequently re-measured at each reporting period with changes being recorded as a component of other income in the statement of operations.

SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020

11.Warrant Liabilities (continued)

The fair value of the warrant liabilities was measured using the binomial model. Significant inputs into the model at the inception and reporting period measurement dates are as follows:

Private Placement Warrants

Binomial Assumptions
Issuance date (1)
August 6, 2020
 
Period ended
September 30, 2020
 
Exercise Price(1)
 $0.25  $0.25 
Warrant Expiration Date (1)
August 6, 2023 August 6, 2023 
Stock Price (2)
 $0.24  $0.22 
Interest Rate (annual) (3)
  0.13%  0.16%
Volatility (annual) (4)
  91.49%  88.96%
Time to Maturity (Years)  3   3 
Calculated fair value per share $0.135  $0.119 

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

(2)
Based on the trading value of common stock of the Company. as of August 6, 2020 and each presented period ending date.

(3)
Interest rate for U.S. Treasury Bonds, as of August 6, 2020 and each presented period ending date, as published by the U.S. Federal Reserve.

(4)
Based on the historical daily volatility of  the Company as of August 6, 2020 and each presented period ending date.

NH Expansion Warrants:

Binomial Assumptions
Issuance date (1)
August 6, 2020
 
Period ended
September 30, 2020
 
Exercise Price(1)
 $0.01  $0.01 
Warrant Expiration Date (1)
August 6, 2030 August 6, 2030 
Stock Price (2)
 $0.24  $0.22 
Interest Rate (annual) (3)
  0.21%  0.69%
Volatility (annual) (4)
  102.09%  184.77%
Time to Maturity (Years)  10   10 
Calculated fair value per share $0.233  $0.22 

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

(2)
Based on the trading value of common stock of the Company as of August 6, 2020 and each presented period ending date.

(3)
Interest rate for U.S. Treasury Bonds, as of August 6, 2020 and each presented period ending date, as published by the U.S. Federal Reserve.

(4)
Based on the historical daily volatility of the Company as of August 6, 2020 and each presented period ending date.

On August 6, 2020, the Company consummated a series of transactions, involving the issuance of common stock and various equity-linked instruments, each of which constitutes a dilutive issuance in the LGH Warrant Agreement (see Note 8) which triggered the ratchet provision, with the effect of decreasing the warrant’s exercise price to $0.01. With the reduction of the warrant exercise price from the initial $0.35 to $0.01 per share, in order to maintain the $350,000 aggregate exercise amount in effect prior to the adjustment (1,000,000 warrant shares with an exercise price of $0.35), as required by the ratchet provision, the Company was required to increase the number of warrant shares to 35,000,000, thereby entitling LGH to purchase 35,000,000 shares of the Company’s common stock at $0.01 per share.

The Company determined that these warrants meet the definition of a derivative liability.  Pursuant to this conclusion, the warrant was recorded as derivative liability at inception, initially measured at its fair value, and subsequently remeasured at fair value at each reporting date, with changes in the fair value reported in earnings.
 
10.            19
Preferred Stock
The derivative liabilities are considered Level 3 liabilities on the fair value hierarchy as the determination of fair value includes various assumptions about future activities and the Company’s stock prices and historical volatility as inputs.  The fair value of the derivative warrant liability was measured using the Black Scholes Merton (“BSM") option pricing model.  Given the plain vanilla nature of the Warrant terms, including the absence of any exercise contingencies, the BSM sufficiently captures the terms of the Warrant as inputs to the valuation and produces a value that is not materially different from a binomial/lattice model using the following assumptions:
LGH            
Binomial Assumptions  
Issuance date (1)
5-Jun-20
  
Period ended
30-Jun-20
  
Ratchet Date (5)
6-Aug-20
  
Period ended
30-Sep-20
 
Exercise Price(1)
 $0.35  $0.35  $0.01  $0.01 
Warrant Expiration Date (1)
 5-Jun-25  5-Jun-25  5-Jun-25  5-Jun-25 
Stock Price (2)
 $0.27  $0.2625  $0.2437  $0.22 
Interest Rate (annual) (3)
  0.29%  0.29%  0.20%  0.26%
Volatility (annual) (4)
  107%  107%  103%  101%
Time to Maturity (Years)  5   4.93   4.83   4.68 
Calculated fair value per share $0.25  $0.25  $0.24  $0.21 

(1)
Based on the terms provided in the warrant agreement to purchase common stock of the Company dated June 5, 2020.

(2)
Based on the trading value of common stock of the Company as of June 5, 2020 and each presented period ending date.

(3)
Interest rate for U.S. Treasury Bonds, as of June 5, 2020, and each presented period ending date, as published by the U.S. Federal Reserve.

(4)
Based on the historical daily volatility of the Company as of June 6, 2020, and each presented period ending date.

(5)
Based on the terms provided in the warrant agreement to purchase common stock at date of the ratchet trigger August 6, 2020.

The warrants outstanding and fair values at each of the respective valuation dates are summarized below:

Warrant Liability 
Warrants
Outstanding
  
Fair Value
per Share
  Fair Value 
Fair Value at remeasurement date of June 30, 2020  1,000,000   0.249  $249,049 
Additional Warrants classified as Liabilities August 6, 2020  111,210,902   0.206   22,888,017 
Fair Value at date of August 6, 2020  112,210,902   0.206  $23,137,066 
Gain or (Loss) on warrant liability
          (5,590,806
)
Fair Value as of period ended September 30, 2020
  112,210,902
   0.156
   17,546,260


During the three and nine months ending September 30, 2020, the Company recorded a loss on changes in fair value of warrant liability of $ 5,590,806, respectively. During the three and nine months ending September 30, 2019, there were no warrant liabilities or corresponding changes in valuation.

SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020

12.Preferred Stock

On February 6, 2020, the Company entered into a Series C Preferred Stock Purchase Agreement (the “Series C Purchase Agreement”) with certain accredited investors for the sale by the Company in a private placement of an aggregate of 90 shares of the Company’s Series C Convertible Preferred Stock, par value $0.001 per share at a stated value equal to $25,000 per share (the “Series C Preferred Stock”), for an aggregate total purchase price of $2,250,000.

On January 31, 2020, the Company filed a Certificate of Designation of Preferences, Right and Limitations of Series C Convertible Preferred Stock of the Company with the Nevada Secretary of State which amended our Articles of Incorporation to designate 90 shares of our preferred stock as Series C Convertible Preferred Stock. On May 14, 2020, the Company entered into a Series D Preferred Stock Purchase Agreement (the “Series D Purchase Agreement”) with certain accredited investors for the sale by the Company in a private placement of an aggregate of eight shares of the Company’s Series D Convertible Preferred Stock, par value $0.001 per share at a stated value equal to $25,000 per share (the “Series D Preferred Stock”), for an aggregate total purchase price of $200,000. On May 14, 2020, the Company filed a Certificate of Designation of Preferences, Right and Limitations of Series D Convertible Preferred Stock of the Company with the Nevada Secretary of State which amended our Articles of Incorporation to designate eight shares of our preferred stock as Series D Convertible Preferred Stock.

Subject to the terms of the Certificates of Designation, each share of Series C Preferred Stock and Series D Preferred Stock is convertible into shares of Common Stockcommon stock of the Company at a rate equal to the stated value of such share of Series C Preferred Stock and Series D Preferred Stock of $25,000, divided by the conversion price of $0.14 per share (subject to adjustment from time to time upon the occurrence of certain events as described in the Certificate of Designation). The Certificates of Designation became effective upon filing with the Secretary of State of the State of Nevada. If all outstanding shares of Series C Preferred Stock and Series D Preferred Stock were converted into Common Stockcommon stock at the original conversion rate, such shares would convert into an aggregate of 17,500,000 shares of Common Stock.common stock.

NotwithstandingOn July 23, 2020, in connection with the foregoing,Company’s 2020 Annual Meeting of Stockholders, the Series C Preferred Stock and Series D Preferred Stock is not currently convertible into shares of Common Stock becauseCompany’s stockholders approved, among other matters, an amendment to the Company does not currently have sufficient authorized and unissued shares of its Common Stock to permit conversion in full of all issued and outstanding shares of Series C Preferred Stock and Series D Preferred Stock. Accordingly, the Certificate of Designation provides that the Series C Preferred Stock and Series D Preferred Stock is only convertible into Common Stock once the Company amends itsCompany’s Articles of Incorporation to increase itsthe number of authorized and unissued Common Stockshares of common stock from 355,000,000 to an amount sufficient to permit such conversion of the600,000,000.  On September 20, 2020, Series C Preferred Stock and Series D Preferred Stock. Each investor has agreed in the Purchase Agreement that such investor will, within five business days following such amendment to the Articles of Incorporation, convert all of such investor’sholders converted their preferred shares into 17,499,958 shares of Series C Preferred Stock and Series D Preferred Stock into sharescommon stock.

13.Equity transactions

Approval of Common Stock.reverse split of common stock

The CertificateOn July 23, 2020, in connection with the Company’s 2020 Annual Meeting of Designation provides that ifStockholders, the Company’s stockholders approved the Company has not obtained the approval of its shareholders to amend the Company’s Articles of Incorporation to increaseeffect a reverse split of the authorized sharesCompany’s outstanding common stock at a ratio of Common Stock sufficientbetween 1-for-10 and 1-for-50, with the exact ratio to permit such conversion, or if such amendmentbe determined by the board of directors of the Company in its sole discretion. As of the filing of this 10-Q report, the Company has not otherwise been filed with the Nevada Secretary of State on or before December 31, 2020 (either such event, an “Authorization Failure”), then the Company shall be required to redeem all outstanding shares of Series C Preferred Stock and Series D Preferred Stock foreffected a per-share redemption price, payable in cash in a single installment not later than thirty (30) days following the date of such Authorization Failure, equal to the greater of (a) two hundred percent (200%) of the stated value of such share, and (b)(i) the volume-weighted average sale price of a share of Common Stock reported on the trading market on which the Common Stock is then traded for the thirty (30) consecutive trading days immediately preceding the date of such Authorization Failure, multiplied by (ii) the number of shares of Common Stock such share of Series C Preferred Stock and Series D Preferred Stock would otherwise be convertible into as of such date had such Authorization Failure not occurred. The closing of the private placements occurred on February 6, 2020 and May 14, 2020, respectively, and the preferred stock was recorded in temporary equity on the related condensed consolidated balance sheet at an aggregate value of $2,250,000 and $200,000 respectively. Ninety shares of the Series C Preferred Stock and eight shares of Series D Preferred Stock have been issued as of June 30, 2020. The Company has obtained the approvalreverse split of its shareholders to amend the Company’s Articles of Incorporation to increase the authorized shares of Common Stock and effected such increase subsequent to June 30, 2020 (see Note 18).
stock.

SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JuneSeptember 30, 2020

13.Equity transactions (continued)

11.            
Equity transactions
Warrant Exercises

During the three and sixnine months ended June September 30, 2020,, the Company issued 1,000,000 shares of Common Stockcommon stock upon the exercise of 1,000,000 Class P Warrants to purchase shares of stock and an exercise price of $0.01 per share under the terms of the respective warrant agreement.
Conversion of liabilities

During the sixnine months ended JuneSeptember 30, 2020, the Company issued 7,200,000 shares of common stock to a related party upon the exercise of Class K Warrants upon the conversion of accrued interest related to a note payable, related party totaling $636,000, as described in Note 10.

Conversion of liabilities

During the nine months ended September 30, 2020, the Company issued 2,579,789 shares of Common Stockcommon stock upon the conversion of short term notes payable in the principal and accrued interest amount of $354,729 with the receipt of notices of Class L warrant exercises, all pursuant to the terms of the short term notes payable.

During the nine months ended September 30, 2020, the Company issued 2,250,000 shares of common stock upon the conversion of short term notes payable in the principal and accrued interest amount of $210,000 pursuant to the terms of the short term notes payable.

During the nine months ended September 30, 2020, the Company issued 15,475,235 shares of common stock to a related party upon the conversion of accrued interest related to a note payable, related party totaling $2,291,047, as described in Note 10.

Conversion of advances from related parties

During the sixnine months ended JuneSeptember 30, 2020, the Company issued 262,811 shares of Common Stockcommon stock upon the conversion of advances from related parties in the amount of $18,098 with the receipt of notice of Series A Warrant exercise to purchase shares of stock under the terms of the respective warrant agreement.

Consulting Agreement

In January 2020, the Company entered into a sixnine month consulting agreement for which the fee for the services was to be paid with Common Stock.common stock. The number of shares to be paid with Common Stockcommon stock was 1,000,000 earned upon signing and an additional 1,000,000 upon agreement by both consultant and the Company no later than May 1, 2020. The Company issued 1,000,000 shares in March 2020 and 1,000,000 shares in April 2020. The fair value of the shares of $380,000 was recorded as a non-cash general and administrative expense during the sixnine months ended JuneSeptember 30, 2020.

The consulting agreement was extended to November 30, 2020 with an additional 2,000,000 Common Stockcommon stock shares to be issued for services. The Company issued 1,000,000 shares to the consultantservices in JuneAugust and September 2020. The fair value of the shares of $287,500$450,000 was recorded as a non-cash general and administrative expense during the sixnine months ended JuneSeptember 30, 2020.

The Company entered into a separate agreement for investor relations services for which the fee was paid with common stock. The Company issued 3,000,000 common stock shares with a fair value of $630,000 which was recorded as a non-cash general and administrative expense during the nine months ended September 30, 2020.

SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JuneSeptember 30, 2020

13.Equity transactions (continued)

11.            
Equity transactions (continued)

PIPE Offering(Restated)

On December 11, 2019, the Company entered into a Common Stockcommon stock Purchase Agreement with certain investors for the sale by the Company in a private placement of an aggregate of up to 21,071,143 shares of its common stock at a purchase price of $0.14 per share.
During the sixnine months ended JuneSeptember 30, 2020, the Company issued 1,071,428 shares of Common Stockcommon stock in conjunction with this offering and received $150,000 in cash proceeds.

On August 6, 2020, the Company entered into a Securities Purchase Agreement in connection with the acquisition of UltraMIST, as discussed in Note 4, and issued 123,550,000 shares of common stock and accompanying Class E Warrants to purchase up to an additional 123,550,000 shares of common stock to certain investors for an aggregate purchase price of $0.20 per share of common stock and accompanying Warrant. It also issued Class E Warrants to a third-party placement agent to purchase up to 9,266,250 shares of common stock on the same terms as the Warrants. The Warrants have an exercise price of $0.25 per share and a three year term.  The private placement generated net proceeds of $21,456,468. The shares of common stock issued in the private placement have a par value of $0.001, resulting in an increase to common stock of $123,550. Since at the date of issuance the Company did not have a sufficient number of authorized shares to satisfy the Warrants in the event that they were exercised (and all other outstanding convertible securities were converted into shares of common stock) which could cause the net cash settlement of the Warrants, the Company recorded a liability of $ 8,656,165 for the fair value of the Warrants that were in excess of the available authorized shares. The Company recorded the residual amount of $ 12,408,966 from the net proceeds to stockholders’ equity.

Inducement Shares

During the nine months ended September 30, 2020, the Company issued 200,000 shares of common stock related to the June 5, 2020, Securities Purchase Agreement with LGH Investments, LLC, as described in Note 10.

Stock Option Exercise

During the sixnine months ended June September 30, 2020,, the Company issued 225,000 shares of Common Stockcommon stock upon the exercise of stock options resulting in net proceeds of $44,250.

Litigation Settlement

During the sixnine months ended June September 30, 2020,, the Company issued 200,000 shares of restricted Common Stockcommon stock upon the settlement of outstanding litigation. The fair value of the shares of $50,000 was recorded as a non-cash general and administrative expense during the sixnine months ended JuneSeptember 30, 2020.

23
12.            
Warrants
Table of Contents
SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020

14.Warrants (Restated)

A summary of the warrant activity during the sixnine months ended JuneSeptember 30, 2020 is presented as follows:

Warrant class 
Outstanding
as of
December
31, 2019
  Issued  Exercised  Expired  
Outstanding
as of
September
30,
2020
 
                
Class E Warrants  -   141,091,485   -   -   141,091,485 
Class K Warrants  7,200,000   -   (7,200,000)  -   - 
Class O Warrants  909,091   -   -   -   909,091 
Class P Warrants  1,365,000   -   (1,000,000)  (100,000)  265,000 
LGH Warrant  -   35,000,000   -   -   35,000,000 
NH Warrant  -   13,091,160   -   -   13,091,160 
   9,474,091   189,182,645   (8,200,000)  (100,000)  190,356,736 
Warrant class
 
Outstanding as of
December 31, 2019
 
 
 Issued
 
 
 Exercised
 
 
 Expired
 
 
Outstanding as of
June 30, 2020
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Class K Warrants
  7,200,000 
  - 
  - 
  - 
  7,200,000 
Class O Warrants
  909,091 
  - 
  - 
  - 
  909,091 
Class P Warrants
  1,365,000 
  - 
  (1,000,000)
  (100,000)
  265,000 
Common Stock Purchase Warrants
  - 
  1,000,000 
  - 
  - 
  1,000,000 
 
  9,474,091 
  1,000,000 
  (1,000,000)
  (100,000)
  9,374,091 

A summary of the warrant exercise price per share and expiration date is presented as follows:

  
Exercise
price/share
 Expiration date
Class E Warrants $0.25 August 2023
Class K Warrants $0.08 June 2025
Class K Warrants $0.11 August 2027
Class O Warrants $0.11 January 2022
Class P Warrants $0.20 June 2024
LGH Warrant $0.01 June 2025
NH Warrant $0.01 August 2030
Exercise price/share
Expiration date
Class K Warrants
$0.08
June 2025
Class K Warrants
$0.11
August 2027
Class O Warrants
$0.11
January2022
Class P Warrants
$0.20
June 2024
Common Stock Purchase Warrants
$0.35
June 2025

The fair value of the Common Stock Purchase Warrantscommon stock purchase warrants is estimated on the date of grant using the Black-Scholes option pricing model which approximates the binomial model using the following weighted average assumptions for the sixthree and nine months ended JuneSeptember 30, 2020:
June 30, 2020
Weighted average contractual terms in years
2.5
1.3
Weighted average risk free interest rate
0.47%
0.15%
Weighted average volatility
107.12%
92.76%

15.Commitments and contingencies

14
SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2020

13.            
Commitments and contingencies
Operating Leases

The Company is a party to certain operating leases. The Company has entered into a lease agreement, as amended, for office space for office, research and development, quality control, production and warehouse space which expires on December 31, 2021. Under the terms of the lease, the Company pays monthly rent of $14,651, subject to a 3% adjustment on an annual basis.

SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020

15.Commitments and contingencies (continued)

For leases where the Company is the lessee, ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent an obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the lease commencement date (except we used the practical expedients and recorded the outstanding operating lease at January 1, 2019) based on the present value of lease payments over the lease term. As the Company’s lease did not provide an implicit interest rate, the Company used the equivalent borrowing rate for a secured financing with the term of that equal to the remaining life of the lease at inception. The lease terms used to calculate the ROU asset and related lease liability did not include options to extend or termination of the lease; there are none and there is no reasonable certainty that the Company would extend the lease at expiration. Lease expense for operating leases is recognized on a straight-line basis over the lease term as an operating expense. The Company has lease agreements which require payments for lease and non-lease components and has elected to account for these as separate lease components. Non-leasing components are not included in the ROU asset.

Right of use assets and Lease liability – right of use consist of the following:

  
September
30,
2020
 
Right of use assets $442,197 

  
September
30,
2020
 
Lease liability - right of use   
Current portion $251,372 
Long term portion  222,815 
  $474,187 
 June 30,
2020
Right of use assets
$243,251
 June 30,
2020
Lease liability - right of use
     Current portion
$173,270
     Long term portion
99,142
$272,412

As of JuneSeptember 30, 2020, the maturities of the Company’s lease liability – right of use which have initial or remaining lease terms in excess of one year consist of the following:

Year ending December 31, Amount 
2020 (remainder) $71,918 
2021  290,552 
2022  96,195 
2023  68,017 
2024  8,028 
2025  3,345 
Total lease payments  538,055 
Less: Present value adjustment  (63,868)
Lease liability - right of use $474,187 

Year ending December 31,
 
 Amount
 
2020 (remainder)
 $97,041 
2021
  197,462 
     Total lease payments
  294,503 
Less: Present value adjustment
  (22,090)
Lease liability - right of use
 $272,413 
25
SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020

15.Commitments and contingencies (continued)

As of JuneSeptember 30, 2020, the Company’s operating lease had a weighted average remaining lease term of 1.52.5 years and a weighted average discount rate of 7%12%.

Rent expense for the three months ended June 30, 2020 and 2019 was $52,346 and $54,698, respectively, and for the six months ended JuneSeptember 30, 2020 and 2019 was $117,876$84,115 and $107,536,$49,217, respectively, and for the nine months ended September 30, 2020 and 2019 was $201,991 and $148,172, respectively.

Financing Lease

For leases where the Company is the lessee, ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent an obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. The present value of the lease payment exceeds 90% of the sales price of the equipment, therefore this lease will be considered a financing lease is included in Property and equipment, net on our Condensed Consolidated Balance Sheets. Lease expense will be recognized as payment of financing lease, depreciation expense and interest expense.

SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2020
13.            
Commitments and contingencies (continued)
Right of use assets and Lease liability – right of use consist of the following:

  
September
30,
2020
 
Right of use assets $462,405 

  
September
30,
2020
 
Lease liability - right of use   
Current portion $187,416 
Long term portion  284,588 
  $472,004 
 June 30,
2020
Right of use assets
$515,551
 June 30,
2020
Lease liability - right of use
     Current portion
$181,371
     Long term portion
333,771
$515,141

As of JuneSeptember 30, 2020, the maturities of the Company’s lease liability – right of use which have initial or remaining lease terms in excess of one year consist of the following:

Year ending December 31, Amount 
2020 (remainder) $58,648 
2021  234,593 
2022  199,793 
2023  18,388 
Total $511,422 
Year ending December 31,
 
 Amount
 
2020 (remainder)
 $117,297 
2021
  234,593 
2022
  199,793 
2023
  18,388 
Total
 $570,071 

As of JuneSeptember 30, 2020, the Company’s financing leases had a weighted average remaining lease term of 2.442.7 years based on annualized base payments expiring through 2023 and a weighted average discount rate of 13.2%12.6%.

As of JuneSeptember 30, 2020, the Company did not have additional operating or financing leases that have yet commenced.

Litigation
26
SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020

15.Commitments and contingencies (continued)

Litigation

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.

16.Revenue

SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2020
14.            
Revenue
The Company accounts for revenue in accordance with ASC 606.

Disaggregation of Revenue

The disaggregation of revenue is based on geographical region. The following table presents revenue from contracts with customers for the three and sixnine months ended JuneSeptember 30, 2020 and 2019:

  
Three Months Ended September 30,
2020
  
Three Months Ended September 30,
2019
 
  United States  International  Total  United States  International  Total 
Product $1,301,942  $19,306  $1,321,248  $9,832  $149,023  $158,855 
License fees  -   29,447   29,447   6,250   10,000   16,250 
Other Revenue  7,811   608,390   616,201   25   22,510   22,535 
  $1,309,753  $657,143  $1,966,896  $16,107  $181,533  $197,640 

  
Nine Months Ended September 30,
2020
  
Nine Months Ended September 30,
2019
 
  United States  International  Total  United States  International  Total 
Product $1,398,672  $66,475  $1,465,147  $147,999  $296,088  $444,087 
License fees  -   39,447   39,447   18,750   170,557   189,307 
Other Revenue  7,486   686,708   694,194   25   59,160   59,185 
  $1,406,158  $792,630  $2,198,788  $166,774  $525,805  $692,579 

 
 
 Three months ended June 30, 2020
 
 
 Three months ended June 30, 2019
 
 
 
United States
 
 
International
 
 
Total
 
 
United States
 
 
International
 
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Product
 $63,076 
 $6,265 
 $69,341 
 $120,488 
 $100,179 
 $220,667 
License fees
  - 
  - 
  - 
  6,250 
  60,558 
  66,808 
Other Revenue
  711 
  13,249 
  13,960 
  - 
  29,501 
  29,501 
 
 $63,787 
 $19,514 
 $83,301 
 $126,738 
 $190,238 
 $316,976 
The Company’s partner in the joint venture agreement in Brazil, the IDIC Group, will have the right to receive prioritized dividends until the full reimbursement of the $600,000 partnership fee and expenses incurred in the formation of the joint venture company.
 
 
 Six months ended June 30, 2020
 
 
 Six months ended June 30, 2019
 
 
 
United States
 
 
International
 
 
Total
 
 
United States
 
 
International
 
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Product
 $96,730 
 $47,170 
 $143,900 
 $138,167 
 $147,065 
 $285,232 
License fees
  10,000 
  - 
  10,000 
  12,500 
  160,558 
  173,058 
Other Revenue
  1,252 
  76,741 
  77,993 
  - 
  36,649 
  36,649 
 
 $107,982 
 $123,911 
 $231,893 
 $150,667 
 $344,272 
 $494,939 

Management routinely assesses the financial strength of its customers and, as a consequence, believes accounts receivable are stated at the net realizable value and credit risk exposure is limited. One distributor accounted for 86% of revenue for the six months ended June 30, 2020 and 72% of accounts receivable at June 30, 2020. Three distributors accounted for 72% of revenues for the six months ended June 30, 2019 and 49%, 0% and 25% of accounts receivable at June 30, 2019.

17.Related party transactions
15.            
Related party transactions

During the three and sixnine months ended JuneSeptember 30, 2020 and 2019, the Company recorded $13,105$10,105 and $17,678,$10,682, respectively, and $26,210$36,315 and $138,167$148,849 respectively, in revenue from an entity owned by A. Michael Stolarski, a member of the Company’s board of directors and an existing shareholder of the Company. Contract liabilities includes a balance at JuneSeptember 30, 2020 and 2019 of $90,943 and $102,899, respectively$80,838 from this related party.

16.            27
Stock-based compensation
SANUWAVE HEALTH, INC. AND SUBSIDIARIES
                             During the six months ended JuneNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020 an employee exercised stock options to buy 175,000 shares at an exercise price of $0.21 per share and 50,000 shares at an exercise price of $0.15 per share of the Company’s                     common stock totaling 225,000 shares.

18.Stock-based compensation

During the sixnine months ended JuneSeptember 30, 2020, 10,00060,000 stock options to purchase the Company’s common stock were forfeited due to termination.termination and 1,500,000 stock options to purchase the Company’s common stock expired without exercise.

The range of exercise prices for options was $0.04 to $2.00 for options outstanding at JuneSeptember 30, 2020 and December 31, 2019, respectively. The aggregate intrinsic value for all vested and exercisable options was $3,034,841$1,994,741 and $2,085,866 at JuneSeptember 30, 2020 and December 31, 2019, respectively.

SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2020
16.            
Stock-based compensation (continued)
The weighted average remaining contractual term for outstanding exercisable stock options was 6.16.14 and 6.6 years as of JuneSeptember 30, 2020 and December 31, 2019, respectively.

19.Earnings (loss) per share
17.            
Earnings (loss) per share

Basic net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding for the period. Diluted net loss per share reflects the potential dilution that could occur if securities or other instruments to issue common stock were exercised or converted into common stock. Potentially dilutive securities are excluded from the computation of diluted net loss per share as their inclusive would be anti-dilutive and consist of the following:

 
September 30,
2020
  
September 30,
2019
 
       
Stock options  32,618,385   33,683,385 
Warrants
  
190,356,736
   
12,854,091
 
Convertible promissory notes  56,988,540   9,204,160 
Shares issuable
  
-
   
14,617,225
 
Anti-dilutive equity securities  279,963,661   70,358,861 
 
 
 June 30,
2020
 
 
 June 30,
2019
 
 
 
 
 
 
 
 
Stock options
  34,168,385 
  32,183,385 
Preferred stock conversion
  17,500,000 
  - 
Warrants
  9,374,091 
  68,357,635 
Convertible promissory notes
  5,227,200 
  26,004,347 
Short term notes payable
  2,250,000 
  - 
Anti-dilutive equity securities
  68,519,676 
  126,545,367 

20.Restatement of financial statements
18.            
Subsequent events

On July 23, 2020,February 12, 2021, the Company determined an error in connection with the Company’s 2020 Annual Meeting of Stockholders, the Company’s stockholders approved, among other matters, the following;
● 
An amendment to the Company’s Articles of Incorporation to increase the number of authorized shares of Common Stock from 355,000,000 to 605,000,000; and
●           To grant the board of directors the authority to effect a reverse splitaccounting for certain of the Company’s outstanding Common Stock at an exchange ratewarrants previously issued. Such warrants should have been reflected as liabilities on the condensed consolidated balance sheets included in the Original 10-Q, rather than as a component of between 1-for-10 and 1-for-50, with the exact ratio to be determined by the board of directors in its sole discretion.equity.

On July 23, 2020, in connection withSpecifically, the Company’s financial statements as of and for the three and nine months ended September 30, 2020, Annual Meetingcontained the following errors: (i) understatement of Stockholders,derivative warrant liability of $8,225,956 (ii) understatement of weighted average shares outstanding of 82,383,022 for the three months ended September 30, 2020 and 2,674,538 for the nine months ended September 30, 2020 and (iii) understatement of the Net Loss on the Statement of Operations of $6,626,907.

SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020

20.Restatement of financial statements (continued)

The effects of the adjustments on the Company’s stockholders approved, among other matters,previously issued financial statements as of and for the following;three and nine months ended September 30, 2020 are summarized as follows:

As of September 30, 2020  
Originally
Reported
    
Restatement
Adjustment
    
As
Restated
  
 
LIABILITIES         
CURRENT LIABILITIES         
Warrant Liability  
6,440,249
   
11,106,011
   
17,546,260
 
TOTAL CURRENT LIABILITIES  
19,715,578
   
11,106,011
   
30,821,589
 
NON - CURRENT LIABILITIES            
Warrant Liability  
2,880,055
   
(2,880,055
)
  
-
 
TOTAL NON-CURRENT LIABILITIES  
14,023,530
   
(2,880,055
)
  
11,143,475
 
TOTAL LIABILITIES  
33,739,108
   
8,225,956
   
41,965,064
 
COMMITMENTS AND CONTINGENCIES            
             
STOCKHOLDERS' DEFICIT            
ADDITIONAL PAID-IN CAPITAL  
137,120,956
   
(1,599,049
)
  
135,521,907
 
             
ACCUMULATED DEFICIT  
(138,398,688
)
  
(6,626,907
)
  
(145,025,761
)
             
TOTAL STOCKHOLDERS' DEFICIT  
(873,002
)
  
(8,225,956
)
  
(9,098,958
)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT 
$
32,866,106
  
$
(0
)
 
$
32,866,106
 

Three Months Ended September 30, 2020  
Originally
Reported
    
Restatement
Adjustment
    
As
Restated
  
 
OTHER INCOME (EXPENSES)         
Gain or (Loss) on warrant derivative liability  
1,036,101
   
(6,626,907
)
  
(5,590,806
)
TOTAL OTHER INCOME (EXPENSES)  
(242,962
)
  
(6,626,907
)
  
(6,869,869
)
             
NET LOSS  
(6,011,730
)
  
(6,626,907
)
  
(12,638,637
)
             
TOTAL COMPREHENSIVE LOSS 
$
(6,008,938
)
 
$
(6,626,907
)
 
$
(12,635,845
)
             
             
LOSS PER SHARE            
Net loss - basic and diluted 
$
(0.02
)
 
$
(0.01
)
 
$
(0.03
)
             
Weighed average shares outstanding - basic and diluted  
302,119,428
   
82,383,022
   
384,502,450
 

Nine Months Ended September 30, 2020  
Originally
Reported
    
Restatement
Adjustment
    
As
Restated
  
 
OTHER INCOME (EXPENSES)         
Loss on warrant liability  
1,036,101
   
(6,626,907
)
  
(5,590,806
)
TOTAL OTHER INCOME (EXPENSES)  
(808,637
)
  
(6,626,907
)
  
(7,435,544
)
             
NET LOSS  
(12,645,898
)
  
(6,626,907
)
  
(19,272,805
)
             
TOTAL COMPREHENSIVE LOSS 
$
(12,645,029
)
 
$
(6,626,907
)
 
$
(19,271,936
)
             
             
LOSS PER SHARE            
Net loss - basic and diluted 
$
(0.04
)
 
$
(0.02
)
 
$
(0.06
)
             
Weighed average shares outstanding - basic and diluted  
323,730,859
   
2,674,538
   
326,405,397
 

Nine Months Ended September 30, 2020  
Originally
Reported
    
Restatement
Adjustment
    
As
Restated
  
 
CASH FLOWS FROM OPERATING ACTIVITIES         
Net loss  
(12,645,898
)
  
(6,626,907
)
  
(19,272,805
)
Gain or (Loss) on warrant liability  
(1,036,101
)
  
6,626,907
   
5,590,806
 
NET CASH USED BY OPERATING ACTVITIES  
(9,779,889
)
  
-
   
(9,779,889
)

SANUWAVE HEALTH, INC. AND SUBSIDIARIES
●           To grant the board of directors the authority to effect a reverse split of the Company’s outstanding Common Stock at an exchange rate of between 1-for-10 and 1-for-50, with the exact ratio to be determined by the board of directors in its sole discretion.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020

21.Subsequent events

The amendmentCompany evaluates events that have occurred after the balance sheet date but before the financial statements are issued.

Option Exercise

Subsequent to the Company’s Articles of Incorporation to effect the increase in the number of authorized shares of Common Stock was filed with the Secretary of State of Nevada on August 3, 2020. An amendment to the Company’s Articles of Incorporation to effect the reverse stock split have not yet been filed with the Secretary of State of Nevada.
On August 6,September 30, 2020, the Company entered into an assetissued 100,000 shares of common stock upon the exercise of 100,000 stock options to purchase agreement with Celularity Inc. pursuantshares of stock under the terms of the respective option agreement.

Shares issued for services

Subsequent to whichSeptember 30, 2020, the Company acquired Celularity’s UltraMIST assets. The aggregate consideration paidissued 1,000,000 shares of common stock for the assets was $24,000,000, which consisted of (i) a cash payment of $18,890,000, (ii) the issuance of a promissory note to Celularity in the principal amount of $4,000,000, and (iii) a credit of $1,110,000 for the previous payment made by the Company to Celularity pursuant to that certain letter of intent between the Company and Celularity dated June 7, 2020. The closing of the transaction occurred on August 6, 2020.consulting services previously rendered.

22.Supplier Dispute
 
In connectionMay 2021, the Company received notification that it is not in compliance with the asset purchase agreement, on August 6, 2020,License Agreement discussed in Note 6.  The Company is in the Company entered intoprocess of reviewing the notification and preparing a license and marketing agreement with Celularity pursuantresponse.  It is too early to which Celularity granteddetermine the outcome of this matter.  Any potential impact to the Company a license to the Celularity wound care biologic products, Biovance® and Interfyl®. The license agreement provides the Company with an exclusive license to use, market, distribute and sell Biovance® in the Field (as defined in the License Agreement) in the Territory (as defined in the License Agreement), and a non-exclusive license to use, market, distribute and sell Interfyl® in the Field in the Territory. The License Agreement has an initial five year term, after which it automatically renews for additional one year periods, unless either party gives written noticecannot be fully determined at least 180 days prior to the expirationthis time.


30
On August 6, 2020, the Company entered into a Securities Purchase Agreement with certain accredited investors for the sale by the Company in a private placement of an aggregate of 119,125,000 shares of Common Stock and accompanying Class E Warrants to purchase up to an additional 119,125,000 shares of Common Stock, at a purchase price of $0.20 per share and accompanying warrant. The warrants have an exercise price of $0.25 per share and a three year term. The closing of the private placement occurred on August 6, 2020. On August 13, 2020, 24,500,000 shares of Common Stock were issued for next cash proceeds of $4,900,000.
                            In connection with the Private Placement, H.C. Wainwright & Co., LLC, as exclusive placement agent for the Private Placement, received warrants to purchase up to 8,934,375 shares of Common Stock on the same terms                 as the Warrants, a cash fee and certain expenses.
On August 6, 2020, the Company entered into a Note and Warrant Purchase and Security Agreement (the “NWPSA”), with the noteholder party thereto and NH Expansion Credit Fund Holdings LP, as agent. The NWPSA provides for (i) the sale and purchase of secured notes in an aggregate original principal amount of $15 million and (ii) the issuance of warrants equal to 2.0% of the fully-diluted Common Stock of the Company as of the issue date. The warrant has an exercise price of $0.01 per share and a 10 year term.
On August 6, 2020, the Company entered into a letter agreement (the “HealthTronics Agreement”) with HealthTronics, Inc. (“HealthTronics”), pursuant to which the Company paid off all outstanding debt due and owed to HealthTronics. Pursuant to the HealthTronics Agreement, as consideration for the extinguishment of the debt due and owed to HealthTronics, (i) the Company paid to HealthTronics an amount in cash equal to $4,000,000, (ii) HealthTronics exercised all of its outstanding Class K Warrants to purchase 7,200,000 shares of Common Stock, (iii) the Company issued to HealthTronics a convertible promissory note in the principal amount of $1,372,743, and (iv) the Company and HealthTronics entered into a Securities Purchase Agreement dated August 6, 2020 pursuant to which the Company issued to HealthTronics an aggregate of 8,275,235 shares of Common Stock and an accompanying warrant to purchase up to an additional 8,275,235 shares of Common Stock. The warrant has an exercise price of $0.25 per share and a three year term.
On August 6, 2020, the Company repaid all amounts owing to LGH Investments, LLC pursuant to that certain promissory note issued by the Company to LGH Investments, LLC dated June 5, 2020 in the original principal amount of $1,210,000 (the “LGH Note”). As a result, all obligations of the Company under the LGH Note have been terminated. The Warrants issued to LGH Investments, as more fully described in Note 7 to our condensed consolidated financial statements, contain certain anti-dilution adjustment 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 during the third quarter of 2020, the exercise price of the Warrants decreased to $0.20 per share and the number of shares subject to the Warrants increased to 1,750,000 shares as of September 30, 2020.
 On August 6, 2020, the Company terminated that certain line of credit agreement with A. Michael Stolarski, a member of the Company’s board of directors, dated December 29, 2017 and as amended November 12, 2018, in the amount of $1,000,000 (the “Stolarski Line of Credit”). As consideration for the termination of the Stolarski Line of Credit, the Company issued to A. Michael Stolarski a convertible promissory note in the principal amount of $223,511 (the “Stolarski Note”).
The Stolarski Note has a maturity date of August 6, 2021 and accrues interest at a rate equal to 12.0% per annum. In the event that the Stolarski Note has not been repaid prior to January 1, 2021, the holder may elect to convert the outstanding principal amount plus any accrued by unpaid interest thereon into shares of Common Stock at a conversion price of $0.10 per share.
The Company has evaluated its subsequent events from June 30, 2020 through the date these condensed consolidated financial statements were issued, and has determined that there are no additional subsequent events required to be disclosed.
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, 2019 included in our Annual Report on Form 10-K, filed with the SEC on March 30, 2020 (the “2019 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® device, used for treating diabetic foot ulcers, which was subject to two double-blinded, randomized Phase III clinical studies. On December 28, 2017, the U.S. FDA granted the Company’s request to classify the 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 the treatment of Diabetic Foot Ulcers (DFU) as described in the De Novo request, subject to the general control provisions of the FD&C Act and the special controls identified in this order.

On August 6, 2020 the Company entered into an Asset Purchase Agreement with Celularity pursuant to which the Company acquired Celularity’s UltraMIST 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 new blood vessels to the area.  The UltraMIST® System treatment must be administered by a healthcare professional.  This proprietary technology has been cleared by the U.S. Food and Drug Administration (FDA) for the promotion of wound healing through wound cleansing and maintenance debridement combined with ultrasound energy deposited inside the wound that stimulated tissue regeneration.

In connection with the Asset Purchase Agreement, on August 6, 2020, the Company entered into a license and marketing agreement with Celularity pursuant to which Celularity granted to the Company a license to the Celularity wound care biologic products, Biovance® and Interfyl®. The License Agreement provides the Company with an exclusive license to use, market, distribute and sell Biovance® in the Field and Territory (each as defined in the License Agreement), and a non-exclusive license to use, market, distribute and sell Interfyl® in the Field in the Territory. The License Agreement has an initial five year term, after which it automatically renews for additional one year periods, unless either party gives written notice at least 180 days prior to the expiration of the current term.

Our 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. We intend to apply our Pulsed Acoustic Cellular Expression (PACE®) technology in wound healing, orthopedic, plastic/cosmetic and cardiac conditions. The Company is marketing its dermaPACE System for treatment usage in the United States and will continue to generate revenue from sales of the European Conformity Marking (CE Mark) devices and accessories in Europe, Canada, Asia, and Asia/Pacific. The Company generates revenue streams from dermaPACE treatments, product sales, licensing transactions and other activities.

Our lead product candidate for the global wound care market, dermaPACE, has received FDA clearance for commercial use to treat diabetic foot ulcers in the United States and the CE Mark allowing for commercial use on acute and chronic defects of the skin and subcutaneous soft tissue. 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 Premarket Approvals ("PMAs"(“PMAs”) 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.

We are focused on developing our Pulsed Acoustic Cellular Expression (PACE) technology to activate healing in:

●wound conditions, including diabetic foot ulcers, venous and arterial ulcers, pressure sores, burns and other skin eruption conditions;
●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;
●plastic/cosmetic applications such as cellulite smoothing, graft and transplant acceptance, skin tightening, scarring and other potential aesthetic uses; and
●cardiac applications for removing plaque due to atherosclerosis improving heart muscle performance.
●
wound conditions, including diabetic foot ulcers, venous and arterial ulcers, pressure sores, burns and other skin eruption conditions;
●
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;
●
plastic/cosmetic applications such as cellulite smoothing, graft and transplant acceptance, skin tightening, scarring and other potential aesthetic uses; and
●
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.

In March 2020, the World Health Organization characterized COVID-19 as a pandemic and the President of the United States declared the COVID-19 outbreak a national emergency. Since then, the COVID-19 pandemic has rapidly spread across the globe and has already resulted in significant volatility, uncertainty and economic disruption. While the COVID-19 pandemic has not had a material adverse financial impact on the Company’s operations to date, the pandemic has resulted in the decreased demand for a broad variety of products, including from our customers, and will also disrupt supply channels and marketing activities for an unknown period of time until the disease is contained. Future impacts of the pandemic and any resulting economic impact are largely unknown and rapidly evolving. It is difficult at this time to predict the impact that COVID-19 will have on the Company’s business, financial position and operating results in future periods due to numerous uncertainties. The Company is closely monitoring the impact of the pandemic on all aspects of its business and operations. We have received funds for disaster relief loans through the SBA to help minimize the impact on our business.

We were formed as a Nevada corporation in 2004. We maintain a public internet site at www.sanuwave.com. The information on our websites is not part of this Form 10-Q.

Recent Clinical Highlights and Updates

A dosage study has been developed for launch in Poland to optimize dermaPACE system treatment dosage for producing a more rapid reduction in size of a diabetic foot ulcer (“DFU”). The focus will be on increasing the number of shock waves delivered per treatment, as a function of DFUs area. To determine the dosage necessary, three new distinctive regimens will be assessed during the study. This study started in April 2019 and is expected to be finalized in the fourth quarter of 2020, depending on availability of patients due to the COVID-19 pandemic.

A post-market pilot study to evaluate the effects of high energy acoustic shock wave therapy on local skin perfusion and healing of DFUs will be conducted at two sites: one in New Jersey and one in California. The intent of this trial is to quantify the level of increased perfusion and oxygenation during and after treatment with the dermaPACE system. This study started in April 2019 and is expected to be finalized in the fourth quarter of 2020, depending on availability of patients due to the COVID-19 pandemic.

Financial Overview (Restated)

Since our inception, our operations have primarily been funded from the sale of capital stock, notes payable, and convertible debt securities. We expect to devote substantial resources for the commercialization of the dermaPACE System and UltraMIST product line and will continue to research and develop the non-medical uses of the PACE technology, both of which will require additional capital resources. We incurred a net loss of $3,633,020$12,638,637 and $2,734,431$2,748,018 for the three months ended JuneSeptember 30, 2020 and JuneSeptember 30, 2019, respectively, and $6,634,168$19,272,805 and $4,931,748$7,679,766 for the sixnine months ended JuneSeptember 30, 2020 and the JuneSeptember 30, 2019, respectively.

These factors and the events of default on the notes payable to HealthTronics, Inc. and our short term notes payable, create substantial doubt about our ability to continue as a going concern for a period of at least twelve months from the financial statement issuance date. Although no assurances can be given, we believe that potential additional issuances of equity, debt or other potential financing will provide the necessary funding for us to continue as a going concern for the next year. See “Liquidity and Capital Resources” for further information regarding our financial condition.

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;
●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.
●
the scope, rate of progress and cost of our clinical trials;
●
future clinical trial results;
●
the cost and timing of regulatory approvals;
●
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 2019 Annual Report.

On March 27, 2020, Congress enacted the Coronavirus Aid, Relief, and Economic Security Act (15 U.S.C. 636(a)(36)) (the “CARES Act”) to provide certain relief as a result of the COVID-19 pandemic. The CARES Act provides numerous tax provisions and other stimulus measures, including temporary changes regarding the prior and future utilization of net operating losses, temporary changes to the prior and future limitations on interest deductions, temporary suspension of certain payment requirements for the employer portion of Social Security taxes, technical corrections from prior tax legislation for tax depreciation of certain qualified improvement property, and the creation of certain refundable employee retention credits.

On May 29, 2020, the Company received the proceeds from a loan in the amount of approximately $460,000 (the “PPP Loan”) from Truist Bank, as lender, pursuant to the Paycheck Protection Program (“PPP”) of under the CARES Act. The PPP Loan matures on May 28, 2022 and bears interest at a rate of 1% per annum. Commencing December 12, 2020, the Company is required to pay the lender equal monthly payments of principal and interest. The PPP Loan is evidenced by a promissory note dated May 28, 2020, which contains customary events of default relating to, among other things, payment defaults and breaches of representations, warranties and covenants. The PPP Loan may be prepaid by the Company at any time prior to maturity with no prepayment penalties. Under the terms of the PPP Loan, the Company may be eligible for full or partial loan forgiveness in the thirdfourth quarter of 2020, however, no assurance is provided that the Company will apply for, or obtain forgiveness for, any portion of the PPP Loan.

Critical Accounting Policies and Estimates

Management’s Discussion and Analysis of Financial Condition and Results of Operations is based on our condensed consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles. The preparation of our condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses.

On an ongoing basis, we evaluate our estimates and judgments, including those related to the recording of the allowances for doubtful accounts, estimated reserves for inventory, estimated useful life of property and equipment, the determination of the valuation allowance for deferred taxes, the estimated fair value of the warrant liability, 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.

Our significant accounting policies are more fully described in Note 2 to our consolidated financial statements filed with our 2019 Annual Report. For a description of recent accounting policies and the impact on our financial statements, refer to Note 3 in the condensed consolidated financial statements in this 10-Q filing.

Restatement of Previously Issued Financial Statements

This quarterly report contains the restated condensed consolidated balance sheet as of September 30, 2020 and the effects of the restated condensed consolidated statements of operations for the three and nine months ended September 30, 2020.  Notes to the accompanying Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for further detail.
 
On February 12, 2021, the Company determined an error in the accounting related to underreporting of the amount of derivative warrant liability.  The Company changed its accounting for certain of the Company’s warrants previously issued in connection with convertible note payable as well as reclassification of warrants issued in the Aug 6, 2020 financing due to a lack of authorized shares.  Such warrants, should have been reflected as liabilities on the consolidated balance sheets included in the Original 10-Q, rather than as a component of equity.
Specifically, the change in treatment of the warrants resulted in a change to the equity, and liability portions of the consolidated balance sheets as of September 30, 2020 and resulted in a loss on the fair value of the derivative liabilities which impacted our results of operations and earnings (loss) per share as reported in our Original 10-Q.

Results of Operations for the Three Months ended JuneSeptember 30, 2020 and 2019 (Restated)

Revenues and Cost of Revenues

Revenues for the three months ended JuneSeptember 30, 2020 were $83,301,$1,966,896, compared to $316,976$197,640 for the same period in 2019, a decreasean increase of $233,675,$1,769,256, or 74%895%. Revenue resulted primarily from sales in Europe of our orthoPACE devices, related applicatorsUltramist, Biovance and spare parts for refurbishment services performed by our Italian distributor.Interfyl, recognition of Brazil distribution fee and dermaPACE treatments. The decreaseincrease in revenue for 2020 is primarily due to lower upfrontacquisition of Celularity assets and licensing fees and international distribution fees, as compared to the prior year. This is partially offset by higher sales of spare parts for refurbishment of applicators.

Cost of revenues for the three months ended JuneSeptember 30, 2020 were $26,347$548,406 compared to $185,881$122,923 for the same period in 2019. Gross profit as a percentage of revenues was 68%72% for the three months ended JuneSeptember 30, 2020, compared to 41%38% for the same period in 2019. The increase in gross profit as a percentage of revenues in 2020 was primarily due to decrease in sales of Ultramist, Biovance and refurbishment of applicatorsInterfyl which have a 60% gross profit and increase in high margin dermaPACE treatment fees.

Research and Development Expenses

Research and development expenses for the three months ended JuneSeptember 30, 2020 were $264,907,$432,155, compared to $307,273$299,903 for the same period in 2019, a decreasean increase of $42,366,$132,252, or 14%44%. The decreaseincrease in research and development expenses in 2020, as compared to 2019, was due to lowerhigher salary and related costs due to increased headcount as a result of lower headcountthe Celularity asset acquisition and lower clinical and research costs due to the COVID-19 pandemic.Profile repackaging project in 2020.

Selling and Marketing Expenses

Selling and marketing expenses for the three months ended JuneSeptember 30, 2020 were $433,151,$1,373,475, compared to $407,477$335,472 for the same period in 2019, an increase of $25,674,$1,038,003, or 6%309%. The increase in selling and marketing expenses in 2020, as compared to 2019, was due to an increase in hiringhigher salary and related costs due to increased headcount as a result of clinical account managersthe Celularity asset acquisition, higher commissions and salespeoplehigher costs for placement and training related to the commercialization of dermaPACE.tradeshows.

General and Administrative Expenses

General and administrative expenses for the three months ended JuneSeptember 30, 2020 were $2,566,793,$5,054,508, as compared to $1,426,405$1,802,659 for the same period in 2019, an increase of $1,140,388,$3,251,849, or 80%180%. The increase in general and administrative expenses in 2020, as compared to 2019, was due to engagement of specialists to assist with distribution partner searches, increase in severancefor integration of $150,000 due to a separationacquisition, implementation of an officer,ERP system and accounting for acquisition, increase in legal and consulting fees related to merger and acquisition opportunities and increased directoroperating costs such as utilities, rent, and officer insurance which was partially offset by lower investor relations costsIT services as a result of the acquisition.

Depreciation and lower travel costs.amortization

Depreciation
Depreciation and amortization for the three months ended JuneSeptember 30, 2020 was $64,766,$327,120, compared to $9,455$22,338 for the same period in 2019, an increase of $55,311$304,782 or 585%1,364%. The increase was due to goodwill recorded as a part of the acquisition and higher depreciation related to increase in fixed assets as a result of acquisition and leased dermaPACE devices.

Other Income (Expense)
 
Other income (expense) was a net expense of $360,357$6,869,869 for the three months ended JuneSeptember 30, 2020 as compared to a net expense of $714,916$362,363 for the same period in 2019, a decreasean increase of $354,559,$6,507,506, or 50%1796%. The decreaseincrease was primarily due to decreaseda loss on warrant valuation, a loss on extinguishment of debt and increase in interest expense. This is partially offset by a non-cash gain for valuation adjustment on outstanding warrants of $0, as comparedexpense due to $195,310 for the same period in 2019.entering into new debt.

Net Loss

Net loss for the three months ended JuneSeptember 30, 2020 was $3,633,020,$12,638,637, or ($0.01)0.03) per basic and diluted share, compared to a net loss of $2,734,431,$2,748,018, or ($0.02)0.01) per basic and diluted share, for the same period in 2019, an increase in the net loss of $898,589,$9,890,619, or 33%358%.

Results of Operations for the SixNine Months ended JuneSeptember 30, 2020 and 2019 (Restated)

Revenues and Cost of Revenues

Revenues for the sixnine months ended JuneSeptember 30, 2020 were $231,893,$2,198,788, compared to $494,939$692,579 for the same period in 2019, a decreasean increase of $263,046,$1,506,209, or 53%217%. Revenue resulted primarily from sales in Europe of our orthoPACE devices, related applicatorsUltramist, Biovance and spare parts for refurbishment services performed by our Italian distributor.Interfyl, recognition of Brazil distribution fee and dermaPACE treatments. The decreaseincrease in revenue for 2020 is primarily due to lower upfrontacquisition of Celularity assets and licensing fees and international distribution fees, as compared to the prior year. This is partially offset by higher sales of spare parts for refurbishment of applicators.

Cost of revenues for the sixnine months ended JuneSeptember 30, 2020 were $115,224,$663,630, compared to $279,734$402,657 for the same period in 2019. Gross profit as a percentage of revenues was 50%70% for the sixnine months ended JuneSeptember 30, 2020, compared to 43%42% for the same period in 2019. The increase in gross profit as a percentage of revenues in 2020 was primarily due to decrease in sales of Ultramist, Biovance and refurbishment of applicatorsInterfyl which have a 60% gross profit and an increase in high margin dermaPACE treatment fees.

Research and Development Expenses

Research and development expenses for the sixnine months ended JuneSeptember 30, 2020 were $559,981,$983,816, compared to $567,922$867,825 for the same period in 2019, a decreasean increase of $7,941,$115,991, or 1%13%. The decreaseincrease in research and development expenses in 2020, as compared to 2019, was due to higher salary and related costs due to increased headcount as a result of the Celularity asset acquisition and Profile repackaging project in 2020.  This is partially offset by decreased study expenses related to our new dosage study in Poland due to COVID-19 pandemic.

Selling and Marketing Expenses

Selling and marketing expenses for the sixnine months ended JuneSeptember 30, 20192020 were $1,041,001,$2,414,477, compared to $565,559$901,031 for the same period in 2019, an increase of $475,442,$1513,446, or 84%168%. The increase in salesselling and marketing expenses in 2020, as compared to 2019, was due to an increase in hiringhigher salary and related costs due to increased headcount as a result of trainersthe Celularity asset acquisition and salespeople and increased travel expenses for placement and training related to the commercialization of dermaPACE.higher commissions.  There was a slow downcontinued slow-down in the commercialization of dermaPACE in the secondthird quarter of 2020 due to the COVID pandemic.

General and Administrative Expenses

General and administrative expenses for the sixnine months ended JuneSeptember 30, 2020 were $4,474,710,$9,529,218, as compared to $2,943,860$4,746,519 for the same period in 2019, an increase of $1,530,850,$4,782,699, or 66%101%. The increase in general and administrative expenses in 2020, as compared to 2019, was due to engagement of specialists to assist with distribution partner searches,for integration of acquisition, implementation of ERP system and accounting for acquisition, increase in legal and consulting fees related to merger and acquisition opportunities and increased directoroperating costs such as utilities, rent, and officer insurance which was partially offset by lower investor relations costs and lower travel costs.IT services as a result of the acquisition.
Depreciation

Depreciation and amortization

Depreciation and amortization for the sixnine months ended JuneSeptember 30, 2020 was $117,789,$444,908, compared to $17,812$40,150 for the same period in 2019, an increase of $99,977,$404,758 or 561%1,008%. The increase was due to goodwill recorded as a part of the acquisition and higher depreciation related to increase in fixed assets as a result of acquisition and leased dermaPACE devices.

Other Income (Expense)

Other income (expense) was a net expense of $565,676$7,435,544 for the sixnine months ended JuneSeptember 30, 2020 as compared to a net expense of $1,051,800$1,414,163 for the same period in 2019, a decreasean increase of $486,124,$6,011,381, or 46%426%, in the net expense. The decreaseincrease was primarily due to decreasedloss on warrant valuation, an increase in interest expense. In addition, the net expense in 2019 included a non-cash gain for valuation adjustmentand loss on outstanding warrantsextinguishment of $227,669.debt.

Net Loss

Net loss for the sixnine months ended JuneSeptember 30, 2020 was $6,634,168,$19,272,805, or ($0.02)0.06) per basic and diluted share, compared to a net loss of $4,931,748,$7,679,766, or ($0.03)0.04) per basic and diluted share, for the same period in 2019, an increase in the net loss of $1,702,420,$11,593,039, or 35%151%. The increase in the net loss was primarily a result

36
Liquidity and Capital Resources (Restated)

We expect to devote substantial resources for the commercialization of the dermaPACE System and UltraMIST product line and will 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 loss of $6,634,168$19,272,805 and $4,931,748$7,679,766 for the sixnine months ended JuneSeptember 30, 2020 and JuneSeptember 30, 2019, respectively. These factors andManagement is currently evaluating the eventsimpact on cash flows of default on the notes payable to HealthTronics, Inc. and the Company’s short term notes payableacquisition of certain assets of Celularity Inc., as more fully described in Note 4 to the Company’s condensed consolidated financial statements in this report. These factors create substantial doubt about the Company’s ability to continue as a going concern for a period of at least twelve months from the financial issuance date.Management is currently evaluating the impact on cash flows of the Company’s acquisition of certain assets of Celularity Inc., as more fully described in Note 18 to the Company’s condensed consolidated financial statements in this report.

Since inception in 2005, our operations have primarily been funded from the sale of capital stock, notes payable, and convertible debt securities.

The continuation of our business is dependent upon raising additional capital to fund operations.operations through the next quarter and into the first quarter of 2021. Management expects the cash used in operations for the Company will be approximately $300,000$100,000 to $375,000$205,000 per month for the second half of 2020 as resources are devoted to the commercialization of the dermaPACE product including hiring of new employees, expansion of our international business and continued research and development of next generation of our technology as well as non-medical uses of our technology. Management’s plans are to obtain additional capital in 2020 through investments by strategic partners for market opportunities, which may include strategic partnerships or licensing arrangements, or raise capital 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 required to significantly curtail or discontinue operations or obtain funds through financing transactions with unfavorable terms. The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern and the realization of assets and satisfaction of liabilities in the normal course of business. The carrying amounts of assets and liabilities presented in the 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.
On January 31, 2020, the Company filed a Certificate of Designation of Preferences, Right and Limitations of Series C Convertible Preferred Stock of the Company with the Nevada Secretary of State, which amended our Articles of Incorporation to designate 90 shares of our preferred stock as Series C Convertible Preferred Stock. On May 14, 2020, the Company filed a Certificate of Designation of Preferences, Rights and Limitations of Series D Convertible Preferred Stock of the Company with the Nevada Secretary of State, which amended our Articles of Incorporation to designate 8 shares of our preferred stock as Series D Convertible Preferred Stock. As of June 30, 2020, there were 98 shares of our preferred stock issued and outstanding. The Certificates of Designation became effective upon filing with the Secretary of State of the State of Nevada. If all outstanding shares of Series C Preferred Stock and Series D Preferred Stock were converted into Common Stock at the original conversion rate, such shares would convert into an aggregate of 17,499,999 shares of Common Stock.

We may also attempt to raise additional capital if there are favorable market conditions or other strategic considerations even if we have sufficient funds for planned operations. To the extent that we raise additional funds by issuance of equity securities, our shareholders will experience dilution and we may be required to use some or all of the net proceeds to repay our indebtedness, and debt financings, if available, may involve restrictive covenants or may otherwise constrain our financial flexibility. To the extent that we raise additional funds through collaborative arrangements, it may be necessary to relinquish some rights to our intellectual property or grant licenses on terms that are not favorable to us. In addition, payments made by potential collaborators or licensors generally will depend upon our achievement of negotiated development and regulatory milestones. Failure to achieve these milestones would harm our future capital position.
 
For the sixnine months ended JuneSeptember 30, 2020 and 2019, net cash used by operating activities was $4,511,968$9,779,889 and $3,386,634,$4,684,611, respectively, primarily consisting of professional and consulting fees, compensation costs, research and development activities and general corporate operations. The increase in the use of cash for operating activities for the sixnine months ended JuneSeptember 30, 2020, as compared to the same period for 2019, was primarily due to the increase in net loss due to legal, professional and consulting fees related to integration of the acquisition, an increase in accrued expenses of $106,178$492,434 an increase in prepaid expenses of $126,505, a decrease$502,346, an increase in accounts payable of $135,916,$882,779, an increase of accrued employee compensation  and accrued expenses of $354,032$1,091,858 and increase in interest payable, related parties of $135,916.$785,132. Net cash used by investing activities for the sixnine months ended JuneSeptember 30, 2020 was $1,114,855$20,039,142 as compared to net cash used by investing activities for the same period in 2019 of $25,839.$28,990. The increase in cash used by investing activities is due to increasethe acquisition of UltraMIST from Celularity, as described in deposits paid offset by decrease in purchasing of property and equipment.Note 4. Net cash provided by financing activities for the sixnine months ended JuneSeptember 30, 2020 was $4,298,897,$33,449,131, which primarily consisted of $21,456,468 from private placement offerings, $13,346,547 from senior promissory notes, $2,450,000 proceeds from purchase of preferred stock, $1,100,000 from convertible notes, and $614,335 from SBA Loans (see Note 8).Loans. These proceeds were partially offset by debt payments of $5,457,663 and principal payments on financing leases of $114,806. Net cash provided by financing activities for the sixnine months ended JuneSeptember 30, 2019 was $3,203,279,$4,738,556, which primarily consisted of $1,215,000 of proceeds from short term note, $1,403,257$2,055,414 of proceeds from exercise of warrants, and $585,022$1,378,142 of proceeds from advances from related parties and $90,000 net increase in line of credit, related parties. Cash and cash equivalents decreasedincreased by $1,329,849$3,631,136 for the sixnine months ended JuneSeptember 30, 2020.

Segment and Geographic Information

We have determined that we have one operating segment. Our revenues are generated from sales in United States, Europe, Canada, 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 operating lease for our facility, purchase and supplier obligations for product component materials and equipment, and our notes payable, related parties. We have disclosed these obligations in our 2019 Annual Report.

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 affects 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 condensed consolidated financial condition and results of operations.
 
Item 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required under Regulation S-K for “smaller reporting 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 is 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 is 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 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 June September 30, 2020.2020. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not operating effectively as of June September 30, 2020.2020. Our disclosure controls and procedures were not effective because of the “material weakness” described below under “Management’s Annual Report on Internal Control over Financial Reporting.”

On February 12, 2021, the Company determined an error in the accounting related to underreporting of the amount of derivative warrant liabilities. The Company changed its accounting for certain of the Company’s warrants previously issued in connection with convertible note payable as well as reclassification of warrants issued in the August 6, 2020 financing due to a lack of authorized shares. Such warrants, and reservation of additional shares should have been reflected as liabilities on the consolidated balance sheets included in the Original 10-Q, rather than as a component of equity.

Specifically, the change in treatment of the warrants resulted in a change to the equity, and liability portions of the condensed consolidated balance sheets as of September 30, 2020 and resulted in a loss on the fair value of the derivative liabilities which impacted our results of operations and earnings (loss) per share as reported in our Original 10-Q.

Management’s Annual Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting (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 assurance regarding the reliability of financial reporting and the preparation of financial statements for 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 effective 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 JuneSeptember 30, 2020. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control — Integrated Framework (2013).

We previously reportedhave identified three material weaknesses in our internal control over financial reporting process resulting from a lack of internal expertise and resources to analyze and properly apply generally accepted accounting principles to complex and non-routine transactions such as complex financial instruments and derivatives and complex sales distribution agreements, a lack of internal resources to analyze and properly apply generally accepted accounting principles to accounting for equity components of service agreements with select vendors and cybersecurity breaches from email spoofing. As a result, management concluded that our internal control over reporting was not effective as of JuneSeptember 30, 2020.

Management’s Plan to Remediate Material Weaknesses

Beginning in 2019 and continuing in 2020, we engaged external consultants with appropriate experience applying GAAP technical accounting guidance, and we have hired additional accounting personnel. 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 during 2019 and reviewed with management. All internal controls were reviewed, in addition to new controls created and documented. We hired an accounting manager in April 2019 to enhance the accounting knowledge and abilities of the department. The accounting manager’s skill set includes restructuring of accounting procedure, preparation of budgets and key analytical reports and managing all accounting functions. We also contracted with an external financial reporting consultantconsultants in 2020. Adding an2020, and the company plans on hiring additional membersaccount staff to the accounting team also enabled someenable further segregation of duties and additional review procedures.

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 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 report that materially affect, or are reasonably likelycontinue to materially affect, ourbe management review and discussion around internal control over financial reporting. Management is in the process of designing updated changes to its controls as discussed above in “Management’s Plan to Remediate Material Weaknesses.” Further, management is monitoring and reviewing the impact of new processes and need for additional controls due to the acquisition of the UltraMIST business during the quarter.
 

PARTPART II — OTHER INFORMATION

Item 1.
LEGAL PROCEEDINGS.
Item 1.LEGAL PROCEEDINGS.

None.

Item1A.
RISK FACTORS.

Sanuwave is supplementing the risk factors previously disclosed in Part I,tem 1A. RISK FACTORS. Item 1A, “Risk Factors” of its Annual Report on Form 10-K for the fiscal year ended December 31, 2019, filed with the Securities and Exchange on March 30, 2020, to include the following risk factor:
As
Sanuwave’s growth strategy includes acquisitions that entail significant execution, integration and operational risks.

Sanuwave is pursuing 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.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
On June 5,growth strategy based in part on acquisitions.  In August 2020, the Company entered into an asset purchase agreement with Celularity pursuant to which Sanuwave acquired Celularity’s UltraMIST assets.  The UltraMIST® System is a Securities Purchase Agreementproprietary technology cleared by the FDA for the promotion of wound healing through wound cleansing and maintenance debridement combined with investor LGH Investments LLC (the “Investor”)ultrasound energy deposited inside the wound that stimulated tissue regeneration.  The aggregate cash and stockconsideration paid for (i) a Promissory Note (the “Convertible Promissory Note”)the UltraMIST assets was $24,000,000 paid in the original principal amountform of $1,210,000, convertible into sharesa combination of Common Stock, (ii) warrants entitlingcash and debt.  This growth strategy involves significant risks.  Sanuwave is subject to operational and financial risks in connection with historical and future acquisitions if it is unable to:

properly value prospective acquisitions, especially those with limited operating histories;
successfully integrate the Investoroperations, as well as the accounting, financial controls, management information, technology, human resources and other administrative systems of acquired businesses with its existing operations and systems;
successfully identify and realize potential synergies among acquired and existing businesses and retain or hire senior management and other key personnel at acquired businesses; and
successfully manage acquisition-related strain on its management, operations and financial resources.
In connection with the acquisition of the UltraMIST assets, Sanuwave has not timely filed a Form 8-K/A containing audited historical financial statements of the acquired business assets.  The audited financial statements are required under Rule 3-05 of Regulation S-X.  Until such time as we are able to acquire 1,000,000 sharesfile these financial statements for the periods required, we will not be in a position to have the SEC declare effective any registration statement.  In addition, any failure to timely file our periodic reports with the SEC could harm our reputation and reduce the market price of Common Stock (the “Warrants”)our common stock.

Furthermore, Sanuwave may not be successful in addressing other challenges encountered in connection with its acquisitions. The anticipated benefits of one or more of its acquisitions may not be realized or the value of goodwill and (iii) two hundred thousand (200,000) restricted common sharesother intangible assets acquired could be impacted by one or more continuing unfavorable events or trends, which could result in significant impairment charges. The occurrence of any these events could have an adverse effect on our business, financial condition and results of operations.

Acquisitions also involve operational risks and uncertainties, such as unknown or contingent liabilities with no available manner of recourse, exposure to unexpected problems, the retention of key employees and customers, and other issues that could negatively affect our business. Any such liabilities, individually or in the Company as an inducement grant (the “Inducement Shares”).  The issuance of the Convertible Note, Warrants and Inducement Shares were offered and sold inaggregate, could have a transaction exempt from registration under the Securities Act of 1933, as amended, in reliancematerial adverse effect on Section 4(a)(2) thereof.our business.

Item 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Item 3. DEFAULTS UPON SENIOR SECURITIES.
Item 3.
DEFAULTS UPON SENIOR SECURITIES.
 Not applicable.
Item 4. MINE SAFETY DISCLOSURES.
Not applicable.

Item 4.
MINE SAFETY DISCLOSURES.

Item 5. OTHER INFORMATION.
Not applicable.

Item 5.
OTHER INFORMATION.

Not applicable.

Item 6.      EXHIBITS41
Item 6.
EXHIBITS

Exhibit No.
Description
Certificate of Designation of Preferences, Rights and Limitations of Series D ConvertiblePreferred Stock of the Company dated May 14, 2020 (Incorporated by reference to the Form 8-K filed with the SEC on May 20, 2020).
Description
4.1*31.1*
Convertible Promissory Note, dated as of June 5, 2020, issued by the Company to LGH Investments, LLC (Incorporated by reference to the Form 8-K filed with the SEC on June 11, 2020).
Common Stock Purchase Warrant, dated as of June 5, 2020, issued by the Company to LGH Investments, LLC (Incorporated by reference to the Form 8-K filed with the SEC on June 11, 2020).
Series D Preferred Stock Purchase Agreement, by and among the Company and the accredited investors party thereto, dated May 14, 2020 (Incorporated by reference to the Form 8-K filed with the SEC on May 20, 2020).
10.2*Shareholders Agreement by and between the Company and with Universus Global Advisors LLC, Versani Health Consulting Consultoria em Gestão de Negócios EIRELI, and IDIC Participações Ltda., dated April 17, 2020.
10.3Ꚙ
Separation Agreement and General Release, dated as of May 14, 2020 by and between the Company and Shri P. Parikh (Incorporated by reference to the Form 8-K filed with the SEC on May 18, 2020).
Promissory Note by and between the Company and Truist Bank, dated May 28, 2020 (Incorporated by reference to the Form 8-K filed with the SEC on June 1, 2020).
10.5*Option Agreement by and between the Company and Celularity Inc., dated June 7, 2020.

Securities Purchase Agreement, dated as of June 5, 2020, by and between the Company and LGH Investments, LLC (Incorporated by reference to the Form 8-K filed with the SEC on June 11, 2020).
Rule 13a-14(a)/15d-14(a) Certification of the Principal Executive Officer.
31.2*
Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer.
32.1**
Section 1350 Certification of the Principal Executive Officer.
32.2**
Section 1350 Certification of the Chief Financial Officer.
101.INS*† 
101.INS*†
XBRL Instance.
101.SCH*† 
101.SCH*†
XBRL Taxonomy Extension Schema.
101.CAL*† 
101.CAL*†
XBRL Taxonomy Extension Calculation.
101.DEF*† 
101.DEF*†
XBRL Taxonomy Extension Definition.
101.LAB*† 
101.LAB*†
XBRL Taxonomy Extension Labels.

101.PRE*†		 
101.PRE*†
XBRL Taxonomy Extension Presentation.

ꚘIndicates management contract or compensatory plan or arrangement.
* Filed herewith.
** Furnished herewith.
† XBRL-related documents are not deemed filed for purposes of section 11 of the Securities Act of 1933, as amended, section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject the liabilities of these sections, and are not part of any registration statement to which they relate.

ꚘIndicates management contract or compensatory plan or arrangement.
*Filed herewith.
**Furnished herewith.
†XBRL-related documents are not deemed filed for purposes of section 11 of the Securities Act of 1933, as amended, section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject the liabilities of these sections, and are not part of any registration statement to which they relate.

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.
Date: July 1, 2021By:/s/ Kevin A. Richardson, II 
  
Date: August 14, 2020
By:  
/s/ Name: Kevin A. Richardson, II
  
Name: Kevin A. Richardson, II
Title: 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/ Kevin A. Richardson, II
Name: Kevin A. Richardson, II 
Chief Executive Officer and Chairman of the Board of Directors
 (principal executive officer)
 August 14, 2020July 1, 2021
(principal executive officer)
     
By: /s/ Lisa E. Sundstrom
Name: Lisa E. Sundstrom
 Chief Financial Officer (principalJuly 1, 2021
(principal financial and accounting officer) August 14, 2020

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