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

FORM 10-Q

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

For the quarterly period ended September 30, 2021

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

For the transition period from ________ to

Commission File Number 000-52985

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

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

3360 Martin Farm Road, Suite 100
Suwanee, GA
  
30024
(Address of principal executive offices)
  
(Zip Code)

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

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

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

As of February 25, 2022 there were issued and outstanding 496,528,712 shares of the registrant’s common stock, $0.001 par value.

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

 SANUWAVE Health, Inc.

Table of Contents

 
Page
PART I – FINANCIAL INFORMATION
  
   
Item 1.
     
 
4
     
 
5
     
 
6
     
  7
     
  8
     
  9
     
Item 2.
 26
     
Item 3.
 30
     
Item 4.
 30
     
PART II – OTHER INFORMATION
  
     
Item 1.
 32
     
Item 1A.
 32
     
Item 2.
 32
     
Item 3.
 32
     
Item 4.
 32
     
Item 5.
 32
     
Item 6.
 33
     
  35

2
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: 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 UltraMIST®, dermaPACE® and our product candidates; 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; 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 adversely affect the level of demand for or cost of our products; timing of clinical studies and eventual FDA approval of our products; financial markets; the competitive environment; supplier and customer disputes; and our plans to remediate our material weaknesses in our disclosure controls and procedures and our internal control over financial reporting. These forward-looking statements are based on management’s estimates, projections and assumptions as of the date hereof and include the assumptions that underlie such statements. Forward-looking statements may contain words such as “may,” “will,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential” and “continue,” the negative of these terms, or other comparable terminology. Any expectations based on these forward-looking statements are subject to risks and uncertainties and other important factors, including those discussed in the reports we file with the Securities and Exchange Commission (the “SEC”), specifically the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, filed on October 21, 2021 and in the Company’s Quarterly Reports on Form 10 -Q. Other risks and uncertainties are and will be disclosed in the Company’s prior and future SEC filings. These and many other factors could affect the Company’s future financial condition and operating results and could cause actual results to differ materially from expectations based on forward-looking statements made in this document or elsewhere by the Company or on its behalf. The Company undertakes no obligation to revise or update any forward-looking statements. The following information should be read in conjunction with the financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, filed on October 21, 2021.

Except as otherwise indicated by the context, references in this Quarterly Report on Form 10-Q to “we,” “us” and “our” are to the consolidated business of the Company.
3
PART I -- FINANCIAL INFORMATION
Draft 12/2/2021
ITEM 1.
FINANCIAL STATEMENTS

SANUWAVE HEALTH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In thousands except share data)

   
September 30, 2021
    
December 31, 2020
  
ASSETS
            
Current Assets:
            
Cash
  
$
327
    
$
2,437
  
Accounts receivable, net of allowance for doubtful accounts of $650 in 2021 and $343 in 2020
    
2,417
      
2,356
  
Inventory
    
1,526
      
2,956
  
Prepaid expenses and other current assets
    
426
      
179
  
Total Current Assets
    
4,696
      
7,928
  
Property and Equipment, net
    
629
      
471
  
Right of Use Assets, net
    
462
      
795
  
Other Intangible Assets, net
    
6,017
      
6,545
  
Goodwill
    
7,260
      
7,260
  
Other Assets
    
118
      
28
  
Total Assets
  
$
19,182
    
$
23,027
  
                 
LIABILITIES
                
Current Liabilities:
                
Senior secured promissory note payable, in default
  
$
11,358
    
$
10,676
  
Convertible promissory notes payable, in default
    
9,690
      
4,000
  
Convertible promissory notes, related parties, in default
    
1,596
      
1,596
  
Advances on future cash receipts
     498       -  
Accounts payable
    
7,069
      
4,454
  
Accrued expenses
    
4,178
      
2,127
  
Accrued employee compensation
    
3,342
      
2,541
  
Due under factoring agreement
     1,244       -  
Warrant liability
    
5,669
      
8,855
  
Current portion of SBA loans
    
91
      
321
  
Accrued interest
    
1,944
      
1,021
  
Accrued interest, related parties
    
227
      
77
  
Current portion of lease liabilities
    
327
      
451
  
Current portion of contract liabilities
    
40
      
32
  
Other
    
32
      
23
  
Total Current Liabilities
    
47,305
      
36,174
  
Non-current Liabilities
                
SBA loans
    
942
      
143
  
Lease liabilities
    
181
      
391
  
Contract liabilities
    
230
      
37
  
Deferred tax liability
    
28
      
-
  
Total Non-current Liabilities
    
1,381
      
571
  
Total Liabilities
    
48,686
      
36,745
  
                 
Contingencies
            
                 
STOCKHOLDERS’ DEFICIT
                
                 
Preferred Stock, par value $0.001, 5,000,000 shares authorized; 6,175, 293, 90 and 8 shares designated Series A, Series B, Series C and Series D, respectively; no shares issued and outstanding at September 30, 2021 and December 31, 2020
    
-
      
-
  
Common Stock, par value $0.001, 800,000,000 shares authorized; 481,619,621 and 470,694,621 issued and outstanding at September 30, 2021 and December 31, 2020, respectively
    
482
      
471
  
Additional Paid-in Capital
    
144,582
      
142,563
  
Accumulated Deficit
    
(174,494
)
    
(156,690
)
Accumulated Other Comprehensive Loss
    
(74
)
    
(62
)
Total Stockholders’ Deficit
    
(29,504
)
    
(13,718
)
Total Liabilities and Stockholders’ Deficit
  
$
19,182
    
$
23,027
  

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

4
SANUWAVE HEALTH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(UNAUDITED)
(In thousands except share data)
 
   
Three Months Ended September 30,
    
Nine Months Ended September 30,
  
   
2021
    
2020
    
2021
    
2020
  
Revenues:
                        
Accessory and parts revenue
  
$
2,400
    
$
1,212
    
$
6,509
    
$
1,288
  
Product
   
1,299
      
72
      
2,066
      
216
  
License fees and other
    
26
      
82
      
175
      
94
  
Total Revenue
    
3,725
      
1,366
      
8,750
      
1,598
  
                                 
Cost of Revenues
    
1,555
      
601
      
3,658
      
811
  
                                 
Gross Margin
    
2,170
      
765
      
5,092
      
787
  
                                 
Operating Expenses:
                                
General and administrative
     3,058       5,329       9,494       9,826  
Selling and marketing
     2,150       1,373       6,450       2,414  
Research and development
    
297
      
432
      
923
      
984
  
Total Operating Expenses
    
5,505
      
7,134
      
16,867
      
13,224
  
                                 
Operating Loss
    
(3,335
)
    
(6,369
)
    
(11,775
)
    
(12,437
)
                                 
Other Income (Expense):
                                
Interest expense
    
(1,781
)
    
(690
)
    
(4,340
)
    
(878
)
Change in fair value of derivative liabilities
    
1,555
      
(5,591
)
    
1,599
      
(5,591
)
Interest expense, related party
    
(55
)
    
(61
)
    
(150
)
    
(432
)
Partnership fee income
     -       600       -       600  
Loss on issuance of debt
    
(1,088
)
    
-
      
(3,572
)
    
-
  
Gain / (loss) on extinguishment of debt
     460       (503 )     460       (503 )
Gain / (loss) on foreign currency exchange
    
(2
)
    
(24
)
    
2
      
(32
)
Other Income (Expense), net
    
(911
)
    
(6,269
)
    
(6,001
)
    
(6,836
)
                                 
Net Loss before Income Taxes
    
(4,246
)
    
(12,638
)
    
(17,776
)
    
(19,273
)
                                 
Provision for Income Taxes
    
6
      
-
      
28
      
-
  
                                 
Net Loss
    
(4,252
)
    
(12,638
)
    
(17,804
)
    
(19,273
)
                                 
Other Comprehensive Loss
                                
Foreign currency translation adjustments
    
-
      
3
      
(12
)
    
1
  
                                 
Total Comprehensive Loss
  
$
(4,252
)
  
$
(12,635
)
  
$
(17,816
)
  
$
(19,272
)
                                 
Loss per Share:
                                
Net loss per share, basic and diluted
  
$
(0.01
)
  
$
(0.03
)
  
$
(0.03
)
  
$
(0.06
)
                                 
Weighted average shares outstanding, basic and diluted
    
518,310,781
      
384,502,450
      
518,370,156
      
326,405,397
  

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

5
SANUWAVE HEALTH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
(UNAUDITED)
(In thousands except share data)
 
 
  
Three Months Ended September 30, 2021
  
    Preferred Stock     Common Stock                          
 
  
Number of
          
Number of
                      
Accumulated
        
 
  
Shares
          
Shares
                      
Other
        
 
  
Issued and
          
Issued and
          
Additional Paid-
    
Accumulated
    
Comprehensive
        
   
Outstanding
    
Par Value
    
Outstanding
    
Par Value
    
in Capital
    
Deficit
    
Loss
    
Total
  
Balances as of June 30, 2021
    
-
    
$
-
      
481,619,621
    
$
482
    
$
144,582
    
$
(170,242
)
  
$
(74
)
  
$
(25,252
)
Net loss
    
-
     $
-
      
-
     $
-
     $
-
     $
(4,252
)
   $
-
     $
(4,252
)
Balances as of September 30, 2021
    
-
    
$
-
      
481,619,621
    
$
482
    
$
144,582
    
$
(174,494
)
  
$
(74
)
  
$
(29,504
)

 
  
Three Months Ended September 30, 2020
  
    Preferred Stock     Common Stock                          
   
Number of
          
Number of
                      
Accumulated
        
 
  
Shares
          
Shares
                      
Other
        
 
  
Issued and
          
Issued and
          
Additional Paid-
    
Accumulated
    
Comprehensive
        
 
  
Outstanding
    
Par Value
    
Outstanding
    
Par Value
    
in Capital
    
Deficit
    
Loss
    
Total
  
Balances as of June 30, 2020
    
-
    
$
-
      
302,119,428
    
$
302
    
$
117,327
    
$
(132,387
)
  
$
(65
)
  
$
(14,823
)
Net loss
    
-
      
-
      
-
      
-
      
-
      
(12,638
)
    
-
      
(12,638
)
Proceeds from PIPE offering, net of offering costs
    
-
      
-
      
123,550,000
      
124
      
12,408
      
-
      
-
      
12,532
  
LGH Warrant Liability
     -       -       -       -       (249 )     -       -       (249 )
Series C Preferred Conversion
     -       -       16,071,390       16       2,234       -       -       2,250  
Series D Preferred Conversion
    
-
      
-
      
1,428,568
      
2
      
198
      
-
      
-
      
200
  
Shares issued for services
    
-
      
-
      
5,000,000
      
5
      
1,075
      
-
      
-
      
1,080
  
Inducement shares issued
    
-
      
-
      
200,000
      
-
      
45
      
-
      
-
      
45
  
Conversion of short-term notes and settlements
    
-
      
-
      
2,250,000
      
2
      
208
      
-
      
-
      
210
  
Conversion of notes payable, related parties
    
-
      
-
      
15,475,235
      
15
      
2,276
      
-
      
-
      
2,291
  
Foreign currency translation adjustment
    
-
      
-
      
-
      
-
      
-
      
-
      
3
      
3
  
Balances as of September 30, 2020
    
-
    
$
-
      
466,094,621
    
$
466
    
$
135,522
    
$
(145,025
)
  
$
(62
)
  
$
(9,099
)

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

6
SANUWAVE HEALTH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
(UNAUDITED)
(In thousands except share data)


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


 
  
Nine Months Ended September 30, 2021
  
    Preferred Stock     Common Stock                          
   
Number of
          
Number of
                      
Accumulated
        
 
  
Shares
          
Shares
                      
Other
        
 
  
Issued and
          
Issued and
          
Additional Paid-
    
Accumulated
    
Comprehensive
        
 
  
Outstanding
    
Par Value
    
Outstanding
    
Par Value
    
in Capital
    
Deficit
    
Loss
    
Total
  
Balances as of December 31, 2019
    
-
    
$
-
      
293,780,400
    
$
294
    
$
115,458
    
$
(125,752
)
  
$
(62
)
  
$
(10,062
)
Proceeds from warrant exercise
    
-
      
-
      
1,000,000
      
1
      
9
      
-
      
-
      
10
  
Conversion of short term notes and convertible notes payable
    
-
      
-
      
4,829,789
      
5
      
560
      
-
      
-
      
565
  
Conversion of notes payable, related parties
     -       -       15,475,235       15       2,275                       2,290  
Conversion of advances from related parties
    
-
      
-
      
262,811
      
-
      
18
      
-
      
-
      
18
  
Series C Preferred Conversion
     -       -       16,071,390       16       2,234       -       -       2,250  
Series D Preferred Conversion
     -       -       1,428,568       2       198       -       -       200  
Shares issued for services
    
-
      
-
      
8,200,000
      
8
      
1,789
      
-
      
-
      
1,796
  
Inducement shares issued
     -       -       200,000       -       45       -       -       45  
Proceeds from PIPE offering, net of offering costs
    
-
      
-
      
124,621,428
      
125
      
12,558
      
-
      
-
      
12,683
  
LGH Warrant Liability
     -       -       -       -       (249 )     -       -       (249 )
Stock-based compensation
    
-
      
-
      
-
      
-
      
22
      
-
      
-
      
22
  
Proceeds from stock option exercise
    
-
      
-
      
225,000
      
-
      
44
      
-
      
-
      
44
  
Beneficial conversion feature on convertible debt
    
-
      
-
      
-
      
-
      
561
      
-
      
-
      
561
  
Net loss
    
-
      
-
      
-
      
-
      
-
      
(19,273
)
    
-
      
(19,273
)
Foreign currency translation adjustment
    
-
      
-
      
-
      
-
      
-
      
-
      
-
      
1
  
                                                                 
Balances as of September 30, 2020
    
-
    
$
-
      
466,094,621
    
$
466
    
$
135,522
    
$
(145,025
)
  
$
(62
)
  
$
(9,099
)

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

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

   
Nine Months Ended September 30,
  
   
2021
    
2020
  
Cash Flows - Operating Activities:
            
Net loss
  
$
(17,804
)
  
$
(19,273
)
Adjustments to reconcile net loss to net cash used by operating activities
                
Amortization of intangibles
    
528
      
245
  
Depreciation
    
442
      
200
  
Bad debt expense
    
307
      
(40
)
Shares issued for services
    
-
      
1,820
  
Shares issued for inducement
     -       45  
Deferred taxes
    
28
      
-
  
Change in fair value of derivative liabilities
     (1,599 )    
5,591
  
Loss on issuance of debt
     3,572       -  
       Loss (Gain) on extinguishment of debt     (460 )     503  
Amortization of debt issuance costs
    
240
      
214
  
       Amortization of debt discount
     1,178       -  
Accrued interest
    
929
      
191
  
Interest payable, related parties
    
150
      
696
  
Changes in operating assets and liabilities
                
Accounts receivable - trade
    
(345
)
    
(1,280
)
Inventory
    
1,430
      
(137
)
Prepaid expenses
    
(218
)
    
(502
)
Other assets
     (137 )    
11
  
Operating leases
    
-
      
(3
)
Financing leases
     -       2  
Accounts payable
    
2,656
      
883
  
Accrued expenses
    
1,652
      
492
  
Accrued employee compensation
    
885
      
1,092
  
Contract liabilities
    
60
      
(530
)
Net Cash Used by Operating Activities
    
(6,506
)
    
(9,780
)
                 
Cash Flows - Investing Activities
                
Acquisition of UltraMIST, net of $4,000,000 note payable to seller
     -       (20,000 )
Purchases of property and equipment
    
(441
)
    
(39
)
Net Cash Flows Used by Investing  Activities
    
(441
)
    
(20,039
)
                 
Cash Flows - Financing Activities
                
Proceeds from sale of convertible preferred stock
    
-
      
2,450
  
Proceeds from convertible promissory notes
     1,928       1,100  
Proceeds from SBA loan
    
1,033
      
614
  
Proceeds from PIPE offering, net of offering costs
     -       21,456  
Proceeds from senior promissory notes
     940       13,347  
Proceeds from stock option exercises
     -       44  
Proceeds from factoring
     1,244       -  
Proceeds from warrant exercises
    
-
      
10
  
Proceeds from related party advances
    
125
      
-
  
Payments of principal on convertible promissory notes, related parties, convertible promissory notes and SBA loans
     (237 )     (5,458 )
Payments of principal on finance leases
    
(143
)
    
(114
)
Net Cash Flows Provided by Financing Activities
    
4,890
      
33,449
  
                 
Effect of Exchange Rates on Cash
    
(53
)
    
1
  
                 
Net Change in Cash During Period
    
(2,110
)
    
3,631
  
                 
Cash at Beginning of Period
    
2,437
      
1,761
  
Cash at End of Period
  
$
327
    
$
5,392
  
                 
Supplemental Information:
                
Cash paid for interest
  
$
1,993
    
$
-
  
                 
Non-cash Investing and Financing Activities:
                
Reclassification of warrant liability due to cashless warrant exercise
  
$
2,030
    
$
-
  
Acquisition of UltraMIST partially financed with convertible promissory note
     -       4,000  
Conversion of short-term notes payable to equity
    
-
      
565
  
Conversion of advances from related parties to equity
    
-
      
18
  
Additions to right of use assets from new finance lease liabilities
    
-
      
128
  
Embedded conversion feature on convertible debt
     2,740       561  
Warrant issuance in conjunction with convertible notes
     758       -  

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

8
SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2021

1.
Nature of the Business and Basis of Presentation

SANUWAVE Health, Inc. and Subsidiaries (“SANUWAVE” or the “Company”) is focused on the research, development, and commercialization of its patented noninvasive and biological response activating medical systems for the repair and regeneration of skin, musculoskeletal tissue, and vascular structures. The Company’s lead regenerative product in the United States is the dermaPACE® device used for treating diabetic foot ulcers.

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

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 (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8-03 of Regulation S-X. Accordingly, these Condensed Consolidated Financial Statements do not include all the information and disclosures required by U.S. GAAP for comprehensive financial statements. The financial information as of September 30, 2021, and for the three and nine month ended September 30, 2021 and 2020 is unaudited; however, in the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2021, are not necessarily indicative of the results that may be expected for any other interim period or for the year ending December 31, 2021.

The Condensed Consolidated Balance Sheet at December 31, 2020 has been derived from the audited Consolidated Financial Statements at that date but does not include all of the information and disclosures required by U.S. GAAP for comprehensive financial statements. These financial statements should be read in conjunction with the Company’s December 31, 2020 Annual Report on Form 10-K filed with the SEC on October 21, 2021 (the “2020 Annual Report”).

Reclassifications – Certain accounts in the prior period Condensed Consolidated Financial Statements have been reclassified to conform to the presentation of the current year Condensed Consolidated Financial Statements.

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

2.
Going Concern

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

9
The continuation of our business is dependent upon raising additional capital. We expect to devote substantial resources for the commercialization of the dermaPACE® system and intend to continue to research and develop the non-medical uses of the PACE technology, both of which will require additional capital resources. The operating losses and the events of default on the Company’s notes payable indicate substantial doubt about the Company’s ability to continue as a going concern for a period of at least twelve months from the filing of this Quarterly Report on Form 10-Q.

The continuation of our business is dependent upon raising additional capital to fund operations. Management’s plans are to obtain additional capital in 2022 through investments by strategic partners for market opportunities, which may include strategic partnerships or licensing arrangements, or raise capital through the conversion of outstanding warrants, issuance of common or preferred stock, securities convertible into common stock, or secured or unsecured debt. These possibilities, to the extent available, may be on terms that result in significant dilution to our existing shareholders. In addition, there can be no assurances that our plans to obtain additional capital will be successful on the terms or timeline we expect, or at all. Although no assurances can be given, management believes that potential additional issuances of equity or other potential financing transactions as discussed above should provide the necessary funding for us. If these efforts are unsuccessful, we may be required to significantly curtail or discontinue operations or, if available, obtain funds through financing transactions with unfavorable terms.

The accompanying Condensed Consolidated Financial Statements have been prepared in conformity with U.S. GAAP, which contemplate continuation of the Company as a going concern and the realization of assets and satisfaction of liabilities in the normal course of business. The carrying amounts of assets and liabilities presented in the Condensed Consolidated Financial Statements do not necessarily purport to represent realizable or settlement values. 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.

3.
Summary of Significant Accounting Policies

Significant accounting policies followed by the Company are summarized below and should be read in conjunction with those described in Note 3 to the Consolidated Financial Statements in our 2020 Annual Report.

Estimates – These Condensed Consolidated Financial Statements have been prepared in accordance with U.S. GAAP. Because a precise determination of assets and liabilities, and correspondingly revenues and expenses, depend on future events, the preparation of consolidated financial statements for any period necessarily involves the use of estimates and assumptions. 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, the net realizable value of inventory, useful lives of long-lived assets, fair value of goodwill and other intangible assets, the determination of the valuation allowances for deferred taxes and the estimated fair value of embedded derivatives, including warrants and embedded conversion options on convertible debt issuances.

Goodwill and Other Intangible Assets – Goodwill represents the excess of the purchase price over the fair value of assets acquired and liabilities assumed. The Company accounts for goodwill under ASC Topic 350, Intangibles-Goodwill and Other. The Company tests goodwill for impairment annually, or more frequently whenever events or circumstances indicate impairment may exist. Goodwill is stated at cost less accumulated impairment losses. The Company completes its goodwill impairment test annually in the fourth quarter. Intangible assets arising from the Company’s acquisition are amortized on a straight‑line basis over the estimated useful life of each asset. Customer relationships have a useful life of seven years. Patents and tradenames have a useful life of nineteen years.

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

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

10
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 Condensed Consolidated Balance Sheet at fair value. The fair value of the LGH warrant liability is determined based on a bionomial approach pricing model at issuance and, thereafter, on a Black Scholes model. The fair value of the embedded conversion option is based on a binomial pricing model at issuance and thereafter. The fair values of the NH, Leviston, Five Institutions’ and GCF warrant liabilities are based on a Black Scholes model at issuance and thereafter.  The Company’s usage of the Black Scholes model approximates the bionomial approach pricing model. Each of the pricing models includes the use of unobservable inputs such as the expected term, anticipated volatility and risk-free interest rate, and therefore, is classified within Level 3 of the fair value hierarchy.

Recent Accounting Pronouncements – In August 2020, Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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. Effective January 1, 2021, the Company elected to early adopt ASU 2020-06 using the modified retrospective method. The adoption of ASU 2020-06 had no impact previously reported financial position or operating results.

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

In December 2019, the FASB issued ASU 2019-12 Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes. ASU 2019-12 simplifies the accounting for income taxes in several areas including calculating taxes in an interim period, clarifying how to account for taxes that are partially based on income and requiring an entity to reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. This amendment is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company adopted ASU 2019-12 effective January 1, 2021 with no impact on previously reported financial position or operating results.

11
In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350) Simplifying the Test for Goodwill Impairment. The amendments in ASU 2017-04 modified the testing that an entity should perform for its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. This amendment is effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. Early adoption is permitted. The Company adopted ASU 2017-04 effective January 1, 2021. The adoption of this guidance did not impact our results of operations or financial position.

4.
Loss per Share

The net loss per share is calculated by dividing the net loss attributable to common stockholders by the weighted average number of shares outstanding for the three and nine months ended September 30, 2021, and 2020. In accordance with ASC Topic 260-10-45-13, Earnings Per Share, the weighted average of number of shares outstanding includes outstanding common stock and shares issuable for nominal consideration. Accordingly, warrants issued with a $0.01 per share exercise price, are included in weighted average shares outstanding as follows:


  
Three Months Ended
  
   
September 30, 2021
    
September 30, 2020
  
Weighted average shares outstanding
            
Common shares
    
481,619,621
      
302,119,428
  
Common shares issuable assuming exercise of nominally priced warrants
    
36,691,160
      
82,383,022
  
Weighted average shares outstanding
    
518,310,781
      
384,502,450
  

   
Nine Months Ended
  
    September 30, 2021
    
September 30, 2020
  
Weighted average shares outstanding
            
Common shares
    
481,619,621
      
323,730,859
  
Common shares issuable assuming exercise of nominally priced warrants
    
36,750,535
      
2,674,538
  
Weighted average shares outstanding
    
518,370,156
      
326,405,397
  

Diluted net loss per share would be computed by dividing the net loss attributable to common stockholders by the weighted average number of shares of common stock and dilutive common stock equivalents outstanding. To the extent that securities are “anti-dilutive,” they are excluded from the calculation of diluted net loss per share. As a result of the net loss for the three and nine months ended September 30, 2021 and 2020, all potentially dilutive shares were anti-dilutive and therefore excluded from the computation of diluted net loss per share. Anti-dilutive equity securities consist of the following at September 30, 2021 and 2020, respectively (in thousands):

   
2021
    
2020
  
Common stock options
    
31,760
      
32,618
  
Common stock purchase warrants
    
159,858
      
190,357
  
Convertible notes payable
    
98,675
      
56,989
  
     
290,293
      
279,964
  

12
5.
Inventory

Inventory consists of the following at September 30, 2021 and December 31, 2020 (in thousands):

   
2021
    
2020
  
Inventory - finished goods
  
$
1,239
    
$
2,328
  
Inventory - parts and accessories
    
287
      
628
  
Total inventory
  
$
1,526
    
$
2,956
  

6.
Accrued Expenses

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

   
2021
    
2020
  
Outside services
  
$
135
    
$
347
  
License fees
    
893
      
336
  
Board of director's fees
    
477
      
320
  
Registration penalties
    
1,950
      
264
  
Commissions
    
-
      
239
  
Legal and professional fees
    
110
      
197
  
Warranty reserve
    
180
      
180
  
Inventory purchases
    
122
      
91
  
Other
    
311
      
153
  
   
$
4,178
    
$
2,127
  

There was no activity in the warranty reserve during the three and nine months ended September 30, 2021.

7.
Revenue

Disaggregation of Revenue - The disaggregation of revenue is based on geographical region. All revenue is recognized at the point in time when control is transferred to our clients. The following tables present revenue from contracts with customers for the three and nine months ended September 30, 2021 and 2020 (in thousands):

   
Three Months Ended September 30, 2021
    
Three Months Ended September 30, 2020
  
   
United States
    
International
    
Total
    
United States
    
International
    
Total
  
Accessories and parts
  $ 2,375     $ 25     $ 2,400     $ 1,128     $ 84     $ 1,212  
Product
    
1,248
      
51
      
1,299
      
98
      
(26
)
    
72
  
License fees and other
    
16
      
10
      
26
      
72
      
10
      
82
  
   
$
3,639
    
$
86
    
$
3,725
    
$
1,298
    
$
68
    
$
1,366
  


 
Nine Months Ended September 30, 2021
    
Nine Months Ended September 30, 2020
  
   
United States
    
International
    
Total
    
United States
    
International
    
Total
  
Accessories and parts
  $ 6,278     $ 231     $ 6,509     $ 1,204     $ 84     $ 1,288  
Product
    
1,759
      
307
      
2,066
      
195
      
21
      
216
  
License fees and other
    
140
      
35
      
175
      
7
   
87
      
94
  
   
$
8,177
    
$
573
    
$
8,750
    
$
1,406
    
$
192
    
$
1,598
  

13
Contract liabilities - As of September 30, 2021 and December 31, 2020, the Company has contract liabilities from contracts with customers as follows (in thousands):

   
September 30,
2021
    
December 31,
2020
  
Service agreements
  
$
145
    
$
69
  
Deposit on future equipment purchases
    
125
      
-
  
Total contract liabilities
    
270
      
69
  
Less: current portion
    
(40
)
    
(32
)
Non-current contract liabilities
  
$
230
    
$
37
  

During the three months ended September 30, 2021 and 2020, the Company recognized revenue related to these contract liabilities of $8 thousand and $11 thousand, respectively, that were included in the beginning contract liability balances for each of those periods. During the nine months ended September 30, 2021 and 2020, the Company recognized revenue related to these contract liabilities of $24 thousand and $50 thousand, respectively, that were included in the beginning contract liability balances for each of those periods.

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

   
Nine Months ended
September 30, 2021
  
Beginning balance
  
$
69
  
New service agreement additions
    
100
  
Deposit on future equipment purchases
    
125
  
Revenue recognized
     (24 )
Total contract liabilities
    
270
  
Less current portion
    
(40
)
Non-current contract liabilities
  
$
230
  


8.
Concentration of Credit Risk and Limited Suppliers

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

   
September 30, 2021
    
December 31, 2020
  
Accounts Receivable:
            
Customer A
    
14
%
    
46
%


The Company currently purchases most of its product component materials from single suppliers and the loss of any of these suppliers could result in a disruption in our production.  The percentage of purchases from major vendors of the Company that exceeded ten percent of total purchases for the three and nine months ended September 30, 2021 and 2020 were as follows:

    Three Months Ended     Nine Months Ended  
   
September 30, 2021
    
September 30, 2020
    
September 30, 2021
    
September 30, 2020
  
Purchases:
                        
Vendor A
    
52
%
    
n/a
      
46
%
    
n/a
  
Vendor B
    
n/a
      
n/a
      
15
%
    
n/a
  
Vendor C
    
n/a
      
16
%
    
n/a
      
22
%
Vendor D
    
n/a
      
47
%
    
n/a
      
27
%

14

9.
Accounts Receivable Factoring

On June 17, 2021, the Company entered into a factoring agreement with Goodman Capital Finance (“Goodman”), an unrelated third party, pursuant to which the Company may sell certain of its accounts receivable to Goodman for 86.25% of the value of the receivable. Advances available under the facility are capped at the lesser of $3.0 million or a formula amount, as defined in the agreement. Interest on advances is assessed at a fixed amount upon funding, which is equivalent to an annualized rate of 15.0% for the first 30 days, and daily thereafter at an annualized rate of 14.4%. The agreement’s term is one month and automatically renews for additional one-month periods, unless either party provides 30 days’ notice of termination. The accounts receivable are sold with recourse back to the Company, therefore the Company accounts for the arrangement as traditional financing.

At September 30, 2021, the Company had transferred to Goodman approximately $1.5 million of accounts receivable balances.

10.
Notes payable

The following two tables summarize outstanding notes payable as of September 30, 2021 and December 31, 2020 (in thousands):


Maturity
Date
  
Stated
Interest
Rate
    
Incremental
Payment in
Kind Interest
    
Incremental
Default
Interest
    
Conversion
Price
    
Principal
    
Remaining
Debt
Discount
    
Remaining
Embedded
Conversion
Option
    
Carrying
Value
  
Senior secured promissory note payable, in default
In default
    
12.25
%
    
+3.00
%
    
+5.00
%
    
n/a
    
$
15,000
      
(3,642
)
    
-
    
$
11,358
  
Convertible promissory notes payable, in default:
                                                                  
Seller Note issued 8/6/2020
In default
    
12.00
%
    
n/a
      
+5.00
%
  
$
0.10
      
4,000
      
-
      
-
      
4,000
  
Leviston Note issued 4/20/2021
In default
    
5.00
%
    
n/a
      
+10.00
%
  
$
0.0724
      
815
      
(452
)
  

1,748
      
2,111
  
Leviston Note issued 5/14/2021
In default
    
5.00
%
    
n/a
      
+10.00
%
  
$
0.0724
      
815
      
(506
)
    
1,732
      
2,041
  
Leviston Note issued 9/3/2022
 In default     5.00 %     n/a
       +10.00 %   $
 0.0724       272       (251 )     563       584  
Five Institutions' Notes issued 9/3/2021
 In default     5.00 %     n/a       +10.00 %   $
 0.0724       543       (501 )     912       954  
  Total convertible promissory notes payable, in default
                                      
6,445
      
(1,710
)
    
4,955
      
9,690
  
 
                                                                  
Convertible promissory notes payable, related parties, in default:
                                                                  
Convertible promissory notes (HealthTronics), related parties
In default
    
12.0
%
    
n/a
      
+2.0
%
  
$
0.10
      
1,372
      
-
      
-
      
1,372
  
Convertible promissory notes (Stolarski), related parties
In default
    
12.0
%
    
n/a
      
+2.0
%
  
$
0.10
      
224
      
-
      
-
      
224
  
  Total convertible promissory notes payable, related parties, in default
                                      
1,596
      
-
      
-
      
1,596
  
 
                                                                  
SBA loan #2
February 20, 2026
    
1.00
%
    
n/a
      
n/a
      
n/a
      
1,033
      
-
      
-
      
1,033
  
                                                                   
Advances on future cash receipts
 March 11, 2022
     n/a       n/a       n/a       n/a       763
       (265 )     -
       498
  
 
                                                                  
Total debt outstanding, including amounts in default
                                      
24,837
      
(5,617
)
    
4,955
      
24,175
  
 
                                                                  
Less: current maturities, including notes in default
                                      
(23,895
)
    
5,617
      
(4,955
)
    
(23,233
)
 
                                                                  
Total long-term debt as of September 30, 2021
                                   
$
942
    
$
-
    
$
-
    
$
942
  

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

Senior secured promissory note payable, in default (“Senior Secured Note”) - On August 6, 2020, the Company entered into a Note and Warrant Purchase and Security Agreement (the “NWPSA”), with NH Expansion Credit Fund Holdings LP, as noteholder and agent. In accordance with the NWPSA, the Company issued a $15 million Senior Secured Promissory Note Payable (the “Senior Secured Note”) and a warrant exercisable into shares of the Company’s common stock (the “NH Expansion Warrant”) in exchange for cash to support operations, repay outstanding debt and close on the acquisition of the UltraMIST® assets from Celularity, among other transactions. As of December 31, 2020, the Company was in default of the minimum liquidity provisions on the Senior Secured Note. As of September 30, 2021, the Company remains in default of the minimum liquidity provisions on the Senior Secured Note, and, as a result, it is classified in current liabilities in the accompanying Condensed Consolidated Balance Sheets. As a result of the default, the Company is accruing interest at the default interest note of an incremental 5%.

The debt issuance costs and debt discount related to the Senior Secured Note were capitalized as a reduction in the principal amount and are being amortized to interest expense over the life of the Senior Secured Note. The amortization of the debt issuance costs and debt discount for the three and nine months ended September 30, 2021 was $228 thousand and $683 thousand, respectively, and is included in interest expense. Accrued interest related to the Senior Secured Note was $1.3 million and $642 thousand at September 30, 2021 and December 31, 2020, respectively. Interest expense on the Senior Secured Note was $804 thousand and $2.3 million for the three months and nine months ended September 30, 2021, respectively.

Convertible promissory notes payable, in default (“Seller Note”) - On August 6, 2020, the Company entered into an asset purchase agreement with Celularity to acquire Celularity’s UltraMIST® assets. A portion of the aggregate consideration of $24 million paid for the assets included the issuance of a promissory note to Celularity in the principal amount of $4 million (the “Seller Note”). The Seller Note matured on August 6, 2021 and was not repaid. The Company’s failure to pay the outstanding principal balance when due constituted an event of default under the terms of the Seller Note and, accordingly, it began accruing additional interest of 5.0% in addition to the 12.0% initial rate, as of the date of the default. As of September 30, 2021 and December 31, 2020, the Seller Notes had outstanding accrued interest of $587 thousand and $192 thousand, respectively.

16
The Company evaluated embedded conversion features within the convertible promissory note and determined that the conversion feature does not require to be bifurcated. Upon adoption of ASC 2020-6 effective January 1, 2021, the convertible promissory note is accounted for as a single liability due to the elimination of the beneficial conversion feature accounting model.

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

As noted above, on April 20, 2021, the Company issued the Leviston Note to the Purchaser in an aggregate principal amount of up to $3.4 million (the “Aggregate Amount”), which shall be advanced in disbursements by the Purchaser (“Leviston Disbursements”), as set forth in the Leviston Note. On May 14, 2021, the Leviston Note was amended to increase the Aggregate Amount to $4.2 million. On April 21, 2021, the Purchaser advanced a Leviston Disbursement of $750 thousand, which is net of an original issue discount of 8%. On May 14, 2021, the Purchaser advanced a second Leviston Disbursement of $750 thousand, also net of an original issue discount of 8%. A $250 thousand Leviston Disbursement was made on September 3, 2021, which was subject to the same terms and conditions of the April and May Leviston Disbursements. In addition, a $500 thousand disbursement was made on September 3, 2021 in accordance with notes issued to five institutional investors (the “Five Institutions’ Notes”), which were subject to substantially the same terms and conditions as the Leviston Disbursements.


Warrant issuances to Leviston and Five Institutions’ in April, May and September 2021

 
On April 20, 2021, May 14, 2021 and September 3, 2021, respectively, Leviston was issued 3,968,254, 3,968,254 and 1,322,751, warrants for shares of common stock. On September 3, 2021, the Company also issued a total of 2,772,751 warrants for shares of common stock to Five Institutions. After evaluating the terms of the warrants, the Company determined that these warrants meet the definition of a derivative liability and accordingly, were recorded as additional discount against the debt at issuance. See details of the associated warrant issuances at Note 11 – Warrants.

Embedded Conversion Option Liability

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

   
Issuance date (1)
    
Issuance date (1)
     Issuance date (1)     Issuance date (1)        
Binomial Assumptions
  
April 20, 2021
    
May 14, 2021
     September 3, 2021
     September 3, 2021    
September 30, 2021
  
Principal
   $ 815    
$
815
     $ 272     $ 544    
$
2,446
  
Conversion Price(1)
   $ 0.18    
$
0.18
     $ 0.18     $ 0.18    
$
0.14
  
Interest Rate (annual) (2)
     0.07 %    
0.06
%
     0.08 %     0.08 %    
0.06
%
Volatility (annual) (3)
     69.60 %    
69.60
%
     80.10 %     80.10 %    
191.15
%
Time to Maturity (Years)
     1.0      
1.0
       1.0       1.0      
0.7
  
Fair Value of Conversion Option
   $ 1,355    
$
1,385
     $ 467     $ 932    
$
5,171


(1) Based on the terms provided in the warrant agreement to purchase common stock of the Company on the stated issuance dates.
(2) Interest rate for U.S. Treasury Bonds, as of each presented period ending date, as published by the U.S. Federal Reserve.
(3) Based on the historical daily volatility of the Company as of each presented period ending date.


17

Interest rates on Leviston and Five Institutions’ Notes, Conversion Option, and Loss on Issuance

 

The Leviston Disbursements and Five Institutions’ Disbursements in April, May and September 2021, bear interest at the rate of 5% per annum and the default rate of 15%. The Leviston Note and Five Institutions’ Notes contains a conversion option (“Conversion Option”) and because they are in default, the Leviston and Five Institutions’ Notes are convertible into common shares of the Company at a conversion price of 75% of the lowest VWAP during the ten trading days ending on the conversion date. The Conversion Option within the Leviston and Five Institutions’ Notes are required to be bifurcated at fair value, which was approximately $1.4 million on the April disbursement and $1.4 million on the May disbursement and $1.4 million on the September disbursements, which resulted in additional debt discounts being recorded at each disbursement date. For the Five Institutions’ Note this conversion rate shall be no lower than $0.01. Because the combined fair value of the applicable warrants and conversion option exceeded the face value of the note, the additional amount beyond the face value is recorded as a loss on issuance of $1.4 million on the April disbursement and $1.1 million on the May disbursement and $1.1 million on the September disbursement. 

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

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

Pursuant to the Leviston Purchase Agreement and purchase agreements with the Five Institutions (the “Five Institutions’ Purchase Agreements”), the Company has agreed, within a reasonable period of time following the applicable closing date, and in any event prior to any Leviston Disbursement under the Leviston Note subsequent to the initial Leviston Disbursement, to enter into a security agreement in favor of the Leviston or the Five Institutions, as applicable, securing the Company’s obligations under the applicable notes.

The rights of Leviston and the Five Institutions to receive payments under the applicable notes are subordinate to the rights of North Haven Expansion pursuant to the subordination agreements that the Company and Leviston, and the Company and the Five Institutions entered into with North Haven Expansion on April 20, 2021 and September 3, 2021, respectively, in connection with the Private Placement (the “Subordination Agreement”).

In connection with the Leviston Purchase Agreement, the Company entered into a registration rights agreement with the Leviston on April 20, 2021 (the “Leviston Registration Rights Agreement”) pursuant to which the Company agreed to file a registration statement (the “Registration Statement”) with the SEC no later than thirty days following the Leviston Closing Date for the registration of 100% of the maximum number of the shares issuable upon conversion of the Leviston Note and exercise of the Leviston Warrants issued pursuant to the Leviston Purchase Agreement (the “Leviston Registrable Securities”). The Company shall use its best efforts to keep the Registration Statement continuously effective under the Securities Act of 1933, as amended (the “Securities Act”), until all Leviston Registrable Securities have been sold, or may be sold without the requirement to be in compliance with Rule 144(c)(1) of the Securities Act and otherwise without restriction or limitation pursuant to Rule 144 of the Securities Act, as determined by the counsel to the Company. The Company has yet to file the Registration Statement and, under the terms of the Leviston Registration Rights Agreement, it is obligated to pay in cash a one-time aggregate amount of $250 thousand to the holders of the Leviston Notes, plus 1% of the outstanding principal for each 30-day period during which the Company continues not to have in-place an effective Registration Statement.

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

The Company also entered into registration rights agreements with each of the Five Institutions on September 3, 2021.  The terms and conditions of the Five Institutions’ registration rights agreements are substantially similar to the Leviston Registration Rights Agreement, with two exceptions: (1) the Five Institutions may be entitled to a pro-rata share of the $250 thousand one-time aggregate amount (approximately $56 thousand) and (2) the 1% of outstanding principal payment amount for each 30-day period is capped at 5% of outstanding principal.

18
Convertible promissory notes payable (HealthTronics), in default - On August 6, 2020, the Company issued to HealthTronics, Inc. a convertible note payable in the amount of $1.4 million (the “HealthTronics Note”). The HealthTronics Note matured on August 6, 2021 and was not repaid. The Company’s failure to pay the outstanding principal balance when due constituted an event of default under the terms of the HealthTronics Note and, accordingly, it began accruing additional interest of 2.0% in addition to the 12.0% stated interest rate, as of the date of the default. The convertible promissory note is expressly subordinate to the Senior Secured Notes. The Company may prepay the outstanding principal balance, together with any accrued but unpaid interest without premium or penalty. On September 30, 2021 and December 31, 2020, accrued interest of $196 thousand and $66 thousand, respectively, remained outstanding on the HealthTronics Note.

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

Convertible promissory notes payable (Stolarski), in default - On August 6, 2020, the Company issued to A. Michael Stolarski, a member of the board of directors and an existing shareholder, a convertible promissory note in the principal amount of $223 thousand (the “Stolarski Note”). The Stolarski Note matured on August 6, 2021 and was not repaid. The Company’s failure to pay the outstanding principal balance when due constituted an event of default under the terms of the Stolarski Note and, accordingly, it began accruing additional interest of 2.0% in addition to the 12.0% initial rate, as of the date of the default. On September 30, 2021 and December 31, 2020 accrued interest of $32 thousand and $11 thousand, respectively, remained outstanding on the Stolarski Note. The Stolarski Note is expressly subordinate to the Senior Secured Notes. The Company may prepay the outstanding principal balance, together with any accrued but unpaid interest without premium or penalty.

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

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

SBA Loan #1 - The Company received a letter from the Small Business Administration (“SBA”) dated August 27, 2021 forgiving approximately $454 thousand of the SBA Loan #1 principal and $6 thousand of interest, which resulted in the Company recognizing a gain on extinguishment of debt of $460 thousand during the third quarter of 2021.

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

19
All or a portion of SBA Loan #2 may be fully or partially forgiven by the SBA upon application by the Company not later than June 2022 in accordance with SBA regulations. The ultimate forgiveness of SBA Loan #2 is also contingent upon regulatory authorities concurring with management’s good faith assessment that the current economic uncertainty made the loan request necessary to support ongoing operations. If, despite the Company’s good-faith belief that given the circumstances the Company satisfied all eligibility requirements for SBA Loan #2, the Company is later determined to have violated any applicable laws or regulations or it is otherwise determined that the Company was ineligible to receive SBA Loan #2, the Company may be required to repay SBA Loan #2 in its entirety and/or be subject to additional penalties. In the event SBA Loan #2, or any portion thereof, is forgiven pursuant to the PPP, the amount forgiven is applied to outstanding principal. As of September 30, 2021, $91 thousand is included in current liabilities and the remainder of the $1.0 million loan balance is included in non-current liabilities in the accompanying Condensed Consolidated Balance Sheets.

11.
Common Stock Purchase Warrants

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

Warrant class
  
Outstanding
December 31,
2020
     Issuances
   
Exercised
    
Outstanding
September 30,
2021
    
Exercise
price/share
  
 Expiration
date
Class E Warrants
    
141,091,485
       -      
-
      
141,091,485
    
$
0.25
  
August 2023
Class O Warrants
    
909,091
       -      
-
      
909,091
      
0.11
  
January 2022
Class P Warrants
    
265,000
       -      
-
      
265,000
      
0.20
  
June 2024
LGH Warrant
    
35,000,000
       -      
(11,400,000
)
    
23,600,000
      
0.01
  
June 2025
NH Expansion Warrant
    
13,091,160
       -      
-
      
13,091,160
      
0.01
  
August 2030
Leviston Warrants - April 2021
     -       3,968,254       -       3,968,254       0.18   April 2025
Leviston Warrants - May 2021     -       3,968,354       -       3,968,354       0.18   April 2025
Leviston Warrants - September 2021             1,322,751       -       1,322,751       0.18   April 2025
Five Institutions Warrants - September 2021
             2,777,779               2,777,779       0.18   September 2025
GCF Warrants - September 2021
            5,555,556       -       5,555,556       0.18   September 2025
Total
    
190,356,736
       17,592,694      
(11,400,000
)
    
196,549,430
                   

On February 3, 2021, the Company issued 10,925,000 shares of its common stock to LGH upon the cashless exercise of 11,400,000 of the LGH Warrants under the terms of the warrant agreement.

12.
Warrant Liabilities

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

   
Warrants
Outstanding
    
Fair Value
per Share
    
Fair Value
  
Balance December 31, 2020
    
48,091,160
    
$
0.18
    
$
8,855,379
  
Cashless exercise of LGH Warrants
    
(11,400,000
)
    
0.18
      
(2,030,052
)
Warrants reclassified as liabilities
     17,592,594       0.09       1,531,187  
Gain on remeasurement of warrant liability
     -              
(2,686,773
)
Balance September 30, 2021
    
54,283,754
    
$
0.10
    
$
5,669,741
  
20

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

Black Scholes option pricing model
  
September 30, 2021
    
December 31, 2020
  
Exercise Price(1)
  
$
0.01
    
$
0.01
  
Interest Rate (annual) (2)
    
1.52
%
    
0.65
%
Volatility (annual) (3)
     130.8 %     143.9 %
Time to Maturity (Years)
    
8.9
      
9.6
  
Calculated fair value per share
   $ 0.119    
$
0.189
  

  (1)
Based on the terms provided in the warrant agreement to purchase common stock of the Company dated August 6, 2020.
  (2)
Interest rate for U.S. Treasury Bonds, as of each presented period ending date, as published by the U.S. Federal Reserve.
  (3)
Based on the historical daily volatility of the Company as of each presented period ending date.

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

Black Scholes option pricing model
  
September 30, 2021
    
December 31, 2020
  
Exercise Price(1)
  
$
0.01
    
$
0.01
  
Interest Rate (annual) (2)
    
0.98
%
    
0.36
%
Volatility (annual) (3)
    
117.6
%
     98.6 %
Time to Maturity (Years)
    
3.7
      
4.4
  
Calculated fair value per share
   $ 0.114     $ 0.182  

  (1)
Based on the terms provided in the warrant agreement to purchase common stock of the Company dated August 6, 2020.
  (2)
Interest rate for U.S. Treasury Bonds, as of each presented period ending date, as published by the U.S. Federal Reserve.
  (3)
Based on the historical daily volatility of the Company as of each presented period ending date.

Leviston Warrants – As disclosed in Note 11 -Warrants, on April 20, 2021, May 14, 2021, and September 3, 2021, respectively, Leviston was issued 3,968,254, 3,968,254 and 1,322,751 warrants for shares of common stock. The Company has evaluated the terms of the warrants and after review has determined that these warrants meet the definition of a derivative liability. The fair value of the Leviston Warrant liabilities was determined using the Black-Scholes option pricing model which approximates the binomial pricing model. Significant inputs into the model at date of issuance and September 30, 2021:

Binomial Assumptions
  
Issuance date (1)
April 20, 2021
    
Issuance date (1)
May 14, 2021
    
Issuance date (1)
September 3, 2021
    
September 30, 2021
  
Exercise Price(1)
  
$
0.18
    
$
0.18
      
0.18
      
0.18
  
Interest Rate (annual) (2)
    
0.56
%
    
0.56
%
    
0.53
%
    
0.61
%
Volatility (annual) (3)
    
91.9
%
    
90.3
%
    
86.8
%
    
112.9
%
Time to Maturity (Years)
    
4.0
      
3.9
      
3.6
      
3.6
  
Calculated fair value per share
  
$
0.097
    
$
0.094
    
$
0.069
    
$
0.079
  


(1)
Based on the terms provided in the warrant agreement to purchase common stock of the Company on the stated issuance dates.

(2)
Interest rate for U.S. Treasury Bonds, as of each presented period ending date, as published by the U.S. Federal Reserve.

(3)
Based on the historical daily volatility of the Company as of each presented period ending date.

21
Five Institutions’ Warrants – As disclosed in Note 11 -Warrants on September 3, 2021, the Company also issued a total of 2,772,229 warrants for shares of common stock to Five Institutions. The Company has evaluated the terms of the warrants and after review has determined that these warrants meet the definition of a derivative liability. The fair value of the Five Institutions’ Warrant liabilities was determined using the Black-Scholes option pricing model which approximates the binomial pricing model. Significant inputs into the model at September 3, 2021 and September 30, 2021 are as follows:


Binomial Assumptions  
Issuance date (1)
September 3, 2021
    
September 30, 2021
  
Exercise Price(1)
  
$
0.18
    
$
0.18
  
Interest Rate (annual) (2)
    
0.60
%
    
0.74
%
Volatility (annual) (3)
    
89.9
%
    
114.5
%
Time to Maturity (Years)
    
4.0
      
3.9
  
Calculated fair value per share
  
$
0.075
    
$
0.083
  


(1)
Based on the terms provided in the warrant agreement to purchase common stock of the Company dated September 3, 2021.

(2)
Interest rate for U.S. Treasury Bonds, as of each presented period ending date, as published by the U.S. Federal Reserve.

(3)
Based on the historical daily volatility of the Company as of each presented period ending date.


GCF Warrants – As disclosed in Note 10- Notes Payable and Note 11- Warrants, on September 27, 2021, the Company issued warrants to GCF and affiliates to purchase 5,555,556 shares of the Company’s common stock. The Company has evaluated the terms of the warrants and after review has determined that these warrants meet the definition of a derivative liability.  The fair value of the GCF warrant liabilities was determined using the Black-Scholes option pricing model which approximates the binomial pricing model. Significant inputs into the model at both the issuance date and September 30, 2021 are as follows:

 
 
Binomial Assumptions
  
Issuance date (1)
September 27, 2021
     September 30, 2021
 
Exercise Price(1)
   $ 0.18     $ 0.18  
Interest Rate (annual) (2)
    
0.98
%
     0.98 %
Volatility (annual) (3)
    
117.6
%
     117.6 %
Time to Maturity (Years)
    
4.0
       4.0  
Calculated fair value per share
  
$
0.086
     $ 0.037  


(1)
Based on the terms provided in the warrant agreement to purchase common stock of the Company dated September 27, 2021.

(2)
Interest rate for U.S. Treasury Bonds, as of each presented period ending date, as published by the U.S. Federal Reserve.

(3)
Based on the historical daily volatility of the Company as of each presented period ending date.

22
13.
Leases

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

   
September 30, 2021
    
December 31, 2020
  
    
Operating
Leases
    
Financing 
Leases
    
Total
    
Operating
Leases
    
Financing
Leases
    
Total
  
Right of use assets
  
$
725
    
$
644
    
$
1,369
    
$
725
    
$
644
    
$
1,369
  
Less: Accumulated amortization
    
(512
)
    
(395
)
    
(907
)
    
(339
)
    
(235
)
    
(574
)
Right of use assets, net
  
$
213
    
$
249
    
$
462
    
$
386
    
$
409
    
$
795
  
                                                 
Lease liabilities
  
$
223
    
$
285
    
$
508
    
$
415
    
$
427
    
$
842
  
Less: current portion
    
(126
)
    
(201
)
    
(327
)
    
(257
)
    
(194
)
    
(451
)
Lease Liabilities
  
$
97
    
$
84
    
$
181
    
$
158
    
$
233
    
$
391
  

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

   
2021
    
2020
  
Finance lease costs:
            
Amortization of right-of-use assets
  
$
159
    
$
94
  
Interest on lease liabilities
    
33
      
33
  
Operating lease costs
    
263
      
118
  
Total lease costs
  
$
455
    
$
245
  

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

   
2021
    
2020
  
Cash paid for amounts included in measurement of lease liabilities:
            
Operating cash flows from finance leases
  
$
(176
)
  
$
(103
)
Operating cash flows from operating leases
  
$
(263
)
  
$
(118
)

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

   
Amount
  
Year ending December 31,
      
2021 (remainder of year)
  
$
70
  
2022
    
94
  
2023
    
65
  
2024
    
8
  
2025
    
-
  
Total lease payments
    
237
  
Less: Present value adjustment
    
(14
)
Lease liability
  
$
223
  

As of September 30, 2021, the Company’s operating leases had a weighted average remaining lease term of 1.4 years and a weighted average discount rate of 11.0%.
23

Rent expense for the three months ended September 30, 2021 and 2020 was $94 thousand and $84 thousand, respectively. Rent expense for the nine months ended September 30, 2021 and 2020 was $263 thousand and $202 thousand, respectively.

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

   
Amount
  
Year ending December 31,
      
2021 (remainder of year)
  
$
59
  
2022
    
200
  
2023
    
18
  
Total lease payments
    
277
  
Less: Present value adjustment
    
8
Lease liability
  
$
285
  

As of September 30, 2021, the Company’s financing leases had a weighted average remaining lease term of 2.0 years based on annualized base payments expiring through 2023 and a weighted average discount rate of 13.2%.

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

14.
Contingencies

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

As part of the Asset Purchase Agreement on August 6, 2020, the Company assumed obligations for a purchase order for UltraMIST® devices from Celularity’s vendor Minnetronix. This purchase order had a remaining purchase commitment of approximately $1.1 million. The purchase order also calls for production delay fees of 1.25% of the committed inventory if the Company delays production. There is also a cancelation clause of 20% of the remaining balance in the event that the Company delays production for more than six months. On September 23, 2021, Minnetronix notified the Company that it was cancelling the purchase order for the UltraMIST® devices as a result of the Company delaying production more than six months. This notification includes fees and charges for the cancellation of the purchase order of an additional $311 thousand, which the Company accrued during the third quarter of 2021. The Company expects to be able to resume production upon paying this obligation. While the Company is disputing certain aspects of this termination notice and is continuing to engage with Minnetronix regarding resolution of this matter, including reinstatement of the purchase order, there is no guarantee that the dispute will be resolved in a manner beneficial to the Company or at all.

15.
Related Party Transactions

February 2018 dermaPACE® Purchase - On February 13, 2018, the Company entered into an Agreement for Purchase and Sale, Limited Exclusive Distribution and Royalties, and Servicing and Repairs with Premier Shockwave Wound Care, Inc., a Georgia Corporation (“PSWC”), and Premier Shockwave, Inc., a Georgia Corporation (“PS”). Each of PS and PSWC is owned by A. Michael Stolarski, a member of the Company’s board of directors and a shareholder of the Company. The agreement provides for the purchase by PSWC and PS of dermaPACE® System and related equipment sold by the Company along with limited but exclusive distribution rights to provide dermaPACE® Systems to certain governmental healthcare facilities in exchange for the payment of certain royalties to the Company. The agreement also contains provisions whereby in the event of a change of control of the Company (as defined in the agreement), the stockholders of PSWC have the right and option to cause the Company to purchase all of the stock of PSWC, and whereby the Company has the right and option to purchase all issued and outstanding shares of PSWC, in each case based upon certain defined purchase price provisions. The purchase price for this agreement is 5.5 times the annualized EBITDA for the six months trailing the change of control plus the book value of the equipment and working capital.

24
During the three months ended September 30, 2021 and 2020, the Company recorded $8 thousand and $10 thousand, respectively, in revenue from this related party. During the nine months ended September 30, 2021 and 2020, respectively, the Company recorded $24 thousand and $36 thousand in revenue from this entity. In addition, contract liabilities include a balance of $46 thousand at September 30, 2021 and $69 thousand at December 31, 2020 from this related party.

March 2021 Future Purchase of Equipment - In March 2021, PSWC paid the Company $125 thousand as a deposit in accounts payable for future purchase of new medical equipment. Please see Note 17 – Subsequent Events in the accompanying Condensed Consolidated Financial Statements for discussion of advances from member of our board of directors in October 2021.
July 2021 dermaPACE® Purchase - On July 1, 2021, the Company purchased unused DermaPACE® equipment and applicator inventory from PSWC for $127 thousand. As of September 30, 2021, $127 thousand is included in accounts payable on the condensed consolidated balance sheets related to this transaction.
July 2021 Rental Equipment Agreement - Effective July 1, 2021, the Company entered into a short-term equipment rental agreement with PSWC, whereby the Company obtained DermaPACE® equipment from PSWC for $3,600 per month. The company recorded $99 thousand in revenue from this arrangement.

16.
Income Taxes

The provision for income taxes of $6 thousand and $28 thousand, for the three months and nine months ended September 30, 2021 and the deferred tax liability are related to the goodwill of $7.3 million recorded as part of the acquisition of the Celularity assets and is known as a “naked credit”. The goodwill was assigned an indefinite life for book purposes but is deductible for income tax purposes over a fifteen-year life. As a result, the deferred tax liability has an indefinite life and cannot be used as a source of taxable income to support the realization of other deferred tax assets.
 
17.
Subsequent Events

October 2021 Advances from Directors - On October 27, 2021 the Company received $50 thousand in advances from related parties; $25 thousand from NightWatch Capital Advisors, LLC, a company controlled by John Nemelka, a shareholder and member of the Company’s board of directors, (the “Nemelka Advance”) and $25 thousand from A. Michael Stolarski, also a shareholder and member of the Company’s board of directors (the “Stolarski Advance”).
 
In exchange for the Nemelka Advance, the Company issued to NightWatch Capital Advisors, LLC a promissory note in the principal amount of $25 thousand (the “Nemelka Note”). The Nemelka Note matures on June 30, 2022 and accrues interest at a rate equal to 15.0% per annum. In exchange for the Stolarski Advance, as well as the $125 thousand deposit received in March 2021 by the Company (see Note 16), the Company issued to Mr. Stolarski a promissory note in the principal amount of $150 thousand (“Stolarski Note #2”). Stolarski Note #2 matures on June 30, 2022 and accrues interest at a rate equal to 15.0% per annum.

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

January 2022 Warrant Exercises – On January 25, 2021, the Company received $100 thousand in cash related to the exercise of Class O warrants for 909,091 shares of common stock.

On January 28, 2022, the Company issued 14,000,000 shares of its common stock to LGH upon the cashless exercise of 15,000,000 of the LGH Warrants under the terms of the warrant agreement.  After this cashless exercise, 8,600,000 of the LGH warrants remain outstanding.

February 2022 Master Equipment Agreement - On February 17, 2022, the Company entered into a Master Equipment and Contracts Purchase Agreement (the “Agreement”) with ABF Sanuwave, LLC, a Delaware limited liability company (“ABF”). The agreement provides for the purchase by ABF, from the Company, of all rights, title, and interest of certain designated UltraMIST® medical devices currently leased by the Company to various customers under the terms of any contract. Under the agreement, the Company is responsible for the servicing and repairs of such UltraMIST® medical devices and equipment. The net purchase price of this Agreement is approximately $798 thousand. The company also has entered into a service agreement with ABF to provide certain billing account management services related to the sold assets.

February 2022 Second Amendment to Note and Warrant Purchase and Security Agreement - On February 25, 2022, the Company entered into a Second Amendment to Note and Warrant Purchase and Security Agreement (the “Amendment”), which amends that certain Note and Warrant Purchase and Security Agreement, dated as of August 6, 2020 (as amended, the “NWPSA”), with the noteholder party thereto and NH Expansion Credit Fund Holdings LP, as agent. The Amendment provides for (i) the sale and purchase of incremental secured notes in an aggregate original principal amount of $3 million, (ii) the issuance of 20,666,993 Advisor Shares and (iii) the amendment and restatement of the existing warrant issued to the noteholder party to the NWPSA to permit such warrant to be exercisable for an additional 2.0% of the fully-diluted Common Stock of the Company as of the amendment effective date. The warrant has an exercise price of $0.18 per share, subject to adjustment in certain circumstances, and a 10 year term from August 6, 2020.

25
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, 2020 included in our Annual Report on Form 10-K, filed with the SEC on October 21, 2021 (the “2020 Annual Report”).

Overview
 
We are a shock wave technology company using a patented system of noninvasive, high-energy, acoustic shock waves for regenerative medicine and other applications. Our initial focus is regenerative medicine utilizing noninvasive, acoustic shock waves to produce a biological response resulting in the body healing itself through the repair and regeneration of tissue, musculoskeletal, and vascular structures.
 
Our lead regenerative product in the United States is the dermaPACE® device, used for treating diabetic foot ulcers (“DFU”), which was subject to two double-blinded, randomized Phase III clinical studies. On December 28, 2017, the U.S. Food 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 DFU as described in the de novo request, subject to the general control provisions of the Food, Drug and Cosmetic Act and the special controls identified in this order.
 
On August 6, 2020, we entered into an asset purchase agreement (the “Asset Purchase Agreement” or “Acquisition”) with Celularity Inc. (“Celularity”) pursuant to which we acquired Celularity’s UltraMIST® assets (“UltraMIST®” or the “Assets”). The UltraMIST® System provides through a fluid mist a low-frequency, non-contact, and pain free ultrasound energy deep inside the wound bed that promotes healing from within. The ultrasound acoustic waves promote healing by reducing inflammation and bacteria in the wound bed, while also increasing the growth of 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 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, we 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 and 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. In May 2021, the Company received notification alleging that it is not in compliance the License Agreement with Celularity. See further discussion in Note 14 - Contingencies in the accompanying Condensed Consolidated Financial Statements.
 
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 U.S. GAAP. The preparation of our Condensed Consolidated Financial Statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses.

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

26
Our significant accounting policies are more fully described in Note 3 to our Consolidated Financial Statements filed with our 2020 Annual Report. For a description of recent accounting policies and the impact on our financial statements, refer to Note 3 in the accompanying Condensed Consolidated Financial Statements.

Financial Overview
 
Since inception in 2005, our operations have primarily been funded from the sale of capital stock, notes payable, and convertible debt securities. We have devoted and expect to continue to devote substantial resources for the commercialization of the dermaPACE® System and intend to continue to research and develop the non-medical uses of the PACE technology, both of which will require additional capital resources. We also expect to require additional working capital as sales of our UltraMIST® product continue to grow.

We incurred net losses of $30.9 million and $10.4 million for the years ended December 31, 2020 and 2019, respectively, and additional losses of approximately $17.8 million in the first nine months of 2021. These factors and the events of default on the promissory notes discussed above 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 statement issuance date. See Note 17 – Subsequent Events to the accompanying Condensed Consolidated Financial Statements for a discussion of the various events of default.

Our operating losses create substantial doubt about our ability to continue as a going concern. Although no assurances can be given, we believe that potential additional issuances of equity, debt or other potential financing may provide the necessary funding for us to continue as a going concern for the 12 months. See “Liquidity and Capital Resources” for further information regarding our financial condition.

The continuation of our business is dependent upon raising additional capital to fund operations. Management’s plans are to obtain additional capital in 2022 through investments by strategic partners for market opportunities, which may include strategic partnerships or licensing arrangements, or raise capital through the conversion of outstanding warrants, the issuance of common or preferred stock, securities convertible into common stock, or secured or unsecured debt. These possibilities, to the extent available, may be on terms that result in significant dilution to our existing shareholders. In addition, there can be no assurances that our plans to obtain additional capital will be successful on the terms or timeline we expect, or at all. Although no assurances can be given, management believes that potential additional issuances of equity or other potential financing transactions as discussed above should provide the necessary funding for us for the next 12 months. If these efforts are unsuccessful, we may be required to significantly curtail or discontinue operations or, if available, obtain funds through financing transactions with unfavorable terms.
 
The accompanying Condensed Consolidated Financial Statements have been prepared in conformity with U.S. GAAP, which contemplate continuation of the Company as a going concern and the realization of assets and satisfaction of liabilities in the normal course of business. 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.
 
Since our inception, we have incurred losses from operations each year. As of December 31, 2020, we had an accumulated deficit of $156.7 million. Although the size and timing of our future operating losses are subject to significant uncertainty, we anticipate that our operating losses will continue over the next few years as we continue to incur expenses related to commercialization of our dermaPACE® system for the treatment of DFU in the United States. If we are able to successfully commercialize, market and distribute the dermaPACE® system, then we believe we may be able to partially or completely offset these losses in the future with revenues from sales of our UltraMist® systems and applicators. Although no assurances can be given, we believe that potential additional issuances of equity, debt or other potential financing, as discussed above, may provide the necessary funding for us to continue as a going concern for the next 12 months. We cannot reasonably estimate the nature, timing and costs of the efforts necessary to complete the development and approval of, or the period in which material net cash flows are expected to be generated from, any of our products, due to the numerous risks and uncertainties associated with developing and marketing products, including the uncertainty of:
 
27
• the scope, rate of progress and cost of our clinical trials;
 
• future clinical trial results;
 
• the cost and timing of regulatory approvals;
 
• supplier and customer disputes;
 
• the establishment of successful marketing, sales and distribution channels and partnerships, including our efforts to expand our marketing, sales and distribution reach through joint ventures and other contractual arrangements;
 
• the cost and timing associated with establishing reimbursement for our products;
 
• the effects of competing technologies and market developments; and
 
• the industry demand and patient wellness behavior.
 
Any failure to complete the development of our product candidates in a timely manner, or any failure to successfully market and commercialize our product candidates, would have a material adverse effect on our operations, financial position and liquidity. A discussion of the risks and uncertainties associated with us and our business are set forth under the section entitled “Risk Factors – Risks Related to Our Business” in our 2020 Annual Report.
 
The COVID-19 pandemic, which continues to spread worldwide in the form of variants of COVID-19, has resulted and is expected to continue to result in a global slowdown of economic activity which is likely to continue to decrease demand for a broad variety of products, including from our customers, while also disrupting supply channels and marketing activities for an unknown period of time. Also, the pandemic may cause continued or additional actions by hospitals and clinics such as limiting elective procedures and treatments and limiting clinical trial activities and data monitoring. We expect all of these factors to continue to have a negative impact on our sales and our results of operations, the size and duration of which we are currently unable to predict.
 
Results of Operations
 
Revenues and Gross Margin
 
Revenues for the three months ended September 30, 2021 were $3.7 million compared to $1.4 million for the same period in 2020, an increase of $2.3 million. For the first three quarters of 2021, revenues were $8.8 million compared with $1.6 million for the comparable period of 2020. The increases were primarily driven by 2021 sales of UltraMIST® devices and single-use accessories. The Company’s UltraMIST® business began with the August 6, 2020 Acquisition. Please see Note 14 - Contingencies in the accompanying Condensed Consolidated Financial Statements for a description of a supplier dispute relating to UltraMIST®.
 
Gross margin as a percentage of revenue increased to 58.3% from 56.0% during the third quarter of 2021 as compared with the third quarter of the prior year. For the first nine months of 2021 gross margin increased to 58.2% compared with 49.2% for the first nine months of 2020. The increase in gross margin percentages for the both the quarter and year-to-date periods were driven by sales of UltraMIST® products and accessories, which have higher gross margin percentages than do dermaPACE® products and accessories.
 
Research and Development Expenses
 
Research and development expenses decreased 31.3% to $297 thousand from $432 thousand during the third quarter of 2021 compared with the third quarter of 2020. For the first nine months of 2021, research and development expenses decreased 6.2% to $923 thousand from $1.0 million for the same period of 2020. Decreases for both the quarter and nine-month periods were the result of lower amounts paid to external parties for clinical studies and other research and development, partially offset by higher employee compensation and benefits costs incurred by the larger, post-Acquisition organization.
 
28
Selling and Marketing Expenses
 
Selling and marketing expenses increased $777 thousand or 56.6% and $4.0 million or 167.2% for the three and nine-month periods ended September 30, 2021, respectively, versus the same periods of 2020. The expense increases were primarily driven by higher employee compensation, commissions, benefits, travel and marketing costs incurred by the larger, post-Acquisition organization as well as higher levels of revenues.
 
General and Administrative Expenses
 
General and administrative expenses decreased $2.3 million or 42.6% and $332 thousand or 3.6% for the three and nine-month periods ended September 30, 2021, respectively, compared with the same periods of 2020. The primary drivers of these decreases for the quarter and year-to-date periods, respectively, consist of approximately $101 thousand and $2.0 million of expenses related to Registration Statement penalty accruals as well as approximately $176 thousand and $528 thousand of the increases for amortization of intangible assets related to the Acquisition on August 6, 2020.  Additionally, both the quarter and year-to-date periods reflect increases in bad debt, insurance and public company expenses as well as offsetting decreases in legal and other professional fees.
 
Liquidity and Capital Resources
 
We expect to devote substantial resources for the commercialization of the dermaPACE® System and intend continue to research and develop the next generation of our technology as well as the non-medical uses of the PACE technology, both of which will require additional capital resources. We incurred a net loss of $30.9 million and $10.4 million for the years ended December 31, 2020 and 2019, respectively, and incurred additional net losses in the nine months of 2021 of approximately $17.8 million. These factors and the events of default on the notes payable create substantial doubt about the Company’s ability to continue as a going concern for a period of at least twelve months from the financial issuance date. Historically, our operations have primarily been funded from the sale of capital stock, notes payable, and convertible debt securities. The continuation of our business is dependent upon raising additional capital to fund operations; we may not be able to do so, and/or the terms of any financings may not be advantageous to us.
 
During the nine months ended September 30, 2021, cash used by operating activities totaled approximately $6.5 million, which was driven largely by the net loss for the same period and was partially offset by increases in accounts payable and accrued expenses as well as decreases in accounts receivable and inventory. Cash used by investing activities during the first nine months of 2021 consisted of purchases of property and equipment of $441 thousand. Cash provided by financing activities for the period consisted primarily of $1.9 million of proceeds from convertible note issuances, $1.2 million in proceeds from factoring accounts receivable, $1.0 million of proceeds from SBA Loan #2, $703 thousand in proceeds from advances of future cash receipts as well as $125 thousand in proceeds from deposits from related parties and were offset by $143 thousand of principal payments on financing leases.
 
Cash used in operations averaged $1.1 million per month for the first quarter of 2021, approximately $700 thousand for the second quarter and approximately $400 thousand for the third quarter. Management anticipates cash usage for operations to be approximately $250 thousand to $500 thousand per month for the fourth quarter of 2021 as resources are devoted to the commercialization of the dermaPACE® and UltraMIST® products including hiring of new employees, expansion of our international business and continued research and development of the next generation of our technology as well as non-medical uses of our technology. Management’s plans are to obtain additional capital in 2022 through investments by strategic partners for market opportunities, which may include strategic partnerships or licensing arrangements, or raise capital through the conversion of outstanding warrants, issuance of common or preferred stock, securities convertible into common stock, or secured or unsecured debt. These possibilities, to the extent available, may be on terms that result in significant dilution to our existing 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 for the next 12 months. If these efforts are unsuccessful, we may be required to significantly curtail or discontinue operations or, if available, obtain funds through financing transactions with unfavorable terms.

Segment and Geographic Information

We have determined that we have one operating segment. Our revenues are generated from sales in United States, Europe, Canada, Middle East, Central America, South America, Asia and Asia/Pacific. All significant expenses are generated in the United States and all significant assets are located in the United States.

29
Contractual Obligations

Our major outstanding contractual obligations relate to our financing leases for rental equipment, operating leases for our facilities and office equipment, purchase and supplier obligations for product component materials and equipment, and our outstanding debt. Please see our 2020 Annual Report for additional discussions of these obligations.

Off-Balance Sheet Arrangements

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

Effects of Inflation

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

Item 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required under Regulation S-K for “smaller reporting companies.”
 
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 September 30, 2021. 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 September 30, 2021. Our disclosure controls and procedures were not effective because of the “material weakness” described below.

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


 •
The Company lacks expertise and resources to analyze and properly apply U.S. GAAP to complex and non-routine transactions such as complex financial instruments and derivatives and complex sales distribution agreements.

•
The Company lacks internal resources to analyze and properly apply U.S. GAAP to accounting for financial instruments included in service agreements with select vendors.

•
The Company has failed to design and implement controls around all of its accounting and IT processes and procedures and, as such, it believes that all of its accounting and IT processes and procedures need to re-designed and tested for operating effectiveness.

As a result, management concluded that its internal control over reporting was not effective as of September 30, 2021.
 
Remediation Plan
 
During 2021, we engaged external consultants with appropriate experience applying GAAP technical accounting guidance, and we have hired additional accounting personnel both internal and external. We engaged external consultants to review revenue recognition for new products, lease agreements, internal controls and related procedures and review of documentation of internal controls in addition to new equity and debt financing arrangements. Accounting memos were produced for all technical issues and reviewed with management. The Company will continue to implement and review new controls to address these issues.

We have also implemented cybersecurity training for all employees and redesign of procedures that cyber security breaches may impact and worked with our third-party IT vendor to develop a training plan for all existing and new employees related to cyber and implemented related controls around information technology infrastructure. In addition, an additional employee was hired to assist with the management of IT controls and enhance internal IT resources. Going forward, this employee will monitor our third-party IT vendor’s testing and monitoring efforts and where necessary implement new controls as the Company grows. These internal controls have been documented and procedures implemented.

There is no assurance that the measures described above will be sufficient to remediate the previously identified material weaknesses.
 
Changes in Internal Control over Financial Reporting
 
There have been no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2021 that materially affect, or are reasonably likely to materially affect, our internal control over financial reporting, except as disclosed in “Remediation Plan” above.
 
31
PART II — OTHER INFORMATION

Item 1.
LEGAL PROCEEDINGS.

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

Item 1A.
RISK FACTORS.

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide the information required under this item. A discussion of the risks and uncertainties associated with us and our business are set forth under the section entitled “Risk Factors – Risks Related to Our Business” in our 2020 Annual Report.

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

Not applicable.

Item 3.
DEFAULTS UPON SENIOR SECURITIES.

Not applicable.

Item 4.
MINE SAFETY DISCLOSURES.

Not applicable.

Item 5.
OTHER INFORMATION.

Not applicable.

32
Item 6.
EXHIBITS

Exhibit No.
Description
   
Form of Warrant Issued September 3, 2021 (Incorporated by reference to the Form 8-K filed with the SEC on September 13, 2021).
   
Form of Future Advance Convertible Promissory Note Issued September 3, 2021 (Incorporated by reference to the Form 8-K filed with the SEC on September 13, 2021).
   
Form of Securities Purchase Agreement Entered into September 3, 2021 (Incorporated by reference to the Form 8-K filed with the SEC on September 13, 2021).
   
Form of Subordination Agreement Entered into September 3, 2021 (Incorporated by reference to the Form 8-K filed with the SEC on September 13, 2021).
   
Form of Registration Rights Agreement Entered into September 3, 2021 (Incorporated by reference to the Form 8-K filed with the SEC on September 13, 2021).
   
Form of Security Agreement (Incorporated by reference to the Form 8-K filed with the SEC on September 13, 2021).
   
Future Receivables Agreement by and between GCF Resources, LLC and SANUWAVE Health, Inc. dated September 27, 2021 (Incorporated by reference to Exhibit 10.3 filed with the Form 10-Q for the quarter ended March 31, 2021 filed with the SEC on December 13, 2021).
   
Form of Registration Rights Agreement Entered into September 27, 2021.
   
Form of Warrant Issued September 27, 2021 and December 22, 2021.
   
Rule 13a-14(a)/15d-14(a) Certification of the Principal Executive Officer.
   
Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer.
   
Section 1350 Certification of the Principal Executive Officer.
   
Section 1350 Certification of the Chief Financial Officer.
   
101.INS*
XBRL Instance.
   
101.SCH*
XBRL Taxonomy Extension Schema.
   
101.CAL*
XBRL Taxonomy Extension Calculation.
   
101.DEF*
XBRL Taxonomy Extension Definition.
   
101.LAB*
XBRL Taxonomy Extension Labels.
   
101.PRE*
XBRL Taxonomy Extension Presentation.

* Filed herewith.
** Furnished herewith.

33
Exhibit No.
Description
   
10.1*
Promissory Note by and between SANUWAVE Health, Inc. and Northeast Bank, dated February 20, 2021.
   
10.2*
Factoring Agreement by and between SANUWAVE Health, Inc. and Goodman Capital Finance dated June 17, 2021.
   
10.3*
Future Receivables Agreement by and between GCF Resources LLC and SANUWAVE Health, Inc. dated September 27, 2021.

34
SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
SANUWAVE HEALTH, INC.
   
Dated: February 28, 2022
By:
 /s/ 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)
  
February 28, 2022
         
By: /s/ Lisa E. Sundstrom
Name: Lisa E. Sundstrom
  
Chief Financial Officer (principal financial and accounting officer)
  
February 28, 2022


Exhibit 10.6


REGISTRATION RIGHTS AGREEMENT

THIS REGISTRATION RIGHTS AGREEMENT (this “Agreement”) is made as of September 27, 2021 (the “Closing Date”), by and among Sanuwave Health, Inc., a Nevada corporation (the “Company”), and the Purchaser(s) identified on the signature pages hereto (including its successors and assigns, the “Purchaser”).

RECITALS

WHEREAS, the Company and the Purchaser are parties to a certain sale and purchase of future receipts (the “Purchase Agreement”), dated as of the date hereof, as such may be amended and supplemented from time to time,

WHEREAS, the Company and the Purchaser are parties to Sale and purchase of future receipts Warrants (the “Warrant”) of even date herewith for the purchase of [      ] shares of Common Stock;

WHEREAS, the Purchaser’s obligations under the sale and purchase of future receipts are conditioned upon certain registration rights under the Securities Act of 1933, as amended (the “Securities Act”); and

WHEREAS, the Purchaser and the Company desire to provide for the rights of registration under the Securities Act as are provided herein upon the execution and delivery of this Agreement by the Purchaser and the Company.

NOW, THEREFORE, in consideration of the promises, covenants and conditions set forth herein, the parties hereto hereby agree as follows:

1. Registration Rights.

1.1 Definitions. Capitalized terms not otherwise defined herein shall have the meaning ascribed to them in the Purchase Agreement. As used in this Agreement, the following terms shall have the meanings set forth below:

(a)          “Business Day” means any day except Saturday, Sunday and any day which shall be a legal holiday or a day on which banking institutions in the State of New York generally are authorized or required by law or other government actions to close.

(b)          “Commission” means the United States Securities and Exchange Commission.

(c)          “Common Stock” means the Company’s common stock, par value $0.001.

(d)        “Effectiveness Date” means the 60th day following the Closing Date if the Commission provides 4 or fewer comments on the registration statement covering the Registrable Securities, or the 90th day following the Closing Date the Commission provides 5 or more comments on the registration statement covering the Registrable Securities.

(e)          “Exchange Act” means the Securities Exchange Act of 1934, as amended.

(f)          “Filing Date” means ninty (90) days after the Closing Date.

(g)          “Holder” or “Holders” means the holder or holders, as the case may be, from time to time of Registrable Securities.

(h)         The terms “register,” “registered” and “registration” refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Securities Act, and the declaration or ordering of effectiveness of such registration statement or document.

(i)          “Registrable Securities” means 100% of the maximum number of the Shares issuable upon exercise of the Warrant issued pursuant to the Purchase Agreement as of the effective date of the registration statement described in Section 1.2(a) below; provided, however, that Registrable Securities shall not include any securities of the Company that have previously been registered and remain subject to a currently effective registration statement or which have been sold to the public either pursuant to a registration statement or Rule 144, or which have been sold in a private transaction in which the transferor’s rights under this Section 1 are not assigned.

(j)         “Rule 144” means Rule 144 as promulgated by the Commission under the Securities Act, as such Rule may be amended from time to time, or any similar successor rule that may be promulgated by the Commission.
 
(k)         “Rule 415” means Rule 415 as promulgated by the Commission under the Securities Act, as such Rule may be amended from time to time, or any similar successor rule that may be promulgated by the Commission.
 
(l)         “Shares” means shares the Company’s common stock.
 
1.2          Company Registration.

(a) On or prior to the Filing Date, the Company shall prepare and file with the Commission a registration statement covering the Registrable Securities for an offering to be made on a continuous basis pursuant to Rule 415. The registration statement shall be on Form S-1 or, if the Company is so eligible, on Form S-3 (except if the Company is not then eligible to register for resale the Registrable Securities on Form S-1 or Form S-3, as the case may be, in which case such registration shall be on another appropriate form in accordance herewith) and shall contain (unless otherwise directed by Holders holding an aggregate of at least a majority of the Registrable Securities on a fully diluted basis) substantially the “Plan of Distribution” attached hereto as Annex A. The Company shall cause the registration statement to become effective and remain effective as provided herein. The Company shall use its reasonable best efforts to cause the registration statement to be declared effective under the Securities Act as soon as possible and, in any event, by the Effectiveness Date. The Company shall use its best efforts to keep the registration statement continuously effective under the Securities Act until all Registrable Securities covered by such registration statement have been sold, or may be sold without the requirement to be in compliance with Rule 144(c)(1) and otherwise without restriction or limitation pursuant to Rule 144, as determined by the counsel to the Company (the “Effectiveness Period”).

2
(b) The Company shall prepare and file with the Commission such amendments, including post-effective amendments, to the Registration Statement as may be necessary to keep the Registration Statement continuously effective as to the applicable Registrable Securities for the Effectiveness Period and prepare and file with the Commission such additional Registration Statements as necessary in order to register for resale under the Securities Act all of the Registrable Securities; (ii) cause the related Prospectus to be amended or supplemented by any required Prospectus supplement, and as so supplemented or amended to be filed pursuant to Rule 424 (or any similar provisions then in force) promulgated under the Securities Act; (iii) respond as promptly as possible, but in no event later than twenty (20) Business Days, to any comments received from the Commission with respect to the Registration Statement or any amendment thereto and as promptly as possible provide the Holders true and complete copies of all correspondence from and to the Commission relating to the Registration Statement; (iv) file the final prospectus pursuant to Rule 424 of the Securities Act no later than two (2) Business Days following the date the Registration Statement is declared effective by the Commission; and (v) comply in all material respects with the provisions of the Securities Act and the Exchange Act with respect to the disposition of all Registrable Securities covered by the Registration Statement during the Effectiveness Period in accordance with the intended methods of disposition by the Holders thereof set forth in the Registration Statement as so amended or in such Prospectus as so supplemented.

(c) If during the Effectiveness Period, the number of Registrable Securities at any time exceeds 100% of the number of shares of Common Stock then registered in a registration statement, the Company shall file as soon as reasonably practicable an additional registration statement covering the resale of not less than the number of such Registrable Securities.

(d) The Company shall bear and pay all costs and expenses incurred in connection with any registration, filing or qualification of Registrable Securities with respect to the registrations pursuant to this Section 1.2 for each Holder, including (without limitation) all registration, filing and qualification fees, printer’s fees, accounting fees and fees and disbursements of counsel for the Company, but excluding any brokerage or underwriting fees, discounts and commissions relating to Registrable Securities and fees and disbursements of counsel for the Holder. The Company shall also pay for the services of one (1) counsel or advisor, for all Purchasers, to review the Registration Statement.  The Company covenants it will provide the proposed Registration Statement to Holder and its counsel at least two (2) business days before filing for their review and comment.  The Company agrees it will accept all such comments and changes unless such comments and changes would reasonably be expected to result in a violation of applicable securities laws.

3
(e) If at any time during the Effectiveness Period there is not an effective Registration Statement covering all of the Registrable Securities, then the Company shall notify each Holder in writing at least fifteen (15) days prior to the filing of any registration statement under the Securities Act, in connection with a public offering of shares of Common Stock (including, but not limited to, registration statements relating to secondary offerings of securities of the Company but excluding any registration statements (i) on Form S-4 or S-8 (or any successor or substantially similar form), or of any employee stock option, stock purchase or compensation plan or of securities issued or issuable pursuant to any such plan, or a dividend reinvestment plan, (ii) otherwise relating to any employee, benefit plan or corporate reorganization or other transactions covered by Rule 145 promulgated under the Securities Act, (iii) on any registration form which does not permit secondary sales or does not include substantially the same information as would be required to be included in a registration statement covering the resale of the Registrable Securities. In the event the Holder desires to include in any such registration statement all or any part of the Registrable Securities held by such Holder, the Holder shall within ten (10) days after the above-described notice from the Company, so notify the Company in writing, including the number of such Registrable Securities such Holder wishes to include in such registration statement. If a Holder decides not to include all of its Registrable Securities in any registration statement thereafter filed by the Company such Holder shall nevertheless continue to have the right to include any Registrable Securities in any subsequent registration statement or registration statements as may be filed by the Company with respect to the offering of the securities, all upon the terms and conditions set forth herein.  In the event the Company files a registration statement on Form S-1 in connection with an uplisting of the Common Stock to Nasdaq, the Effective Date shall be delayed upon mutual agreement of the Company and the Holder in order to make any necessary amendments to the Registration Statement.

1.3 Obligations of the Company. Whenever required under this Section 1 to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible:

(a) Prepare and file with the Commission a registration statement with respect to such Registrable Securities and use its best efforts to cause such registration statement to become effective and to keep such registration statement effective during the Effectiveness Period;

(b) Prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement;

(c) Furnish to the Holder, at no cost or expense to the Holder, such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them (provided that the Company would not be required to print such prospectuses if readily available to Holder from any electronic service, such as on the EDGAR filing database maintained at www.sec.gov);

(d) Use its reasonable best efforts to register and qualify the securities covered by such registration statement under such other securities’ or blue sky laws of such jurisdictions as shall be reasonably requested by the Holder; provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions;

4
(e) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter(s) of such offering (each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement);

(f) Promptly notify each Holder holding Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act, within one business day, (i) of the effectiveness of such registration statement, or (ii) of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing;

(g) Cause all such Registrable Securities registered pursuant hereto to be listed on each securities exchange or nationally recognized quotation system on which similar securities issued by the Company are then listed; and

(h) Provide a transfer agent and registrar for all Registrable Securities registered pursuant hereunder and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration.

(i) Comply in all material respects with all applicable rules and regulations of the Commission and make generally available to its security holders all documents filed or required to be filed with the Commission, including, but not limited, to, earning statements satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 not later than 45 days after the end of any 12-month period (or 90 days after the end of any 12-month period if such period is a fiscal year) commencing on the first day of the first fiscal quarter of the Company after the effective date of the Registration Statement, which statement shall conform to the requirements of Rule 158.

(j) If requested by the Holders of a majority in interest of the Registrable Securities, (i) promptly incorporate in a Prospectus supplement or post-effective amendment to the Registration Statement such information as the Company reasonably agrees should be included therein and (ii) make all required filings of such Prospectus supplement or such post-effective amendment as soon as practicable after the Company has received notification of the matters to be incorporated in such Prospectus supplement or post-effective amendment.

(k) Prior to any resale of Registrable Securities, use its commercially reasonable efforts to register or qualify or cooperate with the selling Holders in connection with the registration or qualification (or exemption from such registration or qualification) of such Registrable Securities for offer and sale under the securities or Blue Sky laws of such jurisdictions within the United States as any Holder requests in writing, to keep each such registration or qualification (or exemption therefrom) effective during the Effectiveness Period and to do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the Registrable Securities covered by a Registration Statement; provided, however, that the Company shall not be required to qualify generally to do business in any jurisdiction where it is not then so qualified or to take any action that would subject it to general service of process in any such jurisdiction where it is not then so subject or subject the Company to any material tax in any such jurisdiction where it is not then so subject.

5
(l) Cooperate with the Holders to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold pursuant to a Registration Statement, which certificates, to the extent permitted by the Purchase Agreement and applicable federal and state securities laws, shall be free of all restrictive legends, and to enable such Registrable Securities to be in such denominations and registered in such names of the Holder in connection with any sale of Registrable Securities.

(m) The Company may require each selling Holder to furnish to the Company a certified statement as to the number of shares of Common Stock beneficially owned by such Holder and the natural persons thereof that have voting and dispositive control over the Registrable Securities. During any periods that the Company is unable to meet its obligations hereunder with respect to the registration of the Registrable Securities solely because any Holder fails to furnish such information within five (5) Business Days of the Company’s request, any liquidated damages that are accruing at such time as to such Holder only shall be tolled and any Event that may otherwise occur solely because of such delay shall be suspended as to such Holder only, until such information is delivered to the Company.

If the Registration Statement refers to any Holder by name or otherwise as the holder of any securities of the Company, then such Holder shall have the right to require (if such reference to such Holder by name or otherwise is not required by the Securities Act or any similar federal statute then in force) the deletion of the reference to such Holder in any amendment or supplement to the Registration Statement filed or prepared subsequent to the time that such reference ceases to be required.

Each Holder covenants and agrees that it will not sell any Registrable Securities under the Registration Statement until the Company has electronically filed the Prospectus as then amended or supplemented as contemplated in Section 1.3(j) and notice from the Company that the Registration Statement and any post-effective amendments thereto have become effective as contemplated by Section 1.3(f).

Each Holder agrees by its acquisition of such Registrable Securities that, upon receipt of a notice from the Company of the occurrence of any event of the kind described in Section 1.3(f), such Holder will forthwith discontinue disposition of such Registrable Securities under the Registration Statement until such Holder’s receipt of the copies of the supplemented Prospectus and/or amended Registration Statement contemplated by Section 1.3(j), or until it is advised in writing (the “Advice”) by the Company that the use of the applicable Prospectus may be resumed, and, in either case, has received copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such Prospectus or Registration Statement.

6
(n)  If (i) there is material non-public information regarding the Company which the Company’s Board of Directors (the “Board”) determines not to be in the Company’s best interest to disclose and which the Company is not otherwise required to disclose, (ii) there is a significant business opportunity (including, but not limited to, the acquisition or disposition of assets (other than in the ordinary course of business) or any merger, consolidation, tender offer or other similar transaction) available to the Company which the Board determines not to be in the Company’s best interest to disclose, or (iii) the Company is required to file a post-effective amendment to the Registration Statement to incorporate the Company’s annual reports and audited financial statements on Forms 10-K, then the Company may (x) postpone or suspend filing of a registration statement for a period not to exceed thirty (30) consecutive days or (y) postpone or suspend effectiveness of a registration statement for a period not to exceed thirty (30) consecutive days; provided that the Company may not postpone or suspend effectiveness of a registration statement under this Section 1.3(n) for more than sixty (60) days in the aggregate during any three hundred sixty (360) day period; provided, however, that no such postponement or suspension shall be permitted for consecutive twenty (20) day periods arising out of the same set of facts, circumstances or transactions.

1.4 Furnish Information. It shall be a condition precedent to the Company’s obligations to take any action pursuant to this Section 1 with respect to the Registrable Securities of any selling Holder that such Holder shall furnish to the Company such information regarding such Holder, the Registrable Securities held by such Holder, and the intended method of disposition of such securities in the form attached to this Agreement as Annex B, or as otherwise reasonably required by the managing underwriters, if any, to effect the registration of such Holder’s Registrable Securities.
 
1.5 Delay of Registration. No Holder shall have any right to obtain or seek an injunction restraining or otherwise delaying any such registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 1.
 
1.6 Indemnification.

(a) To the extent permitted by law, the Company will indemnify and hold harmless each Holder, any underwriter (as defined in the Securities Act) for such Holder and each of their directors, officers, shareholders, members, partners, employees and agents (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title), each Person who controls each Holder and underwriter (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, shareholders, agents, members, partners or employees (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title) of such controlling person and their respective heirs, personal representatives, successors and assigns, against any losses, claims, damages or liabilities (joint or several) to which any of the foregoing persons may become subject under the Securities Act, the Exchange Act or other federal or state securities law, insofar as such losses, claims, damages or liabilities (or actions in respect thereof), as determined by a final judgment of a court of competent jurisdiction from which no appeal may be taken, arise out of or are based upon any of the following statements, omissions or violations (collectively, a “Violation”): (i) any untrue statement or alleged untrue statement of a material fact contained in a registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto (collectively, the “Filings”), (ii) the omission or alleged omission to state in the Filings a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any state securities law or any rule or regulation promulgated under the Securities Act, the Exchange Act or any state securities law, as determined by a final judgment of a court of competent jurisdiction from which no appeal may be taken; and the Company will pay any legal or other expenses reasonably incurred by any person to be indemnified pursuant to this Section 1.6(a) in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the indemnity agreement contained in this Section 1.6(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld, conditioned or delayed), nor shall the Company be liable in any such case for any such loss, claim, damage, liability or action to the extent that it arises out of or is based upon a Violation that occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by any such Holder, underwriter or controlling person.

7
(b) To the extent permitted by law, each Holder will indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the registration statement, each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act, any underwriter, any other Holder selling securities in such registration statement and any controlling person of any such underwriter or other Holder, against any losses, claims, damages or liabilities (joint or several) to which any of the foregoing persons may become subject under the Securities Act, the Exchange Act or other federal or state securities law, insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Holder expressly for use in connection with such registration; and each such Holder will pay any legal or other expenses reasonably incurred by any person to be indemnified pursuant to this Section 1.6(b) in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the indemnity agreement contained in this Section 1.6(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder (which consent shall not be unreasonably withheld, conditioned or delayed); provided, however, in no event shall any indemnity under this subsection 1.6(b) exceed the net proceeds received by such Holder upon the sale of the Registrable Securities giving rise to such indemnification obligation.
 
(c) Promptly after receipt by an indemnified party under this Section 1.6 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 1.6, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party (together with all other indemnified parties that may be represented without conflict by one counsel) shall have the right to retain one separate counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if materially prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 1.6, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 1.6.

8
(d) If the indemnification provided for in Sections 1.6(a) and 1.6(b) is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, claim, damage or expense referred to herein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or expense in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the statements or omissions or alleged statements or omissions that resulted in such loss, liability, claim or expense as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. In no event shall any Holder be required to contribute an amount in excess of the net proceeds received by such Holder upon the sale of the Registrable Securities giving rise to such indemnification obligation.

(e) If a claim for indemnification under Section 1.6(a) or 1.6(b) is due but unavailable to an Indemnified Party because of a failure or refusal of a governmental authority to enforce such indemnification in accordance with its terms (by reason of public policy or otherwise), then each Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such Losses, in such proportion as is appropriate to reflect the relative benefits received by the Indemnifying Party on the one hand and the Indemnified Party on the other from the offering of the Preferred Stock and Warrants. If, but only if, the allocation provided by the foregoing sentence is not permitted by applicable law, the allocation of contribution shall be made in such proportion as is appropriate to reflect not only the relative benefits referred to in the foregoing sentence but also the relative fault, as applicable, of the Indemnifying Party and Indemnified Party in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations. The relative fault of such Indemnifying Party and Indemnified Party shall be determined by reference to, among other things, whether any action in question, including any untrue statement of a material fact or omission of a material fact, has been taken or made by, or relates to information supplied by, such Indemnifying Party or Indemnified Party, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such action, statement or omission. The amount paid or payable by a party as a result of any Losses shall be deemed to include, subject to the limitations set forth in Section 1.6(c), any reasonable attorneys’ or other reasonable fees or expenses incurred by such party in connection with any Proceeding to the extent such party would have been indemnified for such fees or expenses if the indemnification provided for in this Section was available to such party in accordance with its terms. In no event shall any selling Holder be required to contribute an amount under this Section 1.6(e) in excess of the gross proceeds received by such Holder upon sale of such Holder’s Registrable Securities pursuant to the Registration Statement giving rise to such contribution obligation.

9
The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 1.6(e) were determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the immediately preceding paragraph. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation.

(f) The obligations of the Company and Holder under this Section 1.6 shall survive the completion of any offering of Registrable Securities in a registration statement under this Section 1, and otherwise.

(g) The indemnity and contribution agreements contained in this Section are in addition to any liability that the Indemnifying Parties may have to the Indemnified Parties pursuant to applicable law.

1.7 Reports Under Securities Exchange Act. With a view to making available the benefits of certain rules and regulations of the Commission, including Rule 144, that may at any time permit the Holder to sell securities of the Company to the public without registration or pursuant to a registration on Form S-1 or Form S-3, the Company agrees to:

(a) make and keep public information available, as those terms are understood and defined in Rule 144, at all times after the Final Closing Date;

(b) take such action, including the voluntary registration of its Common Stock under Section 12 of the Exchange Act, as is necessary to enable the Holder to utilize Form S-1 for the sale of their Registrable Securities, such action to be taken as soon as practicable after the end of the fiscal year in which the registration statement is declared effective;

(c) file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act; and

(d) furnish to any Holder, so long as the Holder owns any Registrable Securities, forthwith upon request (i) a written statement by the Company that it has complied with the reporting requirements of Rule 144 the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements), or that it qualifies as a registrant whose securities may be resold pursuant to Form S-1 or Form S-3 (at any time after it so qualifies), (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the Commission that permits the selling of any such securities without registration or pursuant to such form.

10
1.8 Transfer or Assignment of Registration Rights. The rights to cause the Company to register Registrable Securities pursuant to this Section 1 may be transferred or assigned, but only with all related obligations, by the Holder to a transferee or assignee who (a) acquires at least 25,000 Shares (subject to appropriate adjustment for stock splits, stock dividends and combinations) from such transferring Holder, unless waived in writing by the Company, or (b) holds Registrable Securities immediately prior to such transfer or assignment; provided, that in the case of (a), (i) prior to such transfer or assignment, the Company is furnished with written notice stating the name and address of such transferee or assignee and identifying the securities with respect to which such registration rights are being transferred or assigned, (ii) such transferee or assignee agrees in writing to be bound by and subject to the terms and conditions of this Agreement and (iii) such transfer or assignment shall be effective only if immediately following such transfer or assignment the further disposition of such securities by the transferee or assignee is restricted under the Securities Act.
 
1.9 Filing Obligations. The Company covenants to timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to Section 13(a) or 15(d) of the Exchange Act. As long as any Holder owns Warrants or Registrable Securities, if the Company is not required to file reports pursuant to Section 13(a) or 15(d) of the Exchange Act, it will prepare and furnish to the Holders and make publicly available in accordance with Rule 144(c) promulgated under the Securities Act, annual and quarterly financial statements, together with a discussion and analysis of such financial statements in form and substance substantially similar to those that would otherwise be required to be included in reports required by Section 13(a) or 15(d) of the Exchange Act, as well as any other information required thereby, in the time period that such filings would have been required to have been made under the Exchange Act. The Company further covenants that it will take such further action as any Holder may reasonably request, all to the extent reasonably required from time to time to enable such Person to sell the Conversion Shares and the Warrant Shares without registration under the Securities Act within the limitation of the exemptions provided by Rule 144 promulgated under the Securities Act, including providing any legal opinions relating to such sale pursuant to Rule 144. Upon the request of any Holder, the Company shall deliver to such Holder a written certification of a duly authorized officer as to whether it has complied with such requirements.

2. Legend.

(a) Each certificate representing Shares held by the Holder shall be endorsed with the following legend:

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.”

11
(b) The legend set forth above shall be removed, and the Company shall issue a certificate without such legend to the transferee of the Shares represented thereby, if, unless otherwise required by state securities laws, (i) such Shares have been sold under an effective registration statement under the Securities Act, (ii) in connection with a sale, assignment or other transfer, such holder provides the Company with an opinion of counsel, reasonably acceptable to the Company, to the effect that such sale, assignment or transfer is being made pursuant to an exemption from the registration requirements of the Securities Act, or (iii) such holder provides the Company with reasonable assurance that the Shares are being sold, assigned or transferred pursuant to Rule 144 or Rule 144A under the Securities Act.

3. Miscellaneous.

3.1 Governing Law. The parties hereby agree that any dispute which may arise between them arising out of or in connection with this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and any other Transaction Documents (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the State of New York and County of New York. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper or is an inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law. If either party shall commence an action or proceeding to enforce any provisions of the Agreement, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its reasonable attorneys’ fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding.
 
3.2 WAIVER OF JURY TRIAL. IN ANY ACTION, SUIT, OR PROCEEDING IN ANY JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY, THE PARTIES EACH KNOWINGLY AND INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY WAIVES FOREVER TRIAL BY JURY

12
3.3 Remedies. Except as otherwise provided in Section 3.6 below, in the event of a breach by the Company or by a Holder of any of their obligations under this Agreement, such Holder or the Company, as the case may be, in addition to being entitled to exercise all rights granted by law and under this Agreement, including recovery of damages, will be entitled to specific performance of its rights under this Agreement, and each of the Company and each Holder agrees that monetary damages would not provide adequate compensation for any losses incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agrees that, in the event of any action for specific performance in respect of such breach, it shall waive the defense that a remedy at law would be adequate.

3.4 No Inconsistent Agreements. The Company has not entered into, and shall not enter into on or after the date of this Agreement, any agreement with respect to its securities that is inconsistent with the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof. The Company has not previously entered into any agreement that is currently in effect granting any registration rights with respect to any of its securities to any Person. Without limiting the generality of the foregoing, without the written consent of the Holders of a majority of the then outstanding Registrable Securities, the Company shall not grant to any Person the right to request the Company to register any securities of the Company under the Securities Act unless the rights so granted are subject in all respects to the prior rights in full of the Holders set forth herein, and are not otherwise in conflict with the provisions of this Agreement.

3.5 No Piggyback on Registrations for Other Securities. Neither the Company nor any of its security holders may include securities of the Company in the Registration Statement, and the Company shall not after the date hereof enter into any agreement providing such right to any of its security holders, unless the right so granted is subject in all respects to the prior rights in full of the Holders set forth herein, and is not otherwise in conflict with the provisions of this Agreement.

3.6 Failure to File Registration Statement and Other Events. The Company and the Holders agree that the Holders will suffer damages if the Registration Statement is not filed on or prior to the Filing Date and not declared effective by the Commission on or prior to the Effectiveness Date and maintained in the manner contemplated herein during the Effectiveness Period or if certain other events occur. The Company and the Holders further agree that it would not be feasible to ascertain the extent of such damages with precision. Accordingly, if (A) the Registration Statement is not filed on or prior to the Filing Date, or (B) the Registration Statement is not declared effective by the Commission on or prior to the Effectiveness Date, or (C) the Registration Statement is filed with and declared effective by the Commission but thereafter ceases to be effective as to all Registrable Securities at any time prior to the expiration of the Effectiveness Period, without being succeeded immediately by a subsequent Registration Statement filed with and declared effective by the Commission in accordance with Section 1.2(a) hereof (any such failure or breach being referred to as an “Event,” and for purposes of clauses (A) and (B) the date on which such Event occurs, or for purposes of clause (C) after more than fifteen (15) Business Days, being referred to as “Event Date”), then the Company shall pay as liquidated damages to all Holders, pro rata according to their respective holdings of Registrable Securities, (i) for each thirty (30) day period after such Event Date during which such Event continues, an aggregate amount of cash equal to one percent (1%) of the net principal amount then outstanding under the sale and purchase of future receipts [up to a total of 5%]; provided, that no liquidated damages shall be payable with respect to Registrable Securities that may then be sold pursuant to Rule 144. Liquidated damages payable by the Company pursuant to Section 3.6(i) shall be payable on the first Business Day following the Event Date, and liquidated damages payable by the Company pursuant to Section 3.6(ii) shall be payable on the thirtieth (30th) day (or, if such day is not a Business Day, then on the first Business day following) following the Event Date, and on each 30th day thereafter, until such Event is cured. Notwithstanding anything to the contrary contained herein, in no event shall any liquidated damages be payable with respect to the Warrants or the Warrant Shares.  The foregoing liquidated damages shall be each Holder’s sole and exclusive remedy in respect of any Event. Notwithstanding anything to the contrary in this Section 3.6, if (a) any of the Events described in clauses (A), (B), or (C) shall have occurred, (b) on or prior to the applicable Event Date, the Company shall have exercised its rights under Section 1.3(n) hereof and (c) the postponement or suspension permitted pursuant to such Section 1.3(n) shall remain effective as of such applicable Event Date, then the applicable Event Date shall be deemed instead to occur on the second Business Day following the termination of such postponement or suspension.

13
3.7 Waivers and Amendments. This Agreement may be terminated and any term of this Agreement may be amended or waived (either generally or in a particular instance and either retroactively or prospectively) with the written consent of the Company and Holders holding at least a majority of the Registrable Securities then outstanding. No such amendment or waiver shall reduce the aforesaid percentage of the Registrable Securities, the holders of which are required to consent to any termination, amendment or waiver without the consent of the record holders of all of the Registrable Securities. Any termination, amendment or waiver effected in accordance with this Section 3.3 shall be binding upon each holder of Registrable Securities then outstanding, each future holder of all such Registrable Securities and the Company.

3.8 Successors and Assigns. Except as otherwise expressly provided herein, the provisions of this Agreement shall inure to the benefit of, and be binding upon, the successors, permitted assigns, heirs, executors and administrators of the parties hereto. This agreement may not be assigned by the Company without the consent Holders holding at least a majority of all then-outstanding Registrable Securities.

3.9 Entire Agreement. This Agreement constitutes the full and entire understanding and agreement among the parties with regard to the subject matter hereof, and no party shall be liable or bound to any other party in any manner by any warranties, representations or covenants except as specifically set forth herein.

3.10 Notices. All notices and other communications required or permitted under this Agreement shall be in writing and shall be delivered personally by hand or by overnight courier, mailed by United States first-class mail, postage prepaid, sent by facsimile or sent by electronic mail directed (a) if to a Holder, at such Holder’s address, facsimile number or electronic mail address set forth in the Company’s records, or at such other address, facsimile number or electronic mail address as such Holder may designate by ten (10) days’ advance written notice to the other parties hereto or (b) if to the Company, to its address, facsimile number or electronic mail address set forth on its signature page to this Agreement and directed to the attention of its President, or at such other address, facsimile number or electronic mail address as the Company may designate by ten (10) days’ advance written notice to the other parties hereto. All such notices and other communications shall be effective or deemed given upon delivery, on the date that is three (3) days following the date of mailing, upon confirmation of facsimile transfer or upon confirmation of electronic mail delivery.

14
3.11 Interpretation. The words “include,” “includes” and “including” when used herein shall be deemed in each case to be followed by the words “without limitation.” The titles and subtitles used in this Agreement are used for convenience only and are not considered in construing or interpreting this Agreement.
 
3.12 Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement, and the balance of the Agreement shall be interpreted as if such provision were so excluded, and shall be enforceable in accordance with its terms.

3.13 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument.

3.14 Cumulative Remedies. The remedies provided herein are cumulative and not exclusive of any remedies provided by law.

3.15 Shares Held by the Company and its Affiliates. Whenever the consent or approval of Holders of a specified percentage of Registrable Securities is required hereunder, Registrable Securities held by the Company or its Affiliates (other than any Holder or transferees or successors or assigns thereof if such Holder is deemed to be an Affiliate solely by reason of its holdings of such Registrable Securities) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage.

3.16 Telecopy Execution and Delivery. A facsimile, telecopy or other reproduction of this Agreement may be executed by one or more parties hereto, and an executed copy of this Agreement may be delivered by one or more parties hereto by facsimile or similar electronic transmission device pursuant to which the signature of or on behalf of such party can be seen, and such execution and delivery shall be considered valid, binding and effective for all purposes. At the request of any party hereto, all parties hereto agree to execute an original of this Agreement as well as any facsimile, telecopy or other reproduction hereof.

[SIGNATURE PAGE FOLLOWS]

15
IN WITNESS WHEREOF, the parties have caused this Registration Rights Agreement to be executed by their duly authorized officers, as of the date, month and year first set forth above.
 
Company:

SANUWAVE HEALTH, INC.

By:
    
Name:
Kevin A. Richardson II
  
Title:
CEO
  

Address for notice:
3360 Martin Farm Road
Suite 100
Suwanee, GA 30024
Attn:  Kevin A. Richardson II
Email: kevin.richardson@sanuwave.com

Purchaser:

 
By:
    
Name:
    
Title:
    

Address for notice:


 
[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]

16
Annex A
Plan of Distribution

Each selling stockholder of the common stock and any of their pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their shares of common stock on the NASDAQ Capital Markets or any other stock exchange, market or trading facility on which the shares are traded or in private transactions. These sales may be at fixed or negotiated prices. A selling stockholder may use any one or more of the following methods when selling shares:


 •
ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;

•
block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;

•
purchases by a broker-dealer as principal and resale by the broker-dealer for its account;

•
an exchange distribution in accordance with the rules of the applicable exchange;

•
privately negotiated transactions;

•
settlement of short sales entered into after the effective date of the registration statement of which this prospectus is a part;

•
broker-dealers may agree with the selling stockholders to sell a specified number of such shares at a stipulated price per share;

•
through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;

•
a combination of any such methods of sale; or

•
any other method permitted pursuant to applicable law.

The selling stockholders may also sell shares under Rule 144 under the Securities Act of 1933, as amended, if available, rather than under this prospectus.

Broker-dealers engaged by the selling stockholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling stockholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this prospectus, in the case of an agency transaction not in excess of a customary brokerage commission in compliance with FINRA Rule 2440; and in the case of a principal transaction a markup or markdown in compliance with FINRA IM-2440.

In connection with the sale of the common stock or interests therein, the selling stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the common stock in the course of hedging the positions they assume. The selling stockholders may also sell shares of the common stock short and deliver these securities to close out their short positions, or loan or pledge the common stock to broker-dealers that in turn may sell these securities. The selling stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities which require the delivery to such broker-dealer or other financial institution of shares offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).

17
The selling stockholders and any broker-dealers or agents that are involved in selling the shares may be deemed to be “underwriters” within the meaning of the Securities Act of 1933, as amended, in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act of 1933, as amended. Each selling stockholder has informed us that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the common stock.
 
We are required to pay certain fees and expenses incurred by us incident to the registration of the shares. We have agreed to indemnify the selling stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act of 1933, as amended.

Because selling stockholders may be deemed to be “underwriters” within the meaning of the Securities Act of 1933, as amended, they will be subject to the prospectus delivery requirements of the Securities Act of 1933, as amended, including Rule 172 thereunder. In addition, any securities covered by this prospectus which qualify for sale pursuant to Rule 144 under the Securities Act of 1933, as amended may be sold under Rule 144 rather than under this prospectus. There is no underwriter or coordinating broker acting in connection with the proposed sale of the resale shares by the selling stockholders.

We agreed to keep this prospectus effective until the earlier of (i) the date on which the shares may be resold by the selling stockholders without registration and without the requirement to be in compliance with Rule 144(c)(1) and otherwise without restriction or limitation pursuant to Rule 144 or (ii) all of the shares have been sold pursuant to this prospectus or Rule 144 under the Securities Act or any other rule of similar effect. The resale shares will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale shares may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.

Under applicable rules and regulations under the Securities Exchange Act of 1934, as amended, any person engaged in the distribution of the resale shares may not simultaneously engage in market making activities with respect to the common stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the selling stockholders will be subject to applicable provisions of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of shares of the common stock by the selling stockholders or any other person. We will make copies of this prospectus available to the selling stockholders and have informed them of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act of 1933, as amended).

18
Annex B
Selling Securityholder Notice and Questionnaire

The undersigned beneficial owner of common stock (the “Registrable Securities”) of Sanuwave Health, Inc., a Nevada corporation (the “Company”), understands that the Company has filed or intends to file with the Securities and Exchange Commission (the “Commission”) a registration statement (the “Registration Statement”) for the registration and resale under Rule 415 of the Securities Act of 1933, as amended (the “Securities Act”), of the Registrable Securities, in accordance with the terms of the Registration Rights Agreement (the “Registration Rights Agreement”) to which this document is annexed. A copy of the Registration Rights Agreement is available from the Company upon request at the address set forth below. All capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Registration Rights Agreement.

Certain legal consequences arise from being named as a selling securityholder in the Registration Statement and the related prospectus. Accordingly, holders and beneficial owners of Registrable Securities are advised to consult their own securities law counsel regarding the consequences of being named or not being named as a selling securityholder in the Registration Statement and the related prospectus.

NOTICE

The undersigned beneficial owner (the “Selling Securityholder”) of Registrable Securities hereby elects to include the Registrable Securities owned by it in the Registration Statement.

The undersigned hereby provides the following information to the Company and represents and warrants that such information is accurate:

19
QUESTIONNAIRE

1. Name.

(a) Full Legal Name of Selling Securityholder

(b) Full Legal Name of Registered Holder (if not the same as (a) above) through which Registrable Securities are held:

(c) Full Legal Name of Natural Control Person (which means a natural person who directly or indirectly alone or with others has power to vote or dispose of the securities covered by this Questionnaire):

2. Address for Notices to Selling Securityholder:

Telephone:
Fax:
Contact Person:

3. Broker-Dealer Status:

(a) Are you a broker-dealer?

Yes         No
 
 (b) If “yes” to Section 3(a), did you receive your Registrable Securities as compensation for investment banking services to the Company?
Yes         No

Note:      If “no” to Section 3(b), the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.

(c) Are you an affiliate of a broker-dealer?

Yes         No

(d) If you are an affiliate of a broker-dealer, do you certify that you purchased the Registrable Securities in the ordinary course of business, and at the time of the purchase of the Registrable Securities to be resold, you had no agreements or understandings, directly or indirectly, with any person to distribute the Registrable Securities?

Yes         No

20
Note:      If “no” to Section 3(d), the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.

4. Beneficial Ownership of Securities of the Company Owned by the Selling Securityholder.

Except as set forth below in this Item 4, the undersigned is not the beneficial or registered owner of any securities of the Company other than the securities issuable pursuant to the Purchase Agreement.

(a) Type and Amount of other securities beneficially owned by the Selling Securityholder:

5. Relationships with the Company:

Except as set forth below, neither the undersigned nor any of its affiliates, officers, directors or principal equity holders (owners of 5% of more of the equity securities of the undersigned) has held any position or office or has had any other material relationship with the Company (or its predecessors or affiliates) during the past three years.

State any exceptions here:

The undersigned agrees to promptly notify the Company of any inaccuracies or changes in the information provided herein that may occur subsequent to the date hereof at any time while the Registration Statement remains effective.

By signing below, the undersigned consents to the disclosure of the information contained herein in its answers to Items 1 through 5 and the inclusion of such information in the Registration Statement and the related prospectus and any amendments or supplements thereto. The undersigned understands that such information will be relied upon by the Company in connection with the preparation or amendment of the Registration Statement and the related prospectus.

21
IN WITNESS WHEREOF the undersigned, by authority duly given, has caused this Notice and Questionnaire to be executed and delivered either in person or by its duly authorized agent.
 
Date:

Beneficial Owner:

By:
    
 
Name:
  
 
Title:
  

[SIGNATURE PAGE FOR SELLING SECURITYHOLDER NOTICE AND QUESTIONNAIRE]


22
Exhibit 10.7

COMMON STOCK PURCHASE WARRANT
SANUWAVE HEALTH, INC.

Warrant Shares: [●]
Initial Exercise Date: [●], 2021

THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received, C6 Capital, LLC.or its assigns (the “Holder”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after the date hereof (the “Initial Exercise Date”) and on or prior to 5:00 p.m. (New York City time) on [●], 2025 (the “Termination Date”) but not thereafter, to subscribe for and purchase from Sanuwave Health, Inc., a company incorporated under the laws of the State of Nevada (the “Company”), up to [●]  Shares (the “Warrant Shares”). The purchase price of one Share under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).

Section 1. Definitions. In addition to the terms defined elsewhere in this Warrant, the following terms have the meanings indicated in this Section 1:

“Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 405 under the Securities Act.

“Bid Price” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Shares are then listed or quoted on a Trading Market, the bid price of the Shares for the time in question (or the nearest preceding date) on the Trading Market on which the Shares are then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the Shares for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Shares are not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Shares are then reported in the “Pink Sheets” published by OTC Markets Group, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per Share so reported, or (d) in all other cases, the fair market value of an Share as determined by an independent appraiser selected in good faith by the Holders of a majority in interest of the Warrants then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.

“Board of Directors” means the board of directors of the Company.

“Business Day” means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.

“Commission” means the United States Securities and Exchange Commission.

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
 
“Excluded Securities” means (a) Shares issued or deemed to have been issued by the Company pursuant to an equity incentive plan that has been approved by the Board of Directors pursuant to which the Company’s securities may be issued to any employee, consultant, officer or director for services provided to the Company, (b) the Shares issued or deemed to be issued by the Company upon conversion or exercise of any Share Equivalents outstanding prior to the Initial Exercise Date, (c) Shares and Share Equivalents issued or deemed to have been issued by the Company pursuant to resolutions of the Board of Directors (including its Compensation Committee) adopted prior to the Initial Exercise Date, and (d) Shares or options to purchase Shares issued as compensation to advisors of the Company in an amount not to exceed an aggregate amount of 1.5% of the outstanding Common Stock of the Company over any two year period.
 
“Financing Transaction” means Shares and Share Equivalents sold and issued by the Company after the Initial Exercise Date to one or more purchasers (other than the Holder or any of its Affiliates) for cash in connection with a transaction or series of related transactions the primary purpose of which is the raising of capital by the Company.

“Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

“Shares” means the common stock shares of the Company, par value $0.001 per share, and any other class of securities into which such securities may hereafter be reclassified or changed.

“Share Equivalents” means any securities of the Company or its subsidiaries which would entitle the holder thereof to acquire at any time Shares, including, without limitation, any debt, preferred stock, right, option, warrant or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Shares.

“Trading Day” means a day on which the Shares are traded on a Trading Market.

“Trading Market” means any of the following markets or exchanges on which the Shares are listed or quoted for trading on the date in question: the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange, OTCQB or OTCQX (or any successors to any of the foregoing).

“Transfer Agent” means Action Stock Transfer Corporation, the current transfer agent of the Company with a mailing address of 2469 E. Fort Union Blvd, Suite 214, Salt Lake City, UT 84121, and any successor transfer agent of the Company.

“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Shares are then listed or quoted on a Trading Market, the daily volume weighted average price of the Shares for such date (or the nearest preceding date) on the Trading Market on which the Shares are then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the Shares for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Shares are not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Shares are then reported in the “Pink Sheets” published by OTC Markets Group, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Shares so reported, or (d) in all other cases, the fair market value of one Share as determined by an independent appraiser selected in good faith by the holders of a majority in interest of the Warrants then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.

“Warrant Agent” means the Transfer Agent and any successor warrant agent of the Company.

“Warrant” means this Warrant.

Section 2. Exercise.

(a) Exercise of Warrant. Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company of a duly executed facsimile copy (or e-mail attachment) of the Notice of Exercise in the form annexed hereto (the “Notice of Exercise”). Notice of Exercise will be effective on the day given up to 11:59 pm. Within the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period (as defined in Section 2(d)(i) herein) following the date of exercise as aforesaid, the Holder shall deliver the aggregate Exercise Price for the shares specified in the applicable Notice of Exercise by wire transfer or cashier’s check drawn on a United States bank unless the cashless exercise procedure specified in Section 2(c) below is specified in the applicable Notice of Exercise. No ink-original Notice of Exercise shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Exercise be required. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within three (3) Trading Days of the date on which the final Notice of Exercise is delivered to the Company. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Company shall deliver any objection to any Notice of Exercise within one (1) Business Day of receipt of such notice. The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less than the amount stated on the face hereof.

Notwithstanding the foregoing in this Section 2(a), a holder whose interest in this Warrant is a beneficial interest in certificate(s) representing this Warrant held in book-entry form through the Depository Trust Company (“DTC”) (or another established clearing corporation performing similar functions) shall effect exercises made pursuant to this Section 2(a) by delivering to DTC (or such other clearing corporation, as applicable) the appropriate instruction form for exercise, complying with the procedures to effect exercise that are required by DTC (or such other clearing corporation, as applicable).

(b) Exercise Price. The exercise price per Share under this Warrant shall be at $0.18 per share (the “Exercise Price”).
 
(c) Cashless Exercise. If at the time of exercise hereof there is no effective registration statement registering, or no current prospectus available for, the resale of the Warrant Shares by the Holder, then this Warrant may also be exercised, in whole or in part, at such time by means of a “cashless exercise” in which the Holder shall be entitled to receive a number of Warrant Shares equal to the quotient obtained by dividing ((A-B)(X)) by (A), where:
 

 (A) =
as applicable: (i) the VWAP on the Trading Day immediately preceding the date of the applicable Notice of Exercise if such Notice of Exercise is (1) both executed and delivered pursuant to Section 2(a) hereof on a day that is not a Trading Day or (2) both executed and delivered pursuant to Section 2(a) hereof on a Trading Day prior to the opening of “regular trading hours” (as defined in Rule 600(b)(64) of Regulation NMS promulgated under the federal securities laws) on such Trading Day, (ii) at the option of the Holder, either (y) the VWAP on the Trading Day immediately preceding the date of the applicable Notice of Exercise or (z) the Bid Price of the Shares on the principal Trading Market as reported by Bloomberg L.P. as of the time of the Holder’s execution of the applicable Notice of Exercise if such Notice of Exercise is executed during “regular trading hours” on a Trading Day and is delivered within two (2) hours thereafter (including until two (2) hours after the close of “regular trading hours” on a Trading Day) pursuant to Section 2(a) hereof or (iii) the VWAP on the date of the applicable Notice of Exercise if the date of such Notice of Exercise is a Trading Day and such Notice of Exercise is both executed and delivered pursuant to Section 2(a) hereof after the close of “regular trading hours” on such Trading Day;

(B) =
the Exercise Price of this Warrant, as adjusted hereunder; and

(X) =
the number of Warrant Shares that would be issuable upon exercise of this Warrant in accordance with the terms of this Warrant if such exercise were by means of a cash exercise rather than a cashless exercise.

If Warrant Shares are issued in such a cashless exercise, the parties acknowledge and agree that in accordance with Section 3(a)(9) of the Securities Act, the Warrant Shares shall take on the registered characteristics of the Warrants being exercised. The Company agrees not to take any position contrary to this Section 2(c).

Notwithstanding anything herein to the contrary, on the Termination Date, this Warrant shall be automatically exercised via cashless exercise pursuant to this Section 2(c).

(d) Mechanics of Exercise.

(i) Delivery of Warrant Shares Upon Exercise. The Company shall cause the Warrant Shares purchased hereunder to be transmitted by the Transfer Agent to the Holder by crediting the account of the Holder’s or its designee’s balance account with The Depository Trust Company through its Deposit or Withdrawal at Custodian system (“DWAC”) if the Company is then a participant in such system and either (A) there is an effective registration statement permitting the issuance of the Warrant Shares to or resale of the Warrant Shares by Holder or (B) this Warrant is being exercised via cashless exercise, and otherwise by physical delivery of a certificate, registered in the Company’s share register in the name of the Holder or its designee, for the number of Warrant Shares to which the Holder is entitled pursuant to such exercise to the address specified by the Holder in the Notice of Exercise by the date that is the earlier of (i) one (1) Trading Day after delivery of the Notice of Exercise and payment of the aggregate Exercise Price to the Company and (ii) the number of Trading Days comprising the Standard Settlement Period after the delivery to the Company of the Notice of Exercise and payment of the aggregate Exercise Price (such date, the “Warrant Share Delivery Date”). Upon delivery of the Notice of Exercise and payment of the aggregate Exercise Price, the Holder shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date of delivery of the Warrant Shares. If the Company fails for any reason to deliver to the Holder the Warrant Shares subject to a Notice of Exercise by the Warrant Share Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of Warrant Shares subject to such exercise (based on the VWAP of the Shares on the date of the applicable Notice of Exercise), $10 per Trading Day (increasing to $20 per Trading Day on the fifth Trading Day after such liquidated damages begin to accrue, but not to exceed in the aggregate 5% of the Warrant Shares) for each Trading Day after such Warrant Share Delivery Date until such Warrant Shares are delivered or Holder rescinds such exercise. The Company agrees to maintain a transfer agent that is a participant in the FAST program so long as this Warrant remains outstanding and exercisable. As used herein, “Standard Settlement Period” means the standard settlement period, expressed in a number of Trading Days, on the Company’s primary Trading Market with respect to the Shares as in effect on the date of delivery of the Notice of Exercise, but in no event earlier than one (1) Trading Day after each Exercise Date.
 
(ii) Delivery of New Warrants Upon Exercise. If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder and upon surrender of this Warrant certificate, at the time of delivery of the Warrant Shares, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.

(iii) Rescission Rights. If the Company fails to transmit or fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares pursuant to Section 2(d)(i) by the Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise.

(iv) [Reserved].
 
(v) No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such exercise, the Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price or round up to the next whole share.

(vi) Charges, Taxes and Expenses. Issuance of Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such Warrant Shares all of which taxes and expenses shall be paid by the Company, and such Warrant Shares shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided, however, that in the event that Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto. The Company shall pay all Transfer Agent fees required for same-day processing of any Notice of Exercise and all fees to the Depository Trust Company (or another established clearing corporation performing similar functions) required for same-day electronic delivery of the Warrant Shares.

(vii) Closing of Books. The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.

(e) Holder’s Exercise Limitations. The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant, pursuant to Section 2 or otherwise, to the extent that after giving effect to such issuance after exercise as set forth on the applicable Notice of Exercise, the Holder (together with the Holder’s Affiliates, and any other Persons acting as a group together with the Holder or any of the Holder’s Affiliates (such Persons, “Attribution Parties”)), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of Shares beneficially owned by the Holder and its Affiliates and Attribution Parties shall include the number of Shares issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of Shares which would be issuable upon (i) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by the Holder or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other Share Equivalents) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates or Attribution Parties. Except as set forth in the preceding sentence, for purposes of this Section 2(e), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this Section 2(e) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder’s determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 2(e), in determining the number of outstanding Shares, a Holder may rely on the number of outstanding Shares as reflected in (A) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (B) a more recent public announcement by the Company or (C) a more recent written notice by the Company or the Transfer Agent setting forth the number of Shares outstanding. Upon the written or oral request of a Holder, the Company shall within one Trading Day confirm orally and in writing to the Holder the number of Shares then outstanding. In any case, the number of outstanding Shares shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder or its Affiliates or Attribution Parties since the date as of which such number of outstanding Shares was reported. The “Beneficial Ownership Limitation” shall be 4.99% (or, upon election by a Holder, 9.99%) of the number of Shares outstanding immediately after giving effect to the issuance of Shares issuable upon exercise of this Warrant. The Holder, upon notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 2(e), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of Shares outstanding immediately after giving effect to the issuance of Shares upon exercise of this Warrant held by the Holder and the provisions of this Section 2(e) shall continue to apply. Any increase in the Beneficial Ownership Limitation will not be effective until the 61st day after such notice is delivered to the Company. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 2(e) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Warrant.

Section 3. Certain Adjustments.

(a) Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions on shares of its Shares or any other equity or equity equivalent securities payable in Shares (which, for avoidance of doubt, shall not include any Shares issued by the Company upon exercise of this Warrant), (ii) subdivides outstanding Shares into a larger number of shares, (iii) combines (including by way of reverse stock split) outstanding Shares into a smaller number of shares, or (iv) issues by reclassification of Shares any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of Shares (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of Shares outstanding immediately after such event, and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the aggregate Exercise Price of this Warrant shall remain unchanged. Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification; provided that if the Company effectuates a reverse split of its Common Stock for a ratio in excess of 50:1, the resulting adjusted Warrant Shares and Exercise Price shall be limited to a 50:1 ratio

(b) Subsequent Rights Offerings. In addition to any adjustments pursuant to Section 3(a) above, if at any time the Company grants, issues or sells any Share Equivalents or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of Shares (the “Purchase Rights”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of Shares acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of Shares are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such Shares as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).
 
(c) Pro Rata Distributions. During such time as this Warrant is outstanding, if the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of Shares, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a “Distribution”), at any time after the issuance of this Warrant, then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of Shares acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of Shares are to be determined for the participation in such Distribution (provided, however, to the extent that the Holder’s right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any Shares as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

(d) Fundamental Transaction. If, at any time while this Warrant is outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Shares are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Shares, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Shares or any compulsory share exchange pursuant to which the Shares are effectively converted into or exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person or group of Persons whereby such other Person or group acquires more than 50% of the outstanding Shares (not including any Shares held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination) (each a “Fundamental Transaction”), then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, at the option of the Holder (without regard to any limitation in Section 2(e) on the exercise of this Warrant), the number of Shares of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of the number of Shares for which this Warrant is exercisable immediately prior to such Fundamental Transaction (without regard to any limitation in Section 2(e) on the exercise of this Warrant). For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one Share in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Shares are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. Notwithstanding anything to the contrary, in the event of a Fundamental Transaction, the Company or any Successor Entity (as defined below) shall, at the Holder’s option, exercisable at any time concurrently with, or within 30 days after, the consummation of the Fundamental Transaction (or, if later, the date of the public announcement of the applicable Fundamental Transaction), purchase this Warrant from the Holder by paying to the Holder an amount of cash equal to the Black Scholes Value of the remaining unexercised portion of this Warrant on the date of the consummation of such Fundamental Transaction; provided, however, if the Fundamental Transaction is not within the Company’s control, including not approved by the Company’s Board of Directors, the Holder shall only be entitled to receive from the Company or any Successor Entity, as of the date of consummation of such Fundamental Transaction, the same type or form of consideration (and in the same proportion), at the Black Scholes Value of the unexercised portion of this Warrant, that is being offered and paid to the holders of Shares of the Company in connection with the Fundamental Transaction, whether that consideration be in the form of cash, stock or any combination thereof, or whether the holders of Shares are given the choice to receive from among alternative forms of consideration in connection with the Fundamental Transaction. “Black Scholes Value” means the value of this Warrant based on the Black and Scholes Option Pricing Model obtained from the “OV” function on Bloomberg, L.P. (“Bloomberg”) determined as of the day of consummation of the applicable Fundamental Transaction for pricing purposes and reflecting (A) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the time between the date of the public announcement of the applicable Fundamental Transaction and the Termination Date, (B) an expected volatility equal to the greater of 100% and the 100 day volatility obtained from the HVT function on Bloomberg as of the Trading Day immediately following the public announcement of the applicable Fundamental Transaction, (C) the underlying price per share used in such calculation shall be the greater of (i) the sum of the price per share being offered in cash, if any, plus the value of any non-cash consideration, if any, being offered in such Fundamental Transaction and (ii) the greater of (x) the last VWAP immediately prior to the public announcement of such Fundamental Transaction and (y) the last VWAP immediately prior to the consummation of such Fundamental Transaction and (D) a remaining option time equal to the time between the date of the public announcement of the applicable Fundamental Transaction and the Termination Date. The payment of the Black Scholes Value will be made by wire transfer of immediately available funds within five Business Days of the Holder’s election (or, if later, on the effective date of the Fundamental Transaction). The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “Successor Entity”) to assume in writing all of the obligations of the Company under this Warrant in accordance with the provisions of this Section 3(d) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the Holder, deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Warrant which is exercisable for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the Shares acquirable and receivable upon exercise of this Warrant (without regard to any limitations on the exercise of this Warrant) prior to such Fundamental Transaction, and with an exercise price which applies the exercise price hereunder to such shares of capital stock (but taking into account the relative value of the Shares pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such exercise price being for the purpose of protecting the economic value of this Warrant immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Warrant referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Warrant with the same effect as if such Successor Entity had been named as the Company herein.

(e) Calculations. All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 3, the number of Shares deemed to be issued and outstanding as of a given date shall be the sum of the number of Shares (excluding treasury shares, if any) issued and outstanding.

(f) Notice to Holder.

(i) Adjustment to Exercise Price. Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the Company shall promptly deliver to the Holder by facsimile or email a notice setting forth the Exercise Price after such adjustment and any resulting adjustment to the number of Warrant Shares and setting forth a brief statement of the facts requiring such adjustment.

(ii) Notice to Allow Exercise by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Shares, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Shares, (C) the Company shall authorize the granting to all holders of the Shares rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Shares, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Shares are converted into other securities, cash or property, or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be delivered by facsimile or email to the Holder at its last facsimile number or email address as it shall appear upon the Warrant Register of the Company, at least 20 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Shares of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Shares of record shall be entitled to exchange their Shares for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. To the extent that any notice provided in this Warrant constitutes, or contains, material, non-public information regarding the Company or any of its subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Report of Foreign Private Issuer on Form 6-K. The Holder shall remain entitled to exercise this Warrant during the period commencing on the date of such notice to the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.
 
Section 4. Adjustment of Exercise Price. The Exercise Price shall be adjusted from time to time as follows:

(a) If and whenever on or after the Initial Exercise Date the Company issues or sells, or is deemed to have issued or sold, any Shares or Share Equivalents in a Financing Transaction for an effective consideration per Share (the “New Issuance Price”) less than the Exercise Price per Share in effect immediately prior to such issuance or sale (the “Applicable Price”), then immediately after such issue or sale the Exercise Price then in effect shall be reduced to an amount equal to such New Issuance Price.

(b) Effect on Exercise Price of Certain Events. For purposes of determining the adjusted Exercise Price under Section 4(a) above, the following shall be applicable:

(i) Issuance of Options. If after the date hereof, the Company in any manner grants any options to purchase Shares other than Excluded Securities (“Options”) and the lowest price per Share for which one Share is issuable upon the exercise of any such Option or upon conversion or exchange of any convertible securities issuable upon exercise of any such Option is less than the Applicable Price, then such Share shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the granting or sale of such Option for such price per share. For purposes of this Section 4(b)(i), the lowest price per share for which one Share is issuable upon exercise of such Options or upon conversion or exchange of such convertible securities shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to any one Share (x) upon the granting or sale of the Option and (y) upon exercise of the Option or upon conversion or exchange of any convertible security issuable upon exercise of such Option. No further adjustment of the Exercise Price shall be made upon the actual issuance of such Shares or of such convertible securities upon the exercise of such Options or upon the actual issuance of such Shares upon conversion or exchange of such convertible securities.

(ii) Change in Option Price or Rate of Conversion. If the purchase price provided for in any Options, the additional consideration, if any, payable upon the issue, conversion or exchange of any convertible securities, or the rate at which any convertible securities are convertible into or exchangeable for Shares changes at any time (in each case excluding Excluded Securities), the Exercise Price in effect at the time of such change shall be adjusted to the Exercise Price that would have been in effect at such time had such Options or convertible securities provided for such changed purchase price, additional consideration or changed conversion rate, as the case may be, at the time initially granted, issued or sold. For purposes of this Section 4(b)(ii), if the terms of any Option or convertible security that was outstanding as of the Initial Exercise Date of this Warrant are changed in the manner described in the immediately preceding sentence, then such Option or convertible security and the Shares deemed issuable upon exercise, conversion or exchange thereof shall be deemed to have been issued as of the date of such change. No adjustment pursuant to this Section 4(b) shall be made if such adjustment would result in an increase of the Exercise Price then in effect.

(iii) Calculation of Consideration Received. If any Shares, Options or convertible securities are issued or sold or deemed to have been issued or sold for cash, the consideration received therefor will be deemed to be the net amount received by the Company therefor. If any Shares, Options or convertible securities are issued or sold for a consideration other than cash, the amount of such consideration received by the Company will be the fair value of such consideration, except where such consideration consists of marketable securities, in which case the amount of consideration received by the Company will be the market price of such securities on the date of receipt of such securities. If any Shares, Options or convertible securities are issued to the owners of the non-surviving entity in connection with any merger in which the Company is the surviving entity, the amount of consideration therefor will be deemed to be the fair value of such portion of the net assets and business of the non-surviving entity as is attributable to such Shares, Options or convertible securities, as the case may be. The fair value of any consideration other than cash or securities will be determined jointly by the Company and the holders of Warrants representing at least two-thirds of the Warrant Shares issuable upon exercise of the Warrants then outstanding. If such parties are unable to reach agreement within ten (10) days after the occurrence of an event requiring valuation (the “Valuation Event”), the fair value of such consideration will be determined within five (5) Business Days after the tenth (10th) day following the Valuation Event by an independent, reputable appraiser jointly selected by the Company and the holders of Warrants representing at least two-thirds of the Warrant Shares issuable upon exercise of the Warrants then outstanding. The determination of such appraiser shall be final and binding upon all parties and the fees and expenses of such appraiser shall be borne jointly by the Company and the holders of Warrants.
 
(iv) Integrated Transactions. In case any Option is issued in connection with the issue or sale of other securities of the Company, together comprising one integrated transaction in which no specific consideration is allocated to such Options by the parties thereto, then for purposes of determining the consideration received by the Company upon the granting of each Option, the Options will be deemed to have been issued for a consideration of $.01 per Option.

(v) Treasury Shares. The number of Shares outstanding at any given time does not include shares owned or held by or for the account of the Company, and the disposition of any shares so owned or held will be considered an issue or sale of Shares.

(vi) Record Date. If the Company takes a record of the holders of Shares for the purpose of entitling them (x) to receive a dividend or other distribution payable in Shares, Options or in convertible securities or (y) to subscribe for or purchase Shares, Options or convertible securities, then such record date will be deemed to be the date of the issue or sale of the Shares deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be.

(c) Notice to Holder. Whenever the Exercise Price is adjusted pursuant to any provision of this Section 4, the Company shall promptly deliver to the Holder by facsimile or email a notice setting forth the Exercise Price after such adjustment and any resulting adjustment to the number of Warrant Shares and setting forth a brief statement of the facts requiring such adjustment.

Section 5. Transfer of Warrant.

(a) Transferability. This Warrant and all rights hereunder (including, without limitation, any registration rights) are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees, as applicable, and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company unless the Holder has assigned this Warrant in full, in which case, the Holder shall surrender this Warrant to the Company within three (3) Trading Days of the date on which the Holder delivers an assignment form to the Company assigning this Warrant in full. The Warrant, if properly assigned in accordance herewith, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued.
 
(b) New Warrants. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the initial issuance date of this Warrant and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant thereto.

(c) Warrant Register. The Warrant Agent shall register this Warrant, upon records to be maintained by the Warrant Agent for that purpose (the “Warrant Register”), in the name of the record Holder hereof from time to time. The Company and the Warrant Agent may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.

Section 6. Miscellaneous.

(a) No Rights as Stockholder Until Exercise. This Warrant does not entitle the Holder to any voting rights, dividends or other rights as a stockholder of the Company prior to the exercise hereof as set forth in Section 2(d)(i), except as expressly set forth in Section 3.

(b) Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.

(c) Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then, such action may be taken or such right may be exercised on the next succeeding Business Day.

(d) Authorized Shares.

The Company covenants that, during the period the Warrant is outstanding, it will reserve from its authorized and unissued Shares a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of issuing the necessary Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Shares may be listed. The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant and payment for such Warrant Shares in accordance herewith, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).
 
Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment. Without limiting the generality of the foregoing, the Company will (i) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (ii) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant and (iii) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof, as may be, necessary to enable the Company to perform its obligations under this Warrant.

Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof.

(e) Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. The Company agrees that it hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein that is brought against a party hereto (or their respective affiliates, directors, officers, shareholders, partners, members, employees or agents), and the Company hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not subject to the jurisdiction of any such court, that such suit, action or proceeding is improper or is an inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Warrant and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law. If either party shall commence an action, suit or proceeding to enforce any provisions of this Warrant, the prevailing party in such action, suit or proceeding shall be reimbursed by the other party for their reasonable attorneys’ fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding.

(f) Restrictions. The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered for resale by the Holder, will have restrictions upon resale imposed by state and federal securities laws.

(g) Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice the Holder’s rights, powers or remedies. Without limiting any other provision of this Warrant, if the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to the Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by the Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.
 
(h) Notices. Any and all notices or other communications or deliveries to be provided by the Holders hereunder including, without limitation, any Notice of Exercise, shall be in writing and delivered personally, or e-mail, or sent by a nationally recognized overnight courier service, addressed to the Company, at Sanuwave Health, Inc., 3360 Martin Farm Road, Suite 100, Suwanee, GA 30024, Attn: Kevin Richardson, email: kevin.richardson@sanuwave.com or such other facsimile number, email address or address as the Company may specify for such purposes by notice to the Holders. Any and all notices or other communications or deliveries to be provided by the Company hereunder shall be in writing and delivered personally, by facsimile or e-mail, or sent by a nationally recognized overnight courier service addressed to each Holder at the facsimile number, e-mail address or address of such Holder appearing on the books of the Company. Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number or via e-mail at the e-mail address set forth in this Section prior to 5:30 p.m. (New York City time) on any date, (ii) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number or via e-mail at the e-mail address set forth in this Section on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (iii) the second Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given. To the extent that any notice provided hereunder constitutes, or contains, material, non-public information regarding the Company or any subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Report of Foreign Private Issuer on Form 6-K.

(i) Limitation of Liability. No provision hereof, in the absence of any affirmative action by the Holder to exercise this Warrant to purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder for the purchase price of any Shares or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.

(j) Remedies. The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert the defense in any action for specific performance that a remedy at law would be adequate.

(k) Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of any Holder from time to time of this Warrant and shall be enforceable by the Holder or holder of Warrant Shares.

(l) Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company, on the one hand, and the Holder or the beneficial owner of this Warrant, on the other hand.

(m) Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.
 
(n) Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.

(o) Warrant Agency Agreement. If this Warrant is held in global form through DTC (or any successor depositary), this Warrant is issued subject to the Warrant Agency Agreement. To the extent any provision of this Warrant conflicts with the express provisions of the Warrant Agency Agreement, the provisions of this Warrant shall govern and be controlling.

(p) Notices.  Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall be delivered in accordance with the notice provisions of the Purchase Agreement.

[Signature page follows.]

IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized as of the date first above indicated.

 
SANUWAVE HEALTH, INC.
     
 
By:
  
 
Name:
 Kevin A. Richardson II
 
Title:
CEO

[Signature Page to Warrant]

NOTICE OF EXERCISE

To: SANUWAVE HEALTH, INC.

(1) The undersigned hereby elects to purchase ________ Warrant Shares of the Company pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.

(2) Payment shall take the form of (check applicable box):

☐ in lawful money of the United States; or

☐ if permitted the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in subsection 2(c), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in subsection 2(c).

(3) Please issue said Warrant Shares in the name of the undersigned or in such other name as is specified below:

   

The Warrant Shares shall be delivered to the following DWAC Account Number:
     
     
     

[SIGNATURE OF HOLDER]

Name of Investing Entity:
  

Signature of Authorized Signatory of Investing Entity:
  

Name of Authorized Signatory:
  

Title of Authorized Signatory:
  

Date:
  

ASSIGNMENT FORM

(To assign the foregoing Warrant, execute this form and supply required information. Do not use this form to purchase shares.)

FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to

Name:
    
   
(Please Print)
     
Address:
    
   
(Please Print)
     
Phone Number:
    
Email Address:
    
Dated: _____________ __, ______
    
Holder’s Signature:________________________
    
Holder’s Address:
    
     
     


EXHIBIT 31.1

Certification of Principal Executive Officer
Pursuant to Rule 13a-14(a) or Rule 15d-14(a)
Under the Securities Exchange Act of 1934

I, Kevin A Richardson II, certify that:

1.
I have reviewed this quarterly report on Form 10-Q of SANUWAVE Health, Inc.;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 
d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 28, 2022

/s/ Kevin A. Richardson II
Kevin A. Richardson II
Chief Executive Officer
(principal executive officer)
 
EXHIBIT 31.2

Certification of Chief Financial Officer
Pursuant to Rule 13a-14(a) or Rule 15d-14(a)
Under the Securities Exchange Act of 1934

I, Lisa E. Sundstrom, certify that:

1.
I have reviewed this quarterly report on Form 10-Q of SANUWAVE Health, Inc.;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

  a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

  b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 28, 2022

/s/Lisa E. Sundstrom
Lisa E. Sundstrom
Controller and Chief Financial Officer
(principal financial officer and principal accounting officer)
EXHIBIT 32.1

CERTIFICATION

In connection with the periodic report of SANUWAVE Health, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2021 as filed with the Securities and Exchange Commission (the “Report”), I, Kevin A. Richardson II, Chief Executive Officer (and principal executive officer) of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that:

1.
The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

2.
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.

Date: February 28, 2022

/s/ Kevin A. Richardson II
Kevin A. Richardson II
Chief Executive Officer
(principal executive officer)
EXHIBIT 32.2

CERTIFICATION

In connection with the periodic report of SANUWAVE Health, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2021 as filed with the Securities and Exchange Commission (the “Report”), I, Lisa S. Sundstrom, Controller and Chief Financial Officer of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that:

1.
The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

2.
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.

Date: February 28, 2022

/s/ Lisa E. Sundstrom
Lisa E. Sundstrom
Controller and Chief Financial Officer
(principal financial officer and principal accounting officer)