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 March 31, 2022

☐
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(b) of the Exchange Act:

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

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

Indicate by check mark whether the registrant has submitted electronically 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 May 25, 2022 there were issued and outstanding 517,195,705 shares of the registrant’s common stock, $0.001 par value.

 SANUWAVE Health, Inc.

Table of Contents

 
Page
PART I – FINANCIAL INFORMATION
  
   
Item 1.
     
  4
   
  5
   
  6
   
  7
   
  8
   
Item 2.
 17
   
Item 3.
 20
   
Item 4.
 20
     
PART II – OTHER INFORMATION
  
     
Item 1.
 22
   
Item 1A.
 22
   
Item 2.
 22
   
Item 3.
 22
   
Item 4.
 22
   
Item 5.
 22
   
Item 6.
 22
   
  24

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, 2021, filed on May 13, 2022. 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, 2021, filed on May 13, 2022.

Except as otherwise indicated by the context, references in this Quarterly Report on Form 10-Q to “we,” “us” and “our” are to the consolidated business of the Company.
3
SANUWAVE HEALTH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In thousands except share data)

   
March 31, 2022
    
December 31, 2021
  
ASSETS
            
Current Assets:
            
Cash
  
$
313
    
$
619
  
Accounts receivable, net of allowance for doubtful accounts of $785 and $475, respectively
    
1,730
      
2,415
  
Inventory
    
1,001
      
1,040
  
Prepaid expenses and other current assets
    
365
      
326
  
Total Current Assets
    
3,409
      
4,400
  
Property and Equipment, net
    
315
      
668
  
Right of Use Assets, net
    
259
      
344
  
Other Intangible Assets, net
    
5,665
      
5,841
  
Goodwill
    
7,260
      
7,260
  
Other Assets
    
106
      
106
  
Total Assets
  
$
17,014
    
$
18,619
  
                 
LIABILITIES
                
Current Liabilities:
                
Senior secured promissory note payable, in default
  
$
11,894
    
$
11,586
  
Convertible promissory notes payable, in default
    
10,532
      
11,601
  
Convertible promissory notes, related parties, in default
    
1,596
      
1,596
  
Advances on future cash receipts
     416       446  
Accounts payable
    
6,696
      
7,644
  
Accrued expenses
    
4,916
      
4,394
  
Accrued employee compensation
    
3,623
      
4,247
  
Due under factoring agreement
     1,231       1,737  
Warrant liability
    
8,300
      
9,614
  
Current portion of SBA loans
    
226
      
158
  
Accrued interest
    
3,072
      
2,521
  
Accrued interest, related parties
    
345
      
289
  
Current portion of lease liabilities
    
268
      
268
  
Current portion of contract liabilities
    
58
      
48
  
Other
    
58
      
114
  
Total Current Liabilities
    
53,231
      
56,263
  
Non-current Liabilities
                
SBA loans
    
807
      
875
  
Lease liabilities
    
34
      
118
  
Contract liabilities
    
303
      
293
  
Deferred tax liability
    
28
      
28
  
Total Non-current Liabilities
    
1,172
      
1,314
  
Total Liabilities
    
54,403
      
57,577
  
                 
Commitments and Contingencies (Footnote 11)
            
                 
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 March 31, 2022 and December 31, 2021
    
-
      
-
  
Common Stock, par value $0.001, 800,000,000 shares authorized; 517,195,705 and 481,619,621 issued and outstanding at March 31, 2022 and December 31, 2021, respectively
    
517
      
482
  
Additional Paid-in Capital
    
150,533
      
144,582
  
Accumulated Deficit
    
(188,372
)
    
(183,949
)
Accumulated Other Comprehensive Loss
    
(67
)
    
(73
)
Total Stockholders’ Deficit
    
(37,389
)
    
(38,958
)
Total Liabilities and Stockholders’ Deficit
  
$
17,014
    
$
18,619
  

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 March 31,
  
   
2022
    
2021
  
             
Revenues:
            
Accessory and parts revenue
  
$
2,192
    
$
1,571
  
Product
    
645
      
253
  
Rental Income
     343       254  
License fees and other
    
15
      
38
  
Total Revenue
    
3,195
      
2,116
  
                 
Cost of Revenues
    
889
      
1,055
  

               
Gross Margin
    
2,306
      
1,061
  
                 
Operating Expenses:
                
General and administrative
    
2,141
      
3,129
  
Selling and marketing
    
1,715
      
1,780
  
Research and development
    
166
      
354
  
Gain on disposal of assets
     (554 )     -  
Depreciation and amortization
     176       192  
Total Operating Expenses
    
3,644
      
5,455
  
                 
Operating Loss
    
(1,338
)
    
(4,394
)
                 
Other Income (Expense):
                
Interest expense
    
(3,076
)
    
(1,122
)
Interest expense, related party
    
(56
)
    
(47
)
Change in fair value of derivative liabilities
    
3,482
      
635
  
Loss on issuance of debt
     (3,434 )     -  
Gain / (loss) on foreign currency exchange
    
(1
)
    
7
  
Other Income (Expense), net
    
(3,085
)
    
(527
)
                 
Net Loss before Income Taxes
    
(4,423
)
    
(4,921
)
                 
Provision for Income Taxes
    
-
      
16
  
                 
Net Loss
    
(4,423
)
    
(4,937
)
                 
Other Comprehensive Loss
                
Foreign currency translation adjustments
    
-
      
(8
)
                 
Total Comprehensive Loss
  
$
(4,423
)
  
$
(4,945
)
                 
Loss per Share:
                
Net loss per share, basic and diluted
  
$
(0.01
)
  
$
(0.01
)
                 
Weighted average shares outstanding, basic and diluted
    
525,414,534
      
518,490,225
  

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 March 31, 2022
  
 
Preferred Stock
    
Common Stock
                          
   
Number of
Shares
Issued and
Outstanding
    
Par Value
    
Number of
Shares
Issued and
Outstanding
    
Par Value
    
Additional Paid-
in Capital
    
Accumulated
Deficit
    
Accumulated
Other
Comprehensive
Loss
    
Total
  
                                                 
Balances as of December 31, 2021
    
-
    
$
-
      
481,619,621
    
$
482
    
$
144,582
    
$
(183,949
)
  
$
(73
)
  
$
(38,958
)
Cashless warrant exercise
    
-
      
-
      
14,000,000
      
14
       2,152      
-
      
-
       2,166  
Warrant exercise
    
-
      
-
      
909,091
      
1
       99      
-
      
-
       100  
Shares issued in conjunction with Note Payable
     -       -       20,666,993       20       3,700       -       -       3,720  
Net loss
    
-
      
-
      
-
      
-
      
-
      
(4,423
)
    
-
      
(4,423
)
Foreign currency translation adjustment
    
-
      
-
      
-
      
-
      
-
      
-
      
6
      
6
  
Balances as of March 31, 2022
    
-
    
$
-
      
517,195,705
    
$
517
    
$
150,533
    
$
(188,372
)
  
$
(67
)
  
$
(37,389
)

Three Months Ended March 31, 2021  
    Preferred Stock
     Common Stock                          
   
Number of
Shares
Issued and
Outstanding
     Par Value    
Number of
Shares
Issued and
Outstanding
     Par Value    
Additional Paid-
in Capital
    
Accumulated
Deficit
    
Accumulated
Other
Comprehensive
Loss
     Total  
                                                 
Balances as of 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
    
-
      
-
      
-
      
-
      
-
      
(4,937
)
    
-
      
(4,937
)
Foreign currency translation adjustment
    
-
      
-
      
-
      
-
      
-
      
-
      
(8
)
    
(8
)
Balances as of March 31, 2021
    
-
    
$
-
      
481,619,621
    
$
482
    
$
144,582
    
$
(161,627
)
  
$
(70
)
  
$
(16,633
)

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

6
SANUWAVE HEALTH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)

   
Three Months Ended March 31,
  
   
2022
    
2021
  
Cash Flows - Operating Activities:
            
Net loss
  
$
(4,423
)
  
$
(4,937
)
Adjustments to reconcile net loss to net cash used by operating activities
                
Amortization of intangibles
    
176
      
176
  
Depreciation
    
15
      
94
  
Bad debt expense
    
-
      
132
  
Income tax expense
    
-
       16
  
Change in fair value of derivative liabilities
     (3,482 )    
(635
)
Loss on issuance of debt
     3,434       -  
Amortization of debt issuance costs and original issue discount
    
889
      
228
  
Accrued interest
    
551
      
(40
)
Interest payable, related parties
    
56
      
47
  
Changes in operating assets and liabilities
                
Accounts receivable - trade
    
804
      
489
  
Inventory
    
39
      
21
  
Prepaid expenses
    
(39
)
    
(444
)
Other assets
     43      
(24
)
Operating leases
    
-
      
(6
)
Accounts payable
    
(930
)
    
1,274
  
Accrued expenses
    
439
      
365
  
Accrued employee compensation
    
(549
)
    
(78
)
Contract liabilities
    
(155
)
    
(22
)
Net Cash Used by Operating Activities
    
(3,132
)
    
(3,344
)
                 
Cash Flows - Investing Activities
                
Disposition of property and equipment
    
360
      
(101
)
Net Cash Flows Provided by (Used in) Investing Activities
    
360
      
(101
)
                 
Cash Flows - Financing Activities
                
Proceeds from senior promissory notes
     2,940       -  
Proceeds from SBA loan
    
-
      
1,033
  
Payments for factoring
     (505 )     -  
Proceeds from warrant exercises
    
100
      
125
  
Payments of principal on finance leases
    
(65
)
    
(46
)
Net Cash Flows Provided by Financing Activities
    
2,470
      
1,112
  
                 
Effect of Exchange Rates on Cash
    
(4
)
    
(8
)
                 
Net Change in Cash During Period
    
(306
)
    
(2,341
)
                 
Cash at Beginning of Period
    
619
      
2,437
  
Cash at End of Period
  
$
313
    
$
96
  
                 
Supplemental Information:
                
Cash paid for interest
  
$
574
    
$
934
  
                 
Non-cash Investing and Financing Activities:
                
Reclassification of warrant liability due to cashless warrant exercise
  
$
2,167
    
$
2,030
  
Warrants issued in conjunction with senior secured promissory note payable
    2,654       -  
Common shares issued in conjunction with senior secured promissory note payable
    3,720       -  

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

7
SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022

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. Certain accounts in the prior period condensed consolidated financial statements have been reclassified to conform to the presentation of the current period condensed consolidated financial statements. These reclassifications had no effect on the previously reported operating results. The financial information as of March 31, 2022, and for the three months ended March 31, 2022 and 2021 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 ended March 31, 2022, are not necessarily indicative of the results that may be expected for any other interim period or for the year ending December 31, 2022.

The condensed consolidated balance sheet at December 31, 2021 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, 2021 Annual Report on Form 10-K filed with the SEC on May 13, 2022 (the “2021 Annual Report”).

2.
Going Concern

Our recurring losses 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.

The continuation of our business is dependent upon raising additional capital. We expect to devote substantial resources for the commercialization of the dermaPACE and will 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 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 obtain funds through financing transactions with unfavorable terms.

The accompanying consolidated financial statements have been prepared in conformity with U.S. GAAP, which contemplate continuation of the Company as a going concern and the realization of assets and satisfaction of liabilities in the normal course of business. The carrying amounts of assets and liabilities presented in the consolidated financial statements do not necessarily purport to represent realizable or settlement values. The consolidated financial statements do not include any adjustment that might result from the outcome of this uncertainty. Our consolidated financial statements do not include any adjustments relating to the recoverability of assets and classification of assets and liabilities that might be necessary should we be unable to continue as a going concern.

8
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 2021 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, estimated fair value of stock-based compensation, and the estimated fair value of financial instruments, including warrants and embedded conversion options.

4.
Loss per Share

The net loss per share is calculated by dividing the net loss attributable to common stockholders by the weighted average number of shares outstanding for the three months ended March 31, 2022, and 2021. 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 (shares in thousands):

   
Three Months Ended
  
   
March 31, 2022
    
March 31, 2021
  
Weighted average shares outstanding
            
Common shares
    
498,723
      
481,620
  
Common shares issuable assuming excercise of nominally priced warrants
    
26,691
      
36,871
  
Weighted average shares outstanding
    
525,414
      
518,491
  

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 months ended March 31, 2022 and 2021, 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 March 31, 2022 and 2021, respectively (in thousands):

   
2022
    
2021
  
Common stock options
    
31,759
      
31,864
  
Common stock purchase warrants
    
183,435
      
142,266
  
Convertible notes payable
    
94,172
      
60,329
  
     
309,366
      
234,459
  

9
5.
Accrued Expenses

Accrued expenses consist of the following at March 31, 2022 and December 31, 2021 (in thousands):

 
  
2022
    
2021
  
Registration penalties
  
$
2,083
    
$
1,950
  
License fees
    
893
      
893
  
Board of director’s fees
    
537
      
507
  
Related party
    
250
      
-
  
Other
    
1,153
      
1,044
  
 
  
$
4,916
    
$
4,394
  

There was no activity in the warranty reserve during the three months ended March 31, 2022.

6.
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 months ended March 31, 2022 and 2021 (in thousands):

 
  
Three Months Ended March 31, 2022
   
Three Months Ended March 31, 2021
  
 
  
United States
    
International
    
Total
    
United States
    
International
    
Total
  
Accessories and parts
  
$
2,132
    
$
(4
)
  
$
2,128
    
$
1,435
    
$
136
    
$
1,571
  
Product
    
691
      
16
      
707
      
41
      
212
      
253
  
License fees and other
    
8
      
9
      
17
      
33
      
5
      
38
  
Topic 606 Revenue
  
$
2,831
    
$
21
    
$
2,852
    
$
1,509
    
$
353
    
$
1,862
  
 
                                                
Rental income
    
343
      
-
      
343
      
254
      
-
      
254
  
Topic 842 Revenue
  
$
343
    
$
-
    
$
343
    
$
254
    
$
-
    
$
254
  
 
                                                
Total Revenue
  
$
3,174
    
$
21
    
$
3,195
    
$
1,763
    
$
353
    
$
2,116
  

Contract liabilities - As of March 31, 2022 and December 31, 2021 the Company has contract liabilities from contracts with customers as follows (in thousands):

   
March 31,
2022
    
December 31,
2021
  
Service agreements
  
$
361
    
$
137
  
Deposit on future equipment purchases
    
-
      
204
  
Total contract liabilities
    
361
      
341
  
Less: current portion
    
(58
)
    
(48
)
Non-current contract liabilities
  
$
303
    
$
293
  

10
During the three months ended March 31, 2022 and 2021 the Company recognized revenue related to these contract liabilities of $8 thousand in both 2022 and 2021, 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 three months ended March 31, 2022 (in thousands):

 
  
Three Months ended
March 31, 2022
    
Three Months ended
March 31, 2021
  
Beginning balance
  
$
341
    
$
69
  
New service agreement additions
    
28
      
1
  
Deposit on future equipment purchases
    
-
      
125
  
Revenue recognized
    
(8
)
    
(8
)
Total contract liabilities
    
361
      
187
  
Less current portion
    
(58
)
    
(32
)
Non-current contract liabilities
  
$
303
    
$
155
  

7.
Concentration of Credit Risk and Limited Suppliers

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

   
March 31, 2022
    
December 31, 2021
  
Accounts Receivable:
            
Customer A
    
15
%
    
16
%
Customer B
     n/a       24 %

 
  
March 31, 2022
    
March 31, 2021
  
Revenue:
            
Customer A
    
11
%
    
n/a
  

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 months ended March 31, 2022 and 2021 were as follows:

    Three Months Ended  
   
March 31, 2022
    
March 31, 2021
  
Purchases:
            
Vendor A
    
19
%
    
55
%
Vendor B
    
n/a
      
13
%

11
8.
Notes payable

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

As of 03/31/2022 (dollars in thousands)
Maturity Date
  
Interest Rate
    
Conversion Price
    
Principal
    
Remaining Debt Discount
    
Remaining Embedded Conversion Option
    
Carrying Value
  
Senior secured promissory note payable, in default
In default
     20.50 %    
n/a
    
$
18,000
      
(6,106
)
    
-
    
$
11,894
  
Convertible promissory notes payable, in default:
 
                                                
Total convertible promisory notes payable, in default
In default
    
15.40
%
  
$
0.1058
      
6,445
      
(488
)
    
4,575
       10,532
  
 
 
                                                
Convertible promissory notes payable, related parties, in default:
 
                                                
Total convertible promisory notes payable, related parties, in default
In default
    
14.0
%
  
$
0.10
      
1,596
      
-
      
-
      
1,596
  
 
 
                                                
SBA loan #2
February 20, 2026
    
1.00
%
     n/a
      
1,033
      
-
      
-
      
1,033
  
 
 
                                                
Advances on future cash receipts
June 13, 2022
    
n/a
       n/a
      
925
      
(509
)
    
-
      
416
  
 
 
                                                
Total debt outstanding, including amounts in default
 
                    
27,999
      
(7,103
)
    
4,575
      
25,471
  
 
 
                                                
Less:  current maturities, including notes in default
 
                    
(27,192
)
    
7,103
      
(4,575
)
    
(24,664
)
 
 
                                                
Total long-term debt as of March 31, 2022
 
                  
$
807
    
$
-
    
$
-
    
$
807
  

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

Senior secured promissory note payable, in default (“Senior Secured Note”) - On February 25, 2022, the Company entered into a Note Extension with NH Expansion Credit Fund Holdings LP. The amount of the note was $3.0 million, with an interest rate of 20.5% and matures on September 30, 2025. Because the combined fair value of the applicable warrants and common stock issued as part of this note exceeded the face value of the note, the additional amount beyond the face value is recorded as a loss on issuance of $3.4 million.

Embedded Conversion Option Liability

 
The fair value of Conversion Option liability was determined by using a binomial pricing model:

 
  
At 03/31/2022
    
At 12/31/2021
  
Conversion Price(1)
  
$
0.11
    
$
0.11
  
 
                
Interest Rate (annual) (2)
    
0.15
%
    
0.18
%
 
                
Volatility (annual) (3)
    
185.75
%
    
289.65
%
 
                
Time to Maturity (Years)
    
0.26
      
0.50
  

(1) Based on the terms provided in the warrant agreement to purchase common stock of the Company as of March 31, 2022 and December 31, 2021.
(2) Interest rate for U.S. Treasury Bonds, as of each presented period ending date, as published by the U.S. Federal Reserve.
(3) Based on the historical daily volatility of the Company as of each presented period ending date.
13

9.
Common Stock Purchase Warrants

A summary of the warrant activity as of March 31, 2022 is as follows (dollars in thousands):

 
  
Warrants
    
Weighted
Average
Exercise Price
per share
    
Weighted Average
Remaining
Contractual Life
(years)
  
Outstanding at December 31, 2021
    
204,882,664
    
$
0.20
      
2.54
  
Exercised
    
(15,909,091
)
    
0.01
          
Issued
    
16,152,079
      
0.18
          
Outstanding at March 31, 2022
    
205,125,652
    
$
0.18
      
2.67
  

On January 31, 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 LGH Warrants remain outstanding. On February 28, 2022, the Company issued 16.1 million warrants with an exercise price of $0.18 and a 8.6-year term as part of the Second Amendment to Note and Warrant Purchase and Security Agreement with NH Expansion Fund.

10.
Fair Value Measurements

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

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

   
Fair value measured at March 31, 2022
  
   
Fair value at
March 31, 2022
    
Quoted prices in
active markets
(Level 1)
    
Significant other
observable inputs
(Level 2)
    
Significant
unobservable inputs
(Level 3)
  
Warrant liability
  
$
8,300
    
$
-
    
$
-
    
$
8,300
  
Embedded conversion option
    
4,575
      
-
      
-
      
4,575
  
Total fair value
    
12,875
      
-
      
-
      
12,875
  

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

There were no transfers between Level 1, 2 or 3 during the three months ended March 31, 2022 and 2021.

14
The following table presents changes in Level 3 liabilities measured at fair value for the three months ended March 31, 2022. Both observable and unobservable inputs were used to determine the fair value of positions that the Company has classified within the Level 3 category. Unrealized gains and losses associated with liabilities within the Level 3 category include changes in fair value that were attributable to both observable (e.g. changes in market interest rates) and unobservable (e.g., changes in unobservable long-dated volatilities) inputs (dollars in thousands):

   
Warrant
Liability
    
Conversion
Feature
    
Total
  
Balance at December 31, 2021
  
$
9,614
    
$
6,255
    
$
15,869
  
Cashless exercise
    
(2,167
)
    
-
      
(2,167
)
Warrants issued
    
2,654
      
-
      
2,654
  
Change in fair value
    
(1,801
)
    
(1,680
)
    
(3,481
)
Balance at March 31, 2022
  
$
8,300
    
$
4,575
    
$
12,875
  

A summary of the warrant liability activity for the three months ended March 31, 2022 is as follows:

   
Warrants
Outstanding
    
Fair Value
per Share
    
Fair Value
  
Balance at December 31, 2021
    
62,617,188
    
$
0.15
    
$
9,614,134
  
Warrants classified as liabilities
    
(15,000,000
)
    
0.14
      
(2,167,022
)
Warrants issued
    
16,152,079
      
0.18
      
2,654,178
  
Gain on remeasurement of warrant liability
    
-
              
(1,801,225
)
Balance at March 31, 2022
    
63,769,267
    
$
0.13
    
$
8,300,065
  

Significant Black Scholes valuation model inputs related to the Company’s different Warrants are listed below.

   
March 31, 2022
    
December 31, 2021
    
New Issuances at Issue Date
  
Weighted average remaining life in years
    
5.65
      
4.67
      
8.63
  
Weighted average volatility
    
131
%
    
116
%
    
143
%
Weighted average risk free interest rate
    
2.2
%
    
1.2
%
    
2.0
%
Expected dividend yield
    
0.00
%
    
0.00
%
    
0.00
%

11.
Commitments and Contingencies

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

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

12.
Related Party Transactions

Advance from Director - On March 31, 2022 the Company entered into an Advance Agreement with a related party, A. Michael Stolarski, also a shareholder and member of the Company’s board of directors, in the amount of $250 thousand (“Stolarski Advance”). This amount is in accrued expenses on the condensed consolidated balance sheet.

The Stolarski Advance has 18 UltraMIST® systems used as collateral (the “Collateral”) and the Company has agreed to repurchase the Collateral at $256 thousand.

15
13.
Subsequent Events

May 2022 Advance on Future Receipts Financing – On May 19, 2022, the Company paid off the remaining balance of $400 thousand from the December 22, 2021 advance and received $545 thousand in cash proceeds related to its entry into a non-recourse agreement for the sale of $1.0 million of future receipts to GCF. In conjunction with the 24-week agreement, the Company is obligated to remit to GCF a minimum of $59 thousand of receipts each week for the twenty-four weeks. The Company will begin making the required minimum weekly payments May 23, 2022, and is obligated to continue through October 31, 2022. 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.
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, 2021 included in our Annual Report on Form 10-K, filed with the SEC on May 13, 2022 (the “2021 Annual Report”).

Overview

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

Our lead regenerative product in the United States is the dermaPACE® 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.

17
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 estimate of the fair value of embedded conversion options and warrants. We base our estimates on authoritative literature and pronouncements, historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions. The results of our operations for any historical period are not necessarily indicative of the results of our operations for any future period.
 
In addition, there are other items within our financial statements that require estimation but are not deemed critical as defined above. Changes in these and other items could still have a material impact upon our financial statements.
Our significant accounting policies are more fully described in Note 3 to our Consolidated Financial Statements filed with our 2021 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 $27.3 million and $30.9 million for the years ended December 31, 2021 and 2020, respectively, and additional losses of approximately $4.4 million in the first three months of 2022. 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.

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.

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.

18
Since our inception, we have incurred losses from operations each year. As of December 31, 2021, we had an accumulated deficit of $183.9 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:

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

• future clinical trial results;

• the cost and timing of regulatory approvals;

• supplier and customer disputes;

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

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

• the effects of competing technologies and market developments; and

• the industry demand and patient wellness behavior.

Any failure to complete the development of our product candidates in a timely manner, or any failure to successfully market and commercialize our product candidates, would have a material adverse effect on our operations, financial position and liquidity. A discussion of the risks and uncertainties associated with us and our business are set forth under the section entitled “Risk Factors – Risks Related to Our Business” in our 2020 Annual Report.

The worldwide spread of the COVID-19 virus is expected to result in a global slowdown of economic activity which is likely to decrease demand for a broad variety of products, including from our customers. We have experienced a disruption of our supply channels which will continue for an unknown period of time until the global supply chain can return to the pre- disease status. 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. These factors have had and we expect that they will 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 March 31, 2022 were $3.2 million compared to $2.1 million for the same period in 2021, an increase of $1.1 million. The increase was driven by sales of UltraMIST® devices and single-use accessories.

Gross margin as a percentage of revenue increased to 72.2% from 50.1% during the first quarter of 2022 as compared with the first quarter of the prior year. The increase in gross margin percentages for the quarter was driven by higher sales of single-use accessories, which have a higher gross margin percentage, offset by the discontinuation of Biologics sales, which had a lower gross margin percentage.

Research and Development Expenses

Research and development expenses decreased 63.0% to $166 thousand from $354 thousand during the first quarter of 2022 compared with the first quarter of 2021. The decrease was primarily due to lower employee compensation in the first quarter of 2022.

19
Selling and Marketing Expenses

Selling and marketing expenses were essentially flat, with a small decrease of $65 thousand or 3.7% for the three-month period ended March 31, 2022 versus the same period of 2021.

General and Administrative Expenses

General and administrative expenses decreased $1.0 million or 31.7% for the three-month period ended March 31, 2022, compared with the same period of 2021. This decrease was primarily due to registration penalties incurred in 2021 as well as a reduction in legal 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 $27.3 million and $30.9 million for the years ended December 31, 2021 and 2020, respectively, and incurred additional net losses in the three months of 2022 of approximately $4.4 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 three months ended March 31, 2022, cash used by operating activities totaled approximately $3.1 million, which was driven largely by the net loss for the period. Cash provided by investing activities during the first three months of 2021 consisted of purchases of property and equipment of approximately $194 thousand offset by the gain of the disposal of assets of approximately $554 thousand. Cash provided by financing activities for the period consisted primarily of $2.5 million received from the NH Note Expansion in February 2022.

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.

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 2021 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

20
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 March 31, 2022. 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 March 31, 2022. Our disclosure controls and procedures were not effective because of the “material weakness” described below.

As of March 31, 2022, 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 March 31, 2022.

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 March 31, 2022 that materially affect, or are reasonably likely to materially affect, our internal control over financial reporting, except as disclosed in “Remediation Plan” above.

21
PART II — OTHER INFORMATION

Item 1.
LEGAL PROCEEDINGS.

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

Item 1A.
RISK FACTORS.
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.

Item 6.
EXHIBITS

Exhibit No.
Description
   
Master Equipment and Contracts Purchase Agreement by and between the company and ABF Sanuwave, LLC dated February 17, 2022. (Incorporated by reference to the Form 8-K filed with the SEC on February 24, 2022).
   
Second Amendment to the Note and Warrant Purchase and Security Agreement by and between the Company and NH Expansion Credit Fund Holdings L.P., dated February 25, 2022. (Incorporated by reference to the Form 8-K filed with the SEC on March 2, 2022).
   
10.3* Form of Advance Agreement by and between the Company and A. Michael Stolarski dated March 31, 2022.
   
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.
   

22
101.DEF*
XBRL Taxonomy Extension Definition.
   
101.LAB*
XBRL Taxonomy Extension Labels.
   
101.PRE*
XBRL Taxonomy Extension Presentation.
   
104 Cover Page with Interactive Data File

*Filed herewith.

23
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: May 26, 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)
  
May 26, 2022
         
By: /s/ Lisa E. Sundstrom
Name: Lisa E. Sundstrom
  
Chief Financial Officer (principal financial and accounting officer)
  
May 26, 2022


24
Exhibit 10.3

Reverse Repurchase Agreement

THIS REVERSE REPURCHASE AGREEMENT (the “Agreement”) is made, entered into and effective as of the 31st day of March 2022 by and between A. Michael Stolarski (hereinafter the “Lender”) and SANUWAVE Health, Inc., a Nevada corporation (hereinafter the “Borrower”).

W I T N E S S E T H :

Whereas, IT IS KNOWN THAT the Lender is a member of the Board of Directors of the Borrower.

Whereas, the Board of Directors of the Borrower recognizes that this Agreement is a financing of last resort.

Whereas, the Board of Directors and the management of the Borrower are in agreement that the terms set forth in this Agreement, at the effective date, are more favorable to the Borrower than those that can be obtained from any other known commercial financing source.

Whereas, management of the Borrower has made best efforts to obtain funds at terms better than those of this Agreement.

Whereas, in consideration of the mutual covenants and agreements set forth herein, Lender agrees to make a certain reverse repurchase agreement with the Borrower in accordance with and subject to the terms and conditions hereinafter set forth.

Initial Exchange.

On March 31, 2022, the Lender will wire TWO HUNDRED FIFTY THOUSAND DOLLARS ($250,000.00) to the Borrower.

Collateral.

The collateral in this Agreement is 18 UltraMIST systems.

Maturity.

On April 22, 2022, the Borrower will wire TWO HUNDRED FIFTY SIX THOUSAND DOLLARS ($256,000.00) to the Lender. The collateral of this Agreement shall be returned to the Borrower upon payment-in-full.

Counterparts.

This Agreement and the Credit Documents may be executed in one or more duplicate originals which shall, either singly or together, serve to represent one agreement among the parties. This Agreement shall be legally executed and binding if signatures are affixed on separate counterparts, even if all signatures are not on one counterpart. The parties may execute this agreement “by facsimile” which shall create a legally binding agreement.


Page 1 of 2
IN WITNESS WHEREOF, Borrower and Lender have executed this Agreement by and through their respectively duly authorized officers as of the date first above written.

 
LENDER:
   
 
/s/ A. Michael Stolarski
 
A. MICHAEL STOLARSKI
     
 
BORROWER:
     
 
SANUWAVE HEALTH, INC.
   
 
By:
/s/ Kevin A. Richardson, II
   
Authorized Officer


Page 2 of 2
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: May 26, 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: May 26, 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 March 31, 2022 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: May 26, 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 March 31, 2022 as filed with the Securities and Exchange Commission (the “Report”), I, Lisa E. 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: May 26, 2022

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