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What changed in SANUWAVE Health, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of SANUWAVE Health, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+313 added−319 removedSource: 10-K (2024-03-21) vs 10-K (2023-03-31)

Top changes in SANUWAVE Health, Inc.'s 2023 10-K

313 paragraphs added · 319 removed · 189 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

76 edited+45 added−38 removed64 unchanged
Biggest changeAND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31, 2022 and 2021 (In thousands) 2022 2021 Cash Flows - Operating Activities: Net loss $ (10,293 ) $ (27,259 ) Adjustments to reconcile net loss to net cash used by operating activities Depreciation and amortization 952 1,236 Bad debt expense 253 442 Shares issued for services 888 - Gain/loss on extinguishment of debt 418 (204 ) Income tax expense 2 28 Change in fair value of derivative liabilites (16,654 ) 2,622 Loss on issuance of debt 3,434 3,572 Amortization of debt issuance and debt discounts 4,950 3,226 Changes in operating assets and liablities: Accounts receivable (1,748 ) (395 ) Inventory, prepaid expenses and other assets (72 ) 1,687 Accounts payable (2,550 ) 3,181 Accrued interest and accrued interest, related parties 3,182 1,718 Accrued expenses and contract liabilities 69 3,737 Net Cash Used by Operating Activities (17,169 ) (6,409 ) Cash Flows - Investing Activites Purchase (proceeds from sale) of property and equipment 332 (529 ) Net Cash Flows Used by Investing Activities 332 (529 ) Cash Flows - Financing Activities Proceeds from convertible promisorry notes 16,227 1,928 Proceeds from SBA loans - 1,033 Proceeds from senior secured promissory note 2,940 940 Proceeds from factoring 695 1,737 Proceeds from warrant exercises 100 - Proceeds from short term borrowings 640 175 Repayments of debt principal (2,981 ) (493 ) Principal payments on finance leases (237 ) (199 ) Net Cash Flows Provided by Financing Activities 17,384 5,121 Effect of Exchange Rates on Cash (13 ) (1 ) Net Change in Cash During Period 534 (1,818 ) Cash at Beginning of Period 619 2,437 Cash at End of Period $ 1,153 $ 619 Supplemental Information: Cash paid for interest $ 3,712 $ 2,580 Non-Cash Investing and Financing Activities: Reclassification of warrant liabilities to equity due to cashless warrant exercise $ 2,166 $ 2,030 Settlement of debt and warrants with stock 1,361 - Working capital balances refinanced into convertible promissory notes 2,363 - Embedded conversion feature on convertible debt 2,760 4,138 Common shares issued in conjunction with senior secured debt 3,720 - Warrant issuance in conjunction with advances on future cash receipts - 1,227 Warrant issuance in conjunction with convertible notes 1,708 1,055 The accompanying notes to consolidated financial statemetns are an integral part of these statements.
Biggest changeAND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31, 2023 and 2022 (In thousands) 2023 2022 Cash Flows - Operating Activities: Net loss $ (25,807 ) $ (10,293 ) Adjustments to reconcile net loss to net cash used by operating activities Depreciation and amortization 1,028 952 Bad debt expense 781 253 Shares issued for services 224 888 Gain/loss on extinguishment of debt - 418 Income tax expense 4 2 Change in fair value of derivative liabilities 9,621 (16,654 ) Loss on issuance of debt - 3,434 Amortization of debt issuance and debt discounts 6,911 4,950 Changes in operating assets and liabilities Accounts receivable (53 ) (1,748 ) Inventory, prepaid expenses and other assets (3,006 ) (72 ) Accounts payable 1,546 (2,550 ) Accrued interest and accrued interest, related parties 6,306 3,182 Accrued expenses and contract liabilities (2,093 ) 69 Net Cash Used by Operating Activities (4,538 ) (17,169 ) Cash Flows - Investing Activities Proceeds from sale of property and equipment 21 332 Net Cash Flows Provided by Investing Activities 21 332 Cash Flows - Financing Activities Proceeds from convertible promissory notes 3,026 16,227 Proceeds from asset-backed secured promissory notes payable 2,994 - Proceeds from senior secured promissory note - 2,940 (Payments)/Proceeds from factoring (639 ) 695 Proceeds from warrant exercises - 100 Proceeds from short term borrowings - 640 Repayments of debt principal - (2,981 ) Principal payments on finance leases (170 ) (237 ) Net Cash Flows Provided by Financing Activities 5,211 17,384 Effect of Exchange Rates on Cash (50 ) (13 ) Net Change in Cash During Period 644 534 Cash at Beginning of Period 1,153 619 Cash at End of Period $ 1,797 $ 1,153 Supplemental Information: Cash paid for interest $ 1,958 $ 3,712 Non-Cash Investing and Financing Activities: Warrants issued in conjunction with senior secured promissory note payable and convertible promissory notes payable $ 1,682 $ 4,177 Conversion of convertible notes payable and accrued interest to common stock 23,156 - Embedded conversion feature on convertible debt 835 2,760 Common shares issued for advisory shares 302 - Settlement of debt and warrants with stock - 1,361 Common shares issued in conjunction with senior secured debt - 3,720 Warrant issuance in conjunction with convertible notes - 1,708 Reclassification of warrant liabilities to equity due to cashless warrant exercise - 2,166 Working capital balances refinanced into convertible notes payable - 2,363 The accompanying notes to consolidated financial statements are an integral part of these statements.
Since the combined fair value of the warrants and common stock issued as part of the Second NWPSA exceeded the face value of the note, the additional amount beyond the face value was recorded as a loss on issuance totaling $3.4 million. Interest is charged at the greater of prime rate or 3% plus 9%, paid quarterly.
Since the combined fair value of the warrants and common stock issued as part of the Second NWPSA exceeded the face value of the note, the additional amount beyond the face value was recorded as a loss on issuance totaling $3.4 million. Interest is charged at the greater of the prime rate or 3% plus 9%, paid quarterly.
Common Stock In December 2022, the Company’s stockholders approved, an amendment to the Company’s Articles of Incorporation to increase the number of authorized shares of common stock from 800,000,000 to 2,500,000,000. In January 2023, the Company filed the amendment to the Articles of Incorporation with the state of Nevada to affect the increase in authorized shares.
Common Stock In December 2022, the Company’s stockholders approved an amendment to the Company’s Articles of Incorporation to increase the number of authorized shares of common stock from 800,000,000 to 2,500,000,000. In January 2023, the Company filed the amendment to the Articles of Incorporation with the state of Nevada to affect the increase in authorized shares. 17.
Both observable and unobservable in puts were used to determine fair value of the positions that the Company classified within the Level 3 category. Unrealized gains and losses associated with the liabilities within the Level 3 category include changes in fair value that were attributable to both observable and unobservable inputs.
Both observable and unobservable inputs were used to determine fair value of the positions that the Company classified within the Level 3 category. Unrealized gains and losses associated with the liabilities within the Level 3 category include changes in fair value that were attributable to both observable and unobservable inputs.
Management has evaluated and concluded that there were no material uncertain tax positions requiring recognition in the Company’s consolidated financial statements as of December 31, 2022, and 2021. The Company does not expect any significant changes in the unrecognized tax benefits within twelve months of the reporting date.
Management has evaluated and concluded that there were no material uncertain tax positions requiring recognition in the Company’s consolidated financial statements as of December 31, 2023, and 2022. The Company does not expect any significant changes in the unrecognized tax benefits within twelve months of the reporting date.
The options are granted at an exercise price determined by the board of directors of the Company to be the fair market value of the common stock on the date of the grant. As of December 31, 2022, and 2021, the Stock Incentive Plan reserved a total of 35,000,000 shares of common stock for grant.
The options are granted at an exercise price determined by the board of directors of the Company to be the fair market value of the common stock on the date of the grant. As of December 31, 2023, and 2022, the Stock Incentive Plan reserved a total of 35,000,000 shares of common stock for grant.
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 years ended December 31, 2022, and 2021, all potentially dilutive shares were anti-dilutive and therefore excluded from the computation of diluted net loss per share.
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 years ended December 31, 2023, and 2022, all potentially dilutive shares were anti-dilutive and therefore excluded from the computation of diluted net loss per share.
Goodwill is stated at cost less accumulated impairment losses. The Company completes its goodwill impairment test annually in the fourth quarter. The Company performed a qualitative evaluation at the reporting unit level and determined there was no goodwill impairment as of December 31, 2022, and 2021.
Goodwill is stated at cost less accumulated impairment losses. The Company completes its goodwill impairment test annually in the fourth quarter. The Company performed a qualitative evaluation at the reporting unit level and determined there was no goodwill impairment as of December 31, 2023, and 2022.
The Company generally issues new shares of common stock to satisfy option and warrant exercises. The expected life of options granted represent the period of time that options granted are expected to be outstanding and are derived from the contractual terms of the options granted calculated under the simplified method.
The Company generally issues new shares of common stock to satisfy option and warrant exercises. The expected life of options granted represents the period of time that options granted are expected to be outstanding and are derived from the contractual terms of the options granted calculated under the simplified method.
The Company will recognize in income tax expense, interest and penalties related to income tax matters. For the years ended December 31, 2022, and 2021, the Company did not have any amounts recorded for interest and penalties. 21.
The Company will recognize in income tax expense, interest and penalties related to income tax matters. For the years ended December 31, 2023, and 2022, the Company did not have any amounts recorded for interest and penalties. 21.
The Company will amortize these costs for tax purposes over five years for R&D performed in the U.S. and over 15 years for R&D performed outside the U.S. In 2022, all R&D was performed in the U.S.
The Company will amortize these costs for tax purposes over five years for R&D performed in the U.S. and over 15 years for R&D performed outside the U.S. In 2023, all R&D was performed in the U.S.
Contract Liabilities The Company has contract liabilities from contracts with customers as follows: During the years ended December 31, 2022, and 2021, the Company recognized revenue related to these contract liabilities of $253 thousand and $32 thousand, respectively, that were included in the beginning contract liability balances for each of those periods.
Contract Liabilities The Company has contract liabilities from contracts with customers as follows: During the years ended December 31, 2023, and 2022, the Company recognized revenue related to these contract liabilities of $60 thousand and $253 thousand, respectively, that were included in the beginning contract liability balances for each of those periods.
The Tax Cuts and Jobs Act (“TCJA”) requires taxpayers to capitalize and amortize research and development (“R&D”) expenditures under section 174 for tax years beginning after December 31, 2021. This rule became effective for the Company during 2022 and resulted in capitalized R&D costs of $0.6 million as of December 31, 2022.
The Tax Cuts and Jobs Act (“TCJA”) requires taxpayers to capitalize and amortize research and development (“R&D”) expenditures under section 174 for tax years beginning after December 31, 2021. This rule became effective for the Company during 2022 and resulted in capitalized R&D costs of $1.3 million as of December 31, 2023.
F-19 Table of Contents A provision of ASC 740 specifies that companies are to account for uncertainties in income tax reporting, and prescribes a methodology for recognizing, reversing, and measuring the tax benefits of a tax position taken, or expected to be taken, in a tax return.
A provision of ASC 740 specifies that companies are to account for uncertainties in income tax reporting, and prescribes a methodology for recognizing, reversing, and measuring the tax benefits of a tax position taken, or expected to be taken, in a tax return.
After consideration of all the information available, management believes that uncertainty exists with respect to future realization of its deferred tax assets and has, therefore, established a full valuation allowance as of December 31, 2022, and 2021. The Company’s ability to use its net operating loss carryforwards could be limited and subject to annual limitations.
After consideration of all the information available, management believes that uncertainty exists with respect to future realization of its deferred tax assets and has, therefore, established a full valuation allowance as of December 31, 2023, and 2022. F-21 Table of Contents The Company’s ability to use its net operating loss carryforwards could be limited and subject to annual limitations.
The percentage of purchases from major vendors of the Company that exceeded ten percent of total purchases were as follows: Year ended December 31, 2022 2021 Purchases: Vendor A 19 % 50 % Vendor B - 21 % 18. Revenue The disaggregation of revenue is based on type and geographical region.
The percentage of purchases from major vendors of the Company that exceeded ten percent of total purchases were as follows: Year ended December 31, 2023 2022 Purchases: Vendor A 19 % 19 % Vendor B 19 % 0 % 18. Revenue The disaggregation of revenue is based on type and geographical region.
F-7 Table of Contents For leases where the Company is the lessee, Right of Use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent an obligation to make lease payments arising from the lease.
For leases where the Company is the lessee, Right of Use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent an obligation to make lease payments arising from the lease.
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.
F-13 Table of Contents 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.
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, related party - In August 2020, the Company issued a convertible promissory note payable in the amount of $1.4 million.
Upon adoption of ASC 2020-06 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. F-14 Table of Contents Convertible promissory notes payable, related party - In August 2020, the Company issued a convertible promissory note payable in the amount of $1.4 million.
The following table classifies the Company’s liabilities measured at fair value on a recurring basis into the fair value hierarchy: Fair value measurement at December 31, 2022 (in thousands) Fair value Quoted prices in active markets (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) Warrant liability $ 1,416 - - $ 1,416 Conversion option 2,340 - - 2,340 Total Fair Value $ 3,756 $ - $ - $ 3,756 F-13 Table of Contents Fair value measurement at December 31, 2021 (in thousands) Fair value Quoted prices in active markets (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) Warrant liability $ 9,614 - - $ 9,614 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 years ended December 31, 2022, and 2021.
The following table classifies the Company’s liabilities measured at fair value on a recurring basis into the fair value hierarchy: Fair value measurement at December 31, 2023 (in thousands) Fair value Quoted prices in active markets (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) Warrant liability $ 14,447 - - $ 14,447 Conversion option 93 - - 93 Total Fair Value $ 14,540 $ - $ - $ 14,540 F-15 Table of Contents Fair value measurement at December 31, 2022 (in thousands) Fair value Quoted prices in active markets (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) Warrant liability $ 1,416 - - $ 1,416 Conversion option 2,340 - - 2,340 Total Fair Value $ 3,756 $ - $ - $ 3,756 There were no transfers between Level 1, 2, or 3, during the years ended December 31, 2023, and 2022.
F-11 Table of Contents As of December 31, 2022, the Company is in default of the minimum liquidity provisions in the Senior Secured Note and, as a result, it is classified in current liabilities in the accompanying consolidated balance sheets. The Company is accruing interest at the default interest rate of an incremental 5%.
As of December 31, 2023, the Company is in default on the minimum liquidity provisions in the Senior Secured Note and, as a result, it is classified in current liabilities in the accompanying consolidated balance sheets. The Company is accruing interest at the default interest rate of an incremental 5%.
F-5 Table of Contents SANUWAVE HEALTH, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2022 and 2021 1.
F-6 Table of Contents SANUWAVE HEALTH, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 1.
The state net operating loss carryforwards of approximately $70.5 million from years ending December 31, 2005, through December 31, 2022, will expire at various dates through 2042 . The foreign net operating loss carryforward on December 31, 2022, of $0.1 million will begin to expire in 2024 .
The state net operating loss carryforwards of approximately $75.1 million from years ending December 31, 2005, through December 31, 2023, will expire at various dates through 2043 . The foreign net operating loss carryforward on December 31, 2023, of $0.1 million will begin to expire in 2024 .
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. F-6 Table of Contents 3.
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. F-7 Table of Contents 3.
Intangible Assets Carrying value of intangible assets consist of the following: December 31, 2022 December 31, 2021 Weighted- Average Useful Life (in years) (in thousands) Gross Accumulated Amortization Gross Accumulated Amortization Definite-lived Intangibles Customer relationships $ 3,820 $ (1,308 ) $ 3,820 $ (763 ) 2.9 Patent 2,312 (292 ) 2,312 (171 ) 6.4 Tradenames 693 (88 ) 693 (50 ) 1.9 Intangible Assets $ 6,825 $ (1,688 ) $ 6,825 $ (984 ) 3.8 Amortization expense for each of the years ended December 31, 2022, and 2021 totaled $704 thousand.
Intangible Assets Carrying value of intangible assets consisted of the following: December 31, 2023 December 31, 2022 Weighted- Average Useful Life (in years) (in thousands) Gross Accumulated Amortization Gross Accumulated Amortization Definite-lived Intangibles Customer relationships $ 3,820 $ (1,854 ) $ 3,820 $ (1,308 ) 2.9 Patent 2,312 (413 ) 2,312 (292 ) 6.4 Tradenames 693 (124 ) 693 (88 ) 1.9 Intangible Assets $ 6,825 $ (2,391 ) $ 6,825 $ (1,688 ) 3.8 Amortization expense for each of the years ended December 31, 2023, and 2022 totaled $704 thousand.
The income tax provision (benefit) amounts differ from the amounts computed by applying the United States Federal statutory income tax rate of 21% for the years ended December 31, 2022, and 2021.
F-19 Table of Contents The income tax provision (benefit) amounts differ from the amounts computed by applying the United States Federal statutory income tax rate of 21% for the years ended December 31, 2023, and 2022.
On December 31, 2022, there were 3,240,615 shares of common stock available for grant under the Stock Incentive Plan. 20. Income Taxes The Company files income tax returns in the United States Federal jurisdiction and various state and foreign jurisdictions.
On December 31, 2023, there were 5,598,216 shares of common stock available for grant under the Stock Incentive Plan. 20. Income Taxes The Company files income tax returns in the United States Federal jurisdiction and various state and foreign jurisdictions.
Convertible Promissory Notes and Convertible Promissory Notes, Related Parties December 31, 2022 (In thousands, except conversion price) Conversion Price Principal Debt Discount Conversion Option Carrying Value Acquisition convertible promissory note, in default $ 0.10 $ 4,000 $ - $ - $ 4,000 Convertible promissory note, related party, in default $ 0.10 1,373 - - 1,373 2022 Convertible notes payable $ 0.04 13,660 (2,532 ) 1,585 12,713 2022 Convertible notes payable, related parties $ 0.04 6,515 (1,234 ) 755 6,036 Total Convertible promissory notes $ 25,548 $ (3,766 ) $ 2,340 $ 24,122 December 31, 2021 (In thousands, except conversion price) Conversion Price Principal Debt Discount Conversion Option Carrying Value 2021 Convertible promissory notes payable $ 0.10 $ 2,446 $ (1,100 ) $ 6,255 $ 7,601 Acquisition convertible promissory note, in default $ 0.10 4,000 - - 4,000 Convertible promissory note payable, related parties, in default $ 0.10 1,596 - - 1,596 Total Convertible Promissory Notes $ 8,042 $ (1,100 ) $ 6,255 $ 13,197 2022 Convertible Notes Payable and 2022 Convertible Notes Payable, Related Parties - In August 2022 and November 2022, the Company entered into a Securities Purchase Agreements (the “Purchase Agreements”), for the sale in a private placement of (i) Future Advance Convertible Promissory Notes (the “Notes”) in an aggregate principal amount of $16.2 million in August and $4.0 million in November, (ii) Common Stock Purchase Warrants to purchase an additional 504.4 million shares of common stock with an exercise price of $0.067 per share and (iii) Common Stock Purchase Warrants to purchase an additional 504.4 million shares of common stock with an exercise price of $0.04 per share.
Convertible Promissory Notes and Convertible Promissory Notes, Related Parties December 31, 2023 (In thousands, except conversion price) Conversion Price Principal Debt Discount Conversion Option Carrying Value Acquisition convertible promissory note, in default $ 0.10 $ 4,000 $ - $ - $ 4,000 Convertible promissory note, related party, in default $ 0.10 1,373 - - 1,373 2022 Convertible notes payable $ 0.04 2,639 (1,235 ) - 1,404 2022 Convertible notes payable, related parties $ 0.04 450 (118 ) - 332 Total Convertible promissory notes $ 8,462 $ (1,353 ) $ - $ 7,109 December 31, 2022 (In thousands, except conversion price) Conversion Price Principal Debt Discount Conversion Option Carrying Value Acquistion convertible promissory note, in default $ 0.10 $ 4,000 - - $ 4,000 Convertible promissory note payable, related parties, in default $ 0.10 1,373 - - 1,373 2022 Convertible notes payable $ 0.04 13,660 (2,532 ) 1,585 12,713 2022 Convertible notes payable, related parties $ 0.04 6,515 (1,234 ) 755 6,036 Total Convertible Promissory Notes $ 25,548 $ (3,766 ) $ 2,340 $ 24,122 2022 Convertible Notes Payable and 2022 Convertible Notes Payable, Related Parties - In August 2022 , November 2022, May 2023 and December 2023, the Company entered into a Securities Purchase Agreements (the “Purchase Agreements”), for the sale in a private placement of (i) Future Advance Convertible Promissory Notes (the “Notes”) in an aggregate principal amount of $16.2 million in August 2022,$4.0 million in November 2022, $1.2 million in May 2023, and $1.9 million in December 2023 (ii) Common Stock Purchase Warrants to purchase an additional 581.6 million shares of common stock with an exercise price of $0.067 per share and (iii) Common Stock Purchase Warrants to purchase an additional 581.6 million shares of common stock with an exercise price of $0.04 per share.
The Company recognizes revenue primarily from the following types of contracts: F-8 Table of Contents System Sales, Accessory and Part Sales - System sales, accessory and part sales include devices and applicators (new and refurbished).
The Company recognizes revenue primarily from the following types of contracts: System Sales, Consumables and Part Sales - System sales, accessory and part sales include devices and applicators (new and refurbished).
Warranty revenue is recognized over the time that the Company satisfies its performance obligations, which is generally the warranty term. Repairs (parts and labor) and billed freight revenue are recognized at the point in time that the service is performed, or the product is shipped, respectively. Shipping and handling costs - Shipping charges billed to customers are included in revenues.
Warranty revenue is recognized over the time that the Company satisfies its performance obligations, which is generally the warranty term. Repairs (parts and labor) and billed freight revenue are recognized at the point in time that the service is performed, or the product is shipped, respectively.
The components of the net loss before income taxes are as follows: Year ended December 31, (In thousands) 2022 2021 Domestic $ (10,279 ) $ (27,208 ) Foreign (12 ) (23 ) Net loss before income taxes $ (10,291 ) $ (27,231 ) In accordance with ASC Topic 740, Income Taxes (“ASC 740”), the Company accounts for income taxes utilizing the asset and liability method.
The components of the net loss before income taxes are as follows: Year ended December 31, (In thousands) 2023 2022 Domestic $ (25,783 ) $ (10,279 ) Foreign (20 ) (12 ) Net loss before income taxes $ (25,803 ) $ (10,291 ) In accordance with ASC Topic 740, Income Taxes (“ASC 740”), the Company accounts for income taxes utilizing the asset and liability method.
As of December 31, 2022, and 2021, the Seller Notes had outstanding accrued interest of $1.5 million and $761 thousand, respectively. F-12 Table of Contents The Company evaluated embedded conversion features within the convertible promissory note and determined that the conversion feature does not require to be bifurcated.
As of December 31, 2023, and 2022, the Seller Notes had outstanding accrued interest of $2.2 million and $1.5 million , respectively. The Company evaluated embedded conversion features within the convertible promissory note and determined that the conversion feature does not require to be bifurcated.
Future amortization expense is expected to be the following (dollars in thousands): Year ended December 31, Amortization 2023 704 2024 704 2025 704 2026 704 2027 487 8 .
Future amortization expense is expected to be the following (dollars in thousands): Year ended December 31, Amortization 2024 704 2025 704 2026 704 2027 487 2028 158 Thereafter 1,677 8.
F-9 Table of Contents 5. 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 years ended December 31, 2022, and 2021.
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 years ended December 31, 2023, and 2022.
Senior Secured Debt, in Default The following table summarizes outstanding senior secured debt: December 31, 2022 December 31, 2021 (In thousands) Principal Debt Discount Carrying Value Principal Debt Discount Carrying Value Senior secured debt $ 19,211 $ (4,795 ) $ 14,416 $ 15,000 $ (3,414 ) $ 11,586 Senior secured promissory note payable, in default (“Senior Secured Note”) – In August 2020, the Company entered into a Note and Warrant Purchase and Security Agreement (the “NWPSA”).
Senior Secured Debt, in Default The following table summarizes outstanding senior secured debt: December 31, 2023 December 31, 2022 (In thousands) Principal Debt Discount Carrying Value Principal Debt Discount Carrying Value Senior secured debt $ 21,562 $ (3,284 ) $ 18,278 $ 19,211 $ (4,795 ) $ 14,416 Senior secured promissory note payable, in default (“Senior Secured Note”) – In August 2020, the Company entered into a Note and Warrant Purchase and Security Agreement (the “NWPSA”).
Significant estimates include the recording of allowances for doubtful accounts, the net realizable value of inventory, fair value of goodwill and intangible assets, the determination of the valuation allowances for deferred taxes, estimated fair value of stock-based compensation, and the estimated fair value of embedded derivatives, including warrants and embedded conversion options.
Significant estimates include the recording of allowances for credit losses, the net realizable value of inventory, fair value of goodwill and intangible assets, the determination of the valuation allowances for deferred taxes, litigation contingencies, estimated fair value of stock-based compensation, and the estimated fair value of embedded financial instruments, including warrants and embedded conversion options.
A summary of the conversion option liability activity is as follows: (in thousands) Conversion Liability Balance December 31, 2020 $ - Convertible feature 4,139 Change in fair value 2,116 Balance December 31, 2021 $ 6,255 Issuance of Convertible Notes 2,760 Settlement of convertible notes (218 ) Change in fair value (6,457 ) Balance December 31, 2022 $ 2,340 14.
A summary of the conversion option liability activity is as follows: (in thousands) Conversion Liability Balance December 31, 2021 $ 6,255 Issuance of Convertible Notes 2,760 Settlement of convertible notes (218 ) Change in fair value (6,457 ) Balance December 31, 2022 $ 2,340 Issuance of Convertible Notes (519 ) Change in fair value (1,728 ) Balance December 31, 2023 $ 93 14.
The Federal net operating loss carryforwards of approximately $159.7 million from years ending December 31, 2005, through December 31, 2017, will begin to expire in 2025 . The Federal net operating loss carryforward for the years ended December 31, 2018, through 2022 of approximately $81.8 million will not expire.
The Federal net operating loss carryforwards of approximately $77.9 million from years ending December 31, 2005, through December 31, 2017, will begin to expire in 2025 . The Federal net operating loss carryforward for the years ended December 31, 2018, through 2023 of approximately $99.9 million will not expire.
Accordingly, warrants issued with a $0.01 per share exercise price, are included in weighted average shares outstanding as follows: (in thousands) December 31, 2022 December 31, 2021 Common shares 526,530 481,620 Common shares issuable assuming exercise of nominally priced warrants 22,941 36,736 Weighted Average Shares Outstanding 549,471 518,356 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.
Accordingly, warrants issued with a $0.01 per share exercise price, are included in weighted average shares outstanding as follows: (in thousands) December 31, 2023 December 31, 2022 Common shares 772,160 526,530 Common shares issuable assuming exercise of nominally priced warrants 21,691 22,941 Weighted Average Shares Outstanding 793,851 549,471 Diluted net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted average number of shares of common stock and dilutive common stock equivalents outstanding.
The income tax provision (benefit) from continuing operations consists of the following: F-17 Table of Contents (In thousands) December 31, 2022 December 31, 2021 Current: Federal $ - $ - State 2 28 Foreign - - Current Tax Provision $ 2 $ 28 Deferred: Federal $ (5,657 ) $ (5,038 ) State 753 (869 ) Foreign (1 ) 4 Change in valuation allowance 4,905 5,903 Deferred Tax Provision $ - $ - As of December 31, 2022, and 2021, the Company did not have any undistributed earnings of our foreign subsidiaries.
The income tax provision (benefit) from continuing operations consists of the following: (In thousands) December 31, 2023 December 31, 2022 Current: Federal $ - $ - State 4 2 Foreign - - Current Tax Provision $ 4 $ 2 Deferred: Federal $ (3,564 ) $ (5,657 ) State (459 ) 753 Foreign (3 ) (1 ) Change in valuation allowance 4,026 4,905 Deferred Tax Provision $ - $ - As of December 31, 2023, and 2022, the Company did not have any undistributed earnings of our foreign subsidiaries.
Interest expense on the Senior Secured Note totaled $5.9 million and $3.1 million for the years ended December 31, 2022, and 2021, respectively. 11.
Accrued interest related to the Senior Secured Note was $3.2 million and $1.9 million on December 31, 2023, and December 31, 2022, respectively. Interest expense on the Senior Secured Note totaled $6.9 million and $5.9 million for the years ended December 31, 2023, and 2022, respectively. 11.
Adjustments to determine income tax expense are as follow: (In thousands) Years ended December 31, 2022 2021 Tax benefit at statutory rate $ (2,161 ) $ (5,718 ) Increase (reduction) in income taxes resulting from: State incomes tax benefits, net of federal benefit (473 ) (837 ) Non-deductible gain on warrant adjustment valuation (3,270 ) 417 Change in valuation allowance 4,905 5,903 Registration penalites 67 354 Other 934 (91 ) Income Tax Expense $ 2 $ 28 The tax effects of temporary differences that give rise to the deferred tax assets are as follows: F-18 Table of Contents (In thousands) December 31, 2022 December 31, 2021 Deferred Tax Assets Net operating loss carryforwards $ 38,323 $ 33,238 Net operating loss carryforwards - foreign 24 23 Excess of tax basis over book value of property and equipment 9 14 Excess of tax basis over book value of intangible assets 1,325 1,622 Lease liability 150 96 Stock-based compensation 1,487 1,613 Accrued employee compensation 750 698 Capitalized equity costs - 49 Capitalized research and development 116 - Net change in reserve accounts 1,031 898 Gross deferred tax asset 43,215 38,251 Valuation Allowance (43,070 ) (38,165 ) Net Deferred Tax Asset 145 86 Deferred Tax Liabilities Right-of-use asset (145 ) (86 ) Gross deferred tax liability (145 ) (86 ) TOTAL $ - $ - On August 16, 2022, the U.S. government enacted the Inflation Reduction Act of 2022 (the “Inflation Reduction Act”) into law.
Adjustments to determine income tax expense are as follow: (In thousands) Years ended December 31, 2023 2022 Tax benefit at statutory rate $ (5,485 ) $ (2,161 ) Increase (reduction) in income taxes resulting from: State income tax benefits, net of federal benefit (307 ) (473 ) Non-deductible gain on warrant adjustment valuation 2,102 (3,270 ) Change in valuation allowance 4,026 4,905 Registration penalties - 67 Other (332 ) 934 Income Tax Expense $ 4 $ 2 F-20 Table of Contents The tax effects of temporary differences that give rise to the deferred tax assets are as follows: (In thousands) December 31, 2023 December 31, 2022 Deferred Tax Assets Net operating loss carryforwards $ 42,484 $ 38,323 Net operating loss carryforwards - foreign 27 24 Excess of tax basis over book value of property and equipment 70 9 Excess of tax basis over book value of intangible assets 1,162 1,325 Lease liability 192 150 Stock-based compensation 1,495 1,487 Accrued employee compensation 338 750 Capitalized equity costs 235 - Capitalized research and development 1,273 116 Net change in reserve accounts - 1,031 Gross deferred tax asset 47,276 43,215 Valuation Allowance (47,096 ) (43,070 ) Net Deferred Tax Asset 180 145 Deferred Tax Liabilities Right-of-use asset (180 ) (145 ) Gross deferred tax liability (180 ) (145 ) TOTAL $ - $ - On August 16, 2022, the U.S. government enacted the Inflation Reduction Act of 2022 (the “Inflation Reduction Act”) into law.
Basis of Presentation - The accompanying 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”). The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.
Basis of Presentation - The accompanying 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”) and with the instructions to for 10-K and Regulation S-X. The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries.
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.
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.
Warrant Liability Significant Black Scholes valuation model inputs related to the Company’s warrants are listed below: December 31, 2022 December 31, 2021 Weighted average expected life in years 4.68 4.67 Weighted average volatility 92 % 116 % Value of underlying shares $ 0.005 $ 0.17 Weighted average risk free interest rate 4.00 % 1.20 % Expected dividend yield - - A summary of the Level 3 warrant activity is as follows: (in thousands, except per share data) Warrants Outstanding Fair Value per Share Warrant Liability Fair Value Balance December 31, 2020 48,091 $ 0.18 $ 8,856 Cashless exercise (11,400 ) 0.18 (2,030 ) Issuance of warrants classified as liabilities 25,926 0.10 2,282 Change in fair value - 506 Balance December 31, 2021 62,617 $ 0.15 $ 9,614 Warrants exercised (27,037 ) 0.09 (3,130 ) Issuance of warrants classified as liabilities 1,031,277 0.06 4,873 Change in fair value - (9,941 ) Balance December 31, 2022 1,066,857 $ 0.06 $ 1,416 Embedded Conversion Option Certain convertible notes include a Conversion Option that meets the definition of a derivative liability and, accordingly, is required to be bifurcated.
Significant Black Scholes valuation model inputs related to the Company’s warrants are listed below: Initial Valuation May 2023 Issuance December 31, 2022 Weighted average expected life in years 5.00 4.68 Weighted average volatility 84 % 92 % Value of underlying shares $ 0.019 $ 0.005 Weighted average risk free interest rate 3.50 % 4.00 % Expected dividend yield - - A summary of the Level 3 warrant activity is as follows: (in thousands, except per share data) Warrants Outstanding Fair Value per Share Warrant Liability Fair Value Balance December 31, 2021 62,617 $ 0.15 $ 9,614 Cashless exercise (27,037 ) 0.09 (3,130 ) Issuance of warrants classified as liablities 1,031,276 0.06 4,873 Change in fair value - - (9,941 ) Balance December 31, 2022 1,066,856 $ 0.06 $ 1,416 Warrants exercised - - - Issuance of warrants classified as liablities 154,452 0.01 1,655 Change in fair value - - 11,376 Balance December 31, 2023 1,221,308 $ 0.01 $ 14,447 Embedded Conversion Option Certain convertible notes include a conversion option that meets the definition of a derivative liability and, accordingly, is required to be bifurcated.
The functional currencies of the Company’s foreign operations are their local currencies. The financial statements of the Company’s foreign subsidiary have been translated into United States dollars. All balance sheet accounts have been translated using the exchange rates in effect at the balance sheet date. Income statement amounts have been translated using the average exchange rate for the year.
All significant intercompany accounts and transactions have been eliminated. The functional currencies of the Company’s foreign operations are their local currencies. The financial statements of the Company’s foreign subsidiary have been translated into United States dollars. All balance sheet accounts have been translated using the exchange rates in effect at the balance sheet date.
Pursuant to the Notes, the Company promised to pay in cash and/or in shares of common stock, at a conversion price of $0.04 (the “Conversion Price”), the principal amount and interest at a rate of 15% per annum on any outstanding principal.
Interest expense for the years ended December 31, 2023 and 2022, totaled $6.4 million and $4.4 million, respectively. Pursuant to the Notes, the Company promised to pay in cash and/or in shares of common stock, at a conversion price of $0.04 (the “Conversion Price”), the principal amount and interest at a rate of 15% per annum on any outstanding principal.
AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT (In thousands except share data) Common Stock Accumulated Other Shares Issued and Additional Paid- Accumulated Comprehensive 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 - - - (27,259 ) - (27,259 ) Foreign currency translation adjustment - - - - (11 ) (11 ) 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 senior note 20,666,993 20 3,700 - - 3,720 Shares issued for settlement of debt and warrants 19,444,446 20 1,341 - - 1,361 Shares issued for services 12,097,500 12 876 - - 888 Net loss - - - (10,293 ) - (10,293 ) Foreign currency translation adjustment - - - - 6 6 Balance as of December 31, 2022 548,737,651 $ 549 $ 152,750 $ (194,242 ) $ (67 ) $ (41,010 ) The accompanying notes to the consolidated financial statemetns are an integral part of these financial statements F-4 Table of Contents SANUWAVE HEALTH, INC.
AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT (In thousands, except share data) Common Stock 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 senior note 20,666,993 20 3,700 - - 3,720 Shares issued for settlement of debt and warrants 19,444,446 20 1,341 - - 1,361 Shares issued for services 12,097,500 12 876 - - 888 Net loss - - - (10,293 ) - (10,293 ) Foreign currency translation adjustment - - - - 6 6 Balances as of December 31, 2022 548,737,651 $ 549 $ 152,750 $ (194,242 ) $ (67 ) $ (41,010 ) Shares issued for services 12,900,000 $ 13 $ 514 $ - $ - $ 527 Shares issued for settlement of August 2022 debt 464,440,813 464 18,113 - - 18,577 Shares issued for settlement of November 2022 debt 114,481,063 114 4,465 - - 4,579 Net loss - - - (25,807 ) - (25,807 ) Foreign currency translation adjustment - - - - (44 ) (44 ) Balance as of December 31, 2023 1,140,559,527 $ 1,140 $ 175,842 $ (220,049 ) $ (111 ) $ (43,178 ) The accompanying notes to the consolidated financial statements are an integral part of these financial statements F-5 Table of Contents SANUWAVE HEALTH, INC.
Inventory Inventory consisted of the following: (in thousands) December 31, 2022 December 31, 2021 Finished goods $ 570 $ 343 Parts and accessories 641 931 Reserve for slow moving inventory (343 ) (234 ) Total Inventory $ 868 $ 1,040 7.
Inventory Inventory consisted of the following: (in thousands) December 31, 2023 December 31, 2022 Finished goods $ 416 $ 570 Parts and accessories 2,882 641 Reserve for slow moving inventory (347 ) (343 ) Total Inventory $ 2,951 $ 868 7 .
Principal increases at a rate of 3% of the outstanding principal balance (PIK interest) on each quarterly interest payment date. Original maturity date of the Senior Secured Note is September 20, 2025, and it can be prepaid. In June 2022, the Company entered into the Third Amendment to the Note and Warrant Purchase and Security Agreement (the “Third NWPSA”).
The principal increases at a rate of 3% of the outstanding principal balance (PIK interest) on each quarterly interest payment date. The original maturity date of the Senior Secured Note is September 20, 2025, and it can be prepaid.
AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS Years ended December 31, 2022 and 2021 (In thousands, except share and per share data) 2022 2021 Revenue $ 16,742 $ 13,010 Cost of revenues 4,331 4,986 Gross Margin 12,411 8,024 Operating Expenses: General and administrative 12,556 11,690 Selling and marketing 7,474 8,591 Research and development 567 1,101 Depreciation and amortization 766 784 Total Operating Expenses 21,363 22,166 Operating Loss (8,952 ) (14,142 ) Other Income (Expense) Interest expense (12,771 ) (6,883 ) Interest expense, related party (1,361 ) (212 ) Change in fair value of derivative liabilities 16,654 (2,622 ) Loss on issuance of debt (3,434 ) (3,572 ) Gain/(loss) on extinguishment of debt (418 ) 204 Loss on foreign currency exchange (9 ) (4 ) Total Other Expense (1,339 ) (13,089 ) Net Loss Before Income Taxes (10,291 ) (27,231 ) Income tax expense 2 28 Net Loss $ (10,293 ) $ (27,259 ) Other Comprehensive Loss Foreign currency translation adjustments 6 (11 ) Total Comprehensive Loss $ (10,287 ) $ (27,270 ) Loss per Share: Net loss per share, basic and diluted $ (0.02 ) $ (0.05 ) Weighted average shares outstanding, basic and diluted 549,470,787 518,355,642 The accompanying notes to consolidated financial statements are an integral part of these statements.
AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS Years ended December 31, 2023 and 2022 (In thousands, except share and per share data) 2023 2022 Revenue $ 20,398 $ 16,742 Cost of revenues 6,035 4,331 Gross Margin 14,363 12,411 Operating Expenses: General and administrative 8,674 12,556 Selling and marketing 4,898 7,474 Research and development 579 567 Depreciation and amortization 752 766 Total Operating Expenses 14,903 21,363 Operating Loss (540 ) (8,952 ) Other Income (Expense) Interest expense (12,946 ) (12,771 ) Interest expense, related party (2,677 ) (1,361 ) Change in fair value of derivative liabilities (9,621 ) 16,654 Loss on issuance of debt - (3,434 ) Loss on extinguishment of debt - (418 ) Other expense (19 ) (9 ) Total Other Expense (25,263 ) (1,339 ) Net Loss Before Income Taxes (25,803 ) (10,291 ) Income tax expense 4 2 Net Loss $ (25,807 ) $ (10,293 ) Other Comprehensive Loss Foreign currency translation adjustments (44 ) 6 Total Comprehensive Loss $ (25,851 ) $ (10,287 ) Loss per Share: Net loss per share, basic and diluted $ (0.03 ) $ (0.02 ) Weighted average shares outstanding, basic and diluted 793,850,994 549,470,787 The accompanying notes to consolidated financial statements are an integral part of these statements.
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.
Going Concern Our recurring losses from operations, the events of default on the Company’s notes payable, and dependency upon future issuances of equity or other financing to fund ongoing operations have raised substantial doubt as to our ability to continue as a going concern for a period of 12 months from the filing of the Form 10-K.
All significant expenses are generated, and all significant assets are located in the United States. Reclassification - Certain accounts in the prior period consolidated financial statements have been reclassified to conform to the presentation of the current year consolidated financial statements. These reclassifications had no effect on the previously reported operating results. 2.
Our revenues are primarily generated from sales in the United States. All significant expenses are generated, and all significant assets are located in the United States. Reclassification - Certain accounts in the prior period consolidated financial statements have been reclassified to conform to the presentation of the current year consolidated financial statements.
Shipping and handling costs incurred have been recorded in cost of goods sold totaled $324 thousand and $377 thousand for the years ended December 31, 2022, and 2021, respectively. Research and development - Research and development costs are expensed as incurred.
F-9 Table of Contents Shipping and handling costs - Shipping charges billed to customers are included in revenues. Shipping and handling costs incurred have been recorded in cost of goods sold totaling $484 thousand and $324 thousand for the years ended December 31, 2023, and 2022, respectively. Research and development - Research and development costs are expensed as incurred.
Accrued Expenses Accrued expenses consisted of the following: (in thousands) December 31, 2022 December 31, 2021 Registration penalties $ 1,583 $ 1,950 License fees 892 893 Board of directors fees 415 507 Employee compensation 4,585 4,247 Other 1,037 1,044 Total Accrued Expenses $ 8,512 $ 8,641 F-10 Table of Contents 9.
Accrued Expenses Accrued expenses consisted of the following: (in thousands) December 31, 2023 December 31, 2022 Registration penalties $ 1,583 $ 1,583 License fees 892 892 Board of directors fees 942 415 Employee compensation 2,298 4,585 Other 284 1,037 Total Accrued Expenses $ 5,999 $ 8,512 9.
Lease Commitments As of December 31, 2022, the maturities of the Company’s operating and financing leases, which have initial or remaining lease terms more than one year, consist of the following: (In thousands) Operating Leases Finance Leases Year ended December 31, 2023 $ 143 $ 128 2024 85 128 2025 82 78 2026 82 - 2027 55 - Total Lease Payments 447 334 22.
F-22 Table of Contents Lease Commitments As of December 31, 2023, the maturities of the Company’s operating and financing leases, which have initial or remaining lease terms more than one year, consist of the following: (In thousands) Operating Leases Finance Leases Year ended December 31, 2024 $ 141 $ 189 2025 122 216 2026 67 44 2027 59 - 2028 - - Total Lease Payments 389 449 22.
AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 2022 and 2021 (In thousands, except share data) 2022 2021 ASSETS Current Assets: Cash $ 1,153 $ 619 Accounts receivable, net of allowance of $ 1,037 in 2022 and $ 785 in 2021 4,029 2,415 Inventory 868 1,040 Prepaid expenses and other current assets 570 326 Total Current Assets 6,620 4,400 Non-Current Assets: Property, equipment and right of use assets, net 750 1,012 Intangible assets, net 5,137 5,841 Goodwill 7,260 7,260 Other assets 106 106 Total Non-Current Assets 13,253 14,219 Total Assets $ 19,873 $ 18,619 LIABILITIES Current Liabilities: Senior secured debt, in default $ 14,416 $ 11,586 Convertible promissory notes 16,713 11,601 Convertible promissory note, related parties 7,409 1,596 Factoring liabilities 2,130 2,183 Accounts payable 4,400 7,644 Accrued expenses 8,512 8,641 Warrant liability 1,416 9,614 Current portion of SBA loans - 158 Accrued interest 4,052 2,521 Accrued interest, related parties 788 289 Current portion of contract liabilities 60 48 Other 291 382 Total Current Liabilities 60,187 56,263 Non-Current Liabilities: SBA loans - 875 Contract liabilities 230 293 Lease liabilities 438 118 Deferred tax liability 28 28 Total Non-Current Liabilities 696 1,314 Total Liabilities $ 60,883 $ 57,577 Commitments and Contingencies (Footnote 21) STOCKHOLDERS’ DEFICIT Preferred stock, par value $ 0.001 , 5,000,000 shares authorized, 6,175 Series A, 293 Series B, 90 Series C, and 8 Series D designated shares, respectively; no shares issues and outstanding at 2022 and 2021 $ - $ - Common stock, par value $ 0.001 , 2,500,000,000 shares authorized, 548,737,651 and 481,619,621 issued and outstanding at 2022 and 2021 , respectively 549 482 Additional paid-in capital 152,750 144,582 Accumulated deficit (194,242 ) (183,949 ) Accumulated other comprehensive loss (67 ) (73 ) Total Stockholders’ Deficit (41,010 ) (38,958 ) Total Liabilities and Stockholders’ Deficit $ 19,873 $ 18,619 The accompanying notes to consolidated financial statements are an integral part of these statements.
AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 2023 and 2022 (In thousands, except share data) 2023 2022 ASSETS Current Assets: Cash $ 1,797 $ 1,153 Accounts receivable, net of allowance of $ 1,237 and $ 1,037 , respectively 3,314 4,029 Inventory 2,951 868 Prepaid expenses and other current assets 1,722 570 Total Current Assets 9,784 6,620 Non-Current Assets: Property, equipment and right of use assets, net 938 856 Intangible assets, net 4,434 5,137 Goodwill 7,260 7,260 Total Non-Current Assets 12,632 13,253 Total Assets $ 22,416 $ 19,873 LIABILITIES Current Liabilities: Senior secured debt, in default $ 18,278 $ 14,416 Convertible promissory notes payable 5,404 16,713 Convertible promissory notes payable, related parties 1,705 7,409 Asset-backed secured promissory notes payable 3,117 - Asset-backed secured promissory notes payable, related parties 1,458 - Accounts payable 5,705 4,400 Accrued expenses 5,999 8,512 Factoring liabilities 1,490 2,130 Warrant liability 14,447 1,416 Accrued interest 5,444 4,052 Accrued interest, related parties 669 788 Current portion of contract liabilities 92 60 Other 947 319 Total Current Liabilities 64,755 60,215 Non-Current Liabilities: Lease liabilities 492 438 Contract liabilities 347 230 Total Non-Current Liabilities 839 668 Total Liabilities $ 65,594 $ 60,883 Commitments and Contingencies (Footnote 21) STOCKHOLDERS’ DEFICIT Preferred stock, par value $ 0.001 , 5,000,000 shares authorized, 6,175 Series A, 293 Series B, 90 Series C, and 8 Series D designated shares, respectively; no shares issues and outstanding at 2023 and 2022 $ - $ - Common stock, par value $ 0.001 , 2,500,000,000 shares authorized, 1,140,559,527 and 548,737,651 issued and outstanding at 2023 and 2022 , respectively 1,140 549 Additional paid-in capital 175,842 152,750 Accumulated deficit (220,049 ) (194,242 ) Accumulated other comprehensive loss (111 ) (67 ) Total Stockholders’ Deficit (43,178 ) (41,010 ) Total Liabilities and Stockholders’ Deficit $ 22,416 $ 19,873 The accompanying notes to consolidated financial statements are an integral part of these statements.
Anti-dilutive equity securities consist of the following: (in thousands) December 31, 2022 December 31, 2021 Common stock options 21,246 31,760 Common stock purchase warrants 1,186,522 168,192 Convertible notes payable, including interest 603,425 90,380 1,811,193 290,332 6.
Anti-dilutive equity securities consist of the following: (in thousands) December 31, 2023 December 31, 2022 Common stock options 16,287 21,246 Common stock purchase warrants 1,199,882 1,186,522 Convertible notes payable, including interest 161,773 603,425 1,377,942 1,811,193 F-11 Table of Contents 6.
The following table summarizes the changes in contract liabilities: Year Ended December 31, (in thousands) 2022 2021 Beginning balance $ 341 $ 69 New service agreements 202 100 Deposit on future equipment purchases - 204 Revenue recognized (253 ) (32 ) Total Contract Liabilities $ 290 $ 341 15.
The following table summarizes the changes in contract liabilities: Year Ended December 31, (in thousands) 2023 2022 Beginning balance $ 290 $ 341 New service agreements 209 202 Revenue recognized (60 ) (253 ) Total Contract Liabilities $ 439 $ 290 F-17 Table of Contents 15.
The percentage of accounts receivable from major customers of the Company were as follows: Accounts Receivable: December 31, 2022 December 31, 2021 Customer A - 24 % Customer B - 16 % The Company currently purchases most of its product component materials from single suppliers and the loss of any of these suppliers could result in a disruption in our production.
The 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.
Common Stock Purchase Warrants A summary of the warrant activity is as follows: F-15 Table of Contents (in thousands, except per share data) Warrants Weighted Average Exercise Price Weighted Average Remaining Life (years) Warrants at December 31, 2020 190,357 $ 0.19 3.43 Issuances 25,926 0.18 Exercised (11,400 ) 0.01 Forfeited or expired - - Outstanding at December 31, 2021 204,883 $ 0.20 2.54 Issuances 1,031,276 0.06 Exercised (27,943 ) 0.09 Forfeited or expired - - Outstanding at December 31, 2022 1,208,216 $ 0.07 3.55 On February 3, 2021, the Company issued 10,925,000 shares of its commons stock to a third party upon the cashless exercise of 11,400,000 of common stock warrants under the terms of the warrant agreement. 16.
Common Stock Purchase Warrants A summary of the warrant activity is as follows: (in thousands, except per share data) Warrants Weighted Average Exercise Price Weighted Average Remaining Life (years) Warrants at December 31, 2021 204,883 $ 0.20 2.54 Issuances 1,031,276 0.06 Exercised (27,943 ) 0.09 Forfeited or expired - - Outstanding at December 31, 2022 1,208,216 $ 0.07 3.55 Issuances 154,451 0.06 Exercised - - Forfeited or expired (141,095 ) - Outstanding at December 31, 2023 1,221,572 $ 0.06 4.01 16.
Translation adjustments are reported in other comprehensive loss in the consolidated statements of comprehensive loss and as cumulative translation adjustments in accumulated other comprehensive loss in the consolidated balance sheets. Segment information - We have determined that we have one operating segment. Our revenues are primarily generated from sales in the United States.
Income statement amounts have been translated using the average exchange rate for the year. Translation adjustments are reported in other comprehensive loss in the consolidated statements of comprehensive loss and as cumulative translation adjustments in accumulated other comprehensive loss in the consolidated balance sheets. Segment information - We have determined that we have one operating segment.
Although no assurances can be given, management believes that potential additional issuances of equity or other potential financing transactions if obtained 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.
These possibilities, to the extent available, may be on terms that result in significant dilution to our existing stockholders. Although no assurances can be given, management believes that potential additional issuances of equity or other potential financing transactions if obtained as discussed above should provide the necessary funding for us.
The following table presents revenue from contracts with customers: F-16 Table of Contents Year ended December 31, 2022 Year ended December 31, 2021 United States International Total United States International Total Accessory and parts revenue $ 9,790 $ 72 $ 9,862 $ 7,770 $ 302 $ 8,072 System revenue 5,179 149 5,328 2,766 350 3,116 License fees and other 283 38 321 135 60 195 Product Revenue $ 15,252 $ 259 $ 15,511 $ 10,671 $ 712 $ 11,383 Rental Income 1,231 - 1,231 1,627 - 1,627 Total Revenue $ 16,483 $ 259 $ 16,742 $ 12,298 $ 712 $ 13,010 19.
The following table presents revenue from contracts with customers: Year ended December 31, 2023 Year ended December 31, 2022 United States International Total United States International Total Consumables and parts revenue $ 13,143 $ 79 $ 13,222 $ 9,790 $ 72 $ 9,862 System revenue 5,841 116 5,957 5,179 149 5,328 License fees and other 41 35 76 283 38 321 Product Revenue $ 19,025 $ 230 $ 19,255 $ 15,252 $ 259 $ 15,511 Rental Income 1,143 - 1,143 1,231 - 1,231 Total Revenue $ 20,168 $ 230 $ 20,398 $ 16,483 $ 259 $ 16,742 F-18 Table of Contents 19.
Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the allowance for doubtful accounts. Management routinely assesses the financial strength of its customers and, consequently, believes accounts receivable are stated at the net realizable value and credit risk exposure is limited.
Management routinely assesses the financial strength of its customers and, consequently, believes accounts receivable are stated at the net realizable value and credit risk exposure is limited.
Recent Accounting Pronouncements – In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments , which was subsequently revised by ASU 2018-19. The ASU introduces a new model for assessing impairment of most financial assets.
We are currently evaluating the potential impact of adopting this new guidance on our consolidated financial statements and related disclosures. In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which was subsequently revised by ASU 2018-19.
The framework that is set forth in this standard is applicable to the fair value measurements where it is permitted or required under other accounting pronouncements.
The 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.
Significant inputs related to the Level 3 fair value determination are as follows: F-14 Table of Contents Initial Valuation Assumptions Year End Valuation Assumptions August 2022 Convertible Notes November 2022 Convertible Notes December 31, 2022 December 31, 2021 Conversion price (1) $ 0.04 $ 0.04 $ 0.04 $ 0.11 Value of underlying shares $ 0.006 $ 0.005 $ 0.005 $ 0.17 Interest Rate (annual) (2) 3.24 % 4.48 % 4.64 % 0.18 % Volatility (annual) (3) 349 % 438 % 503 % 290 % Time to maturity 1.00 0.73 0.60 0.50 (1) Based on the terms provided in the convertible promissory note agreements to convert to common stock of the Company (2) Interest rate for U.S.
The fair value of conversion option liability assumptions for initial valuation of May 2023, and December 31, 2022, under the Black Scholes model are listed below: Initial Valuation May 2023 Issuance December 31, 2022 Conversion price (1) $ 0.04 $ 0.04 Value of underlying shares $ 0.019 $ 0.005 Interest Rate (annual) (2) 4.70 % 4.64 % Volatility (annual) (3) 114 % 503 % Time to maturity 1.00 0.60 (1) Based on the terms provided in the convertible promissory note agreements to convert to common stock of the Company (2) Interest rate for U.S.
The Company has not yet affected a reverse stock split of its common stock. 17. 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.
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 receivable or total sales, respectively. There were no accounts receivable concentrations on December 31, 2023, or 2022.
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.
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.
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. Acquisition Dispute The Company received notification alleging that it is not in compliance with the license agreement with Celularity entered in connection with the acquisition of the UltraMIST assets.
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. In February 2024, the Company entered into a termination agreement with an advisor to agree on termination fees owed with respect to a previous engagement agreement.
Entities will be required to use a forward-looking expected loss model, which will replace the current incurred loss model, resulting in earlier recognition of allowance for losses. The ASU is effective for annual reporting periods beginning after January 2023 with early adoption permitted. The Company is currently evaluating the impact of ASU 2016-13 on its consolidated financial statements.
The ASU introduces a new model for assessing impairment of most financial assets. Entities are required to use a forward-looking expected loss model, which replaces the current incurred loss model, resulting in earlier recognition of allowance for losses. The Company adopted this ASU in January 2023, and there was no material impact on the consolidated financial statements. 4.
Management’s plans are to obtain additional capital in 2023 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 stockholders.
Management’s plans are to obtain additional capital in 2024 primarily through the closure of the Merger Agreement, as described in Note 4. The Company could also obtain funding through the conversion of outstanding warrants, issuance of common or preferred stock, securities convertible into common stock, or secured or unsecured debt.
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.
F-8 Table of Contents 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 Notes contain customary events of default and covenants, including limitations on incurrences of indebtedness and liens.
The Notes contain customary events of default and covenants, including limitations on incurrences of indebtedness and liens. In August 2023 and November 2023, the Company utilized its election to convert the August and November issued 2022 Convertible Notes Payable into shares of common stock upon the Notes’ maturity.
The accounts receivable is sold with recourse back to the Company, therefore, the Company accounts for the arrangement as traditional financing.
The accounts receivable is sold with recourse back to the Company, therefore, the Company accounts for the arrangement as traditional financing. F-12 Table of Contents (In thousands) December 31, 2023 December 31, 2022 Receivables transferred $ 1,794 $ 2,564 Reserve amount held (304 ) (434 ) Factoring liability $ 1,490 $ 2,130 10.
Removed
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.
Added
These reclassifications had no effect on the previously reported operating results. 2.
Removed
Restatement of Previously Issued Financial Statements During the preparation of this Annual Report on Form 10-K, the Company determined that it had not appropriately accounted for certain transactions under US GAAP.
Added
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.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

63 edited+48 added−37 removed138 unchanged
Biggest changeIf the Company fails to comply with our SEC filing obligations, our stock may become subject to limitations or reduction in stock price, liquidity, or volume. Rule 15c2-11 under the Exchange Act (the “Rule”) governs the publication of quotations in over-the-counter (”OTC”) markets.
Biggest changeConsequently, the board of directors has not considered the outcome of our say-on-pay vote results when determining future compensation policies and pay levels for our named executive officers. 30 Table of Contents If the Company fails to comply with our SEC filing obligations, our stock may become subject to limitations or reduction in stock price, liquidity, or volume.
GAAP to accounting for financial instruments included in service agreements with select vendors. • The Company has failed to design and implement controls around all accounting and IT processes and procedures and, as such, we believe that all its accounting and IT processes and procedures need to be re-designed and tested for operating effectiveness.
GAAP to accounting for financial instruments included in service agreements with select vendors. • The Company has failed to design and implement controls around all accounting and IT processes and procedures and, as such, we believe that all its accounting and IT processes need to be re-designed and tested for operating effectiveness.
On February 13, 2018, we entered into an Agreement for Purchase and Sale, Limited Exclusive Distribution and Royalties, and Servicing and Repairs with Premier Shockwave Wound Care, Inc. (“PSWC”) and Premier Shockwave, Inc. (“PS”), each of which is owned by a member of the Company’s board of directors and an existing stockholder of the Company.
On February 13, 2018, we entered into an Agreement for Purchase and Sale, Limited Exclusive Distribution and Royalties, and Servicing and Repairs with Premier Shockwave Wound Care, Inc. (“PSWC”) and Premier Shockwave, Inc., each of which is owned by a member of the Company’s board of directors and an existing stockholder of the Company.
However, we cannot be certain that we will not be subject to investigations or litigation alleging violations of these laws, which could be time-consuming and costly to us and could divert management’s attention from operating our business, which in turn could have a material adverse effect on our business.
We cannot be certain that we will not be subject to investigations or litigation alleging violations of these laws, which could be time-consuming and costly to us and could divert management’s attention from operating our business, which in turn could have a material adverse effect on our business.
The market price of our common stock is volatile and could fluctuate widely in response to various factors, many of which are beyond our control, including the following: • our ability to obtain additional financing and, if available, the terms and conditions of the financing; • changes in our industry; • additions or departures of key personnel; • sales of our common stock; • our ability to execute our business plan; • operating results that fall below expectations; • period-to-period fluctuations in our operating results; • new regulatory requirements and changes in the existing regulatory environment; and • general economic conditions and other external factors.
The market price of our common stock is volatile and could fluctuate widely in response to various factors, many of which are beyond our control, including the following: • our ability to obtain additional financing and, if available, the terms and conditions of the financing; • changes in our industry; • additions or departures of key personnel; • sales of our common stock; • our ability to execute our business plan; • operating results that fall below expectations; • period-to-period fluctuations in our operating results; 29 Table of Contents • new regulatory requirements and changes in the existing regulatory environment; and • general economic conditions and other external factors.
Some of the following provisions in our Articles of Incorporation or Bylaws that may decrease our attractiveness to be acquired are: • advance notice of business to be brought is required for a meeting of our stockholders; • no cumulative voting rights for the holders of common stock in the election of directors; and 17 Table of Contents • vacancies in the board of directors may be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum.
Some of the following provisions in our Articles of Incorporation or Bylaws that may decrease our attractiveness to be acquired are: • advance notice of business to be brought is required for a meeting of our stockholders; • no cumulative voting rights for the holders of common stock in the election of directors; and • vacancies in the board of directors may be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum.
Moreover, an adverse review or audit could result in: 20 Table of Contents • required refunding or retroactive adjustment of amounts we have been paid by governmental or private payors; • state or Federal agencies imposing fines, penalties and other sanctions on us; • loss of our right to participate in the Medicare program, state programs, or one or more private payor networks; or • damage to our business and reputation in various markets.
Moreover, an adverse review or audit could result in: • required refunding or retroactive adjustment of amounts we have been paid by governmental or private payors; • state or Federal agencies imposing fines, penalties and other sanctions on us; • loss of our right to participate in the Medicare program, state programs, or one or more private payor networks; or • damage to our business and reputation in various markets.
We are taking certain measures to remediate these material weaknesses described above as described in Part II, Item 9A of this Annual Report on Form 10-K; however, such material weaknesses had not been remediated as of December 31, 2022.
We are taking certain measures to remediate these material weaknesses described above as described in Part II, Item 9A of this Annual Report on Form 10-K; however, such material weaknesses had not been remediated as of December 31, 2023.
We also require our employees, consultants, researchers, and advisors who we expect to work on our products [and product candidates] to agree to disclose and assign to us all inventions conceived during the workday, developed using our property or which relate to our business.
We also require our employees, consultants, researchers, and advisors who we expect to work on our products to agree to disclose and assign to us all inventions conceived during the workday, developed using our property or which relate to our business.
If reimbursement for our approved products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, market acceptance of our approved products would be impaired and our future revenues, if any, would be adversely affected. Failure to obtain regulatory approval in foreign jurisdictions will prevent us from marketing our products abroad.
If reimbursement for our approved products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, market acceptance of our approved products would be impaired and our future revenues, if any, would be adversely affected. 24 Table of Contents Failure to obtain regulatory approval in foreign jurisdictions will prevent us from marketing our products abroad.
In addition, due to the material weaknesses in internal control over financial reporting, we have also determined that our disclosure controls and procedures were ineffective as of December 31, 2022.
In addition, due to the material weaknesses in internal control over financial reporting, we have also determined that our disclosure controls and procedures were ineffective as of December 31, 2023.
There can be no assurance that we will not be required to incur significant costs to comply with such laws and regulations in the future, or that such laws or regulations will not have a material adverse effect upon our business. Regulatory approval of our product candidates may be withdrawn at any time.
There can be no assurance that we will not be required to incur significant costs to comply with such laws and regulations in the future, or that such laws or regulations will not have a material adverse effect upon our business. Regulatory approval of our products may be withdrawn at any time.
We may not be aware of all the patents potentially adverse to our interests that may have been issued to others. Because patent applications can take many years to issue, there may be currently pending applications, unknown to us, which may later result in issued patents that our product candidates or proprietary technologies may infringe.
We may not be aware of all the patents potentially adverse to our interests that may have been issued to others. Because patent applications can take many years to issue, there may be currently pending applications, unknown to us, which may later result in issued patents that our products or proprietary technologies may infringe.
The FDA’s requirements and international regulatory body requirements may change, and additional regulations may be promulgated that could affect us, our product candidates, and our suppliers and contract manufacturers. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action.
The FDA’s requirements and international regulatory body requirements may change, and additional regulations may be promulgated that could affect us, our products, and our suppliers and contract manufacturers. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action.
We will continue to be subject to the FDA or other regulatory authority requirements, as applicable, governing the labeling, packaging, storage, advertising, promotion, recordkeeping, and submission of safety and other post-market information for all of our product candidates, even those that the FDA or other regulatory authority, as applicable, had approved.
We will continue to be subject to the FDA or other regulatory authority requirements, as applicable, governing the labeling, packaging, storage, advertising, promotion, recordkeeping, and submission of safety and other post-market information for all of our products, even those that the FDA or other regulatory authority, as applicable, had approved.
These material weaknesses are as follows: • 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 distributing agreements with select vendors. 13 Table of Contents • A lack of internal resources to analyze and properly apply U.S.
These material weaknesses are as follows: • 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 distributing agreements with select vendors. • A lack of internal resources to analyze and properly apply U.S.
The cost of compliance with these laws and regulations could be significant. Risks Related to Intellectual Property The protection of our intellectual property is critical to our success, and any failure on our part to adequately protect those rights could materially adversely affect our business.
The cost of compliance with these laws and regulations could be significant. 26 Table of Contents Risks Related to Intellectual Property The protection of our intellectual property is critical to our success, and any failure on our part to adequately protect those rights could materially adversely affect our business.
The discoveries or technologies covered by issued patents we own or license may not have any value or provide us with a competitive advantage, and many of these discoveries or technologies may not be applicable to our product candidates at all.
The discoveries or technologies covered by issued patents we own or license may not have any value or provide us with a competitive advantage, and many of these discoveries or technologies may not be applicable to our products at all.
The failure to obtain adequate patent protection for our products [or product candidates] in any country would impair our ability to be commercially competitive in that country. The ability to market the products we develop is subject to the intellectual property rights of third parties.
The failure to obtain adequate patent protection for our products in any country would impair our ability to be commercially competitive in that country. The ability to market the products we develop is subject to the intellectual property rights of third parties.
In addition, in the event we do experience a change of control, such provision may cause dilution of our existing stockholders if PSWC exercises its option to require the Company to purchase all issued and outstanding shares of PSWC and the Company finances some or all of such purchase price through equity issuances.
In addition, in the event we do experience a change of control (other than the Business Combination), such provision may cause dilution of our existing stockholders if PSWC exercises its option to require the Company to purchase all issued and outstanding shares of PSWC and the Company finances some or all of such purchase price through equity issuances.
International sales of our products and any of our product candidates that we commercialize are subject to the regulatory requirements of each country in which the products are sold. Accordingly, the introduction of our product candidates in markets outside the United States will be subject to regulatory approvals in those jurisdictions. The regulatory review process varies from country to country.
International sales of our products that we commercialize are subject to the regulatory requirements of each country in which the products are sold. Accordingly, the introduction of our products in markets outside the United States will be subject to regulatory approvals in those jurisdictions. The regulatory review process varies from country to country.
Regulatory Risks We are subject to extensive governmental regulation, including the FDA. We and our product candidates, our suppliers, and our contract manufacturers are subject to extensive regulation by governmental authorities in the United States and other countries.
Regulatory Risks We are subject to extensive governmental regulation, including the FDA. We and our products, our suppliers, and our contract manufacturers are subject to extensive regulation by governmental authorities in the United States and other countries.
These applications may not be sufficient to meet the statutory requirements for patentability and, therefore, may not result in enforceable patents covering the product candidates we want to commercialize.
These applications may not be sufficient to meet the statutory requirements for patentability and, therefore, may not result in enforceable patents covering the products we want to commercialize.
Factors that may cause our future capital requirements to be greater than anticipated or could accelerate our need for funds include, without limitation: • unanticipated expenditures in research and development or manufacturing activities; • delayed market acceptance of any approved product; • unanticipated expenditures in the acquisition and defense of intellectual property rights; • the failure to develop strategic alliances for the marketing of some of our product candidates; • unforeseen changes in healthcare reimbursement for procedures using any of our approved products; • inability to train a sufficient number of physicians to create a demand for any of our approved products; • lack of financial resources to adequately support our operations; • difficulties in maintaining commercial scale manufacturing capacity and capability; • unforeseen problems with our third-party manufacturers, service providers or specialty suppliers of certain raw materials; • unanticipated difficulties in operating in international markets; • unanticipated financial resources needed to respond to technological changes and increased competition; • unforeseen problems in attracting and retaining qualified personnel; • the impact of the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act (collectively, the “PPACA”) on our operations; • the impact of changes in U.S. health care law and policy on our operations; • enactment of new legislation or administrative regulations; • the application to our business of new court decisions and regulatory interpretations; • claims that might be brought in excess of our insurance coverage; 14 Table of Contents • delays in timing of receipt of required regulatory approvals; • the failure to comply with regulatory guidelines; and • the uncertainty in industry demand and patient wellness behavior.
Factors that may cause our future capital requirements to be greater than anticipated or could accelerate our need for funds include, without limitation: • unanticipated expenditures in research and development or manufacturing activities; • unanticipated expenditures in the acquisition and defense of intellectual property rights; • the failure to develop strategic alliances for the marketing of some of our products; • unforeseen changes in healthcare reimbursement for procedures using any of our approved products; • inability to train a sufficient number of physicians to create a demand for any of our approved products; • lack of financial resources to adequately support our operations; • difficulties in maintaining commercial scale manufacturing capacity and capability; • unforeseen problems with our third-party manufacturers, service providers or specialty suppliers of certain raw materials; • unanticipated difficulties in operating in international markets; • unanticipated financial resources needed to respond to technological changes and increased competition; • unforeseen problems in attracting and retaining qualified personnel; • the impact of changes in U.S. health care law and policy on our operations; • enactment of new legislation or administrative regulations; • the application to our business of new court decisions and regulatory interpretations; • claims that might be brought in excess of our insurance coverage; • delays in timing of receipt of required regulatory approvals; • the failure to comply with regulatory guidelines; and • the uncertainty in industry demand and patient wellness behavior.
These possibilities, to the extent available, may be on terms that result in significant dilution to our existing stockholders. 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.
These possibilities, to the extent available, may be on terms that result in significant dilution to the Company’s existing stockholders. In addition, there can be no assurances that the Company’s plans to obtain additional capital will be successful on the terms or timeline it expects, or at all.
While trading on the OTCQB, and especially if we are removed from the OTCQB in the future, the market liquidity for our securities could be severely adversely affected by limiting the ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market. 25 Table of Contents Item 1B.
While trading on the OTCQB, and especially if we are removed from the OTCQB in the future, the market liquidity for our securities could be severely adversely affected by limiting the ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market. Item 1B. UNRESOLVED STAFF COMMENTS None.
In the event of a breach, to the extent such regulations are applicable to our business, we could incur operational and financial costs related to remediation as well as preparation and delivery of the notices, which costs could be substantial.
Many states have similar breach notification laws. In the event of a breach, to the extent such regulations are applicable to our business, we could incur operational and financial costs related to remediation as well as preparation and delivery of the notices, which costs could be substantial.
We could experience an adverse impact on our operating results due to such changes, including increased pricing pressure in these markets. Governments, hospitals, and other third-party payors also could reduce the amount of approved reimbursement for our products or deny coverage altogether.
We could experience an adverse impact on our operating results due to such changes, including increased pricing pressure in these markets. Governments, hospitals, and other third-party payors also could reduce the amount of approved reimbursement for our products or deny coverage altogether. Reductions in reimbursement levels or coverage or other cost-containment measures could adversely affect our future operating results.
Regulators may also subject approvals to restrictions or conditions or impose post-approval obligations on the holders of these approvals, and the regulatory status of such products may be jeopardized if such obligations are not fulfilled.
Regulators may also subject approvals to restrictions or conditions or impose post-approval obligations on the holders of these approvals, and the regulatory status of such products may be jeopardized if such obligations are not fulfilled. If post-approval studies are required, such studies may involve significant time and expense.
If the value of the U.S. dollar increases relative to foreign currencies in the future, in the absence of a corresponding change in local currency prices, our future revenue could be adversely affected as we convert future revenue from local currencies to U.S. dollars. The COVID-19 pandemic has materially and adversely affected our financial results.
If the value of the U.S. dollar increases relative to foreign currencies in the future, in the absence of a corresponding change in local currency prices, our future revenue could be adversely affected as we convert future revenue from local currencies to U.S. dollars.
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 Annual Report on Form 10-K. The continuation of our business is dependent upon raising additional capital to fund operations.
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 Annual Report Form 10-K.
We depend on suppliers for product component materials and other components that are subject to stringent regulatory requirements. Many of our product component materials are only produced by a single supplier for such product component, and the loss of any of these suppliers could result in a disruption in our production.
We depend on suppliers for product component materials and other components that are subject to stringent regulatory requirements. Many of our product component materials are only produced by a single supplier for such product components.
Any such required financing may not be available in amounts or on terms acceptable to us, and the failure to procure such required financing could have a material adverse effect on our business, financial condition, and results of operations, or threaten our ability to continue as a going concern.
Any such required financing may not be available in amounts or on terms acceptable to us, and the failure to procure such required financing could have a material adverse effect on our business, financial condition, and results of operations, or threaten our ability to continue as a going concern. 20 Table of Contents A variety of factors could impact our need to raise additional capital, the timing of any required financing and the amount of such financings.
If another party controls patents or patent applications covering our product candidates, we may not be able to obtain the rights we need to those patents or patent applications in order to commercialize our product candidates or we may be required to pay royalties, which could be substantial, to obtain licenses to use those patents or patent applications.
If another party controls patents or patent applications covering our product candidates, we may not be able to obtain the rights we need to those patents or patent applications in order to commercialize our product candidates or we may be required to pay royalties, which could be substantial, to obtain licenses to use those patents or patent applications. 28 Table of Contents In addition, issued patents may not provide commercially meaningful protection against competitors.
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.
The consolidated financial statements do not include any adjustment that might result from the outcome of this uncertainty. The Company’s 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 the Company be unable to continue as a going concern.
As we expand internationally, our results of operations and cash flows will become increasingly subject to fluctuations due to changes in foreign currency exchange rates. Our expenses are generally denominated in the currencies in which our operations are located, which is in the United States.
With respect to our international operations, our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates. Our expenses are generally denominated in the currencies in which our operations are located, which is in the United States.
The HITECH Act and its implementing regulations also require healthcare providers to notify affected individuals, the Secretary of the U.S. Department of Health and Human Services, and in some cases, the media, when PHI has been breached as defined under and following the requirements of HIPAA. Many states have similar breach notification laws.
The Health Information Technology for Economic and Clinical Health (“HITECH") Act and its implementing regulations also require healthcare providers to notify affected individuals, the Secretary of the U.S. Department of Health and Human Services, and in some cases, the media, when PHI has been breached as defined under and following the requirements of HIPAA.
In addition, issued patents may not provide commercially meaningful protection against competitors. Other parties may seek and/or be able to duplicate, design around or independently develop products having effects similar or identical to our patented product candidates that are not within the scope of our patents.
Other parties may seek and/or be able to duplicate, design around or independently develop products having effects similar or identical to our patented products that are not within the scope of our patents.
Reductions in reimbursement levels or coverage or other cost-containment measures could adversely affect our future operating results. 19 Table of Contents If we fail to comply with the United States Federal Anti-Kickback Statute, False Claims Act, and similar state laws, we could be subject to criminal and civil penalties and exclusion from the Medicare and Medicaid programs, which would have a material adverse effect on our business and results of operations.
If we fail to comply with the United States Federal Anti-Kickback Statute, False Claims Act, and similar state laws, we could be subject to criminal and civil penalties and exclusion from the Medicare and Medicaid programs, which would have a material adverse effect on our business and results of operations.
Such provision may have the effect of delaying or deterring a change in control of the Company, and as a result could limit the opportunity for our stockholders to receive a premium for their shares of our common stock and could also affect the price that some investors are willing to pay for our common stock.
While the agreement was amended effective November 1, 2023, to specify that the Business Combination does not constitute a change of control, such provision may have the effect of delaying or deterring any other change in control of the Company, and as a result could limit the opportunity for our stockholders to receive a premium for their shares of our common stock and could also affect the price that some investors are willing to pay for our common stock.
On September 16, 2020, the SEC adopted amendments to the Rule which prohibits broker-dealers from publishing or submitting for publication a quote for an issuer’s securities unless they are based on current publicly available information about the issuer.
Rule 15c2-11 under the Exchange Act (the “Rule”) governs the publication of quotations in over-the-counter (“OTC”) markets. On September 16, 2020, the SEC adopted amendments to the Rule which prohibits broker-dealers from publishing or submitting for publication a quote for an issuer’s securities unless they are based on current publicly available information about the issuer.
Failure to comply with applicable requirements could result in, among other things, any of the following actions: • warning letters • fines and other monetary penalties • unanticipated expenditures • product recall or seizure • interruption of manufacturing • operating restrictions • injunctions, and • criminal prosecutions.
Failure to comply with applicable requirements could result in, among other things, any of the following actions: • warning letters • fines and other monetary penalties • unanticipated expenditures • product recall or seizure • interruption of manufacturing • operating restrictions • injunctions, and • criminal prosecutions. 23 Table of Contents In addition to the approval and clearance requirements, numerous other regulatory requirements apply to us and our products, our suppliers and contract manufacturers.
We cannot guarantee that our products or technologies will not conflict with the intellectual property rights of others. 23 Table of Contents If we need to redesign our products to avoid third party patents, we may suffer significant regulatory delays associated with conducting additional clinical studies or submitting technical, clinical, manufacturing, or other information related to any redesigned product and, ultimately, in obtaining regulatory approval.
If we need to redesign our products to avoid third party patents, we may suffer significant regulatory delays associated with conducting additional clinical studies or submitting technical, clinical, manufacturing, or other information related to any redesigned product and, ultimately, in obtaining regulatory approval.
The availability of infringing products in markets where we have patent protection, or the availability of competing products in markets where we do not have adequate patent protection, could erode the market for our products, negatively impact the prices we can charge for our products, and harm our reputation if infringing or competing products are manufactured to inferior standards.
The availability of infringing products in markets where we have patent protection, or the availability of competing products in markets where we do not have adequate patent protection, could erode the market for our products, negatively impact the prices we can charge for our products, and harm our reputation if infringing or competing products are manufactured to inferior standards. 27 Table of Contents Patent applications owned by us or licensed to us may not result in issued patents, and our competitors may commercialize the discoveries we attempt to patent.
If we are unable to secure, on a timely basis, sufficient quantities of the materials we depend on to manufacture our products, if we encounter delays or contractual or other difficulties in our relationships with these suppliers, or if we cannot find replacement suppliers at an acceptable cost, the manufacturing of our products may be disrupted, which could increase our costs and have a material adverse effect on our business and results of operations.
If we are unable to secure, on a timely basis, sufficient quantities of the materials we depend on to manufacture our products, if we encounter delays or contractual or other difficulties in our relationships with these suppliers, or if we cannot find replacement suppliers at an acceptable cost, the manufacturing of our products may be disrupted, which could increase our costs and have a material adverse effect on our business and results of operations. 21 Table of Contents We have entered into an agreement with companies owned by a current board member and stockholder that could delay or prevent an acquisition of our Company and could result in the dilution of our stockholders in the event of our change of control.
We expect to devote substantial resources for the commercialization of the PACE and will continue to research and develop the non-medical uses of the PACE technology, both of which will require additional capital resources. We incurred a net loss of $10.3 million and $27.3 million for the years ended December 31, 2022, and 2021, respectively.
We expect to devote substantial resources for the commercialization of UltraMIST and PACE which will require additional capital resources. We incurred a net loss of $25.8 million and $10.3 million for the years ended December 31, 2023, and 2022, respectively.
In addition, if our arrangements were found to violate the Federal Anti-Kickback Statute, False Claims Act or similar state laws, the consequences of such violations would likely have a material adverse effect on our business, results of operations and financial condition.
In addition, if our arrangements were found to violate the Federal Anti-Kickback Statute, False Claims Act or similar state laws, the consequences of such violations would likely have a material adverse effect on our business, results of operations and financial condition. 25 Table of Contents Failure to comply with the HIPAA Privacy, Security and Breach Notification Regulations, as such rules become applicable to our business, may increase our operational costs.
Off-label uses of any of our products may subject us to additional liability. 16 Table of Contents We are dependent on information technology and our systems and infrastructure face certain risks, including from cybersecurity breaches and data leakage.
Although we do not promote any off-label use, off-label uses of products are common, and the FDA does not regulate a physician’s choice of treatment. Off-label uses of any of our products may subject us to additional liability. We are dependent on information technology and our systems and infrastructure face certain risks, including from cybersecurity breaches and data leakage.
In addition, although we have no present commitments or understandings to do so, we may seek to expand our operations and product line through acquisitions. Any acquisition would likely increase our capital requirements. Our product candidates may not be commercialized successfully.
In addition, although we have no present commitments or understandings to do so, we may seek to expand our operations and product line through acquisitions. Any acquisition would likely increase our capital requirements. The medical device/therapeutic product industries are highly competitive and subject to rapid technological change.
The industry in which we operate has undergone, and we expect it to continue to undergo, rapid and significant technological change, and we expect competition to intensify as technological advances are made.
The industry in which we operate has undergone, and we expect it to continue to undergo rapid and significant technological change, and we expect competition to intensify as technological advances are made. Many of our product component materials are only produced by a single supplier for such product component.
We have not submitted to our stockholders a say-on-pay vote to approve an advisory resolution regarding our compensation program for our named executive officers, or a say-on-frequency vote. Consequently, the board of directors has not considered the outcome of our say-on-pay vote results when determining future compensation policies and pay levels for our named executive officers.
We have not submitted to our stockholders a say-on-pay vote to approve an advisory resolution regarding our compensation program for our named executive officers, or a say-on-frequency vote.
Any such interruption or breach of our systems could adversely affect our business operations and/or result in the loss of critical or sensitive confidential information or intellectual property, and could result in financial, legal, business, and reputational harm to us.
Any such interruption or breach of our systems could adversely affect our business operations and/or result in the loss of critical or sensitive confidential information or intellectual property, and could result in financial, legal, business, and reputational harm to us. 22 Table of Contents We generate a portion of our revenue internationally and are subject to various risks relating to our international activities, which could adversely affect our operating results.
Even if our patents are held to be enforceable, others may be able to design around our patents or develop products similar to our products that are not within the scope of any of our patents. 22 Table of Contents In addition, enforcing the patents that we own or license and any patents that may be issued to us in the future against third parties may require significant expenditures regardless of the outcome of such efforts.
In addition, enforcing the patents that we own or license and any patents that may be issued to us in the future against third parties may require significant expenditures regardless of the outcome of such efforts.
Changes in either patent laws or in interpretations of patent laws in the United States and other countries may diminish the value of our intellectual property or narrow the scope of our patent protection. 21 Table of Contents We also rely upon trade secrets and unpatented proprietary know-how and continuing technological innovation in developing our products, especially where we do not believe patent protection is appropriate or obtainable.
We also rely upon trade secrets and unpatented proprietary know-how and continuing technological innovation in developing our products, especially where we do not believe patent protection is appropriate or obtainable.
Ultimately, we may be unable to commercialize our product candidates or may have to cease some of our business operations because of patent infringement claims, which could materially harm our business.
Ultimately, we may be unable to commercialize our products or may have to cease some of our business operations because of patent infringement claims, which could materially harm our business. We cannot guarantee that our products or technologies will not conflict with the intellectual property rights of others.
In addition, because of our private placements in August and November 2022, we are currently prohibited from incurring or guaranteeing most kinds of debt issued by public or private investors, which further constrains our options to raise capital. If we can raise additional funds by issuing debt securities, these debt securities could impose significant additional restrictions on our operations.
In addition, because of our private placements in May 2023, December 2023, and January 2024, we are currently prohibited from incurring or guaranteeing most kinds of debt issued by public or private investors, which further constrains our options to raise capital.
If these efforts are unsuccessful, we may be required to significantly curtail or discontinue operations or, if available, to obtain funds through financing transactions with unfavorable terms.
If these efforts are unsuccessful, the Company may be required to significantly curtail or discontinue operations or, if available, obtain funds through financing transactions with unfavorable terms. 19 Table of Contents The accompanying consolidated financial statements have been prepared in conformity with U.S.
We intend to ensure our policies and procedures continue to comply with the Privacy Rule, the Security Rule and the HIPAA statute as such regulations become applicable to our business and as such regulations are in effect at such time; however, there can be no assurance that our policies and procedures will be adequate or will prevent all incidents of non-compliance with such regulations.
We anticipate that, as we expand our PACE business, we will in the future be a covered entity under HIPAA. There can be no assurance that our policies and procedures will be adequate or will prevent all incidents of non-compliance with such regulations.
Management plans to obtain additional capital in 2023 through investments by strategic partners for market opportunities, or to raise capital through the conversion of outstanding warrants, issuance of common or preferred stock, securities convertible into common stock, or secured or unsecured debt.
Management’s plans are to obtain additional capital in early 2024, primarily through closing the Merger Agreement. The Company could also obtain additional capital through the conversion of outstanding warrants, issuance of common or preferred stock, securities convertible into common stock, or secured or unsecured debt.
These factors have had a negative impact on our sales and our results of operations and may continue to have a negative impact in the future. Provisions in our Articles of Incorporation, Bylaws and Nevada law might decrease the chances of an acquisition.
Provisions in our Articles of Incorporation, Bylaws and Nevada law might decrease the chances of an acquisition.
Establishing additional or replacement suppliers for these materials may take a substantial period of time, as certain of these suppliers must be approved by regulatory authorities.
Certain of our suppliers must be approved by regulatory authorities, which could delay our efforts to establish additional or replacement suppliers for these materials.
If post-approval studies are required, such studies may involve significant time and expense. 18 Table of Contents The manufacturing facilities we use to make any of our products will also be subject to periodic review and inspection by the FDA or other regulatory authorities, as applicable.
The manufacturing facilities we use to make any of our products will also be subject to periodic review and inspection by the FDA or other regulatory authorities, as applicable. The discovery of any new or previously unknown problems with the product or facility may result in restrictions on the product or facility, including withdrawal of the product from the market.
The carrying amounts of assets and liabilities presented in the 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.
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.
Removed
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern and the realization of assets and satisfaction of liabilities in the normal course of business.
Added
Risks Related to the Business Combination The Business Combination is subject to conditions, including certain conditions that may not be satisfied on a timely basis, if at all. Unless waived by the parties to the Merger Agreement, and subject to applicable law, the consummation of the Business Combination is subject to several conditions set forth in the Merger Agreement.
Removed
We recently restated our financial statements for prior periods, which resulted in unanticipated costs and may adversely affect investor confidence, our stock price, our ability to raise capital in the future and our reputation and may result in stockholder litigation and regulatory actions.
Added
For more information about conditions for the consummation of the Business Combination, see Part II Item 5 – Management’s Discussion and Analysis of Financial Condition and Results of Operations. 15 Table of Contents The Merger Agreement includes a Minimum Cash Condition as a condition to the consummation of the Merger, which may make it more difficult for SEP Acquisition Corp.(“SEPA”) and the Company to complete the Business Combination as contemplated.
Removed
On March 28, 2023, the Audit Committee of our Board of Directors, after discussion with management and with our independent registered public accounting firm, concluded that our previously issued consolidated financial statements as of and for the quarter and nine months ended September 30, 2022, quarter and six months ended June 30, 2022 and quarter ended March 31, 2022 (the “Affected Periods”) should no longer be relied upon due to errors related to inaccurate application of US GAAP.
Added
The Merger Agreement provides that the Company’s obligation to consummate the Business Combination is conditioned on, among other things, that as of the Closing, SEPA has at least $12,000,000 (“Minimum Cash Condition Amount”) resulting from (i) proceeds that have not been redeemed in the Redemption and (ii) proceeds of the private placement in SEPA (the “PIPE Investment").
Removed
As a result, we restated the financial statements for the Affected Periods. Because of these restatements, we incurred unanticipated costs for accounting and legal fees, and the restatements may have the effect of eroding investor confidence in our company and our financial reporting and accounting practices and processes and may raise reputational issues for our business.
Added
Because SEPA Stockholders elected to redeem 495,067 shares of Class A Common Stock, in connection with the Business Combination, then SEPA will need to obtain PIPE Investment in order to satisfy the Minimum Cash Condition.
Removed
The restatements may negatively impact the trading price of our securities and make it more difficult for us to raise capital on acceptable terms, or at all.
Added
As of the date of this filing, no commitments have been given for the proposed financing from the PIPE Investment, and there is no assurance that SEPA will enter into subscriptions for the PIPE Investment. The actual amount that SEPA raises in the PIPE Investment, if any, will depend on market conditions and other factors.
Removed
In addition, the restatements and related material weaknesses in our internal control over financial reporting may also result in stockholder litigation against us, or adverse regulatory consequences, including investigations, penalties, or suspensions by the SEC.
Added
This condition is for the sole benefit of the Company. If such condition is not met, and such condition is not or cannot be waived under the terms of the Merger Agreement, then the Merger Agreement could terminate, and the proposed Business Combination may not be consummated.
Removed
Any such regulatory consequences, litigation, claim or dispute, whether successful or not, could subject us to additional costs, divert the attention of our management, or impair our reputation. Each of these consequences could have a material adverse effect on our business, results of operations and financial condition. We have identified material weaknesses in our internal control over financial reporting.
Added
If such condition is waived and the Business Combination is consummated with less than the Minimum Cash Condition Amount in the Trust Account, the cash held by the Combined Company (including the Company) in the aggregate, after the Closing may not be sufficient to allow the Combined Company to operate and pay Combined Company bills as they become due.
Removed
A variety of factors could impact our need to raise additional capital, the timing of any required financings and the amount of such financings.
Added
Any such event in the future may negatively impact the analysis regarding the Combined Company’s ability to continue as a going concern at such time.
Removed
Market acceptance of our products will largely depend on our ability to demonstrate their relative safety, efficacy, cost-effectiveness and ease of use.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeItem 2. PROPERTIES Our primary corporate and operations office is a leased facility in Eden Prairie, Minnesota, consisting of 8,199 square feet of space under a lease which expires on August 31, 2023. Under the terms of the lease, we pay monthly rent, subject to a 2.5% adjustment on an annual basis.
Biggest changeItem 2. PROPERTIES Our primary corporate and operations office is a leased facility in Eden Prairie, Minnesota, consisting of 8,199 square feet of space under a lease which expires on August 31, 2025. Under the terms of the lease, we pay monthly rent, subject to a 2.5% adjustment on an annual basis.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeThe 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. Item 4. MINE SAFETY DISCLOSURE Not applicable. PART II
Biggest changeAny potential impact to the Company cannot be fully determined at this time. Item 4. MINE SAFETY DISCLOSURE Not applicable. PART II
There are no material proceedings known to us to be contemplated by any governmental authority. There are no material proceedings known to us, pending, or contemplated, in which any of our directors, officers or affiliates or any of our principal security holders, or any associate of any of the foregoing, is a party or has an interest adverse to us.
There are no material proceedings known to us, pending, or contemplated, in which any of our directors, officers or affiliates or any of our principal security holders, or any associate of any of the foregoing, is a party or has an interest adverse to us.
Removed
Item 3. LEGAL PROCEEDINGS We are engaged in 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.
Added
Item 3. LEGAL PROCEEDINGS In the ordinary course of business, the Company from time to time becomes involved in various legal proceedings involving a variety of matters. We do not believe there are any pending legal proceedings that will have a material adverse effect on our business, consolidated financial position, results of operations, or cash flows.
Removed
In May 2021, the Company received notification that it is not in compliance with the Biovance portion of the License Agreement with Celularity as discussed in Note 21 of our Financial Statements included in this Annual Report on Form 10-K.
Added
However, the outcome of such legal matters is inherently unpredictable and subject to significant uncertainties. The Company expenses legal fees in the period in which they are incurred. There are no material proceedings known to us to be contemplated by any governmental authority.
Added
Acquisition Dispute - 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.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeHolders of Common Stock As of December 31, 2022, there were 548,737,651 shares of common stock outstanding and approximately 201 holders of record of the Company’s common stock. Dividends The Company did not pay a cash dividend in 2022 or 2021. The Company intends to retain future earnings, if any, to finance the expansion of its business.
Biggest changeHolders of Common Stock As of December 31, 2023, there were 1,140,559,527 shares of common stock outstanding and approximately 238 holders of record of the Company’s common stock. Dividends The Company did not pay a cash dividend in 2023 or 2022. The Company intends to retain future earnings, if any, to finance the expansion of its business.
The Company does not anticipate paying any cash dividends in the foreseeable future.
The Company does not anticipate paying any cash dividends in the foreseeable future. Item 6. [Reserved] Not applicable.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeResults of Operations The following table sets forth our consolidated statement of operations: For the Years Ended December 31, Change (in thousands) 2022 2021 $ % Revenue 16,742 $ 13,010 $ 3,732 29 % Cost of revenue 4,331 4,986 (655 ) -13 % Gross margin 12,411 8,024 4,387 55 % Operating expenses: General and administrative 12,556 11,690 866 7 % Selling and marketing 7,474 8,591 (1,117 ) -13 % Research and development 567 1,101 (534 ) -49 % Depreciation and amortization 766 784 (18 ) -2 % Operating loss (8,952 ) (14,142 ) 5,190 -37 % Other income (expense), net (1,339 ) (13,089 ) 11,750 -90 % Income tax expense 2 28 (26 ) -93 % Net loss $ (10,293 ) $ (27,259 ) $ 16,966 -62 % Revenue Revenues for the year ended December 31, 2022, were $16.7 million, compared to $13.0 million for the same period in 2021, an increase of $3.7 million or 29%.
Biggest change(in thousands) For the year ended 2023 2022 Net loss $ (25,807 ) $ (10,293 ) Non-GAAP Adjustments: Interest expense 15,623 14,132 Depreciation and amortization 1,028 952 EBITDA $ (9,156 ) $ 4,791 Non-GAAP Adjustments for Adjusted EBITDA: Change in fair value of derivative liabilities 9,621 (16,654 ) Other non-cash or non-recurring charges: Release of historical accrued expenses (1,866 ) - Shares issued for services 224 888 Loss on issuance of debt - 3,434 Loss on extinguishment of debt - 418 Adjusted EBITDA $ (1,177 ) $ (7,123 ) Results of Operations The following table sets forth our consolidated statement of operations: For the Years Ended December 31, Change (in thousands) 2023 2022 $ % Revenue 20,398 $ 16,742 $ 3,656 22 % Cost of revenue 6,035 4,331 1,704 39 % Gross margin 14,363 12,411 1,952 16 % Gross margin % 70 % 74 % Operating expenses: General and administrative 8,674 12,556 (3,882 ) -31 % Selling and marketing 4,898 7,474 (2,576 ) -34 % Research and development 579 567 12 2 % Depreciation and amortization 752 766 (14 ) -2 % Operating loss (540 ) (8,952 ) 8,412 -94 % Other expense, net (25,263 ) (1,339 ) (23,924 ) nm Income tax expense 4 2 2 100 % Net loss $ (25,807 ) $ (10,293 ) $ (15,514 ) 151 % Revenue Revenues for the year ended December 31, 2023, were $20.4 million, compared to $16.7 million for the same period in 2022, an increase of $3.7 million or 22%.
The conversion price of the convertible notes is subject to adjustment, including if the Company issues or sells shares of common stock for a price per share less than the conversion price of the convertible notes or if the Company lists its shares of common stock on The Nasdaq Capital Market and the average volume weighted average price of such common stock for the five trading days preceding such listing is less than $0.04 per share; provided, however, that the conversion price shall never by less than $0.01.
The Conversion Price of the Notes is subject to adjustment, including if the Company issues or sells shares of common stock for a price per share less than the Conversion Price of the Notes or if the Company lists its shares of common stock on The Nasdaq Capital Market and the average volume weighted average price of such common stock for the five trading days preceding such listing is less than $0.04 per share; provided, however, that the Conversion Price shall never by less than $0.01.
The discussion focuses on our financial results of operations for years ended December 31, 2022, and 2021. You should read this discussion and analysis in conjunction with our consolidated financial statements and related notes thereto on December 31, 2022, and 2021, and for years 2022, and 2021, which are presented within Part II Item 8.
The discussion focuses on our financial results of operations for the years ended December 31, 2023, and 2022. You should read this discussion and analysis in conjunction with our consolidated financial statements and related notes thereto on December 31, 2023, and 2022, and for years 2023, and 2022, which are presented within Part II Item 8.
Various valuations models were used to estimate the fair value of these derivative financial instruments that are classified as derivative liabilities on the consolidated balance sheets. The models include subjective input assumptions that can materially affect the fair value estimates and as such are subject to uncertainty.
Various valuation models were used to estimate the fair value of these derivative financial instruments that are classified as derivative liabilities on the consolidated balance sheets. The models include subjective input assumptions that can materially affect the fair value estimates and as such are subject to uncertainty.
Our significant accounting policies are disclosed in Note 4 to the consolidated financial statements in Part II Item 8. “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K. The preparation of the consolidated financial statements, in conformity with U.S.
Our significant accounting policies are disclosed in Note 3 to the consolidated financial statements in Part II Item 8. “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K. The preparation of the consolidated financial statements, in conformity with U.S.
Derivative Liability’s from Embedded Conversion Options and Warrants The Company classified certain convertible instruments as having embedded conversion options which qualified as derivative financial instruments to be separately accounted for. The Company also determined that certain warrants also qualified as derivative financial instruments.
Derivative Liabilities from Embedded Conversion Options and Warrants The Company classified certain convertible instruments as having embedded conversion options which qualified as derivative financial instruments to be separately accounted for. The Company also determined that certain warrants also qualified as derivative financial instruments.
Management plans to obtain additional capital in 2023 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 stockholders.
We could also obtain additional 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 stockholders.
Gross margins also increased to 74% from 62% in 2021. As the Company continues to focus on profitable growth, we have also reduced our operating loss by 37% to $9.0 million for the year ended December 31, 2022.
Gross margins also decreased to 70% from 74% in 2022. As the Company continues to focus on profitable growth, we have also reduced our operating loss by 94% to $0.5 million for the year ended December 31, 2023.
General and Administrative General and administrative expenses for the year ended December 31, 2022, were $12.6 million as compared to $11.7 million for the same period in 2021, an increase of $0.9 million, or 7%.
General and Administrative General and administrative expenses for the year ended December 31, 2023, were $8.7 million as compared to $12.6 million for the same period in 2022, a decrease of $3.9 million, or 31%.
The Company recognized a gain on these liabilities of $16.7 million for the year ended December 31, 2022, and a loss totaling $2.6 million for the year ended December 31, 2021.
The Company recognized a loss on these liabilities of $9.6 million for the year ended December 31, 2023, as compared to a gain of $16.7 million for the year ended December 31, 2022.
The year-over-year decrease in sales and marketing expenses in 2022 was a result of cost saving initiatives taken by management. Research and Development Research and development expenses for the year ended December 31, 2022, were $0.6 million, compared to $1.1 million for the same period in 2021.
Selling and Marketing Selling and marketing expenses for the year ended December 31, 2023, were $4.9 million as compared to $7.4 million for the same period in 2022, a decrease of $2.6 million, or 34%. The year-over-year decrease in sales and marketing expenses in 2023 was a result of cost saving initiatives taken by management.
Interest is charged at the greater of the prime rate or 3% plus 9%, paid quarterly. As of December 31, 2022, the Company is in default of the minimum liquidity provisions on the Senior Secured Note and, as a result, is accruing interest at the default interest rate of an incremental 5%.
As of December 31, 2023, the Company is in default of the minimum liquidity provisions on the Senior Secured Note and, as a result, is accruing interest at the default interest rate of an incremental 5%. Interest expense on the Senior Secured Note totaled $6.9 million and $5.9 million for the years ended December 31, 2023, and 2022, respectively.
The outcomes of these legal actions are not completely within our control and may not be known for prolonged periods of time. In some actions, the enforcement agencies or private claimants seek damages that could require significant expenditures or result in lost revenues or limit our ability to conduct business in the applicable jurisdictions.
In some actions, the enforcement agencies or private claimants seek damages that could require significant expenditures or result in lost revenues or limit our ability to conduct business in the applicable jurisdictions.
We base our estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. 29 Table of Contents The following accounting policies and estimates are deemed critical: Litigation Contingencies We may be involved in legal actions involving product liability, intellectual property and commercial disputes, tax disputes, and governmental proceedings and investigations.
We base our estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.
The decrease was primarily driven by an increased gain from the change in the fair value of derivative liability of $19.3 million, offset by increased interest expense of $7.0 million. The increased interest expense was the result of higher levels of debt outstanding during 2022, due to new issuances of convertible debt, compared with 2021.
The increased interest expense of $1.5 million was the result of higher levels of debt outstanding during 2023, due to new issuances of convertible debt, compared with 2022. The change in fair value of the derivative liability relates to warrants issued during 2023 and 2022 with the convertible debt.
The warrants have a five-year term. In August 2020, the Company issued a Senior Secured Promissory Note Payable (the “Senior Secured Note”) to NH Expansion Credit Fund Holdings L.P. pursuant to which the Company had outstanding debt of $19.2 million as of December 31, 2022.
In August 2020, the Company issued a Senior Secured Promissory Note Payable (the “Senior Secured Note”) to NH Expansion Credit Fund Holdings L.P. pursuant to which the Company had outstanding debt of $21.5 million as of December 31, 2023. Interest is charged at the greater of the prime rate or 3% plus 9%, paid quarterly.
Cash Flows Provided by Financing Activities Cash flows provided by financing activities increased primarily from the proceeds of $16.2 million from the issuance of the convertible promissory notes discussed above in this section, Liquidity and Capital Resources. Going Concern The continuation of our business is dependent upon raising additional capital to fund operations.
For the year ended December 31, 2023, we received proceeds of $6.0 million from the issuance of the convertible promissory notes and asset backed secured promissory notes discussed above in this section, Liquidity and Capital Resources, as compared to $16.2 million for the year ended December 31, 2022. 36 Table of Contents Going Concern The continuation of our business is dependent upon raising additional capital to fund operations.
Other Income (Expense), net Other expense, net consists of the following: 2022 2021 $ % Interest expense $ (14,132 ) $ (7,095 ) $ (7,037 ) 99 % Change in fair value of derivatives 16,654 (2,622 ) 19,276 nm Loss on issuance of debt (3,434 ) (3,572 ) 138 -4 % Gain/(loss) on extinguishment of debt (418 ) 204 (622 ) nm Loss on foreign currency exchange (9 ) (4 ) (5 ) 125 % Other expense, net $ (1,339 ) $ (13,089 ) $ 11,750 -90 % nm - not meaningful Other expense totaled $1.3 million for the year ended December 31, 2022, as compared $13.1 million for the same period in 2021, a decrease of $11.8 million or 90%.
Other Income (Expense), net Other expense, net consists of the following: For the years ended December 31, Change 2023 2022 $ % Interest expense $ (15,623 ) $ (14,132 ) $ (1,491 ) 11 % Change in fair value of derivatives (9,621 ) 16,654 (26,275 ) nm Loss on issuance of debt - (3,434 ) 3,434 -100 % Gain/(loss) on extinguishment of debt - (418 ) 418 nm Other expense (19 ) (9 ) (10 ) nm Other expense, net $ (25,263 ) $ (1,339 ) $ (23,924 ) nm nm - not meaningful Other expenses totaled $25.2 million for the year ended December 31, 2023, as compared $1.3 million for the same period in 2022, an increase of $23.9 million.
The increase in net sales was primarily driven by the growth of the UltraMIST ® system. Cost of Revenue Cost of revenues for the year ended December 31, 2022, was $4.3 million, compared to $5.0 million for the same period in 2021.
Revenue from UltraMIST totaled 90% of total revenue in 2023 and 2022. 34 Table of Contents Cost of Revenue Cost of revenues for the year ended December 31, 2023, was $6.0 million, compared to $4.3 million for the same period in 2022.
Historically, our operations have primarily been funded from the sale of capital stock, notes payable, and convertible debt securities.
Liquidity and Capital Resources Since inception, we have incurred losses from operations each year. As of December 31, 2023, we had an accumulated deficit of $220.0 million. Historically, our operations have primarily been funded from the sale of capital stock, notes payable, and convertible debt securities.
Net loss for the year ended December 31, 2022, was $10.3 million, or ($0.02) per basic and diluted share, compared to a net loss of $27.3 million, or ($0.05) per basic and diluted share, for the year ended December 31, 2021. We continue to focus on profitable growth and reduction in operating expenses.
Net loss for the year ended December 31, 2023, was $25.8 million, or ($0.03) per basic and diluted share, compared to a net loss of $10.3 million, or ($0.02) per basic and diluted share, for the year ended December 31, 2022, a variance of $15.5 million, which was largely driven by a non-cash change in the fair value of derivatives.
We expect to devote substantial resources for the expansion and continued commercialization of our UltraMist and PACE systems, which will require additional capital resources. This, as well as the events of default on various notes payable, raise substantial doubt about our ability to continue as a going concern.
This, as well as the events of default on various notes payable, raise substantial doubt about our ability to continue as a going concern for a period of at least twelve months. Management plans to obtain additional capital in 2024 through the completion of the Merger Agreement.
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 Company aims to achieve positive operating cash flows in the first half of 2023 as resources are devoted to grow revenue of the UltraMIST and PACE systems while managing operating spend.
If these efforts are unsuccessful, we may be required to significantly curtail or discontinue operations or obtain funds through financing transactions with unfavorable terms. See Note 2 to the consolidated financial statements in Part II Item 8.
The decrease in research and development expenses in 2022, as compared to 2021, was primarily due to the reduction in employees.
The decrease in 2023 as compared to 2022 was primarily due to the higher legal costs related to patent work and securities work incurred in 2022.
“Financial Statements and Supplementary Data” in this Annual Report on Form 10-K. Amounts reported in thousands within this annual report are computed based on the amounts in thousands, and therefore, the sum of the components may not equal the total amount reported in thousands due to rounding. As discussed in Item 8.
Amounts reported in thousands within this annual report are computed based on the amounts in thousands, and therefore, the sum of the components may not equal the total amount reported in thousands due to rounding. 32 Table of Contents Executive Summary We realized significant revenue growth during the year ended December 31, 2023, with a 22% growth in revenue to $20.4 million for the year ended December 31, 2023, as compared to $16.7 million in 2022.
Research and development expenses decreased 46% to $0.3 million from $0.6 million during the six-month period ended June 30, 2022, as compared with the same period of 2021.
Research and Development Research and development expenses for the year ended December 31, 2023, were $0.6 million, compared to $0.6 million for the same period in 2022. The research and development costs in 2023 remained consistent with the costs in 2022.
Interest expense on the Senior Secured Note totaled $5.9 million and $3.1 million for the years ended December 31, 2022, and 2021, respectively. See Notes 10 and 11 to the consolidated financial statements in Part II Item 8.
See Notes 10, 11 and 12 to the consolidated financial statements in Part II Item 8. “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K for additional information regarding additional debt commitments, the convertible notes and accompanying warrants issued in May and December 2023, $4.5 million in asset-backed secured promissory notes, and the Senior Secured Note.
Gross profit as a percentage of revenues was 74% for the year ended December 31, 2022, compared to 62% for the same period in 2021. The increase in gross profit as a percentage of revenues in 2022 was primarily due to the increase in sales of the UltraMIST system which has higher profit margins.
Gross profit as a percentage of revenues was 70% for the year ended December 31, 2023, compared to 74% for the same period in 2022. This decrease in gross margin was largely driven by increased one time inventory write offs and costs to support our growth and alleviate our inventory constraint in 2023.
Actual results may differ from our estimates due to several factors including, among others, changes in competitive conditions, regulatory changes, results of clinical trials, and changes in worldwide economic conditions. Recently Issued Accounting Standards Information regarding new accounting pronouncements is included in Note 4 to the consolidated financial statements in Part II Item 8.
Our significant input assumptions are discussed in Note 13 to the consolidated financial statements in Part II Item 8. “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K. Recently Issued Accounting Standards Information regarding new accounting pronouncements is included in Note 3 to the consolidated financial statements in Part II Item 8.
We believe these improvements sets the stage for additional growth as we head into 2023.
Operating loss for the year ended December 31, 2023, was $540 thousand, compared to $9.0 million for the year ended December 31, 2022. We continue to focus on profitable growth and reduction in operating expenses. We believe these improvements sets the stage for additional growth as we head into 2024.
“Financial Statements and Supplementary Data” in this Annual Report on Form 10-K for additional information regarding additional debt commitments, the convertible notes and accompanying warrants issued in August and November 2022, and the Senior Secured Note. 28 Table of Contents The following table presents summarized cash flow information: For the period ended December 31, (in thousands) 2022 2021 Cash flows used by operating activities $ (17,169 ) $ (6,409 ) Cash flows provided by (used by) investing activities $ 332 $ (529 ) Cash flows provided by financing activities $ 17,384 $ 5,121 Cash Flows from Operating Activities The largest driver of cash flows from operations is the change in fair value of derivative liabilities connected to our convertible debt and warrants issued with the August and November 2022 financings.
The following table presents summarized cash flow information: For the period ended December 31, (in thousands) 2023 2022 Cash flows used by operating activities $ (4,538 ) $ (17,169 ) Cash flows provided by investing activities $ 21 $ 332 Cash flows provided by financing activities $ 5,211 $ 17,384 Cash Flows from Operating Activities We have improved our cash flow from operations in 2023 as compared to 2022, which was driven by increased emphasis on improved cash management and operating expense management.
The change in fair value of the derivative liability relates to warrants issued during 2022 with the convertible debt. Liquidity and Capital Resources Since inception, the Company has incurred losses from operations each year. As of December 31, 2022, we had an accumulated deficit of $194.2 million.
We also invested in our inventory in 2023, increasing our inventory levels by $2 million for the year ended December 31, 2023. Additional volatility in adjustments of cash flows from operations is the change in fair value of derivative liabilities connected to our convertible debt and warrants issued with the August and November 2022, and May and December 2023 financings.
Removed
Financial Statements and Supplementary Data, in Note 3, we have restated our unaudited quarterly financial information for the quarter ended March 31, 2022, quarter and six months ended June 30, 2022, and quarter and nine months ended September 30, 2022.
Added
“Financial Statements and Supplementary Data" in this Annual Report on Form 10-K.
Removed
Accordingly, Management’s Discussion and Analysis of Financial Condition and Results of Operations have been revised for the effects of this restatement. Executive Summary We realized significant revenue growth during the year ended December 31, 2022, with a 29% growth in revenue to $16.7 million for the year ended December 31, 2022, as compared to $13.0 million in 2021.
Added
Merger Agreement with SEPA On August 23, 2023, we entered into an Agreement and Plan of Merger (the “ Merger Agreement ”) by and among SEP Acquisition Corp., a Delaware corporation (“ SEPA ”), SEP Acquisition Holdings Inc., a Nevada corporation, and a wholly owned subsidiary of SEPA (“ Merger Sub ”).
Removed
The increase in 2022 as compared to 2021, was primarily due to the higher legal costs related to patent work and securities work. 27 Table of Contents Selling and Marketing Selling and marketing expenses for the year ended December 31, 2022, were $7.4 million as compared to $8.6 million for the same period in 2021, a decrease of $1.1 million, or 13%.
Added
Pursuant to the terms of the Merger Agreement, a business combination between the Company and SEPA (the “ Merger ”) will be affected.
Removed
In August and November 2022, the Company raised new funding through two issuances of convertible notes payable with an aggregate principal amount of $20.2 million, consisting of $16.0 million in newly raised capital and $4.2 million in refinanced accrued expenses, previous notes payable, and fees.
Added
More specifically, and as described in greater detail below, at the effective time of the Merger (the “ Effective Time ”): • Merger Sub will merge with and into the Company, with the Company being the surviving company following the merger. • Each issued and outstanding share of the Company common stock will automatically be converted into Class A common stock of SEPA, par value $0.0001 per share, at the Conversion Ratio (as defined in the Merger Agreement); and • Outstanding Company convertible securities of the Company will be assumed by SEPA and will be converted into the right to receive Class A Common Stock of SEPA.
Removed
The convertible notes bear interest at a rate of 15% per annum and have a conversion price of $0.04 per share of common stock.
Added
Pursuant to the terms of the Merger Agreement, the holders of (i) Company common stock, (ii) in the money options to purchase Company common stock, (iii) in the money warrants to purchase Company common stock, and (iv) convertible promissory notes, collectively will be entitled to receive 7,793,000 shares of Class A Common Stock of SEPA.
Removed
The August and November 2022 financings also included two tranches of warrants, each of which is exercisable for an aggregate of 504.4 million shares of common stock at exercise prices of $0.04, and $0.067, respectively.
Added
Out-of-the-money options and out-of-the-money warrants will be assumed by SEPA and converted into options or warrants, respectively, exercisable for shares of Class A Common Stock based on the Conversion Ratio; however, such out-of-the-money options and out-of-the-money warrants shall not be reserved for issuance from the Merger Consideration.
Removed
The exercise price of the warrants is subject to adjustment, including if the Company issues or sells shares of common stock or Share Equivalents (as defined in the warrants) for an effective consideration price less than the exercise price of the warrants or if the Company lists its shares of common stock on The Nasdaq Capital Market and the average volume weighted average price of such common stock for the five trading days preceding such listing is less than $0.04 per share; provided, however, that the exercise price of the warrants shall never be less than $0.01 per share.
Added
Non-GAAP Financial Measures Throughout this Management’s Discussion and Analysis of Financial Condition and Results of Operations, we present certain financial measures that facilitate management’s review of the operational performance of the Company and as a basis for strategic planning; however, such financial measures are not presented in our financial statements prepared in accordance with accounting principles generally accepted in the United States (U.S.) (U.S.
Removed
We believe that sales growth and positive operating cash flows will be enabled by investment in new leadership in sales, operations, and finance departments and strategically managing spend to enable growth. See Note 2 to the consolidated financial statements in Part II Item 8.
Added
GAAP). These financial measures are considered “non-GAAP financial measures” and are intended to supplement, and should not be considered as superior to, or a replacement for, financial measures presented in accordance with U.S. GAAP. The Company uses Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) and Adjusted EBITDA to assess its operating performance.
Removed
The material assumptions for the selected subjective inputs have not changed for the reporting period, except for the expected volatility, which is estimated based on the actual volatility during the most recent historical period equal to the remaining life of the instruments.
Added
Adjusted EBITDA is Earnings before Interest, Taxes, Depreciation and Amortization adjusted for the change in fair value of derivatives and any significant non-cash or non-recurring one-time charges.
Removed
Valuation of Intangible Assets and Goodwill When we acquire a business, the assets acquired, and liabilities assumed are recorded at their respective fair values at the acquisition date. Goodwill is the excess of the purchase price over the estimated fair value of net assets of acquired businesses. Intangible assets primarily include patents, trademarks, and customer relationships.
Added
EBITDA and Adjusted EBITDA should not be considered as alternatives to net loss as a measure of financial performance or any other performance measure derived in accordance with GAAP, and they should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.
Removed
Determining the fair value of intangible assets acquired as part of a business combination requires us to make significant estimates. These estimates include the amount and timing of projected future cash flows of each project or technology, the discount rate used to discount those cash flows to present value, and the assessment of the asset’s life cycle.
Added
These non-GAAP financial measures are presented in a consistent manner for each period, unless otherwise disclosed. The Company uses these measures for the purpose of evaluating its historical and prospective financial performance, as well as its performance relative to competitors. These measures also help the Company to make operational and strategic decisions.
Removed
The estimates could be impacted by legal, technical, regulatory, economic, and competitive risks. The test for impairment of goodwill requires us to make several estimates to determine the fair value of the goodwill.
Added
The Company believes that providing this information to investors, in addition to GAAP measures, allows them to see the Company’s results through the eyes of Management, and to better understand its historical and future financial performance.
Removed
Our estimates associated with the goodwill impairment test are considered critical due to the amount of goodwill recorded on our consolidated balance sheets and the judgment required in determining fair value. We assess the impairment of goodwill at the consolidated level annually.
Added
These non-GAAP financial measures are also frequently used by analysts, investors, and other interested parties to evaluate companies in our industry, when considered alongside other GAAP measures. EBITDA and Adjusted EBITDA have their limitations as analytical tools, and you should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP.
Removed
We also test definite-lived intangible assets for impairment when an event occurs, or circumstances change that would indicate the carrying amount of the assets or asset group may be impaired. We assess the impairment of indefinite-lived intangible assets annually and whenever an event occurs, or circumstances change that would indicate that the carrying amount may be impaired.
Added
Some of these limitations are that EBITDA and Adjusted EBITDA: 33 Table of Contents • Do not reflect every expenditure, future requirements for capital expenditures or contractual commitments. • Do not reflect all changes in our working capital needs. • Do not reflect interest expense, or the amount necessary to service our outstanding debt.
Removed
Our assessment for goodwill and intangible assets impairment is based on future cash flows that require significant judgment with respect to future revenue and expense growth rates and other assumptions and estimates. We use estimates that are consistent with the highest and best use of the assets based on a market participant’s view of the assets being evaluated.
Added
As presented in the GAAP to Non-GAAP Reconciliations section below, our non-GAAP financial measure excludes the impact of certain charges that contribute to our net loss (Non-GAAP Adjustments).
Removed
“Financial Statements and Supplementary Data” in this Annual Report on Form 10-K. 30 Table of Contents Restatement of Interim Financial Statements Results of Operations for the Three Months Ended March 31, 2022 (In thousands) Three Months ended March 31, 2022 Restated 2021 $ Change % Change Revenue 3,195 2,116 1,079 51 % Cost of revenue 889 1,055 (166 ) -16 % Gross Margin 2,306 1,061 1,245 117 % General and administrative 2,205 3,129 (924 ) -30 % Selling and marketing 1,715 1,780 (65 ) -4 % Research and development 166 354 (188 ) -53 % Depreciation and amortization 176 192 (16 ) -8 % Operating Loss (1,956 ) (4,394 ) 2,438 -55 % Other Expense (3,145 ) (527 ) (2,618 ) 497 % Net Loss before income taxes (5,101 ) (4,921 ) (180 ) 4 % 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.
Added
The increase in net sales was primarily driven by the growth in quantity of disposables sold, which increased by 9% in 2023 as compared to 2022. Pricing of the UltraMIST ® system and disposables also showed growth in 2023 as compared to 2022, disposables average selling price increased over 10% in 2023, and system revenue increased 28% in 2023.
Removed
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.
Added
The increase was primarily driven by an increased loss from the change in the fair value of derivative liability of $26.3 million, offset by a decrease in loss on issuance of debt along with the loss on extinguishment of debt.
Removed
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.
Added
In August 2022,November 2022, May 2023 and December 2023, we entered into a Securities Purchase Agreements (the “Purchase Agreements”), for the sale in a private placement of (i) Future Advance Convertible Promissory Notes (the “Notes”) in an aggregate principal amount of $16.2 million in August 2022,$4.0 million in November 2022, $1.2 million in May 2023, and $1.9 million in December 2023 (ii) Common Stock Purchase Warrants to purchase an additional 581.6 million shares of common stock with an exercise price of $0.067 per share and (iii) Common Stock Purchase Warrants to purchase an additional 581.6million shares of common stock with an exercise price of $0.04 per share. 35 Table of Contents Pursuant to the Notes, the Company promised to pay in cash and/or in shares of common stock, at a conversion price of $0.04 (the “Conversion Price”), the principal amount and interest at a rate of 15% per annum on any outstanding principal.
Removed
Operating Loss Operating loss for the three months ended March 31, 2022, totaled $2.0 million loss compared to $4.4 million for the same period in 2021. The decrease in operating loss is due to higher gross margin on UltraMIST as well as a decrease in operating expenses, primarily general and administrative and research and development.
Added
The Notes contain customary events of default and covenants, including limitations on incurrences of indebtedness and liens. In August 2023 and November 2023, the Company utilized its election to convert the August and November issued 2022 Convertible Notes Payable into shares of common stock upon the Notes’ maturity.
Removed
General and administrative expenses decreased $0.9 million or 30% 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.
Added
The August notes totaling $16.2 million in principal and $2.4 million in interest were converted to 464,440,813 shares of common stock. The November notes totaling $4.0 million in principal and $0.6 million in interest were converted to 114,481,063 shares of common stock.
Removed
Research and development expenses decreased 53% 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.
Added
In July 2023, we issued Asset-Backed Secured Promissory Notes in an aggregate principal amount of $4.6 million to certain accredited investors at an original issue discount of 33.33%. These notes bear an interest rate of 0% per annum and matured on January 21, 2024. We received total proceeds of approximately $3.0 million.
Removed
Other Expense Other expense increased for the three months ended March 31, 2022, by $2.6 million to $3.1 million, as compared to $0.5 million for the same period in 2021.
Added
We also entered into a side letter, pursuant to which, we issued Future Advance Convertible Promissory Notes, on January 21, 2024, with the same principal amount as the principal amount of such Notes, plus any accrued and unpaid interest and two Common Stock Purchase Warrants, substantially in the forms of the Notes and Common Stock Purchase Warrants disclosed in the previous paragraphs.
Removed
This increase in expenses is due to an increase in interest expense of $2.0 million, a loss on the issuance of debt of $3.4 million, partially offset by an increase in the change in fair value of derivatives of $2.8 million. 31 Table of Contents Results of Operations for the Three and Six Months Ended June 30, 2022 Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2022 Restated 2021 $ Change % Change 2022 Restated 2021 $ Change % Change Revenue 3,882 2,909 973 33 % 7,077 5,025 2,052 41 % Cost of revenues 1,096 1,048 48 5 % 1,986 2,103 (117 ) -6 % Gross Margin 2,786 1,861 925 50 % 5,091 2,922 2,169 74 % General and administrative 3,730 2,923 807 28 % 5,935 6,045 (110 ) -2 % Selling and marketing 1,672 2,520 (848 ) -34 % 3,387 4,300 (913 ) -21 % Research and development 171 272 (101 ) -37 % 337 626 (289 ) -46 % Gain on disposal of assets 51 - 51 nm 51 - 51 nm Depreciation and amortization 210 192 18 9 % 386 391 (5 ) -1 % Operating loss (3,048 ) (4,046 ) 998 -25 % (5,005 ) (8,440 ) 3,435 -41 % Other income (expense), net 4,693 (4,563 ) 9,256 -203 % 1,548 (5,090 ) 6,638 -130 % Net income (loss) before taxes 1,645 (8,609 ) 10,254 -119 % (3,457 ) (13,530 ) 10,073 -74 % Revenues and Gross Margin Revenues for the three month-period ended June 30, 2022, were $3.9 million compared to $2.9 million for the same period of 2021, an increase of $1.0 million.
Added
Cash Flows Provided by Financing Activities Cash flows provided by financing activities decreased primarily due to the improvement of operating cash flows which reduced our required cash to fund our growth and operations.
Removed
Revenues for the six months ended June 30, 2022, were $7.1 million compared to $5.0 million for the same period in 2021, an increase of $2.1 million. The increase for both periods was driven by the continued increased sales of UltraMIST® devices and single-use accessories.
Added
The following accounting estimates are deemed critical: Litigation Contingencies We may be involved in legal actions involving product liability, intellectual property and commercial disputes, tax disputes, and governmental proceedings and investigations. The outcomes of these legal actions are not completely within our control and may not be known for prolonged periods of time.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

13 edited+3 added−2 removed8 unchanged
Biggest changeValuation of Financial Instruments (2022 Convertible Promissory Notes and Warrant Liability) Critical Audit Matter Description As described in Notes 11 and 13 to the consolidated financial statements, the Company entered into a Securities Purchase Agreements for the sale in a private placement of (i) Future Advance Convertible Promissory Notes in an aggregate principal amount of $16.2 million in August and $4.0 million in November, (ii) Common Stock Purchase Warrants to purchase 504.4 million shares of common stock with an exercise price of $0.067 per share and (iii) Common Stock Purchase Warrants to purchase 504.4 million shares of common stock with an exercise price of $0.04 per share.
Biggest changeValuation of Financial Instruments (Embedded Conversion Options and Warrant Liability) Critical Audit Matter Description As described in Notes 11, 12, and 13 to the consolidated financial statements, the Company has entered into Securities Purchase Agreements and Asset-Backed Secured Promissory Notes (the “Transactions”).
In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.
In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
(the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of comprehensive loss, stockholders’ deficit and cash flows for each of the two years in the period ended December 31, 2022, and the related notes (collectively referred to as the “financial statements”).
(the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of comprehensive loss, stockholders’ deficit, and cash flows for each of the two years in the period ended December 31, 2023, and the related notes (collectively referred to as the “financial statements”).
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 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. 34 Table of Contents Item 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Page Consolidated Financial Statements Report of Independent Registered Public Accounting Firm (PCAOB ID: 688 ) F-1 Consolidated Balance Sheets as of December 31, 2022 and 2021 F-2 Consolidated Statements of Comprehensive Loss for the years ended December 31, 2022 and 2021 F-3 Consolidated Statements of Stockholders’ Deficit for the years ended December 31, 2022 and 2021 F-4 Consolidated Statements of Cash Flows for the years ended December 31, 2022 and 2021 F-5 Notes to Consolidated Financial Statements F-6 35 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and Board of Directors of SANUWAVE Health, Inc.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 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. 37 Table of Contents Item 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Page Consolidated Financial Statements Report of Independent Registered Public Accounting Firm (PCAOB ID: 688 ) F-1 Consolidated Balance Sheets as of December 31, 2023 and 2022 F-3 Consolidated Statements of Comprehensive Loss for the years ended December 31, 2023 and 2022 F-4 Consolidated Statements of Stockholders’ Deficit for the years ended December 31, 2023 and 2022 F-5 Consolidated Statements of Cash Flows for the years ended December 31, 2023 and 2022 F-6 Notes to Consolidated Financial Statements F-7 38 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and Board of Directors of SANUWAVE Health, Inc.
How the Critical Audit Matter was Addressed in the Audit Our audit procedures related to the valuation of the 2022 Convertible Promissory Notes and Warrant Liability included the following, among others: • We obtained an understanding of the design of the Company's controls over the valuation of the 2022 Convertible Promissory Notes and Warrant Liability, including controls over management's review of the valuation model and the significant assumptions used in determining the fair value of the embedded conversion option of the 2022 Convertible Promissory Notes and Warrant Liability. • With assistance of our valuation specialists, we audited the fair value of the embedded conversion option and warrant liability, valuation methodology, and key assumptions used in determining the fair value of the embedded conversion option of the 2022 Convertible Promissory Notes and Warrant Liability by: a.
How the Critical Audit Matter was Addressed in the Audit Our audit procedures related to the valuation of the financial instruments included the following, among others: ◾ We obtained an understanding of the design of the Company's controls over valuation of financial instruments, including controls over management's review of the valuation models, and the significant assumptions used in determining the fair value of the financial instruments. ◾ With assistance of our valuation specialists, we audited the fair value of the embedded conversion options and warrant liability, valuation methodology, and key assumptions used in determining the fair value of the embedded conversion options and warrant liability by: a.
Management's plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits.
These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These financial statements are the responsibility of the Company's management.
As more fully described in Note 2, the Company has incurred recurring losses and needs to raise additional funds to meet its obligations and sustain its operations and the occurrence of the events of default on the Company’s debt. These conditions raise substantial doubt about the Company's ability to continue as a going concern.
Explanatory Paragraph – Going Concern The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 2, the Company has incurred recurring losses and needs to raise additional funds to meet its obligations, sustain its operations, and to resolve the events of default on the Company’s debt.
Assessing the significant valuation assumption inputs of discounted stock price and implied volatility are consistent with those that would be used by market participants through the testing of source information, checking the mathematical accuracy of the calculation, and developing independent estimates and comparing to those selected by management, where applicable; and c.
Assessing that the significant valuation assumption inputs, in the Black Scholes valuation model, of the discounted stock price and implied volatility are consistent with those that would be used by market participants through the testing of source information; and d.
The Company determined certain embedded conversion features associated with the 2022 Convertible Promissory Notes were required to be bifurcated and recorded at fair value. The warrants issued in connection with the 2022 Convertible Promissory Notes were recorded at fair value.
The Company determined certain embedded conversion features associated with the Transactions were required to be bifurcated and recorded at fair value. The warrants issued in connection with the Transactions were also recorded at fair value. The fair value of the embedded conversion options and the warrant liability were valued using valuation techniques and key inputs as described in the footnotes.
Recalculating the fair value that management arrived to verify it was reasonable. • We audited the completeness and accuracy of the underlying data supporting the significant valuation assumption inputs. /s/ Marcum LLP Marcum LLP We have served as the Company’s auditor since 2018. New York, NY March 31, 2023 F-1 Table of Contents PART I - FINANCIAL INFORMATION
Checking the mathematical accuracy of the calculation, developing independent estimates and comparing to those selected by management, where applicable, and recalculating management’s fair value, verifying it was reasonable. ◾ We audited the completeness and accuracy of the underlying data supporting the significant valuation assumption inputs. /s/ Marcum llp Marcum LLP We have served as the Company’s auditor since 2018.
Also, the audit effort involved the use of professionals with specialized skill and knowledge.
This in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions. The audit also involved the use of professionals with specialized skill and knowledge.
Evaluating the appropriateness of the valuation model and techniques used in determining the fair value; b.
Evaluating the appropriateness of the valuation models and techniques used in determining the fair value; b. Assessing the reasonableness of the significant valuation inputs, including the probability weighted expected value considering the merger agreement with SEPA Acquisition Corp.
The principal considerations for our determination that the valuation of the 2022 Convertible Promissory Notes and Warrant Liability is a critical audit matter are the significant judgment by management in determining the fair value of the embedded conversion option and warrant liability; this in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to the discounted stock price and implied volatility.
F-1 Table of Contents The principal considerations for our determination that the valuation of the embedded conversion options and warrant liability is a critical audit matter were the significant judgments made by management in determining the fair value of the embedded conversion options and warrant liability.
Removed
Explanatory Paragraph – Going Concern The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.
Added
Our responsibility is to express an opinion on the Company's financial statements based on our audits.
Removed
The Company utilized the Black-Scholes model to determine the fair value of the embedded conversion option and warrant liability which consist of all liability warrants utilizing key inputs including discounted stock price and implied volatility.
Added
(“SEPA”), the risk adjusted expected exchange ratio, the value of SEPA’s Class A common stock, the expected timing of the closing of the merger, and the probability of the merger closing; c.
Added
New York, NY March 21, 2024 F-2 Table of Contents PART I - FINANCIAL INFORMATION

Other SNWV 10-K year-over-year comparisons