# SANUWAVE Health, Inc.: Form 10-K for the period ended Dec 31, 2022

- Company: [SANUWAVE Health, Inc.](/companies/snwv.md) (CIK 1417663)
- Form: 10-K
- Filed: 2023-03-31
- Accepted by EDGAR: Mar 31, 2023, 16:09 ET
- Period: 2022-12-31
- Accession: 0001140361-23-015331
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1417663/000114036123015331/brhc10050349_10k.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1417663/000114036123015331/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2022-12-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 12 months, 2022-01-01 to 2022-12-31 | $15.5m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 12 months, 2022-01-01 to 2022-12-31 | $4.3m | us-gaap:CostOfRevenue |
| Gross profit | 12 months, 2022-01-01 to 2022-12-31 | $12.4m | us-gaap:GrossProfit |
| Research and development | 12 months, 2022-01-01 to 2022-12-31 | $567.0k | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 12 months, 2022-01-01 to 2022-12-31 | −$9.0m | us-gaap:OperatingIncomeLoss |
| Income tax | 12 months, 2022-01-01 to 2022-12-31 | $2.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 12 months, 2022-01-01 to 2022-12-31 | −$10.3m | us-gaap:NetIncomeLoss |
| Diluted EPS | 12 months, 2022-01-01 to 2022-12-31 | −$0.02 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 12 months, 2022-01-01 to 2022-12-31 | −$0.02 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 12 months, 2022-01-01 to 2022-12-31 | 549,470,787 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 12 months, 2022-01-01 to 2022-12-31 | −$17.2m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Cash and equivalents | at 2022-12-31 | $1.2m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2022-12-31 | $6.6m | us-gaap:AssetsCurrent |
| Total assets | at 2022-12-31 | $19.9m | us-gaap:Assets |
| Current liabilities | at 2022-12-31 | $60.2m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2022-12-31 | $60.9m | us-gaap:Liabilities |
| Shareholders' equity | at 2022-12-31 | −$41.0m | us-gaap:StockholdersEquity |

## Business

As filed, 87,835 characters.

CONSOLIDATED BALANCE SHEETS

December 31, 2022 and 2021

*(In thousands, except share data)*

| ASSETS Current Assets: | 2022 | 2021 |
| --- | ---: | ---: |
| 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.

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.

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, 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

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years ended December 31, 2022 and 2021

*(In thousands)*

| Cash Flows - Operating Activities: | 2022 | 2021 |
| --- | ---: | ---: |
| 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.

### NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

### December 31, 2022 and 2021

### 1\. Nature of the Business and Basis of Presentation

SANUWAVE Health, Inc. and Subsidiaries (“SANUWAVE” or the “Company”) is focused on the commercialization of its patented noninvasive and biological response activating medical systems for the repair and regeneration of skin, musculoskeletal tissue, and vascular structures.

***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.

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. 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. 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\. Going Concern

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

The continuation of our business is dependent upon raising additional capital. We expect to devote substantial resources for the expansion and continued commercialization of our UltraMIST and PACE systems which will require additional capital resources. The operating losses and the events of default on the Company’s notes payable indicate substantial doubt about the Company’s ability to continue as a going concern for a period of at least twelve months from the filing of this Annual Report on Form 10-K.

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. 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.

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

### 3\. 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. These transactions included shares issued for services, which caused general and administrative expense to be understated, and the sale of assets under a financing agreement, which a gain on sale was recognized and overstated. Also, during the preparation of this Annual Report on Form 10-K it was discovered that certain vendor invoices were not properly recorded, causing general and administrative expense to be understated in prior periods, interest calculation on senior debt, which caused interest expense to be understated, and an inventory adjustment was posted improperly, which caused cost of revenues to be understated.

In accordance with Staff Accounting Bulletin (“SAB”) 99, Materiality, and SAB 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, the Company evaluated the materiality of the errors from qualitative and quantitative perspectives, individually and in aggregate, and concluded that the errors were material to the Consolidated Financial Statements for the quarters ending March 31, 2022, June 30, 2022, and September 30, 2022. Management restated the impacted financial statements for the quarters ended March 31, 2022, the quarter and six-months ending June 30, 2022, and the quarter and nine-months ending September 30, 2022. Refer to Note 22 for restated quarterly financial statements.

### 4\. Summary of Significant Accounting Policies

The significant accounting policies followed by the Company are summarized below:

***Estimates –*** These consolidated financial statements have been prepared in accordance with U.S. GAAP. Because a precise determination of assets and liabilities, and correspondingly revenues and expenses, depend on future events, the preparation of consolidated financial statements for any period necessarily involves the use of estimates and assumptions. Actual amounts may differ from these estimates. These consolidated financial statements have, in management’s opinion, been properly prepared within reasonable limits of materiality and within the framework of the accounting policies summarized herein.

Significant estimates include the recording of allowances for doubtful accounts, the net realizable value of inventory, 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.

***Accounts receivable —*** Accounts receivable are stated at the amount management expects to collect from outstanding balances. Management provides for probable uncollectible amounts through a charge to earnings based on its assessment of the current status of individual accounts. Receivables are generally considered past due if greater than 60 days old. 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.

***Inventory*** - Inventory consists of purchased medical equipment and parts and is stated at the lower of average cost, which is valued using the first in, first out (“FIFO”) method, or net realizable value less allowance for selling and distribution expenses. The Company analyzes its inventory levels and writes down inventory that has, or is expected to, become obsolete.

***Goodwill —*** Goodwill represents the excess of the purchase price over the fair value of assets acquired and liabilities assumed. The Company accounts for goodwill under Accounting Standards Codification (ASC) Topic 350, *Intangibles-Goodwill and Other*. The Company tests goodwill for impairment annually, or more frequently whenever events or circumstances indicate impairment may exist. Goodwill is stated at cost less accumulated impairment losses. The Company completes its goodwill impairment test annually in the fourth quarter. 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.

***Intangible Assets —*** Intangible assets arising from the Company’s acquisition are amortized on a straight‑line basis over the estimated useful life of each asset. Customer relationships have a useful life of seven years. Patents and tradenames have a useful life of nineteen years.

***Impairment of long-lived assets –*** The Company reviews long-lived assets for impairment whenever facts and circumstances indicate that the carrying amounts of the assets may not be recoverable. An impairment loss is recognized only if the carrying amount of the asset is not recoverable and exceeds its fair value. Recoverability of assets to be held and used is measured by comparing the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the asset’s carrying value is not recoverable, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds its fair value. The Company determines fair value by using a combination of comparable market values and discounted cash flows, as appropriate.

***Leases –*** The Company determines whether an arrangement is a lease at inception. When lease arrangements include lease and non-lease components, the Company accounts for lease and non-lease components (e.g. common area maintenance) separately based on their relative standalone prices.

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. ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. As the Company’s leases did not provide an implicit interest rate, the Company used the equivalent borrowing rate for a secured financing with the term of equal to the remaining life of the lease at inception.

Any lease arrangements with an initial term of 12 months or less are not recorded on our consolidated balance sheets, and the Company recognizes lease costs for these lease arrangements on a straight-line basis over the lease term. In the event a lease arrangement would provide us with options to exercise one or more renewal terms or to terminate the lease arrangement, we would include these options when we are reasonably certain to exercise them in the lease term used to establish ROU assets and lease liabilities. None of our lease agreements include an option to purchase the leased asset, residual value guarantees, or material restrictive covenants.

The Company has other lease arrangements that are adjusted periodically based on an inflation index or rate. The future variability of these payments and adjustments are unknown, and therefore they are not included as minimum lease payments used to determine ROU assets and lease liabilities. Variable rental payments are recognized in the period in which the obligation is incurred.

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

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

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

**Level 1 –** Observable inputs that reflect quoted prices (unadjusted) in active markets for identical assets and liabilities:

**Level 2 –** Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly: and

**Level 3 –** Unobservable inputs that are not corroborated by market data, therefore requiring the Company to develop its own assumptions.

***Sequencing policy –*** The Company follows a sequencing policy for which in the event partial reclassifications of contracts subject to ASC Topic 815-40-25, *Derivatives and Hedging*, is necessary, due to the Company’s inability to demonstrate it has sufficient authorized shares, shares will be allocated based on earliest issuance date of potentially dilutive instruments with the earliest grants receiving first allocation of shares.

***Convertible promissory notes –*** The Company evaluates its convertible instruments to determine if those contracts, or embedded components of those contracts, qualify as derivative financial instruments to be separately accounted for in accordance with ASC Topic 815 “*Derivatives and Hedging” (“*ASC 815”). The accounting treatment of derivative financial instruments requires that the Company record embedded conversion options and any related freestanding instruments at their fair values as of the inception date of the agreement and at fair value as of each subsequent balance sheet date. Any change in fair value is recorded as non-operating, non-cash income or expense for each reporting period at each balance sheet date. Conversion options are recorded as a discount to the host instrument and are amortized as amortization of debt discount on the consolidated statements of comprehensive loss over the life of the underlying instrument. The Company reassesses the classification of its derivative instruments at each balance sheet date. If the classification changes because of events during the period, the contract is reclassified as of the date of the event that caused the reclassification.

***Debt discount –*** The Company records a debt discount related to warrants issued with debt at fair value and recognizes the cost using the straight-line method, which approximates the effective interest method, over the term of the related debt as interest expense, which is reported in the Other Income (Expense) section in our consolidated statements of comprehensive loss. This debt discount is reported as a reduction of the related debt liability.

***Contract Liabilities –*** Device product sales are bundled with an initial one-year warranty and the Company offers a separately priced multi-year warranty. Because the warranty represents an obligation, revenue is deferred as a contract liability and recognized over the time that the Company satisfies its performance obligations, which is generally the warranty term.

***Revenue Recognition -*** The core principle of ASC Topic 606 “*Revenue from Contracts with Customers” (“*ASC 606”) requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The Company allocates the transaction price to all contractual performance obligations included in the contract. If a contract has more than one performance obligation, we allocate the transaction price to each performance obligation based on standalone selling price, which depicts the amount of consideration we expect to be entitled in exchange for satisfying each performance obligation. The Company recognizes revenue primarily from the following types of contracts:

*System Sales, Accessory and Part Sales -* System sales, accessory and part sales include devices and applicators (new and refurbished). Performance obligations are satisfied at the point in time when the customer obtains control of the goods, which is generally at the point in time that the product is shipped.

*Licensing Fees -* Licensing transactions include distribution licenses and intellectual property licenses. Licensing revenue is recognized as the Company satisfies its performance obligations, which may vary with the terms of the licensing agreement.

*Other Revenue -* Other revenue primarily includes warranties, repairs, and billed freight. The Company allocates the device sales price to the product and the embedded warranty by reference to the stand-alone extended warranty price. 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. 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. Research and development costs include costs of research, engineering, and technical activities to develop a new product, researching an expanded product use or making significant improvements to existing products, including the costs of clinical development.

***Stock-based compensation -*** The Company uses the fair value method of accounting for its employee stock option program. Stock-based compensation expense for all stock-based payment awards is based on the estimated fair value of the award measured on the grant date. The Company recognizes the estimated fair value of the award as compensation cost on a straight-line basis over the requisite service period of the award, which is generally the option vesting term. 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 risk-free rate for periods within the contractual life of the option is based on the United States Treasury yield curve in effect at the time of the grant. The expected volatility is based on the average volatility of the Company’s common stock. The expected dividend yield is based on our historical dividend experience, however, since our inception, we have not declared dividends. Forfeitures are recognized as they occur.

***Comprehensive income (loss) –*** Comprehensive income (loss) results from the translation of the Company’s foreign entity’s financial statements from their functional currency to U.S. dollars for consolidation in the accompanying consolidated financial statements.

### 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. 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.

### 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. In accordance with ASC Topic 260-10-45-13, *Earnings Per Share*, the weighted average of number of shares outstanding includes outstanding common stock and shares issuable for nominal consideration. Accordingly, warrants issued with a $0.01 per share exercise price, are included in weighted average shares outstanding as follows:

*(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. 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. 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\. 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\. Intangible Assets

Carrying value of intangible assets consist of the following:

*(in thousands)*

| Definite-lived Intangibles | December 31, 2022 Gross | Accumulated Amortization | December 31, 2021 Gross | Accumulated Amortization | Weighted- Average Useful Life (in years) |
| --- | ---: | ---: | ---: | ---: | ---: |
| 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. 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. 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

### 9\. Factoring Liabilities

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

*(In thousands)*

|  | December 31, 2022 | December 31, 2021 |
| --- | ---: | ---: |
| Receivables transferred | $2,564 | $2,026 |
| Reserve amount held | (434) | (289) |
| Traditional factoring liability | 2,130 | 1,737 |
| Advances on future cash receipts | - | 446 |
| Factoring liability | $2,130 | $2,183 |

### 10\. Senior Secured Debt, in Default

The following table summarizes outstanding senior secured debt:

*(In thousands)*

|  | December 31, 2022 Principal | Debt Discount | Carrying Value | December 31, 2021 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”). In accordance with the NWPSA, the Company issued a $15 million Senior Secured Promissory Note Payable (the “Senior Secured Note”) and a warrant exercisable into shares of the Company’s common stock in exchange for cash to support operations, repay outstanding debt and close on the acquisition of the UltraMIST assets from Celularity Inc. (Celularity) among other transactions.

In February 2022, the Company entered into a Second Amendment to Note and Warrant Purchase and Security Agreement (the “Second NWPSA”) for $3.0 million, for a total of $18.0 million outstanding. Along with the issuance of the note, the Company also issued warrants to purchase 16.2 million shares of common stock with an exercise price of $0.18 and 20.6 million shares of common stock. 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. 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 Third NWPSA provides for (i) the extension of the agent’s and holder’s forbearance of exercising its remedies arising from Existing Defaults (as defined in the NWPSA) to the earlier of (x) the occurrence of an Event of Default (as defined in the NWPSA) or (y) August 30, 2022, and (ii) the extension to file a registration statement with the Securities and Exchange Commission to register the resale of the Advisor Shares (as defined in the NWPSA) no later than August 30, 2022.

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%.

The debt issuance costs, and debt discount related to the Senior Secured Note were capitalized as a reduction in the principal amount and are being amortized to interest expense over the life of the Senior Secured Note. The amortization of the debt issuance costs and debt discount, included in interest expense, for the years ended December 31, 2022, and 2021, totaled $1.6 million and $910 thousand, respectively. Accrued interest related to the Senior Secured Note was $1.9 million and $1.6 million on December 31, 2022, and December 31, 2021, respectively. 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\. Convertible Promissory Notes and Convertible Promissory Notes, Related Parties

*(In thousands, except conversion price)*

|  | December 31, 2022 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 |

*(In thousands, except conversion price)*

|  | December 31, 2021 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. The Company paid issuance costs totaling approximately $1.4 million. Interest expense for the year ended December 31, 2022, totaled $4.4 million, $1.2 million in contractual interest expense and $3.2 million in amortization of debt discount and issuance costs.

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. 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 Notes contain customary events of default and covenants, including limitations on incurrences of indebtedness and liens. In addition, pursuant to the Notes, the Company agreed to reduce its outstanding shares via a reverse stock split to provide the number of authorized and unissued shares of common stock sufficient to permit the conversion of these Notes on or before December 31, 2022. However, the Company obtained a waiver of this requirement through December 31, 2023 from all holders of the Notes and amended its Articles of Incorporation to increase its number of authorized shares of common stock from 800,000,000 to 2,500,000,000.

***Acquisition Convertible promissory notes payable -*** In August 2020, the Company entered into an asset purchase agreement with Celularity to acquire Celularity’s UltraMIST assets. A portion of the aggregate consideration of $24 million paid for the assets included the issuance of a promissory note to Celularity in the principal amount of $4 million (the “Seller Note”). The Seller Note matured on August 6, 2021, and was not repaid. The Company’s failure to pay the outstanding principal balance when due constituted an event of default under the terms of the Seller Note and, accordingly, it began accruing additional interest of 5.0% in addition to the 12.0% initial rate, as of the date of the default. As of December 31, 2022, and 2021, the Seller Notes had outstanding accrued interest of $1.5 million and $761 thousand, respectively.

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

***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 note matured on August 6, 2021, and was not repaid and is currently in default. As of December 31, 2022, and 2021, the note had outstanding accrued interest of $444 thousand and $241 thousand, respectively.

***2021 Convertible Promissory Notes Payable –*** Previously, the Company entered into a Securities Purchase Agreement (the “2021 Purchase Agreement”) for the sale by the Company in a private placement (the “2021 Private Placement”) of (i) the Company’s future advance convertible promissory note in an aggregate principal amount of up to $3.4 million, later amended to $4.2 million and (ii) a warrant to purchase up to an additional 16,666,667 shares of common stock of the Company. The warrants had an exercise price of $0.18 per share and a four-year term. Advances totaled $1.9 million and warrants to purchase 9.3 million shares were outstanding prior to the settlement discussed below.

In addition, the Company issued notes to five institutional investors totaling approximately $0.5 million, which were subject to substantially the same terms and conditions as the Purchase Agreement. Warrants to purchase 2.8 million shares of common stock with an exercise price of $0.18 per share were issued and outstanding prior to the settlement discussed below.

Upon the closing of the Private Placement in August 2022, the 2021 Convertible Promissory Notes Payable were paid and settled in full using proceeds from the Private Placement. The settlement payment included cash totaling $3.9 million, which included accrued interest and penalties, and the issuance of Company shares of common stock totaling 19.4 million shares. The lenders surrendered the outstanding warrants to the Company. The Company recognized a $0.9 million loss on extinguishment of debt during the year ended December 31, 2022.

### 12\. SBA Loans

In February 2021, the Company received proceeds from a U.S. Small Business Administration (SBA) loan in the amount of $1.0 million pursuant to the Paycheck Protection Program under the CARES Act. The SBA Loan was evidenced by a promissory note that matured on February 20, 2026, and bears interest of 1% per annum. The SBA loan contained customary events of default relating to, among other things, payment defaults and breaches of representations, warranties and covenants. All or a portion of SBA loan may be fully or partially forgiven by the SBA upon application by the Company not later than June 2022 in accordance with SBA regulations. The Company received approval of the loan forgiveness application and recognized a gain on the extinguishment totaling $1.0 million during the year ended December 31, 2022.

### 13\. Fair Value Measurements

The Company uses various inputs to measure the outstanding warrants and certain embedded conversion features associated with convertible debt on a recurring basis to determine the fair value of the liabilities. The following table classifies the Company’s liabilities measured at fair value on a recurring basis into the fair value hierarchy:

*(in thousands)*

|  | Fair value measurement at December 31, 2022 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

*(in thousands)*

|  | Fair value measurement at December 31, 2021 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. 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.

### 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. The fair value of the conversion option was valued using the Black-Scholes model as of December 31, 2022, and the binomial pricing model as of December 31, 2021. Significant inputs related to the Level 3 fair value determination are as follows:

|  | Initial Valuation Assumptions August 2022 Convertible Notes | November 2022 Convertible Notes | Year End Valuation Assumptions 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. Treasury Bonds, as of each presented period ending date, as published by the U.S. Federal Reserve.*

*(3) Based on the historical daily volatility of the Company as of each presented period ending date. As of December 31, 2022 the Company applied a discount rate to the historical volatility.*

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\. 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.

The following table summarizes the changes in contract liabilities:

*(in thousands)*

|  | Year Ended December 31, 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\. 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, 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

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.

Also in December 2022, the Company’s stockholders approved the Company to amend the Company’s Articles of Incorporation to affect a reverse stock split of the Company’s outstanding common stock at a reverse stock split ratio ranging from any whole number between 1-for-50 and 1-for-100, with the exact ratio to be determined by the board of directors of the Company in its sole discretion. 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. 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 percentage of purchases from major vendors of the Company that exceeded ten percent of total purchases were as follows:

| Purchases: | Year ended December 31, 2022 | 2021 |
| --- | ---: | ---: |
| Vendor A | 19% | 50% |
| Vendor B | - | 21% |

### 18\. Revenue

The disaggregation of revenue is based on type and geographical region. The following table presents revenue from contracts with customers:

|  | Year ended December 31, 2022 United States | International | Total | Year ended December 31, 2021 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\. Stock-Based Compensation

On November 1, 2010, the Company approved the Amended and Restated 2006 Stock Incentive Plan of SANUWAVE Health, Inc. effective as of January 1, 2010 (the “Stock Incentive Plan”). The Stock Incentive Plan permits grants of awards to selected employees, directors, and advisors of the Company in the form of restricted stock or options to purchase shares of common stock. Options granted may include non-statutory options as well as qualified incentive stock options. The Stock Incentive Plan is administered by the board of directors of the Company. The Stock Incentive Plan gives broad powers to the board of directors of the Company to administer and interpret the form and conditions of each option. The stock options granted under the Stock Incentive Plan are generally non-statutory options which generally vest over a period of up to three years and have a ten-year term. The options are granted at an exercise price determined by the board of directors of the Company to be the fair market value of the common stock on the date of the grant. As of December 31, 2022, and 2021, the Stock Incentive Plan reserved a total of 35,000,000 shares of common stock for grant. 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. The Company is subject to United States Federal and state income tax examinations by tax authorities for any years that have net operating losses open until the net operating losses are used.

The components of the net loss before income taxes are as follows:

*(In thousands)*

|  | Year ended December 31, 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. Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is provided for the deferred tax assets, including loss carryforwards, when it is more likely than not that some portion or all a deferred tax asset will not be realized.

The income tax provision (benefit) from continuing operations consists of the following:

*(In thousands)*

| Current: | December 31, 2022 | December 31, 2021 |
| --- | ---: | ---: |
| 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. As a result, no additional income or withholding taxes have been provided for. The Company does not anticipate any impacts of the global intangible low taxed income (“GILTI”) and base erosion anti-abuse tax (“BEAT”) and as such, the Company has not recorded any impact associated with either GILTI or BEAT.

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. 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:

*(In thousands)*

| Deferred Tax Assets | December 31, 2022 | December 31, 2021 |
| --- | ---: | ---: |
| 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. The Inflation Reduction Act imposes an excise tax of 1% on the fair market value of net stock repurchases made after December 31, 2022. The impact of this provision will be dependent on the extent of share repurchases made in future periods. We continue to analyze the impacts of the Inflation Reduction Act; however, it is not expected to have a material impact on our financial statements. Additionally, the Inflation Reduction Act includes a new corporate alternative minimum tax which is not currently applicable to the Company.

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 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.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. In assessing the realization of deferred tax assets, management considers, whether it is “more likely than not”, that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences representing net future deductible amounts become deductible.

ASC 740 requires that a valuation allowance be established when it is “more likely than not” that all, or a portion of, deferred tax assets will not be realized. A review of all available positive and negative evidence needs to be considered, including the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies. 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. Since a full analysis under Section 382 of the Internal Revenue Code has not been performed, the Company may realize a “more than 50% change in ownership” which could limit its ability to use its net operating loss carryforwards accumulated to date to reduce future taxable income and tax liabilities. Additionally, because United States tax laws limit the time during which net operating loss carryforwards may be applied against future taxable income and tax liabilities, the Company may not be able to take advantage of all or portions of its net operating loss carryforwards for Federal income tax purposes.

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 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.

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. ASC 740 requires the evaluation of tax positions taken or expected to be taken while preparing the Company’s tax returns to determine whether the tax positions would “more-likely-than-not” be sustained if challenged by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the current year. 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.

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\. Commitments and Contingencies

#### Litigation

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

#### 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. The Company has responded and asserted that the Company is not in breach and that the supplier has breached various agreements. It is too early to determine the outcome of this matter. Any potential impact to the Company cannot be fully determined at this time and there is no guarantee that the dispute will be resolved in a manner beneficial to the Company or at all.

#### 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)*

| Year ended December 31, | Operating Leases | Finance Leases |
| --- | ---: | ---: |
| 2023 | $143 | $128 |
| 2024 | 85 | 128 |
| 2025 | 82 | 78 |
| 2026 | 82 | - |
| 2027 | 55 | - |
| Total Lease Payments | 447 | 334 |

### 22\. Restatement of Previously Issued Interim Condensed Consolidated Financial Statements

The following tables present the impact of the restatement adjustments disclosed in Note 3 – Restatement of Previously Issued Financial Statements, to the previously reported financial information as of and for the periods ended March 31, 2022, June 30, 2022, and September 30, 2022. Restated Statements of Stockholders’ Equity are not presented as all impacted items on those statements, Net Income (Loss), Accumulated deficit, and Total stockholders’ equity, are presented within the following tables.

RESTATED CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

March 31, 2022

*(In thousands, except share data)*

| ASSETS Current Assets: | Previously Reported | Adjustments | Restated |
| --- | ---: | ---: | ---: |
| Cash | $313 | $- | $313 |
| Accounts receivable, net of allowance of $785 | 1,730 | - | 1,730 |
| Inventory | 1,001 | - | 1,001 |
| Prepaid expenses and other current assets | 365 | - | 365 |
| Total Current Assets | $3,409 | $- | $3,409 |
| Property, Equipment, net | 315 | - | 315 |
| Right of use assets, net | 259 | - | 259 |
| Other Intangible Assets, net | 5,665 | - | 5,665 |
| Goodwill | 7,260 | - | 7,260 |
| Other assets | 106 | - | 106 |
| Total Assets | $17,014 | $- | $17,014 |
| LIABILITIES |  |  |  |
| Current Liabilities: |  |  |  |
| Senior secured promissory note payable, in default | $11,894 | $- | $11,894 |
| Convertible promissory notes payable, in default | 10,532 | - | 10,532 |
| Convertible promissory notes, related parties, in default | 1,596 | - | 1,596 |
| Advances on future cash receipts | 416 | - | 416 |
| Accounts payable | 6,696 | 64 | 6,760 |
| Accrued expenses | 4,916 | 554 | 5,470 |
| Accrued employee compensation | 3,623 | - | 3,623 |
| Due under factoring agreement | 1,231 | - | 1,231 |
| Warrant liability | 8,300 | - | 8,300 |
| Current portion of SBA loans | 226 | - | 226 |
| Accrued interest | 3,072 | 60 | 3,132 |
| Accrued interest, related parties | 345 | - | 345 |
| Current portion of lease liabilities | 268 | - | 268 |
| Current portion of contract liabilities | 58 | - | 58 |
| Other | 58 | - | 58 |
| Total Current Liabilities | $53,231 | $678 | $53,909 |
| Non-current Liabilities |  |  |  |
| SBA loans | $807 | $- | $807 |
| Lease liabilities | 34 | - | 34 |
| Contract liabilities | 303 | - | 303 |
| Deferred tax liability | 28 | - | 28 |
| Total Non-current Liabilities | $1,172 | $- | $1,172 |
| Total Liabilities | $54,403 | $678 | $55,081 |
| STOCKHOLDERS’ DEFICIT |  |  |  |
| Preferred Stock | $- | $- | $- |
| Common Stock | 517 | - | 517 |
| Additional Paid-in Capital | 150,533 | - | 150,533 |
| Accumulated Deficit | (188,372) | (678) | (189,050) |
| Accumulated Other Comprehensive Loss | (67) | - | (67) |
| Total Stockholders’ Deficit | $(37,389) | $(678) | $(38,067) |
| Total Liabilities and Stockholders’ Deficit | $17,014 | $- | $17,014 |

F-21

RESTATED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(UNAUDITED)

*(In thousands except share data)*

| Revenues: | Three Months Ended March 31, 2022 Previously Reported | Adjustments | Restated |
| --- | ---: | ---: | ---: |
| Accessory and parts revenue | $2,192 | $- | $2,192 |
| Product | 645 | - | 645 |
| Rental Income | 343 | - | 343 |
| License fees and other | 15 | - | 15 |
| Total Revenue | 3,195 | - | 3,195 |
| Cost of Revenues | 889 | - | 889 |
| Gross Margin | $2,306 | $- | $2,306 |
| Operating Expenses: |  |  |  |
| General and administrative | 2,141 | 64 | 2,205 |
| Selling and marketing | 1,715 | - | 1,715 |
| Research and development | 166 | - | 166 |
| Gain on disposal of assets | (554) | 554 | - |
| Depreciation and amortization | 176 | - | 176 |
| Total Operating Expenses | 3,644 | 618 | 4,262 |
| Operating Loss | $(1,338) | $(618) | $(1,956) |
| Other Income (Expense): |  |  |  |
| Interest expense | (3,076) | (60) | (3,136) |
| Interest expense, related party | (56) | - | (56) |
| Change in fair value of derivative liabilities | 3,482 | - | 3,482 |
| Loss on issuance of debt | (3,434) | - | (3,434) |
| Gain / (loss) on foreign currency exchange | (1) | - | (1) |
| Other Expense, net | (3,085) | (60) | (3,145) |
| Net Loss before Income Taxes | $(4,423) | $(678) | $(5,101) |
| Provision for Income Taxes | - | - | - |
| Net Loss | $(4,423) | $(678) | $(5,101) |
| Other Comprehensive Loss |  |  |  |
| Foreign currency translation adjustments | - | - | - |
| Total Comprehensive Loss | $(4,423) | $(678) | $(5,101) |
| Loss per Share: |  |  |  |
| Net loss per share, basic and diluted | $(0.01) | $- | $(0.01) |
| Weighted average shares outstanding, basic and diluted | 525,414,534 | - | 525,414,534 |

F-22

RESTATED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

*(In thousands)*

| Cash Flows - Operating Activities: | Three Months Ended March 31, 2022 Previously Reported | Adjustment | Restated |
| --- | ---: | ---: | ---: |
| Net loss | $(4,423) | $(678) | $(5,101) |
| Adjustments to reconcile net loss to net cash used by operating activities |  |  |  |
| Amortization of intangibles | 176 | - | 176 |
| Depreciation | 15 | - | 15 |
| Change in fair value of derivative liabilities | (3,482) | - | (3,482) |
| Loss on issuance of debt | 3,434 | - | 3,434 |
| Amortization of debt issuance costs and original issue discount | 889 | - | 889 |
| Accrued interest | 551 | 60 | 611 |
| Interest payable, related parties | 56 | - | 56 |
| Changes in operating assets and liabilities |  |  |  |
| Accounts receivable - trade | 804 | - | 804 |
| Inventory | 39 | - | 39 |
| Prepaid expenses | (39) | - | (39) |
| Other assets | 43 | - | 43 |
| Operating leases | - | - | - |
| Accounts payable | (930) | 64 | (866) |
| Accrued expenses | 439 | 554 | 993 |
| Accrued employee compensation | (549) | - | (549) |
| Contract liabilities | (155) | - | (155) |
| Net Cash Used by Operating Activities | (3,132) | - | (3,132) |
| Cash Flows - Investing Activities |  |  |  |
| Disposition of property and equipment | 360 | - | 360 |
| Net Cash Flows Provided by (Used in) Investing Activities | 360 | - | 360 |
| Cash Flows - Financing Activities |  |  |  |
| Proceeds from senior promissory notes | 2,940 | - | 2,940 |
| Payments for factoring | (505) | - | (505) |
| Proceeds from warrant exercises | 100 | - | 100 |
| Payments of principal on finance leases | (65) | - | (65) |
| Net Cash Flows Provided by Financing Activities | 2,470 | - | 2,470 |
| Effect of Exchange Rates on Cash | (4) | - | (4) |
| Net Change in Cash During Period | (306) | - | (306) |
| Cash at Beginning of Period | 619 | - | 619 |
| Cash at End of Period | $313 | $- | $313 |
| Supplemental Information: |  |  |  |
| Cash paid for interest | $574 | $- | $574 |
| Non-cash Investing and Financing Activities: |  |  |  |
| Reclassification of warrant liability due to cashless warrant exercise | $2,167 | $- | $2,167 |
| Warrants issued in conjunction with senior secured promissory note payable | 2,654 | - | 2,654 |
| Common shares issued in conjunction with senior secured promissory note payable | 3,720 | - | 3,720 |

F-23

RESTATED CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

June 30, 2022

*(In thousands, except share data)*

| ASSETS Current Assets: | Previously Reported | Adjustments | Restated |
| --- | ---: | ---: | ---: |
| Cash | $1,484 | $- | $1,484 |
| Accounts receivable, net of allowance for doubtful accounts of $0.8 million, respectively | 1,749 | - | 1,749 |
| Inventory | 925 | - | 925 |
| Prepaid expenses and other current assets | 1,181 | (781) | 400 |
| Total Current Assets | $5,339 | $(781) | $4,558 |
| Property, Equipment and Other, net | 535 | - | 535 |
| Other Intangible Assets, net | 5,489 | - | 5,489 |
| Goodwill | 7,260 | - | 7,260 |
| Total Assets | $18,623 | $(781) | $17,842 |
| LIABILITIES |  |  |  |
| Current Liabilities: |  |  |  |
| Senior secured promissory note payable, in default | $12,334 | $- | $12,334 |
| Convertible promissory notes payable, in default | 6,523 | - | 6,523 |
| Convertible promissory notes, related parties, in default | 1,596 | - | 1,596 |
| Short-term loans | 1,484 | - | 1,484 |
| Advances on future cash receipts | 398 | - | 398 |
| Accounts payable | 7,083 | 76 | 7,159 |
| Accrued expenses | 5,900 | 741 | 6,641 |
| Accrued employee compensation | 4,264 | - | 4,264 |
| Due under factoring agreement | 1,792 | - | 1,792 |
| Warrant liability | 5,295 | - | 5,295 |
| Current portion of SBA loans | 272 | - | 272 |
| Accrued interest | 3,600 | 137 | 3,737 |
| Accrued interest, related parties | 402 | - | 402 |
| Current portion of lease liabilities | 185 | - | 185 |
| Current portion of contract liabilities | 64 | - | 64 |
| Other | 107 | - | 107 |
| Total Current Liabilities | $51,299 | $954 | $52,253 |
| Non-current Liabilities |  |  |  |
| SBA loans | $761 | $- | $761 |
| Lease liabilities | 40 | - | 40 |
| Contract liabilities | 295 | - | 295 |
| Deferred tax liability | 28 | - | 28 |
| Total Non-current Liabilities | $1,124 | $- | $1,124 |
| Total Liabilities | $52,423 | $954 | $53,377 |
| STOCKHOLDERS’ DEFICIT |  |  |  |
| Preferred Stock | $- | $- | $- |
| Common Stock | 529 | - | 529 |
| Additional Paid-in Capital | 151,409 | - | 151,409 |
| Accumulated Deficit | (185,671) | (1,735) | (187,406) |
| Accumulated Other Comprehensive Loss | (67) |  | (67) |
| Total Stockholders’ Deficit | $(33,800) | $(1,735) | $(35,535) |
| Total Liabilities and Stockholders’ Deficit | $18,623 | $(781) | $17,842 |

F-24

RESTATED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

*(In thousands except share data)*

| Revenues: | Three Months Ended June 30, 2022 Previously Reported | Adj. | Restated | Six Months Ended June 30, 2022 Previously Reported | Adj. | Restated |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Accessory and parts revenue | $2,663 | $- | $2,663 | $4,854 | $- | $4,854 |
| Product | 862 | - | 862 | 1,507 | - | 1,507 |
| Rental Income | 344 | - | 344 | 688 | - | 688 |
| License fees and other | 13 | - | 13 | 28 | - | 28 |
| Total Revenue | 3,882 | - | 3,882 | 7,077 | - | 7,077 |
| Cost of Revenues | 1,096 | - | 1,096 | 1,986 | - | 1,986 |
| Gross Margin | $2,786 | $- | $2,786 | $5,091 | $- | $5,091 |
| Operating Expenses: |  |  |  |  |  |  |
| General and administrative | 2,937 | 793 | 3,730 | 5,078 | 857 | 5,935 |
| Selling and marketing | 1,672 | - | 1,672 | 3,387 | - | 3,387 |
| Research and development | 171 | - | 171 | 337 | - | 337 |
| Gain on disposal of assets | (136) | 187 | 51 | (690) | 741 | 51 |
| Depreciation and amortization | 210 | - | 210 | 386 | - | 386 |
| Total Operating Expenses | 4,854 | 980 | 5,834 | 8,498 | 1,598 | 10,096 |
| Operating Loss | $(2,068) | $(980) | $(3,048) | $(3,407) | $(1,598) | $(5,005) |
| Other Income (Expense): |  |  |  |  |  |  |
| Interest expense | (2,826) | (77) | (2,903) | (5,903) | (137) | (6,040) |
| Interest expense, related party | (56) | - | (56) | (112) | - | (112) |
| Change in fair value of derivative liabilities | 7,861 | - | 7,861 | 11,343 | - | 11,343 |
| Loss on issuance of debt | - | - | - | (3,434) | - | (3,434) |
| Loss on extinguishment of debt | (211) | - | (211) | (211) | - | (211) |
| Gain / (loss) on foreign currency exchange | 2 | - | 2 | 2 | - | 2 |
| Other Income (Expense), net | 4,770 | (77) | 4,693 | 1,685 | (137) | 1,548 |
| Net Income (loss) before Income Taxes | $2,702 | $(1,057) | $1,645 | $(1,722) | $(1,735) | $(3,457) |
| Provision for Income Taxes | - | - | - | - | - | - |
| Net Income (loss) | $2,702 | $(1,057) | $1,645 | $(1,722) | $(1,735) | $(3,457) |
| Other Comprehensive Income (Loss) |  |  |  |  |  |  |
| Foreign currency translation adjustments | - | - | - | - | - | - |
| Total Comprehensive Income (Loss) | $2,702 | $(1,057) | $1,645 | $(1,722) | $(1,735) | $(3,457) |
| Gain (loss) per Share: |  |  |  |  |  |  |
| Basic | $0.01 | $(0.01) | $- | $- | $(0.01) | $(0.01) |
| Diluted | $- |  | $- | $- | (0.01) | $(0.01) |
| Weighted average shares outstanding; Basic and Diluted |  |  |  |  |  |  |
| Basic | 538,560,051 | - | 538,560,051 | 532,589,825 | - | 532,589,825 |
| Diluted | 871,984,091 | - | 871,984,091 | 532,589,825 | - | 532,589,825 |

F-25

RESTATED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

*(In thousands)*

| Cash Flows - Operating Activities: | Six Months Ended June 30, 2022 Previously Reported | Adjustment | Restated |
| --- | ---: | ---: | ---: |
| Net loss | $(1,722) | $(1,735) | $(3,457) |
| Adjustments to reconcile net loss to net cash used by operating activities |  |  |  |
| Amortization of intangibles | 352 | - | 352 |
| Depreciation | 94 | - | 94 |
| Bad debt expense | 52 | - | 52 |
| Income tax expense | - | - | - |
| Shares issued for service | 888 | - | 888 |
| Loss in extinguishment of debt | 211 | - | 211 |
| Gain on sale of property and equipment, net | (541) | 541 | - |
| Change in fair value of derivative liabilities | (11,343) | - | (11,343) |
| Loss on issuance of debt | 3,434 | - | 3,434 |
| Amortization of debt issuance costs and original issue discount | 1,304 | - | 1,304 |
| Accrued interest | 1,078 | 137 | 1,215 |
| Interest payable, related parties | 112 | - | 112 |
| Changes in operating assets and liabilities |  |  |  |
| Accounts receivable - trade | 733 | - | 733 |
| Inventory | 115 | - | 115 |
| Prepaid expenses | (855) | 781 | (74) |
| Other assets | 47 | - | 47 |
| Accounts payable | (562) | 76 | (486) |
| Accrued expenses | 1,407 | 200 | 1,607 |
| Accrued employee compensation | 103 | - | 103 |
| Contract liabilities | (108) | - | (108) |
| Net Cash Used by Operating Activities | (5,201) | - | (5,201) |
| Cash Flows - Investing Activities |  |  |  |
| Proceeds from sale of property and equipment | 948 | - | 948 |
| Net Cash Flows Used in Investing Activities | 948 | - | 948 |
| Cash Flows - Financing Activities |  |  |  |
| Proceeds from senior promissory notes | 2,940 | - | 2,940 |
| Proceeds from short term notes | 2,130 | - | 2,130 |
| Proceeds from factoring | 55 | - | 55 |
| Proceeds from warrant exercises | 100 | - | 100 |
| Payments of principal on finance leases | (121) | - | (121) |
| Proceeds from related party advances | - | - | - |
| Net Cash Flows Provided by Financing Activities | 5,104 | - | 5,104 |
| Effect of Exchange Rates on Cash | 14 | - | 14 |
| Net Change in Cash During Period | 865 | - | 865 |
| Cash at Beginning of Period | 619 | - | 619 |
| Cash at End of Period | $1,484 | $- | $1,484 |
| Supplemental Information: |  |  |  |
| Cash paid for interest | $2,045 | $- | $2,045 |
| Non-cash Investing and Financing Activities: |  |  |  |
| Reclassification of warrant liability due to cashless warrant exercise | 2,167 | - | 2,167 |
| Warrants issued in conjunction with senior secured promissory note payable | 2,654 | - | 2,654 |
| Common shares issued in conjunction with senior secured promissory note payable | 3,720 | - | 3,720 |

F-26

RESTATED CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

September 30, 2022

*(In thousands, except share data)*

| ASSETS | Previously Reported | Adjustments | Restated |
| --- | ---: | ---: | ---: |
| Cash | $1,112 | $- | $1,112 |
| Accounts receivable, net of allowance of $0.8 million, respectively | 2,403 | - | 2,403 |
| Inventory | 1,413 | (551) | 862 |
| Prepaid expenses and other current assets | 1,935 | (781) | 1,154 |
| Total Current Assets | $6,863 | $(1,332) | $5,531 |
| Property and Equipment and Other, net | 673 | - | 673 |
| Other Intangible Assets, net | 5,313 | - | 5,313 |
| Goodwill | 7,260 | - | 7,260 |
| Total Assets | $20,109 | $(1,332) | $18,777 |
| LIABILITIES |  |  |  |
| Current Liabilities: |  |  |  |
| Senior secured promissory note payable, in default | $12,773 | $- | $12,773 |
| Convertible promissory notes payable, in default | 13,174 | - | 13,174 |
| Convertible promissory notes, related parties, in default | 5,858 | - | 5,858 |
| Advances on future cash receipts | 194 | - | 194 |
| Accounts payable | 5,055 | 170 | 5,225 |
| Accrued expenses | 4,100 | 741 | 4,841 |
| Accrued employee compensation | 3,792 | - | 3,792 |
| Due under factoring agreement | 1,510 | - | 1,510 |
| Warrant liability | 1,196 | - | 1,196 |
| Accrued interest | 3,988 | 218 | 4,206 |
| Accrued interest, related parties | 546 | - | 546 |
| Current portion of lease and contract liabilities | 249 | - | 249 |
| Other | 30 | - | 30 |
| Total Current Liabilities | $52,465 | $1,129 | $53,594 |
| Non-current Liabilities |  |  |  |
| SBA loans | $- | $- | $- |
| Lease liabilities | 263 | - | 263 |
| Contract liabilities | 205 | - | 205 |
| Deferred tax liability | 28 | - | 28 |
| Total Non-current Liabilities | $496 | $- | $496 |
| Total Liabilities | $52,961 | $1,129 | $54,090 |
| STOCKHOLDERS’ DEFICIT |  |  |  |
| Preferred Stock | $- | $- | $- |
| Common Stock | 549 | - | 549 |
| Additional Paid-in Capital | 152,750 | - | 152,750 |
| Accumulated Deficit | (186,084) | (2,461) | (188,545) |
| Accumulated Other Comprehensive Loss | (67) | - | (67) |
| Total Stockholders’ Deficit | $(32,852) | $(2,461) | $(35,313) |
| Total Liabilities and Stockholders’ Deficit | $20,109 | $(1,332) | $18,777 |

F-27

RESTATED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(UNAUDITED)

*(In thousands except share data)*

| Revenues: | Three Months Ended September 30, 2022 Previously Reported | Adj. | Restated | Nine Months Ended September 30, 2022 Previously Reported | Adj. | Restated |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Accessory and parts revenue | $3,012 | $- | $3,012 | $7,866 | $- | $7,866 |
| Product | 902 | - | 902 | 2,408 | - | 2,408 |
| Rental Income | 247 | - | 247 | 935 | - | 935 |
| License fees and other | 5 | - | 5 | 33 | - | 33 |
| Total Revenue | 4,166 | - | 4,166 | 11,242 | - | 11,242 |
| Cost of Revenues | 606 | 551 | 1,157 | 2,590 | 551 | 3,141 |
| Gross Margin | $3,560 | $(551) | $3,009 | $8,652 | $(551) | $8,101 |
| Operating Expenses: |  |  |  |  |  |  |
| General and administrative | 3,404 | 94 | 3,498 | 8,482 | 951 | 9,433 |
| Selling and marketing | 1,650 | - | 1,650 | 5,037 | - | 5,037 |
| Research and development | 157 | - | 157 | 494 | - | 494 |
| Gain on disposal of assets | - | - | - | (690) | 741 | 51 |
| Depreciation and amortization | 189 | - | 189 | 575 | - | 575 |
| Total Operating Expenses | 5,400 | 94 | 5,494 | 13,898 | 1,692 | 15,590 |
| Operating Loss | $(1,840) | $(645) | $(2,485) | $(5,246) | $(2,243) | $(7,489) |
| Other Income (Expense): |  |  |  |  |  |  |
| Interest expense | (3,301) | (81) | (3,382) | (9,203) | (218) | (9,421) |
| Interest expense, related party | (439) | - | (439) | (551) | - | (551) |
| Change in fair value of derivative liabilities | 5,252 | - | 5,252 | 16,597 | - | 16,597 |
| Loss on issuance of debt | - | - | - | (3,434) | - | (3,434) |
| Loss on extinguishment of debt | (86) | - | (86) | (297) | - | (297) |
| Gain / (loss) on foreign currency exchange | 1 | - | 1 | (1) | - | (1) |
| Other Income (Expense), net | 1,427 | (81) | 1,346 | 3,111 | (218) | 2,893 |
| Net Loss before Income Taxes | $(413) | $(726) | $(1,139) | $(2,135) | $(2,461) | $(4,596) |
| Provision for Income Taxes | - | - | - | - | - | - |
| Net Income (loss) | $(413) | $(726) | $(1,139) | $(2,135) | $(2,461) | $(4,596) |
| Other Comprehensive Income (Loss) |  |  |  |  |  |  |
| Foreign currency translation adjustments | - | - | - | - | - | - |
| Total Comprehensive Income (Loss) | $(413) | $(726) | $(1,139) | $(2,135) | $(2,461) | $(4,596) |
| Loss per Share: |  |  |  |  |  |  |
| Basic and Diluted | $(0.00) | $- | $(0.00) | $(0.00) | $(0.01) | $(0.01) |
| Weighted average shares outstanding, basic and diluted | 561,069,625 | - | 561,069,625 | 542,484,779 | - | 542,484,779 |

F-28

RESTATED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

*(In thousands)*

| Cash Flows - Operating Activities: | Nine Months Ended September 30, 2022 Previously Reported | Adjustment | Restated |
| --- | ---: | ---: | ---: |
| Net loss | $(2,135) | $(2,461) | $(4,596) |
| Adjustments to reconcile net loss to net cash used by operating activities |  |  |  |
| Depreciation and Amortization | 681 | - | 681 |
| Bad debt expense | 62 | - | 62 |
| Shares issued for service | 888 | - | 888 |
| Loss on extinguishment of debt | 297 | - | 297 |
| Gain on sale of property and equipment, net | (690) | 741 | 51 |
| Change in fair value of derivative liabilities | (16,597) | - | (16,597) |
| Loss on issuance of debt | 3,434 | - | 3,434 |
| Amortization of debt issuance costs and original issue discount | 2,998 | - | 2,998 |
| Accrued interest | 1,618 | 218 | 1,836 |
| Interest payable, related parties | 168 | - | 168 |
| Changes in operating assets and liabilities |  |  |  |
| Accounts receivable - trade | 69 | - | 69 |
| Inventory | (373) | 551 | 178 |
| Prepaid expenses and other assets | (1,437) | 781 | (656) |
| Accounts payable | (1,863) | 170 | (1,693) |
| Accrued expenses | 271 | - | 271 |
| Accrued employee compensation | (473) | - | (473) |
| Contract liabilities | (94) | - | (94) |
| Net Cash Used by Operating Activities | (13,176) | - | (13,176) |
| Cash Flows - Investing Activities |  |  |  |
| Disposition of property and equipment | 1,022 | - | 1,022 |
| Net Cash Flows Provided by (Used in) Investing Activities | 1,022 | - | 1,022 |
| Cash Flows - Financing Activities |  |  |  |
| Proceeds from senior promissory notes | 2,940 | - | 2,940 |
| Proceeds from convertible promissory notes | 12,366 | - | 12,366 |
| Proceeds from short term notes | 640 | - | 640 |
| Payments for factoring | (227) | - | (227) |
| Proceeds from warrant exercises | 100 | - | 100 |
| Payments of principal on finance leases | (174) | - | (174) |
| Payments of principal on convertible promissory notes and SBA loans | (2,981) | - | (2,981) |
| Net Cash Flows Provided by Financing Activities | 12,664 | - | 12,664 |
| Effect of Exchange Rates on Cash | (17) | - | (17) |
| Net Change in Cash During Period | 493 | - | 493 |
| Cash at Beginning of Period | 619 | - | 619 |
| Cash at End of Period | $1,112 | $- | $1,112 |
| Supplemental Information: |  |  |  |
| Cash paid for interest | $3,345 | $- | $3,345 |
| Non-cash Investing and Financing Activities: |  |  |  |
| Reclassification of warrant liability due to cashless warrant exercise | $2,166 | $- | $2,166 |
| Settlement of debt and warrants with stock | 1,361 | - | 1,361 |
| Warrants issued in conjunction with senior secured promissory note payable | 2,654 | - | 2,654 |
| Common shares issued in conjunction with senior secured promissory note payable | 3,720 | - | 3,720 |
| Embedded conversion option with issuances of convertible debt | 2,309 | - | 2,309 |
| Working capital balances refinanced into Convertible notes payable | 2,273 | - | 2,273 |
| Warrant issuance in conjunction with convertible debt | 1,463 | - | 1,463 |

F-29

## Risk factors

As filed, 74,545 characters.

*Investing in our common stock involves a high degree of risk. You should carefully consider the following risk factors and all other information contained in this Annual Report on Form 10-K, including the consolidated financial statements and the related notes, before purchasing our common stock. If any of the following risks actually occur, they may materially harm our business and our financial condition and results of operations. In any such event, the market price of our common stock could decline, and you could lose all or part of your investment.*

### Risks Related to our Business

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

The continuation of our business is dependent upon raising additional capital. We expect to devote substantial resources for the commercialization of the 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. 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. 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. 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. 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. 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. 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. 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.

***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.***

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. 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. 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. 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. 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. If we are unable to remediate these material weaknesses, or if we identify additional material weaknesses in the future or otherwise fail to maintain effective internal control over financial reporting or disclosure controls and procedures, it may result in material misstatements of our consolidated financial statements or cause us to fail to meet our periodic reporting obligations, which may adversely affect our business, financial condition, and results of operations.***

We have identified material weaknesses in our internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. 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. 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.

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. 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. The material weaknesses will not be considered remediated until management completes the design and implementation of the measures described above and the controls operate for a sufficient period of time and management has concluded, through testing, that these controls are effective.

There can be no assurance as to when the material weaknesses will be remediated. At this time, we cannot provide an estimate of costs expected to be incurred in connection with implementing this remediation plan; however, these remediation measures will be time consuming, will result in us incurring significant costs, and will place significant demands on our financial and operational resources.

We cannot assure that the measures we have taken to date and may take in the future will be sufficient to remediate the control deficiencies that led to our material weaknesses in internal control over financial reporting or that they will prevent or avoid potential future material weaknesses to be identified in the future. The effectiveness of our internal control over financial reporting is subject to various inherent limitations, including cost limitations, judgments used in decision making, assumptions about the likelihood of future events, the possibility of human error and the risk of fraud. Any failure to design, implement and maintain effective internal control over financial reporting and effective disclosure controls and procedures, or any difficulties encountered in their implementation or improvement, may result in additional material misstatements of our consolidated financial statements, or cause us to fail to meet our periodic reporting obligations, which may adversely affect our business, financial condition and results of operations.

***If we are unable to successfully raise additional capital, our viability may be threatened; however, if we do raise additional capital, your percentage ownership as a stockholder could decrease and constraints could be placed on the operations of our business.***

We have experienced negative operating cash flows since our inception and have funded our operations primarily from proceeds received from sales of our capital stock, the issuance of promissory notes and convertible promissory notes, the issuance of notes payable to related parties, and product sales. We will seek to obtain additional funds in the future either through equity or debt financings or through strategic alliances with third parties, either alone or in combination with equity financings. These financings could result in substantial dilution to the holders of our common stock or require contractual or other restrictions on our operations or on alternative business opportunities that may be available to us. 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. 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.

A variety of factors could impact our need to raise additional capital, the timing of any required financings and the amount of such financings. 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;
- 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.

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.

Market acceptance of our products will largely depend on our ability to demonstrate their relative safety, efficacy, cost-effectiveness and ease of use.

We are subject to risks that:

- the reimbursement for our products is difficult to obtain or is too low, which can hinder the introduction and acceptance of our products in the market;
- we are unable to get our product candidates in commercial quantities at reasonable costs; and
- the patient and physician community does not accept our product candidates.

We cannot predict whether we will successfully commercialize our product candidates. If we fail to do so, we will not be able to generate substantial revenues, if any.

***The medical device/therapeutic product industries are highly competitive and subject to rapid technological change. If our competitors are better able to develop and market products that are safer and more effective than any products we may develop, our commercial opportunities will be reduced or eliminated.***

Our success depends, in part, upon our ability to maintain a competitive position in the development of technologies and products. We face competition from established medical device, pharmaceutical and biotechnology companies, as well as from academic institutions, government agencies, and private and public research institutions in the United States and abroad. Many of our principal competitors have significantly greater financial resources and expertise than we do in research and development, manufacturing, pre-clinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements, or mergers with, or acquisitions by, large and established companies, or through the development of novel products and technologies.

For example, in 2019, Tissue Regeneration Technologies, LLC (DBAS Softwave) obtained clearance from the FDA for treatment of diabetic foot ulcers using non-focused shockwaves, as a 510(k) submission based on our PACE system *de novo* clearance.

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. Our competitors may develop and commercialize pharmaceutical, biotechnology or medical devices that are safer or more effective, have fewer side effects or are less expensive than any products that we may develop.

***We may not successfully establish and maintain licensing and/or partnership arrangements for our technology for non-medical uses, which could adversely affect our ability to develop and commercialize our non-medical technology.***

Our strategy for the development, testing, manufacturing, and commercialization of our technology for non-medical uses generally relies on establishing and maintaining collaborations with licensors and other third parties. We may not be able to obtain, maintain or expand these or other licenses and collaborations or establish additional licensing and collaboration arrangements necessary to develop and commercialize our product candidates. Even if we are able to obtain, maintain or establish licensing or collaboration arrangements, these arrangements may not be on favorable terms and may contain provisions that will restrict our ability to develop, test and market our product candidates. Furthermore, our licensing and collaboration agreements are subject to counterparty risk, and to the extent the licensors or other third parties that we enter into licensing, joint venture or other collaboration arrangements with face operational, regulatory or financial difficulties, and to the extent we are unable to find suitable alternative counterparties in a timely manner, if at all, our business and results of operations could be materially adversely affected. Any failure to obtain, maintain or establish licensing or collaboration arrangements on favorable terms could adversely affect our business prospects, financial condition, or ability to develop and commercialize our technology for non-medical uses.

We expect to rely at least in part on third party collaborators to perform a number of activities relating to the development and commercialization of our technology for non-medical uses, possibly including the design and manufacture of product materials, the obtaining of regulatory or environmental approvals and the marketing and distribution of any successfully developed products. Our collaborators also may have or acquire rights to control aspects of our product development programs. As a result, we may not be able to conduct these programs in the manner or on the time schedule we may contemplate. In addition, if any of these collaborators withdraw support for our programs or product candidates or otherwise impair their development, our business could be negatively affected. To the extent we undertake any of these activities internally, our expenses may increase.

***Many of our product component materials are only produced by a single supplier for such product component. If we are unable to obtain product component materials and other products from our suppliers that we depend on for our operations, or find suitable replacement suppliers, our ability to deliver our products to market will likely be impeded, which could have a material adverse effect on us.***

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. If this were to occur, it may be difficult to arrange a replacement supplier because certain of these materials may only be available from one or a limited number of sources. Our suppliers may encounter problems during manufacturing due to a variety of reasons, including failure to follow specific protocols and procedures, failure to comply with applicable regulations, equipment malfunction and environmental factors. In addition, some of our suppliers have been and will continue to be affected by supply chain problems resulting from the pandemic. 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.

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.

***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.***

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. Among other terms, the agreement contains provisions whereby in the event of a change of control of the Company (as defined in the agreement), the stockholders of PSWC have the right and option to cause the Company to purchase all of the stock of PSWC, and whereby the Company has the right and option to purchase all issued and outstanding shares of PSWC, in each case based upon certain defined purchase price provisions and other terms. 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. 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.

***The loss of our key management would likely hinder our ability to execute our business plan.***

As a small company with less than 40 employees, our success depends on the continuing contributions of our management team and qualified personnel. Turnover, transitions or other disruptions in our management team and personnel could make it more difficult to successfully operate our business and achieve our business goals and could adversely affect our results of operation and financial condition. Our success depends in large part on our ability to attract and retain highly qualified personnel. We face intense competition in our hiring efforts from other pharmaceutical, biotechnology and medical device companies, as well as from universities and nonprofit research organizations, and we may have to pay higher salaries to attract and retain qualified personnel. The loss of one or more of these individuals, or our inability to attract additional qualified personnel, could substantially impair our ability to implement our business plan.

***We face an inherent risk of liability if the use or misuse of our products results in personal injury or death.***

The sale of products may expose us to product liability claims which could result in financial loss. Our clinical and commercial product liability insurance coverage may not be sufficient to cover claims that may be made against us. In addition, we may not be able to maintain insurance coverage at a reasonable cost, or in sufficient amounts or scope, to protect us against losses. Any claims against us, regardless of their merit, could severely harm our financial condition, strain our management team and other resources, and adversely impact or eliminate the prospects for commercialization of the product candidate, or sale of the product, that is the subject of any such claim. 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.***

We rely to a large extent upon sophisticated information technology systems to operate our businesses, some of which are managed, hosted, provided and/or used by third parties or their vendors. We collect, store, and transmit large amounts of confidential information, and we deploy and operate an array of technical and procedural controls to maintain the confidentiality and integrity of such confidential information. A significant breakdown, invasion, corruption, destruction or interruption of critical information technology systems or infrastructure, by our workforce, others with authorized access to our systems or unauthorized persons could negatively impact our operations. The ever-increasing use and evolution of technology, including cloud-based computing, creates opportunities for the unintentional dissemination or intentional destruction of confidential information stored in our or our third-party providers’ systems, portable media, or storage devices. We could also experience, and in some cases have experienced in the past, a business interruption, theft of confidential information, financial theft, or reputational damage from industrial espionage attacks, malware, spoofing or other cyber-attacks, which may compromise our system infrastructure, lead to data leakage, either internally or at our third-party providers, or materially adversely impact our financial condition.

We have previously disclosed that we have experienced cybersecurity breaches from email spoofing. While we have invested in the protection of data and information technology, there can be no assurance that our efforts will prevent service interruptions or security breaches. 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.

***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.***

A portion of our revenue comes from international sources, and we anticipate that we will continue to expand our overseas operations. Engaging in international business involves several difficulties and risks, including, but not limited to, the following:

- required compliance with existing and changing foreign healthcare and other regulatory requirements and laws, such as those relating to patient privacy or handling of bio-hazardous waste;
- required compliance with anti-bribery laws, data privacy requirements, labor laws and anti-competition regulations;
- export or import restrictions;
- political and economic instability,
- foreign exchange controls; and
- difficulties protecting or procuring intellectual property rights.

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. 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.***

The COVID-19 pandemic has affected many countries, including the United States and several European countries. The consequences of the COVID-19 pandemic adversely affect our ability to commercialize our products, ability to build inventory, increase our operating expenses, and has had a material adverse effect on our financial results. We have experienced a disruption of our supply channels during the years ended December 31, 2022, and 2021. Also, the pandemic caused continued or additional actions by hospitals and clinics such as limiting elective procedures and treatments and limiting clinical trial activities and data monitoring. These factors have had 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 of our Articles of Incorporation and Bylaws and applicable provisions of Nevada law may delay or discourage transactions involving an actual or potential change in control or change in our management, including transactions in which stockholders might otherwise receive a premium for their shares, or transactions that our stockholders might otherwise deem to be in their best interests. 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.

In addition, Section 78.438 of the Nevada Revised Statutes prohibits a publicly-held Nevada corporation from engaging in a business combination with an interested stockholder (generally defined as a person which together with its affiliates owns, or within the last three years has owned, 10% of our voting stock, for a period of three years after the date of the transaction in which the person became an interested stockholder) unless the business combination is approved in a prescribed manner. The existence of the foregoing provisions and other potential anti-takeover measures could limit the price that investors might be willing to pay in the future for shares of our common stock. They could also deter potential acquirers of our Company, thereby reducing the likelihood that you could receive a premium for your common stock in an acquisition.

### 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. 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.

In addition to the approval and clearance requirements, numerous other regulatory requirements apply to us and our products and product candidates, our suppliers and contract manufacturers. These include requirements related to the following:

- testing
- manufacturing
- quality control
- labeling
- advertising
- promotion
- distribution
- export
- reporting to the FDA certain adverse experiences associated with the use of the products; and
- obtaining additional approvals or clearances for certain modifications to the products or their labeling or claims.

We are also subject to inspection by the FDA and other international regulatory bodies to determine our compliance with regulatory requirements, as are our suppliers and contract manufacturers, and we cannot be sure that the FDA and other international regulatory bodies will not identify compliance issues that may disrupt production or distribution or require substantial resources to correct.

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. 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.

After regulatory approval has been obtained for medical device products, the product and the manufacturer are subject to continual review, including the review of adverse experiences and clinical results that are reported after our products are made available to patients, and there can be no assurance that such approval will not be withdrawn or restricted. 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.

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. 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. If we fail to comply with applicable continuing regulatory requirements, we may be subject to fines, suspension or withdrawal of regulatory approval, product recalls and seizures, operating restrictions and other adverse consequences.

***If we fail to obtain an adequate level of reimbursement for our approved products by third party payers, there may be no commercially viable markets for our approved products, or the markets may be much smaller than expected.***

The availability and levels of reimbursement by governmental and other third-party payers affect the market for our approved products. The efficacy, safety, performance, and cost-effectiveness of our products, and of any competing products will determine the availability and level of reimbursement. Reimbursement and healthcare payment systems in international markets vary significantly by country and include both government sponsored healthcare and private insurance. To obtain reimbursement or pricing approval in some countries, we may be required to produce clinical data, which may involve one or more clinical trials, that compares the cost-effectiveness of our approved products to other available therapies. We may not obtain international reimbursement or pricing approvals in a timely manner, if at all. Our failure to receive international reimbursement or pricing approvals would negatively impact market acceptance of our approved products in the international markets in which those pricing approvals are sought.

We believe that, in the future, reimbursement for any of our products may be subject to increased restrictions both in the United States and in international markets. Future legislation, regulation or reimbursement policies of third-party payers may adversely affect the demand for our products currently under development and limit our ability to sell our products on a profitable basis. In addition, third-party payers continually attempt to contain or reduce the costs of healthcare by challenging the prices charged for healthcare products and services. 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.***

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. Many countries impose product standards, packaging, and labeling requirements, and import restrictions on medical devices. In addition, each country has its own tariff regulations, duties, and tax requirements. The approval by foreign government authorities is unpredictable and uncertain and can be expensive. Our ability to market our approved products could be substantially limited due to delays in receipt of, or failure to receive, the necessary approvals or clearances.

Prior to marketing our products in any country outside the United States, we must obtain marketing approval in that country. Approval and other regulatory requirements vary by jurisdiction and differ from the United States’ requirements. We may be required to perform additional pre-clinical or clinical studies even if FDA approval has been obtained.

***Uncertainty surrounding and future changes to healthcare law in the United States may have a material adverse effect on us.***

The healthcare regulatory environment in the United States is currently subject to significant uncertainty and the industry may in the future continue to experience fundamental change because of regulatory reform. From time to time, legislation is drafted and introduced in the United States Congress that could significantly change the statutory provisions governing the clearance or approval, manufacture, marketing, and pricing of medical devices. In addition, FDA regulations and guidance are often revised or reinterpreted by the agency in ways that may significantly affect our business and our products. 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.

***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.***

A provision of the Social Security Act, commonly referred to as the Federal Anti-Kickback Statute, prohibits the offer, payment, solicitation, or receipt of any form of remuneration in return for referring, ordering, leasing, purchasing or arranging for, or recommending the ordering, purchasing or leasing of, items or services payable by Medicare, Medicaid or any other Federal healthcare program. The Federal Anti-Kickback Statute is very broad in scope and many of its provisions have not been uniformly or definitively interpreted by existing case law or regulations. In addition, most of the states have adopted laws like the Federal Anti-Kickback Statute, and some of these laws are even broader than the Federal Anti-Kickback Statute in that their prohibitions are not limited to items or services paid for by Federal healthcare programs, but instead apply regardless of the source of payment. Violations of the Federal Anti-Kickback Statute may result in substantial civil or criminal penalties and exclusion from participation in Federal healthcare programs.

Our operations may also implicate the False Claims Act. If we fail to comply with Federal and state documentation, coding, and billing rules, we could be subject to liability under the Federal False Claims Act, including criminal and/or civil penalties, loss of licenses and exclusion from the Medicare and Medicaid programs. The False Claims Act prohibits individuals and companies from knowingly submitting false claims for payments to, or improperly retaining overpayments from, the government.

Our financial relationships with healthcare providers and others who provide products or services to Federal healthcare program beneficiaries are potentially governed by the Federal Anti-Kickback Statute, False Claims Act, and similar state laws. We believe our operations comply with the Federal Anti-Kickback Statute, False Claims Act, and similar state laws. 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. 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.

***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.***

The HIPAA privacy and security regulations establish comprehensive Federal standards with respect to the uses and disclosures of PHI by certain entities, including health plans and health care providers, and set standards to protect the confidentiality, integrity, and availability of electronic PHI. The regulations establish a complex regulatory framework on a variety of subjects, including, for example: the circumstances under which uses and disclosures of PHI are permitted or required without a specific authorization by the patient; a patient’s right to access, amend and receive an accounting of certain disclosures of PHI; the content of notices of privacy practices describing how PHI is used and disclosed and individuals’ rights with respect to their PHI; and implementation of administrative, technical and physical safeguards to protect privacy and security of PHI. We anticipate that, as we expand our PACE business, we will in the future be a covered entity under HIPAA. 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.

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. 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. Additionally, HIPAA, the HITECH Act, and their implementing regulations provide for significant civil fines, criminal penalties, and other sanctions for failure to comply with the privacy, security, and breach notification rules, including for wrongful or impermissible use or disclosure of PHI. Although the HIPAA statute and regulations do not expressly provide for a private right of action for damages, private parties may also seek damages under state laws for the wrongful or impermissible use or disclosure of confidential health information or other private personal information. Additionally, amendments to HIPAA provide that the state attorneys general may bring an action against a covered entity for a violation of HIPAA. As we expand our business such that Federal laws regarding PHI and privacy apply to our operations, any noncompliance with such regulations could have a material adverse effect on our business, results of operations and financial condition.

***We face periodic reviews and billing audits from governmental and private payors, and these audits could have adverse results that may negatively impact our business.***

As a result of our participation in the Medicare and Medicaid programs, we are subject to various governmental reviews and audits to verify our compliance with these programs and applicable laws and regulations. We also are subject to audits under various government programs in which third-party firms engaged by the Centers for Medicare & Medicaid Services conduct extensive reviews of claims data and medical and other records to identify potential improper payments under the Medicare program. Private pay sources also reserve the right to conduct audits. If billing errors are identified in the sample of reviewed claims, the billing error can be extrapolated to all claims filed, which could result in a larger overpayment than originally identified in the sample of reviewed claims. Our costs to respond to and defend reviews and audits may be significant and could have a material adverse effect on our business, financial condition, results of operations and cash flows. 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.

Any one of these results could have a material adverse effect on our business, financial condition, results of operations and cash flows.

***Product quality or performance issues may be discovered through ongoing regulation by the FDA and by comparable international agencies, as well as through our internal standard quality process.***

The medical device industry is subject to substantial regulation by the FDA and by comparable international agencies. In addition to requiring clearance or approval to market new or improved devices, we are subject to ongoing regulation as a device manufacturer. Governmental regulations cover many aspects of our operations, including quality systems, marketing and device reporting. As a result, we continually collect and analyze information about our product quality and product performance through field observations, customer feedback and other quality metrics. If we fail to comply with applicable regulations or if post market safety issues arise, we could be subject to enforcement sanctions, our promotional practices may be restricted, and our marketed products could be subject to recall or otherwise impacted. Each of these potential actions could result in a material adverse effect on our business, operating results and financial condition.

***The use of hazardous materials in our operations may subject us to environmental claims or liability.***

We conduct research and development and manufacturing operations in our facility. Our research and development process may, at times, involve the controlled use of hazardous materials and chemicals. We may conduct experiments in which we may use small quantities of chemicals, including those that are corrosive, toxic, and flammable. The risk of accidental injury or contamination from these materials cannot be eliminated. We do not maintain a separate insurance policy for these types of risks. In the event of an accident or environmental discharge or contamination, we may be held liable for any resulting damages, and any liability could exceed our resources. We are subject to Federal, state, and local laws and regulations governing the use, storage, handling and disposal of these materials and specified waste products. 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.***

Our commercial success depends to a significant degree on our ability to:

- obtain and/or maintain protection for our products under the patent laws of the United States and other countries;
- defend and enforce our patents once obtained;
- obtain and/or maintain appropriate licenses to patents, patent applications or other proprietary rights held by others with respect to our technology, both in the United States and other countries;
- maintain trade secrets and other intellectual property rights relating to our products; and
- operate without infringing upon the patents, trademarks, copyrights, and proprietary rights of third parties.

The degree of intellectual property protection for our technology is uncertain, and only limited intellectual property protection may be available for our products, which may prevent us from gaining or keeping any competitive advantage against our competitors. Although we believe the patents that we own or license, and the patent applications that we own, generally provide us a competitive advantage, the patent positions of biotechnology, biopharmaceutical and medical device companies are generally highly uncertain, involve complex legal and factual questions and have been the subject of much litigation. Neither the United States Patent & Trademark Office nor the courts have a consistent policy regarding the breadth of claims allowed or the degree of protection afforded under many biotechnology patents. Even if issued, patents may be challenged, narrowed, invalidated, or circumvented, which could limit our ability to stop competitors from marketing similar products or limit the length of term of patent protection we may have for our products. Further, a court or other government agency could interpret our patents in a way such that the patents do not adequately cover our current or future products. 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.

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 seek to protect this intellectual property, in part, by generally requiring our employees, consultants, and current and prospective business partners to enter into confidentiality agreements in connection with their employment, consulting or advisory relationships with us, where appropriate. 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 may lack the financial or other resources to successfully monitor and detect, or to enforce our rights in respect of, infringement or breaches of these confidentiality agreements. In the case of any such undetected or unchallenged infringements or breaches, these confidentiality agreements may not provide us with meaningful protection of our trade secrets and unpatented proprietary know-how or adequate remedies. In addition, others may independently develop technology that is similar or equivalent to our trade secrets or know-how. If any of our trade secrets, unpatented know-how or other confidential or proprietary information is divulged to third parties, including our competitors, our competitive position in the marketplace could be harmed and our ability to sell our products successfully could be severely compromised. Enforcing a claim that a party illegally obtained and is using trade secrets that have been licensed to us or that we own is also difficult, expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the United States may be less willing to protect trade secrets. Costly and time-consuming litigation could be necessary to seek to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection could have a material adverse effect on our business. Moreover, some of our academic institution licensees, evaluators, collaborators, and scientific advisors have rights to publish data and information to which we have rights. If we cannot maintain the confidentiality of our technologies and other confidential information in connection with our collaborations, our ability to protect our proprietary information or obtain patent protection in the future may be impaired, which could have a material adverse effect on our business.

Accordingly, we may fail to secure meaningful patent protection relating to any of our existing or future products or discoveries despite the expenditure of considerable resources. Further, there may be widespread patent infringement in countries in which we may seek patent protection, including countries in Europe and Asia, which may instigate expensive and time-consuming litigation that could adversely affect the scope of our patent protection. In addition, others may attempt to commercialize products similar to our products in countries where we do not have adequate patent protection. Failure to obtain adequate patent protection for our products, or the failure by particular countries to enforce patent laws or allow prosecution for alleged patent infringement, may impair our ability to be competitive. 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.

***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.***

The patent applications that we own and that have been licensed to us, and any future patent applications that we may own or that may be licensed to us, may not result in the issuance of any patents. The standards that the United States Patent & Trademark Office and foreign patent agencies use to grant patents are not always applied predictably or uniformly and can change. Consequently, we cannot be certain as to the type and scope of patent claims to which we may in the future be entitled under our license agreements or that may be issued to us. 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. Further, patent applications in the United States that are not filed in other countries may not be published or generally are not published until at least 18 months after they are first filed, and patent applications in certain foreign countries generally are not published until many months after they are filed. Scientific and patent publication often occurs long after the date of the scientific developments disclosed in those publications. As a result, we cannot be certain that we will be the first creator of inventions covered by our patents or applications, or the first to file such patent applications. As a result, our issued patents and our patent applications could become subject to challenge by third parties that created such inventions or filed patent applications before us or our licensors, resulting in, among other things, interference proceedings in the United States Patent & Trademark Office to determine priority of discovery or invention. Interference proceedings, if resolved adversely to us, could result in the loss of or significant limitations on patent protection for our products or technologies. Even in the absence of interference proceedings, patent applications now pending or in the future filed by third parties may prevail over the patent applications that may be owned by us or licensed to us or that we may file in the future, or may result in patents that issue alongside patents issued to us or our licensors or that may be issued or licensed to us in the future, leading to uncertainty over the scope of the patents owned by us or licensed to us or that may in the future be owned by us or impede our freedom to practice the claimed inventions.

***Our patents may not be valid or enforceable and may be challenged by third parties.***

We cannot assure you that the patents that have been issued or licensed to us would be held valid by a court or administrative body or that we would be able to successfully enforce our patents against infringers, including our competitors. The issuance of a patent is not conclusive as to its validity or enforceability, and the validity and enforceability of a patent is susceptible to challenge on numerous legal grounds, including the possibility of reexamination proceedings brought by third parties in the United States Patent & Trademark Office against issued patents and similar validity challenges under foreign patent laws. Challenges raised in patent infringement litigation brought by us or against us may result in determinations that patents that have been issued to us or licensed to us or any patents that may be issued to us or our licensors in the future are invalid, unenforceable or otherwise subject to limitations. In the event of any such determinations, third parties may be able to use the discoveries or technologies claimed in these patents without paying licensing fees or royalties to us, which could significantly diminish the value of our intellectual property and our competitive advantage. 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.

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. Our inability to enforce our patents against infringers and competitors may impair our ability to be competitive and could have a material adverse effect on our business.

***Issued patents and patent licenses may not provide us with any competitive advantage or provide meaningful protection against competitors.***

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. We have devoted limited resources to identifying competing technologies that may have a competitive advantage relative to ours, especially those competing technologies that are not perceived as infringing on our intellectual property rights. In addition, the standards that courts use to interpret and enforce patent rights are not always applied predictably or uniformly and can change, particularly as new technologies develop. Consequently, we cannot be certain as to how much protection, if any, will be afforded by these patents with respect to our products if we, our licensees or our licensors attempt to enforce these patent rights and those rights are challenged in court.

The existence of third-party patent applications and patents could significantly limit our ability to obtain meaningful patent protection. If patents containing competitive or conflicting claims are issued to third parties, we may be enjoined from pursuing research, development or commercialization of product candidates or may be required to obtain licenses, if available, to these patents or to develop or obtain alternative technology. 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.

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.

Limitations on patent protection in some countries outside the United States, and the differences in what constitutes patentable subject matter in these countries, may limit the protection we have under patents issued outside of the United States. We do not have patent protection for our product candidates in several of our target markets. 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 biotechnology, biopharmaceutical and medical device industries are characterized by many patents and patent filings and frequent litigation based on allegations of patent infringement. Competitors may have filed patent applications or have been issued patents and may obtain additional patents and proprietary rights related to products or processes that compete with or are similar to ours. 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. Third parties may claim that our products or related technologies infringe their patents or may claim that the products of our suppliers, manufacturers or contract service providers that produce our devices infringe on their intellectual property. Further, we, our licensees, or our licensors, may need to participate in interference, opposition, protest, reexamination or other potentially adverse proceedings in the United States Patent & Trademark Office or in similar agencies of foreign governments with regards to our patents, patent applications, and intellectual property rights. In addition, we, our licensees, or our licensors may need to initiate suits to protect our intellectual property rights.

Litigation or any other proceeding relating to intellectual property rights, even if resolved in our favor, may cause us to incur significant expenses, divert the attention of our management and key personnel from other business concerns and, in certain cases, result in substantial additional expenses to license technologies from third parties. Some of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources. An unfavorable outcome in any patent infringement suit or other adverse intellectual property proceeding could require us to pay substantial damages, including possible treble damages and attorneys’ fees, cease using our technology or developing or marketing our products, or require us to seek licenses, if available, of the disputed rights from other parties and potentially make significant payments to those parties. There is no guarantee that any prevailing party would offer us a license or that we could acquire any license made available to us on commercially acceptable terms. Even if we can obtain rights to a third party’s patented intellectual property, those rights may be nonexclusive and, therefore, our competitors may obtain access to the same intellectual property. 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. We cannot guarantee that our products or technologies will not conflict with the intellectual property rights of others.

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. Further, any such redesigns may result in less effective and/or less commercially desirable products if the redesigns are possible at all.

Additionally, any involvement in litigation in which we, or our licensees or our licensors, are accused of infringement may result in negative publicity about us or our products, injure our relations with any then-current or prospective customers and marketing partners, and cause delays in the commercialization of our products.

### Risks Related to our Common Stock

### Our stock price is volatile.

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.

In addition, the securities markets have from time-to-time experienced significant price and volume fluctuations that are unrelated to the operating performance of companies. These market fluctuations may also materially and adversely affect the market price of our common stock.

***There is currently a limited trading market for our common stock, and we cannot predict how liquid the market might become.***

To date, there has been a limited trading market for our common stock, and we cannot predict how liquid the market for our common stock might become. Until January 30, 2023, our common stock was quoted on the OTC Pink, which is an inter-dealer market that provides significantly less liquidity than the New York Stock Exchange or the Nasdaq Stock Market. We are currently listed on the OTCQB.

The quotation of our common stock on the OTCQB does not assure that a meaningful, consistent, and liquid trading market exists. The market price for our common stock is subject to volatility and holders of our common stock may be unable to resell their shares at or near their original purchase price, or at any price. In the absence of an active trading market:

- investors may have difficulty buying and selling, or obtaining market quotations for our common stock;
- market visibility for our common stock may be limited; and
- a lack of visibility for our common stock may have a depressive effect on the market for our common stock.

***Trading for our common stock is limited under the SEC’s penny stock regulations, which has an adverse effect on the liquidity of our common stock.***

The trading price of our common stock is less than $5.00 per share and, as a result, our common stock is considered a “penny stock,” and trading in our common stock is subject to the requirements of Rule 15g-9 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Under this rule, broker-dealers who recommend low-priced securities to persons other than established customers and accredited investors must satisfy special sales practice requirements. Generally, the broker-dealer must make an individualized written suitability determination for the purchaser and receive the purchaser’s written consent prior to the transaction.

Regulations of the SEC also require additional disclosure in connection with any trades involving a “penny stock,” including the delivery, prior to any penny stock transaction, of a disclosure schedule explaining the penny stock market and its associated risks. These requirements severely limit the liquidity of securities in the secondary market because only a few brokers or dealers are likely to undertake these compliance activities. Compliance with these requirements may make it more difficult for holders of our common stock to resell their shares to third parties or to otherwise dispose of them in the market.

***As an issuer of “penny stock”, the protection provided by the Federal securities laws relating to forward-looking statements does not apply to us.***

Although Federal securities laws provide a safe harbor for forward-looking statements made by a public company that files reports under the Federal securities laws, this safe harbor is not available to issuers of penny stocks. As a result, we will not have the benefit of this safe harbor protection in the event of any legal action based upon a claim that the material provided by us contained a material misstatement of fact or was misleading in any material respect because of our failure to include any statements necessary to make the statements not misleading. Such an action could hurt our financial condition.

***We have not paid dividends in the past and do not expect to pay dividends in the future. Any return on investment may be limited to the value of our common stock.***

We have never paid cash dividends on our common stock and do not anticipate doing so in the foreseeable future. The payment of dividends on our common stock will depend on earnings, financial condition and other business and economic factors affecting us at such time as our board of directors may consider relevant. If we do not pay dividends, our common stock may be less valuable because a return on your investment will only occur if our stock price appreciates.

***The rights of the holders of common stock may be impaired by the potential issuance of preferred stock.***

Our board of directors has the right, without stockholder approval, to issue preferred stock with voting, dividend, conversion, liquidation, or other rights which could adversely affect the voting power and equity interest of the holders of common stock, which could be issued with the right to more than one vote per share, and could be utilized as a method of discouraging, delaying or preventing a change of control. The possible negative impact on takeover attempts could adversely affect the price of our common stock.

***We have not sought an advisory stockholder vote to approve the compensation of our named executive officers.***

Rule 14a-21 under the Exchange Act requires us to seek a separate stockholder advisory vote at our annual meeting at which directors are elected to approve the compensation of our named executive officers, not less frequently than once every three years (say-on-pay vote), and, at least once every six years, to seek a separate stockholder advisory vote on the frequency with which we will submit advisory say-on-pay votes to our stockholders (say-on-frequency vote). 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.

***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.***

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. The amended Rule also limits the Rule’s “piggyback” exception, which allows broker-dealers to publish quotations for a security in reliance on the quotations of a broker-dealer that initially performed the information review required by the Rule, to issuers with current publicly available information or issuers that are up to date in their Exchange Act reports.

The practical impact of these changes requires us to maintain a level of periodic disclosure. However, we did not timely file with the SEC our Annual Report on Form 10-K for the year ended December 31, 2020 or our Quarterly Report on Form 10-Q for the quarters ended March 31, 2021 or June 30, 2021. As a result, our stock was removed from the OTC Bulletin Board on September 28, 2021, which limited the ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market. Upon filing the Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, we were allowed to return to the OTC Pink and subsequently uplisted to the OTCQB. 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.

## Properties

As filed, 456 characters.

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.

We also have a research and development office in a leased facility in Alpharetta, Georgia, consisting of 4,332 square feet of space under a lease that expires in July 2027.

## Legal proceedings

As filed, 1,207 characters.

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.

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.

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. 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.

## Management's discussion and analysis

As filed, 31,576 characters.

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations provides information management believes to be relevant to understanding the financial condition and results of operations of the Company. 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. “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. 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. 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. 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.

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. We believe these improvements sets the stage for additional growth as we head into 2023.

### Results of Operations

The following table sets forth our consolidated statement of operations:

*(in thousands)*

|  | For the Years Ended December 31, 2022 | 2021 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| 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%. 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. 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.

#### 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%. The increase in 2022 as compared to 2021, was primarily due to the higher legal costs related to patent work and securities work.

#### 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%. 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. The decrease in research and development expenses in 2022, as compared to 2021, was primarily due to the reduction in employees.

#### 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%. 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 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. Historically, our operations have primarily been funded from the sale of capital stock, notes payable, and convertible debt securities. 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. 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. 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 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. 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. 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. 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%. 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. “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.

The following table presents summarized cash flow information:

*(in thousands)*

|  | For the period ended December 31, 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 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.

#### 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. 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. 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. Although no assurances can be given that our plans to obtain additional capital will be successful or on the terms or timeline we expect, or at all, management believes that potential additional issuances of equity or other potential financing transactions, as discussed above, should provide the necessary funding for us over the next 12 months. 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. 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. “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K for additional information on our ability to continue as a going concern.

### Critical Accounting Policies and Estimates

We have used various accounting policies to prepare the consolidated financial statements in accordance with U.S. GAAP. 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. GAAP, requires us to use judgment in making estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. These estimates reflect our best judgment about economic and market conditions and the potential effects on the valuation and/or carrying value of assets and liabilities based upon relevant information available. 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 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. 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. Estimating probable losses from our litigation and governmental proceedings is inherently difficult, particularly when the matters are in early procedural stages, with incomplete scientific facts or legal discovery; involve unsubstantiated or indeterminate claims for damages; potentially involve penalties, fines, or punitive damages; or could result in a change in business practice. The Company records a liability in the consolidated financial statements for loss contingencies when a loss is known or considered probable, and the amount may be reasonably estimated. If the reasonable estimate of a known or probable loss is a range, and no amount within the range is a better estimate than any other, the minimum amount of the range is accrued. If a loss is reasonably possible but not known or probable, and may be reasonably estimated, the estimated loss or range of loss is disclosed. Our significant legal proceedings are discussed in Note 21 to the consolidated financial statements in Part II Item 8. “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K.

#### 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. 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. 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.

#### 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. 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. 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. 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. 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. 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. 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. “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K.

### 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. The increase was driven by sales of UltraMIST® devices and single-use accessories.

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

### 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.

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.

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.

### 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. 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.

### Results of Operations for the Three and Six Months Ended June 30, 2022

*(in thousands)*

|  | Three Months Ended June 30, 2022 Restated | 2021 | $ Change | % Change | Six Months Ended June 30, 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. 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.

Gross margin as a percentage of revenue increased to 71.8% from 64.0% during three-month period ended June 30, 2022, as compared with the same period of 2021, and to 71.9% from 58.1% during the six-month period ended June 30, 2022, as compared with the same period of 2021. 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 in the first quarter of 2022, which had a lower gross margin percentage.

### Operating Loss

Operating loss decreased $1.0 million to $3.0 million for the three months ended June 30, 2022 as compared to $4.0 million for the same period in 2021. This was due to a decrease in selling and marketing and research and development, partially offset by an increase in general and administrative expenses. Operating loss decreased $3.4 million to $5.0 million for the six months ended June 30, 2022, as compared to $8.4 million for the same period in 2021. The decrease for the six months ended June 30, 2022, was due to a decrease in all operating expense categories.

General and administrative expenses increased $0.8 million to $3.7 million for the three-month periods ended June 30, 2022, as compared to $2.9 million for the same period in 2021. The increase is due to shares issued to consultants for services and an increase in legal fees for patents. General and administrative expenses decreased $0.1 million or 2% for the six-month period ended June 30, 2022, compared with the same period of 2021. The decrease for the six-month period ended June 30, 2022, was primarily due to a reduction in the registration penalties and legal fees that were incurred during the same period in 2021.

Selling and marketing expenses decreased by $0.8 million or 34% for the three-month period ended June 30, 2022, as compared with the same period of 2021. Selling and marketing expenses decreased by $913 thousand or 21% for the six-month period ended June 30, 2022, as compared with the same period of 2021. The decrease was primarily due to a reduction in sales and marketing headcount during 2022.

Research and development expenses decreased 37% to $0.2 million from $0.3 million during the three-months period ended June 30, 2022, as compared with the same period of 2021. 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. The decrease was primarily due to lower employee compensation in 2022.

### Other Income (Expense), Net

Other income for the three months ended June 30, 2022, totaled $4.7 million as compared to $4.6 million expense for the same period in 2021. This change is due to a gain recognized in the change in fair value of derivative liabilities totaling $7.9 million as compared to a loss totaling $0.5 million for the same period in 2021. This was partially offset by an increase in interest expense for the three months ended June 30, 2022, of $1.5 million as compared to the same periods in 2021. Other income for the six months ended June 30, 2022, totaled $1.5million as compared to expense of $5.1 million for the same period in 2021. This increase in other income was due to the gain recognized for the change in fair value of derivative liabilities totaling $11.3 million for the six months ended June 30, 2022, as compared to $44 thousand for the same period in 2021. This was offset by an increase in interest expense totaling $3.5 million for the six months ended June 30, 2022.

### Results of Operations for the Three and Nine Months Ended September 30, 2022

*(in thousands)*

|  | Three Months Ended September 30, 2022 Restated | 2021 | $ Change | % Change | Nine Months Ended September 30, 2022 Restated | 2021 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Revenue | 4,166 | 3,725 | 441 | 12% | 11,242 | 8,750 | 2,492 | 28% |
| Cost of revenues | 1,157 | 1,555 | (398) | -26% | 3,141 | 3,658 | (517) | -14% |
| Gross Margin | 3,009 | 2,170 | 839 | 39% | 8,101 | 5,092 | 3,009 | 59% |
| General and administrative | 3,498 | 2,864 | 634 | 22% | 9,433 | 8,909 | 524 | 6% |
| Selling and marketing | 1,650 | 2,150 | (500) | -23% | 5,037 | 6,450 | (1,413) | -22% |
| Research and development | 157 | 297 | (140) | -47% | 494 | 923 | (429) | -46% |
| Gain on disposal of assets | - | - | - | nm | 51 | - | 51 | nm |
| Depreciation and amortization | 189 | 194 | (5) | -3% | 575 | 585 | (10) | -2% |
| Operating loss | (2,485) | (3,335) | 850 | -25% | (7,489) | (11,775) | 4,286 | -36% |
| Other income (expense), net | 1,346 | (911) | 2,257 | -248% | 2,893 | (6,001) | 8,894 | -148% |
| Net loss before taxes | (1,139) | (4,246) | 3,107 | -73% | (4,596) | (17,776) | 13,180 | -74% |

### Revenues and Gross Margin

Revenues for the three month-period ended September 30, 2022, were $4.2 million compared to $3.7 million for the same period of 2021, an increase of $0.4 million. Revenues for the nine months ended September 30, 2022, were $11.2 million compared to $8.7 million for the same period in 2021, an increase of $2.5 million. The increase for both periods was driven by the continued increased sales of UltraMIST® devices and single-use accessories.

Gross margin as a percentage of revenue increased to 72.2% from 58.3% during the three-month period ended September 30, 2022, as compared with the same period of 2021, and to 72.1% from 58.2% during the nine-month period ended September 30, 2022, as compared with the same period of 2021. The increases in gross margin percentage for the three and nine-months ended September 30, 2022, were driven by higher sales of single-use accessories, which have a higher gross margin percentage, and by the discontinuation of Biologics sales in the first quarter of 2022, which had a lower gross margin percentage.

### Operating Loss

Operating loss for the three months ended September 30, 2022 decreased $0.9 million or 25% to $2.5 million, as compared to $3.3 million for the same period in 2021. Operating loss also decreased for the nine month period ending September 30, 2022, $4.3 million to $7.5 million operating loss, as compared to $11.8 million for the same period in 2021. The decreases in operating expenses are due to decreases in selling and marketing and research and development, offset by increases in general and administrative expenses.

General and administrative expenses increased $634 thousand or 22% for the three-month period ended September 30, 2022, compared with the same period of 2021. General and administrative expenses increased $524 thousand or 6% for the nine-month period ended September 30, 2022, compared with the same period of 2021. The increase for the three-months were primarily due to increased accounting costs as we transition from contractors to permanent employees. The increase for the nine-month period ended September 30, 2022, were primarily due to consulting fees incurred in the second quarter and additional legal fees for patents.

Selling and marketing expenses decreased by $500 thousand or 23% for the three-month period ended September 30, 2022, as compared with the same period of 2021. Selling and marketing expenses decreased by $1.4 million or 22% for the nine-month period ended September 30, 2022, as compared with the same period of 2021. The decrease was primarily due to a reduction in sales and marketing headcount during 2022 and increased cost management activities.

Research and development expenses decreased 47% to $157 thousand from $297 thousand during the three-month period ended September 30, 2022, as compared with the same period of 2021. Research and development expense as a percentage of revenue decreased from 8% during the three-month period ended September 30, 2021, to 4% for the same period in 2022. Expense decreased 46% to $494 thousand, or 4% of revenue, from $923 thousand, or 11% of revenue, during the nine-month period ended September 30, 2022, as compared with the same period of 2021. These decreases were primarily due to improved cost management in 2022.

### Other Income (Expense), Net

Other income for the three and nine months ended September 30, 2022, totaled $1.3 million and $2.9 million, respectively. This is an increase in income as compared to expense for the three and nine months ended September 30, 2021, of $0.9 million and $6.0 million, respectively. The change in derivative liability fair value is the largest driver for the change from other expense in 2021 to other income in 2022. The gain on derivative liabilities totaled $5.3 million and $16.6 million for the three and nine months ended September 30, 2022, respectively. As compared to $1.6 million for the three and nine months ended September 30, 2021, respectively. This was offset by increased interest expense, due to financings.

## Market risk

As filed, 146 characters.

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.

## Controls and procedures

As filed, 6,274 characters.

#### Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

We carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer and accounting officer), of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2022. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not operating effectively as of December 31, 2022.

#### Management’s Annual Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) for the Company. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP.

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

Management, with the participation of the Chief Executive Officer (principal executive officer) and the Chief Financial Officer (principal financial and accounting officer), evaluated the effectiveness of the Company’s internal control over financial reporting as of December 31, 2022. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control — Integrated Framework (2013).

#### As of December 31, 2022, the Company identified the following material weaknesses:

1\. 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.

2\. A lack of internal resources to analyze and properly apply U.S. GAAP to accounting for financial instruments included in service agreements with select vendors.

3\. 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.

As a result, management concluded that its internal control over reporting was not effective as of December 31, 2022.

#### Remediation Plan

We are working with an external vendor to properly document our current internal control policies and procedures to provide the framework for increased effectiveness to test internal controls going forward. We are also adding automated and manual controls into and over the Company’s ERP system to ensure that order to cash controls are implemented to mitigate the risk in customer creation, pricing, and accuracy of billing.

We are also working with an outside vendor to improve our IT general controls and set up a proper framework for IT general controls to be executed with the objective to remediate the weaknesses regarding internal controls and provide the framework for testing going forward. The Company has worked with their IT service provider to improve the IT controls on the Company’s network environment but has not fully remediated the material weakness. IT controls over the ERP system, particularly as it relates to documentation of change controls will also be improved. Also, a review ensures employees do not have access to initiate transactions beyond their normal duties of their role.

In 2022, we hired internal resources with the proper expertise and experience to apply generally accepted accounting principles. With the passage of time and implementation of additional policies, procedures, and controls, we believe the framework for a proper internal control environment will begin to remediate our material weaknesses.

While the above actions and planned actions are subject to ongoing management evaluation and will require validation and testing of the design and operating effectiveness of internal control over a sustained period, we are committed to continuous improvement and will continue to diligently review our internal control over financial reporting. There is no assurance that the measures described above will be sufficient to remediate the identified material weaknesses and significant deficiencies. The material weaknesses and significant deficiencies will not be considered remediated until management completes the design and implementation of the measures described above, until the controls operate for a sufficient period of time, and until management has concluded, through testing, that the controls are effective.

#### Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2022, that materially affect, or are reasonably likely to materially affect, our internal control over financial reporting, except as disclosed above.

Filed Mar 31, 2023.
Source: SEC EDGAR, the filing index for accession 0001140361-23-015331. Last ingested by Listed: Oct 29, 2026, 04:34 ET. No prices; not investment advice.