Merger and Financial Condition - The Company has entered into a Merger Agreement with SEP Acquisition Corp., which will result in the issuance of 7,793,000 shares of Class A Common Stock of SEPA to holders of Company common stock and other securities[17]. - Approximately 95% of outstanding warrants and 100% of convertible notes have committed to exchange for an aggregate of 1,217,222,186 shares and 219,841,980 shares of common stock, respectively, prior to the Closing[18]. - The Merger Agreement includes a Minimum Cash Condition of at least $12,000,000, which must be satisfied for the Business Combination to be consummated[93]. - SEPA Stockholders elected to redeem 495,067 shares of Class A Common Stock, necessitating PIPE Investment to satisfy the Minimum Cash Condition[94]. - As of the filing date, no commitments have been made for the proposed financing from the PIPE Investment, creating uncertainty regarding the amount raised[95]. - The company is required to raise additional funds to finance operations and remain a going concern, indicating substantial doubt about its ability to continue for at least twelve months from the filing date[111]. - The company has a history of losses, raising concerns about the Combined Company's ability to achieve or maintain profitability[106]. - The company incurred a net loss of $25.8 million and $10.3 million for the years ended December 31, 2023, and 2022, respectively[112]. - The operating loss was reduced by 94% to $0.5 million for the year ended December 31, 2023, compared to $9.0 million in 2022[209]. - The net loss for 2023 was $25.8 million, or ($0.03) per share, compared to a net loss of $10.3 million, or ($0.02) per share, in 2022[209]. - Management aims to secure additional capital in early 2024 primarily through the merger, but current private placements restrict the ability to incur new debt[116][123]. Product Development and Technology - The dermaPACE system has received FDA approval and is aimed at treating diabetic foot ulcers, which are a leading cause of hospitalization among diabetic patients, leading to billions in healthcare expenditures annually[24]. - The UltraMIST system is FDA approved for treating various wound types, including diabetic foot ulcers and pressure ulcers, by promoting healing below the skin surface[21]. - The PACE technology is designed to activate healing through acoustic pressure shockwaves, promoting angiogenesis and tissue regeneration[22]. - The Company is focused on the commercialization of its patented, non-invasive medical systems for the repair and regeneration of skin, musculoskeletal tissue, and vascular structures[27]. - The Company has established a network of scientific advisors to assist in clinical and pre-clinical study design and product development[28]. - The Company has a manufacturing supply agreement with Minnetronix Medical for the generator and treatment wand components, ensuring compliance with quality standards[33]. - The Company’s facility in Eden Prairie, MN is FDA registered and ISO 13485:2016 certified, providing office, product development, quality control, and warehouse space[36]. - The company entered into a license agreement with HealthTronics in August 2005, acquiring certain assets and intellectual property related to orthopedic and other medical conditions[40]. - In August 2020, the company acquired all assets related to the MIST Therapy System and UltraMIST System from Celularity, including intellectual property and trademarks[44]. - The company has a perpetual, non-exclusive and royalty-free license to nine issued foreign patents, with some patents expiring as late as 2038[43][49]. - The company holds a diverse patent portfolio, including shockwave devices and ultrasound technologies, with expiration dates extending into the 2040s[48][52]. Regulatory Compliance and Risks - Medical devices require FDA authorization prior to marketing, either through a 510(k) clearance or a PMA approval, with 510(k) submissions needing to demonstrate substantial equivalence to legally marketed devices[65]. - The company must comply with extensive post-approval regulations, including quality systems regulation and specific controls based on device classification[68]. - The company is subject to various international regulations and product registration requirements, which may differ significantly from FDA requirements[75]. - The company is registered as a Small Business Manufacturer with the FDA, which subjects it to reduced fees; however, exceeding a certain revenue threshold may result in losing this status[67]. - The company is subject to extensive governmental regulation, including FDA approval, which could affect the commercialization of its products[106]. - The company faces significant transaction and transition costs related to the Business Combination, which may impact future financial performance[103]. - The company is subject to periodic reviews and audits from governmental and private payors, which could result in significant costs and adverse effects on business operations[157]. - Regulatory compliance is extensive, with potential consequences including fines, product recalls, and operational restrictions[139][140]. - The company anticipates increased operational costs due to compliance with HIPAA regulations as it expands its business[155][156]. - The company may face increased restrictions on reimbursement for its products, impacting market acceptance and future revenues[146]. - Non-compliance with the Federal Anti-Kickback Statute and False Claims Act could lead to severe penalties and exclusion from federal healthcare programs[151][152]. Competition and Market Environment - The advanced wound care market is competitive, with major players including Acelity and Organogenesis, but the company believes its PACE technology offers superior value[58]. - The company faces competition from various companies in the extracorporeal shockwave device market, but believes its PACE systems have a competitive advantage[59]. - The medical device industry is highly competitive, with significant risks from established companies with greater resources and rapid technological changes[126]. - The company may seek to expand operations through acquisitions, which would likely increase capital requirements[125]. - Less than 5% of the company's revenue comes from international sources, with no current plans for significant international expansion[137]. Financial Performance and Stock Information - The company achieved a revenue growth of 22%, reaching $20.4 million for the year ended December 31, 2023, compared to $16.7 million in 2022[208]. - Gross margins decreased to 70% in 2023 from 74% in 2022[208]. - The company has not paid dividends in 2023 or 2022 and does not anticipate paying any in the foreseeable future[205]. - As of December 31, 2023, there were 1,140,559,527 shares of common stock outstanding[204]. - The stock price is volatile, influenced by operating results, financing ability, and market fluctuations[178]. - There is currently a limited trading market for the company's common stock, affecting liquidity[181]. Internal Controls and Cybersecurity - The Company has identified material weaknesses in internal controls over financial reporting, which could lead to misstatements in financial statements if not remediated[119][120]. - The company has experienced cybersecurity breaches, including email spoofing, despite investments in data protection[135]. - The company has not experienced any material cybersecurity breaches, but acknowledges potential future risks[196]. - The company relies heavily on information technology systems, facing risks from cybersecurity breaches and data leakage[134]. Supply Chain and Operational Risks - The company faces supply chain risks, as many product components are sourced from single suppliers, which could disrupt production if issues arise[127][128]. - There are potential liabilities from product use that could result in financial loss, with current insurance coverage possibly insufficient to cover claims[133]. - The company may incur significant costs due to compliance with federal, state, and local environmental laws and regulations[159]. - The company faces potential liabilities related to the use of hazardous materials in its operations, which could exceed its resources[159].

Sanuwave Health (SNWV) FY 2024 Annual General Meeting February 21, 2024 11:00 AM ET Speaker0 Good morning, ladies and gentlemen. Welcome, and thank you for attending this special meeting of stockholders of SANUWAVE Health Inc. Throughout this meeting, I will refer to SANUWAVE Health Inc, either as SANUWAVE or as the company. This meeting will please come to order. My name is Morgan Frank, chief executive officer of SANUWAVE. I will act as chairman of the meeting, and Tony Reno, the chief financial officer a ...

Financial Data and Key Metrics Changes - Revenue for Q3 2023 totaled $5 million, an increase of 19% compared to $4.2 million for the same period in 2022, falling within the guidance range of 15% to 25% [11] - Gross margin for Q3 2023 was 71%, slightly down from 72% in the same period last year [11][12] - Operating loss for Q3 2023 was $500,000, an improvement of $2 million compared to the same period last year [12] - Net loss for Q3 2023 was $23.7 million, compared to a net loss of $1.1 million for the same period in 2022, primarily due to noncash losses on derivative liabilities [13] Business Line Data and Key Metrics Changes - 55 UltraMist units were sold in Q3 2023, with over 40% of those sales to new customers [17] - Ultramist revenues grew over 25% year-on-year in Q3 2023, with consumables revenue growing 11% from Q2 and 24% compared to Q3 2022 [22] - Consumables for Ultramist constituted 62% of overall revenues in the quarter [22] Market Data and Key Metrics Changes - The company ended Q3 2023 with 581 active systems in the field, up from 526 at the end of Q2 [22] - The company is focusing on engaging new customers, particularly in busy practices with high utilization rates [21] Company Strategy and Development Direction - The company is developing a new business model allowing customers to bundle payments for UltraMist into a monthly operating cost, which is expected to generate predictable recurring revenue [7][9] - The company aims to increase production capacity for systems to two to three times the 2023 levels in 2024 [39] - The merger with Sweat Equity Partners is anticipated to enhance capital and capabilities, with plans to move to NASDAQ [24] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about eliminating production constraints and achieving a stable manufacturing cadence of double-digit rates per week [5] - The company anticipates revenue growth in the range of 15% to 25% for Q4 2023, with no significant production capacity constraints expected [25] Other Important Information - The company closed an additional financing round in July 2023, raising approximately $3 million to support operations [13] - Management emphasized the importance of pricing discipline and the positive market response to it [18] Q&A Session Summary Question: What is the state of dermaPACE and its future? - Management indicated that dermaPACE was slow in Q3 and is currently assessing its direction, focusing on international channels and potential long-term studies for reimbursement [28][30] Question: Update on merger approval and potential hurdles? - Management stated that they filed an amended S-4 and are awaiting SEC comments, with a good chance of closing the deal this year [32][34] Question: Capacity for devices and applicators going forward? - Management confirmed that production capacity has reached a double-digit cadence weekly and plans to significantly increase capacity in 2024, including redesigning applicators for better manufacturability [39][40]

Financial Performance - Total revenue for Q3 2023 was $4,953,000, representing a 19% increase from $4,166,000 in Q3 2022[18] - Gross margin improved to $3,541,000 in Q3 2023, up from $3,009,000 in Q3 2022, indicating a stronger operational efficiency[18] - Operating loss decreased to $531,000 in Q3 2023 compared to $2,485,000 in Q3 2022, reflecting improved cost management[18] - Net loss for Q3 2023 was $23,700,000, significantly higher than the $1,139,000 loss in Q3 2022, primarily due to increased interest expenses and changes in fair value of derivative liabilities[18] - For the nine months ended September 30, 2023, the company reported a net loss of $44,042,000, compared to a net loss of $4,596,000 for the same period in 2022[27] - Net cash used in operating activities was $3,253,000, a significant improvement from $13,176,000 in the prior year[27] - The company reported a basic and diluted loss per share of $0.03 for Q3 2023, compared to a loss of $0.00 in Q3 2022[18] - EBITDA for the three months ended September 30, 2023, was $(19.589) million, compared to $2.917 million in the same period of 2022[96] - Adjusted EBITDA for the three months ended September 30, 2023, was $(0.264) million, compared to $(2.249) million in the same period of 2022[96] Assets and Liabilities - Total current assets increased to $7,394,000 as of September 30, 2023, compared to $6,620,000 at the end of 2022, driven by higher inventory levels[14] - Total liabilities rose to $86,296,000 as of September 30, 2023, up from $60,883,000 at the end of 2022, largely due to increased senior secured debt[14] - The company’s accumulated deficit increased to $238,284,000 as of September 30, 2023, compared to $194,242,000 at the end of 2022[16] - Cash balance decreased to $1,095,000 as of September 30, 2023, down from $1,153,000 at the end of 2022, indicating liquidity challenges[14] Shareholder Information - The number of shares outstanding increased to 1,026,078,464 as of September 30, 2023, from 548,737,651 at the end of 2022, reflecting shares issued for debt settlement[21] - The merger agreement involves SEPA acquiring 100% of the company's issued and outstanding equity securities, with the company's stockholders expected to hold approximately 69-70% of the combined company[47] - The merger consideration will consist of 7,793,000 shares of Class A Common Stock, allocated pro rata based on ownership after the conversion of outstanding convertible notes[48] Merger and Capital Resources - The company expects to devote substantial resources for the commercialization of UltraMIST and PACE systems, which will require additional capital resources[34] - The company plans to obtain additional capital primarily through closing a merger, which is expected to provide necessary funding[35] - The company has deferred $732,000 in merger costs until the closing of the merger[44] - Management plans to obtain additional capital primarily through the closure of the merger, which is expected to add approximately $12 million of additional capital[107] - The Merger Agreement includes a Minimum Cash Condition of $12 million, which must be satisfied for the Business Combination to be completed[130] Internal Controls and Compliance - The company has identified material weaknesses in its internal control over financial reporting as of September 30, 2023, which management is actively working to remediate[120] - The company is working with an external vendor to improve internal controls and ensure compliance with U.S. GAAP[121] - The company has not made any changes to its internal control over financial reporting that materially affect its operations during the quarter ended September 30, 2023[126] Risks and Uncertainties - The company faces risks related to the Business Combination, including conditions that may not be satisfied in a timely manner[129] - The company cannot assure that the shares of the Combined Company's Class A Common Stock will be approved for listing on Nasdaq following the Closing[137] - The Combined Company must maintain a minimum market capitalization of $50,000,000 and at least 300 public shareholders to continue listing on Nasdaq[138] - Significant transaction and transition costs are expected due to the Business Combination, including legal, accounting, and consulting fees, which will be paid by the Combined Company after closing[141] - Uncertainty surrounding the Business Combination may disrupt relationships with customers, suppliers, and business partners, potentially affecting future operations[139] - The Company is subject to contractual restrictions that may limit its ability to pursue business opportunities until the Business Combination is completed[140] - There is a risk that employees may experience uncertainty about their future roles, impacting the ability to retain and hire key personnel[143] Expenses and Financial Management - General and administrative expenses decreased by $0.8 million or 23% for the three months ended September 30, 2023, compared to the same period in 2022[101] - Selling and marketing expenses decreased by $0.6 million or 37% for the three months ended September 30, 2023, compared to the same period in 2022[102] - Other expense, net increased by $24.5 million to $23.2 million for the three months ended September 30, 2023, compared to the same period for 2022[105] - Cash provided by financing activities was $3.4 million for the nine months ended September 30, 2023, primarily due to new bridge notes payable and convertible lending activities[109]

Financial Data and Key Metrics Changes - Revenue for Q2 2023 totaled $4.7 million, a 20% increase compared to $3.9 million in Q2 2022, falling within the guidance range of 15% to 25% [8] - Gross margins increased to 74% in Q2 2023 from 72% in the same period last year, primarily due to stronger pricing initiatives [9] - Operating income improved to $1 million in Q2 2023, aligning with the initiative to drive profitable growth [10] - Net loss for Q2 2023 was $7.3 million, compared to a net income of $1.6 million in Q2 2022, primarily due to noncash losses on derivative liabilities [10] - Adjusted EBITDA for Q2 2023 was $171,000, compared to negative $1.9 million in the prior year period [11] Business Line Data and Key Metrics Changes - The company is focusing on consumables, with Ultramist consumables accounting for 59% of overall revenues in Q2 [17] - The attach rate, which measures the number of active systems in the field and their consumable usage, is expected to rise significantly in future years [20] Market Data and Key Metrics Changes - Fastest growing sales channels are private offices, nursing homes, and mobile wound care groups, indicating a shift towards treating patients outside of hospitals [13] - Proposed changes by Medicare contractors could significantly impact the marketplace for advanced skin substitutes, potentially benefiting Ultramist as a viable treatment option [14] Company Strategy and Development Direction - The company aims for rapid profitable growth and to create a self-sustaining business model, reducing reliance on capital markets [7] - Key hires and partnerships, such as with Pacific Medical, are intended to expand market reach and professionalize operations [6][15] Management's Comments on Operating Environment and Future Outlook - Management anticipates revenue growth of 15% to 25% year-over-year for Q3 2023, despite production capacity constraints [22] - The company is optimistic about the future of the wound care market and is focused on increasing the number of active systems and consumables revenue [23] Other Important Information - Total current assets as of June 30, 2023, were $6.1 million, down from $6.6 million at the end of 2022 [11] - The company closed an additional financing round in July 2023, raising approximately $3 million to support operations [11] Q&A Session Summary Question: Comments on the dermaPACE product - Management stated that dermaPACE units are still being sold actively, but it represents a small portion of revenue, with a renewed focus expected in coming quarters [26][27]

PART I – FINANCIAL INFORMATION [Item 1. Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20%28Unaudited%29) This section presents the company's unaudited consolidated financial statements as of June 30, 2023, detailing financial position, performance, cash flows, and related notes, highlighting ongoing losses and going concern uncertainties [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of June 30, 2023, total assets slightly decreased, while total liabilities significantly increased due to growth in senior secured debt, convertible notes, and warrant liabilities, further expanding the stockholders' deficit | Metric | June 30, 2023 (USD thousands) | December 31, 2022 (USD thousands) | Change (USD thousands) | Change (%) | | :--------------------------------- | :----------------------- | :------------------------ | :------------ | :---------- | | **Assets** | | | | | | Cash | 332 | 1,153 | (821) | -71.2% | | Restricted cash | 850 | - | 850 | N/A | | Accounts receivable, net | 2,818 | 4,029 | (1,211) | -30.1% | | Inventory | 900 | 868 | 32 | 3.7% | | Prepaid expenses and other current assets | 1,201 | 570 | 631 | 110.7% | | **Total current assets** | **6,101** | **6,620** | **(519)** | **-7.8%** | | Property, equipment and other, net | 1,050 | 856 | 194 | 22.7% | | Intangible assets, net | 4,786 | 5,137 | (351) | -6.8% | | Goodwill | 7,260 | 7,260 | - | 0.0% | | **Total non-current assets** | **13,096** | **13,253** | **(157)** | **-1.2%** | | **Total assets** | **19,197** | **19,873** | **(676)** | **-3.4%** | | **Liabilities** | | | | | | Senior secured debt (in default) | 16,123 | 14,416 | 1,707 | 11.8% | | Convertible promissory notes | 17,712 | 16,713 | 999 | 6.0% | | Convertible promissory notes (related party) | 8,346 | 7,409 | 937 | 12.6% | | Bridge notes advance | 1,476 | - | 1,476 | N/A | | Accounts payable | 4,859 | 4,400 | 459 | 10.4% | | Accrued expenses | 6,351 | 8,512 | (2,161) | -25.4% | | Factoring liabilities | 1,213 | 2,130 | (917) | -43.1% | | Warrant liabilities | 14,410 | 1,416 | 12,994 | 917.7% | | Accrued interest | 6,174 | 4,052 | 2,122 | 52.4% | | Accrued interest (related party) | 1,438 | 788 | 650 | 82.5% | | Current contract liabilities | 67 | 60 | 7 | 11.7% | | Other | 1,108 | 291 | 817 | 280.7% | | **Total current liabilities** | **79,277** | **60,187** | **19,080** | **31.7%** | | **Total liabilities** | **80,035** | **60,883** | **19,152** | **31.5%** | | **Stockholders' Deficit** | | | | | | Accumulated deficit | (214,584) | (194,242) | (20,342) | 10.5% | | **Total stockholders' deficit** | **(60,838)** | **(41,010)** | **(19,828)** | **48.4%** | [Condensed Consolidated Statements of Comprehensive Loss/Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Loss%2FIncome) The company achieved significant revenue growth and improved operating profit in Q2 and H1 2023, but a substantial net loss increase was driven by fair value changes in derivative liabilities | Metric (USD thousands) | Q2 2023 | Q2 2022 | Change (USD thousands) | Change (%) | H1 2023 | H1 2022 | Change (USD thousands) | Change (%) | | :--------------------------------- | :------------- | :------------- | :------------ | :---------- | :----------- | :----------- | :------------ | :---------- | | Revenue | 4,675 | 3,882 | 793 | 20.4% | 8,450 | 7,077 | 1,373 | 19.4% | | Cost of sales | 1,202 | 1,096 | 106 | 9.7% | 2,464 | 1,986 | 478 | 24.1% | | Gross profit | 3,473 | 2,786 | 687 | 24.7% | 5,986 | 5,091 | 895 | 17.6% | | Total operating expenses | 2,542 | 5,834 | (3,292) | -56.4% | 7,033 | 10,096 | (3,063) | -30.3% | | Operating (loss)/income | 931 | (3,048) | 3,979 | -130.6% | (1,047) | (5,005) | 3,958 | -79.1% | | Total other (expense)/income | (8,193) | 4,692 | (12,885) | -274.6% | (19,295) | 1,548 | (20,843) | -1346.5% | | Net (loss)/income | (7,262) | 1,644 | (8,906) | -541.7% | (20,342) | (3,457) | (16,885) | 488.4% | | Basic (loss)/income per share | (0.01) | 0.00 | (0.01) | N/A | (0.04) | (0.01) | (0.03) | 300.0% | | Diluted (loss)/income per share | (0.01) | 0.00 | (0.01) | N/A | (0.04) | (0.01) | (0.03) | 300.0% | - The significant increase in net loss was primarily due to **fair value changes in derivative liabilities**, which resulted in a **$3.8 million expense** in Q2 2023 and a **$10.6 million expense** in H1 2023, compared to income in the prior year periods[78](index=78&type=chunk)[79](index=79&type=chunk) [Condensed Consolidated Statements of Stockholders' Deficit](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Deficit) As of June 30, 2023, the company's stockholders' deficit increased to $60.838 million from $41.010 million on December 31, 2022, primarily due to a net loss of $20.342 million and shares issued for services | Metric (USD thousands) | June 30, 2023 | December 31, 2022 | Change (USD thousands) | | :--------------------------------- | :------------- | :------------- | :------------ | | Common stock | 562 | 549 | 13 | | Additional paid-in capital | 153,264 | 152,750 | 514 | | Accumulated deficit | (214,584) | (194,242) | (20,342) | | Accumulated other comprehensive loss | (80) | (67) | (13) | | **Total stockholders' deficit** | **(60,838)** | **(41,010)** | **(19,828)** | - In H1 2023, the company issued **12.9 million shares of common stock** for services, increasing common stock par value by **$13 thousand** and additional paid-in capital by **$514 thousand**[23](index=23&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) In H1 2023, operating cash outflows significantly decreased, but investing activities shifted to outflows, and financing cash inflows reduced, leading to a substantial decline in net cash and restricted cash at period-end | Cash Flow (USD thousands) | H1 2023 | H1 2022 | Change (USD thousands) | | :--------------------------------- | :------------- | :------------- | :------------ | | Net cash used in operating activities | (1,215) | (5,201) | 3,986 | | Net cash (used in)/provided by investing activities | (169) | 948 | (1,117) | | Net cash provided by financing activities | 1,426 | 5,104 | (3,678) | | Effect of exchange rate on cash | (13) | 14 | (27) | | **Net change in cash and restricted cash during period** | **29** | **865** | **(836)** | | Cash and restricted cash at beginning of period | 1,153 | 619 | 534 | | **Cash and restricted cash at end of period** | **1,182** | **1,484** | **(302)** | - The reduction in cash used in operating activities is primarily due to the company's efforts in **profitability growth and cost management**[95](index=95&type=chunk) - Cash provided by financing activities mainly stemmed from **new convertible loan activities** to support company growth[96](index=96&type=chunk) [Notes to Unaudited Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) Financial statement notes provide detailed information on the company's business, going concern, accounting policies, debt, derivatives, revenue, supplier concentration, contingencies, and subsequent events, revealing financial challenges and future financing plans [1. Nature of the Business and Basis of Presentation](index=9&type=section&id=1.%20Nature%20of%20the%20Business%20and%20Basis%20of%20Presentation) SANUWAVE Health, Inc. and its subsidiaries focus on commercializing patented non-invasive bio-responsive activation medical systems for skin, musculoskeletal tissue, and vascular structure repair and regeneration, with financial statements prepared under U.S. GAAP - The company focuses on commercializing patented non-invasive bio-responsive activation medical systems, such as **UltraMIST and PACE® systems**, for the repair and regeneration of skin, musculoskeletal tissue, and vascular structures[26](index=26&type=chunk) [2. Going Concern](index=9&type=section&id=2.%20Going%20Concern) Ongoing operating losses, note defaults, and reliance on future financing raise significant doubt about the company's ability to continue as a going concern for the next twelve months - The company faces significant doubt about its ability to continue as a going concern due to **continuous operating losses, note defaults, and reliance on future financing**[31](index=31&type=chunk) - Management plans to obtain additional capital in 2023 through the **conversion of unexercised warrants, issuance of common or preferred stock, securities convertible into common stock, or secured or unsecured debt**[32](index=32&type=chunk) - Failure to secure financing may require the company to **substantially curtail or cease operations**, or obtain funds on unfavorable terms[32](index=32&type=chunk) [3. Summary of Significant Accounting Policies](index=10&type=section&id=3.%20Summary%20of%20Significant%20Accounting%20Policies) This section outlines key accounting policies for condensed consolidated financial statements, including estimates, revenue recognition (system sales, parts, licensing), and recent accounting standard adoption - Company revenue primarily derives from **system sales, accessories and parts sales, licensing fees, and other income** (including warranty, repair, and freight)[38](index=38&type=chunk)[39](index=39&type=chunk)[40](index=40&type=chunk) - The company adopted **ASU 2016-13 (Financial Instruments – Credit Losses)** in January 2023, with no material impact on the condensed consolidated financial statements[41](index=41&type=chunk) [4. Loss/Income per Share](index=11&type=section&id=4.%20Loss%2FIncome%20per%20Share) This section details the calculation of loss/income per share and lists equity securities, such as options, warrants, and convertible notes, excluded from diluted EPS due to their anti-dilutive nature | Metric (shares in thousands) | June 30, 2023 (Six Months) | June 30, 2022 (Six Months) | | :--------------------------------- | :----------------------- | :----------------------- | | Common stock options | 19,136 | 22,046 | | Common stock purchase warrants | 1,247,911 | 189,157 | | Convertible notes | 677,050 | 122,271 | | **Total anti-dilutive equity securities** | **1,944,097** | **333,474** | - Due to net losses in Q2 and H1 2023, and H1 2022, all potentially dilutive equity securities were considered **anti-dilutive** and thus excluded from the calculation of diluted loss per share[43](index=43&type=chunk) [5. Cash and Restricted Cash](index=11&type=section&id=5.%20Cash%20and%20Restricted%20Cash) As of June 30, 2023, the company held $0.85 million in restricted cash, primarily from bridge note advances, which converted to asset-backed notes in July 2023 | (USD thousands) | June 30, 2023 | | :----------------- | :------------- | | Cash | 332 | | Restricted cash | 850 | | **Total cash and restricted cash** | **1,182** | - Restricted cash primarily originated from **bridge note advances**, which converted to asset-backed notes in July 2023[44](index=44&type=chunk) [6. Accrued Expenses](index=11&type=section&id=6.%20Accrued%20Expenses) Total accrued expenses decreased to $6.351 million as of June 30, 2023, from $8.512 million on December 31, 2022, mainly due to reduced employee compensation | (USD thousands) | June 30, 2023 | December 31, 2022 | Change (USD thousands) | | :----------------- | :------------- | :------------- | :------------ | | Registration penalties | 1,583 | 1,583 | 0 | | Licensing fees | 892 | 892 | 0 | | Board and professional fees | 877 | 586 | 291 | | Employee compensation | 2,665 | 4,585 | (1,920) | | Other | 334 | 866 | (532) | | **Total** | **6,351** | **8,512** | **(2,161)** | [7. Senior Secured Debt, In Default](index=12&type=section&id=7.%20Senior%20Secured%20Debt%2C%20In%20Default) As of June 30, 2023, the company's senior secured debt was in default due to unmet minimum liquidity covenants, accruing interest at a default rate, with an extension granted until December 31, 2023 | (USD thousands) | June 30, 2023 | December 31, 2022 | | :----------------- | :------------- | :------------- | | Senior secured debt carrying value | 16,123 | 14,416 | | Accrued interest | 2,676 | 1,890 | - The company's senior secured debt is in **default** due to failure to meet minimum liquidity covenants, accruing interest at an **additional 5% default rate**[49](index=49&type=chunk) - In June 2023, the company received a Fourth Amendment to the Note and Warrant Purchase and Security Agreement, extending the exercise of default remedies to **December 31, 2023**, and requiring completion of at least **$2.5 million in equity financing** by July 15, 2023, which was successfully completed[50](index=50&type=chunk) | Interest Expense (USD thousands) | Q2 2023 | Q2 2022 | H1 2023 | H1 2022 | | :----------------- | :------------- | :------------- | :----------- | :----------- | | Senior secured debt interest expense | 1,700 | 700 | 3,300 | 1,400 | [8. Convertible Promissory Notes Payable](index=13&type=section&id=8.%20Convertible%20Promissory%20Notes%20Payable) As of June 30, 2023, total convertible promissory notes amounted to $26.058 million, largely from 2022 notes with a $0.04 conversion price and 15% annual interest, subject to adjustment but not below $0.01 | (USD thousands) | June 30, 2023 | December 31, 2022 | | :--------------------------------- | :------------- | :------------- | | Acquisition convertible notes (in default) | 4,000 | 4,000 | | Convertible notes (related party, in default) | 1,373 | 1,373 | | 2022 Convertible Notes | 13,712 | 12,713 | | 2022 Convertible Notes (related party) | 6,973 | 6,036 | | **Total convertible promissory notes carrying value** | **26,058** | **24,122** | - The 2022 Convertible Notes have a conversion price of **$0.04** and an annual interest rate of **15%**, with the conversion price adjustable but not below **$0.01**[54](index=54&type=chunk) | Interest Expense (USD thousands) | Q2 2023 | H1 2023 | | :----------------- | :------------- | :----------- | | Convertible notes interest expense | 2,400 | 4,600 | [9. Bridge Notes Advance](index=13&type=section&id=9.%20Bridge%20Notes%20Advance) As of June 30, 2023, the company received $1.5 million in bridge note advances, with $0.9 million held as restricted cash, which converted to asset-backed notes in July 2023 after a $2.5 million financing - As of June 30, 2023, the company received **$1.5 million in bridge note advances**, with **$0.9 million** from an unrelated party held as restricted cash[56](index=56&type=chunk) - Following the completion of **$2.5 million in financing** in July 2023, the **$1.5 million bridge note advances** converted into asset-backed notes with a total principal of **$2.2 million**[57](index=57&type=chunk) [10. Fair Value Measurements](index=14&type=section&id=10.%20Fair%20Value%20Measurements) The company measures warrant liabilities and certain embedded conversion features at fair value, classified as Level 3, with significant changes in value during H1 2023 influenced by underlying stock value and volatility | (USD thousands) | June 30, 2023 | December 31, 2022 | | :----------------- | :------------- | :------------- | | Warrant liabilities | 14,410 | 1,416 | | Embedded conversion options | 693 | 2,340 | | **Total fair value** | **15,103** | **3,756** | - Warrant liabilities and embedded conversion options are classified as **Level 3 fair value**, with valuations relying on significant unobservable inputs such as **underlying stock value and volatility**[59](index=59&type=chunk)[61](index=61&type=chunk)[64](index=64&type=chunk) | Warrant Liabilities Activity (USD thousands) | H1 2023 | | :--------------------------------- | :------------- | | Balance at December 31, 2022 | 1,416 | | Issuances | 570 | | Remeasurement loss on warrant liabilities | 12,424 | | **Balance at June 30, 2023** | **14,410** | | Conversion Option Liabilities Activity (USD thousands) | H1 2023 | | :--------------------------------- | :------------- | | Balance at December 31, 2022 | 2,340 | | Initial value of new issuances | 157 | | Change in fair value | (1,804) | | **Balance at June 30, 2023** | **693** | [11. Revenue](index=15&type=section&id=11.%20Revenue) The company achieved significant revenue growth in Q2 and H1 2023, primarily driven by increased consumables, parts, and system sales in the U.S. market | Revenue Type (USD thousands) | Q2 2023 | Q2 2022 | Change (USD thousands) | Change (%) | | :--------------------------------- | :------------- | :------------- | :------------ | :---------- | | Consumables and parts revenue | 2,931 | 2,663 | 268 | 10.1% | | System revenue | 1,402 | 862 | 540 | 62.6% | | Licensing fees and other | 80 | 13 | 67 | 515.4% | | **Product revenue** | **4,413** | **3,538** | **875** | **24.7%** | | Lease revenue | 262 | 344 | (82) | -23.8% | | **Total revenue** | **4,675** | **3,882** | **793** | **20.4%** | | Revenue Type (USD thousands) | H1 2023 | H1 2022 | Change (USD thousands) | Change (%) | | :--------------------------------- | :------------- | :------------- | :------------ | :---------- | | Consumables and parts revenue | 5,537 | 4,854 | 683 | 14.1% | | System revenue | 2,272 | 1,507 | 765 | 50.8% | | Licensing fees and other | 96 | 28 | 68 | 242.9% | | **Product revenue** | **7,905** | **6,389** | **1,516** | **23.7%** | | Lease revenue | 545 | 688 | (143) | -20.8% | | **Total revenue** | **8,450** | **7,077** | **1,373** | **19.4%** | [12. Concentration of Credit Risk and Limited Suppliers](index=16&type=section&id=12.%20Concentration%20of%20Credit%20Risk%20and%20Limited%20Suppliers) The company relies on single suppliers for most product components, posing production disruption risks, with two major suppliers accounting for over 10% of total purchases in H1 2023 - The company relies on **single suppliers** for most product component materials, and the loss of any single supplier could lead to **production disruptions**[69](index=69&type=chunk) | Supplier | Q2 2023 | Q2 2022 | H1 2023 | H1 2022 | | :------- | :------------- | :------------- | :----------- | :----------- | | Supplier A | 13% | 17% | 17% | 18% | | Supplier B | 16% | N/A | 11% | N/A | [13. Commitments and Contingencies](index=16&type=section&id=13.%20Commitments%20and%20Contingencies) The company is involved in various legal proceedings, including a dispute with Celularity, but does not anticipate any material adverse impact on its business, despite inherent uncertainties in legal outcomes - The company is involved in a dispute with Celularity regarding a licensing agreement, with Celularity alleging non-compliance and the company asserting breach of contract[71](index=71&type=chunk) - The company does not believe any currently pending legal proceedings will have a **material adverse effect** on its business, consolidated financial position, results of operations, or cash flows, but legal matters are inherently unpredictable[70](index=70&type=chunk) [14. Subsequent Events](index=16&type=section&id=14.%20Subsequent%20Events) In July 2023, the company issued $4.6 million in asset-backed notes, and in August 2023, converted $16.2 million principal and $2.4 million interest of 2022 convertible notes into 464.4 million common shares - In July 2023, the company issued **asset-backed notes** with a total principal of **$4.6 million**, generating approximately **$3.0 million in gross proceeds** at an original issue discount of 33.33%[72](index=72&type=chunk) - In August 2023, the company converted **$16.2 million in principal** and **$2.4 million in interest** from the 2022 convertible notes into **464,440,813 shares of common stock**[75](index=75&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=17&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section discusses the company's financial condition and operating results as of June 30, 2023, highlighting revenue growth, improved operating profit, and the primary reasons for increased net loss, along with non-GAAP metrics, liquidity, capital resources, and critical accounting policies [Executive Summary](index=17&type=section&id=Executive%20Summary) The company achieved significant revenue growth and improved operating profit in Q2 and H1 2023, but net loss substantially increased due to expenses from derivative fair value changes | Metric (USD thousands) | Q2 2023 | Q2 2022 | Change (%) | H1 2023 | H1 2022 | Change (%) | | :--------------------------------- | :------------- | :------------- | :---------- | :----------- | :----------- | :---------- | | Revenue | 4,675 | 3,882 | 20% | 8,450 | 7,077 | 19% | | Net (loss)/income | (7,262) | 1,644 | -542% | (20,342) | (3,457) | 488% | | Operating (loss)/income | 931 | (3,048) | -131% | (1,047) | (5,005) | -79% | - The increase in net loss is primarily attributable to **ongoing losses from fair value changes in derivatives**, resulting in a **$3.8 million expense** in Q2 2023 and a **$10.6 million expense** in H1 2023[78](index=78&type=chunk)[79](index=79&type=chunk) [Non-GAAP Financial Measures](index=17&type=section&id=Non-GAAP%20Financial%20Measures) The company uses EBITDA and Adjusted EBITDA as non-GAAP financial measures for performance assessment and strategic planning, with Adjusted EBITDA showing significant improvement in Q2 and H1 2023 after excluding non-cash or one-time expenses - The company uses **EBITDA and Adjusted EBITDA** to assess operating performance and for strategic planning, noting these metrics should not be considered substitutes for GAAP financial measures[81](index=81&type=chunk) | Non-GAAP Metric (USD thousands) | Q2 2023 | Q2 2022 | H1 2023 | H1 2022 | | :--------------------------------- | :------------- | :------------- | :----------- | :----------- | | Net (loss)/income | (7,262) | 1,644 | (20,342) | (3,457) | | EBITDA | (2,624) | 4,858 | (11,168) | 3,141 | | **Adjusted EBITDA** | **171** | **(1,904)** | **(1,576)** | **(3,669)** | - The improvement in Adjusted EBITDA indicates an **enhanced operating performance** after excluding non-cash or one-time expenses such as derivative fair value changes[84](index=84&type=chunk) [Results of Operations](index=18&type=section&id=Results%20of%20Operations) This section analyzes the company's Q2 and H1 2023 revenue, gross margin, and operating expenses, noting revenue growth from UltraMIST system sales, fluctuating gross margins, and reduced operating expenses due to restructuring and cost management [Revenues and Gross Margin](index=18&type=section&id=Revenues%20and%20Gross%20Margin) Revenue grew by 20% in Q2 and 19% in H1 2023, driven by UltraMIST® system sales, with Q2 gross margin increasing to 74% and H1 slightly decreasing to 71% due to higher third-party manufacturing costs | Metric (USD thousands) | Q2 2023 | Q2 2022 | Change (%) | H1 2023 | H1 2022 | Change (%) | | :----------------- | :------------- | :------------- | :---------- | :----------- | :----------- | :---------- | | Total revenue | 4,675 | 3,882 | 20% | 8,450 | 7,077 | 19% | | Gross margin (%) | 74% | 72% | 2% | 71% | 72% | -1% | - Revenue growth was primarily driven by the **continued increase in UltraMIST® system sales**[86](index=86&type=chunk) - The increase in Q2 gross margin was due to **stronger pricing strategies**, while the decrease in H1 gross margin was mainly due to **higher production costs from third-party manufacturers**[86](index=86&type=chunk)[87](index=87&type=chunk) [General and Administrative Expenses](index=18&type=section&id=General%20and%20Administrative%20Expenses) General and administrative expenses decreased by 67% in Q2 and 33% in H1 2023, primarily due to restructuring activities and ongoing cost management initiatives | Metric (USD thousands) | Q2 2023 | Q2 2022 | Change (%) | H1 2023 | H1 2022 | Change (%) | | :----------------- | :------------- | :------------- | :---------- | :----------- | :----------- | :---------- | | General and administrative expenses | 1,238 | 3,781 | -67% | 3,997 | 5,986 | -33% | - The decrease in expenses was primarily due to **restructuring activities and ongoing cost management initiatives**[88](index=88&type=chunk) [Selling and Marketing Expenses](index=19&type=section&id=Selling%20and%20Marketing%20Expenses) Selling and marketing expenses decreased by 42% in Q2 and 29% in H1 2023, mainly due to reduced sales personnel and other cost management efforts in 2023 | Metric (USD thousands) | Q2 2023 | Q2 2022 | Change (%) | H1 2023 | H1 2022 | Change (%) | | :----------------- | :------------- | :------------- | :---------- | :----------- | :----------- | :---------- | | Selling and marketing expenses | 978 | 1,672 | -42% | 2,390 | 3,387 | -29% | - The decrease in expenses was primarily due to **reduced sales personnel and other cost management activities** in 2023[89](index=89&type=chunk) [Research and Development Expenses](index=19&type=section&id=Research%20and%20Development%20Expenses) Research and development expenses decreased by 19% in Q2 and 20% in H1 2023, attributed to improved cost management, with R&D as a percentage of revenue falling from 4-5% in 2022 to 3% in 2023 | Metric (USD thousands) | Q2 2023 | Q2 2022 | Change (%) | H1 2023 | H1 2022 | Change (%) | | :----------------- | :------------- | :------------- | :---------- | :----------- | :----------- | :---------- | | Research and development expenses | 139 | 171 | -19% | 270 | 337 | -20% | | R&D expenses as % of revenue | 3% | 4% | -1% | 3% | 5% | -2% | - The decrease in expenses was primarily due to **improved cost management** in 2023[90](index=90&type=chunk)[91](index=91&type=chunk) [Other Income (Expense), net](index=19&type=section&id=Other%20Income%20%28Expense%29%2C%20net) Other income (expense), net, significantly increased in Q2 and H1 2023, primarily due to higher convertible notes and increased expenses from fair value changes in warrants and embedded conversion liabilities | Metric (USD thousands) | Q2 2023 | Q2 2022 | Change (USD thousands) | Change (%) | H1 2023 | H1 2022 | Change (USD thousands) | Change (%) | | :--------------------------------- | :------------- | :------------- | :------------ | :---------- | :----------- | :----------- | :------------ | :---------- | | Interest expense | (4,381) | (2,959) | (1,422) | 48% | (8,659) | (6,152) | (2,507) | 41% | | Change in fair value of derivatives | (3,821) | 7,861 | (11,682) | -149% | (10,618) | 11,343 | (21,961) | -194% | | **Other income (expense), net** | **(8,193)** | **4,692** | **(12,885)** | **-275%** | **(19,295)** | **1,548** | **(20,843)** | **-1346%** | - The increase in net other expenses was primarily due to **higher convertible notes** and increased expenses from **fair value changes in warrants and embedded conversion liabilities**[92](index=92&type=chunk) [Liquidity and Capital Resources](index=19&type=section&id=Liquidity%20and%20Capital%20Resources) The company has incurred continuous losses since inception and faces going concern uncertainties, with management planning various financing methods to secure additional capital for UltraMIST and PACE system commercialization - The company faces significant doubt about its ability to continue as a going concern due to **continuous operating losses, note defaults, and reliance on future financing**[93](index=93&type=chunk) - Management plans to obtain additional capital through the **conversion of unexercised warrants, issuance of common or preferred stock, securities convertible into common stock, or secured or unsecured debt**[94](index=94&type=chunk) | Cash Flow (USD thousands) | H1 2023 | H1 2022 | | :--------------------------------- | :------------- | :------------- | | Cash used in operating activities | (1,215) | (5,201) | | Cash (used in)/provided by investing activities | (169) | 948 | | Cash provided by financing activities | 1,426 | 5,104 | - The reduction in cash used in operating activities indicates the company's progress in **profitability growth and cost management**[95](index=95&type=chunk) [Critical Accounting Policies and Estimates](index=20&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) The company's financial statements rely on critical judgments and estimates for litigation contingencies, derivative liabilities (including embedded conversion options and warrants), and intangible assets and goodwill valuations, which are subject to future events and market changes - Critical accounting policies and estimates include **litigation contingencies, derivative liabilities** (embedded conversion options and warrants), and the **valuation of intangible assets and goodwill**[99](index=99&type=chunk)[100](index=100&type=chunk)[101](index=101&type=chunk) - Fair value estimates for derivative liabilities involve **subjective input assumptions** that can significantly impact the valuation[100](index=100&type=chunk) - Impairment tests for intangible assets and goodwill depend on significant estimates of **future cash flows, discount rates, and asset useful lives**, which are susceptible to legal, technological, regulatory, economic, and competitive risks[101](index=101&type=chunk) [Segment and Geographic Information](index=21&type=section&id=Segment%20and%20Geographic%20Information) The company operates as a single segment, with revenue primarily from the U.S. market and international sales across various regions, while all significant expenses and assets are located in the U.S - The company is identified as a **single operating segment**[103](index=103&type=chunk) - Revenue is primarily generated in the **United States**, with international sales covering Europe, Canada, the Middle East, Central America, South America, Asia, and the Asia Pacific region[103](index=103&type=chunk) [Effects of Inflation](index=21&type=section&id=Effects%20of%20Inflation) The company's liquid assets are minimally affected by inflation, but rising inflation impacts expenses like employee compensation, office leases, and R&D, which may be difficult to recover quickly during product commercialization - Rising inflation rates impact expenses such as **employee compensation, office space lease costs, and research and development expenses**, which may be difficult to recover quickly during product commercialization[104](index=104&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=21&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a "smaller reporting company," the company is not required to provide quantitative and qualitative disclosures about market risk - As a "smaller reporting company," the company is **not required to provide quantitative and qualitative disclosures about market risk**[105](index=105&type=chunk) [Item 4. Controls and Procedures](index=21&type=section&id=Item%204.%20Controls%20and%20Procedures) As of June 30, 2023, management deemed disclosure controls and internal financial reporting controls ineffective due to three material weaknesses, including lack of GAAP expertise for complex transactions, insufficient financial instrument accounting resources, and inadequate control design and implementation for accounting and IT processes [Evaluation of Disclosure Controls and Procedures](index=21&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) As of June 30, 2023, the CEO and CFO assessed the company's disclosure controls and procedures as ineffective due to material weaknesses - As of June 30, 2023, the company's **disclosure controls and procedures were not operating effectively**[107](index=107&type=chunk) - The company's **internal control over financial reporting was deemed ineffective** as of June 30, 2023[108](index=108&type=chunk) [Remediation Plan](index=21&type=section&id=Remediation%20Plan) The company is collaborating with external vendors to document internal control policies and procedures, enhance automated and manual controls in its ERP system, and has hired internal resources with relevant expertise to address identified material weaknesses - The company is collaborating with **external vendors** to document internal control policies and procedures and to enhance **automated and manual controls** within its ERP system to mitigate risks related to customer creation, pricing, and billing accuracy[109](index=109&type=chunk) - Identified material weaknesses include: **lack of expertise and resources** to analyze and correctly apply U.S. GAAP for complex financial instruments and derivative transactions; **insufficient internal resources** to analyze and correctly apply U.S. GAAP for financial instruments in specific vendor service agreements; and **failure to design and implement controls** for all accounting and IT processes and procedures[110](index=110&type=chunk) - The company hired internal resources with appropriate expertise and experience in applying U.S. GAAP in 2022[112](index=112&type=chunk) [Changes in Internal Control over Financial Reporting](index=22&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2023, other than those disclosed in the "Remediation Plan" - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2023, other than the measures disclosed in the "Remediation Plan"[115](index=115&type=chunk) PART II – OTHER INFORMATION [Item 1. Legal Proceedings](index=22&type=section&id=Item%201.%20Legal%20Proceedings) Information regarding legal proceedings as of June 30, 2023, is detailed in Note 13 to the condensed consolidated financial statements - Legal proceedings information can be found in **Note 13 to the condensed consolidated financial statements**[117](index=117&type=chunk) [Item 1A. Risk Factors](index=22&type=section&id=Item%201A.%20Risk%20Factors) No material changes to the risk factors disclosed in the company's 2022 Annual Report have occurred during this reporting period - There have been **no material changes to the risk factors** disclosed in the company's 2022 Annual Report[118](index=118&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=22&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During the three months ended June 30, 2023, the company issued 6 million shares to consultants as consideration for services rendered - During the three months ended June 30, 2023, the company issued **6 million shares** to consultants as consideration for services provided[119](index=119&type=chunk) [Item 3. Defaults Upon Senior Securities](index=22&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) Not applicable - Not applicable[120](index=120&type=chunk) [Item 4. Mine Safety Disclosures](index=22&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Not applicable - Not applicable[121](index=121&type=chunk) [Item 5. Other Information](index=22&type=section&id=Item%205.%20Other%20Information) During the three months ended June 30, 2023, no directors or officers adopted or terminated any Rule 10b5-1(c) trading arrangements - During the three months ended June 30, 2023, no directors or officers adopted or terminated any securities trading contracts, instructions, or written plans intended to satisfy the affirmative defense conditions of **Rule 10b5-1(c)**[122](index=122&type=chunk) [Item 6. Exhibits](index=23&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with this quarterly report, including corporate charters, certificates, agreements, certifications, and XBRL data files - Exhibits include **corporate charters, certificates, various agreements** (such as Note and Warrant Purchase and Security Agreement, Securities Purchase Agreement, Guaranty Agreement, Subordination Agreement), **executive employment agreements**, and **certifications** from the Chief Executive Officer and Chief Financial Officer[123](index=123&type=chunk)[125](index=125&type=chunk) [SIGNATURES](index=26&type=section&id=SIGNATURES) This quarterly report was formally signed by SANUWAVE Health, Inc.'s CEO Morgan Frank and CFO Toni Rinow on August 10, 2023 - This report was signed by **Morgan Frank, Chief Executive Officer**, and **Toni Rinow, Chief Financial Officer**, of SANUWAVE Health, Inc. on August 10, 2023[129](index=129&type=chunk)

Financial Data and Key Metrics Changes - In Q1 2023, revenue amounted to $3.8 million, representing an 18% increase compared to the same period last year, aligning with the guidance of 14% to 20% growth [9][10] - Gross margin decreased to 67% in Q1 2023 from 72% in Q1 2022 due to cost increases associated with servicing refurbished equipment [7][10] - Operating expenses increased by 4.7% year over year, totaling $4.5 million, primarily due to higher general and administrative expenses [9][10] Business Line Data and Key Metrics Changes - The number of treatments reached a record 43,000 in Q1 2023, indicating continued adoption of Ultramist [7] - Units shipped achieved the highest level for the first quarter in company history, reflecting robust demand despite supply chain challenges [7] Market Data and Key Metrics Changes - Demand for products remains strong, with over 20 new accounts added to the pipeline following recent conferences [6] - The company is on track to receive over 400 devices in 2023, compared to 217 sold last year, although it is uncertain if all will be sold [5] Company Strategy and Development Direction - The company is focused on addressing supply chain issues to balance supply and demand, with initiatives aimed at improving automation and reducing costs [8][16] - Management plans to leverage existing infrastructure for profitable growth and aims to achieve record revenue growth and profitability in 2023 [17] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in overcoming supply constraints, indicating that the issues are primarily related to Ultramist production [23] - The company anticipates revenue growth of 15% to 25% in Q2 2023, contingent on supply chain improvements [15] Other Important Information - The company closed an additional private placement in May 2023, raising $1.2 million to support operations [10] - Management emphasized the importance of strong reimbursement channels for Ultramist across various service settings, enhancing market opportunities [20] Q&A Session Summary Question: Can you expand on the reimbursement situation for Ultramist? - Ultramist has strong reimbursement in multiple settings, including hospitals, private offices, home health, assisted living facilities, and nursing homes, providing diverse channels for growth [20] Question: Are the supply constraints expected to be prolonged? - Supply constraints are primarily around Ultrimist, but management is confident that these issues will not last a year and are working to ensure a consistent supply [23] Question: Will operating cost increases be a recurring issue? - The increase in operating costs is largely due to one-time professional service fees related to SEC initiatives, and overall operating expenses are increasing at a slower rate compared to revenue [29]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2023 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to (Exact name of registrant as specified in its charter) (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification ...

Financial Data and Key Metrics Changes - Q4 2022 revenues amounted to $5,500,000, representing a 29% increase year-over-year [13] - Total revenues for the twelve months ending 12/31/2022 reached $16,700,000, an increase of 28.7% year-over-year [13] - Gross margins improved to 75% for 2022 compared to 62% for 2021, with Q4 gross margins reaching 78% [13] - Operating expenses for 2022 decreased by 4% year-over-year, while Q4 operating expenses increased by 9% [14] Business Line Data and Key Metrics Changes - The company achieved record levels in units shipped and treatments, driven by the adoption of Ultramist [6] - Operating expenses decreased year-over-year due to automation and reduced headcount [6] Market Data and Key Metrics Changes - The chronic wound care market is valued at $45 billion, with SANUWAVE positioned favorably due to strong clinical evidence and reimbursement support [5] - The biological skin substitute market is experiencing turmoil, with reimbursement cuts expected to reach 80-90% by next year [18] Company Strategy and Development Direction - The company aims for sustainable, profitable growth in 2023, focusing on leveraging existing infrastructure [8] - Plans to enhance investor relations and marketing strategies to increase awareness and adoption of products [17] - Participation in industry trade shows to promote products and educate potential customers [19] Management's Comments on Operating Environment and Future Outlook - Management acknowledged challenges in the supply chain but expressed optimism about achieving record revenue growth and profitability in 2023 [21] - Anticipated first-quarter revenue growth of 14-20% year-over-year, with expectations for acceleration in Q2 [22] Other Important Information - The company successfully relisted on the OTCQB on January 30, 2023, after addressing accounting issues [8] - Key additions to the management team were made to drive profitable growth [10] Q&A Session Summary Question: What might peak production look like in the next couple of quarters? - The company is currently at a pace of 40 new products per month, scheduled to ramp to 100 by the end of the year [29] - The applicator side is running 20% ahead of demand, with plans to increase production by 70-80% by year-end [31]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2022 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to. Commission File Number: 000-52985 SANUWAVE Health, Inc. (Exact Name of Registrant as Specified in Charter) Nevada 20-1176000 (State or Other Jurisdiction of Incorporation) ...