10-Q 1 brhc10043756_10q.htm 10-Q

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

FORM 10-Q
 
(Mark One)

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

For the quarterly period ended September 30, 2022


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

For the transition period from ________ to

Commission File Number 000-52985

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

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

11495 Valley View Road
Eden Prairie, MN
 
55344
(Address of principal executive offices)
 
(Zip Code)

(770) 419-7525
(Registrant’s telephone number, including area code)

3360 Martin Farm Road, Suite 100
Suwanee, GA, 30024
(Former name, former address and former fiscal year, if changes since last report)

Securities registered pursuant to Section 12(b) of the Act:

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

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    ☒ Yes  ☐  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

 
Large accelerated filer ☐
Accelerated filer ☐
 
Non-accelerated filer
Smaller reporting company 
   
Emerging growth company 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes        No  ☒  

As of November 10, 2022 there were issued and outstanding 548,737,651 shares of the registrant’s common stock, $0.001 par value per share.



 SANUWAVE Health, Inc.
 
Table of Contents
 
 
Page
PART I – FINANCIAL INFORMATION
   
Item 1.
4
     
  4
     
  5
     
  6
     
  8
     
  9
     
Item 2.
17
     
Item 3.
21
     
Item 4.
21
     
PART II – OTHER INFORMATION
     
Item 1.
22
     
Item 1A.
22
     
Item 2.
22
     
Item 3.
22
     
Item 4.
22
     
Item 5.
22
     
Item 6.
23
     
  25
 
Special Note Regarding Forward-Looking Statements
 
This Quarterly Report on Form 10-Q of SANUWAVE Health, Inc. and its subsidiaries (“SANUWAVE” or the “Company”) contains forward-looking statements. All statements in this Quarterly Report on Form 10-Q, including those made by the management of the Company, other than statements of historical fact, are forward-looking statements. Examples of forward-looking statements include statements regarding: the potential impact of the COVID-19 pandemic on our business, results of operations, liquidity, and operations, including the effect of governmental lockdowns, restrictions and new regulations on our operations and processes, including the execution of clinical trials; the Company’s future financial results, operating results, and projected costs; market acceptance of and demand for UltraMIST®, dermaPACE® and our product candidates; management’s plans and objectives for future operations; industry trends; regulatory actions that could adversely affect the price of or demand for our approved products; our intellectual property portfolio; our business, marketing and manufacturing capacity and strategy; estimates regarding our capital requirements, the anticipated timing of the need for additional funds, and our expectations regarding future capital-raising transactions, including through investments by strategic partners for market opportunities, which may include strategic partnerships or licensing agreements, or raising capital through the conversion of outstanding warrants or issuances of securities; product liability claims; economic conditions that could adversely affect the level of demand for or cost of our products; timing of clinical studies and eventual U.S. Food and Drug Administration (“FDA”) approval of our products; financial markets; the competitive environment; supplier and customer disputes; and our plans to remediate our material weaknesses in our disclosure controls and procedures and our internal control over financial reporting. These forward-looking statements are based on management’s estimates, projections, and assumptions as of the date hereof and include the assumptions that underlie such statements. Forward-looking statements may contain words such as “may,” “will,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential” and “continue,” the negative of these terms, or other comparable terminology. Any expectations based on these forward-looking statements are subject to risks and uncertainties and other important factors, including those discussed in the reports we file with the Securities and Exchange Commission (the “SEC”), specifically the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed on May 13, 2022. Other risks and uncertainties are and will be disclosed in the Company’s subsequent SEC filings. These and many other factors could affect the Company’s future financial condition and operating results and could cause actual results to differ materially from expectations based on forward-looking statements made in this document or elsewhere by the Company or on its behalf. The Company undertakes no obligation to revise or update any forward-looking statements. The following information should be read in conjunction with the financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed on May 13, 2022.
 
Except as otherwise indicated by the context, references in this Quarterly Report on Form 10-Q to “we,” “us” and “our” are to the consolidated business of the Company.

PART I -- FINANCIAL INFORMATION

ITEM 1.
FINANCIAL STATEMENTS
 
SANUWAVE HEALTH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In thousands, except share data)

   
September 30, 2022
   
December 31, 2021
 
ASSETS
           
Current Assets:
           
Cash
 
$
1,112
   
$
619
 
Accounts receivable, net of allowance for doubtful accounts of $0.8 million, respectively
   
2,403
     
2,415
 
Inventory
   
1,413
     
1,040
 
Prepaid expenses and other current assets
   
1,935
     
326
 
Total Current Assets
   
6,863
     
4,400
 
Property, Equipment and Other, net
   
673
     
1,118
 
Other Intangible Assets, net
   
5,313
     
5,841
 
Goodwill
   
7,260
     
7,260
 
Total Assets
 
$
20,109
   
$
18,619
 
                 
LIABILITIES
               
Current Liabilities:
               
Senior secured promissory note payable, in default
 
$
12,773
   
$
11,586
 
Convertible promissory notes payable, in default
   
4,000
     
11,601
 
Convertible promissory notes, related parties, in default
   
1,373
     
1,596
 
Convertible promissory notes payable
    9,174       -  
Convertible promissory notes payable, related parties
    4,485       -  
Advances on future cash receipts
    194       446  
Accounts payable
   
5,055
     
7,644
 
Accrued expenses
   
4,100
     
4,394
 
Accrued employee compensation
   
3,792
     
4,247
 
Due under factoring ageement
    1,510       1,737  
Warrant liability
   
1,196
     
9,614
 
Current portion of SBA loans
   
-
     
158
 
Accrued interest
   
3,988
     
2,521
 
Accrued interest, related parties
   
546
     
289
 
Current portion of lease and contract liabilities
   
249
     
316
 
Other
   
30
     
114
 
Total Current Liabilities
   
52,465
     
56,263
 
Non-current Liabilities
               
SBA loans
   
-
     
875
 
Lease liabilities
   
263
     
118
 
Contract liabilities
   
205
     
293
 
Deferred tax liability
   
28
     
28
 
Total Non-current Liabilities
   
496
     
1,314
 
Total Liabilities
   
52,961
     
57,577
 
                 
Commitments and Contingencies (Footnote 11)
   
     
 
                 
STOCKHOLDERS’ DEFICIT
               
                 
Preferred Stock, par value $0.001, 5,000,000 shares authorized; 6,175 shares Series A, 293 shares Series B, 90 shares Series C and 8 shares Series D no shares issued and outstanding at September 30, 2022 and December 31, 2021
   
-
     
-
 
Common Stock, par value $0.001, 800,000,000 shares authorized; 548,737,651 and 481,619,621 issued and outstanding at September 30, 2022 December 31, 2021, respectively
   
549
     
482
 
Additional Paid-in Capital
   
152,750
     
144,582
 
Accumulated Deficit
   
(186,084
)
   
(183,949
)
Accumulated Other Comprehensive Loss
   
(67
)
   
(73
)
Total Stockholders’ Deficit
   
(32,852
)
   
(38,958
)
Total Liabilities and Stockholders’ Deficit
 
$
20,109
   
$
18,619
 

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

SANUWAVE HEALTH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
(In thousands, except share data)
 
   
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
   
2022
   
2021
   
2022
   
2021
 
Revenues:
                       
Accessory and parts revenue
 
$
3,012
   
$
2,067
   
$
7,866
   
$
5,645
 
Product
   
902
     
1,299
     
2,408
     
2,066
 
Rental Income
    247       333       935       864  
License fees and other
   
5
     
26
     
33
     
175
 
Total Revenue
   
4,166
     
3,725
     
11,242
     
8,750
 
                                 
Cost of Revenues
   
606
     
1,555
     
2,590
     
3,658
 
                                 
Gross Margin
   
3,560
     
2,170
     
8,652
     
5,092
 
                                 
Operating Expenses:
                               
General and administrative
    3,404       2,864       8,482       8,909  
Selling and marketing
    1,650       2,150       5,037       6,450  
Research and development
   
157
     
297
     
494
     
923
 
Gain on disposal of assets
    -       -       (690 )     -  
Depreciation and amortization
    189       194       575       585  
Total Operating Expenses
   
5,400
     
5,505
     
13,898
     
16,867
 
                                 
Operating Loss
   
(1,840
)
   
(3,335
)
   
(5,246
)
   
(11,775
)
                                 
Other Income (Expense):
                               
Interest expense
   
(3,301
)
   
(1,781
)
   
(9,203
)
   
(4,340
)
Interest expense, related party
    (439 )     (55 )     (551 )     (150 )
Change in fair value of derivative liabilities
   
5,252
     
1,555
     
16,597
     
1,599
 
Loss on issuance of debt
   
-
     
(1,088
)
   
(3,434
)
   
(3,572
)
Gain / (loss) on extinguishment of debt
    (86 )     460       (297 )     460  
Gain / (loss) on foreign currency exchange
   
1
     
(2
)
   
(1
)
   
2
 
Other Income (Expense), net
   
1,427
     
(911
)
   
3,111
     
(6,001
)
                                 
Net Loss before Income Taxes
   
(413
)
   
(4,246
)
   
(2,135
)
   
(17,776
)
                                 
Provision for Income Taxes
   
-
     
6
     
-
     
28
 
                                 
Net Loss
   
(413
)
   
(4,252
)
   
(2,135
)
   
(17,804
)

                               
Other Comprehensive Loss
                               
Foreign currency translation adjustments
   
-
     
-
     
-
     
(12
)
Total Comprehensive Loss
 
$
(413
)
 
$
(4,252
)
 
$
(2,135
)
 
$
(17,816
)
                                 
Loss per Share:
                               
 Basic and Diluted
  $ (0.00 )  
$ (0.01 )   $ (0.00 )   $ (0.03 )
                                 
Weighted average shares outstanding, basic and diluted
                               
Basic and Diluted
    561,069,625       518,310,781       542,484,779       518,370,156  

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

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

Three Months Ended September 30, 2022
 
   
Preferred Stock
   
Common Stock
                         
   
Number of
         
Number of
                     
Accumulated
       
    Shares          
Shares
                      Other        
   
Issued and
         
Issued and
         
Additional Paid-
   
Accumulated
    Comprehensive        
    Outstanding    
Par Value
   
Outstanding
   
Par Value
   
in Capital
    Deficit     Loss     Total
 
                                                 
Balances as of June 30, 2022
   
-
   
$
-
     
529,293,205
   
$
529
   
$
151,409
   
$
(185,671
)
 
$
(67
)
 
$
(33,800
)
Shares issued for settlement of debt and warrants
   
-
     
-
     
19,444,446
     
20
     
1,341
                     
1,361
 
Net loss
   
-
     
-
     
-
     
-
     
-
     
(413
)
   
-
     
(413
)
Balances as of September 30, 2022
   
-
   
$
-
     
548,737,651
   
$
549
   
$
152,750
   
$
(186,084
)
 
$
(67
)
 
$
(32,852
)

Three Months Ended September 30, 2021
 
   
Preferred Stock
   
Common Stock
                         
   
Number of
         
Number of
                     
Accumulated
       
    Shares           Shares                       Other        
   
Issued and
         
Issued and
         
Additional Paid-
   
Accumulated
    Comprehensive        
    Outstanding    
Par Value
    Outstanding    
Par Value
   
in Capital
    Deficit     Loss     Total  
                                                 
Balances as of June 30, 2021
   
-
   
$
-
     
481,619,621
   
$
482
   
$
144,582
   
$
(170,242
)
 
$
(74
)
 
$
(25,252
)
Net loss
   
-
     
-
     
-
     
-
     
-
     
(4,252
)
   
-
     
(4,252
)
Balances as of September 30, 2021
   
-
   
$
-
     
481,619,621
   
$
482
   
$
144,582
   
$
(174,494
)
 
$
(74
)
 
$
(29,504
)

The accompanying notes to condensed consolidated financial statements are an integral part of these financial statements.
 
SANUWAVE HEALTH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
(UNAUDITED)
(In thousands except share data)
 
Nine Months Ended September 30, 2022
 
 
 
Preferred Stock
   
Common Stock
                         
    Number of           Number of                       Accumulated        
    Shares           Shares                       Other        
    Issued and           Issued and           Additional Paid-     Accumulated    
Comprehensive
       
    Outstanding     Par Value
    Outstanding
    Par Value
    in Capital     Deficit     Loss     Total
 
 
                                               
Balances as of December 31, 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 conjuction with Note Payable
   
-
     
-
     
20,666,993
     
20
     
3,700
     
-
     
-
     
3,720
 
Shared issed 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
   
-
     
-
     
-
     
-
     
-
     
(2,135
)
   
-
     
(2,135
)
Foreign currency translation adjustment
   
-
     
-
     
-
     
-
     
-
     
-
     
6
     
6
 
 
                                                               
Balances as of September 30, 2022
   
-
   
$
-
     
548,737,651
   
$
549
   
$
152,750
   
$
(186,084
)
 
$
(67
)
 
$
(32,852
)

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

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

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

   
Nine Months Ended September 30,
 
   
2022
   
2021
 
Cash Flows - Operating Acivities:
           
Net loss
 
$
(2,135
)
 
$
(17,804
)
Adjustments to reconcile net loss to net cash used by operating activities
               
Depreciation and Amortization
   
681
     
970
 
Bad debt expense
   
62
     
307
 
Income tax expense
   
-
      28
 
Shares issued for service     888       -  
Loss (Gain) on extinguishment of debt     297       (460 )
Gain on sale of property and equipment, net
    (690 )     -
 
Change in fair value of derivative liabilities
    (16,597 )    
(1,599
)
Loss on issuance of debt
    3,434       3,572  
Amortization of debt issuance costs and original issue discount
   
2,998
     
1,418
 
Accrued interest
   
1,618
     
929
 
Interest payable, related parties
   
168
     
150
 
Changes in operating assets and liabilities
               
Accounts receivable - trade
   
69
     
(345
)
Inventory
   
(373
)
   
1,430
 
Prepaid expenses and other assets
   
(1,437
)
   
(355
)
Accounts payable
   
(1,863
)
   
2,656
 
Accrued expenses
   
271
     
1,652
 
Accrued employee compensation
   
(473
)
   
885
 
Contract liabilties
   
(94
)
   
60
 
Net Cash Used in Operating Activities
   
(13,176
)
   
(6,506
)
                 
Cash Flows - Investing Activities
               
Proceeds from sale of property and equipment
   
1,022
     
-
 
Purchase of property and equipment
    -       (441 )
Net Cash Flows Provided by (Used in) Investing Activities
   
1,022
     
(441
)
                 
Cash Flows - Financing Activities
               
Proceeds from senior promissory notes
    2,940       940  
Proceeds from short term notes
   
640
     
125
 
Proceeds from factoring, net
    (227 )     1,244  
Proceeds from SBA loan
    -       1,033  
Proceeds from warrant exercises
   
100
     
-
 
Proceeds from convertible promissory notes
    12,366       1,928  
Payments of principal on finance leases
   
(174
)
   
(143
)
Payments of principal on convertible promissory notes, related parties, convertible promissory notes and SBA loans     (2,981 )     (237 )
Net Cash Flows Provided by Financing Activities
   
12,664
     
4,890
 
                 
Effect of Exchange Rates on Cash
   
(17
)
   
(53
)
                 
Net Change in Cash During Period
   
493
     
(2,110
)
                 
Cash at Beginning of Period
   
619
     
2,437
 
Cash at End of Period
 
$
1,112
   
$
327
 
                 
Supplemental Information:
               
Cash paid for interest
 
$
3,345
   
$
1,993
 
                 
Non-cash Investing and Financing Activities:
               
Reclassification of warrant liability due to cashless warrant exercise
 
$
2,166
   
$
2,030
 
Settlement of debt and warrants with stock
    1,361     $ -  
Warrants issued in conjunction with senior secured promissory note payable
    2,654       -  
Common shares issued in conjunction with senior secured promissory note payable
    3,720       -  
Embedded conversion option with issuances of convertible debt     2,309       2,740  
 Working capital balances refinanced into Convertible notes payable     2,273       -  
Warrant issuance in conjunction with convertible debt     1,463       758  

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

SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022

1.
Nature of the Business and Basis of Presentation

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

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

Basis of Presentation – The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8-03 of Regulation S-X. Accordingly, these condensed consolidated financial statements do not include all the information and disclosures required by U.S. GAAP for comprehensive financial statements. Certain accounts in the prior period condensed consolidated financial statements have been reclassified to conform to the presentation of the current period condensed consolidated financial statements. These reclassifications had no effect on the previously reported operating results. The financial information as of September 30, 2022, and for the three and nine months ended September 30, 2022, and 2021 is unaudited; however, in the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2022, are not necessarily indicative of the results that may be expected for any other interim period or for the year ending December 31, 2022.
 
The condensed consolidated balance sheet on December 31, 2021, has been derived from the audited consolidated financial statements at that date but does not include all the information and disclosures required by U.S. GAAP for comprehensive financial statements. These financial statements should be read in conjunction with the Company’s December 31, 2021, Annual Report on Form 10-K filed with the SEC on May 13, 2022 (the “2021 Annual Report”).

2.
Going Concern

Our recurring losses from operations, the events of default on the Company’s notes payable, and dependency upon future issuances of equity or other financing to fund ongoing operations have raised substantial doubt as to our ability to continue as a going concern for a period of at least twelve months from the filing of this Form 10-Q. We will be required to raise additional funds to finance our operations and remain a going concern; we may not be able to do so, and/or the terms of any financings may not be advantageous to us.
 
The continuation of our business is dependent upon raising additional capital. We expect to devote substantial resources for the commercialization of the dermaPACE device and will continue to research and develop the non-medical uses of the PACE technology, both of which will require additional capital resources.
 
Management’s plans are to obtain additional capital in 2022 through investments by strategic partners for market opportunities, which may include strategic partnerships or licensing arrangements, or raise capital through the conversion of outstanding warrants, issuance of common or preferred stock, securities convertible into common stock, or secured or unsecured debt. These possibilities, to the extent available, may be on terms that result in significant dilution to our existing shareholders. In addition, there can be no assurances that our plans to obtain additional capital will be successful on the terms or timeline we expect, or at all. If these efforts are unsuccessful, we may be required to significantly curtail or discontinue operations or, if available, obtain funds through financing transactions with unfavorable terms.

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

3.
Summary of Significant Accounting Policies

Significant accounting policies followed by the Company are summarized below and should be read in conjunction with those described in Note 3 to the consolidated financial statements in our 2021 Annual Report.

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

Significant estimates include the recording of allowances for doubtful accounts, the net realizable value of inventory, useful lives of long-lived assets, fair value of goodwill and other intangible assets, the determination of the valuation allowances for deferred taxes, estimated fair value of stock-based compensation, and the estimated fair value of financial instruments, including warrants and embedded conversion options.

4.
Loss per Share

The net loss per share is calculated by dividing the net loss attributable to common stockholders by the weighted average number of shares outstanding for the three and nine months ended September 30, 2022, and 2021. In accordance with Accounting Standards codification (“ASC”) Topic 260-10-45-13, Earnings Per Share, the weighted average of number of shares outstanding includes outstanding common stock and shares issuable for nominal consideration. Accordingly, warrants issued with a $0.01 per share exercise price, are included in weighted average shares outstanding as follows (shares in thousands):


 
Three Months Ended
    Nine Months Ended  
   
September 30, 2022
   
September 30, 2021
    September 30, 2022    
September 30, 2021
 
Weighted average shares outstanding
                       
Common shares
   
540,584
     
481,620
      519,127       481,620  
Common shares issuable assuming exercise of nominally priced warrants
   
20,486
     
36,691
      23,358       36,751  
Weighted average shares outstanding
   
561,070
     
518,311
      542,485       518,370  

Diluted net loss per share would be computed by dividing the net loss attributable to common stockholders by the weighted average number of shares of common stock and dilutive common stock equivalents outstanding. To the extent that securities are “anti-dilutive,” they are excluded from the calculation of diluted net loss per share. As a result of the net loss for the three and nine months ended September 30, 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 for the nine months ended September 30, 2022, and 2021, respectively (in thousands):

    Nine Months Ended  
   
September 30, 2022
   
September 30, 2021
 
Common stock options
   
21,246
     
31,760
 
Common stock purchase warrants
   
984,799
     
159,858
 
Convertible notes payable
   
483,588
     
98,675
 
     
1,489,633
     
290,293
 
5.
Accrued Expenses

Accrued expenses consist of the following on September 30, 2022, and December 31, 2021 (in thousands):

 
 
2022
   
2021
 
Registration penalties
 
$
1,593
   
$
1,950
 
License fees
   
893
     
893
 
Board of director’s fees
   
663
     
507
 
Other
   
951
     
1,044
 
 
 
$
4,100
   
$
4,394
 

There was no activity in the warranty reserve during the nine months ended September 30, 2022.

6.
Concentration of Credit Risk and Limited Suppliers

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

   
September 30, 2022
   
December 31, 2021
 
Accounts Receivable:
           
Customer A
   
12
%
   
24
%
Customer B
    10 %     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 for the three and nine months ended September 30, 2022, and 2021 were as follows:

    Three Months Ended     Nine Months Ended  
   
September 30, 2022
   
September 30, 2021
   
September 30, 2022
   
September 30, 2021
 
Purchases:
                       
Vendor A
   
18
%
   
52
%
    18 %     46 %
Vendor B
   
n/a
     
n/a
      n/a       15 %

7.
Notes Payable

 

The following two tables summarize outstanding notes payable as of September 30, 2022, and December 31, 2021 (dollars in thousands):

 
As of 09/30/2022 (dollars in thousands)
Maturity Date
 
Interest Rate
   
Conversion Price
   
Principal
   
Remaining Debt Discount
   
Remaining Embedded Conversion Option
   
Carrying Value
 
Senior secured promissory note payable
In default
   
20.5
%
   
n/a
    $
18,000
    $
(5,227
)
  $
-
    $
12,773
 
2021 Convertible promissory notes payable
In default
   
17.0
%
  $
0.0538
     
4,000
     
-
     
-
     
4,000
 
Convertible promissory notes payable, related parties
In default
   
14.0
%
  $
0.10
     
1,373
     
-
     
-
     
1,373
 
Convertible notes payable
August 5, 2023
   
15.0
%
  $
0.04
     
10,849
     
(2,966
)
   
1,291
     
9,174
 
Convertible notes payable, related parties
August 5, 2023
   
15.0
%
  $
0.04
     
5,305
     
(1,451
)
   
631
     
4,485
 
Advances on future cash receipts
In default
   
n/a
     
n/a
     
296
     
(102
)
   
-
     
194
 
                                                   
Total short-term debt as of September 30, 2022, including notes in default
                    $
39,823
    $
(9,746
)
  $
1,922
    $
31,999
 

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