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
 
2
Special Note Regarding Forward-Looking Statements
 
This Quarterly Report on Form 10-Q of SANUWAVE Health, Inc. and its subsidiaries (“SANUWAVE” or the “Company”) contains forward-looking statements. All statements in this Quarterly Report on Form 10-Q, including those made by the management of the Company, other than statements of historical fact, are forward-looking statements. Examples of forward-looking statements include statements regarding: the potential impact of the COVID-19 pandemic on our business, results of operations, liquidity, and operations, including the effect of governmental lockdowns, restrictions and new regulations on our operations and processes, including the execution of clinical trials; the Company’s future financial results, operating results, and projected costs; market acceptance of and demand for UltraMIST®, dermaPACE® and our product candidates; management’s plans and objectives for future operations; industry trends; regulatory actions that could adversely affect the price of or demand for our approved products; our intellectual property portfolio; our business, marketing and manufacturing capacity and strategy; estimates regarding our capital requirements, the anticipated timing of the need for additional funds, and our expectations regarding future capital-raising transactions, including through investments by strategic partners for market opportunities, which may include strategic partnerships or licensing agreements, or raising capital through the conversion of outstanding warrants or issuances of securities; product liability claims; economic conditions that could adversely affect the level of demand for or cost of our products; timing of clinical studies and eventual 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.

3
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.

4
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.

5
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.
 
6
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.

7
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.

8
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.

9
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 %

11
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