SANUWAVE Health, Inc. (SNWV) FY 2021 MD&A

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements regarding our business development plans, clinical trials,
regulatory reviews, timing, strategies, expectations, anticipated expenses levels, projected profits, business prospects and positioning with respect to market, demographic and pricing trends, business outlook, technology spending and various
other matters (including contingent liabilities and obligations and changes in accounting policies, standards and interpretations) and express our current intentions, beliefs, expectations, strategies or predictions. These forward-looking
statements are based on a number of assumptions and currently available information and are subject to a number of risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a
result of various factors, including those set forth under the sections titled “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors” and elsewhere in this Annual Report on Form 10-K. The following discussion should be read in
conjunction with our consolidated financial statements and related notes thereto included elsewhere in this Annual Report on Form 10-K.

Overview

We are a shock wave technology company using a patented system of noninvasive, high-energy, acoustic shock waves for regenerative medicine and other applications. Our initial focus is regenerative medicine
utilizing noninvasive, acoustic shock waves to produce a biological response resulting in the body healing itself through the repair and regeneration of tissue, musculoskeletal, and vascular structures.

Our lead regenerative product in the United States is the dermaPACE® device, used for treating diabetic foot ulcers, which was
subject to two double-blinded, randomized Phase III clinical studies. On December 28, 2017, the FDA granted the Company’s request to classify the dermaPACE® System
as a Class II device via the de novo process. As a result of this decision, the Company was able to immediately market the product for the treatment of diabetic foot ulcers as described in the de novo request, subject to the general control provisions of the FD&C Act and the special controls identified in this order.

On August 6, 2020, we entered into an asset purchase agreement (the “Asset Purchase Agreement” or “Acquisition”) with Celularity Inc. (“Celularity”) pursuant to which we acquired Celularity’s
UltraMIST® assets (“UltraMIST®” or the “Assets”). The UltraMIST® System provides through a fluid mist a low-frequency, non-contact, and pain free ultrasound energy deep inside the wound bed that promotes healing from within. The ultrasound
acoustic waves promote healing by reducing inflammation and bacteria in the wound bed, while also increasing the growth of new blood vessels to the area. The UltraMIST® System treatment must be administered by a healthcare professional. This
proprietary technology has been cleared by the U.S. Food and Drug Administration (FDA) for the promotion of wound healing through wound cleansing and maintenance debridement combined with ultrasound energy deposited inside the wound that
stimulated tissue regeneration.

In connection with the Asset Purchase Agreement, on August 6, 2020, we entered into a license and marketing agreement with Celularity pursuant to which Celularity granted to the Company a
license to the Celularity wound care biologic products, Biovance® and Interfyl® (the “License Agreement”). The License Agreement provides the Company with an exclusive license to use, market, distribute and sell Biovance® in the “Field” and
“Territory” (each as defined in the License Agreement), and a non-exclusive license to use, market, distribute and sell Interfyl® in the Field in the Territory. The License Agreement has an initial five-year term, after which it automatically
renews for additional one-year periods, unless either party gives written notice at least 180 days prior to the expiration of the current term. In May 2021, the Company received notification that it is not in compliance with the Biovance portion
of the License Agreement with Celularity.

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Our portfolio of healthcare products and product candidates activate biologic signaling and angiogenic responses, including new vascularization and microcirculatory improvement, helping to restore the body’s normal
healing processes and regeneration. We intend to apply our Pulsed Acoustic Cellular Expression (PACE®) technology in wound healing, orthopedic, plastic/cosmetic and
cardiac conditions. The Company is marketing its dermaPACE® System for treatment usage
in the United States and will continue to generate revenue from sales of the European Conformity Marking (CE Mark) devices and accessories in Europe, Canada, Asia, and Asia/Pacific. The Company generates revenue streams from product
sales, licensing transactions, dermaPACE® treatments and other activities, and with its recent acquisition of the UltraMIST® assets, SANUWAVE now combines two highly
complementary and market-cleared energy transfer technologies used in the dermaPACE® and UltraMIST® Systems and two human tissue biologic products (Biovance® and Interfyl®), which creates a platform of scale with an end-to-end product offering in
the advanced wound care market.

Our lead product candidate for the global wound care market, dermaPACE®, has received FDA clearance for commercial use to treat
diabetic foot ulcers in the United States and the CE Mark allowing for commercial use on acute and chronic defects of the skin and subcutaneous soft tissue. We believe we have demonstrated that our patented technology is safe and effective in
stimulating healing in chronic conditions of the foot and the elbow through our United States FDA Class III Premarket Approvals (“PMAs”) approved OssaTron® device, and in the stimulation of bone and chronic tendonitis regeneration in the
musculoskeletal environment through the utilization of our OssaTron, Evotron®, and orthoPACE® devices in Europe and Asia.

We are focused on developing our Pulsed Acoustic Cellular Expression (PACE) technology to activate healing in:

In addition to healthcare uses, our high-energy, acoustic pressure shock waves, due to their powerful pressure gradients and localized cavitational effects, may have applications in secondary
and tertiary oil exploitation, for cleaning industrial waters, for sterilizing food liquids and finally for maintenance of industrial installations by disrupting biofilms formation. Our business approach will be through licensing and/or
partnership opportunities.

The worldwide spread of the COVID-19 virus is expected to result in a global slowdown of economic activity which is likely to decrease demand for a broad variety of products, including from our
customers. We have experienced a disruption of our supply channels which will continue for an unknown period of time until the global supply chain can return to the pre- disease status. Also, the pandemic may cause continued or additional actions
by hospitals and clinics such as limiting elective procedures and treatments and limiting clinical trial activities and data monitoring. These factors have had and we expect that they will continue to have a negative impact on our sales and our
results of operations, the size and duration of which we are currently unable to predict.

Clinical Trials and Marketing

The FDA granted approval of our Investigational Device Exemption (IDE) to conduct two double-blinded, randomized clinical trials utilizing our lead device product for the global wound care market, the dermaPACE® device, in the treatment of diabetic foot ulcers. On December 28, 2017, the FDA determined that the criteria at section 513(a)(1)(A) of (B) of the FD&C Act were
met and granted the de novo clearance classifying dermaPACE® as Class II and available to be marketed immediately.

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Also, our dermaPACE® device has received the European CE Mark approval to treat acute and chronic defects of the skin and
subcutaneous soft tissue, such as in the treatment of pressure ulcers, diabetic foot ulcers, burns, and traumatic and surgical wounds. The dermaPACE® is also
licensed for sale in Canada, Australia, New Zealand, Brazil, Mexico, and South Korea.

We are actively marketing the dermaPACE® to the European Community, Canada, Brazil, Mexico, and Asia/Pacific, utilizing distributors
in select countries.

Financial Overview

Since inception in 2005, our operations have primarily been funded from the sale of capital stock, notes payable, and convertible debt securities. We expect to devote substantial resources for the commercialization
of the dermaPACE® System and will continue to research and develop the non-medical uses of the PACE technology, both of which will require additional capital
resources. We incurred a net loss of $27.3 million and $30.9 million for the years ended December 31, 2021 and 2020, respectively. These factors and the events of default on the notes payable create substantial doubt about the Company’s ability
to continue as a going concern for a period of at least twelve months from the financial statement issuance date.

Our operating losses create substantial doubt about our ability to continue as a going concern. Although no assurances can be given, we believe that potential additional issuances of equity, debt or other potential
financing may provide the necessary funding for us to continue as a going concern for the next year. See “Liquidity and Capital Resources” for further information regarding our financial condition.

The continuation of our business is dependent upon raising additional capital to fund operations. Management’s plans are to obtain additional capital in 2022 and 2023 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, the 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. Although no assurances can be given, management believes that potential additional issuances of equity or other potential financing
transactions as discussed above should provide the necessary funding for us. If these efforts are unsuccessful, we may be required to significantly curtail or discontinue operations or obtain funds through
financing transactions with unfavorable terms. The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate
continuation of the Company as a going concern and the realization of assets and satisfaction of liabilities in the normal course of business. The carrying amounts of assets and liabilities presented in the financial statements do not necessarily
purport to represent realizable or settlement values. The consolidated financial statements do not include any adjustment that might result from the outcome of this uncertainty. Our consolidated financial
statements do not include any adjustments relating to the recoverability of assets and classification of assets and liabilities that might be necessary should we be unable to continue as a going concern.

Since our inception, we have incurred losses from operations each year. As of December 31, 2021, we had an accumulated deficit of $183.9 million. Although the size and timing of our future operating losses are
subject to significant uncertainty, we anticipate that our operating losses will continue over the next few years as we incur expenses related to commercialization of our dermaPACE® system for the treatment of diabetic foot ulcers in the United States. If we are able to successfully commercialize, market and distribute the dermaPACE®
system, then we hope to partially or completely offset these losses in the future. Although no assurances can be given, we believe that potential additional issuances of equity, debt or other potential financing, as discussed above, may provide
the necessary funding for us to continue as a going concern for the next year.

We cannot reasonably estimate the nature, timing and costs of the efforts necessary to complete the development and approval of, or the period in which material net cash flows are expected to be generated from, any
of our products, due to the numerous risks and uncertainties associated with developing and marketing products, including the uncertainty of:

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Any failure to complete the development of our product candidates in a timely manner, or any failure to successfully market and commercialize our product candidates, would have a material adverse effect on our
operations, financial position and liquidity. A discussion of the risks and uncertainties associated with us and our business are set forth under the section entitled “Risk Factors – Risks Related to Our Business”.

The worldwide spread of the COVID-19 virus is expected to result in a global slowdown of economic activity which is likely to decrease demand for a broad variety of products, including from our customers, while
also disrupting supply channels and marketing activities for an unknown period of time until the disease is contained. Also, the pandemic may cause continued or additional actions by hospitals and clinics such as limiting elective procedures and
treatments and limiting clinical trial activities and data monitoring. We expect all of these factors to have a negative impact on our sales and our results of operations, the size and duration of which we are currently unable to predict.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in
accordance with United States generally accepted accounting principles. The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and
expenses.

On an ongoing basis, we evaluate our estimates and judgments, including those related to the estimate of the fair value of embedded conversion options and warrants.
We base our estimates on authoritative literature and pronouncements, historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about
the carrying value of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions. The results of our operations for any historical period
are not necessarily indicative of the results of our operations for any future period.

In addition, there are other items within our financial statements that require estimation but are not deemed critical as defined above. Changes in these and other
items could still have a material impact upon our financial statements.

The following accounting policies are deemed critical.

Revenue Recognition

We recognize revenue in accordance with two different
Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) standards: 1) Topic 606 and 2) Topic 842. In accordance with ASC 606, we apply the following the five-step model: (1) identify the contract(s)
with a customer, (2) identify the performance obligation(s) in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the
Company satisfies a performance obligation. We recognize revenue primarily from the following types of contracts under ASC 606: (1) sales of products, accessories and parts, (2) licensing fees, (3) other revenue, (4) shipping and handling
costs. The company also recognizes rental revenue under ASC 842 where we have determined that these are operating leases and we recognize the revenue in the period where it is billed to the customer. However, under the pay per use agreement,
the Company will earn revenues based on the number of times the device is used. Under the guidance Lease payments based on usage of the device are variable lease payments and should be recorded in the period in which the obligation for the
payment is incurred.

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Derivative Liability’s from Embedded
Conversion Options and Warrants– Under ASC Topic 815 the company classified certain convertible instruments as having embedded conversion options which qualified as derivative financial instruments to be separately accounted for. The
company also under ASC Topic 815 determined that certain warrants also qualified as derivative financial instruments.  Various valuations models were used to estimate the fair value of these derivative financial instruments that are classified as
derivative liabilities on the consolidated balance sheets. The models include subjective input assumptions that can materially affect the fair value estimates and as such are subject to uncertainty. The material assumptions for the selected
subjective inputs have not changed for the reporting period, except for the expected volatility, which is estimated based on the actual volatility during the most recent historical period of time equal to the remaining life of the instruments.

Results of Operations for the Years ended December 31, 2021 and 2020

The following table sets forth our consolidated statement of operations for the fiscal years ended December 31, 2021 and 2020, and the change between the two years
(dollars in thousands):

Revenues and Cost of Revenues

Revenues for the year ended December 31, 2021 were $13.0 million, compared to $4.1 million for the same period in 2020, an increase of $8.9 million or 221%. Revenue resulted primarily from sales in Europe and
Asia/Pacific of our orthoPACE devices and related applicators and sales in the United States and Asia/Pacific of our dermaPACE® devices and related applicators as
well as UltraMIST® product sales after the August 6, 2020 Acquisition. The primary driver for the revenue increase were a full year of sales of the UltraMIST® product for the year ended December 31, 2021, as compared to approximately five months
of sales totaling $3.7 million for the year ended December 31, 2020.

Cost of revenues for the year ended December 31, 2021 were $5.0 million, compared to $1.2 million for the same period in 2020. The increase in cost of revenues was primarily driven by sales of the UltraMIST®
product subsequent to the August 6, 2020 Acquisition. Gross profit as a percentage of revenues was 62% for the year ended December 31, 2021, compared to 71% for the same period in 2020. The decrease in gross profit as a percentage of revenues in
2021 was primarily due the increase in higher margin sales in the third and fourth quarter of 2020 offset by the minimum purchase fee related to the acquisition that was recorded in the first and second quarters of 2021 with no associated
revenue.

Research and Development Expenses

Research and development expenses for the year ended December 31, 2021 were $1.1 million, compared to $1.2 million for the same period in 2020, a nominal decrease. The decrease in research and development expenses
in 2021, as compared to 2020, was due to contracting expenses for temporary services, increased services related to the dosage study in Poland and increased expenses related to electrical testing for the device as well as the acquisition of
additional of employee to support the UltraMIST® products that occurred during the year ended December 31, 2020.

Selling and Marketing Expenses

Selling and marketing expenses for the year ended December 31, 2021 were $8.6 million as compared to $5.2 million for the same period in 2020, an increase of $3.4 million, or 66%. The year-over-year increase in
sales and marketing expenses in 2021 was a result of a full year of sales and marketing expenses related to operating the UltraMIST® business compared to approximately five months of UltraMIST® operations as a result of the August 6, 2020
Acquisition.

General and Administrative Expenses

General and administrative expenses for the year ended December 31, 2021 were $11.7 million as compared to $13.7 million for the same period in 2020, a decrease of $2.0 million, or 15%. The decrease in 2021 as
compared to 2020, was primarily due to the higher costs in 2020 resulting from the acquisition-related transaction expenses, share-based compensation for services, higher lease and payroll-related to costs subsequent to the August 6, 2020
Acquisition, as well as increased consulting and IT costs associated with the integration of the Acquisition.

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Impairment of Intangible Assets

During the fourth quarter of 2020, the Company determined that the intangible asset for customer relationships related to the biological products was impaired due to significant shortfalls in
sales of the products during that period compared with the sales projections used to determine the fair value the intangible asset as of the August 6, 2020 acquisition date. The Company does not expect sales of biological products to sufficiently
recover. At December 31, 2020, the Company recorded a $7.2 million impairment charge for this intangible asset. The Company has determined that there is no impairment charge for the year ended December 31, 2021.

Depreciation and Amortization Expenses

Depreciation and amortization operating expenses were $784 thousand for the year ended December 31, 2021 versus $781 thousand for the same period of 2020.

Other Income (Expense)

Other income (expense) was a net expense of $13.1 million for the year ended December 31, 2021, as compared to a net expense of $5.7 million for the same period in 2020, a net expense increase of $7.4 million. The
change was driven by increased interest expense of $4.7 million, and a loss on the issuance of debt of $3.6 million, partially offset by the decrease of the change in the fair value of derivative liability of $1.2 million. The increased interest
expense was the result of higher levels of debt outstanding during 2021 compared with 2020 and the change in fair value of the derivative liability relates to warrants issued during 2021.

Net Loss

Net loss for the year ended December 31, 2021 was $27.3 million, or ($0.05) per basic and diluted share, compared to a net loss of $30.9 million, or ($0.08) per basic and diluted share, for the same period in 2020.
The decrease in the net loss was primarily a result of higher 2021 operating and other expenses, partially offset by increases in revenues/gross margin as noted above.

Liquidity and Capital Resources

As of December 31, 2021, our cash, cash equivalents and marketable securities totaled $.6 million.

We have incurred a net loss of $27.3 million and $30.9 million for the years ended

December 31, 2021 and 2020, respectively and cash used for operating and capital investment in the business was $6.9M We expect to
continue to incur substantial negative cash flows from operations for the first half of 2022

Our expected cash requirements for the next 12 months and beyond are largely based on the commercial success of our products and the level of
targeted investment in our commercial strategies. These conditions as well as the events of default on various notes payable raise substantial doubt about our ability to continue as a going concern.

We have historically funded our operations from the sale of our common stock, issuance of notes payable, and the exercise of warrants. During the
year ended December 31, 2021, we received net proceeds of approximately $5.1 million net from such activities, and as of December 31, 2021, our cash, cash equivalents and marketable securities totaled $.6 million.

The company has material cash requirement in 2022 including past due payables, contract obligations to our critical vendors, notes in default, registration and other
penalties related to  notes payable, warrants, and registration right agreements. Management’s plans to address the short-term and liquidity needs are to obtain additional capital in 2022 and 2023 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. Although no assurances can be given, management believes
that potential additional issuances of equity or other potential financing transactions as discussed above should provide the necessary funding for us. If these efforts are unsuccessful, we may be required to significantly curtail or discontinue
operations or obtain funds through financing transactions with unfavorable terms.

Beyond the next 12 months, we expect to devote substantial resources for the commercialization of the dermaPACE® System and will continue to research and develop the next generation of our technology as well as the non-medical uses of the PACE
technology, both of which will require additional capital resources. We also plan to devote resources to the continued commercialization of the dermaPACE and UltraMIST® product including hiring of new employees, expansion of our
international business and continued research and development of next generation of our technology as well as non-medical uses of our technology

Our existing resources are unlikely to allow us to conduct all the activities that we believe could be beneficial for our future growth. As a
result, we will need to seek additional funds in the future or curtail or forgo some or all such activities. If we seek to and are unable to raise funds on favorable terms, or at all, we may not be able to support our commercialization efforts
or increase our research and development activities and the growth of our business may be negatively impacted. As a result, we may be unable to compete effectively. Changes, including those relating to the payer and competitive landscape, our
commercialization strategy, our development activities and regulatory matters, may occur beyond our control that would cause us to consume our available capital more quickly.

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Master Equipment Lease

On January 26, 2018, the Company entered into a Master Equipment Lease with NFS Leasing Inc. (“NFS”) to provide financing for equipment purchases to enable the Company to begin
placing the dermaPACE® System in the marketplace. This agreement provides for a lease line of up to $1,000,000 with a
term of 36 months, and grants NFS a security interest in the Company’s accounts receivable, tangible and intangible personal property and cash and deposit accounts of the Company. In 2020 and 2021, the Company entered into additional
equipment leases under the Master Equipment Lease and they are included in property, plant and equipment as a right of use asset with a related finance lease liability in our consolidated balance sheets.

Series C convertible preferred stock certificate of designation

On January 31, 2020, the Company filed a Certificate of Designation of Preferences, Right and Limitations of Series C Convertible Preferred Stock of the Company with the Nevada Secretary of State which amended our
Articles of Incorporation to designate 90 shares of our preferred stock as Series C Convertible Preferred Stock. Although we have no other shares of preferred stock currently outstanding and no present
intention to issue any additional shares of preferred stock or to create any additional series of preferred stock, we may issue such shares in the future.

Convertible notes payable

On August 6, 2020, the Company entered into a letter agreement (the “HealthTronics Agreement”) with HealthTronics pursuant to which the Company paid off all outstanding debt due and owed to
HealthTronics, including the notes payable. Pursuant to the HealthTronics Agreement, as consideration for the extinguishment of the debt due to HealthTronics, (i) the Company paid to HealthTronics an amount in cash equal to $4.0 million, (ii)
HealthTronics exercised all of its outstanding Class K Warrants to purchase 7,200,000 shares of common stock, (iii) the Company issued to HealthTronics a convertible note payable in the amount of $1.4 million, and (iv) the Company and
HealthTronics entered into a Securities Purchase Agreement dated August 6, 2020 pursuant to which the Company issued to HealthTronics an aggregate of 8,275,235 shares of common stock and an accompanying Class E warrant to purchase up to an
additional 8,275,235 shares of common stock. The warrant has an exercise price of $0.25 per share and a three-year term.

The convertible promissory note, with principal amount of $1.4 million, matured on August 6, 2021 and has not been repaid. The Company’s failure to pay the outstanding principal balance when
due constituted an event of default under the terms of the convertible note payable and, accordingly, it began accruing interest of 2% in addition to the 12% initial rate as of the date of the default.

In the event that the Seller Note has not been repaid prior to January 1, 2021, HealthTronics may elect to convert the outstanding principal amount plus any accrued but unpaid interest thereon
into shares of the Company’s common stock, at a conversion price of $0.10 per share. As this conversion option is contingent, the conversion option has not been bifurcated from the host instrument as of December 31, 2020. The convertible
promissory note is expressly subordinate to the NWPSA “Senior Secured Notes” described in Note 13. The Company may prepay the outstanding principal balance, together with any accrued but unpaid interest without premium or penalty.

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SBA loans

On May 28, 2020, the Company received proceeds from a loan in the amount of $454 thousand (the “PPP Loan”) from Truist Bank, as lender, pursuant to the Paycheck Protection Program (“PPP”) under
the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The PPP Loan matures on May 28, 2022 and bears interest at a rate of 1% per annum. Commencing December 12, 2020, the Company is required to pay the lender equal monthly
payments of principal and interest. The PPP Loan is evidenced by a promissory note dated May 28, 2020 (the “Note”), which contains customary events of default relating to, among other things, payment defaults and breaches of representations,
warranties and covenants. The PPP Loan may be prepaid by the Company at any time prior to maturity with no prepayment penalties.

All or a portion of the PPP Loan may be forgiven by the U.S. Small Business Administration (“SBA”) upon application by the Company beginning 60 days but not later than 120 days after loan
approval and upon documentation of expenditures in accordance with the SBA requirements. The ultimate forgiveness of the PPP Loan is also predicated upon regulatory authorities concurring with management’s good faith assessment that the current
economic uncertainty made the loan request necessary to support ongoing operations. If, despite the Company’s good-faith belief that given the circumstances the Company satisfied all eligibility requirements for the PPP Loan, the Company is later
determined to have violated any applicable laws or regulations or it is otherwise determined that the Company was ineligible to receive the PPP Loan, the Company may be required to repay the PPP Loan in its entirety and/or be subject to
additional penalties. In the event the PPP Loan, or any portion thereof, is forgiven pursuant to the PPP, the amount forgiven is applied to outstanding principal. Under the terms of the PPP Loan, the Company may be eligible for full or partial
loan forgiveness in the third quarter of 2020. The Company completed the application for loan forgiveness during the third quarter of 2021. The Company received a letter from the SBA dated August 27, 2021 forgiving $454 thousand of the PPP Loan
principal and $6 thousand of interest.

On June 10, 2020, the Company secured a loan offered by the U.S. Small Business Administration (“SBA”) under its Economic Injury Disaster Loan assistance program (“EIDL”) in light of the impact
of COVID-19 pandemic on the Company’s business. The principal amount of this loan was $150 thousand and interest accrued at the rate of 3.75% per annum. This loan was repaid in full on August 5, 2020 with proceeds from the NWPSA Senior Notes as
part of the conditions of that agreement.

Senior Secured promissory notes

On August 6, 2020, the Company entered into a Note and Warrant Purchase and Security Agreement (the “NWPSA”), with the noteholder party thereto and NH Expansion Credit Fund Holdings LP, as
agent. As a result, the Company issued a $15,000,000 Secured Promissory Note (the “Senior Notes”) and Warrant exercisable into shares of the Company’s common stock (the “Warrant”) in exchange for cash to support operations, repay outstanding debt
and close on the acquisition of the UltraMIST® assets from Celularity, among other transactions. The Company received net proceeds from issuing the Notes and NH Warrant of $13.3 million. The NWPSA provides for (i) the sale and purchase of secured
notes in an aggregate original principal amount of $15 million and (ii) the issuance of 13,091,160 warrants equal to 2.0% of the fully-diluted common stock of the Company as of the issue date. The warrant has an exercise price of $0.01 per share
and a 10-year term. The warrant agreement contains a put option. Upon payment in full of the Note, the holder has the ability to require the Company to purchase the warrants from the holder for cash. Accordingly, the warrant has been classified
as a derivative liability. The holder has the option to exercise the put any time between the payment of the Note and the expiration of the warrants. The Note has a maturity date of September 30, 2025 and accrues interest at a rate that is the
sum of: (a) the greater of the quarter end prime rate or 3% plus (b) 9%, due in quarterly arrears. The Senior Notes are secured by substantially all assets of the Company including in the event of default placing bank accounts under a control
agreement, copyrights, trademarks, patents, applications, registered and unregistered, licenses, designs, held or acquired after August 6, 2020 by the Company.

The Company was in default of the minimum liquidity provisions of the Senior Secured Promissory Notes beginning in October 2020 and, accordingly, the Senior Promissory Notes began accruing
interest of 5.0% in addition to the stated rate as of the date of default.

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Convertible promissory notes – 2020

On August 6, 2020, the Company entered into an asset purchase agreement with Celularity, pursuant to which the Company acquired Celularity’s UltraMIST® assets. A portion of the aggregate
consideration of $24.0 million paid for the assets included the issuance of a promissory note to Celularity in the principal amount of $4.0 million. The Seller Note had a maturity date of August 6, 2021 and was not repaid. The Company’s failure
to pay the outstanding principal balance when due constituted an event of default under the terms of the Seller Note and, accordingly, it began accruing additional interest of 5.0% in addition to the 12.0% initial rate, as of the date of default.

In the event that the Seller Note had not been repaid prior to January 1, 2021, Celularity may elect to convert the outstanding principal amount plus any accrued but unpaid interest thereon
into shares of the Company’s common stock, at a conversion price of $0.10 per share. As this conversion option is contingent on a future event, the conversion option has not been bifurcated from the host instrument as of December 31, 2020. The
Seller Note is expressly subordinate to the NWPSA Senior Notes described above under “Senior Secured Promissory Notes.” The Company may prepay the outstanding principal balance, together with any accrued but unpaid interest without premium or
penalty.

On June 5, 2020, the Company entered into a Securities Purchase Agreement with investor LGH Investments LLC (the “Investor”) for (i) a Promissory Note (the “Convertible Promissory Note”) in the
original principal amount of $1.2 million, convertible into shares of common stock, (ii) warrants entitling the Investor to acquire 1,075,000 shares of common stock (the “Warrants”) and (iii) 200,000 restricted common shares in the Company as an
inducement grant (the “Inducement Shares”). Such note contained certain default provisions, as defined, resulting in net proceeds of $1.1 million. As part of the Securities Purchase Agreement, the Company established a reserve of shares of its
authorized but unissued and unreserved common stock in the amount of 11,000,000 shares for purposes of exercise of the Warrant or conversion of the Convertible Promissory Note. The Convertible Promissory Note matures on February 5, 2021 and
includes a one-time interest charge of 8% to be applied on the issuance date to the original principal amount. The Investor can convert the Convertible Promissory Note and interest at any time prior to maturity to the number of shares of common
stock, equal to the amount obtained by dividing (i) the amount of the unpaid principal and interest on the note by (ii) $0.25. The Warrants have an exercise price of $0.35 per share and have a term of five years and recorded as a liability by the
Company. With respect to the Inducement Shares, in the event the Company’s share price has declined on the date on which the Investor seeks to have the restricted legend removed on such shares, the Company agrees to issue the Investor additional
shares such that the aggregate value of the Inducement Shares equals the aggregate value of the Inducement Shares as of June 5, 2020. The Inducement Shares were issued on September 11, 2020 and included in common stock and additional paid in
capital.

We may also attempt to raise additional capital if there are favorable market conditions or other strategic considerations even if we have sufficient funds for planned operations. To the extent that we raise
additional funds by issuance of equity securities, our shareholders will experience dilution and we may be required to use some or all of the net proceeds to repay our indebtedness, and debt financings, if available, may involve restrictive
covenants or may otherwise constrain our financial flexibility. To the extent that we raise additional funds through collaborative arrangements, it may be necessary to relinquish some rights to our intellectual property or grant licenses on terms
that are not favorable to us. In addition, payments made by potential collaborators or licensors generally will depend upon our achievement of negotiated development and regulatory milestones. Failure to achieve these milestones would harm our
future capital position.

April 2021 Securities Purchase Agreement and Warrants

On April 20, 2021, the Company entered into a Securities Purchase Agreement (the “Leviston Purchase Agreement”), with Leviston Resources, LLC, an accredited investor (“Leviston”) for the sale
by the Company in a private placement (the “Private Placement”) of (i) the Company’s future advance convertible promissory note in an aggregate principal amount of up to $3.4 million (the “Leviston Note”) and (ii) a warrant to purchase an
additional 16,666,667 shares of common stock of the Company (the “Leviston Warrant”). The Leviston Warrant has an exercise price of $0.18 per share and a four-year term. The closing of the Private Placement occurred on April 20, 2021 (the
“Leviston Closing Date”).

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As noted above, on April 20, 2021, the Company issued the Leviston Note to the Purchaser in an aggregate principal amount of up to $3.4 million (the “Aggregate Amount”), which shall be
advanced in disbursements by the Purchaser (“Leviston Disbursements”), as set forth in the Leviston Note. On May 14, 2021, the Leviston Note was amended to increase the Aggregate Amount to $4.2 million. On April 21, 2021, the Purchaser advanced
a Leviston Disbursement of $750 thousand, which is net of an original issue discount of 8%. On May 14, 2021, the Purchaser advanced a second Leviston Disbursement of $750 thousand, also net of an original issue discount of 8%. A $250 thousand
Leviston Disbursement was made on September 3, 2021, which was subject to the same terms and conditions of the April and May Leviston Disbursements. In addition, a $500 thousand disbursement was made on September 3, 2021 in accordance with
notes issued to five institutional investors (the “Five Institutions’ Notes”), which were subject to substantially the same terms and conditions as the Leviston Disbursements.

Cash flows (uses) from operating, investing and financing activities - For the years ended December 31, 2021 and 2020, net cash used by operating
activities was $6.4 million and $12.7 million, respectively, primarily consisting of compensation costs, research and development activities and general corporate operations. The decrease in the use of cash for operating activities for the year
ended December 31, 2021, as compared to the same period for 2020, of $6.1 million, or 47%, was primarily due to the decrease in the net loss, a decrease in accounts receivable, as well as decreases in accrued interest, and interest payable,
related parties, partially offset by increases in certain non-cash expenses, such as depreciation and amortization, bad debt expense, amortization of debt issuance costs and original issue discount, and change in fair value of derivative
liability and increases in accounts payable and accrued expenses.

Net cash used by investing activities in 2021 was $529 thousand as compared to net cash used by investing activities of $20.1 million in 2020. The decrease is primarily due to the $20,000,000 Acquisition of
UltraMIST® on August 6, 2020.

Net cash provided by financing activities for the year ended December 31, 2021 was $5.1 million, which consisted of proceeds from convertible promissory notes of $1.9 million, cash received from accounts receivable
factoring of $1.7 million, proceeds from notes payable of $940 thousand, less principal payments of $436 thousand on debt and finance lease obligations. Net cash provided by financing activities for the year ended December 31, 2020 was $33.4
million, which consisted of proceeds from PIPE offerings of $21.4 million, proceeds from notes payable of $13.3 million, advances from related parties of $23 thousand, net proceeds from sales of convertible preferred stock and convertible
promissory notes totaling $3.6 million, proceeds from SBA loans of $614 thousand, and proceeds from exercises of stock options and warrants totaling $48 thousand, less principal payments totaling $5.6 million on debt and finance lease
obligations.

Cash and cash equivalents decreased by $1.8 million for the year ended December 31, 2021 and cash and cash equivalents increased by about $676 thousand for the year ended December 31, 2020.

Contractual Obligations

Our major outstanding contractual obligations relate to operating leases for our two facilities and office equipment, as well purchase and supplier obligations for product component materials and equipment, and our
notes payable, related parties.

In August 2016, we entered into a lease agreement for 7,500 square feet of office space for office, research and development, quality control, production and warehouse space which expired on December 31, 2021. On
February 1, 2018, we entered into an amendment to the lease agreement for an additional 380 square feet of office space for storage which expired on December 31, 2021. On January 2, 2019, we entered into a second amendment to the lease agreement
for an additional 2,297 square feet of office space for office space which expired on December 31, 2021. Under the terms of the lease, we pay monthly rent of $14,651, subject to a 3% adjustment on an annual basis.

As part of its August 6, 2020 Acquisition, we became party to a lease agreement for 8,199 square feet of office space for office, research and development, quality control, and warehouse space which expires on
August 31, 2023. Under the terms of the lease, the Company pays monthly rent of $7,051, with escalation of approximately 2% on May 1 of each lease year.

Also on August 6, 2020, the Company became party to a lease for office equipment that requires monthly payments of $669 through May 31, 2025.

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We have developed a network of suppliers, manufacturers, and contract service providers to provide sufficient quantities of product component materials for our products through the development, clinical testing and
commercialization phases. We have a manufacturing supply agreement with Swisstronics Contract Manufacturing AG in Switzerland, a division of Cicor Technologies Ltd., covering the generator box component of our
PACE devices. We have a manufacturing supply agreement with Minnetronix for the UltraMIST® devices and the Dynamic Group for UltraMIST® applicators. Celularity is our current supplier of the Biovance and Interfyl product lines. See Note 25,
Subsequent Events, for information regarding disputes with Celularity and Minnetronix.

On August 6, 2020 the Company assumed obligations for a purchase order for UltraMIST® devices from Celularity related to purchases of UltraMIST® devices from Minnetronix. This purchase order had a remaining
purchase commitment of $1,058,170. This purchase agreement also calls for production delay fees of 1.25% of the committed inventory if the Company delays production. There is also a cancelation clause of 20% of the remaining balance in the event
that the Company delays production for more than six months. For additional details, see “Contingencies” in Note 20 of the Notes to Consolidated Financial Statements.

Recently Issued Accounting Standards

New accounting pronouncements are issued by the Financial Standards Board (“FASB”) or other standards setting bodies that the Company adopts according to the various timetables the FASB specifies. The Company does
not expect the adoption of recently issued accounting pronouncements to have a significant impact on the Company’s results of operations, financial position or cash flow. See Note 3 to the accompanying consolidated financial statements.

Off-Balance Sheet Arrangements

Since inception, we have not engaged in any off-balance sheet activities, including the use of structured finance, special purpose entities or variable interest entities.

Effects of Inflation

Due to the fact that our assets are, to an extent, liquid in nature, they are not significantly affected by inflation. However, the rate of inflation affects such expenses as employee compensation, office space
leasing costs and research and development charges, which may not be readily recoverable during the period of time that we are bringing the product candidates to market. To the extent inflation results in rising interest rates and has other
adverse effects on the market, it may adversely affect our consolidated financial condition and results of operations.