As filed with the
Securities and Exchange Commission on April 17, 2020
Registration No.
333-232170
UNITED
STATES
SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
POST- EFFECTIVE AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933
SANUWAVE Health, Inc.
(Exact name of
registrant as specified in its charter)
Nevada
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3841
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20-1176000
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(State or other
Jurisdiction of Incorporation
or Organization)
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(Primary Standard
Industrial Classification Code
Number)
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(I.R.S. Employer
Identification
No.)
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3360 Martin Farm Road, Suite
100 Suwanee, Georgia
30024
(770) 419-7525
(Address, including
zip code, and telephone number, including area code, of registrants
principal executive offices)
Kevin A. Richardson, II
Chief Executive Officer
SANUWAVE Health, Inc.
3360 Martin Farm Road, Suite 100
Suwanee, Georgia 30024
(770) 419-7525
(Name, address,
including zip code, and telephone number, including area code, of
agent for service)
Copies of all communications, including communications sent to
agent for service, should be sent to:
Murray Indick,
Esq.
John M. Rafferty,
Esq.
Morrison & Foerster
LLP
425 Market
Street
San Francisco, California
94105
(415) 268-7000
Approximate date of
commencement of proposed sale to the public: As soon as
practicable after this registration statement becomes
effective.
If any of the
securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box: ☒
If this Form is
filed to register additional securities for an offering pursuant to
Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the
earlier effective registration statement for the same offering.
☐
If this Form is a
post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration
statement for the same offering. ☐
If this Form is a
post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration
statement for the same offering. ☐
Indicate by check
mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, a 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 ☐
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Accelerated
filer ☐
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Non-accelerated
filer ☒
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Smaller reporting
company ☒
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Emerging growth company ☐
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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 7(a)(2)(B) of the Securities Act. ☐
The Registrant hereby amends
this Registration Statement on such date or dates as may be
necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933 or until
this Registration Statement shall become effective on such date as
the Commission acting pursuant to said Section 8(a) may
determine.
EXPLANATORY NOTE
SANUWAVE Health,
Inc. (the “Company”) previously filed a Registration
Statement on Form S-1/A (File No. 333-232170) with the U.S.
Securities and Exchange Commission (the “SEC”) on June 20, 2019 which was
declared effective by the SEC on June 28, 2019 (the “Existing Registration
Statement”). The Existing
Registration Statement registered 76,204,992 shares of common stock
of the Company. The shares consist of (1) 8,528,249 shares of common stock issued upon
the conversion of certain promissory notes in the private
placements described herein, (2) 26,666,487 shares of common stock
issuable upon the conversion of certain promissory notes in the
private placements described herein, (3) 3,803,932 shares of common
stock issued upon the exercise of certain warrants issued in the
private placements described herein, (4) 22,124,998 shares of
common stock issuable upon the exercise of certain warrants issued
in the private placements described herein, (5) 182,217 shares of
common stock issued upon exercise of certain warrants issued to the
placement agent for the private placements described herein, (6)
2,089,317 shares of common stock issuable upon exercise of certain
warrants issued to the placement agent for the private placements
described herein, (7) 8,049,091 shares of common stock issuable
upon the exercise of certain warrants issued to employees, board of
directors, medical advisory board members and vendors described
herein and (8) 4,760,701 shares of common stock issuable upon the
conversion of short term notes payable described
herein.
This Registration
Statement constitutes Post-Effective Amendment No. 1 to the
Existing Registration Statement and is being filed to update the
Existing Registration Statement by including, among other things,
the Company’s audited
financial statements for the years ended December 31, 2019 and 2018
pursuant to Section 10(a)(3) of the Securities Act of 1933, as
amended and removing from
registration 970,910 shares of common stock issuable upon the
exercise of certain warrants which warrants have expired,
unexercised.
The information in this
prospectus is not complete and may be changed. Neither, we nor the
selling stockholders, may sell the securities described herein
until the registration statement filed with the Securities and
Exchange Commission is effective. This prospectus is not an offer
to sell the securities and it is not soliciting an offer to buy
these securities in any state or jurisdiction where the offer or
sale is not permitted.
Preliminary Prospectus, Subject
to Completion, Dated April
17,
2020.
75,234,082 Shares
(Common Stock, $0.001 par value)
This prospectus
relates to up to 75,234,082 shares of our common stock, par value
$0.001 (“Common Stock"),
being offered by the selling stockholders listed in this
prospectus. The shares consist of (1)
8,528,249 shares of common stock issued upon the conversion of
certain promissory notes in the private placements described
herein, (2) 26,666,487 shares of common stock issuable upon the
conversion of certain promissory notes in the private placements
described herein, (3) 3,803,932 shares of common stock issued upon
the exercise of certain warrants issued in the private placements
described herein, (4) 21,624,998 shares of common stock issuable
upon the exercise of certain warrants issued in the private
placements described herein, (5) 182,217 shares of common stock
issued upon exercise of certain warrants issued to the placement
agent for the private placements described herein, (6) 2,089,317
shares of common stock issuable upon exercise of certain warrants
issued to the placement agent for the private placements described
herein, (7) 7,578,181 shares of common stock issuable upon the
exercise of certain warrants issued to employees, board of
directors, medical advisory board members and vendors described
herein and (8) 4,760,701 shares of common stock issuable upon the
conversion of short term notes payable described herein..
The shares offered by this prospectus may be sold by the selling
stockholders, from time to time, in the over-the-counter market or
any other national securities exchange or automated interdealer
quotation system on which our Common Stock is then listed or
quoted, through negotiated transactions or otherwise at market
prices prevailing at the time of sale or at negotiated prices, as
described herein under “Plan of Distribution.”
We will receive
none of the proceeds from the sale of the shares by the selling
stockholders. We may receive proceeds upon the exercise of
outstanding warrants for shares of Common Stock covered by this
prospectus if the warrants are exercised for cash. We will bear all
expenses of registration incurred in connection with this offering,
but all selling and other expenses incurred by the selling
stockholders will be borne by them.
Our Common Stock is
quoted on the OTC Bulletin Board under the symbol
SNWV.QB. The high and low
bid prices for shares of our Common Stock on March 31, 2020 were
$0.215 and $0.196 per share, respectively, based upon bids that
represent prices quoted by broker-dealers on the OTC Bulletin
Board. These quotations
reflect inter-dealer prices, without retail mark-up, mark-down or
commissions, and may not represent actual transactions.
Investing in our securities
involves a high degree of risk. See “Risk Factors”
beginning on page 7 of this prospectus for a discussion of
information that should be considered in connection with an
investment in our securities.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE
SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this prospectus is_____________,
2019
You may rely only
on the information contained in this prospectus. We have not
authorized anyone to provide you with different information. This
prospectus does not constitute an offer to sell or a solicitation
of an offer to buy any securities other than the securities offered
by this prospectus. This prospectus does not constitute an offer to
sell or a solicitation of an offer to buy any securities in any
circumstances in which such offer or solicitation is unlawful. The
information contained in this prospectus is accurate only as of the
date on the front cover of this prospectus, regardless of the time
of delivery of this prospectus or of any sale of shares of our
securities. Neither the delivery of this prospectus nor any sale
made in connection with this prospectus shall, under any
circumstances, create any implication that there has been no change
in our affairs since the date of this prospectus.
TABLE OF CONTENTS
CAUTIONARY NOTE
REGARDING MANAGEMENT'S FORWARD-LOOKING STATEMENTS
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1
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PROSPECTUS
SUMMARY
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2
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THE
OFFERING
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4
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SUMMARY
FINANCIAL INFORMATION
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5
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RISK
FACTORS
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6
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USE OF
PROCEEDS
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23
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SELLING
STOCKHOLDERS
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24
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PLAN OF
DISTRIBUTION
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31
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MARKET
FOR OUR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
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33
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MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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34
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BUSINESS
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43
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MANAGEMENT,
EXECUTIVE COMPENSATION AND CORPORATE
GOVERNANCE
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57
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CORPORATE
GOVERNANCE AND BOARD MATTERS
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64
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SECURITY OWNERSHIP
OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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67
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CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
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68
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DESCRIPTION
OF SECURITIES TO BE REGISTERED
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69
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SHARES
AVAILABLE FOR FUTURE SALE
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70
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LEGAL
MATTERS
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70
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EXPERTS
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70
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INTEREST
OF NAMED EXPERTS AND COUNSEL
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71
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WHERE
YOU CAN FIND MORE INFORMATION
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71
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CAUTIONARY NOTE REGARDING
MANAGEMENT'S FORWARD-LOOKING STATEMENTS
This prospectus, including the sections titled ‘‘Prospectus
Summary,’’
‘‘Risk
Factors,’’
‘‘Management’s Discussion and Analysis of
Financial Condition and Results of Operations’’ and ‘‘Business,’’ contains forward-looking
statements within the meaning of the Private Securities Litigation
Reform Act of 1995 and Section 27A of the Securities Act of 1933.
Statements in this prospectus that are not historical facts are
hereby identified as ‘‘forward-looking
statements’’ for
the purpose of the safe harbor provided by Section 21E of the
Exchange Act and Section 27A of the Securities Act of 1933, as
amended (the “Securities
Act”). Forward-looking
statements convey our current expectations or forecasts of future
events. All statements in this prospectus, 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 Company’s future financial results,
operating results, business strategies, projected costs, products,
competitive positions, management’s plans and objectives for future
operations, and industry trends. 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. These forward-looking statements
include, among other things, statements about:
● unanticipated expenditures in
research and development or manufacturing activities;
● delayed market acceptance of any
approved product;
● unanticipated expenditures in the
acquisition and defense of intellectual property
rights;
● the failure to develop strategic
alliances for the marketing of some of our product
candidates;
● additional inventory builds to
adequately support the launch of new products;
● unforeseen changes in healthcare
reimbursement for procedures using any of our approved
products;
● inability to train a sufficient
number of physicians to create a demand for any of our approved
products;
● lack of financial resources to
adequately support our operations;
● difficulties in maintaining
commercial scale manufacturing capacity and
capability;
● unforeseen problems with our third
party manufacturers, service providers or specialty suppliers of
certain raw materials;
● unanticipated difficulties in
operating in international markets;
● unanticipated financial resources
needed to respond to technological changes and increased
competition;
● unforeseen problems in attracting
and retaining qualified personnel;
● the impact of the Patient
Protection and Affordable Care Act, as amended by the Health Care
and Education Affordability Reconciliation Act (collectively the
PPACA) on our operations;
● the impact of changes in U.S.
health care law and policy on our operations;
● enactment of new legislation or
administrative regulations;
● the application to our business of
new court decisions and regulatory interpretations;
● claims that might be brought in
excess of our insurance coverage;
● delays in timing of receipt of
required regulatory approvals;
● the failure to comply with
regulatory guidelines; and
● the uncertainty in industry demand
and patient wellness behavior.
Any or all of our
forward-looking statements in this prospectus may turn out to be
inaccurate. We have based these forward-looking statements largely
on our current expectations and projections about future events and
financial trends that we believe may affect our financial
condition, results of operations, business strategy and financial
needs. They may be affected by inaccurate assumptions we might make
or by known or unknown risks and uncertainties, including the
risks, uncertainties and assumptions described in the section
titled ‘‘Risk
Factors.’’ In light
of these risks, uncertainties and assumptions, the forward-looking
events and circumstances discussed in this prospectus may not occur
as contemplated, and actual results could differ materially from
those anticipated or implied by the forward-looking
statements.
You should read
this prospectus and the registration statement of which this
prospectus is a part completely and with the understanding that our
actual future results may be materially different from what we
expect. We qualify all of the forward-looking statements in this
prospectus by these cautionary statements.
You should not
unduly rely on these forward-looking statements, which speak only
as of the date of this prospectus. Unless required by law, we
undertake no obligation to publicly update or revise any
forward-looking statements to reflect new information or future
events or otherwise. You should, however, review the factors and
risks we describe in the reports we will file from time to time
with the Securities and Exchange Commission (the “SEC”) after the date of this
prospectus.
This summary highlights selected information contained in greater
detail elsewhere in this prospectus. This summary may not contain
all of the information that you should consider before investing in
our Common Stock. You should carefully read the entire prospectus,
including Risk Factors and the consolidated financial statements,
before making an investment decision.
Unless the context requires otherwise, the words SANUWAVE, we,
Company, us, and our in this prospectus refer to SANUWAVE Health,
Inc. and our subsidiaries.
Our Company
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 U.S. 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 (DFU) 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.
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 dermaPACE
treatments, product sales, licensing transactions and other
activities.
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.
Product Overview; Strategy
We are focused on
developing our Pulsed Acoustic Cellular Expression (PACE)
technology to activate healing in:
●
wound conditions,
including diabetic foot ulcers, venous and arterial ulcers,
pressure sores, burns and other skin eruption
conditions;
●
orthopedic
applications, such as eliminating chronic pain in joints from
trauma, arthritis or tendons/ligaments inflammation, speeding the
healing of fractures (including nonunion or delayed-union
conditions), improving bone density in osteoporosis, fusing bones
in the extremities and spine, and other potential sports injury
applications;
●
plastic/cosmetic
applications such as cellulite smoothing, graft and transplant
acceptance, skin tightening, scarring and other potential aesthetic
uses; and
●
cardiac
applications for removing plaque due to atherosclerosis improving
heart muscle performance.
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 and food liquids and
finally for maintenance of industrial installations by disrupting
biofilms formation. Our business approach will be through licensing
and/or partnership opportunities.
We were formed as a
Nevada corporation in 2004. We maintain a public internet site at
www.sanuwave.com.
The information on our websites is not a part of the
Company’s Annual Report
on Form 10-K filed with the SEC on March 30, 2020.
For more
information about the Company, see the section entitled
“Business” in this prospectus.
Recent Developments
On December 11,
2019, the Company, entered into a Common Stock Purchase Agreement
with certain accredited investors for the sale by the Company in a
private placement of an aggregate of 21,071,143 shares of common
stock at a purchase price of $0.14 per share. The Company has
granted the purchasers indemnification rights with respect to its
representations, warranties, covenants and agreements under the
purchase agreement. In connection with the agreement, the Company
also entered into a registration rights agreement with the
purchasers, pursuant to which the Company has agreed to file a
registration statement with the SEC by April 30, 2020. Pursuant to
the terms of the Registration Rights Agreement, the Company will
maintain the effectiveness of the registration statement until the
date upon which the securities held by the Purchasers cease to be
Registerable Securities (as that term is defined in the
Registration Rights Agreement). During the year ended December 31,
2019, the Company issued 20,000,711 shares of common stock in
conjunction with this offering and received $2,800,100 in cash
proceeds.
On December 13,
2019, the Company entered into a joint venture agreement (the
“Agreement”) with Universus Global Advisors
LLC, a limited liability company organized under the laws of the
State of Delaware (“Universus”), Versani Health Consulting
Consultoria em Gestão de
Negócios EIRELI, an
empresa individual
de responsabilidade limitada organized under the laws of
Brazil (“Versani”), Curacus Limited, a private
limited company organized under the laws of England and Whales
(“Curacus”), and certain individual citizens
of Brazil and the Czech Republic (the individuals together with
Curacus, the “IDIC
Group”). The principal
purpose of the joint venture company will be to manufacture,
import, use, sell, and distribute, on an exclusive basis in Brazil,
dermaPACE devices and wound kits consisting of a standard
ultrasound gel and custom size sterile sleeves used for the
treatment of various acute and chronic wounds using extracorporeal
shockwave therapy technology. The joint venture company will also
provide treatments related to the dermaPACE devices. The IDIC Group
has agreed to pay to the Company a partnership fee in the total
amount of $600,000 for the granting of exclusive territorial rights
to the joint venture company to distribute the dermaPACE devices
and wound kits in Brazil. Of the $600,000 partnership fee, $500,000
was received in November and December of 2019 and recorded as a
contract liability, while the remaining $100,000 is contingent on
receipt of required regulatory approvals from ANVISA (the Brazilian
Health Regulatory Agency) and is expected to be received within the
next twelve to eighteen months. As the remaining $100,000 fee is
contingent it was not recorded in the financial statements at
December 31, 2019. The parties executed a shareholders’ agreement, a trademark license
agreement, a supply agreement and a technology license agreement on
January 31, 2020. The IDIC Group will also have the right to
receive prioritized dividends until full reimbursement of the
partnership fee and expenses incurred in the formation of the joint
venture company, which are required to be paid by the IDIC
Group.
On December 13,
2019, the Company entered into short term notes payable agreements
in the total principal amount of $210,000. The principal amount
will be due and payable six months from the date of issuance of the
respective notes via issuance of 2,250,000 shares of common
stock.
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.
Risks Associated with Our Business
Our business is
subject to numerous risks, as more fully described in the section
entitled Risk Factors immediately following this prospectus
summary. We have a limited operating history and have incurred
substantial losses since inception. We expect to continue to incur
losses for the foreseeable future and are unable to predict the
extent of future losses or when we will become profitable, if at
all. Our products are in various stages of research and
development, with only the dermaPACE System having received
regulatory approval in the United States. Our ability to generate
revenue in the future will depend heavily on the successful
development and commercialization of our product candidates. Even
if we succeed in developing and commercializing one or more of our
product candidates, we may never generate sufficient sales revenue
to achieve and sustain profitability. We may be unable to maintain
and protect our intellectual property, which could have a
substantial impact on our ability to generate revenue. Our products
are subject to regulation by governmental authorities in the United
States and in other countries. Failure to comply with such
regulations or to receive the necessary approvals or clearances for
our product and product candidates may have a material adverse
effect on our business.
Trading Market
Our Common Stock is
quoted on the OTCQB under the symbol “SNWV.”
Corporate
Information
We were
incorporated in the State of Nevada on May 6, 2004, under the name
Rub Music Enterprises, Inc. (“RME”). SANUWAVE, Inc. was incorporated in
the State of Delaware on July 21, 2005. In December 2006, Rub Music
Enterprises, Inc. ceased operations and became a shell
corporation.
On September 25,
2009, RME and RME Delaware Merger Sub, Inc., a Nevada corporation
and wholly-owned subsidiary of RME (the “Merger Sub”) entered into a reverse merger
agreement with SANUWAVE, Inc. Pursuant to the Merger Agreement, the
Merger Sub merged with and into SANUWAVE, Inc., with SANUWAVE, Inc.
as the surviving entity (the “Merger”) and a wholly-owned subsidiary of
the Company.
In November 2009,
we changed our name to SANUWAVE Health, Inc. Our principal
executive offices are located at 3360 Martin Farm Road, Suite 100,
Suwanee, Georgia 30024, and our telephone number is (770) 419-7525.
Our website address is www.sanuwave.com. The
information on our website is not a part of this
prospectus.
Total Common Stock being offered by
the selling stockholders
|
75,234,082
shares, consisting of
(1) 8,528,249 shares of common stock
issued upon the conversion of certain promissory notes in the
private placements described herein, (2) 26,666,487 shares of
common stock issuable upon the conversion of certain promissory
notes in the private placements described herein, (3) 3,803,932
shares of common stock issued upon the exercise of certain warrants
issued in the private placements described herein, (4) 21,624,998
shares of common stock issuable upon the exercise of certain
warrants issued in the private placements described herein, (5)
182,217 shares of common stock issued upon exercise of certain
warrants issued to the placement agent for the private placements
described herein, (6) 2,089,317 shares of common stock issuable
upon exercise of certain warrants issued to the placement agent for
the private placements described herein, (7) 7,578,181 shares of
common stock issuable upon the exercise of certain warrants issued
to employees, board of directors, medical advisory board members
and vendors described herein and (8) 4,760,701 shares of common
stock issuable upon the conversion of short term notes payable
described herein.
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Use of
Proceeds
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All net proceeds
from the sale of the shares of Common Stock covered by this
prospectus will go to the selling shareholders. We will receive
none of the proceeds from the sale of the shares of Common Stock
covered by this prospectus by the selling shareholders. We may
receive proceeds upon the exercise of outstanding warrants for
shares of Common Stock covered by this prospectus if the warrants
are exercised for cash. See “Use of Proceeds.”
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Risk
Factors
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See “Risk Factors” beginning on page 7 of this
prospectus for a discussion of factors you should
carefully consider before
deciding to invest in our Common Stock.
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OTCQB Ticker Symbol
for Common Stock
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SNWV
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SUMMARY FINANCIAL
INFORMATION
The summary
financial information set forth below is derived from our
consolidated financial statements, including the notes thereto,
appearing at the end of this prospectus. Our historical results are
not necessarily indicative of the results that may be achieved in
any future period, and results for any interim period are not
necessarily indicative of the results to be expected for the full
year. The summary financial information should be read together
with our consolidated financial statements, including the notes
thereto, appearing at the end of this prospectus, as well as
“Management’s Discussion and Analysis of
Financial Condition and Results of Operations” appearing elsewhere in this
prospectus.
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Revenue
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$1,028,730
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$1,850,060
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Net
loss
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$(10,429,839)
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$(11,631,394)
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Weighted average
shares outstanding
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203,588,106
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149,537,777
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Net loss per share
- basic and diluted
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$(0.05)
|
$(0.08)
|
|
|
|
|
|
|
Working
deficit
|
$(9,910,994)
|
$(15,403,609)
|
Total
assets
|
$3,381,992
|
$1,177,728
|
Total
liabilities
|
$13,445,593
|
$16,533,827
|
Total stockholders'
deficit
|
$(10,063,601)
|
$(15,356,099)
|
Investing in our Common Stock involves a high degree of risk. You
should carefully consider the following risk factors and all other
information contained in this form 10-K, including the consolidated
financial statements and the related notes, before purchasing our
Common Stock. If any of the following risks actually occur, they
may materially harm our business and our financial condition and
results of operations. In any such event, the market price of our
Common Stock could decline and you could lose all or part of your
investment.
Risks Related to our Business
Our recurring losses from operations and dependency upon future
issuances of equity or other financing to fund ongoing operations
have raised substantial doubt as to our ability to continue as a
going concern.
We will be
required to raise additional funds to finance our operations and
remain a going concern; we may not be able to do so, and/or the
terms of any financings may not be advantageous to
us.
The continuation of
our business is dependent upon raising additional capital. We
expect to devote substantial resources for the commercialization of
the dermaPACE and will continue to research and develop the
non-medical uses of the PACE technology, both of which will require
additional capital resources. We incurred a net loss of $10,429,839
and $11,631,394 for the years ended December 31, 2019 and 2018,
respectively. The operating losses and the events of default on the
Company’s short term
notes payable and the notes payable, related parties indicate
substantial doubt about the Company’s ability to continue as a going
concern for a period of at least twelve months from the filing of
this Form 10-K.
As of December 31,
2019, we had an accumulated deficit of $125,752,956 and cash and
cash equivalents of $1,760,455. For the years ended December 31,
2019 and 2018, the net cash used by operating activities was
$6,410,758 and $3,621,172, respectively. Management expects the
cash used in operations for the Company will be approximately
$250,000 to $325,000 per month for the first half of 2020 and
$300,000 to $375,000 per month for the second half of 2020 as
resources are devoted to the commercialization of the dermaPACE
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.
The continuation of
our business is dependent upon raising additional capital to fund
operations. Management’s
plans are to obtain additional capital in 2020 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. 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.
In addition, we may
have potential liability for certain sales, offers or issuances of
equity securities of the Company in possible violation of federal
securities laws. Pursuant to a Registration Statement on Form S-1
(Registration No. 333-208676), declared effective on February 16,
2016 (the “2016
Registration Statement”),
the Company sought to register: a primary offering of up to
$4,000,000 units, the Common Stock included as part of the units,
the warrants included as part of the units, and the Common Stock
issuable upon exercise of such warrants; a primary offering of up
to $400,000 placement agent warrants and the Common Stock issuable
upon exercise of such placement agent warrants; and a secondary
offering of 23,545,144 shares of Common Stock held by certain
selling stockholders named in the 2016 Registration Statement. The
SEC Staff’s
interpretations provides that, when an issuer is registering units
composed of common stock, common stock purchase warrants, and the
common stock underlying the warrants, the registration fee is based
on the offer price of the units and the exercise price of the
warrants. The registration fee paid did include the fee based on
the offer price of the units, allocated to the unit line item in
the fee table. Although the fee table in the 2016 Registration
Statement included a line item for the Common Stock underlying the
warrants, the Company did not include in that line item the fee
payable based on the exercise price of $0.08 per share for such
warrants, which amount should have been allocated to such line item
based on the SEC Staff’s
interpretations. As a result, a portion of the securities intended
to be registered by the 2016 Registration Statement was not
registered. In addition, in a post-effective amendment to the 2016
Registration Statement filed on September 23, 2016, too many
placement agent warrants were inadvertently deregistered. The
post-effective amendment stated that the Company had issued
$180,100, based on 2,251,250 Class L warrants issued with a $0.08
exercise price of warrants to the placement agent and therefore
deregistered $219,900, based on 2,748,750 Class L warrants issued
with a $0.08 exercise price of placement agent warrants from the
$400,000, based on 5,000,000 Class L warrants issued with a $0.08
exercise price total offering amount included in the Registration
Statement. The actual warrants issued to the placement agent
totaled $240,133.36, based on 3,001,667 Class L warrants issued
with a $0.08 exercise price, and only $159,867, based on 1,998,338
Class L warrants issued with a $0.08 exercise price should have
been deregistered in such post-effective amendment. To the extent
that we have not registered or failed to maintain an effective
registration statement with respect to any of the transactions in
securities described above and with respect to our ongoing offering
of shares of Common Stock underlying the warrants, and a violation
of Section 5 of the Securities Act did in fact occur or is
occurring, eligible holders of our securities that participated in
these offerings would have a right to rescind their transactions,
and the Company may have to refund any amounts paid for the
securities, which could have a materially adverse effect on the
Company’s financial
condition. Eligible securityholders have not filed a claim against
the Company alleging a violation of Section 5 of the Securities Act
with respect to these transactions, but they could file a claim in
the future. Furthermore, the ongoing offering of and issuance of
shares of Common Stock underlying certain of our warrants from the
2016 Registration Statement may have been, and may continue to be,
in violation of Section 5 of the Securities Act and the rules and
regulations under the Securities Act, because we did not update the
prospectus in the 2016 Registration Statement for a period of time
after the 2016 Registration Statement was declared effective and
because our reliance on Rule 457(p) under the Securities Act in an
amendment to our Registration Statement on Form S-1 (Registration
No. 333-213774) filed on September 23, 2016 effected a
deregistration of the securities registered under the 2016
Registration Statement. Eligible securityholders have not filed a
claim against the Company alleging a violation of Section 5 of the
Securities Act, but they could file such a claim in the future. If
a violation of Section 5 of the Securities Act did in fact occur or
is occurring, eligible securityholders would have a right to
rescind their transactions, and the Company may have to refund any
amounts paid the securities, which could have a materially adverse
effect on the Company’s
financial condition.
We have a history of losses and we may continue to incur losses and
may not achieve or maintain profitability.
For the year ended
December 31, 2019, we had
a net loss of $10,429,839 and used $6,410,758 of cash in
operations. For the year ended December 31, 2018, we had a net loss of
$11,631,394 and used $3,621,172 of cash in operations. As of
December 31, 2019, we had an accumulated deficit of $125,752,956
and a total stockholders' deficit of $10,063,601. As a result of
our significant research, clinical development, regulatory
compliance and general and administrative expenses, we expect to
incur losses as we continue to incur expenses related to
commercialization of the dermaPACE System and research and
development of the non-medical uses of the PACE technology. Even if
we succeed in developing and commercializing the dermaPACE System
or any other product candidates, we may not be able to generate
sufficient revenues and we may never achieve or be able to maintain
profitability.
If we are
unable to successfully raise additional capital, our viability may
be threatened; however, if we do raise additional capital, your
percentage ownership as a stockholder could decrease and
constraints could be placed on the operations of our
business.
We have experienced
negative operating cash flows since our inception and have funded
our operations primarily from proceeds received from sales of our
capital stock, the issuance of convertible promissory notes, the
issuance of notes payable to related parties, the issuance of
promissory notes, the sale of our veterinary division in June 2009
and product sales. We will seek to obtain additional funds in the
future through equity or debt financings, or strategic alliances
with third parties, either alone or in combination with equity
financings. These financings could result in substantial dilution
to the holders of our common stock, or require contractual or other
restrictions on our operations or on alternatives that may be
available to us. If we raise additional funds by issuing debt
securities, these debt securities could impose significant
restrictions on our operations. Any such required financing may not
be available in amounts or on terms acceptable to us, and the
failure to procure such required financing could have a material
adverse effect on our business, financial condition and results of
operations, or threaten our ability to continue as a going concern.
Additionally, we are required to make mandatory prepayments of
principal to HealthTronics, Inc. on the notes payable, related
parties equal to 20% of the proceeds received through the issuance
or sale of any equity securities in cash or through the licensing
of our patents or other intellectual property rights. We have not
made the mandatory prepayments of principal to HealthTronics, Inc.
on the notes payable, related parties from proceeds received
through the issuance or sale of any equity securities in cash
through December 31, 2019.
A variety of
factors could impact our need to raise additional capital, the
timing of any required financings and the amount of such
financings. Factors that may cause our future capital requirements
to be greater than anticipated or could accelerate our need for
funds include, without limitation:
● unanticipated expenditures in
research and development or manufacturing activities;
● delayed market acceptance of any
approved product;
● unanticipated expenditures in the
acquisition and defense of intellectual property
rights;
● the failure to develop strategic
alliances for the marketing of some of our product
candidates;
● additional inventory builds to
adequately support the launch of new products;
● unforeseen changes in healthcare
reimbursement for procedures using any of our approved
products;
● inability to train a sufficient
number of physicians to create a demand for any of our approved
products;
● lack of financial resources to
adequately support our operations;
● difficulties in maintaining
commercial scale manufacturing capacity and
capability;
● unforeseen problems with our third
party manufacturers, service providers or specialty suppliers of
certain raw materials;
● unanticipated difficulties in
operating in international markets;
● unanticipated financial resources
needed to respond to technological changes and increased
competition;
● unforeseen problems in attracting
and retaining qualified personnel;
● the impact of the Patient
Protection and Affordable Care Act, as amended by the Health Care
and Education Affordability Reconciliation Act (collectively the
PPACA) on our operations;
● the impact of changes in U.S.
health care law and policy on our operations;
● enactment of new legislation or
administrative regulations;
● the application to our business of
new court decisions and regulatory interpretations;
● claims that might be brought in
excess of our insurance coverage;
● delays in timing of receipt of
required regulatory approvals;
● the failure to comply with
regulatory guidelines; and
● the uncertainty in industry demand
and patient wellness behavior.
In addition,
although we have no present commitments or understandings to do so,
we may seek to expand our operations and product line through
acquisitions. Any acquisition would likely increase our capital
requirements.
The coronavirus, or COVID-19, pandemic has materially and adversely
affected our clinical trial operations and may materially and
adversely affect our financial results.
The COVID-19
pandemic has affected many countries, including the United States
and several European countries, where we are currently conducting
clinical trials. In response to the pandemic, hospitals
participating in the trials in affected countries have taken a
number of actions, including restricting elective and other
procedures that are not deemed to be life-threatening, suspending
clinical trial activities and limiting access to data monitoring.
As a result, patients enrolled in our clinical trials have had the
start of their treatments postponed and ongoing treatment regimens
may be delayed. In addition, we do not have sufficient access to
monitor trial data on a timely basis. These restrictions have had a
materially adverse impact on our clinical operations. The extent to
which the COVID-19 pandemic may impact our clinical trial
operations will depend on future developments, which are highly
uncertain and cannot be predicted with confidence, such as the
duration of the outbreak, the spread and severity of COVID-19, and
the effectiveness of governmental actions in response to the
pandemic. Furthermore, the spread of COVID-19 may materially impact
our ability to recruit and retain patients.
We expect that
actions taken in response to the COVID-19 pandemic will also
negatively impact sales of dermaPACE and orthoPACE. As noted above,
some hospitals are restricting procedures that are not deemed to be
life-threatening at this time. Because dermaPACE and orthoPACE are
not deemed to be life-threatening procedures, we expect that the
number of procedures performed will decline. A decrease in the
number of procedures performed will adversely affect our expected
revenues and our financial results.
These consequences
of the COVID-19 pandemic will delay and could adversely affect our
ability to obtain regulatory approval for and to commercialize our
products, increase our operating expenses, and could have a
material adverse effect on our financial results.
Our product candidates may not be developed or commercialized
successfully.
Our product
candidates are based on a technology that has not been used
previously in the manner we propose and must compete with more
established treatments currently accepted as the standards of care.
Market acceptance of our products will largely depend on our
ability to demonstrate their relative safety, efficacy,
cost-effectiveness and ease of use.
We are subject to
risks that:
●
the FDA or a
foreign regulatory authority finds our product candidates
ineffective or unsafe;
●
we do not receive
necessary regulatory approvals;
●
the regulatory
review and approval process may take much longer than anticipated,
requiring additional time, effort and expense to respond to
regulatory comments and/or directives;
●
the reimbursement
for our products is difficult to obtain or is too low, which can
hinder the introduction and acceptance of our products in the
market;
●
we are unable to
get our product candidates in commercial quantities at reasonable
costs; and
●
the patient and
physician community does not accept our product
candidates.
In addition, our
product development program may be curtailed, redirected,
eliminated or delayed at any time for many reasons,
including:
●
adverse or
ambiguous results;
●
undesirable side
effects that delay or extend the trials;
●
the inability to
locate, recruit, qualify and retain a sufficient number of clinical
investigators or patients for our trials; and
●
regulatory delays
or other regulatory actions.
We cannot predict
whether we will successfully develop and commercialize our product
candidates. If we fail to do so, we will not be able to generate
substantial revenues, if any.
The medical device/therapeutic product industries are highly
competitive and subject to rapid technological change. If our
competitors are better able to develop and market products that are
safer and more effective than any products we may develop, our
commercial opportunities will be reduced or
eliminated.
Our success
depends, in part, upon our ability to maintain a competitive
position in the development of technologies and products. We face
competition from established medical device, pharmaceutical and
biotechnology companies, as well as from academic institutions,
government agencies, and private and public research institutions
in the United States and abroad. Many of our principal competitors
have significantly greater financial resources and expertise than
we do in research and development, manufacturing, pre-clinical
testing, conducting clinical trials, obtaining regulatory approvals
and marketing approved products. Smaller or early-stage companies
may also prove to be significant competitors, particularly through
collaborative arrangements, or mergers with, or acquisitions by,
large and established companies, or through the development of
novel products and technologies.
In 2019, Tissue
Regeneration Technologies (TRT), LLC obtained clearance from the
FDA for treatment of diabetic foot ulcers using non-focused
shockwaves, as a 510(k) submission based on our
dermaPACE® System de novo clearance. We
take issue with the FDA’s
decision regarding substantial equivalence of the unfocused
shockwave technology with the focused shockwave technology that we
are marketing. The so-called unfocused shockwaves, which in reality
are pressure waves and not shockwaves, produce much lower energy
compared to focused shockwaves, which makes the two technologies
non-equivalent in energy output in the treatment zone.
The industry in
which we operate has undergone, and we expect it to continue to
undergo, rapid and significant technological change, and we expect
competition to intensify as technological advances are made. Our
competitors may develop and commercialize pharmaceutical,
biotechnology or medical devices that are safer or more effective,
have fewer side effects or are less expensive than any products
that we may develop. We also compete with our competitors in
recruiting and retaining qualified scientific and management
personnel, in establishing clinical trial sites and patient
registration for clinical trials, and in acquiring technologies
complementary to our programs or advantageous to our
business.
If our products and product candidates do not gain market
acceptance among physicians, patients and the medical community, we
may be unable to generate significant revenues, if
any.
Even if we obtain
regulatory approval for our product candidates, they may not gain
market acceptance among physicians, healthcare payers, patients and
the medical community. Market acceptance will depend on our ability
to demonstrate the benefits of our approved products in terms of
safety, efficacy, convenience, ease of administration and cost
effectiveness. In addition, we believe market acceptance depends on
the effectiveness of our marketing strategy, the pricing of our
approved products and the reimbursement policies of government and
third party payers. Physicians may not utilize our approved
products for a variety of reasons and patients may determine for
any reason that our product is not useful to them. If any of our
approved products fail to achieve market acceptance, our ability to
generate revenues will be limited.
In addition, a significant health
epidemic could adversely affect the economies and financial markets
of many countries, resulting in an economic downturn that could
affect the market for our products, which could have a material
adverse effect on our business, operating results and financial
condition.
We may not successfully establish and maintain licensing and/or
partnership arrangements for our technology for non-medical uses,
which could adversely affect our ability to develop and
commercialize our non-medical technology.
Our strategy for
the development, testing, manufacturing, and commercialization of
our technology for non-medical uses generally relies on
establishing and maintaining collaborations with licensors and
other third parties. We may not be able to obtain, maintain or
expand these or other licenses and collaborations or establish
additional licensing and collaboration arrangements necessary to
develop and commercialize our product candidates. Even if we are
able to obtain, maintain or establish licensing or collaboration
arrangements, these arrangements may not be on favorable terms and
may contain provisions that will restrict our ability to develop,
test and market our product candidates. Furthermore, our licensing
and collaboration agreements are subject to counterparty risk, and
to the extent the licensors or other third parties that we enter
into licensing, joint venture or other collaboration arrangements
with face operational, regulatory or financial difficulties, and to
the extent we are unable to find suitable alternative
counterparties in a timely manner, if at all, our business and
results of operations could be materially adversely affected. Any
failure to obtain, maintain or establish licensing or collaboration
arrangements on favorable terms could adversely affect our business
prospects, financial condition or ability to develop and
commercialize our technology for non-medical uses.
We expect to rely
at least in part on third party collaborators to perform a number
of activities relating to the development and commercialization of
our technology for non-medical uses, including possibly the design
and manufacture of product materials, potentially the obtaining of
regulatory or environmental approvals and the marketing and
distribution of any successfully developed products. Our
collaborators also may have or acquire rights to control aspects of
our product development programs. As a result, we may not be able
to conduct these programs in the manner or on the time schedule we
may contemplate. In addition, if any of these collaborators
withdraw support for our programs or product candidates or
otherwise impair their development, our business could be
negatively affected. To the extent we undertake any of these
activities internally, our expenses may increase.
Many of our product component materials are only produced by a
single supplier for such product component. If we are unable to
obtain product component materials and other products from our
suppliers that we depend on for our operations, or find suitable
replacement suppliers, our ability to deliver our products to
market will likely be impeded, which could have a material adverse
effect on us.
We depend on
suppliers for product component materials and other components that
are subject to stringent regulatory requirements. Many of our
product component materials are only produced by a single supplier
for such product component, and the loss of any of these suppliers
could result in a disruption in our production. If this were to
occur, it may be difficult to arrange a replacement supplier
because certain of these materials may only be available from one
or a limited number of sources. Our suppliers may encounter
problems during manufacturing due to a variety of reasons,
including failure to follow specific protocols and procedures,
failure to comply with applicable regulations, equipment
malfunction and environmental factors. In addition, our suppliers
could be disrupted by conditions related to COVID-19,
or other
epidemics. Establishing
additional or replacement suppliers for these materials may take a
substantial period of time, as certain of these suppliers must be
approved by regulatory authorities.
If we are unable to
secure, on a timely basis, sufficient quantities of the materials
we depend on to manufacture our products, if we encounter delays or
contractual or other difficulties in our relationships with these
suppliers, or if we cannot find replacement suppliers at an
acceptable cost, then the manufacturing of our products may be
disrupted, which could increase our costs and have a material
adverse effect on our business and results of
operations.
We currently sell our products through distributors and partners
whose sales account for the majority of our revenues and accounts
receivable. Our business and results of operations could be
adversely affected by any business disruptions or credit or other
financial difficulties experienced by such distributors or
partners.
A majority of our
revenues, and a majority of our accounts receivable, are from
distributors and partners. Three distributors accounted for 18%,
15% and 12% of revenues for the year ended December 31, 2019 and
0%, 0% and 22% of accounts receivable at December 31, 2019. Three
distributors and partners accounted for 33%, 23% and 11% of
revenues for the year ended December 31, 2018, and 24%, 60% and
7.7% of accounts receivable at December 31, 2018. To the extent
that our distributors or partners experience any business
disruptions or credit or other financial difficulties, our revenues
and the collectability of our accounts receivable could be
negatively impacted. If we are unable to establish, on a timely
basis, relationships with new distributors or partners, our
business and results of operations could be negatively
impacted.
We have entered into an agreement with companies owned by a current
board member and stockholder that could delay or prevent an
acquisition of our company and could result in the dilution of our
stockholders in the event of our change of control.
On February 13,
2018, the Company entered into an Agreement for Purchase and Sale,
Limited Exclusive Distribution and Royalties, and Servicing and
Repairs with Premier Shockwave Wound Care, Inc. (“PSWC”) and Premier Shockwave, Inc.
(“PS”), each of which is owned by A.
Michael Stolarski, a member of the Company’s board of directors and an existing
stockholder of the Company. Among other terms, the agreement
contains provisions whereby in the event of a change of control of
the Company (as defined in the agreement), the stockholders of PSWC
have the right and option to cause the Company to purchase all of
the stock of PSWC, and whereby the Company has the right and option
to purchase all issued and outstanding shares of PSWC, in each case
based upon certain defined purchase price provisions and other
terms. Such provision may have the effect of delaying or deterring
a change in control of us, and as a result could limit the
opportunity for our stockholders to receive a premium for their
shares of our common stock and could also affect the price that
some investors are willing to pay for our common stock. In
addition, in the event we do experience a change of control, such
provision may cause dilution of our existing stockholder in the
event that PSWC exercises its option to require the Company to
purchase all issued and outstanding shares of PSWC and the Company
finances some or all of such purchase price through equity
issuances.
The loss of our key management would likely hinder our ability to
execute our business plan.
As a small company
with twenty-three employees, our success depends on the continuing
contributions of our management team and qualified personnel.
Turnover, transitions or other disruptions in our management team
and personnel could make it more difficult to successfully operate
our business and achieve our business goals and could adversely
affect our results of operation and financial condition. Our
success depends in large part on our ability to attract and retain
highly qualified personnel. We face intense competition in our
hiring efforts from other pharmaceutical, biotechnology and medical
device companies, as well as from universities and nonprofit
research organizations, and we may have to pay higher salaries to
attract and retain qualified personnel. The loss of one or more of
these individuals, or our inability to attract additional qualified
personnel, could substantially impair our ability to implement our
business plan.
We face an inherent risk of liability in the event that the use or
misuse of our product candidates results in personal injury or
death.
The use of our
product candidates in clinical trials and the sale of any approved
products may expose us to product liability claims which could
result in financial loss. Our clinical and commercial product
liability insurance coverage may not be sufficient to cover claims
that may be made against us. In addition, we may not be able to
maintain insurance coverage at a reasonable cost, or in sufficient
amounts or scope, to protect us against losses. Any claims against
us, regardless of their merit, could severely harm our financial
condition, strain our management team and other resources, and
adversely impact or eliminate the prospects for commercialization
of the product candidate, or sale of the product, which is the
subject of any such claim. Although we do not promote any off-label
use, off-label uses of products are common and the FDA does not
regulate a physician’s
choice of treatment. Off-label uses of any product for which we
obtain approval may subject us to additional
liability.
We are dependent on information technology and our systems and
infrastructure face certain risks, including from cybersecurity
breaches and data leakage.
We rely to a large
extent upon sophisticated information technology systems to operate
our businesses, some of which are managed, hosted, provided and/or
used by third parties or their vendors. We collect, store and
transmit large amounts of confidential information, and we deploy
and operate an array of technical and procedural controls to
maintain the confidentiality and integrity of such confidential
information. A significant breakdown, invasion, corruption,
destruction or interruption of critical information technology
systems or infrastructure, by our workforce, others with authorized
access to our systems or unauthorized persons could negatively
impact our operations. The ever-increasing use and evolution of
technology, including cloud-based computing, creates opportunities
for the unintentional dissemination or intentional destruction of
confidential information stored in our or our third-party
providers’ systems,
portable media or storage devices. We could also experience, and in
some cases have experienced in the past, a business interruption,
theft of confidential information, financial theft, or reputational
damage from industrial espionage attacks, malware, spoofing or
other cyber-attacks, which may compromise our system
infrastructure, lead to data leakage, either internally or at our
third-party providers, or materially adversely impact our financial
condition. We have previously disclosed that we have experienced
cybersecurity breaches from email spoofing. While we have invested in the
protection of data and information technology, there can be no
assurance that our efforts will prevent service interruptions or
security breaches. Any such interruption or breach of our systems
could adversely affect our business operations and/or result in the
loss of critical or sensitive confidential information or
intellectual property, and could result in financial, legal,
business and reputational harm to us.
We generate a portion of our revenue internationally and are
subject to various risks relating to our international activities
which could adversely affect our operating results.
A portion of our
revenue comes from international sources, and we anticipate that we
will continue to expand our overseas operations. Engaging in
international business involves a number of difficulties and risks,
including:
●
required compliance
with existing and changing foreign healthcare and other regulatory
requirements and laws, such as those relating to patient privacy or
handling of bio-hazardous waste.
●
required compliance
with anti-bribery laws, data privacy requirements, labor laws and
anti-competition regulations.
●
export or import
restrictions.
●
various
reimbursement and insurance regimes.
●
laws and business
practices favoring local companies.
●
political and
economic instability.
●
potentially adverse
tax consequences, tariffs, customs charges, bureaucratic
requirements and other trade barriers.
●
foreign exchange
controls; and
●
difficulties
protecting or procuring intellectual property rights.
As we expand
internationally, our results of operations and cash flows will
become increasingly subject to fluctuations due to changes in
foreign currency exchange rates. Our expenses are generally
denominated in the currencies in which our operations are located,
which is in the United States. If the value of the U.S. dollar
increases relative to foreign currencies in the future, in the
absence of a corresponding change in local currency prices, our
future revenue could be adversely affected as we convert future
revenue from local currencies to U.S. dollars.
Provisions in our Articles of Incorporation, Bylaws and Nevada law
might decrease the chances of an acquisition.
Provisions of our
Articles of Incorporation and Bylaws and applicable provisions of
Nevada law may delay or discourage transactions involving an actual
or potential change in control or change in our management,
including transactions in which stockholders might otherwise
receive a premium for their shares, or transactions that our
stockholders might otherwise deem to be in their best interests.
Some of the following provisions in our Articles of Incorporation
and Bylaws that implement these are:
●
stockholders may
not vote by written consent;
●
advance notice of
business to be brought is required for a meeting of the
Company’s
stockholders;
●
no cumulative
voting rights for the holders of common stock in the election of
directors; and
●
vacancies in the
board of directors may be filled by the affirmative vote of a
majority of directors then in office, even if less than a
quorum.
In addition,
Section 78.438 of the Nevada Revised Statutes prohibits a
publicly-held Nevada corporation from engaging in a business
combination with an interested stockholder (generally defined as a
person which together with its affiliates owns, or within the last
three years has owned, 10% of our voting stock, for a period of
three years after the date of the transaction in which the person
became an interested stockholder) unless the business combination
is approved in a prescribed manner. The existence of the foregoing
provisions and other potential anti-takeover measures could limit
the price that investors might be willing to pay in the future for
shares of our common stock. They could also deter potential
acquirers of our Company, thereby reducing the likelihood that you
could receive a premium for your common stock in an
acquisition.
Regulatory Risks
The results
of our clinical trials may be insufficient to obtain regulatory
approval for our product candidates.
We will only
receive regulatory approval to commercialize a product candidate if
we can demonstrate to the satisfaction of the FDA or the applicable
foreign regulatory agency, in well designed and conducted clinical
trials, that the product candidate is safe and effective. If we are
unable to demonstrate that a product candidate is safe and
effective in advanced clinical trials involving large numbers of
patients, we will be unable to submit the necessary application to
receive regulatory approval to commercialize the product candidate.
We face risks that:
●
the product
candidate may not prove to be safe or effective;
●
the product
candidate’s benefits may
not outweigh its risks;
●
the results from
advanced clinical trials may not confirm the positive results from
pre-clinical studies and early clinical trials;
●
the FDA or
comparable foreign regulatory authorities may interpret data from
pre-clinical and clinical testing in different ways than us;
and
●
the FDA or other
regulatory agencies may require additional or expanded trials and
data.
We are subject to extensive governmental regulation, including the
requirement of FDA approval or clearance, before our product
candidates may be marketed.
The process of
obtaining FDA approval is lengthy, expensive and uncertain, and we
cannot be sure that our product candidates will be approved in a
timely fashion, or at all. If the FDA does not approve or clear our
product candidates in a timely fashion, or at all, our business and
financial condition would likely be adversely affected. The FDA has
determined that our technology and product candidates constitute
“medical
devices”, and are thus
subject to review by the Center for Devices and Radiological
Health. However, we cannot be sure that the FDA will not select a
different center and/or legal authority for one or more of our
other product candidates, in which case applicable governmental
review requirements could vary in some respects and be more lengthy
and costly.
Both before and
after approval or clearance of our product candidates, we and our
product candidates, our suppliers and our contract manufacturers
are subject to extensive regulation by governmental authorities in
the United States and other countries. Failure to comply with
applicable requirements could result in, among other things, any of
the following actions:
●
fines and other
monetary penalties;
●
unanticipated
expenditures;
●
delays in FDA
approval and clearance, or FDA refusal to approve or clear a
product candidate;
●
product recall or
seizure;
●
interruption of
manufacturing or clinical trials;
●
operating
restrictions;
In addition to the
approval and clearance requirements, numerous other regulatory
requirements apply, both before and after approval or clearance, to
us and our products and product candidates, our suppliers and
contract manufacturers. These include requirements related to the
following:
●
reporting to the
FDA certain adverse experiences associated with the use of the
products; and
●
obtaining
additional approvals or clearances for certain modifications to the
products or their labeling or claims.
We are also subject
to inspection by the FDA and other international regulatory bodies
to determine our compliance with regulatory requirements, as are
our suppliers and contract manufacturers, and we cannot be sure
that the FDA and other international regulatory bodies will not
identify compliance issues that may disrupt production or
distribution or require substantial resources to
correct.
The FDA’s requirements and international
regulatory body requirements may change and additional regulations
may be promulgated that could affect us, our product candidates,
and our suppliers and contract manufacturers. We cannot predict the
likelihood, nature or extent of government regulation that may
arise from future legislation or administrative action. There can
be no assurance that we will not be required to incur significant
costs to comply with such laws and regulations in the future, or
that such laws or regulations will not have a material adverse
effect upon our business.
Patients may discontinue their participation in our clinical
studies, which may negatively impact the results of these studies
and extend the timeline for completion of our development
programs.
Clinical trials for
our product candidates require sufficient patient enrollment. We
may not be able to enroll a sufficient number of patients in a
timely or cost-effective manner. Patients enrolled in our clinical
studies may discontinue their participation at any time during the
study as a result of a number of factors, including withdrawing
their consent or experiencing adverse clinical events, which may or
may not be judged to be related to our product candidates under
evaluation. If a large number of patients in a study discontinue
their participation in the study, the results from that study may
not be positive or may not support a filing for regulatory approval
of the product candidate.
In addition, the
time required to complete clinical trials is dependent upon, among
other factors, the rate of patient enrollment. Patient enrollment
is a function of many factors, including the
following:
●
the size of the
patient population;
●
the nature of the
clinical protocol requirements;
●
the availability of
other treatments or marketed therapies (whether approved or
experimental);
●
our ability to
recruit and manage clinical centers and associated
trials;
●
the proximity of
patients to clinical sites; and
●
the patient
eligibility criteria for the study.
We rely on third parties to conduct our clinical trials, and their
failure to perform their obligations in a timely or competent
manner may delay development and commercialization of our
device.
We engage a
clinical research organization (CRO) and other third party vendors
to assist in the conduct of our clinical trials. There are numerous
sources that are capable of providing these services. However, we
may face delays outside of our control if these parties do not
perform their obligations in a timely or competent fashion or if we
are forced to change service providers. Any third party that we
hire to conduct clinical trials may also provide services to our
competitors, which could compromise the performance of their
obligations to us. If we experience significant delays in the
progress of our clinical trials, the commercial prospects for the
product could be harmed and our ability to generate product
revenues would be delayed or prevented. Any failure of the CRO and
other third party vendors to successfully accomplish clinical trial
monitoring, data collection, safety monitoring and data management
and the other services they provide for us in a timely manner and
in compliance with regulatory requirements could have a material
adverse effect on our ability to complete clinical development of
our product and obtain regulatory approval. Problems with the
timeliness or quality of the work of the CRO may lead us to seek to
terminate the relationship and use an alternate service provider.
However, making such changes may be costly and may delay our
clinical trials, and contractual restrictions may make such a
change difficult or impossible. Additionally, it may be difficult
to find a replacement organization that can conduct our trials in
an acceptable manner and at an acceptable cost.
We may be required to suspend or discontinue clinical trials due to
unexpected side effects or other safety risks that could preclude
approval of our product candidates.
Our clinical trials
may be suspended at any time for a number of reasons. For example,
we may voluntarily suspend or terminate our clinical trials if at
any time we believe that they present an unacceptable risk to the
clinical trial patients. In addition, the FDA or other regulatory
agencies may order the temporary or permanent discontinuation of
our clinical trials at any time if they believe that the clinical
trials are not being conducted in accordance with applicable
regulatory requirements or that they present an unacceptable safety
risk to the clinical trial patients.
Administering any
product candidate to humans may produce undesirable side effects.
These side effects could interrupt, delay or halt clinical trials
of our product candidates and could result in the FDA or other
regulatory authorities denying further development or approval of
our product candidates for any or all targeted indications.
Ultimately, some or all of our product candidates may prove to be
unsafe for human use. Moreover, we could be subject to significant
liability if any patient suffers, or appears to suffer, adverse
health effects as a result of participating in our clinical
trials.
Regulatory approval of our product candidates may be withdrawn at
any time.
After regulatory
approval has been obtained for medical device products, the product
and the manufacturer are subject to continual review, including the
review of adverse experiences and clinical results that are
reported after our products are made available to patients, and
there can be no assurance that such approval will not be withdrawn
or restricted. Regulators may also subject approvals to
restrictions or conditions or impose post-approval obligations on
the holders of these approvals, and the regulatory status of such
products may be jeopardized if such obligations are not fulfilled.
If post-approval studies are required, such studies may involve
significant time and expense.
The manufacturing
facilities we use to make any of our products will also be subject
to periodic review and inspection by the FDA or other regulatory
authorities, as applicable. The discovery of any new or previously
unknown problems with the product or facility may result in
restrictions on the product or facility, including withdrawal of
the product from the market. We will continue to be subject to the
FDA or other regulatory authority requirements, as applicable,
governing the labeling, packaging, storage, advertising, promotion,
recordkeeping, and submission of safety and other post-market
information for all of our product candidates, even those that the
FDA or other regulatory authority, as applicable, had approved. If
we fail to comply with applicable continuing regulatory
requirements, we may be subject to fines, suspension or withdrawal
of regulatory approval, product recalls and seizures, operating
restrictions and other adverse consequences.
Federal regulatory reforms may adversely affect our ability to sell
our products profitably.
From time to time,
legislation is drafted and introduced in the United States Congress
that could significantly change the statutory provisions governing
the clearance or approval, manufacture and marketing of a medical
device. In addition, FDA regulations and guidance are often revised
or reinterpreted by the agency in ways that may significantly
affect our business and our products. It is impossible to predict
whether legislative changes will be enacted or FDA regulations,
guidance or interpretations changed, and what the impact of such
changes on us, if any, may be.
Failure to obtain regulatory approval in foreign jurisdictions will
prevent us from marketing our products abroad.
International sales
of our products and any of our product candidates that we
commercialize are subject to the regulatory requirements of each
country in which the products are sold. Accordingly, the
introduction of our product candidates in markets outside the
United States will be subject to regulatory approvals in those
jurisdictions. The regulatory review process varies from country to
country. Many countries impose product standards, packaging and
labeling requirements, and import restrictions on medical devices.
In addition, each country has its own tariff regulations, duties
and tax requirements. The approval by foreign government
authorities is unpredictable and uncertain and can be expensive.
Our ability to market our approved products could be substantially
limited due to delays in receipt of, or failure to receive, the
necessary approvals or clearances.
Prior to marketing
our products in any country outside the United States, we must
obtain marketing approval in that country. Approval and other
regulatory requirements vary by jurisdiction and differ from the
United States’
requirements. We may be required to perform additional pre-clinical
or clinical studies even if FDA approval has been
obtained.
If we fail to obtain an adequate level of reimbursement for our
approved products by third party payers, there may be no
commercially viable markets for our approved products or the
markets may be much smaller than expected.
The availability
and levels of reimbursement by governmental and other third party
payers affect the market for our approved products. The efficacy,
safety, performance and cost-effectiveness of our product and
product candidates, and of any competing products, will determine
the availability and level of reimbursement. Reimbursement and
healthcare payment systems in international markets vary
significantly by country and include both government sponsored
healthcare and private insurance. To obtain reimbursement or
pricing approval in some countries, we may be required to produce
clinical data, which may involve one or more clinical trials, that
compares the cost-effectiveness of our approved products to other
available therapies. We may not obtain international reimbursement
or pricing approvals in a timely manner, if at all. Our failure to
receive international reimbursement or pricing approvals would
negatively impact market acceptance of our approved products in the
international markets in which those pricing approvals are
sought.
We believe that, in
the future, reimbursement for any of our products or product
candidates may be subject to increased restrictions both in the
United States and in international markets. Future legislation,
regulation or reimbursement policies of third party payers may
adversely affect the demand for our products currently under
development and limit our ability to sell our products on a
profitable basis. In addition, third party payers continually
attempt to contain or reduce the costs of healthcare by challenging
the prices charged for healthcare products and services. If
reimbursement for our approved products is unavailable or limited
in scope or amount, or if pricing is set at unsatisfactory levels,
market acceptance of our approved products would be impaired and
our future revenues, if any, would be adversely
affected.
Uncertainty surrounding and future changes to healthcare law in the
United States may have a material adverse effect on
us.
The healthcare
regulatory environment in the United States is currently subject to
significant uncertainty and the industry may in the future continue
to experience fundamental change as a result of regulatory reform.
In March 2010, the former U.S. President signed into law the
Patient Protection and Affordable Care Act, as amended by the
Health Care and Education Affordability Reconciliation Act
(collectively the PPACA), which substantially changes the way
healthcare is financed by both governmental and private insurers,
encourages improvements in the quality of healthcare items and
services, and significantly impacts the biotechnology and medical
device industries. The PPACA includes, among other things, the
following measures:
●
a 2.3% excise tax
on any entity that manufactures or imports medical devices offered
for sale in the United States, with limited exceptions, began in
2013 but a two year moratorium has been issued for sales during
2016 and 2017, and new legislation was passed in January 2018 such
that the tax will be delayed until January 1, 2020;
●
a new
Patient-Centered Outcomes Research Institute to oversee, identify
priorities and conduct comparative clinical effectiveness
research;
●
payment system
reforms including a national pilot program on payment bundling to
encourage hospitals, physicians and other providers to improve the
coordination, quality and efficiency of certain healthcare services
through bundled payment models;
●
an independent
payment advisory board that will submit recommendations to reduce
Medicare spending if projected Medicare spending exceeds a
specified growth rate; and
●
a new abbreviated
pathway for the licensure of biological products that are
demonstrated to be biosimilar or interchangeable with a licensed
biological product.
However, some of
the provisions of the PPACA have yet to be fully implemented and
certain provisions have been subject to judicial and Congressional
challenges. Furthermore, President Trump has vowed to repeal the
PPACA, and it is uncertain whether new legislation will be enacted
to replace the PPACA. On January 20, 2017, President Trump signed
an executive order stating that the administration intended to seek
prompt repeal of the healthcare reform law, and, pending repeal,
directed the U.S. Department of Health and Human Services and other
executive departments and agencies to take all steps necessary to
limit any fiscal or regulatory burdens of the healthcare reform
law. On October 12, 2017, President Trump signed another executive
order directing certain federal agencies to propose regulations or
guidelines to permit small businesses to form association health
plans, expand the availability of short-term, limited duration
insurance, and expand the use of health reimbursement arrangements,
which may circumvent some of the requirements for health insurance
mandated by the healthcare reform law. The U.S. Congress has also
made several attempts to repeal or modify the healthcare reform
law. In the coming years, there may continue to be additional
proposals relating to the reform of the United States healthcare
system. Certain of these proposals could limit the prices we are
able to charge for our products or the amounts of reimbursement
available for our products and could limit the acceptance and
availability of our products. The adoption of some or all of these
proposals could have a material adverse effect on our business,
results of operations and financial condition.
Additionally,
initiatives sponsored by government agencies, legislative bodies
and the private sector to limit the growth of healthcare costs,
including price regulation and competitive pricing, are ongoing in
the United States and other markets. We could experience an adverse
impact on our operating results due to increased pricing pressure
these markets. Governments, hospitals and other third party payors
could reduce the amount of approved reimbursement for our products
or deny coverage altogether. Reductions in reimbursement levels or
coverage or other cost-containment measures could adversely affect
our future operating results.
If we fail to comply with the United States Federal Anti-Kickback
Statute, False Claims Act and similar state laws, we could be
subject to criminal and civil penalties and exclusion from the
Medicare and Medicaid programs, which would have a material adverse
effect on our business and results of operations.
A provision of the
Social Security Act, commonly referred to as the Federal
Anti-Kickback Statute, prohibits the offer, payment, solicitation
or receipt of any form of remuneration in return for referring,
ordering, leasing, purchasing or arranging for, or recommending the
ordering, purchasing or leasing of, items or services payable by
Medicare, Medicaid or any other Federal healthcare program. The
Federal Anti-Kickback Statute is very broad in scope and many of
its provisions have not been uniformly or definitively interpreted
by existing case law or regulations. In addition, most of the
states have adopted laws similar to the Federal Anti-Kickback
Statute, and some of these laws are even broader than the Federal
Anti-Kickback Statute in that their prohibitions are not limited to
items or services paid for by Federal healthcare programs, but
instead apply regardless of the source of payment. Violations of
the Federal Anti-Kickback Statute may result in substantial civil
or criminal penalties and exclusion from participation in Federal
healthcare programs.
Our operations may
also implicate the False Claims Act. If we fail to comply with
federal and state documentation, coding and billing rules, we could
be subject to liability under the federal False Claims Act,
including criminal and/or civil penalties, loss of licenses and
exclusion from the Medicare and Medicaid programs. The False Claims
Act prohibits individuals and companies from knowingly submitting
false claims for payments to, or improperly retaining overpayments
from, the government.
All of our
financial relationships with healthcare providers and others who
provide products or services to Federal healthcare program
beneficiaries are potentially governed by the Federal Anti-Kickback
Statute, False Claims Act and similar state laws. We believe our
operations are in compliance with the Federal Anti-Kickback
Statute, False Claims Act and similar state laws. However, we
cannot be certain that we will not be subject to investigations or
litigation alleging violations of these laws, which could be
time-consuming and costly to us and could divert
management’s attention
from operating our business, which in turn could have a material
adverse effect on our business. In addition, if our arrangements
were found to violate the Federal Anti-Kickback Statute, False
Claims Act or similar state laws, the consequences of such
violations would likely have a material adverse effect on our
business, results of operations and financial
condition.
Failure to comply with the HIPAA Privacy, Security and Breach
Notification Regulations, as such rules become applicable to our
business, may increase our operational costs.
The HIPAA privacy
and security regulations establish comprehensive federal standards
with respect to the uses and disclosures of PHI by certain entities
including health plans and health care providers, and set standards
to protect the confidentiality, integrity and availability of
electronic PHI. The regulations establish a complex regulatory
framework on a variety of subjects, including, for example: the
circumstances under which uses and disclosures of PHI are permitted
or required without a specific authorization by the patient. a
patient’s right to
access, amend and receive an accounting of certain disclosures of
PHI. the content of notices of privacy practices describing how PHI
is used and disclosed and individuals’ rights with respect to their PHI.
and implementation of administrative, technical and physical
safeguards to protect privacy and security of PHI. We anticipate
that, as we expand our dermaPACE business, we will in the future be
a covered entity under HIPAA. We intend to adopt policies and
procedures to comply with the Privacy Rule, the Security Rule and
the HIPAA statute as such regulations become applicable to our
business and as such regulations are in effect at such time;
however, there can be no assurance that our policies and procedures
will be adequate or will prevent all incidents of non-compliance
with such regulations.
The privacy
regulations establish a uniform federal standard but do not
supersede state laws that may be more stringent. Therefore, as we
expand our deramPACE business, we may also be required to comply
with both federal privacy and security regulations and varying
state privacy and security laws and regulations. The federal
privacy regulations restrict the ability to use or disclose certain
individually identifiable patient health information, without
patient authorization, for purposes other than payment, treatment
or health care operations (as defined by HIPAA), except for
disclosures for various public policy purposes and other permitted
purposes outlined in the privacy regulations.
The HITECH Act and
its implementing regulations also require healthcare providers to
notify affected individuals, the Secretary of the U.S. Department
of Health and Human Services, and in some cases, the media, when
PHI has been breached as defined under and following the
requirements of HIPAA. Many states have similar breach notification
laws. In the event of a breach, to the extent such regulations are
applicable to our business, we could incur operational and
financial costs related to remediation as well as preparation and
delivery of the notices, which costs could be substantial.
Additionally, HIPAA, the HITECH Act, and their implementing
regulations provide for significant civil fines, criminal
penalties, and other sanctions for failure to comply with the
privacy, security, and breach notification rules, including for
wrongful or impermissible use or disclosure of PHI. Although the
HIPAA statute and regulations do not expressly provide for a
private right of action for damages, private parties may also seek
damages under state laws for the wrongful or impermissible use or
disclosure of confidential health information or other private
personal information. Additionally, amendments to HIPAA provide
that the state Attorneys General may bring an action against a
covered entity for a violation of HIPAA. As we expand our business
such that federal and state laws regarding PHI and privacy apply to
our operations, any noncompliance with such regulations could have
a material adverse effect on our business, results of operations
and financial condition.
We face periodic reviews and billing audits from governmental and
private payors and these audits could have adverse results that may
negatively impact our business.
As a result of our
participation in the Medicare and Medicaid programs, we are subject
to various governmental reviews and audits to verify our compliance
with these programs and applicable laws and regulations. We also
are subject to audits under various government programs in which
third-party firms engaged by the Centers for Medicare &
Medicaid Services conduct extensive reviews of claims data and
medical and other records to identify potential improper payments
under the Medicare program. Private pay sources also reserve the
right to conduct audits. If billing errors are identified in the
sample of reviewed claims, the billing error can be extrapolated to
all claims filed which could result in a larger overpayment than
originally identified in the sample of reviewed claims. Our costs
to respond to and defend reviews and audits may be significant and
could have a material adverse effect on our business, financial
condition, results of operations and cash flows. Moreover, an
adverse review or audit could result in:
●
required refunding
or retroactive adjustment of amounts we have been paid by
governmental or private payors.
●
state or Federal
agencies imposing fines, penalties and other sanctions on
us.
●
loss of our right
to participate in the Medicare program, state programs, or one or
more private payor networks; or
●
damage to our
business and reputation in various markets.
Any one of these
results could have a material adverse effect on our business,
financial condition, results of operations and cash
flows.
Product quality or performance issues may be discovered through
ongoing regulation by the FDA and by comparable international
agencies, as well as through our internal standard quality
process.
The medical device
industry is subject to substantial regulation by the FDA and by
comparable international agencies. In addition to requiring
clearance or approval to market new or improved devices, we are
subject to ongoing regulation as a device manufacturer.
Governmental regulations cover many aspects of our operations,
including quality systems, marketing and device reporting. As a
result, we continually collect and analyze information about our
product quality and product performance through field observations,
customer feedback and other quality metrics. If we fail to comply
with applicable regulations or if post market safety issues arise,
we could be subject to enforcement sanctions, our promotional
practices may be restricted, and our marketed products could be
subject to recall or otherwise impacted. Each of these potential
actions could result in a material adverse effect on our business,
operating results and financial condition.
The use of hazardous materials in our operations may subject us to
environmental claims or liability.
We conduct research
and development and manufacturing operations in our facility. Our
research and development process may, at times, involve the
controlled use of hazardous materials and chemicals. We may conduct
experiments in which we may use small quantities of chemicals,
including those that are corrosive, toxic and flammable. The risk
of accidental injury or contamination from these materials cannot
be eliminated. We do not maintain a separate insurance policy for
these types of risks. In the event of an accident or environmental
discharge or contamination, we may be held liable for any resulting
damages, and any liability could exceed our resources. We are
subject to Federal, state and local laws and regulations governing
the use, storage, handling and disposal of these materials and
specified waste products. The cost of compliance with these laws
and regulations could be significant.
Risks Related to Intellectual Property
The protection of our intellectual property is critical to our
success and any failure on our part to adequately protect those
rights could materially adversely affect our business.
Our commercial
success depends to a significant degree on our ability
to:
●
obtain and/or
maintain protection for our product candidates under the patent
laws of the United States and other countries;
●
defend and enforce
our patents once obtained;
●
obtain and/or
maintain appropriate licenses to patents, patent applications or
other proprietary rights held by others with respect to our
technology, both in the United States and other
countries;
●
maintain trade
secrets and other intellectual property rights relating to our
product candidates; and
●
operate without
infringing upon the patents, trademarks, copyrights and proprietary
rights of third parties.
The degree of
intellectual property protection for our technology is uncertain,
and only limited intellectual property protection may be available
for our product candidates, which may prevent us from gaining or
keeping any competitive advantage against our competitors. Although
we believe the patents that we own or license, and the patent
applications that we own, generally provide us a competitive
advantage, the patent positions of biotechnology, biopharmaceutical
and medical device companies are generally highly uncertain,
involve complex legal and factual questions and have been the
subject of much litigation. Neither the United States Patent &
Trademark Office nor the courts have a consistent policy regarding
the breadth of claims allowed or the degree of protection afforded
under many biotechnology patents. Even if issued, patents may be
challenged, narrowed, invalidated or circumvented, which could
limit our ability to stop competitors from marketing similar
products or limit the length of term of patent protection we may
have for our products. Further, a court or other government agency
could interpret our patents in a way such that the patents do not
adequately cover our current or future product candidates. Changes
in either patent laws or in interpretations of patent laws in the
United States and other countries may diminish the value of our
intellectual property or narrow the scope of our patent
protection.
We also rely upon
trade secrets and unpatented proprietary know-how and continuing
technological innovation in developing our products, especially
where we do not believe patent protection is appropriate or
obtainable. We seek to protect this intellectual property, in part,
by generally requiring our employees, consultants, and current and
prospective business partners to enter into confidentiality
agreements in connection with their employment, consulting or
advisory relationships with us, where appropriate. We also require
our employees, consultants, researchers, and advisors who we expect
to work on our products and product candidates to agree to disclose
and assign to us all inventions conceived during the work day,
developed using our property or which relate to our business. We
may lack the financial or other resources to successfully monitor
and detect, or to enforce our rights in respect of, infringement of
our rights or breaches of these confidentiality agreements. In the
case of any such undetected or unchallenged infringements or
breaches, these confidentiality agreements may not provide us with
meaningful protection of our trade secrets and unpatented
proprietary know-how or adequate remedies. In addition, others may
independently develop technology that is similar or equivalent to
our trade secrets or know-how. If any of our trade secrets,
unpatented know-how or other confidential or proprietary
information is divulged to third parties, including our
competitors, our competitive position in the marketplace could be
harmed and our ability to sell our products successfully could be
severely compromised. Enforcing a claim that a party illegally
obtained and is using trade secrets that have been licensed to us
or that we own is also difficult, expensive and time consuming, and
the outcome is unpredictable. In addition, courts outside the
United States may be less willing to protect trade secrets. Costly
and time consuming litigation could be necessary to seek to enforce
and determine the scope of our proprietary rights, and failure to
obtain or maintain trade secret protection could have a material
adverse effect on our business. Moreover, some of our academic
institution licensees, evaluators, collaborators and scientific
advisors have rights to publish data and information to which we
have rights. If we cannot maintain the confidentiality of our
technologies and other confidential information in connection with
our collaborations, our ability to protect our proprietary
information or obtain patent protection in the future may be
impaired, which could have a material adverse effect on our
business.
In particular, we
cannot assure you that:
●
we or the owners or
other inventors of the patents that we own or that have been
licensed to us, or that may be issued or licensed to us in the
future, were the first to file patent applications or to invent the
subject matter claimed in patent applications relating to the
technologies upon which we rely;
●
others will not
independently develop similar or alternative technologies or
duplicate any of our technologies;
●
any of our patent
applications will result in issued patents;
●
the patents and
patent applications that we own or that have been licensed to us,
or that may be issued or licensed to us in the future, will provide
a basis for commercially viable products or will provide us with
any competitive advantages, or will not be challenged by third
parties;
●
the patents and
patent applications that have been licensed to us are valid and
enforceable;
●
we will develop
additional proprietary technologies that are
patentable;
●
we will be
successful in enforcing the patents that we own or license and any
patents that may be issued or licensed to us in the future against
third parties;
●
the patents of
third parties will not have an adverse effect on our ability to do
business; or
●
our trade secrets
and proprietary rights will remain confidential.
Accordingly, we may
fail to secure meaningful patent protection relating to any of our
existing or future product candidates or discoveries despite the
expenditure of considerable resources. Further, there may be
widespread patent infringement in countries in which we may seek
patent protection, including countries in Europe and Asia, which
may instigate expensive and time consuming litigation that could
adversely affect the scope of our patent protection. In addition,
others may attempt to commercialize products similar to our product
candidates in countries where we do not have adequate patent
protection. Failure to obtain adequate patent protection for our
product candidates, or the failure by particular countries to
enforce patent laws or allow prosecution for alleged patent
infringement, may impair our ability to be competitive. The
availability of infringing products in markets where we have patent
protection, or the availability of competing products in markets
where we do not have adequate patent protection, could erode the
market for our product candidates, negatively impact the prices we
can charge for our product candidates, and harm our reputation if
infringing or competing products are manufactured to inferior
standards.
Patent applications owned by us or licensed to us may not result in
issued patents, and our competitors may commercialize the
discoveries we attempt to patent.
The patent
applications that we own and that have been licensed to us, and any
future patent applications that we may own or that may be licensed
to us, may not result in the issuance of any patents. The standards
that the United States Patent & Trademark Office and foreign
patent agencies use to grant patents are not always applied
predictably or uniformly and can change. Consequently, we cannot be
certain as to the type and scope of patent claims to which we may
in the future be entitled under our license agreements or that may
be issued to us in the future. These applications may not be
sufficient to meet the statutory requirements for patentability
and, therefore, may not result in enforceable patents covering the
product candidates we want to commercialize. Further, patent
applications in the United States that are not filed in other
countries may not be published or generally are not published until
at least 18 months after they are first filed, and patent
applications in certain foreign countries generally are not
published until many months after they are filed. Scientific and
patent publication often occurs long after the date of the
scientific developments disclosed in those publications. As a
result, we cannot be certain that we will be the first creator of
inventions covered by our patents or applications, or the first to
file such patent applications. As a result, our issued patents and
our patent applications could become subject to challenge by third
parties that created such inventions or filed patent applications
before us or our licensors, resulting in, among other things,
interference proceedings in the United States Patent &Trademark
Office to determine priority of discovery or invention.
Interference proceedings, if resolved adversely to us, could result
in the loss of or significant limitations on patent protection for
our products or technologies. Even in the absence of interference
proceedings, patent applications now pending or in the future filed
by third parties may prevail over the patent applications that may
be owned by us or licensed to us or that we may file in the future,
or may result in patents that issue alongside patents issued to us
or our licensors or that may be issued or licensed to us in the
future, leading to uncertainty over the scope of the patents owned
by us or licensed to us or that may in the future be owned by us or
impede our freedom to practice the claimed inventions.
Our patents may not be valid or enforceable and may be challenged
by third parties.
We cannot assure
you that the patents that have been issued or licensed to us would
be held valid by a court or administrative body or that we would be
able to successfully enforce our patents against infringers,
including our competitors. The issuance of a patent is not
conclusive as to its validity or enforceability, and the validity
and enforceability of a patent is susceptible to challenge on
numerous legal grounds, including the possibility of reexamination
proceedings brought by third parties in the United States Patent
& Trademark Office against issued patents and similar validity
challenges under foreign patent laws. Challenges raised in patent
infringement litigation brought by us or against us may result in
determinations that patents that have been issued to us or licensed
to us or any patents that may be issued to us or our licensors in
the future are invalid, unenforceable or otherwise subject to
limitations. In the event of any such determinations, third parties
may be able to use the discoveries or technologies claimed in these
patents without paying licensing fees or royalties to us, which
could significantly diminish the value of our intellectual property
and our competitive advantage. Even if our patents are held to be
enforceable, others may be able to design around our patents or
develop products similar to our products that are not within the
scope of any of our patents.
In addition,
enforcing the patents that we own or license and any patents that
may be issued to us in the future against third parties may require
significant expenditures regardless of the outcome of such efforts.
Our inability to enforce our patents against infringers and
competitors may impair our ability to be competitive and could have
a material adverse effect on our business.
Issued patents and patent licenses may not provide us with any
competitive advantage or provide meaningful protection against
competitors.
The discoveries or
technologies covered by issued patents we own or license may not
have any value or provide us with a competitive advantage, and many
of these discoveries or technologies may not be applicable to our
product candidates at all. We have devoted limited resources to
identifying competing technologies that may have a competitive
advantage relative to ours, especially those competing technologies
that are not perceived as infringing on our intellectual property
rights. In addition, the standards that courts use to interpret and
enforce patent rights are not always applied predictably or
uniformly and can change, particularly as new technologies develop.
Consequently, we cannot be certain as to how much protection, if
any, will be afforded by these patents with respect to our products
if we, our licensees or our licensors attempt to enforce these
patent rights and those rights are challenged in
court.
The existence of
third party patent applications and patents could significantly
limit our ability to obtain meaningful patent protection. If
patents containing competitive or conflicting claims are issued to
third parties, we may be enjoined from pursuing research,
development or commercialization of product candidates or may be
required to obtain licenses, if available, to these patents or to
develop or obtain alternative technology. If another party controls
patents or patent applications covering our product candidates, we
may not be able to obtain the rights we need to those patents or
patent applications in order to commercialize our product
candidates or we may be required to pay royalties, which could be
substantial, to obtain licenses to use those patents or patent
applications.
In addition, issued
patents may not provide commercially meaningful protection against
competitors. Other parties may seek and/or be able to duplicate,
design around or independently develop products having effects
similar or identical to our patented product candidates that are
not within the scope of our patents.
Limitations on
patent protection in some countries outside the United States, and
the differences in what constitutes patentable subject matter in
these countries, may limit the protection we have under patents
issued outside of the United States. We do not have patent
protection for our product candidates in a number of our target
markets. The failure to obtain adequate patent protection for our
product candidates in any country would impair our ability to be
commercially competitive in that country.
The ability to market the products we develop is subject to the
intellectual property rights of third parties.
The biotechnology,
biopharmaceutical and medical device industries are characterized
by a large number of patents and patent filings and frequent
litigation based on allegations of patent infringement. Competitors
may have filed patent applications or have been issued patents and
may obtain additional patents and proprietary rights related to
products or processes that compete with or are similar to ours. We
may not be aware of all of the patents potentially adverse to our
interests that may have been issued to others. Because patent
applications can take many years to issue, there may be currently
pending applications, unknown to us, which may later result in
issued patents that our product candidates or proprietary
technologies may infringe. Third parties may claim that our
products or related technologies infringe their patents or may
claim that the products of our suppliers, manufacturers or contract
service providers that produce our devices infringe on their
intellectual property. Further, we, our licensees or our licensors,
may need to participate in interference, opposition, protest,
reexamination or other potentially adverse proceedings in the
United States Patent & Trademark Office or in similar agencies
of foreign governments with regards to our patents, patent
applications, and intellectual property rights. In addition, we,
our licensees or our licensors may need to initiate suits to
protect our intellectual property rights.
Litigation or any
other proceeding relating to intellectual property rights, even if
resolved in our favor, may cause us to incur significant expenses,
divert the attention of our management and key personnel from other
business concerns and, in certain cases, result in substantial
additional expenses to license technologies from third parties.
Some of our competitors may be able to sustain the costs of complex
patent litigation more effectively than we can because they have
substantially greater resources. An unfavorable outcome in any
patent infringement suit or other adverse intellectual property
proceeding could require us to pay substantial damages, including
possible treble damages and attorneys’ fees, cease using our technology or
developing or marketing our products, or require us to seek
licenses, if available, of the disputed rights from other parties
and potentially make significant payments to those parties. There
is no guarantee that any prevailing party would offer us a license
or that we could acquire any license made available to us on
commercially acceptable terms. Even if we are able to obtain rights
to a third party’s
patented intellectual property, those rights may be nonexclusive
and, therefore, our competitors may obtain access to the same
intellectual property. Ultimately, we may be unable to
commercialize our product candidates or may have to cease some of
our business operations as a result of patent infringement claims,
which could materially harm our business. We cannot guarantee that
our products or technologies will not conflict with the
intellectual property rights of others.
If we need to
redesign our products to avoid third party patents, we may suffer
significant regulatory delays associated with conducting additional
clinical studies or submitting technical, clinical, manufacturing
or other information related to any redesigned product and,
ultimately, in obtaining regulatory approval. Further, any such
redesigns may result in less effective and/or less commercially
desirable products, if the redesigns are possible at
all.
Additionally, any
involvement in litigation in which we, our licensees or our
licensors are accused of infringement may result in negative
publicity about us or our products, injure our relations with any
then-current or prospective customers and marketing partners, and
cause delays in the commercialization of our products.
Risks Related to our Common Stock
Our stock price is volatile.
The market price of
our common stock is volatile and could fluctuate widely in response
to various factors, many of which are beyond our control, including
the following:
●
our ability to
obtain additional financing and, if available, the terms and
conditions of the financing;
●
changes in the
timing of on-going clinical trial enrollment, the results of our
clinical trials and regulatory approvals for our product candidates
or failure to obtain such regulatory approvals;
●
changes in our
industry;
●
additions or
departures of key personnel;
●
sales of our common
stock;
●
our ability to
execute our business plan;
●
operating results
that fall below expectations;
●
period-to-period
fluctuations in our operating results;
●
new regulatory
requirements and changes in the existing regulatory environment;
and
●
general economic
conditions and other external factors.
In addition, the securities markets have from time to time
experienced significant price and volume fluctuations that are
unrelated to the operating performance of particular companies.
These market fluctuations may also materially and adversely affect
the market price of our common stock.
There is currently a limited trading market for our common stock
and we cannot predict how liquid the market might
become.
To date, there has
been a limited trading market for our common stock and we cannot
predict how liquid the market for our common stock might become.
Our common stock is quoted on the Over-the-Counter market (OTCQB),
which is an inter-dealer market that provides significantly less
liquidity than the New York Stock Exchange or the Nasdaq Stock
Market. The quotation of our common stock on the OTCQB does not
assure that a meaningful, consistent and liquid trading market
exists. The market price for our common stock is subject to
volatility and holders of our common stock may be unable to resell
their shares at or near their original purchase price, or at any
price. In the absence of an active trading market:
●
investors may have
difficulty buying and selling, or obtaining market quotations for
our common stock;
●
market visibility
for our common stock may be limited; and
●
a lack of
visibility for our common stock may have a depressive effect on the
market for our common stock.
Trading for our common stock is limited under the SEC’s penny
stock regulations, which has an adverse effect on the liquidity of
our common stock.
The trading price
of our common stock is less than $5.00 per share and, as a result,
our common stock is considered a “penny stock,” and trading in our common stock is
subject to the requirements of Rule 15g-9 under the Securities
Exchange Act of 1934, as amended (the Exchange Act). Under this
rule, broker-dealers who recommend low-priced securities to persons
other than established customers and accredited investors must
satisfy special sales practice requirements. Generally, the
broker-dealer must make an individualized written suitability
determination for the purchaser and receive the
purchaser’s written
consent prior to the transaction.
Regulations of the
Securities and Exchange Commission (the “SEC”) also require additional disclosure
in connection with any trades involving a “penny stock,” including the delivery, prior to
any penny stock transaction, of a disclosure schedule explaining
the penny stock market and its associated risks. These requirements
severely limit the liquidity of securities in the secondary market
because only a few brokers or dealers are likely to undertake these
compliance activities. Compliance with these requirements may make
it more difficult for holders of our Common Stock to resell their
shares to third parties or to otherwise dispose of them in the
market.
As an issuer of “penny stock”, the protection provided
by the federal securities laws relating to forward looking
statements does not apply to us.
Although federal
securities laws provide a safe harbor for forward-looking
statements made by a public company that files reports under the
federal securities laws, this safe harbor is not available to
issuers of penny stocks. As a result, we will not have the benefit
of this safe harbor protection in the event of any legal action
based upon a claim that the material provided by us contained a
material misstatement of fact or was misleading in any material
respect because of our failure to include any statements necessary
to make the statements not misleading. Such an action could hurt
our financial condition.
We have not paid dividends in the past and do not expect to pay
dividends in the future. Any return on investment may be limited to
the value of our common stock.
We have never paid
cash dividends on our common stock and do not anticipate doing so
in the foreseeable future. The payment of dividends on our common
stock will depend on earnings, financial condition and other
business and economic factors affecting us at such time as our
board of directors may consider relevant. If we do not pay
dividends, our common stock may be less valuable because a return
on your investment will only occur if our stock price
appreciates.
The rights of the holders of common stock may be impaired by the
potential issuance of preferred stock.
Our board of
directors has the right, without stockholder approval, to issue
preferred stock with voting, dividend, conversion, liquidation or
other rights which could adversely affect the voting power and
equity interest of the holders of common stock, which could be
issued with the right to more than one vote per share, and could be
utilized as a method of discouraging, delaying or preventing a
change of control. The possible negative impact on takeover
attempts could adversely affect the price of our common
stock.
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.
On January 12,
2016, the Company filed a Certificate of Designation of
Preferences, Right and Limitations of Series B Convertible
Preferred Stock of the Company with the Nevada Secretary of State
which amended our Articles of Incorporation to designate 293 shares
of our preferred stock as Series B Convertible Preferred
Stock.
We have never held an annual meeting for the election of
directors.
Pursuant to the
provisions of the Nevada Revised Statutes (the “NRS”), directors are to be elected at
the annual
meeting of the
stockholders. Pursuant to the NRS and our bylaws, our board of
directors is granted the authority to fix the date, time and place
for annual stockholder meetings. No date, time or place has yet
been fixed by our board for the holding of an annual stockholder
meeting. Pursuant to the NRS and our bylaws, each of our directors
holds office after the expiration of his term until a successor is
elected and qualified, or until the director resigns or is removed.
Under the provisions of the NRS, if an election of our directors
has not been made by our stockholders within 18 months of the last
such election, then an application may be made to the Nevada
district court by stockholders holding a minimum of 15% of our
outstanding stockholder voting power for an order for the election
of directors in the manner provided in the NRS.
We have not sought an advisory stockholder vote to approve the
compensation of our named executive officers.
Rule 14a-21 under
the Exchange Act requires us to seek a separate stockholder
advisory vote at our annual meeting at which directors are elected to
approve the compensation of our named executive officers, not less
frequently than once every three years (say-on-pay vote), and, at
least once every six years, to seek a separate stockholder advisory
vote on the frequency with which we will submit advisory say-on-pay
votes to our stockholders (say-on-frequency vote). In 2013, the
year in which Rule 14a-21 became applicable to smaller reporting
companies, and in 2014, we did not submit to our stockholders a
say-on-pay vote to approve an advisory resolution regarding our
compensation program for our named executive officers, or a
say-on-frequency vote. Consequently, the board of directors has not
considered the outcome of our say-on-pay vote results when
determining future compensation policies and pay levels for our
named executive officers.
All net proceeds
from the sale of the shares of Common Stock covered by this
prospectus will go to the selling stockholders. We will receive
none of the proceeds from the sale of the shares of Common Stock
covered by this prospectus by the selling stockholders. We may
receive proceeds upon the exercise of outstanding warrants for
shares of Common Stock covered by this prospectus if the warrants
are exercised for cash. If all of such warrants are exercised for
cash in full, the proceeds would be approximately $4,619,267. We
intend to use the net proceeds of any such warrant exercises, if
any, for working capital purposes. We can make no assurances that
any of the warrants will be exercised, or if exercised, that they
will be exercised for cash, the quantity which will be exercised or
in the period in which they will be exercised.
10%
Convertible Promissory Notes and Class N Warrants
On March 27, 2017,
the Company began offering
subscriptions for 10% convertible promissory notes (the “10%
Convertible Promissory Notes”) to selected accredited
investors. The Company intends to use the proceeds from the
10% Convertible Promissory Notes for working capital and general
corporate purposes. The initial offering closed on August 15, 2017,
at which time $55,000 aggregate principal amount of 10% Convertible
Promissory Notes were issued and the funds paid to the Company.
Subsequent offerings were closed on November 3, 2017, November 30,
2017, December 21, 2017, January 10, 2018 and February 2, 2018 at
which times $1,069,440, $199,310, $150,000, $1,496,000 and $100,000
respectively, aggregate principal amounts of 10% Convertible
Promissory Notes were issued and the funds paid to the Company. On
November 30, 2017, the outstanding balance of $60,000 of a short
term loan with Millennium Park Capital LLC was converted into a 10%
Convertible Promissory Notes agreement. On January 10, 2018, the
outstanding balance of $310,000 of advances from related and
unrelated parties was converted into two 10% Convertible Promissory
Notes agreements.
The 10% Convertible Promissory Notes have a six
month term from the subscription date and the note holders can
convert the 10% Convertible Promissory Notes at any time during the
term 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) $0.11. On February 15, 2018, the Company
defaulted on the 10% Convertible Promissory Notes issued on August
15, 2017 and began accruing interest at the default interest rate
of 18%. On May 3, 2018, the Company defaulted on the 10%
Convertible Promissory Notes issued on November 3, 2017 and began
accruing interest at the default interest rate of 18%. On May 30,
2018, the Company defaulted on the 10% Convertible Promissory Notes
issued on November 30, 2017 and began accruing interest at the
default interest rate of 18%. On June 21, 2018, the Company
defaulted on the 10% Convertible Promissory Notes issued on
December 21, 2017 and began accruing interest at the default
interest rate of 18%. On July 10, 2018, the Company defaulted on
the 10% Convertible Promissory Notes issued on January 10, 2018 and
began accruing interest at the default interest rate of 18%. On
August 2, 2018, the Company defaulted on the 10% Convertible
Promissory Notes issued on February 2, 2018 and began accruing
interest at the default interest rate of 18%.
The 10% Convertible Promissory Notes include a
warrant agreement (the “Class N Warrant Agreement”) to
purchase Common Stock equal to the amount obtained by dividing the
(i) sum of the principal amount by (ii) $0.11. The Class N Warrant
Agreement initially expired on March 17, 2019. On January 23, 2019,
the Company extended the expiration date to May 1, 2019, on March
1, 2019, the Company extended the expiration date to June 28, 2019
and on June 1, 2019, the Company extended the expiration date to
September 3, 2019. On November 3, 2017, the Company issued
10,222,180 Class N Warrants in connection with the initial and
second closings of 10% Convertible Promissory Notes. On November
30, 2017, December 21, 2017, January 10, 2018, and February 2,
2018, the Company issued 2,357,364, 1,363,636, 13,599,999 and
909,091, respectively, Class N Warrants in connection with the
closings of 10% Convertible Promissory Notes.
Pursuant to the
terms of a Registration Rights Agreement (the “Registration
Rights Agreement”) that the Company entered into with the
accredited investors in connection with the 10% Convertible
Promissory Notes, the Company is required to file a registration
statement that covers the shares of Common Stock issuable upon
conversion of the 10% Convertible Promissory Notes or upon exercise
of the Class N Warrants. The failure on the part of the Company to
satisfy certain deadlines described in the Registration Rights
Agreement may subject the Company to payment of certain monetary
penalties. The
registration statement of which this prospectus is a part covers
the resale of shares of Common Stock issuable from time to time
upon conversion of the 10% Convertible Promissory Notes or upon the
exercise of the Class N Warrants.
A.
Michael Stolarski, a member of the Company’s board of
directors and an existing stockholder of the Company, was a
purchaser in the 10% Convertible Promissory Notes in the amounts of
$330,000 and $170,000 and was issued 3,000,000 and 1,545,455 Class
N Warrants on November 3, 2017 and January 10, 2018, respectively.
Kevin A. Richardson II, a member of the Company’s board of
directors, the Company’s chief executive officer and an
existing stockholder of the Company, was a purchaser in the 10%
Convertible Promissory Notes in the amount of $260,000 and was
issued 2,363,636 Class N Warrants on January 10, 2018. Peter
Stegagno, the Company’s chief operating officer, was a
purchaser in the 10% Convertible Promissory Notes in the amount of
$36,500 and was issued 331,818 Class N Warrants on November 3,
2017.
On January 29,
2018, the Company entered into a
convertible promissory note (the “Convertible Promissory
Note”) with an accredited investor in the amount of
$71,500. The Company intends to use the proceeds from the
Convertible Promissory Notes for payment of services to an investor
relations company and the account of the attorney updating the
Registration Statement on Form S-1 of the Company filed under the
Securities Act, declared effective on February 14, 2019 (File No.
333-213774).
The Convertible Promissory Note has a
six month term from the subscription date and the note holders can
convert the Convertible Promissory Note at any time during the term
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) $0.11.
The Convertible Promissory Note includes a warrant
agreement (the “Class N Common Stock Purchase Warrant”)
to purchase Common Stock equal to the amount obtained by dividing
the (i) sum of the principal amount by (ii) $0.11. The Class N
Common Stock Purchase Warrant initially expired on March 17, 2019.
On January 23, 2019, the Company extended the expiration date to
May 1, 2019, on March 1, 2019, the Company extended the expiration
date to June 28, 2019 and on June 1, 2019, the Company extended the
expiration date to September 3, 2019. On January 29, 2018,
the Company issued 650,000 Class N Common Stock Purchase Warrants
in connection with this Convertible Promissory Note.
There are 8,528,249
shares of common stock held by selling stockholders as a result of
the conversion of certain promissory notes. There are 3,803,932
shares of common stock held by selling stockholders as a result of
the exercise of Class N warrants on a cashless and cash
basis.
This registration
statement registers the resale of the following securities held by
the selling stockholders issued as a result of the transactions
described in this section: (i) 8,528,249 shares of Common Stock
that have been issued upon the conversion of certain promissory
notes issued in the private placements described above, (ii)
26,666,487 shares of Common Stock issuable upon the conversion of
certain promissory notes issued in the private placements described
above, (iii) 3,803,932 shares of Common Stock that have been issued
upon the exercise of certain warrants issued in the private
placements described above and (iv) 21,624,998 shares of Common
Stock issuable upon the exercise of certain warrants issued in the
private placements described above.
Placement
Agent Warrants
In connection with
the Convertible Promissory Note offering, we engaged WestPark
Capital, Inc., as Placement Agent (the “Placement
Agent’”). We agreed to pay the Placement Agent a fee of
(i) a cash amount representing ten percent (10%) of the gross
financings in the Convertible Promissory Note offering and (ii)
warrants to purchase ten percent (10%) of the gross amount of
securities received by investors in the Convertible Promissory Note
offering after assuming all conversions of convertible securities.
The Placement Agent was issued Class N warrants to
purchase 2,485,908 shares of Common Stock at an exercise price
of $0.11 per share (the “Placement Agent Warrants”).
The placement agent has exercised some Class N warrants on a
cashless basis and has been issued 182,217 shares of common stock.
The registration statement of which this prospectus is a part
covers the resale of (i) the 182,217 shares of Common Stock issued
to the placement agent as a result of such warrant exercises and
(ii) 2,089,317 shares of Common Stock issuable upon the exercise of
the remaining placement agent’s warrants.
Class
O Warrants
On December 11,
2017, the Company issued a warrant agreement (the “Class O
Warrant”) to purchase Common Stock to employees, board of
director members and medical advisory board members. The Company
issued 3,940,000 Class O Warrants at an exercise price of $0.11 per
share with an initial expiration date of March 17, 2019.
On March 1, 2019, the Company extended
the expiration date to June 28, 2019 and on June 1, 2019, the
Company extended the expiration date to December 2, 2019. On
December 2, 2019. 470,910 of Class O Warrants expired,
unexercised.
From
November 30, 2017 to June 30, 2018, the Company issued a warrant
agreement (the “Class O Warrant”) to purchase Common
Stock to consultants for services rendered. The Company issued
4,109,091 Class O Warrants at an exercise price of $0.11 per share
with an initial expiration date of March 17, 2019. On March 1, 2019, the Company extended the
expiration date to June 28, 2019 and on June 1, 2019, the Company
extended the expiration date to December 2,
2019.
The registration
statement of which this prospectus is a part covers the resale of
shares of Common Stock issuable from time to time upon the exercise
of the Class O Warrants issued in the private placements described
above.
Short
Term Notes Payable
The Company entered
into short term notes payable with twenty-four individuals between
June 26, 2018 and April 10, 2019 in the total principal amount of
$3,085,525 with an interest rate of 5% per annum. The principal and
accrued interest are due and payable six months from the date of
issuance or receipt of notice of warrant exercise. On December 26,
2018, the Company defaulted on the short term notes payable issued
on June 26, 2018 and as a result, the short term notes payable
began accruing interest at the default interest rate of 10%. On
January 2, 2019, the Company defaulted on the short term notes
payable issued on July 2, 2018 and as a result, the short term
notes payable began accruing interest at the default interest rate
of 10%. During the month of May 2019, the Company defaulted on the
short term notes payable issued during November 2018 and as a
result, the short term notes payable began accruing interest at the
default interest rate of 10%.
Fifteen holders of
the short term notes payable are also holders of Class L warrants
of the Company. Under the terms of the short term notes payable,
holders of such short term notes payable have the right to receive
additional shares of Common Stock upon the effectiveness of a
registration statement with the SEC registering such Class L
warrants. Such registration statement (file no. 333-213774) became
effective on February 14, 2019. The additional shares of Common
Stock are calculated as follow: (a) Common Stock for interest
accrued on such short term notes payable equal to the amount
obtained by dividing (i) the amount of unpaid interest on the short
term notes payable by (ii) $0.08 plus (b) Common Stock equal to the
amount obtained by multiplying (iii) the amount of shares subject
to the Class L warrant by (iv) 10%.
Nine holders of the
short term notes payable are also holders of Class N warrants of
the Company. Under the terms of the short term notes payable,
holders of such short term notes payable have the right to receive
additional shares of Common Stock upon the effectiveness of this
registration statement, which wil register the holder’s Class
N warrants. The additional shares of Common Stock are calculated as
follows: (a) Common Stock for interest accrued on such short term
notes payable equal to the amount obtained by dividing (i) the
amount of unpaid interest on the short term notes payable by (ii)
$0.11; plus (b) Common Stock equal to the amount obtained by
multiplying (iii) the amount of shares subject to the Class N
warrant by (iv) 10%.
Kevin A. Richardson
II, a member of the Company’s board of directors, the
Company’s chief executive officer and an existing stockholder
of the Company, entered into a short term notes payable on December
31, 2018 in the principal amount of $233,028.
A. Michael
Stolarski, a member of the Company’s board of directors and
an existing stockholder of the Company, entered into a line of
credit on November 12, 2018. The funds from this line of credit
will be utilized in the conversion of Class N
Warrants.
This registration
statement registers the resale of 4,760,701 shares of Common Stock
underlying the short term notes payable described above by the
selling shareholders.
Selling
Stockholder Table
The table set forth
below lists the selling stockholders and other information
regarding the beneficial ownership (as determined under Section
13(d) of the Exchange Act, as amended, and the rules and
regulations thereunder) of the shares of Common Stock held by each
of the selling stockholders. Other than as described above, none of
the selling stockholders has had any material relationship with us
or any of our predecessors or affiliates within the past three
years.
Unless otherwise
indicated, we believe, based on information supplied by the
following persons, that the persons named in the table below have
sole voting and investment power with respect to all shares of
Common Stock that they beneficially own. The registration of the
offered shares does not mean that any or all of the selling
stockholders will offer or sell any of the shares of Common Stock
upon any such exchange.
|
Number of Shares beneficially owned prior
to this
offering
|
Number of Shares being offered (1)(2)
|
Number of Shares beneficially owned after
this offering
|
|
|
|
|
|
|
|
Directors and Executive Officers:
|
|
|
|
|
|
|
Kevin
A. Richardson, II
|
13,899,629
|
4.7%
|
6,059,000
|
2.0%
|
7,689,719
|
2.6%
|
A.
Michael Stolarski
|
17,776,745
|
6.0%
|
11,011,864
|
3.7%
|
6,764,881
|
2.3%
|
Peter
Stegagno
|
4,413,712
|
1.5%
|
1,199,863
|
*
|
3,072,369
|
1.0%
|
Iulian
Cioanta
|
3,576,146
|
1.2%
|
440,000
|
*
|
3,136,146
|
1.1%
|
Lisa
Sundstrom
|
3,304,500
|
1.1%
|
440,000
|
*
|
2,864,500
|
1.0%
|
John
Nemelka
|
1,596,055
|
*
|
200,000
|
*
|
1,396,055
|
*
|
Alan
Rubino
|
1,569,800
|
*
|
200,000
|
*
|
1,369,800
|
*
|
Maj-Britt
Kaltoft
|
850,000
|
*
|
-
|
*
|
650,000
|
*
|
Principal and/or Selling Shareholders:
|
|
|
|
|
|
|
John
McDermott
|
12,692,347
|
4.3%
|
1,681,930
|
*
|
11,010,417
|
3.7%
|
Nicholas
Carosi III Trust, Dated 10/3/84
|
12,338,318
|
4.1%
|
4,590,818
|
1.5%
|
7,747,500
|
2.6%
|
James
Robert McGraw
|
11,467,461
|
3.9%
|
2,632,599
|
*
|
8,834,862
|
3.0%
|
Greg
Broms
|
5,945,479
|
2.0%
|
5,945,479
|
2.0%
|
-
|
-
|
Lawrence
J. Wert
|
5,406,166
|
1.8%
|
5,406,166
|
1.8%
|
-
|
-
|
NFS
Leasing
|
2,950,455
|
1.0%
|
2,950,455
|
1.0%
|
-
|
-
|
Ann
Marie Giulietti
|
2,845,342
|
1.0%
|
2,132,697
|
*
|
-
|
-
|
Millennium
Park Capital
|
2,500,000
|
|
2,500,000
|
*
|
-
|
-
|
Jeff
Tucker
|
1,972,601
|
|
1,972,601
|
*
|
-
|
-
|
Lucas
Hoppel
|
1,877,568
|
|
1,622,336
|
*
|
-
|
-
|
Richard
Metsch
|
1,846,212
|
|
1,386,441
|
*
|
-
|
-
|
James
P. Geiskopf
|
1,759,500
|
|
1,759,500
|
*
|
-
|
-
|
Union
Square Energy Advisors, LTD
|
1,358,500
|
*
|
1,068,557
|
*
|
-
|
-
|
George
Johnson
|
1,242,000
|
*
|
1,242,000
|
*
|
-
|
-
|
WestPark
Capital
|
1,211,523
|
*
|
997,149
|
*
|
-
|
-
|
James
Clare
|
1,115,284
|
*
|
1,115,284
|
*
|
-
|
-
|
Michael
Leaptrott
|
1,115,284
|
*
|
1,115,284
|
*
|
-
|
-
|
Jeffrey
Partl
|
1,115,177
|
*
|
1,115,177
|
*
|
-
|
-
|
Gerald
J. Quave
|
1,108,031
|
*
|
830,253
|
*
|
-
|
-
|
Howard
Bialick and MaryBeth Bialick
|
1,055,056
|
*
|
1,055,056
|
*
|
-
|
-
|
GSB
Holdings
|
923,358
|
*
|
693,473
|
*
|
-
|
-
|
Eric
Adams
|
893,045
|
*
|
893,045
|
*
|
-
|
-
|
Doug
Anderson and Ann Anderson
|
758,138
|
*
|
439,956
|
*
|
-
|
-
|
Daryl
K. Olsen
|
736,767
|
*
|
736,767
|
*
|
-
|
-
|
Robert
J. Onesti
|
700,000
|
*
|
700,000
|
*
|
-
|
-
|
Bradley
Richmond
|
651,476
|
*
|
651,476
|
*
|
-
|
-
|
Harry
Datys
|
622,909
|
*
|
622,909
|
*
|
-
|
-
|
Jelcada
LP
|
609,333
|
*
|
457,608
|
*
|
-
|
-
|
Frederic
Colman
|
554,166
|
*
|
416,235
|
*
|
-
|
-
|
Barry
Donner
|
553,939
|
*
|
415,050
|
*
|
-
|
-
|
Scott
Jasper
|
553,939
|
*
|
416,008
|
*
|
-
|
-
|
Arthur
Berrick
|
553,863
|
*
|
415,932
|
*
|
-
|
-
|
John
Fox
|
512,841
|
*
|
512,841
|
*
|
-
|
-
|
Richard
Colasante
|
512,841
|
*
|
512,841
|
*
|
-
|
-
|
Lawrence
Silverberg
|
461,680
|
*
|
346,737
|
*
|
-
|
-
|
Todd
Arbiture
|
453,646
|
*
|
453,646
|
*
|
-
|
-
|
Andre
Mouton
|
440,000
|
*
|
440,000
|
*
|
-
|
-
|
David
S. Anderson
|
433,221
|
*
|
433,221
|
*
|
-
|
-
|
Horberg
Enterprises
|
403,240
|
*
|
403,240
|
*
|
-
|
-
|
Advantage
Point Solutions LLC
|
369,495
|
*
|
187,677
|
*
|
-
|
-
|
Steven
Cover
|
334,553
|
*
|
334,553
|
*
|
-
|
-
|
John
Lahr
|
332,318
|
*
|
249,559
|
*
|
-
|
-
|
Ian
Miller
|
276,435
|
*
|
276,435
|
*
|
-
|
-
|
Sheri
Alexander
|
223,035
|
*
|
223,035
|
*
|
-
|
-
|
Israel
& Marilyn Freeman
|
184,646
|
*
|
138,669
|
*
|
-
|
-
|
Tyler
Anderson
|
163,147
|
*
|
163,147
|
*
|
-
|
-
|
Cary
McGhin
|
160,000
|
*
|
160,000
|
*
|
-
|
-
|
Janette
Prainito
|
160,000
|
*
|
160,000
|
*
|
-
|
-
|
John
Jackson
|
160,000
|
*
|
160,000
|
*
|
-
|
-
|
Jerome
Gildner
|
134,549
|
*
|
134,549
|
*
|
-
|
-
|
Debra
Miller
|
102,546
|
*
|
102,546
|
*
|
-
|
-
|
Jeramy
Fisher
|
71,863
|
*
|
71,863
|
*
|
-
|
-
|
Ching-Jen
Wang
|
60,000
|
*
|
-
|
*
|
-
|
-
|
Maria
Siemionow
|
60,000
|
*
|
-
|
*
|
-
|
-
|
Patrick
Sesto
|
60,000
|
*
|
60,000
|
*
|
-
|
-
|
Scott
Hodges
|
51,389
|
*
|
51,389
|
*
|
-
|
-
|
Dennis
Holman
|
49,166
|
*
|
49,166
|
*
|
-
|
-
|
Anthony
Stegagno
|
40,000
|
*
|
40,000
|
*
|
-
|
-
|
Joann
Akins
|
40,000
|
*
|
40,000
|
*
|
-
|
-
|
|
|
|
|
|
|
|
TOTAL
SHARES FOR RESALE:
|
|
|
75,234,082
|
|
|
|
(1)
Applicable
percentage ownership is based on 297,340,200 shares of common stock
outstanding as of March 25, 2020. "Beneficial ownership" includes
shares for which an individual, directly or indirectly, has or
shares voting or investment power, or both, and also includes
options that are exercisable within 60 days of March 25, 2020.
Unless otherwise indicated, all of the listed persons have sole
voting and investment power over the shares listed opposite their
names. Beneficial ownership as reported in the above table has been
determined in accordance with Rule 13d-3 of the Exchange
Act.
(2)
Detail
of number of shares being offered is included in table
below.
(3)
On
January 26, 2018, the Company entered into a Master Equipment Lease
with NFS Leasing Inc. to provide financing for equipment purchases
to enable the Company to begin placing the dermaPACE system in the
marketplace. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital
Resources" for further information.
(4)
Since
February 21, 2017, Andre Mouton has been the VP of International
Sales and Relations for the Company.
(5)
Since
October 5, 2015, Joann Akins has been the Accounts Payable Clerk
for the Company.
|
Shares
held by selling stockholders as a result of conversion of certain
promissory notes issued pursuant to 10% Convertible Promissory
Notes
|
Shares
issuable upon the conversion of certain promissory notes issued
pursuant to 10% Convertible Promissory Notes
|
Shares
held by selling stockholders as a result of the exercise certain
warrants issued with the 10% Convertible Promissory
Notes
|
Shares
issuable upon the exercise of certain warrants issued with the 10%
Convertible Promissory Notes
|
Shares
issued upon the exercise of certain warrants issued pursuant to 10%
Convertible Promissory Notes for the placement agent
fee
|
Shares
issuable upon the exercise of certain warrants issued pursuant to
10% Convertible Promissory Notes for the placement agent
fee
|
Shares
issuable upon the exercise of certain Class O Warrants issued to
employees, board of directors members and medical advisory board
members
|
Shares
issuable upon the exercise of certain Class O Warrants issued to
consultants for services rendered
|
Shares
issuable upon the conversion of certain short term notes payable
issued pursuant to Short Term Notes Payable for Class L
Warrants
|
Shares
issuable upon the conversion of certain short term notes payable
issued pursuant to Short Term Notes Payable for Class N
Warrants
|
Shares
issuable upon the conversion of line of credit for Class N
Warrants
|
Total
Number of Shares being offered
|
Name of Beneficial Owner
Directors and Executive Officers:
|
|
|
|
|
|
|
|
|
|
|
|
|
Kevin A. Richardson,
II
|
-
|
2,969,910
|
-
|
2,363,636
|
-
|
-
|
489,090
|
-
|
-
|
236,364
|
-
|
6,059,000
|
A. Michael
Stolarski
|
-
|
5,811,864
|
-
|
4,545,455
|
-
|
-
|
200,000
|
-
|
-
|
-
|
454,545
|
11,011,864
|
Peter
Stegagno
|
-
|
428,045
|
-
|
331,818
|
-
|
-
|
440,000
|
-
|
-
|
-
|
-
|
1,199,863
|
Iulian
Cioanta
|
-
|
-
|
-
|
-
|
-
|
-
|
440,000
|
-
|
-
|
-
|
-
|
440,000
|
Lisa
Sundstrom
|
-
|
-
|
-
|
-
|
-
|
-
|
440,000
|
-
|
-
|
-
|
-
|
440,000
|
John
Nemelka
|
-
|
-
|
-
|
-
|
-
|
-
|
200,000
|
-
|
-
|
-
|
-
|
200,000
|
Alan
Rubino
|
-
|
-
|
-
|
-
|
-
|
-
|
200,000
|
-
|
-
|
-
|
-
|
200,000
|
Maj-Britt
Kaltoft
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
Principal
and/or Selling Shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
Advantage Point
Solutions LLC
|
187,677
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
187,677
|
Andre
Mouton
|
-
|
-
|
-
|
-
|
-
|
-
|
440,000
|
-
|
-
|
-
|
-
|
440,000
|
Ann Marie
Giulietti
|
1,436,251
|
-
|
696,446
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
2,132,697
|
Anthony
Stegagno
|
-
|
-
|
-
|
-
|
-
|
-
|
40,000
|
-
|
-
|
-
|
-
|
40,000
|
Arthur
Berrick
|
281,136
|
-
|
134,796
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
415,932
|
Barry
Donner
|
281,212
|
-
|
133,838
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
415,050
|
Bradley
Richmond
|
-
|
-
|
-
|
-
|
-
|
651,476
|
-
|
-
|
-
|
-
|
-
|
651,476
|
Cary
McGhin
|
-
|
-
|
-
|
-
|
-
|
-
|
160,000
|
-
|
-
|
-
|
-
|
160,000
|
Ching-Jen
Wang
|
-
|
-
|
-
|
-
|
-
|
-
|
60,000
|
-
|
-
|
-
|
-
|
60,000
|
Daryl K.
Olsen
|
373,131
|
-
|
-
|
363,636
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
736,767
|
David S.
Anderson
|
-
|
251,403
|
-
|
181,818
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
433,221
|
Debra
Miller
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
102,546
|
-
|
-
|
102,546
|
Dennis
Holman
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
49,166
|
-
|
-
|
49,166
|
Doug Anderson and Ann
Anderson
|
-
|
439,956
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
439,956
|
Eric
Adams
|
-
|
469,091
|
-
|
363,636
|
-
|
-
|
-
|
-
|
-
|
60,318
|
-
|
893,045
|
Frederic
Colman
|
281,439
|
-
|
134,796
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
416,235
|
George
Johnson
|
-
|
696,545
|
-
|
545,455
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
1,242,000
|
Gerald J.
Quave
|
562,576
|
-
|
267,677
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
830,253
|
Greg
Broms
|
-
|
3,141,250
|
-
|
2,500,000
|
-
|
-
|
-
|
-
|
-
|
304,229
|
-
|
5,945,479
|
GSB
Holdings
|
468,813
|
-
|
224,660
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
693,473
|
Harry
Datys
|
-
|
-
|
-
|
-
|
-
|
622,909
|
-
|
-
|
-
|
-
|
-
|
622,909
|
Horberg
Enterprises
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
403,240
|
-
|
-
|
403,240
|
Howard Bialick and
MaryBeth Bialick
|
-
|
483,750
|
-
|
375,000
|
-
|
-
|
-
|
-
|
196,306
|
-
|
-
|
1,055,056
|
Ian
Miller
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
276,435
|
-
|
-
|
276,435
|
Israel & Marilyn
Freeman
|
93,737
|
-
|
44,932
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
138,669
|
James
Clare
|
-
|
586,364
|
-
|
454,545
|
-
|
-
|
-
|
-
|
-
|
74,375
|
-
|
1,115,284
|
James P.
Geiskopf
|
-
|
986,773
|
-
|
772,727
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
1,759,500
|
James Robert
McGraw
|
-
|
1,300,036
|
-
|
1,009,091
|
-
|
-
|
-
|
-
|
323,472
|
-
|
-
|
2,632,599
|
Janette
Prainito
|
-
|
-
|
-
|
-
|
-
|
-
|
160,000
|
-
|
-
|
-
|
-
|
160,000
|
Jeff
Tucker
|
954,545
|
-
|
-
|
909,091
|
-
|
-
|
-
|
-
|
-
|
108,965
|
-
|
1,972,601
|
Jeffrey
Partl
|
-
|
586,364
|
-
|
454,545
|
-
|
-
|
-
|
-
|
-
|
74,268
|
-
|
1,115,177
|
Jelcada
LP
|
309,333
|
-
|
148,275
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
457,608
|
Jeramy
Fisher
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
71,863
|
-
|
-
|
71,863
|
Jerome
Gildner
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
134,549
|
-
|
-
|
134,549
|
Joann
Akins
|
-
|
-
|
-
|
-
|
-
|
-
|
40,000
|
-
|
-
|
-
|
-
|
40,000
|
John
Fox
|
-
|
285,568
|
227,273
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
512,841
|
John
Jackson
|
-
|
-
|
-
|
-
|
-
|
-
|
160,000
|
-
|
-
|
-
|
-
|
160,000
|
John
Lahr
|
168,682
|
-
|
80,877
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
249,559
|
John
McDermott
|
-
|
571,136
|
-
|
454,545
|
-
|
-
|
-
|
-
|
656,249
|
-
|
-
|
1,681,930
|
Lawrence J.
Wert
|
-
|
2,931,818
|
-
|
2,272,727
|
-
|
-
|
-
|
-
|
201,621
|
-
|
-
|
5,406,166
|
Lawrence
Silverberg
|
234,407
|
-
|
112,330
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
346,737
|
Lucas
Hoppel
|
968,477
|
-
|
653,859
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
1,622,336
|
Maria
Siemionow
|
-
|
-
|
-
|
-
|
-
|
-
|
60,000
|
-
|
-
|
-
|
-
|
60,000
|
Michael
Leaptrott
|
-
|
586,364
|
-
|
454,545
|
-
|
-
|
-
|
-
|
-
|
74,375
|
-
|
1,115,284
|
Millennium Park
Capital
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
2,500,000
|
-
|
-
|
-
|
2,500,000
|
NFS
Leasing
|
-
|
1,132,273
|
-
|
909,091
|
-
|
-
|
-
|
909,091
|
-
|
-
|
-
|
2,950,455
|
Nicholas Carosi III
Trust, Dated 10/3/84
|
-
|
2,429,227
|
-
|
1,909,091
|
-
|
-
|
-
|
-
|
252,500
|
-
|
-
|
4,590,818
|
Patrick
Sesto
|
-
|
-
|
-
|
-
|
-
|
-
|
60,000
|
-
|
-
|
-
|
-
|
60,000
|
Richard
Colasante
|
-
|
285,568
|
-
|
227,273
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
512,841
|
Richard
Metsch
|
937,121
|
-
|
449,320
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
1,386,441
|
Robert J.
Onesti
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
700,000
|
-
|
-
|
-
|
700,000
|
Union Square Energy
Advisors, LTD
|
708,500
|
-
|
360,057
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
1,068,557
|
Scott
Hodges
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
51,389
|
-
|
-
|
51,389
|
Scott
Jasper
|
281,212
|
-
|
134,796
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
416,008
|
Sheri
Alexander
|
-
|
117,273
|
-
|
90,909
|
-
|
-
|
-
|
-
|
-
|
14,853
|
-
|
223,035
|
Steven
Cover
|
-
|
175,909
|
-
|
136,364
|
-
|
-
|
-
|
-
|
-
|
22,280
|
-
|
334,553
|
Todd
Arbiture
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
453,646
|
-
|
-
|
453,646
|
Tyler
Anderson
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
163,147
|
-
|
-
|
163,147
|
WestPark
Capital
|
-
|
-
|
-
|
-
|
182,217
|
814,932
|
-
|
-
|
-
|
-
|
-
|
997,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL SHARES FOR
RESALE:
|
8,528,249
|
26,666,487
|
3,803,932
|
21,624,998
|
182,217
|
2,089,317
|
3,940,000
|
4,109,091
|
3,336,129
|
970,027
|
454,545
|
75,704,992
|
Offering of Shares by Selling Stockholders and Upon Exercise of
Warrants
We are registering
the resale of shares of Common Stock issuable to the selling
shareholders from time to time after the date of this prospectus.
See “Selling
Shareholders” for
additional information. We will not receive any proceeds from the
resale of shares of Common Stock by selling shareholders in this
offering. We may receive proceeds upon the exercise of outstanding
warrants for shares of Common Stock covered by this prospectus if
the warrants are exercised for cash. See "Use of
Proceeds."
As required by
FINRA pursuant to Rule 5110(g)(1), neither WestPark Capital,
Inc.’s warrants nor any
shares of Common Stock issued upon exercise of such warrants may be
sold, transferred, assigned, pledged, or hypothecated, or be the
subject of any hedging, short sale, derivative, put, or call
transaction that would result in the effective economic disposition
of such securities by any person for a period of 180 days
immediately following the date hereof, except the transfer of any
security:
●
by operation of law
or by reason of our reorganization;
●
to any FINRA member
firm participating in the offering and the officers or partners
thereof, if all securities so transferred remain subject to the
lock-up restriction described above for the remainder of the time
period;
●
if the aggregate
amount of our securities held by the placement agent or related
person do not exceed 1% of the securities being
offered;
●
that is
beneficially owned on a pro-rata basis by all equity owners of an
investment fund, provided that no participating member manages or
otherwise directs investments by the fund, and participating
members in the aggregate do not own more than 10% of the equity in
the fund; or
●
the exercise or
conversion of any security, if all securities received remain
subject to the lock-up restriction set forth above for the
remainder of the time period.
The selling
stockholders may sell all or a portion of the shares of Common
Stock held by them and offered hereby from time to time directly or
through one or more underwriters, broker-dealers or agents. If the
shares of Common Stock are sold through underwriters or
broker-dealers, the selling stockholders will be responsible for
underwriting discounts or commissions or agent’s commissions. The shares of Common
Stock may be sold in one or more transactions at fixed prices, at
prevailing market prices at the time of the sale, at varying prices
determined at the time of sale or at negotiated prices. These sales
may be effected in transactions, which may involve crosses or block
transactions, pursuant to one or more of the following
methods:
●
on any national
securities exchange or quotation service on which the securities
may be listed or quoted at the time of sale;
●
in the
over-the-counter market;
●
in transactions
otherwise than on these exchanges or systems or in the
over-the-counter market;
●
through the writing
or settlement of options, whether such options are listed on an
options exchange or otherwise;
●
ordinary brokerage
transactions and transactions in which the broker-dealer solicits
purchasers;
●
block trades in
which the broker-dealer will attempt to sell the shares as agent
but may position and resell a portion of the block as principal to
facilitate the transaction;
●
purchases by a
broker-dealer as principal and resale by the broker-dealer for its
account;
●
an exchange
distribution in accordance with the rules of the applicable
exchange;
●
privately
negotiated transactions;
●
short sales made
after the date the registration statement of which this prospectus
forms a part is declared effective by the SEC;
●
broker-dealers may
agree with a selling security holder to sell a specified number of
such shares at a stipulated price per share;
●
a combination of
any such methods of sale; and
●
any other method
permitted pursuant to applicable law.
The selling stockholders may also sell shares of Common Stock under
Rule 144 promulgated under the Securities Act of 1933, as amended,
if available, rather than under this prospectus. In addition, the
selling stockholders may transfer the shares of Common Stock by
other means not described in this prospectus. If the selling
stockholders effect such transactions by selling shares of Common
Stock to or through underwriters, broker-dealers or agents, such
underwriters, broker-dealers or agents may receive commissions in
the form of discounts, concessions or commissions from the selling
stockholders or commissions from purchasers of the shares of Common
Stock for whom they may act as agent or to whom they may sell as
principal (which discounts, concessions or commissions as to
particular underwriters, broker-dealers or agents may be in excess
of those customary in the types of transactions involved). In
connection with sales of the shares of Common Stock or otherwise,
the selling stockholders may enter into hedging transactions with
broker-dealers, which may in turn engage in short sales of the
shares of Common Stock in the course of hedging in positions they
assume. The selling stockholders may also sell shares of Common
Stock short and deliver shares of Common Stock covered by this
prospectus to close out short positions and to return borrowed
shares in connection with such short sales. The selling
stockholders may also loan or pledge shares of Common Stock to
broker-dealers that in turn may sell such shares.
The selling
stockholders may pledge or grant a security interest in some or all
of the shares of Common Stock owned by them and, if they default in
the performance of their secured obligations, the pledgees or
secured parties may offer and sell the shares of Common Stock from
time to time pursuant to this prospectus or any amendment to this
prospectus under Rule 424(b)(3) or other applicable provision of
the Securities Act amending, if necessary, the list of selling
stockholders to include the pledgee, transferee or other successors
in interest as selling stockholders under this prospectus. The
selling stockholders also may transfer and donate the shares of
Common Stock in other circumstances in which case the transferees,
donees, pledgees or other successors in interest will be the
selling beneficial owners for purposes of this
prospectus.
To the extent
required by the Securities Act and the rules and regulations
thereunder, the selling stockholders and any broker-dealer
participating in the distribution of the shares of Common Stock may
be deemed to be “underwriters” within the meaning of the
Securities Act, and any commission paid, or any discounts or
concessions allowed to, any such broker-dealer may be deemed to be
underwriting commissions or discounts under the Securities Act. At
the time a particular offering of the shares of Common Stock is
made, a prospectus supplement, if required, will be distributed,
which will set forth the aggregate amount of shares of Common Stock
being offered and the terms of the offering, including the name or
names of any broker-dealers or agents, any discounts, commissions
and other terms constituting compensation from the selling
stockholders and any discounts, commissions or concessions allowed
or re-allowed or paid to broker-dealers. Each selling stockholder
has informed us that it does not have any written or oral agreement
or understanding, directly or indirectly, with any person to
distribute the shares of Common Stock in violation of any
applicable securities laws. In no event shall any broker-dealer
receive fees, commissions and markups which, in the aggregate,
would exceed eight percent (8%).
Under the
securities laws of some states, the shares of Common Stock may be
sold in such states only through registered or licensed brokers or
dealers. In addition, in some states the shares of Common Stock may
not be sold unless such shares have been registered or qualified
for sale in such state or an exemption from registration or
qualification is available and is complied with.
There can be no
assurance that any selling stockholder will sell any or all of the
shares of Common Stock registered pursuant to the registration
statement, of which this prospectus forms a part.
The selling
stockholders and any other person participating in such
distribution will be subject to applicable provisions of the
Exchange Act, and the rules and regulations thereunder, including,
without limitation, to the extent applicable, Regulation M of the
Exchange Act, which may limit the timing of purchases and sales of
any of the shares of common stock by the selling stockholders and
any other participating person. To the extent applicable,
Regulation M may also restrict the ability of any person engaged in
the distribution of the shares of Common Stock to engage in
market-making activities with respect to the shares of Common
Stock. All of the foregoing may affect the marketability of the
shares of Common Stock and the ability of any person or entity to
engage in market-making activities with respect to the shares of
Common Stock.
Once sold under the
registration statement, of which this prospectus forms a part, the
shares of Common Stock will be freely tradable in the hands of
persons other than our affiliates.
MARKET FOR OUR COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
Market Information
The
Company’s Common Stock is
quoted on the OTCQB under the symbol “SNWV”. The quotations reflect
inter-dealer prices, without retail mark-up, mark-down or
commissions, and may not necessarily represent actual
transactions.
As of March 25,
2020, there were 297,340,200 shares of our Common Stock outstanding
and approximately 161 holders of record of our Common
Stock. However, we believe
that there are more beneficial holders of our Common Stock as many
beneficial holders hold their stock in “street name.”
Dividend Policy
We have never
declared or paid any cash dividends on our capital stock. We
currently intend to retain future earnings, if any, to finance the
expansion of our business. As a result, we do not anticipate paying
any cash dividends in the foreseeable future.
Securities Authorized for Issuance under Equity Compensation
Plans
Plan
Category
|
Number
of securities to be issued upon exercise of outstanding options,
warrants and rights
|
Weighted-average
exercise price of outstanding options, warrants and
rights
|
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column
(a))
|
|
|
|
|
Equity compensation
plans approved by security holders
|
-
|
$0.00
|
-
|
Equity compensation
plans not approved by security holders
|
34,303,385
|
$0.28
|
2,028,281
|
Total
|
34,303,385
|
$0.28
|
2,028,281
|
Stock Incentive Plans
On November 1,
2010, the Company approved the Amended and Restated 2006 Stock
Incentive Plan of SANUWAVE Health, Inc. effective as of January 1,
2010 (the “Stock Incentive Plan”). The Stock Incentive
Plan permits grants of awards to selected employees, directors and
advisors of the Company in the form of restricted stock or options
to purchase shares of common stock. Options granted may include
non-statutory options as well as qualified incentive stock options.
The Stock Incentive Plan is currently administered by the board of
directors of the Company. The Stock Incentive Plan gives broad
powers to the board of directors of the Company to administer and
interpret the particular form and conditions of each option. The
stock options granted under the Stock Incentive Plan are
non-statutory options which vest over a period of up to three years
and have a ten year term. The options are granted at an exercise
price equal to the fair market value of the common stock on the
date of the grant which is approved by the board of directors of
the Company.
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 prospectus. The following discussion should
be read in conjunction with our consolidated financial statements
and related notes thereto included elsewhere in this
prospectus.
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 U.S. 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 (DFU) 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.
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 dermaPACE treatments, product sales,
licensing transactions and other activities.
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:
●
wound conditions,
including diabetic foot ulcers, venous and arterial ulcers,
pressure sores, burns and other skin eruption
conditions;
●
orthopedic
applications, such as eliminating chronic pain in joints from
trauma, arthritis or tendons/ligaments inflammation, speeding the
healing of fractures (including nonunion or delayed-union
conditions), improving bone density in osteoporosis, fusing bones
in the extremities and spine, and other potential sports injury
applications;
●
plastic/cosmetic
applications such as cellulite smoothing, graft and transplant
acceptance, skin tightening, scarring and other potential aesthetic
uses; and
●
cardiac
applications for removing plaque due to atherosclerosis improving
heart muscle performance.
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.
Recent Developments
On December 11,
2019, the Company, entered into a Common Stock Purchase Agreement
with certain accredited investors for the sale by the Company in a
private placement of an aggregate of 21,071,143 shares of common
stock at a purchase price of $0.14 per share. The Company has
granted the purchasers indemnification rights with respect to its
representations, warranties, covenants and agreements under the
purchase agreement. In connection with the agreement, the Company
also entered into a registration rights agreement with the
purchasers, pursuant to which the Company has agreed to file a
registration statement with the SEC by April 30, 2020. Pursuant to
the terms of the Registration Rights Agreement, the Company will
maintain the effectiveness of the registration statement until the
date upon which the securities held by the Purchasers cease to be
Registerable Securities (as that term is defined in the
Registration Rights Agreement). During the year ended December 31,
2019, the Company issued 20,000,711 shares of common stock in
conjunction with this offering and received $2,800,100 in cash
proceeds.
On December 13,
2019, the Company entered into a joint venture agreement (the
“Agreement”) with Universus Global Advisors
LLC, a limited liability company organized under the laws of the
State of Delaware (“Universus”), Versani Health Consulting
Consultoria em Gestão de
Negócios EIRELI, an
empresa individual
de responsabilidade limitada organized under the laws of
Brazil (“Versani”), Curacus Limited, a private
limited company organized under the laws of England and Whales
(“Curacus”), and certain individual citizens
of Brazil and the Czech Republic (the individuals together with
Curacus, the “IDIC
Group”). The principal
purpose of the joint venture company will be to manufacture,
import, use, sell, and distribute, on an exclusive basis in Brazil,
dermaPACE devices and wound kits consisting of a standard
ultrasound gel and custom size sterile sleeves used for the
treatment of various acute and chronic wounds using extracorporeal
shockwave therapy technology. The joint venture company will also
provide treatments related to the dermaPACE devices. The IDIC Group
has agreed to pay to the Company a partnership fee in the total
amount of $600,000 for the granting of exclusive territorial rights
to the joint venture company to distribute the dermaPACE devices
and wound kits in Brazil. Of the $600,000 partnership fee, $500,000
was received in November and December of 2019 and recorded as a
contract liability, while the remaining $100,000 is contingent on
receipt of required regulatory approvals from ANVISA (the Brazilian
Health Regulatory Agency) and is expected to be received within the
next twelve to eighteen months. As the remaining $100,000 fee is
contingent it was not recorded in the financial statements at
December 31, 2019. The parties executed a shareholders’ agreement, a trademark license
agreement, a supply agreement and a technology license agreement on
January 31, 2020. The IDIC Group will also have the right to
receive prioritized dividends until full reimbursement of the
partnership fee and expenses incurred in the formation of the joint
venture company, which are required to be paid by the IDIC
Group.
On December 13,
2019, the Company entered into short term notes payable agreements
in the total principal amount of $210,000. The principal amount
will be due and payable six months from the date of issuance of the
respective notes via issuance of 2,250,000 shares of common
stock.
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.
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.
The dermaPACE
system was evaluated using two studies under IDE G070103. The
studies were designed as prospective, randomized, double-blind,
parallel-group, sham-controlled, multi-center 24-week studies at 39
centers. A total of 336 subjects were enrolled and treated with
either dermaPACE plus conventional therapy or conventional therapy
(a.k.a. standard of care) alone. Conventional therapy included, but
was not limited to, debridement, saline-moistened gauze, and
pressure reducing footwear. The objective of the studies was to
compare the safety and efficacy of the dermaPACE device to
sham-control application. The prospectively defined primary
efficacy endpoint for the dermaPACE studies was the incidence of
complete wound closure at 12 weeks post-initial application of the
dermaPACE system (active or sham). Complete wound closure was
defined as skin re-epithelialization without drainage or dressing
requirements, confirmed over two consecutive visits within
12-weeks. If the wound was considered closed for the first time at
the 12 week visit, then the next visit was used to confirm closure.
Investigators continued to follow subjects and evaluate wound
closure through 24 weeks.
Between the two
studies there were over 336 patients evaluated, with 172 patients
treated with dermaPACE and 164 control group subjects with use of a
non-functional device (sham). Both treatment groups received wound
care consistent with the standard of care in addition to device
application. Study subjects were enrolled using pre-determined
inclusion/exclusion criteria in order to obtain a homogenous study
population with chronic diabetes and a diabetic foot ulcer that has
persisted a minimum of 30 days and its area is between
1cm2 and
16cm2,
inclusive. Subjects were enrolled at Visit 1 and followed for a
run-in period of two weeks. At two weeks (Visit 2 – Day 0), the first treatment was
applied (either dermaPACE or Sham Control application).
Applications with either dermaPACE or Sham Control were then made
at Day 3 (Visit 3), Day 6 (Visit 4), and Day 9 (Visit 5) with the
potential for 4 additional treatments in Study 2. Subject progress
including wound size was then observed on a bi-weekly basis for up
to 24 weeks at a total of 12 visits (Weeks 2-24; Visits
6-17).
We retained
Musculoskeletal Clinical Regulatory Advisers, LLC (MCRA) in January
2015 to lead the Company’s interactions and correspondence
with the FDA for the dermaPACE, which have already commenced. MCRA
has successfully worked with the FDA on numerous Premarket
Approvals (PMAs) for various musculoskeletal, restorative and
general surgical devices since 2006.
Working with MCRA,
we submitted to FDA a de novo petition on
July 23, 2016. Due to the strong safety profile of our device and
the efficacy of the data showing statistical significance for wound
closure for dermaPACE subjects at 20 weeks, we believe that the
dermaPACE device should be considered for classification into Class
II as there is no legally marketed predicate device and there is
not an existing Class III classification regulation or one or more
approved PMAs (which would have required a reclassification under
Section 513(e) or (f)(3) of the FD&C Act). 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.
Finally, 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 and South
Korea.
We are actively
marketing the dermaPACE to the European Community, Canada 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 $10,429,839
and $11,631,394 for the years ended December 31, 2019 and 2018,
respectively. These factors and the events of default on the notes
payable to HealthTronics, Inc., and the Company’s short term 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 will 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 2020 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, 2019, we had an accumulated deficit of $125,752,956.
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, will 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:
●
the scope, rate of
progress and cost of our clinical trials;
●
future clinical
trial results;
●
the cost and timing
of regulatory approvals;
●
the establishment
of successful marketing, sales and distribution channels and
partnerships, including our efforts to expand our marketing, sales
and distribution reach through joint ventures and other contractual
arrangements;
●
the cost and timing
associated with establishing reimbursement for our
products;
●
the effects of
competing technologies and market developments; and
●
the industry demand
and patient wellness behavior.
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. We expect
this 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 recording of the allowances for doubtful accounts,
estimated reserves for inventory, estimated useful life of property
and equipment, the determination of the valuation allowance for
deferred taxes, the estimated fair value of warrants and warrant
liability, and the estimated fair value of stock-based
compensation. 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.
While our
significant accounting policies are more fully described in Note 2
to our consolidated financial statements filed with this
prospectus, we believe that the following accounting policies
relating to revenue recognition, research and development costs,
inventory valuation, liabilities related to warrants issued,
stock-based compensation and income taxes are significant and;
therefore, they are important to aid you in fully understanding and
evaluating our reported financial results.
Revenue Recognition
Refer to Notes 2
and 16 to the accompanying consolidated financial
statements.
Stock-based Compensation
The Stock Incentive
Plan provides that stock options, and other equity interests or
equity-based incentives, may be granted to key personnel, directors
and advisors at the fair value of the common stock at the time the
option is granted, which is approved by our board of directors. The
maximum term of any option granted pursuant to the Stock Incentive
Plan is ten years from the date of grant.
In accordance with
ASC 718, Compensation - Stock Compensation, the fair value of each
option award is estimated on the date of grant using the
Black-Scholes option pricing model. The expected terms of options
granted represent the period of time that options granted are
estimated to be outstanding and are derived from the contractual
terms of the options granted. We amortize the fair value of each
option over each option’s
vesting period.
Results of Operations for the Years ended December 31, 2019 and
2018
Revenues and Cost of Revenues
Revenues for the
year ended December 31, 2019 were $1,028,730, compared to
$1,850,060 for the same period in 2018, a decrease of $821,330, or
44%. 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. The decrease in revenue for 2019 a
decrease in sales of orthoPACE devices, new applicators and
refurbishment of applicators in Asia/Pacific and the European
Community, as compared to the prior year.
Cost of revenues
for the year ended December 31, 2019 were $538,923, compared to
$693,664 for the same period in 2018. Gross profit as a percentage
of revenues was 48% for the year ended December 31, 2019, compared
to 63% for the same period in 2018. The decrease in gross profit as
a percentage of revenues in 2019 was primarily due to decrease in
new applicators which have a lower margin and lower shipping
costs.
Research and Development Expenses
Research and
development expenses for the year ended December 31, 2019 were
$1,181,892, compared to $981,654 for the same period in 2018, an
increase of $200,238, or 20%. The increase in research and
development expenses in 2019, as compared to 2018, was due to
increased contracting expenses for temporary services, increased
services related to the dosage study in Poland and increased
expenses related to electrical testing for the
device.
Selling and Marketing Expenses
Selling and
marketing expenses for the year ended December 31, 2019 were
$1,590,957, as compared to $521,413 for the same period in 2018, an
increase of $1,069,544, or 205%. The increase in sales and
marketing expenses in 2019, as compared to 2018, was due to an
increase in hiring of trainers and salespeople, increased travel
expenses for placement and training related to the
commercialization of dermaPACE and increased participation in
domestic and international tradeshows.
General and Administrative Expenses
General and
administrative expenses for the year ended December 31, 2019 were
$6,440,093, as compared to $6,811,255 for the same period in 2018,
a decrease of $371,162, or 5%. The decrease in general and
administrative expenses in 2019, as compared to 2018, was due to
lower stock based compensation expense, lower lease expense related
to pay off of lease agreement for devices in 2018 and lower travel
and entertainment costs.
This was partially offset by an increase in consultants related to
distribution partner searches and execution and an increase in
regulatory audit fees for updated ISO Audit and initial MDSAP
Audit.
Depreciation
Depreciation for
the year ended December 31, 2019 was $71,213, compared to $22,332
for the same period in 2018, an increase of $48,881, or 219%. The
increase was due to the higher depreciation related to an increase
in fixed assets and finance lease right of use assets.
Other Income (Expense)
Other income
(expense) was a net expense of $1,635,491 for the year ended
December 31, 2019, as compared to a net expense of
$4,451,136 for the same
period in 2018, a decrease of $2,815,645, or 63%, in the net
expense. The decrease was primarily due to decreased interest
expense, beneficial conversion discount and debt discount related
to the convertible promissory notes issued in 2018 and is partially
offset by increased interest expense as a result of issuance of
short term notes payable in the fourth quarter of 2018. In
addition, the net expense in 2019 included a non-cash gain of
$227,669 for a valuation adjustment on outstanding warrants, as
compared to a non-cash gain of $55,376 for a valuation adjustment
on outstanding warrants in 2018.
Net Loss
Net loss for the
year ended December 31, 2019 was $10,429,839, or ($0.05) per basic
and diluted share, compared to a net loss of $11,631,394, or
($0.08) per basic and diluted share, for the same period in 2018, a
decrease in the net loss of $1,201,555, or 10%. The decrease in the
net loss was primarily a result of increase in operating expenses
offset by a decrease in interest expense as explained
above.
Liquidity and Capital Resources
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 incurred a net loss of $10,429,839 and $11,631,394
for the years ended December 31, 2019 and 2018, respectively. These
factors and the events of default on the notes payable to
HealthTronics, Inc. and the Company’s short term 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
issuance date.
Since inception in
2005, our operations have primarily been funded from the sale of
capital stock, notes payable, and convertible debt
securities.
The continuation of
our business is dependent upon raising additional capital to fund
operations. Management expects the cash used in operations for the
Company will be approximately $250,000 to $325,000 per month for
the first half of 2020 and $300,000 to $375,000 per month for the
second half of 2020 as resources are devoted to the
commercialization of the dermaPACE 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. Management’s plans are to obtain additional
capital in 2020 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.
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.
In addition, we may have potential liability for certain sales,
offers or issuances of equity securities of the Company in possible
violation of federal securities laws. Pursuant to a Registration
Statement on Form S-1 (Registration No. 333-208676), declared
effective on February 16, 2016 (the “2016 Registration
Statement”), the Company
sought to register: a primary offering of up to $4,000,000 units,
the Common Stock included as part of the units, the warrants
included as part of the units, and the Common Stock issuable upon
exercise of such warrants; a primary offering of up to $400,000
placement agent warrants and the Common Stock issuable upon
exercise of such placement agent warrants; and a secondary offering
of 23,545,144 shares of Common Stock held by certain selling
stockholders named in the 2016 Registration Statement. The SEC
Staff’s interpretations
provide that, when an issuer is registering units composed of
common stock, common stock purchase warrants, and the common stock
underlying the warrants, the registration fee is based on the offer
price of the units and the exercise price of the warrants. The
registration fee paid did include the fee based on the offer price
of the units, allocated to the unit line item in the fee table.
Although the fee table in the 2016 Registration Statement included
a line item for the Common Stock underlying the warrants, the
Company did not include in that line item the fee payable based on
the exercise price of $0.08 per share for such warrants, which
amount should have been allocated to such line item based on the
SEC Staff’s
interpretations. As a result, a portion of the securities intended
to be registered by the 2016 Registration Statement was not
registered. In addition, in a post-effective amendment to the 2016
Registration Statement filed on September 23, 2016, too many
placement agent warrants were inadvertently deregistered. The
post-effective amendment stated that the Company had issued
$180,100, based on 2,251,250 Class L warrants issued with a $0.08
exercise price of warrants to the placement agent and therefore
deregistered $219,900, based on 2,748,750 Class L warrants issued
with a $0.08 exercise price of placement agent warrants from the
$400,000, based on 5,000,000 Class L warrants issued with a $0.08
exercise price total offering amount included in the Registration
Statement. The actual warrants issued to the placement agent
totaled $240,133.36, based on 3,001,667 Class L warrants issued
with a $0.08 exercise price, and only $159,867, based on 1,998,338
Class L warrants issued with a $0.08 exercise price should have
been deregistered in such post-effective amendment. To the extent
that we have not registered or failed to maintain an effective
registration statement with respect to any of the transactions in
securities described above and with respect to our ongoing offering
of shares of Common Stock underlying the warrants, and a violation
of Section 5 of the Securities Act did in fact occur or is
occurring, eligible holders of our securities that participated in
these offerings would have a right to rescind their transactions,
and the Company may have to refund any amounts paid for the
securities, which could have a materially adverse effect on the
Company’s financial
condition. Eligible securityholders have not filed a claim against
the Company alleging a violation of Section 5 of the Securities Act
with respect to these transactions, but they could file a claim in
the future. Furthermore, the ongoing offering of and issuance of
shares of Common Stock underlying certain of our warrants from the
2016 Registration Statement may have been, and may continue to be,
in violation of Section 5 of the Securities Act and the rules and
regulations under the Securities Act, because we did not update the
prospectus in the 2016 Registration Statement for a period of time
after the 2016 Registration Statement was declared effective and
because our reliance on Rule 457(p) under the Securities Act in an
amendment to our Registration Statement on Form S-1 (Registration
No. 333-213774) filed on September 23, 2016 effected a
deregistration of the securities registered under the 2016
Registration Statement. Eligible securityholders have not filed a
claim against the Company alleging a violation of Section 5 of the
Securities Act, but they could file such a claim in the future. If
a violation of Section 5 of the Securities Act did in fact occur or
is occurring, eligible securityholders would have a right to
rescind their transactions, and the Company may have to refund any
amounts paid the securities, which could have a materially adverse
effect on the Company’s
financial condition.
On December 29,
2017, the Company entered into a line of credit agreement with A.
Michael Stolarski, a member of the Company's board of directors and
an existing shareholder of the Company. The agreement established a
line of credit in the amount of $370,000 with an annualized
interest rate of 6%. On June 21, 2018, the Company made a payment
of $144,500 on the line of credit. On June 26, 2018, the amount of
the line of credit was increased by $280,500. The line of credit
may be called for payment upon demand.
On November 12,
2018, the Company entered into an amendment to the line of credit
agreement with A. Michael Stolarski, a member of the
Company’s board of
directors and an existing shareholder of the Company. The line of
credit was increased to $1,000,000 with an annualized interest rate
of 6%. The line of credit may be called for payment upon demand of
the holder. On October 5, 2018 and October 23, 2018, the Company
received $15,000 and $40,000, respectively, as an increase in the
line of credit.
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. As of February 27, 2018, we were in default of Master
Equipment Lease due to the sale of equipment purchased under the
Master Lease Agreement to a third party and, as a result, the note
is callable by NFS or NFS could have notified the Company to
assemble all equipment for pick up. The balance due to NFS under
The Master Equipment Lease was paid in full on June 27, 2018. In
2019, 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.
On June 26, 2018,
the Company entered into an agreement with Johnfk Medical Inc.
(“FKS”), effective as of June 14, 2018,
pursuant to which the Company and FKS committed to enter into a
joint venture for the manufacture, sale and distribution of the
Company’s dermaPACE and
orthoPACE devices. On September 21, 2018, the Company entered into
a joint venture agreement with FKS setting forth the terms of the
operation, management and control of a joint venture entity
initially with the name of Holistic Health Institute Pte. Ltd., a
private limited company to be incorporated in the Republic of
Singapore, but with such company name subject to confirmation by
Singapore Government. On November 9, 2018, the joint venture entity
was incorporated in the Republic of Singapore with the name of
Holistic Wellness Alliance Pte. Ltd. Under the terms of the June
2018 agreement, FKS paid the Company a fee of $500,000 on June 22,
2018 for initial distribution rights in Taiwan. An additional fee
of $500,000 for initial distribution rights in the SEA Region will
be received in installments. The first two installments of $50,000
have been received and the remaining $400,000 was expected to be
received in April 2019. On June 4, 2019, the Company and FKS
terminated their Agreement. FKS will pay the Company a fee of
$50,000 for early termination of the Agreement plus $63,275 in
outstanding invoices for equipment delivered to FKS. A $400,000 fee
we anticipated receiving in April 2019 from FKS under the terms of
a June 2018 agreement will not be received. On June 4, 2019, we
entered into an agreement with Johnfk Medical Inc. (“FKS”) and Holistic Wellness Alliance
Pte. Ltd. (“HWA”) pursuant to which the parties
terminated the joint venture agreement, dated as of September 21,
2018, that established HWA as a joint venture between us and FKS.
Pursuant to the termination agreement, FKS will pay us the
outstanding amount of $63,275 for equipment delivered to FKS and a
penalty fee of $50,000 for early termination of the joint venture
agreement, which was received in 2019. We credited the outstanding
amount of $63,275 due for equipment upon the return of the
equipment on September 6, 2019.
We have entered into short term notes payable with twenty-four
individuals between June 26, 2018 and April 10, 2019 in the total
principal amount of $3,085,525 with an interest rate of 5% per
annum. The principal and accrued interest are due and payable six
months from the date of issuance or receipt of notice of warrant
exercise. On December 26, 2018, the Company defaulted on the short
term notes payable issued on June 26, 2018 and began accruing
interest at the default interest rate of 10%. On January 2, 2019,
the Company defaulted on the short term notes payable issued on
July 2, 2018 and began accruing interest at the default interest
rate of 10%. On January 30, 2019, the Company defaulted on the
short term notes payable issued on July 30, 2018 and began accruing
interest at the default interest rate of 10%. In May 2019, the
Company defaulted on the short term notes payable issued during
November 2018 and began accruing interest at the default rate of
10%. On June 30, 2019, the Company defaulted on the short term
notes payable issued on December 31, 2018 and began accruing
interest at the default interest rate of 10% in July
2019.
On December 11,
2019, the Company entered
into a Common Stock Purchase Agreement with certain accredited
investors for the sale by the Company in a private placement of an
aggregate of 21,071,143 shares of common stock, at a purchase price
of $0.14 per share. The Company has granted the purchasers
indemnification rights with respect to its representations,
warranties, covenants and agreements under the purchase agreement.
In connection with the agreement, the Company also entered into a
registration rights agreement with the purchasers, pursuant to
which the Company has agreed to file a registration statement with
the SEC by April 30, 2020. Pursuant to the terms of the
Registration Rights Agreement, the Company will maintain the
effectiveness of the registration statement until the date upon
which the securities held by the Purchasers cease to be
Registerable Securities (as that term is defined in the
Registration Rights Agreement). During the year ended December 31,
2019, the Company issued 20,000,711 shares of common stock in
conjunction with this offering and received $2,800,100 in cash
proceeds.
On December 13,
2019, the Company entered into a joint venture agreement (the
“Agreement”) with Universus Global Advisors
LLC, a limited liability company organized under the laws of the
State of Delaware (“Universus”), Versani Health Consulting
Consultoria em Gestão de
Negócios EIRELI, an
empresa individual
de responsabilidade limitada organized under the laws of
Brazil (“Versani”), Curacus Limited, a private
limited company organized under the laws of England and Whales
(“Curacus”), and certain individual citizens
of Brazil and the Czech Republic (the individuals together with
Curacus, the “IDIC
Group”). The principal
purpose of the joint venture company will be to manufacture,
import, use, sell, and distribute, on an exclusive basis in Brazil,
dermaPACE devices and wound kits consisting of a standard
ultrasound gel and custom size sterile sleeves used for the
treatment of various acute and chronic wounds using extracorporeal
shockwave therapy technology. The joint venture company will also
provide treatments related to the dermaPACE devices. The IDIC Group
has agreed to pay to the Company a partnership fee in the total
amount of $600,000 for the granting of exclusive territorial rights
to the joint venture company to distribute the dermaPACE devices
and wound kits in Brazil. The partnership fee is to be paid as
follows: (i) a $250,000 payment was made by IDIC Group to the
Company on November 14, 2019 which was initially provided in the
form of a loan that was forgiven and terminated on December 13,
2019, (ii) an additional payment of $250,000 was made by the IDIC
Group to the Company on December 31, 2019, and (iii) the remaining
$100,000 is to be paid by the IDIC Group upon receipt of required
regulatory approvals from ANVISA (the Brazilian Health Regulatory
Agency). The parties are in the process of executing a
shareholders’ agreement,
a trademark license agreement, a supply agreement and a technology
license agreement. The IDIC Group will also have the right to
receive prioritized dividends until full reimbursement of the
partnership fee and expenses incurred in the formation of the joint
venture company, which are required to be paid by the IDIC
Group.
On December 13,
2019, the Company entered into short term notes payable agreements
in the total principal amount of $210,000. The principal amount
will be due and payable six months from the date of issuance of the
respective notes via issuance of 2,250,000 shares of common
stock.
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.
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.
For the years ended
December 31, 2019 and 2018, net cash used by operating activities
was $6,410,758 and $3,621,172, respectively, primarily consisting
of compensation costs, research and development activities and
general corporate operations. The increase in the use of cash for
operating activities for the year ended December 31, 2019, as
compared to the same period for 2018, of $2,789,586, or 77%, was
primarily due to the decrease in accounts payable of $138,730, an
increase of accrued employee compensation and accrued expenses of
$1,556,326 and increase in interest payable, related parties of
$688,195. Net cash used by investing activities in 2019 was $89,049
as compared to net cash used by investing activities in 2018 of
$42,888. The increase in cash used by investing activities is due
to the purchase of property and equipment and payments related to
finance lease. Net cash provided by financing activities for the
year ended December 31, 2019 was $7,895,079, which primarily
consisted of proceeds from PIPE offering of $2,800,100, advances
from related parties of $2,055,414, proceeds from warrant exercises
of $1,758,142, proceeds from short term notes payable of $1,215,000
and proceeds from line of credit, related party of $90,000, net of
payment of principal on finance leases of $23,577. Net cash
provided by financing activities for the year ended December 31,
2018 was $3,317,510, which primarily consisted of the proceeds from
short term notes of $1,637,497, net proceeds from convertible
promissory notes of $1,159,785, proceeds from related party line of
credit of $480,000, proceeds from advances from related parties of
$144,000 and proceeds from warrant exercises of $40,728 which was
offset by payment on related party line of credit of $144,500. Cash
and cash equivalents increased by $1,395,906 for the year ended
December 31, 2019 and cash and cash equivalents decreased by
$365,635 for the year ended December 31, 2018.
Contractual Obligations
Our major
outstanding contractual obligations relate to our operating lease
for our facility, 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 expires 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
expires 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 expires 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.
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 devices.
In August 2005, as part of the purchase of the orthopedic division
assets of HealthTronics, Inc., we issued two notes to
HealthTronics, Inc. for $2,000,000 each. The notes bear interest at
6% annually. Quarterly interest through June 30, 2010 was accrued
and added to the principal balance. Interest is paid quarterly in
arrears beginning September 30, 2010. All remaining unpaid accrued
interest and principal was due August 1, 2015. Accrued interest on
the notes which matured in August 2015 totaled $1,372,743 at
December 31, 2019 and 2018.
On August 3, 2017,
the Company and HealthTronics, Inc. entered into a third amendment
(the “Third
Amendment”) to amend
certain provisions of the notes payable, related parties. The Third
Amendment provides for the extension of the due date to December
31, 2018, revision of the mandatory prepayment provisions and the
future issuance of additional warrants to HealthTronics upon
certain conditions.
Since December 31,
2018, the Company has been in default under the notes, as amended
by the Third Amendment, and as a result HealthTronics, Inc. could,
among other rights and remedies, exercise its rights under the
security agreement granting HealthTronics, Inc. a first priority
security interest in the assets of the Company. The Company is in
negotiations with HealthTronics, Inc. to address the event of
default.
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 2
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.
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 U.S. 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 (DFU) 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.
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 dermaPACE treatments, product sales,
licensing transactions and other activities.
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:
●
wound conditions,
including diabetic foot ulcers, venous and arterial ulcers,
pressure sores, burns and other skin eruption
conditions;
●
orthopedic
applications, such as eliminating chronic pain in joints from
trauma, arthritis or tendons/ligaments inflammation, speeding the
healing of fractures (including nonunion or delayed-union
conditions), improving bone density in osteoporosis, fusing bones
in the extremities and spine, and other potential sports injury
applications;
●
plastic/cosmetic
applications such as cellulite smoothing, graft and transplant
acceptance, skin tightening, scarring and other potential aesthetic
uses; and
●
cardiac
applications for removing plaque due to atherosclerosis improving
heart muscle performance.
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 and food liquids and
finally for maintenance of industrial installations by disrupting
biofilms formation. Our business approach will be through licensing
and/or partnership opportunities.
We were formed as a
Nevada corporation in 2004. We maintain a public internet site at
www.sanuwave.com. The information on our websites is not part of
this prospectus.
Pulsed Acoustic Cellular Expression (PACE) Technology for
Regenerative Medicine
Our PACE product
candidates, including our lead product candidate, dermaPACE,
deliver high-energy acoustic pressure waves in the shock wave
spectrum to produce compressive and tensile stresses on cells and
tissue structures. These mechanical stresses at the cellular level
have been shown in pre-clinical work to promote angiogenic and
positive inflammatory responses, and quickly initiate the healing
cascade. This has been shown in pre-clinical work to result in
microcirculatory improvement, including increased perfusion and
blood vessel widening (arteriogenesis), the production of
angiogenic growth factors, enhanced new blood vessel formation
(angiogenesis) and the subsequent regeneration of tissue such as
skin, musculoskeletal and vascular structures. PACE procedures
trigger the initiation of an accelerated inflammatory response that
speeds wounds into proliferation phases of healing and subsequently
returns a chronic condition to an acute condition to help
reinitiate the body’s own
healing response. We believe that our PACE technology is well
suited for various applications due to its activation of a broad
spectrum of cellular events critical for the initiation and
progression of healing.
High-energy,
acoustic pressure shock waves are the primary component of our
previously developed product, OssaTron, which was approved by the
FDA and marketed in the United States for use in chronic plantar
fasciitis of the foot in 2000 and for elbow tendonitis in 2003.
Previously, acoustic pressure shock waves have been used safely at
much higher energy and pulse levels in the lithotripsy procedure
(breaking up kidney stones) by urologists for over 25 years and has
reached the care status of “golden standard” for the treatment of kidney
stones.
We research,
design, manufacture, market and service our products worldwide and
believe we have already demonstrated that our technology is safe
and effective in stimulating healing in chronic musculoskeletal
conditions of the foot and the elbow through our United States FDA
Class III PMA approved OssaTron device, and in the stimulation of
bone and chronic tendonitis regeneration in the musculoskeletal
environment through the utilization of our orthoPACE, Evotron and
OssaTron devices in Europe, Asia and Asia/Pacific.
We believe our
experience from our preclinical research and the clinical use of
our predecessor legacy devices in Europe and Asia, as well as our
OssaTron device in the United States, demonstrates the safety,
clinical utility and efficacy of these products. In addition, we
have preclinical programs focused on the development and better
understanding of treatments specific to our target
applications.
Currently, there
are limited biological or mechanical therapies available to
activate the healing and regeneration of skin, musculoskeletal
tissue and vascular structures. As baby boomers age, the incidence
of their targeted diseases and musculoskeletal injuries and
ailments will be far more prevalent. We believe that our
pre-clinical and clinical studies suggest that our PACE technology
will be effective in targeted applications. We anticipate that
future clinical studies should lead to regulatory approval of our
regenerative product candidates in the Americas, Middle East and
Africa. If approved by the appropriate regulatory authorities, we
believe that our product candidates will offer new, effective and
noninvasive (extracorporeal) treatment options in wound healing,
orthopedic injuries, plastic/cosmetic uses and cardiovascular
procedures, improving the quality of life for millions of patients
suffering from injuries or deterioration of tissue, bones and
vascular structures.
dermaPACE – Our Lead Product Candidate
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.
The dermaPACE
system was evaluated using two studies under IDE G070103. The
studies were designed as prospective, randomized, double-blind,
parallel-group, sham-controlled, multi-center 24-week studies at 39
centers. A total of 336 subjects were enrolled and treated with
either dermaPACE plus conventional therapy or conventional therapy
(a.k.a. standard of care) alone. Conventional therapy included, but
was not limited to, debridement, saline-moistened gauze, and
pressure reducing footwear. The objective of the studies was to
compare the safety and efficacy of the dermaPACE device to
sham-control application. The prospectively defined primary
efficacy endpoint for the dermaPACE studies was the incidence of
complete wound closure at 12 weeks post-initial application of the
dermaPACE system (active or sham). Complete wound closure was
defined as skin re-epithelialization without drainage or dressing
requirements, confirmed over two consecutive visits within
12-weeks. If the wound was considered closed for the first time at
the 12 week visit, then the next visit was used to confirm closure.
Investigators continued to follow subjects and evaluate wound
closure through 24 weeks.
Between the two
studies there were over 336 patients evaluated, with 172 patients
treated with dermaPACE and 164 control group subjects with use of a
non-functional device (sham). Both treatment groups received wound
care consistent with the standard of care in addition to device
application. Study subjects were enrolled using pre-determined
inclusion/exclusion criteria in order to obtain a homogenous study
population with chronic diabetes and a diabetic foot ulcer that has
persisted a minimum of 30 days and its area is between
1cm2 and
16cm2,
inclusive. Subjects were enrolled at Visit 1 and followed for a
run-in period of two weeks. At two weeks (Visit 2 – Day 0), the first treatment was
applied (either dermaPACE or Sham Control application).
Applications with either dermaPACE or Sham Control were then made
at Day 3 (Visit 3), Day 6 (Visit 4), and Day 9 (Visit 5) with the
potential for 4 additional treatments in Study 2. Subject progress
including wound size was then observed on a bi-weekly basis for up
to 24 weeks at a total of 12 visits (Weeks 2-24; Visits
6-17).
We retained
Musculoskeletal Clinical Regulatory Advisers, LLC (MCRA) in January
2015 to lead the Company’s interactions and correspondence
with the FDA for the dermaPACE, which have already commenced. MCRA
has successfully worked with the FDA on numerous Premarket
Approvals (PMAs) for various musculoskeletal, restorative and
general surgical devices since 2006.
Working with MCRA,
we submitted to FDA a de novo petition on
July 23, 2016. Due to the strong safety profile of our device and
the efficacy of the data showing statistical significance for wound
closure for dermaPACE subjects at 20 weeks, we believe that the
dermaPACE device should be considered for classification into Class
II as there is no legally marketed predicate device and there is
not an existing Class III classification regulation or one or more
approved PMAs (which would have required a reclassification under
Section 513(e) or (f)(3) of the FD&C Act). 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.
Finally, 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 and South
Korea.
We are actively
marketing the dermaPACE to the European Community, Canada and
Asia/Pacific, utilizing distributors in select
countries.
Clinical Studies
A dosage study has
been developed for launch in Poland to optimize dermaPACE system
treatment dosage for producing a more rapid reduction in size of a
diabetic foot ulcer (“DFU”). The focus will be on increasing the
number of shock waves delivered per treatment, as a function of
DFUs area. To determine
the dosage necessary, three new distinctive regimens will be
assessed during the study. This study started in April 2019 and
is expected to be finalized in the third quarter of
2020.
A post-market pilot
study to evaluate the effects of high energy acoustic shock wave
therapy on local skin perfusion and healing of DFUs will be
conducted at two sites: one in New Jersey and one in California.
The intent of this trial is to quantify the level of increased
perfusion and oxygenation during and after treatment with the
dermaPACE system. This study started in April 2019 and is expected
to be finalized late in the third quarter of 2020.
Growth Opportunity in Wound Care Treatment
We are focused on
the development of products that treat unmet medical needs in large
market opportunities. Our FDA approval in the United States for our
lead product candidate, dermaPACE, is the first step in providing
an option to a currently unmet need in the treatment of diabetic
foot ulcers. Diabetes is common, disabling and deadly. In the
United States, diabetes has reached epidemic
proportions. Based on our
research, foot ulcerations are one of the leading causes of
hospitalization in diabetic patients and lead to billions of
dollars in health care expenditures annually. According to a 2015
report by the Centers for Disease Control and Prevention,
approximately 30.3 million people (diagnosed and undiagnosed),
roughly 9.4% of the United States population, have diabetes
and 1.5
million new cases of diabetes were diagnosed in people aged 18
years or older in 2015. According to the same study, approximately
25% of diabetics will develop a DFU during their lifetime. Foot
ulcers are a significant complication of diabetes mellitus and
often precede lower-extremity amputation. The most frequent
underlying etiologies are neuropathy, trauma, deformity, high
plantar pressures, and peripheral arterial disease. Over 50% of
DFUs will become infected, resulting in high rates of
hospitalization, increased morbidity and potential lower extremity
amputation. Diabetic foot infections (“DFI”) are one of the most common
diabetes related cause of hospitalization in the United States,
accounting for 20% of all hospital admissions. Readmission rates
for DFI patients are approximately 40% and nearly one in six
patients die within 1 year of their infection. In a large
prospective study of patients with DFU, the presence of infection
increased the risk of a minor amputation by 50% compared to ulcer
patients without infection. DFUs account for more than half of the
non-traumatic lower-extremity amputations in the world. In June
2006, Advanced Medical Technology Association (“AdvaMed”) estimated that chronic leg wounds
(ulcers) account for the loss of many workdays per year, at a cost
of approximately $20.8 billion in lost productivity. Advanced,
cost-effective treatment modalities for diabetes and its
comorbidities, including diabetic foot ulcers, are in great need
globally, yet in short supply. According to the International
Diabetes Federation 2017 Global Fact Sheet, 1 in 11 adults has
diabetes (approximately 425 million people) and 12% of global
health expenditure is spent on diabetes (approximately $727
billion).
A majority of challenging wounds are non-healing chronic wounds and
in addition, chronic diabetic foot ulcers and pressure ulcers are
often slow-to-heal wounds, which often fail to heal for many
months, and sometimes, for several years. These wounds often
involve physiologic, complex and multiple complications such as
reduced blood supply, compromised lymphatic systems or immune
deficiencies that interfere with the body’s normal wound healing processes.
These wounds often develop due to a patient’s impaired vascular and tissue
repair capabilities. Wounds that are difficult to treat do not
always respond to traditional therapies, which include
hydrocolloids, hydrogels and alginates, among other treatments. We
believe that physicians and hospitals need a therapy that addresses
the special needs of these chronic wounds with high levels of both
clinical and cost effectiveness.
We believe we are
developing a safe and advanced technology in the wound healing and
tissue regeneration market with PACE. dermaPACE is noninvasive and
does not require anesthesia, making it a cost-effective,
time-efficient and painless approach to wound care. Physicians and
nurses look for therapies that can accelerate the healing process
and overcome the obstacles of patients’ compromised conditions, and prefer
therapies that are easy to administer. In addition, since many of
these patients are not confined to bed, healthcare providers want
therapies that are minimally disruptive to the patient’s or the caregiver’s daily routines.
dermaPACE’s noninvasive
treatments are designed to elicit the body’s own healing response and, followed
by simple standard of care dressing changes, are designed to allow
for limited disruption to the patients’ normal lives and have no effect on
mobility while their wounds heal.
Developing Product Opportunities - Orthopedic
We launched the
orthoPACE device in Europe, which is intended for use in
orthopedic, trauma and sports medicine indications, following CE
Marking approval in 2010. The device features four types of
applicators including a unique applicator that is less painful for
some indications and may reduce or completely eliminate anesthesia
for some patients. In the orthopedic setting, the orthoPACE is
being used to treat tendinopathies and acute and nonunion
fractures, including the soft tissue surrounding the fracture to
accelerate healing and prevent secondary complications and their
associated treatment costs. In 2013, we obtained approval from
South Korea’s Ministry of
Food and Drug Safety to market orthoPACE in that
country.
We believe there
are significant opportunities in the worldwide orthopedic market,
driven by aging baby boomers and their desire for active lifestyles
well into retirement and the growth in the incidence of
osteoporosis, osteoarthritis, obesity, diabetes and other diseases
that cause injury to musculoskeletal tissues and/or impair the
ability of the body to heal injuries.
We have experience
in the sports medicine field (which generally refers to the
non-surgical and surgical management of cartilage, ligament and
tendon injuries) through our legacy devices, OssaTron and Evotron.
Common examples of these injuries include extremity joint pain,
torn rotator cuffs (shoulder), tennis elbow, Achilles’ tendon tears and torn meniscus
cartilage in the knee. Injuries to these structures are very
difficult to treat because the body has a limited natural ability
to regenerate these kinds of tissues. Cartilage, ligament and
tendons seldom return to a pre-injury state of
function. Due to a lack
of therapies that can activate healing and regenerate these
tissues, many of these injuries will result in a degree of
permanent impairment and chronic pain. Prior investigations and
pre-clinical work indicate that PACE can activate various cell
types and may be an important adjunct to the management of sports
medicine injuries.
Trauma injuries are
acute and result from any physical damage to the body caused by
violence or accident or fracture. Surgical treatment of traumatic
fractures often involves fixation with metallic plates, screws and
rods (internal fixation) and include off-loading to prevent motion,
permitting the body to initiate a healing response. In the United
States, six million traumatic fractures are treated each year, and
over one million internal fixation procedures are performed
annually. The prevalence of non-union among these fractures is
between 2.5% and 10.0% depending on the fracture type and risk factors such as diabetes and
smoking history or other systemic diseases. At the time of surgery,
adjunctive agents (such as autograft, cadaver bone and synthetic
filling materials) are often implanted along with internal fixation
to fill bony gaps or facilitate the healing process to avoid
delayed union or non-union (incomplete fracture healing) results.
Both pre-clinical and clinical investigations have shown positive
results, suggesting our technology could potentially be developed
as an adjunct to these surgeries or primary treatment protocol for
delayed or non-union events.
Non-Medical Uses for Our Shockwave Technology
We believe there
are significant license/partnership opportunities for our acoustic
pressure shockwave technology in non-medical uses, including in the
energy, water, food, and industrial markets.
Due to their
powerful pressure gradients and localized cavitational effects, we
believe that high-energy, acoustic pressure shockwaves can be used
to clean, in an energy efficient manner, contaminated fluids from
impurities, bacteria, viruses, and other harmful micro-organisms,
which provides opportunities for our technology in cleaning
industrial and domestic/municipal waters. Based on the same
principles of action of the acoustic pressure shockwaves against
bacteria, viruses, and harmful micro-organisms, we believe our
technology can be applied for cleaning or sterilization of various
foods such as milk, natural juices, and meats.
In the energy
sector, we believe that the acoustic pressure shockwaves can be
used to improve oil recovery (IOR), as a supplement to or in
conjunction with existing fracking technology, which utilizes high
pressurized water/gases to crack the rocks that trapped oil in the
underground reservoir. Through the use of our high-energy, acoustic
pressure shockwaves the efficiency can be improved and in the same
time the environmental impact of the fracking process can be
reduced. Furthermore, we believe our technology can be used for
enhanced oil recovery (EOR) based on the changes in oil flow
characteristics resulting from acoustic pressure shockwave
stimulation, as a tertiary method of oil recovery from older oil
fields.
Additionally, we
demonstrated through three studies performed at Montana State
University that high-energy, acoustic pressure shockwaves are
disrupting biofilms and thus can be used for surface cleaning
monuments, ship hulls, and underwater structure cleaning, or to
unclog pipes in the energy industry (shore or off-shore
installations), food industry, and water management industry, which
will reduce or eliminate down times with significant financial
benefits for maintenance of existing infrastructure. Also, our
technology should have a significant environmental impact by
eliminating or reducing the use of harmful chemicals, which are the
preferred biofilm cleaning method at this time.
Market Trends
We are focused on
the development of regenerative medicine products that have the
potential to address substantial unmet clinical needs across broad
market indications. We believe there are limited therapeutic
treatments currently available that directly and reproducibly
activate healing processes in the areas in which we are focusing,
particularly for wound care and repair of certain types of
musculoskeletal conditions.
According to
AdvaMed and Centers for Medicare & Medicaid Services data from
2006 and our internal projections, the United States advanced wound
healing market for the dermaPACE is estimated at $20 billion, which includes diabetic foot
ulcers, pressure sores, burns and traumatic wounds, and chronic
mixed leg ulcers. We also believe there are significant
opportunities in the worldwide orthopedic and spine markets, driven
by aging baby boomers and their desire for active lifestyles well
into retirement and the growth in the incidence of osteoporosis,
osteoarthritis, obesity, diabetes and other diseases that cause
injury to orthopedic tissues and/or impair the ability of the body
to heal injuries.
With the success of
negative pressure wound therapy devices in the wound care market
over the last decade and the recognition of the global epidemic
associated with certain types of wounds, as well as deteriorating
musculoskeletal conditions attributed to obesity, diabetes,
vascular and heart disease, as well as sports injuries, we believe
that Medicare and private insurers have become aware of the high
costs and expenditures associated with the adjunctive therapies
being utilized for wound healing and orthopedic conditions that
have limited efficacies in full skin closure, or bone and tissue
regeneration. We believe the wound healing and orthopedic markets
are undergoing a transition, and market participants are interested
in biological response activating devices that are applied
noninvasively and seek to activate the body’s own capabilities for regeneration
of tissue at injury sites in a cost-effective manner.
Strategy
Our primary
objective is to be a leader in the development and
commercialization of our acoustic pressure shock wave technology
for regenerative medicine and other applications. Our initial focus
is regenerative medicine utilizing noninvasive (extracorporeal),
acoustic pressure shock waves to produce a biological response
resulting in the body healing itself through the repair and
regeneration of skin, musculoskeletal tissue and vascular
structures. Our lead regenerative product in the United States is
the dermaPACE device for treating diabetic foot ulcers, which was
subject to two double-blinded, randomized Phase III clinical
studies. On December 28,
2017, the U.S. 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 (DFU) 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.
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.
Our immediate goal
for our regenerative medicine technology involves leveraging the
knowledge we gained from our existing human heel and elbow
indications to enter the advanced wound care market with innovative
treatments.
The key elements of
our strategy include the following:
● Commercialize and support the domestic distribution of our
dermaPACE device to treat diabetic foot ulcers.
On December 28,
2017, the U.S. 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 (DFU) 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. We began
the commercialization of dermaPACE in the United States in 2018
through strategic partnership and have continued commercialization
in 2019 through placement of devices in doctors’ offices, wound care centers and
hospitals by our internal sales team. For example, in February
2018, we entered into an agreement with Premier Shockwave Wound
Care, Inc. (“PSWC”) and Premier Shockwave, Inc.
(“PS”) for the purchase by PSWC and PS of
dermaPACE Systems and related equipment sold by us, including a
minimum purchase of 100 units over 3 years, and granting PSWC and
PS limited but exclusive distribution rights to provide dermaPACE
Systems to certain government healthcare facilities in exchange for
the payment of certain royalties to us. PSWC is a related party
since it is owned by A. Michael Stolarski, a member of the
Company’s board of
directors and an existing shareholder of the Company.
● Develop and commercialize our noninvasive biological
response activating devices in the regenerative medicine area for
the treatment of skin, musculoskeletal tissue and vascular
structures.
We intend to use
our proprietary technologies and know-how in the use of
high-energy, acoustic pressure shock waves to address unmet medical
needs in wound care, orthopedic, plastic/cosmetic and cardiac
indications, possibly through potential license and/or partnership
arrangements.
● License and seek partnership opportunities for our
non-medical acoustic pressure shock wave technology platform,
know-how and extensive patent portfolio.
We intend to use
our acoustic pressure shock wave technology and know-how for
non-medical uses, including energy, food, water cleaning and other
industrial markets, through license/partnership
opportunities.
● Support the global distribution of our
products.
Our portfolio of
products, the dermaPACE and orthoPACE, are CE Marked and sold
through select distributors in certain countries in Europe, Canada,
Asia and Asia/Pacific. Our revenues will continue from sales of the
devices and related applicators in these markets. We intend to
continue to add additional distribution partners in the Americas,
Middle East, Africa, Europe and Asia/Pacific.
Scientific Advisors
We have established
a network of scientific advisors that brings expertise in wound
healing, orthopedics, cosmetics, clinical and scientific research,
and FDA experience. We consult our scientific advisors on an
as-needed basis on clinical and pre-clinical study design, product
development, and clinical indications.
We pay consulting
fees to certain members of our scientific advisory board for the
services they provide to us, in addition to reimbursing them for
incurred expenses. The amounts vary depending on the nature of the
services.
Sales, Marketing and Distribution
Following FDA
approval in December 2017, we intend to seek a development and/or
commercialization partnership, or to commercialize the product
ourselves. Outside the United States, we retain distributors to
represent our products in selective international markets. These
distributors have been selected based on their existing business
relationships and the ability of their sales force and distribution
capabilities to effectively penetrate the market with our PACE
product line. We rely on these distributors to manage physical
distribution, customer service and billing services for our
international customers. Four distributors and partners accounted
fo 18%, 15% and 12% of revenues for the year ended December 31,
2019, and 0%, 0% and 22% of accounts receivable at December 31,
2019. Three distributors and partners accounted for 33%, 23% and
11% of revenues for the year ended December 31, 2018, and 24%, 60%
and 7.7% of accounts receivable at December 31, 2018.
Manufacturing
We have developed a
network of suppliers, manufacturers and contract service providers
to provide sufficient quantities of our products.
We are party to a
manufacturing supply agreement with Swisstronics Contract
Manufacturing AG in Switzerland, a division of Cicor Technologies
Ltd., covering the generator box component of our products. Our
generator boxes are manufactured in accordance with applicable
quality standards (EN ISO 13485) and applicable industry and
regulatory standards. We produce the applicators and applicator
kits for our products. In addition, we program and load software
for both the generator boxes and applicators and perform the final
product testing and certifications internally.
Our facility in
Suwanee, Georgia consists of 10,177 square feet and provides
office, research and development, quality control, production and
warehouse space. It is a FDA registered facility and is ISO
13485:2016 and Medical Device Single Audit Program (“MDSAP”) certified (for meeting the
requirements for a comprehensive management system for the design
and manufacture of medical devices).
Intellectual Property
Our success depends
in part on our ability to obtain and maintain proprietary
protection for our products, product candidates, technology, and
know-how, to operate without infringing on the proprietary rights
of others and to prevent others from infringing upon our
proprietary rights. We seek to protect our proprietary position by,
among other methods, filing United States and selected foreign
patent applications and United States and selected foreign
trademark applications related to our proprietary technology,
inventions, products, and improvements that are important to the
development of our business. Effective trademark, service mark,
copyright, patent, and trade secret protection may not be available
in every country in which our products are made available. The
protection of our intellectual property may require the expenditure
of significant financial and managerial resources.
Patents
We consider the
protection afforded by patents important to our business. We intend
to seek and maintain patent protection in the United States and
select foreign countries, where deemed appropriate for products
that we develop. There are no assurances that any patents will
result from our patent applications, or that any patents that may
be issued will protect our intellectual property, or that any
issued patents or pending applications will not be successfully
challenged, including as to ownership and/or validity, by third
parties. In addition, if we do not avoid infringement of the
intellectual property rights of others, we may have to seek a
license to sell our products, defend an infringement action or
challenge the validity of intellectual property in court. Any
current or future challenges to our patent rights, or challenges by
us to the patent rights of others, could be expensive and time
consuming.
We derive our
patent rights, including as to both issued patents and “patent pending” applications, from three sources:
(1) assignee of patent rights in technology we developed; (2)
assignee of patent rights purchased from HealthTronics, Inc.
(“HealthTronics”); and (3) as licensee of certain
patent rights assigned to HealthTronics. In August 2005, we
purchased a significant number of patents and patent applications
from HealthTronics, to whom we granted back perpetual and
royalty-free field-of-use license rights in the purchased patent
portfolio primarily for urological uses. We believe that our owned
and licensed patent rights provide a competitive advantage with
respect to others that might seek to utilize certain of our
apparatuses and methods incorporating extracorporeal acoustic
pressure shockwave technologies that we have patented, However, we
do not hold patent rights that cover all of our products, product
components, or methods that utilize our products. We also have not
conducted a competitive analysis or valuation with respect to our
issued and pending patent portfolio in relation to our current
products and/or competitor products.
We are the assignee of twenty-five issued United States patents and
thirty-one issued foreign patents that are not expired, which on
average have remaining useful lives of ten years with the longest
useful life extending to 2037. Our current issued United States and
foreign patents include patent claims directed to particular
electrode configurations, piezoelectric fiber shockwave devices,
chemical components for shockwave generation, reflector geometries,
medical systems general construction, and detachable therapy heads
with data storage devices. Our United States patents also include
patent claims directed to methods of using acoustic pressure
shockwaves, including devices such as our products, to treat
ischemic conditions, spinal cord scar tissue and spinal injuries,
bone fractures and osteoporosis, blood sterilization, stem cell
stimulation, tissue cleaning, and, within particular treatment
parameters, diabetic foot ulcers and pressure sores. While such
patented method claims may provide patent protection against
certain indirect infringing promotion and sales activities of
competing manufacturers and distributors, certain medical methods
performed by medical practitioners or related health care entities
may be subject to exemption from potential infringement claims
under 35 U.S.C. § 287(c)
and, therefore, may limit enforcement of claims of our medical and
non-medical method patents as compared to device construction
patents.
We also currently
maintain ten United States non-provisional patent applications and
nineteen foreign patent applications. Our patent-pending rights
include inventions directed to certain shockwave devices and
systems, ancillary products, and components for acoustic pressure
shockwave treatment devices, and various methods of using acoustic
pressure shockwaves. Such patent-pending methods include, for
example, using acoustic pressure shockwaves to treat soft tissue
disorders, bones, joints, wounds, skin, blood vessels and
circulatory disorders, lymphatic disorders, cardiac tissue, fat and
cellulite, cancer, blood and fluids sterilization, to destroy
pathogens, to process fluids, meat and dairy products, to destroy
blood vessels occlusions and plaques, and to perform personalized
medical treatments. All of our United States and foreign pending
applications either have yet to be examined or require response to
an examiner’s office
action rejections and, therefore, remain subject to further
prosecution, the possibility of further rejections and appeals,
and/or the possibility we may elect to abandon prosecution, without
assurance that a patent may issue from any pending
application.
Under our license
to HealthTronics, we reserve exclusive rights in our purchased
portfolio as to orthopedic, tendonopathy, skin wounds, cardiac,
dental, neural medical conditions and to all conditions in animals
(Ortho Field). HealthTronics receives field-exclusive and
sublicensable rights under the purchased portfolio as to (1)
certain HealthTronics lithotripsy devices in all fields other than
the Ortho Field, and (2) all products in the treatment of renal,
ureteral, gall stones and other urological conditions (Litho
Field). HealthTronics also receives non-exclusive and
non-sublicensable rights in the purchased portfolio as to any
products in all fields other than the Ortho Field and Litho Field.
Refer to section “Contractual Obligations” for information on the default of
our loan with HealthTronics.
Pursuant to mutual
amendment and other assignment-back rights under the patent license
agreement with HealthTronics, we are also a licensee of certain
patents and patent applications that have been assigned to
HealthTronics. We received a perpetual, non-exclusive and
royalty-free license to nine issued foreign patents. Our
non-exclusive license is subject to HealthTronics’ sole discretion to further maintain
any of the patents and pending applications assigned back to
HealthTronics.
As part of the sale
of the veterinary business in June 2009, we have also granted
certain exclusive and non-exclusive patent license rights to Pulse
Veterinary Technologies, LLC for most of our patent portfolio
issued before 2009 to utilize acoustic pressure shockwave
technologies in the field of non-human mammals.
Given our
international patent portfolio, there are growing risks of
challenges to our existing and future patent rights. Such
challenges may result in invalidation or modification of some or
all of our patent rights in a particular patent territory and
reduce our competitive advantage with respect to third party
products and services. Such challenges may also require the
expenditure of significant financial and managerial
resources.
If we become
involved in future litigation or any other adverse intellectual
property proceeding, for example, as a result of an alleged
infringement, or a third party alleging an earlier date of
invention, we may have to spend significant amounts of money and
time and, in the event of an adverse ruling, we could be subject to
liability for damages, including treble damages, invalidation of
our intellectual property and injunctive relief that could prevent
us from using technologies or developing products, any of which
could have a significant adverse effect on our business, financial
condition and results of operation. In addition, any claims
relating to the infringement of third party proprietary rights, or
earlier date of invention, even if not meritorious, could result in
costly litigation or lengthy governmental proceedings and could
divert management’s
attention and resources and require us to enter into royalty or
license agreements which are not advantageous, if available at
all.
Trademarks
Since other
products on the market compete with our products, we believe that
our product brand names are an important factor in establishing and
maintaining brand recognition.
We have the
following trademark registrations: SANUWAVE® (United States,
European Community, Canada, Japan, Switzerland, Taiwan and under
the Madrid Protocol), dermaPACE® (United States,
European Community, Japan, South Korea, Switzerland, Taiwan,
Canada, Brazil and under the Madrid Protocol),
angioPACE®
(Australia, European Community and Switzerland), PACE® (Pulsed Acoustic
Cellular Expression) (United States, European Community, China,
Hong Kong, Singapore, Switzerland, Taiwan, and Canada),
orthoPACE® (United States and
European Community), DAP® (Diffused Acoustic
Pressure) (United States and European Community) and
Profile™
(United States, European Community and Switzerland).
We also maintain
trademark registrations for: OssaTron® (United States and
Germany), Evotron® (Germany and
Switzerland), Evotrode® (Germany and
Switzerland), Orthotripsy® (United States). We
are phasing out the Reflectron® (Germany and
Switzerland) and Reflectrode® (Germany and
Switzerland), evoPACE® (Australia,
European Community and Switzerland), trademarks due to the fact
that Reflectron® and
Reflectrode® products are no
longer available for sale in any market and evoPACE® is a product that
was never commercialized.
Potential Intellectual Property Issues
Although we believe
that the patents and patent applications, including those that we
license, provide a competitive advantage, the patent positions of
biotechnology and medical device companies are highly complex and
uncertain. The medical device industry is characterized by the
existence of a large number of patents and frequent litigation
based on allegations of patent infringement. Our success will
depend in part on us not infringing on patents issued to others,
including our competitors and potential competitors, as well as our
ability to enforce our patent rights. We also rely on trade
secrets, know-how, continuing technological innovation and
in-licensing opportunities to develop and maintain our proprietary
position.
Despite any
measures taken to protect our intellectual property, unauthorized
parties may attempt to copy aspects of our products and product
candidates, or to obtain and use information that we regard as
proprietary. In enforcement proceedings in Switzerland, we assisted
HealthTronics as an informer of misappropriation by a Swiss company
called SwiTech and related third parties of intellectual property
rights in legacy proprietary software and devices relating to
assets we purchased from HealthTronics in August 2005. As a result
of this action, SwiTech was forced into bankruptcy. We also pursued
the alleged misappropriation by another Swiss company called
SwiTalis and related third parties of intellectual property rights
in legacy proprietary software and devices relating to assets we
purchased from HealthTronics in August 2005. In 2016, SwiTalis
claimed copyright rights on the High Voltage Modules that were used
in our devices and the old line of Pulse Vet devices during the
manufacturing process at Swisstronics in Switzerland. At this time,
however, no such court action against Swisstronics is pending in
Switzerland and we believe that it is unlikely that SwiTalis will
pursue their earlier allegations against Swisstronics and,
indirectly, us. In 2017, we abandoned our action against SwiTalis.
There can be no assurance, however, that future claims or lawsuits
against us may not be brought, and such present or future actions
against violations of our intellectual property rights may result
in us incurring material expense and divert the attention of
management.
Third parties that
license our proprietary rights, such as trademarks, patented
technology or copyrighted material, may also take actions that
diminish the value of our proprietary rights or reputation. In
addition, the steps we take to protect our proprietary rights may
not be adequate and third parties may infringe or misappropriate
our copyrights, trademarks, trade dress, patents, and similar
proprietary rights.
We collaborate with
other persons and entities on research, development, and
commercialization activities and expect to do so in the future.
Disputes may arise about inventorship and corresponding rights in
know-how and inventions resulting from the joint creation or use of
intellectual property by us and our collaborators, researchers,
licensors, licensees and consultants. In addition, other parties
may circumvent any proprietary protection that we do have. As a
result, we may not be able to maintain our proprietary
position.
Competition
We believe the
advanced wound care market can benefit from our technology which
up-regulates the biological factors that promote wound healing.
Current medical technologies developed by Acelity (formerly Kinetic
Concepts, Inc.), Organogenesis, Inc., Smith &Nephew plc, Derma
Sciences, Inc., MiMedx Group, Inc., Osiris Therapeutics, Inc.,
Molnlycke Health Care, and Systagenix Wound Management (US), Inc.
(now owned by Acelity) manage wounds, but, in our opinion, do not
provide the value proposition to the patients and care givers like
our PACE technology has the potential to do. The leading medical
device serving this market is the Vacuum Assisted Closure
(“V.A.C.”) System marketed by KCI. The V.A.C.
is a negative pressure wound therapy device that applies suction to
debride and manage wounds.
There are also
several companies that market extracorporeal shockwave device
products targeting lithotripsy and orthopedic markets, including
Dornier MedTech, Storz Medical AG, Electro Medical Systems (EMS)
S.A., and CellSonic Medical which could ultimately pursue the wound
care market. Nevertheless, we believe that the dermaPACE System has
a competitive advantage over all of these existing technologies by
achieving wound closure by means of a minimally invasive process
through innate biological response to PACE technology.
Developing and
commercializing new products is highly competitive. The market is
characterized by extensive research and clinical efforts and rapid
technological change. We face intense competition worldwide from
medical device, biomedical technology and medical products and
combination products companies, including major pharmaceutical
companies. We may be unable to respond to technological advances
through the development and introduction of new products. Most of
our existing and potential competitors have substantially greater
financial, marketing, sales, distribution, manufacturing and
technological resources. These competitors may also be in the
process of seeking FDA or other regulatory approvals, or patent
protection, for new products. Our competitors may commercialize new
products in advance of our products. Our products also face
competition from numerous existing products and procedures, which
currently are considered part of the standard of care. In order to
compete effectively, our products will have to achieve widespread
market acceptance.
Regulatory Matters
FDA Regulation
Each of our
products must be approved or cleared by the FDA before it is
marketed in the United States. Before and after approval or
clearance in the United States, our product candidates are subject
to extensive regulation by the FDA under the Federal Food, Drug,
and Cosmetic Act and/or the Public Health Service Act, as well as
by other regulatory bodies. FDA regulations govern, among other
things, the development, testing, manufacturing, labeling, safety,
storage, record-keeping, market clearance or approval, advertising
and promotion, import and export, marketing and sales, and
distribution of medical devices and pharmaceutical
products.
In the United
States, the FDA subjects medical products to rigorous review. If we
do not comply with applicable requirements, we may be fined, the
government may refuse to approve our marketing applications or to
allow us to manufacture or market our products, and we may be
criminally prosecuted. Failure to comply with the law could result
in, among other things, warning letters, civil penalties, delays in
approving or refusal to approve a product candidate, product
recall, product seizure, interruption of production, operating
restrictions, suspension or withdrawal of product approval,
injunctions, or criminal prosecution.
The FDA has
determined that our technology and product candidates constitute
“medical
devices.” The FDA
determines what center or centers within the FDA will review the
product and its indication for use, and also determines under what
legal authority the product will be reviewed. For the current
indications, our products are being reviewed by the Center for
Devices and Radiological Health. However, we cannot be sure that
the FDA will not select a different center and/or legal authority
for one or more of our other product candidates, in which case the
governmental review requirements could vary in some
respects.
FDA Approval or Clearance of Medical Devices
In the United
States, medical devices are subject to varying degrees of
regulatory control and are classified in one of three classes
depending on the extent of controls the FDA determines are
necessary to reasonably ensure their safety and
efficacy:
●
Class I: general controls, such as labeling
and adherence to quality system regulations;
●
Class II: special controls, pre-market
notification (510(k)), specific controls such as performance
standards, patient registries, and post market surveillance, and
additional controls such as labeling and adherence to quality
system regulations; and
●
Class III: special controls and approval of
a pre-market approval (PMA) application.
Each of our product
candidates require FDA authorization prior to marketing, by means
of either a 510(k) clearance or a PMA approval.
To request
marketing authorization by means of a 510(k) clearance, we must
submit a pre-market notification demonstrating that the proposed
device is substantially equivalent to another legally marketed
medical device, has the same intended use, and is as safe and
effective as a legally marketed device and does not raise different
questions of safety and effectiveness than does a legally marketed
device. 510(k) submissions generally include, among other things, a
description of the device and its manufacturing, device labeling,
medical devices to which the device is substantially equivalent,
safety and biocompatibility information, and the results of
performance testing. In some cases, a 510(k) submission must
include data from human clinical studies. Marketing may commence
only when the FDA issues a clearance letter finding substantial
equivalence. After a device receives 510(k) clearance, any product
modification that could significantly affect the safety or
effectiveness of the product, or that would constitute a
significant change in intended use, requires a new 510(k) clearance
or, if the device would no longer be substantially equivalent,
would require a PMA. If the FDA determines that the product does
not qualify for 510(k) clearance, then a company must submit and
the FDA must approve a PMA before marketing can begin.
In the past, the
510(k) pathway for product marketing required only the proof of
significant equivalence in technology for a given indication with a
previously cleared device. Currently, there has been a trend of
the FDA requiring additional clinical work to prove efficacy in
addition to technological equivalence. Thus, no matter which
regulatory pathway we may take in the future towards marketing
products in the United States, we will be required to provide
clinical proof of device effectiveness.
Within the past few
years, the FDA has released guidelines for the FDA’s reviewers to use during a
product’s submission
review process. This
guidance provides the FDA reviewers with a uniform method of
evaluating the benefits verses the risks of a device when used for
a proposed specific indication. Such a benefit/risk evaluation is
very useful when applied to a novel device or to a novel indication
and provides the FDA with a consistent tool to document their
decision process. While
intended as a guide for internal FDA use, the public availability
of this guidance allows medical device manufacturers to use the
review matrix to develop sound scientific and clinical backup to
support proposed clinical claims and to help guide the FDA, through
the decision process, to look at the relevant data. We intend to use this benefit/risk
tool in our FDA submissions.
A PMA application
must provide a demonstration of safety and effectiveness, which
generally requires extensive pre-clinical and clinical trial data.
Information about the device and its components, device design,
manufacturing and labeling, among other information, must also be
included in the PMA. As part of the PMA review, the FDA will
inspect the manufacturer’s facilities for compliance with
Quality System Regulation requirements, which govern testing,
control, documentation and other aspects of quality assurance with
respect to manufacturing. If the FDA determines the application or
manufacturing facilities are not acceptable, the FDA may outline
the deficiencies in the submission and often will request
additional testing or information. Notwithstanding the submission
of any requested additional information, the FDA ultimately may
decide that the application does not satisfy the regulatory
criteria for approval. During the review period, an FDA advisory
committee, typically a panel of clinicians and statisticians, is
likely to be convened to review the application and recommend to
the FDA whether, or upon what conditions, the device should be
approved. The FDA is not bound by the advisory panel decision.
While the FDA often follows the panel’s recommendation, there have been
instances where the FDA has not. If the FDA finds the information
satisfactory, it will approve the PMA. The PMA approval can include
post-approval conditions, including, among other things,
restrictions on labeling, promotion, sale and distribution, or
requirements to do additional clinical studies post-approval. Even
after approval of a PMA, a new PMA or PMA supplement is required to
authorize certain modifications to the device, its labeling or its
manufacturing process. Supplements to a PMA often require the
submission of the same type of information required for an original
PMA, except that the supplement is generally limited to that
information needed to support the proposed change from the product
covered by the original PMA.
During the review of either a PMA application or 510(k) submission,
the FDA may request more information or additional studies and may
decide that the indications for which we seek approval or clearance
should be limited. We cannot be sure that our product candidates
will be approved or cleared in a timely fashion or at all. In
addition, laws and regulations and the interpretation of those laws
and regulations by the FDA may change in the future. We cannot
foresee what effect, if any, such changes may have on
us.
Obtaining medical
device clearance, approval, or licensing in the United States or
abroad can be an expensive process. The fees for submitting an
original PMA to the FDA for consideration of device approval are
substantial. Fees for supplement PMA’s are less costly but still can be
substantial. International fee structures vary from minimal to
substantial, depending on the country. In addition, we are subject
to annual establishment registration fees in the United States and
abroad. Device licenses require periodic renewal with associated
fees as well. In the United States, there is an annual requirement
for submitting device reports for Class III/PMA devices, along with
an associated fee. Currently, we are registered as a Small Business
Manufacturer with the FDA and as such are subject to reduced fees.
If, in the future, our revenues exceed a certain annual threshold
limit, we may not qualify for the Small Business Manufacturer
reduced fee amounts and will be required to pay full fee
amounts.
Clinical Trials of Medical Devices
One or more
clinical trials are almost always required to support a PMA
application and more recently are becoming necessary to support a
510(k) submission. Clinical studies of unapproved or un-cleared
medical devices or devices being studied for uses for which they
are not approved or cleared (investigational devices) must be
conducted in compliance with FDA requirements. If an
investigational device could pose a significant risk to patients,
the sponsor company must submit an IDE application to the FDA prior
to initiation of the clinical study. An IDE application must be
supported by appropriate data, such as animal and laboratory test
results, showing that it is safe to test the device on humans and
that the testing protocol is scientifically sound. The IDE will
automatically become effective 30 days after receipt by the FDA unless
the FDA notifies the company that the investigation may not begin.
Clinical studies of investigational devices may not begin until an
institutional review board (IRB) has approved the
study.
During the study,
the sponsor must comply with the FDA’s IDE requirements. These
requirements include investigator selection, trial monitoring,
adverse event reporting, and record keeping. The investigators must
obtain patient informed consent, rigorously follow the
investigational plan and study protocol, control the disposition of
investigational devices, and comply with reporting and record
keeping requirements. We, the FDA, or the IRB at each institution
at which a clinical trial is being conducted, may suspend a
clinical trial at any time for various reasons, including a belief
that the subjects are being exposed to an unacceptable risk. During
the approval or clearance process, the FDA typically inspects the
records relating to the conduct of one or more investigational
sites participating in the study supporting the
application.
However, the
COVID-19 pandemic has impacted our ability to enroll and treat
patients in clinical trials and to monitor data at our clinical
trial sites.
Post-Approval Regulation of Medical Devices
After a device is
cleared or approved for marketing, numerous and pervasive
regulatory requirements continue to apply. These
include:
●
the FDA Quality
Systems Regulation (QSR), which governs, among other things, how
manufacturers design, test, manufacture, exercise quality control
over, and document manufacturing of their products;
●
labeling and claims
regulations, which prohibit the promotion of products for
unapproved or “off-label” uses and impose other restrictions
on labeling;
●
the Medical Device
Reporting regulation, which requires reporting to the FDA of
certain adverse experiences associated with use of the product;
and
●
post market
surveillance, including documentation of clinical experience and
also follow-on, confirmatory studies.
We continue to be
subject to inspection by the FDA to determine our compliance with
regulatory requirements, as are our suppliers, contract
manufacturers, and contract testing laboratories.
International sales of medical devices manufactured in the United
States that are not approved or cleared by the FDA are subject to
FDA export requirements. Exported devices are subject to the
regulatory requirements of each country to which the device is
exported. Exported devices may also fall under the jurisdiction of
the United States Department of Commerce/Bureau of Industry and
Security and compliance with export regulations may be required for
certain countries.
Manufacturing cGMP Requirements
Manufacturers of
medical devices are required to comply with FDA manufacturing
requirements contained in the FDA’s current Good Manufacturing
Practices (cGMP) set forth in the quality system regulations
promulgated under section 520 of the Food, Drug and Cosmetic Act.
cGMP regulations require, among other things, quality control and
quality assurance as well as the corresponding maintenance of
records and documentation. The manufacturing facility for our
products must meet cGMP requirements to the satisfaction of the FDA
pursuant to a pre-PMA approval inspection before we can use it. We
and some of our third party service providers are also subject to
periodic inspections of facilities by the FDA and other
authorities, including procedures and operations used in the
testing and manufacture of our products to assess our compliance
with applicable regulations. Failure to comply with statutory and
regulatory requirements subjects a manufacturer to possible legal
or regulatory action, including the seizure or recall of products,
injunctions, consent decrees placing significant restrictions on or
suspending manufacturing operations, and civil and criminal
penalties. Adverse experiences with the product must be reported to
the FDA and could result in the imposition of marketing
restrictions through labeling changes or in product withdrawal.
Product approvals may be withdrawn if compliance with regulatory
requirements is not maintained or if problems concerning safety or
efficacy of the product occur following the approval.
International Regulation
We are subject to
regulations and product registration requirements in many foreign
countries in which we may sell our products, including in the areas
of product standards, packaging requirements, labeling
requirements, import and export restrictions and tariff
regulations, duties and tax requirements. The time required to
obtain clearance required by foreign countries may be longer or
shorter than that required for FDA clearance, and requirements for
licensing a product in a foreign country may differ significantly
from FDA requirements.
The primary
regulatory environment in Europe is the European Union, which
consists of 27 member states encompassing most of the major
countries in Europe. In the European Union, the European Medicines
Agency (EMA) and the European Union Commission have determined that
dermaPACE, orthoPACE, OssaTron and Evotron will be regulated as
medical device products. These devices have been determined to be
Class IIb devices. These devices are CE Marked and as such can be
marketed and distributed within the European Economic
Area.
The primary
regulatory body in Canada is Health Canada. In addition to needing
appropriate data to obtain market licensing in Canada, we must have
an ISO 13485 certification, as well as meet additional requirements
of Canadian laws. We currently maintain this certification. We
maintain a device license for dermaPACE with Health Canada for the
indication of “devices
for application of shock waves (pulsed acoustic waves) on acute and
chronic defects of the skin and subcutaneous soft
tissue”.
The primary
regulatory bodies and paths in Asia and Australia are determined by
the requisite country authority. In most cases, establishment
registration and device licensing are applied for at the applicable
Ministry of Health through a local intermediary. The requirements
placed on the manufacturer are typically the same as those
contained in ISO 9001 or ISO 13485.
European Good Manufacturing Practices
In the European
Union, the manufacture of medical devices is subject to current
good manufacturing practice (cGMP), as set forth in the relevant
laws and guidelines of the European Union and its member states.
Compliance with cGMP is generally assessed by the competent
regulatory authorities. Typically, quality system evaluation is
performed by a Notified Body, which also recommends to the relevant
competent authority for the European Community CE Marking of a
device. The Competent Authority may conduct inspections of relevant
facilities, and review manufacturing procedures, operating systems
and personnel qualifications. In addition to obtaining approval for
each product, in many cases each device manufacturing facility must
be audited on a periodic basis by the Notified Body. Further
inspections may occur over the life of the product.
United States Anti-Kickback and False Claims Laws
In the United
States, there are Federal and state anti-kickback laws that
prohibit the payment or receipt of kickbacks, bribes or other
remuneration intended to induce the purchase or recommendation of
healthcare products and services. Violations of these laws can lead
to civil and criminal penalties, including exclusion from
participation in Federal healthcare programs. These laws are
potentially applicable to manufacturers of products regulated by
the FDA as medical devices, such as us, and hospitals, physicians
and other potential purchasers of such products. Other provisions
of Federal and state laws provide civil and criminal penalties for
presenting, or causing to be presented, to third-party payers for
reimbursement, claims that are false or fraudulent, or which are
for items or services that were not provided as claimed. In
addition, certain states have implemented regulations requiring
medical device and pharmaceutical companies to report all gifts and
payments over $50 to medical practitioners. This does not apply to
instances involving clinical trials. Although we intend to
structure our future business relationships with clinical
investigators and purchasers of our products to comply with these
and other applicable laws, it is possible that some of our business
practices in the future could be subject to scrutiny and challenge
by Federal or state enforcement officials under these
laws.
Third Party Reimbursement
We anticipate that
sales volumes and prices of the products we commercialize will
depend in large part on the availability of coverage and
reimbursement from third party payers. Third party payers include
governmental programs such as Medicare and Medicaid, private
insurance plans, and workers’ compensation plans. These third
party payers may deny coverage and reimbursement for a product or
therapy, in whole or in part, if they determine that the product or
therapy was not medically appropriate or necessary. The third party
payers also may place limitations on the types of physicians or
clinicians that can perform specific types of procedures. In
addition, third party payers are increasingly challenging the
prices charged for medical products and services. Some third party
payers must also pre-approve coverage for new or innovative devices
or therapies before they will reimburse healthcare providers who
use the products or therapies. Even though a new product may have
been approved or cleared by the FDA for commercial distribution, we
may find limited demand for the device until adequate reimbursement
has been obtained from governmental and private third party
payers.
In international
markets, reimbursement and healthcare payment systems vary
significantly by country, and many countries have instituted price
ceilings on specific product lines and procedures. There can be no
assurance that procedures using our products will be considered
medically reasonable and necessary for a specific indication, that
our products will be considered cost-effective by third party
payers, that an adequate level of reimbursement will be available
or that the third party payers’ reimbursement policies will not
adversely affect our ability to sell our products
profitably.
In the United
States, some insured individuals are receiving their medical care
through managed care programs, which monitor and often require
pre-approval of the services that a member will receive. Some
managed care programs are paying their providers on a per capita
basis, which puts the providers at financial risk for the services
provided to their patients by paying these providers a
predetermined payment per member per month, and consequently, may
limit the willingness of these providers to use products, including
ours.
One of the components in the reimbursement decision by most private
insurers and governmental payers, including the Centers for
Medicare & Medicaid Services, which administers Medicare, is
the assignment of a billing code. Billing codes are used to
identify the procedures performed when providers submit claims to
third party payers for reimbursement for medical services. They
also generally form the basis for payment amounts. We will seek new
billing codes for the wound care indications of our products as
part of our efforts to commercialize such products.
The initial phase
of establishing a professional billing code for a medical service
typically includes applying for a CPT Category III code for both
hospital and in-office procedures. This is a tracking code without
relative value assigned that allows third party payers to identify
and monitor the service as well as establish value if deemed
medically necessary. The process includes CPT application
submission, clinical discussion with Medical Professional Society
CPT advisors as well as American Medical Association (AMA) CPT
Editorial Panel review. A new CPT Category III code will be
assigned if the AMA CPT Editorial Panel committee deems it meets
the applicable criteria and is appropriate. In 2018, we applied for
two, new CPT Category III codes for extracorporeal shock wave
therapy (ESWT) in wound healing. These codes were published by
AMA/CPT for use beginning January 1, 2019.
The secondary phase in the CPT billing code process includes the
establishment of a permanent CPT Category I code in which relative
value is analyzed and established by the AMA. The approval of this
code, is based on, among other criteria, widespread usage and
established clinical efficacy of the medical service.
There are also
billing codes that facilities, rather than health care
professionals, utilize for the reimbursement of operating costs for
a particular medical service. For the hospital outpatient setting,
the Centers for Medicare & Medicaid Services automatically
classified the new ESWT wound healing CPT Category III codes into
interim APC groups. The APC groups are services grouped together
based on clinical characteristics and similar costs. An APC
classification does not guarantee payment.
We believe that the
overall escalating costs of medical products and services has led
to, and will continue to lead to, increased pressures on the
healthcare industry to reduce the costs of products and services.
In addition, recent healthcare reform measures, as well as
legislative and regulatory initiatives at the Federal and state
levels, create significant additional uncertainties. There can be
no assurance that third party coverage and reimbursement will be
available or adequate, or that future legislation, regulation, or
reimbursement policies of third party payers will not adversely
affect the demand for our products or our ability to sell these
products on a profitable basis. The unavailability or inadequacy of
third party payer coverage or reimbursement would have a material
adverse effect on our business, operating results and financial
condition.
Confidentiality and Security of Personal Health
Information
The Health
Insurance Portability and Accountability Act of 1996, as amended
(“HIPAA”), contains provisions that protect
individually identifiable health information from unauthorized use
or disclosure by covered entities and their business associates.
The Office for Civil Rights of HHS, the agency responsible for
enforcing HIPAA, has published regulations to address the privacy
(the “Privacy
Rule”) and security (the
“Security
Rule”) of protected
health information (“PHI”). HIPAA also requires that all
providers who transmit claims for health care goods or services
electronically utilize standard transaction and data sets and to
standardize national provider identification codes. In addition,
the American Recovery and Reinvestment Act (“ARRA”) enacted the HITECH Act, which
extends the scope of HIPAA to permit enforcement against business
associates for a violation, establishes new requirements to notify
the Office for Civil Rights of HHS of a breach of HIPAA, and allows
the Attorneys General of the states to bring actions to enforce
violations of HIPAA. Rules implementing various aspects of HIPAA
are continuing to be promulgated.
We anticipate that,
as we expand our dermaPACE business, we will in the future be a
covered entity under HIPAA. We intend to adopt policies and
procedures to comply with the Privacy Rule, the Security Rule and
the HIPAA statute as such regulations become applicable to our
business and as such regulations are in effect at such
time.
In addition to the
HIPAA Privacy Rule and Security Rule described above, we may become
subject to state laws regarding the handling and disclosure of
patient records and patient health information. These laws vary
widely. Penalties for violation include sanctions against a
laboratory’s licensure as
well as civil or criminal penalties. Additionally, private
individuals may have a right of action against us for a violation
of a state’s privacy
laws. We intend to adopt policies and procedures to ensure material
compliance with state laws regarding the confidentiality of health
information as such laws become applicable to us and to monitor and
comply with new or changing state laws on an ongoing
basis.
Environmental and Occupational Safety and Health
Regulations
Our operations are
subject to extensive Federal, state, provincial and municipal
environmental statutes, regulations and policies, including those
promulgated by the Occupational Safety and Health Administration,
the United States Environmental Protection Agency, Environment
Canada, Alberta Environment, the Department of Health Services, and
the Air Quality Management District, that govern activities and
operations that may have adverse environmental effects such as
discharges into air and water, as well as handling and disposal
practices for solid and hazardous wastes. Some of these statutes
and regulations impose strict liability for the costs of cleaning
up, and for damages resulting from, sites of spills, disposals, or
other releases of contaminants, hazardous substances and other
materials and for the investigation and remediation of
environmental contamination at properties leased or operated by us
and at off-site locations where we have arranged for the disposal
of hazardous substances. In addition, we may be subject to claims
and lawsuits brought by private parties seeking damages and other
remedies with respect to similar matters. We have not to date
needed to make material expenditures to comply with current
environmental statutes, regulations and policies. However, we
cannot predict the impact and costs those possible future statutes,
regulations and policies will have on our business.
Employees
As of March 10,
2020, we had a total of twenty-three full time employees in the
United States. Of these, six were engaged in research and
development which includes clinical, regulatory and quality. None
of our employees are represented by a labor union or covered by a
collective bargaining agreement. We believe our relationship with
our employees is good.
Properties
Our operations,
production and research and development office is in a leased
facility in Suwanee, Georgia, consisting of 10,177 square feet of
space under a lease which expires 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.
Legal Proceedings
We are engaged in various legal
actions, claims and proceedings arising in the ordinary course of
business, including claims related to breach of contracts and
intellectual property matters resulting from our business
activities. As with most actions such as these, an estimation of
any possible and/or ultimate liability cannot always be
determined.
There are no
material proceedings known to us to be contemplated by any
governmental authority.
There are no
material proceedings known to us, pending or contemplated, in which
any of our directors, officers or affiliates or any of our
principal security holders, or any associate of any of the
foregoing, is a party or has an interest adverse to
us.
MANAGEMENT, EXECUTIVE COMPENSATION AND
CORPORATE GOVERNANCE
Below are the names
and certain information regarding the Company’s executive officers and
directors.
Name
|
|
Position Held
|
Kevin A.
Richardson, II
|
51
|
Director, Chairman
and Chief Executive Officer
|
Lisa E.
Sundstrom
|
50
|
Chief Financial
Officer
|
Shri P.
Parikh
|
48
|
President,
Healthcare
|
Peter
Stegagno
|
60
|
Chief Operating
Officer
|
Iulian Cioanta,
PhD
|
57
|
Chief Science and
Technology Officer
|
John F.
Nemelka
|
54
|
Director
|
Alan L.
Rubino
|
65
|
Director
|
A. Michael
Stolarski
|
49
|
Director
|
Maj-Britt
Kaltoft
|
56
|
Director
|
Thomas
Price
|
65
|
Director
|
Kevin A.
Richardson, II joined the Company as chairman of the
board of directors in October of 2009 and joined SANUWAVE, Inc. as
chairman of the board of directors in August of 2005. In November
2012, upon the resignation of the Company’s former President and Chief
Executive Officer, Christopher M. Cashman, Mr. Richardson assumed
the role of Active Chief Executive Officer, in addition to
remaining Chairman of the Board, through the hiring of Mr.
Chiarelli in February 2013. In April 2014, Mr. Richardson assumed
the role of Co-Chief Executive Officer. When Mr. Chiarelli departed
the Company in 2014, Mr. Richardson again assumed the role as
Acting Chief Executive Officer. In November 2018, Mr. Richardson
was appointed as Chief Executive Officer. Mr. Richardson brings to
our board of directors a broad array of financial knowledge for
healthcare and other industries. Since 2004, Mr. Richardson served
as managing partner of Prides Capital LLC, an investment management
firm, until its liquidation in September 2015.
Lisa E.
Sundstrom joined the Company as Controller in October of
2006, and in August of 2015, assumed the responsibilities of
Interim Chief Financial Officer. In December 2015, Ms. Sundstrom
was promoted to Chief Financial Officer. Ms. Sundstrom has
extensive financial accounting experience with Automatic Data
Processing (ADP) and Mitsubishi Consumer Electronics. She began her
career with a small public accounting firm, Carnevale & Co.,
P.C., was Senior Accountant at Mitsubishi Consumer Electronics
responsible for the close process and was Accounting Manager for
the Benefit Services division of ADP and assisted in the
documentation of internal controls for Sarbanes-Oxley compliance.
Ms. Sundstrom holds a Bachelor of Science in Accounting from the
State University of New York at Geneseo.
Shri P.
Parikh joined the Company as President, Healthcare in May of
2018. Mr. Parikh most recently served as Vice President, Sales and
Marketing at Molnycke Health Care from April 2013 to May 2018.
Prior to Molnlycke, from 2011 to 2013 Mr. Parikh was the Director
of National Accounts at Stryker Corporation, a leading medical
technology company with products and services in Orthopaedics,
Medical and Surgical Equipment, and Neurotechnology and Spine. Mr.
Parikh began his career in sales at Bristol-Myers Squibb and held
various roles with increasing sales, marketing and corporate
accounts responsibility at Guidant and St. Jude Medical before
joining Stryker Corporation. Mr. Parikh holds a Bachelor of Arts
degree in Medical Ethics and Economics from Davison College, a
Master of Business Administration from Jacksonville University and
an Advanced Management Program degree from the University of
Chicago.
Peter
Stegagno joined the Company as Vice President, Operations in
March 2006. Mr. Stegagno brings to the Company sixteen years of
experience in the medical device market encompassing manufacturing,
design and development, quality assurance and international and
domestic regulatory affairs. He most recently served as Vice
President of Quality and Regulatory Affairs for Elekta, and other
medical device companies including Genzyme Biosurgery. Before
focusing on the medical field, Mr. Stegagno enjoyed a successful
career encompassing production roles in the space industry,
including avionics guidance systems for military applications and
control computers for the space shuttle. Mr. Stegagno graduated
from Tufts University with a Bachelor of Science degree in Chemical
Engineering.
Iulian
Cioanta, PhD joined the Company in June 2007 as Vice
President of Research and Development. Dr. Cioanta most recently
served as Business Unit Manager with Cordis Endovascular, a Johnson
& Johnson company. Prior to that, Dr. Cioanta worked as
Director of Development Engineering with Kensey Nash Corporation,
Research Manager at ArgoMed Inc. and Project Manager and Scientist
with the Institute for the Design of Research Apparatus. Dr.
Cioanta also worked in academia at Polytechnic University of
Bucharest in Romania, Leicester University in the United Kingdom
and Duke University in the United States. Dr. Cioanta received a
Master of Science degree in Mechanical Engineering and Technology
form the Polytechnic University of Bucharest and he earned his PhD
degree in Biomedical Engineering from Duke University in the field
of extracorporeal shock wave lithotripsy.
John F.
Nemelka joined the Company as a member of the board of
directors in October of 2009 and joined SANUWAVE, Inc. as a member
of the board of directors in August of 2005. Mr. Nemelka founded NightWatch
Capital Group, LLC, an investment management business, and served
as its Managing Principal since its incorporation in July 2001
until its liquidation in December 2015. From 1997 to 2000, he was a
Principal at Graham Partners, a private investment firm and
affiliate of the privately-held Graham Group. From 2000 to 2001,
Mr. Nemelka was a Consultant to the Graham Group. Mr. Nemelka brings to our board
of directors a diverse background with both financial and
operations experience. He
holds a B.S. degree in Business Administration from Brigham Young
University and an M.B.A. degree from the Wharton School at the
University of Pennsylvania.
Alan L.
Rubino joined the Company as a member of the board of
directors in September of 2013. Mr. Rubino has served as President
and Chief Executive Officer of Emisphere Technologies, Inc. since
September 2012. Previously, Mr. Rubino served as the CEO and
President of New American Therapeutics, Inc., CEO and President of
Akrimax Pharmaceuticals, LLC., and President and COO of Pharmos
Corporation. Mr. Rubino has continued to expand upon a highly
successful and distinguished career that included Hoffmann-La Roche
Inc. where he was a member of the U.S. Executive and Operating
Committees and a Securities and Exchange Commission (SEC) corporate
officer. During his Roche tenure, he held key executive positions
in marketing, sales, business operations, supply chain and human
resource management, and was assigned executive committee roles in
marketing, project management, and globalization. Mr. Rubino also
held senior executive positions at PDI, Inc. and Cardinal Health.
He holds a BA in economics from Rutgers University with a minor in
biology/chemistry and completed post-graduate educational programs
at the University of Lausanne and Harvard Business School. Mr.
Rubino serves on the boards of Aastrom Biosciences, Inc. and
Genisphere, LLC and is also on the Rutgers University Business
School Board of Advisors.
A.
Michael
Stolarski joined the Company as a member of the board of
directors in April 2016. Mr. Stolarski founded Premier Shockwave,
Inc. in October 2008 and has since served as its President &
CEO. From 2005 to 2008, Mr. Stolarski was the Vice President of
Business Development and, previously, Acting CFO of SANUWAVE, Inc.
From 2001 to 2005, he was the President – Orthopedic Division and Vice
President of Finance for HealthTronics Surgical Services, Inc. From
1994 to 2001, he was the CFO and Controller of the Lithotripsy
Division, Internal Auditor, and Paralegal of Integrated Health
Services, Inc. Mr. Stolarski brings to our board an in-depth
understanding of the orthopedic and podiatric shock wave market. In
addition to being a Certified Public Accountant in the state of
Maryland (inactive), he holds a M.S. in Finance from Loyola
College, Baltimore a B.S. in Accounting and a B.S. in Finance from
the University of Maryland, College Park.
Dr.
Maj-Britt Kaltoft joined the Company as a member of the
board of directors in June 2017. Since January 2017, Dr. Kaltoft
heads the business development and patent functions at the Danish
State Serum Institute, an institution under the Danish Ministry of
Health. From 2011 to 2016, she was the Vice President – Corporate Alliance Management,
Licensing Director and Business Development with Novo Nordisk
headquartered in Bagsvaerd, Denmark. She has obtained outstanding
results in the areas of business development, licensing and
alliance management in the pharmaceutical and biotech industry at
Lundbeck, Nycomed, and EffRx. Dr. Kaltoft brings 20 years of
international specialization in development and successful
execution of business development strategies, contractual
structures and alliance management within all sectors of the life
science industry.
Dr. Thomas
Price joined the Company as a member of the board of
directors in February 2020. Dr. Price holds a BA and MD from the
University of Michigan and completed his residency in orthopedic
surgery at Emory University in Atlanta. He entered private practice
in 1984 and returned to Emory as an assistant professor in of
orthopedic surgery in 2002. He was director of the orthopedic
clinic at Atlanta’s Grady
Memorial Hospital. Dr. Price’s political career began as a Member
of the Georgia Senate from the 56th district from 1996 to
2005, he was the minority Whip from 1998 to 2002, and the Majority
leader of the Georgia Senate from 2002 to 2003. He served in the US
House of Representatives from Georgia’s 6th district from 2005 to
2017, during which time he served as Chair of the House Budget
Committee from 2015 to 2017. In February 2017 he was confirmed by
the Senate as the United States Secretary of Health and Human
Services (HHS) and remained in that position until September 2017.
Currently Tom serves on the boards of several privately held health
care companies and non-profits as well as, consulting and advising
companies.
Summary Compensation Table for Fiscal Years 2019 and
2018
The following table
provides certain information concerning compensation earned for
services rendered in all capacities by our named executive officers
during the fiscal years ended December 31, 2019 and 2018.
Name and Principal Position
|
Year
|
|
|
|
|
Non Equity Incentive Plan Compensation ($)
|
Nonqualified Deferred Compensation Earnings ($)
|
All Other Compensation ($)(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kevin A.
Richardson, II
|
2019
|
$361,619(1)
|
-
|
$6,500(2)
|
-
|
-
|
-
|
$31,288
|
$399,407
|
Chairman of the
Board and Chief Executive Officer (principal
executive officer)
|
2018
|
$235,000(1)
|
-
|
$226,600(2)
|
-
|
-
|
-
|
$2,459
|
$464,059
|
|
|
|
|
|
|
|
|
|
Lisa E.
Sundstrom
|
2019
|
$200,000
|
-
|
$6,500(2)
|
-
|
-
|
-
|
$24,589
|
$231,089
|
Chief Financial
Officer (principal financial officer)
|
2018
|
$192,917
|
-
|
$154,500(2)
|
-
|
-
|
-
|
$15,960
|
$363,377
|
|
|
|
|
|
|
|
|
|
Shri P.
Parikh
|
2019
|
$311,000(4)
|
-
|
$6,500(2)
|
-
|
-
|
-
|
$30,960
|
$348,460
|
President,
Healthcare
|
2018
|
$182,496(4)
|
-
|
$206,000(2)
|
-
|
-
|
-
|
$10,702
|
$399,198
|
|
|
|
|
|
|
|
|
|
Peter
Stegano
|
2019
|
$231,295
|
-
|
$6,500(2)
|
-
|
-
|
-
|
$21,519
|
$259,314
|
Chief Operating
Officer
|
2018
|
$200,000
|
-
|
$154,500(2)
|
-
|
-
|
-
|
$15,142
|
$369,642
|
|
|
|
|
|
|
|
|
|
Iulian
Cioanta
|
2019
|
$200,000
|
-
|
$6,500(2)
|
-
|
-
|
-
|
$33,678
|
$240,178
|
Chief Science and
Technology Officer
|
2018
|
$200,000
|
-
|
$154,500(2)
|
-
|
-
|
-
|
$23,610
|
$378,110
|
(1) Mr. Richardson
has been the Company's Chairman of the Board since the Company's
inception. Since 2014, Mr. Richardson has also been our Acting
Chief Executive Officer. We continue to compensate Mr. Richardson
as a director as described in "Discussion of Director Compensation"
below, however we pay him an additional $10,000 per month in
recognition of his additional role as Acting Chief Executive
Officer. On November 30, 2018 Mr. Richardson was named Chief
Executive Officer of the Company.
(2) This dollar
amount reflects the full fair value of the grant at the date of
issuance and is recognized for financial statement reporting
purposes with respect to each fiscal year over the vesting terms in
accordance with ASC 718-10.
(3) Includes
health, dental, life and disability insurance premiums and 401(k)
matching contributions.
(4) Mr. Parikh was
named President, Healthcare of the Company effective May 31,
2018.
Stock Incentive Plan
On October 24,
2006, SANUWAVE, Inc.’s
board of directors adopted the 2006 Stock Incentive Plan of
SANUWAVE, Inc. (the “2006
Plan”). On November 1,
2010, the Company approved the Amended and Restated 2006 Stock
Incentive Plan of SANUWAVE Health, Inc. effective as of January 1,
2010 (previously defined as the “Stock Incentive Plan”). The Stock Incentive Plan permits
grants of awards to selected employees, directors and advisors of
the Company in the form of restricted stock or options to purchase
shares of common stock. Options granted may include nonstatutory
options as well as qualified incentive stock options. The Stock
Incentive Plan is currently administered by the board of directors
of the Company. The Stock Incentive Plan gives broad powers to the
board of directors of the Company to administer and interpret the
particular form and conditions of each option. The stock options
granted under the Stock Incentive Plan are nonstatutory options
which vest over a period of up to three years and have a maximum
ten year term. The options are granted at an exercise price equal
to the fair market value of the common stock on the date of the
grant which is approved by the board of directors of the Company.
The Stock Incentive Plan had 35,000,000 shares of common stock
reserved for grant at December 31, 2019 and 2018,
respectively.
The terms of the
options granted under the Stock Incentive Plan expire as determined
by individual option agreements (or on the tenth anniversary of the
grant date), unless terminated earlier, on the first to occur of
the following: (1) the date on which the participant’s service with the Company is
terminated by the Company for cause; (2) 60 days after the
participant’s death; or
(3) 60 days after the termination of the participant’s service with the Company for any
reason other than cause or the participant’s death; provided that, if during
any part of such 60 day period the option is not exercisable solely
because of specified securities law restrictions, the option will
not expire until the earlier of the expiration date or until it has
been exercisable for an aggregate period of 60 days after the
termination of the participant’s service with the Company. The
options vest as provided for in each individual’s option agreement and the exercise
prices for the options are determined by the board of directors at
the time the option is granted; provided that the exercise price
shall in no event be less than the fair market value per share of
the Company’s common
stock on the grant date. In the event of any change in the common
stock underlying the options, by reason of any merger or exchange
of shares of common stock, the board of directors shall make such
substitution or adjustment as it deems to be equitable to (1) the
class and number of shares underlying such option, (2) the exercise
price applicable to such option, or (3) any other affected terms of
such option.
In the event of a
change of control, unless specifically modified by an individual
option agreement: (1) all options outstanding as of the date of
such change of control will become fully vested; and (2)
notwithstanding (1) above, in the event of a merger or share
exchange, the board of directors may, in its sole discretion,
determine that any or all options granted pursuant to the Stock
Incentive Plan will not vest on an accelerated basis if the board
of directors, the surviving corporation or the acquiring
corporation, as the case may be, has taken such action that in the
opinion of the board of directors is equitable or appropriate to
protect the rights and interests of the participants under the
Stock Incentive Plan.
On December 31,
2019, there were 2,028,281 shares of common stock available for
grant under the Stock Incentive Plan. For the years ended December
31, 2019 and 2018, there were 250,000 and 6,350,000 options,
respectively, granted to the Company’s executive officers under the Stock
Incentive Plan.
Outstanding Equity Awards at 2019 Fiscal Year End
The following table
provides certain information concerning the outstanding equity
awards for each named executive officer as of December 31,
2019.
|
|
|
Name
|
Number
of Securities Underlying Unexercised Options/ Warrants (#)
Exercisable
|
Number
of Securities Underlying Unexercised Options/ Warrants (#)
Unexercisable
|
Equity
Incentive Plan Awards: Number of Securities Underlying Unexercised
Unearned Options (#)
|
Option/
Warrant Exercise Price ($)
|
Option/
Warrant Expiration Date
|
Number
of Shares or Units of Stock That Have Not Vested
(#)
|
Market
Value of Shares or Units of Stock That Have Not Vested
($)
|
Equity
Incentive Plan Awards: Number of Unearned Shares, Units or Other
Rights That Have Not Vested (#)
|
Equity
Incentive Plan Awards: Market or Payout Value of Unearned Shares,
Units or Other Rights That Have Not Vested ($)
|
(a)
|
|
|
|
|
(f)
|
|
|
|
|
Kevin A.
Richardson, II
|
115,000(1)
|
-
|
-
|
$0.35
|
02/21/2023
|
-
|
-
|
-
|
-
|
Chairman of the
Board and
|
452,381(3)
|
-
|
-
|
$0.11
|
10/1/2025
|
-
|
-
|
-
|
-
|
Chief Executive
Officer
|
297,619(3)
|
-
|
-
|
$0.06
|
10/1/2025
|
-
|
-
|
-
|
-
|
(principal
executive officer)
|
700,000(4)
|
-
|
-
|
$0.04
|
6/16/2026
|
-
|
-
|
-
|
-
|
|
594,300(5)
|
-
|
-
|
$0.18
|
11/9/2026
|
-
|
-
|
-
|
-
|
|
900,000(6)
|
-
|
-
|
$0.11
|
6/14/2027
|
-
|
-
|
-
|
-
|
|
1,100,000(7)
|
-
|
-
|
$0.21
|
9/20/2028
|
-
|
-
|
-
|
-
|
|
50,000(9)
|
-
|
-
|
$0.15
|
8/26/2029
|
-
|
-
|
-
|
-
|
Lisa
Sundstrom
|
65,000(1)
|
-
|
-
|
$0.35
|
02/21/2023
|
-
|
-
|
-
|
-
|
Chief Finanical
Officer
|
25,000(2)
|
-
|
-
|
$0.55
|
5/7/2024
|
-
|
-
|
-
|
-
|
(principal
financial officer)
|
301,587(3)
|
-
|
-
|
$0.11
|
10/1/2025
|
-
|
-
|
-
|
-
|
|
198,413(3)
|
-
|
-
|
$0.06
|
10/1/2025
|
-
|
-
|
-
|
-
|
|
500,000(4)
|
-
|
-
|
$0.04
|
6/16/2026
|
-
|
-
|
-
|
-
|
|
424,500(5)
|
-
|
-
|
$0.18
|
11/9/2026
|
-
|
-
|
-
|
-
|
|
600,000(6)
|
-
|
-
|
$0.11
|
6/14/2027
|
-
|
-
|
-
|
-
|
|
750,000(7)
|
-
|
-
|
$0.21
|
9/20/2028
|
-
|
-
|
-
|
-
|
|
50,000(9)
|
-
|
-
|
$0.15
|
8/26/2029
|
-
|
-
|
-
|
-
|
Shri
Parikh
|
2,000,000(8)
|
-
|
-
|
$0.42
|
5/31/2028
|
-
|
-
|
-
|
-
|
President,
Healthcare
|
1,000,000(7)
|
-
|
-
|
$0.21
|
9/20/2028
|
-
|
-
|
-
|
-
|
|
50,000(9)
|
-
|
-
|
$0.15
|
8/26/2029
|
-
|
-
|
-
|
-
|
Peter
Stegano
|
333,644(1)
|
-
|
-
|
$0.35
|
02/21/2023
|
-
|
-
|
-
|
-
|
Chief Operating
Officer
|
50,000(2)
|
-
|
-
|
$0.55
|
5/7/2024
|
-
|
-
|
-
|
-
|
|
301,587(3)
|
-
|
-
|
$0.11
|
10/1/2025
|
-
|
-
|
-
|
-
|
|
198,413(3)
|
-
|
-
|
$0.06
|
10/1/2025
|
-
|
-
|
-
|
-
|
|
500,000(4)
|
-
|
-
|
$0.04
|
6/16/2026
|
-
|
-
|
-
|
-
|
|
424,500(5)
|
-
|
-
|
$0.18
|
11/9/2026
|
-
|
-
|
-
|
-
|
|
600,000(6)
|
-
|
-
|
$0.11
|
6/14/2027
|
-
|
-
|
-
|
-
|
|
750,000(7)
|
-
|
-
|
$0.21
|
9/20/2028
|
-
|
-
|
-
|
-
|
|
50,000(9)
|
-
|
-
|
$0.15
|
8/26/2029
|
-
|
-
|
-
|
-
|
Iulian
Cioanta
|
296,241(1)
|
-
|
-
|
$0.35
|
02/21/2023
|
-
|
-
|
-
|
-
|
Chief Science and
Technology Officer
|
50,000(2)
|
-
|
-
|
$0.55
|
5/7/2024
|
-
|
-
|
-
|
-
|
|
301,587(3)
|
-
|
-
|
$0.11
|
10/1/2025
|
-
|
-
|
-
|
-
|
|
198,413(3)
|
-
|
-
|
$0.06
|
10/1/2025
|
-
|
-
|
-
|
-
|
|
500,000(4)
|
-
|
-
|
$0.04
|
6/16/2026
|
-
|
-
|
-
|
-
|
|
424,500(5)
|
-
|
-
|
$0.18
|
11/9/2026
|
-
|
-
|
-
|
-
|
|
600,000(6)
|
-
|
-
|
$0.11
|
6/14/2027
|
-
|
-
|
-
|
-
|
|
750,000(7)
|
-
|
-
|
$0.21
|
9/20/2028
|
-
|
-
|
-
|
-
|
|
50,000(9)
|
-
|
-
|
$0.15
|
8/26/2029
|
-
|
-
|
-
|
-
|
(1) On February 21,
2013, the Company, by mutual agreement with all active employees
and directors of the Company, cancelled options granted to the
active employees and directors in the year ended December 31, 2011
and prior. In exchange for these
options, the active
employees and directors received new options to purchase shares of
common stock at an exercise price of $0.35 per share. The Company
cancelled all options which were previously granted to Mr.
Richardson, Ms. Sundstrom,
Mr. Stegagno and
Dr. Cioanta. The Company granted Mr. Richardson 115,000 options,
Ms. Sundstrom 65,000 options, Mr. Stegagno 333,644 options and Dr.
Cioanta 296,241 options on February 21, 2013 which vests one-third
at grant date,
one-third on
February 21, 2014 and one-third on February 21, 2015.
(2) The Company
granted Ms. Sundstrom 25,000 options, Mr. Stegagno 50,000 options
and Dr. Cioanta 50,000 options on May 7, 2014 which vests one-third
at grant date, one-third on May 7, 2015 and one-third on May 7,
2016.
(3) The Company
granted Mr. Richardson 750,000 options, Ms. Sundstrom 500,000
options, Mr. Stegagno 500,000 options and Dr. Cioanta 500,000
options on October 1, 2015 which vests at grant date.
(4) The Company
granted Mr. Richardson 700,000 options, Ms. Sundstrom 500,000
options, Mr. Stegagno 500,000 options and Dr. Cioanta 500,000
options on June 16, 2016 which vests at grant date.
(5) The Company
granted Mr. Richardson 594,300 options, Ms. Sundstrom 424,500
options, Mr. Stegagno 424,500 options and Dr. Cioanta 424,500
options on November 9, 2016 which vests at grant date.
(6) The Company
granted Mr. Richardson 900,000 options, Ms. Sundstrom 600,000
options, Mr. Stegagno 600,000 options and Dr. Cioanta 600,000
options on June 15, 2017 which vests at grant date.
(7) The Company
granted Mr. Richardson 1,100,000 options, Ms. Sundstrom 750,000
options, Mr. Parikh 1,000,000 options, Mr. Stegagno 750,000 options
and Dr. Cioanta 750,000 options on September 20, 2018 which vests
at grant date.
(8) The Company
granted Mr. Parikh 2,000,000 options on May 31, 2018 which vests at
grant date.
(9) The Company
granted 50,000 options each to Mr. Richardson, Ms. Sundstrom, Mr.
Parikh, Mr. Stegagno and Dr. Cioanta on August 26, 2019 which vests
at grant date.
Director Compensation Table for Fiscal Year 2019
The following table
provides certain information concerning compensation for each
director during the fiscal year ended December 31, 2019.
|
Fees
Earned or Paid in Cash ($)
|
|
|
Non
Equity Incentive Plan Compensation ($)
|
Nonqualified
Deferred Compensation Earnings ($)
|
All
Other Compensation ($)
|
|
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kevin A.
Richardson, II (1)
|
$40,000
|
-
|
$-
|
-
|
-
|
-
|
$40,000
|
|
|
|
|
|
|
|
|
John F.
Nemelka
|
$40,000
|
-
|
$6,500
|
-
|
-
|
-
|
$46,500
|
|
|
|
|
|
|
|
|
Alan L.
Rubino
|
$40,000
|
-
|
$6,500
|
-
|
-
|
-
|
$46,500
|
|
|
|
|
|
|
|
|
A. Michael
Stolarski
|
$40,000
|
-
|
$6,500
|
-
|
-
|
-
|
$46,500
|
|
|
|
|
|
|
|
|
Maj-Britt
Kaltoft
|
$40,000
|
-
|
$6,500
|
-
|
-
|
-
|
$46,500
|
(1) Mr. Richardson
has been the Company's Chairman of the Board since the Company's
inception. Since 2014, Mr. Richardson has also been our Acting
Chief Executive Officer. We continue to compensate Mr. Richardson
as a director as described in "Discussion of Director Compensation"
below, however we pay him an additional $10,000 per month in
recognition of his additional role as Acting Chief Executive
Officer. On November 30, 2018 Mr. Richardson was named Chief
Executive Officer of the Company.
Discussion of Director Compensation
Effective January
1, 2018, the Company began to compensate its directors at an annual
rate of $40,000 each. On August 26, 2019, the Company issued an
option to purchase 50,000 shares of the Company’s common stock at $0.15 per share to
employee director Kevin A. Richardson II and to non-employee
directors John F. Nemelka, Alan L. Rubino, A. Michael Stolarski and
Maj-Britt Kaltoft. On September 20, 2018, the Company issued an
option to purchase 1,100,000 shares of the Company’s common stock at $0.21 per share to
non-employee director Kevin A. Richardson II and the Company issued
options to purchase 350,000 shares of the Company’s common stock at $0.21 per share to
non-employee directors John F. Nemelka, Alan L. Rubino, A. Michael
Stolarski and Maj-Britt Kaltoft. On June 15, 2017, the Company
issued an option to purchase 900,000 shares of the
Company’s common stock at
$0.11 per share to non-employee director Kevin A. Richardson II and
the Company issued options to purchase 300,000 shares of the
Company’s common stock at
$0.11 per share to non-employee directors John F. Nemelka, Alan L.
Rubino, A. Michael Stolarski and Maj-Britt Kaltoft. On November 9,
2016, the Company issued an option to purchase 594,300 shares of
the Company’s common
stock at $0.18 per share to director Kevin A. Richardson, II and
the Company issued options to purchase 169,800 shares of the
Company’s common stock at
$0.18 per share to directors John F. Nemelka, Alan L. Rubino and A.
Michael Stolarski. On June 16, 2016, the Company issued an option
to purchase 700,000 shares of the Company’s common stock at $0.04 per share to
director Kevin A. Richardson, II and the Company issued options to
purchase 200,000 shares of the Company’s common stock at $0.04 per share to
directors John F. Nemelka, Alan L. Rubino and A. Michael Stolarski.
On October 1, 2015, the Company issued an option to purchase
452,381 shares of the Company’s common stock at $0.11 per share
and an option to purchase 297,619 shares of the Company’s common stock at $0.50 per share to
director Kevin A. Richardson, II and the Company issued options to
purchase 150,795 shares of the Company’s common stock at $0.11 per share
and options to purchase 99,205 shares of the Company’s common stock at $0.50 per share to
directors John F. Nemelka and Alan L. Rubino. The options above
issued at $0.50 per share were re-priced to $0.06 per share in
March 2016 as the result of the public offering. On September 3,
2013, the Company issued an option to purchase 100,000 shares of
the Company’s common
stock at $0.65 per share to director Alan L. Rubino. On February
21, 2013, the Company, by mutual agreement with all the active
employees and directors of the Company, cancelled options granted
to the active employees and directors in the year ended December
31, 2011 and prior. In exchange for these options, the active
employees and directors received new options to purchase shares of
common stock at an exercise price of $0.35 per share. Kevin A.
Richardson, II, and John F. Nemelka, each cancelled options to
purchase 15,000 shares of the Company’s Common Stock and were each issued
options to purchase 115,000 shares of the Company’s Common Stock at an exercise price
of $0.35 per share.
The following are
the aggregate number of option awards outstanding that have been
granted to each of our non-employee directors as of
December 31, 2019: Kevin
A. Richardson, II –
4,209,300, John F. Nemelka – 1,434,800, Alan L. Rubino
–1,419,800, A. Michael
Stolarski – 1,069,800 and
Maj-Britt Kaltoft –
700,000.
CORPORATE GOVERNANCE AND BOARD
MATTERS
The Company adopted
a formal Corporate Governance policy in January 2012 which included
establishing formal board committees and a code of conduct for the
board of directors and the Company.
The Board of Directors
Recent Developments
The
Company’s current board
of directors consists of six members, four of whom have been
determined by the board to be “independent” as defined under the rules of the
Nasdaq stock market. The Company expects to add additional
independent directors in 2020.
Board’s Leadership Structure
The
Company’s board of
directors elects the Company’s chief executive officer and its
chairman, and each of these positions may be held by the same
person or may be held by two persons. The chairman’s primary responsibilities are to
manage the board and serve as the primary liaison between the board
of directors and the chief executive officer, while the primary
responsibility of the chief executive officer is to manage the
day-to-day affairs of the Company, taking into account the policies
and directions of the board of directors. Such an arrangement
promotes more open and robust communication among the board, and
provides an efficient decision making process with proper
independent oversight. The Company’s board of directors has determined
that it is currently in the best interest of the Company and its
shareholders to combine the roles of chairman of the board and
chief executive officer.
The Company
believes, however, that there is no single leadership structure
that is the best and most effective in all circumstances and at all
times. Accordingly, the board of directors retains the authority to
later combine these roles if doing so would be in the best
interests of the Company and its shareholders.
The
Company’s board of
directors is authorized to have an audit committee, a compensation
committee and a nominating and corporate governance committee, to
assist the Company’s
board of directors in discharging its responsibilities. The
Company’s current board
of directors consists of six members, four of whom has been
determined by the board to be “independent” as defined under the rules of the
Nasdaq stock market. The board of directors has determined that Mr.
Richardson and Mr. Stolarski are not independent under the
applicable marketplace rules of the Nasdaq stock market and Rule
10A-3 under the Exchange Act. The Company expects to add additional
independent directors in 2020.
Board’s Role in Risk Oversight
While the
Company’s management is
responsible for the day-to-day management of risk to the Company,
the board of directors has broad oversight responsibility for the
Company’s risk management
programs. The various committees of the board of directors assist
the board of directors in fulfilling its oversight responsibilities
in certain areas of risk. In particular, the audit committee
focuses on financial and enterprise risk exposures, including
internal controls, and discusses with management and the
Company’s independent
registered public accountants the Company’s policies with respect to risk
assessment and risk management. The compensation committee is
responsible for considering those risks that may be implicated by
the Company’s
compensation programs and reviews those risks with the
Company’s board of
directors and chief executive officer.
Audit Committee
The current members
of the Company’s audit
committee are John F. Nemelka (Chairperson), Alan Rubino and Thomas
Price, all determined to be independent directors, pursuant to the
rules of the SEC and Nasdaq stock market. Mr. Nemelka, who chairs
the committee, has been determined by the board of directors to be
an audit committee financial expert as defined pursuant to the
rules of the SEC.
The audit committee
operates under a written charter adopted by the board of directors
which is available on the Company’s website at www.sanuwave.com.
The primary responsibility of the audit committee is to oversee the
Company’s financial
reporting process on behalf of the board of directors. Among other
things, the audit committee is responsible for overseeing the
Company’s accounting and
financial reporting processes and audits of the Company’s financial statements, reviewing
and discussing with the independent auditors the critical
accounting policies and practices for the Company, engaging in
discussions with management and the independent auditors to assess
risk for the Company and management thereof, and reviewing with
management the effectiveness of the Company’s internal controls and disclosure
controls and procedures. The audit committee is directly
responsible for the appointment, compensation, retention and
oversight of the work of the Company’s independent auditors, currently
Marcum LLP, including the resolution of disagreements, if any,
between management and the auditors regarding financial reporting.
In addition, the audit committee is responsible for reviewing and
approving any related party transaction that is required to be
disclosed pursuant to Item 404 of Regulation S-K promulgated under
the Exchange Act.
Compensation Committee
The current members
of the Company’s
compensation committee are Alan L. Rubino (Chairperson), Thomas
Price and Maj-Britt Kaltoft, who are all independent directors,
pursuant to the rules of the SEC and Nasdaq stock market. The
primary purpose of the compensation committee is to discharge the
responsibilities of the board of directors relating to compensation
of the Company’s
executive officers. Pursuant to the Company’s Compensation Committee Charter,
the compensation committee is required to consist of at least two
independent directors.
The compensation
committee operates under a written charter adopted by the board of
directors which is available on the Company’s website at www.sanuwave.com.
Specific responsibilities of the compensation committee include
reviewing and recommending approval of compensation of the
Company’s named executive
officers, administering the Company’s stock incentive plan, and
reviewing and making recommendations to the Company’s board of directors with respect to
incentive compensation and equity plans.
Nominating and Corporate Governance Committee
The current members
of the Company’s
nominating and corporate governance committee are Maj-Britt Kaltoft
(Chairperson), John F. Nemelka, and Alan L. Rubino, who are all
independent directors, pursuant to the rules of the SEC and Nasdaq
stock market. Pursuant to the Company’s Nominating and Corporate
Governance Committee Charter, the nominating and corporate
governance committee is required to consist of at least two
independent directors.
The nominating and
corporate governance committee operates under a written charter
adopted by the board of directors which is available on the
Company’s website at
www.sanuwave.com.
Specific responsibilities of the nominating and corporate
governance committee include: identifying and recommending nominees
for election to the Company’s board of directors; developing and
recommending to the board of directors the Company’s corporate governance principles;
overseeing the evaluation of the board of directors; and reviewing
and approving compensation for non-employee members of the board of
directors.
The nominating and
corporate governance committee’s charter outlines how the
nominating and corporate governance committee fulfills its
responsibilities for assessing the qualifications and effectiveness
of the current board members, assessing the needs for future board
members, identifying individuals qualified to become members of the
board and its committees, and recommending candidates for the board
of director’s selection
as director nominees for election at the next annual or other
properly convened meeting of shareholders.
The nominating and corporate governance committee considers
director candidates recommended by shareholders for nomination for
election to the board of directors. The committee applies the same
standards in considering director candidates recommended by the
shareholders as it applies to other candidates. Any shareholder
entitled to vote for the election of directors may recommend a
person or persons for consideration by the committee for nomination
for election to the board of directors. The Company must receive
written notice of such shareholder’s recommended nominees(s) no later
than January 31st of the year in which
the shareholder wishes such recommendation to be considered by the
committee in connection with the next meeting of shareholders at
which the election of directors will be held. To submit a
recommendation, a shareholder must give timely notice thereof in
writing to the Secretary of the Company. A shareholder’s notice to the Secretary shall set
forth: (i) the name and record address of the shareholder making
such recommendation and any other shareholders known by such
shareholder to be supporting such recommendation; (ii) the class
and number of shares of the Company which are beneficially owned by
the shareholder and by any other shareholders known by such
shareholder to be supporting such recommendation; (iii) the name,
age and five year employment history of such recommended nominee;
(iv) the reasons why the shareholder believes the recommended
nominee meets the qualifications to serve as a director of the
Company; and (v) any material or financial interest of the
shareholder and, if known, the recommended nominee in the
Company.
Shareholder Communications with the Board of Directors
The board of
directors has implemented a process for shareholders to send
communications to the board of directors. Shareholders who wish to
communicate directly with the board of directors or any particular
director should deliver any such communications in writing to the
Secretary of the Company. The Secretary will compile any
communications they receive from shareholders and deliver them
periodically to the board of directors or the specific directors
requested. The Secretary of the Company will not screen or edit
such communications, but will deliver them in the form received
from the shareholder.
Code of Conduct and Ethics
It is the
Company’s policy to
conduct its affairs in accordance with all applicable laws, rules
and regulations of the jurisdictions in which it does business. The
Company has adopted a code of business conduct and ethics with
policies and procedures that apply to all associates (all employees
are encompassed by this term, including associates who are
officers) and directors, including the chief executive officer,
chief financial officer, controller, and persons performing similar
functions.
The Company has
made the code of business conduct and ethics available on its
website at www.sanuwave.com.
If any substantive amendments to the code of business conduct and
ethics are made or any waivers are granted, including any implicit
waiver, the Company will disclose the nature of such amendment or
waiver on its website or in a report on Form 8-K.
No Family Relationships Among Directors and Officers
There are no family
relationships between any director or executive officer of the
Company and any other director or executive officer of the
Company.
Director Independence
Our board of
directors has determined that John F. Nemelka, Alan L. Rubino, Dr.
Maj-Britt Kaltoft and Dr. Thomas Price qualify as independent
directors based on the Nasdaq stock market definition of
“independent
director.”
Limitation of Directors Liability and Indemnification
The Nevada Revised
Statutes authorize corporations to limit or eliminate, subject to
certain conditions, the personal liability of directors to
corporations and their stockholders for monetary damages for breach
of their fiduciary duties. Our certificate of incorporation limits
the liability of our directors to the fullest extent permitted by
Nevada law.
We have director
and officer liability insurance to cover liabilities our directors
and officers may incur in connection with their services to us,
including matters arising under the Securities Act of 1933, as
amended. Our certificate of incorporation and bylaws also provide
that we will indemnify our directors and officers who, by reason of
the fact that he or she is one of our officers or directors, is
involved in a legal proceeding of any nature.
There is no pending
litigation or proceeding involving any of our directors, officers,
employees or agents in which indemnification will be required or
permitted. We are not aware of any threatened litigation or
proceeding that may result in a claim for such
indemnification.
Delinquent Section 16(a) Reports
Section 16(a) of
the Exchange Act requires our directors and executive officers, and
persons who own more than 10% of our equity securities which are
registered pursuant to Section 12 of the Exchange Act, to file with
the SEC initial reports of ownership and reports of changes in
ownership of our equity securities. Officers, directors and greater
than 10% shareholders are required by SEC regulations to furnish us
with copies of all Section 16(a) reports they file.
Except as set forth
herein, based solely upon a review of the Forms 3, 4 and 5 (and
amendments thereto) furnished to us for our fiscal year ended
December 31, 2019, we have determined that our directors, officers
and greater than 10% beneficial owners complied with all applicable
Section 16 filing requirements.
Disclosure of Commission Position on Indemnification of Securities
Act Liabilities
Insofar as
indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore,
unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed
by the final adjudication of such issue.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table
sets forth certain information, as of March 25, 2020, with respect
to the beneficial ownership of the Company’s outstanding common stock by (i)
any holder of more than five percent, (ii) each of the
Company’s named executive
officers and directors, and (iii) the Company’s directors and executive officers
as a group.
Name of Beneficial Owner (1)
|
Number of Shares Beneficially
Owned
|
Percent of Shares Outstanding (2)
|
A. Michael
Stolarski (3)
|
18,081,290
|
6.1%
|
Kevin A. Richardson
II (4)
|
13,545,993
|
4.6%
|
Peter Stegagno
(5)
|
3,968,007
|
1.3%
|
Iulian Cioanta
(6)
|
3,186,146
|
1.1%
|
Lisa E. Sundstrom
(7)
|
2,914,500
|
1.0%
|
John F. Nemelka
(8)
|
1,446,055
|
0.5%
|
Alan Rubino
(9)
|
1,419,800
|
0.5%
|
Maj-Britt Kaltoft
(10)
|
700,000
|
0.2%
|
Thomas Price
(11)
|
200,000
|
0.1%
|
All directors and
executive officers as a group (9 persons)
|
45,461,791
|
15.4%
|
(1) Unless
otherwise noted, each beneficial owner has the same address as
us.
|
(2) Applicable
percentage ownership is based on 297,340,200shares of common stock
outstanding as of March 25, 2020 , “Beneficial ownership” includes shares for which an
individual, directly or indirectly, has or shares voting or
investment power, or both, and also includes options that are
exercisable within 60 days of March 25, 2020. Unless otherwise
indicated, all of the listed persons have sole voting and
investment power over the shares listed opposite their names.
Beneficial ownership as reported in the above table has been
determined in accordance with Rule 13d-3 of the Exchange
Act.
|
(3) Includes
options to purchase up to 1,069,800 shares of common
stock.
|
(4) Includes
options to purchase up to 4,209,300 shares of common stock. In
addition, this amount includes 1,324,723 shares of common stock
owned directly by Prides Capital Fund I, L.P. Prides Capital
Partners LLC is the general partner of Prides Capital Fund I, L.P.
and Mr. Richardson is the controlling shareholder of Prides Capital
Partners LLC; therefore, under certain provisions of the Exchange
Act, he may be deemed to be the beneficial owner of such
securities. Mr. Richardson has also been deputized by Prides
Capital Partners LLC to serve on the board of directors of the
Company. Mr. Richardson disclaims beneficial ownership of all such
securities except to the extent of any indirect pecuniary interest
(within the meaning of Rule 16a-1 of the Exchange Act)
therein.
|
(5) Consists of
options to purchase up to 3,208,144 shares of common
stock.
|
(6) Consists of
options to purchase up to 3,170,741 shares of common
stock.
|
(7) Consists of
options to purchase up to 2,914,500 shares of common
stock.
|
(8) Includes
options to purchase up to 1,434,800 shares of common
stock.
|
(9) Includes
options to purchase up to 1,419,800 shares of common
stock.
|
(10) Includes
options to purchase up to 700,000 shares of common
stock.
|
(11) Includes
options to purchase up to 200,000 shares of common
stock.
|
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
Related Party Transactions
Other than as
described below, since January 1, 2018, there have been no
transactions with related persons required to be disclosed in this
prospectus.
On February 13,
2018, the Company entered into an Agreement for Purchase and Sale,
Limited Exclusive Distribution and Royalties, and Servicing and
Repairs with Premier Shockwave Wound Care, Inc., a Georgia
Corporation (“PSWC”), and Premier Shockwave, Inc., a
Georgia Corporation (“PS”). Each of PS and PSWC is owned by
A. Michael Stolarski, a member of the Company’s board of directors and an existing
shareholder of the Company. The agreement provides for the purchase
by PSWC and PS of dermaPACE System and related equipment sold by
the Company and includes a minimum purchase of 100 units over 3
years. The agreement grants PSWC and PS limited but exclusive
distribution rights to provide dermaPACE Systems to certain
governmental healthcare facilities in exchange for the payment of
certain royalties to the Company. Under the agreement, the Company
is responsible for the servicing and repairs of such dermaPACE
Systems and equipment. The agreement also contains provisions
whereby in the event of a change of control of the Company (as
defined in the agreement), the stockholders of PSWC have the right
and option to cause the Company to purchase all of the stock of
PSWC, and whereby the Company has the right and option to purchase
all issued and outstanding shares of PSWC, in each case based upon
certain defined purchase price provisions and other terms. The
agreement also contains certain transfer restrictions on the stock
of PSWC.
On December 29, 2017, the Company entered into a line of credit
agreement with A. Michael Stolarski, a member of the
Company’s board of
directors and an existing shareholder of the Company. On November
12, 2018, the Company entered into an amendment to the line of
credit agreement. The line of credit was increased to $1,000,000
with an annualized interest rate of 6%. The line of credit may be
called for payment upon demand of the holder. The outstanding
balance as of December 31, 2019 with accrued interest was
$212,388.
On March 27, 2017, the Company began
offering subscriptions for 10% convertible promissory notes to
selected accredited investors. A. Michael Stolarski, a member of
the Company’s board of
directors and an existing shareholder of the Company, was a
purchaser in the 10% Convertible Promissory Notes in the amount of
$330,000. A. Michael Stolarski and Kevin A. Richardson II, both
members of the Company’s
board of directors and existing shareholders of the Company, had
subscribed $130,000 and $140,000, respectively, to the Company as
advances from related parties to be used to purchase 10%
Convertible Promissory Notes. The 10% Convertible Promissory Notes
associated with these subscriptions were issued in January
2018.
DESCRIPTION OF SECURITIES TO BE
REGISTERED
Our authorized
capital stock consists of 355,000,000 shares, of which 350,000,000
shares are designated as Common Stock and 5,000,000 shares are
designated as preferred stock. As of March 25, 2020, there were
issued and outstanding:
● 297,340,200 shares of Common
Stock,
● warrants to purchase 8,374,091
shares of Common Stock at a weighted average exercise price of
$0.09 per share, and
● stock options to
purchase 33,928,385 shares of Common Stock at a weighted
average exercise price of $0.29 per share.
The following
summary of the material provisions of our Common Stock, preferred
stock and warrants is qualified by reference to the provisions of
our articles of incorporation and bylaws and the forms of warrant
included or incorporated by reference as exhibits to the
registration statement of which this prospectus is a
part.
Common Stock
All shares of our
Common Stock have equal voting rights and, when validly issued and
outstanding, have one vote per share in all matters to be voted
upon by the stockholders. Cumulative voting in the election of
directors is not allowed, which means that the holders of more than
50% of the outstanding shares can elect all the directors if they
choose to do so and, in such event, the holders of the remaining
shares will not be able to elect any directors. The affirmative vote of a plurality
of the shares of Common Stock voted at a stockholders meeting where
a quorum is present is required to elect directors and to take
other corporate actions. Holders of our Common Stock are
entitled to receive ratably such dividends, if any, as may be
declared by our board of directors out of legally available
funds. However, the
current policy of our board of directors is to retain earnings, if
any, for the operation and expansion of the Company. Upon liquidation, dissolution or
winding-up, the holders of our Common Stock are entitled to share
ratably in all of our assets which are legally available for
distribution, after payment of or provision for all liabilities and
the liquidation preference of any outstanding preferred
stock. The holders of our
Common Stock have no preemptive, subscription, redemption or
conversion rights. All
issued and outstanding shares of Common Stock are, and the Common
Stock reserved for issuance upon exercise of our stock options and
warrants will be, when issued, fully-paid and
non-assessable.
Preferred Stock
Our articles of
incorporation authorize the issuance of up to 5,000,000 shares of
“blank check” preferred stock with designations,
rights and preferences as may be determined from time to time by
our board of directors.
Warrants
The following is a
brief summary of material
provisions of the warrants
related to the shares of common stock offered for resale and
issuable upon the exercise of such warrants issued to the selling
stockholders described herein.
Exercise
Price and Terms. Each warrant entitles the holder
thereof to purchase at any time until March 17, 2019, at a price of
$0.08 per share, subject to certain adjustments referred to below,
shares of our Common
Stock. On January 23, 2018, the Company amended the expiration date
of the warrants from March 17, 2019 to May 1, 2019, effective as of
January 23, 2019. The
holder of any warrant may
exercise such warrant by
surrendering the warrant to us, with the notice of exercise
properly completed and executed, together with payment of the
exercise price. The warrants may be exercised at any time in whole
or in part at the applicable exercise price until expiration of
the warrants. No fractional shares will be issued
upon the exercise of the warrants.
Adjustments. The
exercise price and the number of shares of Common Stock purchasable upon the
exercise of certain warrants are subject to adjustment upon the
occurrence of certain events, including stock dividends, stock
splits, combinations or reclassifications of the Common
Stock. Additionally, an
adjustment would be made in the case of a reclassification or
exchange of Common Stock,
consolidation or merger of our Company with or into another
corporation (other than a consolidation or merger in
which we are the surviving
corporation) or sale of all or substantially all of our
assets in order to enable
holders of the warrants to
acquire the kind and number of shares of stock or other securities
or property receivable in such event by a holder of the number of
shares of Common Stock
that might otherwise have been purchased upon the exercise of
the warrant. No adjustment to the number of shares
and exercise price of the shares subject to the warrants will be made for dividends
(other than stock dividends), if any, paid on our Common Stock.
Transfer,
Exchange and Exercise. The warrants may be presented to us for
exchange or exercise at any time on or prior to March 17, 2019, at
which time the warrants become wholly void and of no
value. On January 23,
2018, the Company amended the expiration date of the warrants from
March 17, 2019 to May 1, 2019, effective as of January 23,
2019. Prior to any
transfer of the warrants
the holder must notify us of the same and, if subsequently
requested, provide a legal opinion regarding the transfer
to us.
Warrantholder
Not a Stockholder. The warrants do not confer upon holders
any voting, dividend or other rights as a shareholder
of our
Company.
Trading Information
Our shares of
Common Stock are currently quoted in the over-the-counter market on
the OTCQB under the symbol “SNWV”.
Transfer Agent
The transfer agent
and registrar for our Common Stock and preferred stock is Action
Stock Transfer Corp., 7069 S. Highland Drive, Suite 300, Salt Lake
City, Utah 84121.
SHARES AVAILABLE FOR FUTURE
SALE
As of March 25,
2020, we had 297,340,200 shares of Common Stock outstanding, not
including shares issuable upon the exercise of outstanding
warrants, stock options and other convertible
securities. All shares
sold in this offering will be freely tradable without restriction
or further registration under the Securities Act, unless they are
purchased by our “affiliates,” as that term is defined in Rule 144
promulgated under the Securities Act.
The outstanding
shares of our Common Stock not included in this prospectus will be
available for sale in the public market as follows:
Public Float
Of our outstanding
shares, 45,461,791 shares are beneficially owned by executive
officers, directors and affiliates of the Company. The remaining 251,878,409 shares
constitute our public float which, based on the last sale price of
our Common Stock reported on the OTC Bulletin Board on March 31,
2020, equaled approximately $50,375,681.80.
Rule 144
In general, under
Rule 144, as currently in effect, a person who has beneficially
owned shares of our Common Stock for at least six (6) months,
including the holding period of prior owners other than affiliates,
is entitled to sell his or her shares without any volume
limitations; an affiliate, however, can sell such number of shares
within any three-month period as does not exceed the greater
of:
● 1% of the number of shares of our
Common Stock then outstanding, which equaled 2,973,402 shares as of
March 25, 2020, or
● the average weekly trading volume
of our Common Stock, assuming our shares are then traded on a
national securities exchange, during the four calendar weeks
preceding the filing of a notice on Form 144 with respect to that
sale.
Sales under Rule
144 are also subject to manner-of-sale provisions, notice
requirements and the availability of current public information
about us.
Certain legal
matters will be passed upon for us by Hutchison & Steffen, LLC,
Las Vegas, Nevada.
The consolidated
financial statements as of December 31, 2019 and December 31, 2018
and for the years then ended included in this prospectus and in the
registration statement have been so included in reliance on the
report of Marcum LLP, an independent registered public accounting
firm, (the report on the financial statements contains an
explanatory paragraph regarding the Company’s ability to continue as a going
concern) appearing elsewhere herein and in the registration
statement, given on the authority of said firm as experts in
auditing and accounting.
INTEREST OF NAMED EXPERTS AND
COUNSEL
No expert or
counsel named in this prospectus as having prepared or certified
any part of this prospectus or having given an opinion upon the
validity of the securities being registered or upon other legal
matters in connection with the registration or offering of the
Common Stock was employed on a contingency basis, or had, or is to
receive, in connection with the offering, a substantial interest,
direct or indirect, in the registrant or any of its parents or
subsidiaries. Nor was any
such person connected with the registrant or any of its parents or
subsidiaries as a promoter, managing or principal underwriter,
voting trustee, director, officer, or employee.
WHERE YOU CAN FIND MORE
INFORMATION
We have filed a
registration statement on Form S-1 with the SEC to register resale
of shares of our Common Stock being offered by this
prospectus. For further
information with respect to us and our Common Stock, please see the
registration statement on Form S-1 and the exhibits thereto. In
addition, we file annual, quarterly and current reports, proxy
statements and other information with the SEC. The SEC maintains a website,
http://www.sec.gov that
contains reports, proxy statements and information statements and
other information regarding registrants that file electronically
with the SEC, including us. Our SEC filings are also available to
the public from commercial document retrieval services. Information contained on our website
should not be considered part of this prospectus.
You may also
request a copy of our filings at no cost by writing or telephoning
us at:
SANUWAVE Health,
Inc.
3360 Martin Farm
Road, Suite 100
Suwanee, Georgia
30024
Attn: Lisa
Sundstrom, Chief Financial Officer
Telephone: (770)
419-7525
|
|
Consolidated Financial Statements
|
|
|
|
|
F-1
|
|
|
|
F-2
|
|
|
|
F-3
|
|
|
|
F-5
|
|
|
|
F-6
|
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Shareholders and Board of Directors of
SANUWAVE
Health, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of
SANUWAVE Health, Inc. (the “Company”) as of December
31, 2019 and 2018, the related consolidated statements of
comprehensive loss, stockholders’ deficit and cash flows for
each of the two years in the period ended December 31, 2019, and
the related notes (collectively referred to as the “financial
statements”). In our opinion, the financial statements
present fairly, in all material respects, the financial position of
the Company as of December 31, 2019 and 2018, and the results of
its operations and its cash flows for each of the
two years in the period ended December 31, 2019, in
conformity with accounting principles generally accepted in the
United States of America.
Explanatory Paragraph – Going Concern
The
accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As more
fully described in Note 1, the Company has a significant working
capital deficiency, has incurred significant losses and needs to
raise additional funds to meet its obligations and sustain its
operations. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 1. The
consolidated financial statements do not include any adjustments
that might result from the outcome of this
uncertainty.
Change in Accounting Principle
As
discussed in Note 2 to the consolidated financial statements, the
Company has changed its method of accounting for leases in 2019 due
to the adoption of the guidance in Accounting Standards
Codification (“ASC”) Topic 842, Leases (“Topic
842”).
Basis for Opinion
These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the
Company's financial statements based on our audits. We are a public
accounting firm registered with the Public Company Accounting
Oversight Board (United States) ("PCAOB") and are required to be
independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements
are free of material misstatement, whether due to error or fraud.
The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting.
As part of our audits we are required to obtain an understanding of
internal control over financial reporting but not for the purpose
of expressing an opinion on the effectiveness of the Company's
internal control over financial reporting. Accordingly, we express
no such opinion.
Our
audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial
statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as
well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis
for our opinion.
/s/
Marcum llp
Marcum
llp
We have
served as the Company’s auditor since 2018.
New
York, NY
March
30, 2020
SANUWAVE
HEALTH, INC. AND SUBSIDIARIES
|
CONSOLIDATED
BALANCE SHEETS
|
December
31, 2019 and 2018
|
|
|
|
ASSETS
|
|
|
CURRENT
ASSETS
|
|
|
Cash and cash
equivalents
|
$1,760,455
|
$364,549
|
Accounts
receivable, net of allowance for doubtful accounts
|
|
|
of $72,376 in 2019
and $33,045 in 2018
|
75,543
|
234,774
|
Due from related
parties
|
-
|
1,228
|
Inventory
|
542,955
|
357,820
|
Prepaid expenses
and other current assets
|
125,405
|
125,111
|
TOTAL CURRENT
ASSETS
|
2,504,358
|
1,083,482
|
|
|
|
PROPERTY AND
EQUIPMENT, net
|
512,042
|
77,755
|
|
|
|
RIGHT OF USE
ASSETS
|
323,661
|
-
|
|
|
|
OTHER
ASSETS
|
41,931
|
16,491
|
TOTAL
ASSETS
|
$3,381,992
|
$1,177,728
|
|
|
|
LIABILITIES
|
|
|
CURRENT
LIABILITIES
|
|
|
Accounts
payable
|
$1,439,413
|
$1,592,643
|
Accrued
expenses
|
1,111,109
|
689,280
|
Accrued employee
compensation
|
1,452,910
|
340,413
|
Contract
liabilities
|
66,577
|
131,797
|
Operating lease
liability
|
173,270
|
-
|
Finance lease
liability
|
121,634
|
-
|
Advances from
related parties
|
18,098
|
-
|
Line of credit,
related parties
|
212,388
|
883,224
|
Accrued interest,
related parties
|
1,859,977
|
1,171,782
|
Short term notes
payable
|
587,233
|
1,883,163
|
Convertible
promissory notes, net
|
-
|
2,652,377
|
Notes payable,
related parties, net
|
5,372,743
|
5,372,743
|
Warrant
liability
|
-
|
1,769,669
|
TOTAL CURRENT
LIABILITIES
|
12,415,352
|
16,487,091
|
|
|
|
NON-CURRENT
LIABILITIES
|
|
|
Contract
liabilities
|
573,224
|
46,736
|
Operating lease
liability
|
185,777
|
-
|
Finance lease
liability
|
271,240
|
-
|
TOTAL NON-CURRENT
LIABILITIES
|
1,030,241
|
46,736
|
TOTAL
LIABILITIES
|
13,445,593
|
16,533,827
|
|
|
|
COMMITMENTS AND
CONTINGENCIES
|
|
|
|
|
|
STOCKHOLDERS'
DEFICIT
|
|
|
PREFERRED STOCK,
par value $0.001, 5,000,000
|
|
|
shares authorized;
no shares issued and outstanding
|
-
|
-
|
|
|
|
PREFERRED STOCK,
SERIES A CONVERTIBLE, par value $0.001,
|
|
|
6,175 designated;
6,175 shares issued and 0 shares outstanding
|
|
|
in 2019 and
2018
|
-
|
-
|
|
|
|
PREFERRED STOCK,
SERIES B CONVERTIBLE, par value $0.001,
|
|
|
293 designated; 293
shares issued and 0 shares outstanding
|
|
|
in 2019 and
2018
|
-
|
-
|
|
|
|
COMMON STOCK, par
value $0.001, 350,000,000 shares authorized;
|
|
|
293,780,400 and
155,665,138 issued and outstanding in 2019 and
|
|
|
2018,
respectively
|
293,781
|
155,665
|
|
|
|
ADDITIONAL PAID-IN
CAPITAL
|
115,457,808
|
101,153,882
|
|
|
|
ACCUMULATED
DEFICIT
|
(125,752,956)
|
(116,602,778)
|
|
|
|
ACCUMULATED OTHER
COMPREHENSIVE LOSS
|
(62,234)
|
(62,868)
|
TOTAL STOCKHOLDERS'
DEFICIT
|
(10,063,601)
|
(15,356,099)
|
TOTAL LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
$3,381,992
|
$1,177,728
|
The
accompanying notes to consolidated financial
|
statements
are an integral part of these statements.
|
SANUWAVE
HEALTH, INC. AND SUBSIDIARIES
|
CONSOLIDATED
STATEMENTS OF COMPREHENSIVE
LOSS
|
Years
Ended December 31, 2019 and 2018
|
|
|
|
|
|
|
REVENUES
|
|
|
Product
|
$645,169
|
$949,601
|
License
fees
|
315,557
|
819,696
|
Other
revenue
|
68,004
|
80,763
|
|
1,028,730
|
1,850,060
|
|
|
|
COST OF
REVENUES
|
|
|
Product
|
454,862
|
525,216
|
Other
|
84,061
|
168,448
|
|
538,923
|
693,664
|
|
|
|
|
489,807
|
1,156,396
|
|
|
|
OPERATING
EXPENSES
|
|
|
Research and
development
|
1,181,892
|
981,654
|
Selling and
marketing
|
1,590,957
|
521,413
|
General and
administrative
|
6,440,093
|
6,811,255
|
Depreciation
|
71,213
|
22,332
|
TOTAL OPERATING
EXPENSES
|
9,284,155
|
8,336,654
|
|
|
|
OPERATING
LOSS
|
(8,794,348)
|
(7,180,258)
|
|
|
|
OTHER INCOME
(EXPENSE)
|
|
|
Gain on warrant
valuation adjustment
|
227,669
|
55,376
|
Interest
expense
|
(1,147,986)
|
(3,708,562)
|
Interest expense,
related party
|
(688,195)
|
(787,586)
|
Other income,
net
|
-
|
9,952
|
Loss on foreign
currency exchange
|
(26,979)
|
(20,316)
|
TOTAL OTHER INCOME
(EXPENSE), NET
|
(1,635,491)
|
(4,451,136)
|
|
|
|
NET
LOSS
|
(10,429,839)
|
(11,631,394)
|
|
|
|
OTHER COMPREHENSIVE
INCOME (LOSS)
|
|
|
Foreign currency
translation adjustments
|
19,844
|
(19,085)
|
TOTAL COMPREHENSIVE
LOSS
|
$(10,409,995)
|
$(11,650,479)
|
|
|
|
LOSS PER
SHARE:
|
|
|
Net loss - basic
and diluted
|
$(0.05)
|
$(0.08)
|
|
|
|
Weighted average
shares outstanding - basic and diluted
|
203,588,106
|
149,537,777
|
The
accompanying notes to consolidated financial
|
statements
are an integral part of these statements.
|
SANUWAVE
HEALTH, INC. AND SUBSIDIARIES
|
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS'
DEFICIT
|
Years
Ended December 31, 2018 and 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances as of
December 31, 2017
|
-
|
$-
|
139,300,122
|
$139,300
|
$94,995,040
|
$(104,971,384)
|
$(43,783)
|
$(9,880,827)
|
Net
loss
|
-
|
-
|
-
|
-
|
-
|
(11,631,394)
|
-
|
(11,631,394)
|
Cashless warrant
exercises
|
-
|
-
|
6,395,499
|
6,396
|
(6,396)
|
-
|
-
|
-
|
Proceeds from
warrant exercise
|
-
|
-
|
422,939
|
423
|
40,305
|
-
|
-
|
40,728
|
Shares issued for
services
|
-
|
-
|
1,049,340
|
1,049
|
180,451
|
-
|
-
|
181,500
|
Conversion of
promissory notes
|
-
|
-
|
8,497,238
|
8,497
|
926,199
|
-
|
-
|
934,696
|
Warrants issued for
services
|
-
|
-
|
-
|
-
|
828,690
|
-
|
-
|
828,690
|
Stock-based
compensation
|
-
|
-
|
-
|
-
|
2,480,970
|
-
|
-
|
2,480,970
|
Warrants issued
with convertible promissory notes
|
-
|
-
|
-
|
-
|
808,458
|
-
|
-
|
808,458
|
Beneficial
conversion feature on convertible promissory notes
|
-
|
-
|
-
|
-
|
709,827
|
-
|
-
|
709,827
|
Warrants issued
with promissory note
|
-
|
-
|
-
|
-
|
36,104
|
-
|
-
|
36,104
|
Beneficial
conversion feature on promissory notes
|
-
|
-
|
-
|
-
|
35,396
|
-
|
-
|
35,396
|
Reclassification of
warrant liability to equity
|
-
|
-
|
-
|
-
|
118,838
|
-
|
-
|
118,838
|
Foreign currency
translation adjustment
|
-
|
-
|
-
|
-
|
-
|
-
|
(19,085)
|
(19,085)
|
|
|
|
|
|
|
|
|
|
Balances as of
December 31, 2018
|
-
|
-
|
155,665,138
|
155,665
|
101,153,882
|
(116,602,778)
|
(62,868)
|
(15,356,099)
|
Net
loss
|
-
|
-
|
-
|
-
|
-
|
(10,429,839)
|
-
|
(10,429,839)
|
Cashless warrant
exercises
|
-
|
-
|
4,962,157
|
4,962
|
(4,962)
|
-
|
-
|
-
|
Cashless warrant
exercises with waived proceeds
|
|
|
450,000
|
450
|
35,550
|
|
|
36,000
|
Proceeds from
warrant exercise
|
-
|
-
|
40,284,422
|
40,285
|
3,581,674
|
-
|
-
|
3,621,959
|
Conversion of short
term notes payable and convertible notes payable
|
-
|
-
|
65,247,517
|
65,248
|
6,427,607
|
-
|
-
|
6,492,855
|
Reclassification of
warrant liability to equity due to adoption of ASU
2017-11
|
-
|
-
|
-
|
-
|
262,339
|
1,279,661
|
-
|
1,542,000
|
Conversion of line
of credit, related parties to equity
|
-
|
-
|
7,020,455
|
7,020
|
672,980
|
-
|
-
|
680,000
|
Warrants issued for
services
|
-
|
-
|
-
|
-
|
186,867
|
-
|
-
|
186,867
|
Shares issued for
services
|
-
|
-
|
150,000
|
150
|
28,350
|
-
|
-
|
28,500
|
Proceeds from PIPE
offering
|
-
|
-
|
20,000,711
|
20,001
|
2,780,099
|
-
|
-
|
2,800,100
|
Stock-based
compensation
|
-
|
-
|
-
|
-
|
333,422
|
-
|
-
|
333,422
|
Foreign currency
translation adjustment
|
-
|
-
|
-
|
-
|
-
|
-
|
634
|
634
|
|
|
|
|
|
|
|
|
|
Balances as of
December 31, 2019
|
-
|
$-
|
293,780,400
|
$293,781
|
$115,457,808
|
$(125,752,956)
|
$(62,234)
|
$(10,063,601)
|
The
accompanying notes to consolidated financial
|
statements
are an integral part of these statements.
|
SANUWAVE
HEALTH, INC. AND SUBSIDIARIES
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
Years
Ended December 31, 2019 and 2018
|
|
|
|
|
|
|
CASH FLOWS FROM
OPERATING ACTIVITIES
|
|
|
Net
loss
|
$(10,429,839)
|
$(11,631,394)
|
Adjustments
to reconcile net loss
|
|
|
to
net cash used by operating activities
|
|
|
Depreciation
|
71,213
|
22,332
|
Change in allowance
for doubtful accounts
|
39,331
|
(59,752)
|
Stock-based
compensation
|
333,422
|
2,480,970
|
Warrants issued for
consulting services
|
186,867
|
828,690
|
Stock issued for
consulting services
|
28,500
|
181,500
|
Gain on warrant
valuation adjustment
|
(227,669)
|
(55,376)
|
Amortization of
operating lease
|
(9,236)
|
-
|
Amortization of
debt issuance costs
|
-
|
2,767,361
|
Amortization of
debt discount
|
-
|
150,484
|
Waived proceeds
from warrant exercise
|
36,000
|
-
|
Accrued
interest
|
1,159,713
|
410,289
|
Interest payable,
related parties
|
688,195
|
485,875
|
Changes in
operating assets and liabilities
|
|
|
Accounts
receivable - trade
|
(8,600)
|
(22,502)
|
Inventory
|
(185,135)
|
(123,118)
|
Prepaid
expenses
|
(294)
|
(34,823)
|
Due
from related parties
|
1,228
|
-
|
Other
assets
|
(25,440)
|
(3,802)
|
Operating leases
|
44,622
|
-
|
Accounts
payable
|
(138,730)
|
276,120
|
Accrued
expenses
|
421,829
|
188,708
|
Accrued
employee compensation
|
1,134,497
|
338,733
|
Contract
liabilties
|
468,768
|
178,533
|
NET CASH USED BY
OPERATING ACTIVITIES
|
(6,410,758)
|
(3,621,172)
|
|
|
|
CASH FLOWS FROM
INVESTING ACTIVITIES
|
|
|
Purchases of
property and equipment
|
(53,939)
|
(42,888)
|
NET CASH USED BY
INVESTING ACTIVITIES
|
(53,939)
|
(42,888)
|
|
|
|
CASH FLOWS FROM
FINANCING ACTIVITIES
|
|
|
Proceeds from PIPE
offering
|
2,800,100
|
-
|
Advances from
related parties
|
2,055,414
|
-
|
Proceeds from
warrant exercise
|
1,758,142
|
40,728
|
Proceeds from short
term note
|
1,215,000
|
1,637,497
|
Proceeds from line
of credit, related party
|
90,000
|
624,000
|
Proceeds from
convertible promissory notes, net
|
-
|
1,159,785
|
Proceeds from note
payable, product
|
-
|
96,708
|
Payment on line of
credit, related party
|
-
|
(144,500)
|
Payments on note
payable, product
|
-
|
(96,708)
|
Payments of
principal on finance leases
|
(58,687)
|
-
|
NET CASH PROVIDED
BY FINANCING ACTIVITIES
|
7,859,969
|
3,317,510
|
|
|
|
EFFECT OF EXCHANGE
RATES ON CASH
|
634
|
(19,085)
|
|
|
|
NET INCREASE
(DECREASE) IN CASH AND CASH EQUIVALENTS
|
1,395,906
|
(365,635)
|
|
|
|
CASH AND CASH
EQUIVALENTS, BEGINNING OF PERIOD
|
364,549
|
730,184
|
CASH AND CASH
EQUIVALENTS, END OF PERIOD
|
$1,760,455
|
$364,549
|
|
|
|
SUPPLEMENTAL
INFORMATION
|
|
|
Cash paid for
interest, related parties
|
$-
|
$151,227
|
|
|
|
NONCASH INVESTING
AND FINANCING ACTIVITIES
|
|
|
Other warrant
exercise
|
$1,863,815
|
$-
|
|
|
|
Conversion of line
of credit, related party to equity
|
$680,000
|
$-
|
|
|
|
Conversion of line of credit, related party to accounts
receivable
|
$121,000
|
$-
|
|
|
|
Conversion of short
term notes payable to equity
|
$3,559,542
|
$-
|
|
|
|
Conversion of
convertible promissory notes to equity
|
$2,933,313
|
$934,696
|
|
|
|
Reclassification of
warrant liability to equity
|
$1,542,000
|
$-
|
|
|
|
Accounts payable
and accrued employee compensation converted to equity
|
$36,500
|
$-
|
|
|
|
Additions to right
of use assets from new operating lease liabilities
|
$476,029
|
$-
|
|
|
|
Additions to right
of use assets from new finance lease liabilities
|
$451,561
|
$-
|
|
|
|
Reclassification of
warrant liability to equity
|
$-
|
$118,838
|
|
|
|
Advances payable
converted to convertible promissory notes
|
$-
|
$310,000
|
|
|
|
Accounts payable
converted to convertible promissory notes
|
$-
|
$120,000
|
|
|
|
Beneficial
conversion feature on convertible debt
|
$-
|
$745,223
|
|
|
|
Warrants issued
with debt
|
$-
|
$844,562
|
|
|
|
The
accompanying notes to consolidated financial
|
statements
are an integral part of these statements.
|
SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2019 and 2018
1. Description of the Business
and Going Concern and Management’s Plans
SANUWAVE Health,
Inc. and Subsidiaries (the “Company”) is a shock wave technology company using a patented
system of noninvasive, high-energy, acoustic shock waves for
regenerative medicine and other applications. The Company’s
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.
The Company’s 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 U.S. 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 (DFU) 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.
The Company is marketing its dermaPACE System for
treatment usage in the United States and is able 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 dermaPACE treatments,
product sales, licensing transactions and other
activities.
As
shown in the accompanying consolidated financial statements, the
Company incurred a net loss of $10,429,839 and $11,631,394 during
the years ended December 31, 2019 and 2018, respectively, and the
net cash used by operating activities
was $6,410,758 and $3,621,172, respectively. As of December
31, 2019, the Company had a net working capital deficit of
$9,910,994, and cash and cash
equivalents of $1,760,455. These factors and the events of
default on the notes payable to HealthTronics, Inc. (see Note 11)
and the Company’s short term notes payable (see Note 9) raise
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.
The
Company does not currently generate significant recurring revenue
and will require additional capital during 2020. Although no
assurances can be given, management of the Company believes that
existing capital resources should enable the Company to fund
operations into the third quarter of 2020.
The continuation of the Company’s business
is dependent upon raising additional capital to fund operations.
Management’s plans are to obtain additional capital in 2020
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 the Company’s existing
shareholders. Although no assurances can be given,
management of the Company believes that potential additional
issuances of equity or other potential financing transactions as
discussed above should provide the necessary funding for the
Company to continue as a going concern. If these efforts are unsuccessful, the Company
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. The consolidated financial statements
do not include any adjustments that might be necessary if the
Company is unable to continue as a going concern.
SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Years Ended December 31, 2019 and 2018
2.
Summary
of significant accounting policies
The
significant accounting policies followed by the Company are
summarized below:
Foreign currency
translation - The functional currencies of the
Company’s foreign operations are the local currencies. The
financial statements of the Company’s foreign subsidiary have
been translated into United States dollars. All balance sheet
accounts have been translated using the exchange rates in effect at
the balance sheet date. Income statement amounts have been
translated using the average exchange rate for the year.
Translation adjustments are reported in other comprehensive loss in
the consolidated statements of comprehensive loss and as cumulative
translation adjustments in accumulated other comprehensive loss in
the consolidated statements of stockholders’
deficit.
Principles of
consolidation - The consolidated financial statements
include the accounts of the Company and its wholly-owned
subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
Estimates –
These consolidated financial statements have been prepared in
accordance with generally accepted accounting principles in the
United States of America (“U.S. GAAP”). Because a
precise determination of assets and liabilities, and
correspondingly revenues and expenses, depend on future events, the
preparation of consolidated financial statements for any period
necessarily involves the use of estimates and assumptions. Actual
amounts may differ from these estimates. These consolidated
financial statements have, in management’s opinion, been
properly prepared within reasonable limits of materiality and
within the framework of the accounting policies summarized herein.
Significant estimates include the recording of allowances for
doubtful accounts, estimate of the net realizable value of
inventory, estimated reserves for inventory, valuation of
derivatives, the determination of the valuation allowances for
deferred taxes, estimated fair value of stock-based compensation,
and estimated fair value of warrants.
Reclassifications
– Certain accounts in the prior period consolidated
financial statements have been reclassified for comparison purposes
to conform to the presentation of the current period consolidated
financial statements. These reclassifications had no effect on the
previously reported net loss.
Cash and cash
equivalents - For purposes of the consolidated financial
statements, liquid instruments with an original maturity of 90 days
or less when purchased are considered cash equivalents. The Company
maintains its cash in bank accounts which may exceed federally
insured limits.
Concentration of credit
risk and limited suppliers - Management routinely assesses
the financial strength of its customers and, as a consequence,
believes accounts receivable are stated at the net realizable value
and credit risk exposure is limited. THree distributors and
partners accounted for 18%, 15% and 12% of revenues for the year
ended December 31, 2019, and 0%, 0% and 22% of accounts receivable
at December 31, 2019. Three distributors and partners accounted for
33%, 23% and 11% of revenues for the year ended December 31, 2018,
and 24%, 60% and 7.7% of accounts receivable at December 31,
2018.
The
Company expects that actions taken in response to the COVID-19
pandemic will also negatively impact sales of dermaPACE and
orthoPACE. Some hospitals are restricting procedures that are not
deemed to be life-threatening at this time. Because dermaPACE and
orthoPACE are not deemed to be life-threatening procedures, we
expect that the number of procedures performed will decline. A
decrease in the number of procedures performed will adversely
affect our expected revenues and our financial
results.
The
Company depends on suppliers for product component materials and
other components that are subject to stringent regulatory
requirements. 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. If
this were to occur, it may be difficult to arrange a replacement
supplier because certain of these materials may only be available
from one or a limited number of sources. In addition, our suppliers
could be disrupted by conditions related to COVID-19, or other
epidemics Establishing additional or replacement suppliers
for these materials may take a substantial period of time, as
certain of these suppliers must be approved by regulatory
authorities.
SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2019 and 2018
2.
Summary
of significant accounting policies (continued)
Accounts receivable
- Accounts receivable are stated at the amount management expects
to collect from outstanding balances. Management provides for
probable uncollectible amounts through a charge to earnings based
on its assessment of the current status of individual accounts.
Receivables are generally considered past due if greater than 60
days old. Balances that are still outstanding after management has
used reasonable collection efforts are written off through a charge
to the allowance for doubtful accounts.
Inventory -
Inventory consists of finished medical equipment and parts and is
stated at the lower of cost, which is valued using the first in,
first out (“FIFO”) method, or net realizable value less
allowance for selling and distribution expenses. The Company analyzes its inventory
levels and writes down inventory that has, or is expected to,
become obsolete.
Depreciation of property
and equipment - The straight-line method of depreciation is
used for computing depreciation on property and equipment. The
costs of additions and betterments are capitalized and expenditures
for repairs and maintenance, which do not extend the economic
useful life of the related assets, are expensed. Depreciation is
based on estimated useful lives as follows: machines and equipment,
3 years; devices, 5 - 15 years; office and computer equipment, 3
years; furniture and fixtures, 3 years; and software, 2
years.
Fair value of financial
instruments - The carrying values of accounts payable, and
other short-term obligations approximate their fair values,
principally because of the short-term maturities of these
instruments.
The
Company has adopted ASC 820-10, Fair Value Measurements, which defines
fair value, establishes a framework for measuring fair value and
requires disclosures about fair value measurements. The framework
that is set forth in this standard is applicable to the fair value
measurements where it is permitted or required under other
accounting pronouncements.
The ASC
820-10 hierarchy ranks the quality and reliability of inputs, or
assumptions, used in the determination of fair value and requires
financial assets and liabilities carried at fair value to be
classified and disclosed in one of the following three
categories:
Level 1
- Observable inputs that reflect quoted prices (unadjusted) in
active markets for identical assets and liabilities;
Level 2
- Inputs other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly or
indirectly; and
Level 3
- Unobservable inputs that are not corroborated by market data,
therefore requiring the Company to develop its own
assumptions.
The
Company recognizes all derivatives on the balance sheet at fair
value. The fair value of the warrant liability is determined based
on a lattice solution, binomial approach pricing model, and
includes the use of unobservable inputs such as the expected term,
anticipated volatility and risk-free interest rate, and therefore
is classified within level 3 of the fair value hierarchy. (See Note
14).
The
Company’s notes payable approximate fair value because the
terms are substantially similar to comparable debt in the
marketplace.
SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2019 and 2018
2.
Summary
of significant accounting policies (continued)
Impairment of long-lived
assets – The Company reviews long-lived assets for
impairment whenever facts and circumstances indicate that the
carrying amounts of the assets may not be recoverable. An
impairment loss is recognized only if the carrying amount of the
asset is not recoverable and exceeds its fair value. Recoverability
of assets to be held and used is measured by comparing the carrying
amount of an asset to the estimated undiscounted future cash flows
expected to be generated by the asset. If the asset’s
carrying value is not recoverable, an impairment charge is
recognized for the amount by which the carrying amount of the asset
exceeds its fair value. The Company determines fair value by using
a combination of comparable market values and discounted cash
flows, as appropriate.
Revenue recognition
- The Company recognizes revenue in accordance with
ASC 606. See Note 16 for further
discussion.
Shipping and handling
costs - Shipping charges billed to customers are included in
revenues. Shipping and handling costs incurred have been recorded
in cost of revenues.
Income taxes -
Income taxes are accounted for utilizing the asset and liability
method. Deferred tax assets and liabilities are determined based on
differences between the financial reporting and tax basis of assets
and liabilities and are measured using the enacted tax rates and
laws that will be in effect when the differences are expected to
reverse. A valuation allowance is provided for the deferred tax
assets, including loss carryforwards, when it is more likely than
not that some portion or all of a deferred tax asset will not be
realized.
A
provision of ASC 740, Income
Taxes, Accounting for Uncertainty in Income Taxes (FIN 48)
specifies the way public companies are to account for uncertainties
in income tax reporting, and prescribes a methodology for
recognizing, reversing, and measuring the tax benefits of a tax
position taken, or expected to be taken, in a tax return. ASC 740
requires the evaluation of tax positions taken or expected to be
taken in the course of preparing the Company’s tax returns to
determine whether the tax positions would
“more-likely-than-not” be sustained if challenged by
the applicable tax authority. Tax positions not deemed to meet the
more-likely-than-not threshold would be recorded as a tax benefit
or expense in the current year. Management has evaluated and
concluded that there were no material uncertain tax positions
requiring recognition in the Company’s financial statements
as of December 31, 2019 and 2018. The Company does not expect any
significant changes in the unrecognized tax benefits within twelve
months of the reporting date.
The
Company will recognize in income tax expense, interest and
penalties related to income tax matters. For the years ended
December 31, 2019 and 2018, the Company did not have any amounts
recorded for interest and penalties.
SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2019 and 2018
2.
Summary
of significant accounting policies (continued)
Loss per share -
Basic net income (loss) per share is
computed by dividing the net income (loss) attributable to common
stockholders for the period by the weighted average number of
shares of common stock outstanding for the
period. Diluted net income (loss) per share is computed
by dividing the net income (loss) attributable to common
stockholders by the weighted average number of shares of common
stock and dilutive common stock equivalents then
outstanding. To the extent that securities are
“anti-dilutive,” they are excluded from the calculation
of diluted net income (loss) per share. As a result of the net loss
for the years ended December 31, 2019 and 2018, respectively, 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 at
December 31, 2019 and 2018, respectively:
|
|
|
|
|
|
Stock
options
|
34,303,385
|
31,703,385
|
Warrants
|
9,474,091
|
103,994,927
|
Convertible
promissory notes
|
2,250,000
|
24,112,518
|
Anti-dilutive equity
securities
|
46,027,476
|
159,810,830
|
Comprehensive income
–Comprehensive income (loss) as defined includes all changes
in equity (net assets) during a period from non-owner sources. The
only source of other comprehensive income (loss) for the Company,
which is excluded from net income (loss), is foreign currency
translation adjustments.
Stock-based
compensation - The Company uses the fair value method of
accounting for its employee stock option program. Stock-based
compensation expense for all stock-based payment awards is based on
the estimated fair value of the award measured on the grant date.
The Company recognizes the estimated fair value of the award as
compensation cost over the requisite service period of the award,
which is generally the option vesting term. The Company generally
issues new shares of common stock to satisfy option and warrant
exercises.
Research and
development - Research and development costs are expensed as
incurred. Research and development costs include payments to third
parties that specifically relate to the Company’s products in
clinical development, such as payments to contract research
organizations, consulting fees for FDA submissions, universities
performing non-medical related research and insurance premiums for
clinical studies and non-medical research. In addition, employee
costs (salaries, payroll taxes, benefits and travel) for employees
of the clinical affairs, and research and development departments
are classified as research and development costs.
Liabilities related to
warrants issued – The Company
evaluates its convertible instruments to determine if those
contracts or embedded components of those contracts qualify as
derivative financial instruments to be separately accounted for in
accordance with FASB ASC 815 “Derivatives and Hedging”
(“ASC 815”). The accounting treatment of derivative
financial instruments requires that the Company record embedded
conversion options (“ECOs”) and any related
freestanding instruments at their fair values as of the inception
date of the agreement and at fair value as of each subsequent
balance sheet date. Any change in fair value is recorded as
non-operating, non-cash income or expense for each reporting period
at each balance sheet date. Conversion options are recorded as a
discount to the host instrument and are amortized as amortization
of debt discount on the consolidated statements of operations over
the life of the underlying instrument. The Company reassesses the
classification of its derivative instruments at each balance sheet
date. If the classification changes as a result of events during
the period, the contract is reclassified as of the date of the
event that caused the reclassification. A binomial model was
used to estimate the fair value of the ECOs of warrants 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. The expected volatility
is estimated based on the actual volatility during the most recent
historical period of time equal to the weighted average life of the
instruments.
Warrants related to debt
issued – The Company records a warrant discount
related to warrants issued with debt at fair value and recognizes
the cost using the straight-line method over the term of the
related debt as interest expense, which is reported in the Other
Income (Expense) section in our Consolidated Statements of
Comprehensive Loss. This warrant discount is reported as a
reduction of the related debt liability.
Beneficial conversion
feature on convertible debt -The Company records a
beneficial conversion feature related convertible debt at fair
value and recognizes the cost using the straight-line method over
the term of the related debt as interest expense, which is reported
in the Other Income (Expense) section in our Consolidated
Statements of Comprehensive Loss. This beneficial conversion
feature is reported as a reduction of the related debt
liability.
SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2019 and 2018
2.
Summary
of significant accounting policies (continued)
Recently issued or adopted accounting standards
In
February 2016, the Financial
Accounting Standards Board (“FASB”) issued Accounting Standards Update
(“ASU”)
2016-02, Leases (Topic
842). Subsequent to the issuance of Topic 842, the FASB
clarified the guidance through several ASUs; hereinafter the
collection of lease guidance is referred to as “ASC
842”. The Company, using the modified retrospective approach
with a cumulative-effect adjustment, recognized a right to use
("ROU") asset at the beginning of the period of adoption (January
1, 2019). Therefore, the Company recognized and measured operating
leases on the consolidated balance sheet without revising
comparative period information or disclosure. The Company elected
the package of practical expedients permitted under the transition
guidance within the standard, which eliminates the reassessment of
past leases, classification and initial direct costs and treats
short term leases of less than a year outside of a ROU asset. The
adoption did not materially impact the Company’s Consolidated
Statements of Operations or Cash Flows. Based on the
analysis, on January 1, 2019, the Company recorded right of use
assets and lease liabilities of approximately $520,000, which
represented an operating lease entered into prior to January 1,
2019. Refer to Note 15, Commitments and Contingencies, for
additional disclosures required by ASC 842. The Company determines
if an arrangement is a lease at inception.
In June
2016, the FASB issued ASU 2016-13, Financial Instruments –
Credit Losses (Topic 326): Measurement of Credit Losses on
Financial Instruments, which was subsequently revised by ASU
2018-19. The ASU introduces a new model for assessing impairment of
most financial assets. Entities will be required to use a
forward-looking expected loss model, which will replace the current
incurred loss model, which will result in earlier recognition of
allowance for losses. The ASU is effective for annual reporting
periods beginning after January 2023 with early adoption
permitted.
In
May 2017, the FASB issued ASU
No. 2017-09, Compensation - Stock Compensation (Topic 718):
Scope of Modification Accounting, which clarifies what
constitutes a modification of a share-based payment award.
The ASU is intended to provide clarity and reduce both diversity in
practice and cost and complexity when applying the guidance in
Topic 718 to a change to the terms or conditions of a share-based
payment award. ASU 2017-09 is effective for public entities
for annual periods beginning after December 15, 2017, and
interim periods within those fiscal years. The adoption of
ASU 2017-09 did not have a material impact on the Company’s
financial condition or results of operations.
In July
2017, the FASB issued ASU No. 2017-11, Earnings Per Share (Topic 260); Distinguishing
Liabilities from Equity (Topic 480): Derivatives and Hedging (Topic
815): (Part I) Accounting for Certain Financial Instruments with
Down Round Features, (Part II) Replacement of the Indefinite
Deferral for Mandatorily Redeemable Financial Instruments of
Certain Nonpublic Entities and Certain Mandatorily Redeemable
Noncontrolling Interests with a Scope Exception. Part I of
this ASU addresses the complexity and reporting burden associated
with the accounting for freestanding and embedded instruments with
down round features as liabilities subject to fair value
measurement. Part II of this ASU addresses the difficulty of
navigating Topic 480. Part I of this ASU will be effective for
fiscal years beginning after December 15, 2018. Early adoption is
permitted for an entity in an interim or annual period. The Company
has elected to apply ASU 2017-11 using a modified-retrospective
approach by means of a cumulative-effect adjustment to its
financial statements as of the beginning of the first fiscal year
for which the account standard applies (or January 1, 2019), as
allowed under ASU 2017-11. Since the adoption of ASU 2017-11 would
have classified the warrants effected as equity at inception, the
cumulative-effect adjustment should (i) record the issuance date
value of the warrants as if they had been equity classified at the
issuance date, (ii) reverse the effects of changes in the fair
value of the warrants that had been recorded in the statement of
comprehensive loss of each period, and (iii) eliminate the
derivative liabilities form the balance sheet. Upon adoption, the
Company (i) recorded an increase of $262,339 to additional paid-in
capital, (ii) recorded an increase to retained earnings of
$1,279,661 and (iii) decreased the warrant liability by
$1,542,000.
In June 2018, the FASB issued ASU 2018-07,
Compensation
– Stock Compensation (Topic 718) – Improvements to
Nonemployee Share-Based Payment Accounting. This ASU simplifies the accounting for
share-based payments to nonemployees by aligning it with the
accounting for share-based payments to employees. As a result,
share-based payments issued to nonemployees related to the
acquisition of goods and services will be accounted for similarly
to the accounting for share-based payments to employees, with
certain exceptions. This ASU is effective for fiscal years
beginning after December 15, 2018, including interim periods within
such fiscal years. Early adoption is permitted if financial
statements have not yet been issued. The adoption of ASU 2018-07
had no impact on the Company’s consolidated financial
statements.
SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2019 and 2018
2.
Summary
of significant accounting policies (continued)
In July 2018, the FASB issued ASU No.
2018-09, Codification
Improvements (“ASU
2018-09”). These amendments provide clarifications and
corrections to certain ASC subtopics including the following:
Income Statement - Reporting Comprehensive Income – Overall
(Topic 220-10), Debt - Modifications and Extinguishments (Topic
470-50), Distinguishing Liabilities from Equity – Overall
(Topic 480-10), Compensation - Stock Compensation - Income Taxes
(Topic 718-740), Business Combinations - Income Taxes (Topic
805-740), Derivatives and Hedging – Overall (Topic 815- 10),
and Fair Value Measurement – Overall (Topic 820-10). The
majority of the amendments in ASU 2018-09 are effective for pubic
business entities for annual periods beginning after December 15,
2018. The Company has adopted ASU No. 2018-09 and the adoption of
this ASU had no significant impact on its consolidated financial
statements.
In August 2018, the FASB issued ASU No.
2018-13, Fair Value Measurement (Topic
820): Disclosure Framework—Changes to the Disclosure
Requirements for Fair Value Measurement (“ASU 2018-13”). The amendments in ASU
2018-13 modify the disclosure requirements associated with fair
value measurements based on the concepts in the Concepts Statement,
including the consideration of costs and benefits. The amendments
on changes in unrealized gains and losses, the range and weighted
average of significant unobservable inputs used to develop Level 3
fair value measurements, and the narrative description of
measurement uncertainty should be applied prospectively for only
the most recent interim or annual period presented in the initial
fiscal year of adoption. All other amendments should be applied
retrospectively to all periods presented upon their effective date.
The amendments are effective for all entities for fiscal years
beginning after December 15, 2019, and interim periods within those
fiscal years. Early adoption is permitted, including adoption in an
interim period. The Company is currently evaluating ASU 2018-13 and
its impact on its consolidated financial
statements.
Inventory consists
of the following at December 31, 2019 and 2018:
|
|
|
|
|
|
Inventory -
finished goods
|
$357,265
|
$188,116
|
|
185,690
|
169,704
|
Total
inventory
|
$542,955
|
$357,820
|
SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2019 and 2018
4.
Property
and equipment
Property and
equipment consists of the following at December 31, 2019 and
2018:
|
|
|
|
|
|
Finance lease right
of use asset
|
$451,561
|
$-
|
Machines and
equipment
|
281,633
|
240,295
|
Office and computer
equipment
|
201,841
|
196,150
|
Devices
|
81,059
|
81,059
|
Software
|
38,126
|
38,126
|
Furniture and
fixtures
|
22,929
|
16,019
|
Other
assets
|
2,259
|
2,259
|
Total
|
1,079,408
|
573,908
|
Accumulated
depreciation
|
(567,366)
|
(496,153)
|
Net
property and equipment
|
$512,042
|
$77,755
|
Depreciation
expense was $71,213 and $22,332 for the years ended December 31,
2019 and 2018, respectively.
Accrued
expenses consist of the following at December 31, 2019 and
2018:
|
|
|
|
|
|
Accrued board of
director's fees
|
$400,000
|
$200,000
|
Accrued
inventory
|
167,050
|
-
|
Accrued executive
severance
|
154,000
|
136,000
|
Accrued
travel
|
120,000
|
58,993
|
Accrued outside
services
|
108,033
|
115,118
|
Accrued legal and
professional fees
|
134,970
|
-
|
Accrued clinical
study expenses
|
13,650
|
13,650
|
Accrued related
party advance
|
-
|
101,137
|
Deferred
rent
|
-
|
44,623
|
Accrued computer
equipment
|
-
|
8,752
|
Accrued
other
|
13,406
|
11,007
|
|
$1,111,109
|
$689,280
|
The
Company is a party to a Severance and Advisory Agreement (the
“Severance Agreement”) with its former President and
Chief Executive Officer, and a director of the Company. Pursuant to
the Severance Agreement, the former executive will receive, as
severance along with other non-cash items, six months of his base
salary payable over the following six month period and bonus
payments of $100,000 upon each of four bonus payment events tied to
the Company’s clinical trial plan for the dermaPACE device,
or December 31, 2016, whichever occurs first. The Company achieved
three of the four bonus payment events in 2014 and paid $300,000 in
accrued executive severance in 2014. The accrued executive
severance at December 31, 2019 and 2018 represents the unpaid
portion of the bonus payments plus accrued interest due to late
payment.
On
October 10, 2018, the Company entered into accrued related party
advance with Shri P. Parikh, the President of the Company, in
the total principal amount of $100,000 with an interest rate of 5%
per annum. The principal and accrued interest are due and payable
on the earlier of (i) one day after receipt of payment from
Johnfk Medical Inc., (ii) six
months from the date of issuance and (iii) the acceleration of the
maturity of the short term note by the holder upon the occurrence
of an event of default. On May 13, 2019, the Company repaid
in full the outstanding balance on short term notes payable with
Shri P. Parikh, the President of the
Company.
SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2019 and 2018
As of
December 31, 2019, the Company has contract assets and liabilities
from contracts with customers (see Note 16).
Contract
liabilities consist of the following:
|
|
|
|
|
|
|
|
|
Service
agreement
|
$133,510
|
$57,365
|
Deposit on
product
|
-
|
92,950
|
License
fees
|
500,000
|
-
|
Other
|
6,291
|
28,218
|
Total
Contract liabilities
|
639,801
|
178,533
|
Non-Current
|
(573,224)
|
(46,736)
|
Total
Current
|
$66,577
|
$131,797
|
The timing of the
Company’s revenue recognition may differ from the timing of
payment by its customers. A contract asset (receivable) is
recorded when revenue is recognized prior to payment and
the Company has an unconditional right to payment.
Alternatively, when payment precedes the satisfaction of
performance obligations, the Company records a contract liability
(deferred revenue) until the performance obligations are satisfied.
Of the aggregate $639,801 of contract liability balances as of
December 31, 2019, the Company expects to satisfy its remaining
performance obligations associated with $66,577 of contract
liability balances within the next twelve months.
7.
Advances
from related parties
During the
year ended December 31, 2019, the Company received $2,055,414 for
warrant exercises and short term notes for which shares were not
immediately issued. During the year ended December 31, 2019, the
Company converted $1,827,316 of the advances from related parties
to equity and $210,000 of the advances from related parties to
short term notes. Advances from related parties totaled $18,098 at
December 31, 2019.
The
Company has received cash advances to help fund the Company’s
operations. On January 10, 2018, the outstanding balance of
the $310,000 of advances payable was converted into two 10%
Convertible Promissory Notes (see Note 10). On November 12, 2018, the advances
payable balance was added to the outstanding balance line of
credit, related parties.
8.
Line
of credit, related parties
The
Company entered into a line of credit agreement with a member of
the board of directors and an existing shareholder at December
29, 2017. The agreement established a line of credit in the amount
of $370,000 with an annualized interest rate of 6%. On
November 12, 2018, the Company entered into an amendment to the
line of credit agreement that increased the line of credit to
$1,000,000 with an annualized interest rate of 6%. During the year ended December 31, 2019, the
amount of the line of credit was decreased by $680,000 through a
conversion to 7,020,455 shares of common stock, by $121,000 through
payment on purchase of dermaPACE Systems and was increased
by $90,000 through a deposit on purchase of future dermaPACE
Systems. The line of credit may be called for payment
upon demand of the holder. The line of credit, related parties had
an aggregate outstanding balance of $212,388 and $883,224 as of
December 31, 2019 and 2018, respectively. As of December 31,
2019, the amount of credit available is
$861,500.
Interest expense on
the line of credit, related parties totaled $40,164 and $33,724 for
the years ended December 31, 2019 and 2018,
respectively.
SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2019 and 2018
9.
Short
term notes payable
The
Company entered into non-interest bearing short term notes payable
agreements on December 13, 2019 in the total principal amount of
$210,000. The principal amount will be due and payable six months
from the date of issuance of the respective notes via issuance of
2,250,000 shares of common stock.
The
Company entered into short term notes payable between January 30,
2019 and April 10, 2019 in the total principal amount of $1,215,000
with an interest rate of 5% per annum. The principal and
accrued interest are due and payable six months from the date of
issuance of the respective notes. During 2019, the Company
converted $3,559,543 of the short term notes payable to
equity.
The
Company entered into short term notes payable between June 26, 2018
and December 31, 2018 in the total principal amount of $1,870,525
with an interest rate of 5% per annum. The principal and
accrued interest are due and payable six months from the date of
issuance of the respective notes, of which $233,028 are held by an
officer and director of the Company.
During
the year ended December 31, 2019, the Company defaulted on all of
the short term notes payable and began accruing interest at the
default interest rate of 10% upon the date of default.
On April 17,
2019, the Company offered an incentive to Class L and Class
N Warrant holders in return for their funding the operations of the
Company prior to an effective Registration Statement with the SEC
for the Class L and Class N Warrant Agreements and certain Series A
Warrants. As the incentive to Class L
and Class N Warrant holders, the Company approved the issuance of a
10% bonus number of shares of the Company’s common
stock to be calculated by multiplying the number of shares
being issued upon the Class L Warrant, Class N Warrant and Series A
Warrant exercise by 10% at a cost basis equal to the exercise price
and recorded interest expense in the amount of $629,963.
The
short term notes payable had an aggregate outstanding principal
balance of $587,233 and $1,883,163 at December 31, 2019, and 2018,
respectively.
Interest expense on
the short term notes payable totaled $838,613 and $12,638 for the
years ended December 31, 2019 and 2018, respectively.
10.
Convertible
promissory notes
In 2017, the Company issued certain 10%
Convertible Promissory Notes which have a six month term from the
subscription date, accrue interest at 10% per annum and the note
holders can convert the 10% Convertible Promissory Notes at any
time during the term to the number of shares of Company common stock, equal to the amount
obtained by dividing (i) the amount of the unpaid principal and
interest on the note by (ii) $0.11. The 10% Convertible Promissory Notes include a
warrant agreement (the “Class N Warrant”) to purchase
Common Stock equal to the amount obtained by dividing the (i) sum
of the principal amount by (ii) $0.11. The Class N Warrants expired
on September 3, 2019, as
amended.
The 10% Convertible
Promissory Notes include a warrant agreement (the “Class N
Warrant”) to purchase Common Stock equal to the amount
obtained by dividing the (i) sum of the principal amount by (ii)
$0.11. During the years ended December 31, 2018, the Company
issued 10,599,999 Class N Warrants in connection with the closings
of 10% Convertible Promissory Notes.
The calculated fair value of the Class N Warrants was determined
using the Black-Scholes pricing model based on the following
assumptions:
|
|
|
|
Weighted
average contractual term in years
|
1.13-1.19
|
Weighted
average risk free interest rate
|
1.98% - 2.15%
|
Weighted
average volatility
|
94% - 99%
|
Forfeiture
rate
|
0.0%
|
Expected
dividend yield
|
0.0%
|
Additional debt
issuance costs will be incurred and amortized over the remaining
lives of the 10% Convertible Promissory Notes when Class N Warrants
are issued per the engagement letter with West Park Capital. On
June 29, 2018, the Company issued 1,242,955 Class N Warrants to
West Park Capital per the terms of a placement agent
agreement and $417,633 was expensed as interest expense. On October
4, 2018, the Company issued 1,242,954 Class N Warrants to West Park
Capital per the terms of a placement agent agreement and $91,233
was expensed as interest expense.
SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2019 and 2018
10.
Convertible
promissory notes (continued)
As
of August 2, 2018, the Company defaulted on all of the 10%
Convertible Promissory Notes issued and began accruing interest at
the default interest rate of 18%.
The 10%
Convertible Promissory Notes had an aggregate outstanding principal
balance of $0 and $2,652,377, net of $0 beneficial conversion
feature, warrant discount and debt issuance costs at December 31,
2019 and 2018, respectively. The common shares related to the
conversion of the Convertible Promissory Notes were issued during
the year ended December 31, 2019 (see Note 13).
Interest expense on
the 10% Convertible Promissory Notes totaled $280,936 and
$3,565,198 for the years ended December 31, 2019 and 2018,
respectively.
Kevin A.
Richardson II, CEO, chairperson of the Company’s board of
directors and an existing shareholder of the Company, was a
purchaser in the 10% Convertible Promissory Notes in the
amount of $260,000 and was issued
2,363,636 Class N Warrants for the year ended December 31, 2018. A.
Michael Stolarski, a member of the Company’s board of
directors and an existing shareholder of the Company, was a
purchaser in the 10% Convertible Promissory Notes in the
amount of $170,000 and was issued
1,545,455 and Class N Warrants for the years ended December 31,
2018.
On
January 29, 2018, the Company entered
into an additional 10% Convertible Promissory Note with
an accredited investor in
the amount of $71,500 and issued 650,000 Class N Warrants in
connection with such 10% Convertible Promissory Note. The Company
intends to use the proceeds from such 10% Convertible Promissory
Note for payment of services to an investor relations company and
the account of the attorney updating the Registration Statement on
Form S-1 of the Company filed under the Securities Act of 1933, as
amended, on January 3, 2017 (File No. 333-213774), which
registration statement shall also register the shares issuable upon
conversion of such 10% Convertible Promissory Note and issuable
upon the exercise of a Class N Warrants issued concurrently with
the issuance of such 10% Convertible Promissory Note.
In
2018, the Company recorded $35,396 debt discount for the beneficial
conversion feature of the 10% Convertible Promissory Note and
$36,104 in debt discount for the discount on the Class N Warrant
agreement to be amortized over the life of the 10% Convertible
Promissory Note.
|
|
|
|
Weighted
average contractual term in years
|
1.14
|
Weighted
average risk free interest rate
|
1.96%
|
Weighted
average volatility
|
98.2%
|
Forfeiture
rate
|
0.0%
|
Expected
dividend yield
|
0.0%
|
The 10%
Convertible Promissory Note was converted in full in August 2018
(See Note 13).
11.
Notes
payable, related parties
The
notes payable, related parties as amended were issued in
conjunction with the Company’s purchase of the
orthopedic division of HealthTronics, Inc. The notes payable,
related parties bear interest at 8% per annum, as amended. All
remaining unpaid accrued interest and principal is due on December
31, 2018, as amended. HealthTronics, Inc. is a related party
because they are a shareholder in the Company and have a security
agreement with the Company detailed below.
The Company is a party
to a security agreement with HealthTronics, Inc. to provide
a first security interest in the assets of the Company. During any period when
an Event of Default occurs, the applicable interest rate shall
increase by 2% per annum. Events of Default under the notes
payable, related parties have occurred and are continuing on
account of the failure of SANUWAVE, Inc., a Delaware corporation, a
wholly owned subsidiary of the Company and the borrower under the
notes payable, related parties, to make the required payments of
interest which were due on December 31, 2016, March 31, 2017, June
30, 2017, September 30, 2017, December 31, 2017, June 30, 2018,
September 30, 2018, December 31, 2018, March 31, 2019, June 30,
2019, September 30, 2019 and December 31, 2019 (collectively, the
“Defaults”). As a result of the Defaults, the notes
payable, related parties have been accruing interest at the rate of
10% per annum since January 2, 2017 and continue to accrue interest
at such rate. The Company will be required to make mandatory
prepayments of principal on the notes payable, related parties
equal to 20% of the proceeds received by the Company through the
issuance or sale of any equity securities in cash or through the
licensing of the Company’s patents or other intellectual
property rights. The
Company has not made the mandatory prepayments of principal to
HealthTronics, Inc. on the notes payable, related parties from
proceeds received through the issuance or sale of any equity
securities in cash through December 31, 2019.
SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2019 and 2018
11.
Notes
payable, related parties (continued)
The
notes payable, related parties had an aggregate outstanding
principal balance of $5,372,743, net of $0 debt discount at
December 31, 2019, and 2018.
Accrued
interest currently payable totaled $1,859,977 and $1,171,782 at
December 31, 2019 and 2018, respectively. Interest expense on notes
payable, related parties totaled $688,195 and $787,586 for the
years ended December 31, 2019 and 2018, respectively.
As of December 31, 2019, we are in default under
the notes, as amended by the Third Amendment, and
as a result HealthTronics,
Inc. could, among other rights and remedies, exercise its rights
under its first priority security interest in our assets. We are in
negotiations with HealthTronics, Inc. to address the event of
default.
The
Company’s Articles of Incorporation authorize the issuance of
up to 5,000,000 shares of “blank check” preferred stock
with designations, rights and preferences as may be determined from
time to time by the board of directors.
On
January 12, 2016, the Company filed a Certificate of Designation of
Preferences, Rights and Limitations for Series B Convertible
Preferred Stock of the Company (the “Certificate of
Designation”) with the Nevada Secretary of State. The
Certificate of Designation amends the Company’s Articles of
Incorporation to designate 293 shares of preferred stock, par value
$0.001 per share, as Series B Convertible Preferred Stock. The
Series B Convertible Preferred Stock has a stated value of $1,000
per share. Holders of Series B
Convertible Preferred Stock are entitled to convert each share of
Series A Convertible Preferred Stock into 2,000 shares of common
stock, provided that after giving effect to such conversion, such
holder, together with its affiliates, shall not beneficially own in
excess of 9.99% of the number of shares of common stock outstanding
(the “Beneficial Ownership
Limitation”).
On
March 14, 2014, the Company filed a Certificate of Designation of
Preferences, Rights and Limitations for Series A Convertible
Preferred Stock of the Company (the “Certificate of
Designation”) with the Nevada Secretary of State. The
Certificate of Designation amends the Company’s Articles of
Incorporation to designate 6,175 shares of preferred stock, par
value $0.001 per share, as Series A Convertible Preferred Stock.
The Series A Convertible Preferred Stock has a stated value of
$1,000 per share.
Warrant Exercises
During
the year ended December 31, 2019, the Company issued 19,116,934
shares of Common Stock upon the exercise of 19,116,934 Class L
Warrants, Class O Warrants, Class N Warrants and Series A Warrants
to purchase shares of stock under the terms of the respective
warrant agreements, in exchange for $1,758,142 in cash
proceeds.
During
the year ended December 31, 2019, the Company issued 21,167,488
shares of Common Stock upon the exercise of 21,167,488 Class L
Warrants, Class O Warrants, Class N Warrants and Series A Warrants
to purchase shares of stock under the terms of the respective
warrant agreements, in exchange for $1,827,315 in customer deposits
and $36,500 in accounts payable.
For
the year ended December 31, 2018, the Company issued 422,939 shares
of common stock upon the exercise of 422,939 Class N Warrants,
Series A Warrants and Class O Warrants to purchase shares of stock
under the terms of the respective warrant agreements.
Cashless Warrant Exercises
During
the year ended December 31, 2019, the Company issued 4,962,157
shares of Common Stock upon the cashless exercise of 10,423,886
Class N Warrants, Class L Warrants and Series A Warrants to
purchase shares of stock under the terms of the respective warrant
agreements.
SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2019 and 2018
13.
Equity
Transactions (continued)
During
the year ended December 31, 2019, the Company issued 450,000 shares
of Common Stock on a cashless basis upon the exercise of 450,000
Class L Warrants to purchase shares of stock under the terms of the
respective warrant agreements. The Common Stock was issued on a
cashless basis as a result of email breach in March 2019. The
warrant holder sent the funds to an incorrect bank account as a
result of the email breach and the Company elected to waive the
requirement to cash exercise and allowed the warrant holder to net
exercise.
For
the year ended December 31, 2018, the Company issued 6,395,499
shares of common stock upon the exercise of 7,878,925 Class N
Warrants, Series A Warrants and Class O Warrants to purchase shares
of stock under the terms of the respective warrant
agreements.
Conversion of liabilities
During
the year ended December 31, 2019, the Company issued 38,581,030
shares of Common Stock upon the exercise of 35,677,272 Class L
Warrants, Class N Warrants and Series A Warrants, under the terms
of the respective warrant agreements and 2,903,758 upon the
conversion of interest and bonus shares pursuant to the terms of
the short term note payable. The other warrant exercise constituted
the conversion of short term note payable in the outstanding amount
of $3,559,542 with the receipt of notices of Class L, Class N and
Series A warrant exercises, all pursuant to the terms of the short
term note payable.
During
the year ended December 31, 2019, the Company issued 26,666,487
shares of Common Stock due upon exercise of the conversion of
convertible promissory notes in the principal and interest amount
of $2,933,313 with the receipt of notices of conversion, all
pursuant to the terms of the convertible promissory
notes.
During
the year ended December 31, 2019, the Company issued 7,020,455
shares of Common Stock due upon exercise of 6,795,455 Class L and
Class N Warrants and 225,000 upon the conversion of bonus share
pursuant to the terms of the conversion of line of credit, related
parties in the principal amount of $680,000 with the receipt of
notices of conversion.
For the
year ended December 31, 2018, the Company issued 8,497,238 shares
of Common Stock upon the conversion of 10% Convertible Promissory
Notes in the amount of $902,500 plus accrued interest of $32,197 at
the conversion price of $0.11 per share per the terms of the 10%
Convertible Promissory Notes agreement.
Consulting Agreement
In
February 2019, the Company entered into a three month consulting
agreement for which a portion of the fee for the services was to be
paid with Common Stock. The number of shares to be paid with Common
Stock was 75,000 earned upon signing and an additional 75,000 upon
renewal of the agreement. The Company issued 150,000 shares in
December 2019. The fair value of the shares of $28,500 was recorded
as a non-cash general and administrative expense during the year
ended December 31, 2019.
In
April 2018, the Company verbally entered into a month-to-month
consulting agreement with a consultant for which a portion of the
fee for the services was to be paid with Common Stock. The number
of shares to be paid with Common Stock was calculated by dividing
the amount of the fee to be paid with Common Stock of $4,000 by the
Company stock price at the close of business on the eighth business
day of each month. The Company issued 74,714 shares of Common Stock
for services performed from January through June 2018. $20,000 was
recorded as a non-cash general and administrative expense during
the year ended December 31, 2018.
SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2019 and 2018
13.
Equity
Transactions (continued)
In May
2017, the Company entered into an agreement with an investment
company to provide business advisory and consulting services.
The compensation for those services was to be paid in a combination
of cash and Common Stock. At December 31, 2017, the Company
accrued $120,000 of expense for the services provided. The Common
Stock was issued in March and June 2018 in the amount of 533,450
and 15,000 shares, respectively. On October 17, 2018, this
agreement was verbally amended to provide for the cash compensation
of services performed to be paid with Common Stock. The Common
Stock was issued in October 2018 in the amount of 426,176 shares.
The $37,500 was recorded as a non-cash general and administrative
expense during the year ended December 31, 2018.
PIPE Offering
On
December 11, 2019, the Company entered into a Common Stock Purchase
Agreement with certain investors for the sale by the Company in a
private placement of an aggregate of up to 21,071,143 shares of its
common stockat a purchase price of $0.14 per share. The Company has
granted the purchasers indemnification rights with respect to its
representations, warranties, covenants and agreements under the
purchase agreement.
In
connection with the agreement, the Company also entered into a
registration rights agreement with the purchasers, pursuant to
which the Company has agreed to file a registration statement with
the SEC by April 30, 2020.
During
the year ended December 31, 2019, the Company issued 20,000,711
shares of Common Stock in conjunction with this offering and
received $2,800,100 in cash proceeds.
A
summary of warrants as of December 31, 2019 and 2018, is presented
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant
class
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class F
Warrants
|
300,000
|
-
|
-
|
(300,000)
|
-
|
-
|
-
|
-
|
-
|
Class G
Warrants
|
1,503,409
|
-
|
-
|
(1,503,409)
|
-
|
-
|
-
|
-
|
-
|
Class H
Warrants
|
1,988,095
|
-
|
-
|
(1,988,095)
|
-
|
-
|
-
|
-
|
-
|
Class I
Warrants
|
1,043,646
|
-
|
-
|
(1,043,646)
|
-
|
-
|
-
|
-
|
-
|
Class K
Warrants
|
7,200,000
|
-
|
-
|
-
|
7,200,000
|
-
|
-
|
-
|
7,200,000
|
Class L
Warrants
|
63,898,173
|
-
|
(6,639,834)
|
-
|
57,258,339
|
-
|
(57,133,339)
|
(125,000)
|
-
|
Class N
Warrants
|
13,943,180
|
17,644,999
|
(1,136,364)
|
-
|
30,451,815
|
-
|
(29,951,815)
|
(500,000)
|
-
|
Class O
Warrants
|
6,540,000
|
1,509,091
|
(120,000)
|
-
|
7,929,091
|
-
|
(6,549,090)
|
(470,910)
|
909,091
|
Class P
Warrants
|
-
|
-
|
-
|
-
|
-
|
1,365,000
|
-
|
-
|
1,365,000
|
Series A
Warrants
|
1,561,348
|
-
|
(405,666)
|
-
|
1,155,682
|
-
|
(1,092,936)
|
(62,746)
|
-
|
|
97,977,851
|
19,154,090
|
(8,301,864)
|
(4,835,150)
|
103,994,927
|
1,365,000
|
(94,727,180)
|
(1,158,656)
|
9,474,091
|
SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2019 and 2018
A
summary of the warrant exercise price per share and expiration date
is presented as follows:
|
|
Expiration
|
|
|
date
|
|
|
|
Class K
Warrants
|
$0.08
|
June
2025
|
Class K
Warrants
|
$0.11
|
August
2027
|
Class O
Warrants
|
$0.11
|
January
2022
|
Class P
Warrants
|
$0.01
|
June
2021
|
Class P
Warrants
|
$0.20
|
June
2024
|
On
January 23, 2019, the Company extended the expiration date to May
1, 2019 for Series A Warrants, Class L Warrants and Class N
Warrants. On March 1, 2019, the Company extended the expiration
date to June 28, 2019 for Class N Warrants and Class O Warrants. On
May 31, 2019, the Company amended the expiration date of the Class
N warrants from June 28, 2019 to September 3, 2019. No
consideration was given for the warrant extensions.
The
Company has 1,033,334 Class L Warrants and 62,811 Series A Warrants
that have been exercised but the common stock has not yet been
issued. The cash for these issuable shares was previously received
and recorded in Advances from related parties and Short term notes
payable.
The
exercise price and the number of shares covered by the warrants
will be adjusted if the Company has a stock split, if there is a
recapitalization of the Company’s common stock, or if the
Company consolidates with or merges into another
company.
The
Class K Warrants may be exercised on a physical settlement or on a
cashless basis.
On June
11, 2019, the Company issued Class P Warrant Agreements to vendors
to purchase 265,000 shares of common stock at an exercise price of
$0.20 per share. Each Class P Warrant
represents the right to purchase one share of Common Stock. The
estimated fair value of the Class P Warrants at the grant date was
$36,067 and was recorded as selling and marketing expense. The
warrants vested upon issuance and expire on June 11,
2024.
On June
14, 2019, the Company issued Class P Warrant Agreement to a vendor
to purchase up to 1,000,000 shares of common stock at an exercise
price of $0.01 per share. Each Class P
Warrant represents the right to purchase one share of Common Stock.
The estimated fair value of the Class P Warrants at the grant date
was $150,800 and was recorded as general and administrative
expense. The warrants vested upon issuance and expire on June 14,
2021.
On June
24, 2019, the Company issued Class P Warrant Agreement to a vendor
to purchase up to 100,000 shares of common stock at an exercise
price of $0.20 per share. Each Class P
Warrant represents the right to purchase one share of Common Stock.
The estimated fair value of the Class P Warrant will be recorded as
selling and marketing expense as the warrants are earned per the
milestones. The warrants have not yet vested based on milestones
and expire on June 24, 2024.
SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2019 and 2018
In
March 2019, the Company entered into a three month consulting
agreement for which a portion of the fee for the services was to be
paid with a par value warrant for 1,000,000 shares of Common Stock.
The Company issued the warrant agreement in June 2019. The $150,800
calculated fair value of the warrants was recorded as a non-cash
general and administrative expense during the year ended December
31, 2019.
On
January 26, 2018, the Company issued Class O Warrant Agreements to
a related party vendor to purchase 909,091 shares of common stock
at an exercise price of $0.11 per share. Each Class O Warrant represents the right to
purchase one share of Common Stock. The estimated fair value of the
Class O Warrants at the grant date was $160,455 and was recorded as
general and administrative expense. The warrants vested upon
issuance and expire on March 17, 2019. On March 1, 2019, the
Company extended the expiration date to June 28,
2019.
In
2018, the Company issued Class O Warrant Agreements to a vendor to
purchase 600,000 shares of common stock at an exercise price of
$0.11 per share. Each Class O Warrant
represents the right to purchase one share of Common Stock. The
estimated fair value of the Class O Warrants at their respective
grant dates was $159,370 and was recorded as general and
administrative expense. The warrants vested upon issuance and
expire on March 17, 2019. On March 1, 2019, the Company extended
the expiration date to June 28, 2019.
The
Class K Warrants and the Series A Warrants were derivative
financial instruments. The estimated fair value of the Class K
Warrants at the date of grant was $36,989 and recorded as debt
discount, which is accreted to interest expense through the
maturity date of the related notes payable, related parties. The
estimated fair values of the Series A Warrants and the Series B
Warrants at the date of grant were $557,733 for the warrants issued
in conjunction with the 2014 Private Placement and $47,974 for the
warrants issued in conjunction with the 18% Convertible Promissory
Notes. The fair value of the Series A Warrants and Series B
Warrants were recorded as equity issuance costs in 2014, a
reduction of additional paid-in capital. The Series B Warrants
expired unexercised in March 2015.
The
estimated fair values were determined using a binomial option
pricing model based on various assumptions. The
Company’s derivative liabilities have been classified as
Level 3 instruments and are adjusted to reflect estimated fair
value at each period end, with any decrease or increase in the
estimated fair value being recorded in other income or expense
accordingly, as adjustments to the fair value of derivative
liabilities. Various factors are considered in the pricing
models the Company uses to value the warrants, including the
Company’s current common stock price, the remaining life of
the warrants of 0.085 years, the volatility of the Company’s
common stock price of 102%, and the risk-free interest rate of
2.43% for the year ended December 31, 2019. The remaining
life of the warrants which ranged from 0.21 to 8.6 years, the
volatility of the Company’s common stock price which ranged
from 112% to 134%, and the risk-free interest rate which ranged
from 2.43% to 2.64% for the year ended December 31, 2018. In
addition, as of the valuation dates, management assessed the
probabilities of future financing and other re-pricing events in
the binominal valuation models.
SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2019 and 2018
A
summary of the changes in the warrant liability during the years
ended December 31, 2019 and 2018, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liability
as of December 31, 2017
|
$1,616,000
|
$327,883
|
$1,943,883
|
Issued
|
-
|
-
|
-
|
Redeemed
|
-
|
(118,838)
|
(118,838)
|
Change in fair
value
|
(74,000)
|
18,624
|
(55,376)
|
Warrant liability
as of December 31, 2018
|
1,542,000
|
227,669
|
1,769,669
|
Change in fair
value
|
-
|
(32,359)
|
(32,359)
|
Expired
|
-
|
(195,310)
|
(195,310)
|
Reclassification
due to Adoption of ASU
|
|
|
|
2017-11 (see Note
2)
|
(1,542,000)
|
-
|
(1,542,000)
|
Warrant liability
as of December 31, 2019
|
$-
|
$-
|
$-
|
15.
Commitments
and contingencies
Operating Leases
The
Company is a party to certain operating leases. In
August 2016, the Company 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
expires on December 31, 2021. On February 1, 2018, the Company
entered into an amendment to the lease agreement for an additional
380 square feet of office space for storage which expires on
December 31, 2021. On January 2, 2019, the Company entered into a
second amendment to the lease agreement for an additional 2,297
square feet of office space for office space which expires on
December 31, 2021. Under the terms of the lease, the Company pays
monthly rent of $14,651, subject to a 3% adjustment on an annual
basis.
For
leases where the Company is the lessee, ROU assets represent the
Company’s right to use an underlying asset for the lease term
and lease liabilities represent an obligation to make lease
payments arising from the lease. ROU assets and lease liabilities
are recognized at the lease commencement date (except we used the
practical expedients and recorded the outstanding operating lease
at January 1, 2019) based on the present value of lease payments
over the lease term. As the Company’s lease did not provide
an implicit interest rate, the Company used the equivalent
borrowing rate for a secured financing with the term of that equal
to the remaining life of the lease at inception. The lease terms
used to calculate the ROU asset and related lease liability did not
include options to extend or termination of the lease; there are
none and there is no reasonable certainty that the Company would
extend the lease at expiration. Lease expense for operating leases
is recognized on a straight-line basis over the lease term as an
operating expense. The Company has lease agreements which require
payments for lease and non-lease components and has elected to
account for these as a separate lease components. Non-leasing
components are not included in the ROU asset.
SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2019 and 2018
15. Commitments
and contingencies (continued)
Right
of use assets and Lease Liability – right of use consists of
the following:
|
|
|
|
|
|
Right of use
assets
|
$323,661
|
|
|
|
|
|
|
Lease liability -
right of use
|
|
Current
portion
|
$173,270
|
Long
term portion
|
185,777
|
|
$359,047
|
As of
December 31, 2019, the maturities of the Company’s lease
liability – right of use which have initial or remaining
lease terms in excess of one year consist of the
following:
Year ending
December 31,
|
|
2020
|
$191,713
|
2021
|
197,462
|
Total
lease payments
|
389,175
|
Less: Present value
adjustment
|
(30,128)
|
Lease liability -
right of use
|
$359,047
|
As of
December 31, 2019, the Company’s operating lease had a
weighted average remaining lease term of 2 years and a weighted
average discount rate of 7%.
Rent
expense for the years ended December 31, 2019 and 2018, was
$225,274 and $157,395, respectively.
SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2019 and 2018
15. Commitments
and contingencies (continued)
Financing Lease
For
leases where the Company is the lessee, ROU assets represent the
Company’s right to use an underlying asset for the lease term
and lease liabilities represent an obligation to make lease
payments arising from the lease. ROU assets and lease liabilities
are recognized at the lease commencement date based on the present
value of lease payments over the lease term. The present value of
the lease payment exceeds 90% of the sales price of the equipment,
therefore this lease will be considered a financing lease and is
included in Property and equipment, net on our Consolidated Balance
Sheets (see Note 4). Lease expense will be recognized as payment of
financing lease, depreciation expense and interest
expense.
Right
of use assets and Lease Liability – right of use consists of
the following:
|
|
|
|
|
|
Right of use
assets
|
$418,088
|
|
|
|
|
|
|
Lease liability -
right of use
|
|
Current
portion
|
$121,634
|
Long
term portion
|
271,240
|
|
$392,874
|
As of
December 31, 2019, the maturities of the Company’s lease
liability – right of use which have initial or remaining
lease terms in excess of one year consist of the
following:
Year ending
December 31,
|
|
2020
|
$165,078
|
2021
|
165,078
|
2022
|
130,278
|
Total
|
$460,434
|
As of December 31,
2019, the Company’s financing leases had a weighted average
remaining lease term of 2.8 years based on annualized base payments
expiring through 2022 and a weighted average discount rate of
13.2%.
As of
December 31, 2019, the Company did not have additional operating or
financing leases that have yet commenced.
Litigation
The
Company is a defendant in various legal actions, claims and
proceedings arising in the ordinary course of business, including
claims related to breach of contracts and intellectual property
matters resulting from our business activities. As with most
actions such as these, an estimation of any possible and/or
ultimate liability cannot always be determined. We believe that all
pending claims, if adversely decided, would not have a material
adverse effect on our business, financial position or results of
operations.
SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2019 and 2018
The
Company began accounting for revenue in accordance with ASC 606,
which we adopted beginning January 1, 2018, using the modified
retrospective method (see Note 2). The core principle of
ASC 606 requires that an entity
recognize revenue to depict the transfer of promised goods or
services to customers in an amount that reflects the consideration
to which the company expects to be entitled in exchange for those
goods or services. ASC 606 defines a five-step process to achieve
this core principle and, in doing so, it is possible more judgment
and estimates may be required within the revenue recognition
process than required under GAAP, including identifying performance
obligations in the contract, estimating the amount of variable
consideration to include in the transaction price and allocating
the transaction price to each separate performance
obligation.
Pursuant to ASC
606, we apply the following the five-step model:
1.
Identify the
contract(s) with a customer. A contract with a customer exists when
(i) we enter into an enforceable contract with a customer that
defines each party’s rights regarding the goods to be
transferred and identifies the payment terms related to these
goods, (ii) the contract has commercial substance and, (iii) we
determine that collection of substantially all consideration for
services that are transferred is probable based on the
customer’s intent and ability to pay the promised
consideration.
2.
Identify the
performance obligation(s) in the contract. If a contract promises
to transfer more than one good or service to a customer, each good
or service constitutes a separate performance obligation if the
good or service is distinct or capable of being
distinct.
3.
Determine the
transaction price. The transaction price is the amount of
consideration to which the entity expects to be entitled in
exchanging the promised goods or services to the
customer.
4.
Allocate the
transaction price to the performance obligations in the contract.
For a contract that has more than one performance obligation, an
entity should allocate the transaction price to each performance
obligation in an amount that depicts the amount of consideration to
which an entity expects to be entitled in exchange for satisfying
each performance obligation.
5.
Recognize revenue
when (or as) the Company satisfies a performance obligation. For
each performance obligation, an entity should determine whether the
entity satisfies the performance obligation at a point in time or
over time. Appropriate methods of measuring progress include output
methods and input methods.
The
Company recognizes revenue primarily from the following types of
contracts:
Product sales
Product
sales include devices and applicators (new and refurbished).
Performance obligations are satisfied at the point in time when the
customer obtains control of the goods, which is generally at the
point in time that the product is shipped.
Procedure
revenue from the dermaPACE System is not material to the
consolidated financial statements as of December 31,
2019.
SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2019 and 2018
Licensing transactions
Licensing
transaction include distribution licenses and intellectual property
licenses. Licensing revenue is recognized as the Company satisfies
its performance obligations, which may vary with the terms of the
licensing agreement.
Other activities
Other activities primarily
include warranties, repairs and billed freight. Device product
sales are bundled with an initial one-year warranty and the
Company offers a separately priced second-year warranty. The
Company allocates the device sales price to the product and
the embedded warranty by reference to the stand-alone extended
warranty price. Because the warranty represents a stand-ready
obligation, revenue is recognized over the time period that the
Company satisfies its performance obligations, which is generally
the warranty term. Repairs (parts and labor) and billed freight
revenue are recognized at the point in time that the service is
performed, or the product is shipped, respectively.
Disaggregation of Revenue
The
disaggregation of revenue is based on geographical region. The
following table presents revenue from contracts with customers
for the years ended December 31, 2019 and 2018:
|
Year ended
December 31, 2019
|
Year ended
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
$277,527
|
$367,642
|
$645,169
|
$209,842
|
$739,759
|
$949,601
|
License
fees
|
125,000
|
190,557
|
315,557
|
25,000
|
794,696
|
819,696
|
Other
Revenue
|
2,450
|
65,554
|
68,004
|
-
|
80,763
|
80,763
|
|
$404,977
|
$623,753
|
$1,028,730
|
$234,842
|
$1,615,218
|
$1,850,060
|
SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2019 and 2018
17.
Related
party transactions
On
February 13, 2018, the Company entered into an Agreement for
Purchase and Sale, Limited Exclusive Distribution and
Royalties, and Servicing and Repairs with Premier Shockwave Wound
Care, Inc., a Georgia Corporation (“PSWC”), and
Premier Shockwave, Inc., a Georgia Corporation (“PS”).
The agreement provides for the purchase by PSWC and PS of dermaPACE
System and related equipment sold by the Company and includes a
minimum purchase of 100 units over 3 years. The agreement grants
PSWC and PS limited but exclusive distribution rights to provide
dermaPACE Systems to certain governmental healthcare facilities in
exchange for the payment of certain royalties to the Company. No
royalties were earned during the year ended December 31, 2018.
Under the agreement, the Company is responsible for the servicing
and repairs of such dermaPACE Systems and equipment. The agreement
also contains provisions whereby in the event of a change of
control of the Company (as defined in the agreement), the
stockholders of PSWC have the right and option to cause the Company
to purchase all of the stock of PSWC, and whereby the Company has
the right and option to purchase all issued and outstanding shares
of PSWC, in each case based upon certain defined purchase price
provisions and other terms. The agreement also contains certain
transfer restrictions on the stock of PSWC. Each of PS and PSWC is
owned by A. Michael Stolarski, a member of the Company’s
board of directors and an existing shareholder of the
Company.
For the
year ended December 31, 2019, the Company recorded $253,013 in
product revenue from this related party. The Contract liabilities
balance includes a balance of $117,152 from this related
party. For the year ended
December 31, 2018, the Company recorded $207,457 in product revenue
from this related party. The Contract liabilities balance includes
a balance of $156,565 from this related party.
18.
Stock-based
compensation
On
November 1, 2010, the Company approved the Amended and Restated
2006 Stock Incentive Plan of SANUWAVE Health, Inc. effective as of
January 1, 2010 (the “Stock Incentive Plan”). The Stock
Incentive Plan permits grants of awards to selected employees,
directors and advisors of the Company in the form of restricted
stock or options to purchase shares of common stock. Options
granted may include non-statutory options as well as qualified
incentive stock options. The Stock Incentive Plan is currently
administered by the board of directors of the Company. The Stock
Incentive Plan gives broad powers to the board of directors of the
Company to administer and interpret the particular form and
conditions of each option. The stock options granted under the
Stock Incentive Plan are non-statutory options which generally vest
over a period of up to three years and have a ten year term. The
options are granted at an exercise price determined by the board of
directors of the Company to be the fair market value of the common
stock on the date of the grant. As of December 31, 2019, and 2018,
the Stock Incentive Plan reserved a total of 35,000,000 and
35,000,000, respectively, shares of common stock for grant.
On December 31, 2019, there were
2,028,281 shares of common stock available for grant under the
Stock Incentive Plan.
During
the year ended December 31, 2019, the Company granted to employees,
members of the board of directors and members of the
Company’s Medical Advisory Board options to purchase an
aggregate of 2,700,000 shares of common stock under a
previously issued incentive plan. The options have an exercise
price between $0.14 and $0.18 per share for an aggregate grant date
value of approximately $333,422. The options vested upon issuance
and have a term of ten years.
SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2019 and 2018
18. Stock-based
compensation (continued)
During
the year ended December 31, 2018, the Company granted to employees,
members of the board of directors and members of the
Company’s Medical Advisory Board options to purchase an
aggregate of 10,110,000 shares of common stock under a
previously issued incentive plan. The options have an exercise
price between $0.11 and $0.42 per share for an aggregate grant date
value of approximately $2,500,000. The options vested upon issuance
and have a term of ten years.
The
fair value of each option award is estimated on the date of grant
using the Black-Scholes option pricing model using the following
weighted average assumptions for the years ended December 31, 2019
and 2018:
|
2019
|
|
2018
|
Weighted
average expected life in years
|
5.00
|
|
5.00
|
Weighted
average risk free interest rate
|
1.54% -
2.15%
|
|
2.84% -
3.21%
|
Weighted
average volatility
|
131% -
189%
|
|
134% -
144%
|
Forfeiture
rate
|
0.0%
|
|
0.0%
|
Expected
dividend yield
|
0.0%
|
|
0.0%
|
The
expected life of options granted represent the period of time that
options granted are expected to be outstanding and are derived from
the contractual terms of the options granted. The risk-free rate
for periods within the contractual life of the option is based on
the United States Treasury yield curve in effect at the time of the
grant. The expected volatility is based on the average volatility
of the Company and that of peer group companies similar in size and
value to us. We estimate pre-vesting forfeitures at the time of
grant and revise those estimates in subsequent periods if actual
forfeitures differ from those estimates. The expected dividend
yield is based on our historical dividend experience, however,
since our inception, we have not declared dividends. The amount of
stock-based compensation expense recognized during a period is
based on the portion of the awards that are ultimately expected to
vest. Ultimately, the total expense recognized over the vesting
period will equal the fair value of the awards that actually
vest.
For the
years ended December 31, 2019 and 2018, the Company recognized
$333,422 and $2,480,970, respectively, as compensation cost related
to options granted. As of December 31, 2019, and 2018, there are no
unamortized compensation costs related to options
granted.
SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2019 and 2018
18.
Stock-based
compensation (continued)
A
summary of option activity as of December 31, 2019 and 2018, and
the changes during the years then ended, is presented as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at
December 31, 2017
|
21,593,385
|
$0.31
|
Granted
|
10,110,000
|
$0.25
|
Exercised
|
-
|
$-
|
Forfeited or
expired
|
-
|
$-
|
Outstanding at
December 31, 2018
|
31,703,385
|
$0.29
|
Granted
|
2,700,000
|
$0.15
|
Exercised
|
-
|
$-
|
Forfeited or
expired
|
(100,000)
|
$0.11
|
Outstanding at
December 31, 2019
|
34,303,385
|
$0.28
|
|
|
|
Vested and
exercisable at December 31, 2019
|
33,928,385
|
$0.29
|
The
range of exercise prices for options was $0.04 to $2.00 for options
outstanding at December 31, 2019 and 2018, respectively. The
aggregate intrinsic value for outstanding options was $981,088 and
$2,085,866 at December 31, 2019 and 2018, respectively. The
aggregate intrinsic value for all vested and exercisable options
was $981,088 and $2,085,866 at December 31, 2019 and 2018,
respectively.
The
weighted average remaining contractual term for outstanding
exercisable stock options is 6.62 years and 7.4 years as of
December 31, 2019 and 2018, respectively.
A
summary of the Company’s nonvested options as of December 31,
2019 and 2018, and changes during the years then ended, is
presented as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at
December 31, 2017
|
-
|
$-
|
Granted
|
10,110,000
|
$0.25
|
Vested
|
(10,110,000)
|
$0.25
|
Forfeited or
expired
|
-
|
$-
|
Outstanding at
December 31, 2018
|
-
|
$-
|
Granted
|
2,700,000
|
$0.15
|
Vested
|
(2,350,000)
|
$0.15
|
Forfeited or
expired
|
-
|
$-
|
Outstanding at
December 31, 2019
|
350,000
|
$0.18
|
SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2019 and 2018
On June
26, 2018, the Company entered into an Agreement with FKS, effective
as of June 14, 2018, pursuant to which the Company and FKS
committed to enter into a joint venture for the manufacture, sale
and distribution of the Company’s dermaPACE and orthoPACE
devices. Under the Agreement, FKS paid the Company a fee of
$500,000 for initial distribution rights in Taiwan on June 22,
2018, with an additional fee of $500,000 for initial distribution
rights in Singapore, Malaysia, Brunei, Cambodia, Myanmar, Laos,
Indonesia, Thailand, Philippines and Vietnam (the “SEA
Region”) to be paid in the first quarter of 2019. On
September 21, 2018, the Company entered into a joint venture
agreement (the “JV Agreement”) with FKS setting forth
the terms of the operation, management and control of a joint
venture entity initially with the name of Holistic Health Institute
Pte. Ltd., a private limited company to be incorporated in the
Republic of Singapore, but with such company name subject to
confirmation by Singapore Government. On November 9, 2018, the
joint venture entity was incorporated in the Republic of Singapore
with the name of HWA. HWA was formed as a joint venture of the
Company and FKS for the manufacture, sale and distribution of the
Company’s dermaPACE and orthoPACE devices. Under the JV
Agreement, the Company and FKS each hold shares constituting fifty
percent of the issued share capital of HWA. The Company provides to
HWA FDA and CE approved products for an agreed cost, access to
treatment protocols, training, marketing and sales materials and
management expertise, and FKS provides to HWA capital, human
capital and sales resources in Singapore, Malaysia, Brunei,
Cambodia, Myanmar, Laos, Indonesia, Thailand, Philippines and
Vietnam, certain reports and identification of new key opinion
leaders as well as clinical trial and poster access availability.
The JV Agreement also established the corporate governance of HWA,
including a five-person board of directors consisting of two
directors designated by the Company, two directors designated by
FKS, and a third director appointed jointly by the parties.
Initially, net profits under the JV Agreement shall be used to
repay FKS for (i) the payment of $500,000 on June 22, 2018 to the
Company for initial distribution rights in Taiwan and (ii) the cash
advance to HWA per the terms of the JV Agreement. The JV Agreement
includes other customary terms, including regarding the transfer of
shares, indemnification and confidentiality. On June 4, 2019, we entered into an agreement
with Johnfk Medical Inc. (“FKS”) and Holistic Wellness Alliance Pte. Ltd.
(“HWA”) pursuant to which we and FKS terminated the
joint venture agreement, dated as of September 21, 2018, that
established HWA as a joint venture between us and FKS. Pursuant to
the termination agreement, FKS will pay us the outstanding amount
of $63,275 for equipment delivered to FKS and a penalty fee of
$50,000 for early termination of the joint venture agreement, which
was received in 2019. We credited the outstanding amount of $63,275
due for equipment upon the return of the equipment on September 6,
2019.
On September 27, 2017, the Company entered into a
binding term sheet with MundiMed Distribuidora Hospitalar
LTDA (“MundiMed”),
for a joint venture for the manufacture, sale and distribution of
our dermaPACE device. Under the binding term sheet, MundiMed was to
pay the Company an initial upfront distribution fee, with monthly
upfront distribution fees payable thereafter over the following
eighteen months. The initial upfront distribution fee was received
on October 6, 2017. Monthly upfront distribution fee payments have
been received aggregating $372,222. In August 2018, MundiMed
advised the Company that it did not anticipate being able to make
further payments under the binding term sheet due to operational
and cash flow difficulties. On September 14, 2018, the Company sent
a letter to MundiMed informing them of a breach in our agreement
regarding payment of the upfront distribution fee. On September 28,
2018, the Company received a response letter stating that the
Company was in default of the agreement. On October 9, 2018, the
Company sent MundiMed a letter of termination of the agreement
effective as of October 8, 2018. Accordingly, the Company
derecognized the contract assets and contract liabilities
associated with the MundiMed
contract.
SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2019 and 2018
19.
Joint
ventures (continued)
On
December 13, 2019, the Company entered into a joint venture
agreement (the “Agreement”) with Universus Global
Advisors LLC, a limited liability company organized under the laws
of the State of Delaware (“Universus”), Versani Health
Consulting Consultoria em Gestão de Negócios EIRELI, an
empresa individual de responsabilidade limitada organized under the
laws of Brazil (“Versani”), Curacus Limited, a private
limited company organized under the laws of England and Whales
(“Curacus”), and certain individual citizens of Brazil
and the Czech Republic (the individuals together with Curacus, the
“IDIC Group”). The principal purpose of the joint
venture company will be to manufacture, import, use, sell, and
distribute, on an exclusive basis in Brazil, dermaPACE devices and
wound kits consisting of a standard ultrasound gel and custom size
sterile sleeves used for the treatment of various acute and chronic
wounds using extracorporeal shockwave therapy technology. The joint
venture company will also provide treatments related to the
dermaPACE devices. The IDIC Group has agreed to pay to the Company
a partnership fee in the total amount of $600,000 for the granting
of exclusive territorial rights to the joint venture company to
distribute the dermaPACE devices and wound kits in Brazil. Of the
$600,000 partnership fee, $500,000 was received in November and
December of 2019 and recorded as contract liability, while the
remaining $100,000 is contingent on receipt of required regulatory
approvals from ANVISA (the Brazilian Health Regulatory Agency) and
is expected to be received within the next twelve to eighteen
months. As the remaining $100,000 fee is contingent it was not
recorded in the financial statements at December 31, 2019. The
parties executed a shareholders’ agreement, a trademark
license agreement, a supply agreement and a technology license
agreement on January 31, 2020. The IDIC Group will also have the
right to receive prioritized dividends until full reimbursement of
the partnership fee and expenses incurred in the formation of the
joint venture company, which are required to be paid by the IDIC
Group.
The
Company files income tax returns in the United States federal
jurisdiction and various state and foreign jurisdictions. The
Company is subject to United States federal and state income tax
examinations by tax authorities for any years that have net
operating losses open until the net operating losses are
used.
The
components of net loss before provision for income taxes for the
years ended December 31, 2019 and 2018 are as follows:
|
|
|
Domestic
|
$(10,595,457)
|
$(12,031,115)
|
Foreign
|
165,618
|
399,721
|
Net loss before
provision for income taxes
|
$(10,429,839)
|
$(11,631,394)
|
SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2019 and 2018
20.
Income
taxes (continued)
Deferred income
taxes are provided for temporary differences between the carrying
amounts and tax basis of assets and liabilities. Deferred taxes are
classified as current or noncurrent based on the financial
statement classification of the related asset or liability giving
rise to the temporary difference. For those deferred tax assets or
liabilities (such as the tax effect of the net operating loss
carryforwards) which do not relate to a financial statement asset
or liability, the classification is based on the expected reversal
date of the temporary difference. The income tax provision
(benefit) from continuing operations consists of the following at
December 31, 2019 and 2018:
|
|
|
Current:
|
|
|
Federal
|
$-
|
$-
|
State
|
-
|
-
|
Foreign
|
-
|
-
|
|
-
|
-
|
Deferred:
|
|
|
Federal
|
(2,300,997)
|
(2,157,035)
|
State
|
(409,313)
|
(383,705)
|
Foreign
|
(3,676)
|
2,673
|
Change in valuation
allowance
|
2,713,986
|
2,538,067
|
|
$-
|
$-
|
At
December 31, 2018 and 2017, the Company did not have any
undistributed earnings of our foreign subsidiaries. As a result, no
additional income or withholding taxes have been provided for. The
Company does not anticipate any impacts of the global intangible
low taxed income (“GILTI”) and base erosion anti-abuse
tax (“BEAT”) and as such, the Company has not recorded
any impact associated with either GILTI or BEAT.
SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2019 and 2018
20.
Income
taxes (continued)
The
income tax provision (benefit) amounts differ from the amounts
computed by applying the United States federal statutory income tax
rate of 21% for the years ended December 31, 2019 and 2018 to
pretax loss from operations as a result of the following for the
years ended December 31, 2019 and 2018:
|
|
|
|
|
|
Tax benefit at
statutory rate
|
$(2,071,322)
|
$(2,442,593)
|
Increase
(reduction) in income taxes resulting from:
|
|
|
State income
benefit, net of federal benefit
|
(291,082)
|
(343,257)
|
Non-deductible loss
on warrant valuation adjustment
|
(47,810)
|
(11,629)
|
Income (loss) from
foreign subsidiaries
|
(2,595)
|
6,699
|
Change in valuation
allowance
|
2,713,986
|
2,538,067
|
Other
|
(301,177)
|
252,713
|
Income
tax expense (benefit)
|
$-
|
$-
|
The tax
effects of temporary differences that give rise to the deferred tax
assets at December 31, 2019 and 2018 are as follows:
|
|
|
Deferred tax
assets:
|
|
|
Net operating loss
carryforwards
|
$23,727,093
|
$21,320,935
|
Net operating loss
carryforwards - foreign
|
20,227
|
16,551
|
Excess of tax basis
over book value of
|
|
|
property
and equipment
|
4,240
|
(2,229)
|
Excess of tax basis
over book value
|
|
|
of
intangible assets
|
73,705
|
146,943
|
Stock-based
compensation
|
1,607,841
|
1,520,209
|
Accrued employee
compensation
|
357,869
|
83,393
|
Captialized equity
costs
|
49,471
|
49,471
|
Inventory
reserve
|
38,323
|
29,510
|
|
25,878,769
|
23,164,783
|
Valuation
allowance
|
(25,878,769)
|
(23,164,783)
|
Net
deferred tax assets
|
$-
|
$-
|
The
Company’s ability to use its net operating loss carryforwards
could be limited and subject to annual limitations. Since a full
analysis under Section 382 of the Internal Revenue Code has not
been performed, the Company may realize a “more than 50%
change in ownership” which could limit its ability to use its
net operating loss carryforwards accumulated to date to reduce
future taxable income and tax liabilities. Additionally, because
United States tax laws limit the time during which net operating
loss carryforwards may be applied against future taxable income and
tax liabilities, the Company may not be able to take advantage of
all or portions of its net operating loss carryforwards for federal
income tax purposes.
SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2019 and 2018
20.
Income
taxes (continued)
The
federal and state net operating loss carryforwards of approximately
$77.9M from years ending December 31, 2005 through December 31,
2017 will begin to expire in 2025. The federal and state net
operating loss carryforward for the years ended December 31, 2019
and 2018 of $18M will not expire. The foreign net operating loss
carryforward at December 31, 2019 of $0.1M will begin to expire in
2024.
21.
Segment
and geographic information
The
Company has one line of business with revenues being generated from
sales in Europe, Canada, Asia and Asia/Pacific. All significant
expenses are generated in the United States. All significant assets
are located in the United States.
The
Company evaluates events that occur after the year-end date through
the date the financial statements are available to be
issued.
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.
Subsequent to
December 31, 2019, the Company received $2,250,000 in proceeds for
the purchase of 90 shares of Series C Convertible Preferred Stock.
As of the date of this report, no shares of Series C Convertible
Preferred Stock have been issued.
Warrant Exercise
Subsequent
to December 31, 2019, the Company issued 1,062,811 shares of common
stock upon the exercise of 1,062,811 Class P Warrants and Series A
Warrants to purchase shares of stock under the terms of the
respective warrant agreements.
Conversion of liabilities
Subsequent
to December 31, 2019, the Company issued 1,496,989 shares of Common
Stock upon the exercise of 416,667 Class L Warrants, under the
terms of the respective warrant agreements and 1,080,322 upon the
conversion of interest and bonus shares pursuant to the terms of
the short term note payable. The other warrant exercise constituted
the conversion of short term note payable in the outstanding amount
of $208,109 with the receipt of notices of Class L warrant
exercises, all pursuant to the terms of the short term note
payable.
Consulting Agreement
Subsequent to
December 31, 2019, the Company entered into a six month consulting
agreement for which the services are to be paid with Common Stock.
The number of shares to be paid with Common Stock was 1,000,000
earned upon signing and if agreed by both client and consultant an
additional 1,000,000 No later than May 1, 2020. The Company issued
1,000,000 shares in March 2020.
New agreements
Subsequent to
December 31, 2019, the Company entered into the sixth drawdown of
the Master Equipment Lease with NFS Leasing, Inc. to provide
financing for equipment purchase in the amount of
$125,689.
Issuance of stock options
Subsequent to
December 31, 2019, the Company granted to new employees
fully-vested options to purchase an aggregate of 100,000 shares of
the Company’s common stock.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
The
following table lists the costs and expenses payable by the
registrant in connection with the sale of the common stock covered
by this prospectus. All amounts shown are estimates except for the
SEC registration fee.
SEC registration
fee
|
$1,501
|
Legal fees and
expenses
|
30,000
|
Accounting fees and
expenses
|
15,000
|
Total
|
$46,501
|
ITEM 14. Indemnification of Directors and Officers
The
Nevada General Corporation Law (“NGCL”) provides that a director
or officer is not individually liable to the corporation or its
stockholders or creditors for any damages as a result of any act or
failure to act in his capacity as a director or officer unless (i)
such act or omission constituted a breach of his/her fiduciary
duties as a director or officer, and (ii) his/her breach of those
duties involved intentional misconduct, fraud or a knowing
violation of law. Under the NGCL, a corporation may indemnify
directors and officers, as well as other employees and individuals,
against any threatened, pending or completed action, suit or
proceeding, except an action by or in the right of the corporation,
by reason of the fact that he/she is or was a director, officer,
employee or agent of the corporation so long as such person acted
in good faith and in a manner which he/she reasonably believed to
be in or not opposed to the best interests of the corporation, and,
with respect to any criminal action or proceeding, had no
reasonable cause to believe his/her conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its
equivalent, does not, of itself, create a presumption that the
person did not act in good faith and in a manner which he/she
reasonably believed to be in or not opposed to the best interests
of the corporation, or that, with respect to any criminal action or
proceeding, he/she had reasonable cause to believe that his/her
conduct was unlawful.
The
NGCL further provides that indemnification may not be made for any
claim as to which such a person has been adjudged by a court of
competent jurisdiction, after exhaustion of all appeals therefrom,
to be liable to the corporation or for amounts paid in settlement
to the corporation, unless and only to the extent thatthe court in
which the action or suit was brought or other court of competent
jurisdiction determines upon application that, in view of all the
circumstances of the case, the person is fairly and reasonably
entitled to indemnity for such expenses as the court deems proper.
To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding or in defense of any
claim, issue or matter therein, the corporation must indemnify
him/her against expenses, including attorney’s fees, actually
and reasonably incurred in connection with the defense. The NGCL
provides that this is not exclusive of other rights to which those
seeking indemnification may be entitled under any bylaw, agreement,
vote of stockholders, or disinterested directors or
otherwise.
The
registrants articles of incorporation provide that the directors
and officers will not be personally liable to the registrant or its
stockholders for monetary damages for breach of their fiduciary
duty as a director or officer, except for liability of a director
or officer for acts or omissions involving intentional misconduct,
fraud or a knowing violation of law, or the payment of dividends in
violation of the NGCL. The registrant's bylaws and contractual
arrangements with certain of its directors and officers provide
that the registrant is required to indemnify its directors and
officers to the fullest extent permitted by law. The registrant's
bylaws and these contractual arrangements also require the
registrant to advance expenses incurred by a director or officer in
connection with the defense of any proceeding upon receipt of an
undertaking by or on behalf of the director or officer to repay the
amount if it is ultimately determined by a court of competent
jurisdiction that he/she is not entitled to be indemnified by the
registrant. The registrant's bylaws also permit the registrant to
purchase and maintain errors and omissions insurance on behalf of
any director or officer for any liability arising out of his/her
actions in a representative capacity. The registrant does not
presently maintain any such errors and omissions insurance for the
benefit of its directors and officers.
Insofar as
indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling us
pursuant to the foregoing provisions, we have been informed that,
in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable. In the event that a
claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted
by such director, officer or controlling person in connection with
the securities being registered, we will, unless in the opinion of
our counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether
such indemnification by us is against public policy as expressed
hereby in the Securities Act and we will be governed by the final
adjudication of such issue.
ITEM 15. Recent Sales of Unregistered Securities
In
connection with each of the following unregistered sales and
issuances of securities, except as otherwise provided below, the
Company relied upon the exemption from registration provided by
Section 4(a)(2) of the Securities Act of 1933, as amended, for
transactions not involving a public offering.
Stock Issued Upon Warrant Exercises for Cash
On
January 24, 2017, the Company issued 600,000 shares of restricted
Common Stock upon the exercise of 600,000 Class L Warrants to
purchase shares of stock for $0.08 per share under the terms
of the Class L warrant agreement, for cash consideration of
$48,000.
On
March 10, 2017, the Company issued 363,333 shares of restricted
Common Stock upon the exercise of 363,333 Class L Warrants to
purchase shares of stock for $0.08 per share under the terms of the
Class L warrant agreement, for cash consideration of
$29,067.
On
April 3, 2017, the Company issued 100,000 shares of restricted
Common Stock upon the exercise of 100,000 Class L Warrants to
purchase shares of stock for $0.08 per share under the terms
of the Class L warrant agreement, for cash consideration of
$8,000.
On
April 25, 2017, the Company issued 100,000 shares of restricted
Common Stock upon the exercise of 100,000 Class L Warrants to
purchase shares of stock for $0.08 per share under the terms
of the Class L warrant agreement, for cash consideration of
$8,000.
On
February 23, 2018, the Company issued 100,000 shares of Common
Stock upon the exercise of 100,000 Class O Warrants to purchase
shares of stock for $0.11 per share under the terms of the Class O
warrant agreement, for cash consideration of
$11,000.
On March 23,
2018, the Company issued 75,666 shares of restricted Common Stock
upon the exercise of 75,666 Series A Warrants to purchase shares of
stock for $0.0334 per share under the terms of the Series A warrant
agreement, for cash consideration of $2,527.
On
April 20, 2018, the Company issued 227,273 shares of restricted
Common Stock upon the exercise of 227,273 Class N Warrants to
purchase shares of stock for $0.11 per share under the terms of the
Class N warrant agreement, for cash consideration of
$25,000.
On
December 13, 2018, the Company issued 20,000 shares of restricted
Common Stock upon the exercise of 20,000 Class O Warrants to
purchase shares of stock for $0.11 per share under the terms of the
Class O warrant agreement, for cash consideration of
$2,200.
On
January 8, 2019, the Company issued 100,000 shares of restricted
Common Stock upon the exercise of 100,000 Class O Warrants to
purchase shares of stock for $0.11 per share under the terms of the
Class O warrant agreement, for cash consideration of
$11,000.
On
February 6, 2019, the Company issued 20,000 shares of restricted
Common Stock upon the exercise of 20,000 Class O Warrants to
purchase shares of stock for $0.11 per share under the terms of the
Class O warrant agreement, for cash consideration of
$2,200.
On
March 8, 2019, the Company issued 3,333,334 shares of Common Stock
upon the exercise of 3,333,334 Class L Warrants to purchase shares
of stock for $0.08 per share under the terms of the Class L warrant
agreement, for cash consideration of $266,667.
On
March 22, 2019, the Company issued 500,000 shares of Common Stock
upon the exercise of 500,000 Class L Warrants to purchase shares of
stock for $0.08 per share under the terms of the Class L warrant
agreement, for cash consideration of $40,000.
On
April 2, 2019, the Company issued 20,000 shares of restricted
Common Stock upon the exercise of 20,000 Class O Warrants to
purchase shares of stock for $0.11 per share under the terms of the
Class O warrant agreement, for cash consideration of
$2,200.
During
the fourth quarter of 2019, the Company issued 3,909,090 shares of
Common Stock upon the exercise of 3,909,090 Class O Warrants to
purchase shares of stock for $0.11 per share under the terms of the
Class O warrant agreement, for cash consideration of
$430,000.
Subsequent to
December 31, 2019, the Company issued 1,000,000 shares of common
stock upon the exercise of 1,062,811 Class P Warrants, for cash
consideration of $10,000,000, and 62,811 shares of common stock
upon the exercise of Series A Warrants, for cash consideration of
$2,097.88, under the terms of the respective warrant
agreements.
Class O Warrants
Issuances
On
November 30, 2017, the Company issued Class O Warrant Agreements to
a vendor to purchase 2,500,000 shares of common stock at an
exercise price of $0.11 per share. Each Class O Warrant
represents the right to purchase one share of Common Stock. The
estimated fair value of the Class O Warrants at the grant date was
$174,731 and was recorded as general and administrative expense and
an increase to additional paid-in capital. The warrants vested upon
issuance and expire on March 17, 2019.
On
December 6, 2017, the Company issued Class O Warrant Agreements to
a vendor to purchase 100,000 shares of common stock at an exercise
price of $0.11 per share. Each Class O Warrant represents the
right to purchase one share of Common Stock. The estimated fair
value of the Class O Warrants at the grant date was $8,125 and was
recorded as general and administrative expense and an increase to
additional paid-in capital. The warrants vested upon issuance and
expire on March 17, 2019.
On
December 11, 2017, in consideration for services rendered, the
Company issued Class O Warrant Agreements to active employees,
independent contractors, members of the board of directors and
members of the medical advisory boards to purchase 3,940,000 shares
of common stock at an exercise price of $0.11 per share. Kevin A.
Richardson II and A. Michael Stolarski, both members of the
Company’s board of directors and existing shareholders of the
Company, were issued 640,000 and 200,000 warrants, respectively.
John Nemelka, Alan Rubino and Maj-Britt Kaltoft, members of the
Company’s board of directors, were each issued 200,000
warrants. Lisa E. Sundstrom, an officer of the Company was issued
440,000 warrants.
On
January 6, 2018, the Company granted Class O Warrant Agreements to
a vendor to purchase 100,000 shares of common stock at an exercise
price of $0.11 per share. Each Class O Warrant represents the right
to purchase one share of Common Stock. The estimated fair value of
the Class O Warrants at the grant date was $13,870 and was recorded
as general and administrative expense and an increase to additional
paid-in capital in June 2018 when the warrants were formally
issued. The warrants vested upon issuance and expired March 17,
2019.
On
January 26, 2018, the Company granted Class O Warrant Agreements to
a vendor to purchase 909,091 shares of common stock at an exercise
price of $0.11 per share. Each Class O Warrant represents the right
to purchase one share of Common Stock. The estimated fair value of
the Class O Warrants at the grant date was $160,455 and was
recorded as general and administrative expense and an increase to
additional paid-in capital in June 2018 when the warrants were
formally issued. The warrants vested upon issuance and expire on
January 25, 2022.
On February 6, 2018, the Company granted Class O Warrant Agreements
to a vendor to purchase 100,000 shares of common stock at an
exercise price of $0.11 per share. Each Class O Warrant represents
the right to purchase one share of Common Stock. The estimated fair
value of the Class O Warrants at the grant date was $11,200 and was
recorded as general and administrative expense and an increase to
additional paid-in capital in June 2018 when the warrants were
formally issued. The warrants vested upon issuance and expired
March 17, 2019.
On June
28, 2018, the Company issued Class O Warrant Agreements to a vendor
to purchase 400,000 shares of common stock at an exercise price of
$0.11 per share. Each Class O Warrant represents the right to
purchase one share of Common Stock. The estimated fair value of the
Class O Warrants at the grant date was $134,360 and was recorded as
general and administrative expense and an increase to additional
paid-in capital. The warrants vested upon issuance and expired
March 17, 2019.
Convertible Promissory Note Issuance
On January
29, 2018, the Company entered into a convertible promissory
note (the “Convertible Promissory Note”) with an
accredited investor in the amount of $71,500. The Company
intends to use the proceeds from the Convertible Promissory Notes
for payment of services to an investor relations company and the
account of the attorney updating the Registration Statement on Form
S-1 of the Company filed under the Securities Act of 1933, as
amended, on January 3, 2017 (File No. 333-213774) and the
registration statement registering the shares issuable upon
conversion of the Convertible Promissory Note and issuable upon the
exercise of a Class N common stock purchase warrant issued
concurrently with the issuance of this Convertible Promissory
Note.
The
Convertible Promissory Note has a six month term from the
subscription date and the note holders can convert the Convertible
Promissory Note at any time during the term to the number of
shares of Company common stock, equal to the amount
obtained by dividing (i) the amount of the unpaid principal and
interest on the note by (ii) $0.11.
The
Convertible Promissory Note includes a warrant agreement (the
“Class N Common Stock Purchase Warrant”) to purchase
Common Stock equal to the amount obtained by dividing the (i) sum
of the principal amount, by (ii) $0.11. The Class N Common Stock
Purchase Warrant expires on March 17, 2019. On January 23,
2019, the Company amended the expiration date of the Class N
Warrants from March 17, 2019 to May 1, 2109, effective as of
January 23, 2019. On January 29, 2018, the Company issued 650,000
Class N Common Stock Purchase Warrants in connection with this
Convertible Promissory Note.
Consulting Agreements
In May
2017, the Company entered into a consulting agreement with another
vendor for which a portion of the fee for the services was to be
paid with Common Stock. The number of shares to be paid with Common
Stock was calculated by dividing the amount of the fee to be paid
with Common Stock of $7,500 by the Common Stock price at the close
of business on the eighth business day of each month. On March 27,
2018, the Company issued 533,450 shares for services rendered May
2017 through February 2018. On June 28, 2018, the Company issued
15,000 shares for services rendered in March 2018. Non-cash general
and administrative expense of $22,500 and $60,000 was recorded in
2018 and 2017, respectively.
On May
1, 2017, the Company entered into an agreement with an investment
company to provide business advisory and consulting services. The
compensation for those services was to be paid in a combination of
cash and Common Stock. At December 31, 2017, the Company accrued
$120,000 of expense for the services provided. The Common Stock was
issued in March 2018 in the amount of 467,423 shares. On October
17, 2018, this agreement was verbally amended to provide for the
cash compensation of services performed to be paid with Common
Stock. The Common Stock was issued in October 2018 in the amount of
426,176 shares.
In
November 2017, the Company entered into a three month consulting
agreement with a vendor for which a portion of the fee for the
services was to be paid with Common Stock. The number of shares to
be paid with Common Stock was calculated by dividing the amount of
the fee to be paid with Common Stock of $4,000 by the Company stock
price at the close of business on the eighth business day of each
month. The Company issued 26,667, 23,529 and 18,182 shares,
respectively in each of the three months of the agreement. The
$4,000 was recorded as a non-cash general and administrative
expense for each of the three months of the agreement. In April
2018, the Company verbally entered into a month-to-month consulting
agreement with the same vendor for which a portion of the fee for
the services was to be paid with Common Stock. The number of shares
to be paid with Common Stock was calculated by dividing the amount
of the fee to be paid with Common Stock of $4,000 by the Company
stock price at the close of business on the eighth business day of
each month. The Company issued 26,667, 23,529 and 18,182
shares, respectively in each of the three months of the agreement.
The $20,000 was recorded as a non-cash general and administrative
expense upon issuance in June 2018.
On October
17, 2018, the Company and a vendor agreed to settle a portion of a
previously incurred fee for services in Common Stock in lieu of
cash. On October 17, 2018, the Company issued 426,176 shares for
services rendered May 2017 through February 2018. Non-cash general
and administrative expense of $15,000 and $60,000 was recorded in
2018 and 2017, respectively.
Subsequent to
December 31, 2019, the Company entered into a six month consulting
agreement for which the services are to be paid with Common Stock.
The number of shares to be paid with Common Stock was 1,000,000
earned upon signing and if agreed by both client and consultant an
additional 1,000,000 No later than May 1, 2020. The Company issued
1,000,000 shares in March 2020, and an additional 1,000,000 shares
in April 2020.
Conversion of Liabilities
Subsequent to
December 31, 2019, the Company issued 1,496,989 shares of Common
Stock upon the exercise of 416,667 Class L Warrants, under the
terms of the respective warrant agreements, and 1,080,322 upon the
conversion of interest and bonus shares pursuant to the terms of
the short term note payable. The other warrant exercise constituted
the conversion of short term note payable in the outstanding amount
of $208,109 with the receipt of notices of Class L warrant
exercises, all pursuant to the terms of the short term note
payable.
10% Convertible Promissory Notes Issuances
On
March 27, 2017, the Company began offering subscriptions for 10%
convertible promissory notes (the “10% Convertible Promissory
Notes”) to selected accredited investors. The Company intends
to use the proceeds from the 10% Convertible Promissory Notes for
working capital and general corporate purposes. The initial
offering closed on August 15, 2017, at which time $55,000 aggregate
principal amount of 10% Convertible Promissory Notes were issued
and the funds paid to the Company. Subsequent offerings were closed
on November 3, 2017, November 30, 2017, and December 21, 2017, at
which times $1,069,440, $259,310 and $150,000, respectively,
aggregate principal amounts of 10% Convertible Promissory Notes
were issued and the funds paid to the Company. The 10% Convertible
Promissory Notes include a warrant agreement (the “Class N
Warrant Agreement”) to purchase Common Stock equal to the
amount obtained by dividing the (i) sum of the principal amount, by
(ii) $0.11. The Class N Warrant Agreement expires March 17, 2019.
On January 23, 2019, the Company amended the expiration date of the
Class N Warrants from March 17, 2019 to May 1, 2109, effective as
of January 23, 2019. On November 3, 2017, the Company issued
10,222,180 Class N Warrants in connection with the initial and
second closings of 10% Convertible Promissory Notes. On November
30, 2017, and December 21, 2017, the Company issued 2,357,364 and
1,363,636, respectively, Class N Warrants in connection with the
closings of 10% Convertible Promissory Notes. A. Michael Stolarski,
a member of the Company’s board of directors and an existing
shareholder of the Company, was a purchaser in the 10% Convertible
Promissory Notes in the amount of $330,000. A. Michael Stolarski
and Kevin A. Richardson II, both members of the Company’s
board of directors and existing shareholders of the Company, had
subscribed $130,000 and $140,000, respectively, to the Company as
advances from related parties to be used to purchase 10%
Convertible Promissory Notes. The 10% Convertible Promissory Notes
associated with these subscriptions were issued in January 2018.
Sales commissions of $72,625 were paid to WestPark Capital, Inc. in
connection with these offerings.
A
subsequent offering of the 10% Convertible Promissory Notes was
closed on January 10, 2018, at which time $1,496,000 aggregate
principal amount of 10% Convertible Promissory Notes were issued
with $1,066,000 of funds paid to the Company. The remaining
$430,000 of principal came from advances from related and unrelated
parties balance at December 31, 2017 of $310,000 (see Note 7) and
conversion of $120,000 of unpaid executive compensation by related
party, Kevin A. Richardson II. On January 10, 2018, the
Company issued 13,599,999 Class N Warrants in connection with such
subsequent closing. Sales commission of $64,100 was paid to
WestPark Capital, Inc. in connection with this
offering.
On
February 15, 2018, the Company defaulted on the 10% Convertible
Promissory Notes issued on August 15, 2017 and began accruing
interest at the default interest rate of 18%.
On
April 16, 2018, the Company issued 560,808 shares of restricted
common stock upon the conversion of 10% Convertible Promissory
Notes in the amount of $60,000 plus accrued interest of $1,689 at
the conversion price of $0.11 per share per the 10% Convertible
Promissory Notes agreement.
On May
9, 2018, the Company issued 5,335,919 shares of restricted common
stock upon the conversion of 10% Convertible Promissory Notes in
the amount of $571,000 plus accrued interest of $15,951 at the
conversion price of $0.11 per share per the 10% Convertible
Promissory Notes agreement.
On July
20, 2018, the Company issued 954,545 shares of restricted common
stock upon the conversion of 10% Convertible Promissory Notes in
the amount of $100,000 plus accrued interest of $5,000 at the
conversion price of $0.11 per share per the 10% Convertible
Promissory Notes agreement.
On July
20, 2018, the Company issued 500,000 shares of common stock upon
the partial conversion of 10% Convertible Promissory Notes in the
amount of $55,000 at the conversion price of $0.11 per share per
the 10% Convertible Promissory Notes agreement.
On August 6, 2018, the Company issued
683,042 shares of restricted common stock upon the conversion of
10% Convertible Promissory Notes in the amount of $71,500 plus
accrued interest of $3,635 at the conversion price of $0.11 per
share per the 10% Convertible Promissory Notes
agreement.
On
August 15, 2018, the Company issued 462,924 shares of free trading
Common Stock upon the conversion of 10% Convertible Promissory
Notes in the amount of $45,000 plus accrued interest of $50,922 at
the conversion price of $0.11 per share per the 10% Convertible
Promissory Notes agreement.
All
such conversions of 10% Convertible Promissory Notes were exempt
from registration pursuant to Section
3(a)(9).
Cashless Warrant Exercise, Exempt From Registration Pursuant to
Securities Act Section 3(a)(9)
On
January 20, 2017, the Company issued 15,951 shares of Common Stock
to Intracoastal Capital, LLC upon the cashless exercise of 20,000
Series A Warrants to purchase shares of stock for $0.0334 per share
based on a current market value of $0.165 per share as determined
under the terms of the Series A Warrant
agreement.
On
January 26, 2017, the Company issued 79,998 shares of Common Stock
to Intracoastal Capital, LLC upon the cashless exercise of 100,000
Series A Warrants to purchase shares of stock for $0.0334 per share
based on a current market value of $0.1669 per share as determined
under the terms of the Series A Warrant
agreement.
On
February 2, 2017, the Company issued 158,240 shares of Common Stock
to Intracoastal Capital, LLC upon the cashless exercise of 200,000
Series A Warrants to purchase shares of stock for $0.0334 per share
based on a current market value of $0.17 per share as determined
under the terms of the Series A Warrant agreement.
On
February 6, 2017, the Company issued 80,804 shares of Common Stock
to Intracoastal Capital, LLC upon the cashless exercise of 100,000
Series A Warrants to purchase shares of stock for $0.0334 per share
based on a current market value of $0.174 per share as determined
under the terms of the Series A Warrant agreement.
On
March 13, 2017, the Company issued 297,035 shares of Common Stock
to Lucas Hoppel upon the cashless exercise of 583,333 Class L
Warrants to purchase shares of stock for $0.08 per share based on a
current market value of $0.163 per share as determined under the
terms of the Class L Warrant agreement.
On June
22, 2017, the Company issued 84,514 shares of Common Stock to
Arthur Motch III upon the cashless exercise of 125,246 Series A
Warrants to purchase shares of stock for $0.0334 per share based on
a current market value of $0.1027 per share as determined under the
terms of the Series A Warrant agreement.
On
October 24, 2017, the Company issued 150,083 shares of Common Stock
to DeMint Law, PLLC upon the cashless exercise of 300,166 Class L
Warrants to purchase shares of stock for $0.08 per share based on a
current market value of $0.16 per share as determined under the
terms of the Class L Warrant agreement.
On
January 11, 2018, the Company issued 50,432 shares of Common Stock
upon the cashless exercise of 59,000 Series A Warrants to purchase
shares of stock for $0.0334 per share based on a current market
value of $0.23 per share as determined under the terms of the
Series A Warrant agreement.
On
February 14, 2018, the Company issued 229,515 shares of Common
Stock upon the cashless exercise of 400,000 Class L Warrants to
purchase shares of stock for $0.08 per share based on a current
market value of $0.1877 per share as determined under the terms of
the Class L Warrant agreement.
On March 2, 2018, the Company issued 407,461 shares of Common Stock
upon the cashless exercise of 600,000 Class L Warrants to purchase
shares of stock for $0.08 per share based on a current market value
of $0.2493 per share as determined under the terms of the Class L
Warrant agreement.
On
March 9, 2018, the Company issued 251,408 shares of Common Stock
upon the cashless exercise of 271,000 Series A Warrants to purchase
shares of stock for $0.0334 per share based on a current market
value of $0.462 per share as determined under the terms of the
Series A Warrant agreement.
On
March 28, 2018, the Company issued 84,314 shares of Common Stock
upon the cashless exercise of 100,000 Class L Warrants to purchase
shares of stock for $0.08 per share based on a current market value
of $0.51 per share as determined under the terms of the Class L
Warrant agreement.
On April 9,
2018, the Company issued 59,020 shares of common stock upon the
cashless exercise of 70,000 Class L Warrants to purchase shares of
stock for $0.08 per share based on a current market value of $0.51
per share as determined under the terms of the Class L Warrant
agreement.
On
April 9, 2018, the Company issued 813,267 shares of common stock
upon the cashless exercise of 990,500 Class L Warrants to purchase
shares of stock for $0.08 per share based on a current market value
of $0.4471 per share as determined under the terms of the Class L
Warrant agreement.
On
April 10, 2018, the Company issued 90,142 shares of common stock
upon the cashless exercise of 106,667 Class L Warrants to purchase
shares of stock for $0.08 per share based on a current market value
of $0.5164 per share as determined under the terms of the Class L
Warrant agreement.
On
April 13, 2018, the Company issued 3,241,395 shares of common stock
upon the cashless exercise of 3,733,167 Class L Warrants to
purchase shares of stock for $0.08 per share based on a current
market value of $0.6073 per share as determined under the terms of
the Class L Warrant agreement.
On June
5, 2018, the Company issued 322,687 shares of common stock upon the
cashless exercise of 400,000 Class L Warrants to purchase shares of
stock for $0.08 per share based on a current market value of
$0.3339 per share as determined under the terms of the Class L
Warrant agreement.
On June
22, 2018, the Company issued 80,164 shares of common stock upon the
cashless exercise of 100,000 Class L Warrants to purchase shares of
stock for $0.08 per share based on a current market value of
$0.4033 per share as determined under the terms of the Class L
Warrant agreement.
On July
2, 2018, the Company issued 653,859 shares of common stock upon the
cashless exercise of 909,091 Class N Warrants to purchase shares of
stock for $0.11 per share based on a current market value of
$0.3918 per share as determined under the terms of the Class N
Warrant agreement.
On
December 21, 2018, the Company issued 111,835 shares of common
stock upon the cashless exercise of 139,500 Class L Warrants to
purchase shares of stock for $0.08 per share based on a current
market value of $0.4034 per share as determined under the terms of
the Class L Warrant agreement.
On
January 8, 2019, the Company issued 360,057 shares of common stock
upon the cashless exercise of 650,000 Class N Warrants to purchase
shares of stock for $0.11 per share based on a current market value
of $0.2466 per share as determined under the terms of the Class N
Warrant agreement.
On
March 6, 2019, the Company issued 161,834 shares of common stock
upon the cashless exercise of 266,667 Class L Warrants to purchase
shares of stock for $0.08 per share based on a current market value
of $0.2035 per share as determined under the terms of the Class L
Warrant agreement.
On
March 6, 2019, the Company issued 182,217 shares of common stock
upon the cashless exercise of 396,591 Class N Warrants to purchase
shares of stock for $0.11 per share based on a current market value
of $0.2035 per share as determined under the terms of the Class N
Warrant agreement.
On May
24, 2019, the Company issued 2,562,743 shares of common stock upon
the cashless exercise of 5,190,908 Class N Warrants to purchase
shares of stock for $0.11 per share based on a current market value
of $0.216 per share as determined under the terms of the Class N
Warrant agreement.
On July
29, 2019, the Company issued 307,874 shares of common stock upon
the cashless exercise of 622,909 Class N Warrants to purchase
shares of stock for $0.11 per share based on a current market value
of $0.2175 per share as determined under the terms of the Class N
Warrant agreement.
On
September 4, 2019, the Company issued 206,472 shares of common
stock upon the cashless exercise of 545,455 Class N Warrants to
purchase shares of stock for $0.11 per share based on a current
market value of $0.177 per share as determined under the terms of
the Class N Warrant agreement.
On
September 4, 2019, the Company issued 946,328 shares of common
stock upon the cashless exercise of 2,500,000 Class O Warrants to
purchase shares of stock for $0.11 per share based on a current
market value of $0.177 per share as determined under the terms of
the Class O Warrant agreement.
August 2016 Private Placement
On
August 24, 2016, the Company entered into a Securities Purchase
Agreement with certain accredited investors (the
“Purchasers”) for the issuance of an aggregate
total 28,300,001 shares of Common Stock for an aggregate total
purchase price of $1,698,000 (the “August 2016 Private
Placement”). The Company has used the proceeds from the
August 2016 Private Placement for working capital and general
corporate purposes. In addition, the Company, in connection
with the August 2016 Private Placement, issued to the Purchasers an
aggregate total of 28,300,001 Class L warrants to purchase
shares of Common Stock at an exercise price of $0.08 per warrant.
Each Class L warrant represents the right to purchase one share of
Common Stock. The Class L warrants vested upon issuance and expire
on March 17, 2019. On January 23, 2019, the Company amended
the expiration date of the Class L Warrants from March 17, 2019 to
May 1, 2109, effective as of January 23, 2019. Anthony M.
Stolarski, a member of our board of directors and an existing
shareholder of the Company and Michael Nemelka, the brother of a
member of our board of directors and an existing shareholder of the
Company, were purchasers in the August 2016 Private Placement. At
the closing of the August 2016 Private Placement, the Company paid
WestPark Capital, Inc., the placement agent for the August 2016
Private Placement, a fee of (i) ten percent of the aggregate
purchase price of the securities sold in the August 2016 Private
Placement and (ii) warrants to purchase ten percent of the number
of shares sold in the August 2016 Private Placement. Accordingly,
the placement agent was issued Class L warrants to
purchase 2,830,000 shares of Common Stock at an exercise price
of $0.08 per share. As part of the August 2016 Private Placement,
the Company entered into a registration rights agreement, dated
August 24, 2016, with the investors in the private placement, which
agreement included a registration right for the Common Stock issued
in the August 2016 Private Placement and issuable upon the exercise
of the Series A warrants, until the date on which such investor may
sell all of registrable securities held without restriction
(including volume restrictions) pursuant to Rule 144 and without
the need for current public information required by Rule 144(c)(1)
or the date on which the investor has sold all of registrable
securities held by such investor.
In
cashless exercises pursuant to Section 3(a)(9) of the Securities
Act, the Purchasers have exercised 1,783,333 Class L warrants for
shares of Common Stock and subsequently sold such shares pursuant
to Rule 144. In a cashless exercise pursuant to Section
3(a)(9) of the Securities Act, the Placement Agent has exercised
990,500 Class L warrants and subsequently sold the shares received
upon such cashless exercise pursuant to Section 4(a)(3) of the
Securities Act.
August 2016 Warrants issued for consulting services
In
August 2016, the Company issued 2,140,000 warrants to purchase
shares of Common Stock at an exercise price of $0.08 per warrant to
Millennium Park Capital LLC as compensation for certain consulting
services. Each Class L Warrant represents the right to purchase one
share of Common Stock. The warrants vested upon issuance and expire
on March 17, 2019. On January 23, 2019, the Company amended the
expiration date of the Class L Warrants from March 17, 2019 to May
1, 2109, effective as of January 23, 2019. This issuance was made
pursuant to the exemption from registration provided by Section
4(a)(2) of the Act and Rule 506 of Regulation D thereunder. The
Company did not utilize any form of general solicitation or general
advertising in connection with the issuance.
June 2016 Warrants issued for consulting services
In June
2016, the Company issued 500,000 warrants to purchase shares of
Common Stock at an exercise price of $0.08 per warrant to
Millennium Park Capital LLC as compensation for certain consulting
services. Each Class L Warrant represents the right to purchase one
share of Common Stock. The warrants vested upon issuance and expire
on March 17, 2019. On January 23, 2019, the Company amended the
expiration date of the Class L Warrants from March 17, 2019 to May
1, 2109, effective as of January 23, 2019. This issuance was made
pursuant to the exemption from registration provided by Section
4(a)(2) of the Act and Rule 506 of Regulation D thereunder. The
Company did not utilize any form of general solicitation or general
advertising in connection with the issuance.
Employee Stock Option Grant
On June
15, 2017, the Company granted to the active employees, members of
the board of directors and three members of the Company’s
Medical Advisory Board options to purchase an aggregate total of
5,550,000 shares of the Company’s common stock at an exercise
price of $0.11 per share and vested upon issuance. Using the
Black-Scholes option pricing model, management has determined that
the options had a fair value per share of $0.0869 per option
resulting in compensation expense of $482,295. Compensation cost
was recognized upon grant.
On June 18,
2018, the Company granted to a new employee options to purchase
30,000 shares of the Company’s common stock at an exercise
price of $0.40 per share and vested upon issuance. Using the
Black-Scholes option pricing model, management has determined that
the options had a fair value per share of $0.3882 resulting in
compensation expense of $11,646. Compensation cost was recognized
upon grant.
On May
31, 2018, the Company granted to a new employee options to purchase
2,000,000 shares of the Company’s common stock at an exercise
price of $0.42 per share and vested upon issuance. Using the
Black-Scholes option pricing model, management has determined that
the options had a fair value per share of $0.3879 resulting in
compensation expense of $775,800. Compensation cost was recognized
upon grant.
On
April 1, 2018, the Company granted to a new employee options to
purchase 100,000 shares of the Company’s common stock at an
exercise price of $0.11 per share and vested upon issuance. Using
the Black-Scholes option pricing model, management has determined
that the options had a fair value per share of $0.4932 resulting in
compensation expense of $49,350. Compensation cost was recognized
upon grant.
On
September 20, 2018, the Company granted to the active employees,
members of the board of directors and members of the
Company’s Medical Advisory Board options to purchase
7,950,000 shares each of the Company’s common stock at an
exercise price of $0.21 per share and vested upon issuance. Using
the Black-Scholes option pricing model, management has determined
that the options had a fair value per share of $0.206 resulting in
compensation expense of $1,637,700. Compensation cost was
recognized upon grant.
Subsequent to
December 31, 2019, the Company granted to new employees options to
purchase an aggregate of 100,000 shares of the Company’s
common stock at an exercise price of $.026 per share and vested
upon issuance.
2016 Series A Warrant Exchange, Exempt From Registration Pursuant
to Securities Act Section 3(a)(9)
On
January 13, 2016, the Company entered into an exchange agreement
(the “Exchange Agreement”) with certain holders of the
Series A warrants issued in the March 2014 Private Placement and in
the 18% Convertible Note Conversion, pursuant to which such holders
exchanged such Series A warrants for either (i) shares of Common
Stock or (ii) shares of Common Stock and shares of the
Company’s Series B Convertible Preferred Stock. The
exchange was based on the exchange ratio whereby one Series A
warrant was exchanged for 0.4685 shares of Common Stock. Holders
who, as a result of the exchange, would own in excess of 9.99% of
the outstanding Common Stock (the “Ownership
Threshold”) received a mixture of Common Stock and shares of
Series B Convertible Preferred Stock, namely Common Stock up to the
Ownership Threshold and shares of Series B Convertible Preferred
Stock beyond the Ownership Threshold (with the total shares of
Common Stock and Series B Convertible Preferred Stock issued to
such holders based on the same exchange ratio). The relative
rights, preferences, privileges and limitations of the Series B
Convertible Preferred Stock were as set forth in the
Company’s Certificate of Designation of Series B Convertible
Preferred Stock, which was filed with the Secretary of State of the
State of Nevada on January 12, 2016 (the “Series B
Certificate of Designation”). In the exchange, an
aggregate number of 23,701,428 Series A warrants, which represented
22,437,500 Series A warrants initially issued as part of the March
2014 Private Placement and 1,263,928 Series A warrants initially
issued as part of the 18% Convertible Note Conversion, were
exchanged for 7,447,954 shares of Common Stock and 293 shares of
Series B Convertible Preferred Stock (the “Series A Warrant
Conversion”). Pursuant to the Series B Certificate of
Designation, each share of Series B Convertible Preferred Stock was
convertible into shares of Common Stock at an initial rate of one
share of Series B Convertible Preferred Stock for 12,500 shares of
Common Stock, which conversion rate was subject to further
adjustment as set forth in the Series B Certificate of Designation.
All 293 shares of Series B Convertible Preferred Stock were
converted to 3,657,278 shares of Common Stock on April 29, 2016
(the “Preferred Stock Conversion”). In connection
with entering into the Exchange Agreement, the Company also entered
into a registration rights agreement, dated January 13, 2016, with
the holders of the Series A warrants who participated in the
exchange, which agreement included a registration right for the
Common Stock issued as part of the exchange or issuable upon the
conversion of the Series B Convertible Preferred Stock, until the
date on which such investor may sell all of registrable securities
held without restriction (including volume restrictions) pursuant
to Rule 144 and without the need for current public information
required by Rule 144(c)(1) or the date on which the investor has
sold all of registrable securities held by such
investor.
HealthTronics
Warrants
On June
15, 2015, the Company, and its wholly owned subsidiary SANUWAVE,
Inc., a Delaware corporation (the “Borrower”) entered
into an amendment (the “Amendment”) to amend certain
provisions of two promissory notes (the “Promissory
Notes”) dated August 1, 2005 between the Borrower and
HealthTronics, Inc., with an aggregate outstanding principal
balance of $5,372,742. In connection with the Amendment, the
Company issued to HealthTronics, on June 15, 2015, an aggregate
total of 3,310,000 warrants (the “Class K Warrants”) to
purchase shares of the Company’s Common Stock, at an exercise
price of $0.55 per share, subject to certain anti-dilution
protection. Each Class K Warrant represents the right to purchase
one share of Common Stock. The warrants vested upon issuance and
expire after ten years.
On June
28, 2016, the Company and HealthTronics, Inc. entered into a second
amendment (the “Second Amendment”) to amend certain
provisions of the notes payable, related parties. The Second
Amendment provides for the extension of the due date to January 31,
2018. In addition, the Company, in connection with the Second
Amendment, issued to HealthTronics, Inc. on June 28, 2016 an
additional 1,890,000 Class K Warrants to purchase shares of the
Company’s Common Stock at an exercise price of $0.08 per
share, subject to certain anti-dilution protection. The exercise
price of the 3,310,000 Class K Warrants issued on June 15, 2015 was
decreased to $0.08 per share.
On
August 3, 2017, the Company and HealthTronics, Inc. entered into a
third amendment (the “Third Amendment”) to amend
certain provisions of the notes payable, related parties. The Third
Amendment provides for the extension of the due date to December
31, 2018, revision of the mandatory prepayment provisions and the
future issuance of additional warrants to HealthTronics upon
certain conditions. In addition, the Company, in connection with
the Third Amendment, issued to HealthTronics, Inc. on August 3,
2017 an additional 2,000,000 Class K Warrants to purchase shares of
the Company’s Common Stock at an exercise price of $0.11 per
share, subject to certain anti-dilution protection. Each Class K
Warrant represents the right to purchase one share of Common Stock.
The warrants vested upon issuance and expire after ten
years.
Common Stock Purchase Agreement
On
December 11, 2019, the Company entered into a Common Stock Purchase
Agreement with certain accredited investors for the sale by the
Company in a private placement of an aggregate of 21,071,143 shares
of common stock at a purchase price of $0.14 per share. During the
year ended December 31, 2019, the Company issued 20,000,711 shares
of common stock in conjunction with this offering and received
$2,800,100 in cash proceeds.
February 2020 Series C Preferred Stock Purchase
Agreement
On
February 6, 2020, the Company entered into a Series C Preferred
Stock Purchase Agreement with certain accredited investors (the
“Purchasers”) for the issuance of an aggregate
of 90 shares of the Company’s Series C Convertible Preferred
Stock at a stated value equal to $25,000 per share (the
“Series C Preferred Stock
Purchase Agreement”). The Company intends to use the
proceeds from the Series C Preferred
Stock Purchase Agreement for general corporate purposes,
repayment of Indebtedness, business development, working capital
and general and administrative expenses.
On
January 31, 2020, the Company filed a Certificate of Designation of
Series C Preferred Stock with the Secretary of State of the State
of Delaware creating a new series of 90 shares of Series C
Preferred Stock of the Company (the “Certificate of
Designation”). Subject to the terms of the Certificate of
Designation, each share of Series C Preferred Stock is convertible
into shares of Common Stock of the Company at a rate equal to the
stated value of such share of Series C Preferred Stock of $25,000,
divided by the conversion price of $0.14 per share (subject to
adjustment from time to time upon the occurrence of certain events
as described in the Certificate of Designation). If all outstanding
shares of Series C Preferred Stock were converted into Common Stock
at the original conversion rate, such shares would convert into an
aggregate of 16,071,428 shares of Common Stock.
Notwithstanding
the foregoing, the Series C Preferred Stock is not currently
convertible into shares of Common Stock because the Company does
not currently have sufficient authorized and unissued shares of its
Common Stock to permit conversion in full of all issued and
outstanding shares of Series C Preferred Stock. Accordingly, the
Certificate of Designation provides that the Series C Preferred
Stock is only convertible into Common Stock once the Company amends
its Articles of Incorporation to increase its authorized and
unissued Common Stock to an amount sufficient to permit such
conversion of the Series C Preferred Stock. Each investor has
agreed in the Purchase Agreement that such investor will, within
five business days following such amendment to the Articles of
Incorporation, convert all of such investor’s shares of
Series C Preferred Stock into shares of Common Stock.
The
Certificate of Designation provides that if the Company has not
obtained the approval of its shareholders to amend the
Company’s Articles of Incorporation to increase the
authorized shares of Common Stock sufficient to permit such
conversion, or if such amendment has not otherwise been filed with
the Nevada Secretary of State on or before December 31, 2020
(either such event, an “Authorization Failure”), then
the Company shall be required to redeem all outstanding shares of
Series C Preferred Stock for a per-share redemption price, payable
in cash in a single installment not later than thirty (30) days
following the date of such Authorization Failure, equal to the
greater of (a) two hundred percent (200%) of the stated value of
such share, and (b)(i) the volume-weighted average sale price of a
share of Common Stock reported on the trading market on which the
Common Stock is then traded for the thirty (30) consecutive trading
days immediately preceding the date of such Authorization Failure,
multiplied by (ii) the number of shares of Common Stock such share
of Series C Preferred Stock would otherwise be convertible into as
of such date had such Authorization Failure not
occurred.
Subsequent
to December 31, 2019, the Company received $2,250,000 in proceeds
for the purchase of 90 shares of Series C Convertible Preferred
Stock. As of the date of this prospectus, no shares of Series C
Convertible Preferred Stock have been issued.
ITEM 16. Exhibits and Financial Statement
Schedules
Exhibit No.
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Description
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Agreement
and Plan of Merger, dated as of September 25, 2009, by and between
Rub Music Enterprises, Inc., RME Delaware Merger Sub, Inc. and
SANUWAVE, Inc. (Incorporated by reference to Form 8-K filed with
the SEC on September 30, 2009).
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Articles
of Incorporation (Incorporated by reference to the Form 10-SB filed
with the SEC on December 18, 2007).
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Certificate
of Amendment to the Articles of Incorporation (Incorporated by
reference to Appendix A to the Definitive Schedule 14C filed with
the SEC on October 16, 2009).
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Certificate
of Amendment to the Articles of Incorporation (Incorporated by
reference to Appendix A to the Definitive Schedule 14C filed with
the SEC on April 16, 2012).
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Bylaws
(Incorporated by reference to the Form 10-SB filed with the SEC on
December 18, 2007).
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Certificate
of Designation of Preferences, Rights and Limitations of Series A
Convertible Preferred Stock of the Company dated March 14, 2014
(Incorporated by reference to the Form 8-K filed with the SEC on
March 18, 2014).
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Certificate
of Amendment to the Articles of Incorporation, dated September 8,
2015 (Incorporated by reference to the Form 10-K filed with the SEC
on March 30, 2016).
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Certificate
of Designation of Preferences, Rights and Limitations of Series B
Convertible Preferred Stock of the Company dated January 12, 2016
(Incorporated by reference to the Form 8-K filed with the SEC on
January 19, 2016).
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Certificate
of Designation of Preferences, Rights and Limitations of Series C
Convertible Preferred Stock of the Company dated January 31, 2020
(Incorporated by reference to the Form 8-K filed with the SEC on
February 6, 2020).
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Form of
Class A Warrant Agreement (Incorporated by reference to Form 8-K
filed with the SEC on September 30, 2009).
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Form of
Class B Warrant Agreement (Incorporated by reference to Form 8-K
filed with the SEC on September 30, 2009).
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Form of
Class D Warrant Agreement (Incorporated by reference to Form 8-K
filed with the SEC on October 14, 2010).
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Form of
Class E Warrant Agreement (Incorporated by reference to Form 8-K
filed with the SEC on April 7, 2011).
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Form of
Series A Warrant (Incorporated by reference to the Form 8-K filed
with the SEC on March 18, 2014).
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Form of
Series B Warrant (Incorporated by reference to the Form 8-K filed
with the SEC on March 18, 2014).
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Form of
18% Senior Secured Convertible Promissory Note issued by the
Company to select accredited investors (Incorporated by reference
to Form 8-K filed with the SEC on February 27, 2013).
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Form of
Convertible Promissory Note between the Company and accredited
investors party thereto (Incorporated by reference to the Form 8-K
filed with the SEC on March 18, 2014).
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Amendment
No. 1 to the Convertible Note Agreement between the Company and
accredited investors party thereto (Incorporated by reference to
the Form 8-K filed with the SEC on March 18, 2014).
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Class K
Warrant Agreement by and between the Company and HealthTronics,
Inc., dated June 15, 2015 (Incorporated by reference to the Form
8-K filed with the SEC on June 18, 2015).
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Amendment
No. 1 to Class K Warrant Agreement by and between the Company and
HealthTronics, Inc., dated June 28, 2016 (Incorporated by reference
to the Form 10-Q filed with the SEC on August 15,
2016).
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Form of
Class L Warrant Common Stock Purchase Warrant (Incorporated by
reference to the Form 8-K filed with the SEC on March 17,
2016).
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Second
Form of Class L Warrant Common Stock Purchase Warrant (Incorporated
by reference to the Form 8-K filed with the SEC on August 24,
2016).
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Registration
Rights Agreement dated January 13, 2016 among the Company and the
investors listed therein (Incorporated by reference to the Form 8-K
filed with the SEC on January 19, 2016).
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Class K
Warrant Agreement dated as of August 3, 2017, between the Company
and HealthTronics, Inc. (Incorporated by reference to Form 8-K
filed with the SEC on August 4, 2017).
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Form of
Class N Warrant. (Incorporated by reference to Form 8-K filed with
the SEC on November 9, 2017).
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Letter
to Series A Warrantholders, Class N Warrantholders and Class L
Warrantholders, dated January 29, 2019. (Incorporated by reference
to Form 8-K filed with the SEC on January 25, 2019).
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Form of
Class O Warrant. (Incorporated by reference to Form 8-K filed with
the SEC on March 15, 2019).
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Letter
to Class N Warrantholders and Class O Warrantholders, dated March
14, 2019. (Incorporated by Reference to Form 8-K filed with the SEC
on March 15, 2019).
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Letter
to Class N Warrant Holders, dated June 5, 2019 (incorporated by
reference to the Company’s Current Report on Form 8-K, filed
with the SEC on June 7, 2019).
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Opinion of Hutchison & Steffen, LLC (Incorporated by reference
to Form S-1 filed with the SEC on June 18,
2019).
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Amended
and Restated 2006 Stock Option Incentive Plan of SANUWAVE Health,
Inc. (Incorporated by reference to Form 8-K filed with the SEC on
November 3, 2010).
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Form of
Securities Purchase Agreement, by and among the Company and the
accredited investors party thereto, dated March 17, 2014
(Incorporated by reference to the Form 8-K filed with the SEC on
March 18, 2014).
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Form of
Registration Rights Agreement, by and among the Company and the
holders party thereto, dated March 17, 2014 (Incorporated by
reference to the Form 8-K filed with the SEC on March 18,
2014).
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Form of
Subscription Agreement for the 18% Convertible Promissory Notes
between the Company and the accredited investors a party thereto
(Incorporated by reference to the Form 8-K filed with the SEC on
March 18, 2014).
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Amendment
to certain Promissory Notes that were dated August 1, 2005, by and
among the Company, SANUWAVE, Inc. and HealthTronics, Inc., dated
June 15, 2015 (Incorporated by reference to the Form 8-K filed with
the SEC on June 18, 2015.)
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Security
Agreement, by and between the Company and HealthTronics, Inc.,
dated June 15, 2015 (Incorporated by reference to the Form 8-K
filed with the SEC on June 18, 2015).
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Exchange
Agreement dated January 13, 2016 among the Company and the
investors listed therein (Incorporated by reference to the Form 8-K
filed with the SEC on January 19, 2016).
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Escrow
Deposit Agreement dated January 25, 2016 among the Company, Newport
Coast Securities, Inc. and Signature Bank (Incorporated by
reference to the Form S-1/A filed with the SEC on February 3,
2016).
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Second
Amendment to Certain Promissory Notes entered into as of June 28,
2016 by and among the Company, SANUWAVE, Inc. and HealthTronics,
Inc. (Incorporated by reference to the Form 10-Q filed with the SEC
on August 15, 2016).
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Form of
Securities Purchase Agreement, by and among the Company and the
accredited investors a party thereto, dated March 11, 2016
(Incorporated by reference to the Form 8-K filed with the SEC on
March 17, 2016).
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Form of
Securities Purchase Agreement, by and between the Company and the
accredited investors a party thereto, dated August 24, 2016
(Incorporated by reference to the Form 8-K filed with the SEC on J
August 25, 2016).
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Form of
Registration Rights Agreement, by and between the Company and the
holders a party thereto, dated August 24, 2016 (Incorporated by
reference to the Form 8-K filed with the SEC on August 25,
2016).
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Third
Amendment to promissory notes entered into as of August 3, 2017 by
and among the Company, SANUWAVE, Inc. and HealthTronics, Inc.
(Incorporated by reference to Form 8-K filed with the SEC on August
4, 2017).
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Binding
Term Sheet for Joint Venture Agreement between the Company and
MundiMed Distribuidora Hospitalar LTDA effective as of September
25, 2017 (Incorporated by reference to Form 10-Q filed with the SEC
on November 15, 2017).
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Form of
10% Convertible Promissory Note, by and among the Company and the
accredited investors a party thereto. (Incorporated by reference to
Form 8-K filed with the SEC on November 9, 2017).
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Agreement
for Purchase and Sale, Limited Exclusive Distribution and
Royalties, and Servicing and Repairs of dermaPACE Systems and
Equipment among the Company, and Premier Shockwave Wound Care, Inc.
and Premier Shockwave, Inc. dated as of February 13, 2018.
(Incorporated by reference to Form 10-K filed with the SEC on March
29, 2018).
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Agreement,
dated June 14, 2018, by and among the Company and Johnfk Medical
Inc. (Incorporated by reference to Form 8-K filed with the SEC on
June 29, 2018).
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Joint
Venture Agreement, dated September 21, 2018, by and among the
Company, Johnfk Medical Inc. and Holistic Health Institute Pte.
Ltd. (Incorporated by reference to Form 8-K filed with the SEC on
September 27, 2018).
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Master
Equipment Lease, dated January 26, 2018, by and among the Company
and NFS Leasing, Inc. (Incorporated by reference to Form 8-K filed
with the SEC on February 15, 2018).
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Offer
Letter, dated as of November 30, 2018, by and between SANUWAVE
Health, Inc. and Kevin Richardson. (Incorporated by reference to
Form 8-K filed with the SEC on December 4, 2018).
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Offer
Letter, dated as of April 15, 2018, by and between SANUWAVE Health,
Inc,, and Shri Parikh. (Incorporated by reference to Form 8-K filed
with the SEC on June 7, 2018).
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Deed of
Termination of Joint Venture Agreement, dated June 4, 2019, by and
among the Company, Johnfk Medical Inc. and Holistic Wellness
Alliance Pte. Ltd. (incorporated by reference to the
Company’s Current Report on Form 8-K, filed with the SEC on
June 17, 2019).
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Common
Stock Purchase Agreement, by and among the Company and the
accredited investors party thereto, dated December 11, 2019
(incorporated by reference to the Company’s Current Report on
Form 8-K, filed with the SEC on December 27,
2019).
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Registration
Rights Agreement, by and among the Company and the accredited
investors party thereto, dated December 11, 2019 (incorporated by
reference to the Company’s Current Report on Form 8-K, filed
with the SEC on December 27, 2019).
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10.26
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Joint
Venture Agreement, dated December 13, 2019, by and among the
Company, Universus Global Advisors LLC, Versani Health Consulting
Consultoria Em Gestao De Negocios Eireli, and the IDIC Group as set
forth therein.
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10.27
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Registration Rights
Agreement, by and among the Company and the accredited investors
party thereto, dated December 11, 2019 (Incorporated by reference
to the Company’s Current Report on Form 8-K filed with the
SEC on December 27, 2019).
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10.28
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Series C Preferred
Stock Purchase Agreement, by and among the Company and the
accredited investors party thereto, dated February 6, 2020
(Incorporated by reference to the Company’s Current Report on
Form 8-K filed with the SEC on February 6, 2020).
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10.29ß
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Joint Venture
Agreement, dated December 13, 2019, by and among the Company,
Universus Global Advisors LLC, Versani Health Consulting
Consultoria Em Gestao De Negocios Eireli, and the IDIC Group as set
forth therein (Incorporated by reference to the Form 10-K filed
with the SEC on March 30, 2020).
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List of
subsidiaries
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Consent
of Marcum LLP, independent registered public
accountants.
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23.2
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Consent of Hutchison & Steffen, LLC (included in its opinion
filed as Exhibit 5.1).
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24.1**
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Power of Attorney (set forth on the signature page of the
registration statement).
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101.INS***
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XBRL
Instance
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101.SCH***
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XBRL
Taxonomy Extension Schema
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101.CAL***
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XBRL
Taxonomy Extension Calculation
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101.DEF***
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XBRL
Taxonomy Extension Definition
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101.LAB***
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XBRL
Taxonomy Extension Labels
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101.PRE***
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XBRL
Taxonomy Extension Presentation
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______________________________________________________________
∞
Indicates management contract or compensatory plan or
arrangement.
*
Filed herewith
** Previously filed as the same-numbered exhibit to our
registration statement on Form S-1 (File No. 333-213774) filed on
July 2, 2018.
ß
Confidential portions of this exhibit
have been omitted as permitted by applicable
regulations.
*** XBRL information is furnished and not filed or a part of a
registration statement or prospectus for purposes of sections 11 or
12 of the Securities Act of 1933, as amended, is deemed not filed
for purposes of section 18 of the Exchange Act and otherwise is not
subject to liability under these sections.
#
Confidential treatment has been requested as to certain portions of
this exhibit, which portions have been omitted and
submitted
separately to the Securities and Exchange Commission.
ITEM 17. Undertakings
(a)
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which
offers or sales are being made, a post-effective amendment to this
registration statement:
(i) To include any prospectus required by
Section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any
facts or events arising after the effective date of the
registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease
in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and
any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than 20 percent
change in the maximum aggregate offering price set forth in the
“Calculation of
Registration Fee” table
in the effective registration statement;
(iii) To include any material information
with respect to the plan of distribution not previously disclosed
in the registration statement or any material change to such
information in the Registration Statement;
(2) That, for the purpose of determining
any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means
of a post-effective amendment any of the securities being
registered which remain unsold at the termination of the
offering.
(4) That, for the purpose of determining
liability under the Securities Act of 1933 to any
purchaser:
(i) Each prospectus filed pursuant to
Rule 424(b) as part of a registration statement relating to an
offering, other than registration statements relying on Rule 430B
or other than prospectuses filed in reliance on Rule 430A, shall be
deemed to be part of and included in the registration statement as
of the date it is first used after effectiveness. Provided,
however, that no statement made in a registration statement or
prospectus that is part of the registration statement or made in a
document incorporated or deemed incorporated by reference into the
registration statement or prospectus that is part of the
registration statement will, as to a purchaser with a time of
contract of sale prior to such first use, supersede or modify any
statement that was made in the registration statement or prospectus
that was part of the registration statement or made in any such
document immediately prior to such date of first use.
SIGNATURES
Pursuant to the
requirements of the Securities Act of 1933, the registrant has duly
caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized in the City of Suwanee,
State of Georgia, on April 17, 2020.
|
SANUWAVE
HEALTH, INC.
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By:
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/s/ Kevin A.
Richardson, II
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Name: Kevin A.
Richardson, II
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Title: Chief
Executive Officer
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Signatures
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Title
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Date
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By: *
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Chief Executive Officer and Chairman of the Board of
Directors
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April
17,
2020
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Name:
Kevin A. Richardson, II
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(principal
executive officer)
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By: *
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Chief Financial Officer
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April
17,
2020
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Name:
Lisa E. Sundstrom
|
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(principal
financial and accounting officer)
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By: *
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Director
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April
17,
2020
|
Name: John F. Nemelka
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By: *
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Director
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April
17,
2020
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Name: Alan L. Rubino
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By: *
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Director
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April
17,
2020
|
Name: A. Michael Stolarski
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By: *
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Director
|
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April
17,
2020
|
Name: Maj-Britt Kaltoft
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By: *
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Director
|
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April
17,
2020
|
Name: Thomas Price
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Grafico Azioni SANUWAVE Health (QB) (USOTC:SNWV)
Storico
Da Mag 2024 a Giu 2024
Grafico Azioni SANUWAVE Health (QB) (USOTC:SNWV)
Storico
Da Giu 2023 a Giu 2024