As filed with the Securities and Exchange Commission on June 14, 2019
Registration No. ____________
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM S-1
 
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
 
SANUWAVE Health, Inc.
(Exact name of registrant as specified in its charter)
 
Nevada
 
3841
 
20-1176000
(State or other Jurisdiction of Incorporation or Organization)
 
(Primary Standard Industrial Classification Code Number)
 
(I.R.S. Employer Identification No.)
 
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
Accelerated filer 
Non-accelerated filer
Smaller reporting company   
 
Emerging growth company 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  
 
 

 
 
 
Title of each class of securities to be registered (1)
 
Amount to be registered
 
 
Proposed maximum offering price per share (10)
 
 
Proposed maximum aggregate offering price
 
 
Amount of registration fee
 
Common Stock, $0.001 par value (2)
  8,528,249 
 $0.166250 
 $1,417,821.40 
 $171.84 
Common Stock, $0.001 par value (3)
  26,666,487 
 $0.166250 
 $4,433,303.46 
 $537.32 
Common Stock, $0.001 par value (4)
  3,803,932 
 $0.166250 
 $632,403.70 
 $76.65 
Common Stock, $0.001 par value (5)
  22,124,998 
 $0.166250 
 $3,678,280.92 
 $445.81 
Common Stock, $0.001 par value (6)
  182,217 
 $0.166250 
 $30,293.58 
 $3.67 
Common Stock, $0.001 par value (7)
  2,089,317 
 $0.166250 
 $347,348.95 
 $42.10 
Common Stock, $0.001 par value (8)
  8,049,091 
 $0.166250 
 $1,338,161.38 
 $162.19 
Common Stock, $0.001 par value (9)
  4,760,701 
 $0.166250 
 $791,466.54 
 $95.93 
 Total
  76,204,992 
    
 $12,669,079.92 
 $1,535.49 
 
(1)
Pursuant to Rule 416, the securities being registered hereunder include such indeterminate number of additional shares of common stock $0.001 par value (“Common Stock”) as may be issued after the date hereof as a result of stock splits, stock dividends or similar transactions.
(2)
Represents the resale of shares of Common Stock issued upon the conversion of certain promissory notes issued in private placements described herein.
(3)
Represents the resale of shares of Common Stock issuable upon the conversion of certain promissory notes issued in private placements described herein.
(4)
Represents the resale of shares of Common Stock issued upon the exercise of certain warrants issued in private placements described herein.
(5)
Represents the resale of shares of Common Stock issuable upon the exercise of certain warrants issued in private placements described herein.
(6)
Represents the resale of shares of Common Stock issued upon the exercise of warrants issued to the placement agent in connection with the private placements described herein.
(7)
Represents the resale of shares of Common Stock issuable upon the exercise of warrants issued to the placement agent in connection with the private placements described herein.
(8)
Represents the resale of shares of Common Stock issuable upon the exercise of certain warrants issued to employees, board of directors, medical advisory board members and vendors in connection with services provided described herein.
(9)
Represents the resale of shares of Common Stock issuable upon the conversion of certain short term notes payable described herein.
(10)
Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(c) under the Securities Act of 1933, as amended, based on the per share average of the high and low reported prices for the common stock on the Over the Counter Bulletin Board as of June 7, 2019.
 
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, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
  
 
ii
 
  
The information in this prospectus is not complete and may be changed. Neither we nor the selling stockholders may sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these 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 June 14, 2019.
 
76,204,992 Shares
(Common Stock, $0.001 par value)
 
This prospectus relates to the resale of up to 76,204,992 shares of our common stock, $0.001 par value (“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) 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. 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 under “Plan of Distribution” herein.
  
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. We will bear all expenses of registration incurred in connection with this offering, but all selling and other expenses incurred by the selling shareholders 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 June 7, 2019, were $0.1775 and $0.155 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 8 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
 
 
iii
 
 
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 FORWARD-LOOKING STATEMENTS
1
PROSPECTUS SUMMARY
2
THE OFFERING
6
SUMMARY FINANCIAL INFORMATION
7
RISK FACTORS
8
USE OF PROCEEDS
25
SELLING STOCKHOLDERS
26
PLAN OF DISTRIBUTION
29
MARKET FOR OUR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
31
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
32
BUSINESS
43
MANAGEMENT, EXECUTIVE COMPENSATION AND CORPORATE GOVERNANCE
59
CORPORATE GOVERNANCE AND BOARD MATTERS
66
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
69
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
70
DESCRIPTION OF SECURITIES TO BE REGISTERED
71
SHARES AVAILABLE FOR FUTURE SALE
73
LEGAL MATTERS
73
EXPERTS
73
INTEREST OF NAMED EXPERTS AND COUNSEL
74
WHERE YOU CAN FIND MORE INFORMATION
74
 
 
iv
 
 
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
  
This prospectus, including the sections titled ‘‘Prospectus Summary,’’ ‘‘Risk Factors,’’ ‘‘Managements 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 Companys future financial results, operating results, business strategies, projected costs, products, competitive positions, managements plans and objectives for future operations, and industry trends. These forward-looking statements are based on managements 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: 
  
market acceptance of and demand for dermaPACE and our product candidates; 
regulatory actions that could adversely affect the price of or demand for our approved products; 
our intellectual property portfolio; 
our marketing and manufacturing capacity and strategy, including our efforts to expand the marketing and sales of our products in Asia and Latin America through joint ventures and other contractual arrangements; 
estimates regarding our capital requirements, anticipated timing of the need for additional funds, and our expectations regarding future capital-raising transactions; 
product liability claims; 
economic conditions that could adversely affect the level of demand for our products; 
timing of clinical studies and eventual FDA approval of our products; 
financial markets; and 
the competitive environment.  
  
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. 
 
 
1
 
 
PROSPECTUS SUMMARY
 
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. Food and Drug Administration (the FDA) notified the Company to permit the marketing of the dermaPACE System for the treatment of diabetic foot ulcers in the United States.
 
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. In 2018, we started marketing our dermaPACE System for sale 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.
 
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 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.
 
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 April 1, 2019.
 
For more information about the Company, see the section entitled Business in this prospectus.
 
 
2
 
  
Recent Developments
  
On December 28, 2017, the U.S. Food and Drug Administration (the FDA) notified the Company to permit the marketing of the dermaPACE system for the treatment of diabetic foot ulcers in the United States. 
   
On September 27, 2017, we entered into a binding term sheet with MundiMed Distribuidora Hospitalar LTDA (“MundiMed”), effective as of September 25, 2017, for a joint venture for the manufacture, sale and distribution of our dermaPACE device. Under the binding term sheet, MundiMed will pay the Company an initial upfront distribution fee, with monthly upfront distribution fees payable thereafter over the following eighteen months. Profits from the joint venture are distributed as follows: 45% to the Company, 45% to MundiMed and 5% each to LHS Latina Health Solutions Gestão Empresarial Ltda. and Universus Global Advisors LLC, who acted as advisors in the transaction. The initial upfront distribution fee was received on October 6, 2017. Monthly upfront distribution fee payments have been received through May 2018. 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. The Company is currently in discussions with a new partner to take over this agreement for the marketing and distribution of its products in Brazil.
  
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. 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 Companys board of directors and an existing stockholder of the Company. 
  
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. 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 fourth quarter of 2018. 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 Holistic Wellness Alliance Pte. Ltd. (“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, 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.
 
 
3
 
  
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 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%. During the month of May 2019, the Company defaulted on the short term notes payable issued during November 2018 and began accruing interest at the default interest rate of 10%.
 
On October 10, 2018, the Company entered into short term notes payable 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 of the short term notes payable with Shri P. Parikh with interest in the amount of $102,918.
 
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.
 
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 stockholder 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. 
 
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.
 
 
4
 
  
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.
  
 
5
 
 
THE OFFERING
 
 Total Common Stock being offered by the selling stockholders
 
76,204,992 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) 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.
 
 
 
Use of Proceeds
 
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. See Use of Proceeds.
 
 
 
Risk Factors
 
See Risk Factors beginning on page 8 of this prospectus for a discussion of factors you should carefully consider before deciding to invest in our Common Stock.
 
 
 
OTCQB Ticker Symbol for Common Stock
 
SNWV
 
  
 
  
 
 
 
 
 
6
 
 
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 Managements Discussion and Analysis of Financial Condition and Results of Operations appearing elsewhere in this prospectus. 
 
 
 
 Three Months Ended
 
 
 Year Ended
 
 
 
 March 31,
 
 
 March 31,
 
 
 December 31,
 
 
 December 31,
 
 
 
2019
 
 
2018
 
 
2018
 
 
2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated Statement of Operations Data
 
 
 
 
 
 
 
 
 
 
 
 
Revenue
 $177,963 
 $344,272 
 $1,850,060 
 $738,527 
Net loss
 $(2,197,317)
 $(5,856,655)
 $(11,631,394)
 $(5,537,936)
Weighted average shares outstanding
  157,112,875 
  139,754,044 
  149,537,777 
  138,838,602 
Net loss per share - basic and diluted
 $(0.01)
 $(0.04)
 $(0.08)
 $(0.04)
 
    
    
    
    
Consolidated Balance Sheet Data (at end of period)
    
    
    
    
Working deficit
 $(15,887,924)
 $(13,942,348)
 $(15,403,609)
 $(9,955,113)
Total assets
 $1,318,749 
 $907,141 
 $1,177,728 
 $1,278,810 
Total liabilities
 $17,012,696 
 $14,842,537 
 $16,533,827 
 $11,159,637 
Total stockholders' deficit
 $(15,693,947)
 $(13,935,396)
 $(15,356,099)
 $(9,880,827)
 
    
 
 
7
 
 
RISK FACTORS
 
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 prospectus, including the consolidated financial statements and the related notes appearing at the end of this prospectus, 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 $2,197,317 for the three months ended March 31, 2019 and a net loss of $11,631,394 for the year ended December 31, 2018. The operating losses and the events of default on the Company’s short term notes payable, the Company’s convertible promissory notes 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 registration statement.
 
As of March 31, 2019, we had an accumulated deficit of $117,520,434 and cash and cash equivalents of $98,946. For the three months ended March 31, 2019 and 2018, the net cash used by operating activities was $1,285,551 and $1,848,565, respectively. Management expects the cash used in operations for the Company will be approximately $225,000 to $300,000 per month for the first half of 2019 and $275,000 to $350,000 per month for the second half of 2019 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 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 2019 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. 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, 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. 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.
 
 
8
 
 
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 three months ended March 31, 2019, we had a net loss of $2,197,317 and used $1,285,551 of cash in operations. For the three months ended March 31, 2018, we had a net loss of $5,856,655 and used $1,848,565 of cash in operations. As of March 31, 2019, we had an accumulated deficit of $117,520,434 and a total stockholders' deficit of $15,693,947. 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 will be 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.
 
 
9
 
  
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.
 
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.
 
 
10
 
  
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.
 
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.
 
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.
 
 
11
 
  
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, 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 58%, 11% and 10% of revenues for the three months ended March 31, 2019 and 39%, 5% and 0% of accounts receivable at March 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% 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 identified control deficiencies in our internal control over financial reporting that constitute a material weakness in our internal control over financial reporting. If we are unable to remediate these control deficiencies including this material weakness, we may not be able to accurately or timely report our financial condition or results of operations, which could cause investors to lose confidence in our reported financial information and thereby adversely affect the market price of our common stock.
 
As disclosed in Item 9A of our Annual Report on Form 10-K filed on April 1, 2019, management concluded that we had three material weaknesses in our internal control over financial reporting process. A “material weakness” is defined under SEC rules as a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis by the company’s internal controls. The first material weakness is due to the lack of internal expertise and resources to analyze and properly apply generally accepted accounting principles to complex and non-routine transactions such as complex financial instruments and derivatives and complex sales distribution agreements. The second material weakness is due to the lack of internal resources to analyze and properly apply generally accepted accounting principles to accounting for equity components of service agreements with select vendors. The third material weakness relates to our information technology infrastructure. This material weakness is due to cybersecurity breaches from email spoofing. As a result, management concluded that our internal control over reporting was not effective as of December 31, 2018.  In addition, as disclosed in Item 4 of our Quarterly Report on Form 10-Q filed on May 20, 2019, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not operating effectively as of March 31, 2019 due to material weaknesses described above.
 
Certain of these control deficiencies were also in existence as of December 31, 2017, and while we are actively engaged in developing and implementing remedial measures designed to address these control deficiencies including the identified material weakness, we can provide no assurance that we will be successful in remediating these deficiencies or the material weakness in a timely manner, or at all, or that we will not identify additional deficiencies and material weaknesses in the future. If our remedial measures are insufficient to address these deficiencies or the material weakness, or if additional material weaknesses or deficiencies in our internal control over financial reporting are discovered or occur in the future, we may not be able to accurately or timely report our financial condition or results of operations, which could cause investors to lose confidence in our reported financial information and thereby adversely affect the perception of our business and the market price of our common stock.
 
 
12
 
 
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 eighteen 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. 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.
 
 
13
 
  
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.
 
 
14
 
  
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:
 
warning letters;
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;
injunctions; and
criminal prosecutions.
 
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:
 
testing;
manufacturing;
quality control;
labeling;
advertising;
promotion;
distribution;
export;
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.
 
 
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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.
 
 
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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.
 
 
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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.
 
 
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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.
 
 
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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.
 
 
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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.
 
 
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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.
 
 
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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.
 
 
23
 
  
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 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. Although we have no 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 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.
 
 
24
 
 
USE OF PROCEEDS
 
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 $3,548,975. 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.
 
 
 
25
 
 
SELLING STOCKHOLDERS
 
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).
 
 
26
 
  
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) 22,124,998 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.
 
                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.
 
 
27
 
  
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
 
 
 
 
 
 
 
 
 
 
 
Number of Shares
 
 
 
 
 
 
beneficially owned prior
 
 
 
 
 
Number of Shares
 
 
 
 
 
beneficially owned after
 
 
 
 
 
 
to this offering
 
 
 
 
 
being offered (1)(2)
 
 
 
 
 
this offering
 
 
 
 
Name of Beneficial Owner
 
Number
 
 
Percent
 
 
Number
 
 
Percent
 
 
Number
 
 
Percent
 
Directors and Executive Officers:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Kevin A. Richardson, II
  13,899,629 
  7.3%
  6,209,910 
  3.4%
  7,689,719 
  4.2%
A. Michael Stolarski
  17,776,745 
  9.3%
  11,011,864 
  6.1%
  6,764,881 
  3.7%
Peter Stegagno
  4,413,712 
  2.4%
  1,199,863 
  * 
  3,072,369 
  1.7%
Iulian Cioanta
  3,576,146 
  2.0%
  440,000 
  * 
  3,136,146 
  1.7%
Lisa Sundstrom
  3,304,500 
  1.8%
  440,000 
  * 
  2,864,500 
  1.6%
John Nemelka
  1,596,055 
  0.9%
  200,000 
  * 
  1,396,055 
  * 
Alan Rubino
  1,569,800 
  0.9%
  200,000 
  * 
  1,369,800 
  * 
Maj-Britt Kaltoft
  850,000 
  0.5%
  200,000 
  * 
  650,000 
  * 
Principal and/or Selling Shareholders:
    
    
    
    
    
    
John McDermott
  12,692,347 
  7.0%
  1,681,930 
  * 
  11,010,417 
  6.1%
Nicholas Carosi III Trust, Dated 10/3/84
  12,338,318 
  6.8%
  4,590,818 
  2.5%
  7,747,500 
  4.3%
James Robert McGraw
  11,467,461 
  6.3%
  2,632,599 
  1.4%
  8,834,862 
  4.9%
Greg Broms
  5,945,479 
  3.3%
  5,945,479 
  3.3%
  - 
  - 
Lawrence J. Wert
  5,406,166 
  3.0%
  5,406,166 
  3.0%
  - 
  - 
NFS Leasing
  2,950,455 
  1.6%
  2,950,455 
  1.6%
  - 
  - 
Ann Marie Giulietti
  2,845,342 
  1.6%
  2,132,697 
  1.2%
  - 
  - 
Millennium Park Capital
  2,500,000 
  1.4%
  2,500,000 
  1.4%
  - 
  - 
Jeff Tucker
  1,972,601 
  1.1%
  1,972,601 
  1.1%
  - 
  - 
Lucas Hoppel
  1,877,568 
  1.0%
  1,622,336 
  0.9%
  - 
  - 
Richard Metsch
  1,846,212 
  1.0%
  1,386,441 
  0.8%
  - 
  - 
James P. Geiskopf
  1,759,500 
  1.0%
  1,759,500 
  1.0%
  - 
  - 
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 
  * 
  758,138 
  * 
  - 
  - 
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 
  * 
  369,495 
  * 
  - 
  - 
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 
  * 
  60,000 
  * 
  - 
  - 
Maria Siemionow
  60,000 
  * 
  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:
    
    
  76,204,992 
    
    
    
 
(1)
Applicable percentage ownership is based on 181,817,557 shares of common stock outstanding as of June 7, 2019. "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 June 7, 2019. 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
 
Number
 
 
Number
 
 
Number
 
 
Number
 
 
Number
 
 
Number
 
 
Number
 
 
Number
 
 
Number
 
 
Number
 
 
Number
 
 
Number
 
Directors and Executive Officers:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Kevin A. Richardson, II
  - 
  2,969,910 
  - 
  2,363,636 
  - 
  - 
  640,000 
  - 
  - 
  236,364 
  - 
  6,209,910 
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
  - 
  - 
  - 
  - 
  - 
  - 
  200,000 
  - 
  - 
  - 
  - 
  200,000 
Principal and/or Selling Shareholders:
    
    
    
    
    
    
    
    
    
    
    
    
Advantage Point Solutions LLC
  187,677 
  - 
  - 
  181,818 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  369,495 
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 
  - 
  318,182 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  758,138 
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
  - 
  - 
  -