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, ~~with,~~ 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 ~~and technology licenses~~ 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 ~~prescribe~~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. 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 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.

We currently purchase most of our product component materials from single suppliers. 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.~~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. We currently purchase most of our product component materials from single suppliers and the loss of any of these suppliers could result in a disruption in our production. If this were to occur, it may be difficult to arrange a replacement supplier because certain of these materials may only be available from one or a limited number of sources. 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 ~~revenues.~~business and results of operations.

The loss of our key management ~~and scientific personnel~~ would likely hinder our ability to execute our business plan.

As a small company with 2911 employees, our success depends on the continuing contributions of our management team and scientific personnel, and on maintaining relationships with the network of medical and academic centers that conduct our clinical trials. We depend on the services of our key scientific employees and principal members of our management team.qualified personnel. 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.

~~-6-~~

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.

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 ~~will be~~is safe and effective in advanced clinical trials involving ~~larger~~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 ~~more~~ 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.~~trials and data.

We are subject to extensive governmental regulation, including the requirement of FDA approval or clearance, before our product candidates may be marketed.

The process of obtaining FDA approval is lengthy, expensive and uncertain, and we cannot be sure that our product candidates will be approved in a timely fashion, or at all. If the FDA does not approve or clear our product candidates in a timely fashion, or at all, our business and financial condition would likely be adversely affected. WeThe 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 ~~different~~ legal authority for one or more of our other product candidates, in which case ~~the path to regulatory approval would be different~~applicable governmental review requirements could vary in some respects and ~~could~~ be more lengthy and costly.

Both before and after approval or clearance of our product candidates, we, our product candidates, our suppliers ~~our contract manufacturers~~ and our contract ~~testing laboratories~~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, ~~other~~ numerous ~~and pervasive~~other regulatory requirements apply, both before and after approval or clearance, to us, our products and product candidates, and our suppliers ~~contract manufacturers~~ and contract ~~laboratories.~~manufacturers. These include requirements related to the following:

	•	·	testing;

	•	·	manufacturing;

	•	·	quality control;

	•	·	labeling;

•

advertising;

~~-7-~~

	•	·	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 to determine our compliance with regulatory requirements, as are our suppliers ~~contract manufacturers~~ and contract ~~testing laboratories,~~manufacturers, and we cannot be sure that the FDA will not indentify compliance issues that may disrupt production or distribution, or require substantial resources to correct.

The FDA’s requirements may change and additional government regulations may be promulgated that could affect us, our product candidates, and our suppliers ~~contract manufacturers~~ and contract ~~laboratories.~~manufacturers. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action. There can be no assurance that we will not be required to incur significant costs to comply with such laws and regulations in the future, or that such laws or regulations will not have a material adverse effect upon our business.

Patients may discontinue their participation in our clinical studies, which may negatively impact the results of these studies and extend the timeline for completion of our development programs.

Clinical trials for our product candidates require sufficient patient enrollment. We may not be able to enroll a sufficient number of patients in a timely or cost-effective manner. Patients enrolled in our clinical studies may discontinue their participation at any time during the study as a result of a number of factors, including withdrawing their consent or experiencing adverse clinical events, which may or may not be judged to be related to our product candidates under evaluation. If a large number of patients in a study discontinue their participation in the study, the results from that study may not be positive or may not support a filing for regulatory approval of the product candidate.

In addition, the time required to complete clinical trials is dependent upon, among other factors, the rate of patient enrollment. Patient enrollment is a function of many factors, including the following:

the size of the patient population;

the nature of the clinical protocol requirements;

the availability of other treatments or marketed therapies (whether approved or experimental);

our ability to recruit and manage clinical centers and associated trials;

the proximity of patients to clinical sites; and

the patient eligibility criteria for the study.

We will rely on third parties to conduct our dermaPACE clinical trial, and their failure to perform their obligations in a timely or competent manner may delay development and commercialization of our device.

We have engaged a clinical research organization (CRO) and other third party vendors to assist in the conduct of our clinical trial for dermaPACE. 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 dermaPACE clinical trial, the commercial prospects for the product could be harmed and our ability to generate product revenue would be delayed or prevented. Any failure of our CRO to successfully accomplish clinical trial monitoring, data collection, safety monitoring and data management and the other services it provides 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 our 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 trial, 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 trial in an acceptable manner and at an acceptable cost.

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 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 ~~future approved~~ products currently under development and limit our ability to sell our ~~approved~~ 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.

~~-8-~~

Healthcare policy changes, including the recently enacted legislation to reform the United States healthcare system, may have a material adverse effect on us.

In March 2010, President Obama 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, beginning in 2013;

a new Patient-Centered Outcomes Research Institute to oversee, identify priorities and conduct comparative clinical effectiveness research;

new reporting and disclosure requirements on device manufacturers for any “transfer of value” made or distributed to physicians and teaching hospitals, as well as reporting of certain physician ownership interests, with the first of such reports due March 31, 2013 for calendar year 2012;

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, beginning on or before January 1, 2013;

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.

These provisions could meaningfully change the way healthcare is delivered and financed, and could have a material adverse impact on numerous aspects of our business.

In the future 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 markets where we do business. We could experience an adverse impact on our operating results due to increased pricing pressure in the United States and in other 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 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 ~~in which our approved products may be sold~~ 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.

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 and similar state laws. We believe our operations are in compliance with the Federal Anti-Kickback Statute 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 or similar state laws, the consequences of such violations would likely have a material adverse effect on our business, ~~and~~ results of ~~operations.~~operations and financial condition.

~~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 any one of our studies 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 our product candidates.

	•		~~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.~~

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.~~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 ~~facilities.~~facility. Our research and development process may, at times, involve the controlled use of hazardous materials and chemicals. We will conduct experiments that are common in the medical device industry, 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

~~-9-~~

materials and specified waste products. The cost of compliance with these laws and regulations could be significant.

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 volunteer or 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.

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 or license, generally provide us a competitive advantage, the patent positions of biotechnology, biopharmaceutical and medical device companies are generally highly uncertain, involve complex legal and factual questions and have been the subject of much litigation. Neither the United States Patent & Trademark Office nor the courts have a consistent policy regarding the breadth of claims allowed or the degree of protection afforded under many biotechnology patents. Even if issued, patents may be challenged, narrowed, invalidated or circumvented, which could limit our ability to stop competitors from marketing similar products or limit the length of term of patent protection we may have for our products. Further, a court or other government agency could interpret our patents in a way such that the patents do not adequately cover our current or future product candidates. Changes in either patent laws or in interpretations of patent laws in the United States and other countries may diminish the value of our intellectual property or narrow the scope of our patent protection.

We also rely upon trade secrets and unpatented proprietary know-how and continuing technological innovation in developing our products, especially where we do not believe patent protection is appropriate or obtainable. We seek to protect this intellectual property, in part, by generally requiring our employees, consultants, and current and prospective business partners to enter into confidentiality agreements in connection with their employment, consulting or advisory relationships with us, where appropriate. We also require our employees, consultants, researchers and advisors who we expect to work on our products and product candidates to agree to disclose and assign to us all inventions conceived during the work day, developed using our property or which relate to our business. We may lack the financial or other resources to successfully monitor and detect, or to enforce our rights in respect of, infringement of our rights or breaches of these confidentiality agreements. In the case of any such undetected or unchallenged infringements or breaches, these confidentiality agreements may not provide us with meaningful protection of our trade secrets and unpatented proprietary know-how or adequate remedies. In addition, others may independently develop technology that is similar or equivalent to our trade secrets or know-how. If any of our trade secrets, unpatented know-how or other confidential or proprietary information is divulged to third parties, including our competitors, our competitive position in the marketplace could be harmed and our ability to sell our products successfully could be severely compromised. Enforcing a claim that a party illegally obtained and is using trade secrets that have been licensed to us or that we own is also difficult, expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the United States may be less willing to protect trade secrets. Costly and time consuming litigation could be necessary to seek to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection could have a material adverse effect on our business. Moreover, some of our academic institution licensees, evaluators, collaborators and scientific advisors have rights to publish data and information to which we have rights. If we cannot maintain the confidentiality of our technologies and other confidential information in connection with our collaborations, our ability to protect our proprietary information or obtain patent protection in the future may be impaired, which could have a material adverse effect on our business.

In particular, we cannot assure you that:

	•	·	we or the owners or other inventors of the patents that we own or that have been licensed to us, or that may be issued or licensed to us in the future, were the first to file patent applications or to invent the subject matter claimed in patent applications relating to the technologies upon which we rely;

	•	·	others will not independently develop similar or alternative technologies or duplicate any of our technologies;

	•	·	any of our patent applications will result in issued patents;

•

the patents and the 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;

~~-10-~~

	•	·	the patents and the 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 which 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 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 offices 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 have been or may be owned by 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 or licensed to us or that may in the future be owned by us or 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 or against us may result in determinations that patents that have been issued or licensed to us or any patents that may be issued to us or our licensors in the future are invalid, unenforceable or otherwise subject to limitations. In the event of any such determinations, third parties may be able to use the discoveries or technologies claimed in these patents without paying licensing fees or royalties to us, which could significantly diminish the value of our intellectual property and our competitive advantage. Even if our patents are held to be enforceable, others may be able to design around our patents or develop products similar to our products that are not within the scope of any of our patents.

In addition, enforcing the patents that we own or license and any patents that may be issued to us in the future against third parties may require significant expenditures regardless of the outcome of such efforts. Our inability to enforce our patents against infringers and competitors may impair our ability to be competitive and could have a material adverse effect on our business.

~~-11-~~

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. Further, we, our licensees or our licensors, may need to participate in interference, opposition, protest, reexamination or other potentially adverse proceedings in the United States Patent & Trademark Office or in similar agencies of foreign governments with regards to our patents, patent applications, and intellectual property rights. In addition, we, our licensees or our licensors may need to initiate suits to protect our intellectual property rights.

Litigation or any other proceeding relating to intellectual property rights, even if resolved in our favor, may cause us to incur significant expenses, divert the attention of our management and key personnel from other business concerns and, in certain cases, result in substantial additional expenses to license technologies from third parties. Some of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources. An unfavorable outcome in any patent infringement suit or other adverse intellectual property proceeding could require us to pay substantial damages, including possible treble damages and attorneys’ fees, cease using our technology or developing or marketing our products, or require us to seek licenses, if available, of the disputed rights from other parties and potentially make significant payments to those parties. There is no guarantee that any prevailing party would offer us a license or that we could acquire any license made available to us on commercially acceptable terms. Even if we are able to obtain rights to a third party’s patented intellectual property, those rights may be nonexclusive and, therefore, our competitors may obtain access to the same intellectual property. Ultimately, we may be unable to commercialize our product candidates or may have to cease some of our business operations as a result of patent infringement claims, which could materially harm our business. We cannot guarantee that our products or technologies will not conflict with the intellectual property rights of others.

If we need to redesign our products to avoid third party patents, we may suffer significant regulatory delays associated with conducting additional 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.

~~-12-~~

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~~the Units and This Offering

~~We are no longer able~~

You will experience immediate and substantial dilution as a result of this offering and may experience additional dilution in the future.

You will incur immediate and substantial dilution as a result of this offering. After giving effect to ~~rely on Prides Capital Partners, LLC~~(i) the sale by us of up to 6,000,000 shares offered in this offering (as part of the Units) at an assumed offering price of $1.00 per Unit; (ii) the conversion of our 18% Senior Secured Convertible Promissory Notes, in the principal amount of $2,097,500, including accrued interest, at a conversion price of $0.20 per share; and ~~NightWatch Capital LLC for financial support,~~(iii) after deducting the estimated placement agent fees and ~~must now rely on third parties for financing.~~the estimated offering expenses payable by us, investors in this offering can expect an immediate dilution of $0.98 per share, or 98%, at the assumed offering price.

In addition, in the past, we ~~have relied on Prides Capital Partners, LLC (“Prides Capital”)~~issued options and ~~NightWatch Capital LLC (“NightWatch Capital”) for~~warrants to acquire shares of common stock, and warrants are being issued to investors in this offering and holders of the ongoing financial support necessary to operate our business. Neither Prides Capital nor NightWatch Capital currently provides us with financing or financial support, nor do they currently intend to provide us with any additional financing or financial support in the future.Senior Secured Notes. To the extent these options or warrants are ultimately exercised, you will sustain future dilution.

There is no minimum amount required to be raised in the offering, and if we ~~must obtain financing~~cannot raise sufficient funds from this offering, we may need to ~~support our cash needs, we~~curtail or cease operations.

There is not a minimum amount of securities that need to be sold in this offering for us to access the funds. Therefore, the proceeds of this offering will be ~~entirely reliant on third parties. We~~immediately available for use by us and we do not have to wait until a minimum number of shares have been sold to keep the proceeds from any ~~lines~~sales. We cannot assure you that subscriptions for the entire offering will be obtained. We have the right to terminate this offering at any time, regardless of ~~credit~~the number of securities we have sold since there is no minimum subscription requirement. Our ability to meet our financial obligations, cash needs, and to achieve our objectives, could be adversely affected if the entire offering is not fully subscribed and as a result we could be forced to curtail or ~~other financing arrangements in place with banks or other financial institutions.~~cease our operations.

We ~~will require additional financing~~have broad discretion in the ~~future,~~use of the net proceeds of this offering and ~~additional financing~~ may not ~~be available at times, in amounts~~use them effectively.

Management will retain broad discretion over the use of the net proceeds of this offering. Stockholders may not agree with such uses, and our use of the proceeds may not yield a significant return or ~~on terms acceptable to us, or~~any return at all ~~which would~~for our stockholders. We plan to use the net proceeds from this offering for the dermaPACE clinical trial in the United States, working capital and general corporate purposes. Because of the number and variability of factors that will determine our use of the proceeds from this offering, their ultimate use may vary substantially from their currently intended use. The failure by our management to apply these funds effectively could have a material and adverse effect on our business.

The Senior Secured Notes, as amended, will automatically convert into common stock if we raise $4,000,000 or more through a qualified financing (such as this offering) and/or license agreement as defined in the Senior Secured Note agreements. If we ~~are unable~~do not raise at least $4,000,000, the Senior Secured Notes will not automatically convert to ~~successfully raise additional capital~~common stock and they will become due and payable upon maturity, beginning in May 2013. In the future, our product development could be limited and our long term 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 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 alternativesevent that ~~may be available to us. If~~ we raise, ~~additional funds by issuing debt securities,~~in this offering, less than $4,000,000, then we may need to use all or a portion of the net proceeds to repay these ~~debt securities could impose significant restrictions on our operations.~~notes. Any such ~~required financing may not be available in amounts or on terms acceptable to us, and the failure to procure such required financing~~actions could ~~have a material adverse effect on~~adversely affect our ~~business,~~ financial condition and ~~results~~the value of ~~operations, or threaten~~ our ~~ability to continue as a going concern.~~common stock.

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:

	•		~~unforeseen developments during our pre-clinical activities and clinical trials;~~

	•		~~delays in timing of receipt of required regulatory approvals;~~

	•		~~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 to market our approved products;~~

	•		~~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;~~

	•		~~the failure to comply with regulatory guidelines; and~~

	•		~~the uncertainty in industry demand and patient wellness behavior as businesses and individuals suffer from the current economic downturn.~~

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 or joint ventures. Any acquisition or joint venture would likely increase our capital requirements.

~~-13-~~

~~If adequate financing is not available, we may be required to delay, scale back or eliminate our operations. Consequently, our long-term viability would be threatened.~~

Prides Capital and NightWatch Capital control and may continue to control us and may have conflicts of interest with us or you in the future.

As of ~~June 7, 2011,~~May 13, 2013, Prides Capital owned ~~47.1%~~45.4% of our outstanding ~~Common Stock~~common stock and ~~NightWatch Capital owned 10.0% of our outstanding Common Stock on a “beneficial ownership” basis. In addition,~~ Kevin A. Richardson, II, who is managing partner of Prides Capital, ~~owns 12.9%~~beneficially owned 52.4% of our outstanding ~~Common Stock on a “beneficial ownership” basis.~~common stock. In addition, as of May 13, 2013, NightWatch Capital owned 9.6% of our outstanding common stock and John F. Nemelka, who is managing partner of Nightwatch Capital, beneficially owned 9.8% of our outstanding common stock. Mr. Richardson was appointed by Prides Capital and Mr. John F. Nemelka was appointed by NightWatch Capital to serve on our board of directors. For as long as Prides Capital and NightWatch Capital own a majority of our shares of ~~Common Stock,~~common stock, they will be able to control the election of all of the members of our board of directors and control the vote of ~~stockholders~~shareholders on other matters. For as long as they own a significant percentage of our outstanding stock, even if less than a majority, Prides Capital and NightWatch Capital will be able to control and exercise significant influence over our business affairs, including the general strategic direction of our business, the incurrence of indebtedness by us, the issuance of any additional equity securities, the repurchase of equity securities and the payment of dividends, and will have the power to determine or significantly influence the outcome of matters submitted to a vote of our ~~stockholders,~~shareholders, including mergers, consolidations, sales or dispositions of assets, reductions in share capital, other business combinations and amendments to our articles of incorporation. Prides Capital and NightWatch Capital may take actions with which you ~~or we~~ do not agree, including actions that delay, defer or prevent a change in control of our ~~Company~~company or that could adversely affect the market price of our ~~Common Stock.~~common stock. In addition, they may take other ~~action~~actions that might be favorable to them, but not favorable to us or our other ~~stockholders.~~shareholders. Also, if either Prides Capital or NightWatch Capital sells all or a portion of its interest in us, it may cause the ~~value~~price of ~~your investment~~our common stock to decrease.

Our stock price is volatile.

The market price of our ~~Common Stock~~common stock is volatile and could fluctuate widely in response to various factors, many of which are beyond our control, including the following:

•		~~changes in our industry;~~

•	·	our ability to obtain additional financing and, if available, the terms and conditions of the financing;

•·

changes in the timing of 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;~~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.~~common stock.

There is currently a limited trading market for our ~~Common Stock~~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~~common stock and we cannot predict how liquid the market for our ~~Common Stock~~common stock might become. Our ~~Common Stock~~common stock is quoted on the Over-the-Counter Bulletin Board ~~(the “OTCBB”)~~(OTCBB), which is an inter-dealer, over-the-counter market that provides significantly less liquidity than the New York Stock Exchange or the NASDAQ Stock Market. The quotation of our ~~Common Stock~~common stock on the OTCBB does not assure that a meaningful, consistent and liquid trading market ~~currently~~ exists. The market price for our ~~Common Stock~~common stock is subject to volatility and holders of our ~~Common Stock~~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;~~quotations for our common stock;

	•	·	market visibility for our ~~Common Stock~~common stock may be limited; and

•

a lack of visibility for our ~~Common Stock~~common stock may have a depressive effect on the market for our ~~Common Stock.~~common stock.

Trading for our ~~Common Stock can be~~common stock is limited under the SEC’s penny stock regulations, which has an adverse effect on the liquidity of our ~~Common Stock.~~common stock.

The trading price of our ~~Common Stock~~common stock is less than $5.00 per share and, as a result, our ~~Common Stock will be~~common stock is considered a “penny stock,” and trading in our ~~Common Stock~~common stock is subject to the requirements of Rule 15g-9 under the Securities Exchange Act of 1934, as amended ~~(the “Exchange Act”)~~(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.

~~-14-~~

SEC ~~Regulations~~regulations 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~~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 ~~not voluntarily implemented various corporate governance measures,~~the benefit of this safe harbor protection in the ~~absence~~event of ~~which, shareholders may have more limited protections against interested director transactions, conflicts~~any legal action based upon a claim that the material provided by us contained a material misstatement of ~~interest and similar matters.~~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.

Recent Federal legislation, including the Sarbanes-Oxley Act of 2002, has resulted in the adoption of various corporate governance measures designed to promote the integrity of corporate management and the securities markets. Some of these measures have been adopted in response to legal requirements and others have been adopted by companies in response to the requirements of national securities exchanges, such as the New York Stock Exchange and the NASDAQ Stock Market. Among the corporate governance measures that are required under the rules of the national securities exchanges are those that address board of directors’ independence, audit committee oversight and the adoption of a code of ethics. While we intend to adopt certain corporate governance measures, such as a code of ethics and an established audit committee, we presently only have one independent director. It is possible that if we were to have more independent directors on our board of directors, shareholders would benefit from somewhat greater assurances that internal corporate decisions were being made by disinterested directors and that policies had been implemented to define responsible conduct. For example, in the absence of a compensation committee comprised of at least a majority of independent directors, decisions concerning matters such as compensation packages to our executive officers may be made by our directors who have an interest in the outcome of the matters being decided. Prospective investors should bear in mind our current lack of both corporate governance measures and a majority of independent directors in formulating their investment decisions.

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.~~common stock.

We have never paid cash dividends on our ~~Common Stock~~common stock and do not anticipate doing so in the foreseeable future. In addition, the Senior Secured Notes restrict us from paying a dividend as long as the notes are outstanding. The payment of dividends on our ~~Common Stock~~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~~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. Although we have no present intention to issue any shares of preferred stock or to create any series of preferred stock, we may issue such shares in the future.

There is no trading market for the warrants being offering and as a result you may not be able to sell the warrants.

There is no market for the warrants being offered in this offering and there may never be a market for the warrants. In the absence of an active trading market, you may have difficulty buying and selling or obtaining market quotations; the market visibility for the warrants may be limited, and the lack of visibility for the warrants may have a depressive effect on the market price for the warrants.

The warrants are speculative in nature.

The warrants do not confer any rights of common stock ownership on their holders, such as voting rights or the right to receive dividends, but rather merely represent the right to acquire shares of common stock at a fixed price for a limited period of time. Specifically, commencing on the date of issuance, holders of the warrants may exercise their right to acquire the common stock and pay an exercise price of $1.50 per share, prior to five years from the date of issuance, after which date any unexercised warrants will expire and have no further value. There can be no assurance that the market price of the common stock will ever equal or exceed the exercise price of the warrants, and consequently, whether it will ever be profitable for holders of the warrants to exercise the warrants.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus, including the sections titled ~~“Prospectus~~‘‘Prospectus Summary,~~” “Risk~~’’ ‘‘Risk Factors,~~” “Management’s~~’’ ‘‘Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations”~~Operations’’ and ~~“Business,”~~‘‘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. 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’’. Forward-looking statements convey our current expectations or forecasts of future events. All statements in this prospectus, ~~including those made by the management of the Company,~~ other than statements of historical fact, are forward-looking statements. Examples of forward-looking statements include statements regarding ~~the Company’s~~our future financial results, clinical trial results, regulatory approvals, operating results, business strategies, projected costs, products, competitive positions, management’s plans and objectives for future operations, and industry trends. These forward-looking statements are based on management’s estimates, projections and assumptions as of the date hereof and include the assumptions that underlie such statements. Forward-looking statements may contain words such as “may,” “will,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential” and “continue,” the negative of these terms, or other comparable terminology. These forward-looking statements include, among other things, statements about:

	•·		~~market acceptance~~timing of clinical studies and ~~demand for~~eventual FDA approval of dermaPACE and our other product candidates;

	•	·	regulatory actions that could adversely affect the price of or demand for our approved products;

	•	·	our intellectual property portfolio;

	•·		~~timing~~ market acceptance of ~~clinical studies~~ and ~~eventual FDA approval of~~demand for dermaPACE and our ~~products;~~product candidates;

•·

our marketing and manufacturing capacity and strategy;

~~-15-~~

	•·		estimates regarding our capital requirements, and anticipated timing of the need for additional funds;

	•·		product liability claims;

	•·		economic conditions that could adversely affect the level of demand for our products;

	•·		financial markets; and

•

the competitive ~~environment.~~enviroment.

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~~‘‘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 ~~SEC~~U.S. Securities and Exchange Commission (SEC) after the date of this prospectus.

WHERE YOU CAN FIND MORE INFORMATION

We have filed a registration statement on Form S-1 with the ~~U.S. Securities and Exchange Commission (the “SEC”)~~SEC to register the shares of our ~~Common Stock~~common stock being offered by this prospectus. In addition, we file annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy any reports, statements or other information that we file at the SEC’s public reference facilities at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information regarding the public reference facilities. The SEC maintains a website, http://www.sec.gov that contains reports, proxy statements and information statements and other information regarding registrants that file electronically with the SEC, including us. Our SEC filings are also available to the public from commercial document retrieval services. Information contained on our website should not be considered part of this prospectus.

You may also request a copy of our filings at no cost by writing or telephoning us at:

SANUWAVE Health, Inc.
~~11680~~

11475 Great Oaks Way, Suite ~~350~~
150

Alpharetta, Georgia 30022

Attention: Barry J. Jenkins, Chief Financial Officer
and COO

Telephone: (770) 419-7525

USE OF PROCEEDS

~~This prospectus relates to shares of our Common Stock~~

We estimate that ~~may be offered and sold from time to time by~~ the ~~selling stockholders who will receive all of the~~net proceeds from the sale of Units by us, assuming the ~~shares.~~ sale of all of the Units will be approximately $5,442,182, after deducting estimated placement agent fees and estimated offering expenses payable by us, based upon an assumed offering price of $1.00 per Unit. However, this is a best efforts offering, with no minimum, and there can be no assurance that the offering will result in significant proceeds, or enough proceeds to continue to operate our business operations.

We ~~will not receive any~~estimate that the net proceeds from the sale of ~~shares~~Units by us, assuming the sale of ~~Common Stock in this offering. We will bear all expenses~~50% of ~~registration incurred in connection with this offering, but all commissions, selling and other expenses incurred by~~ the ~~selling stockholders to underwriters, agents, brokers and dealers~~Units will be ~~borne~~approximately $2,682,182, after deducting estimated placement agent fees and estimated offering expenses payable by ~~them.~~ us, based upon an assumed offering price of $1.00 per Unit.

We estimate that the net proceeds from the sale of Units by us, assuming the sale of 25% of the Units will be approximately $1,302,182, after deducting estimated placement agent fees and estimated offering expenses payable by us, based upon an assumed offering price of $1.00 per Unit.

We intend to use the net proceeds from the sale of Units by us primarily for expenses related to our dermaPACE clinical trial for treating diabetic foot ulcers in the United States and for other general corporate purposes. However, we have outstanding an aggregate $2,097,500 in principal and accrued interest on our 18% Senior Secured Convertible Promissory Notes, as amended (Senior Secured Notes), which begin to mature in May 2013. We are currently negotiating with the holders to extend the maturity through the second quarter of 2013. Subject to the condition that we raise at least $4,000,000 in gross proceeds through this offering, the Senior Secured Notes will automatically convert into (i) common stock at a conversion price of $0.20, and (ii) warrants to purchase the number of shares of common stock equal to the number of shares such holder would have received if it had invested in the offering an amount equal to the principal and interest on the note being converted. Thus, if we do not raise at least $4,000,000 in gross proceeds through this offering the Senior Secured Notes will not automatically convert to common stock and they will become due and payable and we will use all or part of any net proceeds towards repayment of the Senior Secured Notes. Therefore, if we fail to raise at least $4,000,000 in gross proceeds through this offering, we will need to use some or all any net proceeds from this offering towards repayment of the Senior Secured Notes.

Until we use the net proceeds of this offering, we intend to invest the net proceeds in short-term, investment-grade securities. We cannot predict whether the proceeds invested will yield a favorable return.

PLAN OF DISTRIBUTION

Distribution

We are offering up to __________Units at a an assumed offering price of _____ per Unit, with each Unit consisting of one share of our common stock and a warrant to purchase up to an additional ___ share of our common stock at an exercise price of _____ per share. The Units will separate immediately and the common stock and warrants will be issued separately and the common stock will trade separately.

Pursuant to an investment banking agreement, we have engaged Agincourt Ltd. (the “Placement Agent”) as the placement agent for this offering. The Placement Agent is not purchasing or selling any securities, nor is it required to arrange for the purchase and sale of any specific number or dollar amount of Units, but will use its reasonable “best efforts” to sell all of the Units being offered. Because there is no minimum offering amount required as a condition to closing this offering, the actual public offering amount, placement agent fees, and proceeds to us, if any, are not presently determinable and may be substantially less than the total maximum offering amounts set forth herein.

Upon the closing of the offering, we will pay the Placement Agent a cash fee equal to 8.0% of the gross proceeds to us from the sale of the securities in the offering. We have also agreed to reimburse the Placement Agent for any out-of-pocket expenses it incurs in connection with the ~~filing~~offering. Pursuant to the investment banking agreement, we retained Agincourt Ltd. to act as our exclusive investment banker to perform the services set forth therein for a period of one year commencing on February 25, 2013, subject to the right of either party to terminate the agreement upon 30 days’ written notice.

The Placement Agent may be deemed to be an underwriter within the meaning of Section 2(a)(11) of the Securities Act and any commissions received by it and any profit realized on the sale of the securities by them while acting as principal might be deemed to be underwriting discounts or commissions under the Securities Act. The Placement Agent would be required to comply with the requirements of the Securities Act of 1933, as amended, or the Securities Act, and the Securities Exchange Act of 1934, as amended, or the Exchange Act, including, without limitation, Rule 10b-5 and Regulation M under the Exchange Act. These rules and regulations may limit the timing of purchases and sales of shares of common stock and warrants to purchase shares of common stock by the Placement Agent. Under these rules and regulations, the placement agent may not (i) engage in any stabilization activity in connection with our securities; and (ii) bid for or purchase any of our securities or attempt to induce any person to purchase any of our securities, other than as permitted under the Exchange Act, until they have completed their participation in the distribution.

The investment banking agreement provides that we will indemnify the Placement Agent against specified liabilities, including liabilities under the Securities Act. We have been advised that, in the opinion of the Securities and Exchange Commission, indemnification for liabilities under the Securities Act is against public policy as expressed in the Securities Act and is therefore unenforceable.

This offering expires at 5:00 PM Eastern Time on September 30, 2013. The offering will terminate automatically prior to the expiration date, if the offering is fully subscribed. In addition, we may terminate the offering at any time prior to the expiration date.

Our obligations to issue and sell the securities offered hereby to the purchasers is subject to the conditions set forth in a securities purchase agreement, which may be waived by us at our discretion. A purchaser’s obligation to purchase the securities is subject to the conditions set forth in a securities purchase agreement as well, which may also be waived by the purchaser.

Certain of our affiliates may purchase Units in this offering on the same terms as they are offered and sold to the public.

Compensation

The Placement Agent’s commissions shall be equal to 8.0% of the public offering price. After commissions, we shall receive the following for the Units sold in this offering.

	Per Unit	Total
Offering Price per Unit	$	$	6,000,000
Placement Agent’s Fees	$	$	480,000
Offering Proceeds, before expenses	$	$	5,520,000

We estimate that the total expenses of this offering, including registration, ~~statement of which this prospectus is a part~~filing and listing fees, printing fees and legal and accounting expenses, but excluding placement agent commissions, will be approximately ~~$42,000.~~$77,818, all of which are payable by us.

~~-16-~~

Pricing of this Offering

The public offering price of the Units was determined by us. Factors considered in determining the prices and terms of the shares include:

•

the history and prospects of companies in our industry;

•

prior offerings of those companies;

•

our prospects for developing and commercializing our products;

• our capital structure;

•

an assessment of our management and their experience;

• general conditions of the securities markets at the time of the offering; and

•

other factors as were deemed relevant.

Penny Stock

The SEC has adopted Rule 15g-9 which establishes the definition of a ”penny stock,” for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require:

that a broker or dealer approve a person's account for transactions in penny stocks; and

the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.

In order to approve a person's account for transactions in penny stocks, the broker or dealer must:

obtain financial information and investment experience objectives of the person; and

make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.

The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the Commission relating to the penny stock market, which, in highlight form:

sets forth the basis on which the broker or dealer made the suitability determination; and

· that the broker or dealer received a signed, written agreement from the investor prior to the transaction.

Generally, brokers may be less willing to execute transactions in securities subject to the ”penny stock” rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.

Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stock.

MARKET FOR OUR COMMON STOCK AND RELATED STOCKHOLDER MATTERS

Market Information

Shares of our ~~Common Stock~~common stock are quoted on the OTCBB under the symbol “SNWV.” Prior to the Merger, the Company’s Common Stock was quoted on the OTCBB under the symbol “RBME;” however, there was no established public trading market for the Common Stock. From our initial quotation in October 2008 until the Merger, no trades occurred.

The following table sets forth, for the periods indicated, the high and low ~~closing~~sales prices per share of our ~~Common Stock,~~common stock, as reported on the ~~OTCBB, since our Common Stock commenced public trading after the Merger on September 25, 2009:~~

Price Range
High Low
2011

First Quarter $ 5.50 $ 3.95

Price Range
High Low
2010

First Quarter $ 4.30 $ 4.05
Second Quarter $ 4.45 $ 4.10
Third Quarter $ 4.10 $ 2.25
Fourth Quarter $ 4.80 $ 2.15

Price Range
High Low
2009

First Quarter N/A N/A
Second Quarter N/A N/A
Third Quarter $ 5.25 $ 5.25
Fourth Quarter $ 6.00 $ 4.00

~~See the cover page of this prospectus for a recent bid price of our Common Stock as reported by the OTC Bulletin Board.~~

OTCBB. Over-the-counter bid prices represent prices quoted by broker-dealers in the over-the-counter market. The quotations reflect inter-dealer prices, without ~~retail~~ mark-up, mark-down or commissions, and may not represent actual ~~transactions.~~

transactions:

	Price Range
	High		Low
2013
First Quarter	$	0.95	$	0.16
Second Quarter (through May 13, 2013)	$	1.59	$	0.76

	Price Range
	High		Low
2012
First Quarter	$	0.53	$	0.30
Second Quarter	$	0.49	$	0.24
Third Quarter	$	0.44	$	0.22
Fourth Quarter	$	0.30	$	0.09

	Price Range
	High		Low
2011
First Quarter	$	5.72	$	3.75
Second Quarter	$	5.72	$	3.00
Third Quarter	$	3.75	$	2.70
Fourth Quarter	$	2.70	$	0.15

As of ~~June 7, 2011,~~May 13, 2013, there were ~~20,907,536~~21,726,536 shares of our ~~Common Stock~~common stock outstanding and ~~approximately 86~~63 holders of record of our ~~Common Stock.~~common stock. However, we believe that there are more beneficial holders of our ~~Common Stock~~common stock as many beneficial holders hold their stock in “street name.”

Dividend Policy

This prospectus covers 5,702,266 shares of our Common Stock offered for sale by the selling stockholders, which consists of 2,804,593 outstanding shares of Common Stock and 2,897,673 shares of Common Stock issuable upon exercise of the warrants.

~~Dividend Policy~~

We have never declared or paid any cash dividends on our capital stock. We currently intend to retain future earnings, if any, to finance the expansion of our business. In addition, the Senior Secured Notes restrict us from paying a dividend as long as the notes are outstanding. As a result, we do not anticipate paying any cash dividends in the foreseeable future.

~~-17-~~

Securities Authorized for Issuance under Equity Compensation Plans

Number of
securities
remaining
Number of available for
securities to be Weighted- future issuance
issued upon average exercise under equity
exercise of price of compensation
outstanding outstanding plans (excluding
options, options, securities
warrants and warrants and reflected in
rights rights column (a))
Plan Category (a) (b) (c)
Equity compensation plans approved by security holders
— — —
Equity compensation plans not approved by security holders
2,992,796 $ 3.20 3,695,649

Total
2,992,796 $ 3.20 3,695,649

The following table sets forth our securities authorized for issuance under our equity compensation plans as of December 31, 2012:

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights		Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
	(a)		(b)		(c)
Equity compensation plans approved by security holders		-		-		-
Equity compensation plans not approved by security holders		5,229,330	$	2.25		1,459,115
Total		5,229,330	$	2.25		1,459,115

Stock Incentive Plans

During 2006, SANUWAVE, Inc.’s board of directors adopted the 2006 Stock Incentive Plan of SANUWAVE, Inc., and certain non-statutory stock option agreements with key employees outside of the 2006 Stock Incentive Plan. The non-statutory stock option agreements have terms substantially the same as the 2006 Stock Incentive Plan. The stock options granted under the plans were nonstatutory options which vest over a period of up to four years, and have a ten year term. The options were granted at an exercise price equal to the fair market value of the common stock on the date of the grant, which was approved by the board of directors of SANUWAVE, Inc.

On November 1, 2010, our board of directors approved the Amended and Restated 2006 Stock Incentive Plan of SANUWAVE Health, Inc. effective as of January 1, 2010 (the Stock Incentive Plan). The Stock Incentive Plan permits grants of awards to our employees, directors and advisors in the form of restricted stock or options to purchase shares of common stock. Options granted may include nonstatutory options as well as qualified incentive stock options. The Stock Incentive Plan is currently administered by our board of directors. The Stock Incentive Plan gives broad powers our board of directors to administer and interpret the particular form and conditions of each option. The stock options granted under the Stock Incentive Plan are nonstatutory options which vest over a period of up to four years, and have a ten year term. The options are granted at an exercise price equal to the fair market value of the common stock on the date of the grant which is approved our board of directors.

CAPITALIZATION

The following table sets forth our cash and cash equivalents and capitalization as of March 31, 2013 on an actual basis and on an as adjusted basis to reflect (i) the sale of 6,000,000 Units at an assumed offering price of $1.00 per Unit (the closing price of our common stock on May 14, 2013); (ii) the conversion of our 18% Senior Secured Convertible Promissory Notes, in the principal amount of $2,066,250 at March 31, 2013, including accrued interest, at a conversion price of $0.20 per share; and (iii) less estimated placement agent fees and estimated offering expenses payable by us.

You should read this table together with our financial statements and the related notes included in this prospectus.

March 31, 2013 March 31, 2013
Actual As Adjusted
(unaudited) (unaudited)

Cash and cash equivalents $ 671,027 $ 6,113,209

Derivative liability (embedded conversion feature of senior secured notes) $ 5,737,000 $ -

Senior secured convertible promissory notes 436,983 -

Notes payable, related parties 5,372,743 5,372,743

Stockholders' equity (deficit):
Preferred stock, par value $0.001, 5,000,000 shares authorized; no shares issued and outstanding
- -

Common stock, par value $0.001, 150,000,000 shares authorized and 21,653,536 issued and outstanding, actual, and 37,986,136 issued and outstanding, as adjusted
21,654 37,986

Additional paid-in capital 64,935,348 78,164,718

Accumulated other comprehensive income 6,191 6,191

Accumulated deficit (76,279,655 ) (77,909,192 )

Total Stockholders' equity (deficit) (11,316,462 ) 299,703

Total Capitalization $ 230,264 $ 5,672,446

DILUTION

If you invest in our common stock in this offering, your ownership interest will be diluted to the extent of the difference between the public offering price per share of common stock and the net tangible book value per share of our common stock after this offering. Net tangible book value per share represents the amount of our total tangible assets less total liabilities, divided by the number of shares of common stock outstanding. Dilution represents the difference between the amount per share paid by purchasers of our common stock in this offering and the net tangible book value per share of common stock immediately after the completion of this offering.

Dilution under assumption of sale of 100% of the shares offered in this offering.

Our net tangible book value (deficit) as of March 31, 2013 was ($12,466,798), or ($0.57) per share of common stock.

Without taking into account any other changes in net tangible book value (deficit) after March 31, 2013, other than giving effect to (i) the sale of 6,000,000 shares (as part of the Units) of our common stock in this offering at an assumed offering price of $1.00 per share (the closing price of our common stock on May 14, 2013); (ii) the conversion of our 18% Senior Secured Convertible Promissory Notes, in the principal amount of $2,097,500, including accrued interest, at a conversion price of $0.20 per share; and (iii) less estimated placement agent fees and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value (deficit) as of March 31, 2013 would have been approximately $($850,633), or approximately ($0.02) per share. This represents an immediate increase in net tangible book value of $0.55 per share to existing stockholders and an immediate dilution in net tangible book value of $0.98 per share to new investors of Units in this offering. If the offering price is higher or lower, the dilution to the new investors will be greater or less. The following table illustrates this per share dilution:

Per Share
Assumed offering price per Unit $ 1.00
Historical net tangible book value (deficit) per share as of March 31, 2013 $ (0.57 )

Increase in pro forma net tangible book value (deficit) per share attributable to conversion of our 18% Senior Secured Convertible Promissory Notes as a result of this offering $ 0.29

Increase in pro forma net tangible book value (deficit) per share attributable to this offering $ 0.26

Pro forma as adjusted net tangible book value (deficit) per share after this offering $ (0.02 )

Dilution per share to new investors $ 0.98

A $1.00 increase or decrease in the assumed offering price of $1.00 per Unit would increase or decrease, respectively, our pro forma as adjusted net tangible book value (deficit) after this offering by approximately $5,520,000, or approximately $0.14 per share, and the dilution per share to new investors of common stock in this offering by approximately $0.90 per share, assuming that the number of Units offered by us, as set forth on the cover page of this prospectus, remains the same and after the conversion of our 18% Senior Secured Convertible Promissory Notes, in the principal amount of $2,097,500, including accrued interest, at a conversion price of $0.20 per share, and deducting the estimated placement agent fees and estimated offering expenses payable by us.

The foregoing illustration does not reflect potential dilution from the exercise of outstanding options or warrants to purchase shares of our common stock. If the holders of these derivative securities exercise them at a price per share that is less than the public offering price, our new investors will have further dilution.

Dilution under assumption of sale of 50% of the shares offered in this offering.

Our net tangible book value (deficit) as of March 31, 2013 was ($12,466,798), or ($0.57) per share of common stock.

Without taking into account any other changes in net tangible book value (deficit) after March 31, 2013, other than giving effect to (i) the sale of 3,000,000 shares (as part of the Units) of our common stock in this offering at an assumed offering price of $1.00 per share (the closing price of our common stock on May 14, 2013); and (ii) less estimated placement agent fees and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value (deficit) as of March 31, 2013 would have been approximately ($9,784,616), or approximately ($0.40) per share. This represents an immediate increase in net tangible book value of $0.17 per share to existing stockholders and an immediate dilution in net tangible book value of $0.60 per share to new investors of Units in this offering. If the offering price is higher or lower, the dilution to the new investors will be greater or less. The following table illustrates this per share dilution:

Per Share
Assumed public offering price per share $ 1.00
Historical net tangible book value (deficit) per share as of March 31, 2013 $ (0.57 )

Increase in pro forma net tangible book value (deficit) per share attributable to this offering $ 0.17

Pro forma as adjusted net tangible book value (deficit) per share after this offering $ (0.40 )

Dilution per share to new investors $ 0.60

A $1.00 increase or decrease in the assumed public offering price of $1.00 per Unit would increase or decrease, respectively, our pro forma as adjusted net tangible book value (deficit) after this offering by approximately $2,760,000, or approximately $0.11 per share, and the dilution per share to new investors of Units in this offering by approximately $1.11 per share, assuming that the number of Units offered by us, as set forth on the cover page of this prospectus, remains the same, and deducting the estimated placement agent fees and estimated offering expenses payable by us.

Dilution under assumption of sale of 25% of the shares offered in this offering.

Our net tangible book value (deficit) as of March 31, 2013 was ($12,466,798), or ($0.57) per share of common stock.

Without taking into account any other changes in net tangible book value (deficit) after March 31, 2013, other than giving effect to (i) the sale of 1,500,000 shares (as part of the Units) of our common stock in this offering at an assumed offering price of $1.00 per share (the closing price of our common stock on May 14, 2013); and (ii) less estimated offering expenses payable by us, our pro forma as adjusted net tangible book value (deficit) as of March 31, 2013 would have been approximately ($11,164,616), or approximately ($0.48) per share. This represents an immediate increase in net tangible book value of $0.09 per share to existing stockholders and an immediate dilution in net tangible book value of $0.52 per share to new investors of Units in this offering. If the offering price is higher or lower, the dilution to the new investors will be greater or less. The following table illustrates this per share dilution:

Per Share
Assumed public offering price per share $ 1.00
Historical net tangible book value (deficit) per share as of March 31, 2013 $ (0.57 )

Increase in pro forma net tangible book value (deficit) per share attributable to this offering $ 0.09

Pro forma as adjusted net tangible book value (deficit) per share after this offering $ (0.48 )

Dilution per share to new investors $ 0.52

A $1.00 increase or decrease in the assumed public offering price of $1.00 per Unit would increase or decrease, respectively, our pro forma as adjusted net tangible book value (deficit) after this offering by approximately $1,380,000, or approximately $0.06 per share, and the dilution per share to new investors of common stock in this offering by approximately $1.06 per share, assuming that the number of Units offered by us, as set forth on the cover page of this prospectus, remains the same, and deducting the estimated placement agent fees and estimated offering expenses payable by us.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

~~Overview~~

Overview

We are ~~an emerging global~~a shockwave technology company using noninvasive, high-energy, acoustic shockwaves for regenerative medicine ~~company focused on the development~~ and ~~commercialization of non-invasive,~~other applications. Our initial focus is regenerative medicine – utilizing noninvasive, acoustic shockwaves to solicit a biological response ~~activating devices for~~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 for treating diabetic foot ulcers which is in a supplemental Phase III clinical study with possible FDA approval in 2015, subject to obtaining positive clinical study results.

In addition, we believe there are significant license/partnership opportunities for our shockwave technology in medical and non-medical uses, including energy, food and industrial markets, and we believe we have a broad intellectual property portfolio and broad know-how.

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/spine,~~orthopedic, plastic/cosmetic and cardiac conditions. We currently do not market any products in the United States. We generate our revenues from sales of our CE Mark devices and accessories in Europe, Canada and Asia/Pacific.

We believe we have demonstrated that our ~~PACE~~ technology is safe and effective in stimulating healing in chronic conditions of the foot and the elbow through our United States FDA Class III PMA approved ~~Ossatron~~OssaTron device, and in the stimulation of bone and chronic tendonitis regeneration in the musculoskeletal environment through the utilization of our ~~Ossatron and~~OssaTron, Evotron, and ~~newly introduced~~ orthoPACE devices in Europe. Our lead product candidate for the global wound care market, dermaPACE, has received the ~~European~~ CE Mark allowing for commercial use on acute and chronic defects of the skin and subcutaneous soft tissue.

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

	•	·	wound conditions, including diabetic foot ulcers, venous ulcers, pressure sores, burns and other skin eruption conditions;

	•·		~~orthopedic/spine~~orthopedic applications, such as speeding the healing of fractures (including nonunion or delayed-union conditions), improving bone density in osteoporosis, fusing bones in the extremities and spine, eliminating chronic pain in joints from trauma or arthritis, 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

~~-18-~~

·cardiac applications for removing plaque due to atherosclerosis and improving heart muscle performance.

In addition to healthcare uses, our high-energy, acoustic pressure shockwaves, due to ~~atherosclerosis~~their powerful pressure gradients and ~~improving heart muscle performance.~~

localized cavitational effects, may have applications in secondary and tertiary oil exploitation, for cleaning industrial waters and food liquids and finally for maintenance of industrial installations by disrupting biofilms formation. We intend to seek to exploit such potential uses through licensing and/or partnership opportunities.

Recent Developments

The FDA has granted approval of our IDE Supplement to conduct an supplemental clinical trial utilizing our lead device product for the global wound care market, the dermaPACE device, in the treatment of diabetic foot ulcers. We have ~~completed our multi-site, randomized, double-blind, sham controlled FDA investigational device exemption wound care~~identified and entered into contracts with clinical study ~~focused~~sites for participation in the clinical trial. We held the investigator meeting for protocol training on May 10-11, 2013 and expect that patient enrollment will begin in the second quarter of 2013.

The double-blind, multi-center, randomized, sham-controlled, parallel group clinical trial plan incorporates the same primary efficacy endpoint of complete wound closure at 12 weeks as was utilized in the pivotal trial (discussed below). Similar to the pivotal trial, four (4) dermaPACE procedures will be administered during the first two weeks following subject enrollment. In the upcoming trial, however, up to four (4) additional dermaPACE procedures will be delivered bi-weekly, between weeks 4 and 10, which we believe will increase the between-group difference in complete wound closure in favor of dermaPACE over that observed in the first clinical trial.

We worked closely with the FDA to amend the protocol and develop the statistical plan for the supplemental clinical study. A substantial component of this work involved using Bayesian statistical principles to define the dermaPACE treatment benefit established in our previously conducted pivotal study. Bayesian designs are supported by the FDA where there is strong prior evidence that can be incorporated into the clinical study design. By incorporating the prior positive information regarding complete wound closure after one treatment cycle into the design of the additional study, substantially fewer patients should be required than would otherwise be the case while still ensuring adequate statistical power. This approach will save significant time and preserve scientific rigor.

The supplemental clinical study will incorporate an independent group of medical professionals who will independently adjudicate wound closure of individual patients and correspond with the respective principal investigator if their decisions contradict the decisions made by the principal investigator to make a final determination on the ~~healing~~state of closure of the wound.

Importantly, the study design allows for controlled interim monitoring of the data by an independent Data Monitoring Committee (DMC) to determine whether study success has been achieved. We anticipate that the first analysis of the success of the study will occur after 90 patients (approximately 45 per arm) have completed the 12-week primary efficacy evaluation period. If study data achieves pre-defined statistical and clinical success criteria associated with wound closure favoring dermaPACE, then the clinical trial can be stopped, and we will submit an amendment to the current PMA for approval. The controlled interim monitoring plan also includes a provision for DMC review of data prior to enrollment of the 90 subjects. This provision has been established in order to monitor the progress of the trial and ensure its alignment with our statistical plan, or to increase the sample size should additional subjects be needed to demonstrate study success, or stop the trial if study success is deemed unattainable. By monitoring the data in this way, we can take appropriate steps to allocate resources based on the direction the data is heading, prior to arriving at the 90 patient mark, which is the first point at which study success may be determined per our agreement with the FDA.

Previous clinical work supporting our current dermaPACE clinical study

The dermaPACE device completed its pivotal Phase III, IDE trial in the United States for the treatment of diabetic foot ulcers ~~utilizing our lead product candidate, dermaPACE,~~in 2011 and ~~released top-line data.~~ a PMA Application was filed with the FDA in June 2011. The primary study goal iswas to establish superiority in diabetic foot ulcer healing rates using the dermaPACE treatment compared to ~~sham control,~~sham-control, when both are combined with the current standard of care. The standard of care ~~includes~~included wet-to-dry dressings, the most widely used primary dressing material in the United States, and offloading with a walking boot for ulcers located on the plantar surface of the foot.

A total of 206 patients entered the dermaPACE study at 24 sites. The patients in the study were followed for a total of 24 weeks. The study’s primary endpoint, wound closure, iswas defined as “successful” if the skin iswas 100% reepithelialized at 12 weeks without drainage or dressing requirements confirmed at two consecutive study visits.

A summary of the key study findings were as follows:

Patients treated with dermaPACE showed a strong positive trend in the primary endpoint of 100% wound closure. Treatment with dermaPACE increased the proportion of diabetic foot ulcers that closed within 12 weeks by 36%, although the rate of complete wound closure between dermaPACE and sham-control at 12 weeks in the ITT population was not statistically significant at the 95% confidence level used throughout the study (p=0.363). There were 22 out of 107 (21%) dermaPACE subjects who achieved complete wound closure at 12 weeks compared with 15 out of 99 (15%) sham-control subjects.

In addition to the originally proposed 12-week efficacy analysis, the FDA expressed interest in seeing the efficacy analysis carried over the full 24 weeks of the study. In response, we conducted a series of secondary analyses of the primary endpoint of complete wound closure at 12 weeks and at each subsequent study visit out to 24 weeks. The primary efficacy endpoint of complete wound closure reached statistical significance at 20 weeks in the ITT population with 36% of dermaPACE subjects achieving complete wound closure compared with 23% of sham-control subjects (p=0.047); in the efficacy evaluable (EE) population 38% of dermaPACE subjects achieved complete wound closure beginning at 20 weeks, compared with 21% of sham-control subjects (p=0.018).

Subjects treated with dermaPACE achieved a significant increase in the rate of complete and/or ≥90% wound closure. We analyzed a clinically relevant ≥ 90% wound closure endpoint that demonstrated statistical significance (p=0.0161) in favor of dermaPACE subjects (51/107, 48%) compared to patients randomized to receive sham-control (31/99, 31%).

Within 6 weeks following the initial dermaPACE procedure, and consistently throughout the 24-week period, dermaPACE significantly reduced the size of the target ulcer compared with subjects randomized to receive sham-control (p<0.05).

Of the subjects who achieved complete wound closure at 12 weeks, the recurrence rate at 24 weeks was only 4.5% in the dermaPACE group compared with 20.0% in the sham-control group.

Importantly, there were no meaningful statistical differences in the adverse event rates between the dermaPACE treated patients and the sham-control group. There were no issues regarding the tolerability of the treatment which suggests that a second course of treatment, if needed, is a clinically viable option.

We ~~have~~ filed ~~the first and second module of our PMA. We expect to file our final module~~ with the FDA the clinical module of the dermaPACE PMA application in ~~the second quarter of~~June 2011. In December 2011, ~~and, pending~~we received a ~~favorable response~~major deficiency letter from the FDA regarding the FDA’s review of the dermaPACE PMA. The FDA issues a major deficiency letter to ~~launch~~the applicant when the PMA lacks significant information necessary for the FDA to complete its review or to determine whether there is reasonable assurance that the device is safe and effective for its intended use. The FDA comments on the application in detail and requests the applicant to amend the application to respond to the cited deficiencies and provide the necessary information.

In its December 2011 letter, the FDA cited, among other deficiencies, the dermaPACE study’s failure to meet the study’s primary endpoint of 100% wound closure compared with sham-control at the 12-week time point. Among the letter’s recommendations to address the deficiency was for us to design and conduct another clinical trial using the findings from any subgroup(s) that may support the safety and effectiveness of the dermaPACE device. We evaluated the comments in the ~~United States in early 2012.~~

~~We launched in Europe~~FDA’s letter and after further analyses of the ~~orthoPACE device intended for use in orthopedic, trauma~~clinical data and sports medicine indications following CE Mark approval in June 2010. The device features a new, unique applicator that is less painful for some indications and may reduce or completely eliminate anesthesia for some patients. In the orthopedic setting, the orthoPACE will initially be used to treat tendinopathies and acute and nonunion fractures, including the soft tissue surrounding the fracture to accelerate healing and prevent secondary complications and their associated treatment costs.

~~We have established clinical, manufacturing and development relationships and multiple regulatory pathways to product development. We believe that these relationships and pathways, coupled~~informal, non-binding interaction with the ~~well-characterized biologic response, history of safe use and clinically-proven efficacy of our PACE technology, all position us~~FDA, we decided to become a leader in the development and commercialization of non-invasive, biological response devices for the repair and regeneration of tissue, musculoskeletal and vascular structures that will capitalize on the growing market for these products in wound healing, orthopedic/spine, plastic/cosmetic and cardiac applications. Although the results of our studies have been positive to date, we cannot provide any assurance that we will be successful in developing, obtaining regulatory approval for, or commercializing our current product candidates, or that we will do so in a timely fashion.conduct supplemental clinical work as discussed above.

Financial Overview

We believe that these studies suggest that our platform technology will be effective in our target applications. If successful, we expect these clinical studies should lead to regulatory approval of our regenerative product candidates in the United States, Europe and Asia. If approved by the appropriate regulatory authorities, we believe that our product candidates will offer new, effective and non-invasive treatment options in wound healing, orthopedic/spine injuries, plastic/cosmetic uses and cardiac procedures, improving the quality of life for millions of patients suffering from injuries or deterioration of tissue, bones and vascular structures.

~~Financial Overview~~

Our independent registered public accounting firm has issued a “going concern” statement in its report on our consolidated financial statements for the year ended December 31, 2010, stating that we had a net loss and negative cash flows from operations in fiscal 2010, and that we have an accumulated deficit. Accordingly, those conditions raise substantial doubt about our ability to continue as a going concern. Our consolidated financial statements do not include any adjustments that might result from this going-concern uncertainty.

On April 4, 2011, the note holders of our amended senior notes (the “Notes”) exchanged the unpaid principal and interest balance of the Notes which totaled $4,413,908 in consideration for the issuance of 1,358,126 shares of our Common Stock. In addition, in connection with this transaction, we issued to the note holders an aggregate total of 679,064 warrants to purchase shares of Common Stock at an exercise price of $4.00 per share. Each warrant represents the right to purchase one share of Common Stock. The warrants vested upon issuance and expire after five years.

~~-19-~~

~~on January 31, 2011, to purchase the same number of units as granted pursuant to this transaction, at the purchase price of $2.00 per unit.~~

Since our inception in 2005, we have funded our operations from the sale of capital stock, 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. At March 31, ~~2011, the balance of~~2013, our cash and cash equivalents totaled ~~$2,306,100.~~

~~We continue to incur research~~$671,027 and ~~development expenses for clinical trials and the development~~we had a net working capital deficit of products for additional indications. We expect to continue to incur significant research and development expenses as a result of new and ongoing clinical and pre-clinical studies in the United States and in Europe, as well as expenses associated with regulatory filings. In addition, we anticipate that our general and administrative expenses will continue to increase as we expand our operations, facilities and other administrative activities related to our efforts to bring our product candidates to commercialization.$7,130,480. We will require additional capital from this offering to continue ~~to implement our business strategies.~~as a going concern through 2013. There can be no assurance that we will be successful in raising such capital. See “Liquidity and Capital Resources.”

Management’s plans are to obtain additional capital in the second quarter of 2013 through the issuance of common stock and/or other debt or equity securities and we have engaged financial advisors to assist with this process. We expect to raise up to $600,000 through the issuance of unsecured promissory notes in May and June 2013 and/or amounts received on the our Subscription Agreement with an affiliated shareholder. When combined with our cash and cash equivalents as of March 31, 2013 of $671,027, we believe this will support our operations through the second quarter of 2013 and the expected completion of this offering. We expect our monthly use of cash will be approximately $575,000 to $625,000 as we devote substantial resources to the start of the patient enrollment phase of the supplemental Phase III clinical trial for the dermaPACE device to treat diabetic foot ulcers by the end of the second quarter of 2013. Management estimates the direct cost of the dermaPACE clinical trial will be approximately $3,800,000 through 2014.

We expect to continue to incur significant expenses as a result of the dermaPACE clinical study in the United States, as well as expenses associated with regulatory filings, which may include expenses related to responding to regulatory comments and/or directives following review of our filings/applications.

Since our inception, we have incurred losses from operations each year. As of March 31, ~~2011,~~2013, we had an accumulated deficit of ~~$56.5 million.~~$76,279,655. Although the size and timing of our future operating losses are subject to significant uncertainty, we expect that operating losses will continue over the next ~~few~~several years as we continue to fund our ~~research and development activities,~~ clinical trials and the FDA approval process and as we prepare for a future sales network to represent our products. We incurred a net loss of $2,183,326 and $2,994,755 for the three months ended March 31, 2011 and 2010, respectively. We incurred a net loss of $14,922,441 and $6,153,040 during the years ended December 31, 2010 and 2009, respectively. We had a working capital deficiency of $5,066,300 and $7,029,635 at March 31, 2011 and December 31, 2010, respectively. These operating losses and working capital deficiency create an uncertainty about our ability to continue as a going concern. Although no assurances can be given, we believe that potential additional issuances of equity, promissory notes or other potential financing will provide the necessary funding for us to continue as a going concern.

process.

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

	•	·	the scope, rate of progress and cost of our clinical trials;

	•	·	future clinical trial results;

	•	·	the cost and timing of regulatory approvals;

	•	·	the establishment of successful marketing, sales and distribution;

	•	·	the cost and timing associated with establishing reimbursement for our products;

•		~~the timing and results of our pre-clinical research programs;~~

•	·	the effects of competing technologies and market developments; and

•

the industry demand and patient wellness ~~behavior as businesses and individuals suffer from the current economic recession.~~behavior.

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

Critical Accounting Policies and Estimates

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

On an ongoing basis, we evaluate our estimates and judgments, including those related to ~~revenue recognition, accrued expenses,~~the recording of the allowances for doubtful accounts, estimated reserves for inventory, estimated useful life of property and equipment, the determination of the valuation allowance for deferred taxes, the estimated fair ~~valuation~~value of ~~inventory, fair valuation of stock related to~~ stock-based compensation, the estimated fair value of intangible assets, the estimated fair value assigned to the embedded conversion feature of the Senior Secured Notes, the estimated fair value assigned to the capital stock units exchanged for promissory notes and ~~income taxes.~~the estimated fair value assigned to the common stock and warrants exchanged for the notes payable, related parties. We base our estimates on authoritative literature and pronouncements, historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions. The ~~discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements. The~~ results of our operations for any historical period are not necessarily indicative of the results of our operations for any future period.

~~-20-~~

While our significant accounting policies are more fully described in Note 12 to our consolidated financial statements ~~accompanying~~included with this prospectus, we believe that the following accounting policies relating to revenue recognition, research and development costs, inventory valuation, intangible assets, stock-based compensation and income taxes are significant and; therefore, they are important to aid you in fully understanding and evaluating our reported financial results.

Revenue Recognition

~~Sales~~

We recognize sales of medical devices, including related applicators and applicator kits, when they are ~~recognized when~~ shipped to the customer. Shipments under agreements with distributors are invoiced at a fixed price, are not subject to return, and payment for these shipments is not contingent on sales by the distributor. ~~The Company recognizes~~We recognize revenue on shipments to distributors in the same manner as with other customers. ~~Fees~~We recognize fees from services performed ~~are recognized~~ when the service is performed.

Research and Development Costs

We expense costs associated with research and development activities as incurred. We evaluate payments made to suppliers and other vendors and determine the appropriate accounting treatment based on the nature of the services provided, the contractual terms, and the timing of the obligation. Research and development costs include payments to third parties that specifically relate to our products in clinical development, such as payments to contract research organizations, clinical investigators, clinical related consultants ~~contract manufacturer development costs~~ and insurance premiums for clinical studies. In addition, employee costs (salaries, payroll taxes, benefits and travel) for employees of the regulatory affairs, clinical affairs, quality assurance, quality control, and research and development departments are classified as research and development costs.

Inventory Valuation

We value our inventory at the lower of our actual cost or the current estimated market value. We regularly review existing inventory quantities and expiration dates of existing inventory to evaluate a provision for excess, expired, obsolete and scrapped inventory based primarily on our historical usage and anticipated future usage. Although we make every effort to ensure the accuracy of our forecasts of future product demand, any significant unanticipated change in demand or technological developments could have an impact on the value of our inventory and our reported operating results.

Inventory is carried at the lower of cost or market, which is valued using the first in, first out ~~(“FIFO”),~~(FIFO) method, and consists primarily of devices and the component material for assembly of finished products, less reserves for obsolescence.

~~Stock-based Compensation~~

~~During 2006, SANUWAVE, Inc.’s board~~

Intangible Assets

Intangible assets subject to amortization consist of ~~directors approved~~patents which are recorded at cost. Patents are amortized on a straight-line basis over the ~~adoption~~average life of 11.4 years. We regularly review intangible assets to determine if facts and circumstances indicate that the useful life is shorter than we originally estimated or that the carrying amount of the ~~2006 Stock Incentive Plan~~assets may not be recoverable. If such facts and circumstances exist, we assess the recoverability of the intangible assets by comparing the projected undiscounted net cash flows associated with the related asset or group of assets over their remaining lives against their respective carrying amounts. If recognition of an impairment charge is necessary, it is measured as the amount by which ~~was assumed by~~ the ~~Company following~~carrying amount of the ~~Merger.~~ intangible asset exceeds the fair value of the intangible asset.

Stock-based Compensation

On November 1, 2010, ~~the~~our board of directors ~~of the Company~~ approved the Amended and Restated 2006 Stock Incentive Plan of SANUWAVE Health, Inc. effective as of January 1, 2010 ~~(the “Amended Plan”)~~(Stock Incentive Plan). The ~~Amended~~Stock Incentive Plan provides that stock options, and other equity interests or equity-based incentives, may be granted to key personnel, directors and ~~directors~~advisors at the fair value ~~exercise price~~of the common stock at the time the option is granted, which is approved by ~~the Company’s~~our board of directors. The maximum term of any option granted pursuant to the ~~Amended~~Stock Incentive Plan is ten years from the date of grant.

In accordance with ASC 718,Compensation —– Stock Compensation~~(formerly included in~~ (formerly SFAS No. 123(R), Accounting for Stock-Based Compensation), the fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model. The expected terms of options granted represent the period of time that options granted are estimated to be outstanding and are derived from the contractual terms of the options granted. We amortize the fair value of each option over each option’s vesting period.

Income Taxes

We account for income taxes utilizing the asset and liability method prescribed by the provisions of ASC 740,Income Taxes~~(formerly~~ (formerly SFAS No. 109, Accounting for Income Taxes). Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax ~~bases~~basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is provided for the deferred tax assets, ~~related to future years,~~ including loss carryforwards, ~~if there~~when it is more likely than not ~~sufficient evidence to indicate~~ that ~~the results~~some portion or all of ~~operations will generate sufficient taxable income to realize the net~~a deferred tax asset will not be realized.

We account for uncertain tax positions in ~~future years.~~

~~We have adopted a provision~~accordance with the related provisions of ASC 740,Income Taxes~~(formerly~~ (formerly FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48)). ASC 740 specifies the way public companies are to account for uncertainties in income tax reporting, and prescribes a methodology for recognizing, reversing, and measuring the tax benefits of a tax position taken, or expected to be taken, in a tax return. ASC 740 requires the evaluation of tax positions taken or expected to be taken in the course of preparing ~~the Company’s~~our tax returns to determine

~~-21-~~

whether the tax positions would “more-likely-than-not” be sustained if challenged by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the current year.

Results of Operations for the Three Months ended March 31, ~~2011~~2013 and ~~2010 (Unaudited)~~2012

~~Revenues~~Revenue and Cost of ~~Revenues~~Revenue

~~Revenues~~Revenue for the three months ended March 31, ~~2011 were $251,753,~~2013 was $201,234, compared to ~~$143,102~~$238,540 for the same period in ~~2010, an increase~~2012, a decrease of ~~$108,651,~~$37,306, or ~~76%~~16%. The ~~increase~~decrease in ~~revenues~~revenue for ~~2011, as compared~~2013 is due to ~~the same period~~lower sales of orthoPACE devices in ~~2010, was a result of sales in~~ Europe ~~of our new product, orthoPACE,~~ for orthopedic, trauma and sports medicine indications ~~which was introduced~~due to the European economic downturn. This is partially offset by an increase in ~~July 2010.~~sales of applicators for 2013 as a result of more devices in use.

Cost of ~~revenues~~revenue for the three months ended March 31, ~~2011~~2013 was ~~$93,298,~~$55,811, compared to ~~$47,644~~$71,772 for the same period in ~~2010.~~2012. Gross profit as a percentage of ~~revenues~~revenue was ~~63%~~72% for the three months ended March 31, ~~2011,~~2013, as compared to ~~67%~~70% for the same period in ~~2010.~~2012. The ~~decrease~~slight increase in gross profit as a percentage of ~~revenues~~revenue in ~~2011,~~2013 was due to increased sales of higher margin applicators in 2013, as compared to ~~the same period in 2010, was due to lower margin on the new orthoPACE device sales sold to distributors as demonstration devices in 2011.~~2012.

Research and Development Expenses

Research and development expenses for the three months ended March 31, ~~2011~~2013 were ~~$749,299,~~$344,685, compared to ~~$1,085,974~~$603,797 for the same period in ~~2010,~~2012, a decrease of ~~$336,675,~~$259,112, or ~~31%~~43%. Research and development costs include payments to third parties that specifically relate to our products in clinical development, such as payments to contract research organizations, clinical investigators, clinical related consultants, contract manufacturer development costs and insurance premiums for clinical studies. In addition, employee costs (salaries, payroll taxes, benefits, and travel) for employees of the regulatory affairs, clinical affairs, quality assurance, quality control, and research and development departments are classified as research and development costs. Research and development expenses decreased in ~~2011,~~2013 due to reduced headcount as compared to the same period in ~~2010, due to lower expenses~~2012 and less consulting services in 2013 related to clinical ~~site payments,~~results analysis than incurred in 2012 on the dermaPACE phase III clinical monitoring and clinical database costs for the clinical trial of dermaPACE for treating diabetic foot ulcers in the United States as enrollment and patient follow-up ended during 2010 and the costs for 2011 transitioned to clinical results analysis.trial.

We expect to continue to incur significant research and development expenses as a result of next generation technology development, the finalization of our clinical trial of dermaPACE for diabetic foot ulcers in the United States and other new product candidates, as well as continuing expenses associated with pre-clinical studies and regulatory filings.

General and Administrative Expenses

General and administrative expenses for the three months ended March 31, ~~2011~~2013 were ~~$1,382,185,~~$851,921, compared to ~~$1,598,524~~$1,237,540 for the same period in ~~2010,~~2012, a decrease of ~~$216,339,~~$385,619, or ~~14%~~31%. ~~General~~The decrease in general and administrative expenses ~~include~~is primarily due to a reduction in headcount, the ~~non-cash costs~~consolidation of our operations into one office effective November 2012 and reduction of legal expenses related to patents offset by additional consulting expenses incurred in 2013 for ~~stock-based compensation~~financial advisors and investor relations.

Other Income (Expense)

Other income (expense) was a net expense of ~~$152,448 and $483,270~~$4,236,470 for the three months ended March 31, ~~2011 and 2010, respectively. The decrease in non-cash compensation costs for stock compensation of $330,822 for the three months ended March 31, 2011,~~2013 as compared to ~~the same period in 2010, was primarily due to the restricted stock granted in 2009 becoming fully vested and expensed as~~a net expense of ~~January 1, 2011.~~

~~Excluding the non-cash costs for stock-based compensation, general and administrative expenses were $1,229,737 for the three months ended March 31, 2011, as compared to $1,115,254~~$78,847 for the same period in ~~2010,~~2012, an increase of ~~$114,483, or 10%. The increase in general and administrative expenses is mainly due to increased legal and public company related costs as a result of capital fund raising activities.~~

~~We expect that general and administrative expenses will increase as we expand our operations and other administrative activities related to our efforts to bring our products to commercialization.~~

~~Depreciation and Amortization~~

Depreciation for the three months ended March 31, 2011 was $6,237, compared to $194,732 for the same period in 2010, a decrease of $188,495, or 97%. The decrease was primarily due to depreciation expense of $168,224 for the three months ended March 31, 2010 on assets held for sale. There was no depreciation expense for the three months ended March 31, 2011 on assets held for sale. As of December 31, 2010, the assets held for sale were fully depreciated as management determined that the market for selling the used Ossatron mobile service devices, which were classified as held for sale, was not probable due to the age of the devices and changes in international electrical standards for which the devices were no longer compliant.

~~Amortization of intangible assets for the three months ended March 31, 2011 and 2010 was $76,689.~~

~~Other Income (Expense)~~

On June 3, 2009, we sold our veterinary division to Pulse Veterinary Technologies, LLC (“Pulse Vet”). Under terms of the asset purchase agreement, we will continue to provide production services at the direction of Pulse Vet for a fee until April 30, 2012, unless Pulse Vet elects to terminate the agreement at an earlier date. The income for these transitional services was $112,500 and $90,000 for the three months ended March 31, 2011 and 2010, respectively, an increase of $22,500 or 25%.$4,157,623. The increase was due to the ~~contractual increase~~issuance of Senior Secured Notes on March 8, 2013 and the resultant recording of $3,737,000 in ~~the monthly production services effective January 1, 2011.~~

Interest expense, net, for the three months ended March 31, 2011 was $236,280, compared to $217,281 for the same period in 2010, an increase of $18,999, or 9%. The increase was primarily due to interest accruing at 15% per annum on certain notes payable to related parties,non-cash loss on the ~~accumulated unpaid principal~~embedded conversion feature of the Senior Secured Notes and the accrued interest ~~balances.~~expense, including amortization of debt discount, on the Senior Secured Notes of $428,467.

Provision for Income Taxes

At March 31, ~~2011,~~2013, we had federal net operating loss carryforwards of ~~approximately $40.9 million~~$54,017,215 for tax years through the year ended December 31, 2012 that will begin to expire in 2025. Our ability to use these net operating loss carryforwards to reduce our future federal income tax liabilities could be subject to annual limitations. Additionally, because United States tax laws limit the time during which net operating loss carryforwards may be applied against future taxable income and tax liabilities, we may not be able to take advantage of our net operating loss carryforwards for federal income tax purposes. We have recorded a full valuation allowance as of March 31, 2013, due to uncertainties related to our ability to utilize our deferred tax assets, primarily consisting of certain net operating losses carried forward, before they expire.

Net Loss

Net loss for the three months ended March 31, ~~2011~~2013 was ~~$2,183,326,~~$5,369,333, or ($~~0.14)~~0.25) per basic and diluted share, compared to a net loss of ~~$2,994,755,~~$1,835,315, or ($~~0.24)~~0.09) per basic and diluted share, for the ~~three months ended~~same period in 2012, an increase in the net loss of $3,534,018, or 193%. The increase in the net loss was due to the issuance of the Senior Secured Notes, which was completed on March ~~31, 2010. We anticipate that our operating losses will continue over~~8, 2013, and the ~~next several years as we continue to fund our research~~resultant recording of $3,737,000 in non-cash loss on the embedded conversion feature of the Senior Secured Notes and ~~development activities and clinical trials, and as we prepare for a future sales network to represent our products.~~the accrued interest expense, including amortization of debt discount, on the Senior Secured Notes of $428,467 .

Results of Operations for the Years ended December 31, ~~2010~~2012 and ~~2009~~2011

Revenues and Cost of Revenues

Revenues for the year ended December 31, ~~2010~~2012 were ~~$728,446,~~$769,217, compared to ~~$660,725~~$802,572 for the same period in ~~2009, an increase~~2011, a decrease of ~~$67,721,~~$33,355, or ~~10%~~4%. Revenues resulted primarily from sales in Europe of our ~~new product~~dermaPACE and orthoPACE devices and related applicators. The decrease in revenues for 2012 is due to lower sales of orthoPACE devices in Europe for orthopedic, trauma and sports medicine indications ~~and from~~due to the European economic downturn. This is partially offset by an increase in sales ~~in Europe~~ of ~~our legacy Evotron device and the related~~ applicators for ~~these devices.~~2012 as a result of more devices in use.

Cost of revenues for the year ended December 31, ~~2010 was $250,326,~~2012 were $220,257, compared to ~~$225,790~~$261,890 for the same period in ~~2009.~~2011. Gross profit as a percentage of revenues was ~~66%~~71% for the year ended December 31, 2012, compared to 67% for the same period in ~~2010 and 2009.~~2011. The slight increase in gross profit as a percentage of revenues in ~~2010 remained consistent with 2009~~2012 was due to ~~a similar mix~~increased sales of ~~devices and~~higher margin applicators ~~sold~~ in ~~each year.~~2012, as compared to 2011.

Research and Development Expenses

Research and development expenses for the year ended December 31, ~~2010~~2012 were ~~$3,879,146,~~$1,762,194, compared to ~~$3,387,204~~$2,731,059 for the same period in ~~2009, an increase~~2011, a decrease of ~~$491,942,~~$968,865, or ~~15%~~35%. Research and development costs include payments to third parties that specifically relate to our products in clinical development, such as payments to contract research organizations, clinical investigators, clinical related consultants ~~contract manufacturer development costs~~ and insurance premiums for clinical studies. In addition, employee costs (salaries, payroll taxes, benefits, and travel) for employees of the regulatory affairs, clinical affairs, quality assurance, quality control, and research and development departments are classified as research and development costs. Research and development ~~costs increased~~expenses in ~~2010~~2012 decreased due to lower expenses for clinical results analysis and clinical related expenses. Consulting expenses related to clinical results analysis were higher in 2011 as ~~compared~~we prepared for the submission to the ~~same period~~FDA in ~~2009 due~~June 2011 of the dermaPACE PMA for treating diabetic foot ulcers.

We expect research and development expenses to ~~higher costs~~increase in 2013 as a result of the expected start of the supplemental Phase III clinical trial of dermaPACE for treating diabetic foot ulcers in the United States, as ~~enrollment ended during the first quarter of 2010 and statisticians and consultants were engaged to assist in the patient follow-up and data compiling phases of the clinical trial.~~

General and Administrative Expenses

General and administrative expenses for the year ended December 31, ~~2010~~2012 were ~~$7,100,621,~~$4,521,957, as compared to ~~$5,026,425~~$6,292,950 for the same period in ~~2009, an increase~~2011, a decrease of ~~$2,074,196,~~$1,770,993, or ~~41%~~28%. General and administrative expenses include ~~the~~ non-cash ~~compensation costs for stock~~stock-based compensation of ~~$3,037,634~~$1,391,316 and ~~$1,078,128~~$1,118,813 for the years ended December 31, ~~2010~~2012 and ~~2009,~~2011, respectively. The increase in non-cash ~~compensation costs for stock~~stock-based compensation of ~~$1,959,506~~$272,503, or 24%, was primarily due to the stock options granted in November 2012 to the former President and Chief Executive Officer upon his resignation and the vesting of all his outstanding, unvested options at that time.

Excluding non-cash stock-based compensation, general and administrative expenses were $3,130,641 for the year ended December 31, ~~2010,~~2012, as compared to $5,174,137 for the same period in ~~2009,~~2011, a decrease of $2,043,496, or 39%. The decrease was primarily due to a ~~shorter requisite period on new grants of options to~~reduction in headcount (10 employees ~~and directors of the Company~~ in ~~2010~~December 2012 as compared to ~~2009.~~

~~Excluding the non-cash compensation~~28 employees in December 2011), decreased investor relations expenses and decreased legal costs for ~~stock compensation,~~patent defense activities.

We expect to continue to focus on keeping general and administrative expenses ~~were $4,062,987 for~~reduced to the ~~year ended December 31, 2010, as compared to $3,948,297 for the same period~~2012 expenditure rate in ~~2009, an increase of $114,690, or 3%.~~2013.

~~We expect that general~~

Depreciation and ~~administrative expenses will increase as we expand our operations and other administrative activities related to our efforts to bring our products to commercialization.~~Amortization

~~Depreciation, Amortization and Write Down of Assets Held for Sale~~

Depreciation for the year ended December 31, ~~2010~~2012 was ~~$829,576,~~$20,375, compared to ~~$365,108~~$19,034 for the same period in ~~2009,~~2011, an increase of ~~$464,468,~~$1,341, or ~~127%~~7%. On October 31, 2008, the Company discontinued its Ossatron mobile service business and accordingly displayed the related assets of this business as “discontinued operations.” As of October 1, 2009, management determined that the used Ossatron device fixed assets and related parts inventory should be reclassified to continuing operations as it was not likely the used devices would be sold within the next twelve months. Therefore, depreciation expense on the used Ossatron device fixed assets was restarted at October 1, 2009. As of December 31, 2010, we recorded additional depreciation expense of $201,153 to fully depreciate the used Ossatron devices and recorded a write down of assets held for sale of $169,581 to fully reserve for the related parts inventory for these devices. As of December 31, 2010, management determined that the market for selling the used Ossatron mobile service devices was not probableThe increase is due to ~~the age of the devices and changes~~full year depreciation in ~~international electrical standards~~2012 for ~~which the devices are no longer compliant. Management currently has no plans to utilize these devices~~assets purchased in ~~the United States. The combination of these factors contributed to management’s decision to write down these assets.~~2011.

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Amortization for the year ended December 31, ~~2010~~2012 was $306,757, compared to $306,756 for the same period in ~~2009.~~2011.

Other Income (Expense)

Interest expense, net, for the year ended December 31, 2012 was $331,743, compared to $472,155 for the same period in 2011, a decrease of $140,412, or 30%. The decrease was due to no interest expense after April 4, 2011 on certain notes payable to related parties as a result of the note exchange for common stock and warrants on that date as discussed below.

In June 3, 2009, we sold our veterinary division to Pulse Veterinary Technologies, LLC ~~(“Pulse Vet”)~~(Pulse Vet). Under terms of the asset purchase agreement, we ~~will continue~~continued to provide transitional production services at the direction of Pulse Vet for a fee until ~~April 30, 2012, unless~~these services were transitioned to Pulse Vet. Pulse Vet ~~elects to terminate the agreement at an earlier date.~~took over production services effective November 1, 2011. The income for these transitional services was ~~$360,125~~$0 and ~~$230,625~~$375,000 for the years ended December 31, ~~2010~~2012 and ~~2009, respectively, an increase of $129,500 or 56%.~~2011, respectively. The ~~increase~~decrease was due to ~~a full year~~the discontinuation of ~~providing operational~~the services ~~in 2010, partially offset by accounting and IT support services that Pulse Vet discontinued in 2009.~~effective November 1, 2011.

~~During the year ended December 31, 2010, we issued ten promissory notes totaling $2,450,000.~~

On ~~October 12, 2010, in conjunction with an offering of securities,~~April 4, 2011, we amended the terms of ~~the ten~~ outstanding ~~promissory~~ notes issued to Prides Capital Fund I, LP and NightWatch Capital Partners II, LP such that the unpaid principal and interest balance on ~~each note~~the notes totaling $4,413,908 was ~~exchanged into units consisting~~cancelled in consideration of ~~a share~~the issuance of ~~Common Stock, a Class D warrant, and an option which, as amended, expires on January 31, 2011,~~1,358,126 shares of common stock. In addition, in connection with the transaction, we issued to the noteholders warrants to purchase ~~another share~~an aggregate of ~~Common Stock and a Class D warrant.~~679,064 shares of common stock at an exercise price of $4.00 per share. We recorded a loss from extinguishment of debt of ~~$2,693,896~~$1,318,781, which was the difference between the estimated fair value of the ~~units~~common stock and warrants on the date of exchange ~~of $5,211,556 as compared to~~and the ~~carrying~~fair value of the ~~promissory~~ notes ~~of $2,517,660.~~(assuming the conversion feature was exercised by the noteholders).

Interest expense for the year ended December 31, 2010 was $961,585, compared to $739,847 for the same period in 2009, an increase of $221,738, or 30%. The increase was primarily due to interest accruing at 15% per annum on notes payable, related parties, totaling $2,125,000 issued during the year ended December 31, 2009, which were outstanding throughout 2010.

Provision for Income Taxes

In November 2010, we were awarded a cash grant totaling $244,479 under the United States government’s Qualifying Therapeutic Discovery Project (“QTDP”) program. The QTDP program was created by the United States Congress as part of the Patient Protection and Affordable Care Act of 2010, and provides a tax credit or grant equal to eligible costs and expenses for tax years 2009 and 2010. The QTDP program is aimed at creating and sustaining high-quality, high-paying jobs in the United States, while advancing the nation’s competitiveness in life, biological and medical sciences. We submitted applications and received the award based on our dermaPACE IDE study for diabetic foot ulcers.

At December 31, ~~2010,~~2012, we had federal net operating loss carryforwards of ~~approximately $40.9 million~~$54,017,215 that will begin to expire in 2025. Our ability to use these net operating loss carryforwards to reduce our future federal income tax liabilities could be subject to annual limitations. In connection with possible future equity offerings, we may realize a “more than 50% change in ownership” which could further limit our ability to use our net operating loss carryforwards accumulated to date to reduce future taxable income and tax liabilities. Additionally, because United States tax laws limit the time during which net operating loss carryforwards may be applied against future taxable income and tax liabilities, we may not be able to take advantage of our net operating loss carryforwards for federal income tax purposes.

~~Income from Discontinued Operations~~

On June 3, 2009, we sold our veterinary division for $3,500,000 in cash to Pulse Vet and recognized a gain, net of taxes, of $1,486,345. The income from discontinued operations, net of taxes, was $344,200 for the year ended December 31, 2009.

Net Loss

Net loss for the year ended December 31, ~~2010~~2012 was ~~$14,922,441,~~$6,401,494, or ($~~1.15)~~0.30) per basic and diluted share, compared to a net loss of ~~$6,153,040,~~$10,238,797, or ($~~0.54)~~0.52) per basic and diluted share, for the year ended December 31, 2009. The loss from continuing operations was $14,922,441, or ($1.15) per basic and diluted share, for the year ended December 31, 2010, compared to a loss from continuing operations of $7,983,585, or ($0.70) per basic and diluted share, for the year ended December 31, 2009.same period in 2011. We anticipate that our operating losses will continue over the next several years as we continue to fund our dermaPACE device FDA clinical trial for the treatment of diabetic foot ulcers.

Liquidity and Capital Resources

For the three months ended March 31, 2013 and 2012, net cash used by operating activities was $1,043,674 and $1,490,445, respectively, primarily consisting of compensation costs, research and development activities and general corporate operations. The decrease in the use of cash for operating activities for 2013, as compared to the same period for 2012, of $446,771, or 30%, was primarily due to reductions in headcount, operating expenses and clinical ~~trials, and~~expenses in 2013 as ~~we prepare for a future sales network~~compared to ~~represent our products.~~

~~Liquidity and Capital Resources~~

~~We incurred a net loss of $2,183,326 and $2,994,755~~the same period in 2012. Net cash provided (used) by financing activities for the three months ended March 31, ~~2011~~2013 and ~~2010, respectively. We incurred a net loss~~2012 was $1,643,801 and ($1,112), respectively, which in 2013 consisted of ~~$14,922,441~~the proceeds from the subscriptions payable for Senior Secured Notes of $1,570,000 and ~~$6,153,040 during~~ the ~~years~~proceeds from the Subscription Agreement of $75,000. Cash and cash equivalents increased by $600,702 for the three months ended ~~December 31, 2010 and 2009, respectively. We had a working capital deficiency of $5,066,300 and $7,029,635 at~~ March 31, ~~2011~~2013. Cash and ~~December~~cash equivalents decreased by $1,487,574 for the three months ended March 31, ~~2010, respectively. These operating losses~~2012.

The continuation of our business is dependent upon raising additional capital in the second quarter of 2013. Management’s plans are to obtain additional capital in the second quarter of 2013 through the issuance of common stock and/or other debt or equity securities and ~~working capital deficiency create uncertainty about our ability~~we have engaged financial advisors to ~~continue as a going concern. Although no assurances can be given, management~~assist with this process. We expect to raise up to $600,000 through the issuance of ~~the Company believes that potential additional issuances of equity,~~unsecured promissory notes in May and June 2013 and/or ~~other potential financing will provide~~amounts received on the necessary funding for the Company to continue as a going concern. Our consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. We are dependent upon future capital contributions or financing to fund ongoing operations. At March 31, 2011, we had $2,306,100 inour Subscription Agreement with an affiliated shareholder. When combined with our cash and cash equivalents ~~held~~as of March 31, 2013 of $671,027, we believe this will support our operations through the second quarter of 2013. We have filed a registration statement with the SEC to raise up to $6,000,000 through the sale of equity securities and have engaged a placement agent to lead this best efforts offering. Even if we are successful in ~~three~~each of the short term capital raising efforts described above, we may be required to raise additional funds by the end of 2013 to continue operations. We expect our monthly use of cash will be approximately $575,000 to $625,000 as we devote substantial resources to the start of the patient enrollment phase of the supplemental Phase III clinical trial for the dermaPACE device to treat diabetic foot ulcers by the end of the second quarter of 2013. Management estimates the direct cost of the dermaPACE clinical trial will be approximately $3,800,000 through 2014.

On March 8, 2013, we completed a private placement with select accredited investors of an aggregate $2,000,000 of Senior Secured Notes. The Senior Secured Notes, as amended, will automatically convert to common stock if we raise $4,000,000 or more in gross proceeds through a qualified financing and/or license agreement as defined in the Senior Secured Note agreements. We plan to seek to obtain additional capital in 2013 through the issuance of common stock or other securities (such as in this offering) and we have engaged financial ~~institutions.~~advisors to assist us. Based on our current financial condition, we may be unable to obtain such financing on commercially reasonable terms, if at all. If we do not raise at least $4,000,000, the Senior Secured Notes will not automatically convert to common stock and will become due and payable. The Senior Secured Notes begin to mature in May 2013 and we are currently negotiating with the holders to extend the maturity through the second quarter of 2013.

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We expect to devote substantial resources to continue our ~~research and development efforts, including~~supplemental Phase III clinical ~~trials.~~trial for the dermaPACE device to treat diabetic foot ulcers. Because of the significant time it will take for our ~~products~~product to complete the clinical trial process, and for us to obtain approval from regulatory authorities and successfully commercialize our ~~products,~~product, we will require substantial additional capital resources. We incurred a net loss of $5,369,333 and $1,835,315 for the three months ended March 31, 2013 and 2012, respectively. We incurred a net loss of $6,401,494 and $10,238,797 for the years ended December 31, 2012 and 2011, respectively. These operating losses create uncertainty about our ability to continue as a going concern. For the three months ended March 31, 2013 and 2012, the net cash used by operating activities by us was $1,043,674 and $1,490,445, respectively. For the years ended December 31, 2012 and 2011, the net cash used by operating activities by us was $4,290,121 and $8,831,699, respectively. As of March 31, 2013, we had cash and cash equivalents of $671,027. We may raise additional capital through the issuance of common or preferred stock, securities convertible into common stock, or secured or unsecured debt, or an investment by a strategic partner in a specific clinical indication or market opportunity, or we may sell all or a portion of our assets (or a combination of the foregoing). If these efforts are unsuccessful, we may be forced to seek relief through a filing under the U.S. Bankruptcy Code. These possibilities, to the extent available, may be on terms that result in significant dilution to our existing shareholders. Additional financing may not be available on acceptable terms, if at all. Capital may become difficult or impossible to obtain due to poor market or other conditions outside of our control. 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.

~~We may raise additional capital through public or private equity offerings, outstanding warrant exercises, debt financings, corporate collaborations or other means.~~

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

During 2010, we issued ten promissory notes totaling $2,450,000. On October 12, 2010, the unpaid principal and interest on the notes totaled $2,517,660, and this sum was exchanged into a total of 1,258,830 units which consisted of 1,258,830 shares of Common Stock, 1,258,830 Class D warrants and 1,258,830 options, which, as amended, expired on January 31, 2011, to purchase the same number of units as granted pursuant to this transaction, at the purchase price of $2.00 per unit.

Between September 30, 2010, and December 7, 2010, we issued 925,000 units to certain “accredited investors” for an aggregate total purchase price of $1,850,000. Each unit was sold to the new investors at a purchase price of $2.00 per unit. As a result of the offerings, we sold 925,000 units which consisted of 925,000 shares of Common Stock, 925,000 Class D warrants and 925,000 options, which, as amended, expired on January 31, 2011, to purchase the same number of units as granted pursuant to this transaction, at the purchase price of $2.00 per unit.

As of December 31, 2010, the option holders exercised 101,163 options for total gross proceeds of $202,326 to us. In connection with the exercise of the options, we issued 101,163 shares of Common Stock and 101,163 Class D warrants.

Between January 1 and January 31, 2011, the option holders exercised 1,950,167 options for total gross proceeds of $3,900,334 to us. In connection with the exercise of options, we issued 1,950,167 shares of Common Stock and 1,950,167 Class D warrants. The 132,500 options that remained unexercised at January 31, 2011 expired by their terms.

On April 8, 2011, we completed a private placement to 28 institutional and individual accredited investors of 2,804,593 shares of ~~our Common Stock~~common stock at a purchase price of $3.25 per share, for gross proceeds of $9,114,927. The net proceeds received by ~~the Company~~us were $8,467,121, net of offering costs of $647,806. As part of the private placement, the investors were issued five-year warrants to purchase up to 2,804,593 shares of ~~our Common Stock~~common stock at an ~~initial~~exercise price of $4.00 per share. In addition, we issued to the placement agent for the private placement five-year warrants to purchase 93,080 shares of common stock at an exercise price of $4.00 per share. The ~~net proceeds from the private placement, following the payment of offering-related expenses, are being used by us for working capital~~warrants vested upon issuance and ~~other general corporate purposes.~~expire after five years.

On April 4, 2011, Prides Capital Fund I, LP and NightWatch Capital Partners II, LP, the ~~note~~ holders of ~~our~~certain amended senior notes, ~~(the “Notes”) cancelled~~exchanged the unpaid principal and interest balance of the ~~Notes~~notes which totaled $4,413,908 in consideration for the issuance of 1,358,126 shares of ~~our Common Stock.~~common stock. In ~~addition, in~~ connection with this transaction, we issued to the ~~note holders~~noteholders an aggregate total of 679,064 warrants to purchase shares of ~~Common Stock~~common stock at an exercise price of $4.00 per share. Each warrant represents the right to purchase one share of ~~Common Stock.~~common stock. The warrants vested upon issuance and expire after five years.

During the year ended December 31, 2010, we sold “Units” to select accredited investors which consisted of: (i) one share of common stock; (ii) a two-year common stock purchase warrant (Class D Warrant) to purchase one share of common stock, at an exercise price of $2.00; and (iii) an option ( Option), which, as amended, expired on January 31, 2011, to purchase the same number of Units as granted pursuant to this transaction, at the purchase price of $2.00 per Unit. Between January 1 and January 31, 2011, Option holders exercised 1,950,167 Options for total gross proceeds of $3,900,334 to us. In connection with the exercise of Options in January 2011, we issued 1,950,167 shares of common stock and 1,950,167 Class D Warrants. The Option holders included our chairman of the board of directors who exercised 545,252 Options and the brother of a member of our board of directors who exercised 686,252 Options. The 132,500 Options that remained unexercised at January 31, 2011 expired by their terms.

For the ~~three months~~year ended ~~March~~December 31, ~~2011,~~2012, net cash used by operating activities was $2,022,689, primarily consisting of salaries, clinical trials, research and development activities and general corporate operations. Net cash provided by financing activities for the three months ended March 31, 2011 was $3,900,334, which consisted of the proceeds from the exercise of unit options. Cash and cash equivalents increased by $1,888,643 for the three months ended March 31, 2011 as a result of the financing activities.

~~For the year ended December 31, 2010, net cash used by operating activities was $5,867,276,~~$4,290,121, primarily consisting of salaries, clinical trials, research and development activities and general corporate operations. Net cash provided by financing activities for the year ended December 31, ~~2010~~2012 was ~~$4,502,326,~~$450,424, which primarily consisted of the proceeds received from subscriptions for the ~~issuance of~~senior secured convertible promissory notes ~~totaling $2,450,000 and from the sale~~ of ~~capital stock units totaling $2,052,326.~~$430,000. Cash and cash equivalents decreased by ~~$1,368,912~~$3,839,058 for the year ended December 31, ~~2010.~~2012.

For the year ended December 31, ~~2009,~~2011, net cash used by ~~continuing operations for~~ operating activities was ~~$5,513,688,~~$8,831,699, primarily consisting of salaries, clinical trials, research and development activities and general corporate operations. In addition, the net cash used by operating activities during 2011 included payments to reduce current payables, accrued employee compensation and accrued expenses which totaled $1,607,856. Net cash used by investing activities for the year ended December 31, 2011 was $42,302, which consisted of the purchase of fixed assets used for research and development and computer equipment. Net cash provided by ~~continuing operations for~~ financing activities for the year ended December 31, ~~2009~~2011 was ~~$3,694,929,~~$12,366,363, which primarily consisted of the net proceeds from the ~~issuance~~private placement of ~~notes payable to related parties of $2,125,000~~$8,467,121 and the ~~sale~~exercise of ~~Common Stock to certain “accredited investors”~~unit options of ~~$1,819,844 offset~~$3,900,334. Cash and cash equivalents increased by ~~the repurchase of Common Stock of $180,000 and payment of development period liabilities of $69,915 prior to the Merger. Net cash used by discontinued operations for operating activities was $758,244~~$3,491,926 for the year ended December 31, 2009. Net cash provided by discontinued operations for investing activities was $3,601,772 for the year ended December 31, 2009 from the sale of the veterinarian division. Cash and cash equivalents increased by $1,242,743 for the year ended December 31, 2009.

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~~Segment Information~~2011.

We have determined that we are principally engaged in one operating segment. Our product candidates are primarily used for the repair and regeneration of tissue, musculoskeletal and vascular structures in wound healing, orthopedic/spine, plastic/cosmetic and cardiac conditions.

~~Other Comprehensive Income (Loss)~~

~~FASB ASC 220,~~~~Comprehensive Income~~(formerly SFAS No. 130, Reporting Comprehensive Income), establishes standards for reporting and display of comprehensive income (loss) and its components in the consolidated financial statements. Our other comprehensive income (loss) as defined by ASC 220 is the total of net income (loss) and all other changes in equity resulting from non-owner sources, including unrealized gains (losses) on foreign currency translation adjustments.

Contractual Obligations

Our major outstanding contractual obligations relate to our operating ~~leases~~lease for our ~~facilities,~~facility, purchase and supplier obligations for product component materials and equipment, and our notes payable.

In October 2006, we entered into a sublease agreement for the corporate office in Alpharetta, Georgia for 15,025 square feet of space. Under the terms of the sublease, we pay monthly rent of $18,468, as adjusted on an annual basis for additional proportionate operating and insurance costs associated with the building over the base amount. The initial term of the sublease expired September 30, 2009, and we have exercised the option to extend the term to October 31, 2012.

In April 2007, we entered into a lease agreement for the production and research and development office for 5,168 square feet of space. Under the terms of the lease, we pay monthly rent of ~~$8,075,~~$8,506, as adjusted on an annual basis for additional proportionate operating and insurance costs associated with the building over the base amount. The initial term of the lease expired on July 31, 2010, and we ~~have~~ extended the lease until October 31, ~~2012.~~2015.

We have developed a network of suppliers, manufacturers, and contract service providers to provide sufficient quantities of product component materials for our products through the development, clinical testing and commercialization phases. We have ~~contractual obligations under~~ a manufacturing supply agreement with Swisstronics Contract Manufacturing AG ~~for~~in Switzerland, a division of Cicor Technologies Ltd., covering the ~~manufacture~~generator box component of our devices.

During the period from November 2012 through March 8, 2013, we entered into subscriptions payable for 18% Senior Secured Convertible Promissory Notes (as previously defined, the Senior Secured Notes) from select accredited investors. We received subscriptions for the Senior Secured Notes in the aggregate principal amount of $430,000 through December 31, 2012. Subsequent to December 31, 2012, we received subscriptions for an additional aggregate $1,570,000. We closed the offering and issued the aggregate $2,000,000 in Senior Secured Notes on March 8, 2013.

The Senior Secured Notes have a six month term from the subscription date and the notes are convertible into common stock at any time at $0.20 per share. Upon the consummation of a qualified financing and/or technology license of $4,000,000 or more by us, as defined in the Senior Secured Note agreements, the principal and interest on the Senior Secured Notes, as amended, will automatically convert into common stock at a conversion price equal to the lower of (i) the price of our common stock issued in the qualified financing and/or technology license, reduced by a discount of 20%, and (ii) $0.20 per share. The Senior Secured Note holders will also receive, if any are issued, warrants or any other security issued in a qualified financing and/or technology license on similar terms to the qualified financing and/or technology license. The Senior Secured Notes are secured by our tangible and intangible assets. As of December 31, 2012, we had issued six Senior Secured Notes in the principal amount of $430,000 and had accrued interest expense of $8,516. As of March 31, 2013, the Company had outstanding $2,000,000 in Senior Secured Notes and had $66,520 in accrued interest expense.

In August 2005, as part of the purchase of the orthopedic division assets of HealthTronics, Inc., we ~~entered into~~issued two notes ~~with~~to HealthTronics, Inc. for $2,000,000 each. The notes bear interest at 6% annually. Quarterly interest through June 30, 2010 was accrued and added to the principal balance. Interest is paid quarterly in arrears beginning September 30, 2010. All remaining unpaid accrued interest and principal is due August 1, 2015. Accrued interest on the notes not payable until August 2015 totaled $1,372,743 at March 31, ~~2011,~~2013 and ~~$1,372,743 and $1,215,253 at~~ December 31, ~~2010 and 2009, respectively.~~2012.

During the period October 2008 through May, 2009 we issued notes payable to Prides Capital Fund I, L.P. for $3,125,000 in total and one note payable to NightWatch Capital Partners II, L.P. for $75,000. The notes payable bear interest at 15% annually. Quarterly interest through December 31, 2010, was accrued and added to the principal balance. Unpaid accrued interest and principal is due September 30, 2011. All or any portion of the unpaid principal can be converted into Common Stock with a conversion price of $2.92 per share. Accrued interest on the notes payable totaled $1,206,563 at March 31, 2011, and $1,047,290 and $472,728 at December 31, 2010 and 2009, respectively. Subsequent to the quarter ended March 31, 2011, on April 4, 2011, the note holders exchanged the unpaid principal and interest balance of the notes payable which totaled $4,413,908 in consideration for the issuance of 1,358,126 shares of our Common Stock. In addition, in connection with this transaction, we issued to the note holders an aggregate total of 679,064 warrants to purchase shares of Common Stock at an exercise price of $4.00 per share. Each warrant represents the right to purchase one share of Common Stock. The warrants vested upon issuance and expire after five years.

Recently Issued Accounting Standards

~~Fair Value Measurements and Disclosures~~

~~In January 2010, the Financial Accounting Standards Board (“FASB”)~~There have been no recently issued ~~Accounting Standards Update (“ASU”) 2010-06,~~~~Fair Value Measurements and Disclosures — Topic 855~~~~(“ASU 2010-06”). ASU 2010-06 provides amendments~~accounting standards that are expected to ~~ASC 820-10,~~~~Fair Value Measurements~~(“ASC 820-10”). ASC 820-10 defines fair value, establishes a framework for measuring fair value hierarchy for assets and liabilities measured at fair value, and requires expanded disclosures about fair value measurements. The ASC 820-10 hierarchy ranks the

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quality and reliability of inputs, or assumptions, used in the determination of fair value and requires financial assets and liabilities carried at fair value to be classified and disclosed in one of the three categories (level 1, level 2 or level 3). ASU 2010-06 provides amendments to ASC 820-10 to require new disclosures for transfers in and out of levels 1 and 2, as well as a reconciliation of activity within level 3. Furthermore, ASU 2010-06 provides amendments that clarify existing disclosures regarding levels of disaggregation and inputs and valuation techniques. The new disclosures and clarifications of existing disclosures required by ASU 2010-06 are effective for interim and annual reporting periods beginning after December 15, 2009 (except for disclosures in the reconciliation of activity within level 3, which are effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years). We adopted ASU 2010-06 as of January 1, 2010, and the adoption did not have a material impact on our consolidated financial statements.

~~Subsequent Events~~

~~In February 2010, the FASB issued ASU 2010-09,~~~~Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure Requirements~~~~(“ASU 2010-09”), to amend ASC 855,~~~~Subsequent Events~~(“ASC 855”). ASC 855, which was originally issued by the FASB in May 2009 (as SFAS No. 165, Subsequent Events ), provides guidance on events that occur after the balance sheet date but prior to the issuance of the financial statements. ASC 855 distinguishes events requiring recognition in the financial statements and those that may require disclosure in the financial statements. As a result of ASU 2010-09, companies are not required to disclose the date through which management evaluated subsequent events in the financial statements, either in originally issued financial statements or reissued financial statements. ASC 855 was effective for interim and annual periods ending after September 15, 2009, and ASU 2010-09 was effective immediately. We have evaluated subsequent events in accordance with ASU 2010-09, and the evaluation did not have a material impact on our consolidated financial statements.

Off-Balance Sheet Arrangements

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

Effects of Inflation

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

~~BUSINESS~~

~~Overview~~BUSINESS

Overview

We are ~~an emerging global~~a shockwave technology company using noninvasive, high-energy, acoustic shockwaves for regenerative medicine ~~company focused on the development~~ and ~~commercialization of non-invasive,~~other applications. Our initial focus is regenerative medicine – utilizing noninvasive, acoustic shockwaves to solicit a biological response ~~activating devices for~~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 demaPACE® device, used for treating diabetic foot ulcers, which is in a supplemental Phase III clinical study with possible FDA approval in 2015, subject to submission of satisfactory clinical study results.

In addition, we believe we have significant license/partnership opportunities for our shockwave technology in medical and non-medical uses, including energy, food and industrial markets, in addition to a broad intellectual property portfolio and broad know-how.

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)~~(PACE®) technology in wound healing, ~~orthopedic/spine,~~orthopedic, plastic/cosmetic and cardiac conditions.

~~Our lead device product~~ We currently do not market any commercial products for ~~the global wound care market, dermaPACE, has recently completed its pivotal Phase III, IDE trial~~sale in the United ~~States for the treatment~~States. We generate our revenues from sales of diabetic foot ulcers. We received permission by the FDA through the acceptance of our shell application in August 2010 to file the PMA for dermaPACE in a series of three sections or “modules.” This first module included preclinical data and results of prior clinical testing and was filed in December 2010. The second module containing a quality manufacturing system review was submitted in January 2011. We expect to file the third module containing data from the recently completed pivotal Phase III clinical trial of dermaPACE to treat diabetic foot ulcers, proposed product labeling and a summary of safety and effectiveness in the second quarter of 2011. The dermaPACE has received the European ~~CE Mark allowing for commercial use on acute~~Conformity Marking (CE Mark) devices and ~~chronic defects of the skin~~accessories in Europe, Canada and ~~subcutaneous soft tissue.~~Asia/Pacific.

We ~~research, design, manufacture, market and service our products worldwide and~~ believe we have ~~already~~ demonstrated that our ~~PACE~~ technology is safe and effective in stimulating healing in chronic conditions of the foot and the elbow through our United States FDA Class III PMA approved ~~Ossatron~~OssaTron device, and in the stimulation of bone and chronic tendonitis regeneration in the musculoskeletal environment through the utilization of our ~~Ossatron,~~OssaTron®, Evotron®, and ~~newly introduced~~ orthoPACE® devices in ~~Europe.~~Europe and Asia. Our lead product candidate for the global wound care market, dermaPACE, has received the CE Mark allowing for commercial use on acute and chronic defects of the skin and subcutaneous soft tissue.

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

	•	·	wound conditions, including diabetic foot ulcers, venous ulcers, pressure sores, burns and other skin eruption conditions;

	•·		~~orthopedic/spine~~orthopedic applications, such as eliminating chronic pain in joints from trauma or arthritis, speeding the healing of fractures (including nonunion or delayed-union conditions), improving bone density in osteoporosis, fusing bones in the extremities and spine, ~~eliminating chronic pain in joints from trauma or arthritis,~~ 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 and improving heart muscle performance.

We believe our experience from our preclinical research and the clinical use of our predecessor legacy devices in Europe and Asia, as well as our Ossatron device in the United States, demonstrates the safety, clinical utility and efficacy of our product candidates.

In addition weto healthcare uses, our high-energy, acoustic pressure shockwaves, due to their powerful pressure gradients and localized cavitational effects, may have ~~preclinical programs focused on the development~~applications in secondary and ~~better understanding~~tertiary oil exploitation, for cleaning industrial waters and food liquids and finally for maintenance of ~~treatments specific to our target applications, as well as the development of next generation devices utilizing our PACE technology to maximize healing response and intervention.~~

~~We believe that our studies suggest that our PACE technology~~industrial installations by disrupting biofilms formation. Our business approach will be effective in our target applications. If successful, we anticipate that these clinical studies should lead to regulatory approval of our regenerative product candidates in the United States, Europe and Asia. If approved by the appropriate regulatory authorities, we believe that our product candidates will offer new, effective and non-invasive treatment options in wound healing, orthopedic/spine injuries, plastic/cosmetic uses and cardiac procedures, improving the quality of life for millions of patients suffering from injuries through licensing and/or ~~deterioration of tissue, bones and vascular structures.~~partnership opportunities.

~~Organization; Reverse Merger Transaction~~

The Company is a corporation organized and existing under the laws of the State of Nevada. The Company was incorporated on May 6, 2004. On September 25, 2009, the Company (formerly named Rub Music Enterprises, Inc.) and RME Delaware Merger Sub, Inc., a Nevada corporation and wholly-owned subsidiary of the Company (the “Merger Sub”) entered into a reverse merger agreement (the “Merger Agreement”) with SANUWAVE, Inc., a Delaware corporation. 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 connection with the Merger, the Company acquired 100% of the outstanding capital stock of SANUWAVE, Inc. and the stockholders of SANUWAVE, Inc. received 11,009,657 shares of the Company’s Common Stock, Class A warrants to purchase 1,106,627 shares of the Company’s Common Stock at $4.00 per share, and Class B warrants to purchase an additional 1,106,627 shares of the Company’s Common Stock at $8.00 per share. In addition, in connection with the Merger, certain stockholders of the Company agreed to cancel all of their shares of Common Stock of the Company, except for 1,500,000 shares of Common Stock, for an aggregate price of $180,000 (the “Share Repurchase”). At the time of the Merger, the Company had 1,500,000 Class C warrants outstanding to purchase the Company’s Common Stock at $4.00 per share.

As a result of the Merger and the Share Repurchase, the stockholders of SANUWAVE, Inc. controlled approximately 88% of the Company’s outstanding Common Stock, holding 11,009,657 of the 12,509,657 outstanding shares, and SANUWAVE, Inc. was considered the accounting acquirer in this Merger. The Company was a “shell company” as such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) immediately prior to the Merger. As a result of the Merger, the Company’s operations are now focused in global medical technology and the Company is no longer a shell company.

Pulsed Acoustic Cellular Expression ~~(“PACE”)~~(PACE) Technology for regenerative medicine

Our PACE product candidates, including our lead product candidate, dermaPACE, ~~utilize high energy,~~deliver high-energy acoustic pressure waves in the shockwave spectrum to ~~enhance new blood vessel formation, and soft tissue and bone regeneration. PACE pressure waves combine~~produce compressive and tensile stresses on cells and ~~structures~~tissue structures. These mechanical stresses at the cellular level have been shown in pre-clinical work to promote anangiogenic and positive inflammatory ~~response~~responses, and quickly initiate the healing cascade. This has been shown in ~~musculoskeletal and soft tissue, resulting~~pre-clinical work to result in microcirculatory improvement, including increased perfusion and blood vessel widening (arteriogenesis), the production of angiogenic growth factors, enhanced new blood vessel formation (angiogenesis) and the subsequent regeneration of ~~tissue. PACE waves are different from other forms of acoustic energy,~~tissue such as ~~ultrasound, in that~~skin, musculoskeletal and vascular structures. PACE procedures trigger the ~~wave front, in which the compressive forces exist, is a region~~initiation of ~~sudden and forceful change in stress, density and temperature, which positively regulates the~~an accelerated inflammatory response ~~and reinitiates the cellular~~that speeds wounds into proliferation phases ~~allowing~~of healing and subsequently returns a chronic condition to an acute condition to help reinitiate the body’s own healing ~~response to reinitiate or be enhanced.~~response. We believe that our PACE technology is well suited for various applications due to its activation of a broad spectrum of cellular events critical for the initiation and progression of healing.

~~High energy,~~

High-energy, acoustic pressure waves in the shockwave spectrum are the primary component of our previously developed product, ~~Ossatron,~~OssaTron, which was approved by the FDA and marketed in the United States for use in chronic tendonitis of the foot in 2000 and the elbow in 2003. Additionally, acoustic shockwaves have been used safely at much higher energy and pulse levels in the lithotripsy procedure (breaking up kidney stones) by urologists for over 20 years and has reached standard of care status.

~~-27-~~

We research, design, manufacture, market and service our products worldwide and believe we have already demonstrated that our technology is safe and effective in stimulating healing in chronic conditions of the foot and the elbow through our United States FDA Class III PMA approved OssaTron device, and in the stimulation of bone and chronic tendonitis regeneration in the musculoskeletal environment through the utilization of our orthoPACE, Evotron and OssaTron devices in Europe and Asia.

We believe our experience from our preclinical research and the clinical use of our predecessor legacy devices in Europe and Asia, as well as our OssaTron device in the United States, demonstrates the safety, clinical utility and efficacy of these products. In addition, we have preclinical programs focused on the development and better understanding of treatments specific to our target applications.

Currently, there are limited biological or mechanical therapies available to activate the healing and regeneration of tissue, bone and vascular structures. As baby boomers age, the incidence of their targeted diseases and musculoskeletal injuries and ailments will be far more prevalent. We believe that our pre-clinical and clinical studies suggest that our PACE technology will be effective in targeted applications. If successful, we anticipate that future clinical studies, including our dermaPACE —clinical study in the United States for treating diabetic foot ulcers, should lead to regulatory approval of our regenerative product candidates in the United States, Europe and Asia. If approved by the appropriate regulatory authorities, we believe that our product candidates will offer new, effective and noninvasive treatment options in wound healing, orthopedic injuries, plastic/cosmetic uses and cardiac procedures, improving the quality of life for millions of patients suffering from injuries or deterioration of tissue, bones and vascular structures.

dermaPACE – Our lead product candidate

~~We have completed~~

The U.S. Food and Drug Administration (FDA) has granted approval of our ~~multi-site, randomized, double-blind, sham controlled FDA IDE~~Investigational Device Exemption (IDE) Supplement to conduct a supplemental clinical trial utilizing our lead device product for the global wound care ~~clinical study focused on~~market, the ~~healing~~dermaPACE device, in the treatment of diabetic foot ~~ulcers utilizing our lead product candidate, dermaPACE,~~ulcers. We have already identified and ~~released top-line data. The primary~~entered into contracts with clinical study goal is to establish superiority in diabetic foot ulcer healing rates using the dermaPACE treatment compared to sham control, when both are combined with the current standard of care. The standard of care includes wet-to-dry dressings, the most widely used primary dressing materialsites for participation in the United States, and offloading with a walking boot for ulcers located on the plantar surface of the foot. A total of 206 patients were enrolled and randomized in the dermaPACE study at 24 sites. The patients in the study were followed for a total of 24 weeks. The study’s primary endpoint of wound closure was defined as 100% skin re-epithelialization without drainage or dressing requirements confirmed at two consecutive visits, 2-4 weeks apart. Secondary clinical ~~trial endpoints included time to closure, reduction in total wound surface area and volume, rate of improvement, long-term safety, and skin appearance and pain assessments.~~

Unlike many other chronic wound trials conducted in the diabetic patient population, there were two important, rigorous elements incorporated in the dermaPACE study design: double-blind (patient and principal investigator) randomization, and elimination of the option to close the target ulcer surgically or by other primary means. Maintaining the double-blind in this device trial restricted the knowledge of the treatment assignment so not to influence how a patient was treated or maintained on study and evaluated. This eliminated unintended human bias and qualifies this research as level 1 evidence, allowing the results to be accepted at face value. By not allowing the clinical investigators to surgically close the target ulcer in this clinical trial, the results provide a clear and unbiased view of the granulation and epithelialization process attributable to dermaPACE alone.

Patients treated with dermaPACE showed a strong positive trend in the primary endpoint of 100% wound closure. Treatment with dermaPACE increased the proportion of diabetic foot ulcers that closed within 12 weeks by 36%, although this result was not statistically significant. Based on the pure, controlled design of the study, which blinded both investigators and patients and restricted investigators from closing wounds surgically, we analyzed a clinically relevant = 90% wound closure endpoint that demonstrated statistical significance (p=0.0161) in favor of dermaPACE (51/107, 48%) compared to patients randomized to receive Sham control (31/99, 31%). The median wound closure exceeded 99% for the dermaPACE treated patients who achieved at least 90% wound closure, and these patients had only a 4.5% recurrence rate at 24 weeks.

Importantly, there were no statistical differences in the adverse event rates between the dermaPACE treated patients and the Sham control group. There were no issues regarding the tolerability of the treatment which suggests that a second course of treatment, if needed, is a clinically viable option.

~~Based on the results of the clinical trial, the dermaPACE was shown to:~~

	•		~~significantly accelerate the rate of diabetic foot ulcer closure;~~

	•		~~cause highly significant reductions in ulcer size;~~

	•		~~have an extremely low rate of ulcer recurrence; and~~

	•		~~not be associated with any device-related adverse events.~~

~~We have filed the first two modules of our PMA.~~study. We expect ~~to file our final module with the FDA~~that patient enrollment will begin in the second quarter of ~~2011~~2013.

The double-blind, multi-center, randomized, sham-controlled, parallel group clinical trial plan incorporates the same primary efficacy endpoint of complete wound closure at 12 weeks as was utilized in the pivotal trial (discussed below). Similar to the pivotal trial, four (4) dermaPACE procedures will be administered during the first two weeks following subject enrollment. In the upcoming trial, however, up to four (4) additional dermaPACE procedures will be delivered bi-weekly, between weeks 4 and ~~pending a favorable response from~~10 following subject enrollment, which we believe will increase the between-group difference in complete wound closure in favor of dermaPACE over that observed in the first clinical trial.

We worked closely with the FDA to ~~launch~~amend the protocol and develop the statistical plan for the supplemental clinical study. A substantial component of this work involved using Bayesian statistical principles to define the dermaPACE treatment benefit established in our previously conducted pivotal study. Bayesian designs are supported by the ~~United States~~FDA where there is strong prior evidence that can be incorporated into the clinical study design. By incorporating the prior positive information regarding complete wound closure after one treatment cycle into the design of the additional study, substantially fewer patients should be required than would otherwise be the case while still ensuring adequate statistical power. This approach will save significant time and preserve scientific rigor.

~~Prior~~order to ~~receiving FDA approval,~~monitor the progress of the trial and ensure its alignment with our statistical plan, or to increase the sample size should additional subjects be needed to demonstrate study success, or stop the trial if study success is deemed unattainable. By monitoring the data in this way, we ~~intend~~can take appropriate steps to ~~begin~~allocate resources based on the ~~process of initiating private industry payor meetings in~~direction the ~~United States~~data is heading, prior to ~~introduce~~arriving at the economics and positive efficacy results of dermaPACE. These discussions will focus on building knowledge of dermaPACE and educating to the positive value proposition compared to existing alternatives. We will also begin the process of obtaining a new Category III Current Procedural Terminology (“CPT”) code for dermaPACE for Medicare tracking purposes,90 patient mark, which is ~~a requisite~~the first ~~step in obtaining medical reimbursement for dermaPACE. We believe that, in addition to improving~~point at which study success may be determined per our agreement with the quality of life of the patients treated, dermaPACE will provide cost benefits to payors, employers and society as a whole through improved healing, shortened healing times, and fewer and less burdensome required procedures.FDA.

~~In addition, our~~

Our dermaPACE device has received the European CE Mark approval to treat acute and chronic defects of the skin and subcutaneous soft tissue, such as in the treatment of pressure ulcers, diabetic foot ulcers, burns, and traumatic and surgical wounds. We are actively marketing dermaPACE to the European Community, Canada and Asia/Pacific, utilizing distributors in select countries.

Previous clinical work supporting our current dermaPACE clinical study

The dermaPACE device completed its pivotal Phase III, IDE trial in the United States for the treatment of diabetic foot ulcers in 2011 and a PMA Application was filed with the FDA in July 2011. The primary study goal was to establish superiority in diabetic foot ulcer healing rates using the dermaPACE treatment compared to sham-control, when both are combined with the current standard of care. The standard of care included wet-to-dry dressings, the most widely used primary dressing material in the United States, and offloading with a walking boot for ulcers located on the plantar surface of the foot.

A total of 206 patients entered the dermaPACE study at 24 sites. The patients in the study were followed for a total of 24 weeks. The study’s primary endpoint, wound closure, was defined as “successful” if the skin was 100% reepithelialized at 12 weeks without drainage or dressing requirements confirmed at two consecutive study visits.

A summary of the key study findings were as follows:

Patients treated with dermaPACE showed a strong positive trend in the primary endpoint of 100% wound closure. Treatment with dermaPACE increased the proportion of diabetic foot ulcers that closed within 12 weeks by 36%, although the rate of complete wound closure between dermaPACE and sham-control at 12 weeks in the intention-to-treat (ITT) population was not statistically significant at the 95% confidence level used throughout the study (p=0.363). There were 22 out of 107 (21%) dermaPACE subjects who achieved complete wound closure at 12 weeks compared with 15 out of 99 (15%) sham-control subjects.

Within 6 weeks following the initial dermaPACE treatment, and consistently throughout the 24-week period, dermaPACE significantly reduced the size of the target ulcer compared with subjects randomized to receive sham-control (p<0.05).

Of the subjects who achieved complete wound closure at 12 weeks, the recurrence rate at 24 weeks was only 4.5% in the dermaPACE group compared with 20.0% in the sham-control group.

We filed with the FDA the clinical module of the dermaPACE PMA application in June 2011. In December 2011, we received a major deficiency letter from the FDA regarding the FDA’s review of the dermaPACE PMA. The FDA issues a major deficiency letter to the applicant when the PMA lacks significant information necessary for the FDA to complete its review or to determine whether there is reasonable assurance that the device is safe and effective for its intended use. The FDA comments on the application in detail and requests the applicant to amend the application to respond to the cited deficiencies and provide the necessary information.

Growth Opportunity in Wound Care Treatment

We are focused on the development of products that treat unmet medical needs in large market opportunities. Currently, there are limited biological or mechanical therapies to activate the healing and regeneration of tissue, bone and vascular structures. As baby boomers age, the incidence of their targeted diseases and musculoskeletal injuries and ailments will be far more prevalent. We believe that our PACE technology is well positioned to address many of these issues. We believe that our PACE technology, in promoting tissue regeneration, can be effective

~~-28-~~

~~in a broad array of applications and address unmet medical needs in wound healing, orthopedic/spine, plastic/cosmetic and cardiac conditions.~~

Our primary interest is ~~developing~~obtaining FDA approval for our lead product candidate, dermaPACE, for the ~~global~~ wound care market, ~~with the first focus~~initially in the United States on diabetic foot ulcers. Diabetes is common, disabling and deadly. In the United States, diabetes has reached epidemic proportions. According to the American Diabetes Association, about 25.8 million people (8.3% of the total United States population) have diabetes, and nearly two million new cases are diagnosed in people aged 20 years or older each year. If current trends continue, 1 in 3 Americans will develop diabetes at some point in their lifetime, and those with diabetes will lose, on average, 10-15 years of life expectancy. Importantly, up to 25% of people with diabetes will develop a diabetic foot ulcer, resulting in 3 million diabetic foot ulcers annually in the United States alone. More than half of all foot ulcers will become infected, thus requiring hospitalization, and 1 in 5 will require an amputation that carries a high risk of mortality. Diabetes puts tremendous economic pressure on the United States healthcare system. In January 2011, the Centers for Disease Control and Prevention ~~(the “CDC”)~~(CDC) reported the total costs (direct and indirect) of diabetes in the United States is $174 billion annually, and people with diagnosed diabetes have medical expenditures that are over two times higher than medical expenditures for people without diabetes. Hospitalization costs alone are $16,000 to $20,000 for a patient with a diabetic foot ulcer, and direct and indirect costs of an amputation range from $20,000 to $60,000 per patient. Advanced, cost-effective treatment modalities for diabetes and its comorbidities, including diabetic foot ulcers, are in great need globally, yet in short ~~supply, globally.~~supply. According to the American Diabetes Association, by the year 2025 the prevalence of diabetes is expected to rise by 72% to 324 million people worldwide.

A majority of challenging wounds are non-healing chronic wounds. These wounds often involve physiologic, complex and multiple complications such as reduced blood supply, compromised lymphatic systems or immune deficiencies that interfere with the body’s normal wound healing processes. In addition, diabetic ulcers and pressure ulcers are often slow-to-heal wounds. These wounds often develop due to a patient’s impaired vascular and tissue repair capabilities. These conditions can also inhibit a patient’s healing process, and often fail to heal for many months, and sometimes, for several years. Wounds that are difficult to treat do not always respond to traditional therapies, which include hydrocolloids, hydrogels and ~~alginates.~~alginates, among other treatments. We believe that physicians and hospitals need a therapy that addresses the special needs of these wounds with high levels of both clinical and cost effectiveness.

We believe we are developing a safe and advanced technology in the wound healing and tissue regeneration market with PACE. dermaPACE is ~~non-invasive~~noninvasive and does not require anesthesia, making it a cost-effective, time-efficient and painless approach to wound care. Physicians and nurses look for therapies that can accelerate the healing process and overcome the obstacles of patients’ compromised conditions, and prefer therapies that are easy to administer. In addition, since many of these patients are not confined to bed, healthcare providers want therapies that are minimally disruptive to the patient’s or the caregiver’s daily routines. dermaPACE’s ~~non-invasive~~noninvasive treatment is designed to elicit the body’s own healing response. dermaPACE’s ~~simple protocol of four~~noninvasive treatments, ~~over a two week period,~~ followed by simple standard of care dressing changes, are designed to allow for limited disruption to the patients’ normal lives and have no effect on mobility while their wounds heal.

Our clinical experiences have demonstrated the ability of dermaPACE to promote wound healing, improve healing time and help prevent chronic conditions, such as diabetic foot ulcers, from leading to amputation. Our dermaPACE device has been used safely in Europe and Asia for various types of acute and chronic wounds.

Developing Product Opportunities —- Orthopedic ~~and Spine~~

We launched the orthoPACE device in Europe, which is intended for use in orthopedic, trauma and sports medicine indications, following CE ~~Mark approval~~Marking in ~~June~~ 2010. The device features four types of applicators including a ~~new,~~ unique applicator that is less painful for some indications and may reduce or completely eliminate anesthesia for some patients. In the orthopedic setting, the orthoPACE ~~will initially be~~is being used to treat tendinopathies and acute and nonunion fractures, including the soft tissue surrounding the fracture to accelerate healing and prevent secondary complications and their associated treatment costs.

We have established clinical, manufacturing and development relationships and multiple regulatory pathways to product development. We believe that these relationships and pathways, coupled with the well-characterized biologic response, history of safe use and clinically-proven efficacy of our PACE technology, all position us to become a leader in the development and commercialization of non-invasive, biological response devices for the repair and regeneration of tissue, musculoskeletal and vascular structures that will capitalize on the growing market for these products in wound healing, orthopedic/spine, plastic/cosmetic and cardiac applications. Although the results of our studies have been positive to date, we cannot provide any assurance that we will be successful in developing, obtaining regulatory approval for, or commercializing our current product candidates, or that we will do so in a timely fashion.

We believe there are significant opportunities in the worldwide orthopedic ~~and spine markets,~~market, driven by aging baby boomers ~~the~~and their desire for active lifestyles well into retirement and the growth in the incidence of osteoporosis, osteoarthritis, obesity, diabetes and other diseases that cause injury to orthopedic tissues and/or impair the ability of the body to heal injuries.

~~-29-~~

We have experience in the sports medicine field (which generally refers to the non-surgical and surgical management of cartilage, ligament and tendon injuries) through our legacy devices, OssaTron and Evotron. Common examples of these injuries include extremity joint pain, torn rotator cuffs (shoulder), tennis elbow, Achilles’ tendon tears and torn meniscus cartilage in the knee. Injuries to these structures are very difficult to treat because the body has a limited natural ability to regenerate these tissues. Cartilage, ligament and tendons seldom return to a pre-injury state of function. Due to a lack of therapies that can activate healing and regenerate these tissues, many of these injuries will result in a degree of permanent impairment and chronic pain. Prior investigations and pre-clinical work indicate that PACE can activate various cell types and may be an important adjunct to the management of sports medicine injuries.

Trauma injuries are acute and result from any physical damage to the body caused by violence or accident or ~~fracture.~~ fracture. Surgical treatment of traumatic fractures often involves fixation with metallic plates, screws and rods (internal fixation) and include off-loading to prevent motion, permitting the body to initiate a healing response. In the United States, six million traumatic fractures are treated each year, and over one million internal fixation procedures are performed annually. The prevalence of non-union among these fractures is between 2.5% and 10.0% depending on the fracture type and risk factors such as diabetes and smoking history or other systemic diseases. At the time of surgery, adjunctive agents (such as autograft, cadaver bone and synthetic filling materials) are often implanted along with internal fixation to fill bony gaps or facilitate the healing process to avoid delayed union or non-union (incomplete fracture healing) results. Both pre-clinical and clinical investigations have shown positive results, suggesting our technology could potentially be developed as an adjunct to these surgeries or primary treatment protocol for delayed or non-union events.

Non-Medical Uses For Our Shockwave Technology

We ~~have had a long history~~believe there are significant license/partnership opportunities for our shockwave technology in non-medical uses, including in the ~~sports medicine field~~energy, water, food and industrial markets.

Due to their powerful pressure gradients and localized cavitational effects, we believe high-energy, acoustic pressure shockwaves can be used to clean, in an energy efficient manner, contaminated fluids from impurities, bacteria, viruses and other harmful micro-organisms, which provides opportunities for our technology in cleaning industrial and domestic/municipal waters. Based on the same principles of action of the shockwaves against bacteria, viruses and harmful micro-organisms, we believe our technology can be applied for cleaning or sterilization of various foods as milk, natural juices and meats.

In the energy sector, we believe shockwaves can be used to improve oil recovery (IOR), as a supplement to or in conjunction with existing fracking technology, which utilizes high pressurized water/gases to crack the rocks that generally refers to the non-surgical and surgical management of cartilage, ligament and tendon injuries through our legacy device, Ossatron. Common examples of these injuries include extremity joint pain, torn rotator cuffs (shoulder), tennis elbow, Achilles’ tendon tears and torn meniscus cartilagetrap oil in the ~~knee. Injuries~~underground reservoir, through the use of our high-energy, acoustic pressure shockwaves to ~~these structures are very difficult to treat because~~improve the ~~body has a limited natural ability to regenerate these tissues. Cartilage, ligament~~efficiency and tendons seldom return to a pre-injury state of function. Due to a lack of therapies that can activate healing and regenerate these tissues, many of these injuries will result in a degree of permanent impairment and chronic pain. Prior investigations and new pre-clinical work indicate that PACE can activate various cell types and be an important adjunct toreduce the ~~management of sports medicine injuries.~~

~~Spinal fusion is a surgical technique performed to correct an unstable part~~environmental impact of the ~~spine by joining two or more vertebrae, such~~fracking process. Furthermore, we believe our technology can be used for enhanced oil recovery (EOR) based on the changes in fluid flow characteristics resulting from shockwave stimulation, as ~~degenerative disc disease (DDD), which~~a tertiary method of oil recovery from older oil fields.

Additionally, we believe high-energy, acoustic pressure shockwaves can ~~no longer~~disrupt biofilms and thus can be ~~managed with conservative methods. There are over 500,000 spinal fusions performed~~used to unclog pipes in the ~~United States annually on vertebrae~~energy industry (shore or off-shore installations), food industry and water management industry, which will reduce or eliminate down times with significant financial benefits for maintenance of the lower back (lumbar) or neck region (cervical). Orthopedic surgeons often will take bone from another part of the body (i.e. hip), known as autograft, and use it to fill the space between adjacent vertebrae. However, some disadvantages include the need to perform a second surgery, additional operative time, the potential for post-operative complications and long-term pain at the graft site. Bone morphogenetic proteins (BMPs) have also been used as a replacement for autograft in spinal fusion surgery; however, they have been associated with some severe and potentially life-threatening side effects, particularly when used in the neck region. PACE has been shown to be safe and effective in a pilot, rabbit model.existing infrastructure.

Market Trends

We are focused on the development of regenerative medicine products that have the potential to address substantial unmet clinical needs across broad market indications. We believe there are limited therapeutic treatments currently available that directly and reproducibly activate healing processes in the areas in which we are focusing, particularly for wound care and repair of certain types of musculoskeletal conditions.

According to AdvaMed and Centers for Medicare & Medicaid Services data and our internal projections, ~~for dermaPACE,~~ the United States advanced wound healing market for the dermaPACE is estimated at $5 billion, which includes diabetic foot ulcers, pressure sores, burns and traumatic wounds, and chronic mixed leg ulcers. We also believe there are significant opportunities in the worldwide orthopedic and spine markets, driven by aging baby boomers ~~the~~and their desire for active lifestyles well into retirement and the growth in the incidence of osteoporosis, osteoarthritis, obesity, diabetes and other diseases that cause injury to orthopedic tissues and/or impair the ability of the body to heal injuries.

With the success of negative pressure wound therapy devices in the wound care market over the last ~~ten years~~decade and the recognition of the global epidemic associated with certain types of wounds, as well as deteriorating musculoskeletal conditions attributed to various disease states such as obesity, diabetes and ischemia due to vascular and heart disease, as well as sports injuries, we believe that Medicare and private insurers have become aware of the costs and expenditures associated with the adjunctive therapies being utilized for wound healing and ~~orthopedic/spine~~orthopedic conditions with limited efficacies in full skin closure, or bone and tissue regeneration. We believe the wound healing and orthopedic markets are undergoing a transition, and market participants are interested in biological response activating devices that are applied ~~non-invasively~~noninvasively and seek to activate the body’s own capabilities for regeneration of tissue at injury sites in a cost-effective manner.

~~Strategy~~

Strategy

Our primary objective is to be a leader in the development and commercialization of ~~novel,~~our shockwave technology, which utilizes noninvasive, high-energy, acoustic shockwaves for regenerative medicine and other applications. Our initial focus is regenerative medicine – utilizing noninvasive, acoustic shockwaves to solicit a biological response ~~activating devices to treat~~resulting in the body healing itself through the repair and regeneration of tissue, musculoskeletal and vascular ~~structure conditions.~~structures. Our ~~main vehicle for growth~~lead regenerative product in the United States is the ~~development~~dermaPACE device for treating diabetic foot ulcers, which is in a final Phase III clinical study with possible FDA approval in 2015 subject to submission of satisfactory clinical study results. In addition, we believe we have significant license/partnership opportunities for our shockwave technology in medical and ~~commercialization~~non-medical uses, including energy, food and industrial markets, a broad intellectual property portfolio and know-how.

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 ~~PACE technology.~~ Pulsed Acoustic Cellular Expression (PACE) technology in wound healing, orthopedic, plastic/cosmetic and cardiac conditions.

Our immediate goal for our regenerative medicine technology involves leveraging the knowledge we gained from our existing human heel and elbow indications to enter the advanced wound care market with innovative treatments.

~~-30-~~

The key elements of our strategy include the following:

•·

Obtain FDA approval for our dermaPACE device to treat diabetic foot ulcers.

We are focusing initially on obtaining FDA approval for our lead product candidate, dermaPACE, for the wound care market, initially in the United States for diabetic foot ulcers which we believe represents a large, unmet need. The FDA has granted approval of our IDE Supplement to conduct a supplemental clinical trial of the dermaPACE device in the treatment of diabetic foot ulcers. We have already identified and entered into contracts with clinical study sites and for participation in the clinical study. We held the investigator meeting for protocol training on May 10-11, 2013 and expect patient enrollment to begin in the second quarter of 2013.

	·	Develop and commercialize ~~non-invasive~~our noninvasive biological response activating devices in the regenerative medicine area ~~that are superior to current medical devices~~ for the treatment of tissue, musculoskeletal and vascular structures.

We intend to use our proprietary technologies and know-how in the use of high-energy, acoustic pressure waves in the shockwave spectrum to address unmet medical needs in wound care, orthopedic, plastic/cosmetic and cardiac indications, possibly through potential license and/or partnership arrangements.

	·		~~We intend to use~~License and seek partnership opportunities for our ~~proprietary technologies~~non-medical shockwave technology platform, know-how and ~~know-how in the use of high energy, acoustic pressure waves in the shockwave spectrum to address unmet medical needs in wound care, orthopedic/spine, plastic/cosmetic and cardiac indications.~~extensive patent portfolio.

We intend to use our shockwave technology and know-how for non-medical uses, including energy, food, water and industrial markets, through license/partnership opportunities.

	•·		*~~Focus on products with a cost-effective time to market that utilize our experiences and track record in product approvals.~~*

			~~We have a track record of developing products by relying on our products that have been previously authorized for marketing by~~Support the FDA and by leveraging the lessons learned from those previous experiences as the cornerstone for further development and regulatory approvals. We will seek to repeat this process of utilizing FDA-cleared or approved components in our subsequent product candidates. However, we cannot be certain that this strategy will accelerate the regulatory approval process for our product candidates, or that we will obtain such approval.

	•		~~Leverage our historical data and experience to accelerate the development~~global distribution of our ~~lead wound care product candidate, as well as additional product candidates, for our target markets.~~

			We believe the ability of our legacy products, such as Ossatron, to safely stimulate and reestablish normal healing in chronic conditions indicates the potential successful use of dermaPACE and our other product candidates to stimulate and reinstitute the normal healing process through angiogenesis. We believe that much of the data and experience generated as part of the clinical development will be useful in gaining the required approval of our product candidates, including product manufacturing procedures and records, stability test results, analytical test methodology, pre-clinical and human safety test results, and, potentially, efficacy information.

	•		*~~Maximize the value of our PACE product candidates through control of distribution channels.~~*

			In the United States, we plan to build a sales force utilizing direct representatives managed by an in-house sales management team and supported by employee product specialists. As a result of our prior product approvals, we have spent significant resources on training and educating specialists in the use of our technology. We believe that this approach will allow us to have an immediate impact in the market by leveraging existing physician relationships. Outside the United States, we intend to utilize our distributor relationships for product introduction and adoption in local markets.

	•		*~~Support the clinical affairs activities for payment and reimbursement for our globally approved products and product candidates.~~*

			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 many countries, we may be required to produce clinical data, which may involve more clinical trials, that compares the cost-effectiveness of our approved products to other available therapies.products.

Our portfolio of products, the dermaPACE and orthoPACE, are CE Marked and sold through select distributors in certain countries in Europe, Canada and Asia/Pacific. Our revenues are from sales of the devices and related applicators in these markets. We currently do not have any commercial products available for sale in the United States. We intend to continue to add additional distribution partners in Europe and Asia/Pacific.

Scientific Advisors

We have established a network of advisors that brings expertise in wound healing, orthopedics, cosmetics, clinical and scientific research, and FDA experience. We consult our scientific advisors on an as-needed basis on clinical and pre-clinical study design, product development, and ~~product candidate development,~~ clinical ~~indications, and all applications of tissue engineering, focusing on indications and market needs.~~indications.

We pay consulting fees to certain members of our scientific advisory board for the services they provide to us, in addition to reimbursing them for incurred expenses. The amounts vary depending on the nature of the services. We paid our advisors aggregate consulting fees through the issuance of stock options in 2012 and ~~reimbursements~~recorded stock based compensation expense of ~~$7,500 and $22,500~~$27,750 for the ~~three months ended March 31, 2011 and 2010, respectively, and $90,126 and $74,100 for the years~~year ended December 31, ~~2010 and 2009, respectively.~~2012. We paid our advisors aggregate consulting fees of $37,500 for the year ended December 31, 2011.

Sales, Marketing and Distribution

We ~~intend to establish a direct sales force~~do not have any commercial products available for sale in the ~~wound care market that will market~~United States. We currently do not have the sales or marketing resources required to commercialize our products in the United States. The direct sales forces will be managed by our in-house sales management team and supported by product specialists employed by us who will train the sales force and provide product education for our physician and care giver customers. We expect to have a 50-person sales force in the United States

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~~by the end of 2013 that will represent our initial dermaPACE commercial efforts after receiving~~Following FDA approval, we intend to ~~market the device in the United States.~~

seek a development and/or commercialization partnership, or to commercialize a product ourselves. Outside the United States, we ~~intend to employ~~retain distributors to represent our products in ~~our respective~~selective international markets. These distributors ~~will be~~have been selected based on their existing business relationships and the ability of their sales force and distribution capabilities to effectively penetrate the market with our PACE product line. ~~In addition, we will~~We rely on these distributors to manage physical distribution, customer service and billing services for our international customers.

~~Manufacturing~~

Manufacturing

We have developed a network of suppliers, manufacturers and contract service providers to provide sufficient quantities of our ~~products and product candidates through the development and clinical testing phases.~~products.

We ~~have a~~are party to manufacturing supply agreement with Swisstronics Contract Manufacturing AG in Switzerland, a division of Cicor Technologies Ltd., covering the generator box component of our ~~products and product candidates.~~products. Our generator boxes are manufactured in accordance with applicable quality standards (EN ISO 13485) and applicable industry and regulatory standards. We produce the applicators and applicator kits for our products. In addition, we program and load software and perform the final product testing and certifications internally for all of our devices.

Our ~~two facilities~~facility in Alpharetta, Georgia ~~consist~~consists of ~~approximately 20,000~~5,168 square feet ~~in total,~~ and ~~provide~~provides office, research and development, quality control, production and warehouse space. ~~They are~~It is a FDA registered ~~facilities~~facility and ~~are~~is ISO 13485 ~~certified.~~certified (for meeting the requirements for a comprehensive management system for the design and manufacture of medical devices).

Intellectual Property

Our success depends in part on our ability to obtain and maintain proprietary protection for our products, product candidates, technology and know-how, to operate without infringing on the proprietary rights of others and to prevent others from infringing upon our proprietary rights. We seek to protect our proprietary position by, among other methods, filing United States and selected foreign patent applications and United States and selected foreign trademark applications related to our proprietary technology, inventions, products and improvements that are important to the development of our business. Effective trademark, service mark, copyright, patent and trade secret protection may not be available in every country in which our products are made available. The protection of our intellectual property may require the expenditure of significant financial and managerial resources.

~~Patents~~

Patents

We consider the protection afforded by patents important to our business. We intend to seek and maintain patent protection in the United States and select foreign countries where deemed appropriate for products that we develop. There are no assurances that any patents will result from our patent applications, or that any patents that may be issued will protect our intellectual property, or that any issued patents or pending applications will not be successfully challenged, including as to ownership and/or validity, by third parties. In addition, if we do not avoid infringement of the intellectual property rights of others, we may have to seek a license to sell our products, defend an infringement action or challenge the validity of intellectual property in court. Any current or future challenges to our patent rights, or challenges by us to the patent rights of others, could be expensive and time consuming.

We derive our patent rights, including as to both issued patents and “patent pending” applications, from three sources: (1) assignee of patent rights in technology we developed; (2) assignee of patent rights purchased from HealthTronics, Inc. (“HealthTronics”); and (3) as licensee of certain patent rights assigned to HealthTronics. In August 2005, we purchased a majority of our current patents and patent applications from HealthTronics, to whom we granted back perpetual and royalty-free field-of-use license rights in the purchased patent ~~portfolio.~~portfolio primarily for urological uses. We believe that our owned and licensed patent rights provide a competitive advantage with respect to others that might seek to utilize certain of our apparatuses and methods incorporating extracorporeal shockwave technologies that we have patented; however, we do not hold patent rights that cover all of our products, product components, or methods that utilize our products. We also have not conducted a competitive analysis or valuation with respect to our issued and pending patent portfolio in relation to our current products and/or competitor products.

We are the assignee of ~~fourteen~~seventeen issued United States patents and ~~ten~~seven issued foreign ~~patents.~~patents which on average have remaining useful lives of ten years or longer. Our current issued United States and foreign patents include patent claims directed to particular electrode configurations, piezoelectric fiber shockwave devices, chemical components for shockwave generation and detachable therapy heads with data storage. Our United States patents also include patent claims directed to methods of using acoustic shockwaves, including shockwave devices such as our products, to treat ischemic conditions, spinal cord scar tissue and spinal injuries, body tissues under positive pressure, bone surface gaps, and, within particular treatment parameters, diabetic foot ulcers and pressure sores. While such patented method claims may provide patent protection against certain indirect infringing promotion and sales activities of competing manufacturers and distributors, certain medical methods performed by medical practitioners or related health care entities may be subject to exemption from potential infringement claims under 35 U.S.C. § 287(c) and, therefore, may limit enforcement of

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claims of our method patents as compared to device and non-medical method patents.

We also currently maintain ~~twelve~~seven United States non-provisional patent applications and ~~twelve~~two foreign patent applications. Our patent-pending rights include inventions directed to certain shockwave devices and systems, ancillary products and components for shockwave treatment devices, and various methods of using acoustic pressure waves. Such patent-pending methods include, for example, using acoustic pressure waves to treat soft tissue disorders, bones, joints, wounds, skin, blood vessels and circulatory disorders, lymphatic disorders, cardiac tissue, fat and cellulite, cancer, blood and fluids ~~for~~ sterilization, and to destroy pathogens. All of our United States and foreign pending applications either have yet to be examined or require response to an examiner’s office action rejections and, therefore, remain subject to further prosecution, the possibility of further rejections and appeals, and/or the possibility we may elect to abandon prosecution, without assurance that a patent may issue from any pending application.

Under our license to HealthTronics, we reserve exclusive rights in our purchased portfolio as to orthopedic, tendonopathy, skin wounds, cardiac, dental and neural medical conditions and to all conditions in animals ~~(the “Ortho Field”)~~(Ortho Field). HealthTronics receives field-exclusive and sublicensable rights under the purchased portfolio as to (1) certain HealthTronics lithotripsy devices in all fields other than the Ortho Field, and (2) all products in the treatment of renal, ureteral, gall stones and other urological conditions ~~(the “Litho Field”)~~(Litho Field). HealthTronics also receives non-exclusive and non-sublicensable rights in the purchased portfolio as to any products in all fields other than the Ortho Field and Litho Field.

Pursuant to mutual amendment and other assignment-back rights under the patent license agreement with HealthTronics, we are also a licensee of certain patents and patent applications that have been assigned to HealthTronics. Under issued United States Pat. No. 6,972,116, directed to particular compositions of shockwave device electrodes, we receive a perpetual, exclusive and royalty-free license in the Ortho Field and a non-exclusive license in all other fields other than the Litho Field (reserved exclusively to HealthTronics). We ~~also receive~~received a perpetual, non-exclusive and royalty-free license to ~~six~~nine (9) issued foreign ~~patents and one pending United States patent application.~~patents. Our non-exclusive license is subject to HealthTronics’ sole discretion to further maintain any of the patents and pending applications assigned back to HealthTronics.

A Switzerland based company, SwiTech Medical AG (“SwiTech”), filed an ex parte reexamination request on March 23, 2010, against United States Pat. No. 6,972,116 which was assigned by HealthTronics to us on August 30, 2011. On February 14, 2012, we filed an appeal against rejections that all pending claims of the 6,972,116 patent were obvious in view of newly cited prior art and we are awaiting examiner’s response. If the patent claims are finally rejected by the United States Patent & Trademark Office (USPTO), we will continue to be able to use the patented materials in our devices. While the ultimate outcome of this matter is not presently determinable, we believe that the resolution will not have a material adverse effect on our financial position or results of operations.

As part of the sale of the veterinary business in June 2009, we have also granted certain exclusive and non-exclusive patent license rights to Pulse Veterinary Technologies, LLC under most of our patent portfolio to utilize shockwave technologies in the field of non-human mammals.

Given our international patent portfolio, there are growing risks of challenges to our existing and future patent rights. Such challenges may result in invalidation or modification of some or all of our patent rights in a particular patent territory, and reduce our competitive advantage with respect to third party products and services. Such challenges may also require the expenditure of significant financial and managerial resources.

If we become involved in future litigation or any other adverse intellectual property proceeding, for example, as a result of an alleged infringement, or a third party alleging an earlier date of invention, we may have to spend significant amounts of money and time and, in the event of an adverse ruling, we could be subject to liability for damages, including treble damages, invalidation of our intellectual property and injunctive relief that could prevent us from using technologies or developing products, any of which could have a significant adverse effect on our business, financial condition and results of operation. In addition, any claims relating to the infringement of third party proprietary rights, or earlier date of invention, even if not meritorious, could result in costly litigation or lengthy governmental proceedings and could divert management’s attention and resources and require us to enter into royalty or license agreements which are not advantageous, if available at all.

~~Trademarks~~

Trademarks

Since other products on the market compete with our products, we believe that our product brand names are an important factor in establishing ~~product~~and maintaining brand recognition.

We have the following trademark ~~registrations for~~registrations: SANUWAVE^® ~~in the United~~ (United States, European Community, Canada, Japan, Switzerland, Taiwan and under the Madrid ~~Protocol and~~Protocol), dermaPACE^® ~~in the United States. We have filed pending trademark applications for dermaPACE~~^® ~~in Canada and received registrations in the~~ (United States, European Community, Japan, South Korea, Switzerland, Taiwan and under the Madrid ~~Protocol (including the United States). We have filed pending trademark applications for~~Protocol), angioPACE^™~~in the United States and received registrations in Australia, Canada, the~~® (Australia, European Community and ~~Switzerland. We have received trademark registrations for~~Switzerland), PACE^™ ~~and Pulsed Acoustic Cellular Expression~~^™ ~~in the~~® (United States, European Community, China, Hong Kong, Singapore, Switzerland, ~~Taiwan~~Taiwan), orthoPACE® (United States and ~~have pending applications in Canada~~European Community), DAP® (United States) and ~~the United States. We have filed pending applications for orthoPACE~~^™~~, DAP Diffused Acoustic Pressure~~^™~~, and Profile~~^™ ~~in the United States.~~ Healing Today. Curing Tomorrow.® (United States).

We also maintain trademark registrations ~~for the marks Ossatron~~^{for: OssaTron®} (United States and Germany), evoPACE^® (Australia, ~~the~~ European Community and Switzerland), Evotron^® (United States, Germany and Switzerland), Evotrode^® (Germany and Switzerland), ~~Healing Today. Curing Tomorrow.~~^{^HMT®} (Switzerland), Orthotripsy® (United States), ~~HMT~~^Reflectron® ~~(Switzerland), orthoPACE~~^® ~~(the European Community), Orthotripsy~~^® ~~(United States), Reflectron~~^® (Germany and Switzerland), Reflectrode^® (Germany and Switzerland), CSWT^® (Switzerland), OSWT^® (Switzerland) and TSWT^® (Switzerland).

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We have filed pending trademark applications for: dermaPACE™ (Canada), angioPACE™ (United States), PACE™ (Canada) and Profile™ (United States, European Community and Switzerland).

Potential Intellectual Property Issues

Although we believe that the patents and patent applications, including those that we license, provide a competitive advantage, the patent positions of biotechnology and medical device companies are highly complex and uncertain. The medical device industry is characterized by the existence of a large number of patents and frequent litigation based on allegations of patent infringement. Our success will depend in part on us not infringing on patents issued to others, including our competitors and potential competitors, as well as our ability to enforce our patent rights. We also rely on trade secrets, know-how, continuing technological innovation and in-licensing opportunities to develop and maintain our proprietary position.

Despite any measures taken to protect our intellectual property, unauthorized parties may attempt to copy aspects of our products and product candidates, or to obtain and use information that we regard as proprietary. In enforcement proceedings in Switzerland, we are currently assisting HealthTronics as an informer of misappropriation by SwiTech and related third parties of intellectual property rights in legacy software and devices relating to assets we purchased from HealthTronics in August 2005. Such present or future actions against violations of our intellectual property rights may ~~incur~~result in us incurring material expense and divert the attention of management.

Third parties that license our proprietary rights, such as trademarks, patented technology or copyrighted material, may also take actions that diminish the value of our proprietary rights or reputation. In addition, the steps we take to protect our proprietary rights may not be adequate and third parties may infringe or misappropriate our copyrights, trademarks, trade dress, patents and similar proprietary rights.

We collaborate with other persons and entities on research, development and commercialization activities and expect to do so in the future. Disputes may arise about inventorship and corresponding rights in know-how and inventions resulting from the joint creation or use of intellectual property by us and our collaborators, researchers, licensors, licensees and consultants. In addition, other parties may circumvent any proprietary protection that we do have. As a result, we may not be able to maintain our proprietary position.

~~For additional risks related to our intellectual property, see “Risk Factors — Risks Related to Intellectual Property.”~~

~~Competition~~

Competition

We believe the advanced wound care market ~~is dramatically underserved.~~can benefit from our technology which up-regulates the biological factors that promote wound healing. Current technologies developed by Kinetic Concepts, Inc. (“KCI”), Advanced BioHealing, Inc. (acquired by Shire plc in 2011), Organogenesis, Inc., Smith & Nephew plc, Integra LifeSciences Holdings Corporation and Systagenix Wound Management (US), Inc. manage wounds, but, in our opinion, do not ~~impact~~provide the ~~biologic factors~~value proposition to ~~promote healing~~the patients and care givers like our PACE ~~technology.~~technology has the potential to do. The leading medical device serving this market is the Vacuum Assisted Closure (“V.A.C.”) System marketed by KCI. The V.A.C. is a negative pressure wound therapy ~~(“NPWT”)~~ device that applies suction to debride and better manage wounds. KCI successfully launched the V.A.C. in the United States to address the void in advanced wound care, received a Medicare Part B reimbursement code in 2000, gained inclusion in the diabetic foot ulcer guidelines from the Tucson Expert Consensus Conference in 2004 and recorded worldwide revenue of $1.4 billion from the V.A.C. in 2010.

There are also several companies that market extracorporeal shockwave device products targeting lithotripsy and orthopedic markets, including Dornier MedTech, Storz Medical AG and Tissue Regeneration Technologies, LLC, and could ultimately pursue the wound care market. Nevertheless, we believe that dermaPACE has a competitive advantage over all of these existing technologies by achieving wound closure by means of a minimally invasive process through innate biological response to PACE.

Developing and commercializing new products is highly competitive. The market is characterized by extensive research and clinical efforts and rapid technological change. We face intense competition worldwide from medical device, biomedical technology and medical products and combination products companies, including major pharmaceutical companies. We may be unable to respond to technological advances through the development and introduction of new products. Most of our existing and potential competitors have substantially greater financial, marketing, sales, distribution, manufacturing and technological resources. These competitors may also ~~may~~ be in the process of seeking FDA or other regulatory approvals, or patent protection, for new products. Our competitors may commercialize new products in advance of our products. Our products also face competition from numerous existing products and procedures, which currently are considered part of the standard of care. In order to compete effectively, our products will have to achieve widespread market acceptance.

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Regulatory Matters

FDA Regulation

Each of our products must be ~~cleared~~approved or ~~approved~~cleared by the FDA before it is marketed in the United States. Before and after approval or clearance in the United States, our product candidates are subject to extensive regulation by the FDA under the Federal Food, Drug, and Cosmetic Act and/or the Public Health Service Act, as well as by other regulatory bodies. FDA regulations govern, among other things, the development, testing, manufacturing, labeling, safety, storage, record-keeping, market clearance or approval, advertising and promotion, import and export, marketing and sales, and distribution of medical devices and pharmaceutical products.

In the United States, the FDA subjects medical products to rigorous review. If we do not comply with applicable requirements, we may be fined, the government may refuse to approve our marketing applications or to allow us to manufacture or market our products, and we may be criminally prosecuted. Failure to comply with the law could result in, among other things, warning letters, civil penalties, delays in approving or refusal to approve a product candidate, product recall, product seizure, interruption of production, operating restrictions, suspension or withdrawal of product approval, injunctions, or criminal prosecution.

The FDA has determined that our technology and product candidates constitute “medical devices.” The FDA determines what center or centers within the FDA will review the product and its indication for use, and also determines under what legal authority the product will be reviewed. For the current indications, our ~~product candidate is~~products are being reviewed by the Center for Devices and Radiological Health. However, we cannot be sure that the FDA will not select a different center and/or legal authority for one or more of our other product candidates, in which case the governmental review requirements ~~would~~could vary in some respects.

FDA Approval or Clearance of Medical Devices

In the United States, medical devices are subject to varying degrees of regulatory control and are classified in one of three classes depending on the extent of controls the FDA determines are necessary to reasonably ensure their safety and efficacy:

	•	·	Class I: general controls, such as labeling and adherence to quality system regulations;

	•	·	Class II: special controls, pre-market notification (510(k)), specific controls such as performance standards, patient registries, and postmarket surveillance, and additional controls such as labeling and adherence to quality system regulations; and

•

Class III: special controls and approval of a pre-market approval (“PMA”) application.

Each of our product candidates require FDA authorization prior to marketing, by means of either a 510(k) clearance or a PMA approval. We are currently proceeding ~~along~~on the ~~path~~basis that dermaPACE is a Class III device requiring a PMA approval. To date, we have corresponded with the FDA pertaining to possible reclassification of PACE technology for certain indications within the Class II designation. The FDA continues to maintain that PACE should remain a Class III technology. Reclassification of the technology is possible but the path through the FDA for such reclassification will be lengthy and involved. In the meantime, we may leverage existing PMA approval for ~~Ossatron~~our OssaTron device in order to obtain the same indication (treatment of plantar fasciitis) for our orthoPACE device as a line extension for the technology. This route may not require clinical trials and will be time effective. ~~We may be able to leverage the expected approval for dermaPACE in much the same manner for other indications utilizing existing clinical experience.~~

To request marketing authorization by means of a 510(k) clearance, we must submit a pre-market notification demonstrating that the proposed device is substantially equivalent to another legally marketed medical device, has the same intended use, and is as safe and effective as a legally marketed device and does not raise different questions of safety and effectiveness than does a legally marketed device. 510(k) submissions generally include, among other things, a description of the device and its manufacturing, device labeling, medical devices to which the device is substantially equivalent, safety and biocompatibility information, and the results of performance testing. In some cases, a 510(k) submission must include data from human clinical studies. Marketing may commence only when the FDA issues a clearance letter finding substantial equivalence. After a device receives 510(k) clearance, any product modification that could significantly affect the safety or effectiveness of the product, or that would constitute a significant change in intended use, requires a new 510(k) clearance or, if the device would no longer be substantially equivalent, would require a PMA. If the FDA determines that the product does not qualify for 510(k) clearance, then ~~the~~a company must submit and the FDA must approve a PMA before marketing can begin.

A PMA application must provide a demonstration of safety and effectiveness, which generally requires extensive pre-clinical and clinical trial data. Information about the device and its components, device design, manufacturing and labeling, among other information, must also be included in the PMA. As part of the PMA review, the FDA will inspect the manufacturer’s facilities for compliance with Quality System Regulation ~~or QSR,~~ requirements, which govern testing, control, documentation and other aspects of quality assurance with respect to manufacturing. If the FDA determines the application or manufacturing facilities are not acceptable, the FDA may outline the deficiencies in the submission and often will request additional testing or information. Notwithstanding the submission of any requested additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval. During the review period, an FDA advisory committee, typically a panel of clinicians and statisticians, is likely to be convened to review the application and recommend

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to the FDA whether, or upon what conditions, the device should be approved. The FDA is not bound by the advisory panel ~~decision, but~~decision. While the FDA often follows the panel’s ~~recommendation.~~recommendation, there have been instances where the FDA has not. If the FDA finds the information satisfactory, it will approve the PMA. The PMA approval can include post-approval conditions, including, among other things, restrictions on labeling, promotion, sale and distribution, or requirements to do additional clinical studies post-approval. Even after approval of a PMA, a new PMA or PMA supplement is required to authorize certain modifications to the device, its labeling or its manufacturing process. Supplements to a PMA often require the submission of the same type of information required for an original PMA, except that the supplement is generally limited to that information needed to support the proposed change from the product covered by the original PMA.

During the review of either a PMA application or 510(k) submission ~~or PMA application,~~, the FDA may request more information or additional studies and may decide that the indications for which we seek approval or clearance should be limited. We cannot be sure that our product candidates will be ~~cleared~~approved or ~~approved~~cleared in a timely fashion or at all. In addition, laws and regulations and the interpretation of those laws and regulations by the FDA may change in the future. We cannot foresee what effect, if any, such changes may have on us.

The FDA has just released new guidelines for approval of a Class II device via the 510(k) process. In the past, the FDA has been criticized for their lack of predictability, reliability, and efficiency of the 510(k) process. Under these new, developing guidelines, the FDA will implement internal programs to address these concerns. The new paradigm is intended to clarify requirements for manufacturers and to streamline the approval process. These changes may also require device manufacturers to provide more clinical data to prove their claims. While we

We do not anticipate device regulatory pathways via the 510(k) route with our current technology. The FDA continues to stress that our products remain Class III, thus requiring the PMA approval pathway. In the past, the 510(k) pathway for product marketing required only the proof of significant equivalence in technology for a given indication with a previously cleared device. Currently, there has been a trend of the FDA requiring additional clinical work to prove efficacy in addition to technological equivalence. Thus, no matter which regulatory pathway we ~~must remain cognizant~~may take in the future towards marketing products in the United States, we will be required to provide clinical proof of ~~these regulatory changes~~device effectiveness.

Within the past year, the FDA has released new guidelines for ~~future~~the FDA’s reviewers to use during a product’s submission review process. This guidance provides the FDA reviewers with a uniform method of evaluating the benefits verses the risks of a device ~~pathways via~~when used for a proposed specific indication. Such a benefit/risk evaluation is very useful when applied to a novel device or to a novel indication and provides the FDA with a consistent tool to document their decision process. While intended as a guide for internal FDA use, the public availability of this ~~route.~~guidance allows medical device manufacturers to use the review matrix to develop sound scientific and clinical backup to support proposed clinical claims and to help guide the FDA, through the decision process, to look at the relevant data. We intend to use this benefit/risk tool in our FDA submissions.

Obtaining medical device clearance, approval, or licensing in the United States or abroad can be an expensive process. The fees for submitting an original PMA to the FDA for consideration of device approval are substantial. Fees for supplement PMA’s are less costly but still can be substantial. International fee structures vary from minimal to substantial, depending on the country. In addition, we are subject to annual establishment registration fees in the United States and abroad. Device licenses require periodic renewal with associated fees as well. In the United States, there is an annual requirement for submitting device reports for Class III/PMA devices, along with an associated fee. Currently, we are registered as a Small Business Manufacturer with the FDA and as such ~~this places us~~are subject to reduced fees. If, in ~~a reduced fee structure. As~~the future, our revenues exceed a certain annual threshold limit, we may not qualify for the Small Business Manufacturer reduced fee ~~structure~~amounts and will be required to pay full fee amounts.

Clinical Trials of Medical Devices

One or more clinical trials are almost always required to support a PMA application and more recently are ~~sometimes required~~becoming necessary to support a 510(k) submission. Clinical studies of unapproved or uncleared medical devices or devices being studied for uses for which they are not approved or cleared (investigational devices) must be conducted in compliance with FDA requirements. If an investigational device could pose a significant risk to patients, the sponsor company must submit an IDE application to the FDA prior to initiation of the clinical study. An IDE application must be supported by appropriate data, such as animal and laboratory test results, showing that it is safe to test the device on humans and that the testing protocol is scientifically sound. The IDE will automatically become effective 30 days after receipt by the FDA unless the FDA notifies the company that the investigation may not begin. Clinical studies of investigational devices may not begin until an institutional review board ~~(the “IRB”)~~(IRB) has approved the study.

During the study, the sponsor must comply with the FDA’s IDE requirements. These requirements include investigator selection, trial monitoring, adverse event reporting, and record keeping. The investigators must obtain patient informed consent, rigorously follow the investigational plan and study protocol, control the disposition of investigational devices, and comply with reporting and record keeping requirements. We, the FDA, or the IRB at each institution at which a clinical trial is being conducted may suspend a clinical trial at any time for various reasons, including a belief that the subjects are being exposed to an unacceptable risk. During the approval or clearance process, the FDA typically inspects the records relating to the conduct of one or more investigational sites participating in the study supporting the application.

Post-Approval Regulation of Medical Devices

After a device is cleared or approved for marketing, numerous and pervasive regulatory requirements continue to apply. These include:

	•	·	the FDA Quality Systems Regulation ~~(“QSR”)~~(QSR), which governs, among other things, how manufacturers design, test, manufacture, exercise quality control over, and document manufacturing of their products;

	•	·	labeling and claims regulations, which prohibit the promotion of products for unapproved or “off-label” uses and impose other restrictions on labeling; and

•

the Medical Device Reporting regulation, which requires reporting to the FDA of certain adverse experiences associated with use of the product.

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We continue to be subject to inspection by the FDA to determine our compliance with regulatory requirements, as doare our suppliers, contract manufacturers, and contract testing laboratories.

International sales of medical devices manufactured in the United States that are not approved or cleared by the FDA are subject to FDA export requirements. Exported devices are subject to the regulatory requirements of each country to which the device is exported. Exported devices may also fall under the jurisdiction of the United States Department of Commerce/Bureau of Industry and Security and compliance with export regulations may be required for certain countries.

Manufacturing cGMP Requirements

~~If and when we manufacture~~

Manufacturers of medical devices ~~we will be~~are required to comply with ~~applicable~~ FDA manufacturing requirements contained in the FDA’s current ~~good manufacturing practices (the “cGMP”)~~Good Manufacturing Practices (cGMP) set forth in the quality system regulations promulgated under section 520 of the Food, Drug and Cosmetic Act. cGMP regulations require, among other things, quality control and quality assurance as well as the corresponding maintenance of records and documentation. The manufacturing facility for our products must meet cGMP requirements to the satisfaction of the FDA pursuant to a pre-PMA approval inspection before we can use ~~them.~~it. We and some of our third party service providers are also subject to periodic inspections of facilities by the FDA and other authorities, including procedures and operations used in the testing and manufacture of our products to assess our compliance with applicable regulations. Failure to comply with statutory and regulatory requirements subjects a manufacturer to possible legal or regulatory action, including the seizure or recall of products, injunctions, consent decrees placing significant restrictions on or suspending manufacturing operations, and civil and criminal penalties. Adverse experiences with the product must be reported to the FDA and could result in the imposition of marketing restrictions through labeling changes or in product withdrawal. Product approvals may be withdrawn if compliance with regulatory requirements is not maintained or if problems concerning safety or efficacy of the product occur following the approval.

International Regulation

We are subject to regulations and product registration requirements in many foreign countries in which we may sell our products, including in the areas of product standards, packaging requirements, labeling requirements, import and export restrictions and tariff regulations, duties and tax requirements. The time required to obtain clearance required by foreign countries may be longer or shorter than that required for FDA clearance, and requirements for licensing a product in a foreign country may differ significantly from FDA requirements.

The primary regulatory environment in Europe is the European Union, which consists of 25 member states and 42 competent authorities encompassing most of the major countries in Europe. In the European Union, the European Medicines Agency (EMA) and the European Union Commission have determined that dermaPACE, orthoPACE, OssaTron and Evotron will be regulated as medical device products. These devices have been determined to be Class IIb devices. These devices are CE Marked and as such can be marketed and distributed within the European Economic Area.

The primary regulatory body in Canada is Health Canada. In addition to needing appropriate data to obtain market licensing in Canada, we must have an ISO 13485:2003 certification, as well as meet additional requirements of Canadian laws. We currently ~~have~~maintain this ~~certification and will need to~~certification. We maintain ~~it in order to have the potential to gain approval of a product candidate in Canada. We obtained~~ a device license for dermaPACE ~~from~~with Health Canada ~~in 2010~~ for the indication of “devices for application of ~~shock waves~~shockwaves (pulsed acoustic waves) on acute and chronic defects of the skin and subcutaneous soft tissue”.

The primary regulatory environment in Europe is the European Union, which consists of 25 member states and 42 competent authorities encompassing most of the major countries in Europe. In the European Union, the European Medicines Agency (“EMA”) and the European Union Commission have determined that dermaPACE, orthoPACE, Ossatron and Evotron will be regulated as medical device products. These devices have been determined to be Class IIb devices. These devices are CE Marked and as such can be marketed and distributed within the European Economic Area.

The primary regulatory bodies and paths in Asia and Australia are determined by the requisite country authority. In most cases, establishment registration and device licensing are applied for at the applicable Ministry of Health through a local intermediary. The requirements placed on the manufacturer are typically the same as those contained in ISO 9001 or ISO 13485.

European Good Manufacturing Practices

In the European Union, the manufacture of medical devices is subject to good manufacturing practice ~~(“GMP”)~~(GMP), as set forth in the relevant laws and guidelines of the European Union and its member states. Compliance with GMP is generally assessed by the competent regulatory authorities. Typically, quality system evaluation is performed by a Notified Body, which also recommends to the relevant competent authority for the European Community CE Marking of a device. The Competent Authority may conduct inspections of relevant facilities, and review manufacturing procedures, operating systems and personnel qualifications. In addition to obtaining approval for each product, in many cases each device manufacturing facility must be audited on a periodic basis by the Notified Body. Further inspections may occur over the life of the product.

United States Anti-Kickback and False Claims Laws

In the United States, there are Federal and state anti-kickback laws that prohibit the payment or receipt of kickbacks, bribes or other remuneration intended to induce the purchase or recommendation of healthcare products and services. Violations of these laws can lead to

~~-37-~~

civil and criminal penalties, including exclusion from participation in Federal healthcare programs. These laws are potentially applicable to manufacturers of products regulated by the FDA as medical devices, such as us, and hospitals, physicians and other potential purchasers of such products. Other provisions of Federal and state ~~and Federal law~~laws provide civil and criminal penalties for presenting, or causing to be presented, to third-party payers for reimbursement, claims that are false or fraudulent, or which are for items or services that were not provided as claimed. In addition, certain states have implemented regulations requiring medical device and pharmaceutical companies to report all gifts and payments over $50 to medical practitioners. This does not apply to instances involving clinical trials. Although we intend to structure our future business relationships with clinical investigators and purchasers of our products to comply with these and other applicable laws, it is possible that some of our business practices in the future could be subject to scrutiny and challenge by Federal or state enforcement officials under these laws.

Third Party Reimbursement

We anticipate that sales volumes and prices of the products we commercialize will depend in large part on the availability of coverage and reimbursement from third party payers. Third party payers include governmental programs such as Medicare and Medicaid, private insurance plans, and workers’ compensation plans. These third party payers may deny coverage and reimbursement for a product or therapy, in whole or in part, if they determine that the product or therapy was not medically appropriate or necessary. The third party payers also may place limitations on the types of physicians or clinicians that can perform specific types of procedures. In addition, third party payers are increasingly challenging the prices charged for medical products and services. Some third party payers must also pre-approve coverage for new or innovative devices or therapies before they will reimburse ~~health care~~healthcare providers who use the products or therapies. Even though a new product may have been approved or cleared by the FDA for commercial distribution, we may find limited demand for the device until adequate reimbursement has been obtained from governmental and private third party payers.

In international markets, reimbursement and healthcare payment systems vary significantly by country, and many countries have instituted price ceilings on specific product lines and procedures. There can be no assurance that procedures using our products will be considered medically reasonable and necessary for a specific indication, that our products will be considered cost-effective by third party payers, that an adequate level of reimbursement will be available or that the third party payers’ reimbursement policies will not adversely affect our ability to sell our products profitably.

In the United States, some insured individuals are receiving their medical care through managed care programs, which monitor and often require pre-approval of the services that a member will receive. Some managed care programs are paying their providers on a per capita basis, which puts the providers at financial risk for the services provided to their patients by paying these providers a predetermined payment per member per month, and consequently, may limit the willingness of these providers to use products, including ours.

One of the components in the reimbursement decision by most private insurers and governmental payers, including the Centers for Medicare & Medicaid Services, which administers Medicare, is the assignment of a billing code. Billing codes are used to identify the procedures performed when providers submit claims to third party payers for reimbursement for medical services. They also generally form the basis for payment amounts. ~~New~~We will seek new billing codes for ~~our~~the wound care indications of our ~~product candidates will be sought~~products as part of our efforts to commercialize such products.

The initial phase of establishing a professional billing code for a medical service typically includes applying for a CPT Category III ~~Current Procedural Terminology (“CPT”)~~ code. This is a tracking code without relative value assigned that allows third party payers to identify and monitor the service as well as establish value if deemed medically necessary. The process includes CPT application submission, clinical discussion with Medical Professional Society CPT advisors as well as American Medical Association ~~(“AMA”)~~(AMA) CPT Editorial Panel review. A new CPT Category III ~~CPT~~ code will be assigned if the AMA CPT Editorial Panel committee deems it meets the applicable criteria and is appropriate. In 2011, we received two CPT Category III codes for extracorporeal shock wave therapy (ESWT) in wound healing.

The secondary phase in the CPT billing code process includes the establishment of a permanent CPT Category I ~~CPT~~ code in which relative value is analyzed and established by the AMA. The approval of this code, is based on, among other criteria, ~~is based on~~ widespread usage and established clinical efficacy of the medical service.

There are also billing codes that facilities, rather than health care professionals, utilize for the reimbursement of operating costs for a particular medical service. For the hospital outpatient setting, the Centers for Medicare & Medicaid Services automatically classified the new ESWT wound healing CPT Category III codes into interim APC groups. The APC groups are services grouped together based on clinical characteristics and similar costs. An APC classification does not guarantee payment.

We believe that the overall escalating costs of medical products and services has led to, and will continue to lead to, increased pressures on the healthcare industry to reduce the costs of products and services. In addition, recent healthcare reform measures, as well as legislative and regulatory initiatives at the Federal and state levels, create significant additional uncertainties. There can be no assurance that ~~third-party~~third party coverage and reimbursement will be available or adequate, or that future legislation, regulation, or reimbursement policies of third party payers will not adversely affect the demand for our products or our ability to sell these products on a profitable basis. The unavailability or inadequacy of third party payer coverage or reimbursement would have a material adverse effect on our business, operating results and financial condition.

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Environmental and Occupational Safety and Health Regulations

Our operations are subject to extensive Federal, state, provincial and municipal environmental statutes, regulations and policies, including those promulgated by the Occupational Safety and Health Administration, the United States Environmental Protection Agency, Environment Canada, Alberta Environment, the Department of Health Services, and the Air Quality Management District, that govern activities and operations that may have adverse environmental effects such as discharges into air and water, as well as handling and disposal practices for solid and hazardous wastes. Some of these statutes and regulations impose strict liability for the costs of cleaning up, and for damages resulting from, sites of spills, disposals, or other releases of contaminants, hazardous substances and other materials and for the investigation and remediation of environmental contamination at properties leased or operated by us and at off-site locations where we have arranged for the disposal of hazardous substances. In addition, we may be subject to claims and lawsuits brought by private parties seeking damages and other remedies with respect to similar matters. We have not to date needed to make material expenditures to comply with current environmental statutes, regulations and policies. However, we cannot predict the impact and costs those possible future statutes, regulations and policies will have on our business.

Milestone and Royalty Payments

Under an agreement with Sci-Do AG, an Austrian company from which we purchased certain patents, we are required to make various milestone and royalty payments based on the occurrence of certain events. Pursuant to the terms of the agreement, we are required to make a royalty payment of $100,000 upon FDA approval of our product for wound care. In addition, we are required to make royalty payments, based on a percentage of operating profit, for sales of FDA-approved wound care products in excess of $500,000 of earnings before interest and taxes. There were no payments under the agreement for the three months ended March 31, ~~2011~~2013 and ~~2010. There were no payments under~~2012 and the ~~agreement for the year~~years ended December 31, ~~2010.~~ 2012 and 2011.

Research and Development

During the ~~year~~three months ended March 31, 2013 and 2012, we spent $344,685 and $603,797 on research and development activities, respectively. For the years ended December 31, ~~2009,~~2012 and 2011, we ~~paid $50,000 under the agreement.~~spent $1,762,194 and $2,731,059 on research and development activities, respectively. Our research and development costs consist primarily of clinical trial expenses.

Employees

As of ~~June 7, 2011,~~May 13, 2013, we had a total of 29eleven full time employees in the United States. Of these, ~~29 full-time employees, 12~~six were engaged in research and development ~~including~~which includes clinical, regulatory and quality. None of our employees are represented by a labor union or covered by a collective bargaining agreement. We believe our relationship with our employees is good.

Properties

Our operations, ~~are headquartered in a leased facility in Alpharetta, Georgia, consisting of 15,025 square feet of space under a sublease which expires on October 31, 2012.~~

~~Our~~ production and research and development office is in a leased facility in Alpharetta, Georgia, consisting of 5,168 square feet of space under a lease which expires on October 31, ~~2012.~~2015. Under the terms of the lease, we pay monthly rent of $8,506, subject to adjustment on an annual basis for additional proportionate operating and insurance costs associated with the building over the base amount.

Legal ~~Proceedings~~proceedings

Other than the legal ~~proceedings~~proceeding described below ~~there~~and those relating to our intellectual property, there are no material pending legal proceedings to which we are a party or of which any of our properties are subject; nor are there material proceedings known to us to be contemplated by any governmental authority. We have one pending legal proceeding relating to our patents. For information regarding this legal proceeding, please see “Business - Intellectual Property - Patents” above.

HealthTronics, Inc.~~, along with the Company,~~ and we are defendants in an alleged breach of contract lawsuit dated April 21, 2006 brought in the Miami-Dade County Circuit Court, Florida by a former limited partner of a former limited partnership of the Company, Bone & Joint Treatment Centers of America. Bone & Joint Treatment Centers of America, the plaintiff, is seeking greater than $3 million. The lawsuit went to trial in 2011 and we obtained a summary judgment in our favor in December 2011. On January 5, 2012, the plaintiff filed an appeal of the summary judgment and the appeal was heard by a three judge panel on April 29, 2013. HealthTronics, Inc. has been responsible for the defense of the lawsuit on our behalf ~~of the Company~~ and believes the case is unfounded and is contesting the claims vigorously.

There are no material proceedings known to us, pending or contemplated, in which any of our directors, officers or affiliates or any of our principal security holders, or any associate of any of the foregoing, is a party or has an interest adverse to us.

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MANAGEMENT, EXECUTIVE COMPENSATION AND CORPORATE GOVERNANCE

Management and Board of Directors

Below are the names and certain information regarding ~~the Company’s~~our executive officers and ~~directors.~~directors:


Name	Age		Position Held
~~Christopher M. Cashman~~Joseph Chiarelli		4366		~~President,~~ Chief Executive Officer and Director ~~Officer~~
Barry J. Jenkins		49	50	Chief Financial Officer
~~Thomas H. Robinson~~		52		~~Director~~ and COO
Kevin A. Richardson, II		42	44	Director
John F. Nemelka		44	47	Director

~~Christopher M. Cashman~~~~joined the Company~~

Joseph Chiarelli has served as our Chief Executive Officer and ~~President in September of 2009 and as~~ a director since February of 2013. Mr. Chiarelli brings to our board of directors a broad array of financial knowledge for healthcare and other industries. Prior to joining us, he was Senior Managing Director for Auriga Capital Management where he was responsible for financial advisory, business development and a healthcare hedge fund from 2011 to February 2013. Previously, from 2008 to 2011, he was Managing Director of Chiarelli & Company, a firm providing strategic and financial advice to emerging and small companies. Mr. Chiarelli was Senior Managing Director for Wall Street Access where he managed a healthcare joint venture and independent healthcare research from 2007 to 2008. Previously, from 2005 to 2007, he was Chairman of the board of directors of Clarent Hospital Corporation, a hospital management firm. Mr. Chiarelli was a Senior Equity Investment Analyst at Oppenheimer & Co. Inc. where he managed the healthcare research team from 2003 to 2005. Previously, from 2002 to 2003, he was Managing Director of Blaylock & Partners, LP. Mr. Chiarelli was with JPMorgan Chase & Co. (JPM) from 1981 to 2001 where he developed much of his healthcare industry knowledge while he was responsible for three healthcare sectors as the Senior Investment Research Analyst. Prior to his assignment to healthcare, he served in a number of senior positions across JPM, including being Chief Financial Officer of two large independent subsidiaries, J.P. Morgan Delaware and Morgan Securities Services Corporation. Mr. Chiarelli is a Colonel in the USAFR and a member of the board of directors of a private healthcare device maker. He graduated from Manhattan College with a BBA in Accounting, earned an MBA in Management/Finance from the University of Hawaii, graduated from the Cornell University Executive Development Program, and is a graduate of Air War College. He is a certified public accountant and holds FINRA licenses 7, 24, 63, 86, and 87.

Kevin A. Richardson, II has served as chairman of the board of directors since October of 2009 and joined SANUWAVE, Inc. as chairman of the board of directors in August of 2005. In November 2012, upon the resignation of our former President and Chief Executive Officer, ~~and a director~~Christopher M. Cashman, Mr. Richardson assumed the role of Active Chief Executive Officer, in ~~December~~addition to remaining Chairman of ~~2005.~~the Board, through the hiring of Mr. ~~Cashman~~Chiarelli in February 2013. Mr. Richardson brings to our board of directors ~~among~~a broad array of financial knowledge for healthcare and other skills and qualifications, a unique understanding of our strategies and operations through his years of experience with various public and private healthcare companies. Immediately prior to joining SANUWAVE, Inc., heindustries. Since 2004, Mr. Richardson has served as ~~President~~managing partner of ~~Therapeutic Surfaces for Kinetic Concepts,~~Prides Capital LLC, an investment management firm. Mr. Richardson is also a member of the board of directors of As Seen On TV, Inc., a ~~global leader in advanced wound care, from October of 2005 to December of 2005. In November of 2001, Mr. Cashman conducted a management buyout of Snowden Pencer,~~publicly traded company, and Pegasus Solutions, Inc., a minimally invasive surgical device manufacturer, and assumed the role of Chief Executive Officer and President until Snowden Pencer, Inc. was sold to Cardinal Health, Inc. in March 2004. Mr. Cashman alsotravel technology company.

Barry J. Jenkins has served as a business unit head with Genzyme Biosurgery and held several senior sales and marketing positions with Genzyme Surgical Products and Deknatel Snowden Pencer. Mr. Cashman graduated from the United States Naval Academy in 1989 with a B.S. in Economics and served on a fast attack submarine as Supply Officer. He received his M.B.A. in 2001 from the Kellogg Graduate School of Management at Northwestern University.

~~Barry J. Jenkins~~~~joined the Company as~~our Chief Financial Officer insince September of 2009 and joined SANUWAVE, Inc. as Chief Financial Officer in April of 2006. Since November 2012, Mr. Jenkins has also served as our Chief Operating Officer. Prior to joining SANUWAVE, Inc., he served as Chief Financial Officer for the Benefit Services Division of Automatic Data Processing, Inc. from March of 2005 to April of 2006. Previously, he was the Chief Financial Officer of Snowden Pencer, Inc. from January of 2002 to November of 2004. Mr. Jenkins is a certified public accountant with 2729 years of financial management experience and a cum laude graduate of Virginia Tech.

~~Thomas H. Robinson~~~~joined the Company~~

John F. Nemelka has served as a member of ~~the board of directors in October of 2009 and joined SANUWAVE, Inc. as a member of the board of directors in August of 2005. Mr. Robinson brings to~~ our board of directors experience based on his diverse experience with medical device companies both in providing executive search services to them as well as working for them in leadership and Director positions. Since 2010, Mr. Robinson has been a partner with Russell Reynolds Associates, a global executive search firm, in their global Medical Technology Practice leading senior executive searches. From 1998 to 2010, Mr. Robinson served as managing partner of Spencer Stuart, Inc.’s North American medical technology practice. From 1993 to 1997, Mr. Robinson served as President of the emerging markets business at Boston Scientific Corporation, a global medical devices manufacturer. From 1991 to 1993, Mr. Robinson served as President and Chief Operating Officer of Brunswick Biomedical, a cardiology medical device company. Mr. Robinson is also a member of the board of directors and is chairman of the compensation committee of Cynosure, Inc., a publicly traded aesthetic medical laser company.

~~Kevin A. Richardson, II~~joined the Company as chairman of the board of directors in October of 2009 and joined SANUWAVE, Inc. as chairman of the board of directors in August of 2005. Mr. Richardson brings to our board of directors a broad array of financial knowledge for healthcare and other industries. Since 2004, Mr. Richardson has served as managing partner of Prides Capital LLC, an investment management firm. Mr. Richardson is also a member of the board of directors of eDiets.com, Inc., a publicly traded weight loss solutions company, and Pegasus Solutions, Inc., a travel technology company.

~~John F. Nemelka~~~~joined the Company as a member of the board of directors in~~since October of 2009 and joined SANUWAVE, Inc. as a member of the board of directors in August of 2005. Mr. Nemelka brings to our board of directors a diverse background with both financial and ~~operational~~operations experience. Since 2001, Mr. Nemelka has served as a managing principal of NightWatch Capital Advisors, LLC, an investment management firm. Mr. Nemelka is also ~~interim Chief Executive Officer and~~ a member of the board of directors of ~~SWK Holdings Corporation,~~LiqTech International, Inc., a publicly traded ~~holding company, formerly named KANA Software, Inc.,~~clean technology company.

Director Independence

As a ~~provider~~result of ~~customer service software solutions.~~the resignation of four board members during 2012 for personal reasons and not attributable to any disagreement with us on any matter, our current board of directors consists of three members, none of whom has been determined by the board to be “independent” as defined under the rules of the NASDAQ stock market. We expect to add independent directors to the board of directors in 2013.

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Board’s Leadership Structure

Our board of directors elects our chief executive officer and its chairman, and each of these positions may be held by the same person or may be held by two persons. Our board of directors has determined that it is currently in our best interest of to separate the roles of chairman of the board and chief executive officer. The chairman’s primary responsibilities are to manage the board and serve as the primary liaison between the board of directors and the chief executive officer, while the primary responsibility of the chief executive officer is to manage our day-to-day affairs, taking into account the policies and directions of the board of directors. Such an arrangement promotes more open and robust communication among the board, and provides an efficient decision making process with proper independent oversight. Following the resignation of Christopher M. Cashman as President and Chief Executive Officer, and a director, effective November 7, 2012, the board of directors elected Kevin A. Richardson, the chairman of the board, to also assume the function of Active Chief Executive Officer until Joseph Chiarelli joined us in February 2013 as Chief Executive Officer and a director. Mr. Richardson remained chairman of the board.

We believe, however, that there is no single leadership structure that is the best and most effective in all circumstances and at all times. Accordingly, the board of directors retains the authority to combine these roles in the future if doing so would be in the best interests of us and our shareholders.

Our board of directors is authorized to have an audit committee, a compensation committee and a nominating and corporate governance committee, to assist our board of directors in discharging its responsibilities. As a result of the resignation of four board members during 2012, the current board of directors consists of three members, none of whom have been determined by the board to be “independent” as defined under the rules of the NASDAQ stock market. We expect to add independent directors to the board of directors in 2013.

Board’s Role in Risk Oversight

While our management is responsible for the day-to-day management of risk, the board of directors has broad oversight responsibility for our risk management programs. The various committees of the board of directors assist the board of directors in fulfilling its oversight responsibilities in certain areas of risk. In particular, the audit committee focuses on financial and enterprise risk exposures, including internal controls, and discusses with management and our independent registered public accountants our policies with respect to risk assessment and risk management. The compensation committee is responsible for considering those risks that may be implicated by our compensation programs and reviews those risks with our board of directors and chief executive officer.

Code of Conduct and Ethics

Our policy is to conduct our affairs in accordance with all applicable laws, rules and regulations of the jurisdictions in which we do business. We have adopted a code of business conduct and ethics with policies and procedures that apply to all associates (all employees are encompassed by this term, including associates who are officers) and directors, including the chief executive officer, chief financial officer, controller, and persons performing similar functions.

We have made the code of business conduct and ethics available on our website at www.sanuwave.com. If any substantive amendments to the code of business conduct and ethics are made or any waivers are granted, including any implicit waiver, we will disclose the nature of such amendment or waiver on its website or in a report on Form 8-K.

No Family Relationships Among Directors and Officers

There are no family relationships between any director or executive officer of our and any other director or executive officer of ours.

Summary Compensation Table for Fiscal Years ~~2010~~2012 and ~~2009~~2011

The following table provides certain information ~~for the fiscal years ended December 31, 2010 and 2009~~ concerning compensation earned for services rendered in all capacities by our named executive officers during the fiscal years ended December 31, ~~2010~~2012 and ~~2009.~~2011.

Nonqualified
Non Equity Deferred
Name and Stock Option Incentive Plan Compensation All Other
Principal Salary Bonus Awards Awards Compensation Earnings Compensation Total
Position Year ($) ($) ($) ($) ($) ($) ($)⁽⁴⁾ ($)
(a) (b) (c) (d) (e) (f) (g) (h) (i) (j)
Christopher 2010 $ 350,000 — — $ 668,500 ⁽²⁾ — — $ 23,027 $ 1,041,527
M. Cashman 2009 $ 305,000 — — $ 1,463,957 ⁽²⁾ — — $ 20,012 $ 1,788,969
Chief Executive Officer and President (Principal Executive Officer)

Barry J. 2010 $ 233,730 — — $ 384,371 ⁽³⁾ — — $ 22,689 $ 640,790
Jenkins 2009 $ 222,600 — — $ 555,835 ⁽³⁾ — — $ 19,149 $ 797,584
Chief Financial Officer
Cornelius A. 2010 — — — — — — — —
Hofman(1) 2009 — — — — — — — —
Former Sole Officer and Director

Name and Principal Position	Year	Salary ($)			Bonus ($)			Stock Awards ($)		Option Awards ($)			Non Equity Incentive Plan Compensation ($)		Nonqualified Deferred Compensation Earnings ($)		All Other Compensation ($)(5)			Total ($)
(a)	(b)	(c)			(d)			(e)		(f)			(g)		(h)		(i)			(j)
Kevin A. Richardson, II	2012		-	(1)		-			-		-			-		-		-			-
Chairman of the Board and Active Chief Executive Officer (principal executive officer)	2011		-			-			-		-			-		-		-			-


Barry J. Jenkins	2012	$	245,417			-			-		-			-		-	$	18,316		$	263,733
Chief Financial Officer and COO (principal financial officer)	2011	$	240,547		$	182,532	(2)		-		-			-		-	$	23,197		$	446,276


Christopher M. Cashman	2012	$	328,237	(3)		-			-		-			-		-	$	784,315	(6)	$	1,112,552
Former Chief Executive Officer and President	2011	$	385,000		$	415,000	(2)		-	$	1,495,000	(4)		-		-	$	26,220		$	2,321,220

(1) Mr. Richardson has been Chairman of the Board since our inception and does not receive a salary. In addition, effective November 7, 2012, he assumed the additional position of Active Chief Executive Officer until Joseph Chiarelli joined us as Chief Executive Officer in February 2013. He did not receive compensation for being Active Chief Executive Officer in 2012.

(2) This includes two years of bonuses earned (2009 and 2010) which were paid in 2011.

(3) Salary through resignation date of November 7, 2012.

(4) This dollar amount reflects the full fair value of the grant at the date of issuance and is recognized for financial statement reporting purposes with respect to each fiscal year over the vesting terms in accordance with ASC 718-10. Mr. Cashman was granted options to purchase 1,300,000 shares of common stock at $1.98 per share on October 24, 2011. See note 15 to the financial statements.

(5) Includes health, dental, life and disability insurance premiums and employer 401(k) matching contributions.

(6) This dollar amount includes the full fair value of the severance payments for Mr. Cashman and the full fair value at date of grant of the stock options issued to Mr. Cashman in his severance agreement. Severance payments totaling $542,269 at December 31, 2012 were accrued for accounting purposes and are included in the total, however they will be paid in future periods.


~~(1)~~		~~Cornelius A. Hofman resigned as an officer and director, effective October 17, 2009, following the Merger.~~

~~(2)~~		This dollar amount reflects the full fair value of the grant at the date of issuance and is recognized for financial statement reporting purposes with respect to each fiscal year over the vesting terms in accordance with ASC 718-10. Mr. Cashman was granted 241,106 shares of restricted Common Stock on September 15, 2009. Mr. Cashman was granted options to purchase 44,527 shares of Common Stock at $2.92 per share and granted options to purchase 487,086 shares of commons stock at $5.25 per share on September 15, 2009. Mr. Cashman was granted options to purchase 350,000 shares of Common Stock at $2.00 per share on November 1, 2010.

~~(3)~~		This dollar amount reflects the full fair value of the grant at the date of issuance and is recognized for financial statement reporting purposes with respect to each fiscal year over the vesting terms in accordance with ASC 718-10. Mr. Jenkins was granted 118,653 shares of restricted Common Stock on September 15, 2009. Mr. Jenkins was granted options to purchase 20,660 shares of Common Stock at $2.92 per share and granted options to purchase 121,722 shares of Common Stock at $5.25 per share on September 15, 2009. Mr. Jenkins was granted options to purchase 20,000 shares of Common Stock at $4.05 per share on January 29, 2010. Mr. Jenkins was granted options to purchase 175,000 shares of Common Stock at $2.00 per share on November 1, 2010.

~~(4)~~		~~Includes health, dental, life and disability insurance premiums and employee 401(k) matching contributions.~~

Employment Agreements

~~Christopher M. Cashman~~

Joseph Chiarelli

General Terms.Pursuant to his employment agreement, ~~as amended,~~ Mr. ~~Cashman agreed to serve~~Chiarelli joined us as ~~the~~ Chief Executive Officer and ~~President of the Company~~a director on February 25, 2013 with a two year term thereafter extendable for ~~a term commencing on December 19, 2005 and with no specific duration.~~one year periods. Mr. ~~Cashman is entitled to an annual base salary, effective January 1, 2010, of $350,000, and effective January 1, 2011, he~~Chiarelli is entitled to an annual base salary of ~~not less than $385,000. He is also entitled to~~$200,000 for the first year and $225,000 thereafter, with a performance and compensation review not less often than annually, at which time compensation may be adjusted as determined by the board of ~~directors; provided that such annual compensation~~directors.

In the event of the satisfaction of the following milestones, we shall award and pay to Mr. Chiarelli a cash bonus as follows: (i) $35,000 for us completing a financing resulting in gross proceeds to us of no less than $5.0 million at a price per share of not less than $0.35; (ii) $25,000 when the final patient is enrolled in our dermaPACE Phase III clinical trial; (iii) $25,000 upon receipt by us of FDA approval for the use of dermaPACE; and (iv) $25,000 upon the execution by us of a license or distribution agreement from which we are entitled to receive gross proceeds of no less than $1.0 million and we have received payments of at least ~~105% of his previous annual base salary. With~~$250,000. In addition, with respect to each full fiscal year, Mr. ~~Cashman~~Chiarelli is eligible to earn an annual bonus award as determined by the board of ~~not less than 50% and not more than 200% of his annual base salary~~directors based on the achievement of certain performance goals established by the board of ~~directors and generally consistent with the Company’s budget and performance goals established for other management employees.~~directors. Mr. ~~Cashman~~Chiarelli is also entitled to participate in ~~the Company’s~~our employee benefit plans (other than annual bonus and incentive plans). In the event of Mr. Cashman’s death during the term of his employment, his heirs will receive a death benefit equal to at least $1,500,000 pursuant to a life insurance policy on the life of Mr. Cashman, the premiums for which will be paid by the Company. The employment agreement contains an agreement not to compete, which covers the term of employment and two years thereafter, and a confidentiality provision, which is indefinite.

~~-41-~~

Equity Arrangements.Upon the execution of his employment agreement, Mr. ~~Cashman~~Chiarelli was granted options to purchase ~~201,300~~2,250,000 shares of ~~Common Stock,~~common stock, at an exercise price of ~~$2.92~~$0.35 per share. The options vest and ~~became~~become exercisable in ~~four equal~~five installments ~~on December 19, 2006, 2007, 2008 and 2009. Upon the execution~~as follows: (i) 375,000 vested at grant; (ii) 375,000 vest upon us completing a financing resulting in gross proceeds to us of ~~his employment agreement and his commencement of employment, Mr. Cashman purchased 88,151 shares of Common Stock,~~no less than $5.0 million at a ~~purchase~~ price per share of ~~$2.92 per share.~~

~~In addition,~~not less than $0.35; (iii) 375,000 upon the execution by us of ~~his employment~~a license or distribution agreement ~~Mr. Cashman was granted three supplemental options~~from which we are entitled to ~~purchase Common Stock. The terms~~receive gross proceeds of no less than $1.0 million and our receiving payments of at least $250,000; (iv) 375,000 vest upon receipt by us of FDA approval for the ~~supplemental options were amended on September 15, 2009. The first~~use of dermaPACE; and ~~second supplemental options each provided him with~~(v) 750,000 vest in the ~~right to purchase 139,167 shares of Common Stock~~event we achieve the milestones (i), (ii), (iii) and (iv) above during the initial two year term and the ~~third supplemental option provided him with the right to purchase 208,752 shares of Common Stock. The initial exercise price of the supplemental options~~term is $2.92 per share. The first supplemental option will fully vest on the earlier of (i) December 19, 2011, and (ii) the date that the Company or its shareholders (A) enters into a transaction that establishes a value for the Company on a per share basis equal to at least $8.76 per share, or (B) receives a valuation that establishes a value for the Company on a per share basis equal to at least $8.76 per share. Notwithstanding the above, if the Common Stock closing price equals or exceeds three times the closing price as of the first date that the Common Stock was listed ($5.25), the first supplemental option will fully vest. In such an event, the exercise price of the first supplemental option will adjust to be the closing price of the Common Stock on the first date that the Common Stock was listed ($5.25). The second supplemental option will fully vest on the earlier of (i) December 19, 2011, and (ii) the date that the Company or its shareholders (A) enters into a transaction that establishes a value for the Company on a per share basis equal to at least $17.53 per share, or (B) receives a valuation that establishes a value for the Company on a per share basis equal to at least $17.53 per share. Notwithstanding the above, if the Common Stock closing price equals or exceeds six times the closing price as of the first date that the Common Stock was listed ($5.25), the second supplemental option will fully vest. In such an event, the exercise price of the second supplemental option will adjust to be the closing price of the Common Stock on the first date that the Common Stock was listed ($5.25). The third supplemental option will fully vest on the earlier of (i) December 19, 2011, and (ii) the date that the Company or its shareholders (A) enters into a transaction that establishes a value for the Company on a per share basis equal to at least $26.29 per share, or (B) receives a valuation that establishes a value for the Company on a per share basis equal to at least $26.29 per share. Notwithstanding the above, if the Common Stock closing price equals or exceeds nine times the closing price as of the first date that the Common Stock was listed ($5.25), the third supplemental option will fully vest. In such an event, the exercise price of the third supplemental option will adjust to be the closing price of the Common Stock on the first date that the Common Stock was listed ($5.25).not extended by us.

~~In addition, upon the execution of the first amendment to his employment agreement,~~

Termination. Mr. Cashman was granted the right to receive annually shares of Common Stock equal to two and one-half times his annual base salary in effect on the date of execution of the first amendment. The shares vest in four equal installments on each twelve month anniversary of the date of grant, provided that the vesting may be accelerated upon the achievement of certain performance goals established by the board of directors. No restricted stock was issued to Mr. Cashman under this provision in 2010 or 2009.

~~Gross-Ups.~~In the event that any payment made to Mr. Cashman under his employment agreement or under any other plan maintained by the Company is subject to the excise tax imposed by Section 4999 of the Internal Revenue Code, the Company will pay Mr. Cashman an additional amount to compensate him for the economic cost of the (1) excise tax of such payment, (2) federal, state and local income tax, and (3) excise tax on the gross-up payment.

~~Termination.~~~~Mr. Cashman’s~~Chiarelli’s employment may be terminated by either party at any time and for any reason; provided that Mr. ~~Cashman~~Chiarelli will be required to give ~~the Company~~us at least 30 days advance written notice of any resignation. If Mr. ~~Cashman~~Chiarelli is terminated by ~~the Company~~us for cause or resigns without good reason, he will be entitled to receive his (1) base salary through the termination date, (2) ~~any annual bonus earned, but unpaid as of the date of termination for the immediately preceding fiscal year, (3)~~ reimbursement for certain unreimbursed business expenses, and ~~(4)~~(3) such employee benefits to which he may be entitled under ~~the~~our employee benefit ~~plans of the Company.~~plans. If Mr. ~~Cashman~~Chiarelli is terminated by ~~the Company~~us without cause or resigns for good reason, he will be entitled to receive all of the above plus (1) subject to his compliance with certain other provisions of the employment agreement related to non-competition and confidentiality and the execution of an effective release of claims, continued payment of the base salary ~~until twelve months following the date of termination, and~~through February 25, 2015, (2) continued ~~coverage of him and his beneficiaries under the Company’s health insurance programs for a period of up to twelve months.~~

~~Effective as~~payment of the ~~first anniversary of~~bonus events discussed above as the ~~Merger, if Mr. Cashman is terminated~~milestones are achieved by ~~the Company without cause or resigns with good reason, he~~us, and (3) all his options will be entitled to receive (1) his base salary through the termination date, (2) any annual bonus earned, but unpaid as of the date of termination for the immediately preceding fiscal year, (3) reimbursement for certain unreimbursed business expenses, (4) such employee benefits to which he may be entitled under the employee benefit plans of the Company, (5) subject to his compliance with certain other provisions of the employment agreement related to confidentiality and the execution of an effective release of claims, a payment equal to 200% of his annual base salary then in effect plus the sum of the cash bonuses paid to him during the previous two fiscal years (but in no case less than 50% of the value of 200% of his annual base salary then in effect), (6) full vesting of all outstanding options and shares of Common Stock, and (7) a lump sum payment equal to 24 months of the monthly premium cost of providing continuation coverage for Mr. Cashman and his beneficiaries under the Consolidated Omnibus Budget Reconciliation Act of 1986, as amended.vest.

~~-42-~~

Change of Control.In addition to any other termination benefits that Mr. ~~Cashman~~Chiarelli may be entitled to receive, if a change of control ~~(as~~occurs as defined ~~below) occurs,~~in his employment agreement, then subject to his compliance with certain other provisions of the employment agreement related to non-competition and confidentiality and the execution of an effective release of claims, Mr. ~~Cashman~~Chiarelli will also be entitled to receive 100% accelerated vesting of his options. Effective as of the first anniversary of the Merger, Mr. Cashman’s right to receive the above change of control termination benefits will no longer be subject to his compliance with the non-compete provisions of his employment agreement. A change in control is defined in the employment agreement as the occurrence of any of the following events: (1) the sale, exchange, lease or other disposition of all or substantially all of the assets of the Company to a person (other than Prides Capital or NightWatch Capital) that will continue the business of the Company in the future; (2) a merger or consolidation involving the Company in which the voting securities of the Company owned by the shareholders of the Company immediately prior to such merger or consolidation do not represent, after conversion if applicable, more than 50% of the total voting power of the surviving controlling entity outstanding immediately after such merger or consolidation; or (3) any person (other than Prides Capital or NightWatch Capital) is or becomes the beneficial owner, directly or indirectly, of more than 50% of the total voting power of the voting stock of the Company and the representatives of Prides Capital and NightWatch Capital cease to have the ability to elect a majority of the board of directors.

Barry J. Jenkins

General Terms.Pursuant to his employment agreement, Mr. Jenkins agreed to serve as ~~the~~our Chief Financial Officer ~~of the Company for a term~~ commencing on April 10, 2006 and with no specific duration. Mr. Jenkins is entitled to an annual base salary of $205,000, with a performance and compensation review not less often than annually, at which time compensation may be adjusted as determined by the board of directors. With respect to each full fiscal year, Mr. Jenkins is eligible to earn an annual bonus award of 40% of his annual base salary based on the achievement of certain performance goals established by the board of directors and generally consistent with ~~the Company’s~~our budget and performance goals established for other management employees. Mr. Jenkins is also entitled to participate in ~~the Company’s~~our employee benefit plans (other than annual bonus and incentive plans). The employment agreement contains an agreement not to compete, which covers the term of employment and two years thereafter, and a confidentiality provision, which is indefinite.

Equity Arrangements.Upon the execution of his employment agreement, Mr. Jenkins was granted options to purchase 104,677 shares of ~~Common Stock,~~common stock, at an exercise price of $2.92 per share. The options ~~vest~~vested and became exercisable in four equal installments on April 10, 2007, 2008, 2009 and 2010. Upon the execution of his employment agreement and his commencement of employment, Mr. Jenkins purchased 35,089 shares of ~~Common Stock,~~common stock, at a purchase price of $2.92 per share.

In addition, upon the execution of his employment agreement, Mr. Jenkins was granted three supplemental options to purchase ~~Common Stock.~~common stock. The terms of the supplemental options were amended on September 15, 2009. The first and second supplemental options each provided him with the right to purchase 34,778 shares of ~~Common Stock~~common stock and the third supplemental option provided him with the right to purchase 52,166 shares of ~~Common Stock.~~common stock. The initial exercise price of the supplemental options is $2.92 per share. The ~~first~~ supplemental ~~option will~~options were fully ~~vest~~vested on ~~the earlier of (i)~~ April 10, 2012, and (ii) the date that the Company or its shareholders (A) enters into a transaction that establishes a value for the Company on a per share basis equal to at least $8.76 per share, or (B) receives a valuation that establishes a value for the Company on a per share basis equal to at least $8.76 per share. Notwithstanding the above, if the Common Stock closing price equals or exceeds three times the closing price as of the first date that the Common Stock was listed ($5.25), the first supplemental option will fully vest. In such an event, the exercise price of the first supplemental option will adjust to be the closing price of the Common Stock on the first date that the Common Stock was listed ($5.25). The second supplemental option will fully vest on the earlier of (i) April 10, 2012, and (ii) the date that the Company or its shareholders (A) enters into a transaction that establishes a value for the Company on a per share basis equal to at least $17.53 per share, or (B) receives a valuation that establishes a value for the Company on a per share basis equal to at least $17.53 per share. Notwithstanding the above, if the Common Stock closing price equals or exceeds six times the closing price as of the first date that the Common Stock was listed ($5.25), the second supplemental option will fully vest. In such an event, the exercise price of the second supplemental option will adjust to be the closing price of the Common Stock on the first date that the Common Stock was listed ($5.25). The third supplemental option will fully vest on the earlier of (i) April 10, 2012, and (ii) the date that the Company or its shareholders (A) enters into a transaction that establishes a value for the Company on a per share basis equal to at least $26.29 per share, or (B) receives a valuation that establishes a value for the Company on a per share basis equal to at least $26.29 per share. Notwithstanding the above, if the Common Stock closing price equals or exceeds nine times the closing price as of the first date that the Common Stock was listed ($5.25), the third supplemental option will fully vest. In such an event, the exercise price of the third supplemental option will adjust to be the closing price of the Common Stock on the first date that the Common Stock was listed ($5.25).2012.

Termination.Mr. Jenkins’ employment may be terminated by either party at any time and for any reason; provided that Mr. Jenkins will be required to give ~~the Company~~us at least 30 days advance written notice of any resignation. If Mr. Jenkins is terminated by ~~the Company~~us for cause or resigns without good reason, he will be entitled to receive his (1) base salary through the termination date, (2) any annual bonus earned, but unpaid as of the date of termination for the immediately preceding fiscal year, (3) reimbursement for certain unreimbursed business

~~-43-~~

expenses, and (4) such employee benefits to which he may be entitled under the employee benefit plans of ~~the Company.~~ours. If Mr. Jenkins is terminated by ~~the Company~~us without cause or resigns for good reason, he will be entitled to receive all of the above plus (1) subject to his compliance with certain other provisions of the employment agreement related to non-competition and confidentiality and the execution of an effective release of claims, continued payment of the base salary until six months following the date of termination, and (2) continued coverage of him and his beneficiaries under ~~the Company’s~~our health insurance programs for a period of up to six months.

Change of Control.In addition to any other termination benefits that Mr. Jenkins may be entitled to receive, if a change of control ~~(as defined above)~~ occurs, then subject to his compliance with certain other provisions of the employment agreement related to non-competition and confidentiality and the execution of an effective release of claims, Mr. Jenkins will also be entitled to receive 100% accelerated vesting of his options.

Severance Agreements

Christopher M. Cashman

Severance Agreement Terms. On November 6, 2012, we entered into a Severance and Advisory Agreement (Severance Agreement) with Christopher M. Cashman, then a director of ours, and our President and Chief Executive Officer. Entry into the Severance Agreement was made in connection with Mr. Cashman’s resignation as President and Chief Executive Officer, and a director of our, effective November 7, 2012.

Pursuant to the Severance Agreement, Mr. Cashman will receive, as severance:

(a) six (6) months of his base salary, payable in accordance with our standard payroll practices;

(b) Company-paid COBRA coverage under our health care plan for himself and his family through November 2013;

(c) bonus payments of $100,000 upon each of the following four bonus payment events (Bonus Payment Events): (i) the first (1st) enrollee in our clinical trial plan, (ii) the twentieth (20th) enrollee, (iii) the fiftieth (50th) enrollee, and (iv) receipt of an FDA approval letter of the dermaPACE device allowance for commercial use; provided, that if the FDA approval letter at subpart (iv) is received prior to the achievement of the enrollment thresholds at subparts (i), (ii), and/or (iii), the bonuses for achievement of subparts (i), (ii), and/or (iii) will be accelerated and become due and payable immediately with the bonus for subpart (iv);

(d) a grant of 1,000,000 options to acquire shares of our common stock. The exercise price for such options is $0.21 which was the closing price of our common stock on the grant date. The term of the options is ten years. The first 600,000 options vested upon the execution of the Severance Agreement. The remaining 400,000 options will vest and become exercisable in increments of 100,000 upon each of the Bonus Payment Events at subparts (i)-(iv) above; provided, that if the FDA approval letter at subpart (iv) is received prior to the achievement of the enrollment thresholds at subparts (i), (ii), and/or (iii), all options granted under this section but not previously vested shall become vested and immediately exercisable upon receipt of such letter; and

(e) a grant of 50,000 options to acquire shares of our common stock under the Stock Incentive Plan as consideration for the provision of advisory services. The exercise price for such options is $0.21which was the closing price of our common stock on the grant date. The term of the options is ten years. The options will vest and be exercisable based on the following schedule: (i) 25% of the options vested upon the execution of the Severance Agreement, but will be forfeited if Mr. Cashman fails to provide advisory services as called for in the Severance Agreement; and (ii) unless the advisory services have been terminated, an additional 25% of the options shall vest on each date three (3), six (6), and nine (9) months after the effective date of the Severance Agreement. Mr. Cashman terminated the advisory services provision effective May 7, 2013.

Any of the Bonus Payment Events which have not occurred as of December 31, 2016 will be considered to have occurred as of December 31, 2016, and the remaining previously unpaid bonus payments per Bonus Payment Event will be due and payable immediately and all options granted under this section but not previously vested will become vested and immediately exercisable on such date.

Our board of directors authorized us to vest all previously granted but non vested stock options for Mr. Cashman, which will remain exercisable for the full term of their grant, notwithstanding any contrary provision in the applicable award agreements.

In connection with the entry by us and Mr. Cashman into the Severance Agreement, and the resignation of Mr. Cashman from his position as President and Chief Executive Officer, and as a director, the Employment Agreement, dated December 19, 2005, as amended (Employment Agreement), by and between us and Christopher M. Cashman was terminated, as of November 6, 2012. By the terms of the Severance Agreement, the Employment Agreement is of no further force or effect, as of the date of entry into the Severance Agreement, and, specifically, the terms of severance contained in the Severance Agreement supersede any such terms contained in the Employment Agreement.

Stock Incentive Plan

On October 24, 2006, SANUWAVE, Inc.’s board of directors adopted the 2006 Stock Incentive Plan of SANUWAVE, Inc. ~~(the “2006 Plan”)~~(2006 Plan). On November 1, 2010, ~~the Company~~we approved the Amended and Restated 2006 Stock Incentive Plan of SANUWAVE Health, Inc. effective as of January 1, 2010 ~~(the “Amended Plan”)~~(previously defined as the Stock Incentive Plan). The ~~Amended~~Stock Incentive Plan permits grants of awards to selected employees, directors and ~~directors~~advisors of ~~the Company~~ours in the form of restricted stock or options to purchase shares of ~~Common Stock.~~common stock. Options granted may include nonstatutory options as well as qualified incentive stock options. The ~~Amended~~Stock Incentive Plan is currently administered by ~~the~~our board of ~~directors of the Company.~~directors. The ~~Amended~~Stock Incentive Plan gives broad powers to the board of directors ~~of the Company~~ to administer and interpret the particular form and conditions of each option. The stock options granted under the ~~Amended~~Stock Incentive Plan are nonstatutory options which vest over a period of up to four years, and have a ten year term. The options are granted at an exercise price equal to the fair market value of the ~~Common Stock~~common stock on the date of the grant which is approved by the board of ~~directors of the Company.~~directors. The ~~Amended~~Stock Incentive Plan ~~has~~initially had 5,000,000 shares of ~~Common Stock~~common stock reserved for ~~grant.~~grant, which amount has subsequently been increased to 8,500,000 in February 2013.

The terms of the options granted under the ~~Amended~~Stock Incentive Plan expire as determined by individual option agreements (or on the tenth anniversary of the grant date), unless terminated earlier on the first to occur of the following: (1) the date on which the participant’s service with ~~the Company~~us is terminated by ~~the Company~~us for cause; (2) 60 days after the participant’s death; or (3) 60 days after the termination of the participant’s service with ~~the Company~~us for any reason other than cause or the participant’s death; provided that, if during any part of such 60 day period the option is not exercisable solely because of specified securities law restrictions, the option will not expire until the earlier of the expiration date or until it has been exercisable for an aggregate period of 60 days after the termination of the participant’s service with ~~the Company.~~us. The options vest as provided for in ~~individual~~each individual’s option ~~agreements~~agreement and the exercise prices for the options are determined by the board of directors at the time the option is granted; provided that the exercise price shall in no event be less than the fair market value per share of ~~the Company’s Common Stock~~our common stock on the grant date. In the event of any change in the ~~Common Stock~~common stock underlying the options, by reason of any merger or exchange of shares of ~~Common Stock,~~common stock, the board of directors shall make such substitution or adjustment as it deems to be equitable to (1) the class and number of shares underlying such option, (2) the exercise price applicable to such option, or (3) any other affected terms of such option.

In the event of a change of control, unless specifically modified by an individual option agreement: (1) all options outstanding as of the date of such change of control will become fully vested; and (2) notwithstanding (1) above, in the event of a merger or share exchange, the board of directors may, in its sole discretion, determine that any or all options granted pursuant to the ~~Amended~~Stock Incentive Plan will not vest on an accelerated basis if the board of directors, the surviving corporation or the acquiring corporation, as the case may be, has taken such action as in the opinion of the board of directors is equitable or appropriate to protect the rights and interests of the participants under the ~~Amended~~Stock Incentive Plan.

On March 31, ~~2011,~~2013, there were ~~3,695,649~~1,106,356 shares of ~~Common Stock~~common stock available for grant under the ~~Amended~~Stock Incentive Plan. ~~There were no options granted to the Company’s executive officers under the Amended Plan for~~For the three months ended March 31, ~~2011. For the year ended December 31, 2010,~~2013, there were ~~545,000~~3,072,759 options granted to ~~the Company’s~~our executive officers under the ~~Amended~~Stock Incentive Plan. ~~No options were granted to~~For the ~~Company’s executive officers during the year~~years ended December 31, ~~2009,~~2012 and 2011, there were 1,050,000 and 1,300,000 options granted to our executive officers under the ~~2006 Plan.~~Stock Incentive Plan, respectively.

~~-44-~~

Outstanding Equity Awards at ~~2010~~2012 Fiscal Year End

The following table provides certain information concerning the outstanding equity awards for each named executive officer as of December 31, ~~2010.~~2012.


	Option Awards											Stock Awards
																Equity		Equity
																Incentive		Incentive Plan
						Equity										Plan		Awards:
						Incentive Plan										Awards:		Market or
						Awards:						Number		Market		Number of		Payout Value
	Number of		Number of			Number of						of Shares		Value of		Unearned		of Unearned
	Securities		Securities			Securities						or Units		Shares or		Shares, Units		Shares, Units
	Underlying		Underlying			Underlying						of Stock		Units of		or Other		or Other
	Unexercised		Unexercised			Unexercised		Option/		Option/		That Have		Stock That		Rights That		Rights That
	Options/		Options/			Unearned		Warrant		Warrant		Not		Have Not		Have Not		Have Not
	Warrants (#)		Warrants (#)			Options		Exercise		Expiration		Vested		Vested		Vested		Vested		Option Awards											Stock Awards
Name	Exercisable		Unexercisable			(#)		Price ($)		Date		(#)		($)		(#)		($)		Number of Securities Underlying Unexercised Options/ Warrants (#) Exercisable			Number of Securities Underlying Unexercised Options/ Warrants (#) Unexercisable			Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)		Option/ Warrant Exercise Price ($)		Option/ Warrant Expiration Date	Number of Shares or Units of Stock That Have Not Vested (#)		Market Value of Shares or Units of Stock That Have Not Vested ($)		Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)		Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)
(a)	(b)		(c)			(d)		(e)		(f)		(g)		(h)		(i)		(j)		(b)			(c)			(d)		(e)		(f)	(g)		(h)		(i)		(j)
Christopher M.		723,600		—			—	$	2.92		12/19/2015		—		—		—		—
Cashman		—		139,167	⁽¹⁾		—	$	2.92/$5.25		12/19/2015		—		—		—		—
Kevin A. Richardson, II																					5,000			-			-	$	2.92	09/15/2019		-		-		-		-
(Chairman of the Board																					2,500			2,500	(2)		-	$	4.05	01/29/2020		-		-		-		-
and Active CEO)																					5,000			-			-	$	2.00	11/01/2020		-		-		-		-
Barry J. Jenkins																					477,759			-			-	$	2.92	10/24/2016		-		-		-		-
(Chief Financial Officer																					10,000	(2)		10,000	(2)		-	$	4.05	01/29/2020		-		-		-		-
and COO)																					175,000			-			-	$	2.00	11/01/2020		-		-		-		-
Christopher M. Cashman																					1,210,686			-			-	$	2.92	12/19/2015		-		-		-		-
(former President																					350,000			-			-	$	2.00	11/01/2020		-		-		-		-
and CEO)(1)																					1,300,000			-			-	$	1.98	10/24/2021		-		-		-		-
		—		139,167	⁽²⁾		—	$	2.92/$5.25		12/19/2015		—		—		—		—		600,000	(3)		400,000	(3)		-	$	0.21	11/06/2022		-		-		-		-
		—		208,752	⁽³⁾		—	$	2.92/$5.25		12/19/2015		—		—		—		—		12,500	(4)		37,500	(4)		-	$	0.21	11/06/2022		-		-		-		-
		350,000		—			—	$	2.00		11/01/2020		—		—		—		—

Barry J. Jenkins		356,037		—			—	$	2.92		10/24/2016		—		—		—		—
		—		34,778	⁽⁴⁾		—	$	2.92/$5.25		10/24/2016		—		—		—		—
		—		34,778	⁽⁵⁾		—	$	2.92/$5.25		10/24/2016		—		—		—		—
		—		52,166	⁽⁶⁾		—	$	2.92/$5.25		10/24/2016		—		—		—		—
		—		20,000	⁽⁷⁾		—	$	4.05		01/29/2020		—		—		—		—
		175,000		—			—	$	2.00		11/01/2020		—		—		—		—

(1) Mr. Cashman resigned as President and CEO effective November 7, 2012.

(2) The option was granted January 29, 2010 and vests 25% annually for four years.

(3) The option was granted November 6, 2012 and vests 600,000 shares at grant date. The remaining shares will vest at the earlier of December 31, 2016 or when following events occur: 100,000 shares at enrollment of first patient in our dermaPACE clinical trial; 100,000 shares at enrollment of twentieth patient in the dermaPACE clinical trial; 100,000 shares at enrollment of fiftieth patient in the dermaPACE clinical trial; and 100,000 shares at FDA approval of the dermaPACE.

(4) The option was granted November 6, 2012 and vests 25% at grant date, 25% at three months, 25% at six months and 25% at nine months from the grant date.


~~(1)~~		The supplemental option will fully vest on the earlier of (i) December 19, 2011, and (ii) the date that the Company or its shareholders (A) enters into a transaction that establishes a value for the Company on a per share basis equal to at least $8.76 per share, or (B) receives a valuation that establishes a value for the Company on a per share basis equal to at least $8.76 per share. Notwithstanding the above, if the Common Stock closing price equals or exceeds three times the closing price as of the first date that the Common Stock was listed ($5.25), the first supplemental option will fully vest. In such an event, the exercise price of the first supplemental option will adjust to be the closing price of the Common Stock on the first date that the Common Stock was listed ($5.25).

~~(2)~~		The supplemental option will fully vest on the earlier of (i) December 19, 2011, and (ii) the date that the Company or its shareholders (A) enters into a transaction that establishes a value for the Company on a per share basis equal to at least $17.53 per share, or (B) receives a valuation that establishes a value for the Company on a per share basis equal to at least $17.53 per share. Notwithstanding the above, if the Common Stock closing price equals or exceeds six times the closing price as of the first date that the Common Stock was listed ($5.25), the second supplemental option will fully vest. In such an event, the exercise price of the second supplemental option will adjust to be the closing price of the Common Stock on the first date that the Common Stock was listed ($5.25).

~~(3)~~		The supplemental option will fully vest on the earlier of (i) December 19, 2011, and (ii) the date that the Company or its shareholders (A) enters into a transaction that establishes a value for the Company on a per share basis equal to at least $26.29 per share, or (B) receives a valuation that establishes a value for the Company on a per share basis equal to at least $26.29 per share. Notwithstanding the above, if the Common Stock closing price equals or exceeds nine times the closing price as of the first date that the Common Stock was listed ($5.25), the third supplemental option will fully vest. In such an event, the exercise price of the third supplemental option will adjust to be the closing price of the Common Stock on the first date that the Common Stock was listed ($5.25).

~~(4)~~		The supplemental option will fully vest on the earlier of (i) April 10, 2012, and (ii) the date that the Company or its shareholders (A) enters into a transaction that establishes a value for the Company on a per share basis equal to at least $8.76 per share, or (B) receives a valuation that establishes a value for the Company on a per share basis equal to at least $8.76 per share. Notwithstanding the above, if the Common Stock closing price equals or exceeds three times the closing price as of the first date that the Common Stock was listed ($5.25), the first supplemental option will fully vest. In such an event, the exercise price of the first supplemental option will adjust to be the closing price of the Common Stock on the first date that the Common Stock was listed ($5.25).

~~(5)~~		The supplemental option will fully vest on the earlier of (i) April 10, 2012, and (ii) the date that the Company or its shareholders (A) enters into a transaction that establishes a value for the Company on a per share basis equal to at least $17.53 per share, or (B) receives a valuation that establishes a value for the Company on a per share basis equal to at least $17.53 per share. Notwithstanding the above, if the Common Stock closing price equals or exceeds six times the closing price as of the first date that the Common Stock was listed ($5.25), the second supplemental option will fully vest. In such an event, the exercise price of the second supplemental option will adjust to be the closing price of the Common Stock on the first date that the Common Stock was listed ($5.25).

~~(6)~~		The supplemental option will fully vest on the earlier of (i) April 10, 2012, and (ii) the date that the Company or its shareholders (A) enters into a transaction that establishes a value for the Company on a per share basis equal to at least $26.29 per share, or (B) receives a valuation that establishes a value for the Company on a per share basis equal to at least $26.29 per share. Notwithstanding the above, if the Common Stock closing price equals or exceeds nine times the closing price as of the first date that the Common Stock was listed ($5.25), the third supplemental option will fully vest. In such an event, the exercise price of the third supplemental option will adjust to be the closing price of the Common Stock on the first date that the Common Stock was listed ($5.25).

~~(7)~~		~~The options were granted January 29, 2010 and 5,000 options vest annually on January 29, 2011, 2012, 2013 and 2014, respectively.~~

~~-45-~~

Director Compensation Table for Fiscal ~~2010~~2012

We did not pay any director cash or stock-based compensation for serving on our board of directors during the fiscal year ended December 31, 2012. The following table provides certain information concerning compensation for each director during the fiscal year ended December 31, ~~2010.~~2012.

Fees Earned Nonqualified
or Non-Equity Deferred
Paid in Stock Option Incentive Plan Compensation All Other
Cash Awards Awards Compensation Earnings Compensation Total
Name⁽¹⁾ ($) ($) ($)⁽²⁾ ($) ($) ($) ($)
(a) (b) (c) (d) (e) (f) (g) (h)
Thomas H. Robinson — — — — — — —
Kevin A. Richardson, II — — $ 22,080 — — — $ 22,080
John F. Nemelka — — $ 22,080 — — — $ 22,080


~~(1)~~Name		~~Christopher M. Cashman, who is a member of our board of directors, has been omitted from this table since he received no compensation for serving on our board of directors.~~

~~(2)~~ Fees Earned or Paid in Cash ($)		The following are the aggregate number of option awards outstanding that have been granted to each of our nonemployee directors as of December 31, 2010: Mr. Robinson — 15,000; Mr. Richardson — 15,000; and Mr. Nemelka — 15,000.

~~Discussion of Director Compensation~~

The Company did not pay any director cash compensation for serving on our board of directors during the fiscal years ended December 31, 2010 or 2009. The Company may begin to compensate its directors in cash at some time in the future. On November 1, 2010, the Company issued options to purchase the Company’s Common Stock at $2.00 per share to certain non-employee directors as follows: options to purchase 5,000 shares to Kevin A. Richardson, II and options to purchase 5,000 shares to John F. Nemelka. The options were vested when granted and expire ten years after the date of the grant. On January 29, 2010, the Company issued options to purchase the Company’s Common Stock at $4.05 per share to certain non-employee directors as follows: options to purchase 5,000 shares to Kevin A. Richardson, II and options to purchase 5,000 to John F. Nemelka. The options are vested equally over a four year period and expire ten years after the date of the grant.

~~Disclosure of Commission Position on Indemnification of Securities Act Liabilities~~

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

~~-46-~~

~~SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT~~

The following table sets forth certain information, as of June 7, 2011, with respect to the beneficial ownership of the Company’s outstanding Common Stock by (i) any holder of more than five percent, (ii) each of the Company’s executive officers and directors, and (iii) the Company’s directors and executive officers as a group.

Number of Shares Percent of
Beneficially Shares
Name of Beneficial Owner⁽¹⁾ Owned⁽²⁾ Outstanding
Christopher M. Cashman⁽³⁾
1,411,673 6.4 %
Barry J. Jenkins⁽⁴⁾
693,287 3.2 %
Kevin A. Richardson, II⁽⁵⁾
2,892,258 12.9 %
Thomas H. Robinson 15,000 *
John F. Nemelka 11,750 *
David N. Nemelka⁽⁶⁾
3,390,537 15.1 %
Prides Capital Fund I, LP⁽⁷⁾
10,520,077 47.1 %
NightWatch Capital Partners II, LP⁽⁸⁾
2,108,369 10.0 %

All directors and executive officers as a group (5 persons) 5,023,968 20.9 %


* Stock Awards ($)	~~Less than 1% of outstanding shares.~~

~~(1)~~ Option Awards ($)	~~Unless otherwise noted, each beneficial owner has the same address as the Company.~~


~~(2)~~ Non-Equity Incentive Plan Compensation ($)	“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, 2011. 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 Securities Exchange Act of 1934, as amended, referred to in this current report as the Exchange Act. Pursuant to the rules of the Securities and Exchange Commission, referenced to in this current report as the SEC, certain shares of our Common Stock that a beneficial owner has the right to acquire within 60 days pursuant to the exercise of stock options or warrants are deemed to be outstanding for the purpose of computing the percentage ownership of such owner, but are not deemed outstanding for the purpose of computing the percentage ownership of any other person.


~~(3)~~ Nonqualified Deferred Compensation Earnings ($)	~~Includes options to purchase up to 1,073,600 shares of Common Stock and warrants to purchase up to 8,816 shares of Common Stock.~~

~~(4)~~ All Other Compensation ($)	~~Includes options to purchase up to 536,037 shares of Common Stock and warrants to purchase up to 3,508 shares of Common Stock.~~

~~(5)~~		~~Includes options to purchase up to 11,250 shares of Common Stock and warrants to purchase up to 1,440,504 shares of Common Stock.~~

~~(6)~~	Based solely on information contained in filings made on schedule 13D, as amended, with the securities and exchange commission by the reporting person. Includes warrants to purchase up to 1,566,014 shares of Common Stock. The principal address of David N. Nemelka is 2662 Stonebury Loop Road, Springville, UT 84663.

~~(7)~~	Based solely on information contained in filings made on schedule 13D, as amended, with the securities and exchange commission by the reporting person. Includes warrants to purchase 1,438,088 shares of Common Stock. The principal business address of Prides Capital Fund, I, LP is 200 State Street, 13^th ~~floor, Boston, MA 02109.~~

~~(8)~~	Based solely on information contained in filings made on schedule 13D, as amended, with the securities and exchange commission by the reporting person. Includes warrants to purchase 204,224 shares of Common Stock. The principal business address of NightWatch Capital Partners II, LP is 5314 River Run Drive, Suite 350, Provo, UT 84604.

~~CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS~~

~~Related Party Transactions~~

On April 8, 2011, we completed a private placement to 28 institutional and individual accredited investors of 2,804,593 shares of our Common Stock at a purchase price of $3.25 per share, for gross proceeds of $9,114,927. The net proceeds received by the Company were $8,467,121, net of offering costs of $647,806. As part of the private placement, the investors were issued five-year warrants to purchase up to 2,804,593 shares of our Common Stock at an initial exercise price of $4.00 per share. The net proceeds from the private placement, following the payment of offering-related expenses, are being used by us for working capital and other general corporate purposes. David N. Nemelka, the brother of John F. Nemelka, a member of our board of directors and an existing shareholder of the Company, was one of the purchasers in the offering.

On April 4, 2011, the note holders of our amended senior notes (the “Notes”) cancelled the unpaid principal and interest balance of the Notes which totaled $4,413,908 in consideration for the issuance of 1,358,126 shares of our Common Stock. In addition, in connection with this transaction, we issued to the note holders an aggregate total of 679,064 warrants to purchase shares of Common Stock at an exercise price of $4.00 per share. Each warrant represents the right to purchase one share of Common Stock. The warrants vested upon issuance and expire after five years. The Notes were held by Prides Capital Fund I, LP and NightWatch Capital Partners II, LP (the “Noteholders”). Kevin A. Richardson, II, who is the chairman of our board of directors, serves as the managing partner of Prides Capital, LLC, an affiliate of Prides

~~-47-~~

~~Capital Fund I, LP. John F. Nemelka, who is a member of our board of directors, serves as managing principal of NightWatch Capital Advisors, LLC, an affiliate of NightWatch Capital Partners II, LP.~~

In January 2011, we raised $3,900,334 from a group of accredited investors through the exercise of options they received in 2010 as part of a purchase of a unit which consisted of: (i) one share of Common Stock, par value $0.001 per share; (ii) a two-year Common Stock purchase warrant (the “Class D Warrant”) to purchase one share of Common Stock, at an exercise price of $2.00; and (iii) an Option ,which as amended, expired on January 31, 2011, to purchase the same number of units as granted pursuant to this transaction, at the purchase price of $2.00 per unit. Kevin A. Richardson, II, who is chairman of our board of directors, exercised 545,252 Options and David N. Nemelka, who is the brother of John F. Nemelka, a member of our board of directors exercised 686,252 Options in connection with this transaction

During 2010, we issued promissory notes totaling $1,750,000 to Kevin A. Richardson, II, our chairman of the board of directors, and $500,000 to David N. Nemelka, the brother of John F. Nemelka, a member our board of directors. On October 12, 2010, in conjunction with an offering, we amended the terms of the outstanding promissory notes such that the unpaid principal and interest on each note was exchanged into units (as described in the “Liquidity and Capital Resources” section). The unpaid principal and interest on the notes to Kevin A. Richardson, II totaled $1,790,504, and this sum was exchanged into a total of 895,252 units which consisted of 895,252 shares of Common Stock, 895,252 Class D warrants and 895,252 options, which, as amended, expire on January 31, 2011, to purchase another unit at the purchase price of $2.00 per unit. The unpaid principal and interest on the notes to David N. Nemelka totaled $522,504, and this sum was exchanged into a total of 261,252 units which consisted of 261,252 shares of Common Stock, 261,252 Class D warrants and 261,252 options, which, as amended, expired on January 31, 2011, to purchase another unit at the purchase price of $2.00 per unit.

~~Director Independence~~

~~Our board of directors has determined that Thomas H. Robinson qualifies as an independent director based on the NASDAQ Stock Market definition of “independent director.”~~

~~SELLING STOCKHOLDERS~~

~~April 2011 Private Placement~~

On April 8, 2011, we completed a private placement to 28 institutional and individual accredited investors of 2,804,593 shares of our Common Stock at a purchase price of $3.25 per share for gross proceeds of $9,114,927. The net proceeds received by the Company were $8,467,121, net of offering costs of $647,806. As part of the private placement, the investors were issued five-year warrants to purchase up to 2,804,593 shares of our Common Stock at an initial exercise price of $4.00 per share. For each of the warrants, the holder will be able to exercise the warrant on a cashless basis at any time following the one-year anniversary of the closing of the private placement, if a registration statement covering the shares of our Common Stock underlying such warrants is not effective. The net proceeds from the private placement, following the payment of offering-related expenses, are being used by us for working capital and other general corporate purposes.

At the closing of the private placement, we paid Rodman & Renshaw LLC, the placement agent for the private placement, cash compensation based on the gross proceeds of the private placement and a five-year warrant to purchase up to 93,080 shares of our Common Stock at an initial exercise price of $4.00 per share. The terms of the placement agent’s warrants are identical to the warrants issued to investors in the private placement.

We have agreed, pursuant to the terms of a registration rights agreement with the investors in the private placement, to (i) file a registration statement with respect to the resale of the shares of our Common Stock sold to the investors and shares of our Common Stock issuable upon exercise of the warrants with the SEC on or before May 20, 2011; (ii) use our best efforts to have the registration statement declared effective by the SEC as soon as possible after the initial filing, and in any event no later than 30 days after the initial filing date (or 90 days in the event of a review of the registration statement by the SEC), and (iii) keep this the registration statement effective until all registrable securities may be sold under Rule 144 under the Securities Act. If we are unable to comply with any of the above covenants, we will be required to pay liquidated damages to the investors in the amount of 2.0% of the investors’ purchase price per month during such

~~-48-~~

~~non-compliance (capped at a maximum of 12% of the purchase price), with such liquidated damages payable in cash.~~

The investors agreed, pursuant to the securities purchase agreement, not to engage in any short sales (as defined in the agreement) until the earlier of the effective date of the registration statement or the date when the shares of our Common Stock sold to the investors and shares of our Common Stock issuable upon exercise of the warrants are eligible for sale under Rule 144 under the Securities Act. We also agreed to certain restrictions on our ability to sell our equity securities until 60 days after the effective date of the registration statement.

The shares of our Common Stock and warrants issued in the private placement were exempt from registration under Section 4(2) of the Securities Act as a sale by an issuer not involving a public offering or under Regulation D promulgated pursuant to the Securities Act. None of the shares of Common Stock or warrants, or shares of our Common Stock underlying such warrants, were registered under the Securities Act, or the securities laws of any state, and were offered and sold in reliance on the exemption from registration afforded by Section 4(2) and Regulation D (Rule 506) under the Securities Act and corresponding provisions of state securities laws, which exempts transactions by an issuer not involving any public offering. Such securities may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements and certificates evidencing such shares contain a legend stating the same.

~~Selling Stockholder Table~~

~~The following table sets forth:~~

Total

($)	•	~~the name of the selling stockholders,~~


	•	~~the number of shares of Common Stock beneficially owned by the selling stockholders as of June 7, 2011,~~


	•		~~the maximum number of shares of Common Stock that may be offered for the account of the selling stockholders under this prospectus, and~~

	•	the amount and percentage of Common Stock that would be owned by the selling stockholders after completion of the offering, assuming a sale of all of the Common Stock that may be offered by this prospectus.

~~Except as noted below and elsewhere in this prospectus, the selling stockholders have not, within the past three years, had any position, office or other material relationship with us.~~

~~David N. Nemelka, one of the selling stockholders, is the brother of John F. Nemelka, who is a member of our board of directors.~~

Beneficial ownership is determined under the rules of the SEC. The number of shares beneficially owned by a person includes shares of Common Stock underlying warrants, stock options and other derivative securities to acquire our Common Stock held by that person that are currently exercisable or convertible within 60 days after June 7, 2011. The shares issuable under these securities are treated as outstanding for computing the percentage ownership of the person holding these securities, but are not treated as outstanding for the purposes of computing the percentage ownership of any other person.

~~-49-~~

Amount of Shares of
Number of Shares Common Stock Being Shares Beneficially Owned
Beneficially Owned Offered Pursuant to this After Offering
Name of Selling Stockholders (1) Before Offering (2) Prospectus (3) Number (3) Percentage (4)
Pacific Select Fund — Health Sciences Portfolio (5)
270,766 270,766 — *
Jennison Global Healthcare Master Fund, Ltd. (6)
307,700 307,700 — *
Prudential Health Sciences Fund d/b/a Prudential Jennison Health Sciences Fund, a series of Prudential Sector Funds, Inc. (7)
1,575,380 1,575,380 — *
Deerfield Special Situations Fund International Limited (8)
562,154 562,154 — *
Deerfield Special Situations Fund, LP (8)
360,924 360,924 — *
Investor Company f/b/o Rosalind Capital Partners L.P. (9)
146,200 146,200 — *
Investor Company f/b/o Rosalind Master Fund
L.P. (9)
161,600 161,600 — *
DAFNA Lifescience Select Ltd (10)
48,000 48,000 — *
DAFNA Lifescience Ltd (10)
24,000 24,000 — *
DAFNA Lifescience Market Neutral Ltd (10)
20,308 20,308 — *
Alpha Capital Anstalt (11)
153,846 153,846 — *
Cranshire Capital LP (12)
61,540 61,540 — *
Iroquois Master Fund Ltd (13)
30,768 30,768 — *
David N. Nemelka (14)
3,390,537 620,000 2,770,537 12.3 %
McCollee Partners, LLC (15)
1,200,045 200,000 1,000,045 4.7 %
Steven P. Zolman
252,688 186,000 66,688 *
Kelly Walker
214,032 124,000 90,032 *
Jared Chappell
157,344 124,000 33,344 *
Stacy Hall
112,050 62,000 50,050 *
KSP Investments, LLC (16)
172,304 62,000 110,304 *
Ben E. Peay
310,859 62,000 248,859 1.2 %
Craig A. Davis
82,700 62,000 20,700 *
Brian Trapnell
117,982 68,000 49,982 *
Hatty Investments, LLC (17)
192,045 62,000 130,045 *
Michael Huish
112,011 62,000 50,011 *
Todd Pedersen
533,340 62,000 471,340 2.2 %
Daniel Chen
91,900 68,000 23,900 *
Mark N. Schneider Trustee of the Mark N. Schneider Family Living Trust (18)
99,677 62,000 37,677 *
Rodman & Renshaw LLC (19)
93,080 93,080 — *

~~-50-~~


*	~~Represents beneficial ownership of less than 1%.~~

~~(1)~~		~~Unless otherwise noted, this table is based on information supplied to us by the selling stockholders and certain records of the Company.~~

~~(2)~~	~~The share numbers in this column assumes the issuance of shares of Common Stock pursuant to the exercise of the outstanding warrants.~~

~~(3)~~	The share numbers are based on records of the Company and information from the selling stockholders. The share numbers include Common Stock and shares of Common Stock issuable pursuant to the exercise of outstanding warrants held by the selling stockholders. We do not know when or in what amounts a selling stockholder may offer shares for sale. The selling stockholders might not sell any or all of the shares offered by this prospectus. Because the selling stockholders may offer all or some of the shares pursuant to this offering and because there are currently no agreements, arrangements or understandings with respect to the sale of any of the shares, we cannot estimate the number of the shares that will be held by the selling stockholders after completion of the offering. However, for purposes of this table, we have assumed that, after completion of the offering, none of the shares covered by this prospectus will be held by the selling stockholders.


~~(4)~~		The percentage calculation after the offering is based on 20,907,536 shares of Common Stock outstanding and assumes the full exercise of outstanding warrants held by the Selling Stockholder on June 7, 2011.



~~(5)~~	Number of shares being offered includes 135,383 shares of Common Stock issuable upon the exercise of warrants held by this selling stockholder. Jennison Associates LLC (“Jennison”) serves as sub-adviser with power to direct investments and/or power to vote the shares owned by this selling stockholder, as well as shares owned by certain other clients, and may be deemed to beneficially own the shares held by these entities. Jennison expressly disclaims ownership of such shares. Jennison is a wholly-owned subsidiary of Prudential Financial, Inc., which is a publicly-traded financial services company. The address of Jennison is 466 Lexington Avenue, New York, NY 10017. The selling stockholder is a mutual fund whose principal underwriter is an affiliated broker-dealer that is a member of the Financial Industry Regulatory Authority (FINRA). Jennison represents that it has purchased these shares in the ordinary course of business and, at the time of purchase, with no arrangement or understanding, directly or indirectly, with any person regarding the distribution of such shares. By virtue of their positions with Jennison, David Chan and Michael Del Balso, Managing Directors of Jennison and Portfolio Managers to this selling stockholder, have authority to vote or dispose of the shares held by this selling stockholder.



~~(6)~~	Number of shares being offered includes 153,850 shares of Common Stock issuable upon the exercise of warrants held by this selling stockholder. Jennison Associates LLC (“Jennison”) serves as investment manager with power to direct investments and/or power to vote the shares owned by this selling stockholder, as well as owned by certain other clients, and may be deemed to beneficially own the shares held by these entities. Jennison expressly disclaims ownership of such shares. Jennison is a wholly-owned subsidiary of Prudential Financial, Inc., which is a publicly-traded financial services company. The address of Jennison is 466 Lexington Avenue, New York, NY 10017. The selling stockholder is an exempted company incorporated under the laws of the Cayman Islands whose shares are distributed by an affiliated broker-dealer that is a member of the Financial Industry Regulatory Authority (FINRA). Jennison represents that it has purchased these shares in the ordinary course of business and, at the time of purchase, with no arrangement or understanding, directly or indirectly, with any person regarding the distribution of such shares. By virtue of his position with Jennison, David Chan, Managing Director of Jennison and Portfolio Manager to this selling stockholder, has authority to vote or dispose of the shares held by this selling stockholder.



~~(7)~~	Number of shares being offered includes 787,690 shares of Common Stock issuable upon the exercise of warrants held by this selling stockholder. Jennison Associates LLC (“Jennison”) serves as sub-adviser with power to direct investments and/or power to vote the shares owned by this selling stockholder, as well as shares owned by certain other clients, and may be deemed to beneficially own the shares held by these entities. Jennison expressly disclaims ownership of such shares. Jennison is a wholly-owned subsidiary of Prudential Financial, Inc., which is a publicly-traded financial services company. The address of Jennison is 466 Lexington Avenue, New York, NY 10017. The selling stockholder is a mutual fund whose principal underwriter is an affiliated broker-dealer that is a member of the Financial Industry Regulatory Authority (FINRA). Jennison represents that it has purchased these shares in the ordinary course of business and, at the time of purchase, with no arrangement or understanding, directly or indirectly, with any person regarding the distribution of such shares. By virtue of their positions with Jennison, David Chan and Michael Del Balso, Managing Directors of Jennison and Portfolio Managers to this selling stockholder, have authority to vote or dispose of the shares held by this selling stockholder.



~~(8)~~	~~James E. Flynn has authority to vote or dispose of the shares held by this selling stockholder.~~



~~(9)~~	~~Steven Salamon, CFA has authority to vote or dispose of the shares held by this selling stockholder.~~



~~(10)~~	~~Nathan Fischel and Fariba Ghodsian have authority to vote or dispose of the shares held by this selling stockholder.~~



~~(11)~~	~~Konrad Ackerman has authority to vote or dispose of the shares held by this selling stockholder.~~



~~(12)~~	Downsview Capital, Inc. (“Downsview”) is the general partner of Cranshire Capital, L.P. (“Cranshire”) and consequently has voting control and investment discretion over securities held by Cranshire. Mr. Mitchell P Koplin, President of Downsview, has voting control over Downsview. As a result of the foregoing, each of Mr. Koplin and Downsview may be deemed to have beneficial ownership (as determined under Section 13(d) of the Exchange Act) of the shares of Common Stock beneficially owned by Cranshire.



~~(13)~~	~~Joshua Silverman has authority to vote or dispose of the shares held by this selling stockholder.~~



~~(14)~~	As of the date hereof, David N. Nemelka beneficially owns 3,390,537 shares of Common Stock of the Issuer, including Common Stock issuable upon exercise of warrants to purchase 1,566,014 shares of Common Stock. This includes information contained in filings made on Schedule 13D, as amended, with the Commission by the reporting person. The principal address of David N. Nemelka is 2662 Stonebury Loop Road, Springville, UT 84663.



~~(15)~~	Includes 50,015 shares of Common Stock, 50,015 Class A Warrants and 50,015 Class B Warrants owned by Keith Nellesen, manager of McCollee Partners, LLC. Keith Nellesen and Brittany Allred have authority to vote or dispose of the shares held by this selling stockholder.



~~(16)~~	~~Dane Kay, Jim Salisbury, Scott Petersen and Steve Petersen have authority to vote or dispose of the shares held by this selling stockholder.~~



~~(17)~~	~~Kevin Hatfield has authority to vote or dispose of the shares held by this selling stockholder.~~



~~(18)~~	~~Mark N. Schneider has authority to vote or dispose of the shares held by this selling stockholder.~~



~~(19)~~	Rodman & Renshaw, LLC, a subsidiary of Rodman & Renshaw Capital Group, Inc., was the placement agent in our April 2011 private placement. Rodman & Renshaw, LLC is a member of the Financial Industry Regulatory Authority. John J. Borer III is the Senior Managing Director and Head of Investment Banking of Rodman & Renshaw, which is the registered holder of the warrant to purchase common stock. Mr. Borer, as the Senior Managing Director and Head of Investment Banking of Rodman & Renshaw, has sole voting and dispositive power of the shares owned by Rodman & Renshaw offered under this prospectus.

~~-51-~~

~~PLAN OF DISTRIBUTION~~

Each selling stockholder of the securities and any of their pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their securities covered hereby on the OTC Bulletin Board or any other stock exchange, market or trading facility on which the securities are traded or in private transactions. These sales may be at fixed or negotiated prices. A selling stockholder may use any one or more of the following methods when selling securities:

	•	~~ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;~~

	•	~~block trades in which the broker-dealer will attempt to sell the securities as agent but may position and resell a portion of the block as principal to facilitate the transaction;~~

	•	~~purchases by a broker-dealer as principal and resale by the broker-dealer for its account;~~

	•	~~an exchange distribution in accordance with the rules of the applicable exchange;~~

	•	~~privately negotiated transactions;~~

	•	~~settlement of short sales entered into after the effective date of the registration statement of which this prospectus is a part;~~

	•	~~in transactions through broker-dealers that agree with the selling stockholders to sell a specified number of such securities at a stipulated price per security;~~
��
	•	~~through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;~~

	•	~~a combination of any such methods of sale; or~~

	•	~~any other method permitted pursuant to applicable law.~~

~~The selling stockholders may also sell securities pursuant to Rule 144 under the Securities Act, if available, rather than under this prospectus.~~

Broker-dealers engaged by the selling stockholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling stockholders (or, if any broker-dealer acts as agent for the purchaser of securities, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this prospectus, in the case of an agency transaction not in excess of a customary brokerage commission in compliance with FINRA Rule 2440; and in the case of a principal transaction a markup or markdown in compliance with FINRA IM-2440.

In connection with the sale of the securities or interests therein, the selling stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the securities in the course of hedging the positions they assume. The selling stockholders may also sell securities short and deliver these securities to close out their short positions, or loan or pledge the securities to broker-dealers that in turn may sell these securities. The selling stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or create one or more derivative securities which require the delivery to such broker-dealer or other financial institution of securities offered by this prospectus, which securities such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).

The selling stockholders and any broker-dealers or agents that are involved in selling the securities may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the securities purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Each selling stockholder has informed the Company that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the securities. In no event shall any broker-dealer receive fees, commissions and markups which, in the aggregate, would exceed eight percent (8%).

~~-52-~~

The Company is required to pay certain fees and expenses incurred by the Company incident to the registration of the securities. The Company has agreed to indemnify the selling stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act.

Because selling stockholders may be deemed to be “underwriters” within the meaning of the Securities Act, they will be subject to the prospectus delivery requirements of the Securities Act including Rule 172 thereunder. In addition, any securities covered by this prospectus which qualify for sale pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather than under this prospectus. The selling stockholders have advised us that there is no underwriter or coordinating broker acting in connection with the proposed sale of the resale securities by the selling stockholders.

We agreed to keep this prospectus effective until the earlier of (i) the date on which the securities may be resold by the selling stockholders without registration and without regard to any volume or manner-of-sale limitations by reason of Rule 144, without the requirement for the Company to be in compliance with the current public information under Rule 144 under the Securities Act or any other rule of similar effect or (ii) all of the securities have been sold pursuant to this prospectus or Rule 144 under the Securities Act or any other rule of similar effect. The resale securities will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale securities covered hereby may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.

Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the resale securities may not simultaneously engage in market making activities with respect to the Common Stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the Selling stockholders will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of securities of the Common Stock by the selling stockholders or any other person. We will make copies of this prospectus available to the selling stockholders and have informed them of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act).

~~DESCRIPTION OF SECURITIES TO BE REGISTERED~~

Our authorized capital stock consists of 55,000,000 shares, of which 50,000,000 shares are designated as Common Stock and 5,000,000 shares are designated as preferred stock. As of June 7, 2011, there were issued and outstanding:

	•		~~20,907,536 shares of Common Stock,~~

	•		~~warrants to purchase 10,025,151 shares of Common Stock at a weighted average exercise price of $3.60 per share, and~~

	•		~~stock options to purchase 2,992,796 shares of Common Stock at a weighted average exercise price of $3.20 per share.~~

The following summary of the material provisions of our Common Stock, warrants, articles of incorporation and bylaws is qualified by reference to the provisions of our articles of incorporation and bylaws and the forms of warrant included or incorporated by reference as exhibits to the registration statement of which this prospectus is a part.

~~Common Stock~~

All shares of our Common Stock have equal voting rights and, when validly issued and outstanding, have one vote per share in all matters to be voted upon by the stockholders. Cumulative voting in the election of directors is not allowed, which means that the holders of more than 50% of the outstanding shares can elect all the directors if they choose to do so and, in such event, the holders of the remaining shares will not be able to elect any directors. The affirmative vote of a plurality of the shares of Common Stock voted at a stockholders meeting where a quorum is present is required to elect directors and to take other corporate actions. Holders of our Common Stock are entitled to receive ratably such dividends, if any, as may be declared by our board of directors out of legally available funds. However, the current policy of our board of directors is to retain earnings, if any, for the operation and expansion of the Company. Upon liquidation, dissolution or winding-up, the holders of our Common Stock are entitled to share ratably in all of our assets which are legally available for distribution, after payment of or provision for all liabilities and the liquidation preference of any outstanding preferred stock. The holders of our Common Stock have no preemptive, subscription, redemption or conversion rights. All issued and outstanding shares of Common Stock are, and the Common Stock reserved for issuance upon exercise of our stock options and warrants will be, when issued, fully-paid and non-assessable.

~~-53-~~

~~Preferred Stock~~

Our articles of incorporation authorize the issuance of up to 5,000,000 shares of “blank check” preferred stock with designations, rights and preferences as may be determined from time to time by our board of directors. No preferred shares are currently issued or outstanding.

~~Warrants~~

~~The following is a brief summary of material provisions of the warrants issued in the April 2011 private placement.~~

~~Exercise Price and Terms~~. Each warrant entitles the holder thereof to purchase at any time until April 8, 2016, at a price of $4.00 per share, subject to certain adjustments referred to below, shares of our Common Stock. The holder of any warrant may exercise such warrant by surrendering the warrant to us, with the notice of exercise properly completed and executed, together with payment of the exercise price. The warrants may also be exercised on a cashless-exercise basis by investors if a resale registration statement covering the shares underlying the warrants has not been declared effective by the earlier of (i) April 8, 2012 and (ii) the completion of the then-applicable holding period required by Rule 144. The warrants may be exercised at any time in whole or in part at the applicable exercise price until expiration of the warrants. No fractional shares will be issued upon the exercise of the warrants.

~~Adjustments~~. The exercise price and the number of shares of Common Stock purchasable upon the exercise of the warrants are subject to adjustment upon the occurrence of certain events, including stock dividends, stock splits, combinations or reclassifications of the Common Stock. Additionally, an adjustment would be made in the case of a reclassification or exchange of Common Stock, consolidation or merger of our Company with or into another corporation (other than a consolidation or merger in which we are the surviving corporation) or sale of all or substantially all of our assets in order to enable holders of the warrants to acquire the kind and number of shares of stock or other securities or property receivable in such event by a holder of the number of shares of Common Stock that might otherwise have been purchased upon the exercise of the warrant. No adjustment to the number of shares and exercise price of the shares subject to the warrants will be made for dividends (other than stock dividends), if any, paid on our Common Stock.

~~Transfer, Exchange and Exercise~~. The warrants may be presented to us for exchange or exercise at any time on or prior to April 8, 2016, at which time the warrants shall be automatically exercised on a cashless-exercise basis. Prior to any transfer of the warrants the holder must notify us of the same and, if subsequently requested, provide a legal opinion regarding the transfer to us.

~~Warrantholder Not a Stockholder~~~~. The warrants do not confer upon holders any voting, dividend or other rights as a shareholder of our Company.~~

~~Trading Information~~

~~Our shares of Common Stock are currently quoted in the over-the-counter market on the OTC Bulletin Board. Our warrants will not be registered or listed for trading.~~

~~Transfer Agent~~

~~The transfer agent and registrar for our Common Stock is Action Stock Transfer Corp., 7069 S. Highland Drive, Suite 300, Salt Lake City, Utah 84121. We serve as warrant agent for the warrants.~~

~~SHARES AVAILABLE FOR FUTURE SALE~~

As of June 7, 2011, we had 20,907,536 shares of Common Stock outstanding, not including shares issuable upon the exercise of outstanding warrants, stock options and other convertible securities. All shares sold in this offering will be freely tradable without restriction or further registration under the Securities Act, unless they are purchased by our “affiliates,” as that term is defined in Rule 144 promulgated under the Securities Act.

~~The outstanding shares of our Common Stock not included in this prospectus will be available for sale in the public market as follows:~~

~~Public Float~~

Of our outstanding shares, 14,734,660 shares are beneficially owned by executive officers, directors and affiliates of the Company. The remaining 6,172,876 shares constitute our public float which, based on the last sale price of our Common Stock reported on the OTC Bulletin Board on June 7, 2011, equaled approximately $25,308,792.

~~-54-~~

~~Rule 144~~

In general, under Rule 144, as currently in effect, a person who has beneficially owned shares of our Common Stock for at least six months, including the holding period of prior owners other than affiliates, is entitled to sell his or her shares without any volume limitations; an affiliate, however, can sell such number of shares within any three-month period as does not exceed the greater of:


	•		~~1% of the number of shares of our Common Stock then outstanding, which equaled 209,075 shares as of June 7, 2011, or~~


	•		the average weekly trading volume of our Common Stock, assuming our shares are then traded on a national securities exchange, during the four calendar weeks preceding the filing of a notice on Form 144 with respect to that sale.

~~Sales under Rule 144 are also subject to manner-of-sale provisions, notice requirements and the availability of current public information about us.~~

~~LEGAL MATTERS~~

~~Certain legal matters will be passed upon for us by Smith, Gambrell & Russell, LLP, Atlanta, Georgia.~~

~~EXPERTS~~

The consolidated financial statements of SANUWAVE Health, Inc. as of and for the years ended December 31, 2010 and 2009, appearing in this prospectus and registration statement have been audited by HLB Gross Collins, P.C., independent registered public accounting firm, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.

~~INTEREST OF NAMED EXPERTS AND COUNSEL~~

No expert or counsel named in this prospectus as having prepared or certified any part of this prospectus or having given an opinion upon the validity of the securities being registered or upon other legal matters in connection with the registration or offering of the Common Stock was employed on a contingency basis, or had, or is to receive, in connection with the offering, a substantial interest, direct or indirect, in the registrant or any of its parents or subsidiaries. Nor was any such person connected with the registrant or any of its parents or subsidiaries as a promoter, managing or principal underwriter, voting trustee, director, officer, or employee.

~~-55-~~

~~INDEX TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~SANUWAVE Health, Inc. and Subsidiaries~~

(a)

~~Page~~(b)

(c)

(d)

(e)

(f)

(g)

(h)

~~Consolidated Financial Statements~~

~~Unaudited Financial Statements~~Barbara M. Henagan(1)

~~Condensed Consolidated Balance Sheets as of March 31, 2011 and December 31, 2010~~

~~F-1~~

~~Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2011 and 2010~~

~~F-2~~

~~Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2011 and 2010~~

~~F-3~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

~~F-4~~

~~Financial Statements~~

~~Report of Independent Registered Public Accounting Firm~~

~~F-12~~

~~Consolidated Balance Sheets as of December 31, 2010 and 2009~~

~~F-13~~

~~Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2010 and 2009~~

~~F-14~~

~~Consolidated Statements of Stockholders’ Equity (Deficit) for the years ended December 31, 2010 and 2009~~

~~F-15~~

~~Consolidated Statements of Cash Flows for the years ended December 31, 2010 and 2009~~

~~F-16~~

~~Notes to Consolidated Financial Statements~~

~~F-17~~

~~SANUWAVE HEALTH, INC. AND SUBSIDIARIES~~
~~CONDENSED CONSOLIDATED BALANCE SHEETS~~

March 31, December 31,
2011 2010
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,306,100 $ 417,457
Accounts receivable — trade, net of allowance for doubtful accounts of $81,205 in 2011 and $36,903 in 2010 152,050 95,549
Inventory (Note 7) 422,805 463,643
Prepaid expenses 158,551 121,084
Due from Pulse Veterinary Technologies, LLC 171,868 45,389

TOTAL CURRENT ASSETS 3,211,374 1,143,122

PROPERTY AND EQUIPMENT, at cost, less accumulated depreciation (Note 8) 7,149 13,386

OTHER ASSETS 32,298 32,253

INTANGIBLE ASSETS, at cost, less accumulated amortization (Note 9) 1,763,849 1,840,538

TOTAL ASSETS $ 5,014,670 $ 3,029,299

LIABILITIES
CURRENT LIABILITIES
Accounts payable $ 1,561,847 $ 1,829,815
Accrued employee compensation 1,253,096 1,101,410
Accrued expenses (Note 10) 321,036 256,204
Notes payable, related parties (Note 12) 4,406,563 4,247,290
Interest payable, related parties (Note 12) 80,071 82,977
Liabilities related to discontinued operations 655,061 655,061

TOTAL CURRENT LIABILITIES 8,277,674 8,172,757

NOTES PAYABLE, RELATED PARTIES (Note 12) 5,372,743 5,372,743

TOTAL LIABILITIES 13,650,417 13,545,500

COMMITMENTS AND CONTINGENCIES (Note 14) — —

GOING CONCERN (Note 3) — —

STOCKHOLDERS’ EQUITY (DEFICIT)
PREFERRED STOCK, par value $0.001, 5,000,000 shares authorized; no shares issued and outstanding — —

COMMON STOCK, par value $0.001, 50,000,000 shares authorized; 16,744,817 in 2011 and 14,794,650 in 2010 issued and outstanding (Note 5) 16,745 14,795

ADDITIONAL PAID-IN CAPITAL 47,778,965 43,728,133

ACCUMULATED OTHER COMPREHENSIVE INCOME 21,900 10,902

RETAINED DEFICIT (56,453,357 ) (54,270,031 )

TOTAL STOCKHOLDERS’ EQUITY (DEFICIT) (8,635,747 ) (10,516,201 )

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) $ 5,014,670 $ 3,029,299

~~See accompanying notes to unaudited condensed~~
~~consolidated financial statements.~~

~~F-1~~

~~SANUWAVE HEALTH, INC. AND SUBSIDIARIES~~
~~CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS~~
~~(UNAUDITED)~~

Three Months Ended Three Months Ended
March 31, March 31,
2011 2010
REVENUES $ 251,753 $ 143,102

COST OF REVENUES 93,298 47,644

GROSS PROFIT 158,455 95,458

OPERATING EXPENSES
Research and development 749,299 1,085,974
General and administrative 1,382,185 1,598,524
Depreciation 6,237 194,732
Amortization 76,689 76,689

TOTAL OPERATING EXPENSES 2,214,410 2,955,919

OPERATING LOSS (2,055,955 ) (2,860,461 )

OTHER INCOME (EXPENSE)
Transitional services provided to Pulse Veterinary Technologies, LLC 112,500 90,000
Interest expense, net (236,280 ) (217,281 )
Loss on foreign currency exchange (3,591 ) (7,013 )

TOTAL OTHER INCOME (EXPENSE) (127,371 ) (134,294 )

LOSS BEFORE INCOME TAXES (2,183,326 ) (2,994,755 )

INCOME TAX EXPENSE — —

NET LOSS (2,183,326 ) (2,994,755 )

OTHER COMPREHENSIVE INCOME (LOSS)
Foreign currency translation adjustments 10,998 (568 )

TOTAL COMPREHENSIVE LOSS $ (2,172,328 ) $ (2,995,323 )

LOSS PER SHARE:
Net loss — basic $ (0.14 ) $ (0.24 )

Net loss — diluted $ (0.14 ) $ (0.24 )

Weighted average shares outstanding — basic 16,143,655 12,509,657

Weighted average shares outstanding — diluted 16,143,655 12,509,657

~~See accompanying notes to unaudited condensed~~
~~consolidated financial statements.~~

~~F-2~~

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

Three Months Ended Three Months Ended
March 31, March 31,
2011 2010
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (2,183,326 ) $ (2,994,755 )
Adjustments to reconcile net loss to net cash used by operating activities
Amortization 76,689 76,689
Accrued interest 159,273 218,736
Depreciation 6,237 194,732
Change in allowance for doubtful accounts 44,302 10,621
Stock-based compensation 152,448 483,270
Changes in assets — (increase)/decrease
Accounts receivable — trade (100,803 ) (34,016 )
Inventory 40,838 31,420
Prepaid expenses (37,467 ) (456 )
Due from Pulse Veterinary Technologies, LLC (126,479 ) (72,521 )
Other assets (45 ) 276
Assets held for sale — (10,792 )
Changes in liabilities — increase/(decrease)
Accounts payable (267,968 ) 384,738
Accrued employee compensation 151,686 151,298
Accrued expenses 64,832 (159,350 )
Interest payable, related parties (2,906 ) —

NET CASH USED BY OPERATING ACTIVITIES (2,022,689 ) (1,720,110 )

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from promissory notes, related parties — 1,000,000
Proceeds from unit options exercised, related parties 2,463,008 —
Proceeds from unit options exercised 1,437,326 —

NET CASH PROVIDED BY FINANCING ACTIVITIES 3,900,334 1,000,000

FOREIGN CURRENCY TRANSLATION ADJUSTMENTS 10,998 (568 )

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,888,643 (720,678 )

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 417,457 1,786,369

CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,306,100 $ 1,065,691

SUPPLEMENTAL INFORMATION
Cash paid for interest $ 81,864 $ —

~~See accompanying notes to unaudited condensed~~
~~consolidated financial statements.~~

~~F-3~~

~~SANUWAVE HEALTH, INC. AND SUBSIDIARIES~~
~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~March 31, 2011~~

~~1. Nature of the Business~~

SANUWAVE Health, Inc. and subsidiaries (the “Company”) is an emerging global regenerative medicine company focused on the development and commercialization of non-invasive, biological response activating devices for the repair and regeneration of tissue, musculoskeletal and vascular structures. The Company’s portfolio of 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. The Company intends to apply its Pulsed Acoustic Cellular Expression (PACE™) technology in wound healing, orthopedic/spine, plastic/cosmetic and cardiac conditions. The Company currently does not have any commercial products in the United States. Revenues are from sales of CE Marked devices and accessories in Europe.

2.~~Basis of Presentation and Principles of Consolidation~~

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with United States generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 8-03 of Regulation S-X. Accordingly, these condensed consolidated financial statements do not include all the information and footnotes required by United States generally accepted accounting principles for complete financial statements. The financial information as of March 31, 2011 and for the three months ended March 31, 2011 and 2010 is unaudited; however, in the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 2011 are not necessarily indicative of the results that may be expected for any other interim period or for the year ending December 31, 2011.

The condensed consolidated balance sheet at December 31, 2010 has been derived from the audited consolidated financial statements at that date, but does not include all of the information and footnotes required by United States generally accepted accounting principles for complete financial statements.

For further information and a summary of significant accounting policies, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, filed on March 28, 2011. Please also refer to Note 6 to the condensed consolidated financial statements in this Form 10-Q regarding the Company’s adoption of recent accounting pronouncements.

~~3. Going concern~~

As shown in the accompanying condensed consolidated financial statements, the Company incurred a net loss of $2,183,326 and $2,994,755 during the three months ended March 31, 2011 and 2010, respectively. We had a working capital deficiency of $5,066,300 and $7,029,635 at March 31, 2011 and December 31, 2010, respectively. These operating losses and working capital deficiency create an uncertainty about the Company’s ability to continue as a going concern. Although no assurances can be given, management of the Company believes that potential additional issuances of equity or other potential financing will provide the necessary funding for the Company to continue as a going concern. The condensed consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. The Company is economically dependent upon future capital contributions or financing to fund ongoing operations. See “Liquidity and Capital Resources” elsewhere in this report.

On April 8, 2011 the Company raised gross proceeds of $9,114,927 in a private placement of the Company’s common stock and warrants to certain institutional and accredited investors. The net proceeds received by the Company were $8,467,121, net of offering costs of $647,806 (see Note 18).

~~4. Promissory notes~~

During the year ended December 31, 2010, the Company issued ten promissory notes totaling $2,450,000. On October 12, 2010, in conjunction with an offering of securities (the “Offering”) of the Company pursuant to an exemption from registration under the Securities Act of 1933, as amended (the “Act”), the Company amended the terms of the ten outstanding promissory notes such that the unpaid principal and interest on each note was exchanged into the number of Units (as described below) equal to (i) the unpaid principal and interest on each such note, divided by (ii) 2. In accordance with ASC 470, “Debt”, in October 2010 the Company recorded a loss from extinguishment of debt of $2,693,896 which was the difference between the estimated fair value of the Units on the date of exchange of $5,211,556 as compared to the carrying value of the promissory notes of $2,517,660.

~~F-4~~

~~SANUWAVE HEALTH, INC. AND SUBSIDIARIES~~
~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~March 31, 2011~~

~~4. Promissory notes (continued)~~

Each “Unit” in the Offering consisted of: (i) one share of common stock, par value $0.001 per share (the “Common Stock”); (ii) a two-year common stock purchase warrant (the “Class D Warrant”) to purchase one share of Common Stock, at an exercise price of $2.00; and (iii) an option (the “Option”), which, as amended, expired on January 31, 2011, to purchase the same number of Units as granted pursuant to the transaction, at the purchase price of $2.00 per Unit. The unpaid principal and interest on the notes totaled $2,517,660, and this sum was exchanged into a total of 1,258,830 Units which consisted of 1,258,830 shares of Common Stock, 1,258,830 Class D Warrants and 1,258,830 Options.

The chairman of the board of directors of the Company exchanged promissory notes totaling $1,790,504 and the brother of a member of the board of directors of the Company exchanged promissory notes totaling $522,504 in the Offering.

~~5. Common stock~~

On September 30, 2010, in conjunction with an offering of securities of the Company under the Act, the Company issued 150,000 Units to certain “accredited investors,” as that term is defined in the Securities and Exchange Commission’s (the “SEC”) Rule 501 under the Act, for an aggregate total purchase price of $300,000. On October 1, 2010, November 19, 2010, and December 7, 2010 in conjunction with offerings of securities of the Company under the Act, the Company issued 250,000, 142,500 and 382,500 Units to “accredited investors” for $500,000, $285,000 and $765,000, respectively. Each Unit was sold to the new investors at a purchase price of $2.00 per Unit. As a result of the offerings, the Company sold 925,000 Units which consisted of 925,000 shares of Common Stock, 925,000 Class D Warrants and 925,000 Options. This includes 175,000 Units purchased by the brother of a member of the board of directors of the Company for a total purchase price of $350,000.

Between January 1 and January 31, 2011, Option holders exercised 1,950,167 Options for total gross proceeds of $3,900,334 to the Company. In connection with the exercise of Options in January 2011, the Company issued 1,950,167 shares of Common Stock and 1,950,167 Class D Warrants. The Option holders included the chairman of the board of directors of the Company who exercised 545,252 Options and the brother of a member of the board of directors of the Company who exercised 686,252 Options. The 132,500 Options that remained unexercised at January 31, 2011 expired by their terms.

~~6. Recently Issued Accounting Standards~~

~~There have been no recently issued accounting standards that have an impact on our condensed consolidated financial statements.~~

~~7. Inventory~~

~~Inventory consists of the following:~~

March 31, December 31,
2011 2010
Inventory — finished goods $ 478,879 $ 539,141
Inventory — parts 84,126 78,202

Gross inventory 563,005 617,343
Provision for losses and obsolescence (140,200 ) (153,700 )

Net inventory $ 422,805 $ 463,643

~~F-5~~

~~SANUWAVE HEALTH, INC. AND SUBSIDIARIES~~
~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~March 31, 2011~~

~~8. Property and equipment~~

~~Property and equipment consists of the following:~~

March 31, December 31,
2011 2010
Machines and equipment $ 199,520 $ 199,520
Office and computer equipment 296,120 296,120
Leasehold improvements 67,421 67,421
Furniture and fixtures 24,613 24,613
Vehicles 22,531 22,531
Software 40,233 40,233
Other assets 5,080 5,080

Total 655,518 655,518
Accumulated depreciation (648,369 ) (642,132 )

Net property and equipment $ 7,149 $ 13,386

~~The aggregate depreciation related to property and equipment charged to operations was $6,237 and $26,508 for the three months ended March 31, 2011 and 2010, respectively.~~

~~9. Intangible assets~~

~~Intangible assets consist of the following:~~

March 31, December 31,
2011 2010
Patents, at cost $ 3,502,135 $ 3,502,135
Less accumulated amortization (1,738,286 ) (1,661,597 )

Net intangible assets $ 1,763,849 $ 1,840,538

~~The aggregate amortization charged to operations was $76,689 for each of the three months ended March 31, 2011 and 2010.~~

~~10. Accrued expenses~~

~~Accrued expenses consist of the following:~~

March 31, December 31,
2011 2010
Accrued legal professional fees $ 220,192 $ 64,531
Accrued audit and tax preparation 53,771 89,173
Accrued clinical site payments — 82,500
Accrued other 47,073 20,000

$ 321,036 $ 256,204

~~F-6~~

~~SANUWAVE HEALTH, INC. AND SUBSIDIARIES~~
~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~March 31, 2011~~

~~11. Income taxes~~

The Company files income tax returns in the United States federal jurisdiction and various state and foreign jurisdictions. The Company is no longer subject to United States federal and state and non-United States income tax examinations by tax authorities for years before 2006.

Deferred income taxes are provided for temporary differences between the carrying amounts and tax basis of assets and liabilities. Deferred taxes are classified as current or noncurrent based on the financial statement classification of the related asset or liability giving rise to the temporary difference. For those deferred tax assets or liabilities (such as the tax effect of the net operating loss carryforward) which do not relate to a financial statement asset or liability, the classification is based on the expected reversal date of the temporary difference.

At March 31, 2011, the Company had federal net operating loss (“NOL”) carryforwards of $40,896,849 that will begin to expire in 2025. The use of deferred tax assets, including federal net operating losses, is limited to future taxable earnings. Based on the required analysis of future taxable income under the provisions of ASC 740,~~Income Taxes~~(formerly SFAS No. 109), the Company’s management believes that there is not sufficient evidence at March 31, 2011, indicating that the results of operations will generate sufficient taxable income to realize the net deferred tax asset in years beyond 2011. As a result, a valuation allowance was provided for the entire net deferred tax asset related to future years, including NOL carryforwards.

The Company’s ability to use its NOL carryforwards could be limited and subject to annual limitations. In connection with future offerings, the Company may realize a “more than 50% change in ownership” which could further limit its ability to use its NOL carryforwards accumulated to date to reduce future taxable income and tax liabilities. Additionally, because United States tax laws limit the time during which NOL carryforwards may be applied against future taxable income and tax liabilities, the Company may not be able to take advantage of all or portions of its NOL carryforwards for federal income tax purposes.

~~F-7~~

~~SANUWAVE HEALTH, INC. AND SUBSIDIARIES~~
~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~March 31, 2011~~

~~12. Notes payable, related parties~~

~~The notes payable consists of the following:~~

March 31, December 31,
2011 2010
Notes payable, unsecured, bearing interest at 6% to HealthTronics, Inc., a shareholder of the Company. The notes were issued in conjunction with the Company’s purchase of the orthopedic division of HealthTronics, Inc. on August 1, 2005. Quarterly interest through June 30, 2010, was accrued and added to the principal balance. Interest is paid quarterly in arrears beginning September 30, 2010. All remaining unpaid accrued interest and principal is due August 1, 2015. Accrued interest currently payable totaled $80,071 and $82,977 at March 31, 2011 and December 31, 2010, respectively. Accrued interest not payable until August 1, 2015 totaled $1,372,743 at March 31, 2011 and December 31, 2010. $ 5,372,743 $ 5,372,743

Notes payable, unsecured, bearing interest at 15% to Prides Capital Fund I, LP and NightWatch Capital Partners II, LP, shareholders of the Company. Quarterly interest through March 31, 2011, is accrued and added to the principal balance. Unpaid accrued interest and principal is due September 30, 2011. Accrued interest totaled $1,206,563 and $1,047,290 at March 31, 2011 and December 31, 2010, respectively. All or any portion of the unpaid principal can be converted into common stock with a conversion price of $2.92 per share. 4,406,563 4,247,290

Total 9,779,306 9,620,033
Less current portion (4,406,563 ) (4,247,290 )

Non-current portion $ 5,372,743 $ 5,372,743

~~Interest expense on notes payable, related parties totaled $238,231 and $217,180 for the three months ended March 31, 2011 and 2010, respectively.~~

On April 4, 2011, the Company amended the terms of outstanding notes with Prides Capital Fund I, LP and NightWatch Capital Partners II, LP such that the unpaid principal and interest balance on the notes totaling $4,413,908 was cancelled in consideration for the issuance of 1,358,126 shares of common stock of the Company. In addition, the Company, in connection with this transaction, issued to the Noteholders (as defined in Note 18 below) an aggregate total of 679,064 warrants to purchase shares of common stock at an exercise price of $4.00 per share. The Company is currently evaluating the accounting treatment for this transaction to be recorded in the second quarter of 2011(see Note 18).

~~13. Earnings (loss) per share~~

~~The Company calculates net income (loss) per share in accordance with ASC 260,~~~~Earnings Per Share~~~~(formerly SFAS No. 128,~~~~Earnings Per Share~~). Under the provisions of ASC 260, basic net income (loss) per share is computed by dividing the net income (loss) attributable to common stockholders for the period by the weighted average number of shares of common stock outstanding for the period. Diluted net income (loss) per share is computed by dividing the net income (loss) attributable to common stockholders by the weighted average number of shares of common stock and dilutive common stock equivalents then outstanding. To the extent that securities are “anti-dilutive,” they are excluded from the calculation of diluted net income (loss) per share.

As a result of the net loss for the three months ended March 31, 2011 and 2010, respectively, all potentially dilutive shares were anti-dilutive and therefore excluded from the computation of diluted net loss per share. The anti-dilutive equity securities totaled 10,092,876 shares and 6,160,276 shares at March 31, 2011 and 2010, respectively.

~~F-8~~

~~SANUWAVE HEALTH, INC. AND SUBSIDIARIES~~
~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~March 31, 2011~~

~~14. Commitments and contingencies~~

~~Operating Leases~~

~~The Company leases office and warehouse space. Rent expense for the three months ended March 31, 2011 and 2010, was $86,434 and $87,089, respectively.~~

~~Litigation~~

The Company is involved in various legal matters that have arisen in the ordinary course of business. While the ultimate outcome of these matters is not presently determinable, it is the opinion of management that the resolution will not have a material adverse effect on the financial position or results of operations of the Company.

��HealthTronics, Inc., along with the Company, are defendants in an alleged breach of contract lawsuit dated April 21, 2006 brought in the Miami-Dade County Circuit Court, Florida by a former limited partner of a former limited partnership of the Company, Bone & Joint Treatment Centers of America. Bone & Joint Treatment Centers of America, the plaintiff, is seeking greater than $3 million. HealthTronics, Inc. has been responsible for the defense of the lawsuit on behalf of the Company and believes the case is unfounded and is contesting the claims vigorously.

~~15. 401k plan~~

The Company sponsors a 401k plan that covers all employees who meet the eligibility requirements. The Company matches 50% of employee contributions up to 6% of their compensation. The Company contributed $17,857 and $16,661 to the plan for the three months ended March 31, 2011 and 2010, respectively.

~~16. Stock-based compensation~~

On November 1, 2010, the Company approved the Amended and Restated 2006 Stock Incentive Plan of SANUWAVE Health, Inc. effective as of January 1, 2010 (the “Amended Plan”). The Amended Plan permits grants of awards to selected employees and directors of the Company in the form of restricted stock or options to purchase shares of common stock. The Amended Plan is currently administered by the board of directors of the Company. The Amended Plan gives broad powers to the board of directors of the Company to administer and interpret the particular form and conditions of each option. Stock options granted under the Amended Plan are non-statutory options which generally vest over a period of up to four years and have a ten year term. The options are granted at an exercise price determined by the board of directors of the Company to be the fair market value of the common stock on the date of the grant. The Amended Plan reserves 5,000,000 shares of common stock for grant.

The Company recognized as compensation cost for all outstanding stock options, restricted stock and warrants granted to employees and directors, $152,448 and $483,270 for the three months ended March 31, 2011 and 2010, respectively.

~~A summary of option activity as of March 31, 2011 and December 31, 2010, and the changes during the three months ended March 31, 2011, is presented as follows:~~

Weighted
Average
Exercise
Options Price
Outstanding as of December 31, 2010 2,992,796 $ 3.20
Granted — $ —
Exercised — $ —
Forfeited or expired — $ —

Outstanding as of March 31, 2011 2,992,796 $ 3.20

Exercisable 2,135,365 $ 2.59

~~F-9~~

~~SANUWAVE HEALTH, INC. AND SUBSIDIARIES~~
~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~March 31, 2011~~

~~16. Stock-based compensation (continued)~~

The aggregate intrinsic value of the outstanding stock options at March 31, 2011 was $6,883,431. The aggregate intrinsic value of the exercisable outstanding stock options at March 31, 2011 was $6,213,912.

~~The weighted average remaining contractual term for outstanding and exercisable stock options was 6.9 years as of March 31, 2011, and 7.1 years as of December 31, 2010.~~

~~A summary of the Company’s nonvested options as of March 31, 2011 and December 31, 2010, and changes during the three months ended March 31, 2011, is presented as follows:~~

Weighted
Average
Grant-Date
Options Fair Value
Outstanding as of December 31, 2010 883,993 $ 1.67
Granted — $ —
Vested (26,562 ) $ 2.51
Forfeited or expired — $ —

Outstanding as of March 31, 2011 857,431 $ 1.65

~~A summary of the Company’s restricted stock as of March 31, 2011 and December 31, 2010, and changes during the three months ended March 31, 2011, is presented as follows:~~

Weighted
Average
Restricted Grant-Date
Stock Fair Value
Outstanding as of December 31, 2010 403,030 $ 2.92
Granted — $ —
Vested (403,030 ) $ 2.92
Forfeited or expired — $ —

Outstanding as of March 31, 2011 — $ —

~~17. Warrants~~

~~A summary of the warrant activity as of March 31, 2011 and December 31, 2010, and the changes during the three months ended March 31, 2011, is presented as follows:~~

Class A Class B Class D
Warrants Warrants Warrants
Outstanding as of December 31, 2010 1,106,627 1,106,627 2,284,993
Issued — — 1,950,167
Exercised — — —
Cancelled — — —

Outstanding as of March 31, 2011 1,106,627 1,106,627 4,235,160

~~F-10~~

~~SANUWAVE HEALTH, INC. AND SUBSIDIARIES~~
~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~March 31, 2011~~

~~17. Warrants (continued)~~

The Class A and Class B Warrants expire five years from date of issuance and the Class D Warrants expire two years from date of issuance. The Class A Warrants have an exercise price of $4.00 per share, the Class B Warrants have an exercise price of $8.00 per share, and the Class D Warrants have an exercise price of $2.00 per share.

The exercise price and the number of shares covered by the warrants will be adjusted if the Company has a stock split, if there is a recapitalization of the Company’s common stock, or if the Company consolidates with or merges into another corporation.

~~18. Subsequent events~~

~~The Company has evaluated subsequent events through the date of issuance of the unaudited condensed consolidated financial statements.~~

On April 4, 2011, in conjunction with an offering of securities of the Company, pursuant to certain exemptive provisions from registration under the Act and related rules and regulations of the SEC, the Company entered into a Securities Purchase Agreement with certain “accredited investors” (as that term is defined in the SEC’s Regulation D) (the “Purchasers”) for the issuance of an aggregate total 2,804,593 shares of the Company’s Common Stock for an aggregate total purchase price of $9,114,927. The net proceeds received by the Company were $8,467,121, net of offering costs of $647,806. The Company intends to use the proceeds from this offering for working capital and general corporate purposes. The offering closed effective April 8, 2011. In addition, the Company, in connection with this offering, issued to the Purchasers an aggregate total of 2,804,593 warrants (the “Class E Warrants”) to purchase shares of Common Stock at an exercise price of $4.00 per share. Each Class E Warrant represents the right to purchase one share of Common Stock. The warrants vested upon issuance and expire after five years. The placement agent was also issued 93,080 Class E Warrants. The brother of a member of our board of directors and an existing shareholder of the Company acquired 310,000 shares of Common Stock for a purchase price of $1,007,500. He also received Class E Warrants to purchase 310,000 shares.

Pursuant to the terms of a Registration Rights Agreement that the Company entered with the Purchasers in connection with the April 4, 2011 offering, the Company is required to file a registration statement or registration statements with the SEC that cover the resale by the Purchasers in the Offering of the shares of Common Stock and the shares of Common Stock issuable upon exercise of the Class E 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.

On April 4, 2011, the Noteholders (as defined below) of the amended senior notes (the “Notes”) of the Company exchanged the unpaid principal and interest balance of the Notes which totaled $4,413,908 in consideration for the issuance of 1,358,126 shares of Common Stock of the Company. In addition, the Company, in connection with this transaction, issued to the Noteholders an aggregate total of 679,064 warrants to purchase shares of Common Stock at an exercise price of $4.00 per share. Each warrant represents the right to purchase one share of Common Stock. The warrants vested upon issuance and expire after five years. The Company is currently evaluating the accounting treatment for this transaction to be recorded in the second quarter of 2011.

The Notes were held by Prides Capital Fund I, LP and NightWatch Capital Partners II, LP (the “Noteholders”). The chairman of the Company’s board of directors serves as the managing partner of Prides Capital, LLC, an affiliate of Prides Capital Fund I, LP. A member of the Company’s board of directors serves as managing principal of NightWatch Capital Advisors, LLC, an affiliate of NightWatch Capital Partners II, LP.

The Company is currently evaluating the impact, if any, these transactions could have on the Company’s ability to use its NOL carryforwards to reduce future taxable income and tax liabilities which could be limited if the Company were to realize a “more than 50% change in ownership” as defined in Section 382 of the United States tax code.

~~F-11~~

~~REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM~~

~~To the Board of Directors and Stockholders of~~

~~SANUWAVE Health, Inc. and Subsidiaries~~

~~We have audited the accompanying consolidated balance sheets of~~

~~SANUWAVE HEALTH, INC. AND SUBSIDIARIES~~

as of December 31, 2010 and 2009 (as restated), and the related consolidated statements of operations and comprehensive loss, stockholders’ equity (deficit), and cash flows for each of the years in the two-year period ended December 31, 2010. SANUWAVE Health, Inc. and Subsidiaries’ management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of its internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of SANUWAVE Health, Inc. and Subsidiaries as of December 31, 2010 and 2009, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2010, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 21 to the consolidated financial statements, the accompanying consolidated balance sheet at December 31, 2009 and the consolidated statement of stockholders’ equity (deficit) at January 1, 2009 have been restated for the correction of an error in the recognition of stock based compensation expense for the year ended December 31, 2008.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the consolidated financial statements, the Company incurred a net loss of approximately $14,922,000 and $6,153,000 during the years ended December 31, 2010 and 2009, respectively, and, as of those dates, had a working capital deficiency of approximately $7,030,000 and $187,000, respectively. As described more fully in Note (2) to the consolidated financial statements, the Company is economically dependent upon future capital contributions or financing to fund ongoing operations. This condition raises substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

~~/s/ HLB Gross Collins, P.C.~~

~~Atlanta, Georgia~~ John F. Nemelka

~~March 25, 2011, except Note 22 which is as of May 9, 2011~~

~~F-12~~

~~SANUWAVE HEALTH, INC. AND SUBSIDIARIES~~
~~CONSOLIDATED BALANCE SHEETS~~
~~December 31, 2010 and 2009~~

2010 2009
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 417,457 $ 1,786,369
Accounts receivable — trade, net of allowance for doubtful accounts of $36,903 in 2010 and $20,762 in 2009 (Note 1) 95,549 47,966
Inventory (Note 5) 463,643 592,589
Prepaid expenses 121,084 121,157
Due from Pulse Veterinary Technologies, LLC 45,389 127,878

TOTAL CURRENT ASSETS 1,143,122 2,675,959

PROPERTY AND EQUIPMENT, at cost, less accumulated depreciation (Note 6) 13,386 88,706

OTHER ASSETS 32,253 32,169

INTANGIBLE ASSETS, at cost, less accumulated amortization (Note 7) 1,840,538 2,147,295

ASSETS HELD FOR SALE (Note 8) — 922,956

TOTAL ASSETS $ 3,029,299 $ 5,867,085

LIABILITIES
CURRENT LIABILITIES
Accounts payable $ 1,829,815 $ 1,069,423
Accrued employee compensation 1,101,410 509,905
Accrued expenses (Note 9) 256,204 629,029
Notes payable, related parties (Note 12) 4,247,290 —
Interest payable, related parties (Note 12) 82,977 —
Liabilities related to discontinued operations (Note 4) 655,061 655,061

TOTAL CURRENT LIABILITIES 8,172,757 2,863,418

NOTES PAYABLE, RELATED PARTIES (Note 12) 5,372,743 8,887,981

TOTAL LIABILITIES 13,545,500 11,751,399

COMMITMENTS AND CONTINGENCIES (Note 17) — —

GOING CONCERN (Note 2) — —

STOCKHOLDERS’ EQUITY (DEFICIT)
PREFERRED STOCK, par value $0.001, 5,000,000 shares authorized; no shares issued and outstanding (Note 15) — —

COMMON STOCK, par value $0.001, 50,000,000 shares authorized; 14,794,650 and 12,509,657 issued and outstanding at December 31, 2010 and 2009, respectively (Note 14) 14,795 12,510

ADDITIONAL PAID-IN CAPITAL (Note 21) 43,728,133 33,428,902

ACCUMULATED OTHER COMPREHENSIVE INCOME 10,902 21,864

RETAINED DEFICIT (Note 21) (54,270,031 ) (39,347,590 )

TOTAL STOCKHOLDERS’ EQUITY (DEFICIT) (10,516,201 ) (5,884,314 )

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) $ 3,029,299 $ 5,867,085

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

~~F-13~~

~~SANUWAVE HEALTH, INC. AND SUBSIDIARIES~~
~~CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS~~
~~Years Ended December 31, 2010 and 2009~~

2010 2009

REVENUES $ 728,446 $ 660,725

COST OF REVENUES 250,326 225,790

GROSS PROFIT 478,120 434,935

OPERATING EXPENSES
Research and development 3,879,146 3,387,204
General and administrative 7,100,621 5,026,425
Depreciation 829,576 365,108
Amortization 306,757 306,756
Write down of assets held for sale (Note 8) 169,581 —

TOTAL OPERATING EXPENSES 12,285,681 9,085,493

OPERATING LOSS (11,807,561 ) (8,650,558 )

OTHER INCOME (EXPENSE)
Transitional services provided to Pulse Veterinary Technologies, LLC 360,125 230,625
Gain on sale of assets 6,565 3,207
Extinguishment of debt (Note 13) (2,693,896 ) —
Interest expense (961,585 ) (739,847 )
Loss on foreign currency exchange (66,058 ) (30,184 )

TOTAL OTHER INCOME (EXPENSE) (3,354,849 ) (536,199 )

LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (15,162,410 ) (9,186,757 )

INCOME TAX BENEFIT 239,969 1,203,172

LOSS FROM CONTINUING OPERATIONS (14,922,441 ) (7,983,585 )

DISCONTINUED OPERATIONS (Note 4)
Income from discontinued operations, net of tax of $226,234 in 2009 — 344,200
Gain on sale of veterinary division, net of tax of $976,938 in 2009 — 1,486,345

INCOME FROM DISCONTINUED OPERATIONS — 1,830,545

NET LOSS (14,922,441 ) (6,153,040 )

OTHER COMPREHENSIVE INCOME (LOSS)
Foreign currency translation adjustments (10,962 ) 218,510

TOTAL COMPREHENSIVE INCOME (LOSS) $ (14,933,403 ) $ (5,934,530 )

EARNINGS (LOSS) PER SHARE: (Note 11)
Loss from continuing operations — basic $ (1.15 ) $ (0.70 )

Loss from continuing operations — diluted $ (1.15 ) $ (0.70 )

Income from discontinued operations — basic $ — $ 0.16

Income from discontinued operations — diluted $ — $ 0.16

Net loss — basic $ (1.15 ) $ (0.54 )

Net loss — diluted $ (1.15 ) $ (0.54 )

Weighted average shares outstanding — basic 12,924,872 11,405,490

Weighted average shares outstanding — diluted 12,924,872 11,405,490

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

~~F-14~~

~~SANUWAVE HEALTH, INC. AND SUBSIDIARIES~~
~~CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)~~
~~Years Ended December 31, 2010 and 2009~~

Preferred Stock Common Stock
Number of Number of Accumulated
Shares Shares Other
Issued and Issued and Additional Paid- Retained Comprehensive
Outstanding Par Value Outstanding Par Value in Capital Deficit Income (Loss) Total

Balances as of December 31, 2008, as originally reported 283,250 $ 2,833 8,863 $ 89 $ 30,103,124 $ (32,507,241 ) $ (196,646 ) $ (2,597,841 )
Adjustment for prior period error in stock based compensation (Note 21) — — — — 687,309 (687,309 ) — —

Balances as of January 1, 2009, as restated 283,250 2,833 8,863 89 30,790,433 (33,194,550 ) (196,646 ) (2,597,841 )
Shares issued for cash — — 18,198 182 1,819,662 — — 1,819,844
Recapitalization pursuant to Merger (283,250 ) (2,833 ) 12,079,566 11,836 (9,003 ) — — —
Shares purchased — — — — (180,000 ) — — (180,000 )
Payment of development period liabilities — — — — (69,915 ) — — (69,915 )
Net loss — — — — — (6,153,040 ) — (6,153,040 )
Stock based compensation — — 403,030 403 1,077,725 — — 1,078,128
Foreign currency translation adjustment — — — — — — 218,510 218,510

Balances as of December 31, 2009 — — 12,509,657 12,510 33,428,902 (39,347,590 ) 21,864 (5,884,314 )
Shares issued for cash, related parties — — 175,000 175 349,825 — — 350,000
Shares issued for cash — — 750,000 750 1,499,250 — — 1,500,000
Promissory notes exchanged for shares, related parties — — 1,156,504 1,157 4,786,769 — — 4,787,926
Promissory notes exchanged for shares — — 102,326 102 423,528 — — 423,630
Shares issued for unit option exercise — — 101,163 101 202,225 — — 202,326
Net loss — — — — — (14,922,441 ) — (14,922,441 )
Stock based compensation — — — — 3,037,634 — — 3,037,634
Foreign currency translation adjustment — — — — — — (10,962 ) (10,962 )

Balances as of December 31, 2010 — $ — 14,794,650 $ 14,795 $ 43,728,133 $ (54,270,031 ) $ 10,902 $ (10,516,201 )

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

~~F-15~~

~~SANUWAVE HEALTH, INC. AND SUBSIDIARIES~~
~~CONSOLIDATED STATEMENTS OF CASH FLOWS~~
~~Years Ended December 31, 2010 and 2009~~

2010 2009

CASH FLOWS FROM OPERATING ACTIVITIES
Net loss from continuing operations $ (14,922,441 ) $ (7,983,585 )
Adjustments to reconcile net loss to net cash used by operating activities
Amortization 306,757 306,756
Accrued interest 799,712 756,166
Depreciation 829,576 365,108
Change in allowance for doubtful accounts 16,141 (43,728 )
Gain on sale of property and equipment (6,565 ) (3,207 )
Stock-based compensation 3,037,634 1,078,128
Extinguishment of debt 2,693,896 —
Write down of assets held for sale 169,581 —
Changes in assets — (increase)/decrease
Accounts receivable — trade (63,724 ) 48,176
Inventory 128,946 92,161
Prepaid expenses 73 (14,540 )
Due from Pulse Veterinary Technologies, LLC 82,489 (127,878 )
Other (1,400 ) 48,848
Changes in liabilities — increase/(decrease)
Accounts payable 760,392 93,612
Accrued employee compensation 591,505 (310,492 )
Accrued expenses (372,825 ) 180,787
Interest payable, related parties 82,977 —

NET CASH USED BY CONTINUING OPERATIONS (5,867,276 ) (5,513,688 )
NET CASH USED BY DISCONTINUED OPERATIONS — (758,244 )

NET CASH USED BY OPERATING ACTIVITIES (5,867,276 ) (6,271,932 )

CASH FLOWS FROM INVESTING ACTIVITIES
Continuing operations
Proceeds from sale of property and equipment 7,000 9,827
Purchase of property and equipment — (10,363 )

NET CASH PROVIDED (USED) BY CONTINUING OPERATIONS 7,000 (536 )
NET CASH PROVIDED BY DISCONTINUED OPERATIONS — 3,601,772

NET CASH PROVIDED BY INVESTING ACTIVITIES 7,000 3,601,236

CASH FLOWS FROM FINANCING ACTIVITIES
Continuing operations
Proceeds from notes payable, related parties — 2,125,000
Proceeds from promissory notes, related parties 2,250,000 —
Proceeds from promissory notes 200,000 —
Proceeds from sale of capital stock units, related parties 350,000 —
Proceeds from sale of capital stock units 1,702,326 —
Proceeds from sale of common stock — 1,819,844
Repurchase of common stock — (180,000 )
Payment of development period liabilities — (69,915 )

NET CASH PROVIDED BY FINANCING ACTIVITIES 4,502,326 3,694,929

FOREIGN CURRENCY TRANSLATION ADJUSTMENTS (10,962 ) 218,510

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,368,912 ) 1,242,743

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 1,786,369 543,626

CASH AND CASH EQUIVALENTS, END OF YEAR $ 417,457 $ 1,786,369

SUPPLEMENTAL INFORMATION
Cash paid for interest $ 81,864 $ —

NON-CASH INVESTING AND FINANCING ACTIVITIES
Capital stock units issued in exchange for promissory notes, related parties (Note 13) 2,313,008 —
Capital stock units issued in exchange for promissory notes (Note 13) 204,652 —

TOTAL NON-CASH INVESTING AND FINANCING ACTIVITIES $ 2,517,660 $ —

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

~~F-16~~

~~SANUWAVE HEALTH, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~Years Ended December 31, 2010 and 2009~~

~~Restatement of historical consolidated financial statements~~

The accompanying consolidated balance sheet at December 31, 2009 and the consolidated statement of stockholders’ equity (deficit) at January 1, 2009 have been restated in this report for the correction of an error in the recognition of non-cash stock based compensation expense for the year ended December 31, 2008 as more fully described in Note 21.

~~(1)~~

~~Summary of significant accounting policies~~

~~Description of the business~~— SANUWAVE Health, Inc. and subsidiaries (the “Company”) is an emerging global regenerative medicine company focused on the development and commercialization of non-invasive, biological response activating devices for the repair and regeneration of tissue, musculoskeletal and vascular structures. The Company’s portfolio of 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. The Company intends to apply its Pulsed Acoustic Cellular Expression (PACE™) technology in wound healing, orthopedic/spine, plastic/cosmetic and cardiac conditions. The Company currently does not have any commercial products in the United States. Revenues are from sales of CE Marked devices and accessories in Europe.

~~The significant accounting policies followed by the Company are summarized below:~~

~~Foreign currency translation~~— The functional currencies of the Company’s foreign operations are the local currencies. The financial statements of the Company’s foreign subsidiaries have been translated into United States dollars in accordance with ASC 830,~~Foreign Currency Matters~~(formerly SFAS No. 52, Foreign Currency Translation.) All balance sheet accounts have been translated using the exchange rates in effect at the balance sheet date. Income statement amounts have been translated using the average exchange rate for the year. Translation adjustments are reported as cumulative translation adjustments and are shown as a separate component of accumulated other comprehensive income (loss) in the consolidated statements of stockholders’ equity (deficit).

~~Principles of consolidation~~~~— The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.~~

~~Estimates~~— These consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America. Because a precise determination of assets and liabilities, and correspondingly revenues and expenses, depend on future events, the preparation of consolidated financial statements for any period necessarily involves the use of estimates and assumptions. Actual amounts may differ from these estimates. These consolidated financial statements have, in management’s opinion, been properly prepared within reasonable limits of materiality and within the framework of the accounting policies summarized herein. Significant estimates include the recording of allowances for doubtful accounts, estimated reserves for inventory, estimated useful life of property and equipment, accrued expenses, the determination of the valuation of allowances for deferred taxes, estimated fair value of stock based compensation, estimated fair value of intangible assets, and the estimated fair value assigned to the capital stock units exchanged for the promissory notes.

~~Cash and cash equivalents~~~~— For purposes of the consolidated financial statements, liquid instruments with an original maturity of 90 days or less are considered cash and cash equivalents.~~

~~Concentration of credit risk~~— Management routinely assesses the financial strength of its customers and, as a consequence, believes accounts receivable are stated at the net realizable value and credit risk exposure is limited. For the year ended December 31, 2010, two distributors accounted for 28% and 22% of revenues. For the year ended December 31, 2009, one distributor accounted for 12% of revenues. The Company maintains its cash in bank accounts which may exceed federally insured limits. The Company does not believe it is exposed to any significant credit risk in such accounts.

~~F-17~~

~~SANUWAVE HEALTH, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~Years Ended December 31, 2010 and 2009~~

~~(1)~~

~~Summary of significant accounting policies (continued)~~

~~Accounts receivable~~— Accounts receivable are stated at the amount management expects to collect from outstanding balances. Management provides for probable uncollectible amounts through a charge to earnings based on its assessment of the current status of individual accounts. Receivables are considered past due on average if greater than 60 days old. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the valuation allowance. The following is a summary of accounts receivable allowances:

2010 2009

Balance, beginning of year $ 20,762 $ 64,490
Reserve adjustments — increase (decrease) 14,720 (43,728 )
Write-offs, net of recovery 1,421 —

Balance, end of year $ 36,903 $ 20,762

~~Inventory~~— Inventory consists of finished medical equipment and parts and is stated at the lower of cost or market, which is valued using first in, first out (“FIFO”). Market is based upon realizable value less allowance for selling and distribution expenses. The Company analyzes its inventory levels and writes down inventory that has, or is expected to, become obsolete.

~~Depreciation of property and equipment~~— The straight-line method of depreciation is used for computing depreciation on all property and equipment. Depreciation is based on estimated useful lives as follows: machines and equipment, 3 years; office and computer equipment, 3 years; leasehold improvements, 3 years; furniture and fixtures, 3 years; vehicles, 3 years; and software, 2 years.

~~Intangible assets~~~~— Intangible assets are recorded at cost. Intangible assets subject to amortization include patents. Patents are amortized on a straight-line basis over the average life of 11.4 years.~~

~~Fair value of financial instruments~~— The book values of trade accounts receivable, trade accounts payable, and other financial instruments approximate their fair values, principally because of the short-term maturities of these instruments. The Company’s long-term debt is carried at historical cost, their respective estimated fair values approximate carrying values due to their limited terms.

~~Impairment of long-lived assets~~— The Company reviews long-lived assets, other than goodwill and other intangible assets with indefinite lives, for impairment whenever facts and circumstances indicate that the carrying amounts of the assets may not be recoverable. An impairment loss is recognized only if the carrying amount of the asset is not recoverable and exceeds its fair value. Recoverability of assets to be held and used is measured by comparing the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the asset’s carrying value is not recoverable, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds its fair value. The Company determines fair value by using a combination of comparable market values and discounted cash flows, as appropriate.

~~Revenue recognition~~— Sales of medical devices, including related applicators and applicator kits, are recognized when shipped to the customer. Shipments under agreements with distributors are invoiced at a fixed price, are not subject to return, and payment for these shipments is not contingent on sales by the distributor. The Company recognizes revenue on shipments to distributors in the same manner as with other customers. Fees from services performed are recognized when the service is performed.

~~Shipping and handling costs~~~~— Shipping charges billed to customers are included in revenue. Shipping and handling costs have been recorded in cost of revenues.~~

~~F-18~~

~~SANUWAVE HEALTH, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~Years Ended December 31, 2010 and 2009~~

~~(1)~~

~~Summary of significant accounting policies (continued)~~

~~Deferred income taxes~~~~— Income taxes are accounted for utilizing the asset and liability method prescribed by the provisions of ASC 740,~~~~Income Taxes~~(formerly SFAS No. 109). Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is provided for the deferred tax assets related to future years, including loss carryforwards, if there is not sufficient evidence to indicate that the results of operations will generate sufficient taxable income to realize the net deferred tax asset in future years.

~~Effective January 1, 2007, the Company adopted a provision of ASC 740,~~~~Income Taxes~~ (formerly FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48)). ASC 740 specifies the way public companies are to account for uncertainties in income tax reporting, and prescribes a methodology for recognizing, reversing, and measuring the tax benefits of a tax position taken, or expected to be taken, in a tax return. ASC 740 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Company’s tax returns to determine whether the tax positions would “more-likely-than-not” be sustained if challenged by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the current year.

~~Earnings (loss) per share~~~~— The Company calculates net income (loss) per share in accordance with ASC 260,~~~~Earnings Per Share~~(formerly SFAS No. 128, Earnings Per Share). Under the provisions of ASC 260, basic net income (loss) per share is computed by dividing the net income (loss) attributable to common stockholders for the period by the weighted average number of shares of common stock outstanding for the period. Diluted net income (loss) per share is computed by dividing the net income (loss) attributable to common stockholders by the weighted average number of shares of common stock and dilutive common stock equivalents then outstanding. To the extent that securities are “anti-dilutive,” they are excluded from the calculation of diluted net income (loss) per share (Note 11).

~~Comprehensive income~~~~— ASC 220,~~~~Comprehensive Income~~(formerly SFAS No. 130, Reporting Comprehensive Income) establishes standards for reporting comprehensive income (loss) and its components in a financial statement. Comprehensive income (loss) as defined includes all changes in equity (net assets) during a period from non-owner sources. Examples of items to be included in comprehensive income (loss), which are excluded from net income (loss), include foreign currency translation adjustments and unrealized gains and losses on available-for-sale securities.

~~Stock-based compensation~~~~— The Company uses the fair value method of accounting prescribed by ASC 718,~~~~Compensation — Stock Compensation~~(formerly SFAS No. 123(R), Accounting for Stock-Based Compensation) for its employee stock option program. Under ASC 718, stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the applicable vesting period of the stock award (generally up to four years).

~~Research and Development~~— Research and development costs are expensed as incurred. Research and development costs include payments to third parties that specifically relate to the Company’s products in clinical development, such as payments to contract research organizations, clinical investigators, clinical related consultants, contract manufacturer development costs and insurance premiums for clinical studies. In addition, employee costs (salaries, payroll taxes, benefits and travel) for employees of the regulatory affairs, clinical affairs, quality assurance, quality control, and research and development departments are classified as research and development costs.

~~F-19~~

~~SANUWAVE HEALTH, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~Years Ended December 31, 2010 and 2009~~

~~(1)~~

~~Summary of significant accounting policies (continued)~~

~~Discontinued operations~~~~—The Company accounts for long-lived assets in accordance with the provisions of ASC 360,~~~~Impairment or Disposal of Long-Lived Assets~~(formerly SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets). ASC 360 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. This statement requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. ASC 360 requires companies to separately report discontinued operations and extends that reporting to a component of an entity that either has been disposed of (by sale, abandonment, or in a distribution to owners) or is classified as held for sale. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

~~On October 31, 2008, the Company discontinued the Ossatron mobile service business and sold certain assets.~~

~~On June 3, 2009, the Company sold the net assets and liabilities of the veterinary business.~~

As required by ASC 360, the results of operations from these businesses have been reported as discontinued operations in the consolidated statements of operations and comprehensive loss. All of the assets and liabilities related to these discontinued operations have been reclassified to current assets, non-current assets, and current liabilities related to discontinued operations, as applicable.

The results of operations for these businesses allocated to discontinued operations were those results the Company believed were eliminated from the ongoing operations of the entity as a result of the disposal transactions. The Company identified such results via a line item review of the statement of operations and comprehensive loss. The income tax rate used for the tax effect of the discontinued operations is based on the effective tax rate for the Company.

~~Recent pronouncements~~~~— In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2010-06,~~~~Fair Value Measurements and Disclosures — Topic 855~~~~(“ASU 2010-06”). ASU 2010-06 provides amendments to ASC 820-10,~~~~Fair Value Measurements~~(“ASC 820-10”). ASC 820-10 defines fair value, establishes a framework for measuring fair value hierarchy for assets and liabilities measured at fair value, and requires expanded disclosures about fair value measurements. The ASC 820-10 hierarchy ranks the quality and reliability of inputs, or assumptions, used in the determination of fair value and requires financial assets and liabilities carried at fair value to be classified and disclosed in one of the three categories (level 1, level 2 or level 3). ASU 2010-06 provides amendments to ASC 820-10 to require new disclosures for transfers in and out of levels 1 and 2, as well as a reconciliation of activity within level 3. Furthermore, ASU 2010-06 provides amendments that clarify existing disclosures regarding levels of disaggregation and inputs and valuation techniques. The new disclosures and clarifications of existing disclosures required by ASU 2010-06 are effective for interim and annual reporting periods beginning after December 15, 2009 (except for disclosures in the reconciliation of activity within level 3, which are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years). The Company adopted ASU 2010-06 as of January 1, 2010, and the adoption did not have a material impact on the Company’s consolidated financial statements.

~~In February 2010, the FASB issued ASU 2010-09,~~~~Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure Requirements~~~~(“ASU 2010-09”), to amend ASC 855,~~~~Subsequent Events~~(“ASC 855”). ASC 855, which was originally issued by the FASB in May 2009 (as SFAS No. 165, Subsequent Events ), provides guidance on events that occur after the balance sheet date but prior to the issuance of the financial statements. ASC 855 distinguishes events requiring recognition in the financial statements and those that may require disclosure in the financial statements. As a result of ASU 2010-09, companies are not required to disclose the date through which management evaluated subsequent events in the financial statements, either in originally issued financial statements or reissued financial statements. ASC 855 was effective for interim and annual periods ending after September 15, 2009, and ASU 2010-09 was effective immediately. The Company has evaluated subsequent events in accordance with ASU 2010-09, and the evaluation did not have a material impact on the Company’s consolidated financial statements.

~~F-20~~

~~SANUWAVE HEALTH, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~Years Ended December 31, 2010 and 2009~~

~~(2)~~

~~Going Concern~~

As shown in the accompanying consolidated financial statements, the Company incurred a net loss of $14,922,441 and $6,153,040 during the years ended December 31, 2010 and 2009, respectively. As of December 31, 2010, the Company had an accumulated deficit of $54,270,031. The Company had a working capital deficiency of $7,029,635 and $187,459 at December 31, 2010 and 2009, respectively. These operating losses and working capital deficiency create an uncertainty about the Company’s ability to continue as a going concern. Although no assurances can be given, management of the Company believes that potential additional issuances of equity, promissory notes or other potential financing will provide the necessary funding for the Company to continue as a going concern. The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. The Company is economically dependent upon future capital contributions or financing to fund ongoing operations.

~~(3)~~

~~Reverse merger transaction~~

On September 25, 2009, the Company (formerly named Rub Music Enterprises, Inc.) and RME Delaware Merger Sub, Inc., a Nevada corporation and wholly-owned subsidiary of the Company (the “Merger Sub”) entered into a reverse merger agreement (the “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”). In connection with the Merger, the Company acquired 100% of the outstanding capital stock of SANUWAVE, Inc. and the stockholders of SANUWAVE, Inc. received 11,009,657 shares of the Company’s common stock, Class A warrants to purchase 1,106,627 shares of the Company’s common stock at $4.00 per share, and Class B warrants to purchase an additional 1,106,627 shares of the Company’s common stock at $8.00 per share. In addition, in connection with the Merger, certain stockholders of the Company agreed to cancel all of their shares of common stock of the Company, except for 1,500,000 shares of common stock, for an aggregate price of $180,000 (the “Share Repurchase”). At the time of the Merger, the Company had 1,500,000 Class C warrants outstanding to purchase the Company’s common stock at $4.00 per share.

As a result of the Merger and the Share Repurchase, the stockholders of SANUWAVE, Inc. controlled approximately 88% of the Company’s outstanding common stock, holding 11,009,657 of the 12,509,657 outstanding shares, and SANUWAVE, Inc. was considered the accounting acquirer in this Merger. The Company was a “shell company” as such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) immediately prior to the Merger. As a result of the Merger, the Company’s operations are now focused in global medical technology and the Company is no longer a shell company.

~~(4)~~

~~Discontinued operations~~

~~On October 31, 2008, the Company discontinued the Ossatron mobile service business and sold certain assets.~~

~~On June 3, 2009, the Company sold its veterinary business for a total cash consideration of $3,500,000. As a result of the sale, the Company recorded a gain of $2,463,283.~~

Accordingly, the Company’s consolidated financial statements have been prepared with the net assets, results of operations, and cash flows of these businesses displayed separately as “discontinued operations.

~~F-21~~

~~SANUWAVE HEALTH, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~Years Ended December 31, 2010 and 2009~~

~~(4)~~

~~Discontinued operations (continued)~~

~~The operating results of the discontinued operations are summarized as follows for the years ended December 31, 2010 and 2009:~~

2010 2009

Revenues $ — $ 1,458,107
Cost of revenues — 372,547

Gross profit — 1,085,560
Operating expenses — 510,632

Operating income — 574,928
Other expense — 4,494

Income before income taxes — 570,434
Income tax expense — 226,234

Income, net of income tax $ — $ 344,200

~~As of December 31, 2010 and 2009, the Company’s liabilities related to discontinued operations were as follows:~~

2010 2009

Accrued expenses $ (655,061 ) $ (655,061 )

Net liabilities of discontinued operations $ (655,061 ) $ (655,061 )

~~(5)~~

~~Inventory~~

~~Inventory consists of the following at December 31, 2010 and 2009:~~

2010 2009

Inventory — finished goods $ 539,141 $ 667,998
Inventory — parts 78,202 108,068

Gross inventory 617,343 776,066
Provision for losses and obsolescence (153,700 ) (183,477 )

Net inventory $ 463,643 $ 592,589

~~F-22~~

~~SANUWAVE HEALTH, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~Years Ended December 31, 2010 and 2009~~

~~(6)~~

~~Property and equipment~~

~~Property and equipment consists of the following at December 31, 2010 and 2009:~~

2010 2009

Machines and equipment $ 199,520 $ 199,520
Office and computer equipment 296,120 311,791
Leasehold improvements 67,421 67,421
Furniture and fixtures 24,613 24,613
Vehicles 22,531 38,897
Software 40,233 40,233
Other assets 5,080 4,585

Total 655,518 687,060
Accumulated depreciation (642,132 ) (598,354 )

Net property and equipment $ 13,386 $ 88,706

The aggregate depreciation charged to operations was $74,885 and $194,828 for the years ended December 31, 2010 and 2009, respectively. The depreciation policies followed by the Company are described in Note (1).

~~(7)~~

~~Intangible assets~~

~~Intangible assets consist of the following at December 31, 2010 and 2009:~~

2010 2009

Patents, at cost $ 3,502,135 $ 3,502,135
Less accumulated amortization (1,661,597 ) (1,354,840 )

Net intangible assets $ 1,840,538 $ 2,147,295

The aggregate amortization expense charged to operations was $306,757 and $306,756 for the years ended December 31, 2010 and 2009, respectively. The amortization policies followed by the Company are described in Note (1).

~~Amortization expense for the future years is summarized as follows:~~

Years ending December 31, Amount

2011 $ 306,756
2012 306,756
2013 306,756
2014 306,756
2015 306,756
2016 306,758

Total $ 1,840,538

~~F-23~~

~~SANUWAVE HEALTH, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~Years Ended December 31, 2010 and 2009~~

~~(7)~~

~~Intangible assets (continued)~~

~~The weighted average amortization period for intangible assets is as follows:~~

Weighted
Average
Period
Amount (Years)

Patents $ 3,502,135 11.4

~~(8)~~

~~Assets held for sale~~

On October 31, 2008, the Company discontinued its Ossatron mobile service business and accordingly displayed the related assets of this business as “discontinued operations.” In accordance with FASB ASC 205-20,~~Presentation of Financial Statements — Discontinued Operations,~~a quarterly review of the discontinued assets was performed to determine if they should continue to be recorded as “discontinued operations.” As of October 1, 2009, management determined that the Ossatron device fixed assets and inventory were not likely to be sold within the next twelve months. Therefore, the Ossatron device fixed assets and related parts inventory was reclassed to continuing operations and depreciation on the Ossatron device fixed assets was restarted at October 1, 2009.

As of December 31, 2010 management determined that the potential market for selling the used Ossatron mobile service devices was not probable due to the age of the devices and changes in the international electrical standards for which the devices are no longer compliant. Currently, management has no plans to utilize these devices in the United States. The Company recorded additional depreciation expense of $201,153 to fully depreciate the Ossatron devices and recorded an adjustment of $169,581 to fully reserve for the related parts inventory for those devices.

~~Assets held for sale consist of the following at December 31, 2010 and 2009:~~

2010 2009

Ossatron devices $ 4,837,165 $ 4,837,165
Accumulated depreciation (4,837,165 ) (4,082,474 )

Net property and equipment — 754,691

Inventory Ossatron device parts 226,081 210,169
Provision for losses and obsolescence (226,081 ) (41,904 )

Net inventory — 168,265

Total assets held for sale $ — $ 922,956

~~The aggregate depreciation charged to operations was $754,691 and $170,280 for the years ended December 31, 2010 and 2009, respectively.~~

~~F-24~~

~~SANUWAVE HEALTH, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~Years Ended December 31, 2010 and 2009~~

~~(9)~~

~~Accrued expenses~~

~~Accrued expenses consist of the following at December 31, 2010 and 2009:~~

2010 2009
Accrued legal professional fees $ 64,531 $ 249,418
Accrued clinical site payments 82,500 192,023
Accrued audit and tax preparation 89,173 77,771
Accrued other 20,000 109,817

$ 256,204 $ 629,029

~~(10)~~

~~Income taxes~~

~~The income tax provision (benefit) consists of the following at December 31, 2010 and 2009:~~

2010 2009
Current:
Federal(1) $ (244,479 ) $ —
State — —
Foreign 4,510 —

(239,969 ) —

Deferred:
Federal (4,255,157 ) (2,193,248 )
State (467,516 ) (240,974 )
Foreign 59,520 61,056
Change in valuation allowance 4,663,153 2,373,166

$ (239,969 ) $ —


~~(1)~~		~~Tax benefit derived from the United States government’s Qualifying Therapeutic Discovery Project program. The tax grant received in 2010 was for development activity in 2010 and 2009.~~

~~F-25~~

~~SANUWAVE HEALTH, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~Years Ended December 31, 2010 and 2009~~

~~(10)~~

~~Income taxes (continued)~~

The income tax provision (benefit) amounts differ from the amounts computed by applying the United States federal statutory income tax rate of 35% to pretax income (loss) as a result of the following for the years ended December 31, 2010 and 2009:

2010 2009

Tax expense (benefit) at statutory rate $ (5,306,844 ) $ (2,153,564 )
Increase (reduction) in income taxes resulting from:
State income taxes, net of federal benefit (414,692 ) (168,286 )
Non-deductible loss on extinguishment of debt 942,864 —
Change in valuation allowance — United States 4,722,673 2,301,850
Federal tax grant (244,479 ) —
Other 60,509 20,000

$ (239,969 ) $ —

~~The tax effects of temporary differences that give rise to the deferred tax assets (liabilities) at December 31, 2010 and 2009, are as follows:~~

2010 2009
Deferred tax assets:
Net operating loss carryforward $ 15,457,127 $ 12,359,566
Net operating loss carryforward — foreign 161,463 220,983
Excess of tax basis over book value of property and equipment 100,375 —
Excess of tax basis over book value of intangible assets 409,657 405,628
Stock-based compensation 2,150,096 1,003,827
Accrued bonus 413,488 188,678
Captialized equity costs 75,471 75,471
Inventory reserve 58,000 —
Valuation allowance — United States (18,664,214 ) (13,941,541 )
Valuation allowance — foreign (161,463 ) (220,983 )

Total deferred tax assets — 91,629

Deferred tax liabilities:
Excess of book value over tax basis of property and equipment — 91,629

Deferred taxes, net $ — $ —

~~F-26~~

~~SANUWAVE HEALTH, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~Years Ended December 31, 2010 and 2009~~

~~(10)~~

~~Income taxes (continued)~~

The Company’s ability to use its net operating loss carryforwards could be limited and subject to annual limitations. In connection with future offerings, the Company may realize a “more than 50% change in ownership” which could further limit its ability to use its net operating loss carryforwards accumulated to date to reduce future taxable income and tax liabilities. Additionally, because United States tax laws limit the time during which net operating loss carryforwards may be applied against future taxable income and tax liabilities, the Company may not be able to take advantage of all or portions of its net operating loss carryforwards for federal income tax purposes.

~~The federal net operating loss carryforwards at December 31, 2010 will expire as follows:~~

Years ending December 31, Amount

2025 $ 1,376,740
2026 7,291,084
2027 12,280,771
2028 6,922,963
2029 4,816,700
2030 8,208,591

Total $ 40,896,849

~~(11)~~

~~Earnings (loss) per share~~

~~The following table sets forth the denominator for the computation of basic and diluted earnings per share pursuant to ASC 260 for the years ended December 31, 2010 and 2009:~~

2010 2009

Numerator:
Loss from continuing operations $ (14,922,441 ) $ (7,983,585 )

Income from discontinued operations $ — $ 1,830,545

Net loss $ (14,922,441 ) $ (6,153,040 )

Denominator:
Denominator for basic earnings (loss) per share — weighted average shares outstanding during the year 12,924,872 11,405,490

Effect of dilutive securities:
Notes payable, related parties — —
Warrants — —
Stock options — —

Denominator for diluted earnings (loss) per share — adjusted weighted average shares and assumed conversions 12,924,872 11,405,490

~~F-27~~

~~SANUWAVE HEALTH, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~Years Ended December 31, 2010 and 2009~~

~~(11)~~

~~Earnings (loss) per share (continued)~~

As a result of the net loss for the years ended December 31, 2010 and 2009, respectively, all potentially dilutive shares were anti-dilutive and therefore excluded from the computation of diluted net loss per share. The anti-dilutive equity securities totaled 13,110,928 shares and 6,950,584 shares at December 31, 2010 and 2009, respectively.

~~(12)~~

~~Notes payable, related parties~~

~~The notes payable consists of the following at December 31, 2010 and 2009:~~

2010 2009
Notes payable, unsecured, bearing interest at 6% to HealthTronics, Inc., a shareholder of the Company. The notes were issued in conjunction with the Company’s purchase of the orthopedic division of HealthTronics, Inc. on August 1, 2005. Quarterly interest through June 30, 2010, was accrued and added to the principal balance. Interest is paid quarterly in arrears beginning September 30, 2010. All remaining unpaid accrued interest and principal is due August 1, 2015. Accrued interest currently payable totaled $82,977 at December 31, 2010. There was no current interest payable at December 31, 2009. Accrued interest not payable until August 1, 2015 totaled $1,372,743 and $1,215,253 at December 31, 2010 and 2009, respectively. $ 5,372,743 $ 5,215,253

Notes payable, unsecured, bearing interest at 15% to Prides Capital Fund I, LP and NightWatch Capital Partners II, LP, shareholders of the Company. Quarterly interest through December 31, 2010, is accrued and added to the principal balance. Unpaid accrued interest and principal is due September 30, 2011. Accrued interest totaled $1,047,290 and $472,728 at December 31, 2010 and 2009, respectively. All or any portion of the unpaid principal can be converted into common stock with a conversion price of $2.92 per share. 4,247,290 3,672,728

Total 9,620,033 8,887,981
Less current portion (4,247,290 ) —

Non-current portion $ 5,372,743 $ 8,887,981

The notes payable to Prides Capital Fund I, LP and NightWatch Capital Partners II, LP contain a contingent put reflected in the contractual rights of default. Upon the occurrence of any default, as defined in the note agreements, the entire unpaid principal and accrued interest on the note will become automatically due and payable. Under FASB Codification ASC 815, the risks of equity are inconsistent with the risks of the debt host and, therefore, embedded put derivative such as these require bifurcation and separate classification at fair value when material. The value of the contingent put was determined to be deminimus in value and, as such, was considered immaterial. The Company will continue to assess this element of the notes and, if material, the Company will record the contingent put as a derivative liability and charge against income changes in fair value at each reporting period.

~~F-28~~

~~SANUWAVE HEALTH, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~Years Ended December 31, 2010 and 2009~~

~~(12)~~

~~Notes payable, related parties (continued)~~

~~Maturities on notes payable are as follows:~~

Years ending December 31, Amount

2011 $ 4,247,290
2012 —
2013 —
2014 —
2015 5,372,743

Total $ 9,620,033

~~Interest expense on notes payable, related parties totaled $964,553 and $756,166 for the years ended December 31, 2010 and 2009, respectively.~~

~~(13)~~

~~Promissory notes~~

During the year ended December 31, 2010, the Company issued ten promissory notes totaling $2,450,000. On October 12, 2010, in conjunction with an offering of securities (the “Offering”) of the Company pursuant to an exemption from registration under the Securities Act of 1933, as amended (the “Act”), the Company amended the terms of the ten outstanding promissory notes such that the unpaid principal and interest on each note was exchanged into the number of Units (as described below) equal to (i) the unpaid principal and interest on each such note, divided by (ii) 2. In accordance with ASC 470, “Debt”, the Company recorded a loss from extinguishment of debt of $2,693,896 which was the difference between the estimated fair value of the Units on the date of exchange of $5,211,556 as compared to the carrying value of the promissory notes of $2,517,660.

Each “Unit” in the Offering consists of: (i) one share of common stock, par value $0.001 per share (the “Common Stock”); (ii) a two-year common stock purchase warrant (the “Class D Warrant”) to purchase one share of Common Stock, at an exercise price of $2.00; and (iii) an option (the “Option”), which, as amended, expires on January 31, 2011, to purchase the same number of Units as granted pursuant to this transaction, at the purchase price of $2.00 per Unit. The unpaid principal and interest on the notes totaled $2,517,660, and this sum was exchanged into a total of 1,258,830 Units which consisted of 1,258,830 shares of Common Stock, 1,258,830 Class D Warrants and 1,258,830 Options.

~~(14)~~

~~Common stock~~

~~The brother of a member of the board of directors purchased 175,000 Units in the offerings for a total purchase price of $350,000.~~

As of December 31, 2010, the Option holders exercised 101,163 Options for total gross proceeds of $202,326 to the Company. In connection with the exercise of the Options, the Company issued 101,163 shares of Common Stock and 101,163 Class D Warrants. There were 2,082,667 Options that remained unexercised at December 31, 2010 (See Subsequent Event — Note 22).

~~F-29~~

~~SANUWAVE HEALTH, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~Years Ended December 31, 2010 and 2009~~

~~(15)~~

~~Preferred stock~~

The Company’s preferred stock may have such rights, preferences and designations and may be issued in such series as determined by the board of directors. No shares were issued and outstanding at December 31, 2010 and 2009.

~~(16)~~

~~Warrants~~

~~A summary of the warrant activity as of December 31, 2010 and 2009, and the changes during the years ended December 31, 2010 and 2009, is presented as follows:~~

Class A Class B Class C Class D
Warrants Warrants Warrants Warrants
Outstanding as of December 31, 2008 — — — —
Issued 1,106,627 1,106,627 1,500,000 —
Exercised — — — —
Cancelled — — — —

Outstanding as of December 31, 2009 1,106,627 1,106,627 1,500,000 —
Issued — — — 2,284,993
Exercised — — — —
Cancelled — — (1,500,000 ) —

Outstanding as of December 31, 2010 1,106,627 1,106,627 — 2,284,993

The Class A and Class B warrants expire five years from date of issuance and the Class C and Class D warrants expire two years from date of issuance. The Class A and Class C warrants have an exercise price of $4.00 per share, the Class B warrants have an exercise price of $8.00 per share, and the Class D warrants have an exercise price of $2.00 per share.

~~(17)~~

~~Commitments and contingencies~~

~~Operating Leases~~

The Company leases office and warehouse space. Rent expense for the years ended December 31, 2010 and 2009, was $397,615 and $533,464, respectively. Minimum future lease payments under non-cancellable operating leases consist of the following:

Years ending December 31, Amount

2011 $ 339,985
2012 281,836

Total $ 621,821

~~F-30~~

~~SANUWAVE HEALTH, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~Years Ended December 31, 2010 and 2009~~

~~(17)~~

~~Commitments and contingencies (continued)~~

Kevin A. Richardson, II

~~Litigation~~

Thomas H. Robinson(1)

Ronald M. Sparks, Jr. (1)

(1) Ronald M. Sparks, Jr. and Barbara M. Henagan resigned from the Company’s board on April 23, 2012. Thomas H. Robinson resigned from the Company’s board on May 25, 2012. The ~~Company is involved in various legal matters that have arisen in the ordinary course of business. While the ultimate outcome of these matters is~~three independent board members’ did not ~~presently determinable, it is the opinion of management that the resolution will not have a material adverse effect~~receive any cash or stock-based compensation for serving on the ~~financial position or results of operations of the Company.~~board during 2012 and all outstanding options were forfeited unexercised.

~~HealthTronics, along with the Company, are defendants in an alleged breach of contract lawsuit dated April 21, 2006 brought in the Miami-Dade County Circuit Court, Florida by a~~

Christopher M. Cashman, our former limited partner of a former limited partnership of the Company, Bone & Joint Treatment Centers of America. Bone & Joint Treatment Centers of America, the plaintiff, is seeking greater than $3 million. HealthTronics has been responsible for the defense of the lawsuit on behalf of the CompanyChief Executive Office and ~~believes the case is unfounded and is contesting the claims vigorously~~

~~(18)~~

~~401k plan~~

~~The Company sponsors a 401k plan that covers all employees~~President, who meet the eligibility requirements. The Company matches 50% of employee contributions up to 6% of their compensation. The Company contributed $69,693 and $66,403 to the plan for the years ended December 31, 2010 and 2009, respectively.

~~(19)~~

~~Stock-based compensation~~

During 2006, SANUWAVE, Inc. approved the 2006 Stock Incentive Plan and certain Non-statutory Stock Option Agreements with key employees. The Non-statutory Stock Option Agreements have terms substantially the same as the 2006 Stock Incentive Plan. On November 1, 2010, the Company approved the Amended and Restated 2006 Stock Incentive Plan of SANUWAVE Health, Inc. effective as of January 1, 2010 (the “Amended Plan”). The Amended Plan permits grants of awards to selected employees and directors of the Company in the form of restricted stock or options to purchase shares of common stock. Options granted may include non-statutory options as well as qualified incentive stock options. The Amended Plan is currently administered by the board of directors of the Company. The Amended Plan gives broad powers to the board of directors of the Company to administer and interpret the particular form and conditions of each option. The stock options granted under the Amended Plan are non-statutory options which generally vest over a period of up to four years, and have a ten year term. The options are granted at an exercise price determined by the board of directors of the Company to be the fair market value of the common stock on the date of the grant. The Amended Plan reserves 5,000,000 shares of common stock for grant.

On November 1, 2010, the Company granted 912,000 options to employees and directors at an exercise price of $2.00 per share. Using the Black-Scholes option pricing model, management has determined that the options granted in November 2010 had a weighted average fair value per share of $1.92 resulting in total compensation of $1,748,858. Compensation cost will be recognized over the requisite service period.

On January 29, 2010, the Company granted 107,500 options to employees and directors at an exercise price of $4.05 per share. Using the Black-Scholes option pricing model, management has determined that the options granted in January 2010 had a weighted average fair value per share of $2.51 resulting in total compensation cost of $269,398. Compensation cost will be recognized over the requisite service period.

Using the Black-Scholes option pricing model, management has determined that the options and restricted stock granted during the years ended December 31, 2010 and 2009 have a weighted average fair value per share of $1.98 in 2010 and $1.73 in 2009, resulting in a total compensation cost to be recognized over the vesting period of $2,018,256 and $2,464,655, respectively. For the years ended December 31, 2010 and 2009, the Company recognized $3,037,634 and $1,078,128, respectively, as compensation cost and recorded a related deferred tax benefit of $1,146,269 and $406,838, respectively.

~~F-31~~

~~SANUWAVE HEALTH, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~Years Ended December 31, 2010 and 2009~~

~~(19)~~

~~Stock-based compensation (continued)~~

~~The remaining $879,193 of compensation cost will be recognized over the next four years as follows:~~

Compensation
Years ending December 31, Cost

2011 $ 577,089
2012 195,160
2013 101,396
2014 5,548

Total $ 879,193

~~The assumptions used and the calculated fair value of options is as follows:~~

2010 2009
Expected life in years 5.5 6.0
Risk free interest rate 1.36 % 2.41 %
Weighted average volatility 65.00 % 65.00 %
Expected dividend yield (1) — —


~~(1)~~		~~The Company has not paid dividends on its common stock and does not expect to pay dividends on its common stock in the near future.~~

~~A summary of option activity as of December 31, 2010 and 2009, and the changes during the years ended December 31, 2010 and 2009, is presented as follows:~~

Weighted
Average
Exercise
Options Price
Outstanding as of December 31, 2008 1,867,613 $ 3.50
Granted 360,977 $ 4.19
Exercised — $ —
Forfeited or expired (249,044 ) $ 2.92

Outstanding as of December 31, 2009 1,979,546 $ 3.70
Granted 1,019,500 $ 2.22
Exercised — $ —
Forfeited or expired (6,250 ) $ 3.15

Outstanding as of December 31, 2010 2,992,796 $ 3.20

Exercisable 2,108,803 $ 2.57

~~The aggregate intrinsic value of the outstanding stock options at December 31, 2010~~ was ~~$3,809,211. The aggregate intrinsic value of the exercisable outstanding stock options at December 31, 2010 was $3,584,965.~~

~~F-32~~

~~SANUWAVE HEALTH, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~Years Ended December 31, 2010 and 2009~~

~~(19)~~

~~Stock-based compensation (continued)~~

~~The weighted average remaining contractual term for outstanding and exercisable stock options is 7.1 years as of December 31, 2010, and 6.4 years as of December 31, 2009.~~

~~A summary of the Company’s nonvested options as of December 31, 2010, and changes during the year ended December 31, 2010, is presented as follows:~~

Weighted
Average
Grant Date
Options Fair Value
Outstanding as of December 31, 2009 851,849 $ 1.46
Granted 1,019,500 $ 1.98
Vested (981,106 ) $ 1.86
Forfeited or expired (6,250 ) $ 2.51

Outstanding as of December 31, 2010 883,993 $ 1.62

~~A summary of the Company’s restricted stock as of December 31, 2010 and 2009, and changes during the years ended December 31, 2010 and 2009, is presented as follows:~~

Weighted
Average
Restricted Grant Date
Stock Fair Value
Outstanding as of December 31, 2008 — $ —
Granted 403,030 $ 2.92
Vested — $ —

Outstanding as of December 31, 2009 403,030 $ 2.92
Granted — $ —
Vested — $ —
Forfeited or expired — $ —

Outstanding as of December 31, 2010 403,030 $ 2.92

~~(20)~~

~~Segment and geographic information~~

Subsequent to discontinuing the Ossatron mobile service business and selling the veterinary business line (Note 4), the Company has only one line of business. The Company’s revenues are generated from sales in Europe.

~~F-33~~

~~SANUWAVE HEALTH, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~Years Ended December 31, 2010 and 2009~~

~~(21)~~

~~Restatement of 2008 results~~

In April 2008, the Company granted, as adjusted for the Merger, 1,043,990 options to employees at an exercise price of $2.92 per share. Using the Black-Scholes option pricing model, the options granted in April 2008 had a weighted average fair value per share of $1.42, resulting in total compensation cost over the vesting period of the options of $1,481,207.

The Company determined during the audit for the year ended December 31, 2010, that the non-cash stock compensation expense was incorrectly recorded in the financial statements for the year ended December 31, 2008. The 2008 non-cash stock compensation expense had been calculated based on a four-year straight-line vesting schedule instead of taking into account that many of the stock options issued in 2008, in accordance with their terms, were 50% vested at the date of grant. As such, the non-cash stock compensation expense recorded in general and administrative expenses in the consolidated statement of operations and comprehensive loss for the year ended December 31, 2008 was understated by $687,309.

This is a non-cash item which resulted in an understatement at December 31, 2008 of additional paid-in capital of $687,309 and an understatement of retained deficit of $687,309. There was no impact on the net cash used by operating activities of $7,009,402 as reported in the consolidated statement of cash flows for the year ended December 31, 2008.

There was no impact on the consolidated financial statements for the year ended December 31, 2009 other than to increase the beginning of the year balance of additional paid-in capital by $687,309 and the beginning of the year balance of retained deficit by $687,309.

~~The impact of the adjustment on the consolidated statement of operations and comprehensive loss for the year ended December 31, 2008 was as follows:~~

As Originally As
Reported Adjustment Restated

Revenues $ 1,045,858 $ — $ 1,045,858
Cost of revenues 352,723 — 352,723

Gross profit 693,135 — 693,135
Operating expenses
Research and development 3,675,631 — 3,675,631
General and administrative 7,801,416 687,309 8,488,725
Depreciation 276,724 — 276,724
Amortization 306,756 — 306,756

Total operating expenses 12,060,527 687,309 12,747,836

Operating loss (11,367,392 ) (687,309 ) (12,054,701 )
Total other income (expense) (359,371 ) — (359,371 )

Loss from continuing operations before income taxes (11,726,763 ) (687,309 ) (12,414,072 )
Income tax benefit 333,718 — 333,718

Loss from continuing operations (11,393,045 ) (687,309 ) (12,080,354 )
Income from discontinued operations 1,984,127 — 1,984,127

Net loss (9,408,918 ) (687,309 ) (10,096,227 )
Other comprehensive loss (270,655 ) — (270,655 )

Total comprehensive loss $ (9,679,573 ) $ (687,309 ) $ (10,366,882 )

Earnings (loss) per share
Loss from continuing operations — basic $ (1.03 ) $ (1.10 )

Loss from continuing operations — diluted $ (1.03 ) $ (1.10 )

Income from discontinued operations — basic $ 0.18 $ 0.18

Income from discontinued operations — diluted $ 0.18 $ 0.18

Net loss — basic $ (0.85 ) $ (0.92 )

Net loss — diluted $ (0.85 ) $ (0.92 )

Weighted average shares outstanding — basic 11,009,657 11,009,657

Weighted average shares outstanding — diluted 11,009,657 11,009,657

~~F-34~~

~~SANUWAVE HEALTH, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~Years Ended December 31, 2010 and 2009~~

~~(21)~~

~~Restatement of 2008 results (continued)~~

~~The impact of the adjustment on the consolidated balance sheet at December 31, 2008 is as follows:~~

As Originally As
Reported Adjustment Restated

Total assets $ 6,499,017 $ — $ 6,499,017

Total liabilities $ 9,096,858 $ — $ 9,096,858

Stockholders’ equity (deficit)
Preferred stock 2,833 — 2,833
Common stock 89 — 89
Additional paid-in capital 30,103,124 687,309 30,790,433
Accumulated other comprehensive loss (196,646 ) — (196,646 )
Retained deficit (32,507,241 ) (687,309 ) (33,194,550 )

Total stockholders’ equity (deficit) (2,597,841 ) — (2,597,841 )

Total liabilities and stockholders’ equity (deficit) $ 6,499,017 $ — $ 6,499,017

~~The impact of the adjustment on the consolidated balance sheet at December 31, 2009 is as follows:~~

As Originally As
Reported Adjustment Restated

Total assets $ 5,867,085 $ — $ 5,867,085

Total liabilities $ 11,751,399 $ — $ 11,751,399

Stockholders’ equity (deficit)
Preferred stock — — —
Common stock 12,510 — 12,510
Additional paid-in capital 32,741,593 687,309 33,428,902
Accumulated other comprehensive income 21,864 — 21,864
Retained deficit (38,660,281 ) (687,309 ) (39,347,590 )

Total stockholders’ equity (deficit) (5,884,314 ) — (5,884,314 )

Total liabilities and stockholders’ equity (deficit) $ 5,867,085 $ — $ 5,867,085

~~F-35~~

~~SANUWAVE HEALTH, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~Years Ended December 31, 2010 and 2009~~

~~(22)~~

~~Subsequent events~~

~~The Company has evaluated subsequent events through the date of issuance of the consolidated financial statements.~~

Between January 1 and January 31, 2011, the Option holders (see Note 14) exercised 1,950,167 Options for total gross proceeds of $3,900,334 to the Company. In connection with the exercise of Options, the Company issued 1,950,167 shares of Common Stock and 1,950,167 Class D Warrants. The 132,500 Options that remained unexercised at January 31, 2011 expired by their terms. The chairman of the board of directors of the Company exercised 545,252 Options and the brother of a member of the board of directors of the Company exercised 686,252 Options in connection with this transaction.

On April 4, 2011, in conjunction with an offering of securities of the Company, pursuant to certain exemptive provisions from registration under the Act and related rules and regulations of the Securities and Exchange Commission (the “Commission”), the Company entered into a Securities Purchase Agreement with certain “accredited investors” (as that term is defined in the Commission’s Regulation D) (the “Purchasers”) for the issuance of an aggregate total 2,804,593 shares of the Company’s Common Stock for an aggregate total purchase price of $9,114,927. The net proceeds received by the Company were $8,467,121, net of offering costs of $647,806. The Company intends to use the proceeds from this offering for working capital and general corporate purposes. The offering closed effective April 8, 2011. In addition, the Company, in connection with this offering, issued to the Purchasers an aggregate total of 2,804,593 warrants (the “Class E Warrants”) to purchase shares of Common Stock at an exercise price of $4.00 per warrant. Each Class E Warrant represents the right to purchase one share of Common Stock. The warrants vested upon issuance and expire after five years. The placement agent was also issued 93,080 Class E Warrants. The brother of a member of our board of directors ~~and an existing shareholder~~until his resignation effective November 7, 2012, has been omitted from this table since he received no compensation for serving on our board of ~~the Company acquired 310,000 shares of Common Stock for a purchase price of $1,007,500. He also received 310,000 Class E Warrants.~~directors.

Pursuant to the terms of a Registration Rights Agreement that the Company entered with the Purchasers in connection with the April 4, 2011 offering, the Company is required to file a registration statement or registration statements with the Commission that cover the resale by the Purchasers in the Offering of the shares of Common Stock and the shares of Common Stock issuable upon exercise of the Class E 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.

On April 4, 2011, the Noteholders (as defined below) of the amended senior notes (the “Notes”) of the Company exchanged the unpaid principal and interest balance of the Notes which totaled $4,413,908 in consideration for the issuance of 1,358,126 shares of Common Stock of the Company. In addition, the Company, in connection with this transaction, issued to the note holders an aggregate total of 679,064 Class E Warrants to purchase shares of Common Stock at an exercise price of $4.00 per warrant. Each Class E Warrant represents the right to purchase one share of Common Stock. The warrants vested upon issuance and expire after five years. The Company is currently evaluating the accounting treatment for this transaction to be recorded in the second quarter of 2011.

The ~~Notes were held by Prides Capital Fund I, LP~~following are the aggregate number of option awards outstanding that have been granted to each of our non-employee directors as of December 31, 2012: Kevin A. Richardson, II – 15,000 and ~~NightWatch Capital Partners II, LP (the “Noteholders”). The chairman~~John F. Nemelka – 15,000.

Discussion of ~~the Company’s~~Director Compensation

We did not pay any director cash or stock-based compensation for serving on our board of directors ~~serves as~~during the ~~managing partner~~fiscal year ended December 31, 2012.

With the addition of ~~Prides Capital, LLC, an affiliate of Prides Capital Fund I, LP. A member of~~former directors Barbara M. Henagan and Ronald M. Sparks, Jr. to the ~~Company’s~~ board of directors ~~serves as managing principal~~in September 2011, we began to compensate our three independent directors at an annual rate of ~~NightWatch Capital Advisors, LLC, an affiliate~~$40,000 each plus $5,000 for being the chair of ~~NightWatch Capital Partners II, LP.~~

a board of directors committee. On September 20, 2011, we issued 25,000 options to purchase common stock at $2.95 to non-employee former director Ronald M. Sparks, Jr. On September 28, 2011, we issued 25,000 options to purchase common stock at $2.85 to non-employee former director Barbara M. Henagan. Ronald M. Sparks, Jr. and Barbara M. Henagan resigned from our board on April 23, 2012. Thomas H. Robinson resigned from our board on May 25, 2012. The ~~Company is currently evaluating the impact, if~~three independent board members’ did not receive any ~~these transactions could have~~cash or stock-based compensation for serving on the ~~Company’s ability to use its NOL carryforwards to reduce future taxable income~~board during 2012 and ~~tax liabilities which could be limited if the Company~~all outstanding options were ~~to realize a “more than 50% change in ownership” as defined in Section 382~~forfeited unexercised.

Disclosure of ~~the United States tax code.~~

~~F-36~~

~~PART II~~

~~INFORMATION NOT REQUIRED IN PROSPECTUS~~

~~ITEM 13. Other Expenses of Issuance and Distribution~~

The following table lists the costs and expenses payable by the registrant in connection with the sale of the Common Stock covered by this prospectus other than any sales commissions or discounts, which expenses will be paid by the selling stockholders. All amounts shown are estimates except for the SEC registration fee.

SEC registration fee $ 2,701
Legal fees and expenses 25,000
Accounting fees and expenses 8,000
Miscellaneous fees and expenses 6,299

Total $ 42,000

~~ITEM 14.~~Commission Position on Indemnification of ~~Directors and Officers~~Securities Act Liabilities

The Nevada General Corporation Law (“NGCL”) provides that a director or officer is not individually liable to the corporation or its stockholders or creditors for any damages as a result of any act or failure to act in his capacity as a director or officer unless (i) such act or omission constituted a breach of his/her fiduciary duties as a director or officer, and (ii) his/her breach of those duties involved intentional misconduct, fraud or a knowing violation of law. Under the NGCL, a corporation may indemnify directors and officers, as well as other employees and individuals, against any threatened, pending or completed action, suit or proceeding, except an action by or in the right of the corporation, by reason of the fact that he/she is or was a director, officer, employee or agent of the corporation so long as such person acted in good faith and in a manner which he/she reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his/her conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, does not, of itself, create a presumption that the person did not act in good faith and in a manner which he/she reasonably believed to be in or not opposed to the best interests of the corporation, or that, with respect to any criminal action or proceeding, he/she had reasonable cause to believe that his/her conduct was unlawful.

The NGCL further provides that indemnification may not be made for any claim as to which such a person has been adjudged by a court of competent jurisdiction, after exhaustion of all appeals therefrom, to be liable to the corporation or for amounts paid in settlement to the corporation, unless and only to the extent that the court in which the action or suit was brought or other court of competent jurisdiction determines upon application that, in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for such expenses as the court deems proper. To the extent that a director, officer, employee or agent of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding or in defense of any claim, issue or matter therein, the corporation must indemnify him/her against expenses, including attorneys’ fees, actually and reasonably incurred in connection with the defense. The NGCL provides that this is not exclusive of other rights to which those seeking indemnification may be entitled under any bylaw, agreement, vote of stockholders, or disinterested directors or otherwise.

Our articles of incorporation provide that the directors and officers will not be personally liable to us or our stockholders for monetary damages for breach of their fiduciary duty as a director or officer, except for liability of a director or officer for acts or omissions involving intentional misconduct, fraud or a knowing violation of law, or the payment of dividends in violation of the NGCL. Our bylaws and contractual arrangements with certain of our directors and officers provide that we are required to indemnify our directors and officers to the fullest extent permitted by law. Our bylaws and these contractual arrangements also require us to advance expenses incurred by a director or officer in connection with the defense of any proceeding upon receipt of an undertaking by or on behalf of the director or officer to repay the amount if it is ultimately determined by a court of competent jurisdiction that he/she is not entitled to be indemnified by the registrant. Our bylaws also permit us to purchase and maintain errors and omissions insurance on behalf of any director or officer for any liability arising out of his/her actions in a representative capacity. We do not presently maintain any such errors and omissions insurance for the benefit of our directors and officers.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information, as of May 13, 2013, with respect to the beneficial ownership of our outstanding common stock by (i) any holder of more than five percent, (ii) each of our executive officers and directors, and (iii) our directors and executive officers as a group.

	Number of Shares		Percent of
	Beneficially		Shares
Name of Beneficial Owner (1)	Owned (2)		Outstanding
Joseph Chiarelli (3)		375,000		1.7	%
Barry J. Jenkins (4)		480,003		2.2	%
Kevin A. Richardson, II (5)		12,307,914		52.4	%
John F. Nemelka (6)		2,147,202		9.8	%
5% Beneficial Owner:
David N. Nemelka (7)		5,048,510		19.6	%
Christopher M. Cashman (8)		3,936,259		15.6	%
Prides Capital Fund I, LP (9)		10,520,077		45.4	%
NightWatch Capital Partners II, LP (10)		2,108,369		9.6	%
All directors and executive officers as a group (4 persons)		15,310,120		62.7	%

(1) Unless otherwise noted, each beneficial owner has the same address as us.

(2) Applicable percentage ownership is based on 21,726,536 shares of common stock outstanding as of May 9, 2013, “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 May 13, 2013. Unless otherwise indicated, all of the listed persons have sole voting and investment power over the shares listed opposite their names. Beneficial ownership as reported in the above table has been determined in accordance with Rule 13d-3 of the Exchange Act.

(3) Consist of options to purchase up to 375,000 shares of common stock.

(4) Includes options to purchase up to 274,253 shares of common stock and warrants to purchase up to 3,508 shares of common stock.

(5) Includes options to purchase up to 38,333 shares of common stock and promissory notes convertible into 309,000 shares of common stock. In addition, this amount includes 9,081,989 shares of common stock and warrants to purchase 1,438,088 shares of common stock owned directly by Prides Capital Fund I, L.P. Prides Capital Partners LLC is the general partner of Prides Capital Fund I, L.P. and Mr. Richardson is the controlling shareholder of Prides Capital Partners LLC; therefore, under certain provisions of the Exchange Act, he may be deemed to be the beneficial owner of such securities. Mr. Richardson has also been deputized by Prides Capital Partners LLC to serve on the board of directors of the Company. Mr. Richardson disclaims beneficial ownership of all such securities except to the extent of any indirect pecuniary interest (within the meaning of Rule 16a-1 of the Exchange Act) therein.

(6) Includes options to purchase up to 38,333 shares of common stock. In addition, this amount includes 1,904,145 shares of common stock and warrants to purchase 204,224 shares of common stock owned directly by NightWatch Capital Partners II, L.P. NightWatch Capital Management, LLC, is the general partner of NightWatch Capital Partners II, L.P. and Mr. John Nemelka is the controlling shareholder of NightWatch Capital Management LLC; therefore, under certain provisions of the Exchange Act, he may be deemed to be the beneficial owner of such securities. Mr. John Nemelka has also been deputized by NightWatch Capital Management LLC to serve on the board of directors of the Company. Mr. John Nemelka disclaims beneficial ownership of all such securities except to the extent of any indirect pecuniary interest (within the meaning of Rule 16a-1 of the Exchange Act) therein.

(7) Based solely on information contained in filings on Schedule 13D, as amended, and on Form 4s, made with the SEC by the reporting person, and on records of the Company. Includes a subscription agreement to purchase 3,600,000 shares of common stock at $0.25 per share no later than May 27, 2014 and warrants to purchase up to 443,510 shares of common stock. The principal address of David N. Nemelka is 2662 Stonebury Loop Road, Springville, UT 84663.

(8) Includes options to purchase up to 3,460,686 shares of common stock and warrants to purchase up to 8,816 shares of common stock. Mr. Cashman resigned as President, Chief Executive Officer, and as a Director effective November 7, 2012.

(9) Based solely on information contained in filings on Schedule 13D, as amended, made with the SEC by the reporting person and on records of the Company. Includes warrants to purchase 1,438,088 shares of common stock. The principal business address of Prides Capital Fund, I, LP is 100 Cummings Center, Suite 324C, Beverly, MA 01915. Kevin A. Richardson, II, has voting and dispositive power over the securities. See footnote (5).

(10) Based solely on information contained in filings on Schedule 13D, as amended, made with the SEC by the reporting person and of records of the Company. Includes warrants to purchase 204,224 shares of common stock. The principal business address of NightWatch Capital Partners II, LP is 5314 River Run Drive, Suite 350, Provo, UT 84604. John F. Nemelka has voting and dispositive power over the securities. See footnote (6).

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Related Party Transactions

Other than as described below, since January 1, 2010, there have been no transactions, and there are no currently proposed transactions with related persons required to be disclosed in this prospectus.

In connection with the offering of our Senior Secured Notes which closed on March 8, 2013, Kevin A. Richardson, II, chairman of the board of directors, purchased $60,000 of the notes.

On November 27, 2012, we and David N. Nemelka (Subscriber), the brother of John F. Nemelka, a member of our board of directors, entered into a subscription agreement (Subscription Agreement) whereby the Subscriber agreed to purchase from us, and we agreed to sell, a total of 4,000,000 shares of our common stock at a purchase price equal to $0.25 per share, for an aggregate sales price of $1,000,000 (Purchase Price). The Purchase Price will be payable to us as follows: (i) $50,000 on or before January 31, 2013; (ii) $50,000 on or before February 15, 2013; and (iii) the balance of $900,000 on or before May 27, 2014 (Outside Due Date). The Subscriber may make payments of the Purchase Price at his discretion, in minimum installments of $100,000 each, until the Outside Due Date. In the event that at any time after February 15, 2013, our total available cash should be less than $100,000, the Subscriber shall, upon our demand, pay to us $100,000 of the then outstanding balance of the Purchase Price, which payment shall be due within thirty (30) days of the demand. There is no limit on the number of demands that we may make pursuant to this provision of the Subscription Agreement, provided, however, that in no event shall we provide more than one notice of demand for payment in any thirty (30) day period. As of December 31, 2012, the Subscriber had paid us $25,000 and we issued to the Subscriber 100,000 shares of common stock. We will record the additional $975,000 and issue the corresponding 3,900,000 shares of common stock in the periods in which the Purchase Price is received. Subsequent to December 31, 2012, the Subscriber has paid us an additional $75,000 and was issued an additional 300,000 shares of common stock which will be recorded in the first quarter of 2013.

On November 6, 2012, we entered into a Severance and Advisory Agreement (Severance Agreement) with Christopher M. Cashman, then a director of ours, and our President and Chief Executive Officer. Entry into the Severance Agreement was made in connection with Mr. Cashman’s resignation as President and Chief Executive Officer, and a director of ours, effective November 7, 2012. See further discussion under “Management, Executive Compensation and Corporate Governance”.

On April 8, 2011, we completed a private placement to 28 institutional and individual accredited investors of 2,804,593 shares of our common stock at a purchase price of $3.25 per share, for gross proceeds of $9,114,927. The net proceeds received by us were $8,467,121, net of offering costs of $647,806. As part of the private placement, the investors were issued five-year warrants to purchase up to 2,804,593 shares of our common stock at an initial exercise price of $4.00 per warrant. The net proceeds from the private placement, following the payment of offering-related expenses, are being used by us for working capital and other general corporate purposes. David N. Nemelka, the brother of a member of our board of directors and an existing shareholder, was one of the purchasers in the offering.

On April 4, 2011, the note holders of our amended senior notes (the Notes) cancelled the unpaid principal and interest balance of the Notes which totaled $4,413,908 in consideration for the issuance of 1,358,126 shares of our common stock. In addition, in connection with this transaction, we issued to the note holders an aggregate total of 679,064 warrants to purchase shares of common stock at an exercise price of $4.00 per share. Each warrant represents the right to purchase one share of common stock. The warrants vested upon issuance and expire after five years. The Notes were held by Prides Capital Fund I, LP and NightWatch Capital Partners II, LP (the Noteholders). Kevin A. Richardson, II, who is the chairman of our board of directors, serves as the managing partner of Prides Capital, LLC, an affiliate of Prides Capital Fund I, LP. John F. Nemelka, who is a member of our board of directors, serves as managing principal of NightWatch Capital Advisors, LLC, an affiliate of NightWatch Capital Partners II, LP.

In January 2011, we raised $3,900,334 from a group of accredited investors through the exercise of options they received in 2010 as part of a purchase of a unit which consisted of: (i) one share of common stock, par value $0.001 per share; (ii) a two-year common stock purchase warrant (the Class D Warrant) to purchase one share of common stock, at an exercise price of $2.00; and (iii) an option ,which as amended, expired on January 31, 2011, to purchase the same number of units as granted pursuant to this transaction, at the purchase price of $2.00 per unit. Kevin A. Richardson, II, who is chairman of our board of directors, exercised 545,252 options and David N. Nemelka, who is the brother of John F. Nemelka, a member of our board of directors exercised 686,252 options in connection with this transaction

Between September 30, 2010, and December 7, 2010, we issued 925,000 units to certain accredited investors for an aggregate total purchase price of $1,850,000. Each unit was sold to the new investors at a purchase price of $2.00 per unit. As a result of the offerings, we sold 925,000 units which consisted of 925,000 shares of common stock, 925,000 Class D warrants and 925,000 options, which, as amended, expired on January 31, 2011, to purchase the same number of units as granted pursuant to this transaction, at the purchase price of $2.00 per unit. David N. Nemelka, who is the brother of John F. Nemelka, a member of our board of directors, purchased 175,000 Units in the offerings for a total purchase price of $350,000.

During 2010, we issued promissory notes totaling $1,750,000 to Kevin A. Richardson, II, our chairman of the board of directors, and $500,000 to David N. Nemelka, the brother of John F. Nemelka, a member our board of directors. On October 12, 2010, in conjunction with an offering, we amended the terms of the outstanding promissory notes such that the unpaid principal and interest on each note was exchanged into units. The unpaid principal and interest on the notes to Kevin A. Richardson, II totaled $1,790,504, and this sum was exchanged into a total of 895,252 units which consisted of 895,252 shares of common stock, 895,252 Class D warrants and 895,252 options, which, as amended, expire on January 31, 2011, to purchase another unit at the purchase price of $2.00 per unit. The unpaid principal and interest on the notes to David N. Nemelka totaled $522,504, and this sum was exchanged into a total of 261,252 units which consisted of 261,252 shares of common stock, 261,252 Class D warrants and 261,252 options, which, as amended, expire on January 31, 2011, to purchase another unit at the purchase price of $2.00 per unit.

DESCRIPTION OF SECURITIES TO BE REGISTERED

Our authorized capital stock consists of 155,000,000 shares, of which 150,000,000 shares are designated as common stock and 5,000,000 shares are designated as preferred stock. As of May 13, 2013, there were issued and outstanding:

21,726,536 shares of common stock,

warrants to purchase 7,789,991 shares of common stock at a weighted average exercise price of $3.63 per share, and

options to purchase 8,604,330 shares of common stock at a weighted average exercise price of $1.14 per share.

Senior Secured Notes with an aggregate principal and accrued interest balance of $2,097,500. Subject to the condition that we raise at least $4,000,000 in gross proceeds through this offering, the Senior Secured Notes, as amended, will automatically convert into (i) common stock at a conversion price of $0.20, and (ii) warrants to purchase the number of shares of common stock equal to the number of shares such holder would have received if it had invested in the offering an amount equal to the principal and interest on the note being converted.

The following summary of the material provisions of our common stock and preferred stock is qualified by reference to the provisions of our articles of incorporation and bylaws.

Common Stock

All shares of our common stock have equal voting rights and, when validly issued and outstanding, have one vote per share in all matters to be voted upon by the stockholders. Cumulative voting in the election of directors is not allowed, which means that the holders of more than 50% of the outstanding shares can elect all the directors if they choose to do so and, in such event, the holders of the remaining shares will not be able to elect any directors. The affirmative vote of a plurality of the shares of common stock voted at a stockholders meeting where a quorum is present is required to elect directors and to take other corporate actions. Holders of our common stock are entitled to receive ratably such dividends, if any, as may be declared by our board of directors out of legally available funds. However, the current policy of our board of directors is to retain earnings, if any, for our operation and expansion. Upon liquidation, dissolution or winding-up, the holders of our common stock are entitled to share ratably in all of our assets which are legally available for distribution, after payment of or provision for all liabilities and the liquidation preference of any outstanding preferred stock. The holders of our common stock have no preemptive, subscription, redemption or conversion rights. All issued and outstanding shares of common stock are, and the common stock reserved for issuance upon exercise of our stock options and warrants will be, when issued, fully-paid and non-assessable.

Preferred Stock

Warrants

The following is a brief summary of material provisions of the warrants offered in this offering. Such warrants will have the same material terms as the warrants we will issue we will issue to the holders of the Senior Secured Notes, if such notes are automatically converted to common stock as a result of this offering (which will occur if we raise at least $4,000,000 in this offering).

Exercise Price and Terms. Each warrant entitles the holder thereof to purchase at any time during the period commencing on the date of the closing of the offering and ending on the fifth anniversary of the closing of the offering at an exercise price equal to $1.50 per share, subject to certain adjustments referred to below, shares of our common stock. The holder of any warrant may exercise such warrant by surrendering the warrant to us, with the notice of exercise properly completed and executed, together with payment of the exercise price. The warrants may be exercised at any time in whole or in part at the applicable exercise price until expiration of the warrants. No fractional shares will be issued upon the exercise of the warrants.

Adjustments. The exercise price and the number of shares of common stock purchasable upon the exercise of the warrants are subject to adjustment upon the occurrence of certain events, including stock dividends, stock splits, combinations or reclassifications of the common stock. Additionally, an adjustment would be made in the case of a reclassification or exchange of common stock, consolidation or merger of our Company with or into another corporation (other than a consolidation or merger in which we are the surviving corporation) or sale of all or substantially all of our assets in order to enable holders of the warrants to acquire the kind and number of shares of stock or other securities or property receivable in such event by a holder of the number of shares of common stock that might otherwise have been purchased upon the exercise of the warrant. No adjustment to the number of shares and exercise price of the shares subject to the warrants will be made for dividends (other than stock dividends), if any, paid on our common stock.

Transfer, Exchange and Exercise. The warrants may be presented to us for exchange or exercise at any time during the period commencing on the date of the closing of the offering and ending on the fifth anniversary of the closing of the offering at which time the warrants become wholly void and of no value. Prior to any transfer of the warrants the holder must notify us of the same and, if subsequently requested, provide a legal opinion regarding the transfer to us.

Warrantholder Not a Stockholder. The warrants do not confer upon holders any voting, dividend or other rights as a shareholder of our Company.

18% Senior Secured Convertible Promissory Notes (Senior Secured Notes)

The Senior Secured Notes, as amended, automatically convert to common stock (and warrants, if applicable) upon a qualified financing of $4,000,000 raised in a public and/or private placement transaction, such as this offering. Therefore, upon completion of this offering where gross proceeds to us are at least $4,000,000, the Senior Secured Notes will automatically convert to common stock and warrants.

Anti-Takeover Provisions

Provisions in our Articles of Incorporation and bylaws may discourage certain types of transactions involving an actual or potential change of control of our Company which might be beneficial to us or our security holders.

As noted above, our Articles of Incorporation permits our board of directors to issue shares of any class or series of preferred stock in the future without stockholder approval and upon such terms as our board of directors may determine. The rights of the holders of common stock will be subject to, and may be adversely affected by, the rights of the holders of any class or series of preferred stock that may be issued in the future.

Our bylaws generally provide that any board vacancy, including a vacancy resulting from an increase in the authorized number of directors, may be filled by a majority of the directors, even if less than a quorum.

Additionally, our bylaws provide that shareholders must provide timely notice in writing to bring business before an annual meeting of shareholders or to nominate candidates for election as directors at an annual meeting of shareholders. Notice for an annual meeting is timely if our Secretary receives the written notice not less man 50 days nor more than 75 days prior to the meeting; provided, however, that in the event less than 60 days notice or prior public disclosure of the date of the meeting is given or made to shareholders, notice by the shareholder to be timely must be so received not later than the close of business on the tenth day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. Our bylaws also specify the form and content of a shareholder’s notice. These provisions may prevent shareholders from bringing matters before an annual meeting of shareholders or from making nominations for directors at an annual meeting of shareholders.

Trading Information

Our shares of common stock are currently quoted in the over-the-counter market on the OTC Bulletin Board.

Transfer Agent

The transfer agent and registrar for our common stock is Action Stock Transfer Corp., 7069 S. Highland Drive, Suite 300, Salt Lake City, Utah 84121.

SHARES AVAILABLE FOR FUTURE SALE

As of May 13, 2013, we had 21,726,536 shares of common stock outstanding, not including shares issuable upon the exercise of outstanding warrants, stock options and other convertible securities. Future sales of our common stock in the public market, or the perception that such sales may occur, could adversely affect the market price of our common stock or impair our ability to raise equity capital in the future. As described below, only a limited number of shares of our common stock will be available for sale in the public market for a period of several months after completion of this offering due to contractual and legal restrictions on resale described below. Nevertheless, sales of a substantial number of shares of our common stock in the public market after such restrictions lapse, or the perception that those sales may occur, could adversely affect the prevailing market price of our common stock at such time and our ability to raise equity capital at a time and price we deem appropriate. We cannot assure you that there will be an active market for our common stock.

Upon completion of this offering, and assuming the conversion of our 18% Senior Secured Convertible Promissory Notes, in the principal amount of $2,097,500, including accrued interest, at a conversion price of $0.20 per share (which conversion will occur automatically only if we receive at least $4,000,000 in gross proceeds from this offering), based upon the number of shares outstanding at May 13, 2013, there will be 38,214,036 shares of our common stock outstanding. Of these outstanding shares, the 6,000,000 shares (as part of the Units) sold in this offering will be freely tradable without restriction or future registration under the Securities Act, except for any shares purchased by our “affiliates,” as that term is defined in Rule 144 under the Securities Act, whose sales may be made only in compliance with the limitations of Rule 144 described below.

Of the remaining shares outstanding after this offering, 16,332,453 shares are deemed “restricted securities” under Rule 144. Restricted securities may be sold in the public market only if registered or if they qualify for an exemption from registration under Rules 144 or 701 under the Securities Act, which rules are summarized below, or another exemption.

Public Float

Of our outstanding shares at May 13, 2013, 14,063,637 shares are beneficially owned by executive officers, directors and affiliates of ours. The remaining 7,662,899 shares constitute our public float which, based on the last sale price of our common stock reported on the OTC Bulletin Board on May 14, 2013, equaled approximately $7,662,899.

Rule 144

In general, under Rule 144, as currently in effect, a person who has beneficially owned shares of our common stock for at least six months, including the holding period of prior owners other than affiliates, is entitled to sell his or her shares without any volume limitations; an affiliate, however, can sell such number of shares within any three-month period as does not exceed the greater of:

1% of the number of shares of our common stock then outstanding, which will equal approximately 382,140 shares of common stock immediately after consummation of this offering, or

the average weekly trading volume of our common stock, assuming our shares are then traded on a national securities exchange, during the four calendar weeks preceding the filing of a notice on Form 144 with respect to that sale.

Sales under Rule 144 are also subject to manner-of-sale provisions, notice requirements and the availability of current public information about us.

LEGAL MATTERS

The validity of the issuance of the securities offered by us in this offering will be passed upon for us by Smith, Gambrell & Russell, LLP, Atlanta, Georgia.

EXPERTS

The consolidated financial statements of SANUWAVE Health, Inc. as of December 31, 2012 and 2011 and for the years then ended included in this Prospectus and in the Registration Statement have been so included in reliance on the report of BDO USA, LLP, an independent registered public accounting firm (the report on the consolidated financial statements contains an explanatory paragraph regarding the Company's ability to continue as a going concern) appearing elsewhere herein and in the Registration Statement, given on the authority of said firm as experts in auditing and accounting.

INTEREST OF NAMED EXPERTS AND COUNSEL

No expert or counsel named in this prospectus as having prepared or certified any part of this prospectus or having given an opinion upon the validity of the securities being registered or upon other legal matters in connection with the registration or offering of the common stock was employed on a contingency basis, or had, or is to receive, in connection with the offering, a substantial interest, direct or indirect, in the registrant or any of its parents or subsidiaries. Nor was any such person connected with the registrant or any of its parents or subsidiaries as a promoter, managing or principal underwriter, voting trustee, director, officer, or employee.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

SANUWAVE Health, Inc. and Subsidiaries

	Page
Consolidated Financial Statements
Unaudited Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 2012 and December 31, 2012	F-1

Condensed Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2013 and 2012	F-2

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2013 and 2012	F-3

Notes to Condensed Consolidated Financial Statements	F-4

Financial Statements

Report of Independent Registered Public Accounting Firm	F-16

Consolidated Balance Sheets as of December 31, 2012 and 2011	F-17

Consolidated Statements of Comprehensive Loss for the years ended December 31, 2012 and 2011	F-18

Consolidated Statements of Stockholders’ Deficit for the years ended December 31, 2012 and 2011	F-19

Consolidated Statements of Cash Flows for the years ended December 31, 2012 and 2011	F-20

Notes to Consolidated Financial Statements	F-21

SANUWAVE HEALTH, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

	March 31, 2013			December 31, 2012
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	671,027		$	70,325
Accounts receivable - trade, net of allowance for doubtful accounts of $50,100 in 2013 and $44,124 in 2012		93,461			87,826
Inventory (Note 4)		261,282			292,665
Prepaid expenses		116,406			128,495
TOTAL CURRENT ASSETS		1,142,176			579,311

PROPERTY AND EQUIPMENT, at cost, less accumulated depreciation (Note 5)		27,851			32,842

OTHER ASSETS		11,233			11,358

INTANGIBLE ASSETS, at cost, less accumulated amortization (Note 6)		1,150,336			1,227,025
TOTAL ASSETS	$	2,331,596		$	1,850,536

LIABILITIES
CURRENT LIABILITIES
Accounts payable	$	359,029		$	555,898
Accrued expenses (Note 7)		623,311			721,916
Accrued employee compensation		376,175			534,659
Derivative liability (Note 8)		5,737,000			-
Senior secured convertible promissory notes (Note 8)		436,983			-
Subscription payable for senior secured convertible promissory notes (Note 8)		-			438,516
Interest payable, related parties (Note 9)		80,071			81,864
Capital lease payable, current portion (Note 13)		5,026			4,933
Liabilities related to discontinued operations		655,061			655,061
TOTAL CURRENT LIABILITIES		8,272,656			2,992,847

NON-CURRENT LIABILITIES
Notes payable, related parties (Note 9)		5,372,743			5,372,743
Capital lease payable, non-current portion (Note 13)		2,659			3,951
TOTAL NON-CURRENT LIABILITIES		5,375,402			5,376,694
TOTAL LIABILITIES		13,648,058			8,369,541

COMMITMENTS AND CONTINGENCIES (Note 13)

STOCKHOLDERS' DEFICIT
PREFERRED STOCK, par value $0.001, 5,000,000 shares authorized; no shares issued and outstanding		-			-

COMMON STOCK, par value $0.001, 150,000,000 shares authorized; 21,653,536 and 21,007,536 issued and outstanding in 2013 and 2012, respectively		21,654			21,008

ADDITIONAL PAID-IN CAPITAL		64,935,348			64,357,193

ACCUMULATED OTHER COMPREHENSIVE INCOME		6,191			13,116

ACCUMULATED DEFICIT		(76,279,655	)		(70,910,322	)
TOTAL STOCKHOLDERS' DEFICIT		(11,316,462	)		(6,519,005	)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	$	2,331,596		$	1,850,536

The accompanying notes to condensed consolidated financial

statements are an integral part of these statements.

F-1

SANUWAVE HEALTH, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(UNAUDITED)

	Three Months Ended March 31, 2013			Three Months Ended March 31, 2012

REVENUE	$	201,234		$	238,540

COST OF REVENUE		55,811			71,772

GROSS PROFIT		145,423			166,768

OPERATING EXPENSES
Research and development		344,685			603,797
General and administrative		851,921			1,237,540
Depreciation		4,991			5,210
Amortization		76,689			76,689
TOTAL OPERATING EXPENSES		1,278,286			1,923,236

OPERATING LOSS		(1,132,863	)		(1,756,468	)

OTHER INCOME (EXPENSE)
Loss on embedded conversion feature of Senior Secured Notes (Note 8)		(3,737,000	)		-
Interest expense, net		(508,890	)		(78,856	)
Gain on sale of fixed assets		7,500			-
Gain on foreign currency exchange		1,920			9
TOTAL OTHER INCOME (EXPENSE)		(4,236,470	)		(78,847	)

LOSS BEFORE INCOME TAXES		(5,369,333	)		(1,835,315	)

INCOME TAX EXPENSE		-			-

NET LOSS		(5,369,333	)		(1,835,315	)

OTHER COMPREHENSIVE LOSS
Foreign currency translation adjustments		(6,925	)		4,928
TOTAL COMPREHENSIVE LOSS	$	(5,376,258	)	$	(1,830,387	)

LOSS PER SHARE:
Net loss - basic	$	(0.25	)	$	(0.09	)
Net loss - diluted	$	(0.25	)	$	(0.09	)

Weighted average shares outstanding - basic		21,278,128			20,907,536
Weighted average shares outstanding - diluted		21,278,128			20,907,536

The accompanying notes to condensed consolidated financial

statements are an integral part of these statements.

F-2

SANUWAVE HEALTH, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Three Months Ended March 31, 2013			Three Months Ended March 31, 2012

CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(5,369,333	)	$	(1,835,315	)
Adjustments to reconcile net loss to net cash used by operating activities
Amortization		76,689			76,689
Depreciation		4,991			5,210
Change in allowance for doubtful accounts		5,976			(2,520	)
Stock-based compensation - employees, directors and advisors		317,601			262,176
Stock issued for consulting services		186,200			-
Loss on embedded conversion feature of Senior Secured Notes		3,737,000			-
Accrued interest on Senior Secured Notes		428,467			-
Gain on sale of property and equipment		(7,500	)		-
Changes in assets - (increase)/decrease
Accounts receivable - trade		(11,611	)		(42,046	)
Inventory		31,383			37,943
Prepaid expenses		12,089			(8,730	)
Due from Pulse Veterinary Technologies, LLC		-			27,837
Other		125			(129	)
Changes in liabilities - increase/(decrease)
Accounts payable		(196,869	)		(152,553	)
Accrued employee compensation		(158,484	)		158,559
Accrued expenses		(98,605	)		(15,773	)
Interest payable, related parties		(1,793	)		(1,793	)
NET CASH USED BY OPERATING ACTIVITIES		(1,043,674	)		(1,490,445	)

CASH FLOWS FROM INVESTING ACTIVITIES
Sale of property and equipment		7,500			-
Purchase of property and equipment		-			(945	)
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES		7,500			(945	)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from subscriptions payable for senior secured convertible promissory notes		1,570,000			-
Proceeds from sale of capital stock - subscription agreement with related party		75,000			-
Payments of principal on capital lease		(1,199	)		(1,112	)
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES		1,643,801			(1,112	)

EFFECT OF EXCHANGE RATES ON CASH		(6,925	)		4,928

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		600,702			(1,487,574	)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		70,325			3,909,383
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	671,027		$	2,421,809

SUPPLEMENTAL INFORMATION
Cash paid for interest, related parties	$	81,864		$	81,864
Cash paid for capital lease interest	$	160		$	247

The accompanying notes to condensed consolidated financial

statements are an integral part of these statements.

F-3

SANUWAVE HEALTH, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2013

1. Nature of the Business

SANUWAVE Health, Inc. and subsidiaries (the “Company”) is a shockwave technology company using noninvasive, high-energy, acoustic shockwaves for regenerative medicine and other applications. The Company’s initial focus is regenerative medicine – utilizing noninvasive, acoustic shockwaves to solicit a biological response resulting in the body healing itself through the repair and regeneration of tissue, musculoskeletal and vascular structures. The Company’s lead regenerative product in the United States is the demaPACE® device, which is in a supplemental Phase III clinical study for treating diabetic foot ulcers with possible FDA approval in 2015 subject to submission of satisfactory clinical study results.

The Company’s 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. The Company intends to apply its Pulsed Acoustic Cellular Expression (PACE®) technology in wound healing, orthopedic, plastic/cosmetic and cardiac conditions. The Company is currently not marketing any commercial products in the United States. Revenue is from sales of the European Conformity Marking (“CE Mark”) devices and accessories in Europe, Canada and Asia/Pacific.

In addition, there are license/partnership opportunities for the Company’s shockwave technology for non-medical uses, including energy, water, food and industrial markets.

2. Going concern

The continuation of the Company’s business is dependent upon raising additional capital in the second quarter of 2013. As of March 31, 2013, the Company had cash and cash equivalents of $671,027 and negative working capital of $7,130,480. For the three months ended March 31, 2013 and 2012, the net cash used by operating activities was $1,043,674 and $1,490,445, respectively. The Company incurred a net loss of $5,369,333 for the three months ended March 31, 2013 and a net loss of $6,401,494 for the year ended December 31, 2012. Since inception, the Company has experienced recurring losses from operations and had an accumulated deficit of $76,279,655 at March 31, 2013. As a result, there is substantial doubt as to the Company’s ability to continue as a going concern.

Management’s plans are to obtain additional capital in the second quarter of 2013 through the issuance of common stock and/or other debt or equity securities and the Company has engaged financial advisors to assist with this process. The Company’s cash and cash equivalents, at March 31, 2013, will support the Company’s operations through May 2013. The Company expects to raise up to $600,000 through the issuance of unsecured promissory notes in May and June 2013 and/or amounts received on the Company’s subscription agreement with an affiliated shareholder (see Note 13). In addition, the Company has filed a registration statement with the SEC to raise up to $6,000,000 through the sale of equity securities and has engaged a placement agent to lead this best efforts offering. Even if the Company is successful in each of the short term capital raising efforts described above, the Company may be required to raise additional funds by the end of 2013 to continue operations. Management expects the Company’s monthly use of cash will be approximately $575,000 to $625,000 as the Company devotes substantial resources to the start of the patient enrollment phase of the supplemental Phase III clinical trial for the dermaPACE device to treat diabetic foot ulcers by the end of the second quarter of 2013. The Company estimates the direct cost of the dermaPACE clinical trial will be approximately $3,800,000 through 2014.

On March 8, 2013, the Company completed an offering in which it issued an aggregate of $2,000,000 of 18% senior secured convertible promissory notes (the “Senior Secured Notes”). The Senior Secured Notes are secured by the tangible and intangible assets of the Company. The Senior Secured Notes, as amended, will automatically convert to common stock if the Company raises $4,000,000 or more in gross proceeds through a qualified financing and/or license agreement as defined in the Senior Secured Note agreements, as amended. If the Company does not raise at least $4,000,000, the Senior Secured Notes will not automatically convert to common stock and will become due and payable. The Senior Secured Notes begin to mature in May 2013 and the Company is working with the holders to extend the maturity through the second quarter of 2013.

F-4

SANUWAVE HEALTH, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2013

2. Going concern (continued)

The Company may raise capital through the issuance of common or preferred stock, securities convertible into common stock, or secured or unsecured debt, an investment by a strategic partner in a specific clinical indication or market opportunity, or by selling all or a portion of the Company's assets (or some combination of the foregoing). If these efforts are unsuccessful, the Company may be forced to seek relief through a filing under the U.S. Bankruptcy Code. These possibilities, to the extent available, may be on terms that result in significant dilution to the Company’s existing shareholders. Although no assurances can be given, management of the Company believes that potential additional issuances of equity or other potential financing transactions as discussed above should provide the necessary funding for the Company to continue as a going concern. The condensed consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” in this Form 10-Q.

3. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with United States generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 8-03 of Regulation S-X. Accordingly, these condensed consolidated financial statements do not include all the information and footnotes required by United States generally accepted accounting principles for complete financial statements. The financial information as of March 31, 2013 and for the three months ended March 31, 2013 and 2012 is unaudited; however, in the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 2013 are not necessarily indicative of the results that may be expected for any other interim period or for the year ending December 31, 2013.

The condensed consolidated balance sheet at December 31, 2012 has been derived from the audited consolidated financial statements at that date, but does not include all of the information and footnotes required by United States generally accepted accounting principles for complete financial statements.

Significant Accounting Policies

Fair Value Measurements

The carrying amounts reported in the condensed consolidated balance sheets for cash and cash equivalents, accounts receivable - trade, accounts payable and accrued expenses approximate fair value due to the short-term nature of these instruments.

The Company has adopted ASC 820-10, Fair Value Measurements (formerly SFAS No. 157), which defines fair value, establishes a framework for measuring fair value hierarchy for assets and liabilities measured at fair value, and requires expanded disclosures about fair value measurements. The ASC 820-10 hierarchy ranks the quality and reliability of inputs, or assumptions, used in the determination of fair value and requires financial assets and liabilities carried at fair value to be classified and disclosed in one of the following three categories:

Level 1 - Observable inputs that reflect quoted prices (unadjusted) in active markets for identical assets and liabilities;

F-5

SANUWAVE HEALTH, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2013

3. Summary of Significant Accounting Policies (continued)

Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and

Level 3 - Unobservable inputs that are not corroborated by market data, therefore requiring the Company to develop its own assumptions.

The following table sets forth a summary of changes in the fair value of the derivative liability for the three months ended March 31, 2013:

Description	Balance at December 31, 2012		New Issuances		Change in Fair Value		Balance at March 31, 2013
Derivative liability:
Embedded conversion feature of Senior Secured Notes	$	-	$	4,908,000	$	829,000	$	5,737,000

The Company accounts for derivative instruments under ASC 815, Accounting for Derivative Instruments and Hedging Activities, as amended and interpreted. ASC 815 requires that the Company recognize all derivatives on the balance sheet at fair value. On March 8, 2013, the Company completed an offering and issued Senior Secured Notes that contain an embedded conversion feature which is accounted for as a derivative liability. In recording this derivative liability, $2,000,000 was recorded as a debt discount and the remaining value along with the gains (losses) resulting from the changes in the fair value of the derivative instruments are recorded in the “loss on embedded conversion feature of Senior Secured Notes” in the accompanying condensed consolidated statements of comprehensive loss. The fair value of the embedded conversion feature is determined based on a lattice solution, binomial approach pricing model, and includes the use of unobservable inputs such as the expected term, anticipated volatility and risk-free interest rate.

The Company’s notes payable, related parties consist of $5,372,743 of principal at March 31, 2013 and December 31, 2012. Interest accrues on the notes at a rate of 6% per annum. The fair value was determined using estimated future cash flows discounted at current rates, which is a Level 3 measurement. The estimated fair value of the Company’s notes payable, related parties was $4,621,186 and $4,545,620 at March 31, 2013 and December 31, 2012, respectively.

Recently Issued Accounting Standards

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

In February 2013, the FASB issued Accounting Standards Update (“ASU”) No. 2013-02, which amends the guidance in Accounting Standard Codification (“ASC”) 220 on Comprehensive Income. Under the revised guidance, companies are required to provide information about the amounts reclassified out of accumulated other comprehensive income (“AOCI”) by component. In addition, companies are required to present, either on the face of the statement where net income (loss) is presented or in the notes, the effects on the line items of net income (loss) of significant amounts reclassified out of AOCI but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income (loss) in its entirety in the same reporting period. This amended guidance is to be applied prospectively and is effective for reporting periods (interim and annual) beginning after December 15, 2012 for public companies, with early adoption permitted. The Company adopted the revised guidance January 1, 2013, and reported significant items reclassified out of AOCI in the notes to the condensed consolidated financial statements.

F-6

SANUWAVE HEALTH, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2013

4. Inventory

Inventory consists of the following:

	March 31, 2013			December 31, 2012

Inventory - finished goods	$	272,292		$	306,706
Inventory - parts		76,090			83,509
Total		348,382			390,215
Allowance for losses and obsolescence		(87,100	)		(97,550	)
Net inventory	$	261,282		$	292,665

5. Property and equipment

Property and equipment consists of the following:

	March 31, 2013			December 31, 2012

Machines and equipment	$	233,793		$	233,793
Office and computer equipment		179,349			179,349
Software		41,872			41,872
Furniture and fixtures		25,679			25,679
Vehicles		-			22,531
Other assets		2,446			2,446
Total		483,139			505,670
Accumulated depreciation		(455,288	)		(472,828	)
Net property and equipment	$	27,851		$	32,842

The aggregate depreciation related to property and equipment charged to operations was $4,991 and $5,210 for the three months ended March 31, 2013 and 2012, respectively.

6. Intangible assets

Intangible assets consist of the following:

	March 31, 2013			December 31, 2012

Patents, at cost	$	3,502,135		$	3,502,135
Less accumulated amortization		(2,351,799	)		(2,275,110	)
Net intangible assets	$	1,150,336		$	1,227,025

The aggregate amortization charged to operations was $76,689 and $76,689 for the three months ended March 31, 2013 and 2012, respectively.

F-7

SANUWAVE HEALTH, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2013

7. Accrued expenses

Accrued expenses consist of the following:

	March 31, 2013		December 31, 2012

Accrued executive severance	$	441,020	$	542,269
Accrued audit and tax preparation		51,900	$	102,600
Accrued legal professional fees		47,938		23,519
Accrued other		82,453		53,528
	$	623,311	$	721,916

8. 18% Senior secured convertible promissory notes

During the period from November 2012 through March 8, 2013, the Company entered subscriptions payable for 18% senior secured convertible promissory notes (as previously defined as the “Senior Secured Notes”) from select accredited investors. The Company completed the offering and issued an aggregate $2,000,000 in Senior Secured Notes on March 8, 2013. As of March 31, 2013, the Company had outstanding $2,000,000 in Senior Secured Notes and had $66,520 in accrued interest expense. As of December 31, 2012, the Company had received subscriptions payable for Senior Secured Notes in the aggregate principal amount of $430,000 and had accrued interest expense of $8,516. Kevin A. Richardson, II, chairman of the board of directors of the Company, purchased $60,000 of the Senior Secured Notes.

The Senior Secured Notes have a six month term from the subscription date and the note holders can convert into Company common stock at anytime during the term at a conversion price of $0.20 per share. Upon the consummation of a qualified financing and/or technology license, as defined in the Senior Secured Note agreements, as amended, of $4,000,000 or more by the Company, the principal and interest on the Senior Secured Notes will automatically convert into Company common stock equal to the lower of (i) the Company common stock issued in the qualified financing and/or technology license, reduced by a discount of 20%, and (ii) $0.20 per share. The note holders will also receive, if any are issued, warrants or any other securities issued in a qualified financing and/or technology license on similar terms to the qualified financing and/or technology license. The Senior Secured Notes are secured by the tangible and intangible assets of the Company.

The conversion feature embedded in the Senior Secured Notes is accounted for as a derivative liability, and resulted in the creation at issuance of a discount to the carrying amount of the debt in the amount of $2,000,000, which is being amortized as additional interest expense using the straight-line method over the term of the Senior Secured Notes (the Company determined that using the straight-line method of amortization did not yield a materially different amortization schedule than the effective interest method). The embedded conversion feature is recorded at fair value and is marked to market at each period, with the resulting change in fair value being recorded in the “loss on embedded conversion feature of Senior Secured Notes” in the accompanying condensed consolidated statements of comprehensive loss. The derivative liability for the embedded conversion feature of the Senior Secured Notes, at fair value, was $5,737,000 at March 31, 2013.

Accrued interest expense on the Senior Secured Notes, including amortization of the debt discount, totaled $428,467 for the three months ended March 31, 2013.

F-8

SANUWAVE HEALTH, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2013

9. Notes payable, related parties

The notes payable, related parties consist of the following:

	March 31, 2013		December 31, 2012
Notes payable, unsecured, payable to
HealthTronics, Inc., a shareholder of the Company	$	5,372,743	$	5,372,743
Less current portion		-		-
Non-current portion	$	5,372,743	$	5,372,743

The notes payable, related parties were issued in conjunction with the Company’s purchase of the orthopedic division of HealthTronics, Inc. on August 1, 2005. The notes payable, related parties bear interest at 6% per annum. Quarterly interest through June 30, 2010, was accrued and added to the principal balance. Interest is paid quarterly in arrears beginning September 30, 2010. All remaining unpaid accrued interest and principal is due August 1, 2015. Accrued interest currently payable totaled $80,071 and $81,864 at March 31, 2013 and December 31, 2012, respectively.

Interest expense on notes payable to related parties totaled $80,071for the three months ended March 31, 2013 and 2012, respectively.

10. Income taxes

At March 31, 2013, the Company had federal net operating loss (“NOL”) carryforwards of $54,017,215 for tax years through the year ended December 31, 2012, that will begin to expire in 2025. The use of deferred tax assets, including federal net operating losses, is limited to future taxable earnings. Based on the required analysis of future taxable income under the provisions of ASC 740, Income Taxes (formerly SFAS No. 109), the Company’s management believes that there is not sufficient evidence at March 31, 2013 indicating that the results of operations will generate sufficient taxable income to realize the net deferred tax asset in years beyond 2013. As a result, a valuation allowance was provided for the entire net deferred tax asset related to future years, including NOL carryforwards.

F-9

SANUWAVE HEALTH, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2013

11. Equity transactions

2013 Additional Capital Raise and Consulting Agreements

The continuation of the Company’s business is dependent upon raising additional capital. The Company has engaged financial advisors to identify the opportunities for a capital raise to fund the Company's dermaPACE clinical work and provide working capital. On February 25, 2013, the Company issued to a consultant 2,000,000 warrants to purchase the Company’s common stock at $0.35 per share. The five year warrants vest 300,000 on the date of grant and 1,700,000 upon the completion of a $5,000,000, or greater, capital raise on or prior to June 1, 2013 (see Note 12).

In February 2013, the Company entered into a consulting agreement with a consultant to assist the Company with its strategy for raising additional capital for which a portion of the fee for the services performed is common stock and warrants. The Company issued 100,000 shares of common stock under this agreement in February 2013. The fair value of the common stock of $35,000, based upon the closing market price of the Company’s common stock at the date the common stock was issued, was recorded as consulting expense for the three months ended March 31, 2013. In addition, the Company will issue to the consultant 1,000,000 warrants to purchase common stock at an exercise price of $0.35 per share with a term of five years upon consummation by the Company of an qualified offering (as defined in the consulting agreement) resulting in gross proceeds to the Company of no less than $4,000,000 (see Note 12). In February 2013, the Company entered into two consulting agreements for which a portion of the fee for the services performed is paid with common stock. The Company issued 246,000 shares of common stock under these agreements through March 31, 2013. The fair value of the common stock of $151,200, which was based upon the closing market price of the Company’s common stock at the dates the common stock was issued, was recorded as consulting expense for the three months ended March 31, 2013.

12. Warrants

A summary of the warrant activity as of March 31, 2013 and December 31, 2012, and the changes during the three months ended March 31, 2013, is presented as follows:

	Class A Warrants		Class B Warrants		Class D Warrants			Class E Warrants		Class F Warrants
Outstanding as of December 31, 2012		1,106,627		1,106,627		1,950,167			3,576,737		-
Issued		-		-		-			-		2,000,000
Exercised		-		-		-			-		-
Expired		-		-		(1,950,167	)		-		-
Outstanding as of March 31, 2013		1,106,627		1,106,627		-			3,576,737		2,000,000

The Class A, Class B, Class E and Class F Warrants expire five years from date of issuance and the Class D Warrants expired two years from date of issuance. The Class A and Class E Warrants have an exercise price of $4.00 per share, the Class B Warrants have an exercise price of $8.00 per share and the Class F Warrants have an exercise price of $0.35 per share. The Class D Warrants expired unexercised on January 31, 2013.

As discussed in Note 11 above, on February 25, 2013, the Company issued to a consultant 2,000,000 warrants to purchase the Company’s common stock at $0.35 per share. The five year warrants vest 300,000 on the date of grant and 1,700,000 upon the completion of a $5,000,000, or greater, capital raise on or prior to June 1, 2013. The Company will record the underlying cost of the warrants as a cost of capital upon completion of a qualified offering, if it occurs.

F-10

SANUWAVE HEALTH, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2013

12. Warrants (continued)

As discussed in Note 11 above, in February 2013, the Company entered into a consulting agreement with a consultant to assist the Company with its strategy for raising additional capital for which a portion of the fee for the services performed is common stock and warrants. The Company will issue to the consultant 1,000,000 warrants to purchase common stock at an exercise price of $0.35 per share with a term of five years upon consummation by the Company of an qualified offering (as defined in the consulting agreement) resulting in gross proceeds to the Company of no less than $4,000,000. The Company will record the underlying cost of the warrants as a cost of capital upon completion of a qualified offering, if it occurs.

The exercise price and the number of shares covered by the warrants will be adjusted if the Company has a stock split, if there is a recapitalization of the Company’s Common Stock, or if the Company consolidates with or merges into another company.

13. Commitments and contingencies

Subscription agreement

On November 27, 2012, the Company and David N. Nemelka (the “Subscriber”), the brother of John F. Nemelka, a member of the Company’s board of directors, entered into a subscription agreement (the “Subscription Agreement”) whereby the Subscriber has agreed to purchase from the Company, and the Company has agreed to sell and issue, a total of 4,000,000 shares of the Company’s unregistered common stock at a purchase price equal to $0.25 per share, for an aggregate sales price of $1,000,000 (the “Purchase Price”). The shares are subject to piggy-back registration rights if the Company files a registration statement for an offering of securities.

The Purchase Price shall be payable to the Company as follows: (i) $50,000 on or before January 31, 2013; (ii) $50,000 on or before February 15, 2013; and (iii) the balance of $900,000 on or before May 27, 2014 (the “Outside Due Date”). The Subscriber may make payments of the Purchase Price at his discretion in minimum installments of $100,000 each, until the Outside Due Date.

In the event that at any time after February 15, 2013, the Company’s total available cash should be less than $100,000, the Subscriber shall, upon demand of the Company, pay to the Company $100,000 of the then outstanding balance of the Purchase Price, which payment shall be due within thirty (30) days of the demand. There is no limit on the number of demands that the Company may make pursuant to this provision of the Subscription Agreement, provided, however, that in no event shall the Company provide more than one notice of demand for payment in any thirty (30) day period.

As of March 31, 2013, the Subscriber had paid the Company $100,000 and was issued 400,000 shares of unregistered common stock of the Company. The Company will record the additional $900,000 and issue the corresponding 3,600,000 shares of common stock in the periods in which the Purchase Price is received.

Operating Leases

The Company leases office and warehouse space. Rent expense for the three months ended March 31, 2013 and 2012, was $27,474 and $86,798, respectively.

Capital Leases

The Company leases certain office equipment under an agreement classified as a capital lease. The leased assets serve as security for the lease. The accumulated depreciation of such equipment at March 31, 2013 and December 31, 2012 totaled $7,681 and $6,468, respectively. The net book value of such equipment at March 31, 2013 and December 31, 2012 totaled $6,872 and $8,085, respectively.

F-11

SANUWAVE HEALTH, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2013

13. Commitments and contingencies (continued)

Litigation

HealthTronics, Inc., along with the Company, are defendants in an alleged breach of contract lawsuit dated April 21, 2006 brought in the Miami-Dade County Circuit Court, Florida by a former limited partner of a former limited partnership of the Company, Bone & Joint Treatment Centers of America. Bone & Joint Treatment Centers of America, the plaintiff, is seeking greater than $3 million. The lawsuit went to trial and the Company received a summary judgment in its favor in December 2011. On January 5, 2012, the plaintiff filed an appeal of the summary judgment and the appeal was heard by a three judge panel on April 29, 2013. HealthTronics, Inc. has been responsible for the defense of the lawsuit on behalf of the Company and believes the case is unfounded and is contesting the claims vigorously.

14. 401(k) plan

The Company sponsors a 401(k) plan that covers all employees who meet the eligibility requirements. The Company amended the 401(k) plan to make the Company matching contribution discretionary and discontinued the Company match effective February 1, 2012. The Company contributed $0 and $9,664 to the plan for the three months ended March 31, 2013 and 2012, respectively.

15. Stock-based compensation

On November 1, 2010, the Company approved the Amended and Restated 2006 Stock Incentive Plan of SANUWAVE Health, Inc. effective as of January 1, 2010 (the “Stock Incentive Plan”). The Stock Incentive Plan permits grants of awards to selected employees, directors and advisors of the Company in the form of restricted stock or options to purchase shares of common stock. Options granted may include non-statutory options as well as qualified incentive stock options. The Stock Incentive Plan is currently administered by the board of directors of the Company. The Stock Incentive Plan gives broad powers to the board of directors of the Company to administer and interpret the particular form and conditions of each option. The stock options granted under the Stock Incentive Plan are non-statutory options which generally vest over a period of up to four years and have a ten year term. The options are granted at an exercise price determined by the board of directors of the Company to be the fair market value of the common stock on the date of the grant. At December 31, 2012, the Stock Incentive Plan reserved 5,000,000 shares of common stock for grant. On February 21, 2013, the Stock Incentive Plan was amended to reserve a total of 8,500,000 shares of common stock for grant.

On February 21, 2013, the Company, by mutual agreement with all the active employees and directors of the Company, cancelled options granted to the active employees in the year ended December 31, 2011 and prior which totaled 1,113,644 shares of common stock at an average exercise price of $2.92. In exchange for these options, the active employees and directors received new options to purchase 2,243,644 shares of common stock at an exercise price of $0.35 per share. Using the Black-Scholes option pricing model, management has determined that the options at the grant date, net of the value of the cancelled options as of the date of cancellation, had an average fair value per share of $0.223 resulting in total compensation of $499,621. Compensation cost will be recognized over the requisite service period.

On February 21, 2013, the Company granted two members of the Company’s Medical Advisory Board each options to purchase 50,000 shares of the Company’s common stock at an exercise price of $0.35 per share in place of an annual cash consulting fee. Using the Black-Scholes option pricing model, management has determined that the options at the grant date had a fair value per share of $0.25 resulting in total compensation of $25,000. Compensation cost will be recognized over the calendar year 2013.

F-12

SANUWAVE HEALTH, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2013

15. Stock-based compensation (continued)

On February 25, 2013, Joseph Chiarelli joined the Company to serve as the Chief Executive Officer and a director of the Company. Mr. Chiarelli was granted options to purchase 2,250,000 shares of the Company’s common stock at an exercise price of $0.35 per share. The options vest and become exercisable in five installments as follows: (i) 375,000 vested at grant; (ii) 375,000 vest upon the Company completing a financing resulting in gross proceeds to the Company of no less than $5,000,000 at a price per share of not less than $0.35; (iii) 375,000 upon the execution by the Company of a license or distribution agreement from which the Company is entitled to receive gross proceeds of no less than $1,000,000 and the Company has received payments of at least $250,000; (iv) 375,000 vest upon receipt by the Company of FDA approval for the use of dermaPACE; and (v) 750,000 vest in the event the Company achieves the milestones (i), (ii), (iii) and (iv) above during the initial two year term and the term is not extended by the Company. Using the Black-Scholes option pricing model, management has determined that the options had an average fair value per share of $0.207 resulting in total compensation of $465,000. Compensation cost will be recognized over the requisite service period.

On March 8, 2012, the Company granted two members of the Company’s Medical Advisory Board each options to purchase 50,000 shares of the Company’s common stock at an exercise price of $0.44 per share in place of an annual cash consulting fee. Using the Black-Scholes option pricing model, management has determined that the options granted in March 2012 had a fair value per share of $0.27 resulting in total compensation of $27,250. Compensation cost was recognized over the calendar year 2012.

The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model using the following weighted average assumptions for the three months ended March 31, 2013 and 2012:

	2013				2012
Weighted average expected life in years		4.3				5.2
Weighted average risk free interest rate		0.72	%			0.95	%
Weighted average volatility		150.0	%			75.0	%
Forfeiture rate		0.0	%	��		0.0	%
Expected dividend yield		0.0	%			0.0	%

The expected life of options granted represent the period of time that options granted are expected to be outstanding and are derived from the contractual terms of the options granted. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of the grant. Since there is a limited trading history for the Company’s common stock, the expected volatility is based on a combination of historical data from companies similar in size, value and trading history for the Company’s common stock. The amount of stock-based compensation expense recognized during a period is based on the portion of the awards that are ultimately expected to vest. Management estimates pre-vesting forfeitures at the time of grant and revises those estimates in subsequent periods if actual forfeitures differ from those estimates. Ultimately, the total expense recognized over the vesting period will equal the fair value of the awards that actually vest. The expected dividend yield is based on historical dividend experience, however, since inception the Company has not declared dividends.

The Company recognized as compensation cost for all outstanding stock options granted to employees, directors and advisors, $317,601 and $262,176 for the three months ended March 31, 2013 and 2012, respectively.

F-13

SANUWAVE HEALTH, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2013

15. Stock-based compensation (continued)

A summary of option activity as of March 31, 2013 and December 31, 2012, and the changes during the three months ended March 31, 2013, is presented as follows:

	Options			Weighted Average Exercise Price per share
Outstanding as of December 31, 2012		5,229,330		$	2.25
Granted		4,593,644		$	0.35
Exercised		-		$	-
Cancelled		(1,113,644	)	$	2.92
Forfeited or expired		(105,000	)	$	2.93
Outstanding as of March 31, 2013		8,604,330		$	1.14

Exercisable		4,733,572		$	1.80

The weighted average remaining contractual term for outstanding and exercisable stock options was 7.5 years as of March 31, 2013, and 6.6 years as of December 31, 2012.

A summary of the Company’s nonvested options as of March 31, 2013 and December 31, 2012, and changes during the three months ended March 31, 2013, is presented as follows:

	Options			Weighted Average Exercise Price per share
Outstanding as of December 31, 2012		508,750		$	0.66
Granted		4,593,644		$	0.35
Vested		(1,180,386	)	$	0.41
Cancelled		(43,750	)	$	2.87
Forfeited or expired		(7,500	)	$	5.25
Outstanding as of March 31, 2013		3,870,758		$	0.33

16. Changes in other comprehensive loss

The amounts recognized in other comprehensive loss for the three months ended March 31, 2013 were as follows:

	Currency Translations			Total

Balance, at December 31, 2012	$	13,116		$	13,116
Other comprehensive loss before reclassifications		(6,925	)		(6,925	)
Amounts reclassified from AOCI		-			-
Net change in other comprehensive loss		(6,925	)		(6,925	)
Balance, at March 31, 2013	$	6,191		$	6,191

F-14

SANUWAVE HEALTH, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2013

17. Earnings (loss) per share

The Company calculates net income (loss) per share in accordance with ASC 260, Earnings Per Share (formerly SFAS No. 128,Earnings Per Share). Under the provisions of ASC 260, basic net income (loss) per share is computed by dividing the net income (loss) attributable to common stockholders for the period by the weighted average number of shares of common stock outstanding for the period. Diluted net income (loss) per share is computed by dividing the net income (loss) attributable to common stockholders by the weighted average number of shares of common stock and dilutive common stock equivalents then outstanding. To the extent that securities are “anti-dilutive,” they are excluded from the calculation of diluted net income (loss) per share.

As a result of the net loss for the three months ended March 31, 2013 and 2012, respectively, all potentially dilutive shares were anti-dilutive and therefore excluded from the computation of diluted net loss per share. The anti-dilutive equity securities totaled 26,726,924 shares and 14,436,697 shares at March 31, 2013 and 2012, respectively.

F-15

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders

SANUWAVE Health, Inc. and Subsidiaries

Alpharetta, Georgia

We have audited the accompanying consolidated balance sheets of SANUWAVE Health, Inc. and Subsidiaries as of December 31, 2012 and 2011 and the related consolidated statements of comprehensive loss, stockholders’ deficit, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of SANUWAVE Health, Inc. and Subsidiaries at December 31, 2012 and 2011, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note (1) to the financial statements, the Company has suffered recurring losses from operations, has a net working capital deficit, and is economically dependent upon future issuances of equity or other financing to fund ongoing operations, each of which raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are described in Note (1). The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ BDO USA, LLP

Atlanta, Georgia

March 26, 2013

F-16

SANUWAVE HEALTH, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

December 31, 2012 and 2011

	2012			2011
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	70,325		$	3,909,383
Accounts receivable - trade, net of allowance for doubtful accounts of $44,124 in 2012 and $74,852 in 2011		87,826			81,565
Inventory (Note 3)		292,665			396,284
Prepaid expenses		128,495			162,975
Due from Pulse Veterinary Technologies, LLC		-			27,837
TOTAL CURRENT ASSETS		579,311			4,578,044

PROPERTY AND EQUIPMENT, at cost, less accumulated depreciation (Note 4)		32,842			51,206

OTHER ASSETS		11,358			3,192

INTANGIBLE ASSETS, at cost, less accumulated amortization (Note 5)		1,227,025			1,533,782
TOTAL ASSETS	$	1,850,536		$	6,166,224

LIABILITIES
CURRENT LIABILITIES
Accounts payable	$	555,898		$	756,657
Accrued employee compensation		534,659			632,333
Accrued expenses (Note 6)		721,916			190,583
Subscriptions payable for senior secured convertible promissory notes (Note 7)		438,516			-
Interest payable, related parties (Note 8)		81,864			81,864
Capital lease payable, current portion (Note 13)		4,933			4,576
Liabilities related to discontinued operations (Note 9)		655,061			655,061
TOTAL CURRENT LIABILITIES		2,992,847			2,321,074

NON-CURRENT LIABILITIES
Notes payable, related parties (Note 8)		5,372,743			5,372,743
Capital lease payable, non-current portion (Note 13)		3,951			8,884
TOTAL NON-CURRENT LIABILITIES		5,376,694			5,381,627
TOTAL LIABILITIES		8,369,541			7,702,701

COMMITMENTS AND CONTINGENCIES (Note 13)		-			-

STOCKHOLDERS' DEFICIT
PREFERRED STOCK, par value $0.001, 5,000,000 shares authorized; no shares issued and outstanding (Note 11)		-			-

COMMON STOCK, par value $0.001, 150,000,000 shares and 50,000,000 shares authorized in 2012 and 2011, respectively; 21,007,536 and 20,907,536 issued and outstanding at December 31, 2012 and 2011, respectively (Note 11)		21,008			20,908

ADDITIONAL PAID-IN CAPITAL		64,357,193			62,940,977

ACCUMULATED OTHER COMPREHENSIVE INCOME		13,116			10,466

ACCUMULATED DEFICIT		(70,910,322	)		(64,508,828	)
TOTAL STOCKHOLDERS' DEFICIT		(6,519,005	)		(1,536,477	)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	$	1,850,536		$	6,166,224

The accompanying notes to consolidated financial

statements are an integral part of these statements.

F-17

SANUWAVE HEALTH, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

Years Ended December 31, 2012 and 2011

	2012			2011

REVENUES	$	769,217		$	802,572

COST OF REVENUES		220,257			261,890

GROSS PROFIT		548,960			540,682

OPERATING EXPENSES
Research and development		1,762,194			2,731,059
General and administrative		4,521,957			6,292,950
Depreciation		20,375			19,034
Amortization		306,757			306,756
TOTAL OPERATING EXPENSES		6,611,283			9,349,799

OPERATING LOSS		(6,062,323	)		(8,809,117	)

OTHER INCOME (EXPENSE)
Interest expense, net		(331,743	)		(472,155	)
Loss on foreign currency exchange		(7,428	)		(13,744	)
Transitional services provided to Pulse Veterinary Technologies, LLC		-			375,000
Loss on extinguishment of debt (Notes 8 and 11)		-			(1,318,781	)
TOTAL OTHER INCOME (EXPENSE)		(339,171	)		(1,429,680	)

LOSS BEFORE INCOME TAXES		(6,401,494	)		(10,238,797	)

INCOME TAX EXPENSE		-			-

NET LOSS		(6,401,494	)		(10,238,797	)

OTHER COMPREHENSIVE LOSS
Foreign currency translation adjustments		2,650			(436	)
TOTAL COMPREHENSIVE LOSS	$	(6,398,844	)	$	(10,239,233	)

LOSS PER SHARE:
Net loss - basic	$	(0.30	)	$	(0.52	)
Net loss - diluted	$	(0.30	)	$	(0.52	)

Weighted average shares outstanding - basic		20,915,869			19,624,061
Weighted average shares outstanding - diluted		20,915,869			19,624,061

The accompanying notes to consolidated financial

statements are an integral part of these statements.

F-18

SANUWAVE HEALTH, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT

Years Ended December 31, 2012 and 2011

	Preferred Stock				Common Stock
	Shares Number of Issued and Outstanding		Par Value		Number of Shares Issued and Outstanding		Par Value		Additional Paid- in Capital		Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Total

Balances as of December 31, 2010		-		-		14,794,650		14,795		43,728,133		(54,270,031	)		10,902			(10,516,201	)
Unit options exercised for cash, related parties		-		-		1,231,504		1,231		2,461,777		-			-			2,463,008
Unit options exercised for cash		-		-		718,663		719		1,436,607		-			-			1,437,326
Private placement shares issued for cash		-		-		2,804,593		2,805		8,464,316		-			-			8,467,121
Notes payable, related parties exchanged for shares		-		-		1,358,126		1,358		5,731,331		-			-			5,732,689
Net loss		-		-		-		-		-		(10,238,797	)		-			(10,238,797	)
Stock-based compensation		-		-		-		-		1,118,813		-			-			1,118,813
Foreign currency translation adjustment		-		-		-		-		-		-			(436	)		(436	)

Balances as of December 31, 2011		-		-		20,907,536		20,908		62,940,977		(64,508,828	)		10,466			(1,536,477	)
Shares issued for cash		-		-		100,000		100		24,900		-			-			25,000
Net loss		-		-		-		-		-		(6,401,494	)		-			(6,401,494	)
Stock-based compensation		-		-		-		-		1,391,316		-			-			1,391,316
Foreign currency translation adjustment		-		-		-		-		-		-			2,650			2,650

Balances as of December 31, 2012		-	$	-		21,007,536	$	21,008	$	64,357,193	$	(70,910,322	)	$	13,116		$	(6,519,005	)

The accompanying notes to consolidated financial

statements are an integral part of these statements.

F-19

SANUWAVE HEALTH, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31, 2012 and 2011

	2012			2011

CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(6,401,494	)	$	(10,238,797	)
Adjustments to reconcile net loss to net cash used by operating activities
Amortization		306,757			306,756
Depreciation		20,375			19,034
Change in allowance for doubtful accounts		(30,728	)		37,949
Stock-based compensation		1,391,316			1,118,813
Accrued interest on convertible notes		8,516			166,618
Loss on extinguishment of debt		-			1,318,781
Changes in assets - (increase)/decrease
Accounts receivable - trade		24,467			(23,965	)
Inventory		103,619			67,359
Prepaid expenses		34,480			(41,891	)
Due from Pulse Veterinary Technologies, LLC		27,837			17,552
Other		(8,166	)		29,061
Changes in liabilities - increase/(decrease)
Accounts payable		(200,759	)		(1,073,158	)
Accrued employee compensation		(97,674	)		(469,077	)
Accrued expenses		531,333			(65,621	)
Interest payable, related parties		-			(1,113	)
NET CASH USED BY OPERATING ACTIVITIES		(4,290,121	)		(8,831,699	)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment		(2,011	)		(42,302	)
NET CASH USED BY INVESTING ACTIVITIES		(2,011	)		(42,302	)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from subscriptions payable for senior secured convertible promissory notes		430,000			-
Proceeds from sale of capital stock - subscription agreement with related party		25,000			-
Payments of principal on capital lease		(4,576	)		(1,092	)
Proceeds from unit options exercised, related parties		-			2,463,008
Proceeds from unit options exercised		-			1,437,326
Proceeds from private placement		-			8,467,121
NET CASH PROVIDED BY FINANCING ACTIVITIES		450,424			12,366,363

EFFECT OF EXCHANGE RATES ON CASH		2,650			(436	)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(3,839,058	)		3,491,926

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR		3,909,383			417,457
CASH AND CASH EQUIVALENTS, END OF YEAR	$	70,325		$	3,909,383

SUPPLEMENTAL INFORMATION
Cash paid for interest, related parties	$	324,768		$	324,768
Cash paid for capital lease interest	$	858		$	266
NON-CASH INVESTING AND FINANCING ACTIVITIES
Notes payable, related parties exchanged for capital stock (Note 8 and 11)	$	-		$	4,413,908
Equipment purchased with capital lease		-			14,552
TOTAL NON-CASH INVESTING AND FINANCING ACTIVITIES	$	-		$	4,428,460

The accompanying notes to consolidated financial

statements are an integral part of these statements.

F-20

SANUWAVE HEALTH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 31, 2012 and 2011

(1) Going Concern

As shown in the accompanying consolidated financial statements, the Company incurred a net loss of $6,401,494 and $10,238,797 during the years ended December 31, 2012 and 2011, respectively, and the net cash used by operating activities was $4,290,121 and $8,831,699, respectively. As of December 31, 2012, the Company had a net working capital deficit of $2,413,536, an accumulated deficit of $70,910,322 and cash and cash equivalents of $70,325. The operating losses and net working capital deficit create an uncertainty about the Company’s ability to continue as a going concern.

The continuation of the Company’s business is dependent upon raising additional capital. The Company has been working with select accredited investors to raise capital through issuing senior secured convertible promissory notes as discussed in Note (17). The Company received subscriptions for an aggregate $430,000 through December 31, 2012. Subsequent to year-end, the Company received subscriptions for an additional $1,570,000 in senior secured convertible promissory notes. The Company issued the aggregate $2,000,000 of senior secured convertible promissory notes on March 8, 2013. Kevin A. Richardson, II, chairman of the board of directors of the Company, purchased $60,000 of the senior secured convertible promissory notes. Management’s plans are to obtain additional capital in 2013 through the issuance of common stock and/or other equities and has engaged an investment bank to assist with this capital raise.

Additionally, the Company may raise additional capital through the issuance of common or preferred stock, securities convertible into common stock, or secured or unsecured debt, an investment by a strategic partner in a specific clinical indication or market opportunity, or by selling all or a portion of the Company's assets. If these efforts are unsuccessful, the Company may be forced to seek relief through a filing under the U.S. Bankruptcy Code. These possibilities, to the extent available, may be on terms that result in significant dilution to the Company’s existing shareholders. Although no assurances can be given, management of the Company believes that potential additional issuances of equity or other potential financing transactions as discussed above should provide the necessary funding for the Company to continue as a going concern. The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

(2) Summary of significant accounting policies

Description of the business – SANUWAVE Health, Inc. and subsidiaries (the "Company") is a shockwave technology company using noninvasive, high energy, acoustic shockwave for regenerative medicine and other applications. The Company’s initial focus is regenerative medicine – utilizing noninvasive, acoustic shockwaves to solicit a biological response resulting in the body healing itself through the repair and regeneration of tissue, musculoskeletal and vascular structures. The Company’s lead product is the demaPACE device for treating diabetic foot ulcers which is in a supplemental Phase III clinical study with the FDA.

The Company’s 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. The Company intends to apply its Pulsed Acoustic Cellular Expression (PACE®) technology in wound healing, orthopedic, plastic/cosmetic and cardiac conditions. The Company currently does not market any commercial products in the United States. Revenues are from sales of the European Conformity Marking (“CE Mark”) devices and accessories in Europe, Canada and Asia.

In addition, there are license/partnership opportunities for the Company's shock wave technology in non-medical uses, including energy, water, food and industrial markets.

F-21

SANUWAVE HEALTH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 31, 2012 and 2011

(2) Summary of significant accounting policies (continued)

The significant accounting policies followed by the Company are summarized below:

Foreign currency translation - The functional currencies of the Company’s foreign operations are the local currencies. The financial statements of the Company’s foreign subsidiaries have been translated into United States dollars in accordance with ASC 830, Foreign Currency Matters (formerly SFAS No. 52, Foreign Currency Translation.) All balance sheet accounts have been translated using the exchange rates in effect at the balance sheet date. Income statement amounts have been translated using the average exchange rate for the year. Translation adjustments are reported in other comprehensive income in the consolidated statements of comprehensive loss and as cumulative translation adjustments as a separate component of accumulated other comprehensive income (loss) in the consolidated statements of stockholders’ deficit.

Principles of consolidation - The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.

Estimates – These consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America. Because a precise determination of assets and liabilities, and correspondingly revenues and expenses, depend on future events, the preparation of consolidated financial statements for any period necessarily involves the use of estimates and assumptions. Actual amounts may differ from these estimates. These consolidated financial statements have, in management’s opinion, been properly prepared within reasonable limits of materiality and within the framework of the accounting policies summarized herein. Significant estimates include the recording of allowances for doubtful accounts, estimated reserves for inventory, estimated useful life of property and equipment, accrued expenses, the determination of the valuation allowances for deferred taxes, estimated fair value of stock-based compensation, estimated fair value of intangible assets, the estimated fair value assigned to the capital stock units exchanged for the promissory notes and the estimated fair value assigned to the common stock and warrants exchanged for the notes payable, related parties.

Cash and cash equivalents - For purposes of the consolidated financial statements, liquid instruments with an original maturity of 90 days or less are considered cash and cash equivalents. The Company maintains its cash in bank accounts which may exceed federally insured limits.

Concentration of credit risk and limited suppliers - Management routinely assesses the financial strength of its customers and, as a consequence, believes accounts receivable are stated at the net realizable value and credit risk exposure is limited. Two distributors accounted for 29% and 20% of revenues for the year ended December 31, 2012, and 35% and 25% of revenues for the year ended December 31, 2011. The two distributors accounted for 35% and 6% of accounts receivable at December 31, 2012, and 23% and 29% of accounts receivable at December 31, 2011.

F-22

SANUWAVE HEALTH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 31, 2012 and 2011

(2) Summary of significant accounting policies (continued)

We depend on suppliers for product component materials and other components that are subject to stringent regulatory requirements. We currently purchase most of our product component materials from single suppliers and the loss of any of these suppliers could result in a disruption in our production. If this were to occur, it may be difficult to arrange a replacement supplier because certain of these materials may only be available from one or a limited number of sources. In addition, 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.

Accounts receivable - Accounts receivable are stated at the amount management expects to collect from outstanding balances. Management provides for probable uncollectible amounts through a charge to earnings based on its assessment of the current status of individual accounts. Receivables are generally considered past due if greater than 60 days old. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the allowance for doubtful accounts.

Inventory - Inventory consists of finished medical equipment and parts and is stated at the lower of cost or market, which is valued using the first in, first out (“FIFO”) method. Market is based upon realizable value less allowance for selling and distribution expenses. The Company analyzes its inventory levels and writes down inventory that has, or is expected to, become obsolete.

Depreciation of property and equipment - The straight-line method of depreciation is used for computing depreciation on property and equipment. Depreciation is based on estimated useful lives as follows: machines and equipment, 3 years; office and computer equipment, 3 years; leasehold improvements, 3 years; furniture and fixtures, 3 years; vehicles, 3 years; and software, 2 years.

Intangible assets - Intangible assets subject to amortization consist of patents which are recorded at cost. Patents are amortized on a straight-line basis over the average life of 11.4 years. The Company regularly reviews intangible assets to determine if facts and circumstances indicate that the useful life is shorter than the Company originally estimated or that the carrying amount of the assets may not be recoverable. Factors the Company considers important and could trigger an impairment review include the following:

● Significant delays or obstacles encountered in the dermaPACE device clinical trial and PMA application;

● Significant changes in the manner in which we use our assets or significant changes in our overall business strategy; and

● Significant underperformance of our assets relative to future operating results.

If such facts and circumstances exist, the Company assesses the recoverability of the intangible assets by comparing the projected undiscounted net cash flows associated with the related asset or group of assets over their remaining lives against their respective carrying amounts. If recognition of an impairment charge is necessary, it is measured as the amount by which the carrying amount of the intangible asset exceeds its fair value.

Fair value of financial instruments - The book values of accounts receivable, accounts payable, and other financial instruments approximate their fair values, principally because of the short-term maturities of these instruments.

F-23

SANUWAVE HEALTH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 31, 2012 and 2011

(2) Summary of significant accounting policies (continued)

Level 1 - Observable inputs that reflect quoted prices (unadjusted) in active markets for identical assets and liabilities;

Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and

Level 3 - Unobservable inputs that are not corroborated by market data, therefore requiring the Company to develop its own assumptions.

The Company’s notes payable, related parties consist of $5,372,743 of principal at December 31, 2012 and 2011. Interest accrues on the notes at a rate of six percent (6%) per annum. The fair value was determined using estimated future cash flows discounted at current rates, which is a Level 3 measurement. The estimated fair value of the Company’s notes payable, related parties was $4,545,620 and $4,253,362 at December 31, 2012 and 2011, respectively.

The Company’s subscriptions payable for the 18% senior secured convertible promissory notes consist of $438,516 in principal and accrued interest at December 31, 2012. Because of the short term nature of the subscription agreements and the underlying notes which have a maturity of six months and are not traded on an active market, the fair value is estimated to approximate the book value at December 31, 2012.

Impairment of long-lived assets – The Company reviews long-lived assets for impairment whenever facts and circumstances indicate that the carrying amounts of the assets may not be recoverable. An impairment loss is recognized only if the carrying amount of the asset is not recoverable and exceeds its fair value. Recoverability of assets to be held and used is measured by comparing the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the asset’s carrying value is not recoverable, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds its fair value. The Company determines fair value by using a combination of comparable market values and discounted cash flows, as appropriate.

Revenue recognition - Sales of medical devices, including related applicators and applicator kits, are recognized when shipped to the customer. Shipments under agreements with distributors are invoiced at a fixed price, are not subject to return, and payment for these shipments is not contingent on sales by the distributor. The Company recognizes revenue on shipments to distributors in the same manner as with other customers. Fees from services performed are recognized when the service is performed.

Shipping and handling costs - Shipping charges billed to customers are included in revenue. Shipping and handling costs have been recorded in cost of revenues.

F-24

SANUWAVE HEALTH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 31, 2012 and 2011

(2) Summary of significant accounting policies (continued)

Income taxes- Income taxes are accounted for utilizing the asset and liability method prescribed by the provisions of ASC 740, Income Taxes (formerly SFAS No. 109, Accounting for Income Taxes). Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is provided for the deferred tax assets, including loss carryforwards, when it is more likely than not that some portion or all of a deferred tax asset will not be realized.

A provision of ASC 740, Income Taxes (formerly FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48)) specifies the way public companies are to account for uncertainties in income tax reporting, and prescribes a methodology for recognizing, reversing, and measuring the tax benefits of a tax position taken, or expected to be taken, in a tax return. ASC 740 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Company’s tax returns to determine whether the tax positions would “more-likely-than-not” be sustained if challenged by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the current year.

The Company will recognize in income tax expense interest and penalties related to income tax matters. For the years ended December 31, 2012 and 2011, the Company did not have any amounts recorded for interest and penalties.

Loss per share - The Company calculates net income (loss) per share in accordance with ASC 260, Earnings Per Share (formerly SFAS No. 128, Earnings Per Share). Under the provisions of ASC 260, basic net income (loss) per share is computed by dividing the net income (loss) attributable to common stockholders for the period by the weighted average number of shares of common stock outstanding for the period. Diluted net income (loss) per share is computed by dividing the net income (loss) attributable to common stockholders by the weighted average number of shares of common stock and dilutive common stock equivalents then outstanding. To the extent that securities are “anti-dilutive,” they are excluded from the calculation of diluted net income (loss) per share. As a result of the net loss for the years ended December 31, 2012 and 2011, respectively, all potentially dilutive shares were anti-dilutive and therefore excluded from the computation of diluted net loss per share. The anti-dilutive equity securities totaled 15,162,069 shares and 14,390,697 shares at December 31, 2012 and 2011, respectively.

Comprehensive income – ASC 220, Comprehensive Income (formerly SFAS No. 130, Reporting Comprehensive Income) establishes standards for reporting comprehensive income (loss) and its components in a financial statement. Comprehensive income (loss) as defined includes all changes in equity (net assets) during a period from non-owner sources. The only source of other comprehensive income (loss) for the Company, which is excluded from net income (loss), is foreign currency translation adjustments.

Stock-based compensation - The Company uses the fair value method of accounting prescribed by ASC 718, Compensation – Stock Compensation (formerly SFAS No. 123(R), Accounting for Stock-Based Compensation) for its employee stock option program. Under ASC 718, stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the applicable vesting period of the stock award (generally up to four years).

F-25

SANUWAVE HEALTH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 31, 2012 and 2011

(2) Summary of significant accounting policies (continued)

Research and development - Research and development costs are expensed as incurred. Research and development costs include payments to third parties that specifically relate to the Company’s products in clinical development, such as payments to contract research organizations, clinical investigators, clinical related consultants and insurance premiums for clinical studies. In addition, employee costs (salaries, payroll taxes, benefits and travel) for employees of the regulatory affairs, clinical affairs, quality assurance, quality control, and research and development departments are classified as research and development costs.

Recent pronouncements – There have been no recently issued accounting standards that are expected to have a material impact on our consolidated financial statements.

(3) Inventory

Inventory consists of the following at December 31, 2012 and 2011:

	2012			2011

Inventory - finished goods	$	306,706		$	412,291
Inventory - parts		83,509			113,593
Gross inventory		390,215			525,884
Provision for losses and obsolescence		(97,550	)		(129,600	)
Net inventory	$	292,665		$	396,284

(4) Property and equipment

Property and equipment consists of the following at December 31, 2012 and 2011:

	2012			2011

Machines and equipment	$	233,793		$	232,848
Office and computer equipment		179,349			224,600
Software		41,872			41,872
Furniture and fixtures		25,679			24,613
Vehicles		22,531			22,531
Leasehold improvements		-			67,421
Other assets		2,446			2,378
Total		505,670			616,263
Accumulated depreciation		(472,828	)		(565,057	)
Net property and equipment	$	32,842		$	51,206

The depreciation charged to operations was $20,375 and $19,034 for the years ended December 31, 2012 and 2011, respectively. The depreciation policies followed by the Company are described in Note (2).

F-26

SANUWAVE HEALTH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 31, 2012 and 2011

(5) Intangible assets

Intangible assets consist of the following at December 31, 2012 and 2011:

	2012			2011

Patents, at cost	$	3,502,135		$	3,502,135
Less accumulated amortization		(2,275,110	)		(1,968,353	)
Net intangible assets	$	1,227,025		$	1,533,782

The amortization expense charged to operations was $306,757 and $306,756 for the years ended December 31, 2012 and 2011, respectively. The amortization policies followed by the Company are described in Note (2).

Amortization expense for the future years is summarized as follows:

Years ending December 31,	Amount

2013	$	306,756
2014		306,756
2015		306,756
2016		306,757
Total	$	1,227,025

The weighted average amortization period for intangible assets is as follows:

	Amount		Weighted Average Period (Years)

Patents	$	3,502,135		11.4

F-27

SANUWAVE HEALTH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 31, 2012 and 2011

(6) Accrued expenses

Accrued expenses consist of the following at December 31, 2012 and 2011:

	2012		2011

Accrued executive severance	$	542,269	$	-
Accrued audit and tax preparation		102,600		75,516
Accrued legal professional fees		23,519		61,000
Accrued other		53,528		54,067
	$	721,916	$	190,583

On November 6, 2012, the Company entered into a Severance and Advisory Agreement (the “Severance Agreement”) with Christopher M. Cashman in connection with his resignation as President and Chief Executive Officer, and a director of the Company. Pursuant to the Severance Agreement, Mr. Cashman will receive, as severance along with other non-cash items, six months of his base salary payable over the following six month period and bonus payments of $100,000 upon each of four bonus payment events tied to the Company’s clinical trial plan for the dermaPACE device, or December 31, 2016, whichever occurs first. The accrued executive severance at December 31, 2012 represents the unpaid portion of the base salary and bonus payments.

(7) Subscriptions payable for senior secured convertible promissory notes

During the year ended December 31, 2012, the Company entered subscriptions payable for 18% senior secured convertible promissory notes (the “Senior Secured Notes”) from selected accredited investors. Up to $2,000,000 aggregate principal amount of Senior Secured Notes are being offered (the “Offering”) by the Company. The Company completed the Offering and issued an aggregate $2,000,000 in notes on March 8, 2013.

The Senior Secured Notes have a six month term from the subscription date and the note holders can convert into Company common stock at anytime during the term at $0.20 per share. Upon the consummation of a qualified financing and/or technology license, as defined in the Senior Secured Note agreements, of $4,000,000 or more by the Company, the principal and interest on the Senior Secured Notes will convert into Company common stock equal to the lower of (i) the Company common stock issued in the qualified financing and/or technology license, reduced by a discount of 20%, and (ii) $0.20 per share. The note holders will also receive, if any are issued, warrants or any other security issued in a qualified financing and/or technology license on similar terms to the qualified financing and/or technology license. The Senior Secured Notes are secured by the tangible and intangible assets of the Company. The Company is in the process of evaluating the accounting treatment for these notes issued subsequent to December 31, 2012 and any potential embedded derivatives included therein.

As of December 31, 2012, the Company had received subscriptions payable for Senior Secured Notes in the aggregate principal amount of $430,000 and had accrued interest expense of $8,516.

F-28

SANUWAVE HEALTH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 31, 2012 and 2011

(8) Notes payable, related parties

The notes payable, related parties consist of the following at December 31, 2012 and 2011:

	2012		2011

Notes payable, unsecured, payable to HealthTronics, Inc., a shareholder of the Company	$	5,372,743	$	5,372,743
Less current portion		-		-
Non-current portion	$	5,372,743	$	5,372,743

The notes payable, related parties were issued in conjunction with the Company’s purchase of the orthopedic division of HealthTronics, Inc. on August 1, 2005. The notes payable, related parties bear interest at 6% per annum. Quarterly interest through June 30, 2010, was accrued and added to the principal balance. Interest is paid quarterly in arrears beginning September 30, 2010. All remaining unpaid accrued interest and principal is due August 1, 2015. Accrued interest currently payable totaled $81,864 at December 31, 2012 and 2011. Accrued interest not payable until August 1, 2015 totaled $1,372,743 at December 31, 2012 and 2011, and is included in the balance above.

Maturities on notes payable, related parties are as follows:

Years ending December 31,	Amount

2013	$	-
2014		-
2015		5,372,743
Total	$	5,372,743

On April 4, 2011, the Company amended the terms of outstanding notes with Prides Capital Fund I, LP and NightWatch Capital Partners II, LP such that the unpaid principal and interest balance on the notes, totaling $4,413,908, was cancelled in consideration of the issuance of 1,358,126 shares of common stock of the Company. In addition, the Company, in connection with this transaction, issued to the noteholders warrants to purchase an aggregate of 679,064 shares of common stock at an exercise price of $4.00 per share. In accordance with ASC 470, “Debt”, in April 2011, the Company recorded a loss from extinguishment of debt of $1,318,781, which was the difference between the estimated fair value of the common stock and warrants on the date of exchange of $9,330,326 and the fair value of the notes (assuming the conversion feature was exercised by the noteholders) of $8,011,545.

Interest expense on notes payable, related parties totaled $324,768 and $490,273 for the years ended December 31, 2012 and 2011, respectively.

F-29

SANUWAVE HEALTH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 31, 2012 and 2011

(9) Discontinued operations

As of December 31, 2012 and 2011, the Company’s liabilities related to discontinued operations were as follows:

	2012			2011

Accrued expenses	$	(655,061	)	$	(655,061	)

Liabilities of discontinued operations	$	(655,061	)	$	(655,061	)

(10) Income taxes

Deferred income taxes are provided for temporary differences between the carrying amounts and tax basis of assets and liabilities. Deferred taxes are classified as current or noncurrent based on the financial statement classification of the related asset or liability giving rise to the temporary difference. For those deferred tax assets or liabilities (such as the tax effect of the net operating loss carryforwards) which do not relate to a financial statement asset or liability, the classification is based on the expected reversal date of the temporary difference.

The income tax provision (benefit) consists of the following at December 31, 2012 and 2011:

	2012			2011
Current:
Federal	$	-		$	-
State		-			-
Foreign		-			-
		-			-
Deferred:
Federal		(2,126,006	)		(2,885,054	)
State		(227,883	)		(332,175	)
Foreign		12,556			52,136
Change in valuation allowance		2,341,333			3,165,093
	$	-		$	-

F-30

SANUWAVE HEALTH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 31, 2012 and 2011

(10) Income taxes (continued)

The income tax provision (benefit) amounts differ from the amounts computed by applying the United States federal statutory income tax rate of 34% to pretax income (loss) as a result of the following for the years ended December 31, 2012 and 2011:

	2012			2011

Tax expense (benefit) at statutory rate	$	(2,176,508	)	$	(3,583,579	)
Increase (reduction) in income taxes resulting from:
State income taxes (benefit), net of federal benefit		(159,432	)		(248,639	)
Income from foreign subsidiaries		165,660			461,573
Non-deductible loss on extinguishment of debt		-			216,969
Change in valuation allowance - United States		2,301,986			3,217,229
Other		(131,706	)		(63,553	)
Income tax expense (benefit)	$	-		$	-

The tax effects of temporary differences that give rise to the deferred tax assets at December 31, 2012 and 2011 are as follows:

	2012			2011
Deferred tax assets:
Net operating loss carryforwards	$	20,147,348		$	18,458,402
Net operating loss carryforwards - foreign		148,674			109,327
Excess of tax basis over book value of property and equipment		42,946			63,785
Excess of tax basis over book value of intangible assets		431,513			427,484
Stock-based compensation		3,097,308			2,572,287
Accrued employee compensation		352,032			235,109
Captialized equity costs		75,471			75,471
Inventory reserve		36,811			48,905
		24,332,103			21,990,770
Valuation allowance		(24,332,103	)		(21,990,770	)
Net deferred tax assets	$	-		$	-

F-31

SANUWAVE HEALTH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 31, 2012 and 2011

(10) Income taxes (continued)

The federal net operating loss carryforwards at December 31, 2012 will expire as follows:

Years ending December 31,	Amount

2025	$	1,376,740
2026		7,291,084
2027		12,280,771
2028		6,922,963
2029		4,816,700
2030		7,667,557
2031		8,816,976
2032		4,844,424
Total	$	54,017,215

(11) Equity Transactions

Private placement and note exchange

On April 8, 2011, the Company completed a private placement to 28 institutional and individual “accredited investors” (as that term is defined in the Rule 501 under the Securities Act of 1933, as amended (the “Securities Act”)) of 2,804,593 shares of common stock of the Company at a purchase price of $3.25 per share, for gross proceeds of $9,114,927. The net proceeds received by the Company were $8,467,121, net of offering costs of $647,806. As part of the private placement, the investors were issued five-year warrants to purchase up to 2,804,593 shares of common stock at an exercise price of $4.00 per share. In addition, the placement agent for the private placement was issued a five-year warrant to purchase 93,080 shares of common stock at an exercise price of $4.00 per share. The warrants vested upon issuance and expire after five years.

For each of the warrants, the holder will be able to exercise the warrant on a so-called cashless basis at any time following the one-year anniversary of the closing of the private placement if a registration statement covering the shares of common stock underlying such warrants is not effective. The Company filed a registration statement with respect to the resale of the shares of common stock sold to the investors and shares of common stock issuable upon exercise ofthe warrants with the SEC and kept the registration statement effective until all registrable securities were sold or may be sold pursuant to Rule 144 under the Securities Act. The registration statement is no longer effective as the shares have been held for over one year and the Company believes that the shares may be sold pursuant to Rule 144 under the Securities Act.

F-32

SANUWAVE HEALTH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 31, 2012 and 2011

(11) Equity Transactions (continued)

On April 4, 2011, Prides Capital Fund I, LP and NightWatch Capital Partners II, LP (the “Noteholders”), holders of certain notes payable (the “Notes”) and related parties of the Company, exchanged the unpaid principal and interest balance of the Notes, which totaled $4,413,908, in consideration for the issuance of 1,358,126 shares of common stock. In connection with this transaction, the Company issued to the Noteholders warrants to purchase an aggregate of 679,064 shares of common stock at an exercise price of $4.00 per share. Each warrant represents the right to purchase one share of common stock. The warrants vested upon issuance and expire after five years. In accordance with ASC 470, “Debt”, in April 2011, the Company recorded a loss from extinguishment of debt of $1,318,781, which was the difference between the estimated fair value of the common stock and warrants on the date of exchange of $9,330,326 and the fair value of the Notes (assuming the conversion feature was exercised by the Noteholders) of $8,011,545.

Unit options

During the year ended December 31, 2010, the Company sold “Units” to select accredited investors which consisted of: (i) one share of common stock; (ii) a two-year common stock purchase warrant (the “Class D Warrant”) to purchase one share of common stock, at an exercise price of $2.00; and (iii) an option (the “Option”), which, as amended, expired on January 31, 2011, to purchase the same number of Units as granted pursuant to this transaction, at the purchase price of $2.00 per Unit.

Between January 1 and January 31, 2011, Option holders exercised 1,950,167 Options for total gross proceeds of $3,900,334 to the Company. In connection with the exercise of Options in January 2011, the Company issued 1,950,167 shares of common stock and 1,950,167 Class D Warrants. The Option holders included the chairman of the board of directors of the Company who exercised 545,252 Options and the brother of a member of the board of directors of the Company who exercised 686,252 Options. The 132,500 Options that remained unexercised at January 31, 2011 expired by their terms.

Preferred stock

F-33

SANUWAVE HEALTH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 31, 2012 and 2011

(12) Warrants

A summary of warrants as of December 31, 2012 and 2011, and the changes during the years ended December 31, 2012 and 2011, is presented as follows:

	Class A Warrants		Class B Warrants		Class D Warrants			Class E Warrants
Outstanding as of December 31, 2010		1,106,627		1,106,627		2,284,993			-
Issued		-		-		1,950,167			3,576,737
Exercised		-		-		-			-
Expired		-		-		-			-
Outstanding as of December 31, 2011		1,106,627		1,106,627		4,235,160			3,576,737
Issued		-		-		-			-
Exercised		-		-		-			-
Expired		-		-		(2,284,993	)		-
Outstanding as of December 31, 2012		1,106,627		1,106,627		1,950,167			3,576,737

The Class A, Class B and Class E Warrants expire five years from date of issuance and the Class D warrants expire two years from date of issuance. The outstanding Class D Warrants at December 31, 2012 expired unexercised on January 31, 2013.

The Class A and Class E warrants have an exercise price of $4.00 per share, the Class B warrants have an exercise price of $8.00 per share, and the Class D warrants have an exercise price of $2.00 per share. The exercise price and the number of shares covered by the warrants will be adjusted if the Company has a stock split, if there is a recapitalization of the Company’s common stock, or if the Company consolidates with or merges into another corporation.

(13) Commitments and contingencies

Subscription agreement

F-34

SANUWAVE HEALTH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 31, 2012 and 2011

(13) Commitments and contingencies (continued)

As of December 31, 2012, the Subscriber had paid the Company $25,000 and was issued 100,000 shares of unregistered common stock of the Company. The Company will record the additional $975,000 and issue the corresponding 3,900,000 shares of common stock in the periods in which the Purchase Price is received. Subsequent to December 31, 2012, the Subscriber has paid the Company an additional $75,000 and was issued an additional 300,000 shares of unregistered common stock of the Company which was recorded in the first quarter of 2013.

Operating Leases

The Company leases office and warehouse space. Rent expense for the years ended December 31, 2012 and 2011, was $298,452 and $361,189, respectively. Minimum future lease payments under non-cancellable operating leases consist of the following:

Year ending December 31,	Amount

2013	$	102,576
2014		105,643
2015		90,225
Total	$	298,444

Capital Leases

The Company leases certain office equipment under an agreement classified as a capital lease. The leased assets serve as security for the lease. The accumulated depreciation of such equipment at December 31, 2012 and 2011 totaled $6,468 and $1,617, respectively. The net book value of such equipment at December 31, 2012 and 2011 totaled $8,085 and $12,935, respectively.

The future commitments as of December 31, 2012 under this capital lease agreement are as follows:

Year ending December 31,	Principal		Interest		Total
2013	$	4,933	$	501	$	5,434
2014		3,951		125		4,076
	$	8,884	$	626	$	9,510

F-35

SANUWAVE HEALTH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 31, 2012 and 2011

(13) Commitments and contingencies (continued)

Litigation

HealthTronics, Inc., along with the Company, are defendants in an alleged breach of contract lawsuit dated April 21, 2006 brought in the Miami-Dade County Circuit Court, Florida by a former limited partner of a former limited partnership of the Company, Bone & Joint Treatment Centers of America. Bone & Joint Treatment Centers of America, the plaintiff, is seeking greater than $3 million. The lawsuit went to trial and the Company received a summary judgment in its favor in December 2011. On January 5, 2012, the plaintiff filed an appeal of the summary judgment. HealthTronics has been responsible for the defense of the lawsuit on behalf of the Company and believes the case is unfounded and is contesting the claims vigorously.

(14) 401(k) plan

The Company sponsors a 401(k) plan that covers all employees who meet the eligibility requirements. The Company matched 50% of employee contributions up to 6% of theircompensation effective until January 31, 2012. Effective February 1, 2012, the Company amended the 401(k) plan to make the Company matching contribution discretionary and discontinued the Company match. The Company contributed $9,664 and $73,797 to the plan for the years ended December 31, 2012 and 2011, respectively.

(15) Stock-based compensation

On November 1, 2010, the Company approved the Amended and Restated 2006 Stock Incentive Plan of SANUWAVE Health, Inc. effective as of January 1, 2010 (the “Stock Incentive Plan”). The Stock Incentive Plan permits grants of awards to selected employees, directors and advisors of the Company in the form of restricted stock or options to purchase shares of common stock. Options granted may include non-statutory options as well as qualified incentive stock options. The Stock Incentive Plan is currently administered by the board of directors of the Company. The Stock Incentive Plan gives broad powers to the board of directors of the Company to administer and interpret the particular form and conditions of each option. The stock options granted under the Stock Incentive Plan are non-statutory options which generally vest over a period of up to four years and have a ten year term. The options are granted at an exercise price determined by the board of directors of the Company to be the fair market value of the common stock on the date of the grant. At December 31, 2012, the Stock Incentive Plan reserved 5,000,000 shares of common stock for grant. Subsequent to December 31, 2012, the Stock Incentive Plan was amended to reserve a total of 8,500,000 shares of common stock for grant.

F-36

SANUWAVE HEALTH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 31, 2012 and 2011

(15) Stock-based compensation (continued)

As discussed in Note (6), on November 6, 2012, the Company entered into a Severance Agreement with Christopher M. Cashman in connection with his resignation as President and Chief Executive Officer, and a director of the Company. Pursuant to the Severance Agreement, Mr. Cashman received (a) a grant of 1,000,000 options to acquire shares of common stock at an exercise price of $0.21 per share with 600,000 of the options vested upon the execution of the Severance Agreement and the remaining 400,000 options vesting in increments of 100,000 upon events tied to the Company’s clinical trial plan for the dermaPACE device, or December 31, 2016, whichever occurs first, (b) a grant of 50,000 options to acquire shares of common stock at an exercise price of $0.21 per share as consideration for the provision of twelve months of advisory services and (c) the full vesting of all other outstanding and unvested options. Using the Black-Scholes option pricing model, management has determined that the options granted in November 2012 had a fair value per share of $0.15 resulting in total compensation of $160,500. Compensation cost will be recognized over the requisite vesting period.

On November 16, 2011, the Company granted an employee options to purchase 25,000 shares of the Company’s common stock at an exercise price of $1.60 per share. Using the Black-Scholes option pricing model, management has determined that the options granted in November 2011 had a fair value per share of $0.96 resulting in total compensation of $24,000. Compensation cost will be recognized over the requisite service period.

On October 24, 2011, the Company granted 1,300,000 options to an employee at an exercise price of $1.98 per share. Using the Black-Scholes option pricing model, management has determined that the options granted in October 2011 had a fair value per share of $1.15 resulting in total compensation of $1,496,563. Compensation cost will be recognized over the requisite service period.

On September 28, 2011, the Company granted 25,000 options to a member of the board of directors at an exercise price of $2.85 per share. On September 20, 2011, the Company granted 25,000 options to a member of the board of directors at an exercise price of $2.95 per share. Using the Black-Scholes option pricing model, management has determined that the options granted in September 2011 had a weighted average fair value per share of $1.58 resulting in total compensation of $78,750. The stock options were fully vested when granted and therefore the full compensation cost was recognized at grant date.

F-37

SANUWAVE HEALTH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 31, 2012 and 2011

(15) Stock-based compensation (continued)

The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model using the following weighted average assumptions for the years ended December 31, 2012 and 2011:

	2012			2011
Weighted average expected life in years		5.2			5.8
Weighted average risk free interest rate		0.81	%		1.32	%
Weighted average volatility		97.83	%		65.00	%
Forfeiture rate		0.0	%		0.0	%
Expected dividend yield		0.0	%		0.0	%

Since there is a limited trading history for our common stock, the expected volatility is based on historical data from companies similar in size and value to us. The expected dividend yield is based on our historical dividend experience, however, since our inception, we have not declared dividends. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of the grant. The amount of stock-based compensation expense recognized during a period is based on the portion of the awards that are ultimately expected to vest. We estimate pre-vesting forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. Ultimately, the total expense recognized over the vesting period will equal the fair value of the awards that actually vest. The expected life of options granted represent the period of time that options granted are expected to be outstanding and are derived from the contractual terms of the options granted.

For the years ended December 31, 2012 and 2011, the Company recognized $1,391,316 and $1,118,813, respectively, as compensation cost related to options granted. The remaining $87,184 of compensation cost will be recognized over the next three years as follows:

Years ending December 31,	Unrecognized Compensation Cost

2013	$	78,260
2014		7,542
2015		1,382
Total	$	87,184

F-38

SANUWAVE HEALTH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 31, 2012 and 2011

(15) Stock-based compensation (continued)

A summary of option activity as of December 31, 2012 and 2011, and the changes during the years ended December 31, 2012 and 2011, is presented as follows:

	Options			Weighted Average Exercise Price per share
Outstanding as of December 31, 2010		2,992,796		$	3.20
Granted		1,375,000		$	2.00
Exercised		-		$	-
Forfeited or expired		(2,250	)	$	3.14
Outstanding as of December 31, 2011		4,365,546		$	2.82
Granted		1,150,000		$	0.23
Exercised		-		$	-
Forfeited or expired		(286,216	)	$	2.85
Outstanding as of December 31, 2012		5,229,330		$	2.25

Exercisable		4,720,580		$	2.42

The weighted average remaining contractual term for outstanding exercisable stock options is 6.6 years as of December 31, 2012 and 6.3 years as of December 31, 2011.

A summary of the Company’s nonvested options as of December 31, 2012 and 2011, and changes during the years ended December 31, 2012 and 2011, is presented as follows:

	Options			Weighted Average Exercise Price per share
Outstanding as of December 31, 2010		883,993		$	4.69
Granted		1,375,000		$	2.01
Vested		(943,084	)	$	3.85
Forfeited or expired		(1,187	)	$	3.62
Outstanding as of December 31, 2011		1,314,722		$	2.48
Granted		1,150,000		$	0.23
Vested		(1,901,722	)	$	1.52
Forfeited or expired		(54,250	)	$	3.41
Outstanding as of December 31, 2012		508,750		$	0.66

F-39

SANUWAVE HEALTH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 31, 2012 and 2011

(16) Segment and geographic information

The Company has one line of business with revenues being generated from sales in Europe and Asia and all significant expenses being generated in the United States. All significant assets are located in the United States.

(17) Subsequent events

The Company has evaluated subsequent events through the date of issuance of the consolidated financial statements.

Senior Secured Notes

The Company has been working with select accredited investors to raise capital through the issuance of Senior Secured Notes as discussed in Note (7). Through December 31, 2012, the Company had received subscriptions payable for Senior Secured Notes in the aggregate principal amount of $430,000 and had accrued interest expense of $8,516. Up to $2,000,000 aggregate principal amount of Senior Secured Notes are being offered by the Company.

Subsequent to year-end, the Company received an additional $1,570,000 in subscriptions for the Senior Secured Notes. The Company completed the offering on March 8, 2013 and issued such notes. Kevin A. Richardson, II, chairman of the board of directors of the Company, purchased $60,000 of the Senior Secured Notes.

Subscription Agreement

As discussed in Note (13), on November 27, 2012, the Company entered into a Subscription Agreement whereby the Subscriber has agreed to purchase from the Company, and the Company agreed to sell and issue, a total of 4,000,000 shares of the Company’s unregistered common stock at a purchase price equal to $0.25 per share, for an aggregate sales price of $1,000,000. As of December 31, 2012, the Subscriber had paid the Company $25,000 and was issued 100,000 unregistered shares of common stock of the Company. The Company will record the additional $975,000 and issue the corresponding 3,900,000 shares of common stock in the periods in which the Purchase Price is received.

Subsequent to December 31, 2012, the Subscriber has paid the Company an additional $75,000 and was issued an additional 300,000 shares of unregistered common stock of the Company which was recorded in the first quarter of 2013.

2013 Additional Capital Raise and Consulting Agreements

The continuation of the Company’s business is dependent upon raising additional capital. Management’s plans are to obtain additional capital in 2013 through the issuance of common stock or other equities. The Company has engaged financial advisors to identify the opportunities for a capital raise to fund the Company's dermaPACE clinical work and provide working capital. The Company has issued to a consultant, 2,000,000 warrants to purchase the Company’s common stock at $0.35 per share. The four year warrants vest 300,000 on the date of grant and 1,700,000 upon the completion of a $5,000,000, or greater, capital raise.

F-40

SANUWAVE HEALTH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 31, 2012 and 2011

In February 2013, the Company entered into two consulting agreements for which a portion of the fee for the services performed is paid with common stock. The Company has issued 173,000 shares of common stock under these agreements through March 22, 2013.

Employment Agreement with new Chief Executive Officer

Subsequent to December 31, 2012, Joseph Chiarelli joined the Company to serve as the Chief Executive Officer and a director of the Company commencing on February 25, 2013 with a two year term thereafter extendable for one year periods. Mr. Chiarelli is entitled to an annual base salary of $200,000 for the first year and $225,000 thereafter, with a performance and compensation review not less often than annually, at which time compensation may be adjusted as determined by the board of directors.

In the event of the satisfaction of the following milestones, the Company shall award and pay to Mr. Chiarelli a cash bonus as follows: (i) $35,000 for the Company completing a financing resulting in gross proceeds to the Company of no less than $5,000,000 at a price per share of not less than $0.35; (ii) $25,000 when the final patient is enrolled in the Company’s dermaPACE Phase III clinical trial; (iii) $25,000 upon receipt by the Company of FDA approval for the use of dermaPACE; and (iv) $25,000 upon the execution by the Company of a license or distribution agreement from which the Company is entitled to receive gross proceeds of no less than $1,000,000 and the Company has received payments of at least $250,000. In addition, with respect to each full fiscal year, Mr. Chiarelli is eligible to earn an annual bonus award as determined by the board of directors based on the achievement of certain performance goals established by the board of directors. Mr. Chiarelli is also entitled to participate in the Company’s employee benefit plans (other than annual bonus and incentive plans). The employment agreement contains an agreement not to compete, which covers the term of employment and two years thereafter, and a confidentiality provision, which is indefinite.

Upon the execution of his employment agreement, Mr. Chiarelli was granted options to purchase 2,250,000 shares of the Company’s common stock at an exercise price of $0.35 per share. The options vest and become exercisable in five installments as follows: (i) 375,000 vested at grant; (ii) 375,000 vest upon the Company completing a financing resulting in gross proceeds to the Company of no less than $5,000,000 at a price per share of not less than $0.35; (iii) 375,000 upon the execution by the Company of a license or distribution agreement from which the Company is entitled to receive gross proceeds of no less than $1,000,000 and the Company has received payments of at least $250,000; (iv) 375,000 vest upon receipt by the Company of FDA approval for the use of dermaPACE; and (v) 750,000 vest in the event the Company achieves the milestones (i), (ii), (iii) and (iv) above during the initial two year term and the term is not extended by the Company.

Stock Incentive Plan

Subsequent to December 31, 2012, the Company amended the Stock Incentive Plan to increase the shares of common stock reserved for grant pursuant to the Stock Incentive Plan to 8,500,000. In addition, on February 21, 2013, the Company, by mutual agreement with the active employees and directors of the Company, cancelled options granted to the active employees in the year ended December 31, 2011 and prior which totaled 1,113,644 shares of common stock at an average exercise price of $2.92. In exchange for these options, the active employees and directors received new options to purchase 2,243,644 shares of common stock at an exercise price of $0.35 per share. The Company will record the effect of this transaction in the first quarter of 2013.

F-41

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. Other Expenses of Issuance and Distribution

The following table lists the costs and expenses payable by the registrant in connection with the sale of the common stock covered by this. All amounts shown are estimates except for the SEC registration fee.

SEC registration fee	$	818.40
Legal fees and expenses		50,000.00
Accounting fees and expenses		25,000.00
Miscellaneous fees and expenses		2,000.00
Total	$	77,818.40

ITEM 14. Indemnification of Directors and Officers

The registrant’s articles of incorporation provide that the directors and officers will not be personally liable to the registrant or its stockholders for monetary damages for breach of their fiduciary duty as a director or officer, except for liability of a director or officer for acts or omissions involving intentional misconduct, fraud or a knowing violation of law, or the payment of dividends in violation of the NGCL. The ~~registrant’s~~registrant's bylaws and contractual arrangements with certain of its directors and officers provide that the registrant is required to indemnify its directors and officers to the fullest extent permitted by law. The ~~registrant’s~~registrant's bylaws and these contractual arrangements also require the registrant to advance expenses incurred by a director or officer in connection with the defense of any proceeding upon receipt of an undertaking by or on behalf of the director or officer to repay the amount if it is ultimately determined by a court of competent jurisdiction that he/she is not entitled to be indemnified by the registrant. The ~~registrant’s~~registrant's bylaws also permit the registrant to purchase and maintain errors and omissions insurance on behalf of any director or officer for any liability arising out of his/her actions in a representative capacity. The registrant does not presently maintain any such errors and omissions insurance for the benefit of its directors and officers.

II-1

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, we have been informed that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by us is against public policy as expressed hereby in the Securities Act and we will be governed by the final adjudication of such issue.

ITEM 15. Recent Sales of Unregistered Securities

On November 27, 2012, we entered into a subscription agreement (Subscription Agreement) with David N. Nemelka (Subscriber), the brother of John F. Nemelka, a member of our board of directors, whereby the Subscriber agreed to purchase from us, and us agreed to sell and issue, a total of 4,000,000 shares of our common stock, at a purchase price equal to $0.25 per share, for an aggregate sales price of $1,000,000. These shares were sold pursuant to the exemption provided by the SEC’s Rule 506 of Regulation D under the Securities Act. As of December 31, 2012, the Subscriber had paid us $25,000 and we issued to the Subscriber 100,000 shares of common stock. For the three months ended March 31, 2013, the Subscriber has paid us an additional $75,000 and was issued an additional 300,000 shares of common stock. We will record the additional $900,000 and issue the corresponding 3,600,000 shares of common stock in the periods in which the purchase price is received.

In February 2013, we entered into two consulting agreements for which a portion of the fee for the services performed is paid with common stock. We have issued 319,000 shares of common stock under these agreements through May 13, 2013.

In February 2013, we entered into a consulting agreement with a consultant to assist us with our strategy for raising additional capital for which a portion of the fee for the services performed is common stock and warrants. We issued 100,000 shares of common stock under this agreement in February 2013. In addition, we will issue to the consultant 1,000,000 warrants to purchase common stock at an exercise price of $0.35 per share with a term of five years upon consummation by us of an qualified offering (as defined in the consulting agreement) resulting in gross proceeds to us of no less than $4,000,000.

In February 2013, we entered into a consulting agreement with a consultant to assist us with our strategy for raising additional capital for which the fee for the services performed was paid with warrants. We have issued to the consultant 2,000,000 warrants to purchase common stock at an exercise price of $0.35 per share with a term of five years. The warrants vest 300,000 upon grant and 1,700,000 upon consummation of an offering of securities managed by an investment bank resulting in gross proceeds to us of no less than $5,000,000 on or prior to June 1, 2013.

In connection with the foregoing, we relied upon the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended, for transactions not involving a public offering.

On April 8, 2011, pursuant to the exemptive provision of Section 4(2) of the Securities Act and Rule 506 of Regulation D promulgated thereunder, we completed a private placement to 28 institutional and individual accredited investors of 2,804,593 shares of our ~~Common Stock~~common stock at a purchase price of $3.25 per share, for gross proceeds to us of $9,114,927. The net proceeds received by ~~the Company~~us were $8,467,121, net of offering costs of $647,806. As part of the private placement, the investors were issued five-year warrants to purchase up to 2,804,593 shares of our ~~Common Stock~~common stock at an initial exercise price of $4.00 per share. The net proceeds from the private placement, following the payment of

offering-related expenses, are being used by us for working capital and other general corporate purposes. David N. Nemelka, the brother of John F. Nemelka, a member of our board of directors, and an existing shareholder of ~~the Company,~~ours, was one of the purchasers in the offering.

II-2

On April 4, 2011, the note holders of our amended senior notes cancelled the unpaid principal and interest balance of the amended senior notes which totaled $4,413,908 in consideration for the issuance of 1,358,126 shares of our ~~Common Stock.~~common stock. In addition, in connection with this transaction, we issued to the note holders an aggregate total of 679,064 warrants to purchase shares of ~~Common Stock~~common stock at an exercise price of $4.00 per share. Each warrant represents the right to purchase one share of ~~Common Stock.~~common stock. The warrants vested upon issuance and expire after five years. The amended senior notes were held by Prides Capital Fund I, LP and NightWatch Capital Partners II, ~~LP (the “Noteholders”).~~LP. Kevin A. Richardson, II, who is the chairman of our board of directors, serves as the managing partner of Prides Capital, LLC, an affiliate of Prides Capital Fund I, LP. John F. Nemelka, who is a member of our board of directors, serves as managing principal of NightWatch Capital Advisors, LLC, an affiliate of NightWatch Capital Partners II, LP.

In January 2011, pursuant to the exemptive provision of Section 4(2) of the Securities Act and Rule 506 of Regulation D promulgated thereunder, we ~~raised~~issued1,950,167 shares of common stock for gross proceeds of $3,900,334 from a group of accredited investors ~~through~~upon the exercise of options ~~they received~~we issued in 2010 as part of ~~a purchase~~the sale of ~~a Unit which consisted~~Units consisting of: (i) one share of ~~Common Stock, par value $0.001 per share (the “Common Stock”);~~common stock; (ii) a two-year ~~Common Stock~~common stock purchase warrant ~~(the “Class~~(Class D ~~Warrant”)~~Warrant) to purchase one share of ~~Common Stock,~~common stock, at an exercise price of $2.00; and (iii) an option, ~~(the “Option”),~~ which, as amended, expired on January 31, 2011, to purchase the same number of units as granted pursuant to this transaction, at the purchase price of $2.00 per unit. Kevin A Richardson, II, the chairman of the our board of directors exercised 545,252 options and David N. Nemelka, the brother of John F. Nemelka, a member of our board of directors, exercised 686,252 options in connection with this transaction.

On September 30, 2010, pursuant to the exemptive provision of Section 4(2) of the Securities Act and Rule 506 of Regulation D promulgated thereunder, we completed a private placement to individual accredited investors. We issued 150,000 Units for an aggregate total purchase price of $300,000. On October 1, 2010, November 19, 2010, and December 7, 2010 in conjunction with offerings of securities ~~of the Company~~by us under the Securities Act, we issued 250,000, 142,500 and 382,500 Units to individual accredited investors for $500,000, $285,000 and $765,000, respectively. Each Unit was sold to the new investors at a purchase price of $2.00 per Unit. As a result of the offerings, ~~the Company~~we sold 925,000 Units which consisted of 925,000 shares of ~~Common Stock,~~common stock, 925,000 Class D Warrants and 925,000 Options. David N. Nemelka, the brother of John F. Nemelka, a member of our board of directors, purchased 175,000 Units in the offerings for a total purchase price of $350,000.

As of December 31, 2010, the Option holders exercised 101,163 Options for total gross proceeds of $202,326. In connection with the exercise of the Options, we issued 101,163 shares of ~~Common Stock~~common stock and 101,163 Class D Warrants.

During the year ended December 31, 2010, we issued ten promissory notes ~~totaling~~to accredited investors in the aggregate amount of $2,450,000. On October 12, 2010, pursuant to the exemptive provision of Section 4(2) of the Securities Act and Rule 506 of Regulation D promulgated thereunder, we amended the terms of the ten outstanding promissory notes such that the unpaid principal and interest on each note was exchanged into the number of Units equal to (i) the unpaid principal and interest on each such note, divided by (ii) 2. The unpaid principal and interest on the notes ~~totaled~~in the aggregate amount of $2,517,660 ~~and this sum was~~were exchanged ~~into a total~~for an aggregate of 1,258,830 Units which consisted of 1,258,830 shares of ~~Common Stock,~~common stock, 1,258,830 Class D Warrants and 1,258,830 Options. Kevin A. Richardson, II, our chairman of the board of directors exchanged promissory notes totaling $1,790,504 and David N. Nemelka, the brother of John F. Nemelka, a member of our board of directors, exchanged promissory notes ~~totaling~~in the aggregate amount of $522,504.

ITEM 16. Exhibits and Financial Statement Schedules


Exhibit No.		Description

1.1*

Placement Agent Agreement dated as of February 25, 2013, by and between SANUWAVE Health, Inc. and Corinthian Partners LLC (as subsequently assigned to Agincourt, Ltd. on March 27, 2013).

2.1		Agreement and Plan of Merger, dated as of September 25, 2009, by and between Rub Music Enterprises, Inc., RME Delaware Merger Sub, Inc. and SANUWAVE, Inc. (Incorporated by reference to Form 8-K filed with the SEC on September 30, 2009).

II-3

3.1		Articles of Incorporation (Incorporated by reference to the Form 10-SB filed with the SEC on December 18, 2007).

3.2		Certificate of Amendment to the Articles of Incorporation (Incorporated by reference to Appendix A to the Definitive Schedule 14C filed with the SEC on October 16, 2009).

3.3	Certificate of Amendment to the Articles of Incorporation (Incorporated by reference to Appendix A to the Definitive Schedule 14C filed with the SEC on April 16, 2012).

3.4	Bylaws (Incorporated by reference to the Form 10-SB filed with the SEC on December 18, 2007).

4.1

Form of Class A Warrant Agreement (Incorporated by reference to Form 8-K filed with the SEC on September 30, 2009).


~~Exhibit No.~~		~~Description~~

4.2		Form of Class B Warrant Agreement (Incorporated by reference to Form 8-K filed with the SEC on September 30, 2009).

4.3		Form of ~~Amended and Restated~~ Class CD Warrant Agreement (Incorporated by reference to Form 8-K filed with the SEC on ~~September 30, 2009)~~October 14, 2010).

4.4		Form of ~~Amended Senior Note issued by SANUWAVE, Inc. to Prides Capital Fund I, L.P. and NightWatch Capital Partners II, L.P.~~Class E Warrant Agreement (Incorporated by reference to Form 8-K filed with the SEC on ~~September 30, 2009)~~April 7, 2011).

4.5

Form of 18% Senior Secured Convertible Promissory Note ~~dated August 1, 2005,~~ issued by SANUWAVE Health, Inc. to ~~HealthTronics, Inc.~~select accredited investors (Incorporated by reference to Form 8-K filed with the SEC on ~~September 30, 2009)~~February 27, 2013).

4.6*
~~4.6~~		Form of First Amendment to 18% Senior Secured Convertible Promissory Note ~~dated March 1, 2010, issued by~~of SANUWAVE Health, Inc. ~~to David N. Nemelka (Incorporated by reference to Form 8-K filed with the SEC on March 5, 2010).~~


~~4.7~~		~~Promissory Note, dated March 1, 2010, issued by SANUWAVE Health, Inc. to Kevin and Margaret Richardson (Incorporated by reference to Form 8-K filed with the SEC on March 5, 2010).~~

~~4.8~~		~~Promissory Note, dated March 31, 2010, issued by SANUWAVE Health, Inc. to David N. Nemelka (Incorporated by reference to Form 8-K filed with the SEC on April 1, 2010).~~

~~4.9~~		~~Promissory Note, dated March 31, 2010, issued by SANUWAVE Health, Inc. to Kevin and Margaret Richardson (Incorporated by reference to Form 8-K filed with the SEC on April 1, 2010).~~

~~4.10~~		~~Promissory Note, dated May 12, 2010, issued by SANUWAVE Health, Inc. to Kevin and Margaret Richardson (Incorporated by reference to Form 8-K filed with the SEC on May 17, 2010).~~

~~4.11~~		~~Promissory Note, dated June 4, 2010, issued by SANUWAVE Health, Inc. to Durk V. Irwin (Incorporated by reference to Form 8-K filed with the SEC on June 9, 2010).~~

~~4.12~~		~~Promissory Note, dated June 4, 2010, issued by SANUWAVE Health, Inc. to Todd R. Pedersen (Incorporated by reference to Form 8-K filed with the SEC on June 9, 2010).~~

~~4.13~~		~~Promissory Note, dated July 13, 2010, issued by SANUWAVE Health, Inc. to Kevin and Margaret Richardson (Incorporated by reference to Form 8-K filed with the SEC on July 16, 2010).~~

~~4.14~~		~~Promissory Note, dated August 12, 2010, issued by SANUWAVE Health, Inc. to Kevin and Margaret Richardson (Incorporated by reference to Form 8-K filed with the SEC on August 17, 2010).~~

~~4.15~~		~~Promissory Note, dated August 30, 2010, issued by SANUWAVE Health, Inc. to Kevin and Margaret Richardson (Incorporated by reference to Form 8-K filed with the SEC on September 1, 2010).~~

~~4.16~~	4.7*	Form of Class ~~E Warrant (Incorporated by reference to Form 8-K filed with the SEC on April 7, 2011).~~G Common Stock Purchase Warrant.



~~5.1~~	5.1*	Opinion of Smith, Gambrell & Russell, ~~LLP (Incorporated by reference to Form S-1 filed with the SEC on May 10, 2011).~~LLP.

10.1		Employment Agreement, dated December 19, 2005, by and between SANUWAVE, Inc. and Christopher M. ~~Cashman~~Cashman. (Management compensation plan or arrangement) (Incorporated by reference to Form 8-K filed with the SEC on September 30, 2009).

10.2		First Amendment to Employment Agreement, dated September 15, 2009, by and between SANUWAVE, Inc. and Christopher M. ~~Cashman~~Cashman. (Management compensation plan or arrangement) (Incorporated by reference to Form 8-K filed with the SEC on September 30, 2009).

10.3		Amendment to Nonstatutory Stock Option Award and Nonstatutory Supplemental Agreements, dated September 15, 2009, by and between SANUWAVE, Inc. and Christopher M. ~~Cashman (Management compensation plan or arrangement) (Incorporated by reference to Form 8-K filed with the SEC on September 30, 2009).~~

~~10.4~~		~~Employment Agreement, dated April 10, 2006, by and between SANUWAVE, Inc. and Barry J. Jenkins~~Cashman. (Management compensation plan or arrangement) (Incorporated by reference to Form 8-K filed with the SEC on September 30, 2009).

10.4		Employment Agreement, dated April 10, 2006, by and between SANUWAVE, Inc. and Barry J. Jenkins. (Management compensation plan or arrangement) (Incorporated by reference to Form 8-K filed with the SEC on September 30, 2009).
~~Exhibit No.~~		~~Description~~

10.5		Amendment to Nonstatutory Stock Option Award and Nonstatutory Supplemental Agreements, dated September 15, 2009, by and between SANUWAVE, Inc. and Barry J. ~~Jenkins~~Jenkins. (Management compensation plan or arrangement) (Incorporated by reference to Form 8-K filed with the SEC on September 30, 2009).

II-4

10.6		Management Stockholders Agreement, dated as of December 19, 2005, among SANUWAVE, Inc., Prides Capital Fund I, L.P. and certain shareholders of SANUWAVE, Inc. (Incorporated by reference to Form 8-K filed with the SEC on September 30, 2009).

10.7		Amendment to Management Stockholders Agreement, dated as of October 24, 2006, among SANUWAVE, Inc., Prides Capital Fund I, L.P. and certain shareholders of SANUWAVE, Inc. (Incorporated by reference to Form 8-K filed with the SEC on September 30, 2009).

10.8		Second Amendment to Management Stockholders Agreement, dated as of September 25, 2009, among SANUWAVE, Inc., Prides Capital Fund I, L.P. and certain shareholders of SANUWAVE, Inc. (Incorporated by reference to Form 8-K filed with the SEC on September 30, 2009).

10.9		~~Form of Promissory Note Amendment (Incorporated by reference to Form 8-K filed with the SEC on October 14, 2010).~~

~~10.10~~		~~Form of Subscription Agreement (Incorporated by reference to Form 8-K filed with the SEC on October 14, 2010).~~

~~10.11~~		Amended and Restated 2006 Stock Option Incentive Plan of SANUWAVE Health, Inc. (Incorporated by reference to Form 8-K filed with the SEC on November 3, 2010).


~~10.12~~	10.10	Form of Securities Purchase Agreement, by and between the Company and the accredited investors a party thereto, dated April 4, 2011 (Incorporated by reference to Form 8-K filed with the SEC on April 7, 2011).


~~10.13~~	10.11	Form of Registration Rights Agreement, by and between the Company and the holders a party thereto, dated April 4, 2011 (Incorporated by reference to Form 8-K filed with the SEC on April 7, 2011).


~~10.14~~	10.12	Agreement between Prides Capital Fund I, LP and SANUWAVE Health, Inc., dated April 4, 2011 (Incorporated by reference to Form 8-K filed with the SEC on April 7, 2011).


~~10.15~~	10.13	Agreement between NightWatch Capital Partners II, LP and SANUWAVE Health, Inc., dated April 4, 2011 (Incorporated by reference to Form 8-K filed with the SEC on April 7, 2011).

10.14
~~21.1~~		~~List of Subsidiaries~~Severance and Advisory Agreement, dated November 6, 2012, by and between SANUWAVE Health, Inc. and Christopher M. Cashman. (Management compensation plan or arrangement) (Incorporated by reference to ~~Annual Report on~~ Form ~~10-K~~8-K filed with the SEC on ~~March 25, 2011)~~November 13, 2012).

10.15

Subscription Agreement, dated November 27, 2012, by and between SANUWAVE Health, Inc. and David N. Nemelka (Incorporated by reference to Form 8-K filed with the SEC on December 3, 2012).

10.16

Employment Agreement, dated February 21, 2013, by and between SANUWAVE Health, Inc. and Joseph Chiarelli (Management compensation plan or arrangement) (Incorporated by reference to Form 8-K filed with the SEC on February 27, 2013).

10.17*

Form of Subscription Booklet containing the Securities Purchase Agreement

21.1	List of subsidiaries (previously filed).

~~23.1~~	23.1*	Consent of Smith, Gambrell & Russell, LLP (included in its opinion filed as Exhibit 5.1 hereto).

23.2*

Consent of ~~HLB Gross Collins, P.C.,~~BDO USA, LLP, independent registered public accountants.


24.1*	24.1	Power of Attorney ~~(set forth on the signature page of this registration statement)~~(previously filed).


101.INS**		~~Filed herewith~~XBRL Instance.

~~ITEM 17. Undertakings~~

~~The undersigned registrant hereby undertakes:~~

~~(1) To file, during any period in which offers~~

101.SCH**

XBRL Taxonomy Extension Schema.

101.CAL**

XBRL Taxonomy Extension Calculation.

101.DEF**

XBRL Taxonomy Extension Definition.

101.LAB**

XBRL Taxonomy Extension Labels.

101.PRE**

XBRL Taxonomy Extension Presentation.

* Filed herewith

** XBRL information is furnished and not filed or ~~sales are being made,~~ a ~~post-effective amendment to this~~part of a registration ~~statement:~~

~~(i) To include any~~statement or prospectus ~~required by Section 10(a)(3)~~for purposes of sections 11 or 12 of the Securities Act of ~~1933;~~

~~(ii) To reflect in the prospectus any facts or events arising after the effective date~~1933, as amended, is deemed not filed for purposes of section 18 of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered wouldExchange Act and otherwise is not ~~exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering~~

~~range may be reflected in the form of prospectus filed with the Commission pursuant~~subject to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; andliability under these sections.

(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.

II-5

ITEM 17. Undertakings

(a)	The undersigned registrant hereby undertakes:

~~(2)~~

To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:

to include any prospectus required by section 10(a)(3) of the Securities Act of 1933;

ii.

to reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and

iii.

to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.

2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

~~(3)~~

3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

~~(4) Intentionally omitted.~~

~~(5)~~4) That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser:

~~(i) Intentionally omitted.~~

if the registrant is relying on Rule 430B: (A) each prospectus filed by the registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and (B) each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of providing the information required by section 10(a) of the Securities Act of 1933 shall be deemed to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date; or

(ii) If the registrant is subject to Rule 430C, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.

II-6

~~(6)~~

ii.

if the registrant is subject to Rule 430C, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.

5) That, for the purpose of determining liability ~~of the registrant~~ under the Securities Act of 1933 to any purchaser in the initial distribution of the securities:

~~The~~ the undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:

(i) ~~Any~~any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule ~~424.~~

424; (ii) ~~Any~~any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;

(iii) ~~The~~the portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and

(iv) ~~Any~~any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.

~~SIGNATURES~~

(b) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

II-7

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Alpharetta, State of Georgia, on ~~June 10, 2011.~~May 16, 2013.

SANUWAVE HEALTH, INC.

~~SANUWAVE HEALTH, INC.~~
~~By:~~	~~/s/ Christopher M. Cashman~~
	~~Name:~~	~~Christopher M. Cashman~~
By:	~~Title:~~	~~President and Chief Executive Officer~~ /s/ Joseph Chiarelli
Name:	Joseph Chiarelli
Title:	Chief Executive Officer

~~POWER OF ATTORNEY~~

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Christopher M. Cashman and Barry J. Jenkins, and each of them, as his true and lawful attorneys-in-fact, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities to sign any and all amendments (including post-effective amendments) to this registration statement and to sign a registration statement pursuant to Section 462(b) of the Securities Act of 1933, and to file the same with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, ~~as amended,~~ this registration statement has been signed by the following persons in the capacities and on the dates indicated:


Signatures		Capacity		Date

By:	/s/ Joseph Chiarelli ~~/s/ Christopher M. Cashman~~ Name: Joseph Chiarelli		Chief Executive Officer and ~~President~~ Director (principal executive officer)		~~June 10, 2011~~
	~~Name: Christopher M. Cashman~~		~~(Principal Executive Officer)~~		May 16, 2013

By:	~~/s/~~ /s/ Barry J. Jenkins		~~Chief Financial Officer~~		~~June 10, 2011~~
	Name: Barry J. Jenkins		~~(Principal~~ Chief Financial Officer and ~~Accounting Officer)~~COO (principal financial and accounting officer)		May 16, 2013

By:	~~/s/~~ /s/ Kevin A. Richardson, II		~~Director~~		~~June 10, 2011~~
	Name: Kevin A. Richardson, II		Chairman of the Board of Directors		May 16, 2013

~~By:~~	By: /s/ John F. Nemelka Name: John F. Nemelka		Director		~~June 10, 2011~~
	~~Name: John F. Nemelka~~

~~By:~~	~~/s/ Thomas H. Robinson~~		~~Director~~		~~June 10, 2011~~
	~~Name: Thomas H. Robinson~~				May 16, 2013


Nevada		3841		20-1176000

(State or other Jurisdiction ~~of Incorporation or~~ ~~Organization)~~		(Primary Standard Industrial	(I.R.S. Employer
of Incorporation or	Classification Code Number)		~~(I.R.S. Employer~~ Identification No.)
Organization)

Large accelerated filer o	Accelerated filer o
Non-accelerated filer o ~~(Do not check if a smaller reporting company)~~	Smaller reporting company þx



	Amount to be		Proposed maximum		Proposed maximum		Amount of
Title of each class of securities to be registered	registered (1)		offering price per unit (2)		aggregate offering price		registration fee (4)
Common Stock, $0.001 par value		2,804,593	$	4.08	$	11,442,739	$	1,328.50
Common Stock, $0.001 par value (3)		2,897,673	$	4.08	$	11,822,506	$	1,372.59
Total Registration Fee		5,702,266	$	4.08	$	23,265,245	$	2,701.09

Securities being offered by us		________ Units, each Unit consisting of one share of common stock and one warrant to purchase ____ share of common stock at an exercise price of ____ per share.

~~Common Stock being offered by the selling stockholders:~~Offering price		____ per Unit.

Description of Warrants		The warrants will be exercisable at any time during the period commencing on the date of closing of the offering and ending on the fifth anniversary of the closing of offering at an exercise price per share equal to ____.

Shares of common stock that may be issued upon the exercise of warrants issued as part of the Units		________ shares of common stock

Use of proceeds		We intend to use the net proceeds from the sale of Units in this offering primarily for expenses related to our dermaPACE clinical trial for treating diabetic foot ulcers in the United States and for other general corporate purposes.


~~• Shares~~We have outstanding an aggregate $2,097,500 in principal and accrued interest on our 18% Senior Secured Convertible Promissory Notes, as amended (Senior Secured Notes), which begin to mature in May 2013. We are currently negotiating with the holders to extend the maturity through the second quarter of ~~Common Stock~~		~~2,804,593~~2013. Subject to the condition that we raise at least $4,000,000 in gross proceeds through this offering, the Senior Secured Notes will automatically convert into (i) common stock at a conversion price of $0.20, and (ii) warrants to purchase the number of shares of common stock equal to the number of shares such holder would have received if it had invested in the offering an amount equal to the principal and interest on the note being converted. If we do not raise at least $4,000,000 in gross proceeds through this offering the Senior Secured Notes will not automatically convert to common stock and they will become due and payable and we will use all or part of any net proceeds from this offering towards repayment of the Senior Secured Notes. See “Use of Proceeds” and “Description of Securities”.

~~• Shares of Common Stock that may be issued upon the exercise of warrants~~Expiration time/date		~~2,897,673 shares~~September 30, 2013.

~~Total~~		~~5,702,266 shares~~

Common ~~Stock outstanding~~stock outstanding:		~~20,907,536 shares (1)~~
Before the offering		21,726,536 shares.

After the offering		________ shares.

OTC Bulletin Board market symbol		~~SNWV.OB~~


~~(1)~~		Pursuant to Rule 416 under the Securities Act of 1933, as amended, the shares of common stock registered for resale by the selling stockholders also include such indeterminate number of shares of common stock as may be issued from time to time with respect to shares being registered hereunder as a result of stock splits, stock dividends or similar transactions.


~~(2)~~		Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457 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, 2011.


~~(3)~~		~~Represents shares of common stock issuable upon the exercise of the warrants.~~


~~(4)~~		~~The required registration fee has been previously paid by the Company.~~

PROSPECTUS SUMMARY	1

SUMMARY FINANCIAL INFORMATION	6
~~PROSPECTUS SUMMARY~~		1
RISK FACTORS	6
	5
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS	26
	15
WHERE YOU CAN FIND MORE INFORMATION	28
	16
USE OF PROCEEDS	28
	16
PLAN OF DISTRIBUTION	29

MARKET FOR OUR COMMON STOCK AND RELATED STOCKHOLDER MATTERS	31
	17
~~MANAGEMENT’S~~CAPITALIZATION	33

DILUTION	34

MMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	37
	18
BUSINESS	50
	26
MANAGEMENT, EXECUTIVE COMPENSATION AND CORPORATE GOVERNANCE	71
	40
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT	81
	47
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS	82
	47
~~SELLING STOCKHOLDERS~~		48
~~PLAN OF DISTRIBUTION~~		52
DESCRIPTION OF SECURITIES TO BE REGISTERED	84
	53
SHARES AVAILABLE FOR FUTURE SALE	86
	54
LEGAL MATTERS	88
	55
EXPERTS	88
	55
INTEREST OF NAMED EXPERTS AND COUNSEL		55
~~EX-23.2~~88


~~Use of Proceeds~~		We will not receive any of the proceeds from the sale of the shares by the selling stockholders, except cash for the warrant exercise price upon exercise of the warrants, which would be used for working capital purposes.SNWV.

Risk ~~Factors~~factors		See “Risk Factors” beginning on page ~~5 and other information included in~~6 of this prospectus for a discussion of factors you should carefully consider before ~~investing~~deciding to invest in ~~shares of~~ our ~~Common Stock.~~common stock.



~~(1)~~		The number of shares shown to be outstanding is based on the number of shares of our Common Stock outstanding as of June 7, 2011, and does not include shares reserved for issuance upon the exercise of warrants outstanding, or options granted or available under our equity compensation plans.


	Three Months Ended			Three Months Ended			Year Ended			Year Ended
	March 31,			March 31,			December 31,			December 31,			Three Months Ended						Year Ended
	2011			2010			2010			2009			March 31, 2013			March 31, 2012			December 31, 2012			December 31, 2011
	(Unaudited)			(Unaudited)									(Unaudited)			(Unaudited)

Consolidated Statement of Operations Data
Revenues	$	251,753		$	143,102		$	728,446		$	660,725
Revenue													$	201,234		$	238,540		$	769,217		$	802,572
Net loss	$	(2,183,326	)	$	(2,994,755	)	$	(14,922,441	)	$	(6,153,040	)	$	(5,369,333	)	$	1,835,315		$	(6,401,494	)	$	(10,238,797	)
Weighted average shares outstanding		16,143,655			12,509,657			12,924,872			11,405,490			21,278,128			20,907,536			20,915,869			19,624,061
Net loss per share — basic and diluted	$	(0.14	)	$	(0.24	)	$	(1.15	)	$	(0.54	)
Net loss per share - basic and diluted													$	(0.25	)	$	(0.09	)	$	(0.30	)	$	(0.52	)

Consolidated Balance Sheet Data (at end of period)
Working capital (deficit)	$	(5,066,300	)	$	(2,221,427	)	$	(7,029,635	)	$	(187,459	)	$	(7,130,480	)	$	768,385		$	(2,413,536	)	$	2,256,970
Total assets	$	5,014,670		$	4,950,454		$	3,029,299		$	5,867,085		$	2,331,596		$	4,585,341		$	1,850,536		$	6,166,224
Total liabilities	$	13,650,417		$	13,346,821		$	13,545,500		$	11,751,399		$	13,648,058		$	7,690,029		$	8,369,541		$	7,702,701
Total stockholders’ equity (deficit)	$	(8,635,747	)	$	(8,396,367	)	$	(10,516,201	)	$	(5,884,314	)
Total stockholders' deficit													$	(11,316,462	)	$	(3,104,688	)	$	(6,519,005	)	$	(1,536,477	)

	•	·	the FDA or a foreign regulatory authority finds our product candidates ineffective or unsafe;

	·	we are unable to get our product candidates in commercial quantities at reasonable costs; and

	•	·	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


	Price Range
	High		Low
2010
First Quarter	$	4.30	$	4.05
Second Quarter	$	4.45	$	4.10
Third Quarter	$	4.10	$	2.25
Fourth Quarter	$	4.80	$	2.15


	Price Range
	High		Low
2009
First Quarter		N/A		N/A
Second Quarter		N/A		N/A
Third Quarter	$	5.25	$	5.25
Fourth Quarter	$	6.00	$	4.00

	March 31, 2013			March 31, 2013
	Actual			As Adjusted
	(unaudited)			(unaudited)

Cash and cash equivalents	$	671,027		$	6,113,209

Derivative liability (embedded conversion feature of senior secured notes)	$	5,737,000		$	-

Senior secured convertible promissory notes		436,983			-

Notes payable, related parties		5,372,743			5,372,743

Stockholders' equity (deficit):
Preferred stock, par value $0.001, 5,000,000 shares authorized; no shares issued and outstanding		-			-

Common stock, par value $0.001, 150,000,000 shares authorized and 21,653,536 issued and outstanding, actual, and 37,986,136 issued and outstanding, as adjusted		21,654			37,986

Additional paid-in capital		64,935,348			78,164,718

Accumulated other comprehensive income		6,191			6,191

Accumulated deficit		(76,279,655	)		(77,909,192	)

Total Stockholders' equity (deficit)		(11,316,462	)		299,703

Total Capitalization	$	230,264		$	5,672,446

	Per Share
Assumed offering price per Unit				$	1.00
Historical net tangible book value (deficit) per share as of March 31, 2013	$	(0.57	)

Increase in pro forma net tangible book value (deficit) per share attributable to conversion of our 18% Senior Secured Convertible Promissory Notes as a result of this offering	$	0.29

Increase in pro forma net tangible book value (deficit) per share attributable to this offering	$	0.26

Pro forma as adjusted net tangible book value (deficit) per share after this offering				$	(0.02	)

Dilution per share to new investors				$	0.98

	Per Share
Assumed public offering price per share				$	1.00
Historical net tangible book value (deficit) per share as of March 31, 2013	$	(0.57	)

Increase in pro forma net tangible book value (deficit) per share attributable to this offering	$	0.17

Pro forma as adjusted net tangible book value (deficit) per share after this offering				$	(0.40	)

Dilution per share to new investors				$	0.60


														Nonqualified
												Non Equity		Deferred
Name and							Stock		Option			Incentive Plan		Compensation		All Other
Principal			Salary		Bonus		Awards		Awards			Compensation		Earnings		Compensation		Total
Position	Year		($)		($)		($)		($)			($)		($)		($)⁽⁴⁾		($)
(a)	(b)		(c)		(d)		(e)		(f)			(g)		(h)		(i)		(j)
Christopher		2010	$	350,000		—		—	$	668,500	⁽²⁾		—		—	$	23,027	$	1,041,527
M. Cashman		2009	$	305,000		—		—	$	1,463,957	⁽²⁾		—		—	$	20,012	$	1,788,969
Chief Executive Officer and President (Principal Executive Officer)

Barry J.		2010	$	233,730		—		—	$	384,371	⁽³⁾		—		—	$	22,689	$	640,790
Jenkins		2009	$	222,600		—		—	$	555,835	⁽³⁾		—		—	$	19,149	$	797,584
Chief Financial Officer
Cornelius A.		2010		—		—		—		—			—		—		—		—
Hofman(1)		2009		—		—		—		—			—		—		—		—
Former Sole Officer and Director


	Fees Earned								Nonqualified
	or						Non-Equity		Deferred
	Paid in		Stock		Option		Incentive Plan		Compensation		All Other
	Cash		Awards		Awards		Compensation		Earnings		Compensation		Total
Name⁽¹⁾	($)		($)		($)⁽²⁾		($)		($)		($)		($)
(a)	(b)		(c)		(d)		(e)		(f)		(g)		(h)
Thomas H. Robinson		—		—		—		—		—		—		—
Kevin A. Richardson, II		—		—	$	22,080		—		—		—	$	22,080
John F. Nemelka		—		—	$	22,080		—		—		—	$	22,080


			Amount of Shares of
	Number of Shares		Common Stock Being		Shares Beneficially Owned
	Beneficially Owned		Offered Pursuant to this		After Offering
Name of Selling Stockholders (1)	Before Offering (2)		Prospectus (3)		Number (3)		Percentage (4)
Pacific Select Fund — Health Sciences Portfolio (5)		270,766		270,766		—		*
Jennison Global Healthcare Master Fund, Ltd. (6)		307,700		307,700		—		*
Prudential Health Sciences Fund d/b/a Prudential Jennison Health Sciences Fund, a series of Prudential Sector Funds, Inc. (7)		1,575,380		1,575,380		—		*
Deerfield Special Situations Fund International Limited (8)		562,154		562,154		—		*
Deerfield Special Situations Fund, LP (8)		360,924		360,924		—		*
Investor Company f/b/o Rosalind Capital Partners L.P. (9)		146,200		146,200		—		*
Investor Company f/b/o Rosalind Master Fund L.P. (9)		161,600		161,600		—		*
DAFNA Lifescience Select Ltd (10)		48,000		48,000		—		*
DAFNA Lifescience Ltd (10)		24,000		24,000		—		*
DAFNA Lifescience Market Neutral Ltd (10)		20,308		20,308		—		*
Alpha Capital Anstalt (11)		153,846		153,846		—		*
Cranshire Capital LP (12)		61,540		61,540		—		*
Iroquois Master Fund Ltd (13)		30,768		30,768		—		*
David N. Nemelka (14)		3,390,537		620,000		2,770,537		12.3	%
McCollee Partners, LLC (15)		1,200,045		200,000		1,000,045		4.7	%
Steven P. Zolman		252,688		186,000		66,688		*
Kelly Walker		214,032		124,000		90,032		*
Jared Chappell		157,344		124,000		33,344		*
Stacy Hall		112,050		62,000		50,050		*
KSP Investments, LLC (16)		172,304		62,000		110,304		*
Ben E. Peay		310,859		62,000		248,859		1.2	%
Craig A. Davis		82,700		62,000		20,700		*
Brian Trapnell		117,982		68,000		49,982		*
Hatty Investments, LLC (17)		192,045		62,000		130,045		*
Michael Huish		112,011		62,000		50,011		*
Todd Pedersen		533,340		62,000		471,340		2.2	%
Daniel Chen		91,900		68,000		23,900		*
Mark N. Schneider Trustee of the Mark N. Schneider Family Living Trust (18)		99,677		62,000		37,677		*
Rodman & Renshaw LLC (19)		93,080		93,080		—		*


			Weighted
			Average
			Exercise
	Options		Price
Outstanding as of December 31, 2010		2,992,796	$	3.20
Granted		—	$	—
Exercised		—	$	—
Forfeited or expired		—	$	—

Outstanding as of March 31, 2011		2,992,796	$	3.20


Exercisable		2,135,365	$	2.59


				Weighted
				Average
				Grant-Date
	Options			Fair Value
Outstanding as of December 31, 2010		883,993		$	1.67
Granted		—		$	—
Vested		(26,562	)	$	2.51
Forfeited or expired		—		$	—

Outstanding as of March 31, 2011		857,431		$	1.65


				Weighted
				Average
	Restricted			Grant-Date
	Stock			Fair Value
Outstanding as of December 31, 2010		403,030		$	2.92
Granted		—		$	—
Vested		(403,030	)	$	2.92
Forfeited or expired		—		$	—

Outstanding as of March 31, 2011		—		$	—


	Class A		Class B		Class D
	Warrants		Warrants		Warrants
Outstanding as of December 31, 2010		1,106,627		1,106,627		2,284,993
Issued		—		—		1,950,167
Exercised		—		—		—
Cancelled		—		—		—

Outstanding as of March 31, 2011		1,106,627		1,106,627		4,235,160


	2010		2009

Balance, beginning of year	$	20,762	$	64,490
Reserve adjustments — increase (decrease)		14,720		(43,728	)
Write-offs, net of recovery		1,421		—

Balance, end of year	$	36,903	$	20,762


	2010			2009

Inventory — finished goods	$	539,141		$	667,998
Inventory — parts		78,202			108,068

Gross inventory		617,343			776,066
Provision for losses and obsolescence		(153,700	)		(183,477	)

Net inventory	$	463,643		$	592,589


	2010			2009

Ossatron devices	$	4,837,165		$	4,837,165
Accumulated depreciation		(4,837,165	)		(4,082,474	)

Net property and equipment		—			754,691

Inventory Ossatron device parts		226,081			210,169
Provision for losses and obsolescence		(226,081	)		(41,904	)

Net inventory		—			168,265

Total assets held for sale	$	—		$	922,956


	2010			2009

Numerator:
Loss from continuing operations	$	(14,922,441	)	$	(7,983,585	)

Income from discontinued operations	$	—		$	1,830,545

Net loss	$	(14,922,441	)	$	(6,153,040	)


Denominator:
Denominator for basic earnings (loss) per share — weighted average shares outstanding during the year		12,924,872			11,405,490

Effect of dilutive securities:
Notes payable, related parties		—			—
Warrants		—			—
Stock options		—			—


Denominator for diluted earnings (loss) per share — adjusted weighted average shares and assumed conversions		12,924,872			11,405,490


	2010			2009
Notes payable, unsecured, bearing interest at 6% to HealthTronics, Inc., a shareholder of the Company. The notes were issued in conjunction with the Company’s purchase of the orthopedic division of HealthTronics, Inc. on August 1, 2005. Quarterly interest through June 30, 2010, was accrued and added to the principal balance. Interest is paid quarterly in arrears beginning September 30, 2010. All remaining unpaid accrued interest and principal is due August 1, 2015. Accrued interest currently payable totaled $82,977 at December 31, 2010. There was no current interest payable at December 31, 2009. Accrued interest not payable until August 1, 2015 totaled $1,372,743 and $1,215,253 at December 31, 2010 and 2009, respectively.	$	5,372,743		$	5,215,253

Notes payable, unsecured, bearing interest at 15% to Prides Capital Fund I, LP and NightWatch Capital Partners II, LP, shareholders of the Company. Quarterly interest through December 31, 2010, is accrued and added to the principal balance. Unpaid accrued interest and principal is due September 30, 2011. Accrued interest totaled $1,047,290 and $472,728 at December 31, 2010 and 2009, respectively. All or any portion of the unpaid principal can be converted into common stock with a conversion price of $2.92 per share.		4,247,290			3,672,728

Total		9,620,033			8,887,981
Less current portion		(4,247,290	)		—

Non-current portion	$	5,372,743		$	8,887,981


	Class A		Class B		Class C			Class D
	Warrants		Warrants		Warrants			Warrants
Outstanding as of December 31, 2008		—		—		—			—
Issued		1,106,627		1,106,627		1,500,000			—
Exercised		—		—		—			—
Cancelled		—		—		—			—

Outstanding as of December 31, 2009		1,106,627		1,106,627		1,500,000			—
Issued		—		—		—			2,284,993
Exercised		—		—		—			—
Cancelled		—		—		(1,500,000	)		—

Outstanding as of December 31, 2010		1,106,627		1,106,627		—			2,284,993


	Compensation
Years ending December 31,	Cost

2011	$	577,089
2012		195,160
2013		101,396
2014		5,548

Total	$	879,193


	2010			2009
Expected life in years		5.5			6.0
Risk free interest rate		1.36	%		2.41	%
Weighted average volatility		65.00	%		65.00	%
Expected dividend yield (1)		—			—


				Weighted
				Average
				Grant Date
	Options			Fair Value
Outstanding as of December 31, 2009		851,849		$	1.46
Granted		1,019,500		$	1.98
Vested		(981,106	)	$	1.86
Forfeited or expired		(6,250	)	$	2.51

Outstanding as of December 31, 2010		883,993		$	1.62