425: Sanuwave Health Announces $1.8 Million Financing and Merger Update

Sanuwave Health secures $1.8 million through a private placement and promissory note, while updating stakeholders on its planned merger with SEP Acquisition Corp.

Summary

• Sanuwave Health, Inc. has entered into a Securities Purchase Agreement for a private placement involving future advance convertible promissory notes with an aggregate principal amount of $1.3 million.
• The private placement also includes warrants to purchase 32.5 million shares of common stock at an exercise price of $0.067 per share and warrants to purchase an additional 32.5 million shares of common stock at an exercise price of $0.04 per share.
• The exercise price of the warrants is subject to adjustment, but will never be less than $0.01 per share, and the warrants have a five-year term.
• The closing of the private placement occurred on June 18, 2024, with the Company receiving total proceeds of $1.8 million, consisting of $1.3 million from the private placement and $0.5 million from the issuance of a promissory note.
• The notes are convertible into shares of common stock at a conversion price of $0.04, subject to adjustment, but never less than $0.01.
• The Company also entered into a registration rights agreement with the purchasers to register the resale of shares of common stock issuable upon conversion of the notes and exercise of the warrants.
• Purchasers waived the Company's obligation to effect a reverse stock split by December 31, 2023, through a waiver letter.
• Purchasers agreed to receive shares of the Company's common stock in exchange for the notes and warrants upon a reverse stock split or immediately prior to the closing of the planned business combination with SEP Acquisition Corp.
• The Company issued a promissory note to Manchester Explorer, L.P. for $0.5 million, bearing interest at 15% per annum and maturing on December 18, 2024.
• The Company is offering note and warrant holders the option to exchange their securities for shares of Sanuwave common stock prior to the merger with SEPA.

Sentiment

Score: 6

Explanation: The sentiment is neutral. While the financing provides needed capital, it comes with dilutive effects and high interest rates. The merger is a positive catalyst, but its success is not guaranteed.

Positives

• The financing provides Sanuwave with $1.8 million in immediate capital.
• The waiver of the reverse stock split obligation provides the Company with flexibility.
• The potential business combination with SEP Acquisition Corp. could provide access to public markets and additional capital.
• The exchange offer simplifies the capital structure prior to the merger.

Negatives

• The notes and warrants are dilutive to existing shareholders.
• The notes bear a high interest rate of 15%.
• The conversion price and warrant exercise prices are subject to adjustment, potentially leading to further dilution.
• The Company's obligations under the notes are secured by a security agreement.

Risks

• The Company's actual results may differ from forward-looking statements.
• The merger agreement could be terminated.
• The Transactions may not be consummated, including due to conditions to the closing in the merger agreement.
• Necessary regulatory approvals may not be obtained.
• The listing of SEPAs securities on Nasdaq following the Transactions may not be obtained or maintained.
• The Company or SEPA may be adversely affected by other economic, business, and/or competitive factors.

Future Outlook

The Company plans to complete its business combination with SEP Acquisition Corp., which is expected to provide access to public markets and restructure its capital.

Industry Context

The announcement reflects a trend of companies seeking capital through private placements and exploring strategic transactions like mergers to enhance their market position and access public markets.

Comparison to Industry Standards

• The terms of the financing, including the interest rate and warrant coverage, are within the range of similar transactions for companies in the small-cap healthcare sector.
• Comparable companies raising capital through private placements include Xtant Medical Holdings, Inc. and SeaSpine Holdings Corporation.
• The planned merger with SEP Acquisition Corp. is similar to other SPAC transactions in the healthcare industry, such as the merger of Butterfly Network, Inc. with Longview Acquisition Corp.

Related Party Transactions

• Manchester Explorer, L.P., a beneficial owner of more than five percent of the Company's common stock, received a $0.5 million promissory note.
• Morgan Frank, the Chairman of the Company's Board of Directors and Chief Executive Officer, serves as a portfolio manager and a consultant for Manchester Explorer, L.P.

Stakeholder Impact

• Shareholders will experience dilution from the issuance of new shares upon conversion of the notes and exercise of the warrants.
• Employees may benefit from the increased financial stability and potential growth resulting from the financing and merger.
• Customers may benefit from the Company's ability to invest in product development and improve service offerings.
• Creditors are subject to a subordination agreement.

Next Steps

• The Company needs to file the Registration Statement with the SEC.
• The Company needs to obtain the Required Approvals.
• The Company needs to complete the planned business combination with SEP Acquisition Corp.

Key Dates