425: Sanuwave Provides Corporate Update: Merger with SEPA Faces Listing Hurdles, Company Settles Debt and Reaffirms Financial Guidance

Sanuwave Health provides an update on its merger with SEPA, including a change in listing exchange application, settlement of a $6.3 million debt for $2.075 million, and reaffirmation of its financial guidance for 2024.

Summary

• Sanuwave Health, Inc. provided a corporate update on its proposed merger with SEP Acquisition Corp. (SEPA) and other corporate financing activities.
• The company settled a $6.3 million note and interest owed to Celularity for $2.075 million on June 3, 2024, funded by a capital raise.
• Sanuwave reaffirms its previously announced financial guidance for Q2 2024, projecting revenue to increase by 45-55% compared to Q2 2023, with gross margins remaining in the mid-70s.
• Full fiscal year 2024 revenues are projected to exceed $30 million, representing 50% growth versus FY 2023.
• The company believes it is sufficiently funded for the remainder of 2024 and that its operations can be self-funding across this period.
• Due to Nasdaq listing requirements, the combined company withdrew its Nasdaq application and submitted an application to the Cboe BZX Exchange, which is currently under review.
• The company expected to secure Cboe listing, close the transaction, and commence trading in May, but the application process has taken longer than anticipated.
• Sanuwave and SEPA have agreed to extend the outside date of the merger until June 30, 2024.
• Sanuwave has been granted a unilateral right to terminate the merger agreement with SEPA at any time in its sole discretion.
• The company expects to begin work on activities that had been included as part of the SEPA transaction, such as the consummation of the note and warrant exchange, a reverse stock split, and other corporate financing activities.

Sentiment

Score: 5

Explanation: The sentiment is neutral. While the company is showing strong revenue growth and has settled a significant debt, the merger faces listing challenges and delays, creating uncertainty.

Positives

• Sanuwave successfully settled a significant debt at a reduced amount, improving its financial position.
• The company reaffirms strong revenue growth projections for Q2 and full-year 2024.
• Sanuwave believes it is currently sufficiently funded for the remainder of 2024 and that its operations can be self-funding across this period.

Negatives

• The merger with SEPA is facing listing challenges, causing delays and uncertainty.
• The company withdrew its Nasdaq application due to an interpretation of the exchange rules.
• The application process for the Cboe BZX Exchange has taken longer than anticipated.

Risks

• The merger agreement could be terminated.
• The inability to consummate the Transactions, including due to conditions to the closing in the merger agreement, such as the requirement that SEPA shall have at least $12.0 million at closing resulting from proceeds of (a) SEPAs Class A common stock that has not been redeemed and (b) a private placement.
• Delays in obtaining or the inability to obtain any necessary regulatory approvals required to complete the Transactions.
• The inability to obtain or maintain the listing of SEPAs securities on Nasdaq following the Transactions.
• Changes in applicable laws or regulations.
• The possibility that the Company or SEPA may be adversely affected by other economic, business, and/or competitive factors.

Future Outlook

Sanuwave anticipates securing a listing on the Cboe BZX Exchange and closing the merger with SEPA, while also pursuing other corporate financing activities. The company believes it is sufficiently funded for the remainder of 2024 and that its operations can be self-funding across this period.

Management Comments

• Morgan Frank, CEO, stated that the purpose of the merger with SEPA was to simplify and strengthen Sanuwaves financial position and structure to allow the Company to be valued for its business as opposed to its capital structure.

Industry Context

The announcement reflects the challenges smaller companies face in meeting listing requirements on major exchanges like Nasdaq, leading them to explore alternative exchanges like Cboe BZX. The focus on debt reduction and revenue growth aligns with common strategies for improving financial health and attracting investor interest in the competitive medical device industry.

Comparison to Industry Standards

• The projected revenue growth of 50% for FY 2024 is aggressive compared to the average growth rate in the wound care market, which typically ranges from 5-10%.
• Companies like Integra LifeSciences and Smith & Nephew, which are major players in the advanced wound care market, often see more moderate growth rates due to their larger size and established market presence.
• The gross margin in the mid-70s is competitive within the medical device industry, where gross margins commonly range from 60-80% for companies with proprietary technologies.

Stakeholder Impact

• Shareholders may experience uncertainty due to the listing challenges and delays in the merger.
• Employees may be affected by the potential changes in the company's structure and operations following the merger.
• Customers and suppliers may see changes in the company's products and services as a result of the merger and strategic initiatives.

Next Steps

• Secure a listing on the Cboe BZX Exchange.
• Close the merger with SEPA.
• Consummate the note and warrant exchange.
• Implement a reverse stock split.
• Pursue other corporate financing activities.

Key Dates