SANUWAVE Health, Inc. 10-Q

Item 1A. RISK FACTORS. Except as set forth below, there have been no material changes from our risk factors as previously reported in Part I, Item 1A “Risk Factors” in our 2022 Annual Report. The following new risk factors are added: Risks Related to the Business Combination The Business Combination is subject to conditions, including certain conditions that may not be satisfied on a timely basis, if at all. Unless waived by the parties to the Merger Agreement, and subject to applicable law, the consummation of the Business Combination is subject to several conditions set forth in the Merger Agreement. For more information about conditions for the consummation of the Business Combination, see Item 2 – Management’s discussion and analysis and analysis of financial condition and results of operations. The Merger Agreement includes a Minimum Cash Condition as a Condition to the consummation of the Merger, which may make it more difficult for SEP Acquisition Corp.(“ SEPA”) and the Company to complete the Business Combination as contemplated. The Merger Agreement provides that the Company’s obligation to consummate the Business Combination is conditioned on, among other things, that as of the Closing, SEPA has at least $12,000,000 (“Minimum Cash Condition Amount”) resulting from (i) proceeds that have not been redeemed in the Redemption and (ii) proceeds of the PIPE Investment (the “Minimum Cash Condition”). Assuming SEPA Stockholders redeem the maximum amount (622,747 shares of Class A Common Stock), then SEPA will need to obtain at least $5,184,880 (or 518,488 shares of Class A Common Stock at a price of $10.00 per share) in the PIPE Investment in order to satisfy the Minimum Cash Condition. Assuming 50% redemptions of Class A Common Stock, then SEPA will need to receive at least $2,071,140 (or 207,114 shares of Class A Common Stock at a price of $10.00 per share) in the PIPE Investment in order to satisfy the Minimum Cash Condition. Assuming 25% redemptions of Class A Common Stock, then SEPA will need to receive at least $514,280 (or 51,428 shares of Class A Common Stock at a price of $10.00 per share) in the PIPE Investment in order to satisfy the Minimum Cash Condition. Assuming 10% redemptions of Class A Common Stock or no redemptions of Class A Common Stock, then SEPA will not need to raise any funds in the PIPE Investment in order to satisfy the Minimum Cash Condition. SEPA expects to enter into subscription agreements in connection with the PIPE Investment in order to raise additional capital in an amount sufficient to ensure the Minimum Cash Condition is satisfied at Closing. However, as of the date of this filing, no commitments have been given for the proposed financing from the PIPE Investment, and there is no assurance that SEPA will enter into subscriptions for the PIPE Investment. The actual amount that SEPA raises in the PIPE Investment will depend on the number of redemptions of Class A Common Stock, market conditions, and other factors. This condition is for the sole benefit of the Company. If such condition is not met, and such condition is not or cannot be waived under the terms of the Merger Agreement, then the Merger Agreement could terminate, and the proposed Business Combination may not be consummated. If such condition is waived and the Business Combination is consummated with less than the Minimum Cash Condition Amount in the Trust Account, the cash held by the Combined Company (including the Company) in the aggregate, after the Closing may not be sufficient to allow the Combined Company to operate and pay Combined Company bills as they become due. Any such event in the future may negatively impact the analysis regarding the Combined Company’s ability to continue as a going concern at such time. The ability of SEPA Stockholders to exercise Redemption Rights with respect to Class A Common Stock may prevent SEPA from completing the Business Combination or maximizing its capital structure. SEPA does not know how many SEPA Stockholders will ultimately exercise their Redemption Rights in connection with the Business Combination. As such, the Business Combination is structured based on SEPA’s expectations (and those of other parties to the Merger Agreement) as to the amount of funds available in the Trust Account after giving effect to any Redemptions of Class A Common Stock. 24 Table of Contents It is a condition to the Company’s obligation to close the Business Combination, which may be waived by the Company, that, upon the Closing, SEPA have cash and cash equivalents, including funds remaining in the Trust Account (after giving effect to the completion and payment of the Redemption) and the proceeds of any PIPE Investment, after giving effect to the payment of SEPA’s unpaid transaction expenses and liabilities, of an amount equal to at least $12,000,000. If too many SEPA Stockholders elect to redeem their shares or the Company does not waive the condition described in the preceding sentence as a condition to the Closing and a sufficient number of PIPE Investors default upon obligations pursuant to PIPE Subscription Agreements, the proceeds from the PIPE Investment alone may be insufficient to complete the Business Combination and additional third-party financing may not be available to SEPA. There can be no assurance that the shares of the Combined Company’s Class A Common Stock that will be issued in connection with the Business Combination will be approved for listing on the Nasdaq following the Closing, or that the Combined Company will be able to comply with the continued listing rules of Nasdaq. In connection with the Business Combination and as a condition to the Company’s obligations to complete the Business Combination, the Combined Company will be required to demonstrate compliance with Nasdaq’s initial listing requirements, which generally require, among other criteria, a per share price of at least $4.00 per share and a market value of at least $50,000,000. In addition to the listing requirements for the Combined Company’s Class A Common Stock, Nasdaq imposes listing standards on warrants. The Company cannot assure you that the Combined Company will be able to meet those initial listing requirements, in which case the Company will not be obligated to complete the Business Combination. In order to continue the listing of its securities on the Nasdaq, SEPA prior to the Business Combination, and the Combined Company following the consummation of the Business Combination, must maintain certain financial, share price, and distribution levels. Generally, a listed company must maintain a minimum market capitalization (generally $50,000,000) and a minimum number of holders of its securities (currently 300 public shareholders). Even if the Combined Company’s Class A Common Stock is approved for listing on the Nasdaq, the Combined Company may not meet the Nasdaq continued listing requirements following the Business Combination. The announcement of the proposed Business Combination could disrupt SANUWAVE’s relationships with its customers, suppliers, business partners and others, as well as its operating results and business generally. Whether or not the Business Combination and related transactions are ultimately consummated, as a result of uncertainty related to the proposed transactions, risks relating to the impact of the announcement of the Business Combination on the Company’s business include the following: • its employees may experience uncertainty about their future roles, which might adversely affect the Combined Company’s ability to retain and hire key personnel and other employees; • customers, suppliers, business partners and other parties with which the Company maintains business relationships may experience uncertainty about its future and seek alternative relationships with third parties, seek to alter their business relationships with the Company or fail to extend an existing relationship with the Company; and • the Company continues to expand and will continue to expend significant costs, fees and expenses for professional services and transaction costs in connection with the proposed Business Combination. If any of the aforementioned risks were to materialize, they could lead to significant costs which may impact the Company and, in the future, the Combined Company’s results of operations and cash available to fund its business. The Company will be subject to contractual restrictions while the Business Combination is pending. The Merger Agreement restricts the Company from making certain expenditures and taking other specified actions without the consent of SEPA until the Business Combination occurs. These restrictions may prevent the Company from pursuing attractive business opportunities that may arise prior to the completion of the Business Combination. SEPA and the Company will incur significant transaction and transition costs in connection with the Business Combination . SEPA and the Company have both incurred and expect to incur significant, non-recurring costs in connection with consummating the Business Combination and operating as a public company following the consummation of the Business Combination. SEPA and the Company may also incur additional costs to retain key employees. Certain transaction costs incurred in connection with the Merger Agreement (including the Business Combination), including all legal, accounting, consulting, investment banking and other fees, expenses, and costs, will be paid by the Combined Company following the Closing. Item 2. UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES. None. 25 Table of Contents Item 3. DEFAULTS UPON SENIOR SECURITIES. Not applicable. Item 4. MINE SAFETY DISCLOSURES. Not applicable.