UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
Exhibit 99.2
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
On August 6, 2020, SANUWAVE Health, Inc. (“Sanuwave”, or the “Company”) entered into an asset purchase agreement (the “Asset Purchase Agreement”) with Celularity Inc. (“Celularity”) pursuant to which the Company acquired
(the “Transaction”) Celularity’s UltraMIST assets (“UltraMIST”, or the “Assets”). The aggregate consideration paid for the Assets was $24,000,000, which consisted of (i) a cash payment of $18,890,000, (ii) the issuance of a convertible promissory
note to Celularity in the principal amount of $4,000,000 (the “Seller Note”), and (iii) a credit of $1,110,000 for the previous payment made by the Company to Celularity pursuant to that certain letter of intent between the Company and Celularity
dated June 7, 2020. The closing of the transaction occurred on August 6, 2020.
In connection with the Asset Purchase Agreement, on August 6, 2020, the Company entered into a license and marketing agreement with Celularity pursuant to which Celularity granted to the Company a license to the Celularity
wound care biologic products, Biovance® and Interfyl® (the “License Agreement”). The License Agreement provides the Company with an exclusive license to use, market, distribute and sell Biovance® in the Field (as defined in the License Agreement) in
the Territory (as defined in the License Agreement), and a non-exclusive license to use, market, distribute and sell Interfyl® in the Field in the Territory. The License Agreement has an initial five year term, after which it automatically renews for
additional one year periods, unless either party gives written notice at least 180 days prior to the expiration of the current term.
The following tables and accompanying notes (collectively the “Pro forma Financial Statements”) present Sanuwave’s statements of income and balance sheet on a pro forma combined basis after giving effect to the Transaction.
The information in the tables below under the heading “Unaudited Pro Forma Combined Statement of Income” for the six months ended June 30, 2020 and the year ended December 31, 2019 give effect to the Transaction as if it had taken place on January 1,
2019 (the “Unaudited Pro Forma Combined Statements of Income”). The information in the table below under the heading “Unaudited Pro Forma Combined Balance Sheet” as of June 30, 2020 gives effect to the Transaction as if it had taken place on June 30,
2020 (the “Unaudited Pro Forma Combined Balance Sheet”).
The pro forma adjustments are based upon currently available information and certain assumptions that Xxxxxxxx’s management believes are reasonable. The unaudited pro forma combined financial information is presented for
informational purposes only and is not intended to present or be indicative of what the results of operations or financial position would have been had the events actually occurred on the dates indicated, nor is it meant to be indicative of future
results of operations or financial position for any future period or as of any future date. The unaudited pro forma combined financial information does not give effect to the potential impact of current financial conditions, or any anticipated
revenue enhancements, cost savings or operating synergies that may result from the Transaction.
The historical financial information of the Company being presented in these Unaudited Pro Forma Financial Statements is derived from the Company's unaudited consolidated statement of income for the six months ended June
30, 2020, audited consolidated statement of income for the fiscal year ended December 31, 2019 and unaudited consolidated balance sheet as of June 30, 2020,which were prepared in accordance with GAAP.
The historical financial information of the Assets being presented in these Unaudited Pro Forma Financial Statements is based on the Abbreviated Statements of Assets Acquired and Abbreviated Statements of Revenues and
Direct Expenses (the “Abbreviated Financial Statements”), which are in an abbreviated format and are presented in lieu of the financial information otherwise required by Rule 3-05 of Regulation S-X. The historical abbreviated financial information of
the Assets is derived (“carved-out”) from Celularity’s consolidated financial statements, including the unaudited consolidated statement of income for the six months ended June 30, 2020, the audited consolidated statement of income for the year ended
December 31, 2019 and the unaudited consolidated balance sheet as of June 30, 2020, which were prepared in accordance with GAAP. Note 1 to the Abbreviated Financial Statements included in Exhibit 99.1 of this Form 8-K/A provides further information
regarding the basis of presentation and allocations made in the Abbreviated Financial Statements. The Abbreviated Financial Statements only reflect the assets and liabilities conveyed in the Asset Purchase Agreement, and do not purport to reflect the
financial position and results of operations of the Assets had such business operated on a stand-alone basis during the periods presented.
1
The assumptions and estimates underlying the unaudited adjustments to the Unaudited Pro Forma Financial Statements are described in the accompanying notes, which should be read together with the Unaudited Pro Forma
Financial Statements. In addition, the Unaudited Pro Forma Financial Statements should be read in conjunction with the following:
|
●
|
Sanuwave’s Annual Report on Form 10-K for the year ended December 31, 2019 filed with the U.S. Securities and Exchange Commission (“SEC”) on March 30, 2020;
|
|
●
|
Sanuwave’s Quarterly Report on Form 10-Q for the period ended June 30, 2020 filed with the SEC on August 14, 2020;
|
|
●
|
UltraMIST Product Line of Celularity’s audited abbreviated statements as of December 31, 2019 and the year ended December 31, 2019 included in Exhibit 99.1 of this Form 8-K/A; and
|
|
●
|
UltraMIST Product Line of Celularity’s unaudited abbreviated statements as of June 30, 2020 and December 31, 2019 (audited) and for the six months ended June 30, 2020 and 2019 included in Exhibit 99.1 of this Form
8-K/A.
|
The Unaudited Pro Forma Financial Statements have been prepared for illustrative purposes only and are based on assumptions and estimates considered appropriate by Xxxxxxxx’s management. However, they do not necessarily
reflect what the combined company’s financial condition or results of income would have been had the Transaction occurred on the dates set forth above, nor do they purport to be indicative of the future financial condition and results of income of
the combined company. The Unaudited Pro Forma Statements of Income are not indicative of the income of the combined company going forward because the Abbreviated Financial Statements necessarily exclude various operating expenses of UltraMIST.
2
SANUWAVE HEALTH, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
For the Six Months Ended June 30, 2020
(Unaudited)
|
Sanuwave
(Historical)
|
UltraMIST
(Historical)
|
Transaction
Accounting
Adjustments
|
Notes
|
Pro
Forma
Combined
|
||||||||||||||||
|
REVENUES
|
||||||||||||||||||||
|
Product
|
$
|
143,900
|
$
|
2,972,000
|
$
|
-
|
$
|
3,115,900
|
||||||||||||
|
License fees
|
10,000
|
-
|
-
|
10,000
|
||||||||||||||||
|
Other revenue
|
77,993
|
-
|
-
|
77,993
|
||||||||||||||||
|
TOTAL REVENUES
|
231,893
|
2,972,000
|
-
|
3,203,893
|
||||||||||||||||
|
COST OF REVENUES
|
||||||||||||||||||||
|
Product
|
103,740
|
1,106,625
|
(58,271
|
)
|
2, 4(l
|
)
|
1,152,094
|
|||||||||||||
|
Other
|
11,484
|
-
|
-
|
11,484
|
||||||||||||||||
|
TOTAL COST OF REVENUES
|
115,224
|
1,106,625
|
(58,271
|
)
|
1,163,578
|
|||||||||||||||
|
GROSS MARGIN
|
116,669
|
1,865,375
|
58,271
|
2,040,315
|
||||||||||||||||
|
OPERATING EXPENSES
|
||||||||||||||||||||
|
Research and development
|
551,661
|
-
|
-
|
551,661
|
||||||||||||||||
|
Selling and marketing
|
1,041,001
|
1,370,674
|
944,658
|
2, 4(n
|
)
|
3,356,333
|
||||||||||||||
|
General and administrative
|
4,474,710
|
234,935
|
-
|
4,709,645
|
||||||||||||||||
|
Depreciation and amortization
|
117,789
|
-
|
896,095
|
4(m
|
)
|
1,013,884
|
||||||||||||||
|
TOTAL OPERATING EXPENSES
|
6,185,161
|
1,605,609
|
1,840,753
|
9,631,523
|
||||||||||||||||
|
OPERATING LOSS
|
(6,068,492
|
)
|
259,766
|
(1,782,482
|
)
|
(7,591,208
|
)
|
|||||||||||||
|
OTHER INCOME (EXPENSE)
|
||||||||||||||||||||
|
Interest expense
|
(187,673
|
)
|
-
|
(1,384,155
|
)
|
4(k
|
)
|
(1,571,828
|
)
|
|||||||||||
|
Interest expense, related party
|
(369,736
|
)
|
-
|
-
|
(369,736
|
)
|
||||||||||||||
|
Loss on foreign currency exchange
|
(8,267
|
)
|
-
|
-
|
(8,267
|
)
|
||||||||||||||
|
TOTAL OTHER INCOME (EXPENSE), NET
|
(565,676
|
)
|
-
|
(1,384,155
|
)
|
(1,949,831
|
)
|
|||||||||||||
|
NET LOSS
|
(6,634,168
|
)
|
259,766
|
(3,166,637
|
)
|
(9,541,039
|
)
|
|||||||||||||
|
OTHER COMPREHENSIVE INCOME (LOSS)
|
||||||||||||||||||||
|
Foreign currency translation adjustments
|
(1,923
|
)
|
-
|
-
|
(1,923
|
)
|
||||||||||||||
|
TOTAL COMPREHENSIVE LOSS
|
$
|
(6,636,091
|
)
|
$
|
259,766
|
$
|
(3,166,637
|
)
|
$
|
(9,542,962
|
)
|
|||||||||
|
LOSS PER SHARE:
|
||||||||||||||||||||
|
Net loss - basic and diluted
|
$
|
(0.02
|
)
|
4(o
|
)
|
$
|
(0.02
|
)
|
||||||||||||
|
Weighted average shares outstanding - basic and diluted
|
297,856,870
|
136,641,160
|
4(o
|
)
|
434,498,030
|
|||||||||||||||
See accompanying notes to the unaudited pro forma combined financial statements.
3
SANUWAVE HEALTH, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
For the Year Ended December 31, 2019
(Unaudited)
|
Sanuwave
(Historical)
|
UltraMIST
(Historical)
|
Transaction
Accounting
Adjustments
|
Notes
|
Pro Forma
Combined
|
||||||||||||||||
|
REVENUES
|
||||||||||||||||||||
|
Product
|
$
|
645,169
|
$
|
7,974,825
|
$
|
-
|
$
|
8,619,994
|
||||||||||||
|
License fees
|
315,557
|
-
|
-
|
315,557
|
||||||||||||||||
|
Other revenue
|
68,004
|
-
|
-
|
68,004
|
||||||||||||||||
|
TOTAL REVENUES
|
1,028,730
|
7,974,825
|
-
|
9,003,555
|
||||||||||||||||
|
COST OF REVENUES
|
||||||||||||||||||||
|
Product
|
454,862
|
2,920,239
|
(196,542
|
)
|
2, 4(l
|
)
|
3,178,559
|
|||||||||||||
|
Other
|
84,061
|
-
|
-
|
84,061
|
||||||||||||||||
|
TOTAL COST OF REVENUES
|
538,923
|
2,920,239
|
(196,542
|
)
|
3,262,620
|
|||||||||||||||
|
GROSS MARGIN
|
489,807
|
5,054,586
|
196,542
|
5,740,935
|
||||||||||||||||
|
OPERATING EXPENSES
|
||||||||||||||||||||
|
Research and development
|
1,181,892
|
-
|
-
|
1,181,892
|
||||||||||||||||
|
Selling and marketing
|
1,590,957
|
2,379,641
|
1,969,317
|
2, 4(n
|
)
|
5,939,915
|
||||||||||||||
|
General and administrative
|
6,440,093
|
462,874
|
-
|
6,902,967
|
||||||||||||||||
|
Depreciation and amortization
|
71,213
|
-
|
1,792,189
|
4(m
|
)
|
1,863,402
|
||||||||||||||
|
TOTAL OPERATING EXPENSES
|
9,284,155
|
2,842,515
|
3,761,506
|
15,888,176
|
||||||||||||||||
|
OPERATING LOSS
|
(8,794,348
|
)
|
2,212,071
|
(3,564,964
|
)
|
(10,147,241
|
)
|
|||||||||||||
|
OTHER INCOME (EXPENSE)
|
||||||||||||||||||||
|
Gain on warrant valuation adjustment
|
227,669
|
-
|
-
|
227,669
|
||||||||||||||||
|
Interest expense
|
(1,147,986
|
)
|
-
|
(3,439,859
|
)
|
4(k
|
)
|
(4,587,845
|
)
|
|||||||||||
|
Interest expense, related party
|
(688,195
|
)
|
-
|
-
|
(688,195
|
)
|
||||||||||||||
|
Loss on foreign currency exchange
|
(26,979
|
)
|
-
|
-
|
(26,979
|
)
|
||||||||||||||
|
TOTAL OTHER INCOME (EXPENSE), NET
|
(1,635,491
|
)
|
-
|
(3,439,859
|
)
|
(5,075,350
|
)
|
|||||||||||||
|
NET LOSS
|
(10,429,839
|
)
|
2,212,071
|
(7,004,823
|
)
|
(15,222,591
|
)
|
|||||||||||||
|
OTHER COMPREHENSIVE INCOME (LOSS)
|
||||||||||||||||||||
|
Foreign currency translation adjustments
|
19,844
|
-
|
-
|
19,844
|
||||||||||||||||
|
TOTAL COMPREHENSIVE LOSS
|
$
|
(10,409,995
|
)
|
$
|
2,212,071
|
$
|
(7,004,823
|
)
|
$
|
(15,202,747
|
)
|
|||||||||
|
LOSS PER SHARE:
|
||||||||||||||||||||
|
Net loss - basic and diluted
|
$
|
(0.05
|
)
|
4(o
|
)
|
$
|
(0.04
|
)
|
||||||||||||
|
Weighted average shares outstanding - basic and diluted
|
203,588,106
|
136,641,160
|
4(o
|
)
|
340,229,266
|
|||||||||||||||
See accompanying notes to the unaudited pro forma combined financial statements.
4
SANUWAVE HEALTH, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
June 30, 2020
(Unaudited)
|
Sanuwave
(Historical)
|
UltraMIST
(Historical)
|
Transaction Accounting Adjustments
|
Notes
|
Pro Forma Combined
|
||||||||||||||||
|
CURRENT ASSETS
|
||||||||||||||||||||
|
Cash and cash equivalents
|
$
|
430,606
|
$ |
-
|
$
|
9,192,211
|
4(a), 4(g), 4(h), 4(i), 4(j)
|
$
|
9,622,817
|
|||||||||||
|
Accounts receivable, net of allowance for doubtful accounts
|
110,501
|
-
|
-
|
110,501
|
||||||||||||||||
|
Inventory
|
651,344
|
2,011,127
|
(151,162
|
)
|
4(b
|
)
|
2,511,309
|
|||||||||||||
|
Prepaid expenses and other current assets
|
227,086
|
-
|
-
|
227,086
|
||||||||||||||||
|
TOTAL CURRENT ASSETS
|
1,419,537
|
2,011,127
|
9,041,049
|
12,471,713
|
||||||||||||||||
|
PROPERTY AND EQUIPMENT, net
|
591,064
|
495,184
|
(58,369
|
)
|
4(c
|
)
|
1,027,879
|
|||||||||||||
|
RIGHT OF USE ASSETS, net
|
243,251
|
-
|
248,576
|
4(f
|
)
|
491,827
|
||||||||||||||
|
DEPOSITS
|
1,110,000
|
-
|
(1,110,000
|
)
|
4(a
|
)
|
-
|
|||||||||||||
|
OTHER INTANGIBLE ASSETS, net
|
-
|
-
|
14,443,425
|
4(d
|
)
|
14,443,425
|
||||||||||||||
|
GOODWILL
|
-
|
-
|
7,259,795
|
4(e
|
)
|
7,259,795
|
||||||||||||||
|
OTHER ASSETS
|
43,096
|
-
|
-
|
43,096
|
||||||||||||||||
|
TOTAL ASSETS
|
$
|
3,406,948
|
$
|
2,506,311
|
$
|
29,824,476
|
$
|
35,737,735
|
||||||||||||
|
CURRENT LIABILITIES
|
||||||||||||||||||||
|
Accounts payable
|
$
|
1,799,630
|
$ |
-
|
$
|
-
|
$
|
1,799,630
|
||||||||||||
|
Accrued expenses
|
1,221,214
|
-
|
-
|
4
|
1,221,214
|
|||||||||||||||
|
Accrued employee compensation
|
2,010,610
|
-
|
-
|
2,010,610
|
||||||||||||||||
|
Contract liabilities
|
551,755
|
-
|
-
|
551,755
|
||||||||||||||||
|
Operating lease liability
|
179,524
|
-
|
59,963
|
4(f
|
)
|
239,487
|
||||||||||||||
|
Finance lease liability
|
181,371
|
-
|
-
|
181,371
|
||||||||||||||||
|
Convertible promissory notes, related parties
|
705,980
|
-
|
666,763
|
4(i
|
)
|
1,372,743
|
||||||||||||||
|
Convertible promissory note payable
|
-
|
-
|
4,000,000
|
4(a
|
)
|
4,000,000
|
||||||||||||||
|
SBA Loans
|
142,514
|
-
|
(142,514
|
)
|
4(i
|
)
|
-
|
|||||||||||||
|
Warrant liability
|
-
|
-
|
10,356,405
|
4(g), 4(h
|
)
|
10,356,405
|
||||||||||||||
|
Accrued interest, related parties
|
2,229,713
|
-
|
(2,229,713
|
)
|
4(i
|
)
|
-
|
|||||||||||||
|
Line of credit, related parties
|
222,164
|
-
|
(222,164
|
)
|
4(i
|
)
|
-
|
|||||||||||||
|
Short term notes payable
|
210,000
|
-
|
(210,000
|
)
|
4(i
|
)
|
-
|
|||||||||||||
|
Notes payable, related parties, net
|
5,372,743
|
-
|
(5,149,232
|
)
|
4(i
|
)
|
223,511
|
|||||||||||||
|
TOTAL CURRENT LIABILITIES
|
14,827,218
|
-
|
7,129,508
|
21,956,726
|
||||||||||||||||
|
NON-CURRENT LIABILITIES
|
||||||||||||||||||||
|
Senior promissory notes payable, net of debt issuance costs
|
-
|
-
|
10,296,307
|
4(g
|
)
|
10,296,307
|
||||||||||||||
|
Contract liabilities
|
53,782
|
-
|
-
|
53,782
|
||||||||||||||||
|
SBA Loans
|
471,821
|
-
|
(8,349
|
)
|
4(i
|
)
|
463,472
|
|||||||||||||
|
Operating lease liability
|
92,889
|
-
|
188,613
|
4(f
|
)
|
281,502
|
||||||||||||||
|
Finance lease liability
|
333,771
|
-
|
-
|
333,771
|
||||||||||||||||
|
TOTAL NON-CURRENT LIABILITIES
|
952,263
|
-
|
10,476,571
|
11,428,834
|
||||||||||||||||
|
TOTAL LIABILITIES
|
15,779,481
|
-
|
17,606,079
|
33,385,560
|
||||||||||||||||
|
REDEEMABLE PREFERRED STOCK, SERIES C CONVERTIBLE
|
2,250,000
|
-
|
-
|
2,250,000
|
||||||||||||||||
|
REDEEMABLE PREFERRED STOCK, SERIES D CONVERTIBLE
|
200,000
|
-
|
-
|
200,000
|
||||||||||||||||
|
COMMON STOCK
|
302,119
|
-
|
141,275
|
4(h), 4(i
|
)
|
443,394
|
||||||||||||||
|
ADDITIONAL PAID-IN CAPITAL
|
117,326,629
|
-
|
16,242,287
|
4(h), 4(i
|
)
|
133,568,916
|
||||||||||||||
|
ACCUMULATED DEFICIT
|
(132,387,124
|
)
|
-
|
(1,658,854
|
)
|
4(i), 4(j
|
)
|
(134,045,978
|
)
|
|||||||||||
|
ACCUMULATED OTHER COMPREHENSIVE LOSS
|
(64,157
|
)
|
-
|
-
|
(64,157
|
)
|
||||||||||||||
|
TOTAL STOCKHOLDERS' DEFICIT
|
(14,822,533
|
)
|
-
|
14,724,708
|
(97,825
|
)
|
||||||||||||||
|
TOTAL LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS'
DEFICIT
|
$
|
3,406,948
|
$
|
-
|
$
|
32,330,787
|
$
|
35,737,735
|
||||||||||||
See accompanying notes to the unaudited pro forma combined financial statements.
5
SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
1. Basis of Presentation
The Unaudited Pro Forma Financial Statements were prepared in accordance with Article 11 of Regulation S-X to illustrate the pro forma effects of the Transaction. The Company has elected to early adopt the SEC’s amendments
on May 21, 2020 to the financial disclosure requirements in Regulation S-X for acquisitions and dispositions of businesses in Rules 3-05, 3-14, 8-04, 8-05, 8-06, and Article 11. The Unaudited Pro Forma Financial Statements were prepared in accordance
with these amendments. See Note 2, Preliminary purchase price allocation. The Unaudited Pro Forma Combined Statements of Income for the six months ended June 30, 2020 and the year ended December 31, 2019 combine the historical consolidated statements
of income of Sanuwave and the historical statements of revenues and direct expenses of UltraMIST for such periods, giving effect to (i) the Transaction as if it had taken place on January 1, 2019 and (ii) the assumptions and adjustments described in
the accompanying notes to these Unaudited Pro Forma Financial Statements. The Unaudited Pro Forma Combined Balance Sheet as of June 30, 2020 combines the historical unaudited consolidated balance sheet of Sanuwave and the unaudited statement of
assets acquired of UltraMIST as of June 30, 2020, giving effect to (i) the Transaction as if it had taken place on June 30, 2020 and (ii) the assumptions and adjustments described in the accompanying notes to these Unaudited Pro Forma Financial
Statements. The pro forma adjustments described in the accompanying notes are (1) directly attributable to the Transaction, (2) factually supportable, and (3) with respect to the Unaudited Pro Forma Combined Statements of Income, expected to have a
continuing impact on the combined results of Sanuwave and UltraMIST.
The Unaudited Pro Forma Financial Statements have been prepared using the acquisition method of accounting in accordance with ASC 805, Business Combinations, with Sanuwave treated as the accounting acquirer. As of the date
of this Form 8-K/A, Sanuwave has not completed the detailed valuation procedures necessary to finalize the required estimated fair values and estimated lives of the Assets to be acquired, the estimated fair values of the liabilities to be assumed,
and the related allocation of the purchase price. The fair values and purchase price allocation contained within these statements are preliminary and are based on management's estimates after initial consultations with valuation personnel and
discussions with Celularity's management. The final allocation of the purchase price will be determined after completion of an analysis to determine the estimated fair value of UltraMIST's assets acquired, and associated tax adjustments. Accordingly,
the final acquisition accounting adjustments may be materially different from the unaudited pro forma adjustments described in these notes to the Pro Forma Financial Statements.
Sanuwave has historically incurred net operating losses and maintained a full valuation allowance against its deferred tax assets in its historical financial information. Its deferred tax assets consist predominantly of
federal and state net operating loss carryforwards. While the Company is undertaking a detailed assessment of the tax impacts of the Transaction as of the date of this Form 8-K/A, the Unaudited Pro Forma Financial Statements have been prepared under
the assumption that, following the close of the Transaction, the Company will continue to generate net operating losses and reflect a full valuation allowance against its net deferred tax assets in its historical financial information.
2. Historical UltraMIST reclassification adjustments
A reclassification adjustment has been made to conform UltraMIST's financial statement presentation to that of Xxxxxxxx's. Outbound freight costs of $52,000 and $184,000 for the six months ended June 30, 2020 and the for
the year ended December 31, 2019, respectively, were presented in UltraMIST's statement of income in cost of goods sold and were adjusted to conform with Sanuwave's presentation of outbound freight costs in selling and marketing operating expenses.
3. Preliminary purchase price allocation
The total purchase consideration for the Transaction is $24,000,000, which consists of $18,890,000 of cash paid at closing, $4,000,000 related to a promissory note Sanuwave issued to Celularity (the “Seller Note”), and a
previous payment of $1,110,000 pursuant to a letter of intent dated June 7, 2020 between Sanuwave and Celularity.
The following is an estimate of acquired assets of UltraMIST at June 30, 2020, reconciled to the estimated total purchase consideration:
|
Inventory
|
$
|
1,859,965
|
||
|
Property and equipment, net
|
436,815
|
|||
|
Intangible assets, net
|
14,443,425
|
|||
|
Goodwill
|
7,259,795
|
|||
|
Total consideration transferred
|
$
|
24,000,000
|
6
SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
This preliminary purchase price allocation has been used to prepare transaction accounting adjustments in the Unaudited Pro Forma Combined Balance Sheet and the Unaudited Pro Forma Combined Statements of Income. The final
purchase price allocation will be determined when the Company has completed the detailed valuations and necessary calculations. The final allocation could differ materially from the preliminary allocation used in the pro forma adjustments. The
Company is still evaluating the income tax effects of the transaction.
The transaction accounting adjustments in the Unaudited Pro Forma Combined Balance Sheet represent the difference between the allocated cost of the identifiable net assets acquired and the historical cost of the net assets
acquired. As the Abbreviated Financial Statements are prepared on an abbreviated basis, the Abbreviated Statement of Assets Acquired does not contain equity. Therefore, the historical UltraMIST information and the transaction accounting adjustments
on the Unaudited Pro Forma Combined Balance Sheet are necessarily out of balance by offsetting amounts.
4. Transaction accounting adjustments
The transaction accounting adjustments are based on the Company’s preliminary estimates and assumptions that are subject to change. The following adjustments have been reflected in the Unaudited Pro Forma Financial
Statements:
(a) Purchase Consideration
Reflects the adjustments to record cash paid at closing of $18,890,000, the issuance of the Seller Note to Celularity in the principal amount of $4,000,000 and the derecognition of the $1,110,000 deposit pursuant to the
letter of intent dated June 7, 2020. The cash payment is reflected as a reduction in cash, the issuance of the Seller Note is reflected as an increase in long-term borrowings and the derecognition of the deposit is reflected as a decrease in deposits
in the Unaudited Pro Forma Combined Balance Sheet.
(b) Inventory
Reflects the adjustments to record inventories at their estimated fair value as of the date of the Transaction of $1,859,965 and to eliminate the historical carrying value of inventory of $2,011,127.
(c) Property and Equipment
Reflects the adjustments to record property and equipment at their estimated fair value as of the date of the Transaction of $436,815 and to eliminate the net book value of historical property and equipment of $495,184.
(d) Intangible Assets
Reflects the adjustments to record intangible assets at the estimated fair value of $14,443,425 . The estimated fair value of identifiable intangible assets includes $11,438,100 of customer relationships, $2,311,825 of
patents and $693,500 of trade names. The estimated useful lives of patents and trade names are 19 years. The estimated useful life of customer relationships is 7 years.
The estimated fair value of the acquired customer relationships is based on a variation of the income valuation approach and is determined using the multi-period excess earnings method, which is a variation of the
discounted cash flow method that quantifies value based on after-tax residual cash flows generated by the intangible asset. Key estimates and assumptions used in this model are projected revenues and expenses related to the asset and a risk-adjusted
discount rate used to calculate the present value of the future expected cash inflows from the asset.
7
SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The estimated fair value of the acquired trade names and patents is based on a variation of the income valuation approach known as the relief from royalty method, which quantifies the incremental income or cost savings that
accrue to the owner of an intangible asset due to the avoidance, or relief from, royalty payments to a third party for the license of the intangible asset if it were not owned. Key estimates and assumptions used in this model are the income stream on
which the royalty will be calculated, an appropriate fair royalty rate for the license of the intangible asset and a risk-adjusted discount rate used to calculate the present value of the future expected royalty savings.
The fair value estimate for identified intangible assets is preliminary. The final fair value determination of the identified intangible assets may differ from this preliminary determination, and such differences could be
material.
(e) Goodwill
Reflects the adjustments to goodwill arising from the Transaction of $7,259,795. Goodwill is calculated as the difference between the consideration transferred and the fair values assigned to the assets acquired. Goodwill
will not be amortized and is not expected to be deductible for income tax purposes.
|
Total purchase consideration
|
$
|
24,000,000
|
||
|
Less: Fair value of net assets acquired
|
(16,740,205
|
)
|
||
|
Total goodwill
|
$
|
7,259,795
|
(f) Leases
Reflects the adjustments to record the acquired UltraMIST operating leases, including the right-of-use assets of $248,576 in operating lease right-of-use assets, net, current portion of lease liabilities of $59,963 in
current portion of lease liabilities, and non-current portion of lease liabilities of $188,613 in operating lease liabilities.
(g) Note and Warrant Purchase and Security Agreement
Reflects the adjustments to record the impact of the Note and Warrant Purchase and Security Agreement (the “NWPSA”) the Company entered into on August 6, 2020 in connection to the Transaction. The NWPSA provides for (i) the
sale and purchase of secured notes (the “Notes”) in an aggregate original principal amount of $15,000,000 and (ii) the issuance of warrants equal to 2.0% of the fully-diluted common stock of the Company as of the issue date (the “NH Warrant”). The NH
Warrant has an exercise price of $0.01 per share and a 10-year term, and accordingly, are included in pro-forma earnings per share.
The Company received net proceeds from issuing the Notes and NH Warrant of $13,346,547. The Company recorded a liability of $3,050,240 for the fair value of the NH Warrant in the Unaudited Pro Forma Combined Balance Sheet.
It recorded a liability for the Notes payable of $10,296,307.
(h) Warrant Liability, Common Stock and Additional Paid-in Capital
Reflects the adjustments to record the impact of the Securities Purchase Agreement (the "Purchase Agreement"). Under the Purchase Agreement, and in connection to the Transaction, on August 6, 2020 the Company issued
123,550,000 shares of Common Stock and accompanying Class E Warrants to purchase up to an additional 123,550,000 shares of Common Stock (the "Warrants") to certain accredited investors for an aggregate purchase price of $0.20 per Private Placement
Share and accompanying Warrant. It also issued warrants to a third-party placement agent to purchase up to 9,266,250 shares of Common Stock on the same terms as the Warrants. The Warrants have an exercise price of $0.25 per share and a three year
term.
The Private Placement generated net proceeds of approximately $21,000,000. The Private Placement Shares have a par value of $0.001, resulting in an increase to Common Stock of $123,550. Because at the date of issuance the
Company did not have a sufficient number of authorized shares to satisfy the Warrants in the event that they were exercised which could cause the net cash settlement of the Warrants, the Company recorded a liability of $7,306,165 for the fair value
of the Warrants that were in excess of the available authorized shares in the Unaudited Pro Forma Combined Balance Sheet. The Company recorded the residual amount of $13,758,965 from the net proceeds to additional paid-in capital.
8
SANUWAVE HEALTH, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(i) Other Concurrent Transactions
Reflects the adjustments to record the impact of certain other transactions that occurred concurrently with the Transaction and that were necessary to consummate the financing arrangements needed to complete the Transaction
(collectively, the “Other Concurrent Transactions”).
The Company entered into a letter agreement (the “HealthTronics Agreement”) with HealthTronics, Inc. (“HealthTronics”), pursuant to which the Company paid off all outstanding debt due and owed to HealthTronics. As
consideration for the extinguishment of the debt due and owed to HealthTronics, (i) the Company paid to HealthTronics an amount in cash equal to $4,000,000, (ii) HealthTronics exercised all of its outstanding Class K Warrants to purchase 7,200,000
shares of Common Stock, (iii) the Company issued to HealthTronics a convertible promissory note in the principal amount of $1,372,743 (the “HealthTronics Note”), and (iv) the Company and HealthTronics entered into a Securities Purchase Agreement
dated August 6, 2020 (the “HealthTronics Purchase Agreement) pursuant to which the Company issued to HealthTronics an aggregate of 8,275,235 shares of Common Stock and an accompanying warrant to purchase up to an additional 8,275,235 shares of Common
Stock (the “HealthTronics Warrant”).
The Company terminated that certain line of credit agreement with X. Xxxxxxx Xxxxxxxxx, a member of the Company’s board of directors (the “Xxxxxxxxx Line of Credit”). As consideration for the termination of the Xxxxxxxxx
Line of Credit, the Company issued to X. Xxxxxxx Xxxxxxxxx a convertible promissory note in the principal amount of $223,511 (the “Xxxxxxxxx Note”).
The Company repaid $1,306,800 owed to LGH Investments, LLC pursuant to that certain promissory note issued by the Company to LGH Investments, (the “LGH Note”). As a result, all obligations of the Company under the LGH Note
have been terminated.
The Company issued to Xxxxxx Xxxxxxx 1,000,000 shares of Common Stock pursuant to conversion of that certain Short Term Promissory Note issued by the Company to Xxxxxx Xxxxxxx dated December 13, 2019 in the principal amount
of $110,000. The Company issued to Xxxxx Xxxxxxx 1,250,000 shares of Common Stock pursuant to conversion of that certain Short Term Promissory Note issued by the Company to Xxxxx Xxxxxxx dated December 13, 2019 in the principal amount of $100,000.
The Company repaid $150,863 owed on its Small Business Administration COVID-19 disaster loan (the “SBA Loan”).
The impact of the Other Concurrent Transactions to the Unaudited Pro Forma Combined Balance Sheet is summarized in the table below:
|
Other Concurrent
Transactions
|
||||
|
(Decrease) to Cash and cash equivalents
|
$
|
(5,457,663
|
)
|
|
|
Increase to Convertible promissory notes, related parties
|
666,763
|
|||
|
(Decrease) to SBA Loans – Current
|
(142,514
|
)
|
||
|
(Decrease) to Accrued interest, related parties
|
(2,229,713
|
)
|
||
|
(Decrease) to Line of credit, related parties
|
(222,164
|
)
|
||
|
(Decrease) to Short term notes payable
|
(210,000
|
)
|
||
|
(Decrease) to Notes payable, related parties, net
|
(5,149,232
|
)
|
||
|
(Decrease) to SBA Loans - Noncurrent
|
(8,349
|
)
|
||
|
Increase to Common stock
|
17,725
|
|||
|
Increase to Additional paid-in capital
|
2,483,322
|
|||
|
(Decrease) to Accumulated deficit
|
(663,501
|
)
|
||
(j) Transaction Costs
Reflects the adjustments to record an additional $995,353 of Sanuwave transaction costs related to the Transaction that were not previously recorded in the historical financial statements as of June 30, 2020. All of these
costs were paid at closing. These costs are recorded as a reduction to retained earnings in the Unaudited Pro Forma Combined Balance Sheet. Additionally, since there is no continuing impact, these costs are not included in the Unaudited Pro Forma
Combined Statements of Income.
9
(k) Interest Expense
Reflects the adjustments to record the recognition of new interest expense and the recognition of amortization expense associated with new debt issuance costs related to the Notes and Seller Note.
|
Six
Months
ended
June 30,
2020
|
Year
ended
December
31,
2019
|
|||||||
|
Interest expense on the Notes (1)
|
$
|
928,958
|
$
|
1,857,917
|
||||
|
Interest expense on the Seller Note
|
-
|
480,000
|
||||||
|
Interest expense on the HealthTronics Note
|
-
|
164,729
|
||||||
|
Interest expense on the Xxxxxxxxx Note
|
-
|
26,821
|
||||||
|
Amortization of new debt issuance costs related to the Notes
|
160,012
|
320,023
|
||||||
|
Accretion to face value of the Notes
|
295,185
|
590,369
|
||||||
|
Financing adjustment to interest expense
|
$
|
1,384,155
|
$
|
3,439,859
|
||||
|
(1)
|
The contractual interest rate for the Notes is defined as (A) the greater of the Prime Rate in effect as of each payment date (i.e. the last day of each quarter), and (y) three percent (3.00%) per annum, plus (B)
nine percent (9.00%). The interest expense adjustments included in the Unaudited Pro Forma Combined Statements of Income reflect additional interest expense calculated using the Prime Rate on the date the Transaction was consummated (3.5%),
resulting in a 12.5% interest rate.
|
A 0.125% change in the interest rates used to calculate the interest expense adjustment would have resulted in a $9,479 and $18,958 change to the adjustment in Unaudited Pro Forma Combined Statement of Income for the six
months ended June 30, 2020 and the year ended December 31, 2019 respectively.
(l) Depreciation Expense
Reflects the adjustments to record depreciation expense based on the straight-line method of $6,271 and $12,542 for the six months ended June 30, 2020 and for the year ended December 31, 2019, respectively. The depreciation
expense reduction is related to the reduction of carrying value to the fair value of the acquired property and equipment with an estimated weighted-average useful life of 4.7 years.
(m) Amortization Expense
Reflects the adjustments to record amortization expense based on the straight-line method of $896,095 and $1,792,189 for the six months ended June 30, 2020 and for the year ended December 31, 2019, respectively. The
amortization expense is related to the fair value of the acquired intangible assets. The estimated useful lives of patents and trade names are 19 years. The estimated useful life of customer relationships is 7 years.
(n) License Fee
Reflects the adjustments to record the quarterly license fee paid to Celularity pursuant to the License Agreement of $892,658 and $1,785,317 for the six months ended June 30, 2020 and for the year ended December 31, 2019.
(o) Earnings Per Share
The unaudited pro forma combined basic and diluted earnings per share calculations are based on the unaudited pro forma combined net income of the combined company and the weighted average outstanding shares of Sanuwave for
the six months ended June 30, 2020 and for the year ended December 31, 2019. The changes to basic and diluted earnings per share and diluted weighted average shares outstanding reflect the pro forma adjustments shown in the tables below. As the
combined company is in a net loss position, any adjustment for potentially dilutive securities would be anti-dilutive, and as such basic and diluted earnings per share are the same.
|
Pro Forma
Six Months
ended June
30, 2020
|
Pro Forma
Year ended
December
31, 2019
|
|||||||
|
Net Loss
|
$
|
(9,541,039
|
)
|
$
|
(15,222,591
|
)
|
||
|
Earnings per share:
|
||||||||
|
Basic and Diluted
|
$
|
(0.02
|
)
|
$
|
(0.04
|
)
|
||
|
Weighted average shares outstanding:
|
||||||||
|
Basic and Diluted
|
434,498,030
|
340,229,266
|
||||||
The calculation of pro forma basic and diluted weighted average shares is as follows:
|
Pro Forma
Six Months
ended June
30, 2020
|
Pro Forma
Year ended
December
31, 2019
|
|||||||
|
Basic and diluted weighted average shares:
|
||||||||
|
Sanuwave historical weighted average shares outstanding
|
297,856,870
|
203,588,106
|
||||||
|
NH Warrants – Note 4(g)
|
13,091,160
|
13,091,160
|
||||||
|
Shares issued in connection with the Securities Purchase Agreement - Note 4(h)
|
123,550,000
|
123,550,000
|
||||||
|
Pro forma weighted average shares
|
434,498,030
|
340,229,266
|
||||||
10
