Sanuwave Health (OTCCB:SNWV) ($1.43) completed a reverse merger in 2009. At the time of the reverse merger the company was generating annual revenues of around $1 million through the sale of a medical device used to speed up tissue regeneration through the production of energy (shock waves).

Since then revenues have ranged between $500,000 and $800,000, and shares outstanding have increased over 80% to 21.6 million as a result of financing activities.

To date the majority of revenues have come from Europe. In order to jump-start growth, Sanuwave is seeking approval for a product in the U.S. for the treatment of diabetic foot ulcers and expanding its shock wave technologies for use in non-medical applications such as energy exploration; at the earliest FDA approval will not occur until 2015.

SNWV has risen from $0.30 in February to $1.40. While we can’t yet comment on the company’s technology, a significant amount of dilution appears to be on the way: options to purchase 8,604,330 shares of common stock with a weighted average exercise price of $1.14, and the conversion of outstanding convertible notes convertible into 10,337,500 shares of common stock at a weighted average conversion price of $0.20.

Furthermore, on March 29, 2013 the company filed an S1 that could only add to the dilution. More warrants exist that can convert into 7,789,991 shares of common stock with a weighted average exercise price of $3.63.

Sanuwave currently has 22 million shares outstanding. The terms of the potential offering have not yet been disclosed, but a recent February 2013 private placement was priced at $0.20 and details in an employment agreement with the company’s CEO implies that the financing price could be as low as $0.35.

SNWV commented that it is going to continue to seek to obtain additional capital in 2013 through the issuance of common stock or other securities. Shares are selling at a market cap to sales of 28.

Disclosure: Short SNWV

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