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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2024

 

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ________ to ________

 

Commission File Number 001-39678

 

SANARA MEDTECH INC.

(Exact name of Registrant as specified in its charter)

 

Texas   59-2219994
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification No.)

 

1200 Summit Ave, Suite 414, Fort Worth, Texas 76102

(Address of principal executive offices)

 

(817) 529-2300

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Common Stock, $0.001 par value   SMTI   The Nasdaq Capital Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒Yes ☐ No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒Yes ☐ No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer Accelerated filer Non-accelerated filer Smaller reporting company Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

 

As of November 8, 2024, 8,741,161 shares of the Issuer’s common stock, $0.001 par value per share, were outstanding.

 

 

 

 

 

 

SANARA MEDTECH INC.

Form 10-Q

Quarter Ended September 30, 2024

 

    Page
     
Part I – Financial Information   3
     
Item 1. Financial Statements   3
     
Consolidated Balance Sheets as of September 30, 2024 (Unaudited) and December 31, 2023   3
     
Consolidated Statements of Operations (Unaudited) for the Three and Nine Months Ended September 30, 2024 and 2023   4
     
Consolidated Statements of Changes in Shareholders’ Equity (Unaudited) for the Three and Nine Months Ended September 30, 2024 and 2023   5
     
Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2024 and 2023   6
     
Notes to Unaudited Consolidated Financial Statements   7
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations   35
     
Item 3. Quantitative and Qualitative Disclosures about Market Risk   49
     
Item 4. Controls and Procedures   49
     
Part II – Other Information   50
     
Item 1. Legal Proceedings   50
     
Item 1A. Risk Factors   50
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds   51
     
Item 3. Defaults Upon Senior Securities   51
     
Item 4. Mine Safety Disclosures   51
     
Item 5. Other Information   51
     
Item 6. Exhibits   52
     
Signatures   53

 

Sanara, Sanara MedTech, our logo and our other trademarks or service marks appearing in this report are the property of Sanara MedTech Inc. Trade names, trademarks and service marks of other companies appearing in this report are the property of their respective owners. Solely for convenience, the trademarks, service marks and trade names included in this report are without the ®, ™ or other applicable symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensors to these trademarks, service marks and trade names.

 

Unless otherwise indicated, “Sanara MedTech,” “Sanara,” the “Company,” “our,” “us,” or “we,” refer to Sanara MedTech Inc. and its consolidated subsidiaries.

 

2

 

 

Part I – Financial Information

 

ITEM 1. FINANCIAL STATEMENTS

 

SANARA MEDTECH INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

   (Unaudited)     
   September 30,   December 31, 
   2024   2023 
Assets          
Current assets          
Cash  $16,277,189   $5,147,216 
Accounts receivable, net   11,070,622    8,474,965 
Accounts receivable – related parties   43,409    8,400 
Royalty receivable   -    49,344 
Inventory, net   3,008,349    4,717,533 
Convertible loan receivable   1,079,411    - 
Prepaid and other assets   429,428    608,411 
Total current assets   31,908,408    19,005,869 
           
Long-term assets          
Intangible assets, net   42,029,142    44,926,061 
Goodwill   3,601,781    3,601,781 
Investment in equity securities   8,321,412    3,084,278 
Right of use assets – operating leases   1,688,963    1,995,204 
Property and equipment, net   995,770    1,257,956 
Total long-term assets   56,637,068    54,865,280 
           
Total assets  $88,545,476   $73,871,149 
           
Liabilities and shareholders’ equity          
Current liabilities          
Accounts payable  $1,301,362   $1,924,082 
Accounts payable – related parties   150,611    77,805 
Accrued bonuses and commissions   8,256,801    7,676,770 
Accrued royalties and expenses   2,285,374    2,047,678 
Earnout liabilities – current   1,906,550    1,100,000 
Current portion of debt   -    580,357 
Operating lease liabilities – current   439,129    361,185 
Total current liabilities   14,339,827    13,767,877 
           
Long-term liabilities          
Long-term debt, net of current portion   30,076,715    9,113,123 
Earnout liabilities – long-term   2,006,000    2,723,001 
Operating lease liabilities – long-term   1,407,164    1,737,445 
Other long-term liabilities   1,261,495    1,941,686 
Total long-term liabilities   34,751,374    15,515,255 
           
Total liabilities   49,091,201    29,283,132 
           
Commitments and contingencies (Note 9)   -    - 
           
Shareholders’ equity          
Common Stock: $0.001 par value, 20,000,000 shares authorized; 8,743,174 issued and outstanding as of September 30, 2024 and 8,535,239 issued and outstanding as of December 31, 2023   8,743    8,535 
Additional paid-in capital   76,021,528    72,860,556 
Accumulated deficit   (36,246,405)   (28,036,814)
Total Sanara MedTech shareholders’ equity   39,783,866    44,832,277 
Equity attributable to noncontrolling interest   (329,591)   (244,260)
Total shareholders’ equity   39,454,275    44,588,017 
Total liabilities and shareholders’ equity  $88,545,476   $73,871,149 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

3

 

 

SANARA MEDTECH INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

 

   2024   2023   2024   2023 
   Three Months Ended   Nine Months Ended 
   September 30,   September 30, 
   2024   2023   2024   2023 
                 
Net Revenue  $21,671,599   $16,024,948   $60,367,060   $47,300,029 
                     
Cost of goods sold   1,991,987    1,751,349    5,890,719    6,064,524 
                     
Gross profit   19,679,612    14,273,599    54,476,341    41,235,505 
                     
Operating expenses                    
Selling, general and administrative expenses   18,993,255    13,877,879    54,143,122    40,658,424 
Research and development   1,359,530    986,454    3,291,479    3,480,906 
Depreciation and amortization   1,103,854    997,674    3,314,781    2,580,243 
Change in fair value of earnout liabilities   147,000    (681,753)   67,549   (1,494,910)
Total operating expenses   21,603,639    15,180,254    60,816,931    45,224,663 
                     
Operating loss   (1,924,027)   (906,655)   (6,340,590)   (3,989,158)
                     
Other expense                    
Interest expense   (927,577)   (188,294)   (1,839,259)   (188,300)
Share of losses from equity method investment   (31,448)   -    (31,448)   - 
Total other expense   (959,025)   (188,294)   (1,870,707)   (188,300)
                     
Net loss   (2,883,052)   (1,094,949)   (8,211,297)   (4,177,458)
                     
Less: Net loss attributable to noncontrolling interest   (25,284)   (34,579)   (85,331)   (111,455)
                     
Net loss attributable to Sanara MedTech shareholders  $(2,857,768)  $(1,060,370)  $(8,125,966)  $(4,066,003)
                     
Net loss per share of common stock, basic and diluted  $(0.34)  $(0.13)  $(0.96)  $(0.49)
                     
Weighted average number of common shares outstanding, basic and diluted   8,517,381    8,332,341    8,468,394    8,244,503 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

4

 

 

SANARA MEDTECH INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)

 

   Shares   Amount   Capital   Deficit   Interest   Equity 
   Common Stock   Additional           Total 
   $0.001 par value   Paid-In   Accumulated   Noncontrolling   Shareholders’ 
   Shares   Amount   Capital   Deficit   Interest   Equity 
Balance at December 31, 2022   8,299,957   $8,300   $65,213,987   $(23,394,757)  $(107,555)  $41,719,975 
Share-based compensation   74,781    75    597,230    -    -    597,305 
Net settlement and retirement of equity-based awards   (15,854)   (16)   (315,572)   (340,354)   -    (655,942)
Issuance of common stock in equity offering   26,143    26    1,033,735    -    -    1,033,761 
Net loss   -    -    -    (1,177,900)   (38,429)   (1,216,329)
Balance at March 31, 2023   8,385,027    8,385    66,529,380    (24,913,011)   (145,984)   41,478,770 
Share-based compensation   33,355    33    1,127,299    -    -    1,127,332 
Net settlement and retirement of equity-based awards   21,363    22    224,740    (186)   -    224,576 
Net loss   -    -    -    (1,827,733)   (38,447)   (1,866,180)
Balance at June 30, 2023   8,439,745    8,440    67,881,419    (26,740,930)   (184,431)   40,964,498 
Share-based compensation   (339)   (1)   857,527    -    -    857,526 
Net settlement and retirement of equity-based awards   27,011    27    279,364    1,679         281,070 
Issuance of common stock for acquisitions   73,809    74    3,089,571    -    -    3,089,645 
Net loss   -    -    -    (1,060,370)   (34,579)   (1,094,949)
Balance at September 30, 2023   8,540,226   $8,540   $72,107,881   $(27,799,621)  $(219,010)  $44,097,790 

 

   Common Stock   Additional           Total 
   $0.001 par value   Paid-In   Accumulated   Noncontrolling   Shareholders’ 
   Shares   Amount   Capital   Deficit   Interest   Equity 
Balance at December 31, 2023   8,535,239   $8,535   $72,860,556   $(28,036,814)  $(244,260)  $44,588,017 
Share-based compensation   100,662    101    803,285    -    -    803,386 
Net settlement and retirement of equity-based awards   (13,162)   (13)   (483,633)   (97,148)   -    (580,794)
Net loss   -    -    -    (1,764,184)   (34,859)   (1,799,043)
Balance at March 31, 2024   8,622,739    8,623    73,180,208    (29,898,146)   (279,119)   43,011,566 
Share-based compensation   67,294    67    1,411,478    -    -    1,411,545 
Net settlement and retirement of equity-based awards   56,943    57    493,829    14,200    -    508,086 
Net loss   -    -    -    (3,504,014)   (25,188)   (3,529,202)
Balance at June 30, 2024   8,746,976    8,747    75,085,515    (33,387,960)   (304,307)   41,401,995 
Share-based compensation   (3,368)   (3)   1,025,434    -    -    1,025,431 
Net settlement and retirement of equity-based awards   (434)   -    (14,421)   (677)   -    (15,099)
Issuance of common stock in equity offering   -    -    (75,000)   -    -    (75,000)
Net loss   -    -    -    (2,857,768)   (25,284)   (2,883,052)
Balance at September 30, 2024   8,743,174   $8,743   $76,021,528   $(36,246,405)  $(329,591)  $39,454,275 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

5

 

 

SANARA MEDTECH INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 

   2024   2023 
   Nine Months Ended 
   September 30, 
   2024   2023 
         
Cash flows from operating activities:          
Net loss  $(8,211,297)  $(4,177,458)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation and amortization   3,314,781    2,580,243 
Credit loss expense   230,930    214,061 
Inventory obsolescence   356,261    222,691 
Share-based compensation   3,240,362    2,582,163 
Noncash lease expense   306,240    243,988 
Share of losses from equity method investment   31,448    - 
Back-end fee   219,689    - 
Paid-in-kind interest   424,067    - 
Accretion of finance liabilities   166,595    39,699 
Amortization and write-off of debt issuance costs   150,219    2,055 
Change in fair value of earnout liabilities   67,549   (1,494,910)
Changes in operating assets and liabilities:          
Accounts receivable, net   (2,777,243)   (794,344)
Accounts receivable – related parties   (35,009)   87,516 
Inventory, net   1,352,923    (1,664,714)
Prepaid and other assets   178,963    482,921 
Accounts payable   (622,719)   547,186 
Accounts payable – related parties   72,806    30,711 
Accrued royalties and expenses   249,910    557,295 
Accrued bonuses and commissions   580,031    (1,673,629)
Operating lease liabilities   (252,337)   (182,498)
Net cash used in operating activities   (955,831)   (2,397,024)
Cash flows from investing activities:          
Purchases of property and equipment   (133,676)   (210,970)
Proceeds from disposal of property and equipment   -    650 
Investment in equity securities   (5,268,582)   - 
Advancement on convertible loan receivable   (1,079,391)   - 
Acquisitions, net of cash acquired   -    (9,942,750)
Net cash used in investing activities   (6,481,649)   (10,153,070)
Cash flows from financing activities:          
Loan proceeds, net   29,339,260    9,688,341 
Pay off line of credit   (9,750,000)   - 
Equity offering net proceeds (expenses)   (75,000)   1,033,761 
Net settlement of equity-based awards   (87,807)   (150,296)
Cash payment of finance and earnout liabilities   (859,000)   (744,795)
Net cash provided by financing activities   18,567,453    9,827,011 
Net increase (decrease) in cash   11,129,973    (2,723,083)
Cash, beginning of period   5,147,216    8,958,995 
Cash, end of period  $16,277,189   $6,235,912 
           
Cash paid during the period for:          
Interest  $948,759   $146,546 
Supplemental noncash investing and financing activities:          
Right of use assets obtained in exchange for lease obligations   -    1,531,773 
Equity issued for acquisitions   -    3,089,645 
Earnout and other liabilities generated by acquisitions   -    3,759,642 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

6

 

 

SANARA MEDTECH INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 – NATURE OF BUSINESS AND BACKGROUND

 

Sanara MedTech Inc. (together with its wholly owned and majority owned subsidiaries on a consolidated basis, the “Company”) is a medical technology company focused on developing and commercializing transformative technologies to improve clinical outcomes and reduce healthcare expenditures in the surgical, chronic wound and skincare markets. Each of the Company’s products, services and technologies are designed to achieve the Company’s goal of providing better clinical outcomes at a lower overall cost for patients, regardless of where they receive care. The Company strives to be one of the most innovative and comprehensive providers of effective surgical, wound and skincare solutions and is continually seeking to expand its offerings for patients requiring treatments across the entire continuum of care in the United States.

 

In June 2020, the Company formed a subsidiary, United Wound and Skin Solutions, LLC (formerly known as “WounDerm”), to hold certain investments and operations in wound and skincare virtual consult services. In 2023, WounDerm was renamed to, and is now doing business as, “Tissue Health Plus” (“THP”). THP is continuing its mission to simplify skin health, starting with wound care through a refined business plan. Through THP, the Company plans to offer a first of its kind value-based wound care program to payers and risk-bearing entities such as accountable care organizations and value-based care (“VBC”) primary care companies, with Medicare Advantage payers as the initial target market for this program.

 

As further discussed in Note 12, the Company historically managed its business on the basis of one operating and reportable segment. During the second quarter of 2024, the Company changed its reportable segments to reflect the manner in which the business is managed. Based on the growing importance of the value-based wound care program to the Company’s future outlook and how the Company’s chief operating decision maker, the Chief Executive Officer, reviews operating results and makes decisions about resource allocation, the Company now has two reportable segments: Sanara Surgical and THP.

 

Sanara Surgical

 

The Sanara Surgical segment primarily markets and sells soft tissue repair and bone fusion products for use in the operating room or other sterile environments. Sanara Surgical’s soft tissue repair products include, among other products, the Company’s lead product, CellerateRX Surgical Activated Collagen (“CellerateRX Surgical”), and BIASURGE Advanced Surgical Solution, which is a no-rinse, advanced surgical solution used for wound irrigation. Sanara Surgical’s bone fusion products include, among other products, BiFORM, which is an osteoconductive, bioactive, porous implant that allows for bony ingrowth across the graft site, and ALLOCYTE Plus, which is a human allograft cellular bone matrix containing bone-derived progenitor cells and conformable bone fibers.

 

Sanara Surgical also includes an in-house research and development team (Rochal Technologies) with an extensive pipeline of innovative products under development.

 

Tissue Health Plus

 

The THP segment is focused on value-based wound care services. Through THP, the Company plans to offer a first of its kind value-based wound care program to payers and risk-bearing entities such as accountable care organizations and VBC primary care companies, with Medicare Advantage payers as the initial target market for this program.

 

THP’s programs are expected to enable payers to divest wound care spend risk, reduce wound related hospitalizations and improve patient quality of life. THP plans to coordinate delivery of community and home-based wound care for its managed patients. Community-based care spans a variety of settings including physician offices, skilled nursing facilities, assisted living facilities and senior living facilities. THP’s programs are intended to integrate science and evidence-based medicine protocols to standardize wound prevention and treatment.

 

As a result of the change in reportable segments, certain prior period amounts have been recast to conform to the current period presentation. Throughout this Quarterly Report on Form 10-Q, unless otherwise indicated, amounts and activity reflect reclassifications related to the Company’s change in reportable segments. The change in reportable segments had no impact on the Company’s previously reported Consolidated Balance Sheets, Consolidated Statements of Operations, Consolidated Statements of Cash Flows or Consolidated Statements of Shareholders’ Equity.

 

7

 

 

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Principles of Consolidation and Basis of Presentation

 

The accompanying unaudited consolidated financial statements include the accounts of Sanara MedTech Inc. and its wholly owned and majority-owned subsidiaries, as well as other entities in which the Company has a controlling financial interest. All significant intercompany profits, losses, transactions and balances have been eliminated in consolidation. Certain prior year amounts have been reclassified to conform to the current year presentation.

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management of the Company, all adjustments (consisting of normal accruals) considered necessary for a fair presentation have been included. Operating results for interim periods are not necessarily indicative of the results that may be expected for the full year period. These financial statements and notes should be read in conjunction with the financial statements for each of the two years ended December 31, 2023 and 2022, which are included in the Company’s most recent Annual Report on Form 10-K.

 

Use of Estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported revenue and expenses during the reporting period. However, actual results could differ from those estimates and there may be changes to the Company’s estimates in future periods.

 

Cash and Cash Equivalents

 

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

 

Income/Loss Per Share

 

The Company computes income/loss per share in accordance with Accounting Standards Codification (“ASC”) Topic 260, Earnings per Share, which requires the Company to present basic and diluted income per share when the effect is dilutive. Basic income/loss per share is computed by dividing income/loss attributable to common shareholders by the weighted average number of shares of common stock outstanding. Diluted income/loss per share is computed similarly to basic income/loss per share, except that the denominator is increased to include the number of additional shares of common stock that would have been outstanding if the potential shares of common stock had been issued and if the additional shares of common stock were dilutive. All common stock equivalents were excluded from the calculations for the periods presented as their inclusion would have been anti-dilutive during the three and nine months ended September 30, 2024 and 2023 due to the Company’s net loss.

 

8

 

 

The following table summarizes the shares of common stock that were potentially issuable but were excluded from the computation of diluted net loss per share for the three and nine months ended September 30, 2024 and 2023 as such shares would have had an anti-dilutive effect:

 

   2024   2023 
   As of September 30, 
   2024   2023 
Stock options (a)   31,013    95,873 
Warrants (b)   16,725    16,725 
Unvested restricted stock   224,392    159,557 

 

  (a) Shares underlying stock options assumed pursuant to the merger agreement with Precision Healing, Inc. (“Precision Healing”) in April 2022.
  (b) Shares underlying warrants assumed pursuant to the merger agreement with Precision Healing in April 2022.

 

Revenue Recognition

 

The Company recognizes revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). Revenues are recognized when a purchase order is received from the customer and control of the promised goods or services is transferred to the customer in an amount that reflects the consideration the Company expects to be entitled to receive in exchange for transferring those goods or services. Revenue is recognized based on the following five-step model:

 

- Identification of the contract with a customer

- Identification of the performance obligations in the contract

- Determination of the transaction price

- Allocation of the transaction price to the performance obligations in the contract

- Recognition of revenue when, or as, the Company satisfies a performance obligation

 

Details of this five-step process are as follows:

 

Identification of the contract with a customer

 

Customer purchase orders are generally considered to be contracts under ASC 606. Purchase orders typically identify the specific terms of products to be delivered, create the enforceable rights and obligations of both parties and result in commercial substance. No other forms of contract revenue recognition, such as the completed contract or percentage of completion methods, were utilized by the Company in either 2024 or 2023.

 

Performance obligations

 

The Company’s performance obligation is generally limited to delivery of the requested items to its customers at the agreed upon quantities and prices.

 

Determination and allocation of the transaction price

 

The Company has established prices for its products. These prices are effectively agreed to when customers place purchase orders with the Company. Rebates and discounts, if any, are recognized in full at the time of sale as a reduction of net revenue. Allocation of transaction prices is not necessary where only one performance obligation exists.

 

9

 

 

Recognition of revenue as performance obligations are satisfied

 

Product revenues are recognized when a purchase order is received from the customer, the products are delivered, and control of the goods and services passes to the customer.

 

Disaggregation of Revenue

 

Revenue streams from product sales and royalties are summarized below for the three and nine months ended September 30, 2024 and 2023.

 

   2024   2023   2024   2023 
   Three Months Ended   Nine Months Ended 
   September 30,   September 30, 
   2024   2023   2024   2023 
Soft tissue repair products  $18,863,335   $13,634,316   $52,586,945   $39,756,539 
Bone fusion products   2,808,264    2,340,382    7,779,209    7,392,740 
Royalty revenue   -    50,250    906    150,750 
Total Net Revenue  $21,671,599   $16,024,948   $60,367,060   $47,300,029 

 

For the three and nine months ended September 30, 2024 and 2023, all of the Company’s net revenue was generated from Sanara Surgical. The Company plans to commercially launch the THP program in mid-2025.

 

Accounts Receivable Allowances

 

Accounts receivable are typically due within 30 days of invoicing. The Company establishes an allowance for credit losses to provide for an estimate of accounts receivable which are not expected to be collectible. The Company bases the allowance on an assessment of customer creditworthiness, historical payment experience, the age of outstanding receivables and other information as applicable and will record its allowance based on the estimated credit losses. The Company recorded credit loss expense of $75,000 and $128,061 during the three months ended September 30, 2024 and 2023, respectively and $230,930 and $214,061 during the nine months ended September 30, 2024 and 2023, respectively. The allowance for credit losses was $758,960 at September 30, 2024 and $528,030 at December 31, 2023. Credit loss reserves are maintained based on a variety of factors, including the length of time receivables are past due and a detailed review of certain individual customer accounts. The Company also establishes other allowances to provide for estimated customer rebates and other expected customer deductions. These allowances totaled $5,010 at September 30, 2024 and $3,820 at December 31, 2023. If circumstances related to customers change, estimates of the recoverability of receivables would be further adjusted.

 

Inventories

 

Inventories are stated at the lower of cost or net realizable value, with cost computed on a first-in, first-out basis. Inventories consist primarily of finished goods, and also include an immaterial amount of raw materials and related packaging components. The Company recorded inventory obsolescence expense of $96,684 and $152,701 during the three months ended September 30, 2024 and 2023, respectively, and $356,261 and $222,691 during the nine months ended September 30, 2024 and 2023, respectively. The allowance for obsolete and slow-moving inventory had a balance of $466,276 at September 30, 2024, and $446,917 at December 31, 2023.

 

10

 

 

Property and Equipment

 

Property and equipment are stated at cost, less accumulated depreciation. Depreciation is recorded using the straight-line method over the estimated useful lives of the related assets, ranging from two to ten years. Below is a summary of property and equipment for the periods presented:

 

   Useful  September 30,   December 31, 
   Life  2024   2023 
Computers  3-5 years  $235,388   $194,788 
Office equipment  3-7 years   216,491    201,785 
Furniture and fixtures  5-10 years   346,508    304,338 
Leasehold improvements  2-5 years   170,370    134,170 
Internal use software  5 years   1,618,999    1,618,999 
              
Property and equipment, gross      2,587,756    2,454,080 
Less accumulated depreciation      (1,591,986)   (1,196,124)
              
Property and equipment, net     $995,770   $1,257,956 

 

Depreciation expense related to property and equipment was $129,592 and $116,596 for the three months ended September 30, 2024 and 2023, respectively, and $395,862 and $332,762 for the nine months ended September 30, 2024 and 2023, respectively.

 

Internal Use Software

 

The Company accounts for costs incurred to develop or acquire computer software for internal use in accordance with ASC Topic 350-40, Intangibles – Goodwill and Other. The Company capitalizes the costs incurred during the application development stage, which generally includes third-party developer fees to design the software configuration and interfaces, coding, installation and testing.

 

The Company begins capitalization of qualifying costs when both the preliminary project stage is completed and management has authorized further funding for the completion of the project. Costs incurred during the preliminary project stage along with post implementation stages of internal-use computer software are expensed as incurred. The Company also capitalizes costs related to specific upgrades and enhancements when it is probable the expenditures will result in additional functionality. Capitalized development costs are classified as “Property and equipment, net” in the Consolidated Balance Sheets and are depreciated over the estimated useful life of the software, which is generally five years.

 

Goodwill

 

The excess of purchase price over the fair value of identifiable net assets acquired in business combinations is recorded as goodwill. As of September 30, 2024 and December 31, 2023, all of the Company’s goodwill relates to the acquisition of Scendia Biologics, LLC (“Scendia”), which is included in the Sanara Surgical segment. Goodwill has an indefinite useful life and is not amortized. Goodwill is tested annually as of December 31 for impairment, or more frequently if circumstances indicate impairment may have occurred. The Company may first perform a qualitative assessment to determine if it is more likely than not that the fair value of the reporting unit is less than the respective carrying value. If it is determined that it is more likely than not that a reporting unit’s fair value is less than its carrying value, then the Company will determine the fair value of the reporting unit and record an impairment charge for the difference between fair value and carrying value (not to exceed the carrying amount of goodwill). No impairment was recorded during the three or nine months ended September 30, 2024 or 2023.

 

11

 

 

Intangible Assets

 

Intangible assets are stated at cost of acquisition less accumulated amortization and impairment loss, if any. Cost of acquisition includes the purchase price and any cost directly attributable to bringing the asset to its working condition for the intended use. The Company amortizes its finite-lived intangible assets on a straight-line basis over the estimated useful life of the respective assets which is generally the life of the related patents or licenses, seven years for customer relationships and five years for assembled workforces. See Note 5 for more information on intangible assets.

 

Impairment of Long-Lived Assets

 

Long-lived assets, including certain identifiable intangibles held and to be used by the Company, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. The Company continuously evaluates the recoverability of its long-lived assets based on estimated future cash flows and the estimated liquidation value of such long-lived assets and provides for impairment if such undiscounted cash flows are insufficient to recover the carrying amount of the long-lived assets. If impairment exists, an adjustment is made to write the asset down to its fair value, and a loss is recorded as the difference between the carrying value and fair value. Fair values are determined based on quoted market values, undiscounted cash flows or internal and external appraisals, as applicable. Assets to be disposed of are carried at the lower of carrying value or estimated fair value less cost to sell. No impairment was recorded during the three or nine months ended September 30, 2024 or 2023.

 

Investments in Equity Securities

 

The Company’s equity investments consist of nonmarketable equity securities in privately held companies without readily determinable fair values. Unless accounted for under the equity method of accounting, the investments are reported at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment in the same issuer.

 

The Company applies the equity method of accounting to investments when it has significant influence, but not controlling interest, in the investee. Judgment regarding the level of influence over each equity method investment includes considering key factors such as ownership interest, representation on the board of directors, participation in policy-making decisions and material intercompany transactions. As discussed further in Note 6 as of September 30, 2024, the Company had one investment that is recorded applying the equity method of accounting. The Company’s proportionate share of the net income (loss) resulting from these investments is reported under the line item captioned “Share of losses from equity method investment” in the Company’s Consolidated Statements of Operations. The Company’s equity method investment is adjusted each period for the Company’s share of the investee’s income or loss and dividend paid, if any. The Company classifies distributions received from its equity method investment using the cumulative earnings approach in the Company’s Consolidated Statements of Cash Flows.

 

The Company has reviewed the carrying value of its investments and has determined there was no impairment or observable price changes as of or for the three and nine months ended September 30, 2024 and 2023.

 

Fair Value Measurement

 

As defined in ASC Topic 820, Fair Value Measurement (“ASC 820”), fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). This fair value measurement framework applies at both the initial and subsequent measurement.

 

The three levels of the fair value hierarchy defined by ASC 820 are as follows:

 

Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of financial instruments such as exchange-traded derivatives, marketable securities and listed equities.

 

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Level 2 – Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reported date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. Instruments in this category generally include nonexchange-traded derivatives such as commodity swaps, interest rate swaps, options and collars.

 

Level 3 – Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value.

 

The carrying amounts of cash, accounts receivable, accounts payable and accrued expenses, other than acquisition-related expenses, approximate fair value because of the short-term nature of these instruments. The fair value of acquisition-related accrued expenses is categorized as Level 2 of the fair value hierarchy. The value of these instruments has been estimated using discounted cash flow analysis based on the Company’s incremental borrowing rate. The carrying value of the Company’s CRG Term Loan (defined below), which has a fixed interest rate approximates fair value based on instruments with similar terms (Level 2 inputs). The carrying value of the Company’s Cadence Term Loan (defined below), which had variable interest rates determined each month, approximates fair value based on instruments with similar terms (Level 2 inputs). The fair value of the contingent earnout consideration and the acquisition date fair value of goodwill and intangibles related to the acquisitions discussed in Notes 3 and 5 are based on Level 3 inputs.

 

Liabilities for contingent consideration for the Precision Healing merger, acquisition of Scendia and Applied Asset Purchase (defined below) (see Note 3 for more information) are measured at fair value each reporting period, with the acquisition-date fair value included as part of the consideration transferred. The contingent consideration for the Scendia acquisition was settled as of September 30, 2024, and the final earnout payment of approximately $1.1 million was paid in cash in October 2024. Subsequent changes in fair value for the Precision Healing merger are reported under the line item captioned “Change in fair value of earnout liabilities” in the Company’s Consolidated Statements of Operations. Due to the Applied Asset Purchase being accounted for as an asset acquisition and given that the transaction did not include contingent shares, subsequent revaluations of contingent consideration for the Applied Asset Purchase results in an adjustment to the contingent consideration liability and the intellectual property intangible asset with a cumulative catch-up amortization adjustment. The current year change in fair value of earnout liability below is as a result of a net increase in the estimated fair value of the earnout liability established at the time of the Company’s Precision Healing merger. The current year revaluation of earnout liability below is a result of an increase in the estimated value of the earnout liability established at the time of the Applied Asset Purchase. The following table sets forth a summary of the changes in fair value for the Level 3 contingent earnout considerations.

 

      
Balance at December 31, 2023  $3,823,001 
Change in fair value of earnout liabilities   67,549
Revaluation of earnout liability   22,000 
Balance at September 30, 2024  $3,912,550 

 

Income Taxes

 

Income taxes are accounted for under the asset and liability method, whereby deferred income taxes are recorded for temporary differences between financial statement carrying amounts and the tax basis of assets and liabilities. Deferred tax assets and liabilities reflect the tax rates expected to be in effect for the years in which the differences are expected to reverse. A valuation allowance is provided if it is more likely than not that some or all the deferred tax asset will not be realized.

 

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Share-based Compensation

 

The Company accounts for share-based compensation to employees and nonemployees in accordance with ASC Topic 718, Compensation – Stock Compensation. Share-based compensation is measured at the grant date, based on the fair value of the award, and is recognized as expense over the stipulated vesting period, if any. The Company estimates the fair value of share-based payments using the Black-Scholes option-pricing model for common stock options and warrants, and the closing price of the Company’s common stock for grants of common stock, including restricted stock awards.

 

Research and Development Costs

 

Research and development (“R&D”) expenses consist of personnel-related expenses, including salaries, share-based compensation and benefits for all personnel directly engaged in R&D activities, contracted services, materials, prototype expenses and allocated overhead, which is comprised of compensation and benefits, lease expense and other facilities-related costs. R&D expenses include costs related to enhancements to the Company’s currently available products and additional investments in the product and platform development pipeline. The Company expenses R&D costs as incurred.

 

Recently Adopted Accounting Pronouncements

 

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326). This update amends the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The Company adopted the new guidance effective January 1, 2023. The adoption did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

 

Recently Issued Accounting Pronouncements

 

In November 2023, FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which requires disclosure of incremental segment information on an annual and interim basis. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024 on a retrospective basis. The Company is currently evaluating the effect of this pronouncement on its disclosures.

 

In December 2023, FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”), which expands the disclosure required for income taxes. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The amendment should be applied on a prospective basis while retrospective application is permitted. The Company is currently evaluating the effect of this pronouncement on its disclosures.

 

NOTE 3 – APPLIED ASSET PURCHASE

 

On August 1, 2023, the Company entered into an Asset Purchase Agreement (the “Applied Purchase Agreement”) by and among the Company, as guarantor, Sanara MedTech Applied Technologies, LLC, a Texas limited liability company and wholly owned subsidiary of the Company (“SMAT”), The Hymed Group Corporation, a Delaware corporation (“Hymed”), Applied Nutritionals, LLC, a Delaware limited liability company (“Applied”, and together with Hymed, the “Sellers”), and Dr. George D. Petito (the “Owner”), pursuant to which SMAT acquired certain assets of the Sellers and the Owner, including, among others, the Sellers’ and Owner’s inventory, intellectual property, manufacturing and related equipment, goodwill, rights and claims, other than certain excluded assets, all as more specifically set forth in the Applied Purchase Agreement (collectively, the “Applied Purchased Assets”), and assumed certain Assumed Liabilities (as defined in the Applied Purchase Agreement), upon the terms and subject to the conditions set forth in the Applied Purchase Agreement (such transaction, the “Applied Asset Purchase”). The Applied Purchased Assets include the underlying intellectual property of, as well as the rights to manufacture and sell, certain hydrolyzed collagen products, including CellerateRX Surgical, for human wound care use.

 

The Applied Purchased Assets were purchased for an initial aggregate purchase price of $15.25 million, consisting of (i) $9.75 million in cash (the “Cash Closing Consideration”), (ii) 73,809 shares of the Company’s common stock (the “Stock Closing Consideration”) with an agreed upon value of $3.0 million and (iii) $2.5 million in cash (the “Installment Payments”), to be paid in four equal installments on each of the next four anniversaries of the closing of the Applied Asset Purchase (the “Closing”). The first Installment Payment of $625,000 was made in August 2024.

 

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Prior to the Closing, the Company licensed certain of its products from Applied through a sublicense agreement (the “Sublicense Agreement”) with CGI Cellerate RX, LLC (“CGI Cellerate RX”), a related party (see Note 11 for additional information regarding transactions with related parties). Pursuant to the Sublicense Agreement, the Company had an exclusive, world-wide sublicense to distribute certain hydrolyzed collagen products, including CellerateRX Surgical, into the surgical and wound care markets. In connection with the Applied Asset Purchase, Applied assigned its license agreement with CGI Cellerate RX to SMAT (the “License Agreement”), and on October 10, 2024, the License Agreement and the Sublicense Agreement were terminated for no additional consideration.

 

In addition to the Cash Closing Consideration, Stock Closing Consideration and Installment Payments, the Applied Purchase Agreement provides that the Sellers are entitled to receive up to an additional $10.0 million (the “Applied Earnout”), which is payable to the Sellers in cash, upon the achievement of certain performance thresholds relating to SMAT’s collections from net sales of a collagen-based product currently under development. Upon expiration of the seventh anniversary of the Closing, to the extent the Sellers have not earned the entirety of the Applied Earnout, SMAT shall pay the Sellers a pro-rata amount of the Applied Earnout based on collections from net sales of the product, with such amount to be due credited against any Applied Earnout payments already made by SMAT (the “True-Up Payment”). The Applied Earnout, minus the True-Up Payment and any Applied Earnout payments already made by SMAT, may be earned at any point in the future, including after the True-Up Payment is made.

 

In connection with the Applied Asset Purchase and pursuant to the Applied Purchase Agreement, effective August 1, 2023, the Company entered into a professional services agreement (the “Petito Services Agreement”) with the Owner, pursuant to which the Owner, as an independent contractor, agreed to provide certain services to the Company, including, among other things, assisting with the development of products already in development and assisting with research, development, formulation, invention and manufacturing of any future products (the “Petito Services”). As consideration for the Petito Services, the Owner is entitled to receive: (i) a base salary of $12,000 per month during the term of the Petito Services Agreement, (ii) a royalty payment equal to three percent (3%) of the actual collections from net sales of certain products the Owner develops or co-develops that reach commercialization, (iii) a royalty payment equal to five percent (5%) for the first $50.0 million in aggregate collections from net sales of certain future products and a royalty payment of two and one-half percent (2.5%) on aggregate collections from net sales of certain future products on any amounts exceeding $50.0 million but up to $100.0 million, (iv) $500,000 in cash in the event that 510(k) clearance is issued for any future product accepted by the Company and (v) $1.0 million in cash in the event that a U.S. patent is issued for a certain product; provided that with respect to the incentive payments described in (iv) and (v) of the foregoing, the Owner shall not earn more than $2.5 million.

 

The Petito Services Agreement has an initial term of three years and is subject to automatic successive one-month renewals unless earlier terminated in accordance with its terms. The Petito Services Agreement may be terminated upon the Owner’s death or disability or by the Company or the Owner “For Cause” (as defined in the Petito Services Agreement); provided, however, that the base salary described in (i) of the foregoing paragraph shall survive termination through the three-year initial term and the royalty payments and incentive payments described in (ii)-(v) of the foregoing paragraph shall survive termination of the Petito Services Agreement.

 

As the contingent consideration was negotiated as part of the transfer of assets, the contingent obligation was measured at fair value and included in the total purchase consideration transferred. Accordingly, since the Applied Asset Purchase was accounted for as an asset acquisition and did not include contingent shares, the contingent consideration is classified as a liability at its estimated fair value at each reporting period with subsequent revaluations recognized as an adjustment to the intellectual property intangible asset and the earnout liability with a cumulative catch-up amortization adjustment.

 

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The total purchase consideration for the Applied Asset Purchase as determined by the Company was as follows:

 

Consideration  Equity Shares   Dollar Value 
Cash Closing Consideration       $9,750,000 
Fair value of Stock Closing Consideration   73,809    3,089,645 
Fair value of Installment Payments        2,040,808 
Cash paid for inventory        30,007 
Fair value of Petito Services Agreement defined payments        825,834 
Fair value of Petito Services Agreement contingent consideration        893,000 
Direct transaction costs        162,743 
Total purchase consideration       $16,792,037 

 

Based on guidance provided by ASC 805, Business Combinations (“ASC 805”), the Company recorded the Applied Asset Purchase as an asset acquisition due to the determination that substantially all the fair value of the assets acquired was concentrated in a group of similar identifiable assets. The Company believes the “substantially all” criterion was met with respect to the acquired intellectual property being the only significant asset acquired. Accordingly, the Company accounted for the transaction as an asset acquisition.

 

The purchase consideration, plus transaction costs, was allocated to the individual assets according to their fair values as a percentage of the total fair value of the assets purchased, with no goodwill recognized. Based on the estimated fair value of the gross assets acquired, the total fair value of the net assets acquired was primarily attributable to, and classified as, finite-lived intellectual property in the third quarter of 2023. The total purchase consideration was allocated based on the relative estimated fair value of such assets as follows:

 

Description  Amount 
Inventory  $30,007 
Equipment   33,062 
Intellectual property   16,728,968 
Net assets acquired  $16,792,037 

 

NOTE 4 – CONVERTIBLE LOAN RECEIVABLE

 

In connection with a potential equity investment in an unaffiliated entity engaged in the development of certain surgical technologies, the Company entered into a convertible loan agreement in July 2024 pursuant to which the Company loaned $1,079,391 to the unaffiliated entity. The loan was initially set to be repaid on October 1, 2024. However, the Company extended the repayment date to December 1, 2024. On October 1, 2024, the loan began bearing interest at 8% per annum. Pursuant to the convertible loan agreement, the Company has the option to convert the outstanding balance of the loan into noncontrolling equity interests of the unaffiliated entity upon satisfactory completion of certain due diligence activities. The loan is recorded under the caption “Convertible loan receivable” on the Company’s Consolidated Balance Sheets, which was $1,079,391 as of September 30, 2024. 

 

NOTE 5 – GOODWILL AND INTANGIBLES, NET

 

The changes in the carrying amount of the Company’s goodwill were as follows:

 

   Total 
Balance as of December 31, 2022  $3,601,781 
Acquisitions   - 
Balance as of December 31, 2023   3,601,781 
Acquisitions   - 
Balance as of September 30, 2024  $3,601,781 

 

In connection with the change in reportable operating segments, the Company reassessed goodwill with respect to the change in reportable operating segments as they are presented in this report. Goodwill was recorded in connection with the acquisition of Scendia and is included entirely within the Sanara Surgical segment. The Company’s assessment determined that these changes, or any other matters noted, did not alter the Company’s conclusion that goodwill is not impaired as of September 30, 2024 or for the periods then ended.

 

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The carrying values of the Company’s intangible assets were as follows for the periods presented:

 

   September 30, 2024   December 31, 2023 
       Accumulated           Accumulated     
   Cost   Amortization   Net   Cost   Amortization   Net 
Amortizable Intangible Assets:                              
Patents and Other IP  $38,592,549   $(4,934,785)  $33,657,764   $38,570,549   $(3,181,186)  $35,389,363 
Customer relationships and other   7,947,332    (2,737,675)   5,209,657    7,947,332    (1,861,887)   6,085,445 
Product Licenses   4,793,879    (1,632,158)   3,161,721    4,793,879    (1,342,626)   3,451,253 
Total  $51,333,760   $(9,304,618)  $42,029,142   $51,311,760   $(6,385,699)  $44,926,061 

 

As of September 30, 2024, the weighted-average amortization period for finite-lived intangible assets was 14.5 years. Amortization expense related to intangible assets was $974,262 and $881,079 for the three months ended September 30, 2024 and 2023, respectively, and $2,918,919 and $2,247,482 for the nine months ended September 30, 2024 and 2023, respectively. The estimated remaining amortization expense as of September 30, 2024 for finite-lived intangible assets is as follows:

 

      
Remainder of 2024  $972,818 
2025   3,891,270 
2026   3,874,015 
2027   3,760,162 
2028   3,726,921 
2029   3,726,921 
Thereafter   22,077,035 
Total  $42,029,142 

 

The Company has reviewed the carrying value of intangible assets and has determined there was no impairment during the nine months ended September 30, 2024 or 2023.

 

NOTE 6 – INVESTMENTS IN EQUITY SECURITIES

 

The Company’s equity investments consist of nonmarketable equity securities in privately held companies without readily determinable fair values. Unless accounted for under the equity method of accounting, the investments are reported at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer.

 

DirectDerm

 

In July 2020, the Company made a $500,000 long-term investment to purchase certain nonmarketable securities consisting of 7,142,857 Series B-2 Preferred Shares of Direct Dermatology Inc. (“DirectDerm”), representing approximately 2.9% ownership of DirectDerm at that time. Through this investment, the Company received exclusive rights to utilize DirectDerm’s technology in all acute and post-acute care settings such as skilled nursing facilities, home health and wound clinics. In 2021, the Company purchased an additional 3,571,430 shares of DirectDerm’s Series B-2 Preferred for $250,000. In March 2022, the Company purchased an additional 3,571,429 shares of DirectDerm’s Series B-2 Preferred for $250,000. The Company’s ownership of DirectDerm was approximately 8.1% as of September 30, 2024. The Company does not have the ability to exercise significant influence over DirectDerm’s operating and financial activities. In accordance with ASC Topic 321, Investments - Equity Securities (“ASC 321”), this investment was reported at cost as of September 30, 2024.

 

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Pixalere

 

In June 2021, the Company invested $2,084,278 to purchase 278,587 Class A Preferred Shares (the “Pixalere Shares”) of Canada based Pixalere Healthcare Inc. (“Pixalere”). The Pixalere Shares are convertible into approximately 27.3% of the outstanding equity of Pixalere. Pixalere provides a cloud-based wound care software tool that empowers nurses, specialists and administrators to deliver better care for patients. In connection with the Company’s purchase of the Pixalere Shares, Pixalere granted Pixalere Healthcare USA, LLC (“Pixalere USA”), a subsidiary of the Company, a royalty-free exclusive license to use the Pixalere software and platform in the United States. In conjunction with the grant of the license, the Company issued Pixalere a 27.3% equity ownership interest in Pixalere USA valued at $93,879.

 

The Company reviewed the characteristics of the Pixalere Shares in accordance with ASC Topic 323, Investments – Equity Method and Joint Ventures (“ASC 323”). Due to the substantive liquidation preferences of the Pixalere Shares over Pixalere’s common stock, the Pixalere Shares are not “in-substance” common stock, and therefore, the Company does not utilize the equity method of accounting for this investment. In accordance with ASC 321, this investment was reported at cost as of September 30, 2024.

 

ChemoMouthpiece

 

In September 2024, the Company, through its wholly owned subsidiary, Sanara CMP LLC (“Sanara CMP”), entered into a Unit Purchase Agreement (the “Unit Purchase Agreement”) with ChemoMouthpiece, LLC (“CMp”), pursuant to which Sanara CMP purchased 100,674.72 common units in CMp for $5.0 million, which represents approximately 6.64% of the issued and outstanding membership interest of CMp immediately following such purchase. CMp is a privately held medical device company that develops and commercializes propriety oral cryotherapy products for cancer patients, including, among other things, CMp’s Chemo Mouthpiece oral cryotherapy device, which is a 510(k) cleared cryotherapy device designed to reduce the incidence and severity of chemotherapy induced oral mucositis.

 

The Company has reviewed the characteristics of Sanara CMP’s investment in CMp in accordance with ASC 323 and determined that Sanara CMP made a non-controlling investment in a limited liability company. According to the guidance provided in ASC 323-30-S99-1, investments in limited liability companies whereby an investor holds more than a 3% to 5% ownership interest would generally be accounted for under the equity method of accounting. Therefore, the Company utilized the equity method of accounting for this investment and recorded its initial investment at cost. Sanara CMP’s share of the earnings or losses of CMp is recorded in the Company’s Consolidated Statements of Operations.

 

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The following table summarizes the Company’s investments for the periods presented:

 

   September 30, 2024   December 31, 2023 
   Carrying Amount   Economic Interest   Carrying Amount   Economic Interest 
Equity Method Investment                         
ChemoMouthpiece, LLC  $5,237,134    6.64%  $-    -%
                     
Cost Method Investments                    
Direct Dermatology, Inc.  $1,000,000        $1,000,000      
Pixalere Healthcare Inc.   2,084,278         2,084,278      
Total Cost Method Investments  $3,084,278        $3,084,278      
                     
Total Investments  $8,321,412        $3,084,278      

 

The following table summarizes the Company’s share of losses from equity method investment reflected in the Company’s Consolidated Statements of Operations for the periods presented:

 

   2024   2023   2024   2023 
  

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 
   2024   2023   2024   2023 
Investment                
ChemoMouthpiece, LLC  $(31,448)  $-   $(31,448)  $      - 
                     
Total  $(31,448)  $-   $(31,448)  $- 

 

NOTE 7 – OPERATING LEASES

 

The Company periodically enters operating lease contracts for office space and equipment. Arrangements are evaluated at inception to determine whether such arrangements constitute a lease. Right of use assets (“ROU assets”) represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities were recognized on the transition date based on the present value of lease payments over the respective lease term, with the office space ROU asset adjusted for deferred rent liability.

 

The Company has three material operating leases for office space. In March and September of 2023, the Company amended its primary office lease to obtain additional space, as well as extend the term. The leases have remaining lease terms of 75, 11 and 28 months as of September 30, 2024. For practical expediency, the Company has elected to not recognize ROU assets and lease liabilities related to short-term leases.

 

In accordance with ASC Topic 842, Leases, the Company has recorded ROU assets of $1,688,963 and a related lease liability of $1,846,293 as of September 30, 2024. The Company recorded lease expense of $121,126 and $110,693 for the three months ended September 30, 2024 and 2023, respectively. The Company recorded lease expense of $416,394 and $295,268 for the nine months ended September 30, 2024 and 2023, respectively. Cash paid for amounts included in the measurement of operating lease liabilities was $362,491 and $264,291 for the nine months ended September 30, 2024 and 2023, respectively.

 

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The present value of the Company’s operating lease liabilities as of September 30, 2024 is shown below:

 

Maturity of Operating Lease Liabilities

 

   September 30,
2024
 
Remainder of 2024  $142,525 
2025   532,053 
2026   379,529 
2027   297,947 
2028   295,689 
2029   300,158 
Thereafter   303,892 
      
Total lease payments   2,251,793 
Less imputed interest   (405,500)
Present Value of Lease Liabilities  $1,846,293 
      
Operating lease liabilities – current  $439,129 
Operating lease liabilities – long-term  $1,407,164 

 

As of September 30, 2024, the Company’s operating leases had a weighted average remaining lease term of 5.4 years and a weighted average discount rate of 7.66%.

 

NOTE 8 – DEBT AND CREDIT FACILITIES

 

CRG Term Loan Agreement

 

On April 17, 2024 (the “Closing Date”), the Company entered into a term loan agreement, by and among the Company, as borrower, the subsidiary guarantors party thereto from time to time (collectively, the “Guarantors”), CRG Servicing LLC as administrative agent and collateral agent (the “Agent”), and the lenders party thereto from time to time (the “CRG Term Loan Agreement”), providing for a senior secured term loan of up to $55.0 million (the “CRG Term Loan”). The CRG Term Loan Agreement provides for (i) $15.0 million of the CRG Term Loan that was borrowed on the Closing Date (the “First Borrowing”) and (ii) up to an aggregate of $40.0 million available for borrowing in two subsequent borrowings, provided that each such borrowing must be at least $5.0 million or a multiple of $5.0 million and occur between the Closing Date and June 30, 2025, subject to the satisfaction of certain conditions, including that the First Borrowing having previously occurred and the Agent having received certain fees. The Company used a portion of the initial proceeds of the First Borrowing under the CRG Term Loan to extinguish the Cadence Term Loan described further below.

 

On September 4, 2024, the Company, pursuant to its option under the CRG Term Loan Agreement, borrowed an additional $15.5 million under the CRG Term Loan Agreement (the “Second Borrowing”). The Company used $5.0 million of the proceeds of the Second Borrowing for its investment in CMp.

 

The First Borrowing, Second Borrowing and any additional borrowings under the CRG Term Loan are due and payable on March 30, 2029 (the “Maturity Date”), absent any acceleration.

 

The CRG Term Loan bears interest at a per annum rate equal to 13.25% (subject to a 4.0% increase during an event of default), of which 8.00% must be paid in cash and 5.25% may, at the election of the Company, be deferred through the 19th quarterly Payment Date (defined below) by adding such amount to the aggregate principal loan amount, so long as no default or event of default under the CRG Term Loan Agreement has occurred and is continuing. The Company is required to make quarterly interest payments on the final business day of each calendar quarter following the Closing Date, commencing on the first such date to occur at least 30 days after the Closing Date (each, a “Payment Date”). Interest is payable on each Payment Date in arrears with respect to the time between each Payment Date and upon the payment or prepayment of the CRG Term Loan, ending on the Maturity Date. In addition, the Company is required to pay an upfront fee of 1.50% of the principal amount of the CRG Term Loan, which is payable as amounts are advanced under the CRG Term Loan on a pro rata basis. The Company is also required to pay a back-end fee equal to 7.00% of the aggregate principal amount advanced under the CRG Term Loan Agreement.

 

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For the three months ended September 30, 2024, the Company paid $399,532 of interest in cash and recorded $262,193 of interest paid-in-kind related to the CRG Term Loan. For the nine months ended September 30, 2024, the Company paid $646,199 of interest in cash and recorded $424,068 of interest paid-in-kind related to the CRG Term Loan. The paid-in-kind interest was applied to the principal balance of the CRG Term Loan. The Company recorded $167,189 and $219,689 for the three and nine months ended September 30, 2024, respectively, to interest expense related to the back-end fee. The back-end fee is accreted and amortized to interest expense over the term of the CRG Term Loan. Paid-in-kind interest and the accreted back-end fee are included in “Long-term debt, net of current portion” on the Consolidated Balance Sheets.

 

Subject to certain exceptions, the Company is required to make mandatory prepayments of the CRG Term Loan with the proceeds of certain assets sales and in the event of a change of control of the Company. In addition, the Company may make a voluntary prepayment of the CRG Term Loan, in whole or in part, at any time. All mandatory and voluntary prepayments of the CRG Term Loan are subject to the payment of prepayment premiums as follows: (i) if prepayment occurs on or prior to the date that is one year following the applicable borrowing (the “Borrowing Date”), an amount equal to 10.0% of the aggregate outstanding principal amount of the CRG Term Loan being prepaid and (ii) if prepayment occurs one year after the applicable Borrowing Date and on or prior to two years following the applicable Borrowing Date, an amount equal to 5.0% of the aggregate outstanding principal amount of the CRG Term Loan being prepaid. No prepayment premium is due on any principal prepaid if prepayment occurs two years or more after the applicable Borrowing Date.

 

Certain of the Company’s current and future subsidiaries, including the Guarantors, are guaranteeing the obligations of the Company under the CRG Term Loan Agreement. As security for their obligations under the CRG Term Loan Agreement, on the Closing Date, the Company and the Guarantors entered into a security agreement with the Agent pursuant to which the Company and the Guarantors granted to the Agent, as collateral agent for the lenders, a lien on substantially all of the Company’s and the Guarantors’ assets, including intellectual property (subject to certain exceptions).

 

The CRG Term Loan Agreement contains affirmative and negative covenants customary for financings of this type, including limitations on the Company’s and the Guarantors’ abilities, among other things, to incur additional debt, grant or permit additional liens, make investments and acquisitions above certain thresholds, merge or consolidate with others, dispose of assets, pay dividends and distributions and enter into affiliate transactions, in each case, subject to certain exceptions. In addition, the CRG Term Loan Agreement contains the following financial covenants requiring the Company and the Guarantors in the aggregate to maintain:

 

  liquidity in an amount which shall exceed the greater of (i) $3.0 million and (ii) to the extent the Company has incurred certain permitted debt, the minimum cash balance, if any, required of the Company by the creditors of such permitted debt; and
     
  annual minimum revenue: (i) for the twelve-month period beginning on January 1, 2024 and ending on December 31, 2024, of at least $60.0 million, (ii) for the twelve-month period beginning on January 1, 2025 and ending on December 31, 2025, of at least $75.0 million, (iii) for the twelve-month period beginning on January 1, 2026 and ending on December 31, 2026, of at least $85.0 million, (iv) for the twelve-month period beginning on January 1, 2027 and ending on December 31, 2027, of at least $95.0 million and (v) during each twelve-month period beginning on January 1 of a given year thereafter, of at least $105.0 million.

 

The CRG Term Loan Agreement contains representations and warranties of the Company and the Guarantors customary for financings of this type, and also includes events of default customary for financings of this type, including, among other things, non-payment, inaccuracy of representations and warranties, covenant breaches, a material adverse change, bankruptcy and insolvency, material judgments and a change of control, in certain cases subject to customary periods to cure. The occurrence and continuance of an event of default could result in the acceleration of the obligations under the CRG Term Loan Agreement.

 

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Cadence Term Loan

 

In connection with the entry into the Applied Purchase Agreement, on August 1, 2023, SMAT, as borrower, and the Company, as guarantor, entered into a loan agreement (the “Cadence Loan Agreement”) with Cadence Bank (the “Bank”) providing for, among other things, an advancing term loan in the aggregate principal amount of $12.0 million (the “Cadence Term Loan”), which was evidenced by an advancing promissory note. Pursuant to the Cadence Loan Agreement, the Bank agreed to make, at any time and from time to time prior to February 1, 2024, one or more advances to SMAT.

 

The proceeds of the advances under the Cadence Loan Agreement were used for working capital and for purposes of financing up to one hundred percent (100%) of the Cash Closing Consideration and Installment Payments for the Applied Asset Purchase and related fees and expenses, including any subsequent payments that were due to the Sellers after the Closing. On August 1, 2023, the Bank, at the request of SMAT, made an advance for $9.75 million. The proceeds from the advance were used to fund the Cash Closing Consideration for the Applied Asset Purchase.

 

The unpaid principal balance of outstanding advances bore interest, subject to certain conditions, at the lesser of the Maximum Rate (as defined in the Cadence Loan Agreement) or the Base Rate, which was for any day, a rate per annum equal to the term secured overnight financing rate (Term SOFR) (as administered by the Federal Reserve Bank of New York) for a one-month tenor in effect on such day plus three percent (3.0%). As of December 31, 2023, the interest rate on the advance under the Cadence Term Loan was 8.3%.

 

On the Closing Date, the Cadence Loan Agreement was terminated and all outstanding amounts under the Cadence Term Loan were repaid in full and all security interest and other liens granted to or held by Cadence were terminated and released. In addition, unamortized debt issuance costs as of the termination date of $53,438 were included in “Interest expense” in the Consolidated Statements of Operations.

 

22

 

 

The table below presents the components of the Company’s outstanding debt for the periods presented:

 

   September 30,
2024
   December 31,
2023
 
CRG Term Loan  $30,500,000   $- 
Paid-in-kind interest   424,067    - 
Back-end fee   219,689    - 
Cadence Term Loan   -    9,750,000 
Debt   31,143,756    9,750,000 
           
Less: unamortized debt issuance costs   (1,067,041)   (56,520)
           
Debt, net of debt issuance costs   30,076,715    9,693,480 
           
Less: Current portion of debt   -    580,357 
Long-term debt, net of current portion  $30,076,715   $9,113,123 

 

The table below presents the aggregate maturities of the Company’s outstanding debt as of September 30, 2024:

 

Year  Total 
     
Remainder of 2024  $- 
2025   - 
2026   - 
2027   - 
2028   - 
Thereafter   31,143,756 
Total debt  $31,143,756 

 

In connection with the CRG Term Loan, the Company incurred $1,160,740 in debt issuance costs during the nine months ended September 30, 2024, an increase of $273,487 from June 30, 2024, due to the Second Borrowing. Debt issuance costs are amortized to “Interest expense” on the Consolidated Statements of Operations over the life of the debt to which they pertain. The total unamortized debt issuance costs were $1,067,041 and $56,520 as of September 30, 2024 and December 31, 2023, respectively. Debt issuance costs are included in “Long-term debt, net of current portion” on the Consolidated Balance Sheets. Amortization expense related to debt issuance costs was $150,219 and $2,055 for the nine months ended September 30, 2024 and 2023, respectively. Amortization for the nine months ended September 30, 2024 includes the amortization and the write-off of debt issuance costs of $56,520 related to the termination of Cadence Term Loan.

 

23

 

 

NOTE 9 - COMMITMENTS AND CONTINGENCIES

 

License Agreements and Royalties

 

CellerateRX Surgical

 

In August 2018, the Company entered an exclusive, world-wide sublicense agreement with CGI Cellerate RX to distribute certain hydrolyzed collagen products, including CellerateRX Surgical, into the surgical and wound care markets. Pursuant to the Sublicense Agreement, the Company paid royalties of 3-5% of annual collected net sales of these products. As amended in January 2021, the term of the sublicense was extended through May 2050, with automatic successive year-to-year renewal terms thereafter so long as the Company’s Net Sales (as defined in the Sublicense Agreement) each year are equal to or in excess of $1,000,000. If the Company’s Net Sales fall below $1,000,000 for any year after the expiration date, CGI Cellerate RX has the right to terminate the Sublicense Agreement upon written notice.

 

Under this agreement, royalty expense, which was recorded in “Cost of goods sold” in the accompanying Consolidated Statements of Operations, totaled zero and a benefit of $9,209, respectively, for the three months ended September 30, 2024 and 2023 and zero and $1,060,035, respectively, for the nine months ended September 30, 2024 and 2023. Sales of CellerateRX Surgical comprised the substantial majority of the Company’s sales during the three and nine months ended September 30, 2024 and 2023.

 

As discussed further in Note 3, on August 1, 2023, the Company purchased certain assets from Applied, including the rights to manufacture and sell certain hydrolyzed collagen products, including CellerateRX Surgical, for use in the human wound care market. In connection with the Applied Asset Purchase, Applied assigned the License Agreement with CGI Cellerate RX to SMAT, and on October 10, 2024, the License Agreement and Sublicense Agreement were terminated.

 

BIAKŌS Antimicrobial Wound Gel and BIAKŌS Antimicrobial Skin and Wound Cleanser

 

In July 2019, the Company executed a license agreement with Rochal Industries, LLC (“Rochal”), a related party, pursuant to which the Company acquired an exclusive world-wide license to market, sell and further develop antimicrobial products for the prevention and treatment of microbes on the human body utilizing certain Rochal patents and pending patent applications (the “BIAKŌS License Agreement”). Currently, the products covered by the BIAKŌS License Agreement are BIAKŌS Antimicrobial Wound Gel, BIAKŌS Antimicrobial Skin and Wound Cleanser and BIASURGE Advanced Surgical Solution. All three products are 510(k) cleared.

 

Future commitments under the terms of the BIAKŌS License Agreement include:

 

  The Company pays Rochal a royalty of 2-4% of net sales. The minimum annual royalty due to Rochal was $146,410 for 2024 and will increase to a maximum amount of $150,000 in 2025.

 

  The Company may pay additional royalties annually based on specific net profit targets from sales of the licensed products, subject to a maximum of $1,000,000 during any calendar year.

 

Unless previously terminated by the parties, the BIAKŌS License Agreement expires with the related patents in December 2031.

 

Under this agreement, royalty expense, which is recorded in “Cost of goods sold” in the accompanying Consolidated Statements of Operations, was $36,602 and $32,499 for the three months ended September 30, 2024 and 2023, respectively. For the nine months ended September 30, 2024 and 2023, royalty expense under this agreement was $113,907 and $97,499, respectively. The Company’s Executive Chairman and Chief Executive Officer is a director of Rochal, and indirectly a significant shareholder of Rochal, and through the potential exercise of warrants, a majority shareholder of Rochal. Another one of the Company’s directors is also a director and significant shareholder of Rochal.

 

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CuraShield Antimicrobial Barrier Film and No Sting Skin Protectant

 

In October 2019, the Company executed a license agreement with Rochal pursuant to which the Company acquired an exclusive world-wide license to market, sell and further develop certain antimicrobial barrier film and skin protectant products for use in the human health care market utilizing certain Rochal patents and pending patent applications (the “ABF License Agreement”). Currently, the products covered by the ABF License Agreement are CuraShield Antimicrobial Barrier Film and a no sting skin protectant product.

 

Future commitments under the terms of the ABF License Agreement include:

 

  The Company will pay Rochal a royalty of 2-4% of net sales. The minimum annual royalty due to Rochal will be $50,000 beginning with the first full calendar year following the year in which first commercial sales of the products occur. The annual minimum royalty will increase by 10% each subsequent calendar year up to a maximum amount of $75,000.

 

  The Company will pay additional royalties annually based on specific net profit targets from sales of the licensed products, subject to a maximum of $500,000 during any calendar year.

 

Unless previously terminated or extended by the parties, the ABF License Agreement will terminate upon expiration of the last U.S. patent in October 2033. No commercial sales or royalties have been recognized under this agreement as of September 30, 2024.

 

Debrider License Agreement

 

In May 2020, the Company executed a product license agreement with Rochal, pursuant to which the Company acquired an exclusive world-wide license to market, sell and further develop a debrider for human medical use to enhance skin condition or treat or relieve skin disorders, excluding uses primarily for beauty, cosmetic, or toiletry purposes (the “Debrider License Agreement”).

 

Future commitments under the terms of the Debrider License Agreement include:

 

  Upon FDA clearance of the licensed products, the Company will pay Rochal $500,000 in cash and an additional $1,000,000, which at the Company’s option may be paid in any combination of cash and its common stock.

 

  The Company will pay Rochal a royalty of 2-4% of net sales. The minimum annual royalty due to Rochal will be $100,000 beginning with the first full calendar year following the year in which first commercial sales of the licensed products occur and increase by 10% each subsequent calendar year up to a maximum amount of $150,000.

 

  The Company will pay additional royalty annually based on specific net profit targets from sales of the licensed products, subject to a maximum of $1,000,000 during any calendar year.

 

Unless previously terminated or extended by the parties, the Debrider License Agreement will expire in October 2034. No commercial sales or royalties have been recognized under this agreement as of September 30, 2024.

 

Rochal Asset Acquisition

 

The Company entered into an asset purchase agreement with Rochal effective July 1, 2021, pursuant to which the Company purchased certain assets of Rochal. Pursuant to the asset purchase agreement, for the three-year period after the effective date, Rochal is entitled to receive consideration for any new product relating to the business that is directly and primarily based on an invention conceived and reduced to practice by a member or members of Rochal’s science team. For the three-year period after the effective date, Rochal is also entitled to receive an amount in cash equal to twenty-five percent of the proceeds received for any Grant (as defined in the asset purchase agreement) by either the Company or Rochal. In addition, the Company agreed to use commercially reasonable efforts to perform Minimum Development Efforts (as defined in the asset purchase agreement) with respect to certain products under development, which if obtained, will entitle the Company to intellectual property rights from Rochal in respect of such products.

 

25

 

 

Precision Healing Merger Agreement

 

In April 2022, the Company closed a merger transaction with Precision Healing pursuant to which Precision Healing became a wholly owned subsidiary of the Company. Pursuant to the terms of the merger agreement, holders of Precision Healing common stock and preferred stock, other than the Company, were entitled to receive closing consideration, consisting of $125,966 in cash consideration, which was paid to stockholders who were not accredited investors, 165,738 shares of the Company’s common stock, which was paid only to accredited investors, and the payment in cash of approximately $0.6 million of transaction expenses of Precision Healing. The Company recorded the issuance of the 165,738 shares to accredited investors and cash payments to nonaccredited investors based on the closing price per share of the Company’s common stock on April 4, 2022, which was $30.75.

 

Upon the closing of the merger, the Precision Healing outstanding options previously granted under the Precision Healing Plan converted, pursuant to their terms, into options to acquire an aggregate of 144,191 shares of Company common stock with a weighted average exercise price of $10.71 per share. These options expire between August 2030 and April 2031. In addition, outstanding and unexercised Precision Healing warrants converted into rights to receive warrants to purchase (i) 4,424 shares of the Company’s common stock with an initial exercise price of $7.32 per share and an expiration date of April 22, 2031, and (ii) 12,301 shares of the Company’s common stock with an initial exercise price of $12.05 per share and an expiration date of August 10, 2030. Concurrent with the assumption of the Precision Healing Plan, the Company terminated the ability to offer future awards under the Precision Healing Plan.

 

Pursuant to the merger agreement, upon the achievement of certain performance thresholds, the securityholders of Precision Healing, including the holders of options and warrants to purchase Precision Healing common stock and certain persons promised options to purchase Precision Healing common stock, are also entitled to receive payments of up to $10.0 million, which was accounted for as contingent consideration pursuant to ASC 805. The earnout consideration is payable in cash or, at the Company’s election, is payable to accredited investors in shares of Company common stock at a price per share equal to the greater of (i) $27.13 or (ii) the average closing price of Company common stock for the 20 trading days prior to the date such earnout consideration is due and payable. Pursuant to the merger agreement, a minimum percentage of the earnout consideration may be required to be issued to accredited investors in shares of Company common stock for tax purposes. The amount and composition of the portion of earnout consideration payable is subject to adjustment and offsets as set forth in the merger agreement.

 

Scendia Purchase Agreement

 

In July 2022, the Company closed the Scendia acquisition pursuant to which Scendia became a wholly owned subsidiary of the Company. Pursuant to the purchase agreement, the aggregate consideration for the acquisition at closing was approximately $7.6 million, subject to customary post-closing adjustments. The consideration consisted of (i) approximately $1.6 million of cash, subject to certain adjustments, and (ii) 291,686 shares of common stock of the Company. Pursuant to the purchase agreement, at closing, the Company withheld 94,798 Indemnity Holdback Shares, which such Indemnity Holdback Shares were withheld to the extent provided in the purchase agreement to satisfy Phillips’ indemnification obligations and subsequently issued and released to Phillips in July 2023.

 

In addition to the cash consideration and the stock consideration, the purchase agreement provides that Phillips is entitled to receive two potential earnout payments, payable on an annual basis, not to exceed $10.0 million in the aggregate, which was accounted for as contingent consideration pursuant to ASC 805. The earnout consideration is payable to Phillips in cash or, at the Company’s election, in up to 486,145 shares of the Company’s common stock upon the achievement of certain performance thresholds relating to net revenue attributable to sales of Scendia products during the two-year period following the closing. The Company made the first earnout payment of approximately $693,000 in cash in August 2023 and the second and final earnout payment of approximately $1.1 million in cash in October 2024.

 

26

 

 

Applied Asset Purchase

 

On August 1, 2023, the Company closed the Applied Asset Purchase. The Applied Purchased Assets were purchased for an initial aggregate purchase price of $15.25 million, consisting of (i) the Cash Closing Consideration, (ii) the Stock Closing Consideration and (iii) the Installment Payments.

 

In addition to the Cash Closing Consideration, Stock Closing Consideration and Installment Payments, the Applied Purchase Agreement provides that the Sellers are entitled to receive the Applied Earnout, which is payable to the Sellers in cash, upon the achievement of certain performance thresholds relating to SMAT’s collections from net sales of a collagen-based product currently under development. Upon expiration of the seventh anniversary of the Closing, to the extent the Sellers have not earned the entirety of the Applied Earnout, SMAT shall pay the Sellers the True-Up Payment. The Applied Earnout, minus the True-Up Payment and any Applied Earnout payments already made by SMAT, may be earned at any point in the future, including after the True-Up Payment is made.

 

In connection with the Applied Asset Purchase and pursuant to the Applied Purchase Agreement, effective August 1, 2023, the Company entered into the Petito Services Agreement with the Owner, pursuant to which the Owner, as an independent contractor, agreed to provide the Petito Services. As consideration for the Petito Services, the Owner is entitled to receive: (i) a base salary of $12,000 per month during the term of the Petito Services Agreement, (ii) a royalty payment equal to three percent (3%) of the actual collections from net sales of certain products the Owner develops or codevelops that reach commercialization, (iii) a royalty payment equal to five percent (5%) for the first $50.0 million in aggregate collections from net sales of certain future products and a royalty payment of two and one-half percent (2.5%) on aggregate collections from net sales of certain future products on any amounts exceeding $50.0 million but up to $100.0 million, (iv) $500,000 in cash in the event that 510(k) clearance is issued for any future product accepted by the Company and (v) $1.0 million in cash in the event that a U.S. patent is issued for a certain product; provided that with respect to the incentive payments described in (iv) and (v) of the foregoing, the Owner shall not earn more than $2.5 million.

 

The Petito Services Agreement has an initial term of three years and is subject to automatic successive one-month renewals unless earlier terminated in accordance with its terms. The Petito Services Agreement may be terminated upon the Owner’s death or disability or by the Company or the Owner “For Cause” (as defined in the Petito Services Agreement); provided, however, that the base salary described in (i) of the foregoing paragraph shall survive termination through the three-year initial term and the royalty payments and incentive payments described in (ii)-(v) of the foregoing paragraph shall survive termination of the Petito Services Agreement.

 

Other Commitments

 

On December 20, 2023, the Company signed an exclusive license agreement with Tufts University (“Tufts”) to develop and commercialize patented technology covering 18 unique collagen peptides. As part of this agreement, the Company formed a new subsidiary, Sanara Collagen Peptides, LLC (“SCP”) and 10% of SCP’s outstanding units were issued to Tufts. SCP has exclusive rights to develop and commercialize new products based on the licensed patents and patents pending. SCP will pay royalties to Tufts based on net sales of licensed products and technologies. Under the exclusive license agreement, royalties will be calculated at a rate of 1.5% or 3%, depending on the type of product or technology developed. SCP will pay Tufts a minimum annual royalty of $50,000 on January 1 of the year following the first anniversary of the first commercial sale of the licensed products or technologies. SCP will pay Tufts a $100,000 minimum annual royalty on January 1 of each subsequent year during the royalty term specified in the exclusive license agreement. There have been no material accounting impacts related to this arrangement as of September 30, 2024.

 

NOTE 10 – SHAREHOLDERS’ EQUITY

 

Common Stock

 

At the Company’s Annual Meeting of Shareholders held in July 2020, the Company approved the Restated 2014 Omnibus Long Term Incentive Plan (the “2014 LTIP”) in which the Company’s directors, officers, employees and consultants are eligible to participate. The 2014 LTIP terminated on September 3, 2024, and no future awards may be granted pursuant to the 2014 LTIP. Previously granted awards under the 2014 LTIP will remain outstanding until they expire by their terms or under the terms of the 2014 LTIP.

 

27

 

 

On June 12, 2024, the Company’s shareholders approved the 2024 Omnibus Long-Term Incentive Plan (the “2024 LTIP”), which went into effect upon shareholder approval. The maximum number of shares of the Company’s common stock that may be delivered pursuant to awards granted under the 2024 LTIP is 1,000,000, subject to increase by any awards under the 2014 LTIP (i) that were outstanding on or after June 12, 2024, and that, on or after such date, are forfeited, expire or are canceled, and (ii) any shares subject to awards relating to common stock under the 2014 LTIP that are settled in cash on or after June 12, 2024 (the “Prior LTIP Awards”). The 2024 LTIP also provides that, to the extent an award under the 2024 LTIP or a Prior LTIP Award is forfeited, expires or is canceled, in whole or in part, the shares subject to such forfeited, expired or canceled award may again be awarded under the 2024 LTIP. As of September 30, 2024, a total of 745,085 shares had been issued under the 2014 LTIP and 1,000,000 were available for issuance under the 2024 LTIP.

 

In April 2022, the Company closed a merger transaction with Precision Healing pursuant to which Precision Healing became a wholly owned subsidiary of the Company. Pursuant to the terms of the merger agreement, holders of Precision Healing common stock and preferred stock, other than the Company, were entitled to receive closing consideration, consisting of $125,966 in cash consideration, which was paid to stockholders who were not accredited investors, 165,738 shares of the Company’s common stock, which was paid only to accredited investors, and the payment in cash of approximately $0.6 million of transaction expenses of Precision Healing. The Company recorded the issuance of the 165,738 shares to accredited investors and cash payments to nonaccredited investors based on the closing price per share of the Company’s common stock on April 4, 2022, which was $30.75.

 

Upon the closing of the merger, the Precision Healing outstanding options previously granted under the Precision Healing Plan converted, pursuant to their terms, into options to acquire an aggregate of 144,191 shares of Company common stock with a weighted average exercise price of $10.71 per share. These options expire between August 2030 and April 2031. In addition, outstanding and unexercised Precision Healing warrants converted into rights to receive warrants to purchase (i) 4,424 shares of the Company’s common stock with an initial exercise price of $7.32 per share and an expiration date of April 22, 2031, and (ii) 12,301 shares of the Company’s common stock with an initial exercise price of $12.05 per share and an expiration date of August 10, 2030. Concurrent with the assumption of the Precision Healing Plan, the Company terminated the ability to offer future awards under the Precision Healing Plan.

 

Pursuant to the merger agreement, upon the achievement of certain performance thresholds, the securityholders of Precision Healing, including the holders of options and warrants to purchase Precision Healing common stock and certain persons promised options to purchase Precision Healing common stock, are also entitled to receive payments of up to $10.0 million, which was accounted for as contingent consideration pursuant to ASC 805. The earnout consideration is payable in cash or, at the Company’s election, is payable to accredited investors in shares of Company common stock at a price per share equal to the greater of (i) $27.13 or (ii) the average closing price of Company common stock for the 20 trading days prior to the date such earnout consideration is due and payable. Pursuant to the merger agreement, a minimum percentage of the earnout consideration may be required to be issued to accredited investors in shares of Company common stock for tax purposes. The amount and composition of the portion of earnout consideration payable is subject to adjustment and offsets as set forth in the merger agreement.

 

In July 2022, the Company closed the Scendia acquisition pursuant to which Scendia became a wholly owned subsidiary of the Company. Pursuant to the purchase agreement, the aggregate consideration at closing for the acquisition was approximately $7.6 million, subject to customary post-closing adjustments. The consideration consisted of (i) approximately $1.6 million of cash, subject to certain adjustments, and (ii) 291,686 shares of common stock of the Company. Pursuant to the purchase agreement, at closing, the Company withheld 94,798 Indemnity Holdback Shares, which such Indemnity Holdback Shares were withheld to the extent provided in the purchase agreement to satisfy Phillips’ indemnification obligations and subsequently issued and released to Phillips in July 2023.

 

In addition to the cash consideration and the stock consideration, the purchase agreement provides that Phillips is entitled to receive two potential earnout payments, payable on an annual basis, not to exceed $10.0 million in the aggregate, which was accounted for as contingent consideration pursuant to ASC 805. The earnout consideration is payable to Phillips in cash or, at the Company’s election, in up to 486,145 shares of the Company’s common stock upon the achievement of certain performance thresholds relating to net revenue attributable to sales of Scendia products during the two-year period following the closing. The Company made the first earnout payment of approximately $693,000 in cash in August 2023 and the second and final earnout payment of approximately $1.1 million in cash in October 2024.

 

28

 

 

In February 2023, the Company entered into a Controlled Equity OfferingSM Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co., as sales agent (“Cantor”), pursuant to which the Company could offer and sell from time to time, to or through Cantor, shares of the Company’s common stock having an aggregate offering price of up to $75,000,000.

 

Sales of the shares were made in sales deemed to be an “at the market offering” as defined in Rule 415(a)(4) promulgated under the Securities Act of 1933, as amended. Upon delivery of a placement notice and subject to the terms and conditions of the Sales Agreement, Cantor agreed to use commercially reasonable efforts consistent with its normal trading and sales practices, applicable state and federal law, rules and regulations and the rules of The Nasdaq Capital Market to sell the shares from time to time based upon the Company’s instructions, including any price, time period or size limits specified by the Company. The Company had no obligation to sell any of the shares under the Sales Agreement and could suspend or terminate the offering of its common stock pursuant to the Sales Agreement upon notice to Cantor and subject to other conditions. Cantor’s obligations to sell the shares under the Sales Agreement were subject to satisfaction of certain conditions, including customary closing conditions. Pursuant to the Sales Agreement, the Company paid Cantor a commission of 3.0% of the aggregate gross proceeds from each sale of the shares.

 

In 2023, the Company sold an aggregate of 26,143 shares of common stock for gross proceeds of approximately $1.1 million and net proceeds of approximately $0.9 million pursuant to the Sales Agreement. The Company paused the offering at the end of the first quarter of 2023 and did not reactivate it during the remainder of 2023. The Form S-3 registration statement for this offering expired at the beginning of 2024.

 

On August 1, 2023, the Company closed the Applied Asset Purchase. Included in the purchase price was 73,809 shares of the Company’s common stock. See Note 3 for more information regarding the acquisition of Applied.

 

Restricted Stock Awards

 

During the nine months ended September 30, 2024, the Company issued restricted stock awards under the 2014 LTIP which are subject to certain vesting provisions and other terms and conditions set forth in each recipient’s respective restricted stock agreement. The Company granted and issued 164,588 shares, net of forfeitures, of restricted common stock to employees, directors, and certain advisors of the Company under the 2014 LTIP during the nine months ended September 30, 2024. The fair value of these awards was $5,765,952 based on the closing price of the Company’s common stock on the respective grant dates, which will be recognized as compensation expense on a straight-line basis over the vesting period of the awards.

 

Share-based compensation expense of $1,025,430 and $857,526 was recognized in Operating expenses in the accompanying Consolidated Statements of Operations during the three months ended September 30, 2024 and 2023, respectively. Share-based compensation expense of $3,240,361 and $2,582,163 was recognized in Operating expenses in the accompanying Consolidated Statements of Operations during the nine months ended September 30, 2024 and 2023, respectively.

 

At September 30, 2024, there was $5,403,255 of total unrecognized share-based compensation expense related to unvested share-based equity awards. Unrecognized share-based compensation expense is expected to be recognized over a weighted-average period of 0.7 years.

 

Below is a summary of restricted stock activity for the nine months ended September 30, 2024:

 

  

For the Nine Months Ended

September 30, 2024

 
   Shares  

Weighted Average

Grant Date Fair Value

 
Nonvested at beginning of period   144,211   $34.07 
Granted   190,240    35.03 
Vested   (84,407)   33.26 
Forfeited   (25,652)   35.02 
Nonvested at September 30, 2024   224,392   $35.08 

 

29

 

 

Stock Options

 

A summary of the status of outstanding stock options at September 30, 2024 and changes during the nine months then ended is presented below:

 

   For the Nine Months Ended     
   September 30, 2024     
       Weighted Average   Weighted Average   Aggregate 
       Exercise   Remaining   Intrinsic 
   Options   Price   Contract Life   Value 
Outstanding at beginning of period   93,892   $10.22           
Granted or assumed   -    -           
Exercised   (62,879)   10.05           
Forfeited   -    -           
Expired   -    -           
Outstanding at September 30, 2024   31,013   $10.57    6.1   $547,530.6 
                     
Exercisable at September 30, 2024   31,013   $10.57    6.1   $547,530.6 

 

Warrants

 

A summary of the status of outstanding warrants to purchase common stock at September 30, 2024 and changes during the nine months then ended is presented below:

 

   For the Nine Months Ended 
   September 30, 2024 
       Weighted Average   Weighted Average 
       Exercise   Remaining 
   Warrants   Price   Contract Life 
Outstanding at beginning of period   16,725   $10.80      
Granted or assumed   -    -      
Exercised   -    -      
Forfeited   -    -      
Expired   -    -      
Outstanding at September 30, 2024   16,725   $10.80    6.0 
                
Exercisable at September 30, 2024   16,725   $10.80    6.0 

 

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NOTE 11 – RELATED PARTIES

 

CellerateRX Sublicense Agreement

 

The Company had an exclusive, world-wide sublicense to distribute certain hydrolyzed collagen products, including CellerateRX Surgical into the surgical and wound care markets from an affiliate of The Catalyst Group, Inc. (“Catalyst”), CGI Cellerate RX, which licensed the rights to these products from Applied. Sales of CellerateRX Surgical have comprised the substantial majority of the Company’s sales during the nine months ended September 30, 2024 and 2023. As amended in January 2021, the term of the Sublicense Agreement was extended through May 2050, with automatic successive one-year renewals so long as annual net sales of the licensed products exceed $1,000,000.

 

As discussed further in Note 3, on August 1, 2023, the Company purchased certain assets from Applied, including the underlying intellectual property of, as well as the rights to manufacture and sell certain hydrolyzed collagen products, including CellerateRX Surgical. In connection with the Applied Asset Purchase, Applied assigned the License Agreement with CGI Cellerate RX to SMAT, and on October 10, 2024, the License Agreement and Sublicense Agreement were terminated. Ronald T. Nixon, the Company’s Chief Executive Officer and Executive Chairman, is the founder and managing partner of Catalyst.

 

Product License Agreements

 

In July 2019, the Company executed a license agreement with Rochal, a related party, whereby the Company acquired an exclusive world-wide license to market, sell and further develop antimicrobial products for the prevention and treatment of microbes on the human body utilizing certain Rochal patents and pending patent applications. Currently, the products covered by the BIAKŌS License Agreement are BIAKŌS Antimicrobial Wound Gel and BIAKŌS Antimicrobial Skin and Wound Cleanser. Both products are 510(k) cleared. Mr. Nixon is a director of Rochal, and indirectly a significant shareholder of Rochal, and through the potential exercise of warrants, a majority shareholder of Rochal. Another one of the Company’s directors is also a director and significant shareholder of Rochal.

 

In October 2019, the Company executed the ABF License Agreement with Rochal whereby the Company acquired an exclusive world-wide license to market, sell and further develop certain antimicrobial barrier film and skin protectant products for use in the human health care market utilizing certain Rochal patents and pending patent applications. Currently, the products covered by the ABF License Agreement are CuraShield Antimicrobial Barrier Film and a no sting skin protectant product.

 

In May 2020, the Company executed a product license agreement with Rochal, whereby the Company acquired an exclusive world-wide license to market, sell and further develop a debrider for human medical use to enhance skin condition or treat or relieve skin disorders, excluding uses primarily for beauty, cosmetic, or toiletry purposes.

 

See Note 9 for more information on these product license agreements.

 

Consulting Agreement

 

Concurrent with the Rochal asset purchase, in July 2021, the Company entered into a consulting agreement with Ann Beal Salamone pursuant to which Ms. Salamone agreed to provide the Company with consulting services with respect to, among other things, writing new patents, conducting patent intelligence, and participating in certain grant and contract reporting. In consideration for the consulting services to be provided to the Company, Ms. Salamone is entitled to receive an annual consulting fee of $177,697, with payments to be paid once per month. The consulting agreement has an initial term of three years, unless earlier terminated by the Company, and is subject to renewal. Effective July 13, 2024, the consulting agreement with Ms. Salamone was amended to provide that the initial term shall be automatically renewed for successive one-year terms for up to three successive years unless earlier terminated by either party without cause at any time, provided that the terminating party provides 90 days advance written notice of termination. Ms. Salamone is a director of the Company and is a significant shareholder and the current Chair of the board of directors of Rochal.

 

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Catalyst Transaction Advisory Services Agreement

 

In March 2023, the Company entered into a Transaction Advisory Services Agreement (the “Catalyst Services Agreement”) effective March 1, 2023 with Catalyst, a related party. Pursuant to the Catalyst Services Agreement, Catalyst, by and through its directors, officers, employees and affiliates that are not simultaneously serving as directors, officers or employees of the Company (collectively, the “Covered Persons”), agreed to perform certain transaction advisory, business and organizational strategy, finance, marketing, operational and strategic planning, relationship access and corporate development services for the Company in connection with any merger, acquisition, recapitalization, divestiture, financing, refinancing, or other similar transaction in which the Company may be, or may consider becoming, involved, and any such additional services as mutually agreed upon in writing by and between Catalyst and the Company (the “Catalyst Services”).

 

Pursuant to the Catalyst Services Agreement, the Company agreed to reimburse Catalyst for (i) compensation actually paid by Catalyst to any of the Covered Persons at a rate no more than a rate consistent with industry practice for the performance of services similar to the Catalyst Services, as documented in reasonably sufficient detail, and (ii) all reasonable out-of-pocket costs and expenses payable to unaffiliated third parties, as documented in customary expense reports, as each of (i) and (ii) is incurred in connection with the Catalyst Services rendered under the Catalyst Services Agreement, with all reimbursements being contingent upon the prior approval of the Audit Committee of the Company’s Board of Directors. The Company incurred costs pursuant to the Catalyst Services Agreement of $49,829 and $44,032 in the three months ended September 30, 2024 and 2023, respectively, and $163,101 and $117,018 in the nine months ended September 30, 2024 and 2023, respectively, and is recorded in “Selling, general and administrative expenses” in the accompanying Consolidated Statements of Operations.

 

NOTE 12 – SEGMENT REPORTING

 

As discussed in Note 1, the Company historically managed its business on the basis of one operating and reportable segment. During the second quarter of 2024, the Company changed its reportable segments to better align its organization based upon the Company’s management structure, products and services offered and markets served. Based on the growing importance of the value-based wound care program to the Company’s future outlook and how the Company’s chief operating decision maker (“CODM”), the Chief Executive Officer, reviews operating results and makes decisions about resource allocation, the Company now has two reportable segments: Sanara Surgical and THP.

 

Segment EBITDA is the primary profitability measure used by the CODM for purposes of assessing financial performance and resource allocation. The Company defines Segment EBITDA for the reportable segments as net income (loss) excluding interest expense/income, provision/benefit for income taxes, depreciation and amortization, non-cash share-based compensation expense, change in fair value of earnout liabilities, share of losses from equity method investment, executive separation costs, legal and diligence expenses related to acquisitions, and gains/losses on disposal of property and equipment as each are applicable to the periods presented. Segment EBITDA, as it relates to the Company’s reportable segments, is presented in conformity with ASC 280, Segment Reporting, and is excluded from the definition of non-GAAP financial measures under the Securities and Exchange Commission’s Regulation G and Item 10(e) of Regulation S-K. Segment EBITDA may not be comparable to similarly titled measures reported by other companies.

 

Sanara Surgical

 

The Sanara Surgical segment primarily markets and sells soft tissue repair and bone fusion products for use in the operating room or other sterile environments. Sanara Surgical’s soft tissue repair products include, among other products, the Company’s lead product, CellerateRX Surgical, and BIASURGE Advanced Surgical Solution, which is a no-rinse, advanced surgical solution used for wound irrigation. Sanara Surgical’s bone fusion products include, among other products, BiFORM, which is an osteoconductive, bioactive, porous implant that allows for bony ingrowth across the graft site, and ALLOCYTE Plus, which is a human allograft cellular bone matrix containing bone-derived progenitor cells and conformable bone fibers.

 

Sanara Surgical also includes an in-house research and development team (Rochal Technologies) with an extensive pipeline of innovative products under development.

 

Tissue Health Plus

 

The THP segment is focused on value-based wound care services. Through THP, the Company plans to offer a first of its kind value-based wound care program to payers and risk-bearing entities such as accountable care organizations and VBC primary care companies, with Medicare Advantage payers as the initial target market for this program.

 

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THP’s programs are expected to enable payers to divest wound care spend risk, reduce wound related hospitalizations and improve patient quality of life. THP plans to coordinate delivery of community and home-based wound care for its managed patients. Community based care spans a variety of settings including physician offices, skilled nursing facilities, assisted living facilities and senior living facilities. THP programs are intended to integrate science and evidence-based medicine protocols to standardize wound prevention and treatment.

 

Currently, there are no allocated costs included in the THP segment. All corporate and overhead expenses are included in the Sanara Surgical segment, as substantially all of those costs relate to supporting the operations and activities of the Sanara Surgical segment.

 

As a result of the change in reportable segments, certain prior period amounts have been recast to conform to the current period presentation. Throughout this Quarterly Report on Form 10-Q, unless otherwise indicated, amounts and activity reflect reclassifications related to the Company’s change in reportable segments. The change in reportable segments had no impact on the Company’s previously reported Consolidated Balance Sheets, Consolidated Statements of Operations, Consolidated Statements of Cash Flows or Consolidated Statements of Shareholders’ Equity.

 

The following tables reflect results of operations, Segment EBITDA, segmented assets, and expenditures for long-lived assets for the Company’s reportable segments for the periods indicated below:

 

   Sanara Surgical   THP   Total   Sanara Surgical   THP   Total 
   Three Months Ended 
   September 30, 
   2024   2023 
   Sanara Surgical   THP   Total   Sanara Surgical   THP   Total 
                         
Net revenue  $21,671,599   $-   $21,671,599   $16,024,948   $-   $16,024,948 
Gross profit   19,679,612    -    19,679,612    14,273,599    -    14,273,599 
Selling, general and administrative expenses   17,420,346    1,572,909    18,993,255    13,460,404    417,475    13,877,879 
Research and development   783,840    575,690    1,359,530    225,886    760,568    986,454 
Depreciation and amortization   696,888    406,966    1,103,854    590,563    407,111    997,674 
Interest expense   927,577    -    927,577    188,294    -    188,294 
Net income (loss)   (180,488)   (2,702,564)   (2,883,052)   567,235    (1,662,184)   (1,094,949)
Segment EBITDA   2,563,521    (1,721,560)   841,961    1,400,916    (1,134,124)   266,792 
                               
Segment assets (at period end) (1)  $67,037,973   $21,507,503   $88,545,476   $45,715,495   $28,155,654   $73,871,149 
Expenditures for long-lived assets  $9,096   $-   $9,096   $170,320   $-   $170,320 

 

   Sanara Surgical   THP   Total   Sanara Surgical   THP   Total 
   Nine Months Ended 
   September 30, 
   2024   2023 
   Sanara Surgical   THP   Total   Sanara Surgical   THP   Total 
                         
Net revenue  $60,367,060   $-   $60,367,060   $47,297,299   $2,730   $47,300,029 
Gross profit (loss)   54,476,341    -    54,476,341    41,241,740    (6,235)   41,235,505 
Selling, general and administrative expenses   51,453,311    2,689,811    54,143,122    39,229,030    1,429,394    40,658,424 
Research and development   1,945,263    1,346,216    3,291,479    669,849    2,811,057    3,480,906 
Depreciation and amortization   2,093,797    1,220,984    3,314,781    1,359,180    1,221,063    2,580,243 
Interest expense   1,839,259    -    1,839,259    188,300    -    188,300 
Net income (loss)   (2,872,286)   (5,339,011)   (8,211,297)   1,181,296    (5,358,754)   (4,177,458)
Segment EBITDA   5,095,670    (3,350,104)   1,745,566    3,766,196    (4,087,858)   (321,662)
                               
Segment assets (at period end) (1)  $67,037,973   $21,507,503   $88,545,476   $45,715,495   $28,155,654   $73,871,149 
Expenditures for long-lived assets  $133,676   $-   $133,676   $210,970   $-   $210,970 

 

(1)- Segment assets for 2023 represent assets as of December 31, 2023.

 

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The following tables provide a reconciliation of net income (loss) to Segment EBITDA for the Company’s reportable segments for the periods indicated below:

 

   Sanara Surgical   THP   Total   Sanara Surgical   THP   Total 
   Three Months Ended 
   September 30, 
   2024   2023 
   Sanara Surgical   THP   Total   Sanara Surgical   THP   Total 
Net Income (Loss)  $(180,488)  $(2,702,564)  $(2,883,052)  $567,235   $(1,662,184)  $(1,094,949)
Adjustments:                              
Interest expense   927,577    -    927,577    188,294    -    188,294 
Depreciation and amortization   696,888    406,966    1,103,854    590,563    407,111    997,674 
Noncash share-based compensation   1,003,599    21,831    1,025,430    813,606    43,920    857,526 
Change in fair value of earnout liabilities   -    147,000    147,000    (758,783)   77,030    (681,753)
Share of losses from equity method investment   31,448    -    31,448    -    -    - 
Executive separation costs    59,685    -    59,685    -    -    - 
Acquisition costs   24,812    405,207    430,019    -    -    - 
Segment EBITDA  $2,563,521   $(1,721,560)  $841,961   $1,400,916   $(1,134,124)  $266,792 

 

   Sanara Surgical   THP   Total   Sanara Surgical   THP   Total 
   Nine Months Ended 
   September 30, 
   2024   2023 
   Sanara Surgical   THP   Total   Sanara Surgical   THP   Total 
Net Income (Loss)  $(2,872,286)  $(5,339,011)  $(8,211,297)  $1,181,296   $(5,358,754)  $(4,177,458)
Adjustments:                              
Interest expense   1,839,259    -    1,839,259    188,300    -    188,300 
Depreciation and amortization   2,093,797    1,220,984    3,314,781    1,359,180    1,221,063    2,580,243 
Noncash share-based compensation   2,803,536    108,031    2,911,567    2,423,335    158,828    2,582,163 
Change in fair value of earnout liabilities   (14,451)   82,000   67,549   (1,385,914)   (108,996)   (1,494,910)
Share of losses from equity method investment   31,448    -    31,448    -    -    - 
Executive separation costs (1)   964,466    -    964,466    -    -    - 
Acquisition costs   249,901    577,892    827,793    -    -    - 
Segment EBITDA  $5,095,670   $(3,350,104)  $1,745,566   $3,766,196   $(4,087,858)  $(321,662)

 

(1)- Includes $328,795 of share-based compensation related to executive separation costs for the nine months ended September 30, 2024.

 

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis of the financial condition and results of operations of Sanara MedTech Inc. (together with its wholly owned or majority-owned subsidiaries on a consolidated basis, the “Company,” “Sanara MedTech,” “Sanara,” “our,” “us,” or “we”) should be read in conjunction with the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section and audited consolidated financial statements and related notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2023 and with the unaudited consolidated financial statements and related notes thereto presented in this Quarterly Report on Form 10-Q.

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “aims,” “anticipates,” “believes,” “contemplates,” “continue,” “could,” “estimates,” “expects,” “forecast,” “guidance,” “intends,” “may,” “plans,” “possible,” “potential,” “predicts,” “preliminary,” “projects,” “seeks,” “should,” “target,” “will” or “would” or the negative of these words, variations of these words or other similar terms or expressions that concern our expectations, strategy, plans, or intentions. Such forward-looking statements are subject to certain risks, uncertainties and assumptions relating to factors that could cause actual results to differ materially from those anticipated in such statements, including, without limitation, the following:

 

shortfalls in forecasted revenue growth;
   
our ability to implement our comprehensive wound and skincare strategy through acquisitions and investments and our ability to realize the anticipated benefits of such acquisitions and investments;
   
our ability to meet our future capital requirements;
   
our ability to retain and recruit key personnel;
   
the intense competition in the markets in which we operate and our ability to compete within our markets;
   
the failure of our products to obtain market acceptance;
   
the effect of security breaches and other disruptions;
   
our ability to maintain effective internal controls over financial reporting;
   
our ability to develop and commercialize new products and products under development, including the manufacturing, distribution, marketing and sale of such products;
   
our ability to maintain and further grow clinical acceptance and adoption of our products;
   
the impact of competitors inventing products that are superior to ours;
   
disruptions of, or changes in, our distribution model, consumer base or the supply of our products;
   
our ability to manage product inventory in an effective and efficient manner;
   
the failure of third-party assessments to demonstrate desired outcomes in proposed endpoints;
   
our ability to successfully expand into wound and skincare virtual consult and other services;
   
our ability and the ability of our research and development partners to protect the proprietary rights to technologies used in certain of our products and the impact of any claim that we have infringed on intellectual property rights of others;

 

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our dependence on technologies and products that we license from third parties;
   
the effects of current and future laws, rules, regulations and reimbursement policies relating to the labeling, marketing and sale of our products and our planned expansion into wound and skincare virtual consult and other services and our ability to comply with the various laws, rules and regulations applicable to our business; and
   
the effect of defects, failures or quality issues associated with our products.

 

For a more detailed discussion of these and other factors that may affect our business and that could cause the actual results to differ materially from those anticipated in forward-looking statements, see “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2023, Part II, Item 1A “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Forward-looking statements speak only as of the date on which they are made, and we do not assume any obligation to update these forward-looking statements, except to the extent required by applicable securities laws.

 

OVERVIEW

 

We are a medical technology company focused on developing and commercializing transformative technologies to improve clinical outcomes and reduce healthcare expenditures in the surgical, chronic wound and skincare markets. Our products, services and technologies are designed to achieve our goal of providing better clinical outcomes at a lower overall cost for patients regardless of where they receive care. We strive to be one of the most innovative and comprehensive providers of effective surgical, wound and skincare solutions and are continually seeking to expand our offerings for patients requiring treatments across the entire continuum of care in the United States.

 

We currently market several products across surgical and chronic wound care applications and have multiple products in our pipeline. On August 1, 2023, we acquired, among other things, the underlying intellectual property of, as well as the rights to manufacture and sell, CellerateRX Surgical Activated Collagen (“CellerateRX Surgical”), our primary product, from Applied Nutritionals, LLC (“Applied”) for human wound care use (for more information regarding this acquisition, see the “Recent Acquisitions” section below). Prior to such time, we had licensed the rights to these products through a sublicense agreement (the “Sublicense Agreement”) with CGI Cellerate RX, LLC (“CGI Cellerate RX”), an affiliate of The Catalyst Group, Inc. (“Catalyst”), both of which are related parties (for additional information regarding related parties, see the section titled “Material Transactions with Related Parties” below). In connection with the asset purchase, Applied assigned its license agreement with CGI Cellerate RX (the “License Agreement”) to a wholly owned subsidiary of the Company, and on October 10, 2024, we terminated the legacy License Agreement and Sublicense Agreement. We also license certain products from Rochal Industries, LLC (“Rochal”) and Cook Biotech Inc.

 

In April 2022, we entered into a merger agreement through which Precision Healing Inc. (“Precision Healing”) became a wholly owned subsidiary of the Company. Precision Healing is developing a diagnostic imager and lateral flow assay (“LFA”) for assessing a patient’s wound and skin conditions. This comprehensive wound and skin assessment technology is designed to quantify biochemical markers to determine the trajectory of a wound’s condition to enable better diagnosis and treatment protocol. In December 2023, we received 510(k) clearance from the U.S. Food and Drug Administration for the Precision Healing diagnostic imager. We are currently evaluating regulatory pathways for the Precision Healing LFA.

 

In July 2022, we entered into a membership interest purchase agreement with Scendia Biologics, LLC (“Scendia”) and Ryan Phillips (“Phillips”) pursuant to which we acquired 100% of the issued and outstanding membership interests in Scendia from Phillips. Since our acquisition of Scendia, we have been selling a full line of regenerative and orthobiologic technologies including (i) TEXAGEN Amniotic Membrane Allograft (“TEXAGEN”), (ii) BiFORM Bioactive Moldable Matrix (“BiFORM”), (iii) ACTIGEN Verified Inductive Bone Matrix (“ACTIGEN”) and (iv) ALLOCYTE Plus Advanced Cellular Bone Matrix (“ALLOCYTE Plus”).

 

In November 2022, we established a 50/50 joint venture, SI Healthcare Technologies, LLC (“SI Technologies”) (formerly known as SI Wound Care, LLC), with InfuSystem Holdings, Inc. (“InfuSystem”) focused on delivering a complete wound care solution targeted at improving patient outcomes, lowering the cost of care, and increasing patient and provider satisfaction. The partnership is expected to enable InfuSystem to offer innovative products, including our advanced wound care product line and associated services to new customers.

 

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In November 2023, we launched BIASURGE Advanced Surgical Solution (“BIASURGE”). BIASURGE is a no-rinse, advanced surgical solution used for wound irrigation. It contains an antimicrobial preservative effective against a broad spectrum of pathogenic microorganisms. BIASURGE is indicated for use in the mechanical cleansing and removal of debris, including microorganisms, from surgical wounds.

 

COMPREHENSIVE VALUE-BASED CARE STRATEGY

 

In June 2020, we formed a subsidiary, United Wound and Skin Solutions, LLC (formerly known as “WounDerm”), to hold certain investments and operations in wound and skincare virtual consult services. In 2023, WounDerm was renamed and is now doing business as “Tissue Health Plus” (“THP”). THP is continuing its current mission to simplify skin health, starting with wound care through a refined business plan. Through THP, we plan to offer a first of its kind value-based wound care program to payers and risk-bearing entities such as accountable care organizations and value-based care (“VBC”) primary care companies, with Medicare Advantage payers as the initial target market for this program.

 

THP’s programs are expected to enable payers to divest wound care spend risk, reduce wound related hospitalizations and improve patient quality of life. THP plans to coordinate delivery of community and home-based wound care for its managed patients. Community based care spans a variety of settings including physician offices, skilled nursing homes, assisted living facilities and senior living facilities. THP’s programs are intended to integrate science and evidence-based medicine protocols to standardize wound prevention and treatment.

 

We anticipate that THP’s customer contracts will have three-to-five-year terms. These contracts are expected to incorporate a mix of value-based pricing methodologies including episodic, “per member per month”, and “fee for value” pricing. We believe this approach is aligned with the financial goals of the payers and will help deliver outstanding clinical outcomes for the patients.

 

Our vision for our comprehensive approach consists of three key sets of planned capabilities:

 

  (a) Care Hub – This virtual patient monitoring, care coordination and navigation center is expected to help doctors and nurses support their patients throughout their wound care journey, from prevention to treatment. We expect to have Care Hub staffed by wound care certified nurse practitioners (“NPs”) and registered nurses (“RNs”), incorporating care delivery best practices from partnerships with Direct Dermatology Inc. and certain physician-led multispecialty wound care groups. With NPs leading the care hub, RNs are expected to be the wound specialists, providing patients with expert review and support of the overarching plan of care on each patient’s journey through the process. In addition, care navigators are expected to serve as a primary point of contact for patients and their providers, coordinating care, managing appointments and ensuring seamless communication among all team members.

 

  (b) Managed Services Organization (“MSO”) Network – With respect to patient-side wound care, our plan is that THP’s programs would be performed by a network of third-party providers who will be contracted through managed services agreements. These providers would include podiatrists, wound care provider groups, primary care physicians and home health agencies. The providers in the THP network are expected to leverage THP’s standard of care, patient education and tools to deliver optimal patient outcomes with high predictability and efficiency.

 

  (c) Technology Platform – THP’s technology platform will focus on scaling workflows of THP’s Care Hub and MSO Network through automation and integration. We expect the THP technology platform to enable enhanced patient empowerment and self-healthcare. We anticipate that our platform will leverage our technology investments and partnerships with Precision Healing, Pixalere Healthcare, Inc. (“Pixalere”) and others, by leveraging modern technology including artificial intelligence and machine learning. Our platform technology is expected to manage program economics, standards of care, patient monitoring, wound assessments, network performance monitoring, and revenue cycle management. We expect that each of these components will work in concert with each other, constantly improving economics and care delivery.

 

We are seeking partners to facilitate commercialization of THP and share in the cost of development of the program.

 

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CHANGE IN REPORTABLE SEGMENTS

 

Historically, we managed our business on the basis of one operating and reportable segment. During the second quarter of 2024, we changed our reportable segments to reflect a change in the manner in which the business is managed. Based on the growing importance of the value-based wound care program to our future outlook and how our chief operating decision maker (“CODM”), the Chief Executive Officer, reviews operating results and makes decisions about resource allocation, we now have two reportable segments: Sanara Surgical and THP.

 

Sanara Surgical

 

The Sanara Surgical segment primarily markets and sells soft tissue repair and bone fusion products for use in the operating room or other sterile environments. Sanara Surgical’s soft tissue repair products include, among other products, our lead product, CellerateRX Surgical, and BIASURGE, which is a no-rinse, advanced surgical solution used for wound irrigation. Sanara Surgical’s bone fusion products include, among other products, BiFORM, which is an osteoconductive, bioactive, porous implant that allows for bony ingrowth across the graft site, and ALLOCYTE Plus, which is a human allograft cellular bone matrix containing bone-derived progenitor cells and conformable bone fibers.

 

Sanara Surgical also includes an in-house research and development team (Rochal Technologies) with an extensive pipeline of innovative products under development.

 

Tissue Health Plus

 

The THP segment is focused on value-based wound care services. Through THP, we plan to offer a first of its kind value-based wound care program to payers and risk-bearing entities such as accountable care organizations and VBC primary care companies, with Medicare Advantage payers as the initial target market for this program.

 

THP’s programs are expected to enable payers to divest wound care spend risk, reduce wound related hospitalizations and improve patient quality of life. THP plans to coordinate delivery of community and home-based wound care for its managed patients. Community based care spans a variety of settings including physician offices, skilled nursing facilities, assisted living facilities and senior living facilities. THP programs are intended to integrate science and evidence-based medicine protocols to standardize wound prevention and treatment.

 

See the section titled “Results of Operations” below for more information regarding our reportable segments. As a result of this change, certain prior period amounts have been recast to conform to the current period presentation. Throughout this Quarterly Report on Form 10-Q, unless otherwise indicated, amounts and activity reflect reclassifications related to our change in reportable segments.

 

RECENT ACQUISITIONS

 

Applied Asset Purchase

 

On August 1, 2023, we entered into an Asset Purchase Agreement (the “Applied Purchase Agreement”) by and among the Company, as guarantor, Sanara MedTech Applied Technologies, LLC, a wholly owned subsidiary of the Company (“SMAT”), Applied, The Hymed Group Corporation (“Hymed” and together with Applied, the “Sellers”), and Dr. George D. Petito (the “Owner”), pursuant to which SMAT acquired certain assets of the Sellers and the Owner, including, among others, the Sellers’ and Owner’s inventory, intellectual property, manufacturing and related equipment, goodwill, rights and claims, other than certain excluded assets, all as more specifically set forth in the Applied Purchase Agreement (collectively, the “Applied Purchased Assets”), and assumed certain Assumed Liabilities (as defined in the Applied Purchase Agreement), upon the terms and subject to the conditions set forth in the Applied Purchase Agreement (such transaction, the “Applied Asset Purchase”). The Applied Purchased Assets include the underlying intellectual property of, as well as the rights to manufacture and sell, certain hydrolyzed collagen products, including CellerateRX Surgical, for human wound care use.

 

The Applied Purchased Assets were purchased for an initial aggregate purchase price of $15.25 million, consisting of (i) $9.75 million in cash (the “Cash Closing Consideration”), (ii) 73,809 shares of our common stock (the “Stock Closing Consideration”) with an agreed upon value of $3.0 million and (iii) $2.5 million in cash (the “Installment Payments”), to be paid in four equal installments on each of the next four anniversaries of the closing of the Applied Asset Purchase (the “Closing”). The first Installment Payment of $625,000 was made in August 2024.

 

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In addition to the Cash Closing Consideration, Stock Closing Consideration and Installment Payments, the Applied Purchase Agreement provides that the Sellers are entitled to receive up to an additional $10.0 million (the “Applied Earnout”), which is payable to the Sellers in cash, upon the achievement of certain performance thresholds relating to SMAT’s collections from net sales of a collagen-based product currently under development. Upon expiration of the seventh anniversary of the Closing, to the extent the Sellers have not earned the entirety of the Applied Earnout, SMAT shall pay the Sellers a pro-rata amount of the Applied Earnout based on collections from net sales of the product, with such amount to be due credited against any Applied Earnout payments already made by SMAT (the “True-Up Payment”). The Applied Earnout, minus the True-Up Payment and any Applied Earnout payments already made by SMAT, may be earned at any point in the future, including after the True-Up Payment is made.

 

In connection with the Applied Asset Purchase and pursuant to the Applied Purchase Agreement, effective August 1, 2023, we entered into a professional services agreement (the “Petito Services Agreement”) with the Owner, pursuant to which the Owner, as an independent contractor, agreed to provide certain services to us, including, among other things, assisting with the development of products already in development and assisting with research, development, formulation, invention and manufacturing of any future products (the “Petito Services”). As consideration for the Petito Services, the Owner is entitled to receive: (i) a base salary of $12,000 per month during the term of the Petito Services Agreement, (ii) a royalty payment equal to three percent (3%) of the actual collections from net sales of certain products the Owner develops or co-develops that reach commercialization, (iii) a royalty payment equal to five percent (5%) for the first $50.0 million in aggregate collections from net sales of certain future products and a royalty payment of two and one-half percent (2.5%) on aggregate collections from net sales of certain future products on any amounts exceeding $50.0 million but up to $100.0 million, (iv) $500,000 in cash in the event that 510(k) clearance is issued for any future product accepted by the Company and (v) $1.0 million in cash in the event that a U.S. patent is issued for a certain product; provided that with respect to the incentive payments described in (iv) and (v) of the foregoing, the Owner shall not earn more than $2.5 million. The Petito Services Agreement has an initial term of three years and is subject to automatic successive one-month renewals unless earlier terminated in accordance with its terms. The Petito Services Agreement may be terminated upon the Owner’s death or disability or by us or the Owner “For Cause” (as defined in the Petito Services Agreement); provided, however, that the base salary described in (i) of the foregoing paragraph shall survive termination through the three-year initial term and the royalty payments and incentive payments described in (ii)-(v) of the foregoing paragraph shall survive termination of the Petito Services Agreement.

 

RECENT DEVELOPMENTS

 

CRG Term Loan

 

On April 17, 2024 (the “Closing Date”), we, as borrower, entered into a Term Loan Agreement (the “CRG Term Loan Agreement”) with the subsidiary guarantors party thereto from time to time (collectively, the “Guarantors”), CRG Servicing LLC as administrative agent and collateral agent (the “Agent”), and the lenders party thereto from time to time, providing for a senior secured term loan of up to $55.0 million (the “CRG Term Loan”). In April 2024, our first borrowing (the “First Borrowing”) under the CRG Term Loan of $15.0 million was used to repay the Cadence Term Loan (defined below) and to pay fees and expenses related to the CRG Term Loan Agreement. In September 2024, we borrowed an additional $15.5 million under the CRG Term Loan (the “Second Borrowing”), a portion of the proceeds of which were used for the investment in ChemoMouthpiece, LLC (“CMp”) described below.

 

ChemoMouthpiece Investment

 

On September 10, 2024, Sanara CMP LLC, a wholly owned subsidiary of the Company (“Sanara CMP”), entered into a Unit Purchase Agreement (the “Unit Purchase Agreement”) with CMp, pursuant to which Sanara CMP purchased 100,674.72 common units in CMp for $5.0 million, which represented approximately 6.64% of the issued and outstanding membership interests of CMp immediately following such purchase. CMp is a privately held medical device company that develops and commercializes propriety oral cryotherapy products for cancer patients, including, among other things, CMp’s Chemo Mouthpiece oral cryotherapy device, which is a 510(k) cleared cryotherapy device designed to reduce the incidence and severity of chemotherapy induced oral mucositis.

 

In connection with the Unit Purchase Agreement, we, CMp, certain subsidiaries of CMp, InfuSystem and SI Technologies, entered into an Exclusive Distribution Agreement (the “Distribution Agreement”) pursuant to which SI Technologies was appointed as the sole and exclusive U.S. distributor of CMp’s Standard Chemo Regiment Kits, each kit consisting of the Chemo Mouthpiece oral cryotherapy device and associated materials used in the treatment of oral mucositis (the “CMp Product”), for a term of five years, subject to meeting certain minimum order requirements.

 

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The parties to the Distribution Agreement also entered into an Intellectual Property Rights Agreement, pursuant to which SI Technologies was granted the exclusive right to use CMp’s intellectual property rights to permit resale and use of the CMp Product in the United States.

 

COMPONENTS OF RESULTS OF OPERATIONS

 

Sources of Revenue

 

Our revenue is derived primarily from sales of our soft tissue repair and bone fusion products to hospitals and other acute care facilities. In particular, the substantial majority of our product sales revenue is derived from sales of CellerateRX Surgical. Our revenue is driven by direct orders shipped by us to our customers, and to a lesser extent, direct sales to customers through delivery at the time of procedure by one of our sales representatives. We generally recognize revenue when a purchase order is received from the customer and our product is received by the customer.

 

Revenue streams from product sales and royalties are summarized below for the three and nine months ended September 30, 2024 and 2023.

 

   Three Months Ended   Nine Months Ended 
   September 30,   September 30, 
   2024   2023   2024   2023 
Soft tissue repair products  $18,863,335   $13,634,316   $52,586,945   $39,756,539 
Bone fusion products   2,808,264    2,340,382    7,779,209    7,392,740 
Royalty revenue   -    50,250    906    150,750 
Total Net Revenue  $21,671,599   $16,024,948   $60,367,060   $47,300,029 

 

Cost of Goods Sold

 

Cost of goods sold consists primarily of the acquisition costs from the manufacturers of our licensed products, raw material costs for certain components sourced directly by us, and all related royalties due as a result of the sale of our products. Our gross profit represents total net revenue less the cost of goods sold, and gross margin represents gross profit expressed as a percentage of total revenue.

 

Operating Expenses

 

Selling, general and administrative (“SG&A”) expenses consist primarily of salaries, sales commissions, benefits, bonuses and share-based compensation. SG&A also includes outside legal counsel fees, audit fees, insurance premiums, rent and other corporate expenses. We expense all SG&A expenses as incurred.

 

Research and development (“R&D”) expenses include costs related to enhancements to our currently available products and additional investments in our product, services and technologies development pipeline. This includes personnel-related expenses, including salaries, share-based compensation and benefits for all personnel directly engaged in R&D activities, contracted services, materials, prototype expenses and allocated overhead, which is comprised of compensation and benefits, lease expense and other facilities related costs. We expense R&D costs as incurred. We generally expect that R&D expenses will increase as we continue to support product enhancements and bring new products to market.

 

Depreciation and amortization expenses include depreciation of fixed assets and amortization of intangible assets that have a finite life, such as product licenses, patents and intellectual property, customer relationships and assembled workforces.

 

Change in fair value of earnout liabilities represents our measurement of the change in fair value at the balance sheet date of our earnout liabilities that were established at the time of our Precision Healing merger and Scendia acquisition.

 

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Other Income (Expense)

 

Other income (expense) is primarily comprised of interest expense and other nonoperating activities.

 

RESULTS OF OPERATIONS

 

The following tables present certain information about the results and Segment EBITDA (as described below) of our reportable business segments. See Note 12, Segment Reporting, in Part I, Item 1 of this report for more information on our reportable business segments:

 

   Three Months Ended 
   September 30, 
   2024   2023 
   Sanara Surgical   THP   Total   Sanara Surgical   THP   Total 
                         
Net revenue  $21,671,599   $-   $21,671,599   $16,024,948   $-   $16,024,948 
Gross profit   19,679,612    -    19,679,612    14,273,599    -    14,273,599 
Selling, general and administrative expenses   17,420,346    1,572,909    18,993,255    13,460,404    417,475    13,877,879 
Research and development   783,840    575,690    1,359,530    225,886    760,568    986,454 
Depreciation and amortization   696,888    406,966    1,103,854    590,563    407,111    997,674 
Interest expense   927,577    -    927,577    188,294    -    188,294 
Net income (loss)   (180,488)   (2,702,564)   (2,883,052)   567,235    (1,662,184)   (1,094,949)
Segment EBITDA   2,563,521    (1,721,560)   841,961    1,400,916    (1,134,124)   266,792 

 

   Nine Months Ended 
   September 30, 
   2024   2023 
   Sanara Surgical   THP   Total   Sanara Surgical   THP   Total 
                         
Net revenue  $60,367,060   $-   $60,367,060   $47,297,299   $2,730   $47,300,029 
Gross profit (loss)   54,476,341    -    54,476,341    41,241,740    (6,235)   41,235,505 
Selling, general and administrative expenses   51,453,311    2,689,811    54,143,122    39,229,030    1,429,394    40,658,424 
Research and development   1,945,263    1,346,216    3,291,479    669,849    2,811,057    3,480,906 
Depreciation and amortization   2,093,797    1,220,984    3,314,781    1,359,180    1,221,063    2,580,243 
Interest expense   1,839,259    -    1,839,259    188,300    -    188,300 
Net income (loss)   (2,872,286)   (5,339,011)   (8,211,297)   1,181,296    (5,358,754)   (4,177,458)
Segment EBITDA   5,095,670    (3,350,104)   1,745,566    3,766,196    (4,087,858)   (321,662)

 

Net Revenue. For the three months ended September 30, 2024, we generated net revenue of $21.7 million compared to net revenue of $16.0 million for the three months ended September 30, 2023, a 35% increase from the prior year period. For the nine months ended September 30, 2024, we generated net revenue of $60.4 million compared to net revenue of $47.3 million for the nine months ended September 30, 2023, a 28% increase from the prior year period. The higher net revenue for the three and nine months ended September 30, 2024 was primarily due to increased sales of soft tissue repair products, particularly CellerateRX Surgical, as a result of our increased market penetration and geographic expansion, and our continuing strategy to expand our independent distribution network in both new and existing U.S. markets. For the three and nine months ended September 30, 2024 and 2023, all of our net revenue was generated from Sanara Surgical, as THP has not commercially launched. We plan to commercially launch the THP program in mid-2025. During the early part of the fourth quarter of 2024, we experienced a growth in sales of BIASURGE as a result of supply chain issues and shortages of intravenous (“IV”) fluids and saline solutions due to Hurricane Helene. We expect that sales of BIASURGE will normalize in upcoming quarters as the access to IV and saline solutions for the treatment of wound irrigation is restored.

 

Gross Profit. For the three months ended September 30, 2024, we generated gross profit of $19.7 million compared to gross profit of $14.3 million for the three months ended September 30, 2023, a 38% increase from the prior year period. For the nine months ended September 30, 2024, we generated gross profit of $54.5 million compared to gross profit of $41.2 million for the nine months ended September 30, 2023, a 32% increase from the prior year period. The higher gross profit for the three and nine months ended September 30, 2024 was primarily due to increased sales of soft tissue repair products, particularly CellerateRX Surgical, as a result of our increased market penetration and geographic expansion, and our continuing strategy to expand our independent distribution network in both new and existing U.S. markets. For the three and nine months ended September 30, 2024 and 2023, all of our gross profit was generated from Sanara Surgical as THP has not commercially launched. We plan to commercially launch the THP program in mid-2025.

 

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Cost of goods sold. Cost of goods sold for the three months ended September 30, 2024 was $2.0 million compared to cost of goods sold of $1.8 million for the three months ended September 30, 2023. Cost of goods sold for the nine months ended September 30, 2024, was $5.9 million, compared to costs of goods sold of $6.1 million for the nine months ended September 30, 2023. Gross margins were approximately 91% and 89% for the three months ended September 30, 2024 and 2023, respectively, and approximately 90% and 87% for the nine months ended September 30, 2024 and 2023, respectively. The gross margins for the three and nine months ended September 30, 2024 included higher margins realized due to increased sales of soft tissue repair products, particularly CellerateRX Surgical, and the elimination of royalties paid on the sales of CellerateRX Surgical as a result of the Applied Asset Purchase.

 

Selling, general and administrative expenses. SG&A expenses for the three months ended September 30, 2024 were $19.0 million compared to SG&A expenses of $13.9 million for the three months ended September 30, 2023. SG&A expenses included $1.6 million and $0.4 million attributable to our THP segment for the three months ended September 30, 2024 and 2023, respectively. SG&A expenses for the nine months ended September 30, 2024, were $54.1 million compared to SG&A expenses of $40.7 million for the nine months ended September 30, 2023. SG&A expenses included $2.7 million and $1.4 million related to our THP segment for the nine months ended September 30, 2024 and 2023, respectively.

 

The higher SG&A expenses for the three and nine months ended September 30, 2024 were primarily due to the buildout of our THP platform and infrastructure which increased by approximately $1.2 million and $1.3 million, respectively, compared to the prior year periods. In addition, SG&A expenses were higher due to higher direct sales and marketing expenses, which accounted for approximately $3.7 million and $9.3 million, respectively, of the increases compared to the prior year periods. The higher direct sales and marketing expenses for the three and nine months ended September 30, 2024 were primarily attributable to an increase in sales commissions of $3.1 million and $6.9 million, respectively, as a result of higher product sales. SG&A expenses during the third quarter of 2024 also included $0.4 million of acquisition costs related to prospective investments. SG&A expenses during the nine months ended September 30, 2024 included $1.0 million of executive separation costs and $0.8 million of acquisition costs related to prospective investments.

 

Research and development expenses. R&D expenses for the three months ended September 30, 2024 were $1.4 million compared to R&D expenses of $1.0 million for the three months ended September 30, 2023. R&D expenses included $0.6 million and $0.8 million attributable to our THP segment for the three months ended September 30, 2024 and 2023, respectively. R&D expenses for the nine months ended September 30, 2024, were $3.3 million compared to $3.5 million for the nine months ended September 30, 2023. R&D expenses included $1.3 million and $2.8 million related to our THP segment for the nine months ended September 30, 2024 and 2023, respectively.

 

The higher R&D expenses for the three months ended September 30, 2024 compared to the three months ended September 30, 2023 were primarily due to new projects associated with CellerateRX. The lower R&D expenses for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 were primarily due to lower costs associated with the Precision Healing diagnostic imager and LFA within the THP segment.

 

Depreciation and amortization expense. Depreciation and amortization expense for the three months ended September 30, 2024 was $1.1 million compared to depreciation and amortization expense of $1.0 million for the three months ended September 30, 2023. Depreciation and amortization expense included $0.4 million attributable to our THP segment for the three months ended September 30, 2024 and 2023. Depreciation and amortization expense for the nine months ended September 30, 2024 was $3.3 million compared to $2.6 million for the nine months ended September 30, 2023. Depreciation and amortization expense included $1.2 million related to our THP segment for the nine months ended September 30, 2024 and 2023.

 

The increase in depreciation and amortization expense during the three and nine months ended September 30, 2024 was primarily due to the amortization of intangible assets acquired as part of the Applied Asset Purchase.

 

Change in fair value of earnout liabilities. Change in fair value of earnout liabilities was $0.1 million for the three months ended September 30, 2024 compared to a benefit of $0.7 million for the three months ended September 30, 2023. Change in fair value of earnout liabilities was $0.1 million for the nine months ended September 30, 2024 compared to a benefit of $1.5 million for the nine months ended September 30, 2023.

 

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The benefit recognized in the nine months ended September 30, 2023 was due to a decrease in the estimated fair value due to a change in the discount factor utilized in the valuation models, a decrease in the projected undiscounted amounts to be paid, as well as adjustments to the projected timing of the payments to be made, partially offset by accretion.

 

Other expense. Other expense for the three months ended September 30, 2024 was $1.0 million compared to $0.2 million for the three months ended September 30, 2023. Other expense for the three months ended September 30, 2024 included interest expense, amortization of debt issuance costs, paid-in-kind interest, and accretion of back-end fees related to the CRG Term Loan and loss from our equity method investment in CMp of $31,448. Other expense for the nine months ended September 30, 2024 was $1.9 million compared to $0.2 for the nine months ended September 30, 2023. Other expense for the nine months ended September 30, 2024 included interest expense, amortization of debt issuance costs, paid-in-kind interest, and accretion of back-end fees related to the CRG Term Loan and interest expense, amortization of debt issuance costs, the write-off of debt issuance costs related to the termination of the Cadence Term Loan and loss from our equity method investment in CMp of $31,448.

 

Net loss. For the three months ended September 30, 2024 we had a net loss of $2.9 million compared to a net loss of $1.1 million for the three months ended September 30, 2023. Our net loss included $2.7 million and $1.7 million, attributable to our THP segment for the three months ended September 30, 2024 and 2023, respectively. For the nine months ended September 30, 2024, we had a net loss of $8.2 million, compared to a net loss of $4.2 million for the nine months ended September 30, 2023. Our net loss included $5.3 million and $5.4 million related to our THP segment for the nine months ended September 30, 2024 and 2023, respectively. The higher net loss for the three and nine months ended September 30, 2024 was primarily due to higher SG&A costs related to the buildout of our THP platform and infrastructure which increased by approximately $1.2 million and $1.3 million, respectively, compared to the prior year periods. In addition, our net loss for the three and nine months ended September 30, 2024 was higher due to higher interest expense as a result of our loan with CRG, an increase in expense due to change in fair value of earnout liabilities, and higher amortization of our acquired intangible assets, partially offset by higher gross profit.

 

Segment EBITDA. Segment EBITDA is the primary profitability measure used by the CODM for purposes of assessing financial performance and resource allocation. We define Segment EBITDA for the reportable segments as net income (loss) excluding interest expense/income, provision/benefit for income taxes, depreciation and amortization, non-cash share-based compensation expense, change in fair value of earnout liabilities, share of losses from equity method investment, executive separation costs, legal and diligence expenses related to acquisitions, and gains/losses on the disposal of property and equipment as each are applicable to the periods presented. Segment EBITDA is a non-GAAP measure and should be considered in addition to, not as a substitute for, net income (loss), cash flow and other measures of financial performance reported in accordance with GAAP. We believe Segment EBITDA is useful to investors because it facilitates comparisons of our core business operations across periods on a consistent basis. Accordingly, we adjust for certain items, such as change in fair value of earnout liabilities, when calculating Segment EBITDA because we believe that such items are not related to our core business operations. We do not, nor do we suggest that investors should, consider these non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Material limitations associated with the use of such measures include that they do not reflect all costs included in operating expenses and may not be comparable with similarly named financial measures of other companies. Furthermore, these non-GAAP financial measures are based on subjective determinations of management regarding the nature and classification of events and circumstances. We present these non-GAAP financial measures to provide investors with information to evaluate our operating results in a manner similar to how management evaluates business performance. To compensate for any limitations in such non-GAAP financial measures, management believes that it is useful in understanding and analyzing the results of the business to review both GAAP information and the related non-GAAP financial measures.

 

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The following tables provide a reconciliation of net income (loss) to Segment EBITDA for our business segments for the periods indicated below:

 

   Three Months Ended 
   September 30, 
   2024   2023 
   Sanara Surgical   THP   Total   Sanara Surgical   THP   Total 
Net Income (Loss)  $(180,488)  $(2,702,564)  $(2,883,052)  $567,235   $(1,662,184)  $(1,094,949)
Adjustments:                              
Interest expense   927,577    -    927,577    188,294    -    188,294 
Depreciation and amortization   696,888    406,966    1,103,854    590,563    407,111    997,674 
Noncash share-based compensation   1,003,599    21,831    1,025,430    813,606    43,920    857,526 
Change in fair value of earnout liabilities   -    147,000    147,000    (758,783)   77,030    (681,753)
Share of losses from equity method investment   31,448    -    31,448    -    -    - 
Executive separation costs    59,685    -    59,685    -    -    - 
Acquisition costs   24,812    405,207    430,019    -    -    - 
Segment EBITDA  $2,563,521   $(1,721,560)  $841,961   $1,400,916   $(1,134,124)  $266,792 

 

   Nine Months Ended 
   September 30, 
   2024   2023 
   Sanara Surgical   THP   Total   Sanara Surgical   THP   Total 
Net Income (Loss)  $(2,872,286)  $(5,339,011)  $(8,211,297)  $1,181,296   $(5,358,754)  $(4,177,458)
Adjustments:                              
Interest expense   1,839,259    -    1,839,259    188,300    -    188,300 
Depreciation and amortization   2,093,797    1,220,984    3,314,781    1,359,180    1,221,063    2,580,243 
Noncash share-based compensation   2,803,536    108,031    2,911,567    2,423,335    158,828    2,582,163 
Change in fair value of earnout liabilities   (14,451)   82,000   67,549   (1,385,914)   (108,996)   (1,494,910)
Share of losses from equity method investment   31,448    -    31,448    -    -    - 
Executive separation costs (1)   964,466    -    964,466    -    -    - 
Acquisition costs   249,901    577,892    827,793    -    -    - 
Segment EBITDA  $5,095,670   $(3,350,104)  $1,745,566   $3,766,196   $(4,087,858)  $(321,662)

 

(1) - Includes $328,795 of share-based compensation related to executive separation costs for the nine months ended September 30, 2024.

 

For the three months ended September 30, 2024, we had Segment EBITDA of $0.8 million compared to $0.3 million for the three months ended September 30, 2023. Our Segment EBITDA included ($1.7) million and ($1.1) million attributable to our THP segment for the three months ended September 30, 2024 and 2023, respectively. For the nine months ended September 30, 2024, our Segment EBITDA was $1.7 million compared to ($0.3) million for the nine months ended September 30, 2023. Our Segment EBITDA included ($3.4) million and ($4.1) million related to our THP segment for the nine months ended September 30, 2024 and 2023, respectively. The positive Segment EBITDA for the three and nine months ended September 30, 2024 was primarily due to higher amortization of our acquired intangible assets, higher interest expense, executive separation costs and acquisition costs, as discussed above.

 

LIQUIDITY AND CAPITAL RESOURCES

 

Cash on hand at September 30, 2024 was $16.3 million, compared to $5.1 million at December 31, 2023. Historically, we have financed our operations primarily from the sale of equity securities. In February 2023, we entered into a Controlled Equity Offering SM Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co., as sales agent (“Cantor”), pursuant to which we could offer and sell from time to time, to or through Cantor, shares of our common stock having an aggregate offering price of up to $75.0 million.

 

Sales of the shares, pursuant to the Sales Agreement, were made in sales deemed to be an “at the market offering” as defined in Rule 415(a)(4) promulgated under the Securities Act of 1933, as amended. Upon delivery of a placement notice and subject to the terms and conditions of the Sales Agreement, Cantor agreed to use commercially reasonable efforts consistent with its normal trading and sales practices, applicable state and federal law, rules and regulations and the rules of The Nasdaq Capital Market to sell the shares from time to time based upon our instructions, including any price, time period or size limits specified by us. We had no obligation to sell any of the shares under the Sales Agreement and could suspend or terminate the offering of our common stock pursuant to the Sales Agreement upon notice to Cantor and subject to other conditions. Pursuant to the Sales Agreement, we paid Cantor a commission of 3.0% of the aggregate gross proceeds from each sale of the shares.

 

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In 2023, we sold an aggregate of 26,143 shares of common stock for gross proceeds of approximately $1.1 million and net proceeds of approximately $1.0 million pursuant to the Sales Agreement. We paused the offering at the end of the first quarter of 2023 and did not reactivate it during the remainder of 2023. The Registration Statement on Form S-3 relating to this offering expired in January 2024.

 

On August 1, 2023, we, as guarantor, and SMAT, as borrower, entered into a loan agreement (the “Cadence Loan Agreement”) with Cadence Bank (the “Bank”) providing for, among other things, a term loan in the aggregate principal amount of up to $12.0 million, which was evidenced by an advancing promissory note (the “Cadence Term Loan”). Pursuant to the Cadence Loan Agreement, the Bank agreed to make, at any time and from time to time prior to February 1, 2024, one or more advances to SMAT. On August 1, 2023, the Bank made an advance under the Cadence Term Loan for $9.75 million, the proceeds of which were used to fund the Cash Closing Consideration for the Applied Asset Purchase. For more information regarding the Cadence Loan Agreement, see the “Cadence Loan Agreement” section below.

 

On April 17, 2024, we entered into the CRG Term Loan Agreement by and among us, as borrower, the Guarantors, the Agent and the lenders party thereto from time to time, providing for a senior secured term loan of up to $55.0 million. On the Closing Date, the First Borrowing was made to repay the Cadence Term Loan and to pay certain fees and expenses related to the CRG Loan Agreement. The remaining proceeds of $4.5 million were distributed to us. As a result, the Cadence Term Loan Agreement was terminated and all outstanding amounts under the Cadence Term Loan were repaid in full and all security interest and other liens granted to or held by the Bank were terminated and released.

 

On September 4, 2024, pursuant to our option under the CRG Term Loan Agreement, we borrowed an additional $15.5 million under the CRG Term Loan Agreement. We used $5.0 million of the proceeds of the Second Borrowing for the investment in CMp.

 

We expect to continue our investment in the THP strategy during the fourth quarter of 2025 through the expected commercial launch of THP in mid-2025. Our continued investment over this period of time is currently estimated at $5.0 million to $10.0 million. We are pursuing financial partners to invest in the execution of this strategy.

 

We expect our future needs for cash to include the funding of our additional investment in THP, potential acquisitions, further developing our products, services and technologies pipeline and clinical studies, expanding our sales force, repayment of debt as it becomes due and for general corporate purposes. If we seek to consummate acquisitions in the future, we expect to finance such acquisitions with the proceeds from equity or debt issuances. Based on our current plan of operations, we believe our cash on hand, when combined with expected cash flows from operations and available proceeds from the CRG Term Loan discussed herein, will be sufficient to fund our growth strategy and to meet our anticipated operating expenses and capital expenditures for at least the next twelve months.

 

Applied Asset Purchase

 

On August 1, 2023, we entered into the Applied Purchase Agreement by and among the Company, SMAT, Hymed, Applied and the Owner, pursuant to which SMAT acquired the Applied Purchased Assets and assumed certain Assumed Liabilities upon the terms and subject to the conditions set forth in the Applied Purchase Agreement. The transaction closed on August 1, 2023. The Applied Purchased Assets were purchased for an initial aggregate purchase price of $15.25 million, consisting of (i) $9.75 million in cash, (ii) 73,809 shares of our common stock, with an agreed upon value of $3.0 million and (iii) $2.5 million in cash, to be paid in four equal installments on each of the next four anniversaries of the Closing. The first Installment Payment of $625,000 was made in August 2024.

 

In addition to the Cash Closing Consideration, Stock Closing Consideration and Installment Payments, the Applied Purchase Agreement provides that the Sellers are entitled to receive up to an additional $10.0 million, which is payable to the Sellers in cash, upon the achievement of certain performance thresholds relating to SMAT’s collections from net sales of a collagen-based product currently under development. Upon expiration of the seventh anniversary of the Closing, to the extent the Sellers have not earned the entirety of the Applied Earnout, SMAT shall pay the Sellers the True-Up Payment. The Applied Earnout, minus the True-Up Payment and any Applied Earnout payments already made by SMAT, may be earned at any point in the future, including after the True-Up Payment is made.

 

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Cadence Loan Agreement

 

In connection with the entry into the Applied Purchase Agreement, on August 1, 2023, we, as guarantor, and SMAT, as borrower, entered into the Cadence Loan Agreement with the Bank providing for, among other things, a term loan in the aggregate principal amount of $12.0 million, which was evidenced by an advancing promissory note. Pursuant to the Cadence Loan Agreement, the Bank agreed to make, at any time and from time to time prior to February 1, 2024, one or more advances to SMAT.

 

The proceeds of the advances under the Cadence Loan Agreement were to be used for working capital and for purposes of financing up to one hundred percent (100%) of the Cash Closing Consideration and Installment Payments for the Applied Asset Purchase and related fees and expenses, including any subsequent payments that were due to the Sellers after the Closing. On August 1, 2023, the Bank, at the request of SMAT, made an advance for $9.75 million. The proceeds from the advance were used to fund the Cash Closing Consideration for the Applied Asset Purchase.

 

The unpaid principal balance of outstanding advances under the Cadence Term Loan bore interest, subject to certain conditions, at the lesser of the Maximum Rate (as defined in the Cadence Loan Agreement) or the Base Rate, which was for any day, a rate per annum equal to the term secured overnight financing rate (Term SOFR) (as administered by the Federal Reserve Bank of New York) for a one-month tenor in effect on such day plus three percent (3.0%).

 

Pursuant to the Cadence Loan Agreement, SMAT was required to maintain a minimum Debt Service Coverage Ratio and a Cash Flow Leverage Ratio.

 

As noted above, on the Closing Date the Cadence Loan Agreement was terminated and all outstanding amounts under the Cadence Term Loan were repaid in full and all security interest and other liens granted to or held by the Bank were terminated and released. The aggregate principal amount of the Cadence Term Loan outstanding under the Cadence Loan Agreement was $9.8 million at the time of termination, and the Cadence Term Loan bore interest at a per annum rate equal to the term secured overnight financing rate (Term SOFR) (as administered by the Federal Reserve Bank of New York) for a one-month tenor in effect on such day plus three percent (3.0%). At the time of termination, we also paid the Bank approximately $27.1 thousand, which consisted of interest accrued or deemed payable under the Cadence Loan Agreement. We did not pay an exit fee or prepayment fee in connection with our voluntary repayment of the Cadence Term Loan.

 

CRG Term Loan Agreement

 

On April 17, 2024, we, as borrower, entered into the CRG Term Loan Agreement with the Guarantors, the Agent, and the lenders party thereto from time to time, providing for a senior secured term loan of up to $55.0 million. The CRG Term Loan Agreement provides for (i) $15.0 million of the CRG Term Loan that was borrowed on the Closing Date and (ii) up to an aggregate of $40.0 million available for borrowing in two subsequent borrowings, provided that each such borrowing must be at least $5.0 million or a multiple of $5.0 million and occur between the Closing Date and June 30, 2025, subject to the satisfaction of certain conditions, including that the First Borrowing having previously occurred and the Agent having received certain fees.

 

On September 4, 2024, pursuant to our option under the CRG Term Loan Agreement, we borrowed an additional $15.5 million under the CRG Term Loan Agreement.

 

The First Borrowing, Second Borrowing and any additional borrowings under the CRG Term Loan are due and payable on March 30, 2029 (the “Maturity Date”), absent any acceleration. Pursuant to the CRG Term Loan Agreement, a portion of the proceeds from the First Borrowing of the CRG Term Loan was used to repay the Cadence Term Loan and to pay fees and expenses related to the CRG Term Loan Agreement. We used $5.0 million of the proceeds of the Second Borrowing for the investment in CMp, and we intend to use the remaining proceeds for permitted acquisition opportunities and for general working capital and corporate purposes.

 

The CRG Term Loan bears interest at a per annum rate equal to 13.25% (subject to a 4.0% increase during an event of default), of which 8.00% must be paid in cash and 5.25% may, at our election, be deferred through the 19th quarterly Payment Date (defined below) by adding such amount to the aggregate principal loan amount, so long as no default or event of default under the CRG Term Loan Agreement has occurred and is continuing. We are required to make quarterly interest payments on the final business day of each calendar quarter following the Closing Date, commencing on the first such date to occur at least 30 days after the Closing Date (each, a “Payment Date”). Interest is payable on each Payment Date in arrears with respect to the time between each Payment Date and upon the payment or prepayment of the CRG Term Loan, ending on the Maturity Date. In addition, we are required to pay an upfront fee of 1.50% of the principal amount of the CRG Term Loan, which is payable as amounts are advanced under the CRG Term Loan on a pro rata basis. We are also required to pay a back-end fee equal to 7.00% of the aggregate principal amount advanced under the CRG Term Loan Agreement. We paid upfront fees of $225,000 on the Closing Date related to the First Borrowing and $232,500 of upfront fees on September 4, 2024 related to the Second Borrowing. As of September 30, 2024, there was $30.5 million of principal outstanding and $24.5 million available for future borrowing under the CRG Term Loan.

 

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Subject to certain exceptions, we are required to make mandatory prepayments of the CRG Term Loan with the proceeds of certain assets sales and in the event of a change of control of the Company. In addition, we may make a voluntary prepayment of the CRG Term Loan, in whole or in part, at any time. All mandatory and voluntary prepayments of the CRG Term Loan are subject to the payment of prepayment premiums as follows: (i) if prepayment occurs on or prior to the date that is one year following the applicable borrowing (the “Borrowing Date”), an amount equal to 10.0% of the aggregate outstanding principal amount of the Loan being prepaid and (ii) if prepayment occurs one year after the applicable Borrowing Date and on or prior to two years following the applicable Borrowing Date, an amount equal to 5.0% of the aggregate outstanding principal amount of the CRG Term Loan being prepaid. No prepayment premium is due on any principal prepaid if prepayment occurs two years or more after the applicable Borrowing Date.

 

Certain of our current and future subsidiaries, including the Guarantors, are guaranteeing our obligations under the CRG Term Loan Agreement. As security for our obligations under the CRG Term Loan Agreement, on the Closing Date, we and the Guarantors entered into a security agreement with the Agent pursuant to which we and the Guarantors granted to the Agent, as collateral agent for the lenders, a lien on substantially all of our and the Guarantors’ assets, including intellectual property (subject to certain exceptions).

 

The CRG Term Loan Agreement contains affirmative and negative covenants customary for financings of this type, including limitations on our and the Guarantors’ abilities, among other things, to incur additional debt, grant or permit additional liens, make investments and acquisitions above certain thresholds, merge or consolidate with others, dispose of assets, pay dividends and distributions and enter into affiliate transactions, in each case, subject to certain exceptions. In addition, the CRG Term Loan Agreement contains the following financial covenants requiring us and the Guarantors in the aggregate to maintain:

 

  liquidity in an amount which shall exceed the greater of (i) $3.0 million and (ii) to the extent we have incurred certain permitted debt, the minimum cash balance, if any, required of us by the creditors of such permitted debt; and
     
 

annual minimum revenue: (i) for the twelve-month period beginning on January 1, 2024 and ending on December 31, 2024, of at least $60.0 million, (ii) for the twelve-month period beginning on January 1, 2025 and ending on December 31, 2025, of at least $75.0 million, (iii) for the twelve-month period beginning on January 1, 2026 and ending on December 31, 2026, of at least $85.0 million, (iv) for the twelve-month period beginning on January 1, 2027 and ending on December 31, 2027, of at least $95.0 million and (v) during each twelve-month period beginning on January 1 of a given year thereafter, of at least $105.0 million.

 

Cash Flow Analysis

 

For the nine months ended September 30, 2024, net cash used in operating activities was $1.0 million compared to $2.4 million used in operating activities for the nine months ended September 30, 2023. The lower use of cash in the nine months ended September 30, 2024 was due to net revenue growth outpacing the growth of our cash operating expenses and the timing of cash expenditures for certain accrued payables and prepaids.

 

For the nine months ended September 30, 2024, net cash used in investing activities was $6.5 million compared to $10.2 million used in investing activities during the nine months ended September 30, 2023. The lower use of cash used in investing activities during the nine months ended September 30, 2024 was due to cash used for the investment in CMp of $5.0 million plus transaction expenses of $0.3 million and the advancement of a convertible loan of $1.1 million compared to $9.9 million used for the Applied Asset Purchase.

 

For the nine months ended September 30, 2024, net cash provided by financing activities was $18.6 million compared to $9.8 million provided by financing activities for the nine months ended September 30, 2023. The cash provided by financing activities during the nine months ended September 30, 2024 was due to the receipt of proceeds from the CRG Term Loan, which were partially offset by the payoff of the Cadence Term Loan.

 

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MATERIAL TRANSACTIONS WITH RELATED PARTIES

 

CellerateRX Surgical Sublicense Agreement

 

We have an exclusive, world-wide sublicense to distribute CellerateRX Surgical products into the surgical and wound care markets from an affiliate of Catalyst, CGI Cellerate RX, which, prior to the Applied Asset Purchase, licensed the rights to CellerateRX from Applied. Sales of CellerateRX Surgical comprised the substantial majority of our sales during the nine months ended September 30, 2024 and 2023. Prior to the Applied Asset Purchase discussed above, we paid royalties based on the annual Net Sales of licensed products (as defined in the Sublicense Agreement) consisting of 3% of all collected Net Sales each year up to $12.0 million, 4% of all collected Net Sales each year that exceed $12.0 million up to $20.0 million, and 5% of all collected Net Sales each year that exceed $20.0 million. Ronald T. Nixon, our Chief Executive Officer and Executive Chairman, is the founder and managing partner of Catalyst.

 

In August 2023, we acquired the underlying intellectual property of, as well as the rights to manufacture and sell, certain hydrolyzed collagen products, including CellerateRX Surgical, from Applied. In connection with this acquisition, Applied assigned the License Agreement with CGI Cellerate RX to a wholly owned subsidiary of the Company, SMAT, and no further royalties will be due to Applied thereunder. On October 10, 2024, the License Agreement and the Sublicense Agreement were terminated.

 

Consulting Agreement

 

In July 2021, we entered into an asset purchase agreement with Rochal, a related party. Concurrent with the Rochal asset purchase, we entered into a consulting agreement with Ann Beal Salamone pursuant to which Ms. Salamone agreed to provide us with consulting services with respect to, among other things, writing new patents, conducting patent intelligence and participating in certain grant and contract reporting. In consideration for the consulting services to be provided to us, Ms. Salamone is entitled to receive an annual consulting fee of $177,697, with payments to be paid once per month. The consulting agreement has an initial term of three years, unless earlier terminated by us, and is subject to renewal. Effective July 13, 2024, the consulting agreement with Ms. Salamone was amended to provide that the initial term shall be automatically renewed for successive one-year terms for up to three successive years unless earlier terminated by either party without cause at any time, provided that the terminating party provides 90 days advance written notice of termination. Ms. Salamone is a director of the Company, is a significant shareholder and the current chair of the board of directors of Rochal.

 

Catalyst Transaction Advisory Services Agreement

 

In March 2023, we entered into a Transaction Advisory Services Agreement (the “Catalyst Services Agreement”) effective March 1, 2023 with Catalyst, a related party. Pursuant to the Catalyst Services Agreement, Catalyst, by and through its directors, officers, employees and affiliates that are not simultaneously serving as directors, officers or employees of the Company (collectively, the “Covered Persons”), agreed to perform certain transaction advisory, business and organizational strategy, finance, marketing, operational and strategic planning, relationship access and corporate development services for us in connection with any merger, acquisition, recapitalization, divestiture, financing, refinancing, or other similar transaction in which we may be, or may consider becoming, involved, and any such additional services as mutually agreed upon in writing by and between Catalyst and us (the “Catalyst Services”).

 

Pursuant to the Catalyst Services Agreement, we agreed to reimburse Catalyst for (i) compensation actually paid by Catalyst to any of the Covered Persons at a rate no more than a rate consistent with industry practice for the performance of services similar to the Catalyst Services, as documented in reasonably sufficient detail, and (ii) all reasonable out-of-pocket costs and expenses payable to unaffiliated third parties, as documented in customary expense reports, as each of (i) and (ii) is incurred in connection with the Catalyst Services rendered under the Catalyst Services Agreement, with all reimbursements being contingent upon the prior approval of the Audit Committee of our Board of Directors. We incurred costs relating to the Catalyst Services Agreement of $49,829 and $44,032 during the three months ended September 30, 2024 and 2023, respectively, and $163,101 and $117,018 during the nine months ended September 30, 2024 and 2023, respectively.

 

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Receivables and Payables

 

We had outstanding related party receivables totaling $43,409 at September 30, 2024, and $8,400 at December 31, 2023. We had outstanding related party payables totaling $150,611 at September 30, 2024, and $77,805 at December 31, 2023.

 

IMPACT OF INFLATION AND CHANGING PRICES

 

Inflation and changing prices have not had a material impact on our historical results of operations. We do not currently anticipate that inflation and changing prices will have a material impact on our future results of operations.

 

CRITICAL ACCOUNTING ESTIMATES

 

The preparation of financial statements in accordance with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the unaudited consolidated financial statements and accompanying notes. Although we base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances, actual results may differ from the estimates on which our financial statements are prepared at any given point of time. Changes in these estimates could materially affect our consolidated financial position, results of operations or cash flows. Significant items that are subject to such estimates and assumptions include revenue and expense accruals, the fair value measurement of assets and liabilities and the allocation of purchase price to the fair value of assets acquired. Our critical accounting estimates have not significantly changed since December 31, 2023 and are disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

As a smaller reporting company, we are not required to provide this information.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit to the SEC under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms, and that information is accumulated and communicated to our management, including our principal executive and principal financial officers (whom we refer to in this periodic report as our Certifying Officers), as appropriate to allow timely decisions regarding required disclosure. Our management evaluated, with the participation of our Certifying Officers, the effectiveness of our disclosure controls and procedures as of September 30, 2024, pursuant to Rule 13a-15(b) under the Exchange Act. Based upon that evaluation, our Certifying Officers concluded that, as of September 30, 2024, our disclosure controls and procedures were effective.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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Part II - Other Information

 

ITEM 1. LEGAL PROCEEDINGS

 

From time to time, we may be involved in claims and legal actions that arise in the ordinary course of business. To our knowledge, there are no material pending legal proceedings to which we are a party or of which any of our property is the subject.

 

ITEM 1A. RISK FACTORS

 

Except as provided below, there were no material changes to the Risk Factors disclosed in “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023. For more information concerning our risk factors, please see “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023.

 

Our indebtedness could adversely affect our financial condition and prevent us from fulfilling our obligations.

A significant portion of our future cash flow is required to pay interest and principal on our outstanding indebtedness, and we may be unable to generate sufficient cash flow from operations, or have future borrowings available, to enable us to repay our indebtedness or to fund other liquidity needs. Among other consequences, this indebtedness could:

 

 require us to use a significant percentage of our cash flow from operations for debt service and the satisfaction of repayment obligations, and not for other purposes, such as funding working capital and capital expenditures or making future acquisitions;
   
 limit our flexibility in planning for or reacting to changes in our business and limit our ability to exploit future business opportunities; and
   
 cause us to be more highly leveraged than some of our competitors, which may place us at a competitive disadvantage.

 

Our outstanding indebtedness is subject to certain operating and financial covenants that restrict our business and financing activities and may adversely affect our cash flow and our ability to operate our business.

 

The CRG Term Loan Agreement requires us, as borrower, and the Guarantors to maintain compliance with certain operating and financial covenants, which provide that we and the Guarantors, among other things, may not, subject to certain exceptions:

 

 create, incur, assume or permit to exist any indebtedness, whether directly or indirectly;
   
 create, incur, assume or permit the existence of additional liens on our property or assets, or assign or sell any income or revenues (including accounts receivable) or rights in respect of any thereof;
   
 enter into any transaction of merger, amalgamation or consolidation or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution), or make certain acquisitions;
   
 engage to any material extent in any business other than the business engaged in on the date of closing or a business that constitutes a reasonable extension or expansion thereof;
   
 make, directly or indirectly, or permit to remain outstanding any investments;
   
 declare or make, or agree to pay or make, directly or indirectly, any restricted payments as described in the CRG Term Loan Agreement;
   
 make any payments in respect of any subordinated debt or certain other indebtedness incurred pursuant to the CRG Term Loan Agreement;
   
 sell, lease, license, transfer, or otherwise dispose of any of its property to any person in one transaction or series of transactions;

 

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 sell, lease, license or otherwise transfer any assets to, or purchase, lease, license or otherwise acquire any assets from, or otherwise engage in any other transactions with, any of its affiliates;
   
 directly or indirectly, enter into, incur or permit to exist any restrictive agreement;
   
 enter into any amendment to or modification of its organizational documents in a manner that would be materially adverse to the interests, or rights or remedies, of the Agent and the lenders;
   
 engage in sale-leasebacks;
   
 make any significant change in accounting treatment or reporting practices, except as required or permitted by GAAP;
   
 dispose of, whether by sale, contribution, investment or otherwise, any material intellectual property to any Guarantor that is not an obligor or to any joint venture; or
   
 contribute or otherwise invest any material intellectual property in any Guarantor that is not an obligor or to any joint venture.

 

In addition, the CRG Term Loan Agreement requires us and the Guarantors in the aggregate to maintain:

 

 liquidity in an amount which shall exceed the greater of (i) $3.0 million and (ii) to the extent we have incurred certain permitted debt, the minimum cash balance, if any, required of us by the creditors of such permitted debt; and

 

 annual minimum revenue: (i) for the twelve-month period beginning on January 1, 2024 and ending on December 31, 2024, of at least $60.0 million, (ii) for the twelve-month period beginning on January 1, 2025 and ending on December 31, 2025, of at least $75.0 million, (iii) for the twelve-month period beginning on January 1, 2026 and ending on December 31, 2026, of at least $85.0 million, (iv) for the twelve-month period beginning on January 1, 2027 and ending on December 31, 2027, of at least $95.0 million and (v) during each twelve-month period beginning on January 1 of a given year thereafter, of at least $105.0 million.

 

A breach of any of the covenants under our loan agreements, subject to certain cure periods, will result in an event of default, which could cause all of our outstanding indebtedness under the CRG Term Loan Agreement to become immediately due and payable, and a default interest rate of up to an additional 4.0% per annum may be applied to the outstanding loan balance. If our indebtedness is accelerated, we cannot be certain that we will have sufficient funds available to pay the accelerated indebtedness or that we will have the ability to refinance the accelerated indebtedness on terms favorable to us or at all.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

There were no sales of unregistered securities during the quarter ended September 30, 2024 that were not previously reported on a Current Report on Form 8-K.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

This item is not applicable.

 

ITEM 5. OTHER INFORMATION

 

During the three months ended September 30, 2024, no director or officer (as defined in Rule 16a-1(f) of the Exchange Act) of the Company adopted, modified, or terminated any “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement” (in each case, as defined in Item 408(a) of Regulation S-K).

 

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ITEM 6. EXHIBITS

 

The exhibits listed below are filed as part of this report or incorporated herein by reference.

 

Exhibit No.   Description
     
2.1#   Asset Purchase Agreement, dated July 14, 2021, by and between Sanara MedTech Inc., as Purchaser, and Rochal Industries, LLC, as Seller (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 19, 2021).
     
2.2#   Agreement and Plan of Merger, dated April 1, 2022, by and among Sanara MedTech Inc., United Wound and Skin Solutions, LLC, Precision Healing Inc., PH Merger Sub I, Inc., PH Merger Sub II, LLC and Furneaux Capital Holdco, LLC (d/b/a BlueIO) (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on April 4, 2022).
     
2.3#   Membership Interest Purchase Agreement, dated July 1, 2022, by and among Sanara MedTech Inc., Scendia Biologics, LLC and Ryan Phillips (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on July 5, 2022).
     
2.4#   Asset Purchase Agreement, dated August 1, 2023, by and among Sanara MedTech Inc., Sanara MedTech Applied Technologies, LLC, The Hymed Group Corporation, Applied Nutritionals, LLC and Dr. George D. Petito (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on August 2, 2023).
     
3.1   Amended and Restated Certificate of Formation of Sanara MedTech Inc. (incorporated by reference to Exhibit 3.1 to the Company’s current Report on Form 8-K filed on June 17, 2024).
     
3.2   Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on March 22, 2024).
     
10.1†   First Amendment to Consulting Agreement, dated July 13, 2024, by and between Sanara MedTech Inc. and Ann Beal Salamone (incorporated by reference to Exhibit 10.7 to the Company’s Quarterly Report on Form 10-Q filed on August 12, 2024).
     
10.2†   Employment Agreement, effective September 1, 2024, by and between Sanara MedTech Inc. and Ronald T. Nixon (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 23, 2024).

 

31.1*   Certification of Principal Executive Officer in accordance with 18 U.S.C. Section 1350, as adopted by Section 302 of the Sarbanes-Oxley Act of 2002.
     
31.2*   Certification of Principal Financial Officer in accordance with 18 U.S.C. Section 1350, as adopted by Section 302 of the Sarbanes-Oxley Act of 2002.
     
32.1**   Certification of Principal Executive Officer in accordance with 18 U.S.C. Section 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002.
     
32.2**   Certification of Principal Financial Officer in accordance with 18 U.S.C. Section 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002.
     
101.INS   Inline XBRL Instance Document.
101.SCH   Inline XBRL Taxonomy Extension Schema Document.
101.CAL   Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF   Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB   Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE   Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104   Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

 

* Filed herewith.

 

# Certain schedules and exhibits to this agreement have been omitted pursuant to Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule or exhibit will be furnished supplementally to the Securities and Exchange Commission or its staff upon request. If indicated on the first page of such agreement, certain confidential information has been excluded pursuant to Item 601(b)(2)(ii) of Regulation S-K. Such excluded information is not material and is the type that the Company treats as private or confidential.

 

** The certifications attached as Exhibit 32.1 and Exhibit 32.2 are not deemed “filed” with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of Sanara MedTech Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing.

 

† Identifies a management contract or compensatory plan.

 

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SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  SANARA MEDTECH INC.
     
November 12, 2024 By: /s/ Michael D. McNeil
    Michael D. McNeil
    Chief Financial Officer
    (Principal Financial Officer and duly authorized officer)

 

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EXHIBIT 31.1

 

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

IN ACCORDANCE WITH 18 U.S.C. SECTION 1350,

AS ADOPTED BY SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Ronald T. Nixon, certify that:

 

1. I have reviewed this Quarterly Report on Form 10-Q of Sanara MedTech Inc. for the period ended September 30, 2024;
   
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
   
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
   
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries is made known to us by others within those entities, particularly during the period in which this report is being prepared;
     
(b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
     
(c)   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
     
(d)   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a)   All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
     
(b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: November 12, 2024

 

/s/ Ronald T. Nixon  
Ronald T. Nixon, Chief Executive Officer  

 

 

 

 

EXHIBIT 31.2

 

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

IN ACCORDANCE WITH 18 U.S.C. SECTION 1350,

AS ADOPTED BY SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Michael D. McNeil, certify that:

 

1. I have reviewed this Quarterly Report on Form 10-Q of Sanara MedTech Inc. for the period ended September 30, 2024;
   
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
   
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
   
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries is made known to us by others within those entities, particularly during the period in which this report is being prepared;
     
(b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
     
(c)   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
     
(d)   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a)   All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
     
(b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: November 12, 2024

 

/s/ Michael D. McNeil  
Michael D. McNeil, Chief Financial Officer  

 

 

 

 

EXHIBIT 32.1

 

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

IN ACCORDANCE WITH 18 U.S.C. SECTION 1350,

AS ADOPTED BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report on Form 10-Q of Sanara MedTech Inc. (the “Company”) for the period ended September 30, 2024 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Ronald T. Nixon, in my capacity as Chief Executive Officer of the Company and not in my individual capacity, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

 

  (1) The Report fully complies with the requirements of section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and
  (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of, and for, the periods presented in the Report.

 

November 12, 2024

 

/s/ Ronald T. Nixon  
Ronald T. Nixon, Chief Executive Officer  

 

The foregoing certification is being furnished as an exhibit to the Report pursuant to Item 601(b)(32) of Regulation S-K and Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) and, accordingly, is not being filed as part of the Report for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

 

 

 

 

EXHIBIT 32.2

 

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

IN ACCORDANCE WITH 18 U.S.C. SECTION 1350,

AS ADOPTED BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report on Form 10-Q of Sanara MedTech Inc. (the “Company”) for the period ended September 30, 2024 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael D. McNeil, in my capacity as Chief Financial Officer of the Company and not in my individual capacity, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

 

  (1) The Report fully complies with the requirements of section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and
  (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of, and for, the periods presented in the Report.

 

November 12, 2024

 

/s/ Michael D. McNeil  
Michael D. McNeil, Chief Financial Officer  

 

The foregoing certification is being furnished as an exhibit to the Report pursuant to Item 601(b)(32) of Regulation S-K and Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) and, accordingly, is not being filed as part of the Report for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

 

 

 

v3.24.3
Cover - $ / shares
9 Months Ended
Sep. 30, 2024
Nov. 08, 2024
Cover [Abstract]    
Document Type 10-Q  
Amendment Flag false  
Document Quarterly Report true  
Document Transition Report false  
Document Period End Date Sep. 30, 2024  
Document Fiscal Period Focus Q3  
Document Fiscal Year Focus 2024  
Current Fiscal Year End Date --12-31  
Entity File Number 001-39678  
Entity Registrant Name SANARA MEDTECH INC.  
Entity Central Index Key 0000714256  
Entity Tax Identification Number 59-2219994  
Entity Incorporation, State or Country Code TX  
Entity Address, Address Line One 1200 Summit Ave  
Entity Address, Address Line Two Suite 414  
Entity Address, City or Town Fort Worth  
Entity Address, State or Province TX  
Entity Address, Postal Zip Code 76102  
City Area Code (817)  
Local Phone Number 529-2300  
Title of 12(b) Security Common Stock, $0.001 par value  
Trading Symbol SMTI  
Security Exchange Name NASDAQ  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Non-accelerated Filer  
Entity Small Business true  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   8,741,161
Entity Listing, Par Value Per Share $ 0.001  
v3.24.3
Consolidated Balance Sheets - USD ($)
Sep. 30, 2024
Dec. 31, 2023
Current assets    
Cash $ 16,277,189 $ 5,147,216
Royalty receivable 49,344
Inventory, net 3,008,349 4,717,533
Convertible loan receivable 1,079,411
Prepaid and other assets 429,428 608,411
Total current assets 31,908,408 19,005,869
Long-term assets    
Intangible assets, net 42,029,142 44,926,061
Goodwill 3,601,781 3,601,781
Investment in equity securities 8,321,412 3,084,278
Right of use assets – operating leases 1,688,963 1,995,204
Property and equipment, net 995,770 1,257,956
Total long-term assets 56,637,068 54,865,280
Total assets 88,545,476 [1] 73,871,149
Current liabilities    
Accrued bonuses and commissions 8,256,801 7,676,770
Accrued royalties and expenses 2,285,374 2,047,678
Earnout liabilities – current 1,906,550 1,100,000
Current portion of debt 580,357
Operating lease liabilities – current 439,129 361,185
Total current liabilities 14,339,827 13,767,877
Long-term liabilities    
Long-term debt, net of current portion 30,076,715 9,113,123
Earnout liabilities – long-term 2,006,000 2,723,001
Operating lease liabilities – long-term 1,407,164 1,737,445
Other long-term liabilities 1,261,495 1,941,686
Total long-term liabilities 34,751,374 15,515,255
Total liabilities 49,091,201 29,283,132
Commitments and contingencies (Note 9)
Shareholders’ equity    
Common Stock: $0.001 par value, 20,000,000 shares authorized; 8,743,174 issued and outstanding as of September 30, 2024 and 8,535,239 issued and outstanding as of December 31, 2023 8,743 8,535
Additional paid-in capital 76,021,528 72,860,556
Accumulated deficit (36,246,405) (28,036,814)
Total Sanara MedTech shareholders’ equity 39,783,866 44,832,277
Equity attributable to noncontrolling interest (329,591) (244,260)
Total shareholders’ equity 39,454,275 44,588,017
Total liabilities and shareholders’ equity 88,545,476 73,871,149
Nonrelated Party [Member]    
Current assets    
Accounts receivable 11,070,622 8,474,965
Current liabilities    
Accounts payable 1,301,362 1,924,082
Related Party [Member]    
Current assets    
Accounts receivable 43,409 8,400
Current liabilities    
Accounts payable $ 150,611 $ 77,805
[1] - Segment assets for 2023 represent assets as of December 31, 2023.
v3.24.3
Consolidated Balance Sheets (Parenthetical) - $ / shares
Sep. 30, 2024
Dec. 31, 2023
Statement of Financial Position [Abstract]    
Common stock, par value $ 0.001 $ 0.001
Common stock, shares authorized 20,000,000 20,000,000
Common stock, shares issued 8,743,174 8,535,239
Common stock, shares outstanding 8,743,174 8,535,239
v3.24.3
Consolidated Statements of Operations (Unaudited) - USD ($)
3 Months Ended 9 Months Ended
Sep. 30, 2024
Sep. 30, 2023
Sep. 30, 2024
Sep. 30, 2023
Income Statement [Abstract]        
Net Revenue $ 21,671,599 $ 16,024,948 $ 60,367,060 $ 47,300,029
Cost of goods sold 1,991,987 1,751,349 5,890,719 6,064,524
Gross profit 19,679,612 14,273,599 54,476,341 41,235,505
Operating expenses        
Selling, general and administrative expenses 18,993,255 13,877,879 54,143,122 40,658,424
Research and development 1,359,530 986,454 3,291,479 3,480,906
Depreciation and amortization 1,103,854 997,674 3,314,781 2,580,243
Change in fair value of earnout liabilities 147,000 (681,753) 67,549 (1,494,910)
Total operating expenses 21,603,639 15,180,254 60,816,931 45,224,663
Operating loss (1,924,027) (906,655) (6,340,590) (3,989,158)
Other expense        
Interest expense (927,577) (188,294) (1,839,259) (188,300)
Share of losses from equity method investment (31,448) (31,448)
Total other expense (959,025) (188,294) (1,870,707) (188,300)
Net loss (2,883,052) (1,094,949) (8,211,297) (4,177,458)
Less: Net loss attributable to noncontrolling interest (25,284) (34,579) (85,331) (111,455)
Net loss attributable to Sanara MedTech shareholders $ (2,857,768) $ (1,060,370) $ (8,125,966) $ (4,066,003)
Net loss per share of common stock, basic $ (0.34) $ (0.13) $ (0.96) $ (0.49)
Net loss per share of common stock, diluted $ (0.34) $ (0.13) $ (0.96) $ (0.49)
Weighted average number of common shares outstanding, basic 8,517,381 8,332,341 8,468,394 8,244,503
Weighted average number of common shares outstanding, diluted 8,517,381 8,332,341 8,468,394 8,244,503
v3.24.3
Consolidated Statements of Changes in Shareholders' Equity (Unaudited) - USD ($)
Common Stock [Member]
Additional Paid-in Capital [Member]
Retained Earnings [Member]
Noncontrolling Interest [Member]
Total
Balance at Dec. 31, 2022 $ 8,300 $ 65,213,987 $ (23,394,757) $ (107,555) $ 41,719,975
Balance, shares at Dec. 31, 2022 8,299,957        
Share-based compensation $ 75 597,230 597,305
Share-based compensation, shares 74,781        
Net settlement and retirement of equity-based awards $ (16) (315,572) (340,354) (655,942)
Net settlement and retirement of equity-based awards, shares (15,854)        
Issuance of common stock in equity offering $ 26 1,033,735 1,033,761
Issuance of common stock in equity offering, shares 26,143        
Net loss (1,177,900) (38,429) (1,216,329)
Balance at Mar. 31, 2023 $ 8,385 66,529,380 (24,913,011) (145,984) 41,478,770
Balance, shares at Mar. 31, 2023 8,385,027        
Balance at Dec. 31, 2022 $ 8,300 65,213,987 (23,394,757) (107,555) 41,719,975
Balance, shares at Dec. 31, 2022 8,299,957        
Net loss         (4,177,458)
Balance at Sep. 30, 2023 $ 8,540 72,107,881 (27,799,621) (219,010) 44,097,790
Balance, shares at Sep. 30, 2023 8,540,226        
Balance at Dec. 31, 2022 $ 8,300 65,213,987 (23,394,757) (107,555) 41,719,975
Balance, shares at Dec. 31, 2022 8,299,957        
Balance at Dec. 31, 2023 $ 8,535 72,860,556 (28,036,814) (244,260) 44,588,017
Balance, shares at Dec. 31, 2023 8,535,239        
Balance at Mar. 31, 2023 $ 8,385 66,529,380 (24,913,011) (145,984) 41,478,770
Balance, shares at Mar. 31, 2023 8,385,027        
Share-based compensation $ 33 1,127,299 1,127,332
Share-based compensation, shares 33,355        
Net settlement and retirement of equity-based awards $ 22 224,740 (186) 224,576
Net settlement and retirement of equity-based awards, shares 21,363        
Net loss (1,827,733) (38,447) (1,866,180)
Balance at Jun. 30, 2023 $ 8,440 67,881,419 (26,740,930) (184,431) 40,964,498
Balance, shares at Jun. 30, 2023 8,439,745        
Share-based compensation $ (1) 857,527 857,526
Share-based compensation, shares (339)        
Net settlement and retirement of equity-based awards $ 27 279,364 1,679   281,070
Net settlement and retirement of equity-based awards, shares 27,011        
Net loss (1,060,370) (34,579) (1,094,949)
Issuance of common stock for acquisitions $ 74 3,089,571 3,089,645
Issuance of common stock for acquisitions, shares 73,809        
Balance at Sep. 30, 2023 $ 8,540 72,107,881 (27,799,621) (219,010) 44,097,790
Balance, shares at Sep. 30, 2023 8,540,226        
Balance at Dec. 31, 2023 $ 8,535 72,860,556 (28,036,814) (244,260) 44,588,017
Balance, shares at Dec. 31, 2023 8,535,239        
Share-based compensation $ 101 803,285 803,386
Share-based compensation, shares 100,662        
Net settlement and retirement of equity-based awards $ (13) (483,633) (97,148) (580,794)
Net settlement and retirement of equity-based awards, shares (13,162)        
Net loss (1,764,184) (34,859) (1,799,043)
Balance at Mar. 31, 2024 $ 8,623 73,180,208 (29,898,146) (279,119) 43,011,566
Balance, shares at Mar. 31, 2024 8,622,739        
Balance at Dec. 31, 2023 $ 8,535 72,860,556 (28,036,814) (244,260) 44,588,017
Balance, shares at Dec. 31, 2023 8,535,239        
Net loss         (8,211,297)
Balance at Sep. 30, 2024 $ 8,743 76,021,528 (36,246,405) (329,591) 39,454,275
Balance, shares at Sep. 30, 2024 8,743,174        
Balance at Mar. 31, 2024 $ 8,623 73,180,208 (29,898,146) (279,119) 43,011,566
Balance, shares at Mar. 31, 2024 8,622,739        
Share-based compensation $ 67 1,411,478 1,411,545
Share-based compensation, shares 67,294        
Net settlement and retirement of equity-based awards $ 57 493,829 14,200 508,086
Net settlement and retirement of equity-based awards, shares 56,943        
Net loss (3,504,014) (25,188) (3,529,202)
Balance at Jun. 30, 2024 $ 8,747 75,085,515 (33,387,960) (304,307) 41,401,995
Balance, shares at Jun. 30, 2024 8,746,976        
Share-based compensation $ (3) 1,025,434 1,025,431
Share-based compensation, shares (3,368)        
Net settlement and retirement of equity-based awards (14,421) (677) (15,099)
Net settlement and retirement of equity-based awards, shares (434)        
Issuance of common stock in equity offering (75,000) (75,000)
Net loss (2,857,768) (25,284) (2,883,052)
Balance at Sep. 30, 2024 $ 8,743 $ 76,021,528 $ (36,246,405) $ (329,591) $ 39,454,275
Balance, shares at Sep. 30, 2024 8,743,174        
v3.24.3
Consolidated Statements of Cash Flows (Unaudited) - USD ($)
9 Months Ended
Sep. 30, 2024
Sep. 30, 2023
Cash flows from operating activities:    
Net loss $ (8,211,297) $ (4,177,458)
Adjustments to reconcile net loss to net cash used in operating activities:    
Depreciation and amortization 3,314,781 2,580,243
Credit loss expense 230,930 214,061
Inventory obsolescence 356,261 222,691
Share-based compensation 3,240,362 2,582,163
Noncash lease expense 306,240 243,988
Share of losses from equity method investment 31,448
Back-end fee 219,689
Paid-in-kind interest 424,067
Accretion of finance liabilities 166,595 39,699
Amortization and write-off of debt issuance costs 150,219 2,055
Change in fair value of earnout liabilities 67,549 (1,494,910)
Changes in operating assets and liabilities:    
Accounts receivable, net (2,777,243) (794,344)
Accounts receivable – related parties (35,009) 87,516
Inventory, net 1,352,923 (1,664,714)
Prepaid and other assets 178,963 482,921
Accounts payable (622,719) 547,186
Accounts payable – related parties 72,806 30,711
Accrued royalties and expenses 249,910 557,295
Accrued bonuses and commissions 580,031 (1,673,629)
Operating lease liabilities (252,337) (182,498)
Net cash used in operating activities (955,831) (2,397,024)
Cash flows from investing activities:    
Purchases of property and equipment (133,676) (210,970)
Proceeds from disposal of property and equipment 650
Investment in equity securities (5,268,582)
Advancement on convertible loan receivable (1,079,391)
Acquisitions, net of cash acquired (9,942,750)
Net cash used in investing activities (6,481,649) (10,153,070)
Cash flows from financing activities:    
Loan proceeds, net 29,339,260 9,688,341
Pay off line of credit (9,750,000)
Equity offering net proceeds (expenses) (75,000) 1,033,761
Net settlement of equity-based awards (87,807) (150,296)
Cash payment of finance and earnout liabilities (859,000) (744,795)
Net cash provided by financing activities 18,567,453 9,827,011
Net increase (decrease) in cash 11,129,973 (2,723,083)
Cash, beginning of period 5,147,216 8,958,995
Cash, end of period 16,277,189 6,235,912
Cash paid during the period for:    
Interest 948,759 146,546
Supplemental noncash investing and financing activities:    
Right of use assets obtained in exchange for lease obligations 1,531,773
Equity issued for acquisitions 3,089,645
Earnout and other liabilities generated by acquisitions $ 3,759,642
v3.24.3
Pay vs Performance Disclosure - USD ($)
3 Months Ended 9 Months Ended
Sep. 30, 2024
Sep. 30, 2023
Sep. 30, 2024
Sep. 30, 2023
Pay vs Performance Disclosure [Table]        
Net Income (Loss) $ (2,857,768) $ (1,060,370) $ (8,125,966) $ (4,066,003)
v3.24.3
Insider Trading Arrangements
3 Months Ended
Sep. 30, 2024
Insider Trading Arrangements [Line Items]  
Rule 10b5-1 Arrangement Adopted false
Non-Rule 10b5-1 Arrangement Adopted false
Rule 10b5-1 Arrangement Terminated false
Non-Rule 10b5-1 Arrangement Terminated false
Rule 10b5-1 Arrangement Modified false
Non-Rule 10b5-1 Arrangement Modified false
v3.24.3
NATURE OF BUSINESS AND BACKGROUND
9 Months Ended
Sep. 30, 2024
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
NATURE OF BUSINESS AND BACKGROUND

NOTE 1 – NATURE OF BUSINESS AND BACKGROUND

 

Sanara MedTech Inc. (together with its wholly owned and majority owned subsidiaries on a consolidated basis, the “Company”) is a medical technology company focused on developing and commercializing transformative technologies to improve clinical outcomes and reduce healthcare expenditures in the surgical, chronic wound and skincare markets. Each of the Company’s products, services and technologies are designed to achieve the Company’s goal of providing better clinical outcomes at a lower overall cost for patients, regardless of where they receive care. The Company strives to be one of the most innovative and comprehensive providers of effective surgical, wound and skincare solutions and is continually seeking to expand its offerings for patients requiring treatments across the entire continuum of care in the United States.

 

In June 2020, the Company formed a subsidiary, United Wound and Skin Solutions, LLC (formerly known as “WounDerm”), to hold certain investments and operations in wound and skincare virtual consult services. In 2023, WounDerm was renamed to, and is now doing business as, “Tissue Health Plus” (“THP”). THP is continuing its mission to simplify skin health, starting with wound care through a refined business plan. Through THP, the Company plans to offer a first of its kind value-based wound care program to payers and risk-bearing entities such as accountable care organizations and value-based care (“VBC”) primary care companies, with Medicare Advantage payers as the initial target market for this program.

 

As further discussed in Note 12, the Company historically managed its business on the basis of one operating and reportable segment. During the second quarter of 2024, the Company changed its reportable segments to reflect the manner in which the business is managed. Based on the growing importance of the value-based wound care program to the Company’s future outlook and how the Company’s chief operating decision maker, the Chief Executive Officer, reviews operating results and makes decisions about resource allocation, the Company now has two reportable segments: Sanara Surgical and THP.

 

Sanara Surgical

 

The Sanara Surgical segment primarily markets and sells soft tissue repair and bone fusion products for use in the operating room or other sterile environments. Sanara Surgical’s soft tissue repair products include, among other products, the Company’s lead product, CellerateRX Surgical Activated Collagen (“CellerateRX Surgical”), and BIASURGE Advanced Surgical Solution, which is a no-rinse, advanced surgical solution used for wound irrigation. Sanara Surgical’s bone fusion products include, among other products, BiFORM, which is an osteoconductive, bioactive, porous implant that allows for bony ingrowth across the graft site, and ALLOCYTE Plus, which is a human allograft cellular bone matrix containing bone-derived progenitor cells and conformable bone fibers.

 

Sanara Surgical also includes an in-house research and development team (Rochal Technologies) with an extensive pipeline of innovative products under development.

 

Tissue Health Plus

 

The THP segment is focused on value-based wound care services. Through THP, the Company plans to offer a first of its kind value-based wound care program to payers and risk-bearing entities such as accountable care organizations and VBC primary care companies, with Medicare Advantage payers as the initial target market for this program.

 

THP’s programs are expected to enable payers to divest wound care spend risk, reduce wound related hospitalizations and improve patient quality of life. THP plans to coordinate delivery of community and home-based wound care for its managed patients. Community-based care spans a variety of settings including physician offices, skilled nursing facilities, assisted living facilities and senior living facilities. THP’s programs are intended to integrate science and evidence-based medicine protocols to standardize wound prevention and treatment.

 

As a result of the change in reportable segments, certain prior period amounts have been recast to conform to the current period presentation. Throughout this Quarterly Report on Form 10-Q, unless otherwise indicated, amounts and activity reflect reclassifications related to the Company’s change in reportable segments. The change in reportable segments had no impact on the Company’s previously reported Consolidated Balance Sheets, Consolidated Statements of Operations, Consolidated Statements of Cash Flows or Consolidated Statements of Shareholders’ Equity.

 

 

v3.24.3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
9 Months Ended
Sep. 30, 2024
Accounting Policies [Abstract]  
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Principles of Consolidation and Basis of Presentation

 

The accompanying unaudited consolidated financial statements include the accounts of Sanara MedTech Inc. and its wholly owned and majority-owned subsidiaries, as well as other entities in which the Company has a controlling financial interest. All significant intercompany profits, losses, transactions and balances have been eliminated in consolidation. Certain prior year amounts have been reclassified to conform to the current year presentation.

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management of the Company, all adjustments (consisting of normal accruals) considered necessary for a fair presentation have been included. Operating results for interim periods are not necessarily indicative of the results that may be expected for the full year period. These financial statements and notes should be read in conjunction with the financial statements for each of the two years ended December 31, 2023 and 2022, which are included in the Company’s most recent Annual Report on Form 10-K.

 

Use of Estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported revenue and expenses during the reporting period. However, actual results could differ from those estimates and there may be changes to the Company’s estimates in future periods.

 

Cash and Cash Equivalents

 

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

 

Income/Loss Per Share

 

The Company computes income/loss per share in accordance with Accounting Standards Codification (“ASC”) Topic 260, Earnings per Share, which requires the Company to present basic and diluted income per share when the effect is dilutive. Basic income/loss per share is computed by dividing income/loss attributable to common shareholders by the weighted average number of shares of common stock outstanding. Diluted income/loss per share is computed similarly to basic income/loss per share, except that the denominator is increased to include the number of additional shares of common stock that would have been outstanding if the potential shares of common stock had been issued and if the additional shares of common stock were dilutive. All common stock equivalents were excluded from the calculations for the periods presented as their inclusion would have been anti-dilutive during the three and nine months ended September 30, 2024 and 2023 due to the Company’s net loss.

 

 

The following table summarizes the shares of common stock that were potentially issuable but were excluded from the computation of diluted net loss per share for the three and nine months ended September 30, 2024 and 2023 as such shares would have had an anti-dilutive effect:

 

   2024   2023 
   As of September 30, 
   2024   2023 
Stock options (a)   31,013    95,873 
Warrants (b)   16,725    16,725 
Unvested restricted stock   224,392    159,557 

 

  (a) Shares underlying stock options assumed pursuant to the merger agreement with Precision Healing, Inc. (“Precision Healing”) in April 2022.
  (b) Shares underlying warrants assumed pursuant to the merger agreement with Precision Healing in April 2022.

 

Revenue Recognition

 

The Company recognizes revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). Revenues are recognized when a purchase order is received from the customer and control of the promised goods or services is transferred to the customer in an amount that reflects the consideration the Company expects to be entitled to receive in exchange for transferring those goods or services. Revenue is recognized based on the following five-step model:

 

- Identification of the contract with a customer

- Identification of the performance obligations in the contract

- Determination of the transaction price

- Allocation of the transaction price to the performance obligations in the contract

- Recognition of revenue when, or as, the Company satisfies a performance obligation

 

Details of this five-step process are as follows:

 

Identification of the contract with a customer

 

Customer purchase orders are generally considered to be contracts under ASC 606. Purchase orders typically identify the specific terms of products to be delivered, create the enforceable rights and obligations of both parties and result in commercial substance. No other forms of contract revenue recognition, such as the completed contract or percentage of completion methods, were utilized by the Company in either 2024 or 2023.

 

Performance obligations

 

The Company’s performance obligation is generally limited to delivery of the requested items to its customers at the agreed upon quantities and prices.

 

Determination and allocation of the transaction price

 

The Company has established prices for its products. These prices are effectively agreed to when customers place purchase orders with the Company. Rebates and discounts, if any, are recognized in full at the time of sale as a reduction of net revenue. Allocation of transaction prices is not necessary where only one performance obligation exists.

 

 

Recognition of revenue as performance obligations are satisfied

 

Product revenues are recognized when a purchase order is received from the customer, the products are delivered, and control of the goods and services passes to the customer.

 

Disaggregation of Revenue

 

Revenue streams from product sales and royalties are summarized below for the three and nine months ended September 30, 2024 and 2023.

 

   2024   2023   2024   2023 
   Three Months Ended   Nine Months Ended 
   September 30,   September 30, 
   2024   2023   2024   2023 
Soft tissue repair products  $18,863,335   $13,634,316   $52,586,945   $39,756,539 
Bone fusion products   2,808,264    2,340,382    7,779,209    7,392,740 
Royalty revenue   -    50,250    906    150,750 
Total Net Revenue  $21,671,599   $16,024,948   $60,367,060   $47,300,029 

 

For the three and nine months ended September 30, 2024 and 2023, all of the Company’s net revenue was generated from Sanara Surgical. The Company plans to commercially launch the THP program in mid-2025.

 

Accounts Receivable Allowances

 

Accounts receivable are typically due within 30 days of invoicing. The Company establishes an allowance for credit losses to provide for an estimate of accounts receivable which are not expected to be collectible. The Company bases the allowance on an assessment of customer creditworthiness, historical payment experience, the age of outstanding receivables and other information as applicable and will record its allowance based on the estimated credit losses. The Company recorded credit loss expense of $75,000 and $128,061 during the three months ended September 30, 2024 and 2023, respectively and $230,930 and $214,061 during the nine months ended September 30, 2024 and 2023, respectively. The allowance for credit losses was $758,960 at September 30, 2024 and $528,030 at December 31, 2023. Credit loss reserves are maintained based on a variety of factors, including the length of time receivables are past due and a detailed review of certain individual customer accounts. The Company also establishes other allowances to provide for estimated customer rebates and other expected customer deductions. These allowances totaled $5,010 at September 30, 2024 and $3,820 at December 31, 2023. If circumstances related to customers change, estimates of the recoverability of receivables would be further adjusted.

 

Inventories

 

Inventories are stated at the lower of cost or net realizable value, with cost computed on a first-in, first-out basis. Inventories consist primarily of finished goods, and also include an immaterial amount of raw materials and related packaging components. The Company recorded inventory obsolescence expense of $96,684 and $152,701 during the three months ended September 30, 2024 and 2023, respectively, and $356,261 and $222,691 during the nine months ended September 30, 2024 and 2023, respectively. The allowance for obsolete and slow-moving inventory had a balance of $466,276 at September 30, 2024, and $446,917 at December 31, 2023.

 

 

Property and Equipment

 

Property and equipment are stated at cost, less accumulated depreciation. Depreciation is recorded using the straight-line method over the estimated useful lives of the related assets, ranging from two to ten years. Below is a summary of property and equipment for the periods presented:

 

   Useful  September 30,   December 31, 
   Life  2024   2023 
Computers  3-5 years  $235,388   $194,788 
Office equipment  3-7 years   216,491    201,785 
Furniture and fixtures  5-10 years   346,508    304,338 
Leasehold improvements  2-5 years   170,370    134,170 
Internal use software  5 years   1,618,999    1,618,999 
              
Property and equipment, gross      2,587,756    2,454,080 
Less accumulated depreciation      (1,591,986)   (1,196,124)
              
Property and equipment, net     $995,770   $1,257,956 

 

Depreciation expense related to property and equipment was $129,592 and $116,596 for the three months ended September 30, 2024 and 2023, respectively, and $395,862 and $332,762 for the nine months ended September 30, 2024 and 2023, respectively.

 

Internal Use Software

 

The Company accounts for costs incurred to develop or acquire computer software for internal use in accordance with ASC Topic 350-40, Intangibles – Goodwill and Other. The Company capitalizes the costs incurred during the application development stage, which generally includes third-party developer fees to design the software configuration and interfaces, coding, installation and testing.

 

The Company begins capitalization of qualifying costs when both the preliminary project stage is completed and management has authorized further funding for the completion of the project. Costs incurred during the preliminary project stage along with post implementation stages of internal-use computer software are expensed as incurred. The Company also capitalizes costs related to specific upgrades and enhancements when it is probable the expenditures will result in additional functionality. Capitalized development costs are classified as “Property and equipment, net” in the Consolidated Balance Sheets and are depreciated over the estimated useful life of the software, which is generally five years.

 

Goodwill

 

The excess of purchase price over the fair value of identifiable net assets acquired in business combinations is recorded as goodwill. As of September 30, 2024 and December 31, 2023, all of the Company’s goodwill relates to the acquisition of Scendia Biologics, LLC (“Scendia”), which is included in the Sanara Surgical segment. Goodwill has an indefinite useful life and is not amortized. Goodwill is tested annually as of December 31 for impairment, or more frequently if circumstances indicate impairment may have occurred. The Company may first perform a qualitative assessment to determine if it is more likely than not that the fair value of the reporting unit is less than the respective carrying value. If it is determined that it is more likely than not that a reporting unit’s fair value is less than its carrying value, then the Company will determine the fair value of the reporting unit and record an impairment charge for the difference between fair value and carrying value (not to exceed the carrying amount of goodwill). No impairment was recorded during the three or nine months ended September 30, 2024 or 2023.

 

 

Intangible Assets

 

Intangible assets are stated at cost of acquisition less accumulated amortization and impairment loss, if any. Cost of acquisition includes the purchase price and any cost directly attributable to bringing the asset to its working condition for the intended use. The Company amortizes its finite-lived intangible assets on a straight-line basis over the estimated useful life of the respective assets which is generally the life of the related patents or licenses, seven years for customer relationships and five years for assembled workforces. See Note 5 for more information on intangible assets.

 

Impairment of Long-Lived Assets

 

Long-lived assets, including certain identifiable intangibles held and to be used by the Company, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. The Company continuously evaluates the recoverability of its long-lived assets based on estimated future cash flows and the estimated liquidation value of such long-lived assets and provides for impairment if such undiscounted cash flows are insufficient to recover the carrying amount of the long-lived assets. If impairment exists, an adjustment is made to write the asset down to its fair value, and a loss is recorded as the difference between the carrying value and fair value. Fair values are determined based on quoted market values, undiscounted cash flows or internal and external appraisals, as applicable. Assets to be disposed of are carried at the lower of carrying value or estimated fair value less cost to sell. No impairment was recorded during the three or nine months ended September 30, 2024 or 2023.

 

Investments in Equity Securities

 

The Company’s equity investments consist of nonmarketable equity securities in privately held companies without readily determinable fair values. Unless accounted for under the equity method of accounting, the investments are reported at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment in the same issuer.

 

The Company applies the equity method of accounting to investments when it has significant influence, but not controlling interest, in the investee. Judgment regarding the level of influence over each equity method investment includes considering key factors such as ownership interest, representation on the board of directors, participation in policy-making decisions and material intercompany transactions. As discussed further in Note 6 as of September 30, 2024, the Company had one investment that is recorded applying the equity method of accounting. The Company’s proportionate share of the net income (loss) resulting from these investments is reported under the line item captioned “Share of losses from equity method investment” in the Company’s Consolidated Statements of Operations. The Company’s equity method investment is adjusted each period for the Company’s share of the investee’s income or loss and dividend paid, if any. The Company classifies distributions received from its equity method investment using the cumulative earnings approach in the Company’s Consolidated Statements of Cash Flows.

 

The Company has reviewed the carrying value of its investments and has determined there was no impairment or observable price changes as of or for the three and nine months ended September 30, 2024 and 2023.

 

Fair Value Measurement

 

As defined in ASC Topic 820, Fair Value Measurement (“ASC 820”), fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). This fair value measurement framework applies at both the initial and subsequent measurement.

 

The three levels of the fair value hierarchy defined by ASC 820 are as follows:

 

Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of financial instruments such as exchange-traded derivatives, marketable securities and listed equities.

 

 

Level 2 – Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reported date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. Instruments in this category generally include nonexchange-traded derivatives such as commodity swaps, interest rate swaps, options and collars.

 

Level 3 – Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value.

 

The carrying amounts of cash, accounts receivable, accounts payable and accrued expenses, other than acquisition-related expenses, approximate fair value because of the short-term nature of these instruments. The fair value of acquisition-related accrued expenses is categorized as Level 2 of the fair value hierarchy. The value of these instruments has been estimated using discounted cash flow analysis based on the Company’s incremental borrowing rate. The carrying value of the Company’s CRG Term Loan (defined below), which has a fixed interest rate approximates fair value based on instruments with similar terms (Level 2 inputs). The carrying value of the Company’s Cadence Term Loan (defined below), which had variable interest rates determined each month, approximates fair value based on instruments with similar terms (Level 2 inputs). The fair value of the contingent earnout consideration and the acquisition date fair value of goodwill and intangibles related to the acquisitions discussed in Notes 3 and 5 are based on Level 3 inputs.

 

Liabilities for contingent consideration for the Precision Healing merger, acquisition of Scendia and Applied Asset Purchase (defined below) (see Note 3 for more information) are measured at fair value each reporting period, with the acquisition-date fair value included as part of the consideration transferred. The contingent consideration for the Scendia acquisition was settled as of September 30, 2024, and the final earnout payment of approximately $1.1 million was paid in cash in October 2024. Subsequent changes in fair value for the Precision Healing merger are reported under the line item captioned “Change in fair value of earnout liabilities” in the Company’s Consolidated Statements of Operations. Due to the Applied Asset Purchase being accounted for as an asset acquisition and given that the transaction did not include contingent shares, subsequent revaluations of contingent consideration for the Applied Asset Purchase results in an adjustment to the contingent consideration liability and the intellectual property intangible asset with a cumulative catch-up amortization adjustment. The current year change in fair value of earnout liability below is as a result of a net increase in the estimated fair value of the earnout liability established at the time of the Company’s Precision Healing merger. The current year revaluation of earnout liability below is a result of an increase in the estimated value of the earnout liability established at the time of the Applied Asset Purchase. The following table sets forth a summary of the changes in fair value for the Level 3 contingent earnout considerations.

 

      
Balance at December 31, 2023  $3,823,001 
Change in fair value of earnout liabilities   67,549
Revaluation of earnout liability   22,000 
Balance at September 30, 2024  $3,912,550 

 

Income Taxes

 

Income taxes are accounted for under the asset and liability method, whereby deferred income taxes are recorded for temporary differences between financial statement carrying amounts and the tax basis of assets and liabilities. Deferred tax assets and liabilities reflect the tax rates expected to be in effect for the years in which the differences are expected to reverse. A valuation allowance is provided if it is more likely than not that some or all the deferred tax asset will not be realized.

 

 

Share-based Compensation

 

The Company accounts for share-based compensation to employees and nonemployees in accordance with ASC Topic 718, Compensation – Stock Compensation. Share-based compensation is measured at the grant date, based on the fair value of the award, and is recognized as expense over the stipulated vesting period, if any. The Company estimates the fair value of share-based payments using the Black-Scholes option-pricing model for common stock options and warrants, and the closing price of the Company’s common stock for grants of common stock, including restricted stock awards.

 

Research and Development Costs

 

Research and development (“R&D”) expenses consist of personnel-related expenses, including salaries, share-based compensation and benefits for all personnel directly engaged in R&D activities, contracted services, materials, prototype expenses and allocated overhead, which is comprised of compensation and benefits, lease expense and other facilities-related costs. R&D expenses include costs related to enhancements to the Company’s currently available products and additional investments in the product and platform development pipeline. The Company expenses R&D costs as incurred.

 

Recently Adopted Accounting Pronouncements

 

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326). This update amends the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The Company adopted the new guidance effective January 1, 2023. The adoption did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

 

Recently Issued Accounting Pronouncements

 

In November 2023, FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which requires disclosure of incremental segment information on an annual and interim basis. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024 on a retrospective basis. The Company is currently evaluating the effect of this pronouncement on its disclosures.

 

In December 2023, FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”), which expands the disclosure required for income taxes. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The amendment should be applied on a prospective basis while retrospective application is permitted. The Company is currently evaluating the effect of this pronouncement on its disclosures.

 

v3.24.3
APPLIED ASSET PURCHASE
9 Months Ended
Sep. 30, 2024
Business Combination, Asset Acquisition, and Joint Venture Formation [Abstract]  
APPLIED ASSET PURCHASE

NOTE 3 – APPLIED ASSET PURCHASE

 

On August 1, 2023, the Company entered into an Asset Purchase Agreement (the “Applied Purchase Agreement”) by and among the Company, as guarantor, Sanara MedTech Applied Technologies, LLC, a Texas limited liability company and wholly owned subsidiary of the Company (“SMAT”), The Hymed Group Corporation, a Delaware corporation (“Hymed”), Applied Nutritionals, LLC, a Delaware limited liability company (“Applied”, and together with Hymed, the “Sellers”), and Dr. George D. Petito (the “Owner”), pursuant to which SMAT acquired certain assets of the Sellers and the Owner, including, among others, the Sellers’ and Owner’s inventory, intellectual property, manufacturing and related equipment, goodwill, rights and claims, other than certain excluded assets, all as more specifically set forth in the Applied Purchase Agreement (collectively, the “Applied Purchased Assets”), and assumed certain Assumed Liabilities (as defined in the Applied Purchase Agreement), upon the terms and subject to the conditions set forth in the Applied Purchase Agreement (such transaction, the “Applied Asset Purchase”). The Applied Purchased Assets include the underlying intellectual property of, as well as the rights to manufacture and sell, certain hydrolyzed collagen products, including CellerateRX Surgical, for human wound care use.

 

The Applied Purchased Assets were purchased for an initial aggregate purchase price of $15.25 million, consisting of (i) $9.75 million in cash (the “Cash Closing Consideration”), (ii) 73,809 shares of the Company’s common stock (the “Stock Closing Consideration”) with an agreed upon value of $3.0 million and (iii) $2.5 million in cash (the “Installment Payments”), to be paid in four equal installments on each of the next four anniversaries of the closing of the Applied Asset Purchase (the “Closing”). The first Installment Payment of $625,000 was made in August 2024.

 

 

Prior to the Closing, the Company licensed certain of its products from Applied through a sublicense agreement (the “Sublicense Agreement”) with CGI Cellerate RX, LLC (“CGI Cellerate RX”), a related party (see Note 11 for additional information regarding transactions with related parties). Pursuant to the Sublicense Agreement, the Company had an exclusive, world-wide sublicense to distribute certain hydrolyzed collagen products, including CellerateRX Surgical, into the surgical and wound care markets. In connection with the Applied Asset Purchase, Applied assigned its license agreement with CGI Cellerate RX to SMAT (the “License Agreement”), and on October 10, 2024, the License Agreement and the Sublicense Agreement were terminated for no additional consideration.

 

In addition to the Cash Closing Consideration, Stock Closing Consideration and Installment Payments, the Applied Purchase Agreement provides that the Sellers are entitled to receive up to an additional $10.0 million (the “Applied Earnout”), which is payable to the Sellers in cash, upon the achievement of certain performance thresholds relating to SMAT’s collections from net sales of a collagen-based product currently under development. Upon expiration of the seventh anniversary of the Closing, to the extent the Sellers have not earned the entirety of the Applied Earnout, SMAT shall pay the Sellers a pro-rata amount of the Applied Earnout based on collections from net sales of the product, with such amount to be due credited against any Applied Earnout payments already made by SMAT (the “True-Up Payment”). The Applied Earnout, minus the True-Up Payment and any Applied Earnout payments already made by SMAT, may be earned at any point in the future, including after the True-Up Payment is made.

 

In connection with the Applied Asset Purchase and pursuant to the Applied Purchase Agreement, effective August 1, 2023, the Company entered into a professional services agreement (the “Petito Services Agreement”) with the Owner, pursuant to which the Owner, as an independent contractor, agreed to provide certain services to the Company, including, among other things, assisting with the development of products already in development and assisting with research, development, formulation, invention and manufacturing of any future products (the “Petito Services”). As consideration for the Petito Services, the Owner is entitled to receive: (i) a base salary of $12,000 per month during the term of the Petito Services Agreement, (ii) a royalty payment equal to three percent (3%) of the actual collections from net sales of certain products the Owner develops or co-develops that reach commercialization, (iii) a royalty payment equal to five percent (5%) for the first $50.0 million in aggregate collections from net sales of certain future products and a royalty payment of two and one-half percent (2.5%) on aggregate collections from net sales of certain future products on any amounts exceeding $50.0 million but up to $100.0 million, (iv) $500,000 in cash in the event that 510(k) clearance is issued for any future product accepted by the Company and (v) $1.0 million in cash in the event that a U.S. patent is issued for a certain product; provided that with respect to the incentive payments described in (iv) and (v) of the foregoing, the Owner shall not earn more than $2.5 million.

 

The Petito Services Agreement has an initial term of three years and is subject to automatic successive one-month renewals unless earlier terminated in accordance with its terms. The Petito Services Agreement may be terminated upon the Owner’s death or disability or by the Company or the Owner “For Cause” (as defined in the Petito Services Agreement); provided, however, that the base salary described in (i) of the foregoing paragraph shall survive termination through the three-year initial term and the royalty payments and incentive payments described in (ii)-(v) of the foregoing paragraph shall survive termination of the Petito Services Agreement.

 

As the contingent consideration was negotiated as part of the transfer of assets, the contingent obligation was measured at fair value and included in the total purchase consideration transferred. Accordingly, since the Applied Asset Purchase was accounted for as an asset acquisition and did not include contingent shares, the contingent consideration is classified as a liability at its estimated fair value at each reporting period with subsequent revaluations recognized as an adjustment to the intellectual property intangible asset and the earnout liability with a cumulative catch-up amortization adjustment.

 

 

The total purchase consideration for the Applied Asset Purchase as determined by the Company was as follows:

 

Consideration  Equity Shares   Dollar Value 
Cash Closing Consideration       $9,750,000 
Fair value of Stock Closing Consideration   73,809    3,089,645 
Fair value of Installment Payments        2,040,808 
Cash paid for inventory        30,007 
Fair value of Petito Services Agreement defined payments        825,834 
Fair value of Petito Services Agreement contingent consideration        893,000 
Direct transaction costs        162,743 
Total purchase consideration       $16,792,037 

 

Based on guidance provided by ASC 805, Business Combinations (“ASC 805”), the Company recorded the Applied Asset Purchase as an asset acquisition due to the determination that substantially all the fair value of the assets acquired was concentrated in a group of similar identifiable assets. The Company believes the “substantially all” criterion was met with respect to the acquired intellectual property being the only significant asset acquired. Accordingly, the Company accounted for the transaction as an asset acquisition.

 

The purchase consideration, plus transaction costs, was allocated to the individual assets according to their fair values as a percentage of the total fair value of the assets purchased, with no goodwill recognized. Based on the estimated fair value of the gross assets acquired, the total fair value of the net assets acquired was primarily attributable to, and classified as, finite-lived intellectual property in the third quarter of 2023. The total purchase consideration was allocated based on the relative estimated fair value of such assets as follows:

 

Description  Amount 
Inventory  $30,007 
Equipment   33,062 
Intellectual property   16,728,968 
Net assets acquired  $16,792,037 

 

v3.24.3
CONVERTIBLE LOAN RECEIVABLE
9 Months Ended
Sep. 30, 2024
Receivables [Abstract]  
CONVERTIBLE LOAN RECEIVABLE

NOTE 4 – CONVERTIBLE LOAN RECEIVABLE

 

In connection with a potential equity investment in an unaffiliated entity engaged in the development of certain surgical technologies, the Company entered into a convertible loan agreement in July 2024 pursuant to which the Company loaned $1,079,391 to the unaffiliated entity. The loan was initially set to be repaid on October 1, 2024. However, the Company extended the repayment date to December 1, 2024. On October 1, 2024, the loan began bearing interest at 8% per annum. Pursuant to the convertible loan agreement, the Company has the option to convert the outstanding balance of the loan into noncontrolling equity interests of the unaffiliated entity upon satisfactory completion of certain due diligence activities. The loan is recorded under the caption “Convertible loan receivable” on the Company’s Consolidated Balance Sheets, which was $1,079,391 as of September 30, 2024. 

 

v3.24.3
GOODWILL AND INTANGIBLES, NET
9 Months Ended
Sep. 30, 2024
Goodwill and Intangible Assets Disclosure [Abstract]  
GOODWILL AND INTANGIBLES, NET

NOTE 5 – GOODWILL AND INTANGIBLES, NET

 

The changes in the carrying amount of the Company’s goodwill were as follows:

 

   Total 
Balance as of December 31, 2022  $3,601,781 
Acquisitions   - 
Balance as of December 31, 2023   3,601,781 
Acquisitions   - 
Balance as of September 30, 2024  $3,601,781 

 

In connection with the change in reportable operating segments, the Company reassessed goodwill with respect to the change in reportable operating segments as they are presented in this report. Goodwill was recorded in connection with the acquisition of Scendia and is included entirely within the Sanara Surgical segment. The Company’s assessment determined that these changes, or any other matters noted, did not alter the Company’s conclusion that goodwill is not impaired as of September 30, 2024 or for the periods then ended.

 

 

The carrying values of the Company’s intangible assets were as follows for the periods presented:

 

   September 30, 2024   December 31, 2023 
       Accumulated           Accumulated     
   Cost   Amortization   Net   Cost   Amortization   Net 
Amortizable Intangible Assets:                              
Patents and Other IP  $38,592,549   $(4,934,785)  $33,657,764   $38,570,549   $(3,181,186)  $35,389,363 
Customer relationships and other   7,947,332    (2,737,675)   5,209,657    7,947,332    (1,861,887)   6,085,445 
Product Licenses   4,793,879    (1,632,158)   3,161,721    4,793,879    (1,342,626)   3,451,253 
Total  $51,333,760   $(9,304,618)  $42,029,142   $51,311,760   $(6,385,699)  $44,926,061 

 

As of September 30, 2024, the weighted-average amortization period for finite-lived intangible assets was 14.5 years. Amortization expense related to intangible assets was $974,262 and $881,079 for the three months ended September 30, 2024 and 2023, respectively, and $2,918,919 and $2,247,482 for the nine months ended September 30, 2024 and 2023, respectively. The estimated remaining amortization expense as of September 30, 2024 for finite-lived intangible assets is as follows:

 

      
Remainder of 2024  $972,818 
2025   3,891,270 
2026   3,874,015 
2027   3,760,162 
2028   3,726,921 
2029   3,726,921 
Thereafter   22,077,035 
Total  $42,029,142 

 

The Company has reviewed the carrying value of intangible assets and has determined there was no impairment during the nine months ended September 30, 2024 or 2023.

 

v3.24.3
INVESTMENTS IN EQUITY SECURITIES
9 Months Ended
Sep. 30, 2024
Schedule of Investments [Abstract]  
INVESTMENTS IN EQUITY SECURITIES

NOTE 6 – INVESTMENTS IN EQUITY SECURITIES

 

The Company’s equity investments consist of nonmarketable equity securities in privately held companies without readily determinable fair values. Unless accounted for under the equity method of accounting, the investments are reported at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer.

 

DirectDerm

 

In July 2020, the Company made a $500,000 long-term investment to purchase certain nonmarketable securities consisting of 7,142,857 Series B-2 Preferred Shares of Direct Dermatology Inc. (“DirectDerm”), representing approximately 2.9% ownership of DirectDerm at that time. Through this investment, the Company received exclusive rights to utilize DirectDerm’s technology in all acute and post-acute care settings such as skilled nursing facilities, home health and wound clinics. In 2021, the Company purchased an additional 3,571,430 shares of DirectDerm’s Series B-2 Preferred for $250,000. In March 2022, the Company purchased an additional 3,571,429 shares of DirectDerm’s Series B-2 Preferred for $250,000. The Company’s ownership of DirectDerm was approximately 8.1% as of September 30, 2024. The Company does not have the ability to exercise significant influence over DirectDerm’s operating and financial activities. In accordance with ASC Topic 321, Investments - Equity Securities (“ASC 321”), this investment was reported at cost as of September 30, 2024.

 

 

Pixalere

 

In June 2021, the Company invested $2,084,278 to purchase 278,587 Class A Preferred Shares (the “Pixalere Shares”) of Canada based Pixalere Healthcare Inc. (“Pixalere”). The Pixalere Shares are convertible into approximately 27.3% of the outstanding equity of Pixalere. Pixalere provides a cloud-based wound care software tool that empowers nurses, specialists and administrators to deliver better care for patients. In connection with the Company’s purchase of the Pixalere Shares, Pixalere granted Pixalere Healthcare USA, LLC (“Pixalere USA”), a subsidiary of the Company, a royalty-free exclusive license to use the Pixalere software and platform in the United States. In conjunction with the grant of the license, the Company issued Pixalere a 27.3% equity ownership interest in Pixalere USA valued at $93,879.

 

The Company reviewed the characteristics of the Pixalere Shares in accordance with ASC Topic 323, Investments – Equity Method and Joint Ventures (“ASC 323”). Due to the substantive liquidation preferences of the Pixalere Shares over Pixalere’s common stock, the Pixalere Shares are not “in-substance” common stock, and therefore, the Company does not utilize the equity method of accounting for this investment. In accordance with ASC 321, this investment was reported at cost as of September 30, 2024.

 

ChemoMouthpiece

 

In September 2024, the Company, through its wholly owned subsidiary, Sanara CMP LLC (“Sanara CMP”), entered into a Unit Purchase Agreement (the “Unit Purchase Agreement”) with ChemoMouthpiece, LLC (“CMp”), pursuant to which Sanara CMP purchased 100,674.72 common units in CMp for $5.0 million, which represents approximately 6.64% of the issued and outstanding membership interest of CMp immediately following such purchase. CMp is a privately held medical device company that develops and commercializes propriety oral cryotherapy products for cancer patients, including, among other things, CMp’s Chemo Mouthpiece oral cryotherapy device, which is a 510(k) cleared cryotherapy device designed to reduce the incidence and severity of chemotherapy induced oral mucositis.

 

The Company has reviewed the characteristics of Sanara CMP’s investment in CMp in accordance with ASC 323 and determined that Sanara CMP made a non-controlling investment in a limited liability company. According to the guidance provided in ASC 323-30-S99-1, investments in limited liability companies whereby an investor holds more than a 3% to 5% ownership interest would generally be accounted for under the equity method of accounting. Therefore, the Company utilized the equity method of accounting for this investment and recorded its initial investment at cost. Sanara CMP’s share of the earnings or losses of CMp is recorded in the Company’s Consolidated Statements of Operations.

 

 

The following table summarizes the Company’s investments for the periods presented:

 

   September 30, 2024   December 31, 2023 
   Carrying Amount   Economic Interest   Carrying Amount   Economic Interest 
Equity Method Investment                         
ChemoMouthpiece, LLC  $5,237,134    6.64%  $-    -%
                     
Cost Method Investments                    
Direct Dermatology, Inc.  $1,000,000        $1,000,000      
Pixalere Healthcare Inc.   2,084,278         2,084,278      
Total Cost Method Investments  $3,084,278        $3,084,278      
                     
Total Investments  $8,321,412        $3,084,278      

 

The following table summarizes the Company’s share of losses from equity method investment reflected in the Company’s Consolidated Statements of Operations for the periods presented:

 

   2024   2023   2024   2023 
  

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 
   2024   2023   2024   2023 
Investment                
ChemoMouthpiece, LLC  $(31,448)  $-   $(31,448)  $      - 
                     
Total  $(31,448)  $-   $(31,448)  $- 

 

v3.24.3
OPERATING LEASES
9 Months Ended
Sep. 30, 2024
Operating Leases  
OPERATING LEASES

NOTE 7 – OPERATING LEASES

 

The Company periodically enters operating lease contracts for office space and equipment. Arrangements are evaluated at inception to determine whether such arrangements constitute a lease. Right of use assets (“ROU assets”) represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities were recognized on the transition date based on the present value of lease payments over the respective lease term, with the office space ROU asset adjusted for deferred rent liability.

 

The Company has three material operating leases for office space. In March and September of 2023, the Company amended its primary office lease to obtain additional space, as well as extend the term. The leases have remaining lease terms of 75, 11 and 28 months as of September 30, 2024. For practical expediency, the Company has elected to not recognize ROU assets and lease liabilities related to short-term leases.

 

In accordance with ASC Topic 842, Leases, the Company has recorded ROU assets of $1,688,963 and a related lease liability of $1,846,293 as of September 30, 2024. The Company recorded lease expense of $121,126 and $110,693 for the three months ended September 30, 2024 and 2023, respectively. The Company recorded lease expense of $416,394 and $295,268 for the nine months ended September 30, 2024 and 2023, respectively. Cash paid for amounts included in the measurement of operating lease liabilities was $362,491 and $264,291 for the nine months ended September 30, 2024 and 2023, respectively.

 

 

The present value of the Company’s operating lease liabilities as of September 30, 2024 is shown below:

 

Maturity of Operating Lease Liabilities

 

   September 30,
2024
 
Remainder of 2024  $142,525 
2025   532,053 
2026   379,529 
2027   297,947 
2028   295,689 
2029   300,158 
Thereafter   303,892 
      
Total lease payments   2,251,793 
Less imputed interest   (405,500)
Present Value of Lease Liabilities  $1,846,293 
      
Operating lease liabilities – current  $439,129 
Operating lease liabilities – long-term  $1,407,164 

 

As of September 30, 2024, the Company’s operating leases had a weighted average remaining lease term of 5.4 years and a weighted average discount rate of 7.66%.

 

v3.24.3
DEBT AND CREDIT FACILITIES
9 Months Ended
Sep. 30, 2024
Debt Disclosure [Abstract]  
DEBT AND CREDIT FACILITIES

NOTE 8 – DEBT AND CREDIT FACILITIES

 

CRG Term Loan Agreement

 

On April 17, 2024 (the “Closing Date”), the Company entered into a term loan agreement, by and among the Company, as borrower, the subsidiary guarantors party thereto from time to time (collectively, the “Guarantors”), CRG Servicing LLC as administrative agent and collateral agent (the “Agent”), and the lenders party thereto from time to time (the “CRG Term Loan Agreement”), providing for a senior secured term loan of up to $55.0 million (the “CRG Term Loan”). The CRG Term Loan Agreement provides for (i) $15.0 million of the CRG Term Loan that was borrowed on the Closing Date (the “First Borrowing”) and (ii) up to an aggregate of $40.0 million available for borrowing in two subsequent borrowings, provided that each such borrowing must be at least $5.0 million or a multiple of $5.0 million and occur between the Closing Date and June 30, 2025, subject to the satisfaction of certain conditions, including that the First Borrowing having previously occurred and the Agent having received certain fees. The Company used a portion of the initial proceeds of the First Borrowing under the CRG Term Loan to extinguish the Cadence Term Loan described further below.

 

On September 4, 2024, the Company, pursuant to its option under the CRG Term Loan Agreement, borrowed an additional $15.5 million under the CRG Term Loan Agreement (the “Second Borrowing”). The Company used $5.0 million of the proceeds of the Second Borrowing for its investment in CMp.

 

The First Borrowing, Second Borrowing and any additional borrowings under the CRG Term Loan are due and payable on March 30, 2029 (the “Maturity Date”), absent any acceleration.

 

The CRG Term Loan bears interest at a per annum rate equal to 13.25% (subject to a 4.0% increase during an event of default), of which 8.00% must be paid in cash and 5.25% may, at the election of the Company, be deferred through the 19th quarterly Payment Date (defined below) by adding such amount to the aggregate principal loan amount, so long as no default or event of default under the CRG Term Loan Agreement has occurred and is continuing. The Company is required to make quarterly interest payments on the final business day of each calendar quarter following the Closing Date, commencing on the first such date to occur at least 30 days after the Closing Date (each, a “Payment Date”). Interest is payable on each Payment Date in arrears with respect to the time between each Payment Date and upon the payment or prepayment of the CRG Term Loan, ending on the Maturity Date. In addition, the Company is required to pay an upfront fee of 1.50% of the principal amount of the CRG Term Loan, which is payable as amounts are advanced under the CRG Term Loan on a pro rata basis. The Company is also required to pay a back-end fee equal to 7.00% of the aggregate principal amount advanced under the CRG Term Loan Agreement.

 

 

For the three months ended September 30, 2024, the Company paid $399,532 of interest in cash and recorded $262,193 of interest paid-in-kind related to the CRG Term Loan. For the nine months ended September 30, 2024, the Company paid $646,199 of interest in cash and recorded $424,068 of interest paid-in-kind related to the CRG Term Loan. The paid-in-kind interest was applied to the principal balance of the CRG Term Loan. The Company recorded $167,189 and $219,689 for the three and nine months ended September 30, 2024, respectively, to interest expense related to the back-end fee. The back-end fee is accreted and amortized to interest expense over the term of the CRG Term Loan. Paid-in-kind interest and the accreted back-end fee are included in “Long-term debt, net of current portion” on the Consolidated Balance Sheets.

 

Subject to certain exceptions, the Company is required to make mandatory prepayments of the CRG Term Loan with the proceeds of certain assets sales and in the event of a change of control of the Company. In addition, the Company may make a voluntary prepayment of the CRG Term Loan, in whole or in part, at any time. All mandatory and voluntary prepayments of the CRG Term Loan are subject to the payment of prepayment premiums as follows: (i) if prepayment occurs on or prior to the date that is one year following the applicable borrowing (the “Borrowing Date”), an amount equal to 10.0% of the aggregate outstanding principal amount of the CRG Term Loan being prepaid and (ii) if prepayment occurs one year after the applicable Borrowing Date and on or prior to two years following the applicable Borrowing Date, an amount equal to 5.0% of the aggregate outstanding principal amount of the CRG Term Loan being prepaid. No prepayment premium is due on any principal prepaid if prepayment occurs two years or more after the applicable Borrowing Date.

 

Certain of the Company’s current and future subsidiaries, including the Guarantors, are guaranteeing the obligations of the Company under the CRG Term Loan Agreement. As security for their obligations under the CRG Term Loan Agreement, on the Closing Date, the Company and the Guarantors entered into a security agreement with the Agent pursuant to which the Company and the Guarantors granted to the Agent, as collateral agent for the lenders, a lien on substantially all of the Company’s and the Guarantors’ assets, including intellectual property (subject to certain exceptions).

 

The CRG Term Loan Agreement contains affirmative and negative covenants customary for financings of this type, including limitations on the Company’s and the Guarantors’ abilities, among other things, to incur additional debt, grant or permit additional liens, make investments and acquisitions above certain thresholds, merge or consolidate with others, dispose of assets, pay dividends and distributions and enter into affiliate transactions, in each case, subject to certain exceptions. In addition, the CRG Term Loan Agreement contains the following financial covenants requiring the Company and the Guarantors in the aggregate to maintain:

 

  liquidity in an amount which shall exceed the greater of (i) $3.0 million and (ii) to the extent the Company has incurred certain permitted debt, the minimum cash balance, if any, required of the Company by the creditors of such permitted debt; and
     
  annual minimum revenue: (i) for the twelve-month period beginning on January 1, 2024 and ending on December 31, 2024, of at least $60.0 million, (ii) for the twelve-month period beginning on January 1, 2025 and ending on December 31, 2025, of at least $75.0 million, (iii) for the twelve-month period beginning on January 1, 2026 and ending on December 31, 2026, of at least $85.0 million, (iv) for the twelve-month period beginning on January 1, 2027 and ending on December 31, 2027, of at least $95.0 million and (v) during each twelve-month period beginning on January 1 of a given year thereafter, of at least $105.0 million.

 

The CRG Term Loan Agreement contains representations and warranties of the Company and the Guarantors customary for financings of this type, and also includes events of default customary for financings of this type, including, among other things, non-payment, inaccuracy of representations and warranties, covenant breaches, a material adverse change, bankruptcy and insolvency, material judgments and a change of control, in certain cases subject to customary periods to cure. The occurrence and continuance of an event of default could result in the acceleration of the obligations under the CRG Term Loan Agreement.

 

 

Cadence Term Loan

 

In connection with the entry into the Applied Purchase Agreement, on August 1, 2023, SMAT, as borrower, and the Company, as guarantor, entered into a loan agreement (the “Cadence Loan Agreement”) with Cadence Bank (the “Bank”) providing for, among other things, an advancing term loan in the aggregate principal amount of $12.0 million (the “Cadence Term Loan”), which was evidenced by an advancing promissory note. Pursuant to the Cadence Loan Agreement, the Bank agreed to make, at any time and from time to time prior to February 1, 2024, one or more advances to SMAT.

 

The proceeds of the advances under the Cadence Loan Agreement were used for working capital and for purposes of financing up to one hundred percent (100%) of the Cash Closing Consideration and Installment Payments for the Applied Asset Purchase and related fees and expenses, including any subsequent payments that were due to the Sellers after the Closing. On August 1, 2023, the Bank, at the request of SMAT, made an advance for $9.75 million. The proceeds from the advance were used to fund the Cash Closing Consideration for the Applied Asset Purchase.

 

The unpaid principal balance of outstanding advances bore interest, subject to certain conditions, at the lesser of the Maximum Rate (as defined in the Cadence Loan Agreement) or the Base Rate, which was for any day, a rate per annum equal to the term secured overnight financing rate (Term SOFR) (as administered by the Federal Reserve Bank of New York) for a one-month tenor in effect on such day plus three percent (3.0%). As of December 31, 2023, the interest rate on the advance under the Cadence Term Loan was 8.3%.

 

On the Closing Date, the Cadence Loan Agreement was terminated and all outstanding amounts under the Cadence Term Loan were repaid in full and all security interest and other liens granted to or held by Cadence were terminated and released. In addition, unamortized debt issuance costs as of the termination date of $53,438 were included in “Interest expense” in the Consolidated Statements of Operations.

 

 

The table below presents the components of the Company’s outstanding debt for the periods presented:

 

   September 30,
2024
   December 31,
2023
 
CRG Term Loan  $30,500,000   $- 
Paid-in-kind interest   424,067    - 
Back-end fee   219,689    - 
Cadence Term Loan   -    9,750,000 
Debt   31,143,756    9,750,000 
           
Less: unamortized debt issuance costs   (1,067,041)   (56,520)
           
Debt, net of debt issuance costs   30,076,715    9,693,480 
           
Less: Current portion of debt   -    580,357 
Long-term debt, net of current portion  $30,076,715   $9,113,123 

 

The table below presents the aggregate maturities of the Company’s outstanding debt as of September 30, 2024:

 

Year  Total 
     
Remainder of 2024  $- 
2025   - 
2026   - 
2027   - 
2028   - 
Thereafter   31,143,756 
Total debt  $31,143,756 

 

In connection with the CRG Term Loan, the Company incurred $1,160,740 in debt issuance costs during the nine months ended September 30, 2024, an increase of $273,487 from June 30, 2024, due to the Second Borrowing. Debt issuance costs are amortized to “Interest expense” on the Consolidated Statements of Operations over the life of the debt to which they pertain. The total unamortized debt issuance costs were $1,067,041 and $56,520 as of September 30, 2024 and December 31, 2023, respectively. Debt issuance costs are included in “Long-term debt, net of current portion” on the Consolidated Balance Sheets. Amortization expense related to debt issuance costs was $150,219 and $2,055 for the nine months ended September 30, 2024 and 2023, respectively. Amortization for the nine months ended September 30, 2024 includes the amortization and the write-off of debt issuance costs of $56,520 related to the termination of Cadence Term Loan.

 

 

v3.24.3
COMMITMENTS AND CONTINGENCIES
9 Months Ended
Sep. 30, 2024
Commitments and Contingencies Disclosure [Abstract]  
COMMITMENTS AND CONTINGENCIES

NOTE 9 - COMMITMENTS AND CONTINGENCIES

 

License Agreements and Royalties

 

CellerateRX Surgical

 

In August 2018, the Company entered an exclusive, world-wide sublicense agreement with CGI Cellerate RX to distribute certain hydrolyzed collagen products, including CellerateRX Surgical, into the surgical and wound care markets. Pursuant to the Sublicense Agreement, the Company paid royalties of 3-5% of annual collected net sales of these products. As amended in January 2021, the term of the sublicense was extended through May 2050, with automatic successive year-to-year renewal terms thereafter so long as the Company’s Net Sales (as defined in the Sublicense Agreement) each year are equal to or in excess of $1,000,000. If the Company’s Net Sales fall below $1,000,000 for any year after the expiration date, CGI Cellerate RX has the right to terminate the Sublicense Agreement upon written notice.

 

Under this agreement, royalty expense, which was recorded in “Cost of goods sold” in the accompanying Consolidated Statements of Operations, totaled zero and a benefit of $9,209, respectively, for the three months ended September 30, 2024 and 2023 and zero and $1,060,035, respectively, for the nine months ended September 30, 2024 and 2023. Sales of CellerateRX Surgical comprised the substantial majority of the Company’s sales during the three and nine months ended September 30, 2024 and 2023.

 

As discussed further in Note 3, on August 1, 2023, the Company purchased certain assets from Applied, including the rights to manufacture and sell certain hydrolyzed collagen products, including CellerateRX Surgical, for use in the human wound care market. In connection with the Applied Asset Purchase, Applied assigned the License Agreement with CGI Cellerate RX to SMAT, and on October 10, 2024, the License Agreement and Sublicense Agreement were terminated.

 

BIAKŌS Antimicrobial Wound Gel and BIAKŌS Antimicrobial Skin and Wound Cleanser

 

In July 2019, the Company executed a license agreement with Rochal Industries, LLC (“Rochal”), a related party, pursuant to which the Company acquired an exclusive world-wide license to market, sell and further develop antimicrobial products for the prevention and treatment of microbes on the human body utilizing certain Rochal patents and pending patent applications (the “BIAKŌS License Agreement”). Currently, the products covered by the BIAKŌS License Agreement are BIAKŌS Antimicrobial Wound Gel, BIAKŌS Antimicrobial Skin and Wound Cleanser and BIASURGE Advanced Surgical Solution. All three products are 510(k) cleared.

 

Future commitments under the terms of the BIAKŌS License Agreement include:

 

  The Company pays Rochal a royalty of 2-4% of net sales. The minimum annual royalty due to Rochal was $146,410 for 2024 and will increase to a maximum amount of $150,000 in 2025.

 

  The Company may pay additional royalties annually based on specific net profit targets from sales of the licensed products, subject to a maximum of $1,000,000 during any calendar year.

 

Unless previously terminated by the parties, the BIAKŌS License Agreement expires with the related patents in December 2031.

 

Under this agreement, royalty expense, which is recorded in “Cost of goods sold” in the accompanying Consolidated Statements of Operations, was $36,602 and $32,499 for the three months ended September 30, 2024 and 2023, respectively. For the nine months ended September 30, 2024 and 2023, royalty expense under this agreement was $113,907 and $97,499, respectively. The Company’s Executive Chairman and Chief Executive Officer is a director of Rochal, and indirectly a significant shareholder of Rochal, and through the potential exercise of warrants, a majority shareholder of Rochal. Another one of the Company’s directors is also a director and significant shareholder of Rochal.

 

 

CuraShield Antimicrobial Barrier Film and No Sting Skin Protectant

 

In October 2019, the Company executed a license agreement with Rochal pursuant to which the Company acquired an exclusive world-wide license to market, sell and further develop certain antimicrobial barrier film and skin protectant products for use in the human health care market utilizing certain Rochal patents and pending patent applications (the “ABF License Agreement”). Currently, the products covered by the ABF License Agreement are CuraShield Antimicrobial Barrier Film and a no sting skin protectant product.

 

Future commitments under the terms of the ABF License Agreement include:

 

  The Company will pay Rochal a royalty of 2-4% of net sales. The minimum annual royalty due to Rochal will be $50,000 beginning with the first full calendar year following the year in which first commercial sales of the products occur. The annual minimum royalty will increase by 10% each subsequent calendar year up to a maximum amount of $75,000.

 

  The Company will pay additional royalties annually based on specific net profit targets from sales of the licensed products, subject to a maximum of $500,000 during any calendar year.

 

Unless previously terminated or extended by the parties, the ABF License Agreement will terminate upon expiration of the last U.S. patent in October 2033. No commercial sales or royalties have been recognized under this agreement as of September 30, 2024.

 

Debrider License Agreement

 

In May 2020, the Company executed a product license agreement with Rochal, pursuant to which the Company acquired an exclusive world-wide license to market, sell and further develop a debrider for human medical use to enhance skin condition or treat or relieve skin disorders, excluding uses primarily for beauty, cosmetic, or toiletry purposes (the “Debrider License Agreement”).

 

Future commitments under the terms of the Debrider License Agreement include:

 

  Upon FDA clearance of the licensed products, the Company will pay Rochal $500,000 in cash and an additional $1,000,000, which at the Company’s option may be paid in any combination of cash and its common stock.

 

  The Company will pay Rochal a royalty of 2-4% of net sales. The minimum annual royalty due to Rochal will be $100,000 beginning with the first full calendar year following the year in which first commercial sales of the licensed products occur and increase by 10% each subsequent calendar year up to a maximum amount of $150,000.

 

  The Company will pay additional royalty annually based on specific net profit targets from sales of the licensed products, subject to a maximum of $1,000,000 during any calendar year.

 

Unless previously terminated or extended by the parties, the Debrider License Agreement will expire in October 2034. No commercial sales or royalties have been recognized under this agreement as of September 30, 2024.

 

Rochal Asset Acquisition

 

The Company entered into an asset purchase agreement with Rochal effective July 1, 2021, pursuant to which the Company purchased certain assets of Rochal. Pursuant to the asset purchase agreement, for the three-year period after the effective date, Rochal is entitled to receive consideration for any new product relating to the business that is directly and primarily based on an invention conceived and reduced to practice by a member or members of Rochal’s science team. For the three-year period after the effective date, Rochal is also entitled to receive an amount in cash equal to twenty-five percent of the proceeds received for any Grant (as defined in the asset purchase agreement) by either the Company or Rochal. In addition, the Company agreed to use commercially reasonable efforts to perform Minimum Development Efforts (as defined in the asset purchase agreement) with respect to certain products under development, which if obtained, will entitle the Company to intellectual property rights from Rochal in respect of such products.

 

 

Precision Healing Merger Agreement

 

In April 2022, the Company closed a merger transaction with Precision Healing pursuant to which Precision Healing became a wholly owned subsidiary of the Company. Pursuant to the terms of the merger agreement, holders of Precision Healing common stock and preferred stock, other than the Company, were entitled to receive closing consideration, consisting of $125,966 in cash consideration, which was paid to stockholders who were not accredited investors, 165,738 shares of the Company’s common stock, which was paid only to accredited investors, and the payment in cash of approximately $0.6 million of transaction expenses of Precision Healing. The Company recorded the issuance of the 165,738 shares to accredited investors and cash payments to nonaccredited investors based on the closing price per share of the Company’s common stock on April 4, 2022, which was $30.75.

 

Upon the closing of the merger, the Precision Healing outstanding options previously granted under the Precision Healing Plan converted, pursuant to their terms, into options to acquire an aggregate of 144,191 shares of Company common stock with a weighted average exercise price of $10.71 per share. These options expire between August 2030 and April 2031. In addition, outstanding and unexercised Precision Healing warrants converted into rights to receive warrants to purchase (i) 4,424 shares of the Company’s common stock with an initial exercise price of $7.32 per share and an expiration date of April 22, 2031, and (ii) 12,301 shares of the Company’s common stock with an initial exercise price of $12.05 per share and an expiration date of August 10, 2030. Concurrent with the assumption of the Precision Healing Plan, the Company terminated the ability to offer future awards under the Precision Healing Plan.

 

Pursuant to the merger agreement, upon the achievement of certain performance thresholds, the securityholders of Precision Healing, including the holders of options and warrants to purchase Precision Healing common stock and certain persons promised options to purchase Precision Healing common stock, are also entitled to receive payments of up to $10.0 million, which was accounted for as contingent consideration pursuant to ASC 805. The earnout consideration is payable in cash or, at the Company’s election, is payable to accredited investors in shares of Company common stock at a price per share equal to the greater of (i) $27.13 or (ii) the average closing price of Company common stock for the 20 trading days prior to the date such earnout consideration is due and payable. Pursuant to the merger agreement, a minimum percentage of the earnout consideration may be required to be issued to accredited investors in shares of Company common stock for tax purposes. The amount and composition of the portion of earnout consideration payable is subject to adjustment and offsets as set forth in the merger agreement.

 

Scendia Purchase Agreement

 

In July 2022, the Company closed the Scendia acquisition pursuant to which Scendia became a wholly owned subsidiary of the Company. Pursuant to the purchase agreement, the aggregate consideration for the acquisition at closing was approximately $7.6 million, subject to customary post-closing adjustments. The consideration consisted of (i) approximately $1.6 million of cash, subject to certain adjustments, and (ii) 291,686 shares of common stock of the Company. Pursuant to the purchase agreement, at closing, the Company withheld 94,798 Indemnity Holdback Shares, which such Indemnity Holdback Shares were withheld to the extent provided in the purchase agreement to satisfy Phillips’ indemnification obligations and subsequently issued and released to Phillips in July 2023.

 

In addition to the cash consideration and the stock consideration, the purchase agreement provides that Phillips is entitled to receive two potential earnout payments, payable on an annual basis, not to exceed $10.0 million in the aggregate, which was accounted for as contingent consideration pursuant to ASC 805. The earnout consideration is payable to Phillips in cash or, at the Company’s election, in up to 486,145 shares of the Company’s common stock upon the achievement of certain performance thresholds relating to net revenue attributable to sales of Scendia products during the two-year period following the closing. The Company made the first earnout payment of approximately $693,000 in cash in August 2023 and the second and final earnout payment of approximately $1.1 million in cash in October 2024.

 

 

Applied Asset Purchase

 

On August 1, 2023, the Company closed the Applied Asset Purchase. The Applied Purchased Assets were purchased for an initial aggregate purchase price of $15.25 million, consisting of (i) the Cash Closing Consideration, (ii) the Stock Closing Consideration and (iii) the Installment Payments.

 

In addition to the Cash Closing Consideration, Stock Closing Consideration and Installment Payments, the Applied Purchase Agreement provides that the Sellers are entitled to receive the Applied Earnout, which is payable to the Sellers in cash, upon the achievement of certain performance thresholds relating to SMAT’s collections from net sales of a collagen-based product currently under development. Upon expiration of the seventh anniversary of the Closing, to the extent the Sellers have not earned the entirety of the Applied Earnout, SMAT shall pay the Sellers the True-Up Payment. The Applied Earnout, minus the True-Up Payment and any Applied Earnout payments already made by SMAT, may be earned at any point in the future, including after the True-Up Payment is made.

 

In connection with the Applied Asset Purchase and pursuant to the Applied Purchase Agreement, effective August 1, 2023, the Company entered into the Petito Services Agreement with the Owner, pursuant to which the Owner, as an independent contractor, agreed to provide the Petito Services. As consideration for the Petito Services, the Owner is entitled to receive: (i) a base salary of $12,000 per month during the term of the Petito Services Agreement, (ii) a royalty payment equal to three percent (3%) of the actual collections from net sales of certain products the Owner develops or codevelops that reach commercialization, (iii) a royalty payment equal to five percent (5%) for the first $50.0 million in aggregate collections from net sales of certain future products and a royalty payment of two and one-half percent (2.5%) on aggregate collections from net sales of certain future products on any amounts exceeding $50.0 million but up to $100.0 million, (iv) $500,000 in cash in the event that 510(k) clearance is issued for any future product accepted by the Company and (v) $1.0 million in cash in the event that a U.S. patent is issued for a certain product; provided that with respect to the incentive payments described in (iv) and (v) of the foregoing, the Owner shall not earn more than $2.5 million.

 

The Petito Services Agreement has an initial term of three years and is subject to automatic successive one-month renewals unless earlier terminated in accordance with its terms. The Petito Services Agreement may be terminated upon the Owner’s death or disability or by the Company or the Owner “For Cause” (as defined in the Petito Services Agreement); provided, however, that the base salary described in (i) of the foregoing paragraph shall survive termination through the three-year initial term and the royalty payments and incentive payments described in (ii)-(v) of the foregoing paragraph shall survive termination of the Petito Services Agreement.

 

Other Commitments

 

On December 20, 2023, the Company signed an exclusive license agreement with Tufts University (“Tufts”) to develop and commercialize patented technology covering 18 unique collagen peptides. As part of this agreement, the Company formed a new subsidiary, Sanara Collagen Peptides, LLC (“SCP”) and 10% of SCP’s outstanding units were issued to Tufts. SCP has exclusive rights to develop and commercialize new products based on the licensed patents and patents pending. SCP will pay royalties to Tufts based on net sales of licensed products and technologies. Under the exclusive license agreement, royalties will be calculated at a rate of 1.5% or 3%, depending on the type of product or technology developed. SCP will pay Tufts a minimum annual royalty of $50,000 on January 1 of the year following the first anniversary of the first commercial sale of the licensed products or technologies. SCP will pay Tufts a $100,000 minimum annual royalty on January 1 of each subsequent year during the royalty term specified in the exclusive license agreement. There have been no material accounting impacts related to this arrangement as of September 30, 2024.

 

v3.24.3
SHAREHOLDERS’ EQUITY
9 Months Ended
Sep. 30, 2024
Equity [Abstract]  
SHAREHOLDERS’ EQUITY

NOTE 10 – SHAREHOLDERS’ EQUITY

 

Common Stock

 

At the Company’s Annual Meeting of Shareholders held in July 2020, the Company approved the Restated 2014 Omnibus Long Term Incentive Plan (the “2014 LTIP”) in which the Company’s directors, officers, employees and consultants are eligible to participate. The 2014 LTIP terminated on September 3, 2024, and no future awards may be granted pursuant to the 2014 LTIP. Previously granted awards under the 2014 LTIP will remain outstanding until they expire by their terms or under the terms of the 2014 LTIP.

 

 

On June 12, 2024, the Company’s shareholders approved the 2024 Omnibus Long-Term Incentive Plan (the “2024 LTIP”), which went into effect upon shareholder approval. The maximum number of shares of the Company’s common stock that may be delivered pursuant to awards granted under the 2024 LTIP is 1,000,000, subject to increase by any awards under the 2014 LTIP (i) that were outstanding on or after June 12, 2024, and that, on or after such date, are forfeited, expire or are canceled, and (ii) any shares subject to awards relating to common stock under the 2014 LTIP that are settled in cash on or after June 12, 2024 (the “Prior LTIP Awards”). The 2024 LTIP also provides that, to the extent an award under the 2024 LTIP or a Prior LTIP Award is forfeited, expires or is canceled, in whole or in part, the shares subject to such forfeited, expired or canceled award may again be awarded under the 2024 LTIP. As of September 30, 2024, a total of 745,085 shares had been issued under the 2014 LTIP and 1,000,000 were available for issuance under the 2024 LTIP.

 

In April 2022, the Company closed a merger transaction with Precision Healing pursuant to which Precision Healing became a wholly owned subsidiary of the Company. Pursuant to the terms of the merger agreement, holders of Precision Healing common stock and preferred stock, other than the Company, were entitled to receive closing consideration, consisting of $125,966 in cash consideration, which was paid to stockholders who were not accredited investors, 165,738 shares of the Company’s common stock, which was paid only to accredited investors, and the payment in cash of approximately $0.6 million of transaction expenses of Precision Healing. The Company recorded the issuance of the 165,738 shares to accredited investors and cash payments to nonaccredited investors based on the closing price per share of the Company’s common stock on April 4, 2022, which was $30.75.

 

Upon the closing of the merger, the Precision Healing outstanding options previously granted under the Precision Healing Plan converted, pursuant to their terms, into options to acquire an aggregate of 144,191 shares of Company common stock with a weighted average exercise price of $10.71 per share. These options expire between August 2030 and April 2031. In addition, outstanding and unexercised Precision Healing warrants converted into rights to receive warrants to purchase (i) 4,424 shares of the Company’s common stock with an initial exercise price of $7.32 per share and an expiration date of April 22, 2031, and (ii) 12,301 shares of the Company’s common stock with an initial exercise price of $12.05 per share and an expiration date of August 10, 2030. Concurrent with the assumption of the Precision Healing Plan, the Company terminated the ability to offer future awards under the Precision Healing Plan.

 

Pursuant to the merger agreement, upon the achievement of certain performance thresholds, the securityholders of Precision Healing, including the holders of options and warrants to purchase Precision Healing common stock and certain persons promised options to purchase Precision Healing common stock, are also entitled to receive payments of up to $10.0 million, which was accounted for as contingent consideration pursuant to ASC 805. The earnout consideration is payable in cash or, at the Company’s election, is payable to accredited investors in shares of Company common stock at a price per share equal to the greater of (i) $27.13 or (ii) the average closing price of Company common stock for the 20 trading days prior to the date such earnout consideration is due and payable. Pursuant to the merger agreement, a minimum percentage of the earnout consideration may be required to be issued to accredited investors in shares of Company common stock for tax purposes. The amount and composition of the portion of earnout consideration payable is subject to adjustment and offsets as set forth in the merger agreement.

 

In July 2022, the Company closed the Scendia acquisition pursuant to which Scendia became a wholly owned subsidiary of the Company. Pursuant to the purchase agreement, the aggregate consideration at closing for the acquisition was approximately $7.6 million, subject to customary post-closing adjustments. The consideration consisted of (i) approximately $1.6 million of cash, subject to certain adjustments, and (ii) 291,686 shares of common stock of the Company. Pursuant to the purchase agreement, at closing, the Company withheld 94,798 Indemnity Holdback Shares, which such Indemnity Holdback Shares were withheld to the extent provided in the purchase agreement to satisfy Phillips’ indemnification obligations and subsequently issued and released to Phillips in July 2023.

 

In addition to the cash consideration and the stock consideration, the purchase agreement provides that Phillips is entitled to receive two potential earnout payments, payable on an annual basis, not to exceed $10.0 million in the aggregate, which was accounted for as contingent consideration pursuant to ASC 805. The earnout consideration is payable to Phillips in cash or, at the Company’s election, in up to 486,145 shares of the Company’s common stock upon the achievement of certain performance thresholds relating to net revenue attributable to sales of Scendia products during the two-year period following the closing. The Company made the first earnout payment of approximately $693,000 in cash in August 2023 and the second and final earnout payment of approximately $1.1 million in cash in October 2024.

 

 

In February 2023, the Company entered into a Controlled Equity OfferingSM Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co., as sales agent (“Cantor”), pursuant to which the Company could offer and sell from time to time, to or through Cantor, shares of the Company’s common stock having an aggregate offering price of up to $75,000,000.

 

Sales of the shares were made in sales deemed to be an “at the market offering” as defined in Rule 415(a)(4) promulgated under the Securities Act of 1933, as amended. Upon delivery of a placement notice and subject to the terms and conditions of the Sales Agreement, Cantor agreed to use commercially reasonable efforts consistent with its normal trading and sales practices, applicable state and federal law, rules and regulations and the rules of The Nasdaq Capital Market to sell the shares from time to time based upon the Company’s instructions, including any price, time period or size limits specified by the Company. The Company had no obligation to sell any of the shares under the Sales Agreement and could suspend or terminate the offering of its common stock pursuant to the Sales Agreement upon notice to Cantor and subject to other conditions. Cantor’s obligations to sell the shares under the Sales Agreement were subject to satisfaction of certain conditions, including customary closing conditions. Pursuant to the Sales Agreement, the Company paid Cantor a commission of 3.0% of the aggregate gross proceeds from each sale of the shares.

 

In 2023, the Company sold an aggregate of 26,143 shares of common stock for gross proceeds of approximately $1.1 million and net proceeds of approximately $0.9 million pursuant to the Sales Agreement. The Company paused the offering at the end of the first quarter of 2023 and did not reactivate it during the remainder of 2023. The Form S-3 registration statement for this offering expired at the beginning of 2024.

 

On August 1, 2023, the Company closed the Applied Asset Purchase. Included in the purchase price was 73,809 shares of the Company’s common stock. See Note 3 for more information regarding the acquisition of Applied.

 

Restricted Stock Awards

 

During the nine months ended September 30, 2024, the Company issued restricted stock awards under the 2014 LTIP which are subject to certain vesting provisions and other terms and conditions set forth in each recipient’s respective restricted stock agreement. The Company granted and issued 164,588 shares, net of forfeitures, of restricted common stock to employees, directors, and certain advisors of the Company under the 2014 LTIP during the nine months ended September 30, 2024. The fair value of these awards was $5,765,952 based on the closing price of the Company’s common stock on the respective grant dates, which will be recognized as compensation expense on a straight-line basis over the vesting period of the awards.

 

Share-based compensation expense of $1,025,430 and $857,526 was recognized in Operating expenses in the accompanying Consolidated Statements of Operations during the three months ended September 30, 2024 and 2023, respectively. Share-based compensation expense of $3,240,361 and $2,582,163 was recognized in Operating expenses in the accompanying Consolidated Statements of Operations during the nine months ended September 30, 2024 and 2023, respectively.

 

At September 30, 2024, there was $5,403,255 of total unrecognized share-based compensation expense related to unvested share-based equity awards. Unrecognized share-based compensation expense is expected to be recognized over a weighted-average period of 0.7 years.

 

Below is a summary of restricted stock activity for the nine months ended September 30, 2024:

 

  

For the Nine Months Ended

September 30, 2024

 
   Shares  

Weighted Average

Grant Date Fair Value

 
Nonvested at beginning of period   144,211   $34.07 
Granted   190,240    35.03 
Vested   (84,407)   33.26 
Forfeited   (25,652)   35.02 
Nonvested at September 30, 2024   224,392   $35.08 

 

 

Stock Options

 

A summary of the status of outstanding stock options at September 30, 2024 and changes during the nine months then ended is presented below:

 

   For the Nine Months Ended     
   September 30, 2024     
       Weighted Average   Weighted Average   Aggregate 
       Exercise   Remaining   Intrinsic 
   Options   Price   Contract Life   Value 
Outstanding at beginning of period   93,892   $10.22           
Granted or assumed   -    -           
Exercised   (62,879)   10.05           
Forfeited   -    -           
Expired   -    -           
Outstanding at September 30, 2024   31,013   $10.57    6.1   $547,530.6 
                     
Exercisable at September 30, 2024   31,013   $10.57    6.1   $547,530.6 

 

Warrants

 

A summary of the status of outstanding warrants to purchase common stock at September 30, 2024 and changes during the nine months then ended is presented below:

 

   For the Nine Months Ended 
   September 30, 2024 
       Weighted Average   Weighted Average 
       Exercise   Remaining 
   Warrants   Price   Contract Life 
Outstanding at beginning of period   16,725   $10.80      
Granted or assumed   -    -      
Exercised   -    -      
Forfeited   -    -      
Expired   -    -      
Outstanding at September 30, 2024   16,725   $10.80    6.0 
                
Exercisable at September 30, 2024   16,725   $10.80    6.0 

 

 

v3.24.3
RELATED PARTIES
9 Months Ended
Sep. 30, 2024
Related Party Transactions [Abstract]  
RELATED PARTIES

NOTE 11 – RELATED PARTIES

 

CellerateRX Sublicense Agreement

 

The Company had an exclusive, world-wide sublicense to distribute certain hydrolyzed collagen products, including CellerateRX Surgical into the surgical and wound care markets from an affiliate of The Catalyst Group, Inc. (“Catalyst”), CGI Cellerate RX, which licensed the rights to these products from Applied. Sales of CellerateRX Surgical have comprised the substantial majority of the Company’s sales during the nine months ended September 30, 2024 and 2023. As amended in January 2021, the term of the Sublicense Agreement was extended through May 2050, with automatic successive one-year renewals so long as annual net sales of the licensed products exceed $1,000,000.

 

As discussed further in Note 3, on August 1, 2023, the Company purchased certain assets from Applied, including the underlying intellectual property of, as well as the rights to manufacture and sell certain hydrolyzed collagen products, including CellerateRX Surgical. In connection with the Applied Asset Purchase, Applied assigned the License Agreement with CGI Cellerate RX to SMAT, and on October 10, 2024, the License Agreement and Sublicense Agreement were terminated. Ronald T. Nixon, the Company’s Chief Executive Officer and Executive Chairman, is the founder and managing partner of Catalyst.

 

Product License Agreements

 

In July 2019, the Company executed a license agreement with Rochal, a related party, whereby the Company acquired an exclusive world-wide license to market, sell and further develop antimicrobial products for the prevention and treatment of microbes on the human body utilizing certain Rochal patents and pending patent applications. Currently, the products covered by the BIAKŌS License Agreement are BIAKŌS Antimicrobial Wound Gel and BIAKŌS Antimicrobial Skin and Wound Cleanser. Both products are 510(k) cleared. Mr. Nixon is a director of Rochal, and indirectly a significant shareholder of Rochal, and through the potential exercise of warrants, a majority shareholder of Rochal. Another one of the Company’s directors is also a director and significant shareholder of Rochal.

 

In October 2019, the Company executed the ABF License Agreement with Rochal whereby the Company acquired an exclusive world-wide license to market, sell and further develop certain antimicrobial barrier film and skin protectant products for use in the human health care market utilizing certain Rochal patents and pending patent applications. Currently, the products covered by the ABF License Agreement are CuraShield Antimicrobial Barrier Film and a no sting skin protectant product.

 

In May 2020, the Company executed a product license agreement with Rochal, whereby the Company acquired an exclusive world-wide license to market, sell and further develop a debrider for human medical use to enhance skin condition or treat or relieve skin disorders, excluding uses primarily for beauty, cosmetic, or toiletry purposes.

 

See Note 9 for more information on these product license agreements.

 

Consulting Agreement

 

Concurrent with the Rochal asset purchase, in July 2021, the Company entered into a consulting agreement with Ann Beal Salamone pursuant to which Ms. Salamone agreed to provide the Company with consulting services with respect to, among other things, writing new patents, conducting patent intelligence, and participating in certain grant and contract reporting. In consideration for the consulting services to be provided to the Company, Ms. Salamone is entitled to receive an annual consulting fee of $177,697, with payments to be paid once per month. The consulting agreement has an initial term of three years, unless earlier terminated by the Company, and is subject to renewal. Effective July 13, 2024, the consulting agreement with Ms. Salamone was amended to provide that the initial term shall be automatically renewed for successive one-year terms for up to three successive years unless earlier terminated by either party without cause at any time, provided that the terminating party provides 90 days advance written notice of termination. Ms. Salamone is a director of the Company and is a significant shareholder and the current Chair of the board of directors of Rochal.

 

 

Catalyst Transaction Advisory Services Agreement

 

In March 2023, the Company entered into a Transaction Advisory Services Agreement (the “Catalyst Services Agreement”) effective March 1, 2023 with Catalyst, a related party. Pursuant to the Catalyst Services Agreement, Catalyst, by and through its directors, officers, employees and affiliates that are not simultaneously serving as directors, officers or employees of the Company (collectively, the “Covered Persons”), agreed to perform certain transaction advisory, business and organizational strategy, finance, marketing, operational and strategic planning, relationship access and corporate development services for the Company in connection with any merger, acquisition, recapitalization, divestiture, financing, refinancing, or other similar transaction in which the Company may be, or may consider becoming, involved, and any such additional services as mutually agreed upon in writing by and between Catalyst and the Company (the “Catalyst Services”).

 

Pursuant to the Catalyst Services Agreement, the Company agreed to reimburse Catalyst for (i) compensation actually paid by Catalyst to any of the Covered Persons at a rate no more than a rate consistent with industry practice for the performance of services similar to the Catalyst Services, as documented in reasonably sufficient detail, and (ii) all reasonable out-of-pocket costs and expenses payable to unaffiliated third parties, as documented in customary expense reports, as each of (i) and (ii) is incurred in connection with the Catalyst Services rendered under the Catalyst Services Agreement, with all reimbursements being contingent upon the prior approval of the Audit Committee of the Company’s Board of Directors. The Company incurred costs pursuant to the Catalyst Services Agreement of $49,829 and $44,032 in the three months ended September 30, 2024 and 2023, respectively, and $163,101 and $117,018 in the nine months ended September 30, 2024 and 2023, respectively, and is recorded in “Selling, general and administrative expenses” in the accompanying Consolidated Statements of Operations.

 

v3.24.3
SEGMENT REPORTING
9 Months Ended
Sep. 30, 2024
Segment Reporting [Abstract]  
SEGMENT REPORTING

NOTE 12 – SEGMENT REPORTING

 

As discussed in Note 1, the Company historically managed its business on the basis of one operating and reportable segment. During the second quarter of 2024, the Company changed its reportable segments to better align its organization based upon the Company’s management structure, products and services offered and markets served. Based on the growing importance of the value-based wound care program to the Company’s future outlook and how the Company’s chief operating decision maker (“CODM”), the Chief Executive Officer, reviews operating results and makes decisions about resource allocation, the Company now has two reportable segments: Sanara Surgical and THP.

 

Segment EBITDA is the primary profitability measure used by the CODM for purposes of assessing financial performance and resource allocation. The Company defines Segment EBITDA for the reportable segments as net income (loss) excluding interest expense/income, provision/benefit for income taxes, depreciation and amortization, non-cash share-based compensation expense, change in fair value of earnout liabilities, share of losses from equity method investment, executive separation costs, legal and diligence expenses related to acquisitions, and gains/losses on disposal of property and equipment as each are applicable to the periods presented. Segment EBITDA, as it relates to the Company’s reportable segments, is presented in conformity with ASC 280, Segment Reporting, and is excluded from the definition of non-GAAP financial measures under the Securities and Exchange Commission’s Regulation G and Item 10(e) of Regulation S-K. Segment EBITDA may not be comparable to similarly titled measures reported by other companies.

 

Sanara Surgical

 

The Sanara Surgical segment primarily markets and sells soft tissue repair and bone fusion products for use in the operating room or other sterile environments. Sanara Surgical’s soft tissue repair products include, among other products, the Company’s lead product, CellerateRX Surgical, and BIASURGE Advanced Surgical Solution, which is a no-rinse, advanced surgical solution used for wound irrigation. Sanara Surgical’s bone fusion products include, among other products, BiFORM, which is an osteoconductive, bioactive, porous implant that allows for bony ingrowth across the graft site, and ALLOCYTE Plus, which is a human allograft cellular bone matrix containing bone-derived progenitor cells and conformable bone fibers.

 

Sanara Surgical also includes an in-house research and development team (Rochal Technologies) with an extensive pipeline of innovative products under development.

 

Tissue Health Plus

 

The THP segment is focused on value-based wound care services. Through THP, the Company plans to offer a first of its kind value-based wound care program to payers and risk-bearing entities such as accountable care organizations and VBC primary care companies, with Medicare Advantage payers as the initial target market for this program.

 

 

THP’s programs are expected to enable payers to divest wound care spend risk, reduce wound related hospitalizations and improve patient quality of life. THP plans to coordinate delivery of community and home-based wound care for its managed patients. Community based care spans a variety of settings including physician offices, skilled nursing facilities, assisted living facilities and senior living facilities. THP programs are intended to integrate science and evidence-based medicine protocols to standardize wound prevention and treatment.

 

Currently, there are no allocated costs included in the THP segment. All corporate and overhead expenses are included in the Sanara Surgical segment, as substantially all of those costs relate to supporting the operations and activities of the Sanara Surgical segment.

 

As a result of the change in reportable segments, certain prior period amounts have been recast to conform to the current period presentation. Throughout this Quarterly Report on Form 10-Q, unless otherwise indicated, amounts and activity reflect reclassifications related to the Company’s change in reportable segments. The change in reportable segments had no impact on the Company’s previously reported Consolidated Balance Sheets, Consolidated Statements of Operations, Consolidated Statements of Cash Flows or Consolidated Statements of Shareholders’ Equity.

 

The following tables reflect results of operations, Segment EBITDA, segmented assets, and expenditures for long-lived assets for the Company’s reportable segments for the periods indicated below:

 

   Sanara Surgical   THP   Total   Sanara Surgical   THP   Total 
   Three Months Ended 
   September 30, 
   2024   2023 
   Sanara Surgical   THP   Total   Sanara Surgical   THP   Total 
                         
Net revenue  $21,671,599   $-   $21,671,599   $16,024,948   $-   $16,024,948 
Gross profit   19,679,612    -    19,679,612    14,273,599    -    14,273,599 
Selling, general and administrative expenses   17,420,346    1,572,909    18,993,255    13,460,404    417,475    13,877,879 
Research and development   783,840    575,690    1,359,530    225,886    760,568    986,454 
Depreciation and amortization   696,888    406,966    1,103,854    590,563    407,111    997,674 
Interest expense   927,577    -    927,577    188,294    -    188,294 
Net income (loss)   (180,488)   (2,702,564)   (2,883,052)   567,235    (1,662,184)   (1,094,949)
Segment EBITDA   2,563,521    (1,721,560)   841,961    1,400,916    (1,134,124)   266,792 
                               
Segment assets (at period end) (1)  $67,037,973   $21,507,503   $88,545,476   $45,715,495   $28,155,654   $73,871,149 
Expenditures for long-lived assets  $9,096   $-   $9,096   $170,320   $-   $170,320 

 

   Sanara Surgical   THP   Total   Sanara Surgical   THP   Total 
   Nine Months Ended 
   September 30, 
   2024   2023 
   Sanara Surgical   THP   Total   Sanara Surgical   THP   Total 
                         
Net revenue  $60,367,060   $-   $60,367,060   $47,297,299   $2,730   $47,300,029 
Gross profit (loss)   54,476,341    -    54,476,341    41,241,740    (6,235)   41,235,505 
Selling, general and administrative expenses   51,453,311    2,689,811    54,143,122    39,229,030    1,429,394    40,658,424 
Research and development   1,945,263    1,346,216    3,291,479    669,849    2,811,057    3,480,906 
Depreciation and amortization   2,093,797    1,220,984    3,314,781    1,359,180    1,221,063    2,580,243 
Interest expense   1,839,259    -    1,839,259    188,300    -    188,300 
Net income (loss)   (2,872,286)   (5,339,011)   (8,211,297)   1,181,296    (5,358,754)   (4,177,458)
Segment EBITDA   5,095,670    (3,350,104)   1,745,566    3,766,196    (4,087,858)   (321,662)
                               
Segment assets (at period end) (1)  $67,037,973   $21,507,503   $88,545,476   $45,715,495   $28,155,654   $73,871,149 
Expenditures for long-lived assets  $133,676   $-   $133,676   $210,970   $-   $210,970 

 

(1)- Segment assets for 2023 represent assets as of December 31, 2023.

 

 

The following tables provide a reconciliation of net income (loss) to Segment EBITDA for the Company’s reportable segments for the periods indicated below:

 

   Sanara Surgical   THP   Total   Sanara Surgical   THP   Total 
   Three Months Ended 
   September 30, 
   2024   2023 
   Sanara Surgical   THP   Total   Sanara Surgical   THP   Total 
Net Income (Loss)  $(180,488)  $(2,702,564)  $(2,883,052)  $567,235   $(1,662,184)  $(1,094,949)
Adjustments:                              
Interest expense   927,577    -    927,577    188,294    -    188,294 
Depreciation and amortization   696,888    406,966    1,103,854    590,563    407,111    997,674 
Noncash share-based compensation   1,003,599    21,831    1,025,430    813,606    43,920    857,526 
Change in fair value of earnout liabilities   -    147,000    147,000    (758,783)   77,030    (681,753)
Share of losses from equity method investment   31,448    -    31,448    -    -    - 
Executive separation costs    59,685    -    59,685    -    -    - 
Acquisition costs   24,812    405,207    430,019    -    -    - 
Segment EBITDA  $2,563,521   $(1,721,560)  $841,961   $1,400,916   $(1,134,124)  $266,792 

 

   Sanara Surgical   THP   Total   Sanara Surgical   THP   Total 
   Nine Months Ended 
   September 30, 
   2024   2023 
   Sanara Surgical   THP   Total   Sanara Surgical   THP   Total 
Net Income (Loss)  $(2,872,286)  $(5,339,011)  $(8,211,297)  $1,181,296   $(5,358,754)  $(4,177,458)
Adjustments:                              
Interest expense   1,839,259    -    1,839,259    188,300    -    188,300 
Depreciation and amortization   2,093,797    1,220,984    3,314,781    1,359,180    1,221,063    2,580,243 
Noncash share-based compensation   2,803,536    108,031    2,911,567    2,423,335    158,828    2,582,163 
Change in fair value of earnout liabilities   (14,451)   82,000   67,549   (1,385,914)   (108,996)   (1,494,910)
Share of losses from equity method investment   31,448    -    31,448    -    -    - 
Executive separation costs (1)   964,466    -    964,466    -    -    - 
Acquisition costs   249,901    577,892    827,793    -    -    - 
Segment EBITDA  $5,095,670   $(3,350,104)  $1,745,566   $3,766,196   $(4,087,858)  $(321,662)

 

(1)- Includes $328,795 of share-based compensation related to executive separation costs for the nine months ended September 30, 2024.

 

v3.24.3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)
9 Months Ended
Sep. 30, 2024
Accounting Policies [Abstract]  
Principles of Consolidation and Basis of Presentation

Principles of Consolidation and Basis of Presentation

 

The accompanying unaudited consolidated financial statements include the accounts of Sanara MedTech Inc. and its wholly owned and majority-owned subsidiaries, as well as other entities in which the Company has a controlling financial interest. All significant intercompany profits, losses, transactions and balances have been eliminated in consolidation. Certain prior year amounts have been reclassified to conform to the current year presentation.

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management of the Company, all adjustments (consisting of normal accruals) considered necessary for a fair presentation have been included. Operating results for interim periods are not necessarily indicative of the results that may be expected for the full year period. These financial statements and notes should be read in conjunction with the financial statements for each of the two years ended December 31, 2023 and 2022, which are included in the Company’s most recent Annual Report on Form 10-K.

 

Use of Estimates

Use of Estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported revenue and expenses during the reporting period. However, actual results could differ from those estimates and there may be changes to the Company’s estimates in future periods.

 

Cash and Cash Equivalents

Cash and Cash Equivalents

 

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

 

Income/Loss Per Share

Income/Loss Per Share

 

The Company computes income/loss per share in accordance with Accounting Standards Codification (“ASC”) Topic 260, Earnings per Share, which requires the Company to present basic and diluted income per share when the effect is dilutive. Basic income/loss per share is computed by dividing income/loss attributable to common shareholders by the weighted average number of shares of common stock outstanding. Diluted income/loss per share is computed similarly to basic income/loss per share, except that the denominator is increased to include the number of additional shares of common stock that would have been outstanding if the potential shares of common stock had been issued and if the additional shares of common stock were dilutive. All common stock equivalents were excluded from the calculations for the periods presented as their inclusion would have been anti-dilutive during the three and nine months ended September 30, 2024 and 2023 due to the Company’s net loss.

 

 

The following table summarizes the shares of common stock that were potentially issuable but were excluded from the computation of diluted net loss per share for the three and nine months ended September 30, 2024 and 2023 as such shares would have had an anti-dilutive effect:

 

   2024   2023 
   As of September 30, 
   2024   2023 
Stock options (a)   31,013    95,873 
Warrants (b)   16,725    16,725 
Unvested restricted stock   224,392    159,557 

 

  (a) Shares underlying stock options assumed pursuant to the merger agreement with Precision Healing, Inc. (“Precision Healing”) in April 2022.
  (b) Shares underlying warrants assumed pursuant to the merger agreement with Precision Healing in April 2022.

 

Revenue Recognition

Revenue Recognition

 

The Company recognizes revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). Revenues are recognized when a purchase order is received from the customer and control of the promised goods or services is transferred to the customer in an amount that reflects the consideration the Company expects to be entitled to receive in exchange for transferring those goods or services. Revenue is recognized based on the following five-step model:

 

- Identification of the contract with a customer

- Identification of the performance obligations in the contract

- Determination of the transaction price

- Allocation of the transaction price to the performance obligations in the contract

- Recognition of revenue when, or as, the Company satisfies a performance obligation

 

Details of this five-step process are as follows:

 

Identification of the contract with a customer

 

Customer purchase orders are generally considered to be contracts under ASC 606. Purchase orders typically identify the specific terms of products to be delivered, create the enforceable rights and obligations of both parties and result in commercial substance. No other forms of contract revenue recognition, such as the completed contract or percentage of completion methods, were utilized by the Company in either 2024 or 2023.

 

Performance obligations

 

The Company’s performance obligation is generally limited to delivery of the requested items to its customers at the agreed upon quantities and prices.

 

Determination and allocation of the transaction price

 

The Company has established prices for its products. These prices are effectively agreed to when customers place purchase orders with the Company. Rebates and discounts, if any, are recognized in full at the time of sale as a reduction of net revenue. Allocation of transaction prices is not necessary where only one performance obligation exists.

 

 

Recognition of revenue as performance obligations are satisfied

 

Product revenues are recognized when a purchase order is received from the customer, the products are delivered, and control of the goods and services passes to the customer.

 

Disaggregation of Revenue

 

Revenue streams from product sales and royalties are summarized below for the three and nine months ended September 30, 2024 and 2023.

 

   2024   2023   2024   2023 
   Three Months Ended   Nine Months Ended 
   September 30,   September 30, 
   2024   2023   2024   2023 
Soft tissue repair products  $18,863,335   $13,634,316   $52,586,945   $39,756,539 
Bone fusion products   2,808,264    2,340,382    7,779,209    7,392,740 
Royalty revenue   -    50,250    906    150,750 
Total Net Revenue  $21,671,599   $16,024,948   $60,367,060   $47,300,029 

 

For the three and nine months ended September 30, 2024 and 2023, all of the Company’s net revenue was generated from Sanara Surgical. The Company plans to commercially launch the THP program in mid-2025.

 

Accounts Receivable Allowances

Accounts Receivable Allowances

 

Accounts receivable are typically due within 30 days of invoicing. The Company establishes an allowance for credit losses to provide for an estimate of accounts receivable which are not expected to be collectible. The Company bases the allowance on an assessment of customer creditworthiness, historical payment experience, the age of outstanding receivables and other information as applicable and will record its allowance based on the estimated credit losses. The Company recorded credit loss expense of $75,000 and $128,061 during the three months ended September 30, 2024 and 2023, respectively and $230,930 and $214,061 during the nine months ended September 30, 2024 and 2023, respectively. The allowance for credit losses was $758,960 at September 30, 2024 and $528,030 at December 31, 2023. Credit loss reserves are maintained based on a variety of factors, including the length of time receivables are past due and a detailed review of certain individual customer accounts. The Company also establishes other allowances to provide for estimated customer rebates and other expected customer deductions. These allowances totaled $5,010 at September 30, 2024 and $3,820 at December 31, 2023. If circumstances related to customers change, estimates of the recoverability of receivables would be further adjusted.

 

Inventories

Inventories

 

Inventories are stated at the lower of cost or net realizable value, with cost computed on a first-in, first-out basis. Inventories consist primarily of finished goods, and also include an immaterial amount of raw materials and related packaging components. The Company recorded inventory obsolescence expense of $96,684 and $152,701 during the three months ended September 30, 2024 and 2023, respectively, and $356,261 and $222,691 during the nine months ended September 30, 2024 and 2023, respectively. The allowance for obsolete and slow-moving inventory had a balance of $466,276 at September 30, 2024, and $446,917 at December 31, 2023.

 

 

Property and Equipment

Property and Equipment

 

Property and equipment are stated at cost, less accumulated depreciation. Depreciation is recorded using the straight-line method over the estimated useful lives of the related assets, ranging from two to ten years. Below is a summary of property and equipment for the periods presented:

 

   Useful  September 30,   December 31, 
   Life  2024   2023 
Computers  3-5 years  $235,388   $194,788 
Office equipment  3-7 years   216,491    201,785 
Furniture and fixtures  5-10 years   346,508    304,338 
Leasehold improvements  2-5 years   170,370    134,170 
Internal use software  5 years   1,618,999    1,618,999 
              
Property and equipment, gross      2,587,756    2,454,080 
Less accumulated depreciation      (1,591,986)   (1,196,124)
              
Property and equipment, net     $995,770   $1,257,956 

 

Depreciation expense related to property and equipment was $129,592 and $116,596 for the three months ended September 30, 2024 and 2023, respectively, and $395,862 and $332,762 for the nine months ended September 30, 2024 and 2023, respectively.

 

Internal Use Software

Internal Use Software

 

The Company accounts for costs incurred to develop or acquire computer software for internal use in accordance with ASC Topic 350-40, Intangibles – Goodwill and Other. The Company capitalizes the costs incurred during the application development stage, which generally includes third-party developer fees to design the software configuration and interfaces, coding, installation and testing.

 

The Company begins capitalization of qualifying costs when both the preliminary project stage is completed and management has authorized further funding for the completion of the project. Costs incurred during the preliminary project stage along with post implementation stages of internal-use computer software are expensed as incurred. The Company also capitalizes costs related to specific upgrades and enhancements when it is probable the expenditures will result in additional functionality. Capitalized development costs are classified as “Property and equipment, net” in the Consolidated Balance Sheets and are depreciated over the estimated useful life of the software, which is generally five years.

 

Goodwill

Goodwill

 

The excess of purchase price over the fair value of identifiable net assets acquired in business combinations is recorded as goodwill. As of September 30, 2024 and December 31, 2023, all of the Company’s goodwill relates to the acquisition of Scendia Biologics, LLC (“Scendia”), which is included in the Sanara Surgical segment. Goodwill has an indefinite useful life and is not amortized. Goodwill is tested annually as of December 31 for impairment, or more frequently if circumstances indicate impairment may have occurred. The Company may first perform a qualitative assessment to determine if it is more likely than not that the fair value of the reporting unit is less than the respective carrying value. If it is determined that it is more likely than not that a reporting unit’s fair value is less than its carrying value, then the Company will determine the fair value of the reporting unit and record an impairment charge for the difference between fair value and carrying value (not to exceed the carrying amount of goodwill). No impairment was recorded during the three or nine months ended September 30, 2024 or 2023.

 

 

Intangible Assets

Intangible Assets

 

Intangible assets are stated at cost of acquisition less accumulated amortization and impairment loss, if any. Cost of acquisition includes the purchase price and any cost directly attributable to bringing the asset to its working condition for the intended use. The Company amortizes its finite-lived intangible assets on a straight-line basis over the estimated useful life of the respective assets which is generally the life of the related patents or licenses, seven years for customer relationships and five years for assembled workforces. See Note 5 for more information on intangible assets.

 

Impairment of Long-Lived Assets

Impairment of Long-Lived Assets

 

Long-lived assets, including certain identifiable intangibles held and to be used by the Company, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. The Company continuously evaluates the recoverability of its long-lived assets based on estimated future cash flows and the estimated liquidation value of such long-lived assets and provides for impairment if such undiscounted cash flows are insufficient to recover the carrying amount of the long-lived assets. If impairment exists, an adjustment is made to write the asset down to its fair value, and a loss is recorded as the difference between the carrying value and fair value. Fair values are determined based on quoted market values, undiscounted cash flows or internal and external appraisals, as applicable. Assets to be disposed of are carried at the lower of carrying value or estimated fair value less cost to sell. No impairment was recorded during the three or nine months ended September 30, 2024 or 2023.

 

Investments in Equity Securities

Investments in Equity Securities

 

The Company’s equity investments consist of nonmarketable equity securities in privately held companies without readily determinable fair values. Unless accounted for under the equity method of accounting, the investments are reported at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment in the same issuer.

 

The Company applies the equity method of accounting to investments when it has significant influence, but not controlling interest, in the investee. Judgment regarding the level of influence over each equity method investment includes considering key factors such as ownership interest, representation on the board of directors, participation in policy-making decisions and material intercompany transactions. As discussed further in Note 6 as of September 30, 2024, the Company had one investment that is recorded applying the equity method of accounting. The Company’s proportionate share of the net income (loss) resulting from these investments is reported under the line item captioned “Share of losses from equity method investment” in the Company’s Consolidated Statements of Operations. The Company’s equity method investment is adjusted each period for the Company’s share of the investee’s income or loss and dividend paid, if any. The Company classifies distributions received from its equity method investment using the cumulative earnings approach in the Company’s Consolidated Statements of Cash Flows.

 

The Company has reviewed the carrying value of its investments and has determined there was no impairment or observable price changes as of or for the three and nine months ended September 30, 2024 and 2023.

 

Fair Value Measurement

Fair Value Measurement

 

As defined in ASC Topic 820, Fair Value Measurement (“ASC 820”), fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). This fair value measurement framework applies at both the initial and subsequent measurement.

 

The three levels of the fair value hierarchy defined by ASC 820 are as follows:

 

Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of financial instruments such as exchange-traded derivatives, marketable securities and listed equities.

 

 

Level 2 – Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reported date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. Instruments in this category generally include nonexchange-traded derivatives such as commodity swaps, interest rate swaps, options and collars.

 

Level 3 – Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value.

 

The carrying amounts of cash, accounts receivable, accounts payable and accrued expenses, other than acquisition-related expenses, approximate fair value because of the short-term nature of these instruments. The fair value of acquisition-related accrued expenses is categorized as Level 2 of the fair value hierarchy. The value of these instruments has been estimated using discounted cash flow analysis based on the Company’s incremental borrowing rate. The carrying value of the Company’s CRG Term Loan (defined below), which has a fixed interest rate approximates fair value based on instruments with similar terms (Level 2 inputs). The carrying value of the Company’s Cadence Term Loan (defined below), which had variable interest rates determined each month, approximates fair value based on instruments with similar terms (Level 2 inputs). The fair value of the contingent earnout consideration and the acquisition date fair value of goodwill and intangibles related to the acquisitions discussed in Notes 3 and 5 are based on Level 3 inputs.

 

Liabilities for contingent consideration for the Precision Healing merger, acquisition of Scendia and Applied Asset Purchase (defined below) (see Note 3 for more information) are measured at fair value each reporting period, with the acquisition-date fair value included as part of the consideration transferred. The contingent consideration for the Scendia acquisition was settled as of September 30, 2024, and the final earnout payment of approximately $1.1 million was paid in cash in October 2024. Subsequent changes in fair value for the Precision Healing merger are reported under the line item captioned “Change in fair value of earnout liabilities” in the Company’s Consolidated Statements of Operations. Due to the Applied Asset Purchase being accounted for as an asset acquisition and given that the transaction did not include contingent shares, subsequent revaluations of contingent consideration for the Applied Asset Purchase results in an adjustment to the contingent consideration liability and the intellectual property intangible asset with a cumulative catch-up amortization adjustment. The current year change in fair value of earnout liability below is as a result of a net increase in the estimated fair value of the earnout liability established at the time of the Company’s Precision Healing merger. The current year revaluation of earnout liability below is a result of an increase in the estimated value of the earnout liability established at the time of the Applied Asset Purchase. The following table sets forth a summary of the changes in fair value for the Level 3 contingent earnout considerations.

 

      
Balance at December 31, 2023  $3,823,001 
Change in fair value of earnout liabilities   67,549
Revaluation of earnout liability   22,000 
Balance at September 30, 2024  $3,912,550 

 

Income Taxes

Income Taxes

 

Income taxes are accounted for under the asset and liability method, whereby deferred income taxes are recorded for temporary differences between financial statement carrying amounts and the tax basis of assets and liabilities. Deferred tax assets and liabilities reflect the tax rates expected to be in effect for the years in which the differences are expected to reverse. A valuation allowance is provided if it is more likely than not that some or all the deferred tax asset will not be realized.

 

 

Share-based Compensation

Share-based Compensation

 

The Company accounts for share-based compensation to employees and nonemployees in accordance with ASC Topic 718, Compensation – Stock Compensation. Share-based compensation is measured at the grant date, based on the fair value of the award, and is recognized as expense over the stipulated vesting period, if any. The Company estimates the fair value of share-based payments using the Black-Scholes option-pricing model for common stock options and warrants, and the closing price of the Company’s common stock for grants of common stock, including restricted stock awards.

 

Research and Development Costs

Research and Development Costs

 

Research and development (“R&D”) expenses consist of personnel-related expenses, including salaries, share-based compensation and benefits for all personnel directly engaged in R&D activities, contracted services, materials, prototype expenses and allocated overhead, which is comprised of compensation and benefits, lease expense and other facilities-related costs. R&D expenses include costs related to enhancements to the Company’s currently available products and additional investments in the product and platform development pipeline. The Company expenses R&D costs as incurred.

 

Recently Adopted Accounting Pronouncements

Recently Adopted Accounting Pronouncements

 

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326). This update amends the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The Company adopted the new guidance effective January 1, 2023. The adoption did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

 

Recently Issued Accounting Pronouncements

Recently Issued Accounting Pronouncements

 

In November 2023, FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which requires disclosure of incremental segment information on an annual and interim basis. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024 on a retrospective basis. The Company is currently evaluating the effect of this pronouncement on its disclosures.

 

In December 2023, FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”), which expands the disclosure required for income taxes. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The amendment should be applied on a prospective basis while retrospective application is permitted. The Company is currently evaluating the effect of this pronouncement on its disclosures.

v3.24.3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)
9 Months Ended
Sep. 30, 2024
Accounting Policies [Abstract]  
SCHEDULE OF COMPUTATION OF DILUTED NET LOSS PER SHARE

The following table summarizes the shares of common stock that were potentially issuable but were excluded from the computation of diluted net loss per share for the three and nine months ended September 30, 2024 and 2023 as such shares would have had an anti-dilutive effect:

 

   2024   2023 
   As of September 30, 
   2024   2023 
Stock options (a)   31,013    95,873 
Warrants (b)   16,725    16,725 
Unvested restricted stock   224,392    159,557 

 

  (a) Shares underlying stock options assumed pursuant to the merger agreement with Precision Healing, Inc. (“Precision Healing”) in April 2022.
  (b) Shares underlying warrants assumed pursuant to the merger agreement with Precision Healing in April 2022.
SCHEDULE OF REVENUE FROM PRODUCT SALES AND ROYALTIES

Revenue streams from product sales and royalties are summarized below for the three and nine months ended September 30, 2024 and 2023.

 

   2024   2023   2024   2023 
   Three Months Ended   Nine Months Ended 
   September 30,   September 30, 
   2024   2023   2024   2023 
Soft tissue repair products  $18,863,335   $13,634,316   $52,586,945   $39,756,539 
Bone fusion products   2,808,264    2,340,382    7,779,209    7,392,740 
Royalty revenue   -    50,250    906    150,750 
Total Net Revenue  $21,671,599   $16,024,948   $60,367,060   $47,300,029 
SCHEDULE OF PROPERTY AND EQUIPMENT

 

   Useful  September 30,   December 31, 
   Life  2024   2023 
Computers  3-5 years  $235,388   $194,788 
Office equipment  3-7 years   216,491    201,785 
Furniture and fixtures  5-10 years   346,508    304,338 
Leasehold improvements  2-5 years   170,370    134,170 
Internal use software  5 years   1,618,999    1,618,999 
              
Property and equipment, gross      2,587,756    2,454,080 
Less accumulated depreciation      (1,591,986)   (1,196,124)
              
Property and equipment, net     $995,770   $1,257,956 
SCHEDULE OF CHANGES IN FAIR VALUE FOR CONTINGENT EARNOUT CONSIDERATION

 

      
Balance at December 31, 2023  $3,823,001 
Change in fair value of earnout liabilities   67,549
Revaluation of earnout liability   22,000 
Balance at September 30, 2024  $3,912,550 
v3.24.3
APPLIED ASSET PURCHASE (Tables) - Applied Asset Purchase Agreement [Member]
9 Months Ended
Sep. 30, 2024
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]  
SCHEDULE OF ASSET PURCHASE CONSIDERATIONS

The total purchase consideration for the Applied Asset Purchase as determined by the Company was as follows:

 

Consideration  Equity Shares   Dollar Value 
Cash Closing Consideration       $9,750,000 
Fair value of Stock Closing Consideration   73,809    3,089,645 
Fair value of Installment Payments        2,040,808 
Cash paid for inventory        30,007 
Fair value of Petito Services Agreement defined payments        825,834 
Fair value of Petito Services Agreement contingent consideration        893,000 
Direct transaction costs        162,743 
Total purchase consideration       $16,792,037 
SCHEDULE OF PURCHASE CONSIDERATION ON FAIR VALUE OF ASSETS ACQUIRED

 

Description  Amount 
Inventory  $30,007 
Equipment   33,062 
Intellectual property   16,728,968 
Net assets acquired  $16,792,037 
v3.24.3
GOODWILL AND INTANGIBLES, NET (Tables)
9 Months Ended
Sep. 30, 2024
Goodwill and Intangible Assets Disclosure [Abstract]  
SCHEDULE OF CHANGES IN CARRYING AMOUNT OF GOODWILL

The changes in the carrying amount of the Company’s goodwill were as follows:

 

   Total 
Balance as of December 31, 2022  $3,601,781 
Acquisitions   - 
Balance as of December 31, 2023   3,601,781 
Acquisitions   - 
Balance as of September 30, 2024  $3,601,781 
SCHEDULE OF CARRYING VALUE OF INTANGIBLE ASSETS

The carrying values of the Company’s intangible assets were as follows for the periods presented:

 

   September 30, 2024   December 31, 2023 
       Accumulated           Accumulated     
   Cost   Amortization   Net   Cost   Amortization   Net 
Amortizable Intangible Assets:                              
Patents and Other IP  $38,592,549   $(4,934,785)  $33,657,764   $38,570,549   $(3,181,186)  $35,389,363 
Customer relationships and other   7,947,332    (2,737,675)   5,209,657    7,947,332    (1,861,887)   6,085,445 
Product Licenses   4,793,879    (1,632,158)   3,161,721    4,793,879    (1,342,626)   3,451,253 
Total  $51,333,760   $(9,304,618)  $42,029,142   $51,311,760   $(6,385,699)  $44,926,061 
SCHEDULE OF FUTURE AMORTIZATION EXPENSE

 

      
Remainder of 2024  $972,818 
2025   3,891,270 
2026   3,874,015 
2027   3,760,162 
2028   3,726,921 
2029   3,726,921 
Thereafter   22,077,035 
Total  $42,029,142 
v3.24.3
INVESTMENTS IN EQUITY SECURITIES (Tables)
9 Months Ended
Sep. 30, 2024
Schedule of Investments [Abstract]  
SCHEDULE OF INVESTMENTS

The following table summarizes the Company’s investments for the periods presented:

 

   September 30, 2024   December 31, 2023 
   Carrying Amount   Economic Interest   Carrying Amount   Economic Interest 
Equity Method Investment                         
ChemoMouthpiece, LLC  $5,237,134    6.64%  $-    -%
                     
Cost Method Investments                    
Direct Dermatology, Inc.  $1,000,000        $1,000,000      
Pixalere Healthcare Inc.   2,084,278         2,084,278      
Total Cost Method Investments  $3,084,278        $3,084,278      
                     
Total Investments  $8,321,412        $3,084,278      
SCHEDULE OF LOSS FROM EQUITY METHOD INVESTMENT

The following table summarizes the Company’s share of losses from equity method investment reflected in the Company’s Consolidated Statements of Operations for the periods presented:

 

   2024   2023   2024   2023 
  

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 
   2024   2023   2024   2023 
Investment                
ChemoMouthpiece, LLC  $(31,448)  $-   $(31,448)  $      - 
                     
Total  $(31,448)  $-   $(31,448)  $- 
v3.24.3
OPERATING LEASES (Tables)
9 Months Ended
Sep. 30, 2024
Operating Leases  
SCHEDULE OF OPERATING LEASE LIABILITY

Maturity of Operating Lease Liabilities

 

   September 30,
2024
 
Remainder of 2024  $142,525 
2025   532,053 
2026   379,529 
2027   297,947 
2028   295,689 
2029   300,158 
Thereafter   303,892 
      
Total lease payments   2,251,793 
Less imputed interest   (405,500)
Present Value of Lease Liabilities  $1,846,293 
      
Operating lease liabilities – current  $439,129 
Operating lease liabilities – long-term  $1,407,164 
v3.24.3
DEBT AND CREDIT FACILITIES (Tables)
9 Months Ended
Sep. 30, 2024
Debt Disclosure [Abstract]  
SCHEDULE OF LONG-TERM DEBT

The table below presents the components of the Company’s outstanding debt for the periods presented:

 

   September 30,
2024
   December 31,
2023
 
CRG Term Loan  $30,500,000   $- 
Paid-in-kind interest   424,067    - 
Back-end fee   219,689    - 
Cadence Term Loan   -    9,750,000 
Debt   31,143,756    9,750,000 
           
Less: unamortized debt issuance costs   (1,067,041)   (56,520)
           
Debt, net of debt issuance costs   30,076,715    9,693,480 
           
Less: Current portion of debt   -    580,357 
Long-term debt, net of current portion  $30,076,715   $9,113,123 
SCHEDULE OF MATURITIES OUTSTANDING

The table below presents the aggregate maturities of the Company’s outstanding debt as of September 30, 2024:

 

Year  Total 
     
Remainder of 2024  $- 
2025   - 
2026   - 
2027   - 
2028   - 
Thereafter   31,143,756 
Total debt  $31,143,756 
v3.24.3
SHAREHOLDERS’ EQUITY (Tables)
9 Months Ended
Sep. 30, 2024
Equity [Abstract]  
SUMMARY OF RESTRICTED STOCK ACTIVITY

Below is a summary of restricted stock activity for the nine months ended September 30, 2024:

 

  

For the Nine Months Ended

September 30, 2024

 
   Shares  

Weighted Average

Grant Date Fair Value

 
Nonvested at beginning of period   144,211   $34.07 
Granted   190,240    35.03 
Vested   (84,407)   33.26 
Forfeited   (25,652)   35.02 
Nonvested at September 30, 2024   224,392   $35.08 
SCHEDULE OF STOCK OPTION ACTIVITY

A summary of the status of outstanding stock options at September 30, 2024 and changes during the nine months then ended is presented below:

 

   For the Nine Months Ended     
   September 30, 2024     
       Weighted Average   Weighted Average   Aggregate 
       Exercise   Remaining   Intrinsic 
   Options   Price   Contract Life   Value 
Outstanding at beginning of period   93,892   $10.22           
Granted or assumed   -    -           
Exercised   (62,879)   10.05           
Forfeited   -    -           
Expired   -    -           
Outstanding at September 30, 2024   31,013   $10.57    6.1   $547,530.6 
                     
Exercisable at September 30, 2024   31,013   $10.57    6.1   $547,530.6 
SCHEDULE OF WARRANTS TO PURCHASE COMMON STOCK

A summary of the status of outstanding warrants to purchase common stock at September 30, 2024 and changes during the nine months then ended is presented below:

 

   For the Nine Months Ended 
   September 30, 2024 
       Weighted Average   Weighted Average 
       Exercise   Remaining 
   Warrants   Price   Contract Life 
Outstanding at beginning of period   16,725   $10.80      
Granted or assumed   -    -      
Exercised   -    -      
Forfeited   -    -      
Expired   -    -      
Outstanding at September 30, 2024   16,725   $10.80    6.0 
                
Exercisable at September 30, 2024   16,725   $10.80    6.0 
v3.24.3
SEGMENT REPORTING (Tables)
9 Months Ended
Sep. 30, 2024
Segment Reporting [Abstract]  
SCHEDULE OF OPERATIONS, ASSETS AND CAPITAL EXPENDITURES FOR OUR BUSINESS SEGMENTS

The following tables reflect results of operations, Segment EBITDA, segmented assets, and expenditures for long-lived assets for the Company’s reportable segments for the periods indicated below:

 

   Sanara Surgical   THP   Total   Sanara Surgical   THP   Total 
   Three Months Ended 
   September 30, 
   2024   2023 
   Sanara Surgical   THP   Total   Sanara Surgical   THP   Total 
                         
Net revenue  $21,671,599   $-   $21,671,599   $16,024,948   $-   $16,024,948 
Gross profit   19,679,612    -    19,679,612    14,273,599    -    14,273,599 
Selling, general and administrative expenses   17,420,346    1,572,909    18,993,255    13,460,404    417,475    13,877,879 
Research and development   783,840    575,690    1,359,530    225,886    760,568    986,454 
Depreciation and amortization   696,888    406,966    1,103,854    590,563    407,111    997,674 
Interest expense   927,577    -    927,577    188,294    -    188,294 
Net income (loss)   (180,488)   (2,702,564)   (2,883,052)   567,235    (1,662,184)   (1,094,949)
Segment EBITDA   2,563,521    (1,721,560)   841,961    1,400,916    (1,134,124)   266,792 
                               
Segment assets (at period end) (1)  $67,037,973   $21,507,503   $88,545,476   $45,715,495   $28,155,654   $73,871,149 
Expenditures for long-lived assets  $9,096   $-   $9,096   $170,320   $-   $170,320 

 

   Sanara Surgical   THP   Total   Sanara Surgical   THP   Total 
   Nine Months Ended 
   September 30, 
   2024   2023 
   Sanara Surgical   THP   Total   Sanara Surgical   THP   Total 
                         
Net revenue  $60,367,060   $-   $60,367,060   $47,297,299   $2,730   $47,300,029 
Gross profit (loss)   54,476,341    -    54,476,341    41,241,740    (6,235)   41,235,505 
Selling, general and administrative expenses   51,453,311    2,689,811    54,143,122    39,229,030    1,429,394    40,658,424 
Research and development   1,945,263    1,346,216    3,291,479    669,849    2,811,057    3,480,906 
Depreciation and amortization   2,093,797    1,220,984    3,314,781    1,359,180    1,221,063    2,580,243 
Interest expense   1,839,259    -    1,839,259    188,300    -    188,300 
Net income (loss)   (2,872,286)   (5,339,011)   (8,211,297)   1,181,296    (5,358,754)   (4,177,458)
Segment EBITDA   5,095,670    (3,350,104)   1,745,566    3,766,196    (4,087,858)   (321,662)
                               
Segment assets (at period end) (1)  $67,037,973   $21,507,503   $88,545,476   $45,715,495   $28,155,654   $73,871,149 
Expenditures for long-lived assets  $133,676   $-   $133,676   $210,970   $-   $210,970 

 

(1)- Segment assets for 2023 represent assets as of December 31, 2023.
SCHEDULE OF RECONCILIATION OF NET INCOME (LOSS) TO SEGMENT EBITDA FOR REPORTABLE SEGMENTS

The following tables provide a reconciliation of net income (loss) to Segment EBITDA for the Company’s reportable segments for the periods indicated below:

 

   Sanara Surgical   THP   Total   Sanara Surgical   THP   Total 
   Three Months Ended 
   September 30, 
   2024   2023 
   Sanara Surgical   THP   Total   Sanara Surgical   THP   Total 
Net Income (Loss)  $(180,488)  $(2,702,564)  $(2,883,052)  $567,235   $(1,662,184)  $(1,094,949)
Adjustments:                              
Interest expense   927,577    -    927,577    188,294    -    188,294 
Depreciation and amortization   696,888    406,966    1,103,854    590,563    407,111    997,674 
Noncash share-based compensation   1,003,599    21,831    1,025,430    813,606    43,920    857,526 
Change in fair value of earnout liabilities   -    147,000    147,000    (758,783)   77,030    (681,753)
Share of losses from equity method investment   31,448    -    31,448    -    -    - 
Executive separation costs    59,685    -    59,685    -    -    - 
Acquisition costs   24,812    405,207    430,019    -    -    - 
Segment EBITDA  $2,563,521   $(1,721,560)  $841,961   $1,400,916   $(1,134,124)  $266,792 

 

   Sanara Surgical   THP   Total   Sanara Surgical   THP   Total 
   Nine Months Ended 
   September 30, 
   2024   2023 
   Sanara Surgical   THP   Total   Sanara Surgical   THP   Total 
Net Income (Loss)  $(2,872,286)  $(5,339,011)  $(8,211,297)  $1,181,296   $(5,358,754)  $(4,177,458)
Adjustments:                              
Interest expense   1,839,259    -    1,839,259    188,300    -    188,300 
Depreciation and amortization   2,093,797    1,220,984    3,314,781    1,359,180    1,221,063    2,580,243 
Noncash share-based compensation   2,803,536    108,031    2,911,567    2,423,335    158,828    2,582,163 
Change in fair value of earnout liabilities   (14,451)   82,000   67,549   (1,385,914)   (108,996)   (1,494,910)
Share of losses from equity method investment   31,448    -    31,448    -    -    - 
Executive separation costs (1)   964,466    -    964,466    -    -    - 
Acquisition costs   249,901    577,892    827,793    -    -    - 
Segment EBITDA  $5,095,670   $(3,350,104)  $1,745,566   $3,766,196   $(4,087,858)  $(321,662)

 

(1)- Includes $328,795 of share-based compensation related to executive separation costs for the nine months ended September 30, 2024.
v3.24.3
NATURE OF BUSINESS AND BACKGROUND (Details Narrative) - Integer
6 Months Ended 9 Months Ended
Sep. 30, 2024
Sep. 30, 2024
Organization, Consolidation and Presentation of Financial Statements [Abstract]    
Number of operating segment   1
Number of reportable segment 2 1
v3.24.3
SCHEDULE OF COMPUTATION OF DILUTED NET LOSS PER SHARE (Details) - shares
9 Months Ended
Sep. 30, 2024
Sep. 30, 2023
Equity Option [Member]    
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]    
Anti-dilutive securities [1] 31,013 95,873
Warrant [Member]    
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]    
Anti-dilutive securities [2] 16,725 16,725
Unvested Restricted Stock [Member]    
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]    
Anti-dilutive securities 224,392 159,557
[1] Shares underlying stock options assumed pursuant to the merger agreement with Precision Healing, Inc. (“Precision Healing”) in April 2022.
[2] Shares underlying warrants assumed pursuant to the merger agreement with Precision Healing in April 2022.
v3.24.3
SCHEDULE OF REVENUE FROM PRODUCT SALES AND ROYALTIES (Details) - USD ($)
3 Months Ended 9 Months Ended
Sep. 30, 2024
Sep. 30, 2023
Sep. 30, 2024
Sep. 30, 2023
Product Information [Line Items]        
Total Net Revenue $ 21,671,599 $ 16,024,948 $ 60,367,060 $ 47,300,029
Soft Tissue Repair Products [Member]        
Product Information [Line Items]        
Total Net Revenue 18,863,335 13,634,316 52,586,945 39,756,539
Bone Fusion Products [Member]        
Product Information [Line Items]        
Total Net Revenue 2,808,264 2,340,382 7,779,209 7,392,740
Royalty [Member]        
Product Information [Line Items]        
Total Net Revenue $ 50,250 $ 906 $ 150,750
v3.24.3
SCHEDULE OF PROPERTY AND EQUIPMENT (Details) - USD ($)
Sep. 30, 2024
Dec. 31, 2023
Property, Plant and Equipment [Line Items]    
Property and equipment, gross $ 2,587,756 $ 2,454,080
Less accumulated depreciation (1,591,986) (1,196,124)
Property and equipment, net $ 995,770 1,257,956
Minimum [Member]    
Property, Plant and Equipment [Line Items]    
Useful life 2 years  
Maximum [Member]    
Property, Plant and Equipment [Line Items]    
Useful life 10 years  
Computer Equipment [Member]    
Property, Plant and Equipment [Line Items]    
Property and equipment, gross $ 235,388 194,788
Computer Equipment [Member] | Minimum [Member]    
Property, Plant and Equipment [Line Items]    
Useful life 3 years  
Computer Equipment [Member] | Maximum [Member]    
Property, Plant and Equipment [Line Items]    
Useful life 5 years  
Office Equipment [Member]    
Property, Plant and Equipment [Line Items]    
Property and equipment, gross $ 216,491 201,785
Office Equipment [Member] | Minimum [Member]    
Property, Plant and Equipment [Line Items]    
Useful life 3 years  
Office Equipment [Member] | Maximum [Member]    
Property, Plant and Equipment [Line Items]    
Useful life 7 years  
Furniture and Fixtures [Member]    
Property, Plant and Equipment [Line Items]    
Property and equipment, gross $ 346,508 304,338
Furniture and Fixtures [Member] | Minimum [Member]    
Property, Plant and Equipment [Line Items]    
Useful life 5 years  
Furniture and Fixtures [Member] | Maximum [Member]    
Property, Plant and Equipment [Line Items]    
Useful life 10 years  
Leasehold Improvements [Member]    
Property, Plant and Equipment [Line Items]    
Property and equipment, gross $ 170,370 134,170
Leasehold Improvements [Member] | Minimum [Member]    
Property, Plant and Equipment [Line Items]    
Useful life 2 years  
Leasehold Improvements [Member] | Maximum [Member]    
Property, Plant and Equipment [Line Items]    
Useful life 5 years  
Internal Use Software [Member]    
Property, Plant and Equipment [Line Items]    
Property and equipment, gross $ 1,618,999 $ 1,618,999
Useful life 5 years  
v3.24.3
SCHEDULE OF CHANGES IN FAIR VALUE FOR CONTINGENT EARNOUT CONSIDERATION (Details)
9 Months Ended
Sep. 30, 2024
USD ($)
Accounting Policies [Abstract]  
Balance at December 31, 2023 $ 3,823,001
Change in fair value of earnout liabilities 67,549
Revaluation of earnout liability 22,000
Balance at September 30, 2024 $ 3,912,550
v3.24.3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($)
3 Months Ended 9 Months Ended
Sep. 30, 2024
Sep. 30, 2023
Sep. 30, 2024
Sep. 30, 2023
Dec. 31, 2023
Property, Plant and Equipment [Line Items]          
Credit loss expense $ 75,000 $ 128,061 $ 230,930 $ 214,061  
Allowance for credit losses 758,960   758,960   $ 528,030
Allowance for customer rebates and deductions 5,010   5,010   3,820
Inventory obsolescence expense 96,684 152,701 356,261 222,691  
Allowance for obsolete and slow-moving inventory 466,276   466,276   $ 446,917
Depreciation expense $ 129,592 116,596 $ 395,862 332,762  
Software, estimated useful life 5 years   5 years    
Impairment of goodwill $ 0 0 $ 0 0  
Impairment of long-lived assets $ 0 $ 0 $ 0 $ 0  
Minimum [Member]          
Property, Plant and Equipment [Line Items]          
Estimated useful lives 2 years   2 years    
Maximum [Member]          
Property, Plant and Equipment [Line Items]          
Estimated useful lives 10 years   10 years    
v3.24.3
SCHEDULE OF ASSET PURCHASE CONSIDERATIONS (Details) - Applied Asset Purchase Agreement [Member]
Aug. 01, 2023
USD ($)
shares
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]  
Cash Closing Consideration $ 9,750,000
Fair value of Stock Closing Consideration $ 3,089,645
Equity Shares | shares 73,809
Fair value of Installment Payments $ 2,040,808
Cash paid for inventory 30,007
Fair value of Petito Services Agreement defined payments 825,834
Fair value of Petito Services Agreement contingent consideration 893,000
Direct transaction costs 162,743
Total purchase consideration $ 16,792,037
v3.24.3
SCHEDULE OF PURCHASE CONSIDERATION ON FAIR VALUE OF ASSETS ACQUIRED (Details) - Applied Asset Purchase Agreement [Member]
Sep. 30, 2024
USD ($)
Business Acquisition [Line Items]  
Inventory $ 30,007
Equipment 33,062
Intellectual property 16,728,968
Net assets acquired $ 16,792,037
v3.24.3
APPLIED ASSET PURCHASE (Details Narrative) - Applied Asset Purchase Agreement [Member] - USD ($)
1 Months Ended
Aug. 01, 2023
Aug. 31, 2024
Business Acquisition, Contingent Consideration [Line Items]    
Assets purchase price $ 15,250,000  
Cash consideration paid $ 9,750,000  
Shares issued as consideration 73,809  
Value of shares issued as consideration $ 3,089,645  
Installment payable 2,500,000  
Payment of installment   $ 625,000
Earnout payable $ 10,000,000.0  
Purchase agreement description As consideration for the Petito Services, the Owner is entitled to receive: (i) a base salary of $12,000 per month during the term of the Petito Services Agreement, (ii) a royalty payment equal to three percent (3%) of the actual collections from net sales of certain products the Owner develops or co-develops that reach commercialization, (iii) a royalty payment equal to five percent (5%) for the first $50.0 million in aggregate collections from net sales of certain future products and a royalty payment of two and one-half percent (2.5%) on aggregate collections from net sales of certain future products on any amounts exceeding $50.0 million but up to $100.0 million, (iv) $500,000 in cash in the event that 510(k) clearance is issued for any future product accepted by the Company and (v) $1.0 million in cash in the event that a U.S. patent is issued for a certain product; provided that with respect to the incentive payments described in (iv) and (v) of the foregoing, the Owner shall not earn more than $2.5 million.  
Cash Closing Consideration [Member]    
Business Acquisition, Contingent Consideration [Line Items]    
Cash consideration paid $ 9,750,000  
Stock Closing Consideration [Member]    
Business Acquisition, Contingent Consideration [Line Items]    
Shares issued as consideration 73,809  
Value of shares issued as consideration $ 3,000,000.0  
v3.24.3
CONVERTIBLE LOAN RECEIVABLE (Details Narrative) - USD ($)
Oct. 01, 2024
Sep. 30, 2024
Jul. 31, 2024
Dec. 31, 2023
Financing Receivable, Modified [Line Items]        
Other Receivables, Net, Current   $ 1,079,411  
Convertible Debt [Member]        
Financing Receivable, Modified [Line Items]        
Accounts and Financing Receivable, after Allowance for Credit Loss, Current     $ 1,079,391  
Extended maturity date     Oct. 01, 2024  
Other Receivables, Net, Current   $ 1,079,391    
Convertible Debt [Member] | Subsequent Event [Member]        
Financing Receivable, Modified [Line Items]        
Loans Receivable, Basis Spread on Variable Rate 8.00%      
Convertible Debt [Member] | Extended Maturity [Member]        
Financing Receivable, Modified [Line Items]        
Extended maturity date     Dec. 01, 2024  
v3.24.3
SCHEDULE OF CHANGES IN CARRYING AMOUNT OF GOODWILL (Details) - USD ($)
9 Months Ended 12 Months Ended
Sep. 30, 2024
Dec. 31, 2023
Goodwill and Intangible Assets Disclosure [Abstract]    
Balance $ 3,601,781 $ 3,601,781
Acquisitions
Balance $ 3,601,781 $ 3,601,781
v3.24.3
SCHEDULE OF CARRYING VALUE OF INTANGIBLE ASSETS (Details) - USD ($)
Sep. 30, 2024
Dec. 31, 2023
Finite-Lived Intangible Assets [Line Items]    
Net $ 42,029,142 $ 44,926,061
Patents [Member]    
Finite-Lived Intangible Assets [Line Items]    
Cost 38,592,549 38,570,549
Accumulated amortization (4,934,785) (3,181,186)
Net 33,657,764 35,389,363
Customer Relationships and Other [Member]    
Finite-Lived Intangible Assets [Line Items]    
Cost 7,947,332 7,947,332
Accumulated amortization (2,737,675) (1,861,887)
Net 5,209,657 6,085,445
Licensing Agreements [Member]    
Finite-Lived Intangible Assets [Line Items]    
Cost 4,793,879 4,793,879
Accumulated amortization (1,632,158) (1,342,626)
Net 3,161,721 3,451,253
Amortizable Intangible Assets [Member]    
Finite-Lived Intangible Assets [Line Items]    
Cost 51,333,760 51,311,760
Accumulated amortization (9,304,618) (6,385,699)
Net $ 42,029,142 $ 44,926,061
v3.24.3
SCHEDULE OF FUTURE AMORTIZATION EXPENSE (Details)
Sep. 30, 2024
USD ($)
Goodwill and Intangible Assets Disclosure [Abstract]  
Remainder of 2024 $ 972,818
2025 3,891,270
2026 3,874,015
2027 3,760,162
2028 3,726,921
2029 3,726,921
Thereafter 22,077,035
Total $ 42,029,142
v3.24.3
GOODWILL AND INTANGIBLES, NET (Details Narrative) - USD ($)
3 Months Ended 9 Months Ended
Sep. 30, 2024
Sep. 30, 2023
Sep. 30, 2024
Sep. 30, 2023
Goodwill and Intangible Assets Disclosure [Abstract]        
Weighted-average amortization period     14 years 6 months  
Amortization of intangible assets $ 974,262 $ 881,079 $ 2,918,919 $ 2,247,482
v3.24.3
SCHEDULE OF INVESTMENTS (Details) - USD ($)
Sep. 30, 2024
Dec. 31, 2023
Cost method investment $ 3,084,278 $ 3,084,278
Total Investments 8,321,412 3,084,278
ChemoMouthpiece, LLC [Member]    
Equity method investment $ 5,237,134
Economic interest 6.64%
Direct Dermatology Inc. [Member]    
Cost method investment $ 1,000,000 $ 1,000,000
Pixalere Healthcare Inc. [Member]    
Cost method investment $ 2,084,278 $ 2,084,278
v3.24.3
SCHEDULE OF LOSS FROM EQUITY METHOD INVESTMENT (Details) - USD ($)
3 Months Ended 9 Months Ended
Sep. 30, 2024
Sep. 30, 2023
Sep. 30, 2024
Sep. 30, 2023
Loss from equity method investment $ (31,448) $ (31,448)
ChemoMouthpiece, LLC [Member]        
Loss from equity method investment $ (31,448) $ (31,448)
v3.24.3
INVESTMENTS IN EQUITY SECURITIES (Details Narrative) - USD ($)
1 Months Ended 3 Months Ended 12 Months Ended
Sep. 30, 2024
Mar. 31, 2022
Jun. 30, 2021
Jul. 31, 2020
Sep. 30, 2024
Mar. 31, 2023
Dec. 31, 2021
Dec. 31, 2023
Long term investments $ 8,321,412       $ 8,321,412     $ 3,084,278
Purchase of shares, value         (75,000) $ 1,033,761    
Investments $ 8,321,412       $ 8,321,412     $ 3,084,278
Direct Dermatology Inc. [Member]                
Ownership interest 8.10%       8.10%      
Pixalere Healthcare USA LLC [Member]                
Ownership interest     27.30%          
Ownership value     $ 93,879          
ChemoMouthpiece, LLC [Member]                
Ownership interest 6.64%       6.64%      
Series B-2 Preferred Shares [Member] | Direct Dermatology Inc. [Member]                
Ownership interest       2.90%        
Direct Dermatology Inc. [Member] | Series B-2 Preferred Shares [Member]                
Long term investments       $ 500,000        
Number of shares purchased   3,571,429   7,142,857     3,571,430  
Purchase of shares, value   $ 250,000         $ 250,000  
Pixalere Healthcare Inc. [Member] | Class A Preferred Shares [Member]                
Number of shares purchased     278,587          
Investments     $ 2,084,278          
Conversion rate     27.30%          
ChemoMouthpiece, LLC [Member] | Common Units [Member]                
Number of shares purchased 100,674.72              
Purchase of shares, value $ 5,000,000.0              
v3.24.3
SCHEDULE OF OPERATING LEASE LIABILITY (Details) - USD ($)
Sep. 30, 2024
Dec. 31, 2023
Operating Leases    
Remainder of 2024 $ 142,525  
2025 532,053  
2026 379,529  
2027 297,947  
2028 295,689  
2029 300,158  
Thereafter 303,892  
Total lease payments 2,251,793  
Less imputed interest (405,500)  
Present Value of Lease Liabilities 1,846,293  
Operating lease liabilities – current 439,129 $ 361,185
Operating lease liabilities – long-term $ 1,407,164 $ 1,737,445
v3.24.3
OPERATING LEASES (Details Narrative) - USD ($)
3 Months Ended 9 Months Ended
Sep. 30, 2024
Sep. 30, 2023
Sep. 30, 2024
Sep. 30, 2023
Dec. 31, 2023
Property, Plant and Equipment [Line Items]          
Operating lease right of use assets $ 1,688,963   $ 1,688,963   $ 1,995,204
Operating lease liability 1,846,293   1,846,293    
Operating lease expense $ 121,126 $ 110,693 416,394 $ 295,268  
Operating lease payments     $ 362,491 $ 264,291  
Weighted average remaining lease term 5 years 4 months 24 days   5 years 4 months 24 days    
Weighted average discount rate 7.66%   7.66%    
Office Space One [Member]          
Property, Plant and Equipment [Line Items]          
Remaining lease term 75 months   75 months    
Office Space Two [Member]          
Property, Plant and Equipment [Line Items]          
Remaining lease term 11 months   11 months    
Office Space Three [Member]          
Property, Plant and Equipment [Line Items]          
Remaining lease term 28 months   28 months    
v3.24.3
SCHEDULE OF LONG-TERM DEBT (Details) - USD ($)
Sep. 30, 2024
Dec. 31, 2023
Short-Term Debt [Line Items]    
Debt $ 31,143,756 $ 9,750,000
Less: unamortized debt issuance costs (1,067,041) (56,520)
Debt, net of debt issuance costs 30,076,715 9,693,480
Less: Current portion of debt 580,357
Long-term debt, net of current portion 30,076,715 9,113,123
CRG Term Loan [Member]    
Short-Term Debt [Line Items]    
Debt 30,500,000
Paid-in-kind Interest [Member]    
Short-Term Debt [Line Items]    
Debt 424,067
Back-end Fee [Member]    
Short-Term Debt [Line Items]    
Debt 219,689
Cadence Term Loan [Member]    
Short-Term Debt [Line Items]    
Debt $ 9,750,000
v3.24.3
SCHEDULE OF MATURITIES OUTSTANDING (Details) - USD ($)
Sep. 30, 2024
Dec. 31, 2023
Debt Disclosure [Abstract]    
Remainder of 2024  
2026  
2027  
2028  
Thereafter 31,143,756  
Total debt $ 31,143,756 $ 9,750,000
v3.24.3
DEBT AND CREDIT FACILITIES (Details Narrative) - USD ($)
3 Months Ended 9 Months Ended
Sep. 04, 2024
Apr. 17, 2024
Sep. 30, 2024
Sep. 30, 2023
Sep. 30, 2024
Sep. 30, 2023
Aug. 01, 2024
Dec. 31, 2023
Aug. 01, 2023
Short-Term Debt [Line Items]                  
Interest paid-in-kind         $ 424,067      
Interest expense related to back-end fee     $ 927,577 $ 188,294 1,839,259 188,300      
Minimum cash balance     3,000,000.0   3,000,000.0        
Annual minimum revenue, year one         60,000,000.0        
Annual minimum revenue, year two         75,000,000.0        
Annual minimum revenue, year three         85,000,000.0        
Annual minimum revenue, year four         95,000,000.0        
Annual minimum revenue, year five         105,000,000.0        
Unamortized debt issuance costs     1,067,041   1,067,041     $ 56,520  
Amortization expense of debt issuance costs         150,219 $ 2,055      
CRG Term Loan [Member]                  
Short-Term Debt [Line Items]                  
Debt issuance costs     1,160,740   1,160,740        
Increase in debt issuance costs     273,487            
Cadence Term Loan [Member]                  
Short-Term Debt [Line Items]                  
Write-off of debt issuance costs         56,520        
CRG Term Loan Agreement [Member]                  
Short-Term Debt [Line Items]                  
Secured term loan   $ 55,000,000.0              
Loans borrowed $ 15,500,000 15,000,000.0              
Remaining amount available for borrowing   $ 40,000,000.0              
Borrowing capacity description   each such borrowing must be at least $5.0 million or a multiple of $5.0 million and occur between the Closing Date and June 30, 2025,              
Proceeds from loans used for investment $ 5,000,000.0                
Debt maturity date Mar. 30, 2029                
Interest rate per annum   13.25%              
Incremental increase during an event of default   4.00%              
Cash paid percentage   8.00%              
Paid-in-kind and aggregate principal loan amount, percentage   5.25%              
Debt upfront fee percentage   1.50%              
Debt instrument back-end fee percentage   7.00%              
Interest paid     399,532   646,199        
Interest paid-in-kind     262,193   424,068        
Debt instrument rate description   (i) if prepayment occurs on or prior to the date that is one year following the applicable borrowing (the “Borrowing Date”), an amount equal to 10.0% of the aggregate outstanding principal amount of the CRG Term Loan being prepaid and (ii) if prepayment occurs one year after the applicable Borrowing Date and on or prior to two years following the applicable Borrowing Date, an amount equal to 5.0% of the aggregate outstanding principal amount of the CRG Term Loan being prepaid.              
CRG Term Loan Agreement [Member] | Back-end Fee [Member]                  
Short-Term Debt [Line Items]                  
Interest expense related to back-end fee     $ 167,189   219,689        
Cadence Term Loan Agreement [Member]                  
Short-Term Debt [Line Items]                  
Principal amount                 $ 12,000,000.0
Loan percentage used for acquisition                 100.00%
Loan bank advance                 $ 9,750,000
Bank, interest rate             3.00%    
Interest rate on advances               8.30%  
Interest expense         $ 53,438        
v3.24.3
COMMITMENTS AND CONTINGENCIES (Details Narrative) - USD ($)
1 Months Ended 3 Months Ended 9 Months Ended 12 Months Ended
Jan. 01, 2024
Dec. 20, 2023
Aug. 01, 2023
Aug. 27, 2018
Oct. 31, 2024
Aug. 31, 2023
Jul. 31, 2022
Apr. 30, 2022
May 31, 2020
Oct. 31, 2019
Jul. 31, 2019
Sep. 30, 2024
Sep. 30, 2023
Sep. 30, 2024
Sep. 30, 2023
Dec. 31, 2025
Apr. 04, 2022
Apr. 30, 2020
Loss Contingencies [Line Items]                                    
Payment in cash                         $ 3,089,645          
Options to acquire shares                                  
Cost of Sales [Member]                                    
Loss Contingencies [Line Items]                                    
Payment for additional royalties                       9,209 $ 1,060,035      
Sub License Agreement [Member]                                    
Loss Contingencies [Line Items]                                    
License agreement and royalties description       In August 2018, the Company entered an exclusive, world-wide sublicense agreement with CGI Cellerate RX to distribute certain hydrolyzed collagen products, including CellerateRX Surgical, into the surgical and wound care markets. Pursuant to the Sublicense Agreement, the Company paid royalties of 3-5% of annual collected net sales of these products. As amended in January 2021, the term of the sublicense was extended through May 2050, with automatic successive year-to-year renewal terms thereafter so long as the Company’s Net Sales (as defined in the Sublicense Agreement) each year are equal to or in excess of $1,000,000. If the Company’s Net Sales fall below $1,000,000 for any year after the expiration date, CGI Cellerate RX has the right to terminate the Sublicense Agreement upon written notice.                            
BIAKOS License Agreement [Member]                                    
Loss Contingencies [Line Items]                                    
Payment for additional royalties                       $ 36,602 $ 32,499 113,907 $ 97,499      
BIAKOS License Agreement [Member] | Rochal Industries LLC [Member] | Minimum [Member]                                    
Loss Contingencies [Line Items]                                    
Royalty percentage                     2.00%              
Annual royalty                           $ 146,410        
BIAKOS License Agreement [Member] | Rochal Industries LLC [Member] | Maximum [Member]                                    
Loss Contingencies [Line Items]                                    
Royalty percentage                     4.00%              
BIAKOS License Agreement [Member] | Rochal Industries LLC [Member] | Maximum [Member] | Forecast [Member]                                    
Loss Contingencies [Line Items]                                    
Annual royalty                               $ 150,000    
BIAKOS Agreement [Member] | Maximum [Member]                                    
Loss Contingencies [Line Items]                                    
Payment for additional royalties                     $ 1,000,000              
ABF License Agreement [Member]                                    
Loss Contingencies [Line Items]                                    
Increase in royalty annual percentage                   10.00%                
ABF License Agreement [Member] | Minimum [Member]                                    
Loss Contingencies [Line Items]                                    
Payment for additional royalties                   $ 50,000                
Royalty percentage                   2.00%                
ABF License Agreement [Member] | Maximum [Member]                                    
Loss Contingencies [Line Items]                                    
Payment for additional royalties                   $ 75,000                
Royalty percentage                   4.00%                
ABF License Agreement [Member] | Maximum [Member] | Product and Service, Other [Member]                                    
Loss Contingencies [Line Items]                                    
Payment for additional royalties                   $ 500,000                
Debrider License Agreement [Member]                                    
Loss Contingencies [Line Items]                                    
Increase in royalty annual percentage                 10.00%                  
Payment of cash                 $ 1,000,000                  
Debrider License Agreement [Member] | Rochal [Member]                                    
Loss Contingencies [Line Items]                                    
Cash                 $ 500,000                  
Debrider License Agreement [Member] | Minimum [Member]                                    
Loss Contingencies [Line Items]                                    
Royalty percentage                 2.00%                  
Annual royalty                 $ 100,000                  
Debrider License Agreement [Member] | Maximum [Member]                                    
Loss Contingencies [Line Items]                                    
Royalty percentage                 4.00%                  
Annual royalty                 $ 150,000                  
Payment for additional royalties                 $ 1,000,000                  
Precision Healing Merger Agreement [Member]                                    
Loss Contingencies [Line Items]                                    
Cash consideration               $ 125,966                    
Payment in cash               $ 600,000                    
Share price               $ 27.13                 $ 30.75 $ 27.13
Options to acquire shares               144,191                    
Weighted exercise price               $ 10.71                    
Contingent consideration payments receivable               $ 10,000,000.0                    
Precision Healing Merger Agreement [Member] | Warrant [Member]                                    
Loss Contingencies [Line Items]                                    
Warrants to purchase shares               4,424                    
Exercise price               $ 7.32                    
Expiration date               Apr. 22, 2031                    
Precision Healing Merger Agreement [Member] | Warrant One [Member]                                    
Loss Contingencies [Line Items]                                    
Warrants to purchase shares               12,301                    
Exercise price               $ 12.05                    
Expiration date               Aug. 10, 2030                    
Precision Healing Merger Agreement [Member] | Accredited Investors [Member]                                    
Loss Contingencies [Line Items]                                    
Issuance of shares               165,738                    
Scendia Purchase Agreement [Member]                                    
Loss Contingencies [Line Items]                                    
Cash             $ 1,600,000                      
Acquisition consideration transferred             $ 7,600,000                      
Issuance of common stock for purchase of assets             291,686                      
Number of shares withheld             94,798                      
Earnout consideration             $ 10,000,000.0                      
Number of shares issuable             486,145                      
Earnout payment           $ 693,000                        
Assets purchase price             $ 7,600,000                      
Scendia Purchase Agreement [Member] | Subsequent Event [Member]                                    
Loss Contingencies [Line Items]                                    
Earnout payment         $ 1,100,000                          
Applied Asset Purchase Agreement [Member]                                    
Loss Contingencies [Line Items]                                    
Cash consideration     $ 16,792,037                              
Contingent consideration payments receivable     $ 893,000                              
Issuance of common stock for purchase of assets     73,809                              
Assets purchase price     $ 15,250,000                              
Purchase agreement description     As consideration for the Petito Services, the Owner is entitled to receive: (i) a base salary of $12,000 per month during the term of the Petito Services Agreement, (ii) a royalty payment equal to three percent (3%) of the actual collections from net sales of certain products the Owner develops or co-develops that reach commercialization, (iii) a royalty payment equal to five percent (5%) for the first $50.0 million in aggregate collections from net sales of certain future products and a royalty payment of two and one-half percent (2.5%) on aggregate collections from net sales of certain future products on any amounts exceeding $50.0 million but up to $100.0 million, (iv) $500,000 in cash in the event that 510(k) clearance is issued for any future product accepted by the Company and (v) $1.0 million in cash in the event that a U.S. patent is issued for a certain product; provided that with respect to the incentive payments described in (iv) and (v) of the foregoing, the Owner shall not earn more than $2.5 million.                              
Services Agreement [Member]                                    
Loss Contingencies [Line Items]                                    
Purchase agreement description     As consideration for the Petito Services, the Owner is entitled to receive: (i) a base salary of $12,000 per month during the term of the Petito Services Agreement, (ii) a royalty payment equal to three percent (3%) of the actual collections from net sales of certain products the Owner develops or codevelops that reach commercialization, (iii) a royalty payment equal to five percent (5%) for the first $50.0 million in aggregate collections from net sales of certain future products and a royalty payment of two and one-half percent (2.5%) on aggregate collections from net sales of certain future products on any amounts exceeding $50.0 million but up to $100.0 million, (iv) $500,000 in cash in the event that 510(k) clearance is issued for any future product accepted by the Company and (v) $1.0 million in cash in the event that a U.S. patent is issued for a certain product; provided that with respect to the incentive payments described in (iv) and (v) of the foregoing, the Owner shall not earn more than $2.5 million.                              
License Agreement [Member]                                    
Loss Contingencies [Line Items]                                    
Payment for additional royalties $ 50,000                                  
Outstanding units percentage   10.00%                                
License Agreement [Member] | Royalty Agreement Terms [Member]                                    
Loss Contingencies [Line Items]                                    
Payment for additional royalties $ 100,000                                  
License Agreement [Member] | Minimum [Member]                                    
Loss Contingencies [Line Items]                                    
Royalty expense percentage   1.50%                                
License Agreement [Member] | Maximum [Member]                                    
Loss Contingencies [Line Items]                                    
Royalty expense percentage   3.00%                                
v3.24.3
SUMMARY OF RESTRICTED STOCK ACTIVITY (Details) - Restricted Stock Units (RSUs) [Member]
9 Months Ended
Sep. 30, 2024
$ / shares
shares
Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items]  
Non-vested shares, beginning | shares 144,211
Weighted average grant date fair value, beginning | $ / shares $ 34.07
Granted | shares 190,240
Weighted average grant date fair value, granted | $ / shares $ 35.03
Vested | shares (84,407)
Weighted average grant date fair value, vested | $ / shares $ 33.26
Forfeited | shares (25,652)
Weighted average grant date fair value, forfeited | $ / shares $ 35.02
Non-vested shares, ending | shares 224,392
Weighted average grant date fair value, ending | $ / shares $ 35.08
v3.24.3
SCHEDULE OF STOCK OPTION ACTIVITY (Details)
9 Months Ended
Sep. 30, 2024
USD ($)
$ / shares
shares
Equity [Abstract]  
Options outstanding, beginning | shares 93,892
Weighted average exercise price outstanding, beginning | $ / shares $ 10.22
Options, Granted or assumed | shares
Weighted average exercise price, Granted or assumed | $ / shares
Options, Exercised | shares (62,879)
Weighted average exercise price, Exercised | $ / shares $ 10.05
Options, Forfeited | shares
Weighted average exercise price, Forfeited | $ / shares
Options, Expired | shares
Weighted average exercise price, Expired | $ / shares
Options outstanding, ending | shares 31,013
Weighted average exercise price outstanding, ending | $ / shares $ 10.57
Weighted average remaining contract life outstanding 6 years 1 month 6 days
Aggregate intrinsic value, ending | $ $ 547,530.6
Options exercisable, ending | shares 31,013
Weighted average exercise price exercisable, ending | $ / shares $ 10.57
Weighted average remaining contract life exercisable 6 years 1 month 6 days
Aggregate intrinsic value, exercisable | $ $ 547,530.6
v3.24.3
SCHEDULE OF WARRANTS TO PURCHASE COMMON STOCK (Details)
9 Months Ended
Sep. 30, 2024
$ / shares
shares
Equity [Abstract]  
Number of warrants outstanding, beginning | shares 16,725
Weighted average exercise price outstanding, beginning | $ / shares $ 10.80
Number of warrants, granted | shares
Weighted average exercise price, granted | $ / shares
Number of warrants, exercised | shares
Weighted average exercise price, exercised | $ / shares
Number of warrants, forfeited | shares
Weighted average exercise price, forfeited | $ / shares
Number of warrants, expired | shares
Weighted average exercise price, expired | $ / shares
Number of warrants outstanding, ending | shares 16,725
Weighted average exercise price outstanding, ending | $ / shares $ 10.80
Weighted average remaining contract life outstanding 6 years
Number of warrants exercisable, ending | shares 16,725
Weighted average exercise price, exercisable, ending | $ / shares $ 10.80
Weighted average remaining contract life exercisable, ending 6 years
v3.24.3
SHAREHOLDERS’ EQUITY (Details Narrative) - USD ($)
1 Months Ended 3 Months Ended 9 Months Ended 12 Months Ended
Sep. 30, 2024
Aug. 01, 2023
Oct. 31, 2024
Aug. 31, 2023
Feb. 28, 2023
Jul. 31, 2022
Apr. 30, 2022
Sep. 30, 2024
Sep. 30, 2023
Mar. 31, 2023
Sep. 30, 2024
Sep. 30, 2023
Dec. 31, 2023
Jun. 12, 2024
Apr. 04, 2022
Apr. 30, 2020
Accumulated Other Comprehensive Income (Loss) [Line Items]                                
Payment in cash                 $ 3,089,645              
Options to acquire shares                              
Number of shares issued, value               $ (75,000)   $ 1,033,761            
Share-based compensation expense                     $ 3,240,362 $ 2,582,163        
Restricted Stock Units (RSUs) [Member]                                
Accumulated Other Comprehensive Income (Loss) [Line Items]                                
Share-based compensation expense               1,025,430 $ 857,526   3,240,361 $ 2,582,163        
Unrecognized share-based compensation expense $ 5,403,255             5,403,255     $ 5,403,255          
Unrecognized share-based compensation expense period for recognition                     8 months 12 days          
Common Stock [Member]                                
Accumulated Other Comprehensive Income (Loss) [Line Items]                                
Accredited investors shares                 73,809              
Payment in cash                 $ 74              
Sale of stock                   26,143            
Number of shares issued, value                 $ 26            
Precision Healing Merger Agreement [Member]                                
Accumulated Other Comprehensive Income (Loss) [Line Items]                                
Cash consideration             $ 125,966                  
Payment in cash             $ 600,000                  
Share price             $ 27.13               $ 30.75 $ 27.13
Options to acquire shares             144,191                  
Weighted exercise price             $ 10.71                  
Payment of contingent consideration             $ 10,000,000.0                  
Precision Healing Merger Agreement [Member] | Warrant [Member]                                
Accumulated Other Comprehensive Income (Loss) [Line Items]                                
Warrants to purchase shares             4,424                  
Exercise price             $ 7.32                  
Expiration date             Apr. 22, 2031                  
Precision Healing Merger Agreement [Member] | Warrant One [Member]                                
Accumulated Other Comprehensive Income (Loss) [Line Items]                                
Warrants to purchase shares             12,301                  
Exercise price             $ 12.05                  
Expiration date             Aug. 10, 2030                  
Precision Healing Merger Agreement [Member] | Accredited Investors [Member]                                
Accumulated Other Comprehensive Income (Loss) [Line Items]                                
Accredited investors shares             165,738                  
Scendia Purchase Agreement [Member]                                
Accumulated Other Comprehensive Income (Loss) [Line Items]                                
Purchase price           $ 7,600,000                    
Cash           $ 1,600,000                    
Equity Shares           291,686                    
Number of shares withheld           94,798                    
Cash consideration           $ 10,000,000.0                    
Number of shares           486,145                    
Earnout payment       $ 693,000                        
Scendia Purchase Agreement [Member] | Subsequent Event [Member]                                
Accumulated Other Comprehensive Income (Loss) [Line Items]                                
Earnout payment     $ 1,100,000                          
Sales Agreement [Member] | Cantor Fitzgerald & Co [Member]                                
Accumulated Other Comprehensive Income (Loss) [Line Items]                                
Percentage of commissions payable to sales agent         3.00%                      
Sales Agreement [Member] | Cantor Fitzgerald & Co [Member] | Maximum [Member]                                
Accumulated Other Comprehensive Income (Loss) [Line Items]                                
Sale of stock, consideration received on transaction         $ 75,000,000                      
Sales Agreement [Member] | Common Stock [Member]                                
Accumulated Other Comprehensive Income (Loss) [Line Items]                                
Sale of stock                         26,143      
Number of shares issued, value                         $ 1,100,000      
Net proceeds                         $ 900,000      
Applied Asset Purchase Agreement [Member]                                
Accumulated Other Comprehensive Income (Loss) [Line Items]                                
Cash consideration   $ 16,792,037                            
Payment of contingent consideration   893,000                            
Purchase price   $ 15,250,000                            
Equity Shares   73,809                            
2024 Omnibus Long-Term Incentive Plan [Member]                                
Accumulated Other Comprehensive Income (Loss) [Line Items]                                
Maximum number of shares available for grant                           1,000,000    
Number of shares issued 745,085                              
Number of shares available for issuance 1,000,000             1,000,000     1,000,000          
2024 Omnibus Long-Term Incentive Plan [Member] | Restricted Stock Units (RSUs) [Member]                                
Accumulated Other Comprehensive Income (Loss) [Line Items]                                
Restricted stock awards granted and issued                     164,588          
Restricted stock awards granted and issued, fair value                     $ 5,765,952          
v3.24.3
RELATED PARTIES (Details Narrative) - USD ($)
1 Months Ended 3 Months Ended 9 Months Ended
Jul. 31, 2021
Jan. 31, 2021
Sep. 30, 2024
Sep. 30, 2023
Sep. 30, 2024
Sep. 30, 2023
Consulting Agreement [Member] | Ms Salamone [Member]            
Related Party Transaction [Line Items]            
Consulting fee $ 177,697          
CellerateRx Sublicense Agreement [Member]            
Related Party Transaction [Line Items]            
Net sale   $ 1,000,000        
Services Agreement [Member]            
Related Party Transaction [Line Items]            
Cost and expenses related party     $ 49,829 $ 44,032 $ 163,101 $ 117,018
v3.24.3
SCHEDULE OF OPERATIONS, ASSETS AND CAPITAL EXPENDITURES FOR OUR BUSINESS SEGMENTS (Details) - USD ($)
3 Months Ended 9 Months Ended
Sep. 30, 2024
Jun. 30, 2024
Mar. 31, 2024
Sep. 30, 2023
Jun. 30, 2023
Mar. 31, 2023
Sep. 30, 2024
Sep. 30, 2023
Segment Reporting Information [Line Items]                
Net revenue $ 21,671,599     $ 16,024,948     $ 60,367,060 $ 47,300,029
Gross profit (loss) 19,679,612     14,273,599     54,476,341 41,235,505
Selling, general and administrative expenses 18,993,255     13,877,879     54,143,122 40,658,424
Research and development 1,359,530     986,454     3,291,479 3,480,906
Depreciation and amortization 1,103,854     997,674     3,314,781 2,580,243
Interest expense 927,577     188,294     1,839,259 188,300
Net income (loss) (2,883,052) $ (3,529,202) $ (1,799,043) (1,094,949) $ (1,866,180) $ (1,216,329) (8,211,297) (4,177,458)
Segment EBITDA 841,961     266,792     1,745,566 (321,662)
Segment assets (at period end) [1] 88,545,476     73,871,149     88,545,476 73,871,149
Expenditures for long-lived assets 9,096     170,320     133,676 210,970
Sanara Surgical [Member]                
Segment Reporting Information [Line Items]                
Net revenue 21,671,599     16,024,948     60,367,060 47,297,299
Gross profit (loss) 19,679,612     14,273,599     54,476,341 41,241,740
Selling, general and administrative expenses 17,420,346     13,460,404     51,453,311 39,229,030
Research and development 783,840     225,886     1,945,263 669,849
Depreciation and amortization 696,888     590,563     2,093,797 1,359,180
Interest expense 927,577     188,294     1,839,259 188,300
Net income (loss) (180,488)     567,235     (2,872,286) 1,181,296
Segment EBITDA 2,563,521     1,400,916     5,095,670 3,766,196
Segment assets (at period end) [1] 67,037,973     45,715,495     67,037,973 45,715,495
Expenditures for long-lived assets 9,096     170,320     133,676 210,970
THP [Member]                
Segment Reporting Information [Line Items]                
Net revenue         2,730
Gross profit (loss)         (6,235)
Selling, general and administrative expenses 1,572,909     417,475     2,689,811 1,429,394
Research and development 575,690     760,568     1,346,216 2,811,057
Depreciation and amortization 406,966     407,111     1,220,984 1,221,063
Interest expense        
Net income (loss) (2,702,564)     (1,662,184)     (5,339,011) (5,358,754)
Segment EBITDA (1,721,560)     (1,134,124)     (3,350,104) (4,087,858)
Segment assets (at period end) [1] 21,507,503     28,155,654     21,507,503 28,155,654
Expenditures for long-lived assets        
[1] - Segment assets for 2023 represent assets as of December 31, 2023.
v3.24.3
SCHEDULE OF RECONCILIATION OF NET INCOME (LOSS) TO SEGMENT EBITDA FOR REPORTABLE SEGMENTS (Details) - USD ($)
3 Months Ended 9 Months Ended
Sep. 30, 2024
Jun. 30, 2024
Mar. 31, 2024
Sep. 30, 2023
Jun. 30, 2023
Mar. 31, 2023
Sep. 30, 2024
Sep. 30, 2023
Segment Reporting Information [Line Items]                
Net Income (Loss) $ (2,883,052) $ (3,529,202) $ (1,799,043) $ (1,094,949) $ (1,866,180) $ (1,216,329) $ (8,211,297) $ (4,177,458)
Interest expense 927,577     188,294     1,839,259 188,300
Depreciation and amortization 1,103,854     997,674     3,314,781 2,580,243
Noncash share-based compensation 1,025,430     857,526     2,911,567 2,582,163
Change in fair value of earnout liabilities 147,000     (681,753)     67,549 (1,494,910)
Share of losses from equity method investment 31,448         31,448
Executive separation costs 59,685         964,466 [1] [1]
Acquisition costs 430,019         827,793
Segment EBITDA 841,961     266,792     1,745,566 (321,662)
Sanara Surgical [Member]                
Segment Reporting Information [Line Items]                
Net Income (Loss) (180,488)     567,235     (2,872,286) 1,181,296
Interest expense 927,577     188,294     1,839,259 188,300
Depreciation and amortization 696,888     590,563     2,093,797 1,359,180
Noncash share-based compensation 1,003,599     813,606     2,803,536 2,423,335
Change in fair value of earnout liabilities     (758,783)     (14,451) (1,385,914)
Share of losses from equity method investment 31,448         31,448
Executive separation costs 59,685         964,466 [1] [1]
Acquisition costs 24,812         249,901
Segment EBITDA 2,563,521     1,400,916     5,095,670 3,766,196
THP [Member]                
Segment Reporting Information [Line Items]                
Net Income (Loss) (2,702,564)     (1,662,184)     (5,339,011) (5,358,754)
Interest expense        
Depreciation and amortization 406,966     407,111     1,220,984 1,221,063
Noncash share-based compensation 21,831     43,920     108,031 158,828
Change in fair value of earnout liabilities 147,000     77,030     82,000 (108,996)
Share of losses from equity method investment        
Executive separation costs         [1] [1]
Acquisition costs 405,207         577,892
Segment EBITDA $ (1,721,560)     $ (1,134,124)     $ (3,350,104) $ (4,087,858)
[1] - Includes $328,795 of share-based compensation related to executive separation costs for the nine months ended September 30, 2024.
v3.24.3
SCHEDULE OF RECONCILIATION OF NET INCOME (LOSS) TO SEGMENT EBITDA FOR REPORTABLE SEGMENTS (Details) (Parenthetical)
9 Months Ended
Sep. 30, 2024
USD ($)
Segment Reporting [Abstract]  
Share based compensation related to executive separation costs $ 328,795
v3.24.3
SEGMENT REPORTING (Details Narrative) - Integer
6 Months Ended 9 Months Ended
Sep. 30, 2024
Sep. 30, 2024
Segment Reporting [Abstract]    
Number of operating segment   1
Number of reportable segment 2 1

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