UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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
(Exact name of Registrant as specified in its charter)
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) |
(Address of principal executive offices)
(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 | ||
| The |
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. ☒
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). ☒
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 | 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 May 13, 2025, shares of the Issuer’s common stock, $ par value per share, were issued and outstanding.
SANARA MEDTECH INC.
Form 10-Q
Quarter Ended March 31, 2025
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) | ||||||||
| March 31, 2025 | December 31, 2024 | |||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Accounts receivable – related parties | ||||||||
| Inventory, net | ||||||||
| Convertible loan receivable | ||||||||
| Prepaid and other assets | ||||||||
| Total current assets | ||||||||
| Long-term assets | ||||||||
| Intangible assets, net | ||||||||
| Goodwill | ||||||||
| Investment in equity securities | ||||||||
| Right of use assets – operating leases | ||||||||
| Property and equipment, net | ||||||||
| Total long-term assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and shareholders’ equity | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Accounts payable – related parties | ||||||||
| Accrued bonuses and commissions | ||||||||
| Accrued royalties and expenses | ||||||||
| Operating lease liabilities – current | ||||||||
| Total current liabilities | ||||||||
| Long-term liabilities | ||||||||
| Long-term debt | ||||||||
| Earnout liabilities – long-term | ||||||||
| Operating lease liabilities – long-term | ||||||||
| Other long-term liabilities | ||||||||
| Total long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 8) | ||||||||
| Shareholders’ equity | ||||||||
| Common Stock: $ par value, shares authorized; issued and outstanding as of March 31, 2025 and issued and outstanding as of December 31, 2024 | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Sanara MedTech shareholders’ equity | ||||||||
| Equity attributable to noncontrolling interest | ( | ) | ( | ) | ||||
| Total shareholders’ equity | ||||||||
| Total liabilities and shareholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| 3 |
SANARA MEDTECH INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Net Revenue | $ | $ | ||||||
| Cost of goods sold | ||||||||
| Gross profit | ||||||||
| Operating expenses | ||||||||
| Selling, general and administrative | ||||||||
| Research and development | ||||||||
| Depreciation and amortization | ||||||||
| Change in fair value of earnout liabilities | ( | ) | ||||||
| Total operating expenses | ||||||||
| Operating loss | ( | ) | ( | ) | ||||
| Other income (expense) | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Share of losses from equity method investments | ( | ) | ||||||
| Interest income | ||||||||
| Gain on disposal of property and equipment | ||||||||
| Total other income (expense) | ( | ) | ( | ) | ||||
| Net loss | ( | ) | ( | ) | ||||
| Less: Net loss attributable to noncontrolling interest | ( | ) | ( | ) | ||||
| Net loss attributable to Sanara MedTech shareholders | $ | ( | ) | $ | ( | ) | ||
| Net loss per share of common stock, basic and diluted | $ | ) | $ | ) | ||||
| Weighted average number of common shares outstanding, basic and diluted | ||||||||
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)
Common Stock $0.001 par value | Additional Paid-In | Accumulated | Noncontrolling | Total Shareholders’ | ||||||||||||||||||||
| Shares | Amount | Capital | Deficit | Interest | Equity | |||||||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| Share-based compensation | ||||||||||||||||||||||||
| Net settlement and retirement of equity-based awards | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Net loss | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||
| Balance at March 31, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
Common Stock $0.001 par value | Additional Paid-In | Accumulated | Noncontrolling | Total Shareholders’ | ||||||||||||||||||||
| Shares | Amount | Capital | Deficit | Interest | Equity | |||||||||||||||||||
| Balance at December 31, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| Share-based compensation | ||||||||||||||||||||||||
| Change in noncontrolling interest | - | ( | ) | ( | ) | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||
| Balance at March 31, 2025 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
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)
| Three Months Ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Gain on disposal of property and equipment | ( | ) | ||||||
| Credit loss expense | ||||||||
| Inventory obsolescence | ||||||||
| Share-based compensation | ||||||||
| Noncash lease expense | ||||||||
| Share of losses from equity method investments | ||||||||
| Back-end fee | ||||||||
| Paid-in-kind interest | ||||||||
| Accretion of finance liabilities | ||||||||
| Amortization and write-off of debt issuance costs | ||||||||
| Change in fair value of earnout liabilities | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable, net | ( | ) | ||||||
| Accounts receivable – related parties | ( | ) | ( | ) | ||||
| Inventory, net | ( | ) | ||||||
| Prepaid and other assets | ( | ) | ||||||
| Accounts payable | ( | ) | ||||||
| Accounts payable – related parties | ||||||||
| Accrued royalties and expenses | ||||||||
| Accrued bonuses and commissions | ( | ) | ( | ) | ||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| Proceeds from disposal of property and equipment | ||||||||
| Investment in equity securities | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Loan proceeds, net of debt issuance costs of $ | ||||||||
| Net settlement of equity-based awards | ( | ) | ||||||
| Cash payment of finance and earnout liabilities | ( | ) | ( | ) | ||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||
| Net increase (decrease) in cash | ( | ) | ||||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | $ | ||||||
| Supplemental noncash investing and financing activities: | ||||||||
| Nonmonetary exchange to acquire intangible assets | ||||||||
| Conversion of note receivable into equity method investment | ||||||||
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. Through its two operating segments, Sanara Surgical and Tissue Health Plus (“THP”), 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.
As further discussed in Note 11, 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 a change in the manner in which the business is managed. Based on the Company’s growing investment in the value-based wound care strategy and how the Company’s chief operating decision maker, the Chief Executive Officer, reviews operating results and makes decisions about resource allocation, the Company 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”), a hydrolyzed collagen that provides a moist environment for surgical sites to aid in the natural wound healing process, and BIASURGE Advanced Surgical Solution, a sterile no-rinse, advanced surgical solution used for wound irrigation. Sanara Surgical’s bone fusion products include, among other products, BiFORM, an osteoconductive, bioactive, porous implant that allows for bony ingrowth across the graft site, and ALLOCYTE Plus, 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
Through the Company’s subsidiary, Tissue Health Plus (formerly known as “WounDerm” and “United Wound and Skin Solutions, LLC”), the Company is seeking to simplify skin health, starting with wound care through a unique strategy. 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 primary care companies.
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. The Company is preparing to launch its first pilot program with a wound care provider group during the second quarter of 2025.
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, 2024 and 2023, 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.
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 months ended March 31, 2025 and 2024 due to the Company’s net loss.
| As of March 31, | ||||||||
| 2025 | 2024 | |||||||
| Stock options(a) | ||||||||
| Warrants(b) | ||||||||
| Unvested restricted stock | ||||||||
| (a) |
| (b) |
| 8 |
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 2025 or 2024.
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. For certain sales transactions, we incur group purchasing organization fees that are based on a contractual percentage of applicable sales and are recorded as a reduction of the revenue for those transactions.
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 are summarized below for the three months ended March 31, 2025 and 2024.
| Three Months Ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Soft tissue repair products | $ | $ | ||||||
| Bone fusion products | ||||||||
| Total Net Revenue | $ | $ | ||||||
| 9 |
For the three months ended March 31, 2025 and 2024, all of the Company’s net revenue was generated from Sanara Surgical. The Company is preparing to launch the first THP pilot program with a wound care provider group during the second quarter of 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’s accounts receivable balance, net was $, $, and $ as of March 31, 2025, December 31, 2024,
and December 31, 2023, respectively. The Company recorded credit loss expense of $
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 $
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
to
Useful Life | March 31, 2025 | December 31, 2024 | ||||||||
| Computers | $ | $ | ||||||||
| Office equipment | ||||||||||
| Furniture and fixtures | ||||||||||
| Leasehold improvements | ||||||||||
| Internal use software (in development) | ||||||||||
| Property and equipment, gross | ||||||||||
| Less accumulated depreciation | ( | ) | ( | ) | ||||||
| Property and equipment, net | $ | $ | ||||||||
Depreciation expense related to property and equipment
was $
| 10 |
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 (“ASC 350-40”). The Company capitalizes costs incurred during the application development stage, which generally includes employee compensation and benefits costs as well as third-party developer fees to design the software configuration and interfaces, coding, installation and testing.
The Company begins capitalization of qualifying costs when the preliminary project stage is completed, management has authorized further funding for the completion of the project, and it is probable that the project will be completed and the software will be used to perform the function intended. 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 would result in additional functionality.
The Company has been developing internal use
software in conjunction with the development and future release of the THP platform. The development phase of this internal use
software began at the beginning of January 2025, and it was still in the development phase as of March 31, 2025. Therefore, under
ASC 350-40 the project includes capitalizable costs of employees and external vendors who are developing the application which is
expected to continue during the second and third quarter of 2025. To date, this consists of approximately $
Goodwill
The excess of purchase price over the fair value of
identifiable net assets acquired in business combinations is recorded as goodwill. As of March 31, 2025 and December 31, 2024,
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).
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 4 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.
| 11 |
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 5, as of March 31, 2025, the Company had three investments that were recorded applying the equity method of accounting. The Company did not have any investments recorded applying the equity method of accounting as of March 31, 2024 other than the investment in SI Technologies (as defined and described in Note 5), which had not yet commenced activities. 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 investments” in the Company’s Consolidated Statements of Operations. The Company’s equity method investments are 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 investments 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 months ended March 31, 2025 and 2024.
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 fair value of the contingent earnout consideration and the acquisition date fair value of goodwill and intangibles related to the acquisitions discussed in Notes 4 and 8 are based on Level 3 inputs.
| 12 |
Liabilities for contingent consideration related to
the acquisition of assets from The Hymed Group Corporation (“Hymed”) and Applied Nutritionals, LLC (“Applied”)
in August 2023 (the “Applied Asset Purchase”) 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 $
| Balance at December 31, 2024 | $ | |||
| Revaluation of earnout liability | ||||
| Balance at March 31, 2025 | $ |
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.
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.
| 13 |
Recently Adopted Accounting Pronouncements
In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Updates (“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 adopted the new guidance effective for its annual report for the fiscal year ended December 31, 2024, and for interim filings beginning with the interim period ended March 31, 2025. The adoption did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows. See Note 11 for segment reporting disclosures.
Recently Issued Accounting Pronouncements
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 Company is currently evaluating the effect of this pronouncement on its disclosures.
In November 2024, FASB issued ASU 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (“ASU 2024-03”), which requires new disclosures providing further detail of a company’s income statement expense line items. ASU 2024-03 is effective for fiscal years beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted. The Company is currently evaluating the effect of this pronouncement on its disclosures.
NOTE 3 – CONVERTIBLE LOAN RECEIVABLE
In connection with a potential equity investment
in Biomimetic Innovations Limited (“BMI”), 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 $
NOTE 4 – GOODWILL AND INTANGIBLES, NET
The changes in the carrying amount of the Company’s goodwill were as follows:
| Total | ||||
| Balance as of December 31, 2023 | $ | |||
| Acquisitions | ||||
| Balance as of December 31, 2024 | ||||
| Acquisitions | ||||
| Balance as of March 31, 2025 | $ | |||
In connection with the change in reportable operating segments, the Company reassessed goodwill as the segments 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 March 31, 2025 or 2024.
| 14 |
The carrying values of the Company’s intangible assets were as follows for the periods presented:
| March 31, 2025 | December 31, 2024 | |||||||||||||||||||||||
| Cost | Accumulated Amortization | Net | Cost | Accumulated Amortization | Net | |||||||||||||||||||
| Amortizable Intangible Assets: | ||||||||||||||||||||||||
| Patents and Other IP | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Customer relationships and other | ( | ) | ( | ) | ||||||||||||||||||||
| Licenses | ( | ) | ( | ) | ||||||||||||||||||||
| Total | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||
As of March 31, 2025, the weighted-average amortization
period for finite-lived intangible assets was
| Remainder of 2025 | $ | |||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| 2030 | ||||
| Thereafter | ||||
| Total | $ |
The Company has reviewed the carrying value of intangible assets and has determined there was no impairment during the three months ended March 31, 2025 or 2024.
NOTE 5 – 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 $ long-term
investment to purchase certain nonmarketable securities consisting of Series B-2 Preferred Shares of Direct Dermatology Inc.
(“DirectDerm”), representing approximately % 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 shares of DirectDerm’s Series B-2 Preferred
for $. In March 2022, the Company purchased an additional shares of DirectDerm’s Series B-2 Preferred for $.
The Company’s ownership of DirectDerm was approximately
| 15 |
Pixalere
In June 2021, the Company invested $ to purchase
Class A Preferred Shares (the “Pixalere Shares”) of Canada-based Pixalere Healthcare Inc. (“Pixalere Canada”).
The Pixalere Shares were convertible into approximately % of the outstanding equity of Pixalere Canada. Pixalere Canada 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 Canada granted Pixalere Healthcare USA, LLC (“Pixalere USA”),
a subsidiary of the Company, a royalty-free exclusive license to use the Pixalere Canada software and platform (the “Pixalere System”)
in the United States. In conjunction with the grant of the license, the Company issued Pixalere Canada a
Effective January 2, 2025, the Company entered into a series of agreements whereby Pixalere Canada redeemed the Company’s Pixalere Shares and, in exchange, the Company received additional rights related to the Pixalere System to be utilized in the THP technology platform (the “Pixalere Redemption”). Specifically, the Company’s exclusive license agreement for the Pixalere System was amended to provide the Company (i) possession, control and ability to modify a copy of the source code used in the Pixalere System, (ii) the ability to use, license, sublicense or sell the licensed software in additional territories outside of the United States and (iii) all de-identified patient data owned by Pixalere Canada. In addition, as part of the Pixalere Redemption, Pixalere USA redeemed Pixalere Canada’s equity ownership in Pixalere USA.
The Company determined that the fair value of assets
exchanged in the Pixalere Redemption was not determinable with reliability. Therefore the Company recorded the transaction as a nonmonetary
exchange of assets and reclassified the carrying value of its investment in the Pixalere Shares as an intangible asset for the amended
license agreement. The Company also eliminated the
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 common units in CMp for an aggregate
purchase price of $
The Company has reviewed the characteristics of Sanara CMP’s investment in CMp in accordance with ASC Topic 323, Investments - Equity Method and Joint Ventures (“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 plus transaction costs. Sanara CMP’s share of the earnings or losses of CMp is recorded in the Company’s Consolidated Statements of Operations.
SI Technologies
In November 2022, the Company established a 50/50 strategic alliance, SI Healthcare Technologies, LLC (“SI Technologies”) (formerly known as SI Wound Care, LLC), with InfuSystem Holdings, Inc. (“InfuSystem”).
| 16 |
In connection with the Unit Purchase Agreement with CMp, the Company, 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.
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.
The Company has reviewed the characteristics of the Company’s investment in SI Technologies in accordance with ASC 323 and determined that the Company 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. The Company’s share of the earnings or losses of SI Technologies is recorded in the Company’s Consolidated Statements of Operations.
BMI
On January 16, 2025, the Company entered into a share subscription and shareholders’ agreement (
The Company has reviewed the characteristics of the Company’s investment in BMI in accordance with ASC 323 and determined that the Company made a non-controlling investment in a limited liability company. In accordance with ASC 323-30-S99-1, the Company utilized the equity method of accounting for this investment and recorded its initial investment at cost. The Company’s share of the earnings or losses of BMI is recorded in the Company’s Consolidated Statements of Operations.
In connection with the Subscription Agreement, the Company entered into a license and distribution agreement with BMI (the “BMI License Agreement”) pursuant to which the Company acquired the exclusive U.S. marketing, sales and distribution rights to certain BMI products, for use in the treatment of a wound or injury caused by a traumatic incident. Pursuant to the BMI License Agreement, the Company was appointed by BMI as the exclusive distributor to promote, market, offer to sell, transfer, distribute and sell certain BMI products for trauma indications inside the United States and its territories. See Note 8 for more information regarding the BMI License Agreement.
| 17 |
The following table summarizes the Company’s investments for the periods presented:
| March 31, 2025 | December 31, 2024 | |||||||||||||||
| Carrying Amount | Economic Interest | Carrying Amount | Economic Interest | |||||||||||||
| Equity Method Investments | ||||||||||||||||
| ChemoMouthpiece, LLC | $ | % | $ | % | ||||||||||||
| SI Healthcare Technologies, LLC | % | % | ||||||||||||||
| Biomimetic Innovations Limited | % | % | ||||||||||||||
| Total Equity Method Investments | $ | $ | ||||||||||||||
| Cost Method Investments | ||||||||||||||||
| Direct Dermatology, Inc. | $ | $ | ||||||||||||||
| Pixalere Healthcare Inc. | ||||||||||||||||
| Total Cost Method Investments | $ | $ | ||||||||||||||
| Total Investments | $ | $ | ||||||||||||||
The following table summarizes the Company’s share of losses from equity method investments reflected in the Company’s Consolidated Statements of Operations for the periods presented:
Three Months Ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Investments | ||||||||
| ChemoMouthpiece, LLC | $ | ( | ) | $ | ||||
| SI Healthcare Technologies, LLC | ||||||||
| Biomimetic Innovations Limited | ( | ) | ||||||
| Total | $ | ( | ) | $ | ||||
NOTE 6 – 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.
| 18 |
As of March 31, 2025, the Company had two
material operating leases for office space. The leases had remaining lease terms of
In accordance with ASC Topic 842, Leases, the Company
has recorded ROU assets of $
The present value of the Company’s operating lease liabilities as of March 31, 2025 is shown below:
Maturity of Operating Lease Liabilities
| March 31, 2025 | ||||
| Remainder of 2025 | $ | |||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| 2030 | ||||
| Thereafter | ||||
| Total lease payments | ||||
| Less imputed interest | ( | ) | ||
| Present Value of Lease Liabilities | $ | |||
| Operating lease liabilities – current | $ | |||
| Operating lease liabilities – long-term | $ | |||
As of March 31, 2025, the Company’s operating
leases had a weighted average remaining lease term of
NOTE 7 – 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 $
| 19 |
On September 4, 2024, the Company, pursuant to
its option under the CRG Term Loan Agreement, borrowed an additional $
On March 19, 2025, the Company and the Guarantors
entered into the First Amendment to the CRG Term Loan Agreement with the Agent and the lenders party thereto from time to time, which
amended the CRG Term Loan Agreement to, among other things,
On March 31, 2025, the Company, borrowed an
additional $
The CRG Term Loan bears interest at a per annum rate
equal to
For the three months ended March 31, 2025, the
Company paid $
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:
| 20 |
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) $ |
| ● | annual minimum revenue of at least: (i) $ |
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.
The table below presents the components of the Company’s outstanding debt for the periods presented:
| March 31, 2025 | December 31, 2024 | |||||||
| CRG Term Loan | $ | $ | ||||||
| Paid-in-kind interest | ||||||||
| Back-end fee | ||||||||
| Debt | ||||||||
| Less: unamortized debt issuance costs | ( | ) | ( | ) | ||||
| Debt, net of debt issuance costs | ||||||||
| Less: Current portion of debt | ||||||||
| Long-term debt, net of current portion | $ | $ | ||||||
| 21 |
The table below presents the aggregate maturities of the Company’s outstanding debt as of March 31, 2025:
| Year | Total | |||
| Remainder of 2025 | $ | |||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| 2030 | ||||
| Thereafter | ||||
| Total debt | $ | |||
In connection with the CRG Term Loan, the Company
incurred $
NOTE 8 - COMMITMENTS AND CONTINGENCIES
License Agreements and Royalties
BIASURGE Advanced Surgical Solution, 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 BIASURGE Advanced Surgical Solution, BIAKŌS Antimicrobial Wound Gel, BIAKŌS Antimicrobial Skin and Wound Cleanser. 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 |
| ● | The Company may pay additional royalties annually based on specific net profit targets from sales of the
licensed products, subject to a maximum of $ |
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 $
| 22 |
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 |
| ● | The Company will pay additional royalties annually based on specific net profit targets from sales of
the licensed products, subject to a maximum of $ |
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 March 31, 2025.
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 $ |
| ● | The Company will pay Rochal a royalty of |
| ● | The Company will pay additional royalty annually based on specific net profit targets from sales of the
licensed products, subject to a maximum of $ |
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 March 31, 2025.
Exclusive License and Distribution Agreement With, and Minority Investment in, BMI
BMI License Agreement
On January 16, 2025, the Company entered into the BMI License Agreement, by and between the Company and BMI, a privately-held medical device company headquartered in Shannon, Co. Clare Ireland, pursuant to which the Company acquired the exclusive U.S. marketing, sales and distribution rights to OsStic® Synthetic Injectable Structural Bio-Adhesive Bone Void Filler (“OsStic”), as well as an adjunctive internal fixation technology featuring novel delivery to promote targeted application of OsStic (“ARC” and together with OsStic, the “Products”), for use in the treatment of a wound or injury caused by a traumatic incident.
| 23 |
Pursuant to the BMI License Agreement, the Company was appointed by BMI as the exclusive distributor to promote, market, offer to sell, transfer, distribute and sell the Products for trauma indications inside the United States and its territories for an initial five-year term, which term may be automatically renewed for successive two-year periods at the Company’s discretion, provided that the Company is in compliance with its obligations thereunder. From January 16, 2025 until October 13, 2025, the Company has an exclusive option to negotiate exclusive distribution rights for the Products in additional fields and/or additional territories on substantially the same terms as those set forth in the BMI License Agreement.
The BMI License Agreement requires that the Company
pay BMI royalties of three percent of OsStic net sales (as defined in the BMI License Agreement). Pursuant to the BMI License Agreement,
the Company and BMI agreed to negotiate the applicable percentage of net sales for ARC at a future date. The BMI License Agreement also
requires the Company to pay BMI annual minimum royalty payments of $
Subscription Agreement
In connection with the BMI License Agreement, on January 16, 2025, the Company entered into the Subscription Agreement, pursuant to which the Company made an initial cash investment in BMI totaling approximately €3.0 million. The initial cash investment of €3.0 million and the Company’s previously announced convertible loan to BMI of €1.0 million were converted into 8,230 ordinary shares of BMI, constituting approximately 6.67% of the outstanding equity of BMI as of January 16, 2025. Pursuant to the Subscription Agreement, the Company also agreed to contribute an additional €4.0 million to BMI through a series of capital contributions in exchange for 8,230 additional ordinary shares of BMI upon the achievement of certain development, clinical, and regulatory milestones which are expected to occur at various points during 2025 and 2026.
Acquisitions
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 $
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 shares of Company common stock with a weighted average exercise price of $ 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)
| 24 |
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, were also entitled to receive
payments of up to $
Applied Asset Purchase
On August 1, 2023, the Company closed the
Applied Asset Purchase for an initial aggregate purchase price of $
In addition to the consideration noted above,
the terms of the asset purchase agreement provide that the sellers party thereto are entitled to receive up to an additional $
In connection with the Applied Asset Purchase,
effective August 1, 2023, the Company entered into a professional services agreement (the “Petito Services Agreement”)
with Dr. George D. Petito (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”).
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
| 25 |
NOTE 9 – 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 , 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 March 31, 2025, a total of shares, net of forfeitures, had been issued under the 2024 LTIP and were available for issuance under the 2024 LTIP.
Restricted Stock Awards
During the three months ended March 31, 2025,
the Company issued restricted stock awards under the 2024 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 issued shares, net of forfeitures, under
the 2024 LTIP, of restricted common stock to employees, directors, and certain advisors of the Company during the three months ended March 31,
2025. The fair value of these awards was $
Share-based compensation expense of $ and $ was recognized in “Operating expenses” in the accompanying Consolidated Statements of Operations during the three months ended March 31, 2025 and 2024, respectively.
At March 31, 2025, there was $ 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 years.
| 26 |
| Three Months Ended March 31, 2025 | ||||||||
| Shares | Weighted Average Grant Date Fair Value | |||||||
| Nonvested at beginning of period | $ | |||||||
| Granted | ||||||||
| Vested | ( | ) | ||||||
| Forfeited | ( | ) | ||||||
| Nonvested at March 31, 2025 | $ | |||||||
Stock Options
Three Months Ended March 31, 2025 | ||||||||||||||||
| Options | Weighted Average Exercise Price | Weighted Average Remaining Contract Life | Aggregate Intrinsic Value | |||||||||||||
| Outstanding at beginning of period | $ | |||||||||||||||
| Granted or assumed | ||||||||||||||||
| Exercised | ||||||||||||||||
| Forfeited | ||||||||||||||||
| Expired | ||||||||||||||||
| Outstanding at March 31, 2025 | $ | $ | ||||||||||||||
| Exercisable at March 31, 2025 | $ | $ | ||||||||||||||
NOTE 10 – RELATED PARTIES
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 BIASURGE Advanced Surgical Solution, BIAKŌS Antimicrobial Wound Gel and BIAKŌS Antimicrobial Skin and Wound Cleanser. Each of these 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.
| 27 |
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 8 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 provided to the Company, Ms. Salamone is entitled to
receive an annual consulting fee of $
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 $
NOTE 11 – SEGMENT REPORTING
As discussed in Note 1, the Company historically managed
its business as
| 28 |
Segment Adjusted EBITDA is the primary profitability measure used by the CODM for purposes of assessing financial performance and resource allocation. The Company defines Segment Adjusted 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 investments, 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 Adjusted 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 Adjusted EBITDA may not be comparable to similarly titled measures reported by other companies. The CODM also reviews budget-to-actual variances for expenses on a monthly basis when making decisions about allocating resources to the segments. The Company has not included any disclosure regarding total segment assets, as no segment level asset information is regularly provided to the CODM.
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 sterile 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 value-based primary care companies.
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 the substantial majority of these 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.
| 29 |
The following table reflects results of operations including significant segment expenses that are regularly provided to the CODM for the Company’s reportable segments and Segment Adjusted EBITDA for the periods indicated below:
| Three Months Ended March 31, | ||||||||||||||||||||||||
| 2025 | 2024 | |||||||||||||||||||||||
| Sanara Surgical | THP | Total | Sanara Surgical | THP | Total | |||||||||||||||||||
| Net revenue | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Cost of goods sold | ||||||||||||||||||||||||
| Selling, general and administrative | ||||||||||||||||||||||||
| Research and development | ||||||||||||||||||||||||
| Depreciation and amortization | ||||||||||||||||||||||||
| Change in fair value of earnout liabilities | ( | ) | ( | ) | ||||||||||||||||||||
| Other expense (1) | ||||||||||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Segment Adjusted EBITDA | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||
| (1) |
| 30 |
The following table provides a reconciliation of net loss to Segment Adjusted EBITDA for the Company’s reportable segments for the periods indicated below:
Three Months Ended March 31, | ||||||||||||||||||||||||
| 2025 | 2024 | |||||||||||||||||||||||
| Sanara Surgical | THP | Total | Sanara Surgical | THP | Total | |||||||||||||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Adjustments: | ||||||||||||||||||||||||
| Interest expense | ||||||||||||||||||||||||
| Depreciation and amortization | ||||||||||||||||||||||||
| Noncash share-based compensation | ||||||||||||||||||||||||
| Change in fair value of earnout liabilities | ( | ) | ( | ) | ||||||||||||||||||||
| Share of losses from equity method investments | ||||||||||||||||||||||||
| Gain on disposal of property and equipment | ( | ) | ( | ) | ||||||||||||||||||||
| Interest income | ( | ) | ( | ) | ||||||||||||||||||||
| Acquisition costs (1) | ||||||||||||||||||||||||
| Segment Adjusted EBITDA | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||
| (1) |
NOTE 12 – SUBSEQUENT EVENTS
CarePICS Acquisition
On April 1, 2025 (the “CarePICS Closing Date”), the Company, entered into a Unit Purchase Agreement (the “Purchase Agreement”), by and among the Company, Tissue Health Plus, LLC, a Delaware limited liability company and wholly owned subsidiary of the Company (the “Purchaser”), CarePICS, LLC, a Delaware limited liability company (“CarePICS”), the holders of CarePICS’s outstanding units (each, a “Seller” and collectively, the “Sellers”) and Paul Schubert, in his capacity as the representative of the Sellers, pursuant to which the Purchaser purchased all of the issued and outstanding equity interests of CarePICS (the “Units”) from the Sellers (the “Acquisition”). On the CarePICS Closing Date, the parties to the Purchase Agreement completed the Acquisition and CarePICS became an indirect wholly owned subsidiary of the Company.
CarePICS designed and maintained a mobile and web app for clinicians to perform certain activities related to treating vascular and wound care patients, including (i) requesting and providing specialty consultations, (ii) creating and sending clinical reports, (iii) scheduling and performing telehealth visits with patients and (iv) signing and fulfilling medical supply orders. The CarePICS virtual platform enabled HIPAA-compliant communication sharing of video, voice, text and images for all activities between users. The CarePICS virtual platform will be utilized in the THP segment.
| 31 |
Cash Consideration
Pursuant to the Purchase Agreement, the aggregate
purchase price for the Acquisition was $
Earnout Consideration
The Purchase Agreement also provides that the Sellers
are entitled to receive potential earnout payments. Pursuant to the Purchase Agreement, for each of
Each earnout payment, if any, is due within 90 days following the First Earnout Period and Second Earnout Period, as applicable, and is payable in cash or, at the Purchaser’s election, is payable to Sellers who qualify as “accredited investors” (as such term is defined in Rule 501(a) of Regulation D promulgated under the Securities Act of 1933, as amended) in the Purchaser’s Class A-2 Units, with the value of the Class A-2 Units to be determined by an industry recognizable third-party valuation.
In addition, for a period ending 10 years following
the CarePICS Closing Date (the “Purchaser Value Earnout Period”), each Seller is entitled to receive annual earnout payments
based on the census of patient volume for the previous year and be based upon a rate of $ enablement value per patient per year (the
“Purchaser Value Earnouts”). Each earnout payment, if any, is due between 30 and 90 days following the end of each fiscal
year during the Purchaser Value Earnout Period, and is payable in cash or, at the Purchaser’s election, is payable to Sellers who
qualify as accredited investors in the Purchaser’s Class B Units, with the value of the Class B Units to be determined by an industry
recognizable third-party valuation. Pursuant to the Purchase Agreement, the aggregate value of the Purchaser Value Earnouts will not exceed
$
| 32 |
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, 2024 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, including topics such as our value-based wound and skincare services and Tissue Health Plus (“THP”) platforms. 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 value-based 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 maintain compliance with our debt obligations; |
| ● | 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 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 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; |
| ● | the failure of third-party assessments to demonstrate desired outcomes in proposed endpoints; |
| ● | our ability to successfully expand into value-based wound, skincare and other services; |
| 33 |
| ● | 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; |
| ● | 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 launch of value-based wound, skincare 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, 2024, and 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. Through our two operating segments, Sanara Surgical and THP, 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.
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 have two reportable segments: Sanara Surgical and THP.
Sanara Surgical
Our 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 Activated Collagen (“CellerateRX Surgical”), a hydrolyzed collagen that supports a local environment for surgical sites to aid in the natural wound healing process, and BIASURGE Advanced Surgical Solution (“BIASURGE”), a sterile no-rinse, advanced surgical solution used for wound irrigation. Sanara Surgical’s bone fusion products include, among other products, BiFORM Bioactive Moldable Matrix (“BiFORM”), an osteoconductive, bioactive, porous implant that allows for bony ingrowth across the graft site, and ALLOCYTE Plus Advanced Viable Bone Matrix (“ALLOCYTE Plus”), a human allograft cellular bone matrix containing bone-derived progenitor cells and conformable bone fibers.
Our Sanara Surgical segment also includes an in-house research and development team, Rochal Technologies, with an extensive pipeline of innovative products under development.
| 34 |
Tissue Health Plus
Our value-based care segment, THP, 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 value-based primary care companies.
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.
Summary of Our Product, Service and Technology Offerings and Development Programs
Sanara Surgical Products
Our Sanara Surgical segment markets and distributes surgical, wound and skincare products to physicians, hospitals, clinics, and post-acute care settings. Our products are primarily sold in the U.S. surgical tissue repair and advanced wound care markets. We believe that we have the ability to drive our product pipeline from concept to preclinical and clinical development while meeting quality and regulatory requirements. We are constantly seeking long-term strategic partnerships with a focus on products that improve outcomes at a lower overall cost.
CellerateRX Surgical
CellerateRX Surgical is a medical hydrolysate of Type I bovine collagen indicated for the management of surgical, traumatic, and partial and full-thickness wounds as well as first- and second-degree burns. It is manufactured with a proprietary process. CellerateRX Surgical powder is sterilized, packaged and designed specifically for use in the operating room or other sterile environment. CellerateRX Surgical products are primarily purchased by hospitals and ambulatory surgical centers for use by surgeons on surgical wounds. The majority of CellerateRX Surgical products are used for a variety of surgical wounds, including those associated with orthopedic, spine, trauma and oncologic procedures. Additional surgical wounds that may benefit from the use of CellerateRX Surgical include cardiovascular, gynecologic, urologic, vascular and plastic/reconstructive related procedures.
CellerateRX Surgical is used in operative cases where patients might have trouble healing normally due to underlying health complications. There is always a risk of complication with surgical wounds. This is especially true in patients with certain comorbidities, including obesity, diabetes and hypertension. These complications can include surgical wound infections, dehiscence (where an incision opens after primary closure) and necrosis. Surgeons use CellerateRX Surgical to complement the body’s normal healing process. By supporting the body to heal normally without complications, improved patient outcomes are achieved, thereby reducing downstream costs related to complications (such as re-operation, longer hospitalization, re-admittance, extended rehabilitative care and other additional treatments). Surgical wound complications have become increasingly problematic due to the high rates of surgical patient comorbidities and the financial strain on insurance payors as well as hospitals who suffer exorbitant costs for readmission of these patients within 90 days of surgery.
BIASURGE
BIASURGE is a 510(k) cleared sterile no-rinse, advanced surgical solution used for wound irrigation. It contains an antimicrobial preservative effective against a broad spectrum of pathogenic microorganisms in the solution. BIASURGE is indicated for use in the mechanical cleansing and removal of debris, including microorganisms, from surgical wounds.
FORTIFY TRG
FORTIFY TRG Tissue Repair Graft (“FORTIFY TRG”) is a freeze-dried, multi-layer small intestinal submucosa extracellular matrix sheet. The graft is 510(k) cleared for implantation to reinforce soft tissue, is terminally sterilized, has a thin profile, is available in multiple sizes, and can be cut to size to accommodate the patient’s anatomy. FORTIFY TRG is provided sterile and can be hydrated with autologous blood fluid.
| 35 |
FORTIFY FLOWABLE
FORTIFY FLOWABLE Extracellular Matrix (“FORTIFY FLOWABLE”) is an advanced wound care device that presents small intestine submucosa extracellular matrix technology in a way that can fill irregular wound shapes and depths. FORTIFY FLOWABLE is indicated for the management of wounds, including partial and full-thickness wounds, pressure ulcers, venous leg ulcers, diabetic foot ulcers, chronic vascular ulcers, tunneled/undermined wounds, surgical wounds (donor sites/grafts, post-Mohs surgery, post-laser surgery, podiatric, wound dehiscence sites), traumatic wounds (abrasions, lacerations, second-degree burns, and skin tears) and draining wounds. FORTIFY FLOWABLE is provided sterile and is intended for one-time use. It is a 510(k) cleared product.
Other Surgical Products
TEXAGEN Amniotic Membrane Allograft is a multi-layer amniotic membrane allograft used as an anatomical barrier with robust handling that can be sutured for securement if needed. BiFORM is an osteoconductive, bioactive, porous implant that allows for bony ingrowth across the graft site. It can be hydrated and used as a strip or molded into a putty to fill a bone defect. ACTIGEN Verified Inductive Bone Matrix is a naturally derived, differentiated allograft matrix with robust handling properties. ALLOCYTE Plus is a human allograft cellular bone matrices containing bone-derived progenitor cells and conformable bone fibers. These viable cellular allografts are ready to use upon thawing and have fibrous handling properties.
Tissue Health Plus Services and Technology
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 2024, United Wound and Skin Solutions, LLC was renamed to Tissue Health Plus, LLC. THP is continuing its current mission to simplify skin health, starting with value-based 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 primary care companies. THP services are not expected to directly involve telemedicine or virtual consult services, and such services are no longer a primary focus of THP.
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 certain physician-led multispecialty wound care groups. With NPs leading 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. |
| 36 |
| (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 Inc. (“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.
SI Healthcare Technologies Strategic Alliance
In November 2022, we established a 50/50 strategic alliance, 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 Chemo Mouthpiece, a 510(k) cleared oral cryotherapy device that SI Technologies currently has the right to distribute and sell in the United States.
Tufts University License Agreement
In December 2023, we 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, we formed a new subsidiary, Sanara Collagen Peptides, LLC (“SCP”), and issued 10% of SCP’s outstanding units 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. Pursuant to 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.
RECENT DEVELOPMENTS
CRG Term Loan Amendment and Third Borrowing
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 our then-existing loan with Cadence Bank (the “Cadence Term Loan”) 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. On March 19, 2025, we and the Guarantors entered into the First Amendment to Term Loan Agreement with the Agent and the lenders party thereto from time to time (the “CRG Amendment”) to, among other things (i) entitle us to up to two additional borrowings following the Second Borrowing under the CRG Term Loan, which must occur on or prior to December 31, 2025, if at all, and (ii) remove the requirement that any borrowing be in whole multiples of $5.0 million. On March 31, 2025, we borrowed an additional $12.25 million under the CRG Term Loan Agreement (the “Third Borrowing”). The First Borrowing, the Second Borrowing and the Third Borrowing each have a maturity date of May 30, 2029 (the “Maturity Date”), unless earlier prepaid. Pursuant to the CRG Term Loan Agreement, prior to December 31, 2025 and, subject to the satisfaction of certain conditions, we have the right to draw down a fourth borrowing of up to $12.25 million. We intend to use the proceeds from the Third Borrowing for permitted acquisition opportunities and for general working capital and corporate purposes.
| 37 |
BMI Investment
On January 16, 2025, we entered into a Licensing and Distribution Agreement (the “BMI License Agreement”) with Biomimetic Innovation Limited, a privately-held medical device company headquartered in Shannon, Co. Clare Ireland (“BMI”), pursuant to which we acquired the exclusive U.S. marketing, sales and distribution rights to OsStic Synthetic Injectable Structural Bio-Adhesive Bone Void Filler (“OsStic”), as well as an adjunctive internal fixation technology featuring novel delivery to promote targeted application of OsStic (“ARC” and together with OsStic, the “BMI Products”), for use in the treatment of a wound or injury caused by a traumatic incident. Pursuant to the BMI License Agreement, we were appointed by BMI as the exclusive distributor to promote, market, offer to sell, transfer, distribute and sell the BMI Products for trauma indications inside the United States and its territories for an initial five-year term, which term may be automatically renewed for successive two-year periods at our discretion, provided that we are in compliance with our obligations thereunder (the “BMI Term”).
In connection with the BMI License Agreement, on January 16, 2025, we entered into a Share Subscription and Shareholders’ Agreement (the “Subscription Agreement”), pursuant to which we made an initial cash investment in BMI totaling approximately €3.0 million. Upon our initial cash investment of €3.0 million and the conversion of our previously disclosed €1.0 million convertible loan to BMI, we were issued 8,230 ordinary shares of BMI, constituting approximately 6.67% of the outstanding equity of BMI as of January 16, 2025. Pursuant to the Subscription Agreement, we also agreed to contribute an additional €4.0 million to BMI through a series of capital contributions in exchange for 8,230 additional ordinary shares of BMI upon the achievement of certain development, clinical, and regulatory milestones which are expected to occur at various points during 2025 and 2026. For more information regarding the BMI License Agreement and BMI Subscription Agreement, see the “Liquidity and Capital Resources” section below.
CarePICS Acquisition
On April 1, 2025 (the “CarePICS Closing Date”), we entered into a Unit Purchase Agreement (the “Purchase Agreement”), with THP, our wholly owned subsidiary (the “Purchaser”), CarePICS, LLC (“CarePICS”), the holders of CarePICS’s outstanding units (each, a “Seller” and collectively, the “Sellers”) and Paul Schubert, in his capacity as the representative of the Sellers, pursuant to which the Purchaser purchased all of the issued and outstanding equity interests of CarePICS (the “Units”) from the Sellers (the “Acquisition”). On the CarePICS Closing Date, the parties to the Purchase Agreement completed the Acquisition and CarePICS became an indirect wholly owned subsidiary of the Company. Pursuant to the Purchase Agreement, the aggregate purchase price for the Acquisition was $2.0 million, which included transaction expenses and other related administrative expenses of the Sellers. On the CarePICS Closing Date, the Company also paid $1.65 million to satisfy certain existing indebtedness of CarePICS. The Purchase Agreement also provides that the Sellers are entitled to receive potential earnout payments. For more information regarding the Acquisition, see the “Liquidity and Capital Resources” section below.
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 are summarized below for the three months ended March 31, 2025 and 2024.
| Three Months Ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Soft tissue repair products | $ | 20,532,440 | $ | 16,082,292 | ||||
| Bone fusion products | 2,901,656 | 2,454,346 | ||||||
| Total Net Revenue | $ | 23,434,096 | $ | 18,536,638 | ||||
| 38 |
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”) consists 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 as incurred.
Research and development (“R&D”) includes 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 will increase as we continue to support product enhancements and to bring new products to market.
Depreciation and amortization includes 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 acquisition of Scendia Biologics, LLC (“Scendia”).
Other Income (Expense)
Other income (expense) is primarily comprised of interest expense and other nonoperating activities.
| 39 |
RESULTS OF OPERATIONS
The following table presents certain information about the results and Segment Adjusted EBITDA (as described below) of our reportable business segments. See Note 11, Segment Reporting, in Part I, Item 1 of this report for more information on our reportable business segments:
Three Months Ended March 31, | ||||||||||||||||||||||||
| 2025 | 2024 | |||||||||||||||||||||||
| Sanara Surgical | THP | Total | Sanara Surgical | THP | Total | |||||||||||||||||||
| Net revenue | $ | 23,434,096 | $ | - | $ | 23,434,096 | $ | 18,536,638 | $ | - | $ | 18,536,638 | ||||||||||||
| Cost of goods sold | 1,834,967 | - | 1,834,967 | 1,890,046 | - | 1,890,046 | ||||||||||||||||||
| Selling, general and administrative | 19,129,208 | 2,311,402 | 21,440,610 | 15,592,747 | 599,512 | 16,192,259 | ||||||||||||||||||
| Research and development | 950,359 | 163,779 | 1,114,138 | 578,980 | 367,318 | 946,298 | ||||||||||||||||||
| Depreciation and amortization | 688,571 | 435,839 | 1,124,410 | 698,502 | 406,918 | 1,105,420 | ||||||||||||||||||
| Change in fair value of earnout liabilities | - | - | - | (103,782 | ) | 38,104 | (65,678 | ) | ||||||||||||||||
| Other expense (1) | 1,446,096 | 1,258 | 1,447,354 | 267,336 | - | 267,336 | ||||||||||||||||||
| Net loss | $ | (615,105 | ) | $ | (2,912,278 | ) | $ | (3,527,383 | ) | $ | (387,191 | ) | $ | (1,411,852 | ) | $ | (1,799,043 | ) | ||||||
| Segment Adjusted EBITDA | $ | 2,695,058 | $ | (2,037,089 | ) | $ | 657,969 | $ | 1,228,480 | $ | (917,059 | ) | $ | 311,421 | ||||||||||
(1) For the three months ended March 31, 2025 other expense included interest expense, share of losses from equity method investments offset by interest income and gain on disposal of property and equipment. For the three months ended March 31, 2024, other expense included interest expense.
Net Revenue. For the three months ended March 31, 2025, we generated net revenue of $23.4 million compared to net revenue of $18.5 million for the three months ended March 31, 2024, a 26% increase over the prior year. The higher net revenue in the three months ended March 31, 2025 was primarily due to increased sales of soft tissue repair products, including CellerateRX Surgical and BIASURGE, and certain bone fusion products as a result of our increased market penetration, geographic expansion and our continuing strategy to expand our independent distribution network in both new and existing U.S. markets.
Cost of Goods Sold. Cost of goods sold for the three months ended March 31, 2025 was $1.8 million compared to cost of goods sold of $1.9 million for the three months ended March 31, 2024. The higher gross margins realized in the three months ended March 31, 2025 were due to increased sales of soft tissue repair products and lower manufacturing costs related to CellerateRX Surgical.
Gross Profit. On a consolidated basis, we generated gross profit of $21.6 million for the three months ended March 31, 2025 compared to gross profit of $16.6 million for the three months ended March 31, 2024, a 30% increase over the prior year period. The higher gross profit in the three months ended March 31, 2025 was primarily due to increased sales of soft tissue repair products, particularly CellerateRX Surgical and BIASURGE, 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.
Selling, general and administrative. SG&A for the three months ended March 31, 2025 was $21.4 million compared to SG&A of $16.2 million for the three months ended March 31, 2024. The higher SG&A in the three months ended March 31, 2025 was primarily due to increased direct sales and marketing expenses, which accounted for approximately $2.4 million of the increase compared to the prior year period, approximately $1.7 million of additional SG&A in our THP segment and approximately $0.7 million related to the buildout of our corporate infrastructure in the three months ended March 31, 2025.
| 40 |
Research and development. R&D for the three months ended March 31, 2025 was $1.1 million compared to R&D of $0.9 million for the three months ended March 31, 2024. Beginning in the first quarter of 2025, we began capitalizing certain development costs related to the buildout of our THP technology platform. During the three months ended March 31, 2025, we capitalized approximately $1.7 million of such development costs as property, plant and equipment.
Depreciation and amortization. Depreciation and amortization for the three months ended March 31, 2025 was $1.1 million compared to depreciation and amortization of $1.1 million for the three months ended March 31, 2024.
Change in fair value of earnout liabilities. Change in fair value of earnout liabilities was zero for the three months ended March 31, 2025 compared to a benefit of $0.1 million for the three months ended March 31, 2024. The benefit recognized in the three months ended March 31, 2024 was due to a decrease in the estimated fair value of earnout liabilities associated with the Precision Healing merger.
Other expense. Other expense for the three months ended March 31, 2025 was $1.4 million compared to $0.3 million for the three months ended March 31, 2024. Other expense for the three months ended March 31, 2025 primarily included higher interest expense and fees related to the CRG Term Loan.
Net loss. For the three months ended March 31, 2025, we had a net loss of $3.5 million, compared to a net loss of $1.8 million for the three months ended March 31, 2024. Our net loss included $2.9 million and $1.4 million related to our THP segment for the three months ended March 31, 2025 and 2024, respectively. The higher net loss in 2025 was primarily due to higher costs related to the buildout of our THP platform and infrastructure and increased interest expense related to the CRG Term Loan, partially offset by higher gross profit.
Segment Adjusted EBITDA. Segment Adjusted EBITDA is the primary profitability measure used by the CODM for purposes of assessing financial performance and resource allocation. We define Segment Adjusted 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 investments, 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. We have historically presented this profitability measure as Segment EBITDA and, starting with the fourth quarter ended December 31, 2024, are presenting it as Segment Adjusted EBITDA. The definition and methodology for calculating this measure has remained unchanged. Segment Adjusted 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 Adjusted 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 Adjusted 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.
| 41 |
The following table provides a reconciliation of net loss to Segment Adjusted EBITDA for our business segments for the periods indicated below:
Three Months Ended March 31, | ||||||||||||||||||||||||
| 2025 | 2024 | |||||||||||||||||||||||
| Sanara Surgical | THP | Total | Sanara Surgical | THP | Total | |||||||||||||||||||
| Net Loss | $ | (615,105 | ) | $ | (2,912,278 | ) | $ | (3,527,383 | ) | $ | (387,191 | ) | $ | (1,411,852 | ) | $ | (1,799,043 | ) | ||||||
| Adjustments: | ||||||||||||||||||||||||
| Interest expense | 1,317,092 | - | 1,317,092 | 267,336 | - | 267,336 | ||||||||||||||||||
| Depreciation and amortization | 688,571 | 435,839 | 1,124,410 | 698,502 | 406,918 | 1,105,420 | ||||||||||||||||||
| Noncash share-based compensation | 1,175,496 | 129,408 | 1,304,904 | 753,615 | 49,771 | 803,386 | ||||||||||||||||||
| Change in fair value of earnout liabilities | - | - | - | (103,782 | ) | 38,104 | (65,678 | ) | ||||||||||||||||
| Share of losses from equity method investments | 143,608 | - | 143,608 | - | - | - | ||||||||||||||||||
| Gain on disposal of property and equipment | (10,932 | ) | 1,258 | (9,674 | ) | - | - | - | ||||||||||||||||
| Interest income | (3,672 | ) | - | (3,672 | ) | - | - | - | ||||||||||||||||
| Acquisition costs (1) | - | 308,684 | 308,684 | - | - | - | ||||||||||||||||||
| Segment Adjusted EBITDA | $ | 2,695,058 | $ | (2,037,089 | ) | $ | 657,969 | $ | 1,228,480 | $ | (917,059 | ) | $ | 311,421 | ||||||||||
| (1) | Acquisition costs include legal, tax and accounting services related to prospective acquisitions. |
For the three months ended March 31, 2025, our Segment Adjusted EBITDA was $0.7 million compared to $0.3 million for the three months ended March 31, 2024. Our Segment Adjusted EBITDA included $(2.0) million and $(0.9) million related to our THP segment for the three months ended March 31, 2025 and 2024, respectively. The higher Segment Adjusted EBITDA in 2025 was primarily due to higher interest expense, noncash share-based compensation and acquisition costs related to the buildout of our THP platform and infrastructure offset by higher net revenue and gross profit related to the Sanara Surgical segment as discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Cash on hand at March 31, 2025 was $20.7 million, compared to $15.9 million at December 31, 2024. Historically, we have financed our operations primarily from borrowings under our credit facilities and the sale of equity securities. We expect to continue our investment in the THP strategy in preparation for the planned launch of our first pilot program with a wound care provider group during the second quarter of 2025. In addition to $3.65 million paid in connection with the acquisition of CarePICS, we expect our cash investment during the first half of 2025 to be approximately $7.5 million to $8.5 million, compared to our prior expectation of $7.5 million to $10.0 million. Our THP cash investment during the second quarter of 2025 is expected to be between $4.0 to $5.0 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 development of our products, services and technologies pipeline, clinical studies, 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 12 months. As of March 31, 2025, there was $12.25 million available for future borrowing under the CRG Term Loan.
Applied Asset Purchase
On August 1, 2023, we entered into an asset purchase agreement (the “Applied Purchase Agreement”) by and among the Company, Sanara MedTech Applied Technologies, LLC (“SMAT”), The Hymed Group Corporation, Applied 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 (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. 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 (the “Cash Closing Consideration”), (ii) 73,809 shares of our common stock, with an agreed upon value of $3.0 million (the “Stock Closing Consideration”) and (iii) $2.5 million in cash, to be paid in four equal installments on each of the four anniversaries following the Closing (the “Installment Payments”). The first Installment Payment of $625,000 was made in August 2024 and the second Installment Payment of $625,000 is expected to be paid in August 2025.
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.
| 42 |
CRG Term Loan Agreement
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 of $15.0 million 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 Cadence 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 (discussed in more detail below). Prior to the CRG Amendment, pursuant to the CRG Term Loan Agreement, we were entitled to one additional borrowing, which was required to occur on or prior to June 30, 2025 and be at least $5.0 million or a multiple of $5.0 million. On March 19, 2025, we entered into the CRG Amendment, which amended the CRG Term Loan Agreement to, among other things, (i) entitle us to two additional borrowings following the Second Borrowing, which borrowings must occur on or prior to December 31, 2025, if at all, and (ii) remove the requirement that any borrowing be in whole multiples of $5.0 million. Any additional borrowings under the CRG Term Loan will be subject to the satisfaction of certain conditions, including the Agent having received certain fees.
On March 31, 2025, we borrowed an additional $12.25 million under the CRG Term Loan Agreement. The First Borrowing, the Second Borrowing and the Third Borrowing each have a maturity date of March 30, 2029, unless earlier prepaid. Pursuant to the CRG Term Loan Agreement, prior to December 31, 2025 and subject to the satisfaction of certain conditions, we have the right to draw down a fourth borrowing of up to $12.25 million. We intend to use the proceeds from the Third Borrowing 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, $232,500 of upfront fees on September 4, 2024 related to the Second Borrowing and $183,750 of upfront fees on March 31, 2025 related to the Third Borrowing. As of March 31, 2025, there was $42.8 million of principal outstanding and $12.25 million available for future borrowing under the CRG Term Loan.
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.
| 43 |
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 of at least (i) $60.0 million for the twelve-month period beginning on January 1, 2024 and ending on December 31, 2024, (ii) $75.0 million for the twelve-month period beginning on January 1, 2025 and ending on December 31, 2025, (iii) $85.0 million for the twelve-month period beginning on January 1, 2026 and ending on December 31, 2026, (iv) $95.0 million for the twelve-month period beginning on January 1, 2027 and ending on December 31, 2027 and (v) $105.0 million during each twelve-month period beginning on January 1 of a given year thereafter. |
As of March 31, 2025, we were in compliance with all debt covenants.
BMI Investment
On January 16, 2025, we entered into the BMI License Agreement with BMI, pursuant to which we acquired the exclusive U.S. marketing, sales and distribution rights to OsStic, as well as ARC, for use in the treatment of a wound or injury caused by a traumatic incident.
Pursuant to the BMI License Agreement, we were appointed by BMI as the exclusive distributor to promote, market, offer to sell, transfer, distribute and sell the BMI Products for trauma indications inside the United States and its territories for the BMI Term, provided that we are in compliance with its obligations thereunder. From January 16, 2025 until October 13, 2025, we have an exclusive option to negotiate exclusive distribution rights for the BMI Products in additional fields and/or additional territories on substantially the same terms as those set forth in the BMI License Agreement.
The BMI License Agreement requires that we pay BMI royalties of three percent of OsStic net sales (as defined in the BMI License Agreement). Pursuant to the BMI License Agreement, we and BMI agreed to negotiate the applicable percentage of net sales for ARC at a future date. The BMI License Agreement also requires that we pay BMI annual minimum royalty payments of $100,000, $200,000, and $300,000 for the first, second and third years, respectively, following the receipt of first regulatory approval for the marketing and sale of a product (as defined in the agreement).
In connection with the BMI License Agreement, on January 16, 2025, we entered into a Share Subscription and Shareholders’ Agreement (the “Subscription Agreement”), by and among the Company, The Russell Revocable Living Trust, BMI and the existing shareholders of BMI, pursuant to which we made an initial cash investment in BMI totaling approximately €3.0 million. The initial cash investment of €3.0 million and our previously announced convertible loan to BMI of €1.0 million were converted into 8,230 ordinary shares of BMI, constituting approximately 6.67% of the outstanding equity of BMI as of January 16, 2025. Pursuant to the Subscription Agreement, we also agreed to contribute an additional €4.0 million to BMI through a series of capital contributions in exchange for 8,230 additional ordinary shares of BMI upon the achievement of certain development, clinical, and regulatory milestones which are expected to occur at various points during 2025 and 2026.
CarePICS Acquisition
On the CarePICS Closing Date, we entered into the Purchase Agreement with the Purchaser, CarePICS, the Sellers and Paul Schubert, in his capacity as the representative of the Sellers, pursuant to which the Purchaser purchased all of the Units from the Sellers. On the CarePICS Closing Date, the parties to the Purchase Agreement completed the Acquisition and CarePICS became an indirect wholly owned subsidiary of the Company. Pursuant to the Purchase Agreement, the aggregate purchase price for the Acquisition was $2.0 million, which included transaction expenses and other related administrative expenses of the Sellers. On the CarePICS Closing Date, the Company also paid $1.65 million to satisfy certain existing indebtedness of CarePICS.
Pursuant to the Purchase Agreement, for each of (A) the period beginning on the CarePICS Closing Date and ending on March 31, 2026 (the “First Earnout Period”) and (B) the period beginning on April 1, 2026 and ending on March 31, 2027 (the “Second Earnout Period”), each Seller is entitled to such Seller’s pro rata share of a value equal to (i) $2,000,000 minus (ii) any funding provided by the Purchaser or its affiliates to the SaaS P&L (as defined in the Purchase Agreement) during the First Earnout Period in excess of $110,000 per month, minus (iii) any shortfall in the projected SaaS P&L EBITDA (as defined in the Purchase Agreement) for the applicable earnout period, plus (iv) seventy five percent of any SaaS P&L EBITDA generated in excess of the projected SaaS P&L EBITDA for the First Earnout Period and the Second Earnout Period, as applicable.
Each earnout payment, if any, is due within 90 days following the First Earnout Period and Second Earnout Period, as applicable, and is payable in cash or, at the Purchaser’s election, is payable to Sellers who qualify as “accredited investors” (as such term is defined in Rule 501(a) of Regulation D promulgated under the Securities Act of 1933, as amended) in the Purchaser’s Class A-2 Units, with the value of the Class A-2 Units to be determined by an industry recognizable third-party valuation.
In addition, for a period ending 10 years following the CarePICS Closing Date (the “Purchaser Value Earnout Period”), each Seller is entitled to receive annual earnout payments based on the census of patient volume for the previous year and be based upon a rate of $5.00 enablement value per patient per year (the “Purchaser Value Earnouts”). Each earnout payment, if any, is due between 30 and 90 days following the end of each fiscal year during the Purchaser Value Earnout Period, and is payable in cash or, at the Purchaser’s election, is payable to Sellers who qualify as accredited investors in the Purchaser’s Class B Units, with the value of the Class B Units to be determined by an industry recognizable third-party valuation. Pursuant to the Purchase Agreement, the aggregate value of the Purchaser Value Earnouts will not exceed $10,000,000.
| 44 |
Cash Flow Analysis
For the three months ended March 31, 2025, net cash used in operating activities was $2.0 million compared to $1.6 million used in operating activities for the three months ended March 31, 2024. The higher use of cash in operating activities in 2025 was largely due to the timing of payments for our annual employee bonuses which occurred during the first quarter of 2025. In 2024, payments for our annual employee bonuses were split between the first and second quarter.
For the three months ended March 31, 2025, net cash used in investing activities was $5.2 million compared to $0.1 million used in investing activities during the three months ended March 31, 2024. Cash used in investing activities during the three months ended March 31, 2025 primarily included $3.5 million for our minority investment in BMI and $1.7 million related to the capitalization of certain costs related to the buildout of our THP technology platform.
For the three months ended March 31, 2025, net cash provided by financing activities was $12.0 million compared to $0.7 million used in financing activities for the three months ended March 31, 2024. The increase in cash provided by financing activities during the three ended March 31, 2025 was due to the receipt of proceeds from the CRG Term Loan.
MATERIAL TRANSACTIONS WITH RELATED PARTIES
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 had an initial term of three years. 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 $20,000 and $56,272 during three months ended March 31, 2025 and 2024, respectively.
| 45 |
Receivables and Payables
We had outstanding related party receivables totaling $42,819 at March 31, 2025 and $40,566 at December 31, 2024. We had outstanding related party payables totaling $41,805 at March 31, 2025 and $30,913 at December 31, 2024.
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, including the impacts of tariffs, 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, 2024 and are disclosed in our Annual Report on Form 10-K for the year ended December 31, 2024.
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 March 31, 2025, pursuant to Rule 13a-15(b) under the Exchange Act. Based upon that evaluation, our Certifying Officers concluded that, as of March 31, 2025, 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 March 31, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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.
| 46 |
ITEM 1A. RISK FACTORS
There were no material changes to the risk factors disclosed in “Part I, Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2024. For more information concerning our risk factors, please see “Part I, Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2024.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
There were no sales of unregistered securities during the quarter ended March 31, 2025 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 March 31, 2025,
no director or officer (as defined in Rule 16a-1(f) of the Exchange Act) of the Company
| 47 |
ITEM 6. EXHIBITS
The exhibits listed below are filed as a part of this report or incorporated herein by reference.
| 48 |
| * | 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. |
| + | 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)(10)(iv) 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. |
| 49 |
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. | ||
| May 14, 2025 | By: | /s/ Elizabeth B. Taylor |
| Elizabeth B. Taylor | ||
| Chief Financial Officer | ||
| (Principal Financial Officer and duly authorized officer) | ||
| 50 |