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What changed in Sanara MedTech Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Sanara MedTech Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+402 added−323 removedSource: 10-K (2024-03-25) vs 10-K (2023-03-20)

Top changes in Sanara MedTech Inc.'s 2023 10-K

402 paragraphs added · 323 removed · 242 edited across 5 sections

Item 1. Business

Business — how the company describes what it does

97 edited+45 added−39 removed120 unchanged
Biggest changeThis comprehensive wound and skin assessment technology is designed to quantify biochemical markers to determine the trajectory of a wound’s condition to enable better diagnosis and treatment protocol. We plan to submit a 510(k) premarket notification for the Precision Healing diagnostic imager in 2023. We also plan to submit a 510(k) premarket notification for the Precision Healing LFA in 2023.
Biggest change(“Precision Healing”) became a wholly owned subsidiary of the Company. Precision Healing is developing a diagnostic imager and lateral flow assay (“LFA”) for assessing a patient’s wound and skin conditions. This comprehensive wound and skin assessment technology is designed to quantify biochemical markers to determine the trajectory of a wound’s condition to enable better diagnosis and treatment protocol.
We are led by a dedicated and seasoned management team with significant industry experience who have successfully executed our strategic implementation to date by launching new products and technologies through investment in new areas of growth. We believe our management has the vision and experience to implement our future growth strategy.
We are led by a dedicated and seasoned management team with significant industry experience who have successfully executed our strategic implementation to date by launching new products and technologies through investment in new areas of growth. We believe our management team has the vision and experience to implement our future growth strategy.
Another retrospective case study regarding the use of CellerateRX was recently published by Dr. Alex Gitelman in November 2022. This study of 54 patients undergoing spinal surgery demonstrated no incidence of surgical wound complication.
Another retrospective case study regarding the use of CellerateRX Surgical was recently published by Dr. Alex Gitelman in November 2022. This study of 54 patients undergoing spinal surgery demonstrated no incidence of surgical wound complication.
The Class I designation also applies to devices for which there is insufficient information to determine that general controls are sufficient to provide reasonable assurance of the safety and effectiveness of the device or to establish special controls to provide such assurance, but that are not life-supporting or life-sustaining or for a use which is of substantial importance in preventing impairment of human health, and that do not present a potential unreasonable risk of illness of injury.
The Class I designation also applies to devices for which there is insufficient information to determine that general controls are sufficient to provide reasonable assurance of the safety and effectiveness of the device or to establish special controls to provide such assurance, but that are not life-supporting or life-sustaining or for a use which is of substantial importance in preventing impairment of human health, and that do not present a potential unreasonable risk of illness or injury.
Recent Published Studies on CellerateRX 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. CellerateRX Surgical Activated Collagen is sterilized, packaged and designed, specifically for use in the operating room (or sterile field), including additional sterility validation.
Recent Published Studies on 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. CellerateRX Surgical is sterilized, packaged and designed, specifically for use in the operating room (or sterile field), including additional sterility validation.
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 Activated Collagen Powder is sterilized, packaged and designed specifically for use in the operating room or other sterile environment.
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.
We believe the efficacy of our offerings will be proven via statistically significant collected and analyzed clinical and health economic outcomes data, resulting in expanded adoption of our products at a lower overall cost to payors. 6 ● Proven executive leadership team with a long-term track record of value creation .
We believe the efficacy of our offerings will be proven via statistically significant collected and analyzed clinical and health economic outcomes data, resulting in expanded adoption of our products at a lower overall cost to payors. ● Proven executive leadership team with a long-term track record of value creation .
Additional surgical wounds that may benefit from the use of CellerateRX Surgical include cardiovascular, gynecologic, urologic and plastic/reconstructive related procedures. 7 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.
Additional surgical wounds that may benefit from the use of CellerateRX Surgical include cardiovascular, gynecologic, urologic 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.
The annual minimum royalty will increase by $5,000 each subsequent calendar year up to a maximum amount of $75,000. ● We will pay additional royalties annually based on specific net profit targets from sales of the licensed products, subject to a maximum of $500,000 during any calendar year.
The annual minimum royalty will increase by $5,000 each subsequent calendar year up to a maximum amount of $75,000. ● We could pay additional royalties annually based on specific net profit targets from sales of the licensed products, subject to a maximum of $500,000 during any calendar year.
Patent No. 8,829,053 entitled “Biocidal Compositions and Methods of Using the Same” (expiring December 7, 2031) relating to BIAKŌS AWC, BIAKŌS AWG and BIASURGE Antimicrobial Surgical Wash, as well as over 100 issued patents in foreign jurisdictions.
Patent No. 8,829,053 entitled “Biocidal Compositions and Methods of Using the Same” (expiring December 7, 2031) relating to BIAKŌS AWC, BIAKŌS AWG and BIASURGE Surgical Wash, as well as over 100 issued patents in foreign jurisdictions.
Following our acquisition by merger of Precision Healing in April 2022, described in further detail below, our patent portfolio now also includes, among others, five pending U.S. patent applications as well as one pending international patent application.
Following our acquisition by merger of Precision Healing in April 2022, described in further detail below, our patent portfolio now includes, among others, five pending U.S. patent applications as well as one pending international patent application.
Copies of the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K and amendments to those reports filed or furnished to the SEC are also available free of charge through the Company’s website (http://www.sanaramedtech.com/), as soon as reasonably practicable after electronically filing with or otherwise furnishing such information to the SEC, and are available in print to any shareholder who requests it.
Copies of the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K and amendments to those reports filed or furnished to the SEC are also available free of charge through the Company’s investor relations website (http://www.sanaramedtech.com/investor-relations/), as soon as reasonably practicable after electronically filing with or otherwise furnishing such information to the SEC, and are available in print to any shareholder who requests it.
The minimum annual royalty due to Rochal will be $100,000 beginning with the first full calendar year following the year in which first commercial sales of the licensed products occur and increase by $10,000 each subsequent calendar year up to a maximum amount of $150,000. ● We will pay additional royalty annually based on specific net profit targets from sales of the licensed products, subject to a maximum of $1,000,000 during any calendar year.
The minimum annual royalty due to Rochal will be $100,000 beginning with the first full calendar year following the year in which first commercial sales of the licensed products occur and increase by $10,000 each subsequent calendar year up to a maximum amount of $150,000. ● We could pay additional royalties annually based on specific net profit targets from sales of the licensed products, subject to a maximum of $1,000,000 during any calendar year.
FORTIFY FLOWABLE Extracellular Matrix is provided sterile and is intended for one-time use. It is a 510(k) cleared product. First sales of this product occurred in the first quarter of 2022. TEXAGEN is a multi-layer amniotic membrane allograft used as an anatomical barrier with robust handling that can be sutured for securement if needed.
FORTIFY FLOWABLE is provided sterile and is intended for one-time use. It is a 510(k) cleared product. First sales of this product occurred in the first quarter of 2022. TEXAGEN is a multi-layer amniotic membrane allograft used as an anatomical barrier with robust handling that can be sutured for securement if needed.
In July 2022, through the acquisition of Scendia, we expanded our surgical product offerings to include regenerative and orthobiologic technologies. We chose to focus our sales and marketing on four key products: TEXAGEN, BiFORM, AMPLIFY and ALLOCYTE. As part of the integration of Scendia into Sanara, we are continuing to work to add facility approvals for these products.
In July 2022, through the acquisition of Scendia, we expanded our surgical product offerings to include regenerative and orthobiologic technologies. We chose to focus our sales and marketing on four key products: TEXAGEN, BiFORM, ACTIGEN and ALLOCYTE. As part of the integration of Scendia into Sanara, we are continuing to work to add facility approvals for these products.
FORTIFY FLOWABLE Extracellular Matrix 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 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.
Annually, 2.5 million pressure ulcers are treated in the United States in acute care facilities alone, according to a 2006 study published in the Journal of the American Medical Association. Sanara Products We market and distribute surgical, wound and skincare products and services to physicians, hospitals, clinics, and post-acute care settings.
Annually, 2.5 million pressure injury/ulcers are treated in the United States in acute care facilities alone, according to a 2006 study published in the Journal of the American Medical Association. 7 Sanara Products We market and distribute surgical, wound and skincare products and services to physicians, hospitals, clinics, and post-acute care settings.
After completing their internal training, new hire field sales representatives participate in field training with experienced field trainers to get insights into best practice as well as real world training. The initial training period lasts approximately five weeks. Field sales representatives are supported by regular updated training modules on product information and best practices.
After completing their internal training, new hire field sales representatives participate in field training with experienced field trainers to get insights into best practice as well as real world training. The initial training period lasts approximately eight weeks. Field sales representatives are supported by regular updated training modules on product information and best practices.
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. AMPLIFY is a verified inductive allograft putty with conformable handling properties.
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 is a verified inductive allograft putty with conformable handling properties.
We have a robust pipeline of surgical and chronic wound and skincare products that we expect to market in the near term.
We have a robust pipeline of surgical, wound and skincare products that we expect to market in the near term.
Device Premarket Regulatory Requirements Before being introduced into the U.S. market, each medical device must obtain marketing clearance or approval from the FDA through the 510(k) premarket notification process, the de novo classification process (summarized below), or the premarket approval application (“PMA”) process, unless they are determined to be Class I devices or to otherwise qualify for an exemption from one of these available forms of premarket review and authorization by the FDA.
Part 1271. 12 Device Premarket Regulatory Requirements Before being introduced into the U.S. market, each medical device must obtain marketing clearance or approval from the FDA through the 510(k) premarket notification process, the de novo classification process (summarized below), or the premarket approval application (“PMA”) process, unless they are determined to be Class I devices or to otherwise qualify for an exemption from one of these available forms of premarket review and authorization by the FDA.
In each of the various wound types, the presence of biofilms is a frequent cause for chronification of wounds and the removal of biofilms is a crucial step to commence healing. Biofilms need to be eradicated to prevent further deterioration of the wound that may result in additional negative patient outcomes.
In each of the various wound types, the presence of biofilms is a frequent cause for chronicity of wounds and the removal of biofilms is a crucial step to commence healing. Biofilms need to be eradicated to prevent further deterioration of the wound that may result in additional negative patient outcomes.
Surgical wound complications have become increasingly problematic due to the high rates of surgical patient comorbidities and the financial strain on insurance carriers as well as hospitals who suffer exorbitant costs for readmission of these patients within 30 days of surgery.
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 30 days of surgery.
Class I devices are those for which reasonable assurance of safety and effectiveness can be assured by adherence to general controls that include compliance with the applicable portions of the FDA’s Quality System Regulation (“QSR”), as well as regulations requiring facility registration and product listing, reporting of adverse medical events, and appropriate, truthful and nonmisleading labeling, advertising and promotional materials.
Class I devices are those for which reasonable assurance of safety and effectiveness can be assured by adherence to general controls that include compliance with the applicable portions of the FDA’s Quality System Regulation (“QSR”), as well as regulations requiring facility registration and product listing, reporting of adverse medical events, and appropriate, truthful and non-misleading labeling, advertising and promotional materials.
In addition, we market certain products for use in surgical wound care regulated by the FDA under Section 361 of the Public Health Service Act (“PHSA”) (42 U.S.C. § 264) and 21 C.F.R. Part 1271.
In addition, we market certain products for use in surgical wound care regulated by the FDA under Section 361 of the Public Health Service Act (“PHSA”) (42 U.S.C. § 264) and 21 C.F.R.
By helping the body 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).
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).
Field sales representatives are initially trained through an internal learning management system, SanaraU, which gives them further product and surgical specialty training including wound etiology, operating room etiquette and credentialing requirements.
Field sales representatives are initially trained through an internal learning management system, “SanaraU”, which gives them further product and surgical specialty training including wound etiology, operating room etiquette and credentialing requirements.
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 December 31, 2022.
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 December 31, 2023.
Since our acquisition of Scendia, we have been selling a full line of regenerative and orthobiologic technologies including (i) TEXAGEN Amniotic Membrane Allograft (“TEXAGEN”), (ii) BiFORM Bioactive Moldable Matrix (“BiFORM”), (iii) AMPLIFY Verified Inductive Bone Matrix (“AMPLIFY”) and (iv) ALLOCYTE Advanced Cellular Bone Matrix (“ALLOCYTE”). In November 2022, we established a partnership with InfuSystem Holdings, Inc.
Since our acquisition of Scendia, we have been selling a full line of regenerative and orthobiologic technologies including (i) TEXAGEN Amniotic Membrane Allograft (“TEXAGEN”), (ii) BiFORM Bioactive Moldable Matrix (“BiFORM”), (iii) ACTIGEN Verified Inductive Bone Matrix (“ACTIGEN”) and (iv) ALLOCYTE Advanced Cellular Bone Matrix (“ALLOCYTE”). In November 2022, we established a partnership with InfuSystem Holdings, Inc.
These include: ● establishment registration and device listing; ● development of a quality management system, including establishing and implementing procedures to design and manufacture devices in compliance with the QSR (unless a device category is exempt from this requirement by the FDA, such as in the case of many Class I devices); ● labeling regulations that prohibit the promotion of products for uncleared or unapproved uses (known as off-label uses), as well as requirements to provide accurate and nonmisleading information and adequate information on both risks and benefits of the device; ● FDA’s unique device identification requirements that call for a unique device identifier on device labels, packages, and in some cases, on the device itself, and submission of data to the FDA’s Global Unique Device Identification Database; ● medical device reporting regulations that require manufacturers to report to the FDA if a device may have caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if it were to recur; ● corrections and removal reporting regulations that require manufacturers report to the FDA field corrections and product recalls or removals if undertaken to reduce a risk to health posed by the device or to remedy a violation of the FDCA that may present a risk to health; and ● postmarket surveillance regulations, which apply to Class II or Class III devices if the FDA has issued a postmarket surveillance order and the failure of the device would be reasonably likely to have serious adverse health consequences, the device is expected to have significant use in the pediatric population, the device is intended to be implanted in the human body for more than one year, or the device is intended to be used to support or sustain life and to be used outside a user facility. 14 Our research and development partners and their contract manufacturers may be subject to periodic scheduled or unscheduled inspections by the FDA.
These include: ● establishment registration and device listing; ● development of a quality management system, including establishing and implementing procedures to design and manufacture devices in compliance with the QSR (unless a device category is exempt from this requirement by the FDA, such as in the case of many Class I devices); ● labeling regulations that prohibit the promotion of products for uncleared or unapproved uses (known as off-label uses), as well as requirements to provide accurate and non-misleading information and adequate information on both risks and benefits of the device; ● FDA’s unique device identification requirements that call for a unique device identifier on device labels, packages, and in some cases, on the device itself, and submission of data to the FDA’s Global Unique Device Identification Database; ● medical device reporting regulations that require manufacturers to report to the FDA if a device may have caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if it were to recur; ● corrections and removal reporting regulations that require manufacturers report to the FDA field corrections and product recalls or removals if undertaken to reduce a risk to health posed by the device or to remedy a violation of the FDCA that may present a risk to health; and ● postmarket surveillance regulations, which apply to Class II or Class III devices if the FDA has issued a postmarket surveillance order and the failure of the device would be reasonably likely to have serious adverse health consequences, the device is expected to have significant use in the pediatric population, the device is intended to be implanted in the human body for more than one year, or the device is intended to be used to support or sustain life and to be used outside a user facility.
The risk of venous ulcers can be increased as a result of a blood clot forming in the deep veins of the legs, obesity, smoking, lack of physical activity or work that requires many hours of standing. ● Pressure Ulcers .
The risk of VLUs can be increased as a result of a blood clot forming in the deep veins of the legs, obesity, smoking, lack of physical activity or work that requires many hours of standing. ● Pressure Injury/Ulcers .
We believe we are the only company that will be able to provide a comprehensive solution for wound care which includes a wound and skin specific EMR, virtual consult services with expert wound care providers and dermatologists, propriety diagnostics and highly efficacious proprietary products allowing us to effectively treat wound care patients in any care setting. ● Wound care products for all care settings .
We believe we are the only company that will be able to provide a comprehensive solution for wound care which includes a wound and skin specific electronic medical record (“EMR”), virtual consult services with expert wound care providers and dermatologists, propriety diagnostics and highly efficacious proprietary products allowing us to effectively treat wound care patients in any care setting. ● Wound care products for all care settings .
CellerateRX Surgical products, TEXAGEN products, FORTIFY TRG Tissues Repair Graft, and FORTIFY FLOWABLE Extracellular Matrix are used in specialties including cardiothoracic, colorectal, general surgery, hand, head and neck, high-risk obstetrics and gynecology, Mohs surgery, neurosurgery, oncology, orthopedic (hip and knee, sports, spine, joint, foot and ankle, ortho trauma and ortho oncology), plastic/reconstructive, podiatric, urology, and vascular.
CellerateRX Surgical products, TEXAGEN products, FORTIFY TRG, and FORTIFY FLOWABLE are used in specialties including cardiothoracic, colorectal, general surgery, hand, head and neck, high-risk obstetrics and gynecology, Mohs surgery, neurosurgery, oncology, orthopedic (hip and knee, sports, spine, joint, foot and ankle, ortho trauma and ortho oncology), plastic/reconstructive, podiatric, urology, and vascular.
We intend to continue expanding our platform to aid in treating wound and skincare patients as they progress through the healing process in all care settings. We formed WounDerm to hold certain investments in technologies and operations in wound and skincare virtual consult services.
We intend to continue expanding our platform to aid in treating wound and skincare patients as they progress through the healing process in all care settings. We formed Tissue Health Plus to hold certain investments in technologies and operations in wound and skincare virtual consult services.
FORTIFY TRG Tissue Repair Graft and FORTIFY FLOWABLE Extracellular Matrix, are currently 510(k) cleared for use in the surgical segment. We believe that both products are a complementary offering to CellerateRX Surgical and we are working to increase both the number of contract opportunities and facility approvals to drive further sales growth.
FORTIFY TRG and FORTIFY FLOWABLE, are currently 510(k) cleared for use in the surgical segment. We believe that both products are a complementary offering to CellerateRX Surgical and we are working to increase both the number of contract opportunities and facility approvals to drive further sales growth.
Cook Biotech Marketing and Distribution Agreement In December 2020, we entered into a marketing and distribution agreement with Cook Biotech whereby we were appointed as the exclusive distributor in the United States of certain Cook Biotech advanced biologic products. FORTIFY TRG Tissue Repair Graft and FORTIFY FLOWABLE Extracellular Matrix are for use in the surgical care segment.
Cook Biotech Marketing and Distribution Agreement In December 2020, we entered into a marketing and distribution agreement with Cook Biotech whereby we were appointed as the exclusive distributor in the United States of certain Cook Biotech advanced biologic products. FORTIFY TRG and FORTIFY FLOWABLE are for use in the surgical care segment.
We anticipate that our WounDerm services, once launched, will provide a significant amount of patient data to help us measure our products’ effectiveness on improving patient outcomes while simultaneously reducing healthcare costs.
We anticipate that our THP strategy, once launched, will provide a significant amount of patient data to help us measure our products’ effectiveness on improving patient outcomes while simultaneously reducing healthcare costs.
These laws may affect our future sales, marketing, and other promotional activities by imposing administrative and compliance burdens. 16 If our operations are found to be in violation of any of the laws or regulations described above or any other laws that apply to us, we may be subject to penalties or other enforcement actions, including criminal and significant civil monetary penalties, damages, fines, disgorgement, imprisonment, exclusion from participation in government healthcare programs, corporate integrity agreements, debarment from receiving government contracts or refusal of new orders under existing contracts, reputational harm, diminished profits and future earnings, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations.
If our operations are found to be in violation of any of the laws or regulations described above or any other laws that apply to us, we may be subject to penalties or other enforcement actions, including criminal and significant civil monetary penalties, damages, fines, disgorgement, imprisonment, exclusion from participation in government healthcare programs, corporate integrity agreements, debarment from receiving government contracts or refusal of new orders under existing contracts, reputational harm, diminished profits and future earnings, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations.
The minimum annual royalty due to Rochal was $120,000 in 2022 and will increase by $10,000 each subsequent calendar year up to a maximum amount of $150,000. ● We pay additional royalty annually based on specific net profit targets from sales of the licensed products, subject to a maximum of $1,000,000 during any calendar year.
The minimum annual royalty due to Rochal was $130,000 in 2023 and will increase by $10,000 each subsequent calendar year up to a maximum amount of $150,000. ● We could pay an additional annual royalty based on specific net profit targets from sales of the licensed products, subject to a maximum of $1,000,000 during any calendar year.
If our sales and marketing efforts are successful, the clinicians then advocate for the use of our products when medically necessary. Manufacturing, Supply and Production We do not own or operate and do not intend to establish our own manufacturing facilities. We rely on, and plan to continue relying on, contract manufacturing for our products.
If our sales and marketing efforts are successful, the clinicians then advocate for the use of our products when medically necessary. Manufacturing, Supply and Production We do not own or operate our own manufacturing facilities. We rely on contract manufacturing for our products.
Our chronic wound care products, HYCOL Hydrolyzed Collagen (Powder and Gel) (collectively, “HYCOL”), BIAKŌS Antimicrobial Skin and Wound Cleanser (“BIAKŌS AWC”) and BIAKŌS Antimicrobial Wound Gel (“BIAKŌS AWG”), are targeted for use across the post-acute continuum of care, including home health, hospice, physician offices, podiatrists, retail, skilled nursing facilities (“SNFs”) and wound care clinics.
Our post-acute wound care products, HYCOL, BIAKŌS Antimicrobial Skin and Wound Cleanser (“BIAKŌS AWC”) and BIAKŌS Antimicrobial Wound Gel (“BIAKŌS AWG”), are targeted for use across the continuum of care, including home health, hospice, physician offices, retail, skilled nursing facilities (“SNFs”), and wound care clinics.
BiFORM, AMPLIFY, and ALLOCYTE are used in orthopedic specialties including hip and knee, sports, spine, joint, foot and ankle, ortho trauma and ortho oncology. Currently, substantially all of our revenue is derived from the sale of surgical products. In 2021, we launched FORTIFY TRG Tissue Repair Graft and FORTIFY FLOWABLE Extracellular Matrix, which we license from Cook Biotech.
BiFORM, ACTIGEN, ALLOCYTE, and ALLOCYTE Plus are used in orthopedic specialties including hip and knee, sports, spine, joint, foot and ankle, ortho trauma and ortho oncology. Currently, substantially all of our revenue is derived from the sale of surgical products. In 2021, we launched FORTIFY TRG and FORTIFY FLOWABLE, which we license from Cook Biotech.
Pressure ulcers, also known as decubitus ulcers or bed sores, are injuries to skin and underlying tissue resulting from prolonged pressure, or pressure in combination with shear or friction. Constant pressure on an area of skin reduces blood supply to the area and over time can cause the skin to break down and form an open ulcer.
Pressure injury/ulcers are injuries to the skin and underlying tissue resulting from prolonged pressure, or pressure in combination with shear or friction. Constant pressure on an area of skin reduces blood supply to the area and over time can cause the skin to break down and form an open ulcer.
HYCOL provides the benefit of hydrolyzed collagen directly in the wound bed. Therefore, unlike with the body’s own native collagen or native collagen products, the body does not have to break HYCOL down before use, which is extremely beneficial when treating elderly and otherwise compromised patients with comorbidities such as diabetes and peripheral vascular disease.
Therefore, unlike with the body’s own native collagen or native collagen products, the body does not have to break HYCOL down before use, which is extremely beneficial when treating elderly and otherwise compromised patients with comorbidities such as diabetes and peripheral vascular disease.
In July 2022, we entered into a membership interest purchase agreement with Scendia and Ryan Phillips (the “Seller”) pursuant to which we acquired 100% of the issued and outstanding membership interests in Scendia from the Seller.
In July 2022, we entered into a membership interest purchase agreement with Scendia Biologics, LLC (“Scendia”) and Ryan Phillips (“Phillips”) pursuant to which we acquired 100% of the issued and outstanding membership interests in Scendia from Phillips.
We anticipate resolution of the supply issues in the second half of 2023. 10 Reimbursement, Clinical Validation and Clinical Utility We do not promote our products based on their reimbursement status, however, we are mindful of the benefits of a favorable reimbursement coverage status to increase patient access and support our research and development efforts to supply the highest efficacy solutions.
Reimbursement, Clinical Validation and Clinical Utility We do not promote our products based on their reimbursement status, however, we are mindful of the benefits of a favorable reimbursement coverage status to increase patient access and support our research and development efforts to supply the highest efficacy solutions.
Many of our competitors are significantly larger than we are and have greater financial and personnel resources. WounDerm plans to offer a comprehensive wound care and dermatology strategy to expand cost-effective, high-quality wound and skin care to all patients throughout the care setting continuum.
Many of our competitors are significantly larger than we are and have greater financial and personnel resources. With respect to our comprehensive value-based care strategy, THP plans to offer a comprehensive wound care and dermatology strategy to expand cost-effective, high-quality wound and skincare to all patients throughout the care setting continuum.
BIAKŌS AWC is also available in an irrigation bottle (BIAKŌS Antimicrobial Skin and Wound Irrigation Solution) that can be used in conjunction with negative pressure wound therapy instillation and dwell as well as other wound irrigation needs. Further, we have a robust pipeline of products under development for the surgical and chronic wound care markets.
BIAKŌS AWC is also available in an irrigation bottle (BIAKŌS Antimicrobial Skin and Wound Irrigation Solution) that can be used in conjunction with NPWT instillation and dwell as well as other wound irrigation needs. Further, we have a robust pipeline of products under development to further expand our position in the surgical and wound care markets.
Unless previously terminated by the parties, the BIAKŌS License Agreement expires with the related patents in December 2031. 11 CuraShield Antimicrobial Barrier Film and No Sting Skin Protectant In October 2019, we executed a license agreement with Rochal pursuant to which we 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”).
CuraShield Antimicrobial Barrier Film and No Sting Skin Protectant In October 2019, we executed a license agreement with Rochal pursuant to which we 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”).
Sales and Marketing As of December 31, 2022, we employed 39 field sales representatives. Our field sales representatives are recruited based on their previous industry experience and professional performance. We constantly evaluate new markets and sales opportunities to add to our sales teams as warranted.
Our field sales representatives are recruited based on their previous industry experience and professional performance. We constantly evaluate new markets and sales opportunities to add to our sales teams as warranted.
Looking ahead, we plan to leverage these capabilities to partner with value-based care models to aid in the treatment of their wound care patients who currently are a significant cost for the healthcare system and challenging population to heal. Competitive Strengths ● Attractive markets for surgical and chronic wound care .
Looking ahead, we plan to leverage these capabilities to partner with value-based care models to aid in the treatment of their wound care patients who currently are a significant cost for the healthcare system and challenging population to heal. ● Capture patients throughout the entire continuum of care .
Before approving a PMA, the FDA generally also performs an on-site inspection of manufacturing facilities for the product to ensure compliance with the QSR. Thus far, all of the medical devices that we currently market and distribute have been cleared through 510(k) premarket notifications filed by our third-party research and development partners, who are the manufacturers of such devices.
Before approving a PMA, the FDA generally also performs an on-site inspection of manufacturing facilities for the product to ensure compliance with the QSR. Thus far, all of the medical devices that we currently market and distribute have been cleared through 510(k) premarket notifications.
Each of our products, services and technologies contributes to our overall goal of achieving better clinical outcomes at a lower overall cost for patients regardless of where they receive care.
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.
Debrider License Agreement In May 2020, we executed a product license agreement with Rochal, pursuant to which we 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”).
No commercial sales or royalties have been recognized under this agreement as of December 31, 2023. 11 Debrider License Agreement In May 2020, we executed a product license agreement with Rochal, pursuant to which we 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”).
The SEC maintains an Internet site (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.
Available Information The Company electronically files reports with the Securities and Exchange Commission (the “SEC”). The SEC maintains an Internet site (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.
The agreement will terminate in June 2024 with automatic two-year renewal terms unless notice of nonrenewal is given by one party at least one year prior to the end of the initial term or renewal term that is then in effect.
While the term of the agreement ends in June 2024, the agreement provides for automatic two-year renewal terms if notice of nonrenewal is not given by one party at least one year prior to the end of the initial term or renewal term that is then in effect.
Our chronic wound care products can be used on stage I-IV pressure ulcers, diabetic foot ulcers (“DFUs”), venous stasis, arterial, post-surgical wounds, first- and second-degree burns and donor sites.
Our post-acute wound care products are indicated for use on stage I-IV pressure ulcers, diabetic foot ulcers (“DFUs”), venous stasis, arterial, post-surgical wounds, first- and second-degree burns and donor sites.
Market Scale A study by a physician at the Department of Surgery for the Indiana University Health Comprehensive Wound Center found that approximately 8.2 million patients suffer from surgical and chronic wounds each year in the United States.
We are seeking a partner to facilitate commercialization of Tissue Health Plus and share in the cost of development of the program. Market Scale A study by a physician at the Department of Surgery for the Indiana University Health Comprehensive Wound Center found that approximately 8.2 million patients suffer from surgical and chronic wounds each year in the United States.
We intend to further grow our patent portfolio by continuing to patent new products as they are developed, to defend intellectual property as we believe necessary by actively pursuing any infringements, to pursue the commercial opportunities our patents provide for our innovations, and to continue to develop our brands and trademarks.
We intend to further grow our patent portfolio by continuing to patent new products as they are developed, to defend intellectual property as we believe necessary by actively pursuing any infringements, to pursue the commercial opportunities our patents provide for our innovations, and to continue to develop our brands and trademarks. 9 Sales and Marketing As of December 31, 2023, we employed 39 field sales representatives covering 42 states.
FORTIFY TRG Tissue Repair Graft is provided sterile and can be hydrated with autologous blood fluid. First sales of this product occurred in the fourth quarter of 2021. FORTIFY FLOWABLE Extracellular Matrix 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.
First sales of this product occurred in the fourth quarter of 2021. 8 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.
In addition, under HIPAA and pursuant to the related contracts that we enter into with our business associates, we must report breaches of unsecured PHI to our contractual partners following discovery of the breach. Notification must also be made in certain circumstances to affected individuals, federal authorities and others.
In addition, under HIPAA and pursuant to the related contracts that we enter into with our business associates, we must report breaches of unsecured PHI to our contractual partners following discovery of the breach.
HCT/Ps are regulated by the FDA’s Center for Biologics Evaluation and Research (“CBER”) or Center for Devices and Radiological Health (“CDRH”) depending on the type of product, how it is manufactured and its intended uses.
They include (i) TEXAGEN, (ii) BiFORM, (iii) ACTIGEN, (iv) ALLOCYTE and (v) ALLOCYTE Plus. HCT/Ps are regulated by the FDA’s Center for Biologics Evaluation and Research (“CBER”) or Center for Devices and Radiological Health (“CDRH”) depending on the type of product, how it is manufactured and its intended uses.
If we are required to register with the FDA, by becoming the manufacturer or specification developer of any medical device for instance, then we also may be subject to such inspections by the FDA.
Our research and development partners and their contract manufacturers may be subject to periodic scheduled or unscheduled inspections by the FDA. If we are required to register with the FDA, by becoming the manufacturer or specification developer of any medical device for instance, then we also may be subject to such inspections by the FDA.
We are focused on offering additional products and services that are more efficacious than competing products and services and provide a stronger value proposition (lower total cost to heal and less time to heal, leading to reduced costs to the healthcare system). ● Capture patients throughout the entire continuum of care .
We are focused on offering additional products and services that are more efficacious than competing products and services and provide a stronger value proposition (lower total cost to heal and less time to heal, leading to reduced costs to the healthcare system). ● Seek and establish partnerships and product, services and/or technology acquisitions .
In certain cases, it may be necessary to modify our planned operations and procedures to comply with these more stringent state laws. Not only may some of these state laws impose fines and penalties upon violators, but also some, unlike HIPAA, may afford private rights of action to individuals who believe their personal information has been misused.
Not only may some of these state laws impose fines and penalties upon violators, but also some, unlike HIPAA, may afford private rights of action to individuals who believe their personal information has been misused.
We anticipate that this data will also enable us to participate in the creation of new standards of care that promote patient compliance and enable direct dialogue between patients, clinicians and payors, resulting in greater satisfaction for patients, their caregivers, clinicians and payors. ● Seek and establish partnerships and product, services and/or technology acquisitions .
We anticipate that this data will also enable us to participate in the creation of new standards of care that promote patient compliance and enable direct dialogue between patients, clinicians and payors, resulting in greater satisfaction for patients, their caregivers, clinicians and payors. 6 Competitive Strengths ● Attractive markets for surgical and chronic wound care .
Our business activities must comply with numerous healthcare laws, including, but not limited to, anti-kickback and false claims laws and regulations as well as data privacy and security laws and regulations, which are described below. 15 The federal Anti-Kickback Statute prohibits, among other things, any person or entity, from knowingly and willfully offering, paying, soliciting, or receiving any remuneration, directly or indirectly, overtly or covertly, in cash or in kind, to induce or in return for purchasing, leasing, ordering, or arranging for or recommending the purchase, lease, furnishing, or order of any item or service reimbursable under Medicare, Medicaid, or other federal healthcare programs, in whole or in part.
The federal Anti-Kickback Statute prohibits, among other things, any person or entity, from knowingly and willfully offering, paying, soliciting, or receiving any remuneration, directly or indirectly, overtly or covertly, in cash or in kind, to induce or in return for purchasing, leasing, ordering, or arranging for or recommending the purchase, lease, furnishing, or order of any item or service reimbursable under Medicare, Medicaid, or other federal healthcare programs, in whole or in part.
We also intend to leverage our comprehensive product, services and technology-based offerings portfolio and relationships with key constituents to deepen our presence in the chronic wound and skincare markets.
We are actively working to expand our geographic footprint across the entire United States. We also intend to leverage our comprehensive product, services and technology-based offerings portfolio and relationships with key constituents to deepen our presence in the surgical, wound and skincare markets.
ALLOCYTE is a human allograft cellular bone matrix containing bone-derived progenitor cells and conformable bone fibers. This viable cellular allograft is ready to use upon thawing and has fibrous handling properties.
ALLOCYTE and ALLOCYTE Plus are 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.
The FDA may reject the classification request if it identifies a legally marketed predicate device that would be appropriate for a 510(k) or determines that the device is not low to moderate risk or that general controls would be inadequate to control the risks and special controls cannot be developed. 13 Devices that are intended to be life sustaining or life supporting, devices that are implantable, devices that present a potential unreasonable risk of harm or are of substantial importance in preventing impairment of health and devices that are not substantially equivalent to a predicate device are placed in Class III and generally require FDA approval through the PMA process, unless the device is a preamendments device not yet subject to a regulation requiring premarket approval.
Devices that are intended to be life sustaining or life supporting, devices that are implantable, devices that present a potential unreasonable risk of harm or are of substantial importance in preventing impairment of health and devices that are not substantially equivalent to a predicate device are placed in Class III and generally require FDA approval through the PMA process, unless the device is a preamendments device not yet subject to a regulation requiring premarket approval.
In addition, safety studies demonstrated that BIAKŌS AWC is biocompatible and supports the wound healing process. BIAKŌS AWC is also available in an irrigation bottle (BIAKŌS Antimicrobial Skin and Wound Irrigation Solution) that can be used in conjunction with NPWT instillation and dwell as well as other wound irrigation needs.
BIAKŌS AWC is also available in an irrigation bottle (BIAKŌS Antimicrobial Skin and Wound Irrigation Solution) that can be used in conjunction with NPWT instillation and dwell as well as other wound irrigation needs. BIAKŌS AWG is an antimicrobial hydrogel wound dressing that can be used alone or in combination with BIAKŌS AWC.
FORTIFY TRG Tissue Repair Graft 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.
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.
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 December 31, 2022.
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.
Our surgical products, CellerateRX Surgical Activated Collagen (Powder and Gel) (collectively, “CellerateRX Surgical”), TEXAGEN, BiFORM, AMPLIFY and ALLOCYTE, FORTIFY TRG Tissue Repair Graft, and FORTIFY FLOWABLE Extracellular Matrix are used in a wide range of surgical specialties to help promote patient healing and reduce the risk of complications.
Our surgical products, CellerateRX Surgical, TEXAGEN, BiFORM, ACTIGEN, ALLOCYTE, ALLOCYTE Plus Advanced Viable Bone Matrix (“ALLOCYTE Plus”), BIASURGE, FORTIFY TRG Tissue Repair Graft (“FORTIFY TRG”), and FORTIFY FLOWABLE Extracellular Matrix (“FORTIFY FLOWABLE”) are used in a wide range of surgical specialties to help promote patient healing and reduce the risk of complications.
These laws may be similar to or even more protective than HIPAA and other federal privacy laws. For example, the laws of the State of California are more restrictive than HIPAA. Where state laws are more protective than HIPAA, we must comply with the state laws to which we are subject, in addition to HIPAA.
For example, the laws of the State of California are more restrictive than HIPAA. Where state laws are more protective than HIPAA, we must comply with the state laws to which we are subject, in addition to HIPAA. In certain cases, it may be necessary to modify our planned operations and procedures to comply with these more stringent state laws.
BIAKŌS AWG is an antimicrobial hydrogel wound dressing that can be used alone or in combination with BIAKŌS AWC. The BIAKŌS AWG is also 510(k) cleared and the product launched in November 2020 to complement BIAKŌS AWC. BIAKŌS AWC and BIAKŌS AWG are effective against planktonic microbes as well as immature and mature biofilms within the product.
The BIAKŌS AWG is also 510(k) cleared and the product launched in November 2020 to complement BIAKŌS AWC. BIAKŌS AWC and BIAKŌS AWG are effective against planktonic microbes as well as immature and mature biofilms within the wound. When used together, the cleanser can be used initially to clean a wound and disrupt biofilms (removing 99% in 10 minutes).
Comprehensive Value-Based Care Strategy In June 2020, we formed a subsidiary, United Wound and Skin Solutions, LLC (“UWSS” or “WounDerm”), to hold certain investments and operations in wound and skincare virtual consult services.
Comprehensive Value-Based Care Strategy In June 2020, we formed a subsidiary, United Wound and Skin Solutions, LLC (formerly known as “WounDerm”), to hold certain investments and operations in wound and skincare virtual consult services. In 2023, WounDerm was renamed and is now doing business as “Tissue Health Plus” (“THP”).
BIAKŌS AWC is indicated for the mechanical removal of debris, dirt, foreign materials, and microorganisms from wounds including stage I-IV pressure ulcers, DFUs, post-surgical wounds, first- and second-degree burns, as well as grafted and donor sites. BIAKŌS AWC is effective in killing planktonic microbes and immature and mature bacterial and fungal biofilms within the product.
BIAKŌS AWC is a 510(k) cleared, patented product that contains synergistic ingredients that have been shown to impact mature biofilm microbes. BIAKŌS AWC is indicated for the mechanical removal of debris, dirt, foreign materials, and microorganisms from wounds including stage I-IV pressure ulcers, DFUs, post-surgical wounds, first- and second-degree burns, as well as grafted and donor sites.
In a study conducted in 2020, BIAKŌS AWG, in combination with BIAKŌS AWC, was compared to a number of commercially available wound cleansers to treat chronic wounds such as pressure, diabetic and venous ulcers. The BIAKŌS combination of cleansing and gel dressing demonstrated a reduction in the biofilm microbes by 7.5 logs (>99.99% reduction).
The gel can then be applied and remains in the wound for up to 72 hours, helping to continue disrupting biofilm microbes. In a study conducted in 2020, BIAKŌS AWG, in combination with BIAKŌS AWC, was compared to a number of commercially available wound cleansers to treat chronic wounds such as pressure, diabetic and venous ulcers.
During the third quarter of 2022, we began to experience supply issues with the ALLOCYTE product line. The amount of qualifying eligible donor tissue was significantly reduced industry wide due to the stringent screening required. During the fourth quarter of 2022, we were unable to fill certain orders for this product which negatively impacted our sales.
During the third quarter of 2022, we began to experience supply issues with the ALLOCYTE product line. From the fourth quarter of 2022 through September of 2023, we were unable to fill certain orders for this product, which negatively impacted our sales growth.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeFor example, our Certificate of Formation and bylaws (i) do not provide for cumulative voting rights (therefore allowing the holders of a majority of the shares of common stock entitled to vote in any election of directors to elect all of the directors standing for election, if they should so choose), (ii) require that special meetings of the shareholders be called by the Chairman of the board of directors, the President or the board of directors, or by the holders of not less than ten percent (10%) of all the shares issued, outstanding and entitled to vote, (iii) permit our board of directors to alter, amend or repeal our bylaws or to adopt new bylaws, and (iv) enable our board of directors to increase the number of persons serving as directors and to fill vacancies created as a result of the increase by a majority vote of the directors present at a meeting of directors. 38 While we are subject to the provisions of Title 2, Chapter 21, Subchapter M of the TBOC, which provides that a Texas corporation that qualifies as an “issuing public corporation” (as defined in the TBOC) may not engage in specified types of business combinations, including mergers, consolidations and asset sales, with a person, or an affiliate or associate of that person, who is an “affiliated shareholder,” the restrictions in Title 2, Chapter 21, Subchapter M of the TBOC do not apply to us because we have elected, in the manner provided under the TBOC, not to be subject to such provisions.
Biggest changeFor example, our Certificate of Formation and Bylaws (i) do not provide for cumulative voting rights (therefore allowing the holders of a majority of the shares of common stock entitled to vote in any election of directors to elect all of the directors standing for election, if they should so choose), (ii) require that special meetings of the shareholders be called by the Chairman of the board of directors, the President or the board of directors, or by the holders of not less than twenty-five percent (25%) of all the shares issued, outstanding and entitled to vote, (iii) permit our board of directors to alter, amend or repeal our Bylaws or to adopt new bylaws, and (iv) enable our board of directors to increase the number of persons serving as directors and to fill vacancies created as a result of the increase by a majority vote of the directors present at a meeting of directors.
CellerateRX Surgical may be subject to competition from the sale of substantially equivalent products that could adversely affect our business and operations. ● We are heavily dependent on technologies and products we have licensed from third parties, and we may need to license technologies and products in the future, and if we fail to obtain licenses we need, or fail to comply with our payment and other obligations in the agreements under which we in-license intellectual property and other rights from third parties, we could lose our ability to develop and commercialize our products. ● We may be found to infringe on or violate intellectual property rights of others. ● Our business is affected by numerous regulations relating to the development, manufacture, distribution, labeling, marketing and sale of our products. ● We are subject to various governmental regulations relating to the labeling, marketing and sale of our products. 19 ● If we fail to obtain or experience significant delays in obtaining regulatory clearances or approvals to market future medical device products, we will be unable to commercialize these products until such clearance or approval is obtained. ● Delays in or changes to the FDA clearance and approval processes or ongoing regulatory requirements could make it more difficult for us to obtain FDA clearance or approval of new products or comply with ongoing requirements. ● Failure to obtain or maintain adequate reimbursement or insurance coverage for drugs, if any, could limit our ability to market those drugs and decrease our ability to generate revenue.
CellerateRX Surgical may be subject to competition from the sale of substantially equivalent products that could adversely affect our business and operations. ● We are heavily dependent on technologies and products we have licensed from third parties, and we may need to license technologies and products in the future, and if we fail to obtain licenses we need, or fail to comply with our payment and other obligations in the agreements under which we in-license intellectual property and other rights from third parties, we could lose our ability to develop and commercialize our products. ● We may be found to infringe on or violate intellectual property rights of others. ● Our business is affected by numerous regulations relating to the development, manufacture, distribution, labeling, marketing and sale of our products. ● We are subject to various governmental regulations relating to the labeling, marketing and sale of our products. ● If we fail to obtain or experience significant delays in obtaining regulatory clearances or approvals to market future medical device products, we will be unable to commercialize these products until such clearance or approval is obtained. ● Delays in or changes to the FDA clearance and approval processes or ongoing regulatory requirements could make it more difficult for us to obtain FDA clearance or approval of new products or comply with ongoing requirements. ● Failure to obtain or maintain adequate reimbursement or insurance coverage for drugs, if any, could limit our ability to market those drugs and decrease our ability to generate revenue.
We also may face significant delays in our product introductions and commercialization. ● Our revenue generated from the sale of Scendia products is heavily dependent on license agreements with certain manufacturers, and the termination of any of these license agreements could harm our business. ● Certain of our product candidates are still under development and we may not be able to successfully commercialize any of these product candidates. ● Our future success will largely depend on our ability to maintain and further grow clinical acceptance and adoption of our products, and we may be unable to adequately educate healthcare practitioners on the use and benefits of our products. ● Disruption of, or changes in, our distribution model or customer base could harm our sales and margins. ● Interruptions in the supply of our products or inventory loss may adversely affect our business, financial condition and results of operations. ● If we are unable to manage product inventory in an effective manner, our profitability could be impaired. ● Failure of any third-party assessments to demonstrate desired outcomes in proposed endpoints could have a negative impact on our business performance. ● Increased prices for, or unavailability of, raw materials used in our products could adversely affect our business, financial condition and results of operations. ● Our planned expansion into wound and skincare virtual consult and other services could have a material adverse effect on our business, financial condition and results of operations. ● Our planned expansion into wound and skincare virtual consult and other services will require entrance into several markets in which we have little or no experience, which may not be successful and could be costly. ● Our planned expansion into the telehealth business is dependent on our relationships with affiliated professional entities to provide physician services, and our business would be adversely affected if those relationships were disrupted. ● Recent and frequent state legislative and regulatory changes specific to telemedicine may present us with additional requirements and state compliance costs, with potential operational impacts in certain jurisdictions. ● If we are unable to adequately protect our intellectual property rights, we may not be able to compete effectively. ● CellerateRX Surgical is not currently protected by any pending patent application nor any unexpired patent.
We also may face significant delays in our product introductions and commercialization. ● Our revenue generated from the sale of Scendia products is heavily dependent on license agreements with certain manufacturers, and the termination of any of these license agreements could harm our business. ● Certain of our product candidates are still under development and we may not be able to successfully commercialize any of these product candidates. ● Our future success will largely depend on our ability to maintain and further grow clinical acceptance and adoption of our products, and we may be unable to adequately educate healthcare practitioners on the use and benefits of our products. 18 ● Disruption of, or changes in, our distribution model or customer base could harm our sales and margins. ● Interruptions in the supply of our products or inventory loss may adversely affect our business, financial condition and results of operations. ● If we are unable to manage product inventory in an effective manner, our profitability could be impaired. ● Failure of any third-party assessments to demonstrate desired outcomes in proposed endpoints could have a negative impact on our business performance. ● Increased prices for, or unavailability of, raw materials used in our products could adversely affect our business, financial condition and results of operations. ● Our planned expansion into wound and skincare virtual consult and other services could have a material adverse effect on our business, financial condition and results of operations. ● Our planned expansion into wound and skincare virtual consult and other services will require entrance into several markets in which we have little or no experience, which may not be successful and could be costly. ● Our planned expansion into the telehealth business is dependent on our relationships with affiliated professional entities to provide physician services, and our business would be adversely affected if those relationships were disrupted. ● Recent and frequent state legislative and regulatory changes specific to telemedicine may present us with additional requirements and state compliance costs, with potential operational impacts in certain jurisdictions. ● If we are unable to adequately protect our intellectual property rights, we may not be able to compete effectively. ● CellerateRX Surgical is not currently protected by any pending patent application or any unexpired patent.
In the event of a delisting, we expect that we would take actions to restore our compliance with Nasdaq’s listing requirements, but we can provide no assurance that any such action taken by us would allow our common stock to become listed again, stabilize the market price or improve the liquidity of our common stock, prevent our common stock from dropping below the Nasdaq minimum bid price requirement or prevent future noncompliance with Nasdaq’s listing requirements.
In the event of a delisting, we expect that we would take actions to restore our compliance with Nasdaq’s listing requirements, but we can provide no assurance that any such action taken by us would allow our common stock to become listed again, stabilize the market price or improve the liquidity of our common stock, prevent our common stock from dropping below the Nasdaq minimum bid price requirement or prevent future noncompliance with Nasdaq’s listing requirements. 39
Any scrutiny, investigation or litigation with regard to our future arrangements with these professional entities could have a material adverse effect on our business, financial condition, and results of operations. 26 Recent and frequent state legislative and regulatory changes specific to telemedicine may present us with additional requirements and state compliance costs, with potential operational impacts in certain jurisdictions.
Any scrutiny, investigation or litigation with regard to our future arrangements with these professional entities could have a material adverse effect on our business, financial condition, and results of operations. Recent and frequent state legislative and regulatory changes specific to telemedicine may present us with additional requirements and state compliance costs, with potential operational impacts in certain jurisdictions.
As a result, profitability of our current or future products may be more difficult to achieve. We rely heavily on our research and development partners to comply with applicable laws and regulations relating to product classification and when and what types of FDA marketing authorizations are needed to lawfully commercialize a new or updated medical product in the United States.
As a result, profitability of our current or future products may be more difficult to achieve. 32 We rely heavily on our research and development partners to comply with applicable laws and regulations relating to product classification and when and what types of FDA marketing authorizations are needed to lawfully commercialize a new or updated medical product in the United States.
The loss of, or inability to maintain, any of these license agreements could negatively impact our ability to sell Scendia products, which could have a material adverse effect on our business, financial condition and results of operations. Certain of our product candidates are still under development, and we may not be able to successfully commercialize any of these product candidates.
The loss of, or inability to maintain, any of these license agreements could negatively impact our ability to sell Scendia products, which could have a material adverse effect on our business, financial condition and results of operations. 24 Certain of our product candidates are still under development, and we may not be able to successfully commercialize any of these product candidates.
No assurance can be given that our existing sublicense agreement, license agreements or marketing and distribution agreement will continue to be extended on reasonable terms or at all. In addition, we expect we will need to license intellectual property, technology and products from third parties in the future and that these licenses will be material to our business.
No assurance can be given that our existing license agreements or marketing and distribution agreement will continue to be extended on reasonable terms or at all. In addition, we expect we will need to license intellectual property, technology and products from third parties in the future and that these licenses will be material to our business.
If either of these situations were to occur, our reseller channels would weaken, which would result in a material adverse effect on our business. Interruptions in the supply of our products or inventory loss may adversely affect our business, financial condition and results of operations.
If either of these situations were to occur, our reseller channels would weaken, which would result in a material adverse effect on our business. 25 Interruptions in the supply of our products or inventory loss may adversely affect our business, financial condition and results of operations.
As additional shares of our common stock become available for resale in the public market, the supply of our common stock will increase, which could decrease the price of our common stock. 37 We have not paid, and we are unlikely to pay, cash dividends on our securities in the near future.
As additional shares of our common stock become available for resale in the public market, the supply of our common stock will increase, which could decrease the price of our common stock. We have not paid, and we are unlikely to pay, cash dividends on our securities in the near future.
Any adverse regulatory action, depending on its magnitude, may restrict us from effectively manufacturing, marketing, and selling our products. 35 Relatedly, although we have contractual indemnity from the manufacturers of our current products for certain liability claims related to their production, we could face product liability lawsuits or other similar proceedings relating to actual or alleged injuries, defects, deficiencies, failures, and/or representations relating to our products that could fall outside of the scope of the contractual indemnities.
Any adverse regulatory action, depending on its magnitude, may restrict us from effectively manufacturing, marketing, and selling our products. 36 Relatedly, although we have contractual indemnity from the manufacturers of our current products for certain liability claims related to their production, we could face product liability lawsuits or other similar proceedings relating to actual or alleged injuries, defects, deficiencies, failures, and/or representations relating to our products that could fall outside of the scope of the contractual indemnities.
The 510(k), PMA and de novo classification approval processes can be expensive and lengthy. 30 Failure to comply with applicable regulatory requirements can result in, among other things, suspension or withdrawal of clearances or approvals, seizure or recall of products, injunctions against the manufacture, holding, distribution, marketing and sale of a product and civil and criminal sanctions.
The 510(k), PMA and de novo classification approval processes can be expensive and lengthy. 31 Failure to comply with applicable regulatory requirements can result in, among other things, suspension or withdrawal of clearances or approvals, seizure or recall of products, injunctions against the manufacture, holding, distribution, marketing and sale of a product and civil and criminal sanctions.
If we are unable to obtain adequate financing or financing on terms satisfactory to us when and if we require it, our ability to continue to support our business growth and to respond to business challenges could be significantly impaired, and our business may be harmed. 36 The trading price of the shares of our common stock is highly volatile, and purchasers of our common stock could incur substantial losses.
If we are unable to obtain adequate financing or financing on terms satisfactory to us when and if we require it, our ability to continue to support our business growth and to respond to business challenges could be significantly impaired, and our business may be harmed. 37 The trading price of the shares of our common stock is highly volatile, and purchasers of our common stock could incur substantial losses.
Moreover, it may be difficult or impossible to obtain evidence of infringement in a competitor’s or potential competitor’s product, particularly in litigation in countries other than the United States that do not provide an extensive discovery procedure. 27 CellerateRX Surgical is not currently protected by any pending patent application nor any unexpired patent.
Moreover, it may be difficult or impossible to obtain evidence of infringement in a competitor’s or potential competitor’s product, particularly in litigation in countries other than the United States that do not provide an extensive discovery procedure. CellerateRX Surgical is not currently protected by any pending patent application or any unexpired patent.
In July 2022, we entered into a membership interest purchase agreement with Scendia and the Seller, pursuant to which we acquired 100% of the issued and outstanding membership interests in Scendia from the Seller. Scendia provides clinicians and surgeons with a full line of regenerative and orthobiologic technologies including (i) TEXAGEN, (ii) BiFORM, (iii) AMPLIFY and (iv) ALLOCYTE.
In July 2022, we entered into a membership interest purchase agreement with Scendia and the Seller, pursuant to which we acquired 100% of the issued and outstanding membership interests in Scendia from the Seller. Scendia provides clinicians and surgeons with a full line of regenerative and orthobiologic technologies including (i) TEXAGEN, (ii) BiFORM, (iii) ACTIGEN and (iv) ALLOCYTE.
Our sublicense agreement and license agreements require that we comply with various obligations and provisions, and that we pay royalties to the sublicensor or licensor, as applicable, based on our net sales of the sublicensed and licensed products.
Our license agreements require that we comply with various obligations and provisions, and that we pay royalties to the sublicensor or licensor, as applicable, based on our net sales of the sublicensed and licensed products.
Our planned expansion into wound and skincare virtual consult and other services subjects us to risks associated with the use of new and novel technologies, operational, financial, regulatory, legal and reputational risks, as well as the risk that we may be unable to timely or successfully launch our service offerings.
Our planned expansion into wound and skincare virtual consult and other services, including our planned THP programs, subjects us to risks associated with the use of new and novel technologies, operational, financial, regulatory, legal and reputational risks, as well as the risk that we may be unable to timely or successfully launch our service offerings.
No assurance can be given that we will meet our minimum performance obligations or generate sufficient revenue or raise additional financing to meet our payment obligations in our agreements with CGI Cellerate RX, Rochal and Cook Biotech or other license or marketing and distribution agreements we enter into with third parties in the future.
No assurance can be given that we will meet our minimum performance obligations or generate sufficient revenue or raise additional financing to meet our payment obligations in our agreements with Rochal and Cook Biotech or other license or marketing and distribution agreements we enter into with third parties in the future.
U.S. federal and state laws that affect our ability to operate include, but are not limited to: ● the federal Anti-Kickback Statute, which prohibits, among other things, persons or entities from knowingly and willfully soliciting, receiving, offering or paying any remuneration (including any kickback, bribe, or rebate), directly or indirectly, overtly or covertly, in cash or in kind in return for, the purchase, recommendation, leasing or furnishing of an item or service reimbursable under a federal healthcare program, such as the Medicare and Medicaid programs; 32 ● federal civil and criminal false claims laws and civil monetary penalty laws, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment or approval from Medicare, Medicaid, or other government payors that are false or fraudulent; ● Section 242 of HIPAA codified at 18 U.S.C. § 1347, which created new federal criminal statutes that prohibit a person from knowingly and willfully executing a scheme or from making false or fraudulent statements to defraud any healthcare benefit program (i.e., public or private); ● federal transparency laws, including the so-called federal “sunshine” law, which requires the tracking and disclosure to the federal government by pharmaceutical and medical device manufacturers of payments and other transfers of value to physicians and teaching hospitals as well as ownership and investment interests that are held by physicians and their immediate family members; and ● state law equivalents of each of these federal laws, such as anti-kickback and false claims laws that may apply to items or services reimbursed by any third-party payer, including commercial insurers, state laws that require pharmaceutical and medical device companies to comply with their industry’s voluntary compliance guidelines and the applicable compliance guidance promulgated by the federal government or otherwise restrict certain payments that may be made to healthcare providers and other potential referral sources, state laws that require drug and medical device manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures, state laws that prohibit giving gifts to licensed healthcare professionals and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts in certain circumstances, such as specific disease states.
U.S. federal and state laws that affect our ability to operate include, but are not limited to: ● the federal Anti-Kickback Statute, which prohibits, among other things, persons or entities from knowingly and willfully soliciting, receiving, offering or paying any remuneration (including any kickback, bribe, or rebate), directly or indirectly, overtly or covertly, in cash or in kind in return for, the purchase, recommendation, leasing or furnishing of an item or service reimbursable under a federal healthcare program, such as the Medicare and Medicaid programs; ● federal civil and criminal false claims laws and civil monetary penalty laws, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment or approval from Medicare, Medicaid, or other government payors that are false or fraudulent; ● Section 242 of HIPAA codified at 18 U.S.C. § 1347, which created new federal criminal statutes that prohibit a person from knowingly and willfully executing a scheme or from making false or fraudulent statements to defraud any healthcare benefit program (i.e., public or private); ● federal transparency laws, including the so-called federal “sunshine” law, which requires the tracking and disclosure to the federal government by pharmaceutical and medical device manufacturers of payments and other transfers of value to physicians and teaching hospitals as well as ownership and investment interests that are held by physicians and their immediate family members; and ● state law equivalents of each of these federal laws, such as anti-kickback and false claims laws that may apply to items or services reimbursed by any third-party payer, including commercial insurers, state laws that require pharmaceutical and medical device companies to comply with their industry’s voluntary compliance guidelines and the applicable compliance guidance promulgated by the federal government or otherwise restrict certain payments that may be made to healthcare providers and other potential referral sources, state laws that require drug and medical device manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures, state laws that prohibit giving gifts to licensed healthcare professionals and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts in certain circumstances, such as specific disease states. 33 In particular, activities and arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, waste and other abusive practices.
In addition, provisions of our Certificate of Formation and bylaws may delay or discourage transactions involving an actual or potential change in our control or change in our management, including transactions in which shareholders might otherwise receive a premium for their shares, or transactions that our shareholders might otherwise deem to be in their best interests.
In addition, provisions of our Certificate of Formation and our Amended and Restated Bylaws (“Bylaws”) may delay or discourage transactions involving an actual or potential change in our control or change in our management, including transactions in which shareholders might otherwise receive a premium for their shares, or transactions that our shareholders might otherwise deem to be in their best interests.
Texas law and our Certificate of Formation and bylaws contain anti-takeover provisions that could delay or discourage takeover attempts that shareholders may consider favorable.
Texas law, our Certificate of Formation and our Amended and Restated Bylaws contain anti-takeover provisions that could delay or discourage takeover attempts that shareholders may consider favorable.
If we are unsuccessful in our comprehensive would and skincare strategy, we may be unable to meet our financial targets and our financial performance could be materially and adversely affected. 21 Failure to manage our growth strategy could harm our business.
If we are unsuccessful in our comprehensive wound and skincare strategy, we may be unable to meet our financial targets and our financial performance could be materially and adversely affected. Failure to manage our growth strategy could harm our business.
If we are unable to comply, or have not fully complied, with such laws, we could face substantial penalties. ● We and our or our research and development partners’ use and disclosure of PII, including health information, is subject to federal and state privacy and security regulations, and our failure to comply with those regulations or to adequately secure the information we hold could have a material adverse effect on our client base, business, financial condition and results of operations. ● Our officers, employees, independent contractors, principal investigators, consultants and commercial partners may engage in misconduct or activities that are improper under other laws and regulations, which would create liability for us. ● We could be adversely affected if healthcare reform measures substantially change the market for medical care or healthcare coverage in the United States. ● Defects, failures or quality issues associated with our products could materially adversely affect our reputation, business, results of operations and financial condition. 20 Risks Related to How We Operate Our Business We have had a history of losses, which may continue as we expand our selling efforts.
If we are unable to comply, or have not fully complied, with such laws, we could face substantial penalties. ● We and our or our research and development partners’ use and disclosure of PII, including health information, is subject to federal and state privacy and security regulations, and our failure to comply with those regulations or to adequately secure the information we hold could have a material adverse effect on our client base, business, financial condition and results of operations. ● Our officers, employees, independent contractors, principal investigators, consultants and commercial partners may engage in misconduct or activities that are improper under other laws and regulations, which would create liability for us. ● We could be adversely affected if healthcare reform measures substantially change the market for medical care or healthcare coverage in the United States. ● Defects, failures or quality issues associated with our products could lead to product recalls or safety alerts, adverse regulatory actions, product liability lawsuits and other litigation and negative publicity that could materially adversely affect our reputation, business, results of operations and financial condition. 19 Risks Related to How We Operate Our Business We have had a history of losses, which may continue as we expand our selling efforts.
Risks Related to Ownership of Our Common Stock The issuance of shares upon the exercise of derivative securities or as earnout payments may cause immediate and substantial dilution to our existing shareholders. As of December 31, 2022, we had approximately 162,916 shares of common stock that were issuable upon the exercise of vested outstanding stock options and warrants.
Risks Related to Ownership of Our Common Stock The issuance of shares upon the exercise of derivative securities or as earnout payments may cause immediate and substantial dilution to our existing shareholders. As of December 31, 2023, we had approximately 110,617 shares of common stock that were issuable upon the exercise of vested outstanding stock options and warrants.
Below is a summary of our risk factors with a more detailed discussion following. ● We have had a history of losses, which may continue as we expand our selling efforts. ● Our revenue growth for a particular period is difficult to predict, and a shortfall in forecasted revenues may harm our operating results. ● Our current comprehensive wound and skincare strategy involves growth through acquisitions and investments, which requires us to incur substantial costs and potential liabilities for which we may never realize the anticipated benefits. ● Failure to manage our growth strategy could harm our business. ● If we are unable to compete within our markets or our products, services and technologies do not gain market acceptance, our financial condition and operating results could suffer. 18 ● Security breaches and other disruptions could compromise our information and expose us to liability, which would cause our business and reputation to suffer. ● If we fail to maintain an effective system of internal controls over financial reporting, we may not be able to accurately report our financial results or prevent fraud and our business may be harmed and our stock price may be adversely impacted. ● We rely heavily on our research and development partners to design, manufacture and supply the products we have licensed for marketing.
Below is a summary of our risk factors with a more detailed discussion following. ● We have had a history of losses, which may continue as we expand our selling efforts. ● Our revenue growth for a particular period is difficult to predict, and a shortfall in forecasted revenues may harm our operating results. ● Our current comprehensive wound and skincare strategy involves growth through acquisitions and investments, which requires us to incur substantial costs and potential liabilities for which we may never realize the anticipated benefits. ● Our indebtedness could adversely affect our financial condition and prevent us from fulfilling our obligations. ● Our outstanding indebtedness is subject to certain operating and financial covenants that restrict our business and financing activities and may adversely affect our cash flow and our ability to operate our business. ● Failure to manage our growth strategy could harm our business. ● We may fail to realize all the anticipated benefits of the Applied Asset Purchase, or such benefits may take longer to realize than expected. ● If we are unable to compete within our markets or our products, services and technologies do not gain market acceptance, our financial condition and operating results could suffer. ● Security breaches and other disruptions could compromise our information and expose us to liability, which would cause our business and reputation to suffer. ● If we fail to maintain an effective system of internal controls over financial reporting, we may not be able to accurately report our financial results or prevent fraud and our business may be harmed and our stock price may be adversely impacted. ● We rely heavily on our research and development partners to design, manufacture and supply the products we have licensed for marketing.
Our profitability is affected by the prices of the raw materials used in the manufacture of our products. These prices may fluctuate based on a number of factors beyond our control, including changes in supply and demand, general economic conditions, labor costs, fuel related delivery costs, competition, import duties, excises and other indirect taxes, currency exchange rates, and government regulation.
These prices may fluctuate based on a number of factors beyond our control, including changes in supply and demand, general economic conditions, labor costs, fuel related delivery costs, competition, import duties, excises and other indirect taxes, currency exchange rates, and government regulation.
We are heavily dependent on licenses from our research and development partners for all our technologies and products and are party to a sublicense agreement with CGI Cellerate RX, license agreements with Rochal and a marketing and distribution agreement with Cook Biotech.
We are heavily dependent on licenses from our research and development partners for most of our technologies and products and are party to license agreements with Rochal and a marketing and distribution agreement with Cook Biotech.
If we fail to fully comply with the requirements of the Sarbanes-Oxley Act or our management concludes that our internal controls over financial reporting are not effective, our business may be harmed and our stock price may decline. In addition, because of its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements.
If we fail to fully comply with the requirements of the Sarbanes-Oxley Act or our management concludes that our internal controls over financial reporting are not effective, our business may be harmed and our stock price may decline.
The presence of competition in our market may lead to pricing pressure which would make it more difficult to sell our products, services and technologies at a profitable price or may prevent us from selling our products at all.
The presence of competition in our market may lead to pricing pressure which would make it more difficult to sell our products, services and technologies at a profitable price or may prevent us from selling our products at all. Our failure to compete effectively would have a material adverse effect on our business.
In addition, our Certificate of Formation contains a provision which under the Texas Business Organizations Code (the “TBOC”) could allow the shareholders who own a majority of our common stock to approve certain major transactions without the approval of other shareholders that otherwise would be required under Texas corporation law.
In addition, our Certificate of Formation contains a provision which under the Texas Business Organizations Code (the “TBOC”) could allow the shareholders who own a majority of our common stock to approve certain major transactions without the approval of other shareholders that otherwise would be required under Texas corporation law. 38 Our Certificate of Formation includes provisions limiting the personal liability of our directors for breaches of fiduciary duties under Texas law.
If we or our collaborators are unable to develop a body of statistically significant evidence from our clinical studies, whether due to adverse results or the inability to complete properly designed studies, public and private payors could refuse to cover our products, limit the manner in which they cover our products, or reduce the price they are willing to pay or reimburse for our products. 25 Increased prices for, or unavailability of, raw materials used in our products could adversely affect our business, financial condition and results of operations.
If we or our collaborators are unable to develop a body of statistically significant evidence from our clinical studies, whether due to adverse results or the inability to complete properly designed studies, public and private payors could refuse to cover our products, limit the manner in which they cover our products, or reduce the price they are willing to pay or reimburse for our products.
Misconduct by these parties could include, but is not limited to, intentional, reckless and/or negligent failures to comply with: ● the laws and regulations of the FDA and its foreign counterparts requiring, among other things, compliance with good manufacturing practice and/or quality system requirements, post-market vigilance reporting, product marketing authorization requirements, facility registration requirements, the reporting of true, complete and accurate information to such regulatory bodies, including but not limited to safety problems associated with the use of our products; ● laws and regulations of the FDA and its foreign counterparts concerning the conduct of clinical trials and the protection of human research subjects, including but not limited to good clinical practices; 34 ● other laws and regulations of the FDA and its foreign counterparts relating to the manufacture, processing, packing, holding, investigating or distributing in commerce of medical devices, biological products and/or HCT/Ps; ● manufacturing standards we have established; or ● healthcare fraud and abuse laws, including but not limited to, the Anti-Kickback Statute, the Stark Law, the FCA, and state law equivalents.
Misconduct by these parties could include, but is not limited to, intentional, reckless and/or negligent failures to comply with: ● the laws and regulations of the FDA and its foreign counterparts requiring, among other things, compliance with good manufacturing practice and/or quality system requirements, post-market vigilance reporting, product marketing authorization requirements, facility registration requirements, the reporting of true, complete and accurate information to such regulatory bodies, including but not limited to safety problems associated with the use of our products; ● laws and regulations of the FDA and its foreign counterparts concerning the conduct of clinical trials and the protection of human research subjects, including but not limited to good clinical practices; ● other laws and regulations of the FDA and its foreign counterparts relating to the manufacture, processing, packing, holding, investigating or distributing in commerce of medical devices, biological products and/or HCT/Ps; ● manufacturing standards we have established; or ● healthcare fraud and abuse laws, including but not limited to, the Anti-Kickback Statute, the Stark Law, the FCA, and state law equivalents. 35 In particular, companies involved in the manufacture of medical products are subject to laws and regulations intended to ensure that medical products that will be used in patients are safe and effective, and, specifically, that they are not adulterated or misbranded, that they are properly labeled, and have the identity, strength, quality and purity that which they are represented to possess.
Failure to comply with applicable regulatory requirements can result in, among other things, the FDA or other governmental authorities: ● imposing fines and penalties on us; ● preventing us from manufacturing or selling our products; ● delaying or denying pending applications for approval or clearance of our products or of new uses or modifications to our existing products, or withdrawing or suspending current approvals or clearances; ● ordering or requesting a recall of our products; ● issuing warning letters, untitled letters, or “It has Come to Our Attention” letters; ● imposing operating restrictions, including a partial or total shutdown of production or investigation of any or all of our products; ● refusing to permit to import or export of our products; 29 ● detaining or seizing our products; ● obtaining injunctions preventing us from manufacturing or distributing any or all of our products; ● commencing criminal prosecutions or seeking civil penalties; and ● requiring changes in our advertising and promotion practices.
Failure to comply with applicable regulatory requirements can result in, among other things, the FDA or other governmental authorities: ● imposing fines and penalties on us; ● preventing us from manufacturing or selling our products; ● delaying or denying pending applications for approval or clearance of our products or of new uses or modifications to our existing products, or withdrawing or suspending current approvals or clearances; ● ordering or requesting a recall of our products; ● issuing warning letters, untitled letters, or “It has Come to Our Attention” letters; ● imposing operating restrictions, including a partial or total shutdown of production or investigation of any or all of our products; ● refusing to permit to import or export of our products; ● detaining or seizing our products; ● obtaining injunctions preventing us from manufacturing or distributing any or all of our products; ● commencing criminal prosecutions or seeking civil penalties; and ● requiring changes in our advertising and promotion practices. 30 In addition, private consumer and competitor litigation tends to follow FDA enforcement actions and publications, such that a company that is targeted by FDA or another regulatory body is also at an increased risk of facing civil litigation (often in the form of class actions).
If any infringement or other intellectual property claim made against us by any third party is successful, or if we fail to develop noninfringing technology or license the proprietary rights on commercially reasonable terms and conditions, our business could be materially and adversely affected.
If any infringement or other intellectual property claim made against us by any third party is successful, or if we fail to develop noninfringing technology or license the proprietary rights on commercially reasonable terms and conditions, our business could be materially and adversely affected. 29 Risks Related to Regulations Our business is affected by numerous regulations relating to the development, manufacture, distribution, labeling, marketing and sale of our products.
Our competitors enjoy several competitive advantages over us, including but not limited to: ● large and established distribution networks in the United States and/or in international markets; ● greater financial, managerial and other resources for products research and development, sales and marketing efforts and protecting and enforcing intellectual property rights; ● greater name recognition; ● larger consumer bases; ● more expansive portfolios of products and intellectual property rights; and ● greater experience in obtaining and maintaining regulatory approvals and/or clearances from the FDA and other regulatory agencies.
Furthermore, our competitors may develop products, services or technologies that are more effective or achieve greater market acceptance than those being developed by us, which would render our products, services and technologies less competitive or obsolete. 21 Our competitors enjoy several competitive advantages over us, including but not limited to: ● large and established distribution networks in the United States and/or in international markets; ● greater financial, managerial and other resources for products research and development, sales and marketing efforts and protecting and enforcing intellectual property rights; ● greater name recognition; ● larger consumer bases; ● more expansive portfolios of products and intellectual property rights; and ● greater experience in obtaining and maintaining regulatory approvals and/or clearances from the FDA and other regulatory agencies.
If we or one of our partners fails to perform adequately or fulfill our needs, we may be required to incur significant costs.
If we or one of our partners fails to perform adequately, fulfill our needs, or comply with regulations, we may be required to incur significant costs or even be subject to enforcement actions.
In particular, if our operations are found to be in violation of any of the laws described above or if we agree to settle with the government without admitting to any wrongful conduct or if we are found to be in violation of any other governmental regulations that apply to us, we, our officers and employees may be subject to sanctions, including civil and criminal penalties, damages, fines, exclusion from participation in government health care programs, such as Medicare and Medicaid, imprisonment, the curtailment or restructuring of our operations and the imposition of a corporate integrity agreement, any of which could adversely affect our business, results of operations and financial condition. 33 We and our research and development partners’ use and disclosure of PII, including health information, is subject to federal and state privacy and security regulations, and our failure to comply with those regulations or to adequately secure the information we hold could have a material adverse effect on our client base, business, financial condition and results of operations.
In particular, if our operations are found to be in violation of any of the laws described above or if we agree to settle with the government without admitting to any wrongful conduct or if we are found to be in violation of any other governmental regulations that apply to us, we, our officers and employees may be subject to sanctions, including civil and criminal penalties, damages, fines, exclusion from participation in government health care programs, such as Medicare and Medicaid, imprisonment, the curtailment or restructuring of our operations and the imposition of a corporate integrity agreement, any of which could adversely affect our business, results of operations and financial condition.
We engage in evaluations of potential acquisitions and investments and are in various stages of discussion regarding possible acquisitions, certain of which, if consummated, could be significant to us.
We may be unable to continue implementing our growth strategy, and our strategy ultimately may be unsuccessful. We engage in evaluations of potential acquisitions and investments and are in various stages of discussion regarding possible acquisitions, certain of which, if consummated, could be significant to us.
Competitors may have filed patent applications or received patents and may obtain additional patents and proprietary rights that block or compete with our patents. 28 Such third parties, including customers, may in the future assert claims or initiate litigation related to exclusive patent, copyright, trademark and other intellectual property rights to technologies and related standards that are relevant to us, our operations and our products.
Such third parties, including customers, may in the future assert claims or initiate litigation related to exclusive patent, copyright, trademark and other intellectual property rights to technologies and related standards that are relevant to us, our operations and our products.
As of March 17, 2023, our directors beneficially owned, including through their affiliates, approximately 55% of our outstanding common stock.
As of March 22, 2024, our directors beneficially owned, including through their affiliates, approximately 53% of our outstanding common stock.
If the safety of any product supplied is compromised due to the manufacturers’ failure to adhere to applicable laws or for other reasons, we may not be able to successfully commercialize our products.
If the safety of any product supplied is compromised due to the manufacturers’ failure to adhere to applicable laws or for other reasons, we may not be able to successfully commercialize our products. Any of these factors could cause a delay of commercialization of our products, entail higher costs or impair our reputation.
Our Certificate of Formation includes provisions limiting the personal liability of our directors for breaches of fiduciary duties under Texas law. Our Certificate of Formation contains a provision eliminating a director’s personal liability to the fullest extent permitted under Texas law.
Our Certificate of Formation contains a provision eliminating a director’s personal liability to the fullest extent permitted under Texas law.
We also may not know if our competitors filed patent applications for technology covered by our pending applications or if we were the first to invent the technology that is the subject of our patent applications.
We also may not know if our competitors filed patent applications for technology covered by our pending applications or if we were the first to invent the technology that is the subject of our patent applications. Competitors may have filed patent applications or received patents and may obtain additional patents and proprietary rights that block or compete with our patents.
While HIPAA does not create a private right of action allowing individuals to sue us in civil court for violations of HIPAA, its standards have been used as the basis for duty of care in state civil suits such as those for negligence or recklessness in the misuse or breach of PHI.
While HIPAA does not create a private right of action allowing individuals to sue us in civil court for violations of HIPAA, its standards have been used as the basis for duty of care in state civil suits such as those for negligence or recklessness in the misuse or breach of PHI. 34 In addition, HIPAA mandates that the Secretary of HHS conduct periodic compliance audits of HIPAA covered entities or business associates for compliance with the HIPAA Privacy and Security Standards.
Sales of a significant number of shares of our common stock in the public market, including pursuant to the Controlled Equity Offering SM Sales Agreement we entered into with Cantor Fitzgerald & Co. in February 2023, or the perception that these sales might occur could harm the market price of our common stock and make it more difficult for us to raise funds through future offerings of common stock.
Sales of a significant number of shares of our common stock in the public market or the perception that these sales might occur could harm the market price of our common stock and make it more difficult for us to raise funds through future offerings of common stock.
Any of these factors could cause a delay of commercialization of our products, entail higher costs or impair our reputation. 23 Our revenue generated from the sale of Scendia products is heavily dependent on license agreements with certain manufacturers, and the termination of any of these license agreements could harm our business.
Our revenue generated from the sale of Scendia products is heavily dependent on license agreements with certain manufacturers, and the termination of any of these license agreements could harm our business.
Risks Related to Regulations Our business is affected by numerous regulations relating to the development, manufacture, distribution, labeling, marketing and sale of our products. Government regulation by the FDA and similar agencies in other countries is a significant factor in the development, manufacturing and marketing of our products and in the acquisition or licensing of new products.
Government regulation by the FDA and similar agencies in other countries is a significant factor in the development, manufacturing and marketing of our products and in the acquisition or licensing of new products.
We are heavily dependent on technologies and products we have licensed from third parties, and we may need to license technologies and products in the future, and if we fail to obtain licenses we need, or fail to comply with our payment and other obligations in the agreements under which we in-license intellectual property and other rights from third parties, we could lose our ability to develop and commercialize our products.
The entrance into the market of a product substantially equivalent to CellerateRX Surgical may erode our product’s market share, which may have a material adverse effect on our business, financial condition and results of operations. 28 We are heavily dependent on technologies and products we have licensed from third parties, and we may need to license technologies and products in the future, and if we fail to obtain licenses we need, or fail to comply with our payment and other obligations in the agreements under which we in-license intellectual property and other rights from third parties, we could lose our ability to develop and commercialize our products.
Our failure to compete effectively would have a material adverse effect on our business. 22 Security breaches and other disruptions could compromise our information and expose us to liability, which would cause our business and reputation to suffer.
Security breaches and other disruptions could compromise our information and expose us to liability, which would cause our business and reputation to suffer.
If we are not successful in convincing healthcare practitioners of the merits and advantages of our products compared to our competitors’ products, they may not use our products and we will be unable to increase our sales and sustain growth or profitability. 24 Convincing healthcare practitioners to dedicate the time and energy necessary to properly train to use new products and techniques is challenging as healthcare practitioners may be hesitant to change their medical practices, and we may not be successful in these efforts.
Convincing healthcare practitioners to dedicate the time and energy necessary to properly train to use new products and techniques is challenging as healthcare practitioners may be hesitant to change their medical practices, and we may not be successful in these efforts.
Changes in healthcare systems in the United States or internationally in a manner that significantly reduces reimbursement for procedures using our products or denies coverage for these procedures would also have an adverse impact on the acceptance of our products and the prices which our customers are willing to pay for them. 31 Moreover, increasing efforts by governmental and private payors in the United States and abroad to limit or reduce healthcare costs may result in restrictions on coverage and the level of reimbursement for new medical products and, as a result, they may not cover or provide adequate payment for our products.
Changes in healthcare systems in the United States or internationally in a manner that significantly reduces reimbursement for procedures using our products or denies coverage for these procedures would also have an adverse impact on the acceptance of our products and the prices which our customers are willing to pay for them.
Thus, where new legislation and regulations apply to our planned expansion into telemedicine services, we may incur costs to monitor, evaluate, and modify operational processes for compliance. All such activities will increase our costs and could, in certain circumstances, impact our ability to make telemedicine services available in a particular state.
Thus, where new legislation and regulations apply to our planned expansion into telemedicine services, we may incur costs to monitor, evaluate, and modify operational processes for compliance.
Risks Related to Our Products and Our Product Pipeline We rely heavily on our research and development partners to design, manufacture and supply the products we have licensed for marketing. If we or one of our partners fails to perform adequately or fulfill our needs, we may be required to incur significant costs.
Risks Related to Our Products and Our Product Pipeline We rely heavily on our research and development partners to design, manufacture and supply the products we have licensed for marketing.
Significant increases in the prices of raw materials that cannot be recovered through productivity gains, price increases or other methods could adversely affect our business, results of operations and financial condition.
Significant increases in the prices of raw materials that cannot be recovered through productivity gains, price increases or other methods could adversely affect our business, results of operations and financial condition. 26 Risks Related to Our Planned Expansion into Wound and Skincare Virtual Consult and Other Services Our planned expansion into wound and skincare virtual consult and other services, including THP programs, could have a material adverse effect on our business, financial condition and results of operations.
Our current comprehensive wound and skincare strategy involves growth through acquisitions and investments, which requires us to incur substantial costs and potential liabilities for which we may never realize the anticipated benefits. We may be unable to continue implementing our growth strategy, and our strategy ultimately may be unsuccessful.
Any of the foregoing factors, or any other factors discussed elsewhere herein, could have a material adverse effect on our business. 20 Our current comprehensive wound and skincare strategy involves growth through acquisitions and investments, which requires us to incur substantial costs and potential liabilities for which we may never realize the anticipated benefits.
As a consequence, operating results for a particular future period are difficult to predict and prior results are not necessarily indicative of future results. Any of the foregoing factors, or any other factors discussed elsewhere herein, could have a material adverse effect on our business.
As a consequence, operating results for a particular future period are difficult to predict and prior results are not necessarily indicative of future results.
Patents and patent applications for the products we have may not be sufficient or broad enough to prevent competitors from introducing similar products into the market.
However, these legal means afford only limited protection and may not adequately protect our or our research development partners’ rights or permit us to gain or keep a competitive advantage. Patents and patent applications for the products we have may not be sufficient or broad enough to prevent competitors from introducing similar products into the market.
Defects, failures or quality issues associated with our products could materially adversely affect our reputation, business, results of operations and financial condition. Quality is extremely important to us and our customers due to the serious and costly consequences of product failure.
Quality is extremely important to us and our customers due to the serious and costly consequences of product failure.
Our products, services or technologies may not receive market acceptance in a commercially viable period of time, if at all. Furthermore, our competitors may develop products, services or technologies that are more effective or achieve greater market acceptance than those being developed by us, which would render our products, services and technologies less competitive or obsolete.
Our products, services or technologies may not receive market acceptance in a commercially viable period of time, if at all.
We and our research development partners rely on patents, copyrights, trademarks and trade secret laws to establish and maintain proprietary rights in our technology and products. However, these legal means afford only limited protection and may not adequately protect our or our research development partners’ rights or permit us to gain or keep a competitive advantage.
Part of our success depends on our and our research development partners’ ability to protect proprietary rights to technologies used in certain of our products. We and our research development partners rely on patents, copyrights, trademarks and trade secret laws to establish and maintain proprietary rights in our technology and products.
Risks Related to Intellectual Property If we are unable to adequately protect our intellectual property rights, we may not be able to compete effectively. Part of our success depends on our and our research development partners’ ability to protect proprietary rights to technologies used in certain of our products.
All such activities will increase our costs and could, in certain circumstances, impact our ability to make telemedicine services available in a particular state. 27 Risks Related to Intellectual Property If we are unable to adequately protect our intellectual property rights, we may not be able to compete effectively.
We are currently experiencing, and may continue to experience, disruptions in the supply of tissues. Such disruptions in the supply of tissues are having, and may continue to have, a negative impact on our inventory of ALLOCYTE. Prolonged disruptions to the supply of our products or inventory could materially affect our business, financial condition and results of operations.
While we have since expanded the ALLOCYTE product line with the release of ALLOCYTE Plus, which is processed by an alternative supplier with in-house processing capabilities, any prolonged disruptions to the supply of our products or inventory could materially affect our business, financial condition and results of operations.
We may also face significant delays in our product introductions and commercialization.
If we or one of our partners fails to perform adequately, fulfill our needs, or comply with regulations, we may be required to incur significant costs or even be subject to enforcement actions. We may also face significant delays in our product introductions and commercialization.
Removed
Risks Related to Our Planned Expansion into Wound and Skincare Virtual Consult and Other Services Our planned expansion into wound and skincare virtual consult and other services could have a material adverse effect on our business, financial condition and results of operations.
Added
We may fail to realize all the anticipated benefits of the Applied Asset Purchase, or such benefits may take longer to realize than expected . We may fail to realize all of the anticipated benefits of the Applied Asset Purchase, including expected operational, research and development and cost synergies, or such benefits may not be achieved within the anticipated timeframe.
Removed
The entrance into the market of a product substantially equivalent to CellerateRX Surgical may erode our product’s market share, which may have a material adverse effect on our business, financial condition and results of operations.
Added
In addition, in connection with the Applied Asset Purchase, we acquired control of the manufacturing of our CellerateRX Surgical and HYCOL products, which was previously controlled by the Sellers. If we are unable to maintain or replace the Sellers’ manufacturing process, our sales of CellerateRX Surgical and HYCOL products could be jeopardized.
Removed
In addition, private consumer and competitor litigation tends to follow FDA enforcement actions and publications, such that a company that is targeted by FDA or another regulatory body is also at an increased risk of facing civil litigation (often in the form of class actions).
Added
Furthermore, we have incurred significant transaction costs in connection with the Applied Asset Purchase, including payment of certain fees and expenses incurred in connection with the Applied Asset Purchase and the financing of the Applied Asset Purchase, and our future financial results could be impacted if the intangible assets we acquired in the Applied Asset Purchase become impaired.
Removed
In particular, activities and arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, waste and other abusive practices.
Added
The failure to realize the anticipated benefits of the Applied Asset Purchase or any of our other recent acquisitions could cause an interruption of, or a loss of momentum in, our operations and could result in a material adverse effect on our financial condition, results of operations or cash flows.
Removed
In addition, HIPAA mandates that the Secretary of HHS conduct periodic compliance audits of HIPAA covered entities or business associates for compliance with the HIPAA Privacy and Security Standards.
Added
In addition, because of its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. 22 Risks Related to Our Indebtedness Our indebtedness could adversely affect our financial condition and prevent us from fulfilling our obligations .
Removed
In particular, companies involved in the manufacture of medical products are subject to laws and regulations intended to ensure that medical products that will be used in patients are safe and effective, and, specifically, that they are not adulterated or misbranded, that they are properly labeled, and have the identity, strength, quality and purity that which they are represented to possess.
Added
A significant portion of our future cash flow is required to pay interest and principal on our outstanding indebtedness, and we may be unable to generate sufficient cash flow from operations, or have future borrowings available, to enable us to repay our indebtedness or to fund other liquidity needs.
Added
Among other consequences, this indebtedness could: ● require us to use a significant percentage of our cash flow from operations for debt service and the satisfaction of repayment obligations, and not for other purposes, such as funding working capital and capital expenditures or making future acquisitions; ● cause our interest expense to increase if there is a general increase in interest rates, because our indebtedness bears interest at floating rates; ● limit our flexibility in planning for or reacting to changes in our business and limit our ability to exploit future business opportunities; and ● cause us to be more highly leveraged than some of our competitors, which may place us at a competitive disadvantage.
Added
Our outstanding indebtedness is subject to certain operating and financial covenants that restrict our business and financing activities and may adversely affect our cash flow and our ability to operate our business .
Added
The Loan Agreement requires us as guarantor and Sanara MedTech Applied Technologies, LLC, a wholly owned subsidiary of the Company (“SMAT”), to maintain compliance with certain operating and financial covenants, which provide that we or SMAT, among other things, may not, subject to certain exceptions: ● create or permit the existence of additional liens on our assets; ● enter into any pledge agreements or arrangements; ● with respect to SMAT, make investments in or provide capital contributions to other entities; ● enter into a merger or consolidation or acquire any assets outside of the ordinary course of business; ● dispose of a material part of our assets or property or enter into any sale-leaseback transactions; ● with respect to SMAT, pay dividends or distributions of our capital stock, without the prior written consent of the Bank; ● make or permit to remain outstanding any loans; ● change the nature of our business; ● enter into transactions with affiliates other than in the ordinary course of business on an arm’s-length basis; or ● amend, modify or obtain or grant a waiver of any provision of any document or instrument evidencing or securing any of our subordinated indebtedness.
Added
In addition, starting with the quarter ending September 30, 2023, SMAT is required to maintain a minimum Debt Service Coverage Ratio of 1.2 to 1.0, which ratio is calculated as of the last day of the applicable fiscal quarter.
Added
SMAT is also required to maintain as of the end of each fiscal quarter a maximum Cash Flow Leverage Ratio of not more than (a) 4.5 to 1.0 as of the last day of the fiscal quarter ending on September 30, 2023, (b) 4.0 to 1.0 as of the last day of each fiscal quarter ending on December 31, 2023, and March 31, 2024, (c) 3.5 to 1.0 as of the last day of each fiscal quarter ending on June 30, 2024, and September 30, 2024, and (d) 3.0 to 1.0 as of the last day of each fiscal quarter thereafter.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeOur leased office space in Fort Worth, Texas consists of approximately 5,877 square feet of rentable space located in Summit Office Park, a twin-building, mid-rise, 242,000 square foot office park located on the perimeter of the Fort Worth central business district. The lease has a remaining lease term of 18 months as of December 31, 2022.
Biggest changeOur leased office space in Fort Worth, Texas consists of approximately 11,414 square feet of rentable space located in Summit Office Park, a twin-building, mid-rise, 242,000 square foot office park located on the perimeter of the Fort Worth central business district.
However, we are co-tenants in the lease with an unaffiliated company with our share of the lease being agreed to as 40% or approximately 3,074 square feet. The lease has a remaining term of 49 months as of December 31, 2022. We periodically enter into operating lease contracts for office space and equipment.
However, we are co-tenants in the lease with an unaffiliated company with our share of the lease being agreed to as 40% or approximately 3,074 square feet. The lease has a remaining term of 23 months as of December 31, 2023. We periodically enter into operating lease contracts for office space and equipment.
Our leased office space in San Antonio, Texas consists of approximately 7,289 square feet of rentable space located in a 14,500 square foot office park in an industrial district in San Antonio, Texas. This lease has a remaining lease term of 32 months as of December 31, 2022.
Our leased office space in San Antonio, Texas consists of approximately 7,289 square feet of rentable space located in a 14,500 square foot office park in an industrial district in San Antonio, Texas. This lease has a remaining lease term of 20 months as of December 31, 2023.
Added
In March and September of 2023, we amended our primary office lease to obtain additional space, as well as to extend the lease term. The lease has a remaining lease term of 84 months as of December 31, 2023.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeRecord Holders As of March 17, 2023, there were 271 shareholders of record and there were 8,376,833 shares of common stock issued and outstanding. The number of shareholders of record does not reflect the number of persons or entities who held stock in nominee or street name through various brokerage firms.
Biggest changeRecord Holders As of March 22, 2024, there were 283 shareholders of record and there were 8,622,805 shares of common stock issued and outstanding. The number of shareholders of record does not reflect the number of persons or entities who held stock in nominee or street name through various brokerage firms.
Recent Sales of Unregistered Securities There were no sales of unregistered securities during the year ended December 31, 2022 that were not previously reported on a Quarterly Report on Form 10-Q or a Current Report on Form 8-K.
Recent Sales of Unregistered Securities There were no sales of unregistered securities during the year ended December 31, 2023 that were not previously reported on a Quarterly Report on Form 10-Q or a Current Report on Form 8-K.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock is traded on The Nasdaq Capital Market under the trading symbol “SMTI.” The closing price of our common stock as reported by Nasdaq on March 17, 2023, was $40.01.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock is traded on The Nasdaq Capital Market under the trading symbol “SMTI.” The closing price of our common stock as reported by Nasdaq on March 22, 2024, was $37.41.
Removed
Issuer Purchases of Equity Securities The following table summarizes our share repurchases during the fourth quarter of 2022: Period Total Number of Shares Purchased (a) Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares That May Yet be Purchased Under the Plans or Programs October 1, 2022 through October 31, 2022 - - - - November 1, 2022 through November 30, 2022 - - - - December 1, 2022 through December 31, 2022 11,745 $ 29.49 - - Total 11,745 $ 29.49 - - (a) The shares of common stock presented in the table above were originally granted to employees as restricted stock awards.
Added
Issuer Purchases of Equity Securities We did not repurchase any of our equity securities during the fourth quarter of the fiscal year ended December 31, 2023.
Removed
Our Restated 2014 Omnibus Long Term Incentive Plan (the “LTIP Plan”) allows for the withholding of shares to satisfy tax obligations due upon the vesting of restricted stock.
Removed
Pursuant to the LTIP Plan, the shares reflected above were relinquished by employees in exchange for our agreement to pay U.S. federal, state and local tax withholding obligations resulting from the vesting of the Company’s restricted stock.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeIn July 2021, we entered into an asset purchase agreement with Rochal, effective July 1, 2021, pursuant to which we purchased certain assets of Rochal, including, among others, certain of Rochal’s intellectual property, furniture and equipment, supplies, rights and claims, other than certain excluded assets, all as more specifically set forth in the asset purchase agreement, and assumed certain liabilities upon the terms and subject to the conditions set forth in the asset purchase agreement.
Biggest changePetito (the “Owner”), pursuant to which SMAT acquired certain assets of the Sellers and the Owner including the Sellers’ and Owner’s inventory, intellectual property, manufacturing and related equipment, goodwill, rights and claims, other than certain excluded assets, all as more specifically set forth in the Applied Purchase Agreement (collectively, the “Applied Purchased Assets”), and assumed certain Assumed Liabilities (as defined in the Applied Purchase Agreement), upon the terms and subject to the conditions set forth in the Applied Purchase Agreement (such transaction, the “Applied Asset Purchase”).
We generally expect that R&D expenses will increase as we continue to support product enhancements and bring new products to market. Depreciation and amortization expenses include depreciation of fixed assets and amortization of intangible assets that have a finite life, such as product licenses, patents and intellectual property, customer relationships and assembled workforces.
We generally expect that R&D expenses will increase as we continue to support product enhancements and to bring new products to market. Depreciation and amortization expenses include depreciation of fixed assets and amortization of intangible assets that have a finite life, such as product licenses, patents and intellectual property, customer relationships and assembled workforces.
Salamone agreed to provide the Company with consulting services with respect to, among other things, writing new patents, conducting patent intelligence and participating in certain grant and contract reporting. In consideration for the consulting services to be provided to us, Ms. Salamone is entitled to receive an annual consulting fee of $177,697, with payments to be paid once per month.
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.
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, we satisfy a performance obligation 47 Inventories Inventories are stated at the lower of cost or net realizable value, with cost computed on a first-in, first-out basis.
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, we satisfy a performance obligation Inventories Inventories are stated at the lower of cost or net realizable value, with cost computed on a first-in, first-out basis.
We have identified certain significant accounting policies and estimates which involve a higher degree of judgment and complexity in making certain estimates and assumptions that affect amounts reported in our consolidated financial statements, as summarized below. Revenue Recognition We recognize revenue in accordance with Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers.
We have identified certain significant accounting estimates which involve a higher degree of judgment and complexity in making certain estimates and assumptions that affect amounts reported in our consolidated financial statements, as summarized below. Revenue Recognition We recognize revenue in accordance with Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers.
Goodwill The excess of purchase price over the fair value of identifiable net assets acquired in business combinations is recorded as goodwill. As of December 31, 2022, all of our goodwill relates to the acquisition of Scendia. Goodwill has an indefinite useful life and is not amortized.
Goodwill The excess of purchase price over the fair value of identifiable net assets acquired in business combinations is recorded as goodwill. As of December 31, 2023 and 2022, all of our goodwill relates to the acquisition of Scendia. Goodwill has an indefinite useful life and is not amortized.
In particular, the substantial majority of our product sales revenue is derived from sales of CellerateRX surgical powder. 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.
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.
Critical Accounting Policies and Estimates Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.
Critical Accounting Estimates Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.
Assets to be disposed of are carried at the lower of carrying value or estimated fair value less cost to sell. No impairment was recorded during the years ended December 31, 2022 and 2021. Investments in Equity Securities Our equity investments consist of nonmarketable equity securities in privately held companies without readily determinable fair values.
Assets to be disposed of are carried at the lower of carrying value or estimated fair value less cost to sell. No impairment was recorded during the years ended December 31, 2023 and 2022. Investments in Equity Securities Our equity investments consist of nonmarketable equity securities in privately held companies without readily determinable fair values.
We apply the equity method of accounting to investments when we have 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.
We apply the equity method of accounting for investments when we have 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 a result of the recording of the net deferred tax liabilities related to the Precision Healing merger and Scendia acquisition, the Company reviewed the valuation allowance and determined that it should be reduced by the amount of the deferred tax liabilities that were recognized. This resulted in a 2022 income tax benefit of $5.8 million.
As a result of the recording of the net deferred tax liabilities related to the Precision Healing merger and Scendia acquisition, we reviewed the valuation allowance and determined that it should be reduced by the amount of the deferred tax liabilities that were recognized. This resulted in a 2022 income tax benefit of $5.8 million.
A valuation allowance is provided if it is more likely than not that some or all of a net deferred tax asset will not be realized. The Company recognized net deferred tax liabilities associated with the Precision Healing merger and the Scendia acquisition.
A valuation allowance is provided if it is more likely than not that some or all of a net deferred tax asset will not be realized. We recognized net deferred tax liabilities associated with the Precision Healing merger and the Scendia acquisition.
In addition to the cash and stock consideration, the purchase agreement provides that the Seller is entitled to receive two potential earnout payments, payable on an annual basis, not to exceed $10.0 million in the aggregate.
In addition to the cash and stock consideration, the purchase agreement provides that Phillips is entitled to receive two potential earnout payments, payable on an annual basis, not to exceed $10.0 million in the aggregate.
In addition to the cash consideration and the stock consideration, the purchase agreement provides that the Seller is entitled to receive two potential earnout payments, payable on an annual basis, not to exceed $10.0 million in the aggregate.
In addition to the cash consideration and the stock consideration, the purchase agreement provides that Phillips is entitled to receive two potential earnout payments, payable on an annual basis, not to exceed $10.0 million in the aggregate.
Pursuant to the purchase agreement, the Seller was entitled to receive closing consideration consisting of (i) approximately $1.6 million of cash, subject to certain adjustments, and (ii) 291,686 shares of our common stock.
Pursuant to the purchase agreement, Phillips was entitled to receive closing consideration consisting of (i) approximately $1.6 million of cash, subject to certain adjustments, and (ii) 291,686 shares of our common stock.
Since our acquisition of Scendia, we have been selling a full line of regenerative and orthobiologic technologies including (i) TEXAGEN Amniotic Membrane Allograft (“TEXAGEN”), (ii) BiFORM Bioactive Moldable Matrix (“BiFORM”), (iii) AMPLIFY Verified Inductive Bone Matrix (“AMPLIFY”) and (iv) ALLOCYTE Advanced Cellular Bone Matrix (“ALLOCYTE”). In November 2022, we established a partnership with InfuSystem Holdings, Inc.
Since our acquisition of Scendia, we have been selling a full line of regenerative and orthobiologic technologies including (i) TEXAGEN Amniotic Membrane Allograft (“TEXAGEN”), (ii) BiFORM Bioactive Moldable Matrix (“BiFORM”), (iii) ACTIGEN Verified Inductive Bone Matrix (“ACTIGEN”) and (iv) ALLOCYTE Advanced Cellular Bone Matrix (“ALLOCYTE”). In November 2022, we established a partnership with InfuSystem Holdings, Inc.
In July 2022, we entered into a membership interest purchase agreement by and among the Company, Scendia and the Seller pursuant to which, and in accordance with the terms and conditions set forth therein, we acquired 100% of the issued and outstanding membership interests in Scendia from the Seller.
Scendia Acquisition In July 2022, we entered into a membership interest purchase agreement by and among the Company, Scendia and Phillips pursuant to which, and in accordance with the terms and conditions set forth therein, we acquired 100% of the issued and outstanding membership interests in Scendia from Phillips.
We have reviewed the carrying value of our investments and have determined there was no impairment or observable price changes as of December 31, 2022. Income Taxes We account for income taxes in accordance with ASC Topic No. 740, Income Taxes.
We reviewed the carrying value of our investments and have determined there was no impairment or observable price changes as of and for the years ended December 31, 2023 and 2022. Income Taxes We account for income taxes in accordance with ASC Topic No. 740, Income Taxes.
No impairment was recorded during the year ended December 31, 2022. Impairment of Long-Lived Assets Long-lived assets, including certain identifiable intangibles held and to be used by us, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable.
No impairment was recorded during the years ended December 31, 2023 and 2022. 50 Impairment of Long-Lived Assets Long-lived assets, including certain identifiable intangibles held and to be used by us, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable.
We classify distributions received from our equity method investment using the cumulative earnings approach on the Consolidated Statements of Cash Flows. As a result of the Precision Healing merger in April 2022, as of December 31, 2022, we do not have any investments which are recorded applying the equity method of accounting.
We classify distributions received from our equity method investment using the cumulative earnings approach on the Consolidated Statements of Cash Flows. As a result of the Precision Healing merger in April 2022, we did not have any investments which are recorded applying the equity method of accounting as of December 31, 2023 or 2022.
As a result of the recording of the net deferred tax liabilities related to the Precision Healing merger and Scendia acquisition, the Company has reviewed the valuation allowance and determined that it should be reduced by the amount of the net deferred tax liabilities that were recognized.
As a result of the recording of the net deferred tax liabilities related to the Precision Healing merger and Scendia acquisition, we have reviewed the valuation allowance and determined that it should be reduced by the amount of the net deferred tax liabilities that were recognized.
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. Each of our products, services and technologies contributes to our overall goal of achieving better clinical outcomes at a lower overall cost for patients regardless of where they receive care.
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.
As of December 31, 2022, prior to consideration of these deferred tax liabilities, the Company had net deferred tax assets in excess of the deferred tax liabilities being recognized, however, a 100% valuation allowance had previously been provided against the Company’s net deferred tax assets.
As of December 31, 2022, prior to consideration of these deferred tax liabilities, we had net deferred tax assets in excess of the deferred tax liabilities being recognized, however, a 100% valuation allowance had previously been provided against our net deferred tax assets.
This resulted in recognition of an income tax benefit of $5.8 million recognized for the year ended December 31, 2022. Net loss . For the year ended December 31, 2022, we had a net loss of $8.1 million, compared to a net loss of $8.0 million for the year ended December 31, 2021.
This resulted in recognition of an income tax benefit of $5.8 million recognized for the year ended December 31, 2022. Net loss . For the year ended December 31, 2023, we had a net loss of $4.4 million, compared to a net loss of $8.1 million for the year ended December 31, 2022.
Sales of the shares, if any, pursuant to the Sales Agreement, may be made in sales deemed to be an “at the market offering” as defined in Rule 415(a)(4) promulgated under the Securities Act of 1933, as amended.
Sales of the shares, pursuant to the Sales Agreement, were made in sales deemed to be an “at the market offering” as defined in Rule 415(a)(4) promulgated under the Securities Act of 1933, as amended.
As a result of the acquisition, the Company indirectly acquired all the interests in Sanara Biologics, such that the Company now holds 100% of the issued and outstanding equity interests in Sanara Biologics.
As a result of the acquisition, we indirectly acquired all the interests in Sanara Biologics, such that we now hold 100% of the issued and outstanding equity interests in Sanara Biologics.
We have no obligation to sell any of the shares under the Sales Agreement and may at any time suspend or terminate the offering of our common stock pursuant to the Sales Agreement upon notice to Cantor and subject to other conditions.
We had no obligation to sell any of the shares under the Sales Agreement and could suspend or terminate the offering of our common stock pursuant to the Sales Agreement upon notice to Cantor and subject to other conditions.
A 100% valuation allowance has been provided for the remaining net deferred tax assets, as the ability of the Company to generate sufficient taxable income in the future is uncertain. Off-Balance Sheet Arrangements None.
A 100% valuation allowance has been provided for the remaining net deferred tax assets as of December 31, 2023 and 2022, as our ability to generate sufficient taxable income in the future is uncertain. Off-Balance Sheet Arrangements None.
For the year ended December 31, 2022, net cash used in financing activities was $0.6 million as compared to $28.3 million provided by financing activities for the year ended December 31, 2021.
For the year ended December 31, 2023, net cash provided by financing activities was $9.6 million as compared to $0.6 million used in financing activities for the year ended December 31, 2022.
Pursuant to the merger agreement, among other things, we agreed to (i) pay the holders of Precision Healing common stock and preferred stock closing consideration consisting of 165,738 shares of our common stock, which was issued to accredited investors, and $125,966 in cash, which was paid to stockholders who were not accredited investors (ii) pay approximately $0.6 million of transaction expenses on behalf of the equity holders of Precision Healing, (iii) assume all outstanding options and warrants of Precision Healing and (iv) pay, subject to the achievement of certain performance thresholds, earnout consideration of up to $10.0 million which is payable in cash or, at our election, is payable to accredited investors in shares of our common stock. 41 Scendia In July 2022, we entered into a membership interest purchase agreement by and among the Company, Scendia and Seller pursuant to which we acquired 100% of the issued and outstanding membership interests in Scendia from the Seller.
Pursuant to the merger agreement, among other things, we agreed to (i) pay the holders of Precision Healing common stock and preferred stock closing consideration consisting of 165,738 shares of our common stock, which was issued to accredited investors, and $125,966 in cash, which was paid to stockholders who were not accredited investors (ii) pay approximately $0.6 million of transaction expenses on behalf of the equity holders of Precision Healing, (iii) assume all outstanding options and warrants of Precision Healing and (iv) pay, subject to the achievement of certain performance thresholds, earnout consideration of up to $10.0 million which is payable in cash or, at our election, is payable to accredited investors in shares of our common stock.
We pay royalties based on the annual Net Sales of licensed products (as defined in the sublicense agreement) consisting of 3% of all collected Net Sales each year up to $12.0 million, 4% of all collected Net Sales each year that exceed $12.0 million up to $20.0 million, and 5% of all collected Net Sales each year that exceed $20.0 million.
Prior to the Applied Asset Purchase discussed above, we paid royalties based on the annual Net Sales of licensed products (as defined in the Sublicense Agreement) consisting of 3% of all collected Net Sales each year up to $12.0 million, 4% of all collected Net Sales each year that exceed $12.0 million up to $20.0 million, and 5% of all collected Net Sales each year that exceed $20.0 million.
We had a loss before income taxes of $13.9 million for the year ended December 31, 2022, compared to a loss before income taxes of $8.0 million for the year ended December 31, 2021.
We had a loss before income taxes of $4.4 million for the year ended December 31, 2023, compared to a loss before income taxes of $13.9 million for the year ended December 31, 2022.
Concurrent with the assumption of the Precision Healing Plan, we terminated the ability to offer future awards under the Precision Healing Plan. 45 Pursuant to the merger agreement, upon the achievement of certain performance thresholds, the securityholders of Precision Healing, including the holders of options and warrants to purchase Precision Healing common stock and certain persons promised options to purchase Precision Healing common stock, are also entitled to receive payments of up to $10.0 million, which was accounted for as contingent consideration pursuant to Accounting Standards Codification Topic 805, Business Combinations.
Pursuant to the merger agreement, upon the achievement of certain performance thresholds, the securityholders of Precision Healing, including the holders of options and warrants to purchase Precision Healing common stock and certain persons promised options to purchase Precision Healing common stock, are also entitled to receive payments of up to $10.0 million, which was accounted for as contingent consideration pursuant to Accounting Standards Codification Topic 805, Business Combinations.
We expect our future needs for cash to include funding potential acquisitions, further developing our products, services and technologies pipeline and clinical studies, expanding our sales force and for general corporate purposes.
We expect our future needs for cash to include funding potential acquisitions, further developing our products, services and technologies pipeline and clinical studies, expanding our sales force, repayment of debt as it becomes due and for general corporate purposes.
The earnout consideration is payable to the Seller in cash or, at our election, in up to 486,145 shares of our common stock upon the achievement of certain performance thresholds relating to net revenue attributable to sales of Scendia products during the two-year period following the closing.
The earnout consideration is payable to Phillips in cash or, at our election, in up to 486,145 shares of our common stock upon the achievement of certain performance thresholds relating to net revenue attributable to sales of Scendia products during the two-year period following the closing. We made the first earnout payment of approximately $693,000 in cash in August 2023.
The earnout consideration is payable to the Seller in cash or, at our election, in up to 486,145 shares of our common stock upon the achievement of certain performance thresholds relating to net revenue attributable to sales of Scendia products during the two-year period following the closing.
The earnout consideration is payable to Phillips in cash or, at our election, in up to 486,145 shares of our common stock upon the achievement of certain performance thresholds relating to net revenue attributable to sales of Scendia products during the two-year period following the closing. We made the first earnout payment of approximately $693,000 in cash in August 2023.
The higher direct sales and marketing expenses were primarily attributable to an increase in sales commissions of $9.6 million as a result of higher product sales and $2.7 million of increased costs as a result of sales force expansion and operational support.
The higher direct sales and marketing expenses for 2023 was primarily attributable to an increase in sales commissions of $6.9 million as a result of higher product sales. The year-ended 2023 included $1.2 million of increased costs as a result of sales force expansion and operational support.
Precision Healing is developing a diagnostic imager and LFA for assessing a patient’s wound and skin conditions. This comprehensive wound and skin assessment technology is designed to quantify biochemical markers to determine the trajectory of a wound’s condition to enable better diagnosis and treatment protocol.
(“Precision Healing”) became a wholly owned subsidiary of the Company. Precision Healing is developing a diagnostic imager and lateral flow assay (“LFA”) for assessing a patient’s wound and skin conditions. This comprehensive wound and skin assessment technology is designed to quantify biochemical markers to determine the trajectory of a wound’s condition to enable better diagnosis and treatment protocol.
Depreciation and amortization expense for the year ended December 31, 2022, was $2.4 million compared to $0.6 million for the year ended December 31, 2021. The higher depreciation and amortization expense during 2022 was primarily due to the amortization of intangible assets acquired as part of the Precision Healing and Scendia transactions. Other expense.
Depreciation and amortization expense. Depreciation and amortization expense for the year ended December 31, 2023, was $3.7 million compared to $2.4 million for the year ended December 31, 2022. The increase in depreciation and amortization expense during 2023 was primarily due to the amortization of intangible assets acquired as part of the Precision Healing, Scendia and Applied transactions.
Pursuant to the purchase agreement, at closing, we withheld 94,798 shares of common stock with an agreed upon value of $1.95 million (the “Indemnity Holdback Shares”), which such Indemnity Holdback Shares shall be withheld, issued, and released to the Seller after closing as and to the extent provided in the purchase agreement to satisfy the Seller’s indemnification obligations, if any.
Pursuant to the purchase agreement, at closing, we withheld 94,798 shares of common stock with an agreed upon value of $1.95 million (the “Indemnity Holdback Shares”), which such Indemnity Holdback Shares were withheld to the extent provided in the purchase agreement to satisfy Phillips’ indemnification obligations and subsequently issued and released to Phillips in July 2023.
Pursuant to the purchase agreement, at closing, we withheld 94,798 shares of common stock with an agreed upon value of $1.95 million (the “Indemnity Holdback Shares”), which such Indemnity Holdback Shares shall be withheld, issued, and released to the Seller after closing as and to the extent provided in the purchase agreement to satisfy the Seller’s indemnification obligations, if any.
Pursuant to the purchase agreement, at closing, we withheld 94,798 shares of common stock with an agreed upon value of $1.95 million (the “Indemnity Holdback Shares”), which such Indemnity Holdback Shares were withheld to the extent provided in the purchase agreement to satisfy Phillips’ indemnification obligations and subsequently issued and released to Phillips in July 2023.
As of December 31, 2022, prior to consideration of these deferred tax liabilities, the Company had net deferred tax assets in excess of the deferred tax liabilities being recognized, however, a 100% valuation allowance had previously been provided against the Company’s net deferred tax assets.
As of the dates of these acquisitions, prior to consideration of these acquired deferred tax liabilities, we had net deferred tax assets in excess of the deferred tax liabilities being recognized, however, a 100% valuation allowance had previously been provided against our net deferred tax assets.
Material Transactions with Related Parties CellerateRX Surgical Sublicense Agreement We have an exclusive, world-wide sublicense to distribute CellerateRX Surgical and HYCOL products into the surgical and wound care markets from an affiliate of Catalyst, CGI Cellerate RX, which licenses the rights to CellerateRX from AN. Sales of CellerateRX have comprised the substantial majority of our sales during 2022 and 2021.
Material Transactions with Related Parties CellerateRX Surgical Sublicense Agreement We have an exclusive, world-wide sublicense to distribute CellerateRX Surgical and HYCOL products into the surgical and wound care markets from an affiliate of Catalyst, CGI Cellerate RX, which, prior to the Applied Asset Purchase, licensed the rights to CellerateRX from Applied.
During the third quarter of 2022, we began to experience supply issues with the ALLOCYTE product line. The amount of qualifying eligible donor tissue was significantly reduced industry wide due to the stringent screening required. During the fourth quarter of 2022, we were unable to fill certain orders for this product which negatively impacted our sales.
During the third quarter of 2022, we began to experience supply issues with the ALLOCYTE product line. The amount of qualifying eligible donor tissue was significantly reduced industry wide due to the stringent screening required.
Upon the closing of the merger, the outstanding Precision Healing options previously granted under the Precision Healing Inc. 2020 Stock Option and Grant Plan (the “Precision Healing Plan”) converted, pursuant to their terms, into options to acquire an aggregate of 144,191 shares of our common stock with a weighted exercise price of $10.71 per share.
We recorded the issuance of the 165,738 shares to accredited investors and cash payments to nonaccredited investors based on the closing price per share of our common stock on April 4, 2022, which was $30.75. 46 Upon the closing of the merger, the outstanding Precision Healing options previously granted under the Precision Healing Inc. 2020 Stock Option and Grant Plan (the “Precision Healing Plan”) converted, pursuant to their terms, into options to acquire an aggregate of 144,191 shares of our common stock with a weighted exercise price of $10.71 per share.
The higher loss in 2022 was due to increased SG&A costs, higher R&D expenses, the loss on disposal of investment related to the dissolution of Sanara Pulsar and higher amortization of our acquired intangible assets as discussed above. Income tax benefit. We recognized net deferred tax liabilities associated with the Precision Healing and Scendia transactions.
The lower loss in 2023 was due to increased gross profits and changes in fair value of earnout liabilities, partially offset by higher SG&A costs, higher R&D expenses, and higher amortization of our acquired intangible assets as discussed above. Income tax benefit. We recognized net deferred tax liabilities associated with the Precision Healing and Scendia transactions.
This comprehensive wound and skin assessment technology is designed to quantify biochemical markers to determine the trajectory of a wound’s condition to enable better diagnosis and treatment protocol. We plan to submit a 510(k) premarket notification for the Precision Healing diagnostic imager in 2023.
This comprehensive wound and skin assessment technology is designed to quantify biochemical markers to determine the trajectory of a wound’s condition to enable better diagnosis and treatment protocol.
Liquidity and Capital Resources Cash on hand at December 31, 2022 was $9.0 million, compared to $18.7 million at December 31, 2021. Historically, we have financed our operations primarily from the sale of equity securities.
The lower net loss in 2023 was primarily due to additional gross profit realized on higher 2023 revenues. Liquidity and Capital Resources Cash on hand at December 31, 2023 was $5.1 million, compared to $9.0 million at December 31, 2022. Historically, we have financed our operations primarily from the sale of equity securities.
The higher net revenues in 2022 were primarily due to increased sales of surgical wound care products as a result of our increased market penetration and geographic expansion, additional revenues as a result of the Scendia acquisition and our continuing strategy to expand our independent distribution network in both new and existing U.S. markets.
The higher net revenue for 2023 was primarily due to increased sales of soft tissue repair products, including CellerateRX, and 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.
For the year ended December 31, 2022, we generated net revenues of $45.8 million compared to net revenues of $24.1 million for the year ended December 31, 2021, a 90% increase from the prior year. Our 2022 net revenues included $6.0 million of Scendia sales.
Results of Operations Net Revenues. For the year ended December 31, 2023, we generated net revenues of $65.0 million compared to net revenues of $45.8 million for the year ended December 31, 2022, a 42% increase from the prior year.
For the years ended December 31, 2022 and 2021, royalty expense was $1.8 million and $0.9 million, respectively under the terms of this agreement. Ronald T.
For the year ended December 31, 2023 and 2022, royalty expense was $1.0 million and $1.8 million, respectively, under the terms of this agreement. Ronald T. Nixon, our Executive Chairman, is the founder and managing partner of Catalyst.
Additionally, Ann Beal Salamone, a director of the Company, is a significant shareholder and the current Chair of the board of directors of Rochal. Consulting Agreement Concurrent with the Rochal asset purchase, in July 2021, we entered into a consulting agreement with Ann Beal Salamone pursuant to which Ms.
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.
For the year ended December 31, 2022, net cash used in investing activities was $3.5 million compared to $5.3 million used in investing activities during the year ended December 31, 2021.
For the year ended December 31, 2023, net cash used in investing activities was $10.2 million compared to $3.5 million used in investing activities during the year ended December 31, 2022. The higher use of cash used in investing activities during 2023 was primarily due to cash paid pursuant to the Applied Asset Purchase.
In April 2022, we entered into a merger agreement through which Precision Healing Inc. (“Precision Healing”) became a wholly owned subsidiary of the Company. Precision Healing is developing a diagnostic imager and lateral flow assay (“LFA”) for assessing a patient’s wound and skin conditions.
Recent Acquisitions Precision Healing In April 2022, we closed a merger transaction with Precision Healing, pursuant to which Precision Healing became a wholly owned subsidiary of the Company. Precision Healing is developing a diagnostic imager and LFA for assessing a patient’s wound and skin conditions.
We also plan to submit a 510(k) premarket notification for the Precision Healing LFA in 2023. 40 In July 2022, we entered into a membership interest purchase agreement with Scendia and Ryan Phillips (the “Seller”) pursuant to which we acquired 100% of the issued and outstanding membership interests in Scendia from the Seller.
In July 2022, we entered into a membership interest purchase agreement with Scendia Biologics, LLC (“Scendia”) and Ryan Phillips (“Phillips”) pursuant to which we acquired 100% of the issued and outstanding membership interests in Scendia from Phillips.
Our 2022 SG&A expenses included $2.9 million of costs related to Scendia operations. The higher SG&A expenses in 2022 were primarily due to higher direct sales and marketing expenses, which accounted for approximately $13.6 million, or 76% of the increase compared to prior year.
The higher SG&A expenses for 2023 were primarily due to higher direct sales and marketing expenses, which accounted for approximately $8.0 million, or 76% of the increases compared to the prior year period.
Based on our current plan of operations, we believe our cash on hand, when combined with expected cash flows from operations, will be sufficient to fund our growth strategy and to meet our anticipated operating expenses and capital expenditures for at least the next twelve months. 44 On February 24, 2023, we entered into a Controlled Equity Offering SM Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co., as sales agent (“Cantor”), pursuant to which we may offer and sell from time to time, to or through Cantor, shares of our common stock having an aggregate offering price of up to $75.0 million.
In February 2023, we entered into a Controlled Equity Offering SM Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co., as sales agent (“Cantor”), pursuant to which we could offer and sell from time to time, to or through Cantor, shares of our common stock having an aggregate offering price of up to $75.0 million.
Comprehensive Value-Based Care Strategy In June 2020, we formed a subsidiary, United Wound and Skin Solutions, LLC (“UWSS” or “WounDerm”), to hold certain investments and operations in wound and skincare virtual consult services.
BIASURGE is indicated for use in the mechanical cleansing and removal of debris, including microorganisms, from surgical wounds. 41 Comprehensive Value-Based Care Strategy In June 2020, we formed a subsidiary, United Wound and Skin Solutions, LLC (formerly known as “WounDerm”), to hold certain investments and operations in wound and skincare virtual consult services.
Inventories consist of finished goods and related packaging components. We recorded inventory obsolescence expense of $0.5 million in 2022 and $0.3 million in 2021. The allowance for obsolete and slow-moving inventory had a balance of $0.5 million at December 31, 2022, and $0.3 million at December 31, 2021.
Inventories consist primarily of finished goods, and also include an immaterial amount of raw materials and related packaging components. We recorded inventory obsolescence expense of $406,812 in 2023 and $540,090 in 2022. The allowance for obsolete and slow-moving inventory had a balance of $446,917 at December 31, 2023, and $523,832 at December 31, 2022.
In 2021, we made additional purchases of Series A Stock: $600,000 in February, $500,000 in June, $500,000 in October, and $600,000 in December. In April 2022, we closed a merger transaction with Precision Healing pursuant to which Precision Healing became our wholly owned subsidiary.
In April 2022, we closed a merger transaction with Precision Healing pursuant to which Precision Healing became our wholly owned subsidiary.
The lower gross margins in 2022 were primarily due to lower margins realized on sales of Scendia products. 43 Selling, general and administrative expenses. SG&A expenses for the year ended December 31, 2022, were $46.0 million compared to SG&A expenses of $28.1 million for the year ended December 31, 2021.
Selling, general and administrative expenses . SG&A expenses for the year ended December 31, 2023, were $57.0 million compared to SG&A expenses of $46.0 million for the year ended December 31, 2022.
The higher other expense was also due to the recognition of $0.3 million of accretion expense on earnout liabilities related to our Precision Healing and Scendia transactions partially offset by lower losses from equity method investment in Precision Healing prior to our acquisition of the remaining interest in April 2022. Loss before income taxes .
Sanara Pulsar had minimal sales since its inception and was dissolved effective December 2022. The higher other income (expense) was also due to the recognition of $0.4 million of loss from our equity method investment in Precision Healing prior to our acquisition of the remaining interest in April 2022. 45 Loss before income taxes .
Prior to the acquisition, Scendia owned 50% of the issued and outstanding membership interests in Sanara Biologics, LLC (“Sanara Biologics”), and the Company owned the remaining 50% of the membership interests.
Beginning in early 2022, we began co-promoting certain products with Scendia, including: (i) TEXAGEN, (ii) BiFORM, (iii) ACTIGEN, and (iv) ALLOCYTE. Prior to the acquisition, Scendia owned 50% of the issued and outstanding membership interests in Sanara Biologics, LLC (“Sanara Biologics”), and we owned the remaining 50% of the membership interests.
We expect our SG&A expenses to continue to decline as a percentage of net revenues as our sales growth outpaces the costs of sales force expansion and corporate overhead. Research and development expenses . R&D expenses for the year ended December 31, 2022, were $3.4 million compared to $0.6 million for the year ended December 31, 2021.
Our 2023 SG&A expenses also included $0.4 million of costs associated with an acquisition opportunity that we abandoned during the first quarter of 2024. We expect our SG&A expenses to decline as a percentage of net revenues as our sales growth outpaces the costs of sales force expansion and corporate overhead. Research and development expenses .
R&D expenses for 2022 included approximately $2.5 million of costs related to our newly acquired Precision Healing diagnostic imager and LFA for assessing patient wound and skin conditions. The higher R&D expenses in 2022 were also partly due to costs associated with several new development projects for our currently licensed products. Depreciation and amortization expense.
R&D expenses for the year ended December 31, 2023, were $4.1 million compared to $3.4 million for the year ended December 31, 2022. The higher R&D expenses in 2023 were primarily due to costs related to the Precision Healing diagnostic imager and LFA. R&D expenses for 2023 also included costs associated with ongoing development projects for our products in development.
In exchange for the acquired assets, we paid to Rochal (i) $496,100 in cash and (ii) 14,369 shares of our common stock and assumed certain net liabilities of $3,900. In November 2020, we entered into agreements to purchase shares of Series A Convertible Preferred Stock (the “Series A Stock”) of Precision Healing for an aggregate purchase price of $600,000.
Precision Healing Merger In November 2020, we entered into agreements to purchase shares of Series A Convertible Preferred Stock (the “Series A Stock”) of Precision Healing for an aggregate purchase price of $600,000. In 2021, we made additional purchases of Series A Stock: $600,000 in February, $500,000 in June, $500,000 in October, and $600,000 in December.
We generally recognize revenue when a purchase order is received from the customer and our product is received by the customer. 42 For the year ended December 31, 2022, our revenues included $6.0 million of revenue generated by Scendia, which was acquired by the Company in July 2022.
We generally recognize revenue when a purchase order is received from the customer and our product is received by the customer. Revenue streams from product sales and royalties are summarized below for the years ended December 31, 2023 and 2022.
We anticipate resolution of the supply issues in the second half of 2023. Cost of goods sold . Cost of goods sold for the year ended December 31, 2022, was $6.4 million, compared to costs of goods sold of $2.3 million for the year ended December 31, 2021.
Cost of goods sold for the year ended December 31, 2023, was $7.9 million, compared to costs of goods sold of $6.4 million for the year ended December 31, 2022. The increase in cost of goods sold for 2023 was primarily due to higher sales volume as a result of organic sales growth.
Revenue streams from product sales and royalties are summarized below for the years ended December 31, 2022 and 2021. For the Year Ended December 31, 2022 2021 Product sales revenue $ 45,641,845 $ 23,942,919 Royalty revenue 201,000 201,000 Total Net Revenue $ 45,842,845 $ 24,143,919 We recognize royalty revenue from a development and licensing agreement with BioStructures, LLC.
For the Year Ended December 31, 2023 2022 Soft tissue repair products $ 54,836,410 $ 41,653,954 Bone fusion products 9,952,432 3,987,891 Royalty revenue 201,000 201,000 Total Net Revenue $ 64,989,842 $ 45,842,845 We recognize royalty revenue from a development and licensing agreement with BioStructures, LLC.
Other expense for the year ended December 31, 2022 was $1.7 million compared to $0.6 million for the year ended December 31, 2021. The higher other expense in 2022 was primarily due to a $1.0 million loss recognized due to the dissolution of Sanara Pulsar.
The prior year period expenses were due to the accretion of the earnout liabilities. Other income (expense). Other income (expense) for the year ended December 31, 2023 was $0.2 million compared to $1.4 million for the year ended December 31, 2022.
Nixon, our Executive Chairman, is the founder and managing partner of Catalyst. 46 Rochal Asset Purchase In July 2021, we entered into an asset purchase agreement with Rochal, effective July 1, 2021, pursuant to which we purchased certain assets of Rochal, including, among others, certain of Rochal’s intellectual property, furniture and equipment, supplies, rights and claims, and assumed certain liabilities upon the terms and subject to the conditions set forth in the asset purchase agreement.
Applied Asset Purchase On August 1, 2023, we entered into the Applied Purchase Agreement by and among the Company, SMAT, Hymed, Applied and the Owner, pursuant to which SMAT acquired the Applied Purchased Assets and assumed certain Assumed Liabilities upon the terms and subject to the conditions set forth in the Applied Purchase Agreement.
We currently license certain of our products from Applied Nutritionals, LLC (“AN”) (through a sublicense with CGI Cellerate RX, LLC (“CGI Cellerate RX”), an affiliate of The Catalyst Group, Inc. (“Catalyst”)) and Rochal Industries, LLC (“Rochal”) and have the right to exclusively distribute certain products manufactured by Cook Biotech Inc. (“Cook Biotech”).
In connection with the asset purchase, Applied assigned its license agreement with CGI Cellerate RX to a wholly owned subsidiary of the Company. We also license certain products from Rochal Industries, LLC (“Rochal”) and Cook Biotech Inc. (“Cook Biotech”). In April 2022, we entered into a merger agreement through which Precision Healing Inc.
Cantor’s obligations to sell the shares under the Sales Agreement are subject to satisfaction of certain conditions, including customary closing conditions. Pursuant to the Sales Agreement, we will pay Cantor a commission of 3.0% of the aggregate gross proceeds from each sale of the shares.
Pursuant to the Sales Agreement, we paid Cantor a commission of 3.0% of the aggregate gross proceeds from each sale of the shares. In 2023, we sold an aggregate of 26,143 shares of common stock for gross proceeds of approximately $1.1 million and net proceeds of approximately $1.0 million pursuant to the Sales Agreement.
Other Expense Other expense is primarily comprised of losses on equity method investments, accretion expense on earnout liabilities, interest expense and other nonoperating activities. Results of Operations Net Revenues.
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 and Scendia acquisitions. 44 Other Income (Expense) Other income (expense) is primarily comprised of losses on equity method investments, interest expense, and other nonoperating activities.
The consulting agreement has an initial term of three years, unless earlier terminated by the Company, and is subject to renewal. Receivables and Payables We had outstanding related party receivables totaling $98,548 at December 31, 2022, and $79,787 at December 31, 2021. We had outstanding related party payables $34,036 at December 31, 2022, and $155,817 at December 31, 2021.
We incurred $174,486 of costs pursuant to the Catalyst Services Agreement during 2023. 49 Receivables and Payables We had outstanding related party receivables totaling $8,400 at December 31, 2023, and $98,548 at December 31, 2022. We had outstanding related party payables totaling $77,805 at December 31, 2023, and $34,036 at December 31, 2022.
Cash Flow Analysis For the year ended December 31, 2022, net cash used in operating activities was $5.6 million compared to $4.8 million used in operating activities for the year ended December 31, 2021.
If such an event of default occurs, the Bank would be entitled to take various actions, including the acceleration of amounts due under the Loan Agreement and actions permitted to be taken by a secured creditor. 48 Cash Flow Analysis For the year ended December 31, 2023, net cash used in operating activities was $3.2 million compared to $5.6 million used in operating activities for the year ended December 31, 2022.
Removed
In addition, through our subsidiary, Scendia Biologics, LLC (“Scendia”), we license our products from multiple manufacturers. In July 2021, we acquired certain assets from Rochal, including, among others, intellectual property, four U.S. Food and Drug Administration (“FDA”) 510(k) clearances, rights to license certain products and technologies currently under development, equipment and supplies.
Added
On August 1, 2023, we acquired, among other things, the underlying intellectual property of, as well as the rights to manufacture and sell, CellerateRX Surgical Activated Collagen (“CellerateRX Surgical”), our primary product, and HYCOL Hydrolyzed Collagen (“HYCOL”) from Applied Nutritionals, LLC (“Applied”) for human wound care use (for more information regarding this acquisition, see the “Recent Acquisitions” section below).
Removed
As a result of the asset purchase, our pipeline now contains product candidates for mitigation of opportunistic pathogens and biofilm, wound re-epithelialization and closure, necrotic tissue debridement and cell compatible substrates. Since our acquisition of assets from Rochal, we have been developing additional products in our own product pipeline.
Added
Prior to such time, we had licensed the rights to these products through a sublicense agreement (the “Sublicense Agreement”) with CGI Cellerate RX, LLC (“CGI Cellerate RX”), an affiliate of The Catalyst Group, Inc. (“Catalyst”), both of which are related parties.

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