Sanara MedTech Inc

Previous wording

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

Current wording

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

Previous wording

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

Current wording

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

Previous wording

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

Current wording

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

Previous wording

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

Current wording

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

Previous wording

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

Current wording

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

Previous wording

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

Current wording

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

Previous wording

On April 17, 2024 (the “Closing Date”), we, as borrower, entered into a Term Loan Agreement (the “CRG Term Loan Agreement”) with the subsidiary guarantors party thereto from time to time (collectively, the “Guarantors”), CRG Servicing LLC as administrative agent and collateral agent (the “Agent”), and the lenders party thereto from time to time, providing for a senior secured term loan of up to $55.0 million (the “CRG Term Loan”). A portion of the proceeds of the CRG Term Loan were used to repay the Cadence Term Loan and to pay fees and expenses related to the CRG Term Loan Agreement. The remaining proceeds shall be used for certain permitted acquisitions and similar investments and for general working capital and corporate purposes. For more information regarding the CRG Term Loan, see the “Liquidity and Capital Resources” section below.

Current wording

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

Previous wording

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

Current wording

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

Previous wording

The following tables present certain information about the results of our reportable business segments. See Note 11, Segment Reporting, in Part I, Item 1 of this report for more information on our reportable business segments:

Current wording

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

Previous wording

Net Revenue. For the three months ended June 30, 2024, we generated net revenue of $20.2 million compared to net revenue of $15.8 million for the three months ended June 30, 2023, a 28% increase from the prior year period. For the six months ended June 30, 2024, we generated net revenue of $38.7 million compared to net revenue of $31.3 million for the six months ended June 30, 2023, a 24% increase from the prior year period. The higher net revenue for the three and six months ended June 30, 2024 was primarily due to increased sales of soft tissue repair products, including CellerateRX Surgical, 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 three and six months ended June 30, 2023 and 2024, all of our net revenue was generated from Sanara Surgical as THP has not commercially launched. We plan to commercially launch the THP program during the second half of 2025.

Current wording

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

Previous wording

Gross Profit. For the three months ended June 30, 2024, we generated gross profit of $18.2 million compared to gross profit of $13.6 million for the three months ended June 30, 2023, a 34% increase from the prior year period. For the six months ended June 30, 2024, we generated gross profit of $34.8 million compared to gross profit of $27.0 million for the six months ended June 30, 2023, a 29% increase from the prior year period. The higher gross profit for the three and six months ended June 30, 2024 was primarily due to increased sales of soft tissue repair products, including CellerateRX Surgical, 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 three and six months ended June 30, 2023 and 2024, all of our gross profit was generated from Sanara Surgical as THP has not commercially launched. We plan to commercially launch the THP program during the second half of 2025.

Current wording

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

Previous wording

Cost of goods sold. Cost of goods sold for the three months ended June 30, 2024 was $2.0 million compared to cost of goods sold of $2.2 million for the three months ended June 30, 2023. Cost of goods sold for the six months ended June 30, 2024, was $3.9 million, compared to costs of goods sold of $4.3 million for the six months ended June 30, 2023. The decrease in cost of goods sold for the three and six months ended June 30, 2024 was primarily due to the elimination of royalties paid on the sales of CellerateRX Surgical as a result of the Applied Asset Purchase. Gross margins were approximately 90% and 86% for the three and six months ended June 30, 2024 and 2023, respectively. The gross margins for the three and six months ended June 30, 2024 included higher margins realized due to increased sales of soft tissue repair products, including CellerateRX and the elimination of royalties paid on the sales of CellerateRX Surgical as a result of the Applied Asset Purchase.

Current wording

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

Previous wording

Selling, general and administrative expenses. SG&A expenses for the three months ended June 30, 2024 were $19.0 million compared to SG&A expenses of $13.8 million for the three months ended June 30, 2023. SG&A expenses included $0.6 million and $0.5 million attributable to our THP segment for the three months ended June 30, 2024 and 2023, respectively. SG&A expenses for the six months ended June 30, 2024, were $35.1 million compared to SG&A expenses of $26.8 million for the six months ended June 30, 2023. SG&A expenses included $1.1 million and $1.0 million related to our THP segment for the six months ended June 30, 2024 and 2023, respectively.

Current wording

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

Previous wording

The higher SG&A expenses for the three and six months ended June 30, 2024 were primarily due to higher direct sales and marketing expenses, which accounted for approximately $3.4 million and $5.6 million, respectively, of the increases compared to the prior year periods. The higher direct sales and marketing expenses for the three and six months ended June 30, 2024 were primarily attributable to an increase in sales commissions of $2.2 million and $3.8 million, respectively, as a result of higher product sales. SG&A expenses during the second quarter of 2024 also included $0.9 million of executive separation costs and $0.4 million of acquisition costs.

Current wording

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

Previous wording

**Research and development expenses.**R&D expenses for the three months ended June 30, 2024 were $1.0 million compared to R&D expenses of $1.2 million for the three months ended June 30, 2023. R&D expenses included $0.4 million and $1.0 million attributable to our THP segment for the three months ended June 30, 2024 and 2023, respectively. R&D expenses for the six months ended June 30, 2024, were $1.9 million compared to $2.5 million for the six months ended June 30, 2023. R&D expenses included $0.8 million and $2.1 million related to our THP segment for the six months ended June 30, 2024 and 2023, respectively.

Current wording

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

Previous wording

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

Current wording

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

Previous wording

Depreciation and amortization expense. Depreciation and amortization expense for the three months ended June 30, 2024 was $1.1 million compared to depreciation and amortization expense of $0.8 million for the three months ended June 30, 2023. Depreciation and amortization expense included $0.4 million attributable to our THP segment for the three months ended June 30, 2024 and 2023. Depreciation and amortization expense for the six months ended June 30, 2024 was $2.2 million compared to $1.6 million for the six months ended June 30, 2023. Depreciation and amortization expense included $0.8 million related to our THP segment for the six months ended June 30, 2024 and 2023.

Current wording

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

Previous wording

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

Current wording

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

Previous wording

Change in fair value of earnout liabilities. Change in fair value of earnout liabilities was a benefit of $13,773 for the three months ended June 30, 2024 compared to a benefit of $0.4 million for the three months ended June 30, 2023. Change in fair value of earnout liabilities was a benefit of $79,451 for the six months ended June 30, 2024 compared to a benefit of $0.8 million for the six months ended June 30, 2023.

Current wording

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

Previous wording

The current expense is a result of an increase in the estimated fair value of the earnout liabilities established at the time of our Precision Healing merger and Scendia acquisition. The increase in the estimated fair value was due to a decrease in the projected undiscounted amounts to be paid, partially offset by accretion. The prior year period benefit was due to a decrease in the estimated fair value due to a change in the discount factor utilized in the valuation models, a decrease in the projected undiscounted amounts to be paid, as well as adjustments to the projected timing of the payments to be made, partially offset by accretion.

Current wording

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

Previous wording

***Other income (expense).***Other income (expense) for the three months ended June 30, 2024 was $0.6 million compared to zero for the three months ended June 30, 2023. Other income (expense) for the three months ended June 30, 2024 included interest expense, amortization of debt issuance costs, paid-in-kind interest, and accretion of back-end fees related to the CRG Term Loan and interest expense and the write-off of debt issuance costs related to the termination of the Cadence Term Loan. Other income (expense) for the six months ended June 30, 2024 was $0.9 million compared to zero for the six months ended June 30, 2023. Other income (expense) for the six months ended June 30, 2024 included interest expense, amortization of debt issuance costs, paid-in-kind interest, and accretion of back-end fees related to the CRG Term Loan and interest expense, amortization of debt issuance costs, and the write-off of debt issuance costs related to the termination of the Cadence Term Loan.

Current wording

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

Previous wording

Net loss. For the three months ended June 30, 2024 we had a net loss of $3.5 million compared to a net loss of $1.9 million for the three months ended June 30, 2023. Our net loss included $1.3 million and $2.0 million attributable to our THP segment for the three months ended June 30, 2024 and 2023, respectively. For the six months ended June 30, 2024, we had a net loss of $5.3 million, compared to a net loss of $3.1 million for the six months ended June 30, 2023. Our net loss included $2.6 million and $3.7 million related to our THP segment for the six months ended June 30, 2024 and 2023, respectively. The higher net loss for the six months ended June 30, 2024 was primarily due to higher SG&A costs, higher interest expense related to our new CRG Term Loan, a lower change in fair value of earnout liabilities and higher amortization of our acquired intangible assets as discussed above, partially offset by higher gross profit and lower R&D expenses.

Current wording

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

Previous wording

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

Current wording

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

Previous wording

(1) - Includes $328,795 of share-based compensation related to executive separation costs.

Current wording

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

Previous wording

For the three months ended June 30, 2024, we had Segment EBITDA of $0.6 million compared to ($0.3) million for the three months ended June 30, 2023. Our Segment EBITDA included ($0.8) million and ($1.4) million attributable to our THP segment for the three months ended June 30, 2024 and 2023, respectively. For the six months ended June 30, 2024, our Segment EBITDA was $0.9 million, compared to ($0.6) million for the six months ended June 30, 2023. Our Segment EBITDA included ($1.6) million and ($3.0) million related to our THP segment for the six months ended June 30, 2024 and 2023, respectively. The positive Segment EBITDA for the three and six months ended June 30, 2024 was primarily due to higher amortization of our acquired intangible assets, executive separation costs and acquisition costs, as discussed above.

Current wording

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

Previous wording

Cash on hand at June 30, 2024 was $6.2 million, compared to $5.1 million at December 31, 2023. Historically, we have financed our operations primarily from the sale of equity securities. In February 2023, we entered into a Controlled Equity Offering SM Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co., as sales agent (“Cantor”), pursuant to which we could offer and sell from time to time, to or through Cantor, shares of our common stock having an aggregate offering price of up to $75.0 million.

Current wording

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

Previous wording

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

Current wording

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

Previous wording

On April 17, 2024, we entered into the CRG Term Loan Agreement by and among us, as borrower, the Guarantors, the Agent and the lenders party thereto from time to time, providing for a senior secured term loan of up to $55.0 million. On the closing date of the CRG Term Loan, a $15.0 million advance was made to repay the Cadence Term Loan and to pay certain fees and expenses related to the CRG Loan Agreement. The remaining proceeds of $4.4 million were distributed to us. As a result, the Cadence Term Loan Agreement was terminated and all outstanding amounts under the Cadence Term Loan were repaid in full and all security interest and other liens granted to or held by the Bank were terminated and released.

Current wording

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

Previous wording

We expect our future needs for cash to include the funding of our additional investment in THP, potential acquisitions, further developing our products, services and technologies pipeline and clinical studies, expanding our sales force, repayment of debt as it becomes due and for general corporate purposes. If we seek to consummate acquisitions in the future, we expect to finance such acquisitions with the proceeds from equity or debt issuances. Based on our current plan of operations, we believe our cash on hand, when combined with expected cash flows from operations and available proceeds from the CRG Term Loan discussed herein, will be sufficient to fund our growth strategy and to meet our anticipated operating expenses and capital expenditures for at least the next twelve months. We expect to make another borrowing under the CRG Term Loan during the second half of 2024.

Current wording

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

Previous wording

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

Current wording

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

Previous wording

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

Current wording

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

Previous wording

The CRG Term Loan is due and payable on March 30, 2029 (the “Maturity Date”), absent any acceleration. Pursuant to the CRG Term Loan Agreement, a portion of the proceeds of the CRG Term Loan we used to repay the Cadence Term Loan and to pay fees and expenses related to the CRG Term Loan Agreement. The remainder of the proceeds may be used for certain permitted acquisitions and similar investments and for general working capital and corporate purposes.

Current wording

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

Previous wording

The CRG Term Loan bears interest at a per annum rate equal to 13.25% (subject to a 4.0% increase during an event of default), of which 8.00% must be paid in cash and 5.25% may, at our election, be deferred through the 19 th quarterly Payment Date (defined below) by adding such amount to the aggregate principal loan amount, so long as no default or event of default under the CRG Term Loan Agreement has occurred and is continuing. We are required to make quarterly interest payments on the final business day of each calendar quarter following the Closing Date, commencing on the first such date to occur at least 30 days after the Closing Date (each, a “Payment Date”). Interest is payable on each Payment Date in arrears with respect to the time between each Payment Date and upon the payment or prepayment of the CRG Term Loan, ending on the Maturity Date. In addition, we are required to pay an upfront fee of 1.50% of the principal amount of the CRG Term Loan, which is payable as amounts are advanced under the CRG Term Loan on a pro rata basis. We are also required to pay a back-end fee equal to 7.00% of the aggregate principal amount advanced under the CRG Term Loan Agreement. We paid upfront fees of $225,000 on the Closing Date related to the First Borrowing. As of June 30, 2024, there was $15.2 million of principal outstanding and $39.8 million available for future borrowing under the CRG Term Loan.

Current wording

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

Previous wording

For the six months ended June 30, 2024, net cash used in operating activities was $3.0 million compared to $3.5 million used in operating activities for the six months ended June 30, 2023. The lower use of cash in the six months ended June 30, 2024 was due to net revenue growth outpacing the growth of our cash operating expenses and timing of cash expenditures for certain accrued payables and prepaids.

Current wording

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

Previous wording

For the six months ended June 30, 2024, net cash used in investing activities was $0.1 million compared to an immaterial amount used in investing activities during the six months ended June 30, 2023. The higher use of cash used in investing activities during the six months ended June 30, 2024 was due to cash paid for purchases of property and equipment.

Current wording

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

Previous wording

For the six months ended June 30, 2024, net cash provided by financing activities was $4.1 million as compared to $0.6 million provided by financing activities for the six months ended June 30, 2023. The cash provided by financing activities during the six months ended June 30, 2024 was primarily due to proceeds received from the CRG Term Loan, which were partially offset by the payoff of the Cadence Term Loan.

Current wording

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

Previous wording

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

Current wording

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

Previous wording

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

Current wording

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

Previous wording

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

Current wording

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

Previous wording

Pursuant to the Catalyst Services Agreement, we agreed to reimburse Catalyst for (i) compensation actually paid by Catalyst to any of the Covered Persons at a rate no more than a rate consistent with industry practice for the performance of services similar to the Catalyst Services, as documented in reasonably sufficient detail, and (ii) all reasonable out-of-pocket costs and expenses payable to unaffiliated third parties, as documented in customary expense reports, as each of (i) and (ii) is incurred in connection with the Catalyst Services rendered under the Catalyst Services Agreement, with all reimbursements being contingent upon the prior approval of the Audit Committee of our Board of Directors. We incurred costs relating to the Catalyst Services Agreement of $57,000 and $72,986 during the three months ended June 30, 2024 and 2023, respectively, and $113,272 and $72,986 during the six months ended June 30, 2024 and 2023, respectively.

Current wording

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