Acquisition and Partnerships - Sanara MedTech acquired the intellectual property and rights to manufacture and sell CellerateRX Surgical and HYCOL for $15.25 million, including $9.75 million in cash and $3.0 million in stock [175]. - Sanara MedTech's acquisition of Scendia Biologics in July 2022 expanded its regenerative and orthobiologic technology offerings [165]. - An exclusive license agreement was signed with Tufts University in December 2023 to develop and commercialize patented technology covering 18 unique collagen peptides, with royalties set at 1.5% or 3% based on product type [180]. - The Applied Asset Purchase was completed on August 1, 2023, for an initial aggregate purchase price of $15.25 million, including $9.75 million in cash and stock valued at $3.0 million [205]. Product Development and Launches - The company launched BIASURGE Advanced Surgical Solution in November 2023, an antimicrobial solution for wound irrigation [167]. - The company received 510(k) clearance from the FDA for the Precision Healing diagnostic imager in December 2023, enhancing its wound assessment capabilities [164]. - The company is evaluating regulatory pathways for the Precision Healing Lateral Flow Assay, furthering its diagnostic capabilities [164]. - The company is focused on developing a comprehensive wound and skincare strategy through acquisitions and investments to improve clinical outcomes [162]. - Sanara MedTech's technology platform will leverage AI and machine learning to enhance patient monitoring and care delivery [172]. Financial Performance - For the three months ended March 31, 2024, the company generated net revenue of $18.5 million, a 19% increase from $15.5 million in the same period of 2023, primarily driven by increased sales of soft tissue repair products [190]. - The cost of goods sold for the three months ended March 31, 2024, was $1.9 million, down from $2.1 million in the prior year, resulting in gross margins of approximately 90% compared to 86% in 2023 [191]. - Selling, general and administrative (SG&A) expenses increased to $16.2 million for the three months ended March 31, 2024, from $13.0 million in 2023, with direct sales and marketing expenses accounting for approximately $2.2 million of the increase [192]. - Research and development (R&D) expenses decreased to $0.9 million for the three months ended March 31, 2024, compared to $1.3 million in the prior year, primarily due to lower costs associated with specific projects [193]. - The company reported a net loss of $1.8 million for the three months ended March 31, 2024, compared to a net loss of $1.2 million in the same period of 2023, attributed to higher SG&A costs and amortization of acquired intangible assets [197]. Cash Flow and Financing - The company had cash on hand of $2.8 million as of March 31, 2024, down from $5.1 million at the end of 2023, with plans to finance future needs through equity or debt issuances [199]. - The company expects its cash on hand, combined with expected cash flows from operations and proceeds from the CRG Loan, to be sufficient to fund its growth strategy for at least the next twelve months [204]. - For the three months ended March 31, 2024, net cash used in operating activities was $1.6 million, a decrease from $1.7 million for the same period in 2023, attributed to net revenue growth outpacing cash operating expenses [221]. - The company entered into a CRG Loan Agreement on April 17, 2024, providing for a senior secured term loan of up to $55.0 million, with a portion used to repay the Cadence Term Loan [179]. - The CRG Loan bears interest at a per annum rate of 13.25%, with 8.00% payable in cash and 5.25% deferrable under certain conditions [216]. Debt and Obligations - The Cadence Term Loan was terminated with an outstanding principal amount of $9.8 million at the time of termination, and approximately $27.1 thousand was paid in interest [213]. - The CRG Loan Agreement provides for a senior secured term loan of up to $55.0 million, with $15.0 million available for borrowing on the Closing Date and up to $40.0 million in subsequent borrowings [214]. - The company is required to maintain a minimum Debt Service Coverage Ratio and a Cash Flow Leverage Ratio under the Cadence Loan Agreement [212]. Revenue Targets and Related Party Transactions - The company has set annual minimum revenue targets of at least $60.0 million for 2024, increasing to at least $105.0 million for each twelve-month period beginning on January 1 of subsequent years [224]. - The company had outstanding related party receivables totaling $23,002 and payables totaling $87,116 as of March 31, 2024 [230]. - The proceeds from the Cadence Loan were used for working capital and financing the Cash Closing Consideration for the Applied Asset Purchase, with an advance of $9.75 million made on August 1, 2023 [209]. Sales Performance - Sales of CellerateRX Surgical comprised the substantial majority of the company's sales during the three months ended March 31, 2024 [225]. - The company incurred $56,272 of costs under the Catalyst Services Agreement during the three months ended March 31, 2024, with no expenses incurred in the same period of 2023 [229].

Financial Performance - In Q1 2024, Sanara MedTech generated record sales of $18.5 million, marking the tenth consecutive record revenue quarter, a 19% increase from $15.5 million in Q1 2023[3] - The company reported a net loss of $1.8 million for Q1 2024, compared to a net loss of $1.2 million in Q1 2023, primarily due to increased SG&A costs[6] - Adjusted EBITDA for Q1 2024 was $0.3 million, an improvement from negative Adjusted EBITDA of $0.3 million in Q1 2023[3] - Net revenue for Q1 2024 was $18,536,638, a 19.5% increase from $15,521,917 in Q1 2023[19] - Gross profit for Q1 2024 was $16,646,592, compared to $13,396,258 in Q1 2023, reflecting a gross margin improvement[19] - Operating loss increased to $(1,531,707) in Q1 2024 from $(1,216,323) in Q1 2023[19] - Net loss attributable to Sanara MedTech shareholders was $(1,764,184) in Q1 2024, compared to $(1,177,900) in Q1 2023, resulting in a net loss per share of $(0.21) versus $(0.14) in the prior year[19] - Net cash used in operating activities was $(1,594,370) in Q1 2024, a slight improvement from $(1,741,313) in Q1 2023[21] - Cash at the end of Q1 2024 was $2,828,234, down from $7,286,437 at the end of Q1 2023[21] - Adjusted EBITDA for Q1 2024 was $311,421, compared to $(292,830) in Q1 2023, indicating a positive shift in operational performance[23] - Total operating expenses increased to $18,178,299 in Q1 2024 from $14,612,581 in Q1 2023, driven by higher selling, general, and administrative expenses[19] - The company reported a significant increase in share-based compensation, rising to $803,386 in Q1 2024 from $597,305 in Q1 2023[21] Company Growth and Initiatives - Sanara's products were sold in over 1,080 facilities across 34 states and the District of Columbia, with contracts or approvals in more than 3,000 hospitals/ambulatory surgery centers as of March 31, 2024[3] - The company entered into a $55.0 million non-dilutive term loan agreement to support growth initiatives, receiving $15.0 million at closing and the option to draw up to $40.0 million before June 30, 2025[3] - The company made significant progress in intellectual property and manufacturing processes for its CellerateRX product[3] Financial Position - Sanara's cash decreased to $2.83 million as of March 31, 2024, down from $5.15 million at the end of 2023[17] - Total assets decreased to $70.91 million as of March 31, 2024, from $73.87 million at the end of 2023[17] - Shareholders' equity decreased to $43.01 million as of March 31, 2024, from $44.59 million at the end of 2023[17] Management Changes - The company appointed new executives, including Jake Waldrop as COO and Tyler Palmer as Chief Corporate Development and Strategy Officer[3]

Financial Data and Key Metrics Changes - In Q4 2023, the company generated $17.7 million in revenue, marking a record revenue quarter, and for the full year, total revenue reached $65 million, a 42% increase from $45.8 million in 2022 [5][28] - The net loss for Q4 2023 was $300,000, while the annual net loss was $4.4 million, an improvement from a net loss of $8.1 million in 2022 [5][30] - Adjusted EBITDA was breakeven in Q4, with a $300,000 adjusted EBITDA loss for the year [5] Business Line Data and Key Metrics Changes - Sales of soft tissue products increased to $54.8 million in 2023 from $41.7 million in 2022, while bone fusion products saw sales rise to $10 million from $4 million [12] - The company had 39 field sales representatives at the end of 2023, with significant strides in data analytics to measure performance and enhance market penetration [11][28] Market Data and Key Metrics Changes - Products were sold in over 1,000 facilities across 34 states and the District of Columbia, with approvals to sell in more than 3,000 facilities as of December 31, 2023 [26] - The company is focusing on expanding into new geographic areas and specialties beyond orthopedics and spine [6] Company Strategy and Development Direction - The company plans to expand its sales force, penetrate additional specialties, and drive new product development, including the CellerateRX platform and peptides licensed from Tufts University [6][9] - The Tissue Health Plus strategy aims to lower costs and improve outcomes in post-acute wound care, with ongoing discussions for partnerships to share development costs [7][23] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the growth trajectory, citing a comprehensive strategy for Tissue Health Plus and the importance of partnerships to fund and implement this strategy [58] - The company aims to regain momentum with ALLOCYTE Plus and expects to ramp up sales following the product's reintroduction [68] Other Important Information - R&D expenses increased to $4.1 million in 2023 from $3.4 million in 2022, primarily due to ongoing development projects [29] - SG&A expenses for 2023 were $57 million, up from $46 million in 2022, but as a percentage of revenue, they decreased from 100.3% to 87.7% [43] Q&A Session Summary Question: Feedback on BIASURGE sales and centers sold - Management reported that BIASURGE has been well received, with 51 centers sold by the end of Q4, and they are actively selling to these centers [49] Question: Improvement plans for Cellerate following peptide acquisition - The acquisition of 18 peptides aims to enhance the company's IP around collagen strategies and expand into new specialties [52][63] Question: Clarification on sales force growth - The sales force remained at 39, with some reclassifications and terminations, but efficiency improvements led to a 42% revenue increase [55][56] Question: Status of ALLOCYTE sales ramp-up - Management indicated that ALLOCYTE Plus is being reintroduced to facilities, and they are working to regain previous sales momentum [68] Question: Tissue Health Plus potential spin-out or partnership - The company is in discussions for partnerships to facilitate commercialization and expects Tissue Health Plus to be a long-term cash flow generator [72]

Financial Performance - The company achieved its highest net revenue quarter and year in history, with $17.7 million in Q4 and $65.0 million for the full year 2023[4] - The company experienced a net loss of $0.3 million in Q4 and $4.4 million for the year[4] - SG&A expenses for 2023 were $57.0 million, compared to $46.0 million in 2022, but SG&A as a percentage of revenue decreased from 100.3% to 87.7%[12] - The company's net loss decreased from $8.1 million in 2022 to $4.4 million in 2023, primarily due to increased gross profit[30] Sales Overview - Sales of soft tissue products reached $54.8 million in 2023, compared to $41.7 million in 2022[18] - Sales of bone fusion products were $10.0 million in 2023, compared to $4.0 million in 2022[18] - Net revenues for 2023 were $65.0 million, a 42% year-over-year increase compared to $45.8 million in the previous year[19] Strategic Initiatives - The company is seeking partners to commercialize Tissue Health Plus, with operating expenses of approximately $5.2 million in 2023, excluding noncash items[8] - The company had 39 field sales representatives as of December 31, 2023[16] - R&D expenses for 2023 were $4.1 million, compared to $3.4 million in 2022, driven by costs related to the Precision Healing diagnostic imager and LFA[49]

[Fourth Quarter and Full Year 2023 Results](index=1&type=section&id=Fourth%20Quarter%20and%20Full%20Year%202023%20Results) This section details Sanara's financial and operational performance for Q4 and the full year 2023, highlighting key achievements and growth drivers [CEO Statement](index=1&type=section&id=CEO%20Statement) The CEO highlighted key 2023 achievements that position the company for continued growth, including acquisitions and new product launches - Key strategic milestones in 2023 included the acquisition of assets related to CellerateRX® Surgical Powder and Gel[2](index=2&type=chunk) - The company successfully launched two new products: ALLOCYTE® Plus Advanced Viable Bone Matrix and BIASURGE® Advanced Surgical Solution[2](index=2&type=chunk) [Strategic and Operational Highlights in the Fourth Quarter 2023](index=1&type=section&id=Strategic%20and%20Operational%20Highlights%20in%20the%20Fourth%20Quarter%202023) Sanara achieved record Q4 sales of $17.7 million, significantly reduced net loss, and reached breakeven Adjusted EBITDA, driven by new product launches and strategic agreements Q4 2023 Financial Highlights (vs Q4 2022) | Metric | Q4 2023 | Q4 2022 | | :--- | :--- | :--- | | **Sales** | $17.7 million | Not Stated | | **Net Loss** | $0.3 million | $4.2 million | | **Adjusted EBITDA** | Breakeven | -$2.5 million | - The company's products were sold in over **1,000 facilities** and were approved for sale in more than **3,000 hospitals/ambulatory surgery centers** as of year-end[3](index=3&type=chunk) - First sales of ALLOCYTE® Plus occurred in October 2023 and BIASURGE® in November 2023[3](index=3&type=chunk) - A retrospective study published in November 2023 showed CellerateRX Surgical Powder significantly reduced surgical site infection rates by **59%** in elective surgeries[3](index=3&type=chunk) - In December 2023, the company signed an exclusive license agreement with Tufts University for patented peptide technology to advance the CellerateRX platform[4](index=4&type=chunk) [Full Year 2023 Performance Analysis](index=2&type=section&id=Full%20Year%202023%20Performance%20Analysis) Sanara's full-year 2023 net revenue increased by 42% to $65.0 million, significantly narrowing its net loss and improving Adjusted EBITDA [Sales Analysis](index=2&type=section&id=Full%20Year%202023%20Sales%20Analysis) Net revenues for 2023 reached $65.0 million, a 42% increase from 2022, driven by higher sales of soft tissue repair and bone fusion products Net Revenue (Full Year) | Year | Net Revenue | | :--- | :--- | | **2023** | $65.0 million | | **2022** | $45.8 million | - The **42% year-over-year revenue increase** was primarily due to increased sales of soft tissue repair products (CellerateRX, FORTIFY TRG®, etc.) and bone fusion products (BiFORM®, AMPLIFY™, ALLOCYTE®)[6](index=6&type=chunk) - Growth drivers included increased market penetration, geographic expansion, and the expansion of the independent distribution network[6](index=6&type=chunk) [Earnings Analysis](index=2&type=section&id=Full%20Year%202023%20Earnings%20Analysis) The company's net loss for 2023 improved to $4.4 million, primarily due to higher gross profit, with Adjusted EBITDA also showing significant improvement Profitability Metrics (Full Year) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | **Loss Before Income Taxes** | ($4.4 million) | ($13.9 million) | | **Net Loss** | ($4.4 million) | ($8.1 million) | | **Adjusted EBITDA** | ($0.3 million) | ($7.5 million) | - The lower net loss in 2023 was primarily driven by additional gross profit from higher revenues, partially offset by increased SG&A, R&D, and amortization costs[7](index=7&type=chunk) [Financial Statements](index=5&type=section&id=Financial%20Statements) This section presents Sanara's consolidated balance sheets, statements of operations, and cash flows for the reported periods [Consolidated Balance Sheets](index=5&type=section&id=Consolidated%20Balance%20Sheets) As of December 31, 2023, total assets increased to $73.9 million, driven by intangible assets, while total liabilities rose to $29.3 million due to long-term debt Selected Balance Sheet Data (as of Dec 31) | Account | 2023 | 2022 | | :--- | :--- | :--- | | **Total Assets** | $73,871,149 | $61,035,386 | | Cash | $5,147,216 | $8,958,995 | | Intangible assets, net | $44,926,061 | $31,509,980 | | **Total Liabilities** | $29,283,132 | $19,315,411 | | Long-term debt, net | $9,113,123 | $0 | | **Total Shareholders' Equity** | $44,588,017 | $41,719,975 | [Consolidated Statements of Operations](index=6&type=section&id=Consolidated%20Statements%20of%20Operations) For 2023, net revenues increased to $65.0 million, gross profit rose to $57.1 million, and net loss attributable to shareholders narrowed to $4.3 million Key Income Statement Data (Year Ended Dec 31) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | **Net Revenue** | $64,989,842 | $45,842,845 | | **Gross Profit** | $57,137,156 | $39,481,994 | | **Operating Loss** | ($4,215,153) | ($12,517,180) | | **Net Loss Attributable to Shareholders** | ($4,303,197) | ($7,937,497) | | **Net Loss Per Share (basic and diluted)** | ($0.52) | ($1.00) | [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash used in operating activities improved to $3.2 million in 2023, with a net decrease in cash of $3.8 million, ending the year at $5.1 million Cash Flow Summary (Year Ended Dec 31) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | **Net cash used in operating activities** | ($3,245,556) | ($5,554,870) | | **Net cash used in investing activities** | ($10,207,346) | ($3,511,630) | | **Net cash provided by (used in) financing activities** | $9,641,123 | ($627,346) | | **Net decrease in cash** | ($3,811,779) | ($9,693,846) | | **Cash, end of period** | $5,147,216 | $8,958,995 | [Non-GAAP Financial Measures](index=2&type=section&id=Non-GAAP%20Financial%20Measures) This section explains the company's use of Adjusted EBITDA as a non-GAAP measure and provides its reconciliation to GAAP net loss [Use of Non-GAAP Financial Measures](index=2&type=section&id=Use%20of%20Non-GAAP%20Financial%20Measures) The company utilizes Adjusted EBITDA to assess core business performance by excluding specific non-cash and non-operating items from net loss - The company defines Adjusted EBITDA as net loss excluding interest, taxes, depreciation, amortization, non-cash stock compensation, change in fair value of earnout liabilities, and gains/losses from asset disposals[9](index=9&type=chunk) - Management uses Adjusted EBITDA to facilitate consistent comparisons of core business operations across different periods[9](index=9&type=chunk) [Reconciliation of Net Loss to Adjusted EBITDA](index=8&type=section&id=Reconciliation%20of%20Net%20Loss%20to%20Adjusted%20EBITDA) The reconciliation shows a significant improvement in Adjusted EBITDA for both Q4 and the full year 2023, moving closer to breakeven Reconciliation of Net Loss to Adjusted EBITDA | Period | Net Loss | Adjusted EBITDA | | :--- | :--- | :--- | | **Q4 2023** | ($262,444) | $7,696 | | **Q4 2022** | ($4,163,485) | ($2,456,684) | | **Full Year 2023** | ($4,439,902) | ($313,966) | | **Full Year 2022** | ($8,092,328) | ($7,487,859) | [Company and Investor Information](index=3&type=section&id=Company%20and%20Investor%20Information) This section provides an overview of Sanara MedTech, details for an upcoming conference call, and important forward-looking statement disclosures [About Sanara MedTech Inc.](index=3&type=section&id=About%20Sanara%20MedTech%20Inc.) Sanara MedTech develops and distributes surgical, wound, and skincare products in North America, also offering telemedicine consultation services - The company markets and distributes a portfolio of products for surgical, wound, and skincare applications, including CellerateRX®, FORTIFY TRG®, ALLOCYTE™ Plus, and BIAKŌS®[13](index=13&type=chunk) - Sanara's primary markets are North American advanced wound care and surgical tissue repair, serving hospitals, clinics, and post-acute care settings[13](index=13&type=chunk) [Conference Call Information](index=3&type=section&id=Conference%20Call%20Information) Sanara will host a conference call and live webcast on March 26, 2024, to discuss its financial results - A conference call is scheduled for **March 26, 2024, at 9:00 a.m. Eastern Time**[11](index=11&type=chunk) [Forward-Looking Statements](index=4&type=section&id=Forward-Looking%20Statements) This section contains forward-looking statements subject to risks and uncertainties, as detailed in the company's SEC filings - The report includes forward-looking statements concerning product efficacy, potential benefits of acquisitions, development of new products, and business expansion[14](index=14&type=chunk) - These statements involve risks and uncertainties detailed in the Company's SEC filings, which could cause actual results to differ from expectations[14](index=14&type=chunk)

For the transition period from ________ to ________ Commission File Number 001-39678 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ☒ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2023 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 SANARA MEDTECH INC. (Exact name of Registrant as specified in its charter) Texas 59-2219994 (State or other jurisdiction of (I ...

Sanara MedTech Inc. (NASDAQ:SMTI) Q3 2023 Results Conference Call November 14, 2023 9:00 AM ET Company Participants Callon Nichols - Vice President of Corporate Operations Ron Nixon - Executive Chairman Zach Fleming - Chief Executive Officer Mike McNeil - CFO & Corporate Secretary Conference Call Participants Ross Osborn - Cantor Fitzgerald Ian Cassel - IFCM Niraj Gupta - GCI Partners Operator Greetings, and welcome to the Sanara MedTech Incorporated Third Quarter 2023 Results and Business Update Call. At t ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2023 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to ________ Commission File Number 001-39678 SANARA MEDTECH INC. (Exact name of Registrant as specified in its charter) Texas 59-2219994 (State or other jurisdict ...

Sanara Medtech, Inc. (NASDAQ:SMTI) Q2 2023 Earnings Conference Call August 15, 2023 9:00 AM ET Company Participants Callon Nichols - VP, Corporate Operations Ron Nixon - Executive Chairman Zach Fleming - CEO Mike McNeil - CFO Conference Call Participants Ross Osborn - Cantor Fitzgerald Ian Cassel - MicroCap Club Operator Greetings. Welcome to the Sanara MedTech Inc. Second Quarter 2023 Results and Business Update Conference Call. [Operator Instructions]. Please note that this conference is being recorded. I ...

[Part I – Financial Information](index=3&type=section&id=Part%20I%20%E2%80%93%20Financial%20Information) Presents unaudited consolidated financial statements and detailed notes for Sanara MedTech Inc. for the quarter and six months ended June 30, 2023 and 2022 [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section provides the unaudited consolidated financial statements, including balance sheets, statements of operations, changes in equity, cash flows, and comprehensive explanatory notes [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets%20as%20of%20June%2030%2C%202023%20%28Unaudited%29%20and%20December%2031%2C%202022) Presents the company's financial position, detailing assets, liabilities, and shareholders' equity as of June 30, 2023, and December 31, 2022 | Metric | June 30, 2023 | December 31, 2022 | | :--------------------------------- | :-------------- | :------------------ | | **Assets** | | | | Total current assets | $18,177,937 | $20,616,509 | | Total long-term assets | $40,100,844 | $40,418,877 | | **Total assets** | **$58,278,781** | **$61,035,386** | | **Liabilities** | | | | Total current liabilities | $9,881,336 | $12,806,309 | | Total long-term liabilities | $7,432,947 | $6,509,102 | | **Total liabilities** | **$17,314,283** | **$19,315,411** | | **Shareholders' Equity** | | | | Total shareholders' equity | $40,964,498 | $41,719,975 | | **Total liabilities and shareholders' equity** | **$58,278,781** | **$61,035,386** | - Total assets decreased by approximately **$2.76 million** from December 31, 2022, to June 30, 2023, primarily driven by a decrease in cash and total current assets[10](index=10&type=chunk) - Total liabilities decreased by approximately **$2.00 million**, mainly due to a reduction in current liabilities, while long-term liabilities saw an increase[10](index=10&type=chunk) [Consolidated Statements of Operations](index=4&type=section&id=Consolidated%20Statements%20of%20Operations%20%28Unaudited%29%20for%20the%20Three%20and%20Six%20Months%20Ended%20June%2030%2C%202023%20and%202022) Details the company's financial performance, including net revenue, gross profit, operating loss, and net income (loss) for the three and six months ended June 30, 2023 and 2022 | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net Revenue | $15,753,164 | $9,670,778 | $31,275,081 | $17,482,001 | | Gross profit | $13,565,648 | $8,712,692 | $26,961,906 | $15,718,834 | | Operating loss | $(1,866,180) | $(3,384,992) | $(3,082,503) | $(6,161,864) | | Net income (loss) attributable to Sanara MedTech shareholders | $(1,827,733) | $769,426 | $(3,005,633) | $(2,359,898) | | Basic EPS | $(0.22) | $0.10 | $(0.37) | $(0.31) | | Diluted EPS | $(0.22) | $0.09 | $(0.37) | $(0.31) | - Net revenue increased significantly by **63%** for the three months and **79%** for the six months ended June 30, 2023, compared to the prior year periods, driven by increased sales of soft tissue repair and bone fusion products, and the Scendia acquisition[13](index=13&type=chunk)[184](index=184&type=chunk) - The company reported a net loss attributable to shareholders of **$(1.83) million** for the three months and **$(3.01) million** for the six months ended June 30, 2023, compared to net income of **$0.77 million** and a net loss of **$(2.36) million** in the respective prior year periods, with the prior year's net income influenced by a **$4.1 million** income tax benefit[13](index=13&type=chunk)[193](index=193&type=chunk)[194](index=194&type=chunk) [Consolidated Statements of Changes in Shareholders' Equity](index=5&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Shareholders'%20Equity%20%28Unaudited%29%20for%20the%20Three%20and%20Six%20Months%20Ended%20June%2030%2C%202023%20and%202022) Outlines the changes in common stock, additional paid-in capital, and accumulated deficit, leading to the total shareholders' equity for the period | Metric | December 31, 2022 | June 30, 2023 | | :--------------------------------- | :---------------- | :-------------- | | Common Stock (Shares) | 8,299,957 | 8,439,745 | | Common Stock (Amount) | $8,300 | $8,440 | | Additional Paid-In Capital | $65,213,987 | $67,881,419 | | Accumulated Deficit | $(23,394,757) | $(26,740,930) | | Total Shareholders' Equity | $41,719,975 | $40,964,498 | - Total shareholders' equity decreased from **$41.72 million** at December 31, 2022, to **$40.96 million** at June 30, 2023, primarily due to the accumulated deficit from net losses, partially offset by increases in additional paid-in capital from share-based compensation and equity offerings[14](index=14&type=chunk) - Share-based compensation contributed **$1.72 million** to additional paid-in capital for the six months ended June 30, 2023, and net proceeds from equity offering were **$1.03 million**[14](index=14&type=chunk)[115](index=115&type=chunk)[117](index=117&type=chunk) [Consolidated Statements of Cash Flows](index=6&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows%20%28Unaudited%29%20for%20the%20Six%20Months%20Ended%20June%2030%2C%202023%20and%202022) Summarizes cash inflows and outflows from operating, investing, and financing activities for the six months ended June 30, 2023 and 2022 | Cash Flow Activity | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(3,461,162) | $(3,266,795) | | Net cash used in investing activities | $(40,000) | $(2,384,269) | | Net cash provided by (used in) financing activities | $602,395 | $(322,931) | | Net decrease in cash | $(2,898,767) | $(5,973,995) | | Cash, end of period | $6,060,228 | $12,678,846 | - Net cash used in operating activities increased slightly to **$3.46 million** in H1 2023 from **$3.27 million** in H1 2022, primarily due to increased inventory and higher payouts of accrued bonuses and commissions[17](index=17&type=chunk)[219](index=219&type=chunk) - Net cash used in investing activities significantly decreased to **$0.04 million** in H1 2023 from **$2.38 million** in H1 2022, mainly due to lower cash paid for acquisitions in the current period[17](index=17&type=chunk)[220](index=220&type=chunk) - Net cash provided by financing activities was **$0.60 million** in H1 2023, a positive shift from **$0.32 million** used in H1 2022, driven by net proceeds from common stock sales[17](index=17&type=chunk)[221](index=221&type=chunk) [Notes to Unaudited Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20Unaudited%20Consolidated%20Financial%20Statements) Provides detailed explanations of significant accounting policies, recent acquisitions, intangible assets, investments, leases, commitments, and related party transactions [NOTE 1 – Nature of Business and Background](index=9&type=section&id=NOTE%201%20%E2%80%93%20NATURE%20OF%20BUSINESS%20AND%20BACKGROUND) Describes Sanara MedTech Inc.'s core business as a medical technology company focused on improving clinical outcomes in surgical, chronic wound, and skincare markets - Sanara MedTech Inc. is a medical technology company focused on developing and commercializing transformative technologies to improve clinical outcomes and reduce healthcare expenditures in the surgical, chronic wound, and skincare markets[19](index=19&type=chunk) [NOTE 2 — Summary of Significant Accounting Policies](index=9&type=section&id=NOTE%202%20%E2%80%94%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) Outlines the key accounting principles and revenue recognition policies applied in preparing the interim financial statements - The financial statements are prepared in accordance with GAAP for interim financial information, and all adjustments are considered necessary for fair presentation[21](index=21&type=chunk) - Revenue is recognized when control of promised goods or services is transferred to the customer, typically upon receipt of a purchase order and product delivery[26](index=26&type=chunk)[30](index=30&type=chunk) Revenue Stream | Revenue Stream | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :----------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Soft tissue repair products | $13,249,742 | $9,569,441 | $26,122,223 | $17,327,648 | | Bone fusion products | $2,453,172 | $51,087 | $5,052,358 | $53,853 | | Royalty revenue | $50,250 | $50,250 | $100,500 | $100,500 | | **Total Net Revenue** | **$15,753,164** | **$9,670,778** | **$31,275,081** | **$17,482,001** | - The company adopted ASU 2016-13 (Financial Instruments - Credit Losses) effective January 1, 2023, with no material impact on its financial statements[54](index=54&type=chunk) [NOTE 3 – Precision Healing Merger](index=14&type=section&id=NOTE%203%20%E2%80%93%20PRECISION%20HEALING%20MERGER) Details the acquisition of Precision Healing in April 2022, including merger consideration and contingent earnout payments - In April 2022, Sanara MedTech acquired Precision Healing, a company developing diagnostic imagers and lateral flow assays for wound and skin conditions, making it a wholly-owned subsidiary[56](index=56&type=chunk)[57](index=57&type=chunk) - The merger consideration included **$125,966** in cash, **165,738** shares of common stock, and the assumption of outstanding options and warrants[58](index=58&type=chunk)[59](index=59&type=chunk) - Contingent earnout payments of up to **$10.0 million** are payable upon achieving certain performance thresholds, classified as a liability at fair value[61](index=61&type=chunk)[62](index=62&type=chunk) [NOTE 4 – Scendia Purchase Agreement](index=16&type=section&id=NOTE%204%20%E2%80%93%20SCENDIA%20PURCHASE%20AGREEMENT) Describes the acquisition of Scendia Biologics in July 2022, including the purchase consideration and potential earnout liabilities - In July 2022, Sanara MedTech acquired **100%** of Scendia Biologics, LLC, which provides regenerative and orthobiologic technologies and previously co-promoted products with Sanara[65](index=65&type=chunk)[66](index=66&type=chunk) - The acquisition consideration included approximately **$1.6 million** in cash and **291,686** shares of common stock, with **94,798** shares withheld for indemnification and released in July 2023[67](index=67&type=chunk) - The agreement includes potential earnout payments of up to **$10.0 million**, contingent on Scendia product net revenue targets over two years, classified as a liability at fair value[68](index=68&type=chunk)[69](index=69&type=chunk) [NOTE 5 – Intangible Assets](index=18&type=section&id=NOTE%205%20%E2%80%93%20INTANGIBLE%20ASSETS) Provides a breakdown of the company's intangible assets, their cost, accumulated amortization, and net values Intangible Asset Summary | Intangible Asset Category | Cost (June 30, 2023) | Accumulated Amortization (June 30, 2023) | Net (June 30, 2023) | | :------------------------ | :------------------- | :--------------------------------------- | :------------------ | | Product Licenses | $4,793,879 | $(1,149,604) | $3,644,275 | | Patents and Other IP | $21,935,580 | $(2,105,580) | $19,830,000 | | Customer relationships and other | $7,947,332 | $(1,278,029) | $6,669,303 | | **Total** | **$34,676,791** | **$(4,533,213)** | **$30,143,578** | - The weighted-average amortization period for finite-lived intangible assets was **14.3 years** as of June 30, 2023[72](index=72&type=chunk) - Amortization expense for intangible assets increased to **$1.37 million** for the six months ended June 30, 2023, from **$0.55 million** in the prior year, primarily due to assets acquired in the Precision Healing and Scendia transactions[72](index=72&type=chunk)[189](index=189&type=chunk) [NOTE 6 – Investments in Equity Securities](index=18&type=section&id=NOTE%206%20%E2%80%93%20INVESTMENTS%20IN%20EQUITY%20SECURITIES) Details the company's nonmarketable equity investments in privately held companies and the accounting treatment for these holdings - The company holds nonmarketable equity securities in privately held companies, including Direct Dermatology Inc. (**8.1%** ownership) and Pixalere Healthcare Inc. (**27.3%** ownership), reported at cost[74](index=74&type=chunk)[75](index=75&type=chunk)[78](index=78&type=chunk)[79](index=79&type=chunk) - The equity method investment in Precision Healing Inc. ceased in April 2022 due to the merger, resulting in a **$379,633** share of loss for the six months ended June 30, 2022, prior to acquisition[77](index=77&type=chunk)[80](index=80&type=chunk) Equity Investments | Investment | Carrying Amount (June 30, 2023) | | :---------------------- | :------------------------------ | | Direct Dermatology, Inc. | $1,000,000 | | Pixalere Healthcare Inc. | $2,084,278 | | **Total Investments** | **$3,084,278** | [NOTE 7 - Operating Leases](index=19&type=section&id=NOTE%207%20-%20OPERATING%20LEASES) Summarizes the company's operating lease assets, liabilities, and associated lease expenses - As of June 30, 2023, the company recorded Right of Use (ROU) assets of **$2.03 million** and a related lease liability of **$2.05 million**[83](index=83&type=chunk) - Lease expense for the six months ended June 30, 2023, was **$184,575**, up from **$126,815** in the prior year[83](index=83&type=chunk) - The weighted average remaining lease term for operating leases was **6.4 years** with a weighted average discount rate of **7.51%** as of June 30, 2023[85](index=85&type=chunk) [NOTE 8 - Commitments and Contingencies](index=20&type=section&id=NOTE%208%20-%20COMMITMENTS%20AND%20CONTINGENCIES) Outlines the company's various license agreements, royalty obligations, and contingent earnout payment liabilities from acquisitions - The company has various license agreements, including an exclusive sublicense for CellerateRX Surgical and HYCOL products, with royalties of **3-5%** of net sales, which comprised the substantial majority of sales[86](index=86&type=chunk)[87](index=87&type=chunk) - Other license agreements with Rochal Industries (a related party) cover antimicrobial wound gel, skin cleanser, barrier film, skin protectant, and a debrider, with varying royalty rates and minimum annual payments[89](index=89&type=chunk)[90](index=90&type=chunk)[92](index=92&type=chunk)[93](index=93&type=chunk)[94](index=94&type=chunk)[95](index=95&type=chunk)[96](index=96&type=chunk)[97](index=97&type=chunk) - Contingent earnout payments are associated with the Precision Healing merger (up to **$10.0 million**) and Scendia acquisition (up to **$10.0 million**), based on performance thresholds[103](index=103&type=chunk)[105](index=105&type=chunk) [NOTE 9 – Shareholders' Equity](index=23&type=section&id=NOTE%209%20%E2%80%93%20SHAREHOLDERS'%20EQUITY) Provides information on common stock, share-based compensation, and the total unrecognized compensation expense - As of June 30, 2023, **8,439,745** shares of common stock were issued and outstanding[10](index=10&type=chunk) - The company issued **108,136** shares of restricted common stock, net of forfeitures, during the six months ended June 30, 2023, with a fair value of **$4.29 million**, to be recognized as compensation expense over the vesting period[116](index=116&type=chunk) - Total unrecognized share-based compensation expense was **$4.84 million** at June 30, 2023, expected to be recognized over a weighted-average period of **1.2 years**[118](index=118&type=chunk) [NOTE 10 – Income Taxes](index=26&type=section&id=NOTE%2010%20%E2%80%93%20INCOME%20TAXES) Explains the income tax benefit recognized in the prior year due to the reduction of a valuation allowance - An income tax benefit of **$4.1 million** was recognized in the six months ended June 30, 2022, due to the reduction of a valuation allowance against net deferred tax assets following the Precision Healing merger[122](index=122&type=chunk)[193](index=193&type=chunk) [NOTE 11 – Related Parties](index=26&type=section&id=NOTE%2011%20%E2%80%93%20RELATED%20PARTIES) Details transactions and agreements with entities and individuals considered related parties to the company - The company has a sublicense agreement for CellerateRX Surgical and HYCOL products with CGI Cellerate RX, an affiliate of The Catalyst Group, Inc. (Catalyst), where Ronald T. Nixon, the company's Executive Chairman, is a managing partner[123](index=123&type=chunk) - Product license agreements for antimicrobial and skin protectant products are held with Rochal Industries, LLC, where Mr. Nixon and another director are significant shareholders[125](index=125&type=chunk)[126](index=126&type=chunk)[127](index=127&type=chunk) - A consulting agreement with Ann Beal Salamone, a director and significant shareholder of Rochal, entails an annual fee of **$177,697** for patent and R&D services[129](index=129&type=chunk) - A Transaction Advisory Services Agreement with Catalyst resulted in **$72,986** of expenses for the six months ended June 30, 2023[130](index=130&type=chunk)[131](index=131&type=chunk) [NOTE 12 – Subsequent Events](index=27&type=section&id=NOTE%2012%20%E2%80%93%20SUBSEQUENT%20EVENTS) Reports on significant events occurring after the reporting period, including the Applied Asset Purchase and a new Term Loan agreement - On August 1, 2023, the company acquired certain assets from Applied Nutritionals, LLC and The Hymed Group Corporation (Applied Asset Purchase) for an initial aggregate price of **$15.25 million**, including cash, stock, and installment payments[132](index=132&type=chunk)[133](index=133&type=chunk) - The Applied Asset Purchase includes the rights to manufacture and sell CellerateRX Surgical and HYCOL products, with Applied assigning its license agreement to a wholly-owned subsidiary, eliminating future royalties to Applied[132](index=132&type=chunk)[134](index=134&type=chunk) - A professional services agreement with Dr. George D. Petito (the Owner) was entered into, providing a base salary, royalties on future product sales, and incentive payments for FDA clearance and patent issuance, up to **$2.5 million**[136](index=136&type=chunk) - A **$12.0 million** Term Loan agreement with Cadence Bank was secured, with **$9.75 million** advanced on August 1, 2023, to fund the cash consideration for the Applied Asset Purchase[138](index=138&type=chunk)[139](index=139&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=26&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Provides management's analysis of the company's financial performance, liquidity, capital resources, and strategic initiatives, including recent acquisitions and developments [Cautionary Statement Regarding Forward-Looking Statements](index=30&type=section&id=CAUTIONARY%20STATEMENT%20REGARDING%20FORWARD-LOOKING%20STATEMENTS) Warns readers about the inherent risks and uncertainties associated with forward-looking statements contained within the report - The report contains forward-looking statements subject to risks and uncertainties, including shortfalls in revenue growth, ability to implement strategy, meet capital requirements, retain key personnel, and compete effectively[146](index=146&type=chunk) - Other risks include market acceptance of products, security breaches, internal control effectiveness, ability to develop new products, maintain clinical acceptance, impact of competitors, disruptions in distribution/supply, inventory management, and compliance with laws and regulations[146](index=146&type=chunk) [Overview](index=32&type=section&id=OVERVIEW) Provides a general description of Sanara MedTech's business, strategic focus, and key acquisitions - Sanara MedTech is a medical technology company focused on improving clinical outcomes and reducing healthcare expenditures in surgical, chronic wound, and skincare markets[149](index=149&type=chunk) - The company acquired manufacturing and selling rights for CellerateRX Surgical and HYCOL products on August 1, 2023, which were previously licensed[150](index=150&type=chunk) - Key acquisitions include Rochal assets (2021), Precision Healing (2022) for diagnostic imagers, and Scendia (2022) for regenerative and orthobiologic technologies[151](index=151&type=chunk)[152](index=152&type=chunk)[153](index=153&type=chunk) - A partnership with InfuSystem Holdings, Inc. was established in November 2022 to deliver a complete wound care solution[154](index=154&type=chunk) [Comprehensive Value-Based Care Strategy](index=33&type=section&id=COMPREHENSIVE%20VALUE-BASED%20CARE%20STRATEGY) Details the company's approach to offering integrated wound and skincare solutions through its WounDerm subsidiary - The company's subsidiary, United Wound and Skin Solutions, LLC (WounDerm), aims to offer a comprehensive wound and skincare solution to value-based care providers[156](index=156&type=chunk) - The strategy includes four key components: proprietary diagnostics (imager and LFA from Precision Healing), virtual consult services (via Direct Dermatology Inc.), proprietary efficacious products, and a specialized EMR and mobile application[157](index=157&type=chunk)[158](index=158&type=chunk)[159](index=159&type=chunk)[160](index=160&type=chunk) - Product development focuses on debridement, biofilm removal, hydrolyzed collagen, advanced biologics, negative pressure wound therapy, and oxygen delivery systems[159](index=159&type=chunk) [Recent Acquisitions](index=33&type=section&id=RECENT%20ACQUISITIONS) Summarizes the strategic acquisitions of Precision Healing, Scendia, and the Applied Asset Purchase, highlighting their contributions to the company's portfolio - Precision Healing, acquired in April 2022, is developing a diagnostic imager and lateral flow assay to quantify biochemical markers for wound and skin conditions[162](index=162&type=chunk) - Scendia, acquired in July 2022, provides regenerative and orthobiologic technologies, including TEXAGEN, BiFORM, AMPLIFY, and ALLOCYTE products[164](index=164&type=chunk) - The Applied Asset Purchase on August 1, 2023, for **$15.25 million**, secured rights to manufacture and sell CellerateRX Surgical and HYCOL products, along with inventory and intellectual property[168](index=168&type=chunk)[169](index=169&type=chunk) [Recent Developments](index=35&type=section&id=RECENT%20DEVELOPMENTS) Reports on key operational and financial events, including the dissolution of a joint venture and new financing agreements - Sanara Pulsar, LLC, a joint venture for wound care products, was dissolved in December 2022 due to limited adoption caused by the lack of an expanded reimbursement code, resulting in a **$1.0 million** noncash loss[171](index=171&type=chunk)[172](index=172&type=chunk) - A professional services agreement with Dr. George D. Petito, effective August 1, 2023, outlines compensation including a base salary, royalties on developed products, and incentive payments for FDA clearance and patent issuance[173](index=173&type=chunk) - A **$12.0 million** Term Loan agreement with Cadence Bank was secured on August 1, 2023, with **$9.75 million** advanced to fund the Applied Asset Purchase[175](index=175&type=chunk) [Components of Results of Operations](index=36&type=section&id=COMPONENTS%20OF%20RESULTS%20OF%20OPERATIONS) Explains the primary drivers of revenue, cost of goods sold, and operating expenses - Revenue is primarily from sales of soft tissue repair and bone fusion products to hospitals, with CellerateRX Surgical powder being the substantial majority[176](index=176&type=chunk) Revenue by Stream | Revenue Stream | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :----------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Soft tissue repair products | $13,249,742 | $9,569,441 | $26,122,223 | $17,327,648 | | Bone fusion products | $2,453,172 | $51,087 | $5,052,358 | $53,853 | | Royalty revenue | $50,250 | $50,250 | $100,500 | $100,500 | | **Total Net Revenue** | **$15,753,164** | **$9,670,778** | **$31,275,081** | **$17,482,001** | - Cost of goods sold includes acquisition costs, raw materials, and royalties; operating expenses comprise SG&A, R&D, depreciation and amortization, and changes in fair value of earnout liabilities[179](index=179&type=chunk)[180](index=180&type=chunk)[181](index=181&type=chunk)[182](index=182&type=chunk) [Results of Operations](index=38&type=section&id=RESULTS%20OF%20OPERATIONS) Analyzes the company's financial performance for the three and six months ended June 30, 2023, compared to prior periods, highlighting revenue growth and expense changes Key Financial Metrics | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net Revenues | $15,753,164 (63% YoY) | $9,670,778 | $31,275,081 (79% YoY) | $17,482,001 | | Cost of goods sold | $2,187,516 | $958,086 | $4,313,175 | $1,763,167 | | Gross margins | 86% | 90% | 86% | 90% | | SG&A expenses | $13,811,476 | $10,428,133 | $26,780,545 | $19,803,763 | | R&D expenses | $1,177,128 | $1,067,000 | $2,494,452 | $1,271,637 | | Depreciation and amortization expense | $803,694 | $539,124 | $1,582,569 | $741,871 | | Change in fair value of earnout liabilities | $(360,470) (benefit) | $63,427 (expense) | $(813,157) (benefit) | $63,427 (expense) | | Loss before income taxes | $(1,866,180) | $(3,384,992) | $(3,082,509) | $(6,541,497) | | Net income (loss) | $(1,866,180) | $756,914 | $(3,082,509) | $(2,399,591) | - Net revenues increased by **63%** and **79%** for the three and six months ended June 30, 2023, respectively, driven by organic growth, geographic expansion, and the Scendia acquisition, despite supply issues with the ALLOCYTE product line[184](index=184&type=chunk)[185](index=185&type=chunk) - Gross margins decreased to **86%** for both periods in 2023 from **90%** in 2022, primarily due to lower margins on certain Scendia products[186](index=186&type=chunk) - Operating expenses increased across SG&A (due to sales commissions and sales force expansion), R&D (Precision Healing diagnostic imager and LFA development), and depreciation/amortization (Precision Healing and Scendia intangible assets)[187](index=187&type=chunk)[188](index=188&type=chunk)[189](index=189&type=chunk) - A benefit from the change in fair value of earnout liabilities was recorded in 2023 due to a decrease in fair value of Precision Healing and Scendia earnout liabilities, contrasting with an expense in 2022[190](index=190&type=chunk) [Liquidity and Capital Resources](index=39&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) Discusses the company's cash position, equity offerings, future cash needs, and new debt financing arrangements - Cash on hand decreased to **$6.1 million** at June 30, 2023, from **$9.0 million** at December 31, 2022[195](index=195&type=chunk) - The company has a Controlled Equity Offering Sales Agreement to sell up to **$75.0 million** in common stock, with **$1.0 million** net proceeds raised in the first six months of 2023[195](index=195&type=chunk)[197](index=197&type=chunk) - Future cash needs include funding potential acquisitions, product development, clinical studies, sales force expansion, and general corporate purposes[198](index=198&type=chunk) - A **$12.0 million** Term Loan from Cadence Bank, secured on August 1, 2023, with an initial advance of **$9.75 million**, is expected to fund the Applied Asset Purchase and provide working capital[210](index=210&type=chunk)[211](index=211&type=chunk) - The Term Loan includes financial covenants requiring SMAT to maintain a minimum Debt Service Coverage Ratio and a maximum Cash Flow Leverage Ratio, with the company guaranteeing obligations and potentially needing to contribute cash if SMAT fails to comply[215](index=215&type=chunk)[216](index=216&type=chunk)[217](index=217&type=chunk) [Material Transactions with Related Parties](index=43&type=section&id=MATERIAL%20TRANSACTIONS%20WITH%20RELATED%20PARTIES) Details significant financial and operational transactions involving the company's related parties - The company's Executive Chairman, Ronald T. Nixon, is involved with Catalyst, an affiliate from which the company sublicenses CellerateRX Surgical and HYCOL products, and Rochal, a related party for product license agreements[223](index=223&type=chunk)[225](index=225&type=chunk) - Royalty expense under the CellerateRX Surgical sublicense was **$1.07 million** for the six months ended June 30, 2023, an increase from **$0.81 million** in the prior year[223](index=223&type=chunk) - A consulting agreement with Ann Beal Salamone, a director and significant shareholder of Rochal, provides an annual fee of **$177,697**[226](index=226&type=chunk) - Expenses of **$72,986** were incurred under a Transaction Advisory Services Agreement with Catalyst for the six months ended June 30, 2023[228](index=228&type=chunk) [Impact of Inflation and Changing Prices](index=45&type=section&id=IMPACT%20OF%20INFLATION%20AND%20CHANGING%20PRICES) Assesses the historical and anticipated effects of inflation and price changes on the company's operations - Inflation and changing prices have not had a material impact on historical results and are not anticipated to materially affect future operations[230](index=230&type=chunk) [Critical Accounting Estimates](index=45&type=section&id=CRITICALACCOUNTING%20ESTIMATES) Identifies the key accounting estimates and assumptions that significantly impact the financial statements - Key estimates and assumptions include revenue and expense accruals, fair value measurement of assets and liabilities, and purchase price allocation for acquisitions[231](index=231&type=chunk) - No significant changes to critical accounting policies have occurred since December 31, 2022[231](index=231&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=35&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) States the company's exemption from providing detailed market risk disclosures as a smaller reporting company - The company is exempt from providing quantitative and qualitative disclosures about market risk as a smaller reporting company[232](index=232&type=chunk) [Item 4. Controls and Procedures](index=35&type=section&id=Item%204.%20Controls%20and%20Procedures) Describes the evaluation of the company's disclosure controls and procedures and reports on any changes in internal control over financial reporting [Evaluation of Disclosure Controls and Procedures](index=45&type=section&id=EVALUATION%20OF%20DISCLOSURE%20CONTROLS%20AND%20PROCEDURES) Confirms management's assessment of the effectiveness of the company's disclosure controls and procedures - Management, with Certifying Officers, evaluated the effectiveness of disclosure controls and procedures as of June 30, 2023, concluding they were effective[234](index=234&type=chunk) [Changes in Internal Control Over Financial Reporting](index=46&type=section&id=CHANGES%20IN%20INTERNAL%20CONTROL%20OVER%20FINANCIAL%20REPORTING) Reports on the absence of any material changes in the company's internal control over financial reporting during the quarter - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2023[235](index=235&type=chunk) [Part II – Other Information](index=36&type=section&id=Part%20II%20%E2%80%93%20Other%20Information) Presents additional information not covered in the financial statements, including legal proceedings, risk factors, and exhibits [Item 1. Legal Proceedings](index=36&type=section&id=Item%201.%20Legal%20Proceedings) Confirms the absence of any material pending legal proceedings involving the company - There are no material pending legal proceedings to which the company is a party[237](index=237&type=chunk) [Item 1A. Risk Factors](index=36&type=section&id=Item%201A.%20Risk%20Factors) Updates the company's risk factors, focusing on acquisition integration, increased indebtedness, and compliance with loan covenants - New risk factors include the potential failure to realize anticipated benefits from the Applied Asset Purchase, challenges in maintaining manufacturing processes for CellerateRX Surgical and HYCOL products, and the impact of significant transaction costs[239](index=239&type=chunk)[240](index=240&type=chunk) - Increased indebtedness could adversely affect financial condition by requiring a significant portion of cash flow for debt service, limiting flexibility, and increasing interest expense due to floating rates[241](index=241&type=chunk)[242](index=242&type=chunk) - The Loan Agreement contains operating and financial covenants that restrict business activities, including limitations on creating liabilities, liens, investments, and distributions, and requires SMAT to maintain specific Debt Service Coverage and Cash Flow Leverage Ratios[243](index=243&type=chunk)[251](index=251&type=chunk) - A breach of loan covenants could lead to an event of default, accelerating indebtedness and potentially applying a default interest rate of an additional **5.0%** per annum[245](index=245&type=chunk) - The Loan Agreement also stipulates that if the Executive Chairman, Ron Nixon, ceases to serve as Chairman of the Board for the Company or SMAT without an acceptable successor within **10 business days**, it could trigger an event of default[247](index=247&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=48&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Reports on the absence of previously unreported unregistered sales of equity securities during the quarter - No unregistered sales of equity securities occurred during the quarter ended June 30, 2023, that were not previously reported on a Form 8-K[248](index=248&type=chunk) [Item 3. Defaults Upon Senior Securities](index=48&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) Confirms that the company has not defaulted on any senior securities - There were no defaults upon senior securities[249](index=249&type=chunk) [Item 4. Mine Safety Disclosures](index=48&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) States that this item is not applicable to the company's business operations - This item is not applicable to the company's operations[250](index=250&type=chunk) [Item 5. Other Information](index=49&type=section&id=Item%205.%20Other%20Information) Indicates that no other material information was required to be disclosed in this section - No other information was disclosed[252](index=252&type=chunk) [Item 6. Exhibits](index=50&type=section&id=Item%206.%20Exhibits) Lists all supplementary documents and agreements filed as part of the report, including key acquisition and loan agreements - Key exhibits include the Asset Purchase Agreement for Rochal Industries (July 2021), Agreement and Plan of Merger for Precision Healing Inc. (April 2022), Membership Interest Purchase Agreement for Scendia Biologics, LLC (July 2022), and the Asset Purchase Agreement for Applied Nutritionals, LLC (August 2023)[255](index=255&type=chunk) - Also included are the Professional Services Agreement with Dr. George D. Petito and the Loan Agreement with Cadence Bank, both dated August 1, 2023[255](index=255&type=chunk) - Certifications of the Principal Executive Officer and Principal Financial Officer are filed in accordance with the Sarbanes-Oxley Act of 2002[255](index=255&type=chunk) [Signatures](index=52&type=section&id=SIGNATURES) Confirms the official signing of the report by the company's Chief Financial Officer - The report was signed by Michael D. McNeil, Chief Financial Officer, on August 14, 2023[262](index=262&type=chunk)