Sanara MedTech(SMTI) - 2024 Q1 - Quarterly Report

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$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$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].