The following discussion of the financial condition and results of operations of
Sanara MedTech Inc. (collectively with its consolidated subsidiaries, the
"Company," "Sanara MedTech," "Sanara," "SMTI," "we," "our," or "us") should be
read in conjunction with the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" section and audited consolidated financial
statements and related notes thereto included in our Annual Report on Form 10-K
for the year ended December 31, 2021 and with the unaudited consolidated
financial statements and related notes thereto presented in this Quarterly
Report on Form 10-Q.
Cautionary Statement Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). These statements may discuss expectations as to future trends, plans,
events, results of operations or financial condition, or state other information
relating to the Company, including, without limitation, statements concerning
the impact of the COVID-19 pandemic and our expectations for selling, general
and administrative expenses. Statements, other than statements of historical
fact, included in this Quarterly Report on Form 10-Q are forward-looking
statements and generally may be identified by words such as "anticipate,"
"believe," "continue," "contemplate," "could," "estimate," "expect," "forecast,"
"guidance," "intend," "may," "plan," "possible," "potential," "predict,"
"project," "should," "target," "will," "would" or other similar words, phrases
or expressions. These statements should be viewed with caution and are subject
to various risks and uncertainties, many of which are outside of the Company's
control. The following factors, among others, could cause actual results to
differ materially from those in the forward-looking statements:
? the impact of the COVID-19 pandemic on our business, financial condition and
results of operations;
? shortfalls in forecasted revenue growth;
? our ability to implement our comprehensive wound and skin care strategy through
acquisitions and investments and our ability to realize the anticipated
benefits of such acquisitions and investments;
? our ability to meet our future capital requirements;
? our ability to retain and recruit key personnel;
? the intense competition in the markets in which we operate and our ability to
compete within our markets;
? the failure of our products to obtain market acceptance;
? the effect of security breaches and other disruptions;
? our ability to maintain effective internal controls over financial reporting;
? our ability to develop and commercialize new products and products under
development, including the manufacturing, distribution, marketing and sale of
such products;
? our ability to maintain and further grow clinical acceptance and adoption of
our products;
? the impact of competitors inventing products that are superior to ours;
? disruptions of, or changes in, our distribution model, consumer base or the
supply of our products;
? our ability to manage product inventory in an effective and efficient manner;
? the failure of third-party assessments to demonstrate desired outcomes in
proposed endpoints;
? our ability to successfully expand into wound and skin care virtual consult and
other services;
? our ability and the ability of our research and development partners to protect
the proprietary rights to technologies used in certain of our products and the
impact of any claim that we have infringed on intellectual property rights of
others;
? our dependence on technologies and products that we license from third parties;
? the effects of current and future laws, rules, regulations and reimbursement
policies relating the labeling, marketing and sale of our products and our
planned expansion into wound and skin care virtual consult and other services
and our ability to comply with the various laws, rules and regulations
applicable to our business; and
? the effect of defects, failures or quality issues associated with our products.
For a more detailed discussion of these and other factors that may affect our
business and that could cause the actual results to differ materially from those
anticipated in these 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, 2021,
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.
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Overview
We are a medical technology company focused on developing and commercializing
transformative technologies to improve clinical outcomes and reduce healthcare
expenditures in the surgical and chronic wound and skin care markets. Our
portfolio of products and services is designed to allow us to deliver
comprehensive wound and skin care solutions for patients in all care settings,
including acute (hospitals and long-term acute care hospitals ("LTACHs")) and
post-acute (wound care clinics, physician offices, skilled nursing facilities
("SNFs"), home health, hospice, and retail). Each of our products, services, and
technologies contributes to our overall goal of achieving better clinical
outcomes at a lower overall cost for patients regardless of where they receive
care. We strive to be one of the most innovative and comprehensive providers of
effective wound and skin care products and technologies and are continually
seeking to expand our offerings for patients requiring wound and skin care
treatments across the entire continuum of care in the United States.
We currently market several products across chronic and surgical wound care
applications and have multiple products in our pipeline. We currently license
our products from research and development partners Applied Nutritionals, LLC
("AN") (through a sublicense with CGI Cellerate RX, LLC ("CGI Cellerate RX"), an
affiliate of The Catalyst Group, Inc. ("Catalyst")) and Rochal Industries, LLC
("Rochal") and have the right to exclusively distribute certain products under
development by Cook Biotech Inc. ("Cook Biotech"). We are also developing
additional products in our own product pipeline.
In June 2020, we formed a subsidiary, United Wound and Skin Solutions LLC
("UWSS", or "WounDerm"), to hold certain investments and operations in wound and
skin care virtual consult services. We anticipate that our various service
offerings will allow clinicians/physicians utilizing our technologies to collect
and analyze large amounts of data on patient conditions and outcomes that will
improve treatment protocols and ultimately lead to more evidence-based formulary
to improve patient outcomes. We intend to fully launch virtual consult services
through WounDerm for both virtual wound and virtual skin (dermatology)
consultations. Through a combination of our WounDerm services and our Sanara
products, we believe we will be able to offer patient care solutions at every
step in the continuum of wound and skin care from diagnosis through healing.
Effective July 1, 2021, we acquired certain assets from Rochal, including, among
others, intellectual property, four FDA 510(k) clearances, rights to license
certain products and technologies currently under development, equipment and
supplies. As a result of the asset purchase, our pipeline now contains product
candidates for mitigation of opportunistic pathogens and biofilm, wound
re-epithelialization and closure, necrotic tissue debridement and cell
compatible substrates.
Recent Developments
Update on the COVID-19 Pandemic
During the second half of 2021, the United States experienced a surge of
COVID-19 cases as the Delta and Omicron variants of the virus impacted much of
the country and negatively impacted our sales in Texas, the northeastern United
States, and other markets. The duration and effects of the pandemic remain
uncertain; however, management believes that elective surgical procedures will
continue to be performed with the exception of certain geographic hotspots.
During the first quarter of 2022, we do not believe our business was materially
affected by COVID-19 restrictions on elective surgeries. We will continue to
closely monitor the pandemic in order to ensure the safety of our people and our
ability to serve our customers and patients.
Precision Healing Merger
As previously disclosed, on April 1, 2022, we entered into a merger agreement by
and among the Company, UWSS, Precision Healing, PH Merger Sub I, Inc., a
Delaware corporation, PH Merger Sub II, LLC, a Delaware limited liability
company, and Furneaux Capital Holdco, LLC (d/b/a BlueIO), solely in its capacity
as the representative of the securityholders of Precision Healing. On April 4,
2022, the merger parties closed the transactions contemplated by the merger
agreement and effected a business combination wherein Precision Healing became a
wholly owned subsidiary of the Company.
Pursuant to the merger agreement, among other things, we agreed to (i) pay the
holders of Precision Healing common stock and preferred stock an aggregate of
approximately $4.6 million, which is payable in cash or equity, (ii) pay
approximately $0.6 million of transaction expenses on behalf of the equity
holders of Precision Healing, (iii) assume all outstanding options and warrants
of Precision Healing and (iv) pay, subject to the achievement of certain
performance thresholds, earnout consideration, each as described in further
detail below.
Closing Consideration to Precision Healing Equity Holders
Pursuant to the terms of the merger agreement, holders of Precision Healing
common stock and preferred stock, other than UWSS, were entitled to receive
approximately $5.2 million as aggregate closing consideration, which consisted
of $125,965 in cash consideration payable to stockholders who were not
accredited investors, 165,738 shares of our common stock paid only to
"accredited investors" as such term is defined in Rule 501(a) of Regulation D
promulgated under the Securities Act of 1933, as amended, and the payment in
cash of approximately $0.6 million of transaction expenses of Precision Healing.
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Assumption of Precision Healing Options and Warrants
On the closing date, the Precision Healing outstanding options previously
granted under the Precision Healing 2020 Stock Option and Grant Plan (the
"Precision Healing Plan"), converted pursuant to their terms into options to
acquire an aggregate of 144,191 shares of our common stock with a weighted
exercise price of $10.71 per share. In addition, outstanding and unexercised
Precision Healing warrants converted into rights to receive warrants to purchase
(i) 4,421 shares of our common stock with an initial exercise price of $7.32 per
share and an expiration date of April 22, 2031 and (ii) 12,301 shares of our
common stock with an initial exercise price of $12.05 per share and an
expiration date of August 10, 2030.
Assumption of the Precision Healing Plan
Pursuant to the merger agreement, we assumed sponsorship of the Precision
Healing Plan, effective as of the closing date, as well as the outstanding
awards granted thereunder, the award agreements evidencing the grants of such
awards and the remaining shares available under the Precision Healing Plan, in
each case adjusted in the manner set forth in the merger agreement to such
awards. Concurrent with the assumption of the Precision Healing Plan, we
terminated the ability to offer future awards under the Precision Healing Plan.
Earnout Consideration
Pursuant to the merger agreement, upon the achievement of certain performance
thresholds, the securityholders of Precision Healing, including the holders of
options and warrants to purchase Precision Healing common stock and certain
persons promised options to purchase Precision Healing common stock, are also
entitled to receive payments of up to $10.0 million (the "Earnout
Consideration"), which will be accounted for as contingent consideration
pursuant to ASC 805. The Earnout Consideration is payable in cash or, at our
election, is payable to accredited investors in shares of our common stock at a
price per share equal to the greater of (i) $27.13 and (ii) the average closing
price of our common stock for the 20 trading days prior to the date such Earnout
Consideration is due and payable. Pursuant to the merger agreement, a minimum
percentage of the Earnout Consideration may be required to be issued to
accredited investors in shares of our common stock for tax purposes. The amount
and composition of the portion of Earnout Consideration payable is subject to
adjustment and offsets as set forth in the merger agreement.
Components of Results of Operations
Sources of Revenues
Our revenue is derived primarily from sales of our surgical products to
hospitals and other acute care facilities, and sales of our chronic wound care
products to customers across the post-acute continuum of care. Our revenue is
driven by direct orders shipped by us to our customers, and to a lesser extent,
direct sales to customers through delivery at the time of procedure by one of
our sales representatives. We generally recognize revenue when our product is
received by the customer.
The vast majority of our product sales revenue is derived from sales of
CellerateRX surgical powder. Revenue streams from product sales and royalties
are summarized below for the three months ended March 31, 2022 and March 31,
2021. All revenue was generated in the United States.
Three Months Ended
March 31,
2022 2021
Product sales revenue $ 7,760,973 $ 4,959,186
Royalty revenue 50,250 50,250
Total Revenue $ 7,811,223 $ 5,009,436We recognize royalty revenue from a development and license agreement with
BioStructures, LLC. We record revenue each calendar quarter as earned per the
terms of the agreement which stipulates that we will receive quarterly royalty
payments of at least $50,250. Under the terms of the development and license
agreement, royalties of 2.0% are recognized on sales of products containing our
patented resorbable bone hemostasis. The minimum annual royalty due to us is
$201,000 per year throughout the life of the patent which expires in 2023. These
royalties are payable in quarterly installments of $50,250. To date, royalties
related to this development and license agreement have not exceeded the annual
minimum of $201,000 ($50,250 per quarter).
Cost of Goods Sold
Cost of goods sold consists of the acquisition costs from the manufacturers of
our licensed products, raw material costs for certain components sourced
directly by us, and all related royalties due as a result of the sale of our
products. Our gross profit represents total revenue less the cost of goods sold,
and gross margin is gross profit expressed as a percentage of total revenue.
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Operating Expenses
Selling, general and administrative expenses ("SG&A") consist primarily of
salaries, sales commissions, benefits, bonuses, and stock-based compensation.
SG&A also includes outside legal counsel, audit fees, insurance premiums, rent,
and other corporate expenses. We expense all SG&A expenses as incurred.
Research and development expenses ("R&D") include costs related to enhancements
to our currently available products and additional investments in our product
and platform development pipeline. This includes personnel-related expenses,
including salaries and benefits for all personnel directly engaged in R&D
activities, contracted services, materials, prototype expenses and allocated
overhead, which is comprised of lease expense and other facilities-related
costs. We expense R&D costs as incurred. We generally expect that R&D expenses
will increase as we continue to support product enhancements as well as to bring
new products to market.
Other Income (Expense)
Other income (expense) is primarily comprised of gains or losses on equity
method investments, interest income, interest expense and other non-operating
activities.
Results of Operations
Revenues. For the three months ended March 31, 2022, revenues totaled $7,811,223
compared to revenues of $5,009,436 for the three months ended March 31, 2021,
representing a 56% increase from the prior year period. The higher revenues in
2022 were primarily due to increased sales of surgical wound care products as a
result of our sales force expansion and our continuing strategy to expand our
independent distribution network in both new and existing U.S. markets.
Cost of goods sold. Cost of goods sold for the three months ended March 31, 2022
was $805,081, compared to cost of goods sold of $474,433 for the three months
ended March 31, 2021. The increase over the prior year period was primarily due
to higher sales volume in 2022. Gross margins were approximately 90% and 91% for
the three months ended March 31, 2022 and 2021, respectively.
Selling, general and administrative expenses. SG&A expenses for the three months
ended March 31, 2022, were $9,375,630 compared to SG&A expenses of $5,409,730
for the three months ended March 31, 2021. The higher SG&A expenses in 2022 were
primarily due to increased selling costs resulting from sales force expansion
and operational support, higher sales commission expense as a result of higher
product sales, higher non-cash equity compensation costs, and higher payroll
costs related to the mid-year addition of the Rochal workforce in July 2021.
Costs related to travel and in-person promotional activities also increased in
2022 compared to 2021 as many in-person activities were cancelled or postponed
in 2021 as a result of the COVID-19 pandemic. In addition, SG&A expenses in 2022
included $450,000 of transaction costs associated with the Precision Healing
merger which closed on April 4, 2022. As part of our strategy to expand our
sales reach in new and existing markets, we employed thirteen additional field
sales managers since March 31, 2021. As of March 31, 2022, we had a total of 31
field sales managers.
Research and development expenses. R&D expenses for the three months ended March
31, 2022, were $204,637 compared to $118,212 for the three months ended March
31, 2021. The higher R&D expenses in 2022 were due to several new development
projects for our currently licensed products.
Depreciation and amortization expense. Depreciation and amortization expense for
the three months ended March 31, 2022 was $202,747 compared to $90,951 for the
three months ended March 31, 2021. The higher depreciation and amortization
expense in 2022 was due to the amortization of internal use software placed into
service in 2021, and due to additional amortization related to the patents
acquired from Rochal.
Other expense. Other expense for the three months ended March 31, 2022 was
$379,633 compared to $99,846 for the three months ended March 31, 2021. The
higher Other expense in 2022 was due to increased ownership in Precision
Healing, resulting in recognition of a non-cash loss of $379,633 from our equity
method investment, compared to $99,135 for the three months ended March 31,
2021. Interest expense was $0 for the three months ended March 31, 2022, as
compared to $711 for the three months ended March 31, 2021. The higher Interest
expense in 2021 was due to a draw on our former line of credit with Cadence
Bank, N.A. ("Cadence") in early 2021.
Net income / loss. For the three months ended March 31, 2022, we had a net loss
of $3,156,505, compared to net loss of $1,183,376 for the three months ended
March 31, 2021. The higher net loss in 2022 was due to increased SG&A costs
described above, higher R&D expenses, and the recognition of losses on our
equity method investment in Precision Healing.
Liquidity and Capital Resources
Cash on hand at March 31, 2022 was $16,143,080, compared to $18,652,841 at
December 31, 2021. Historically, we have financed our operations primarily from
the sale of equity securities. On February 12, 2021, we closed an underwritten
public offering of 1,265,000 shares of our common stock at a public offering
price of $25.00 per share resulting in gross proceeds of $31,625,000, before
deducting underwriting discounts and commissions and offering expenses. We
expect our future needs for cash to include expanding our salesforce, further
development of our products, services and technologies pipeline, clinical
studies and general corporate purposes, including working capital and
acquisitions. Based on our current plan of operations, including acquisitions,
we believe our cash on hand, when combined with expected cash flows from
operations, will be sufficient to fund our growth strategy and to meet our
anticipated operating expenses and capital expenditures for at least the next
twelve months.
25
On January 15, 2021, we entered into a loan agreement (the "Loan Agreement")
with Cadence providing for a $2.5 million revolving line of credit. Pursuant to
the terms of the Loan Agreement, the revolving line of credit was set to mature
on January 13, 2023 and was secured by substantially all of our assets.
On February 11, 2021, we made an $800,000 draw on the revolving line of credit.
On February 19, 2021, we paid down the entire balance of the revolving line of
credit. Effective March 25, 2022, we terminated Loan Agreement and released
Cadence from any obligation to make advances under the Loan Agreement. No
amounts of principal, interest or other fees and expenses were owed by the
Company as of the termination date. There is no assurance that we will enter
into an additional loan agreement with Cadence or with another bank on similar
terms, or at all.
At the time of the formation of Sanara Pulsar, it and Wound Care Solutions,
Limited ("WCS"), entered into a supply agreement whereby Sanara Pulsar became
the exclusive distributor in the United States of certain wound care products
that utilize intellectual property developed and owned by WCS. In the event
WCS's annual Form K-l from Sanara Pulsar does not allocate to WCS net income of
at least $200,000 (the "Target Net Income"), the Company will, within 30 days
after such determination, pay WCS the amount of funds representing the
difference between the Target Net Income and the actual amount of net income
shown on WCS's Form K-1, as a distribution from Sanara Pulsar to WCS. In April
2022, the Company paid WCS $220,000 related to the fiscal 2021 Form K-1. For
each of the years 2022 through 2024 the Target Net Income will increase by
$20,000 and in the event WCS's Form K-1 for any of those years does not allocate
to WCS net income in an amount at least equal to the Target Net Income for such
year, then the Company will, within 30 days after such determination, pay WCS
the amount of funds representing the difference between the Target Net Income
and the actual amount of net income shown on WCS's Form K-1 for the applicable
year. All other distributions made by Sanara Pulsar to its members, not
including tax distributions, will be made exclusively to the Company until such
time as the Company has received an amount of distributions equal to all such
advances to WCS.
On November 9, 2020, we entered into agreements to purchase shares of Series A
Convertible Preferred Stock (the "Series A Stock") of Precision Healing for an
aggregate purchase price of $600,000. In 2021, we made additional purchases of
Series A Stock as follows: $600,000 in February, $500,000 in June, $500,000 in
October, and $600,000 in December of 2021.
On July 7, 2019, we executed a license agreement with Rochal whereby we acquired
an exclusive world-wide license to market, sell and further develop
antimicrobial products for the prevention and treatment of microbes on the human
body utilizing certain Rochal patents and pending patent applications (the
"BIAK?S License Agreement"). Under the terms of the BIAK?S License Agreement, we
agreed to pay Rochal $750,000 upon the completion of a capital raise, on or
before December 31, 2022, of at least $10,000,000 through the sale of our common
stock or assets. In March 2021, we issued 20,834 shares of our common stock to
Rochal as full payment of the $750,000, which became due upon the completion of
our capital raise in February 2021.
On June 3, 2021, we invested $2,084,278 for 278,587 Class A Preferred Shares
(the "Shares") of Canada based Pixalere Healthcare, Inc. ("Pixalere"). The
Shares are convertible into 28.6% of the outstanding equity of Pixalere.
Pixalere provides a cloud-based wound care software tool that empowers nurses,
specialists and administrators to deliver better care for patients. In
connection with our purchase of the Shares, Pixalere granted Pixalere Healthcare
USA, LLC ("Pixalere USA"), our subsidiary, a royalty-free exclusive license to
use the Pixalere software and platform in the United States. In conjunction with
the grant of the license, we issued Pixalere a 27.3% equity ownership interest
in Pixalere USA valued at $93,879.
On July 14, 2021, we entered into an asset purchase agreement with Rochal,
effective July 1, 2021, pursuant to which we purchased certain assets of Rochal,
including, among others, certain of Rochal's intellectual property, furniture
and equipment, supplies, rights and claims, other than certain excluded assets,
and assumed certain liabilities upon the terms and subject to the conditions set
forth in the asset purchase agreement. In exchange for the acquired assets, we
paid Rochal (i) $496,100 in cash and (ii) 14,369 shares of our common stock, and
assumed certain liabilities of $3,900.
On April 1, 2022, we entered into a merger agreement by and among the Company,
UWSS, Precision Healing, PH Merger Sub I, Inc., a Delaware corporation, PH
Merger Sub II, LLC, a Delaware limited liability company, and Furneaux Capital
Holdco, LLC (d/b/a BlueIO), solely in its capacity as the representative of the
securityholders of Precision Healing. On April 4, 2022, the merger parties
closed the transactions contemplated by the merger agreement and effected a
business combination wherein Precision Healing became a wholly owned subsidiary
of the Company.
Pursuant to the terms of the merger agreement, holders of Precision Healing
common stock and preferred stock, other than UWSS, were entitled to receive
approximately $5.2 million as aggregate closing consideration, which consisted
of $125,965 in cash consideration payable to stockholders who were not
accredited investors, 165,738 shares of our common stock paid only to
"accredited investors" as such term is defined in Rule 501(a) of Regulation D
promulgated under the Securities Act of 1933, as amended, and the payment in
cash of approximately $0.6 million of transaction expenses of Precision Healing.
26
In addition, upon the achievement of certain performance thresholds related to
revenue from the sale of wound care products and skin care products, which
performance shall be calculated during measurement periods generally consisting
of one calendar year, the securityholders of Precision Healing, including the
holders of options and warrants to purchase Precision Healing common stock and
certain persons promised options to purchase Precision Healing common stock, are
also entitled to receive Earnout Consideration consisting of two payments of up
to $5.0 million each, provided that the aggregate Earnout Consideration not
exceed $10.0 million.
The Earnout Consideration is payable in cash or, at our election, is payable to
accredited investors in shares of our common stock at a price per share equal to
the greater of (i) $27.13 and (ii) the average closing price of our common stock
for the 20 trading days prior to the date such Earnout Consideration is due and
payable. Pursuant to the merger agreement, a minimum percentage of the Earnout
Consideration may be required to be issued to accredited investors in shares of
our common stock for tax purposes. The amount and composition of the portion of
Earnout Consideration payable is subject to adjustment and offsets as set forth
in the merger agreement.
Cash Flow Analysis
For the three months ended March 31, 2022, net cash used in operating activities
was $2,112,478 compared to $1,261,604 used in operating activities for the three
months ended March 31, 2021. The higher use of cash in 2022 was primarily due to
higher SG&A expenses related to sales force expansion, the addition of the
Rochal workforce in mid-2021, and the resumption of certain travel and
promotional activities in 2022 which were cancelled or postponed in 2021 as a
result of the COVID-19 pandemic.
For the three months ended March 31, 2022, net cash used in investing activities
was $294,352 compared to $604,391 used in investing activities during the three
months ended March 31, 2021. The lower use of cash used in investing activities
in 2022 was primarily due to fewer investments in equity securities during the
first quarter of 2022.
For the three months ended March 31, 2022, net cash used in financing activities
was $102,931 as compared to $28,739,257 provided by financing activities for the
three months ended March 31, 2021. The cash provided by financing activities in
2021 was due to proceeds received pursuant to an underwritten public offering of
1,265,000 shares of our common stock at a public offering price of $25.00 per
share resulting in gross proceeds of $31,625,000, before deducting underwriting
discounts and commissions and offering expenses.
Material Transactions with Related Parties
CellerateRX Sublicense Agreement
We have an exclusive, world-wide sublicense to distribute CellerateRX products
into the wound care and surgical markets from an affiliate of Catalyst, CGI
Cellerate RX, which licenses the rights to CellerateRX from Applied
Nutritionals. Sales of CellerateRX have comprised the majority of our sales
during 2018, 2019 and 2020. On January 26, 2021, we amended the term of the
sublicense agreement to extend the term to May 17, 2050, with automatic
successive one-year renewals so long as annual net sales of CellerateRX exceed
$1,000,000. We pay royalties based on our annual Net Sales of CellerateRX (as
defined in the sublicense agreement) consisting of 3% of all collected Net Sales
each year up to $12,000,000, 4% of all collected Net Sales each year that exceed
$12,000,000 up to $20,000,000, and 5% of all collected Net Sales each year that
exceed $20,000,000. Minimum royalties of $400,000 per year are payable for the
first five years of the sublicense agreement, which was entered on August 27,
2018. For the three months ended March 31, 2022 and 2021, royalties accrued
under the terms of this agreement totaled $369,233and $187,875, respectively.
Ronald T. Nixon, our Executive Chairman, is the founder and managing partner of
Catalyst. Mr. Nixon and Catalyst, collectively with their affiliates, including
CGI Cellerate RX, beneficially owned 3,534,956 shares of our common stock as of
March 31, 2022.
Rochal Asset Purchase
On July 14, 2021, we entered into an asset purchase agreement with Rochal,
effective July 1, 2021, pursuant to which we purchased certain assets of Rochal,
including, among others, certain of Rochal's intellectual property, furniture
and equipment, supplies, rights and claims, other than certain excluded assets,
and assumed certain liabilities upon the terms and subject to the conditions set
forth in the asset purchase agreement. In exchange for the acquired assets, we
paid Rochal (i) $496,100 in cash and (ii) 14,369 shares of common stock.
After the asset purchase, Rochal owned 95,203 shares of our common stock. Ronald
T. Nixon, the Company's Executive Chairman, is, with respect to Rochal, a
director, a significant shareholder indirectly and a majority shareholder with
the exercise of certain warrants. Additionally, Ann Beal Salamone, a director of
the Company, is a significant shareholder, former president and current Chair of
the board of directors of Rochal. See Note 9 for more information regarding this
transaction.
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Consulting Agreement
Concurrent with the Rochal asset purchase, on July 14, 2021, we entered into a
consulting agreement with Ann Beal Salamone pursuant to which Ms. Salamone
agreed to provide the Company with consulting services with respect to, among
other things, writing new patents, conducting patent intelligence, and
participating in certain grant and contract reporting. In consideration for the
consulting services to be provided, 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 the Company, and is subject to renewal.
Critical Accounting Estimates
Our unaudited consolidated financial statements have been prepared in conformity
with U.S. generally accepted accounting principles. Our discussion and analysis
of our financial condition and operating results require the Company's
management to make judgments, assumptions and estimates that affect the amounts
reported. Significant accounting policies and methods used in the preparation of
our consolidated financial statements are summarized in Note 1, "Summary of
Significant Accounting Policies" of the Notes to the consolidated Financial
Statements in Part I, Item 1 of this Form 10-Q, and in the Notes to Consolidated
Financial Statements in Part II, Item 8 of our 2021 Form 10-K. Historically, our
critical accounting estimates have not differed materially from actual results.
However, if our assumptions change, we may need to revise our estimates or take
other corrective actions, either of which may also have a material adverse
effect on our consolidated statements of operations, liquidity and financial
condition.
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