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4. OTHER SIGNIFICANT TRANSACTIONS | 12 Months Ended
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Dec. 31, 2019
Other Significant Transactions |
OTHER SIGNIFICANT TRANSACTIONS | Private Placement Offering On October 15, 2019, Sanara MedTech Inc. (the “Company”) closed a private placement offering of 1,204,820 shares of its common stock at a price of $8.30 per share. All shares were sold by the Company as newly issued shares. The purchasers in the offering consist of related party entities to three members of the Company’s Board of Directors. The transaction was approved by all of the disinterested Directors of the Company. The price per share was determined by a special committee of the Board comprised of disinterested Directors who considered an independent third-party valuation of the offering price and other relevant information. The $10 million of cash proceeds of the offering are expected to be used to fund milestone payments under current and future product license agreements, repayment of indebtedness under the Company’s bank line of credit, and operating expenditures, including clinical studies and continued expansion of the Company’s sales force. The shares of common stock sold in the transaction were not registered under the Securities Act of 1933. The Company relied on the exemption from registration in Section 4(a)(2) of the Securities Act of 1933, a transaction not involving a public offering. The Company sold the shares of common stock, without general solicitation or advertising, to three accredited investors who represented themselves as being fully informed, with the knowledge and experience to be capable of evaluating the merits and risks of the transaction, and with no present intention of selling or distributing the shares. Cellerate, LLC Effective August 28, 2018, the Company consummated definitive agreements that continued operations to market the Company’s principal products, CellerateRX® Hydrolyzed Collagen (CellerateRX), through a 50% ownership interest in a newly formed Texas limited liability company, Cellerate, LLC. The remaining 50% ownership interest was held by an affiliate of The Catalyst Group Inc. (Catalyst), which acquired an exclusive license to distribute CellerateRX products. Cellerate, LLC conducts operations with an exclusive sublicense from a Catalyst affiliate to distribute CellerateRX products into the wound care and surgical markets in the United States, Canada and Mexico. While the Company had significant influence over the operations of Cellerate, LLC, the Company did not have a controlling interest. Catalyst had the controlling vote in the event of a deadlocked vote by the Board of Managers of Cellerate, LLC. Therefore, the Company reported its investment in Cellerate, LLC using the equity method of accounting in the Company’s Quarterly Report on Form 10-Q filed November 14, 2018, and in the Company’s Annual Report on Form 10-K filed on April 1, 2019. On March 15, 2019, the Company acquired Catalyst’s 50% interest in Cellerate, LLC. See Note 2 for more information regarding this acquisition. The definitive agreements related to the Cellerate, LLC transaction are summarized below. The full agreements are attached as exhibits to the Company’s Quarterly Report on Form 10-Q filed on November 14, 2018. Contribution Agreement WCI, LLC (“WCI”), a wholly owned subsidiary of the Company, transferred to Cellerate, LLC all of its existing inventories and certain trademarks and UPC numbers in exchange for its 50% ownership interest in Cellerate, LLC. The inventories had a net book value of $448,511 at the time of closing. Additionally, as part of the transaction, the Company issued a 30-month promissory note to Catalyst in the principal amount of $1,500,000, bearing interest at a 5% annual interest rate, compounded quarterly. Interest is payable quarterly, but may be deferred at the Company’s election to the maturity of the Note. Outstanding principal and interest are convertible at Catalyst’s option into shares of the Company’s common stock at a conversion price of $9.00 per share. Catalyst transferred to Cellerate, LLC in exchange for its 50% ownership interest an exclusive sublicense to distribute CellerateRX into the wound care and surgical markets in the United States, Canada and Mexico. The term of the sublicense extends through August 2028, with automatic one-year renewals through December 31, 2049, subject to termination at the end of any renewal term by Catalyst or WCI on six-months' notice. Operating Agreement Cellerate, LLC’s Operating Agreement provides for the business and affairs of Cellerate, LLC to be managed by a Board of Managers consisting of two persons. Catalyst and WCI each has the right to appoint one person to the Board of Managers who serve indefinite terms until their resignation, removal or death. The Board of Managers act by a vote of the Managers, but in the event of a deadlocked vote, the vote of the Catalyst designated manager will be controlling, except (i) in the case of a transaction with a related party or affiliate (other than Cellerate, LLC) of the Catalyst designee or (ii) Catalyst transfers any portion of its ownership interest in Cellerate, LLC to a third party or more that 50% of Catalyst’s ownership is transferred to a third party. The initial Board of Managers is Mr. Ron Nixon as the Catalyst designee, and Mr. Michael Carmena as the WCI designee. The Board of Managers manages the general operations of Cellerate, LLC, subject however to a vote by members of Cellerate, LLC holding two-thirds of the membership interests in Cellerate, LLC to approve major actions of Cellerate, LLC. The Operating Agreement contains restrictions on transfer of ownership interests with customary rights of first refusal, co-sale and buy/sell provisions applicable to each owner. Sublicense Agreement Cellerate, LLC has an exclusive sublicense to distribute CellerateRX® Activated Collagen® products into the wound care and surgical markets in the United States, Canada and Mexico. The wound care market comprises the care for external wounds, including the treatment of external, tunneled or undermined wounds. This would include pressure ulcers (Stages I-IV), venous stasis ulcers, diabetic ulcers, ulcers resulting from arterial insufficiency, surgical wounds, traumatic wounds, first and second-degree burns, superficial wounds, cuts, scrapes, skin tears, skin flaps and skin grafts. The term of the sublicense extends through August 2028, with automatic one-year renewals through December 31, 2049, subject to termination at the end of any renewal term by either party on six-months' notice. Cellerate, LLC pays specified royalties based on Cellerate, LLC’s annual net sales of CellerateRX. The foregoing summary of the Sublicense Agreement does not purport to be complete and is qualified in its entirety by reference to the Sublicense Agreement. Professional Services Agreement The Company and Catalyst agreed to provide Cellerate, LLC with certain professional services needed to conduct the affairs of Cellerate, LLC through December 31, 2019. The Company and Catalyst were reimbursed on a monthly basis by Cellerate, LLC for services performed, consistent with historical costs to provide the services. The Company also received reimbursement for office lease and other overhead costs dedicated to supporting Cellerate, LLC’s activities. These reimbursements from Cellerate, LLC were recognized by the Company as reductions of selling, general and administrative expenses. Promissory Note As part of the transaction to form Cellerate, LLC, the Company issued a 30-month convertible promissory note to Catalyst in the principal amount of $1,500,000, bearing interest at a 5% annual interest rate, compounded quarterly. Interest is payable quarterly, but may be deferred at the Company’s election to the maturity of the Note. Outstanding principal and interest are convertible at Catalyst’s option into shares of Sanara common stock at a conversion price of $9.00 per share. On February 7, 2020, Catalyst converted 100% of the promissory note (including accrued but unpaid interest) into 179,101 shares of common stock.

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