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COMMITMENTS AND CONTINGENCIES | 3 Months Ended
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Mar. 31, 2022
Commitments and Contingencies Disclosure [Abstract] |
COMMITMENTS AND CONTINGENCIES | NOTE 4 - COMMITMENTS AND CONTINGENCIES License Agreements and Royalties CellerateRX® Activated Collagen® On August 27, 2018, the Company entered into an exclusive, world-wide sublicense agreement with CGI Cellerate RX, LLC (“CGI Cellerate RX”) to distribute CellerateRX Surgical and HYCOL products into the wound care and surgical markets. Pursuant to the sublicense agreement, the Company pays royalties of 3-5% of annual collected net sales of CellerateRX Surgical and HYCOL. As amended on January 26, 2021, the term of the sublicense extends through May 2050, with automatic successive year-to-year renewal terms thereafter so long as the Company’s Net Sales (as defined in the sublicense agreement) each year are equal to or in excess of $1,000,000. If the Company’s Net Sales fall below $1,000,000 for any year after the initial expiration date, CGI Cellerate RX will have the right to terminate the sublicense agreement upon written notice. Minimum royalties of $400,000 per year are payable for the first five years of the sublicense agreement. For the three months ended March 31, 2022 and 2021, royalty expense, which is recorded in cost of goods sold in the accompanying consolidated statements of operations, was $369,233 and $187,875, respectively, under the terms of this agreement. BIAKOS Antimicrobial Wound Gel and BIAKOS Antimicrobial Skin and Wound Cleanser On July 7, 2019, the Company executed a license agreement with Rochal, a related party, whereby the Company 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 “BIAKOS License Agreement”). Currently, the products covered by the BIAKŌS License Agreement are BIAKOS Antimicrobial Wound Gel and BIAKOS Antimicrobial Skin and Wound Cleanser. Both products are 510(k) approved. The Company’s Executive Chairman is a director of Rochal, and indirectly a significant shareholder of Rochal, and through the potential exercise of warrants, a majority shareholder of Rochal. Another one of the Company’s directors is also a director and significant shareholder of Rochal. Future commitments under the terms of the BIAKOS License Agreement include:
| ● | The Company pays Rochal a royalty of 2-4% of net sales. The minimum annual royalty due to Rochal is $120,000 for 2022 and will increase by $10,000 each subsequent calendar year up to a maximum amount of $150,000.
| ● | The Company pays additional royalty annually based on specific net profit targets from sales of the licensed products, subject to a maximum of $1,000,000 during any calendar year.
Unless previously terminated by the parties, the BIAKOS License Agreement expires with the related patents in December 2031. For the three months ended March 31, 2022 and 2021, royalty expense, which is recorded in cost of goods sold in the accompanying consolidated statements of operations, was $30,000 and $27,500, respectively, under this agreement. CuraShield Antimicrobial Barrier Film and No Sting Skin Protectant On October 1, 2019, the Company executed a license agreement with Rochal pursuant to which the Company acquired an exclusive world-wide license to market, sell and further develop certain antimicrobial barrier film and skin protectant products for use in the human health care market utilizing certain Rochal patents and pending patent applications (the “ABF License Agreement”). Currently, the products covered by the ABF License Agreement are CuraShield Antimicrobial Barrier Film and a no sting skin protectant product. Future commitments under the terms of the ABF License Agreement include:
| ● | The Company will pay Rochal a royalty of 2-4% of net sales. The minimum annual royalty due to Rochal will be $50,000 beginning with the first full calendar year following the year in which first commercial sales of the products occur. The annual minimum royalty will increase by 10% each subsequent calendar year up to a maximum amount of $75,000.
| ● | The Company will pay additional royalties annually based on specific net profit targets from sales of the licensed products, subject to a maximum of $500,000 during any calendar year.
Unless previously terminated or extended by the parties, the ABF License Agreement will terminate upon expiration of the last U.S. patent in October 2033. No commercial sales or royalties have been recognized under this agreement as of March 31, 2022. Debrider License Agreement On May 4, 2020, the Company executed a product license agreement with Rochal, pursuant to which the Company acquired an exclusive world-wide license to market, sell and further develop a debrider for human medical use to enhance skin condition or treat or relieve skin disorders, excluding uses primarily for beauty, cosmetic, or toiletry purposes (the “Debrider License Agreement”). Future commitments under the terms of the Debrider License Agreement include:
| ● | At the time Rochal issues a purchase order to its contract manufacturer for the first good manufacturing practice run of the licensed products, the Company will pay Rochal $600,000 in cash.
| ● | Upon FDA clearance of the licensed products, the Company will pay Rochal $500,000 in cash and $1,000,000, which at the Company’s option may be paid in any combination of cash and its common stock.
| ● | The Company will pay Rochal a royalty of 2-4% of net sales. The minimum annual royalty due to Rochal will be $100,000 beginning with the first full calendar year following the year in which first commercial sales of the licensed products occur and increase by 10% each subsequent calendar year up to a maximum amount of $150,000.
| ● | The Company will pay additional royalty annually based on specific net profit targets from sales of the licensed products, subject to a maximum of $1,000,000 during any calendar year.
Unless previously terminated or extended by the parties, the Debrider License Agreement will expire in October 2034. No commercial sales or royalties have been recognized under this agreement as of March 31, 2022. Resorbable Bone Hemostat The Company acquired a patent in 2009 for a resorbable bone hemostat and delivery system for orthopedic bone void fillers. This patent is not part of the Company’s long-term strategic focus. The Company subsequently licensed the patent to a third party to market a bone void filler product for which the Company receives a 3% royalty on product sales over the life of the patent, which expires in 2023, with annual minimum royalties of $201,000. The Company pays two unrelated third parties a combined royalty equal to 8% of the Company’s net revenues or minimum royalties generated from products that utilize the Company’s acquired patented bone hemostat and delivery system. To date, royalties received by the Company related to this licensing agreement have not exceeded the annual minimum of $201,000 ($50,250 per quarter). Therefore, the Company’s annual royalty obligation under the terms of the license agreement has been $16,080 ($4,020 per quarter), with the expense being reported in cost of goods sold in the accompanying consolidated statements of operations. Other Commitments 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.

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