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SEGMENT REPORTING | 6 Months Ended
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Jun. 30, 2024
Segment Reporting [Abstract] |
SEGMENT REPORTING | NOTE 11 – SEGMENT REPORTING As discussed in Note 1, the Company historically managed its business on the basis of one operating and reportable segment. During the second quarter of 2024, the Company changed its reportable segments to better align its organization based upon the Company’s management structure, products and services offered and markets served. Based on the growing importance of the value-based wound care program to the Company’s future outlook and how the Company’s chief operating decision maker (“CODM”), the Chief Executive Officer, reviews operating results and makes decisions about resource allocation, the Company now has two reportable segments: Sanara Surgical and THP. Segment EBITDA is the primary profitability measure used by the CODM for purposes of assessing financial performance and resource allocation. The Company defines Segment EBITDA for the reportable segments as net income (loss) excluding interest expense/income, provision/benefit for income taxes, depreciation and amortization, non-cash share-based compensation expense, change in fair value of earnout liabilities, executive separation costs, legal and diligence expenses related to acquisitions, and gains/losses on the disposal of property and equipment, as each are applicable to the periods presented. Segment EBITDA, as it relates to the Company’s reportable segments, is presented in conformity with ASC 280, Segment Reporting, and is excluded from the definition of non-GAAP financial measures under the Securities and Exchange Commission’s Regulation G and Item 10(e) of Regulation S-K. Segment EBITDA may not be comparable to similarly titled measures reported by other companies. Sanara Surgical The Sanara Surgical segment primarily markets and sells soft tissue repair and bone fusion products for use in the operating room or other sterile environments. Sanara Surgical’s soft tissue repair products include, among other products, the Company’s lead product, CellerateRX Surgical, and BIASURGE Advanced Surgical Solution, which is a no-rinse, advanced surgical solution used for wound irrigation. Sanara Surgical’s bone fusion products include, among other products, BiFORM, which is an osteoconductive, bioactive, porous implant that allows for bony ingrowth across the graft site, and ALLOCYTE Plus, which is a human allograft cellular bone matrix containing bone-derived progenitor cells and conformable bone fibers. Sanara Surgical also includes an in-house research and development team (Rochal Technologies) with an extensive pipeline of innovative products under development. Tissue Health Plus The THP segment is focused on value-based wound care services. Through THP, the Company plans to offer a first of its kind value-based wound care program to payers and risk-bearing entities such as accountable care organizations and VBC primary care companies, with Medicare Advantage payers as the initial target market for this program. THP’s programs are expected to enable payers to divest wound care spend risk, reduce wound related hospitalizations and improve patient quality of life. THP plans to coordinate delivery of community and home-based wound care for its managed patients. Community based care spans a variety of settings including physician offices, skilled nursing facilities, assisted living facilities and senior living facilities. THP programs are intended to integrate science and evidence-based medicine protocols to standardize wound prevention and treatment. Currently, there are no allocated costs included in the THP segment. All corporate and overhead expenses are included in the Sanara Surgical segment, as substantially all of those costs relate to supporting the operations and activities of the Sanara Surgical segment. As a result of the change in reportable segments, certain prior period amounts have been recast to conform to the current period presentation. Throughout this Quarterly Report on Form 10-Q, unless otherwise indicated, amounts and activity reflect reclassifications related to the Company’s change in reportable segments. The change in reportable segments had no impact on the Company’s Consolidated Balance Sheets, Statements of Operations, Cash Flows and Shareholders’ Equity previously reported. The following tables reflect results of operations, Segment EBITDA, segmented assets, and expenditures for long-lived assets for our reportable segments for the periods indicated below: SCHEDULE OF OPERATIONS, ASSETS AND CAPITAL EXPENDITURES FOR OUR BUSINESS SEGMENTS
|  | Sanara Surgical |  |  | THP |  |  | Total |  |  | Sanara Surgical |  |  | THP |  |  | Total |
|  | Three Months Ended |
|  | June 30, |
|  | 2024 |  |  | 2023 |
|  | Sanara Surgical |  |  | THP |  |  | Total |  |  | Sanara Surgical |  |  | THP |  |  | Total |
Net revenue |  | $ | 20,158,823 |  |  | $ | - |  |  | $ | 20,158,823 |  |  | $ | 15,753,164 |  |  | $ | - |  |  | $ | 15,753,164 |
Gross profit |  |  | 18,150,137 |  |  |  | - |  |  |  | 18,150,137 |  |  |  | 13,565,648 |  |  |  | - |  |  |  | 13,565,648 |
Selling, general and administrative expenses |  |  | 18,349,924 |  |  |  | 607,684 |  |  |  | 18,957,608 |  |  |  | 13,301,230 |  |  |  | 510,246 |  |  |  | 13,811,476 |
Research and development |  |  | 582,443 |  |  |  | 403,208 |  |  |  | 985,651 |  |  |  | 208,727 |  |  |  | 968,401 |  |  |  | 1,177,128 |
Depreciation and amortization |  |  | 698,407 |  |  |  | 407,100 |  |  |  | 1,105,507 |  |  |  | 396,597 |  |  |  | 407,097 |  |  |  | 803,694 |
Interest expense |  |  | 644,346 |  |  |  | - |  |  |  | 644,346 |  |  |  | - |  |  |  | - |  |  |  | - |
Net income (loss) |  |  | (2,214,313 | ) |  |  | (1,314,889 | ) |  |  | (3,529,202 | ) |  |  | 95,098 |  |  |  | (1,961,278 | ) |  |  | (1,866,180 | )
Segment EBITDA |  |  | 1,393,959 |  |  |  | (801,778 | ) |  |  | 592,181 |  |  |  | 1,120,207 |  |  |  | (1,415,831 | ) |  |  | (295,624 | )
Segment assets (at period end) (1) |  | $ | 51,469,137 |  |  | $ | 21,914,468 |  |  | $ | 73,383,605 |  |  | $ | 51,147,589 |  |  | $ | 22,723,560 |  |  | $ | 73,871,149 |
Expenditures for long-lived assets |  | $ | 58,762 |  |  | $ | - |  |  | $ | 58,762 |  |  | $ | 12,945 |  |  | $ | - |  |  | $ | 12,945 |
|  | Sanara Surgical |  |  | THP |  |  | Total |  |  | Sanara Surgical |  |  | THP |  |  | Total |
|  | Six Months Ended |
|  | June 30, |
|  | 2024 |  |  | 2023 |
|  | Sanara Surgical |  |  | THP |  |  | Total |  |  | Sanara Surgical |  |  | THP |  |  | Total |
Net revenue |  | $ | 38,695,461 |  |  | $ | - |  |  | $ | 38,695,461 |  |  | $ | 31,272,351 |  |  | $ | 2,730 |  |  | $ | 31,275,081 |
Gross profit |  |  | 34,796,729 |  |  |  | - |  |  |  | 34,796,729 |  |  |  | 26,968,141 |  |  |  | (6,235 | ) |  |  | 26,961,906 |
Selling, general and administrative expenses |  |  | 34,032,964 |  |  |  | 1,116,903 |  |  |  | 35,149,867 |  |  |  | 25,768,626 |  |  |  | 1,011,919 |  |  |  | 26,780,545 |
Research and development |  |  | 1,161,424 |  |  |  | 770,525 |  |  |  | 1,931,949 |  |  |  | 443,963 |  |  |  | 2,050,489 |  |  |  | 2,494,452 |
Depreciation and amortization |  |  | 1,396,908 |  |  |  | 814,019 |  |  |  | 2,210,927 |  |  |  | 768,616 |  |  |  | 813,953 |  |  |  | 1,582,569 |
Interest expense |  |  | 911,682 |  |  |  | - |  |  |  | 911,682 |  |  |  | 6 |  |  |  | - |  |  |  | 6 |
Net income (loss) |  |  | (2,691,798 | ) |  |  | (2,636,447 | ) |  |  | (5,328,245 | ) |  |  | 614,061 |  |  |  | (3,696,570 | ) |  |  | (3,082,509 | )
Segment EBITDA |  |  | 2,532,145 |  |  |  | (1,628,543 | ) |  |  | 903,602 |  |  |  | 2,365,280 |  |  |  | (2,953,734 | ) |  |  | (588,454 | )
Segment assets (at period end) (1) |  | $ | 51,469,137 |  |  | $ | 21,914,468 |  |  | $ | 73,383,605 |  |  | $ | 51,147,589 |  |  | $ | 22,723,560 |  |  | $ | 73,871,149 |
Expenditures for long-lived assets |  | $ | 124,580 |  |  | $ | - |  |  | $ | 124,580 |  |  | $ | 40,650 |  |  | $ | - |  |  | $ | 40,650 |
(1) | - Segment assets for 2023 represent assets as of 12.31.23.
The following tables provide a reconciliation of net income (loss) to Segment EBITDA for our reportable segments for the periods indicated below:
|  | Sanara Surgical |  |  | THP |  |  | Total |  |  | Sanara Surgical |  |  | THP |  |  | Total |
|  | Three Months Ended |
|  | June 30, |
|  | 2024 |  |  | 2023 |
|  | Sanara Surgical |  |  | THP |  |  | Total |  |  | Sanara Surgical |  |  | THP |  |  | Total |
Net Income (Loss) |  | $ | (2,214,313 | ) |  | $ | (1,314,889 | ) |  | $ | (3,529,202 | ) |  | $ | 95,098 |  |  | $ | (1,961,278 | ) |  | $ | (1,866,180 | )
Adjustments: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest expense |  |  | 644,346 |  |  |  | - |  |  |  | 644,346 |  |  |  | - |  |  |  | - |  |  |  | - |
Depreciation and amortization |  |  | 698,407 |  |  |  | 407,100 |  |  |  | 1,105,507 |  |  |  | 396,597 |  |  |  | 407,097 |  |  |  | 803,694 |
Noncash share-based compensation |  |  | 1,046,321 |  |  |  | 36,429 |  |  |  | 1,082,750 |  |  |  | 1,064,516 |  |  |  | 62,816 |  |  |  | 1,127,332 |
Change in fair value of earnout liabilities |  |  | 89,330 |  |  |  | (103,103 | ) |  |  | (13,773 | ) |  |  | (436,004 | ) |  |  | 75,534 |  |  |  | (360,470 | )
Executive separation costs(1) |  |  | 904,780 |  |  |  | - |  |  |  | 904,780 |  |  |  | - |  |  |  | - |  |  |  | - |
Acquisition costs |  |  | 225,088 |  |  |  | 172,685 |  |  |  | 397,773 |  |  |  | - |  |  |  | - |  |  |  | - |
Segment EBITDA |  | $ | 1,393,959 |  |  | $ | (801,778 | ) |  | $ | 592,181 |  |  | $ | 1,120,207 |  |  | $ | (1,415,831 | ) |  | $ | (295,624 | )
|  | Sanara Surgical |  |  | THP |  |  | Total |  |  | Sanara Surgical |  |  | THP |  |  | Total |
|  | Six Months Ended |
|  | June 30, |
|  | 2024 |  |  | 2023 |
|  | Sanara Surgical |  |  | THP |  |  | Total |  |  | Sanara Surgical |  |  | THP |  |  | Total |
Net Income (Loss) |  | $ | (2,691,798 | ) |  | $ | (2,636,447 | ) |  | $ | (5,328,245 | ) |  | $ | 614,061 |  |  | $ | (3,696,570 | ) |  | $ | (3,082,509 | )
Adjustments: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest expense |  |  | 911,682 |  |  |  | - |  |  |  | 911,682 |  |  |  | 6 |  |  |  | - |  |  |  | 6 |
Depreciation and amortization |  |  | 1,396,908 |  |  |  | 814,019 |  |  |  | 2,210,927 |  |  |  | 768,616 |  |  |  | 813,953 |  |  |  | 1,582,569 |
Noncash share-based compensation |  |  | 1,799,936 |  |  |  | 86,200 |  |  |  | 1,886,136 |  |  |  | 1,609,729 |  |  |  | 114,908 |  |  |  | 1,724,637 |
Change in fair value of earnout liabilities |  |  | (14,451 | ) |  |  | (65,000 | ) |  |  | (79,451 | ) |  |  | (627,132 | ) |  |  | (186,025 | ) |  |  | (813,157 | )
Executive separation costs(1) |  |  | 904,780 |  |  |  | - |  |  |  | 904,780 |  |  |  | - |  |  |  | - |  |  |  | - |
Acquisition costs |  |  | 225,088 |  |  |  | 172,685 |  |  |  | 397,773 |  |  |  | - |  |  |  | - |  |  |  | - |
Segment EBITDA |  | $ | 2,532,145 |  |  | $ | (1,628,543 | ) |  | $ | 903,602 |  |  | $ | 2,365,280 |  |  | $ | (2,953,734 | ) |  | $ | (588,454 | )
(1) | - Includes $328,795 of share-based compensation related to executive separation costs.

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