Note 4 – Distribution Agreement with Smith+Nephew

On March 31, 2025, we entered into a Distribution Agreement with Smith & Nephew, Inc (“Smith+Nephew”), a U.S. subsidiary of Smith & Nephew PLC, a global medical technology company.  Under the agreement, we will supply to Smith+Nephew its own private label of our Aurix product.  Although Smith+Nephew will be the sole and exclusive distributor in the United States of its own private label Aurix product, we have the right and will continue to market, sell, and distribute our branded Aurix product.  During the six months ended June 30, 2025, we recognized the initial $75,000 of license revenue under the Distribution Agreement.

Under the agreement, Smith+Nephew will purchase private label product from us, from time to time at agreed upon transfer pricing and we will manufacture, package, and ship the product to Smith+Nephew’s customers in accordance with purchase orders and the agreement.  During the 5-year initial term of the agreement commencing on the date of first sale by Smith+Nephew, minimum annual purchase commitments of an average of approximately $500,000 will apply for Smith+Nephew to maintain exclusive distribution rights.

As consideration for entering into the agreement, we received an upfront fee of $1.5 million and we are eligible for an additional $750,000 in milestone fees based on our establishment and maintenance of reimbursement in certain categories for the Aurix and the private label products. Such fees will be refundable to Smith+Nephew on a pro rata basis for the unexpired initial term of the agreement if we do not comply with certain terms and conditions. The $1.5 million distribution fee is being recognized on a pro rata basis over the initial term of the agreement and the unearned distribution fee is treated as deferred revenue.

The agreement is for an initial term of five years and is renewable for additional two-year terms subject to earlier termination in accordance with the terms and conditions of the agreement. Although the agreement is exclusive to Smith+Nephew in the United States, we are entitled to maintain our existing distributors and sales agents for the Aurix product. The agreement also contains other standard and negotiated terms and conditions including non-solicitation of each parties’ customers based on identified customer lists, and certain liability and indemnity clauses.

In connection with entering into the agreement, Smith+Nephew obtained certain additional information rights related to our business and corporate matters. In particular, we provided Smith+Nephew a right of notification and a right of first negotiation over a defined period, in the event we receive from another party a proposal for (a) the license, assignment, transfer, or disposal of our Aurix product or related products, or (b) a business combination that we submit or recommend to our stockholders.  These rights continue for a limited period of the initial term of the agreement.