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 year ended December 31, 2025, we recognized $225,000 of distribution fee revenue under the 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 initial term of the agreement commencing in October 2025, minimum annual purchase commitments of an average of approximately $500,000 will apply for Smith+Nephew to maintain exclusive distribution rights.

Effective January 1, 2026, we entered into an amendment to the agreement to add certain expansion kits in connection with the Private Label product for which we received an upfront fee of $50,000. As consideration for entering into the original 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 and January 2026 fee under the amendment are being recognized on a pro rata basis over the initial term of the agreement, and the unearned distribution fee is treated as deferred revenue.  During the three and six months ending June 30, 2026, we recognized $77,941 and $155,882 of revenue under the amended agreement.

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.