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6. SHAREHOLDERS' EQUITY

3 Months Ended

Mar. 31, 2021

Shareholders' equity

SHAREHOLDERS' EQUITY

Preferred Stock

On February 7, 2020, CGI Cellerate RX, an affiliate of The Catalyst Group, Inc. (“Catalyst”), converted its entire holdings of its 30-month $1,500,000 convertible promissory note and 1,136,815 shares of Series F Convertible Preferred Stock into shares of the Company’s common stock. The Company issued an aggregate of 2,452,731 shares of common stock in the conversions. After the conversions, Catalyst and its affiliates controlled the voting of a total of 3,416,587 shares of the Company’s common stock, which represented 44.9% of the 7,617,122 shares of common stock outstanding as of March 31, 2021.

Common Stock

On February 21, 2020, the Company filed a Registration Statement on Form S-8 which registered an aggregate of 2,000,000 shares of its common stock that may be issued under the Sanara MedTech Inc. 2014 Omnibus Long-Term Incentive Plan. The Registration Statement on Form S-8 also covers such additional and indeterminate number of securities as may become issuable pursuant to the provisions of the plan relating to adjustments for changes resulting from a share dividend, share split or similar change. At the Company’s Annual Meeting of Shareholders held on July 9, 2020, the Company approved the Restated 2014 Omnibus Long-Term Incentive Plan (the “LTIP Plan”) in which the Company’s directors, officers, employees and consultants are eligible to participate. A total of 253,020 shares had been issued under the LTIP Plan and 1,746,980 were available for issuance as of March 31, 2021.

On January 18, 2021, the Company entered into an Equity Exchange Agreement (the “Exchange Agreement”), effective as of January 14, 2021, with two individuals who each owned 50% of the outstanding equity interests in Woundyne Medical, LLC (“Woundyne”). Pursuant to the Exchange Agreement, the Company acquired 100% of the issued and outstanding equity interests of Woundyne in exchange for the issuance of an aggregate of 29,536 shares of the Company’s common stock with a fair value of $1,000,000. The acquisition of the outstanding equity interests of Woundyne was accounted for as an asset acquisition. The primary asset acquired by the Company is the Woundyne software platform which allows data related to chronic and surgical wounds to be tracked, monitored, and interfaced with the software user’s electronic medical records. Woundyne has no other material assets, liabilities, or revenues. The issuance of these shares was capitalized as internal use software. The Company subsequently changed the name of Woundyne Medical, LLC to WounDerm, LLC.

On February 12, 2021, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Cantor Fitzgerald & Co. as representative of several underwriters named therein (collectively, the “Underwriters”), pursuant to which the Company agreed to issue and sell an aggregate of 1,100,000 shares of the Company’s common stock to the Underwriters at a price to the public of $25.00 per share, less underwriting discounts and commissions (the “Offering”). Pursuant to the Underwriting Agreement, the Company granted the Underwriters a 30-day option to purchase up to an additional 165,000 shares of common stock at the public offering price, less underwriting discounts and commissions, which the Underwriters exercised in full. The Offering, including the purchase of the 165,000 additional shares of common stock, closed on February 17, 2021.

The net proceeds to the Company from the Offering were approximately $28.9 million, after (i) giving effect to the Underwriter’s full exercise of its option to purchase additional shares of common stock, and (ii) deducting the underwriting discounts and commissions and offering expenses payable by the Company. Through an insured cash sweep service, the net proceeds have been deposited in accounts insured by the Federal Deposit Insurance Corporation.

Following the closing of the Offering in February of 2021, the Company made the $750,000 Post Capital Raise Payment (as defined in the BIAKŌS License Agreement) to Rochal in the form of 20,834 shares of the Company’s common stock (see Notes 3 and 4).

Restricted Stock Awards

During the three months ended March 31, 2021, the Company granted and issued 4,744 shares of restricted common stock to one employee under the LTIP Plan. The shares are subject to certain vesting provisions and other terms and conditions set forth in the employee’s restricted stock agreement. The fair value of this award was $216,658 based on the closing price of the Company’s common stock on the grant date and is recognized as compensation expense on a straight-line basis over the vesting period of the award.

Share-based compensation expense of $325,518 was recognized in selling, general and administrative expenses during the three months ended March 31, 2021, compared to $304,897 recognized during the three months ended March 31, 2020.

At March 31, 2021, there was $1,361,968 of total unrecognized share-based compensation expense related to unvested share-based equity awards. Unrecognized share-based compensation expense is expected to be recognized over a weighted-average period of 1.1 years.

Below is a summary of restricted stock activity for the three months ended March 31, 2021:

		For the Three Months Ended
		March 31, 2021
		Shares				Weighted Average
		Shares				Grant Date Fair Value
Non-vested at beginning of period			170,178			$	14.20
Granted			4,744				45.67
Vested			(53,231	)			14.84
Forfeited			-				-
Non-vested at March 31, 2021			121,691			$	15.15

Stock Options

A summary of the status of outstanding stock options at March 31, 2021 and changes during the three-month period then ended is presented below:

		For the Three Months Ended March 31, 2021
		Options				Weighted Average Exercise Price				Weighted Average Remaining Contract Life
Outstanding at beginning of period			11,500			$	6.00


Granted			-				-
Exercised			-				-
Forfeited			-			$	-
Expired			-				-
Outstanding at March 31, 2021			11,500			$	6.00				1.8

Exercisable at March 31, 2021			11,500			$	6.00				1.8