0000714256 false --12-31 Q1 0000714256 2023-01-01 2023-03-31 0000714256 2023-05-12 0000714256 2023-03-31 0000714256 2022-12-31 0000714256 us-gaap:NonrelatedPartyMember 2023-03-31 0000714256 us-gaap:NonrelatedPartyMember 2022-12-31 0000714256 us-gaap:RelatedPartyMember 2023-03-31 0000714256 us-gaap:RelatedPartyMember 2022-12-31 0000714256 2022-01-01 2022-03-31 0000714256 us-gaap:CommonStockMember 2021-12-31 0000714256 us-gaap:AdditionalPaidInCapitalMember 2021-12-31 0000714256 us-gaap:RetainedEarningsMember 2021-12-31 0000714256 us-gaap:NoncontrollingInterestMember 2021-12-31 0000714256 2021-12-31 0000714256 us-gaap:CommonStockMember 2022-12-31 0000714256 us-gaap:AdditionalPaidInCapitalMember 2022-12-31 0000714256 us-gaap:RetainedEarningsMember 2022-12-31 0000714256 us-gaap:NoncontrollingInterestMember 2022-12-31 0000714256 us-gaap:CommonStockMember 2022-01-01 2022-03-31 0000714256 us-gaap:AdditionalPaidInCapitalMember 2022-01-01 2022-03-31 0000714256 us-gaap:RetainedEarningsMember 2022-01-01 2022-03-31 0000714256 us-gaap:NoncontrollingInterestMember 2022-01-01 2022-03-31 0000714256 us-gaap:CommonStockMember 2023-01-01 2023-03-31 0000714256 us-gaap:AdditionalPaidInCapitalMember 2023-01-01 2023-03-31 0000714256 us-gaap:RetainedEarningsMember 2023-01-01 2023-03-31 0000714256 us-gaap:NoncontrollingInterestMember 2023-01-01 2023-03-31 0000714256 us-gaap:CommonStockMember 2022-03-31 0000714256 us-gaap:AdditionalPaidInCapitalMember 2022-03-31 0000714256 us-gaap:RetainedEarningsMember 2022-03-31 0000714256 us-gaap:NoncontrollingInterestMember 2022-03-31 0000714256 2022-03-31 0000714256 us-gaap:CommonStockMember 2023-03-31 0000714256 us-gaap:AdditionalPaidInCapitalMember 2023-03-31 0000714256 us-gaap:RetainedEarningsMember 2023-03-31 0000714256 us-gaap:NoncontrollingInterestMember 2023-03-31 0000714256 us-gaap:StockOptionMember 2023-01-01 2023-03-31 0000714256 us-gaap:StockOptionMember 2022-01-01 2022-03-31 0000714256 us-gaap:WarrantMember 2023-01-01 2023-03-31 0000714256 us-gaap:WarrantMember 2022-01-01 2022-03-31 0000714256 SMTI:UnvestedRestrictedStockMember 2023-01-01 2023-03-31 0000714256 SMTI:UnvestedRestrictedStockMember 2022-01-01 2022-03-31 0000714256 SMTI:PrecisionHealingIncMember 2022-04-01 2022-04-30 0000714256 us-gaap:ProductMember 2023-01-01 2023-03-31 0000714256 us-gaap:ProductMember 2022-01-01 2022-03-31 0000714256 us-gaap:RoyaltyMember 2023-01-01 2023-03-31 0000714256 us-gaap:RoyaltyMember 2022-01-01 2022-03-31 0000714256 SMTI:BioStructuresLLCMember 2023-01-01 2023-03-31 0000714256 SMTI:BioStructuresLLCMember srt:MinimumMember 2023-01-01 2023-03-31 0000714256 us-gaap:ComputerEquipmentMember 2023-03-31 0000714256 us-gaap:ComputerEquipmentMember 2022-12-31 0000714256 us-gaap:ComputerEquipmentMember srt:MinimumMember 2023-03-31 0000714256 us-gaap:ComputerEquipmentMember srt:MaximumMember 2023-03-31 0000714256 us-gaap:OfficeEquipmentMember 2023-03-31 0000714256 us-gaap:OfficeEquipmentMember 2022-12-31 0000714256 us-gaap:OfficeEquipmentMember srt:MinimumMember 2023-03-31 0000714256 us-gaap:OfficeEquipmentMember srt:MaximumMember 2023-03-31 0000714256 us-gaap:FurnitureAndFixturesMember 2023-03-31 0000714256 us-gaap:FurnitureAndFixturesMember 2022-12-31 0000714256 us-gaap:FurnitureAndFixturesMember srt:MinimumMember 2023-03-31 0000714256 us-gaap:FurnitureAndFixturesMember srt:MaximumMember 2023-03-31 0000714256 us-gaap:LeaseholdImprovementsMember 2023-03-31 0000714256 us-gaap:LeaseholdImprovementsMember 2022-12-31 0000714256 us-gaap:LeaseholdImprovementsMember srt:MinimumMember 2023-03-31 0000714256 us-gaap:LeaseholdImprovementsMember srt:MaximumMember 2023-03-31 0000714256 SMTI:InternalUseSoftwareMember 2023-03-31 0000714256 SMTI:InternalUseSoftwareMember 2022-12-31 0000714256 SMTI:PrecisionHealingIncMember SMTI:StockholdersMember 2022-04-01 2022-04-04 0000714256 SMTI:PrecisionHealingIncMember SMTI:AccreditedInvestorsMember 2022-04-01 2022-04-04 0000714256 SMTI:PrecisionHealingIncMember 2022-04-01 2022-04-04 0000714256 SMTI:PrecisionHealingIncMember 2022-04-04 0000714256 SMTI:PrecisionHealingIncMember SMTI:PrecisionHealingPlanMember 2022-04-01 2022-04-04 0000714256 SMTI:PrecisionHealingIncMember SMTI:WarrantsOneMember 2022-04-04 0000714256 SMTI:PrecisionHealingIncMember SMTI:WarrantsTwoMember 2022-04-04 0000714256 SMTI:PrecisionHealingIncMember SMTI:SecurityHoldersMember 2022-04-01 2022-04-04 0000714256 SMTI:PrecisionHealingIncMember 2023-01-01 2023-03-31 0000714256 SMTI:PrecisionHealingIncMember us-gaap:CommonStockMember 2022-04-01 2022-04-04 0000714256 SMTI:PrecisionHealingIncMember us-gaap:CommonStockMember 2022-04-04 0000714256 SMTI:PrecisionHealingIncMember us-gaap:StockOptionMember 2022-04-01 2022-04-04 0000714256 SMTI:PrecisionHealingIncMember us-gaap:StockOptionMember 2022-04-04 0000714256 SMTI:PrecisionHealingIncMember us-gaap:WarrantMember 2022-04-01 2022-04-04 0000714256 SMTI:PrecisionHealingIncMember us-gaap:WarrantMember 2022-04-04 0000714256 SMTI:PrecisionHealingIncMember 2022-04-01 2022-04-04 0000714256 SMTI:ScendiaPurchaseAgreementMember us-gaap:CommonStockMember 2022-07-01 2022-07-31 0000714256 SMTI:ScendiaPurchaseAgreementMember us-gaap:CommonStockMember 2022-07-31 0000714256 SMTI:PrecisionHealingIncMember 2023-03-31 0000714256 SMTI:ScendiaPurchaseAgreementMember 2023-03-31 0000714256 SMTI:MembershipInterestPurchaseAgreementMember 2022-07-31 0000714256 SMTI:ScendiaBiologicsLLCMember 2022-07-31 0000714256 SMTI:ScendiaBiologicsLLCMember SMTI:ScendiaPurchaseAgreementMember 2022-07-31 0000714256 SMTI:ScendiaBiologicsLLCMember SMTI:PurchaseAgreementMember 2022-07-01 2022-07-31 0000714256 SMTI:PurchaseAgreementMember 2022-07-01 2022-07-31 0000714256 SMTI:PurchaseAgreementMember 2022-07-31 0000714256 2022-07-31 0000714256 2022-07-01 2022-07-31 0000714256 SMTI:ScendiaAcquisitionMember 2022-01-01 2022-12-31 0000714256 SMTI:ScendiaBiologicsLLCMember 2023-01-01 2023-03-31 0000714256 us-gaap:LicensingAgreementsMember 2023-03-31 0000714256 us-gaap:LicensingAgreementsMember 2022-12-31 0000714256 us-gaap:PatentsMember 2023-03-31 0000714256 us-gaap:PatentsMember 2022-12-31 0000714256 SMTI:CustomerRelationshipsAndOtherMember 2023-03-31 0000714256 SMTI:CustomerRelationshipsAndOtherMember 2022-12-31 0000714256 SMTI:AmortizableIntangibleAssetsMember 2023-03-31 0000714256 SMTI:AmortizableIntangibleAssetsMember 2022-12-31 0000714256 SMTI:SeriesBTwoPreferredSharesMember 2020-07-31 0000714256 SMTI:SeriesBTwoPreferredSharesMember 2020-07-01 2020-07-31 0000714256 SMTI:SeriesBTwoPreferredSharesMember SMTI:DirectDermsMember 2020-07-31 0000714256 SMTI:SeriesBTwoPreferredSharesMember SMTI:DirectDermsMember 2021-01-01 2021-12-31 0000714256 SMTI:SeriesBTwoPreferredSharesMember SMTI:DirectDermsMember 2022-03-01 2022-03-31 0000714256 SMTI:SeriesBTwoPreferredSharesMember SMTI:DirectDermsMember 2023-03-31 0000714256 SMTI:SeriesAConvertiblePreferredStockMember SMTI:PrecisionHealingIncMember 2020-11-01 2020-11-30 0000714256 SMTI:SeriesAConvertiblePreferredStockMember 2020-11-30 0000714256 SMTI:SeriesAStockMember 2021-02-28 0000714256 SMTI:SeriesAStockMember 2021-02-03 2021-02-28 0000714256 SMTI:SeriesAStockMember SMTI:PrecisionHealingIncMember 2021-02-03 2021-02-28 0000714256 SMTI:SeriesAStockMember 2021-02-28 0000714256 SMTI:SeriesAStockMember 2021-06-30 0000714256 SMTI:SeriesAStockMember 2021-06-01 2021-06-30 0000714256 SMTI:SeriesAStockMember 2021-06-30 0000714256 SMTI:SeriesAStockMember 2021-10-01 2021-10-31 0000714256 SMTI:SeriesAStockMember 2021-12-01 2021-12-31 0000714256 SMTI:ClassAPreferredSharesMember SMTI:PixalereHealthcareIncMember 2021-06-30 0000714256 SMTI:ClassAPreferredSharesMember SMTI:PixalereHealthcareIncMember 2021-06-01 2021-06-30 0000714256 SMTI:ClassAPreferredSharesMember SMTI:PixalereHealthcareIncMember 2021-06-30 0000714256 SMTI:PrecisionHealingIncMember 2023-03-31 0000714256 SMTI:PrecisionHealingIncMember 2022-12-31 0000714256 SMTI:DirectDermatologyIncMember 2023-03-31 0000714256 SMTI:DirectDermatologyIncMember 2022-12-31 0000714256 SMTI:PixalereHealthcareIncMember 2023-03-31 0000714256 SMTI:PixalereHealthcareIncMember 2022-12-31 0000714256 SMTI:PrecisionHealingIncMember 2023-01-01 2023-03-31 0000714256 SMTI:PrecisionHealingIncMember 2022-01-01 2022-03-31 0000714256 SMTI:OfficeSpaceOneMember 2023-03-31 0000714256 SMTI:OfficeSpaceTwoMember 2023-03-31 0000714256 SMTI:OfficeSpaceThreeMember 2023-03-31 0000714256 SMTI:SubLicenseAgreementMember 2018-08-26 2018-08-27 0000714256 us-gaap:CostOfSalesMember 2023-01-01 2023-03-31 0000714256 us-gaap:CostOfSalesMember 2022-01-01 2022-03-31 0000714256 SMTI:BIAKOSLicenseAgreementMember SMTI:RochalIndustriesLLCMember srt:MinimumMember 2019-07-06 2019-07-07 0000714256 SMTI:BIAKOSLicenseAgreementMember SMTI:RochalIndustriesLLCMember srt:MaximumMember 2019-07-06 2019-07-07 0000714256 SMTI:BIAKOSLicenseAgreementMember SMTI:RochalIndustriesLLCMember srt:MinimumMember 2022-01-01 2022-12-31 0000714256 SMTI:BIAKOSLicenseAgreementMember SMTI:RochalIndustriesLLCMember 2023-01-01 2023-03-31 0000714256 SMTI:BIAKOSLicenseAgreementMember SMTI:RochalIndustriesLLCMember srt:MaximumMember 2023-01-01 2023-03-31 0000714256 SMTI:BIAKOSAgreementMember srt:MaximumMember 2023-01-01 2023-03-31 0000714256 SMTI:BIAKOSLicenseAgreementMember 2023-01-01 2023-03-31 0000714256 SMTI:BIAKOSLicenseAgreementMember 2022-01-01 2022-03-31 0000714256 SMTI:ABFLicenseAgreementMember srt:MinimumMember 2019-10-01 2019-10-31 0000714256 SMTI:ABFLicenseAgreementMember srt:MaximumMember 2019-10-01 2019-10-31 0000714256 SMTI:ABFLicenseAgreementMember 2023-01-01 2023-03-31 0000714256 SMTI:ABFLicenseAgreementMember srt:MaximumMember 2023-01-01 2023-03-31 0000714256 SMTI:RochalMember 2020-05-01 2020-05-31 0000714256 SMTI:DebriderLicenseAgreementMember 2020-05-01 2020-05-31 0000714256 SMTI:DebriderLicenseAgreementMember srt:MinimumMember 2020-05-01 2020-05-31 0000714256 SMTI:DebriderLicenseAgreementMember srt:MaximumMember 2020-05-01 2020-05-31 0000714256 SMTI:DebriderLicenseAgreementMember 2023-01-01 2023-03-31 0000714256 SMTI:DebriderLicenseAgreementMember srt:MaximumMember 2023-01-01 2023-03-31 0000714256 SMTI:TwoThousandNineMember SMTI:ResorbableBoneHemostatMember SMTI:RoyaltyAgreementMember 2023-01-01 2023-03-31 0000714256 SMTI:TwoThousandNineMember SMTI:ResorbableBoneHemostatMember 2023-01-01 2023-03-31 0000714256 SMTI:TwoThousandNineMember SMTI:ResorbableBoneHemostatMember srt:MinimumMember 2023-01-01 2023-03-31 0000714256 srt:MinimumMember 2023-01-01 2023-03-31 0000714256 SMTI:PrecisionHealingIncMember 2022-04-01 2022-04-30 0000714256 SMTI:AccreditedInvestorsMember 2022-04-01 2022-04-30 0000714256 SMTI:PrecisionHealingMember 2022-04-01 2022-04-30 0000714256 SMTI:NonaccreditedInvestorsMember 2022-04-04 0000714256 2022-04-01 2022-04-30 0000714256 2022-04-30 0000714256 us-gaap:CommonStockMember 2022-04-30 0000714256 SMTI:PrecisionHealingMember 2020-04-01 2020-04-30 0000714256 SMTI:PrecisionHealingMember 2020-04-30 0000714256 SMTI:WoundCareSolutionsLimitedMember 2019-05-01 2019-05-31 0000714256 SMTI:YearTwoThousandTwentyOneThroughTwoThousandTwentyFourMember SMTI:WoundCareSolutionsLimitedMember 2019-05-01 2019-05-31 0000714256 SMTI:WoundCareSolutionsLimitedMember 2022-04-01 2022-04-30 0000714256 SMTI:WoundCareSolutionsLimitedMember 2022-12-01 2022-12-31 0000714256 SMTI:RestatedTwoThousandFourteenOmnibusLongTermIncentivePlanMember SMTI:DirectorsOfficersEmployeesMember 2023-01-01 2023-03-31 0000714256 SMTI:RestatedTwoThousandFourteenOmnibusLongTermIncentivePlanMember 2023-03-31 0000714256 SMTI:SalesAgreementMember SMTI:CantorFitzgeraldAndCoMember srt:MaximumMember 2023-02-01 2023-02-28 0000714256 SMTI:SalesAgreementMember SMTI:CantorFitzgeraldAndCoMember 2023-02-28 0000714256 SMTI:SalesAgreementMember us-gaap:CommonStockMember 2023-01-01 2023-03-31 0000714256 SMTI:SalesAgreementMember us-gaap:CommonStockMember 2023-03-01 2023-03-31 0000714256 SMTI:SalesAgreementMember us-gaap:CommonStockMember us-gaap:SubsequentEventMember 2023-04-01 2023-04-30 0000714256 SMTI:CellerateRxSubLicenseAgreementMember 2021-01-01 2021-01-31 0000714256 SMTI:ConsultingAgreementMember SMTI:MsSalamoneMember 2021-07-01 2021-07-31 iso4217:USD xbrli:shares iso4217:USD xbrli:shares xbrli:pure

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023

or

☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission File Number 001-39678

SANARA MEDTECH INC.

(Exact name of Registrant as specified in its charter)

Texas |  | 59-2219994
(State or other jurisdiction of |  | (I.R.S. Employer
incorporation or organization) |  | Identification No.)

1200 Summit Ave, Suite 414, Fort Worth, Texas 76102

(Address of principal executive offices)

(817) 529-2300

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class |  | Trading Symbol(s) |  | Name of each exchange on which registered
Common Stock, $0.001 par value |  | SMTI |  | The Nasdaq Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer | Accelerated filer | Non-accelerated filer | Smaller reporting company | Emerging growth company
☐ | ☐ | ☒ | ☒ | ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of May 12, 2023, 8,382,616 shares of the Issuer’s common stock, $0.001 par value per share, were outstanding.

SANARA MEDTECH INC.

Form 10-Q

Quarter Ended March 31, 2023

| Page
Part I – Financial Information | 3
Item 1. Financial Statements | 3
Consolidated Balance Sheets as of March 31, 2023 (Unaudited) and December 31, 2022 | 3
Consolidated Statements of Operations (Unaudited) for the Three Months Ended March 31, 2023 and 2022 | 4
Consolidated Statements of Changes in Shareholders’ Equity (Unaudited) for the Three Months Ended March 31, 2023 and 2022 | 5
Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2023 and 2022 | 6
Notes to Unaudited Consolidated Financial Statements | 7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 24
Item 3. Quantitative and Qualitative Disclosures about Market Risk | 31
Item 4. Controls and Procedures | 31
Part II – Other Information | 32
Item 1. Legal Proceedings | 32
Item 1A. Risk Factors | 32
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 32
Item 3. Defaults Upon Senior Securities | 32
Item 4. Mine Safety Disclosures | 32
Item 5. Other Information | 32
Item 6. Exhibits | 33
Signatures | 34

Sanara, Sanara MedTech, our logo and our other trademarks or service marks appearing in this report are the property of Sanara MedTech Inc. Trade names, trademarks and service marks of other companies appearing in this report are the property of their respective owners. Solely for convenience, the trademarks, service marks and trade names included in this report are without the ®, ™ or other applicable symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensors to these trademarks, service marks and trade names.

Unless otherwise indicated, “Sanara MedTech,” “Sanara,” “the Company,” “our,” “us,” or “we,” refer to Sanara MedTech Inc. and its consolidated subsidiaries.

2

Part I – Financial Information

ITEM 1. FINANCIAL STATEMENTS

SANARA MEDTECH INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

|  | (Unaudited) |  |  |  |
|  | March 31, |  |  | December 31, |
|  | 2023 |  |  | 2022 |
Assets |  |  |  |  |  |
Current assets |  |  |  |  |  |  |  |
Cash |  | $ | 7,286,437 |  |  | $ | 8,958,995 |
Accounts receivable, net |  |  | 6,467,909 |  |  |  | 6,805,761 |
Accounts receivable – related party |  |  | 23,946 |  |  |  | 98,548 |
Royalty receivable |  |  | 49,344 |  |  |  | 99,594 |
Inventory, net |  |  | 3,431,704 |  |  |  | 3,549,000 |
Prepaid and other assets |  |  | 1,748,338 |  |  |  | 1,104,611 |
Total current assets |  |  | 19,007,678 |  |  |  | 20,616,509 |
Long-term assets |  |  |  |  |  |  |  |
Property and equipment, net |  |  | 1,335,817 |  |  |  | 1,416,436 |
Right of use assets – operating leases |  |  | 2,099,021 |  |  |  | 806,402 |
Goodwill |  |  | 3,601,781 |  |  |  | 3,601,781 |
Intangible assets, net |  |  | 30,838,779 |  |  |  | 31,509,980 |
Investment in equity securities |  |  | 3,084,278 |  |  |  | 3,084,278 |
Total long-term assets |  |  | 40,959,676 |  |  |  | 40,418,877 |
Total assets |  | $ | 59,967,354 |  |  | $ | 61,035,386 |
Liabilities and shareholders’ equity |  |  |  |  |  |  |  |
Current liabilities |  |  |  |  |  |  |  |
Accounts payable |  | $ | 1,798,061 |  |  | $ | 1,392,701 |
Accounts payable – related parties |  |  | 23,289 |  |  |  | 34,036 |
Accrued royalties and expenses |  |  | 2,031,701 |  |  |  | 2,144,475 |
Accrued bonuses and commissions |  |  | 5,808,959 |  |  |  | 7,758,284 |
Earnout liabilities – current |  |  | 686,406 |  |  |  | 1,162,880 |
Operating lease liabilities – current |  |  | 253,381 |  |  |  | 313,933 |
Total current liabilities |  |  | 10,601,797 |  |  |  | 12,806,309 |
Long-term liabilities |  |  |  |  |  |  |  |
Earnout liabilities – long-term |  |  | 6,027,598 |  |  |  | 6,003,811 |
Operating lease liabilities – long-term |  |  | 1,859,189 |  |  |  | 505,291 |
Total long-term liabilities |  |  | 7,886,787 |  |  |  | 6,509,102 |
Total liabilities |  |  | 18,488,584 |  |  |  | 19,315,411 |
Commitments and contingencies (Note 8) |  |  | - |  |  |  |  |
Shareholders’ equity |  |  |  |  |  |  |  |
Common Stock: $0.001 par value, 20,000,000 shares authorized; 8,385,027 issued and outstanding as of March 31, 2023 and 8,299,957 issued and outstanding as of December 31, 2022 |  |  | 8,385 |  |  |  | 8,300 |
Additional paid-in capital |  |  | 66,529,380 |  |  |  | 65,213,987 |
Accumulated deficit |  |  | (24,913,011 | ) |  |  | (23,394,757 | )
Total Sanara MedTech shareholders’ equity |  |  | 41,624,754 |  |  |  | 41,827,530 |
Equity attributable to noncontrolling interest |  |  | (145,984 | ) |  |  | (107,555 | )
Total shareholders’ equity |  |  | 41,478,770 |  |  |  | 41,719,975 |
Total liabilities and shareholders’ equity |  | $ | 59,967,354 |  |  | $ | 61,035,386 |

The accompanying notes are an integral part of these unaudited consolidated financial statements.

3

SANARA MEDTECH INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

|  | Three Months Ended |
|  | March 31, |
|  | 2023 |  |  | 2022 |
Net Revenue |  | $ | 15,521,917 |  |  | $ | 7,811,223 |
Cost of goods sold |  |  | 2,125,659 |  |  |  | 805,081 |
Gross profit |  |  | 13,396,258 |  |  |  | 7,006,142 |
Operating expenses |  |  |  |  |  |  |  |
Selling, general and administrative expenses |  |  | 12,969,069 |  |  |  | 9,375,630 |
Research and development |  |  | 1,317,324 |  |  |  | 204,637 |
Depreciation and amortization |  |  | 778,875 |  |  |  | 202,747 |
Change in fair value of earnout liabilities |  |  | (452,687 | ) |  |  | - |
Total operating expenses |  |  | 14,612,581 |  |  |  | 9,783,014 |
Operating loss |  |  | (1,216,323 | ) |  |  | (2,776,872 | )
Other expense |  |  |  |  |  |  |  |
Interest expense |  |  | (6 | ) |  |  | - |
Share of losses from equity method investment |  |  | - |  |  |  | (379,633 | )
Total other expense |  |  | (6 | ) |  |  | (379,633 | )
Net loss |  |  | (1,216,329 | ) |  |  | (3,156,505 | )
Less: Net loss attributable to noncontrolling interest |  |  | (38,429 | ) |  |  | (27,181 | )
Net loss attributable to Sanara MedTech shareholders |  | $ | (1,177,900 | ) |  | $ | (3,129,324 | )
Net loss per share of common stock, basic and diluted |  | $ | (0.14 | ) |  | $ | (0.41 | )
Weighted average number of common shares outstanding, basic and diluted |  |  | 8,173,784 |  |  |  | 7,606,450 |

The accompanying notes are an integral part of these unaudited consolidated financial statements.

4

SANARA MEDTECH INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)

|  | Common Stock |  |  | Additional |  |  |  |  |  |  |  |  | Total |
|  | $0.001 par value |  |  | Paid-In |  |  | Accumulated |  |  | Noncontrolling |  |  | Shareholders’ |
|  | Shares |  |  | Amount |  |  | Capital |  |  | Deficit |  |  | Interest |  |  | Equity |
Balance at December 31, 2021 |  |  | 7,676,662 |  |  | $ | 7,677 |  |  |  | 45,867,768 |  |  |  | (15,235,044 | ) |  |  | (488,397 | ) |  | $ | 30,152,004 |
Share-based compensation |  |  | 137,076 |  |  |  | 136 |  |  |  | 1,622,982 |  |  |  | - |  |  |  | - |  |  |  | 1,623,118 |
Net settlement and retirement of equity-based awards |  |  | (3,343 | ) |  |  | (3 | ) |  |  | (52,284 | ) |  |  | (50,644 | ) |  |  | - |  |  |  | (102,931 | )
Net loss |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (3,129,324 | ) |  |  | (27,181 | ) |  |  | (3,156,505 | )
Balance at March 31, 2022 |  |  | 7,810,395 |  |  | $ | 7,810 |  |  | $ | 47,438,466 |  |  | $ | (18,415,012 | ) |  | $ | (515,578 | ) |  | $ | 28,515,686 |

|  | Common Stock |  |  | Additional |  |  |  |  |  |  |  |  | Total |
|  | $0.001 par value |  |  | Paid-In |  |  | Accumulated |  |  | Noncontrolling |  |  | Shareholders’ |
|  | Shares |  |  | Amount |  |  | Capital |  |  | Deficit |  |  | Interest |  |  | Equity |
Balance at December 31, 2022 |  |  | 8,299,957 |  |  | $ | 8,300 |  |  | $ | 65,213,987 |  |  | $ | (23,394,757 | ) |  | $ | (107,555 | ) |  | $ | 41,719,975 |
Balance |  |  | 8,299,957 |  |  | $ | 8,300 |  |  | $ | 65,213,987 |  |  | $ | (23,394,757 | ) |  | $ | (107,555 | ) |  | $ | 41,719,975 |
Share-based compensation |  |  | 74,781 |  |  |  | 75 |  |  |  | 597,230 |  |  |  | - |  |  |  | - |  |  |  | 597,305 |
Net settlement and retirement of equity-based awards |  |  | (15,854 | ) |  |  | (16 | ) |  |  | (315,572 | ) |  |  | (340,354 | ) |  |  | - |  |  |  | (655,942 | )
Issuance of common stock in equity offering |  |  | 26,143 |  |  |  | 26 |  |  |  | 1,033,735 |  |  |  | - |  |  |  | - |  |  |  | 1,033,761 |
Net loss |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (1,177,900 | ) |  |  | (38,429 | ) |  |  | (1,216,329 | )
Balance at March 31, 2023 |  |  | 8,385,027 |  |  | $ | 8,385 |  |  | $ | 66,529,380 |  |  | $ | (24,913,011 | ) |  | $ | (145,984 | ) |  | $ | 41,478,770 |
Balance |  |  | 8,385,027 |  |  | $ | 8,385 |  |  | $ | 66,529,380 |  |  | $ | (24,913,011 | ) |  | $ | (145,984 | ) |  | $ | 41,478,770 |

The accompanying notes are an integral part of these unaudited consolidated financial statements.

5

SANARA MEDTECH INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

|  | Three Months Ended |
|  | March 31, |
|  | 2023 |  |  | 2022 |
Cash flows from operating activities: |  |  |  |  |  |  |  |
Net loss |  | $ | (1,216,329 | ) |  | $ | (3,156,505 | )
Adjustments to reconcile net loss to net cash used in operating activities |  |  |  |  |  |  |  |
Depreciation and amortization |  |  | 778,875 |  |  |  | 202,747 |
Loss on disposal of property and equipment |  |  | - |  |  |  | 2,501 |
Bad debt expense |  |  | 36,000 |  |  |  | 15,000 |
Inventory obsolescence |  |  | 30,511 |  |  |  | 71,819 |
Share-based compensation |  |  | 597,305 |  |  |  | 584,935 |
Noncash lease expense |  |  | 76,545 |  |  |  | 57,688 |
Loss on equity method investment |  |  | - |  |  |  | 379,633 |
Change in fair value of earnout liabilities |  |  | (452,687 | ) |  |  | - |
Changes in operating assets and liabilities: |  |  |  |  |  |  |  |
Accounts receivable, net |  |  | 352,102 |  |  |  | (563,034 | )
Accounts receivable – related party |  |  | 74,602 |  |  |  | (16,492 | )
Inventory, net |  |  | 86,785 |  |  |  | (194,956 | )
Prepaid and other assets |  |  | (361,719 | ) |  |  | 292,394 |
Accounts payable |  |  | 405,360 |  |  |  | 491,220 |
Accounts payable – related parties |  |  | (10,747 | ) |  |  | (103,970 | )
Accrued royalties and expenses |  |  | (112,774 | ) |  |  | 234,141 |
Accrued bonuses and commissions |  |  | (1,949,325 | ) |  |  | (409,599 | )
Operating lease liabilities |  |  | (75,817 | ) |  |  | - |
Net cash used in operating activities |  |  | (1,741,313 | ) |  |  | (2,112,478 | )
Cash flows from investing activities: |  |  |  |  |  |  |  |
Purchases of property and equipment |  |  | (27,705 | ) |  |  | (44,697 | )
Proceeds from disposal of assets |  |  | 650 |  |  |  | 345 |
Investment in equity securities |  |  | - |  |  |  | (250,000 | )
Net cash used in investing activities |  |  | (27,055 | ) |  |  | (294,352 | )
Cash flows from financing activities: |  |  |  |  |  |  |  |
Equity offering net proceeds |  |  | 751,752 |  |  |  | - |
Net settlement of equity-based awards |  |  | (655,942 | ) |  |  | (102,931 | )
Net cash provided by (used in) financing activities |  |  | 95,810 |  |  |  | (102,931 | )
Net decrease in cash |  |  | (1,672,558 | ) |  |  | (2,509,761 | )
Cash, beginning of period |  |  | 8,958,995 |  |  |  | 18,652,841 |
Cash, end of period |  | $ | 7,286,437 |  |  | $ | 16,143,080 |
Cash paid during the period for: |  |  |  |  |  |  |  |
Interest |  | $ | 6 |  |  | $ | - |
Supplemental noncash investing and financing activities: |  |  |  |  |  |  |  |
Equity offering accrued proceeds |  |  | 282,010 |  |  |  | - |
Right of use assets obtained in exchange for lease obligations |  |  | 1,369,164 |  |  |  | - |

The accompanying notes are an integral part of these unaudited consolidated financial statements.

6

SANARA MEDTECH INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – NATURE OF BUSINESS AND BACKGROUND

Sanara MedTech Inc. (together with its wholly owned and majority-owned subsidiaries on a consolidated basis, the “Company”) is a medical technology company focused on developing and commercializing transformative technologies to improve clinical outcomes and reduce healthcare expenditures in the surgical, chronic wound and skincare markets. Each of the Company’s products, services and technologies contributes to the Company’s overall goal of achieving better clinical outcomes at a lower overall cost for patients regardless of where they receive care. The Company strives to be one of the most innovative and comprehensive providers of effective surgical, wound and skincare solutions and is continually seeking to expand its offerings for patients requiring treatments across the entire continuum of care in the United States.

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation and Basis of Presentation

The accompanying unaudited consolidated financial statements include the accounts of Sanara MedTech Inc. and its wholly owned and majority-owned subsidiaries, as well as other entities in which the Company has a controlling financial interest. All significant intercompany profits, losses, transactions and balances have been eliminated in consolidation.

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management of the Company, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month period ended March 31, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023, or any other period. These financial statements and notes should be read in conjunction with the financial statements for each of the two years ended December 31, 2022 and 2021, which are included in the Company’s most recent Annual Report on Form 10-K.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported revenue and expenses during the reporting period. However, actual results could differ from those estimates and there may be changes to the Company’s estimates in future periods.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

Income/Loss Per Share

The Company computes income/loss per share in accordance with Accounting Standards Codification (“ASC”) Topic 260, Earnings per Share, which requires the Company to present basic and diluted income per share when the effect is dilutive. Basic income per share is computed by dividing income available to common shareholders by the weighted average number of shares of common stock outstanding. Diluted income per share is computed similarly to basic income per share, except that the denominator is increased to include the number of additional shares of common stock that would have been outstanding if the potential shares of common stock had been issued and if the additional shares of common stock were dilutive. All common stock equivalents were excluded from the current and prior period calculations as their inclusion would have been anti-dilutive during the three months ended March 31, 2023 and 2022 due to the Company’s net loss.

7

The following table summarizes the shares of common stock that were potentially issuable but were excluded from the computation of diluted net loss per share for the three months ended March 31, 2023 and 2022 as such shares would have had an anti-dilutive effect:

SCHEDULE OF COMPUTATION OF DILUTED NET LOSS PER SHARE

|  | As of March 31, |
|  | 2023 |  |  | 2022 |
Stock options (a) |  |  | 146,191 |  |  |  | 11,500 |
Warrants (b) |  |  | 16,725 |  |  |  | - |
Unvested restricted stock |  |  | 181,887 |  |  |  | 179,180 |
Anti-dilutive securities |  |  | 181,887 |  |  |  | 179,180 |

| (a) | Includes 144,191 shares underlying stock options assumed pursuant to the merger agreement with Precision Healing, Inc. (“Precision Healing”) in April 2022. See Note 3 for more information regarding the Precision Healing merger.

| (b) | Shares underlying warrants assumed pursuant to the merger agreement with Precision Healing in April 2022. See Note 3 for more information regarding the Precision Healing merger.

Revenue Recognition

The Company recognizes revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). Revenues are recognized when a purchase order is received from the customer and control of the promised goods or services is transferred to the customer in an amount that reflects the consideration the Company expects to be entitled to receive in exchange for transferring those goods or services. Revenue is recognized based on the following five-step model:

- Identification of the contract with a customer

- Identification of the performance obligations in the contract

- Determination of the transaction price

- Allocation of the transaction price to the performance obligations in the contract

- Recognition of revenue when, or as, the Company satisfies a performance obligation

Details of this five-step process are as follows:

Identification of the contract with a customer

Customer purchase orders are generally considered to be contracts under ASC 606. Purchase orders typically identify the specific terms of products to be delivered, create the enforceable rights and obligations of both parties and result in commercial substance. No other forms of contract revenue recognition, such as the completed contract or percentage of completion methods, were utilized by the Company in either 2023 or 2022.

Performance obligations

The Company’s performance obligation is generally limited to delivery of the requested items to its customers at the agreed upon quantities and prices.

Determination and allocation of the transaction price

The Company has established prices for its products. These prices are effectively agreed to when customers place purchase orders with the Company. Rebates and discounts, if any, are recognized in full at the time of sale as a reduction of net revenue. Allocation of transaction prices is not necessary where only one performance obligation exists.

Recognition of revenue as performance obligations are satisfied

Product revenues are recognized when a purchase order is received from the customer, the products are delivered and control of the goods and services passes to the customer.

8

Disaggregation of Revenue

Revenue streams from product sales and royalties are summarized below for the three months ended March 31, 2023 and 2022.

SCHEDULE OF REVENUE FROM PRODUCT SALES AND ROYALTIES

|  | Three Months Ended |
|  | March 31, |
|  | 2023 |  |  | 2022 |
Product sales revenue |  | $ | 15,471,667 |  |  | $ | 7,760,973 |
Royalty revenue |  |  | 50,250 |  |  |  | 50,250 |
Total Net Revenue |  | $ | 15,521,917 |  |  | $ | 7,811,223 |

The Company recognizes royalty revenue from a development and license agreement with BioStructures, LLC. The Company records revenue each calendar quarter as earned per the terms of the agreement, which stipulates the Company will receive quarterly royalty payments of at least $50,250. Under the terms of the development and license agreement, royalties of 2.0% are recognized on sales of products containing the Company’s patented resorbable bone hemostasis. The minimum annual royalty due to the Company is $201,000 per year through the end of 2023. These royalties are payable in quarterly installments of $50,250. To date, royalties related to this development and license agreement have not exceeded the annual minimum of $201,000 ($50,250 per quarter).

Accounts Receivable Allowances

Accounts receivable are typically due within 30 days of invoicing. The Company establishes an allowance for doubtful accounts to provide for an estimate of accounts receivable which are not expected to be collectible. The Company recorded bad debt expense of $36,000 and $15,000 during the three months ended March 31, 2023 and 2022, respectively. The allowance for doubtful accounts was $304,994 at March 31, 2023 and $269,850 at December 31, 2022. Bad debt reserves are maintained based on a variety of factors, including the length of time receivables are past due and a detailed review of certain individual customer accounts. The Company also establishes other allowances to provide for estimated customer rebates and other expected customer deductions. These allowances totaled $3,905 at March 31, 2023 and $4,761 at December 31, 2022. If circumstances related to customers change, estimates of the recoverability of receivables would be further adjusted.

Inventories

Inventories are stated at the lower of cost or net realizable value, with cost computed on a first-in, first-out basis. Inventories consist of finished goods and related packaging components. The Company recorded inventory obsolescence expense of $30,511 for the three months ended March 31, 2023 and $71,819 for the three months ended March 31, 2022. The allowance for obsolete and slow-moving inventory had a balance of $462,521 at March 31, 2023, and $523,832 at December 31, 2022.

Property and Equipment

Property and equipment are stated at cost, less accumulated depreciation. Depreciation is recorded using the straight-line method over the estimated useful lives of the related assets, ranging from two to ten years. Below is a summary of property and equipment for the periods presented:

SCHEDULE OF PROPERTY AND EQUIPMENT

|  | Useful |  | March 31, |  |  | December 31, |
|  | Life |  | 2023 |  |  | 2022 |
Computers |  | 3-5 years |  | $ | 187,173 |  |  | $ | 172,154 |
Office equipment |  | 3-7 years |  |  | 97,097 |  |  |  | 87,225 |
Furniture and fixtures |  | 5-10 years |  |  | 260,578 |  |  |  | 258,414 |
Leasehold improvements |  | 2-5 years |  |  | 19,631 |  |  |  | 19,631 |
Internal use software |  | 5 years |  |  | 1,618,999 |  |  |  | 1,618,998 |
Property and equipment, gross |  |  |  |  | 2,183,478 |  |  |  | 2,156,422 |
Less accumulated depreciation |  |  |  |  | (847,661 | ) |  |  | (739,986 | )
Property and equipment, net |  |  |  | $ | 1,335,817 |  |  | $ | 1,416,436 |

9

Depreciation expense related to property and equipment was $107,674 and $92,724 for the three months ended March 31, 2023 and 2022, respectively.

Internal Use Software

The Company accounts for costs incurred to develop or acquire computer software for internal use in accordance with ASC Topic 350-40, Intangibles – Goodwill and Other. The Company capitalizes the costs incurred during the application development stage, which generally includes third-party developer fees to design the software configuration and interfaces, coding, installation and testing.

The Company begins capitalization of qualifying costs when both the preliminary project stage is completed and management has authorized further funding for the completion of the project. Costs incurred during the preliminary project stage along with post implementation stages of internal-use computer software are expensed as incurred. The Company also capitalizes costs related to specific upgrades and enhancements when it is probable the expenditures will result in additional functionality. Capitalized development costs are classified as “Property and equipment, net” in the Consolidated Balance Sheets and are amortized over the estimated useful life of the software, which is generally five years.

Goodwill

The excess of purchase price over the fair value of identifiable net assets acquired in business combinations is recorded as goodwill. As of March 31, 2023, all the Company’s goodwill relates to the acquisition of Scendia Biologics, LLC (“Scendia”) (see Note 4). Goodwill has an indefinite useful life and is not amortized. Goodwill is tested annually as of December 31 for impairment, or more frequently if circumstances indicate impairment may have occurred. The Company may first perform a qualitative assessment to determine if it is more likely than not that the fair value of the reporting unit is less than the respective carrying value. If it is determined that it is more likely than not that a reporting unit’s fair value is less than its carrying value, then the Company will determine the fair value of the reporting unit and record an impairment charge for the difference between fair value and carrying value (not to exceed the carrying amount of goodwill). No impairment was recorded during the three months ended March 31, 2023.

Intangible Assets

Intangible assets are stated at cost of acquisition less accumulated amortization and impairment loss, if any. Cost of acquisition includes the purchase price and any cost directly attributable to bringing the asset to its working condition for the intended use. The Company amortizes its finite-lived intangible assets on a straight-line basis over the estimated useful life of the respective assets which is generally the life of the related patents or licenses, seven years for customer relationships and five years for assembled workforces. See Note 5 for more information on intangible assets.

Impairment of Long-Lived Assets

Long-lived assets, including certain identifiable intangibles held and to be used by the Company, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. The Company continuously evaluates the recoverability of its long-lived assets based on estimated future cash flows and the estimated liquidation value of such long-lived assets and provides for impairment if such undiscounted cash flows are insufficient to recover the carrying amount of the long-lived assets. If impairment exists, an adjustment is made to write the asset down to its fair value, and a loss is recorded as the difference between the carrying value and fair value. Fair values are determined based on quoted market values, undiscounted cash flows or internal and external appraisals, as applicable. Assets to be disposed of are carried at the lower of carrying value or estimated fair value less cost to sell. No impairment was recorded during the three months ended March 31, 2023 and 2022.

Investments in Equity Securities

The Company’s equity investments consist of nonmarketable equity securities in privately held companies without readily determinable fair values. Unless accounted for under the equity method of accounting, the investments are reported at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer.

10

The Company applies the equity method of accounting to investments when it has significant influence, but not controlling interest, in the investee. Judgment regarding the level of influence over each equity method investment includes considering key factors such as ownership interest, representation on the board of directors, participation in policy-making decisions and material intercompany transactions. The Company’s proportionate share of the net income (loss) resulting from these investments is reported under the line item captioned “Share of losses from equity method investment” in the Company’s Consolidated Statements of Operations. The Company’s equity method investment is adjusted each period for the Company’s share of the investee’s income or loss and dividend paid, if any. The Company classifies distributions received from its equity method investment using the cumulative earnings approach in the Company’s Consolidated Statements of Cash Flows. As a result of the Precision Healing merger in April 2022 (see Note 3), we do not have any investments which are recorded applying the equity method of accounting as of March 31, 2023.

The Company has reviewed the carrying value of its investments and has determined there was no impairment or observable price changes as of and for the three months ended March 31, 2023 or 2022.

Fair Value Measurement

As defined in ASC Topic 820, Fair Value Measurement (“ASC 820”), fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). This fair value measurement framework applies at both initial and subsequent measurement.

The three levels of the fair value hierarchy defined by ASC 820 are as follows:

Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of financial instruments such as exchange-traded derivatives, marketable securities and listed equities.

Level 2 – Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reported date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. Instruments in this category generally include nonexchange-traded derivatives such as commodity swaps, interest rate swaps, options and collars.

Level 3 – Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value.

The carrying amounts of cash, accounts receivable, accounts payable and accrued expenses approximate fair value because of the short-term nature of these instruments. The fair value of the contingent earnout consideration and the acquisition date fair value of goodwill and intangibles related to the acquisitions discussed in Notes 3, 4 and 5 are based on Level 3 inputs.

Liabilities for contingent consideration are measured at fair value each reporting period, with the acquisition-date fair value included as part of the consideration transferred. Subsequent changes in fair value are reported under the line item captioned “Change in fair value of earnout liabilities” in the Company’s Consolidated Statements of Operations. The following table sets forth a summary of the changes in fair value for the Level 3 contingent earnout consideration.

SCHEDULE OF CHANGES IN FAIR VALUE FOR CONTINGENT EARNOUT CONSIDERATION

Balance December 31, 2022 |  | $ | 7,166,691 |
Additions |  |  | - |
Changes in fair value of earnout liabilities |  |  | (452,687 | )
Settlements |  |  | - |
Balance March 31, 2023 |  | $ | 6,714,004

Income Taxes

Income taxes are accounted for under the asset and liability method, whereby deferred income taxes are recorded for temporary differences between financial statement carrying amounts and the tax basis of assets and liabilities. Deferred tax assets and liabilities reflect the tax rates expected to be in effect for the years in which the differences are expected to reverse. A valuation allowance is provided if it is more likely than not that some or all the deferred tax asset will not be realized.

Stock-based Compensation

The Company accounts for stock-based compensation to employees and nonemployees in accordance with Accounting Standards Update (“ASU”) 2018-07, Compensation – Stock Compensation (Topic 718). Stock-based compensation is measured at the grant date, based on the fair value of the award, and is recognized as expense over the stipulated vesting period, if any. The Company estimates the fair value of stock-based payments using the Black-Scholes option-pricing model for common stock options and warrants, and the closing price of the Company’s common stock for grants of common stock, including restricted stock awards.

11

Research and Development Costs

Research and development (“R&D”) expenses consist of personnel-related expenses, including salaries and benefits for all personnel directly engaged in R&D activities, contracted services, materials, prototype expenses and allocated overhead which is comprised of lease expense and other facilities-related costs. R&D expenses include costs related to enhancements to the Company’s currently available products and additional investments in the product, services and technologies development pipeline. The Company expenses R&D costs as incurred.

Recently Adopted Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326). This update amends the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses for most financial assets and certain other instruments that aren’t measured at fair value through net income. We have adopted the new guidance effective January 1, 2023. The adoption had no impact on our consolidated financial position, results of operations or cash flows.

Recently Issued Accounting Pronouncements

There are no recently issued accounting pronouncements that have not yet been adopted that are expected to have a material effect on the Company’s consolidated financial condition, results of operations or cash flows.

NOTE 3 – PRECISION HEALING MERGER

In April 2022, the Company entered into a merger agreement by and among the Company, United Wound and Skin Solutions, LLC, a Delaware limited liability company and wholly owned subsidiary of the Company, Precision Healing, PH Merger Sub I, Inc., a Delaware corporation, PH Merger Sub II, LLC, a Delaware limited liability company, and Furneaux Capital Holdco, LLC (d/b/a BlueIO), solely in its capacity as the representative of the securityholders of Precision Healing. On April 4, 2022 (the “Closing Date”), the merger parties closed the transactions contemplated by the merger agreement and Precision Healing became a wholly owned subsidiary of the Company.

Precision Healing is developing a diagnostic imager and lateral flow assay for assessing a patient’s wound and skin conditions. This comprehensive skin and wound assessment technology is designed to quantify biochemical markers to determine the trajectory of a wound’s condition to enable better diagnosis and treatment protocol. To date, Precision Healing has not generated revenues.

Pursuant to the terms of the merger agreement, holders of Precision Healing common stock and preferred stock, other than the Company, were entitled to receive closing consideration, consisting of $125,966 in cash, which was paid to stockholders who were not accredited investors, 165,738 shares of the Company’s common stock, which was paid only to accredited investors, and the payment in cash of approximately $0.6 million of transaction expenses of Precision Healing. The Company recorded the issuance of the 165,738 shares to accredited investors and cash payments to nonaccredited investors based on the closing price per share of the Company’s common stock on the Closing Date, which was $30.75.

On the Closing Date, the outstanding Precision Healing options previously granted under the Precision Healing Inc. 2020 Stock Option and Grant Plan (the “Precision Healing Plan”) converted, pursuant to their terms, into options to acquire an aggregate of 144,191 shares of Company common stock with a weighted average exercise price of $10.71 per share. These options expire between August 2030 and April 2031. In addition, outstanding and unexercised Precision Healing warrants converted into rights to receive warrants to purchase (i) 4,424 shares of Company common stock with an initial exercise price of $7.32 per share and an expiration date of April 22, 2031, and (ii) 12,301 shares of the Company’s common stock with an initial exercise price of $12.05 per share and an expiration date of August 10, 2030.

Pursuant to the merger agreement, the Company assumed sponsorship of the Precision Healing Plan, effective as of the Closing Date, as well as the outstanding awards granted thereunder, the award agreements evidencing the grants of such awards and the remaining shares available under the Precision Healing Plan, in each case adjusted in the manner set forth in the merger agreement. Concurrent with the assumption of the Precision Healing Plan, the Company terminated the ability to offer future awards under the Precision Healing Plan.

Pursuant to the merger agreement, upon the achievement of certain performance thresholds, the securityholders of Precision Healing, including the holders of options and warrants to purchase Precision Healing common stock and certain persons promised options to purchase Precision Healing common stock, are also entitled to receive payments of up to $10.0 million, which was accounted for as contingent consideration pursuant to ASC 805. The earnout consideration is payable in cash or, at the Company’s election, is payable to accredited investors in shares of Company common stock at a price per share equal to the greater of (i) $27.13 or (ii) the average closing price of Company common stock for the 20 trading days prior to the date such earnout consideration is due and payable. Pursuant to the merger agreement, a minimum percentage of the earnout consideration may be required to be issued to accredited investors in shares of Company common stock for tax purposes. The amount and composition of the portion of earnout consideration payable is subject to adjustment and offsets as set forth in the merger agreement.

As the contingent earnout payments are not subject to any specific individual performance by the shareholders, the contingent shares are not subject to ASC Topic 718, Compensation – Stock Compensation (“ASC 718”). Further, as the contingent consideration was negotiated as part of the transfer of assets, the obligation was measured at fair value and included in the total purchase consideration transferred. Additionally, the contingent earnout payments meet the criteria under ASC Topic 480, Distinguishing Liabilities from Equity (“ASC 480”) as the monetary value of the shares to be issued is predominantly based on the exercise contingency (i.e., revenue targets). Accordingly, the contingent consideration is classified as a liability at its estimated fair value at each reporting period with the subsequent change in fair value recognized as a gain or loss in accordance with ASC 480.

12

The total purchase consideration as determined by the Company was as follows:

SCHEDULE OF PURCHASE CONSIDERATIONS

Consideration |  | Equity Shares |  |  | Dollar Value |
Fair value of Sanara common shares issued |  |  | 165,738 |  |  | $ | 5,096,444 |
Fair value of assumed options |  |  | 144,191 |  |  |  | 4,109,750 |
Fair value of assumed warrants |  |  | 16,725 |  |  |  | 502,895 |
Cash paid to nonaccredited investors |  |  |  |  |  |  | 125,370 |
Cash paid for fractional shares |  |  |  |  |  |  | 596 |
Carrying value of equity method investment in Precision Healing |  |  |  |  |  |  | 1,803,440 |
Fair value of contingent earnout consideration |  |  |  |  |  |  | 3,882,151 |
Direct transaction costs |  |  |  |  |  |  | 1,061,137 |
Total purchase consideration |  |  |  |  |  | $ | 16,581,783 |

Based on guidance provided by ASC 805, the Company recorded the Precision Healing merger as an asset acquisition due to the determination that substantially all the fair value of the assets acquired was concentrated in a group of similar identifiable assets. The Company believes the “substantially all” criterion was met with respect to the acquired intellectual property based on the Company’s valuation models. These models assigned value to the acquired intellectual property based on estimated future cash flows. Accordingly, the Company accounted for the merger as an asset acquisition.

The purchase consideration, plus transaction costs, was allocated to the individual assets according to their fair values as a percentage of the total fair value of the assets purchased, with no goodwill recognized. Based on the estimated fair value of the gross assets acquired, the total fair value of the net assets acquired was primarily attributable to, and classified as, finite-lived intellectual property and assembled workforce in the second quarter of 2022. The total purchase consideration was allocated based on the relative estimated fair value of such assets as follows:

SCHEDULE OF PURCHASE CONSIDERATION ON FAIR VALUE OF ASSETS ACQUIRED

Description |  | Amount |
Cash |  | $ | 32,202 |
Net working capital (excluding cash) |  |  | (308,049 | )
Fixed assets, net |  |  | 9,228 |
Noncontrolling interest in Sanara Biologics, LLC |  |  |  |
Customer relationships |  |  |  |
Deferred tax assets |  |  | 278,661 |
Intellectual property |  |  | 20,325,469 |
Assembled workforce |  |  | 664,839 |
Deferred tax liabilities |  |  | (4,420,567 | )
Goodwill |  |  |  |
Net assets acquired |  | $ | 16,581,783 |

NOTE 4 – SCENDIA PURCHASE AGREEMENT

In July 2022, the Company entered into a membership interest purchase agreement by and among the Company, Scendia, a Delaware limited liability company, and Ryan Phillips (the “Seller”) pursuant to which, and in accordance with the terms and conditions set forth therein, the Company acquired 100% of the issued and outstanding membership interests in Scendia from the Seller.

Scendia provides clinicians and surgeons with a full line of regenerative and orthobiologic technologies for their patients through certain customer accounts. Beginning in early 2022, the Company began co-promoting certain products with Scendia, including: (i) TEXAGEN Amniotic Membrane Allograft, (ii) BiFORM Bioactive Moldable Matrix, (iii) AMPLIFY Verified Inductive Bone Matrix and (iv) ALLOCYTE Advanced Cellular Bone Matrix. Prior to the acquisition, Scendia owned 50% of the issued and outstanding membership interests in Sanara Biologics, LLC (“Sanara Biologics”), and the Company owned the remaining 50% of the membership interests. As a result of the acquisition, the Company indirectly acquired all the interests in Sanara Biologics, such that the Company now holds 100% of the issued and outstanding equity interests in Sanara Biologics.

Pursuant to the purchase agreement, the Seller was entitled to receive closing consideration consisting of (i) approximately $1.6 million of cash, subject to certain adjustments, and (ii) 291,686 shares of common stock of the Company. Pursuant to the purchase agreement, at closing, the Company withheld 94,798 shares of common stock with an agreed upon value of $1.95 million (the “Indemnity Holdback Shares”), which such Indemnity Holdback Shares shall be withheld and released to the Seller after closing as and to the extent provided in the purchase agreement to satisfy the Seller’s indemnification obligations, if any.

In addition to the cash consideration and the stock consideration, the purchase agreement provides that the Seller is entitled to receive two potential earnout payments, payable on an annual basis, not to exceed $10.0 million in the aggregate, which was accounted for as contingent consideration pursuant to ASC 805. The earnout consideration is payable to the Seller in cash or, at the Company’s election, in up to 486,145 shares of the Company’s common stock upon the achievement of certain performance thresholds relating to net revenue attributable to sales of Scendia products during the two-year period following the closing.

13

As the contingent earnout payments are not subject to any specific individual performance by the Seller, the contingent shares are not subject to ASC 718. Further, as the contingent consideration was negotiated as part of the transfer of assets, the obligation was measured at fair value and included in the total purchase consideration transferred. Additionally, the contingent earnout payments meet the criteria under ASC 480, as the monetary value of the shares to be issued is predominantly based on the exercise contingency (i.e., revenue targets). Accordingly, the contingent consideration is classified as a liability at its estimated fair value at each reporting period with the subsequent change in fair value recognized as a gain or loss in accordance with ASC 480.

The total purchase consideration, subject to typical post-closing adjustments, as determined by the Company was as follows:

SCHEDULE OF PURCHASE CONSIDERATIONS

Consideration |  | Equity Shares |  |  | Dollar Value |
Fair value of Sanara common shares issued |  |  | 291,686 |  |  | $ | 6,032,066 |
Cash consideration |  |  |  |  |  |  | 1,562,668 |
Fair value of contingent earnout consideration |  |  |  |  |  |  | 3,000,000 |
Total purchase consideration |  |  |  |  |  | $ | 10,594,734 |

Based on guidance provided by ASC 805, the Company recorded the Scendia acquisition as a business combination. The purchase consideration was allocated to the individual assets according to their fair values as a percentage of the total fair value of the net assets purchased. The excess of the purchase consideration over the net assets purchased was recorded as goodwill. The total purchase consideration was allocated as follows:

SCHEDULE OF PURCHASE CONSIDERATION ON FAIR VALUE OF ASSETS ACQUIRED

Description |  | Amount |
Cash |  | $ | 201,406 |
Net working capital (excluding cash) |  |  | 1,294,499 |
Fixed assets, net |  |  | 42,300 |
Noncontrolling interest in Sanara Biologics, LLC |  |  | 2,638 |
Customer relationships |  |  | 7,155,000 |
Deferred tax liabilities |  |  | (1,702,890 | )
Goodwill |  |  | 3,601,781 |
Net assets acquired |  | $ | 10,594,734 |

The goodwill acquired consists of expected synergies from the acquisition to the Company’s overall corporate strategy. The Company does not expect any of the goodwill to be deductible for income tax purposes. The Company incurred acquisition costs of approximately $187,000 in 2022, which is included in “Selling, general and administrative expenses” in the accompanying Consolidated Statements of Operations. The purchase accounting is preliminary as the assessment of purchase consideration and allocation of fair value is still subject to post-closing adjustments and the Company is still gathering and evaluating available information to determine if further adjustments are needed.

NOTE 5 – INTANGIBLE ASSETS

The carrying values of the Company’s intangible assets were as follows for the periods presented:

SCHEDULE OF FINITE LIVED INTANGIBLE ASSETS

|  | March 31, 2023 |  |  | December 31, 2022 |
|  |  |  |  | Accumulated |  |  |  |  |  |  |  |  | Accumulated |  |  |  |
|  | Cost |  |  | Amortization |  |  | Net |  |  | Cost |  |  | Amortization |  |  | Net |
Amortizable Intangible Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Product Licenses |  | $ | 4,793,879 |  |  | $ | (1,053,094 | ) |  | $ | 3,740,785 |  |  | $ | 4,793,879 |  |  | $ | (980,583 | ) |  | $ | 3,813,296 |
Patents and Other IP |  |  | 21,935,580 |  |  |  | (1,798,818 | ) |  |  | 20,136,762 |  |  |  | 21,935,580 |  |  |  | (1,492,057 | ) |  |  | 20,443,523 |
Customer relationships and other |  |  | 7,947,332 |  |  |  | (986,100 | ) |  |  | 6,961,232 |  |  |  | 7,947,332 |  |  |  | (694,171 | ) |  |  | 7,253,161 |
Total |  | $ | 34,676,791 |  |  | $ | (3,838,012 | ) |  | $ | 30,838,779 |  |  | $ | 34,676,791 |  |  | $ | (3,166,811 | ) |  | $ | 31,509,980 |

14

As of March 31, 2023, the weighted-average amortization period for finite-lived intangible assets was 14.3 years. Amortization expense related to intangible assets was $671,201 and $110,023 for the three months ended March 31, 2023 and 2022, respectively. The estimated remaining amortization expense as of March 31, 2023 for finite-lived intangible assets is as follows:

SCHEDULE OF FUTURE AMORTIZATION EXPENSE

Remainder of 2023 |  | $ | 2,085,604 |
2024 |  |  | 2,780,806 |
2025 |  |  | 2,780,806 |
2026 |  |  | 2,763,550 |
2027 |  |  | 2,649,698 |
2028 |  |  | 2,616,456 |
Thereafter |  |  | 15,161,859 |
Total |  | $ | 30,838,779 |

The Company has reviewed the carrying value of intangible assets and has determined there was no impairment during either of the three months ended March 31, 2023 or 2022.

NOTE 6 – INVESTMENTS IN EQUITY SECURITIES

The Company’s equity investments consist of nonmarketable equity securities in privately held companies without readily determinable fair values. Unless accounted for under the equity method of accounting, the investments are reported at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer.

In July 2020, the Company made a $500,000 long-term investment to purchase certain nonmarketable securities consisting of 7,142,857 Series B-2 Preferred Shares of Direct Dermatology Inc. (“DirectDerm”), representing approximately 2.9% ownership of DirectDerm at that time. Through this investment, the Company received exclusive rights to utilize DirectDerm’s technology in all acute and post-acute care settings such as skilled nursing facilities, home health and wound clinics. The Company does not have the ability to exercise significant influence over DirectDerm’s operating and financial activities. In 2021, the Company purchased an additional 3,571,430 shares of DirectDerm’s Series B-2 Preferred for $250,000. In March 2022, the Company purchased an additional 3,571,429 shares of DirectDerm’s Series B-2 Preferred for $250,000. The Company’s ownership of DirectDerm was approximately 8.1% as of March 31, 2023.

In November 2020, the Company entered into agreements to purchase certain nonmarketable securities consisting of 150,000 shares of Series A Convertible Preferred Stock (the “Series A Stock”) of Precision Healing for an aggregate purchase price of $600,000. The Series A Stock was convertible into 150,000 shares of common stock of Precision Healing and had a senior liquidation preference relative to the common shareholders. This initial investment represented approximately 12.6% ownership of Precision Healing’s outstanding voting securities. In February 2021, the Company invested $600,000 to purchase 150,000 additional shares of Series A Stock which was convertible into 150,000 shares of common stock of Precision Healing. This resulted in ownership of approximately 22.4% of Precision Healing’s outstanding voting securities. With this level of significant influence, the Company transitioned to the equity method of accounting for this investment. In June 2021, the Company invested $500,000 for 125,000 additional shares of Series A Stock, which increased the Company’s ownership of Precision Healing’s outstanding voting securities to approximately 29.0%. In October and December of 2021, 125,000 and 150,000 more shares of Series A Stock were purchased for $500,000 and $600,000, respectively.

As discussed above, in April 2022, the Company closed a merger transaction with Precision Healing pursuant to which Precision Healing became a wholly owned subsidiary of the Company (see Note 3 for more information). As a result of the merger, the Company’s equity method investment in Precision Healing ceased in April 2022. The Company has recorded $379,633 in the three months ended March 31, 2022 as its share of the loss from this equity method investment for the period prior to acquisition.

In June 2021, the Company invested $2,084,278 to purchase 278,587 Class A Preferred Shares (the “Shares”) of Canada-based Pixalere Healthcare Inc. (“Pixalere”). The Shares are convertible into approximately 27.3% of the outstanding equity of Pixalere. Pixalere provides a cloud-based wound care software tool that empowers nurses, specialists and administrators to deliver better care for patients. In connection with the Company’s purchase of the Shares, Pixalere granted Pixalere Healthcare USA, LLC (“Pixalere USA”), a subsidiary of the Company, a royalty-free exclusive license to use the Pixalere software and platform in the United States. In conjunction with the grant of the license, the Company issued Pixalere a 27.3% equity ownership interest in Pixalere USA valued at $93,879.

The Company has reviewed the characteristics of the Shares in accordance with ASC Topic 323, Investments – Equity Method and Joint Ventures. Due to the substantive liquidation preferences of the Shares over Pixalere’s common stock, the Shares are not “in-substance” common stock, and therefore, the Company does not utilize the equity method of accounting for this investment. In accordance with ASC Topic 321, Investments - Equity Securities, this investment was reported at cost as of March 31, 2023.

15

The following summarizes the Company’s investments for the periods presented:

SCHEDULE OF INVESTMENTS

|  | March 31, 2023 |  |  | December 31, 2022 |
|  | Carrying Amount |  |  | Economic Interest |  |  | Carrying Amount |  |  | Economic Interest |
Equity Method Investment |  |  |  |  |  |  |  |  |  |  |  |
Precision Healing Inc. |  | $ | - |  |  |  | - | % |  | $ | - |  |  |  | - | %
Cost Method Investments |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Direct Dermatology, Inc. |  |  | 1,000,000 |  |  |  |  |  |  |  | 1,000,000 |  |  |  |  |
Pixalere Healthcare Inc. |  |  | 2,084,278 |  |  |  |  |  |  |  | 2,084,278 |  |  |  |  |
Total Cost Method Investments |  |  | 3,084,278 |  |  |  |  |  |  |  | 3,084,278 |  |  |  |  |
Total Investments |  | $ | 3,084,278 |  |  |  |  |  |  | $ | 3,084,278 |  |  |  |  |

The following summarizes the loss from the equity method investment reflected in the Consolidated Statements of Operations:

SCHEDULE OF LOSS FROM EQUITY METHOD INVESTMENT

|  | Three Months ended March 31, |
|  | 2023 |  |  | 2022 |
Investment |  |  |  |  |  |
Precision Healing Inc. |  | $ | - |  |  | $ | (379,633 | )
Total |  | $ | - |  |  | $ | (379,633 | )
Loss from equity method investment |  | $ | - |  |  | $ | (379,633 | )

NOTE 7 - OPERATING LEASES

The Company periodically enters operating lease contracts for office space and equipment. Arrangements are evaluated at inception to determine whether such arrangements constitute a lease. Right of use assets (“ROU assets”) represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities were recognized on the transition date based on the present value of lease payments over the respective lease term, with the office space ROU asset adjusted for deferred rent liability.

The Company has three material operating leases for office space. In March 2023, the Company amended its primary office lease to obtain additional space, as well as extend the term. The leases have remaining lease terms of 93, 46 and 29 months as of March 31, 2023. For practical expediency, the Company has elected to not recognize ROU assets and lease liabilities related to short-term leases.

In accordance with ASC Topic 842, Leases, the Company has recorded ROU assets of $2,099,021 and a related lease liability of $2,112,570 as of March 31, 2023. The Company recorded lease expense of $88,419 for the three months ended March 31, 2023 for its leased assets and $63,407 for the three months ended March 31, 2022. Cash paid for amounts included in the measurement of operating lease liabilities was $87,691 for the three months ended March 31, 2023 and $63,889 for the three months ended March 31, 2022. The present value of the Company’s operating lease liabilities as of March 31, 2023 is shown below.

16

Maturity of Operating Lease Liabilities

SCHEDULE OF OPERATING LEASE LIABILITY

|  | March 31, 2023 |
Remainder of 2023 |  | $ | 266,473 |
2024 |  |  | 424,753 |
2025 |  |  | 450,551 |
2026 |  |  | 365,911 |
2027 |  |  | 297,947 |
2028 |  |  | 295,689 |
Thereafter |  |  | 604,050 |
Total lease payments |  |  | 2,705,374 |
Less imputed interest |  |  | (592,804 | )
Present Value of Lease Liabilities |  | $ | 2,112,570 |
Operating lease liabilities – current |  |  | 253,381 |
Operating lease liabilities – long-term |  |  | 1,859,189 |

As of March 31, 2023, the Company’s operating leases had a weighted average remaining lease term of 6.6 years and a weighted average discount rate of 7.49%.

NOTE 8 - COMMITMENTS AND CONTINGENCIES

License Agreements and Royalties

CellerateRX Activated Collagen

In August 2018, the Company entered an exclusive, world-wide sublicense agreement with CGI Cellerate RX, LLC (“CGI Cellerate RX”) to distribute CellerateRX Surgical and HYCOL products into the surgical and wound care 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 in January 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.

Under this agreement, royalty expense, which is recorded in “Cost of goods sold” in the accompanying Consolidated Statements of Operations, totaled $520,814 and $369,233, respectively for the three months ended March 31, 2023 and 2022. Sales of CellerateRX comprised the substantial majority of the Company’s sales during the three months ended March 31, 2023 and 2022.

BIAKŌS Antimicrobial Wound Gel and BIAKŌS Antimicrobial Skin and Wound Cleanser

In July 2019, the Company executed a license agreement with Rochal Industries, LLC (“Rochal”), a related party, pursuant to which 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 “BIAKŌS License Agreement”). Currently, the products covered by the BIAKŌS License Agreement are BIAKŌS Antimicrobial Wound Gel and BIAKŌS Antimicrobial Skin and Wound Cleanser. Both products are 510(k) cleared.

Future commitments under the terms of the BIAKŌS License Agreement include:

| ● | The Company pays Rochal a royalty of 2-4% of net sales. The minimum annual royalty due to Rochal was $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 BIAKŌS License Agreement expires with the related patents in December 2031.

17

Under this agreement, royalty expense, which is recorded in “Cost of goods sold” in the accompanying Consolidated Statements of Operations, was $32,500 and $30,000 for the three months ended March 31, 2023 and 2022, respectively. 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.

CuraShield Antimicrobial Barrier Film and No Sting Skin Protectant

In October 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 had been recognized under this agreement as of March 31, 2023.

Debrider License Agreement

In May 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:

| ● | Upon FDA clearance of the licensed products, the Company will pay Rochal $500,000 in cash and an additional $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, 2023.

Resorbable Bone Hemostat

The Company acquired a patent in 2009 for a resorbable bone hemostat and delivery system for orthopedic bone void fillers. In connection with the patent acquisition, the Company entered into a royalty agreement to pay 8% of the Company’s net revenues, including royalty revenues, generated from products that utilize the Company’s acquired patented bone hemostat and delivery system. 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 2% royalty on product sales through the end of 2023, with annual minimum royalties of $201,000. To date, royalty revenues 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 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.

18

Rochal Asset Acquisition

In July 2021, the Company entered into an asset purchase agreement with Rochal effective July 1, 2021, pursuant to which the Company purchased certain assets of Rochal. Pursuant to the asset purchase agreement, for the three-year period after the effective date, Rochal is entitled to receive consideration for any new product relating to the business that is directly and primarily based on an invention conceived and reduced to practice by a member or members of Rochal’s science team. For the three-year period after the effective date, Rochal is also entitled to receive an amount in cash equal to twenty-five percent of the proceeds received for any Grant (as defined in the asset purchase agreement) by either the Company or Rochal. In addition, the Company agreed to use commercially reasonable efforts to perform Minimum Development Efforts (as defined in the asset purchase agreement) with respect to certain products under development, which if obtained, will entitle the Company to intellectual property rights from Rochal in respect of such products.

Precision Healing Merger Agreement

In April 2022, the Company closed a merger transaction with Precision Healing pursuant to which Precision Healing became a wholly owned subsidiary of the Company. Pursuant to the terms of the merger agreement, holders of Precision Healing common stock and preferred stock, other than the Company, were entitled to receive closing consideration, consisting of $125,966 in cash consideration, which was paid to stockholders who were not accredited investors, 165,738 shares of the Company’s common stock, which was paid only to accredited investors, and the payment in cash of approximately $0.6 million of transaction expenses of Precision Healing. The Company recorded the issuance of the 165,738 shares to accredited investors and cash payments to nonaccredited investors based on the closing price per share of the Company’s common stock on April 4, 2022, which was $30.75.

Upon the closing of the merger, the Precision Healing outstanding options previously granted under the Precision Healing Plan converted, pursuant to their terms, into options to acquire an aggregate of 144,191 shares of Company common stock with a weighted average exercise price of $10.71 per share. These options expire between August 2030 and April 2031. In addition, outstanding and unexercised Precision Healing warrants converted into rights to receive warrants to purchase (i) 4,424 shares of Company common stock with an initial exercise price of $7.32 per share and an expiration date of April 22, 2031, and (ii) 12,301 shares of the Company’s common stock with an initial exercise price of $12.05 per share and an expiration date of August 10, 2030. Concurrent with the assumption of the Precision Healing Plan, the Company terminated the ability to offer future awards under the Precision Healing Plan.

Pursuant to the merger agreement, upon the achievement of certain performance thresholds, the securityholders of Precision Healing, including the holders of options and warrants to purchase Precision Healing common stock and certain persons promised options to purchase Precision Healing common stock, are also entitled to receive payments of up to $10.0 million, which was accounted for as contingent consideration pursuant to ASC 805. The earnout consideration is payable in cash or, at the Company’s election, is payable to accredited investors in shares of Company common stock at a price per share equal to the greater of (i) $27.13 or (ii) the average closing price of Company common stock for the 20 trading days prior to the date such earnout consideration is due and payable. Pursuant to the merger agreement, a minimum percentage of the earnout consideration may be required to be issued to accredited investors in shares of Company common stock for tax purposes. The amount and composition of the portion of earnout consideration payable is subject to adjustment and offsets as set forth in the merger agreement. See Note 3 for more information regarding the merger with Precision Healing.

Scendia Purchase Agreement

In July 2022, the Company closed the Scendia acquisition pursuant to which Scendia became a wholly owned subsidiary of the Company. Pursuant to the purchase agreement, the aggregate consideration for the acquisition at closing was approximately $7.6 million, subject to customary post-closing adjustments. The consideration consisted of (i) approximately $1.6 million of cash, subject to certain adjustments, and (ii) 291,686 shares of common stock of the Company. Pursuant to the purchase agreement, at closing, the Company withheld 94,798 Indemnity Holdback Shares, which such Indemnity Holdback Shares shall be withheld and released to the Seller after closing as and to the extent provided in the purchase agreement to satisfy the Seller’s indemnification obligations, if any.

In addition to the cash consideration and the stock consideration, the purchase agreement provides that the Seller is entitled to receive two potential earnout payments, payable on an annual basis, not to exceed $10.0 million in the aggregate, which was accounted for as contingent consideration pursuant to ASC 805. The earnout consideration is payable to the Seller in cash or, at the Company’s election, in up to 486,145 shares of the Company’s common stock upon the achievement of certain performance thresholds relating to net revenue attributable to sales of Scendia products during the two-year period following the closing. See Note 4 for more information regarding the acquisition of Scendia.

19

Other Commitments

In May 2019, the Company organized Sanara Pulsar, LLC (“Sanara Pulsar”), a Texas limited liability company, which was owned 60% by the Company’s wholly owned subsidiary Cellerate, LLC, and 40% owned by Wound Care Solutions, Limited (“WCS”), an unaffiliated company registered in the United Kingdom. At the time of the formation of Sanara Pulsar, it and 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. Pursuant to the operating agreement of Sanara Pulsar, in the event WCS’s annual Form K-l does not allocate to WCS net income of at least $200,000 (the “Target Net Income”), the Company is required, within 30 days after such determination, to 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. For each of the years 2021 through 2024 the Target Net Income was to increase by 10%. In April 2022, the Company paid WCS $220,000 related to the fiscal 2021 Form K-1 and in December 2022, the Company accrued an additional payment of $242,000 related to the projected fiscal 2022 Form K-1. Sanara Pulsar, which had minimal sales since its inception, was dissolved effective December 2022, and accordingly, there will be no additional payments made beyond the accrued payment.

NOTE 9 – SHAREHOLDERS’ EQUITY

Common Stock

At the Company’s Annual Meeting of Shareholders held in July 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 554,449 shares had been issued under the LTIP Plan and 1,445,551 were available for issuance as of March 31, 2023.

In April 2022, the Company closed a merger transaction with Precision Healing pursuant to which Precision Healing became a wholly owned subsidiary of the Company. Pursuant to the terms of the merger agreement, holders of Precision Healing common stock and preferred stock, other than the Company, were entitled to receive closing consideration, consisting of $125,966 in cash consideration, which was paid to stockholders who were not accredited investors, 165,738 shares of the Company’s common stock, which was paid only to accredited investors, and the payment in cash of approximately $0.6 million of transaction expenses of Precision Healing. The Company recorded the issuance of the 165,738 shares to accredited investors and cash payments to nonaccredited investors based on the closing price per share of the Company’s common stock on April 4, 2022, which was $30.75.

Upon the closing of the merger, the Precision Healing outstanding options previously granted under the Precision Healing Plan converted, pursuant to their terms, into options to acquire an aggregate of 144,191 shares of Company common stock with a weighted average exercise price of $10.71 per share. These options expire between August 2030 and April 2031. In addition, outstanding and unexercised Precision Healing warrants converted into rights to receive warrants to purchase (i) 4,424 shares of Company common stock with an initial exercise price of $7.32 per share and an expiration date of April 22, 2031, and (ii) 12,301 shares of the Company’s common stock with an initial exercise price of $12.05 per share and an expiration date of August 10, 2030. Concurrent with the assumption of the Precision Healing Plan, the Company terminated the ability to offer future awards under the Precision Healing Plan.

Pursuant to the merger agreement, upon the achievement of certain performance thresholds, the securityholders of Precision Healing, including the holders of options and warrants to purchase Precision Healing common stock and certain persons promised options to purchase Precision Healing common stock, are also entitled to receive payments of up to $10.0 million, which was accounted for as contingent consideration pursuant to ASC 805. The earnout consideration is payable in cash or, at the Company’s election, is payable to accredited investors in shares of Company common stock at a price per share equal to the greater of (i) $27.13 or (ii) the average closing price of Company common stock for the 20 trading days prior to the date such earnout consideration is due and payable. Pursuant to the merger agreement, a minimum percentage of the earnout consideration may be required to be issued to accredited investors in shares of Company common stock for tax purposes. The amount and composition of the portion of earnout consideration payable is subject to adjustment and offsets as set forth in the merger agreement. See Note 3 for more information regarding the merger with Precision Healing.

In July 2022, the Company closed the Scendia acquisition pursuant to which Scendia became a wholly owned subsidiary of the Company. Pursuant to the purchase agreement, the aggregate consideration at closing for the acquisition was approximately $7.6 million, subject to customary post-closing adjustments. The consideration consisted of (i) approximately $1.6 million of cash, subject to certain adjustments, and (ii) 291,686 shares of common stock of the Company. Pursuant to the purchase agreement, at closing, the Company withheld 94,798 Indemnity Holdback Shares, which such Indemnity Holdback Shares shall be withheld and released to the Seller after closing as and to the extent provided in the purchase agreement to satisfy the Seller’s indemnification obligations, if any.

In addition to the cash consideration and the stock consideration, the purchase agreement provides that the Seller is entitled to receive two potential earnout payments, payable on an annual basis, not to exceed $10.0 million in the aggregate, which was accounted for as contingent consideration pursuant to ASC 805. The earnout consideration is payable to the Seller in cash or, at the Company’s election, in up to 486,145 shares of the Company’s common stock upon the achievement of certain performance thresholds relating to net revenue attributable to sales of Scendia products during the two-year period following the closing. See Note 4 for more information regarding the acquisition of Scendia.

20

In February 2023, the Company entered into a Controlled Equity Offering SM Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co., as sales agent (“Cantor”), pursuant to which the Company may offer and sell from time to time, to or through Cantor, shares of the Company’s common stock having an aggregate offering price of up to $75,000,000.

Sales of the shares, if any, pursuant to the Sales Agreement, may be made in sales deemed to be an “at the market offering” as defined in Rule 415(a)(4) promulgated under the Securities Act of 1933, as amended. Upon delivery of a placement notice and subject to the terms and conditions of the Sales Agreement, Cantor agreed to use commercially reasonable efforts consistent with its normal trading and sales practices, applicable state and federal law, rules and regulations and the rules of The Nasdaq Capital Market to sell the shares from time to time based upon the Company’s instructions, including any price, time period or size limits specified by the Company. The Company has no obligation to sell any of the shares under the Sales Agreement and may at any time suspend or terminate the offering of its common stock pursuant to the Sales Agreement upon notice to Cantor and subject to other conditions. Cantor’s obligations to sell the shares under the Sales Agreement are subject to satisfaction of certain conditions, including customary closing conditions. Pursuant to the Sales Agreement, the Company will pay Cantor a commission of 3.0% of the aggregate gross proceeds from each sale of the shares.

During the three months ended March 31, 2023, the Company sold an aggregate of 26,143 shares of common stock for gross proceeds of approximately $1,066,000 and net proceeds of approximately $1,034,000, of which approximately $752,000 was received in March 2023 and approximately $282,000 was received in early April 2023.

Restricted Stock Awards

During the three months ended March 31, 2023, the Company issued restricted stock awards under the LTIP Plan which are subject to certain vesting provisions and other terms and conditions set forth in each recipient’s respective restricted stock agreement. The Company granted and issued 74,781 shares, net of forfeitures, of restricted common stock to employees, directors, and certain advisors of the Company under the LTIP Plan during the three months ended March 31, 2023. The fair value of these awards was $3,125,667 based on the closing price of the Company’s common stock on the respective grant dates, which will be recognized as compensation expense on a straight-line basis over the vesting period of the awards.

Share-based compensation expense of $597,305 and $584,935 was recognized in “Selling, general and administrative expenses” in the accompanying Consolidated Statements of Operations, during the three months ended March 31, 2023 and 2022, respectively.

At March 31, 2023, there was $4,803,372 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 1.2 years.

Below is a summary of restricted stock activity for the three months ended March 31, 2023:

SUMMARY OF RESTRICTED STOCK ACTIVITY

|  | For the Three Months Ended |
|  | March 31, 2023 |
|  |  |  |  | Weighted Average |
|  | Shares |  |  | Grant Date Fair Value |
Nonvested at beginning of period |  |  | 181,102 |  |  | $ | 22.89 |
Granted |  |  | 76,518 |  |  |  | 41.43 |
Vested |  |  | (73,996 | ) |  |  | 19.88 |
Forfeited |  |  | (1,737 | ) |  |  | 25.61 |
Nonvested at March 31, 2023 |  |  | 181,887 |  |  | $ | 31.77 |

21

Stock Options

A summary of the status of outstanding stock options at March 31, 2023 and changes during the three months then ended is presented below:

SCHEDULE OF STOCK OPTION ACTIVITY

|  | For the Three Months Ended |
|  | March 31, 2023 |
|  |  |  |  | Weighted Average |  |  | Weighted Average |
|  |  |  |  | Exercise |  |  | Remaining |
|  | Options |  |  | Price |  |  | Contract Life |
Outstanding at beginning of period |  |  | 146,191 |  |  | $ | 10.65 |  |  |  |  |
Granted or assumed |  |  | - |  |  |  | - |  |  |  |  |
Exercised |  |  | - |  |  |  | - |  |  |  |  |
Forfeited |  |  | - |  |  |  | - |  |  |  |  |
Expired |  |  | - |  |  |  | - |  |  |  |  |
Outstanding at March 31, 2023 |  |  | 146,191 |  |  | $ | 10.65 |  |  |  | 7.4 |
Exercisable at March 31, 2023 |  |  | 146,191 |  |  | $ | 10.65 |  |  |  | 7.4 |

Warrants

A summary of the status of outstanding warrants to purchase common stock at March 31, 2023 and changes during the three months then ended is presented below:

SCHEDULE OF WARRANTS TO PURCHASE COMMON STOCK

|  | For the Three Months Ended |
|  | March 31, 2023 |
|  |  |  |  | Weighted Average |  |  | Weighted Average |
|  |  |  |  | Exercise |  |  | Remaining |
|  | Warrants |  |  | Price |  |  | Contract Life |
Outstanding at beginning of period |  |  | 16,725 |  |  | $ | 10.80 |  |  |  |  |
Granted or assumed |  |  | - |  |  |  | - |  |  |  |  |
Exercised |  |  | - |  |  |  | - |  |  |  |  |
Forfeited |  |  | - |  |  |  | - |  |  |  |  |
Expired |  |  | - |  |  |  | - |  |  |  |  |
Outstanding at March 31, 2023 |  |  | 16,725 |  |  | $ | 10.80 |  |  |  | 7.5 |
Exercisable at March 31, 2023 |  |  | 16,725 |  |  | $ | 10.80 |  |  |  | 7.5 |

NOTE 10 - RELATED PARTIES

CellerateRX Sublicense Agreement

The Company has an exclusive, world-wide sublicense to distribute CellerateRX Surgical and HYCOL products into the surgical and wound care markets from an affiliate of The Catalyst Group, Inc. (“Catalyst”), CGI Cellerate RX, which licenses the rights to CellerateRX from Applied Nutritionals. Sales of CellerateRX have comprised the substantial majority of the Company’s sales during the three months ended March 31, 2023 and 2022. In January 2021, the Company amended the term of the sublicense agreement to extend the term to May 17, 2050, with automatic successive one-year renewals so long as annual net sales of the licensed products exceed $1,000,000. The Company pays royalties based on the annual Net Sales of licensed products (as defined in the sublicense agreement) consisting of 3% of all collected Net Sales each year up to $12,000,000, 4% of all collected Net Sales each year that exceed $12,000,000 up to $20,000,000, and 5% of all collected Net Sales each year that exceed $20,000,000. For the three months ended March 31, 2023 and 2022, royalty expense, which is recorded in “Cost of goods sold” in the accompanying Consolidated Statements of Operations, was $520,814 and $369,233, respectively under the terms of this agreement.

Ronald T. Nixon, the Company’s Executive Chairman, is the founder and managing partner of Catalyst.

22

Product License Agreements

In July 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. Currently, the products covered by the BIAKŌS License Agreement are BIAKŌS Antimicrobial Wound Gel and BIAKŌS Antimicrobial Skin and Wound Cleanser. Both products are 510(k) cleared. Mr. Nixon 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 significant shareholder and the current Chair of the board of directors of Rochal.

In October 2019, the Company executed the ABF License Agreement with Rochal whereby 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. Currently, the products covered by the ABF License Agreement are CuraShield Antimicrobial Barrier Film and a no sting skin protectant product.

In May 2020, the Company executed a product license agreement with Rochal, whereby 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.

See Note 8 for more information on these product license agreements.

Consulting Agreement

Concurrent with the Rochal asset purchase, in July 2021, the Company entered into a consulting agreement with Ann Beal Salamone pursuant to which Ms. Salamone agreed to provide the Company with consulting services with respect to, among other things, writing new patents, conducting patent intelligence, and participating in certain grant and contract reporting. In consideration for the consulting services to be provided to the Company, Ms. Salamone is entitled to receive an annual consulting fee of $177,697, with payments to be paid once per month. The consulting agreement has an initial term of three years, unless earlier terminated by the Company, and is subject to renewal. Ms. Salamone is a director of the Company and is a significant shareholder and the current Chair of the board of directors of Rochal.

Catalyst Transaction Advisory Services Agreement

In March 2023, the Company entered into a Transaction Advisory Services Agreement (the “Services Agreement”) effective March 1, 2023 with Catalyst, a related party. Pursuant to the Services Agreement, Catalyst, by and through its directors, officers, employees and affiliates that are not simultaneously serving as directors, officers or employees of the Company (collectively, the “Covered Persons”), agreed to perform certain transaction advisory, business and organizational strategy, finance, marketing, operational and strategic planning, relationship access and corporate development services for the Company in connection with any merger, acquisition, recapitalization, divestiture, financing, refinancing, or other similar transaction in which the Company may be, or may consider becoming, involved, and any such additional services as mutually agreed upon in writing by and between Catalyst and the Company (the “Services”).

Pursuant to the Services Agreement, the Company agreed to reimburse Catalyst for (i) compensation actually paid by Catalyst to any of the Covered Persons at a rate no more than a rate consistent with industry practice for the performance of services similar to the Services, as documented in reasonably sufficient detail, and (ii) all reasonable out-of-pocket costs and expenses payable to unaffiliated third parties, as documented in customary expense reports, as each of (i) and (ii) is incurred in connection with the Services rendered under the Services Agreement, with all reimbursements being contingent upon the prior approval of the Audit Committee of the Company’s Board of Directors. No expenses were incurred pursuant to the Services Agreement in the three months ended March 31, 2023.

23

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of the financial condition and results of operations of Sanara MedTech Inc. (together with its wholly owned or majority-owned subsidiaries on a consolidated basis, the “Company,” “Sanara MedTech,” “Sanara,” “our,” “us,” or “we”) should be read in conjunction with the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section and audited consolidated financial statements and related notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2022 and with the unaudited consolidated financial statements and related notes thereto presented in this Quarterly Report on Form 10-Q.

Cautionary Statement Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “aims,” “anticipates,” “believes,” “contemplates,” “continue,” “could,” “estimates,” “expects,” “forecast,” “guidance,” “intends,” “may,” “plans,” “possible,” “potential,” “predicts,” “preliminary,” “projects,” “seeks,” “should,” “target,” “will” or “would” or the negative of these words, variations of these words or other similar terms or expressions that concern our expectations, strategy, plans, or intentions. Such forward-looking statements are subject to certain risks, uncertainties and assumptions relating to factors that could cause actual results to differ materially from those anticipated in such statements, including, without limitation, the following:

● | shortfalls in forecasted revenue growth;
● | our ability to implement our comprehensive wound and skincare strategy through acquisitions and investments and our ability to realize the anticipated benefits of such acquisitions and investments;
● | our ability to meet our future capital requirements;
● | our ability to retain and recruit key personnel;
● | the intense competition in the markets in which we operate and our ability to compete within our markets;
● | the failure of our products to obtain market acceptance;
● | the effect of security breaches and other disruptions;
● | our ability to maintain effective internal controls over financial reporting;
● | our ability to develop and commercialize new products and products under development, including the manufacturing, distribution, marketing and sale of such products;
● | our ability to maintain and further grow clinical acceptance and adoption of our products;
● | the impact of competitors inventing products that are superior to ours;
● | disruptions of, or changes in, our distribution model, consumer base or the supply of our products;
● | our ability to manage product inventory in an effective and efficient manner;
● | the failure of third-party assessments to demonstrate desired outcomes in proposed endpoints;
● | our ability to successfully expand into wound and skincare virtual consult and other services;
● | our ability and the ability of our research and development partners to protect the proprietary rights to technologies used in certain of our products and the impact of any claim that we have infringed on intellectual property rights of others;
● | our dependence on technologies and products that we license from third parties;
● | the effects of current and future laws, rules, regulations and reimbursement policies relating to the labeling, marketing and sale of our products and our planned expansion into wound and skincare virtual consult and other services and our ability to comply with the various laws, rules and regulations applicable to our business; and
● | the effect of defects, failures or quality issues associated with our products.

24

For a more detailed discussion of these and other factors that may affect our business and that could cause the actual results to differ materially from those anticipated in forward-looking statements, see “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022, Part II, Item 1A “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Forward-looking statements speak only as of the date on which they are made, and the Company does not assume any obligation to update these forward-looking statements, except to the extent required by applicable securities laws.

Overview

We are a medical technology company focused on developing and commercializing transformative technologies to improve clinical outcomes and reduce healthcare expenditures in the surgical, chronic wound and skincare markets. Each of our products, services and technologies contributes to our overall goal of achieving better clinical outcomes at a lower overall cost for patients regardless of where they receive care. We strive to be one of the most innovative and comprehensive providers of effective surgical, wound and skincare solutions and are continually seeking to expand our offerings for patients requiring treatments across the entire continuum of care in the United States.

We currently market several products across surgical and chronic wound care applications and have multiple products in our pipeline. We currently license certain of our products from Applied Nutritionals, LLC (“AN”) (through a sublicense with CGI Cellerate RX, LLC (“CGI Cellerate RX”), an affiliate of The Catalyst Group, Inc. (“Catalyst”)) and Rochal Industries, LLC (“Rochal”) and have the right to exclusively distribute certain products manufactured by Cook Biotech Inc. (“Cook Biotech”). In addition, through our subsidiary, Scendia Biologics, LLC (“Scendia”), we license our products from multiple manufacturers.

In July 2021, we acquired certain assets from Rochal, including, among others, intellectual property, four U.S. Food and Drug Administration (“FDA”) 510(k) clearances, rights to license certain products and technologies currently under development, equipment and supplies. As a result of the asset purchase, our pipeline now contains product candidates for mitigation of opportunistic pathogens and biofilm, wound re-epithelialization and closure, necrotic tissue debridement and cell compatible substrates. Since our acquisition of assets from Rochal, we have been developing additional products in our own product pipeline.

In April 2022, we entered into a merger agreement through which Precision Healing Inc. (“Precision Healing”) became a wholly owned subsidiary of the Company. Precision Healing is developing a diagnostic imager and lateral flow assay (“LFA”) for assessing a patient’s wound and skin conditions. This comprehensive wound and skin assessment technology is designed to quantify biochemical markers to determine the trajectory of a wound’s condition to enable better diagnosis and treatment protocol. During the first quarter of 2023, we submitted a 510(k) premarket notification to the FDA for the Precision Healing diagnostic imager. We also plan to submit a 510(k) premarket notification for the Precision Healing LFA in 2023.

In July 2022, we entered into a membership interest purchase agreement with Scendia and Ryan Phillips (the “Seller”) pursuant to which we acquired 100% of the issued and outstanding membership interests in Scendia from the Seller. Since our acquisition of Scendia, we have been selling a full line of regenerative and orthobiologic technologies including (i) TEXAGEN Amniotic Membrane Allograft (“TEXAGEN”), (ii) BiFORM Bioactive Moldable Matrix (“BiFORM”), (iii) AMPLIFY Verified Inductive Bone Matrix (“AMPLIFY”) and (iv) ALLOCYTE Advanced Cellular Bone Matrix (“ALLOCYTE”).

In November 2022, we established a partnership with InfuSystem Holdings, Inc. (“InfuSystem”) focused on delivering a complete wound care solution targeted at improving patient outcomes, lowering the cost of care, and increasing patient and provider satisfaction. The partnership is expected to enable InfuSystem to offer innovative products, including Cork Medical, LLC’s negative pressure wound therapy devices and supplies, and our advanced wound care product line and associated services to new customers.

Comprehensive Value-Based Care Strategy

In June 2020, we formed a subsidiary, United Wound and Skin Solutions, LLC (“UWSS” or “WounDerm”), to hold certain investments and operations in wound and skincare virtual consult services. Through WounDerm, we plan to offer a comprehensive wound and skincare solution and partner with value-based care providers with the dual goal of lowering the cost to treat wounds while improving clinical outcomes.

Our comprehensive solution consists of four key components: diagnostics, virtual consult services for wound care and dermatology, proprietary efficacious products, and a wound care and dermatology specific electronic medical record (“EMR”) and mobile application. We expect these components will work synergistically to allow clinicians to analyze and treat wound and dermatology conditions more efficiently than the current standard of care:

● Diagnostics – Our proprietary imager and LFA currently under development, which we recently acquired through our acquisition of Precision Healing, are designed to quantify key biomarkers that dictate the trajectory of wound healing and identify deficiencies to aid in treatment. Ultimately, we believe that our diagnostics will lead to treatment algorithms based on the data collected by the Precision Healing technology.

● Virtual Consult Services – Through our exclusive affiliation with Direct Dermatology Inc., we can offer virtual consult services for wound care and dermatology provided by experienced, specialized physicians and clinicians.

25

● Proprietary Products – We currently offer products for improving patient outcomes by addressing conditions that impact wound healing. We are currently conducting multiple studies to prove the efficacy of our products while developing and exploring new products and opportunities in our six focus areas of (1) debridement, (2) biofilm removal, (3) hydrolyzed collagen, (4) advanced biologics, (5) negative pressure wound therapy products and (6) the oxygen delivery system segment of the wound and skincare market.

● EMR and Mobile Application – Our EMR and mobile application were developed specifically for wound care and dermatology. We are currently developing the capability for the EMR and mobile application to offer wound tracking analytics, recommended treatments and decision support and automated referrals.

We believe that by offering a proprietary comprehensive solution for wound care and dermatology, we will be a value-added partner for providers in value-based care programs, such as Medicare Advantage and other risk-based contracts.

Recent Acquisitions

Precision Healing

In April 2022, we closed a merger transaction with Precision Healing, pursuant to which Precision Healing became a wholly owned subsidiary of the Company. Precision Healing is developing a diagnostic imager and LFA for assessing a patient’s wound and skin conditions. This comprehensive wound and skin assessment technology is designed to quantify biochemical markers to determine the trajectory of a wound’s condition to enable better diagnosis and treatment protocol.

Pursuant to the merger agreement, among other things, we agreed to (i) pay the holders of Precision Healing common stock and preferred stock closing consideration consisting of 165,738 shares of our common stock, which was issued to accredited investors, and $125,966 in cash, which was paid to stockholders who were not accredited investors (ii) pay approximately $0.6 million of transaction expenses on behalf of the equity holders of Precision Healing, (iii) assume all outstanding options and warrants of Precision Healing and (iv) pay, subject to the achievement of certain performance thresholds, earnout consideration of up to $10.0 million which is payable in cash or, at our election, is payable to accredited investors in shares of our common stock.

Scendia

In July 2022, we entered into a membership interest purchase agreement by and among the Company, Scendia and Seller pursuant to which we acquired 100% of the issued and outstanding membership interests in Scendia from the Seller. Scendia provides clinicians and surgeons with a full line of regenerative and orthobiologic technologies. Beginning in early 2022, the Company began co-promoting certain products with Scendia, including: (i) TEXAGEN Amniotic Membrane Allograft, (ii) BiFORM Bioactive Moldable Matrix, (iii) AMPLIFY Verified Inductive Bone Matrix and (iv) ALLOCYTE Advanced Cellular Bone Matrix. Prior to the acquisition, Scendia owned 50% of the issued and outstanding membership interests in Sanara Biologics, LLC (“Sanara Biologics”), and the Company owned the remaining 50% of the membership interests. As a result of the acquisition, the Company indirectly acquired all the interests in Sanara Biologics, such that the Company now holds 100% of the issued and outstanding equity interests in Sanara Biologics.

Pursuant to the purchase agreement, the aggregate consideration at closing for the acquisition was $7.6 million, which consisted of (i) a $1.6 million cash payment, subject to certain adjustments, and (ii) 291,686 shares of our common stock, with an agreed upon value of $6.0 million. Pursuant to the purchase agreement, at closing, we withheld 94,798 shares of common stock with an agreed upon value of $1.95 million (the “Indemnity Holdback Shares”), which such Indemnity Holdback Shares shall be withheld and released to the Seller after closing as and to the extent provided in the purchase agreement to satisfy the Seller’s indemnification obligations, if any.

In addition to the cash and stock consideration, the purchase agreement provides that the Seller is entitled to receive two potential earnout payments, payable on an annual basis, not to exceed $10.0 million in the aggregate. The earnout consideration is payable to the Seller in cash or, at our election, in up to 486,145 shares of our common stock upon the achievement of certain performance thresholds relating to net revenue attributable to sales of Scendia products during the two-year period following the closing.

Recent Developments

Sanara Pulsar, LLC

In May 2019, we organized Sanara Pulsar, LLC, a Texas limited liability company (“Sanara Pulsar”), which was owned 60% by our wholly owned subsidiary Cellerate, LLC (“Cellerate”), and 40% by Wound Care Solutions, Limited (“WCS”), an unaffiliated company registered in the United Kingdom. At the time of the formation of Sanara Pulsar, Sanara Pulsar and WCS entered into a supply agreement whereby Sanara Pulsar became the exclusive distributor in the United States of certain wound care products, including the Sanara Pulsar II AWI Wound Debridement System, that utilized intellectual property developed and owned by WCS (collectively, the “Pulsar Products”). When we formed Sanara Pulsar, we believed the Pulsar Products would provide clinicians with a novel debridement solution. We also believed the Pulsar Products would receive an expanded reimbursement code for use by all clinician types.

26

Ultimately, we did not receive an additional reimbursement code, which limited the adoption of the Pulsar Products. Sanara Pulsar, which had minimal sales since its inception, was dissolved effective December 2022. As a result, we recorded a $1.0 million noncash loss on disposal of investment in the fourth quarter of 2022.

Components of Results of Operations

Sources of Revenues

Our revenue is derived primarily from sales of our surgical products to hospitals and other acute care facilities. In particular, the substantial majority of our product sales revenue is derived from sales of CellerateRX surgical powder. Our revenue is driven by direct orders shipped by us to our customers, and to a lesser extent, direct sales to customers through delivery at the time of procedure by one of our sales representatives. We generally recognize revenue when a purchase order is received from the customer and our product is received by the customer.

For the three months ended March 31, 2023, our revenues included $3.0 million of revenue generated by Scendia, which was acquired by the Company in July 2022. Revenue streams from product sales and royalties are summarized below for the three months ended March 31, 2023 and 2022.

|  | Three Months Ended |
|  | March 31, |
|  | 2023 |  |  | 2022 |
Product sales revenue |  | $ | 15,471,667 |  |  | $ | 7,760,973 |
Royalty revenue |  |  | 50,250 |  |  |  | 50,250 |
Total Net Revenue |  | $ | 15,521,917 |  |  | $ | 7,811,223 |

We recognize royalty revenue from a development and licensing agreement with BioStructures, LLC. We record revenue each calendar quarter as earned per the terms of the agreement which stipulates that we will receive quarterly royalty payments of at least $50,250. Under the terms of the development and license agreement, royalties of 2.0% are recognized on sales of products containing our patented resorbable bone hemostasis. The minimum annual royalty due to us is $201,000 per year through the end of 2023. These royalties are payable in quarterly installments of $50,250. To date, royalties related to this development and licensing agreement have not exceeded the annual minimum of $201,000 ($50,250 per quarter).

Cost of Goods Sold

Cost of goods sold consists primarily of the acquisition costs from the manufacturers of our licensed products, raw material costs for certain components sourced directly by us, and all related royalties due as a result of the sale of our products. Our gross profit represents total net revenue less the cost of goods sold, and gross margin represents gross profit expressed as a percentage of total revenue.

Operating Expenses

Selling, general and administrative (“SG&A”) expenses consist primarily of salaries, sales commissions, benefits, bonuses and stock-based compensation. SG&A also includes outside legal counsel fees, audit fees, insurance premiums, rent and other corporate expenses. We expense all SG&A expenses as incurred.

Research and development (“R&D”) expenses include costs related to enhancements to our currently available products and additional investments in our product, services and technologies development pipeline. This includes personnel-related expenses, including salaries and benefits for all personnel directly engaged in R&D activities, contracted services, materials, prototype expenses and allocated overhead, which is comprised of lease expense and other facilities-related costs. We expense R&D costs as incurred. We generally expect that R&D expenses will increase as we continue to support product enhancements and bring new products to market.

Depreciation and amortization expenses include depreciation of fixed assets and amortization of intangible assets that have a finite life, such as product licenses, patents and intellectual property, customer relationships and assembled workforces.

Change in fair value of earnout liabilities represents our measurement of the change in fair value at the balance sheet date of our earnout liabilities that were established at the time of our Precision Healing and Scendia acquisitions.

27

Other Expense

Other expense is primarily comprised of losses on equity method investments, accretion expense on earnout liabilities, interest expense and other nonoperating activities.

Results of Operations

Net Revenues. For the three months ended March 31, 2023, we generated net revenues of $15.5 million compared to net revenues of $7.8 million for the three months ended March 31, 2022, a 99% increase from the prior year. Our net revenues for the three months ended March 31, 2023 included $3.0 million of Scendia sales. The higher net revenues for the three months ended March 31, 2023 were primarily due to increased sales of surgical wound care products as a result of our increased market penetration and geographic expansion, additional revenues as a result of the Scendia acquisition and our continuing strategy to expand our independent distribution network in both new and existing U.S. markets.

During the third quarter of 2022, we began to experience supply issues with the ALLOCYTE product line. The amount of qualifying eligible donor tissue was significantly impacted due to stringent donor screening requirements. During the fourth quarter of 2022 and the first quarter of 2023, we were unable to fill certain orders for this product which negatively impacted our sales. We anticipate resolution of the supply issues in the second half of 2023.

Cost of goods sold. Cost of goods sold for the three months ended March 31, 2023, was $2.1 million, compared to costs of goods sold of $0.8 million for the three months ended March 31, 2022. The higher cost of goods sold was due to higher organic sales volume in the three months ended March 31, 2023 and our acquisition of Scendia, which added $0.9 million of cost of goods sold during the three months ended March 31, 2023. Gross margins were approximately 86% and 90% for the three months ended March 31, 2023 and 2022, respectively. The lower gross margins in 2023 were primarily due to lower margins realized on sales of Scendia products.

Selling, general and administrative expenses. SG&A expenses for the three months ended March 31, 2023, were $13.0 million compared to SG&A expenses of $9.4 million for the three months ended March 31, 2022. Our SG&A expenses for the three months ended March 31, 2023 included $1.4 million of costs related to Scendia operations. The higher SG&A expenses for the three months ended March 31, 2023 were primarily due to higher direct sales and marketing expenses, which accounted for approximately $3.4 million, or 95% of the increase compared to prior year. The higher direct sales and marketing expenses were primarily attributable to an increase in sales commissions of $2.9 million as a result of higher product sales and $0.5 million of increased costs as a result of sales force expansion and operational support. We expect our SG&A expenses to continue to decline as a percentage of net revenues as our sales growth outpaces the costs of sales force expansion and corporate overhead.

Research and development expenses. R&D expenses for the three months ended March 31, 2023, were $1.3 million compared to $0.2 million for the three months ended March 31, 2022. The higher R&D expenses in the three months ended March 31, 2023 were primarily due to costs related to the Precision Healing diagnostic imager and LFA for assessing patient wound and skin conditions. R&D expenses also included costs associated with ongoing development projects for our currently licensed products.

Depreciation and amortization expense. Depreciation and amortization expense for the three months ended March 31, 2023, was $0.8 million compared to $0.2 million for the three months ended March 31, 2022. The higher depreciation and amortization expense during the three months ended March 31, 2023 was primarily due to the amortization of intangible assets acquired as part of the Precision Healing and Scendia transactions.

Change in fair value of earnout liabilities. Change in fair value of earnout liabilities was a benefit of $0.5 million for the three months ended March 31, 2023 as a result of a decrease in the fair value of the earnout liabilities established at the time of our Precision Healing and Scendia acquisitions. The decrease in the fair value was due to a change in the discount factor utilized in the valuation models, a decrease in the projected undiscounted amounts to be paid, as well as adjustments to the projected timing of the payments to be made.

Other expense. Other expense for the three months ended March 31, 2023 was $6 compared to $379,633 for the three months ended March 31, 2022. Other expense in the three months ended March 31, 2022 was due to losses from equity method investment in Precision Healing prior to our acquisition of the remaining interest in April 2022.

Net loss. For the three months ended March 31, 2023, we had a net loss of $1.2 million, compared to a net loss of $3.2 million for the three months ended March 31, 2022.

Liquidity and Capital Resources

Cash on hand at March 31, 2023 was $7.3 million, compared to $9.0 million at December 31, 2022. Historically, we have financed our operations primarily from the sale of equity securities. In February 2023, we entered into a Controlled Equity Offering SM Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co., as sales agent (“Cantor”), pursuant to which we may offer and sell from time to time, to or through Cantor, shares of our common stock having an aggregate offering price of up to $75.0 million.

28

Sales of the shares, if any, pursuant to the Sales Agreement, may be made in sales deemed to be an “at the market offering” as defined in Rule 415(a)(4) promulgated under the Securities Act of 1933, as amended. Upon delivery of a placement notice and subject to the terms and conditions of the Sales Agreement, Cantor agreed to use commercially reasonable efforts consistent with its normal trading and sales practices, applicable state and federal law, rules and regulations and the rules of The Nasdaq Capital Market to sell the shares from time to time based upon our instructions, including any price, time period or size limits specified by us. We have no obligation to sell any of the shares under the Sales Agreement and may at any time suspend or terminate the offering of our common stock pursuant to the Sales Agreement upon notice to Cantor and subject to other conditions. Cantor’s obligations to sell the shares under the Sales Agreement are subject to satisfaction of certain conditions, including customary closing conditions. Pursuant to the Sales Agreement, we will pay Cantor a commission of 3.0% of the aggregate gross proceeds from each sale of the shares. In the three months ended March 31, 2023, we sold an aggregate of 26,143 shares of common stock for gross proceeds of approximately $1.1 million and net proceeds of approximately $1.0 million, of which approximately $0.7 million was received in March 2023 and approximately $0.3 million was received in early April 2023.

We expect our future needs for cash to include funding potential acquisitions, further developing our products, services and technologies pipeline and clinical studies, expanding our sales force and for general corporate purposes. Based on our current plan of operations, we believe our cash on hand, when combined with expected cash flows from operations, will be sufficient to fund our growth strategy and to meet our anticipated operating expenses and capital expenditures for at least the next twelve months.

In November 2020, we entered into agreements to purchase shares of Series A Convertible Preferred Stock (the “Series A Stock”) of Precision Healing for an aggregate purchase price of $600,000. In 2021, we made additional purchases of Series A Stock: $600,000 in February, $500,000 in June, $500,000 in October, and $600,000 in December.

In April 2022, we closed a merger transaction with Precision Healing pursuant to which Precision Healing became our wholly owned subsidiary. Pursuant to the terms of the merger agreement, holders of Precision Healing common stock and preferred stock, other than the Company, were entitled to receive closing consideration, consisting of $125,966 in cash, which was paid to stockholders who were not accredited investors, 165,738 shares of our common stock, which was paid only to accredited investors, and the payment in cash of approximately $0.6 million of transaction expenses of Precision Healing. We recorded the issuance of the 165,738 shares to accredited investors and cash payments to nonaccredited investors based on the closing price per share of our common stock on April 4, 2022, which was $30.75.

Upon the closing of the merger, the outstanding Precision Healing options previously granted under the Precision Healing Inc. 2020 Stock Option and Grant Plan (the “Precision Healing Plan”) converted, pursuant to their terms, into options to acquire an aggregate of 144,191 shares of our common stock with a weighted average exercise price of $10.71 per share. These options expire between August 2030 and April 2031. In addition, outstanding and unexercised Precision Healing warrants converted into rights to receive warrants to purchase (i) 4,424 shares of our common stock with an initial exercise price of $7.32 per share and an expiration date of April 22, 2031, and (ii) 12,301 shares of our common stock with an initial exercise price of $12.05 per share and an expiration date of August 10, 2030. Concurrent with the assumption of the Precision Healing Plan, we terminated the ability to offer future awards under the Precision Healing Plan.

Pursuant to the merger agreement, upon the achievement of certain performance thresholds, the securityholders of Precision Healing, including the holders of options and warrants to purchase Precision Healing common stock and certain persons promised options to purchase Precision Healing common stock, are also entitled to receive payments of up to $10.0 million, which was accounted for as contingent consideration pursuant to Accounting Standards Codification Topic 805, Business Combinations. The earnout consideration is payable in cash or, at our election, is payable to accredited investors in shares of our common stock at a price per share equal to the greater of (i) $27.13 or (ii) the average closing price of our common stock for the 20 trading days prior to the date such earnout consideration is due and payable. Pursuant to the merger agreement, a minimum percentage of the earnout consideration may be required to be issued to accredited investors in shares of our common stock for tax purposes. The amount and composition of the portion of earnout consideration payable is subject to adjustment and offsets as set forth in the merger agreement. We do not anticipate making an earnout consideration payment prior to January 2025. For more details relating to the contingent earnout consideration payable pursuant to the Precision Healing merger agreement, see Note 3 to the unaudited consolidated financial statements.

In July 2022, we entered into a membership interest purchase agreement by and among the Company, Scendia and the Seller pursuant to which, and in accordance with the terms and conditions set forth therein, we acquired 100% of the issued and outstanding membership interests in Scendia from the Seller.

Pursuant to the purchase agreement, the Seller was entitled to receive closing consideration consisting of (i) approximately $1.6 million of cash, subject to certain adjustments, and (ii) 291,686 shares of our common stock. Pursuant to the purchase agreement, at closing, we withheld 94,798 shares of common stock with an agreed upon value of $1.95 million (the “Indemnity Holdback Shares”), which such Indemnity Holdback Shares shall be withheld and released to the Seller after closing as and to the extent provided in the purchase agreement to satisfy the Seller’s indemnification obligations, if any.

29

In addition to the cash consideration and the stock consideration, the purchase agreement provides that the Seller is entitled to receive two potential earnout payments, payable on an annual basis, not to exceed $10.0 million in the aggregate. The earnout consideration is payable to the Seller in cash or, at our election, in up to 486,145 shares of our common stock upon the achievement of certain performance thresholds relating to net revenue attributable to sales of Scendia products during the two-year period following the closing. We anticipate making the first potential earnout payment in October 2023. For more details relating to the contingent earnout consideration payable pursuant to the purchase agreement, see Note 4 to the unaudited consolidated financial statements.

Cash Flow Analysis

For the three months ended March 31, 2023, net cash used in operating activities was $1.7 million compared to $2.1 million used in operating activities for the three months ended March 31, 2022. The lower use of cash was primarily due to our lower net loss for the three months ended March 31, 2023, partially offset by higher payouts of accrued bonuses and commissions during the first quarter of 2023.

For the three months ended March 31, 2023, net cash used in investing activities was $27,055 compared to $294,352 used in investing activities during the three months ended March 31, 2022. The lower use of cash used in investing activities in 2023 was primarily due to no cash investments in equity securities during the three months ended March 31, 2023.

For the three months ended March 31, 2023, net cash provided by financing activities was $0.1 million as compared to $0.1 million used in financing activities for the three months ended March 31, 2022. The cash provided by financing activities in 2023 was due to net proceeds received pursuant to sales of our common stock of approximately $0.8 million pursuant to the Sales Agreement, partially offset by the net settlement of equity-based awards which totaled approximately $0.7 million.

Material Transactions with Related Parties

CellerateRX Surgical Sublicense Agreement

We have an exclusive, world-wide sublicense to distribute CellerateRX Surgical and HYCOL products into the surgical and wound care markets from an affiliate of Catalyst, CGI Cellerate RX, which licenses the rights to CellerateRX from AN. Sales of CellerateRX comprised the substantial majority of our sales during the three months ended March 31, 2023 and 2022. In January 2021, we amended the term of the sublicense agreement to extend the term to May 17, 2050, with automatic successive one-year renewals so long as annual net sales of the licensed products exceed $1.0 million. We pay royalties based on the annual Net Sales of licensed products (as defined in the sublicense agreement) consisting of 3% of all collected Net Sales each year up to $12.0 million, 4% of all collected Net Sales each year that exceed $12.0 million up to $20.0 million, and 5% of all collected Net Sales each year that exceed $20.0 million. For the three months ended March 31, 2023 and 2022, royalty expense was $520,814 and $369,233, respectively under the terms of this agreement.

Ronald T. Nixon, our Executive Chairman, is the founder and managing partner of Catalyst.

Consulting Agreement

In July 2021, we entered into an asset purchase agreement with Rochal, a related party. Concurrent with the Rochal asset purchase, we entered into a consulting agreement with Ann Beal Salamone pursuant to which Ms. Salamone agreed to provide us with consulting services with respect to, among other things, writing new patents, conducting patent intelligence and participating in certain grant and contract reporting. In consideration for the consulting services to be provided to us, Ms. Salamone is entitled to receive an annual consulting fee of $177,697, with payments to be paid once per month. The consulting agreement has an initial term of three years, unless earlier terminated by us, and is subject to renewal. Ms. Salamone is a director of the Company, is a significant shareholder and the current Chair of the board of directors of Rochal.

Catalyst Transaction Advisory Services Agreement

In March 2023, we entered into a Transaction Advisory Services Agreement (the “Services Agreement”) effective March 1, 2023 with Catalyst, a related party. Pursuant to the Services Agreement, Catalyst, by and through its directors, officers, employees and affiliates that are not simultaneously serving as directors, officers or employees of the Company (collectively, the “Covered Persons”), agreed to perform certain transaction advisory, business and organizational strategy, finance, marketing, operational and strategic planning, relationship access and corporate development services for us in connection with any merger, acquisition, recapitalization, divestiture, financing, refinancing, or other similar transaction in which we may be, or may consider becoming, involved, and any such additional services as mutually agreed upon in writing by and between Catalyst and us (the “Services”).

30

Pursuant to the Services Agreement, we agreed to reimburse Catalyst for (i) compensation actually paid by Catalyst to any of the Covered Persons at a rate no more than a rate consistent with industry practice for the performance of services similar to the Services, as documented in reasonably sufficient detail, and (ii) all reasonable out-of-pocket costs and expenses payable to unaffiliated third parties, as documented in customary expense reports, as each of (i) and (ii) is incurred in connection with the Services rendered under the Services Agreement, with all reimbursements being contingent upon the prior approval of the Audit Committee of our Board of Directors. No expenses were incurred pursuant to the Services Agreement in the three months ended March 31, 2023.

Receivables and Payables

We had outstanding related party receivables totaling $23,946 at March 31, 2023, and $98,548 at December 31, 2022. We had outstanding related party payables totaling $23,289 at March 31, 2023, and $34,036 at December 31, 2022.

Impact of Inflation and Changing Prices

Inflation and changing prices have not had a material impact on our historical results of operations. We do not currently anticipate that inflation and changing prices will have a material impact on our future results of operations.

Critical Accounting Estimates

The preparation of financial statements in accordance with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the unaudited consolidated financial statements and accompanying notes. Although we base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances, actual results may differ from the estimates on which our financial statements are prepared at any given point of time. Changes in these estimates could materially affect our consolidated financial position, results of operations or cash flows. Significant items that are subject to such estimates and assumptions include revenue and expense accruals, the fair value measurement of assets and liabilities and the allocation of purchase price to the fair value of assets acquired. Our critical accounting policies have not significantly changed since December 31, 2022 and are disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a smaller reporting company, we are not required to provide this information.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit to the Securities and Exchange Commission (the “SEC”) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms, and that information is accumulated and communicated to our management, including our principal executive and principal financial officers (whom we refer to in this periodic report as our Certifying Officers), as appropriate to allow timely decisions regarding required disclosure. Our management evaluated, with the participation of our Certifying Officers, the effectiveness of our disclosure controls and procedures as of March 31, 2023, pursuant to Rule 13a-15(b) under the Exchange Act. Based upon that evaluation, our Certifying Officers concluded that, as of March 31, 2023, our disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

31

Part II — Other Information

ITEM 1. LEGAL PROCEEDINGS

From time to time, we may be involved in claims and legal actions that arise in the ordinary course of business. To our knowledge, there are no material pending legal proceedings to which we are a party or of which any of our property is the subject.

ITEM 1A. RISK FACTORS

There were no material changes to the Risk Factors disclosed in “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022. For more information concerning our risk factors, please see “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

There were no sales of unregistered securities during the quarter ended March 31, 2023 that were not previously reported on a Current Report on Form 8-K.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

This item is not applicable.

ITEM 5. OTHER INFORMATION

None.

32

ITEM 6. EXHIBITS

The exhibits listed below are filed as part of this Report or incorporated herein by reference.

Exhibit No. |  | Description
1.1# |  | Controlled Equity OfferingSM Sales Agreement, dated February 24, 2023, by and between Sanara MedTech Inc. and Cantor Fitzgerald & Co. (incorporated by reference to Exhibit 1.1 to the Company’s Current Report on Form 8-K filed on February 24, 2023).
2.1# |  | Asset Purchase Agreement, dated July 14, 2021, by and between Sanara MedTech Inc., as Purchaser, and Rochal Industries, LLC, as Seller (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 19, 2021).
2.2# |  | Agreement and Plan of Merger, dated April 1, 2022, by and among Sanara MedTech Inc., United Wound and Skin Solutions, LLC, Precision Healing Inc., PH Merger Sub I, Inc., PH Merger Sub II, LLC and Furneaux Capital Holdco, LLC (d/b/a BlueIO) (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on April 4, 2022).
2.3# |  | Membership Interest Purchase Agreement, dated July 1, 2022, by and among Sanara MedTech Inc., Scendia Biologics, LLC and Ryan Phillips (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on July 5, 2022).
3.1 |  | Articles of Incorporation of Sanara MedTech Inc. (as amended through December 30, 2020) (incorporated by reference to Exhibit 3.1 to the Company’s Annual Report on Form 10-K filed on March 30, 2021).
3.2 |  | Bylaws (incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-1 filed April 11, 2008).
10.1 |  | Transaction Advisory Services Agreement, dated March 1, 2023, by and between Sanara MedTech Inc. and The Catalyst Group, Inc. (incorporated by reference to Exhibit 10.15 to the Company’s Annual Report on Form 10-K filed on March 20, 2023)
31.1* |  | Certification of Principal Executive Officer in accordance with 18 U.S.C. Section 1350, as adopted by Section 302 of the Sarbanes-Oxley Act of 2002.
31.2* |  | Certification of Principal Financial Officer in accordance with 18 U.S.C. Section 1350, as adopted by Section 302 of the Sarbanes-Oxley Act of 2002.
32.1** |  | Certification of Principal Executive Officer in accordance with 18 U.S.C. Section 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002.
32.2** |  | Certification of Principal Financial Officer in accordance with 18 U.S.C. Section 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS |  | Inline XBRL Instance Document.
101.SCH |  | Inline XBRL Taxonomy Extension Schema Document.
101.CAL |  | Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF |  | Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB |  | Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE |  | Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104 |  | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

* Filed herewith

# Schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. Sanara MedTech Inc. hereby undertakes to furnish supplementally copies of any of the omitted schedules upon request by the Securities and Exchange Commission or its staff.

** The certifications attached as Exhibit 32.1 and Exhibit 32.2 are not deemed “filed” with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of Sanara MedTech Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Annual Report on Form 10-K, irrespective of any general incorporation language contained in such filing.

33

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

| SANARA MEDTECH INC.
May 15, 2023 | By: | /s/ Michael D. McNeil
|  | Michael D. McNeil
|  | Chief Financial Officer
|  | (Principal Financial Officer and duly authorized officer)

34