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~~

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

For the quarterly period ended September 30, ~~2022~~2023

☐ ~~TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~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)		~~(I.R.S. Employer~~ 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”,~~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
☐	☐	~~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 November ~~14, 2022,~~13, 2023, ~~8,303,729~~8,538,489 shares of the Issuer’s common stock, $0.001 par value ~~common stock~~per share, were ~~issued and~~ outstanding.

SANARA MEDTECH INC.

Form 10-Q

Quarter Ended September 30, ~~2022~~2023

		Page

*Part I – Financial Information*

~~Item 1. Financial Statements~~	3

Item 1. Financial Statements	~~Consolidated Balance Sheets as of September 30, 2022 (unaudited) and December 31, 2021~~	3

Consolidated Balance Sheets as of September 30, 2023 (Unaudited) and December 31, 2022	~~Unaudited~~	3

Consolidated Statements of Operations (Unaudited) for the Three and Nine Months Ended September 30, ~~2022~~2023 and ~~2021~~2022		4

~~Unaudited~~ Consolidated Statements of Changes in Shareholders’ Equity (Unaudited) for the Three and Nine Months Ended September 30, ~~2022~~2023 and ~~2021~~2022		5

~~Unaudited~~ Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, ~~2022~~2023 and ~~2021~~2022		6

Notes to Unaudited Consolidated Financial Statements		7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	26	28

Item 3. Quantitative and Qualitative Disclosures ~~About~~about Market Risk	33	38

Item 4. Controls and Procedures	33	38

*Part II – Other Information*		39

*~~Part II - Other Information~~*Item 1. Legal Proceedings	34	39

Item ~~1. Legal Proceedings~~1A. Risk Factors	34	39

~~Item 1A. Risk Factors~~	34

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	34	40

Item 3. Defaults Upon Senior Securities	34	40

Item 4. Mine Safety Disclosures	34	40

Item 5. Other Information	34	40

Item 6. Exhibits	35	41

Signatures	36	42

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

Part I – Financial Information

~~Item~~ITEM 1. ~~Financial Statements~~FINANCIAL STATEMENTS

SANARA MEDTECH INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


	(Unaudited)
	September 30,			December 31,			(Unaudited)
	2022			2021			September 30, 2023			December 31, 2022
Assets
Current assets
Cash	$	10,285,380		$	18,652,841		$	6,235,912		$	8,958,995
Accounts receivable, net		5,420,722			2,861,014			7,436,295			6,805,761
Accounts receivable – related party		68,867			79,787			11,032			98,548
Accounts receivable								11,032			98,548
Royalty receivable		49,344			49,344			49,344			99,594
Inventory, net		3,734,250			2,048,191			5,021,030			3,549,000
Prepaid and other assets		1,014,508			917,318			621,690			1,104,611
Total current assets		20,573,071			24,608,495			19,375,303			20,616,509

Long-term assets
Property and equipment, net		1,470,600			1,629,845			1,327,056			1,416,436
Right of use assets – operating leases		854,723			412,770			2,094,188			806,402
Goodwill		3,277,536			-			3,601,781			3,601,781
Intangible assets, net		32,217,182			4,727,970			45,991,466			31,509,980
Investment in equity securities		3,084,278			5,017,351			3,084,278			3,084,278
Total long-term assets		40,904,319			11,787,936			56,098,769			40,418,877

Total assets	$	61,477,390		$	36,396,431		$	75,474,072		$	61,035,386

Liabilities and shareholders’ equity
Current liabilities
Accounts payable	$	893,879		$	438,154		$	1,939,887		$	1,392,701
Accounts payable – related parties		29,005			155,817			64,747			34,036
Accounts payable								64,747			34,036
Accrued royalties and expenses		1,653,326			706,196			3,583,439			2,144,475
Accrued bonuses and commissions		6,330,629			4,518,817			6,084,654			7,758,284
Earnout liabilities – current								1,000,000			1,162,880
Operating lease liabilities – current		299,072			203,292			322,206			313,933
Current portion of debt								232,143			-
Total current liabilities		9,205,911			6,022,276			13,227,076			12,806,309

Long-term liabilities
Earnout liabilities – long-term		7,055,267			-			4,871,986			6,003,811
Operating lease liabilities – long-term		567,744			222,151			1,846,293			505,291
Long-term debt, net of current portion								9,458,254			-
Other long-term liabilities								1,972,673			-
Total long-term liabilities		7,623,011			222,151			18,149,206			6,509,102

Total liabilities		16,828,922			6,244,427			31,376,282			19,315,411

Commitments and contingencies (Note 9)		-			-
Commitments and contingencies (Note 10)								-			-

Shareholders’ equity
Common Stock: $0.001 par value, 20,000,000 shares authorized; 8,303,729 issued and outstanding as of September 30, 2022 and 7,676,662 issued and outstanding as of December 31, 2021		8,304			7,677
Common Stock: $0.001 par value, 20,000,000 shares authorized; 8,540,226 issued and outstanding as of September 30, 2023 and 8,299,957 issued and outstanding as of December 31, 2022								8,540			8,300
Additional paid-in capital		64,565,730			45,867,768			72,107,881			65,213,987
Accumulated deficit		(19,116,046	)		(15,235,044	)		(27,799,621	)		(23,394,757	)
Total Sanara MedTech shareholders’ equity		45,457,988			30,640,401			44,316,800			41,827,530
Equity attributable to noncontrolling interest		(809,520	)		(488,397	)		(219,010	)		(107,555	)
Total shareholders’ equity		44,648,468			30,152,004			44,097,790			41,719,975
Total liabilities and shareholders’ equity	$	61,477,390		$	36,396,431		$	75,474,072		$	61,035,386

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

SANARA MEDTECH INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

	2022			2021			2022				2021			2023			2022			2023			2022
	Three Months Ended						Nine Months Ended							Three Months Ended						Nine Months Ended
	September 30,						September 30,							September 30,						September 30,
	2022			2021			2022				2021			2023			2022			2023			2022

Net Revenue	$	13,044,571		$	5,823,942		$	30,526,572			$	17,110,511		$	16,024,948		$	13,044,571		$	47,300,029		$	30,526,572

Cost of goods sold		2,228,561			517,611			3,991,728				1,528,449			1,751,349			2,228,561			6,064,524			3,991,728

Gross profit		10,816,010			5,306,331			26,534,844				15,582,062			14,273,599			10,816,010			41,235,505			26,534,844

Operating expenses
Selling, general and administrative expenses		12,062,195			6,920,105			31,865,958				18,891,979			13,877,879			12,062,195			40,658,424			31,865,958
Research and development		1,061,387			35,674			2,333,024				257,867			986,454			1,061,387			3,480,906			2,333,024
Depreciation and amortization		814,881			204,570			1,556,752				395,968			997,674			814,881			2,580,243			1,556,752
Change in fair value of earnout liabilities															(681,753	)		109,689			(1,494,910	)		173,116
Total operating expenses		13,938,463			7,160,349			35,755,734				19,545,814			15,180,254			14,048,152			45,224,663			35,928,850

Operating loss		(3,122,453	)		(1,854,018	)		(9,220,890	)			(3,963,752	)		(906,655	)		(3,232,142	)		(3,989,158	)		(9,394,006	)

Other expense
Interest and accretion expense		(109,689	)		-			(173,116	)			(711	)
Interest expense and other															(188,294	)		-			(188,300	)		-
Share of losses from equity method investment		-			(193,843	)		(379,633	)			(472,747	)		-			-			-			(379,633	)
Total other expense		(109,689	)		(193,843	)		(552,749	)			(473,458	)		(188,294	)		-			(188,300	)		(379,633	)

Loss before income taxes		(3,232,142	)		(2,047,861	)		(9,773,639	)			(4,437,210	)		(1,094,949	)		(3,232,142	)		(4,177,458	)		(9,773,639	)
Income tax benefit		1,702,890			-			5,844,796				-			-			1,702,890			-			5,844,796

Net loss		(1,529,252	)		(2,047,861	)		(3,928,843	)			(4,437,210	)		(1,094,949	)		(1,529,252	)		(4,177,458	)		(3,928,843	)

Less: Net loss attributable to noncontrolling interest		(58,792	)		(27,491	)		(98,485	)			(63,604	)		(34,579	)		(58,792	)		(111,455	)		(98,485	)

Net loss attributable to Sanara MedTech shareholders	$	(1,470,460	)	$	(2,020,370	)	$	(3,830,358	)		$	(4,373,606	)	$	(1,060,370	)	$	(1,470,460	)	$	(4,066,003	)	$	(3,830,358	)

Net loss per share of common stock, basic and diluted	$	(0.18	)	$	(0.27	)	$	(0.49)		$		(0.60	)	$	(0.13	)	$	(0.18	)	$	(0.49	)	$	(0.49	)

Weighted average number of common shares outstanding, basic and diluted		8,107,261			7,518,165			7,836,882				7,279,708			8,332,341			8,107,261			8,244,503			7,836,882

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

SANARA MEDTECH INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)

Shares Amount Capital Deficit Interest Equity
Common Stock Additional Total
$0.001 par value Paid-In Accumulated Noncontrolling Shareholders’
Shares Amount Capital Deficit Interest Equity
Balance at December 31, 2020 6,297,008 $ 6,297 $ 13,176,576 $ (7,032,242 ) $ (310,395 ) $ 5,840,236
Issuance of common stock for asset acquisitions 50,370 50 1,749,950 - - 1,750,000
Issuance of common stock in equity offering 1,265,000 1,265 28,937,992 - - 28,939,257
Share-based compensation 4,744 5 325,513 - - 325,518
Distribution to noncontrolling interest member - - - - (200,000 ) (200,000 )
Net loss - - (1,181,744 ) (1,632 ) (1,183,376 )
Balance at March 31, 2021 7,617,122 $ 7,617 $ 44,190,031 $ (8,213,986 ) $ (512,027 ) $ 35,471,635
Share-based compensation (4,786 ) (5 ) 297,927 - - 297,922
Capital contribution of noncontrolling interest member - - - - 93,879 93,879
Net loss - - - (1,171,492 ) (34,481 ) (1,205,973 )
Balance at June 30, 2021 7,612,336 $ 7,612 $ 44,487,958 $ (9,385,478 ) $ (452,629 ) $ 34,657,463
Share-based compensation 5,339 5 228,781 - - 228,786
Issuance of common stock for asset acquisitions 14,369 15 584,229 - - 584,244
Net loss - - - (2,020,370 ) (27,491 ) (2,047,861 )
Balance at September 30, 2021 7,632,044 $ 7,632 $ 45,300,968 $ (11,405,848 ) $ (480,120 ) $ 33,422,632
Shares Amount Capital Deficit Interest Equity
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
Share-based compensation 39,268 39 703,361 - - 703,400
Issuance of common stock for acquisitions 165,738 166 5,096,278 - - 5,096,444
Issuance of common stock options and warrants for acquisitions - - 4,612,645 - - 4,612,645
Distribution to noncontrolling interest member - - - - (220,000 ) (220,000 )
Net income (loss) - - - 769,426 (12,512 ) 756,914
Balance at June 30, 2022 8,015,401 8,015 57,850,750 (17,645,586 ) (748,090 ) 39,465,089
Share-based compensation (3,358 ) (3 ) 683,205 - - 683,202
Issuance of common stock for acquisitions 291,686 292 6,031,775 - (2,638 ) 6,029,429
Net loss - - - (1,470,460 ) (58,792 ) (1,529,252 )
Balance at September 30, 2022 8,303,729 $ 8,304 $ 64,565,730 $ (19,116,046 ) $ (809,520 ) $ 44,648,468

Common Stock Additional Total Common Stock Additional Total
$0.001 par value Paid-In Accumulated Noncontrolling Shareholders’ $0.001 par value Paid-In Accumulated Noncontrolling Shareholders’
Shares Amount Capital Deficit Interest Equity 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
Balance at December 31, 2022 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
Share-based compensation 137,076 136 1,622,982 - - 1,623,118 33,355 33 1,127,299 - - 1,127,332
Net settlement and retirement of equity-based awards (3,343 ) (3 ) (52,284 ) (50,644 ) - (102,931 ) 21,363 22 224,740 (186 ) - 224,576
Net loss - - - (3,129,324 ) (27,181 ) (3,156,505 ) - - - (1,827,733 ) (38,447 ) (1,866,180 )
Balance at March 31, 2022 7,810,395 $ 7,810 $ 47,438,466 $ (18,415,012 ) $ (515,578 ) $ 28,515,686
Balance at June 30, 2023 8,439,745 8,440 67,881,419 (26,740,930 ) (184,431 ) 40,964,498
Balance 8,439,745 $ 8,440 $ 67,881,419 $ (26,740,930 ) $ (184,431 ) $ 40,964,498
Share-based compensation 39,268 39 703,361 - - 703,400 (339 ) (1 ) 857,527 - - 857,526
Issuance of common stock for asset acquisitions 165,738 166 5,096,278 - - 5,096,444
Issuance of common stock options and warrants for asset acquisitions - - 4,612,645 - - 4,612,645
Distribution to noncontrolling interest member - - - - (220,000 ) (220,000 )
Net income (loss) - - - 769,426 (12,512 ) 756,914
Balance at June 30, 2022 8,015,401 $ 8,015 $ 57,850,750 $ (17,645,586 ) $ (748,090 ) $ 39,465,089
Beginning balance, value 8,015,401 $ 8,015 $ 57,850,750 $ (17,645,586 ) $ (748,090 ) $ 39,465,089
Share-based compensation (3,358 ) (3 ) 683,205 - - 683,202
Net settlement and retirement of equity-based awards 27,011 27 279,364 1,679 - 281,070
Issuance of common stock for acquisitions 291,686 292 6,031,775 - (2,638 ) 6,029,429 73,809 74 3,089,571 - - 3,089,645
Net loss - - - (1,470,460 ) (58,792 ) (1,529,252 ) - - - (1,060,370 ) (34,579 ) (1,094,949 )
Net income (loss) - - - (1,470,460 ) (58,792 ) (1,529,252 ) - - - (1,060,370 ) (34,579 ) (1,094,949 )
Balance at September 30, 2022 8,303,729 $ 8,304 $ 64,565,730 $ (19,116,046 ) $ (809,520 ) $ 44,648,468
Ending balance, value 8,303,729 $ 8,304 $ 64,565,730 $ (19,116,046 ) $ (809,520 ) $ 44,648,468
Balance at September 30, 2023 8,540,226 $ 8,540 $ 72,107,881 $ (27,799,621 ) $ (219,010 ) $ 44,097,790
Balance 8,540,226 $ 8,540 $ 72,107,881 $ (27,799,621 ) $ (219,010 ) $ 44,097,790

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

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SANARA MEDTECH INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
2023 2022
Nine Months Ended Nine Months Ended
September 30, September 30,
2022 2021 2023 2022

Cash flows from operating activities:
Net loss $ (3,928,843 ) $ (4,437,210 ) $ (4,177,458 ) $ (3,928,843 )
Adjustments to reconcile net loss to net cash used in operating activities
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 1,556,752 395,968 2,580,243 1,556,752
Loss on disposal of asset 2,876 -
Loss on disposal of property and equipment - 2,876
Bad debt expense 220,000 51,536 214,061 220,000
Inventory obsolescence 289,406 106,823 222,691 289,406
Share-based compensation 1,971,537 852,226 2,582,163 1,971,537
Accretion of earnout liabilities 173,116 -
Noncash lease expense 189,409 118,022 243,988 189,409
Loss on equity method investment 379,633 472,747 - 379,633
Benefit from deferred income taxes (5,844,796 ) - - (5,844,796 )
Accretion of finance liabilities 39,699 -
Amortization of debt issuance costs 2,055 -
Change in fair value of earnout liabilities (1,494,910 ) 173,116
Changes in operating assets and liabilities:
Accounts receivable, net (754,934 ) 101,916 (794,344 ) (754,934 )
Accounts receivable – related party 10,920 (171,441 ) 87,516 10,920
Inventory, net (451,838 ) (510,920 ) (1,664,714 ) (451,838 )
Prepaid and other assets (69,490 ) (409,084 ) 482,921 (69,490 )
Accounts payable (800,788 ) 50,140 547,186 (800,788 )
Accounts payable – related parties (126,812 ) (91,454 ) 30,711 (126,812 )
Accrued royalties and expenses 947,130 95,976 557,295 947,130
Accrued bonuses and commissions 1,516,858 464,658 (1,673,629 ) 1,516,858
Operating lease liabilities (189,990 ) (120,071 ) (182,498 ) (189,990 )
Net cash used in operating activities (4,909,854 ) (3,030,168 ) (2,397,024 ) (4,909,854 )
Cash flows from investing activities:
Purchases of property and equipment (93,651 ) (30,157 ) (210,970 ) (93,651 )
Proceeds from disposal of assets 894 -
Proceeds from disposal of property and equipment 650 894
Purchases of intangible assets (600,000 ) (578,586 ) - (600,000 )
Investment in equity securities (250,000 ) (3,184,278 ) - (250,000 )
Acquisitions, net of cash acquired (2,191,919 ) - (9,942,750 ) (2,191,919 )
Net cash used in investing activities (3,134,676 ) (3,793,021 ) (10,153,070 ) (3,134,676 )
Cash flows from financing activities:
Draw on line of credit - 800,000
Pay off line of credit - (800,000 )
Public offering net proceeds - 28,939,257
Loan proceeds, net 9,688,341 -
Equity offering net proceeds 1,033,761 -
Net settlement of equity-based awards (102,931 ) - (150,296 ) (102,931 )
Cash payment of finance and earnout liabilities (744,795 ) -
Distribution to noncontrolling interest member (220,000 ) (200,000 ) - (220,000 )
Net cash flows provided by (used in) financing activities (322,931 ) 28,739,257
Net increase (decrease) in cash (8,367,461 ) 21,916,068
Net cash provided by (used in) financing activities 9,827,011 (322,931 )
Net decrease in cash (2,723,083 ) (8,367,461 )
Cash, beginning of period 18,652,841 455,366 8,958,995 18,652,841
Cash, end of period $ 10,285,380 $ 22,371,434 $ 6,235,912 $ 10,285,380

Cash paid during the period for:
Interest $ - $ 711 $ 146,546 $ -
Supplemental noncash investing and financing activities:
Right of use assets obtained in exchange for lease obligations 1,531,773 -
Equity issued for acquisitions 15,738,518 2,334,244 3,089,645 15,738,518
Earnout liabilities generated by acquisitions 6,882,151 -
Earnout and other liabilities generated by acquisitions 3,759,642 6,882,151
Investment in equity securities converted in asset acquisition 1,803,440 - - 1,803,440
License agreement as capital contribution from noncontrolling interest member - 93,879
The accompanying notes are an integral part of these unaudited consolidated financial statements.

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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 ~~subsidiaries, “we”, “our”, “us” or~~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, ~~and~~ chronic wound and ~~skin care~~skincare markets. The Company’s portfolio of products, services and technologies is designed to allow the Company to deliver comprehensive wound and skin care solutions for patients in all care settings, including acute (hospitals and long-term acute care hospitals) and post-acute (wound care clinics, physician offices, skilled nursing facilities, home health, hospice, and retail). 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 ~~patients~~they receive care. The Company strives to be one of the most innovative and comprehensive providers of effective surgical, wound and ~~skin~~skincare solutions and is continually seeking to expand its offerings for patients requiring treatments across the entire continuum of care ~~solutions.~~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. Certain prior year amounts have been reclassified to conform to the current year presentation.

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 nine-month period ended September 30, 2022~~interim periods are not necessarily indicative of the results that may be expected for the full year ~~ending December 31, 2022, 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, ~~2021~~2022 and ~~2020,~~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. The extent to which the COVID-19 pandemic may directly or indirectly impact the Company’s business, financial condition, and results of operations is highly uncertain and subject to change. The Company considered the potential impact of the COVID-19 pandemic on its estimates and assumptions and determined there was not a material impact on the Company’s estimates and assumptions used in preparing its unaudited consolidated financial statements as of and for the nine months ended September 30, 2022. 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 /~~ Income/Loss Per Share

The Company computes ~~income~~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 for the periods presented as their inclusion would have been anti-dilutive during the three and nine months ended September 30, ~~2022~~2023 and ~~2021~~2022 due to the Company’s net loss.

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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 nine months ended September 30, ~~2022~~2023 and ~~2021~~2022, as such shares would have had an anti-dilutive effect:
SCHEDULE OF COMPUTATION OF DILUTED NET LOSS PER SHARE
2022 2021
As of September 30, 2023 2022
2022 2021 As of September 30,
2023 2022
Stock options (a) 155,691 11,500 95,873 155,691
Warrants (b) 16,725 - 16,725 16,725
Unvested restricted stock 192,215 111,590 159,557 192,215
Anti-dilutive securities 192,215 111,590 159,557 192,215

^(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 43 for more information regarding the Precision Healing merger.
^(b) ~~Warrants~~Shares underlying warrants assumed pursuant to the merger agreement with Precision Healing in April 2022. See Note 43 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~~
- 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 ~~2022~~2023 or ~~2021.~~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.~~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.
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Disaggregation of Revenue

Revenue streams from product sales and royalties are summarized below for the three and nine months ended September 30, ~~2022~~2023 and ~~2021.~~2022.
SCHEDULE OF REVENUE FROM PRODUCT SALES AND ROYALTIES
2022 2021 2022 2021
Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
Product sales revenue $ 12,994,321 $ 5,773,692 $ 30,375,822 $ 16,959,761
Royalty revenue 50,250 50,250 150,750 150,750
Total Net Revenue $ 13,044,571 $ 5,823,942 $ 30,526,572 $ 17,110,511
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2023 2022 2023 2022
Three Months Ended Nine Months Ended
September 30, September 30,
2023 2022 2023 2022
Soft tissue repair products $ 13,634,316 $ 10,969,271 $ 39,756,539 $ 28,296,919
Bone fusion products 2,340,382 2,025,050 7,392,740 2,078,903
Royalty revenue 50,250 50,250 150,750 150,750
Total Net Revenue $ 16,024,948 $ 13,044,571 $ 47,300,029 $ 30,526,572

The Company recognizes royalty revenue from a development and license agreement ~~between~~with BioStructures, ~~LLC and the Company.~~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 ~~throughout~~through the ~~life~~end of ~~the patent, which expires in~~ 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 bases the allowance on an assessment of customer creditworthiness, historical payment experience, the age of outstanding receivables and other information as applicable. The Company recorded bad debt expense of $~~25,000~~128,061 and $025,000 during the three months ended September 30, ~~2022~~2023 and ~~2021,~~2022, respectively, and $~~220,000~~214,061 and $~~51,536~~220,000 during the nine months ended September 30, ~~2022~~2023 and ~~2021,~~2022, respectively. The allowance for doubtful accounts was $~~266,909~~511,089 at September 30, ~~2022~~2023 and $~~64,899~~265,089 at December 31, ~~2021. 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.~~2022. The Company also establishes other allowances to provide for estimated customer rebates and other expected customer deductions. These allowances totaled $~~5,311~~5,297 at September 30, ~~2022~~2023 and $~~34,379~~4,761 at December 31, ~~2021.~~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 primarily of finished goods, and also include an immaterial amount of raw materials and related packaging components. The Company recorded inventory obsolescence expense of $~~129,689~~152,701 and $~~76,989~~129,689 ~~during~~for the three months ended September 30, ~~2022~~2023 and ~~2021,~~2022, respectively, and $~~289,406~~222,691 and $~~106,823~~289,406 for the nine months ended September 30, ~~2022~~2023 and ~~2021,~~2022, respectively. The allowance for obsolete and slow-moving inventory had a balance of $~~465,313~~327,492 at September 30, ~~2022,~~2023, and $~~333,850~~523,832 at December 31, ~~2021.~~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 September 30, December 31, Useful September 30, December 31,
Life 2022 2021 Life 2023 2022
Computers 3-5 years $ 156,510 $ 104,568 3-5 years $ 194,788 $ 172,154
Office equipment 3-5 years 50,214 21,731 3-7 years 154,280 87,225
Furniture and fixtures 5-10 years 258,414 221,565 5-10 years 323,755 258,414
Leasehold improvements 2-5 years 19,631 2,030 2-5 years 107,983 19,631
Internal use software 5 years 1,618,999 1,622,525 5 years 1,618,998 1,618,998 ��

Property and equipment, gross 2,103,768 1,972,419 2,399,804 2,156,422
Less accumulated depreciation (633,168 ) (342,574 ) (1,072,748 ) (739,986 )

Property and equipment, net $ 1,470,600 $ 1,629,845 $ 1,327,056 $ 1,416,436
Depreciation expense related to property and equipment was $~~106,347~~116,596 and $~~92,408~~106,347 for the three months ended September 30, ~~2022~~2023 and ~~2021,~~2022, respectively, and $~~300,655~~332,762 and $~~127,448~~300,655 for the nine months ended September 30, ~~2022~~2023 and ~~2021,~~2022, respectively.

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9

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~~depreciated over the estimated useful life of the software, which is generally five years.
Goodwill
~~Goodwill~~
The excess of purchase price over the fair value of identifiable net assets acquired in business combinations is recorded as goodwill. As of September 30, ~~2022,~~2023, all ~~of our~~the Company’s goodwill relates to the acquisition of Scendia Biologics, LLC (“Scendia”) (see Note 5)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. WeThe 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 nine months ended September 30, 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 6 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 ~~including the COVID-19 pandemic,~~ 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 nine months ended September 30, ~~2022 or 2021.~~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.

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 onin the ~~consolidated statements~~Company’s Consolidated Statements of ~~cash flows.~~Cash Flows. As a result of the Precision Healing merger in April 2022 (see Note 3), the Company did not have any investments which are recorded applying the equity method of accounting as of September 30, 2023.
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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 ~~nine-month periods~~nine months ended September 30, ~~2022 and 2021.~~2023 or 2022.
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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, other than acquisition-related accrued expenses, approximate fair value because of the short-term nature of these instruments. The fair value of acquisition-related accrued expenses is categorized as Level 2 of the fair value hierarchy. The value of these instruments has been estimated using discounted cash flow analysis based on the Company’s incremental borrowing rate. The carrying value of the Company’s debt, which has variable interest rates determined each month, approximates fair value based on instruments with similar terms (Level 2 inputs). 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 ~~included as a component~~reported under the line item captioned “Change in fair value of ~~“Other expense”~~earnout liabilities” in the Company’s Consolidated Statements of Operations. The current year changes in fair value of earnout liabilities below are as a result of a decrease in the estimated fair value of the earnout liabilities established at the time of the Company’s Precision Healing and Scendia acquisitions. 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 at December 31, 2022 $ 7,166,691
Additions 893,000
Changes in fair value of earnout liabilities (1,494,910 )
Settlements (692,795 )
Balance at September 30, 2023 $ 5,871,986
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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.

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 ~~platform~~technologies development pipeline. The Company expenses R&D costs as incurred.

~~Recent~~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 are not measured at fair value through net income. The Company adopted the new guidance effective January 1, 2023. The adoption did not have a material impact on the Company’s 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 ~~financial condition,~~ or cash flows.
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~~Revision of Previously Issued Financial Statements~~
As discussed in Note 4, the Company entered into a merger agreement with Precision Healing in April 2022. The merger was accounted for as an asset acquisition in the interim unaudited financial statements for the second quarter of 2022. Subsequent to the issuance of the second quarter 2022 unaudited financial statements, certain errors in the previously issued interim unaudited financial statements were identified. The Company evaluated the materiality of these adjustments from both a quantitative and qualitative perspective and concluded that they were immaterial to the previously issued interim unaudited financial statements taken as a whole. As such, the Company is revising the previously issued interim amounts to correct for these adjustments. These revisions have been effected in the accompanying unaudited financial statements as of and for the nine months ended September 30, 2022.
These adjustments related to the omission of certain deferred tax assets and deferred tax liabilities that were generated as part of applying the purchase accounting prescribed by ASC Topic 805, Business Combinations (“ASC 805”) as well as a change in the classification of one of the intangible assets from indefinite-lived in-process research and development to finite-lived intellectual property, which the Company began amortizing as of the acquisition date. This was done as the primary intellectual property acquired was substantially completed at the time of acquisition. As a result of these adjustments, net intangible assets increased by $~~4,014,810~~ ~~to $25,770,716~~ ~~as of June 30, 2022.~~
As a result of recognizing the net deferred tax liability in accounting for the acquisition, the Company also reduced its valuation allowance that had been previously provided against the Company’s existing net deferred tax assets (see Note 12 for more information).
~~The effects of these adjustments were as follows for the three- and six-month periods ended June 30, 2022:~~
~~SCHEDULE OF PRIOR PERIOD ADJUSTMENTS~~
As Reported Adjustment As Restated As Reported Adjustment As Restated
Three Months Ended June 30, 2022 Six Months Ended June 30, 2022
As Reported Adjustment As Adjusted As Reported Adjustment As Adjusted
Operating loss $ (3,194,469 ) $ (127,096 ) $ (3,321,565 ) $ (5,971,341 ) $ (127,096 ) $ (6,098,437 )
Income tax benefit $ - $
4,141,906
$
4,141,906
$ - $
4,141,906
$
4,141,906

Net income (loss) $ (3,257,896 ) $ 4,014,810 $ 756,914 $ (6,414,401 ) $ 4,014,810 $ (2,399,591 )
Net income (loss) per share of common stock, basic $ (0.42 ) $ 0.52 $ 0.10 $ (0.83 ) $ 0.52 $ (0.31 )
Net income (loss) per share of common stock, diluted $
(0.42
) $
0.51
$
0.09
$
(0.83
) $
0.52
$
(0.31
)
~~NOTE 3 –~~ ~~ROCHAL ASSET ACQUISITION~~
In July 2021, the Company entered into an asset purchase agreement with Rochal Industries, LLC (“Rochal”), a related party, effective July 1, 2021, pursuant to which the Company purchased certain assets of Rochal, including, among others, certain of Rochal’s intellectual property, furniture and equipment, supplies, rights and claims, other than certain excluded assets, all as more specifically set forth in the asset purchase agreement, and assumed certain liabilities upon the terms and subject to the conditions set forth in the asset purchase agreement. 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.
~~In exchange for the acquired assets, the Company paid to Rochal (i) $496,100~~ ~~in cash and (ii)~~ ~~14,369~~ ~~shares of the Company’s common stock and assumed certain net liabilities of $3,900. Based on the trading price of the Company’s common stock on July 14, 2021, the fair value of the equity consideration transferred was determined to be $584,244. The total purchase price as determined by the Company was as follows:~~
~~SCHEDULE OF TOTAL PURCHASE PRICE~~
Description Amount
Net cash consideration $ 496,100
Equity consideration (fair value) 584,244
Net liabilities assumed 3,900
Transaction costs 78,586
Total purchase consideration $ 1,162,830
Prior to the transaction, the Company entered into product license agreements with Rochal, pursuant to which the Company acquired exclusive world-wide licenses to market, sell and further develop certain antimicrobial barrier film and skin protectant products, antimicrobial products for the prevention and treatment of microbes on the human body utilizing certain of Rochal’s patents and a debrider for human medical use to enhance skin condition or treat or relieve skin disorders. Pursuant to the asset purchase agreement, each of the foregoing licenses were retained by Rochal and were excluded from the purchased assets.
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.
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In connection with the asset purchase agreement, the Company hired certain employees of Rochal on an “at will” basis, with the terms of such employment being consistent with the Company’s current employment agreements.
Concurrent with the 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.
Based on guidance provided by ASC 805, the Company recorded the Rochal asset purchase 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 (i.e., patents, patent applications, and patent applications to be written) based on the Company’s internal valuation models. These models assigned value to the acquired intellectual property based on estimated future cash flows over the life of the respective patents and patent applications. Accordingly, the Company accounted for the acquisition of the purchased net assets 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 Company’s internal valuation performed, the total fair value of the net assets acquired was attributable to the intellectual property (i.e., patents, patent applications, and patent applications to be written) and assembled workforce. Due to the de minimis estimated fair value of furniture and equipment acquired, the Company did not allocate any amounts to such assets. The total purchase consideration was allocated based on the relative estimated fair value of such assets as follows:
~~SCHEDULE OF TOTAL PURCHASE CONSIDERATION FAIR VALUE OF SUCH ASSETS~~
Description Amount
Patents and Intellectual Property $ 1,099,801
Assembled Workforce 63,029
Net Assets Acquired $ 1,162,830
~~The Company did not recognize any gain on the purchase of the net assets.~~
NOTE 43 – 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 ~~smart pad~~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 ~~non-accredited~~nonaccredited investors based on the closing price per share of the Company’s common stock on ~~April 4, 2022,~~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.

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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 to such awards.~~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.~~Topic 805, Business Combinations (“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)~~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.

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

SCHEDULE OF PURCHASE CONSIDERATIONS
Consideration Equity Shares Dollar Value Equity
Shares Dollar Value
Fair value of Sanara common shares issued 165,738 $ 5,096,444 165,738 $ 5,096,444
Fair value of assumed options 144,191 4,109,750 144,191 4,109,750
Fair value of assumed warrants 16,725 502,895 16,725 502,895
Cash paid to non-accredited investors 125,370
Cash paid to nonaccredited investors 125,370
Cash paid for fractional shares 596 596
Carrying value of equity method investment in Precision Healing 1,803,440 1,803,440
Fair value of contingent earnout consideration 3,882,151 3,882,151
Direct transaction costs 1,061,137 1,061,137
Total purchase consideration $ 16,581,783 $ 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 ~~as revised (see Note 2)~~ 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 Amount
Cash $ 32,202 $ 32,202
Net working capital (excluding cash) (308,049 ) (308,049 )
Noncontrolling interest in Sanara Biologics, LLC
Customer relationships
Fixed assets, net 9,228 9,228
Deferred tax assets 278,661 278,661
Intellectual property 20,325,469 20,325,469
Assembled workforce 664,839 664,839
Deferred tax liabilities (4,420,567 ) (4,420,567 )
Goodwill
Net assets acquired $ 16,581,783 $ 16,581,783

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NOTE 54 – 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”~~(“Phillips”) 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.~~Phillips.

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~~ACTIGEN 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~~Phillips was entitled to receive closing consideration consisting of (i) approximately $~~1.3~~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~~were withheld ~~issued, and released to the Seller after closing as and~~ to the extent provided in the purchase agreement to satisfy ~~the Seller’s~~Phillips’ indemnification obligations ~~if any.~~and subsequently issued and released to Phillips in July 2023.

In addition to the cash consideration and the stock consideration, the purchase agreement provides that ~~the Seller~~Phillips 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~~Phillips 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. The Company made the first earnout payment of approximately $693,000 in cash in August 2023.

As the contingent earnout payments are not subject to any specific individual performance by ~~the Seller,~~Phillips, 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 Equity Shares Dollar Value
Fair value of Sanara common shares issued 291,686 $ 6,032,066 291,686 $ 6,032,066
Cash consideration 1,238,423 1,562,668
Fair value of contingent earnout consideration 3,000,000 3,000,000
Total purchase consideration $ 10,270,489 $ 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 3,277,536
Net assets acquired $ 10,270,489
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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 $~~33,000~~ 187,000~~and $187,000~~ ~~for the three and nine months ended September 30,~~ in 2022, which is included in “Selling, general and administrative expenses” in the accompanying ~~Unaudited~~ Consolidated Statements of Operations.
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NOTE 5 – APPLIED ASSET PURCHASE
On August 1, 2023, the Company entered into an Asset Purchase Agreement (the “Applied Purchase Agreement”) by and among the Company, as guarantor, Sanara MedTech Applied Technologies, LLC, a Texas limited liability company and wholly owned subsidiary of the Company (“SMAT”), The ~~purchase accounting is preliminary~~Hymed Group Corporation, a Delaware corporation (“Hymed”), Applied Nutritionals, LLC, a Delaware limited liability company (“Applied”, and together with Hymed, the “Sellers”), and Dr. George D. Petito (the “Owner”), pursuant to which SMAT acquired certain assets of the Sellers and the Owner, including, among others, the Sellers’ and Owner’s inventory, intellectual property, manufacturing and related equipment, goodwill, rights and claims, other than certain excluded assets, all as more specifically set forth in the Applied Purchase Agreement (collectively, the “Applied Purchased Assets”), and assumed certain Assumed Liabilities (as defined in the Applied Purchase Agreement), upon the terms and subject to the conditions set forth in the Applied Purchase Agreement (such transaction, the “Applied Asset Purchase”). The Applied Purchased Assets include the underlying intellectual property of, as well as the ~~assessment~~rights to manufacture and sell, CellerateRX Surgical Activated Collagen (Powder and Gel) (“CellerateRX Surgical”) and HYCOL Hydrolyzed Collagen (Powder and Gel) (“HYCOL”) products for human wound care use.
The Applied Purchased Assets were purchased for an initial aggregate purchase price of ~~purchase consideration~~$15.25 million, consisting of (i) $9.75 million in cash (the “Cash Closing Consideration”), (ii) 73,809 shares of the Company’s common stock (the “Stock Closing Consideration”) with an agreed upon value of $3.0 million and ~~allocation~~(iii) $2.5 million in cash (the “Installment Payments”), to be paid in four equal installments on each of ~~fair value is still subject~~the next four anniversaries of the closing of the Applied Asset Purchase (the “Closing”).
Prior to ~~post-closing adjustments~~the Closing, the Company licensed certain of its products from Applied through a sublicense agreement (the “Sublicense Agreement”) with CGI Cellerate RX, LLC (“CGI Cellerate RX”), a related party (see Note 13 for additional information regarding transactions with related parties). Pursuant to the Sublicense Agreement, the Company has an exclusive, world-wide sublicense to distribute CellerateRX Surgical and HYCOL products into the surgical and wound care markets. In connection with the Applied Asset Purchase, Applied assigned its license agreement with CGI Cellerate RX to SMAT. Since the Closing of the Applied Asset Purchase, Sanara indirectly makes intercompany royalty payments to SMAT at the same rate as set forth in the Sublicense Agreement. Effective August 1, 2023, these intercompany royalty payments and the ~~Company~~offsetting cost of goods sold are eliminated on a consolidated basis.
In addition to the Cash Closing Consideration, Stock Closing Consideration and Installment Payments, the Applied Purchase Agreement provides that the Sellers are entitled to receive up to an additional $10.0 million (the “Applied Earnout”), which is ~~still gathering~~payable to the Sellers in cash, upon the achievement of certain performance thresholds relating to SMAT’s collections from net sales of a collagen-based product currently under development. Upon expiration of the seventh anniversary of the Closing, to the extent the Sellers have not earned the entirety of the Applied Earnout, SMAT shall pay the Sellers a pro-rata amount of the Applied Earnout based on collections from net sales of the product, with such amount to be due credited against any Applied Earnout payments already made by SMAT (the “True-Up Payment”). The Applied Earnout, minus the True-Up Payment and ~~evaluating available information to determine if further adjustments are needed.~~any Applied Earnout payments already made by SMAT, may be earned at any point in the future, including after the True-Up Payment is made.

In connection with the ~~Scendia acquisition,~~Applied Asset Purchase and pursuant to the Applied Purchase Agreement, effective August 1, 2023, the Company entered into a professional services agreement (the “Petito Services Agreement”) with the Owner, pursuant to which the Owner, as an independent contractor, agreed to provide certain services to the Company, including, among other things, assisting with the development of products already in development and assisting with research, development, formulation, invention and manufacturing of any future products (the “Petito Services”). As consideration for the Petito Services, the Owner is entitled to receive: (i) a base salary of $12,000 per month during the term of the Petito Services Agreement, (ii) a royalty payment equal to three percent (3%) of the actual collections from net sales of certain products the Owner develops or co-develops that reach commercialization, (iii) a royalty payment equal to five percent (5%) for the first $50.0 million in aggregate collections from net sales of certain future products and a royalty payment of two and one-half percent (2.5%) on aggregate collections from net sales of certain future products on any amounts exceeding $50.0 million but up to $100.0 million, (iv) $500,000 in cash in the event that 510(k) clearance is issued for any future product accepted by the Company and (v) $1.0 million in cash in the event that a U.S. patent is issued for a certain product; provided that with respect to the incentive payments described in (iv) and (v) of the foregoing, the Owner shall not earn more than $2.5 million.
The Petito Services Agreement has an initial term of three years and is subject to automatic successive one-month renewals unless earlier terminated in accordance with its terms. The Petito Services Agreement may be terminated upon the Owner’s death or disability or by the Company or the Owner “For Cause” (as defined in the Petito Services Agreement); provided, however, that the base salary described in (i) of the foregoing paragraph shall survive termination through the three-year initial term and the royalty payments and incentive payments described in (ii)-(v) of the foregoing paragraph shall survive termination of the Petito Services Agreement.
As the contingent consideration was negotiated as part of the transfer of assets, the contingent obligations were measured at fair value and included in the total purchase consideration transferred. 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.
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The total purchase consideration for the Applied Asset Purchase as determined by the Company was as follows:
SCHEDULE OF PURCHASE CONSIDERATION
Consideration Equity Shares Dollar Value
Cash Closing Consideration $ 9,750,000
Fair value of Stock Closing Consideration 73,809 3,089,645
Fair value of Installment Payments 2,040,808
Cash paid for inventory 30,007
Fair value of Petito Services Agreement defined payments 825,834
Fair value of Petito Services Agreement contingent consideration 893,000
Direct transaction costs 162,743
Total purchase consideration $ 16,792,037
Based on guidance provided by ASC 805, the Company recorded the Applied Asset Purchase as an ~~income tax benefit~~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 being the only significant asset acquired. Accordingly, the Company accounted for the transaction as an asset acquisition.
~~1,702,890~~
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 in the third quarter of ~~2022. See Note 12 for more information regarding~~2023. The total purchase consideration was allocated based on the ~~income tax benefit.~~
~~Unaudited Pro Forma Financial Information~~
~~The unaudited pro forma financial information in the table below summarizes the combined results~~relative estimated fair value of ~~operations of the Company and Scendia~~such assets as though the acquisition had occurred as of January 1, 2021. The pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of each period presented nor is it indicative of future results. The following pro forma financial information presented includes adjustments for net revenue and cost of goods sold related to transactions between the Company and Scendia that have been eliminated, as well as the pro forma depreciation and amortization charges from acquired tangible and intangible assets for the three and nine months ended September 30, 2021 and 2022.
follows:
SCHEDULE OF ~~BUSINESS ACQUISITION, PRO FORMA INFORMATION~~PURCHASE CONSIDERATION ON FAIR VALUE OF ASSETS ACQUIRED
2022 2021 2022 2021
Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
Net Revenue $ 13,044,571 $ 7,452,902 $ 36,454,704 $ 21,826,180
Net Loss $ (1,529,252 ) $ (2,189,798 ) $ (3,193,078 ) $ (4,800,211 )
Description Amount
Inventory $ 30,007
Equipment 33,062
Intellectual property 16,728,968
Net assets acquired $ 16,792,037

NOTE 6 – INTANGIBLE ASSETS

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

SCHEDULE OF FINITE LIVED INTANGIBLE ASSETS
September 30, 2022 December 31, 2021
Accumulated Accumulated
Cost Amortization Net Cost Amortization Net
Amortizable Intangible Assets:
Product Licenses $ 4,793,879 $ (872,073 ) $ 3,921,806 $ 4,193,879 $ (586,541 ) $ 3,607,338
Patents and Other IP 21,935,580 (1,185,294 ) 20,750,286 1,610,111 (551,285 ) 1,058,826
Customer relationships and other 7,947,332 (402,242 ) 7,545,090 127,492 (65,686 ) 61,806

Total $ 34,676,791 $ (2,459,609 ) $ 32,217,182 $ 5,931,482 $ (1,203,512 ) $ 4,727,970
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. Pursuant to the agreement, at the time Rochal issues a purchase order to its contract manufacturer for the first good manufacturing practice run of the licensed products, the Company is obligated to pay Rochal $~~600,000~~ in cash. This milestone was achieved during the second quarter of 2022 and, as a result, the Company recorded an addition to intangible assets. This payment was made in July 2022, and accordingly, the associated payable was recorded at June 30, 2022.
~~In March 2021, the Company issued~~ ~~20,834~~ ~~shares of its common stock to Rochal, for a $750,000~~ milestone payment required per the terms of a licensing agreement with Rochal. The payment became due upon the Company’s public offering of common stock in February 2021. The milestone payment was recorded as an addition to intangible assets.
September 30, 2023 December 31, 2022
Accumulated Accumulated
Cost Amortization Net Cost Amortization Net
Amortizable Intangible Assets:
Product licenses $ 4,793,879 $ (1,246,115 ) $ 3,547,764 $ 4,793,879 $ (980,583 ) $ 3,813,296
Patents and other IP 38,664,548 (2,598,220 ) 36,066,328 21,935,580 (1,492,057 ) 20,443,523
Customer relationships and other 7,947,332 (1,569,958 ) 6,377,374 7,947,332 (694,171 ) 7,253,161
Total $ 51,405,759 $ (5,414,293 ) $ 45,991,466 $ 34,676,791 $ (3,166,811 ) $ 31,509,980

As of September 30, ~~2022,~~2023, the weighted-average amortization period for finite-lived intangible assets was ~~14.3~~14.5 years. Amortization expense related to intangible assets was $~~708,534~~881,079 and $~~112,162~~708,534 for the three months ended September 30, 2023 and 2022, ~~and 2021~~respectively, and $~~1,256,097~~2,247,482 and $~~268,520~~1,256,097 for the nine months ended September 30, 2023 and 2022, ~~and 2021.~~respectively. The estimated remaining amortization expense as of September 30, ~~2022~~2023 for finite-lived intangible assets is as follows:

SCHEDULE OF FUTURE AMORTIZATION EXPENSE

Remainder of 2022 $ 695,201
2023 2,780,806
Remainder of 2023 $ 974,018
2024 2,780,806 3,896,070
2025 2,780,806 3,896,070
2026 2,763,550 3,878,815
2027 2,649,698 3,764,962
2028 3,731,721
Thereafter 17,766,315 25,849,810
Total $ 32,217,182 $ 45,991,466
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The Company has reviewed the carrying value of intangible assets and has determined there was no impairment during either of the nine months ended September 30, ~~2022~~2023 or ~~2021.~~2022.

NOTE 7 – 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.

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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 September 30, ~~2022.~~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 in 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 43 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 nine months ended September 30, 2022 as its share of the loss from this equity method investment ~~in 2022~~ 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”~~“Pixalere Shares”) of Canada-based Pixalere Healthcare Inc. (“Pixalere”). The Pixalere 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 Pixalere 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 Pixalere Shares in accordance with ASC Topic 323, Investments – Equity Method and Joint Ventures. Due to the substantive liquidation preferences of the Pixalere Shares over Pixalere’s common stock, the Pixalere Shares are not “in-substance” common stock, and therefore, the Company ~~will~~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 September 30, ~~2022.~~2023.

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

SCHEDULE OF INVESTMENTS
September 30, 2022 December 31, 2021 September 30, 2023 December 31, 2022
Carrying Amount Economic Interest Carrying Amount Economic Interest Carrying Amount Economic Interest Carrying Amount Economic Interest
Equity Method Investment  
Precision Healing Inc. $ - - % $ 2,183,073 40.3 % $ - - % $ - - %

Cost Method Investments
Direct Dermatology, Inc. 1,000,000 750,000 1,000,000 1,000,000
Pixalere Healthcare, Inc. 2,084,278 2,084,278
Pixalere Healthcare Inc. 2,084,278 2,084,278
Total Cost Method Investments 3,084,278 2,834,278 3,084,278 3,084,278

Total Investments $ 3,084,278 $ 5,017,351 $ 3,084,278 $ 3,084,278
The following summarizes the loss from the equity method investment reflected in the ~~consolidated statements~~Consolidated Statements of ~~operations:~~Operations:

SCHEDULE OF LOSS FROM EQUITY METHOD INVESTMENT
2022 2021 2022 2021 2023 2022 2023 2022
Three Months ended
September 30, Nine Months Ended
September 30, Three Months ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021 2023 2022 2023 2022
Investment
Precision Healing Inc. $ - $ (193,843 ) $ (379,633 ) $ (472,747 ) $ - $ - $ - $ (379,633 )

Total $ - $ (193,843 ) $ (379,633 ) $ (472,747 ) $ - $ - $ - $ (379,633 )
Loss from equity method investment $ - $ - $ - $ (379,633 )
NOTE 8 -– 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 ~~active~~material operating ~~leases: two~~leases for office space. In March and September 2023, the Company amended its primary office lease to obtain additional space, as well as extend the term. The leases ~~with~~have remaining lease terms of 2187, 40 and 52 ~~months, respectively, and a facility lease with a remaining term of~~ 3523 months as of September 30, ~~2022. All other leases are short-term leases, which for~~2023. For practical expediency, the Company has elected to not recognize as ROU assets and lease ~~liabilities.~~liabilities related to short-term leases.

In accordance with ASC Topic 842, Leases, the Company has recorded ROU assets of $~~854,723~~2,094,188 and a related lease liability of $~~866,816~~2,168,499 as of September 30, ~~2022.~~2023. The Company recorded lease expense of $295,268 and $210,317 for the nine months ended September 30, 2023 and 2022, respectively, for its leased ~~assets and $139,091~~ ~~for the nine months ended September 30, 2021.~~assets. Cash paid for amounts included in the measurement of operating lease liabilities was $264,291 and $210,897 for the nine months ended September 30, 2023 and 2022, ~~and $139,667~~ ~~for the nine months ended September 30, 2021.~~respectively. The present value of the Company’s operating lease liabilities as of September 30, 2023 is shown below.
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Maturity of Operating Lease Liabilities
SCHEDULE OF OPERATING LEASE LIABILITY
September 30,
2022 September 30, 2023
Remainder of 2022 85,291
2023 344,565
Remainder of 2023 $ 116,285
2024 273,981 505,017
2025 159,469 532,053
2026 79,161 379,529
2027 297,947
2028 295,689
Thereafter 6,727 604,049

Total lease payments 949,194 2,730,569
Less imputed interest (82,378 ) (562,070 )
Present Value of Lease Liabilities $ 866,816 $ 2,168,499

Operating lease liabilities – current 299,072 322,206
Operating lease liabilities – long-term 567,744 1,846,293

As of September 30, ~~2022,~~2023, the Company’s operating leases ~~have~~had a weighted average remaining lease term of ~~3.1~~6.0 years and a weighted average discount rate of ~~4.09~~7.59%.
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NOTE 9 – DEBT AND CREDIT FACILITIES
In connection with the entry into the Applied Purchase Agreement, on August 1, 2023, SMAT, as borrower, and the Company, as guarantor, entered into a loan agreement (the “Loan Agreement”) with Cadence Bank (the “Bank”) providing for, among other things, an advancing term loan in the aggregate principal amount of $12.0 million (the “Term Loan”), which was evidenced by an advancing promissory note. Pursuant to the Loan Agreement, the Bank agreed to make, at any time and from time to time prior to February 1, 2024, one or more advances to SMAT.
The proceeds of the advances under the Loan Agreement will be used for working capital and for purposes of financing up to one hundred percent (100%) of the Cash Closing Consideration and Installment Payments for the Applied Asset Purchase and related fees and expenses, including any subsequent payments that may be due to the Sellers after the Closing. On August 1, 2023, the Bank, at the request of SMAT, made an advance for $9.75 million. The proceeds from the advance were used to fund the Cash Closing Consideration for the Applied Asset Purchase.
Advances under the Term Loan will begin amortizing in monthly installments commencing on August 5, 2024. All remaining unpaid balances under the Term Loan are due and payable in full on August 1, 2028 (the “Maturity Date”). SMAT may prepay amounts due under the Term Loan. All accrued but unpaid interest on the unpaid principal balance of outstanding advances is due and payable monthly, beginning on September 5, 2023 and continuing monthly on the fifth day of each month thereafter until the Maturity Date. The unpaid principal balance of outstanding advances bears interest, subject to certain conditions, at the lesser of the Maximum Rate (as defined in the Loan Agreement) or the Base Rate, which is for any day, a rate per annum equal to the term secured overnight financing rate (Term SOFR) (as administered by the Federal Reserve Bank of New York) for a one-month tenor in effect on such day plus three percent (3.0%).
The obligations of SMAT under the Loan Agreement and the other loan documents delivered in connection therewith are guaranteed by the Company and are secured by a first priority security interest in substantially all of the existing and future assets of SMAT.
The Loan Agreement contains customary representations and warranties and certain covenants that limit (subject to certain exceptions) the ability of SMAT and the Company to, among other things, (i) create, assume or guarantee certain liabilities, (ii) create, assume or suffer liens securing indebtedness, (iii) make or permit loans and advances, (iv) acquire any assets outside the ordinary course of business, (v) consolidate, merge or sell all or a material part of its assets, (vi) pay dividends or other distributions on, or redeem or repurchase, interest in an obligor, including the Company, as guarantor (vii) cease, suspend or materially curtail business operations or (viii) engage in certain affiliate transactions. In addition, the Loan Agreement contains financial covenants that require SMAT to maintain (i) a minimum Debt Services Coverage Ratio of 1.2 to 1.0 as of the last day of each applicable fiscal quarter and (ii) a maximum Cash Flow Leverage Ratio of not more than (a) 4.5 to 1.0 as of the last day of the fiscal quarter ending on September 30, 2023, (b) 4.0 to 1.0 as of the last day of each fiscal quarter ending on December 31, 2023 and March 31, 2024, (c) 3.5 to 1.0 as of the last day of each fiscal quarter ending June 30, 2024 and September 30, 2024 and (d) 3.0 to 1.0 as of the last day of each fiscal quarter thereafter. Pursuant to the Loan Agreement, in the event that SMAT fails to comply with the financial covenants described above, the Company is required to contribute cash to SMAT in an amount equal to the amount required to satisfy the financial covenants. During the three months ended September 30, 2023, the Company contributed an immaterial amount of cash to SMAT in order to permit SMAT to be in compliance with the financial covenants under the Loan Agreement. The Company was in compliance with the financial covenants under the Loan Agreement as of September 30, 2023.
The Loan Agreement also contains customary events of default. If such an event of default occurs, the Bank would be entitled to take various actions, including the acceleration of amounts due under the Loan Agreement and actions permitted to be taken by a secured creditor.
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The table below presents the components of outstanding debt for the periods presented:
SCHEDULE OF LONG-TERM DEBT
September 30, 2023 December 31, 2022
Term Loan $ 9,750,000 $ -
Total debt 9,750,000 -
Less: debt issuance costs, net of accumulated amortization of $2,055 and zero (59,603 ) -
Long-term debt 9,690,397 -
Less: current portion of debt 232,143 -
Long-term debt, net of current portion $ 9,458,254 $ -
As of September 30, 2023, the interest rate on the advance under the Term Loan was 8.3%.

~~NOTE 9 -~~ ~~COMMITMENTS AND CONTINGENCIES~~The table below presents the aggregate maturities of the Company’s outstanding debt as of September 30, 2023:
SCHEDULE OF MATURITIES OUTSTANDING DEBT
Year Total
Remainder of 2023 $ -
2024 580,357
2025 1,625,000
2026 1,950,000
2027 1,950,000
2028 3,644,643
Thereafter -
Total debt $ 9,750,000

~~License Agreements and Royalties~~
~~CellerateRX Activated Collagen~~
In ~~August 2018,~~connection with the Term Loan, 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 amendedincurred $61,658 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~~. Minimum royalties of $400,000~~ ~~per year are payable for the first five years of the sublicense agreement.~~
~~Under this agreement, royalty expense, which is recorded in “Cost of goods sold” in the accompanying Unaudited Consolidated Statements of Operations, was $432,809~~ ~~and $172,731, respectively, for~~debt issuance costs during the three months ended September 30, 2023. Debt issuance costs are amortized to “Interest expense and other” on the Consolidated Statement of Operations over the life of the debt to which they pertain. The total unamortized debt issuance costs were $59,603 and zero as of September 30, 2023 and December 31, 2022, respectively. Debt issuance costs are included in “Long-term debt, net of current portion” on the Consolidated Balance Sheets. Amortization expense related to debt issuance costs was $2,055and ~~2021. For~~zero for the three and nine months ended September 30, ~~2022~~2023 and ~~2021, royalty expense was $1,245,775~~ ~~and $576,951~~,2022, respectively.
~~BIAKŌS Antimicrobial Wound Gel and BIAKŌS Antimicrobial Skin and Wound Cleanser~~
In July 2019, the Company executed a license agreement with Rochal 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 (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) approved.
~~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 is $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.~~
~~Under this agreement, royalty expense, which is recorded in “Cost of goods sold” in the accompanying Unaudited Consolidated Statements of Operations, was $30,000~~ ~~and $27,500, respectively, for the three months ended September 30, 2022 and 2021. For the nine months ended September 30, 2022 and 2021, royalty expense was $90,000~~ ~~and $82,500, respectively.~~
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~~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 have been recognized under this agreement as of September 30, 2022.
~~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 September 30, 2022.
~~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 over the life of the patent, which expires in 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 Unaudited Consolidated Statements of Operations.~~
~~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 non-accredited investors based on the closing price per share of the Company’s common stock on April 4, 2022, which was $30.75~~.
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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 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 4 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 $~~7.3~~ ~~million, subject to customary post-closing adjustments. The consideration consisted of (i) approximately $1.3~~ ~~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, issued, 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 5 for more information regarding the acquisition of Scendia.
~~Other Commitments~~
In May 2019, the Company organized Sanara Pulsar, LLC (“Sanara Pulsar”), a Texas limited liability company, which is 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 will increase by 10~~%. In April 2022, the Company paid WCS $220,000~~ related to the fiscal 2021 Form K-1. All other distributions made by Sanara Pulsar to its members, not including tax distributions, will be made exclusively to the Company until such time as the Company has received an amount of distributions equal to all such advances to WCS.

NOTE 10 – ~~DEBT~~COMMITMENTS AND ~~CREDIT FACILITIES~~CONTINGENCIES
License Agreements and Royalties
CellerateRX Surgical Activated Collagen
In August 2018, the Company entered into the Sublicense Agreement with 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 a benefit of $9,209 for the three months ended September 30, 2023 due to the reversal of an accrual and $432,809 of expense for the three months ended September 30, 2022, respectively. Royalty expense totaled $1,060,035 and $1,245,775 for the nine months ended September 30, 2023 and 2022, respectively. Sales of CellerateRX Surgical comprised the substantial majority of the Company’s sales during the three and nine months ended September 30, 2023 and 2022.
As discussed further in Note 5, on August 1, 2023, the Company purchased certain assets from Applied, including the underlying intellectual property of, as well as the rights to manufacture and sell, CellerateRX Surgical and HYCOL products. In connection with the Applied Asset Purchase, Applied assigned its license agreement with CGI Cellerate RX to SMAT. Since the Closing, Sanara indirectly makes intercompany royalty payments to SMAT at the same rate as set forth in the Sublicense Agreement. Effective August 1, 2023, these intercompany royalty payments and the offsetting cost of goods sold are eliminated on a consolidated basis.
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~~Revolving Line of Credit~~BIAKŌS Antimicrobial Wound Gel and BIAKŌS Antimicrobial Skin and Wound Cleanser

In ~~January~~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.
Under this agreement, royalty expense, which is recorded in “Cost of goods sold” in the accompanying Consolidated Statements of Operations, was $32,499 and $30,000 for the three months ended September 30, 2023 and 2022, respectively. For the nine months ended September 30, 2023 and 2022, royalty expense was $97,499 and $90,000, 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 September 30, 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.
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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 September 30, 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.
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 ~~loan agreement (the “Loan Agreement”)~~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 ~~Cadence Bank, N.A. (“Cadence”) providing for~~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 $~~2.5~~ ~~million revolving line~~merger transaction with Precision Healing pursuant to which Precision Healing became a wholly owned subsidiary of ~~credit.~~the Company. Pursuant to the terms of the ~~Loan Agreement,~~merger agreement, holders of Precision Healing common stock and preferred stock, other than the ~~revolving line~~Company, were entitled to receive closing consideration, consisting of ~~credit~~$125,966 in cash consideration, which was ~~set~~paid to ~~mature on January 13, 2023, and was secured by substantially all~~stockholders who were not accredited investors, 165,738 shares of the Company’s ~~assets.~~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.
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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 were withheld to the extent provided in the purchase agreement to satisfy Phillips’ indemnification obligations and subsequently issued and released to Phillips in July 2023.
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~~Effective March 25,~~In addition to the cash consideration and the stock consideration, the purchase agreement provides that Phillips 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 Phillips 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. The Company made the first earnout payment of approximately $693,000 in cash in August 2023. The Company expects the second earnout payment to be made in the third quarter of 2024. See Note 4 for more information regarding the acquisition of Scendia.
Applied Asset Purchase
On August 1, 2023, the Company closed the Applied Asset Purchase. The Applied Purchased Assets were purchased for an initial aggregate purchase price of $15.25 million, consisting of (i) the Cash Closing Consideration , (ii) the Stock Closing Consideration and (iii) the Installment Payments.
In addition to the Cash Closing Consideration, Stock Closing Consideration and Installment Payments, the Applied Purchase Agreement provides that the Sellers are entitled to receive the Applied Earnout, which is payable to the Sellers in cash, upon the achievement of certain performance thresholds relating to SMAT’s collections from net sales of a collagen-based product currently under development. Upon expiration of the seventh anniversary of the Closing, to the extent the Sellers have not earned the entirety of the Applied Earnout, SMAT shall pay the Sellers the True-Up Payment. The Applied Earnout, minus the True-Up Payment and any Applied Earnout payments already made by SMAT, may be earned at any point in the future, including after the True-Up Payment is made.
In connection with the Applied Asset Purchase and pursuant to the Applied Purchase Agreement, effective August 1, 2023, the Company entered into the Petito Services Agreement with the Owner, pursuant to which the Owner, as an independent contractor, agreed to provide the Petito Services. As consideration for the Petito Services, the Owner is entitled to receive: (i) a base salary of $12,000 per month during the term of the Petito Services Agreement, (ii) a royalty payment equal to three percent (3%) of the actual collections from net sales of certain products the Owner develops or co-develops that reach commercialization, (iii) a royalty payment equal to five percent (5%) for the first $50.0 million in aggregate collections from net sales of certain future products and a royalty payment of two and one-half percent (2.5%) on aggregate collections from net sales of certain future products on any amounts exceeding $50.0 million but up to $100.0 million, (iv) $500,000 in cash in the event that 510(k) clearance is issued for any future product accepted by the Company and (v) $1.0 million in cash in the event that a U.S. patent is issued for a certain product; provided that with respect to the incentive payments described in (iv) and (v) of the foregoing, the Owner shall not earn more than $2.5 million.
The Petito Services Agreement has an initial term of three years and is subject to automatic successive one-month renewals unless earlier terminated in accordance with its terms. The Petito Services Agreement may be terminated upon the Owner’s death or disability or by the Company or the Owner “For Cause” (as defined in the Petito Services Agreement); provided, however, that the base salary described in (i) of the foregoing paragraph shall survive termination through the three-year initial term and the royalty payments and incentive payments described in (ii)-(v) of the foregoing paragraph shall survive termination of the Petito Services Agreement.
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 ~~terminated~~paid WCS $220,000 related to the ~~Loan Agreement~~fiscal 2021 Form K-1 and ~~released Cadence from any obligation to make advances under the Loan Agreement. No amounts of principal, interest or other fees and expenses were owed by~~in December 2022, the Company asaccrued an additional payment of $242,000 related to the ~~termination date.~~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.
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NOTE 11 – 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 ~~481,195~~587,465 shares had been issued under the LTIP Plan and ~~1,518,805~~1,412,535 were available for issuance as of September 30, ~~2022.~~
In January 2021, the Company entered into an Equity Exchange Agreement (the “Exchange Agreement”) whereby the Company acquired the remaining equity interests in Woundyne Medical, LLC (“Woundyne”) in exchange for the issuance of an aggregate of ~~29,536~~ ~~shares of the Company’s common stock with a fair value of $1,000,000~~. The acquisition of the outstanding equity interests of Woundyne was accounted for as an asset acquisition. The primary asset acquired by the Company is the Woundyne software platform which allows data related to chronic and surgical wounds to be tracked, monitored, and interfaced with the software user’s electronic medical records. Woundyne has no other material assets, liabilities, or revenues. The issuance of these shares was recorded as the cost of acquiring internal use software. The Company subsequently changed the name of Woundyne Medical, LLC to WounDerm, LLC.
In February 2021, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Cantor Fitzgerald & Co. as representative of several underwriters named therein (collectively, the “Underwriters”), pursuant to which the Company agreed to issue and sell an aggregate of ~~1,100,000~~ ~~shares of the Company’s common stock to the Underwriters at a price to the public of $25.00~~ per share, less underwriting discounts and commissions (the “Offering”). Pursuant to the Underwriting Agreement, the Company granted the Underwriters a 30-day option to purchase up to an additional ~~165,000~~ ~~shares of common stock at the public offering price, less underwriting discounts and commissions, which the Underwriters exercised in full. The Offering, including the purchase of the~~ ~~165,000~~ ~~additional shares of common stock, closed in February 2021.~~
~~The net proceeds to the Company from the Offering were approximately $28.9~~ million, after (i) giving effect to the Underwriter’s full exercise of its option to purchase additional shares of common stock, and (ii) deducting the underwriting discounts and commissions and offering expenses payable by the Company. Through an insured cash sweep service, the net proceeds have been deposited in accounts insured by the Federal Deposit Insurance Corporation.
~~Following the closing of the Offering in February 2021, the Company made a $750,000~~ ~~milestone payment to Rochal in the form of~~ ~~20,834~~ ~~shares of the Company’s common stock (see Note 6).~~
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, including, among others, certain of Rochal’s intellectual property, furniture and equipment, supplies, rights and claims, other than certain excluded assets, all as more specifically set forth in the asset purchase agreement. In exchange for the acquired assets, the Company paid to Rochal (i) $~~496,100~~ ~~in cash and (ii)~~ ~~14,369~~ ~~shares of the Company’s common stock, and assumed certain net liabilities of $3,900. Based on the trading price of the Company’s common stock on July 14, 2021, the fair value of the equity consideration transferred was determined to be $584,244~~.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 ~~non-accredited~~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.

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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 43 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 $~~7.3~~7.6 million, subject to customary post-closing adjustments. The consideration consisted of (i) approximately $~~1.3~~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~~were withheld ~~issued, and released to the Seller after closing as and~~ to the extent provided in the purchase agreement to satisfy ~~the Seller’s~~Phillips’ indemnification obligations ~~if any.~~and subsequently issued and released to Phillips in July 2023.

In addition to the cash consideration and the stock consideration, the purchase agreement provides that ~~the Seller~~Phillips 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~~Phillips 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. The Company made the first earnout payment of approximately $693,000 in cash in August 2023. See Note 54 for more information regarding the acquisition of Scendia.
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.
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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 September 30, 2023, the Company did not sell any shares of common stock pursuant to the Sales Agreement. During the nine months ended September 30, 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 pursuant to the Sales Agreement.
On August 1, 2023, the Company closed the Applied Asset Purchase. The Applied Purchased Assets were purchased for an initial aggregate purchase price of $15.25 million, consisting of (i) the Cash Closing Consideration, (ii) the Stock Closing Consideration and (iii) the Installment Payments.

Restricted Stock Awards

During the nine months ended September 30, ~~2022,~~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 ~~172,986~~107,797 shares, net of forfeitures, of restricted common stock to employees, directors, and ~~directors~~certain advisors of the ~~Company.~~Company under the LTIP Plan during the nine months ended September 30, 2023. The fair value of these awards was $~~4,305,323~~4,287,777 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 $~~683,202~~857,526 and $~~228,786~~683,202 was recognized in “Selling, general and administrative expenses” in the accompanying Consolidated Statements of Operations during the three months ended September 30, 2023 and 2022, ~~and 2021~~respectively, and $~~1,971,537~~2,582,163 and $~~852,226~~1,971,537 was recognized during the nine months ended September 30, 2023 and 2022, ~~and 2021. Equity awards totaling $1,038,183, which were accrued as a liability as of December 31, 2021, were reclassed to equity in 2022 upon settlement of these awards.~~respectively.

At September 30, ~~2022,~~2023, there was $~~2,999,731~~3,980,624 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 ~~0.9~~1.0 years.

Below is a summary of restricted stock activity for the nine months ended September 30, ~~2022:~~2023:

SUMMARY OF RESTRICTED STOCK ACTIVITY
For the Nine Months Ended For the Nine Months Ended
September 30, 2023
September 30, 2022 Shares Weighted Average
Grant Date Fair Value
Shares
Weighted Average Grant Date Fair Value

Non-vested at beginning of period 161,450 $ 18.13
Nonvested at beginning of period 181,102 $ 22.89
Granted 178,857 24.78 118,912 39.14
Vested (142,221 ) 20.09 (129,342 ) 22.84
Forfeited (5,871 ) 21.52 (11,115 ) 32.96
Non-vested at September 30, 2022 192,215 $ 22.76
Nonvested at September 30, 2023 159,557 $ 34.27
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Stock Options

A summary of the status of outstanding stock options at September 30, ~~2022,~~2023 and changes during the ~~nine-month period~~nine months then ended is presented below:

SCHEDULE OF STOCK OPTION ACTIVITY
For the Nine Months Ended
September 30, 2023
For the Nine Months Ended Weighted Average Weighted Average
September 30, 2022 Exercise Remaining
Options Weighted Average Exercise
Price
Weighted Average
Remaining
Contract Life
Options Price Contract Life
Outstanding at beginning of period 11,500 $ 6.00 146,191 $ 10.65
Granted or assumed 144,191 10.71 - -
Exercised - - (50,318 ) 11.58
Forfeited - - - -
Expired - - - -
Outstanding at September 30, 2022 155,691 $ 10.36 7.5
Outstanding at September 30, 2023 95,873 $ 10.16 7.1

Exercisable at September 30, 2022 155,691 $ 10.36 7.5
Exercisable at September 30, 2023 95,873 $ 10.16 7.1
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Warrants

A summary of the status of outstanding warrants to purchase common stock at September 30, ~~2022,~~2023 and changes during the ~~nine-month period~~nine months then ended is presented below:

SCHEDULE OF WARRANTS TO PURCHASE COMMON STOCK
For the Nine Months Ended
For the Nine Months Ended
September 30, 2023

September 30, 2022 Weighted Average Weighted Average
Weighted Average Weighted Average Exercise Remaining
Warrants Exercise
Price Remaining
Contract Life Warrants Price Contract Life
Outstanding at beginning of period - $ - 16,725 $ 10.80
Granted or assumed 16,725 10.80 - -
Exercised - - - -
Forfeited - - - -
Expired - - - -
Outstanding at September 30, 2022 16,725 $ 10.80 8.0
Outstanding at September 30, 2023 16,725 $ 10.80 7.0

Exercisable at September 30, 2022 16,725 $ 10.80 8.0
Exercisable at September 30, 2023 16,725 $ 10.80 7.0

NOTE 12 – INCOME TAXES

As discussed in Notes 43 and 5,4, the Company recognized net deferred tax liabilities associated with the Precision Healing merger and the Scendia acquisition. ~~As of September 30, 2022, prior~~Prior to consideration of these deferred tax liabilities, the Company had net deferred tax assets in excess of the deferred tax liabilities being recognized, however, a 100% valuation allowance had previously been provided against the Company’s net deferred tax assets. As a result of the recording of the net deferred tax liabilities related to the Precision Healing merger and the Scendia acquisition, the Company reviewed the valuation allowance and determined that it should be reduced by the amount of the deferred tax liabilities that were recognized. This resulted in ~~a year-to-date~~an income tax benefit of ~~approximately~~ $~~5.8~~1,702,890 ~~million consisting of approximately~~and $~~4.1~~5,844,796 ~~million~~ in the ~~quarter ended June 30, 2022,~~three and ~~approximately $1.7~~ ~~million in the quarter~~nine months ended September 30, ~~2022.~~
~~NOTE 13 -~~ ~~RELATED PARTIES~~
~~Payables and Receivables with Related Parties~~2022, respectively.

~~The Company had outstanding payables to related parties totaling $~~NOTE 13 – ~~29,005~~RELATED PARTIES ~~at September 30, 2022, and $155,817~~ ~~at December 31, 2021. The Company had outstanding receivables from related parties totaling $68,867~~ ~~at September 30, 2022, and $79,787~~ ~~at December 31, 2021.~~

CellerateRX Surgical 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~~prior to the Applied Asset Purchase, licensed the rights to CellerateRX Surgical and HYCOL from ~~Applied Nutritionals.~~Applied. Sales of CellerateRX ~~have~~Surgical comprised the substantial majority of ~~our~~the Company’s sales during ~~2021~~the nine months ended September 30, 2023 and ~~the first half of~~ 2022. In January 2021, the Company amended the term of the ~~sublicense agreement~~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)~~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. ~~Minimum royalties of $400,000 per year are payable for the first five years of the sublicense agreement, which was entered on August 27, 2018. For the three months ended September 30, 2022 and 2021, royalty expense, which is recorded in “Cost of goods sold” in the accompanying Unaudited Consolidated Statements of Operations, was $432,809~~ ~~and $172,731, respectively. For the nine months ended September 30, 2022 and 2021, royalty expense was $1,245,775~~ ~~and $576,951, respectively, under the terms of this agreement.~~

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As discussed further in Note 5, on August 1, 2023, the Company purchased certain assets from Applied, including the underlying intellectual property of, as well as the rights to manufacture and sell, CellerateRX Surgical and HYCOL products. In connection with the Applied Asset Purchase, Applied assigned its license agreement with CGI Cellerate RX to SMAT. Since the Closing, Sanara indirectly makes intercompany royalty payments to SMAT at the same rate as set forth in the Sublicense Agreement. Ronald T. Nixon, the Company’s Executive Chairman, is the founder and managing partner of Catalyst.

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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) ~~approved.~~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 ~~director~~significant shareholder and ~~significant shareholder~~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~~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 910 for more information on these product license agreements.
~~Rochal Asset Purchase~~
As discussed in Note 3, in July 2021, the Company entered into an asset purchase agreement with Rochal, effective July 1, 2021, pursuant to which we purchased certain assets of Rochal, including, among others, certain of Rochal’s intellectual property, furniture and equipment, supplies, rights and claims, and assumed certain liabilities upon the terms and subject to the conditions set forth in the asset purchase agreement. In exchange for the acquired assets, the Company paid Rochal (i) $~~496,100~~ ~~in cash and (ii)~~ ~~14,369~~ ~~shares of the Company’s common stock.~~

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.
~~Mr. Nixon~~ Ms. Salamone is ~~also~~ a director of ~~Rochal,~~the Company and ~~indirectly a significant shareholder of Rochal, and through the potential exercise of warrants a majority shareholder of Rochal. Ann Beal Salamone, a director,~~ is a significant shareholder and the ~~former president, and~~ current ~~Chairman~~Chair of the ~~Board~~board of directors of Rochal.

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Catalyst Transaction Advisory Services Agreement
In March 2023, the Company entered into a Transaction Advisory Services Agreement (the “Catalyst Services Agreement”) effective March 1, 2023 with Catalyst, a related party. Pursuant to the Catalyst 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 “Catalyst Services”).
Pursuant to the Catalyst 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 Catalyst 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 Catalyst Services rendered under the Catalyst Services Agreement, with all reimbursements being contingent upon the prior approval of the Audit Committee of the Company’s Board of Directors. The Company incurred $44,032 and $117,018 of costs pursuant to the Catalyst Services Agreement in the three and nine months ended September 30, 2023, respectively.
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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. ~~(collectively~~(together with its wholly owned or majority-owned subsidiaries on a consolidated ~~subsidiaries,~~basis, the “Company,” “Sanara MedTech,” “Sanara,” ~~“SMTI,~~“our,” ~~“we,” “our,~~“us,” or ~~“us”~~“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, ~~2021~~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~~CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of ~~Section 27A of~~ the ~~Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These~~federal securities laws. Forward-looking statements ~~may discuss expectations as~~generally relate to future ~~trends, plans,~~ events ~~results of operations~~ or our future financial ~~condition,~~ or state other information relating to the Company, including, without limitation, statements concerning the impact of the COVID-19 pandemic and our expectations for selling, general and administrative expenses. Statements, other than statements of historical fact, included in this Quarterly Report on Form 10-Q areoperating performance. In some cases, you can identify forward-looking statements ~~and generally may be identified by~~because they contain words such as ~~“anticipate,~~“aims,” ~~“believe,~~“anticipates,” ~~“contemplate,~~“believes,” “contemplates,” “continue,” “could,” ~~“estimate,~~“estimates,” ~~“expect,~~“expects,” “forecast,” “guidance,” ~~“intend,~~“intends,” “may,” ~~“plan,~~“plans,” “possible,” “potential,” ~~“predict,~~“predicts,” “preliminary,” ~~“project,~~“projects,” “seeks,” “should,” “target,” ~~“will,”~~“will” or “would” or the negative of these words, variations of these words or other similar ~~words, phrases~~terms or ~~expressions. These~~expressions that concern our expectations, strategy, plans, or intentions. Such forward-looking statements ~~should be viewed with caution and~~ are subject to ~~various~~certain risks, uncertainties and ~~uncertainties, many of which are outside of the Company’s control. The following~~assumptions relating to factors ~~among others,~~that could cause actual results to differ materially from those anticipated in such statements, including, without limitation, the ~~forward-looking statements:~~following:

● shortfalls in forecasted revenue growth;
● our ability to implement our comprehensive wound and ~~skin care~~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 ~~skin care~~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 impact of the COVID-19 pandemic on our business, financial condition, and results of operations;~~
● 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 ~~skin care~~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.

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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 ~~these~~ 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, ~~2021,~~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.~~
~~Overview~~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 ~~skin care~~skincare markets. Our portfolio of products, services and technologies is designed to allow us to deliver comprehensive wound and skin care solutions for patients in all care settings, including acute (hospitals and long-term acute care hospitals) and post-acute (wound care clinics, physician offices, skilled nursing facilities, home health, hospice, and retail). 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 ~~patients~~they receive care. We strive to be one of the most innovative and comprehensive providers of effective surgical, wound and ~~skin care~~skincare solutions and are continually seeking to expand our offerings for patients requiring ~~wound and skin care~~ treatments across the entire continuum of care in the United States.
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We currently market several products across ~~chronic~~surgical and ~~surgical~~chronic wound care applications and have multiple products in our pipeline. ~~We currently license~~On August 1, 2023, we acquired, among other things, the underlying intellectual property of, as well as the rights to manufacture and sell, CellerateRX Surgical Activated Collagen (Powder and Gel) (“CellerateRX Surgical”), our ~~products~~primary product, and HYCOL Hydrolyzed Collagen (Powder and Gel) (“HYCOL”) from ~~research and development partners~~ Applied Nutritionals, LLC (“~~AN”~~Applied”) ~~(through~~for human wound care use (for more information regarding this acquisition, see the “Recent Acquisitions” section below). Prior to such time, we had licensed the rights to these products through a sublicense agreement (the “Sublicense Agreement”) with CGI Cellerate RX, LLC (“CGI Cellerate RX”), an affiliate of The Catalyst Group, Inc. (“Catalyst”)~~) and~~, both of which are related parties (for additional information regarding related parties, see the section titled “Material Transactions with Related Parties” below). In connection with the asset purchase, Applied assigned its license agreement with CGI Cellerate RX to a wholly owned subsidiary of the Company. We also license certain of our products from Rochal Industries, LLC (“Rochal”) and ~~have the right~~Cook Biotech Inc.
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 ~~exclusively distribute~~license certain products and technologies currently under development, ~~by Cook Biotech Inc. (“Cook Biotech”). We are also~~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 are evaluating when or if we will submit a 510(k) premarket notification for the Precision Healing LFA.
In July 2022, we entered into a membership interest purchase agreement with Scendia Biologics, LLC (“Scendia”) and Ryan Phillips (“Phillips”) pursuant to which we acquired 100% of the issued and outstanding membership interests in Scendia from Phillips. 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) ACTIGEN Verified Inductive Bone Matrix (“ACTIGEN”) 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~~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 ~~skin care~~skincare virtual consult services. Through WounDerm, we plan to offer a comprehensive wound and ~~skin~~skincare solution and partner with value-based care providers with the dual goal of lowering the cost to treat wounds while improving clinical outcomes.
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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.

● ~~Diagnostics~~ – Our proprietary diagnostics currently under development, which we recently acquired from Precision Healing Inc. (“Precision Healing”), are designed to quantify key biomarkers that dictate the trajectory of wound healing and identify deficiencies to aide in treatment. Ultimately, we believe that our diagnostics will develop treatment algorithms based on the data collected by the Precision Healing technology.
● ~~Virtual Consult Services~~ – Through our exclusive affiliation with Direct Dermatology Inc. and other affiliations, we are able to offer virtual consult services for wound care and dermatology provided by experienced, specialized physicians and clinicians.
● ~~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 new products 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 skin care 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.
● 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.
● 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~~RECENT ACQUISITIONS

In July 2021, we acquired certain assets from Rochal, including, among others, intellectual property, four 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.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 ~~smart pad~~LFA for assessing a patient’s wound and skin conditions. This comprehensive ~~skin~~wound and ~~wound~~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.

In July 2022, we entered into a membership interest purchase agreement with Scendia Biologics, LLC, a Delaware limited liability company (“Scendia”), and Ryan Phillips (the “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 including (i) TEXAGEN Amniotic Membrane Allograft, (ii) BiFORM Bioactive Moldable Matrix, (iii) AMPLIFY Verified Inductive Bone Matrix and (iv) ALLOCYTE Advanced Cellular Bone Matrix.
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~~Recent Developments~~
~~Precision Healing Merger~~
~~As discussed above, in April 2022, we closed a merger transaction with Precision Healing pursuant to which Precision Healing became our wholly owned subsidiary.~~ 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 ~~Biologics Acquisition~~

~~As discussed above, in~~In July 2022, we entered into a membership interest purchase agreement by and among the Company, Scendia and ~~Seller~~Phillips pursuant to which we acquired 100% of the issued and outstanding membership interests in Scendia from ~~the Seller.~~Phillips. 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~~ACTIGEN and (iv) ~~ALLOCYTE Advanced Cellular Bone Matrix.~~ALLOCYTE. 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 ~~$7.3~~$7.6 million, which consisted of (i) a ~~$1.3~~$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~~were withheld ~~issued, and released to the Seller after closing as and~~ to the extent provided in the purchase agreement to satisfy ~~the Seller’s~~Phillips’ indemnification obligations ~~if any.~~and subsequently issued and released to Phillips in July 2023.

In addition to the cash and stock consideration, the purchase agreement provides that ~~the Seller~~Phillips 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~~Phillips 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 made the first earnout payment of approximately $693,000 in cash in August 2023. We expect the second earnout payment to be made in the third quarter of 2024.
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Applied Asset Purchase
On August 1, 2023, we entered into an Asset Purchase Agreement (the “Applied Purchase Agreement”) by and among the Company, as guarantor, Sanara MedTech Applied Technologies, LLC, a wholly owned subsidiary of the Company (“SMAT”), Applied, The Hymed Group Corporation (“Hymed” and together with Applied, the “Sellers”), and Dr. George D. Petito (the “Owner”), pursuant to which SMAT acquired certain assets of the Sellers and the Owner, including, among others, the Sellers’ and Owner’s inventory, intellectual property, manufacturing and related equipment, goodwill, rights and claims, other than certain excluded assets, all as more specifically set forth in the Applied Purchase Agreement (collectively, the “Applied Purchased Assets”), and assumed certain Assumed Liabilities (as defined in the Applied Purchase Agreement), upon the terms and subject to the conditions set forth in the Applied Purchase Agreement (such transaction, the “Applied Asset Purchase”). The Applied Purchased Assets include the underlying intellectual property of, as well as the rights to manufacture and sell, CellerateRX Surgical and HYCOL products for human wound care use.
The Applied Purchased Assets were purchased for an initial aggregate purchase price of $15.25 million, consisting of (i) $9.75 million in cash (the “Cash Closing Consideration”), (ii) 73,809 shares of our common stock (the “Stock Closing Consideration”) with an agreed upon value of $3.0 million and (iii) $2.5 million in cash (the “Installment Payments”), to be paid in four equal installments on each of the next four anniversaries of the closing of the Applied Asset Purchase (the “Closing”).
In addition to the Cash Closing Consideration, Stock Closing Consideration and Installment Payments, the Applied Purchase Agreement provides that the Sellers are entitled to receive up to an additional $10.0 million (the “Applied Earnout”), which is payable to the Sellers in cash, upon the achievement of certain performance thresholds relating to SMAT’s collections from net sales of a collagen-based product currently under development. Upon expiration of the seventh anniversary of the Closing, to the extent the Sellers have not earned the entirety of the Applied Earnout, SMAT shall pay the Sellers a pro-rata amount of the Applied Earnout based on collections from net sales of the product, with such amount to be due credited against any Applied Earnout payments already made by SMAT (the “True-Up Payment”). The Applied Earnout, minus the True-Up Payment and any Applied Earnout payments already made by SMAT, may be earned at any point in the future, including after the True-Up Payment is made.

~~Components of Results of Operations~~RECENT DEVELOPMENTS
Professional Services Agreement
In connection with the Applied Asset Purchase and pursuant to the Applied Purchase Agreement, effective August 1, 2023, we entered into a professional services agreement (the “Petito Services Agreement”) with the Owner, pursuant to which the Owner, as an independent contractor, agreed to provide certain services to us, including, among other things, assisting with the development of products already in development and assisting with research, development, formulation, invention and manufacturing of any future products (the “Petito Services”). As consideration for the Petito Services, the Owner is entitled to receive: (i) a base salary of $12,000 per month during the term of the Petito Services Agreement, (ii) a royalty payment equal to three percent (3%) of the actual collections from net sales of certain products the Owner develops or co-develops that reach commercialization, (iii) a royalty payment equal to five percent (5%) for the first $50.0 million in aggregate collections from net sales of certain future products and a royalty payment of two and one-half percent (2.5%) on aggregate collections from net sales of certain future products on any amounts exceeding $50.0 million but up to $100.0 million, (iv) $500,000 in cash in the event that 510(k) clearance is issued for any future product accepted by the Company and (v) $1.0 million in cash in the event that a U.S. patent is issued for a certain product; provided that with respect to the incentive payments described in (iv) and (v) of the foregoing, the Owner shall not earn more than $2.5 million.
The Petito Services Agreement has an initial term of three years and is subject to automatic successive one-month renewals unless earlier terminated in accordance with its terms. The Petito Services Agreement may be terminated upon the Owner’s death or disability or by us or the Owner “For Cause” (as defined in the Petito Services Agreement); provided, however, that the base salary described in (i) of the foregoing paragraph shall survive termination through the three-year initial term and the royalty payments and incentive payments described in (ii)-(v) of the foregoing paragraph shall survive termination of the Petito Services Agreement.
Loan Agreement
In connection with the entry into the Applied Purchase Agreement, on August 1, 2023, we, as guarantor, and SMAT, as borrower, entered into a loan agreement (the “Loan Agreement”) with Cadence Bank (the “Bank”) providing for, among other things, an advancing term loan in the aggregate principal amount of $12.0 million (the “Term Loan”). Pursuant to the Loan Agreement, the Bank agreed to make, at any time and from time to time prior to February 1, 2024, one or more advances to SMAT. On August 1, 2023, the Bank made an advance under the Term Loan for $9.75 million, the proceeds of which were used to fund the Cash Closing Consideration for the Applied Asset Purchase. For more information regarding the Loan Agreement, see the “Liquidity and Capital Resources” section below.
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COMPONENTS OF RESULTS OF OPERATIONS
Sources of Revenues
Our revenue is derived primarily from sales of our ~~surgical~~soft tissue repair and bone fusion 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 September 30, 2022, our revenues included $3,037,657 of revenue generated by Scendia, which was acquired by Sanara in July 2022. Revenues~~Revenue streams from product sales and royalties are summarized below for the three and nine months ended September 30, ~~2022~~2023 and ~~2021.~~2022.

Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
Product sales revenue $ 12,994,321 $ 5,773,692 $ 30,375,822 $ 16,959,761
Royalty revenue 50,250 50,250 150,750 150,750
Total Net Revenue $ 13,044,571 $ 5,823,942 $ 30,526,572 $ 17,110,511
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Three Months Ended Nine Months Ended
September 30, September 30,
2023 2022 2023 2022
Soft tissue repair products $ 13,634,316 $ 10,969,271 $ 39,756,539 $ 28,296,919
Bone fusion products 2,340,382 2,025,050 7,392,740 2,078,903
Royalty revenue 50,250 50,250 150,750 150,750
Total Net Revenue $ 16,024,948 $ 13,044,571 $ 47,300,029 $ 30,526,572

We recognize royalty revenue from a development and ~~license~~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 ~~throughout~~through the ~~life~~end of ~~the patent which expires in~~ 2023. These royalties are payable in quarterly installments of $50,250. To date, royalties related to this development and ~~license~~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 isrepresents gross profit expressed as a percentage of total revenue.
Operating Expenses
Selling, general and administrative ~~expenses~~ (“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 ~~expenses~~ (“R&D”) expenses include costs related to enhancements to our currently available products and additional investments in our product, services and ~~platform~~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 ~~as well as~~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, Scendia and Applied acquisitions.

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

~~Results of Operations~~RESULTS OF OPERATIONS

Net ~~Revenues.~~Revenue. For the three months ended September 30, ~~2022,~~2023, we generated net ~~revenues~~revenue of ~~$13,044,571~~$16.0 million compared to net ~~revenues~~revenue of ~~$5,823,942~~$13.0 million for the three months ended September 30, ~~2021 representing~~2022, a ~~124%~~23% increase from the prior year period. For the nine months ended September 30, ~~2022,~~2023, we generated net ~~revenues totaled $30,526,572~~revenue of $47.3 million compared to net ~~revenues~~revenue of ~~$17,110,511~~$30.5 million for the nine months ended September 30, ~~2021, representing~~2022, a ~~78%~~55% increase from the prior year period. ~~Third quarter and year-to-date 2022 revenues included $3,037,657 of Scendia sales.~~ The higher net ~~revenues in 2022~~revenue for the three and nine months ended September 30, 2023 were primarily due to ~~additional revenues as a result of the Scendia acquisition,~~ increased sales of ~~surgical wound care~~soft tissue repair products and, to a lesser extent, bone fusion 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.
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During the third quarter of 2022, we began to experience supply issues with the ALLOCYTE product line. During the fourth quarter of 2022 and the nine months ended September 30, 2023, we were unable to fill certain orders for this product, which negatively impacted our sales growth. The supply constraint was caused by significant supplier limits on qualifying eligible donor tissue and supplier necessity to subcontract all processing to secondary suppliers. We have since expanded the ALLOCYTE product line with the release of ALLOCYTE Plus Advanced Viable Bone Matrix (“ALLOCYTE Plus”), which is processed by an alternative supplier with in-house processing capabilities. Our first sales of ALLOCYTE Plus occurred in October 2023. We have a sufficient supply of ALLOCYTE Plus to meet currently expected demand and believe we have measures in place to regularly stock the product in the future.

Cost of goods sold. Cost of goods sold for the three months ended September 30, ~~2022,~~2023, was ~~$2,228,561,~~$1.8 million, compared to ~~cost~~costs of goods sold of ~~$517,611~~$2.2 million for the three months ended September 30, 2021. The higher cost of goods sold was due to higher organic sales volume in 2022 and due to our acquisition of Scendia, which added $1,098,145 of cost of goods sold during the three months ended September 30, 2022. Cost of goods sold for the nine months ended September 30, ~~2022~~2023, was ~~$3,991,728,~~$6.1 million, compared to ~~cost~~costs of goods sold of ~~$1,528,449~~$4.0 million for the nine months ended September 30, ~~2021.~~2022. The ~~increases over~~decrease in cost of goods sold for the ~~prior year periods were~~three months ended September 30, 2023 was primarily due to the elimination of royalty expense on CellerateRX on a consolidated basis as a result of the Applied Asset Purchase. The increase in cost of goods sold for the nine months ended September 30, 2023 was primarily due to higher sales volume as a result of organic sales ~~volume in 2022~~growth and ~~added cost of goods sold related to~~ our acquisition of Scendia. Gross margins were approximately 87% for both nine-month periods ended September 30, 2023 and ~~91%~~2022. The gross margins for the nine months ended September 30, ~~2022 and 2021, respectively. The lower gross margins in 2022 were primarily due to~~2023 included lower margins realized on sales of certain Scendia ~~products.~~products offset by higher margins realized due to the elimination in consolidation of the CellerateRX royalty expense under the Sublicense Agreement.

Selling, general and administrative expenses. SG&A expenses for the three months ended September 30, ~~2022,~~2023, were ~~$12,062,195, as~~$13.9 million compared to ~~$6,920,105~~SG&A expenses of $12.1 million for the three months ended September 30, ~~2021. Third quarter 2022 SG&A expenses included approximately $1.5 million of costs related to Scendia operations.~~2022. SG&A expenses for the nine months ended September 30, ~~2022,~~2023, were ~~$31,865,958~~$40.7 million compared to SG&A expenses of ~~$18,891,979~~$31.9 million for the nine months ended September 30, ~~2021.~~2022. The higher SG&A expenses ~~in 2022~~for the three and nine months ended September 30, 2023 were primarily due to higher direct sales and marketing expenses, which accounted for approximately ~~$9.4~~$1.0 million and $6.8 million, respectively, or ~~72%~~56% and 77%, respectively, of the ~~increase~~increases compared to the prior ~~year.~~year periods. The higher direct sales and marketing expenses for the three and nine months ended September 30, 2023 were primarily attributable to an increase in sales commissions of ~~$5.7~~$0.7 million and $5.9 million, respectively, as a result of higher product ~~sales, and $1.8~~sales. The nine months ended September 30, 2023 also included $0.8 million of increased costs as a result of sales force expansion and operational support. ~~Costs related~~We expect our SG&A expenses to ~~travel and in-person promotional activities increased by $1.0 million in 2022 compared to 2021 due to the resumption of many in-person activities that were cancelled or postponed in 2021~~decline as a ~~result~~percentage of net revenues as our sales growth outpaces the ~~COVID-19 pandemic. The increase in 2022 SG&A expenses was also partly attributable to increased noncash equity compensation~~costs of sales force expansion and ~~higher payroll costs related to the mid-year addition of the Rochal workforce in July 2021.~~corporate overhead.
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Research and development expenses. R&D expenses for the three months ended September 30, ~~2022,~~2023, were ~~$1,061,387~~$1.0 million compared to ~~$35,674~~$1.1 million for the three months ended September 30, ~~2021.~~2022. R&D expenses for the nine months ended September 30, ~~2022,~~2023, were ~~$2,333,024~~$3.5 million compared to ~~$257,867~~$2.3 million for the nine months ended September 30, ~~2021.~~2022. The higher R&D expenses for the nine months ended ~~2022 included approximately $1.7 million of~~September 30, 2023 were primarily due to costs related to ~~our newly acquired~~the Precision Healing ~~multispectral~~diagnostic imager and ~~biomarker assay for assessing patient wound and skin conditions. The higher~~LFA. R&D expenses ~~in 2022 were~~for the three and nine months ended September 30, 2023 also ~~partly due to several new~~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 September 30, ~~2022,~~2023, was ~~$814,881~~$1.0 million compared to ~~$204,570~~$0.8 million for the three months ended September 30, ~~2021.~~2022. The higher depreciation and amortization expense during the three months ended September 30, ~~2022~~2023 was primarily due to the amortization of intangible assets acquired as part of the Applied Asset Purchase. Depreciation and amortization expense for the nine months ended September 30, 2023, was $2.6 million compared to $1.6 million for the nine months ended September 30, 2022. The higher depreciation and amortization expense during the nine months ended September 30, 2023 was primarily due to the amortization of intangible assets acquired as part of the Precision Healing, Scendia and ~~Scendia~~Applied transactions. ~~Depreciation and amortization~~
Change in fair value of earnout liabilities. Change in fair value of earnout liabilities was a benefit of $0.7 million for the three months ended September 30, 2023 compared to expense of $0.1 million for the three months ended September 30, 2022. Change in fair value of earnout liabilities was a benefit of $1.5 million for the nine months ended September 30, ~~2022, was $1,556,752~~2023 compared to ~~$395,968~~an expense of $0.2 million for the nine months ended September 30, ~~2021.~~2022. The ~~higher depreciation and amortization expense~~current year benefits are as a result of a decrease in ~~2022 was due to~~ the ~~amortization of intangible assets acquired as part~~estimated fair value of the earnout liabilities established at the time of our Precision Healing and Scendia ~~acquisitions which totaled $639,032 and $255,536, respectively.~~acquisitions. The decrease in the estimated 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, partially offset by accretion. The prior year period expenses were due to the accretion of the earnout liabilities.
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Other expense.Other expense for the three months ended September 30, ~~2022,~~2023 was ~~$109,689~~$0.2 million compared to ~~$193,843~~zero for the three months ended September 30, ~~2021.~~2022. Other expense for the nine months ended September 30, 2023 was $0.2 million compared to $0.4 million for the nine months ended September 30, 2022. Other expense for the three and nine months ended September 30, 2023 included interest expense, accretion expense and amortization of debt issuance costs related to the Term Loan entered into in conjunction with the Applied Asset Purchase. Other expense for the nine months ended September 30, 2022 was $552,749 compared to $473,458 for the nine months ended September 30, 2021. The higher other expense for the nine months ended September 30, 2022 was due to the recognition of $173,116 of accretion expense of earnout liabilities relatedincluded losses from our equity method investment in Precision Healing prior to our ~~Precision Healing and Scendia transactions partially offset by lower losses from equity method investments.~~acquisition of the remaining interests in April 2022.

Loss before income taxes. We had a loss before income taxes of ~~$3,232,142~~$1.1 million for the three months ended September 30, ~~2022,~~2023, compared to a loss before income taxes of ~~$2,047,861~~$3.2 million for the three months ended September 30, ~~2021.~~2022. For the nine months ended September 30, ~~2022,~~2023, we had a loss before income taxes of ~~$9,773,639~~$4.2 million, compared to a loss before income taxes of ~~$4,437,210~~$9.8 million for the nine months ended September 30, ~~2021.~~2022. The ~~higher~~lower loss ~~in 2022~~for the three and nine months ended September 30, 2023 was due to ~~increased SG&A costs, higher R&D~~operating expenses ~~and higher amortization~~increasing at a slower rate than net sales in addition to the benefit recorded as a result of ~~our acquired intangibles as discussed above.~~the change in fair value of earnout liabilities.

Income tax benefit.As discussed in Note 12 to the accompanying ~~Unaudited Consolidated Financial Statements, the Company~~unaudited consolidated financial statements, we recognized net deferred tax liabilities associated with the Precision Healing merger and the Scendia ~~transactions. As of September 30, 2022, prior~~acquisition. Prior to consideration of these deferred tax liabilities, ~~the Company~~we had net deferred tax assets in excess of the deferred tax liabilities being recognized, however, a 100% valuation allowance had previously been provided against ~~the Company’s~~our net deferred tax assets. As a result of the recording of the net deferred tax liabilities related to the Precision Healing merger and the Scendia acquisition, ~~the Company has~~we reviewed the valuation allowance and determined that it should be reduced by the amount of the deferred tax liabilities that were recognized. This resulted in recognition of an income tax benefit of ~~approximately~~ $1.7 million ~~during~~and $5.8 million in the three and nine months ended September 30, 2022, respectively.
Net loss. For the three months ended September 30, ~~2022, and $5.8~~2023, we had a net loss of $1.1 million, ~~recognized~~compared to a net loss of $1.5 million for the three months ended September 30, 2022. For the nine months ended September 30, 2023, we had a net loss of $4.2 million, compared to a net loss of $3.9 million for the nine months ended September 30, 2022.

~~Net loss~~. We had a net loss of $1,529,252 for the three months ended September 30, 2022, compared to a net loss of $2,047,861 for the three months ended September 30, 2021. For the nine months ended September 30, 2022, we had a net loss of $3,928,843, compared to a net loss of $4,437,210 for the nine months ended September 30, 2021.
~~Liquidity and Capital Resources~~LIQUIDITY AND CAPITAL RESOURCES

Cash on hand at September 30, ~~2022~~2023 was ~~$10,285,380~~$6.2 million, compared to ~~$18,652,841~~$9.0 million at December 31, ~~2021.~~2022. Historically, we have financed our operations primarily from the sale of equity securities. In February ~~2021,~~2023, we ~~closed an underwritten public offering of 1,265,000~~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 ~~at a public~~having an aggregate offering price of ~~$25.00 per share resulting~~up to $75.0 million.
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.
During the three months ended September 30, 2023, we did not sell any shares of common stock pursuant to the Sales Agreement. During the nine months ended September 30, 2023, we sold an aggregate of 26,143 shares of common stock for gross proceeds of ~~$31,625,000, before deducting underwriting discounts~~approximately $1.1 million and ~~commissions and offering expenses.~~ net proceeds of approximately $1.0 million pursuant to the Sales Agreement.
We expect our future needs for cash to include ~~expanding our salesforce,~~funding potential acquisitions, further ~~development of~~developing our products, services and technologies pipeline and clinical studies, expanding our sales force, repayment of debt as it becomes due and for general corporate ~~purposes, including working capital and acquisitions.~~purposes. Based on our current plan of operations, ~~including acquisitions,~~ we believe our cash on hand, when combined with expected cash flows from operations and proceeds from the Term Loan discussed above, 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 July 2019, we executed a license agreement with Rochal, a related party, whereby we 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”). Under the terms of the BIAKŌS License Agreement, we agreed to pay Rochal $750,000 upon the completion of a capital raise, on or before December 31, 2022, of at least $10,000,000 through the sale of our common stock or assets. In March 2021, we issued 20,834 shares of our common stock to Rochal as full payment of the $750,000, which became due upon the completion of our capital raise in February 2021.
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In June 2021, we 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 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 our purchase of the Shares, Pixalere granted Pixalere Healthcare USA, LLC (“Pixalere USA”), our subsidiary, a royalty-free exclusive license to use the Pixalere software and platform in the United States. In conjunction with the grant of the license, we issued Pixalere a 27.3% equity ownership interest in Pixalere USA valued at $93,879.
In July 2021, we entered into an asset purchase agreement with Rochal, effective July 1, 2021, pursuant to which we purchased certain assets of Rochal, including, among others, certain of Rochal’s intellectual property, furniture and equipment, supplies, rights and claims, and assumed certain liabilities upon the terms and subject to the conditions set forth in the asset purchase agreement. In exchange for the acquired assets, we paid Rochal (i) $496,100 in cash and (ii) 14,369 shares of our common stock and assumed certain liabilities of $3,900.Precision Healing Merger

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 as follows:~~Stock: $600,000 in February, $500,000 in June, $500,000 in October, and $600,000 in December.
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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, ~~consideration,~~ 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 ~~non-accredited~~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 ~~outstanding~~ 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 ~~ASC 805.~~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~~agreement. We do not anticipate making an earnout consideration payment prior to January 2025.
Scendia Acquisition

In July 2022, we entered into a membership interest purchase agreement by and among the Company, Scendia and ~~the Seller~~Phillips 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.~~Phillips.

Pursuant to the purchase agreement, ~~the aggregate~~Phillips was entitled to receive closing consideration ~~upon closing for the acquisition was $7.3 million, which consisted~~consisting of (i) ~~a $1.3~~approximately $1.6 million of cash, ~~payment,~~ subject to certain adjustments, and (ii) 291,686 shares of our common stock. Pursuant to the purchase agreement, at closing, we withheld ~~94,798~~the Indemnity Holdback Shares, which ~~shall be~~Indemnity Holdback Shares were withheld ~~issued, and released to the Seller after closing as and~~ to the extent provided in the purchase agreement to satisfy ~~the Seller’s~~Phillips’ indemnification obligations ~~if any.~~and subsequently issued and released to Phillips in July 2023.

In addition to the cash consideration and the stock consideration, the purchase agreement provides that ~~the Seller~~Phillips 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~~Phillips 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 made the first earnout payment of approximately $693,000 in cash in August 2023. We expect the second earnout payment to be made in the third quarter of 2024.

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Applied Asset Purchase
On August 1, 2023, we entered into the Applied Purchase Agreement by and among the Company, SMAT, Hymed, Applied and the Owner, pursuant to which SMAT acquired the Applied Purchased Assets and assumed certain Assumed Liabilities upon the terms and subject to the conditions set forth in the Applied Purchase Agreement. The transaction closed on August 1, 2023. The Applied Purchased Assets were purchased for an initial aggregate purchase price of $15.25 million, consisting of (i) $9.75 million in cash, (ii) 73,809 shares of our common stock, with an agreed upon value of $3.0 million and (iii) $2.5 million in cash, to be paid in four equal installments on each of the next four anniversaries of the Closing.
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In addition to the Cash Closing Consideration, Stock Closing Consideration and Installment Payments, the Applied Purchase Agreement provides that the Sellers are entitled to receive up to an additional $10.0 million, which is payable to the Sellers in cash, upon the achievement of certain performance thresholds relating to SMAT’s collections from net sales of a collagen-based product currently under development. Upon expiration of the seventh anniversary of the Closing, to the extent the Sellers have not earned the entirety of the Applied Earnout, SMAT shall pay the Sellers the True-Up Payment. The Applied Earnout, minus the True-Up Payment and any Applied Earnout payments already made by SMAT, may be earned at any point in the future, including after the True-Up Payment is made.
Since the closing of the Applied Asset Purchase, we make intercompany royalty payments to SMAT at the same rate as set forth in the Sublicense Agreement. SMAT intends to use the royalties received to repay borrowings under the Term Loan. As described under “Loan Agreement” below, SMAT is required to maintain compliance with certain maintenance covenants and is limited in its ability to distribute or lend cash to the Company without consent of the Bank.
Loan Agreement
In connection with the entry into the Applied Purchase Agreement, on August 1, 2023, we, as guarantor, and SMAT, as borrower, entered into the Loan Agreement with the Bank providing for, among other things, a Term Loan in the aggregate principal amount of $12.0 million, which was evidenced by an advancing promissory note. Pursuant to the Loan Agreement, the Bank agreed to make, at any time and from time to time prior to February 1, 2024, one or more advances to SMAT.
The proceeds of the advances under the Loan Agreement will be used for working capital and for purposes of financing up to one hundred percent (100%) of the Cash Closing Consideration and Installment Payments for the Applied Asset Purchase and related fees and expenses, including any subsequent payments that may be due to the Sellers after the Closing. On August 1, 2023, the Bank, at the request of SMAT, made an advance for $9.75 million. The proceeds from the advance were used to fund the Cash Closing Consideration for the Applied Asset Purchase.
Advances under the Term Loan will begin amortizing in monthly installments commencing on August 5, 2024. All remaining unpaid balances under the Term Loan are due and payable in full on August 1, 2028 (the “Maturity Date”). SMAT may prepay amounts due under the Term Loan. All accrued but unpaid interest on the unpaid principal balance of outstanding advances is due and payable monthly, beginning on September 5, 2023 and continuing monthly on the fifth day of each month thereafter until the Maturity Date. The unpaid principal balance of outstanding advances bears interest, subject to certain conditions, at the lesser of the Maximum Rate (as defined in the Loan Agreement) or the Base Rate, which is for any day, a rate per annum equal to the term secured overnight financing rate (Term SOFR) (as administered by the Federal Reserve Bank of New York) for a one-month tenor in effect on such day plus three percent (3.0%).
The obligations of SMAT under the Loan Agreement and the other loan documents delivered in connection therewith are guaranteed by us and are secured by a first priority security interest in substantially all of the existing and future assets of SMAT.
The Loan Agreement contains customary representations and warranties and certain covenants that limit (subject to certain exceptions) the ability of SMAT and us to, among other things, (i) create, assume or guarantee certain liabilities, (ii) create, assume or suffer liens securing indebtedness, (iii) make or permit loans and advances, (iv) acquire any assets outside the ordinary course of business, (v) consolidate, merge or sell all or a material part of its assets, (vi) pay dividends or other distributions on, or redeem or repurchase, interest in an obligor, including us as guarantor, (vii) cease, suspend or materially curtail business operations or (viii) engage in certain affiliate transactions. In addition, the Loan Agreement contains financial covenants that require SMAT to maintain (i) a minimum Debt Services Coverage Ratio and (ii) a maximum Cash Flow Leverage Ratio, in each case, as defined and calculated according to the procedures set forth in the Loan Agreement. Pursuant to the Loan Agreement, in the event that SMAT fails to comply with the financial covenants described above, we are required to contribute cash to SMAT in an amount equal to the amount required to satisfy the financial covenants. SMAT is limited in its ability to distribute or lend cash to the Company without consent of the Bank.
Pursuant to the Loan Agreement, starting with the three months ended September 30, 2023 and for each quarter thereafter, SMAT will be required to maintain a minimum Debt Service Coverage Ratio (as defined below) of 1.2 to 1.0, which ratio is calculated as of the last day of the applicable fiscal quarter. The “Debt Service Coverage Ratio” is the ratio of (a) the sum of the following during the preceding twelve (12) month period, subject to annualization in certain circumstances: (i) earnings before interest, taxes, depreciation, amortization, stock compensation expense and gains or losses on sales of assets outside the ordinary course of business (“EBITDA”) minus (ii) capital expenditures, minus (iii) cash taxes, minus (iv) dividends and distributions, to (b) the sum of (i) the current portion of long-term debt, (ii) Installment Payments made during the preceding twelve (12) month period and (iii) interest expense during the preceding twelve (12) month period, subject to annualization in certain circumstances. As of September 30, 2023, following a cash contribution from Sanara (as described below), SMAT’s Debt Service Coverage Ratio was 1.3 to 1.0.
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The Loan Agreement also requires SMAT to, subject to certain conditions, maintain a maximum Cash Flow Leverage Ratio (as defined below) of not more than (a) 4.5 to 1.0 as of the last day of the fiscal quarter ending on September 30, 2023, (b) 4.0 to 1.0 as of the last day of each fiscal quarter ending on December 31, 2023, and March 31, 2024, (c) 3.5 to 1.0 as of the last day of each fiscal quarter ending on June 30, 2024, and September 30, 2024, and (d) 3.0 to 1.0 as of the last day of each fiscal quarter thereafter. The “Cash Flow Leverage Ratio” is the ratio of all Funded Debt (as defined in the Loan Agreement) to certain multiples of EBITDA during the preceding twelve (12) month period, subject to annualization in certain circumstances. SMAT was in compliance with the financial covenants under the Loan Agreement as of September 30, 2023. Due to the short period of time between the signing of the Loan Agreement and the end of the third quarter, we contributed an immaterial amount of cash to SMAT in order to permit SMAT to be in compliance with the financial covenants under the Loan Agreement. As of September 30, 2023, following a cash contribution from Sanara, SMAT’s Cash Flow Leverage Ratio was 4.5 to 1.0.
The Loan Agreement also contains customary events of default. If such an event of default occurs, the Bank would be entitled to take various actions, including the acceleration of amounts due under the Loan Agreement and actions permitted to be taken by a secured creditor.

Cash Flow Analysis

For the nine months ended September 30, ~~2022,~~2023, net cash used in operating activities was ~~$4,909,854~~$2.4 million compared to ~~$3,030,168~~$4.9 million used in operating activities for the nine months ended September 30, ~~2021.~~2022. The ~~higher~~lower use of cash ~~in 2022~~ was ~~primarily~~ due to ~~higher SG&A~~net revenue growth outpacing the growth of our cash operating expenses ~~related to sales force expansion, the addition~~and timing of ~~the Rochal workforce in mid-2021, higher R&D costs related to Precision Healing and the resumption of~~cash expenditures for certain ~~travel and promotional activities in 2022 which were cancelled or postponed in 2021 as a result of the COVID-19 pandemic.~~accrued payables.

For the nine months ended September 30, ~~2022,~~2023, net cash used in investing activities was ~~$3,134,676~~$10.2 million compared to ~~$3,793,021~~$3.1 million used in investing activities during the nine months ended September 30, ~~2021.~~2022. The ~~lower~~higher use of cash used in investing activities ~~in 2022~~during the nine months ended September 30, 2023 was primarily due to ~~fewer~~ cash ~~investments in equity securities during the first half of 2022, partially offset by purchases of intangible assets, primarily related~~paid pursuant to the ~~Precision Healing merger and the Scendia acquisition.~~Applied Asset Purchase.

For the nine months ended September 30, ~~2022,~~2023, net cash ~~used in~~provided by financing activities was ~~$322,931~~$9.8 million as compared to ~~$28,739,257 provided by~~$0.3 million used in financing activities for the nine months ended September 30, ~~2021.~~2022. The cash provided by financing activities ~~in 2021~~during the nine months ended September 30, 2023 was due to net loan proceeds of $9.7 million utilized for the Applied Asset Purchase and net proceeds received pursuant to ~~an underwritten public offering of 1,265,000 shares~~sales of our common stock ~~at a public offering price~~ of ~~$25.00 per share resulting in gross proceeds~~$1.0 million, partially offset by the Scendia earnout payment of ~~$31,625,000, before deducting underwriting discounts~~$0.7 million and ~~commissions and offering expenses.~~
~~Material Transactions with Related Parties~~the net settlement of equity-based awards, which totaled $0.2 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~~prior to the Applied Asset Purchase, licensed the rights to CellerateRX from ~~AN.~~Applied. Sales of CellerateRX ~~have~~Surgical comprised the substantial majority of our sales during ~~2021 and~~ the ~~first~~ nine months ofended September 30, 2023 and 2022. OnIn January ~~26,~~ 2021, we amended the term of the ~~sublicense agreement~~Sublicense Agreement to extend the term to May 17, 2050, with automatic successive one-year renewals so long as annual net sales of ~~CellerateRX~~the licensed products exceed ~~$1,000,000.~~$1.0 million. We pay royalties based on ~~our~~the annual Net Sales of ~~CellerateRX~~licensed products (as defined in the ~~sublicense agreement)~~Sublicense Agreement) consisting of 3% of all collected Net Sales each year up to ~~$12,000,000,~~$12.0 million, 4% of all collected Net Sales each year that exceed ~~$12,000,000~~$12.0 million up to ~~$20,000,000,~~$20.0 million, and 5% of all collected Net Sales each year that exceed ~~$20,000,000. Minimum royalties of $400,000 per year are payable for the first five years of the sublicense agreement, which was entered on August 27, 2018.~~$20.0 million. For the three months ended September 30, 2023 and 2022, royalty expense was a benefit of approximately $9,000 for the three months ended September 30, 2023 due to the reversal of an accrual and ~~2021, royalties accrued~~$0.4 million of expense, respectively, under the terms of this ~~agreement totaled $432,809 and $172,731, respectively.~~agreement. For the nine months ended September 30, 2023 and 2022, royalty expense was $1.1 million and ~~2021, royalties accrued totaled $1,245,775 and $576,951, respectively.~~
$1.2 million, respectively, under the terms of this agreement. Ronald T. Nixon, our Executive Chairman, is the founder and managing partner of Catalyst.

~~Rochal~~As discussed above, in August 2023, we acquired the underlying intellectual property of, as well as the rights to manufacture and sell, CellerateRX Surgical and HYCOL products from Applied. In connection with this acquisition, Applied assigned its license agreement with CGI Cellerate RX to a wholly owned subsidiary of the Company and no further royalties will be due to Applied thereunder. Since the Closing of the Applied Asset Purchase, Sanara indirectly makes intercompany royalty payments to SMAT at the same rate as set forth in the Sublicense Agreement. These intercompany royalty payments and the offsetting cost of goods sold were eliminated in consolidation effective as of August 1, 2023.
Consulting Agreement
In July 2021, we entered into an asset purchase agreement with Rochal, effective July 1, 2021, pursuant to which we purchased certain assets of Rochal, including, among others, certain of Rochal’s intellectual property, furniture and equipment, supplies, rights and claims, and assumed certain liabilities upon the terms and subject to the conditions set forth in the asset purchase agreement. In exchange for the acquired assets, we paid Rochal (i) $496,100 in cash and (ii) 14,369 shares of common stock.
~~After the asset purchase, Rochal owned 95,203 shares of our common stock. Mr. Nixon is, with respect to Rochal,~~ a director, a significant shareholder indirectly and a majority shareholder with the exercise of certain warrants. Additionally, Ann Beal Salamone, a director of the Company, is a significant shareholder, former president, and current Chair of the board of directors of Rochal.
~~Consulting Agreement~~
related party. Concurrent with the Rochal asset purchase, ~~in July 2021,~~ we entered into a consulting agreement with Ann Beal Salamone pursuant to which Ms. Salamone agreed to provide ~~the Company~~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 ~~the Company,~~us, and is subject to renewal.
~~Critical Accounting Estimates~~
Our unaudited consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles. Our discussion and analysis of our financial condition and operating results require the Company’s management to make judgments, assumptions and estimates that affect the amounts reported. Significant accounting policies and methods used in the preparation of our consolidated financial statements are summarized in Note 2, “Summary of Significant Accounting Policies” Ms. Salamone is a director of the ~~Notes to Unaudited Consolidated Financial Statements in Part I, Item 1~~Company, is a significant shareholder and the current Chair of ~~this Form 10-Q, and in~~ the ~~Notes to Consolidated Financial Statements in Part II, Item 8~~board of our 2021 Form 10-K. Historically, our critical accounting estimates have not differed materially from actual results. However, if our assumptions change, we may need to revise our estimates or take other corrective actions, eitherdirectors of ~~which may also have a material adverse effect on our consolidated statements of operations, liquidity and financial condition.~~Rochal.

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Catalyst Transaction Advisory Services Agreement
In March 2023, we entered into a Transaction Advisory Services Agreement (the “Catalyst Services Agreement”) effective March 1, 2023 with Catalyst, a related party. Pursuant to the Catalyst 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 “Catalyst Services”).
Pursuant to the Catalyst 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 Catalyst 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 Catalyst Services rendered under the Catalyst Services Agreement, with all reimbursements being contingent upon the prior approval of the Audit Committee of our Board of Directors. We incurred $44,032 and $117,018 of costs pursuant to the Catalyst Services Agreement during the three and nine months ended September 30, 2023.
Receivables and Payables
We had outstanding related party receivables totaling $11,032 at September 30, 2023, and $98,548 at December 31, 2022. We had outstanding related party payables totaling $64,747 at September 30, 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 estimates 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~~ITEM 3. ~~Quantitative and Qualitative Disclosures About Market Risk~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

~~Item~~ITEM 4. ~~Controls and Procedures~~CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
~~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 ~~(“SEC”~~(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 September 30, ~~2022,~~2023, pursuant to Rule 13a-15(b) under the Exchange Act. Based upon that evaluation, our Certifying Officers concluded that, as of September 30, ~~2022,~~2023, our disclosure controls and procedures were effective.

~~Changes in Internal Control over Financial Reporting~~CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, ~~2022~~2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

33
38
Part II — Other Information

~~Item~~ITEM 1. ~~Legal Proceedings~~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~~ITEM 1A. ~~Risk Factors~~RISK FACTORS

Except as provided below, 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, ~~2021.~~2022. For more information concerning our risk factors, please see “Item 1A. Risk Factors” in ~~the~~our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.
We may fail to realize all the anticipated benefits of the Applied Asset Purchase, or such benefits may take longer to realize than expected.
We may fail to realize all of the anticipated benefits of the Applied Asset Purchase, including expected operational, research and development and cost synergies, or such benefits may not be achieved within the anticipated timeframe. In addition, in connection with the Applied Asset Purchase, we acquired control of the manufacturing of our CellerateRX Surgical and HYCOL products, which was previously controlled by the Sellers. If we are unable to maintain or replace the Sellers’ manufacturing process, our sales of CellerateRX Surgical and HYCOL products could be jeopardized.
Furthermore, we have incurred significant transaction costs in connection with the Applied Asset Purchase, including payment of certain fees and expenses incurred in connection with the Applied Asset Purchase and the financing of the Applied Asset Purchase, and our future financial results could be impacted if the intangible assets we acquired in the Applied Asset Purchase become impaired. The failure to realize the anticipated benefits of the Applied Asset Purchase or any of our other recent acquisitions could cause an interruption of, or a loss of momentum in, our operations and could result in a material adverse effect on our financial condition, results of operations or cash flows.
Our indebtedness could adversely affect our financial condition and prevent us from fulfilling our obligations.
A significant portion of our future cash flow is required to pay interest and principal on our outstanding indebtedness, and we may be unable to generate sufficient cash flow from operations, or have future borrowings available, to enable us to repay our indebtedness or to fund other liquidity needs. Among other consequences, this indebtedness could:
● require us to use a significant percentage of our cash flow from operations for debt service and the satisfaction of repayment obligations, and not for other purposes, such as funding working capital and capital expenditures or making future acquisitions;
● cause our interest expense to increase if there is a general increase in interest rates, because a portion of our indebtedness bears interest at floating rates;
● limit our flexibility in planning for or reacting to changes in our business and limit our ability to exploit future business opportunities; and
● cause us to be more highly leveraged than some of our competitors, which may place us at a competitive disadvantage.
Our outstanding indebtedness is subject to certain operating and financial covenants that restrict our business and financing activities and may adversely affect our cash flow and our ability to operate our business.
The Loan Agreement requires us and SMAT, to maintain compliance with certain operating and financial covenants, which provide that we or SMAT, among other things, may not, subject to certain exceptions:
● create or permit the existence of additional liens on our assets;
● enter into any pledge agreements or arrangements;
● with respect to SMAT, make investments in or provide capital contributions to other entities;
● enter into a merger or consolidation or acquire any assets outside of the ordinary course of business;
● dispose of a material part of our assets or property or enter into any sale-leaseback transactions;
● with respect to SMAT, pay dividends or distributions of our capital stock, without the prior written consent of the Bank;
● make or permit to remain outstanding any loans;
● change the nature of our business;
● enter into transactions with affiliates other than in the ordinary course of business on an arm’s-length basis; or
● amend, modify or obtain or grant a waiver of any provision of any document or instrument evidencing or securing any of our subordinated indebtedness.
In addition, starting with the quarter ending September 30, 2023, SMAT is required to maintain a minimum Debt Service Coverage Ratio of 1.2 to 1.0, which ratio is calculated as of the last day of the applicable fiscal quarter. SMAT is also required to maintain as of the end of each fiscal quarter a maximum Cash Flow Leverage Ratio of not more than (a) 4.5 to 1.0 as of the last day of the fiscal quarter ending on September 30, 2023, (b) 4.0 to 1.0 as of the last day of each fiscal quarter ending on December 31, 2023, and March 31, 2024, (c) 3.5 to 1.0 as of the last day of each fiscal quarter ending on June 30, 2024, and September 30, 2024, and (d) 3.0 to 1.0 as of the last day of each fiscal quarter thereafter.
39
Further, in the event that SMAT fails to comply with its financial covenants, we are required to contribute cash to SMAT in an amount equal to the amount required to satisfy the financial covenants. During the three months ended September 30, 2023, we contributed an immaterial amount of cash to SMAT to ensure that SMAT was in compliance with the financial covenants under the Loan Agreement as of September 30, 2023. If we are required to make additional cash contributions to SMAT in future periods, we may not have sufficient funds available to fulfill such obligation.
A breach of any of the covenants under our loan agreements, subject to certain cure periods, will result in an event of default, which could cause all of our outstanding indebtedness under the Loan Agreement to become immediately due and payable, and a default interest rate of an additional 5.0% per annum may be applied to the outstanding loan balance. If our indebtedness is accelerated, we cannot be certain that we will have sufficient funds available to pay the accelerated indebtedness or that we will have the ability to refinance the accelerated indebtedness on terms favorable to us or at all.
As a result of the negative covenants contained in the Loan Agreement and the need for cash to pay interest and principal amortization payments required under the Loan Agreement, the Company may not have access to cash it otherwise would have for working capital, capital expenditures, acquisitions, general corporate purposes or other purposes.
Pursuant to the Loan Agreement, SMAT is subject to restrictions on making certain payments, including dividends, other distributions and loans, to the Company. As a result, although SMAT may use its cash to repay the Term Loan, the Company may not have access to cash it otherwise would have for working capital, capital expenditures, acquisitions, general corporate purposes or other purposes.

If ~~we are required~~our Executive Chairman ceases to ~~write down goodwill and other intangible assets, our financial condition and operating results~~serve as the Chairman of the Board of Directors of the Company or SMAT, such event could ~~be negatively affected.~~result in an event of default under the Loan Agreement.

~~When we acquire a business, a substantial portion~~The Loan Agreement provides that if Ron Nixon, our Executive Chairman, ceases to serve as Chairman of the ~~purchase price~~Board of Directors of the ~~acquisition~~Company or SMAT, an event of default will occur under the Loan Agreement, unless a successor, acceptable to the Bank, is ~~allocated~~elected or appointed within 10 business days of such event. If such an event were to ~~goodwill~~occur and ~~other identifiable intangible assets. The amount~~we are unable to find a replacement suitable to the Bank, we would be in default and all of ~~the purchase price which is allocated to goodwill~~our outstanding indebtedness could become immediately due and ~~other intangible assets is determined by the excess~~payable, and a default interest rate of the purchase price over the net identifiable assets acquired. For example, when we acquired Scendia, we acquired $7,155,000 in intangible assets and $3,277,536 in goodwill, which represented the excess of the consideration transferred over the fair values of assets acquired and liabilities assumed and represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. We test intangible assets and goodwill for impairment at least annually. Under current accounting standards, if we determine that intangible assets or goodwill are impaired in the future, we will be required to write down these assets. Any write-downs thatan additional 5.0% per annum may be ~~required~~applied to ~~be recorded would adversely affect our financial condition and operating results.~~the outstanding loan balance.

~~Item~~ITEM 2. ~~Unregistered Sales of Equity Securities and Use of Proceeds~~UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

There were no sales of unregistered securities during the quarter ended September 30, ~~2022~~2023 that were not previously reported on a Current Report on Form 8-K.

~~Item~~ITEM 3. ~~Defaults Upon Senior Securities~~DEFAULTS UPON SENIOR SECURITIES

None.

~~Item~~ITEM 4. ~~Mine Safety Disclosures~~MINE SAFETY DISCLOSURES

This item is not applicable.

~~Item~~ITEM 5. ~~Other Information~~OTHER INFORMATION

None.

34
40
~~Item~~ITEM 6. ~~Exhibits~~EXHIBITS

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

Exhibit No. Description

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 ~~of the Company~~ filed on July 19, ~~2021 by the Company with the SEC)~~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).

2.4# Asset Purchase Agreement dated, August 1, 2023, by and among Sanara MedTech Inc., Sanara MedTech Applied Technologies, LLC, The Hymed Group Corporation, Applied Nutritionals, LLC and Dr. George D. Petito (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on August 2, 2023).
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+ Professional Services Agreement, dated August 1, 2023, by and between Sanara MedTech Inc. and Dr. George D. Petito (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August 2, 2023).
10.2+ Loan Agreement, dated August 1, 2023, between Sanara MedTech Applied Technologies, LLC, Sanara MedTech Inc. and Cadence Bank (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on August 2, 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.CAL*101.INS Inline XBRL ~~Calculation Linkbase~~Instance Document.
101.DEF*101.SCH Inline XBRL ~~Definition Linkbase~~Taxonomy Extension Schema Document.
101.LAB*101.CAL Inline XBRL ~~Label~~Taxonomy Extension Calculation Linkbase Document.
101.PRE*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*104 Cover Page Interactive Data File ~~(Formatted~~(formatted as Inline XBRL and contained in Exhibit 101).

* Filed herewith
# Certain schedules and exhibits 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 Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing.

35
# Certain schedules and exhibits to this agreement have been omitted pursuant to Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule or exhibit will be furnished supplementally to the Securities and Exchange Commission or its staff upon request. If indicated on the first page of such agreement, certain confidential information has been excluded pursuant to Item 601(b)(2)(ii) of Regulation S-K. Such excluded information is not material and is the type that the Company treats as private or confidential.
+ Certain schedules and exhibits to this agreement have been omitted pursuant to Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule or exhibit will be furnished supplementally to the Securities and Exchange Commission or its staff upon request. Certain confidential information has been excluded pursuant to Item 601(b)(10)(iv) of Regulation S-K. Such excluded information is not material and is the type that the Company treats as private or confidential.
41
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.

November ~~14, 2022~~13, 2023 By: /s/ Michael D. McNeil
Michael D. McNeil

Chief Financial Officer
(Principal Financial Officer and duly authorized officer)

36 42

	Shares			Amount			Capital		Deficit			Interest			Equity
	Common Stock						Additional								Total
	$0.001 par value						Paid-In		Accumulated			Noncontrolling			Shareholders’
	Shares			Amount			Capital		Deficit			Interest			Equity
Balance at December 31, 2020		6,297,008		$	6,297		$	13,176,576	$	(7,032,242	)	$	(310,395	)	$	5,840,236
Issuance of common stock for asset acquisitions		50,370			50			1,749,950		-			-			1,750,000
Issuance of common stock in equity offering		1,265,000			1,265			28,937,992		-			-			28,939,257
Share-based compensation		4,744			5			325,513		-			-			325,518
Distribution to noncontrolling interest member		-			-			-		-			(200,000	)		(200,000	)
Net loss		-			-					(1,181,744	)		(1,632	)		(1,183,376	)
Balance at March 31, 2021		7,617,122		$	7,617		$	44,190,031	$	(8,213,986	)	$	(512,027	)	$	35,471,635
Share-based compensation		(4,786	)		(5	)		297,927		-			-			297,922
Capital contribution of noncontrolling interest member		-			-			-		-			93,879			93,879
Net loss		-			-			-		(1,171,492	)		(34,481	)		(1,205,973	)
Balance at June 30, 2021		7,612,336		$	7,612		$	44,487,958	$	(9,385,478	)	$	(452,629	)	$	34,657,463
Share-based compensation		5,339			5			228,781		-			-			228,786
Issuance of common stock for asset acquisitions		14,369			15			584,229		-			-			584,244
Net loss		-			-			-		(2,020,370	)		(27,491	)		(2,047,861	)
Balance at September 30, 2021		7,632,044		$	7,632		$	45,300,968	$	(11,405,848	)	$	(480,120	)	$	33,422,632

	2022		2021
	As of September 30,				2023		2022
	2022		2021		As of September 30,
					2023		2022
Stock options (a)		155,691		11,500		95,873		155,691
Warrants (b)		16,725		-		16,725		16,725
Unvested restricted stock		192,215		111,590		159,557		192,215
Anti-dilutive securities		192,215		111,590		159,557		192,215

-	~~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~~

	Useful		September 30,			December 31,			Useful		September 30,			December 31,
	Life		2022			2021			Life		2023			2022
Computers		3-5 years	$	156,510		$	104,568			3-5 years	$	194,788		$	172,154
Office equipment		3-5 years		50,214			21,731			3-7 years		154,280			87,225
Furniture and fixtures		5-10 years		258,414			221,565			5-10 years		323,755			258,414
Leasehold improvements		2-5 years		19,631			2,030			2-5 years		107,983			19,631
Internal use software		5 years		1,618,999			1,622,525			5 years		1,618,998			1,618,998	��

Property and equipment, gross				2,103,768			1,972,419					2,399,804			2,156,422
Less accumulated depreciation				(633,168	)		(342,574	)				(1,072,748	)		(739,986	)

Property and equipment, net			$	1,470,600		$	1,629,845				$	1,327,056		$	1,416,436


Balance at December 31, 2022	$	7,166,691
Additions		893,000
Changes in fair value of earnout liabilities		(1,494,910	)
Settlements		(692,795	)
Balance at September 30, 2023	$	5,871,986

	As Reported			Adjustment			As Restated			As Reported			Adjustment			As Restated
	Three Months Ended June 30, 2022									Six Months Ended June 30, 2022
	As Reported			Adjustment			As Adjusted			As Reported			Adjustment			As Adjusted
Operating loss	$	(3,194,469	)	$	(127,096	)	$	(3,321,565	)	$	(5,971,341	)	$	(127,096	)	$	(6,098,437	)
Income tax benefit	$	-		$	4,141,906		$	4,141,906		$	-		$	4,141,906		$	4,141,906
Net income (loss)	$	(3,257,896	)	$	4,014,810		$	756,914		$	(6,414,401	)	$	4,014,810		$	(2,399,591	)
Net income (loss) per share of common stock, basic	$	(0.42	)	$	0.52		$	0.10		$	(0.83	)	$	0.52		$	(0.31	)
Net income (loss) per share of common stock, diluted	$	(0.42	)	$	0.51		$	0.09		$	(0.83	)	$	0.52		$	(0.31	)

Description	Amount
Net cash consideration	$	496,100
Equity consideration (fair value)		584,244
Net liabilities assumed		3,900
Transaction costs		78,586
Total purchase consideration	$	1,162,830

Description	Amount
Patents and Intellectual Property	$	1,099,801
Assembled Workforce		63,029
Net Assets Acquired	$	1,162,830

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

Description	Amount
Inventory	$	30,007
Equipment		33,062
Intellectual property		16,728,968
Net assets acquired	$	16,792,037

	September 30, 2022							December 31, 2021
			Accumulated							Accumulated
	Cost		Amortization			Net		Cost		Amortization			Net
Amortizable Intangible Assets:
Product Licenses	$	4,793,879	$	(872,073	)	$	3,921,806	$	4,193,879	$	(586,541	)	$	3,607,338
Patents and Other IP		21,935,580		(1,185,294	)		20,750,286		1,610,111		(551,285	)		1,058,826
Customer relationships and other		7,947,332		(402,242	)		7,545,090		127,492		(65,686	)		61,806

Total	$	34,676,791	$	(2,459,609	)	$	32,217,182	$	5,931,482	$	(1,203,512	)	$	4,727,970


Remainder of 2022	$	695,201
2023		2,780,806
Remainder of 2023			$	974,018
2024		2,780,806		3,896,070
2025		2,780,806		3,896,070
2026		2,763,550		3,878,815
2027		2,649,698		3,764,962
2028				3,731,721
Thereafter		17,766,315		25,849,810
Total	$	32,217,182	$	45,991,466

	September 30, 2022			September 30, 2023
Remainder of 2022		85,291
2023		344,565
Remainder of 2023				$	116,285
2024		273,981			505,017
2025		159,469			532,053
2026		79,161			379,529
2027					297,947
2028					295,689
Thereafter		6,727			604,049

Total lease payments		949,194			2,730,569
Less imputed interest		(82,378	)		(562,070	)
Present Value of Lease Liabilities	$	866,816		$	2,168,499

Operating lease liabilities – current		299,072			322,206
Operating lease liabilities – long-term		567,744			1,846,293

	September 30, 2023			December 31, 2022
Term Loan	$	9,750,000		$	-
Total debt		9,750,000			-
Less: debt issuance costs, net of accumulated amortization of $2,055 and zero		(59,603	)		-
Long-term debt		9,690,397			-
Less: current portion of debt		232,143			-
Long-term debt, net of current portion	$	9,458,254		$	-

Year	Total
Remainder of 2023	$	-
2024		580,357
2025		1,625,000
2026		1,950,000
2027		1,950,000
2028		3,644,643
Thereafter		-
Total debt	$	9,750,000

	For the Nine Months Ended					For the Nine Months Ended September 30, 2023
	September 30, 2022					Shares			Weighted Average Grant Date Fair Value
	Shares			Weighted Average Grant Date Fair Value
Non-vested at beginning of period		161,450		$	18.13
Nonvested at beginning of period							181,102		$	22.89
Granted		178,857			24.78		118,912			39.14
Vested		(142,221	)		20.09		(129,342	)		22.84
Forfeited		(5,871	)		21.52		(11,115	)		32.96
Non-vested at September 30, 2022		192,215		$	22.76
Nonvested at September 30, 2023							159,557		$	34.27

							For the Nine Months Ended September 30, 2023
	For the Nine Months Ended									Weighted Average		Weighted Average
	September 30, 2022									Exercise		Remaining
	Options		Weighted Average Exercise Price		Weighted Average Remaining Contract Life		Options			Price		Contract Life
Outstanding at beginning of period		11,500	$	6.00				146,191		$	10.65
Granted or assumed		144,191		10.71				-			-
Exercised		-		-				(50,318	)		11.58
Forfeited		-		-				-			-
Expired		-		-				-			-
Outstanding at September 30, 2022		155,691	$	10.36		7.5
Outstanding at September 30, 2023								95,873		$	10.16		7.1

Exercisable at September 30, 2022		155,691	$	10.36		7.5
Exercisable at September 30, 2023								95,873		$	10.16		7.1

	●	~~the impact of the COVID-19 pandemic on our business, financial condition, and results of operations;~~
	●	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 ~~skin care~~skincare virtual consult and other services and our ability to comply with the various laws, rules and regulations applicable to our business; and

	●	~~Diagnostics~~ – Our proprietary diagnostics currently under development, which we recently acquired from Precision Healing Inc. (“Precision Healing”), are designed to quantify key biomarkers that dictate the trajectory of wound healing and identify deficiencies to aide in treatment. Ultimately, we believe that our diagnostics will develop treatment algorithms based on the data collected by the Precision Healing technology.
	●	~~Virtual Consult Services~~ – Through our exclusive affiliation with Direct Dermatology Inc. and other affiliations, we are able to offer virtual consult services for wound care and dermatology provided by experienced, specialized physicians and clinicians.
	●	~~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 new products 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 skin care 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.

●	require us to use a significant percentage of our cash flow from operations for debt service and the satisfaction of repayment obligations, and not for other purposes, such as funding working capital and capital expenditures or making future acquisitions;
●	cause our interest expense to increase if there is a general increase in interest rates, because a portion of our indebtedness bears interest at floating rates;
●	limit our flexibility in planning for or reacting to changes in our business and limit our ability to exploit future business opportunities; and
●	cause us to be more highly leveraged than some of our competitors, which may place us at a competitive disadvantage.

●	create or permit the existence of additional liens on our assets;
●	enter into any pledge agreements or arrangements;
●	with respect to SMAT, make investments in or provide capital contributions to other entities;
●	enter into a merger or consolidation or acquire any assets outside of the ordinary course of business;
●	dispose of a material part of our assets or property or enter into any sale-leaseback transactions;
●	with respect to SMAT, pay dividends or distributions of our capital stock, without the prior written consent of the Bank;
●	make or permit to remain outstanding any loans;
●	change the nature of our business;
●	enter into transactions with affiliates other than in the ordinary course of business on an arm’s-length basis; or
●	amend, modify or obtain or grant a waiver of any provision of any document or instrument evidencing or securing any of our subordinated indebtedness.

Exhibit No.		Description

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 ~~of the Company~~ filed on July 19, ~~2021 by the Company with the SEC)~~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).

2.4#		Asset Purchase Agreement dated, August 1, 2023, by and among Sanara MedTech Inc., Sanara MedTech Applied Technologies, LLC, The Hymed Group Corporation, Applied Nutritionals, LLC and Dr. George D. Petito (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on August 2, 2023).

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+		Professional Services Agreement, dated August 1, 2023, by and between Sanara MedTech Inc. and Dr. George D. Petito (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August 2, 2023).

10.2+		Loan Agreement, dated August 1, 2023, between Sanara MedTech Applied Technologies, LLC, Sanara MedTech Inc. and Cadence Bank (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on August 2, 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.CAL*101.INS		Inline XBRL ~~Calculation Linkbase~~Instance Document.

101.DEF*101.SCH		Inline XBRL ~~Definition Linkbase~~Taxonomy Extension Schema Document.

101.LAB*101.CAL		Inline XBRL ~~Label~~Taxonomy Extension Calculation Linkbase Document.

101.PRE*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*104		Cover Page Interactive Data File ~~(Formatted~~(formatted as Inline XBRL and contained in Exhibit 101).

	SANARA MEDTECH INC.

November ~~14, 2022~~13, 2023	By:	/s/ Michael D. McNeil
		Michael D. McNeil
		Chief Financial Officer
		(Principal Financial Officer and duly authorized officer)