| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles
of Consolidation and Basis of Presentation The
accompanying unaudited consolidated financial statements include the accounts of Sanara MedTech Inc. and its wholly owned and
majority-owned subsidiaries, as well as other entities in which the Company has a controlling financial interest. All significant
intercompany profits, losses, transactions and balances have been eliminated in consolidation. The
accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
all of 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 six-month period ended June 30, 2022, are not necessarily indicative of the results that
may be expected for the 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 and 2020, 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 amounts reported in the financial statements and accompanying notes. 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 six months ended June 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
/ Loss Per Share The
Company computes income 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 similar to basic income per share except that the denominator is increased to include the number of additional
shares of common stock that would have been outstanding if the potential shares of common stock had been issued and if the additional
shares of common stock were dilutive. All common stock equivalents were excluded from the current and prior period calculations, as their
inclusion would have been anti-dilutive during the three and six months ended June 30, 2022 and 2021 due to the Company’s net loss. The
following table summarizes the shares of common stock that were potentially issuable but were excluded from the computation of diluted
net loss per share for the three and six months ended June 30, 2022 and 2021 as such shares would have had an anti-dilutive effect: SCHEDULE OF COMPUTATION OF DILUTED NET LOSS PER SHARE
2022 2021
As of June 30,
2022 2021
Stock options (a) 155,691 11,500
Warrants (b) 16,725 -
Unvested restricted stock 199,136 115,719
Anti-dilutive securities 199,136 115,719
(a) Includes
144,191 Note
(b) Warrants
assumed pursuant to the merger agreement with Precision Healing in April 2022. See Note Revenue
Recognition The
Company recognizes revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). Revenues
are recognized when control of the promised goods or services is transferred to the customer in an amount that reflects the consideration
the Company expects to be entitled to receive in exchange for transferring those goods or services. Revenue is recognized based on the
following five step model: -
Identification of the contract with a customer -
Identification of the performance obligations in the contract -
Determination of the transaction price -
Allocation of the transaction price to the performance obligations in the contract -
Recognition of revenue when, or as, the Company satisfies a performance obligation Details
of this five-step process are as follows: Identification
of the contract with a customer Customer
purchase orders are generally considered to be contracts under ASC 606. Purchase orders typically identify 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 or 2021. 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 one performance obligation exists. Recognition
of revenue as performance obligations are satisfied Product
revenues are recognized when the products are delivered, and control of the goods and services passes to the customer. Disaggregation
of Revenue Revenue
streams from product sales and royalties are summarized below for the six months ended June 30, 2022 and 2021. All revenue was generated
in the United States; therefore, no geographical disaggregation was necessary. SCHEDULE
OF REVENUE FROM PRODUCT SALES AND ROYALTIES
2022 2021
Six Months Ended
June 30,
2022 2021
Product sales revenue $ 17,381,501 $ 11,186,069
Royalty revenue 100,500 100,500
Total Net Revenue $ 17,482,001 $ 11,286,569 The
Company recognizes royalty revenue from a development and license agreement between BioStructures, LLC and the Company. 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 2.0 201,000 50,250 201,000 50,250 Accounts
Receivable Allowances The
Company establishes an allowance for doubtful accounts to provide for an estimate of accounts receivable which are not expected to be
collectible. The Company recorded bad debt expense of $ 195,000 51,536 241,909 64,899 7,213 34,379 Inventories Inventories
are stated at the lower of cost or net realizable value, with cost computed on a first-in, first-out basis. Inventories consist of finished
goods and related packaging components. The Company recorded inventory obsolescence expense of $ 159,717 29,834 368,726 333,850 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 ten years SCHEDULE
OF PROPERTY AND EQUIPMENT
Useful June 30, December 31,
Life 2022 2021
Computers 3 5 $ 139,267 $ 104,568
Office equipment 5 23,514 21,731
Furniture and fixtures 5 10 240,830 221,565
Leasehold improvements 2 5 18,331 2,030
Internal use software 5 1,618,999 1,622,525
Property and equipment, gross 2,040,941 1,972,419
Less accumulated depreciation (527,357 ) (342,574 )
Property and equipment, net $ 1,513,584 $ 1,629,845 Depreciation
expense related to property and equipment was $ 194,308 35,040 Internal
Use Software The
Company accounts for costs incurred to develop computer software for internal use in accordance with ASC Topic 350-40, Intangibles –
Goodwill and Other. The Company capitalizes the costs incurred during the application development stage, which generally includes third-party
developer fees to design the software configuration and interfaces, coding, installation, and testing. The
Company begins capitalization of qualifying costs when both the preliminary project stage is completed, and management has authorized
further funding for the completion of the project. Costs incurred during the preliminary project stage along with post implementation
stages of internal-use computer software are expensed as incurred. The Company also capitalizes costs related to specific upgrades and
enhancements when it is probable the expenditures will result in additional functionality. Capitalized development costs are classified
as “Property and equipment, net” in the consolidated balance sheets and are amortized over the estimated useful life of the
software, which is generally five years. 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 (if applicable). See
Note 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 six months ended June 30, 2022 or 2021. 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 on the consolidated
statements of cash flows. 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 six-month periods ended June 30, 2022 and 2021. Fair
Value Measurement As
defined in ASC Topic 820, Fair Value Measurement (“ASC 820”), fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company
utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about
risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or
generally unobservable. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy
gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and
the lowest priority to unobservable inputs (Level 3 measurement). This fair value measurement framework applies at both initial and subsequent
measurement. The
three levels of the fair value hierarchy defined by ASC 820 are as follows: Level
1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets
are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on
an ongoing basis. Level 1 primarily consists of financial instruments such as exchange-traded derivatives, marketable securities and
listed equities. Level
2 – Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly
observable as of the reported date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies.
These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities,
time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic
measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be
derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. Instruments
in this category generally include nonexchange-traded derivatives such as commodity swaps, interest rate swaps, options and collars. Level
3 – Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used
with internally developed methodologies that result in management’s best estimate of fair value. The carrying amounts of cash,
accounts receivable, accounts payable and accrued expenses approximate fair value because of the short-term nature of these instruments. 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 of “Other expense” in the
consolidated statements of operations. 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 of 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 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. Recent
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 results of operations, financial condition or cash flows. |
