Form 10-Q - Quarterly report [Sections 13 or 15(d)]

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2023

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

For the transition period from ________ to ________

Commission File Number 001-39678

SANARA MEDTECH INC.

(Exact name of Registrant as specified in its charter)

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

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

(Address of principal executive offices)

(817) 529-2300

(Registrant’s telephone number, including area code)

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

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

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

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

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

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

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

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

As of November 13, 2023, 8,538,489 shares of the Issuer’s common stock, $0.001 par value per share, were outstanding.

SANARA MEDTECH INC.

Form 10-Q

Quarter Ended September 30, 2023

		Page

*Part I – Financial Information*		3

Item 1. Financial Statements		3

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

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

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

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

Notes to Unaudited Consolidated Financial Statements		7

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

Item 3. Quantitative and Qualitative Disclosures about Market Risk		38

Item 4. Controls and Procedures		38

*Part II – Other Information*		39

Item 1. Legal Proceedings		39

Item 1A. Risk Factors		39

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

Item 3. Defaults Upon Senior Securities		40

Item 4. Mine Safety Disclosures		40

Item 5. Other Information		40

Item 6. Exhibits		41

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

Part I – Financial Information

ITEM 1. FINANCIAL STATEMENTS

SANARA MEDTECH INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	(Unaudited)
	September 30, 2023			December 31, 2022
Assets
Current assets
Cash	$	6,235,912		$	8,958,995
Accounts receivable, net		7,436,295			6,805,761
Accounts receivable – related party		11,032			98,548
Accounts receivable		11,032			98,548
Royalty receivable		49,344			99,594
Inventory, net		5,021,030			3,549,000
Prepaid and other assets		621,690			1,104,611
Total current assets		19,375,303			20,616,509

Long-term assets
Property and equipment, net		1,327,056			1,416,436
Right of use assets – operating leases		2,094,188			806,402
Goodwill		3,601,781			3,601,781
Intangible assets, net		45,991,466			31,509,980
Investment in equity securities		3,084,278			3,084,278
Total long-term assets		56,098,769			40,418,877

Total assets	$	75,474,072		$	61,035,386

Liabilities and shareholders’ equity
Current liabilities
Accounts payable	$	1,939,887		$	1,392,701
Accounts payable – related parties		64,747			34,036
Accounts payable		64,747			34,036
Accrued royalties and expenses		3,583,439			2,144,475
Accrued bonuses and commissions		6,084,654			7,758,284
Earnout liabilities – current		1,000,000			1,162,880
Operating lease liabilities – current		322,206			313,933
Current portion of debt		232,143			-
Total current liabilities		13,227,076			12,806,309

Long-term liabilities
Earnout liabilities – long-term		4,871,986			6,003,811
Operating lease liabilities – long-term		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		18,149,206			6,509,102

Total liabilities		31,376,282			19,315,411

Commitments and contingencies (Note 10)		-			-

Shareholders’ equity
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		72,107,881			65,213,987
Accumulated deficit		(27,799,621	)		(23,394,757	)
Total Sanara MedTech shareholders’ equity		44,316,800			41,827,530
Equity attributable to noncontrolling interest		(219,010	)		(107,555	)
Total shareholders’ equity		44,097,790			41,719,975
Total liabilities and shareholders’ equity	$	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)

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

Net Revenue	$	16,024,948		$	13,044,571		$	47,300,029		$	30,526,572

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

Gross profit		14,273,599			10,816,010			41,235,505			26,534,844

Operating expenses
Selling, general and administrative expenses		13,877,879			12,062,195			40,658,424			31,865,958
Research and development		986,454			1,061,387			3,480,906			2,333,024
Depreciation and amortization		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		15,180,254			14,048,152			45,224,663			35,928,850

Operating loss		(906,655	)		(3,232,142	)		(3,989,158	)		(9,394,006	)

Other expense
Interest expense and other		(188,294	)		-			(188,300	)		-
Share of losses from equity method investment		-			-			-			(379,633	)
Total other expense		(188,294	)		-			(188,300	)		(379,633	)

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

Net loss		(1,094,949	)		(1,529,252	)		(4,177,458	)		(3,928,843	)

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

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

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

Weighted average number of common shares outstanding, basic and diluted		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, 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
	$0.001 par value						Paid-In			Accumulated			Noncontrolling			Shareholders’
	Shares			Amount			Capital			Deficit			Interest			Equity
Balance at December 31, 2022		8,299,957		$	8,300		$	65,213,987		$	(23,394,757	)	$	(107,555	)	$	41,719,975
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		33,355			33			1,127,299			-			-			1,127,332
Net settlement and retirement of equity-based awards		21,363			22			224,740			(186	)		-			224,576
Net loss		-			-			-			(1,827,733	)		(38,447	)		(1,866,180	)
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		(339	)		(1	)		857,527			-			-			857,526
Net settlement and retirement of equity-based awards		27,011			27			279,364			1,679			-			281,070
Issuance of common stock for acquisitions		73,809			74			3,089,571			-			-			3,089,645
Net loss		-			-			-			(1,060,370	)		(34,579	)		(1,094,949	)
Net income (loss)		-			-			-			(1,060,370	)		(34,579	)		(1,094,949	)
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.

SANARA MEDTECH INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	2023			2022
	Nine Months Ended
	September 30,
	2023			2022

Cash flows from operating activities:
Net loss	$	(4,177,458	)	$	(3,928,843	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		2,580,243			1,556,752
Loss on disposal of property and equipment		-			2,876
Bad debt expense		214,061			220,000
Inventory obsolescence		222,691			289,406
Share-based compensation		2,582,163			1,971,537
Noncash lease expense		243,988			189,409
Loss on equity method investment		-			379,633
Benefit from deferred income taxes		-			(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		(794,344	)		(754,934	)
Accounts receivable – related party		87,516			10,920
Inventory, net		(1,664,714	)		(451,838	)
Prepaid and other assets		482,921			(69,490	)
Accounts payable		547,186			(800,788	)
Accounts payable – related parties		30,711			(126,812	)
Accrued royalties and expenses		557,295			947,130
Accrued bonuses and commissions		(1,673,629	)		1,516,858
Operating lease liabilities		(182,498	)		(189,990	)
Net cash used in operating activities		(2,397,024	)		(4,909,854	)
Cash flows from investing activities:
Purchases of property and equipment		(210,970	)		(93,651	)
Proceeds from disposal of property and equipment		650			894
Purchases of intangible assets		-			(600,000	)
Investment in equity securities		-			(250,000	)
Acquisitions, net of cash acquired		(9,942,750	)		(2,191,919	)
Net cash used in investing activities		(10,153,070	)		(3,134,676	)
Cash flows from financing activities:
Loan proceeds, net		9,688,341			-
Equity offering net proceeds		1,033,761			-
Net settlement of equity-based awards		(150,296	)		(102,931	)
Cash payment of finance and earnout liabilities		(744,795	)		-
Distribution to noncontrolling interest member		-			(220,000	)
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		8,958,995			18,652,841
Cash, end of period	$	6,235,912		$	10,285,380

Cash paid during the period for:
Interest	$	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		3,089,645			15,738,518
Earnout and other liabilities generated by acquisitions		3,759,642			6,882,151
Investment in equity securities converted in asset acquisition		-			1,803,440

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

SANARA MEDTECH INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – NATURE OF BUSINESS AND BACKGROUND

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

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation and Basis of Presentation

The accompanying unaudited consolidated financial statements include the accounts of Sanara MedTech Inc. and its wholly owned and majority-owned subsidiaries, as well as other entities in which the Company has a controlling financial interest. All significant intercompany profits, losses, transactions and balances have been eliminated in consolidation. 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 interim periods are not necessarily indicative of the results that may be expected for the full year period. These financial statements and notes should be read in conjunction with the financial statements for each of the two years ended December 31, 2022 and 2021, which are included in the Company’s most recent Annual Report on Form 10-K.

Use of Estimates

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

Cash and Cash Equivalents

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

Income/Loss Per Share

The Company computes income/loss per share in accordance with Accounting Standards Codification (“ASC”) Topic 260, Earnings per Share, which requires the Company to present basic and diluted income per share when the effect is dilutive. Basic income per share is computed by dividing income available to common shareholders by the weighted average number of shares of common stock outstanding. Diluted income per share is computed similarly to basic income per share, except that the denominator is increased to include the number of additional shares of common stock that would have been outstanding if the potential shares of common stock had been issued and if the additional shares of common stock were dilutive. All common stock equivalents were excluded from the calculations for the periods presented as their inclusion would have been anti-dilutive during the three and nine months ended September 30, 2023 and 2022 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 nine months ended September 30, 2023 and 2022, as such shares would have had an anti-dilutive effect:

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

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

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

Revenue Recognition

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

- Identification of the contract with a customer

- Identification of the performance obligations in the contract

- Determination of the transaction price

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

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

Details of this five-step process are as follows:

Identification of the contract with a customer

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

Performance obligations

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

Determination and allocation of the transaction price

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

Recognition of revenue as performance obligations are satisfied

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

Disaggregation of Revenue

Revenue streams from product sales and royalties are summarized below for the three and nine months ended September 30, 2023 and 2022.

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

Accounts Receivable Allowances

Accounts receivable are typically due within 30 days of invoicing. The Company establishes an allowance for doubtful accounts to provide for an estimate of accounts receivable which are not expected to be collectible. The Company 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 $128,061 and $25,000 during the three months ended September 30, 2023 and 2022, respectively, and $214,061 and $220,000 during the nine months ended September 30, 2023 and 2022, respectively. The allowance for doubtful accounts was $511,089 at September 30, 2023 and $265,089 at December 31, 2022. The Company also establishes other allowances to provide for estimated customer rebates and other expected customer deductions. These allowances totaled $5,297 at September 30, 2023 and $4,761 at December 31, 2022. If circumstances related to customers change, estimates of the recoverability of receivables would be further adjusted.

Inventories

Inventories are stated at the lower of cost or net realizable value, with cost computed on a first-in, first-out basis. Inventories consist primarily of finished goods, and also include an immaterial amount of raw materials and related packaging components. The Company recorded inventory obsolescence expense of $152,701 and $129,689 for the three months ended September 30, 2023 and 2022, respectively, and $222,691 and $289,406 for the nine months ended September 30, 2023 and 2022, respectively. The allowance for obsolete and slow-moving inventory had a balance of $327,492 at September 30, 2023, and $523,832 at December 31, 2022.

Property and Equipment

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

SCHEDULE OF PROPERTY AND EQUIPMENT

	Useful		September 30,			December 31,
	Life		2023			2022
Computers		3-5 years	$	194,788		$	172,154
Office equipment		3-7 years		154,280			87,225
Furniture and fixtures		5-10 years		323,755			258,414
Leasehold improvements		2-5 years		107,983			19,631
Internal use software		5 years		1,618,998			1,618,998
Property and equipment, gross				2,399,804			2,156,422
Less accumulated depreciation				(1,072,748	)		(739,986	)
Property and equipment, net			$	1,327,056		$	1,416,436

Depreciation expense related to property and equipment was $116,596 and $106,347 for the three months ended September 30, 2023 and 2022, respectively, and $332,762 and $300,655 for the nine months ended September 30, 2023 and 2022, respectively.

Internal Use Software

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

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

Goodwill

The excess of purchase price over the fair value of identifiable net assets acquired in business combinations is recorded as goodwill. As of September 30, 2023, all the Company’s goodwill relates to the acquisition of Scendia Biologics, LLC (“Scendia”) (see Note 4). Goodwill has an indefinite useful life and is not amortized. Goodwill is tested annually as of December 31 for impairment, or more frequently if circumstances indicate impairment may have occurred. The Company may first perform a qualitative assessment to determine if it is more likely than not that the fair value of the reporting unit is less than the respective carrying value. If it is determined that it is more likely than not that a reporting unit’s fair value is less than its carrying value, then the Company will determine the fair value of the reporting unit and record an impairment charge for the difference between fair value and carrying value (not to exceed the carrying amount of goodwill). No impairment was recorded during the 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 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, 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 in the Company’s Consolidated Statements of 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.

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 months ended September 30, 2023 or 2022.

Fair Value Measurement

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

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

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

Level 2 – Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reported date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all 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 reported under the line item captioned “Change in fair value of 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.


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

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

Recently Adopted Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326). This update amends the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses for most financial assets and certain other instruments that 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 or cash flows.

NOTE 3 – PRECISION HEALING MERGER

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

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

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

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

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

Pursuant to the merger agreement, upon the achievement of certain performance thresholds, the securityholders of Precision Healing, including the holders of options and warrants to purchase Precision Healing common stock and certain persons promised options to purchase Precision Healing common stock, are also entitled to receive payments of up to $10.0 million, which was accounted for as contingent consideration pursuant to ASC 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”). 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
Fair value of Sanara common shares issued		165,738	$	5,096,444
Fair value of assumed options		144,191		4,109,750
Fair value of assumed warrants		16,725		502,895
Cash paid to nonaccredited investors				125,370
Cash paid for fractional shares				596
Carrying value of equity method investment in Precision Healing				1,803,440
Fair value of contingent earnout consideration				3,882,151
Direct transaction costs				1,061,137
Total purchase consideration			$	16,581,783

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

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

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

NOTE 4 – SCENDIA PURCHASE AGREEMENT

In July 2022, the Company entered into a membership interest purchase agreement by and among the Company, Scendia, a Delaware limited liability company, and Ryan Phillips (“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 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) 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, Phillips was entitled to receive closing consideration consisting of (i) approximately $1.6 million of cash, subject to certain adjustments, and (ii) 291,686 shares of common stock of the Company. Pursuant to the purchase agreement, at closing, the Company withheld 94,798 shares of common stock with an agreed upon value of $1.95 million (the “Indemnity Holdback Shares”), which such Indemnity Holdback Shares 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.

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.

As the contingent earnout payments are not subject to any specific individual performance by 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
Fair value of Sanara common shares issued		291,686	$	6,032,066
Cash consideration				1,562,668
Fair value of contingent earnout consideration				3,000,000
Total purchase consideration			$	10,594,734

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

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

The goodwill acquired consists of expected synergies from the acquisition to the Company’s overall corporate strategy. The Company does not expect any of the goodwill to be deductible for income tax purposes. The Company incurred acquisition costs of approximately $187,000 in 2022, which is included in “Selling, general and administrative expenses” in the accompanying Consolidated Statements of Operations.

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 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 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 $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 (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”).

Prior to 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 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 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.

In connection with the 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.

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 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.

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 2023. The total purchase consideration was allocated based on the relative estimated fair value of such assets as follows:

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:

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

SCHEDULE OF FUTURE AMORTIZATION EXPENSE


Remainder of 2023	$	974,018
2024		3,896,070
2025		3,896,070
2026		3,878,815
2027		3,764,962
2028		3,731,721
Thereafter		25,849,810
Total	$	45,991,466

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, 2023 or 2022.

NOTE 7 – INVESTMENTS IN EQUITY SECURITIES

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, 2023.

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

As discussed above, in April 2022, the Company closed a merger transaction with Precision Healing pursuant to which Precision Healing became a wholly owned subsidiary of the Company (see Note 3 for more information). As a result of the merger, the Company’s equity method investment in Precision Healing ceased in April 2022. The Company recorded $379,633 in the nine months ended September 30, 2022 as its share of the loss from this equity method investment for the period prior to acquisition.

In June 2021, the Company invested $2,084,278 to purchase 278,587 Class A Preferred Shares (the “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 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, 2023.

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

SCHEDULE OF INVESTMENTS

	September 30, 2023				December 31, 2022
		Carrying Amount	Economic Interest			Carrying Amount	Economic Interest
Equity Method Investment
Precision Healing Inc.	$	-	-	%	$	-	-	%

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

Total Investments	$	3,084,278			$	3,084,278

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

	2023		2022		2023		2022
	Three Months ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Investment
Precision Healing Inc.	$	-	$	-	$	-	$	(379,633	)

Total	$	-	$	-	$	-	$	(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 material operating 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 have remaining lease terms of 87, 40 and 23 months as of September 30, 2023. For practical expediency, the Company has elected to not recognize ROU assets and lease liabilities related to short-term leases.

In accordance with ASC Topic 842, Leases, the Company has recorded ROU assets of $2,094,188 and a related lease liability of $2,168,499 as of September 30, 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. 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, respectively. The present value of the Company’s operating lease liabilities as of September 30, 2023 is shown below.

Maturity of Operating Lease Liabilities

SCHEDULE OF OPERATING LEASE LIABILITY

	September 30, 2023
Remainder of 2023	$	116,285
2024		505,017
2025		532,053
2026		379,529
2027		297,947
2028		295,689
Thereafter		604,049
Total lease payments		2,730,569
Less imputed interest		(562,070	)
Present Value of Lease Liabilities	$	2,168,499

Operating lease liabilities – current		322,206
Operating lease liabilities – long-term		1,846,293

As of September 30, 2023, the Company’s operating leases had a weighted average remaining lease term of 6.0 years and a weighted average discount rate of 7.59%.

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.

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%.

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

In connection with the Term Loan, the Company incurred $61,658 in 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 $2,055 and zero for the three and nine months ended September 30, 2023 and 2022, respectively.

NOTE 10 – COMMITMENTS AND 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.

BIAKŌS Antimicrobial Wound Gel and BIAKŌS Antimicrobial Skin and Wound Cleanser

In July 2019, the Company executed a license agreement with Rochal Industries, LLC (“Rochal”), a related party, pursuant to which the Company acquired an exclusive world-wide license to market, sell and further develop antimicrobial products for the prevention and treatment of microbes on the human body utilizing certain Rochal patents and pending patent applications (the “BIAKŌS License Agreement”). Currently, the products covered by the BIAKŌS License Agreement are BIAKŌS Antimicrobial Wound Gel and BIAKŌS Antimicrobial Skin and Wound Cleanser. Both products are 510(k) cleared.

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

●

The Company pays Rochal a royalty of 2-4% of net sales. The minimum annual royalty due to Rochal was $120,000 for 2022 and will increase by $10,000 each subsequent calendar year up to a maximum amount of $150,000.

●

The Company pays additional royalty annually based on specific net profit targets from sales of the licensed products, subject to a maximum of $1,000,000 during any calendar year.

Unless previously terminated by the parties, the BIAKŌS License Agreement expires with the related patents in December 2031.

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.

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 member or members of Rochal’s science team. For the three-year period after the effective date, Rochal is also entitled to receive an amount in cash equal to twenty-five percent of the proceeds received for any Grant (as defined in the asset purchase agreement) by either the Company or Rochal. In addition, the Company agreed to use commercially reasonable efforts to perform Minimum Development Efforts (as defined in the asset purchase agreement) with respect to certain products under development, which if obtained, will entitle the Company to intellectual property rights from Rochal in respect of such products.

Precision Healing Merger Agreement

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

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

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

Scendia Purchase Agreement

In July 2022, the Company closed the Scendia acquisition pursuant to which Scendia became a wholly owned subsidiary of the Company. Pursuant to the purchase agreement, the aggregate consideration for the acquisition at closing was approximately $7.6 million, subject to customary post-closing adjustments. The consideration consisted of (i) approximately $1.6 million of cash, subject to certain adjustments, and (ii) 291,686 shares of common stock of the Company. Pursuant to the purchase agreement, at closing, the Company withheld 94,798 Indemnity Holdback Shares, which such Indemnity Holdback Shares 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.

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.

Other Commitments

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

NOTE 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 587,465 shares had been issued under the LTIP Plan and 1,412,535 were available for issuance as of September 30, 2023.

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

In July 2022, the Company closed the Scendia acquisition pursuant to which Scendia became a wholly owned subsidiary of the Company. Pursuant to the purchase agreement, the aggregate consideration at closing for the acquisition was approximately $7.6 million, subject to customary post-closing adjustments. The consideration consisted of (i) approximately $1.6 million of cash, subject to certain adjustments, and (ii) 291,686 shares of common stock of the Company. Pursuant to the purchase agreement, at closing, the Company withheld 94,798 Indemnity Holdback Shares, which such Indemnity Holdback Shares 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.

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

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

During the three months ended 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, 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 107,797 shares, net of forfeitures, of restricted common stock to employees, directors, and certain advisors of the Company under the LTIP Plan during the nine months ended September 30, 2023. The fair value of these awards was $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 $857,526 and $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, respectively, and $2,582,163 and $1,971,537 was recognized during the nine months ended September 30, 2023 and 2022, respectively.

At September 30, 2023, there was $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 1.0 years.

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

SUMMARY OF RESTRICTED STOCK ACTIVITY

	For the Nine Months Ended September 30, 2023
	Shares			Weighted Average Grant Date Fair Value
Nonvested at beginning of period		181,102		$	22.89
Granted		118,912			39.14
Vested		(129,342	)		22.84
Forfeited		(11,115	)		32.96
Nonvested at September 30, 2023		159,557		$	34.27

Stock Options

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

SCHEDULE OF STOCK OPTION ACTIVITY

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

Exercisable at September 30, 2023		95,873		$	10.16		7.1

Warrants

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

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

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

NOTE 12 – INCOME TAXES

As discussed in Notes 3 and 4, the Company recognized net deferred tax liabilities associated with the Precision Healing merger and the Scendia acquisition. 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 an income tax benefit of $1,702,890 and $5,844,796 in the three and nine months ended September 30, 2022, respectively.

NOTE 13 – RELATED PARTIES

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, prior to the Applied Asset Purchase, licensed the rights to CellerateRX Surgical and HYCOL from Applied. Sales of CellerateRX Surgical comprised the substantial majority of the Company’s sales during the nine months ended September 30, 2023 and 2022. In January 2021, the Company amended the term of the Sublicense Agreement to extend the term to May 17, 2050, with automatic successive one-year renewals so long as annual net sales of the licensed products exceed $1,000,000. The Company pays royalties based on the annual Net Sales of licensed products (as defined in the Sublicense Agreement) consisting of 3% of all collected Net Sales each year up to $12,000,000, 4% of all collected Net Sales each year that exceed $12,000,000 up to $20,000,000, and 5% of all collected Net Sales each year that exceed $20,000,000.

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.

Product License Agreements

In July 2019, the Company executed a license agreement with Rochal, a related party, whereby the Company acquired an exclusive world-wide license to market, sell and further develop antimicrobial products for the prevention and treatment of microbes on the human body utilizing certain Rochal patents and pending patent applications. Currently, the products covered by the BIAKŌS License Agreement are BIAKŌS Antimicrobial Wound Gel and BIAKŌS Antimicrobial Skin and Wound Cleanser. Both products are 510(k) cleared. Mr. Nixon is a director of Rochal, and indirectly a significant shareholder of Rochal, and through the potential exercise of warrants, a majority shareholder of Rochal. Another one of the Company’s directors is also a significant shareholder and the current Chair of the board of directors of Rochal.

In October 2019, the Company executed the ABF License Agreement with Rochal whereby the Company acquired an exclusive world-wide license to market, sell and further develop certain antimicrobial barrier film and skin protectant products for use in the human health care market utilizing certain Rochal patents and pending patent applications. Currently, the products covered by the ABF License Agreement are CuraShield Antimicrobial Barrier Film and a no sting skin protectant product.

In May 2020, the Company executed a product license agreement with Rochal, whereby the Company acquired an exclusive world-wide license to market, sell and further develop a debrider for human medical use to enhance skin condition or treat or relieve skin disorders, excluding uses primarily for beauty, cosmetic, or toiletry purposes.

See Note 10 for more information on these product license agreements.

Consulting Agreement

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

Catalyst Transaction Advisory Services Agreement

In March 2023, the Company entered into a Transaction Advisory Services Agreement (the “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.

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

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

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

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

●	shortfalls in forecasted revenue growth;

●	our ability to implement our comprehensive wound and skincare strategy through acquisitions and investments and our ability to realize the anticipated benefits of such acquisitions and investments;

●	our ability to meet our future capital requirements;

●	our ability to retain and recruit key personnel;

●	the intense competition in the markets in which we operate and our ability to compete within our markets;

●	the failure of our products to obtain market acceptance;

●	the effect of security breaches and other disruptions;

●	our ability to maintain effective internal controls over financial reporting;

●	our ability to develop and commercialize new products and products under development, including the manufacturing, distribution, marketing and sale of such products;

●	our ability to maintain and further grow clinical acceptance and adoption of our products;

●	the impact of competitors inventing products that are superior to ours;

●	disruptions of, or changes in, our distribution model, consumer base or the supply of our products;

●	our ability to manage product inventory in an effective and efficient manner;

●	the failure of third-party assessments to demonstrate desired outcomes in proposed endpoints;

●	our ability to successfully expand into wound and skincare virtual consult and other services;

●	our ability and the ability of our research and development partners to protect the proprietary rights to technologies used in certain of our products and the impact of any claim that we have infringed on intellectual property rights of others;

●	our dependence on technologies and products that we license from third parties;

●

the effects of current and future laws, rules, regulations and reimbursement policies relating to the labeling, marketing and sale of our products and our planned expansion into wound and skincare virtual consult and other services and our ability to comply with the various laws, rules and regulations applicable to our business; and

●	the effect of defects, failures or quality issues associated with our products.

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

OVERVIEW

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

We currently market several products across surgical and chronic wound care applications and have multiple products in our pipeline. 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 primary product, and HYCOL Hydrolyzed Collagen (Powder and Gel) (“HYCOL”) from Applied Nutritionals, LLC (“Applied”) 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”), 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 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 license certain products and technologies currently under development, equipment and supplies. As a result of the asset purchase, our pipeline now contains product candidates for mitigation of opportunistic pathogens and biofilm, wound re-epithelialization and closure, necrotic tissue debridement and cell compatible substrates. Since our acquisition of assets from Rochal, we have been developing additional products in our own product pipeline.

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

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

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

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

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

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

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

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

RECENT ACQUISITIONS

Precision Healing

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

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

Scendia

In July 2022, we entered into a membership interest purchase agreement by and among the Company, Scendia and Phillips pursuant to which we acquired 100% of the issued and outstanding membership interests in Scendia from 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, (ii) BiFORM, (iii) ACTIGEN and (iv) 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 $7.6 million, which consisted of (i) a $1.6 million cash payment, subject to certain adjustments, and (ii) 291,686 shares of our common stock, with an agreed upon value of $6.0 million. Pursuant to the purchase agreement, at closing, we withheld 94,798 shares of common stock with an agreed upon value of $1.95 million (the “Indemnity Holdback Shares”), which such Indemnity Holdback Shares 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.

In addition to the cash and 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. The earnout consideration is payable to 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.

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”).

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.

COMPONENTS OF RESULTS OF OPERATIONS

Sources of Revenues

Our revenue is derived primarily from sales of our 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.

Revenue streams from product sales and royalties are summarized below for the three and nine months ended September 30, 2023 and 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

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

Cost of Goods Sold

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

Operating Expenses

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

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

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

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

Other Expense

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

RESULTS OF OPERATIONS

Net Revenue. For the three months ended September 30, 2023, we generated net revenue of $16.0 million compared to net revenue of $13.0 million for the three months ended September 30, 2022, a 23% increase from the prior year period. For the nine months ended September 30, 2023, we generated net revenue of $47.3 million compared to net revenue of $30.5 million for the nine months ended September 30, 2022, a 55% increase from the prior year period. The higher net revenue for the three and nine months ended September 30, 2023 were primarily due to increased sales of 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.

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, 2023, was $1.8 million, compared to costs of goods sold of $2.2 million for the three months ended September 30, 2022. Cost of goods sold for the nine months ended September 30, 2023, was $6.1 million, compared to costs of goods sold of $4.0 million for the nine months ended September 30, 2022. The decrease in cost of goods sold for the 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 growth and our acquisition of Scendia. Gross margins were approximately 87% for both nine-month periods ended September 30, 2023 and 2022. The gross margins for the nine months ended September 30, 2023 included lower margins realized on sales of certain Scendia 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, 2023, were $13.9 million compared to SG&A expenses of $12.1 million for the three months ended September 30, 2022. SG&A expenses for the nine months ended September 30, 2023, were $40.7 million compared to SG&A expenses of $31.9 million for the nine months ended September 30, 2022. The higher SG&A expenses for the three and nine months ended September 30, 2023 were primarily due to higher direct sales and marketing expenses, which accounted for approximately $1.0 million and $6.8 million, respectively, or 56% and 77%, respectively, of the increases compared to the prior 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 $0.7 million and $5.9 million, respectively, as a result of higher product 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. We expect our SG&A expenses to decline as a percentage of net revenues as our sales growth outpaces the costs of sales force expansion and corporate overhead.

Research and development expenses. R&D expenses for the three months ended September 30, 2023, were $1.0 million compared to $1.1 million for the three months ended September 30, 2022. R&D expenses for the nine months ended September 30, 2023, were $3.5 million compared to $2.3 million for the nine months ended September 30, 2022. The higher R&D expenses for the nine months ended September 30, 2023 were primarily due to costs related to the Precision Healing diagnostic imager and LFA. R&D expenses for the three and nine months ended September 30, 2023 also included costs associated with ongoing development projects for our currently licensed products.

Depreciation and amortization expense. Depreciation and amortization expense for the three months ended September 30, 2023, was $1.0 million compared to $0.8 million for the three months ended September 30, 2022. The higher depreciation and amortization expense during the three months ended September 30, 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 Applied transactions.

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, 2023 compared to an expense of $0.2 million for the nine months ended September 30, 2022. The current year benefits are as a result of a decrease in the estimated fair value of the earnout liabilities established at the time of our Precision Healing and Scendia 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.

Other expense. Other expense for the three months ended September 30, 2023 was $0.2 million compared to zero for the three months ended September 30, 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 included losses from our equity method investment in Precision Healing prior to our acquisition of the remaining interests in April 2022.

Loss before income taxes. We had a loss before income taxes of $1.1 million for the three months ended September 30, 2023, compared to a loss before income taxes of $3.2 million for the three months ended September 30, 2022. For the nine months ended September 30, 2023, we had a loss before income taxes of $4.2 million, compared to a loss before income taxes of $9.8 million for the nine months ended September 30, 2022. The lower loss for the three and nine months ended September 30, 2023 was due to operating expenses increasing at a slower rate than net sales in addition to the benefit recorded as a result of the change in fair value of earnout liabilities.

Income tax benefit. As discussed in Note 12 to the accompanying unaudited consolidated financial statements, we recognized net deferred tax liabilities associated with the Precision Healing merger and the Scendia acquisition. Prior to consideration of these deferred tax liabilities, 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 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, 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 $1.7 million and $5.8 million in the three and nine months ended September 30, 2022, respectively.

Net loss. For the three months ended September 30, 2023, we had a net loss of $1.1 million, 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.

LIQUIDITY AND CAPITAL RESOURCES

Cash on hand at September 30, 2023 was $6.2 million, compared to $9.0 million at December 31, 2022. Historically, we have financed our operations primarily from the sale of equity securities. In February 2023, we entered into a Controlled Equity Offering ^SM Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co., as sales agent (“Cantor”), pursuant to which we may offer and sell from time to time, to or through Cantor, shares of our common stock having an aggregate offering price of up to $75.0 million.

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 approximately $1.1 million and net proceeds of approximately $1.0 million pursuant to the Sales Agreement.

We expect our future needs for cash to include funding potential acquisitions, further developing our products, services and technologies pipeline and clinical studies, expanding our sales force, repayment of debt as it becomes due and for general corporate purposes. Based on our current plan of operations, we believe our cash on hand, when combined with expected cash flows from operations 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.

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: $600,000 in February, $500,000 in June, $500,000 in October, and $600,000 in December.

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

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

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

Scendia Acquisition

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

Pursuant to the purchase agreement, Phillips was entitled to receive closing consideration consisting of (i) approximately $1.6 million of cash, subject to certain adjustments, and (ii) 291,686 shares of our common stock. Pursuant to the purchase agreement, at closing, we withheld the Indemnity Holdback Shares, which 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.

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. The earnout consideration is payable to 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.

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.

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 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.

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.

Cash Flow Analysis

For the nine months ended September 30, 2023, net cash used in operating activities was $2.4 million compared to $4.9 million used in operating activities for the nine months ended September 30, 2022. The lower use of cash was due to net revenue growth outpacing the growth of our cash operating expenses and timing of cash expenditures for certain accrued payables.

For the nine months ended September 30, 2023, net cash used in investing activities was $10.2 million compared to $3.1 million used in investing activities during the nine months ended September 30, 2022. The higher use of cash used in investing activities during the nine months ended September 30, 2023 was primarily due to cash paid pursuant to the Applied Asset Purchase.

For the nine months ended September 30, 2023, net cash provided by financing activities was $9.8 million as compared to $0.3 million used in financing activities for the nine months ended September 30, 2022. The cash provided by financing activities 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 sales of our common stock of $1.0 million, partially offset by the Scendia earnout payment of $0.7 million and 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, prior to the Applied Asset Purchase, licensed the rights to CellerateRX from Applied. Sales of CellerateRX Surgical comprised the substantial majority of our sales during the nine months ended September 30, 2023 and 2022. In January 2021, we amended the term of the Sublicense Agreement to extend the term to May 17, 2050, with automatic successive one-year renewals so long as annual net sales of the licensed products exceed $1.0 million. We pay royalties based on the annual Net Sales of licensed products (as defined in the Sublicense Agreement) consisting of 3% of all collected Net Sales each year up to $12.0 million, 4% of all collected Net Sales each year that exceed $12.0 million up to $20.0 million, and 5% of all collected Net Sales each year that exceed $20.0 million. For the three months ended 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 $0.4 million of expense, respectively, under the terms of this agreement. For the nine months ended September 30, 2023 and 2022, royalty expense was $1.1 million and $1.2 million, respectively, under the terms of this agreement. Ronald T. Nixon, our Executive Chairman, is the founder and managing partner of Catalyst.

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

Catalyst Transaction Advisory Services Agreement

In March 2023, we entered into a Transaction Advisory Services Agreement (the “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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 4. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit to the Securities and Exchange Commission (the “SEC”) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms, and that information is accumulated and communicated to our management, including our principal executive and principal financial officers (whom we refer to in this periodic report as our Certifying Officers), as appropriate to allow timely decisions regarding required disclosure. Our management evaluated, with the participation of our Certifying Officers, the effectiveness of our disclosure controls and procedures as of September 30, 2023, pursuant to Rule 13a-15(b) under the Exchange Act. Based upon that evaluation, our Certifying Officers concluded that, as of September 30, 2023, our disclosure controls and procedures were effective.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

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

Part II — Other Information

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 1A. RISK FACTORS

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, 2022. For more information concerning our risk factors, please see “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022.

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.

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 our Executive Chairman ceases to serve as the Chairman of the Board of Directors of the Company or SMAT, such event could result in an event of default under the Loan Agreement.

The Loan Agreement provides that if Ron Nixon, our Executive Chairman, ceases to serve as Chairman of the Board of Directors of the Company or SMAT, an event of default will occur under the Loan Agreement, unless a successor, acceptable to the Bank, is elected or appointed within 10 business days of such event. If such an event were to occur and we are unable to find a replacement suitable to the Bank, we would be in default and all of our outstanding indebtedness could 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.

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

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

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

This item is not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

The exhibits listed below are filed as part of this Report or incorporated herein by 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 filed on July 19, 2021).

2.2#		Agreement and Plan of Merger, dated April 1, 2022, by and among Sanara MedTech Inc., United Wound and Skin Solutions, LLC, Precision Healing Inc., PH Merger Sub I, Inc., PH Merger Sub II, LLC and Furneaux Capital Holdco, LLC (d/b/a BlueIO) (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on April 4, 2022).

2.3#		Membership Interest Purchase Agreement, dated July 1, 2022, by and among Sanara MedTech Inc., Scendia Biologics, LLC and Ryan Phillips (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on July 5, 2022).

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.INS		Inline XBRL Instance Document.
101.SCH		Inline XBRL Taxonomy Extension Schema Document.
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

* Filed herewith

** 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.

# 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.

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

EXHIBIT 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

I, Zachary B. Fleming, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of Sanara MedTech Inc. for the period ended September 30, 2023;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)		Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)		Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)		All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 13, 2023

/s/ Zachary B. Fleming
Zachary B. Fleming, Chief Executive Officer

EXHIBIT 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

I, Michael D. McNeil, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of Sanara MedTech Inc. for the period ended September 30, 2023;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)		Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)		Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)		All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 13, 2023

/s/ Michael D. McNeil
Michael D. McNeil, Chief Financial Officer

EXHIBIT 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

In connection with the Quarterly Report on Form 10-Q of Sanara MedTech Inc. (the “Company”) for the period ended September 30, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Zachary B. Fleming, in my capacity as Chief Executive Officer of the Company and not in my individual capacity, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

	(1)	The Report fully complies with the requirements of section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and
	(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of, and for, the periods presented in the Report.

Date: November 13, 2023

/s/ Zachary B. Fleming
Zachary B. Fleming, Chief Executive Officer

The foregoing certification is being furnished as an exhibit to the Report pursuant to Item 601(b)(32) of Regulation S-K and Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) and, accordingly, is not being filed as part of the Report for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

EXHIBIT 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

In connection with the Quarterly Report on Form 10-Q of Sanara MedTech Inc. (the “Company”) for the period ended September 30, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael D. McNeil, in my capacity as Chief Financial Officer of the Company and not in my individual capacity, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

	(1)	The Report fully complies with the requirements of section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and
	(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of, and for, the periods presented in the Report.

November 13, 2023

/s/ Michael D. McNeil
Michael D. McNeil, Chief Financial Officer

Cover - shares	9 Months Ended
Cover - shares	Sep. 30, 2023	Nov. 13, 2023
Cover [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Quarterly Report	true
Document Transition Report	false
Document Period End Date	Sep. 30, 2023
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2023
Current Fiscal Year End Date	--12-31
Entity File Number	001-39678
Entity Registrant Name	SANARA MEDTECH INC.
Entity Central Index Key	0000714256
Entity Tax Identification Number	59-2219994
Entity Incorporation, State or Country Code	TX
Entity Address, Address Line One	1200 Summit Ave
Entity Address, Address Line Two	Suite 414
Entity Address, City or Town	Fort Worth
Entity Address, State or Province	TX
Entity Address, Postal Zip Code	76102
City Area Code	(817)
Local Phone Number	529-2300
Title of 12(b) Security	Common Stock, $0.001 par value
Trading Symbol	SMTI
Security Exchange Name	NASDAQ
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		8,538,489

Consolidated Balance Sheets - USD ($)	Sep. 30, 2023	Dec. 31, 2022
Current assets
Cash	$ 6,235,912	$ 8,958,995
Royalty receivable	49,344	99,594
Inventory, net	5,021,030	3,549,000
Prepaid and other assets	621,690	1,104,611
Total current assets	19,375,303	20,616,509
Long-term assets
Property and equipment, net	1,327,056	1,416,436
Right of use assets – operating leases	2,094,188	806,402
Goodwill	3,601,781	3,601,781
Intangible assets, net	45,991,466	31,509,980
Investment in equity securities	3,084,278	3,084,278
Total long-term assets	56,098,769	40,418,877
Total assets	75,474,072	61,035,386
Current liabilities
Accrued royalties and expenses	3,583,439	2,144,475
Accrued bonuses and commissions	6,084,654	7,758,284
Earnout liabilities – current	1,000,000	1,162,880
Operating lease liabilities – current	322,206	313,933
Current portion of debt	232,143
Total current liabilities	13,227,076	12,806,309
Long-term liabilities
Earnout liabilities – long-term	4,871,986	6,003,811
Operating lease liabilities – long-term	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	18,149,206	6,509,102
Total liabilities	31,376,282	19,315,411
Commitments and contingencies (Note 10)
Shareholders’ equity
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	72,107,881	65,213,987
Accumulated deficit	(27,799,621)	(23,394,757)
Total Sanara MedTech shareholders’ equity	44,316,800	41,827,530
Equity attributable to noncontrolling interest	(219,010)	(107,555)
Total shareholders’ equity	44,097,790	41,719,975
Total liabilities and shareholders’ equity	75,474,072	61,035,386
Nonrelated Party [Member]
Current assets
Accounts receivable	7,436,295	6,805,761
Current liabilities
Accounts payable	1,939,887	1,392,701
Related Party [Member]
Current assets
Accounts receivable	11,032	98,548
Current liabilities
Accounts payable	$ 64,747	$ 34,036

Consolidated Balance Sheets (Parenthetical) - $ / shares	Sep. 30, 2023	Dec. 31, 2022
Statement of Financial Position [Abstract]
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	20,000,000	20,000,000
Common stock, shares issued	8,540,226	8,299,957
Common stock, shares outstanding	8,540,226	8,299,957

Consolidated Statements of Operations (Unaudited) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
Income Statement [Abstract]
Net Revenue	$ 16,024,948	$ 13,044,571	$ 47,300,029	$ 30,526,572
Cost of goods sold	1,751,349	2,228,561	6,064,524	3,991,728
Gross profit	14,273,599	10,816,010	41,235,505	26,534,844
Operating expenses
Selling, general and administrative expenses	13,877,879	12,062,195	40,658,424	31,865,958
Research and development	986,454	1,061,387	3,480,906	2,333,024
Depreciation and amortization	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	15,180,254	14,048,152	45,224,663	35,928,850
Operating loss	(906,655)	(3,232,142)	(3,989,158)	(9,394,006)
Other expense
Interest expense and other	(188,294)		(188,300)
Share of losses from equity method investment				(379,633)
Total other expense	(188,294)		(188,300)	(379,633)
Loss before income taxes	(1,094,949)	(3,232,142)	(4,177,458)	(9,773,639)
Income tax benefit		1,702,890		5,844,796
Net loss	(1,094,949)	(1,529,252)	(4,177,458)	(3,928,843)
Less: Net loss attributable to noncontrolling interest	(34,579)	(58,792)	(111,455)	(98,485)
Net loss attributable to Sanara MedTech shareholders	$ (1,060,370)	$ (1,470,460)	$ (4,066,003)	$ (3,830,358)
Net loss per share of common stock, basic	$ (0.13)	$ (0.18)	$ (0.49)	$ (0.49)
Net loss per share of common stock, diluted	$ (0.13)	$ (0.18)	$ (0.49)	$ (0.49)
Weighted average number of common shares outstanding, basic	8,332,341	8,107,261	8,244,503	7,836,882
Weighted average number of common shares outstanding, diluted	8,332,341	8,107,261	8,244,503	7,836,882

Consolidated Statements of Changes in Shareholders' Equity (Unaudited) - USD ($)	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	Noncontrolling Interest [Member]	Total
Balance at Dec. 31, 2021	$ 7,677	$ 45,867,768	$ (15,235,044)	$ (488,397)	$ 30,152,004
Balance, shares at Dec. 31, 2021	7,676,662
Share-based compensation	$ 136	1,622,982			1,623,118
Share-based compensation, shares	137,076
Net settlement and retirement of equity-based awards	$ (3)	(52,284)	(50,644)		(102,931)
Net settlement and retirement of equity-based awards, shares	(3,343)
Net income (loss)			(3,129,324)	(27,181)	(3,156,505)
Balance at Mar. 31, 2022	$ 7,810	47,438,466	(18,415,012)	(515,578)	28,515,686
Balance, shares at Mar. 31, 2022	7,810,395
Balance at Dec. 31, 2021	$ 7,677	45,867,768	(15,235,044)	(488,397)	30,152,004
Balance, shares at Dec. 31, 2021	7,676,662
Net income (loss)					(3,928,843)
Balance at Sep. 30, 2022	$ 8,304	64,565,730	(19,116,046)	(809,520)	44,648,468
Balance, shares at Sep. 30, 2022	8,303,729
Balance at Mar. 31, 2022	$ 7,810	47,438,466	(18,415,012)	(515,578)	28,515,686
Balance, shares at Mar. 31, 2022	7,810,395
Share-based compensation	$ 39	703,361			703,400
Share-based compensation, shares	39,268
Net income (loss)			769,426	(12,512)	756,914
Issuance of common stock for acquisitions	$ 166	5,096,278			5,096,444
Issuance of common stock for acquisitions, shares	165,738
Issuance of common stock options and warrants for acquisitions		4,612,645			4,612,645
Distribution to noncontrolling interest member				(220,000)	(220,000)
Balance at Jun. 30, 2022	$ 8,015	57,850,750	(17,645,586)	(748,090)	39,465,089
Balance, shares at Jun. 30, 2022	8,015,401
Share-based compensation	$ (3)	683,205			683,202
Share-based compensation, shares	(3,358)
Net income (loss)			(1,470,460)	(58,792)	(1,529,252)
Issuance of common stock for acquisitions	$ 292	6,031,775		(2,638)	6,029,429
Issuance of common stock for acquisitions, shares	291,686
Balance at Sep. 30, 2022	$ 8,304	64,565,730	(19,116,046)	(809,520)	44,648,468
Balance, shares at Sep. 30, 2022	8,303,729
Balance at Dec. 31, 2022	$ 8,300	65,213,987	(23,394,757)	(107,555)	41,719,975
Balance, shares at Dec. 31, 2022	8,299,957
Share-based compensation	$ 75	597,230			597,305
Share-based compensation, shares	74,781
Net settlement and retirement of equity-based awards	$ (16)	(315,572)	(340,354)		(655,942)
Net settlement and retirement of equity-based awards, shares	(15,854)
Net income (loss)			(1,177,900)	(38,429)	(1,216,329)
Issuance of common stock in equity offering	$ 26	1,033,735			1,033,761
Issuance of common stock in equity offering, shares	26,143
Balance at Mar. 31, 2023	$ 8,385	66,529,380	(24,913,011)	(145,984)	41,478,770
Balance, shares at Mar. 31, 2023	8,385,027
Balance at Dec. 31, 2022	$ 8,300	65,213,987	(23,394,757)	(107,555)	41,719,975
Balance, shares at Dec. 31, 2022	8,299,957
Net income (loss)					(4,177,458)
Balance at Sep. 30, 2023	$ 8,540	72,107,881	(27,799,621)	(219,010)	44,097,790
Balance, shares at Sep. 30, 2023	8,540,226
Balance at Mar. 31, 2023	$ 8,385	66,529,380	(24,913,011)	(145,984)	41,478,770
Balance, shares at Mar. 31, 2023	8,385,027
Share-based compensation	$ 33	1,127,299			1,127,332
Share-based compensation, shares	33,355
Net settlement and retirement of equity-based awards	$ 22	224,740	(186)		224,576
Net settlement and retirement of equity-based awards, shares	21,363
Net income (loss)			(1,827,733)	(38,447)	(1,866,180)
Balance at Jun. 30, 2023	$ 8,440	67,881,419	(26,740,930)	(184,431)	40,964,498
Balance, shares at Jun. 30, 2023	8,439,745
Share-based compensation	$ (1)	857,527			857,526
Share-based compensation, shares	(339)
Net settlement and retirement of equity-based awards	$ 27	279,364	1,679		281,070
Net settlement and retirement of equity-based awards, shares	27,011
Net income (loss)			(1,060,370)	(34,579)	(1,094,949)
Issuance of common stock for acquisitions	$ 74	3,089,571			3,089,645
Issuance of common stock for acquisitions, shares	73,809
Balance at Sep. 30, 2023	$ 8,540	$ 72,107,881	$ (27,799,621)	$ (219,010)	$ 44,097,790
Balance, shares at Sep. 30, 2023	8,540,226

Consolidated Statements of Cash Flows (Unaudited) - USD ($)	9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022
Cash flows from operating activities:
Net loss	$ (4,177,458)	$ (3,928,843)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	2,580,243	1,556,752
Loss on disposal of property and equipment		2,876
Bad debt expense	214,061	220,000
Inventory obsolescence	222,691	289,406
Share-based compensation	2,582,163	1,971,537
Noncash lease expense	243,988	189,409
Loss on equity method investment		379,633
Benefit from deferred income taxes		(5,844,796)
Accretion of finance liabilities	39,699
Amortization of debt issuance costs	2,055	(0)
Change in fair value of earnout liabilities	(1,494,910)	173,116
Changes in operating assets and liabilities:
Accounts receivable, net	(794,344)	(754,934)
Accounts receivable – related party	87,516	10,920
Inventory, net	(1,664,714)	(451,838)
Prepaid and other assets	482,921	(69,490)
Accounts payable	547,186	(800,788)
Accounts payable – related parties	30,711	(126,812)
Accrued royalties and expenses	557,295	947,130
Accrued bonuses and commissions	(1,673,629)	1,516,858
Operating lease liabilities	(182,498)	(189,990)
Net cash used in operating activities	(2,397,024)	(4,909,854)
Cash flows from investing activities:
Purchases of property and equipment	(210,970)	(93,651)
Proceeds from disposal of property and equipment	650	894
Purchases of intangible assets		(600,000)
Investment in equity securities		(250,000)
Acquisitions, net of cash acquired	(9,942,750)	(2,191,919)
Net cash used in investing activities	(10,153,070)	(3,134,676)
Cash flows from financing activities:
Loan proceeds, net	9,688,341
Equity offering net proceeds	1,033,761
Net settlement of equity-based awards	(150,296)	(102,931)
Cash payment of finance and earnout liabilities	(744,795)
Distribution to noncontrolling interest member		(220,000)
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	8,958,995	18,652,841
Cash, end of period	6,235,912	10,285,380
Cash paid during the period for:
Interest	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	3,089,645	15,738,518
Earnout and other liabilities generated by acquisitions	3,759,642	6,882,151
Investment in equity securities converted in asset acquisition		$ 1,803,440

NATURE OF BUSINESS AND BACKGROUND

9 Months Ended

Sep. 30, 2023

Organization, Consolidation and Presentation of Financial Statements [Abstract]

NATURE OF BUSINESS AND BACKGROUND

NOTE 1 – NATURE OF BUSINESS AND BACKGROUND

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

9 Months Ended

Sep. 30, 2023

Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation and Basis of Presentation

Use of Estimates

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

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

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

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

Revenue Recognition

- 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

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

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.

Disaggregation of Revenue

Revenue streams from product sales and royalties are summarized below for the three and nine months ended September 30, 2023 and 2022.

	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

Accounts Receivable Allowances

Inventories

Property and Equipment

SCHEDULE OF PROPERTY AND EQUIPMENT

	Useful		September 30,			December 31,
	Life		2023			2022
Computers		3-5 years	$	194,788		$	172,154
Office equipment		3-7 years		154,280			87,225
Furniture and fixtures		5-10 years		323,755			258,414
Leasehold improvements		2-5 years		107,983			19,631
Internal use software		5 years		1,618,998			1,618,998
Property and equipment, gross				2,399,804			2,156,422
Less accumulated depreciation				(1,072,748	)		(739,986	)
Property and equipment, net			$	1,327,056		$	1,416,436

Internal Use Software

Goodwill

Intangible Assets

Impairment of Long-Lived Assets

Investments in Equity Securities

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 months ended September 30, 2023 or 2022.

Fair Value Measurement

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


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

Income Taxes

Stock-based Compensation

Research and Development Costs

Recently Adopted Accounting Pronouncements

Recently Issued Accounting Pronouncements

PRECISION HEALING MERGER

9 Months Ended

Sep. 30, 2023

Precision Healing Merger

PRECISION HEALING MERGER

NOTE 3 – PRECISION HEALING MERGER

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

SCHEDULE OF PURCHASE CONSIDERATIONS

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

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

SCENDIA PURCHASE AGREEMENT

9 Months Ended

Sep. 30, 2023

Scendia Purchase Agreement

SCENDIA PURCHASE AGREEMENT

NOTE 4 – SCENDIA PURCHASE AGREEMENT

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

SCHEDULE OF PURCHASE CONSIDERATIONS

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

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

APPLIED ASSET PURCHASE

9 Months Ended

Sep. 30, 2023

Applied Asset Purchase

APPLIED ASSET PURCHASE

NOTE 5 – APPLIED ASSET PURCHASE

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

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 2023. The total purchase consideration was allocated based on the relative estimated fair value of such assets as follows:

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

INTANGIBLE ASSETS

9 Months Ended

Sep. 30, 2023

Goodwill and Intangible Assets Disclosure [Abstract]

INTANGIBLE ASSETS

NOTE 6 – INTANGIBLE ASSETS

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

	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

SCHEDULE OF FUTURE AMORTIZATION EXPENSE


Remainder of 2023	$	974,018
2024		3,896,070
2025		3,896,070
2026		3,878,815
2027		3,764,962
2028		3,731,721
Thereafter		25,849,810
Total	$	45,991,466

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, 2023 or 2022.

INVESTMENTS IN EQUITY SECURITIES

9 Months Ended

Sep. 30, 2023

Schedule of Investments [Abstract]

INVESTMENTS IN EQUITY SECURITIES

NOTE 7 – INVESTMENTS IN EQUITY SECURITIES

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

SCHEDULE OF INVESTMENTS

	September 30, 2023				December 31, 2022
		Carrying Amount	Economic Interest			Carrying Amount	Economic Interest
Equity Method Investment
Precision Healing Inc.	$	-	-	%	$	-	-	%

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

Total Investments	$	3,084,278			$	3,084,278

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

	2023		2022		2023		2022
	Three Months ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Investment
Precision Healing Inc.	$	-	$	-	$	-	$	(379,633	)

Total	$	-	$	-	$	-	$	(379,633	)
Loss from equity method investment	$	-	$	-	$	-	$	(379,633	)

OPERATING LEASES

9 Months Ended

Sep. 30, 2023

Operating Leases

OPERATING LEASES

NOTE 8 – OPERATING LEASES

Maturity of Operating Lease Liabilities

SCHEDULE OF OPERATING LEASE LIABILITY

	September 30, 2023
Remainder of 2023	$	116,285
2024		505,017
2025		532,053
2026		379,529
2027		297,947
2028		295,689
Thereafter		604,049
Total lease payments		2,730,569
Less imputed interest		(562,070	)
Present Value of Lease Liabilities	$	2,168,499

Operating lease liabilities – current		322,206
Operating lease liabilities – long-term		1,846,293

As of September 30, 2023, the Company’s operating leases had a weighted average remaining lease term of 6.0 years and a weighted average discount rate of 7.59%.

DEBT AND CREDIT FACILITIES

9 Months Ended

Sep. 30, 2023

Debt And Credit Facilities

DEBT AND CREDIT FACILITIES

NOTE 9 – DEBT AND CREDIT FACILITIES

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%.

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

COMMITMENTS AND CONTINGENCIES

9 Months Ended

Sep. 30, 2023

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

NOTE 10 – COMMITMENTS AND CONTINGENCIES

License Agreements and Royalties

CellerateRX Surgical Activated Collagen

BIAKŌS Antimicrobial Wound Gel and BIAKŌS Antimicrobial Skin and Wound Cleanser

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

●

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.

CuraShield Antimicrobial Barrier Film and No Sting Skin Protectant

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

●

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.

Debrider License Agreement

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

●

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.

Resorbable Bone Hemostat

Rochal Asset Acquisition

Precision Healing Merger Agreement

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

Applied Asset Purchase

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.

Other Commitments

SHAREHOLDERS’ EQUITY

9 Months Ended

Sep. 30, 2023

Equity [Abstract]

SHAREHOLDERS’ EQUITY

NOTE 11 – SHAREHOLDERS’ EQUITY

Common Stock

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

In July 2022, the Company closed the Scendia acquisition pursuant to which Scendia became a wholly owned subsidiary of the Company. Pursuant to the purchase agreement, the aggregate consideration at closing for the acquisition was approximately $7.6 million, subject to customary post-closing adjustments. The consideration consisted of (i) approximately $1.6 million of cash, subject to certain adjustments, and (ii) 291,686 shares of common stock of the Company. Pursuant to the purchase agreement, at closing, the Company withheld 94,798 Indemnity Holdback Shares, which such Indemnity Holdback Shares 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.

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

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

SUMMARY OF RESTRICTED STOCK ACTIVITY

	For the Nine Months Ended September 30, 2023
	Shares			Weighted Average Grant Date Fair Value
Nonvested at beginning of period		181,102		$	22.89
Granted		118,912			39.14
Vested		(129,342	)		22.84
Forfeited		(11,115	)		32.96
Nonvested at September 30, 2023		159,557		$	34.27

Stock Options

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

SCHEDULE OF STOCK OPTION ACTIVITY

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

Exercisable at September 30, 2023		95,873		$	10.16		7.1

Warrants

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

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

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

INCOME TAXES

9 Months Ended

Sep. 30, 2023

Income Tax Disclosure [Abstract]

INCOME TAXES

NOTE 12 – INCOME TAXES

RELATED PARTIES

9 Months Ended

Sep. 30, 2023

RELATED PARTIES

NOTE 13 – RELATED PARTIES

CellerateRX Surgical Sublicense Agreement

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.

Product License Agreements

See Note 10 for more information on these product license agreements.

Consulting Agreement

Catalyst Transaction Advisory Services Agreement

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

9 Months Ended

Sep. 30, 2023

Accounting Policies [Abstract]

Principles of Consolidation and Basis of Presentation

Principles of Consolidation and Basis of Presentation

Use of Estimates

Use of Estimates

Cash and Cash Equivalents

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

Income/Loss Per Share

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

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

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

Revenue Recognition

Revenue Recognition

- 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

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

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.

Disaggregation of Revenue

Revenue streams from product sales and royalties are summarized below for the three and nine months ended September 30, 2023 and 2022.

	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

Accounts Receivable Allowances

Accounts Receivable Allowances

Inventories

Inventories

Property and Equipment

Property and Equipment

SCHEDULE OF PROPERTY AND EQUIPMENT

	Useful		September 30,			December 31,
	Life		2023			2022
Computers		3-5 years	$	194,788		$	172,154
Office equipment		3-7 years		154,280			87,225
Furniture and fixtures		5-10 years		323,755			258,414
Leasehold improvements		2-5 years		107,983			19,631
Internal use software		5 years		1,618,998			1,618,998
Property and equipment, gross				2,399,804			2,156,422
Less accumulated depreciation				(1,072,748	)		(739,986	)
Property and equipment, net			$	1,327,056		$	1,416,436

Internal Use Software

Internal Use Software

Goodwill

Goodwill

Intangible Assets

Intangible Assets

Impairment of Long-Lived Assets

Impairment of Long-Lived Assets

Investments in Equity Securities

Investments in Equity Securities

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 months ended September 30, 2023 or 2022.

Fair Value Measurement

Fair Value Measurement

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


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

Income Taxes

Income Taxes

Stock-based Compensation

Stock-based Compensation

Research and Development Costs

Research and Development Costs

Recently Adopted Accounting Pronouncements

Recently Adopted Accounting Pronouncements

Recently Issued Accounting Pronouncements

Recently Issued Accounting Pronouncements

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

9 Months Ended

Sep. 30, 2023

Accounting Policies [Abstract]

SCHEDULE OF COMPUTATION OF DILUTED NET LOSS PER SHARE

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

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

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

SCHEDULE OF REVENUE FROM PRODUCT SALES AND ROYALTIES

Revenue streams from product sales and royalties are summarized below for the three and nine months ended September 30, 2023 and 2022.

	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

SCHEDULE OF PROPERTY AND EQUIPMENT

	Useful		September 30,			December 31,
	Life		2023			2022
Computers		3-5 years	$	194,788		$	172,154
Office equipment		3-7 years		154,280			87,225
Furniture and fixtures		5-10 years		323,755			258,414
Leasehold improvements		2-5 years		107,983			19,631
Internal use software		5 years		1,618,998			1,618,998
Property and equipment, gross				2,399,804			2,156,422
Less accumulated depreciation				(1,072,748	)		(739,986	)
Property and equipment, net			$	1,327,056		$	1,416,436

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

PRECISION HEALING MERGER (Tables)

9 Months Ended

Sep. 30, 2023

Restructuring Cost and Reserve [Line Items]

SCHEDULE OF PURCHASE CONSIDERATION ON FAIR VALUE OF ASSETS ACQUIRED


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

Precision Healing Inc [Member]

Restructuring Cost and Reserve [Line Items]

SCHEDULE OF PURCHASE CONSIDERATIONS

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

SCHEDULE OF PURCHASE CONSIDERATIONS

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

SCHEDULE OF PURCHASE CONSIDERATION ON FAIR VALUE OF ASSETS ACQUIRED

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

SCENDIA PURCHASE AGREEMENT (Tables)

9 Months Ended

Sep. 30, 2023

Restructuring Cost and Reserve [Line Items]

SCHEDULE OF PURCHASE CONSIDERATION ON FAIR VALUE OF ASSETS ACQUIRED


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

Scendia Biologics LLC [Member]

Restructuring Cost and Reserve [Line Items]

SCHEDULE OF PURCHASE CONSIDERATIONS

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

SCHEDULE OF PURCHASE CONSIDERATIONS

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

SCHEDULE OF PURCHASE CONSIDERATION ON FAIR VALUE OF ASSETS ACQUIRED

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

APPLIED ASSET PURCHASE (Tables)

9 Months Ended

Sep. 30, 2023

Restructuring Cost and Reserve [Line Items]

SCHEDULE OF PURCHASE CONSIDERATION ON FAIR VALUE OF ASSETS ACQUIRED


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

Applied Asset Purchase [Member]

Restructuring Cost and Reserve [Line Items]

SCHEDULE OF PURCHASE CONSIDERATION

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

SCHEDULE OF PURCHASE CONSIDERATION ON FAIR VALUE OF ASSETS ACQUIRED

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

INTANGIBLE ASSETS (Tables)

9 Months Ended

Sep. 30, 2023

Goodwill and Intangible Assets Disclosure [Abstract]

SCHEDULE OF FINITE LIVED INTANGIBLE ASSETS

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

	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

SCHEDULE OF FUTURE AMORTIZATION EXPENSE


Remainder of 2023	$	974,018
2024		3,896,070
2025		3,896,070
2026		3,878,815
2027		3,764,962
2028		3,731,721
Thereafter		25,849,810
Total	$	45,991,466

INVESTMENTS IN EQUITY SECURITIES (Tables)

9 Months Ended

Sep. 30, 2023

Schedule of Investments [Abstract]

SCHEDULE OF INVESTMENTS

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

SCHEDULE OF INVESTMENTS

	September 30, 2023				December 31, 2022
		Carrying Amount	Economic Interest			Carrying Amount	Economic Interest
Equity Method Investment
Precision Healing Inc.	$	-	-	%	$	-	-	%

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

Total Investments	$	3,084,278			$	3,084,278

SCHEDULE OF LOSS FROM EQUITY METHOD INVESTMENT

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

	2023		2022		2023		2022
	Three Months ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Investment
Precision Healing Inc.	$	-	$	-	$	-	$	(379,633	)

Total	$	-	$	-	$	-	$	(379,633	)
Loss from equity method investment	$	-	$	-	$	-	$	(379,633	)

OPERATING LEASES (Tables)

9 Months Ended

Sep. 30, 2023

Operating Leases

SCHEDULE OF OPERATING LEASE LIABILITY

Maturity of Operating Lease Liabilities

SCHEDULE OF OPERATING LEASE LIABILITY

	September 30, 2023
Remainder of 2023	$	116,285
2024		505,017
2025		532,053
2026		379,529
2027		297,947
2028		295,689
Thereafter		604,049
Total lease payments		2,730,569
Less imputed interest		(562,070	)
Present Value of Lease Liabilities	$	2,168,499

Operating lease liabilities – current		322,206
Operating lease liabilities – long-term		1,846,293

DEBT AND CREDIT FACILITIES (Tables)

9 Months Ended

Sep. 30, 2023

Debt And Credit Facilities

SCHEDULE OF LONG-TERM DEBT

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		$	-

SCHEDULE OF MATURITIES OUTSTANDING DEBT

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

SHAREHOLDERS’ EQUITY (Tables)

9 Months Ended

Sep. 30, 2023

Equity [Abstract]

SUMMARY OF RESTRICTED STOCK ACTIVITY

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

SUMMARY OF RESTRICTED STOCK ACTIVITY

	For the Nine Months Ended September 30, 2023
	Shares			Weighted Average Grant Date Fair Value
Nonvested at beginning of period		181,102		$	22.89
Granted		118,912			39.14
Vested		(129,342	)		22.84
Forfeited		(11,115	)		32.96
Nonvested at September 30, 2023		159,557		$	34.27

SCHEDULE OF STOCK OPTION ACTIVITY

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

SCHEDULE OF STOCK OPTION ACTIVITY

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

Exercisable at September 30, 2023		95,873		$	10.16		7.1

SCHEDULE OF WARRANTS TO PURCHASE COMMON STOCK

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

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

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

SCHEDULE OF COMPUTATION OF DILUTED NET LOSS PER SHARE (Details) - shares

9 Months Ended

Sep. 30, 2023

Sep. 30, 2022

Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]

Anti-dilutive securities

159,557

192,215

Equity Option [Member]

Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]

Anti-dilutive securities

^[1]

95,873

155,691

Warrant [Member]

Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]

Anti-dilutive securities

^[2]

16,725

Unvested Restricted Stock [Member]

Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]

Anti-dilutive securities

159,557

192,215

[1]	Shares underlying stock options assumed pursuant to the merger agreement with Precision Healing, Inc. (“Precision Healing”) in April 2022. See Note 3 for more information regarding the Precision Healing merger.
[2]	Shares underlying warrants assumed pursuant to the merger agreement with Precision Healing in April 2022. See Note 3 for more information regarding the Precision Healing merger.

SCHEDULE OF REVENUE FROM PRODUCT SALES AND ROYALTIES (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
Product Information [Line Items]
Total Net Revenue	$ 16,024,948	$ 13,044,571	$ 47,300,029	$ 30,526,572
Soft Tissue Repair Products [Member]
Product Information [Line Items]
Total Net Revenue	13,634,316	10,969,271	39,756,539	28,296,919
Bone Fusion Products [Member]
Product Information [Line Items]
Total Net Revenue	2,340,382	2,025,050	7,392,740	2,078,903
Royalty [Member]
Product Information [Line Items]
Total Net Revenue	$ 50,250	$ 50,250	$ 150,750	$ 150,750

SCHEDULE OF PROPERTY AND EQUIPMENT (Details) - USD ($)	Sep. 30, 2023	Dec. 31, 2022
Property, Plant and Equipment [Line Items]
Property and equipment, gross	$ 2,399,804	$ 2,156,422
Less accumulated depreciation	(1,072,748)	(739,986)
Property and equipment, net	1,327,056	1,416,436
Computer Equipment [Member]
Property, Plant and Equipment [Line Items]
Property and equipment, gross	$ 194,788	172,154
Computer Equipment [Member] \| Minimum [Member]
Property, Plant and Equipment [Line Items]
Useful life	3 years
Computer Equipment [Member] \| Maximum [Member]
Property, Plant and Equipment [Line Items]
Useful life	5 years
Office Equipment [Member]
Property, Plant and Equipment [Line Items]
Property and equipment, gross	$ 154,280	87,225
Office Equipment [Member] \| Minimum [Member]
Property, Plant and Equipment [Line Items]
Useful life	3 years
Office Equipment [Member] \| Maximum [Member]
Property, Plant and Equipment [Line Items]
Useful life	7 years
Furniture and Fixtures [Member]
Property, Plant and Equipment [Line Items]
Property and equipment, gross	$ 323,755	258,414
Furniture and Fixtures [Member] \| Minimum [Member]
Property, Plant and Equipment [Line Items]
Useful life	5 years
Furniture and Fixtures [Member] \| Maximum [Member]
Property, Plant and Equipment [Line Items]
Useful life	10 years
Leasehold Improvements [Member]
Property, Plant and Equipment [Line Items]
Property and equipment, gross	$ 107,983	19,631
Leasehold Improvements [Member] \| Minimum [Member]
Property, Plant and Equipment [Line Items]
Useful life	2 years
Leasehold Improvements [Member] \| Maximum [Member]
Property, Plant and Equipment [Line Items]
Useful life	5 years
Internal Use Software [Member]
Property, Plant and Equipment [Line Items]
Property and equipment, gross	$ 1,618,998	$ 1,618,998
Useful life	5 years

SCHEDULE OF CHANGES IN FAIR VALUE FOR CONTINGENT EARNOUT CONSIDERATION (Details)	9 Months Ended
	Sep. 30, 2023 USD ($)
Accounting Policies [Abstract]
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

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022	Dec. 31, 2022
Property, Plant and Equipment [Line Items]
Proceeds from royalties			$ 50,250
Bad debt expense	$ 128,061	$ 25,000	214,061	$ 220,000
Allowance for doubtful accounts	511,089		511,089		$ 265,089
Accounts receivable allowances	5,297		5,297		4,761
Inventory obsolescence expense	152,701	129,689	222,691	289,406
Allowance for obsolete and slow-moving inventory	327,492		327,492		$ 523,832
Depreciation	$ 116,596	$ 106,347	332,762	$ 300,655
Minimum [Member]
Property, Plant and Equipment [Line Items]
Proceeds from royalties			201,000
BioStructures LLC [Member]
Property, Plant and Equipment [Line Items]
Proceeds from royalties			$ 50,250
Royalty percentage			2.00%
BioStructures LLC [Member] \| Minimum [Member]
Property, Plant and Equipment [Line Items]
Proceeds from royalties			$ 201,000

SCHEDULE OF PURCHASE CONSIDERATIONS (Details) - USD ($)		1 Months Ended
SCHEDULE OF PURCHASE CONSIDERATIONS (Details) - USD ($)	Apr. 04, 2022	Jul. 31, 2022
Precision Healing Inc [Member]
Restructuring Cost and Reserve [Line Items]
Cash paid to non-accredited investors	$ 125,370
Cash paid for fractional shares	596
Carrying value of equity method investment in Precision Healing	1,803,440
Fair value of contingent earnout consideration	3,882,151
Direct transaction costs	1,061,137
Total purchase consideration	$ 16,581,783
Precision Healing Inc [Member] \| Equity Option [Member]
Restructuring Cost and Reserve [Line Items]
Equity Shares	144,191
Fair value of stok issued, value	$ 4,109,750
Precision Healing Inc [Member] \| Common Stock [Member]
Restructuring Cost and Reserve [Line Items]
Equity Shares	165,738
Fair value of stok issued, value	$ 5,096,444
Precision Healing Inc [Member] \| Warrant [Member]
Restructuring Cost and Reserve [Line Items]
Equity Shares	16,725
Fair value of stok issued, value	$ 502,895
Scendia Purchase Agreement [Member] \| Common Stock [Member]
Restructuring Cost and Reserve [Line Items]
Equity Shares		291,686
Fair value of stok issued, value		$ 6,032,066
Fair value of contingent earnout consideration		3,000,000
Total purchase consideration		10,594,734
Cash consideration		$ 1,562,668

SCHEDULE OF PURCHASE CONSIDERATION ON FAIR VALUE OF ASSETS ACQUIRED (Details) - USD ($)	Sep. 30, 2023	Dec. 31, 2022
Restructuring Cost and Reserve [Line Items]
Goodwill	$ 3,601,781	$ 3,601,781
Precision Healing Inc [Member]
Restructuring Cost and Reserve [Line Items]
Cash	32,202
Net working capital (excluding cash)	(308,049)
Fixed assets, net	9,228
Deferred tax assets	278,661
Intellectual property	20,325,469
Assembled workforce	664,839
Deferred tax liabilities	(4,420,567)
Net assets acquired	16,581,783
Scendia Purchase Agreement [Member]
Restructuring Cost and Reserve [Line Items]
Cash	201,406
Net working capital (excluding cash)	1,294,499
Noncontrolling interest in Sanara Biologics, LLC	2,638
Customer relationships	7,155,000
Fixed assets, net	42,300
Deferred tax liabilities	(1,702,890)
Goodwill	3,601,781
Net assets acquired	10,594,734
Applied Asset Purchase [Member]
Restructuring Cost and Reserve [Line Items]
Inventory	30,007
Equipment	33,062
Intellectual property	16,728,968
Net assets acquired	$ 16,792,037

PRECISION HEALING MERGER (Details Narrative) - USD ($)			1 Months Ended	9 Months Ended
PRECISION HEALING MERGER (Details Narrative) - USD ($)	Apr. 01, 2023	Apr. 04, 2022	Apr. 30, 2022	Sep. 30, 2023
Asset Acquisition [Line Items]
Merger agreement cash consideration	$ 16,792,037
Transaction expenses	162,743
Number of stock options exercised				50,318
Warrants to purchase common stock			4,424
Warrant initial exercise price			$ 7.32
Expiration date			Apr. 22, 2031
Payments to contingent consideration	$ 893,000
Precision Healing Inc [Member]
Asset Acquisition [Line Items]
Share price		$ 30.75
Precision Healing Inc [Member] \| Warrants One [Member]
Asset Acquisition [Line Items]
Warrants to purchase common stock		4,424
Warrant initial exercise price		$ 7.32
Expiration date		Apr. 22, 2031
Precision Healing Inc [Member] \| Warrants Two [Member]
Asset Acquisition [Line Items]
Warrants to purchase common stock		12,301
Warrant initial exercise price		$ 12.05
Expiration date		Aug. 10, 2030
Precision Healing Inc [Member] \| Precision Healing Plan [Member]
Asset Acquisition [Line Items]
Number of stock options exercised		144,191
Weighted exercise price		$ 10.71
Accredited Investors [Member] \| Precision Healing Inc [Member]
Asset Acquisition [Line Items]
Number of shares issued, acquisitions, value		165,738
Precision Healing Inc [Member]
Asset Acquisition [Line Items]
Merger agreement cash consideration			$ 125,966
Transaction expenses		$ 600,000
Payments to contingent consideration			$ 10,000,000.0
Precision Healing Inc [Member] \| Stockholders [Member]
Asset Acquisition [Line Items]
Merger agreement cash consideration		125,966
Precision Healing Inc [Member] \| Security Holders [Member]
Asset Acquisition [Line Items]
Payments to contingent consideration		$ 10,000,000.0
Common stock conversion price		$ 27.13

SCENDIA PURCHASE AGREEMENT (Details Narrative) - USD ($)		1 Months Ended		12 Months Ended
	Apr. 01, 2023	Aug. 31, 2023	Jul. 31, 2022	Dec. 31, 2022
Merger agreement cash consideration	$ 16,792,037
Cash consideration			$ 10,000,000.0
Number of shares			486,145
Earnout payment		$ 693,000
Scendia Acquisition [Member]
Acquisition costs				$ 187,000
Purchase Agreement [Member]
Issuance of common stock for purchase of assets			291,686
Number of shares issued			94,798
Proceeds from offering			$ 1,950,000
Purchase Agreement [Member] \| Scendia Biologics LLC [Member]
Merger agreement cash consideration			$ 1,600,000
Scendia Biologics LLC [Member]
Equity method ownership percentage			50.00%
Membership Interest Purchase Agreement [Member]
Equity method ownership percentage			100.00%
Scendia Biologics LLC [Member] \| Scendia Purchase Agreement [Member]
Equity method ownership percentage			100.00%

SCHEDULE OF PURCHASE CONSIDERATION (Details)	Apr. 01, 2023 USD ($) shares
Applied Asset Purchase
Cash Closing Consideration	$ 9,750,000
Fair value of Stock Closing Consideration	$ 3,089,645
Equity Shares \| shares	73,809
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

APPLIED ASSET PURCHASE (Details Narrative) $ in Thousands	Aug. 01, 2023 USD ($) shares
Business Acquisition, Contingent Consideration [Line Items]
Cash consideration	$ 10,000
Applied Asset Purchase [Member]
Business Acquisition, Contingent Consideration [Line Items]
Purchase agreement description	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.
Cash Closing Consideration [Member]
Business Acquisition, Contingent Consideration [Line Items]
Payments to acquire productive assets	$ 15,250
Cash consideration	$ 9,750
Stock issued during period shares issued for services \| shares	73,809
Stock Closing Consideration [Member]
Business Acquisition, Contingent Consideration [Line Items]
Payments to acquire productive assets	$ 3,000
Cash consideration	$ 2,500

SCHEDULE OF FINITE LIVED INTANGIBLE ASSETS (Details) - USD ($)	Sep. 30, 2023	Dec. 31, 2022
Finite-Lived Intangible Assets [Line Items]
Net	$ 45,991,466	$ 31,509,980
Licensing Agreements [Member]
Finite-Lived Intangible Assets [Line Items]
Cost	4,793,879	4,793,879
Accumulated amortization	(1,246,115)	(980,583)
Net	3,547,764	3,813,296
Patents [Member]
Finite-Lived Intangible Assets [Line Items]
Cost	38,664,548	21,935,580
Accumulated amortization	(2,598,220)	(1,492,057)
Net	36,066,328	20,443,523
Customer Relationships and Other [Member]
Finite-Lived Intangible Assets [Line Items]
Cost	7,947,332	7,947,332
Accumulated amortization	(1,569,958)	(694,171)
Net	6,377,374	7,253,161
Amortizable Intangible Assets [Member]
Finite-Lived Intangible Assets [Line Items]
Cost	51,405,759	34,676,791
Accumulated amortization	(5,414,293)	(3,166,811)
Net	$ 45,991,466	$ 31,509,980

SCHEDULE OF FUTURE AMORTIZATION EXPENSE (Details)	Sep. 30, 2023 USD ($)
Goodwill and Intangible Assets Disclosure [Abstract]
Remainder of 2023	$ 974,018
2024	3,896,070
2025	3,896,070
2026	3,878,815
2027	3,764,962
2028	3,731,721
Thereafter	25,849,810
Total	$ 45,991,466

INTANGIBLE ASSETS (Details Narrative) - USD ($)	3 Months Ended		9 Months Ended
INTANGIBLE ASSETS (Details Narrative) - USD ($)	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
Goodwill and Intangible Assets Disclosure [Abstract]
Weighted average useful life			14 years 6 months
Amortization of intangible assets	$ 881,079	$ 708,534	$ 2,247,482	$ 1,256,097

SCHEDULE OF INVESTMENTS (Details) - USD ($)	Sep. 30, 2023	Dec. 31, 2022
Cost method investment	$ 3,084,278	$ 3,084,278
Total Investments	3,084,278	3,084,278
Precision Healing Inc [Member]
Equity method investment
Economic interest
Direct Dermatology Inc. [Member]
Cost method investment	$ 1,000,000	$ 1,000,000
Pixalere Healthcare Inc. [Member]
Cost method investment	$ 2,084,278	$ 2,084,278

SCHEDULE OF LOSS FROM EQUITY METHOD INVESTMENT (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
Loss from equity method investment				$ (379,633)
Precision Healing Inc [Member]
Loss from equity method investment				$ (379,633)

INVESTMENTS IN EQUITY SECURITIES (Details Narrative) - USD ($)	1 Months Ended							3 Months Ended			9 Months Ended		12 Months Ended
	Mar. 31, 2022	Dec. 31, 2021	Oct. 31, 2021	Jun. 30, 2021	Feb. 28, 2021	Nov. 30, 2020	Jul. 31, 2020	Sep. 30, 2023	Mar. 31, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022	Dec. 31, 2021	Dec. 31, 2022
Long term investments								$ 3,084,278			$ 3,084,278			$ 3,084,278
Value of shares purchased									$ 1,033,761
Investments								3,084,278			3,084,278			$ 3,084,278
Loss on equity method investment												$ 379,633
Precision Healing Inc [Member]
Loss on equity method investment												$ 379,633
Series B-2 Preferred Shares [Member] \| Direct Derm's [Member]
Ownership interest							2.90%	8.10%			8.10%
Series A Convertible Preferred Stock [Member]
Ownership interest						12.60%
Series A Stock [Member]
Ownership interest				29.00%	22.40%
Series B-2 Preferred Shares [Member]
Long term investments							$ 500,000
Purchase of additional shares							7,142,857
Series B-2 Preferred Shares [Member] \| Direct Derm's [Member]
Purchase of additional shares	3,571,429												3,571,430
Value of shares purchased	$ 250,000												$ 250,000
Series A Convertible Preferred Stock [Member] \| Precision Healing Inc [Member]
Purchase of additional shares						150,000
Value of shares purchased						$ 600,000
Conversion of stock						150,000
Series A Stock [Member]
Purchase of additional shares		150,000	125,000	125,000	150,000
Value of shares purchased		$ 600,000	$ 500,000
Investments				$ 500,000	$ 600,000
Series A Stock [Member] \| Precision Healing Inc [Member]
Conversion of stock					150,000
Class A Preferred Shares [Member] \| Pixalere Healthcare Inc. [Member]
Purchase of additional shares				278,587
Investments				$ 2,084,278
Conversion of shares				27.30%
Class A Preferred Shares [Member] \| Pixalere Healthcare Inc. [Member]
Ownership interest				27.30%
Ownership amount				$ 93,879

SCHEDULE OF OPERATING LEASE LIABILITY (Details) - USD ($)	Sep. 30, 2023	Dec. 31, 2022
Operating Leases
Remainder of 2023	$ 116,285
2024	505,017
2025	532,053
2026	379,529
2027	297,947
2028	295,689
Thereafter	604,049
Total lease payments	2,730,569
Less imputed interest	(562,070)
Present Value of Lease Liabilities	2,168,499
Operating lease liabilities – current	322,206	$ 313,933
Operating lease liabilities – long-term	$ 1,846,293	$ 505,291

OPERATING LEASES (Details Narrative) - USD ($)	9 Months Ended
OPERATING LEASES (Details Narrative) - USD ($)	Sep. 30, 2023	Sep. 30, 2022	Dec. 31, 2022
Property, Plant and Equipment [Line Items]
Operating lease right of use asset	$ 2,094,188		$ 806,402
Operating lease liability	2,168,499
Operating lease expenses	295,268	$ 210,317
Operating lease payments	$ 264,291	$ 210,897
Weighted average remaining lease term	6 years
Weighted average discount rate	7.59%
Office Space One [Member]
Property, Plant and Equipment [Line Items]
Remaining lease term	87 months
Office Space Two [Member]
Property, Plant and Equipment [Line Items]
Remaining lease term	40 months
Office Space Three [Member]
Property, Plant and Equipment [Line Items]
Remaining lease term	23 months

SCHEDULE OF LONG-TERM DEBT (Details) - USD ($)	Sep. 30, 2023	Dec. 31, 2022
Short-Term Debt [Line Items]
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
Term Loan [Member]
Short-Term Debt [Line Items]
Total debt	$ 9,750,000

SCHEDULE OF LONG-TERM DEBT (Details) (Parenthetical) - USD ($)	Sep. 30, 2023	Dec. 31, 2022
Debt And Credit Facilities
Debt issuance costs	$ 2,055	$ 0

SCHEDULE OF MATURITIES OUTSTANDING DEBT (Details) - USD ($)	Sep. 30, 2023	Dec. 31, 2022
Debt And Credit Facilities
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

DEBT AND CREDIT FACILITIES (Details Narrative) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022	Aug. 05, 2024	Aug. 11, 2023	Aug. 01, 2023	Dec. 31, 2022
Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items]
Unamortized debt issuance costs	$ 59,603		$ 59,603					$ 0
Debt issuance costs	$ 2,055	$ 0	$ 2,055	$ (0)
Term Loan [Member]
Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items]
Term loan percentage	8.30%		8.30%
Debt issuance costs	$ 61,658
Loan Agreement [Member]
Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items]
Principal amount						$ 12,000,000.0
Loan agreement percentage							100.00%
Loan bank advance						$ 9,750,000
Bank, interest rate					3.00%
Loan agreement, description			(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.

COMMITMENTS AND CONTINGENCIES (Details Narrative) - USD ($)					1 Months Ended							3 Months Ended			9 Months Ended		12 Months Ended
	Aug. 01, 2023	Apr. 01, 2023	Jul. 07, 2019	Aug. 27, 2018	Dec. 31, 2022	Jul. 31, 2022	Apr. 30, 2022	May 31, 2020	Apr. 30, 2020	Oct. 31, 2019	May 31, 2019	Sep. 30, 2023	Mar. 31, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022	Dec. 31, 2022	Aug. 31, 2023	Apr. 04, 2022
Loss Contingencies [Line Items]
Payment of cash															$ 9,942,750	$ 2,191,919
Proceeds from royalties received															50,250
Annual royalty obligation															$ 4,020
Cash consideration		$ 16,792,037
Options to acquire shares							144,191
Weighted exercise price							$ 10.71
Warrants to purchase shares							4,424
Exercise price							$ 7.32
Expiration date							Apr. 22, 2031
Payments receive		$ 893,000
cash																		$ 693,000
Cash consideration						$ 10,000,000.0
Number of shares						486,145
Net income												$ (34,579)		$ (58,792)	$ (111,455)	(98,485)
Cash Closing Consideration [Member]
Loss Contingencies [Line Items]
Payments to Acquire Productive Assets	$ 15,250,000
Common Stock [Member]
Loss Contingencies [Line Items]
Warrants to purchase shares							12,301
Exercise price							$ 12.05
Expiration date							Aug. 10, 2030
Number of shares isssued													26,143
Precision Healing Inc [Member]
Loss Contingencies [Line Items]
Cash consideration							$ 125,966
Payments receive							$ 10,000,000.0
Precision Healing [Member]
Loss Contingencies [Line Items]
Payments receive									$ 10,000,000.0
2009 [Member] \| Resorbable Bone Hemostat [Member]
Loss Contingencies [Line Items]
Royalty percentage															2.00%
Rochal [Member]
Loss Contingencies [Line Items]
Payment of cash								$ 500,000
Accredited Investors [Member]
Loss Contingencies [Line Items]
Issuance of shares							165,738
Nonaccredited Investors [Member]
Loss Contingencies [Line Items]
Share price																			$ 30.75
Minimum [Member]
Loss Contingencies [Line Items]
Proceeds from royalties received															$ 201,000
Minimum [Member] \| 2009 [Member] \| Resorbable Bone Hemostat [Member]
Loss Contingencies [Line Items]
Payments for royalties															201,000
Precision Healing [Member]
Loss Contingencies [Line Items]
Payment in cash							$ 600,000
Share price							$ 27.13		$ 27.13
Wound Care Solutions Limited [Member]
Loss Contingencies [Line Items]
Net income					$ 242,000		$ 220,000				$ 200,000
Wound Care Solutions Limited [Member] \| 2021 Through 2024 [Member]
Loss Contingencies [Line Items]
Net income, percentage											10.00%
Cost of Sales [Member]
Loss Contingencies [Line Items]
Royalty expense												9,209		432,809	1,060,035	1,245,775
Annual royalty obligation															16,080
Sub License Agreement [Member]
Loss Contingencies [Line Items]
License agreement and royalties description				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.
BIAKOS License Agreement [Member]
Loss Contingencies [Line Items]
Royalty expense												$ 32,499		$ 30,000	97,499	$ 90,000
BIAKOS License Agreement [Member] \| Rochal Industries LLC [Member]
Loss Contingencies [Line Items]
Increase of royalties payable															10,000
BIAKOS License Agreement [Member] \| Rochal Industries LLC [Member] \| Minimum [Member]
Loss Contingencies [Line Items]
Royalty percentage			2.00%
Payments for royalties																	$ 120,000
BIAKOS License Agreement [Member] \| Rochal Industries LLC [Member] \| Maximum [Member]
Loss Contingencies [Line Items]
Royalty percentage			4.00%
Payments for royalties															150,000
BIAKOS Agreement [Member] \| Maximum [Member]
Loss Contingencies [Line Items]
Payment for additional royalties															$ 1,000,000
ABF License Agreement [Member]
Loss Contingencies [Line Items]
Royalty annual minimum percentage															10.00%
ABF License Agreement [Member] \| Minimum [Member]
Loss Contingencies [Line Items]
Royalty percentage										2.00%
ABF License Agreement [Member] \| Maximum [Member]
Loss Contingencies [Line Items]
Royalty percentage										4.00%
Payments for royalties															$ 75,000
Payment for additional royalties															$ 500,000
Debrider License Agreement [Member]
Loss Contingencies [Line Items]
Royalty annual minimum percentage															10.00%
Payment of cash								$ 1,000,000
Debrider License Agreement [Member] \| Minimum [Member]
Loss Contingencies [Line Items]
Royalty percentage								2.00%
Payments for royalties								$ 100,000
Debrider License Agreement [Member] \| Maximum [Member]
Loss Contingencies [Line Items]
Royalty percentage								4.00%
Payments for royalties															$ 150,000
Payment for additional royalties															$ 1,000,000
Royalty Agreement [Member] \| 2009 [Member] \| Resorbable Bone Hemostat [Member]
Loss Contingencies [Line Items]
Royalty annual minimum percentage															8.00%
Purchase Agreement [Member]
Loss Contingencies [Line Items]
Acquisition consideration transferred						$ 7,600,000
cash						$ 1,600,000
Issuance of common stock for purchase of assets						291,686
Number of shares isssued						94,798
Payments to Acquire Productive Assets						$ 7,600,000
Services Agreement [Member]
Loss Contingencies [Line Items]
Purchase agreement description	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.

SUMMARY OF RESTRICTED STOCK ACTIVITY (Details)	9 Months Ended
SUMMARY OF RESTRICTED STOCK ACTIVITY (Details)	Sep. 30, 2023 $ / shares shares
Equity [Abstract]
Non-vested shares, beginning \| shares	181,102
Weighted average grant date fair value, beginning \| $ / shares	$ 22.89
Granted \| shares	118,912
Weighted average grant date fair value, granted \| $ / shares	$ 39.14
Vested \| shares	(129,342)
Weighted average grant date fair value, vested \| $ / shares	$ 22.84
Forfeited \| shares	(11,115)
Weighted average grant date fair value, forfeited \| $ / shares	$ 32.96
Non-vested shares, ending \| shares	159,557
Weighted average grant date fair value, ending \| $ / shares	$ 34.27

SCHEDULE OF STOCK OPTION ACTIVITY (Details) - $ / shares	1 Months Ended	9 Months Ended
	Apr. 30, 2022	Sep. 30, 2023
Equity [Abstract]
Number of options outstanding, beginning		146,191
Weighted average exercise price outstanding, beginning		$ 10.65
Granted	144,191
Weighted average exercise price, Granted
Exercised		(50,318)
Weighted average exercise price, Exercised		$ 11.58
Forfeited
Weighted average exercise price, Forfeited
Expired
Weighted average exercise price, Expired
Number of options outstanding, ending		95,873
Weighted average exercise price outstanding, ending		$ 10.16
Weighted average remaining contract life outstanding		7 years 1 month 6 days
Number of options exercisable, ending		95,873
Weighted average exercise price exercisable, ending		$ 10.16
Weighted average remaining contract life exercisable, ending		7 years 1 month 6 days

SCHEDULE OF WARRANTS TO PURCHASE COMMON STOCK (Details)	9 Months Ended
SCHEDULE OF WARRANTS TO PURCHASE COMMON STOCK (Details)	Sep. 30, 2023 $ / shares shares
Equity [Abstract]
Number of warrants outstanding, beginning \| shares	16,725
Weighted average exercise price outstanding, beginning \| $ / shares	$ 10.80
Number of warrants, granted \| shares
Weighted average exercise price, granted \| $ / shares
Number of warrants, exercised \| shares
Weighted average exercise price, exercised \| $ / shares
Number of warrants, forfeited \| shares
Weighted average exercise price, forfeited \| $ / shares
Number of warrants, expired \| shares
Weighted average exercise price, expired \| $ / shares
Number of warrants outstanding, ending \| shares	16,725
Weighted average exercise price outstanding, ending \| $ / shares	$ 10.80
Weighted average remaining contract life outstanding	7 years
Number of warrants exercisable, ending \| shares	16,725
Weighted average exercise price, exercisable, ending \| $ / shares	$ 10.80
Weighted average remaining contract life exercisable, ending	7 years

SHAREHOLDERS’ EQUITY (Details Narrative) - USD ($)			1 Months Ended				3 Months Ended			9 Months Ended
SHAREHOLDERS’ EQUITY (Details Narrative) - USD ($)	Aug. 01, 2023	Apr. 01, 2023	Aug. 31, 2023	Feb. 28, 2023	Jul. 31, 2022	Apr. 30, 2022	Sep. 30, 2023	Mar. 31, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022	Apr. 04, 2022	Apr. 30, 2020
Accumulated Other Comprehensive Income (Loss) [Line Items]
Cash consideration		$ 16,792,037
Options to acquire shares						144,191
Weighted exercise price						$ 10.71
Warrants to purchase shares						4,424
Exercise price						$ 7.32
Expiration date						Apr. 22, 2031
Payments to contingent consideration		$ 893,000
Cash			$ 693,000
Cash consideration					$ 10,000,000.0
Number of shares					486,145
Earnout payment			$ 693,000
Number of shares issued, value								$ 1,033,761
Stock granted and issued										107,797
Restricted stock award, gross										$ 4,287,777
Share-based compensation							$ 857,526		$ 683,202	2,582,163	$ 1,971,537
Unrecognized share-based compensation expense							$ 3,980,624			$ 3,980,624
Unrecognized share-based compensation expense period for recognition										1 year
Cash Closing Consideration [Member]
Accumulated Other Comprehensive Income (Loss) [Line Items]
Payments to acquire assets	$ 15,250,000
Purchase Agreement [Member]
Accumulated Other Comprehensive Income (Loss) [Line Items]
Issuance of common stock in equity offering, shares					94,798
Payments to acquire assets					$ 7,600,000
Cash					$ 1,600,000
Issuance of common stock for purchase of assets					291,686
Net proceeds					$ 1,950,000
Common Stock [Member]
Accumulated Other Comprehensive Income (Loss) [Line Items]
Issuance of common stock in equity offering, shares								26,143
Warrants to purchase shares						12,301
Exercise price						$ 12.05
Expiration date						Aug. 10, 2030
Number of shares issued, value								$ 26
Common Stock [Member] \| Sales Agreement [Member]
Accumulated Other Comprehensive Income (Loss) [Line Items]
Issuance of common stock in equity offering, shares										26,143
Number of shares issued, value										$ 1,066,000
Net proceeds										$ 1,034,000
Precision Healing [Member]
Accumulated Other Comprehensive Income (Loss) [Line Items]
Payment in cash						$ 600,000
Share price						$ 27.13							$ 27.13
Cantor Fitzgerald and Co [Member] \| Sales Agreement [Member]
Accumulated Other Comprehensive Income (Loss) [Line Items]
Percentage of commissions payable to sales agent				3.00%
Cantor Fitzgerald and Co [Member] \| Sales Agreement [Member] \| Maximum [Member]
Accumulated Other Comprehensive Income (Loss) [Line Items]
Sale of stock, consideration received on transaction				$ 75,000,000
Accredited Investors [Member]
Accumulated Other Comprehensive Income (Loss) [Line Items]
Accredited investors shares						165,738
Nonaccredited Investors [Member]
Accumulated Other Comprehensive Income (Loss) [Line Items]
Share price												$ 30.75
Precision Healing Inc [Member]
Accumulated Other Comprehensive Income (Loss) [Line Items]
Cash consideration						$ 125,966
Payments to contingent consideration						$ 10,000,000.0
Restated 2014 Omnibus Long Term Incentive Plan [Member]
Accumulated Other Comprehensive Income (Loss) [Line Items]
Number of shares available for issuance							1,412,535			1,412,535
Restated 2014 Omnibus Long Term Incentive Plan [Member] \| Directors Officers Employees [Member]
Accumulated Other Comprehensive Income (Loss) [Line Items]
Issuance of common stock in equity offering, shares										587,465

INCOME TAXES (Details Narrative) - USD ($)	3 Months Ended		9 Months Ended
INCOME TAXES (Details Narrative) - USD ($)	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
Income Tax Disclosure [Abstract]
Valuation allowance, percentage			100.00%
Income tax benefit		$ 1,702,890		$ 5,844,796

RELATED PARTIES (Details Narrative) - USD ($)	1 Months Ended		3 Months Ended	9 Months Ended
RELATED PARTIES (Details Narrative) - USD ($)	Jul. 31, 2021	Jan. 31, 2021	Sep. 30, 2023	Sep. 30, 2023
Consulting Agreement [Member] \| Ms Salamone [Member]
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]
Professional fees	$ 177,697
Cellerate Rx Sub License Agreement [Member]
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]
Net sale		$ 1,000,000
License agreement and royalties description		The Company pays royalties based on the annual Net Sales of licensed products (as defined in the Sublicense Agreement) consisting of 3% of all collected Net Sales each year up to $12,000,000, 4% of all collected Net Sales each year that exceed $12,000,000 up to $20,000,000, and 5% of all collected Net Sales each year that exceed $20,000,000.
Services Agreement [Member]
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]
Costs and Expenses, Related Party			$ 44,032	$ 117,018