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 ~~June~~September 30, 2021

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

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

For the transition period from ________ to ________

Commission File Number 001-39678

SANARA MEDTECH INC.

(Exact name of Registrant as specified in its charter)

Texas

59-2219994

~~(State~~ (State or other jurisdiction of

incorporation or organization)

~~(I.R.S.~~ (I.R.S. Employer

Identification No.)

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

(Address of principal executive offices)

(817) 529-2300

(Registrant’s telephone number, including area code)

~~(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 ~~acc ;elerated~~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 ~~August 16,~~November 12, 2021, ~~7,626,705~~7,632,044 shares of the Issuer’s $0.001 par value common stock were issued and outstanding.

SANARA MEDTECH INC.

Form 10-Q

Quarter Ended ~~June~~September 30, 2021

		Page

*Part I – Financial Information*


ITEM 1. Financial Statements		3

Unaudited Consolidated Balance Sheets as of ~~June~~September 30, 2021 and December 31, 2020		3

Unaudited Consolidated Statements of Operations for the Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2021 and 2020		4

Unaudited Consolidated Statements of Changes in Shareholders’ Equity for the Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2021 and 2020		5

Unaudited Consolidated Statements of Cash Flows for the ~~Six~~Nine Months Ended ~~June~~September 30, 2021 and 2020		6

Notes to Unaudited Consolidated Financial Statements		7

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		20 21

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk		27 28

ITEM 4. Controls and Procedures		27 28

*Part II. Other Information*

ITEM 1. Legal Proceedings		2829

ITEM 1A. Risk Factors		2829

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds		2829

ITEM 3. Defaults upon Senior Securities		2829

ITEM 4. Mine Safety Disclosures		2829

ITEM 5. Other Information		2829

ITEM 6. Exhibits		29 30

Signatures		30 31

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

Table of Contents

Part I – Financial Information

Item 1. Financial Statements

SANARA MEDTECH INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

		(Unaudited)							(Unaudited)
		June 30, 2021			December 31, 2020				September 30,			December 31,
									2021			2020
Assets	Assets							Assets
Current assets
Cash		$	24,389,004		$	455,366			$	22,371,434		$	455,366
Accounts receivable, net of allowances of $138,417 and $100,189			2,445,225			2,217,533
Accounts receivable, net of allowances of $97,397 and $100,189										2,064,080			2,217,533
Accounts receivable - related party										171,440			0
Royalty receivable			49,344			49,344				49,344			49,344
Inventory, net of allowance for obsolescence of $295,841 and $276,603			1,538,398			1,148,253
Inventory, net of allowance for obsolescence of $184,870 and $276,603										1,552,350			1,148,253
Prepaid and other assets			497,110			611,817				1,020,901			611,817
Total current assets			28,919,081			4,482,313				27,229,549			4,482,313

Long-term assets
Property and equipment, net of accumulated depreciation of $159,732 and $124,691			1,668,994			678,589
Property and equipment, net of accumulated depreciation of $252,138 and $124,691										1,581,298			678,589
Right of use assets – operating leases			406,024			467,653				469,702			467,653
Intangible assets, net of accumulated amortization of $983,466 and $827,108			3,785,187			3,097,666
Intangible assets, net of accumulated amortization of $1,095,628 and $827,108										4,835,854			3,097,666
Investment in equity securities			4,005,374			1,100,000				3,811,531			1,100,000
Total long-term assets			9,865,579			5,343,908				10,698,385			5,343,908

Total assets		$	38,784,660		$	9,826,221			$	37,927,934		$	9,826,221

Liabilities and shareholders’ equity	Liabilities and shareholders’ equity							Liabilities and shareholders’ equity
Current liabilities
Accounts payable		$	313,569		$	271,251			$	321,391		$	271,251
Accounts payable – related parties			57,507			223,589				132,134			223,589
Accrued royalties and expenses			527,518			502,191				598,167			502,191
Accrued bonus and commissions			2,719,258			2,417,277				2,880,461			2,417,277
Operating lease liability - current			128,301			125,587				226,138			125,587
Total current liabilities			3,746,153			3,539,895				4,158,291			3,539,895

Long-term liabilities
Operating lease liability – long term			290,751			355,797				256,718			355,797
Other long-term liabilities			90,293			90,293				90,293			90,293
Total long-term liabilities			381,044			446,090				347,011			446,090

Total liabilities			4,127,197			3,985,985				4,505,302			3,985,985

Shareholders’ equity
Common Stock: $0.001 par value, 20,000,000 shares authorized; 7,612,336 issued and outstanding as of June 30, 2021 and 6,297,008 issued and outstanding as of December 31, 2020			7,612			6,297
Common Stock: $0.001 par value, 20,000,000 shares authorized; 7,632,044 issued and outstanding as of September 30, 2021 and 6,297,008 issued and outstanding as of December 31, 2020										7,632			6,297
Additional paid-in capital			44,487,958			13,176,576				45,300,968			13,176,576
Accumulated deficit			(9,385,478	)		(7,032,242	)			(11,405,848	)		(7,032,242	)
Total Sanara MedTech shareholders’ equity			35,110,092			6,150,631				33,902,752			6,150,631
Equity attributable to noncontrolling interest			(452,629	)		(310,395	)			(480,120	)		(310,395	)
Total shareholders’ equity			34,657,463			5,840,236				33,422,632			5,840,236

Total liabilities and shareholders’ equity		$	38,784,660		$	9,826,221			$	37,927,934		$	9,826,221

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

Table of Contents

SANARA MEDTECH INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

	Three Months Ended						Six Months Ended						Three Months Ended						Nine Months Ended
	June 30,						June 30,						September 30,						September 30,
	2021			2020			2021			2020			2021			2020			2021			2020

Net Revenue	$	6,277,133		$	2,967,183		$	11,286,569		$	6,491,514		$	5,823,942		$	4,306,324		$	17,110,511		$	10,797,838

Cost of goods sold		536,405			348,675			1,010,838			678,863			517,611			447,935			1,528,449			1,126,798

Gross profit		5,740,728			2,618,508			10,275,731			5,812,651			5,306,331			3,858,389			15,582,062			9,671,040

Operating expenses
Selling, general and administrative expenses		6,562,144			3,582,511			11,971,874			8,514,662			6,920,105			5,072,402			18,891,979			13,632,967
Research and development		103,981			41,516			222,193			45,903			35,674			11,022			257,867			11,022
Depreciation and amortization		100,807			74,221			191,398			127,726			204,570			81,880			395,968			209,606
Total operating expenses		6,766,932			3,698,248			12,385,465			8,688,291			7,160,349			5,165,304			19,545,814			13,853,595

Operating loss		(1,026,204	)		(1,079,740	)		(2,109,734	)		(2,875,640	)		(1,854,018	)		(1,306,915	)		(3,963,752	)		(4,182,555	)

Other expense
Other expense, related		0			(48,716	)		0			(85,474	)
Other income (expense)
Other income														0			100,250			0			14,776
Interest expense		0			(1,101	)		(711	)		(9,455	)		0			(1,458	)		(711	)		(10,913	)
Share of losses from equity method investment		(179,769	)		0			(278,904	)		0			(193,843	)		0			(472,747	)		0
Total other expense		(179,769	)		(49,817	)		(279,615	)		(94,929	)
Total other income (expense)														(193,843	)		98,792			(473,458	)		3,863

Net loss		(1,205,973	)		(1,129,557	)		(2,389,349	)		(2,970,569	)		(2,047,861	)		(1,208,123	)		(4,437,210	)		(4,178,692	)

Less: Net loss attributable to noncontrolling interest		(34,481	)		(3,793	)		(36,113	)		(7,848	)		(27,491	)		(60,897	)		(63,604	)		(68,745	)

Net loss attributable to Sanara MedTech common shareholders	$	(1,171,492	)	$	(1,125,764	)	$	(2,353,236	)	$	(2,962,721	)	$	(2,020,370	)	$	(1,147,226	)	$	(4,373,606	)	$	(4,109,947	)

Net loss per share of common stock, basic and diluted	$	(0.16	)	$	(0.18	)	$	(0.33	)	$	(0.54	)	$	(0.27	)	$	(0.18	)	$	(0.60	)	$	(0.72	)

Weighted average number of common shares outstanding, basic and diluted		7,496,604			6,203,577			7,158,503			5,477,759			7,518,165			6,230,648			7,279,708			5,730,554

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

Table of Contents

SANARA MEDTECH INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)

	Preferred Stock Series F						Common Stock						Additional									Total			Preferred Stock Series F						Common Stock						Additional									Total
	$10 par value						$0.001 par value						Paid-In			Accumulated			Noncontrolling			Shareholders'			$10 par value						$0.001 par value						Paid-In			Accumulated			Noncontrolling			Shareholders'
	Shares			Amount			Shares			Amount			Capital			Income/(Deficit)			Interest			Equity			Shares			Amount			Shares			Amount			Capital			Income/(Deficit)			Interest			Equity
Balance at December 31, 2019		1,136,815		$	11,368,150			3,571,001		$	3,571		$	(2,081,829	)	$	(2,675,802	)	$	(221,690	)	$	6,392,400			1,136,815		$	11,368,150			3,571,001		$	3,571		$	(2,081,829	)	$	(2,675,802	)	$	(221,690	)	$	6,392,400
Conversion of Preferred Shares to Common Stock		(1,136,815	)		(11,368,150	)		2,273,630			2,274			11,365,876			0			0			0			(1,136,815	)		(11,368,150	)		2,273,630			2,274			11,365,876			0			0			0
Conversion of Promissory Note to Common Stock		-			0			179,101			179			1,611,732			0			0			1,611,911			-			0			179,101			179			1,611,732			0			0			1,611,911
Share-based compensation		-			0			180,100			180			393,560			0			0			393,740			-			0			180,100			180			393,560			0			0			393,740
Net loss		-			0			-			0						(1,836,957	)		(4,055	)		(1,841,012	)		-			0			-			0						(1,836,957	)		(4,055	)		(1,841,012	)
Balance at March 31, 2020		-		$	0			6,203,832		$	6,204		$	11,289,339		$	(4,512,759	)	$	(225,745	)	$	6,557,039			-		$	0			6,203,832		$	6,204		$	11,289,339		$	(4,512,759	)	$	(225,745	)	$	6,557,039
Share-based compensation		-			0			(430	)		(1	)		186,172			0			0			186,171			-			0			(430	)		(1	)		186,172			0			0			186,171
Net loss		-			0			-			0						(1,125,764	)		(3,793	)		(1,129,557	)		-			0			-			0						(1,125,764	)		(3,793	)		(1,129,557	)
Balance at June 30, 2020		-		$	0			6,203,402		$	6,203		$	11,475,511		$	(5,638,523	)	$	(229,538	)	$	5,613,653			-		$	0			6,203,402		$	6,203		$	11,475,511		$	(5,638,523	)	$	(229,538	)	$	5,613,653
Issuance of Common Stock for intangible asset																										-			0			60,000			60			749,940			0			0			750,000
Employee stock purchase program																										-			0			2,490			3			26,217			0			0			26,220
Share-based compensation																										-			0			13,718			14			381,580			0			0			381,594
Net loss																										-			0			-			0			0			(1,147,226	)		(60,897	)		(1,208,123	)
Balance at September 30, 2020																										-		$	0			6,279,610		$	6,280		$	12,633,248		$	(6,785,749	)	$	(290,435	)	$	5,563,344

	Preferred Stock Series F						Common Stock						Additional									Total			Preferred Stock Series F						Common Stock						Additional									Total
	$10 par value						$0.001 par value						Paid-In			Accumulated			Noncontrolling			Shareholders'			$10 par value						$0.001 par value						Paid-In			Accumulated			Noncontrolling			Shareholders'
	Shares			Amount			Shares			Amount			Capital			Income/(Deficit)			Interest			Equity			Shares			Amount			Shares			Amount			Capital			Income/Deficit)			Interest			Equity
Balance at December 31, 2020		-		$	-			6,297,008		$	6,297		$	13,176,576		$	(7,032,242	)	$	(310,395	)	$	5,840,236			-		$	0			6,297,008		$	6,297		$	13,176,576		$	(7,032,242	)	$	(310,395	)	$	5,840,236
Issuance of common stock for asset acquisitions		-			0			50,370			50			1,749,950			0			0			1,750,000			-			0			50,370			50			1,749,950			0			0			1,750,000
Issuance of common stock in equity offering		-			0			1,265,000			1,265			28,937,992			0			0			28,939,257			-			0			1,265,000			1,265			28,937,992			0			0			28,939,257
Share-based compensation		-			0			4,744			5			325,513			0			0			325,518			-			0			4,744			5			325,513			0			0			325,518
Distribution to noncontrolling interest member		-			0			-			0			0			0			(200,000	)		(200,000	)		-			0			-			0			0			0			(200,000	)		(200,000	)
Net loss		-			0			-			0			0			(1,181,744	)		(1,632	)		(1,183,376	)		-			0			-			0			0			(1,181,744	)		(1,632	)		(1,183,376	)
Balance at March 31, 2021		-		$	0			7,617,122		$	7,617		$	44,190,031		$	(8,213,986	)	$	(512,027	)	$	35,471,635			-		$	0			7,617,122		$	7,617		$	44,190,031		$	(8,213,986	)	$	(512,027	)	$	35,471,635
Share-based compensation		-			0			(4,786	)		(5	)		297,927			0			0			297,922			-			0			(4,786	)		(5	)		297,927			0			0			297,922
Capital contribution of noncontrolling interest member		-			0			-			0			0			0			93,879			93,879			-			0			-			0			0			0			93,879			93,879
Net loss		-			0			-			0						1,171,492	)		(34,481	)		(1,205,973	)		-			0			-			0						(1,171,492	)		(34,481	)		(1,205,973	)
Balance at June 30, 2021		-		$	-			7,612,336		$	7,612		$	44,487,958		$	(9,385,478	)	$	(452,629	)	$	34,657,463			-		$	0			7,612,336		$	7,612		$	44,487,958		$	(9,385,478	)	$	(452,629	)	$	34,657,463
Issuance of common stock for asset acquisitions																										-			0			14,369			15			584,229			0			0			584,244
Share-based compensation																										-			0			5,339			5			228,781			0			0			228,786
Net loss																										-			0			-			0						(2,020,370	)		(27,491	)		(2,047,861	)
Balance at September 30, 2021																										-		$	0			7,632,044		$	7,632		$	45,300,968		$	(11405848	)	$	(480,120	)	$	33,422,632

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

Table of Contents

SANARA MEDTECH INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	Six Months Ended						Nine Months Ended
	June 30,						September 30,
	2021			2020			2021			2020

Cash flows from operating activities:
Net loss	$	(2,389,349	)	$	(2,970,569	)	$	(4,437,210	)	$	(4,178,692	)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization		191,398			127,726			395,968			209,606
Interest expense on convertible debt		0			8,354			-			8,354
Interest expense on PPP loan		0			1,101
Loss on disposal of asset		0			2,180			-			2,897
Bad debt expense		51,536			30,000			51,536			30,000
Inventory obsolescence		29,834			75,422			106,823			258,585
Share-based compensation		623,440			491,069			852,226			872,662
Noncash lease expense		61,629			57,880			118,022			87,503
Loss on equity method investment		278,904			0			472,747			0

Changes in operating assets and liabilities:
Accounts receivable		(279,229	)		(112,301	)		101,916			(536,263	)
Accounts receivable - related party								(171,441	)		0
Inventory		(419,979	)		(191,595	)		(510,920	)		(299,888	)
Prepaid - related parties		0			(50,970	)		-			(50,970	)
Prepaid and other assets		114,707			(310,666	)		(409,084	)		(320,195	)
Accounts payable		42,318			(197,709	)		50,140			(62,934	)
Accounts payable - related parties		(166,081	)		(66,346	)		(91,454	)		26,139
Accrued royalties and expenses		25,327			333,731			95,976			140,898
Accrued liabilities		239,650			40,502
Accrued bonus and commissions								344,587			366,290
Accrued Interest								-			2,559
Net cash used in operating activities		(1,595,895	)		(2,732,191	)		(3,030,168	)		(3,443,449	)

Cash flows from investing activities:
Purchase of property and equipment		(25,446	)		(57,456	)		(30,157	)		(57,456	)
Purchase of intangible assets		0			(1,100,000	)		(578,586	)		(1,100,000	)
Investment in equity securities		(3,184,278	)		0			(3,184,278	)		(500,000	)
Net cash used in investing activities		(3,209,724	)		(1,157,456	)		(3,793,021	)		(1,657,456	)

Cash flows from financing activities:
Draw on line of credit		800,000			0			800,000			0
Pay off line of credit		(800,000	)		0			(800,000	)		0
Proceeds from PPP Loan		0			583,000			-			583,000
Public offering net proceeds		28,939,257			0			28,939,257			0
Common stock issued for Employee Stock Purchase Plan								-			26,220
Distribution to noncontrolling interest shareholders		(200,000	)		0			(200,000	)		0
Net cash provided by financing activities		28,739,257			583,000			28,739,257			609,220

Net increase (decrease) in cash		23,933,638			(3,306,647	)		21,916,068			(4,491,685	)
Cash, beginning of period		455,366			6,611,928			455,366			6,611,928
Cash, end of period	$	24,389,004		$	3,305,281		$	22,371,434		$	2,120,243

Cash paid during the period for:
Interest	$	711		$	0		$	711		$	0
Income taxes		0			0			-			0

Supplemental noncash investing and financing activities:
Common stock issued for conversion of Series F Preferred Stock		0			11,368,150			-			11,368,150
Common stock issued for conversion of related party debt and interest		0			1,611,911			-			1,611,911
Common stock issued for asset acquisitions		1,750,000			750,000			2,334,244			750,000
License agreement as capital contribution from noncontrolling interest member		93,879			0			93,879			0

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

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SANARA MEDTECH INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – NATURE OF BUSINESS AND BACKGROUND

Sanara MedTech Inc. (“we”, “our”, the “Company”) is a medical technology company focused on developing and commercializing transformative technologies to improve clinical outcomes and reduce healthcare expenditures in the surgical and chronic wound and skin care markets. The Company’s portfolio of products and services is designed to allow us to deliver comprehensive wound and skin care solutions for patients in all care settings, including acute (hospitals and long-term acute care hospitals) and post-acute (wound care clinics, physician offices, skilled nursing facilities (“SNFs”), home health, hospice, and retail). Each of the Company’s products, services, and technologies contributes to the Company’s overall goal of achieving better clinical outcomes at a lower overall cost for patients regardless of where they receive care. The Company strives to be one of the most innovative and comprehensive providers of effective wound and skin care products and technologies.

Impact of the COVID-19 Pandemic

Beginning in March 2020, many states issued orders suspending elective surgeries in order to free-up hospital resources to treat COVID-19 patients. This resulted in a reduction in demand for the Company’s surgical products beginning in the second half of March 2020. Additionally, most states limited access to SNFs to only resident caregivers, which impeded the Company’s ability to provide education and product training to the clinicians who use the Company’s products in these facilities. These restrictions resulted in an overall decline in sales for the second quarter of 2020. During the second half of 2020 and the first half of 2021, the Company saw a strong rebound in product sales as restrictions on elective surgeries eased in its primary markets in Texas, Florida, and the southeastern United States. During the third quarter of 2021, the United States experienced a surge of COVID-19 cases as the Delta variant of the virus impacted much of the country and negatively impacted the Company’s sales in Texas, the northeastern United States, and other markets.

~~Due to recent COVID-19 resurgences and variants, the~~The duration and effects of the pandemic remain uncertain; however, management believes that elective surgical procedures will continue to be performed with the exception of certain geographic hotspots. Additionally, management believes that the majority of surgical procedures impacted by COVID-19 and its variants will ultimately be performed. The Company continues to closely monitor the pandemic in order to ensure the safety of the Company’s people and its ability to serve its customers and patients.

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. Certain prior period amounts in the consolidated financial statements and accompanying notes have been reclassified to conform to the current period’s presentation. In the opinion of management of the Company, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the ~~six-month~~nine-month period ended ~~June~~September 30, 2021, are not necessarily indicative of the results that may be expected for the year ending December 31, 2021, or any other period. These financial statements and notes should be read in conjunction with the financial statements for each of the two years ended December 31, 2020, and December 31, 2019, included in the Company’s most recent Annual Report on Form 10-K.

Principles of Consolidation

The accompanying unaudited consolidated financial statements include the accounts of Sanara MedTech Inc., its ~~wholly-owned~~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.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. The extent to which the COVID-19 pandemic may directly or indirectly impact our business, financial condition, and results of operations is highly uncertain and subject to change. The Company considered the potential impact of the COVID-19 pandemic on its estimates and assumptions and determined there was not a material impact on the Company’s estimates and assumptions used in preparing the unaudited consolidated financial statements as of and for the ~~six~~nine months ended ~~June~~September 30, 2021. However, actual results could differ from those estimates and there may be changes to the Company’s estimates in future periods.

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Cash and Cash Equivalents

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

Income / Loss Per Share

The Company computes income per share in accordance with Accounting Standards Codification (“ASC”) Topic 260, Earnings per Share, which requires the Company to present basic and dilutive income per share when the effect is dilutive. Basic income per share is computed by dividing income available to common shareholders by the weighted average number of shares of common stock outstanding. Diluted income per share is computed similar to basic income per share except that the denominator is increased to include the number of additional shares of common stock that would have been outstanding if the potential shares of common stock had been issued and if the additional shares of common stock were dilutive. All common stock equivalents were excluded from the current and prior period calculations, as their inclusion would have been anti-dilutive during the ~~three and six~~nine months ended ~~June~~September 30, 2021 and 2020 due to the Company’s net loss.

The following table summarizes the shares of common stock that were potentially issuable but were excluded from the computation of diluted net loss per share for the ~~three and six~~nine months ended ~~June~~September 30, 2021 and 2020 as such shares would have had an anti-dilutive effect:

	As of June 30,				As of September 30,
	2021		2020		2021		2020

Stock options		11,500		11,500		11,500		11,500
Unvested restricted stock		115,719		154,090		111,590		159,959

Revenue Recognition

The Company recognizes revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”), which the Company adopted on January 1, 2018 using the modified retrospective method. Revenues are recognized when control of the promised goods or services is transferred to the customer in an amount that reflects the consideration the Company expects to be entitled to receive in exchange for transferring those goods or services. Revenue is recognized based on the following five step model:

-	Identification of the contract with a customer
-	Identification of the performance obligations in the contract
-	Determination of the transaction price
-	Allocation of the transaction price to the performance obligations in the contract
-	Recognition of revenue when, or as, the Company satisfies a performance obligation

Details of this five-step process are as follows:

Identification of the contract with a customer

Customer purchase orders are generally considered to be contracts under ASC 606. Purchase orders typically identify specific terms of products to be delivered, create the enforceable rights and obligations of both parties, and result in commercial substance. No other forms of contract revenue recognition, such as the completed contract or percentage of completion methods, were utilized by the Company in either 2020 or 2021.

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Performance obligations

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

Determination and allocation of the transaction price

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

Recognition of revenue as performance obligations are satisfied

Product revenues are recognized when the products are delivered, and control of the goods and services passes to the customer.

Disaggregation of Revenue

Revenue streams from product sales and royalties are summarized below for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020. All revenue was generated in the United States; therefore, no geographical disaggregation was necessary.

	Six Months Ended				Nine Months Ended
	June 30,				September 30,
	2021		2020		2021		2020
Product sales revenue	$	11,186,069	$	6,391,014	$	16,959,761	$	10,647,088
Royalty revenue		100,500		100,500		150,750		150,750
Total Revenue	$	11,286,569	$	6,491,514	$	17,110,511	$	10,797,838

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

Contract Assets and Liabilities

The Company does not have any contract assets or contract liabilities.

Allowance for Doubtful Accounts

The Company establishes an allowance for doubtful accounts to ensure accounts receivable are not overstated due to uncollectible accounts. The Company recorded bad debt expense of $51,536 and ~~$30,000during~~$30,000 during the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020, respectively. The allowance for doubtful accounts was ~~$120,273~~$64,899 at ~~June~~September 30, 2021 and $64,989 at December 31, 2020. Bad debt reserves are maintained based on a variety of factors, including the length of time receivables are past due and a detailed review of certain individual customer accounts. The Company also establishes other allowances to ensure accounts receivable are not overstated due to customer rebates and product returns. These allowances totaled ~~$18,144~~$32,498 at ~~June~~September 30, 2021 and $35,200 at December 31, 2020. If circumstances related to customers change, estimates of the recoverability of receivables would be further adjusted. The Company considered the impact of COVID-19 in its analysis of receivables and determined its accounts receivable allowances were appropriate at ~~June~~September 30, 2021.

Inventories

Inventories are stated at the lower of cost or net realizable value, with cost computed on a first-in, first-out basis. Inventories consist of finished goods and related packaging components. The Company recorded inventory obsolescence expense of ~~$29,834~~$106,823 for the ~~six~~nine months ended ~~June~~September 30, 2021 and ~~$75,422~~$258,585 for the ~~six~~nine months ended ~~June~~September 30, 2020. The allowance for obsolete and slow-moving inventory had a balance of ~~$295,841~~$184,870 at ~~June~~September 30, 2021, and $276,603 at December 31, 2020. The Company considered the impact of COVID-19 on its recorded value of inventory and determined no adjustment was necessary as of ~~June~~September 30, 2021.

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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 three to ten years. Below is a summary of property and equipment for the periods presented:

	June 30,			December 31,			September 30,			December 31,
	2021			2020			2021			2020
Computers	$	98,140		$	87,252		$	102,851		$	87,252
Office equipment		22,598			22,597			22,597			22,597
Furniture and fixtures		209,746			205,871			220,428			205,871
Leasehold improvements		2,030			2,030			2,030			2,030
Internal use software		1,485,530			485,530			1,485,530			485,530
Capital in progress		10,682			0

		1,828,726			803,280			1,833,436			803,280
Less accumulated depreciation		(159,732	)		(124,691	)		(252,138	)		(124,691	)

Property and equipment, net	$	1,668,994		$	678,589		$	1,581,298		$	678,589

Depreciation expense related to property and equipment was ~~$35,040~~$127,448 for the ~~six~~nine months ended ~~June~~September 30, 2021, and ~~$33,227~~$50,593 for the ~~six~~nine months ended ~~June~~September 30, 2020.

The Company considered the impact the COVID-19 pandemic may have had on the carrying value of its property and equipment and determined that no impairment loss had occurred as of ~~June~~September 30, 2021. The Company will continue to assess the COVID-19 pandemic’s impact on its business including any indicators of impairment of property and equipment.

Internal Use Software

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

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

Intangible Assets

Intangible assets are stated at cost of acquisition less accumulated amortization and impairment loss, if any. Cost of acquisition includes purchase price and any cost directly attributable to bringing the asset to its working condition for the intended use. The Company amortizes its intangible assets on a straight-line basis over the useful life of the respective assets which is generally the life of the related patents (if applicable).

See Note 3 for more information on intangible assets.

Impairment of Long-Lived Assets

Long-lived assets, including certain identifiable intangibles held and to be used by the Company, are reviewed for impairment whenever events or changes in circumstances, including the COVID-19 pandemic, indicate that the carrying amount of such assets may not be recoverable. The Company continuously evaluates the recoverability of its long-lived assets based on estimated future cash flows and the estimated liquidation value of such long-lived assets and provides for impairment if such undiscounted cash flows are insufficient to recover the carrying amount of the long-lived assets. If impairment exists, an adjustment is made to write the asset down to its fair value, and a loss is recorded as the difference between the carrying value and fair value. Fair values are determined based on quoted market values, undiscounted cash flows or internal and external appraisals, as applicable. Assets to be disposed of are carried at the lower of carrying value or estimated net realizable value. No impairment was recorded during the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020.

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Investments in Equity Securities

The Company’s equity investments consist of non-marketable equity securities in privately held companies without readily determinable fair ~~values, and~~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 our consolidated statements of operations. The Company’s equity method investments are 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 equity method investments using the cumulative earnings approach on the consolidated statements of cash flows.

The Company has reviewed the carrying value of its investments and has determined there was no impairment or observable price changes as of ~~June~~September 30, 2021.

Fair Value Measurement

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

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

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

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

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

The carrying amounts of cash, accounts receivable, accounts payable and accrued expenses approximate fair value because of the short-term nature of these instruments. The Company does not have any assets or liabilities that are required to be measured and recorded at fair value on a recurring basis.

Income Taxes

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

We file various federal and state and local tax returns based on federal and state local consolidation and stand-alone tax rules as applicable.

Advertising Expense

In accordance with ASC Topic No. 720-35-25-1, the Company recognizes advertising expenses the first time the advertising takes place. Advertising expenses are expensed as incurred.

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Share-based Compensation

The Company accounts for stock-based compensation to employees and nonemployees in accordance with Accounting Standards Update (“ASU”) 2018-07 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 common stock issuances.

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 ~~for contracted services~~ related to ~~improvements to manufacturing processes,~~ enhancements to the Company’s currently available products, and additional investments in the product and platform development pipeline. The Company expenses ~~research and development~~R&D costs as incurred.

Recently Adopted Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board issued ASU 2019-12, Simplifications to Accounting for Income Taxes, which removes certain exceptions to the general principles of Topic 740 and adds guidance to reduce complexity in accounting for income taxes. The ASU is effective for annual and interim periods in fiscal years beginning December 15, 2020. The adoption of this standard by the Company effective January 1, 2021, did not have a material effect on the Company’s consolidated financial statements.

NOTE 3 – INTANGIBLE ASSETS

The carrying values of the Company’s finite-lived intangible assets were as follows:

	June 30, 2021							December 31, 2020							September 30, 2021							December 31, 2020
			Accumulated							Accumulated							Accumulated							Accumulated
	Cost		Amortization			Net		Cost		Amortization			Net		Cost		Amortization			Net		Cost		Amortization			Net
Product Licenses	$	4,193,879	$	(417,519	)	$	3,776,360	$	3,350,000	$	(264,909	)	$	3,085,091	$	4,193,879	$	(502,030	)	$	3,691,849	$	3,350,000	$	(264,909	)	$	3,085,091
Patent		510,310		(510,310	)		0		510,310		(510,310	)		0
Patents and Other IP																1,610,111		(532,936	)		1,077,175		510,310		(510,310	)		0
Software and Other		64,464		(55,637	)		8,827		64,464		(51,889	)		12,575		127,492		(60,662	)		66,830		64,464		(51,889	)		12,575

Total	$	4,768,653	$	(983,466	)	$	3,785,187	$	3,924,774	$	(827,108	)	$	3,097,666	$	5,931,482	$	(1,095,628	)	$	4,835,854	$	3,924,774	$	(827,108	)	$	3,097,666

In March 2021, the Company issued 20,834 shares of its common stock to Rochal Industries, LLC (“Rochal”) for a $750,000 milestone payment required per the terms of a licensing agreement with Rochal. The payment became due upon the Company’s public offering of common stock in February 2021. The milestone payment was recorded as an addition to intangible assets.

As of ~~June~~September 30, 2021, the weighted-average amortization period for all intangible assets was ~~12.4~~12.3 years. Amortization expense related to intangible assets was ~~$156,358~~$268,520 for the ~~six~~nine months ended ~~June~~September 30, 2021 and ~~$94,499~~$159,013 for the ~~six~~nine months ended ~~June~~September 30, 2020. The estimated remaining amortization expense as of ~~June~~September 30, 2021 is as follows:

Remainder of 2021	$	172,769	$	112,163
2022		343,123		446,236
2023		338,043		441,156
2024		338,043		441,156
2025		338,043		441,156
Thereafter		2,255,166		2,953,987
Total	$	3,785,187	$	4,835,854

The Company has reviewed the carrying value of intangible assets due to the events and circumstances surrounding the COVID-19 pandemic. The Company does not believe the impact of COVID-19 ~~has~~or any other matters have created an impairment loss on the Company’s intangible assets as of ~~June~~September 30, 2021. Accordingly, there was no impairment loss recognized on the Company’s intangible assets during the ~~six~~nine months ended ~~June~~September 30, 2021.

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NOTE 4 - COMMITMENTS AND CONTINGENCIES

License Agreements and Royalties

CellerateRX® Activated Collagen®

On August 27, 2018, the Company entered into an exclusive, world-wide sublicense agreement with CGI Cellerate RX, LLC (“CGI Cellerate RX”) to distribute CellerateRX Surgical and HYCOL products into the wound care and surgical 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 on January 26, 2021, the term of the sublicense extends through May 2050, with automatic successive year-to-year renewal terms thereafter so long as the Company’s Net Sales (as defined in the sublicense agreement) each year are equal to or in excess of $1,000,000. If the Company’s Net Sales fall below $1,000,000 for any year after the initial expiration date, CGI Cellerate RX will have the right to terminate the sublicense agreement upon written notice. Minimum royalties of $400,000 per year are payable for the first five years of the sublicense agreement.

For the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020, royalty expense accrued under the terms of this agreement totaled ~~$404,220~~$756,951 and ~~$210,220,~~$337,639, respectively.

BIAKŌS Antimicrobial Wound Gel and BIAKŌS Antimicrobial Skin and Wound Cleanser

On July 7, 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 (the “BIAKŌS License Agreement”). Currently, the products covered by the BIAKŌS License Agreement are BIAKŌS Antimicrobial Wound Gel and BIAKŌS Antimicrobial Skin and Wound Cleanser. Both products are 510(k) approved. 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.

Recent and future commitments under the terms of the BIAKŌS License Agreement include:

●

In March 2021, the Company issued 20,834 shares of its common stock to Rochal as full payment of a $750,000 milestone which became due upon the Company’s public offering of common stock in February 2021.

●

The Company pays Rochal a royalty of 2-4% of net sales. The minimum annual royalty due to Rochal was $100,000 in 2020 and will increase by 10% 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.

For the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020, royalty expense recognized under this agreement was ~~$55,000~~$82,500 and ~~$50,000,~~$75,000, respectively.

CuraShield Antimicrobial Barrier Film and No Sting Skin Protectant

On October 1, 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.

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Unless previously terminated or extended by the parties, the ABF License Agreement will terminate upon expiration of the last U.S. patent in October 2033.

No commercial sales or royalties have been recognized under this agreement as of ~~June~~September 30, 2021.

Debrider License Agreement

On May 4, 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:

●

At the time Rochal issues a purchase order to its contract manufacturer for the first good manufacturing practice run of the licensed products, the Company will pay Rochal $600,000 in cash.

●

Upon FDA clearance of the licensed products, the Company will pay Rochal $500,000 in cash and $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 ~~June~~September 30, 2021.

Resorbable Bone Hemostat

The Company acquired a patent in 2009 for a resorbable bone hemostat and delivery system for orthopedic bone void fillers. 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 3% royalty on product sales over the life of the patent, which expires in 2023, with annual minimum royalties of $201,000. The Company pays two unrelated third parties a combined royalty equal to 8% of the Company’s net revenues or minimum royalties generated from products that utilize the Company’s acquired patented bone hemostat and delivery system. To date, royalties 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 under the terms of the license agreement has been $16,080 ($4,020 per quarter).

Other Commitments

At the time of the formation of Sanara Pulsar, it and Wound Care Solutions, Limited (“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. In 2019, the Company advanced to WCS $200,000 and recorded the payment as a reduction of non-controlling interests. In the event WCS’s Form K-l from Sanara Pulsar for the year 2020 does not allocate to WCS net income of at least $200,000 (the “Target Net Income”), then Cellerate, LLC will, within 30 days after such determination, 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 for the year 2020. In March 2021, the Company paid WCS $200,000 for the year 2020. For each of the years 2021 through 2024 the Target Net Income will increase by 10%, and in the event WCS’s Form K-1 for any of those years does not allocate to WCS net income in an amount at least equal to the Target Net Income for such year, then Cellerate, LLC will, within 30 days after such determination, 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 for the applicable year. All other distributions made by Sanara Pulsar to its members, not including tax distributions, will be made exclusively to Cellerate, LLC until such time as Cellerate, LLC has received an amount of distributions equal to all such advances to WCS.

NOTE 5 - OPERATING LEASES

The Company periodically enters into operating lease contracts for office space and equipment. Arrangements are evaluated at inception to determine whether such arrangements constitute a lease.

~~Table of Contents~~

Right of use assets, which we refer to as “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 two active operating leases: an office space lease with a remaining lease term of 3633 months and a ~~copier~~facility lease with a remaining ~~lease~~ term of ~~one month~~11 months as of ~~June~~September 30, 2021. All other leases are short-term leases, which for practical expediency, the Company has elected to not recognize as lease assets and lease liabilities.

Effective July 1, 2021, the Company assumed an office lease pursuant to the Rochal asset purchase agreement. This lease expires August 31, 2022. The base monthly rent was $8,504 through August 31, 2021, then increased to $8,808 for the remainder of the lease. As the implicit rate in the leases was not determinable, the discount rate applied to determine the present value of lease payments was the 4% borrowing rate on the Company’s line of credit as of the assumption date. The office space lease agreement contains no renewal terms; therefore, no lease liability was recorded beyond the termination date. Additionally, the Company assumed the subleasing of a portion of the office space to a subtenant at a monthly rate of $975. Sublease income is recognized on a straight-line basis over the term of the sublease agreement, whose expiration corresponds to that of the master lease agreement, and is presented as a reduction of general and administrative expense in the Company’s consolidated statements of operations. Sublease income totaled $2,925 during the fiscal year ended September 30, 2021.

In accordance with ASC Topic 842, the Company has recorded lease assets of ~~$406,024~~$469,702 and a related lease liability of ~~$419,052~~$482,856 as of ~~June~~September 30, 2021. The Company recorded amortization expense of $ ~~61,629~~118,022 for the ~~six~~nine months ended ~~June~~September 30, 2021 for its leased assets. Cash paid for amounts included in the measurement of operating lease liabilities as of ~~June~~September 30, 2021 was ~~$76,178.~~$139,667. The present value of our operating lease liabilities is shown below.

Maturity of Operating Lease Liabilities

	June 30, 2021			September 30, 2021
Remainder of 2021	$	75,139		$	63,889
2022		151,333			221,793
2023		154,271			154,271
2024		77,870			77,870
2025		0			0
Thereafter		0			0

Total lease payments		458,613			517,823
Less imputed interest		(39,561	)		(34,967	)
Present Value of Lease Liabilities	$	419,052		$	482,856

Operating lease liability - current		128,301
Operating lease liability – current					226,138
Operating lease liability – long term		290,751			256,718

As of ~~June~~September 30, 2021, ~~our~~the Company’s operating leases have a weighted average remaining lease term of ~~3.0~~2.4 years and a weighted average discount rate of ~~6.25%~~5.83%.

NOTE 6 – SHAREHOLDERS’ EQUITY

Preferred Stock

On February 7, 2020, CGI Cellerate RX, an affiliate of The Catalyst Group, Inc. (“Catalyst”), converted its entire holdings of its 30-month $1,500,000 convertible promissory note and 1,136,815 shares of Series F Convertible Preferred Stock into shares of the Company’s common stock. The Company issued an aggregate of 2,452,731 shares of common stock in the conversions. As of ~~June~~September 30, 2021, Catalyst and its affiliates controlled the voting of a total of ~~3,497,421~~3,519,019 shares of the Company’s common stock, which ~~represented~~represents 46% of the ~~7,612,336~~7,632,044 shares of common stock outstanding.

Common Stock

At the Company’s Annual Meeting of Shareholders held on July 9, 2020, the Company approved the Restated 2014 Omnibus Long-Term Incentive Plan (the “LTIP Plan”) in which the Company’s directors, officers, employees and consultants are eligible to participate. A total of ~~248,234~~253,573 shares had been issued under the LTIP Plan and ~~1,751,766~~1,746,427 were available for issuance as of ~~June~~September 30, 2021.

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

~~Table of Contents~~

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

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

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

On July 14, 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. The~~Rochal, including, among others, certain of Rochal’s intellectual property, furniture and equipment, supplies, rights and claims, other than certain excluded assets, all as more specifically set forth in the asset purchase agreement. In exchange for the acquired assets, ~~were purchased for an aggregate purchase price of approximately $1,000,000 consisting of~~the Company paid to Rochal (i) ~~approximately $500,000~~$496,100 in cash and (ii) 14,369 shares of the Company’s common stock, ~~representing an amount equal to $500,000 based~~and assumed certain net liabilities of $3,900. Based on the ~~average closing sale~~trading price of the Company’s common stock ~~for the twenty trading days immediately preceding~~on July 14, ~~2021.~~2021, the fair value of the equity consideration transferred was determined to be $584,244. See Note 109 for more information regarding this transaction.

Restricted Stock Awards

During the ~~six~~nine months ended ~~June~~September 30, 2021, the Company granted and issued ~~4,744shares~~10,083 shares of restricted common stock to ~~one employee~~two employees under the LTIP Plan. The shares are subject to certain vesting provisions and other terms and conditions set forth in the ~~employee’s~~employees’ respective restricted stock ~~agreement.~~agreements. The fair value of ~~this award~~these awards was ~~$216,658~~$394,073 based on the closing ~~price~~prices of the Company’s common stock on the respective grant ~~date~~dates and is recognized as compensation expense on a straight-line basis over the vesting period of the ~~award.~~awards.

Share-based compensation expense of ~~$623,440~~$852,226 was recognized in selling, general and administrative expenses during the ~~six~~nine months ended ~~June~~September 30, 2021, compared to ~~$491,069~~$872,662 recognized during the ~~six~~nine months ended ~~June~~September 30, 2020.

At ~~June~~September 30, 2021, there was ~~$1,001,684~~$950,313 of total unrecognized share-based compensation expense related to unvested share-based equity awards. Unrecognized share-based compensation expense is expected to be recognized over a weighted-average period of ~~0.8~~0.7 years.

Below is a summary of restricted stock activity for the ~~six~~nine months ended ~~June~~September 30, 2021:

For the Six Months Ended

June 30, 2021

Weighted
Average

Shares

Grant Date
Fair Value
Non-vested at beginning of period

170,178

$ 14.20

Granted

4,744

45.67

Vested

(54,417 )

15.51

Forfeited

(4,786 )

13.03

Non-vested at June 30, 2021

115,719

$ 14.92

16
~~Table of Contents~~

For the Nine Months Ended

September 30, 2021

Weighted Average

Shares

Grant Date Fair Value

Non-vested at beginning of period

170,178

$ 14.20

Granted

10,083

39.08

Vested

(63,885 )

18.12

Forfeited

(4,786 )

13.03

Non-vested at September 30, 2021

111,590

$ 14.26

Stock Options

A summary of the status of outstanding stock options at ~~June~~September 30, 2021 and changes during the ~~six-month~~nine-month period then ended is presented below:

For the Six Months Ended

For the Nine Months Ended

June 30, 2021

September 30, 2021

Weighted Average

Weighted Average

Weighted Average

Weighted Average

Options

Exercise Price
Remaining Contract Life

Options

Exercise Price

Remaining Contract Life

Outstanding at beginning of period

11,500

$ 6.00

11,500

$ 6.00

Granted

-

0

-

0

Exercised

-

0

-

0

Forfeited

-

$ 0

-

0

Expired

-

0

-

-

Outstanding at June 30, 2021

11,500

$ 6.00

1.5

Outstanding at September 30, 2021

11,500

$ 6.00

1.3

Exercisable at June 30, 2021

11,500

$ 6.00

1.5

Exercisable at September 30, 2021

11,500

$ 6.00

1.3

NOTE 7 – DEBT AND CREDIT FACILITIES

Revolving Line of Credit

In December 2018, ~~Cellerate, LLC~~the Company executed agreements with Cadence Bank, N.A.(“Cadence”) which provided ~~Cellerate, LLC~~the Company access to a revolving line of credit up to a maximum principal amount of $1,000,000. The line of credit was used to support the Company’s short-term working capital ~~requirements of Cellerate, LLC.~~requirements. On June 21, 2019, the Company modified the revolving line of credit with Cadence to increase the maximum principal amount from $1,000,000 to $2,500,000. On October 16, 2019, the Company paid down the entire $2,200,000 balance of the revolving line of credit with cash proceeds received from a private placement of the Company’s common stock. This revolving line of credit matured on June 19, 2020.

On January 15, 2021, the Company entered into a loan agreement (the “Loan Agreement”) with Cadence providing for a $2.5 million revolving line of credit. The revolving line of credit matures on January 13, 2023, and is secured by substantially all of the Company’s assets. Any amounts outstanding will bear interest of 0.75% plus the “Prime Rate” designated in the “Money Rates” section of the Wall Street Journal. Proceeds from the line of credit are to be used to provide the Company with additional working capital in support of current assets and for other general corporate purposes and may not be used for acquisitions.

The line of credit contains customary representations and warranties and requires the Company to maintain compliance with certain financial covenants, including, among others, a minimum liquidity of $1,000,000 as of December 31, 2020 and March 31, 2021, a minimum Tangible Net Worth (as defined in the Loan Agreement) of $1,000,000 and, beginning with the fiscal quarter ended June 30, 2021, a minimum Interest Coverage Ratio (as defined in the Loan Agreement) of 1.5 to 1.0. The Loan Agreement also contains customary events of default. If such an event of default occurs, Cadence would be entitled to take various actions, including the acceleration of amounts due under the Loan Agreement. The Company generally may (and must, under certain circumstances) prepay all or a portion of the principal outstanding on the revolving line of credit prior to its contractual maturity.

On February 11, 2021, the Company made an $800,000 draw on the revolving line of credit. On February 19, 2021, the Company paid down the entire balance of the revolving line of credit. As of ~~June~~September 30, 2021, there were no outstanding amounts owed by the Company under the Loan Agreement.

On June 29, 2021, the Company amended the revolving line of credit with Cadence to modify certain financial covenants which included changing the initial measurement period of the minimum Interest Coverage Ratio (as defined in the Loan Agreement) from June 2021 to March 2022 (the “Modification Agreement”). In connection with this change, beginning with the fiscal quarter ended June 30, 2021, through the fiscal quarter ending December 31, 2021, the required minimum Tangible Net Worth (as defined in the Loan Agreement) was raised from $1,000,000 to $10,000,000, and the required Minimum Cash Balance (as defined in the Modification Agreement) is $3,000,000. The Company was in compliance with all of these covenants as of ~~June~~September 30, 2021. Beginning with the fiscal quarter ending March 31, 2022, the financial covenants return to the original terms specified in the Loan Agreement.

NOTE 8 – INVESTMENT IN EQUITY SECURITIES

The Company’s equity investments consist of non-marketable equity securities in privately held companies without readily determinable fair values, and 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.

17
~~Table of Contents~~
The Company made a $500,000 long-term investment in July 2020 to purchase certain non-marketable securities consisting of ~~7,142,857 Series~~7,142,857Series B-2 Preferred Shares of Direct Dermatology Inc. (“DirectDerm”), representing 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.

On November 9, 2020, the Company entered into agreements to purchase certain non-marketable securities consisting of 150,000 shares of Series A Convertible Preferred Stock (the “Series A Stock”) of Precision Healing Inc. (“Precision Healing”) for an aggregate purchase price of $600,000. The Series A Stock is convertible into 150,000 shares of common stock of Precision Healing and has a senior liquidation preference relative to the common shareholders. This initial investment represented 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 is convertible into 150,000 shares of common stock of Precision Healing. This resulted in ownership of 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. On June 17, 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 ~~to29.0%~~to 29.0%. For the ~~six~~three and nine months ended ~~June~~September 30, 2021, the Company recorded ~~$278,904~~$193,843 and $472,747 as its share of the ~~loss~~losses from this equity method investment.

On June 3, 2021, the Company invested $2,084,278 to purchase 278,587 Class A Preferred Shares (the “Shares”) of Pixalere Healthcare, Inc. (“Pixalere”). The Shares are convertible into 28.6% of the outstanding equity of Pixalere. Pixalere provides a cloud-based wound care software tool that empowers nurses, specialists and administrators to deliver better care for patients. In connection with the Company’s purchase of the Shares, Pixalere granted Pixalere Healthcare USA, LLC (“Pixalere USA”), a subsidiary of the Company, a royalty-free exclusive license to use the Pixalere software and platform in the United States. In conjunction with the grant of the license, the Company issued Pixalere a 27.3% equity ownership interest in Pixalere USA valued at $93,879.

The Company has reviewed the characteristics of the Shares in accordance with ASC Topic 323, Investments – Equity Method and Joint Ventures. Due to the substantive liquidation preferences of the Shares over Pixalere’s common stock, the Shares are not “in-substance” common stock, and therefore, the Company will 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 ~~June~~September 30, 2021.

The following summarizes the Company’s investments:

June 30, 2021

December 31, 2020

September 30, 2021

December 31, 2020

Carrying
Amount

Economic
Interest

Carrying
Amount

Economic
Interest

Carrying
Amount

Economic
Interest

Carrying
Amount

Economic
Interest

Equity Method Investment

Precision Healing Inc.

$ 1,421,096

29.04 %

$ 0

$ 1,227,253

29.0 %

$ 0

Cost Method Investments

Direct Dermatology, Inc.

500,000

2.9 %

500,000

2.9 %

500,000

500,000

Precision Healing Inc.

0

600,000

12.6 %

0

600,000

Pixalere Healthcare, Inc.

2,084,278

28.6 %

-

2,084,278

-

Total Cost Method Investments

2,584,278

1,100,000

2,584,278

1,100,000

Total Investments

$ 4,005,374

$ 1,100,000

$ 3,811,531

$ 1,100,000

The following summarizes the loss from the equity method investment reflected in the consolidated statements of operations:

Three Months ended June 30,

Six Months Ended June 30,

2021

2020

2021

2020

Three Months ended September 30,

Nine Months Ended September 30,

Investment

2021

2020

2021

2020

Precision Healing Inc.

$ (179,769 )

$ 0

$ (278,904 )

$ 0

$ (193,843 )

$ 0

$ (472,747 )

$ 0

Total

$ (179,769 )

$ 0

$ (278,904 )

$ 0

$ (193,843 )

$ 0

$ (472,747 )

$ 0

18
Table of Contents

NOTE 9 ~~- RELATED PARTIES~~
~~Payables to Related Parties~~
~~The Company had outstanding payables to related parties totaling $57,507 at June 30, 2021, and 223,589 at December 31, 2020.~~
~~Manufacturing and Technical Services Agreements~~ – ~~Related Parties~~
On September 9, 2020, the Company executed a manufacturing agreement with Rochal. Under the terms of the manufacturing agreement, Rochal agreed to manufacture, package, and label products licensed from Rochal by the Company. The manufacturing agreement includes customary terms and conditions for the Company’s industry. The term of the agreement is for a period of five years unless extended by the mutual consent of the parties. For the six months ended June 30, 2021, the Company incurred no inventory manufacturing costs with Rochal. The Company terminated this agreement on August 12, 2021.
On September 9, 2020, the Company executed a technical services agreement with Rochal. Under the terms of the technical services agreement, Rochal will provide its expertise and services on technical service projects identified by the Company for wound care, skin care and surgical site care applications. The technical services agreement includes customary terms and conditions for the Company’s industry. For the six months ended June 30, 2021, the Company incurred $234,153 of costs for Rochal technical services. The Company terminated this agreement on August 12, 2021.
~~Rochal Asset Purchase~~ROCHAL ASSET ACQUISITION

On July 14, 2021, the Company entered into an asset purchase agreement with Rochal, effective July 1, 2021, pursuant to which the Company ~~agreed to~~ purchased certain assets of Rochal. The acquired assets were purchased for an aggregate purchase price of approximately $1,000,000 consisting of (i) approximately $500,000 in cash and (ii) 14,369 shares of the Company’s common stock, representing an amount equal to $500,000 based on the average closing sale price of the Company’s common stock for the twenty trading days immediately preceding July 14, 2021.
After the asset purchase, Rochal now owns 95,203 shares of the Company’s common stock. Ronald T. Nixon, the Company’s Executive Chairman, is, with respect to Rochal, a director, a significant shareholder indirectly and a majority shareholder with the exercise of certain warrants. Additionally, Ann Beal Salamone, a director of the Company, is a significant shareholder, former president and current Chair of the board of directors of Rochal. See Note 10 for more information regarding this transaction.
~~NOTE 10 – SUBSEQUENT EVENTS~~
~~On July 14, 2021, the Company entered into an asset purchase agreement with Rochal, effective July 1, 2021, pursuant to which the Company agreed to purchase~~ certain assets of Rochal, including, among others, certain of Rochal’s intellectual property, furniture and equipment, supplies, rights and claims, other than certain excluded assets, all as more specifically set forth in the asset purchase agreement, and assume certain liabilities upon the terms and subject to the conditions set forth in the asset purchase agreement. ~~The~~In exchange for the acquired assets, ~~were purchased for an aggregate purchase price of approximately $1,000,000 consisting of~~the Company paid to Rochal (i) ~~approximately $500,000~~$496,100 in cash and (ii) 14,369 shares of the Company’s common stock, ~~representing an amount equal to $500,000 based~~and assumed certain net liabilities of $3,900. Based on the ~~average closing sale~~trading price of the Company’s common stock ~~for the twenty trading days immediately preceding~~on July 14, ~~2021.~~2021, the fair value of the equity consideration transferred was determined to be $584,244. The total purchase price as determined by the Company is ~~subject to post-closing adjustments pursuant~~as follows:
Description

Amount

Net cash consideration

$ 496,100

Equity consideration (fair value)

584,244

Net liabilities assumed

3,900

Transaction costs

78,586

Total purchase consideration

$ 1,162,830

Prior to the ~~terms of~~transaction, the ~~asset purchase agreement, which such adjustments must be agreed to by the parties no later than seventy-five days after the effective date.~~
~~Rochal is in the business of creating, developing and commercializing technology innovations in natural and synthetic polymers, antimicrobials and biological systems. As discussed above, the~~ Company ~~previously~~ entered into product license agreements with Rochal, pursuant to which the Company acquired exclusive world-wide licenses to market, sell and further develop certain antimicrobial barrier film and skin protectant products, antimicrobial products for the prevention and treatment of microbes on the human body utilizing certain of Rochal’s patents and a debrider for human medical use to enhance skin condition or treat or relieve skin disorders. Pursuant to the asset purchase agreement, each of the foregoing licenses ~~are being~~were retained by Rochal and ~~are~~were excluded from the purchased assets. In addition, the Company previously entered into manufacturing and technical service agreements with Rochal, pursuant to which Rochal agreed to manufacture, package and label products the Company licensed from Rochal and provide certain services on technical service projects of the Company.

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 actually 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.

In connection with the asset purchase agreement, the Company ~~made employment offers to~~hired certain employees of Rochal on an “at will” basis, with the terms of such employment being consistent with the Company’s current employment agreements.

Concurrent with the asset purchase, on July 14, 2021, the Company entered into a consulting agreement with ~~Ms.~~Ann Beal Salamone pursuant to which Ms. Salamone ~~will~~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 the current Chair of the board of directors of Rochal.
Based on guidance provided by ASC Topic 805, Business Combinations, the Company has recorded the Rochal asset purchase as an asset acquisition due to the determination that substantially all of the fair value of the assets acquired was concentrated in a group of similar identifiable assets. The ~~consulting~~Company believes the “substantially all” criterion was met with respect to the acquired intellectual property (i.e., patents, patent applications, and patent applications to be written) based on the Company’s internal valuation models. These models assigned value to the acquired intellectual property based on estimated future cash flows over the life of the respective patents and patent applications. Accordingly, the Company accounted for the acquisition of the purchased net assets as an asset acquisition.
The purchase consideration, plus transaction costs, was allocated to the individual assets according to their fair values as a percentage of the total fair value of the assets purchased, with no goodwill recognized. Based on the Company’s internal valuation performed, the total fair value of the net assets acquired was attributable to the intellectual property (i.e., patents) and assembled workforce. Due to the de minimis estimated fair value of furniture and equipment acquired, the Company did not allocate any amounts to such assets. The total purchase consideration was allocated based on the relative estimated fair value of such assets as follows:
Description
Amount
Percent
of Total
Patents and Intellectual Property $ 1,099,801 94.6 %
Assembled Workforce 63,029 5.4 %

Total purchase consideration

$ 1,162,830

100.0 %
19
Table of Contents
NOTE 10 - RELATED PARTIES
Payables to Related Parties
The Company had outstanding payables to related parties totaling $132,134 at September 30, 2021, and $223,589 at December 31, 2020.
Payables to Related Parties
The Company had outstanding receivables from related parties totaling $171,440 at September 30, 2021, and $0 at December 31, 2020.
Manufacturing and Technical Services Agreements – Related Parties
On September 9, 2020, the Company executed a manufacturing agreement ~~also contains~~with Rochal. Under the terms of the manufacturing agreement, Rochal agreed to manufacture, package, and label products licensed from Rochal by the Company. The manufacturing agreement includes customary ~~provisions related~~terms and conditions for the Company’s industry. The term of the agreement is for a period of five years unless extended by the mutual consent of the parties. For the nine months ended September 30, 2021, the Company incurred no inventory manufacturing costs with Rochal. The Company terminated this agreement on August 12, 2021.
On September 9, 2020, the Company executed a technical services agreement with Rochal. Under the terms of the technical services agreement, Rochal will provide its expertise and services on technical service projects identified by the Company for wound care, skin care and surgical site care applications. The technical services agreement includes customary terms and conditions for the Company’s industry. For the nine months ended September 30, 2021, the Company incurred $234,153 of costs for Rochal technical services. The Company terminated this agreement on August 12, 2021.
Rochal Asset Purchase
On July 14, 2021, the Company entered into an asset purchase agreement with Rochal, effective July 1, 2021, pursuant to which the Company purchased certain assets of Rochal, including, among others, certain of Rochal’s intellectual property, furniture and equipment, supplies, rights and claims, other ~~things, confidentiality,~~than certain excluded assets, all as more specifically set forth in the asset purchase agreement, and ~~termination~~assumed certain liabilities upon the terms and subject to the conditions set forth in the asset purchase agreement. In exchange for ~~cause provisions.~~the acquired assets, the Company paid to Rochal (i) $496,100 in cash and (ii) 14,369 shares of the Company’s common stock, and assumed certain net liabilities of $3,900. Based on the trading price of the Company’s common stock on July 14, 2021, the fair value of the equity consideration transferred was determined to be $584,244.
After the asset purchase, Rochal owned 95,203 shares of the Company’s common stock. Ronald T. Nixon, the Company’s Executive Chairman, is, with respect to Rochal, a director, a significant shareholder indirectly and a majority shareholder with the exercise of certain warrants. Additionally, Ann Beal Salamone, a director of the Company, is a significant shareholder, former president and current Chair of the board of directors of Rochal. See Note 9 for more information regarding this transaction.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of operations of Sanara MedTech Inc. (collectively with its consolidated subsidiaries, the “Company,” “Sanara MedTech,” “Sanara,” “SMTI,” “we,” “our,” or “us”) 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, 2020 and with the unaudited consolidated financial statements and related notes thereto presented in this Quarterly Report on Form 10-Q.
Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements may discuss expectations as to future trends, plans, events, results of operations or financial condition, or state other information relating to the Company, including, without limitation, statements concerning the impact of the COVID-19 pandemic and our expectations for SG&A expense. Statements, other than statements of historical fact, included in this Quarterly Report on Form 10-Q are forward-looking statements and generally may be identified by words such as “anticipate,” “believe,” “continue,” “contemplate,” “could,” “estimate,” “expect,” “forecast,” “guidance,” “intend,” “may,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “target,” “will,” “would” or other similar words, phrases or expressions. These statements should be viewed with caution and are subject to various risks and uncertainties, many of which are outside of the Company’s control. The following factors, among others, could cause actual results to differ materially from those in the forward-looking statements:

·
unanticipated changes in the markets for the Company’s business;

·
unanticipated downturns in business relationships with customers or their purchases from us;

·
the potential effects on our businesses from natural disasters;

·
the availability of credit to customers and suppliers;

·
competitive pressures on sales and pricing;

·
unanticipated changes in the cost of inventory and other operating costs;

·
the introduction of competing products;

·
unexpected technical or marketing difficulties; unexpected claims, charges, litigation or dispute resolutions;

·
new laws and governmental regulations; stock market and currency fluctuations;

·
war, civil or political unrest or terrorism;

·
the course of the COVID-19 pandemic and government responses thereto; and

·
unanticipated deterioration of economic and financial conditions in the United States and around the world.

For a more detailed discussion of these and other factors that may affect our business and that could cause the actual results to differ materially from those anticipated in these forward-looking statements, see “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2020, Part II, Item 1A, “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Forward-looking statements speak only as of the date on which they are made, and the Company does not assume any obligation to update these forward-looking statements.

Overview

We are a medical technology company focused on developing and commercializing transformative technologies to improve clinical outcomes and reduce healthcare expenditures in the surgical and chronic wound and skin care markets. Our portfolio of products and services is designed to allow us to deliver comprehensive wound and skin care solutions for patients in all care settings, including acute (hospitals and long-term acute care hospitals (“LTACHs”)) and post-acute (wound care clinics, physician offices, skilled nursing facilities (“SNFs”), home health, hospice, and retail). Each of our products, services, and technologies contributes to our overall goal of achieving better clinical outcomes at a lower overall cost for patients regardless of where they receive care. We strive to be one of the most innovative and comprehensive providers of effective wound and skin care products and technologies and are continually seeking to expand our offerings for patients requiring wound and skin care treatments across the entire continuum of care in the United States.

We currently market seven products across chronic and surgical wound care applications and have multiple products in our pipeline. We license our products from research and development partners Applied Nutritionals, LLC (“AN”) (through a sublicense with CGI Cellerate RX, LLC (“CGI Cellerate RX”), an affiliate of The Catalyst Group, Inc. (“Catalyst”)) and Rochal Industries, LLC (“Rochal”) and have the right to exclusively distribute certain products under development by Cook Biotech Inc. (“Cook Biotech”). In 2021, we ~~intend to begin~~began marketing two biologic products for surgical ~~and wound care~~ applications pursuant to our marketing and distribution agreement with Cook Biotech.

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In June 2020, we formed a subsidiary, United Wound and Skin Solutions LLC (“UWSS”), to hold certain investments and operations in wound and skin care virtual consult services. We anticipate that our various service offerings will allow clinicians/physicians utilizing our technologies to collect and analyze large amounts of data on patient conditions and outcomes that will improve treatment protocols and ultimately lead to more evidence-based formulary to improve patient outcomes. We intend to launch our initial virtual consult service offerings in late 2021. Through a combination of our UWSS services and our Sanara products, we believe we will be able to offer patient care solutions at every step in the continuum of wound and skin care from diagnosis through healing.

Effective July 1, 2021, we acquired certain assets from Rochal, including, among others, intellectual property, four FDA 510(k) clearances, rights to license certain products and technologies currently under development, equipment and supplies. As a result of the asset purchase, our pipeline now contains product candidates for mitigation of opportunistic pathogens and biofilm, wound re-epithelialization and closure, necrotic tissue debridement and cell compatible substrates.

Impact of the COVID-19 Pandemic

Beginning in March 2020, many states issued orders suspending elective surgeries in order to free-up hospital resources to treat COVID-19 patients. This resulted in a reduction in demand for our surgical products beginning in the second half of March 2020. Additionally, most states limited access to SNFs to only resident caregivers, which impeded our ability to provide education and product training to the clinicians who use our products in these facilities. These restrictions resulted in an overall decline in sales for the second quarter of 2020. During the second half of 2020 and the first quarter of 2021, we saw a strong rebound in product sales as restrictions on elective surgeries eased in our primary markets in Texas, Florida, and the southeastern United States. During the third quarter of 2021, the United States experienced a surge of COVID-19 cases as the Delta variant of the virus impacted much of the country and negatively impacted our sales in Texas, the northeastern United States, and other markets.

~~Due to recent COVID-19 resurgences and variants, the~~The duration and effects of the pandemic remain uncertain; however, management believes that elective surgical procedures will continue to be performed with the exception of certain geographic hotspots. Additionally, management believes that the majority of surgical procedures impacted by COVID-19 and its variants will ultimately be performed. We will continue to closely monitor the pandemic in order to ensure the safety of our people and our ability to serve our customers and patients.

Recent Developments

February 2021 Offering

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

The net proceeds to us from the Offering were $28.9 million, after (i) giving effect to the ~~Underwriter’s~~Underwriters’ full exercise of its option to purchase additional shares of common stock, and (ii) deducting the underwriting discounts and commissions and offering expenses payable by us.

Pixalere Investment

On June 3, 2021, we invested $2,084,278 to purchase 278,587 Class A Preferred Shares (the “Shares”) of Pixalere Healthcare, Inc. (“Pixalere”). The Shares are convertible into 28.6% of the outstanding equity of Pixalere. Pixalere provides a cloud-based wound care software tool that empowers nurses, specialists and administrators to deliver better care for patients. In connection with our purchase of the Shares, Pixalere granted Pixalere Healthcare USA, LLC (“Pixalere USA”), our subsidiary, a royalty-free exclusive license to use the Pixalere software and platform in the United States. In conjunction with the grant of the license, we issued Pixalere a 27.3% equity ownership interest in Pixalere USA valued at ~~$93,879.~~$93,879 .

Rochal Asset Purchase and Consulting Agreement

On July 14, 2021, we entered into an asset purchase agreement with Rochal, effective July 1, 2021, pursuant to which we ~~agreed to purchase~~purchased certain assets of Rochal, including, among others, certain of Rochal’s intellectual property, furniture and equipment, supplies, rights and claims, other than certain excluded assets, ~~all as more specifically set forth in the asset purchase agreement,~~ and ~~assume~~assumed certain liabilities upon the terms and subject to the conditions set forth in the asset purchase agreement. ~~The~~In exchange for the acquired assets, ~~were purchased for an aggregate purchase price of approximately $1,000,000 consisting of~~we paid to Rochal (i) ~~approximately $500,000~~$496,100 in cash and (ii) 14,369 shares of ~~our~~the Company’s common stock, ~~representing an amount equal to $500,000 based on the average closing sale price~~and assumed certain net liabilities of our common stock for the twenty trading days immediately preceding July 14, 2021. The purchase price is subject to post-closing adjustments pursuant to the terms of the asset purchase agreement, which such adjustments must be agreed to by the parties no later than seventy-five days after the effective date. We believe that by acquiring these assets, we will incur approximately $1.2 million to $1.5 million in additional operating expenses in the first 12 months following the acquisition, but some of this expense could be offset by future grants and outside contract revenue that may be received by us as a result of the acquisition.$3,900.

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~~Rochal is in the business of creating, developing and commercializing technology innovations in natural and synthetic polymers, antimicrobials and biological systems.~~ Prior to the ~~asset purchase,~~transaction, we ~~previously~~ entered into product license agreements with Rochal, pursuant to which ~~the Company~~we acquired exclusive world-wide licenses to market, sell and further develop certain antimicrobial barrier film and skin protectant products, antimicrobial products for the prevention and treatment of microbes on the human body utilizing certain of Rochal’s patents and a debrider for human medical use to enhance skin condition or treat or relieve skin disorders. Pursuant to the Rochal asset purchase agreement, each of the foregoing licenses ~~are being~~were retained by Rochal and ~~are~~were excluded from the purchased assets. In addition, we previously entered into manufacturing and technical service agreements with Rochal, pursuant to which Rochal agreed to manufacture, package and label products we licensed from Rochal and provide certain services on technical service projects for us. On August 12, 2021, we terminated each of the manufacturing and technical services agreements with 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 actually received for any Grant (as defined in the asset purchase agreement) by either us or Rochal. In addition, we 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 us to intellectual property rights from Rochal in respect of such products.

In connection with the asset purchase agreement, we ~~made employment offers to~~hired certain employees of Rochal on an “at will” basis, with the terms of such employment being consistent with our current employment agreements.
Concurrent with the asset purchase, on July 14, 2021, we entered into a consulting agreement with Ms. Salamone pursuant to which Ms. Salamone will 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. The consulting agreement also contains customary provisions related to, among other things, confidentiality, and termination for cause provisions.

Components of Results of Operations

Sources of Revenues

Our revenue is derived primarily from sales of our surgical products to hospitals and other acute care facilities, and sales of our chronic wound care products to customers across the post-acute continuum of care. 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 our product is received by the customer.

Revenue streams from product sales and royalties are summarized below for the ~~six~~nine months ended ~~June~~September 30, 2021 and ~~June~~September 30, 2020. All revenue was generated in the United States.

Six Months Ended

Nine Months Ended

June 30,

September 30,

2021

2020

2021

2020

Surgical

$ 10,732,431

$ 6,000,376

$ 16,356,308

$ 9,977,084

Wound Care

453,638

390,638

603,453

670,004

Royalty revenue

100,500

100,500

150,750

150,750

Total Revenue

$ 11,286,569

$ 6,491,514

$ 17,110,511

$ 10,797,838

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 throughout the life of the patent which expires in 2023. These royalties are payable in quarterly installments of $50,250. To date, royalties related to this development and licensing agreement have not exceeded the annual minimum of $201,000 ($50,250 per quarter).

Cost of Goods Sold

Cost of goods sold consists 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 revenue less the cost of goods sold, and gross margin is gross profit expressed as a percentage of total revenue.

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Operating Expenses

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

Research and development expenses (“R&D”) include costs related to enhancements to our currently available products and additional investments in our product and platform 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 ~~research and development~~R&D costs as incurred. We generally expect that R&D expenses will increase as we continue to support product enhancements as well as to bring new products to market.
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Other Income (Expense)

Other income (expense) is primarily comprised of gains or losses on equity method investments, interest income, interest expense and other non-operating activities.

Results of Operations

Revenues.  For the three months ended ~~June~~September 30, 2021, we generated revenues of ~~$6,277,133~~$5,823,942 compared to revenues of ~~$2,967,183~~$4,306,324 for the three months ended ~~June~~September 30, 2020, representing a ~~112%~~35% increase from the prior year period. For the ~~six~~nine months ended ~~June~~September 30, 2021, revenues totaled ~~$11,286,569~~$17,110,511 compared to revenues of ~~$6,491,514~~$10,797,838 for the ~~six~~nine months ended ~~June~~September 30, 2020, representing a ~~74%~~58% increase from the prior year period. The higher revenues in 2021 were primarily due to increased ~~sales~~penetration of surgical wound care products ~~as a result of~~by our sales force ~~expansion~~additions last year and our continuing present strategy to expand our independent distribution network in both new and existing U.S. markets. In addition, revenues in the second quarter of 2020 were negatively impacted due to the suspension of elective surgeries and restricted access to patient facilities throughout most parts of the United States as a result of the COVID-19 pandemic.

Cost of goods sold. Cost of goods sold for the three months ended ~~June~~September 30, 2021, was ~~$536,405,~~$517,611, compared to ~~Cost~~cost of goods sold of ~~$348,675~~$447,935 for the three months ended ~~June~~September 30, 2020. Cost of goods sold for the ~~six~~nine months ended ~~June~~September 30, 2021 was ~~$1,010,838,~~$1,528,449, compared to ~~Cost~~cost of goods sold of ~~$678,863~~$1,126,798 for the ~~six~~nine months ended ~~June~~September 30, 2020. The increase over the prior year period was primarily due to higher sales volume.

Selling, general and administrative expenses. SG&A expenses for the three months ended ~~June~~September 30, 2021, were ~~$6,562,144,~~$6,920,105, as compared to ~~$3,582,511~~$5,072,402 for the three months ended ~~June~~September 30, 2020. SG&A expenses for the ~~six~~nine months ended ~~June~~September 30, 2021, were ~~$11,971,874~~$18,891,979 compared to SG&A expenses of ~~$8,514,662~~$13,632,967 for the ~~six~~nine months ended ~~June~~September 30, 2020. The higher SG&A expenses in 2021 were primarily due to increased ~~payroll~~selling costs resulting from sales force expansion and operational support, ~~and~~ higher sales commission expense as a result of higher product ~~sales.~~sales, and the addition of the Rochal workforce effective July 1, 2021. Direct sales and marketing costs represented approximately 70% of the higher SG&A costs incurred in 2021. As part of our strategy to expand our sales reach in new and existing markets, we employed ~~eight~~ten additional field sales managers ~~during the first half of 2021.~~since September 30, 2020. As of ~~June~~September 30, 2021, we had a total of 2629 field sales managers.

Research and development expenses. R&D expenses for the three months ended ~~June~~September 30, 2021, were ~~$103,981~~$35,674 compared to ~~$41,516~~$11,022 for the three months ended ~~June~~September 30, 2020. Our third quarter 2021 R&D expenses included a $108,060 reclassification of R&D expenses to SG&A based on guidance provided by ASC Topic 730, Research and Development. R&D expenses for the ~~six~~nine months ended ~~June~~September 30, 2021, were ~~$222,193~~$257,867 compared to ~~$45,903~~$11,022 for the ~~six~~nine months ended ~~June~~September 30, 2020. The higher R&D expenses in 2021 were ~~primarily~~ due to ~~the initiation of new studies and~~several development projects for our currently licensed products.

Other ~~expense.~~income (expense). Other expense for the three months ended ~~June~~September 30, 2021, was ~~$179,769~~$193,843 compared to ~~$49,817~~income of $98,792 for the three months ended ~~June~~September 30, 2020. Other expense for the ~~six~~nine months ended ~~June~~September 30, 2021 was ~~$279,615~~$473,458 compared to ~~$94,929~~income of $3,863 for the ~~six~~nine months ended ~~June~~September 30, 2020. The higher Other expense in 2021 was due to the recognition of a non-cash loss of ~~$278,904~~$472,747 from our equity method investment in Precision Healing. Interest expense was $711 for the ~~six~~nine months ended ~~June~~September 30, 2021, as compared to ~~$9,455~~$10,913 for the ~~six~~nine months ended ~~June~~September 30, 2020. The higher ~~Interest~~interest expense in 2020 was due to interest expense associated with our unsecured promissory note under the Paycheck Protection Program, and interest on a convertible promissory note which was converted to common stock in early 2020.

Net income ~~/ loss~~(loss). We had a net loss of ~~$1,205,973~~$2,047,861 for the three months ended ~~June~~September 30, 2021, compared to net loss of ~~$1,129,557~~$1,208,123 for the three months ended ~~June~~September 30, 2020. The higher net loss in the third quarter of 2021 was primarily due to higher SG&A expenses which were approximately $1.8 million higher than prior year, partially offset by higher third quarter gross profit which was $1.4 million higher than the same period in 2020. Third quarter 2021 depreciation, amortization, and other expenses collectively were approximately $0.4 million higher compared to prior year. For the ~~six~~nine months ended ~~June~~September 30, 2021, we had a net loss of ~~$2,389,349,~~$4,437,210, compared to net loss of ~~$2,970,569~~$4,178,692 for the ~~six~~nine months ended ~~June~~September 30, 2020. The ~~improvement in our~~higher net loss for the ~~six~~three and nine months ended ~~June~~September 30, 2021 was primarily due to higher ~~sales revenues~~SG&A expenses, partially offset by higher revenues. The higher SG&A expenses in 2021 ~~compared~~were primarily driven by increased selling costs as a result of sales force expansion and higher sales commissions due to ~~the same period in 2020.~~higher product sales.
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Liquidity and Capital Resources

Cash on hand at ~~June~~September 30, 2021 was ~~$24,389,004,~~$22,371,434, compared to $455,366 at December 31, 2020. Historically, we have financed our operations primarily from the sale of equity securities. In 2020, our principal sources of liquidity were cash generated from operations, availability of our bank line of credit, and cash provided by an unsecured promissory note under the Paycheck Protection Program in the principal amount of $583,000 ~~(“the PPP~~(the “PPP Loan”) to Cadence Bank, N.A. (“Cadence”). On February 12, 2021, we closed an underwritten public offering of 1,265,000 shares of our common stock at a public offering price of $25.00 per share resulting in gross proceeds of $31,625,000, before deducting underwriting discounts and commissions and offering expenses. We expect our future needs for cash to ~~use the net proceeds from the offering to expand~~include expanding our salesforce, ~~and for~~ further development of our products, services and technologies pipeline, clinical studies and general corporate purposes, including working capital and acquisitions. Based on our current plan of operations, including acquisitions, we believe our cash on hand, when combined with expected cash flows from operations and amounts available under our revolving credit facility, 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.
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On January 15, 2021, we entered into a new loan agreement with Cadence (the “Loan Agreement”), providing for a $2.5 million revolving line of credit. The revolving line of credit matures on January 13, 2023, and is secured by substantially all of our assets. Any amounts outstanding will bear interest of 0.75% plus the “Prime Rate” designated in the “Money Rates” section of the Wall Street Journal. Proceeds from the line of credit are to be used to provide additional working capital in support of current assets and for other general corporate purposes and may not be used for acquisitions.

The line of credit contains customary representations and warranties and requires us to maintain compliance with certain financial covenants, including, among others, a minimum liquidity of $1,000,000 as of December 31, 2020 and March 31, 2021, a minimum Tangible Net Worth (as defined in the Loan Agreement) of $1,000,000 and, beginning with the fiscal quarter ending June 30, 2021, a minimum Interest Coverage Ratio (as defined in the Loan Agreement) of 1.5 to 1.0. The Loan Agreement also contains customary events of default. If such an event of default occurs, Cadence would be entitled to take various actions, including the acceleration of amounts due under the Loan Agreement. We generally may (and must, under certain circumstances) prepay all or a portion of the principal outstanding on the revolving line of credit prior to its contractual maturity. On February 11, 2021, we made an $800,000 draw on the revolving line of credit. On February 19, 2021, we paid down the entire balance of the revolving line of credit. As of ~~June~~September 30, 2021, no amounts were owed under the Loan Agreement.

On June 29, 2021, we amended the revolving line of credit with Cadence to modify certain financial covenants which included changing the initial measurement period of the minimum Interest Coverage Ratio (as defined in the Loan Agreement) from June 2021 to March 2022 (the “Modification Agreement”). In connection with this change, beginning with the fiscal quarter ended June 30, 2021 through the fiscal quarter ending December 31, 2021, the required minimum Tangible Net Worth (as defined in the Loan Agreement) was raised from $1,000,000 to $10,000,000, and the required Minimum Cash Balance (as defined in the Modification Agreement) is $3,000,000. The Company was in compliance with all of these covenants as of ~~June~~September 30, 2021. Beginning with the fiscal quarter ending March 31, 2022, the financial covenants return to the original terms specified in the Loan Agreement.

On November 9, 2020, our subsidiary, UWSS, entered into agreements to purchase shares of Series A Convertible Preferred Stock (the “Series A Stock”) of Precision Healing Inc. (“Precision Healing”) for an aggregate purchase price of $600,000. UWSS made additional investments of $600,000 in February 2021 and $500,000 in June 2021 for 275,000 additional shares of Series A Stock.

On July 7, 2019, we executed a license agreement with Rochal whereby we acquired an exclusive world-wide license to market, sell and further develop antimicrobial products for the prevention and treatment of microbes on the human body utilizing certain Rochal patents and pending patent applications (the “BIAKŌS License Agreement”). Under the terms of the BIAKŌS License Agreement, we agreed to pay Rochal $750,000 upon the completion of a capital raise, on or before December 31, 2022, of at least $10,000,000 through the sale of our common stock or assets. At our option, the $750,000 payment may behave been paid in any combination of cash and our common stock. In March 2021, we issued 20,834 shares of our common stock to Rochal as full payment of the $750,000 which became due upon the Company’s completion of a capital raise in February 2021.

On June 3, 2021, we invested $2,084,278 for 278,587 Class A Preferred Shares (the “Shares”) of Canada based Pixalere Healthcare, Inc. (“Pixalere”). The Shares are convertible into 28.6% of the outstanding equity of Pixalere. Pixalere provides a cloud-based wound care software tool that empowers nurses, specialists and administrators to deliver better care for patients. In connection with our purchase of the Shares, Pixalere granted Pixalere Healthcare USA, LLC (“Pixalere USA”), our subsidiary, a royalty-free exclusive license to use the Pixalere software and platform in the United States. In conjunction with the grant of the license, we issued Pixalere a 27.3% equity ownership interest in Pixalere USA valued at $93,879.

~~Effective~~On July 14, 2021, we entered into an asset purchase agreement with Rochal, effective July 1, 2021, pursuant to which we ~~acquired~~purchased certain assets ~~from Rochal. The~~of Rochal, including, among others, certain of Rochal’s intellectual property, furniture and equipment, supplies, rights and claims, other than certain excluded assets, and assumed certain liabilities upon the terms and subject to the conditions set forth in the asset purchase agreement. In exchange for the acquired assets, ~~were purchased for an aggregate purchase price of approximately $1,000,000 consisting of~~we paid to Rochal (i) ~~approximately $500,000~~$496,100 in cash and (ii) 14,369 shares of ~~our~~the Company’s common stock, ~~representing an amount equal to $500,000 based on the average closing sale price~~and assumed certain net liabilities of our common stock for the twenty trading days immediately preceding July 14, 2021. The purchase price is subject to post-closing adjustments pursuant to the terms of the asset purchase agreement, which such adjustments must be agreed to by the parties no later than seventy-five days after the effective date.$3,900.

Cash Flow Analysis

For the ~~six~~nine months ended ~~June~~September 30, 2021, net cash used in operating activities was ~~$1,595,895~~$3,030,168 compared to ~~$2,732,191~~$3,443,449 used in operating activities for the ~~six~~nine months ended ~~June~~September 30, 2020. The lower use of cash in 2021 was primarily due to cash generated from higher sales ~~revenue.~~revenues.
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For the ~~six~~nine months ended ~~June~~September 30, 2021, net cash used in investing activities was ~~$3,209,724~~$3,793,021 compared to ~~$1,157,456~~$1,657,456 used in investing activities during the ~~six~~nine months ended ~~June~~September 30, 2020. The increase in cash used in investing activities in 2021 was due to the purchase of 275,000 additional shares of Series A Stock of Precision Healing for $1,100,000, and the purchase of 278,587 Shares of Pixalere for $2,084,278. The cash used in investing activities in 2020 was due to a $500,000 milestone payment made to Rochal as a result of FDA clearance of BIAKŌS Antimicrobial Wound Gel and a $600,000 initial payment upon acquisition of the debrider product license agreement from Rochal.

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For the ~~six~~nine months ended ~~June~~September 30, 2021, net cash provided by financing activities was $28,739,257 as compared to ~~$583,000~~$609,220 provided by financing activities for the ~~six~~nine months ended ~~June~~September 30, 2020. The cash provided by financing activities in 2021 was due to proceeds received pursuant to an underwritten public offering of 1,265,000 shares of our common stock at a public offering price of $25.00 per share resulting in gross proceeds of $31,625,000, before deducting underwriting discounts and commissions and offering expenses.

Material Transactions with Related Parties

CellerateRX Sublicense Agreement

We have an exclusive, world-wide sublicense to distribute CellerateRX products into the wound care and surgical markets from an affiliate of Catalyst, CGI Cellerate RX, LLC (“CGI Cellerate RX”), which licenses the rights to CellerateRX from Applied Nutritionals. Sales of CellerateRX have comprised the majority of our sales during 2018, 2019 and 2020. On January 26, 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 CellerateRX exceed $1,000,000. We pay royalties based on our annual Net Sales of CellerateRX (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. Minimum royalties of $400,000 per year are payable for the first five years of the sublicense agreement, which was entered on August 27, 2018. For the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020, royalties accrued under the terms of this agreement totaled ~~$404,220~~$756,951 and ~~$210,220,~~$337,639, respectively.

Ronald T. Nixon, our Executive Chairman, is the founder and managing partner of Catalyst. Mr. Nixon and Catalyst, collectively with their affiliates, including CGI Cellerate RX, beneficially owned ~~3,502,240~~3,519,019 shares of our common stock as of ~~June~~September 30, 2021.

Convertible Notes Payable

On March 15, 2019, we acquired Catalyst’s 50% interest in Cellerate, LLC in exchange for the issuance of 1,136,815 shares of our newly created Series F Convertible Preferred Stock (the “Cellerate Acquisition”). In connection with the Cellerate Acquisition, we issued a 30-month convertible promissory note to CGI Cellerate RX, an affiliate of Catalyst, in the principal amount of $1,500,000, bearing interest at a 5% annual interest rate, compounded quarterly. Interest on the promissory note was payable quarterly but could have been deferred at our election to the maturity of the promissory note. Outstanding principal and interest were convertible at CGI Cellerate RX’s option into shares of our common stock at a conversion price of $9.00 per share.

On February 7, 2020, CGI Cellerate RX converted its $1,500,000 promissory note, including accrued interest of $111,911, into 179,101 shares of our common stock. CGI Cellerate RX also converted its 1,136,815 shares of Series F Convertible Preferred Stock into shares of the Company’s common stock. For more information, see Note 6 to the unaudited consolidated financial statements contained in this Quarterly Report on Form 10-Q. As of ~~June~~September 30, 2021, there were no related party promissory notes or accrued interest outstanding.
Rochal Asset Purchase
On July 14, 2021, we entered into an asset purchase agreement with Rochal, effective July 1, 2021, pursuant to which we purchased certain assets of Rochal, including, among others, certain of Rochal’s intellectual property, furniture and equipment, supplies, rights and claims, other than certain excluded assets, all as more specifically set forth in the asset purchase agreement, and assume certain liabilities upon the terms and subject to the conditions set forth in the asset purchase agreement. In exchange for the acquired assets, the Company paid to Rochal (i) $496,100 in cash and (ii) 14,369 shares of the Company’s common stock, and assumed certain net liabilities of $3,900. Based on the trading price of the Company’s common stock on July 14, 2021, the fair value of the equity consideration transferred was determined to be $584,244.
After the asset purchase, Rochal owned 95,203 shares of the Company’s common stock. Ronald T. Nixon, the Company’s Executive Chairman, is, with respect to Rochal, a director, a significant shareholder indirectly and a majority shareholder with the exercise of certain warrants. Additionally, Ann Beal Salamone, a director of the Company, is a significant shareholder, former president and current Chair of the board of directors of Rochal. See Note 9 for more information regarding this transaction.

Manufacturing and Technical Services Agreements

On September 9, 2020, we executed a manufacturing agreement with Rochal. Under the terms of the manufacturing agreement, Rochal agreed to manufacture, package, and label products we licensed from Rochal. The manufacturing agreement includes customary terms and conditions. The term of the agreement is for a period of five years unless extended by the mutual consent of the parties. For the ~~six~~nine months ended ~~June~~September 30, 2021 and September 2020, we incurred no inventory manufacturing costs with ~~Rochal.~~Rochal under this agreement. The Company terminated this agreement on August 12, 2021. There were no penalties or payments due to Rochal in connection with the termination of this agreement.
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On September 9, 2020, we executed a technical services agreement with Rochal. Under the terms of the technical services agreement, Rochal will provide its expertise and services on technical service projects identified by us for wound care, skin care and surgical site care applications. The technical services agreement includes customary terms and conditions for our industry. For the ~~six~~nine months ended ~~June~~September 30, 2021, we incurred $234,153 of costs for Rochal technical ~~services.~~services, compared to $174,200 for the same period in 2020. The Company terminated this agreement on August 12, 2021. There were no penalties or payments due to Rochal in connection with the termination of this agreement.

Ronald T. Nixon, our Executive Chairman, is also a director of Rochal, and indirectly a significant shareholder of Rochal, and through the potential exercise of warrants a majority shareholder of Rochal. Ann Beal Salamone, a director, is a significant shareholder and current Chairman of the Board of Rochal.
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~~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 Policies

Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and expenses.

We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. The results of these assumptions form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Under different assumptions or conditions, actual results may differ from these estimates. We have identified certain significant accounting policies which involve a higher degree of judgment and complexity in making certain estimates and assumptions that affect amounts reported in our consolidated financial statements, as summarized below.

Revenue Recognition

We recognize revenue in accordance with Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers, which we adopted on January 1, 2018 using the modified retrospective method. Revenues are recognized when control of the promised goods or services is transferred to the customer in an amount that reflects the consideration we expect 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, we satisfy a performance obligation

Impairment of Long-Lived Assets

Long-lived assets, including certain identifiable intangibles held and to be used by our Company, are reviewed for impairment whenever events or changes in circumstances, including the COVID-19 pandemic, indicate that the carrying amount of such assets may not be recoverable. We continuously evaluate the recoverability of our long-lived assets based on estimated future cash flows and the estimated liquidation value of such long-lived assets and provide 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 net realizable value. No impairment was recorded during the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020.

Investment in Equity Securities

Our investments consist of non-marketable equity securities in privately held companies without readily determinable fair ~~values, and~~values. Unless accounted for under the equity method of accounting, these 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. We have reviewed the carrying value of our investments and have determined there was no impairment or observable price changes as of ~~June~~September 30, 2021.
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The Company applies the equity method of accounting to investments when it has significant influence, but not a 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 our consolidated statements of operations. The Company’s equity method investments are 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 equity method investments using the cumulative earnings approach on the consolidated statements of cash flows.

Inventories

Inventories are stated at the lower of cost or net realizable value, with cost computed on a first-in, first-out basis. Inventories consist of finished goods and related packaging components. We recorded inventory obsolescence expense of ~~$29,834~~$106,823 for the ~~six~~nine months ended ~~June~~September 30, 2021 and ~~$75,422~~$258,585 for the ~~six~~nine months ended ~~June~~September 30, 2020. The allowance for obsolete and slow-moving inventory had a balance of ~~$295,841~~$184,870 at ~~June~~September 30, 2021, and $276,603 at ~~June 30,~~December 31, 2020. We considered the impact of COVID-19 on its recorded value of inventory and determined no adjustment was necessary as of ~~June~~September 30, 2021.
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Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. The extent to which the COVID-19 pandemic may directly or indirectly impact our business, financial condition, and results of operations is highly uncertain and subject to change. We considered the potential impact of the COVID-19 pandemic on our estimates and assumptions and determined there was not a material impact on our estimates and assumptions used in preparing our consolidated financial statements as of and for the ~~six~~nine months ended ~~June~~September 30, 2021; however, actual results could differ from those estimates and there may be changes to our estimates in future periods.

Off-Balance Sheet Arrangements

None.

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

Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit to the Securities and Exchange Commission (“SEC”) under 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 ~~June~~September 30, 2021, pursuant to Rule 13a-15(b) under the Exchange Act. Based upon that evaluation, our Certifying Officers concluded that, as of ~~June~~September 30, 2021, 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 ~~June~~September 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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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

Other than as described 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, 2020. For more information concerning our risk factors, please see “Item 1A. Risk Factors” in the Form 10-K for the year ended December 31, 2020.

Historically, we have relied heavily on third parties to file and pursue the applications necessary to gain regulatory approvals for the products we market and license. We now expect to have the capability to develop certain of our pipeline candidates in-house, and will be subject to FDA requirements as well as other regulations applicable to medical product manufacturers.

On July 14, 2021, we entered into an asset purchase agreement with Rochal Industries LLC (“Rochal”), effective July 1, 2021, pursuant to which we purchased certain assets of Rochal, including, among others, intellectual property, FDA 510(k) clearances for four medical devices, rights to license certain product candidates and technologies currently under development, equipment, and supplies. Through the asset purchase, our pipeline now contains products and product candidates intended for mitigation of opportunistic pathogens and biofilm, wound re-epithelialization and closure, necrotic tissue debridement, and cell compatible substrates. Historically, we have relied heavily on third parties to file and pursue the applications necessary to gain regulatory approvals for the products we market and license. We now expect to have the capability to develop certain of our pipeline candidates in-house, and will be subject to FDA requirements, including the FDA’s current good manufacturing practices (“cGMP”), current good tissue practices (“cGTP”), and the Quality System Regulation (“QSR”), as applicable, as well as other regulations applicable to medical product manufacturers. While we previously relied on our research and development partners to pursue regulatory approvals for the products we market and license, we will now be responsible for gaining approval of certain of our product candidates through regulatory bodies on our own. We may be unable to comply with applicable FDA, state and foreign regulatory requirements and may not be able to successfully commercialize our products on our own, which could have a material adverse effect on our business.

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

There were no sales of unregistered securities during the quarter ended ~~June~~September 30, 2021 that were not previously reported on a Current Report on Form 8-K.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosure

This item is not applicable.

Item 5. Other Information

None.

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Item 6. Exhibits

The following documents are filed as part of this Report:

Exhibit
No.

Description

2.1#

Asset Purchase Agreement, dated July 14, 2021, by and between Sanara MedTech Inc., as Purchaser, and Rochal Industries, LLC, as Seller (incorporated by reference to Exhibit 10.1 to the ~~Company’s~~ Current Report on Form 8-K of the Company filed on July 19, ~~2021).~~
~~3.1~~
~~Articles of Incorporation of Sanara MedTech Inc. (as amended through December 30, 2020) (incorporated~~2021 by ~~reference to Exhibit 3.1 to~~ the ~~Company’s Annual Report on Form 10-K filed on March 30, 2021)~~Company with the SEC).

~~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*
~~Modification Agreement to Loan Agreement, dated January 15, 2021, between the Company, as Borrower, and Cadence Bank, N.A, as Lender.~~
~~10.2~~10.1

Consulting Agreement, dated July 14, 2021, by and between Sanara MedTech Inc. and Ann Beal Salamone (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K of the Company filed on July 19, 2021 by the Company with the SEC).

31.1*

Certification of Principal Executive Officer in accordance with 18 U.S.C. Section 1350, as adopted by Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*

Certification of Principal Financial Officer in accordance with 18 U.S.C. Section 1350, as adopted by Section 302 of the Sarbanes-Oxley Act of 2002.

32.1**

Certification of Principal Executive Officer in accordance with 18 U.S.C. Section 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002.

32.2**

Certification of Principal Financial Officer in accordance with 18 U.S.C. Section 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002.

101.CAL

Inline XBRL Calculation Linkbase Document.

101.DEF

Inline XBRL Definition Linkbase Document.

101.LAB

Inline XBRL Label Linkbase Document.

101.PRE
Inline XBRL Presentation Linkbase Document.

104

Cover Page Interactive Data File (Formatted as Inline XBRL and contained in Exhibit 101).

*
Filed herewith
#
Schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. Sanara MedTech Inc. hereby undertakes to furnish supplementally copies of any of the omitted schedules upon request by the Securities and Exchange Commission or its staff.
**
* Filed herewith
# Schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. Sanara MedTech Inc. hereby undertakes to furnish supplementally copies of any of the omitted schedules upon request by the Securities and Exchange Commission.
** The certifications attached as Exhibit 32.1 and Exhibit 32.2 are not deemed “filed” with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of Sanara MedTech Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Annual Report on Form 10-K, irrespective of any general incorporation language contained in such filing.

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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.

~~August 16,~~November 12, 2021
By:
/s/ Michael McNeil

Michael McNeil

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

3031

	For the Six Months Ended
	June 30, 2021
				Weighted Average
	Shares			Grant Date Fair Value
Non-vested at beginning of period		170,178		$	14.20
Granted		4,744			45.67
Vested		(54,417	)		15.51
Forfeited		(4,786	)		13.03
Non-vested at June 30, 2021		115,719		$	14.92

	For the Nine Months Ended
	September 30, 2021
				Weighted Average
	Shares			Grant Date Fair Value
Non-vested at beginning of period		170,178		$	14.20
Granted		10,083			39.08
Vested		(63,885	)		18.12
Forfeited		(4,786	)		13.03
Non-vested at September 30, 2021		111,590		$	14.26

	Three Months ended June 30,					Six Months Ended June 30,
	2021			2020		2021			2020		Three Months ended September 30,					Nine Months Ended September 30,
Investment											2021			2020		2021			2020
Precision Healing Inc.	$	(179,769	)	$	0	$	(278,904	)	$	0	$	(193,843	)	$	0	$	(472,747	)	$	0

Total	$	(179,769	)	$	0	$	(278,904	)	$	0	$	(193,843	)	$	0	$	(472,747	)	$	0

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

Description	Amount		Percent of Total
Patents and Intellectual Property	$	1,099,801		94.6	%
Assembled Workforce		63,029		5.4	%

Total purchase consideration	$	1,162,830		100.0	%

	·	unanticipated changes in the markets for the Company’s business;
	·	unanticipated downturns in business relationships with customers or their purchases from us;
	·	the potential effects on our businesses from natural disasters;
	·	the availability of credit to customers and suppliers;
	·	competitive pressures on sales and pricing;
	·	unanticipated changes in the cost of inventory and other operating costs;
	·	the introduction of competing products;
	·	unexpected technical or marketing difficulties; unexpected claims, charges, litigation or dispute resolutions;
	·	new laws and governmental regulations; stock market and currency fluctuations;
	·	war, civil or political unrest or terrorism;
	·	the course of the COVID-19 pandemic and government responses thereto; and
	·	unanticipated deterioration of economic and financial conditions in the United States and around the world.

Exhibit No.		Description

2.1#		Asset Purchase Agreement, dated July 14, 2021, by and between Sanara MedTech Inc., as Purchaser, and Rochal Industries, LLC, as Seller (incorporated by reference to Exhibit 10.1 to the ~~Company’s~~ Current Report on Form 8-K of the Company filed on July 19, ~~2021).~~

~~3.1~~		~~Articles of Incorporation of Sanara MedTech Inc. (as amended through December 30, 2020) (incorporated~~2021 by ~~reference to Exhibit 3.1 to~~ the ~~Company’s Annual Report on Form 10-K filed on March 30, 2021)~~Company with the SEC).

~~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*		~~Modification Agreement to Loan Agreement, dated January 15, 2021, between the Company, as Borrower, and Cadence Bank, N.A, as Lender.~~

~~10.2~~10.1		Consulting Agreement, dated July 14, 2021, by and between Sanara MedTech Inc. and Ann Beal Salamone (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K of the Company filed on July 19, 2021 by the Company with the SEC).

31.1*		Certification of Principal Executive Officer in accordance with 18 U.S.C. Section 1350, as adopted by Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*		Certification of Principal Financial Officer in accordance with 18 U.S.C. Section 1350, as adopted by Section 302 of the Sarbanes-Oxley Act of 2002.

32.1**		Certification of Principal Executive Officer in accordance with 18 U.S.C. Section 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002.

32.2**		Certification of Principal Financial Officer in accordance with 18 U.S.C. Section 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002.

101.CAL		Inline XBRL Calculation Linkbase Document.

101.DEF		Inline XBRL Definition Linkbase Document.

101.LAB		Inline XBRL Label Linkbase Document.

101.PRE		Inline XBRL Presentation Linkbase Document.

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

*	Filed herewith

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

**	* Filed herewith # Schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. Sanara MedTech Inc. hereby undertakes to furnish supplementally copies of any of the omitted schedules upon request by the Securities and Exchange Commission. ** The certifications attached as Exhibit 32.1 and Exhibit 32.2 are not deemed “filed” with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of Sanara MedTech Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Annual Report on Form 10-K, irrespective of any general incorporation language contained in such filing.

	SANARA MEDTECH INC.

~~August 16,~~November 12, 2021	By:	/s/ Michael McNeil
		Michael McNeil
		Chief Financial Officer (Principal Financial Officer and duly authorized officer)