Sanara MedTech Inc. (SMTI)

ITEM 7. MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis contains forward-looking
statements about future revenues, operating results, plans and expectations. Forward-looking statements are based on a number of assumptions
and estimates that are inherently subject to significant risks and uncertainties and our results could differ materially from the results
anticipated by our forward-looking statements as a result of many known or unknown factors, including, but not limited to, those factors
discussed in Part I, Item 1A. Risk Factors. Also, please read the “Cautionary Statement Regarding Forward-Looking Statements”
set forth at the beginning of this Annual Report on Form 10-K.

In addition, the following discussion should be read in conjunction with
Part I of this Annual Report on Form 10-K as well as our Consolidated Financial Statements and the related Notes to Consolidated Financial
Statements contained elsewhere in this Annual Report on Form 10-K.

OVERVIEW

We are a medical technology company focused on developing
and commercializing transformative technologies to improve clinical outcomes and reduce healthcare expenditures in the surgical, chronic
wound and skincare markets. Our products, services and technologies are designed to achieve our goal of providing better clinical outcomes
at a lower overall cost for patients regardless of where they receive care. Through our two operating segments, Sanara Surgical and Tissue
Health Plus (“THP”), we strive to be one of the most innovative and comprehensive providers of effective surgical, wound
and skincare solutions and are continually seeking to expand our offerings for patients requiring treatments across the entire continuum
of care in the United States.

Change in Reportable Segments

Historically, we managed our business on the basis
of one operating and reportable segment. During the second quarter of 2024, we changed our reportable segments to reflect a change in
the manner in which the business is managed. Based on the growing importance of the value-based wound care program to our future outlook
and how our chief operating decision maker (“CODM”), the Chief Executive Officer, reviews operating results and makes decisions
about resource allocation, we now have two reportable segments: Sanara Surgical and THP.

Sanara Surgical

Our Sanara Surgical segment primarily markets and
sells soft tissue repair and bone fusion products for use in the operating room or other sterile environments. Sanara Surgical’s
soft tissue repair products include, among other products, our lead product, CellerateRX Surgical Activated Collagen (“CellerateRX
Surgical”), a hydrolyzed collagen that supports a local environment for surgical sites to aid in the natural wound healing process,
and BIASURGE Advanced Surgical Solution (“BIASURGE”), a sterile no-rinse, advanced surgical solution used for wound irrigation.
Sanara Surgical’s bone fusion products include, among other products, BiFORM Bioactive Moldable Matrix (“BiFORM”),
an osteoconductive, bioactive, porous implant that allows for bony ingrowth across the graft site, and ALLOCYTE Plus Advanced Viable
Bone Matrix (“ALLOCYTE Plus”), a human allograft cellular bone matrix containing bone-derived progenitor cells and conformable
bone fibers.

Our Sanara Surgical segment also includes an in-house
research and development team, Rochal Technologies, with an extensive pipeline of innovative products under development.

Tissue Health Plus

Our value-based care segment, THP, is focused on
value-based wound care services. Through THP, we plan to offer a first of its kind value-based wound care program to payers and risk-bearing
entities such as accountable care organizations and value-based primary care companies, with Medicare Advantage payers as the initial
target market for this program.

THP’s programs are expected to enable payers
to divest wound care spend risk, reduce wound related hospitalizations and improve patient quality of life. THP plans to coordinate delivery
of community and home-based wound care for its managed patients. Community based care spans a variety of settings, including physician
offices, skilled nursing facilities, assisted living facilities and senior living facilities. THP programs are intended to integrate
science and evidence-based medicine protocols to standardize wound prevention and treatment.

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Summary of Our Product, Service and Technology
Offerings and Development Programs

Sanara Surgical Products

Our Sanara Surgical segment markets and distributes
surgical, wound and skincare products to physicians, hospitals, clinics, and post-acute care settings. Our products are primarily sold
in the U.S. surgical tissue repair and advanced wound care markets. We believe we have the ability to drive our product pipeline from
concept to preclinical and clinical development while meeting quality and regulatory requirements. We are constantly seeking long-term
strategic partnerships with a focus on products that improve outcomes at a lower overall cost.

CellerateRX Surgical

CellerateRX Surgical is a medical hydrolysate of
Type I bovine collagen indicated for the management of surgical, traumatic, and partial and full-thickness wounds as well as first- and
second-degree burns. It is manufactured with a proprietary process. CellerateRX Surgical powder is sterilized, packaged and designed
specifically for use in the operating room or other sterile environment. CellerateRX Surgical products are primarily purchased by hospitals
and ambulatory surgical centers for use by surgeons on surgical wounds. The majority of CellerateRX Surgical products are used for a
variety of surgical wounds, including those associated with orthopedic, spine, trauma and oncologic procedures. Additional surgical wounds
that may benefit from the use of CellerateRX Surgical include cardiovascular, gynecologic, urologic, vascular and plastic/reconstructive related
procedures.

CellerateRX Surgical is used in operative cases where
patients might have trouble healing normally due to underlying health complications. There is always a risk of complication with surgical
wounds. This is especially true in patients with certain comorbidities, including obesity, diabetes and hypertension. These complications
can include surgical wound infections, dehiscence (where an incision opens after primary closure) and necrosis. Surgeons use CellerateRX
Surgical to complement the body’s normal healing process. By supporting the body to heal normally without complications, improved
patient outcomes are achieved, thereby reducing downstream costs related to complications (such as re-operation, longer hospitalization,
re-admittance, extended rehabilitative care and other additional treatments). Surgical wound complications have become increasingly problematic
due to the high rates of surgical patient comorbidities and the financial strain on insurance payors as well as hospitals who suffer
exorbitant costs for readmission of these patients within 90 days of surgery.

BIASURGE

BIASURGE is a 510(k) cleared sterile no-rinse,
advanced surgical solution used for wound irrigation. It contains an antimicrobial preservative effective against a broad spectrum
of pathogenic microorganisms in the solution. BIASURGE is indicated for use in the mechanical cleansing and removal of debris, including
microorganisms, from surgical wounds. First sales of BIASURGE occurred in November 2023.

FORTIFY TRG

FORTIFY TRG Tissue Repair Graft (“FORTIFY TRG”)
is a freeze-dried, multi-layer small intestinal submucosa extracellular matrix sheet. The graft is 510(k) cleared for implantation to
reinforce soft tissue, is terminally sterilized, has a thin profile, is available in multiple sizes, and can be cut to size to accommodate
the patient’s anatomy. FORTIFY TRG is provided sterile and can be hydrated with autologous blood fluid. First sales of this product
occurred in the fourth quarter of 2021.

FORTIFY FLOWABLE

FORTIFY FLOWABLE Extracellular Matrix (“FORTIFY
FLOWABLE”) is an advanced wound care device that presents small intestine submucosa extracellular matrix technology in a way that
can fill irregular wound shapes and depths. FORTIFY FLOWABLE is indicated for the management of wounds, including partial and full-thickness
wounds, pressure ulcers, venous leg ulcers, diabetic foot ulcers, chronic vascular ulcers, tunneled/undermined wounds, surgical wounds
(donor sites/grafts, post-Mohs surgery, post-laser surgery, podiatric, wound dehiscence sites), traumatic wounds (abrasions, lacerations,
second-degree burns, and skin tears) and draining wounds. FORTIFY FLOWABLE is provided sterile and is intended for one-time use. It is
a 510(k) cleared product. First sales of this product occurred in the first quarter of 2022.

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Other Surgical Products

TEXAGEN Amniotic Membrane Allograft is a multi-layer
amniotic membrane allograft used as an anatomical barrier with robust handling that can be sutured for securement if needed. BiFORM is
an osteoconductive, bioactive, porous implant that allows for bony ingrowth across the graft site. It can be hydrated and used as a strip
or molded into a putty to fill a bone defect. ACTIGEN Verified Inductive Bone Matrix is a naturally derived, differentiated allograft
matrix with robust handling properties. ALLOCYTE Plus is a human allograft cellular bone matrices containing bone-derived progenitor
cells and conformable bone fibers. These viable cellular allografts are ready to use upon thawing and have fibrous handling properties.

Tissue Health Plus Services and Technology

In June 2020, we formed a subsidiary, United Wound
and Skin Solutions, LLC (formerly known as “WounDerm”), to hold certain investments and operations in wound and skincare
virtual consult services. In 2024, United Wound and Skin Solutions, LLC was renamed to Tissue Health Plus, LLC. THP is continuing its
current mission to simplify skin health, starting with value-based wound care through a refined business plan. Through THP, we plan to
offer a first of its kind value-based wound care program to payers and risk-bearing entities such as accountable care organizations and
value-based primary care companies, with Medicare Advantage payers as the initial target segment for this program. THP services are
not expected to directly involve telemedicine or virtual consult services, and such services are no longer a primary focus of THP.

We anticipate that THP’s customer contracts
will have three-to-five-year terms. These contracts are expected to incorporate a mix of value-based pricing methodologies including
episodic, “per member per month,” and “fee for value” pricing. We believe this approach is aligned with the financial
goals of the payers and will help deliver outstanding clinical outcomes for the patients.

Our vision for our comprehensive approach consists
of three key sets of planned capabilities:

We are seeking partners to facilitate commercialization
of THP and share in the cost of development of the program.

SI Healthcare Technologies Joint Venture

In November 2022, we established a 50/50 joint venture,
SI Healthcare Technologies, LLC (“SI Technologies”) (formerly known as SI Wound Care, LLC), with InfuSystem Holdings, Inc.
(“InfuSystem”) focused on delivering a complete wound care solution targeted at improving patient outcomes, lowering the
cost of care, and increasing patient and provider satisfaction. The partnership is expected to enable InfuSystem to offer innovative
products, including our advanced wound care product line and Chemo Mouthpiece, a 510(k) cleared oral cryotherapy device that SI Technologies
currently has the right to distribute and sell in the United States.

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Tufts University License Agreement

In December 2023, we signed an exclusive license
agreement with Tufts University (“Tufts”) to develop and commercialize patented technology covering 18 unique collagen peptides.
As part of this agreement, we formed a new subsidiary, Sanara Collagen Peptides, LLC (“SCP”) and issued 10% of SCP’s
outstanding units to Tufts. SCP has exclusive rights to develop and commercialize new products based on the licensed patents and patents
pending. SCP will pay royalties to Tufts based on net sales of licensed products and technologies. Pursuant to the exclusive license
agreement, royalties will be calculated at a rate of 1.5% or 3%, depending on the type of product or technology developed. SCP will pay
Tufts a minimum annual royalty of $50,000 on January 1 of the year following the first anniversary of the first commercial sale of the
licensed products or technologies. SCP will pay Tufts a $100,000 minimum annual royalty on January 1 of each subsequent year during the
royalty term specified in the exclusive license agreement.

RECENT DEVELOPMENTS

CRG Term Loan

On April 17, 2024 (the “Closing Date”),
we, as borrower, entered into a Term Loan Agreement (the “CRG Term Loan Agreement”) with the subsidiary guarantors party
thereto from time to time (collectively, the “Guarantors”), CRG Servicing LLC as administrative agent and collateral agent
(the “Agent”), and the lenders party thereto from time to time, providing for a senior secured term loan of up to $55.0 million
(the “CRG Term Loan”). In April 2024, our first borrowing (the “First Borrowing”) under the CRG Term Loan of
$15.0 million was used to repay the Cadence Term Loan and to pay fees and expenses related to the CRG Term Loan Agreement. In September
2024, we borrowed an additional $15.5 million under the CRG Term Loan (the “Second Borrowing”), a portion of the proceeds
of which were used for the investment in ChemoMouthpiece, LLC (“CMp”) described below. On March 19, 2025, we and the Guarantors entered into the First Amendment to the Term Loan Agreement with the Agent
and the lenders party thereto from time to time (the “CRG Amendment”) to provide for up to two additional borrowings following
the Second Borrowing under the CRG Term Loan, which must occur on or prior to December 31, 2025, if at all.

ChemoMouthpiece Investment

On September 10, 2024, Sanara CMP LLC, a wholly owned
subsidiary of the Company (“Sanara CMP”), entered into a Unit Purchase Agreement (the “Unit Purchase Agreement”)
with CMp, pursuant to which Sanara CMP purchased 100,674.72 common units in CMp for an aggregate purchase price of $5.0 million, which
represented approximately 6.64% of the issued and outstanding membership interests of CMp immediately following such purchase. Subsequent
to our initial investment in CMp, units of CMp were sold to other investors, thereby decreasing our ownership of CMp to 6.59% as of December 31,
2024. CMp is a privately held medical device company that develops and commercializes propriety oral cryotherapy products for cancer
patients, including, among other things, CMp’s Chemo Mouthpiece oral cryotherapy device, which is a 510(k) cleared cryotherapy
device designed to reduce the incidence and severity of chemotherapy induced oral mucositis.

In connection with the Unit Purchase Agreement, we,
CMp, certain subsidiaries of CMp, InfuSystem and SI Technologies, entered into an Exclusive Distribution Agreement (the “Distribution
Agreement”) pursuant to which SI Technologies was appointed as the sole and exclusive U.S. distributor of CMp’s Standard
Chemo Regiment Kits, each kit consisting of the Chemo Mouthpiece oral cryotherapy device and associated materials used in the treatment
of oral mucositis (the “CMp Product”), for a term of five years, subject to meeting certain minimum order requirements.

The parties to the Distribution Agreement also entered
into an Intellectual Property Rights Agreement, pursuant to which SI Technologies was granted the exclusive right to use CMp’s
intellectual property rights to permit resale and use of the CMp Product in the United States.

BMI Investment

On January 16, 2025 (the “Execution Date”),
we entered into a Licensing and Distribution Agreement (the “BMI License Agreement”) with Biomimetic Innovation Limited,
a privately-held medical device company headquartered in Shannon, Co. Clare Ireland (“BMI”), pursuant to which we acquired
the exclusive U.S. marketing, sales and distribution rights to OsStic Synthetic Injectable Structural Bio-Adhesive Bone Void Filler (“OsStic”),
as well as an adjunctive internal fixation technology featuring novel delivery to promote targeted application of OsStic (“ARC”
and together with OsStic, the “BMI Products”), for use in the treatment of a wound or injury caused by a traumatic incident.
Pursuant to the BMI License Agreement, we were appointed by BMI as the exclusive distributor to promote, market, offer to sell, transfer,
distribute and sell the BMI Products for trauma indications inside the United States and its territories for an initial five-year term,
which term may be automatically renewed for successive two-year periods at our discretion, provided that we are in compliance with our
obligations thereunder (the “BMI Term”).

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In connection with the BMI License Agreement, on
the Execution Date, we entered into a Share Subscription and Shareholders’ Agreement (the “BMI Subscription Agreement”)
with The Russell Revocable Living Trust, BMI and the existing shareholders of BMI, pursuant to which we agreed to contribute up to approximately
€8.0 million to BMI through a series of capital contributions in exchange for an aggregate of 16,460 ordinary shares of BMI, constituting
approximately 12.5% of the outstanding equity of BMI as of the Execution Date. We made an initial cash investment totaling approximately
€3.0 million on the Execution Date, and our previously announced convertible loan to BMI was converted into €1.0 million of
equity in BMI. Pursuant to the BMI Subscription Agreement, the remaining €4.0 million contribution is due upon the achievement of
certain development, clinical and regulatory milestones (the “Milestones”), which are expected to occur at various points during 2025. For more information regarding the BMI License
Agreement and BMI Subscription Agreement, see the “Liquidity and Capital Resources” section below.

COMPONENTS OF RESULTS OF OPERATIONS

Sources of Revenue

Our revenue is derived primarily from sales of our
soft tissue repair and bone fusion products to hospitals and other acute care facilities. In particular, the substantial majority of
our product sales revenue is derived from sales of CellerateRX Surgical. Our revenue is driven by direct orders shipped by us to our
customers, and to a lesser extent, direct sales to customers through delivery at the time of procedure by one of our sales representatives.
We generally recognize revenue when a purchase order is received from the customer and our product is received by the customer. Prior
to 2024, we recognized royalty revenue from a development and licensing agreement with BioStructures, LLC. Under the terms of the development
and license agreement, royalties of 2% were recognized on sales of products containing our patented resorbable bone hemostasis. The minimum
annual royalty due to us was $201,000 per year throughout the life of the patent, which expired in 2023.

Revenue streams from product sales and royalties
are summarized below for the years ended December 31, 2024 and 2023.

Cost of Goods Sold

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

Operating Expenses

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

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

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

Change in fair value of earnout liabilities represents
our measurement of the change in fair value at the balance sheet date of our earnout liabilities that were established at the time of
our Precision Healing merger and acquisition of Scendia Biologics, LLC (“Scendia”).

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Other Income (Expense)

Other income (expense) is primarily comprised of
interest expense and other nonoperating activities.

RESULTS OF OPERATIONS

The following table presents certain information
about the results and Segment Adjusted EBITDA (as described below) of our reportable business segments. See Note 14, Segment Reporting,
in Part II, Item 8 of this report for more information on our reportable business segments:

Net Revenue. For the year ended
December 31, 2024, we generated net revenue of $86.7 million compared to net revenue of $65.0 million for the year ended
December 31, 2023, a 33% increase over the prior year. The higher net revenue in 2024 was primarily due to increased sales of
soft tissue repair products, including CellerateRX Surgical and BIASURGE, and certain bone fusion products as a result of our
increased market penetration, geographic expansion and our continuing strategy to expand our independent distribution network in
both new and existing U.S. markets. In addition, during the fourth quarter of 2024, we experienced a growth in sales of BIASURGE as
a result of supply chain issues and shortages of intravenous (“IV”) fluids and saline solutions due to Hurricane Helene.
BIASURGE revenues returned to normal levels in the first quarter of 2025 as access to IV fluids and saline solutions used for the
treatment of wound irrigation was restored.

Cost of Goods Sold. Cost of goods sold
for the year ended December 31, 2024 was $8.1 million compared to cost of goods sold of $7.9 million for the year ended December 31,
2023. The higher gross margins realized in 2024 were due to increased sales of soft tissue repair products, particularly CellerateRX
Surgical, and the elimination of royalties paid on the sales of CellerateRX Surgical as a result of the Applied Asset Purchase (as described
in further detail in the “Liquidity and Capital Resources” section below.

Gross Profit. On a consolidated
basis, we generated gross profit of $78.5 million for the
year ended December 31, 2024 compared to gross profit of $57.1 million for the year ended December 31, 2023, a 37.4%
increase over the prior year period. The higher gross profit in 2024 was primarily due to increased sales of soft tissue repair
products, particularly CellerateRX Surgical and BIASURGE, as a result of our increased market penetration and geographic expansion,
and our continuing strategy to expand our independent distribution network in both new and existing U.S. markets.

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Selling, general and administrative.
SG&A for the year ended December 31, 2024 was $76.6 million compared to SG&A of $57.0 million for the year ended December 31,
2023. The higher SG&A expenses in 2024 were primarily due to increased direct sales and marketing expenses, which accounted for approximately
$13.0 million of the increase compared to the prior year period. Our 2024 SG&A also included $4.9 million of costs related to the
buildout of our THP platform and infrastructure, $1.0 million of executive separation costs and $1.4 million of acquisition costs related
to prospective investments.

Research and development. R&D for
the year ended December 31, 2024 was $5.7 million compared to R&D of $4.1 million for the year ended December 31, 2023.
The higher R&D in 2024 was primarily due to development projects associated with surgical product candidates.

Depreciation and amortization. Depreciation
and amortization for the year ended December 31, 2024 was $4.9 million compared to depreciation and amortization of $3.7 million
for the year ended December 31, 2023. The increase in depreciation and amortization in 2024 was primarily due to amortization of
intangible assets acquired as part of the Applied Asset Purchase, which closed in August 2023, and a $0.5 million non-cash charge during
the fourth quarter of 2024 to write-off the remaining net book value of certain THP internal use software assets.

Change in fair value of earnout liabilities.
Change in fair value of earnout liabilities was a benefit of $1.9 million for the year ended December 31, 2024 compared
to a benefit of $3.4 million for the year ended December 31, 2023. The benefit recognized in 2024 was due to a decrease in the estimated
fair value of earnout liabilities associated with the Precision Healing merger, as well as adjustments to the projected timing of payments
related to the Applied Asset Purchase earnout.

Other expense. Other expense for the
year ended December 31, 2024 was $3.2 million compared to $0.2 million for the year ended December 31, 2023. Other expense
for the year ended December 31, 2024 primarily included higher interest expense and fees related to the CRG Term Loan.

Net loss. For the year ended December 31,
2024, we had a net loss of $9.9 million, compared to a net loss of $4.4 million for the year ended December 31, 2023. Our net loss
included $8.0 million and $4.9 million related to our THP segment for the year ended December 31, 2024 and 2023, respectively. The
higher net loss in 2024 was primarily due to higher costs related to the buildout of our THP platform and infrastructure, increased interest
expense related to the CRG Term Loan, lower benefits realized in connection with changes in fair value of earnout liabilities, and higher
amortization of our acquired intangible assets, partially offset by higher gross profit.

Segment Adjusted EBITDA. Segment Adjusted
EBITDA is the primary profitability measure used by the CODM for purposes of assessing financial performance and resource allocation.
We define Segment Adjusted EBITDA for the reportable segments as net income (loss) excluding interest expense/income, provision/benefit
for income taxes, depreciation and amortization, non-cash share-based compensation expense, change in fair value of earnout liabilities,
share of losses from equity method investments, executive separation costs, legal and diligence expenses related to acquisitions, and
gains/losses on the disposal of property and equipment, as each are applicable to the periods presented. We have historically presented this profitability measure as Segment EBITDA and, starting with the fourth quarter
ended December 31, 2024, are presenting it as Segment Adjusted EBITDA. The definition and methodology for calculating this measure has
remained unchanged. Segment Adjusted EBITDA is a
non-GAAP measure and should be considered in addition to, not as a substitute for, net income (loss), cash flow and other measures of
financial performance reported in accordance with GAAP.

We believe Segment Adjusted EBITDA is useful to investors
because it facilitates comparisons of our core business operations across periods on a consistent basis. Accordingly, we adjust for certain
items, such as change in fair value of earnout liabilities, when calculating Segment Adjusted EBITDA because we believe that such items
are not related to our core business operations. We do not, nor do we suggest that investors should, consider these non-GAAP financial
measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Material limitations associated
with the use of such measures include that they do not reflect all costs included in operating expenses and may not be comparable with
similarly named financial measures of other companies. Furthermore, these non-GAAP financial measures are based on subjective determinations
of management regarding the nature and classification of events and circumstances. We present these non-GAAP financial measures to provide
investors with information to evaluate our operating results in a manner similar to how management evaluates business performance. To
compensate for any limitations in such non-GAAP financial measures, management believes that it is useful in understanding and analyzing
the results of the business to review both GAAP information and the related non-GAAP financial measures.

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The following table provides a reconciliation of
net income (loss) to Segment Adjusted EBITDA for our business segments for the periods indicated below:

(1) Includes a $506,836 non-cash charge during the fourth quarter
of 2024 to write-off the remaining net book value of certain THP internal use software assets.

(2) Includes $328,795 of share-based compensation related to
executive separation costs for the year ended December 31, 2024.

(3) Acquisition costs include legal, tax and accounting services
related to prospective acquisitions.

For the year ended December 31, 2024, our Segment
Adjusted EBITDA was $2.7 million compared to $0.1 million for the year ended December 31, 2023. Our Segment Adjusted EBITDA included
$(6.5) million and $(5.2) million related to our THP segment for the year ended December 31, 2024 and 2023, respectively. The higher
Segment Adjusted EBITDA in 2024 was primarily due to higher net revenue and gross profit as discussed above.

LIQUIDITY AND CAPITAL RESOURCES

Cash on hand at December 31, 2024 was $15.9
million, compared to $5.1 million at December 31, 2023. Historically, we have financed our operations primarily from borrowings
under our credit facilities and the sale of equity securities. We expect to continue to investment in the THP strategy in
preparation for launch of our first pilot program with a wound care provider group during the second quarter of 2025. We expect our continued investment over the first half of 2025 is currently estimated at $7.5
million to $10.0 million. We are pursuing financial partners to invest in the execution of this strategy.

We expect our future needs for cash to include the
funding of our additional investment in THP, potential acquisitions, further development of our products, services and technologies pipeline,
clinical studies, repayment of debt as it becomes due and for general corporate purposes. If we seek to consummate acquisitions in the
future, we expect to finance such acquisitions with the proceeds from equity or debt issuances. Based on our current plan of operations,
we believe our cash on hand, when combined with expected cash flows from operations and available proceeds from the CRG Term Loan discussed
herein, will be sufficient to fund our growth strategy and to meet our anticipated operating expenses and capital expenditures for at
least the next 12 months. As of December 31, 2024, there was $24.5 million available for future borrowing under the CRG Term Loan.

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At-the-Market Offering

In February 2023, we entered into a Controlled Equity
OfferingSM Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co., as sales agent (“Cantor”),
pursuant to which we could offer and sell from time to time, to or through Cantor, shares of our common stock having an aggregate offering
price of up to $75.0 million.

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

In 2023, we sold an aggregate of 26,143 shares of
common stock for gross proceeds of approximately $1.1 million and net proceeds of approximately $0.9 million pursuant to the Sales Agreement.
We paused the offering at the end of the first quarter of 2023 and did not reactivate it during the remainder of 2023. The Registration
Statement on Form S-3 relating to this offering expired in January 2024.

Applied Asset Purchase

On August 1, 2023, we entered into an asset purchase
agreement (the “Applied Purchase Agreement”) by and among the Company, Sanara MedTech Applied Technologies, LLC (“SMAT”),
The Hymed Group Corporation, Applied and Dr. George D. Petito (the “Owner”), pursuant to which SMAT acquired certain assets
of the Sellers and the Owner, including, among others, the Sellers’ and Owner’s inventory, intellectual property, manufacturing
and related equipment, goodwill, rights and claims, other than certain excluded assets (the “Applied Purchased Assets”) and
assumed certain Assumed Liabilities (as defined in the Applied Purchase Agreement) upon the terms and subject to the conditions set forth
in the Applied Purchase Agreement. The transaction closed on August 1, 2023. The Applied Purchased Assets were purchased for an initial
aggregate purchase price of $15.25 million, consisting of (i) $9.75 million in cash (the “Cash Closing Consideration”), (ii)
73,809 shares of our common stock, with an agreed upon value of $3.0 million (the “Stock Closing Consideration”) and (iii)
$2.5 million in cash, to be paid in four equal installments on each of the next four anniversaries of the Closing (the “Installment
Payments”). The first Installment Payment of $625,000 was made in August 2024.

In addition to the Cash Closing Consideration, Stock
Closing Consideration and Installment Payments, the Applied Purchase Agreement provides that the Sellers are entitled to receive up to
an additional $10.0 million (the “Applied Earnout”), which is payable to the Sellers in cash, upon the achievement of certain
performance thresholds relating to SMAT’s collections from net sales of a collagen-based product currently under development. Upon
expiration of the seventh anniversary of the Closing, to the extent the Sellers have not earned the entirety of the Applied Earnout,
SMAT shall pay the Sellers a pro-rata amount of the Applied Earnout based on collections from net sales of the product, with such amount
to be due credited against any Applied Earnout payments already made by SMAT (the “True-Up Payment”). The Applied Earnout,
minus the True-Up Payment and any Applied Earnout payments already made by SMAT, may be earned at any point in the future, including
after the True-Up Payment is made.

Cadence Loan Agreement

On August 1, 2023, we, as guarantor, and our wholly
owned subsidiary SMAT, as borrower, entered into a loan agreement (the “Cadence Loan Agreement”) with Cadence Bank (“Cadence”)
that provided for, among other things, a term loan in the aggregate principal amount of up to $12.0 million, which was evidenced by an
advancing promissory note. Pursuant to the Cadence Loan Agreement, Cadence agreed to make, at any time and from time to time prior to
February 1, 2024, one or more advances to SMAT. On August 1, 2023, Cadence made an advance under the Cadence Term Loan for $9.75 million,
the proceeds of which were used to fund the Cash Closing Consideration for the Applied Asset Purchase. The Cadence Term Loan Agreement was terminated and all outstanding amounts under the Cadence Term Loan were repaid
in full and all security interest and other liens granted to or held by Cadence were terminated and released in April 2024.

CRG Term Loan Agreement

On April 17, 2024, we entered into the CRG Term Loan
Agreement by and among us, as borrower, the Guarantors, the Agent and the lenders party thereto from time to time, providing for a senior
secured term loan of up to $55.0 million. On the Closing Date, the First Borrowing of $15.0 million was made to repay the Cadence Term
Loan and to pay certain fees and expenses related to the CRG Loan Agreement. The remaining proceeds of $4.5 million were distributed
to us. As a result, the Cadence Term Loan Agreement was terminated and all outstanding amounts under the Cadence Term Loan were repaid
in full and all security interest and other liens granted to or held by Cadence were terminated and released.

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On September 4, 2024, pursuant to our option
under the CRG Term Loan Agreement, we borrowed an additional $15.5 million under the CRG Term Loan Agreement (the “Second
Borrowing”). We used $5.0 million of the proceeds of the Second Borrowing for the investment in CMp (discussed in more detail
below). Prior to the CRG Amendment, pursuant to the CRG Term Loan Agreement, we were entitled to one additional borrowing, which was
required to occur on or prior to June 30, 2025 and be at least $5.0 million or a multiple of $5.0 million. On March 19, 2025, we entered into the CRG Amendment, which amended the CRG Term Loan Agreement to, among other
things, (i) entitle us to two additional borrowings following the Second Borrowing, which borrowings must occur on or prior to December
31, 2025, if at all, and (ii) remove the requirement that any borrowing be in whole multiples of $5.0 million. Any additional borrowings
under the CRG Term Loan will be subject to the satisfaction of certain conditions, including the Agent having received certain fees.

The First Borrowing, Second Borrowing and any additional
borrowings under the CRG Term Loan are due and payable on March 30, 2029 (the “Maturity Date”), absent any acceleration.

The CRG Term Loan bears interest at a per annum rate
equal to 13.25% (subject to a 4.0% increase during an event of default), of which 8.00% must be paid in cash and 5.25% may, at our election,
be deferred through the 19th quarterly Payment Date (defined below) by adding such amount to the aggregate principal loan
amount, so long as no default or event of default under the CRG Term Loan Agreement has occurred and is continuing. We are required to
make quarterly interest payments on the final business day of each calendar quarter following the Closing Date, commencing on the first
such date to occur at least 30 days after the Closing Date (each, a “Payment Date”). Interest is payable on each Payment
Date in arrears with respect to the time between each Payment Date and upon the payment or prepayment of the CRG Term Loan, ending on
the Maturity Date. In addition, we are required to pay an upfront fee of 1.50% of the principal amount of the CRG Term Loan, which is
payable as amounts are advanced under the CRG Term Loan on a pro rata basis. We are also required to pay a back-end fee equal to 7.00%
of the aggregate principal amount advanced under the CRG Term Loan Agreement. We paid upfront fees of $225,000 on the Closing Date related
to the First Borrowing and $232,500 of upfront fees on September 4, 2024 related to the Second Borrowing. As of December 31, 2024, there
was $30.5 million of principal outstanding and $24.5 million available for future borrowing under the CRG Term Loan.

Subject to certain exceptions, we are required to
make mandatory prepayments of the CRG Term Loan with the proceeds of certain assets sales and in the event of a change of control of
the Company. In addition, we may make a voluntary prepayment of the CRG Term Loan, in whole or in part, at any time. All mandatory and
voluntary prepayments of the CRG Term Loan are subject to the payment of prepayment premiums as follows: (i) if prepayment occurs on
or prior to the date that is one year following the applicable borrowing (the “Borrowing Date”), an amount equal to 10.0%
of the aggregate outstanding principal amount of the Loan being prepaid and (ii) if prepayment occurs one year after the applicable Borrowing
Date and on or prior to two years following the applicable Borrowing Date, an amount equal to 5.0% of the aggregate outstanding principal
amount of the CRG Term Loan being prepaid. No prepayment premium is due on any principal prepaid if prepayment occurs two years or more
after the applicable Borrowing Date.

Certain of our current and future subsidiaries, including
the Guarantors, are guaranteeing our obligations under the CRG Term Loan Agreement. As security for our obligations under the CRG Term
Loan Agreement, on the Closing Date, we and the Guarantors entered into a security agreement with the Agent pursuant to which we and
the Guarantors granted to the Agent, as collateral agent for the lenders, a lien on substantially all of our and the Guarantors’
assets, including intellectual property (subject to certain exceptions).

The CRG Term Loan Agreement contains affirmative
and negative covenants customary for financings of this type, including limitations on our and the Guarantors’ abilities, among
other things, to incur additional debt, grant or permit additional liens, make investments and acquisitions above certain thresholds,
merge or consolidate with others, dispose of assets, pay dividends and distributions and enter into affiliate transactions, in each case,
subject to certain exceptions. In addition, the CRG Term Loan Agreement contains the following financial covenants requiring us and the
Guarantors in the aggregate to maintain:

As of December 31, 2024, we were in compliance
with all debt covenants.

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ChemoMouthpiece Investment

On September 10, 2024, Sanara CMP entered into the
Unit Purchase Agreement with CMp, pursuant to which Sanara CMP purchased 100,674.72 common units in CMp for an aggregate purchase price
of $5.0 million, or $49.6649 per unit, which represented approximately 6.64% of the issued and outstanding membership interests of CMp
immediately following such purchase. Subsequent to our initial investment in CMp, additional units of CMp were sold to other investors,
thereby decreasing our ownership of CMp to 6.59% as of December 31, 2024.

In connection with the Unit Purchase Agreement, we,
CMp, certain subsidiaries of CMp, InfuSystem and SI Technologies, entered into the Distribution Agreement pursuant to which SI Technologies
was appointed as the sole and exclusive U.S. distributor of the CMp Product for a term of five years, subject to meeting certain minimum
order requirements.

The parties to the Distribution Agreement also entered
into an Intellectual Property Rights Agreement, pursuant to which SI Technologies was granted the exclusive right to use CMp’s
intellectual property rights to permit resale and use of the CMp Product in the United States.

BMI Investment

On January 16, 2025, we entered into the BMI License
Agreement with BMI, pursuant to which we acquired the exclusive U.S. marketing, sales and distribution rights to OsStic, as well as ARC,
for use in the treatment of a wound or injury caused by a traumatic incident.

Pursuant to the License Agreement, we were appointed
by BMI as the exclusive distributor to promote, market, offer to sell, transfer, distribute and sell the BMI Products for trauma indications
inside the United States and its territories for the BMI Term, provided that we are in compliance with its obligations thereunder. From
the Execution Date until October 13, 2025, we have an exclusive option to negotiate exclusive distribution rights for the BMI Products
in additional fields and/or additional territories on substantially the same terms as those set forth in the BMI License Agreement.

The BMI License Agreement requires that we pay BMI
Quarterly Royalties based on a percentage of the Net Sales Value (as defined in the License Agreement) of the Products during the BMI
Term, with the applicable percentage of the Net Sales Value for OsStic being in the mid-single digit range. Pursuant to the BMI License
Agreement, we and BMI agreed to negotiate the applicable percentage of the Net Sales Value for ARC at a future date. The BMI License
Agreement also requires that we pay BMI minimum royalty payments being in the low to mid six figure range for the first, second and third
years, respectively, following the receipt of first regulatory approval for the marketing and sale of a Product.

In connection with the BMI License Agreement, on
the Execution Date, we entered into the Subscription Agreement, pursuant to which we agreed to contribute up to approximately €8.0
million to BMI through a series of capital contributions in exchange for an aggregate of 16,460 ordinary shares of BMI, constituting
approximately 12.5% of the outstanding equity of BMI as of the Execution Date. We made an initial cash investment totaling approximately
€3.0 million on the Execution Date, and the Company’s previously announced convertible loan to BMI was converted into €1.0
million of equity in BMI. Pursuant to the Subscription Agreement, the remaining €4.0 million contribution is due upon the achievement
of the Milestones, which are expected to occur at various points during 2025.

Cash Flow Analysis

For the year ended December 31, 2024, net cash
used in operating activities was $23,784 compared to $3.2 million used in operating activities for the year ended December 31, 2023.
The lower use of cash in operating activities in 2024 was largely due to our net revenue growth outpacing the growth of our cash operating
expenses and partly due to the timing of cash expenditures for certain accrued payables.

For the year ended December 31, 2024, net cash
used in investing activities was $6.6 million compared to $10.2 million used in investing activities during the year ended December 31,
2023. Cash used in investing activities during 2024 primarily included $5.3 million for our investment in CMp and $1.1 million for the
funding of a convertible loan related to our minority investment in BMI. Cash used in investing activities during 2023 primarily included
$9.9 million used for the Applied Asset Purchase.

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For the year ended December 31, 2024, net cash
provided by financing activities was $17.4 million compared to $9.6 million provided by financing activities for the year ended December 31,
2023. The increase in cash provided by financing activities during the year ended December 31, 2024 was due to the receipt of proceeds
from the CRG Term Loan, which were partially offset by the payoff of the Cadence Term Loan and the final earnout payment of approximately
$1.1 million related to the Scendia earnout.

MATERIAL TRANSACTIONS WITH RELATED PARTIES

CellerateRX Surgical Sublicense Agreement

On August 1, 2023, we acquired, among other things,
the underlying intellectual property of, as well as the rights to manufacture and sell, CellerateRX Surgical from Applied for human wound
care use. Prior to such time, we had licensed the rights to these products through a sublicense agreement (the “Sublicense Agreement”)
with CGI Cellerate RX, LLC (“CGI Cellerate RX”), an affiliate of The Catalyst Group, Inc. (“Catalyst”), both
of which are related parties. Prior to the Applied Asset Purchase, we paid royalties based on the annual Net Sales of licensed products
(as defined in the Sublicense Agreement) consisting of 3% of all collected Net Sales each year up to $12.0 million, 4% of all collected
Net Sales each year that exceed $12.0 million up to $20.0 million, and 5% of all collected Net Sales each year that exceed $20.0 million.
Ronald T. Nixon, our Chief Executive Officer and Executive Chairman, is the founder and managing partner of Catalyst.

In connection with the Applied Asset Purchase, Applied
assigned its license agreement with CGI Cellerate RX to SMAT (the “License Agreement”), and on October 10, 2024, the License
Agreement and the Sublicense Agreement were terminated for no additional consideration.

Consulting Agreement

In July 2021, we entered into an asset purchase agreement
with Rochal, a related party. Concurrent with the Rochal asset purchase, we entered into a consulting agreement with Ann Beal Salamone
pursuant to which Ms. Salamone agreed to provide us with consulting services with respect to, among other things, writing new patents,
conducting patent intelligence and participating in certain grant and contract reporting. In consideration for the consulting services
to be provided to us, Ms. Salamone is entitled to receive an annual consulting fee of $177,697, with payments to be paid once per month.
The consulting agreement had an initial term of three years, unless earlier terminated by us, and is subject to renewal. Effective July
13, 2024, the consulting agreement with Ms. Salamone was amended to provide that the initial term shall be automatically renewed for
successive one-year terms for up to three successive years unless earlier terminated by either party without cause at any time, provided
that the terminating party provides 90 days advance written notice of termination. Ms. Salamone is a director of the Company, is a significant
shareholder and the current chair of the board of directors of Rochal.

Catalyst Transaction Advisory Services Agreement

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

Pursuant to the Catalyst Services Agreement, we agreed
to reimburse Catalyst for (i) compensation actually paid by Catalyst to any of the Covered Persons at a rate no more than a rate consistent
with industry practice for the performance of services similar to the Catalyst Services, as documented in reasonably sufficient detail,
and (ii) all reasonable out-of-pocket costs and expenses payable to unaffiliated third parties, as documented in customary expense reports,
as each of (i) and (ii) is incurred in connection with the Catalyst Services rendered under the Catalyst Services Agreement, with all
reimbursements being contingent upon the prior approval of the Audit Committee of our Board of Directors. We incurred costs relating
to the Catalyst Services Agreement of $288,594 and $174,486 during year ended December 31, 2024 and 2023, respectively.

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Receivables and Payables

We had outstanding related party receivables totaling
$40,566 at December 31, 2024 and $8,400 at December 31, 2023. We had outstanding related party payables totaling $30,913 at
December 31, 2024 and $77,805 at December 31, 2023.

IMPACT OF INFLATION AND CHANGING PRICES

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

CRITICAL ACCOUNTING ESTIMATES

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 United States. The preparation of these consolidated financial statements requires us to make estimates
and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date
of the consolidated financial statements, and the reported revenue and expenses during the reporting period. 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
estimates 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.

Inventories

Inventories are stated at the lower of cost or net
realizable value, with cost computed on a first-in, first-out basis. Inventories consist primarily of finished goods, and also include
an immaterial amount of raw materials and related packaging components. We recorded inventory obsolescence expense of $521,757 for the
year ended December 31, 2024 and $406,812 for the year ended December 31, 2023. The allowance for obsolete and slow-moving inventory
had a balance of $534,549 at December 31, 2024 and $446,917 at December 31, 2023.

Goodwill

The excess of purchase price over the fair value
of identifiable net assets acquired in business combinations is recorded as goodwill. As of December 31, 2024 and 2023, all of our
goodwill relates to the acquisition of Scendia. Goodwill has an indefinite useful life and is not amortized. Goodwill is tested annually
as of December 31 for impairment, or more frequently if circumstances indicate impairment may have occurred. We may first perform a qualitative
assessment to determine if it is more likely than not that the fair value of the reporting unit is less than the respective carrying
value. If it is determined that it is more likely than not that a reporting unit’s fair value is less than its carrying value,
then we will determine the fair value of the reporting unit and record an impairment charge for the difference between fair value and
carrying value (not to exceed the carrying amount of goodwill). No impairment was recorded during the years ended December 31, 2024
or 2023.

Impairment of Long-Lived Assets

Long-lived assets, including certain identifiable
intangibles held and to be used by us, are reviewed for impairment whenever events or changes in circumstances 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 fair value less cost to sell. A $0.5 million non-cash charge to write-off
the remaining net book value of certain THP internal use software assets was recorded during the year ended December 31, 2024. No
impairment was recorded during the year ended December 31, 2023.

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Investments in Equity Securities

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

We apply the equity method of accounting for investments
when we have 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. As discussed further in Note 6, as of December 31, 2024, we
had two investments that are recorded applying the equity method of accounting. Our proportionate share of the net income (loss) resulting
from these investments is reported under the line item captioned “Share of losses from equity method investments” in our
Consolidated Statements of Operations. Our equity method investments are adjusted each period for our share of the investee’s income
or loss and dividend paid, if any. We classify distributions received from our equity method investments using the cumulative earnings
approach in our Consolidated Statements of Cash Flows.

We reviewed the carrying value of our investments
and determined there was no impairment or observable price changes as of and for the years ended December 31, 2024 and 2023.

Income Taxes

We account for income taxes in accordance with ASC
Topic No. 740, Income Taxes. This standard requires us to provide a net deferred tax asset or liability equal to the expected future
tax benefit or expense of temporary reporting differences between book and tax accounting and any available operating loss or tax credit
carry forwards. A valuation allowance is provided if it is more likely than not that some or all of a net deferred tax asset will not
be realized.

Off-Balance Sheet Arrangements

None.

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

The
following discussion and analysis contains forward-looking statements about future revenues, operating results, plans and expectations.
Forward-looking statements are based on a number of assumptions and estimates that are inherently subject to significant risks and uncertainties
and our results could differ materially from the results anticipated by our forward-looking statements as a result of many known or unknown
factors, including, but not limited to, those factors discussed in Part I, Item 1A. Risk Factors. Also, please read the “Cautionary
Statement Regarding Forward-Looking Statements” set forth at the beginning of this Annual Report on Form 10-K.

In
addition, the following discussion should be read in conjunction with Part I of this Annual Report on Form 10-K as well as our Consolidated
Financial Statements and the related Notes to Consolidated Financial Statements contained elsewhere in this Annual Report on Form 10-K.

Overview

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

We
currently market several products across surgical and chronic wound care applications and have multiple products in our pipeline. On
August 1, 2023, we acquired, among other things, the underlying intellectual property of, as well as the rights to manufacture and sell,
CellerateRX Surgical Activated Collagen (“CellerateRX Surgical”), our primary product, and HYCOL Hydrolyzed Collagen (“HYCOL”)
from Applied Nutritionals, LLC (“Applied”) for human wound care use (for more information regarding this acquisition, see
the “Recent Acquisitions” section below). Prior to such time, we had licensed the rights to these products through a sublicense
agreement (the “Sublicense Agreement”) with CGI Cellerate RX, LLC (“CGI Cellerate RX”), an affiliate of The Catalyst
Group, Inc. (“Catalyst”), both of which are related parties. In connection with the asset purchase, Applied assigned its
license agreement with CGI Cellerate RX to a wholly owned subsidiary of the Company. We also license certain products from Rochal Industries,
LLC (“Rochal”) and Cook Biotech Inc. (“Cook Biotech”).

In
April 2022, we entered into a merger agreement through which Precision Healing Inc. (“Precision Healing”) became a wholly
owned subsidiary of the Company. Precision Healing is developing a diagnostic imager and lateral flow assay (“LFA”) for assessing
a patient’s wound and skin conditions. This comprehensive wound and skin assessment technology is designed to quantify biochemical
markers to determine the trajectory of a wound’s condition to enable better diagnosis and treatment protocol. In December 2023,
we received 510(k) clearance from the U.S. Food and Drug Administration (“FDA”) for the Precision Healing diagnostic imager.
We are currently evaluating regulatory pathways for the Precision Healing LFA.

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

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

In
November 2023, we launched BIASURGE Advanced Surgical Solution (“BIASURGE”). BIASURGE is a no-rinse, advanced surgical solution
used for wound irrigation. It contains an antimicrobial preservative effective against a broad spectrum of pathogenic microorganisms.
BIASURGE is indicated for use in the mechanical cleansing and removal of debris, including microorganisms, from surgical wounds.

41

Comprehensive
Value-Based Care Strategy

In
June 2020, we formed a subsidiary, United Wound and Skin Solutions, LLC (formerly known as “WounDerm”), to hold certain investments
and operations in wound and skincare virtual consult services. In 2023, WounDerm was renamed and is now doing business as “Tissue
Health Plus” (“THP”). THP is continuing its current mission to simplify skin health, starting with wound care through
a refined business plan. Through THP, we plan to offer a first of its kind value-based wound care program to payers and risk-bearing
entities such as accountable care organizations and value-based care (“VBC”) primary care companies, with Medicare Advantage
payers as the initial target segment for this program.

THP’s
programs are expected to enable payers to divest wound care spend risk, reduce wound related hospitalizations and improve patient quality
of life. THP plans to coordinate delivery of community and home-based wound care for its managed patients. Community based care spans
a variety of settings including physician offices, skilled nursing homes, assisted living facilities and senior living facilities. THP
programs are intended to integrate science and evidence-based medicine protocols to standardize wound prevention and treatment.

We
anticipate that THP’s customer contracts will have three-to-five-year terms. These contracts are expected to incorporate a mix
of value-based pricing methodologies including episodic, “per member per month”, and “fee for value” pricing.
We believe this approach is aligned with the financial goals of the payers and will help deliver outstanding clinical outcomes for the
patients.

Our
vision for our comprehensive approach consists of three key sets of planned capabilities:

We
are seeking a partner to facilitate commercialization of Tissue Health Plus and share in the cost of development of the program. Excluding noncash items, our full year operating expenses for THP in 2023 were approximately $5.2 million.

Recent
Acquisitions

Precision
Healing

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

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

Scendia

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

Pursuant
to the purchase agreement, the aggregate consideration at closing for the acquisition was $7.6 million, which consisted of (i) a $1.6
million cash payment, subject to certain adjustments, and (ii) 291,686 shares of our common stock, with an agreed upon value of $6.0
million. Pursuant to the purchase agreement, at closing, we withheld 94,798 shares of common stock with an agreed upon value of $1.95
million (the “Indemnity Holdback Shares”), which such Indemnity Holdback Shares were withheld to the extent provided in the
purchase agreement to satisfy Phillips’ indemnification obligations and subsequently issued and released to Phillips in July 2023.

In
addition to the cash and stock consideration, the purchase agreement provides that Phillips is entitled to receive two potential earnout
payments, payable on an annual basis, not to exceed $10.0 million in the aggregate. The earnout consideration is payable to Phillips
in cash or, at our election, in up to 486,145 shares of our common stock upon the achievement of certain performance thresholds relating
to net revenue attributable to sales of Scendia products during the two-year period following the closing. We made the first earnout
payment of approximately $693,000 in cash in August 2023. We expect the final earnout payment to be made in the third quarter of 2024.

42

Applied
Asset Purchase

On
August 1, 2023, we entered into an Asset Purchase Agreement (the “Applied Purchase Agreement”) by and among the Company,
as guarantor, Sanara MedTech Applied Technologies, LLC, a wholly owned subsidiary of the Company (“SMAT”), Applied, The Hymed
Group Corporation (“Hymed” and together with Applied, the “Sellers”), and Dr. George D. Petito (the “Owner”),
pursuant to which SMAT acquired certain assets of the Sellers and the Owner including the Sellers’ and Owner’s inventory,
intellectual property, manufacturing and related equipment, goodwill, rights and claims, other than certain excluded assets, all as more
specifically set forth in the Applied Purchase Agreement (collectively, the “Applied Purchased Assets”), and assumed certain
Assumed Liabilities (as defined in the Applied Purchase Agreement), upon the terms and subject to the conditions set forth in the Applied
Purchase Agreement (such transaction, the “Applied Asset Purchase”). The Applied Purchased Assets include the underlying
intellectual property of, as well as the rights to manufacture and sell, CellerateRX Surgical and HYCOL products for human wound care
use.

The
Applied Purchased Assets were purchased for an initial aggregate purchase price of $15.25 million, consisting of (i) $9.75 million in
cash (the “Cash Closing Consideration”), (ii) 73,809 shares of our common stock (the “Stock Closing Consideration”)
with an agreed upon value of $3.0 million and (iii) $2.5 million in cash (the “Installment Payments”), to be paid in four
equal installments on each of the next four anniversaries of the closing of the Applied Asset Purchase (the “Closing”).

In
addition to the Cash Closing Consideration, Stock Closing Consideration and Installment Payments, the Applied Purchase Agreement provides
that the Sellers are entitled to receive up to an additional $10.0 million (the “Applied Earnout”), which is payable to the
Sellers in cash, upon the achievement of certain performance thresholds relating to SMAT’s collections from net sales of a collagen-based
product currently under development. Upon expiration of the seventh anniversary of the Closing, to the extent the Sellers have not earned
the entirety of the Applied Earnout, SMAT shall pay the Sellers a pro-rata amount of the Applied Earnout based on collections from net
sales of the product, with such amount to be due credited against any Applied Earnout payments already made by SMAT (the “True-Up
Payment”). The Applied Earnout, minus the True-Up Payment and any Applied Earnout payments already made by SMAT, may be earned
at any point in the future, including after the True-Up Payment is made.

In
connection with the Applied Asset Purchase and pursuant to the Applied Purchase Agreement, effective August 1, 2023, we entered into
a professional services agreement (the “Petito Services Agreement”) with the Owner, pursuant to which the Owner, as an independent
contractor, agreed to provide certain services to us, including, among other things, assisting with the development of products already
in development and assisting with research, development, formulation, invention and manufacturing of any future products (the “Petito
Services”). As consideration for the Petito Services, the Owner is entitled to receive: (i) a base salary of $12,000 per month
during the term of the Petito Services Agreement, (ii) a royalty payment equal to three percent (3%) of the actual collections from net
sales of certain products the Owner develops or co-develops that reach commercialization, (iii) a royalty payment equal to five percent
(5%) for the first $50.0 million in aggregate collections from net sales of certain future products and a royalty payment of two and
one-half percent (2.5%) on aggregate collections from net sales of certain future products on any amounts exceeding $50.0 million but
up to $100.0 million, (iv) $500,000 in cash in the event that 510(k) clearance is issued for any future product accepted by the Company
and (v) $1.0 million in cash in the event that a U.S. patent is issued for a certain product; provided that with respect to the incentive
payments described in (iv) and (v) of the foregoing, the Owner shall not earn more than $2.5 million. The Petito Services Agreement has
an initial term of three years and is subject to automatic successive one-month renewals unless earlier terminated in accordance with
its terms. The Petito Services Agreement may be terminated upon the Owner’s death or disability or by us or the Owner “For
Cause” (as defined in the Petito Services Agreement); provided, however, that the base salary described in (i) of the foregoing
paragraph shall survive termination through the three-year initial term and the royalty payments and incentive payments described in
(ii)-(v) of the foregoing paragraph shall survive termination of the Petito Services Agreement.

Recent
Developments

Loan
Agreement

In
connection with the entry into the Applied Purchase Agreement, on August 1, 2023, we, as guarantor, and SMAT, as borrower, entered into
a loan agreement (the “Loan Agreement”) with Cadence Bank (the “Bank”) providing for, among other things, an
advancing term loan in the aggregate principal amount of $12.0 million (the “Term Loan”). Pursuant to the Loan Agreement,
the Bank agreed to make, at any time and from time to time prior to February 1, 2024, one or more advances to SMAT. On August 1, 2023,
the Bank made an advance under the Term Loan for $9.75 million, the proceeds of which were used to fund the Cash Closing Consideration
for the Applied Asset Purchase. For more information regarding the Loan Agreement, see the “Liquidity and Capital Resources”
section below.

Tufts
University License Agreement

In
December 2023, we signed an exclusive license agreement with Tufts University (“Tufts”) to develop and commercialize patented
technology covering 18 unique collagen peptides. As part of this agreement, we formed a new subsidiary, Sanara Collagen Peptides, LLC
(“SCP”) and have issued 10% of SCP’s outstanding units to Tufts. SCP has exclusive rights to develop and commercialize
new products based on the licensed patents and patents pending. SCP will pay royalties to Tufts based on net sales of licensed products
and technologies. Pursuant to the exclusive license agreement, royalties will be calculated at a rate of 1.5% or 3%, depending on the
type of product or technology developed. SCP will pay Tufts a minimum annual royalty of $50,000 on January 1 of the year following the
first anniversary of the first commercial sale of the licensed products or technologies. SCP will pay Tufts a $100,000 minimum annual
royalty on January 1 of each subsequent year during the royalty term specified in the exclusive license agreement.

43

Components
of Results of Operations

Sources
of Revenues

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

Revenue
streams from product sales and royalties are summarized below for the years ended December 31, 2023 and 2022.

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

Cost
of Goods Sold

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

Operating
Expenses

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

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

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

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

44

Other
Income (Expense)

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

Results
of Operations

Net
Revenues. For the year ended December 31, 2023, we generated net revenues of $65.0 million compared to net revenues of $45.8
million for the year ended December 31, 2022, a 42% increase from the prior year. The higher net revenue for 2023 was primarily due to
increased sales of soft tissue repair products, including CellerateRX, and bone fusion products as a result of our increased market penetration, geographic expansion, and our continuing strategy to expand our independent
distribution network in both new and existing U.S. markets.

During
the third quarter of 2022, we began to experience supply issues with the ALLOCYTE product line. The amount of qualifying eligible donor
tissue was significantly reduced industry wide due to the stringent screening required. During the fourth quarter of 2022 and the nine
months ended September 30, 2023, we were unable to fill certain orders for this product, which negatively impacted our sales growth.
The supply constraint was caused by significant supplier limits on qualifying eligible donor tissue and supplier necessity to subcontract
all processing to secondary suppliers. We have since expanded the ALLOCYTE product line with the release of ALLOCYTE Plus, which is processed
by an alternative supplier with in-house processing capabilities. Our first sales of ALLOCYTE Plus occurred in October 2023. We have
a sufficient supply of ALLOCYTE Plus to meet currently expected demand and believe we have measures in place to regularly stock the product
in the future.

Cost
of goods sold. Cost of goods sold for the year ended December 31, 2023, was $7.9 million, compared to costs of goods sold of
$6.4 million for the year ended December 31, 2022. The increase in cost of goods sold for 2023 was primarily due to higher sales volume
as a result of organic sales growth. Gross margins were approximately 88% and 86% for the years ended
December 31, 2023 and 2022, respectively. The gross margins for 2023 included lower margins realized on sales of certain bone fusion products, partially
offset by higher margins realized due to the elimination in consolidation of the CellerateRX Surgical royalty expense under the Sublicense
Agreement.

Selling,
general and administrative expenses. SG&A expenses for the year ended December 31, 2023, were $57.0 million compared to SG&A
expenses of $46.0 million for the year ended December 31, 2022. The higher SG&A expenses for 2023 were primarily due to higher direct sales and marketing expenses, which accounted
for approximately $8.0 million, or 76% of the increases compared to the prior year period. The higher direct sales and marketing expenses
for 2023 was primarily attributable to an increase in sales commissions of $6.9 million as a result of higher product sales. The year-ended
2023 included $1.2 million of increased costs as a result of sales force expansion and operational support. Our 2023 SG&A expenses also included $0.4 million of costs associated with an acquisition opportunity that we
abandoned during the first quarter of 2024. We expect our SG&A
expenses to decline as a percentage of net revenues as our sales growth outpaces the costs of sales force expansion and corporate overhead.

Research
and development expenses. R&D expenses for the year ended December 31, 2023, were $4.1 million compared to $3.4 million
for the year ended December 31, 2022. The higher R&D expenses in 2023 were primarily due to costs related to the Precision
Healing diagnostic imager and LFA. R&D expenses for 2023 also included costs associated with ongoing development projects for
our products in development.

Depreciation
and amortization expense. Depreciation and amortization expense for the year ended December 31, 2023, was $3.7 million compared
to $2.4 million for the year ended December 31, 2022. The increase in depreciation and amortization expense during 2023 was primarily
due to the amortization of intangible assets acquired as part of the Precision Healing, Scendia and Applied transactions.

Change
in fair value of earnout liabilities. Change in fair value of earnout liabilities was a benefit of $3.4 million for the year
ended December 31, 2023 compared to expense of $0.3 million for the year ended December 31, 2022. The current year benefit is as a result
of a decrease in the estimated fair value of the earnout liabilities established at the time of our Precision Healing and Scendia acquisitions.
The decrease in the estimated fair value was due to a change in the discount factor utilized in the valuation models, a decrease in the
projected undiscounted amounts to be paid, as well as adjustments to the projected timing of the payments to be made, partially offset
by accretion. The prior year period expenses were due to the accretion of the earnout liabilities.

Other
income (expense). Other income (expense) for the year ended December 31, 2023 was $0.2 million compared to $1.4 million for
the year ended December 31, 2022. Other income (expense) for 2023 included interest expense, and amortization of debt issuance costs related
to the Term Loan entered into in conjunction with the Applied Asset Purchase. The higher other income (expense) in 2022 was primarily due to
a $1.0 million loss recognized due to the dissolution of our subsidiary, Sanara Pulsar, LLC (“Sanara Pulsar”). Sanara
Pulsar had minimal sales since its inception and was dissolved effective December 2022. The higher other income (expense) was also due to the
recognition of $0.4 million of loss from our equity method investment in Precision Healing prior to our acquisition of the remaining
interest in April 2022.

45

Loss
before income taxes. We had a loss before income taxes of $4.4 million for the year ended December 31, 2023, compared to a
loss before income taxes of $13.9 million for the year ended December 31, 2022. The lower loss in 2023 was due to increased gross profits
and changes in fair value of earnout liabilities, partially offset by higher SG&A costs, higher R&D
expenses, and higher amortization of our acquired intangible assets as discussed above.

Income
tax benefit. We recognized net deferred tax liabilities associated with the Precision Healing and Scendia transactions. As of
December 31, 2022, prior to consideration of these deferred tax liabilities, we had net deferred tax assets in excess of the deferred
tax liabilities being recognized, however, a 100% valuation allowance had previously been provided against our net deferred tax assets.
As a result of the recording of the net deferred tax liabilities related to the Precision Healing merger and Scendia acquisition, we
have reviewed the valuation allowance and determined that it should be reduced by the amount of the net deferred tax liabilities that
were recognized. This resulted in recognition of an income tax benefit of $5.8 million recognized for the year ended December 31, 2022.

Net
loss. For the year ended December 31, 2023, we had a net loss of $4.4 million, compared to a net loss of $8.1 million for the
year ended December 31, 2022. The lower net loss in 2023 was primarily due to additional gross profit realized on higher 2023 revenues.

Liquidity
and Capital Resources

Cash
on hand at December 31, 2023 was $5.1 million, compared to $9.0 million at December 31, 2022. Historically, we have financed our operations
primarily from the sale of equity securities. In February 2023, we entered into a Controlled Equity Offering SM Sales Agreement
(the “Sales Agreement”) with Cantor Fitzgerald & Co., as sales agent (“Cantor”), pursuant to which we could
offer and sell from time to time, to or through Cantor, shares of our common stock having an aggregate offering price of up to $75.0
million.

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

In
2023, we sold an aggregate of 26,143 shares of common stock for gross proceeds of approximately $1.1 million and net proceeds of approximately
$1.0 million pursuant to the Sales Agreement. We paused the offering at the end of the first quarter of 2023 and did not reactivate it
during the remainder of 2023. The Registration Statement on Form S-3 relating to this offering expired in January 2024.

On
August 1, 2023, we, as guarantor, and SMAT, as borrower, entered into the Loan Agreement with the Bank providing for, among other things,
a Term Loan in the aggregate principal amount of up to $12.0 million, which was evidenced by an advancing promissory note. Pursuant to
the Loan Agreement, the Bank agreed to make, at any time and from time to time prior to February 1, 2024, one or more advances to SMAT.
On August 1, 2023, the Bank made an advance under the Term Loan for $9.75 million, the proceeds of which were used to fund the Cash Closing
Consideration for the Applied Asset Purchase. For more information regarding the Loan Agreement, see the “Loan Agreement”
section below.

We
expect our future needs for cash to include funding potential acquisitions, further developing our products, services and technologies
pipeline and clinical studies, expanding our sales force, repayment of debt as it becomes due and for general corporate purposes. If
we seek to consummate acquisitions in the future, we expect to finance such acquisitions with the proceeds from equity or debt issuances.
Based on our current plan of operations, we believe our cash on hand, when combined with expected cash flows from operations, will be
sufficient to fund our growth strategy and to meet our anticipated operating expenses and capital expenditures for at least the next
twelve months.

Precision
Healing Merger

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

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

46

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

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

Scendia
Acquisition

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

Pursuant
to the purchase agreement, Phillips was entitled to receive closing consideration consisting of (i) approximately $1.6 million of cash,
subject to certain adjustments, and (ii) 291,686 shares of our common stock. Pursuant to the purchase agreement, at closing, we withheld
94,798 shares of common stock with an agreed upon value of $1.95 million (the “Indemnity Holdback Shares”), which such Indemnity
Holdback Shares were withheld to the extent provided in the purchase agreement to satisfy Phillips’ indemnification obligations
and subsequently issued and released to Phillips in July 2023.

In
addition to the cash consideration and the stock consideration, the purchase agreement provides that Phillips is entitled to receive
two potential earnout payments, payable on an annual basis, not to exceed $10.0 million in the aggregate. The earnout consideration is
payable to Phillips in cash or, at our election, in up to 486,145 shares of our common stock upon the achievement of certain performance
thresholds relating to net revenue attributable to sales of Scendia products during the two-year period following the closing. We made
the first earnout payment of approximately $693,000 in cash in August 2023. We expect the final earnout payment to be made in the third
quarter of 2024.

Applied
Asset Purchase

On
August 1, 2023, we entered into the Applied Purchase Agreement by and among the Company, SMAT, Hymed, Applied and the Owner, pursuant
to which SMAT acquired the Applied Purchased Assets and assumed certain Assumed Liabilities upon the terms and subject to the conditions
set forth in the Applied Purchase Agreement. The transaction closed on August 1, 2023. The Applied Purchased Assets were purchased for
an initial aggregate purchase price of $15.25 million, consisting of (i) $9.75 million in cash, (ii) 73,809 shares of our common stock,
with an agreed upon value of $3.0 million and (iii) $2.5 million in cash, to be paid in four equal installments on each of the next four
anniversaries of the Closing.

In
addition to the Cash Closing Consideration, Stock Closing Consideration and Installment Payments, the Applied Purchase Agreement provides
that the Sellers are entitled to receive up to an additional $10.0 million, which is payable to the Sellers in cash, upon the achievement
of certain performance thresholds relating to SMAT’s collections from net sales of a collagen-based product currently under development.
Upon expiration of the seventh anniversary of the Closing, to the extent the Sellers have not earned the entirety of the Applied Earnout,
SMAT shall pay the Sellers the True-Up Payment. The Applied Earnout, minus the True-Up Payment and any Applied Earnout payments already
made by SMAT, may be earned at any point in the future, including after the True-Up Payment is made.

Since
the closing of the Applied Asset Purchase, we make intercompany royalty payments to SMAT at the same rate as set forth in the Sublicense
Agreement. SMAT intends to use the royalties received to repay borrowings under the Term Loan. As described under “Loan Agreement”
below, SMAT is required to maintain compliance with certain maintenance covenants and is limited in its ability to distribute or lend
cash to the Company without consent of the Bank.

47

Loan
Agreement

In
connection with the entry into the Applied Purchase Agreement, on August 1, 2023, we, as guarantor, and SMAT, as borrower, entered into
the Loan Agreement with the Bank providing for, among other things, a Term Loan in the aggregate principal amount of $12.0 million, which
was evidenced by an advancing promissory note. Pursuant to the Loan Agreement, the Bank agreed to make, at any time and from time to
time prior to February 1, 2024, one or more advances to SMAT.

The
proceeds of the advances under the Loan Agreement were used for working capital and for purposes of financing up to one hundred percent
(100%) of the Cash Closing Consideration and Installment Payments for the Applied Asset Purchase and related fees and expenses, including
any subsequent payments that may be due to the Sellers after the Closing. On August 1, 2023, the Bank, at the request of SMAT, made an
advance for $9.75 million. The proceeds from the advance were used to fund the Cash Closing Consideration for the Applied Asset Purchase.

Advances
under the Term Loan will begin amortizing in monthly installments commencing on August 5, 2024. All remaining unpaid balances under the
Term Loan are due and payable in full on August 1, 2028 (the “Maturity Date”). SMAT may prepay amounts due under the Term
Loan. All accrued but unpaid interest on the unpaid principal balance of outstanding advances is due and payable monthly, beginning on
September 5, 2023 and continuing monthly on the fifth day of each month thereafter until the Maturity Date. The unpaid principal balance
of outstanding advances bears interest, subject to certain conditions, at the lesser of the Maximum Rate (as defined in the Loan Agreement)
or the Base Rate, which is for any day, a rate per annum equal to the term secured overnight financing rate (Term SOFR) (as administered
by the Federal Reserve Bank of New York) for a one-month tenor in effect on such day plus three percent (3.0%).

The
obligations of SMAT under the Loan Agreement and the other loan documents delivered in connection therewith are guaranteed by us and
are secured by a first priority security interest in substantially all of the existing and future assets of SMAT.

The
Loan Agreement contains customary representations and warranties and certain covenants that limit (subject to certain exceptions) the
ability of SMAT and us to, among other things, (i) create, assume or guarantee certain liabilities, (ii) create, assume or suffer liens
securing indebtedness, (iii) make or permit loans and advances, (iv) acquire any assets outside the ordinary course of business, (v)
consolidate, merge or sell all or a material part of its assets, (vi) pay dividends or other distributions on, or redeem or repurchase,
interest in an obligor, including us as guarantor, (vii) cease, suspend or materially curtail business operations or (viii) engage in
certain affiliate transactions. In addition, the Loan Agreement contains financial covenants that require SMAT to maintain (i) a minimum
Debt Services Coverage Ratio and (ii) a maximum Cash Flow Leverage Ratio, in each case, as defined and calculated according to the procedures
set forth in the Loan Agreement. Pursuant to the Loan Agreement, in the event that SMAT fails to comply with the financial covenants
described above, we are required to contribute cash to SMAT in an amount equal to the amount required to satisfy the financial covenants.
SMAT is limited in its ability to distribute or lend cash to the Company without consent of the Bank.

Pursuant
to the Loan Agreement, starting with the three months ended September 30, 2023 and for each quarter thereafter, SMAT will be required
to maintain a minimum Debt Service Coverage Ratio (as defined below) of 1.2 to 1.0, which ratio is calculated as of the last day of the
applicable fiscal quarter. The “Debt Service Coverage Ratio” is the ratio of (a) the sum of the following during the preceding
twelve (12) month period, subject to annualization in certain circumstances: (i) earnings before interest, taxes, depreciation, amortization,
stock compensation expense and gains or losses on sales of assets outside the ordinary course of business (“EBITDA”) minus
(ii) capital expenditures, minus (iii) cash taxes, minus (iv) dividends and distributions, to (b) the sum of (i) the current portion
of long-term debt, (ii) Installment Payments made during the preceding twelve (12) month period and (iii) interest expense during the
preceding twelve (12) month period, subject to annualization in certain circumstances. As of December 31, 2023, following an immaterial cash contribution
from Sanara, SMAT’s Debt Service Coverage Ratio was 1.3 to 1.0.

The
Loan Agreement also requires SMAT to, subject to certain conditions, maintain a maximum Cash Flow Leverage Ratio (as defined below) of
not more than (a) 4.5 to 1.0 as of the last day of the fiscal quarter ending on September 30, 2023, (b) 4.0 to 1.0 as of the last day
of each fiscal quarter ending on December 31, 2023, and March 31, 2024, (c) 3.5 to 1.0 as of the last day of each fiscal quarter ending
on June 30, 2024, and September 30, 2024, and (d) 3.0 to 1.0 as of the last day of each fiscal quarter thereafter. The “Cash Flow
Leverage Ratio” is the ratio of all Funded Debt (as defined in the Loan Agreement) to certain multiples of EBITDA during the preceding
twelve (12) month period, subject to annualization in certain circumstances. SMAT was in compliance with all financial covenants under
the Loan Agreement as of December 31, 2023. As of December 31, 2023, following an immaterial cash contribution from Sanara, SMAT’s Cash Flow
Leverage Ratio was 4.0 to 1.0.

The
Loan Agreement also contains customary events of default. If such an event of default occurs, the Bank would be entitled to take various
actions, including the acceleration of amounts due under the Loan Agreement and actions permitted to be taken by a secured creditor.

48

Cash
Flow Analysis

For
the year ended December 31, 2023, net cash used in operating activities was $3.2 million compared to $5.6 million used in operating activities
for the year ended December 31, 2022. The lower use of cash in 2023 was due to net revenue growth outpacing the growth of our cash operating
expenses and timing of cash expenditures for certain accrued payables and prepaids.

For
the year ended December 31, 2023, net cash used in investing activities was $10.2 million compared to $3.5 million used in investing
activities during the year ended December 31, 2022. The higher use of cash used in investing activities during 2023 was primarily due
to cash paid pursuant to the Applied Asset Purchase.

For
the year ended December 31, 2023, net cash provided by financing activities was $9.6 million as compared to $0.6 million used in financing
activities for the year ended December 31, 2022. The cash provided by financing activities during 2023 was due to net loan proceeds of
$9.7 million utilized for the Applied Asset Purchase and net proceeds received pursuant to sales of our common stock of $0.9 million,
partially offset by the Scendia earnout payment of $0.7 million and the net settlement of equity-based awards, which totaled $0.1 million.

Material
Transactions with Related Parties

CellerateRX
Surgical Sublicense Agreement

We
have an exclusive, world-wide sublicense to distribute CellerateRX Surgical and HYCOL products into the surgical and wound care markets
from an affiliate of Catalyst, CGI Cellerate RX, which, prior to the Applied Asset Purchase, licensed the rights to CellerateRX from
Applied. Sales of CellerateRX Surgical comprised the substantial majority of our sales during the twelve months ended December 31, 2023
and 2022. Prior to the Applied Asset Purchase discussed above, we paid royalties based on the annual Net Sales of licensed products (as
defined in the Sublicense Agreement) consisting of 3% of all collected Net Sales each year up to $12.0 million, 4% of all collected Net
Sales each year that exceed $12.0 million up to $20.0 million, and 5% of all collected Net Sales each year that exceed $20.0 million.
For the year ended December 31, 2023 and 2022, royalty expense was $1.0 million and $1.8 million, respectively, under the terms of this
agreement. Ronald T. Nixon, our Executive Chairman, is the founder and managing partner of Catalyst.

In
August 2023, we acquired the underlying intellectual property of, as well as the rights to manufacture and sell, CellerateRX Surgical
and HYCOL products from Applied. In connection with this acquisition, Applied assigned its license agreement with CGI Cellerate RX to
a wholly owned subsidiary of the Company and no further royalties will be due to Applied thereunder. Since the Closing of the Applied
Asset Purchase, we indirectly make intercompany royalty payments to SMAT at the same rate as set forth in the Sublicense Agreement. These
intercompany royalty payments and the offsetting cost of goods sold were eliminated in consolidation effective as of August 1, 2023.

Consulting
Agreement

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

Catalyst
Transaction Advisory Services Agreement

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

Pursuant
to the Catalyst Services Agreement, we agreed to reimburse Catalyst for (i) compensation actually paid by Catalyst to any of the Covered
Persons at a rate no more than a rate consistent with industry practice for the performance of services similar to the Catalyst Services,
as documented in reasonably sufficient detail, and (ii) all reasonable out-of-pocket costs and expenses payable to unaffiliated third
parties, as documented in customary expense reports, as each of (i) and (ii) is incurred in connection with the Catalyst Services rendered
under the Catalyst Services Agreement, with all reimbursements being contingent upon the prior approval of the Audit Committee of our
Board of Directors. We incurred $174,486 of costs pursuant to the Catalyst Services Agreement during 2023.

49

Receivables
and Payables

We
had outstanding related party receivables totaling $8,400 at December 31, 2023, and $98,548 at December 31, 2022. We had outstanding
related party payables totaling $77,805 at December 31, 2023, and $34,036 at December 31, 2022.

Impact
of Inflation and Changing Prices

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

Critical
Accounting Estimates

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 United States. The preparation of these consolidated
financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure
of contingent assets and liabilities at the date of the consolidated financial statements, and the reported revenue and expenses during
the reporting period. 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 estimates 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.
Revenues are recognized when a purchase order is received from the customer and control of the promised goods or services is transferred
to the customer in an amount that reflects the consideration 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:

Inventories

Inventories
are stated at the lower of cost or net realizable value, with cost computed on a first-in, first-out basis. Inventories consist primarily
of finished goods, and also include an immaterial amount of raw materials and related packaging components. We recorded inventory obsolescence
expense of $406,812 in 2023 and $540,090 in 2022. The allowance for obsolete and slow-moving inventory had a balance of $446,917 at December
31, 2023, and $523,832 at December 31, 2022.

Goodwill

The
excess of purchase price over the fair value of identifiable net assets acquired in business combinations is recorded as goodwill. As
of December 31, 2023 and 2022, all of our goodwill relates to the acquisition of Scendia. Goodwill has an indefinite useful life and
is not amortized. Goodwill is tested annually as of December 31 for impairment, or more frequently if circumstances indicate impairment
may have occurred. We may first perform a qualitative assessment to determine if it is more likely than not that the fair value of the
reporting unit is less than the respective carrying value. If it is determined that it is more likely than not that a reporting unit’s
fair value is less than its carrying value, then we will determine the fair value of the reporting unit and record an impairment charge
for the difference between fair value and carrying value (not to exceed the carrying amount of goodwill). No impairment was recorded
during the years ended December 31, 2023 and 2022.

50

Impairment
of Long-Lived Assets

Long-lived
assets, including certain identifiable intangibles held and to be used by us, are reviewed for impairment whenever events or changes
in circumstances 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 fair value less cost to sell. No impairment
was recorded during the years ended December 31, 2023 and 2022.

Investments
in Equity Securities

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

We
apply the equity method of accounting for investments when we have 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. Our 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. Our equity method investment is adjusted each period for
our share of the investee’s income or loss and dividend paid, if any. We classify distributions received from our equity method
investment using the cumulative earnings approach on the Consolidated Statements of Cash Flows. As a result of the Precision Healing
merger in April 2022, we did not have any investments which are recorded applying the equity method of accounting as of December 31,
2023 or 2022.

We
reviewed the carrying value of our investments and have determined there was no impairment or observable price changes as of and for
the years ended December 31, 2023 and 2022.

Income
Taxes

We
account for income taxes in accordance with ASC Topic No. 740, Income Taxes. This standard requires us to provide a net deferred tax
asset or liability equal to the expected future tax benefit or expense of temporary reporting differences between book and tax accounting
and any available operating loss or tax credit carry forwards. A valuation allowance is provided if it is more likely than not that some
or all of a net deferred tax asset will not be realized.

We
recognized net deferred tax liabilities associated with the Precision Healing merger and the Scendia acquisition. As of the dates of
these acquisitions, prior to consideration of these acquired deferred tax liabilities, we had net deferred tax assets in excess of the
deferred tax liabilities being recognized, however, a 100% valuation allowance had previously been provided against our net deferred
tax assets. As a result of the recording of the net deferred tax liabilities related to the Precision Healing merger and Scendia acquisition,
we reviewed the valuation allowance and determined that it should be reduced by the amount of the deferred tax liabilities that were
recognized. This resulted in a 2022 income tax benefit of $5.8 million.

A
100% valuation allowance has been provided for the remaining net deferred tax assets as of December 31, 2023 and 2022, as our ability
to generate sufficient taxable income in the future is uncertain.

Off-Balance
Sheet Arrangements

None.

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

The
following discussion and analysis contains forward-looking statements about future revenues, operating results, plans and expectations.
Forward-looking statements are based on a number of assumptions and estimates that are inherently subject to significant risks and uncertainties
and our results could differ materially from the results anticipated by our forward-looking statements as a result of many known or unknown
factors, including, but not limited to, those factors discussed in Part I, Item 1A. Risk Factors. Also, please read the “Cautionary
Statement Regarding Forward-Looking Statements” set forth at the beginning of this Annual Report on Form 10-K.

In
addition, the following discussion should be read in conjunction with Part I of this Annual Report on Form 10-K as well as our Consolidated
Financial Statements and the related Notes to Consolidated Financial Statements contained elsewhere in this Annual Report on Form 10-K.

Overview

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

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

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

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

40

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

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

Comprehensive
Value-Based Care Strategy

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

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

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

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

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

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

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

Recent
Acquisitions

Rochal

In
July 2021, we acquired certain assets from Rochal, including, among others, intellectual property, four FDA 510(k) clearances,
rights to license certain products and technologies currently under development, equipment, and supplies. In exchange for the
acquired assets, we paid Rochal (i) $496,100 in cash and (ii) 14,369 shares of common stock. As a result of the asset purchase, our
pipeline now contains product candidates for mitigation of opportunistic pathogens and biofilm, wound re-epithelialization and
closure, necrotic tissue debridement and cell compatible substrates.

Precision Healing

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

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

41

Scendia

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

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

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

Recent
Developments

Sanara
Pulsar, LLC

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

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

Components
of Results of Operations

Sources
of Revenues

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

42

For
the year ended December 31, 2022, our revenues included $6.0 million of revenue generated by Scendia, which was acquired by the Company
in July 2022. Revenue streams from product sales and royalties are summarized below for the years ended December 31, 2022 and 2021.

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

Cost
of Goods Sold

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

Operating
Expenses

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

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

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

Other
Expense

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

Results
of Operations

Net
Revenues. For the year ended December 31, 2022, we generated net revenues of $45.8 million compared to net revenues of $24.1
million for the year ended December 31, 2021, a 90% increase from the prior year. Our 2022 net revenues included $6.0 million of
Scendia sales. The higher net revenues in 2022 were primarily due to increased sales of surgical wound care products as a result of
our increased market penetration and geographic expansion, additional revenues as a result of the Scendia acquisition and our
continuing strategy to expand our independent distribution network in both new and existing U.S. markets.

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

Cost
of goods sold. Cost of goods sold for the year ended December 31, 2022, was $6.4 million, compared to costs of goods sold of $2.3 million
for the year ended December 31, 2021. The higher cost of goods sold was due to higher organic sales volume in 2022 and our acquisition
of Scendia, which added $2.0 million of cost of goods sold during 2022. Gross margins were approximately 86% and 90% for the years ended
December 31, 2022 and 2021, respectively. The lower gross margins in 2022 were primarily due to lower margins realized on sales of Scendia
products.

43

Selling,
general and administrative expenses. SG&A expenses for the year ended December 31, 2022, were $46.0 million compared to SG&A
expenses of $28.1 million for the year ended December 31, 2021. Our 2022 SG&A expenses included $2.9 million of costs related to Scendia
operations. The higher SG&A expenses in 2022 were primarily due to higher direct sales and marketing expenses, which accounted for
approximately $13.6 million, or 76% of the increase compared to prior year. The higher direct sales and marketing expenses were primarily
attributable to an increase in sales commissions of $9.6 million as a result of higher product sales and $2.7 million of increased costs
as a result of sales force expansion and operational support. Costs related to travel and in-person promotional activities increased
by $0.9 million in 2022 compared to 2021 due to the resumption of many in-person activities that were cancelled or postponed in 2021
as a result of the COVID-19 pandemic. The increase in 2022 SG&A expenses was also partly attributable to increased noncash equity
compensation and higher payroll costs related to the mid-year addition of the Rochal workforce in July 2021, the Precision Healing workforce
in April 2022 and the Scendia workforce in July 2022. We expect our SG&A expenses to continue to decline as a percentage of net revenues as our sales growth outpaces
the costs of sales force expansion and corporate overhead.

Research
and development expenses. R&D expenses for the year ended December 31, 2022, were $3.4 million compared to $0.6 million for the
year ended December 31, 2021. R&D expenses for 2022 included approximately $2.5 million of costs related to our newly acquired Precision
Healing diagnostic imager and LFA for assessing patient wound and skin conditions. The higher R&D expenses in 2022
were also partly due to costs associated with several new development projects for our currently licensed products.

Depreciation and amortization expense.
Depreciation and amortization expense for the year ended December 31, 2022, was $2.4 million compared to $0.6 million for the
year ended December 31, 2021. The higher depreciation and amortization expense during 2022 was primarily due to the amortization
of intangible assets acquired as part of the Precision Healing and Scendia transactions.

Other expense. Other expense for
the year ended December 31, 2022 was $1.7 million compared to $0.6 million for the year ended December 31, 2021. The higher other
expense in 2022 was primarily due to a $1.0 million loss recognized due to the dissolution of Sanara Pulsar. In May 2019, we
organized Sanara Pulsar, which was owned 60% by our wholly owned subsidiary Cellerate and 40% by WCS. At the time of the formation
of Sanara Pulsar, it and WCS, entered into a supply agreement whereby Sanara Pulsar became the exclusive distributor in the United
States of certain wound care products that utilize intellectual property developed and owned by WCS. Sanara Pulsar had minimal sales
since its inception and was dissolved effective December 2022. The higher other expense was also due to the recognition of $0.3
million of accretion expense on earnout liabilities related to our Precision Healing and Scendia transactions partially offset by
lower losses from equity method investment in Precision Healing prior to our acquisition of the remaining interest in April
2022.

Loss before income taxes. We had a loss
before income taxes of $13.9 million for the year ended December 31, 2022, compared to a loss before income taxes of $8.0 million for
the year ended December 31, 2021. The higher loss in 2022 was due to increased SG&A costs, higher R&D expenses, the loss on disposal
of investment related to the dissolution of Sanara Pulsar and higher amortization of our acquired intangible assets as discussed above.

Income
tax benefit. We recognized net deferred
tax liabilities associated with the Precision Healing and Scendia transactions. As of December 31, 2022, prior to consideration of these
deferred tax liabilities, the Company had net deferred tax assets in excess of the deferred tax liabilities being recognized, however,
a 100% valuation allowance had previously been provided against the Company’s net deferred tax assets. As a result of the recording
of the net deferred tax liabilities related to the Precision Healing merger and Scendia acquisition, the Company has reviewed the valuation
allowance and determined that it should be reduced by the amount of the net deferred tax liabilities that were recognized. This resulted
in recognition of an income tax benefit of $5.8 million recognized for the year ended December 31, 2022.

Net loss. For the year ended December
31, 2022, we had a net loss of $8.1 million, compared to a net loss of $8.0 million for the year ended December 31, 2021.

Liquidity and Capital Resources

Cash on hand at December 31, 2022 was $9.0 million,
compared to $18.7 million at December 31, 2021. Historically, we have financed our operations primarily from the sale of equity securities.
In February 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 $31.6 million, before deducting underwriting discounts and commissions and offering expenses.
We expect our future needs for cash to include funding potential acquisitions, further developing our products, services and technologies
pipeline and clinical studies, expanding our sales force and for general corporate purposes. Based on our current plan of operations,
we believe our cash on hand, when combined with expected cash flows from operations, will be sufficient to fund our growth strategy and
to meet our anticipated operating expenses and capital expenditures for at least the next twelve months.

44

On
February 24, 2023, we entered into a Controlled Equity OfferingSM Sales Agreement (the “Sales Agreement”) with
Cantor Fitzgerald & Co., as sales agent (“Cantor”), pursuant to which we may offer and sell from time to time,
to or through Cantor, shares of our common stock having an aggregate offering price of up to $75.0 million.

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

From February 24, 2023 through March 17, 2023, the
Company sold an aggregate of 17,878 shares of common stock for gross proceeds of approximately $732,000 and net proceeds of approximately
$710,000.

In
July 2019, we executed a license agreement with Rochal pursuant to which 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 have 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
completion of our capital raise in February 2021.

In June 2021, we invested $2.1 million to purchase
278,587 Class A Preferred Shares (the “Shares”) of Canada based Pixalere Healthcare Inc. (“Pixalere”). The Shares
are convertible into approximately 27.3% of the outstanding equity of Pixalere. Pixalere provides a cloud-based wound care software tool
that empowers nurses, specialists and administrators to deliver better care for patients. In connection with 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 $0.1 million.

In
July 2021, we entered into an asset purchase agreement with Rochal, effective July 1, 2021, pursuant to which we purchased certain assets
of Rochal, including, among others, certain of Rochal’s intellectual property, furniture and equipment, supplies, rights and claims,
other than certain excluded assets, all as more specifically set forth in the asset purchase agreement, and assumed certain liabilities
upon the terms and subject to the conditions set forth in the asset purchase agreement. In exchange for the acquired assets, we paid
to Rochal (i) $496,100 in cash and (ii) 14,369 shares of our common stock and assumed certain net liabilities of $3,900.

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

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

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

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

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

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

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

Cash
Flow Analysis

For the year ended December 31, 2022, net cash used
in operating activities was $5.6 million compared to $4.8 million used in operating activities for the year ended December 31, 2021. The
higher use of cash in 2022 was primarily due to higher SG&A expenses related to direct sales and marketing efforts, the addition of
the Rochal workforce in mid-2021, the Precision Healing and Scendia workforces in 2022, higher R&D costs related to Precision Healing
and the resumption of certain travel and promotional activities in 2022 which were cancelled or postponed in 2021 as a result of the COVID-19
pandemic.

For the year ended December 31, 2022, net cash used
in investing activities was $3.5 million compared to $5.3 million used in investing activities during the year ended December 31, 2021.
The lower use of cash used in investing activities in 2022 was primarily due to fewer cash investments in equity securities during 2022,
partially offset by cash used in the Precision Healing merger and the Scendia acquisition.

For the year ended December 31, 2022, net cash used
in financing activities was $0.6 million as compared to $28.3 million provided by financing activities for the year ended December 31,
2021. 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 $31.6 million, less underwriting
discounts and commissions and other offering expenses.

Material
Transactions with Related Parties

CellerateRX
Surgical Sublicense Agreement

We have an exclusive, world-wide sublicense to
distribute CellerateRX Surgical and HYCOL products into the surgical and wound care markets from an affiliate of Catalyst, CGI
Cellerate RX, which licenses the rights to CellerateRX from AN. Sales of CellerateRX have comprised the substantial majority of our
sales during 2022 and 2021. In January 2021, we amended the term of the sublicense agreement to extend the term to May 17, 2050,
with automatic successive one-year renewals so long as annual net sales of the licensed products exceed $1.0 million. We pay
royalties based on the annual Net Sales of licensed products (as defined in the sublicense agreement) consisting of 3% of all
collected Net Sales each year up to $12.0 million, 4% of all collected Net Sales each year that exceed $12.0 million up to $20.0
million, and 5% of all collected Net Sales each year that exceed $20.0 million. For the years ended December 31, 2022 and 2021,
royalty expense was $1.8 million and $0.9 million, respectively under the terms of this agreement.

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

46

Rochal
Asset Purchase

In
July 2021, we entered into an asset purchase agreement with Rochal, effective July 1, 2021, pursuant to which we purchased certain assets
of Rochal, including, among others, certain of Rochal’s intellectual property, furniture and equipment, supplies, rights and claims,
and assumed certain liabilities upon the terms and subject to the conditions set forth in the asset purchase agreement. In exchange for
the acquired assets, we paid Rochal (i) $496,100 in cash and (ii) 14,369 shares of our common stock.

After
the asset purchase, Rochal owned 95,203 shares of our common stock. Mr. Nixon is a director of Rochal, and indirectly a significant shareholder
of Rochal, and through the potential exercise of warrants, a majority shareholder of Rochal. Additionally, Ann Beal Salamone, a director
of the Company, is a significant shareholder and the current Chair of the board of directors of Rochal.

Consulting
Agreement

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

Receivables
and Payables

We
had outstanding related party receivables totaling $98,548 at December 31, 2022, and $79,787 at December 31, 2021. We had
outstanding related party payables $34,036 at December 31, 2022, and $155,817 at December 31,
2021.

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 and Estimates

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 United States. The preparation of these consolidated
financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure
of contingent assets and liabilities at the date of the consolidated financial statements, and the reported revenue and expenses during
the reporting period. 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 and estimates 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. Revenues are recognized when a purchase order is received from the customer and control of the promised goods or services
is transferred to the customer in an amount that reflects the consideration 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:

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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 $0.5 million in 2022 and $0.3 million in 2021. The allowance for obsolete and slow-moving
inventory had a balance of $0.5 million at December 31, 2022, and $0.3 million at December 31, 2021.

Goodwill

The excess of purchase price over the fair value of identifiable net assets acquired in business combinations is
recorded as goodwill. As of December 31, 2022, all of our goodwill relates to the acquisition of Scendia. Goodwill has an indefinite useful
life and is not amortized. Goodwill is tested annually as of December 31 for impairment, or more frequently if circumstances indicate
impairment may have occurred. We may first perform a qualitative assessment to determine if it is more likely than not that the fair value
of the reporting unit is less than the respective carrying value. If it is determined that it is more likely than not that a reporting
unit’s fair value is less than its carrying value, then we will determine the fair value of the reporting unit and record an impairment
charge for the difference between fair value and carrying value (not to exceed the carrying amount of goodwill). No impairment was recorded
during the year ended December 31, 2022.

Impairment
of Long-Lived Assets

Long-lived
assets, including certain identifiable intangibles held and to be used by us, are reviewed for impairment whenever events or changes
in circumstances 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 fair value less cost to sell. No impairment
was recorded during the years ended December 31, 2022 and 2021.

Investments
in Equity Securities

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

We
apply the equity method of accounting to investments when we have 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. Our 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. Our equity method investment is adjusted each period for
our share of the investee’s income or loss and dividend paid, if any. We classify distributions received from our equity method
investment using the cumulative earnings approach on the Consolidated Statements of Cash Flows. As a result of the Precision Healing merger in April 2022, as of December 31, 2022, we do not have any investments
which are recorded applying the equity method of accounting.

We
have reviewed the carrying value of our investments and have determined there was no impairment or observable price changes as of December
31, 2022.

Income
Taxes

We
account for income taxes in accordance with ASC Topic No. 740, Income Taxes. This standard requires us to provide a net deferred tax
asset or liability equal to the expected future tax benefit or expense of temporary reporting differences between book and tax accounting
and any available operating loss or tax credit carry forwards. A valuation allowance is provided if it is more likely than not that some
or all of a net deferred tax asset will not be realized.

The Company recognized net deferred tax liabilities
associated with the Precision Healing merger and the Scendia acquisition. As of December 31, 2022, prior to consideration of these deferred
tax liabilities, the Company had net deferred tax assets in excess of the deferred tax liabilities being recognized, however, a 100%
valuation allowance had previously been provided against the Company’s net deferred tax assets. As a result of the recording of
the net deferred tax liabilities related to the Precision Healing merger and Scendia acquisition, the Company reviewed the valuation
allowance and determined that it should be reduced by the amount of the deferred tax liabilities that were recognized. This resulted
in a 2022 income tax benefit of $5.8 million.

A
100% valuation allowance has been provided for the remaining net deferred tax assets, as the ability of the Company to generate sufficient
taxable income in the future is uncertain.

Off-Balance
Sheet Arrangements

None.

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

The
following discussion and analysis contains forward-looking statements about future revenues, operating results, plans and expectations.
Forward-looking statements are based on a number of assumptions and estimates that are inherently subject to significant risks and uncertainties
and our results could differ materially from the results anticipated by our forward-looking statements as a result of many known or unknown
factors, including, but not limited to, those factors discussed in Part I, “Item 1A. Risk Factors.” Also, please read the
“Cautionary Statement Regarding Forward-Looking Statements” set forth at the beginning of this Annual Report on Form 10-K.

In
addition, the following discussion should be read in conjunction with Part I of this Annual Report on Form 10-K as well as our consolidated
financial statements and the related Notes contained elsewhere in this Annual Report on Form 10-K.

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

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In
June 2020, we formed a subsidiary, United Wound and Skin Solutions LLC (“UWSS”, or “WounDerm”), to hold certain
investments and operations in wound and skin care 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. Through a combination
of our WounDerm 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 second half of 2021, the United States
experienced a surge of COVID-19 cases as the Delta and Omicron variants of the virus impacted much of the country and negatively impacted
our sales in Texas, the northeastern United States, and other markets.

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.

Components
of Results of Operations

Sources
of Revenues

Our
revenue is derived primarily from sales of our surgical wound care 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.

The
vast majority of our product sales revenue is derived from sales of CellerateRX surgical powder.
Revenue streams from product sales and royalties are summarized below for the years ended December 31, 2021 and 2020. All revenue was
generated in the United States.

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).

47

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 our Company, and all royalties related 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.

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. We expect our SG&A expenses to increase in absolute dollars and decrease as a percent
of revenue as we grow our commercial organization.

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 pipelines. This includes personnel-related expenses, including salaries and benefits
for all personnel directly engaged in R&D activities, contracted services, materials, prototype expenses and allocated overhead,
which is comprised of lease expense and other facilities-related costs. We expense R&D costs as incurred. We generally expect that
R&D expenses will increase as we continue to support product enhancements as well as to bring new products to market.

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. Interest income consists of interest earned on our cash and cash equivalents.

Results
of Operations

Revenues.
For the year ended December 31, 2021, we generated revenues of $24,143,919 compared to revenues of $15,586,976 for the year ended
December 31, 2020, a 55% increase from the prior year. The higher revenues in 2021 were due to increased sales of surgical wound care
products as we continued the execution of our strategy to expand our sales force and independent distribution network in both new and
existing U.S. markets. As discussed above under “—Impact of the COVID-19 Pandemic,” our sales have been adversely impacted
in 2020 and 2021 as a result of the COVID-19 pandemic, and the duration and future impact of the pandemic remain uncertain.

Cost
of goods sold. Cost of goods sold for the year ended December 31, 2021 was $2,311,221, compared to costs of goods sold of $1,616,625
for the year ended December 31, 2020. The increase over the prior year was primarily due to higher sales volume. Gross margins were approximately
90% for both years ended December 31, 2021 and 2020.

Selling,
general and administrative expenses (“SG&A”). SG&A expenses for the year ended December 31, 2021 were $28,053,176,
compared to SG&A expenses of $18,673,404 for the year ended December 31, 2020. The higher SG&A expenses in 2021 were primarily
due to increased selling costs resulting from sales force expansion and operational support, higher sales commission expense as a result
of higher product sales, higher non-cash equity compensation costs, higher payroll costs related to the mid-year addition of the Rochal
workforce, and higher costs associated with the launch of our WounDerm technology platform. In addition, costs related to travel and
in-person promotional activities increased in 2021 compared to 2020 as many in-person activities were cancelled or postponed in 2020
as a result of the COVID-19 pandemic. As part of our continued strategy to expand our sales reach in new and existing markets, we employed
eleven additional field sales managers since December 31, 2020. As of December 31, 2021, we had a total of 30 field sales managers.

Research
and development expenses. R&D expenses for the year ended December 31, 2021 were $558,704 compared to $40,190 for the year
ended December 31, 2020. The higher R&D expenses in 2021 were due to costs associated with several development projects for our currently
licensed products and technologies.

Depreciation
and amortization expense. Depreciation and amortization expense for the period ended December 31, 2021 was $596,975 compared
to $291,370 for the year ended December 31, 2020. The higher depreciation and amortization expense in 2021 was due to the amortization
of internal use software placed into service in 2021, and due to additional amortization related to the patents acquired from Rochal.

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Other
expense. Other expense for the year ended December 31, 2021 was $617,638 compared to other income of $589,468 for the
year ended December 31, 2020. The higher expense in 2021 was due to the recognition of a non-cash loss of $616,927 from our equity method
investment in Precision Healing Inc. (“Precision Healing”). Interest expense was $711 for the year ended December 31, 2021,
as compared to $11,528 for the year ended December 31, 2020. The higher interest expense in 2020 was due to interest expense associated
with our unsecured promissory note under the Paycheck Protection Program (described in further detail below), and interest on a convertible
promissory note which was converted to common stock in early 2020.

Net
income / loss. For the year ended December 31, 2021, we had a net loss of $7,993,795, compared to net loss of $4,445,145 for
the year ended December 31, 2020. The higher net loss in 2021 was due to increased SG&A costs described above, higher R&D expenses,
and the recognition of losses on our equity method investment.

Liquidity
and Capital Resources

Cash
on hand at December 31, 2021 was $18,652,841, 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 Loan”) to Cadence Bank, N.A. (“Cadence”). All principal and interest under the
PPP Loan were forgiven in 2020. On February 12, 2021, we closed an underwritten public offering of 1,265,000 shares of our common
stock (including 165,000 shares of common stock issued pursuant to the full exercise by the underwriters of their option to purchase
additional shares of 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 include expanding our
salesforce, 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 potential acquisitions, we believe our
cash on hand, when combined with expected cash flows from operations, will be sufficient to fund our growth strategy and to meet our
anticipated operating expenses and capital expenditures for at least the next twelve months. However, our ability to generate sufficient
cash flows from operations or fund any potential future acquisitions or other similar transactions depends on operating and economic
conditions, some of which are beyond our control. If additional capital is needed, we may not be able to obtain debt or equity financing
on terms favorable to us, or at all. We are continuing to evaluate all uses of cash, including opportunistic acquisitions, and whether
to pursue growth opportunities and whether such growth opportunities, additional sources of liquidity, including equity and/or debt financings,
are appropriate to fund any such growth opportunities.

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. Pursuant to the terms of the Loan Agreement, the revolving line of credit was set to mature on January 13,
2023 and was secured by substantially all of our assets.

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. Effective March 25, 2022, we terminated Loan Agreement and released Cadence from any obligation to make
advances under the Loan Agreement. No amounts of principal, interest or other fees and expenses were owed by the Company as of the termination
date. There is no assurance that we will enter into an additional loan agreement with Cadence or with another bank on similar terms,
or at all.

On
November 9, 2020, we entered into agreements to purchase shares of Series A Convertible Preferred Stock (the “Series A Stock”)
of Precision Healing for an aggregate purchase price of $600,000. In 2021, we made additional purchases of Series A Stock as follows:
$600,000 in February, $500,000 in June, $500,000 in October, and $600,000 in December of 2021.

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. In March 2021, we issued 20,834 shares of our common stock to Rochal as full payment of the $750,000,
which became due upon the completion of our capital raise in February 2021.

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.

49

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, and assumed certain liabilities upon the terms and subject to the conditions set forth
in the asset purchase agreement. In exchange for the acquired assets, we paid Rochal (i) $496,100 in cash and (ii) 14,369 shares of common
stock.

On
July 17, 2020, we purchased Series B-2 Preferred Shares of Direct Dermatology Inc. for $500,000. We made additional investments in the
Series B-2 Preferred Shares in the amounts of $125,000 in November 2021 and $125,000 in December of 2021.

For
the year ended December 31, 2021, net cash used in operating activities was $4,814,526 compared to $4,034,518 used in operating activities
for the year ended December 31, 2020. The higher use of cash in 2021 was primarily due to higher operating expenses related to sales
force expansion, research and development, and the launch of our WounDerm technology platform.

For
the year ended December 31, 2021, net cash used in investing activities was $5,284,731 compared to $2,744,374 used in investing activities
during the year ended December 31, 2020. The cash used in investing activities during 2021 included $496,100 for the Rochal asset acquisition,
and our investments in non-marketable equity securities including $2.2 million for Precision Healing Inc. Series A-2 Preferred Shares,
$2.0 million for Pixalere Healthcare Inc. Class A Preferred Shares, and $250,000 for DirectDerm Series B-2 Preferred Shares.

For
the year ended December 31, 2021, net cash provided by financing activities was $28,296,732 as compared to $622,330 provided by financing
activities for the year ended December 31, 2020. The higher 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 underwriting discounts, commissions and other 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, which licenses the rights to CellerateRX from AN. Sales of CellerateRX comprise the vast majority
of our sales. On January 26, 2021, we amended the term of the sublicense agreement to extend the term to May 17, 2050, with automatic
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
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 years ended December 31, 2021 and
2020, royalty expense recognized under the terms of this agreement totaled $856,755 and $479,809, 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 3,519,019 shares, or 46%, of our common stock as of December 31, 2021.

Convertible
Notes Payable

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 5% per annum, 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.

Payables

We
had outstanding payables to related parties totaling $155,817 at December 31, 2021, and $223,589 at December 31, 2020.

50

Receivables

We
had outstanding receivables to a related party totaling $79,787 at December 31, 2021, and $0 at December 31, 2020.

Product
License Agreements

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.

On
October 1, 2019, the Company executed a license agreement with Rochal whereby the Company acquired an exclusive world-wide license to
market, sell and further develop certain antimicrobial barrier film and skin protectant products for use in the human health care market
utilizing certain Rochal patents and pending patent applications (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.

On
May 4, 2020, The Company executed a product license agreement with Rochal, whereby the Company acquired an exclusive world-wide license
to market, sell and further develop a debrider for human medical use to enhance skin condition or treat or relieve skin disorders, excluding
uses primarily for beauty, cosmetic, or toiletry purposes.

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 year ended December
31, 2021, we incurred no inventory manufacturing costs with Rochal. The Company terminated this agreement on August 12, 2021.

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 year ended December
31, 2021, we incurred $337,746 of costs for Rochal technical services. The Company terminated this agreement on August 12, 2021.

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, the former president
and current Chairman of the Board of Rochal.

Rochal
Asset Acquisition

As
noted above, 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, and assumed certain liabilities upon the terms and subject to the conditions
set forth in the asset purchase agreement. In exchange for the acquired assets, we paid Rochal (i) $496,100 in cash and (ii) 14,369 shares
of common stock.

Consulting
Agreement

Concurrent
with the Rochal asset purchase, on July 14, 2021, the Company entered into a consulting agreement with Ann Beal Salamone pursuant to
which Ms. Salamone agreed to provide the Company with consulting services with respect to, among other things, writing new patents, conducting
patent intelligence, and participating in certain grant and contract reporting. In consideration for the consulting services to be provided
to the Company, Ms. Salamone is entitled to receive an annual consulting fee of $177,697, with payments to be paid once per month. The
consulting agreement has an initial term of three years, unless earlier terminated by the Company, and is subject to renewal. Ms. Salamone
is a director of the Company and is the current Chair of the board of directors of Rochal.

51

Critical
Accounting Policies and Estimates

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 and estimates 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:

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 years ended December 31, 2021 and 2020.

Investment
in Equity Securities

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

We
apply 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. Our 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. Our equity method investments are adjusted each period
for our share of the investee’s income or loss and dividend paid, if any. We classify distributions received from equity method
investments using the cumulative earnings approach on the consolidated statements of cash flows.

52

We
have reviewed the carrying value of our investments and have determined there was no impairment or observable price changes as of December
31, 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. We recorded inventory obsolescence expense of $251,826 for the year ended December 31, 2021 and
$318,076 for the year ended December 31, 2020. The allowance for obsolete and slow-moving inventory had a balance of $333,850 at December
31, 2021, and $276,603 at December 31, 2020. We considered the impact of COVID-19 on its recorded value of inventory and determined no
additional adjustment was necessary as of December 31, 2021.

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 years ended December
31, 2021 and 2020; however, actual results could differ from those estimates and there may be changes to our estimates in future periods.

Income
Taxes

We
account for income taxes in accordance with ASC Topic No. 740, “Income Taxes.” This standard requires us to provide a net
deferred tax asset or liability equal to the expected future tax benefit or expense of temporary reporting differences between book and
tax accounting and any available operating loss or tax credit carry forwards.

After
applying the provisions of Section 382 of the Internal Revenue Code, the unexpired net operating loss (“NOL”) carry forward
at December 31, 2020 was approximately $20.7 million, of which, approximately $5.1 million generated in 2017 and prior,
will expire between 2022 and 2037. Under the Tax Cuts and Jobs Act, the NOL generated during the years 2018 through 2021
of approximately $15.6 million will have an indefinite carryforward period but can generally only be used to offset 80% of taxable
income in any particular year. We may be subject to certain limitations in our annual utilization of NOL carry forwards to off-set future
taxable income pursuant to Section 382 of the Internal Revenue Code, which could result in NOLs expiring unused.

The components of the deferred income
tax assets and liabilities consisted of the following:

A
100% valuation allowance has been provided for all deferred tax assets, as our ability to generate sufficient taxable
income in the future is uncertain.

Off-Balance
Sheet Arrangements

None.