For the transition period from ________ to ________ Commission File Number 001-39678 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ☒ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2023 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 SANARA MEDTECH INC. (Exact name of Registrant as specified in its charter) Texas 59-2219994 (State or other jurisdiction of (I ...

Sanara MedTech Inc. (NASDAQ:SMTI) Q3 2023 Results Conference Call November 14, 2023 9:00 AM ET Company Participants Callon Nichols - Vice President of Corporate Operations Ron Nixon - Executive Chairman Zach Fleming - Chief Executive Officer Mike McNeil - CFO & Corporate Secretary Conference Call Participants Ross Osborn - Cantor Fitzgerald Ian Cassel - IFCM Niraj Gupta - GCI Partners Operator Greetings, and welcome to the Sanara MedTech Incorporated Third Quarter 2023 Results and Business Update Call. At t ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2023 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to ________ Commission File Number 001-39678 SANARA MEDTECH INC. (Exact name of Registrant as specified in its charter) Texas 59-2219994 (State or other jurisdict ...

Sanara Medtech, Inc. (NASDAQ:SMTI) Q2 2023 Earnings Conference Call August 15, 2023 9:00 AM ET Company Participants Callon Nichols - VP, Corporate Operations Ron Nixon - Executive Chairman Zach Fleming - CEO Mike McNeil - CFO Conference Call Participants Ross Osborn - Cantor Fitzgerald Ian Cassel - MicroCap Club Operator Greetings. Welcome to the Sanara MedTech Inc. Second Quarter 2023 Results and Business Update Conference Call. [Operator Instructions]. Please note that this conference is being recorded. I ...

[Part I – Financial Information](index=3&type=section&id=Part%20I%20%E2%80%93%20Financial%20Information) Presents unaudited consolidated financial statements and detailed notes for Sanara MedTech Inc. for the quarter and six months ended June 30, 2023 and 2022 [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section provides the unaudited consolidated financial statements, including balance sheets, statements of operations, changes in equity, cash flows, and comprehensive explanatory notes [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets%20as%20of%20June%2030%2C%202023%20%28Unaudited%29%20and%20December%2031%2C%202022) Presents the company's financial position, detailing assets, liabilities, and shareholders' equity as of June 30, 2023, and December 31, 2022 | Metric | June 30, 2023 | December 31, 2022 | | :--------------------------------- | :-------------- | :------------------ | | **Assets** | | | | Total current assets | $18,177,937 | $20,616,509 | | Total long-term assets | $40,100,844 | $40,418,877 | | **Total assets** | **$58,278,781** | **$61,035,386** | | **Liabilities** | | | | Total current liabilities | $9,881,336 | $12,806,309 | | Total long-term liabilities | $7,432,947 | $6,509,102 | | **Total liabilities** | **$17,314,283** | **$19,315,411** | | **Shareholders' Equity** | | | | Total shareholders' equity | $40,964,498 | $41,719,975 | | **Total liabilities and shareholders' equity** | **$58,278,781** | **$61,035,386** | - Total assets decreased by approximately **$2.76 million** from December 31, 2022, to June 30, 2023, primarily driven by a decrease in cash and total current assets[10](index=10&type=chunk) - Total liabilities decreased by approximately **$2.00 million**, mainly due to a reduction in current liabilities, while long-term liabilities saw an increase[10](index=10&type=chunk) [Consolidated Statements of Operations](index=4&type=section&id=Consolidated%20Statements%20of%20Operations%20%28Unaudited%29%20for%20the%20Three%20and%20Six%20Months%20Ended%20June%2030%2C%202023%20and%202022) Details the company's financial performance, including net revenue, gross profit, operating loss, and net income (loss) for the three and six months ended June 30, 2023 and 2022 | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net Revenue | $15,753,164 | $9,670,778 | $31,275,081 | $17,482,001 | | Gross profit | $13,565,648 | $8,712,692 | $26,961,906 | $15,718,834 | | Operating loss | $(1,866,180) | $(3,384,992) | $(3,082,503) | $(6,161,864) | | Net income (loss) attributable to Sanara MedTech shareholders | $(1,827,733) | $769,426 | $(3,005,633) | $(2,359,898) | | Basic EPS | $(0.22) | $0.10 | $(0.37) | $(0.31) | | Diluted EPS | $(0.22) | $0.09 | $(0.37) | $(0.31) | - Net revenue increased significantly by **63%** for the three months and **79%** for the six months ended June 30, 2023, compared to the prior year periods, driven by increased sales of soft tissue repair and bone fusion products, and the Scendia acquisition[13](index=13&type=chunk)[184](index=184&type=chunk) - The company reported a net loss attributable to shareholders of **$(1.83) million** for the three months and **$(3.01) million** for the six months ended June 30, 2023, compared to net income of **$0.77 million** and a net loss of **$(2.36) million** in the respective prior year periods, with the prior year's net income influenced by a **$4.1 million** income tax benefit[13](index=13&type=chunk)[193](index=193&type=chunk)[194](index=194&type=chunk) [Consolidated Statements of Changes in Shareholders' Equity](index=5&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Shareholders'%20Equity%20%28Unaudited%29%20for%20the%20Three%20and%20Six%20Months%20Ended%20June%2030%2C%202023%20and%202022) Outlines the changes in common stock, additional paid-in capital, and accumulated deficit, leading to the total shareholders' equity for the period | Metric | December 31, 2022 | June 30, 2023 | | :--------------------------------- | :---------------- | :-------------- | | Common Stock (Shares) | 8,299,957 | 8,439,745 | | Common Stock (Amount) | $8,300 | $8,440 | | Additional Paid-In Capital | $65,213,987 | $67,881,419 | | Accumulated Deficit | $(23,394,757) | $(26,740,930) | | Total Shareholders' Equity | $41,719,975 | $40,964,498 | - Total shareholders' equity decreased from **$41.72 million** at December 31, 2022, to **$40.96 million** at June 30, 2023, primarily due to the accumulated deficit from net losses, partially offset by increases in additional paid-in capital from share-based compensation and equity offerings[14](index=14&type=chunk) - Share-based compensation contributed **$1.72 million** to additional paid-in capital for the six months ended June 30, 2023, and net proceeds from equity offering were **$1.03 million**[14](index=14&type=chunk)[115](index=115&type=chunk)[117](index=117&type=chunk) [Consolidated Statements of Cash Flows](index=6&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows%20%28Unaudited%29%20for%20the%20Six%20Months%20Ended%20June%2030%2C%202023%20and%202022) Summarizes cash inflows and outflows from operating, investing, and financing activities for the six months ended June 30, 2023 and 2022 | Cash Flow Activity | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(3,461,162) | $(3,266,795) | | Net cash used in investing activities | $(40,000) | $(2,384,269) | | Net cash provided by (used in) financing activities | $602,395 | $(322,931) | | Net decrease in cash | $(2,898,767) | $(5,973,995) | | Cash, end of period | $6,060,228 | $12,678,846 | - Net cash used in operating activities increased slightly to **$3.46 million** in H1 2023 from **$3.27 million** in H1 2022, primarily due to increased inventory and higher payouts of accrued bonuses and commissions[17](index=17&type=chunk)[219](index=219&type=chunk) - Net cash used in investing activities significantly decreased to **$0.04 million** in H1 2023 from **$2.38 million** in H1 2022, mainly due to lower cash paid for acquisitions in the current period[17](index=17&type=chunk)[220](index=220&type=chunk) - Net cash provided by financing activities was **$0.60 million** in H1 2023, a positive shift from **$0.32 million** used in H1 2022, driven by net proceeds from common stock sales[17](index=17&type=chunk)[221](index=221&type=chunk) [Notes to Unaudited Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20Unaudited%20Consolidated%20Financial%20Statements) Provides detailed explanations of significant accounting policies, recent acquisitions, intangible assets, investments, leases, commitments, and related party transactions [NOTE 1 – Nature of Business and Background](index=9&type=section&id=NOTE%201%20%E2%80%93%20NATURE%20OF%20BUSINESS%20AND%20BACKGROUND) Describes Sanara MedTech Inc.'s core business as a medical technology company focused on improving clinical outcomes in surgical, chronic wound, and skincare markets - Sanara MedTech Inc. is a medical technology company focused on developing and commercializing transformative technologies to improve clinical outcomes and reduce healthcare expenditures in the surgical, chronic wound, and skincare markets[19](index=19&type=chunk) [NOTE 2 — Summary of Significant Accounting Policies](index=9&type=section&id=NOTE%202%20%E2%80%94%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) Outlines the key accounting principles and revenue recognition policies applied in preparing the interim financial statements - The financial statements are prepared in accordance with GAAP for interim financial information, and all adjustments are considered necessary for fair presentation[21](index=21&type=chunk) - Revenue is recognized when control of promised goods or services is transferred to the customer, typically upon receipt of a purchase order and product delivery[26](index=26&type=chunk)[30](index=30&type=chunk) Revenue Stream | Revenue Stream | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :----------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Soft tissue repair products | $13,249,742 | $9,569,441 | $26,122,223 | $17,327,648 | | Bone fusion products | $2,453,172 | $51,087 | $5,052,358 | $53,853 | | Royalty revenue | $50,250 | $50,250 | $100,500 | $100,500 | | **Total Net Revenue** | **$15,753,164** | **$9,670,778** | **$31,275,081** | **$17,482,001** | - The company adopted ASU 2016-13 (Financial Instruments - Credit Losses) effective January 1, 2023, with no material impact on its financial statements[54](index=54&type=chunk) [NOTE 3 – Precision Healing Merger](index=14&type=section&id=NOTE%203%20%E2%80%93%20PRECISION%20HEALING%20MERGER) Details the acquisition of Precision Healing in April 2022, including merger consideration and contingent earnout payments - In April 2022, Sanara MedTech acquired Precision Healing, a company developing diagnostic imagers and lateral flow assays for wound and skin conditions, making it a wholly-owned subsidiary[56](index=56&type=chunk)[57](index=57&type=chunk) - The merger consideration included **$125,966** in cash, **165,738** shares of common stock, and the assumption of outstanding options and warrants[58](index=58&type=chunk)[59](index=59&type=chunk) - Contingent earnout payments of up to **$10.0 million** are payable upon achieving certain performance thresholds, classified as a liability at fair value[61](index=61&type=chunk)[62](index=62&type=chunk) [NOTE 4 – Scendia Purchase Agreement](index=16&type=section&id=NOTE%204%20%E2%80%93%20SCENDIA%20PURCHASE%20AGREEMENT) Describes the acquisition of Scendia Biologics in July 2022, including the purchase consideration and potential earnout liabilities - In July 2022, Sanara MedTech acquired **100%** of Scendia Biologics, LLC, which provides regenerative and orthobiologic technologies and previously co-promoted products with Sanara[65](index=65&type=chunk)[66](index=66&type=chunk) - The acquisition consideration included approximately **$1.6 million** in cash and **291,686** shares of common stock, with **94,798** shares withheld for indemnification and released in July 2023[67](index=67&type=chunk) - The agreement includes potential earnout payments of up to **$10.0 million**, contingent on Scendia product net revenue targets over two years, classified as a liability at fair value[68](index=68&type=chunk)[69](index=69&type=chunk) [NOTE 5 – Intangible Assets](index=18&type=section&id=NOTE%205%20%E2%80%93%20INTANGIBLE%20ASSETS) Provides a breakdown of the company's intangible assets, their cost, accumulated amortization, and net values Intangible Asset Summary | Intangible Asset Category | Cost (June 30, 2023) | Accumulated Amortization (June 30, 2023) | Net (June 30, 2023) | | :------------------------ | :------------------- | :--------------------------------------- | :------------------ | | Product Licenses | $4,793,879 | $(1,149,604) | $3,644,275 | | Patents and Other IP | $21,935,580 | $(2,105,580) | $19,830,000 | | Customer relationships and other | $7,947,332 | $(1,278,029) | $6,669,303 | | **Total** | **$34,676,791** | **$(4,533,213)** | **$30,143,578** | - The weighted-average amortization period for finite-lived intangible assets was **14.3 years** as of June 30, 2023[72](index=72&type=chunk) - Amortization expense for intangible assets increased to **$1.37 million** for the six months ended June 30, 2023, from **$0.55 million** in the prior year, primarily due to assets acquired in the Precision Healing and Scendia transactions[72](index=72&type=chunk)[189](index=189&type=chunk) [NOTE 6 – Investments in Equity Securities](index=18&type=section&id=NOTE%206%20%E2%80%93%20INVESTMENTS%20IN%20EQUITY%20SECURITIES) Details the company's nonmarketable equity investments in privately held companies and the accounting treatment for these holdings - The company holds nonmarketable equity securities in privately held companies, including Direct Dermatology Inc. (**8.1%** ownership) and Pixalere Healthcare Inc. (**27.3%** ownership), reported at cost[74](index=74&type=chunk)[75](index=75&type=chunk)[78](index=78&type=chunk)[79](index=79&type=chunk) - The equity method investment in Precision Healing Inc. ceased in April 2022 due to the merger, resulting in a **$379,633** share of loss for the six months ended June 30, 2022, prior to acquisition[77](index=77&type=chunk)[80](index=80&type=chunk) Equity Investments | Investment | Carrying Amount (June 30, 2023) | | :---------------------- | :------------------------------ | | Direct Dermatology, Inc. | $1,000,000 | | Pixalere Healthcare Inc. | $2,084,278 | | **Total Investments** | **$3,084,278** | [NOTE 7 - Operating Leases](index=19&type=section&id=NOTE%207%20-%20OPERATING%20LEASES) Summarizes the company's operating lease assets, liabilities, and associated lease expenses - As of June 30, 2023, the company recorded Right of Use (ROU) assets of **$2.03 million** and a related lease liability of **$2.05 million**[83](index=83&type=chunk) - Lease expense for the six months ended June 30, 2023, was **$184,575**, up from **$126,815** in the prior year[83](index=83&type=chunk) - The weighted average remaining lease term for operating leases was **6.4 years** with a weighted average discount rate of **7.51%** as of June 30, 2023[85](index=85&type=chunk) [NOTE 8 - Commitments and Contingencies](index=20&type=section&id=NOTE%208%20-%20COMMITMENTS%20AND%20CONTINGENCIES) Outlines the company's various license agreements, royalty obligations, and contingent earnout payment liabilities from acquisitions - The company has various license agreements, including an exclusive sublicense for CellerateRX Surgical and HYCOL products, with royalties of **3-5%** of net sales, which comprised the substantial majority of sales[86](index=86&type=chunk)[87](index=87&type=chunk) - Other license agreements with Rochal Industries (a related party) cover antimicrobial wound gel, skin cleanser, barrier film, skin protectant, and a debrider, with varying royalty rates and minimum annual payments[89](index=89&type=chunk)[90](index=90&type=chunk)[92](index=92&type=chunk)[93](index=93&type=chunk)[94](index=94&type=chunk)[95](index=95&type=chunk)[96](index=96&type=chunk)[97](index=97&type=chunk) - Contingent earnout payments are associated with the Precision Healing merger (up to **$10.0 million**) and Scendia acquisition (up to **$10.0 million**), based on performance thresholds[103](index=103&type=chunk)[105](index=105&type=chunk) [NOTE 9 – Shareholders' Equity](index=23&type=section&id=NOTE%209%20%E2%80%93%20SHAREHOLDERS'%20EQUITY) Provides information on common stock, share-based compensation, and the total unrecognized compensation expense - As of June 30, 2023, **8,439,745** shares of common stock were issued and outstanding[10](index=10&type=chunk) - The company issued **108,136** shares of restricted common stock, net of forfeitures, during the six months ended June 30, 2023, with a fair value of **$4.29 million**, to be recognized as compensation expense over the vesting period[116](index=116&type=chunk) - Total unrecognized share-based compensation expense was **$4.84 million** at June 30, 2023, expected to be recognized over a weighted-average period of **1.2 years**[118](index=118&type=chunk) [NOTE 10 – Income Taxes](index=26&type=section&id=NOTE%2010%20%E2%80%93%20INCOME%20TAXES) Explains the income tax benefit recognized in the prior year due to the reduction of a valuation allowance - An income tax benefit of **$4.1 million** was recognized in the six months ended June 30, 2022, due to the reduction of a valuation allowance against net deferred tax assets following the Precision Healing merger[122](index=122&type=chunk)[193](index=193&type=chunk) [NOTE 11 – Related Parties](index=26&type=section&id=NOTE%2011%20%E2%80%93%20RELATED%20PARTIES) Details transactions and agreements with entities and individuals considered related parties to the company - The company has a sublicense agreement for CellerateRX Surgical and HYCOL products with CGI Cellerate RX, an affiliate of The Catalyst Group, Inc. (Catalyst), where Ronald T. Nixon, the company's Executive Chairman, is a managing partner[123](index=123&type=chunk) - Product license agreements for antimicrobial and skin protectant products are held with Rochal Industries, LLC, where Mr. Nixon and another director are significant shareholders[125](index=125&type=chunk)[126](index=126&type=chunk)[127](index=127&type=chunk) - A consulting agreement with Ann Beal Salamone, a director and significant shareholder of Rochal, entails an annual fee of **$177,697** for patent and R&D services[129](index=129&type=chunk) - A Transaction Advisory Services Agreement with Catalyst resulted in **$72,986** of expenses for the six months ended June 30, 2023[130](index=130&type=chunk)[131](index=131&type=chunk) [NOTE 12 – Subsequent Events](index=27&type=section&id=NOTE%2012%20%E2%80%93%20SUBSEQUENT%20EVENTS) Reports on significant events occurring after the reporting period, including the Applied Asset Purchase and a new Term Loan agreement - On August 1, 2023, the company acquired certain assets from Applied Nutritionals, LLC and The Hymed Group Corporation (Applied Asset Purchase) for an initial aggregate price of **$15.25 million**, including cash, stock, and installment payments[132](index=132&type=chunk)[133](index=133&type=chunk) - The Applied Asset Purchase includes the rights to manufacture and sell CellerateRX Surgical and HYCOL products, with Applied assigning its license agreement to a wholly-owned subsidiary, eliminating future royalties to Applied[132](index=132&type=chunk)[134](index=134&type=chunk) - A professional services agreement with Dr. George D. Petito (the Owner) was entered into, providing a base salary, royalties on future product sales, and incentive payments for FDA clearance and patent issuance, up to **$2.5 million**[136](index=136&type=chunk) - A **$12.0 million** Term Loan agreement with Cadence Bank was secured, with **$9.75 million** advanced on August 1, 2023, to fund the cash consideration for the Applied Asset Purchase[138](index=138&type=chunk)[139](index=139&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=26&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Provides management's analysis of the company's financial performance, liquidity, capital resources, and strategic initiatives, including recent acquisitions and developments [Cautionary Statement Regarding Forward-Looking Statements](index=30&type=section&id=CAUTIONARY%20STATEMENT%20REGARDING%20FORWARD-LOOKING%20STATEMENTS) Warns readers about the inherent risks and uncertainties associated with forward-looking statements contained within the report - The report contains forward-looking statements subject to risks and uncertainties, including shortfalls in revenue growth, ability to implement strategy, meet capital requirements, retain key personnel, and compete effectively[146](index=146&type=chunk) - Other risks include market acceptance of products, security breaches, internal control effectiveness, ability to develop new products, maintain clinical acceptance, impact of competitors, disruptions in distribution/supply, inventory management, and compliance with laws and regulations[146](index=146&type=chunk) [Overview](index=32&type=section&id=OVERVIEW) Provides a general description of Sanara MedTech's business, strategic focus, and key acquisitions - Sanara MedTech is a medical technology company focused on improving clinical outcomes and reducing healthcare expenditures in surgical, chronic wound, and skincare markets[149](index=149&type=chunk) - The company acquired manufacturing and selling rights for CellerateRX Surgical and HYCOL products on August 1, 2023, which were previously licensed[150](index=150&type=chunk) - Key acquisitions include Rochal assets (2021), Precision Healing (2022) for diagnostic imagers, and Scendia (2022) for regenerative and orthobiologic technologies[151](index=151&type=chunk)[152](index=152&type=chunk)[153](index=153&type=chunk) - A partnership with InfuSystem Holdings, Inc. was established in November 2022 to deliver a complete wound care solution[154](index=154&type=chunk) [Comprehensive Value-Based Care Strategy](index=33&type=section&id=COMPREHENSIVE%20VALUE-BASED%20CARE%20STRATEGY) Details the company's approach to offering integrated wound and skincare solutions through its WounDerm subsidiary - The company's subsidiary, United Wound and Skin Solutions, LLC (WounDerm), aims to offer a comprehensive wound and skincare solution to value-based care providers[156](index=156&type=chunk) - The strategy includes four key components: proprietary diagnostics (imager and LFA from Precision Healing), virtual consult services (via Direct Dermatology Inc.), proprietary efficacious products, and a specialized EMR and mobile application[157](index=157&type=chunk)[158](index=158&type=chunk)[159](index=159&type=chunk)[160](index=160&type=chunk) - Product development focuses on debridement, biofilm removal, hydrolyzed collagen, advanced biologics, negative pressure wound therapy, and oxygen delivery systems[159](index=159&type=chunk) [Recent Acquisitions](index=33&type=section&id=RECENT%20ACQUISITIONS) Summarizes the strategic acquisitions of Precision Healing, Scendia, and the Applied Asset Purchase, highlighting their contributions to the company's portfolio - Precision Healing, acquired in April 2022, is developing a diagnostic imager and lateral flow assay to quantify biochemical markers for wound and skin conditions[162](index=162&type=chunk) - Scendia, acquired in July 2022, provides regenerative and orthobiologic technologies, including TEXAGEN, BiFORM, AMPLIFY, and ALLOCYTE products[164](index=164&type=chunk) - The Applied Asset Purchase on August 1, 2023, for **$15.25 million**, secured rights to manufacture and sell CellerateRX Surgical and HYCOL products, along with inventory and intellectual property[168](index=168&type=chunk)[169](index=169&type=chunk) [Recent Developments](index=35&type=section&id=RECENT%20DEVELOPMENTS) Reports on key operational and financial events, including the dissolution of a joint venture and new financing agreements - Sanara Pulsar, LLC, a joint venture for wound care products, was dissolved in December 2022 due to limited adoption caused by the lack of an expanded reimbursement code, resulting in a **$1.0 million** noncash loss[171](index=171&type=chunk)[172](index=172&type=chunk) - A professional services agreement with Dr. George D. Petito, effective August 1, 2023, outlines compensation including a base salary, royalties on developed products, and incentive payments for FDA clearance and patent issuance[173](index=173&type=chunk) - A **$12.0 million** Term Loan agreement with Cadence Bank was secured on August 1, 2023, with **$9.75 million** advanced to fund the Applied Asset Purchase[175](index=175&type=chunk) [Components of Results of Operations](index=36&type=section&id=COMPONENTS%20OF%20RESULTS%20OF%20OPERATIONS) Explains the primary drivers of revenue, cost of goods sold, and operating expenses - Revenue is primarily from sales of soft tissue repair and bone fusion products to hospitals, with CellerateRX Surgical powder being the substantial majority[176](index=176&type=chunk) Revenue by Stream | Revenue Stream | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :----------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Soft tissue repair products | $13,249,742 | $9,569,441 | $26,122,223 | $17,327,648 | | Bone fusion products | $2,453,172 | $51,087 | $5,052,358 | $53,853 | | Royalty revenue | $50,250 | $50,250 | $100,500 | $100,500 | | **Total Net Revenue** | **$15,753,164** | **$9,670,778** | **$31,275,081** | **$17,482,001** | - Cost of goods sold includes acquisition costs, raw materials, and royalties; operating expenses comprise SG&A, R&D, depreciation and amortization, and changes in fair value of earnout liabilities[179](index=179&type=chunk)[180](index=180&type=chunk)[181](index=181&type=chunk)[182](index=182&type=chunk) [Results of Operations](index=38&type=section&id=RESULTS%20OF%20OPERATIONS) Analyzes the company's financial performance for the three and six months ended June 30, 2023, compared to prior periods, highlighting revenue growth and expense changes Key Financial Metrics | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net Revenues | $15,753,164 (63% YoY) | $9,670,778 | $31,275,081 (79% YoY) | $17,482,001 | | Cost of goods sold | $2,187,516 | $958,086 | $4,313,175 | $1,763,167 | | Gross margins | 86% | 90% | 86% | 90% | | SG&A expenses | $13,811,476 | $10,428,133 | $26,780,545 | $19,803,763 | | R&D expenses | $1,177,128 | $1,067,000 | $2,494,452 | $1,271,637 | | Depreciation and amortization expense | $803,694 | $539,124 | $1,582,569 | $741,871 | | Change in fair value of earnout liabilities | $(360,470) (benefit) | $63,427 (expense) | $(813,157) (benefit) | $63,427 (expense) | | Loss before income taxes | $(1,866,180) | $(3,384,992) | $(3,082,509) | $(6,541,497) | | Net income (loss) | $(1,866,180) | $756,914 | $(3,082,509) | $(2,399,591) | - Net revenues increased by **63%** and **79%** for the three and six months ended June 30, 2023, respectively, driven by organic growth, geographic expansion, and the Scendia acquisition, despite supply issues with the ALLOCYTE product line[184](index=184&type=chunk)[185](index=185&type=chunk) - Gross margins decreased to **86%** for both periods in 2023 from **90%** in 2022, primarily due to lower margins on certain Scendia products[186](index=186&type=chunk) - Operating expenses increased across SG&A (due to sales commissions and sales force expansion), R&D (Precision Healing diagnostic imager and LFA development), and depreciation/amortization (Precision Healing and Scendia intangible assets)[187](index=187&type=chunk)[188](index=188&type=chunk)[189](index=189&type=chunk) - A benefit from the change in fair value of earnout liabilities was recorded in 2023 due to a decrease in fair value of Precision Healing and Scendia earnout liabilities, contrasting with an expense in 2022[190](index=190&type=chunk) [Liquidity and Capital Resources](index=39&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) Discusses the company's cash position, equity offerings, future cash needs, and new debt financing arrangements - Cash on hand decreased to **$6.1 million** at June 30, 2023, from **$9.0 million** at December 31, 2022[195](index=195&type=chunk) - The company has a Controlled Equity Offering Sales Agreement to sell up to **$75.0 million** in common stock, with **$1.0 million** net proceeds raised in the first six months of 2023[195](index=195&type=chunk)[197](index=197&type=chunk) - Future cash needs include funding potential acquisitions, product development, clinical studies, sales force expansion, and general corporate purposes[198](index=198&type=chunk) - A **$12.0 million** Term Loan from Cadence Bank, secured on August 1, 2023, with an initial advance of **$9.75 million**, is expected to fund the Applied Asset Purchase and provide working capital[210](index=210&type=chunk)[211](index=211&type=chunk) - The Term Loan includes financial covenants requiring SMAT to maintain a minimum Debt Service Coverage Ratio and a maximum Cash Flow Leverage Ratio, with the company guaranteeing obligations and potentially needing to contribute cash if SMAT fails to comply[215](index=215&type=chunk)[216](index=216&type=chunk)[217](index=217&type=chunk) [Material Transactions with Related Parties](index=43&type=section&id=MATERIAL%20TRANSACTIONS%20WITH%20RELATED%20PARTIES) Details significant financial and operational transactions involving the company's related parties - The company's Executive Chairman, Ronald T. Nixon, is involved with Catalyst, an affiliate from which the company sublicenses CellerateRX Surgical and HYCOL products, and Rochal, a related party for product license agreements[223](index=223&type=chunk)[225](index=225&type=chunk) - Royalty expense under the CellerateRX Surgical sublicense was **$1.07 million** for the six months ended June 30, 2023, an increase from **$0.81 million** in the prior year[223](index=223&type=chunk) - A consulting agreement with Ann Beal Salamone, a director and significant shareholder of Rochal, provides an annual fee of **$177,697**[226](index=226&type=chunk) - Expenses of **$72,986** were incurred under a Transaction Advisory Services Agreement with Catalyst for the six months ended June 30, 2023[228](index=228&type=chunk) [Impact of Inflation and Changing Prices](index=45&type=section&id=IMPACT%20OF%20INFLATION%20AND%20CHANGING%20PRICES) Assesses the historical and anticipated effects of inflation and price changes on the company's operations - Inflation and changing prices have not had a material impact on historical results and are not anticipated to materially affect future operations[230](index=230&type=chunk) [Critical Accounting Estimates](index=45&type=section&id=CRITICALACCOUNTING%20ESTIMATES) Identifies the key accounting estimates and assumptions that significantly impact the financial statements - Key estimates and assumptions include revenue and expense accruals, fair value measurement of assets and liabilities, and purchase price allocation for acquisitions[231](index=231&type=chunk) - No significant changes to critical accounting policies have occurred since December 31, 2022[231](index=231&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=35&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) States the company's exemption from providing detailed market risk disclosures as a smaller reporting company - The company is exempt from providing quantitative and qualitative disclosures about market risk as a smaller reporting company[232](index=232&type=chunk) [Item 4. Controls and Procedures](index=35&type=section&id=Item%204.%20Controls%20and%20Procedures) Describes the evaluation of the company's disclosure controls and procedures and reports on any changes in internal control over financial reporting [Evaluation of Disclosure Controls and Procedures](index=45&type=section&id=EVALUATION%20OF%20DISCLOSURE%20CONTROLS%20AND%20PROCEDURES) Confirms management's assessment of the effectiveness of the company's disclosure controls and procedures - Management, with Certifying Officers, evaluated the effectiveness of disclosure controls and procedures as of June 30, 2023, concluding they were effective[234](index=234&type=chunk) [Changes in Internal Control Over Financial Reporting](index=46&type=section&id=CHANGES%20IN%20INTERNAL%20CONTROL%20OVER%20FINANCIAL%20REPORTING) Reports on the absence of any material changes in the company's internal control over financial reporting during the quarter - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2023[235](index=235&type=chunk) [Part II – Other Information](index=36&type=section&id=Part%20II%20%E2%80%93%20Other%20Information) Presents additional information not covered in the financial statements, including legal proceedings, risk factors, and exhibits [Item 1. Legal Proceedings](index=36&type=section&id=Item%201.%20Legal%20Proceedings) Confirms the absence of any material pending legal proceedings involving the company - There are no material pending legal proceedings to which the company is a party[237](index=237&type=chunk) [Item 1A. Risk Factors](index=36&type=section&id=Item%201A.%20Risk%20Factors) Updates the company's risk factors, focusing on acquisition integration, increased indebtedness, and compliance with loan covenants - New risk factors include the potential failure to realize anticipated benefits from the Applied Asset Purchase, challenges in maintaining manufacturing processes for CellerateRX Surgical and HYCOL products, and the impact of significant transaction costs[239](index=239&type=chunk)[240](index=240&type=chunk) - Increased indebtedness could adversely affect financial condition by requiring a significant portion of cash flow for debt service, limiting flexibility, and increasing interest expense due to floating rates[241](index=241&type=chunk)[242](index=242&type=chunk) - The Loan Agreement contains operating and financial covenants that restrict business activities, including limitations on creating liabilities, liens, investments, and distributions, and requires SMAT to maintain specific Debt Service Coverage and Cash Flow Leverage Ratios[243](index=243&type=chunk)[251](index=251&type=chunk) - A breach of loan covenants could lead to an event of default, accelerating indebtedness and potentially applying a default interest rate of an additional **5.0%** per annum[245](index=245&type=chunk) - The Loan Agreement also stipulates that if the Executive Chairman, Ron Nixon, ceases to serve as Chairman of the Board for the Company or SMAT without an acceptable successor within **10 business days**, it could trigger an event of default[247](index=247&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=48&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Reports on the absence of previously unreported unregistered sales of equity securities during the quarter - No unregistered sales of equity securities occurred during the quarter ended June 30, 2023, that were not previously reported on a Form 8-K[248](index=248&type=chunk) [Item 3. Defaults Upon Senior Securities](index=48&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) Confirms that the company has not defaulted on any senior securities - There were no defaults upon senior securities[249](index=249&type=chunk) [Item 4. Mine Safety Disclosures](index=48&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) States that this item is not applicable to the company's business operations - This item is not applicable to the company's operations[250](index=250&type=chunk) [Item 5. Other Information](index=49&type=section&id=Item%205.%20Other%20Information) Indicates that no other material information was required to be disclosed in this section - No other information was disclosed[252](index=252&type=chunk) [Item 6. Exhibits](index=50&type=section&id=Item%206.%20Exhibits) Lists all supplementary documents and agreements filed as part of the report, including key acquisition and loan agreements - Key exhibits include the Asset Purchase Agreement for Rochal Industries (July 2021), Agreement and Plan of Merger for Precision Healing Inc. (April 2022), Membership Interest Purchase Agreement for Scendia Biologics, LLC (July 2022), and the Asset Purchase Agreement for Applied Nutritionals, LLC (August 2023)[255](index=255&type=chunk) - Also included are the Professional Services Agreement with Dr. George D. Petito and the Loan Agreement with Cadence Bank, both dated August 1, 2023[255](index=255&type=chunk) - Certifications of the Principal Executive Officer and Principal Financial Officer are filed in accordance with the Sarbanes-Oxley Act of 2002[255](index=255&type=chunk) [Signatures](index=52&type=section&id=SIGNATURES) Confirms the official signing of the report by the company's Chief Financial Officer - The report was signed by Michael D. McNeil, Chief Financial Officer, on August 14, 2023[262](index=262&type=chunk)

Sanara MedTech Inc. (NASDAQ:SMTI) Q1 2023 Earnings Conference Call May 16, 2023 9:00 AM ET Company Participants Callon Nichols - Director, Investor Relations Ron Nixon - Chairman Zach Fleming - Chief Executive Officer Mike McNeil - Chief Financial Officer Conference Call Participants Ross Osborn - Cantor Fitzgerald Ian Cassel - IFCM Operator Good morning. And welcome to the Sanara MedTech Inc. First Quarter 2023 Results and Business Update Conference Call. [Operator Instructions] I’d now like to turn the ca ...

[Part I – Financial Information](index=3&type=section&id=Part%20I%20%E2%80%93%20Financial%20Information) This section presents the unaudited consolidated financial statements and management's discussion and analysis [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) Presents unaudited consolidated financial statements, including balance sheets, operations, equity changes, cash flows, and detailed explanatory notes [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets%20as%20of%20March%2031%2C%202023%20(Unaudited)%20and%20December%2031%2C%202022) Total assets and shareholders' equity slightly decreased from December 2022 to March 2023, mainly due to reduced current assets Consolidated Balance Sheets | Metric | March 31, 2023 ($) | December 31, 2022 ($) | | :----------------------------- | :------------- | :---------------- | | Cash | $7,286,437 | $8,958,995 | | Total Current Assets | $19,007,678 | $20,616,509 | | Total Assets | $59,967,354 | $61,035,386 | | Total Current Liabilities | $10,601,797 | $12,806,309 | | Total Liabilities | $18,488,584 | $19,315,411 | | Total Shareholders' Equity | $41,478,770 | $41,719,975 | [Consolidated Statements of Operations](index=6&type=section&id=Consolidated%20Statements%20of%20Operations%20(Unaudited)%20for%20the%20Three%20Months%20Ended%20March%2031%2C%202023%20and%202022) Net revenue increased 99% year-over-year, reducing net loss from $3.2 million to $1.2 million despite higher operating expenses Consolidated Statements of Operations | Metric | Three Months Ended March 31, 2023 ($) | Three Months Ended March 31, 2022 ($) | | :------------------------------------- | :-------------------------------- | :-------------------------------- | | Net Revenue | $15,521,917 | $7,811,223 | | Cost of goods sold | $2,125,659 | $805,081 | | Gross profit | $13,396,258 | $7,006,142 | | Total operating expenses | $14,612,581 | $9,783,014 | | Operating loss | $(1,216,323) | $(2,776,872) | | Net loss attributable to Sanara MedTech shareholders | $(1,177,900) | $(3,129,324) | | Net loss per share, basic and diluted | $(0.14) | $(0.41) | [Consolidated Statements of Changes in Shareholders' Equity](index=7&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Shareholders%27%20Equity%20(Unaudited)%20for%20the%20Three%20Months%20Ended%20March%2031%2C%202023%20and%202022) Shareholders' equity slightly decreased due to net loss, partially offset by share-based compensation and equity offering proceeds Consolidated Statements of Changes in Shareholders' Equity | Metric | Balance at December 31, 2022 ($) | Balance at March 31, 2023 ($) | | :-------------------------------- | :--------------------------- | :-------------------------- | | Total Shareholders' Equity | $41,719,975 | $41,478,770 | | Share-based compensation | - | $597,305 | | Net settlement and retirement of equity-based awards | - | $(655,942) | | Issuance of common stock in equity offering | - | $1,033,761 | | Net loss | - | $(1,216,329) | [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows%20(Unaudited)%20for%20the%20Three%20Months%20Ended%20March%2031%2C%202023%20and%202022) Operating cash outflow decreased year-over-year, while financing activities provided cash, resulting in a net decrease in cash Consolidated Statements of Cash Flows | Metric | Three Months Ended March 31, 2023 ($) | Three Months Ended March 31, 2022 ($) | | :------------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash used in operating activities | $(1,741,313) | $(2,112,478) | | Net cash used in investing activities | $(27,055) | $(294,352) | | Net cash provided by (used in) financing activities | $95,810 | $(102,931) | | Net decrease in cash | $(1,672,558) | $(2,509,761) | | Cash, end of period | $7,286,437 | $16,143,080 | [Notes to Unaudited Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Unaudited%20Consolidated%20Financial%20Statements) Detailed notes explain business, accounting policies, acquisitions, intangible assets, equity investments, leases, commitments, and related party transactions [NOTE 1 – Nature of Business and Background](index=9&type=section&id=NOTE%201%20%E2%80%93%20NATURE%20OF%20BUSINESS%20AND%20BACKGROUND) This note describes Sanara MedTech Inc.'s business as a medical technology company focused on improving clinical outcomes and reducing healthcare costs - Sanara MedTech Inc. is a medical technology company focused on developing and commercializing transformative technologies to improve clinical outcomes and reduce healthcare expenditures in the surgical, chronic wound, and skincare markets[18](index=18&type=chunk) - The company's overall goal is to achieve better clinical outcomes at a lower overall cost for patients across the United States[18](index=18&type=chunk) [NOTE 2 — Summary of Significant Accounting Policies](index=9&type=section&id=NOTE%202%20%E2%80%94%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This note outlines the company's key accounting policies, including revenue recognition, goodwill, intangible assets, and recent accounting standard updates - Revenue is recognized in accordance with ASC Topic 606, when control of promised goods or services is transferred to the customer[25](index=25&type=chunk)[29](index=29&type=chunk) Revenue Streams (Three Months Ended March 31) | Revenue Type | 2023 ($) | 2022 ($) | | :------------- | :----------- | :----------- | | Product sales | $15,471,667 | $7,760,973 | | Royalty revenue | $50,250 | $50,250 | | Total Net Revenue | $15,521,917 | $7,811,223 | - Goodwill, primarily from the Scendia acquisition, has an indefinite useful life and is tested annually for impairment[38](index=38&type=chunk) - Intangible assets are amortized on a straight-line basis over their estimated useful lives, generally the life of related patents/licenses, **seven years for customer relationships**, and **five years for assembled workforces**[39](index=39&type=chunk) - The company adopted ASU 2016-13 (Credit Losses) effective January 1, 2023, with **no material impact** on its financial statements[55](index=55&type=chunk) [NOTE 3 – Precision Healing Merger](index=15&type=section&id=NOTE%203%20%E2%80%93%20PRECISION%20HEALING%20MERGER) This note details the April 2022 acquisition of Precision Healing, including merger consideration, contingent earnouts, and accounting treatment - In April 2022, Sanara MedTech acquired Precision Healing, which is developing a diagnostic imager and lateral flow assay for wound and skin conditions[57](index=57&type=chunk)[58](index=58&type=chunk) - The merger consideration included **$125,966 in cash**, **165,738 shares** of common stock, and the assumption of **144,191 stock options** and **16,725 warrants**[59](index=59&type=chunk)[60](index=60&type=chunk) - Securityholders are entitled to receive up to **$10.0 million** in contingent earnout payments based on performance thresholds, payable in cash or stock[62](index=62&type=chunk) - The merger was accounted for as an asset acquisition, with the purchase consideration primarily allocated to finite-lived intellectual property and assembled workforce[64](index=64&type=chunk)[65](index=65&type=chunk) [NOTE 4 – Scendia Purchase Agreement](index=17&type=section&id=NOTE%204%20%E2%80%93%20SCENDIA%20PURCHASE%20AGREEMENT) This note describes the July 2022 acquisition of Scendia Biologics, including consideration, earnout payments, and resulting goodwill - In July 2022, the Company acquired **100% of Scendia Biologics, LLC**, gaining a full line of regenerative and orthobiologic technologies and full ownership of Sanara Biologics, LLC[66](index=66&type=chunk)[67](index=67&type=chunk) - The closing consideration included approximately **$1.6 million in cash** and **291,686 shares of common stock**, with **94,798 shares** withheld as Indemnity Holdback Shares[68](index=68&type=chunk) - The seller is entitled to two potential earnout payments, not exceeding **$10.0 million in aggregate**, based on net revenue targets, payable in cash or stock[69](index=69&type=chunk) - The acquisition was recorded as a business combination, resulting in **$3,601,781 in goodwill**[71](index=71&type=chunk) [NOTE 5 – Intangible Assets](index=18&type=section&id=NOTE%205%20%E2%80%93%20INTANGIBLE%20ASSETS) This note provides details on the company's amortizable intangible assets, including product licenses, patents, customer relationships, and amortization expense Amortizable Intangible Assets (Net) | Asset Type | March 31, 2023 ($) | December 31, 2022 ($) | | :-------------------------- | :------------- | :---------------- | | Product Licenses | $3,740,785 | $3,813,296 | | Patents and Other IP | $20,136,762 | $20,443,523 | | Customer relationships and other | $6,961,232 | $7,253,161 | | Total | $30,838,779 | $31,509,980 | Amortization Expense (Three Months Ended March 31) | Metric | 2023 ($) | 2022 ($) | | :--------------- | :------- | :------- | | Amortization Expense | $671,201 | $110,023 | - The weighted-average amortization period for finite-lived intangible assets was **14.3 years** as of March 31, 2023[73](index=73&type=chunk) [NOTE 6 – Investments in Equity Securities](index=19&type=section&id=NOTE%206%20%E2%80%93%20INVESTMENTS%20IN%20EQUITY%20SECURITIES) This note outlines the company's nonmarketable equity investments and the cessation of its equity method investment in Precision Healing Inc - The company holds nonmarketable equity securities in Direct Dermatology Inc. (**$1,000,000 carrying amount**) and Pixalere Healthcare Inc. (**$2,084,278 carrying amount**), accounted for at cost[75](index=75&type=chunk)[78](index=78&type=chunk)[80](index=80&type=chunk) - The equity method investment in Precision Healing Inc. ceased in April 2022 due to the merger, with a **$379,633 loss** recorded in Q1 2022[77](index=77&type=chunk)[80](index=80&type=chunk) [NOTE 7 - Operating Leases](index=20&type=section&id=NOTE%207%20-%20OPERATING%20LEASES) This note details the company's operating lease liabilities, right-of-use assets, and key lease terms, including a recent office lease amendment Operating Lease Liabilities | Metric | March 31, 2023 ($) | | :-------------------------------- | :------------- | | Right of Use Assets | $2,099,021 | | Present Value of Lease Liabilities | $2,112,570 | | Operating lease liabilities – current | $253,381 | | Operating lease liabilities – long-term | $1,859,189 | - The company amended its primary office lease in March 2023 to obtain additional space and extend the term[82](index=82&type=chunk) - As of March 31, 2023, the weighted average remaining lease term was **6.6 years** with a weighted average discount rate of **7.49%**[84](index=84&type=chunk) [NOTE 8 - Commitments and Contingencies](index=21&type=section&id=NOTE%208%20-%20COMMITMENTS%20AND%20CONTINGENCIES) This note describes the company's royalty obligations, license agreements, contingent earnout payments, and the dissolution of Sanara Pulsar, LLC - The company pays royalties for CellerateRX Surgical and HYCOL products (**3-5% of net sales**), with royalty expense of **$520,814** in Q1 2023[85](index=85&type=chunk)[86](index=86&type=chunk) - License agreements with Rochal for BIAKŌS, CuraShield, and a debrider product involve royalties (**2-4% of net sales**) and minimum annual royalty commitments[88](index=88&type=chunk)[91](index=91&type=chunk)[92](index=92&type=chunk) - Contingent earnout payments of up to **$10.0 million each** are associated with the Precision Healing merger and Scendia acquisition[99](index=99&type=chunk)[101](index=101&type=chunk) - Sanara Pulsar, LLC was dissolved in December 2022, with an accrued payment of **$242,000** related to fiscal 2022[102](index=102&type=chunk) [NOTE 9 – Shareholders' Equity](index=24&type=section&id=NOTE%209%20%E2%80%93%20SHAREHOLDERS%27%20EQUITY) This note details common stock outstanding, LTIP plan shares, equity offering proceeds, and share-based compensation expense Common Stock Outstanding | Date | Shares Outstanding | | :----------- | :----------------- | | March 31, 2023 | 8,385,027 | | December 31, 2022 | 8,299,957 | - The company has an LTIP Plan with **1,445,551 shares** available for issuance as of March 31, 2023[103](index=103&type=chunk) - In Q1 2023, the company sold **26,143 shares** of common stock through a Controlled Equity Offering for approximately **$1.0 million** in net proceeds[112](index=112&type=chunk) - Share-based compensation expense was **$597,305** for the three months ended March 31, 2023, with **$4,803,372** of total unrecognized expense remaining[114](index=114&type=chunk) [NOTE 10 - Related Parties](index=27&type=section&id=NOTE%2010%20-%20RELATED%20PARTIES) This note outlines significant transactions and agreements with related parties, including sublicense, license, and consulting agreements - The company has an exclusive sublicense with CGI Cellerate RX (an affiliate of Catalyst, where the Executive Chairman is a managing partner) for CellerateRX products, which comprise the **substantial majority of sales**[118](index=118&type=chunk)[119](index=119&type=chunk) - Multiple license agreements exist with Rochal Industries, LLC (where the Executive Chairman and another director are significant shareholders/directors) for antimicrobial and debrider products[120](index=120&type=chunk)[121](index=121&type=chunk)[122](index=122&type=chunk) - A consulting agreement with Ann Beal Salamone (a director) provides for an annual fee of **$177,697**[123](index=123&type=chunk) Related Party Balances | Metric | March 31, 2023 ($) | December 31, 2022 ($) | | :-------------------------- | :------------- | :---------------- | | Related Party Receivables | $23,946 | $98,548 | | Related Party Payables | $23,289 | $34,036 | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=29&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial performance, liquidity, and capital resources for Q1 2023, emphasizing revenue growth, acquisitions, and future outlook [Cautionary Statement Regarding Forward-Looking Statements](index=29&type=section&id=Cautionary%20Statement%20Regarding%20Forward-Looking%20Statements) This section warns that the report contains forward-looking statements subject to various risks and uncertainties, including revenue and strategy execution - The report contains forward-looking statements subject to various risks and uncertainties, including shortfalls in revenue growth, ability to implement strategy, capital requirements, competition, market acceptance, and intellectual property protection[128](index=128&type=chunk) [Overview](index=31&type=section&id=Overview) This section provides an overview of Sanara MedTech's business, its focus on medical technology, and recent strategic acquisitions and partnerships - Sanara MedTech is a medical technology company focused on developing and commercializing transformative technologies in surgical, chronic wound, and skincare markets[131](index=131&type=chunk) - The company expanded through the acquisition of Precision Healing (diagnostic imager, LFA) in April 2022 and Scendia (regenerative/orthobiologic technologies) in July 2022[134](index=134&type=chunk)[135](index=135&type=chunk) - A partnership with InfuSystem Holdings, Inc. was established in November 2022 to deliver complete wound care solutions[136](index=136&type=chunk) [Comprehensive Value-Based Care Strategy](index=31&type=section&id=Comprehensive%20Value-Based%20Care%20Strategy) This section outlines the company's strategy to offer comprehensive wound and skincare solutions through diagnostics, virtual consults, products, and EMR - The company's strategy, through its subsidiary WounDerm, aims to offer a comprehensive wound and skincare solution to value-based care providers[137](index=137&type=chunk) - The solution consists of four key components: diagnostics (Precision Healing imager/LFA), virtual consult services (Direct Dermatology affiliation), proprietary products (**six focus areas**), and a specialized EMR/mobile application[138](index=138&type=chunk)[139](index=139&type=chunk)[141](index=141&type=chunk)[142](index=142&type=chunk) [Recent Acquisitions](index=33&type=section&id=Recent%20Acquisitions) This section summarizes the Precision Healing merger and Scendia acquisition, detailing the consideration and contingent earnout payments for each - The Precision Healing merger (April 2022) involved cash, common stock, assumed options/warrants, and up to **$10.0 million** in contingent earnout payments[144](index=144&type=chunk)[145](index=145&type=chunk) - The Scendia acquisition (July 2022) involved **$1.6 million cash**, **291,686 shares of common stock**, and up to **$10.0 million** in contingent earnout payments[146](index=146&type=chunk)[147](index=147&type=chunk)[148](index=148&type=chunk) [Recent Developments](index=33&type=section&id=Recent%20Developments) This section highlights the dissolution of Sanara Pulsar, LLC in December 2022 due to limited product adoption, resulting in a noncash loss - Sanara Pulsar, LLC was dissolved effective December 2022 due to limited adoption of its wound debridement products, resulting in a **$1.0 million noncash loss** on disposal of investment in Q4 2022[151](index=151&type=chunk) [Components of Results of Operations](index=35&type=section&id=Components%20of%20Results%20of%20Operations) This section breaks down the key components of the company's results of operations, including revenue sources, cost of goods sold, and operating expenses - Revenue is primarily derived from sales of surgical products, with a substantial majority from CellerateRX surgical powder, and royalty revenue from a development and licensing agreement[152](index=152&type=chunk)[154](index=154&type=chunk) - Cost of goods sold includes acquisition costs, raw materials, and royalties[155](index=155&type=chunk) - Operating expenses comprise Selling, General and Administrative (SG&A), Research and Development (R&D), Depreciation and Amortization, and Change in fair value of earnout liabilities[156](index=156&type=chunk)[157](index=157&type=chunk)[158](index=158&type=chunk) [Results of Operations](index=36&type=section&id=Results%20of%20Operations) This section analyzes the company's financial performance for the three months ended March 31, 2023, detailing revenue, expenses, and net loss Key Financial Results (Three Months Ended March 31) | Metric | 2023 | 2022 | Change (YoY) | | :------------------------------------- | :----------- | :----------- | :----------- | | Net Revenues | $15.5 million | $7.8 million | 99% increase | | Scendia Sales Contribution | $3.0 million | - | - | | Cost of goods sold | $2.1 million | $0.8 million | 162.5% increase | | Gross Margins | 86% | 90% | -4 percentage points | | SG&A expenses | $13.0 million | $9.4 million | 38.3% increase | | R&D expenses | $1.3 million | $0.2 million | 550% increase | | Depreciation and amortization expense | $0.8 million | $0.2 million | 300% increase | | Change in fair value of earnout liabilities | $0.5 million benefit | $0 | - | | Net loss | $1.2 million | $3.2 million | 62.5% decrease | - Supply issues with the ALLOCYTE product line negatively impacted sales in Q4 2022 and Q1 2023, with resolution anticipated in the **second half of 2023**[161](index=161&type=chunk) - Higher SG&A expenses were primarily due to increased sales commissions (**$2.9 million**) and sales force expansion (**$0.5 million**)[163](index=163&type=chunk) - Increased R&D expenses were mainly due to costs related to the Precision Healing diagnostic imager and LFA development[164](index=164&type=chunk) [Liquidity and Capital Resources](index=36&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's cash position, equity offering, and ability to fund operations and growth for the next twelve months Cash on Hand | Date | Amount ($ millions) | | :----------- | :----------- | | March 31, 2023 | $7.3 million | | December 31, 2022 | $9.0 million | - The company entered into a Controlled Equity Offering Sales Agreement for up to **$75.0 million**, selling **26,143 shares** for **$1.0 million** net proceeds in Q1 2023[168](index=168&type=chunk)[170](index=170&type=chunk) - Expected cash on hand and cash flows from operations are believed to be sufficient to fund growth and operating expenses for at least the **next twelve months**[171](index=171&type=chunk) - The first potential earnout payment for the Scendia acquisition is anticipated in **October 2023**, while the Precision Healing earnout is not expected before **January 2025**[175](index=175&type=chunk)[178](index=178&type=chunk) [Cash Flow Analysis](index=39&type=section&id=Cash%20Flow%20Analysis) This section analyzes net cash flows from operating, investing, and financing activities for the three months ended March 31, 2023 and 2022 Net Cash Flow Activities (Three Months Ended March 31) | Activity | 2023 ($ millions) | 2022 ($ millions) | | :------------------------------------- | :------------- | :------------- | | Net cash used in operating activities | $(1.7) million | $(2.1) million | | Net cash used in investing activities | $(27,055) | $(294,352) | | Net cash provided by (used in) financing activities | $0.1 million | $(0.1) million | - The lower use of cash in investing activities in 2023 was primarily due to **no cash investments in equity securities**[180](index=180&type=chunk) - Cash provided by financing activities in 2023 was due to net proceeds from common stock sales, partially offset by equity-based award settlements[181](index=181&type=chunk) [Material Transactions with Related Parties](index=39&type=section&id=Material%20Transactions%20with%20Related%20Parties) This section details significant transactions with related parties, including sublicense agreements, consulting fees, and advisory services - The company has an exclusive sublicense with CGI Cellerate RX (an affiliate of Catalyst, where the Executive Chairman is a managing partner) for CellerateRX products, with royalty expense of **$520,814** in Q1 2023[182](index=182&type=chunk)[183](index=183&type=chunk) - A consulting agreement with Ann Beal Salamone (a director) provides for an annual fee of **$177,697**[184](index=184&type=chunk) - A Transaction Advisory Services Agreement with Catalyst was entered in March 2023; **no expenses were incurred** in Q1 2023[185](index=185&type=chunk)[186](index=186&type=chunk) [Impact of Inflation and Changing Prices](index=40&type=section&id=Impact%20of%20Inflation%20and%20Changing%20Prices) This section assesses the historical and anticipated impact of inflation and changing prices on the company's financial results - Inflation and changing prices have not had a material impact on historical results and are **not anticipated to have a material impact** on future results[188](index=188&type=chunk) [Critical Accounting Estimates](index=40&type=section&id=Critical%20Accounting%20Estimates) This section identifies the company's critical accounting estimates, including revenue accruals, fair value measurements, and purchase price allocations - Significant accounting estimates include revenue and expense accruals, fair value measurement of assets and liabilities, and allocation of purchase price to acquired assets[189](index=189&type=chunk) - **No significant changes** to critical accounting policies have occurred since December 31, 2022[189](index=189&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=31&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) As a smaller reporting company, Sanara MedTech Inc. is exempt from providing market risk disclosures - The company is not required to provide quantitative and qualitative disclosures about market risk as it is a **smaller reporting company**[190](index=190&type=chunk) [Item 4. Controls and Procedures](index=31&type=section&id=Item%204.%20Controls%20and%20Procedures) Management evaluated disclosure controls and procedures as effective, with no material changes in internal control over financial reporting [Evaluation of Disclosure Controls and Procedures](index=40&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) This section confirms the effectiveness of the company's disclosure controls and procedures as evaluated on March 31, 2023 - The company's disclosure controls and procedures were evaluated and deemed **effective** as of March 31, 2023[191](index=191&type=chunk) [Changes in Internal Control over Financial Reporting](index=40&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) This section states that no material changes occurred in internal control over financial reporting during the quarter ended March 31, 2023 - **No material changes** in internal control over financial reporting occurred during the quarter ended March 31, 2023[192](index=192&type=chunk) [Part II – Other Information](index=32&type=section&id=Part%20II%20%E2%80%93%20Other%20Information) This section provides other required information, including legal proceedings, risk factors, equity sales, defaults, and exhibits [Item 1. Legal Proceedings](index=32&type=section&id=Item%201.%20Legal%20Proceedings) The company is not aware of any material pending legal proceedings - To the company's knowledge, there are **no material pending legal proceedings**[195](index=195&type=chunk) [Item 1A. Risk Factors](index=32&type=section&id=Item%201A.%20Risk%20Factors) No material changes to the Risk Factors previously disclosed in the Annual Report on Form 10-K for 2022 - **No material changes** to the Risk Factors disclosed in the Annual Report on Form 10-K for the year ended December 31, 2022[196](index=196&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=32&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No unregistered sales of equity securities occurred during Q1 2023 that were not previously reported - There were **no sales of unregistered securities** during the quarter ended March 31, 2023, that were not previously reported on a Current Report on Form 8-K[197](index=197&type=chunk) [Item 3. Defaults Upon Senior Securities](index=32&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) There were no defaults upon senior securities - **No defaults** upon senior securities[198](index=198&type=chunk) [Item 4. Mine Safety Disclosures](index=32&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - This item is **not applicable** to the company[199](index=199&type=chunk) [Item 5. Other Information](index=32&type=section&id=Item%205.%20Other%20Information) No other information to report under this item - **No other information** to report[200](index=200&type=chunk) [Item 6. Exhibits](index=33&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed or incorporated by reference, including agreements, organizational documents, and certifications - Exhibits include the Controlled Equity Offering Sales Agreement, Asset Purchase Agreement, Merger Agreement, Membership Interest Purchase Agreement, organizational documents, and various certifications[203](index=203&type=chunk) [Signatures](index=34&type=section&id=Signatures) The report is signed by Michael D. McNeil, Chief Financial Officer of Sanara MedTech Inc., on May 15, 2023 - The report was signed by Michael D. McNeil, Chief Financial Officer of Sanara MedTech Inc., on **May 15, 2023**[209](index=209&type=chunk)

Financial Data and Key Metrics Changes - The company generated $45.8 million in net revenue for 2022, representing a 90% increase from $24.1 million in 2021 [58][89] - The net loss for 2022 was $8.1 million, slightly higher than the $8 million loss in 2021, impacted by increased SG&A costs and R&D expenses [21][64][90] Business Line Data and Key Metrics Changes - Cellerate sales continued to show strong growth, contributing significantly to the revenue increase [18][66] - Sales at Scendia remained flat from Q3 to Q4 due to supply issues with the Allocyte product [21][82] Market Data and Key Metrics Changes - CellerateRX was sold in 700 hospitals and ASCs across 29 states, with approval to be sold in over 1700 facilities [2] - The company is focusing on existing accounts rather than new facility approvals to maximize product introduction [3] Company Strategy and Development Direction - The company aims to raise capital for acquisitions and partnerships, enhance liquidity, and fund product development and clinical studies [1] - A strategic focus on comprehensive wound care solutions is being pursued, with partnerships being sought to enhance offerings [5][7] Management's Comments on Operating Environment and Future Outlook - Management expects improvements in supply issues for the Allocyte product in the second half of 2023 [4][19] - The company believes it will be the first to market with its comprehensive wound care strategy, which is anticipated to be well received [30][67] Other Important Information - The company dissolved Sanara Pulsar in December 2022 due to minimal sales and lack of reimbursement code [22][63] - R&D expenses increased significantly to $3.4 million in 2022, primarily due to costs related to the Precision Healing diagnostic imager [62] Q&A Session Summary Question: Can you provide insights on cross-selling abilities in Q4? - Management noted that cross-selling is going well, with products being complementary and gaining traction [70] Question: What is the commercialization plan for Precision? - The company anticipates a lease program for marketing Precision and highlighted its differentiation from the predicate device [72][73] Question: How does the company view private market valuations for acquisitions? - Management indicated that valuations do not significantly impact their acquisition strategy, focusing instead on alignment of interests [76][78] Question: What are the challenges to continuing growth for Cellerate? - Challenges include ensuring field presence and establishing a research base to support product efficacy [26] Question: What is the status of clinical studies with Cellerate? - The company has several studies underway, with positive results expected to be published soon [125][126]

Medical Technology Development - The company focuses on developing transformative medical technologies aimed at improving clinical outcomes and reducing healthcare costs in surgical, chronic wound, and skincare markets [20]. - The company has a robust pipeline of products under development, including next-generation CellerateRX Surgical and a sterile antimicrobial wound solution [37]. - The company is actively developing proprietary products and technologies, with a focus on patent protection to safeguard innovations in the surgical and chronic wound markets [69]. - The company is developing an autolytic debrider product and a sterile antimicrobial surgical wash product, with discussions ongoing regarding the best path for seeking clearance and approval [105]. - The company plans to launch WounDerm services to gather patient data, aiming to improve product effectiveness and reduce healthcare costs [79]. Market Opportunities - The annual treatment cost for all wounds in the U.S. is approximately $28 billion, with surgical site infections costing between $3.5 billion and $10 billion annually [32]. - Approximately 15% of the Medicare beneficiary population has chronic nonhealing wounds, indicating a significant market opportunity for wound care products [49]. - Over 34 million people in the U.S., or approximately 10% of the population, suffer from diabetes, which can lead to diabetic foot ulcers (DFUs) that are difficult to heal [50]. - Venous leg ulcers (VLUs) affect approximately 600,000 people annually in the U.S., highlighting a substantial patient base for targeted treatments [51]. - Annually, 2.5 million pressure ulcers are treated in acute care facilities in the U.S., representing a critical area for intervention [52]. Acquisitions and Partnerships - The company acquired Precision Healing Inc. in April 2022, which is developing a diagnostic imager and lateral flow assay for wound assessment, with 510(k) submissions planned for 2023 [23]. - Following the acquisition of Scendia in July 2022, the company expanded its product offerings to include regenerative and orthobiologic technologies [24]. - The company plans to establish partnerships with Medicare Advantage and other healthcare at-risk models to improve outcomes and lower wound care costs [43]. - The company acquired certain assets from Rochal in July 2021, including eight issued U.S. patents and over 100 issued patents in foreign jurisdictions, expanding its patent portfolio significantly [70]. Regulatory Compliance - The company’s operations are subject to comprehensive federal, state, and local laws and regulations, which are frequently changing and may impact profitability [97]. - The FDA has 180 days to complete its review of a PMA application, although the review often takes significantly longer [104]. - The company must comply with federal truth-in-advertising laws enforced by the FTC, which can result in penalties for non-compliance [112]. - The PMA process requires extensive data, including preclinical studies and clinical trials, to demonstrate that a device is safe and effective [104]. - Non-compliance with regulatory requirements can lead to severe consequences, including fines, product seizures, and injunctions against manufacturing or distributing products [195]. Financial Performance and Risks - The company has a history of losses, which may continue as it expands its selling efforts [134]. - Revenue growth for a particular period is difficult to predict, and a shortfall in forecasted revenues may harm operating results [134]. - The company relies heavily on research and development partners to design, manufacture, and supply licensed products, and any failure could incur significant costs and delays [135]. - Economic conditions, including inflation and changes in reimbursement rates, could affect the ability of surgical facilities to purchase products, impacting revenue [142]. - The company faces competition from larger companies in the wound care market, including Smith & Nephew plc and 3M Company, which have greater financial resources [80]. Intellectual Property and Licensing - The company relies on patents and other legal protections for its technologies, but these may not provide sufficient competitive advantages or prevent competitors from entering the market [174]. - The company relies heavily on licensed technologies and products from third parties, and failure to comply with licensing agreements could halt the development and commercialization of its products [180]. - There is no assurance that existing licensing agreements will be extended on reasonable terms, which could impact the company's ability to generate revenue and meet payment obligations [181]. - CellerateRX Surgical currently has no patent protection, which may expose the company to competition from equivalent products, potentially adversely affecting its business and financial condition [179]. Telehealth and Virtual Services - The U.S. teledermatology market is projected to grow from $5 billion in 2019 to $45 billion by 2027 [32]. - The anticipated launch of wound and skincare virtual consult services may face competition from other telehealth providers, impacting financial performance [146]. - The company's telehealth business expansion is dependent on maintaining relationships with affiliated professional entities, and disruptions in these relationships could adversely affect operations [171]. - Recent state legislative changes regarding telemedicine may impose additional compliance costs and operational impacts, potentially affecting service availability [173]. Supply Chain and Manufacturing - The company experienced supply issues with the ALLOCYTE product line during Q3 2022, which negatively impacted sales, but anticipates resolution in the second half of 2023 [76]. - The company relies on contract manufacturing to avoid high capital outlays and fixed costs associated with establishing its own manufacturing facilities [75]. - Disruptions in the supply of tissues are negatively impacting the inventory of ALLOCYTE, which could materially affect the company's financial condition and results of operations [163]. - Increased prices or unavailability of raw materials could adversely affect profitability, as the company may not be able to pass on cost increases to customers [168]. Employee and Operational Structure - As of December 31, 2022, the company had a total of 101 full-time employees and 2 part-time employees [130]. - As of December 31, 2022, the company employed 39 field sales representatives and continuously evaluates new markets and sales opportunities [72]. - The company plans to increase the scope of operations rapidly, which may strain internal resources and require effective management of growth [144].

Sanara Medtech, Inc. (NASDAQ:SMTI) Q3 2022 Earnings Conference Call November 15, 2022 9:00 AM ET Company Participants Callon Nichols - Director, IR Ronald Nixon - Executive Chairman Zachary Fleming - CEO Michael McNeil - CFO & Corporate Secretary Conference Call Participants Christopher Plahm - Tall Pines Capital Ian Cassel - MicroCapClub Operator Good day, ladies and gentlemen, and welcome to the Sanara MedTech Inc. Q3 2022 Earnings and Business Update. [Operator Instructions]. It is now my pleasure to tur ...