SMTI US Equity☆

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, 2021

OR

For the transition period from ________ to ________

Commission

File Number 001-39678

SANARA MEDTECH INC.

(Exact

name of Registrant as specified in its charter)

1200 Summit Ave, Suite 414, Fort Worth, Texas76102

(Address

of principal executive offices)

(817)529-2300

(Registrant’s

telephone number, including area code)

Securities

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

Title of each class Trading Symbol(s) Name of each exchange on which registered

Common Stock, $0.001 par value SMTI The Nasdaq Capital Market

Indicate

by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes

☒ No

Indicate

by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐

Yes ☒ No

Indicate

by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange

Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)

has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate

by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule

405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant

was required to submit such files). ☒ Yes ☐ No

Indicate

by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting

company or an emerging growth company. See the definitions of “accelerated filer,” “large accelerated filer”

and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐ Accelerated filer ☐

Non-accelerated filer ☒ Smaller reporting company ☒

Emerging growth company ☐

If

an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying

with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate

by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness

of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.7262(b)) by the registered

public accounting firm that prepared or issued its audit report. ☐

Indicate

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

☒

The

aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of June 30, 2021 based

on the $36.95 closing price as of such date was approximately $113,199,429.

As

of March 30, 2022, 7,813,738shares of the Issuer’s common stock, $0.001 par value

per share were issued and outstanding.

DOCUMENTS

INCORPORATED BY REFERENCE

The

information required by Part III of this Annual Report on Form 10-K, to the extent not set forth herein, is incorporated by reference

to the registrant’s Definitive Proxy Statement on Schedule 14A relating to the 2022 Annual Meeting of Shareholders which will be

filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year to which this Annual Report on Form

10-K relates.

SANARA

MEDTECH INC.

Form

10-K

For

the Year Ended December 31, 2021

Page

PART I.

ITEM 1 BUSINESS 4

ITEM 1A RISK FACTORS 20

ITEM 1B UNRESOLVED STAFF COMMENTS 45

ITEM 2 PROPERTIES 45

ITEM 3 LEGAL PROCEEDINGS 45

ITEM 4 MINE SAFETY DISCLOSURES 45

PART II.

ITEM 6 RESERVED 46

ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 53

ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 54

ITEM 9A CONTROLS AND PROCEDURES 55

ITEM 9B OTHER INFORMATION 56

PART III.

ITEM 10 DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 56

ITEM 11 EXECUTIVE COMPENSATION 56

ITEM 14 PRINCIPAL ACCOUNTING FEES AND SERVICES 56

PART IV.

ITEM 15 EXHIBIT AND FINANCIAL STATEMENT SCHEDULES 57

Sanara,

Sanara MedTech, our logo and our other trademarks or service marks appearing in this report are the property of Sanara MedTech Inc. Trade

names, trademarks and service marks of other companies appearing in this report are the property of their respective owners. Solely for

convenience, the trademarks, service marks and trade names included in this report are without the ®, TM or other applicable

symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable

law, our rights or the rights of the applicable licensors to these trademarks, service marks and trade names.

Unless

otherwise indicated, “Sanara,” “we,” “us,” “our,” and “the Company,” refer

to Sanara MedTech Inc. and its consolidated subsidiaries.

CAUTIONARY

STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This

report contains forward-looking statements within the meaning of the federal securities laws. Forward-looking statements generally relate

to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because

they contain words such as “anticipates,” “believes,” “continue,” “contemplates,” “could,”

“estimates,” “expects,” “intends,” “may,” “plans,” “potential,”

“predicts,” “projects,” “should,” “target,” “will” or “would”

or the negative of these words, variations of these words or other similar terms or expressions that concern our expectations, strategy,

plans, or intentions. Such forward-looking statements are subject to certain risks, uncertainties and assumptions relating to factors

that could cause actual results to differ materially from those anticipated in such statements, including, without limitation, the following:

● shortfalls in forecasted revenue growth;

● our ability to meet our future capital requirements;

● our ability to retain and recruit key personnel;

● the failure of our products to obtain market acceptance;

● the effect of security breaches and other disruptions;

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

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

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

All

forward-looking statements speak only as of the date on which they are made. For a more detailed discussion of these and other factors

that may affect our business, see the discussion in “Item 1A. Risk Factors” and “Item 7. Management’s Discussion

and Analysis of Financial Condition and Results of Operations” in this report. We caution that the foregoing list of factors is

not exclusive, and new factors may emerge, or changes to the foregoing factors may occur, that could impact our business. We do not undertake

any obligation to update any forward-looking statement, whether written or oral, relating to the matters discussed in this report, except

to the extent required by applicable securities laws.

PART

I

Item

1. BUSINESS

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, services and technologies

is anticipated to allow us to deliver comprehensive wound and skin care solutions for patients in all care settings, including acute

(hospitals and long-term acute care hospitals (“LTACHs”)) and post-acute (wound care clinics, physician offices, skilled

nursing facilities (“SNFs”), home health, hospice, and retail). Each of our products, services, and technologies contribute

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 solutions 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

currently 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”). We are

also developing additional products in our own product pipeline.

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 these 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.

Market

Scale

A

study by a physician at the Department of Surgery for the Indiana University Health Comprehensive Wound Center found that approximately

8.2 million patients suffer from surgical and chronic wounds each year in the United States. Furthermore, according to an article published

by the American College of Surgeons and Surgical Infection Society, in the United States, the annual treatment cost projections

for all wounds is approximately $28 billion with the estimated annual cost of surgical site infections ranging from $3.5 billion to $10

billion. The U.S. teledermatology market alone is estimated to grow from $5 billion in 2019 to $45 billion by 2027 according to a research

report by Fortune Business Insights. In addition to our surgical wound and chronic wound products, we are planning to fully launch virtual

consult services through WounDerm for both virtual wound and virtual skin (dermatology) consultations.

Summary

of our Product & Service Offerings and Development Programs

We

are committed to developing and commercializing innovative products that address the challenges physicians face in diagnosing and treating

wound and skin care ailments.

Our

surgical wound care products, CellerateRX Surgical Activated Collagen (Powder and Gel) (collectively, “CellerateRX Surgical”),

are used in a wide range of surgical specialties to help promote patient healing and reduce the risk of complications. The product is

used in specialties including cardiothoracic, colorectal, general surgery, hand, head and neck, high-risk obstetrics and gynecology,

Mohs surgery, neurosurgery, oncology, orthopedic (hip and knee, sports, spine, joint, foot and ankle, ortho trauma and ortho oncology),

plastic/reconstructive, podiatric, urology, and vascular. Currently, substantially all of our revenue is derived from the sale of surgical

wound care products. We anticipate that chronic wound care products and WounDerm technology-based services will become meaningful drivers

of revenue in the future.

Our chronic wound care products, HYCOL Hydrolyzed Collagen (Powder and

Gel) (collectively, “HYCOL”), BIAKŌS Skin and Wound Cleanser (“BIAKŌS AWC”) and BIAKŌS Skin

and Wound Gel, are used across the post-acute continuum of care, including home health, hospice, physician offices, podiatrists, retail,

SNFs, and wound care centers. Our chronic wound care products can be used on stage I-IV pressure ulcers, diabetic foot ulcers (“DFUs”),

venous stasis, arterial, post-surgical wounds, first- and second-degree burns and donor sites. BIAKŌS AWC is also available in an

irrigation bottle (BIAKŌS Antimicrobial Skin and Wound Irrigation Solution) that can be used in conjunction with negative pressure

wound therapy installation and dwell (“NPWTi-d”) and other wound irrigation needs.

In

addition, we expect to fully commercialize three products with Cook Biotech in 2022. The first two, FORTIFY TRG Tissue Repair Graft and

FORTIFY FLOWABLE Extracellular Matrix, are currently 510(k) cleared for use in the surgical wound care segment, and VIM Amnion Matrix

is categorized by the U.S. Food and Drug Administration (“FDA”) as an HCT/P, subject to regulation under Section 361 of the

Public Health Service Act (“PHSA”) (for which no premarket approval or clearance is required).

In

addition, we have a robust pipeline of products under development for the chronic wound care, surgical wound care, and virtual consult

markets. We believe our pipeline efforts will deepen our comprehensive portfolio of offerings as well as allow us to address additional

clinical applications. Wound care products in our pipeline include an antimicrobial skin protectant, a debrider product that leverages

the body’s own enzymes and moisture, next generation CellerateRX and HYCOL, and a sterile BIAKŌS product for use in surgical

settings.

The

WounDerm technology-based services include an electronic medical record (“EMR”) software platform for both wound and skin

conditions, skin and wound virtual consult services (through Direct Dermatology Inc. (“DirectDerm”) and MGroup Integrated

Physician Services, P.A. (“MGroup”)), and diagnostic products and services for chronic wounds (through Precision Healing

Inc. (“Precision Healing”)). Once WounDerm’s service offerings are fully integrated, we expect to be able to provide

wound treatment solutions for patients across the entire acute and post-acute continuum of care.

Strategy

Competitive

Strengths

Market

Opportunities for our Products and Technology-Based Services

In

October 2019, Centers for Medicare & Medicaid Services’ (“CMS”) reimbursement methodology for home health agencies

and SNFs (Patient Driven Group Model and Patient Driven Payment Model, respectively) created unique opportunities to provide efficacious

wound healing inside of those sites of care in unprecedented fashion. With those payment models now focused on a patient’s characteristics

(including number of wounds and skin conditions) rather than the volume of services provided, greater remuneration is provided to home

health agencies and SNFs for the treatment of wound care patients. As a result, the incentive to transfer patients with both acute and

chronic wounds to more burdensome and costly care settings, such as inpatient or outpatient wound-care centers, has been discouraged

or, in some cases, eliminated. This shift in vertical economics provides us with a unique opportunity, in adjunctive fashion with home

health agencies and SNFs, to deliver highly technical and comprehensive wound care where this most vulnerable patient population resides

thus achieving CMS’s desired results: better patient outcomes at a lower total cost of care.

Chronic

and Other Hard-to-Heal Wounds

According

to a study published by the Value in Health journal, roughly 15% of the Medicare beneficiary population has chronic nonhealing

wounds. Chronic wounds do not advance through the phases of healing in a normal progression and do not show significant progress toward

healing in 30 days. Factors contributing to the chronicity of the wound may include pressure / friction, trauma; insufficient blood flow

and oxygenation in locations such as the lower extremities; increased bacterial load; excessive proteases; degraded growth factors; matrix

metalloproteinases (“MMPs”); senescent / aberrant cells; or inappropriate treatment. Examples of chronic wounds include DFUs,

venous leg ulcers (“VLUs”), arterial ulcers, pressure ulcers and hard-to-heal surgical/traumatic wounds. In each of the various

wound types, the presence of biofilms is a frequent cause for chronification of wounds and the removal of biofilms is a crucial step

to commence healing. Biofilms need to be eradicated to prevent further deterioration of the wound that may result in additional negative

patient outcomes. If not effectively treated, these wounds can lead to potentially severe complications, including further infection,

osteomyelitis, fasciitis, amputation and increased mortality. Chronic wounds are primarily seen in the elderly population. For example,

a 2019 study published in Advances in Wound Care reported that in the United States, 3% of the population over the age of 65 had

open wounds. According to the same study, in 2020, the U.S. government estimated that the elderly population totaled 55 million people,

suggesting that chronic wounds will continue to be an increasingly persistent problem in this population. Four common chronic and other

hard-to-heal wounds are:

Sanara

Products

We

market, develop and distribute wound and skin care products and services 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 are actively seeking to expand

within our six focus areas of wound and skin care for the surgical, acute, and post-acute markets: (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 skin care market.

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 in what we believe to be a trade secret process and the powder is

further processed for use in a sterile, surgical environment. The gel is typically applied post-operatively. CellerateRX Surgical products

are primarily purchased by hospitals and ambulatory surgical centers for use by surgeons on surgical wounds. The predominance of CellerateRX

Surgical is used in foot and ankle, neuro/spinal, orthopedic/hip and knee replacement, ortho trauma, and ortho oncology surgeries. Additional

specialties benefiting from the use of CellerateRX Surgical include cardiothoracic, colorectal, general, general trauma, gynecologic

oncology, hand, head and neck, Mohs, obstetrics and gynecology (including caesarean deliveries), plastic/reconstructive, urologic, and

vascular.

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 incisions. This is especially true in patients with certain comorbidities, including obesity,

diabetes and hypertension. These complications can include surgical site infections, dehiscence (where an incision opens after primary

closure) and necrosis. Surgeons use CellerateRX Surgical to complement the body’s normal healing process. By helping the body 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). Wound infections

have become increasingly problematic due to the high rates of surgical patient comorbidities and the financial strain on insurance carriers

as well as hospitals who suffer exorbitant costs for readmission of these patients within 30 days of surgery.

In

a prospective study published by SciMedCentral in 2017, of 102 consecutive neurosurgery cases in which a mixture of 5 grams of CellerateRX

Surgical powder and 1 gram Vancomycin powder was applied at closure, there were no cases of wound dehiscence, infection, complication

or allergic reaction to the product. This compares to neurosurgery infection rates ranging from as high as 24% for cranioplasty surgery

to 6.3% for spine surgery patients. Two similar retrospective studies are underway using CellerateRX powder in ortho/spine surgeries

and general/colorectal surgeries.

In

a retrospective study published by SciMed Central in November 2021, a retrospective review was conducted of 154 patients who underwent

spinal surgery using CellerateRX® Surgical powder. A total of three (representing 1.9%) high-risk patients developed postoperative

wound complications (SSI or dehiscence). All complications resolved with local wound care and oral antibiotics; no hospital readmissions

were required. This low incidence of surgical complications further supports the use of type 1 hydrolyzed collagen as an effective wound

therapy agent in spinal surgery.

HYCOL

Hydrolyzed Collagen products are a medical hydrolysate of Type I bovine collagen intended for the management of full and partial thickness

wounds including pressure ulcers, venous and arterial leg ulcers and DFUs. HYCOL is primarily used in SNFs, wound care centers and physician

offices and is currently approved for reimbursement under Medicare Part B. HYCOL provides the benefit of hydrolyzed collagen fragments

directly in the wound bed. Therefore, unlike with the body’s own native collagen or native collagen products, the body does not

have to break HYCOL down before use, which is extremely beneficial when treating elderly and otherwise compromised patients with comorbidities

such as diabetes and cardiovascular disease.

We

believe our CellerateRX and HYCOL products are unique in composition, superior to other products in clinical performance, demonstrate

the ability to reduce costs associated with the standards of care for their intended uses and have been safely used on over seventy-five

thousand patients.

BIAKŌS

AWC is an FDA 510(k) cleared, patented product that laboratory tests show effectively disrupts extracellular polymeric substances to

eradicate mature biofilm microbes. BIAKŌS AWC is indicated for the mechanical removal of debris, dirt, foreign materials, and microorganisms

from wounds including stage I-IV pressure ulcers, DFUs, post-surgical wounds, first and second-degree burns as well as grafted and donor

sites. BIAKŌS AWC is effective in killing free-floating microbes, immature, and mature bacterial biofilms and fungal biofilms within

the product. In addition, safety studies demonstrated that BIAKŌS AWC is biocompatible and supports the wound healing process.

Initial sales of BIAKŌS AWC occurred in July 2019.

BIAKŌS

AWC is also available in an irrigation bottle (BIAKŌS Antimicrobial Skin and Wound Irrigation Solution) that can be used in conjunction

with NPWTi-d and other wound irrigation needs.

BIAKŌS

Antimicrobial Wound Gel is an antimicrobial hydrogel wound dressing that can be used alone or in combination with BIAKŌS AWC. In

February 2020, we received notification of FDA 510(k) clearance for BIAKŌS Antimicrobial Wound Gel and launched the product in

November 2020 to complement BIAKŌS AWC.

BIAKŌS

AWC and BIAKŌS Antimicrobial Wound Gel are effective against planktonic microbes as well as immature and mature biofilms within

the product. When used together, the cleanser can be used initially to clean a wound and disrupt biofilms (removing 99% in 10 minutes).

The gel can then be applied and remains in the wound for up to 72 hours helping to continue disrupting biofilm microbes. In a study conducted

in 2020, BIAKŌS Antimicrobial Wound Gel, in combination with BIAKŌS AWC, was compared to a number of wound cleansers to treat

chronic wounds such as pressure, diabetic, and venous ulcers in the inflammatory phase of wound healing. The BIAKŌS system reduced

the biofilm burden by 7.5 logs (>99.99% reduction) by the 24-hour time point and eradicated it by the 48-hour time point while the

remaining commercial controls reduced the Methicillin-resistant Staphylococcus aureus (“MRSA”) biofilms by less than 1 log.

FORTIFY

TRG Tissue Repair Graft is a freeze-dried, multi-layer small intestinal submucosa (SIS) extracellular matrix (ECM) sheet. The graft is

used for implantation to reinforce soft tissue, has a thin profile, is available in multiple sizes, and can be cut to size to accommodate

the patient’s anatomy. FORTIFY TRG Tissue Repair Graft is provided sterile and can be hydrated with autologous blood fluid. It

is an FDA 510(k) cleared product and terminally sterilized. First sales of this product occurred in the fourth quarter of 2021.

FORTIFY

FLOWABLE Extracellular Matrix is an advanced wound care device that presents the SIS ECM technology in a way that can fill irregular

wound shapes and depths. FORTIFY FLOWABLE Extracellular Matrix is indicated for the management of wounds including: partial and full-thickness

wounds, pressure ulcers, venous ulcers, diabetic ulcers, chronic vascular ulcers, tunneled/undermined wounds, surgical wounds (donor

sites/grafts, post-Mohs surgery, post-laser surgery, podiatric, wound dehiscence), trauma wounds (abrasions, lacerations, second-degree

burns, and skin tears) and draining wounds. FORTIFY FLOWABLE Extracellular Matrix is provided sterile and is intended for one-time use.

It is a 510(k) cleared product. We began selling this product in early 2022.

VIM

Amnion Matrix is a single layer sheet of amnion tissue that is minimally processed to decellularize the material while maintaining the

structure and components of the extracellular matrix environment. All tissues are collected from consenting donors, tested for infectious

diseases, and determined eligible for transplantation by a licensed Medical Director. It is provided in multiple sizes and terminally

sterilized. The VIM Amnion Matrix is intended for homologous use as a wound covering or barrier in surgical, orthopedic, ophthalmic,

and wound applications. It is air-dried for off-the-shelf room temperature storage with no product preparation. The graft is supplied

sterile and is intended for one-time use in a single patient. We expect to begin selling the VIM product in 2022.

Beginning

in early 2022, we began co-promoting the following products with Scendia Biologics, LLC: (i) TEXAGEN Amniotic Membrane Allograft, a multi-layer

amniotic membrane allograft used as an anatomical barrier with robust handling that can be sutured if needed, (ii) BiFORM Bioactive Moldable

Matrix, an osteoconductive, bioactive, porous implant that allows for bony ingrowth across the graft site, (iii) AMPLIFY Verified

Inductive Bone Matrix, a 100% human allograft bone with conformable handling properties, and (iv) ALLOCYTE Advanced Cellular Bone

Matrix, a human allograft cellular bone matrix (CBM) containing bone-derived progenitor cells and conformable bone fibers.

Sanara

Technology-Based Services

We

are currently developing the capability to offer various services addressing chronic wound and skin care through our subsidiary WounDerm,

which has exclusive affiliations with three companies, which include DirectDerm, MGroup, and Precision Healing.

We

anticipate that our various service offerings will allow us to collect large amounts of data on patient conditions and outcomes that

will improve treatment protocols and ultimately lead to more evidence-based treatments to improve outcomes in the future. We believe

our planned service offerings through WounDerm are complemented by our existing product portfolio to complete the comprehensive wound

strategy.

WounDerm

plans to offer the following services:

● EMR software platform for both wound and skin conditions

In

2020, we made a minority investment in Woundyne Medical, LLC (“Woundyne”) to fund further development of Woundyne’s

imagery and data sharing platform designed to meet our specified virtual environment. In January 2021, we acquired the remaining interest

of Woundyne. In June 2021, we invested in Canada-based Pixalere Healthcare, Inc. (“Pixalere”). In connection with this investment,

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. Pixalere provides a cloud-based wound care software tool that empowers nurses, specialists

and administrators to deliver better care for patients. Pixalere developed a software system that combines the documentation functionality

of wound care and dermatology EMRs with a Health Insurance Portability and Accountability Act of 1996 (“HIPAA”)-secure online

mobile application platform for provider and caregiver collaboration and the ability to perform virtual consultations via telemedicine.

The software includes a complete wound and skin care specialty specific collaboration platform that allows for interoperability with

client facing EMRs, reduce the burden of duplicate documentation, and improve the accuracy of assessments and treatment plans. We

expect to have the EMR platform commercially available in mid-2022. Additionally, the collaboration platform is expected to integrate

with the Precision Healing diagnostic imaging technology to gather images and clinical information. We anticipate that the proprietary

software will provide for the correction of inaccurate initial measurements performed by caregivers, as well as adjustments for light

and photo quality. We plan to have the Precision Healing technology integration complete and commercially available within

our EMR platform in 2023.

● Virtual consultation services for both wound and skin care conditions

DirectDerm

is a telemedicine company based in Palo Alto, California and has an exclusive network of dermatologists licensed across 32 states who

have trained and/or teach at top U.S. medical institutions, and whose service is covered by many of the major health plans in the United

States. WounDerm is working to integrate the DirectDerm platform into its collaboration platform to provide virtual consultations through

DirectDerm’s network of board-certified dermatologists to patients in all of WounDerm’s healthcare markets.

MGroup

is a physician-owned and physician-led multispecialty wound care group focused on utilizing telehealth and associated technologies to

build high-quality, cost-effective care delivery systems. MGroup currently holds active medical licenses in all 50 states. Our affiliation

with MGroup will provide us with the ability to offer wound care telehealth services.

During the fourth quarter of

2021, we conducted a pilot program with a large home health agency. The pilot program realized positive results and will expand to include

the service offering to six more agencies in the first quarter of 2022.

● Diagnostic products and services for chronic wounds

The

Precision Healing product platform is a diagnostic imaging and smart pad for assessing a patient’s wound and skin conditions. This

comprehensive skin and wound assessment technology is designed to quantify biochemical markers to determine the trajectory of a wound’s

condition to enable better diagnosis and treatment protocol. Precision Healing was formed by executives and imaging specialists at Lumicell

Corporation as well as experienced wound care scientists and physicians. Precision Healing expects to have its imaging device and smart

pad commercially available in 2023 and is currently being integrated into the WounDerm EMR.

Sales

and Marketing

As

of December 31, 2021, we employed thirty regional sales managers (“RSMs”). Our RSMs are recruited based on their previous

industry experience and professional performance and are required to have a minimum of three years of experience successfully selling

into similar markets. We constantly evaluate new markets and sales opportunities to add to our sales teams as warranted.

RSMs

are initially trained through an internal learning management system, SanaraU, which gives them further product and surgical specialty

training including wound etiology, operating room etiquette and credentialing requirements. After completing their internal training,

new hire RSMs participate in field training with experienced RSM field trainers to get insights into best practice as well as real world

training. The initial training period lasts approximately five weeks. RSMs are supported by regular updated training modules on product

information and best practices.

A

key component of our sales and marketing efforts involves working with physicians and clinicians to champion our products in their facilities.

We work closely with surgeons and health system stakeholders to demonstrate the efficacy and beneficial impact of our surgical products

and successfully navigate the hospital value analysis committee, (more commonly known as the “VAC”), approval process, allowing

our products to be sold in those facilities. Similarly, we work with clinicians to demonstrate the efficacy of our wound care products

in their respective care settings. If our sales and marketing efforts are successful, the clinicians then advocate for the use of our

products when medically necessary.

Manufacturing,

Supply, and Production

We

do not own or operate and do not intend to establish our own manufacturing facilities. We rely on, and plan to continue relying on, contract

manufacturing for our products. Our contract manufacturing strategy is intended to drive cost leverage and scale and avoid the high capital

outlays and fixed costs associated with constructing and operating manufacturing facilities. Our manufacturing partners have internal

compliance processes to maintain the high quality and reliability of our products. We believe our contract manufacturers are well-positioned

to support future expansion of our product sales. We do source some packaging and marketing materials separate from our licensing partners.

Reimbursement,

Clinical Validation, and Clinical Utility

We

do not promote our products based on their reimbursement status, however we are mindful of the benefits of a favorable reimbursement

coverage status to increase patient access and support our research and development efforts to supply the highest efficacy solutions.

Three

of our chronic wound care products (BIAKŌS Antimicrobial Skin and Wound Gel, HYCOL Hydrolyzed Collagen Powder, and HYCOL Hydrolyzed

Collagen Gel) have HCPCS A codes and are eligible for reimbursement through Medicare Part B. There is currently no reimbursement for

BIAKŌS AWC, BIAKŌS Antimicrobial Skin and Wound Irrigation Solution, or CellerateRX Surgical.

We

anticipate that our WounDerm services, once launched, will provide a wealth of patient data to help us measure our products’ effectiveness

on improving patient outcomes while simultaneously reducing healthcare costs. We believe our reimbursement strategy, including establishing

the clinical validation, clinical utility and health economics of our products, will allow us to drive improved reimbursement coverage

for our products and technologies.

Competition

The

wound care market is served by several large, multi-product line companies as well as a number of small companies. Our products compete

with primary dressings, advanced wound care products, collagen matrices and other biopharmaceutical products. Manufacturers and distributors

of competitive products include Smith & Nephew plc, Medline Industries, Inc., ConvaTec Group plc, Mölnlycke Health Care AB,

3M Company, Integra LifeSciences Holdings Corporation (which acquired ACell Inc. on January 20, 2021) and numerous others. Many of our

competitors are significantly larger than we are and have greater financial and personnel resources. We believe, however, that our products

outperform our competitors’ currently available equivalent products for the specific application in which they are intended by

providing improved efficacy, better outcomes, and reduced cost of patient care.

WounDerm

plans to offer a comprehensive wound care and dermatology strategy to expand cost-effective, high quality wound and skin care to all

patients throughout the care setting continuum. Although novel in its comprehensive offerings and solutions, there are existing competitors

for each of the verticals in which WounDerm plans to offer services and solutions.

Existing

wound care imaging technology competitors include MolecuLight, Wound-Vision, HyperMed Imaging, Inc., SpectralMD, Inc., Kent and Tissue

Analytics. However, we do not believe that any of these existing platforms offer a bioassay evaluation in combination with their imaging

solution. In addition, there are existing wound care-specific EMR documentation and telemedicine communication platforms such as NetHealth,

Swift Medical Inc., Corstrata, LLC and Intellicure, Inc.

The

public health emergency caused by the COVID-19 pandemic has led to the widespread adoption of telemedicine for all health care clinical

specialties, including wound care and dermatology. As such, any clinical wound care or dermatology physician and/or provider group that

has incorporated telemedicine into their practice could be considered competitive. However, the majority of these groups are local or

regional and do not incorporate the comprehensive national care delivery platform that WounDerm expects to offer. Examples of large wound

care specialty practices include Vohra Physician Group, Healogics Specialty Physicians and WoundTech.

Licensing

Agreements

We

in-license the rights to market, sell, and distribute our current products from third parties.

CellerateRX

Activated Collagen

On

August 27, 2018, we entered into an exclusive, world-wide sublicense agreement with CGI Cellerate RX to distribute CellerateRX Surgical

and HYCOL products into the wound care and surgical markets. We pay royalties of 3-5% of annual collected net sales of CellerateRX Surgical

and HYCOL. As amended, the term of the sublicense extends through May 2050, with automatic year-to-year renewal terms thereafter so long

as our Net Sales (as defined in the sublicense agreement) each year are equal to or in excess of $1,000,000. If our Net Sales fall below

$1,000,000 for any year after the initial expiration date, CGI Cellerate RX will have the right to terminate the sublicense agreement

upon written notice. Minimum royalties of $400,000 per year are payable for the first five years of the sublicense agreement.

BIAKŌS

Antimicrobial Wound Gel and BIAKŌS Antimicrobial Skin and Wound Cleanser

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”). 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. Our

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 our directors is also a director and significant shareholder of Rochal.

Future

commitments under the terms of the BIAKŌS License Agreement include:

Unless

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

CuraShield

Antimicrobial Barrier Film and No Sting Skin Protectant

On

October 1, 2019, we executed a license agreement with Rochal whereby we acquired an exclusive world-wide license to market, sell and

further develop certain antimicrobial barrier film and skin protectant products for use in the human health care market utilizing certain

Rochal patents and pending patent applications (the “ABF License Agreement”). Currently, the products covered by the ABF

License Agreement are CuraShield Antimicrobial Barrier Film and a no sting skin protectant product.

Future

commitments under the terms of the ABF License Agreement include:

Unless

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

October 2033. No commercial sales or royalty payments had been made under ABF License Agreement as of December 31, 2021.

Debrider

License Agreement

On

May 4, 2020, we executed a product license agreement with Rochal, whereby we acquired an exclusive world-wide license to market, sell

and further develop a debrider for human medical use to enhance skin condition or treat or relieve skin disorders, excluding uses primarily

for beauty, cosmetic, or toiletry purposes (the “Debrider License Agreement”).

Future

commitments under the terms of the Debrider License Agreement include:

Unless

previously terminated or extended by the parties, the Debrider License Agreement will expire in October 2034. No commercial sales or

royalties had been recognized under the Debrider License Agreement as of December 31, 2021.

Cook

Biotech Marketing and Distribution Agreement

On

December 17, 2020, we entered into a marketing and distribution agreement with Cook Biotech whereby we were appointed as the exclusive

distributor in the United States of three Cook advanced biologic products. The first two products, FORTIFY TRG Tissue Repair Graft and

FORTIFY FLOWABLE Extracellular Matrix, are for use in the surgical wound care segment, and VIM Amnion Matrix is for use in the chronic

wound care and surgical wound care segments. We expect to fully commercialize these products in 2022.

Under

the terms of the agreement, we will purchase the products from Cook Biotech at initial transfer prices stipulated in the agreement. Cook

Biotech may update the transfer prices annually based on changes in the US Producer’s Price Index. Minimum annual order quantities

will be agreed upon by both parties after the first year of the contract term. The agreement will terminate on the third anniversary

of the date on which the first commercial sale to us from Cook Biotech is made, with automatic two-year renewal terms unless notice of

non-renewal is given by one party at least one year prior to the end of the initial term or renewal term that is then in effect.

Resorbable

Bone Hemostat

We

acquired a patent in 2009 for a resorbable bone hemostat and delivery system for orthopedic bone void fillers. This patent is not part

of our long-term strategic focus. We subsequently licensed the patent to a third party to market a bone void filler product for which

we receive a 3% royalty on product sales over the life of the patent, which expires in 2023, with annual minimum royalties of $201,000.

We pay two unrelated third parties a combined royalty equal to eight percent (8%) of our net revenues and royalties generated from products

that utilize the acquired patented bone hemostat and delivery system. To date, royalties received by us related to this licensing agreement

have not exceeded the annual minimum of $201,000 ($50,250 per quarter). Therefore, our annual royalty obligation under the terms of the

license agreement has been $16,080 ($4,020 per quarter).

Government

Regulation

Our

operations are subject to comprehensive federal, state, and local laws and regulations in the jurisdictions in which we or our research

and development partners or affiliates do business. The laws and regulations governing our business and interpretations of those laws

and regulations and are subject to frequent change. Our ability to operate profitably will depend in part upon our ability, and that

of our research and development partners and affiliates, to operate in compliance with applicable laws and regulations. The laws and

regulations relating to medical products and healthcare services that apply to our business and that of our partners and affiliates continue

to evolve, and we must, therefore, devote significant resources to monitoring developments in legislation, enforcement, and regulation

in such areas. As the applicable laws and regulations change, we are likely to make conforming modifications in our business processes

from time to time. We cannot provide assurance that a review of our business by courts or regulatory authorities will not result in determinations

that could adversely affect our operations or that the regulatory environment will not change in a way that restricts our operations.

FDA

Regulation

Our

medical products and operations are regulated by the FDA and other federal and state agencies. The products we currently market are regulated

as medical devices in the United States under the Federal Food, Drug, and Cosmetic Act (“FDCA”), as implemented and enforced

by the FDA. The FDA regulates the development, testing, manufacturing, labeling, packaging, storage, installation, servicing, advertising,

promotion, marketing, distribution, import, export, and market surveillance of our medical devices.

In addition, we have entered into agreements

to market and distribute products regulated by FDA under Section 361 of the PHSA (42 U.S.C. § 264) and 21 C.F.R. Part 1271. These

products include: (i) VIM Amnion Matrix, a tissue based product for use in the chronic wound care and surgical wound care segments, (ii)

TEXAGEN Amniotic Membrane Allograft, a multi-layer amniotic membrane allograft used as an anatomical barrier with robust handling that

can be sutured if needed, (iii) AMPLIFY Verified Inductive Bone Matrix, a 100% human allograft bone with conformable handling properties,

and (iv) ALLOCYTE Advanced Cellular Bone Matrix, a human allograft cellular bone matrix (CBM) containing bone-derived progenitor cells

and conformable bone fibers.

Device

Premarket Regulatory Requirements

Before

being introduced into the U.S. market, each medical device must obtain marketing clearance or approval from FDA through the 510(k) premarket

notification process, the de novo classification process (summarized below under De Novo Classification Process), or the

premarket approval application (“PMA”) process, unless they are determined to be Class I devices or to otherwise qualify

for an exemption from one of these available forms of premarket review and authorization by the FDA. Under the FDCA, medical devices

are classified into one of three classes—Class I, Class II or Class III—depending on the degree of risk associated with each

medical device and the extent of control needed to provide reasonable assurance of safety and effectiveness. Classification of a device

is important because the class to which a device is assigned determines, among other things, the necessity and type of FDA review required

prior to marketing the device. Class I devices are those for which reasonable assurance of safety and effectiveness can be assured by

adherence to general controls that include compliance with the applicable portions of the FDA’s Quality System Regulation (“QSR”),

as well as regulations requiring facility registration and product listing, reporting of adverse medical events, and appropriate, truthful

and non-misleading labeling, advertising, and promotional materials. The Class I designation also applies to devices for which there

is insufficient information to determine that general controls are sufficient to provide reasonable assurance of the safety and effectiveness

of the device or to establish special controls to provide such assurance, but that are not life-supporting or life-sustaining or for

a use which is of substantial importance in preventing impairment of human health, and that do not present a potential unreasonable risk

of illness of injury.

Class

II devices are those for which general controls alone are insufficient to provide reasonable assurance of safety and effectiveness and

there is sufficient information to establish “special controls.” These special controls can include performance standards,

post-market surveillance requirements, patient registries and FDA guidance documents describing device-specific special controls. While

most Class I devices are exempt from the 510(k) premarket notification requirement, most Class II devices require a 510(k) premarket

notification prior to commercialization in the United States; however, the FDA has the authority to exempt Class II devices from the

510(k) premarket notification requirement under certain circumstances. As a result, manufacturers of most Class II devices must submit

510(k) premarket notifications to the FDA under Section 510(k) of the FDCA (21 U.S.C. § 360(k)) in order to obtain the necessary

clearance to market or commercially distribute such devices. To obtain 510(k) clearance, manufacturers must submit to the FDA adequate

information demonstrating that the proposed device is “substantially equivalent” to a predicate device already on the market.

A predicate device is a legally marketed device that is not subject to PMA, meaning, (i) a device that was legally marketed prior to

May 28, 1976 (“preamendments device”) and for which a PMA is not required, (ii) a device that has been reclassified from

Class III to Class II or I, or (iii) a device that was found substantially equivalent through the 510(k) process. If the FDA agrees that

the device is substantially equivalent to a predicate device currently on the market, it will grant 510(k) clearance to commercially

market the device. If there is no adequate predicate to which the manufacturer can compare its proposed device, the proposed device is

automatically classified as a Class III device. In such cases, the device manufacturer must then fulfill the more rigorous PMA requirements

or can request a risk-based classification determination for the device in accordance with the de novo classification process.

The

de novo classification process allows a manufacturer whose novel device is automatically classified into Class III to request

down-classification of its device to Class I or Class II on the basis that the device presents low or moderate risk, rather than requiring

the submission and approval of a PMA application. Under the Food and Drug Administration Safety and Innovation Act of 2012 (“FDASIA”),

the FDA is required to classify a device within 120 days following receipt of the de novo classification request. If the manufacturer

seeks reclassification into Class II, the classification request must include a draft proposal for special controls that are necessary

to provide a reasonable assurance of the safety and effectiveness of the medical device. The FDA may reject the classification request

if it identifies a legally marketed predicate device that would be appropriate for a 510(k) or determines that the device is not low

to moderate risk or that general controls would be inadequate to control the risks and special controls cannot be developed.

Devices

that are intended to be life sustaining or life supporting, devices that are implantable, devices that present a potential unreasonable

risk of harm or are of substantial importance in preventing impairment of health, and devices that are not substantially equivalent to

a predicate device are placed in Class III and generally require FDA approval through the PMA process, unless the device is a preamendments