Sanara MedTech Inc. (SMTI) FY 2022 MD&A

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

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

Overview

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

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

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

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

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

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

Comprehensive
Value-Based Care Strategy

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

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

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

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

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

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

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

Recent
Acquisitions

Rochal

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

Precision Healing

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

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

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Scendia

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

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

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

Recent
Developments

Sanara
Pulsar, LLC

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

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

Components
of Results of Operations

Sources
of Revenues

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

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

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

Cost
of Goods Sold

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

Operating
Expenses

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

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

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

Other
Expense

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

Results
of Operations

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

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

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

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

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

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

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

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

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

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

Liquidity and Capital Resources

Cash on hand at December 31, 2022 was $9.0 million,
compared to $18.7 million at December 31, 2021. Historically, we have financed our operations primarily from the sale of equity securities.
In February 2021, we closed an underwritten public offering of 1,265,000 shares of our common stock at a public offering price of $25.00
per share resulting in gross proceeds of $31.6 million, before deducting underwriting discounts and commissions and offering expenses.
We expect our future needs for cash to include funding potential acquisitions, further developing our products, services and technologies
pipeline and clinical studies, expanding our sales force and for general corporate purposes. Based on our current plan of operations,
we believe our cash on hand, when combined with expected cash flows from operations, will be sufficient to fund our growth strategy and
to meet our anticipated operating expenses and capital expenditures for at least the next twelve months.

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

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

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

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

In June 2021, we invested $2.1 million to purchase
278,587 Class A Preferred Shares (the “Shares”) of Canada based Pixalere Healthcare Inc. (“Pixalere”). The Shares
are convertible into approximately 27.3% of the outstanding equity of Pixalere. Pixalere provides a cloud-based wound care software tool
that empowers nurses, specialists and administrators to deliver better care for patients. In connection with our purchase of the Shares,
Pixalere granted Pixalere Healthcare USA, LLC (“Pixalere USA”), our subsidiary, a royalty-free exclusive license to use the
Pixalere software and platform in the United States. In conjunction with the grant of the license, we issued Pixalere a 27.3% equity ownership
interest in Pixalere USA valued at $0.1 million.

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

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

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

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

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

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

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

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

Cash
Flow Analysis

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

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

For the year ended December 31, 2022, net cash used
in financing activities was $0.6 million as compared to $28.3 million provided by financing activities for the year ended December 31,
2021. The cash provided by financing activities in 2021 was due to proceeds received pursuant to an underwritten public offering of 1,265,000
shares of our common stock at a public offering price of $25.00 per share resulting in gross proceeds of $31.6 million, less underwriting
discounts and commissions and other offering expenses.

Material
Transactions with Related Parties

CellerateRX
Surgical Sublicense Agreement

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

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

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Rochal
Asset Purchase

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

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

Consulting
Agreement

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

Receivables
and Payables

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

Impact
of Inflation and Changing Prices

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

Critical
Accounting Policies and Estimates

Our
discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated
financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure
of contingent assets and liabilities at the date of the consolidated financial statements, and the reported revenue and expenses during
the reporting period. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable
under the circumstances. The results of these assumptions form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Under different assumptions or conditions, actual results may differ from
these estimates.

We
have identified certain significant accounting policies and estimates which involve a higher degree of judgment and complexity in making
certain estimates and assumptions that affect amounts reported in our consolidated financial statements, as summarized below.

Revenue
Recognition

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

47

Inventories

Inventories are stated at the lower of cost or net
realizable value, with cost computed on a first-in, first-out basis. Inventories consist of finished goods and related packaging components.
We recorded inventory obsolescence expense of $0.5 million in 2022 and $0.3 million in 2021. The allowance for obsolete and slow-moving
inventory had a balance of $0.5 million at December 31, 2022, and $0.3 million at December 31, 2021.

Goodwill

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

Impairment
of Long-Lived Assets

Long-lived
assets, including certain identifiable intangibles held and to be used by us, are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of such assets may not be recoverable. We continuously evaluate the recoverability
of our long-lived assets based on estimated future cash flows and the estimated liquidation value of such long-lived assets and provide
for impairment if such undiscounted cash flows are insufficient to recover the carrying amount of the long-lived assets. If impairment
exists, an adjustment is made to write the asset down to its fair value, and a loss is recorded as the difference between the carrying
value and fair value. Fair values are determined based on quoted market values, undiscounted cash flows or internal and external appraisals,
as applicable. Assets to be disposed of are carried at the lower of carrying value or estimated fair value less cost to sell. No impairment
was recorded during the years ended December 31, 2022 and 2021.

Investments
in Equity Securities

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

We
apply the equity method of accounting to investments when we have significant influence, but not controlling interest, in the investee.
Judgment regarding the level of influence over each equity method investment includes considering key factors such as ownership interest,
representation on the board of directors, participation in policy-making decisions and material intercompany transactions. Our proportionate
share of the net income (loss) resulting from these investments is reported under the line item captioned “Share of losses from
equity method investment” in our Consolidated Statements of Operations. Our equity method investment is adjusted each period for
our share of the investee’s income or loss and dividend paid, if any. We classify distributions received from our equity method
investment using the cumulative earnings approach on the Consolidated Statements of Cash Flows. As a result of the Precision Healing merger in April 2022, as of December 31, 2022, we do not have any investments
which are recorded applying the equity method of accounting.

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

Income
Taxes

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

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

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

Off-Balance
Sheet Arrangements

None.