Sanara MedTech Inc. (SMTI) FY 2024 MD&A

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

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

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

OVERVIEW

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

Change in Reportable Segments

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

Sanara Surgical

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

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

Tissue Health Plus

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

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

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

Sanara Surgical Products

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

CellerateRX Surgical

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

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

BIASURGE

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

FORTIFY TRG

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

FORTIFY FLOWABLE

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

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Other Surgical Products

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

Tissue Health Plus Services and Technology

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

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

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

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

SI Healthcare Technologies Joint Venture

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

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Tufts University License Agreement

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

RECENT DEVELOPMENTS

CRG Term Loan

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

ChemoMouthpiece Investment

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

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

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

BMI Investment

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

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

COMPONENTS OF RESULTS OF OPERATIONS

Sources of Revenue

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

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

Cost of Goods Sold

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

Operating Expenses

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

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

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

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

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Other Income (Expense)

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

RESULTS OF OPERATIONS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

LIQUIDITY AND CAPITAL RESOURCES

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

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

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At-the-Market Offering

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

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

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

Applied Asset Purchase

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

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

Cadence Loan Agreement

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

CRG Term Loan Agreement

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

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

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

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

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

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

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

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

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ChemoMouthpiece Investment

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

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

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

BMI Investment

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

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

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

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

Cash Flow Analysis

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

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

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

MATERIAL TRANSACTIONS WITH RELATED PARTIES

CellerateRX Surgical Sublicense Agreement

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

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

Consulting Agreement

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

Catalyst Transaction Advisory Services Agreement

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

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

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Receivables and Payables

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

IMPACT OF INFLATION AND CHANGING PRICES

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

CRITICAL ACCOUNTING ESTIMATES

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

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

Inventories

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

Goodwill

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

Impairment of Long-Lived Assets

Long-lived assets, including certain identifiable
intangibles held and to be used by us, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount of such assets may not be recoverable. We continuously evaluate the recoverability of our long-lived assets based on estimated
future cash flows and the estimated liquidation value of such long-lived assets and provide for impairment if such undiscounted cash
flows are insufficient to recover the carrying amount of the long-lived assets. If impairment exists, an adjustment is made to write
the asset down to its fair value, and a loss is recorded as the difference between the carrying value and fair value. Fair values are
determined based on quoted market values, undiscounted cash flows or internal and external appraisals, as applicable. Assets to be disposed
of are carried at the lower of carrying value or estimated fair value less cost to sell. A $0.5 million non-cash charge to write-off
the remaining net book value of certain THP internal use software assets was recorded during the year ended December 31, 2024. No
impairment was recorded during the year ended December 31, 2023.

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Investments in Equity Securities

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

We apply the equity method of accounting for investments
when we have significant influence, but not controlling interest, in the investee. Judgment regarding the level of influence over each
equity method investment includes considering key factors such as ownership interest, representation on the board of directors, participation
in policy-making decisions and material intercompany transactions. As discussed further in Note 6, as of December 31, 2024, we
had two investments that are recorded applying the equity method of accounting. Our proportionate share of the net income (loss) resulting
from these investments is reported under the line item captioned “Share of losses from equity method investments” in our
Consolidated Statements of Operations. Our equity method investments are adjusted each period for our share of the investee’s income
or loss and dividend paid, if any. We classify distributions received from our equity method investments using the cumulative earnings
approach in our Consolidated Statements of Cash Flows.

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

Income Taxes

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

Off-Balance Sheet Arrangements

None.