Sanara Medtech Inc. (filing issuer: Wound Management Technologies, Inc.) — Q2 2017 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2017; filed August 11, 2017. The filing identifies the registrant as Wound Management Technologies, Inc., not Sanara Medtech Inc.; investors should verify the entity and any subsequent name change. Financial statements are unaudited.
Business context
The company markets CellerateRX activated collagen wound-care products and, through its subsidiaries, develops and sells HemaQuell resorbable bone hemostat and licenses orthopedic technology. Management describes its focus as expanding hospital, surgical, wound-center, and distributor sales.
Financial results and liquidity
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Revenue | $1.453 million | $1.258 million | $3.058 million | $2.353 million |
| Gross profit | $1.289 million | $1.048 million | $2.720 million | $1.952 million |
| Gross margin | 88.7% | 83.3% | 89.0% | 83.0% |
| Operating income (loss) | $119,000 | $(904,000) | $177,000 | $(765,000) |
| Net income (loss) | $79,000 | $(922,000) | $132,000 | $(832,000) |
| Net income (loss) available to common | $34,000 | $(988,000) | $74,000 | $(971,000) |
- Revenue rose 15% in Q2 and 30% year to date. Management attributed growth to an expanded sales force and distributor network. Surgical sales mix helped reduce cost of goods sold despite higher revenue.
- SG&A was $1.146 million in Q2, up 3%, and $2.496 million for the half year, up 34%, primarily from commissions, payroll, and consulting. Interest expense was $96,000 for the half year.
- Cash was $457,000 at June 30, down from $833,000 at year-end. Working capital was $768,000, versus $602,000 at year-end; current assets were $1.740 million and current liabilities $972,000.
- Six-month operating cash use was $117,000, investing cash use $116,000 (primarily equipment), and financing cash use $143,000. Cash declined $377,000.
- Current notes payable were $224,000; related-party convertible notes were $1.2 million, secured by company and subsidiary assets. Accrued interest was $431,000. The company retired three non-related-party notes during the half year and reported one remaining current note.
- Stockholders’ deficit was $181,000. Common shares issued were approximately 110.5 million at June 30. Outstanding warrants totaled 67.2 million, including 60 million warrants issued for strategic-advisory services.
Changes, outlook, and risks
- The 2016 comparable periods included $818,665 of one-time strategic-initiative expense, mainly a noncash warrant charge of $758,665 and a $60,000 professional fee. This materially contributed to the prior-year losses; 2017 results were profitable.
- Management said Q2 revenue was approximately 9% below the prior quarter because business with a large national hospital chain was temporarily suspended during contract negotiations. A purchase agreement was signed in May with the division representing most historical sales; negotiations with other divisions continued.
- Management reported HemaQuell’s launch in Q1 2017, initial use in a few cardiac, spine, and orthopedic cases, and work on clinical studies intended to support adoption. A medical-industry marketing executive was hired in May.
- Management’s 2017 plan projected existing cash and expected operating cash generation would cover foreseeable working capital, debt repayment, and capital expenditures for at least 12 months. It acknowledged that temporary funding could be needed because of expenditure timing and said it believed additional funding could be obtained if required. This outlook depends on sales, cash generation, and access to financing.
- Royalty commitments include CellerateRX royalties and a $375,000 minimum annual royalty obligation under the license terms if sales-based payments fall short. Accrued current-year royalties were $139,000 at June 30. A new office lease runs through June 2021, with monthly rent rising over the term.
- The filing reports no legal proceedings or off-balance-sheet arrangements. Management concluded disclosure controls were effective and reported no material quarterly change in internal control over financial reporting. The filing does not provide a separate detailed risk-factor discussion, citing smaller-reporting-company status.
Important facts to verify
- The filing’s management letter states Q2 revenue of $1,492,900 in one passage, while the financial statements and results discussion report $1,452,900. The filing text does not reconcile this discrepancy.
- Confirm issuer identity and relationship to Sanara Medtech Inc.; the 10-Q itself is filed under Wound Management Technologies, Inc.
- Assess cash runway and financing needs against operating cash use, significant royalty and lease commitments, and the $1.2 million secured related-party convertible notes plus accrued interest.
- Evaluate dilution from the 67.2 million warrants and Series C preferred stock, which is convertible into common shares and has accrued dividends. The filing also reports an unusually high diluted weighted-average share count for the six-month period; confirm the calculation and treatment.
- Track resolution of the hospital-chain negotiations and whether HemaQuell clinical evidence and sales efforts translate into sustained revenue growth.