Business context and reporting period
The supplied filing is Wound Management Technologies, Inc.’s Form 10-K for the fiscal year ended December 31, 2015, filed April 14, 2016. This differs from the request metadata naming Sanara Medtech Inc.; the filing itself identifies Wound Management Technologies, Inc. as the registrant. It reports annual results, not standalone fourth-quarter results.
The company markets CellerateRX collagen-based wound-care and surgical products and earns royalties through its Resorbable Orthopedic Products subsidiary. CellerateRX is licensed and manufactured by Applied Nutritionals, which is also the company’s sole inventory supplier. The company reported expanding its sales force and international distribution. In February 2016, after the reporting period, it received FDA 510(k) clearance for HemaQuell resorbable bone wax.
Financial performance and liquidity
| Metric | 2015 | 2014 |
|---|---|---|
| Revenue | $3.372 million | $2.633 million |
| Gross profit / gross margin | $2.480 million / 73.5% | $1.829 million / 69.5% |
| General and administrative expense | $3.385 million | $3.835 million |
| Operating loss | $965,000 | $2.063 million |
| Net loss | $1.340 million | $2.278 million |
| Net loss available to common stockholders | $1.609 million | $2.512 million |
| Interest expense | $176,892 | $293,896 |
| Cash used in operating activities | $1.203 million | $1.687 million |
| Cash at year-end | $182,337 | $523,441 |
| Current assets / current liabilities | $1.159 million / $1.459 million | $1.211 million / $2.315 million |
Revenue increased 28%; gross margin improved, while the net loss narrowed 41%. Cost of goods sold rose 11%. G&A fell 12%, which management attributed in part to ending the WellDyne shipping and marketing agreement; interest expense fell 40%. The 2015 income statement also includes a $198,307 loss on issuing debt for warrants. The company reported $275,000 of revenue recognized under bill-and-hold transactions in 2015, versus none in 2014.
Year-end working capital was a deficit of approximately $300,000. Total liabilities were $2.663 million, including $614,700 of current notes and convertible notes and $1.2 million of long-term convertible notes owed to related-party trusts; accrued interest was reported separately. The company raised $867,120 through financing activities in 2015, principally including $750,000 from Series C preferred stock, but cash declined by approximately $341,000 during the year. The $323,062 of accrued royalties payable at year-end was paid in March 2016. Series C dividends of $268,772 accrued in 2015 and had not been paid or declared as of the filing.
Material changes, outlook, and risks
- Management said sales growth reflected its sales and marketing focus and anticipated continued momentum in 2016. It planned to commercialize HemaQuell in 2016. These are forward-looking statements, not reported results or assured guidance.
- The independent auditor highlighted recurring losses, a working-capital deficit, and an accumulated deficit as conditions raising substantial doubt about the company’s ability to continue as a going concern. Management said it would need additional capital in 2016; there is no assurance financing would be available.
- The CellerateRX license carries a minimum aggregate annual royalty obligation of $375,000 if sales-based royalties do not meet that threshold. Its patent expires in 2018. Applied Nutritionals is the sole manufacturer and supplier, and two customers represented approximately 28% and 14% of 2015 sales.
- The company reported a material weakness in financial close procedures for recognizing prepaid expenses and concluded disclosure controls and internal control over financial reporting were ineffective at December 31, 2015. Management said it planned monthly review and sign-off of adjusting entries.
- Pending litigation includes a disputed note claim by Ken Link, for which the company cannot determine the outcome, and two company-initiated usury cases with counterclaims. The Link case was set for trial in June 2016; the other two cases were postponed to September 2016. The company’s claims and counsel’s views are not court determinations.
- In November 2015, Bioventus acquired BioStructures’ interests; an amendment disclosed in March 2016 reduced the royalty rate on relevant licensed products to 1.5% for 2016 and 2017 and 2% thereafter, with minimums remaining. The filing says the patent expires in 2023.
- Series C preferred stock accrues dividends and converts into common stock at 1,000 common shares per preferred share; it also votes on an as-converted basis. Common shares outstanding increased from 92.9 million at year-end 2014 to 107.3 million at year-end 2015. Warrants and convertible financing may add further dilution.
Most important facts for investors to verify
- Whether the company obtained sufficient 2016 financing to fund operations, and its updated cash runway and working-capital position.
- Whether operating cash burn, losses, and the going-concern uncertainty improved after year-end.
- Revenue quality and repeatability, including the $275,000 bill-and-hold amount, customer concentration, and collection of royalties receivable.
- Current status and potential financial exposure of the Link litigation and the two usury cases.
- Progress in remediating the reported control weakness, and the continuing impact of preferred dividends, convertible notes, warrants, and other potential share issuance.
- Current CellerateRX supply arrangements and patent/license terms, and whether HemaQuell achieved commercial launch and sales after FDA clearance.