Sanara Medtech Inc. — 2014 First-Quarter Filing Summary
Issuer identification: The supplied filing is for Wound Management Technologies, Inc. (WMT), not Sanara Medtech Inc. It reports the quarter ended March 31, 2014, and was signed May 15, 2014.
Business context and reporting period
WMT markets CellerateRX activated-collagen wound-care products through Wound Care Innovations, LLC and develops resorbable orthopedic products through Resorbable Orthopedic Products, LLC (ROP). The company reported FDA 510(k) clearance for its resorbable orthopedic hemostat and a commercial license allowing BioStructures to market Signafuse bone graft putty. The financial statements are unaudited and cover the three months ended March 31, 2014, compared with the same period in 2013.
Financial performance and position
| Metric | Q1 2014 | Q1 2013 or comparison |
|---|---|---|
| Revenue | $682,294 | $374,724; up 82% |
| Gross profit / gross margin | $513,571 / approximately 75% | $159,634 / approximately 43% |
| General and administrative expenses | $913,234 | $546,311; up 67% |
| Operating loss | $413,638 | $403,096 |
| Net loss | $545,963 | $942,266 |
| Net loss attributable to common stockholders | $596,080 | $942,266 |
| Interest expense | $163,143 | $110,125 |
| Operating cash used | $682,920 | $610,857 |
Management attributed revenue growth to higher product sales, including the launch of CellerateRX Surgical powder, and a $150,000 payment triggered by BioStructures’ product clearance and commercial license. Approximately 80% of revenue came from CellerateRX and 20% from ROP. The reported cost of goods sold fell 22%; management said external commissions were reclassified to general and administrative expense, limiting comparability.
At March 31, cash was $1,363,754, versus $44,553 at December 31, 2013. Current assets were $2,342,812 and current liabilities were $2,249,713. Current notes and convertible notes payable totaled $1,580,886; accrued royalties and dividends were $93,750. Stockholders’ equity was $405,900, compared with a $2,468,550 deficit at year-end. Financing activities provided $2,006,210, principally from $2,072,010 in Series C preferred-stock proceeds, partly offset by debt payments. Investing activities used $4,089.
Material changes, outlook, and risks
- Net loss narrowed year over year, helped by a $30,818 gain on derivative-liability remeasurement versus a $577,805 loss in Q1 2013. Operating loss nevertheless increased slightly, while G&A and interest expense rose.
- Derivative liabilities declined to $49,035 from $1,040,850 at year-end, following debt repayment or conversion and changes in warrant classification.
- Management said existing shareholders committed to an additional $2.4 million Series C investment and conversion of more than $1.5 million of debt into Series C preferred stock; documents were substantially funded by quarter-end. The board authorized a further $3 million offering extension. Management stated additional capital may be needed to bring products to market.
- The company entered a three-year marketing services and shipping agreement with WellDyne. It also reported beginning to receive royalties under the BioStructures license in Q4 2013, with royalties expected over the patent’s life, which expires in 2023. No quantified financial guidance was provided.
- The going-concern note states that substantial doubt exists about the company’s ability to continue as a going concern and that continued operations depend on additional funding and successful operations. However, this note says current liabilities exceed current assets and describes a stockholders’ deficiency—statements that conflict with the reported March 31 balance sheet, which shows current assets exceeding current liabilities and positive equity.
- Disclosure controls were deemed ineffective because of deficiencies in controls over valuation of embedded derivatives. A disputed lawsuit brought by Ken Link was reset for trial the week of September 29, 2014; WMT said it could not determine the outcome or financial effect. The filing reports no off-balance-sheet arrangements.
- Series C preferred stock carries accruing dividends (5% annually through October 10, 2016, then 3% through October 10, 2018), conversion rights, and liquidation priority over common stock.
Important facts for investors to verify
- Confirm issuer identity: this filing is for Wound Management Technologies, Inc., not Sanara Medtech Inc.
- Reconcile the going-concern note’s claims of a working-capital deficit and stockholders’ deficiency with the balance sheet’s reported working-capital surplus and positive equity.
- Verify the amount and completion of the Series C financing and debt conversion, and the company’s remaining funding needs.
- Assess whether revenue growth and gross-margin improvement are recurring, given the $150,000 license-related payment and commission reclassification.
- Review the Link litigation exposure and the remediation of the disclosed derivative-valuation control deficiencies.