Sanara Medtech Inc. (then Wound Management Technologies, Inc.) — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017; financial statements are unaudited. The filing’s registrant is Wound Management Technologies, Inc., the company name shown in the supplied 2017 filing.
Business context and results
The company focused on advanced wound care and surgical products. CellerateRX accounted for approximately 96% of revenue; Resorbable Orthopedic Products royalties accounted for the remainder. HemaQuell resorbable bone wax sales efforts began in Q1, with initial focus on orthopedic, cardiovascular and spine surgery.
| Metric | Q1 2017 | Q1 2016 | Change |
|---|---|---|---|
| Revenue | $1,605,246 | $1,095,223 | Up 47% |
| Gross profit / margin | $1,431,544 / 89.2% | $904,580 / 82.6% | Margin improved |
| SG&A | $1,350,062 | $746,401 | Up 81% |
| Operating income | $58,259 | $138,866 | Down 58% |
| Net income | $53,058 | $90,275 | Down 41% |
| Cash used in operations | $163,844 | $136,219 | Use increased |
Management attributed revenue growth to increased sales and marketing. Lower cost of goods sold reflected a more favorable mix of surgical-product sales. SG&A rose with sales commissions, infrastructure payroll and strategic consulting expenses. Net income included $39,709 of debt-forgiveness income. Series C preferred dividends were $12,936; the statement labels $40,122 as “net loss available to common stockholders,” despite positive net income, so the common-stockholder result is unclear from the filing text. Basic and diluted EPS were each reported as $0.00.
Financial position and liquidity
- At March 31, 2017, cash was $531,194, down from $833,480 at year-end; current assets were $1,751,015 and current liabilities $1,081,175. Working capital was $669,840.
- Cash declined by $302,286 during the quarter. Investing used $114,535, principally for a new software system; financing used $23,907, including $72,831 of debt payments and $50,050 raised from Series C preferred stock.
- Current notes payable were $341,507; related-party convertible notes were $1.2 million, secured by company assets and bearing 10% interest. Accrued interest was $402,425. Total liabilities were $2,281,175, exceeding total assets of $2,020,712; stockholders’ deficit was $260,463.
- The company reported 110,540,387 common shares issued at quarter-end and 67,246,300 warrants outstanding. Series C preferred shares are convertible into common stock; the filing reports a 97,440,635-share dilutive effect for the quarter. The statement’s diluted weighted-average share count is 207,423,800.
Outlook, contingencies and notable items
Management said its 2017 operating plan projected available cash and operating cash generation would cover foreseeable working-capital, debt-repayment and capital-expenditure needs for at least 12 months. It cautioned that temporary additional funding might be needed around large expenditures, such as inventory purchases, and said it believed funding could be obtained if required. The company reported a history of operating losses, while Q1 2017 was profitable; management’s liquidity outlook depends on its ability to obtain financing if needed and achieve profitable operations.
Prior-year accrued CellerateRX royalties of $276,916 were paid in January 2017; $93,750 of current-year royalties remained accrued at quarter-end. The company committed to $387,650 of product purchases, with $193,825 prepaid and the balance payable upon receipt. A new office lease began May 1, 2017, with a term ending June 30, 2021. A related-party consulting agreement was amended to provide $20,000 monthly compensation effective January 1, 2017; Q1 expense was $100,000, including a $40,000 bonus.
No material developments in legal proceedings, defaults upon senior securities, or off-balance-sheet arrangements were reported. Management stated disclosure controls were effective as of March 31, 2017, and reported no material change in internal control during the quarter. The filing does not provide specific numerical guidance for full-year results.
Important facts for investors to verify
- Confirm the registrant identity and corporate-name history, given the filing is under Wound Management Technologies, Inc.
- Assess cash runway against operating cash use, inventory commitments, debt service and the planned office lease; confirm whether additional financing was subsequently needed.
- Review the terms, security and repayment or conversion prospects of the $1.2 million related-party notes and the substantial accrued interest.
- Evaluate potential dilution from Series C preferred stock, warrants and other share-linked instruments; reconcile the filing’s diluted-share disclosures.
- Track whether HemaQuell gained commercial traction and whether higher sales and marketing costs translated into sustained operating profitability.
- Reconcile the filing’s inconsistent “net loss available to common stockholders” label with reported positive net income and per-share data.