Sanara MedTech Inc. — Q2 2021 Form 10-Q
Business and period. Sanara MedTech develops and commercializes products and technologies for surgical and chronic wound and skin care. This unaudited report covers the quarter and six months ended June 30, 2021; results are compared with the same 2020 periods. Revenue was generated in the United States.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $6.28 million | $2.97 million | $11.29 million | $6.49 million |
| Gross profit / margin | $5.74 million / 91.5% | $2.62 million / 88.2% | $10.28 million / 91.0% | $5.81 million / 89.5% |
| Operating loss | $1.03 million | $1.08 million | $2.11 million | $2.88 million |
| Net loss | $1.21 million | $1.13 million | $2.39 million | $2.97 million |
| Net loss per share, basic and diluted | $0.16 | $0.18 | $0.33 | $0.54 |
- Q2 revenue rose 112% year over year; first-half revenue increased 74%. Management attributed growth principally to surgical-product sales, sales-force expansion, and a broader independent distributor network. The 2020 comparison was depressed by pandemic-related elective-surgery suspensions and facility-access restrictions.
- First-half operating cash use was $1.60 million, down from $2.73 million in 2020. Investing cash use was $3.21 million, mainly for investments in Precision Healing and Pixalere. Financing provided $28.74 million, largely from the February offering.
- Cash was $24.39 million at June 30, versus $0.46 million at December 31, 2020. Current assets were $28.92 million and current liabilities $3.75 million. The company reported no outstanding borrowings under its revolving credit line; operating lease liabilities totaled $419,052.
- Gross margin improved in both comparative periods. SG&A rose to $6.56 million in Q2 and $11.97 million for the first half, driven mainly by payroll, sales-force expansion, and commissions. The company added eight field sales managers in the first half, reaching 26.
Material developments, outlook and risks
- The February 2021 public offering of 1.265 million shares generated $28.9 million in net proceeds. Management said proceeds would support sales expansion, product and technology development, clinical studies, working capital, and acquisitions.
- The company invested $2.08 million in Pixalere for preferred shares convertible into 28.6% of its equity and an exclusive, royalty-free U.S. software license. It also held a 29.0% interest in Precision Healing, recording a $278,904 share of its loss in the first half.
- After quarter-end, Sanara acquired certain Rochal assets effective July 1 for approximately $1.0 million, split between cash and stock. Management estimated $1.2–$1.5 million of additional operating expenses in the first 12 months, potentially partly offset by grants or contract revenue. Existing Rochal product licenses were excluded from the purchased assets. The transaction and related arrangements involve Rochal directors/shareholders who are also Sanara directors, including its Executive Chairman.
- A related consulting agreement with a Rochal director provides for an annual fee of $177,697 for an initial three-year term. Sanara also agreed to pay Rochal 25% of proceeds actually received for certain grants for three years, among other terms.
- Management expected to begin marketing two Cook Biotech biologic products in 2021 and planned initial virtual-consult services for late 2021. No quantified revenue or earnings guidance was provided. Management stated existing cash, expected operating cash flows, and available credit were expected to fund operations and planned growth for at least 12 months.
- COVID-19 resurgences and variants could again affect elective procedures and access to care facilities; management said the pandemic’s duration and effects remain uncertain. The company identified added regulatory exposure as it takes on in-house development: it may need to meet FDA requirements, including applicable manufacturing and quality regulations, and may not obtain approvals or commercialize products successfully.
- The $2.5 million secured credit facility matures January 2023. The company reported compliance with amended covenants at June 30, including a $10 million minimum tangible net worth and $3 million minimum cash balance through year-end 2021; the interest-coverage test begins in March 2022. No material pending legal proceedings were reported.
Important facts for investors to verify
- Whether sales growth persists as pandemic-related comparisons normalize, and whether revenue remains concentrated in surgical products and key licensed products.
- Whether SG&A and planned Rochal-related costs are supported by scalable revenue, and how quickly the business can approach profitability.
- The performance, valuation, and strategic benefits of the private-company investments, particularly given the recorded Precision Healing loss and limited marketability of these securities.
- The final Rochal purchase-price adjustment, related-party terms, development obligations, and the costs and regulatory responsibilities of bringing development capabilities in-house.
- Cash consumption, future capital needs, and ongoing compliance with credit-facility covenants as the company funds expansion and product development.