Sanara Medtech Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; filed May 12, 2020. Sanara develops and sells wound- and skin-care products to hospitals, surgery centers, clinics, and post-acute care providers. Financial statements are unaudited.
Financial results
| Metric | Q1 2020 | Q1 2019 / comparison |
|---|---|---|
| Revenue | $3.524 million | $2.487 million; up 42% |
| Gross profit / margin | $3.194 million / 90.6% | $2.198 million / 88.4% |
| Operating expenses | $4.990 million | $2.355 million |
| Operating loss | $1.796 million | $157,147 |
| Net loss | $1.841 million | $162,572 |
| Net loss attributable to Sanara common shareholders | $1.837 million; $0.39 per share | $162,572; $0.39 per share |
| Cash from operations | $(2.032) million | $(436,143) |
| Cash from investing | $(557,456) | $502,179 provided |
| Cash from financing | — | $500,000 provided |
Product sales were $3.474 million; royalty revenue was $50,250. SG&A of $4.907 million rose from $2.350 million, primarily reflecting sales-force expansion, commissions, and marketing. Gross margin improved, but higher operating costs drove a substantially larger loss.
Balance sheet and liquidity
- Cash was $4.022 million at March 31, down from $6.612 million at December 31, 2019. Current assets were $6.790 million and current liabilities $2.517 million.
- Total assets were $9.525 million; total liabilities were $2.968 million. The company had no convertible notes or line-of-credit balance at quarter-end. A $2.5 million revolving credit facility was scheduled to mature in June 2020.
- Operating lease liabilities totaled $570,582. The quarter’s $500,000 payment to Rochal for FDA clearance of BIAKŌS Antimicrobial Wound Gel was recorded as an intangible asset.
- After quarter-end, Sanara obtained a $583,000 PPP loan on April 22, 2020, at 1% interest, with maturity in April 2022 and potential forgiveness subject to program terms.
Material changes, outlook, and risks
- On February 7, 2020, Catalyst converted its preferred shares and related-party note, including accrued interest, into common stock. Sanara issued 2,452,731 shares in total; Catalyst controlled 55.1% of the 6,203,832 shares outstanding at March 31. The conversions eliminated the preferred stock and related-party note and interest payable.
- Management said COVID-19 had a moderate effect in Q1 but expected a significant Q2 revenue decline because elective procedures were postponed. April revenue was approximately 50% below pre-outbreak levels. Management reported limited resumption of procedures in late April and early May and expected gradual improvement as markets reopened, while noting uncertainty about the pandemic’s duration and severity.
- The company reduced payroll, consulting, travel, and other discretionary costs. It may seek additional equity or debt financing; management cautioned that financing may not be available on attractive terms and that insufficient funding could require changes to operations. No quantified earnings or revenue guidance was provided.
- Sanara expected to launch BIAKŌS Antimicrobial Wound Gel in 2020 and introduce BIAKŌS Antimicrobial Barrier Film later in 2020. On May 4, it signed another Rochal product license with staged cash and optional stock payments, sales royalties, minimum royalties, and potential additional royalties. Rochal has director and executive-chairman affiliations disclosed in the filing.
- Other commitments include minimum royalties under product licenses and a potential payment to WCS if its allocated 2020–2024 income falls below specified targets. The filing reports no outstanding legal proceedings.
- Management concluded disclosure controls/internal control over financial reporting were not effective at March 31, 2020, citing the company’s small size and limited segregation of duties as a material weakness.
Important facts for investors to verify
- How elective-procedure restrictions and customer collections affected revenue and cash after Q1, and whether the expected gradual recovery occurred.
- Cash runway, operating cash use, the June 2020 credit-facility maturity, and any subsequent financing or PPP forgiveness.
- Actual commercial launch timing, sales, and total staged and royalty obligations under the Rochal licenses, including related-party governance.
- Progress addressing the disclosed internal-control material weakness.
- The filing reports 6,203,832 common shares outstanding at March 31 but 6,203,402 as of May 12; verify the share count and explain the 430-share difference.