Sanara Medtech Inc. quarterly report, Q1 FY2015

Business context and reporting period

Wound Management Technologies, Inc. (the registrant identified in this filing; not Sanara Medtech Inc.) reported unaudited results for the three months ended March 31, 2015, compared with the same period in 2014. Its principal business was marketing CellerateRX advanced wound-care products through Wound Care Innovations, LLC; Resorbable Orthopedic Products, LLC generated royalties and pursued orthopedic products.

Financial performance and liquidity

MetricQ1 2015Q1 2014 / comparison
Revenue$1,013,987$682,294; up 49%
Gross profit / margin$796,901 / 78.6%$513,571 / 75.3%
Operating loss$96,031$413,638
Net loss$133,396$545,963
Net loss available to common stockholders$196,874$596,080
Operating cash flow$(179,064)$(682,920)
Investing cash flow$(708)$(4,089)
Financing cash flow$(2,025)$2,006,210

Cash declined to $341,644 from $523,441 at year-end 2014. Current assets were $1,013,583 versus current liabilities of $2,205,733, a working-capital deficit of approximately $1.19 million. Current liabilities included $1.2 million of related-party convertible notes and $392,020 of notes payable. Total liabilities were $2,213,241; stockholders’ deficit was $926,013. Interest expense fell to $37,683 from $163,143.

Material changes and management commentary

Management attributed revenue growth to a larger sales force and expanded placements in hospitals, operating rooms, and wound centers. Approximately 95% of revenue came from CellerateRX; the filing also reports $50,250 in ROP royalty revenue. The company said it opened 42 new accounts. It announced its first Mexico order and a distribution agreement with VISECA after receiving Mexican regulatory approval. A regional sales strategy was underway, with a plan to phase in eight full-time regional sales managers by year-end. Management described further sales and marketing investment and ROP development as growth priorities.

General and administrative expense declined 4% to $878,043, which management attributed to lower legal and recruiting fees. The company reported paying $324,286 of prior-year royalties in January 2015 and accruing $93,750 for current-year royalties at quarter-end.

Outlook, risks, contingencies, and unusual items

  • Going concern: The filing says current liabilities exceed current assets, operations have not generated a reliable funding source, and these conditions raise substantial doubt about the company’s ability to continue as a going concern. Continued operations depend on additional funding and successful future operations. No quantified revenue or earnings guidance is provided.
  • Debt maturity: The $1.2 million related-party notes bore 8% interest and were due April 15, 2015. The filing reports a subsequent $48,000 interest payment on April 17, but does not state that principal was repaid or refinanced.
  • Legal matters: The company was defending a disputed promissory-note lawsuit by Ken Link, set for trial in July 2015, and a lawsuit by Beeleve LLC concerning rights under a promissory note, set for October 2015. Management said outcomes and financial effects could not be determined.
  • Controls: Management concluded disclosure controls were ineffective as of March 31, 2015, due to deficiencies in controls over embedded-derivative valuation.
  • Equity and dilution: The company issued 374,264 common shares upon conversion of Series C preferred stock and dividends. Series C preferred shares accrue dividends and are convertible into common stock; 10.9 million warrants were outstanding at quarter-end.
  • Forward-looking statements: Sales expansion, new markets, and product plans are subject to risks and uncertainties; the filing cautions actual results may differ materially.

Important facts for investors to verify

  • Confirm the registrant’s identity and reporting history: this source is a Wound Management Technologies, Inc. Form 10-Q, despite the request metadata naming Sanara Medtech Inc.
  • Verify the status and terms of the $1.2 million related-party notes after their April 15, 2015 maturity, including any principal repayment, extension, or conversion.
  • Assess funding needs and the company’s plans to address the disclosed going-concern doubt and working-capital deficit.
  • Track sales growth, gross margins, customer additions, and execution of the regional hiring and Mexico distribution plans.
  • Review the outcomes and potential exposure of both lawsuits, and whether controls over derivative valuation were remediated.
  • Reconcile cash-flow disclosures: the statements report 2014 financing cash flow of $2,006,210 and 2015 financing cash flow of $(2,025), while MD&A describes 2015 financing cash use as $900 and compares operating and investing cash flows to 2013 rather than 2014.