Business context and reporting period
Wound Management Technologies, Inc. (WMT; the registrant named in this filing) reported for the three months ended March 31, 2012. The company markets CellerateRX wound-care products. The filing identifies WMT, not Sanara Medtech Inc., as the registrant.
Financial performance and position
- Revenue: $104,133, down 89% from $935,412 in the restated prior-year quarter. The 2011 period included a $500,000 upfront payment for distribution rights.
- Gross profit and margin: Gross loss of $14,206, compared with gross profit of $840,994. Gross margin was approximately negative 13.6%, versus 89.9%.
- Profit: Net income of $287,505, versus a restated net loss of $4,479,723. Results included a $2,052,251 gain from the change in derivative fair value, a $1,307,520 expense to reacquire distribution rights, and $227,936 of debt-related expense. Earnings therefore included significant non-operating and noncash items.
- Cash flow: Operating cash used was $656,611, compared with $124,278 provided in the prior-year quarter. Investing activities provided $371,839, and financing activities provided $282,500. Cash declined by $2,272 to $1,336.
- Liquidity: Current assets were $1,039,083 and current liabilities were $5,886,823; the current ratio was approximately 0.18. Management said current liabilities exceed current assets and disclosed substantial doubt about the company’s ability to continue as a going concern.
- Debt and equity: Total liabilities were $6,895,947, including $3,586,848 of derivative liabilities. Stockholders’ deficit was $3,626,725. The company had 58,785,735 common shares outstanding at quarter-end and 9,438,668 warrants outstanding.
Material changes versus the prior comparable period
- Revenue fell sharply, partly because the prior period included the distribution-rights payment; 2012 cost of goods sold rose 25% to $118,339, producing a gross loss.
- General and administrative expense fell 82% to $190,709, which management attributed to lower marketing, consulting, and payroll costs. Interest expense fell 88% to $45,788, while debt-related expense rose to $227,936.
- Net results improved substantially from the prior-year loss, but were affected by derivative remeasurement and other unusual financing and distribution-rights items.
- The company restated its March 2011 financial statements to record derivative liabilities associated with convertible debt, debentures, and warrants. Restated 2011 net loss was $4,479,723, versus $2,743,921 previously reported.
Outlook, risks, contingencies, and unusual items
- Management said operations have not generated a reliable revenue source and have been funded through debt, equity, and services paid with stock. Additional capital may be needed; the filing gives no specific revenue or earnings guidance.
- On March 20, 2012, WMT reacquired North American CellerateRX powder distribution rights in a settlement and issued a secured $930,000 note due May 20, 2012, secured by inventory. The filing reports $3,159 accrued interest at quarter-end.
- The company reported $521,988 of accrued royalties under an agreement requiring minimum annual royalties of $375,000. It was also negotiating with the IRS over approximately $214,155 of remaining payroll-tax fees and interest after a January payment.
- At March 31, a $200,000 related-party note was past due, and $50,000 of March 2012 convertible notes was past due. A $25,000 April 3 note was also past due as of the filing date. In April, the company paid a separate $20,000 note and issued 4,000,000 shares upon conversion of debentures.
- On March 27, the company issued $400,000 of convertible debentures for $360,000, with a 70%-of-recent-market-price conversion feature. Management cited limited capital resources and the need to obtain additional funding as ongoing risks.
- Management concluded disclosure controls were effective as of March 31, 2012; it reported no material change in internal control during the quarter and no legal proceedings.
Important facts for investors to verify
- Whether WMT can raise sufficient capital and meet near-term debt obligations, particularly the secured Juventas note and past-due convertible notes.
- Whether operating revenue can recover and support the business without reliance on one-time transactions or financing.
- The cash recoverability of related-party receivables and other notes receivable, including the $1.5 million Private Access note; the filing records an allowance for its accrued interest.
- The potential dilution and accounting volatility from convertible instruments, warrants, and derivative liabilities.
- The final IRS settlement amount and the company’s ability to fund royalty obligations.