Business context and reporting period
Wound Management Technologies, Inc. (the issuer named in this filing; the request identifies Sanara Medtech Inc.) reported unaudited results for the quarter and nine months ended September 30, 2018. Its businesses include wound-care products CellerateRX and HemaQuell, plus royalties from bone-hemostasis technology.
On August 27, 2018, the company transferred its CellerateRX inventory and certain related assets to a newly formed 50%-owned venture, Cellerate, LLC. Beginning September 1, Cellerate, LLC’s product sales and expenses are no longer consolidated line by line; WMT reports its 50% share of the venture’s income or loss as a single item.
Financial performance and position
| Metric | Q3 2018 / September 30, 2018 | Comparable period / December 31, 2017 |
|---|---|---|
| Revenue | $1.566 million for Q3; $5.790 million for nine months | $1.549 million for Q3 2017; $4.607 million for nine months 2017 |
| Gross profit and margin | $1.451 million; 92.6% for Q3. Nine-month gross profit $5.306 million; 91.6% margin | $1.319 million; 85.1% for Q3 2017. Nine-month gross profit $4.039 million; 87.7% margin |
| Operating income (loss) | $(132,000) for Q3; $(34,000) for nine months | $(29,000) for Q3 2017; $148,000 income for nine months 2017 |
| Net income (loss) | $(151,000) for Q3; $(114,000) for nine months. Nine-month loss available to common shareholders was $(245,000) | $(49,000) for Q3 2017; $84,000 income for nine months 2017 |
| Operating cash flow | $192,000 provided for nine months | $412,000 used for nine months 2017 |
| Cash and liquidity | Cash $646,000; working capital $1.014 million; current assets $1.605 million; current liabilities $591,000 | Cash $463,000; working-capital deficit $78,000 at December 31, 2017 |
| Debt and liabilities | $1.500 million convertible note to CGI, plus $7,000 accrued interest; total liabilities $2.098 million | $1.200 million related-party notes and $325,000 accrued interest were included in current liabilities at year-end |
| Common shares | 236.647 million issued at September 30 | 113.428 million issued at December 31, 2017 |
Investing cash outflow was $8,000 and financing cash flow was zero for the nine months. The 2018 operating cash inflow included working-capital movements, including inventory reduction; it should not be read as evidence of recurring profitability. The filing does not provide formal revenue or earnings guidance.
Material changes versus the prior comparable period
- Nine-month revenue increased 26% (management described it as 25%); Q3 revenue rose about 1%. The September transfer of CellerateRX and HemaQuell activity to the venture affects comparability: September product revenue and costs are reflected in Cellerate, LLC, not WMT’s revenue and cost lines.
- SG&A increased to $5.264 million for nine months from $3.800 million, which management attributed mainly to sales commissions, sales-force expansion, and corporate infrastructure. Q3 included one-time Cellerate transaction costs.
- Operating results weakened: nine-month operating income in 2017 became an operating loss in 2018. Management cited increased SG&A and the prior-year debt-forgiveness gain as factors in the net-income comparison.
- In February 2018, $1.200 million of related-party debt and $386,000 of accrued interest were converted into 22.651 million common shares. Series C preferred stock and related dividends were also converted into common stock, contributing to the substantial increase in shares outstanding.
- At September 30, WMT reported a $1.959 million equity-method investment in Cellerate, LLC and $10,906 of its share of the venture’s income.
Outlook, risks, contingencies and unusual items
- The CGI note has a 30-month term, bears 5% annual interest compounded quarterly, and allows CGI to convert principal and interest into common shares at $0.09 per share. WMT may defer interest payments to maturity.
- Cellerate, LLC holds an exclusive sublicense for CellerateRX distribution in the United States, Canada and Mexico, with a stated term through August 2028 and renewal provisions extending through 2049. CGI has the controlling vote in the specified event of a board deadlock.
- WMT’s product business depends on the CellerateRX distribution arrangement and third-party manufacturing. The filing describes minimum royalty commitments under prior license arrangements and royalties tied to Resorbable-derived products; the filing does not quantify future total payments.
- Management’s forward-looking statements are subject to risks and uncertainties and are not a promise to update. Management stated that interim results are not necessarily indicative of full-year results. No specific forward guidance is given.
- The company reported no legal proceedings and no off-balance-sheet arrangements. It stated that disclosure controls were effective as of September 30, 2018, with no material quarterly change in internal controls.
Most important facts for investors to verify
- Confirm the issuer identity and relationship between the filing’s Wound Management Technologies, Inc. and Sanara Medtech Inc.
- Review the Cellerate, LLC agreements, economics, governance rights, royalty obligations, and the venture’s operating results; assess how the September accounting transition affects revenue comparability.
- Verify the CGI note’s maturity, interest accrual and potential conversion dilution, alongside the already-diluted share count.
- Assess whether operating costs and cash generation can support the business, given the nine-month operating loss and reliance on working-capital movements for positive operating cash flow.
- Review product licensing, manufacturing and royalty commitments, including the disclosed minimum royalty provisions and the status of the prior license arrangements.