Business context and reporting period
This is Wound Management Technologies, Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2015. The filing identifies the registrant as Wound Management Technologies, Inc., not Sanara Medtech Inc. The company markets CellerateRX advanced wound-care products through Wound Care Innovations, LLC and holds resorbable orthopedic product rights through Resorbable Orthopedic Products, LLC (ROP). CellerateRX accounted for approximately 94% of third-quarter revenue; ROP royalties accounted for the other 6%.
Financial performance and liquidity
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Revenue | $905,615 | $679,122 | $2,664,719 | $1,905,766 |
| Gross profit | $708,498 | $443,951 | $2,045,166 | $1,232,426 |
| Gross margin | 78.2% | 65.4% | 76.7% | 64.7% |
| Loss from continuing operations | $(131,909) | $(647,485) | $(571,131) | $(1,812,869) |
| Net loss | $(178,711) | $(671,007) | $(894,427) | $(1,992,894) |
| Net loss available to common stockholders | $(249,892) | $(735,741) | $(1,093,270) | $(2,167,658) |
- Revenue increased 33% in Q3 and 40% year to date. Management attributed growth to surgical sales, expansion of the sales force, and new and existing customer accounts.
- Cost of goods sold fell 16% in Q3 and 8% year to date; G&A fell 23% and 14%, respectively. Management cited expense reviews and WellDyne agreement cost reductions.
- Third-quarter operating loss was $131,909. Nine-month results included a $198,307 loss on issuance of debt for warrants. Nine-month interest expense was $124,797, down from $254,627.
- Cash was $198,544 at September 30, 2015, versus $523,441 at year-end 2014. Current assets were $1,270,798 and current liabilities $1,395,025, a working-capital deficit of $124,227 and current ratio of approximately 0.91.
- For the first nine months, operating cash use was $999,771, investing cash use was $5,334, and financing provided $680,208. Ending cash declined by $324,897.
- Total liabilities were $2,600,566, including $486,220 of notes payable, $190,000 of current convertible notes, and $1,200,000 of related-party convertible notes classified as long-term. Stockholders’ deficit was $1,081,509. Current liabilities fell from $2,315,115 at year-end, while total liabilities rose from $2,323,748.
Material changes, outlook, and risks
- Management said the company terminated its WellDyne agreement effective September 19, 2015, and expected the decision to improve results. The filing does not quantify the expected savings or impact.
- On June 15, the company borrowed $1.2 million from two related trusts at 10% interest, due June 15, 2018, convertible at the lenders’ option into Series C preferred stock. Proceeds were used in part to settle $1.1 million of Brookhaven Medical debt; $100,000 was forgiven.
- The company issued $200,000 of convertible debt to Tonaquint in June at 5% interest, due September 26, 2016. Installments may, subject to conditions, be paid in common shares at a price based on 90% of a five-day volume-weighted average.
- Series C preferred stock dividends were $198,843 for the nine months; no dividends had been declared as of September 30. The preferred stock accrues dividends and is convertible into common shares, creating potential dilution.
- The filing states that current liabilities exceed current assets and that the company has a stockholders’ deficit; it concludes these conditions raise substantial doubt about the company’s ability to continue as a going concern. Management says continued operations depend on obtaining additional funding and successful future operations.
- Disclosure controls were reported ineffective due to deficiencies in controls over valuation of embedded derivatives. Management reported no material changes in internal control during the quarter.
- Management described investment in a full-time sales force, continued CellerateRX marketing, and development of ROP as growth priorities, but provided no quantified guidance.
- Contingencies include a disputed Ken Link promissory-note lawsuit and two company-initiated usury cases with counterclaims; outcomes and financial effects were not determinable. A separate Beeleve note lawsuit was settled for $60,000 in October 2015 and dismissed with prejudice.
- CEO and board chairman Robert H. Lutz, Jr. announced his retirement and resignation on November 5, 2015. James W. Stuckert was elected to the board in September.
Important facts for investors to verify
- Confirm the registrant and filing identity: the supplied filing is for Wound Management Technologies, Inc., although the request names Sanara Medtech Inc.
- Assess cash runway, access to additional financing, and the terms and repayment or conversion requirements of outstanding debt.
- Verify the realized financial effect of the WellDyne termination and whether revenue growth and improved gross margins continue.
- Review the status and potential dilution from Series C preferred shares, convertible notes, warrants, and other equity awards.
- Monitor the going-concern uncertainty, derivative valuation control deficiencies, and unresolved litigation.