Business context and reporting period
This filing is Wound Management Technologies, Inc.’s Form 10-K for the fiscal year ended December 31, 2013—not a standalone fourth-quarter report. The request identifies Sanara Medtech Inc.; the filing itself names Wound Management Technologies, Inc. (WMT), so the company identity should be confirmed.
WMT distributes CellerateRX collagen-based wound care and surgical products through its Wound Care Innovations subsidiary and is developing resorbable orthopedic products. Its business depends on licensed technology and a single CellerateRX manufacturer.
Financial results and liquidity
| Metric | 2013 | 2012 |
|---|---|---|
| Revenue | $1.726 million | $1.174 million |
| Gross profit / margin | $934,000 / 54.1% | $375,000 / 32.0% |
| Loss from continuing operations | $2.928 million | $5.418 million |
| Net loss | $4.148 million | $1.845 million |
| Operating cash used | $1.822 million | $1.226 million |
- Revenue increased 47%, attributed to hospital, operating-room and wound-center sales, launch of CellerateRX Surgical powder, and a $60,000 minimum royalty from BioStructures.
- Cost of goods sold declined 1%; management cited product mix and improved inventory turnover. General and administrative expense fell 33% to $3.810 million, partly because 2012 included distribution-right reacquisition costs and $2.416 million of bad-debt expense.
- Net loss widened despite improved operating results: 2012 included a $4.651 million derivative fair-value gain, versus a $365,000 gain in 2013. 2013 interest expense rose to $1.726 million, including amortization and reclassification of debt-related costs.
- At year-end, cash was $44,553; current assets were $654,459 and current liabilities were $3.446 million, a working-capital deficit of about $2.791 million and current ratio of about 0.19. Total liabilities were $3.446 million; current notes and convertible notes were approximately $1.701 million. Accrued royalties and dividends included $375,000 due, paid in January 2014.
- Financing activities provided $1.851 million in 2013. Stockholders’ deficit was $2.469 million and accumulated deficit was $43.165 million. Common shares outstanding rose from 68.8 million at year-end 2012 to 85.7 million at year-end 2013; 88.8 million were outstanding in April 2014.
Changes, outlook and material items
- Management said it expected continued 2014 growth across wound care, surgical products and the resorbable hemostat, and planned to pursue new marketing areas. These are forward-looking expectations, not assured results.
- WMT reported new Middle East distribution activity and an initial Saudi Arabia order. In January 2014 BioStructures received FDA 510(k) clearance for a bone graft product licensed from WMT’s subsidiary; WMT received a $50,000 milestone payment and later granted a commercial license for a $100,000 fee, with royalties on sales.
- At year-end, existing shareholders had committed to invest an additional $2.4 million in Series C preferred stock and convert more than $1.5 million of debt, according to the CEO letter. Subsequent-event disclosures report $2.176 million of Series C cash proceeds between January and March 2014.
- Brookhaven Medical provided a $1 million secured convertible loan and a drawdown facility; $200,000 was drawn under the latter by year-end. The proposed merger was abandoned in December 2013. The CEO described funding as sufficient for planned growth, but the auditor highlighted substantial doubt about the company’s ability to continue as a going concern because of recurring losses and a working-capital deficit; management said further financing and eventual profitability were necessary.
- Material risks include continued losses and capital needs, reliance on one manufacturer, intense competition, Medicare reimbursement changes, dilution, and the CellerateRX patent’s 2018 expiration. The company had 15.67 million warrants outstanding at year-end.
- A shareholder lawsuit over a promissory note remained unresolved after a 2013 mistrial; WMT disputed the claim and asserted usury counterclaims, and said the outcome could not be determined. Separately, the SEC matter was resolved by a permanent injunction and a $20,000 civil penalty.
- Disclosure controls and internal control over financial reporting were reported ineffective due to a material weakness involving inconsistencies and omissions in accounting for equity, debt issued with equity instruments, and derivatives. The filing also reports a $489,614 warrant-expense true-up for previously unrecorded warrants and $925,787 of Series D share-based compensation recognized in 2013.
Most important facts for investors to verify
- Confirm the issuer identity and the status, terms and actual receipt of the 2014 preferred-stock financing and remaining credit availability.
- Review the going-concern warning, cash burn, near-term maturities and ability to fund operations without additional capital.
- Assess dilution from preferred stock, warrants, convertible debt and the proposed increase in authorized common shares.
- Check whether CellerateRX sales growth, gross margins and new product launches are sustainable, and whether royalties and supplier obligations are current.
- Track resolution of the Link litigation and remediation of the disclosed financial-reporting material weakness.