Sanara MedTech Inc. - Quarter Report: 2019 March (Form 10-Q)
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended: March 31, 2019
Commission
File No. 0-11808
SANARA MEDTECH INC.
Formerly named
WOUND MANAGEMENT TECHNOLOGIES, INC.
Texas
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59-2219994
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(State
or other jurisdiction of incorporation or
organization)
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(I.R.S.
Employer Identification Number)
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1200 Summit Ave
Suite 414
Fort Worth, Texas 76102
(Address of principal executive offices)
(817) 529-2300
(Registrant’s telephone number, including area
code)
Securities
registered pursuant to Section 12(b) of the Act: None
Indicate by check
mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes ☒
No ☐
Indicate by check
mark whether the registrant has submitted electronically every
Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes
☒ No ☐
Indicate by check
mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, smaller reporting
company, or an emerging growth company. See the definitions of
“large accelerated filer,” “accelerated
filer”, “smaller reporting company” and "emerging
growth company" in Rule 12b-2 of the Exchange Act. (Check
one):
Large accelerated filer
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☐
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Accelerated filer
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☐
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Non-accelerated
filer
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☒
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Smaller reporting company
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☒
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Emerging
growth company
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☐
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If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check
mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of
May 20, 2019, the Company had 2,366,424 shares of Common Stock,
$.001 par value per share outstanding.
WOUND MANAGEMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
Form 10-Q
Quarter Ended March 31, 2019
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Page
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Part I – Financial Information
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Part II. Other Information
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1
Part I – Financial Information
Item 1. Financial
Statements
Wound Management Technologies, Inc. and
Subsidiaries
Consolidated Balance Sheets
March 31, 2019 and December 31, 2018
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Successor
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Successor
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March
31,
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December
31,
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Assets
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2019
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2018
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Current assets
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Cash
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$742,457
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$176,421
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Accounts
receivable, net of allowance for bad debt of $40,550 and
$0
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1,218,587
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1,022,500
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Royalty
receivable
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50,250
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-
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Inventory,
net of allowance for obsolescence of $36,062 and $484
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345,960
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465,315
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Prepaid
and other assets
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581,234
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26,445
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Total current assets
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2,938,488
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1,690,681
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Long-term assets:
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Property,
plant and equipment, net of accumulated depreciation of $75,548 and
$511
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65,976
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18,777
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Right
of use assets – operating leases
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216,077
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-
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Intangible
assets, net of accumulated amortization of $516,279
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36,010
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-
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Total long-term assets
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318,063
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18,777
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Total assets
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$3,256,551
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$1,709,458
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Liabilities and shareholders' equity
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Current liabilities
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Accounts
payable
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$416,818
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$156,727
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Accounts
payable – related party
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126,937
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36,203
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Accrued
royalties and expenses
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299,506
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228,606
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Accrued
bonus and commissions
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873,913
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701,125
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Operating
lease liability - current
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96,033
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Line
of credit
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500,000
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-
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Total current liabilities
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2,313,207
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1,122,661
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Long-term liabilities
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Operating
lease liability – long term
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131,804
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-
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Convertible
notes payable – related party
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1,500,000
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-
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Accrued
interest
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44,878
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-
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Total long-term liabilities
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1,676,682
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-
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Total liabilities
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3,989,889
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1,122,661
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Shareholders' equity (deficit)
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Series F Convertible Preferred Stock,
$10 par value, 1,200,000 shares authorized; 1,136,815 issued and
outstanding as of March 31, 2019 and 1,136,815 issued and
outstanding as of December 31, 2018
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11,368,150
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11,368,150
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Common Stock: $.001 par value;
20,000,000 shares authorized; 2,366,465 issued and 2,366,424
outstanding as of March 31, 2019 and 1,134,279 issued and 1,134,239
outstanding as of December 31, 2018
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2,366
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Additional
paid-in capital
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(12,079,568)
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(10,919,639)
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Retained
earnings (accumulated deficit)
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(24,286)
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138,286
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Total
stockholders' equity (deficit)
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(733,338)
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586,797
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Total liabilities and stockholders' equity
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$3,256,551
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$1,709,458
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2
Wound Management Technologies, Inc. And
Subsidiaries
Consolidated Statements of Operations
For the Three-months Ended March 31, 2019 and 2018
(Unaudited)
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Successor
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Predecessor
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Three-months Ended
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March 31,
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2019
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2018
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Revenues
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$2,486,896
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$1,961,787
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Cost of goods sold
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289,340
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210,912
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Gross profit
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2,197,556
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1,750,875
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Operating expenses
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Selling,
general and administrative expenses
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2,350,363
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1,654,361
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Depreciation
and amortization
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4,340
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20,248
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Bad
debt expense
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-
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9,558
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Total operating expenses
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2,354,703
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1,684,167
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Operating income (loss)
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(157,147)
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66,708
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Other income / (expense)
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Other
income
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-
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109
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Interest
expense
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(5,425)
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(60,608)
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Total other income / (expense)
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(5,425)
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(60,499)
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Net income (loss)
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(162,572)
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6,209
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Series
C Preferred Stock dividends
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(28,061)
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Series
C Preferred Stock inducement dividends
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(103,197)
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Net loss attributable to common stockholders
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$(162,572)
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$(125,049)
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Basic
income per share of Common stock
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$(0.39)
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$(0.08)
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Diluted
income per share of Common Stock
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$(0.39)
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$(0.08)
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Weighted
average number of common shares outstanding basic
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420,698
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1,589,035
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Weighted
average number of common shares outstanding diluted
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420,698
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1,589,035
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The accompanying notes are an integral part of these unaudited
consolidated financial statements.
3
WOUND MANAGEMENT TECHNOLOGIES, INC. AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(DEFICIT)
FOR THE 3 MONTHS ENDED March 31, 2019 and 2018
Predecessor
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Common Stock Shares
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$0.001 Par
Value Amount
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Preferred Stock
Series C Shares
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$10.00 Par Value Amount
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Additional Paid-In Capital
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Treasury Stock Shares
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Treasury Stock Amount
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Accumulated Deficit
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Total Shareholders' Equity (Deficit)
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Balance at
December 31, 2017
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1,134,279
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$1,134
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85,561
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$855,610
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$46,114,357
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(41)
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$(120)
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$(46,868,443)
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$102,538
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Conversion of
Series C Preferred Stock
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855,605
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855
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(85,561)
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(855,610)
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854,755
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-
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-
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-
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-
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Series C
Dividend
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150,067
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150
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(150)
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-
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-
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Common stock
issued for conversion of debt
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226,514
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227
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1,585,367
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1,585,594
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Net
income
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- -
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6,209
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6,209
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Balance at
March 31, 2018
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2,366,465
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$2,366
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-
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$48,554,329
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(41)
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$(120)
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$(46,862,234)
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$$1,694,341
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Successor
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Common Stock Shares
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$0.001 Par
Value Amount
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Preferred Stock
Series F Shares
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$10.00 Par Value Amount
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Additional Paid-In Capital
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Treasury Stock Shares
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Treasury Stock Amount
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Accumulated Deficit
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Total Stockholders' Equity (Deficit)
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Balance at
December 31, 2018
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$-
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1,136,815
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$11,368,150
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$(10,919,639)
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-
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$
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$138,286
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$586,797
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Reverse
recapitalization
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2,366,465
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2,366
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-
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(1,159,929)
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(1,157,563)
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Net
loss
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(162,572)
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(162,572)
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Balance at
March 31, 2019
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2,366,465
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$2,366
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1,136,815
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$11,368,150
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$(12,079,568)
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-
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$
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$(24,286)
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$(733,338)
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The accompanying notes are an integral part of these consolidated
financial statements.
4
Wound Management Technologies, Inc. and
Subsidiaries
Consolidated Statements of Cash Flows
For the Three-months Ended March 31, 2019 and 2018
(Unaudited)
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Successor
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Predecessor
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Three-months Ended
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March 31,
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2019
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2018
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Cash flows from operating activities:
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Net
income (loss)
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$(162,572)
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$6,209
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Adjustments
to reconcile net income to net cash used in operating
activities
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Depreciation
and amortization
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4,340
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20,248
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Interest expense on
convertible debt
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3,255
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60,608
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Loss on disposal of
asset
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7,500
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Bad debt
expense
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-
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9,558
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Changes
in assets and liabilities:
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(Increase)
decrease in accounts receivable
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(147,790)
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(239,598)
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(Increase)
decrease in inventory
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119,354
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97,683
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(Increase)
decrease in prepaid and other assets
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(506,118)
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(43,819)
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Increase
(decrease) in accrued royalties and expenses
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53,449
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(150,672)
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Increase
(decrease) in accounts payable
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14,279
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27,741
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Increase
(decrease) in accounts payable related parties
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38,670
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(54,115)
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Increase
(decrease) in accrued liabilities
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139,490
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65,711
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Net cash flows used in operating activities
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(436,143)
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(200,446)
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Cash flows from investing activities:
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Purchase
of property and equipment
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(6,794)
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(1,297)
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Cash
received in reverse acquisition
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508,973
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-
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Net cash flows from (used in) investing activities
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502,179
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(1,297)
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Cash flows from financing activities:
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Draw
on line of credit
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500,000
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-
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Net cash flows from financing activities
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500,000
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-
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Net increase (decrease) in cash
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566,036
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(201,743)
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Cash and cash equivalents, beginning of period
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176,421
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463,189
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Cash and cash equivalents, end of period
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$742,457
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$261,446
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Cash paid during the period for:
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Interest
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$2,170
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$-
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Income
taxes
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-
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-
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Supplemental non-cash investing and financing
activities:
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Common
stock issued for dividends on Series C Preferred Stock
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-
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15,007
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Common
stock issued for conversion of Series C Preferred
Stock
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-
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85,561
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Common
stock issued for conversion of Related Party debt and
interest
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-
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1,585,594
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Common
stock issued in reverse capitalization; less cash received of
$508,973
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1,666,537
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-
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The accompanying notes are an integral part of these unaudited
consolidated financial statements.
5
Wound Management Technologies, Inc.
and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
Note 1 - Summary of Significant Accounting Policies
Background and Basis of Presentation
The
terms “WMTI,” “WNDM,” “we,”
“the Company,” and “us” as used in this
report refer to Wound Management Technologies, Inc. and its wholly
owned subsidiaries. The accompanying unaudited consolidated balance
sheet as of March 31, 2019, and unaudited consolidated statements
of operations for the three-months ended March 31, 2019 and 2018,
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by U.S. generally accepted accounting principles
for complete financial statements. In the opinion of management of
WMTI, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
Operating results for the three-month period ended March 31, 2019,
are not necessarily indicative of the results that may be expected
for the year ending December 31, 2019, or any other period. These
financial statements and notes should be read in conjunction with
the financial statements for each of the two years ended December
31, 2018, and December 31, 2017, included in the Company’s
Annual Report on Form 10-K.
On
August 28, 2018, the Company consummated definitive agreements that
continued operations to market the Company’s principal
products, CellerateRX® Surgical Activated Collagen®
Peptides and CellerateRX® Hydrolyzed Collagen wound fillers
(CellerateRX), through a 50% ownership interest in a newly formed
limited liability company, Cellerate, LLC which began operations on
September 1, 2018. The remaining 50% ownership interest was held by
an affiliate of The Catalyst Group (CGI), which acquired an
exclusive license to distribute CellerateRX products. Cellerate,
LLC conducts operations with an exclusive sublicense from the CGI
affiliate to distribute CellerateRX products into the wound care
and surgical markets in the United States, Canada and
Mexico.
While
the Company had significant influence over the operations of
Cellerate, LLC, the Company did not have a controlling interest.
CGI had the controlling vote in the event of a deadlocked vote by
the Board of Managers of Cellerate, LLC. Therefore, the
Company’s investment in Cellerate, LLC was reported using the
equity method of accounting beginning September 1, 2018. The
Company’s 50% share of Cellerate, LLC’s net income or
loss was presented as a single line item on WMTI’s Statement
of Operations for the period September 1, 2018 through December 31,
2018.
On
March 15, 2019, the Company acquired CGI’s 50% interest in
Cellerate, LLC (the Cellerate Acquisition) in exchange for
1,136,815 shares of the Company’s newly created Series F
Convertible Preferred Stock. Each share of Series F Convertible
Preferred Stock may be converted at the option of the holder, at
any time, into 2 shares of common stock, adjusted for the 1 for 100
reverse stock split of the Company’s common stock which
became effective on May 10, 2019 (see Note 7 – Subsequent
Events). Additionally, each holder of Series F Convertible
Preferred Stock is entitled to vote on all matters submitted for a
vote of the Company’s shareholders with votes equal to the
number of shares of common stock into which such holder’s
Series F shares could then be converted. Based on the closing price
of the Company’s common stock on March 15, 2019 and the
conversion ratio of the Series F Preferred Stock, the fair value of
the preferred shares issued to CGI was approximately $12.5 million.
Following the closing of this transaction, Mr. Ronald T. Nixon,
Founder and Managing Partner of CGI, was elected to the
Company’s Board of Directors effective March 15,
2019.
The
Cellerate Acquisition was accounted for as a reverse merger and
recapitalization because, immediately following the completion of
the transaction, CGI could obtain effective control of the Company
upon exercise of its convertible preferred stock and promissory
note both of which could occur at CGI’s option. Additionally,
Cellerate, LLC’s officers and senior executive positions will
continue on as management of the combined entity after consummation
of the Cellerate Acquisition. For accounting purposes, Cellerate,
LLC will be deemed to be the accounting acquirer in the transaction
and, consequently, the transaction has been treated as a
recapitalization of WMTI. No step-up in basis or intangible assets
or goodwill was recorded in this transaction.
As a
result of the reverse merger, Cellerate, LLC’s assets,
liabilities and results of operations are the historical financial
statements of the registrant, and Cellerate LLC’s assets,
liabilities and results of operations have been consolidated with
WMTI effective as of the date of the closing of the Cellerate
Acquisition. The Company’s financial statement presentation
identifies Cellerate, LLC as “Successor” for the
three-month period ending March 31, 2019, and on the balance sheet
date of December 31, 2018. Upon its formation on September 1, 2018,
Cellerate LLC succeeded to the business of WMTI and its own
operations before the succession appeared insignificant. As a
result, WMTI is identified as “Predecessor” for the
periods preceding September 1, 2018.
6
Principles of Consolidation
The
financial statements have been presented on a comparative basis.
The unaudited consolidated balance sheet at December 31, 2018 is
identified as “Successor” and includes the accounts of
Cellerate, LLC only. The unaudited consolidated balance sheet at
March 31, 2019 is also identified as “Successor” and
includes the accounts of Cellerate, LLC, WMTI, and WMTI’s
other wholly owned subsidiaries WCI, LLC, Resorbable Orthopedic
Products, LLC, and Innovate OR, Inc.
(“IOR”).
The
unaudited consolidated statement of operations for the period
ending March 31, 2019 is identified as “Successor” and
includes the accounts of Cellerate, LLC for the full period, and
the accounts of WMTI and its other wholly owned subsidiaries for
the period March 16, 2019 through March 31, 2019. The statement of
operations for the period ending March 31, 2018 is identified as
“Predecessor” and includes the accounts of WMTI and its
wholly owned subsidiaries (excluding Cellerate, LLC) as reported on
WMTI’s Form 10-Q for the 3-month period ended March 31, 2018.
A black line separates the Predecessor and Successor sections to
highlight the lack of comparability between these two
periods.
The
unaudited consolidated statement of changes in shareholders’
equity includes two sections. The first section is identified as
“Predecessor” and includes the WMTI equity information
as previously reported by WMTI on its 2017 10-K annual report and
its March 31, 2018 10-Q quarterly report. The second section is
identified as “Successor” which includes a presentation
of equity to reflect the recapitalization of WMTI as if it had
occurred as of December 31, 2018. The presentation includes the
issuance of the Series F Preferred Stock, the changes in paid-in
capital, and the restatement of the accumulated deficit as if the
recapitalization had occurred as of December 31, 2018. A black line
separates the Predecessor and Successor sections to highlight the
lack of comparability between these two periods.
The
unaudited consolidated statement of cash flows for the period
ending March 31, 2019 is identified as “Successor” and
includes the accounts of Cellerate, LLC for the full period and the
accounts of WMTI (and its other wholly owned subsidiaries) for the
period March 16, 2019 through March 31, 2019. The consolidated
statement of cash flows for the period ending March 31, 2018 is
identified as “Predecessor” and includes the accounts
of WMTI and its wholly owned subsidiaries (excluding Cellerate,
LLC) as reported on WMTI’s Form 10-Q for the 3-month period
ended March 31, 2018. A black line separates the Predecessor and
Successor sections to highlight the lack of comparability between
these two periods.
Revenue Recognition
The Company recognizes revenue in accordance with ASC Topic
606, Revenue from Contracts with Customers, which was adopted
on January 1, 2018 using the modified retrospective method.
Revenues are recognized when control of the promised goods or
services is transferred to the customer in an amount that reflects
the consideration the Company expects to be entitled to in exchange
for transferring those goods or services. Revenue is recognized
based on the following five step model:
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Identification
of the contract with a customer
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Identification
of the performance obligations in the contract
-
Determination
of the transaction price
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Allocation
of the transaction price to the performance obligations in the
contract
-
Recognition
of revenue when, or as, the Company satisfies a performance
obligation
Details of this five-step process are as follows:
Identification of the contract with a customer
Customer purchase orders are generally considered to be contracts
under ASC 606. Purchase orders typically identify specific terms of
products to be delivered, create the enforceable rights and
obligations of both parties, and result in commercial substance. No
other forms of contract revenue recognition, such as the completed
contract or percentage of completion methods, were utilized by the
Company in either 2018 or 2019.
Performance obligations
The Company’s performance obligation is generally limited to
delivery of the requested items to its customers at the agreed upon
quantities and prices.
7
Determination and allocation of the transaction price
The
Company has established prices for its products. These prices are
effectively agreed to when customers place purchase orders with the
Company. Rebates and discounts, if any, are recognized in full at
the time of sale as a reduction of net revenue. Allocation of
transaction prices is not necessary where one performance
obligation exists.
Recognition of revenue as performance obligations are
satisfied
Product revenues are recognized when the products are delivered and
title passes to the customer.
Disaggregation of Revenue
Revenue
streams from product sales and royalties are summarized below for
the three-months ended March 31, 2019 and 2018. All revenue was
generated in the United States; therefore, no geographical
disaggregation is necessary.
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Three months Ended
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March 31,
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2019
(Successor)
|
2018
(Predecessor)
|
Product sales
revenue
|
$2,478,521
|
$1,911,537
|
Royalty
revenue
|
8,375
|
50,250
|
Total Revenue
|
$2,486,896
|
$1,961,787
|
The Company recognizes royalty revenue from a licensing agreement
between BioStructures, LLC and the Company. The Company records
revenue each calendar quarter as earned per the terms of the
agreement which stipulates the Company will receive quarterly
royalty payments of at least $50,250. To date, royalties related to
this licensing agreement have not exceeded the annual minimum of
$201,000 ($50,250 per quarter).
Contract Assets and Liabilities
The Company does not have any contract assets or contract
liabilities.
Inventories
Inventories
are stated at the lower of cost or net realizable value, with cost
computed on a first-in, first-out basis. Inventories consist of
finished goods and related packaging supplies. The Company recorded
inventory obsolescence expense of $38,837 for the three-months
ended March 31, 2019, compared to $99 recorded by the Predecessor
for the three-months ended March 31, 2018. The allowance for
obsolete and slow-moving inventory had a balance of $36,062 at
March 31, 2019, and $484 at December 31, 2018.
Fair Value Measurements
As
defined in Accounting Standards Codification (“ASC”)
Topic No. 820, fair value is the price that would be received to
sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date
(exit price). The Company utilizes market data or assumptions that
market participants would use in pricing the asset or liability,
including assumptions about risk and the risks inherent in the
inputs to the valuation technique. These inputs can be readily
observable, market corroborated, or generally unobservable. ASC 820
establishes a fair value hierarchy that prioritizes the inputs used
to measure fair value. The hierarchy gives the highest priority to
unadjusted quoted prices in active markets for identical assets or
liabilities (level 1 measurement) and the lowest priority to
unobservable inputs (level 3 measurement). This fair value
measurement framework applies at both initial and subsequent
measurement.
The
three levels of the fair value hierarchy defined by ASC Topic No.
820 are as follows:
Level 1
– Quoted prices are available in active markets for identical
assets or liabilities as of the reporting date. Active markets are
those in which transactions for the asset or liability occur in
sufficient frequency and volume to provide pricing information on
an ongoing basis. Level 1 primarily consists of financial
instruments such as exchange-traded derivatives, marketable
securities and listed equities.
8
Level 2
– Pricing inputs are other than quoted prices in active
markets included in Level 1, which are either directly or
indirectly observable as of the reported date. Level 2 includes
those financial instruments that are valued using models or other
valuation
methodologies.
These models are primarily industry-standard models that consider
various assumptions, including quoted forward prices for
commodities, time value, volatility factors, and current market and
contractual prices for the underlying instruments, as well as other
relevant economic measures. Substantially all of these assumptions
are observable in the marketplace throughout the full
term
of the
instrument, can be derived from observable data or are supported by
observable levels at which transactions are executed in the
marketplace. Instruments in this category generally include
non-exchange-traded derivatives such as commodity swaps, interest
rate swaps, options and collars. Level 3 – Pricing inputs
include significant inputs that are generally less observable from
objective sources. These inputs may be used with internally
developed methodologies that result in management’s best
estimate of fair value.
Our
intangible assets have also been valued using the fair value
accounting treatment and a description of the methodology used,
including the valuation category, is described in the
Company’s Annual Report on Form 10-K.
Income Per Share
The
Company computes income per share in accordance with Accounting
Standards Codification “ASC” Topic No. 260,
“Earnings per Share,” which requires the Company to
present basic and dilutive income per share when the effect is
dilutive. Basic income per share is computed by dividing income
available to common stockholders by the weighted average number of
common shares available. Diluted income per share is computed
similar to basic income per share except that the denominator is
increased to include the number of additional common shares that
would have been outstanding if the potential common shares had been
issued and if the additional common shares were dilutive. All
convertible instruments were excluded from the current and prior
year calculations as their inclusion would have been anti-dilutive
during the three-months ended March 31, 2019 and March 31,
2018.
Derivative Liabilities
The
Company infrequently enters into derivative financial instruments
to manage its funding of current operations. Derivatives are
initially recognized at fair value at the date a derivative
contract is entered into and are subsequently re-measured to their
fair value at the end of each reporting period. The resulting gain
or loss is recognized in profit or loss immediately. There were no
derivative liabilities as of March 31, 2019.
Recently Issued Accounting Pronouncements
In
February 2016, the FASB issued ASU 2016-02, "Leases" (Topic 842)
The new standard requires lessees to recognize leases on-balance
sheet and disclose key information about leasing arrangements. The
new standard establishes a right-of-use ("ROU") model that requires
a lessee to recognize a ROU asset and lease liability on the
balance sheet for all leases with a term longer than 12 months.
Leases will be classified as finance or operating, with
classification affecting the pattern and classification of expense
recognition in the income statement. The standard is effective on
January 1, 2019, with early adoption permitted. The Company adopted
the new standard on January 1, 2019 using the transition method
which allows entities to initially apply the requirements by
recognizing a cumulative-effect adjustment to the operating balance
of retained earnings in the period of adoption without restating
comparative periods. As part of the adoption, the Company elected
to utilize the package of practical expedients included in this
guidance, which permitted the Company to not reassess (i) whether
any expired or existing contracts contain leases; (ii) the lease
classification for any expired or existing leases; and (iii) the
initial direct costs for existing leases. In conjunction with the
adoption of the new lease standard, the Company adopted the
following policy; an election not to recognize short-term leases
(i.e., a lease that is less than 12 months and contains no purchase
option) within the unaudited Condensed Consolidated Balance Sheets,
with the expense related to these short-term leases recorded within
total operating expenses within the unaudited Condensed
Consolidated Statements of Operations. See Note 4 below for more
information regarding leases.
In
March 2016, the FASB issued ASU 2016-07, which eliminates a
requirement for the retroactive adjustment on a step by step basis
of the investment, results of operations, and retained earnings as
if the equity method had been effective during all previous periods
that the investment had been held when an investment qualifies for
equity method accounting due to an increase in the level of
ownership or degree of influence. The cost of acquiring the
additional interest in the investee is to be added to the current
basis of the investor’s previously held interest and the
equity method of accounting should be adopted as of the date the
investment becomes qualified for equity method accounting. The
presentation of the Company’s financial statements is
consistent with this guidance.
On June
20, 2018, the FASB issued ASU 2018-07, which simplifies the
accounting for share-based payments granted to nonemployees for
goods and services. Under the ASU, most of the guidance on such
payments to nonemployees would be aligned with the requirements for
share-based payments granted to employees. The Company adopted the
pronouncement effective January 1, 2019 and the adoption is not
expected to have a material impact on the Company’s financial
position, operations or cash flows.
9
Note 2 – Notes Payable
Convertible Notes Payable - Related Parties
On June
15, 2015, the Company entered into term loan agreements with The
James W. Stuckert Revocable Trust (“SRT) and The S. Oden
Howell Revocable Trust (“HRT”), pursuant to which SRT
made a loan to the Company in the amount of $600,000 and HRT made a
loan to the Company in the amount of $600,000 under Senior Secured
Convertible Promissory Notes (the “Notes”). Both SRT
and HRT are controlled by affiliates of the Company. The Notes each
carried an interest rate of 10% per annum, and (subject to various
default provisions) all unpaid principal and accrued but unpaid
interest under the Notes were due and payable on June 15, 2018. On
February 19, 2018, both Notes totaling $1,200,000 plus $385,594 of
accrued interest were converted to 226,514 common shares of the
Company's Common Stock. The accrued interest included $60,608 of
interest expense recognized during the first quarter of
2018.
As part
of the aforementioned transaction with CGI to form Cellerate, LLC,
the Company issued a 30-month convertible promissory note to CGI in
the principal amount of $1,500,000, bearing interest at a 5% annual
interest rate, compounded quarterly. Interest is payable quarterly,
but may be deferred at the Company’s election to the maturity
of the Note. Outstanding principal and interest are convertible at
CGI’s option into shares of WNDM common stock at a conversion
price of $.09 per share. The company has evaluated this conversion
option for a derivative and for a beneficial conversion feature and
determined none existed.
Note 3 – Commitments and Contingencies
Royalty agreements.
Effective
January 3, 2008, WCI entered into separate exclusive license
agreements with both Applied Nutritionals, LLC
(“Applied”) and its founder George Petito, pursuant to
which WCI obtained the exclusive world-wide license to make
products incorporating intellectual property covered by a patent
related to CellerateRX products. Although the term of these
licenses expired on February 27, 2018, the agreements permitted WCI
to continue to sell and distribute products through August 27,
2018. Subsequent to the expiration of the license agreement between
the Company and Applied, an exclusive sublicense was acquired by a
CGI affiliate to distribute CellerateRX products into the wound
care and surgical markets in the United States, Canada and Mexico.
The Company and CGI entered into definitive agreements on August
27, 2018 that continued operations to market CellerateRX through
Cellerate, LLC, a newly formed entity in which the Company and CGI
each had a 50% ownership interest. The term of the sublicense
extends through August 2028, with automatic one-year renewals
through December 31, 2049, subject to termination at the end of any
renewal term by either party on six-months' notice. Cellerate, LLC
pays specified royalties to CGI based on Cellerate, LLC’s
annual net sales of CellerateRX. Cellerate, LLC shall pay to CGI
three percent (3%) of all collected net sales each year up to
$12,000,000, four percent (4%) of all collected net sales each year
that exceed $12,000,000 up to $20,000,000, and five percent (5%) of
all collected net sales each year that exceed $20,000,000. Minimum
royalties due under the terms of the sublicense are $400,000 per
year for first five (5) years of the sublicense
agreement.
On
September 29, 2009, the Company entered into an Asset Purchase
Agreement (the “Asset Purchase Agreement”), by and
among the Company, RSIACQ, LLC, a wholly-owned subsidiary of the
Company (RSI), Resorbable Orthopedic Products, LLC
(“Resorbable”) and Resorbable’s members, pursuant
to which, RSI acquired substantially all of Resorbable’s
assets, in exchange for (i) 5,000 shares of the Company’s
Common Stock, and (ii) a royalty equal to eight percent (8%) of the
net revenues generated from products sold by the Company or any of
its affiliates, which products are developed from or otherwise
utilize any of the patented technology acquired from
Resorbable.
Office leases
In
March of 2017, and as amended in March 2018, the Company executed a
new office lease for office space located at 1200 Summit Ave.,
Suite 414, Fort Worth, TX 76102. The amended lease is effective
April 1, 2018 and ends on June 30, 2021. Monthly base rental
payments are as follows: months 1-2, $8,390; months 3-14, $8,565;
months 15-26, $8,740; and months 27-39, $8,914. Rent expense is
recognized on a straight-line basis over the term of the
lease.
Payables to Related Parties
In
addition to the convertible promissory note to CGI discussed in
Note 2, the Company had outstanding payables to related parties
totaling $126,937 at March 31, 2019, and $36,203 at December 31,
2018.
10
Note 4 – Leases
The
Company enters into operating lease contracts for office space and
equipment. Arrangements are evaluated at inception to determine
whether such arrangements contain a lease. In accordance with the
transition guidance of ASC 842, such arrangements are included in
our balance sheet as of January 1, 2019.
Right
of use assets, which we refer to as “ROU assets,”
represent the right to use an underlying asset for the lease term,
and lease
liabilities represent the obligation to make lease payments arising
from the lease. Operating lease ROU assets and liabilities were
recognized at the transition date based on the present value of
lease payments over the respective lease term, with the office
space ROU asset adjusted for deferred rent liability. Lease expense
is recognized on a straight-line basis over the lease
term.
The Company has two operating leases: an office space lease with a
remaining lease term of 27 months and a copier lease with a
remaining lease term of 28 months as of March 31, 2019. In
accordance with the transition guidance of ASC 842, such
arrangements are included in our balance sheet as of January 1,
2019. All other leases are short-term leases for which practical
expediency has been elected to not recognize lease assets and lease
liabilities.
As the implicit rate in the leases is not determinable, the
discount rate applied to determine the present value of lease
payments is the borrowing rate on our line of credit. The office
space lease agreement contains no renewal terms so no lease
liability is recorded beyond the termination date. The copier lease
can be automatically renewed but no lease liability is recorded
beyond initial termination date as exercising this option is not
reasonably certain.
As a
result of the adoption of ASC 842, the Company has recorded lease
assets of $216,077 and a related lease liability of $227,837 as of
March 31, 2019. Cash paid for amounts included in measurement of
operating lease liabilities as of March 31, 2019 was $208. The
present value of our operating lease liabilities is shown
below.
Maturity of Operating Lease Liabilities
|
March 31, 2019
|
2019
|
$80,176
|
2020
|
108,591
|
2021
|
54,940
|
2022
|
-
|
Total lease
payments
|
243,707
|
Less imputed
interest
|
(15,870)
|
Present value of
lease liabilities
|
$227,837
|
As of
March 31, 2019, our operating leases had a weighted average
remaining lease term of 2.3 years and a weighted average discount
rate of 6.25%.
Note 5 - Stockholders’ Equity
Preferred Stock
On
October 11, 2013, the Company filed a Certificate of Designations,
Number, Voting Power, Preferences and Rights of Series C
Convertible Preferred Stock (the “Certificate of
Designations”), under which it designated 100,000 shares of
Series C Preferred Stock, par value $10.00. The Series C Preferred
Stock was entitled to accruing dividends (payable, at the
Company’s options, in either cash or stock) of 5% per annum
until October 10, 2016, and 3% per annum until October 10,
2018.
In
February and March 2018, the Company issued 1,005,677 shares of
Common Stock for the conversion of 85,561 shares of Series C
Convertible Preferred Stock and $1,050,468 of related Series C
dividends. As of March 31, 2019, there were no shares of Series C
Preferred Stock outstanding and all accrued dividends were
converted to Common Stock in the first quarter of
2018.
Series
C Preferred dividends were $0 and $28,061 ended March 31, 2019 and
March 31, 2018, respectively. As an inducement to encourage the
Series C Preferred Stock shareholders to convert their Series C
Preferred Stock to Common Stock prior to October 10, 2018, the
Company offered to apply the full dividend, (accelerated to October
10, 2018) upon the shareholders exercise of their conversion. The
fair value of the extra shares of Common Stock issued to Series C
Stock shareholders was $103,197 for dividends that would have
accrued from the date of their conversion through October 10,
2018.
The
Company evaluated the Series C preferred stock under FASB ASC 815
and determined that they do not qualify as derivative liabilities.
The Company then evaluated the Series C preferred stock for
beneficial conversion features under FASB ASC 470-30 and determined
that none existed.
11
On
March 13, 2019, the Company established a new series of preferred
stock consisting of 1,200,000 shares of Series F Convertible
Preferred Stock, par value of $10.00 per share. Each share of
Series F Convertible Preferred Stock may be converted at the option
of the holder, at any time, into 2 shares of common stock.
Additionally, each holder of Series F Convertible Preferred Stock
is entitled to vote on all matters submitted for a vote of the
Company’s shareholders with votes equal to the number of
shares of common stock into which such holder’s Series F
shares could then be converted. The Series F Convertible Preferred
Stock is senior to the Company’s common stock as to the
payment of dividends (if any) and the distribution of assets. Upon
liquidation of the Company, holders of Series F Convertible
Preferred Stock are entitled to a liquidation preference of $5 per
share. As of March 31, 2019, there were 1,136,815 shares of the
Series F Preferred stock issued and outstanding.
Common Stock
On
March 6, 2018, the Company issued 226,514 shares of Common Stock
for the conversion of $1,200,000 in Related Party convertible debt
and $385,594 in accrued interest. In February and March 2018, the
Company issued 1,005,677 shares of Common Stock for the conversion
of 85,561 shares of Series C Convertible Preferred Stock and
$1,050,468 of related Series C dividends.
Warrants
At
December 31, 2018 and March 31, 2019 there were no warrants
outstanding.
Stock Options
A
summary of the status of the stock options granted for the
three-month period ended March 31, 2019, and changes during the
period then ended is presented below:
|
For the Three-months Ended March 31, 2019
|
|
|
Options
|
Weighted Average
Exercise Price
|
Outstanding
at beginning of period
|
15,500
|
$6.00
|
Granted
|
-
|
-
|
Exercised
|
-
|
-
|
Forfeited
|
2,000
|
$6.00
|
Expired
|
-
|
-
|
Outstanding
at end of period
|
13,500
|
$6.00
|
As of March 31,
2019
|
As of March 31, 2019
|
||||
Stock Options
Outstanding
|
Stock
Options Exercisable
|
||||
Exercise Price
|
Number Outstanding
|
Weighted-Average Remaining Contract Life
|
Weighted- Average Exercise Price
|
Number Exercisable
|
Weighted-Average Exercise Price
|
$6.00
|
13,500
|
3.58
|
$6.00
|
3,833
|
$6.00
|
On
December 31, 2017, the Company granted a total of 11,500 options to
five employees. The shares vest in equal annual amounts over three
years and the aggregate fair value of the awards was determined to
be $61,322. As of the date of this filing no expense has been
recognized. On April 13, 2018, the Company granted a total of 2,000
options to one employee and one contractor. The shares vest in
equal annual amounts over three years and the aggregate fair value
of the awards was determined to be $8,943 which will be expensed
over the three-year vesting period. On August 31, 2018 the Company
granted a total of 2,000 options to one employee. The shares vest
in equal annual amounts over three years and the aggregate fair
value of the awards was determined to be $16,405 which will be
expensed over the three-year vesting period.
During
the three-month period ending March 31, 2019, option expense of
$1,056 was recognized.
12
Note 6 – Debt and Credit Facilities
In
December 2018, Cellerate, LLC executed agreements with Cadence
Bank, N.A. which provided Cellerate, LLC access to a revolving line
of credit up to a maximum principal amount of $1,000,000. The line
of credit is intended to support short-term working capital
requirements of Cellerate, LLC. The line of credit is secured by
all present and future inventory, all present and future accounts
receivable, other receivables, contract rights, instruments,
documents, notes, and all other similar obligation and indebtedness
that may now and in the future be owed to the Company, and all
general intangibles. The interest rate under this loan is the
“Prime Rate” designated in the “Money
Rates” section of the Wall Street Journal (the
“Index”). The index currently is 5.500% per annum.
Interest on the unpaid principal balance of this line is calculated
using a rate of 0.750 percentage points over the Index, resulting
in an initial rate of 6.250% per annum. The Company made its first
draw on the line of credit in the amount of $500,000 on March 11,
2019. The total outstanding line of credit balance was $500,000 at
March 31, 2019. Accrued interest was $2,170 at March 31,
2019.
Note 7 – Subsequent Events
On May
9, 2019 the Company announced that the previously announced
1-for-100 reverse stock split of the Company's issued and
outstanding shares of common stock would become effective at the
commencement of trading on May 10, 2019. Concurrent with the
reverse stock split, the Company changed its corporate name from
Wound Management Technologies, Inc. to Sanara MedTech
Inc.
The
reverse stock split was previously approved by a majority of
shareholders of the Company’s outstanding stock on March 21,
2019. On May 10, 2019, the Company’s common stock began
trading on the OTCQB market under the symbol “WNDMD”
and will trade under that symbol until June 6, 2019, at which time
the Company will change our trading symbol to more closely reflect
our new corporate name. The post-split common stock will be traded
under a new CUSIP number 79957L100. In connection with the reverse
stock split, the Company also made a corresponding adjustment to
the Company’s authorized capital stock to reduce the
authorized common stock to 20,000,000 shares and the authorized
preferred stock to 2,000,000 shares, effective May 10,
2019.
The
reverse stock split does not change a shareholder’s ownership
percentage of the Company's common stock, except for the small
effect where the reverse stock split would result in a shareholder
owning a fractional share. No fractional shares will be issued as a
result of the reverse split. Shareholders who would otherwise be
entitled to receive a fractional share will instead receive a cash
payment based on the market price of a share of the common stock on
May 13, 2019.
The
conversion and voting provisions of the Company’s Series F
Convertible Preferred Stock are being proportionally adjusted by a
factor of 100 to reflect the reverse stock split. All of the
Company's outstanding stock options are also proportionally
adjusted to reflect the reverse split, in accordance with the terms
of the plans, agreements or arrangements governing such securities.
All share and per share amounts herein have been retroactively
adjusted to reflect the split.
On May
7, 2019, the Company formed Sanara Pulsar, LLC (Sanara Pulsar), a
Texas limited liability company. On May 9, 2019, (the Execution
Date) the Company, through its wholly owned subsidiary Cellerate,
LLC, and Wound Care Solutions, Limited, a company registered in the
United Kingdom (WCS), the two members of Sanara Pulsar, executed a
Company Agreement, (the Company Agreement). The Company Agreement
includes the Sanara Pulsar ownership structure, operating
framework, and members’ rights, responsibilities, and voting
power.
Simultaneously
with the execution of the Company Agreement, Sanara Pulsar and WCS
entered into a supply agreement whereby Sanara Pulsar would become
the exclusive distributor in the United States of certain wound
care products (the WCS Products) that utilize intellectual property
developed and owned by WCS.
Per the
terms of the Company Agreement, Cellerate, LLC owns sixty-percent
(60%) of the initial membership interests in Sanara Pulsar, while
WCS owns forty-percent (40%). Net profits and losses will be shared
by the initial members in proportion to their respective membership
interests. The agreement includes customary terms and conditions
regarding profit distributions and the sale or transfer of
membership interests. The Company will consolidate the operations
and financial position of Sanara Pulsar with Sanara MedTech Inc.
The Company expects to see first sales begin at Sanara Pulsar in
the third quarter of 2019.
The
Company Agreement includes a provision whereby Cellerate, LLC will
advance to WCS $100,000 sixty days (60) from the Execution Date and
an additional $100,000 120 (120) days from the Execution Date.
These advances will be deducted from future distributions, other
than tax distributions, to WCS. In the event the Form K-l prepared
by the Company for the year 2020 does not allocate to WCS net
income in an amount of $200,000 (the "Target Net Income") or more,
then Cellerate shall, within thirty (30) days after such
determination, pay WCS the amount of funds representing the
difference between the Target Net Income and the actual amount of
net income shown on the Form K-1 for the year 2020. For the years
2021 through 2024 the Target Net Income will increase by 10% each
year and in the event the Form K-1 prepared by the Company for any
of those years does not allocate to WCS net income in an amount of
the Target Net Income or more for such year, then Cellerate shall,
within thirty (30) days after such determination, pay WCS the
amount of funds representing the difference between the Target Net
Income and the actual amount of net income shown on the Form K-1
for the respective year.
13
Item 2. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
The following discussion of our financial condition and results of
operations should be read in conjunction with the
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations” section and audited
consolidated financial statements and related notes thereto
included in our Annual Report on Form 10-K for the year ended
December 31, 2018 and with the unaudited consolidated financial
statements and related notes thereto presented in this Quarterly
Report on Form 10-Q.
Forward-Looking Statements
Some of
the statements contained in this report discuss future
expectations, contain projections of results of operations or
financial condition, or state other "forward-looking" information.
The words "believe," "intend," "plan," "expect," "anticipate,"
"estimate," "project," "goal" and similar expressions identify such
a statement was made. These statements are subject to known and
unknown risks, uncertainties, and other factors that could cause
the actual results to differ materially from those contemplated by
the statements. The forward-looking information is based on various
factors and is derived using numerous assumptions. Factors that
might cause or contribute to such a discrepancy include but are not
limited to the risks discussed in this and our other SEC filings.
We do not promise to update forward-looking information to reflect
actual results or changes in assumptions or other factors that
could affect those statements. Future events and actual results
could differ materially from those expressed in, contemplated by,
or underlying such forward-looking statements.
The
following discussion and analysis of our financial condition is as
of March 31, 2019. Our results of operations and cash
flows should be read in conjunction with our unaudited financial
statements and notes thereto included elsewhere in this report and
the audited financial statements and the notes thereto included in
our Form 10-K for the year ended December 31, 2018.
Business Overview
The
Company’s primary focus is developing and marketing products
for the advanced wound care and surgical tissue repair markets. In
particular, CellerateRX’s unique Activated Collagen®
fragments (CRa®) are a fraction of the size of the native
collagen molecules and particles found in other products, which
results in a more immediate delivery of the benefits of collagen to
the body.
The
Company’s exclusive license to sell and distribute
CellerateRX products in the human health care market (excluding
dental and retail) expired on February 27, 2018. The license
agreements permitted the Company to continue to sell and distribute
products through August 27, 2018. Subsequent to the expiration of
the license agreement between the Company and Applied Nutritionals,
LLC, a CGI affiliate acquired an exclusive license to distribute
CellerateRX products into the wound care and surgical markets in
the United States, Canada and Mexico. The Company and CGI entered
into definitive agreements on August 27, 2018, that continued
operations to market CellerateRX through Cellerate, LLC, a newly
formed entity in which the Company and CGI each had a 50% ownership
interest.
While
the Company had significant influence over the operations of
Cellerate, LLC, the Company did not have a controlling interest.
CGI had the controlling vote in the event of a deadlocked vote by
the Board of Managers of Cellerate, LLC. Therefore, the
Company’s investment in Cellerate, LLC was reported using the
equity method of accounting. Beginning September 1, 2018, the
Company’s 50% share of Cellerate, LLC’s net income or
loss was presented as a single line item on WMTI’s Statement
of Operations.
On
March 15, 2019, the Company executed and closed an agreement with
CGI to acquire the remaining 50% equity interest in Cellerate, LLC
not then owned by the Company. After closing the acquisition, the
Company owned 100% of Cellerate, LLC, and as a wholly owned
subsidiary will report its financial results on a consolidated
basis beginning March 15, 2019. The Company acquired the remaining
50% equity interest in Cellerate, LLC in exchange for the issuance
to an affiliate of CGI of 1,136,815 shares of the Company’s
newly created Series F Convertible Preferred Stock (the
“Series F Preferred Stock”).
The Company acquired a patent in 2009 for a resorbable bone
hemostat and delivery system for orthopedic bone void fillers and
in the fourth quarter of 2017 began selling HemaQuell®
Resorbable Bone Hemostat. The Company has also licensed the patent
to a third party to market a bone void filler product for which the
Company receives a 3% royalty on product sales over the life of the
patent, which expires in 2023 with annual minimum royalties of
$201,000.
14
Results of Operations
As
discussed in the Summary of Significant Accounting Policies, the
unaudited consolidated statement of operations for the period
ending March 31, 2019 is identified as “Successor” and
reflects the statement of operations of the deemed acquirer or
successor in the Cellerate Acquisition which includes the accounts
of Cellerate, LLC for the full period, and the accounts of WMTI and
its other wholly owned subsidiaries for the period March 16, 2019
through March 31, 2019. The statement of operations for the period
ending March 31, 2018 is identified as “Predecessor”
and reflects the statement of operations of the predecessor entity
to Cellerate which includes the accounts of WMTI and its wholly
owned subsidiaries (excluding Cellerate, LLC) as reported on
WMTI’s Form 10-Q for the 3-month period ended March 31, 2018.
A black line separates the Predecessor and Successor sections to
highlight the lack of comparability between these two
periods.
The
following discussion regarding results of operation compares the
three months ended March 31, 2019 as reported for
“Successor”, compared with the three months ended March
31, 2018 as previously reported for “Predecessor” in
WMTI’s Form 10-Q for the 3-month period ended March 31, 2018.
The Successor financials for the three months ended March 31, 2019
do not include revenues and expenses related to the Predecessor
(WMTI) for the period January 1, 2019 through March 15, 2019.
During this period, WMTI’s revenues were approximately
$35,400 and expenses were approximately $378,400.
Revenues. The Company generated revenues of
$2,486,896 for the three-months ended March 31, 2019, compared to
revenues of $1,961,787 for the three-months ended March 31, 2018,
representing a 27% increase in revenues. The higher revenues were the result of the
Company’s continued success implementing strategic
initiatives to grow our sales force, expand our surgical product
sales to new customers, and a renewed focus on long-term
care. Revenues included $50,250 in royalty income for each
of the three-months ended March 31, 2019 and 2018 from the
development and license agreement the Resorbable Orthopedic
Products, LLC subsidiary (ROP) executed with BioStructures, LLC in
2011.
Cost of goods sold.
Cost of goods sold for the three-months ended March 31, 2019, was
$289,340, compared to costs of goods sold of $210,912 for the
three-months ended March 31, 2018. The increase over prior year was
consistent with the higher sales volume.
Selling, general and administrative expenses
(“SG&A"). SG&A
expenses for the three-months ended March 31, 2019, were
$2,350,363, as compared to SG&A expenses of $1,654,361 for the
three-months ended March 31, 2018. SG&A expenses increased
primarily due to higher sales commission expense related to higher
revenue, increased payroll costs resulting from our sales force
expansion, and higher costs associated with several sales growth
initiatives.
Operating income / loss. The operating loss for the
three-months ended March 31, 2019 was $157,147, compared to
operating income of $66,708 during the first quarter of 2018. The
operating loss in 2019 was due to higher initial costs to
accelerate sales growth as discussed above.
Interest expense. Interest expense was $5,425 for
the three-months ended March 31, 2019, as compared to $60,608 for
the three-months ended March 31, 2018. The lower interest expense
in 2019 was due to the conversion of interest-bearing notes to
common stock in the first quarter of 2018.
Net income / loss. We had a net loss of $162,572 for the
three-months ended March 31, 2019, compared to net income of $6,209
for the three-months ended March 31, 2018. The net loss was due to
higher initial costs to implement our sales growth
program.
Liquidity and Capital Resources
Our
principal sources of liquidity have been our cash and cash
equivalents, and cash generated from operations. Cash and cash
equivalents consist primarily of cash on deposit with banks.
Historically, we have financed our operations primarily from the
sale of debt and equity securities. No financing activities
occurred in 2018.
In
December 2018, Cellerate, LLC executed agreements with Cadence
Bank, N.A. which provided Cellerate, LLC access to a revolving line
of credit up to a maximum principal amount of $1,000,000. The line
of credit is intended to support short-term working capital
requirements of Cellerate, LLC.
We
monitor our cash flow, assess our business plan, and make
expenditure adjustments accordingly. If appropriate, we may pursue
limited financing including issuing additional equity and/or
entering into certain debt. Although we have successfully funded
our operations to date by attracting additional equity investors,
there is no assurance that our capital raising efforts will be able
to attract additional necessary capital for our operations. If we
are unable to obtain additional funding for operations at any time
now or in the future, we may not be able to continue operations as
proposed. This would require us to modify our business plan,
curtail various aspects of our operations or cease
operations.
For the
three-months ended March 31, 2019, net cash used in operating
activities was $436,143 as reported for Successor compared to
$200,446 used in operating activities during the first three-months
of 2018 as reported for Predecessor.
In the
three-months ended March 31, 2019, net cash provided by investing
activities was $502,179 as reported for Successor, compared to
$1,297 used in investing activities during the first three-months
of 2018 as reported for Predecessor.
In the
three-months ended March 31, 2019, net cash provided by financing
activities was $500,000 as reported for Successor, compared to $0
for the three-months ended March 31, 2018 as reported for
Predecessor.
15
Off-Balance Sheet Arrangements
None.
Item 3. Quantitative and Qualitative
Disclosures About Market Risk
As a
smaller reporting company, we are not required to provide this
information.
Item 4. Controls and
Procedures
Disclosure Controls and Procedures
We
maintain disclosure controls and procedures that are designed to
ensure that information required to be disclosed by us in the
reports that we file or submit to the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as amended,
is recorded, processed, summarized and reported within the time
periods specified by the Securities and Exchange Commission’s
rules and forms, and that information is accumulated and
communicated to our management, including our principal executive
and principal financial officer (whom we refer to in this periodic
report as our Certifying Officer), as appropriate to allow timely
decisions regarding required disclosure. Our management evaluated,
with the participation of our Certifying Officer, the effectiveness
of our disclosure controls and procedures as of March 31, 2019,
pursuant to Rule 13a-15(b) under the Securities Exchange Act.
Based on this assessment, management has concluded that as of March
31, 2019, internal control over financial reporting was not
effective due to the small size of the Company and limited
segregation of duties. Management is currently evaluating the steps
that would be necessary to eliminate this material
weakness.
Changes in Internal Control over Financial Reporting
There
were no changes in our internal control over financial reporting
that occurred during our most recently completed fiscal quarter
that have materially affected, or are reasonably likely to
materially affect, our internal control over financial
reporting. We will continue to evaluate the
effectiveness of internal controls and procedures on an on-going
basis.
16
Part II — Other Information
Item 1. Legal
Proceedings
As of
March 31, 2019, and as of this filing date, the Company has no
outstanding legal proceedings.
Item 1a. Risk
Factors
As a
smaller reporting company, we are not required to provide this
information.
Item 2. Unregistered Sales of Equity
Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior
Securities
None.
Item 4. Mine Safety
Disclosure
This
item is not applicable.
Item 5. Other
Information
None.
Item 6. Exhibits
The
following documents are filed as part of this Report:
Exhibit No.
|
|
Description
|
|
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31.1*
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Certification
of Principal Executive Officer in accordance with 18 U.S.C. Section
1350, as adopted by Section 302 of the Sarbanes-Oxley Act of
2002*
|
|
|
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31.2*
|
|
Certification
of Principal Financial Officer in accordance with 18 U.S.C. Section
1350, as adopted by Section 302 of the Sarbanes-Oxley Act of
2002*
|
|
|
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32.1*
|
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Certification
of Principal Executive Officer in accordance with 18 U.S.C. Section
1350, as adopted by Section 906 of the Sarbanes-Oxley Act of
2002*
|
|
|
|
32.2*
|
|
Certification
of Principal Financial Officer in accordance with 18 U.S.C. Section
1350, as adopted by Section 906 of the Sarbanes-Oxley Act of
2002*
|
|
|
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101
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Interactive
Data Files pursuant to Rule 405 of Regulation S-T.
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* Filed
herewith
Signatures
Pursuant to the
requirements of the Exchange Act of 1934, the registrant has caused
this report to be signed on its behalf by the undersigned thereunto
duly authorized.
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Wound Management Technologies, Inc.
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May 20,
2019
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By:
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/s/ Michael
McNeil
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Michael
McNeil
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Chief
Financial Officer
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17