SMTI 10-Q Quarterly Report June 30, 2018

SANARA MEDTECH INC.

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10-Q 1 wndm_10q.htm QUARTERLY REPORT Blueprint

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: June 30, 2018

Commission File No. 0-11808

WOUND MANAGEMENT TECHNOLOGIES, INC.

Texas		59-2219994
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

1200 Summit Ave

Suite 414

Fort Worth, Texas 76102

(Address of principal executive offices)

(817) 529-2300

(Registrant’s telephone number, including area code)

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 and posted on its corporate Web site, if any, 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	☐	Accelerated filer	☐
Non-accelerated filer	☐ (Do not check if a smaller reporting company)	Smaller reporting company	☒
		Emerging growth company	☐

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 August 13, 2018, 236,642,901 shares of the Issuer's $.001 par value were outstanding.

WOUND MANAGEMENT TECHNOLOGIES, INC. AND SUBSIDIARIES

Form 10-Q

Quarter Ended June 30, 2018

		Page

Part I – Financial Information



ITEM 1. Financial Statements		2

Unaudited Consolidated Balance Sheets as of June 30, 2018 and December 31, 2017		2

Unaudited Consolidated Statements of Operations for the Three and Six-months Ended June 30, 2018 and 2017		3

Unaudited Consolidated Statements of Cash Flows for the Six-months Ended June 30, 2018 and 2017		4

Notes to Unaudited Consolidated Financial Statements		5

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		11

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk		15

ITEM 4. Controls and Procedures		15

Part II. Other Information

ITEM 1. Legal Proceedings		16

ITEM 1A Risk Factors		16

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds		16

ITEM 3. Defaults upon Senior Securities		16

ITEM 4. Mine Safety Disclosures		16

ITEM 5. Other Information		16

ITEM 6. Exhibits		17

Signatures		18

Part I – Financial Information

Item 1. Financial Statements

Wound Management Technologies, Inc. and Subsidiaries

Consolidated Balance Sheets

June 30, 2018 and December 31, 2017

(Unaudited)

	June, 30	December 31,
	2018	2017
Assets
Current assets
Cash	$ 459,529	$ 463,189
Accounts receivable, net of allowance for bad debt of $39,400 and $28,910	1,086,337	786,250
Royalty receivable	50,250	50,250
Inventory, net of allowance for obsolescence of $127,741 and $144,996	494,551	711,397
Prepaid and other assets	64,360	26,274
Total current assets	2,155,027	2,037,360

Long-term assets:
Property, plant and equipment, net of accumulated depreciation of $60,814 and $56,951	59,396	63,211
Intangible assets, net of accumulated amortization of $467,511 and $434,999	84,779	117,291
Total long-term assets	144,175	180,502

Total assets	$ 2,299,202	$ 2,217,862

Liabilities and shareholder' equity

Current liabilities
Accounts payable	$ 228,543	$ 225,462
Accounts payable - Related Parties	-	60,000
Accrued royalties and payables	77,691	244,422
Accrued bonus and commissions	243,574	46,534
Deferred rent	12,913	13,920
Accrued interest	-	324,986
Convertible notes payable - Related Parties	-	1,200,000
Total current liabilities	562,721	2,115,324

Long-term liabilities
Total long-term liabilities	-	-

Total liabilities	562,721	2,115,324

Shareholders' equity
Series C Convertible Preferred Stock, $10 par value, 100,000 shares authorized; none issued and outstanding as of June 30, 2018 and 85,646 issued and outstanding as of December 31, 2017	-	855,610
Common Stock: $.001 par value; 250,000,000 shares authorized; 236,646,990 issued and 236,642,901 outstanding as of June 30, 2018 and 113,427,943 issued and 113,423,854 outstanding as of December 31, 2017	236,647	113,428
Additional paid-in capital	48,342,934	46,013,982
Treasury stock	(12,039 )	(12,039 )
Accumulated deficit	(46,831,061 )	(46,868,443 )
Total shareholders' equity	1,736,481	102,538

Total liabilities and shareholders' equity	$ 2,299,202	$ 2,217,862

The accompanying notes are an integral part of these unaudited consolidated financial statements.

Wound Management Technologies, Inc. And Subsidiaries

Consolidated Statements of Operations

For the Three and Six-months Ended June 30, 2018 and 2017

( Unaudited )

	Three Months Ended		Six Months Ended
	June 30		June 30
	2018	2017	2018	2017
Revenues	$ 2,262,090	$ 1,452,900	$ 4,223,877	$ 3,058,146

Cost of goods sold	157,982	164,320	368,894	338,022

Gross profit	2,104,108	1,288,580	3,854,983	2,720,124

Operating expenses
Selling, general and administrative expenses	2,048,300	1,146,238	3,702,661	2,496,300
Depreciation and amortization	21,828	20,816	42,076	40,929
Bad debt expense	3,000	2,805	12,558	5,915
Total operating expenses	2,073,128	1,169,859	3,757,295	2,543,144

Operating income	30,980	118,721	97,688	176,980

Other income / (expense)
Change in fair value of derivative liability	-	172	-	38
Other income	193	24	302	51
Debt forgiveness	-	10,937	-	50,646
Interest expense	-	(50,811 )	(60,608 )	(95,614 )
Total other income / (expense)	193	(39,678 )	(60,306 )	(44,879 )

Net income	31,173	79,043	37,382	132,101

Series C preferred stock dividends	-	(44,868 )	(28,061 )	(57,804 )
Series C preferred stock inducement dividends	-	-	(103,197 )	-

Net income / (loss) available to common shareholders	$ 31,173	$ 34,175	$ (93,876 )	$ 74,297

Basic income (loss) per share of common stock	$ 0.00	$ 0.00	$ (0.00 )	$ 0.00

Diluted income (loss) per share of common stock	$ 0.00	$ 0.00	$ (0.00 )	$ 0.00

Weighted average number of common shares outstanding basic	236,642,901	110,536,298	197,361,313	110,217,342

Weighted average number of common shares outstanding diluted	236,642,901	111,866,339	197,361,313	208,546,177

The accompanying notes are an integral part of these unaudited consolidated financial statements.

Wound Management Technologies, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

For the Six-months Ended June 30, 2018 and 2017

( Unaudited )

	2018	2017
Cash flows from operating activities:
Net income	$ 37,382	$ 132,101
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization	42,076	40,929
Additional interest expense on convertible debt	60,608	-
Gain on forgiveness of debt	-	(50,646 )
Bad debt expense	12,558	5,915
Recognition of vesting stock option expense	10,967	-
Common stock issued for services	-	59,500
(Gain) on change in fair value of derivative liabilities	-	(39 )
Changes in assets and liabilities:
(Increase) decrease in accounts receivable	(312,645 )	69,496
(Increase) decrease in inventory	216,846	(106,848 )
(Increase) decrease in prepaids and other assets	(38,086 )	(89,059 )
Increase (decrease) in accrued royalties	(180,220 )	(138,155 )
Increase (decrease) in accounts payable	3,081	(75,038 )
Increase (decrease) in accounts payable related parties	(60,000 )	(70,795 )
Increase (decrease) in accrued liabilities	209,522	30,320
Increase (decrease) in accrued interest payable	-	74,887
Net cash flows provided by (used in) operating activities	2,089	(117,432 )

Cash flows from investing activities:
Purchase of property and equipment	(5,749 )	(116,183 )
Net cash flows used in investing activities	(5,749 )	(116,183 )

Cash flows from financing activities:
Payments on capital lease obligation	-	(2,273 )
Payments on debt	-	(190,838 )
Cash proceeds from sale of series C preferred stock	-	50,050
Net cash flows used in financing activities	-	(143,061 )

Net decrease in cash	(3,660 )	(376,676 )
Cash and cash equivalents, beginning of period	463,189	833,480
Cash and cash equivalents, end of period	$ 459,529	$ 456,804

Cash paid during the period for:
Interest	-	10,937
Income taxes	-	-

Supplemental non-cash investing and financing activities:
Common stock issued for Series C dividends	15,007	-
Common stock issued for conversion of Series C Preferred Stock	85,561	-
Common stock issued for conversion of related party debt and interest	1,585,594	-

The accompanying notes are an integral part of these unaudited consolidated financial statements.

Wound Management Technologies, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

Note 1 - Summary of Significant Accounting Policies

Basis of Presentation

The terms “WMT,” “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 June 30, 2018, and unaudited consolidated statements of operations for the six-months ended June 30, 2018 and 2017, 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 WMT, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six-month period ended June 30, 2018, are not necessarily indicative of the results that may be expected for the year ending December 31, 2018, 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, 2017, and December 31, 2016, included in the Company’s Annual Report on Form 10-K. The accompanying consolidated balance sheet as of December 31, 2017, has been derived from the audited financial statements filed in our Form 10-K and is included for comparison purposes in the accompanying balance sheet. Certain prior year amounts have been reclassified to conform to current year presentation.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of WMT and its wholly-owned subsidiaries: Wound Care Innovations, LLC a Nevada limited liability company (“WCI”); Resorbable Orthopedic Products, LLC, a Texas limited liability company (“Resorbable); and Innovate OR, Inc. “InnovateOR” formerly referred to as BioPharma Management Technologies, Inc., a Texas corporation (“BioPharma”). All intercompany accounts and transactions have been eliminated.

Revenue Recognition

On January 1, 2018, we adopted Topic 606 using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under Topic 605. There was no impact to the opening balance of accumulated deficit or revenues for the quarter ended June 30, 2018 as a result of applying Topic 606.

The Company applies a five-step approach in determining the amount and timing of revenue to be recognized: (1) identifying the contract with a customer, (2) identifying the performance obligations in the contract, (3) determining the transaction price, (4) allocating the transaction price to the performance obligations in the contract and (5) recognizing revenue when the performance obligation is satisfied. Substantially all of the Company’s revenue is recognized at the time control of the products transfers to the customer.

The Company recognizes revenue based on bill and hold arrangements when the seller has transferred to the buyer the significant risks and rewards of ownership of the goods; the seller does not retain effective control over the goods or continuing managerial involvement to the degree usually associated with ownership; the amount of revenue can be measured reliably; it is probable that the economic benefits of the sale will flow to the seller; any costs incurred or to be incurred related to the sale can be measured reliably; it is probable that delivery will be made; the goods are on hand, identified, and ready for delivery; the buyer specifically acknowledges the deferred delivery instructions; and the usual payment terms apply.

Royalty revenues include $50,250 in accrued income for each of the three-months ended June 30, 2018 and 2017, and revenues of $100,500 for each of the six-months ended June 30, 2018 and 2017 from the development and license agreement the Resorbable Orthopedic Products, LLC subsidiary (ROP) executed with BioStructures, LLC in 2011. Royalties of 1.5% are earned on sales of products containing ROP patented resorbable bone hemostasis.

Revenue streams from sales of CellerateRX and HemaQuell products for the six-months ended June 30, 2018 and 2017 are presented below.	Six-months Ended
	June, 30
	2018	2017
CellerateRX Powder	$ 3,876,693	$ 2,748,573
CellerateRX Gel	265,462	213,459
HemaQuell	25,183	-
Other revenue	56,539	96,114
Total Revenue	$ 4,223,877	$ 3,058,146

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 no inventory obsolescence expense for the six-months ended June 30, 2018, compared to $8,347 for the six-months ended June 30, 2017. The allowance for obsolete and slow-moving inventory had a balance of $127,741 at June 30, 2018, and $144,996 at December 31, 2017.

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.

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 shareholders 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. Outstanding warrants were excluded during the three months and six months ended June 30, 2018 as their inclusion would have been anti-dilutive. The dilutive effect of the outstanding warrants for the three-months ended June 30, 2017, was 1,330,041 shares with no effect to net income. The dilutive effect of the outstanding warrants and convertible preferred stock for the six-months ended June 30, 2017, was 98,328,835 shares and an adjustment to net income of $57,804.

Recently Issued Accounting Pronouncements

In February 2016, the FASB issued ASC 842 Leases which is to be effective for reporting periods beginning after December 15, 2018. The Company has reviewed the pronouncement and believes it will not have a material impact on the Company’s financial position, operations or cash flows.

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 22,651,356 common shares of the Company's Common Stock. The accrued interest included $60,608 of additional interest expense recognized during the first quarter of 2018.

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 (“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. The licenses were limited to the human health care market, (excluding dental and retail) for external wound care (including surgical wounds) and include any new product developments based on the licensed patent and processes and any continuations. Although the term of these licenses expired on February 27, 2018, the agreements permit WCI to continue to sell and distribute products for a period not exceeding six (6) months from the effective termination date.

In consideration for the licenses, WCI agreed to pay Applied and Petito, (in the aggregate), the following royalties, beginning January 3, 2008: (a) an advance royalty of $100,000; (b) a royalty of 15% of gross sales occurring during the first year of the license; (c) an additional advance royalty of $400,000 on January 3, 2009; plus (d) a royalty of 3% of gross sales for all sales occurring after the payment of the $400,000 advance royalty. In addition, WCI must maintain a minimum aggregate annual royalty payment of $375,000 for 2009 and thereafter if the royalty percentage payments made do not meet or exceed that amount. The amounts listed in the two preceding sentences are the aggregate of amounts paid/owed to Applied and Petito and the Company has paid the minimum aggregate annual royalty payments each year since 2008, including both 2017 and 2016. Sales of CellerateRX occurring after the termination date are subject to the 3% royalty.

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) 500,000 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 May 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 27-38, $8,914. Rent expense is recognized on a straight-line basis over the term of the Lease and the resulting deferred rent liability is $12,913 as of June 30, 2018.

Payables to Related Parties

As of June 30, 2018, and December 31, 2017, the Company had outstanding payables to related parties totaling $0 and $60,000, respectively. The payables are unsecured, bear no interest and due on demand.

Note 4 - Shareholders’ 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.

The Series C Preferred Stock was senior to the Company’s Common Stock and any other currently issued series of the Company’s Preferred Stock upon liquidation and was entitled to a liquidation preference per share equal to the original issuance price of such shares of Series C Preferred Stock together with the amount of all accrued but unpaid dividends thereon. Each of the Series C Shares was convertible at the option of the holder into 1,000 shares of Common Stock as provided in the Certificate. Additionally, each holder of Series C Preferred Stock was entitled to vote on all matters submitted for a vote of the holders of Common Stock a number of votes equal to the number of full shares of Common Stock into which such holder’s Series C shares could have been converted.

As of December 31, 2017, there were 85,561 shares of Series C Preferred Stock issued and outstanding. In February and March 2018, the Company issued 100,567,691 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. Dividends were converted at $0.07 per share. As of June 30, 2018, and December 31, 2017, there were 0 and 85,561 shares of Series C Preferred Stock outstanding, respectively.

Series C Preferred dividends were $28,061 and $57,804 for the six months ended June 30, 2018 and 2017, 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.

Common Stock

On March 6, 2018, the Company issued 22,651,356 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 100,567,691 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.

During the three-months ended June 30, 2018, the Company issued no shares of Common Stock.

Warrants

A summary of the status of the warrants granted for the six-months ended June 30, 2018, and changes during the period then ended is presented below:

	For the Six-months Ended June 30, 2018
	Shares	Weighted Average Exercise Price
Outstanding at beginning of period	5,100,000	$ 0.06
Granted	-	-
Exercised	-	-
Forfeited	-	-
Expired	(400,000 )	-
Outstanding at end of period	4,700,000	$ 0.06

	As of June 30, 2018			As of June 30, 2018
	Warrants Outstanding			Warrants Exercisable
Range of Exercise Prices	Number Outstanding	Weighted-Average Remaining Contract Life	Weighted- Average Exercise Price	Number Exercisable	Weighted-Average Exercise Price
$ 0.06	4,500,000	0.25	$ 0.06	4,500,000	$ 0.06
0.08	200,000	0.12	0.08	200,000	0.08
$ 0.06 -0.08	4,700,000	.25	$ 0.06	4,700,000	$ 0.06

The aggregate intrinsic value of the exercisable warrants as of June 30, 2018, was $22,500.

Stock Options

A summary of the status of the stock options granted for the six-month period ended June 30, 2018, and changes during the period then ended is presented below:

	For the Six-months Ended June 30, 2018
	Options	Weighted Average Exercise Price
Outstanding at beginning of period	1,150,000	$ 0.06
Granted	200,000	0.06
Exercised	-	-
Forfeited	-	-
Expired
Outstanding at end of period	1,350,000	$ 0.06

	As of June 30, 2018			As of June 30, 2018
	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
$ 0.06	1,350,000	4.55	$ 0.06	-	$ -

On December 31, 2017, the Company granted a total of 1,150,000 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 which will be expensed over the three-year vesting period.

On April 13, 2018, the Company granted a total of 200,000 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.

During the six-month period ending June 30, 2018 an option expense of $10,967 was recognized.

Note 5 – Related Party Transactions

On April 25, 2016, and as amended March 10, 2017, the Company and John Siedhoff, the Chairman of the Company’s Board of Directors, entered into a consulting Agreement. The Agreement provides for compensation payable to an entity controlled by Mr. Siedhoff in the amount of $20,000 per month. The consulting fee expense was $120,000 for the six-months ended June 30, 2018.

Note 6 – Subsequent Events

None

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, 2017 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 June 30, 2018. 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, 2017.

Business Overview

Unless otherwise indicated, we use “WMT,” “the Company,” “we,” “our” and “us” in this report to refer to the businesses of Wound Management Technologies, Inc. and its wholly owned subsidiaries.

Wound Management Technologies, Inc. (“WMT” or the “Company”) was organized on December 14, 2001, as a Texas corporation under the name eAppliance Innovations, Inc. In June of 2002, MB Software Corporation, a public corporation formed under the laws of Colorado, merged with the Company (which at the time was a wholly owned subsidiary of MB Software Corporation), and the Company changed its name to MB Software Corporation as part of the merger. In May of 2008, the Company changed its name to Wound Management Technologies, Inc.

CellerateRX®/CRXɑ® Activated Collagen®/CRXɑ® Adjuvant, (the “Product”) is cleared by the FDA as a medical device for use on all acute and chronic wounds, except third degree burns, and is offered in both powder and gel form. CellerateRX Wound Care Products are available without a prescription and are currently approved for reimbursement under Medicare Part B. CellerateRX Activated Collagen® Surgical Adjuvant Products are available under a physician’s order. Applied Nutritionals, LLC (“AN”) manufactures the Products and owns the CellerateRX registered trademark. The Company has incurred no research and development costs related to CellerateRX during the last two fiscal years.

We believe that the Products are unique in composition, applicability and clinical performance, and demonstrate the ability to reduce costs associated with standard wound management. The Company is focused on delivering the CellerateRX/CRXɑ product lines to hospitals and surgery centers as well as the diabetic care and long-term care markets.

Resorbable Orthopedic Products, LLC (“ROP”) a wholly-owned subsidiary of the Company was organized as a Texas limited liability company on August 24, 2009, as part of a transaction to acquire a multi-faceted patent for resorbable bone hemostasis products. ROP is both licensing technology from this patent and also developing products itself. In 2014, the Company entered into a commercial out-license for a bone void filler. The Company began receiving royalties under this agreement in the fourth quarter of 2013. Royalties will continue for the life of the patent which expires in 2023. In 2016 ROP received FDA 510(k) clearance for HemaQuell® Resorbable Bone Hemostat. HemaQuell is a mechanical tamponade for bleeding bone that resorbs within 2-7 days after use. The Company received 510(k) clearance for the resorbable orthopedic hemostat in February of 2016; completed subsequent testing and launched HemaQuell® Resorbable Bone Hemostat in 2017, with our first sales realized in the fourth quarter. The Company is currently focusing its sales efforts in the domestic (United States) market, with an emphasis on orthopedic, cardiovascular, and spine surgeries.

Our primary focus is developing and marketing products for the advanced wound care market, with an emphasis on surgical products, as pursued through our wholly owned subsidiaries, WCI and ROP, which brings a unique mix of products, procedures and expertise to the wound care arena including surgical wounds. CellerateRX/CRXɑ® Adjuvant’s unique Activated Collagen® fragments (CRa® are a fraction of the size of the native collagen molecules and particles found in other products, which delivers the benefits of collagen to the body immediately.

Management Letter

Wound Management Technologies, Inc. is pleased to report second quarter 2018 revenue of $2,262,090 which was up 56% compared to prior year and represented an all-time high in quarterly sales for the Company. The higher revenues were the result of our 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. We are also increasing our market presence with continuing case studies by key opinion leaders.

The Company also achieved another profitable quarter, as it continues to invest heavily in expanding its sales reach, product development and clinical support. All convertible debt was converted to common shares of the Company's stock in the first quarter of 2018, resulting in zero debt on the balance sheet for the first time in the history of the Company. In addition, all Series C Convertible Preferred Stock shareholders converted their Series C shares and related dividends to common shares of the Company's stock resulting in one class of common shares issued and outstanding as of March 31, 2018.

In closing, Wound Management Technologies continues to be well positioned to execute our strategic growth initiatives with a solid go-to-market plan in place. The Company looks forward to capitalizing on the traction it has built in the market thus far with additional investments in strategic growth, sales, marketing and clinical support for CellerateRX®/CRXɑ® Activated Collagen®/CRXɑ® Adjuvant and HemaQuell® Resorbable Bone Hemostat .

Results of Operations

For the three and six-months ended June 30, 2018, compared with the three and six-months ended June 30, 2017:

Revenues. The Company generated revenues of $2,262,090 for the three-months ended June 30, 2018, compared to revenues of $1,452,900 for the three-months ended June 30, 2017, representing a 56% increase in revenues. The Company generated revenues for the six-months ended June 30, 2018, of $4,223,877, compared to revenues of $3,058,146 for the six-months ended June 30, 2017, or a 38% increase in revenues. The higher revenues were the result of our 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 include $50,250 in royalty income for each of the three-months ended June 30, 2018 and 2017, and $100,500 in royalty income for each of the six-months ended June 30, 2018 and 2017 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 June 30, 2018, was $157,982, compared to costs of goods sold of $164,320 for the three-months ended June 30, 2017. Cost of goods sold for the six-months ended June 30, 2018, was $368,894, as compared to costs of goods sold of $338,022 for the six-months ended June 30, 2017. The increase over prior year was primarily due to higher sales volume.

Selling, general and administrative expenses (“SG&A"). SG&A expenses for the three-months ended June 30, 2018, were $2,048,300, as compared to SG&A expenses of $1,146,238 for the three-months ended June 30, 2017. SG&A expenses for the six-months ended June 30, 2018, were $3,702,661, as compared to SG&A expenses of $2,496,300 for the six-months ended June 30, 2017. SG&A expenses increased primarily due to higher sales commission expense related to the revenue increase, higher payroll expenses as we grow our infrastructure and consulting fees related to strategic initiatives.

Operating Income. Operating income for the three-months ended June 30, 2018 was $30,980, compared to operating income of $118,721 for the three-months ended June 30, 2017. Operating income for the six-months ended June 30, 2018 was $97,688, compared to operating income of $176,980 for the six-months ended June 30, 2017. The decrease in operating income was due to higher SG&A related to expansion of our sales force and additional investment in our corporate infrastructure.

Interest expense . Interest expense was $0 for the three-months ended June 30, 2018, as compared to $50,811 for the three-months ended June 30, 2017. Interest expense was $60,608 for the six-months ended June 30, 2018, as compared to $95,614 for the six-months ended June 30, 2017. The lower interest expense in 2018 was due to early conversion of Related Party notes and all associated interest to common stock during the first quarter of 2018.

Net income . We had a net income of $31,173 for the three-months ended June 30, 2018, compared to net income of $79,043 for the three-months ended June 30, 2017. We had a net income of $37,382 for the six-months ended June 30, 2018, compared to net income of $132,101 for the six-months ended June 30, 2017. The decrease in net income was due to higher SG&A related to expansion of our sales force, additional investment in our corporate infrastructure, and a gain recognized in 2017 related to debt forgiveness.

Liquidity and Capital Resources

The Company has a working capital surplus of $1,592,306 as of June 30, 2018, an increase of $1,670,270 from the 2017 year-end deficit balance of $77,964. The large increase was primarily due to the conversion of Related Party notes and accrued interest to common stock during the first quarter of 2018.

As of June 30, 2018, we had total current assets of $2,155,027, including cash of $459,529 and inventories of $494,551. As of December 31, 2017, our current assets of $2,037,360 included cash of $463,189 and inventories of $711,397.

As of June 30, 2018, we had total current liabilities of $562,721. Current liabilities also included $77,691 of current year accrued payables and royalties. As of December 31, 2017, current liabilities of $2,115,324 included $1,200,000 of notes payable to related parties. Current liabilities also included $244,422 of current year accrued payables and royalties, which were paid in full during January of 2018.

For the six-months ended June 30, 2018, net cash provided by operating activities was $2,089 compared to $117,432 used in operating activities during the first six-months of 2017.

During the six-months ended June 30, 2018, net cash used in investing activities was $5,749 compared to $116,183 used in the first six-months of 2017.

During the six-months ended June 30, 2018, net cash used in financing activities was $0. During the six-months ended June 30, 2017, financing activities provided $143,061.

Off-Balance Sheet Arrangements

None.

Recent Accounting Pronouncements

For the period ended June 30, 2018, there were no changes to our critical accounting policies as identified in our Annual Report on Form 10-K for the year ended December 31, 2017.

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers which is to be effective for reporting periods beginning after December 15, 2017. On January 1, 2018, we adopted Topic 606 using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under Topic 605. There was no impact to the opening balance of accumulated deficit or revenues for the quarter ended June 30, 2018 as a result of applying Topic 606.

Contractual Commitments

Effective January 3, 2008, WCI entered into separate exclusive license agreements with both Applied Nutritionals, LLC (“Applied”) and its founder George Petito (“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. The licenses are limited to the human health care market, (excluding dental and retail) for external wound care (including surgical wounds) and include any new product developments based on the licensed patent and processes and any continuations. Although the term of these licenses expired on February 27, 2018, the agreements permit WCI to continue to sell and distribute products for a period not exceeding six (6) months from the effective termination date.

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 June 30, 2018, pursuant to Rule 13a-15(b) under the Securities Exchange Act. Based upon that evaluation, our Certifying Officer concluded that, as of June 30, 2018, our disclosure controls and procedures were effective.

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.

Part II — Other Information

Item 1. Legal Proceedings

None.

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

31.1*		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*

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*

32.1*		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*

101		Interactive Data Files pursuant to Rule 405 of Regulation S-T.

* 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.

	Wound Management Technologies, Inc.

August 13, 2018	By:	/s/ Michael McNeil
		Michael McNeil
		Chief Financial Officer

TABLE OF CONTENTS

Part I Financial Information Item 1. Financial Statements Note 1 - Summary Of Significant Accounting Policies Note 2 Notes Payable Note 3 Commitments and Contingencies Note 4 - Shareholders Equity Note 5 Related Party Transactions Note 6 Subsequent Events Item 2. Management S Discussion and Analysis Of Financial Condition and Results Of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk Item 4. Controls and Procedures Part II Other Information Item 1. Legal Proceedings Item 1A. Risk Factors Item 2. Unregistered Sales Of Equity Securities and Use Of Proceeds Item 3. Defaults Upon Senior Securities Item 4. Mine Safety Disclosure Item 5. Other Information Item 6. Exhibits

Exhibits

31.1* 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* 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* 32.1* 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*

SMTI 10-Q Quarter ended June 30, 2018

Exhibits