SANARA MEDTECH INC.
10-Ks and 10-Qs
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark
One)
☒
QUARTERLY REPORT
UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended: September 30, 2019
or
☐
TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
Commission
File No.
0-11808
SANARA MEDTECH INC.
(Exact name of registrant as specified in its charter)
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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
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Title of each class
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Trading Symbol(s)
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Name of each exchange on which registered
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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):
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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
November 14, 2019, the Company had 3,571,001 shares of Common
Stock, $.001 par value per share outstanding.
SANARA MEDTECH INC. AND SUBSIDIARIES
Form 10-Q
Quarter Ended September 30, 2019
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Page
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Part I – Financial Information
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3
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3
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4
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5
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6
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7
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18
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20
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21
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Part II. Other Information
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22
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22
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22
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22
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22
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22
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22
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23
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2
Part I – Financial Information
I
tem 1. Financial Statements
S
anara MedTech Inc. and
Subsidiaries
Consolidated Balance Sheets
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Successor
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Successor
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September
30,
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December 31,
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Assets
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2019
(unaudited)
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2018
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Current assets
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Cash
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$
160,711
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$
176,421
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Accounts
receivable, net of allowance for bad debt of $94,150 and
$0
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1,049,628
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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 $66,119 and $484
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799,818
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465,314
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335,876
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-
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Prepaid
and other assets
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92,656
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26,446
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Total current assets
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2,488,939
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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 $66,937 and
$511
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205,110
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18,777
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Right
of use assets – operating leases
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613,531
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-
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Intangible assets,
net of accumulated amortization of $569,332 and $0
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1,005,442
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-
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Total long-term assets
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1,824,083
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18,777
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Total assets
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$
4,313,022
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$
1,709,458
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Liabilities and shareholders' equity (deficit)
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Current liabilities
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Accounts
payable
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$
216,976
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$
156,727
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Accounts
payable – related party
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188,228
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36,203
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Accrued
royalties and expenses
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481,598
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228,606
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Accrued
bonus and commissions
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1,148,123
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701,125
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Operating
lease liability - current
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112,611
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-
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Line
of credit
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2,000,000
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-
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Total current liabilities
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4,147,536
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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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511,829
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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 – related party
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83,760
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-
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Total long-term liabilities
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2,095,589
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-
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Total liabilities
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6,243,125
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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 September 30,
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:
$0.001 par value, 20,000,000 shares authorized; 2,366,181 issued
and outstanding as of September 30, 2019 and none issued and
outstanding as of December 31, 2018
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2,366
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-
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Additional
paid-in capital
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(12,080,629
)
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(10,919,639
)
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Retained
earnings (accumulated deficit)
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(1,212,679
)
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138,286
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Total Sanara MedTech shareholders' equity (deficit)
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(1,922,792
)
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586,797
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Equity
attributable to noncontrolling interest
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(7,311
)
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-
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Total shareholders' equity (deficit)
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(1,930,103
)
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586,797
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Total liabilities and shareholders' equity
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$
4,313,022
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$
1,709,458
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The accompanying notes are an integral part of these unaudited
consolidated financial statements.
3
S
anara MedTech Inc. and
Subsidiaries
Consolidated Statements of Operations (unaudited)
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Successor
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Predecessor
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Successor
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Predecessor
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Three Months Ended
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Nine Months Ended
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September 30,
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September 30,
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||||
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2019
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August 28, 2018-September 30, 2018
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July 1, 2018-August 27, 2018
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2019
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August 28, 2018-September 30, 2018
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January 1, 2018-August 27, 2018
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Revenues
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$
2,909,282
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$
672,844
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$
1,549,675
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$
8,413,667
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$
672,844
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$
5,773,552
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Cost of goods sold
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285,164
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93,027
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111,809
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909,333
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93,027
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480,703
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Gross profit
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2,624,118
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579,817
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1,437,866
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7,504,334
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579,817
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5,292,849
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Operating expenses
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Selling, general and administrative expenses
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3,315,575
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551,727
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1,423,989
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8,649,186
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551,727
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5,126,650
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Depreciation
and amortization
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45,762
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50
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14,349
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72,644
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50
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56,425
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Bad
debt expense
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60,000
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-
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-
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60,000
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-
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12,558
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Total operating expenses
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3,421,337
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551,777
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1,438,338
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8,781,830
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551,777
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5,195,633
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Operating income (loss)
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(797,219
)
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28,040
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(472
)
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(1,277,496
)
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28,040
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97,216
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Other income / (expense)
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Other
income (expense)
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-
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23,367
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268
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145
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23,367
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570
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Interest
expense
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(46,014
)
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-
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-
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(80,925
)
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-
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(60,608
)
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Total other income / (expense)
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(46,014
)
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23,367
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268
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(80,780
)
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23,367
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(60,038
)
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Net income (loss)
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(843,233
)
|
51,407
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(204
)
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(1,358,276
)
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51,407
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37,178
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Less:
Net income (loss) attributable to noncontrolling
interest
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(6,257
)
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-
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-
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(7,311
)
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-
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-
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Net income (loss) attributable to Sanara MedTech, Inc.
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(836,976
)
|
51,407
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(204
)
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(1,350,965
)
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51,407
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37,178
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Series
C Preferred Stock dividends
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-
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-
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-
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-
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-
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(28,061
)
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Series
C Preferred Stock inducement dividends
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-
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-
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-
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-
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-
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(103,197
)
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Net income (loss) attributable to Sanara MedTech common
stockholders
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$
(836,976
)
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$
51,407
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$
(204
)
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$
(1,350,965
)
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$
51,407
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$
(94,080
)
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Basic
income per share of Common stock
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$
(0.35
)
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$
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$
(0.00
)
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$
(0.78
)
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$
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$
(0.05
)
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Diluted
income per share of Common Stock
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$
(0.35
)
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$
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$
(0.00
)
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$
(0.78
)
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$
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$
(0.05
)
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Weighted
average number of common shares outstanding basic
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2,366,181
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-
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2,366,429
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1,724,848
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-
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2,068,941
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Weighted
average number of common shares outstanding diluted
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2,366,181
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-
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2,366,429
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1,724,848
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-
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2,068,941
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The accompanying notes are an integral part of these unaudited
consolidated financial statements.
4
S
anara MedTech Inc. and
Subsidiaries
Consolidated Statements of Changes in Shareholders’ Equity
(Deficit)
(unaudited)
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Predecessor
|
Preferred Stock Series C
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Common Stock
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Additional
|
|
|
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Total
|
||
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|
$10 par value
|
$0.001 par value
|
Paid-In
|
Treasury Stock
|
Accumulated
|
Noncontrolling
|
Shareholders'
|
|||
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Shares
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Amount
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Shares
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Amount
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Capital
|
Shares
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Amount
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Income/(Deficit)
|
Interest
|
Equity (Deficit)
|
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Balance
at December 31, 2017
|
85,561
|
$
855,610
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1,134,279
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$
1,134
|
$
46,114,357
|
(41
)
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$
(120
)
|
$
(46,868,443
)
|
$
-
|
$
102,538
|
|
Conversion
of Series C Preferred Shares
|
(85,561
)
|
(855,610
)
|
855,605
|
855
|
854,755
|
-
|
-
|
-
|
-
|
-
|
|
Series
C Dividend
|
-
|
-
|
150,067
|
150
|
(150
)
|
-
|
-
|
-
|
-
|
-
|
|
Common
Stock issued for conversion of debt
|
-
|
-
|
226,514
|
227
|
1,585,367
|
-
|
-
|
-
|
-
|
1,585,594
|
|
Net
income (loss)
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
6,209
|
-
|
6,209
|
|
Balance
at March 31, 2018
|
-
|
$
-
|
2,366,465
|
$
2,366
|
$
48,554,329
|
(41
)
|
$
(120
)
|
$
(46,862,234
)
|
$
-
|
$
1,694,341
|
|
Recognition
of stock option expense
|
-
|
-
|
-
|
-
|
10,967
|
-
|
-
|
-
|
-
|
10,967
|
|
Net
income (loss)
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
31,173
|
-
|
31,173
|
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Balance
at June 30, 2018
|
-
|
$
-
|
2,366,465
|
$
2,366
|
$
48,565,296
|
(41
)
|
$
(120
)
|
$
(46,831,061
)
|
$
-
|
$
1,736,481
|
|
Recognition
of stock option expense
|
-
|
-
|
-
|
-
|
3,900
|
-
|
-
|
-
|
-
|
3,900
|
|
Net
income (loss)
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(204
)
|
-
|
(204
)
|
|
Balance
at August 27, 2018
|
-
|
$
-
|
2,366,465
|
$
2,366
|
$
48,569,196
|
(41
)
|
$
(120
)
|
$
(46,831,265
)
|
$
-
|
$
1,740,177
|
|
|
|
|
|
|
|
|
|
|
||
|
Successor
|
Preferred Stock Series F
|
Common Stock
|
Additional
|
|
|
|
|
Total
|
||
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|
$10 par value
|
$0.001 par value
|
Paid-In
|
Treasury Stock
|
Accumulated
|
Noncontrolling
|
Shareholders'
|
|||
|
|
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Shares
|
Amount
|
Income/(Deficit)
|
Interest
|
Equity (Deficit)
|
|
Issuance of preferred stock upon formation on August 28,
2018
|
1,136,815
|
$
11,368,150
|
-
|
$
-
|
$
(10,919,639
)
|
-
|
$
-
|
$
-
|
$
-
|
$
448,511
|
|
Net
income (loss)
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
51,407
|
-
|
51,407
|
|
Balance
at September 30, 2018
|
1,136,815
|
$
11,368,150
|
-
|
$
-
|
$
(10,919,639
)
|
-
|
$
-
|
$
51,407
|
$
-
|
$
499,918
|
|
|
|
|
|
|
|
|
|
|
||
|
Successor
|
Preferred Stock Series F
|
Common Stock
|
Additional
|
|
|
|
|
Total
|
||
|
|
$10 par value
|
$0.001 par value
|
Paid-In
|
Treasury Stock
|
Accumulated
|
Noncontrolling
|
Shareholders'
|
|||
|
|
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Shares
|
Amount
|
Income/(Deficit)
|
Interest
|
Equity (Deficit)
|
|
Balance
at December 31, 2018
|
1,136,815
|
$
11,368,150
|
-
|
$
-
|
$
(10,919,639
)
|
-
|
$
-
|
$
138,286
|
$
-
|
$
586,797
|
|
Reverse
recapitalization
|
-
|
-
|
2,366,465
|
2,366
|
(1,159,929
)
|
(41
)
|
-
|
-
|
-
|
(1,157,563
)
|
|
Net
income (loss)
|
-
|
-
|
-
|
-
|
|
-
|
-
|
(162,572
)
|
-
|
(162,572
)
|
|
Balance
at March 31, 2019
|
1,136,815
|
$
11,368,150
|
2,366,465
|
$
2,366
|
$
(12,079,568
)
|
(41
)
|
$
-
|
$
(24,286
)
|
$
-
|
$
(733,338
)
|
|
Treasury
stock retirement
|
-
|
-
|
(41
)
|
-
|
-
|
41
|
-
|
-
|
-
|
-
|
|
Repurchase
and cancellation of fractional shares
|
-
|
-
|
(243
)
|
-
|
(1,061
)
|
-
|
-
|
-
|
-
|
(1,061
)
|
|
Net
income (loss)
|
-
|
-
|
-
|
-
|
|
-
|
-
|
(351,417
)
|
(1,054
)
|
(352,471
)
|
|
Balance
at June 30, 2019
|
1,136,815
|
$
11,368,150
|
2,366,181
|
$
2,366
|
$
(12,080,629
)
|
-
|
$
-
|
$
(375,703
)
|
$
(1,054
)
|
$
(1,086,870
)
|
|
Net
income (loss)
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(836,976
)
|
(6,257
)
|
(843,233
)
|
|
Balance
at September 30, 2019
|
1,136,815
|
$
11,368,150
|
2,366,181
|
$
2,366
|
$
(12,080,629
)
|
-
|
$
-
|
$
(1,212,679
)
|
$
(7,311
)
|
$
(1,930,103
)
|
The accompanying notes are an integral part of these unaudited
consolidated financial statements.
5
S
anara MedTech Inc. and
Subsidiaries
Consolidated Statements of Cash Flows (unaudited)
|
|
Successor
|
Predecessor
|
|
|
|
Nine Months Ended
|
||
|
|
September 30,
|
||
|
|
2019
|
August 28, 2018-September 30, 2018
|
January 1, 2018-August 27, 2018
|
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
Net
income (loss)
|
$
(1,358,276
)
|
$
51,407
|
$
37,178
|
|
Adjustments
to reconcile net income to net cash used in operating
activities
|
|
|
|
|
Depreciation
and amortization
|
72,644
|
50
|
56,425
|
|
Interest
expense on convertible debt
|
42,137
|
-
|
60,608
|
|
Loss
on disposal of asset
|
13,581
|
-
|
-
|
|
Bad
debt expense
|
60,000
|
-
|
12,558
|
|
Recognition
of vesting stock option expense
|
-
|
-
|
14,867
|
|
Changes
in assets and liabilities:
|
|
|
|
|
(Increase)
decrease in accounts receivable
|
(38,831
)
|
(622,626
)
|
(313,969
)
|
|
(Increase)
decrease in inventory
|
(334,504
)
|
43,344
|
262,886
|
|
(Increase)
decrease in prepaid - related parties
|
(335,876
)
|
-
|
-
|
|
(Increase)
decrease in prepaid and other assets
|
(414,993
)
|
(39,491
)
|
(23,320
)
|
|
Increase
(decrease) in accounts payable
|
(185,564
)
|
23,921
|
189,388
|
|
Increase
(decrease) in accounts payable related parties
|
99,960
|
258,926
|
(36,097
)
|
|
Increase
(decrease) in accrued royalties and expenses
|
235,542
|
51,170
|
(170,467
)
|
|
Increase
(decrease) in accrued liabilities
|
810,302
|
272,203
|
231,313
|
|
Net cash flows provided by (used in) operating
activities
|
(1,333,878
)
|
38,904
|
321,370
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
Purchase
of property and equipment
|
(167,259
)
|
(6,050
)
|
(8,482
)
|
|
Cash
received in reverse acquisition
|
508,973
|
-
|
-
|
|
Repurchase
and cancellation of fractional shares
|
(1,061
)
|
-
|
-
|
|
Purchase
of intangible assets
|
(1,022,485
)
|
-
|
-
|
|
Net cash flows used in investing activities
|
(681,832
)
|
(6,050
)
|
(8,482
)
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
Draw
on line of credit
|
2,000,000
|
-
|
-
|
|
Net cash flows provided by financing activities
|
2,000,000
|
-
|
-
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
(15,710
)
|
32,854
|
312,888
|
|
Cash and cash equivalents, beginning of period
|
176,421
|
-
|
463,189
|
|
Cash and cash equivalents, end of period
|
$
160,711
|
$
32,854
|
$
776,077
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
Interest
|
$
30,802
|
$
-
|
$
-
|
|
Income
taxes
|
-
|
-
|
-
|
|
|
|
|
|
|
Supplemental non-cash investing and financing
activities:
|
|
|
|
|
Common
stock issued for dividends on Series C Preferred Stock
|
-
|
-
|
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
|
|
Preferred
Shares issued for inventory contribution
|
-
|
448,511
|
-
|
|
Common
stock issued in reverse capitalization; less cash received of
$508,973
|
1,666,537
|
-
|
-
|
The accompanying notes are an integral part of these unaudited
consolidated financial statements.
6
S
anara MedTech Inc. and
Subsidiaries
Notes to Unaudited Consolidated Financial Statements
Note 1 - Summary of Significant Accounting Policies
Background and Basis of Presentation
On May
9,
2019, the
Company changed its corporate name from Wound Management
Technologies, Inc. to Sanara MedTech Inc. The terms
“SMTI,” “Sanara,” “we,”
“the Company,” and “us” as used in this
report refer to Sanara MedTech Inc. and its subsidiaries. The
accompanying unaudited consolidated balance sheet as of September
30, 2019, and unaudited consolidated statements of operations for
the nine-months ended September 30, 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 the Company, all
adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating
results for the nine-month period ended September 30, 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
Texas 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, Inc.
(Catalyst), which acquired an exclusive world-wide license to
distribute CellerateRX products. Cellerate, LLC conducts operations
with an exclusive sublicense from the Catalyst 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.
Catalyst 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 SMTI’s Statement
of Operations for the period September 1, 2018 through December 31,
2018.
On
March 15, 2019, the Company acquired Catalyst’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. 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 Catalyst was
approximately $12.5 million. Following the closing of this
transaction, Mr. Ronald T. Nixon, Founder and Managing Partner of
Catalyst, 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, Catalyst could obtain effective control of the
Company upon exercise of its convertible preferred stock and
promissory note, both of which could occur at Catalyst’s
option. Additionally, Cellerate, LLC’s officers and senior
executive positions continued on as management of the combined
entity after consummation of the Cellerate Acquisition. For
accounting purposes, Cellerate, LLC was deemed to be the accounting
acquirer in the transaction and, consequently, the transaction was
treated as a recapitalization of SMTI.
As part of the reverse merger and
recapitalization, the net liabilities existing in the Company as of
the date of the merger totaling approximately $1,666,537, of which
$508,973 was cash received, were converted to equity as part of
this transaction.
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
SMTI 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
nine-month period ending September 30, 2019, and on the balance
sheet date of December 31, 2018. Upon its formation on August 28,
2018, Cellerate LLC succeeded to the business and operations of
SMTI. As a result, SMTI is identified as “Predecessor”
for the periods preceding August 28, 2018.
7
On May
9, 2019, the Company organized Sanara Pulsar, LLC, a Texas limited
liability company, which is owned 60% by the Company’s wholly
owned subsidiary Cellerate, LLC, and 40% owned by Wound Care
Solutions, Limited, a company registered in the United Kingdom
(WCS). Net profits and losses and distributions are shared by the
members in proportion to their respective membership interests. The
Company consolidates the operations and financial position of
Sanara Pulsar.
Principles of Consolidation
The
financial statements are presented on a comparative basis. The
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 September 30,
2019 is also identified as “Successor” and includes the
accounts of Cellerate, LLC, SMTI, and Sanara Pulsar,
LLC.
The
unaudited consolidated statement of operations for the period
ending September 30, 2019 is identified as “Successor”
and includes the accounts of Cellerate, LLC for the full period,
the accounts of SMTI for the period March 16, 2019 through
September 30, 2019, and the accounts of Sanara Pulsar, LLC for the
period May 9, 2019 through September 30, 2019. The statement of
operations for the period ending August 27, 2018 is identified as
“Predecessor” and includes the accounts of SMTI and its
wholly owned subsidiaries (excluding Cellerate, LLC). The statement
of operations for the period August 28 through September 30, 2018
are the accounts of Cellerate, LLC as “Successor”. 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 SMTI equity information
as previously reported by SMTI on its 2017 Form 10-K annual report,
and the ending equity balances after the cancellation of the
“Predecessor” equity on August 27, 2018. The second
section is identified as “Successor” which includes a
presentation of equity to reflect the recapitalization of SMTI. The
presentation includes the issuance of the Series F Preferred Stock,
the changes in paid-in capital, and the restatement of the
accumulated deficit. 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 September 30, 2019 is identified as “Successor”
and includes the accounts of Cellerate, LLC for the full period,
the accounts of SMTI for the period March 16, 2019 through
September 30, 2019, and the accounts of Sanara Pulsar, LLC for the
period May 9, 2019 through September 30, 2019. The consolidated
statement of cash flows for the period ending August 27, 2018 is
identified as “Predecessor” and includes the accounts
of SMTI and its wholly owned subsidiaries (excluding Cellerate,
LLC) for the period ended August 27, 2018. The unaudited
consolidated statement of cash flows for the period of August 28,
2018 through September 30, 2018 is identified as
“Successor” and includes only the accounts of
Cellerate, LLC as “Successor”. 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 Accounting
Standards Codification (“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 receive in exchange for
transferring those goods or services. Revenue is recognized based
on the following five step model:
- Identification of the contract with a customer
- Identification of the performance obligations in the
contract
- Determination of the transaction price
- 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.
8
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.
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 nine months ended September 30, 2019 and
2018
. All revenue was generated in the
United States; therefore, no geographical disaggregation is
necessary.
|
|
Successor
|
Predecessor
|
|
|
|
Nine Months Ended
|
||
|
|
September 30,
|
||
|
|
2019
|
August 28, 2018-September 30, 2018
|
January 1, 2018-August 27, 2018
|
|
Product
sales revenue
|
$
8,304,792
|
$
672,844
|
$
5,639,552
|
|
Royalty
revenue
|
108,875
|
-
|
134,000
|
|
Total Revenue
|
$
8,413,667
|
$
672,844
|
$
5,773,552
|
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. Under the terms of the
development and license agreement the Company executed with
BioStructures, LLC in 2011, royalties of 2.0% are recognized on
sales of products containing the Company’s patented
resorbable bone hemostasis. The minimum annual royalty due to the
Company is $201,000 throughout the life of the patent which expires
in 2023. These royalties are payable in quarterly installments of
$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 components. The Company
recorded inventory obsolescence expense of $88,438 for the nine
months ended September 30, 2019, compared to $0 recorded by the
Predecessor for the nine months ended September 30, 2018. The
allowance for obsolete and slow-moving inventory had a balance of
$66,119 at September 30, 2019, and $484 at December 31,
2018.
Fair Value Measurements
As
defined in ASC Topic 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 820
are as follows:
9
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 been valued using the fair value accounting
treatment. A description of the methodology used, including the
valuation category, is described in the Company’s Annual
Report on Form 10-K for the year ended December 31,
2018.
Income Per Share
The
Company computes income per share in accordance with ASC Topic 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. All
convertible instruments were excluded from the current and prior
year calculations as their inclusion would have been anti-dilutive
during the three months and nine months ended September 30, 2019
and September 30, 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 September 30, 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 are classified as finance or operating, with classification
affecting the pattern and classification of expense recognition in
the income statement. The standard became 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 opening 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 permits 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.
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.
10
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 Catalyst to form Cellerate,
LLC, the Company issued a 30-month convertible promissory note to
Catalyst 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 promissory note. Outstanding
principal and interest are convertible at Catalyst’s option
into shares of the Company’s Common Stock at a conversion
price of $9.00 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, a subsidiary of the Company entered into separate
exclusive license agreements with both Applied Nutritionals, LLC
(“Applied”) and its founder George Petito, pursuant to
which the Company obtained the exclusive world-wide license to
market 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 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, a new exclusive license was
acquired by a Catalyst affiliate to distribute CellerateRX products
into the wound care and surgical markets in the United States,
Canada and Mexico. The Company and Catalyst entered into definitive
agreements on August 27, 2018 that continued operations to market
CellerateRX under a new sublicense granted by a Catalyst affiliate
to Cellerate, LLC, a newly formed entity in which the Company and
Catalyst 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 royalties to Catalyst based on Cellerate,
LLC’s annual net sales of CellerateRX consisting of 3% of all
collected net sales each year up to $12,000,000, 4% of all
collected net sales each year that exceed $12,000,000 up to
$20,000,000, and 5% of all collected net sales each year that
exceed $20,000,000. Minimum royalties of $400,000 per year are
payable for the first five years of the sublicense
agreement.
License agreements
On July
8, 2019, the Company executed a license agreement with a related
party, Rochal Industries, LLC (“Rochal”), whereby
Sanara acquired an exclusive world-wide license to market, sell and
further develop antimicrobial products for the prevention and
treatment of microbes on the human body. The currently licensed
products are BIAKŌS™ Antimicrobial Wound Gel, and FDA
cleared BIAKŌS™ Antimicrobial Skin and Wound Cleanser. A
director and indirect principal shareholder of Sanara is also a
director of Rochal, and indirectly a significant shareholder of
Rochal, and through the exercise of warrants potentially a majority
shareholder. Another Company director is also a director and
significant shareholder of Rochal.
Key
terms of the license agreement include:
1.
In consideration
for the license, Sanara paid to Rochal $1,000,000 and agreed to pay
an additional $500,000 upon FDA clearance of the BIAKŌS™
Antimicrobial Wound Gel product for sale within the United
States.
2.
Subject to the
occurrence of specified financing conditions in 2019, the Company
will also pay Rochal
$1,500,000, which at the
Company’s option may be in cash or Common Stock; or a
combination of cash and Common Stock.
3.
The Company will
pay Rochal a royalty of:
a.
4% of net sales of
licensed products in countries in which patents are
registered
b.
2% of net sales of
licensed products in countries without patent
protection.
The
minimum annual royalty due to Rochal will be $100,000 beginning
with calendar year 2020. The annual minimum royalty will increase
by 10% each subsequent calendar year up to a maximum amount of
$150,000.
11
4.
Beginning with the
2020 calendar year, the Company will pay an additional royalty
based on specific net profit targets related to the licensed
products. Net profits for the licensed products are defined as net
sales, less cost of goods sold (including royalties) and direct
marketing and selling expenses. The additional royalty will be 25%
of the amount of actual net profits in excess of the established
net profit targets, subject to a maximum of $1,000,000 for any
calendar year. The established net profit targets for each calendar
year are:
a.
2020 -
$1,500,000
b.
2021 -
$5,000,000
c.
2022 -
$8,000,000
d.
2023 -
$10,000,000
e.
2024 -
$15,000,000
f.
Beginning in 2025
and for each calendar year thereafter, net profit targets will be
equal to the immediately preceding calendar year’s net profit
target incremented by the greater of (1) 50% of the U.S. dollar
growth in the amount of net profit in the current year over net
profit in the immediately preceding calendar year, or (2) the
percentage of overall growth of the market for the category by
which the licensed products are generally described.
Unless
previously terminated by the parties, the License Agreement will
expire with the related patents in December 2031.
On
October 1, 2019, the Company executed an additional license
agreement with Rochal whereby the Company acquired an exclusive
world-wide license to market, sell and further develop certain
antimicrobial barrier film and skin protectant products for use in
the human health care market. For more information, see Note 9
– Subsequent Events.
Payables to Related Parties
In
addition to the convertible promissory note to Catalyst discussed
in Note 2, the Company had outstanding payables to related parties
totaling $188,228 at September 30, 2019, and $36,203 at December
31, 2018.
Prepaid other - related party
In the
normal course of business, the Company may advance payments to its
suppliers, inclusive of Wound Care Solutions, Limited, a related
party due to its interest in Sanara Pulsar, LLC which is partly
owned by the Company (see “Other commitments” below).
As of September 30, 2019, and December 31, 2018, the balance due
from the related party for future shipments and advances against
future distributions was $335,876 and $0,
respectively.
Other commitments
At the
time of the formation of Sanara Pulsar, it and WCS entered into a
supply agreement whereby Sanara Pulsar became the exclusive
distributor in the United States of certain wound care products
that utilize intellectual property developed and owned by
WCS.
The
Company has advanced to WCS $200,000. All distributions made by
Sanara Pulsar, LLC to its members, not including tax distributions,
will be made exclusively to Cellerate, LLC until such time as
Cellerate, LLC has received an amount of distributions equal to
such advances. In the event WCS’s Form K-l for the year 2020
does not allocate to WCS net income of at least $200,000 ("Target
Net Income"), then Cellerate. LLC will, within 30 days after such
determination, pay WCS the amount of funds representing the
difference between Target Net Income and the actual amount of net
income shown on WCS’s Form K-1 for the year 2020. For the
years 2021 through 2024 Target Net Income will increase by 10% each
year and in the event WCS’s Form K-1 for any of those years
does not allocate to WCS net income in an amount at least equal to
Target Net Income for such year, then Cellerate, LLC will, within
30 days after such determination, pay WCS the amount of funds
representing the difference between Target Net Income and the
actual amount of net income shown on WCS’s Form K-1 for the
applicable year.
Note 4 – Leases
The
Company periodically enters into operating lease contracts for
office space and equipment. Arrangements are evaluated at inception
to determine whether such arrangements constitute a lease. In
accordance with the transition guidance of ASC 842, such
arrangements are included in our balance sheet as of January 1,
2019.
12
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 terms, with the office
space ROU asset adjusted for deferred rent
liability.
The Company has two operating leases: an office space lease with a
remaining lease term of
57
months and a copier lease with a remaining lease
term of
25
months as of
September 30, 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.
In
March 2017, and as amended in March 2018, the Company executed a
new office lease effective April 1, 2019 for office space located
at 1200 Summit Ave., Suite 414, Fort Worth, TX 76102. On July 1,
2019, the Company amended its office lease agreement related to its
current office space located at 1200 Summit Ave., Suite 414, Fort
Worth, TX 76102. The amended lease became effective on August 22,
2019 upon completion by landlord of certain leasehold improvements
(the “Commencement Date). Under the terms of the amended
lease agreement, the Company leased an additional 1,682 rentable
square feet of office space which brought the total square footage
leased to 5,877. The amended lease agreement extends the original
term of the lease for a period of 36 months through June 30, 2024.
Upon the Commencement Date of the amended lease, the monthly base
rental payments are as follows:
|
From
|
Through
|
Monthly
Base Rental
|
|
Commencement
Date
|
June
30, 2020
|
$12,243.75
|
|
July 1,
2020
|
June
30, 2021
|
$12,488.63
|
|
July 1,
2021
|
June
30, 2022
|
$12,488.63
|
|
July 1,
2022
|
June
30, 2023
|
$12,733.50
|
|
July 1,
2023
|
June
30, 2024
|
$12,978.38
|
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 the initial termination date as exercising this option is
not reasonably certain.
In
accordance with ASC 842, the Company has recorded lease assets of
$613,531 and a related lease liability of $624,440 as of September
30, 2019. Cash paid for amounts included in measurement of
operating lease liabilities as of September 30, 2019 was
$60,550
The present value
of our operating lease liabilities is shown below.
Maturity of Operating Lease Liabilities
|
|
September
30,
2019
|
|
2019
|
$
34,981
|
|
2020
|
150,886
|
|
2021
|
151,317
|
|
2022
|
151,333
|
|
Total lease
payments
|
720,658
|
|
Less imputed
interest
|
(96,219
)
|
|
Present value of
lease liabilities
|
$
624,439
|
As of
September 30, 2019, our operating leases have a weighted average
remaining lease term of 4.7 years and a weighted average discount
rate of 6.25%.
13
Note 5 – Property & Equipment
Property
and equipment are stated at cost, less accumulated depreciation.
Depreciation is recorded using the straight-line method over the
estimated useful lives of the related assets, ranging from three to
ten years. A summary is as follows:
|
|
Successor
|
Successor
|
|
|
September
30,
|
December 31,
|
|
|
2019
|
2018
|
|
|
|
|
|
Computers
|
$
82,789
|
$
5,147
|
|
Office
Equipment
|
37,631
|
-
|
|
Furniture
and fixtures
|
149,598
|
3,328
|
|
Leasehold
Improvements
|
2,029
|
-
|
|
Capital
in progress
|
-
|
10,813
|
|
|
272,047
|
19,288
|
|
|
|
|
|
Less
accumulated depreciation
|
(66,937
)
|
(511
)
|
|
|
|
|
|
Property
and equipment, net
|
$
205,110
|
$
18,777
|
Depreciation
expense related to property and equipment was $16,881, $50 and
$13,076 for the nine months ended September 30, 2019 (Successor),
and for the periods August 28, 2018 through September 30, 2018
(Successor) and January 1, 2018 through August 27, 2018
(Predecessor), respectively.
Note 6 - 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 option, 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
Preferred Stock dividends. As of September 30, 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.
Accrued
Series C Preferred Stock dividends were $0 and $28,061 as of
September 30, 2019 and September 30, 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 pay 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 Preferred 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.
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 September 30, 2019, there were 1,136,815 shares of the
Series F Preferred stock issued and outstanding.
14
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 Preferred Stock
dividends.
On May
10, 2019 the Company effected a 1-for-100 reverse stock split of
the Company's issued and outstanding shares of Common Stock.
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 voting 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 traded under that symbol until June 6,
2019, at which time the Company changed its trading symbol to
“SMTI”. The post-split Common Stock is 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 were issued as a
result of the reverse split. Shareholders otherwise entitled to
receive a fractional share instead became entitled to 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 were proportionally adjusted by a
factor of 100 to reflect the reverse stock split. All of the
Company’s outstanding stock options were 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 reverse stock split.
Stock Options
A
summary of the status of the stock options granted for the
nine-month period ended September 30, 2019, and changes during the
period then ended is presented below:
|
|
For the
Nine
Months Ended
September 30,
2019
|
||
|
|
Options
|
Weighted Average
Exercise Price
|
Weighted
Average
Remaining Contract Life
|
|
Outstanding
at beginning of period
|
15,500
|
$
6.00
|
|
|
Granted
|
-
|
-
|
|
|
Exercised
|
-
|
-
|
|
|
Forfeited
|
(2,000
)
|
$
6.00
|
|
|
Expired
|
-
|
-
|
|
|
Outstanding at
September 30, 2019
|
13,500
|
$
6.00
|
3.39
|
|
|
|
|
|
|
Exercisable at
September 30, 2019
|
13,500
|
$
6.00
|
3.39
|
On
December 31, 2017, the Company granted a total of 11,500 options to
five employees. The aggregate fair value of the awards was
determined to be $61,322 and was to be expensed over a three-year
vesting period. On April 13, 2018, the Company granted a total of
2,000 options to one employee and one contractor. The aggregate
fair value of the awards was determined to be $8,943 and was to be
expensed over a three-year vesting period. On August 31, 2018 the
Company granted a total of 2,000 options to one employee. The
aggregate fair value of the awards was determined to be $16,405 and
was to be expensed over a three-year vesting period.
The
Company’s stock option agreements include a provision whereby
all outstanding options vest immediately if the Company consummates
a transaction resulting in a change in control of the Company, as
defined in the stock option agreements. The Cellerate Acquisition
on March 15, 2019 (see Note 1 for more information) represented a
change in control of the Company for purposes of the stock option
agreements. Accordingly, all outstanding SMTI stock options fully
vested on March 15, 2019. No option expense is reflected in the
consolidated statements of operations in 2019.
15
Note 7 – Debt and Credit Facilities
In
December 2018, Cellerate, LLC executed agreements with Cadence
Bank, N.A. (“Cadence”) 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 supports short-term
working capital requirements of Cellerate, LLC. The line of credit
is secured by substantially all of the assets of Cellerate, LLC.
The interest rate per annum under this loan is the “Prime
Rate” as it varies from time to time and designated in the
“Money Rates” section of the Wall Street Journal plus
0.75%. The Prime Rate at September 30, 2019 was 5.000% per annum,
resulting in a rate of 5.750% per annum at September 30,
2019.
On June
21, 2019, the Company modified the Cadence revolving line of credit
to increase the maximum principal amount from $1,000,000 to
$2,500,000. Most terms of the modification agreement, including
security and interest rate, were unchanged from the original loan
agreement. Significant changes under the terms of the modification
agreement include extending the maturity date from December 16,
2019 to June 19, 2020, and the addition of a financial covenant
requiring the Company to sell additional equity securities in an
amount of at least $5,000,000 no later than December 31,
2019.
The
Company made its first draw on the line of credit in the amount of
$500,000 on March 11, 2019 and a second draw of $500,000 on May 29,
2019. During the third quarter of 2019, the Company drew an
additional $1,000,000. The total outstanding line of credit balance
was $2,000,000 at September 30, 2019. Accrued interest
was
$7,986
at September 30, 2019.
On
October 16, 2019, the Company paid down the entire balance of the
revolving line of credit with cash proceeds received through a
private placement stock offering. See Note 9 – Subsequent
Events for more information regarding the private placement
offering.
Note 8 – Intangible Assets
The
carrying values of the Company’s finite-lived intangible
assets are as follows:
|
|
Successor
|
Successor
|
||||
|
|
September 30, 2019
|
December 31,
2018
|
||||
|
|
|
Accumulated
|
|
|
Accumulated
|
|
|
|
Cost
|
Amortization
|
Net
|
Cost
|
Amortization
|
Net
|
|
Patent
|
$
510,310
|
$
(510,310
)
|
$
-
|
$
-
|
$
-
|
$
-
|
|
License
|
1,000,000
|
(20,000
)
|
980,000
|
-
|
-
|
-
|
|
Software
and Other
|
64,465
|
(39,023
)
|
25,442
|
-
|
-
|
-
|
|
Total
|
$
1,574,775
|
$
(569,333
)
|
$
1,005,442
|
$
-
|
$
-
|
$
-
|
As of
September 30, 2019, the weighted-average amortization period for
all intangible assets is 11.3 years.
Amortization expense related to intangible assets
was $36,798, $0, and $10,837 for the three months ended September
30, 2019 (Successor), and for the periods August 28, 2018 through
September 30, 2018 (Successor) and July 1, 2018 through August 27,
2018 (Predecessor), respectively.
Amortization expense
related to intangible assets was $55,763, $0, and $43,349 for the
nine months ended September 30, 2019 (Successor), and for the
periods August 28, 2018 through September 30, 2018 (Successor) and
January 1, 2018 through August 27, 2018 (Predecessor),
respectively. The estimated remaining amortization expense as of
September 30, 2019 is as follows:
|
Remainder of
2019
|
$
25,372
|
|
2020
|
87,495
|
|
2021
|
87,495
|
|
2022
|
85,080
|
|
2023
|
80,000
|
|
Thereafter
|
640,000
|
|
Total
|
$
1,005,442
|
16
Note 9 – Subsequent Events
BIAKŌS™ License Agreement
On
October 1, 2019, the Company executed an additional license
agreement with Rochal Industries, LLC (“Rochal”)
whereby the Company acquired an exclusive world-wide license to
market, sell and further develop certain antimicrobial barrier film
and skin protectant products which currently consist of
BIAKŌS™ Antimicrobial Barrier Film and CuraShield™
No Sting Skin Protectant. A Company director and indirect principal
shareholder is also a director of Rochal, and indirectly a
significant shareholder of Rochal, and through the exercise of
warrants a potential majority shareholder. Another Company director
is also a director and significant shareholder of
Rochal.
Key
terms of the license agreement include:
1.
The Company paid
Rochal $500,000.
2.
Subject to the
occurrence of specified financing conditions in 2020, the Company
will pay Rochal an additional
$500,000, which
at Rochal’s option may be in cash or Sanara Common Stock; or
a combination of cash and Sanara Common Stock.
3.
Sanara will pay
Rochal a royalty of:
a.
4% of net sales of
licensed products in countries in which patents are
registered
b.
2% of net sales of
licensed products in countries without patent
protection.
The
minimum annual royalty due to Rochal will be $50,000 beginning with
the first full calendar year following the year in which first
commercial sales of the products occur (the “First Revenue
Year”). The annual minimum royalty will increase by 10% each
subsequent calendar year up to a maximum amount of
$75,000.
4.
Beginning with the
First Revenue Year, Sanara will pay an additional royalty based on
specific net profit targets related to the licensed products. Net
profits for the licensed products are defined as net sales, less
cost of goods sold (including royalties) and direct marketing and
selling expenses. The additional royalty will be 25% of the amount
of actual net profits in excess of the established net profit
targets, subject to a maximum of $500,000 for any calendar year.
The established net profit targets for each calendar year
are:
a.
First Revenue Year
- $1,500,000
b.
Second revenue year
- 2021 - $5,000,000
c.
Third revenue year
- $8,000,000
d.
Fourth revenue year
- $10,000,000
e.
Fifth revenue year
- $15,000,000
f.
Beginning with the
sixth revenue year and for each calendar year thereafter, net
profit targets will be equal to the immediately preceding calendar
year’s net profit target incremented by the greater of (1)
50% of the U.S. dollar growth in the amount of net profit in the
current year over net profit in the immediately preceding calendar
year, or (2) the percentage of overall growth of the market for the
category by which the licensed products are generally
described.
5.
Unless previously
terminated or extended by the parties, the License Agreement will
terminate upon expiration of the last U.S. patent in October
2033.
Private Placement Offering
On
October 15, 2019, the Company closed a private placement offering
of 1,204,820 shares of its Common Stock at a price of $8.30 per
share. The purchasers were related party entities to three members
of the Company’s Board of Directors. The transaction was
approved by all of the disinterested Directors of the Company. The
price per share was determined by a special committee of the Board
comprised of disinterested Directors who considered an independent
third-party valuation of the offering price and other relevant
information.
17
I
tem 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 undertake 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 September 30, 2019. The discussion of 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 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. In May 2019, the Company changed its name to
Sanara MedTech Inc.
The
Company’s business is developing, marketing, and distributing
wound and skin care products to physicians, hospitals, clinics and
post-acute care settings. Our products are primarily sold in the
North American advanced wound care and surgical tissue repair
markets. Sanara MedTech distributes CellerateRX® Surgical
Activated Collagen® Adjuvant (CellerateRX®); HYCOL™
Hydrolyzed Collagen (HYCOL™); BIAKŌS™
Antimicrobial Skin & Wound Cleanser; and PULSAR II™
Advanced Wound Irrigation System (AWI™). The Company plans to
launch its BIAKŌS™ Antimicrobial Barrier Film and
CuraShield™ No Sting Skin Protectant products in the second
quarter of 2020.
CellerateRX®
products are primarily purchased by hospitals and ambulatory
surgical centers for use by surgeons on surgical wounds.
HYCOL™ products are available through skilled nursing
facilities, wound care clinics and other medical facilities, and
are intended for the management of full and partial thickness
wounds including pressure ulcers, venous and arterial leg ulcers
and diabetic foot ulcers. HYCOL™ is currently approved for
reimbursement under Medicare Part B. We believe CellerateRX®
and HYCOL™ products are unique in composition, applicability
and clinical performance, and demonstrate the ability to reduce
costs associated with the standards of care for their intended
uses.
BIAKŌS™
Antimicrobial Skin & Wound Cleanser is a patented product that
effectively disrupts extracellular polymeric substances to
eradicate biofilm microbes. BIAKŌS Antimicrobial Skin &
Wound Cleanser also provides mechanical removal of debris, dirt,
foreign materials, and microorganisms from wounds including stage
I-IV pressure ulcers, diabetic foot ulcers, post-surgical wounds,
first and second-degree burns as well as grafted and donor sites.
BIAKŌS Antimicrobial Skin & Wound Cleanser is effective in
killing free-floating microbes, immature, and mature bacterial
biofilms such as MRSA and
Pseudomonas aeruginosa
, and fungal
biofilms such as
Candida
albicans
. In addition, BIAKŌS Antimicrobial Skin &
Wound Cleanser safety studies show that it is non-cytotoxic,
non-irritating, and non-sensitizing to healthy skin and assists in
the normal wound healing process. First sales of BIAKŌS™
Antimicrobial Skin and Wound Cleanser occurred in July 2019. In
2020, the Company expects to introduce a gel to complement its
BIAKŌS™ Antimicrobial Skin and Wound Cleanser. Both
products would be effective against planktonic microbes as well and
immature and mature biofilms. When used together, the cleanser can
be used initially to clean a wound and disrupt biofilms (removing
99% in 10 minutes). The gel can then be applied and will remain in
the wound for up to 72 hours eliminating biofilms between normal
dressing changes.
18
BIAKŌS™
Antimicrobial Barrier Film is a first in-class, antimicrobial
spray-on wound dressing that kills microbes while protecting the
underlying tissue, helping to remediate damage and prevent further
infection. This product can be used on macerated skin and wounds
until they have healed after which a clinician could use the
CuraShield™ No Sting Skin Protectant to help prevent further
tissue damage. CuraShield™ No Sting Skin Protectant is a
unique, spray-on bandage designed to protect against
incontinence-related dermatitis, colostomy-related dermatitis, and
medical adhesive-related skin injuries. It is also applied over
bony prominences to reduce friction related injuries and is ideally
suited for use in skin-folds as it does not self-adhere and is
non-tacky.
PULSAR
II™ Advanced Wound Irrigation System (AWI™) is a
portable, safe, no touch, painless, selective Hydro-Mechanical
Debridement System that effectively removes bacteria and necrotic
tissue from wounds without disrupting healthy tissue.
Results of Operations
To
provide a meaningful presentation and comparison of our results of
operations, this discussion combines the period of January 1, 2018
through August 27, 2018 (Predecessor) with the period of August 28,
2018 through September 30, 2018 (Successor). In the accompanying
unaudited interim consolidated financial statements, a black line
separates the Predecessor and Successor financial statements to
highlight the lack of comparability between these two
periods.
The
Successor financials for the nine months ended September 30, 2019
do not include revenues and expenses related to the Predecessor
(SMTI) for the period January 1, 2019 through March 15, 2019.
During this period, SMTI’s revenues were approximately
$34,000 and expenses were approximately $348,000, which are not
reflected in SMTI’s results of operations during the nine
months ended September 30, 2019.
Revenues.
The Company generated revenues of
$2,909,282 for the three months ended September 30, 2019, compared
to revenues of $2,222,519 for the three months ended September 30,
2018, representing a 31% increase in revenues. For the nine months
ended September 30, 2019, revenues totaled $8,413,667, compared to
revenues of $6,446,396 for the nine months ended September 30,
2018, or a 31% increase from prior year.
The higher revenues in 2019 were primarily due to
the continued execution of the Company’s strategy to expand
its sales force and independent distribution network in both new
and existing U.S. markets. Revenues included $50,250 in royalty
income for each of the three months ended
September 30, 2019
and
2018
, and
$108,875
and
$134,000
for the
nine months ended September 30,
2019
and
2018
, respectively.
Cost of goods sold
.
Cost of goods sold for the three months ended September 30, 2019,
was $285,164, compared to costs of goods sold of $204,836 for the
three months ended September 30, 2018. Cost of goods sold for the
nine months ended September 30, 2019, was $909,333, compared to
costs of goods sold of $573,730 for the nine months ended September
30, 2018. The increase over prior year was due to higher sales
volume and non-cash obsolescence charges related to certain raw
materials and finished goods inventory.
Selling, general
and
administrative
expenses
(“SG&A").
SG&A
expenses for the three months ended September 30, 2019, were
$3,315,575, as compared to SG&A expenses of $1,975,716 for the
three months ended September 30, 2018. SG&A expenses for the
nine months ended September 30, 2019, were $8,649,186, as compared
to SG&A expenses of $5,678,377 for the nine months ended
September 30, 2018. The higher SG&A expenses in 2019 were
primarily due to increased payroll costs resulting from sales force
expansion and operational support, higher sales commission expense
as a result of higher product sales, and increased marketing costs
related to promotional activities for new and existing product
lines. Selling expenses (payroll and benefits, commissions, and
marketing) contributed to 92% of the increase in total SG&A
costs while general and administrative expenses contributed to 8%
of the total increase. The expansion of SG&A costs is
consistent with the Company’s strategy of building out a
larger sales force and independent distribution network. The
Company expects SG&A expenses to decline as a percentage of
revenue in the next two years as the revenue generated by the new
sales force begins to offset the cost of expanding the sales
force.
Operating income / loss.
The operating loss for the three
months ended September 30, 2019 was $797,219, compared to operating
income of $27,568 during the corresponding quarter of 2018. The
operating loss for the nine months ended September 30, 2019 was
$1,277,496, compared to operating income of $125,256 during the
first nine months of 2018. The operating loss in 2019 was due to
the higher SG&A costs described above, which have been driven
by the Company’s strategy to grow top-line revenue through
significant investments in sales force expansion and related sales
support infrastructure. As mentioned above, the Successor
financials for the nine months ended September 30, 2019 do not
include revenues and expenses related to the Predecessor (SMTI) for
the period January 1, 2019 through March 15, 2019. During this
period, SMTI’s revenues were approximately $34,000 and
expenses were approximately $348,000, which are not reflected in
SMTI’s results of operations during the nine months ended
September 30, 2019.
Interest expense
.
Interest expense was $46,014 for
the three months ended September 30, 2019, as compared to $0 for
the three months ended September 30, 2018. Interest expense was
$80,925 for the nine months ended September 30, 2019, as compared
to $60,608 for the nine months ended September 30, 2018. The higher
interest expense was primarily due to the use of our line of credit
in 2019.
Net income / loss
. The Company had a net loss of $843,233
for the three months ended September 30, 2019, compared to net
income of $51,203 for the three months ended September 30, 2018.
For the nine months ended September 30, 2019, the Company had a net
loss of $1,358,276, compared to net income of $88,585 for the nine
months ended September 30, 2018. The net loss was primarily due to
higher SG&A costs described above, which have been driven by
the Company’s strategy to grow top-line revenue through
significant investments in sales force expansion and related sales
support infrastructure. As mentioned above, the Successor
financials for the nine months ended September 30, 2019 do not
include revenues and expenses related to the Predecessor (SMTI) for
the period January 1, 2019 through March 15, 2019. During this
period, SMTI’s revenues were approximately $34,000 and
expenses were approximately $348,000, which are not reflected in
SMTI’s results of operations during the nine months ended
September 30, 2019.
19
Liquidity and Capital Resources
During
2018 and 2019, our principal sources of liquidity have been our
cash and cash equivalents, cash generated from operations, and more
recently, cash provided through a bank line of credit. Cash and
cash equivalents consist 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.
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
incurring additional debt. Although we have successfully funded our
past operations through additional bank debt and issuance of
equity, there is no assurance that our capital raising efforts will
be able to attract additional necessary capital at prices
attractive to the Company. If we are unable to obtain additional
funding for operations at any time in the future, we may not be
able to continue operations as proposed. This would require us to
modify our business plan, which could curtail various aspects of
our operations or cease operations.
In
December 2018, and as amended in June 2019, the Company 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 $2,500,000 which matures in June 2020. The expanded line
of credit is intended to provide the Company with additional
working capital for its product pipeline, sales force expansion and
other corporate purposes. As of September 30, 2019, the Company had
drawn $2,000,000 on the line of credit.
On
October 15, 2019, the Company closed a private placement offering
of 1,204,820 shares of its Common Stock at a price of $8.30 per
share. The $10 million of cash proceeds of the offering are
expected to be used to fund milestone payments under current and
future product license agreements, repayment of indebtedness under
the Company’s bank line of credit, and operating
expenditures, including clinical studies and continued expansion of
the Company’s sales force. On October 16, 2019, the Company
paid down the entire balance of the line of credit with cash
proceeds received through the private placement stock offering. See
Note 9 – Subsequent Events for more information regarding the
private placement offering.
For the
nine months ended September 30, 2019, net cash used in operating
activities was $1,333,878
as reported for Successor compared
to $2,089 provided by
operating activities during the
first nine months of 2018 as reported for Predecessor. The higher
use of cash in 2019 was due to investments in our sales force
expansion and related sales support infrastructure, higher
inventory purchases, an increase in accounts receivable as a result
of higher sales volume, and an increase in prepaid items related to
inventory and the BIAKŌS license agreement.
For the
nine months ended September 30, 2019, net cash used in investing
activities was $681,831 as reported for Successor, compared to
$5,749 used in investing activities during the first nine months of
2018 as reported for Predecessor. The cash used in investing
activities was primarily related to the July 8, 2019 license
agreement with Rochal Industries, LLC, whereby the Company paid an
initial fee of $1,000,000 for the exclusive world-wide rights to
market, sell and further develop BIAKŌS™ Antimicrobial
Wound Gel, and FDA cleared BIAKŌS™ Antimicrobial Skin
and Wound Cleanser.
For the
nine months ended September 30, 2019, net cash provided by
financing activities was $2,000,000 as reported for Successor,
compared to $0 for the nine months ended September 30, 2018 as
reported for Predecessor. The cash was funded by draws against our
bank line of credit.
Off-Balance Sheet Arrangements
None.
I
tem 3. Quantitative and Qualitative
Disclosures About Market Risk
As a
smaller reporting company, we are not required to provide this
information.
20
I
tem 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 officers (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 September 30, 2019,
pursuant to Rule 13a-15(b) under the Securities Exchange Act.
Based on this assessment, management concluded that as of September
30, 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.
21
Part II — Other Information
I
tem 1. Legal
Proceedings
As of
September 30, 2019, and as of this filing date, the Company has no
outstanding legal proceedings.
I
tem 1a. Risk
Factors
As a
smaller reporting company, we are not required to provide this
information.
I
tem 2. Unregistered Sales of Equity
Securities and Use of Proceeds
None.
I
tem 3. Defaults Upon Senior
Securities
None.
I
tem 4. Mine Safety
Disclosure
This
item is not applicable.
I
tem 5. Other
Information
None.
I
tem 6. Exhibits
The
following documents are filed as part of this Report:
|
Exhibit No.
|
|
Description
|
|
|
|
|
|
10.1
*
|
|
Exclusive
License Agreement dated October 1, 2019 between Sanara MedTech Inc.
and Rochal Industries, LLC
|
|
|
|
|
|
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
22
S
ignatures
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.
|
|
Sanara MedTech Inc.
|
|
|
|
|
|
|
|
|
November
14, 2019
|
By:
|
/s/ Michael
McNeil
|
|
|
|
|
Michael
McNeil
|
|
|
|
|
Chief
Financial Officer
|
|
23
TABLE OF CONTENTS
Part I Financial InformationItem 1. Financial StatementsNote 1 - Summary Of Significant Accounting PoliciesNote 2 Notes PayableNote 3 Commitments and ContingenciesNote 4 LeasesNote 5 Property & EquipmentNote 6 - Shareholders EquityNote 7 Debt and Credit FacilitiesNote 8 Intangible AssetsNote 9 Subsequent EventsItem 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II Other InformationItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 3. Defaults Upon Senior SecuritiesItem 4. Mine Safety DisclosureItem 5. Other InformationItem 6. Exhibits