Item 1. Financial Statements
Wound Management Technologies, Inc. and Subsidiaries
Consolidated Balance Sheets
March 31, 2018 and December 31, 2017
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
Current assets
|
|
|
|
Cash
|
$
261,446
|
$
463,189
|
|
Accounts
receivable, net of allowance for bad debt of $36,400 and
$28,910
|
1,016,290
|
786,250
|
|
Royalty
receivable
|
50,250
|
50,250
|
|
Inventory,
net of allowance for obsolescence of $144,897 and
$144,996
|
613,714
|
711,397
|
|
Prepaid
and other assets
|
70,093
|
26,274
|
|
Total current assets
|
2,011,793
|
2,037,360
|
|
|
|
|
|
Long-term assets:
|
|
|
|
Property,
plant and equipment, net of accumulated depreciation of $60,944 and
$56,951
|
60,516
|
63,211
|
|
Intangible
assets, net of accumulated amortization of $451,255 and
$434,999
|
101,035
|
117,291
|
|
Total long-term assets
|
161,551
|
180,502
|
|
|
|
|
|
Total assets
|
$
2,173,344
|
$
2,217,862
|
|
|
|
|
|
Liabilities and shareholders' equity
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
Accounts
payable
|
$
253,203
|
$
225,462
|
|
Accounts payable - Related
Parties
|
5,885
|
60,000
|
|
Accrued
royalties and payables
|
102,250
|
244,422
|
|
Accrued
bonus and commissions
|
103,962
|
46,534
|
|
Deferred
rent
|
13,703
|
13,920
|
|
Accrued
interest
|
-
|
324,986
|
|
Convertible
notes payable - Related Parties
|
-
|
1,200,000
|
|
Total current liabilities
|
479,003
|
2,115,324
|
|
|
|
|
|
Long-term liabilities
|
|
|
|
Total long-term liabilities
|
-
|
-
|
|
|
|
|
|
Total liabilities
|
479,003
|
2,115,324
|
|
|
|
|
|
Stockholders' equity
|
|
|
|
Series C Convertible Preferred Stock,
$10 par value, 100,000 shares authorized; none issued and
outstanding as of March 31, 2018 and 85,646 issued and outstanding
as of December 31, 2017
|
-
|
855,610
|
|
Common Stock: $.001 par value;
250,000,000 shares authorized; 236,646,990 issued and 236,642,901
outstanding as of March 31, 2018 and 113,427,943 issued and
113,423,854 outstanding as of December 31, 2017
|
236,647
|
113,428
|
|
Additional
paid-in capital
|
48,331,967
|
46,013,982
|
|
Treasury
stock
|
(12,039
)
|
(12,039
)
|
|
Accumulated
deficit
|
(46,862,234
)
|
(46,868,443
)
|
|
Total
shareholders' equity
|
1,694,341
|
102,538
|
|
|
|
|
|
Total liabilities and shareholders' equity
|
$
2,173,344
|
$
2,217,862
|
The accompanying notes are an integral part of these unaudited
consolidated financial statements.
Wound Management Technologies, Inc. and Subsidiaries
Consolidated Statements of Operations
For the Three-months Ended March 31, 2018 and 2017
(
Unaudited
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
1,961,787
|
$
1,605,246
|
|
|
|
|
|
Cost of goods sold
|
210,912
|
173,702
|
|
|
|
|
|
Gross profit
|
1,750,875
|
1,431,544
|
|
|
|
|
|
Operating expenses
|
|
|
|
Selling,
general and administrative expenses
|
1,654,361
|
1,350,062
|
|
Depreciation
and amortization
|
20,248
|
20,113
|
|
Bad
debt expense
|
9,558
|
3,110
|
|
Total operating expenses
|
1,684,167
|
1,373,285
|
|
|
|
|
|
Operating income
|
66,708
|
58,259
|
|
|
|
|
|
Other income / (expense)
|
|
|
|
Debt
forgiveness
|
-
|
39,709
|
|
Other
income
|
109
|
27
|
|
Change
in fair value of Derivative Liability
|
-
|
(134
)
|
|
Interest
expense
|
(60,608
)
|
(44,803
)
|
|
Total other income / (expense)
|
(60,499
)
|
(5,201
)
|
|
|
|
|
|
Net income
|
6,209
|
53,058
|
|
|
|
|
|
Series
C Preferred Stock dividends
|
(28,061
)
|
(12,936
)
|
|
Series
C Preferred Stock inducement dividends
|
(103,197
)
|
-
|
|
|
|
|
|
Net income (loss) available to common shareholders
|
$
(125,049
)
|
$
40,122
|
|
|
|
|
|
Basic
income (loss) per share of Common stock
|
$
(0.00
)
|
$
0.00
|
|
|
|
|
|
Diluted
income (loss) per share of Common Stock
|
$
(0.00
)
|
$
0.00
|
|
|
|
|
|
Weighted
average number of common shares outstanding basic
|
158,903,529
|
109,983,165
|
|
|
|
|
|
Weighted
average number of common shares outstanding diluted
|
158,903,529
|
207,423,800
|
The accompanying notes are an integral part of these unaudited
consolidated financial statements.
Wound Management Technologies, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Three-months Ended March 31, 2018 and 2017
(
Unaudited
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
Net
income
|
$
6,209
|
$
53,058
|
|
Adjustments
to reconcile net income to net cash used in operating
activities
|
|
|
|
Depreciation
and amortization
|
20,248
|
20,113
|
|
Interest expense on
convertible debt
|
60,608
|
-
|
|
Gain
on forgiveness of debt
|
-
|
(39,709
)
|
|
Bad
debt expense
|
9,558
|
3,110
|
|
Common
stock issued for services
|
-
|
59,500
|
|
Loss
on change in fair value of derivative liabilities
|
-
|
134
|
|
Changes
in assets and liabilities:
|
|
|
|
(Increase)
decrease in accounts receivable
|
(239,598
)
|
80,470
|
|
(Increase)
decrease in inventory
|
97,683
|
46,646
|
|
(Increase)
decrease in prepaid and other assets
|
(43,819
)
|
(187,514
)
|
|
Increase
(decrease) in accrued royalties and dividends
|
(150,672
)
|
(183,166
)
|
|
Increase
(decrease) in accounts payable
|
27,741
|
(2,953
)
|
|
Increase
(decrease) in accounts payable related parties
|
(54,115
)
|
(48,547
)
|
|
Increase
(decrease) in accrued liabilities
|
65,711
|
-
|
|
Increase
(decrease) in accrued interest payable
|
-
|
35,014
|
|
Net cash flows used in operating activities
|
(200,446
)
|
(163,844
)
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
Purchase
of property and equipment
|
(1,297
)
|
(114,535
)
|
|
Net cash flows used in investing activities
|
(1,297
)
|
(114,535
)
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
Payments
on capital lease obligation
|
-
|
(1,126
)
|
|
Payments
on debt
|
-
|
(72,831
)
|
|
Cash
proceeds from sale of series C Preferred Stock
|
-
|
50,050
|
|
Net cash flows used in financing activities
|
-
|
(23,907
)
|
|
|
|
|
|
Net decrease in cash
|
(201,743
)
|
(302,286
)
|
|
Cash and cash equivalents, beginning of period
|
463,189
|
833,480
|
|
Cash and cash equivalents, end of period
|
$
261,446
|
$
531,194
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
Interest
|
$
-
|
$
-
|
|
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
|
-
|
The accompanying notes are an integral part of these unaudited
consolidated financial statements.
Wound Management Technologies, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
Note 1 - Summary of Significant Accounting Policies
Basis of Presentation
The
terms “WMT,” “we,” “the
Company,” and “us” as used in this report refer
to Wound Management Technologies, Inc. and its wholly owned
subsidiaries. The accompanying unaudited consolidated balance sheet
as of March 31, 2018, and unaudited consolidated statements of
operations for the three-months ended March 31, 2018 and 2017, have
been prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by U.S. generally accepted accounting principles
for complete financial statements. In the opinion of management of
WMT, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
Operating results for the three-month period ended March 31, 2018,
are not necessarily indicative of the results that may be expected
for the year ending December 31, 2018, or any other period. These
financial statements and notes should be read in conjunction with
the financial statements for each of the two years ended December
31, 2017, and December 31, 2016, included in the Company’s
Annual Report on Form 10-K. The accompanying consolidated balance
sheet as of December 31, 2017, has been derived from the audited
financial statements filed in our Form 10-K and is included for
comparison purposes in the accompanying balance sheet. Certain
prior year amounts have been reclassified to conform to current
year presentation.
Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of WMT and its wholly-owned subsidiaries: Wound
Care Innovations, LLC a Nevada limited liability company
(“WCI”); Resorbable Orthopedic Products, LLC, a Texas
limited liability company (“Resorbable); and Innovate OR,
Inc. “InnovateOR” formerly referred to as BioPharma
Management Technologies, Inc., a Texas corporation
(“BioPharma”). All intercompany accounts and
transactions have been eliminated.
Revenue Recognition
On January 1, 2018, we adopted Topic 606 using the modified
retrospective method applied to those contracts which were not
completed as of January 1, 2018. Results for reporting periods
beginning after January 1, 2018 are presented under Topic 606,
while prior period amounts are not adjusted and continue to be
reported in accordance with our historic accounting under Topic
605. There was no impact to the opening balance of accumulated
deficit or revenues for the quarter ended March 31, 2018 as a
result of applying Topic 606.
The Company applies a five-step approach in determining the amount
and timing of revenue to be recognized: (1) identifying the
contract with a customer, (2) identifying the performance
obligations in the contract, (3) determining the transaction
price, (4) allocating the transaction price to the performance
obligations in the contract and (5) recognizing revenue when
the performance obligation is satisfied. Substantially all of the
Company’s revenue is recognized at the time control of the
products transfers to the customer.
The
Company recognizes revenue based on bill and hold arrangements when
the seller has transferred to the buyer the significant risks and
rewards of ownership of the goods; the seller does not retain
effective control over the goods or continuing managerial
involvement to the degree usually associated with ownership; the
amount of revenue can be measured reliably; it is probable that the
economic benefits of the sale will flow to the seller; any costs
incurred or to be incurred related to the sale can be measured
reliably; it is probable that delivery will be made; the goods are
on hand, identified, and ready for delivery; the buyer specifically
acknowledges the deferred delivery instructions; and the usual
payment terms apply.
Royalty
revenues include $50,250 in accrued income for each of the
three-months ended March 31, 2018 and 2017 from the development and
license agreement the Resorbable Orthopedic Products, LLC
subsidiary (ROP) executed with BioStructures, LLC in 2011.
Royalties of 1.5% are earned on sales of products containing ROP
patented resorbable bone hemostasis. As of the date of this filing
the minimum royalty due for the first quarter has been
received.
Revenue
streams from sales of CellerateRX and HemaQuell products for the
three-months ended March 31, 2018 and 2017 are presented
below.
|
|
|
|
|
|
|
|
|
|
|
CellerateRX
Powder
|
$
1,788,276
|
$
1,442,938
|
|
CellerateRX
Gel
|
121,164
|
117,613
|
|
HemaQuell
|
6,600
|
-
|
|
Other
revenue
|
45,747
|
44,695
|
|
Total Revenue
|
$
1,961,787
|
$
1,605,246
|
Contract Assets and Liabilities
The Company does not have any contract assets or contract
liabilities.
Inventories
Inventories
are stated at the lower of cost or net realizable value, with cost
computed on a first-in, first-out basis. Inventories consist of
finished goods and related packaging supplies. The Company recorded
inventory obsolescence expense of $99 for the three-months ended
March 31, 2018, compared to $26,878 for the three-months ended
March 31, 2017. The allowance for obsolete and slow-moving
inventory had a balance of $144,897 at March 31, 2018, and $144,996
at December 31, 2017.
Fair Value Measurements
As
defined in Accounting Standards Codification (“ASC”)
Topic No. 820, fair value is the price that would be received to
sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date
(exit price). The Company utilizes market data or assumptions that
market participants would use in pricing the asset or liability,
including assumptions about risk and the risks inherent in the
inputs to the valuation technique. These inputs can be readily
observable, market corroborated, or generally unobservable. ASC 820
establishes a fair value hierarchy that prioritizes the inputs used
to measure fair value. The hierarchy gives the highest priority to
unadjusted quoted prices in active markets for identical assets or
liabilities (level 1 measurement) and the lowest priority to
unobservable inputs (level 3 measurement). This fair value
measurement framework applies at both initial and subsequent
measurement.
The
three levels of the fair value hierarchy defined by ASC Topic No.
820 are as follows:
Level 1
– Quoted prices are available in active markets for identical
assets or liabilities as of the reporting date. Active markets are
those in which transactions for the asset or liability occur in
sufficient frequency and volume to provide pricing information on
an ongoing basis. Level 1 primarily consists of financial
instruments such as exchange-traded derivatives, marketable
securities and listed equities.
Level
2 – Pricing inputs are other than quoted prices in active
markets included in Level 1, which are either directly or
indirectly observable as of the reported date. Level 2 includes
those financial instruments that are valued using models or other
valuation
methodologies.
These models are primarily industry-standard models that consider
various assumptions, including quoted forward prices for
commodities, time value, volatility factors, and current market and
contractual prices for the underlying instruments, as well as other
relevant economic measures. Substantially all of these assumptions
are observable in the marketplace throughout the full term
of the
instrument, can be derived from observable data or are supported by
observable levels at which transactions are executed in the
marketplace. Instruments in this category generally include
non-exchange-traded derivatives such as commodity swaps, interest
rate swaps, options and collars. Level 3 – Pricing inputs
include significant inputs that are generally less observable from
objective sources. These inputs may be used with internally
developed methodologies that result in management’s best
estimate of fair value.
Our
intangible assets have also been valued using the fair value
accounting treatment and a description of the methodology used,
including the valuation category, is described in the
Company’s Annual Report on Form 10-K.
Income Per Share
The
Company computes income per share in accordance with Accounting
Standards Codification “ASC” Topic No. 260,
“Earnings per Share,” which requires the Company to
present basic and dilutive income per share when the effect is
dilutive. Basic income per share is computed by dividing income
available to common shareholders by the weighted average number of
common shares available. Diluted income per share is computed
similar to basic income per share except that the denominator is
increased to include the number of additional common shares that
would have been outstanding if the potential common shares had been
issued and if the additional common shares were dilutive. The
dilutive effect of the outstanding convertible preferred stock and
certain warrants for the three months ended March 31, 2017, was
97,440,635 shares and an adjustment to net income of
$12,936.
Recently Issued Accounting Pronouncements
In
February 2016, the FASB issued ASC 842
Leases
which is to be effective for
reporting periods beginning after December 15, 2018. The Company
has reviewed the pronouncement and believes it will not have a
material impact on the Company’s financial position,
operations or cash flows.
Note 2 – Notes Payable
Convertible Notes Payable - Related Parties
On June
15, 2015, the Company entered into term loan agreements with The
James W. Stuckert Revocable Trust (“SRT) and The S. Oden
Howell Revocable Trust (“HRT”), pursuant to which SRT
made a loan to the Company in the amount of $600,000 and HRT made a
loan to the Company in the amount of $600,000 under Senior Secured
Convertible Promissory Notes (the “Notes”). Both SRT
and HRT are controlled by affiliates of the Company. The Notes each
carried an interest rate of 10% per annum, and (subject to various
default provisions) all unpaid principal and accrued but unpaid
interest under the Notes were due and payable on June 15, 2018. On
February 19, 2018, both Notes totaling $1,200,000 plus $385,594 of
accrued interest were converted to 22,651,356 common shares of the
Company's Common Stock. The accrued interest included $60,608 of
interest expense recognized during the first quarter of
2018.
Note 3 – Commitments and Contingencies
Royalty agreements.
Effective
January 3, 2008, WCI entered into separate exclusive license
agreements with both Applied Nutritionals, LLC
(“Applied”) and its founder George Petito
(“Petito”), pursuant to which WCI obtained the
exclusive world-wide license to make products incorporating
intellectual property covered by a patent related to CellerateRX
products. The licenses were limited to the human health care
market, (excluding dental and retail) for external wound care
(including surgical wounds) and include any new product
developments based on the licensed patent and processes and any
continuations. Although the term of these licenses expired on
February 27, 2018, the agreements permit WCI to continue to sell
and distribute products for a period not exceeding six (6) months
from the effective termination date.
In
consideration for the licenses, WCI agreed to pay Applied and
Petito, (in the aggregate), the following royalties, beginning
January 3, 2008: (a) an advance royalty of $100,000; (b) a royalty
of 15% of gross sales occurring during the first year of the
license; (c) an additional advance royalty of $400,000 on January
3, 2009; plus (d) a royalty of 3% of gross sales for all sales
occurring after the payment of the $400,000 advance royalty. In
addition, WCI must maintain a minimum aggregate annual royalty
payment of $375,000 for 2009 and thereafter if the royalty
percentage payments made do not meet or exceed that amount. The
amounts listed in the two preceding sentences are the aggregate of
amounts paid/owed to Applied and Petito) and the Company has paid
the minimum aggregate annual royalty payments each year since 2008,
including both 2017 and 2016. Sales of CellerateRX occurring after
the termination date are subject to the 3% royalty.
On
September 29, 2009, the Company entered into an Asset Purchase
Agreement (the “Asset Purchase Agreement”), by and
among the Company, RSIACQ, LLC, a wholly-owned subsidiary of the
Company (RSI), Resorbable Orthopedic Products, LLC
(“Resorbable”) and Resorbable’s members, pursuant
to which, RSI acquired substantially all of Resorbable’s
assets, in exchange for (i) 500,000 shares of the Company’s
Common Stock, and (ii) a royalty equal to eight percent (8%) of the
net revenues generated from products sold by the Company or any of
its affiliates, which products are developed from or otherwise
utilize any of the patented technology acquired from
Resorbable.
Office leases
In
March of 2017, and as amended in March 2018, the Company executed a
new office lease for office space located at 1200 Summit Ave.,
Suite 414, Fort Worth, TX 76102. The amended lease is effective May
1, 2018 and ends on June 30, 2021. Monthly base rental payments are
as follows: months 1-2, $8,390; months 3-14, $8,565; months 15-26,
$8,740; and months 27-38, $8,914. Rent expense is recognized on a
straight-line basis over the term of the Lease and the resulting
deferred rent liability is $13,703 as of March 31,
2018.
Payables to Related Parties
As of
March 31, 2018, and December 31, 2017, the Company had outstanding
payables to related parties totaling $5,885 and $60,000,
respectively. The payables are unsecured, bear no interest and due
on demand.
Note 4 - Shareholders’ Equity
Preferred Stock
On
October 11, 2013, the Company filed a Certificate of Designations,
Number, Voting Power, Preferences and Rights of Series C
Convertible Preferred Stock (the “Certificate of
Designations”), under which it designated 100,000 shares of
Series C Preferred Stock, par value $10.00. The Series C Preferred
Stock was entitled to accruing dividends (payable, at the
Company’s options, in either cash or stock) of 5% per annum
until October 10, 2016, and 3% per annum until October 10,
2018.
The
Series C Preferred Stock was senior to the Company’s Common
Stock and any other currently issued series of the Company’s
Preferred Stock upon liquidation and was entitled to a liquidation
preference per share equal to the original issuance price of such
shares of Series C Preferred Stock together with the amount of all
accrued but unpaid dividends thereon. Each of the Series C Shares
was convertible at the option of the holder into 1,000 shares of
Common Stock as provided in the Certificate. Additionally, each
holder of Series C Preferred Stock was entitled to vote on all
matters submitted for a vote of the holders of Common Stock a
number of votes equal to the number of full shares of Common Stock
into which such holder’s Series C shares could have been
converted.
As of
December 31, 2017, there were 85,561 shares of Series C Preferred
Stock issued and outstanding. In February and March 2018, the
Company issued 100,567,691 shares of Common Stock for the
conversion of 85,561 shares of Series C Convertible Preferred Stock
and $1,050,468 of related Series C dividends. Dividends were
converted at $0.07 per share. As of March 31, 2018, there were no
shares of Series C Preferred Stock outstanding and all accrued
dividends were converted to Common Stock.
Series C Preferred dividends were $28,061 and $12,936 for the
quarters ended March 31, 2018 and March 31, 2017, respectively. As
an inducement to encourage the Series C Preferred Stock
shareholders to convert their Series C Preferred Stock to Common
Stock prior to October 10, 2018, the Company offered to apply the
full dividend, (accelerated to October 10, 2018) upon the
shareholders exercise of their conversion. The fair value of the
extra shares of Common Stock issued to Series C Stock shareholders
was $103,197 for dividends that would have accrued from the date of
their conversion through October 10,
2018.
Common Stock
On
March 6, 2018, the Company issued 22,651,356 shares of Common Stock
for the conversion of $1,200,000 in Related Party convertible debt
and $385,594 in accrued interest. In February and March 2018, the
Company issued 100,567,691 shares of Common Stock for the
conversion of 85,561 shares of Series C Convertible Preferred Stock
and $1,050,468 of related Series C dividends.
Warrants
A
summary of the status of the warrants granted for the three-months
ended March 31, 2018, and changes during the period then ended is
presented below:
|
|
For
the Three-months Ended
March
31, 2018
|
|
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding at
beginning of period
|
5,100,000
|
$
0.06
|
|
Granted
|
-
|
-
|
|
Exercised
|
-
|
-
|
|
Forfeited
|
-
|
-
|
|
Expired
|
-
|
-
|
|
Outstanding at end
of period
|
5,100,000
|
$
0.06
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
Remaining Contract Life
|
Weighted- Average
Exercise Price
|
|
Weighted-Average
Exercise Price
|
|
$
0.06
|
4,500,000
|
0.05
|
$
0.06
|
4,500,000
|
$
0.06
|
|
0.08
|
200,000
|
0.37
|
0.08
|
200,000
|
0.08
|
|
0.09
|
400,000
|
0.23
|
0.09
|
400,000
|
0.09
|
|
$
0.06 -0.09
|
5,100,000
|
.47
|
$
0.06
|
5,100,000
|
$
0.06
|
The
aggregate intrinsic value of the exercisable warrants as of March
31, 2018, was $0.
Stock Options
A summary of the status of the stock options granted for the
three-month period ended March 31, 2018, and changes during the
period then ended is presented below:
|
|
For the Three-months Ended March 31, 2018
|
|
|
|
Weighted Average
Exercise Price
|
|
Outstanding
at beginning of period
|
1,150,000
|
$
0.06
|
|
Granted
|
-
|
-
|
|
Exercised
|
-
|
-
|
|
Forfeited
|
-
|
-
|
|
Expired
|
|
|
|
Outstanding
at end of period
|
1,150,000
|
$
0.06
|
|
|
|
|
|
Stock Options
Outstanding
|
|
Stock Options Exercisable
|
|
|
|
Weighted-Average Remaining Contract Life
|
Weighted- Average Exercise Price
|
|
Weighted-Average Exercise Price
|
|
$
0.06
|
1,150,000
|
4.75
|
$
0.06
|
$
-
|
-
|
On
December 31, 2017, the Company granted a total of 1,150,000 options
to five employees. The shares vest in equal annual amounts over
three years and the aggregate fair value of the awards was
determined to be $61,322.
Note 5 – Related Party Transactions
On
April 25, 2016, and as amended March 10, 2017, the Company and John
Siedhoff, the Chairman of the Company’s Board of Directors,
entered into a consulting Agreement. The Agreement provides for
compensation payable to an entity controlled by Mr. Siedhoff in the
amount of $20,000 per month. The consulting fee expense was $60,000
for the three-months ended March 31, 2018.
Note 6 – Subsequent Events
On
April 3, 2018, the Company announced that it will be operating
under a new trade name, “WNDM Medical Inc.”, a
registered DBA of Wound Management Technologies, Inc. The purpose
of the change was to better align the Company’s name with its
innovative and cost-effective products provided across a broad
range clinical needs.
As part
of the rebrand, the Company also unveiled a new corporate logo and
changed its website address to
WNDM.com
.
Item 2. Management’s Discussion and Analysis of
Financial Condition and Results of Operations
The following discussion of our financial condition and results of
operations should be read in conjunction with the
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations” section and audited
consolidated financial statements and related notes thereto
included in our Annual Report on Form 10-K for the year ended
December 31, 2017 and with the unaudited consolidated financial
statements and related notes thereto presented in this Quarterly
Report on Form 10-Q.
Forward-Looking Statements
Some of
the statements contained in this report discuss future
expectations, contain projections of results of operations or
financial condition, or state other "forward-looking" information.
The words "believe," "intend," "plan," "expect," "anticipate,"
"estimate," "project," "goal" and similar expressions identify such
a statement was made. These statements are subject to known and
unknown risks, uncertainties, and other factors that could cause
the actual results to differ materially from those contemplated by
the statements. The forward-looking information is based on various
factors and is derived using numerous assumptions. Factors that
might cause or contribute to such a discrepancy include but are not
limited to the risks discussed in this and our other SEC filings.
We do not promise to update forward-looking information to reflect
actual results or changes in assumptions or other factors that
could affect those statements. Future events and actual results
could differ materially from those expressed in, contemplated by,
or underlying such forward-looking statements.
The
following discussion and analysis of our financial condition is as
of March 31, 2018. Our results of operations and cash
flows should be read in conjunction with our unaudited financial
statements and notes thereto included elsewhere in this report and
the audited financial statements and the notes thereto included in
our Form 10-K for the year ended December 31, 2017.
Business Overview
Unless
otherwise indicated, we use “WMT,” “the
Company,” “we,” “our” and
“us” in this report to refer to the businesses of Wound
Management Technologies, Inc. and its wholly owned
subsidiaries.
Wound
Management Technologies, Inc. (“WMT” or the
“Company”) was organized on December 14, 2001, as a
Texas corporation under the name eAppliance Innovations, Inc. In
June of 2002, MB Software Corporation, a public corporation formed
under the laws of Colorado, merged with the Company (which at the
time was a wholly owned subsidiary of MB Software Corporation), and
the Company changed its name to MB Software Corporation as part of
the merger. In May of 2008, the Company changed its name to Wound
Management Technologies, Inc.
CellerateRX®/CRXɑ®
Activated Collagen®/CRXɑ® Adjuvant, (the
“Product”) is cleared by the FDA as a medical device
for use on all acute and chronic wounds, except third degree burns,
and is offered in both powder and gel form. CellerateRX Wound Care
Products are available without a prescription and are currently
approved for reimbursement under Medicare Part B. CellerateRX
Activated Collagen® Surgical Adjuvant Products are available
under a physician’s order. Applied Nutritionals, LLC
(“AN”) manufactures the Products and owns the
CellerateRX registered trademark. The Company has incurred no
research and development costs related to CellerateRX during the
last two fiscal years.
We
believe that the Products are unique in composition, applicability
and clinical performance, and demonstrate the ability to reduce
costs associated with standard wound management. The Company is
focused on delivering the CellerateRX/CRXɑ product lines to
hospitals and surgery centers as well as the diabetic care and
long-term care markets.
Resorbable
Orthopedic Products, LLC (“ROP”) a wholly-owned
subsidiary of the Company was organized as a Texas limited
liability company on August 24, 2009, as part of a transaction to
acquire a multi-faceted patent for resorbable bone hemostasis
products. ROP is both licensing technology from this patent and
also developing products itself. In 2014, the Company entered into
a commercial out-license for a bone void filler. The Company began
receiving royalties under this agreement in the fourth quarter of
2013. Royalties will continue for the life of the patent which
expires in 2023. In 2016 ROP received FDA 510(k) clearance for
HemaQuell® Resorbable Bone Hemostat. HemaQuell is a mechanical
tamponade for bleeding bone that resorbs within 2-7 days after use.
The Company received 510(k) clearance for the resorbable orthopedic
hemostat in February of 2016; completed subsequent testing and
launched HemaQuell® Resorbable Bone Hemostat in 2017, with our
first sales realized in the fourth quarter. The Company is
currently focusing its sales efforts in the domestic (United
States) market, with an emphasis on orthopedic, cardiovascular, and
spine surgeries.
Our
primary focus is developing and marketing products for the advanced
wound care market, with an emphasis on surgical products, as
pursued through our wholly owned subsidiaries, WCI and ROP, which
brings a unique mix of products, procedures and expertise to the
wound care arena including surgical wounds.
CellerateRX/CRXɑ® Adjuvant’s unique Activated
Collagen® fragments (CRa® are a fraction of the size of
the native collagen molecules and particles found in other
products, which delivers the benefits of collagen to the body
immediately.
Management Letter
Wound Management Technologies, Inc. is pleased to report first
quarter 2018 revenue of $1,961,787 which was up 22% compared to
prior year and represented an all-time high in quarterly sales for
the Company. The higher revenues were the result of our continued
success implementing strategic initiatives to grow our sales force,
expand our surgical product sales to new customers, and a renewed
focus on long-term care. We are also increasing our market presence
with continuing case studies by key opinion leaders.
The Company also achieved another profitable quarter, as it
continues to invest heavily in expanding its sales reach, product
development and clinical support. All convertible debt was
converted to common shares of the Company's stock in the first
quarter of 2018, resulting in zero debt on the balance sheet for
the first time in the history of the Company. In addition, all
Series C Convertible Preferred Stock shareholders converted their
Series C shares and related dividends to common shares of the
Company's stock resulting in one class of common shares issued and
outstanding as of March 31, 2018.
In closing, Wound Management Technologies continues to be well
positioned to execute our strategic growth initiatives with a solid
go-to-market plan in place. The Company looks forward to
capitalizing on the traction it has built in the market thus far
with additional investments in strategic growth, sales, marketing
and clinical support for
CellerateRX®/CRXɑ®
Activated Collagen®/CRXɑ® Adjuvant
and
HemaQuell® Resorbable Bone
Hemostat
.
Results of Operations
For the
three months ended March 31, 2018, compared with the three months
ended March 31, 2017:
Revenues.
The Company generated revenues of
$1,961,787 for the three-months ended March 31, 2018, compared to
revenues of $1,605,246 for the three-months ended March 31, 2017,
representing a 22% increase in revenues.
The higher revenues were the result of our
continued success implementing strategic initiatives to grow our
sales force, expand our surgical product sales to new customers,
and a renewed focus on long-term care.
Revenues include
$50,250 in royalty income for each of the three-months ended March
31, 2018 and 2017 from the development and license agreement the
Resorbable Orthopedic Products, LLC subsidiary (ROP) executed with
BioStructures, LLC in 2011.
Cost of goods sold
.
Cost of goods sold for the three-months ended March 31, 2018, was
$210,912, compared to costs of goods sold of $173,702 for the
three-months ended March 31, 2017. The increase over prior year was
consistent with the higher sales volume.
Selling, general
and
administrative
expenses
(“SG&A").
SG&A
expenses for the three-months ended March 31, 2018, were
$1,654,361, as compared to SG&A expenses of $1,350,062 for the
three-months ended March 31, 2017, a 22% increase in SG&A
expenses. SG&A expenses increased primarily due to higher sales
commission expense related to the revenue increase, higher payroll
expenses as we grow our infrastructure and consulting fees related
to strategic initiatives.
Operating Income.
Operating income for the three-months
ended March 31, 2018 was $66,708, compared to operating income of
$58,259, representing a 15% increase over prior year. The increase
in operating income was primarily due to higher revenues, partially
offset by higher SG&A.
Interest expense
.
Interest expense was $60,608 for
the three-months ended March 31, 2018, as compared to $44,803 for
the three-months ended March 31, 2017 or an increase of 35%. This
change was due to additional Related Party interest related to the
early conversion of note in 2018.
Net income
. We had a net income of $6,209 for the
three-months ended March 31, 2018, compared to net income of
$53,058 for the three-months ended March 31, 2017.
The decrease in net income was due to higher
Related Party interest expense in 2018, and a gain recognized in
2017 related to debt forgiveness.
Liquidity and Capital Resources
As a
result of the conversion of the two notes payable to related
parties totaling $1,200,000, the Company has a working capital
surplus of $1,532,790 as of March 31, 2018, an increase of
$1,610,754 from the 2017 year-end deficit balance of
$77,964.
As of
March 31, 2018, we had total current assets of $2,011,793,
including cash of $261,446 and inventories of $613,714. As of
December 31, 2017, our current assets of $2,037,360 included cash
of $463,189 and inventories of $711,397.
As of
March 31, 2018, we had total current liabilities of $479,003. Our
current liabilities also include $102,250 of current year accrued
payables and royalties. As of December 31, 2017, our current
liabilities of $2,115,324 included $1,200,000 of notes payable to
related parties. Our current liabilities also included $244,442 of
current year accrued payables and royalties, which were paid in
full during January of 2018.
For the
three-months ended March 31, 2018, net cash used in operating
activities was $200,446 compared to $163,844 used in the first
three-months of 2017.
In the
three-months ended March 31, 2018, net cash used in investing
activities was $1,297 compared to $114,535 used in the first
three-months of 2017.
In the
three-months ended March 31, 2018, net cash used in financing
activities was $0. For the three-months ended March 31, 2017,
financing activities provided $23,907.
Off-Balance Sheet Arrangements
None.
Recent Accounting Pronouncements
For the
period ended March 31, 2018, there were no changes to our critical
accounting policies as identified in our Annual Report on Form
10-K for the year ended December 31, 2017.
In May 2014, the Financial Accounting Standards Board
(FASB) issued Accounting Standards Codification (ASC) 606, Revenue
from Contracts with Customers which is to be effective for
reporting periods beginning after December 15, 2017. On January 1,
2018, we adopted Topic 606 using the modified retrospective method
applied to those contracts which were not completed as of January
1, 2018. Results for reporting periods beginning after January 1,
2018 are presented under Topic 606, while prior period amounts are
not adjusted and continue to be reported in accordance with our
historic accounting under Topic 605. There was no impact to the
opening balance of accumulated deficit or revenues for the quarter
ended March 31, 2018 as a result of applying Topic
606.
.
In February 2016, the FASB issued ASC 842
Leases
which is to be effective for
reporting periods beginning after December 15, 2018. The Company
has reviewed the pronouncement and believes it will not have a
material impact on the Company’s financial position,
operations or cash flows.
Contractual Commitments
Effective
January 3, 2008, WCI entered into separate exclusive license
agreements with both Applied Nutritionals, LLC
(“Applied”) and its founder George Petito
(“Petito”), pursuant to which WCI obtained the
exclusive world-wide license to make products incorporating
intellectual property covered by a patent related to CellerateRX
products. The licenses are limited to the human health care market,
(excluding dental and retail) for external wound care (including
surgical wounds) and include any new product developments based on
the licensed patent and processes and any continuations. Although
the term of these licenses expired on February 27, 2018, the
agreements permit WCI to continue to sell and distribute products
for a period not exceeding six (6) months from the effective
termination date.
In
consideration for the licenses, WCI agreed to pay Applied and
Petito, (in the aggregate), the following royalties, beginning
January 3, 2008: (a) an advance royalty of $100,000; (b) a royalty
of 15% of gross sales occurring during the first year of the
license; (c) an additional advance royalty of $400,000 on January
3, 2009; plus (d) a royalty of 3% of gross sales for all sales
occurring after the payment of the $400,000 advance royalty. In
addition, WCI must maintain a minimum aggregate annual royalty
payment of $375,000 for 2009 and thereafter if the royalty
percentage payments made do not meet or exceed that amount. The
amounts listed in the two preceding sentences are the aggregate of
amounts paid/owed to Applied and Petito) and the Company has paid
the minimum aggregate annual royalty payments each year since 2008,
including both 2017 and 2016. Sales of CellerateRX occurring after
the termination date are subject to the 3% royalty.
On
September 29, 2009, the Company entered into an Asset Purchase
Agreement (the “Asset Purchase Agreement”), by and
among the Company, RSIACQ, LLC, a wholly-owned subsidiary of the
Company (RSI), Resorbable Orthopedic Products, LLC
(“Resorbable”) and Resorbable’s members, pursuant
to which, RSI acquired substantially all of Resorbable’s
assets, in exchange for (i) 500,000 shares of the Company’s
Common Stock, and (ii) a royalty equal to eight percent (8%) of the
net revenues generated from products sold by the Company or any of
its affiliates, which products are developed from or otherwise
utilize any of the patented technology acquired from
Resorbable.