Texas | 59-2219994 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
Large accelerated filer ☐ | Non-accelerated filer ☐ | |
Accelerated filer ☐ | Smaller reporting company ☑ |
Page | ||
Part I – | Financial Information | |
Statements | 3 | |
Unaudited Consolidated Balance Sheets as of | ||
Unaudited Consolidated Statements of Operations for the three months ended | ||
Unaudited Consolidated Statements of Cash Flows for the three months ended | ||
Notes to Unaudited Consolidated Financial Statements | 6 | |
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations | 9 | |
Other Information | ||
Signatures |
Assets | March 31, 2017 | December 31, 2016 |
Current Assets: | ||
Cash | $531,194 | $833,480 |
Accounts receivable, net of allowance for bad debt of $19,946 and $21,947 | 660,464 | 744,044 |
Royalty receivable | 50,250 | 50,250 |
Inventory, net of allowance for obsolescence for $126,145 and $153,023 | 301,811 | 348,457 |
Prepaid and other assets | 207,296 | 19,782 |
Total Current Assets | 1,751,015 | 1,996,013 |
Long-term assets: | ||
Property, plant and equipment, net of accumulated depreciation of $48,683 and $41,328 | 142,120 | 34,939 |
Intangible assets, net of accumulated depreciation of $382,733 and $369,974 | 127,577 | 140,336 |
Total Long-term assets | 269, 697 | 175,275 |
Total Assets | $2,020,712 | $2,171,288 |
Liabilities and Stockholders’ Deficit | ||
Current liabilities: | ||
Accounts payable | $195,567 | $238,229 |
Accounts payable - Related Parties | 45,108 | 93,655 |
Accrued royalties and dividends | 93,750 | 276,916 |
Current lease obligation | 2,640 | 3,766 |
Accrued interest | 402,425 | 367,411 |
Derivative liabilities | 178 | 44 |
Notes payable | 341,507 | 414,338 |
Total current liabilities | 1,081,175 | 1,394,359 |
Long-term liabilities | ||
Convertible notes payable - Related Parties | 1,200,000 | 1,200,000 |
Total long-term liabilities | 1,200,000 | 1,200,000 |
Total liabilities | 2,281,175 | 2,594,359 |
Stockholders’ deficit | ||
Series A Preferred Stock, $10 par value, 5,000,000 shares authorized; none issued and outstanding | - | - |
Series B Convertible Preferred Stock, $10 par value, 7,500 shares authorized; none issued and outstanding | - | - |
Series C Convertible Preferred Stock, $10 par value, 100,000 shares authorized; 86,361 issued and outstanding as of | ||
March 31, 2017, and 85,646 issued and outstanding as of December 31, 2016 | 863,610 | 856,460 |
Series D Convertible Preferred Stock, $10 par value, 25,000 shares authorized; none issued and outstanding | - | - |
Series E Convertible Preferred Stock, $10 par value, 5,000 shares authorized; none issued and outstanding | - | - |
Common Stock: $.001 par value; 250,000,000 shares authorized; 110,540,387 issued and 110,536,298 outstanding as | ||
of March 31, 2017, and 109,690,387 issued and 109,686,298 outstanding as of December 31, 2016 | 110,540 | 109,690 |
Preferred Stock Subscription | - | - |
Additional paid-in capital | 45,924,120 | 45,822,570 |
Treasury stock | (12,039) | (12,039) |
Accumulated deficit | (47,146,694) | (47,199,752) |
Total stockholders' deficit | (260,463) | (423,071) |
Total liabilities and stockholders’ deficit | $2,020,712 | $2,171,288 |
Three Months Ended | ||
March 31, 2017 | ||
2017 | 2016 | |
Revenues | $1,605,246 | $1,095,223 |
Cost of goods sold | 173,702 | 190,643 |
Gross profit | 1,431,544 | 904,580 |
Operating expenses | ||
Selling, general and administrative expense | 1,350,062 | 746,401 |
Depreciation and amortization | 20,113 | 15,154 |
Bad debt expense | 3,110 | 4,159 |
Total operating expenses | 1,373,285 | 765,714 |
Operating income | 58,259 | 138,866 |
Other income / (expense) | ||
Debt forgiveness | 39,709 | - |
Change in fair value of derivative liability | (134) | 34 |
Other income | 27 | - |
Interest expense | (44,803) | (48,625) |
Total other income / (expense) | (5,201) | (48,591) |
Net income | 53,058 | 90,275 |
Series C preferred stock dividends | (12,936) | (73,269) |
Net loss available to common stockholders | $40,122 | $17,006 |
Basic income per share of common stock | $0.00 | $0.00 |
Diluted income per share of common stock | $0.00 | $0.00 |
Weighted average number of common shares outstanding, basic | 109,983,165 | 107,974,738 |
Weighted average number of common shares outstanding, diluted | 207,423,800 | 108,600,904 |
Three Months Ended | ||
March 31 | ||
2017 | 2016 | |
Cash flows from operating activities: | ||
Net income | $53,058 | $90,275 |
Adjustments to reconcile net income to net cash used in operating activities | ||
Depreciation and amortization | 20,113 | 15,153 |
Gain on forgiveness of debt | (39,709) | - |
Bad debt expense | 3,110 | 4,159 |
Common stock issued for services | 59,500 | 5,482 |
(Gain) loss on change in fair value of derivative liabilities | 134 | (34) |
Changes in assets and liabilities: | ||
(Increase) decrease in accounts receivable | 80,470 | (169,084) |
(Increase) decrease in royalties receivable | - | 150,750 |
(Increase) decrease in inventory | 46,646 | (131,750) |
(Increase) decrease in prepaids and other assets | (187,514) | 98,815 |
Increase (decrease) in accrued royalties and dividends | (183,166) | (229,312) |
Increase (decrease) in accounts payable | (2,953) | (25,616) |
Increase (decrease) in accounts payable related parties | (48,547) | 11,104 |
Increase (decrease) in accrued interest payable | 35,014 | 43,839 |
Net cash flows used in operating activities | (163,844) | (136,219) |
Cash flows from investing activities: | ||
Purchase of property and equipment | (114,535) | (702) |
Net cash flows used in investing activities | (114,535) | (702) |
Cash flows from financing activities: | ||
Payments on capital lease obligation | (1,126) | (1,194) |
Payments on debt | (72,831) | (60,900) |
Cash proceeds from sale of series C preferred stock | 50,050 | 300,000 |
Net cash flows provided by (used in) financing activities | (23,907) | 237,906 |
Net increase (decrease) in cash | (302,286) | 100,985 |
Cash and cash equivalents, beginning of period | 833,480 | 182,337 |
Cash and cash equivalents, end of period | $531,194 | $283,322 |
Cash paid during the period for: | ||
Interest | $- | $2,420 |
Income taxes | - | - |
Supplemental non-cash investing and financing activities: | ||
Common stock issued for Series C dividends | $- | $99 |
Common stock issued for conversion of Series C Preferred Stock | - | 10,000 |
ASSETS | September 30, 2016 | December 31, 2015 |
CURRENT ASSETS: | ||
Cash | $442,960 | $182,337 |
Accounts Receivable, net of allowance for bad debt of $17,983 and $20,388 | 531,802 | 251,546 |
Royalty Receivable | 50,250 | 201,000 |
Inventory, net of allowance for obsolescence for $15,631 and $150,135 | 577,340 | 409,778 |
Prepaid and Other Assets | 5,995 | 114,009 |
Total Current Assets | 1,608,347 | 1,158,670 |
LONG-TERM ASSETS: | ||
Property Plant and Equipment, net of accumulated depreciation of $38,804 and $31,477 | 37,463 | 41,762 |
Intangible Assets, net of accumulated depreciation of $357,217 and $318,944 | 153,093 | 191,366 |
Total Long-Term Assets | 190,556 | 233,128 |
TOTAL ASSETS | $1,798,903 | $1,391,798 |
LIABILITIES AND STOCKHOLDERS' DEFICIT | ||
CURRENT LIABILITIES: | ||
Accounts Payable, net of interest payable royalties $9,789 and $0 | $257,193 | $222,351 |
Accounts Payable - Related Parties | 21,486 | 21,099 |
Accrued Royalties and Dividends | 222,301 | 323,062 |
Current Lease Obligation | 4,504 | 4,504 |
Accrued Interest | 351,302 | 273,068 |
Derivative Liabilities | 104 | 310 |
Notes Payable | 442,000 | 444,700 |
Convertible Notes Payable | - | 170,000 |
Total Current Liabilities | 1,298,890 | 1,459,094 |
LONG-TERM LIABILITIES | ||
Convertible Notes Payable - Related Parties | 1,200,000 | 1,200,000 |
Capital Lease Obligation | 415 | 3,973 |
Total Long-Term Liabilities | 1,200,415 | 1,203,973 |
TOTAL LIABILITIES | 2,499,305 | 2,663,067 |
STOCKHOLDERS' DEFICIT | ||
Series A Preferred Stock, $10 par value, 5,000,000 shares authorized; none issued and outstanding | - | - |
Series B Convertible Preferred Stock, $10 par value, 7,500 shares authorized; none issued and outstanding | - | - |
Series C Convertible Preferred Stock, $10 par value, 100,000 shares authorized; 85,646 issued and outstanding as of June 30, 2016 and 80,218 issued and outstanding as of December 31, 2015 | 856,460 | 802,180 |
Series D Convertible Preferred Stock, $10 par value, 25,000 shares authorized; none issued and outstanding | - | - |
Series E Convertible Preferred Stock, $10 par value, 5,000 shares authorized; none issued and outstanding | - | - |
Common Stock: $.001 par value; 250,000,000 shares authorized; 108,543,998 issued and 108,539,909 outstanding as of September 30, 2016 and 107,274,816 issued and 107,270,727 outstanding as of December 31, 2015 | 108,540 | 107,274 |
Preferred Stock Subscription | - | - |
Additional paid-in capital | 45,781,317 | 44,615,321 |
Treasury stock | (12,039) | (12,039) |
Accumulated deficit | (47,434,680) | (46,784,005) |
Total Stockholders' Deficit | (700,402) | (1,271,269) |
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT | $1,798,903 | $1,391,798 |
Three Months Ended | Nine Months Ended | |||
September 30, | September 30, | |||
2016 | 2015 | 2016 | 2015 | |
REVENUES | $1,409,530 | $905,615 | $3,762,681 | 2,664,719 |
COST OF GOODS SOLD | 211,639 | 197,117 | 612,514 | 619,553 |
GROSS PROFIT | 1,197,891 | 708,498 | 3,150,167 | 2,045,166 |
GENERAL AND ADMINISTRATIVE EXPENSES: | ||||
General and Administrative Expenses | 963,738 | 823,587 | 3,646,005 | 2,566,251 |
Depreciation / Amortization | 15,282 | 15,111 | 45,601 | 44,900 |
Bad Debt Expense | 2,718 | 1,709 | 7,345 | 5146 |
INCOME (LOSS) FROM CONTINUING OPERATIONS: | 216,153 | (131,909) | (548,784) | (571,131) |
OTHER INCOME (EXPENSES): | ||||
Change in fair value of Derivative Liability | 118 | 272 | 205 | (210) |
Other Income | 1 | 3 | 1 | 18 |
Loss on Issuance of Debt for Warrants | - | - | (198,307) | |
Debt Forgiveness | 7,648 | - | 30,592 | - |
Interest Expense | (42,433) | (47,077) | (132,689) | (124,797) |
NET INCOME/(LOSS) | 181,487 | (178,711) | (650,675) | (894,427) |
Series C Preferred Stock Dividends | (75,031) | (71,181) | (213,435) | (198,843) |
NET LOSS AVAILABLE TO COMMON STOCKHOLDERS | $106,456 | $(249,892) | $(864,110) | (1,093,270) |
Basic loss per share of common stock | $0.00 | $(0.00) | $(0.01) | (0.01) |
Diluted loss per share of common stock | $0.00 | $- | $- | - |
Weighted average number of common shares outstanding, basic & diluted | 108,539,909 | 107,349,349 | 108,397,112 | 106,720,118 |
Nine Months Ended | ||
September 30, | ||
2016 | 2015 | |
Cash flows from operating activities: | ||
Net loss | $(650,675) | $(894,427) |
Adjustments to reconcile net loss to net cash used in operating activities | - | |
Depreciation and amortization | 45,601 | 44,900 |
Forgiveness of debt | 30,592 | - |
Bad debt expense | 7,345 | 5,146 |
Inventory obsolescence | 15,631 | - |
Series D preferred stock issued for services | - | - |
Common stock issued for services | 12,876 | 38,314 |
(Gain) loss on change in fair value of derivative liabilities | (206) | 210 |
(Gain) loss on settlement of liabilities | - | 198,307 |
(Gain) loss on issuance of debt for warrants | 758,665 | - |
Changes in assets and liabilities: | - | |
(Increase) decrease in accounts receivable | (287,601) | (33,162) |
(Increase) decrease in royalities receivable | 150,750 | (150,750) |
(Increase) decrease in inventory | (183,193) | (206,702) |
(Increase) decrease in employee advances | - | - |
(Increase) decrease in accrued interest receivable | - | - |
(Increase) decrease in prepaids and other assets | 108,014 | 300 |
Increase (decrease) in allowance for uncollectible interest | - | - |
Increase (decrease) in accrued royalties and dividends | (100,761) | (72,361) |
Increase (decrease) in accounts payable | 34,842 | 7,237 |
Increase (decrease) in accounts payable related parties | 387 | - |
Increase (decrease) in accrued liabilities | - | - |
Increase (decrease) in accrued interest payable | 47,642 | 63,217 |
Net cash flows used in operating activities | (10,091) | (999,771) |
Cash flows from investing activities: | ||
Purchase of property and equipment | (3,029) | (5,334) |
Net cash flows used in investing activities | (3,029) | (5,334) |
Cash flows from financing activities: | ||
Payments on capital lease obligation | (3,557) | (3,092) |
Borrowings on debt | - | 96,000 |
Payments on debt | (172,700) | (12,700) |
Borrowings on convertible debt, to related parties | - | 1,200,000 |
Payments on convertible debt | - | (1,100,000) |
Cash proceeds from sale of series C preferred stock | 450,000 | 500,000 |
Proceeds from exercise of warrants | - | - |
Cash paid for return of shares | - | - |
Net cash flows provided by financing activities | 273,743 | 680,208 |
Net increase (decrease) in cash | 260,623 | (324,897) |
Cash and cash equivalents, beginning of period | 182,337 | 523,441 |
Cash and cash equivalents, end of period | $442,960 | $198,544 |
Cash paid during the period for: | ||
Interest | $23,863 | $64,894 |
Income taxes | - | - |
Supplemental non-cash investing and financing activities: | ||
Common stock issued for Series C dividends | 99 | 60 |
Common stock issued for conversion of Series C Preferred Stock | 10,000 | 9,570 |
Issuance of convertible debt for warrants | - | 200,000 |
Issuance of vested stock | 167 | 333 |
Forgiveness of related party convertible debt | - | 100,000 |
Forgiveness of unrelated party convertible debt | - |
Shares | Weighted Average Exercise Price | |
Outstanding at beginning of period | 67,246,300 | $0.12 |
Granted | - | - |
Exercised | - | - |
Forfeited | - | - |
Expired | - | - |
Outstanding at end of period | 67,746,300 | $0.12 |
As of March 31, 2017, Warrants Outstanding | As of March 31, 2017 Warrants Exercisable | ||||
Range of Exercise Prices | Number Outstanding | Weighted-Average Remaining Contract Life | Weighted-Average Exrcise Price | Number Exercisable | Weighted-Average Exercise Price |
$0.06 | 4,500,000 | 1.5 | $0.06 | 4,500,000 | $0.06 |
0.08 | 550,000 | 0.9 | 0.08 | 550,000 | 0.08 |
0.09 | 625,000 | 1.1 | 0.09 | 625,000 | 0.09 |
0.12 | 60,000,000 | 4.1 | 0.12 | 12,000,000 | 0.12 |
0.15 | 1,571,300 | 0.4 | 0.15 | 1,571,300 | 0.15 |
$0.06-0.15 | 67,246,300 | 3.8 | $0.12 | 19,246,300 | $0.12 |
Options | Weighted Average Exercise Price | |
Outstanding at beginning of period | 1,093,500 | $0.15 |
Granted | - | - |
Exercised | - | - |
Forfeited | - | - |
Expired | - | - |
Outstanding at end of period | 1,093,500 | $0.15 |
As of March 31, 2017 | As of March 31, 2017 | ||||
Stock Options Outstanding | Stock Options Exercisable | ||||
Exercise Price | Number Outstanding | Weighted-Average Remaining Contract Life | Weighted- Average Exercise Price | Number Exercisable | Weighted-Average Exercise Price |
$0.15 | 943,500 | 1 | 0.15 | 943,500 | $0.15 |
(a) | 150,000 | - | - | - | - |
$0.15 | 1,093,500 | 1 | 0.15 | 943,500 | $0.15 |
For the Nine Months Ended September 30, 2016 | ||
Shares | Weighted Average Exercise Price | |
Outstanding at beginning of period | 9,736,844 | $0.19 |
Granted | 60,000,000 | 0.12 |
Exercised | - | - |
Forfeited | - | - |
Expired | 1,990,544 | 0.48 |
Outstanding at end of period | 67,746,300 | $0.12 |
As of September 30, 2016 | As of September 30, 2016 | ||||
Warrants Outstanding | Warrants Exercisable | ||||
Range of Exercise Prices | Number Outstanding | Weighted-Average Remaining Contract Life | Weighted- Average Exercise Price | Number Exercisable | Weighted-Average Exercise Price |
$0.06 | 4,500,000 | 2.0 | $0.06 | 4,500,000 | $0.06 |
0.075 | 550,000 | 1.4 | 0.08 | 550,000 | 0.08 |
0.09 | 625,000 | 1.5 | 0.09 | 625,000 | 0.09 |
0.12 | 60,000,000 | 4.6 | 0.12 | 12,000,000 | 0.12 |
0.15 | 1,571,300 | 0.9 | 0.15 | 1,571,300 | 0.15 |
0.60 | 500,000 | 0.3 | 0.60 | 500,000 | 0.60 |
$0.06-0.60 | 67,746,300 | 4.2 | $0.12 | 19,746,300 | $0.12 |
For the Nine Months Ended September 30, 2016 | ||
Options | Weighted Average Exercise Price | |
Outstanding at beginning of period | 1,093,500 | $0.15 |
Granted | - | - |
Exercised | - | - |
Forfeited | - | - |
Expired | - | - |
Outstanding at end of Period | 1,093,500 | $0.15 |
As of September 30, 2016 | As of September 30, 2016 | ||||
Stock Options Outstanding | Stock Options Exercisable | ||||
Exercise Price | Number Outstanding | Weighted-Average Remaining Contract Life | Weighted- Average Exercise Price | Number Exercisable | Weighted-Average Exercise Price |
$0.15 | 943,500 | 1. 0 | 0.15 | 943,500 | $0.15 |
(a) | 150,000 | - | - | - | - |
$0.15 | 1,093,500 | 1. 0 | 0.15 | 943,500 | $0.15 |
Fair Value Measurement at September 30, 2016 | Fair Value Measurement at March 31, 2017 | |||||||
Liabilities: | Carrying Value at September 30, 2016 | Level 1 | Level 2 | Level 3 | Carrying Value at March 31, 2017 | Level 1 | Level 2 | Level 3 |
Warrant derivative liabilities | $104 | $- | $104 | $178 | $- | $178 | ||
Total | $104 | $- | $104 | $178 | $- | $178 |
Fair Value Measurement at December 31, 2015 | Fair Value Measurement at December 31, 2016 | |||||||
Liabilities: | Carrying Value at December 31, 2015 | Level 1 | Level 2 | Level 3 | Carrying Value at December 31, 2016 | Level 1 | Level 2 | Level 3 |
Warrant derivative liabilities | $310 | $- | $310 | $44 | $- | $44 | ||
Total | $310 | $- | $310 | $44 | $- | $44 |
Dividend yield: | 0% | |
Expected volatility | ||
Risk free interest rate | ||
Expected life (years) |
The following table sets forth the changes in the fair value of derivative liabilities for the three months ended |
The aggregate Note 7 – Related Party Transactions On April 25, 2016, the Company and John Siedhoff, a member of the Company’s Board of Directors, entered into a Consulting Agreement (the “Agreement”), pursuant to which Mr. Siedhoff provides certain consulting services to the Company. The Agreement provided for a payment in the amount of $200,000 to Mr. Siedhoff as compensation for consulting services rendered to the Company prior to April 1, 2016, as well as a consulting fee of $15,000 per month during the term of the Agreement. The Agreement also provides for the reimbursement of reasonable and necessary expenses, and may be terminated by either party upon 30 days’ advance written notice. On March 10, 2017, the Agreement, was amended to: (i) change the name of the consultant under the Agreement from John Siedhoff to Twin Oaks Equity, LLC (an entity controlled by Mr. Siedhoff), and (ii) increase the monthly compensation payable from $15,000 to $20,000, effective as of January 1, 2017. The consulting fee expense was $100,000 for the three months ended March 31, 2017, (including a bonus of $40,000). In December 2014, the Company entered into a Capital Lease agreement for the purchase of a phone system. The agreement required a down payment of $2,105 and 36 monthly payments of $375. The Company recorded an asset of $13,512 and a capital lease obligation of $13,512. Aggregate payments under the lease were $1,126 for the three months ended March 31, 2017. At March 31, 2017, a tota lease liability of $2,640 remained which is due in full during 2017. 10 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, 2016 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, 2017. 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, 2016. 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. Wound Management Technologies, Inc. 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. Wound Care Innovations, LLC (“WCI”), a wholly-owned subsidiary of the Company was organized as a Nevada limited liability company on August 21, 2003. WCI is a growing provider of the patented CellerateRX® Activated Collagen® product in the wound care and surgical markets. The wound care market is quickly expanding, particularly with respect to diabetic wound applications due to an aging global population; an increase in the incidence of obesity; and an increase in the number of diabetic patients. In 2012, WCI expanded its Activated Collagen product line to include CellerateRX Surgical products, which is a key factor in the Company’s growth. 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 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 Wax. HemaQuell™ is a mechanical tamponade for bleeding bone that resorbs within 2-7 days after use. In the first quarter of 2017, ROP launched HemaQuell® Resorbable Bone Wax via the Company’s Innovate OR, Inc, subsidiary. Initial sales efforts are focused on orthopedic, cardiovascular, and spine surgeries. Our primary focus is developing and marketing products for the advanced wound care market, with a focus 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 and surgical wounds. CellerateRX’s patented 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 another profitable quarter to start 2017 with net income of $53,058. First quarter revenues were $1,605,246, a 47% increase compared to the first quarter of 2016 revenues of $1,095,223. Approximately 96% of revenues were from the CellerateRX product line and the other 4% of revenue occurred in royalties from the Resorbable Orthopedic Products, LLC subsidiary (ROP). CellerateRX revenues continue to increase as the result of developing and carrying out our strategic initiatives to expand our surgical product sales to new customers, develop our sales force and to continue sales to existing customers. Our Regional Sales Managers are working closely with our distributor and representative network to increase awareness and sales. We are also increasing our market presence with continuing case studies by key opinion leaders. Our newly-cleared HemaQuell™ Resorbable Bone Wax has been used in a few cardiac, spine and orthopedic cases and ROP is now in working with strategic partners for clinical studies. HemaQuell received FDA 510(k) clearance in February of 2016. The Innovate OR, Inc. subsidiary has prepared initial marketing materials for the HemaQuell launch with initial sales anticipated before year end 2016. In closing, Wound Management Technologies is well positioned to execute on its strategic growth initiatives with a solid go-to-market plan in place and an expanding distribution team. The Company looks forward to capitalizing on the traction it has built in the market thus far with additional investments in the sales and marketing of the CellerateRX ® product and the emergence of HemaQuell™. Results of Operations For the three months ended March 31, 2017, compared with the three months ended March 31, 2016: Revenues. The Company generated revenues for the three months ended March 31, 2017, of $1,605,246 compared to revenues of $1,095,223 for the three months ended March 31, 2016, or a 47% increase in revenues. The increase in revenues is the result of the Company’s increased sales and marketing efforts. Revenues in both 2017 and 2016 include $50,250 in royalties from the Biostructures License. Cost of goods sold. Cost of goods sold for the three months ended March 31, 2017, was $173,702, as compared to costs of goods sold of $190,643 for the three months ended March 31, 2016, or a 9% decrease. The cost of goods sold decreased as a result of the changing mix of wound care product sales as compared to surgical product sales which have more positive margins. 11 Selling, General and administrative expenses (“SG&A”). SG&A expenses for the three months ended March 31, 2017, were $1,350,062, as compared to SG&A expenses of $746,401 for the three months ended March 31, 2016, or an 81% increase in SG&A expenses. SG&A expenses increased primarily due to sales commission expense related to the revenue increase, payroll expenses as we grow our infrastructure and consulting fees related to strategic initiatives. Interest expense. Interest expense was $ 44,803 for the three months ended March 31, 2017, as compared to $48,625 for the three months ended March 31, 2016, or a decrease of 8%. The decrease in interest expense is the result of the Company’s paying down interest bearing notes. Net income/loss. We had net income for the three months ended March 31, 2017, of $53,058, compared to net income of $90,275 for the three months ended March 31, 2016. The decrease of 41% was due to the increase in SG&A related to our three-year strategic plan of expanding our infrastructure to better support future sales growth. Liquidity and Capital Resources As of March 31, 2017, we had total current assets of $1,751,015, including cash of $531,194 and inventories of $301,811. As of December 31, 2016, our current assets of $1,996,013 included cash of $833,480 and inventories of $348,457. As of March 31, 2017, we had total current liabilities of $1,081,175 including $341,507 of notes payable. Our current liabilities also include $93,750 of current year royalties payable. As of December 31, 2016, our current liabilities of $1,394,359 included $414,338 of notes payable and royalties payable of $276,916. As of March 31, 2017, our current liabilities also included derivative liabilities of $178 compared to derivative liabilities of $44 at December 31, 2016. At March 31, 2017, and December 31, 2016, our derivative liabilities related to 10,000 of the 10,000 outstanding common stock purchase warrants. For the three months ended March 31, 2017, net cash used in operating activities was $163,844 compared to $136,219 used in the first three months of 2016. In the three months ended March 31, 2017, net cash used in investing activities was $114,535 compared to $702 used in the first three months of 2016. The 2017 expenditure is for a robust new software system. In the three months ended March 31, 2017, net cash used in financing activities was $23,907. For the three months ended March 31, 2016, financing activities provided $237,906. Off-Balance Sheet Arrangements None. Recent Accounting Pronouncements For the period ended March 31, 2017, there were no other changes to our critical accounting policies as identified in our Annual Report on Form 10-K for the year ended December 31, 2016. Contractual Commitments Royalty agreements. Effective November 28, 2007, WCI entered into separate exclusive license agreements with Applied Nutritionals, LLC (“Applied”) and its founder George Petito, pursuant to which WCI obtained the exclusive world-wide license to make products incorporating intellectual property covered by a patent related to CellerateRX products. In consideration for the licenses, WCI agreed to pay to Applied the following royalties, beginning January 3, 2008: (a) an upfront royalty of $100,000 in the aggregate, (b) an aggregate royalty of fifteen percent (15%) of gross sales occurring during the first year of the license; (c) an additional upfront royalty of $400,000, in the aggregate, which was paid October, 2009; plus (d) an aggregate royalty of three percent (3%) of gross sales for allsales occurring after the payment of the $400,000 upfront royalty. In addition, WCI must maintain a minimum aggregate annual royalty payment of $375,000 for 2009 and thereafter, if the royalty payments made do not meet or exceed that amount. The total of unpaid royalties as of December 31, 2016, was $276,916. These prior year royalties were paid in full in January of 2017. As of March 31, 2017, the balance of accrued royalties for the current year is $93,750. On September 29, 2009, the Company entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”), by and among the Company, RSI-ACQ, 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. The royalty is paid to Barry Constantine As a smaller reporting company, we are not required to provide this information. Disclosure Controls and Procedures We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit to the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms, and that information is accumulated and communicated to our management, including our principal executive and principal financial officer (whom we refer to in this periodic report as our Certifying Officer), as appropriate to allow timely decisions regarding required disclosure. Our management evaluated, with the participation of our Certifying Officer, the effectiveness of our disclosure controls and procedures as of 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. 12 There have been no material developments subsequent to our most recent annual report. As a smaller reporting company, we are not required to provide this information. None. None. Item 4. Mine Safety Disclosure This item is not applicable. Item 5. Other Information None. 13 Copies of the following documents are
* Filed herewith ± The Exhibit attached to this Form 10-Q shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) or otherwise subject to liability under that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in such filing. Signatures Pursuant to the requirements of the Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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