Document and Entity Information
Document and Entity Information - shares | 6 Months Ended | |
Jun. 30, 2019 | Aug. 14, 2019 | |
Principal Net of Discount | ||
Entity Registrant Name | Sanara MedTech Inc. | |
Document Type | 10-Q | |
Document Period End Date | Jun. 30, 2019 | |
Amendment Flag | false | |
Entity Central Index Key | 0000714256 | |
Current Fiscal Year End Date | --12-31 | |
Entity Common Stock, Shares Outstanding | 2,366,181 | |
Entity Filer Category | Non-accelerated Filer | |
Entity Emerging Growth Company | false | |
Entity Small Business | true | |
Entity Current Reporting Status | Yes | |
Entity Shell Company | false | |
Document Fiscal Year Focus | 2019 | |
Document Fiscal Period Focus | Q2 |
Statement - CONSOLIDATED BALANC
Statement - CONSOLIDATED BALANCE SHEETS (Unaudited) - USD ($) | Jun. 30, 2019 | Dec. 31, 2018 |
Current assets | ||
Cash | $ 419,163 | $ 176,421 |
Accounts receivable, net of allowance for bad debt of $40,865 and $0 | 1,330,139 | 1,022,500 |
Royalty receivable | 50,250 | 0 |
Inventory, net of allowance for obsolescence of $81,196 and $484 | 394,585 | 465,315 |
Prepaid other - related party | 144,587 | 0 |
Prepaid and other assets | 855,691 | 26,445 |
Total current assets | 3,194,415 | 1,690,681 |
Long-term assets | ||
Property, plant and equipment, net of accumulated depreciation of $74,403 and $511 | 72,422 | 18,777 |
Right of use assets - operating leases | 193,634 | 0 |
Intangible assets, net of accumulated amortization of $532,535 and $0 | 19,754 | 0 |
Total long-term assets | 285,810 | 18,777 |
Total assets | 3,480,225 | 1,709,458 |
Current liabilities | ||
Accounts payable | 185,241 | 156,727 |
Accounts payable - related party | 143,510 | 36,203 |
Accrued royalties and payables | 412,435 | 228,606 |
Accrued bonus and commissions | 1,057,050 | 701,125 |
Operating lease liability - current | 98,071 | 0 |
Line of credit | 1,000,000 | 0 |
Total current liabilities | 2,896,307 | 1,122,661 |
Long-term liabilities | ||
Operating lease liability - long term | 106,580 | 0 |
Convertible notes payable - related party | 1,500,000 | 0 |
Accrued interest | 64,208 | 0 |
Total long-term liabilities | 1,670,788 | 0 |
Total liabilities | 4,567,095 | 1,122,661 |
Shareholders' equity (deficit) | ||
Series F Convertible Preferred Stock: $10 par value, 1,200,000 shares authorized; 1,136,815 issued and outstanding as of June 30, 2019 and 1,136,815 issued and outstanding as of December 31, 2018 | 11,368,150 | 11,368,150 |
Common Stock: $0.001 par value, 20,000,000 shares authorized; 2,366,181 issued and outstanding as of June 30, 2019 and none issued and outstanding as of December 31, 2018 | 2,366 | 0 |
Additional Paid-in Capital | (12,080,629) | (10,919,639) |
Retained earnings (accumulated deficit) | (375,703) | 138,286 |
Total Sanara MedTech shareholders' equity (deficit) | (1,085,816) | 586,797 |
Equity attributable to noncontrolling interest | (1,054) | 0 |
Total shareholders' equity | (1,086,870) | 586,797 |
Total liabilities and shareholders' equity | $ 3,480,225 | $ 1,709,458 |
Statement - CONSOLIDATED BALA_2
Statement - CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) | Jun. 30, 2019 | Dec. 31, 2018 |
Accounts receivable, net of allowance for bad debt | $ 40,865 | $ 0 |
Inventory, net of allowance for obsolescence | 81,196 | 484 |
Property plant and equipment accumulated amortization | 74,403 | 511 |
Intangible asset accumulated amortization | $ 532,535 | $ 0 |
Common Stock, par value | $ 0.001 | $ 0.001 |
Common Stock, shares authorized | 20,000,000 | 20,000,000 |
Common Stock, shares issued | 2,366,181 | 2,366,181 |
Common Stock, shares outstanding | 2,366,181 | 2,366,181 |
Series F Preferred Stock [Member] | ||
Preferred Stock, par value | $ 10 | $ 10 |
Preferred Stock, shares authorized | 1,200,000 | 1,200,000 |
Preferred Stock, shares issued | 1,136,815 | 1,136,815 |
Preferred Stock, shares outstanding | 1,136,815 | 1,136,815 |
CONSOLIDATED STATEMENTS OF OPER
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($) | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2019 | Jun. 30, 2018 | Jun. 30, 2019 | Jun. 30, 2018 | |
Income Statement [Abstract] | ||||
Revenues | $ 3,017,489 | $ 2,262,090 | $ 5,504,385 | $ 4,223,877 |
Cost of goods sold | 334,829 | 157,982 | 624,169 | 368,894 |
Gross profit | 2,682,660 | 2,104,108 | 4,880,216 | 3,854,983 |
Operating expenses | ||||
Selling, general and administrative expense | 2,983,248 | 2,048,300 | 5,333,611 | 3,702,661 |
Depreciation and amortization | 22,542 | 21,828 | 26,882 | 42,076 |
Bad debt expense | 0 | 3,000 | 0 | 12,558 |
Total operating expenses | 3,005,790 | 2,073,128 | 5,360,493 | 3,757,295 |
Operating income (loss) | (323,130) | 30,980 | (480,277) | 97,688 |
Other income / (expense) | ||||
Other income (expense) | 145 | 193 | 145 | 302 |
Interest expense | (29,486) | 0 | (34,911) | (60,608) |
Total other income (expense) | (29,341) | 193 | (34,766) | (60,306) |
Net income (loss) | (352,471) | 31,173 | (515,043) | 37,382 |
Less: Net income (loss) attributable to noncontrolling interest | (1,054) | 0 | (1,054) | 0 |
Net income (loss) attributable to Sanara MedTech Inc. | (351,417) | 31,173 | (513,989) | 37,382 |
Series C preferred stock dividends | 0 | 0 | 0 | (28,061) |
Series C Preferred Stock inducement dividends | 0 | 0 | 0 | (103,197) |
Net loss attributable to common stockholders | $ (351,417) | $ 31,173 | $ (513,989) | $ (93,876) |
Basic income per share of Common stock | $ (0.15) | $ 0.01 | $ (0.37) | $ (0.05) |
Diluted income per share of Common Stock | $ (0.15) | $ 0.01 | $ (0.37) | $ (0.05) |
Weighted average number of common shares outstanding basic | 2,366,288 | 2,366,429 | 1,398,867 | 1,973,613 |
Weighted average number of common shares outstanding diluted | 2,366,288 | 2,366,429 | 1,398,867 | 1,973,613 |
CONSOLIDATED STATEMENTS OF CHAN
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) - USD ($) | Preferred Stock | Common Stock | Additional Paid-In capital | Treasury Stock | Accumulated Income/(Deficit) | Noncontrolling Interest | Total Shareholders' Equity (Deficit) |
Beginning Balance, Shares at Dec. 31, 2017 | 85,561 | 1,134,279 | (41) | ||||
Beginning Balance, Amount at Dec. 31, 2017 | $ 855,610 | $ 1,134 | $ 46,114,357 | $ (120) | $ (46,868,443) | $ 0 | $ 102,538 |
Conversion of Series C Preferred Stock, Shares | (85,561) | 855,605 | |||||
Conversion of Series C Preferred Stock, Amount | $ (855,610) | $ 855 | 854,755 | 0 | |||
Issuance of Common stock for Series C Dividend, Shares | 150,067 | ||||||
Issuance of Common stock for Series C Dividend, Amount | $ 150 | (150) | 0 | ||||
Common stock issued for conversion of debt, Shares | 226,514 | ||||||
Common stock issued for conversion of debt, Amount | $ 227 | 1,585,367 | 1,585,594 | ||||
Net income (loss) | 6,209 | 6,209 | |||||
Ending Balance, Shares at Mar. 31, 2018 | 0 | 2,366,465 | (41) | ||||
Ending Balance, Amount at Mar. 31, 2018 | $ 0 | $ 2,366 | 48,554,329 | $ (120) | (46,862,234) | 0 | 1,694,341 |
Beginning Balance, Shares at Dec. 31, 2017 | 85,561 | 1,134,279 | (41) | ||||
Beginning Balance, Amount at Dec. 31, 2017 | $ 855,610 | $ 1,134 | 46,114,357 | $ (120) | (46,868,443) | 0 | 102,538 |
Ending Balance, Shares at Jun. 30, 2018 | 0 | 2,366,465 | (41) | ||||
Ending Balance, Amount at Jun. 30, 2018 | $ 0 | $ 2,366 | 48,565,296 | $ (120) | (46,831,061) | 0 | 1,736,481 |
Beginning Balance, Shares at Mar. 31, 2018 | 0 | 2,366,465 | (41) | ||||
Beginning Balance, Amount at Mar. 31, 2018 | $ 0 | $ 2,366 | 48,554,329 | $ (120) | (46,862,234) | 0 | 1,694,341 |
Recognition of stock option expense | 10,967 | 10,967 | |||||
Net income (loss) | 31,173 | 31,173 | |||||
Ending Balance, Shares at Jun. 30, 2018 | 0 | 2,366,465 | (41) | ||||
Ending Balance, Amount at Jun. 30, 2018 | $ 0 | $ 2,366 | 48,565,296 | $ (120) | (46,831,061) | 0 | 1,736,481 |
Beginning Balance, Shares at Dec. 31, 2018 | 1,136,815 | 0 | 0 | ||||
Beginning Balance, Amount at Dec. 31, 2018 | $ 11,368,150 | $ 0 | (10,919,639) | $ 0 | 138,286 | 0 | 586,797 |
Reverse recapitalization, Shares | 2,366,465 | (41) | |||||
Reverse recapitalization, Amount | $ 2,366 | (1,159,929) | (1,157,563) | ||||
Net income (loss) | (162,572) | (162,572) | |||||
Ending Balance, Shares at Mar. 31, 2019 | 1,136,815 | 2,366,465 | (41) | ||||
Ending Balance, Amount at Mar. 31, 2019 | $ 11,368,150 | $ 2,366 | (12,079,568) | $ 0 | (24,286) | 0 | (733,338) |
Beginning Balance, Shares at Dec. 31, 2018 | 1,136,815 | 0 | 0 | ||||
Beginning Balance, Amount at Dec. 31, 2018 | $ 11,368,150 | $ 0 | (10,919,639) | $ 0 | 138,286 | 0 | 586,797 |
Ending Balance, Shares at Jun. 30, 2019 | 1,136,815 | 2,366,181 | 0 | ||||
Ending Balance, Amount at Jun. 30, 2019 | $ 11,368,150 | $ 2,366 | (12,080,629) | $ 0 | (375,703) | (1,054) | (1,086,870) |
Beginning Balance, Shares at Mar. 31, 2019 | 1,136,815 | 2,366,465 | (41) | ||||
Beginning Balance, Amount at Mar. 31, 2019 | $ 11,368,150 | $ 2,366 | (12,079,568) | $ 0 | (24,286) | 0 | (733,338) |
Treasury stock retirement | (41) | 41 | |||||
Repurchase and cancellation of fractional shares, Shares | (243) | ||||||
Repurchase and cancellation of fractional shares, Amount | (1,061) | (1,061) | |||||
Net income (loss) | (351,417) | (1,054) | (352,471) | ||||
Ending Balance, Shares at Jun. 30, 2019 | 1,136,815 | 2,366,181 | 0 | ||||
Ending Balance, Amount at Jun. 30, 2019 | $ 11,368,150 | $ 2,366 | $ (12,080,629) | $ 0 | $ (375,703) | $ (1,054) | $ (1,086,870) |
CONSOLIDATED STATEMENTS OF CASH
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($) | 6 Months Ended | |
Jun. 30, 2019 | Jun. 30, 2018 | |
Cash flows from operating activities: | ||
Net income (loss) | $ (515,043) | $ 37,382 |
Adjustments to reconcile net income to net cash used in operating activities | ||
Depreciation and amortization | 26,882 | 42,076 |
Interest expense on convertible debt | 22,585 | 60,608 |
Loss on disposal of asset | 13,581 | 0 |
Bad debt expense | 0 | 12,558 |
Recognition of vesting stock option expense | 0 | 10,967 |
Changes in assets and liabilities: | ||
(Increase) decrease in accounts receivable | (259,342) | (312,645) |
(Increase) decrease in inventory | 70,729 | 216,846 |
(Increase) decrease in prepaid - related parties | (144,587) | 0 |
(Increase) decrease in prepaid and other assets | (758,132) | (38,086) |
Increase (decrease) in accounts payable | (217,299) | 3,081 |
Increase (decrease) in accounts payable related parties | 55,243 | (60,000) |
Increase (decrease) in accrued royalties and expenses | 166,379 | (180,220) |
Increase (decrease) in accrued liabilities | 299,440 | 209,522 |
Net cash flows provided by (used in) operating activities | (1,239,564) | 2,089 |
Cash flows from investing activities: | ||
Purchase of property and equipment | (25,606) | (5,749) |
Cash received in reverse acquisition | 508,973 | 0 |
Repurchase and cancellation of fractional shares | (1,061) | 0 |
Net cash flows from (used in) investing activities | 482,306 | (5,749) |
Cash flows from financing activities: | ||
Draw on line of credit | 1,000,000 | 0 |
Net cash flows used in financing activities | 1,000,000 | 0 |
Net increase (decrease) in cash | 242,742 | (3,660) |
Cash and cash equivalents, beginning of period | 176,421 | 463,189 |
Cash and cash equivalents, end of period | 419,163 | 459,529 |
Cash paid during the period for: | ||
Interest | 7,465 | 0 |
Income Taxes | 0 | 0 |
Supplemental non-cash investing and financing activities: | ||
Common stock issued for dividends on Series C Preferred Stock | 0 | 15,007 |
Common stock issued for conversion of Series C Preferred Stock | 0 | 85,561 |
Common stock issued for conversion of Related Party debt and interest | 0 | 1,585,594 |
Common stock issued in reverse capitalization; less cash received of $508,973 | $ 1,666,537 | $ 0 |
1. SUMMARY OF SIGNIFICANT ACCOU
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 6 Months Ended |
Jun. 30, 2019 | |
Accounting Policies [Abstract] | |
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 June 30, 2019, and unaudited consolidated statements of operations for the six-months ended June 30, 2019 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 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 six-month period ending June 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. On May 7, 2019, the Company formed Sanara Pulsar, LLC (Sanara Pulsar), a Texas limited liability company. On May 9, 2019, (the Execution Date) the Company, through its wholly owned subsidiary Cellerate, LLC, and Wound Care Solutions, Limited, a company registered in the United Kingdom (WCS), the two members of Sanara Pulsar, executed a Company Agreement, (the Company Agreement). The Company Agreement includes the Sanara Pulsar ownership structure, operating framework, and members’ rights, responsibilities, and voting power. Per the terms of the Company Agreement, Cellerate, LLC owns sixty-percent (60%) of the membership interests in Sanara Pulsar, while WCS owns forty-percent (40%). Net profits and losses will be shared by the members in proportion to their respective membership interests. The agreement includes customary terms and conditions regarding profit distributions and the sale or transfer of membership interests. The Company will consolidate the operations and financial position of Sanara Pulsar with Sanara MedTech Inc. Principles of Consolidation The financial statements have been 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 June 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 June 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 June 30, 2019, and the accounts of Sanara Pulsar, LLC for the period May 9, 2019 through June 30, 2019. The statement of operations for the period ending June 30, 2018 is identified as “Predecessor” and includes the accounts of SMTI and its wholly owned subsidiaries (excluding Cellerate, LLC) as reported on SMTI’s Form 10-Q for the six-month period ended June 30, 2018. A black line separates the Predecessor and Successor sections to highlight the lack of comparability between these two periods. The unaudited consolidated statement of changes in shareholders’ equity includes two sections. The first section is identified as “Predecessor” and includes the SMTI equity information as previously reported by SMTI on its 2017 Form 10-K annual report and its June 30, 2018 Form 10-Q quarterly report. The second section is identified as “Successor” which includes a presentation of equity to reflect the recapitalization of SMTI as if it had occurred as of December 31, 2018. The presentation includes the issuance of the Series F Preferred Stock, the changes in paid-in capital, and the restatement of the accumulated deficit as if the recapitalization had occurred as of December 31, 2018. A black line separates the Predecessor and Successor sections to highlight the lack of comparability between these two periods The unaudited consolidated statement of cash flows for the period ending June 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 June 30, 2019, and the accounts of Sanara Pulsar, LLC for the period May 9, 2019 through June 30, 2019. The consolidated statement of cash flows for the period ending June 30, 2018 is identified as “Predecessor” and includes the accounts of SMTI and its wholly owned subsidiaries (excluding Cellerate, LLC) as reported on SMTI’s Form 10-Q for the six-month period ended June 30, 2018. A black line separates the Predecessor and Successor sections to highlight the lack of comparability between these two periods. Revenue Recognition The Company recognizes revenue in accordance with 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. 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 six months ended June 30, 2019 and 2018. All revenue was generated in the United States; therefore, no geographical disaggregation is necessary. Successor Predecessor Six Months Ended June 30, 2019 2018 Product sales revenue $ 5,445,760 $ 4,123,377 Royalty revenue 58,625 100,500 Total Revenue $ 5,504,385 $ 4,223,877 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 (BioStructures) in 2011, royalties of 2.0% are recognized on sales of products containing the Company’s patented resorbable bone hemostasis. However, the minimum annual royalty due to the Company shall be $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 $85,838 for the six months ended June 30, 2019, compared to $0 recorded by the Predecessor for the six months ended June 30, 2018. The allowance for obsolete and slow-moving inventory had a balance of $81,196 at June 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: 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 six months ended June 30, 2019 and June 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 June 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. In March 2016, the FASB issued ASU 2016-07, which eliminates a requirement for the retroactive adjustment on a step by step basis of the investment, results of operations, and retained earnings as if the equity method had been effective during all previous periods that the investment had been held when an investment qualifies for equity method accounting due to an increase in the level of ownership or degree of influence. The cost of acquiring the additional interest in the investee is to be added to the current basis of the investor’s previously held interest and the equity method of accounting should be adopted as of the date the investment becomes qualified for equity method accounting. The presentation of the Company’s financial statements is consistent with this guidance. On June 20, 2018, the FASB issued ASU 2018-07, which simplifies the accounting for share-based payments granted to nonemployees for goods and services. Under the ASU, most of the guidance on such payments to nonemployees would be aligned with the requirements for share-based payments granted to employees. The Company adopted the pronouncement effective January 1, 2019 and the adoption is not expected to have a material impact on the Company’s financial position, operations or cash flows. |
2. NOTES PAYABLE
2. NOTES PAYABLE | 6 Months Ended |
Jun. 30, 2019 | |
Notes Payable [Abstract] | |
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 SMTI common stock at a conversion price of $9 per share. The Company has evaluated this conversion option for a derivative and for a beneficial conversion feature and determined none existed. |
3. COMMITMENTS AND CONTINGENCIE
3. COMMITMENTS AND CONTINGENCIES | 6 Months Ended |
Jun. 30, 2019 | |
Commitments and Contingencies Disclosure [Abstract] | |
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 the 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. Office leases 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. The lease expires on June 30, 2021. Monthly base rental payments are as follows: months 1-2, $8,390; months 3-14, $8,565; months 15-26, $8,740; and months 27-39, $8,914. Rent expense is recognized on a straight-line basis over the term of the lease. On July 1, 2019, the Company amended its office lease agreement effective upon completion by landlord of certain leasehold improvements which were expected to be completed in late August 2019. See Note 8 – Subsequent Events for more information. 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 $143,510 at June 30, 2019, and $36,203 at December 31, 2018. Advances to Related Parties 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 June 30, 2019, and December 31, 2018, the balance due from the related party for future shipments was $144,587 and $0, respectively. Other commitments On May 7, 2019, the Company formed Sanara Pulsar, LLC (Sanara Pulsar), a Texas limited liability company. On May 9, 2019, (the Execution Date) the Company, through its wholly owned subsidiary Cellerate, LLC (Cellerate), and Wound Care Solutions, Limited, a company registered in the United Kingdom (WCS), the two members of Sanara Pulsar, executed a Company Agreement, (the Company Agreement). The Company Agreement includes the Sanara Pulsar ownership structure, operating framework, and members’ rights, responsibilities, and voting power. Simultaneously with the execution of the Company Agreement, Sanara Pulsar and WCS entered into a supply agreement whereby Sanara Pulsar would become the exclusive distributor in the United States of certain wound care products (the WCS Products) that utilize intellectual property developed and owned by WCS. Per the terms of the Company Agreement, Cellerate owns sixty-percent (60%) of the initial membership interests in Sanara Pulsar, while WCS owns forty-percent (40%). Net profits and losses will be shared by the initial members in proportion to their respective membership interests. The agreement includes customary terms and conditions regarding profit distributions and the sale or transfer of membership interests. The Company will consolidate the operations and financial position of Sanara Pulsar with Sanara MedTech Inc. The Company expects to see first sales begin at Sanara Pulsar in the third quarter of 2019. The Company Agreement provides that Cellerate advance to WCS $100,000 sixty days from the Execution Date and an additional $100,000 one hundred twenty days from the Execution Date. All distributions made by Sanara Pulsar to its members, not including tax distributions, shall be made exclusively to Cellerate until such time as Cellerate has received an amount of distributions equal to the advances. In the event WCS’s Form K-l for the year 2020 does not allocate to WCS net income in an amount of $200,000 ("Target Net Income") or more, then Cellerate shall, 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 of the Target Net Income or more for such year, then Cellerate shall, 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 respective year. |
4. LEASES
4. LEASES | 6 Months Ended |
Jun. 30, 2019 | |
Leases [Abstract] | |
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. Right of use assets, which we refer to as “ROU assets,” represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities were recognized at the transition date based on the present value of lease payments over the respective lease term, with the office space ROU asset adjusted for deferred rent liability. Lease expense is recognized on a straight-line basis over the lease term. The Company has two operating leases: an office space lease with a remaining lease term of 24 months and a copier lease with a remaining lease term of 25 months as of June 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. 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. As a result of the adoption of ASC 842, the Company has recorded lease assets of $193,634 and a related lease liability of $204,651 as of June 30, 2019. Cash paid for amounts included in measurement of operating lease liabilities as of June 30, 2019 was $ 26,700 The present value of our operating lease liabilities is shown below. Maturity of Operating Lease Liabilities June 30, 2019 2019 $ 53,684 2020 108,591 2021 54,940 2022 - Total lease payments 217,215 Less imputed interest (12,564 ) Present value of lease liabilities $ 204,651 As of June 30, 2019, our operating leases have a weighted average remaining lease term of 2.0 years and a weighted average discount rate of 6.25%. |
5. SHAREHOLDERS' EQUITY
5. SHAREHOLDERS' EQUITY | 6 Months Ended |
Jun. 30, 2019 | |
Shareholders' equity (deficit) | |
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 June 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 June 30, 2019 and June 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 June 30, 2019, there were 1,136,815 shares of the Series F Preferred stock issued and outstanding. Common Stock On March 6, 2018, the Company issued 226,514 shares of Common Stock for the conversion of $1,200,000 in Related Party convertible debt and $385,594 in accrued interest. In February and March 2018, the Company issued 1,005,677 shares of Common Stock for the conversion of 85,561 shares of Series C Convertible Preferred Stock and $1,050,468 of related Series C 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 are being proportionally adjusted by a factor of 100 to reflect the reverse stock split. All of the Company’s outstanding stock options are also proportionally adjusted to reflect the reverse split, in accordance with the terms of the plans, agreements or arrangements governing such securities. All share and per share amounts herein have been retroactively adjusted to reflect the reverse stock split. Stock Options A summary of the status of the stock options granted for the six-month period ended June 30, 2019, and changes during the period then ended is presented below: For the Six Months Ended June 30, 2019 Options Weighted Average Weighted Average Exercise Price Remaining Contract Life Outstanding at beginning of period 15,500 $ 6.00 Granted - - Exercised - - Forfeited (2,000 ) $ 6.00 Expired - - Outstanding at June 30, 2019 13,500 $ 6.00 3.64 Exercisable at June 30, 2019 13,500 $ 6.00 3.64 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. |
6. DEBT AND CREDIT FACILITIES
6. DEBT AND CREDIT FACILITIES | 6 Months Ended |
Jun. 30, 2019 | |
Debt Disclosure [Abstract] | |
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 is intended to support short-term working capital requirements of Cellerate, LLC. The line of credit is secured by all present and future inventory, all present and future accounts receivable, other receivables, contract rights, instruments, documents, notes, and all other similar obligation and indebtedness that may now and in the future be owed to the Company, and all general intangibles. The interest rate 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 June 30, 2019 was 5.500% per annum, resulting in a rate of 6.250% per annum through June 30, 2019. On June 21, 2019, the Company executed a modification agreement with Cadence whereby the Company and Cadence agreed to increase the Company’s revolving line of credit from $1,000,000 million to a maximum principal amount of $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 moving the maturity date from December 16, 2019 to June 19, 2020, and the addition of a financial covenant requiring the Company to effect an equity investment into the Company of $5,000,000 no later than December 31, 2019. 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. 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. The total outstanding line of credit balance was $1,000,000 at June 30, 2019. Accrued interest was $4,861 at June 30, 2019. |
7. SUBSEQUENT EVENTS
7. SUBSEQUENT EVENTS | 6 Months Ended |
Jun. 30, 2019 | |
Subsequent Events [Abstract] | |
SUBSEQUENT EVENTS | Amended Office Lease 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 is effective upon completion by landlord of certain leasehold improvements (the “Commencement Date”) which were expected to be completed in late August 2019. Under the terms of the amended lease agreement, the Company will lease an additional 1,682 rentable square feet of office space which will bring 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 30,2020 $12,488.63 July 1,2020 June 30,2020 $12,488.63 July 1,2020 June 30,2020 $12,733.50 July 1,2020 June 30,2020 $12,978.38 BIAKŌS™ License Agreement On July 8, 2019, the Company executed a license agreement with 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 utilizing certain Rochal patents and pending patent applications (the “License Agreement”). Currently, the products covered by the License Agreement 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 potential exercise of warrants a majority shareholder. 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 Sanara financing conditions in 2019, Sanara will also pay Rochal 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. c. 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. d. Beginning with the 2020 calendar 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 $1,000,000 for any calendar year. The established net profit targets for each calendar year are: i. 2020 - $1,500,000 ii. 2021 - $5,000,000 iii. 2022 - $8,000,000 iv. 2023 - $10,000,000 v. 2024 - $15,000,000 vi. 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. 4. Unless previously terminated by the parties, the License Agreement will expire with the related patents in December 2031. The foregoing summary of the License Agreement does not purport to be complete and is qualified in its entirety by reference to the License Agreement. See Exhibit 10.1 for a full copy of the License agreement. |
1. SUMMARY OF SIGNIFICANT ACC_2
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 6 Months Ended |
Jun. 30, 2019 | |
Accounting Policies [Abstract] | |
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 June 30, 2019, and unaudited consolidated statements of operations for the six-months ended June 30, 2019 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 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 six-month period ending June 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. On May 7, 2019, the Company formed Sanara Pulsar, LLC (Sanara Pulsar), a Texas limited liability company. On May 9, 2019, (the Execution Date) the Company, through its wholly owned subsidiary Cellerate, LLC, and Wound Care Solutions, Limited, a company registered in the United Kingdom (WCS), the two members of Sanara Pulsar, executed a Company Agreement, (the Company Agreement). The Company Agreement includes the Sanara Pulsar ownership structure, operating framework, and members’ rights, responsibilities, and voting power. Per the terms of the Company Agreement, Cellerate, LLC owns sixty-percent (60%) of the membership interests in Sanara Pulsar, while WCS owns forty-percent (40%). Net profits and losses will be shared by the members in proportion to their respective membership interests. The agreement includes customary terms and conditions regarding profit distributions and the sale or transfer of membership interests. The Company will consolidate the operations and financial position of Sanara Pulsar with Sanara MedTech Inc. |
Principles of Consolidation | The financial statements have been 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 June 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 June 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 June 30, 2019, and the accounts of Sanara Pulsar, LLC for the period May 9, 2019 through June 30, 2019. The statement of operations for the period ending June 30, 2018 is identified as “Predecessor” and includes the accounts of SMTI and its wholly owned subsidiaries (excluding Cellerate, LLC) as reported on SMTI’s Form 10-Q for the six-month period ended June 30, 2018. A black line separates the Predecessor and Successor sections to highlight the lack of comparability between these two periods. The unaudited consolidated statement of changes in shareholders’ equity includes two sections. The first section is identified as “Predecessor” and includes the SMTI equity information as previously reported by SMTI on its 2017 Form 10-K annual report and its June 30, 2018 Form 10-Q quarterly report. The second section is identified as “Successor” which includes a presentation of equity to reflect the recapitalization of SMTI as if it had occurred as of December 31, 2018. The presentation includes the issuance of the Series F Preferred Stock, the changes in paid-in capital, and the restatement of the accumulated deficit as if the recapitalization had occurred as of December 31, 2018. A black line separates the Predecessor and Successor sections to highlight the lack of comparability between these two periods The unaudited consolidated statement of cash flows for the period ending June 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 June 30, 2019, and the accounts of Sanara Pulsar, LLC for the period May 9, 2019 through June 30, 2019. The consolidated statement of cash flows for the period ending June 30, 2018 is identified as “Predecessor” and includes the accounts of SMTI and its wholly owned subsidiaries (excluding Cellerate, LLC) as reported on SMTI’s Form 10-Q for the six-month period ended June 30, 2018. A black line separates the Predecessor and Successor sections to highlight the lack of comparability between these two periods. |
Revenue Recognition | The Company recognizes revenue in accordance with 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. 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 six months ended June 30, 2019 and 2018. All revenue was generated in the United States; therefore, no geographical disaggregation is necessary. Successor Predecessor Six Months Ended June 30, 2019 2018 Product sales revenue $ 5,445,760 $ 4,123,377 Royalty revenue 58,625 100,500 Total Revenue $ 5,504,385 $ 4,223,877 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 (BioStructures) in 2011, royalties of 2.0% are recognized on sales of products containing the Company’s patented resorbable bone hemostasis. However, the minimum annual royalty due to the Company shall be $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 $85,838 for the six months ended June 30, 2019, compared to $0 recorded by the Predecessor for the six months ended June 30, 2018. The allowance for obsolete and slow-moving inventory had a balance of $81,196 at June 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: 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 six months ended June 30, 2019 and June 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 June 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. In March 2016, the FASB issued ASU 2016-07, which eliminates a requirement for the retroactive adjustment on a step by step basis of the investment, results of operations, and retained earnings as if the equity method had been effective during all previous periods that the investment had been held when an investment qualifies for equity method accounting due to an increase in the level of ownership or degree of influence. The cost of acquiring the additional interest in the investee is to be added to the current basis of the investor’s previously held interest and the equity method of accounting should be adopted as of the date the investment becomes qualified for equity method accounting. The presentation of the Company’s financial statements is consistent with this guidance. On June 20, 2018, the FASB issued ASU 2018-07, which simplifies the accounting for share-based payments granted to nonemployees for goods and services. Under the ASU, most of the guidance on such payments to nonemployees would be aligned with the requirements for share-based payments granted to employees. The Company adopted the pronouncement effective January 1, 2019 and the adoption is not expected to have a material impact on the Company’s financial position, operations or cash flows. |
1. SUMMARY OF SIGNIFICANT ACC_3
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) | 6 Months Ended |
Jun. 30, 2019 | |
Accounting Policies [Abstract] | |
Disaggregation of revenue | Successor Predecessor Six Months Ended June 30, 2019 2018 Product sales revenue $ 5,445,760 $ 4,123,377 Royalty revenue 58,625 100,500 Total Revenue $ 5,504,385 $ 4,223,877 |
4. LEASES (Tables)
4. LEASES (Tables) | 6 Months Ended |
Jun. 30, 2019 | |
Leases [Abstract] | |
Maturity of operating lease liabilities | June 30, 2019 2019 $ 53,684 2020 108,591 2021 54,940 2022 - Total lease payments 217,215 Less imputed interest (12,564 ) Present value of lease liabilities $ 204,651 |
5. SHAREHOLDERS' EQUITY (Tables
5. SHAREHOLDERS' EQUITY (Tables) | 6 Months Ended |
Jun. 30, 2019 | |
Shareholders' equity (deficit) | |
Schedule of option activity | For the Six Months Ended June 30, 2019 Options Weighted Average Weighted Average Exercise Price Remaining Contract Life Outstanding at beginning of period 15,500 $ 6.00 Granted - - Exercised - - Forfeited (2,000 ) $ 6.00 Expired - - Outstanding at June 30, 2019 13,500 $ 6.00 3.64 Exercisable at June 30, 2019 13,500 $ 6.00 3.64 |
7. SUBSEQUENT EVENTS (Tables)
7. SUBSEQUENT EVENTS (Tables) | 6 Months Ended |
Jun. 30, 2019 | |
Subsequent Events [Abstract] | |
Monthly base rent | From Through Monthly Base Rental Commencement Date June 30,2020 $12,243.75 July 1,2020 June 30,2020 $12,488.63 July 1,2020 June 30,2020 $12,488.63 July 1,2020 June 30,2020 $12,733.50 July 1,2020 June 30,2020 $12,978.38 |
1. SUMMARY OF SIGNIFICANT ACC_4
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - USD ($) | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2019 | Jun. 30, 2018 | Jun. 30, 2019 | Jun. 30, 2018 | |
Total revenue | $ 3,017,489 | $ 2,262,090 | $ 5,504,385 | $ 4,223,877 |
Product sales revenue | ||||
Total revenue | 5,445,760 | 4,123,377 | ||
Royalty revenue | ||||
Total revenue | $ 58,625 | $ 100,500 |
1. SUMMARY OF SIGNIFICANT ACC_5
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($) | Jun. 30, 2019 | Dec. 31, 2018 |
Accounting Policies [Abstract] | ||
Inventory, net of allowance for obsolescence | $ 81,196 | $ 484 |
3. COMMITMENTS AND CONTINGENC_2
3. COMMITMENTS AND CONTINGENCIES (Details Narrative) - USD ($) | Jun. 30, 2019 | Dec. 31, 2018 |
Commitments and Contingencies Disclosure [Abstract] | ||
Payables to related parties | $ 143,510 | $ 36,203 |
4. LEASES (Details)
4. LEASES (Details) | Jun. 30, 2019USD ($) |
Leases [Abstract] | |
2019 | $ 53,684 |
2020 | 108,591 |
2021 | 54,940 |
2022 | 0 |
Total lease payments | 217,215 |
Less imputed interest | (12,564) |
Present value of lease liabilities | $ 204,651 |
5. SHAREHOLDERS' EQUITY (Detail
5. SHAREHOLDERS' EQUITY (Details) | 6 Months Ended |
Jun. 30, 2019$ / sharesshares | |
Shareholders' equity (deficit) | |
Number Outstanding, Beginning | shares | 15,500 |
Number of Options Granted | shares | 0 |
Number of Options Exercised | shares | 0 |
Number of Options Forfeited | shares | (2,000) |
Number of Options Expired | shares | 0 |
Number Outstanding, Ending | shares | 13,500 |
Number of Options Exercisable | shares | 13,500 |
Weighted Average Exercise Price Outstanding, Beginning | $ / shares | $ 6 |
Weighted Average Exercise Price Granted | $ / shares | .00 |
Weighted Average Exercise Price Exercised | $ / shares | .00 |
Weighted Average Exercise Price Forfeited | $ / shares | 6 |
Weighted Average Exercise Price Expired | $ / shares | .00 |
Weighted Average Exercise Price Outstanding, Ending | $ / shares | 6 |
Weighted Average Exercise Price Exercisable | $ / shares | $ 6 |
Weighted Average Remaining Contract Life, Outstanding | 3 years 7 months 20 days |
Weighted Average Remaining Contract Life Exercisable | 3 years 7 months 20 days |
7. SUBSEQUENT EVENTS (Details)
7. SUBSEQUENT EVENTS (Details) | 6 Months Ended |
Jun. 30, 2019 | |
2020 | |
Monthly base rent | $12,243.75 |
2021 | |
Monthly base rent | $12,488.63 |
2022 | |
Monthly base rent | $12,488.63 |
2023 | |
Monthly base rent | $12,733.50 |
2024 | |
Monthly base rent | $12,978.38 |