NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – NATURE OF OPERATIONS
Wound
Management Technologies, Inc. was incorporated in the State of
Texas in December 2001 as MB Software, Inc. In May 2008, MB
Software, Inc. changed its name to Wound Management Technologies,
Inc. The Company distributes collagen-based wound care products to
healthcare providers such as physicians, clinics and
hospitals.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The
terms “the Company,” “we,” “us”
“WMTI” and “WNDM” are used in this report
to refer to Wound Management Technologies, Inc. and its wholly
owned subsidiaries, unless the context suggests otherwise. The
accompanying consolidated financial statements have been prepared
in accordance with U.S. generally accepted accounting
principles.
PRINCIPLES OF CONSOLIDATION
The
accompanying consolidated financial statements include the accounts
of WMTI and its wholly-owned subsidiaries: WCI, LLC a Nevada
limited liability company (“WCI”); Resorbable
Orthopedic Products, LLC, a Texas limited liability company
(“ROP”); and Innovate OR, Inc. (“IOR”)
formerly referred to as BioPharma Management Technologies, Inc., a
Texas corporation (“BioPharma”). All intercompany
accounts and transactions have been eliminated. ROP and IOR were
dissolved during the third quarter of 2018. All rights and
obligations of each were assigned to its parent company
WMTI.
WCI’s
exclusive license to sell and distribute CellerateRX products in
the human health care market (excluding dental and retail) expired
on February 27, 2018. The license agreements permitted WCI to
continue to sell and distribute products through August 27, 2018.
Subsequent to the expiration of the license agreement between the
Company and Applied, Nutritionals, LLC (“Applied”) an
exclusive license was acquired by an affiliate of The Catalyst
Group, Inc. (“CGI”) to distribute CellerateRX products
into the wound care and surgical markets in the United States,
Canada and Mexico. The Company and CGI entered into definitive
agreements on August 27, 2018, that continued operations to market
CellerateRX through Cellerate, LLC, a newly formed Texas Limited
Liability Company in which the Company and CGI each have a 50%
ownership interest.
While
the Company had significant influence over the operations of
Cellerate, LLC, the Company did not have a controlling interest.
CGI 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 is reported using the
equity method of accounting. Beginning September 1, 2018, the
Company’s 50% share of Cellerate, LLC’s net income or
loss is presented as a single line item on WMTI’s Statement
of Operations. Cellerate, LLC’s unaudited Balance Sheet and
unaudited Statement of Operations is included as an exhibit to the
Financial Statements of WMTI (see Exhibit 99.1).
USE OF ESTIMATES IN FINANCIAL STATEMENT PREPARATION
The
preparation of the financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the
disclosures of contingent assets and liabilities at the date of the
financial statements, and the amounts of revenues and expenses
during the reporting period. On a regular basis, management
evaluates these estimates and assumptions. Actual results could
differ from those estimates.
CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES
The
Company considers all highly liquid debt investments purchased with
an original maturity of three months or less to be cash
equivalents. Marketable securities include investments with
maturities greater than three months but less than one year. For
certain of the Company’s financial instruments, including
cash and cash equivalents, accounts receivable, accounts payable
and other accrued liabilities, and amounts due to related parties,
the carrying amounts approximate fair value due to their short
maturities.
INCOME / LOSS PER SHARE
The
Company computes income/loss per share in accordance with
Accounting Standards Codification “ASC” Topic No. 260,
“Earnings per Share,” which requires the Company to
present basic and dilutive income/loss per share when the effect is
dilutive. Basic income/loss per share is computed by dividing
income/loss available to common stockholders by the weighted
average number of common shares available. Diluted income/loss per
share is computed similar to basic income/loss per share except
that the denominator is increased to include the number of
additional common shares that would have been outstanding if the
potential common shares had been issued and if the additional
common shares were dilutive.
The calculation of basic
and diluted net loss per share for the years ended December 31,
2018 and 2017 are as follows:
|
|
|
Basic
net income (loss) per share:
|
|
|
Numerator:
|
|
|
Net
income (loss)
|
$
(600,574
)
|
$
331,309
|
Denominator:
|
|
|
Weighted-average
common shares outstanding
|
217,163,538
|
111,381,832
|
|
|
|
Basic
net income (loss) per share
|
$
(0.00
)
|
$
0.00
|
|
|
|
Diluted
net income (loss) per share:
|
|
|
Numerator:
|
|
|
Net
income (loss)
|
$
(600,574
)
|
$
331,309
|
Series
C dividends
|
|
(139,006
)
|
Diluted
net income (loss)
|
$
-
|
$
192,303
|
Denominator:
|
|
|
Weighted-average
common shares outstanding
|
217,163,538
|
111,381,832
|
Common
stock warrants
|
-
|
694,834
|
Convertible
debt
|
-
|
-
|
Preferred
shares
|
-
|
96,568,871
|
Weighted
average shares used in computing diluted net income (loss) per
share
|
217,163,538
|
208,645,538
|
|
|
|
Diluted
net income (loss) per share
|
$
(0.00
)
|
$
0.00
|
The following table summarizes the potential shares of common stock
that were excluded from the computation of diluted net loss per
share for the years ended December 31, 2018 and 2017 as such shares
would have had an anti-dilutive effect:
|
|
|
Convertible
debt
|
16,666,667
|
19,890,414
|
REVENUE RECOGNITION
The Company recognizes revenue in accordance with 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 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
Product revenues are recognized when the products are delivered and
title passes to the customer. Net revenues comprise gross revenues
less customer discounts and allowances, actual and expected
returns. Shipping charges billed to members are included in net
sales.
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. To date, royalties
related to this licensing agreement have not exceeded the annual
minimum of $201,000 ($50,250 per quarter).
The
Company’s investment in Cellerate, LLC is reported using the
equity method of accounting. Accordingly, Cellerate, LLC revenues
are not recognized by the Company in its consolidated financial
statements. Rather, the Company’s 50% share of Cellerate,
LLC’s net income or loss is presented as a single line item
on WMTI’s Statement of Operations. Cellerate, LLC’s
unaudited Balance Sheet and unaudited Statement of Operations is
included as an exhibit to the Financial Statements of WMTI (see
Exhibit 99.1).
Management has
evaluated the carrying amount of the Company’s equity
investment in Cellerate, LLC and has determined there has been no
triggering event that would require impairment of this
investment.
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.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The
Company establishes an allowance for doubtful accounts to ensure
accounts receivable are not overstated due to uncollectible
accounts. Bad debt reserves are maintained based on a variety of
factors, including the length of time receivables are past due and
a detailed review of certain individual customer accounts. If
circumstances related to customers change, estimates of the
recoverability of receivables would be further adjusted. The
Company recorded bad debt expense of $12,558 and $22,207 in 2018
and 2017, respectively. The allowance for doubtful accounts at
December 31, 2018 was $40,550 and the amount at December 31, 2017
was $28,910. Accounts receivable written-off during 2018 totaled
$918. Accounts recievable written-off during 2018 totaled
$918.
INVENTORIES
As part
of the formation of Cellerate, LLC, all WCI inventory was
contributed to Cellerate, LLC on August 28, 2018. During 2017 and
through August 28, 2018, inventories were 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, powders,
gels and the related packaging supplies. The Company recorded
inventory obsolescence expense of $0 in 2018 and $57,483 in 2017.
The allowance for obsolete and slow-moving inventory had a balance
of $0 and $144,996 at December 31, 2018 and December 31, 2017,
respectively.
PROPERTY AND EQUIPMENT
Property
and equipment are recorded at cost. Depreciation is computed
utilizing the straight-line method over the estimated economic life
of the assets, which ranges from five to ten years. For assets sold
or otherwise disposed of, the cost and related accumulated
depreciation are removed from the accounts, and any related gain or
loss is reflected in income for the period. As of December 31,
2018, fixed assets consisted of $122,943 including furniture and
fixtures, computer equipment, phone equipment and the
Company’s websites. As of December 31, 2017, fixed assets
consisted of $120,162 including furniture and fixtures, computer
equipment, phone equipment and the Company’s websites. The
depreciation expense recorded in 2018 was $18,866 and the
depreciation expense recorded in 2017 was $15,623. The balance of
accumulated depreciation was $70,116 and $56,951 at December 31,
2018 and December 31, 2017, respectively. The Company paid $8,482
to acquire fixed assets during 2018.
INTANGIBLE ASSETS
As of
December 31, 2018, intangible assets include a patent acquired in
2009 with a historical cost of $510,310. The patent is being
amortized over its estimated useful life of 10 years using the
straight-line method. In 2017, the Company put into service a
business software. The costs to implement this software which
totaled $41,980 are included in intangible assets and are being
amortized over the initial term of the license which is three
years. Amortization expense recognized was $65,024 during each of
the years 2018 and 2017.
IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived
assets and certain identifiable intangibles to be held and used by
the Company are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may
not be recoverable. The Company continuously evaluates the
recoverability of its long-lived assets based on estimated future
cash flows and the estimated liquidation value of such long-lived
assets and provides for impairment if such undiscounted cash flows
are insufficient to recover the carrying amount of the long-lived
assets. If impairment exists, an adjustment is made to write the
asset down to its fair value, and a loss is recorded as the
difference between the carrying value and fair value. Fair values
are determined based on quoted market values, undiscounted cash
flows or internal and external appraisals, as applicable. Assets to
be disposed of are carried at the lower of carrying value or
estimated net realizable value. There was no impairment recorded
during the years ended December 31, 2018 and 2017.
FAIR VALUE MEASUREMENTS
As
defined in Accounting Standards Codification (“ASC”)
Topic No. 820, fair value is the price that would be received to
sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date
(exit price). The Company utilizes market data or assumptions that
market participants would use in pricing the asset or liability,
including assumptions about risk and the risks inherent in the
inputs to the valuation technique. These inputs can be readily
observable, market corroborated, or generally unobservable. ASC 820
establishes a fair value hierarchy that prioritizes the inputs used
to measure fair value. The hierarchy gives the highest priority to
unadjusted quoted prices in active markets for identical assets or
liabilities (level 1 measurement) and the lowest priority to
unobservable inputs (level 3 measurement). This fair value
measurement framework applies at both initial and subsequent
measurement.
The
three levels of the fair value hierarchy defined by ASC Topic No.
820 are as follows:
Level 1
– Quoted prices are available in active markets for identical
assets or liabilities as of the reporting date. Active markets are
those in which transactions for the asset or liability occur in
sufficient frequency and volume to provide pricing information on
an ongoing basis. Level 1 primarily consists of financial
instruments such as exchange-traded derivatives, marketable
securities and listed equities.
Level 2
– Pricing inputs are other than quoted prices in active
markets included in level 1, which are either directly or
indirectly observable as of the reported date. Level 2 includes
those financial instruments that are valued using models or other
valuation methodologies. These models are primarily
industry-standard models that consider various assumptions,
including quoted forward prices for commodities, time value,
volatility factors, and current market and contractual prices for
the underlying instruments, as well as other relevant economic
measures. Substantially all of these assumptions are observable in
the marketplace throughout the full term of the instrument, can be
derived from observable data or are supported by observable levels
at which transactions are executed in the marketplace.
Instruments
in this category generally include non-exchange-traded derivatives
such as commodity swaps, interest rate swaps, options and
collars.
Level 3
– Pricing inputs include significant inputs that are
generally less observable from objective sources. These inputs may
be used with internally developed methodologies that result in
management’s best estimate of fair value.
Our
intangible assets have also been valued using the fair value
accounting treatment and a description of the methodology used,
including the valuation category, is described below in Note 6
“Intangible Assets.”
DERIVATIVES
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 December 31, 2017 or
2018.
INCOME TAXES
Income
taxes are accounted for under the asset and liability method,
whereby deferred income taxes are recorded for temporary
differences between financial statement carrying amounts and the
tax basis of assets and liabilities. Deferred tax assets and
liabilities reflect the tax rates expected to be in effect for the
years in which the differences are expected to reverse. A valuation
allowance is provided if it is more likely than not that some or
all, of the deferred tax asset will not be realized.
BENEFICIAL CONVERSION FEATURE OF CONVERTIBLE NOTES
PAYABLE
The
convertible feature of certain notes payable provides for a rate of
conversion that is below the market value of the Company’s
common stock. Such a feature is normally characterized as a
"Beneficial Conversion Feature" ("BCF"). In accordance with ASC
Topic No. 470-20-25-4, the intrinsic value of the embedded
beneficial conversion feature present in a convertible instrument
shall be recognized separately at issuance by allocating a portion
of the debt equal to the intrinsic value of that feature to
additional paid in capital. When applicable, the Company records
the estimated fair value of the BCF in the consolidated financial
statements as a discount from the face amount of the notes. Such
discounts are accreted to interest expense over the term of the
notes using the effective interest method.
ADVERTISING EXPENSE
In
accordance with ASC Topic No. 720-35-25-1, the Company recognizes
advertising expenses the first time the advertising takes place.
Such costs are expensed immediately if such advertising is not
expected to occur.
SHARE-BASED COMPENSATION
The
Company accounts for stock-based compensation to employees in
accordance with FASB ASC 718. Stock-based compensation to employees
is measured at the grant date, based on the fair value of the
award, and is recognized as expense over the requisite employee
service period. The Company accounts for stock-based compensation
to other than employees in accordance with FASB ASC 505-50. Equity
instruments issued to other than employees are valued at the
earlier of a commitment date or upon completion of the services,
based on the fair value of the equity instruments and is recognized
as expense over the service period. The Company estimates the fair
value of stock-based payments using the Black-Scholes
option-pricing model for common stock options and warrants and the
closing price of the Company’s common stock for common share
issuances.
RECLASSIFICATIONS
Certain
prior period amounts have been reclassified to conform to current
period presentation.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In May
2014, the Financial Accounting Standards Board (FASB) issued
Accounting Standards Codification (ASC) 606, Revenue from Contracts
with Customers which is to be effective for reporting periods
beginning after December 15, 2017. The Company adopted ASC 606
effective January 1, 2018 and the adoption had no impact on the
Company’s financial position, operations or cash
flows.
In
February 2016, the FASB issued ASC 842
Leases
which is to be effective for
reporting periods beginning after December 15, 2018. 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. As a
result of the adoption, the Company will record lease assets of
approximately $245,000 and a corresponding lease liability of the
same amount in January 2019.
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.
NOTE 3 – ASC Topic 606, Revenue from Contracts with
Customers
The Company recognizes revenue in accordance with 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 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.
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 twelve-months ended December 31, 2018 and 2017. All revenue was
generated in the United States; therefore, no geographical
disaggregation is necessary.
|
|
|
|
|
|
|
Product sales
revenue
|
$
5,636,839
|
$
6,103,741
|
Royalty
revenue
|
201,000
|
201,000
|
Total Revenue
|
$
5,837,839
|
$
6,304,741
|
NOTE 4 – OTHER SIGNIFICANT TRANSACTIONS
Evolution Partners LLC Letter Agreement and Termination
Agreement
On
October 10, 2017, Wound Management Technologies, Inc. (the
“Company”) and Evolution Venture Partners LLC
(“EVP”) entered into a termination agreement (the
“Termination Agreement”) terminating, effective as of
September 29, 2017, that certain letter agreement dated April 26,
2016, (the “Agreement”), by and between the Company,
EVP, and Middlebury Securities, LLC (“Middlebury”).
Middlebury terminated its charter on or about July 27, 2016, and
therefore is not a party to the Termination Agreement. The
Agreement had an initial term of one year (with an automatic
six-month renewal term) and provided for:
·
A $60,000 consulting fee payable upon execution of the Agreement,
refundable only upon cancellation of the Agreement by EVP during
the initial one-year term.
·
A success fee in an amount equal to 5% of the transaction value of
any strategic transaction.
·
A selling fee equal to 3% of the gross proceeds of any debt
financing transaction or 5% of the gross proceeds of any equity
financing transaction.
·
The issuance to EVP of a warrant (the “Warrant”) for
the purchase of 60,000,000 shares of the Company’s common
stock, par value $0.001 per share (“Common Stock”), at
an exercise price of $0.12 per share.
The
total amount of the consulting fee and warrant expense was $818,665
and is recognized in 2016 as “Other administrative
expenses” in the Consolidated Statement of
Operations.
As of
the termination date, there were no Financing Transactions or
Strategic Transactions (as defined in the Agreement) being
considered by the Company and no such transactions
occurred.
Pursuant
to the Termination Agreement, EVP canceled the Warrant in exchange
for the Company’s issuance to EVP of 750,000 shares of the
Company’s Common Stock. There was no incremental increase in
the fair value of the modified stock-based compensation award as of
the modification date and accordingly, no additional compensation
cost was recognized.
Cellerate, LLC
Effective August 28, 2018, the Company consummated definitive
agreements that continued operations to market the Company’s
principal products, CellerateRX® Hydrolyzed Collagen
(CellerateRX), through a 50% ownership interest in a newly formed
Texas limited liability company, Cellerate, LLC. The remaining 50%
ownership interest is held by an affiliate of The Catalyst Group
Inc. (CGI), which recently acquired an exclusive license to
distribute CellerateRX products. Cellerate, LLC will conduct
operations with an exclusive sublicense from a CGI affiliate to
distribute CellerateRX products into the wound care and surgical
markets in the United States, Canada and Mexico.
While the Company has significant influence over the operations of
Cellerate, LLC, the Company does not have a controlling interest.
CGI has the controlling vote in the event of a deadlocked vote by
the Board of Managers of Cellerate, LLC. Therefore, the Company
reports its investment in Cellerate, LLC using the equity method of
accounting. The Company’s 50% share of Cellerate, LLC’s
net income or loss is presented as a single line item on
WMTI’s Statement of Operations beginning September 1,
2018.
The
definitive agreements related to the Cellerate, LLC transaction are
summarized below. The full agreements are attached as exhibits to
this filing.
Contribution Agreement
WCI,
LLC (“WCI”), a wholly-owned subsidiary of the Company,
transferred to Cellerate, LLC all of its existing inventories and
certain trademarks and UPC numbers in exchange for its 50%
ownership interest in Cellerate, LLC. The inventories had a net
book value of $448,511 at the time of closing. Additionally, as
part of the transaction, the Company issued a 30-month promissory
note to CGI 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 Note. Outstanding principal and
interest are convertible at CGI’s option into shares of WNDM
common stock at a conversion price of $.09 per share.
The
Company recorded its initial investment in Cellerate, LLC at cost,
which was $1,948,511 as of the closing date. This included the
$1,500,000 promissory note to CGI and inventories valued at
$448,511 net of
obsolescence.
The trademarks and UPC numbers contributed to Cellerate, LLC had
zero book value. For the four months ending December 31, 2018, the
Company recognized $9,951 of income from its equity method
investment in Cellerate, LLC, resulting in an investment balance of
$
1,958,463
as of December 31,
2018.
CGI
transferred to Cellerate, LLC in exchange for its 50% ownership
interest an exclusive sublicense to distribute CellerateRX into the
wound care and surgical markets in the United States, Canada and
Mexico. 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 CGI or WCI on
six-months' notice.
The
foregoing summary of the Contribution Agreement does not purport to
be complete and is qualified in its entirety by reference to the
Contribution Agreement.
Operating Agreement
Cellerate,
LLC’s Operating Agreement provides for the business and
affairs of Cellerate, LLC to be managed by a Board of Managers
consisting of two persons. CGI and WCI each has the right to
appoint one person to the Board of Managers who serve indefinite
terms until their resignation, removal or death. The Board of
Managers act by a vote of the Managers, but in the event of a
deadlocked vote, the vote of the CGI designated manager will be
controlling, except (i) in the case of a transaction with a related
party or affiliate (other than Cellerate, LLC) of the CGI designee
or (ii) CGI transfers any portion of its ownership interest in
Cellerate, LLC to a third party or more that 50% of CGI’s
ownership is transferred to a third party. The initial Board of
Managers is Mr. Ron Nixon as the CGI designee, and Mr. Michael
Carmena as the WCI designee. The Board of Managers manages the
general operations of Cellerate, LLC, subject however to a vote by
members of Cellerate, LLC holding two-thirds of the membership
interests in Cellerate, LLC to approve major actions of Cellerate,
LLC.
When
sufficient cash is available, distributions to Cellerate,
LLC’s owners will be made at times and in amounts determined
by a vote of the Board of Managers. Cellerate, LLC, however, will
make distributions on an annual basis sufficient for each owner to
pay such owner’s income taxes arising from its ownership
interest in Cellerate, LLC.
The
Operating Agreement contains restrictions on transfer of ownership
interests with customary rights of first refusal, co-sale and
buy/sell provisions applicable to each owner.
The
foregoing summary of Cellerate, LLC’s Operating Agreement
does not purport to be complete and is qualified in its entirety by
reference to the Operating Agreement.
Sublicense Agreement
Cellerate,
LLC has an exclusive sublicense to distribute CellerateRX®
Activated Collagen® products into the wound care and surgical
markets in the United States, Canada and Mexico. The wound care
market comprises the care for external wounds, including the
treatment of external, tunneled or undermined wounds. This would
include pressure ulcers (Stages I-IV), venous stasis ulcers,
diabetic ulcers, ulcers resulting from arterial insufficiency,
surgical wounds, traumatic wounds, first and second-degree burns,
superficial wounds, cuts, scrapes, skin tears, skin flaps and skin
grafts. 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 specified royalties to
Applied based on Cellerate, LLC’s annual net sales of
CellerateRX.
The
foregoing summary of the Sublicense Agreement does not purport to
be complete and is qualified in its entirety by reference to the
Sublicense Agreement.
Professional Services Agreement
The
Company and CGI agreed to provide Cellerate, LLC with certain
professional services needed to conduct the affairs of Cellerate,
LLC through December 31, 2018. The Company and CGI were reimbursed
on a monthly basis by Cellerate, LLC for services performed,
consistent with historical costs to provide the services. The
Company also received reimbursement for office lease and other
overhead costs dedicated to supporting Cellerate, LLC’s
activities. These reimbursements from Cellerate, LLC are recognized
by the Company as reductions of selling, general and administrative
expenses.
The
foregoing summary of the Professional Services Agreement does not
purport to be complete and is qualified in its entirety by
reference to the Professional Services Agreement.
Promissory Note
As part
of the transaction to form Cellerate, LLC, the Company issued a
30-month convertible promissory note to CGI 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
Note. Outstanding principal and interest are convertible at
CGI’s option into shares of WNDM common stock at a conversion
price of $.09 per share.
NOTE
5 – NOTES PAYABLE
CONVERTIBLE NOTES PAYABLE – RELATED PARTIES
Funds
are advanced to the Company from various related parties as
necessary to meet working capital requirements. Below is a summary
of outstanding convertible notes due to related parties, including
accrued interest separately recorded, as of December 31, 2018 and
2017:
|
|
|
|
|
|
|
|
|
Accrued
Interest
|
|
Related
Party
|
|
Nature of
Relationship
|
|
Term of the
agreement
|
|
Principal
amount
|
|
|
2018
|
|
|
2017
|
|
S. Oden
Howell Revocable Trust ("HRT")
|
|
Mr. S.
Oden Howell, Jr. became a member of the Board of Directors in June
of 2015
|
|
The
note is secured, bears interest at 10% per annum, matures June 15,
2018, and is convertible into shares of the Company's Series C
Convertible Preferred Stock at a conversion price of $70.00 per
share at any time prior to maturity. As of December 31, 2018, the
note is paid in full.
|
|
$
|
-
|
|
|
$
|
0
|
|
|
$
|
162,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James
W. Stuckert Revocable Trust ("SRT")
|
|
Mr.
James W. Stuckert became a member of the Board of Directors in
September of 2015
|
|
The
note is secured, bears interest at 10% per annum, matures June 15,
2018, and is convertible into shares of the Company's Series C
Convertible Preferred Stock at a conversion price of $70.00 per
share at any time prior to maturity. As of December 31, 2018, the
note is paid in full.
|
|
$
|
-
|
|
|
$
|
0
|
|
|
$
|
162,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
-
|
|
|
$
|
0
|
|
|
$
|
324,986
|
|
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. The
Notes provided that the Notes could be prepaid in whole or in part
upon ten days’ written notice, and all unpaid principal and
accrued interest under the Notes could be converted, at the option
of SRT and HRT, into shares of the Company’s Series C
Convertible Preferred Stock at a conversion price of $70.00 per
share at any time prior to maturity.”). The Company’s
obligations under the two notes were secured by all the assets of
the Company and its subsidiaries.
On
February 19, 2018, both Notes totaling $1,200,000 plus $385,594 of
accrued interest were converted to 22,651,356 common shares of the
Company's Common Stock. The accrued interest included $60,608 of
additional interest expense recognized during the first quarter of
2018.
NOTES PAYABLE
The
following is a summary of amounts due to unrelated parties,
including accrued interest separately recorded, as of December 31,
2018 and 2017:
|
|
|
|
Note Payable
|
Terms of the agreement
|
|
|
|
|
|
|
|
|
|
|
August 27, 2018
Promissory Note
|
A $1,500,000 note
payable (i) interest accrues at 5% per annum and compounds
quarterly (ii) original maturity date of March 1, 2021
|
$
1,500,000
|
-
|
$
25,978
|
-
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
1,500,000
|
$
-
|
$
25,978
|
$
-
|
During
2017, the WMTI reached an agreement to settle an outstanding
payable with WellDyne Health, LLC, (“WellDyne”), a
third party that had provided shipping and consulting services on
behalf of the Company effective through September 19, 2015. As part
of that settlement, WellDyne forgave $39,709 of the outstanding
payable.
During
2017, the Company paid a total of $190,838 principal to three
non-related party note holders and reached an agreement with them
to forgive $10,937 in accrued interest. As a result, all three
notes were paid in full. The Company also settled $223,500 note
payable and $147,373 accrued interest in Common Stock, see note
11.
On
August 27, 2018, as part of the partnership transaction with CGI to
form Cellerate, LLC, the Company issued a 30-month promissory note
to CGI 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 Note. Outstanding principal and interest are
convertible at CGI’s option into shares of WNDM common stock
at a conversion price of $.09 per share.
NOTE 6 – INTANGIBLE ASSETS
Patent
On
September 29, 2009, the Company entered into an Asset Purchase
Agreement (the “Agreement”), whereby the Company
acquired a patent in exchange for 500,000 shares of the
Company’s common stock and the assumption of a legal fee
payable in the amount of $47,595 which is related to the patent.
Based on the guidance in ASC Topic No. 350-30, the patent was
recorded as an intangible asset of $462,715, or approximately $.93
per share plus $47,595 for the assumed liability. The intangible
asset is being amortized over an estimated ten-year useful
life.
Software Implementation
In
2017, the Company put into service a business software. The costs
to implement this software which totaled $41,980 are included in
intangible assets and are being amortized over the initial term of
the license which is three years.
The
activity for the intangible assets is summarized
below:
Cost
|
|
|
|
Balance
at December 31, 2017
|
$
510,310
|
$
41,980
|
$
552,290
|
Implementation
costs
|
|
|
|
Balance
at December 31, 2018
|
$
510,310
|
$
41,980
|
$
552,290
|
Accumulated amortization
|
|
|
|
Balance
at December 31, 2017
|
$
421,006
|
$
13,993
|
$
434,999
|
Amortization
expense
|
51,032
|
13,993
|
65,025
|
Balance
at December 31, 2018
|
$
472,038
|
$
27,986
|
$
500,024
|
Net carrying amount
|
|
|
|
Balance
at December 31, 2017
|
$
89,304
|
$
27,987
|
$
117,291
|
Balance
at December 31, 2018
|
$
38,272
|
$
13,994
|
$
52,266
|
NOTE 7
– CUSTOMERS AND SUPPLIERS
The
Company had three significant customers with annual sales over
$500,000 which accounted for approximately 10%, 9% and 6% of the
Company’s sales in 2018 and had one significant customer
which accounted for approximately 16% of the Company’s sales
in 2017. The loss of the sales generated by these customers would
have a significant effect on the operations of the
Company.
The
Company purchases all raw materials inventory for its principal
product from one vendor. If this vendor became unable to provide
materials in a timely manner and the Company was unable to find
alternative vendors, the Company's business, operating results and
financial condition would be materially adversely
affected.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
ROYALTY AGREEMENTS
Effective
January 3, 2008, WCI entered into separate exclusive license
agreements with both Applied and its founder George Petito
(“Petito”), pursuant to which WCI obtained the
exclusive worldwide license to make products incorporating
intellectual property covered by a patent related to CellerateRX
products. The licenses were limited to the human health care
market, (excluding dental and retail) for external wound care
(including surgical wounds) and include any new product
developments based on the licensed patent and processes and any
continuations. Although the term of these licenses expired on
February 27, 2018, the agreements permitted WCI to continue to sell
and distribute products through August 27, 2018.
In
consideration for the licenses, WCI agreed to pay Applied and
Petito, (in the aggregate), the following royalties, beginning
January 3, 2008: (a) an advance royalty of $100,000; (b) a royalty
of 15% of gross sales occurring during the first year of the
license; (c) an additional advance royalty of $400,000 on January
3, 2009; plus (d) a royalty of 3% of gross sales for all sales
occurring after the payment of the $400,000 advance royalty. In
addition, WCI must maintain a minimum aggregate annual royalty
payment of $375,000 for 2009 and thereafter if the royalty
percentage payments made do not meet or exceed that amount. Sales
of CellerateRX Products by WCI occurring after the termination date
were subject to the 3% royalty.
Subsequent
to the expiration of the license agreement between the Company and
Applied, an
exclusive license was
acquired by a CGI affiliate to distribute CellerateRX products into
the wound care and surgical markets in the United States, Canada
and Mexico.
The Company and CGI entered into
definitive agreements on August 27, 2018, that
continued operations to market CellerateRX through Cellerate, LLC,
a newly formed entity in which the Company and CGI each have a 50%
ownership interest.
The term of the sublicense granted by
CGI to Cellerate, LLC 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 specified royalties to Applied at a
rate of 3% of net sales of CellerateRX. In addition, Cellerate, LLC
must maintain a minimum aggregate annual royalty payment of
$400,000 for 2018 and thereafter if the royalty percentage payments
made do not meet or exceed that amount.
On
September 29, 2009, the Company entered into an Asset Purchase
Agreement with Resorbable Orthopedic Products, LLC
(“Resorbable”) and Resorbable’s members, pursuant
to which, the Company 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 Company’s net revenues generated from
products that utilize the patented technology acquired from
Resorbable.
OFFICE LEASE
In
March of 2017, and as amended in March 2018, the Company executed a
new office lease for office space located at 1200 Summit Ave.,
Suite 414, Fort Worth, TX 76102. The amended lease is effective May
1, 2018 and ends on June 30, 2021. Monthly base rental payments are
as follows: months 1-2, $8,390; months 3-14, $8,565; months 15-26,
$8,740; and months 27-39, $8,914. Rent expense is recognized on a
straight-line basis over the term of the Lease and the resulting
deferred rent liability is $10,474 as of December 31, 2018. The
amount of rent expense recognized by the Company will be reduced by
the amount billed to Cellerate, LLC under the terms of the
Professional Services agreement between the Company and Cellerate,
LLC. For the month ending December 31, 2018, the net rent expense
recognized by the Company was $926.
PAYABLES TO RELATED PARTIES
As of
December 31, 2018, and 2017, the Company had outstanding payables
to related parties totaling $63,288 and $60,000, respectively. The
payables are unsecured, bear no interest and due on
demand.
NOTE 9 – STOCKHOLDERS’ EQUITY
PREFERRED STOCK
There
are currently 5,000,000 shares of Series A Preferred Stock
authorized, with no shares of Series A Preferred Stock issued or
outstanding as of December 31, 2018 and 2017.
Effective
June 24, 2010, the Company filed a Certificate of Designations,
Number, Voting Power, Preferences and Rights of Series B
Convertible Redeemable Preferred Stock (the
“Certificate”) with the Texas Secretary of State,
designating 7,500 shares of Series B Preferred Stock, par value
$10.00 per share (the “Series B Shares”). The Series B
Shares rank senior to shares of all other common and preferred
stock with respect to dividends, distributions, and payments upon
dissolution. Each of the Series B Shares is convertible at the
option of the holder into shares of common stock as provided in the
Certificate. There were no Series B Shares issued or outstanding as
of December 31, 2018 and 2017.
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 is entitled to accruing dividends (payable, at the
Company’s options, in either cash or stock) of 5% per annum
until October 10, 2016, and 3% per annum until October 10,
2018.
The
Series C Preferred Stock is senior to the Company’s common
stock and any other currently issued series of the Company’s
preferred stock upon liquidation and is entitled to a liquidation
preference per share equal to the original issuance price of such
shares of Series C Preferred Stock together with the amount of all
accrued but unpaid dividends thereon. Each of the Series C Shares
is convertible at the option of the holder into 1,000 shares of
common stock as provided in the Certificate. Additionally, each
holder of Series C Preferred Stock shall be entitled to vote on all
matters submitted for a vote of the holders of Common Stock a
number of votes equal to the number of full shares of Common Stock
into which such holder’s Series C shares could then be
converted. As of December 31, 2018, and December 31, 2017, there
were 0 and 85,561 shares of Series C Preferred Stock issued and
outstanding, respectively.
On
March 10, 2017, the Company issued 715 shares of Series C preferred
stock in exchange for cash in the amount of $50,050.
During
2017, one shareholder converted 800 shares of Series C preferred
stock and dividend of $9,692 to common stock of 937,556
shares.
During
February and March 2018, the Company issued 100,567,691 shares of
Common Stock for the conversion of 85,561 shares of Series C
Convertible Preferred Stock and $1,050,468 of related Series C
dividends. Dividends were converted at $0.07 per share. As of
December 31, 2018, there were no shares of Series C Preferred Stock
outstanding and all accrued dividends were converted to Common
Stock.
The
Series C preferred stock earned dividends of $28,061 and $139,006
for the years ended December 31, 2018 and December 31, 2017,
respectively. As an inducement to encourage the Series C Preferred
Stock shareholders to convert their Series C Preferred Stock to
Common Stock prior to October 10, 2018, the Company offered to
apply the full dividend, (accelerated to October 10, 2018) upon the
shareholders exercise of their conversion. The fair value of the
extra shares of Common Stock issued to Series C Stock shareholders
was $103,197 for dividends that would have accrued from the date of
their conversion through October 10, 2018.
On
November 13, 2013, the Company filed a Certificate of Designations,
Number, Voting Power, Preferences and Rights of Series D
Convertible Preferred Stock (the “Certificate of
Designations”), under which it designated 25,000 shares of
Series D Preferred Stock. Shares of Series D Preferred Stock are
not entitled to any preference with respect to dividend or upon
liquidation and will automatically convert (at a ratio of
1,000-to-1) into shares of the Company’s common stock, par
value $0.001 upon approval of the Company’s stockholders (and
filing of) and amendment to the Company’s Certificate of
Incorporation increasing the number of authorized shares of Common
Stock from 100,000,000 to 250,000,000. On September 3, 2014, the
Company increased its authorized common stock to 250,000,000
shares. As a result, all outstanding Series D preferred shares were
converted to common stock. As of December 31, 2018, and December
31, 2017 there were no shares of Series D Preferred Stock issued
and outstanding.
On May
30, 2014, the Company filed a Certificate of Designations, Number,
Voting Power, Preferences and Rights of Series E Convertible
Preferred Stock (The “Certificate of Designations”),
under which it designated 5,000 shares of Series E Preferred Stock.
Shares of Series E Preferred Stock are not entitled to any
preference with respect to dividends or upon liquidation, and will
automatically convert (at a ratio of 1,000 shares of Common Stock
for every one share of Series E Preferred Stock) into shares of the
Company’s common stock, $0.001 par value upon approval of the
Company’s stockholders (and filing of) and amendment to the
Company’s Certificate of Incorporation increasing the number
of authorized shares of Common Stock from 100,000,000 to
250,000,000. As of December 31, 2018, there were no shares of
Series E Preferred Stock issued and outstanding.
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.
COMMON STOCK
On
September 3, 2014, the Company held a stockholders meeting. The
stockholders approved an amendment to the Company’s Articles
of Incorporation to increase the authorized shares of common stock
of the Company from 100,000,000 to 250,000,000.
On
March 9, 2017, the Company issued 150,000 shares of common stock to
each of the Company’s then four Board Directors, (a total of
600,000 shares valued at $42,000).
On
March 10, 2017, the Company issued 250,000 shares of common stock
valued at $18,250 to a contract consultant upon achievement of
specified revenue targets which occurred January 31,
2017.
On July
31, 2017, the Company issued 937,556 shares of common stock for the
conversion of 800 shares of Series C Convertible Preferred Stock
and $9,629 of related Series C dividends.
On
November 22, 2017, the Company issued 1,200,000 shares of common
stock valued at $84,000 for settlement of debt.
On
November 22, 2017, the Company issued 750,000 shares of common
stock valued at $0 to a contract consultant upon termination of
contract (see Note 4 above for a discussion of the
termination).
On March 6, 2018, the Company issued 22,651,356 shares
of Common Stock for the conversion of $1,200,000 in Related Party
convertible debt and $385,594 in accrued interest.
In
February and March 2018, the Company issued 100,567,691 shares of
Common Stock for the conversion of 85,561 shares of Series C
Convertible Preferred Stock and $1,050,468 of related Series C
dividends.
WARRANTS
At
December 31, 2018, there were 0 warrants outstanding. At December
31, 2017, there were 5,100,000 warrants outstanding with a weighted
average exercise price of $0.06.
A
summary of the status of the warrants granted at December 31, 2018
and 2017, and changes during the years then ended is presented
below:
For the Year Ended December 31, 2018
|
|
|
Weighted Average Exercise Price
|
Outstanding
at beginning of period
|
5,100,000
|
$
0.06
|
Granted
|
-
|
-
|
Exercised
|
-
|
-
|
Forfeited
|
-
|
-
|
Expired
|
(5,100,000
)
|
0.06
|
Outstanding
at end of period
|
-
|
$
-
|
For the Year Ended December 31, 2017
|
|
|
Weighted Average Exercise Price
|
Outstanding
at beginning of period
|
67,246,300
|
$
0.12
|
Granted
|
-
|
-
|
Exercised
|
-
|
-
|
Forfeited
|
(60,051,300
)
|
0.12
|
Expired
|
(2,095,000
)
|
0.13
|
Outstanding
at end of period
|
5,100,000
|
$
0.06
|
The
following table summarizes the outstanding warrants as of December
31, 2017:
|
|
|
|
Weighted-Average Remaining Contract Life
|
Weighted- Average Exercise Price
|
|
Weighted-Average Exercise Price
|
$
0.06
|
4,500,000
|
1
|
$
0.06
|
4,500,000
|
$
0.06
|
0.08
|
200,000
|
1
|
0.08
|
200,000
|
0.08
|
0.09
|
400,000
|
1
|
0.09
|
400,000
|
0.09
|
$
0.06 - 0.09
|
5,100,000
|
1
|
$
0.06
|
5,100,000
|
$
0.06
|
STOCK
OPTIONS
A
summary of the status of the stock options granted for the years
ended December 31, 2018 and 2017, and changes during the period
then ended is presented below:
For the Year Ended December 31,
2018
|
|
|
Weighted Average Exercise Price
|
Outstanding
at beginning of period
|
1,150,000
|
$
0.06
|
Granted
|
400,000
|
0.06
|
Exercised
|
-
|
-
|
Forfeited
|
-
|
-
|
Expired
|
-
|
-
|
Outstanding
at end of period
|
1,550,000
|
$
0.06
|
For the Year Ended December 31,
2017
|
|
|
Weighted Average Exercise Price
|
Outstanding
at beginning of period
|
1,093,500
|
$
0.15
|
Granted
|
1,150,000
|
0.06
|
Exercised
|
-
|
-
|
Forfeited
|
(150,000
)
|
|
Expired
|
(943,500
)
|
0.15
|
Outstanding
at end of period
|
1,150,000
|
$
0.06
|
(a) On
January 1, 2015, the Company granted three tranches of options,
25,000, 25,000, and 100,000 which vest upon meeting specific
performance measures. The measures include achieving three specific
sales targets per month for 3 consecutive months. The exercise
price and expiration date of each tranche will be set upon
achieving the targets. As of the date of this filing the
performance measures have not been met. As a result, the exercise
price is undetermined and these options are excluded from the
calculation of weighted average remaining life. As of December 31,
2017, the options were forfeited.
On
December 31, 2017, the Company granted a total of 1,150,000 options
to five employees. The shares vest in equal annual
amounts over three years and the aggregate fair value of the
awards was determined to be $61,322 and no expense was
recognized.
On
April 13, 2018, the Company granted a total of 200,000 options to
one employee and one contractor. The shares vest in equal annual
amounts over three years and the aggregate fair value of the awards
was determined to be $8,943 which will be expensed over the
three-year vesting period.
On
August 31, 2018 the Company granted a total of 200,000 options to
one employee. The shares vest in equal annual amounts over three
years and the aggregate fair value of the awards was determined to
be $16,405 which will be expensed over the three-year vesting
period.
During
the twelve-month period ending December 31, 2018 an option expense
of $24,500 was recognized.
The
following table summarizes the outstanding options as of December
31, 2018:
|
|
Stock Options Outstanding
|
Stock Options Exercisable
|
|
|
Weighted-Average Remaining Contract Life
|
Weighted- Average Exercise Price
|
|
Weighted-Average Exercise Price
|
$
0.06
|
1,550,000
|
4.39
|
$
0.06
|
383,333
|
$
0.06
|
The
following table summarizes the outstanding options as of December
31, 2017:
|
|
Stock Options Outstanding
|
Stock Options Exercisable
|
|
|
Weighted-Average Remaining Contract Life
|
Weighted- Average Exercise Price
|
|
Weighted-Average Exercise Price
|
$
0.06
|
1,150,000
|
5
|
$
0.06
|
-
|
$
-
|
NOTE 10 – INCOME TAXES
The
Company accounts for income taxes in accordance with ASC Topic No.
740, “Income Taxes.” This standard requires the Company
to provide a net deferred tax asset or liability equal to the
expected future tax benefit or expense of temporary reporting
differences between book and tax accounting and any available
operating loss or tax credit carry forwards.
A 100%
valuation allowance has been provided for all deferred tax assets,
as the ability of the Company to generate sufficient taxable income
in the future is uncertain.
The
unexpired net operating loss carry forward at December 31, 2018 is
approximately $34,859,000 with various expiration dates between
2019 and 2037 if not utilized. All tax years starting with 2015 are
open for examination.
Non-current
deferred tax asset:
|
|
|
Net
operating loss carry forwards, (21% as of December 31, 2018 and 21%
as of December 31, 2017
|
$
7,320,390
|
$
7,295,315
|
Valuation
allowance
|
(7,320,390
)
|
(7,295,315
)
|
Net
non-current deferred tax asset
|
$
-
|
$
-
|
Reconciliations
of the expected federal income tax benefit based on the statutory
income tax rate of 21% to the actual benefit for the years ended
December 31, 2018 and 2017 are listed below.
|
|
|
Expected
federal income tax benefit
|
$
124,448
|
$
(112,645
)
|
Goodwill
amortization
|
87,944
|
142,386
|
Gain
on settlement of debt
|
-
|
114,757
|
NOL
carryover reduced by settlement of debt
|
-
|
(114,403
)
|
Change
in valuation allowance
|
(13,959
)
|
(11,807
)
|
Expired
capital loss carryover
|
-
|
(9,227
)
|
NOL
carryover reduced by expiration
|
(151,658
)
|
-
|
Other
– M&E
|
(7,888
)
|
(9,061
)
|
Reserve
for obsolete inventory
|
(20,357
)
|
-
|
Pass
through entity income allocation
|
(10,033
)
|
-
|
Reserve
for bad debt
|
(3,971
)
|
-
|
Stock-based
compensation
|
(4,526
)
|
-
|
Income
tax expense (benefit)
|
$
-
|
$
-
|
The
Company has no tax positions at December 31, 2018 and 2017 for
which the ultimate deductibility is highly certain but for which
there is uncertainty about the timing of such
deductibility.
The
Company recognizes interest accrued related to unrecognized tax
benefits in interest expense and penalties in operating expenses.
During the years ended December 31, 2018 and 2017, the Company
recognized no interest and penalties.
NOTE 11 – LEGAL PROCEEDINGS
As of
December 31, 2018, and as of this filing date, the Company has no
outstanding legal proceedings.
NOTE 12 -- SUBSEQUENT EVENTS
In
accordance with applicable accounting standards for the disclosure
of events that occur after the balance sheet date but before the
financial statements are issued, all significant events or
transactions that occurred after December 31, 2018, are outlined
below:
Effective
January 31, 2019, John Siedhoff resigned as Chairman and member of
the Board of Directors of Wound Management Technologies, Inc. (the
“Company”). Mr. Siedhoff did not resign as a result of
a disagreement with the Company. Mr. Jim Stuckert, a Company Board
member since 2015 and retired Chairman and Chief Executive Officer
of J.J.B. Hilliard, W.L. Lyons, LLC, assumed the role of Chairman
effective February 1, 2019.
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 200 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. See Exhibit 4.6, Certificate of Designations, Voting Power,
Preferences and Rights of Series F Convertible Preferred
Stock.
On
March 15, 2019, the Company acquired the remaining 50% interest in
Cellerate, LLC not owned by the Company. The acquisition was made
from an affiliate of The Catalyst Group, Inc. (CGI) of Houston,
Texas in exchange for the issuance of 1,136,815 shares of the
Company’s newly created Series F Convertible Preferred Stock.
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 CGI was
approximately $12.5 million. The Company owns 100% of Cellerate,
LLC, and as a wholly-owned subsidiary will report its operations
and financial results on a consolidated basis as of the transaction
effective date of March 15, 2019. See Exhibit 10.6, Share Exchange
Agreement between CGI CellerateRX, LLC and WNDM Medical,
Inc.
Following
the closing of this transaction, Mr. Ron Nixon, Founder and
Managing Partner of CGI, was elected to the Company’s Board
of Directors effective March 15, 2019. Mr. Nixon currently serves
on the board of directors for publicly traded LHC Group, Inc.,
Trilliant Surgical, LLC, Rochal Industries, LLC, Triad Life
Sciences, Inc. and several other privately held companies. Mr.
Nixon holds a bachelor’s degree in mechanical engineering
from the University of Texas at Austin and is a registered
professional engineer in Texas.
On
March 21, 2019, the Company filed SEC Schedule 14C notifying
shareholders of common stock that a majority of our capital stock
entitled to vote (the “Majority Shareholders”) approved
by written consent in lieu of a meeting of shareholders an
amendment to the Company’s Certificate of Formation (the
“Amendment”) to accomplish the following actions (the
“Corporate Actions”):
(1) the
effectuation of a 1-for-100 reverse stock split of the
Company’s outstanding Common Stock such that every
Shareholder shall receive one share of Common Stock for every 100
shares of Common Stock held (the “Reverse Stock
Split”);
(2)
upon the effectiveness of the Reverse Stock Split, the reduction of
the authorized capital stock of the Company to 20,000,000 shares of
Common Stock and 2,000,000 shares of preferred stock;
and
(3) the
change of the name of the Company to: Sanara MedTech,
Inc.
The
written consent of the Majority Shareholders constitutes the
required approval of the Company’s Shareholders and is
sufficient under the Texas Business Organizations Code (the
“TBOC”) and the Company’s Certificate of
Formation and Bylaws to approve the Corporate Actions described
above. No further action is required from the remaining
Shareholders. Accordingly, the Corporate Actions are not being
submitted to these other Shareholders for a vote.
The
Company anticipates that these changes will take effect near the
end of April or early May, 2019. When it becomes effective, the
reverse stock split will 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 will be issued as a
result of the reverse split. Shareholders who would otherwise be
entitled to receive a fractional share will instead receive a cash
payment based on the market price of a share of common stock on the
day after the reverse stock split becomes effective.
The
conversion and voting provisions of the Company's Series F
Convertible Preferred Stock will be proportionally adjusted by a
factor of 100 to reflect the reverse stock split. All of the
Company's outstanding stock options will also be proportionally
adjusted to reflect the reverse split, in accordance with the terms
of the plans, agreements or arrangements governing such
securities.