Texas
|
|
59-2219994
|
(State
or other jurisdiction of incorporation or
organization)
|
|
(I.R.S.
Employer Identification Number)
|
Title of each class
|
Trading Symbol(s)
|
Name of each exchange on which registered
|
Common
Stock, par value $0.001 per share
|
SMTI
|
The
Nasdaq Capital Market
|
Large accelerated filer
|
☐
|
Accelerated filer
|
☐
|
Non-accelerated
filer
|
☒
|
Smaller reporting company
|
☒
|
|
|
Emerging
growth company
|
☐
|
|
|
Page
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|
Part I – Financial Information
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|
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|
|
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ITEM 1. Financial Statements
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|
3
|
|
|
|
Unaudited Consolidated Balance Sheets as of September 30,
2020 and December 31,
2019
|
|
3
|
|
|
|
Unaudited
Consolidated Statements of Operations for the Three and Nine Months
Ended September 30, 2020 and 2019
|
|
4
|
|
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|
Unaudited
Consolidated Statements of Changes in Shareholders’ Equity
(Deficit) for the Nine Months Ended September 30, 2020 and
2019
|
|
5
|
|
|
|
Unaudited
Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 2020 and 2019
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|
6
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|
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Notes to Unaudited Consolidated Financial Statements
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|
7
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|
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ITEM 2. Management’s Discussion and
Analysis of Financial Condition and Results of
Operations
|
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19
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ITEM 3. Quantitative and Qualitative
Disclosures about Market Risk
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22
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ITEM 4. Controls and Procedures
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22
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Part II - Other Information
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ITEM 1. Legal Proceedings
|
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23
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ITEM 1A. Risk Factors
|
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23
|
|
|
|
ITEM 2. Unregistered Sales of Equity
Securities and Use of Proceeds
|
|
23
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|
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|
ITEM 3. Defaults upon Senior
Securities
|
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23
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|
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ITEM 4. Mine Safety Disclosures
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23
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ITEM 5. Other Information
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23
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ITEM 6. Exhibits
|
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24
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Signatures
|
|
25
|
|
(Unaudited)
|
|
|
September
30,
|
December
31,
|
Assets
|
2020
|
2019
|
Current assets
|
|
|
Cash
|
$2,120,243
|
$6,611,928
|
Accounts
receivable, net of allowance for bad debt of $65,719 and
$60,012
|
1,792,334
|
1,285,165
|
Royalty
receivable
|
49,344
|
50,250
|
Inventory,
net of allowance for obsolescence of $231,342 and
$43,650
|
787,822
|
746,519
|
Prepaid
other - related parties
|
50,970
|
-
|
Prepaid
and other assets
|
482,097
|
161,902
|
Total current assets
|
5,282,810
|
8,855,764
|
|
|
|
Long-term assets
|
|
|
Property,
plant and equipment, net of accumulated depreciation of $107,443
and $60,694
|
208,919
|
204,953
|
Right
of use assets – operating leases
|
497,748
|
585,251
|
Intangible
assets, net of accumulated amortization of $762,594 and
$603,580
|
3,162,181
|
1,471,194
|
Investment
in equity securities
|
500,000
|
-
|
Total long-term assets
|
4,368,848
|
2,261,398
|
|
|
|
Total assets
|
$9,651,658
|
$11,117,162
|
|
|
|
Liabilities and shareholders' equity
|
|
|
Current liabilities
|
|
|
Accounts
payable
|
$274,570
|
$337,504
|
Accounts
payable – related parties
|
94,807
|
68,668
|
Accrued
royalties and expenses
|
668,958
|
528,060
|
Accrued
bonus and commissions
|
1,813,153
|
1,588,056
|
Operating
lease liability - current
|
124,263
|
117,533
|
Current
portion of long-term debt
|
114,975
|
-
|
Accrued
interest
|
2,559
|
-
|
Total current liabilities
|
3,093,285
|
2,639,821
|
|
|
|
Long-term liabilities
|
|
|
Operating
lease liability – long term
|
387,567
|
481,384
|
Convertible
notes payable – related party
|
-
|
1,500,000
|
Long-term
debt, net of current portion
|
468,025
|
-
|
Accrued
interest - related party
|
-
|
103,557
|
Other
long-term liabilities
|
139,437
|
-
|
Total long-term liabilities
|
995,029
|
2,084,941
|
|
|
|
Total liabilities
|
4,088,314
|
4,724,762
|
|
|
|
Shareholders' equity
|
|
|
Series
F Convertible Preferred Stock: $10 par value, 1,200,000 shares
authorized; none issued and outstanding as of September 30, 2020
and 1,136,815 issued and outstanding as of December 31,
2019
|
-
|
11,368,150
|
Common
Stock: $0.001 par value, 20,000,000 shares authorized; 6,279,610
issued and outstanding as of September 30, 2020 and 3,571,001
issued and outstanding as of December 31, 2019
|
6,280
|
3,571
|
Additional
paid-in capital
|
12,633,248
|
(2,081,829)
|
Accumulated
deficit
|
(6,785,749)
|
(2,675,802)
|
Total Sanara MedTech shareholders' equity
|
5,853,779
|
6,614,090
|
Equity attributable
to noncontrolling interest
|
(290,435)
|
(221,690)
|
Total shareholders' equity
|
5,563,344
|
6,392,400
|
|
|
|
Total liabilities and shareholders' equity
|
$9,651,658
|
$11,117,162
|
|
Three
Months Ended
|
Nine
Months Ended
|
||
|
September
30,
|
September
30,
|
||
|
2020
|
2019
|
2020
|
2019
|
|
|
|
|
|
Revenues
|
$4,306,324
|
$2,909,282
|
$10,797,838
|
$8,413,667
|
|
|
|
|
|
Cost of goods sold
|
447,935
|
285,164
|
1,126,798
|
909,333
|
|
|
|
|
|
Gross profit
|
3,858,389
|
2,624,118
|
9,671,040
|
7,504,334
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
Selling,
general and administrative expenses
|
5,083,424
|
3,315,575
|
13,613,989
|
8,649,186
|
Depreciation
and amortization
|
81,880
|
45,762
|
209,606
|
72,644
|
Bad
debt expense
|
-
|
60,000
|
30,000
|
60,000
|
Total operating expenses
|
5,165,304
|
3,421,337
|
13,853,595
|
8,781,830
|
|
|
|
|
|
Operating loss
|
(1,306,915)
|
(797,219)
|
(4,182,555)
|
(1,277,496)
|
|
|
|
|
|
Other income / (expense)
|
|
|
|
|
Other
income
|
100,250
|
-
|
14,776
|
145
|
Interest
expense
|
(1,458)
|
(46,014)
|
(10,913)
|
(80,925)
|
Total other income / (expense)
|
98,792
|
(46,014)
|
3,863
|
(80,780)
|
|
|
|
|
|
Net loss
|
(1,208,123)
|
(843,233)
|
(4,178,692)
|
(1,358,276)
|
|
|
|
|
|
Less:
Net loss attributable to noncontrolling interest
|
(60,897)
|
(6,257)
|
(68,745)
|
(7,311)
|
|
|
|
|
|
Net loss attributable to Sanara MedTech common
shareholders
|
$(1,147,226)
|
$(836,976)
|
$(4,109,947)
|
$(1,350,965)
|
|
|
|
|
|
Basic
loss per share of Common stock
|
$(0.18)
|
$(0.35)
|
$(0.72)
|
$(0.78)
|
|
|
|
|
|
Diluted
loss per share of Common stock
|
$(0.18)
|
$(0.35)
|
$(0.72)
|
$(0.78)
|
|
|
|
|
|
Weighted
average number of common shares outstanding basic
|
6,230,648
|
2,366,181
|
5,730,554
|
1,724,848
|
|
|
|
|
|
Weighted
average number of common shares outstanding diluted
|
6,230,648
|
2,366,181
|
5,730,554
|
1,724,848
|
|
Preferred Stock
Series F
|
Common
Stock
|
|
|
|
|
|
|
||
|
$10 par
value
|
$0.001 par
value
|
|
Treasury
Stock
|
|
|
Total
|
|||
|
Shares
|
Amount
|
Shares
|
Amount
|
Additional
Paid-In
Capital
|
Shares
|
Amount
|
Accumulated
Income/(Deficit)
|
Non
controlling Interest
|
Shareholders'
Equity
(Deficit)
|
Balance at December 31,
2018
|
1,136,815
|
$11,368,150
|
-
|
$-
|
$(10,919,639)
|
-
|
$-
|
$138,286
|
$-
|
$586,797
|
Reverse
recapitalization
|
-
|
-
|
2,366,465
|
2,366
|
(1,159,929)
|
(41)
|
-
|
-
|
-
|
(1,157,563)
|
Net loss
|
-
|
-
|
-
|
-
|
|
-
|
-
|
(162,572)
|
-
|
(162,572)
|
Balance at March 31,
2019
|
1,136,815
|
$11,368,150
|
2,366,465
|
$2,366
|
$(12,079,568)
|
(41)
|
$-
|
$(24,286)
|
$-
|
$(733,338)
|
Treasury stock
retirement
|
-
|
-
|
(41)
|
-
|
-
|
41
|
-
|
-
|
-
|
-
|
Repurchase and cancellation of
fractional shares
|
-
|
-
|
(243)
|
-
|
(1,061)
|
-
|
-
|
-
|
-
|
(1,061)
|
Net loss
|
-
|
-
|
-
|
-
|
|
-
|
-
|
(351,417)
|
(1,054)
|
(352,471)
|
Balance at June 30,
2019
|
1,136,815
|
$11,368,150
|
2,366,181
|
$2,366
|
$(12,080,629)
|
-
|
$-
|
$(375,703)
|
$(1,054)
|
$(1,086,870)
|
Net loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(836,976)
|
(6,257)
|
(843,233)
|
Balance at September 30,
2019
|
1,136,815
|
$11,368,150
|
2,366,181
|
$2,366
|
$(12,080,629)
|
-
|
$-
|
$(1,212,679)
|
$(7,311)
|
$(1,930,103)
|
|
Preferred Stock
Series F
|
Common
Stock
|
|
|
|
|
|
|
||
|
$10 par
value
|
$0.001 par
value
|
|
Treasury
Stock
|
|
|
Total
|
|||
|
Shares
|
Amount
|
Shares
|
Amount
|
Additional
Paid-In
Capital
|
Shares
|
Amount
|
Accumulated
Income/(Deficit)
|
Noncontrolling
Interest
|
Shareholders'
Equity
(Deficit)
|
Balance at December 31,
2019
|
1,136,815
|
$11,368,150
|
3,571,001
|
$3,571
|
$(2,081,829)
|
-
|
$-
|
$(2,675,802)
|
$(221,690)
|
$6,392,400
|
Conversion of Preferred Shares to
Common Stock
|
(1,136,815)
|
(11,368,150)
|
2,273,630
|
2,274
|
11,365,876
|
-
|
-
|
-
|
-
|
-
|
Conversion of Promissory Note to
Common Stock
|
-
|
-
|
179,101
|
179
|
1,611,732
|
-
|
-
|
-
|
-
|
1,611,911
|
Share-based
compensation
|
-
|
-
|
180,100
|
180
|
393,560
|
-
|
-
|
-
|
-
|
393,740
|
Net loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(1,836,957)
|
(4,055)
|
(1,841,012)
|
Balance at March 31,
2020
|
-
|
$-
|
6,203,832
|
$6,204
|
$11,289,339
|
-
|
$-
|
$(4,512,759)
|
$(225,745)
|
$6,557,039
|
Share-based
compensation
|
-
|
-
|
(430)
|
(1)
|
186,172
|
-
|
-
|
-
|
-
|
186,171
|
Net loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(1,125,764)
|
(3,793)
|
(1,129,557)
|
Balance at June 30,
2020
|
-
|
$-
|
6,203,402
|
$6,203
|
$11,475,511
|
-
|
$-
|
$(5,638,523)
|
$(229,538)
|
$5,613,653
|
Issuance of Common Stock for
intangible asset
|
-
|
-
|
60,000
|
60
|
749,940
|
-
|
-
|
-
|
-
|
750,000
|
Employee stock purchase
program
|
-
|
-
|
2,490
|
3
|
26,217
|
-
|
-
|
-
|
-
|
26,220
|
Share-based
compensation
|
-
|
-
|
13,718
|
14
|
381,580
|
-
|
-
|
-
|
-
|
381,594
|
Net loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(1,147,226)
|
(60,897)
|
(1,208,123)
|
Balance at September 30,
2020
|
-
|
$-
|
6,279,610
|
$6,280
|
$12,633,248
|
-
|
$-
|
$(6,785,749)
|
$(290,435)
|
$5,563,344
|
|
Nine
Months Ended
|
|
|
September
30,
|
|
|
2020
|
2019
|
|
|
|
Cash flows from operating activities:
|
|
|
Net
loss
|
$(4,178,692)
|
$(1,358,276)
|
Adjustments
to reconcile net income (loss) to net cash used in operating
activities
|
|
|
Depreciation
and amortization
|
209,606
|
72,644
|
Interest expense on
convertible debt
|
8,354
|
42,137
|
Loss on disposal of
asset
|
2,897
|
13,581
|
Bad debt
expense
|
30,000
|
60,000
|
Inventory
obsolescence
|
258,585
|
88,438
|
Share-based
compensation
|
872,662
|
-
|
Non-cash lease
expense
|
87,503
|
72,150
|
Changes
in operating assets and liabilities:
|
|
|
Accounts
receivable
|
(536,263)
|
(38,831)
|
Inventory
|
(299,888)
|
(422,942)
|
Prepaid
- related parties
|
(50,970)
|
(335,876)
|
Prepaid
and other assets
|
(320,195)
|
(487,143)
|
Accounts
payable
|
(62,934)
|
(185,564)
|
Accounts
payable - related parties
|
26,139
|
99,960
|
Accrued
royalties and expenses
|
140,898
|
235,542
|
Accrued
liabilities
|
366,290
|
810,302
|
Accrued
interest
|
2,559
|
-
|
Net cash used in operating activities
|
(3,443,449)
|
(1,333,878)
|
|
|
|
Cash flows from investing activities:
|
|
|
Purchase of
property and equipment
|
(57,456)
|
(167,259)
|
Cash received in
reverse acquisition
|
-
|
508,973
|
Repurchase and
cancellation of fractional shares
|
-
|
(1,061)
|
Purchase of
intangible assets
|
(1,100,000)
|
(1,022,485)
|
Investment in
equity securities
|
(500,000)
|
-
|
Net cash used in investing activities
|
(1,657,456)
|
(681,832)
|
|
|
|
Cash flows from financing activities:
|
|
|
Draw on line of
credit
|
-
|
2,000,000
|
Proceeds from PPP
Loan
|
583,000
|
-
|
Common stock issued
for Employee Stock Purchase Plan
|
26,220
|
-
|
Net cash provided by financing activities
|
609,220
|
2,000,000
|
|
|
|
Net increase (decrease) in cash
|
(4,491,685)
|
(15,710)
|
Cash, beginning of period
|
6,611,928
|
176,421
|
Cash, end of period
|
$2,120,243
|
$160,711
|
|
|
|
Cash paid during the period for:
|
|
|
Interest
|
$-
|
$30,802
|
Income
taxes
|
-
|
-
|
|
|
|
Supplemental non-cash investing and financing
activities:
|
|
|
Common stock issued
for conversion of Series F Preferred Stock
|
11,368,150
|
-
|
Common stock issued
for conversion of related party debt and interest
|
1,611,911
|
-
|
Common stock issued
for purchase of intangible asset
|
750,000
|
-
|
Common stock issued
in reverse capitalization; less cash received of
$508,973
|
-
|
1,666,537
|
|
Nine
Months Ended
|
|
|
September
30,
|
|
|
2020
|
2019
|
Product
sales revenue
|
$10,647,088
|
$8,304,792
|
Royalty
revenue
|
150,750
|
108,875
|
Total Revenue
|
$10,797,838
|
$8,413,667
|
|
As of
September 30,
|
|
|
2020
|
2019
|
|
|
|
Stock
options
|
11,500
|
11,500
|
Convertible
debt
|
-
|
175,973
|
Preferred
shares
|
-
|
2,273,630
|
|
|
Monthly
|
From
|
Through
|
Base
Rental
|
August
22, 2019
|
June
30, 2020
|
$12,243.75
|
July
1, 2020
|
June
30, 2021
|
$12,488.63
|
July
1, 2021
|
June
30, 2022
|
$12,488.63
|
July
1, 2022
|
June
30, 2023
|
$12,733.50
|
July
1, 2023
|
June
30, 2024
|
$12,978.38
|
|
September
30, 2020
|
Remainder
of 2020
|
$38,090
|
2021
|
151,317
|
2022
|
151,333
|
2023
|
154,271
|
2024
|
77,870
|
Thereafter
|
-
|
Total
lease payments
|
572,881
|
Less
imputed interest
|
(61,051)
|
Present
Value of Lease Liabilities
|
$511,830
|
|
|
Operating
lease liability - current
|
124,263
|
Operating
lease liability – long term
|
387,567
|
|
September
30,
|
December
31,
|
|
2020
|
2019
|
Computers
|
$85,864
|
$87,310
|
Office
equipment
|
22,597
|
22,312
|
Furniture
and fixtures
|
205,871
|
153,995
|
Leasehold
improvements
|
2,030
|
2,030
|
|
316,362
|
265,647
|
Less
accumulated depreciation
|
(107,443)
|
(60,694)
|
|
|
|
Property
and equipment, net
|
$208,919
|
$204,953
|
|
September
30, 2020
|
December 31,
2019
|
||||
|
|
Accumulated
|
|
|
Accumulated
|
|
|
Cost
|
Amortization
|
Net
|
Cost
|
Amortization
|
Net
|
Patent
|
$510,310
|
$(510,310)
|
$-
|
$510,310
|
$(510,310)
|
$-
|
Licenses
|
3,350,000
|
(202,268)
|
3,147,732
|
1,500,000
|
(48,876)
|
1,451,124
|
Software
and Other
|
64,464
|
(50,015)
|
14,449
|
64,464
|
(44,394)
|
20,070
|
Total
|
$3,924,774
|
$(762,593)
|
$3,162,181
|
$2,074,774
|
$(603,580)
|
$1,471,194
|
Remainder
of 2020
|
$64,515
|
2021
|
258,059
|
2022
|
255,645
|
2023
|
250,564
|
2024
|
250,564
|
Thereafter
|
2,082,834
|
Total
|
$3,162,181
|
Exhibit No.
|
|
Description
|
|
|
|
|
Amendment No. 1 to
Exclusive License Agreement dated July 7, 2019 with Rochal
Industries, LLC
|
|
|
|
|
|
Certification
of Principal Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002*
|
|
|
|
|
|
Certification
of Principal Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002*
|
|
|
|
|
|
Certification
of Principal Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002*
|
|
|
|
|
|
Certification
of Principal Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002*
|
|
|
|
|
101
|
|
Interactive
Data Files pursuant to Rule 405 of Regulation S-T.
|
|
Sanara MedTech Inc.
|
|
|
|
|
|
|
November
13, 2020
|
By:
|
/s/ Michael
McNeil
|
|
|
|
Michael
McNeil
|
|
|
|
Chief
Financial Officer
(Principal
Financial Officer and duly authorized officer)
|
|
|
ROCHAL
INDUSTRIES, LLC,
as
Licensor
|
|
|
By |
Rebecca
E. McMahon, President
|
|
|
|
|
SANARA MEDTECH INC.,
as
Licensee
|
|
|
By
|
|
|
|
J.
Michael Carmena, Vice Chairman
|
|
|
|