10-K
1
smti_10k.htm
FORM 10-K
smti_10k
UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☑ ANNUAL REPORT UNDER
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 2020
------------------------------------------------------
Commission File Number 001-39678
SANARA MEDTECH INC.
(Exact
name of Registrant as specified in its charter)
Securities registered pursuant to Section 12(b) of the
Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, $0.001 par value SMTI The Nasdaq Capital Market
Indicate
by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. ☐ Yes ☑ No
Indicate
by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. ☐ Yes ☑ No
Indicate
by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days. ☑ Yes ☐ No
Indicate
by check mark whether the registrant has submitted electronically
every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T (§ 232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the
registrant was required to submit such files). ☑ Yes ☐ No
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, a smaller reporting
company or an emerging growth company. See the definitions of
“accelerated filer,” “large accelerated
filer” and “smaller reporting company” in
Rule 12b-2 of the Exchange Act.
If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant has filed a report on and
attestation to its management’s assessment of the
effectiveness of its internal control over financial reporting
under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.7262(b))
by the registered public accounting firm that prepared or issued
its audit report. ☐
Indicate
by check mark whether registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes ☐
No ☑
The
aggregate market value of the voting and non-voting common equity
held by non-affiliates of the registrant as of June 30, 2020 based
on the $18.00 closing price as of such date was approximately
$22,923,054.
As of
March 30, 2021, 7,617,122shares of the Issuer’s $0.001
par value common stock were issued and
outstanding.
SANARA MEDTECH INC.
Form 10-K
For the Year Ended December 31, 2020
Page
PART I.
ITEM 1 BUSINESS 2
ITEM 1A RISK FACTORS 20
ITEM 1B UNRESOLVED STAFF COMMENTS 44
ITEM 2 PROPERTIES 44
ITEM 3 LEGAL PROCEEDINGS 44
ITEM 4 MINE SAFETY DISCLOSURES 44
PART II.
ITEM 6 SELECTED FINANCIAL DATA 45
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 52
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 53
ITEM 9A CONTROLS AND PROCEDURES 73
ITEM 9B OTHER INFORMATION 74
PART III.
ITEM 10 DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 75
ITEM 11 EXECUTIVE COMPENSATION 80
ITEM 14 PRINCIPAL ACCOUNTING FEES AND SERVICES 88
PART IV.
ITEM 15 EXHIBITS AND FINANCIAL STATEMENT SCHEDULES 89
Sanara, Sanara MedTech, our logo and our other trademarks or
service marks appearing in this report are the property of Sanara
MedTech Inc. Trade names, trademarks and service marks of other
companies appearing in this report are the property of their
respective owners. Solely for convenience, the trademarks, service
marks and trade names included in this report are without the
®, TM or other applicable symbols, but such references
are not intended to indicate, in any way, that we will not assert,
to the fullest extent under applicable law, our rights or the
rights of the applicable licensors to these trademarks, service
marks and trade names.
Unless otherwise indicated, “Sanara,” “we,”
“us,” “our,” and “the Company,”
refer to Sanara MedTech Inc. and its consolidated
subsidiaries.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
STATEMENTS
This
report contains forward-looking statements within the meaning of
the federal securities laws. Forward-looking statements generally
relate to future events or our future financial or operating
performance. In some cases, you can identify forward-looking
statements because they contain words such as
“anticipates,” “believes,”
“continue,” “contemplates,”
“could,” “estimates,”
“expects,” “intends,” “may,”
“plans,” “potential,”
“predicts,” “projects,”
“should,” “target,” “will” or
“would” or the negative of these words, variations of
these words or other similar terms or expressions that concern our
expectations, strategy, plans, or intentions. Such forward-looking
statements are subject to certain risks, uncertainties and
assumptions relating to factors that could cause actual results to
differ materially from those anticipated in such statements,
including, without limitation, the following:
●
the impact of the
COVID-19 pandemic on our business, financial condition and results
of operations;
●
shortfalls in
forecasted revenue growth;
●
our ability to
implement our comprehensive wound and skin care strategy through
acquisitions and investments and our ability to realize the
anticipated benefits of such acquisitions and
investments;
●
our ability to meet
our future capital requirements;
●
our ability to
retain and recruit key personnel;
●
the intense
competition in the markets in which we operate and our ability to
compete within our markets;
●
the failure of our
products to obtain market acceptance;
●
the effect of
security breaches and other disruptions;
●
our ability to
maintain effective internal controls over financial
reporting;
●
our ability to
comply with the restrictive covenants set forth in the loan
agreement governing our revolving credit facility;
●
our ability to
maintain and further grow clinical acceptance and adoption of our
products;
●
the impact of
competitors inventing products that are superior to
ours;
●
disruptions of, or
changes in, our distribution model, consumer base or the supply of
our products;
●
our ability to
manage product inventory in an effective and efficient
manner;
●
the failure of
third-party assessments to demonstrate desired outcomes in proposed
endpoints;
●
our ability to
successfully expand into wound and skin care virtual consult and
other services;
●
our ability and the
ability of our research and development partners to protect the
proprietary rights to technologies used in certain of our products
and the impact of any claim that we have infringed on intellectual
property rights of others;
●
our dependence on
technologies and products that we license from third
parties;
●
the effects of
current and future laws, rules, regulations and reimbursement
policies relating the labeling, marketing and sale of our products
and our planned expansion into wound and skin care virtual consult
and other services and our ability to comply with the various laws,
rules and regulations applicable to our business; and
●
the effect of
defects, failures or quality issues associated with our
products.
All
forward-looking statements speak only as of the date on which they
are made. For a more detailed discussion of these and other factors
that may affect our business, see the discussion in “Item 1A.
Risk Factors” and “Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations” in this report. We caution that the foregoing
list of factors is not exclusive, and new factors may emerge, or
changes to the foregoing factors may occur, that could impact our
business. We do not undertake any obligation to update any
forward-looking statement, whether written or oral, relating to the
matters discussed in this report, except to the extent required by
applicable securities laws.
1
PART
I
Item 1. BUSINESS
Overview
We are
a medical technology company focused on developing and
commercializing transformative technologies to improve clinical
outcomes and reduce healthcare expenditures in the chronic and
surgical wound and skin care markets. Our portfolio of products and
services will allow us to deliver comprehensive wound and skin care
solutions for patients in all care settings, including acute
(hospitals and long-term acute care hospitals
(“LTACHs”)) and post-acute (wound care clinics,
physician offices, skilled nursing facilities (“SNFs”),
home health, hospice, and retail). Each of our products, services,
and technologies contribute to our overall goal of achieving better
clinical outcomes at a lower overall cost for patients regardless
of where they receive care. We strive to be one of the most
innovative and comprehensive providers of effective wound and skin
care products and technologies and are continually seeking to
expand our offerings for patients requiring wound and skin care
treatments across the entire continuum of care in the United
States.
We
currently market seven products across chronic and surgical wound
care applications and have multiple products in our pipeline. We
license our products from research and development partners Applied
Nutritionals, LLC (“AN”) (through a sublicense with CGI
Cellerate RX, LLC (“CGI Cellerate RX”), an affiliate of
The Catalyst Group, Inc. (“Catalyst”)) and Rochal
Industries, LLC (“Rochal”) and have the right to
exclusively distribute certain products under development by Cook
Biotech Inc. (“Cook Biotech”). In 2021, we intend to
begin marketing three biologic products for surgical and wound care
applications pursuant to our marketing and distribution agreement
with Cook Biotech.
In June
2020, we formed a subsidiary, United Wound and Skin Solutions LLC
(“UWSS”), to hold certain investments and operations in
wound and skin care virtual consult services. We anticipate that
these various service offerings will allow clinicians/physicians
utilizing our technologies to collect and analyze large amounts of
data on patient conditions and outcomes that will improve treatment
protocols and ultimately lead to more evidence-based formulary to
improve patient outcomes. We intend to launch our initial virtual
consult service offerings in 2021. Through a combination of our
UWSS services and our Sanara products, we believe we will be able
to offer patient care solutions at every step in the continuum of
wound and skin care from diagnosis through healing.
Market Scale
A study
by a physician at the Department of Surgery for the Indiana
University Health Comprehensive Wound Center found that
approximately 8.2 million patients suffer from surgical and chronic
wounds each year in the United States. Furthermore, according to an
article published by the American
College of Surgeons and Surgical Infection Society, in the
United States, the annual treatment cost projections for all wounds
is approximately $28 billion with the estimated annual cost of
surgical site infections ranging from $3.5 billion to $10 billion.
The U.S. teledermatology market alone is estimated to grow from $5
billion in 2019 to $45 billion by 2027 according to a research
report by Fortune Business Insights. In addition to our surgical
wound and chronic wound divisions, the Company is planning to
launch virtual consult services through UWSS for both virtual wound
and virtual skin (dermatology) consultations.
Summary of our Product & Service Offerings and Development
Programs
We are
committed to developing and commercializing innovative products
that address the challenges physicians face in diagnosing and
treating wound and skin care ailments. The following table sets
forth our product and service portfolio:
2
Our
surgical wound care products, CellerateRX Surgical Activated
Collagen (Powder and Gel) (collectively, “CellerateRX
Surgical”), are used in a wide range of surgical specialties
to help promote patient healing and reduce the risk of
complications. The product is used in specialties including
cardiothoracic, colorectal, general surgery, hand, head and neck,
high-risk obstetrics and gynecology, Mohs surgery, neurosurgery,
oncology, orthopedic (hip and knee, sports, spine, joint, foot and
ankle, ortho trauma and ortho oncology), plastic/reconstructive,
podiatric, urology, and vascular. Currently, substantially all of
our revenue is derived from the sale of surgical wound care
products. We anticipate that chronic wound care products and UWSS
technology-based services will become meaningful drivers of revenue
in the future.
Our
chronic wound care products, HYCOL Hydrolyzed Collagen (Powder and
Gel) (collectively, “HYCOL”), BIAKŌS Skin and
Wound Cleanser (“BIAKŌS AWC”) and BIAKŌS Skin
and Wound Gel, are used across the post-acute continuum of care,
including home health, hospice, physician offices, podiatrists,
retail, SNFs, and wound care centers. Our chronic wound care
products can be used on stage I-IV pressure ulcers, diabetic foot
ulcers (“DFUs”), venous stasis, arterial, post-surgical
wounds, first- and second-degree burns and donor sites. BIAKŌS
AWC is also available in an irrigation bottle (BIAKŌS
Antimicrobial Skin and Wound Irrigation Solution) that can be used
in conjunction with negative pressure wound therapy installation
and dwell (“NPWTi-d”) and other wound irrigation
needs.
In
addition, we have a robust pipeline of products under development
for both the chronic and surgical wound care and virtual consult
markets. We believe our pipeline efforts will deepen our
comprehensive portfolio of offerings as well as allow us to address
additional clinical applications. Wound care products in our
pipeline include an over-the-counter hand and skin cleanser, an
antimicrobial skin protectant, a debrider product that leverages
the body’s own enzymes and moisture, a new wound bed
preparation device for use with BIAKŌS AWC, next generation
CellerateRX and HYCOL, a novel dressing that delivers oxygen to the
wound bed, and a sterile BIAKŌS product for use in surgical
settings. Additionally, Sanara expects to commercialize three
products with Cook Biotech in the second half of 2021. The first
two, FORTIFY TRG Tissue Repair Graft and FORTIFY FLOWABLE
Extracellular Matrix, are currently 510(k) cleared for use in the
surgical wound care segment, and VIM Amnion Matrix is categorized
by the U.S. Food and Drug Administration (“FDA”) as an
HCT/P, subject to regulation under Section 361 of the Public Health
Service Act (“PHSA”) (for which no premarket approval
or clearance is required).
3
The
UWSS technology-based services we expect to launch in 2021 include:
an electronic medical record (“EMR”) software platform
for both wound and skin conditions (WounDerm, LLC f/k/a Woundyne
Medical, LLC (“WounDerm”)), skin and wound virtual
consult services (DirectDerm Inc. (“DirectDerm”) and
MGroup Integrated Physician Services, P.A. (“MGroup”)),
and diagnostic products and services for chronic wounds (Precision
Healing Inc. (“Precision Healing”)).
As
detailed below, following the anticipated launch of UWSS’s
service offerings, we expect to be able to provide wound treatment
solutions for patients across the entire acute and post-acute
continuum of care:
Strategy
●
Drive additional market penetration as well as geographic expansion
for our products. We intend to leverage our comprehensive
product and technology-based services portfolio and relationships
with key constituents to deepen our presence in the surgical and
chronic wound and skin care markets. We believe the breadth and
flexibility of the products we offer allow us to address a wide
variety of wound types and sizes and offer significant new
opportunities for sales growth. In addition, we believe that as we
continue to offer new products and technology-based services, our
salesforce’s ability to reach additional customers in new and
existing geographic regions while penetrating further in existing
customer accounts will be enhanced.
●
Expand into new markets for our products and services. In
2020 we made significant investments in virtual consult
technologies and services. The COVID-19 pandemic has dramatically
increased demand for these services with expanded reimbursements
and patients being more comfortable seeing their care provider
virtually. We believe that the virtual consult technologies and
services that we will offer, when combined with our innovative and
highly efficacious products, will offer a differentiated
comprehensive wound and skin care solution for patients and care
givers.
●
Launch new innovative products. We are actively working with
third-party research and development partners to develop additional
proprietary products for the chronic and surgical wound and skin
care markets. We expect these products and services to deepen our
portfolio of technologies to treat chronic wounds as well as
improve surgical site outcomes. We are focused on offering
additional products and services that are more efficacious than
competing products and services and provide a stronger value
proposition (lower total cost to heal and less time to heal leading
to reduced costs to the healthcare system).
4
●
Capture patients throughout the entire continuum of care. We
intend to continue expanding our platform to aid in treating wound
and skin care patients as they progress through the healing process
in all care settings. As discussed above, in June 2020, we formed a
subsidiary, UWSS, to hold certain investments in technologies and
operations in wound and skin care virtual consult services. We
believe our service offerings will allow us to collect and analyze
large amounts of data on patient conditions and outcomes that will
improve treatment protocols and ultimately lead to more
evidence-based healing formularies to improve outcomes in the
future. We anticipate that this data will also enable us to
participate in the creation of new standards of care that promote
patient compliance and enable direct dialogue between patients,
clinicians and payors, resulting in greater satisfaction for
patients, their caregivers, clinicians and payors.
●
Seek and establish partnerships and product, technology, and/or
services acquisitions. We plan to continue to seek and
establish partnerships in the United States and internationally to
provide innovative products, services, and technologies. We believe
that partnerships will be a key driver of our growth in the future.
We also intend to selectively pursue acquisitions of businesses and
technologies that complement our existing strategy and
footprint.
●
Achieve meaningful operating margin improvement. We expect
to increase our margins through a dual-pronged approach. First, as
we scale the sales of our products, the leverage on salaries and
infrastructure costs (legal, finance, commercial operations support
and rent) as a percentage of revenue should decrease, increasing
our operating margin. Second, we expect to achieve higher gross and
operating margins as our UWSS services are commercialized and reach
sufficient scale.
Competitive Strengths
●
Comprehensive solution for improved wound care outcomes. We
are dedicated to offering a comprehensive portfolio of products and
services to improve wound care treatment outcomes. We are currently
developing the capability to provide telehealth services for the
diagnosis and treatment of wound and skin care patients. Our
product offerings are able to disinfect wounds and accelerate the
body’s healing process for acute and chronic wounds and allow
clinicians to provide a consistent plan of care for a patient from
diagnosis through treatment.
●
Wound care products for all care settings. Our wound care
product portfolio allows clinicians to personalize solutions to
meet the needs of individual wound care patients in all care
settings including acute (hospitals and LTACHs) and post-acute
(wound care clinics, physician offices, SNFs, home health, hospice,
and retail). Our experienced wound care sales force is highly
trained to assist clinicians to effectively deploy the full
complement of our product portfolio to effectively treat
wounds.
●
Innovative pipeline and proven clinical performance. We have
a robust pipeline of chronic and surgical wound and skin care
products that we expect to market in the near term. We believe the
efficacy of our offerings, will be proven via statistically
significant collected and analyzed clinical and health economic
outcomes data, resulting in expanded adoption of our products at a
lower overall cost to payors.
●
Attractive markets for acute and chronic wound care. We
believe the acute and chronic wound care markets will continue to
see accelerated growth given favorable global tailwinds that
include an aging population, increasing costs of health care,
recognition of difficult-to-treat infection threats such as
biofilms, and the increasing prevalence of diabetes and obesity. We
believe there will be growing adoption of our products due to their
clinical efficacy and cost effectiveness for all key constituents
compared to traditional wound care products.
●
Proven executive leadership team with a long-term track record of
value creation. We are led by a dedicated and seasoned
management team with significant industry experience who have
successfully executed our strategic implementation to date by
launching new products and technologies through investment in new
areas of growth. We believe our management has the vision and
experience to implement our future growth strategy.
Market Opportunities for our Products and Technology-Based
Services
In
October 2019, Centers for Medicare & Medicaid Services’
(“CMS”) reimbursement methodology for home health
agencies and SNFs (Patient Driven Group Model and Patient Driven
Payment Model, respectively) created unique opportunities to
provide efficacious wound healing inside of those sites of care in
unprecedented fashion. With those payment models now focused on a
patient’s characteristics (including number of wounds and
skin conditions) rather than the volume of services provided,
greater remuneration is provided to home health agencies and SNFs
for the treatment of wound care patients. As a result, the
incentive to transfer patients with both acute and chronic wounds
to more burdensome and costly care settings, such as inpatient or
outpatient wound-care centers, has been discouraged or eliminated.
This shift in vertical economics provides us with a unique
opportunity, in adjunctive fashion with home health agencies and
SNFs, to deliver highly technical and comprehensive wound care
where this most vulnerable patient population resides thus
achieving CMS’s desired results: better patient outcomes at a
lower total cost of care.
5
Chronic and Other Hard-to-Heal Wounds
According
to a study published by the Value
in Health journal, roughly 15% of the Medicare beneficiary
population has chronic nonhealing wounds. Chronic wounds do not
advance through the phases of healing in a normal progression and
do not show significant progress toward healing in 30 days. Factors
contributing to the chronicity of the wound may include pressure /
friction, trauma; insufficient blood flow and oxygenation in
locations such as the lower extremities; increased bacterial load;
excessive proteases; degraded growth factors; matrix
metalloproteinases (“MMPs”); senescent / aberrant
cells; or inappropriate treatment. Examples of chronic wounds
include DFUs, venous leg ulcers (“VLUs”), arterial
ulcers, pressure ulcers and hard-to-heal surgical/traumatic wounds.
In each of the various wound types, the presence of biofilms is a
frequent cause for chronification of wounds and the removal of
biofilms is a crucial step to commence healing. Biofilms need to be
eradicated to prevent further deterioration of the wound that may
result in additional negative patient outcomes. If not effectively
treated, these wounds can lead to potentially severe complications,
including further infection, osteomyelitis, fasciitis, amputation
and increased mortality. Chronic wounds are primarily seen in the
elderly population. For example, a 2019 study published in
Advances in Wound Care
reported that in the United States, 3% of the population over the
age of 65 had open wounds. According to the same study, in 2020,
the U.S. government estimated that the elderly population totaled
55 million people, suggesting that chronic wounds will continue to
be an increasingly persistent problem in this population. Four
common chronic and other hard-to-heal wounds are:
●
Diabetic Foot Ulcers. Diabetes can lead to a reduction in
blood flow, which can cause patients to lose sensation in their
feet and may prevent them from noticing injuries, sometimes leading
to the development of DFUs, which are open sores or ulcers on the
feet that may take several weeks to heal, if ever. According to the
2020 National Diabetes Statistics Report by the Center for Disease
Control and Prevention, in the United States alone, over 34 million
people, or approximately 10% of the population, suffer from
diabetes, a chronic, life-threatening disease. Of those that suffer
from diabetes, approximately 1.7 million people (or 5% of diabetics
in the United States) will develop DFUs on a yearly basis,
according to the CEO of Corstrata, a digital healthcare and wound
management firm specializing in the treatment of foot
ulcers.
●
Venous Leg Ulcers. VLUs develop as a result of vascular
insufficiency, or the inability for the vasculature of the leg to
return blood back toward the heart properly and, according to a
2013 report published by the International Journal of Tissue Repair and
Regeneration, VLUs affect approximately 600,000 people per
year in the United States alone. These ulcers usually form on the
sides of the lower leg, above the ankle and below the calf, and are
slow to heal and often recur if preventative steps are not taken.
The risk of venous ulcers can be increased as a result of a blood
clot forming in the deep veins of the legs, obesity, smoking, lack
of physical activity or work that requires many hours of
standing.
●
Pressure Ulcers. Pressure ulcers, also known as decubitus
ulcers or bed sores, are injuries to skin and underlying tissue
resulting from prolonged pressure, or pressure in combination with
shear or friction. Constant pressure on an area of skin reduces
blood supply to the area and over time can cause the skin to break
down and form an open ulcer. These often occur in patients who are
hospitalized or confined to a chair or bed and most often form on
the skin over bony areas, where there is little cushion between the
bone and the skin, such as heels, ankles, hips and the tailbone.
Annually, 2.5 million pressure ulcers are treated in the United
States in acute care facilities alone, according to a 2006 study
published in the Journal of the
American Medical Association.
●
Surgical/traumatic wounds. Surgical wounds form as a result
of various types of surgical procedures such as investigative or
corrective, minor or major, open (traditional) or minimal access
surgery, elective or emergency, and incisions (simple cuts) or
excision (removal of tissue), among others. Traumatic wounds form
as a result of cuts, lacerations or puncture wounds, which have
caused damage to the skin and underlying tissue. Severe traumatic
wounds may require surgical intervention to close the wound and
stabilize the patient. Surgical/traumatic hard-to-heal wounds
develop for various reasons, such as local surgical complications,
suboptimal closure techniques, presence of foreign materials,
exposed bones or tendons and infection. In the United States,
millions of people receive post-surgical wound care annually, and
the typical operative patient has comorbidities that create
challenges with post-operative wound healing.