SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

 

For the fiscal year ended December 31, 20192020

Commission File Number 0-11808001-39678

SANARA MEDTECH INC.

 

 

 

 

 

 

 

 

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. ☐

 

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of June 30, 20192020 based on the $5.51$18.00 closing price as of such date was approximately $6,526,022$22,923,054.

  

 

SANARA MEDTECH INC.

Form 10-K

For the Year Ended December 31, 20192020

 

 

 

 

 

 

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 productfactors 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.

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 commercial pipeline is keysubsidiary, United Wound and Skin Solutions LLC (“UWSS”), to improvinghold 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. In line withWe intend to launch our six focus areasinitial 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 which are: debridement, biofilm management, hydrolyzed collagen, advanced biologics, adjunctfrom diagnosis through healing.

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:

In addition, we have a robust pipeline of products under development for Negative Pressureboth 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 Therapy,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 delivery systems forto 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 Company introducedsecond 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).

As detailed below, following products in 2019: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:

 

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 through evidence-based healing solutions. The Company is well positionedat a lower total cost of care.

 

The Company’s exclusive license to sellfollowing products licensed from AN:

The Cellerate Acquisition was accounted for as a reverse mergerfollowing products licensed from Rochal:

Collagen is important in all phases of wound healing: hemostasis, inflammation, proliferation and remodeling. Collagen promotes the completiondevelopment of granulation (the formation of new tissue from the bottom of the transaction, Catalyst could obtain effective controlwound bed), angiogenesis/vascularization, and re-epithelialization (the migration of cells across granulation tissue to close the wound). A healthy body produces native collagen as the first step in the healing process. Native collagen is an insoluble, rigidly coiled helical molecule that is critical to wound healing and one of the Company upon exercise offirst tissue structures deposited into the wound base by fibroblasts. Native collagen must then be hydrolyzed by proteases (e.g., collagenase or MMPs) into its convertible preferred stock and promissory note, both of which could occur at Catalyst’s option. Additionally, Cellerate, LLC’s officers and senior executive positions continued on as managementsoluble component amino acid peptides in order to realize additional biological benefits. Hydrolyzed collagen results from the conversion of the combined entity after consummation ofcoiled collagen helix into peptides which support the Cellerate Acquisition.

 

CellerateRX Surgical is a medical hydrolysate of Type I bovine collagen indicated for the management of surgical, traumatic, and partial- and full-thickness wounds as well as first- and second-degree burns. It is manufactured in what we believe to be a trade secret process and the powder is further processed for use in a sterile, surgical environment. The gel is typically applied post-operatively. CellerateRX Surgical products are primarily purchased by hospitals and ambulatory surgical centers for use by surgeons on surgical wounds. The predominance of CellerateRX Surgical is used in foot and ankle, neuro/spinal, orthopedic/hip and knee replacement, ortho trauma, and ortho oncology surgeries. Additional specialties benefiting from the use of CellerateRX Surgical include cardiothoracic, colorectal, general, general trauma, gynecologic oncology, hand, head and neck, Mohs, obstetrics and gynecology (including caesarean deliveries), plastic/reconstructive, urologic, and vascular.

HYCOL Hydrolyzed Collagen products are available through skilled nursing facilities, wound care clinics and othera medical facilities, and arehydrolysate of Type I bovine collagen intended for the management of full and partial thickness wounds including pressure ulcers, venous and arterial leg ulcers and diabetic foot ulcers.DFUs. HYCOL is primarily used in SNFs, wound care centers and physician offices and is currently approved for reimbursement under Medicare Part B. HYCOL provides the benefit of hydrolyzed collagen fragments directly in the wound bed. Therefore, unlike with the body’s own native collagen or native collagen products, the body does not have to break HYCOL down before use, which is extremely beneficial when treating elderly and otherwise compromised patients with comorbidities such as diabetes and cardiovascular disease.

We believe our CellerateRX and HYCOL products are unique in composition, superior to other products in clinical performance, and demonstrate the ability to reduce costs associated with the standards of care for their intended uses.uses and have been safely used on over seventy-five thousand patients.

 

BIAKŌS AWC is an FDA 510(k) cleared, patented product that laboratory tests show effectively disrupts extracellular polymeric substances to eradicate mature biofilm microbes. BIAKŌS AWC also providesis indicated for the mechanical removal of debris, dirt, foreign materials, and microorganisms from wounds including stage I-IV pressure ulcers, diabetic foot ulcers,DFUs, post-surgical wounds, first and second-degree burns as well as grafted and donor sites. BIAKŌS AWC is effective in killing free-floating microbes, immature, and mature bacterial biofilms and fungal biofilms. In addition, safety studies demonstrated that BIAKŌS AWC safety studies show that it is non-cytotoxic, non-irritating,biocompatible and non-sensitizing to healthy skin and assists insupports the normal wound healing process. FirstInitial sales of BIAKŌS AWC occurred in July 20192019.

 

PULSAR II™ AdvancedBIAKŌS AWC is also available in an irrigation bottle (BIAKŌS Antimicrobial Skin and Wound Irrigation System (AWI™) is a portable, no touch, painless, selective hydro-mechanical debridement systemSolution) that effectively removes bacteriacan be used in conjunction with NPWTi-d and necrotic tissue from wounds without disrupting healthy tissue.other wound irrigation needs.

 

BIAKŌS AWC and BIAKŌS Antimicrobial Wound Gel are effective against planktonic microbes as well andas immature and mature biofilms. When used together, the cleanser can be used initially to clean a wound and disrupt biofilms (removing 99% in 10 minutes). The gel can then be applied and will remainremains in the wound for up to 72 hours eliminatinghelping to continue disrupting biofilm microbes. In a study conducted in 2020, BIAKŌS Antimicrobial Wound Gel, in combination with BIAKŌS AWC, was compared to a number of wound cleansers to treat chronic wounds such as pressure, diabetic, and venous ulcers in the inflammatory phase of wound healing. The BIAKŌS system reduced the biofilm burden by 7.5 logs (>99.99% reduction) by the 24-hour time point and eradicated it by the 48-hour time point while the remaining commercial controls reduced the Methicillin-resistant Staphylococcus aureus (“MRSA”) biofilms between normal dressing changes.by less than 1 log. Below is a graphic summarizing the efficacy of the use of BIAKŌS Antimicrobial Wound Gel in combination with BIAKŌS AWC when reducing the MRSA mature biofilm.

The Company alsoPrecision Healing product platform is a diagnostic imaging and smart pad for assessing a patient’s wound and skin conditions. This comprehensive skin and wound assessment technology is designed to quantify biochemical markers to determine the trajectory of a wound’s condition to enable better diagnosis and treatment protocol. Precision Healing was formed by executives and imaging specialists at Lumicell Corporation as well as experienced wound care scientists and physicians. Precision Healing expects to introduce BIAKŌS™ Antimicrobial Barrier Film (BIAKŌS ABF)have its imaging device and smart pad commercially available in 2021 and is currently being integrated into the latter part of 2020. BIAKŌS ABF is an FDA cleared, first in-class, antimicrobial spray-on wound dressing that kills microbes while protecting underlying tissue, helping to remediate damage and prevent further infection. This product can be used on macerated skin and wounds.WounDerm EMR.

 

 

RSMs are initially trained through an internal learning management system, SanaraU, which gives them further product and surgical specialty training including wound etiology, operating room etiquette and credentialing requirements. After completing their internal training, new hire RSMs participate in field training with experienced RSM field trainers to get insights into best practice as well as real world training. The Company’sinitial training period lasts approximately five weeks. RSMs are supported by regular updated training modules on product information and best practices.

Our surgical division markets and distributes CellerateRX Surgical. CellerateRX Surgical products are attracting increased business fromis primarily purchased by hospitals and surgeryambulatory surgical centers due tofor use by surgeons in their recognized benefits including efficacy and economic value. The surgical products are used in specialty areas including total joint replacement, spine, orthopedic, trauma, vascular, general, plastic and reconstructive surgeries and podiatry. The surgical products arefacilities. CellerateRX Surgical is sold through a growing network of independent surgical specialty distributorssales agencies and Company representatives who are credentialed to demonstratesell and support the products in surgical settings. Over 750 hospitals and ambulatory surgical centers currently have approval to use CellerateRX Surgical, with more locations being consistently added. The current efforts of our sales teams involve deeper penetration into these approved locations.

 

The Company’s advancedOur chronic wound care products aredivision markets and distributes the following products: BIAKŌS AWC, BIAKŌS Antimicrobial Skin and Wound Gel, BIAKŌS Antimicrobial Skin and Wound Irrigation Solution, and HYCOL powder and gel. Our chronic wound division primarily distributeddistributes to the post-acute care settings, including long-term care facilities, home health, wound care centers, and professional medical offices. Due to the expansion of our distribution network, the increasing prevalence of diabetic and decubitus (pressure) ulcers, and the demonstrated efficacy of our products, we believe demand for our products will grow significantly in 2020. We believe our products are unique in composition, superior to other products in clinical performance, and demonstrate the ability to reduce costs associated with standard wound management. Our wound care productsProducts are sold by Company representatives supplemented by major medical-surgical distributors, independent distributors, and durable medical equipment (DME)DME distributors.

AsWe do not own or operate and do not intend to establish our own manufacturing facilities. We rely on, and plan to continue relying on, contract manufacturing for our products. Our contract manufacturing strategy is intended to drive cost leverage and scale and avoid the high capital outlays and fixed costs associated with constructing and operating manufacturing facilities. Our manufacturing partners have internal compliance processes to maintain the high quality and reliability of March 26, 2020,our products. They utilize annual internal audits, combined with external audits by regulatory agencies and commercial partners to monitor their quality control practices. We believe our contract manufacturers are well-positioned to support future expansion of our product sales. We do source some packaging and marketing materials separate from our licensing partners.

We do not promote our products based on their reimbursement status, however, we are mindful of the Company hasbenefits of a stafffavorable reimbursement coverage status to increase patient access and support our research and development efforts to supply the highest efficacy solutions.

Three of 40, consistingour chronic wound care products (BIAKŌS Antimicrobial Skin and Wound Gel, HYCOL Hydrolyzed Collagen Powder, and HYCOL Hydrolyzed Collagen Gel) have HCPCS A codes and are eligible for reimbursement through Medicare Part B. There is currently no reimbursement for BIAKŌS AWC or BIAKŌS Antimicrobial Skin and Wound Irrigation Solution. CellerateRX Surgical is currently captured as part of 38 full-time employeesthe cost of the surgical procedure.

We anticipate that our UWSS services, once launched, will provide a wealth of patient data to help us measure our products’ effectiveness on improving patient outcomes while simultaneously reducing healthcare costs. We believe our reimbursement strategy, including establishing the clinical validation, clinical utility and 2 part time employees.health economics of our products, will allow us to drive improved reimbursement coverage for our products and technologies.

 

The wound care market is served by a number of large, multi-product line companies as well as a number of small companies. Our products compete with primary dressings, advanced wound care products, collagen matrices and other biopharmaceutical products. Manufacturers and distributors of competitive products include Smith & Nephew plc, Acelity L.P. Inc., Medline Industries, Inc., ACell Inc., andConvaTec Group plc, Mölnlycke Health Care AB, 3M Company, Integra LifeSciences Holdings Corporation.Corporation (which acquired ACell Inc. on January 20, 2021) and numerous others. Many of our competitors are significantly larger than we are and have greater financial and personnel resources. We believe, however, that our products outperform our competitors’ currently available equivalent products for the specific application in which they are intended by improvingproviding improved efficacy, reducing thebetter outcomes, and reduced cost of patient care.

UWSS plans to offer a comprehensive wound care and replacingdermatology strategy to expand cost-effective, high quality wound and skin care to all patients throughout the care setting continuum. Although novel in its comprehensive offerings and solutions, there are existing competitors for each of the verticals in which UWSS plans to offer services and solutions.

After a device is cleared or approved for commercialization, and prior to marketing, numerous regulatory requirements apply to the various entities responsible for preparing a device for distribution, including the manufacturer (including specification developer), contract manufacturers, relabelers/repackagers, sterilizers and initial importer, as applicable. These include:

Violations of HIPAA may result in civil and criminal penalties. The civil penalties range from $119 to $59,522 per violation, with a cap of $1.8 million per year for violations of the same standard during the same calendar year. However, a single primary dressing.breach incident can result in violations of multiple standards. We must also comply with HIPAA’s breach notification rule. Under the breach notification rule, covered entities must notify affected individuals without unreasonable delay in the case of a breach of unsecured PHI, which may compromise the privacy, security or integrity of the PHI. In addition, notification must be provided to Health and Human Services (“HHS”) and the local media in cases where a breach affects more than 500 individuals. Breaches affecting fewer than 500 individuals must be reported to HHS on an annual basis. The regulations also require business associates of covered entities to notify the covered entity of breaches by the business associate.

 

 

The following risk factors should be considered with respect to making any investment inrisks below are those that we believe are the material risks that we currently face, but are not the only risks facing us and our securities as such an investment involves a high degree of risk. You should carefully consider the following risks and the other information set forth elsewhere in this report, including the financial statements and related notes, before you decide to purchase shares of our stock.business. If any of these risks actually occur, our business, financial condition and results of operations could be materially adversely affected. AsBelow is a result, the trading pricesummary of our stock could decline, perhaps significantly, and you could lose part or all of your investment. As used herein, the word “business” as used in “material adverse effect on our business”, “adversely affect our business” and other similar phrases includes any of (or any combination of) the Company’s present or future operations, financial performance, margins, revenues, operating margins, stock value, competitive position, or other indicators of Company performance.risk factors with a more detailed discussion following.

 

 

We have had a history of losses, which may continue as we expand our selling efforts.

 

The Company hasWe have incurred net losses in most years since we began our current operations in 2004. We plan to continue making significant investments in our sales force and clinical programs, which substantially increase our operating expenses. Consequently, we will need to continue our revenue growth to become profitable in the future.future periods. We cannot offer any assurance that we will be able to generate future sales growth. If we fail to achieve profitability, our stock price may decline, and you may lose part or all of your investment.

 

 

Because we are a relatively small company, our revenue growth and, consequently, results of operations are difficult to predict. We plan our operating expense levels based primarily on forecasted revenue levels. A shortfall in revenue could lead to operating results being below expectations as we may not be able to quickly reduce our fixed expenses in response to short-term revenue shortfalls. We have experienced fluctuations in revenue and operating results from quarter to quarter and anticipate that these fluctuations will continue until we achieve a critical mass with our product and service sales. These fluctuations can result from a variety of factors, including:

As a consequence, operating results for a particular future period are difficult to predict and prior results are not necessarily indicative of future results. Any of the foregoing factors, or any other factors discussed elsewhere herein, could have a material adverse effect on our business.

 

If our products do not gain market acceptance,Our current comprehensive wound and skin care strategy involves growth through acquisitions and investments, which requires us to incur substantial costs and potential liabilities for which we might not be able to fund future operations.may never realize the anticipated benefits.

 

Several factors may affect the market acceptanceIn addition to internally generated growth, our current strategy to expand into wound and skin care virtual consult and other services involves growth through acquisitions and investments. Between January 1, 2020 and December 31, 2020, we have made minority shareholder investments in two businesses at a total cost of approximately $1.1 million, and in February 2021, we made an additional $0.6 million investment in such businesses. In addition, in January 2021 we acquired WounDerm for aggregate consideration of 29,536 shares of our products or any other products we develop or acquire. These include, but are not limited to:common stock.

 

 

 

We may be unable to continue implementing our growth strategy, and our strategy ultimately may be unsuccessful. We engage in evaluations of potential acquisitions and investments and are in various stages of discussion regarding possible acquisitions, certain of which, if consummated, could be significant to us. Any new acquisition or changesinvestment could result in our distribution model or customer basematerial transaction expenses, increased interest and amortization expense, increased depreciation expense and increased operating expense, any of which could harm our sales and margins.

 

We have a history of operating losses and negative cash flow from operating activities, with the exception of 2016 and 2018. As such, we have utilized funds from offerings of our securities to fund our operations. Futurefuture results of operations involve significant risks and uncertainties. Factors that could affect our future operating results and cause actual results to vary materially from expectations include, but are not limited to, potential demand for our products risksand services, new product and service offerings from competitors, regulatory approval of our new products, technological change, and dependence on key personnel. Although we have taken steps to improve our overall liquidity, if our cash flow is insufficient, we may be forced either to secure additional amounts to our bank line of credit or seek additional debt or equity financing in order to:

 

If our capital needs are met through the issuance of equity or convertible debt securities, the percentage ownership of our current shareholders may be reduced which may have a negative impact on the market price of our common stock. Our future success may be determined in large part by our ability to obtain additional financing, and the incurrence of indebtedness would result in increased debt service obligations which could result in operating and financing covenants that would restrict our operations. There can be no assurance that such financing would be available or, if available, that such financing could be obtained upon terms acceptable to us. If adequate funds are not available, or are not available on acceptable terms, our operating results and financial condition may suffer.

 

Failure to retain and recruit key personnel would harm our ability to meet key objectives.

 

Our success depends, in large part, on our ability to attract and retain skilled executive, managerial, sales and marketing personnel. We compete for such personnel with other companies, some of which have greater financial resources than we do to recruit and retain personnel. There can be no assurance that we will be able to find and attract additional qualified employees or retain any such executive officers and other key personnel. The inability to hire qualified personnel or the loss of services of our executive officers or key personnel may have a material adverse effect on our business. Further, any inability on our part to enforce non-compete arrangements related to key personnel who have left our company or may leave our company in the future could have a material adverse effect on our business.

 

Our ability to successfully implement our business plan and market and sell our surgical, wound and skin care products and implement our business planservices requires an effective plan for managing our future growth. We plan to increase the scope of our operations at a rapid rate. Future expansion efforts will be expensive and may strain our internal operating resources. To manage future growth effectively, we must maintain and enhance our financial and accounting systems and controls, integrate new personnel and manage expanded operations. If we do not manage growth properly, it could harm our operating results and financial condition.

 

 

We operate in a highly competitive industrymarkets and face competition from large, well-established medical device manufacturers and telehealth providers as well as new market entrants.entrants, and if we are unable to compete within our markets or our products and services do not gain market acceptance, our operating results and financial condition could suffer.

 

Competition from other medical device companies is significant and could be significantly affected by new product introductions and other market activities of industrymarket participants. We compete with other companies in acquiring rights to products or technologies from third partythird-party developers. Although our products have performed well in customer evaluations, we are a relatively unknown brand in a market controlled, in large part,dominated by companies with aextensive product lines and large customer base.bases. We may not, even with strong customer accounts,more efficacious products, be able to establish the credibility necessary to secure contracts and achieve significant growth with large national customers.accounts.

 

Several factors may limit the market acceptance of our products and services, including the timing of regulatory approvals and market entry relative to competitive products and services, the availability of alternative products and services, the price of our products and services relative to alternative products and services, the availability of third-party reimbursement and the extent of marketing efforts by third partythird-party distributors or agents that we retain. There can be no assurance that our products or services will receive market acceptance in a commercially viable period of time, if at all. Furthermore, there can be no assurance that we can develop products and services that are more effective or achieve greater market acceptance than competitive products and services, or that our competitors will not succeed in developing or acquiring products and technologies that are more effective than those being developed by us, that would render our products and technologies less competitive or obsolete.

 

Our competitors enjoy several competitive advantages over us, including but not limited to:

The presence of competition in our market may lead to pricing pressure which would make it more difficult to sell our products and services at a profitable price or may prevent us from selling our products at all. Our failure to compete effectively would have a material adverse effect on our business.

 

Security breaches and other disruptions could compromise our information and expose us to liability, which would cause our business and reputation to suffer.

 

In the ordinary course of our business, we use networks to collect and store sensitive data, including intellectual property, proprietary business information and important information of our customers, suppliers and business partners, as well as personally identifiable information of our customers and employees. The secure processing, maintenance and transmission of this information is critical to our operations. Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions. Any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in the loss of existing customers, difficulty in attracting new customers, backlash from negative public relations, legal claims or proceedings, liability under laws that protect the privacy of personal information, and regulatory penalties. Further, such access, disclosure or loss may cause disruption of our operations and the services we provide to customers, damage to our reputation, and cause a loss of confidence in our products and services, which could adversely affect our business.

 

We have programs, processes and technologies in place to prevent, detect, contain, respond to and mitigate security related threats and potential incidents. We undertake considerable ongoing improvements to our systems, connected devices and information-sharing products in order to minimize vulnerabilities, in accordance with industry and regulatory standards. Because the techniques used to obtain unauthorized access change frequently and can be difficult to detect, anticipating, identifying or preventing these intrusions or mitigating them if and when they occur, may be challenging.

If we fail to maintain an effective system of internal controls over financial reporting, we may not be able to maintain sufficient product liability insurance to cover claims against us.accurately report our financial results or prevent fraud and our business may be harmed and our stock price may be adversely impacted.

 

Product liability insuranceEffective internal controls over financial reporting are necessary for us to provide reliable financial reports and to effectively prevent fraud. Any inability to provide reliable financial reports or to prevent fraud could harm our business. The Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) requires management to evaluate and assess the healthcare industry is generally expensiveeffectiveness of our internal control over financial reporting. In order to comply with the extent it is available at all.requirements of the Sarbanes-Oxley Act, we are required to continuously evaluate and, where appropriate, enhance our policies, procedures and internal controls. If we fail to maintain the adequacy of our internal controls over financial reporting, we could be subject to litigation or regulatory scrutiny and investors could lose confidence in the accuracy and completeness of our financial reports. We may notcannot provide any assurance that in the future we will be able to fully comply with the requirements of the Sarbanes-Oxley Act or that management will conclude that our internal control over financial reporting is effective. If we fail to fully comply with the requirements of the Sarbanes-Oxley Act, our business may be harmed and our stock price may decline. In addition, because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

On January 15, 2021, we entered into a loan agreement (the “Loan Agreement”) with Cadence Bank, N.A. (“Cadence”) that provides for a $2.5 million revolving line of credit. The Loan Agreement governing our revolving line of credit requires us to maintain compliance with certain financial covenants, including, among others, a minimum liquidity of $1.0 million as of December 31, 2020 and March 31, 2021, a minimum Tangible Net Worth (as defined in the Loan Agreement) of $1.0 million and, beginning with the fiscal quarter ending June 30, 2021, a minimum Interest Coverage Ratio (as defined in the Loan Agreement) of 1.5 to 1.0. A breach of these covenants could result in a default under the Loan Agreement. If amounts owed under the Loan Agreement are accelerated because of a default and we are unable to pay such insurance on acceptable termsamounts, Cadence may have the right to assume control of substantially all of our assets.

If we are unable to refinance or repay amounts that we borrow under our revolving line of credit prior to its maturity date, our cash flow would be directed to the repayment of our debt and would not be available for operating our business. No assurance can be given that any refinancing or additional financing will be possible when needed or that we will be able to secure increased coverage as commercializationnegotiate acceptable terms. In addition, our access to capital is affected by prevailing conditions in the financial and capital markets and other factors beyond our control. There can be no assurance that market conditions will be favorable at the times that we require new or additional financing.

We rely on our research and development partners to design, manufacture and supply the products we have licensed for marketing. If one of our products progresses, nor canpartners fails to perform adequately or fulfill our needs, we may be sure that existing or future claims against us will be covered byrequired to incur significant costs. We may also face significant delays in our product liability insurance. Moreover,introductions and commercialization.

We do not currently own any facility that may be used as a manufacturing and processing facility, and we rely on our research and development partners, from whom we license all of the existing coverageproducts we currently commercialize, to design, manufacture and supply such products.

Our research and development partners responsible for manufacturing our products and their contract manufacturers are obliged to operate in accordance with FDA’s current good manufacturing practices (“cGMP”), current good tissue practices (“cGTP”), and the Quality System Regulation (“QSR”), as applicable, as well as other regulations applicable to medical product manufacturers. The manufacture of regulated medical products in compliance with cGMP, cGTP, and the QSR, as applicable, requires significant expertise and capital investment, including the development of advanced manufacturing techniques and process controls. Manufacturers of medical products often encounter difficulties in production, including difficulties with production costs and yields, quality control, including product stability and quality assurance testing, shortages of qualified personnel, as well as compliance with strictly enforced regulatory requirements, other federal and state regulatory requirements and foreign regulations. If our insurance policyresearch and development partners or their contract manufacturers were to encounter any rights of indemnification and contribution that we may have may notthese difficulties or otherwise fail to comply with their obligations to us or under applicable regulations, our ability to commercialize our products would be sufficient to offset existingjeopardized. Any delay or future claims. A successful claim against us with respect to uninsured liabilities orinterruption in excessthe supply of insurance coverage and not subject to any indemnification or contributionproducts could have a material adverse effect on our business.

 

 

 

Competitors could invent products superior to ours and cause our products and technologies to become obsolete.

 

The wound care sector of the medical products industry is characterized by a multitude of technologies and intense competition. Our competitors currently manufacture and distribute a variety of products that are, in many respects, comparable to our products. Many suppliers of competing products are considerably larger and have much greater resources than we have. In addition, many specialized products companies have formed collaborations with large, established companies to support research, development and commercialization of wound care products which may be competitive with ours. Academic institutions, government agencies and other public and private research organizations are also conducting research activities and may commercialize wound care products on their own or through joint ventures. It is possible that these competitors may develop technologies and products that are more effective than any we currently have. If this occurs, any of our products and technology affected by these developments could become obsolete.

 

We may have exposure to product liability claims.

 

Although we have contractual indemnity from the manufacturermanufacturers of CellerateRXour current products for certain liability claims related to itstheir production, we could face a product liability claim outside of the scope of the contractual indemnity.indemnities. We do not have, and do not anticipate obtaining, contractual indemnification from parties supplying raw materials or parties marketing the products we sell. In any event, indemnification from the manufacturermanufacturers of CellerateRXour products or from any other party is limited by the terms of the indemnity and by the creditworthiness of the indemnifying party. A successful product liability claim or series of claims brought against us could result in judgments, fines, damages and liabilities that could have a material adverse effect on our business. We may incur significant expense investigating and defending these claims, even if they do not result in liability. Moreover, even if no judgments, fines, damages or liabilities are imposed on us, our reputation could suffer as result of a product liability claim, which could have a material adverse effect on our business.

Product liability insurance for the healthcare industry may become prohibitively expensive, to the extent it is available at all. We may not be able to maintain such insurance on acceptable terms or be able to secure increased coverage as commercialization of our products progresses, nor can we be sure that existing or future claims against us will be covered by our product liability insurance. In the event that we do not have adequate insurance or contractual indemnification, product liability claims relating to defective products could have a material adverse effect on our business.

 

 

If we are unable to adequately protect our intellectual property rights, adequately, we may not be able to compete effectively.

 

 

We may be found to infringe on intellectual property rights of others.

 

Third parties, including customers, may in the future assert claims or initiate litigation related to exclusive patent, copyright, trademark and other intellectual property rights to technologies and related standards that are relevant to us. These assertions may emerge over time as a result of our growth and the general increase in the pace of patent claim assertions, particularly in the U.S. Because of the existence of a large number of patents in the healthcare field, the secrecy of some pending patentspatent applications and the rapid rate of issuance of new patents, we believe that it is not economically practical or even possible to determine in advance whether a product or any of its components infringes or will infringe the patent rights of others. The asserted claims or initiated litigation can include claims against us or our manufacturers, suppliers or customers alleging infringement of their proprietary rights with respect to our existing or future products or components of those products. Regardless of the merit of these claims, they can be time-consuming, result in costly litigation and diversion of technical and management personnel, or require us to develop a non-infringing technology or enter into license agreements. Where claims are made by customers, resistance even to unmeritorious claims could damage customer relationships. There can be no assurance that licenses will be available on acceptable terms and conditions, if at all, or that our indemnification by our suppliers will be adequate to cover our costs if a claim were brought directly against us or our customers. Furthermore, because of the potential for high court awards that are not necessarily predictable, it is not unusual to find even arguably unmeritorious claims settled for significant amounts. If any infringement or other intellectual property claim made against us by any third party is successful, or if we fail to develop non-infringing technology or license the proprietary rights on commercially reasonable terms and conditions, our business could be materially and adversely affected.

 

 

 

Our business is affected by numerous regulations.regulations relating to the labeling, marketing and sale of our products.

 

Government regulation by the U.S. FDA and similar agencies in other countries is a significant factor in the development, manufacturing and marketing of our products and in the acquisition or licensing of new products. Complying with government regulations is often time consuming and expensive and may involve delays or actions adversely impacting the marketing and sale of our current or future products.

 

Following initial regulatory approval or clearance of any products that we or our research and development partners may develop, we and/or our research and development partners will be subject to continuing regulatory review, including, reviewbut not limited to:

The manufacturing facilities we or our research and development partners use (and may use) to make any of our FDA-regulated products are or may become subject to periodic review and inspection by the FDA. If a previously unknown problem with a product or a manufacturing andor laboratory facility used or contracted by us or one of our research and development partners is discovered, the FDA may impose restrictions on that product or on the manufacturing facility, including requiring us and/or our research and development partner to withdraw the product from the market. Any changes to an approved or cleared product, including the way it is manufactured or promoted, often requires FDA review and separate approval or clearance before the product, as modified, canmay be marketed. In addition, for products we develop in the future, we and our contract manufacturers may be subject to ongoing FDA requirements for submission of safety and other post-market approval information. If we violate regulatory requirements at any stage, whether before or after marketing approval or clearance is obtained, we may be fined, be forced to remove a product from the market or experience other adverse consequences, which would materially harm our financial results. Additionally, due to limitations imposed on us by the scope of the cleared or approved indications or intended use of our products and by FDA and Federal Trade Commission (“FTC”) regulations relating to promotional claims, we may not be able to obtain the labeling claims necessary or desirable for product promotion.

 

 

If we fail to obtain or experience significant delays in obtaining regulatory clearances or approvals to market future medical device products, we will be unable to commercialize these products until such clearance or approval is obtained.

 

The developing, testing, manufacturing, marketing and selling of medical devices is subject to extensive regulation by governmental authorities in the U.S. and other countries. The process of obtaining regulatory clearance and approval of certain medical technology products is costly and time consuming. Inherent in the development of new medical products is the potential for delay because product testing, including clinical evaluation, is typically required, especially for drugs, biologics and high-risk devices, before manysuch products can be approved for human use. With respect to medical devices, such as those that we manufacture andcurrently market, before a new medical device, or a new indicated use of, or claim for, an existing product can be marketed (unless it is a Class I device), it must first receive either premarket clearance under Section 510(k) of the Federal Food, Drug and Cosmetic Act or approval of a premarket approval application, or PMA from the FDA, or be reclassified and receive marketing authorization through the de novo classification process, unless an exemption applies.

 

Failure to comply with applicable regulatory requirements can result in, among other things, suspension or withdrawal of approvalsclearances or clearances,approvals, seizure or recall of products, injunctions against the manufacture, holding, distribution, marketing and sale of a product and civil and criminal sanctions. Furthermore, changes in existing regulations or the adoption of new regulations could prevent us from obtaining, or affect the timing of, future regulatory clearances or approvals. Meeting regulatory requirements and evolving government standards may delay marketing of ourany new products developed by us for a considerable period of time, impose costly procedures upon our activities and result in a competitive advantage to larger companies that compete against us.

 

We cannot assure you that the FDA or other regulatory agencies will clear or approve any products developed by us on a timely basis, if at all, or, if granted, that clearance or approval will not entail limiting the indicated uses for which we may market the product, which could limit the potential market for any of these products.

 

Changes to the FDA clearance and approval processes or ongoing regulatory requirements could make it more difficult for us to obtain FDA clearance or approval of new products or comply with ongoing requirements.

 

New government regulations may be enacted and changes in FDA policies and regulations and, their interpretation and enforcement, could prevent or delay regulatory clearance or approval of new products. We cannot predict the likelihood, nature or extent of adverse government regulation that may arise from future legislation or administrative action, either in the U.S. or abroad. Therefore, we do not know whether we or our research and development partners will be able to continue to comply with such regulations or whether the costs of such compliance will have a material adverse effect on our business. Changes could, among other things, require different labeling, monitoring of patients, interaction with physicians, education programs for patients or physicians, curtailment of necessary supplies, or limitations on product distribution. These changes, or others required by the FDA could have an adverse effect on our business, and specifically, on the sales of theseaffected products. The evolving and complex nature of regulatory science and regulatory requirements, the broad authority and discretion of the FDA and the generally high level of regulatory oversight results in a continuing possibility that from time to time, we will be adversely affected by regulatory actions despite ongoing efforts and commitment to achieve and maintain full compliance with all regulatory requirements. If we or our research and development partners are not able to maintain regulatory compliance, we willmay not be permitted to market our products and our business would suffer.

 

Modifications to our current products may require new marketing clearances or approvals or require us to cease marketing or recall the modified products until such clearances or approvals are obtained.

 

Any modification to an FDA-cleared product that could significantly affect its safety or efficacy, or that would constitute a major change or modification in its intendedindicated use, requires a new FDA 510(k) clearance or, possibly, a premarket approval (PMA).PMA. In addition, any significant modification to an FDA-approved product, such as a new indication for use, labeling changes, or manufacturing changes, requires submission of a PMA supplement or 30-day notice for changes to manufacturing procedures or methods of manufacture that affect the safety and effectiveness of the product. The FDA requires every manufacturer to make its own determination as to whether a modification requires a new 510(k) clearance or PMA, but the FDA may review and disagree with any decision reached by the manufacturer. In the future, we or our research and development partners may make additional modifications to our products after they have received FDA clearance or approval and, in appropriate circumstances, determine that new clearance or approval is unnecessary. Regulatory authorities may disagree with our or our research and development partners’ decisions not to seek new clearance or approval and may require us or the research and development partner that controls the marketing authorization for the respective device to obtain clearance or approval for previous modifications to our products. If that were to occur for a previously cleared or approved product, we may be required to cease marketing or recall the modified device until we obtain, or our research and development partner obtains, the necessary clearance or approval. Under these circumstances, we may also be subject to significant regulatory fines or other penalties. If any of the foregoing were to occur, our financial condition and results of operations could be negatively impacted.

 

Failure to obtain or maintain adequate reimbursement or insurance coverage for drugs, if any, could limit our ability to market those drugs and decrease our ability to generate revenue. Changes in reimbursement policies and regulations by governmental or other third-party payerspayors may have an adverse impact on the use of our products.

The pricing, coverage, and reimbursement of our products, if any, must be sufficient to support our commercial efforts and other development programs, and the availability and adequacy of coverage and reimbursement by third-party payors, including governmental and private insurers, are essential for most patients to be able to afford medical treatments. Sales of our products depend substantially, both domestically and abroad, on the extent to which the costs of our products, if any, will be paid for or reimbursed by health maintenance, managed care, and similar healthcare management organizations, or government payers and private payors. If coverage and reimbursement are not available, or are available only in limited amounts, we may have to subsidize or provide medical products for free or we may not be able to successfully commercialize our products.

 

A significant portion of our wound care products are purchased principally for the Medicare and Medicaid eligible population by hospital outpatient clinics, wound care clinics, durable medical equipment (DME)(“DME”) suppliers and skilled nursing facilities (SNFs),SNFs, which typically bill various third-party payers,payors, primarily state and federal healthcare programs (e.g., Medicare and Medicaid), and managed care plans, for the products and services provided to their patients. Although the majority of our wound care products are currently eligible for reimbursement under Medicare Part B, adjustments to our reimbursement amounts or a change in Centers for Medicare & Medicaid Services’ (CMS)CMS’s reimbursement policies could have an adverse effect on our market opportunities in this area. The ability of our customers to obtain appropriate reimbursement for products and services from third-party payerspayors is critical to the success of our business because reimbursement status affects which products our customers purchase and the prices they are willing to pay.purchase. In addition, our ability to obtain reimbursement approval in foreign jurisdictions may affect our ability to expand our product offerings internationally.

 

Third-party payerspayors have adopted, and are continuing to adopt, a number of policies intended to curb rising healthcare costs. These policies include the imposition of conditions of payment by foreign, state and federal healthcare programs as well as private insurance plans, and the reduction in reimbursement amounts applicable to specific products and services.

 

Changes in healthcare systems in the U.S. or internationally in a manner that significantly reduces reimbursement for procedures using our products or denies coverage for these procedures would also have an adverse impact on the acceptance of our products and the prices which our customers are willing to pay for them.

 

 

We and our sales personnel, whether employed by usemployees and contractors are subject, directly or by others, mustindirectly, to federal, state and foreign healthcare fraud and abuse laws, including false claims laws. If we are unable to comply, or have not fully complied, with such laws, we could face substantial penalties.

Our operations are subject to various federal, state and foreign fraud and abuse laws. These laws may affect our operations, including the financial arrangements and relationships through which we market, sell and distribute our products. U.S. federal and state anti-kickback, self-referral,laws that affect our ability to operate include, but are not limited to:

If a government entity opens an investigation into possible violations of any of these laws (which may include the issuance of subpoenas), we would have to expend significant resources to defend ourselves against the allegations. Allegations that we, our officers, or our employees violated any one of these laws can be made by individuals called “whistleblowers” who may be our employees, customers, competitors or other parties. Government policy is to encourage individuals to become whistleblowers and file a complaint in federal court alleging wrongful conduct. The government is required to investigate all of these complaints and decide whether to intervene. If the government intervenes and we are required to pay damages, which in such cases are typically set at three times the actual monetary damages, to the government, the whistleblower, as a reward, is awarded a percentage of such damages or any settlement amount. If the government declines to intervene, the whistleblower may proceed on her own and, if she is successful, she will receive a percentage of any judgment or settlement amount the company is required to pay. The government may also initiate an investigation on its own. If any such actions are instituted against us, those actions could have a significant impact on our business, including the imposition of significant fines, and other sanctions that may materially impair our ability to run a profitable business. In particular, if our operations are found to be in violation of any of the laws described above or if we agree to settle with the government without admitting to any wrongful conduct or if we are found to be in violation of any other governmental regulations that apply to us, we, our officers and employees may be subject to sanctions, including civil and criminal penalties, damages, fines, exclusion from participation in government health care programs, such as Medicare and Medicaid, imprisonment, the curtailment or restructuring of our operations and the imposition of a corporate integrity agreement, any of which could causeadversely affect our business, results of operations and financial condition.

Our research and development partners’ use and disclosure of personally identifiable information, including health information, is subject to federal and state privacy and security regulations, and our failure to comply with those regulations or to adequately secure the information we hold could result in significant liability or reputational harm and, in turn, a material adverse effect on our client base, business, financial condition and results of operations.

Among these laws are the federal Stark Law, the federal Anti-Kickback Statute, the FCA, and similar state laws. If we fail to comply with applicable laws and regulations, we could suffer civil sanctions and criminal penalties, including the loss of our ability to participate in the Medicare, Medicaid and other federal and state healthcare programs. While we endeavor to ensure that our financial relationships with referral sources such as hospitals and physicians comply with the applicable laws (including applicable safe harbors and exceptions), evolving interpretations or enforcement of these laws and regulations could subject our current practices to allegations of impropriety or illegality or could require us to make changes in our operations. A determination that we have violated these or other laws, or the public announcement that we are being investigated for possible violations of these or other laws, could have a material adverse effect on our business, financial condition, results of operations or prospects, and our business reputation could suffer significantly. In addition, other legislation or regulations at the federal or state level may be adopted that adversely affect our business.

  

Our relationshipsofficers, employees, independent contractors, principal investigators, consultants, and commercial partners may engage in misconduct or activities that are improper under other laws and regulations, which would create liability for us.

In particular, companies involved in the manufacture of medical products are subject to scrutiny under various federal anti-kickback, self-referral, false claimslaws and similarregulations intended to ensure that medical products that will be used in patients are safe and effective, and, specifically, that they are not adulterated or misbranded, that they are properly labeled, and have the identity, strength, quality and purity that which they are represented to possess. Further, companies involved in the research and development of medical products are subject to extensive laws oftenand regulations intended to protect research subjects and ensure the integrity of data generated from clinical trials and of the regulatory review process. Any misconduct in any of these areas, whether by our own employees or by contractors, vendors, business associates, consultants, or other entities acting as our agents, could result in regulatory sanctions, criminal or civil liability and serious harm to our reputation. Although we have a comprehensive compliance program designed to ensure that our employees’, CRO partners’, principal investigators’, consultants’, and commercial partners’ activities and interactions with healthcare professionals and patients are appropriate, ethical, and consistent with all applicable laws, regulations, guidelines, policies and standards, it is not always possible to identify and deter misconduct, and the precautions we take to detect and prevent this activity may not be effective in preventing such conduct, mitigating risks, or reducing the chance of governmental investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations. If any such actions are instituted against us, or our CRO partners, principal investigators, consultants, or commercial partners, those actions could have a significant impact on our business, including the imposition of significant fines, and other sanctions that may materially impair our ability to run a profitable business.

On March 23, 2010, President Obama signed the Patient Protection and Affordable Care Act (P.L. 111-148) and on March 30, 2010, the signed the Health Care and Education Reconciliation Act (P.L. 111-152), collectively commonly referred to collectively as the “Healthcare Reform Law.” The Healthcare Reform Law included a number of new rules regarding health insurance, the provision of healthcare, fraudconditions to reimbursement for healthcare services provided to Medicare and abuse laws.Medicaid patients, and other healthcare policy reforms. Through the law-making process, substantial changes have been and continue to be made to the system for paying for healthcare in the United States, including changes made to extend medical benefits to certain Americans who lacked insurance coverage and to contain or reduce healthcare costs (such as by reducing or conditioning reimbursement amounts for healthcare services and drugs, and imposing additional taxes, fees, and rebate obligations on pharmaceutical and medical device companies). This legislation was one of the most comprehensive and significant reforms ever experienced by the healthcare industry in the United States and has significantly changed the way healthcare is financed by both governmental and private insurers. This legislation has impacted the scope of healthcare insurance and incentives for consumers and insurance companies, among others. Additionally, the Healthcare fraudReform Law’s provisions were designed to encourage providers to find cost savings in their clinical operations. This environment has caused changes in the purchasing habits of consumers and abuse lawsproviders and resulted in specific attention to the pricing negotiation, product selection and utilization review surrounding pharmaceuticals and medical devices. This attention may result in our current commercial products, products we may commercialize or promote in the future, and our therapeutic candidates, being chosen less frequently or the pricing being substantially lowered. At this stage, it is difficult to estimate the full extent of the direct or indirect impact of the Healthcare Reform Law on us. 

These structural changes could entail further modifications to the existing system of private payors and government programs (such as Medicare and Medicaid), creation of government-sponsored healthcare insurance sources, or some combination of both, as well as other changes. Restructuring the coverage of medical care in the U.S. could impact the reimbursement for medical services and procedures, prescribed drugs, biologics and medical devices, including our current commercial products, those we and our development or commercialization partners are complex, and even minor, inadvertent violations can give risecurrently developing or those that we may commercialize or promote in the future. If reimbursement for the products we currently commercialize or promote, any product we may commercialize or promote, or approved therapeutic candidates is substantially reduced or otherwise adversely affected in the future, or rebate obligations associated with any pharmaceutical product we commercialize or promote are substantially increased, it could have a material adverse effect on our reputation, business, financial condition or results of operations.

Extending medical benefits to liability, or claimsthose who currently lack coverage will likely result in substantial costs to the U.S. federal government, which may force significant additional changes to the healthcare system in the United States. Much of alleged violations. Possible sanctionsthe funding for violationexpanded healthcare coverage may be sought through cost savings. While some of these fraudsavings may come from realizing greater efficiencies in delivering care, improving the effectiveness of preventive care and abuseenhancing the overall quality of care, much of the cost savings may come from reducing the cost of care and increased enforcement activities. Cost of care could be reduced further by decreasing the level of reimbursement for medical services or products (including our current commercial products, our development or commercialization partners or any product or medical service we may commercialize or promote), or by restricting coverage (and, thereby, utilization) of medical services or products. In either case, a reduction in the utilization of, or reimbursement for our current commercial products, any product we may commercialize or promote or for which we receive marketing approval or clearance in the future, could have a material adverse effect on our reputation, business, financial condition, or results of operations.

Further, the healthcare regulatory environment has seen significant changes in recent years and is still in flux. Legislative initiatives to modify, limit, replace, or repeal the Healthcare Reform Law and judicial challenges continue. We cannot predict the impact on our business of future legislative and legal challenges to the Healthcare Reform Law or other changes to the current laws include monetary fines, civil and criminal penalties, exclusionregulations. The uncertainty around the future of the Healthcare Reform Law, and in particular the impact to reimbursement levels, may lead to uncertainty or delay in the purchasing decisions of our customers, which may in turn negatively impact our product sales. If there are not adequate reimbursement levels, our business and results of operations could be adversely affected. 

While in office, President Trump supported the repeal of all or portions of the Healthcare Reform Law. President Trump also issued an executive order in which he stated that it is his administration’s policy to seek the prompt repeal of the Healthcare Reform Law and in which he directed executive departments and federal agencies to waive, defer, grant exemptions from, federalor delay the implementation of the provisions of the Healthcare Reform Law to the maximum extent permitted by law. Congress has enacted legislation that repeals certain portions of the Healthcare Reform Law, including but not limited to the Tax Cuts and Jobs Act, passed in December 2017, which included a provision that eliminates the penalty under the Healthcare Reform Law’s individual mandate, effective January 1, 2019, as well as the Bipartisan Budget Act of 2018, passed in February 2018, which, among other things, repealed the Independent Payment Advisory Board (which was established by the Healthcare Reform Law and was intended to reduce the rate of growth in Medicare spending).

Additionally, in December 2018, a district court in Texas held that the individual mandate is unconstitutional and that the rest of the Healthcare Reform Law is, therefore, invalid. On appeal, the Fifth Circuit Court of Appeals affirmed the holding on the individual mandate but remanded the case back to the lower court to reassess whether and how such holding affects the validity of the rest of the Healthcare Reform Law. On March 2, 2020, the U.S. Supreme Court granted the petitions for writs of certiorari to review this case and allocated one hour for oral arguments, which occurred on November 10, 2020. A decision from the Supreme Court is expected to be issued in spring 2021. It is unclear how this litigation and other efforts to repeal and replace the Healthcare Reform Law will impact the policies and programs implemented under the Healthcare Reform Law and the medical products industry more generally. We also cannot predict the impact that this litigation against the Healthcare Reform Law will have on our business, and there is uncertainty as to what healthcare programs including Medicare, Medicaid,and regulations may be implemented or changed at the Veterans Administration, Departmentfederal and/or state level in the United States or the effect of Defense, Public Health Service (PHS), and forfeiture of amounts collectedany future legislation or regulation. Furthermore, we cannot predict what actions the Biden administration will implement in violation ofconnection with the Healthcare Reform Law. However, it is possible that such prohibitionsinitiatives could occur. Certain states have similar fraud and abuse laws that also authorize substantial civil and criminal penalties for violations. Any government investigation or a finding of a violation of these laws may result in an adverse effect on our business. The federal Anti-Kickback Statute prohibitsability to obtain approval and/or successfully commercialize products in the United States in the future. For example, any knowing and willful offer, payment, solicitationchanges that reduce, or receipt of any form of remuneration in returnimpede the ability to obtain, reimbursement for the referraltype of an individualproducts or services we currently or intend to commercialize in the orderingUnited States or recommending of the use of a product that reduce medical procedure volumes could adversely affect our operations and/or service for which payment may be made by any federal healthcare program, including Medicare.future business plans.

 

Quality is extremely important to us and our customers due to the serious and costly consequences of product failure. Quality and safety issues may occur with respect to any of our products, and our future operating results will depend on our ability to maintain an effective quality control system and effectively train and manage our workforce with respect to our quality system. The scopedevelopment, manufacture and enforcementcontrol of medical devices are subject to extensive and rigorous regulation by numerous government agencies, including the healthcare fraudFDA and abuse laws is uncertainsimilar foreign agencies. Compliance with these regulatory requirements, including but not limited to the FDA’s QSR, good manufacturing practices and adverse events/recall reporting requirements in the United States and other applicable regulations worldwide, is subject to rapid change. There can be no assurancecontinual review and is monitored rigorously through periodic inspections by the FDA and foreign regulatory authorities. The FDA and foreign regulatory authorities may also require post-market testing and surveillance to monitor the performance of products cleared or approved for use in their jurisdictions. Our manufacturing facilities and those of our suppliers and independent sales agencies are also subject to periodic regulatory inspections. If the FDA or other regulatory authority were to conclude that federalwe or state regulatoryour suppliers have failed to comply with any of these requirements, it could institute a wide variety of enforcement actions, ranging from a public warning letter to more severe sanctions, such as product recalls or enforcement agencies will not investigateseizures, withdrawals, monetary penalties, consent decrees, injunctive actions to halt the manufacture or challenge our currentdistribution of products, import detentions of products made outside the United States, export restrictions, restrictions on operations or future activities under these laws. Any stateother civil or federal investigation, regardless of the outcome,criminal sanctions. Civil or criminal sanctions could be costlyassessed against our officers, employees, or us. Any adverse regulatory action, depending on its magnitude, may restrict us from effectively manufacturing, marketing, and time-consuming. Additionally,selling our products.

In addition, we cannot predict the impactresults of future legislative activity or future court decisions, any changesof which could increase regulatory requirements, subject us to government investigations or expose us to unexpected litigation. Any regulatory action or litigation, regardless of the merits, may result in these laws, whether these changes are retroactivesubstantial costs, divert management’s attention from other business concerns and place additional restrictions on our sales or willthe use of our products. In addition, negative publicity, including regarding a quality or safety issue, could damage our reputation, reduce market acceptance of our products, cause us to lose customers and decrease demand for our products. Any actual or perceived quality issues may also result in issuances of physician’s advisories against our products or cause us to conduct voluntary recalls. Any product defects or problems, regulatory action, litigation, negative publicity or recalls could disrupt our business and have a material adverse effect on a going-forward basis only.our business, results of operations and financial condition.

 

As of March 30, 2021, we engagehad 11,500 shares of common stock that were issuable upon the exercise of vested outstanding stock options. The issuance of shares upon the exercise of these options may result in dilution to the equity interest and voting power of holders of our common stock.

In the future, we may also issue additional physicians onshares of common stock or other securities convertible into or exchangeable for shares of common stock. For instance, certain of the product license agreements we have entered into with third parties require us to make payments to such third parties upon the occurrence of certain events. Pursuant to these product license agreements, we may choose to make such payments in shares of our common stock. The issuance of additional shares of our common stock may substantially dilute the ownership interests of our existing shareholders. Furthermore, sales of a consulting basis,substantial amount of our common stock in the agreements withpublic market, or the perception that these physicians will be structuredsales may occur, could reduce the market price of our common stock. This could also impair our ability to comply with all applicable laws, includingraise additional capital through the federal ban on physician self-referrals (commonly known as the “Stark Law”) the federal Anti-Kickback Statute, state anti-self-referral and anti-kickback laws. Even so, itsale of our securities.

It is possible that regulatorywe will require additional capital to meet our financial obligations and support business growth.

We intend to continue to make significant investments to support our business growth and expect to require additional funds to respond to business challenges. Accordingly, we may need to engage in equity or enforcement agenciesdebt financings to secure additional funds. If we raise additional funds through future issuances of equity or courts may view these agreements as prohibited arrangements that must be restructured or for whichconvertible debt securities, our existing shareholders could suffer significant dilution, and any new equity securities we would be subjectissue could have rights, preferences and privileges superior to other significant civil or criminal penalties. Because our strategy includes the involvementthose of physicians who consult with us on the designholders of our products,common stock. Any debt financing that we secure in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. We may not be able to obtain additional financing on terms favorable to us, if at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us when and if we require it, our ability to continue to support our business growth and to respond to business challenges could be materially impacted if regulatory or enforcement agencies or courts interpretsignificantly impaired, and our financial relationships with our physician advisors who refer or order our products tobusiness may be in violation of one or more health care fraud and abuse laws. Such government action could harm our reputation and the reputations of our physician advisors. In addition, the cost of noncompliance with these laws could be substantial because we could be subject to monetary fines and civil or criminal penalties, and we could also be excluded from state and federal healthcare programs, including Medicare and Medicaid, for non-compliance.

 

The trading price of the shares of our common stock is highly volatile, and purchasers of our common stock could incur substantial losses.

 

The market price of our common stock has been and is likely to continue to be highly volatile and could fluctuate widely in response to various factors, many of which are beyond our control, including the following:

 

 

 

Our common stock does not have a vigorous trading market, and you may not be able to sell your securities when desired.at or near ask prices, or at all.

 

Although there is a public market for our common stock, trading volume has been historically low, which could impact theour stock price and theyour ability to sell shares of our common stock.stock at or near ask prices, or at all. We can give no assurance that a more active and liquid public market for the shares of our common stock will develop in the future.

 

The potential sale of large amounts of common stock may have a negative effect upon the market value of our shares.

 

Sales of a significant number of shares of our common stock in the public market could harm the market price of our common stock and make it more difficult for us to raise funds through future offerings of common stock. As additional shares of our common stock become available for resale in the public market, the supply of our common stock will increase, which could decrease the price of our common stock.

 

 

We have not paid and do not currently intend to pay dividends on our common stock, which may limit the current return available on an investment in our stock. Future dividends on our stock, if any, will depend on our future earnings, capital requirements, financial condition and such other factors as our management personnel may consider relevant. Currently, we intend to retain earnings, if any, to increase our net worth and reserves. Consequently, shareholders will only realize an economic gain on their investment in our common stock if the price appreciates. Shareholders should not purchase our common stock expecting to receive cash dividends. Because we currently do not pay dividends, and there may be limited trading in our common stock, shareholders may not have any manner to liquidate or receive any payment on their common stock. Therefore, our failure to pay dividends may cause shareholders to not see any return on their common stock even if we are successful in our business operations. In addition, because we do not pay dividends, we may have trouble raising additional funds, which could affect our ability to expand our business operations.

 

A few of our existing shareholders own a large percentage of our voting stock and have control over matters requiring stockholdershareholder approval and may delay or prevent a change in control.control or otherwise lead to actual or potential conflicts of interest.

 

OurAs of March 30, 2021, our directors ownowned, and through their affiliates control a large percentagecontrolled, more than 50% of our outstanding common stock (See “Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters”).stock. As a result, our directors and their affiliates could have the ability to exert substantial influence over all matters requiring approval by our shareholders, including (i) the election and removal of directors, and(ii) any proposed merger, consolidation, or sale of all or substantially all of our assets as well as other corporate transactions.transactions and (iii) any amendment to our Certificate of Formation, as amended (the “Certificate of Formation”). This concentration of control could be disadvantageous to other shareholders having different interests. This significant concentration of share ownership may adversely affect the trading price for our common stock because investors sometimes perceive disadvantages in owning stock in companies with controlling stockholders. shareholders.

In addition, our Certificate of Formation contains a provision which under the Texas Business Organizations Code (the “TBOC”) could allow the large shareholders who own a majority of theour common stock to approve certain major transactions without the approval of other shareholders that otherwise would be required under Texas corporation law.

 

Our BoardCertificate of Formation includes provisions limiting the personal liability of our directors for breaches of fiduciary duties under Texas law.

Under our Certificate of Formation, our board of directors can authorize the issuance of preferred stock, which could diminish the rights of holders of our common stock and make a change of control of the Company more difficult even if it might benefit our shareholders.

 

 

When used in this Form 10-K or other filings byWhile we are subject to the Company withprovisions of Title 2, Chapter 21, Subchapter M of the Securities and Exchange Commission,TBOC, which provides that a Texas corporation that qualifies as an “issuing public corporation” (as defined in the Company’s press releasesTBOC) may not engage in specified types of business combinations, including mergers, consolidations and asset sales, with a person, or other publican affiliate or associate of that person, who is an “affiliated shareholder, communications, or” the restrictions in oral statements made with the approval of an authorized officerTitle 2, Chapter 21, Subchapter M of the Company’s executive officers,TBOC do not apply to us because we have elected, in the words or phrases “would be”, “will allow”, “intends to”, “will likely result”, “are expected to”, “will continue”, “is anticipated”, “estimate”, “project”, “plan”, “believe” or similar expressions are intended to identify “forward-looking statements” withinmanner provided under the meaning of the Private Securities Litigation Reform Act of 1995.

 

None.

We do not own any buildings or other real property. We have one material operating lease which consists of an office space lease with a remaining lease term of 42 months as of December 31, 2020. Our leased office consists of 5,877 square feet of rentable space located in Summit Office Park, a twin-building, mid-rise, 242,000 square foot office park located on the perimeter of the Fort Worth, Texas central business district. The Companymonthly base rental payments for our office lease are as follows:

We periodically entersenter into operating lease contracts for office space and equipment. Arrangements are evaluated at inception to determine whether such arrangements constitute a lease. In accordance with the transition guidance of Accounting Standards Codification (“ASC”) Topic No. 842, such arrangements are included in our balance sheet as of January 1, 2019.

 

 

AsFrom time to time, we may be involved in claims and legal actions that arise in the ordinary course of December 31, 2019, and asbusiness. To our knowledge, there are no material pending legal proceedings to which we are a party or of this filing date,which any of our property is the Company has no outstanding legal proceedings.subject.

 

 

 

PART II

 

 On May 10, 2019, the Companywe completed a recapitalization of theour Company which included:

(1) a 1-for-100 reverse stock split of the outstanding Common Stockcommon stock under which every shareholder received one share of Common Stockcommon stock for every 100 shares of Common Stockcommon stock held;

(2) the reduction of the authorized capital stock of the Company to 20,000,000 shares of Common Stockcommon stock and 2,000,000 shares of preferred stock; and

(3) the change of the name of the Company from “Wound Management Technologies, Inc.” to “Sanara MedTech Inc.”

In addition, on June 6, 2019 the Companywe changed the trading symbol of its Common Stockour common stock to “SMTI”. The post-split Common Stockcommon stock is traded under the CUSIP number 79957L100. In connection with the reverse stock split, the Company adjusted the conversion and voting provisions of the Series F Convertible Preferred Stock by a factor of 100 and proportionately adjusted the Company's outstanding employee stock options.

Record Holders

As of February 21, 2020,March 30, 2021, there were 207220 shareholders of record and there were 6,023,7327,617,122 shares of common stock issued and outstanding.

Dividends

We have never declared or paid any cash dividends on our common stock and we do not intend to pay cash dividends in the foreseeable future. We currently expect to retain any future earnings to fund our operations and the expansion of our business.

 

Recent Sales of Unregistered Securities

 

 

 

As a smaller reporting company, weOn November 19, 2020, the SEC issued final rules to amend Regulation S-K. These changes are not requiredeffective for annual filings for the first fiscal year ending on or after August 9, 2021, and early adoption is permitted. We elected to provide this information.

 

The Company’s business isWe are a medical technology company focused on developing marketing, and distributingcommercializing transformative technologies to improve clinical outcomes and reduce healthcare expenditures in the surgical and chronic 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 contributes 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 physicians, hospitals, clinicsexpand our offerings for patients requiring wound and post-acuteskin care settings. Our products are primarily soldtreatments across the entire continuum of care in the North American advancedUnited 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 tissue repairand wound care applications pursuant to our marketing and distribution agreement with Cook Biotech.

Beginning in March 2020, many states issued orders suspending elective surgeries in order to free-up hospital resources to treat COVID-19 patients. This resulted in a reduction in demand for our surgical products include CellerateRX® Surgical Activated Collagen® Adjuvant (“CellerateRX”); HYCOL™ Hydrolyzed Collagen (“HYCOL”); BIAKŌS™ Antimicrobial Skin & Wound Cleanser (“BIAKŌS AWC”);beginning in the second half of March 2020. Additionally, most states limited access to SNFs to only resident caregivers, which impeded our ability to provide education and PULSAR II™ Advanced Wound Irrigation System.product training to the clinicians who use our products in these facilities. These restrictions resulted in an overall decline in sales for the second quarter of 2020.

 

Liquidity and Capital Resources

 

Cash on hand at December 31, 20192020 was $6,611,928,$455,366, compared to $176,421$6,611,928 at December 31, 2018.2019. Historically, we have financed our operations primarily from the sale of equity securities. During 2019 and 2020, our principal sources of liquidity have been cash generated from operations, utilization of our bank line of credit that matured in June 2020, cash provided by an unsecured promissory note in the principal amount of $583,000 (“the PPP Loan”) to Cadence Bank, N.A. (“Cadence”) pursuant to the PPP, and $10,000,000 in proceeds received from a private placement of our common stock in October 2019.

On OctoberJanuary 15, 2019,2021, we entered into a new loan agreement with Cadence (the “Loan Agreement”), providing for a $2.5 million revolving line of credit. The revolving line of credit matures on January 13, 2023, and is secured by substantially all of our assets. Any amounts outstanding will bear interest of 0.75% plus the Company closed a private placement offering of 1,204,820 shares of its Common Stock at a price of $8.30 per share. The $10 million of cash proceeds“Prime Rate” designated in the “Money Rates” section of the offeringWall Street Journal. Proceeds from the line of credit are expected to be used to fund milestone payments underprovide additional working capital in support of current assets and future product license agreements, repayment of indebtedness under the Company’s bankfor other general corporate purposes and may not be used for acquisitions.

The line of credit contains customary representations and operating expenditures, clinical studieswarranties and continued expansionrequires us to maintain compliance with certain financial covenants, including, among others, a minimum liquidity of $1,000,000 as of December 31, 2020 and March 31, 2021, a minimum Tangible Net Worth (as defined in the Loan Agreement) of $1,000,000 and, beginning with the fiscal quarter ending June 30, 2021, a minimum Interest Coverage Ratio (as defined in the Loan Agreement) of 1.5 to 1.0. The Loan Agreement also contains customary events of default. If such an event of default occurs, Cadence would be entitled to take various actions, including the acceleration of amounts due under the Loan Agreement. We generally may (and must, under certain circumstances) prepay all or a portion of the Company’s sales force. On October 16, 2019,principal outstanding on the Company paid down the entire balance of therevolving line of credit prior to its contractual maturity. As of $2,200,000 with cash proceeds received throughMarch 30, 2021, no amounts were owed under the private placement stock offering.Loan Agreement.

 

During 2018As a result of the COVID-19 pandemic, beginning in March 2020, we significantly reduced costs in areas such as payroll, consulting, business travel, and 2019, our principal sources of liquidity have been our cash generated from operations, cash provided through a bank line of credit, and more recently, through a private placement offering discussed above. Cash consists of cash on deposit with banks. Historically, we have financed our operations primarily from the sale of debt and equity securities.  No financing activities occurred in 2018.

 

In December 2018,On November 9, 2020, our subsidiary, UWSS, entered into agreements to purchase shares of Series A Convertible Preferred Stock (the “Series A Stock”) of Precision Healing Inc. (“Precision Healing”) for an aggregate purchase price of $600,000. The Series A Stock is convertible into 150,000 shares of common stock of Precision Healing and as amendedhas a senior liquidity preference relative to the common shareholders. As stipulated in June 2019, the Company executed agreements with Cadence Bank, N.A. which provided Cellerate, LLC accessPrecision Healing, UWSS invested an additional $600,000 in February 2021 for 150,000 additional shares of Series A Stock. The additional shares of Series A Stock will convert into shares of common stock of Precision Healing at a ratio based on the date Precision Healing delivers a development milestone related to a revolving linewound diagnostic tool currently under development.

On July 7, 2019, we executed a license agreement with Rochal whereby we acquired an exclusive world-wide license to market, sell and further develop antimicrobial products for the prevention and treatment of credit upmicrobes on the human body utilizing certain Rochal patents and pending patent applications (the “BIAKŌS License Agreement”). Under the terms of the BIAKŌS License Agreement, we agreed to pay Rochal $750,000 upon the completion of a maximum principal amount of $2,500,000 which matures in June 2020. The expanded line of credit is intended to provide the Company with additional working capital for its product pipeline, sales force expansion and other corporate purposes. Atraise, on or before December 31, 2019,2022, of at least $10,000,000 through the Company had no outstanding balance onsale of our common stock or assets. At our option, the line$750,000 payment may be paid in any combination of credit.cash and our common stock. In March 2021, we issued 20,834 shares of our common stock to Rochal as full payment of the $750,000 which became due upon the Company’s completion of a capital raise in February 2021.

 

 

For the year ended December 31, 2019,2020, net cash used in investing activities was $1,197,097 as reported for Successor,$2,744,374 compared to $27,770$1,197,097 used in investing activities during the year ended December 31, 2018 as reported for the combined Predecessor and Successor periods.2019. The cash used in 2019 investing activities during 2020 was primarily relateddue to newour entry into a product licenses wherebylicense agreement with Rochal in May 2020, which included an initial cash payment of $600,000, along with a $500,000 milestone payment made to Rochal during the Company paid $1,500,000 forfirst quarter of 2020 as a result of FDA clearance of BIAKŌS Antimicrobial Wound Gel. During the exclusive worldwide rightsthird quarter of 2020, a $500,000 long-term investment was made to market and sell certain FDA cleared products developed by Rochal Industries, LLC.purchase a minority interest in DirectDerm. During the fourth quarter of 2020, a $600,000 long-term investment was made in Precision Healing.

 

For the year ended December 31, 2019,2020, net cash provided by financing activities was $9,800,005$622,330 as reported for Successor, compared to $0$9,800,005 provided by financing activities for the year ended December 31, 2018 as reported for the combined Predecessor and Successor periods.2019. The cash provided by financing activities in 2020 was funded by the October 15, 2019 private placement offering discussed above.

 

 

 

 

Our discussion and analysis of our financial condition and results of operations isare based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and expenses. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. The results of these assumptions form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Under different assumptions or conditions, actual results may differ from these estimates. We believe the footnotes to thehave identified certain significant accounting policies which involve a higher degree of judgment and complexity in making certain estimates and assumptions that affect amounts reported in our consolidated financial statements, provideas summarized below.

We recognize revenue in accordance with Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers, which we adopted on January 1, 2018 using the descriptionmodified retrospective method. Revenues are recognized when control of the significantpromised goods or services is transferred to the customer in an amount that reflects the consideration we expect to be entitled to receive in exchange for transferring those goods or services. Revenue is recognized based on the following five step model:

The preparation of financial statements in conformity with generally accepted accounting policies necessaryprinciples requires management to make estimates and assumptions that affect amounts reported in fully understandingthe financial statements and evaluatingaccompanying notes. The extent to which the COVID-19 pandemic may directly or indirectly impact our consolidatedbusiness, financial condition, and results of operations.operations is highly uncertain and subject to change. We considered the potential impact of the COVID-19 pandemic on our estimates and assumptions and determined there was not a material impact on our estimates and assumptions used in preparing our consolidated financial statements as of and for the year ended December 31, 2020; however, actual results could differ from those estimates and there may be changes to our estimates in future periods.

 

None.

As a smaller reporting company, we are not required to provide this information.

 

 

SANARA MEDTECH INC. AND SUBSIDIARIES

Index to Consolidated Financial Statements

 

 

 

 

 

 

 

 

 

To the Shareholders and Board of Directors of

Sanara MedTech Inc.

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Sanara MedTech Inc. and its subsidiaries (collectively, the “Company”) as of December 31, 20192020 and 2018 (Successor),2019, and the related consolidated statements of operations, changes in stockholders’ equity, (deficit), and cash flows for the yearyears then ended, December 31, 2019 (Successor), the period from August 28, 2018 to December 31, 2018 (Successor) and for the period from January 1, 2018 to August 27, 2018 (Predecessor), and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20192020 and 2018 (Successor),2019, and the results of their operations and their cash flows for the yearyears then ended, December 31, 2019 (Successor), the period from August 28, 2018 to December 31, 2018 (Successor) and for the period from January 1, 2018 to August 27, 2018 (Predecessor), in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

We have served as the Company's auditor since 2014.

Houston, Texas

March 26, 202030, 2021

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.