2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

12 Months Ended

Dec. 31, 2018

Accounting Policies [Abstract]

BASIS OF PRESENTATION

The terms “the Company,” “we,” “us” “WMTI” and “WNDM” are used in this report to refer to Wound Management Technologies, Inc. and its wholly owned subsidiaries, unless the context suggests otherwise. The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles.

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of WMTI and its wholly-owned subsidiaries: WCI, LLC a Nevada limited liability company (“WCI”); Resorbable Orthopedic Products, LLC, a Texas limited liability company (“ROP”); and Innovate OR, Inc. (“IOR”) formerly referred to as BioPharma Management Technologies, Inc., a Texas corporation (“BioPharma”). All intercompany accounts and transactions have been eliminated. ROP and IOR were dissolved during the third quarter of 2018. All rights and obligations of each were assigned to its parent company WMTI.

WCI’s exclusive license to sell and distribute CellerateRX products in the human health care market (excluding dental and retail) expired on February 27, 2018. The license agreements permitted WCI to continue to sell and distribute products through August 27, 2018. Subsequent to the expiration of the license agreement between the Company and Applied, Nutritionals, LLC (“Applied”) an exclusive license was acquired by an affiliate of The Catalyst Group, Inc. (“CGI”) to distribute CellerateRX products into the wound care and surgical markets in the United States, Canada and Mexico. The Company and CGI entered into definitive agreements on August 27, 2018, that continued operations to market CellerateRX through Cellerate, LLC, a newly formed Texas Limited Liability Company in which the Company and CGI each have a 50% ownership interest.

While the Company had significant influence over the operations of Cellerate, LLC, the Company did not have a controlling interest. CGI had the controlling vote in the event of a deadlocked vote by the Board of Managers of Cellerate, LLC. Therefore, the Company’s investment in Cellerate, LLC is reported using the equity method of accounting. Beginning September 1, 2018, the Company’s 50% share of Cellerate, LLC’s net income or loss is presented as a single line item on WMTI’s Statement of Operations. Cellerate, LLC’s unaudited Balance Sheet and unaudited Statement of Operations is included as an exhibit to the Financial Statements of WMTI (see Exhibit 99.1).

USE OF ESTIMATES IN FINANCIAL STATEMENT PREPARATION

The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the date of the financial statements, and the amounts of revenues and expenses during the reporting period. On a regular basis, management evaluates these estimates and assumptions. Actual results could differ from those estimates.

CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES

The Company considers all highly liquid debt investments purchased with an original maturity of three months or less to be cash equivalents. Marketable securities include investments with maturities greater than three months but less than one year. For certain of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and other accrued liabilities, and amounts due to related parties, the carrying amounts approximate fair value due to their short maturities.

INCOME / LOSS PER SHARE

The Company computes income/loss per share in accordance with Accounting Standards Codification “ASC” Topic No. 260, “Earnings per Share,” which requires the Company to present basic and dilutive income/loss per share when the effect is dilutive. Basic income/loss per share is computed by dividing income/loss available to common stockholders by the weighted average number of common shares available. Diluted income/loss per share is computed similar to basic income/loss per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive.

 The calculation of basic and diluted net loss per share for the years ended December 31, 2018 and 2017 are as follows:

	2018			2017
Basic net income (loss) per share:
Numerator:
Net income (loss)	$	(600,574	)	$	331,309
Denominator:
Weighted-average common shares outstanding		217,163,538			111,381,832
Basic net income (loss) per share	$	(0.00	)	$	0.00
Diluted net income (loss) per share:
Numerator:
Net income (loss)	$	(600,574	)	$	331,309
Series C dividends					(139,006	)
Diluted net income (loss)	$	-		$	192,303
Denominator:
Weighted-average common shares outstanding		217,163,538			111,381,832
Common stock warrants		-			694,834
Convertible debt		-			-
Preferred shares		-			96,568,871
Weighted average shares used in computing diluted net income (loss) per share		217,163,538			208,645,538
Diluted net income (loss) per share	$	(0.00	)	$	0.00

The following table summarizes the potential shares of common stock that were excluded from the computation of diluted net loss per share for the years ended December 31, 2018 and 2017 as such shares would have had an anti-dilutive effect:

	2018		2017
Convertible debt		16,666,667		19,890,414

REVENUE RECOGNITION

The Company recognizes revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers, which was adopted on January 1, 2018 using the modified retrospective method. Revenues are recognized when control of the promised goods or services is transferred to the customer in an amount that reflects the consideration the Company expects to be entitled to in exchange for transferring those goods or services. Revenue is recognized based on the following five step model:

- Identification of the contract with a customer

- Identification of the performance obligations in the contract

- Determination of the transaction price

- Allocation of the transaction price to the performance obligations in the contract

- Recognition of revenue when, or as, the Company satisfies a performance obligation

Product revenues are recognized when the products are delivered and title passes to the customer. Net revenues comprise gross revenues less customer discounts and allowances, actual and expected returns. Shipping charges billed to members are included in net sales.

The Company recognizes royalty revenue from a licensing agreement between BioStructures, LLC and the Company. The Company records revenue each calendar quarter as earned per the terms of the agreement which stipulates the Company will receive quarterly royalty payments of at least $50,250. To date, royalties related to this licensing agreement have not exceeded the annual minimum of $201,000 ($50,250 per quarter).  

The Company’s investment in Cellerate, LLC is reported using the equity method of accounting. Accordingly, Cellerate, LLC revenues are not recognized by the Company in its consolidated financial statements. Rather, the Company’s 50% share of Cellerate, LLC’s net income or loss is presented as a single line item on WMTI’s Statement of Operations. Cellerate, LLC’s unaudited Balance Sheet and unaudited Statement of Operations is included as an exhibit to the Financial Statements of WMTI (see Exhibit 99.1). Management has evaluated the carrying amount of the Company’s equity investment in Cellerate, LLC and has determined there has been no triggering event that would require impairment of this investment.

Under the terms of the development and license agreement the Company executed with BioStructures, LLC (BioStructures) in 2011, royalties of 2.0% are recognized on sales of products containing the Company’s patented resorbable bone hemostasis. However, the minimum annual royalty due to the Company shall be $201,000 throughout the life of the patent which expires in 2023. These royalties are payable in quarterly installments of $50,250.

ALLOWANCE FOR DOUBTFUL ACCOUNTS

The Company establishes an allowance for doubtful accounts to ensure accounts receivable are not overstated due to uncollectible accounts. Bad debt reserves are maintained based on a variety of factors, including the length of time receivables are past due and a detailed review of certain individual customer accounts. If circumstances related to customers change, estimates of the recoverability of receivables would be further adjusted. The Company recorded bad debt expense of $12,558 and $22,207 in 2018 and 2017, respectively. The allowance for doubtful accounts at December 31, 2018 was $40,550 and the amount at December 31, 2017 was $28,910. Accounts receivable written-off during 2018 totaled $918.

INVENTORIES

As part of the formation of Cellerate, LLC, all WCI inventory was contributed to Cellerate, LLC on August 28, 2018. During 2017 and through August 28, 2018, inventories were stated at the lower of cost or net realizable value, with cost computed on a first-in, first-out basis. Inventories consist of finished goods, powders, gels and the related packaging supplies. The Company recorded inventory obsolescence expense of $0 in 2018 and $57,483 in 2017. The allowance for obsolete and slow-moving inventory had a balance of $0 and $144,996 at December 31, 2018 and December 31, 2017, respectively.

PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost. Depreciation is computed utilizing the straight-line method over the estimated economic life of the assets, which ranges from five to ten years. For assets sold or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any related gain or loss is reflected in income for the period. As of December 31, 2018, fixed assets consisted of $122,943 including furniture and fixtures, computer equipment, phone equipment and the Company’s websites. As of December 31, 2017, fixed assets consisted of $120,162 including furniture and fixtures, computer equipment, phone equipment and the Company’s websites. The depreciation expense recorded in 2018 was $18,866 and the depreciation expense recorded in 2017 was $15,623. The balance of accumulated depreciation was $70,116 and $56,951 at December 31, 2018 and December 31, 2017, respectively. The Company paid $8,482 to acquire fixed assets during 2018.

INTANGIBLE ASSETS

As of December 31, 2018, intangible assets include a patent acquired in 2009 with a historical cost of $510,310. The patent is being amortized over its estimated useful life of 10 years using the straight-line method. In 2017, the Company put into service a business software. The costs to implement this software which totaled $41,980 are included in intangible assets and are being amortized over the initial term of the license which is three years. Amortization expense recognized was $65,024 during each of the years 2018 and 2017.

IMPARIMENT OF LONG LIVED ASSETS

Long-lived assets and certain identifiable intangibles to be held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company continuously evaluates the recoverability of its long-lived assets based on estimated future cash flows and the estimated liquidation value of such long-lived assets and provides for impairment if such undiscounted cash flows are insufficient to recover the carrying amount of the long-lived assets. If impairment exists, an adjustment is made to write the asset down to its fair value, and a loss is recorded as the difference between the carrying value and fair value. Fair values are determined based on quoted market values, undiscounted cash flows or internal and external appraisals, as applicable. Assets to be disposed of are carried at the lower of carrying value or estimated net realizable value. There was no impairment recorded during the years ended December 31, 2018 and 2017.

FAIR VALUE MEASUREMENTS

As defined in Accounting Standards Codification (“ASC”) Topic No. 820, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement). This fair value measurement framework applies at both initial and subsequent measurement.

The three levels of the fair value hierarchy defined by ASC Topic No. 820 are as follows:

Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of financial instruments such as exchange-traded derivatives, marketable securities and listed equities.

Level 2 – Pricing inputs are other than quoted prices in active markets included in level 1, which are either directly or indirectly observable as of the reported date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace.

Instruments in this category generally include non-exchange-traded derivatives such as commodity swaps, interest rate swaps, options and collars.

Level 3 – Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value.

Our intangible assets have also been valued using the fair value accounting treatment and a description of the methodology used, including the valuation category, is described below in Note 6 “Intangible Assets.”

DERIVATIVES

The Company infrequently enters into derivative financial instruments to manage its funding of current operations. Derivatives are initially recognized at fair value at the date a derivative contract is entered into and are subsequently re-measured to their fair value at the end of each reporting period. The resulting gain or loss is recognized in profit or loss immediately. There were no derivative liabilities as of December 31, 2017 or 2018.

INCOME TAXES

Income taxes are accounted for under the asset and liability method, whereby deferred income taxes are recorded for temporary differences between financial statement carrying amounts and the tax basis of assets and liabilities. Deferred tax assets and liabilities reflect the tax rates expected to be in effect for the years in which the differences are expected to reverse. A valuation allowance is provided if it is more likely than not that some or all, of the deferred tax asset will not be realized.

BENEFICIAL CONVERSION FEATURE OF CONVERTIBLE NOTES PAYABLE

The convertible feature of certain notes payable provides for a rate of conversion that is below the market value of the Company’s common stock. Such a feature is normally characterized as a "Beneficial Conversion Feature" ("BCF"). In accordance with ASC Topic No. 470-20-25-4, the intrinsic value of the embedded beneficial conversion feature present in a convertible instrument shall be recognized separately at issuance by allocating a portion of the debt equal to the intrinsic value of that feature to additional paid in capital. When applicable, the Company records the estimated fair value of the BCF in the consolidated financial statements as a discount from the face amount of the notes. Such discounts are accreted to interest expense over the term of the notes using the effective interest method.

ADVERTISING EXPENSE

In accordance with ASC Topic No. 720-35-25-1, the Company recognizes advertising expenses the first time the advertising takes place. Such costs are expensed immediately if such advertising is not expected to occur.

SHARE-BASED COMPENSATION

The Company accounts for stock-based compensation to employees in accordance with FASB ASC 718. Stock-based compensation to employees is measured at the grant date, based on the fair value of the award, and is recognized as expense over the requisite employee service period. The Company accounts for stock-based compensation to other than employees in accordance with FASB ASC 505-50. Equity instruments issued to other than employees are valued at the earlier of a commitment date or upon completion of the services, based on the fair value of the equity instruments and is recognized as expense over the service period. The Company estimates the fair value of stock-based payments using the Black-Scholes option-pricing model for common stock options and warrants and the closing price of the Company’s common stock for common share issuances.

RECLASSIFICATIONS

Certain prior period amounts have been reclassified to conform to current period presentation.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers which is to be effective for reporting periods beginning after December 15, 2017. The Company adopted ASC 606 effective January 1, 2018 and the adoption had no impact on the Company’s financial position, operations or cash flows.

In February 2016, the FASB issued ASC 842 Leases which is to be effective for reporting periods beginning after December 15, 2018. The Company adopted the pronouncement effective January 1, 2019 and the adoption is not expected to have a material impact on the Company’s financial position, operations or cash flows. As a result of the adoption, the Company will record lease assets of approximately $245,000 and a corresponding lease liability of the same amount in January 2019.

In March 2016, the FASB issued ASU 2016-07, which eliminates a requirement for the retroactive adjustment on a step by step basis of the investment, results of operations, and retained earnings as if the equity method had been effective during all previous periods that the investment had been held when an investment qualifies for equity method accounting due to an increase in the level of ownership or degree of influence. The cost of acquiring the additional interest in the investee is to be added to the current basis of the investor’s previously held interest and the equity method of accounting should be adopted as of the date the investment becomes qualified for equity method accounting. The presentation of the Company’s financial statements is consistent with this guidance.

On June 20, 2018, the FASB issued ASU 2018-07, which simplifies the accounting for share-based payments granted to nonemployees for goods and services. Under the ASU, most of the guidance on such payments to nonemployees would be aligned with the requirements for share-based payments granted to employees. The Company adopted the pronouncement effective January 1, 2019 and the adoption is not expected to have a material impact on the Company’s financial position, operations or cash flows.