Texas
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59-2219994
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(State or other jurisdiction of
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(I.R.S. Employer
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incorporation or organization)
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Identification Number)
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Large accelerated filer o
Accelerated filer o
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Non-accelerated filer o
Smaller reporting company x
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EXHIBIT NO.
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DESCRIPTION OF EXHIBIT
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10.1
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Distribution Agreement, dated March 8, 2011, between Wound Care Innovations, LLC and Juventas, LLC (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed April 14, 2011)
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31.1
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Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (incorporated by reference to Exhibit 31.1 of the Quarterly Report on Form 10-Q filed with the Commission on August 22, 2011).
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32.1
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Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (incorporated by reference to Exhibit 32.1 of the Quarterly Report on Form 10-Q filed with the Commission on August 22, 2011).
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101 | Interactive data files pursuant to Rule 405 of Regulation S-T. |
WOUND MANAGEMENT TECHNOLOGIES, INC.
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Date: September 9, 2011
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/s/ Scott A. Haire | |
Scott A. Haire, Chairman of the Board, | |||
Chief Executive Officer and Principal Financial Officer | |||
CONDENSED CONSOLIDATED BALANCE SHEETS PARENTHETICALS (USD $)
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Jun. 30, 2011
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Dec. 31, 2010
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Preferred Stock, Series A shares authorized | $ 5,000,000 | $ 5,000,000 |
Preferred Stock, Series B shares authorized | $ 75,000 | $ 75,000 |
Common stock, par or stated value | $ 0.001 | $ 0.001 |
Common stock, shares authorized | 100,000,000 | 100,000,000 |
Common stock, shares issued | 56,910,772 | 41,316,930 |
Common stock, shares outstanding | 56,906,683 | 41,312,841 |
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (USD $)
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3 Months Ended | 6 Months Ended | ||
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Jun. 30, 2011
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Jun. 30, 2010
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Jun. 30, 2011
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Jun. 30, 2010
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REVENUES | $ 227,896 | $ 114,977 | $ 1,163,110 | $ 180,957 |
COST OF GOODS SOLD | 84,736 | 28,419 | 179,153 | 48,814 |
GROSS PROFIT | 143,160 | 86,558 | 983,957 | 132,143 |
General and Administrative Expenses | 793,583 | 587,534 | 1,808,186 | 975,380 |
Depreciation / Amortization | 117,774 | 117,939 | 235,713 | 235,878 |
INCOME (LOSS) FROM CONTINUING OPERATIONS: | (768,197) | (618,915) | (1,059,942) | (1,079,115) |
Gain (Loss) on debt settlement | 569,000 | (12,017) | (1,381,882) | (732,674) |
Debt Related Expense | (2,858,076) | 0 | (3,042,576) | 0 |
Interest Income | 86,260 | 43,633 | 135,701 | 68,753 |
Interest Expense | (227,768) | (75,707) | (594,189) | (166,061) |
LOSS BEFORE INCOME TAXES | (3,198,781) | (663,006) | (5,942,888) | (1,909,097) |
Current tax expense | 0 | 0 | 0 | 0 |
Deferred tax expense | 0 | 0 | 0 | 0 |
NET LOSS | $ (3,198,781) | $ (663,006) | $ (5,942,888) | $ (1,909,097) |
Basic and diluted loss per share of common stock | $ (0.06) | $ (0.02) | $ (0.12) | $ (0.06) |
Weighted average number of common shares outstanding | 56,291,804 | 35,038,079 | 51,384,860 | 34,494,356 |
Document and Entity Information
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3 Months Ended |
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Jun. 30, 2011
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Document and Entity Information | Â |
Entity Registrant Name | WOUND MANAGEMENT TECHNOLOGIES, INC. |
Document Type | 10-Q |
Document Period End Date | Jun. 30, 2011 |
Amendment Flag | false |
Entity Central Index Key | 0000714256 |
Current Fiscal Year End Date | --12-31 |
Entity Common Stock, Shares Outstanding | 56,906,683 |
Entity Filer Category | Smaller Reporting Company |
Entity Current Reporting Status | Yes |
Entity Voluntary Filers | No |
Entity Well-known Seasoned Issuer | No |
Document Fiscal Year Focus | 2011 |
Document Fiscal Period Focus | Q2 |
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STOCKHOLDERS' EQUITY
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STOCKHOLDERS' EQUITY {1} | Â | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
STOCKHOLDERS' EQUITY | NOTE 7- STOCKHOLDERS EQUITY
Preferred Stock
As of May 2008, all shares of Series A Preferred Stock of the Company were converted into common stock. There are currently 5,000,000 shares of Preferred Stock authorized, with no shares of Series A Preferred Stock currently issued or outstanding.
Effective June 24, 2010, the Company filed a Certificate of Designations, Number, Voting Power, Preferences and Rights of Series B Convertible Redeemable Preferred Stock (the Certificate) with the Texas Secretary of State, designating 75,000 shares of Series B Preferred Stock, par value $10.00 per share (the Series B Preferred Stock). The Series B Preferred Stock ranks senior to shares of all other common and preferred stock with respect to dividends, distributions, and payments upon dissolution. Each of the Series B Shares is convertible at the option of the holder into shares of common stock as provided in the Certificate. There are currently no shares of Series B Preferred Stock issued or outstanding.
Common Stock
The Company is authorized to issue 100,000,000 shares of common stock, par value of $0.001 per share. These shares have full voting rights. As of June 30, 2011, there were 56,910,772 shares of common stock issued and 56,906,683 shares outstanding. At December 31, 2010, there were 41,316,930 shares of common stock issued and 41,312,841 shares outstanding. Of these shares, 4,089 shares are held by the Company as treasury stock.
During the three months ended March 31, 2011, the Company entered into various Subscription Agreements with unrelated parties (the Investors) to purchase 3,473,300 Units at a purchase price of $.25 per Unit (Units), with each Unit consisting of: (i) one share of the Companys common stock and (ii) a warrant to purchase one share of the Companys common stock (the Warrants). One-half of the Warrants have an exercise price of $1.00 per share of common stock and one-half of the Warrants have an exercise price of $.50 per share of common stock. The Warrants may be exercised at any time over a three-year period. The total amount paid for the Units was $868,700, of which $434,350 was recorded for the sale of stock and $434,350 was recorded for the sale of warrants.
In addition, during the three months ended march 31, 2011, the Company issued 4,169,213 shares of common stock in payment of related party debt in the amount of $778,108 and 5,400,000 shares of common stock in payment of unrelated party debt in the amount of $322,000. The Company also issued 164,286 shares of common stock as payment for cable television spots and 200,000 shares in payment of consulting and services. Debt related costs in the amount of $405,580 were paid with the issuance of 733,043 shares of common stock.
During the three months ending June 30, 2011, the Company entered into various Subscription Agreements to various unrelated parties and issued 244,000 shares of common stock and 260,000 warrants, half with an exercise price of $1.00 and half with an exercise price of $0.50 in consideration for payments of $76,000 in the aggregate. The Company also issued 80,000 shares for consulting services with a value of $49,600 and 400,000 shares of stock in payment of placement fees with a value of $268,000. The Company issued an additional 300,000 shares in payment of related party debt and 80,000 shares in payment of unrelated party debt. The company also issued 350,000 shares for loan origination fees.
2011 Omnibus Long-Term Incentive Plan
On March 9, 2011, the Company adopted, subject to shareholder approval, the 2011 Omnibus Long-Term Incentive Plan (the Plan) to offer competitive long-term incentive compensation opportunities as well as to align the interests of the participants with those of the Companys shareholders. Under the Plan, stock options, stock appreciation rights, restricted shares, and performance shares are to be awarded at the discretion of the Compensation Committee to selected officers, employees, consultants and eligible directors of the Company. In order for the Plan to become effective, shareholder approval must be obtained on or before March 8, 2012.
Warrants
A summary of the status of the warrants granted for the six month period ended June 30, 2011 and for the year ended December 31, 2010 and changes during the periods then ended is presented below:
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SIGNIFICANT TRANSACTIONS
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3 Months Ended | ||||
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Jun. 30, 2011
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SIGNIFICANT TRANSACTIONS | Â | ||||
SIGNIFICANT TRANSACTIONS | NOTE 3- SIGNIFICANT TRANSACTIONS
Asset and Business Acquisitions
On February 1, 2010, the Company entered into a purchase agreement with VHGI Holdings, Inc. (VHGI), a Delaware corporation. The total purchase price of $500,000, which consisted of $100,000 in cash and a promissory note in the principal amount of $400,000 (the WMT Note), was paid for certain assets and liabilities. Amounts recorded by the Company as a result of this transaction were the following:
No value was assigned to the other assets included in the transaction, which were fully amortized intangibles, because no value was identified for these assets when determining the purchase price paid. These intangibles include intellectual property related to prescription drug monitoring Veriscrip technology and the System Tray Notifier license owned by SeHealth. The purchased assets also included VHGIs 100% membership interest in SeHealth.
Scott A. Haire, the Company's Chief Executive Officer (CEO) and Chairman, also serves as Chairman and the Chief Financial Officer (CFO) of VHGI. Based on shares outstanding as of the Annual Report on Form 10-K filed by VHGI for the year ended December 31, 2010, Mr. Haire beneficially owns, individually and through H.E.B., LLC, a Nevada limited liability company of which Mr. Haire is the managing member, 28% of the outstanding common stock of VHGI.
Distribution Agreement
As disclosed in our Form 8-K filing on April 14, 2011, Juventas, LLC (Juventas) purchased the exclusive right to sell the CellerateRX powder products in North America. Juventas is an affiliate of Biomet Texas, Ltd. and is the largest Biomet distributor. This multi-year agreement has escalating sales requirements for Juventas to retain such exclusive rights. We received an upfront non-refundable payment of $500,000 from Juventas for this exclusive right to distribute CellerateRX powder, which was recorded as revenue in the first quarter of 2011. |
SUBSEQUENT EVENTS
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3 Months Ended |
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Jun. 30, 2011
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SUBSEQUENT EVENTS | Â |
SUBSEQUENT EVENTS | NOTE 8 - SUBSEQUENT EVENTS
To date, the Company made principal payments in the amount of $387,250 on promissory notes with unrelated parties.
On July 13, 2011 the Company executed a promissory note in the amount of $40,000 to an unrelated party. The principal and accrued interest on this note, accrued at 8% per annum, is due April 18, 2012.
The Company has evaluated all subsequent events from the balance sheet date through the date of this filing and with the exception of the items mentioned above there are no events to disclose. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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3 Months Ended |
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Jun. 30, 2011
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | Â |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The terms WMT, we, the Company, and us as used in this report refer to Wound Management Technologies, Inc. The accompanying unaudited condensed consolidated balance sheet as of June 30, 2011 and unaudited condensed consolidated statements of operations for the three and six months ended June 30, 2011 and 2010 have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management of WMT, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six month period ended June 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011 or any other period. These financial statements and notes should be read in conjunction with the financial statements for each of the two years ended December 31, 2010 and December 31, 2009, included in the Companys Annual Report on Form 10-K. The accompanying audited consolidated balance sheet as of December 31, 2010 has been included for comparison purposes in the accompanying balance sheet. Certain prior year amounts have been reclassified to conform to current year presentation.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of WMT and its wholly-owned subsidiaries: Wound Care Innovations, LLC (WCI), a Nevada limited liability company; BioPharma Management Technologies, Inc. (BioPharma), a Texas corporation; Resorbable Orthopedic Products, LLC (Resorbable), a Texas limited liability company; and Secure eHealth, LLC (SeHealth), a Nevada limited liability company. All intercompany accounts and transactions have been eliminated.
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 managements best estimate of fair value.
There are no financial instruments existing at June 30, 2011 that are subject to fair value measurement. Our intangible assets have been valued using this accounting treatment and a description of the methodology used, including the valuation category, is described below in Note 6 Intangible Assets.
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 Companys 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 condensed 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. |
NOTES RECEIVABLE
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NOTES RECEIVABLE | Â | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
NOTES RECEIVABLE | NOTE 4 NOTES RECEIVABLE
Notes Receivable Related Parties
The following is a summary of amounts due from related parties, including accrued interest separately recorded, as of June 30, 2011:
Notes Receivable
The Private Access Note, in the amount of $1,500,000, is with an unrelated company and the loan bears interest at 9% per annum from the day of purchase to the maturity date of July 31, 2013, with $193,125 of interest accrued as of June 30, 2011. According to the terms of the Assignment and Assumption Agreement between VHGI (Assignor), Private Access, Inc. (Private Access) and the Company (Assignee), Assignor assigned all rights, title and interest in the Private Access Note, including the right to serve as collateral agent for the collateral pledged as security by Private Access to the Assignee. Under the terms of the Security Agreement dated August 3, 2009, which was assigned to the Company by Assignor, the Company, along with other investors, holds pro rata security interests in all property of Private Access including its intellectual property.
The Company has five $50,000 5% secured notes, with the same unrelated party for a total balance of $250,000. The notes were received as part of the June 21, 2011 note payable and warrant purchase agreement (see note 5). Each $50,000 5% secured note receivable has a maturity date 49 months from the initial funding. As of June 30, 2011, $1,042 of interest receivable has been accrued. |
NOTES PAYABLE
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Jun. 30, 2011
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NOTES PAYABLE | Â | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
NOTES PAYABLE | NOTE 5 NOTES PAYABLE
Notes Payable Related Parties
Funds are advanced to the Company from various related parties including Scott A. Haire, the Company's CEO, and entities controlled by him. Other shareholders may fund the Company as necessary to meet working capital requirements and expenses. The following is a summary of amounts due to related parties, including terms of the debt, and the interest accrued as of June 30, 2011:
As mentioned in Note 3 Significant Transactions, the principal balance of $400,000 WMT Note due to VHGI for the purchase of assets in February 2010 was paid in full as of March 31, 2011. The accrued interest related to the WMT Note had a remaining balance of $31,036 due as of March 31, 2011 and this amount was paid in April 2011.
There is remaining accrued interest of $3,710 due to related parties as of June 30, 2011 for debt paid prior to the end of the quarter.
During the first quarter of 2011, the Company issued common stock in payment of a portion of the debt owed to H.E.B., LLC. During the second quarter of 2011, the Company issued common stock in payment of a portion of the debt owed to Commercial Holding AG, LLC. The number of shares issued for the debt and the related loss on conversion is summarized below:
Notes Payable
In the first quarter of 2011, the Company issued debt in the amount of $1,660,000 to various unrelated parties. The terms of the debt are as follows: (i) interest accrues at 10% per annum; (ii) maturity date is six months from the date of issuance; and (iii) debt is secured by a first priority interest in the inventory of the Company and is senior to all other obligations of the Company. Additionally, the Company agreed to issue a total of 4,150,000 shares of common stock to the lenders at a price of $0.01 per share, the value of which reduced the balance of the notes payable. The Company issued 3,900,000 of the shares in the first quarter of 2011 and recorded the difference between the fair market value of the stock and the $39,000 reduction in notes payable as a loan origination fee in the amount of $2,276,250. The remaining 250,000 shares were issued in the second quarter of 2011 and a loan origination fee in the amount of $153,750 was recorded in addition to a $2,500 reduction to the notes payable. The total owed to these lenders as of June 30, 2011 is $1,305,168. As of the date of this filing $371,111 of this balance is in default. As of June 30, 2011 the accrued interest balance is $27,626. On May 27, 2011 the Company executed a senior promissory note in the amount of $125,000 to an unrelated party. The principal and accrued interest, at 10% per annum, is due on August 27, 2011. As of June 30, 2011 the accrued interest balance is $2,089.
On June 17, 2011, the Company executed three senior promissory notes to unrelated parties in the total amount of $250,000. The terms of the debt are as follows: (i) interest accrues at 12% per annum; (ii) maturity date is three months a from the date of issuance; (iii) the Company will issue 475,000 shares of common stock; and (iv) the Company will issue to the Lenders five-year warrants to purchase 475,000 shares of common stock at a price of $0.60 per share. The fair market value of the 475,000 Common Shares to be issued has been recorded as a loan origination fee in the amount of $332,750. The stock will be issued in the third quarter of 2011. The Company measured the fair value of the warrants and recorded a 100% discount against the principal of the notes. The discount is being accreted to interest expense over the term of the notes using the effective interest method. The unamortized discount balance as of June 30, 2011 is 214,674. The accrued interest payable balance on the notes as of June 30, 2011 is $917.
Convertible Notes Payable
On October 28, 2010, the Company executed four convertible promissory notes to unrelated parties with a combined total face amount of $390,000 and a funded amount of $250,000. The maturity date for each of the notes was February 28, 2011 and there was no stated interest rate. 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. A discount in the amount of $202,800 was calculated as the total value of the beneficial conversion feature, which is being amortized over the term of the note. The remaining unamortized balance as of December 31, 2010 was $65,333 and this amount has been amortized and recorded as interest expense in the first quarter of 2011. In addition, the discount amount of $140,000 has also been amortized over the term of the loan. The unamortized balance as of December 31, 2010 was $94,640 and this amount has been fully amortized and recorded as interest expense in the first quarter 2011. Upon the February 28, 2011 maturity date, $275,000 of the balance owed was converted into 1,100,000 shares of common stock. An additional $20,000 of the balance owed was arranged to be converted into 80,000 shares of common stock which were issued in the second quarter of 2011. The remaining balance owed on the notes was paid in cash in March of 2011 and the balance owed as of June 30, 2011 is zero.
As consideration for making the above mentioned loans, a combined total of 800,000 warrants were issued to the lenders to purchase shares of the Companys common stock. The warrants have an exercise price of $.25, $.50, $.75 and $1.00 in increments of 200,000, respectively. All the warrants expire 5 years from the date of issuance. The fair value of the warrants on the date of issuance was calculated using the Black-Scholes option pricing model at each of the above mentioned exercise prices with the following factors: (i) market price per share of the Companys common stock on issuance date was $.38; and (ii) volatility of 296% was calculated using the Companys closing stock prices since October 2008; and (iii) risk free rate of 2.15% based on the 1-year treasury rate. The $304,000 value of the warrants was recorded as a capital contribution and loan origination expense at the date of issuance.
On December 28, 2010, a convertible promissory note was executed in the amount of $50,000 to an unrelated party. Interest accrues on the note at 8% per annum and the maturity date of the note is September 30, 2011. The note is convertible into shares of the Companys common stock at a 45% discount. The total discount amount related to the note is $3,000, which is being amortized over the nine-month term of the loan, and the unamortized discount balance at June 30, 2011 is $985. The total owed to this lender, net of discount, as of June 30, 2011 is $49,015. The accrued interest balance as of this same date is $2,056.
On April 4, 2011 and May 20, 2011, the Company executed convertible promissory notes with the same terms to the same unrelated party in the amounts of $50,000 and $30,000, respectively. The principal and accrued interest on each note, at 8% per annum, is due nine months from date of execution.
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. A discount in the amount of $77,418 was calculated as the total value of the beneficial conversion feature. The discount is being accreted to interest expense over the term of the notes using the effective interest method. The remaining unamortized balance as of June 30, 2011 is $57,847. The accrued interest payable on the notes as of the same date is $1,078.
On January 10, 2011, the Company executed two promissory notes to two unrelated parties in the amount of $50,000 each. The notes and interest, accrued at 24% per annum, are due two months from the issuance date. An additional note payable in the amount of $100,000 with the same terms was issued to a third party on January 14, 2011. The Company issued a total of 400,000 shares of common stock in the first quarter for a total reduction to the notes payable in the amount of $8,000. The remaining note balances including $8,000 of accrued interest were paid in full as of March 31, 2011.
On June 9, 2011, the Company executed three convertible promissory notes to unrelated parties in the total amount of $300,000. The notes accrue interest at 10% and mature six months from the issue date. The notes are convertible into shares of the Companys common stock at the lesser of $0.40 per share or 50% of the lowest bid price in the five days preceding the conversion date. In addition, the Company issued to such investors a total of 999,999 three-year detachable warrants to purchase shares of common stock at an exercise price of $0.40 per share.
The Company measured the fair value of the warrants and the beneficial conversion feature of the notes and recorded a 100% discount against the principal of the notes. The discount is being accreted to interest expense over the term of the notes using the effective interest method. The unamortized discount balance as of June 30, 2011 is $195,244. The accrued interest payable balance as of the same date is $1,808.
On June 21, 2011, the Company entered into a note and warrant purchase agreement whereby the Company issued and sold, and an unrelated party purchased: (i) a convertible promissory note of the Company in the principal amount of $560,000 bearing a 12% interest rate (ii) and two warrants, each giving the holders the right to purchase 250,000 shares of common stock. Additionally upon closing, the Company issued to the lender 100,000 shares of common stock of the Company valued at $60,000 as a loan origination fee. The maturity date of the company note is June 21, 2015. In consideration for the issuance and sale of the Company Note and warrants, the lender paid cash in the amount of $250,000 and issued five $50,000 5% secured notes, each with a maturity date 49 months from the initial funding date. The $60,000 variance between the face value of the note and the funds received represents a 9.1% original issue discount of $50,000 and a $10,000 payment obligation with respect to certain fees and expenses.
The company note is convertible into shares of the Companys common stock, at the option of the lender, at a price per share equal to (a) the principal and interest to be converted divided by (b) 70% of the lowest trade price for the thirty (30) trading days immediately preceding conversion. The principal and interest subject o conversion under this Note shall be eligible for conversion in tranches (Tranches), as follows: (1) an initial Tranche in an amount equal to $310,000 and any interest or fees accrued thereon under the terms of the Company Note or the other Transaction Documents., and (5) additional subsequent Tranches each in an amount equal to $50,000 and any interest or fees accrued thereon. The first Tranche of $310,000, representing the amounts paid by the investor upon the closing of the transaction, may be converted at the lenders option at any time. The lenders right to convert any of the subsequent Tranches is conditioned upon the lenders payment of the corresponding 5% secured note. Accordingly, principal and interest under the Company Note may only be converted by the lender in proportion to the amounts paid under each of the 5% secured notes.
Both warrants are exercisable for a period of five years from the initial funding date, and entitle the investor to purchase 250,000 shares of common stock. The first warrant is exercisable at $0.50 per share and the second at $1.00 per share.
The Company measured the fair value of the warrants and the beneficial conversion feature of the notes and recorded a discount against the principal of the note. The discount is being accreted to interest expense over the term of the notes using the effective interest method. The unamortized discount balance as of June 30, 2011 is $606,242. The accrued interest payable balance on the note as of the same date is $3,866.
Debentures
On March 30, 2010, the Company entered into a Securities Purchase Agreement and, pursuant to this agreement, a total of $1,000,000 in principal amount of convertible debentures (the Debentures), with a maturity date of March 2013, may be sold to investors. The Debentures may be converted into shares of the Companys common stock at a conversion price equal to seventy percent (70%) of the lowest closing bid price per share for the twenty (20) trading days immediately preceding the date of conversion; provided that no holder may convert Debentures into, nor shall the Company issue to such holder, shares of common stock to the extent that the conversion would result in a holder and its affiliates together beneficially owning more than 4.99% of the then issued and outstanding shares of the Companys common stock. This ownership restriction may be waived, however, by a holder upon sixty-one (61) days prior written notice.
The Debentures may be redeemed by the Company at any time or from time to time at a price equal to (x) one hundred twenty percent (120%) of the principal amount of the Debenture if the Debenture is called for redemption prior to the expiration of six months from the issuance date, or one hundred thirty one percent (131%) if called for redemption thereafter, plus (y) interest accrued through the day immediately preceding the date of redemption. During 2010, the Company issued Debentures in the aggregate principal amount of $695,000. 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. A discount in the amount of $297,857 was calculated as the total value of the beneficial conversion feature, which is being amortized over the term of the debt, and the unamortized balance at June 30, 2011 is $210,354. The debt balance net of the discount is $484,646. In addition, debt issuance costs of $102,850 have been deferred and are being amortized over the term of the debt. The unamortized balance of deferred loan costs at June 30, 2011 is $72,144. The debentures have a three (3) year life from the date of issuance. Interest expense on the debentures has been accrued at 6% per annum and the accrued interest recorded as of June 30, 2011 is $44,800 |
INTANGIBLE ASSETS
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INTANGIBLE ASSETS | NOTE 6 INTANGIBLE ASSETS
Marketing Contacts
On September 17, 2009, the Company entered into an Agreement and Plan of Merger (the Merger Agreement), whereby BioPharma became a wholly-owned subsidiary of the Company. Pursuant to the terms of the Merger Agreement, 4,500,000 shares of the Companys common stock were issued in exchange for all the outstanding common stock of BioPharma.
Prior to the Merger Agreement, BioPharma entered into a 50% joint venture with A&Z Pharmaceutical, LLC (A&Z) to form Pharma Technology International, LLC (Pharma Tech). A&Z is a privately-held wholesale distributor of pharmaceuticals formed in 1997. A&Zs customer base includes tertiary hospitals, medical institutions, and governmental agencies located in the United States, South America, Europe and the Middle East. The operations of Pharma Tech to date have been minimal; however, a sales order for Lebanon was received in April 2011 with others to follow.
Pharma Tech entered into a Distribution Agreement (the Distribution Agreement) to market, distribute and sell the WCI wound care products in the Middle East through existing A&Z distribution channels. The initial focus will be on CellerateRX® and the agreement requires Pharma Tech to sell a minimum of $500,000 of the product each year of the five year agreement to maintain the exclusive right to sell the product. The agreement covers 20 countries throughout the Middle East and Northern Africa. Pharma Tech placed orders with WCI during 2010 for sales of the CellerateRX product in Lebanon; however, the minimum sales amount was not obtained. Our recent experience with international markets indicates that the sales process is much lengthier than anticipated and the impact on sales figures from the contacts in the Middle East cant be accurately evaluated until the sales team has had 24 months to work through the government regulations regarding the sale of medical products. Although other distributors are now able to sell the product in the region, the sales pipeline already developed in year one is expected to produce the minimum sales amount in 2011. Orders were placed by Pharma Tech during both the first and second quarters of 2011.
As part of the BioPharma acquisition, the formula for a shingles based product was obtained which is only at the idea stage and no determination has been made as to whether the formula can be developed cost effectively into a product. According to the guidance in ASC Topic No. 805-20-25-1, identifiable assets should be recognized separately from goodwill and there was no value assigned to this formula.
The BioPharma transaction has been accounted for as a business combination based on the guidance in ASC Topic No. 805. The financial statements of BioPharma have been consolidated with those of the Company and an intangible asset was recorded in the amount of $4,187,815 or approximately $.93 per common share issued on the date of acquisition. The value of the intangible asset assigned to the marketing contacts recorded by the Company is based on Level 3 input to our valuation methodology, which consists of models with significant unobservable market parameters. We utilized a discounted cash flow analysis based on sales projections from the Distribution Agreement adjusted for the associated costs. According to ASC Topic No. 805-20-55-27, a customer relationship acquired in a business combination that does not arise from a contract may be an identifiable asset separate from goodwill. The estimated useful life of the intangible asset is ten years based on the automatic renewable five year term of the Distribution Agreement. The amount amortized for the six months ended June 30, 2011 was $209,392 resulting in a balance of $732,868 in accumulated amortization as of June 30, 2011. The balance of the intangible asset, net of accumulated amortization, is $3,454,947 as of June 30, 2011.
Patent
On September 29, 2009, the Company entered into an Asset Purchase Agreement (the Agreement), whereby the Company acquired a patent from Resorbable Orthopedic Products, LLC, a New Jersey limited liability company (Resorbable NJ) in exchange for 500,000 shares of the Companys common stock and the assumption of a legal fee payable in the amount of $47,595 which is related to the patent. Based on the guidance in ASC Topic No. 350-30, the patent was recorded as an intangible asset of $462,715, or approximately $.93 per share, plus $47,595 for the assumed liability. The intangible asset is being amortized over an estimated ten year useful life. The amount amortized for the six months ended June 30, 2011 was $25,515, resulting in a balance of $89,304 in accumulated amortization as of June 30, 2011. The balance of the intangible asset, net of accumulated amortization, is $421,005 as of June 30, 2011.
Upon closing of the asset sale by Resorbable NJ, the managers of this New Jersey limited liability company abandoned the name Resorbable Orthopedic Products, LLC. RSI-ACQ Acquisition, LLC, a Texas limited liability company owned by the Company and formed on August 24, 2009, assumed the name of Resorbable Orthopedic Products, LLC in Texas.
The activity for the intangible accounts is summarized below:
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GOING CONCERN
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3 Months Ended |
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Jun. 30, 2011
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GOING CONCERN | Â |
GOING CONCERN |
NOTE 2 -- GOING CONCERN
The Company has current liabilities in excess of current assets and has a stockholders deficiency. The Company has had limited operations and has not been able to develop an ongoing, reliable source of revenue to fund its existence. The Companys day-to-day expenses have been covered by proceeds obtained, and services paid by, the issuance of stock and notes payable. The adverse effect on the Companys results of operations due to its lack of capital resources can be expected to continue until such time as the Company is able to generate additional capital from other sources. These conditions raise substantial doubt about the Companys ability to continue as a going concern.
These unaudited interim condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty. The continuation of the Company as a going concern is dependent upon the success of the Company in obtaining additional funding and the success of its future operations. The ability of the Company to achieve these objectives cannot be determined at this time. |
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