PINX:RMCP Revolutions Medical Corp Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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UNITED STATES

 

SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C. 20549

 

FORM 10-Q

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarter ended: June 30, 2012

 

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Transition Period from ___________ to____________

 

Commission File Number: 000-28629

 

REVOLUTIONS MEDICAL CORPORATION

 

(Exact name of registrant as specified in its charter)

 

Nevada   73-1526138
(State or other jurisdiction   (I.R.S. Employer
of incorporation)   Identification No.)

670 Marina Drive, 3rd Floor

Charleston, SC 29492

(Address of principal executive offices and Zip Code)

 

(843) 971-4848

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files. Yes x No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer ¨   Accelerated filer ¨
         
Non-accelerated filer ¨   Smaller reporting company x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x

 

As of August 13, 2012 there were 62,887,908 shares outstanding of the registrant’s common stock.

 

 
 

 

TABLE OF CONTENTS

 

PART I – FINANCIAL INFORMATION
     
Item 1. Financial Statements. 3
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 19
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk. 25
     
Item 4. Controls and Procedures. 25
     
PART II – OTHER INFORMATION
     
Item 1. Legal Proceedings. 27
     
Item 1A. Risk Factors. 28
     
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds. 28
     
Item 3 Defaults Upon Senior Securities. 29
     
Item 4. Mine Safety Disclosures. 29
     
Item 5. Other Information. 29
     
Item 6. Exhibits. 29
     
Signatures 30

 

2
 

 

 

PART I – FINANCIAL INFORMATION

 

Item 1.  Financial Statements.

 

REVOLUTIONS MEDICAL CORPORATION

(A Development Stage Company)

BALANCE SHEET

AS OF JUNE 30, 2012 AND DECEMBER 31, 2011

(Unaudited)

 

   June 30,   December 31, 
   2012   2011 
   (unaudited)     
ASSETS          
           
CURRENT ASSETS:          
Cash and cash equivalents  $0   $4,844 
Accounts receivable   176      
Inventory   314,200      
Due from shareholder   72,800    25,000 
Due from litigation   311,000    311,000 
Prepaid expenses   95,903    312,501 
Total current assets   794,079    653,345 
           
Property and equipment, net   1,159,890    1,185,664 
Goodwill   23,276    23,276 
Licensing Agreement   15,000    15,000 
Patent Development   126,780    101,426 
           
TOTAL ASSETS  $2,119,025   $1,978,711 
           
LIABILITIES AND STOCKHOLDERS' DEFICIT          
           
 CURRENT LIABILITIES:          
Accounts payable and accrued liabilities  $1,127,083   $719,901 
Credit cards   104,821    59,217 
Accrued salaries   145,427    120,000 
Accrued interest payable   102,738    64,670 
Convertible promissory notes,  net of discounts of $329,359 and 307,126, respectively   471,304    80,535 
Embedded conversion option liabilities   279,036    442,311 
Note Payable Gifford Mabie   691,484    807,640 
Total current liabilities   2,921,893    2,294,274 
           
         Total liabilities   2,921,893    2,294,274 
           
STOCKHOLDERS' DEFICIT:          
Preferred stock, $0.001 par value, 5,000,000 shares authorized; 1,000,000 shares issued
and outstanding
   1,000    1,000 
Common stock, $0.001 par value, 250,000,000 shares authorized; 60,315,171 and
54,729,606 shares issued and outstanding at 6/30/12 and 12/31/11, respectively
   60,315    54,730 
Treasury Stock   -    - 
Additional paid-in capital   31,862,974    29,463,498 
           
Accumulated deficit   (32,727,157)   (29,834,791)
Total stockholders' deficit   (802,868)   (315,563)
           
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT  $2,119,025   $1,978,711 

 

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

 

3
 

 

REVOLUTIONS MEDICAL CORPORATION

 
 (A Development Stage Company)
 
STATEMENTS OF OPERATIONS
FROM INCEPTION (AUGUST 16, 1996) THROUGH JUNE 30, 2012
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011
(UNAUDITED)

 

   

 

                     
                   August 16, 1996 
                   (Inception Date) 
   Three Months Ended June 30,   Six Months Ended June 30,   to June 30, 
   2012   2011   2012   2011   2012 
Revenue  $840   $-   $840   $-   $840 
Cost of sales   8,981    -    8,981    -    8,981 
   Gross profit   (8,141)   -    (8,141)   -    (8,141)
                          
Research and development   18,300    111,832    89,688    111,832    3,044,926 
Depreciation and amortization   28,280    1,619    38,795    3,153    140,936 
General and administrative expenses   710,165    995,148    2,189,753    1,823,702    28,450,874 
   Loss from operations   (764,886)   (1,108,599)   (2,326,377)   (1,935,534)   (31,644,877)
                          
   OTHER INCOME (EXPENSE)                         
Interest income        9         9    17,286 
Interest expense   (350,382)   (112,292)   (786,945)   (190,828)   (1,689,137)
Gain on disposal of assets                       794 
Loss on extinguishment of debt                       (152,914)
 Adjustments to fair value of derivatives   137,967    22,279    219,977    44,214    40,844 
Foreign currency adjustment   1,098         978         1,098 
Gain from litigation                       311,000 
 Other income (expenses)                       205,327 
    (211,317)   (90,004)   (565,990)   (146,605)   (1,265,702)
                          
Net loss before minority interest  $(976,203)  $(1,198,603)  $(2,892,367)  $(2,082,139)  $(32,910,579)
                          
Minority interest in subsidiary loss                       (183,422)
Net loss   (976,203)   (1,198,603)   (2,892,367)   (2,082,139)   (32,727,157)
Weighted average number of common shares outstanding, basic and diluted   57,737,620    46,488,784    57,737,620    46,488,784    38,930,431 
                          
Basic and diluted net loss per share attributable to common stockholders  $(0.02)  $(0.03)  $(0.05)  $(0.04)   (0.84)
                          

 

4
 

 (A Development Stage Company)

 

STATEMENTS OF CASH FLOWS

FROM INCEPTION (AUGUST 16, 1996) THROUGH JUNE 30, 2012 AND

 FOR THE SIX MONTHS ENDED JUNE 30, 2012 AND 2011

 

  

From Inception

(August 16, 1996)
Through June 30, 

   Six Months Ended
June 30
 
   2012   2012   2011 
OPERATING ACTIVITIES            
Loss from operations before minority interest  $(34,643,321)  $(2,892,367)  $(2,082,138)
Plus non-cash charges to earnings               
Stock compensation expense   2,018,280         
Depreciation and amortization   115,173    21,374    3,153 
Purchase R&D - Clear Image   3,309,514         
Common stock issued for services   6,125,892    287,375    317,500 
Preferred stock issued for services   270,000         
Expenses paid by third parties   57,134         
Contribution of services by officer and employees   799,154         
Services by officer and employees paid for               
with non-cash consideration   1,162,324         
Compensation cost for option price reduction   50,000         
Amortization of debt discounts   (199,029)        155,561 
Amortization of compensation cost for options granted to non-employees and common stock issued for services   1,775,577         
Allowance for doubtful accounts   50,900         
Gain on extinguishment of debt   (10,398)        
Write-off of Notes Receivable   14,636    ---     
Write-off of Notes Payable   (8,239)        
Write-off of organizational costs   3,196         
Write-off of zero value investments   785,418         
Write-off of leasehold improvements and computer equipment   2,006         
Compensation costs for stock options and warrants granted to non-employees   1,573,913         
Adjustment to fair value of derivatives   (92,248)        124,744 
SEC settlement Gifford Mabie   (49,085)   (116,157)     
                
Change in working capital accounts:               
Prepaid expenses   322,876    216,598      
Inventory   (314,199)   (314,199)     
(Increase) decrease in receivables from related parties   (95,706)        
(Increase) decrease in goodwill   (23,276)        
(Increase) decrease in other receivables   (705,595)   56,343    (6,288)
Increase (decrease) in accrued salaries and consulting   10,779    158,176    --- 
Increase (decrease) in accrued interest   267,676    38,068    33,617 
Increase (decrease) in accounts payable and accrued liabilities   2,908,123    215,698    (1,574)
Total operating activities   (14,518,525)   (2,329,091)   (1,455,425)
INVESTING ACTIVITIES               
Purchase of equipment and furnishings   (1,229,423)   ---    (363,706)
Leasehold improvements   (33,000)   4,400      
Investment in patent development   (169,722)   (25,353)   (19,000)
Investment in Ives Health Company   (251,997)        
Investment in The Health Club   (10,000)        
Total investing activities   (1,694,142)   (20,953)   (382,706)
FINANCING ACTIVITIES               
Loans from shareholders   15,707         
Repayment of loans from shareholders   (8,005)        
Repayments of Promissory Notes   57,325         
Issuance of unexercised options for cash   562,297    562,297      
Issuance of unexercised warrants for cash   433,351    280,186      
Common stock subscribed   546,500          
Sale of preferred stock for cash:   (1,000)        
Sale of common stock for cash:               
To third-party investors (prior to merger)   574,477          
To third-party investors   5,765,114    21,900    206,470 
From exercise of stock options and warrants   4,216,178    191,815    1,202,720 
Common stock issued for payment of debt   2,496,112    766,656    (32,576)
Less: Issue Costs   (102,318)        
Beneficial conversion feature   566,579    294,832      
Derivative Liability   175,078    (163,275)   --- 
Debt Discount             --- 
Convertible debentures issued for cash   1,212,818    390,769    417,287 
Payment of exclusive license note payable   (100,000)        
Treasury stock               
Total financing activities   16,410,214    2,345,180    1,793,901 
Minority interest   (197,567)         
Change in cash   (20)   (4,864)   (44,230)
Cash at beginning of period       4,844    69,517 
Cash at end of period  $(20)  $(20)  $25,287 

  

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

5
 

 

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2012

 

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Organization and Nature of Operations

 

Revolutions Medical Corporation, a Nevada corporation (the “Company”), has been endeavoring to design, develop and commercialize auto retractable vacuum safety syringes.  Our present product development effort is focused on the RevVac™ Auto Retractable Vacuum Safety Syringe, which is designed specifically to reduce accidental needle stick injuries and lower the spread of blood borne diseases. The Company also has developed a suite of proprietary MRI software tools: RevColor, Rev3D, RevDisplay, and RevScan. These tools are designed to enhance general diagnostic confidence through education and research use and in the future we believe will have specific commercial applications. The Company’s administrative facilities are located in Charleston, South Carolina. The Company’s primary manufacturing facility is located in Wuxi, China.

 

Development Stage Company

 

From its inception in 1996, the Company has been considered a development stage enterprise for financial reporting purposes as significant efforts have been devoted to raising capital and to research and development of various safety syringes and its proprietary MRI software tools.

 

Cash and Cash Equivalents

 

The Company considers highly liquid investments (those readily convertible to cash) purchased with original maturity dates of three months or less to be cash equivalents.

 

Generally Accepted Accounting Principles

 

On July 1, 2009, the Financial Accounting Standards Board (“FASB”) released its Accounting Standards Codification (“ASC”). The ASC became effective for interim or annual financial statements issued after September 15, 2009. The ASC is the single source of generally accepted accounting principles.

 

Income Taxes

 

The Company uses the liability method of accounting for income taxes as set forth in ASC 740, “Income Taxes.”  Under the liability method, deferred taxes are determined based on the differences between the financial statement and tax basis of assets and liabilities at enacted tax rates in effect in the years in which the differences are expected to reverse.

 

Segment Information

 

The Company follows the guidance in ASC 280, “Segment Reporting”.  The Company identifies its operating segments based on business activities, management responsibility and geographical location.  During the period covered by these financial statements, the Company operated in a single business segment engaged in developing selected healthcare products.

 

Earnings (Loss) per Share

 

The Company computes net income per share in accordance with ASC 260, “Earnings per Share”. Under these provisions, basic net income (loss) per share is calculated by dividing net income (loss) available to common stockholders for the period by the weighted average shares of common stock of the Company outstanding during the period. Diluted net income per share is computed by dividing the net income for the period by the weighted average number of common and common equivalent shares outstanding during the period.  The calculation of diluted income (loss) per share of common stock assumes the dilutive effect of stock options and warrants outstanding.  During a loss period, the assumed exercise of outstanding stock options and warrants has an anti-dilutive effect.  Therefore, the outstanding stock options were not included in the June 30, 2012, and December 31, 2011, calculations of loss per share.

 

 

6

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2012

 

Accounts Receivable

 

The Company records trade receivables when revenue is recognized. No product has been consigned to customers. The Company’s allowance for doubtful accounts is primarily determined by review of specific trade receivables. Those accounts that are doubtful of collection are included in the allowance. These provisions are reviewed to determine the adequacy of the allowance for doubtful accounts.  Trade receivables are charged off when there is certainty as to their being uncollectible. Trade receivables are considered delinquent when payment has not been made within contract terms.

 

The Company requires certain distributors to make a prepayment prior to beginning production or shipment of their order. Distributors may apply such prepayments to their outstanding invoices or pay the invoice and continue to carry forward the deposit for future orders.  Such amounts are included in “Other Accrued Liabilities” on the Balance Sheet. The Company records an allowance for estimated returns as a reduction to Accounts receivable and Gross profit. To date, returns have been immaterial.

 

Inventories

 

Inventories are valued at the lower of cost or market, with cost being determined using actual average cost.  The Company compares the average cost to the market price and records the lower value.  Management considers such factors as the amount of inventory on hand and in the distribution channel, estimated time to sell such inventory, the shelf life of inventory, and current market conditions when determining excess or obsolete inventories.  A reserve is established for any excess or obsolete inventories or they may be written off.

 

Use of Estimates

 

The preparation of financial statements in conformity with generally accepted principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported revenues and expenses during the reporting period.  Actual results could differ significantly from those estimates.

 

Reclassifications

 

Certain reclassifications may have been made to the prior year financial statements to conform to the current period presentation.

 

Revenue Recognition

 

Revenue is recognized for sales when title and risk of ownership passes to the customer, generally upon shipment from the manufacturing facility in Wuxi, China or from our warehouse facility in Ladson, South Carolina.

 

Valuation of Derivative Instruments

 

ASC 815-40 (formerly SFAS No. 133 “Accounting for derivative instruments and hedging activities”), requires that embedded derivative instruments be bifurcated and assessed, along with free-standing derivative instruments such as warrants, on their issuance date and in accordance with ASC 815-40-15 (formerly EITF 00-19 “Accounting for derivative financial instruments indexed to, and potentially settled in, a company’s own stock”) to determine whether they should be considered a derivative liability and measured at their fair value for accounting purposes.  In determining the appropriate fair value, the Company uses the Black-Scholes option pricing formula.  At June 30, 2012, the Company adjusted its derivative liability to its fair value, and reflected the change in fair value, in its statement of operations.

 

Fair Value Measurements

 

The Company measures its financial assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e. exit price), in an orderly transaction between market participants at the measurement date. The Company categorizes its assets and liabilities measured at fair value based upon the level of judgment associated with the inputs used to measure the fair value. Level inputs, as defined by ASC 820-10, are as follows:

 

7

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2012

 

 

·Level 1 – quoted prices in active markets for identical assets or liabilities.

 

·Level 2 – other significant observable inputs for the assets or liabilities through corroboration with market data at the measurement date.

 

·Level 3 – significant unobservable inputs that reflect management’s best estimate of what market participants would use to price the assets or liabilities at the measurement date.

 

The following table summarizes fair value measurements by level at June 30, 2012, for assets and liabilities measured at fair value on a recurring basis:

 

   Level 1   Level 2   Level 3   Total 
Cash and cash equivalents  $   $   $   $ 
    

 

 

    

 

 

    

 

 

    

 

 

 
Derivative liability  $   $   $(279,036)  $(279,036)

  

 

Derivative liability was valued under the Black-Scholes model with the following assumptions:

Risk free interest rate   0.18% to 0.19 %
Expected life   0 to 3 years  
Dividend Yield     0 %
Volatility   0% to 142 %
         

 

The following is a reconciliation of the derivative liability:

 

Value at December 31, 2011  $442,311 
Issuance of instruments  $174,447 
Decrease in Value  $(219,976)
Reclassification  $(117,746)
Value at June 30, 2012  $279,036 

 

8

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2012

 

 

Notes and Loans Payable

 

At June 30, 2012 and December 31, 2011, notes and loans payable consist of:

 

   June 30,
2012
   December 31,
2011
 
Convertible Promissory Note Payable to JMJ Financial, secured by the Company’s assets, one time interest charge of 8%, due February 22, 2014  $191,663   $207,161 
Convertible Promissory Note Payable to Asher Enterprises secured by the Company’s assets, interest rate of 8.0% per annum, with payment due on or before April 26, 2012       40,000 
Convertible Promissory Note Payable to Asher Enterprises secured by the Company’s assets, interest rate of 8.0% per annum, with payment due on or before June 1, 2012   ---    45,000 
Convertible Promissory Note Payable to Asher Enterprises secured by the Company’s assets, interest rate of 8.0% per annum, with payment due on or before August 7, 2012   ---    42,500 
Convertible Promissory Note Payable to Asher Enterprises secured by the Company’s assets, interest rate of 8.0% per annum, with payment due on or before September 19, 2012   ---    53,000 
Convertible Promissory Note Payable to TCA Global Credit Master Fund, LP secured by the Company’s assets, interest rate of 12.0%  per annum, with payment due on or before January 3, 2013   225,000    --- 
           
Convertible Promissory Note Payable to Asher Enterprises secured by the Company’s assets, interest rate of 8.0% per annum, with payment due on or before November 10, 2012   46,000    --- 
           
Convertible Promissory Note Payable to Asher Enterprises secured by the Company’s assets, interest rate of 8.0% per annum, with payment due on or before December 20, 2012   42,500    --- 
Convertible Promissory Note Payable to Asher Enterprises secured by the Company’s assets, interest rate of 8.0% per annum, with payment due on or before February 15, 2013   53,000    --- 
Convertible Promissory Note Payable to Asher Enterprises secured by the Company’s assets, interest rate of 8.0% per annum, with payment due on or before March 21, 2013   42,500      
         --- 
Convertible Promissory Note Payable issued in the course of a private placement to individual investors secured by the Company’s assets, interest rate of 8.0% per annum, with payment due one year from the date of each note   200,000    --- 
           
Total   800,663    387,661 
Less: Unamortized Discount   (329,359)   (307,126)
   $471,304   $80,535 

 

9

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2012

Commitments and Contingencies

 

JMJ Financial

 

On February 22, 2011, the Company issued a $1,050,000 Convertible Promissory Note to JMJ Financial, Inc. (“JMJ”), a private investor.  The note bears interest in the form of a onetime interest charge of 8%, payable with the note’s principle amount on the maturity date, February 22, 2014.  All or a portion of this note’s principle and interest is convertible at the option of JMJ from time to time, into shares of the Company’s common stock, originally fixed at a per share conversion price equal to 70% of the average of the 3 lowest closing prices for the Company’s common stock in the 20 trading days previous to the effective date of each such conversion.

 

On February 28, 2011, the Company issued a $500,000 Convertible Promissory Note to JMJ.  The note bears interest in the form of a onetime interest charge of 8%, payable with the note’s principle amount on the maturity date, February 28, 2014.  All or a portion of this note’s principle and interest is convertible at the option of JMJ from time to time, into shares of the Company’s common stock, originally fixed at a per share conversion price equal to 70% of the average of the 3 lowest closing prices for the Company’s common stock in the 20 trading days previous to the effective date of each such conversion. The principal amount owed to JMJ Financial at June 30, 2012, is $191,663 from the $1,050,000 Convertible Promissory Note. No amount is owed to JMJ Financial from the $500,000 Convertible Promissory Note.

 

On March 12, 2012 the Company filed a lawsuit against Justin Keener and JMJ Financial in Charleston County, South Carolina. The Company sought a rescission and financial relief for the convertible debt agreement signed February 22, 2011. The Company claimed that it was unable to deliver the shares requested in the common stock conversion requests dated January 9, 2012 for 1,000,000 shares and January 30, 2012, for 1,226,049 shares due to the risk of defaulting on the convertible debt agreement by losing Depository Trust Company “DTC” eligibility. The contract stated that the Company would be considered in default of the agreement if the Company lost DTC eligibility due to a “chill” placed upon the electronic transfer of the stock. The Company had previously been made aware of other companies that had entered into similar agreements losing DTC eligibility and felt that JMJ had put the Company in an untenable position of either defaulting by losing DTC eligibility or defaulting by failing to issue the requested shares. The Company claimed that JMJ’s unreasonably high demands for conversion caused a “frustration” of the principal purpose of the contract and supports the rescission of the contract and a return of the parties to their respective positions before the contract was signed. On April 12, 2012 the Company withdrew the lawsuit filed in South Carolina to pursue its rights and counterclaims in Miami-Dade County, Florida.

 

The Company also claims the default notice issued by JMJ obligated the Company to pay JMJ the outstanding principal balance under the note along with the accrued and unpaid interest. The principal balance due at the time JMJ issued the default notice amounted to $191,663. The Company disputes JMJ’s claims that the Company was liable for a sum far in excess of this based upon the default provision of the contract.

 

A lawsuit was filed against the Company by JMJ Financial in Miami-Dade County, Florida on March 15, 2012. The lawsuit claims that the Company breached the terms of the convertible debt agreement by failing to issue shares requested in a stock conversion by JMJ on January 9, 2012 for 1,000,000 shares and on January 30, 2012 for 1,226,049 shares. JMJ is seeking the delivery of 2,226,049 shares of common stock of the Company, plus costs and prejudgment interest.

 

Asher Enterprises, Inc.

 

During the three months ended June 30, 2012, Asher elected to convert $95,500 in convertible debt agreements into common stock. The conversion price was based upon 55% of the 3 lowest closing bid prices in the previous 10 days to conversion. This resulted in the conversion of 813,718 shares of common stock to satisfy this debt.

 

The Company entered into two securities purchase agreements in the second quarter of 2012 with Asher Enterprises, pursuant to which the Company issued two convertible promissory notes to Asher Enterprises for an original principal amount of $53,000 on May 15, 2012 and $42,500 on June 21, 2012, respectively, in return for aggregate gross cash proceeds of $95,500. The notes bear interest at a rate of 8% per annum and provide for the payment of all principal and interest 9 months from the date of the notes’ respective issuance.  The principal amount owed to Asher Enterprises at June 30, 2012, is $184,000. This includes the two notes issued for $53,000 and $42,500 in the second quarter of 2012 and the notes from February 10, 2012 for $46,000 and from March 20, 2012 for $42,500. The notes are convertible at the election of Asher Enterprises into that number of shares of the Company’s common stock determined by multiplying 55% by the average of the lowest three closing bid prices of the Company’s common stock on the OTC Markets OTCQB during the 10 business days immediately preceding the date of conversion, subject to adjustment.

 

10

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2012

 

TCA Global Credit Master Fund, LP

 

The Company entered into a securities purchase agreement in the first quarter of 2012 with TCA Global Credit Master Fund, LP (“TCA”), pursuant to which the Company issued a convertible promissory note to TCA for an original principal amount of $225,000 on January 3, 2012.  The note bears interest at a rate of 12% per annum and provide for the payment of all principal and interest 12 months from the date of the note’s respective issuance.  The principal amount owed to TCA at June 30, 2012 is $225,000. The note is convertible at the election of TCA into that number of shares of the Company’s common stock determined by multiplying 95% by the average of the two lowest daily volume weighted average prices of the Company’s common stock on the OTC Markets OTCQB during the 5 business days immediately preceding the date of conversion, subject to adjustment.

 

Private convertible debt placement with individual investors

 

The Company entered into five securities purchase agreements in the second quarter of 2012 with individual investors, pursuant to which the Company issued five convertible promissory notes for an original principal amount of $25,000 on April 2, 2012, for $50,000 on April 13, 2012, for $26,501 on May 3, 2012, for $50,000 on May 22, 2012 and for $50,000 on June 11, 2012, respectively, in return for aggregate gross cash proceeds of $176,501.  The notes bear interest at a rate of 8% per annum and provide for the payment of all principal and interest 12 months from the date of the notes’ respective issuance. The notes also feature detachable warrants exercisable within one year of the agreement. All warrants issued along with the convertible debt agreements are outstanding, with a total of 1,506,005 warrants issued at 25 cents and 753,000 warrants issued at 50 cents.  In determining the cost associated with the issuance of this debt and the appropriate fair value for the warrants, the Company uses the Black-Scholes option pricing formula.  The principal amount owed according to these notes as of June 30, 2012, is $200,000. The notes are convertible at the election of the individual into that number of shares of the Company’s common stock determined by multiplying 75% by the average of the daily volume weighted average prices of the Company’s common stock on the OTC Markets OTCQB during the 5 business days immediately preceding the date of conversion, subject to adjustment.

 

During the three months ended June 30, 2012, four investors elected to convert $226,501 in aggregate in convertible debt agreements into common stock. The conversion price was based upon 75% of the average of the daily volume weighted average prices of the Company’s common stock during the 5 business days immediately preceding the date of conversion, subject to adjustment. This resulted in the conversion of 1,119,107 shares of common stock to satisfy this debt.

 

Debt Discount

 

In connection with the $184,000 outstanding from Asher Enterprises pursuant to short-term notes and the notes converted in the second quarter of 2012, we recorded interest expense to amortize the debt discount in the amount of $76,414 during the quarter ended June 30, 2012.

 

In connection with the sale of a Convertible Promissory Note Agreement on February 22, 2011, with JMJ, relating to a private placement of a total of up to $1,050,000 in principal amount, we recorded interest expense to amortize the debt discount in the amount of $43,401 during the quarter ended June 30, 2012. This amount is based upon the remaining unconverted amount from the $450,000 we received in four tranches from this agreement.

 

In connection with the $225,000 outstanding from TCA pursuant to a short-term note issued on January 3, 2012, we recorded interest expense to amortize the debt discount in the amount of $43,373 during the quarter ended June 30, 2012.

 

11

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2012

 

 

There remains a total of $329,359 of debt discount yet to be amortized as of June 30, 2012.

 

Beneficial Conversion Feature

 

From time to time, the Company may issue convertible notes that may have conversion prices that create an embedded beneficial conversion feature pursuant to the Emerging Issues Task Force guidance on beneficial conversion features. A beneficial conversion feature exists on the date a convertible note is issued when the fair value of the underlying common stock to which the note is convertible into is in excess of the remaining unallocated proceeds of the note after first considering the allocation of a portion of the note proceeds to the fair value of any attached equity instruments, if any related equity instruments were granted with the debt. In accordance with the guidance, the intrinsic value of the beneficial conversion feature is recorded as a debt discount with a corresponding amount to additional paid in capital. The debt discount is amortized to interest expense over the life of the note using the effective interest method. The notes issued by Asher in 2012 contain a beneficial conversion feature due to a fixed conversion price of $0.00009 and no adjustment due to dilutive issuance. Additionally, the notes issued through the private placement to individual investors all contain a beneficial conversion feature due to an amendment featuring a fixed conversion price of $0.00009 and no adjustment due to dilutive issuance. The total paid in capital for this beneficial conversion feature for these agreements as of June 30, 2011, is $389,456. Of this, $246,876 is due to the agreements with Asher Enterprises and $142,580 is due to the agreements with private investors.

 

Gifford Mabie Settlement

 

On April 8, 2008, the Company entered into a Memorandum of Understanding with its former Chief Executive Officer to settle an outstanding obligation through the issuance of its common stock on a quarterly basis commencing May 8, 2008, for one year. The value of the issuance of the common stock will be determined by the market value of the ten-day average price at the time of each quarterly issuance of common stock. During 2008, the Company issued 271,491 shares at a total value of $133,030 to partially repay this debt.

 

In 2010, the Company determined the final liability balance upon the complete liquidation of Mr. Mabie’s account and issued 400,000 shares of the Company’s common stock as additional repayment for this debt.  The initial balance for this settlement debt as of October 12, 2010 was $924,568.

 

The agreement reached with the SEC on behalf of Gifford Mabie specifies that the Company is to periodically issue shares to the special account for Gifford Mabie in order that 2,500 shares can be sold each day the market is open until the liability is satisfied.  When the 400,000 shares were placed in the special account on December 14, 2010, to be sold over the course of the next 160 days the market was open, an estimated value for these shares was determined based upon the 10 day average share price following the date of issuance.  As of June 30, 2012, following the issuance of an additional 400,000 shares on March 15, 2012, the remaining debt to be paid was $691,484 based upon this valuation.  

 

Share Based Compensation

 

The Company relies on the guidance provided by ASC 718, (“Share Based Payments”).  ASC 718 requires companies to expense the value of employee stock options and similar awards and applies to all outstanding and vested stock-based awards.

 

In computing the impact, the fair value of each option is estimated on the date of grant based on the Black-Scholes options-pricing model utilizing certain assumptions for a risk free interest rate; volatility, and expected remaining lives of the awards. The assumptions used in calculating the fair value of share-based payment awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and the Company uses different assumptions, the Company’s stock-based compensation expense could be materially different in the future.

 

The fair value concepts were not changed significantly in ASC 718; however, in adopting this Standard, companies were given the option to choose among alternative valuation models and amortization assumptions.  We elected to continue to use the Black-Scholes option pricing model and expense the options as compensation over the requisite service period of the grant. We will reconsider use of the Black-Scholes model if additional information becomes available in the future that indicates another model would be more appropriate, or if grants issued in future periods have characteristics that cannot be reasonably estimated using this model.

12

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2012

 

 

The Company’s 2007 Stock Option Plan, revised July 2011, permits the granting of stock options to its employees, directors, consultants and independent contractors for up to 20 million shares of its common stock.  The Company believes that such awards encourage employees to remain employed by the Company and also to attract persons of exceptional ability to become employees of the Company. The plan allows the Company to issue either stock options or common shares.

 

On January 3, 2012, under the terms of The Company’s 2007 Stock Option Plan, 1,000,000 options were issued to Dr. Thomas Beahm, a Company director exercisable at 15 cents each.

 

On January 3, 2012, under the terms of The Company’s 2007 Stock Option Plan, 1,000,000 options were issued to the Company’s CEO, Rondald Wheet, exercisable at 15 cents each

 

On January 3, 2012, under the terms of The Company’s 2007 Stock Option Plan, 500,000 options were issued to the Company’s COO, Vincent Olmo, exercisable at 15 cents each.

 

On March 14, 2012, under the terms of The Company’s 2007 Stock Option Plan, 200,000 options were issued for consulting services exercisable at 40 cents each.

 

Consulting Agreements

 

Periodically, the Company issues consulting agreements to individuals who are obligated under the terms of the agreement, to market the Rev Vac safety syringe within various spheres of influence.  These spheres of influence include, but are not limited to, medical product distributors, hospitals, doctors and government agencies. Consultants are vetted to the best of the Company’s abilities through due diligence reviews before the Company enters into any agreements. The purpose of these reviews is to determine a consultant’s ability to market the product for the Company.

 

The fair value of all stock compensation issued is determined by calculating the difference between the option exercise price and the closing price at the day of the option grant.  Because the options were issued under a limited window for exercise (10 days), with very little expected volatility, no dividend yield and a negligible effect from interest, the value of the option based compensation was recorded as the difference between option exercise price and the closing share price upon the date of the grant.  A valuation of these options was performed using the Black-Scholes model and due to the limited exercise window, the value under this method is the same as the difference between option exercise price and the closing price at the day of the option grant.

 

Long-Lived Assets

 

Property, plant and equipment, including significant improvements, are stated at cost.  Expenditures for maintenance and repairs are charged to operating expenses as incurred.  When properties are retired or otherwise disposed of, the cost of the asset and the related accumulated depreciation are removed from the accounts with the resulting gain or loss being reflected in results of operations.

 

Intangible assets include patents and trademarks, which are valued at acquisition through independent appraisals.  Debt issuance costs are amortized over the terms of the various agreements.  Patents and trademarks are amortized on a straight-line basis over periods varying from 7 to 40 years.

 

In 2007, the Company acquired a 62.2% interest in Clear Image, Inc. (“Clear Image”). Clear Image was a privately held company and was conducting research and development on Color MRI Technology. Clear Image was not able to secure the funding needed to keep this research and development going into the future. Clear Image had expensed the research and development costs in accordance with accounting standards in effect at the time.  The Company believed it to be advantageous to acquire a controlling interest in Clear Image and keep the technology in development rather than starting all over again.  The Company exchanged 8.2 million of its common shares, which were trading at a market price of $0.40 at the date of acquisition.  To arrive at a value for the Color MRI Technology, the Company and Clear Image determined the amount of funding provided for the research and development of this technology by looking at the amount expended from 1999 until the acquisition date. The value of the Company’s stock exchanged for the controlling interest exceeded those expensed amounts by approximately $23,000, which was recorded as goodwill because there were no other assets to value.

13

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2012

 

 

Critical Accounting Policies

 

In June 2009, FASB approved the FASB Accounting Standards Codification (the “Codification”) as the single source of authoritative nongovernmental GAAP. All existing accounting standard documents, such as FASB, American Institute of Certified Public Accountants, Emerging Issues Task Force and other related literature, excluding guidance from the SEC, have been superseded by the Codification.  All other non-grandfathered, non-SEC accounting literature not included in the Codification has become non-authoritative.  The Codification did not change GAAP, but instead introduced a new structure that combines all authoritative standards into a comprehensive, topically organized online database. The Codification is effective for interim or annual periods ending after September 15, 2009, and impacts our financial statements as all future references to authoritative accounting literature will be referenced in accordance with the Codification.  There have been no changes to the content of our financial statements or disclosures during the quarter ended June 30, 2012, as a result of implementing the Codification.

 

Date of Management’s Review

 

Subsequent events have been evaluated through August 14, 2012, the date the financial statements were available to be issued.

 

NOTE 2 – UNCERTAINTIES

 

The accompanying financial statements have been prepared assuming the Company will continue as a going concern. The Company has just entered the production and sales stage and has not established sources of revenues to fully fund the development of business and pay operating expenses, resulting in a cumulative net loss of $(32,727,157) for the period from inception (August 16, 1996) to June 30, 2012. The ability of the Company to continue as a going concern during the next year depends on the successful completion of the Company’s capital raising and initial production and sales efforts to fund the development of its retractable safety syringe. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

NOTE 3 – MAXXON/GLOBE JOINT VENTURE AGREEMENT

 

On November 3, 2005, Maxxon, Inc. (“Maxxon,” the former name of the Company) and Globe Med Tech, Inc. (“Globe”) entered into a definitive joint venture agreement to patent, develop, manufacture, market and distribute safety needle products throughout the world. Maxxon and Globe each own 50% of the joint venture.  Maxxon contributed its safety syringe technology and patent rights related thereto and Globe contributed its safety syringe IV catheter and patent rights related thereto.  In connection with the agreement, Maxxon issued restricted shares of its common stock, valued at $625,066, to Globe.  Subsequent to December 31, 2006, the Company ended the joint venture and cancelled the shares of common stock and options that were issued to Globe pursuant to the agreement.  On March 1, 2007, the Company filed a lawsuit in the District Court of Tulsa County, Oklahoma against Globe to rescind, terminate and seek monetary damages for the non-fulfillment and breach of a joint venture agreement entered into November 3, 2005, and other related agreements, in addition to an accounting of expenditures of funds under the terms and provisions of the agreements.  On October 29, 2008, the Company filed a lawsuit in the District Court of Harris county Texas, a lawsuit for fraud and contempt of court for Globe and Andy Hu, individually. On October 24, 2011, the Company was granted its request for summary judgment against Globe Medical Tech, Inc. and awarded $311,440 and the return of 266,667 shares of the Company's common stock by a Federal District Court in Tulsa County, Oklahoma. In addition to the monetary award and the return of the Company's common stock, Globe Medical is also required to return all syringes, design files, and sample molds to the Company. Furthermore, the Court ordered that Globe Medical assign to the Company all rights to the January 2009 issued United States patent for the RevVac™ auto-retractable safety syringe. Globe Medical is prohibited from claiming any interest or ownership in the Company’s safety vacuum syringes going forward. On December 14, 2011, Globe Med Tech’s appeal was denied by the Supreme Court of Oklahoma.

14

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2012

 

 

NOTE 4 – OTHER COMMITMENTS AND CONTINGENCIES

 

Employment Agreement with Rondald L. Wheet, Chief Executive Officer

 

Effective April 1, 2012, the Company and Mr. Wheet, our Chief Executive Officer, entered into a two (2) year employment agreement. The agreement provides for an annual salary of $247,500. He is responsible for the Company’s substantive and financial reporting requirements of the Securities Exchange Act of 1934, as amended, and is specifically allowed to hire any and all professionals necessary to assist that process. The Company will provide him with all reasonable and customary fringe benefits, including, but not limited to, participation in pension plans, profit sharing plans, employee stock ownership plans, stock option plans (whether statutory or not), stock appreciation rights plans, hospitalization, medical dental disability and life insurance, car allowance, vacation and sick leave. The Company will reimburse of all his reasonable and necessary travel, entertainment or other related expenses incurred by him in carrying out his duties and responsibilities under the agreement. The Company will also provide him with a cell phone, suitable office space, and membership dues in professional organizations and for any seminars and conferences related to Company business.

 

Mr. Wheet may elect, by written notice to the Company, to terminate his employment with continued pay through the employment agreement term if (i) the Company sells all of its assets, (ii) the Company merges with another business entity with a change in control,(iii) more than 50% of the outstanding stock is acquired by a third party, (iv) the Company requires Mr. Wheet to relocate or assigns duties not commensurate with his position as Chief Executive Officer, (v) Mr. Wheet is removed from the Board of Directors and (vi) the Company defaults in making payments required to Mr. Wheet under this agreement. For two years following his resignation or termination, Mr. Wheet will not work for or provide any services in any capacity to any competitor and will not solicit any of the Company’s customers or accounts.

 

Employment Agreement with Vincent Olmo, Chief Operating Officer

 

Effective April 11, 2011, the Company and Mr. Olmo, our Chief Operating Officer, entered into a three (3) year employment agreement. The agreement provides for an annual salary of $165,000.  He is responsible for all daily operating and production activities of the Company. The Company will provide him with all reasonable and customary fringe benefits, including, but not limited to, participation in pension plans, profit sharing plans, employee stock ownership plans, stock option plans (whether statutory or not), stock appreciation rights plans, hospitalization, medical dental disability and life insurance, car allowance, vacation and sick leave.  The Company will reimburse of all his reasonable and necessary travel, entertainment or other related expenses incurred by him in carrying out his duties and responsibilities under the agreement.  The Company will also provide him with a cell phone, suitable office space, and membership dues in professional organizations and for any seminars and conferences related to Company business.

 

Mr. Olmo may elect, by written notice to the Company, to terminate his employment with continued pay through the employment agreement term if (i) the Company sells all or substantially all of its assets, (ii) the Company merges with another business entity with a change in control,(iii) more than 50% of the outstanding stock is acquired by a third party, (iv) the Company requires Mr. Olmo to relocate or assigns duties not commensurate with his position as the Chief Operating Officer  and (v) the Company defaults in making payments required to Mr. Olmo under this agreement.  For two years following his resignation or termination, Mr. Olmo will not work for or provide any services in any capacity to any competitor and will not solicit any of the Company’s customers or accounts.

 

Employment Agreement with Burton Hodges, Chief Financial Officer

 

Effective June 1, 2011, the Company and Mr. Hodges, our Chief Financial Officer, entered into a three (3) year employment agreement. The agreement provides for an annual salary of $165,000. He is responsible for all financial functions and capital resources of the Company, including corporate finance, project finance, corporate accounting, reporting and risk management. The Company will provide him with all reasonable and customary fringe benefits, including, but not limited to, participation in pension plans, profit sharing plans, employee stock ownership plans, stock option plans (whether statutory or not), stock appreciation rights plans, hospitalization, medical dental disability and life insurance, car allowance, vacation and sick leave.  The Company will reimburse of all his reasonable and necessary travel, entertainment or other related expenses incurred by him in carrying out his duties and responsibilities under the agreement.  The Company will also provide him with a cell phone, suitable office space, and membership dues in professional organizations and for any seminars and conferences related to Company business.

15

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2012

 

 

Mr. Hodges may elect, by written notice to the Company, to terminate his employment with continued pay through the employment agreement term if (i) the Company sells all or substantially all of its assets, (ii) the Company merges with another business entity with a change in control,(iii) more than 50% of the outstanding stock is acquired by a third party, (iv) the Company requires Mr. Hodges to relocate or assigns duties not commensurate with his position as the Chief Financial Officer and (v) the Company defaults in making payments required to Mr. Hodges under this agreement. For two years following his resignation or termination, Mr. Hodges will not work for or provide any services in any capacity to any competitor and will not solicit any of the Company’s customers or accounts.

 

Amounts Due Pursuant to Employment and Consulting Agreements

 

As of June 30, 2012, the Company had accrued $145,427 pursuant to employment agreements. Although the Company plans to settle these amounts, there is no assurance that its efforts to settle will be successful. No litigation related to these previous employment agreements has been initiated or threatened.  There is no assurance, however, that such litigation will not be initiated in the future.

 

Patent Applications for the Company’s Retractable Safety Syringes

 

The Company owns one (1) published patent on its Auto Retractable Vacuum RevVac™ safety syringe issued in January 2005 and one (1) published patent on its safety blood drawing device issued in June 2003.  In January 2009, a second patent for the RevVac™ auto retractable vacuum safety syringe was issued by the U.S. patent office and published in April 2009 related to the Globe/Revolutions Medical Joint Venture.  Upon the ruling in the Globe Med Tech lawsuit, the Company now has full ownership of the entire patent.  The Company also filed international patent protection rights regarding the RevVac™ Auto Retractable Vacuum Safety Syringe in the following countries: Australia, China, Japan, Taiwan, Mexico, Canada and in Europe. Patents in Mexico and in China were issued in 3rd and 4th quarter of 2011, respectfully.

 

The Company filed a U.S. provisional patent on May 2, 2011, on it new vacuum design for the pre-filled market. On May 2, 2012 the Company filed an international Patent Cooperation Treaty (PCT) for this new design.

 

The Company is also engaged in the development of technology which can segment and reference MRI images.  By “segmenting” an image, the Company’s technology will let the user select a part of the image (bone, fluid, tissue) and render that selection in three dimensions.  Essentially, different components of an image are given different colors and the user can choose the color or colors to be studied, thus eliminating those portions colored with the colors being discarded. By “referencing” the image to a database, the user can obtain similar, identified images to aid the user in interpretation of the image being studied.  The Company currently owns four (4) separate patent applications, filed in June of 2007, each of which received USPTO office actions during 2010 and 2011.  The Company expects to receive issuances or additional office actions on some if not all of these patents over the next 12 months.

 

Amounts Due to Consultants

 

None.

 

NOTE 5 – PREFERRED STOCK AND COMMON STOCK TRANSACTIONS

 

Series 2006 Preferred Stock

 

Currently, 1,000,000 shares of Series 2006 Preferred Stock are outstanding. Rondald L. Wheet, our Chairman and Chief Executive Officer, has been issued the 1,000,000 shares.

 

16

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2012

 

 

Series 2009 Preferred Stock

 

Currently, no shares of Series 2009 Preferred Stock are outstanding. Tom O’Brien, our former President, returned 500,000 shares of Series 2009 Preferred Stock upon his resignation.

 

Rights of Preferred Stockholders

 

Dividends

 

The holder of the Series 2006 and the Series 2009 Preferred stock is entitled to receive, ratably, dividends when, as and if declared by the board of directors out of funds legally available therefore. If any dividend or other distributions are declared on our common stock, then a dividend or other distribution must also be declared on the outstanding Series 2006 and Series 2009 Preferred stock at the same time and on the same terms and conditions, so that each holder of Series 2006 and Series 2009 Preferred stock will receive the same dividend or distribution such holder would have received if the holder had converted his Series 2006 and Series 2009 Preferred stock as of the record date for determining stockholders entitled to receive such dividend or distribution.

 

Liquidation Preference

 

In the event of the liquidation, dissolution or winding up, the holders of Series 2006 or 2009 Preferred stock are entitled to receive a liquidation preference of $0.001 for each share of Series 2006 or Series 2009 Preferred stock prior to payment being made to any junior stock.

 

Conversion

 

The holders of Series 2006 and Series 2009 Preferred stock may convert each share into 1 share of common stock.

 

Preemption

 

The holders of Series 2006 and Series 2009 Preferred stock have no preemptive rights and they are not subject to further calls or assessments.

 

Voting Rights

 

The holders of Series 2006 and Series 2009 Preferred stock are entitled to 125 votes for each share of common stock into which their Series 2006 and Series 2009 Preferred stock is then convertible (currently 1 share), voting together with our common stock as a single class. Cumulative voting is not permitted. Upon conversion of a Series 2006 or Series 2009 Preferred share, each share of common stock issued upon the conversion will be entitled to only one (1) vote per share.

 

Redemption

 

There are no redemption or sinking fund provisions applicable to the Series 2006 or Series 2009 Preferred stock.

 

Blank Check Preferred Stock

 

The Company’s Articles of Incorporation authorize its board of directors to establish one or more additional series of preferred stock and to determine, with respect to any such series of preferred stock, its terms and rights, including, the designation of each series; the voting powers, if any, associated with each such series whether dividends, if any, will be cumulative or noncumulative and the dividend rate of each series; the redemption rights and price or prices, if any, for shares of each series; and preferences and other special rights, if any, of shares of each series in the event of any liquidation, dissolution, or distribution of the Company’s assets.

 

17

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2012

 

 

2012 Common Stock Transactions

 

During the six months ended June 30, 2012, 400,000 shares were issued under the terms of the SEC settlement agreement with Gifford Mabie. The initial value of these shares totaled $140,160.

 

Pursuant to consulting agreements issued in first six months of 2012, the Company issued stock from the exercise of options issued with these agreements in the amount of 75,000 shares with a total value of $8,025.

 

During the first six months of 2012, the Company issued stock from the exercise of warrants issued through a stock subscription agreement in 2010 in the amount of 800,000 shares with a total value of $280,986.

 

During the six months ended June 30, 2012, the Company issued an additional 1,184,745 shares of common stock with a total value of $308,875 in lieu of cash as payment for outside services.

 

During the six months ended June 30, 2012, the Company issued an additional 3,126,573 shares of common stock with a total value of $650,078 due to conversions of convertible debt agreements with Asher Enterprises, JMJ Financial and individual investors.

 

NOTE 6 – STOCK OPTIONS AND WARRANTS OUTSTANDING

 

The following tables summarize information about the stock options and warrants outstanding at June 30, 2012:

 

   OPTIONS   WARRANTS   TOTAL   WEIGHTED
AVERAGE
EXERCISE
PRICE
 
                     
Balance at December 31, 2011   15,473,750    3,371,600    18,845,350   $0.27 
Granted   2,675,000    1,350,000    4,025,000    0.17 
Exercised   75,000    800,000    875,000    0.25 
Expired/Forfeited       2,571,600    2,571,600    0.25 
                     
BALANCE AT June 30, 2012   18,073,750    1,350,000    19,423,750    0.25 

 

   OPTIONS OUTSTANDING   EXERCISABLE 
Range of 
Exercise Price
  Number 
Outstanding
at  June 30,
2012
   Weighted
Average 
Remaining 
Contractual Life
   Weighted 
Average
Exercise
Price
   Number 
Exercisable at
June 30,
2012
   Weighted
Average 
Exercise
Price
 
OPTIONS                         
0.08 - 0.25   10,453,750    1.45   $0.12    10,453,750   $0.12 
0.26-1.00   7,620,000    .98    0.40    7,620,000    0.40 
1.00-10.00                         
                          
    18,073,750              18,073,750      

 

NOTE 7 – RELATED PARTY TRANSACTIONS

 

On September 1, 2009, the Company entered into a five (5) year lease agreement with Osprey South, LLC (“Osprey”), to lease the property at 670 Marina Drive, Suite 301, Building F, Charleston, South Carolina, 29492. The leased property is approximately 2,395 square feet.  During the course of the five (5) year lease, ending on August 31, 2014, the Company is to pay Osprey $4,500 in monthly rental installments payable on the first day of each succeeding month.  On July 1, 20011, the Company entered into a lease with Osprey for the office space adjacent to the existing office space on the third floor at 670 Marina Drive. The leased property is approximately 2,395 square feet.  During the course of the five (5) year lease, ending on July 1, 2016, the Company is to pay Osprey a total of $10,000 in monthly rental installments payable on the first day of each succeeding month. The Company paid $30,000 in office rent to Osprey South, LLC for the second quarter of 2012. Ron Wheet is the sole member of Osprey South, LLC. The contract is a triple net lease with terms based upon market rates for Class A office space at the time of the lease signing.

 

18
 

  

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

This quarterly report on Form 10-Q and other reports filed by Revolutions Medical Corporation (“we,” “us,” “our,” or the “Company”) from time to time with the U.S. Securities and Exchange Commission (the “SEC”) contain or may contain forward-looking statements and information that are based upon beliefs of, and information currently available to, the Company’s management as well as estimates and assumptions made by Company’s management. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. When used in the filings, the words “anticipate,” “believe,” “estimate,” “expect,” “future,” “intend,” “plan,” or the negative of these terms and similar expressions as they relate to the Company or the Company’s management identify forward-looking statements. Such statements reflect the current view of the Company with respect to future events and are subject to risks, uncertainties, assumptions, and other factors. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned.

 

Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results.

 

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). These accounting principles require us to make certain estimates, judgments, and assumptions. We believe that the estimates, judgments, and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments, and assumptions are made. These estimates, judgments, and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our financial statements would be affected to the extent there are material differences between these estimates

 

Plan of Operation

 

The Company has begun sales of its 3ml RevVac™ safety syringe and on March 15, 2012, began placing orders for the syringe with its supplier. The first order was shipped from the factory on June 13, 2012. The Company has rolled out RevVac™ safety syringe product sales through introduction to distributors, advertisements through its online sales programs, attendance at numerous industry trade shows and a direct marketing campaign. The Company expects to be in full-scale production by the first quarter of 2013 for its 1ml, 5 ml and 10ml RevVac™ safety syringe.

 

This RevVac™ safety syringe uses vacuum technology to retract the needle into the plunger after use. The syringe cannot be reused once the vacuum is activated. Revolutions Medical believes its safety syringe has many advantages over its competition including price, ease of use, and safety. It should virtually eliminate accidental needle stick injuries and also aid in reducing the spread of contagious diseases. The Company also believes that with the help of government regulatory initiatives and individual state law reforms that the safety syringe market will grow in the foreseeable future.

 

During 2010, Revolutions Medical entered into two university clinical studies utilizing its proprietary MRI software tools. These first two clinical studies are for cases involving head trauma and brain masses. These results are expected to clinically validate the use of its MRI software tools as an additional application to enhance the diagnostic confidence of physicians. In preparation for the expected commercial launch of the MRI software suite of products, the Company hired Strata Corporation in March 2012. Strata is an expert in computer software and programming and the Company believes that by the end of 2012, the first application of RevColor™, RevDisplay™ and Rev3D™ will be commercially available. The launch of this product will be a “software as a service” (SaaS) business model, where customers will log on to our secure website and send current black and white images to the Company via high speed internet (teleradiology), and the images will be sent back to the customer in color and three dimensional with auto segmentation. At first the Company will charge a per-use fee but can expand depending upon volume into monthly service agreements. Potential Revolutions Medical customers could include MRI centers, doctors, hospitals and even patients.

 

19
 

 

 

The Company is currently working on developing, enhancing and securing it proprietary MRI software tools for commercial launch. The Company believes that once clinical application validations using its MRI software suite of products including RevColor™, RevDisplay™ and Rev3D™ directed at concussions, stroke, Alzheimer’s and breast disease are achieved, it will eventually aid in the enhanced diagnosis, detection, and monitoring of such diseases and afflictions.

 

Results of Operations

 

For the three months ended June 30, 2012 compared to the three months ended June 30, 2011

 

Revenues

 

During the three months ended June 30, 2012, the Company had $840 in sales revenue, compared to $0 for the same period in 2011. During the end of the second quarter of 2012, the Company began filling orders from the first shipments of 3 ml RevVac™ syringes produced.

 

General and Administrative Expenses

 

During the three months ended March 31, 2012, the Company incurred $710,165 in general and administrative expenses, compared to $995,148 for the same period in 2011. Employee salaries were $195,500 for the three months ended June 30, 2012, a decrease of $62,475, compared to $257,975 for the same period in 2012. This reduction in salary expense is due primarily to additional salary paid in the second quarter of 2011 to the Company’s former President, Thomas O’Brien. In addition to this, compensation costs related to the issuance of options to officers and directors during the three months ended June 30, 2012, totaled $20,979, compared to $0 for the same period in 2011.

 

Further, consulting agreement fees and legal fees were $239,064 and $95,428, respectively, for the three months ended June 30, 2012, a decrease in consulting fees of $144,568 and a decrease in legal fees of $57,255, respectively, compared to $383,631 and $152,684 for the same period in 2011. The decrease in consulting fees was partly due to the Company’s decision in 2011 to terminate the consulting agreement with Strategic Product Development (“SPD”). The decrease in legal fees was due primarily to decreased expenses related to securities issuance and SEC compliance for the second quarter of 2012. A total of $133,580 in prepaid consulting agreements was expensed in the quarter ended June 30, 2012, compared to $290,980 for the same period in 2011. Interest and derivative adjustment expenses increased to $350,382 during the three months ended June 30, 2012, compared to $112,292 for the same period in 2011. This increase is due primarily to the new convertible debt agreements entered into with individual investors during the three months ended June 30, 2012. These agreements allow for an immediate conversion into shares of common stock and require the debt discount recorded at the time of the agreement to be fully amortized immediately. The total amount amortized to interest expense during the three months ended June 30, 2012, for these agreements was $166,733. This is in contrast to the agreements entered into with Asher Enterprises, JMJ Financial, Inc (“JMJ”) and TCA Global Credit Master Fund, LP (“TCA”) that amortize the debt discount over a period of time. We also incurred capital expenditures in the amount of $313,230 and $0 during the three months ended June 30, 2012 and 2011, respectively, for inventory of the 3 ml RevVac™ safety syringe.

 

Net Loss

 

Net loss for the three months ended June 30, 2012, was $(976,203) compared to $(1,198,603) for the same period in 2011, as the Company decreased expenses primarily related to salaries, additional compensation expenses, legal fees and consulting fees. The Company incurred a net operating loss of $(764,886) during the three months ended June 30, 2012, compared to a net operating loss of $(1,108,599) for the same period in 2011.

 

For the six months ended June 30, 2012 compared to the six months ended June 30, 2011

 

Revenues

20
 

 

During the six months ended June 30, 2012 and 2011, respectively, the Company had $840 in sales revenue, compared to $0 for the same period in 2011. During the end of the second quarter of 2012, the Company began filling orders from the first shipments of 3 ml RevVac™ syringes produced.

 

General and Administrative Expenses

 

During the six months ended June 30, 2012, the Company incurred $2,189,753 in general and administrative expenses, compared to $1,823,702 for the same period in 2011. Employee salaries were $370,750 for the six months ended June 30, 2012, an increase of $2,025, compared to $368,725 for the same period in 2011. In addition to this, compensation costs related to the issuance of options to officers and directors during the six months ended June 30, 2012 totaled $424,458, compared to $0 for the same period in 2012. This increase is due to options being issued to officers and directors in the first quarter of 2012.

 

Further, consulting agreement fees and legal fees were $518,901 and $369,079, respectively, for the six months ended June 30, 2012, a decrease in consulting fees of $297,911 and an increase in legal fees of $182,138, respectively, compared to $816,811 and $186,941, respectively, for the same period in 2011. The decrease in consulting fees was partly due to the Company’s decision in 2011 to terminate the consulting agreement with Strategic Product Development (“SPD”). The increase in legal fees was due primarily to increased expenses related to securities issuance and SEC compliance along with legal expenses related to litigation and the protection of the Company’s intellectual property. A total of $345,917 in prepaid consulting agreements was expensed in the six months ended June 30, 2012, compared to $428,161 for the same period in 2011. Interest and derivative adjustments increased to $789,944 during the six months ended March 31, 2012, compared to $315,572 for the same period in 2011. This increase is due primarily to the new convertible debt agreements entered into with individual investors during the first quarter. These agreements allow for an immediate conversion into shares of common stock and require the debt discount recorded at the time of the agreement to be fully amortized immediately. The total amount amortized to interest expense during the first six months of 2012 for these agreements was $422,904. This is in contrast to the agreements entered into with Asher, JMJ and TCA that amortize the debt discount over a period of time. We also incurred capital expenditures in the amount of $116,098 and $359,000 during the six months ended June 30, 2012 and 2011, respectively, for payments to complete the final design of our production molds related to the 3 ml RevVac™ safety syringe. We also incurred capital expenditures in the amount of $313,230 and $0 during the six months ended June 30, 2012 and 2011, respectively, for inventory of the 3 ml RevVac™ safety syringe.

 

Net Loss

 

Net loss for the six months ended June 30, 2012, was $(2,892,367) compared to $(2,082,139) for the same period in 2011, as the Company incurred greater expenses primarily related to an increase in salaries, additional compensation expenses, legal fees and expenses associated with the convertible debt agreements. The Company incurred a net operating loss of $(2,326,377) during the six months ended June 30, 2012, compared to a net operating loss of $(1,935,534) for the same period in 2011.

 

Liquidity and Capital Resources

 

As of June 30, 2012, the Company did not have and currently does not have sufficient cash on hand to pay present obligations as they become due. In addition, due to current economic conditions and the Company’s related risks and uncertainties, there is no assurance that we will be able to raise additional capital on acceptable terms, if at all, to meet our current obligation over the next 12 months. Because of the foregoing, the Company’s auditors have expressed substantial doubt about our ability to continue as a going concern.

 

Net cash used for operating activities for the six months ended June 30, 2012 and June 30, 2011, was $(2,329,091) and $(1,455,425), respectively. The net loss for the six months ended June 30, 2012 and 2011, was $(2,892,367) and $(2,082,138), respectively. This increase is primarily attributable to the increased expense related to legal expenses, salaries and other compensation expenses, and the interest and derivative expenses related to the convertible debt agreements.

 

21
 

 

 

Net cash used for investing activities for the six months ended June 30, 2012 and June 30, 2011, was $(20,953) and $(382,706), respectively. This cash used for investing activities in the first six months of 2012 is a result of legal expenses related to patent development for the RevVac™ safety syringe.

 

Net cash obtained through all financing activities for the six months ended June 30, 2012, was $2,345,180, as compared to $1,793,901 for the same period in 2011. The increase in cash obtained through financing activities is primarily a result of cash received from convertible debt agreements. Cash adjustments through the payment of debt totaled $766,656 during the six months ended June 30, 2012. Common stock in the amount of $623,369 was issued in the first and second quarter of 2012 to satisfy convertible debt agreements. An increase due to the convertible debt’s beneficial conversion feature as of June 30, 2012, is $294,832. Convertible debentures issued for cash totaled $390,769 for the first six months of 2012, and an increase from the balance of the derivative liability as of June 30, 2012, totaled $163,275. Adjustments as of June 30, 2012, for the liability balance for the Gifford Mabie SEC settlement were made in the amount of $110,025 based upon the issuance of 400,000 shares on March 15, 2012 and a revaluation of the unsold shares. For the six months ended June 30, 2012, the Company received $191,815 from the exercise of options and warrants. The Company received $562,297 and $280,186 for the issuance of unexercised options and warrants, respectively, in the first six months of 2012.

 

In order to fund the completion of the RevVac™ safety syringe production molds, we issued stock options and/or common stock when it is acceptable to third parties for services rendered in assisting us in the product distribution and marketing process. Compensation costs related to the issuance common stock to outside parties for services rendered during the six months ended June 30, 2012 and 2011 were $287,375 and $317,500, respectively. Additionally, we received payments for exercised options and warrants during the six months ended June 30, 2012, totaling $191,815, compared to $1,202,720 for the same period in 2011.

 

As of June 30, 2012, the Company did not have and currently does not have sufficient cash to pay present obligations as they become due. We are searching for additional financing to generate the liquidity necessary to continue our operations. Due to current economic conditions and the Company’s risks and uncertainties, there is no assurance that we will be able to raise any additional capital on acceptable terms, if at all. Because of these uncertainties, the auditors have expressed substantial doubt about our ability to continue as a going concern. If we obtain additional funds by selling any of our equity securities or by issuing common stock to pay current or future obligations, the percentage ownership of our stockholders will be reduced, stockholders may experience additional dilution, or the equity securities may have rights preferences or privileges senior to the common stock. If adequate funds are not available to us on satisfactory terms, we may be required to cease operating or otherwise modify our business strategy.

 

Because we do not currently generate any cash from operations and have no credit facilities available, our only means of funding is through the sale of our common stock. We presently have 250,000,000 shares of common stock authorized, of which 60,315,171 shares were issued and outstanding as of June 30, 2012. If we obtain additional funds by selling any of our equity securities or by issuing common stock to pay current or future obligations, the percentage ownership of our stockholders will be reduced, stockholders may experience additional dilution, or the equity securities may have rights preferences or privileges senior to the common stock. If adequate funds are not available to us when needed on satisfactory terms, we may be required to cease operating or otherwise modify our business strategy.

 

Our estimated working capital requirement for the next 12 months is $3,100,000 with an estimated burn rate of $230,000 per month. This working capital requirement includes initial orders for the safety syringe.

 

The Company entered into two securities purchase agreements in the second quarter of 2012 with Asher Enterprises, pursuant to which the Company issued two convertible promissory notes to Asher Enterprises for an original principal amount of $53,000 on May 15, 2012 and $42,500 on June 21, 2012, respectively, in return for aggregate gross cash proceeds of $95,500.  The notes bear interest at a rate of 8% per annum and provide for the payment of all principal and interest 9 months from the date of the notes’ respective issuance.  The principal amount owed to Asher Enterprises at June 30, 2012, is $184,000. This includes the two notes issued for $53,000 and $42,500 in the second quarter of 2012 and the notes from February 10, 2012 for $46,000 and from March 20, 2012 for $42,500. The notes are convertible at the election of Asher Enterprises into that number of shares of the Company’s common stock determined by multiplying 55% by the average of the lowest three closing bid prices of the Company’s common stock on the OTC Markets OTCQB during the 10 business days immediately preceding the date of conversion, subject to adjustment.

 

22
 

 

 

The four notes issued by Asher in 2012, contain a beneficial conversion feature due to an amendment featuring a fixed conversion price of $0.00009 and no adjustment due to dilutive issuance. As a result, these notes were not bifurcated and valued with an embedded call option. The intrinsic value of the beneficial conversion feature is recorded as a debt discount with a corresponding amount to additional paid in capital. Additionally, the notes issued through the private placement to individual investors all contain a beneficial conversion feature due to an amendment featuring a fixed conversion price of $0.00009 and no adjustment due to dilutive issuance. The total paid in capital for this beneficial conversion feature for these agreements as of June 30, 2012 is $389,456. Of this, $246,876 is due to the agreements with Asher Enterprises and $142,580 is due to the agreements with private investors.

 

On February 22, 2011, the Company issued a $1,050,000 Convertible Promissory Note to JMJ Financial, Inc. (“JMJ”), a private investor. The note bears interest in the form of a onetime interest charge of 8%, payable with the note’s principle amount on the maturity date, February 22, 2014. All or a portion of this note’s principle and interest is convertible at the option of JMJ from time to time, into shares of the Company’s common stock, originally fixed at a per share conversion price equal to 70% of the average of the 3 lowest closing prices for the Company’s common stock in the 20 trading days previous to the effective date of each such conversion. During the course of 2011, the Company borrowed $450,000 against this note. Over the course of the loan, JMJ elected to convert a total of $258,337 in principal from this note. The principal amount owed to JMJ at June 30, 2012, is $191,663.

 

On February 28, 2011, the Company issued a $500,000 Convertible Promissory Note to JMJ. The note bears interest in the form of a onetime interest charge of 8%, payable with the note’s principle amount on the maturity date, February 28, 2014. All or a portion of this note’s principle and interest is convertible at the option of JMJ from time to time, into shares of the Company’s common stock, originally fixed at a per share conversion price equal to 70% of the average of the 3 lowest closing prices for the Company’s common stock in the 20 trading days previous to the effective date of each such conversion.

 

The Company entered into a securities purchase agreement in the first quarter of 2012 with TCA Global Credit Master Fund, LP (“TCA”), pursuant to which the Company issued a convertible promissory note to TCA for an original principal amount of $225,000 on January 3, 2012. The note bears interest at a rate of 12% per annum and provide for the payment of all principal and interest 12 months from the date of the note’s respective issuance.  The principal amount owed to TCA at June 30, 2012, is $225,000. The note is convertible at the election of TCA into that number of shares of the Company’s common stock determined by multiplying 95% by the average of the two lowest daily volume weighted average prices of the Company’s common stock on the OTC Markets OTCQB during the 5 business days immediately preceding the date of conversion, subject to adjustment.

 

The Company entered into five securities purchase agreements in the second quarter of 2012, with individual investors, pursuant to which the Company issued five convertible promissory notes for an original principal amount of $25,000 on April 2, 2012, for $50,000 on April 13, 2012, for $26,501 on May 3, 2012, for $50,000 on May 22, 2012, and for $50,000 on June 11, 2012, respectively, in return for aggregate gross cash proceeds of $176,501. The notes bear interest at a rate of 8% per annum and provide for the payment of all principal and interest 12 months from the date of the notes’ respective issuance. The notes also feature detachable warrants exercisable within one year of the agreement. All warrants issued along with the convertible debt agreements are outstanding, with a total of 1,506,005 warrants issued at 25 cents and 753,000 warrants issued at 50 cents.  In determining the cost associated with the issuance of this debt and the appropriate fair value for the warrants, the Company uses the Black-Scholes option pricing formula.  The principal amount owed according to these notes as of June 30, 2012, is $200,000. The notes are convertible at the election of the individual into that number of shares of the Company’s common stock determined by multiplying 75% by the average of the daily volume weighted average prices of the Company’s common stock on the OTC Markets OTCQB during the 5 business days immediately preceding the date of conversion, subject to adjustment.

 

The following table summarizes total current assets, liabilities and working capital at June 30, 2012, compared to June 30, 2011.

 

 

23
 

 

   June 30,
2012
(unaudited)
   June 30,
2011
(unaudited)
   Increase/
(Decrease)
 
Current Assets  $794,079   $337,833   $456,246 
Current Liabilities  $2,921,893   $2,303,266   $618,627 
Working Capital Deficit  $(2,127,814)  $(1,965,433)  $162,381 

 

As of June 30, 2012, we had a working capital deficit of $2,127,814, as compared to a working capital deficit of $1,965,433 as of June 30, 2011, an increase of $162,381. Current assets increased primarily due to the litigation receivable of $311,000 from the judgment against Globe Med Tech and inventory of $314,199. Factors contributing to the increase in current liabilities include an increase in accounts payable due to purchase of the new production molds according to the terms of the manufacturing agreement signed with Yeso-med in December 2011. Additional factors increasing the current liabilities include an increase in accounts payable due to product purchases of $203,818 and an increase in payroll tax liabilities of $257,988. The issuance of the convertible notes and the embedded derivatives associated with these notes decreased current liabilities to $750,340 as of June 30, 2012, as compared to a balance of $891,432 as of June 30, 2011.

 

Other current assets include the amount related to pre-paid consulting expenses incurred through the issuance and exercise of stock options. The balance of prepaid consulting fees as of June 30, 2012, was $95,903, compared to $285,045 as of June 30, 2011. The remaining balance includes $72,500 for a short term note receivable.

 

   June 30,
2012
   June 30,
2011
 
           
Building  $---   $--- 
Production machinery and equipment   1,109,199    1,142,000 
Furniture and fixtures   49,147    39,847 
Office equipment   4,035    3,920 
Leasehold improvements   35,200    --- 
           
Less: accumulated depreciation and amortization   (37,692)   (12,736)
Property, plant and equipment, net  $1,159,890   $1,173,032 

 

Production machinery and equipment as of June 30, 2012, consisted primarily of amounts incurred in connection with the pilot molds and final molds related to the lines for the RevVac™ syringe. The Company continues to treat the amounts paid to MIG under the terminated agreement as production equipment until the outcome of the breach of contract arbitration is finalized.

 

   June 30,
2012
   June 30,
2011
 
           
Goodwill  $23,276   $23,276 
Licensing agreement   15,000    15,000 
Patent development   126,780    29,000 
Total other assets  $165,056   $67,276 

 

The Company capitalizes patent development costs in the amount of $38,374 during the first six months of 2012. During the same time period, the Company had amortization expenses of $13,021 from these patents.

 

The Company does not currently generate any cash from operations and does not have access to traditional credit facilities; however, the Company does expect an increase in product sales beginning in the third quarter of 2012. Over the next 12 months, in order to implement our business plan and meet our liquidity needs going forward, the Company may sell shares of its common stock, issue additional convertible debt notes or permit warrant exercises. If we implement any of the foregoing financing alternatives to pay current or future obligations, the percentage ownership of our stockholders will be reduced, stockholders may experience additional dilution, or the equity securities may have rights preferences or privileges senior to the common stock. If adequate funds are not available to us when needed on satisfactory terms, we may be required to cease operating or otherwise modify our business strategy.

 

24
 

 

 

Current Liabilities consists of the following:

 

   June 30,
2012
   June 30,
2011
 
     
Accounts payable and credit cards  $783,344   $370,052 
Accrued salaries and payroll liabilities   403,415    120,000 
Convertible debentures and accrued interest (net)   522,944    201,840 
Note payable and accrued interest   742,582    816,487 
Derivative liabilities   279,036    706,189 
Other current liabilities   190,572    88,698 
Total current liabilities  $2,921,893   $2,303,266 

 

The primary change in the balance to Accounts Payable is a result of the purchase agreement for the 1ml and 3ml RevVac™ safety syringe molds as well as increase in accounts payable from the initial orders of the 3ml RevVac™ safety syringe. Accrued salaries increased by $283,415 due to an increase in payroll tax liabilities of $257,988 and an increase in accrued salary of $25,427. Notes payable and accrued interest are a result of the settlement and determination of a liability with Gifford Mabie and the SEC. The issuance of the convertible debt agreements resulted in an increase in convertible debentures principal balance due. The conversion of outstanding convertible debt agreements resulted in a decrease in derivative liabilities. Other current liabilities include an amount due to a former employee of the Company.

 

Expected Purchase or Sale of Plant and Significant Equipment

 

The Company expects to purchase and begin making payments for the production of the 1ml, 5ml and 10ml RevVac™ safety syringe molds in the third quarter of 2012.

 

Expected Significant Changes in the Number of Employees

 

The Company began leasing additional space in the same building as of July 1, 2011, and expects to hire between 3 to 7 office personnel to assist with operations as sales continue with the 3ml RevVac™ safety syringe. The Company added two employees to the sales staff in the second quarter of 2012.

 

Off-Balance Sheet Arrangements

 

As of June 30, 2012, the Company had nooff-balance sheet arrangements.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

We do not hold any derivative instruments and do not engage in any hedging activities.

 

Item 4. Controls and Procedures.

 

(a) Evaluation of Disclosure Controls and Procedures

 

The Company’s management, with the participation of the Company’s principal executive officer (“PEO”) and principal financial officer (“PFO”), evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on this evaluation, the PEO and PFO concluded that, as of the end of such period, the Company’s disclosure controls and procedures were not effective to ensure that information that is required to be disclosed by the Company in the reports it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to the Company’s management, including the PEO and PFO, as appropriate, to allow timely decisions regarding required disclosure.

 

 

25
 

 

(b) Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

26
 

 

PART II - OTHER INFORMATION

  

Item 1. Legal Proceedings.

 

The Company is currently involved in arbitration in the State of South Carolina with its former manufacturer, Medical Investment Group, Inc. (“MIG”), for failure to perform under their manufacturing and supply agreement, dated September 17, 2010, and their amended manufacturing and supply agreement, dated January 7, 2011. The Company is seeking (i) financial relief of $795,000, which it paid to MIG for production class molds and proprietary tooling for the 1ml and 3ml RevVac™ safety syringes, (ii) the termination of all warrants granted and (iii) the termination of all production rights assigned. MIG claims that it was production-ready in accordance with the terms of the manufacturing and supply agreement, as amended. The nature of the litigation focuses on MIG’s inability to produce a product that passed all compliance and quality testing parameters in the time frames outlined by the manufacturing and supply agreements. The Company relied on the delivery schedule outlined in the manufacturing agreement, as well as written and verbal confirmation from Rich Theriault as to MIG’s production readiness to be able to produce the 3ml RevVac™ safety syringe, to start the sales and distribution process in September 2010.

 

During the 2nd quarter of 2012, the Company received discovery from Rich Theriault, the owner of MIG and SPD, and former consultant and contract manufacturer of the Company, in the form of bank records, emails, phone records, contracts, agreements and sworn testimony in a deposition. The Company terminated the MIG manufacturing agreement in September 2011 for failure to perform (and filed a Current Report on Form 8-K with the SEC). Based on certain admissions made by Mr. Theriault during his sworn deposition, on April 17, 2012, Mr. Theriault, on behalf of MIG, dismissed all claims with prejudice against the Company, including all rights to the auto retractable vacuum safety syringe, all warrants and all cash claims. The Company is still pursuing its counter claims under the arbitration and the hearing has been rescheduled for November 8 and 9, 2012, in Charleston, South Carolina.

 

On March 12, 2012, the Company filed a lawsuit against Justin Keener and JMJ Financial in Charleston County, South Carolina. The Company is seeking a rescission and financial relief for the convertible debt agreement, executed February 28, 2011. The Company claims that it was unable to deliver the shares requested in the common stock conversion requests, due to the risk of defaulting on the convertible debt agreement by losing Depository Trust Company “DTC” eligibility. The contract states that the Company would be considered in default of the agreement if the Company lost DTC eligibility due to a “chill” placed upon the electronic transfer of the stock. The Company had previously been made aware of other companies that had entered into similar agreements losing DTC eligibility and felt that JMJ had put the Company in an untenable position of either defaulting by losing DTC eligibility or defaulting by failing to issue the requested shares. The Company claims that JMJ’s unreasonably high demands for conversion caused a “frustration” of the principal purpose of the contract and supports the rescission of the contract and a return of the parties to their respective positions before the contract was signed. On April 12, 2012, the Company withdrew the lawsuit filed in South Carolina to pursue its rights and counterclaims in Miami-Dade County, Florida.

 

A lawsuit was filed against the Company by JMJ Financial in Miami-Dade County, Florida, on March 15, 2012. The lawsuit claims that the Company breached the terms of the convertible debt agreement by failing to issue shares requested in a stock conversion by JMJ on January 9, 2012, for 1,000,000 shares and on January 30, 2012, for 1,226,039 shares. JMJ is seeking the delivery of 2,226,049 shares of common stock of the Company, plus costs and prejudgment interest.

 

Other than the matters outlined above, we are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

 

27
 

   

Item 1A. Risk Factors.

 

We believe there are no changes that constitute material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2011, filed with the SEC on March 30, 2012.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

Other than those securities issued and reported in a current report on Form 8-K, the Company issued the following securities during the three months ended June 30, 2012:

 

On April 2, 2012, pursuant to a consulting agreement, the Company issued 4,261 shares of the Company’s common stock to a consultant for outside consulting services rendered in the amount of $1,500.

 

On April 2, 2012, pursuant to a consulting agreement, the Company issued 4,261 shares of the Company’s common stock to a consultant for outside consulting services rendered in the amount of $1,500.

 

On April 16, 2012, an individual investor elected to convert $50,000 underlying a convertible promissory note into 204,594 shares of the Company’s common stock.

 

On May 3, 2012, pursuant to a consulting agreement, the Company issued 4,098 shares of the Company’s common stock to a consultant for outside consulting services rendered in the amount of $1,500.

 

On May 4, 2012, pursuant to a consulting agreement, the Company issued 4,098 shares of the Company’s common stock to a consultant for outside consulting services rendered in the amount of $1,500.

 

On May 7, 2012, an individual investor elected to convert $26,501 underlying a convertible promissory note into 100,000 shares of the Company’s common stock.

 

On May 11, 2012, Asher elected to convert $42,5000 underlying a convertible promissory note into 252,734 shares of the Company’s common stock.

 

On June 4, 2012, pursuant to a consulting agreement, the Company issued 5,076 shares of the Company’s common stock to a consultant for outside consulting services rendered in the amount of $1,500.

 

On June 8, 2012, a total of 140,000 shares of common stock were issued to three individual investors as compensation for a reduction in the exercise price of certain outstanding warrants.

 

On June 8, 2012, pursuant to a consulting agreement, the Company issued 50,000 shares of the Company’s common stock to a consultant for outside consulting services rendered in the amount of $12,000.

 

On June 18, 2012, an individual investor elected to convert $125,000 underlying a convertible promissory note into 671,693 shares of the Company’s common stock.

 

On June 19, 2012, an individual investor elected to convert $142,820 underlying a convertible promissory note into 142,820 shares of the Company’s common stock.

 

28
 

 

 

On June 27, 2012, Asher elected to convert $53,000 underlying a convertible promissory note into 560,984 shares of the Company’s common stock.

 

All sales of the securities identified above were made pursuant to privately negotiated transactions that did not involve a public offering of securities and, accordingly, we believe that these transactions were exempt from the registration requirements of the Securities Act pursuant to Section 4(2) of the Securities Act and Rule 506 of Regulation D promulgated thereunder.

 

Item 3. Defaults Upon Senior Securities.

 

There were no defaults upon senior securities during the quarter ended June 30, 2012.

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

Item 5. Other Information.

 

Other Events

 

On August 8, 2012, the Company received its first container shipment into the Port of Charleston, SC, as a part of its initial order placed with Yeso-med on March 15, 2012. The shipment consisted of 861,000 syringes. The shipment was cleared by both U.S. Customs and the FDA, and will proceed to the Company’s warehouse facility in Ladson, SC, on August 15, 2012. The Company can begin filling existing orders from this shipment and recognizing revenue once the syringes leave the warehouse facility en route to the customer. The Company expects that the second and third containers, totaling 1,614,400 syringes, will arrive in the Port of Charleston, SC, on August 16, 2012, and upon clearance from both U.S. Customs and the FDA, will proceed to the Company’s warehouse facility in Ladson, SC.

 

Item 6. Exhibits.

 

Exhibit No.   Description
     
31.1   Certification by the Principal Executive Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)). *
     
31.2   Certification by the Principal Financial Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)). *
     
32.1   Certification by the Principal Executive Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *
     
32.2   Certification by the Principal Financial Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *

*filed herewith

 

 

29
 

 

SIGNATURES

 

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

      REVOLUTIONS MEDICAL CORPORATION
           
           
           
Date: August 16, 2012   By:  /s/ Rondald Wheet  
        Name: Rondald Wheet  
       

Title: Chief Executive Officer

          (Principal Executive Officer)

 

 
           
           
           
Date: August 16, 2012   By:  /s/ Burt Hodges  
        Name: Burt Hodges  
       

Title: Chief Financial Officer

          (Principal Financial Officer)

          (Principal Accounting Officer) 

 

 

 

30

 

 

PINX:RMCP Revolutions Medical Corp Quarterly Report 10-Q Filling

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PINX:RMCP Revolutions Medical Corp Quarterly Report 10-Q Filing - 6/30/2012
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