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Document and Entity Information (USD $)
12 Months Ended
Dec. 31, 2014
Mar. 23, 2015
Jun. 30, 2014
Principal Net of Discount
Entity Registrant Name WOUND MANAGEMENT TECHNOLOGIES, INC.
Document Type 10-K
Document Period End Date Dec 31, 2014
Amendment Flag false
Entity Central Index Key 0000714256
Current Fiscal Year End Date --12-31
Entity Filer Category Smaller Reporting Company
Entity Current Reporting Status Yes
Entity Voluntary Filers No
Entity Well-known Seasoned Issuer No
Document Fiscal Year Focus 2014
Document Fiscal Period Focus FY
Entity Public Float $ 8,171,617
Entity Common Stock, Shares Outstanding 105,917,495
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Statement - CONDENSED CONSOLIDATED BALANCE SHEET (USD $)
Dec. 31, 2014
Dec. 31, 2013
CURRENT ASSETS:
Cash $ 523,441 $ 44,553
Accounts Receivable, net of allowance for bad debt of $18,462 and $13,014 278,261 221,549
Inventory, net of allowance for obsolescence of $46,007 and $114,404 402,530 307,502
Employee Advances 0 3,620
Deferred Loan Costs 0 1,032
Prepaid and Other Assets 6,295 76,203
Total Current Assets 1,210,527 654,459
LONG-TERM ASSETS:
Property Plant and Equipment, net of accumulated depreciation of $22,477 and $17,062 45,428 29,259
Intangible Assets, net of accumulated depreciation of $267,913 and $216,882 242,397 293,428
Total Long-Term Assets 287,825 322,687
TOTAL ASSETS 1,498,352 977,146
CURRENT LIABILITIES:
Accounts Payable 210,266 192,166
Accrued Royalties and Dividends 324,286 375,000
Capital Lease Obligation 4,504 0
Accrued Liabilities 0 260
Accrued Interest - Related Parties 0 29,255
Accrued Interest 181,431 107,582
Derivative Liabilities 1,708 1,040,850
Convertible Notes Payable - Related Parties 0 115,620
Notes Payable - Related Parties 392,920 300,900
Convertible Notes Payable, net of unamortized discounts of $0 and $50,837 1,200,000 1,284,063
Total Current Liabilities 2,315,115 3,445,696
LONG-TERM LIABILITIES
Capital Lease Obligation 8,633 0
Total Long-Term Liabilities 8,633 0
TOTAL LIABILITIES 2,323,748 3,445,696
STOCKHOLDERS' EQUITY (DEFICIT)
Series A Preferred Stock, $10 par value, 5,000,000 shares authorized; none issued and outstanding 0 0
Series B Preferred Stock, $10 par value, 75,000 shares authorized; none issued and outstanding 0 0
Series C Convertible Preferred Stock, $10 par value,100,000 shares authorized; 70,411 issued and outstanding as of December 31, 2014 and 38,232 issued and outstanding as of December 31, 2013 704,110 382,320
Series D Convertible Preferred Stock, $10 par value,25,000 shares authorized; 12,545 issued and outstanding as of December 31, 2014 15,000 issued and outstanding as of December 31, 2013 125,450 150,000
Series E Convertible Preferred Stock, $10 par value, 5,000 shares authorized; none issued and outstanding 0 0
Common Stock: $.001 par value;250,000,000 shares authorized; 92,902,320 issued and 92,898,231 outstanding as of December 31, 2014 85,664,558 issued and 85,660,469 outstanding as of December 31, 2013 92,902 85,664
Additional Paid-in Capital 43,707,731 40,090,878
Treasury Stock (12,039) (12,039)
Accumulated Deficit (45,443,550) (43,165,373)
Total Stockholders' Deficit (825,396) (2,468,550)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 1,498,352 $ 977,146
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Statement - CONDENSED CONSOLIDATED BALANCE SHEET (Parenthetical) (USD $)
Dec. 31, 2014
Dec. 31, 2013
Statement of Financial Position [Abstract]
Series A Preferred Stock Par Value $ 10 $ 10
Series A Preferred Stock shares authorized 5,000,000 5,000,000
Series A Preferred Stock shares issued 0 0
Series A Preferred Stock shares outstanding 0 0
Series B Preferred Stock Par Value $ 10 $ 10
Series B Preferred Stock shares authorized 75,000 75,000
Series B Preferred Stock shares issued 0 0
Series B Preferred Stock shares outstanding 0 0
Series C Preferred Stock Par Value $ 10 $ 10
Series C Preferred Stock shares authorized 100,000 100,000
Series C Preferred Stock shares issued 70,411 38,232
Series C Preferred Stock shares outstanding 70,411 38,232
Series D Preferred Stock Par Value $ 10 $ 10
Series D Preferred Stock shares authorized 25,000 25,000
Series D Preferred Stock shares issued 12,545 15,000
Series D Preferred Stock shares outstanding 12,545 15,000
Series E Preferred Stock Par Value $ 10 $ 0
Series E Preferred Stock shares authorized 5,000 0
Series E Preferred Stock shares issued 0 0
Series E Preferred Stock shares outstanding 0 0
Common Stock, par value $ 0.001 $ 0.001
Common Stock, shares authorized 250,000,000 250,000,000
Common Stock, shares issued 92,902,320 85,664,558
Common Stock, shares outstanding 92,898,231 85,660,469
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (USD $)
12 Months Ended
Dec. 31, 2014
Dec. 31, 2013
Revenues [Abstract]
REVENUES $ 2,632,643 $ 1,726,392
COST OF GOODS SOLD 803,631 792,774
GROSS PROFIT 1,829,012 933,618
GENERAL AND ADMINISTRATIVE EXPENSES:
General and Administrative Expenses 3,835,095 3,810,350
Depreciation / Amortization 56,446 51,663
LOSS FROM OPERATIONS (2,062,529) (2,928,395)
OTHER INCOME (EXPENSES):
Change in fair value of Derivative Liability 78,145 365,496
Other Income 0 201,976
Interest Income 103 0
Interest Expense (293,896) (1,725,553)
Debt related Expense 0 (61,612)
NET LOSS (2,278,177) (4,148,088)
Series C Preferred Stock Dividends (233,792) (6,271)
NET LOSS AVAILABLE TO COMMON STOCKHOLDERS $ (2,511,969) $ (4,154,359)
Basic and diluted loss per share of common stock $ (0.03) $ (0.05)
Weighted average number of common shares outstanding 87,943,837 77,710,685
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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) (USD $)
Preferred Stock C
Preferred Stock D
Common Stock
Additional paid in capital
Treasury Stock
Accumulated Deficit
Total Stockholders' Equity
Beginning Balance, Amount at Dec. 31, 2012 $ 68,782 $ 35,154,736 $ (12,039) $ (39,017,285) $ (3,805,806)
Beginning Balance, Shares at Dec. 31, 2012 68,782,470 (4,089)
Issuance of Common stock for Debt, Shares 11,239,999
Issuance of Common stock for Debt, Amount 11,240 395,405 406,645
Issuance of Common stock for Interest and Extensions, Shares 288,140
Issuance of Common stock for Interest and Extensions, Amount 288 16,324 16,612
Issuance of Common stock for Services, Shares 4,084,615
Issuance of Common stock for Services, Amount 4,085 271,842 275,927
Issuance of Common stock for Subscription Agreements, Shares 1,269,334
Issuance of Common stock for Subscription Agreements, Amount 1,269 4,491 5,760
Issuance of Preferred stock for Debt, Shares 27,660
Issuance of Preferred stock for Debt, Amount 276,601 1,659,599 1,936,200
Issuance of Preferred stock for Services, Shares 15,000
Issuance of Preferred stock for Services, Amount 150,000 775,787 925,787
Issuance of Preferred stock for Subscription Agreements, Shares 10,572
Issuance of Preferred stock for Subscription Agreements, Amount 105,719 634,311 740,030
Warrants Expense 287,599 287,599
True-up of warrants issued in 2011 489,614 489,614
Warrants issued with debt 51,643 51,643
Warrants reclassed to derivative liabilities (812,705) (812,705)
Resolution of derivative liabilities due to warrant exercises 48,630 48,630
Resolution of derivative liabilities due to debt conversion 1,311,702 1,311,702
Reversal of deferred stock compensation due to forfeiture of unvested options (184,800) (184,800)
Write-offs of deferred stock compensation (38,300) (38,300)
Debt discount due to beneficial conversion features 25,000 25,000
Net Loss (4,148,088) (4,148,088)
Ending Balance, Amount at Dec. 31, 2013 382,320 150,000 85,664 40,090,878 (12,039) (43,165,373) (2,468,550)
Ending Balance, Shares at Dec. 31, 2013 38,232 15,000 85,664,558 (4,089)
Issuance of Common stock for Debt, Shares 1,087,762
Issuance of Common stock for Debt, Amount 1,088 92,640 93,728
Conversion of Series D Preferred Stock, Shares (4,000) 4,000,000
Conversion of Series D Preferred Stock, Amount (40,000) 4,000 36,000
Issuance of Common stock for Services, Shares 2,150,000
Issuance of Common stock for Services, Amount 2,150 220,400 222,550
Issuance of Preferred stock for Services, Shares 1,656
Issuance of Preferred stock for Services, Amount 16,560 150,480 167,040
Issuance of Preferred stock for Subscription Agreements, Shares 32,179
Issuance of Preferred stock for Subscription Agreements, Amount 321,790 1,930,720 2,252,510
Cash paid for return of Preferred stock, Shares (111)
Cash paid for return of Preferred stock, Amount (1,110) (8,880) (9,990)
Resolution of derivative liabilities due to debt conversion 132,417 132,417
Resolution of warrant derivative liabilities due to removal of convertible debt 918,580 918,580
Amortization of Series D Preferred stock awards 144,496 144,496
Net Loss (2,278,177) (2,278,177)
Ending Balance, Amount at Dec. 31, 2014 $ 704,110 $ 125,450 $ 92,902 $ 43,707,731 $ (12,039) $ (45,443,550) $ (825,396)
Ending Balance, Shares at Dec. 31, 2014 70,411 12,545 92,902,320 (4,089)
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Statement - CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
12 Months Ended
Dec. 31, 2014
Dec. 31, 2013
Cash Flows from Operating Activities:
Net Loss $ (2,278,177) $ (4,148,088)
Adjustments to reconcile net loss to net cash used in Operating activities:
Depreciation and amortization 56,446 51,663
Amortization of discounts and deferred financing costs 141,869 854,149
Bad debt expense 20,273 24,917
Inventory obsolescence 83,420 244,540
Gain on settlement of liabilities 0 (192,142)
Series D preferred stock issued for services 311,536 925,787
Common stock issued for services 222,550 275,927
Common stock issued for loan extensions 0 16,612
Warrant expense 0 287,599
True-up related to warrants issued in 2011 0 489,614
Recognition of deferred compensation related to vested options 0 86,350
Gain on fair market value of derivative liabilities (78,145) (365,496)
Convertible debt issued for settlements 0 90,000
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (76,985) (42,499)
(Increase) decrease in inventory (178,448) (97,831)
(Increase) decrease in employee advances 3,620 8,212
(Increase) decrease in accrued interest receivable 0 0
(Increase) decrease in prepaids and other assets 69,908 (64,897)
Increase (decrease) in allowance for uncollectible interest 0 0
Increase (decrease) in accrued royalties and dividends (50,714) (428,238)
Increase (decrease) in accounts payable 18,100 (67,965)
Increase (decrease) in accrued liabilities (260) (21,838)
Increase (decrease) in accrued interest payable 48,322 251,643
Net cash flows used in operating activities (1,686,685) (1,821,981)
Cash flows from investing activities:
Payments made on capital lease obligation (375) 0
Purchase of property and equipment (8,072) (29,892)
Net cash flows used in investing activities (8,447) (29,892)
Cash flows from financing activities:
Borrowings on debt 0 290,244
Payments on debt (23,600) (662,169)
Borrowings on convertible debt, net of original issue discounts 0 1,817,400
Payments on convertible debt (44,900) (331,500)
Cash paid for debt issuance costs 0 (9,200)
Cash proceeds from sale of series C preferred stock 2,252,510 740,030
Proceeds from exercise of warrants 0 5,760
Cash paid for return of Series D preferred stock (9,990) 0
Net cash flows provided by financing activities 2,174,020 1,850,565
Net increase (decrease) in cash 478,888 (1,308)
Cash and cash equivalents, beginning of period 44,553 45,861
Cash and cash equivalents, end of period 523,441 44,553
Cash paid during the period for:
Interest 103,705 130,147
Income Taxes 0 0
Supplemental non-cash investing and financing activities:
Common stock issued for conversion of debt and interest 93,728 406,645
Common stock issued for conversion of series D preferred stock 40,000 0
Series C preferred stock issued for conversion of related party debt and interest 0 348,600
Series C preferred stock issued for conversion of debt and interest 0 1,587,600
Resolution of derivative liabilities due to warrant exercise 0 48,630
Resolution of warrant derivative liabilities due to removal of convertible debt 918,580 0
Resolution of derivative liabilities due to debt conversions 132,417 1,311,702
Warrants reclassed to derivative liabilities 0 812,705
Debt discounts due to derivative liabilities 90,000 617,399
Debt discounts due to warrants issued with debt 0 51,643
Debt discounts due to beneficial conversion feature 0 25,000
Reversal of deferred compensation due to forfeiture of nonvested options 0 184,800
Write-off of deferred compensation 0 38,300
Reclass of related party debt to unrelated party debt 115,620 0
Reclass of related party interest payable to unrelated party interest payable 47,061 0
Capital lease obligation $ 13,512 $ 0
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1. NATURE OF OPERATIONS
12 Months Ended
Dec. 31, 2014
Organization, Consolidation and Presentation of Financial Statements [Abstract]
NATURE OF OPERATIONS

Wound Management Technologies, Inc. was incorporated in the State of Texas in December 2001 as MB Software, Inc.  In May 2008, MB Software, Inc. changed its name to Wound Management Technologies, Inc. The Company distributes collagen-based wound care products to healthcare providers such as physicians, clinics and hospitals.

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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
12 Months Ended
Dec. 31, 2014
Accounting Policies [Abstract]
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

 

The terms “the Company,” “we,” “us” and “WMT” are used in this report to refer to Wound Management Technologies, Inc.   The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles.

 

Principles of Consolidation

 

The accompanying consolidated financial statements include the accounts of WMT and its wholly-owned subsidiaries:  Wound Care Innovations, LLC a Nevada limited liability company (“WCI”); Resorbable Orthopedic Products, LLC, a Texas limited liability company (“Resorbable); and BioPharma Management Technologies, Inc., a Texas corporation (“BioPharma”). All intercompany accounts and transactions have been eliminated.

 

Use of Estimates in Financial Statement Preparation

 

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

 

Cash, Cash Equivalents and Marketable Securities

 

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

 

Loss Per Share

 

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

 

Revenue Recognition

 

In accordance with the guidance in “ASC” Topic No. 605, “Revenue Recognition,” the Company recognizes revenue when (a) persuasive evidence of an arrangement exists, (b) delivery has occurred or services have been rendered, (c) the fee is fixed or determinable, and (d) collectability is reasonable assured. Revenue is recognized upon delivery. Revenue is recorded on the gross basis, which includes handling and shipping, because the Company has risks and rewards as a principal in the transaction based on the following:  (a) the Company maintains inventory of the product, (b) the Company is responsible for order fulfillment, and (c) the Company establishes the price for the product.  The Company recognizes royalty revenue in the period the royalty bearing products are sold.

  

Allowance for Doubtful Accounts

 

The Company establishes an allowance for doubtful accounts to ensure accounts receivable are not overstated due to uncollectibility. Bad debt reserves are maintained based on a variety of factors, including the length of time receivables are past due and a detailed review of certain individual customer accounts. If circumstances related to customers change, estimates of the recoverability of receivables would be further adjusted. The Company recorded bad debt expense of $20,273 and $24,917 in 2014 and 2013, respectively. The allowance for doubtful accounts at December 31, 2014 was $18,462 and the amount at December 31, 2013 was $13,014.

 

Inventories

 

Inventories are stated at the lower of cost or net realizable value, with cost computed on a first-in, first-out basis.  Inventories consist of powders, gels and the related packaging supplies.  The Company recorded inventory obsolescence expense of $83,420 in 2014 and $244,540  in 2013. The allowance for obsolete and slow moving inventory had a balance of $46,007 and $114,404 at December 31, 2014 and December 31, 2013, respectively.

 

Property and Equipment

 

Property and equipment is recorded at cost.  Depreciation is computed utilizing the straight-line method over the estimated economic life of the asset, which ranges from five to ten years. As of December 31, 2013, fixed assets consisted of $46,321including furniture and fixtures, computer equipment, phone equipment and the Company websites. As of December 31, 2014, fixed assets consisted of $67,905 including furniture and fixtures, computer equipment, phone equipment and the Company websites.   The depreciation expense recorded in 2014 was $5,415 and the depreciation expense recorded in 2013 was $632.  The balance of accumulated depreciation was $22,477and $17,062 at December 31, 2014 and December 31, 2013, respectively.

 

Intangible Assets

 

Intangible assets as of December 31, 2014 and 2013 consisted of a patent acquired in 2009 with a historical cost of $510,310. The intangible asset is being amortized over its estimated useful life of 10 years using the straight line method. Amortization expense recognized was $51,031 during 2014 and 2013.

 

Impairment of Long-Lived Assets

 

Long-lived assets and certain identifiable intangibles to be held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company continuously evaluates the recoverability of its long-lived assets based on estimated future cash flows and the estimated liquidation value of such long-lived assets, and provides for impairment if such undiscounted cash flows are insufficient to recover the carrying amount of the long-lived assets. If impairment exists, an adjustment is made to write the asset down to its fair value, and a loss is recorded as the difference between the carrying value and fair value. Fair values are determined based on quoted market values, undiscounted cash flows or internal and external appraisals, as applicable. Assets to be disposed of are carried at the lower of carrying value or estimated net realizable value. There was no impairment recorded during the years ended December 31, 2014 and 2013.

 

Fair Value Measurements

 

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

  

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

 

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

 

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

 

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

 

At December 31, 2013, the Company’s financial instruments consist of the derivative liabilities related to stock purchase warrants and the conversion features of certain outstanding notes payable.  The derivative liabilities related to stock purchase warrants were valued using the Black-Scholes Option Pricing Model and the derivative liabilities related to the conversion features in the outstanding convertible notes were valued using the Black-Scholes Option Pricing Model assuming maximum value. These are level 3 inputs.

 

At December 31, 2014, the Company’s financial instruments consist of the derivative liabilities related to stock purchase warrants which were valued using the Black-Scholes Option Pricing Model, a level 3 input.

 

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

 

The following table sets forth by level within the fair value hierarchy the Company’s financial assets and liabilities that were accounted for at fair value as of December 31, 2014 and 2013.

 

Recurring Fair Value Measure   Level 1     Level 2     Level 3     Total  
Liabilities                    
  Derivative Liabilities as of December 31, 2014   $ -     $ -     $ 1,708     $ 1,708  
  Derivative Liabilities as of December 31, 2013   $ -     $ -     $ 1,040,850     $ 1,040,850  

 

Derivatives

 

The Company entered into derivative financial instruments to manage its funding of current operations. Derivatives are initially recognized at fair value at the date a derivative contract is entered into and are subsequently re-measured to their fair value at the end of each reporting period. The resulting gain or loss is recognized in profit or loss immediately.

 

Income Taxes

 

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

  

Beneficial Conversion Feature of Convertible Notes Payable

 

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

 

Advertising Expense

 

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

 

Share-Based Compensation

 

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

 

Reclassifications

 

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

 

Recently Issued Accounting Pronouncements

 

There were various accounting standards and interpretations issued during 2014 and 2013, none of which are expected to have a material impact on the Company’s financial position, operations or cash flows.

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3. GOING CONCERN
12 Months Ended
Dec. 31, 2014
Going Concern
GOING CONCERN

The Company has continuously incurred losses from operations, has a working capital deficit, and has a significant accumulated deficit. The appropriateness of using the going concern basis is dependent upon the Company's ability to obtain additional financing or equity capital and, ultimately, to achieve profitable operations. These conditions raise substantial doubt about its ability to continue as a going concern.

 

In this regard, management is proposing to raise any necessary additional funds through loans or through additional sales of its common stock.   There is no assurance that the Company will be successful in raising additional capital to support the financial needs of the Company or that the Company will ever produce profitable operations.  The financial statements do not include any adjustments that might result from the outcome of these uncertainties.

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4. OTHER SIGNIFICANT TRANSACTIONS
12 Months Ended
Dec. 31, 2014
Other Significant Transactions
OTHER SIGNIFICANT TRANSACTIONS

SEC Complaint

 

On or about June 4, 2012, the United States Securities and Exchange Commission filed a Complaint against the Company and Scott A. Haire, a former officer and director of the Company, in the United States District Court for the Southern District of Florida.  The Complaint alleges that from at least July through November 2009, the Company and Haire engaged in a fraudulent scheme and market manipulation involving the Company’s stock.  The Complaint alleges that (a) Haire arranged to sell Company restricted stock to an FBI agent posing as the trustee of a pension fund and to pay that person a kickback for engaging in the transaction; and (b) Haire arranged to make payments to a fictitious person, putatively a broker, in exchange for the broker’s trading in company stock timed with Company press releases.  The Complaint asserts claims for violations of Section 17(a) (1) of the Securities Act and Section 10(b) of the Securities Exchange Act and Rule 10b-5 promulgated thereunder.  The Complaint seeks (a) a declaration that the Company and Haire committed those violations; (b) an injunction against the further commission of such violations; (c) disgorgement; (d) civil money penalties; (e) an order barring Haire from participating in any offering of a penny stock; and (f) an order barring Haire from acting as an officer or director of any issuer that has a class of securities registered pursuant to Section 12 of the Securities Exchange Act or that is require to tile reports pursuant to Section 15(d) of the Securities Exchange Act.

 

The Company, separate from Mr. Haire, engaged in settlement discussions with the Securities and Exchange Commission concerning a potential settlement of the action against the Company.  On September 14, 2012, the Company filed a Consent of Defendant with the SEC.  To resolve the claims against it, the Company has consented to the entry of a permanent injunction against violations of Section 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act involving the payment of undisclosed compensation to investment advisors, managers, and trustees or the manipulation of the price or volume of any security.  As part of the settlement agreement the Company paid a $20,000 civil money penalty.  On January 15, 2013, the Company received a final judgment resolving claims against the Company.  The judgment was delivered by the United States District Court for the Southern District of Florida.

 

Forbearance Agreement

 

On August 17, 2012, Tonaquint, Inc., (“Tonaquint”) and the Company entered into a forbearance agreement in connection with a Securities Purchase Agreement by and between Tonaquint and the Company under which Tonaquint purchased a Secured Convertible Promissory Note in the original principal amount of $560,000 (the “Note”). Tonaquint agreed to convert $20,000 in principal amount owed under the Note into shares of the Company’s Common Stock and to accept a cash payment of $200,000 as payment in full for the remaining balance on or before October 16, 2012. The forbearance also gave the Company the option to extend the final payment date. In January of 2013, the Company issued 74,993 shares of Common Stock valued at $3,382 according to the original terms of the Forbearance agreement. The Company also paid $45,000 in 2013 and issued an additional 213,147 shares of Common Stock valued at $13,230 to Tonaquint to extend the final payment date to October 15, 2013 at which time the final $200,000 was paid in full. The aggregate fair value of these common shares of $16,612 and the $45,000 of cash payments are presented in the consolidated statements of operations as debt related expense in 2013.

 

Federal Payroll Tax Settlement Negotiation

 

In January of 2012, the Company made payment to the Internal Revenue Service (the “IRS”) for delinquent tax liabilities from 2004 and 2005.  In February of 2013, the IRS accepted Company’s offer of Compromise related to unpaid penalties and interest and on March 20, 2013, the Company paid the final $16,000 due under the compromise. This resulted in a gain on the settlement of liabilities of $192,142 during 2013.

 

Shipping and Consulting Agreement

 

On September 20, 2013, the Company entered into a Shipping and Consulting Agreement with WellDyne Health, LLC (“WellDyne”). Under the agreement, WellDyne agreed to provide certain storage, shipping, and consulting services, and was granted the right to conduct online resale of certain of the Company’s products to U.S. consumers. The agreement has an initial term of 3 years.

 

As additional consideration, an affiliate of WellDyne was issued 4,500,000 common stock warrants for the purchase of shares of the Company’s Common Stock. The warrants vest on the date of grant, have a term of five years and an exercise price of $0.06, subject to adjustment as provided for therin. The fair value of the warrants was determined to be $287,599 and was expensed during the year ended December 31, 2013.

  

Brookhaven Medical, Inc. Agreement

 

On October 11, 2013, the Company, together with certain of its subsidiaries, entered into a term loan agreement (the “Loan Agreement”) with Brookhaven Medical, Inc. (“BMI”), pursuant to which BMI made a loan to the Company in the amount of $1,000,000 under a Senior Secured Convertible Promissory Note (the “First BMI Note”). In connection with the Loan Agreement, the Company and BMI also entered into a letter of intent contemplating (i) an additional loan to the Company (the “Additional Loan”) of up to $2,000,000 by BMI (or an outside lender), and (ii) entrance into an agreement and plan of merger (the “Merger Agreement”) pursuant to which the Company would merge with a subsidiary of BMI, subject to various conditions precedent.

 

The First BMI Note carries an interest rate of 8% per annum, and all unpaid principal and accrued but unpaid interest under the First BMI Note is due and payable on the later of (i) October 10, 2014, or (ii) the first anniversary of the date of the Merger Agreement. The First BMI Note may be prepaid in whole or in part upon ten days’ written notice, and all unpaid principal and accrued interest under the Note may be converted, at the option of BMI, into shares of the Company’s Series C Convertible Preferred Stock (“Series C Preferred Stock”) at a conversion price of $70.00 per share. The Company’s obligations under the First BMI Note are secured by all the assets of the Company and its subsidiaries.

 

On October 15, 2013, BMI agreed to make the Additional Loan pursuant to a Secured Convertible Drawdown Promissory Note (the “Second BMI Note”), which allows the Company to drawdown, as needed, an aggregate of $2,000,000, subject to an agreed upon drawdown schedule or as otherwise approved by BMI. In connection with the Second BMI Note, the Company, its subsidiaries, and BMI entered into an additional loan agreement as well as an additional security agreement.

 

The Second BMI Note carries an interest rate of 8% per annum, and (subject to various default provisions) all unpaid principal and accrued but unpaid interest under the Second BMI Note is due and payable on the later of (i) October 15, 2014, or (ii) the first anniversary of the date of the Merger Agreement. The Second BMI Note may be prepaid in whole or in part upon ten days’ written notice, and all unpaid principal and accrued interest under the Second BMI Note may be converted, at the option of BMI, into shares of the Company’s Series C Convertible Preferred Stock at a conversion price of $70.00 per share at any time prior to the Maturity Date.

 

In December of 2013, the Company and Brookhaven Medical, Inc. announced their mutual decision not to proceed with the proposed merger but to pursue other business relationships between the two companies.

 

On October 15, 2014, the Company and Brookhaven Medical, Inc. executed an amendment extending the due date of the notes to April 15, 2015. The Company evaluated the modification under ASC 470 and determined that it does not qualify as an extinguishment of debt.

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5. NOTES PAYABLE
12 Months Ended
Dec. 31, 2014
NotePayableAbstract
NOTES PAYABLE

Notes Payable – Related Parties

 

Funds are advanced to the Company from various related parties, including from Mr. Robert Lutz. Other shareholders fund the Company as necessary to meet working capital requirements and expenses.

 

In September of 2014, Mr. Araldo Cossutta, holder of a note payable in the principal amount of $75,000, stepped down from his position on the board of directors. In October of 2014, the note payable to MAH Holding, LLC in the principal amount of $40,620 was acquired by an unrelated third party.  As a result, Mr. Cossutta’s $75,000 note and accrued interest of $32,200 and the MAH Holding note of $40,620 and accrued interest of $14,861 are presented as unrelated party notes payable in 2014.

 

The following is a summary of amounts due to related parties, including accrued interest separately recorded, as of December 31, 2013:

 

Related party   Nature of relationship   Terms of the agreement   Principal amount     Accrued Interest  
                         
Araldo A. Cossutta   Mr. Cossutta was a member of the Board of Directors from 1994 until his term ended on September 3, 2014.   See “Third Quarter Secured Promissory Notes” As of March 31, 2015 $75,000 of this note remains due.   $ 75,000     $ 18,512  
                         

MAH Holding, LLC

 

  MAH Holding, LLC provided previous lines of credit to affiliates of WMT.   Unsecured note with interest accrued at 10% per annum, due on demand.     40,620       10,743  
                         
Total           $ 115,620     $ 29,255  

 

During the year ended December 31, 2013, related parties converted an aggregate of $300,000 of related party debt and $48,600 of accrued interest into 4,980 shares of Series C convertible preferred stock. No such conversions took place in 2014.

 

Notes Payable

 

The following is a summary of amounts due to unrelated parties, including accrued interest separately recorded, as of December 31, 2014:

 

Note Payable   Terms of the agreement   Principal Amount     Discount     Principal Net of Discount     Accrued Interest  
                             
March 4, 2011 Note Payable   $223,500 note payable; (i) interest accrues at 13% per annum; (ii) maturity date of September 4, 2011; (iii) $20,000 fee due at maturity date with a $1,000 per day fee for each day the principal and interest is late.  This note is currently the subject of litigation  (see Note 12 "Legal Proceedings”)   $ 223,500       -     $ 223,500     $ 88,456  
                                     

MAH Holding, LLC

 

  Unsecured note with interest accrued at 10% per annum, due on demand. This note is currently the subject of litigation  (see Note 12 "Legal Proceedings”)     40,620               40,620       14,861  
                                     
Third Quarter 2012 Secured Subordinated Promissory Notes   Seventeen notes in the original aggregate principal amount of $1,055,000; (i) 5% interest due on maturity date; (ii) maturity date of October 12, 2012; (iii) after the maturity date interest shall accrue at 18% per annum and the company shall pay to the note holders on a pro rata basis, an amount equal to twenty percent of the sales proceeds received by the Company and its subsidiary, WCI, from the sale of surgical powders, until such time as the note amounts have been paid in full.  As of March 31, 2015 three of these notes remain due.     110,000       -       110,000       47,483  
                                     
September 28, 2012 Promissory Note   $51,300 note payable (i) interest accrues at 10% per annum; (ii) original maturity date of December 31, 2012; (iii) default interest rate of 15% per annum.  As of March 31, 2014 $11,300 of this note remains due.     11,300       -       11,300       10,379  
                                     
BMI Convertible Note #1   Note in the principal amount of $1,000,000 which accrues interest at 8% per annum.  The note is due April 15, 2015.  The note may be converted, at the option of BMI, into shares of the Company’s Series C Preferred Stock at a conversion price of $70.00 per share.     1,000,000       -       1,000,000       16,877  
                                     
Quest Capital Investors, LLC   Furniture purchase agreement in the original amount of $11,700 with $300 payments due each month.     7,500       -       7,500       -  
                                     
BMI Convertible Note #2   Note payable which accrues interest at 8% per annum and allows the Company to drawdown, as needed, an aggregate of $2,000,000, subject to an agreed upon schedule.  The note is due April 15, 2015.  The note may be converted, at the option of BMI, into shares of the Company’s Series C Preferred Stock at a conversion price of $70.00 per share.     200,000               200,000       3,375  
                                     
Total       $ 1,592,920     $ -     $ 1,592,920     $ 181,431  

  

In January of 2014, the Company paid $20,000 in principal on the September 28, 2012 Promissory Note in the original amount of $51,300 and the final $5,000 in principal and $5,000 in accrued interest due on the Second Quarter 2012 Convertible Note in the original amount of $25,000.

 

In January of 2014, the Company converted $90,000 of principal and $3,728 of accrued interest payable related to the two July 16, 2013 promissory notes into 1,087,762 shares of common stock.

 

In March of 2014, the Company paid the final $39,900 in principal and $1,995 in accrued interest due on the May 30, 2012 Convertible note.

 

During the year ended December 31, 2014, the Company paid a total of $3,600 to Quest Capital as part of the furniture purchase agreement in the original amount of $11,700.

 

During the year ended December 31, 2014, aggregate amortization of debt discounts and deferred financing costs was $140,837 and $1,032, respectively.

 

The following is a summary of amounts due to unrelated parties, including accrued interest separately recorded, as of December 31, 2013:

 

Note Payable   Terms of the agreement   Principal Amount     Discount     Principal Net of Discount     Accrued Interest  
March 4, 2011 Note Payable   $223,500 note payable; (i) interest accrues at 13% per annum; (ii) maturity date of September 4, 2011; (iii) $20,000 fee due at maturity date with a $1,000 per day fee for each day the principal and interest is late.  This note is currently the subject of litigation  (see Note 12 "Legal Proceedings”)   $ 223,500       -     $ 223,500     $ 58,998  
Third Quarter 2012 Secured Subordinated Promissory Notes   Seventeen notes in the original aggregate principal amount of $1,055,000; (i) 5% interest due on maturity date; (ii) maturity date of October 12, 2012; (iii) after the maturity date interest shall accrue at 18% per annum and the company shall pay to the note holders on a pro rata basis, an amount equal to twenty percent of the sales proceeds received by the Company and its subsidiary, WCI, from the sale of surgical powders, until such time as the note amounts have been paid in full.  As of March 31, 2014 three of these notes remain due, of which two are with unrelated parties in the aggregate principal amount of $110,000.     35,000       -       35,000       9,013  
September 28, 2012 Promissory Note   $51,300 note payable (i) interest accrues at 10% per annum; (ii) maturity date of December 31, 2012; (iii) default interest rate of 15% per annum.  As of March 31, 2014 $11,300 of this note is was past due.     31,300       -       31,300       8,763  
Second Quarter 2012 Convertible Notes   Two $25,000 notes; (i) issued on April 3 and April 23, respectively; (ii) convertible at $0.19 per share; (iii) interest accrues at 5% per annum; (iv) interest accrues at 9% per annum after the due dates of April 30 and June 30, 2012, respectively. On September 20, 2012, 222,420 shares of Common Stock were issued in conversion of the April 23 note. As of the date of this filing these notes and all related interest are paid in full.     5,000       -       5,000       4,340  
May 30,  2012 Convertible Note   Note in the principal amount of up to $275,000 including an approximate original issue discount of 10%; (i) maturity date one year from the effective date (ii) convertible at the lesser of $0.19 or a 30% discount on the fair market value of the Company's common stock; (iv) one time interest charge of 5% will be applied if the note is not repaid within the first 90 days.  As of the date of this filing, this note at all related accrued interest has been paid in full.     39,900       (29,406 )     10,494       1,995  
July 16, 2013 Convertible Notes   Two $45,000 notes; (i) issued July 16, 2013 as part of two settlement agreements; (ii) interest accrues at 8%; (iii) due April 14, 2014; (iv) convertible 180 days after the issue date at 80% of the fair market value of the Company’s common stock.  In the first quarter of 2014, the entire principal and accrued interest balance of these notes was converted into common stock.     90,000       -       90,000       3,629  
BMI Convertible Note #1   Note in the principal amount of $1,000,000 which accrues interest at 8% per annum.  The note is due October 10, 2014.  The note may be converted, at the option of BMI, into shares of the Company’s Series C Preferred Stock at a conversion price of $70.00 per share.     1,000,000       -       1,000,000       18,192  
Quest Capital Investors, LLC   Furniture purchase agreement in the original amount of $11,700 with $300 payments due each month.     11,100       -       11,100       -  
BMI Convertible Note #2   Note payable which accrues interest at 8% per annum and allows the Company to drawdown, as needed, an aggregate of $2,000,000, subject to an agreed upon schedule.  The note is due October 15, 2014.  The note may be converted, at the option of BMI, into shares of the Company’s Series C Preferred Stock at a conversion price of $70.00 per share.     200,000       (21,431 )     178,569       2,652  
Total       $ 1,635,800     $ (50,837 )   $ 1,584,963     $ 107,582  

  

During the year ended December 31, 2013, the Company borrowed an aggregate of $290,244 and $1,817,400 under notes payable and convertible notes payable, respectively and repaid an aggregate of $662,169 and $331,500 on notes payable and convertible notes payable, respectively.

 

In connection with $140,000 of the 2013 borrowings, the Company issued an aggregate of 875,000 common stock warrants to the lenders (see Note 9). The fair value of the warrants was determined to be $51,643 and it was recorded as a discount to the notes that is being amortized to interest expense over the life of the notes using the effective interest rate method. During the year ended December 31, 2013, these discounts were fully amortized to interest expense.

 

During the year ended December 31, 2013, unrelated parties converted an aggregate of $1,360,822 of debt and $226,778 of accrued interest into 22,680 shares of Series C convertible preferred stock.

 

During the year ended December 31, 2013, unrelated parties converted an aggregate of $401,145 of debt and $5,500 of accrued interest into 11,239,999 shares of common stock.

 

$1,200,000 of the 2013 borrowings is convertible at the holder’s option into Series C convertible preferred stock at $70 per share. The $1,200,000 was drawn by the company on multiple dates. The Company evaluated each borrowing under FASB ASC 470-30 to determine if a beneficial conversion feature existed. The company determined beneficial conversion features existed on $200,000 of the borrowings. The intrinsic value of the beneficial conversion features was determined to be $25,000. The beneficial conversion features were recorded as discounts to the notes that are being amortized to interest expense. Amortization of these discounts totaled $3,569 for the year ended December 31, 2013.

 

In July of 2013, the Company established two notes payable in the amount of $45,000 each according to the terms of a settlement agreement. The company recognized settlement expense of $90,000 during 2013 associated with these notes. The notes are unsecured, bear interest at 8% per annum and are due April 14, 2014. The notes become convertible 180 days after the issue date at 80% of the fair market value of the Company’s common stock.

 

The convertible notes associated with $628,900 of the 2013 borrowings qualified as derivative liabilities under FASB ASC 815 resulting in discounts to the notes of $617,399 (see Note 10). Also, in connection with these borrowings, the Company incurred original issue discounts totaling $11,500 which are being amortized to interest expense over the life of the notes.

 

During 2013, the company paid third party debt issuance costs totaling $9,200. These costs are being amortized to interest expense over the life of the associated debt using the effective interest rate method. During 2013, aggregate amortization of deferred financing costs totaled $20,694. During the year ended December 31, 2013, aggregate amortization of debt discounts totaled $833,455.

 

Debentures

 

2012 Debentures

 

On March 27, 2012, the Company entered into a Securities Purchase Agreement and sold $400,000 of convertible debentures with a maturity date of March 27, 2015, to an unrelated party for $360,000.  The Debentures may be converted into Common Stock at a conversion price equal to seventy percent (70%) of the lowest closing bid price per share for the twenty (20) trading days immediately preceding the date of conversion; provided that no holder may convert Debentures into, nor shall the Company issue to such holder, shares of common stock to the extent that the conversion would result in a holder and its affiliates together beneficially owning more than 4.99% of the then issued and outstanding shares of Common Stock.   Additionally, the Securities Purchase Agreement entitled the purchaser to 200,000 shares of Common Stock

 

In accordance with ASC Topic No. 470-20-25-4, a discount in the amount of $171,429 was calculated as the total value of the beneficial conversion feature, which was amortized over the term of the debt.  Additionally, a discount of $35,676 was allocated to 200,000 shares of Common Stock based on the relative fair market value of the stock and convertible debt at the time of the agreement.

 

In 2012, the debenture holder elected to convert $50,000 in principal into 1,387,754 shares of Common Stock.  In 2013, the debenture holder elected to convert $300,000 in principal into 8,351,368 shares of Common Stock.  A pro rata share of the discount associated with the debentures was expensed with each issuance of Common Stock. The balance of accrued interest payable related to the debentures was $18,238 at December 31, 2012. In 2013, the debenture holder also elected to receive a cash principal payment of $50,000 and accrued interest payable, accrued at 6% per annum, of $30,659.  As of December 31, 2013, the debentures were paid in full and all related discounts and debt issuance costs were fully amortized. The balance of accrued interest payable at December 31, 2013 was $0.

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6. INTANGIBLE ASSETS
12 Months Ended
Dec. 31, 2014
Goodwill and Intangible Assets Disclosure [Abstract]
INTANGIBLE ASSETS

Patent

 

On September 29, 2009, the Company entered into an Asset Purchase Agreement (the “Agreement”), whereby the Company acquired a patent from in exchange for 500,000 shares of the Company’s common stock and the assumption of a legal fee payable in the amount of $47,595 which is related to the patent.    Based on the guidance in ASC Topic No. 350-30, the patent was recorded as an intangible asset of $462,715, or approximately $.93 per share plus $47,595 for the assumed liability.  The intangible asset is being amortized over an estimated ten year useful life.

 

The activity for the intangible accounts is summarized below:

 

    2014     2013  
Patent   $ 510,310     $ 510,310  
Accumulated amortization     (267,913 )     (216,882 )
Patent, net of accumulated amortization     242,397       293,428  
                 
Total intangibles, net of accumulated amortization   $ 242,397     $ 293,428  

 

The amount amortized for the year ended December 31, 2014 and 2013 was $51,031 and $51,031, respectively.

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7. CUSTOMERS AND SUPPLIERS
12 Months Ended
Dec. 31, 2014
Notes to Financial Statements
CUSTOMERS AND SUPPLIERS

WCI had two significant customers which accounted for approximately 27% and 10% of the Company’s sales in 2014 and one significant customer that accounted for approximately 14% of the Company’s sales in 2013.  The loss of the sales generated by these customers would have a significant effect on the operations of the Company.

 

The Company purchases all inventory from one vendor. If this vendor became unable to provide materials in a timely manner and the Company was unable to find alternative vendors, the Company's business, operating results and financial condition would be materially adversely affected.

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8. COMMITMENTS AND CONTINGENCIES
12 Months Ended
Dec. 31, 2014
Commitments and Contingencies Disclosure [Abstract]
COMMITMENTS AND CONTINGENCIES

Royalty Agreement

 

Effective November 28, 2007, WCI entered into separate exclusive license agreements with Applied Nutritionals, LLC (“Applied”) and its founder George Petito, pursuant to which WCI obtained the exclusive world-wide license to make products incorporating intellectual property covered by a patent related to CellerateRX products.

 

In consideration for the licenses, WCI agreed to pay to Applied the following royalties, beginning January 3, 2008: (a) an upfront royalty of $100,000; (b) a royalty of fifteen percent (15%) of gross sales occurring during the first year of the license; (c) an additional upfront royalty of $400,000, which was paid October, 2009; plus (d) a royalty of three percent (3%) of gross sales for all sales occurring after the payment of the $400,000 upfront royalty. In addition, WCI must maintain a minimum aggregate annual royalty payment of $375,000 for 2009 and thereafter if the royalty payments made do not meet or exceed that amount.  The total unpaid royalties as of December 31, 2014 and 2013 is $324,286 and $375,000, respectively.

 

On January 21, 2015 the Company made payment in the amount of $324,286 to Applied Nutritionals.

   

Federal Payroll Taxes

 

The Company was delinquent in the payment of 2004-2005 tax liabilities with the Internal Revenue Service (the “IRS”).  A tax lien was filed against the Company in December 2009. As of December 31, 2011, unpaid payroll taxes and related penalties and interest totaled $116,145 and $224,494 respectively. On January 28, 2012 the Company made payment in the amount of $122,223 to the IRS for the balance due for payroll tax liabilities from 2004-2005 and for a portion of the interest and penalties.  In May of 2012 the Company submitted an offer of compromise to the IRS in addition to a payment of $4,000.  In February of 2013, the Company received a letter of acceptance of the offer of Compromise.  On March 20, 2013 the Company paid the final $16,000 due under the offer of compromise. In 2013, the Company recognized a gain on the settlement of liabilities of $192,142 associated with this settlement. The gain on the settlement is presented in other income in the statement of operations for the year ended December 31, 2013.

 

Inventory Contract

 

In December of 2013, WCI entered into a contract with the manufacturer of the CellerateRX product to purchase $139,132 of product.  Payment in the amount of $66,111 was made in December of 2013 with the remaining balance due at the time of delivery.  This amount was recorded as an asset in the “Prepaid and Other Assets” account at December 31, 2013 based on the contractual obligation of the parties. The remaining balance due of $73,021 was paid in March of 2014. The Company did not have any contractual obligations to purchase product as of December 31, 2014.

 

Office Leases

 

The Company's corporate office is located at 16633 Dallas Parkway, Suite 250, Addison, TX 75001.  The lease was entered into after the expiration of the Company’s old lease with Keystone Exploration, LTD. in November of 2013.  The lease expires on April 30, 2017 and requires base rent payments of $5,737 per month for months 1-17, $5,866 for months 18-29, and $5,995 for months 30-41.

 

The Company also leased real property which it uses for its marketing staff in Denver, Colorado.  The lease was a 12 month lease expiring on November 30, 2014 and required base rent payment of $300 per month.  As of December 2014, the lease was month-to-month with a required base rent of $300 per month.  As of February 28, 2015 the lease was ended.

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9. STOCKHOLDERS EQUITY
12 Months Ended
Dec. 31, 2014
Equity [Abstract]
STOCKHOLDERS EQUITY

Preferred Stock

 

There are currently 5,000,000 shares of Series A Preferred Stock authorized, with no shares of Series A Preferred Stock issued or outstanding as of December 31, 2014 and 2013.

 

Effective June 24, 2010, the Company filed a Certificate of Designations, Number, Voting Power, Preferences and Rights of Series B Convertible Redeemable Preferred Stock (the “Certificate”) with the Texas Secretary of State, designating 7,500 shares of Series B Preferred Stock, par value $10.00 per share (the “Series B Shares”). The Series B Shares rank senior to shares of all other common and preferred stock with respect to dividends, distributions, and payments upon dissolution.  Each of the Series B Shares is convertible at the option of the holder into shares of common stock as provided in the Certificate.  There were no Series B Shares issued or outstanding as of December 31, 2014 and 2013.

  

On October 11, 2013, the Company filed a Certificate of Designations, Number, Voting Power, Preferences and Rights of Series C Convertible Preferred Stock (the “Certificate of Designations”), under which it designated 100,000 shares of Series C Preferred Stock, par value $10.00.  The Series C Preferred Stock is entitled to accruing dividends (payable, at the Company’s options, in either cash or stock) of 5% per annum until October 10, 2016, and 3% per annum until October 10, 2018. The Series C Preferred Stock is senior to the Company’s common stock and any other currently issued series of the Company’s preferred stock upon liquidation, and is entitled to a liquidation preference per share equal to the original issuance price of such shares of Series C Preferred Stock together with the amount of all accrued but unpaid dividends thereon.  Each of the Series C Shares is convertible at the option of the holder into 1,000 shares of common stock as provided in the Certificate.  Additionally, each holder of Series C Preferred Stock shall be entitled to vote on all matters submitted for a vote of the holders of Common Stock a number of votes equal to the number of full shares of Common Stock into which such holder’s Series C shares could then be converted. As of December 31, 2014 and December 31, 2013 there were 70,411 and 38,232 shares of Series C Preferred Stock issued and outstanding, respectively.

 

On November 13, 2013, the Company filed a Certificate of Designations, Number, Voting Power, Preferences and Rights of Series D Convertible Preferred Stock (the “Certificate of Designations”), under which it designated 25,000 shares of Series D Preferred Stock. Shares of Series D Preferred Stock are not entitled to any preference with respect to dividend or upon liquidation, and will automatically convert (at a ratio of 1,000-to-1) into shares of the Company’s common stock, par value $0.001 upon approval of the Company’s stockholders (and filing of) and amendment to the Company’s Certificate of Incorporation increasing the number of authorized shares of Common Stock from 100,000,000 to 250,000,000. As of December 31, 2014 and December 31, 2013 there were 0 and 15,000 shares of Series D Preferred Stock issued and outstanding, respectively. On September 3, 2014, the company increased its authorized common stock to 250,000,000 shares. As a result, all outstanding Series D preferred shares were converted to common stock.

 

On May 30, 2014, the Company filed a Certificate of Designations, Number, Voting Power, Preferences and Rights of Series E Convertible Preferred Stock (The “Certificate of Designations”), under which it designated 5,000 shares of Series E Preferred Stock.  Shares of Series E Preferred Stock are not entitled to any preference with respect to dividends or upon liquidation, and will automatically convert (at a ratio of 1,000 shares of Common Stock for every one share of Series E Preferred Stock) into shares of the Company’s common stock, $0.001 par value upon approval of the Company’s stockholders (and filing of) and amendment to the Company’s Certificate of Incorporation increasing the number of authorized shares of Common Stock from 100,000,000 to 250,000,000. As of December 31, 2014 there were no shares of Series E Preferred Stock issued and outstanding.

 

During the year ended December 31, 2013, the Company issued an aggregate of 27,660 shares of Series C preferred stock for the conversion of $1,660,822 of principal and $275,378 of accrued interest on related party and unrelated party notes payable.

 

During the year ended December 31, 2013, the Company issued an aggregate of 10,572 shares of Series C preferred stock for cash proceeds of $740,030.

 

During the year ended December 31, 2014, the Company issued an aggregate of 32,179 shares of Series C preferred stock for cash proceeds of $2,252,510.

 

The Series C preferred stock earned dividends of $233,792 and $6,271 for the years ended December 31, 2014 and December 31, 2013, respectively. As of the date of this filing, no Series C preferred stock dividends have been declared or paid.

 

During the year ended December 31, 2013, the Company granted an aggregate of 15,000 shares of Series D preferred stock to employees and nonemployees for services. 13,000 of the shares were granted to employees and vest immediately upon grant, 1,000 of the shares were granted to an employee and vest in equal tranches over three years through October 1, 2016 and 1,000 of the shares were granted to a nonemployee and vest in equal tranches over three years through September 15, 2016. The aggregate fair value of the awards was determined to be $1,046,669 of which $925,787 was recognized during the year ended December 31, 2013 and $79,318 was recognized during the year ended December 31, 2014. $41,565 will be recognized over the remaining vesting periods.

  

In February of 2014, the Company issued 350 shares of Series D preferred stock to a nonemployee for services rendered.  The shares vest immediately and were recorded at their fair value of $42,000

 

In July of 2014, the Company issued 750 shares of Series D preferred stock valued at $75,000 to a nonemployee for services rendered.  The shares vest immediately and were recorded at their fair value of $75,000.

 

In September, 2014 the Company granted 556 shares of Series D preferred stock valued at $50,040 to a contractor according to the terms of his service agreement. In December, 2014, the contractor returned 111 shares of Series D preferred stock in exchange for cash amount of $9,990. The remaining Series D shares were not yet issued as of the date of this filing.

 

During the year ended December 31, 2014, the Company granted an aggregate of 1,000 shares of Series D preferred stock to two employees according to the terms of their employment agreements.  The shares vest in equal annual amounts over three years and the aggregate fair value of the awards was determined to be $120,000. During the year ended December 31, 2014, $65,178 was expensed and $54,822 remains to be expensed over the remaining vesting period.  The Series D shares were not yet issued as of the date of this filing.

 

On September 3, 2014, the Company increased its authorized common stock to 250,000,000 shares. Accordingly, the 16,545 outstanding shares of Series D preferred stock were automatically converted into 16,545,000 common shares.

 

The Company evaluated the Series C and Series D preferred stock under FASB ASC 815 and determined that they do not qualify as derivative liabilities. The Company then evaluated the Series C and Series D preferred stock for beneficial conversion features under FASB ASC 470-30 and determined that none existed.

 

Common Stock

 

During the year ended December 31, 2013, $5,760 was received and 240,000 common shares were issued for the exercise of 240,000 warrants and 1,029,334 common shares were issued for the cashless exercise of 1,299,769 warrants.

 

During the year ended December 31, 2013, an aggregate of 288,140 common shares with a fair  value of $16,612 were issued according to the terms of the Forbearance Agreement related to the June 21, 2011 Note Payable (see Note 4).

 

During the year ended December 31, 2013, the Company issued an aggregate of 4,084,615 common shares for services valued at $275,927.

 

During the year ended December 31, 2013, the Company issued an aggregate of 11,239,999 common shares for the conversion of principal of $401,145 and accrued interest of $5,500 of unrelated party debt.

 

On September 3, 2014, the Company held its annual meeting of stockholders.  The stockholders approved an amendment to the Company’s Articles of Incorporation to increase the authorized shares of common stock of the Company from 100,000,000 to 250,000,000.

 

In January of 2014, the Company issued 1,087,762 common shares for the conversion of notes payable and accrued interest in the amounts of $90,000 and $3,728, respectively.

 

During the year ended December 31, 2014, the Company issued 500,000 shares of common stock valued at $60,000 to company directors and 1,650,000 shares of common stock for services valued at $162,550.

 

Warrants

 

On June 19, 2013, the Company issued a total of 600,000 stock purchase warrants with a five year term to a lender as part of a note payable agreement.  Of the 600,000 warrants issued, 225,000 are immediately exercisable at $0.09 per share.  The remaining 375,000 warrants are exercisable at $0.09 per share only upon the Company’s default under the terms of the note payable agreement. The fair value of the warrants was determined to be $29,365 using the Black-Scholes Option Pricing Model and it was recorded as a discount to the associated debt.

  

On June 25, 2013, the company issued 175,000 stock purchase warrants to a lender related to a note purchase agreement.  The five year warrants are immediately exercisable into common stock at $0.09 per share.  The fair value of the warrants was determined to be $11,947 using the Black-Scholes Option Pricing Model and it was recorded as a discount to the associated debt.

 

On August 12, 2013 the Company issued 200,000 stock purchase warrants with a five year term to a lender as part of a note payable agreement.  The warrants are immediately exercisable at $0.075 per share.  The fair value of the warrants was determined to be $10,331 using the Black-Scholes Option Pricing Model and it was recorded as a discount to the associated debt.

 

On September 26, 2013, the Company issued the WelldDyne Warrant (see Note 4 “Significant Transactions”). The warrant allows the purchase of shares of the Company’s Common Stock equal to 4,500,000 shares. The WellDyne Warrant has a term of five years and an exercise price of $0.06, subject to adjustment as provided for therein. The fair value of the warrants was determined to be $287,599 using the Black-Scholes Option Pricing Model and it was recognized as warrant expense during the year ended December 31, 2013.

 

During the fourth quarter of 2013, the Company discovered 1,515,544 outstanding warrants that were originally granted in 2011 for services, but never recognized. The warrants are exercisable at $0.44 per share, vested on August 22, 2011 and expire on August 22, 2016. The initial grant date fair value of the warrants was determined to be $489,614 using the Black-Scholes Option Pricing Model and it was recognized as a true-up related to warrants expense during the year ended December 31, 2013.

 

At December 31, 2013, there were 15,670,143 warrants outstanding with a weighted average exercise price of $0.37.

 

At December 31, 2014, there were 10,936,844 warrants outstanding with a weighted average exercise price of $0.23.

 

A summary of the status of the warrants granted at December 31, 2014 and 2013 and changes during the years then ended is presented below:

 

For the Year Ended December 31, 2013  
    Shares     Weighted Average Exercise Price  
Outstanding at beginning of period     12,099,968     $ 0.65  
Granted     6,990,544       0.15  
Exercised     (1,539,769 )     1.38  
Forfeited     (750,000 )     0.09  
Expired     (1,130,600 )     0.83  
Outstanding at end of period     15,670,143     $ 0.37  

 

For the Year Ended December 31, 2014  
    Shares     Weighted Average Exercise Price  
Outstanding at beginning of period     15,670,143     $ 0.37  
Granted     -       -  
Exercised     -       -  
Forfeited     -       -  
Expired     (4,733,299 )     0.68  
Outstanding at end of period     10,936,844     $ 0.23  

  

The following table summarizes the outstanding warrants as of December 31, 2014:

 

      As of December 31, 2014     As of December 31, 2014  
      Warrants Outstanding     Warrants Exercisable  
Range of Exercise Prices     Number Outstanding     Weighted-Average Remaining Contract Life     Weighted- Average Exercise Price     Number Exercisable     Weighted-Average Exercise Price  
$ 0.06       4,500,000       3.8     $ 0.06       4,500,000     $ 0.06  
  0.08       550,000       3.2       0.08       550,000       0.08  
  0.09       625,000       3.3       0.09       625,000       0.09  
  0.15       1,571,300       2.6       0.15       1,571,300       0.15  
  0.25       120,000       0.8       0.25       120,000       0.25  
  0.40       3,000,000       0.6       0.40       300,000       0.40  
  0.44       1,515,544       1.6       0.44       1,515,544       0.44  
  0.50       370,000       1.3       0.50       370,000       0.50  
  0.60       975,000       1.7       0.60       975,000       0.60  
  0.75       120,000       0.8       0.75       120,000       0.75  
  1.00       290,000       1.4       1.00       290,000       1.00  
$ 0.06-1.00       10,936,844       2.8     $ 0.23       10,936,844     $ 0.23  

 

The following table summarizes the outstanding warrants as of December 31, 2013:

 

      As of December 31, 2013     As of December 31, 2013  
      Warrants Outstanding     Warrants Exercisable  
Range of Exercise Prices     Number Outstanding     Weighted-Average Remaining Contract Life     Weighted- Average Exercise Price     Number Exercisable     Weighted-Average Exercise Price  
$ 0.06       4,500,000       4.8     $ 0.06       4,500,000     $ 0.06  
  0.08       550,000       4.2       0.08       550,000       0.08  
  0.09       625,000       4.3       0.09       625,000       0.09  
  0.15       1,571,300       3.6       0.15       1,571,300       0.15  
  0.25       120,000       1.8       0.25       120,000       0.25  
  0.40       1,299,999       0.7       0.40       300,000       0.40  
  0.44       1,515,544       2.6       0.44       1,515,544       0.44  
  0.50       2,236,650       0.5       0.50       370,000       0.50  
  0.60       975,000       2.7       0.60       975,000       0.60  
  0.75       120,000       1.8       0.75       120,000       0.75  
  1.00       2,156,650       0.5       1.00       290,000       1.00  
$ 0.06-1.00       15,670,143       2.7     $ 0.37       10,936,844     $ 0.37  

 

Stock Options

 

As of December 31, 2012, $309,450 was recorded as deferred compensation associated with the unvested options granted during 2012. During the year ended December 31, 2013, 100,000 unvested options were forfeited due to a resignation and 1,000,000 unvested options were forfeited due to the vesting performance conditions not being met. These forfeitures resulted in $184,800 of the deferred compensation being reversed during 2013. During the year ended December 31, 2013, $86,350 of the deferred compensation was recognized as expense due to options vesting. The remaining deferred compensation associated with unvested options of $38,300 was written-off to equity during the year ended December 31, 2013.

  

A summary of the status of the stock options granted for the years ended December 31, 2014 and 2013, and changes during the period then ended is presented below:

 

For the Year Ended December 31, 2013  
    Options     Weighted Average Exercise Price  
Outstanding at beginning of period     5,043,500     $ 0.15  
Granted     -       -  
Exercised     -       -  
Forfeited     (1,100,000 )     0.15  
Expired     -       -  
Outstanding at end of period     3,943,500     $ 0.15  

 

 

For the Year Ended December 31, 2014  
    Options     Weighted Average Exercise Price  
Outstanding at beginning of period     3,943,500     $ 0.15  
Granted     -       -  
Exercised     -       -  
Forfeited     -       -  
Expired     -       -  
Outstanding at end of period     3,943,500     $ 0.15  

 

The following table summarizes the outstanding options as of December 31, 2014:

 

      As of December 31, 2014     As of December 31, 2014  
      Stock Options Outstanding     Stock Options Exercisable  
Exercise Price     Number Outstanding     Weighted-Average Remaining Contract Life     Weighted- Average Exercise Price     Number Exercisable     Weighted-Average Exercise Price  
$ 0.15       3,943,500       2.63       0.15       3,943,500     $ 0.15  
                                             

 

The following table summarizes the outstanding options as of December 31, 2013:

 

      As of December 31, 2013     As of December 31, 2013  
      Stock Options Outstanding     Stock Options Exercisable  
Exercise Price     Number Outstanding     Weighted-Average Remaining Contract Life     Weighted- Average Exercise Price     Number Exercisable     Weighted-Average Exercise Price  
$ 0.15       3,943,500       3.62       0.15       3,826,833     $ 0.15  
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10. DERIVATIVE LIABILITIES
12 Months Ended
Dec. 31, 2014
DerivativeInstrumentsAndHedgingActivitiesAbstract
DERIVATIVE LIABILITIES

During 2014 and 2013, the Company had outstanding common stock warrants that contained anti-dilution provisions including provisions for the adjustment of the exercise price if the Company issues common stock or common stock equivalents at a price less than the exercise price.  In addition, the Company also had outstanding convertible notes payable to various lenders that were convertible at discounts ranging from 30% to 50% of the fair market value of the Company’s common stock.

  

As of December 31, 2013, the Company did not have a sufficient number of common shares authorized to fulfill the possible exercise of all outstanding warrants and the conversion of all outstanding convertible notes payable. As a result, the Company determined that the warrants and the embedded beneficial conversion features of the debt instruments do not qualify for equity classification.  Accordingly, the warrants and conversion options are treated as derivative liabilities and are carried at fair value. During 2014, the convertible notes were repaid or converted to stock. As of December 31, 2014, some of the outstanding common stock warrants with the anti-dilution provision remained outstanding.

 

The Company estimates the fair value of the derivative warrant liabilities by using the Black-Scholes Option Pricing Model and the derivative liabilities related to the conversion features in the outstanding convertible notes using the Black-Scholes Option Pricing Model assuming maximum value, a Level 3 input, with the following assumptions used:

 

Year   2013   2014
Dividend yield:   0%   0%
Expected volatility   106.09%  to 196.26%   103.35%  to 155.36%
Risk free interest rate   .07% to 1.75%   .13% to 1.07%
Expected life (years)   0.16 to 5.00   0.82 to 2.57

 

The following table sets forth the changes in the fair value of derivative liabilities for the years ended December 31, 2014 and 2013:

 

Balance, December 31, 2012   $ (1,336,574 )
  Fair value of warrant derivatives on date of grant     (812,705 )
  Convertible debt derivatives recognized as derivative loss     (151,336 )
  Convertible debt derivatives recognized as debt discount     (617,399 )
  Resolution of warrant derivatives upon exercises     48,630  
  Resolution of convertible debt derivatives upon conversions     1,311,702  
  Gain on change in fair value of derivative liabilities     516,832  
Balance, December 31, 2013     (1,040,850 )
  Convertible debt derivatives recognized as derivative loss     (22,500 )
  Convertible debt derivatives recognized as debt discount     (90,000 )
  Resolution of convertible debt derivatives upon conversions     132,417  
  Resolution of convertible debt derivatives upon debt payoff     59,311  
  Resolution of warrant derivatives no longer qualifying as derivative liabilities     918,580  
  Gain on change in fair value of derivative liabilities     41,334  
Balance, December 31, 2013   $ (1,708 )

 

The aggregate gain on derivative liabilities for the years ended December 31, 2013 and December 31, 2014 was $365,496 and $78,145, respectively.

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11. INCOME TAXES
12 Months Ended
Dec. 31, 2014
Income Tax Disclosure [Abstract]
INCOME TAXES

The Company accounts for income taxes in accordance with ASC Topic No. 740, “Income Taxes.”  This standard requires the Company to provide a net deferred tax asset or liability equal to the expected future tax benefit or expense of temporary reporting differences between book and tax accounting and any available operating loss or tax credit carry forwards.

 

A 100% valuation allowance has been provided for all deferred tax assets, as the ability of the Company to generate sufficient taxable income in the future is uncertain.

 

The unexpired net operating loss carry forward at December 31, 2013 is approximately $32,300,000 with various expiration dates between 2018 and 2034 if not utilized. All tax years starting with 2011 are open for examination.

 

Non-current deferred tax asset:

 

    2014     2013  
34% of net operating loss carry forwards   $ 10,968,027     $ 9,948,987  
Valuation allowance     (10,968,027 )     (9,948,987 )
Net non-current deferred tax asset     -       -  

 

Reconciliations of the expected federal income tax benefit based on the statutory income tax rate of 34% to the actual benefit for the years ended December 31, 2014 and 2013 are listed below.

 

    2014     2013  
Expected federal income tax benefit   $ 774,580     $ 1,410,350  
Change in valuation allowance     (1,019,040 )     (734,830 )
Goodwill amortization     142,386       -  
Derivative gain     26,569       124,269  
Amortization of beneficial conversion discount     (47,008 )     (290,411 )
Other     300,706       198,464  
Stock-based compensation     (178,193 )     (707,842 )
Income tax expense (benefit)   $ -     $ -  

 

The Company has no tax positions at December 31, 2014 and 2013 for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility.

 

The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses.  During the years ended December 31, 2012 and 2011, the Company recognized no interest and penalties.  All tax years starting with 2009 are open for examination.

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12. LEGAL PROCEEDINGS
12 Months Ended
Dec. 31, 2014
Commitments and Contingencies Disclosure [Abstract]
LEGAL PROCEEDINGS

On November 14, 2011, Ken Link instituted litigation against the Company and Scott A. Haire in the District Court of Tarrant County Texas, 342nd Judicial District alleging default under the terms of a certain promissory note executed by Wound Management Technologies, Inc. and guaranteed by Scott A. Haire. Ken Link asserts that the unpaid balance of the note, including accrued interest as of December 4, 2011, is the sum of $355,292 plus 200,000 shares of the Company’s common stock. Mr. Link is also seeking attorney’s fees.  We have disputed the claim, because we believe the contract is tainted by usury, and therefore, a usury counterclaim will more than offset the unpaid balance of the promissory note.  The note, in the original principal amount of $223,500, required the payment of interest accrued at 13% per annum, an additional one-time charge of $20,000 due on maturity, the issuance of 200,000 shares of stock as interest, and a $1,000 per day late fee for each day the principal and interest is late. It is our contention that these sums make the contract usurious and the usury claims more than offset the amount of the unpaid indebtedness.  Furthermore, we have filed an action for recovery of damages for usury under the Texas Finance Code for a note which was previously executed by the Company and payable to Ken Link, which was in fact paid to Mr. Link in full.  In addition, Wound Management is seeking recovery of attorney’s fees pursuant to the usury provisions of the Texas Finance Code. While the amount of the promissory note remains unpaid, the counterclaims more than offset the maximum amount that could be asserted on the promissory note.  The case was set for trial for the week of October 21, 2013, but after three days of trial before a jury, the judge declared a mistrial. The case has now been reset for trial for the week of July 20, 2015. Subsequent to the declaration of mistrial, Ken Link amended his pleadings and alleges now that Wound Management Technologies, Inc. never intended to pay the $223,500 promissory note, which included $1,000 per day late charge, a $20,000 one-time fee, and 200,000 shares of stock, and asserting a damage claim of $223,500 and the loss of the benefit of the bargain related to the shares of stock, plus interest as set forth in the note, exemplary damages, and attorney's fees. We are taking steps to vigorously defend this matter, however, we are unable at this time to determine the ultimate outcome of this matter or determine the effect it may have on our business, financial condition or result of operations.

 

On February 13, 2015, Wound Management Technologies, Inc. was served with a lawsuit styled Beeleve, LLC v. Wound Management Technologies, Inc., in the 95th District Court of Dallas County, Texas.  The action is a suit of apparently seeking the rights under a promissory note, which was originally executed to MAH Holdings, LLC.  Discovery has commenced, but the discovery responses are not due until April 7, 2015.  The case is currently set for trial for October 19, 2015.  We are taking steps to vigorously defend this matter, however, we are unable at this time to determine the ultimate outcome of this matter or determine the effect it may have on our business, financial condition or result of operations.

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13. CAPITAL LEASE OBLIGATION
12 Months Ended
Dec. 31, 2014
Debt Disclosure [Abstract]
CAPITAL LEASE OBLIGATION

In December 2014, the Company entered into a Capital Lease agreement for the purchase of a phone system. The agreement required a down payment of $2,105 and 36 monthly payments of $375.  The Company recorded an asset of $13,512 and a capital lease obligation of $13,512. Aggregate payments under the capital lease were $375 during 2014. At December 31, 2014, a total lease liability of $13,137 remained. Of that amount, $4,504 will be due in 2015.

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14. SUBSEQUENT EVENTS
12 Months Ended
Dec. 31, 2014
Subsequent Events [Abstract]
SUBSEQUENT EVENTS

In accordance with applicable accounting standards for the disclosure of events that occur after the balance sheet date but before the financial statements are issued, all significant events or transactions that occurred after December 31, 2014 are outlined below:

 

In March of 2015, the Company granted 150,000 common stock options for services which vest in tranches of 25,000, 25,000 and 100,000 options upon the achievement of certain sales targets.

 

In March of 2015, the Company granted 900,000 common stock options for services of which 100,000 vest upon grant and the remaining 800,000 vest in tranches of 300,000, 250,000 and 250,000 upon the achievement of certain sales targets.

 

In March of 2015, the Company granted 100,000 shares of common stock to a contractor for services which vest after 90 days.

 

In March of 2015, the Company converted 357 shares of series C stock and deferred dividends into 374,264 shares of common stock at the request of the shareholder.

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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)
12 Months Ended
Dec. 31, 2014
Accounting Policies [Abstract]
BASIS OF PRESENTATION

The terms “the Company,” “we,” “us” and “WMT” are used in this report to refer to Wound Management Technologies, Inc.   The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles.

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of WMT and its wholly-owned subsidiaries:  Wound Care Innovations, LLC a Nevada limited liability company (“WCI”); Resorbable Orthopedic Products, LLC, a Texas limited liability company (“Resorbable); and BioPharma Management Technologies, Inc., a Texas corporation (“BioPharma”). All intercompany accounts and transactions have been eliminated.

USE OF ESTIMATES IN FINANCIAL STATEMENT PREPARATION

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

CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES

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

LOSS PER SHARE

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

REVENUE RECOGNITION

In accordance with the guidance in “ASC” Topic No. 605, “Revenue Recognition,” the Company recognizes revenue when (a) persuasive evidence of an arrangement exists, (b) delivery has occurred or services have been rendered, (c) the fee is fixed or determinable, and (d) collectability is reasonable assured. Revenue is recognized upon delivery. Revenue is recorded on the gross basis, which includes handling and shipping, because the Company has risks and rewards as a principal in the transaction based on the following:  (a) the Company maintains inventory of the product, (b) the Company is responsible for order fulfillment, and (c) the Company establishes the price for the product.  The Company recognizes royalty revenue in the period the royalty bearing products are sold.

ALLOWANCE FOR DOUBTFUL ACCOUNTS

The Company establishes an allowance for doubtful accounts to ensure accounts receivable are not overstated due to uncollectibility. Bad debt reserves are maintained based on a variety of factors, including the length of time receivables are past due and a detailed review of certain individual customer accounts. If circumstances related to customers change, estimates of the recoverability of receivables would be further adjusted. The Company recorded bad debt expense of $20,273 and $24,917 in 2014 and 2013, respectively. The allowance for doubtful accounts at December 31, 2014 was $18,462 and the amount at December 31, 2013 was $13,014.

INVENTORIES

Inventories are stated at the lower of cost or net realizable value, with cost computed on a first-in, first-out basis.  Inventories consist of powders, gels and the related packaging supplies.  The Company recorded inventory obsolescence expense of $83,420 in 2014 and $244,540  in 2013. The allowance for obsolete and slow moving inventory had a balance of $46,007 and $114,404 at December 31, 2014 and December 31, 2013, respectively.

PROPERTY AND EQUIPMENT

Property and equipment is recorded at cost.  Depreciation is computed utilizing the straight-line method over the estimated economic life of the asset, which ranges from five to ten years. As of December 31, 2013, fixed assets consisted of $46,321including furniture and fixtures, computer equipment, phone equipment and the Company websites. As of December 31, 2014, fixed assets consisted of $67,905 including furniture and fixtures, computer equipment, phone equipment and the Company websites.   The depreciation expense recorded in 2014 was $5,415 and the depreciation expense recorded in 2013 was $632.  The balance of accumulated depreciation was $22,477and $17,062 at December 31, 2014 and December 31, 2013, respectively.

INTANGIBLE ASSETS

Intangible assets as of December 31, 2014 and 2013 consisted of a patent acquired in 2009 with a historical cost of $510,310. The intangible asset is being amortized over its estimated useful life of 10 years using the straight line method. Amortization expense recognized was $51,031 during 2014 and 2013.

IMPARIMENT OF LONG LIVED ASSETS

Long-lived assets and certain identifiable intangibles to be held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company continuously evaluates the recoverability of its long-lived assets based on estimated future cash flows and the estimated liquidation value of such long-lived assets, and provides for impairment if such undiscounted cash flows are insufficient to recover the carrying amount of the long-lived assets. If impairment exists, an adjustment is made to write the asset down to its fair value, and a loss is recorded as the difference between the carrying value and fair value. Fair values are determined based on quoted market values, undiscounted cash flows or internal and external appraisals, as applicable. Assets to be disposed of are carried at the lower of carrying value or estimated net realizable value. There was no impairment recorded during the years ended December 31, 2014 and 2013.

FAIR VALUE MEASUREMENTS

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

  

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

 

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

 

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

 

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

 

At December 31, 2013, the Company’s financial instruments consist of the derivative liabilities related to stock purchase warrants and the conversion features of certain outstanding notes payable.  The derivative liabilities related to stock purchase warrants were valued using the Black-Scholes Option Pricing Model and the derivative liabilities related to the conversion features in the outstanding convertible notes were valued using the Black-Scholes Option Pricing Model assuming maximum value. These are level 3 inputs.

 

At December 31, 2014, the Company’s financial instruments consist of the derivative liabilities related to stock purchase warrants which were valued using the Black-Scholes Option Pricing Model, a level 3 input.

 

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

 

The following table sets forth by level within the fair value hierarchy the Company’s financial assets and liabilities that were accounted for at fair value as of December 31, 2014 and 2013.

 

Recurring Fair Value Measure   Level 1     Level 2     Level 3     Total  
Liabilities                    
  Derivative Liabilities as of December 31, 2014   $ -     $ -     $ 1,708     $ 1,708  
  Derivative Liabilities as of December 31, 2013   $ -     $ -     $ 1,040,850     $ 1,040,850  
DERIVATIVES

The Company entered into derivative financial instruments to manage its funding of current operations. Derivatives are initially recognized at fair value at the date a derivative contract is entered into and are subsequently re-measured to their fair value at the end of each reporting period. The resulting gain or loss is recognized in profit or loss immediately.

INCOME TAXES

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

BENEFICIAL CONVERSION FEATURE OF CONVERTIBLE NOTES PAYABLE

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

ADVERTISING EXPENSE

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

SHARE-BASED COMPENSATION

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

RECLASSIFICATIONS

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

RECENTLY ISSUED ACCOUNTING STANDARDS

There were various accounting standards and interpretations issued during 2014 and 2013, none of which are expected to have a material impact on the Company’s financial position, operations or cash flows.

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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)
12 Months Ended
Dec. 31, 2014
Summary Of Significant Accounting Policies Tables
Schedule of fair value measurement on recurring basis
Recurring Fair Value Measure   Level 1     Level 2     Level 3     Total  
Liabilities                    
  Derivative Liabilities as of December 31, 2014   $ -     $ -     $ 1,708     $ 1,708  
  Derivative Liabilities as of December 31, 2013   $ -     $ -     $ 1,040,850     $ 1,040,850  
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5. NOTES PAYABLE (Tables)
12 Months Ended
Dec. 31, 2014
Notes Payable Tables
Schedule of notes payable - related parties
Related party   Nature of relationship   Terms of the agreement   Principal amount     Accrued Interest  
                         
Araldo A. Cossutta   Mr. Cossutta was a member of the Board of Directors from 1994 until his term ended on September 3, 2014.   See “Third Quarter Secured Promissory Notes” As of March 31, 2015 $75,000 of this note remains due.   $ 75,000     $ 18,512  
                         

MAH Holding, LLC

 

  MAH Holding, LLC provided previous lines of credit to affiliates of WMT.   Unsecured note with interest accrued at 10% per annum, due on demand.     40,620       10,743  
                         
Total           $ 115,620     $ 29,255  
Schedule of notes payable

The following is a summary of amounts due to unrelated parties, including accrued interest separately recorded, as of December 31, 2014:

 

Note Payable   Terms of the agreement   Principal Amount     Discount     Principal Net of Discount     Accrued Interest  
                             
March 4, 2011 Note Payable   $223,500 note payable; (i) interest accrues at 13% per annum; (ii) maturity date of September 4, 2011; (iii) $20,000 fee due at maturity date with a $1,000 per day fee for each day the principal and interest is late.  This note is currently the subject of litigation  (see Note 12 "Legal Proceedings”)   $ 223,500       -     $ 223,500     $ 88,456  
                                     

MAH Holding, LLC

 

  Unsecured note with interest accrued at 10% per annum, due on demand. This note is currently the subject of litigation  (see Note 12 "Legal Proceedings”)     40,620               40,620       14,861  
                                     
Third Quarter 2012 Secured Subordinated Promissory Notes   Seventeen notes in the original aggregate principal amount of $1,055,000; (i) 5% interest due on maturity date; (ii) maturity date of October 12, 2012; (iii) after the maturity date interest shall accrue at 18% per annum and the company shall pay to the note holders on a pro rata basis, an amount equal to twenty percent of the sales proceeds received by the Company and its subsidiary, WCI, from the sale of surgical powders, until such time as the note amounts have been paid in full.  As of March 31, 2015 three of these notes remain due.     110,000       -       110,000       47,483  
                                     
September 28, 2012 Promissory Note   $51,300 note payable (i) interest accrues at 10% per annum; (ii) original maturity date of December 31, 2012; (iii) default interest rate of 15% per annum.  As of March 31, 2014 $11,300 of this note remains due.     11,300       -       11,300       10,379  
                                     
BMI Convertible Note #1   Note in the principal amount of $1,000,000 which accrues interest at 8% per annum.  The note is due April 15, 2015.  The note may be converted, at the option of BMI, into shares of the Company’s Series C Preferred Stock at a conversion price of $70.00 per share.     1,000,000       -       1,000,000       16,877  
                                     
Quest Capital Investors, LLC   Furniture purchase agreement in the original amount of $11,700 with $300 payments due each month.     7,500       -       7,500       -  
                                     
BMI Convertible Note #2   Note payable which accrues interest at 8% per annum and allows the Company to drawdown, as needed, an aggregate of $2,000,000, subject to an agreed upon schedule.  The note is due April 15, 2015.  The note may be converted, at the option of BMI, into shares of the Company’s Series C Preferred Stock at a conversion price of $70.00 per share.     200,000               200,000       3,375  
                                     
Total       $ 1,592,920     $ -     $ 1,592,920     $ 181,431  

  

The following is a summary of amounts due to unrelated parties, including accrued interest separately recorded, as of December 31, 2013:

 

Note Payable   Terms of the agreement   Principal Amount     Discount     Principal Net of Discount     Accrued Interest  
March 4, 2011 Note Payable   $223,500 note payable; (i) interest accrues at 13% per annum; (ii) maturity date of September 4, 2011; (iii) $20,000 fee due at maturity date with a $1,000 per day fee for each day the principal and interest is late.  This note is currently the subject of litigation  (see Note 12 "Legal Proceedings”)   $ 223,500       -     $ 223,500     $ 58,998  
Third Quarter 2012 Secured Subordinated Promissory Notes   Seventeen notes in the original aggregate principal amount of $1,055,000; (i) 5% interest due on maturity date; (ii) maturity date of October 12, 2012; (iii) after the maturity date interest shall accrue at 18% per annum and the company shall pay to the note holders on a pro rata basis, an amount equal to twenty percent of the sales proceeds received by the Company and its subsidiary, WCI, from the sale of surgical powders, until such time as the note amounts have been paid in full.  As of March 31, 2014 three of these notes remain due, of which two are with unrelated parties in the aggregate principal amount of $110,000.     35,000       -       35,000       9,013  
September 28, 2012 Promissory Note   $51,300 note payable (i) interest accrues at 10% per annum; (ii) maturity date of December 31, 2012; (iii) default interest rate of 15% per annum.  As of March 31, 2014 $11,300 of this note is was past due.     31,300       -       31,300       8,763  
Second Quarter 2012 Convertible Notes   Two $25,000 notes; (i) issued on April 3 and April 23, respectively; (ii) convertible at $0.19 per share; (iii) interest accrues at 5% per annum; (iv) interest accrues at 9% per annum after the due dates of April 30 and June 30, 2012, respectively. On September 20, 2012, 222,420 shares of Common Stock were issued in conversion of the April 23 note. As of the date of this filing these notes and all related interest are paid in full.     5,000       -       5,000       4,340  
May 30,  2012 Convertible Note   Note in the principal amount of up to $275,000 including an approximate original issue discount of 10%; (i) maturity date one year from the effective date (ii) convertible at the lesser of $0.19 or a 30% discount on the fair market value of the Company's common stock; (iv) one time interest charge of 5% will be applied if the note is not repaid within the first 90 days.  As of the date of this filing, this note at all related accrued interest has been paid in full.     39,900       (29,406 )     10,494       1,995  
July 16, 2013 Convertible Notes   Two $45,000 notes; (i) issued July 16, 2013 as part of two settlement agreements; (ii) interest accrues at 8%; (iii) due April 14, 2014; (iv) convertible 180 days after the issue date at 80% of the fair market value of the Company’s common stock.  In the first quarter of 2014, the entire principal and accrued interest balance of these notes was converted into common stock.     90,000       -       90,000       3,629  
BMI Convertible Note #1   Note in the principal amount of $1,000,000 which accrues interest at 8% per annum.  The note is due October 10, 2014.  The note may be converted, at the option of BMI, into shares of the Company’s Series C Preferred Stock at a conversion price of $70.00 per share.     1,000,000       -       1,000,000       18,192  
Quest Capital Investors, LLC   Furniture purchase agreement in the original amount of $11,700 with $300 payments due each month.     11,100       -       11,100       -  
BMI Convertible Note #2   Note payable which accrues interest at 8% per annum and allows the Company to drawdown, as needed, an aggregate of $2,000,000, subject to an agreed upon schedule.  The note is due October 15, 2014.  The note may be converted, at the option of BMI, into shares of the Company’s Series C Preferred Stock at a conversion price of $70.00 per share.     200,000       (21,431 )     178,569       2,652  
Total       $ 1,635,800     $ (50,837 )   $ 1,584,963     $ 107,582  
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6. INTANGIBLE ASSETS (Tables)
12 Months Ended
Dec. 31, 2014
Intangible Assets Tables
Schedule of intangible assets
    2014     2013  
Patent   $ 510,310     $ 510,310  
Accumulated amortization     (267,913 )     (216,882 )
Patent, net of accumulated amortization     242,397       293,428  
                 
Total intangibles, net of accumulated amortization   $ 242,397     $ 293,428  
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9. STOCKHOLDERS EQUITY (Tables)
12 Months Ended
Dec. 31, 2014
Stockholders Equity Tables
A Summary Of The Status Of The Warrants Granted

For the Year Ended December 31, 2013  
    Shares     Weighted Average Exercise Price  
Outstanding at beginning of period     12,099,968     $ 0.65  
Granted     6,990,544       0.15  
Exercised     (1,539,769 )     1.38  
Forfeited     (750,000 )     0.09  
Expired     (1,130,600 )     0.83  
Outstanding at end of period     15,670,143     $ 0.37  

 

For the Year Ended December 31, 2014  
    Shares     Weighted Average Exercise Price  
Outstanding at beginning of period     15,670,143     $ 0.37  
Granted     -       -  
Exercised     -       -  
Forfeited     -       -  
Expired     (4,733,299 )     0.68  
Outstanding at end of period     10,936,844     $ 0.23  
Schedule of warrants by warrant price range

 

      As of December 31, 2014     As of December 31, 2014  
      Warrants Outstanding     Warrants Exercisable  
Range of Exercise Prices     Number Outstanding     Weighted-Average Remaining Contract Life     Weighted- Average Exercise Price     Number Exercisable     Weighted-Average Exercise Price  
$ 0.06       4,500,000       3.8     $ 0.06       4,500,000     $ 0.06  
  0.08       550,000       3.2       0.08       550,000       0.08  
  0.09       625,000       3.3       0.09       625,000       0.09  
  0.15       1,571,300       2.6       0.15       1,571,300       0.15  
  0.25       120,000       0.8       0.25       120,000       0.25  
  0.40       3,000,000       0.6       0.40       300,000       0.40  
  0.44       1,515,544       1.6       0.44       1,515,544       0.44  
  0.50       370,000       1.3       0.50       370,000       0.50  
  0.60       975,000       1.7       0.60       975,000       0.60  
  0.75       120,000       0.8       0.75       120,000       0.75  
  1.00       290,000       1.4       1.00       290,000       1.00  
$ 0.06-1.00       10,936,844       2.8     $ 0.23       10,936,844     $ 0.23  

 

      As of December 31, 2013     As of December 31, 2013  
      Warrants Outstanding     Warrants Exercisable  
Range of Exercise Prices     Number Outstanding     Weighted-Average Remaining Contract Life     Weighted- Average Exercise Price     Number Exercisable     Weighted-Average Exercise Price  
$ 0.06       4,500,000       4.8     $ 0.06       4,500,000     $ 0.06  
  0.08       550,000       4.2       0.08       550,000       0.08  
  0.09       625,000       4.3       0.09       625,000       0.09  
  0.15       1,571,300       3.6       0.15       1,571,300       0.15  
  0.25       120,000       1.8       0.25       120,000       0.25  
  0.40       1,299,999       0.7       0.40       300,000       0.40  
  0.44       1,515,544       2.6       0.44       1,515,544       0.44  
  0.50       2,236,650       0.5       0.50       370,000       0.50  
  0.60       975,000       2.7       0.60       975,000       0.60  
  0.75       120,000       1.8       0.75       120,000       0.75  
  1.00       2,156,650       0.5       1.00       290,000       1.00  
$ 0.06-1.00       15,670,143       2.7     $ 0.37       10,936,844     $ 0.37  
Schedule of option activity

 

For the Year Ended December 31, 2013  
    Options     Weighted Average Exercise Price  
Outstanding at beginning of period     5,043,500     $ 0.15  
Granted     -       -  
Exercised     -       -  
Forfeited     (1,100,000 )     0.15  
Expired     -       -  
Outstanding at end of period     3,943,500     $ 0.15  

  

For the Year Ended December 31, 2014  
    Options     Weighted Average Exercise Price  
Outstanding at beginning of period     3,943,500     $ 0.15  
Granted     -       -  
Exercised     -       -  
Forfeited     -       -  
Expired     -       -  
Outstanding at end of period     3,943,500     $ 0.15  
Schedule of options by option price range

 

      As of December 31, 2014     As of December 31, 2014  
      Stock Options Outstanding     Stock Options Exercisable  
Exercise Price     Number Outstanding     Weighted-Average Remaining Contract Life     Weighted- Average Exercise Price     Number Exercisable     Weighted-Average Exercise Price  
$ 0.15       3,943,500       2.63       0.15       3,943,500     $ 0.15  
                                             

 

      As of December 31, 2013     As of December 31, 2013  
      Stock Options Outstanding     Stock Options Exercisable  
Exercise Price     Number Outstanding     Weighted-Average Remaining Contract Life     Weighted- Average Exercise Price     Number Exercisable     Weighted-Average Exercise Price  
$ 0.15       3,943,500       3.62       0.15       3,826,833     $ 0.15  
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10. DERIVATIVE LIABILITIES (Tables)
12 Months Ended
Dec. 31, 2014
Derivative Liabilities Tables
Fair value of the derivative warrant liabilities by using the Black-Scholes Option Pricing Model
Year   2013   2014
Dividend yield:   0%   0%
Expected volatility   106.09%  to 196.26%   103.35%  to 155.36%
Risk free interest rate   .07% to 1.75%   .13% to 1.07%
Expected life (years)   0.16 to 5.00   0.82 to 2.57
Changes in fair value of derivative liabilities
Balance, December 31, 2012   $ (1,336,574 )
  Fair value of warrant derivatives on date of grant     (812,705 )
  Convertible debt derivatives recognized as derivative loss     (151,336 )
  Convertible debt derivatives recognized as debt discount     (617,399 )
  Resolution of warrant derivatives upon exercises     48,630  
  Resolution of convertible debt derivatives upon conversions     1,311,702  
  Gain on change in fair value of derivative liabilities     516,832  
Balance, December 31, 2013     (1,040,850 )
  Convertible debt derivatives recognized as derivative loss     (22,500 )
  Convertible debt derivatives recognized as debt discount     (90,000 )
  Resolution of convertible debt derivatives upon conversions     132,417  
  Resolution of convertible debt derivatives upon debt payoff     59,311  
  Resolution of warrant derivatives no longer qualifying as derivative liabilities     918,580  
  Gain on change in fair value of derivative liabilities     41,334  
Balance, December 31, 2013   $ (1,708 )
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11. INCOME TAXES (Tables)
12 Months Ended
Dec. 31, 2014
Income Taxes Tables
Schedule of deferred tax assets
    2014     2013  
34% of net operating loss carry forwards   $ 10,968,027     $ 9,948,987  
Valuation allowance     (10,968,027 )     (9,948,987 )
Net non-current deferred tax asset     -       -  
Schedule of federal statutory rate
    2014     2013  
Expected federal income tax benefit   $ 774,580     $ 1,410,350  
Change in valuation allowance     (1,019,040 )     (734,830 )
Goodwill amortization     142,386       -  
Derivative gain     26,569       124,269  
Amortization of beneficial conversion discount     (47,008 )     (290,411 )
Other     300,706       198,464  
Stock-based compensation     (178,193 )     (707,842 )
Income tax expense (benefit)   $ -     $ -  
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6. Disclosure - 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) (USD $)
Dec. 31, 2014
Dec. 31, 2013
Dec. 31, 2012
Derivative Liability $ 1,708 $ 1,040,850
Level 1
Derivative Liability 0 0
Level 2
Derivative Liability 0 0
Level 3
Derivative Liability $ 1,708 $ 1,040,850
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5. NOTES PAYABLE (Details) (USD $)
12 Months Ended
Dec. 31, 2013
Dec. 31, 2014
Notes payable related party $ 115,620 $ 0
Accrued interest related party 29,255
Araldo A. Cossutta
Nature of relationship Mr. Cossutta was a member of the Board of Directors from 1994 until his term ended on September 3, 2014.
Terms of the agreement See “Third Quarter Secured Promissory Notes” As of March 31, 2015 $75,000 of this note remains due.
Notes payable related party 75,000
Accrued interest related party 18,512
MAH Holding, LLC
Nature of relationship MAH Holding, LLC provided previous lines of credit to affiliates of WMT.
Terms of the agreement Unsecured note with interest accrued at 10% per annum, due on demand.
Notes payable related party 40,620
Accrued interest related party $ 10,743
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5. NOTES PAYABLE (Details 1) (USD $)
Dec. 31, 2014
Dec. 31, 2013
Principal Amount $ 1,592,920 $ 1,635,800
Discount 0 (50,837)
Principal Net of Discount 1,592,920 1,584,963
Accrued Interest 181,431 107,582
March 2011 Note Payable
Principal Amount 223,500 223,500
Discount 0 0
Principal Net of Discount 223,500 223,500
Accrued Interest 88,456 58,998
MAH Holding, LLC
Principal Amount 40,620
Discount 0
Principal Net of Discount 40,620
Accrued Interest 14,861
Third Quarter 2012 Secured Subordinated Promissory Notes
Principal Amount 110,000 35,000
Discount 0 0
Principal Net of Discount 110,000 35,000
Accrued Interest 47,483 9,013
September 28, 2012 Promissory Note
Principal Amount 11,300 31,300
Discount 0 0
Principal Net of Discount 11,300 31,300
Accrued Interest 10,379 8,763
BMI Convertible Note #1
Principal Amount 1,000,000 1,000,000
Discount 0 0
Principal Net of Discount 1,000,000 1,000,000
Accrued Interest 16,877 18,192
Quest Capital Investors, LLC
Principal Amount 7,500 11,100
Discount 0 0
Principal Net of Discount 7,500 11,100
Accrued Interest 0 0
BMI Convertible Note #2
Principal Amount 200,000 200,000
Discount 0 (21,431)
Principal Net of Discount 200,000 178,569
Accrued Interest 3,375 2,652
Second Quarter 2012 Convertible Notes
Principal Amount 5,000
Discount 0
Principal Net of Discount 5,000
Accrued Interest 4,340
May 30, 2012 Convertible Note
Principal Amount 39,900
Discount (29,406)
Principal Net of Discount 10,494
Accrued Interest 1,995
July 16, 2013 Convertible Notes
Principal Amount 90,000
Discount 0
Principal Net of Discount 90,000
Accrued Interest $ 3,629
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6. INTANGIBLE ASSETS (Details) (USD $)
Dec. 31, 2014
Dec. 31, 2013
Intangible Assets Details
Patent $ 510,310 $ 510,310
Accumulated amortization (267,913) (216,882)
Patent, net of accumulated amortization 242,397 293,428
Total intangibles, net of accumulated amortization $ 242,397 $ 293,428
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9. STOCKHOLDERS' EQUITY (Details) (Warrants, USD $)
12 Months Ended
Dec. 31, 2014
Dec. 31, 2013
Warrants
Number of Warrants
Outstanding beginning balance, Shares 15,670,143 12,099,968
Granted 0 6,990,544
Exercised 0 (1,539,769)
Forfeited 0 (750,000)
Expired (4,733,299) (1,130,600)
Outstanding ending balance 10,936,844 15,670,143
Weighted average exercise price
Outstanding beginning balance, Weighted average exercise price $ 0.37 $ 0.65
Granted, Weighted average exercise price $ 0 $ 0.15
Exercised, Weighted average exercise price $ 0 $ 1.38
Forfeited, Weighted average exercise price $ 0 $ 0.09
Expired, Weighted average exercise price $ 0.68 $ 0.83
Outstanding ending balance, Weighted average exercise price $ 0.23 $ 0.37
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9. STOCKHOLDERS' EQUITY (Details 1) (USD $)
12 Months Ended
Dec. 31, 2014
Dec. 31, 2013
0.06
Outstanding ending balance 4,500,000 4,500,000
Weighted Average Remaining Contract Life 3 years 9 months 18 days 4 years 9 months 18 days
Outstanding ending balance, Weighted average exercise price $ 0.06 $ 0.06
Number Exercisable 4,500,000 4,500,000
Exercisable Weighted Average Exercise Price $ 0.06 $ 0.06
0.08
Outstanding ending balance 550,000 550,000
Weighted Average Remaining Contract Life 3 years 2 months 12 days 4 years 2 months 12 days
Outstanding ending balance, Weighted average exercise price $ 0.08 $ 0.08
Number Exercisable 550,000 550,000
Exercisable Weighted Average Exercise Price $ 0.08 $ 0.08
0.09
Outstanding ending balance 625,000 625,000
Weighted Average Remaining Contract Life 3 years 3 months 18 days 4 years 3 months 18 days
Outstanding ending balance, Weighted average exercise price $ 0.09 $ 0.09
Number Exercisable 625,000 625,000
Exercisable Weighted Average Exercise Price $ 0.09 $ 0.09
0.15
Outstanding ending balance 1,571,300 1,571,300
Weighted Average Remaining Contract Life 2 years 7 months 6 days 3 years 7 months 6 days
Outstanding ending balance, Weighted average exercise price $ 0.15 $ 0.15
Number Exercisable 1,571,300 1,571,300
Exercisable Weighted Average Exercise Price $ 0.15 $ 0.15
0.25
Outstanding ending balance 120,000 120,000
Weighted Average Remaining Contract Life 9 months 18 days 1 year 9 months 18 days
Outstanding ending balance, Weighted average exercise price $ 0.25 $ 0.25
Number Exercisable 120,000 120,000
Exercisable Weighted Average Exercise Price $ 0.25 $ 0.25
0.40
Outstanding ending balance 3,000,000 1,299,999
Weighted Average Remaining Contract Life 7 months 6 days 8 months 12 days
Outstanding ending balance, Weighted average exercise price $ 0.4 $ 0.4
Number Exercisable 3,000,000 300,000
Exercisable Weighted Average Exercise Price $ 0.4 $ 0.4
0.44
Outstanding ending balance 1,515,544 1,515,544
Weighted Average Remaining Contract Life 1 year 7 months 6 days 2 years 7 months 6 days
Outstanding ending balance, Weighted average exercise price $ 0.44 $ 0.44
Number Exercisable 1,515,544 1,515,544
Exercisable Weighted Average Exercise Price $ 0.44 $ 0.44
0.50
Outstanding ending balance 370,000 2,236,650
Weighted Average Remaining Contract Life 1 year 3 months 18 days 6 months
Outstanding ending balance, Weighted average exercise price $ 0.5 $ 0.5
Number Exercisable 370,000 370,000
Exercisable Weighted Average Exercise Price $ 0.5 $ 0.5
0.60
Outstanding ending balance 975,000 975,000
Weighted Average Remaining Contract Life 1 year 8 months 12 days 2 years 8 months 12 days
Outstanding ending balance, Weighted average exercise price $ 0.6 $ 0.6
Number Exercisable 975,000 975,000
Exercisable Weighted Average Exercise Price $ 0.6 $ 0.6
0.75
Outstanding ending balance 120,000 120,000
Weighted Average Remaining Contract Life 9 months 18 days 1 year 9 months 18 days
Outstanding ending balance, Weighted average exercise price $ 0.75 $ 0.75
Number Exercisable 120,000 120,000
Exercisable Weighted Average Exercise Price $ 0.75 $ 0.75
1.00
Outstanding ending balance 290,000 2,156,650
Weighted Average Remaining Contract Life 1 year 4 months 24 days 6 months
Outstanding ending balance, Weighted average exercise price $ 1 $ 1
Number Exercisable 290,000 290,000
Exercisable Weighted Average Exercise Price $ 1 $ 1
0.06-1.00
Outstanding ending balance 10,936,844 15,670,143
Weighted Average Remaining Contract Life 2 years 9 months 18 days 2 years 8 months 12 days
Outstanding ending balance, Weighted average exercise price $ 0.23 $ 0.37
Number Exercisable 10,936,844 10,936,844
Exercisable Weighted Average Exercise Price $ 0.23 $ 0.37
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9. STOCKHOLDERS' EQUITY (Details 2) (Stock Options, USD $)
12 Months Ended
Dec. 31, 2014
Dec. 31, 2013
Stock Options
Outstanding beginning balance, Shares 3,943,500 5,043,500
Number of Options Granted 0 0
Number of Options Exercised 0 0
Number of Options Forfeited 0 (1,100,000)
Number of Options Expired 0 0
Outstanding ending balance 3,943,500 3,943,500
Outstanding beginning balance, Weighted average exercise price $ 0.15 $ 0.15
Weighted Average Exercise Price Granted      
Weighted Average Exercise Price Exercised      
Weighted Average Exercise Price Forfeited    $ 0.15
Weighted Average Exercise Price Expired      
Outstanding ending balance, Weighted average exercise price $ 0.15 $ 0.15
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9. STOCKHOLDERS' EQUITY (Details 3) (Stock Options, USD $)
12 Months Ended
Dec. 31, 2014
Dec. 31, 2013
Dec. 31, 2012
Stock Options
Outstanding ending balance, Weighted average exercise price $ 0.15 $ 0.15 $ 0.15
Outstanding ending balance 3,943,500 3,943,500 5,043,500
Weighted-Average Remaining Contract Life 2 years 7 months 17 days 3 years 7 months 13 days
Number Exercisable 3,943,500 3,826,833
Stock Options Exercisable Weighted-Average Exercise Price $ 0.15 $ 0.15
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10. DERIVATIVE LIABILITIES (Details)
12 Months Ended
Dec. 31, 2014
Dec. 31, 2013
Equity [Abstract]
Expected dividend yield 0.00% 0.00%
Expected volatility, min 106.09% 103.35%
Expected volatility, max 196.26% 155.36%
Risk-free interest rate, min 0.07% 0.13%
Risk-free interest rate, max 1.75% 1.07%
Expected option life in years, min 1 month 28 days 9 months 25 days
Expected option life in years, max 5 years 2 years 6 months 25 days
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10. DERIVATIVE LIABILITIES (Details 1) (USD $)
12 Months Ended
Dec. 31, 2014
Dec. 31, 2013
Derivative Liabilities Details 1
Beginning Balance $ (1,040,850) $ (1,336,574)
Fair value of warrant derivatives on date of grant (812,705)
Convertible debt derivatives recognized as derivative loss (22,500) (151,336)
Convertible debt derivatives recognized as debt discount (90,000) (617,399)
Resolution of warrant derivatives upon exercises 48,630
Resolution of convertible debt derivatives upon conversions 132,417 1,311,702
Resolution of convertible debt derivatives upon debt payoff 59,311
Resolution of warrant derivatives no longer qualifying as derivative liabilities 918,580
Gain on change in fair value of derivative liabilities 41,334 516,832
Ending Balance $ (1,708) $ (1,040,850)
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11. INCOME TAXES (Details) (USD $)
Dec. 31, 2014
Dec. 31, 2013
Non-current deferred tax asset:
34% of net operating loss carry forwards $ 10,968,027 $ 9,948,987
Valuation allowance non current (10,968,027) (9,948,987)
Net non-current deferred tax asset $ 0 $ 0
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11. INCOME TAXES (Details 1) (USD $)
12 Months Ended
Dec. 31, 2014
Dec. 31, 2013
Income Taxes Details 1
Expected federal income tax benefit $ 774,580 $ 1,410,350
Change in valuation allowance (1,019,040) (734,830)
Goodwill amortization 142,386 0
Derivative gain 26,569 124,269
Amortization of beneficial conversion discount (47,008) (290,411)
Other 300,706 198,464
Stock-based compensation (178,193) (707,842)
Income tax expense (benefit) $ 0 $ 0
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11. INCOME TAXES (Details Narrative) (USD $)
Dec. 31, 2013
Income Taxes Details Narrative
Net operating loss carryforward $ 32,300,000
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