• Filing Date: 2013-04-12
  • Form Type: 10-K
  • Description: Annual report
v2.4.0.6
Document and Entity Information (USD $)
12 Months Ended
Dec. 31, 2012
Mar. 31, 2013
Document and Entity Information    
Entity Registrant Name WOUND MANAGEMENT TECHNOLOGIES, INC.  
Document Type 10-K  
Document Period End Date Dec. 31, 2012  
Amendment Flag false  
Entity Central Index Key 0000714256  
Current Fiscal Year End Date --12-31  
Entity Common Stock, Shares Outstanding   72,484,764
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 2012  
Document Fiscal Period Focus FY  
Entity Public Float $ 0  
v2.4.0.6
CONSOLIDATED BALANCE SHEETS (USD $)
Dec. 31, 2012
Dec. 31, 2011
CURRENT ASSETS:    
Cash $ 45,861 $ 3,608
Accounts Receivable, net 203,967 63,738
Inventory, net 454,211 271,203
Employee Advances 11,832 27,140
Notes Receivable - Related Parties 0 959,449
Accrued Interest - Related Parties 0 122,090
Deferred Loan Costs 7,400 41,742
Deferred Compensation 309,450 0
Prepaid and Other Assets 11,306 100,214
Total Current Assets 1,044,027 1,589,184
LONG-TERM ASSETS:    
Property and Equipment, net 0 0
Intangible Assets, net 344,459 432,675
Deferred Loan Costs, 5,126 26,090
Other Assets 0 27,137
Note Receivable. 0 1,750,000
Accrued Interest. 0 7,431
Total Long-Term Assets 349,585 2,243,333
TOTAL ASSETS 1,393,612 3,832,517
CURRENT LIABILITIES:    
Accounts Payable 205,206 4,804
Accrued Royalties 803,238 428,238
Accrued Liabilities 263,165 411,686
Accrued Interest - Related Parties. 34,054 2,137
Accrued Interest.. 132,018 60,261
Derivative Liabilities 1,336,574 5,417,525
Notes Payable - Related Parties 415,620 500,000
Notes Payable, net of discount 1,814,287 58,189
Stock Subscription Payable 6,000 0
Total Current Liabilities 5,010,162 6,882,840
LONG-TERM LIABILITIES    
Notes Payable, net of discount. 0 275,041
Debentures, net of discount 189,256 534,651
Total Long-Term Liabilities 189,256 809,692
TOTAL LIABILITIES 5,199,418 7,692,532
STOCKHOLDERS' EQUITY (DEFICIT)    
Series A Preferred Stock, $10 par value, 5,000,000 shares authorized; 0 issued and outstanding 0 0
Series B Preferred Stock, $10 par value, 75,000 shares authorized; 0 issued and outstanding 0 0
Common Stock: $.001 par value; 100,000,000 shares authorized; 68,782,470 issued and 68,778,381 outstanding as of December 31, 2012 and 58,754,110 issued and 58,750,021 outstanding as of December 31, 2011 68,782 58,754
Additional Paid-in Capital 35,154,736 33,265,232
Treasury Stock (12,039) (12,039)
Accumulated Deficit (39,017,285) (37,171,962)
Total Stockholders' Equity (Deficit) (3,805,806) (3,860,015)
TOTAL LIABILITIES AND STOCKHOLDERS'EQUITY $ 1,393,612 $ 3,832,517
v2.4.0.6
CONSOLIDATED BALANCE SHEETS PARENTHETICALS (USD $)
Dec. 31, 2012
Dec. 31, 2011
Parentheticals    
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 7,500 7,500
Series B Preferred Stock shares issued 0 0
Series B Preferred Stock shares outstanding 0 0
Common Stock, par value $ 0.001 $ 0.001
Common Stock, shares authorized 100,000,000 100,000,000
Common Stock, shares issued 68,782,470 58,754,110
Common Stock, shares outstanding 68,778,381 58,750,021
v2.4.0.6
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (USD $)
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
REVENUES $ 1,173,544 $ 2,209,685
COST OF GOODS SOLD 798,532 799,626
GROSS PROFIT 375,012 1,410,059
GENERAL AND ADMINISTRATIVE EXPENSES:    
General and Administrative Expenses 2,757,725 2,232,617
Depreciation / Amortization 61,172 470,619
Bad Debt Expense 2,416,272 513,321
Non-Cash Compensation 531,284 0
Impairment of intangible assets, 27,044 3,208,372
INCOME (LOSS) FROM CONTINUING OPERATIONS: (5,418,485) (5,014,870)
OTHER INCOME (EXPENSES):    
Gain (Loss) on Debt Settlement 97,084 (1,128,914)
Gain (Loss) from Joint Venture (27,137) 27,137
Change in fair value of Derivative Liability 4,651,061 (96,490)
Interest Income 166,538 277,770
Interest Expense (286,620) (262,340)
Debt related Expense (1,027,764) (6,543,109)
LOSS BEFORE INCOME TAXES (1,845,323) (12,740,816)
Current tax expense 0 0
Deferred tax expense 0 0
NET LOSS $ (1,845,323) $ (12,740,816)
Basic and diluted loss per share of common stock $ (0.03) $ (0.23)
Weighted average number of common shares outstanding 62,838,381 54,702,212
v2.4.0.6
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) (USD $)
Preferred Stock shares
Preferred Stock Amount
USD ($)
Common Stock shares
Common stock amount
USD ($)
Additional paid in capital
USD ($)
Treasury Stock shares
Treasury Stock Amount
USD ($)
stock Subscription receivable
USD ($)
(Accumulated Deficit)
USD ($)
Total Stockholders' Equity
USD ($)
Balance at Dec. 31, 2010 0 0 41,316,930 41,317 25,251,751 (4,089) (12,039) (292,074) (24,431,146) 557,809
Issuance of Common stock for: Debt   0 11,137,551 11,138 3,206,911   0 0 0 3,218,049
Issuance of Common stock for: Debt Related Costs   0 2,078,043 2,078 3,262,417   0 0 0 3,264,495
Issuance of Common stock for: Services   0 280,000 280 161,320   0 0 0 161,600
Issuance of Common stock for: Subscription Agreements   0 3,777,300 3,777 955,923   0 0 0 959,700
Issuance of Common stock for: Advertising   0 164,286 164 100,050   0 0 0 100,214
Payment of Stock Subscription Receivable:   $ 0   $ 0 $ 0   $ 0 $ 292,074 $ 0 $ 292,074
Capital contribution from related party on sale of Secure eHealth.   0   0 326,860   0 0 0 326,860
Net Loss,   0   0 0   0 0 (12,740,816) (12,740,816)
Balance at Dec. 31, 2011   0 58,754,110 58,754 33,265,232 (4,089) (12,039) 0 (37,171,962) (3,860,015)
Issuance of Common stock for: Debt..   0 7,420,733 7,420 1,680,306   0 0 0 1,687,726
Issuance of Common stock for: Interest and Extensions..   0 311,913 312 55,760   0 0 0 56,072
Issuance of Common stock for: Services..   0 500,000 500 72,000   0 0 0 72,500
Issuance of Common stock for: Subscription Agreements..   0 1,500,000 1,500 98,500   0 0 0 100,000
Issuance of Common stock for: Warrants Exercised..   0 160,000 160 38,288   0 0 0 38,448
Issuance of Common stock for: Advertising..   0 300,000 300 44,700   0 0 0 45,000
Return of Stock for Advertising Services Not Provided..   0 (164,286) (164) (100,050)   0 0 0 (100,214)
Net Loss..   $ 0   $ 0 $ 0   $ 0 $ 0 $ (1,845,323) $ (1,845,323)
Balance at Dec. 31, 2012 0 0 68,782,470 68,782 35,154,736 (4,089) (12,039) 0 (39,017,285) (3,805,806)
v2.4.0.6
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Cash flows from operating activities:    
Net loss from continuing operations $ (1,845,323) $ (12,740,816)
Adjustments to reconcile net loss to net cash provided (used) in Operating activities:    
Depreciation and amortization. 61,172 470,619
Amortization of discounts and deferred costs 354,398 313,082
Impairment of intangible assets, 27,044 3,208,372
Stock issued as payment for services, 114,500 161,600
Warrants issued as payment for services, 29,400 0
Warrants Issued as Compensation, 531,284 0
Warrant Expense, 406,953 2,164,302
Non-cash debt related costs, 180,666 727,522
Stock Issued as payment of expenses, 0 388,080
Re-acquisition of distributorship 907,872 0
(Gain) loss on fair market value of derivative liabilities (4,651,061) 96,490
Increase (decrease) in allowance for uncollectible notes receivable 1,993,233 0
Stock issued for debt related costs 45,748 3,338,200
Gain on Joint Venture 27,137 (27,137)
Loss on debt settlement (97,084) 1,128,914
Prepayment Expense. (56,145) 0
Non-cash expenses 9,210 224,318
Changes in assets and liabilities:    
(Increase) decrease in accounts receivable, net 83,271 382,482
(Increase) decrease in inventory (160,880) 125,981
(Increase) decrease in employee advances 15,308 (27,140)
(Increase) decrease in accrued interest receivable - related parties (28,239) (134,409)
(Increase) decrease in accrued interest receivable (138,299) (143,360)
(Increase) decrease in prepaids and other assets (11,306) 0
Increase (decrease) in allowance for uncollectible interest 170,899 261,179
Increase (decrease) in accrued royalties 375,000 0
Increase (decrease) in accounts payable 200,401 (309,848)
Increase (decrease) in accrued liabilities (26,299) (46,532)
Increase (decrease) in accrued interest payable - related parties 31,918 36,217
Increase (decrease) in accrued interest payable 223,041 58,283
Net cash flows provided (used) in operating activities (1,226,181) (343,601)
Cash flows from investing activities:    
Purchase of notes receivable - related parties 0 (7,318,509)
Proceeds from notes receivable - related parties 371,839 5,982,272
Net cash flows used in investing activities 371,839 (1,336,237)
Cash flows from financing activities:    
Proceeds from notes payable - related parties 511,700 1,331,363
Payments on notes payable - related parties (547,700) (1,617,851)
Proceeds from notes payable 1,599,000 3,240,500
Payments on notes payable (1,129,153) (2,500,500)
Proceeds from debentures 347,500 0
Proceeds from sale of stock 100,000 959,700
Proceeds from exercise of warrants 15,248 0
Proceeds from stock subscriptions receivable 0 219,399
Net cash flows provided by financing activities 896,595 1,632,611
Increase (decrease) in cash 42,253 (47,227)
Cash and cash equivalents, beginning of period 3,608 50,835
Cash and cash equivalents, end of period 45,861 3,608
Cash paid during the period for:    
Interest. 31,661 167,839
Income Taxes. 0 0
Supplemental non-cash investing and financing activities:    
Common stock issued for debt conversion. 348,027 3,218,049
Common stock issued for debentures. 1,332,279 0
Common stock issued for services. 72,000 161,600
Common stock issued for debt related costs. 55,760 3,264,495
Capital contribution from related party on sale of Secure eHealth. 0 326,860
Subscriptions receivable offset with note payable $ 0 $ 72,675
v2.4.0.6
NATURE OF OPERATIONS
12 Months Ended
Dec. 31, 2012
NATURE OF OPERATIONS  
Nature of Operations

NOTE 1 – 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.

v2.4.0.6
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
12 Months Ended
Dec. 31, 2012
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 2 -- 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.  Certain prior year amounts have been reclassified to conform to current year presentation.

 

Principles of Consolidation

 

The accompanying consolidated financial statements include the accounts of WMT and its wholly-owned subsidiaries:  Wound Care Innovations, LLC (“WCI”), a Nevada limited liability company, Resorbable Orthopedics Products, LLC (“Resorbable”), a Texas limited liability company; BioPharma Management Technologies, Inc. (“BioPharma”), a Texas corporation; and Secure eHealth, LLC, a Nevada limited liability company (“eHealth”).  eHealth was purchased on February 1, 2010 (see Note 4 “Asset and Business Acquisitions”) and sold on December 29, 2011 (see Note 5 “Asset and Business Dispositions”).  The accounts of eHealth are included for the period it was under the control of the Company.  All intercompa ny 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.

 

 

Recently Enacted Accounting Standards

 

In June 2009 the FASB established the Accounting Standards Codification (“Codification” or “ASC”) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in accordance with generally accepted accounting principles in the United States (“GAAP”).  Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) issued under authority of federal securities laws are also sources of GAAP for SEC registrants.  Amendments to the codification are made by issuing “Accounting Standards Updates.” The Company has incorporated the current codification in preparing its Form 10-K including additional guidance issued in May of 2011 regarding fair value measurements and disclosure requirements particularly as it relates to Level 3 fair value measurements. There were various other accounting standards and interpretations issued during 2012 and 2011, none of which are expected to have a material impact on the Company’s financial position, operations or cash flows.



 

Revenue Recognition

 

The Company recognizes revenue in accordance with the guidance in “ASC” Topic No. 605-45, “Revenue Recognition.”  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.

 

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 allowance for doubtful accounts at December 31, 2012 was $234,727 and the amount at December 31, 2011 was zero.

 

Allowance for Doubtful Interest Receivable

 

The Company establishes an allowance for doubtful interest receivable to ensure accrued interest receivable is not overstated due to uncollectibility.  The allowance for doubtful interest receivable at December 31, 2012 was $548,048 and the amount at December 31, 2011 was $413,048. The allowance for doubtful related party interest receivable at December 31, 2012 was $35,899 and the amount at December 31, 2011 was zero.

 

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 allowance for obsolete and slow moving inventory had a balance of $82,410 and $6,764 at December 31, 2012 and December 31, 2011, respectively.

 

Property and Equipment

 

In 2012 furniture and fixtures, computer equipment and a phone system with a combined cost of $69,425 were written off as obsolete.  The assets had been fully depreciated as of December 31, 2011 and no gain or loss was recorded on the asset disposition.  As of December 31, 2012, fixed assets consist of $16,430 invested in the Company websites.  This asset has been fully depreciated as of December 31, 2012.

 

Intangible 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.

 

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, 2012, the Company’s financial instruments consist of the derivative liabilities related to stock purchase warrants and the beneficial conversion features of certain outstanding debentures and notes payable.  The derivative liability on stock purchase warrants was valued using the American Options Binomial Method, a Level 3 input.  The fair value of the beneficial conversion features is calculated in accordance with ASC Topic No. 470-20-25-4. The change in fair value of the derivative liabilities is classified in other income (expense) in the statement of operations.

 

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 9 “Intangible Assets.”

 

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 inte rest 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.

v2.4.0.6
GOING CONCERN
12 Months Ended
Dec. 31, 2012
GOING CONCERN  
GOING CONCERN

NOTE 3 - 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.

 

v2.4.0.6
ASSET AND BUSINESS ACQUISITIONS
12 Months Ended
Dec. 31, 2012
ASSET AND BUSINESS ACQUISITIONS  
ASSET AND BUSINESS ACQUISITIONS

NOTE 4 - ASSET AND BUSINESS ACQUISITIONS

 

On February 1, 2010, the Company entered into a purchase agreement with VHGI Holdings, Inc., formerly VirtualHealth Technologies, Inc., a Delaware corporation (“VHGI”), and VPS Holdings, LLC, a Kentucky limited liability company and subsidiary of VHGI (“VPS”).    The total purchase price of $500,000, which consisted of $100,000 in cash and a promissory note in the principal amount of $400,000 (the “WMT Note”), was paid for certain assets and liabilities.  Amounts recorded by the Company as a result of this transaction were the following:

 

a) An asset was recorded for the $1,500,000 Senior Secured Convertible Promissory Note Receivable issued by Private Access, Inc. (the “Private Access Note”).  This receivable was reflected in the December 31, 2010 balance sheet as a long term asset and was combined with the applicable accrued interest.

b) A liability was recorded for the note payable obligation of $1,000,000, which included accrued interest, incurred by VHGI in conjunction with the Private Access Note transaction.  Subsequent to the purchase date, the Company negotiated payment of a portion of this debt with stock and the remaining balance owed as of December 31, 2010 was $178,443.  This balance was paid in the first quarter of 2011.

 

No value was assigned to the other assets included in the transaction, which were fully amortized intangibles, and no value was included in the purchase price paid.  These intangibles include intellectual property related to the “Veriscrip” prescription drug monitoring technology and the System Tray Notifier license owned by eHealth.  WMT also purchased VHGI’s 100% membership interest in eHealth.

 

At the time of the transaction Scott A. Haire also served as the Chief Executive Officer, Chief Financial Officer, and a director of VHGI.  Based on shares outstanding as of the Annual Report on Form 10-K filed by VHGI for the year ended December 31, 2011, Mr. Haire beneficially owned, individually and through H.E.B., LLC, a Nevada limited liability company (“HEB”) of which Mr. Haire is the managing member, 25% of the outstanding common stock of VHGI.

 

v2.4.0.6
ASSET AND BUSINESS DISPOSITIONS
12 Months Ended
Dec. 31, 2012
ASSET AND BUSINESS DISPOSITIONS  
ASSET AND BUSINESS DISPOSITIONS
NOTE 5 – ASSET AND BUSINESS DISPOSITIONS


On December 29, 2011, the Company entered into a membership interest purchase agreement with HEB, LLC and Commercial Holding AG, LLC.  The agreement transferred WMT’s 100% membership interest in Secure eHealth in exchange for cancelation of $312,025 of principal and $14,835 of accrued but unpaid interest on two promissory notes owed by WMT to the entities.  The two entities had previously financed the acquisition of eHealth by the Company in early 2010.  In addition, as a condition of such transaction, three holders of promissory notes of Wound Management aggregating $300,000 in principal amount, agreed to the assignment of such promissory notes to Secure eHealth.


At the time of the transaction, Scott A. Haire served as the Chief Executive Officer, President, and Chairman of the Company, and also served as the managing member of HEB.


v2.4.0.6
OTHER SIGNIFICANT TRANSACTIONS
12 Months Ended
Dec. 31, 2012
OTHER SIGNIFICANT TRANSACTIONS  
OTHER SIGNIFICANT TRANSACTIONS

NOTE 6 – OTHER SIGNIFICANT TRANSACTIONS

 

Distribution Agreement

 

As disclosed in our Form 8-K filing on April 14, 2011, Juventas, LLC (“Juventas”) purchased the exclusive right to sell the CellerateRX powder products in North America. This multi-year agreement had escalating sales requirements for Juventas to retain such exclusive rights.  We received an ‘upfront’ non-refundable payment of $500,000 from Juventas for this exclusive right to distribute CellerateRX powder, which was recorded as revenue in the first quarter of 2011.

 

The Distribution Agreement was subsequently amended on November 23, 2011, at which point the Company and WCI entered into a Note Purchase Agreement pursuant to which they issued to Juventas a Convertible Secured Promissory Note in the amount of $500,000 (see Note 8 “Notes Payable”).  In connection with the Note Purchase Agreement, the Company, WCI, and certain of their affiliates entered into a security agreement with Juventas, pursuant to which the Promissory Note was secured by all inventory of the Company and WCI (together with any proceeds of such inventory). Additionally, certain affiliates of the Company entered into guaranty agreements with Juventas with respect to amounts owed under the Promissory Note (the “Guarantees” and, collectively with the Distribution Ag reement, the Promissory Note, the Security Agreement, and the Guarantees, the “Juventas Agreements”).

 

On March 20, 2012, the Company, Juventas, and certain other parties entered into a Settlement Agreement and Mutual Release (the “Settlement Agreement”), pursuant to which the Juventas Agreements were effectively terminated and all amounts owed and other claims thereunder were settled as more specifically set forth therein. As the result of the Settlement Agreement, the Company has reacquired its North American distribution rights, as well as the rights under certain sub-distribution agreements entered into by Juventas in respect of WCI’s CellerateRX Powder product.

 

In connection with the Settlement Agreement, the Company, WCI, and certain of their affiliates (collectively, the “Company Parties”) issued to Juventas a Secured Promissory Note in the principal amount of $930,000.  The Company Parties also entered into a security agreement with Juventas pursuant to which the note was secured by all inventory of the Company Parties (together with any proceeds of such inventory), and certain affiliates of the Company entered into guaranty agreements with Juventas with respect to amounts owed under the note.

 

In July 2012, the Secured Promissory Note’s principal balance of $930,000 and $20,791 of accrued interest remained due.  The Company reached agreement with Juventas that upon payment of $880,000, all remaining principal of, and accrued interest on, the Juventas secured promissory note would be forgiven. The Company made such payment in July of 2012, at which point the note was cancelled.

 

  

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 r esolving claims against the Company.  The judgment was delivered by the United States District Court for the Southern District of Florida.

 

Forbearance Agreement

 

On July 13, 2012, Tonaquint, Inc. (“Tonaquint”) filed suit against the Company and certain of its affiliates 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”). The suit alleges, among other things, a failure of the Company to make certain payments and to honor a conversion notice delivered pursuant to the Note. On August 17, 2012, Tonaquint and the Company entered into a forbearance agreement, pursuant to which Tonaquint agreed:

 

(i)  

To refrain from exercising its rights under the Note through October 16, 2012, which date can, at the Company’s option, be extended for two consecutive periods of 30-days each,

(ii)  

To convert $20,000 in principal amount owed under the Note into shares of the Company’s Common Stock, the number of such shares to be determined as set forth in the Forbearance Agreement; and

 

(iii)  

To accept as payment in full of the Note (in conjunction with the issuance of the Conversion Shares) a cash payment of $200,000 on or before October 16, 2012 (as such date may be extended at the Company’s option.)

 

On August 21, 2012, the Company issued to Tonaquint, pursuant to the forbearance agreement, 166,667 shares of Common Stock in conversion of $20,000 of note principal.  An additional 43,382 shares of Common Stock were issued on October 20, 2012, also in relation to the $20,000 conversion.  On October 8, 2012, the Company paid Tonaquint $5,000 to extend the Forbearance Period to November 15, 2012. On November 6, 2012, the Company paid $5,000 and issued 68,531 shares of common stock to extend the Forbearance Period to December 15, 2012.  Three additional payments of $5,000 each were made on December 6, 2012, January 10, 2013 and March 13, 2013 to extend the Forbearance Period to April 14, 2013.

v2.4.0.6
NOTES RECEIVABLE
12 Months Ended
Dec. 31, 2012
NOTES RECEIVABLE  
NOTES RECEIVABLE

NOTE 7 – NOTES RECEIVABLE

 

Notes Receivable – Related Party

 

The following is a summary of amounts due from related parties, including accrued interest separately recorded, as of December 31, 2012:

 

Related party

Nature of relationship

Terms of the agreement

Principal amount

Accrued Interest

 

 

 

 

 

Secure eHealth

 

Secure eHealth was a 100% owned

subsidiary of the Company until

December 2011. (see Note 5) Scott

Haire is the managing member of S

ecure eHealth.

Unsecured line of credit

1% interest, due on demand.

$    293,233

$2,232

 

 

 

 

 

Commercial Holding, AG

 

Commercial Holding AG, LLC has

provided previous lines of credit

to affiliates of WMT.

Unsecured note with interest

accrued at rate of 10% per

annum, due on demand.

     200,000

 

 

33,667

 

 

 

 

 

MAH Holding, LLC

 

MAH Holding, LLC has provided

previous lines of credit to affiliates

of WMT.

Unsecured note with interest

accrued at 10% per annum,

due on demand.

  0

0

 

 

 

 

 

 

 

Allowance for Doubtful Accounts

 

(493,233)

(35,899)

TOTAL

 

 

$0

$0

 

The following is a summary of amounts due from related parties, including accrued interest separately recorded, as of December 31, 2011:

 

Related party

Nature of relationship

Terms of the agreement

Principal amount

Accrued Interest

 

 

 

 

 

Secure

eHealth

 

Secure eHealth was a 100% owned

subsidiary of the Company until

December 2011. (see Note 5) Scott

Haire is the managing member of

Secure eHealth.

Unsecured line of credit 0%

interest, due on demand.

$    293,233

$0

 

 

 

 

 

Commercial

Holding, AG

 

Commercial Holding AG, LLC has

provided previous lines of credit

to affiliates of WMT.

Unsecured note with interest

accrued at rate of 10% per

annum, due on demand.

     500,000

 

 

8,472

 

 

 

 

 

MAH

Holding, LLC

 

MAH Holding, LLC has provided

previous lines of credit to affiliates

of WMT.

Unsecured note with interest

accrued at 10% per annum,

due on demand.

  166,216

113,618

 

TOTAL

 

 

$959,449

$122,090

 

 

Notes Receivable

 

The following is a summary of amounts due from unrelated parties, including accrued interest separately recorded, as of December 31, 2012:

 

Note Receivable

Terms of the agreement

Principal

amount

Accrued

Interest

Private Access

Convertible note receivable which

accrues interest at 9% per annum,

maturity date of July 31, 2013.

$1,500,000

$548,048

 

 

 

 

June 21, 2011 Notes Receivable

Five $50,000 5% secured notes, with

the same unrelated party received as

part of the June 21, 2011 note payable

and warrant purchase agreement (see

note 8) due 49 months from initial funding.

-

-

 

 

 

 

 

Allowance for Doubtful Accounts

(1,500,000)

(548,048)

Total

 

$0

$0

 

The Private Access Note is with an unrelated company and the loan of $1,500,000 accrues interest at 9% per annum from the day of purchase to the maturity date of July 31, 2013.  As of December 31, 2012 the Company has accrued $548,048 of interest and has established an allowance for this same amount.  According to the terms of the Assignment and Assumption Agreement between VHGI, Private Access, Inc. (“Private Access”) and the Company, VHGI assigned all rights, title and interest in the Private Access Note, including the right to serve as collateral agent for the collateral pledged as security by Private Access, to the Company.  Under the terms of the Security Agreement dated August 3, 2009, which was assigned to the Company by VHGI, the Company, along with othe r investors, holds pro rata security interests in all property of Private Access including its intellectual property.

 

The  Company received five $50,000 secured notes, with the same unrelated party as part of the June 21, 2011 note payable and warrant purchase agreement (see note 8) for a total note receivable balance of $250,000.  On April 25, 2012, the note holder elected to offset the $250,000 notes receivable and $10,729 in accrued interest receivable against the related note payable and accrued interest payable.  Following the offset, the balance of the five secured notes receivable and the related accrued interest is zero.

 

 

The following is a summary of amounts due from unrelated parties, including accrued interest separately recorded, as of December 31, 2011:

 

Note Receivable

Terms of the agreement

Principal

amount

Accrued

Interest

Private Access

Convertible note receivable which

accrues interest at 9% per annum,

maturity date of July 31, 2013.

$1,500,000

$413,048

 

 

 

 

June 21, 2011 Notes Receivable

Five $50,000 5% secured notes, with

the same unrelated party received as

part of the June 21, 2011 note payable

and warrant purchase agreement (see

note 8) due 49 months from initial funding.

250,000

7,431

 

 

 

 

Total

 

$1,750,000

$420,479

 

 

v2.4.0.6
NOTES PAYABLE
12 Months Ended
Dec. 31, 2012
NOTES PAYABLE  
NOTES PAYABLE

NOTE 8 – 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. The following is a summary of amounts due to related parties, including accrued interest separately recorded, as of December 31, 2012:

 

Related party

Nature of relationship

Terms of the agreement

Principal

amount

Accrued

Interest

Lutz, Investments LP

Mr. Lutz is the CEO of the

Company

Convertible note payable due

March 31, 2012.  The note is

convertible at $0.19 per share.  

As of March 31, 2013 the note

has not been converted and is

past due.

$200,000

$14,115

 

 

 

 

 

Dr. Philip J. Rubinfeld

Mr. Rubinfeld is a member

of the Board of Directors

See “Third Quarter Secured

Promissory Notes” As of March

31, 2013 $100,000 of this note

remains due.

100,000

7,609

 

 

 

 

 

Araldo A. Cossutta

Mr. Cossutta is a member

of the Board of Directors

See “Third Quarter Secured

Promissory Notes” As of March

31, 2013 $75,000 of this note

remains due.

75,000

5,706

 

 

 

 

 

MAH Holding, LLC

 

MAH Holding, LLC has provided

previous lines of credit to affiliates

of WMT.

Unsecured note with interest

accrued at 10% per annum,

due on demand.

40,620

6,624

Total

 

 

$415,620

$34,054

 

 

The following is a summary of amounts due to related parties, including accrued interest separately recorded, as of December 31, 2011:

 



 

Related party

Nature of relationship

Terms of the agreement

Principal

amount

Accrued

Interest

Juventas, LLC

Juventas, LLC holds the exclusive

right to sell CellerateRX products

in North America (see Note 6

“Distribution Agreement”)

Contingently convertible promissory

note with interest accrued at 4% per

annum, due March 9, 2012.

$500,000

$2,137

 

Notes Payable

 

The following is a summary of amounts due to unrelated parties, including accrued interest separately recorded, as of December 31, 2012:

 

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 9

"Legal Proceedings”)

$223,500

-

$223,500

$29,539

 

 

 

 

 

 

Purchase Order

Financing

Agreement

$50,000 note payable; (i) interest accrues at 10% per

annum; (ii) proceeds used to purchase inventory;

(iii) lender will be reimbursed $25 per gram as the

inventory is sold.  As of March 31, 2012 the lender

is due $8,775 of sales proceeds.

43,847

-

43,847

536

 

 

 

 

 

 

Third Quarter

2012 Secured

Subordinated

Promissory

Notes

Seventeen notes (including two with related parties

mentioned above) 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, 2013 fifteen of these notes remain

due, of which thirteen are with unrelated parties

in the aggregate principal amount of $610,000.

860,000

-

860,000

65,149

 

 

 

 

 

 

September 19,

2012 Promissory

Note

$20,000 note payable; (i) interest accrues at 10% per

annum; (ii) maturity date of December 31, 2012; (iii)

warrant to purchase 20,000 shares of common stock

at an exercise price of $0.15 per share to be issued

upon default.  As of December 31, 2012 this note was

not paid and the 20,000 warrants were issued to the

note holder.  As of March 31, 2013 the $20,000 balance

is past due.

20,000

-

20,000

570

 

 

 

 

 

 

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,

2013 this note is past due.

51,300

-

51,300

1,357

 

 

 

 

 

 

October 1,

2012 Promissory

Note

$75,000 note payable;  (i) interest accrues at 9% per

annum; (ii) the principal is due and payable as follows:

(a) $10,000 on October 31; and (b) $15,000 each on

November 31, 2012 December 31, 2012 and January

31, 2013 and (c) $20,000 on February 28, 2013 the

maturity date; (iii) the Company will issue to Lender

five-year warrant to purchase a total of 225,000 shares

of common Stock at a price of $0.15 per share. As of

March 31, 2013, the $15,000 payment due in January

has been paid, the due date of the final $20,000 payment

has been extended, and the balance is unpaid.

35,000

-

35,000

186

 

December 7,

2012 Promissory

Note

$75,000 note payable; (i) interest accrues at 10% per

annum; (ii) the principal is due and payable as follows:

(a) $10,000 each on January 15, 2013 and February 15,

2013; and (b) $15,000 on March 15, 2013 and (c)

$20,000 each on April 15, 2013 and May 15, 2013 the

maturity date; (iii) the Company will issue to Lender

five-year warrant to purchase a total of 350,000 shares

of common Stock at a price of $0.075 per share. As of

March 31, 2013 $35,000 in principal has been paid leaving

a balance of $40,000 due.

75,000

-

75,000

521

 

 

 

 

 

 

December 11,

2012 Promissory

Note

$50,000 note payable;  (i) interest accrues at 9% per

annum; (ii) the principal is due and payable as follows:

(a) $5,000 each on February 11, 2013 and March 11,

2013; and (b) $10,000 on April 11, 2013 and May 11, 2013

and (c) $20,000 on June 11, 2013 the maturity date; (iii)

the Company will issue to Lender five-year warrant to

purchase a total of 225,00 shares of common Stock at a

price of $0.09 per share. Additionally, the Company will

issue warrants to purchase 375,000 common shares at

$0.09 exercisable only upon an event of default. As of

March 31, 2013 $10,000 in principal has been paid leaving

a balance of $40,000 due.

50,000

-

50,000

263

 

 

 

 

 

 

June 21, 2011 Note

Convertible promissory note in the principal amount of

$560,000; (i) interest accrues at 12% per annum; (ii)

maturity date of June 21, 2015; (iii) upon closing the

Company issued to the lender 100,000 shares of

Common Stock valued at $60,000 and two warrants to

purchase 250,000 shares of common stock each,

with exercise prices of $0.50 $1.00; (iv) the debt is

convertible at a 30% discount on the fair market value

of the stock.  The Company measured the fair value of

the warrants and the beneficial conversion feature of the

note and recorded a discount against the principal

of the note. (see Note 6 "Significant Transaction -

Forbearance Agreement")

200,000

-

200,000

-

 

 

 

 

 

 

March 2012

Convertible

Notes

Three convertible notes in the principal amount of

$25,000, $50,000 and $100,000 respectively; (i) issued

 between March 3 and March 22, 2012; (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

between March 31 and June 30, 2012. As of the date of

this filing these notes are past due.

175,000

-

175,000

11,281

 

 

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 this filing the April 3 note is past due.

25,000

-

25,000

1,628

 

 

 

 

 

 

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.

73,645

(18,005)

55,640

2,750

 

 

 

 

 

 

Total

 

$1,832,292

$(18,005)

$1,814,287

$113,781

 

 

The following is a summary of amounts due to unrelated parties, including accrued interest separately recorded, as of December 31, 2011:

 

 

Note Payable

Terms of the agreement

 

Principal

Amount

Discount

Principal Net

of Discount

Accrued

Interest

June 21, 2011

Note

Convertible promissory note in the principal

amount of $560,000; (i) interest accrues at 12%

per annum; (ii) maturity date of June 21, 2015;

(iii) upon closing the Company issued to the

lender 100,000 shares of Common Stock valued

at $60,000 and two warrants to purchase 250,000

shares of common stock each, with exercise prices

of $0.50 $1.00; (iv) the debt is convertible at a 30%

discount on the fair market value of the stock.  

The Company measured the fair value of the

warrants and the beneficial conversion feature

of the note and recorded a discount against

the principal of the note. (see Note 6 "Significant

Transaction - Forbearance Agreement")

 

$560,000

$(284,959)

$275,041

$51,367

 

 

 

 

 

 

 

July 13, August

17, & October 7

2011 Convertible

Notes

Three notes with the same terms to the same

unrelated party in the amounts of $40,000,

$50,000 and $30,000 respectively. (i) interest

accrues at 8% per annum; (ii) maturity date

nine months from the date of issuance; (iii)

convertible at a price per share equal to 50%

of the average of the three lowest closing

prices of the Company’s Common stock for

the 10 day trading period before conversion

 

120,000

(61,811)

58,189

3,894

 

 

 

 

 

 

 

Total

 

 

$680,000

$(346,770)

$333,230

$55,261

 

 

   

Debentures

 

2010 Debentures

 

On March 30, 2010, the Company entered into a Securities Purchase Agreement and, pursuant to this agreement, a total of $1,000,000 in principal amount of convertible debentures (the “Debentures”), with a maturity date of March 2013, could be sold to investors.  The Debentures could be converted into shares of the Company’s 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 could 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 outsta nding shares of the Company’s common stock.   This ownership restriction could be waived, however, by a holder upon sixty-one (61) days prior written notice.

 

The Debentures could be redeemed by the Company at any time or from time to time at a price equal to (x) one hundred twenty percent (120%) of the principal amount of the Debenture if the Debenture is called for redemption prior to the expiration of six months from the issuance date, or one hundred thirty one percent (131%) if called for redemption thereafter, plus (y) interest accrued through the day immediately preceding the date of redemption.

 

During 2010, the Company issued Debentures in the aggregate principal amount of $695,000.  In accordance with ASC Topic No. 470-20-25-4, a discount in the amount of $297,857 was calculated as the total value of the beneficial conversion feature, which was amortized over the term of the debt.  The unamortized discount balance at December 31, 2011 was $160,349 for a total debenture balance, net of discount, of $534,651.  In addition, debt issuance costs of $102,850 were deferred and amortized over the term of the debt.  The unamortized balance of deferred loan costs at December 31, 2011 was $54,878.  Interest expense on the debentures accrued at 6% per annum.  The Company made a cash payment on accrued debenture interest in the amount of $61,113 in the fourth quarter of 2011 leaving an accrued interest balance of $5,000 as of December 31, 2011.

 

In April of 2012, 4 million shares of common stock were issued to Commercial Holding, AG, a related party and holder of the debentures, in conversion of the $695,000 of debentures and all remaining accrued interest payable.

 

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 pur chaser 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  is being 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 October of 2012, the debenture holder elected to convert $30,000 in principal into 571,428 shares of Common Stock.  In November, an additional $20,000 of principal was converted into 816,326 shares of Common Stock.  A pro rata share of the discount associated with the debentures was expensed with each issuance of Common Stock.

 

The unamortized discount balance of the debentures outstanding at December 31, 2012 is $160,774 for a total debenture balance, net of discount, of $189,256.  In addition, total debt issuance costs of $115,350 have been deferred and are being amortized over the term of the debt.  The unamortized balance of deferred loan costs at December 31, 2012 is $9,292.  Interest expense on the debentures accrues at 6% per annum.  The balance of accrued interest payable at December 31, 2012 is $18,238.

 

v2.4.0.6
INTANGIBLE ASSETS
12 Months Ended
Dec. 31, 2012
INTANGIBLE ASSETS  
INTANGIBLE ASSETS

 

 

NOTE 9 – INTANGIBLE ASSETS

 

Marketing Contacts

 

On September 17, 2009, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”), whereby BioPharma became a wholly-owned subsidiary of the Company.  Pursuant to the terms of the Merger Agreement, 4,500,000 shares of the Company’s common stock were issued in exchange for all the outstanding common stock of BioPharma.

 

Prior to the Merger Agreement, BioPharma entered into a 50% joint venture with A&Z Pharmaceutical, LLC (“A&Z”) to form Pharma Technology International, LLC (“Pharma Tech”).   A&Z is a privately held wholesale distributor of pharmaceuticals formed in 1997.  A&Z’s customer base includes tertiary hospitals, medical institutions, and governmental agencies located in the United States, South America, Europe and the Middle East. The operations of Pharma Tech to date have been minimal.

 

Pharma Tech entered into a Distribution Agreement (the “Distribution Agreement”) to market, distribute and sell the WCI wound care products in the Middle East through existing A&Z distribution channels. The initial focus of the agreement was on sales of CellerateRX® and required Pharma Tech to sell a minimum of $500,000 of the product each year of the five year agreement to maintain the exclusive right to sell the product. The agreement covered 20 countries throughout the Middle East and Northern Africa.

 

As part of the BioPharma acquisition, the formula for a shingles based product was obtained which is only at the idea stage and no determination has been made as to whether the formula can be developed cost effectively into a product. According to the guidance in ASC Topic No. 805-20-25-1, identifiable assets should be recognized separately from goodwill and there was no value assigned to this formula.

 

The BioPharma transaction has been accounted for as a business combination based on the guidance in ASC Topic No. 805.  The financial statements of BioPharma have been consolidated with those of the Company and an intangible asset was recorded in the amount of $4,187,815 or approximately $.93 per common share issued on the date of acquisition.  The value of the intangible asset  assigned to the marketing contacts recorded by the Company is based on Level 3 input to our valuation methodology, which consists of models with significant unobservable market parameters.  We utilized an undiscounted cash flow analysis based on sales projections from the Distribution Agreement adjusted for the associated costs.  According to ASC Topic No. 805-20-55-27, a custome r relationship acquired in a business combination that does not arise from a contract may be an identifiable asset separate from goodwill.   The estimated useful life of the intangible asset was originally determined to be  ten (10) years based on the automatic renewable five year term of the  Distribution Agreement.

 

At December 31, 2011 the Company evaluated the asset for impairment.  The estimated useful life of the marketing contacts was reduced to the original five (5) year term of the agreement because the minimum sales requirment was not reached in the first or second year of the agreement.  The Company again utilized an undiscounted cash flow analysis based on actual sales in the first two years of the agreement. The resulting impairment of $3,208,372 in addition to the amortization of $418,782 for the year ended December 31, 2011 resulted in a net carrying amount of $37,185.

 

In August of 2012, WCI terminated the Distribution Agreement due to Pharma Tech’s failure to sell a minimum of $500,000 of product.  As a result, the Company impaired the remaining $27,044 balance of the intangible asset.

 

Patent

 

On September 29, 2009, the Company entered into an Asset Purchase Agreement (the “Agreement”), whereby the Company acquired a patent from Resorbable Orthopedic Products, LLC, a New Jersey limited liability company (“Resorbable NJ”) in exchange for 500,000 shares of the 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 amount amortized for the year ended December 31, 2012 amd 2011 was $51,031 and $51,030, respeti vely.

 

Upon closing of the asset sale by Resorbable NJ, the managers of this New Jersey limited liability company abandoned the name “Resorbable Orthopedic Products, LLC.” RSI-ACQ Acquisition, LLC, a Texas limited liability company owned by the Company and formed on August 24, 2009, assumed the name of “Resorbable Orthopedic Products, LLC” in Texas.

 

 

The activity for the intangible accounts is summarized below:

 

 

 

2012

 

 

2011

 

Patent

 

$

510,310

 

 

$

510,310

 

Accumulated amortization

 

 

(165,851

)

 

 

(114,820

)

Patent, net of accumulated amortization

 

 

344,459

 

 

 

395,490

 

 

 

 

 

 

 

 

 

 

Marketing contacts

 

 

4,187,815

 

 

 

4,187,815

 

Accumulated Amortization

 

 

(4,187,815

)

 

 

(4,150,630

)

Marketing contacts, net of accumulated amortization

 

 

0

 

 

 

37,185

 

 

 

 

 

 

 

 

 

 

Total intangibles, net of accumulated amortization

 

$

344,459

 

 

$

432,675

 

 

v2.4.0.6
CUSTOMERS AND SUPPLIERS
12 Months Ended
Dec. 31, 2012
CUSTOMERS AND SUPPLIERS  
CUSTOMERS AND SUPPLIERS

NOTE 10 – CUSTOMERS AND SUPPLIERS

 

WCI had two significant customers which accounted for approximately 23% of the Company’s sales in 2012 and two significant customers which accounted for 69% of sales in 2011.  In 2012, the order of the concentration for the two different vendors accounted for the following percentages respectively, 13% and 10%. In 2011 the order concentration for the two customers accounted for the following percentages respectively, 54% and 15%.  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.

v2.4.0.6
COMMITMENTS AND CONTINGENCIES
12 Months Ended
Dec. 31, 2012
COMMITMENTS AND CONTINGENCIES  
COMMITMENTS AND CONTINGENCIES

NOTE 11 - 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, 2012 and 2011 is $803,238 and $428,238, respectively.

 

On February 27, 2013 and March 25, 2013 royalty payments in the amount of $420,000 and $107,500 respectively, were made 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.

 

Inventory Contract

The Company does not have any contractual obligations to purchase product as of December 31, 2012.

v2.4.0.6
STOCKHOLDERS EQUITY
12 Months Ended
Dec. 31, 2012
STOCKHOLDERS EQUITY  
STOCKHOLDERS EQUITY

NOTE 12 - STOCKHOLDERS’ EQUITY

 

Preferred Stock

 

As of May 2008, all shares of Series A preferred stock were converted into common stock. There are currently 5,000,000 shares of Preferred Stock authorized, with no shares of Series A Preferred Stock currently issued or outstanding.

 

Effective June 24, 2010, the Company filed a Certificate of Designations, Number, Voting Power, Preferences and Rights of Series B Convertible Redeemable Preferred Stock (the “Certificate”) with the Texas Secretary of State, designating 75,000 shares of Series B Preferred Stock, par value $10.00 per share (the “Series B 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 are currently no Series B Shares issued or outstanding.

 

Common Stock

 

The Company is authorized to issue 100,000,000 common shares at a par value of $0.001 per share.  At December 31, 2011, there were 58,754,110 shares issued and 58,750,021 shares outstanding.  At December 31, 2012, there were 68,782,470 shares issued and 68,778,381 shares outstanding. Of these shares, 4,089 shares are held by the Company as treasury stock as of December 31, 2011 and December 31, 2012, respectively.

 

Warrants

In October 2009, warrants issued with debt to an unrelated party were increased from 500,000 A warrants to 1,000,000 A warrants.  The exercise price of $3.50 per share for the A warrants was reduced to $2.00 per share.  The B warrants issued to the same unrelated party were 1,000,000 warrants at an exercise price of $0.001 per share and, of this amount, 700,233 warrants have been exercised leaving 299,767 B warrants remaining.  Both the A and B warrants expire in 2013.

 

 

During 2010, the Company entered into various Subscription Agreements with unrelated parties to purchase units (“Units”) with each Unit consisting of:   (i) one share of the Company’s common stock and (ii) a warrant to purchase one share of the Company’s common stock (the “Warrants”). 

 

During 2011 and 2012, the Company entered into various Subscription Agreements and Note Payable Agreements which included the issuance of stock purchase warrants in the agreements.  Additionally, in the third quarter of 2012 the Company issued 850,000 stock purchase warrants to employees and contractors as well as 3,193,500 warrants to board members.  The warrants are exercisable over a 5 year period at $0.15 per share. The warrants issued to employees and contractors vest over a three year period based upon continued employment with the Company.

 

At December 31, 2011, there were 8,938,668 warrants outstanding with a weighted average exercise price of $0.82.

At December 31, 2012, there were 17,143,468 warrants outstanding with a weighted average exercise price of $0.53.

 

A summary of the status of the warrants granted at December 31, 2012 and 2011 and changes during the years then ended is presented below:

 

 

For the Year Ended December 31, 2011

 

 

Shares

 

 

Weighted Average

Exercise Price

 

Outstanding at beginning of period

 

 

3,230,369

 

 

$

1.07

 

Granted

 

 

5,708,299

 

 

$

0.68

 

Exercised

 

 

-

 

 

 

-

 

Forfeited

 

 

-

 

 

 

-

 

Expired

 

 

-

 

 

 

-

 

Outstanding at end of period

 

 

8,938,668

 

 

$

0.82

 

 

 

For the Year Ended December 31, 2012

 

 

Shares

 

 

Weighted Average

Exercise Price

 

Outstanding at beginning of period

 

 

8,938,668

 

 

$

0.82

 

Granted

 

 

7,364,800

 

 

$

0.18

 

Exercised

 

 

160,000

 

 

$

0.10

 

Forfeited

 

 

-

 

 

 

-

 

Expired

 

 

-

 

 

 

-

 

Outstanding at end of period

 

 

17,143,468

 

 

$

0.50

 

 

 





   

 

As of December 31, 2012

As of December 31, 2012

 

Warrants Outstanding

Warrants Exercisable

 

Number

Outstanding

Weighted-

Average

Remaining

Contract Life

Weighted-

Average

Exercise Price

Number

Exercisable

 

Weighted-

Average

Exercise Price

Range of

Exercise Prices

 

$

0.001

299,769

0.0

$

0.001

299,769

$

0.001

 

$

0.075

350,000

5.0

$

0.075

350,000

$

0.075

 

$

0.09

600,000

5.0

$

0.09

225,000

$

0.09

 

$

0.15

6,614,800

4.7

$

0.15

4,764,800

$

0.15

 

$

0.25

200,000

2.8

$

0.25

200,000

$

0.25

 

$

0.40

1,299,999

2.2

$

0.40

1,299,999

$

0.40

 

$

0.50

2,694,450

1.5

$

0.50

2,694,450

$

0.50

 

$

0.60

975,000

4.0

$

0.60

975,000

$

0.60

 

$

0.75

200,000

2.8

$

0.75

200,000

$

0.75

 

$

1.00

2,909,450

1.3

$

1.00

2,909,450

$

1.00

 

$

2.00

1,000,000

1.0

$

2.00

1,000,000

$

2.00

 

$

0.001  - 2.00

17,143,468

3.0

$

0.53

14,918,468

$

0.56

 

 

v2.4.0.6
DERIVATIVE LIABILITIES
12 Months Ended
Dec. 31, 2012
DERIVATIVE LIABILITIES  
DERIVATIVE LIABILITIES

NOTE 13 – DERIVATIVE LIABILITIES

 

Beginning in 2008, the Company issued stock purchase warrants to various lenders and investors as part of note payable agreements and stock subscription agreements.  These warrants were immediately exercisable and some contained provisions for cashless exercise under certain circumstances. The warrants ranged in term from three to five years and had expiration dates ranging from December 31, 2012 to December 31, 2017. The warrants also 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.  As of December 31, 2012, the Company had outstanding warrants entitling the holders to purchase 17,143,468 shares of the Company’s common stock up on exercise.

 

In addition, beginning in 2010, the Company issued convertible debentures and notes payable to various lenders.  These debentures and notes were convertible at discounts ranging from 30% to 50% of the fair market value of the Company’s common stock.  In accordance with ASC Topic No. 470-20-25-4, the Company recorded the intrinsic value of the embedded beneficial conversion feature present in the convertible instruments by allocating a portion of the debt equal to the intrinsic value of that feature to additional paid in capital.  As of December 31, 2012, the Company had outstanding convertible debt in the principal amount of $473,645 and outstanding convertible debentures in the principal amount of $350,000.

 

As of December 31, 2012, 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 debentures and 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 beneficial conversion features are treated as derivative liabilities and are carried at fair value.

 

 

 The Company estimates the fair value of the derivative warrant liabilities by using the American Option Binomial Model, a Level 3 input, with the following assumptions used:

 

Dividend yield:

1%

Expected volatility

283.86% to 549.88%

Risk free interest rate

.36% to .83%

Expected life (years)

1.00 to 5.00

 

 

The following table sets forth the changes in the fair value of derivative liabilities for the years ended December 31, 2012 and 2011:

 

Balance, December 31, 2010

 

$

(2,310,983

)

Change in Fair Value of Warrant Derivative Liability

 

 

1,237,803

 

Change in Fair Value of Beneficial Conversion Derivative Liability

 

 

(763,098

)

Adjustments to Warrant Derivative Liability

 

 

(2,749,453

)

Adjustment to Beneficial Conversion Derivative Liability

 

 

(260,599

)

Adjustment to Debenture Derivative Liability

 

 

(571,195

)

Balance, December 31, 2011

 

$

(5,417,525

)

Change in Fair Value of Warrant Derivative Liability

 

 

3,461,614

 

Change in Fair Value of Beneficial Conversion Derivative Liability

 

 

879,514

 

Change in Fair Value of Debenture Derivative Liability

 

 

309,933

 

Adjustments to Warrant Derivative Liability

 

 

(1,245,647

)

Adjustment to Beneficial Conversion Derivative Liability

 

 

164,657

 

Adjustment to Debenture Derivative Liability

 

 

510,880

 

Balance, December 31, 2012

 

 

(1,336,576

)

 

v2.4.0.6
INCOME TAXES
12 Months Ended
Dec. 31, 2012
INCOME TAXES  
INCOME TAXES

NOTE 14 – 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.

 

At December 31, 2012, a deferred tax asset results from the deferred tax benefit of asset reserve accounts in the amount of approximately $2,894,000 and net operating loss carryover of approximately $27,100,000, based on the U.S. Corporate income tax rate of 34%.  A 100% valuation allowance has been provided for both the current and non-current deferred tax assets, as the ability of the Company to generate sufficient taxable income in the future is uncertain. The change in the valuation allowance is approximately $1,928,000.

 

The unexpired net operating loss carry forward at December 31, 2012 is approximately $27,700,000 with various expiration dates between 2018 and 2032 if not utilized.

 





 

Current deferred tax asset:

 

 

2012

 

 

2011

 

Asset Reserve Accounts

 

$

984,068

 

 

$

142,736

 

Valuation allowance

 

 

(984,068

)

 

 

(142,736

)

Net benefit recorded

 

 

-

 

 

 

-

 

 

 

Non-current deferred tax asset:

 

 

2012

 

 

2011

 

34% of net operating loss carry forwards

 

$

9,214,157

 

 

$

8,127,127

 

Valuation allowance

 

 

(9,214,157

)

 

 

(8,127,127

)

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, 2012 and 2011 are listed below.

 

 

2012

 

 

2011

 

Expected federal income tax benefit

 

 

$627,410

 

 

 

$4,220,745

 

Valuation allowance

 

 

(1,928,362

)

 

 

(1,530,637

)

Debt Settlement Expense

 

 

8,940

 

 

 

(383,831

)

Impairment Loss

 

 

(9,195

)

 

 

(1,090,846

)

Derivative Expense

 

 

1,581,360

 

 

 

(836,831

)

Amortization of beneficial Conversion Discount

 

 

(99,632

)

 

 

(291,175

)

Other

 

 

(167,871

)

 

 

(87,969

)

Expiration of Net Operating Loss Carryover

 

 

(12,650

)

 

 

-

 

Income tax expense (benefit)

 

$

-

 

 

$

-

 

 

The Company has no tax positions at December 31, 2012 and 2011 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.

 

v2.4.0.6
LOSS PER SHARE
12 Months Ended
Dec. 31, 2012
LOSS PER SHARE  
LOSS PER SHARE

NOTE 15-- LOSS PER SHARE

 

The data below shows the amounts used in computing loss per share as of December 31, for each of the following years:

 

 

 

2012

 

 

2011

 

 

 

$

1,845,323

 

 

$

12,740,816

 

Weighted average number of common

shares outstanding used in loss per

share for the period (denominator)

 

 

62,838,381

 

 

 

54,702,212

 

Basic and diluted loss per share

of common stock

 

$

0.03

 

 

$

0.23