• Filing Date: 2014-04-14
  • Form Type: 10-K
  • Description: Annual report
v2.4.0.8
Document and Entity Information (USD $)
12 Months Ended
Dec. 31, 2013
Apr. 14, 2014
Jun. 28, 2013
DocumentAndEntityInformationAbstract      
Entity Registrant Name WOUND MANAGEMENT TECHNOLOGIES, INC.    
Document Type 10-K    
Document Period End Date Dec. 31, 2013    
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 2013    
Document Fiscal Period Focus FY    
Entity Public Float   $ 4,625,053  
Entity Common Stock, Shares Outstanding     88,782,320
v2.4.0.8
Statement - CONDENSED CONSOLIDATED BALANCE SHEET (USD $)
Dec. 31, 2013
Dec. 31, 2012
CURRENT ASSETS:    
Cash $ 44,553 $ 45,861
Accounts Receivable, net of allowance for bad debt of $13,014 and $234,727 221,549 203,967
Inventory, net 307,502 454,211
Employee Advances 3,620 11,832
Deferred Loan Costs 1,032 7,400
Deferred Compensation    309,450
Prepaid and Other Assets 76,203 11,306
Total Current Assets 654,459 1,044,027
LONG-TERM ASSETS:    
Property Plan and Equipment, net of accumulated depreciation of $17,062 and $16,430 29,259   
Intangible Assets, net of accumulated amortization of $216,882 and $165,851 293,428 344,459
Deferred Loan Costs    5,126
TOTAL ASSETS 977,146 1,393,612
CURRENT LIABILITIES:    
Accounts Payable 192,166 205,206
Accrued Royalties and Dividends 375,000 803,238
Accrued Liabilities 260 263,165
Accrued Interest - Related Parties 29,255 34,054
Accrued Interest 107,582 132,018
Derivative Liabilities 1,040,850 1,336,574
Stock Subscription Payable    6,000
Convertible Notes Payable - Related Parties    200,000
Notes Payable - Related Parties 115,620 215,620
Convertible Notes Payable, net of unamortized discounts of $50,837 and $18,005 1,284,063 405,640
Notes Payable 300,900 1,408,647
Total Current Liabilities 3,445,696 5,010,162
LONG-TERM LIABILITIES    
Debentures, net of discount ($0, $160,744)    189,256
TOTAL LIABILITIES 3,445,696 5,199,418
STOCKHOLDERS' EQUITY (DEFICIT)    
Series A Preferred Stock, $10 par value, 5,000,000 shares authorized; 0  issued and outstanding      
Series B Preferred Stock, $10 par value, 75,000 shares authorized; 0  issued and outstanding      
Series C Convertible Preferred Stock, $10 par value, 100,000 shares authorized; 38,232 issued and outstanding as of December 31, 2013. 382,320   
Series D Convertible Preferred Stock, $10 par value, 25,000 shares authorized; 15,000 issued and outstanding as of December 31, 2013. 150,000   
Common Stock: $.001 par value; 100,000,000 shares authorized; 85,664,558 Issued and 85,660,469 outstanding as of December 31, 2013 and 68,782,470 issued and 68,778,381 outstanding as of December 31, 2012. 85,664 68,782
Additional Paid-in Capital 40,090,878 35,154,736
Treasury Stock (12,039) (12,039)
Accumulated Deficit (43,165,373) (39,017,285)
Total Stockholders' Deficit (2,468,550) (3,805,806)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 977,146 $ 1,393,612
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Statement - CONDENSED CONSOLIDATED BALANCE SHEET (Parenthetical) (USD $)
Dec. 31, 2013
Dec. 31, 2012
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 38,232 38,232
Series C Preferred Stock shares outstanding 38,232 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 15,000 15,000
Series D Preferred Stock shares outstanding 15,000 15,000
Common Stock, par value $ 0.001 $ 0.001
Common Stock, shares authorized 100,000,000 100,000,000
Common Stock, shares issued 85,664,558 68,782,470
Common Stock, shares outstanding 85,660,469 68,778,381
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (USD $)
12 Months Ended
Dec. 31, 2013
Dec. 31, 2012
Revenues [Abstract]    
REVENUES $ 1,726,392 $ 1,173,544
COST OF GOODS SOLD 792,774 798,532
GROSS PROFIT 933,618 375,012
GENERAL AND ADMINISTRATIVE EXPENSES:    
General and Administrative Expenses 3,810,350 5,705,281
Depreciation / Amortization 51,663 61,172
Bad Debt Expense    27,044
INCOME (LOSS) FROM CONTINUING OPERATIONS: (2,928,395) (5,418,485)
OTHER INCOME (EXPENSES):    
Gain (Loss) from Joint Venture    (27,137)
Change in fair value of Derivative Liability 365,496 4,651,061
Other Income 201,976   
Interest Income    166,538
Interest Expense (1,725,553) (286,620)
Debt related Expense (61,612) (930,680)
NET LOSS (4,148,088) (1,845,323)
Series C Preferred Stock Dividends (6,271)   
NET LOSS AVAILABLE TO COMMON STOCKHOLDERS $ (4,154,359) $ (1,845,323)
Basic and diluted loss per share of common stock $ (0.05) $ (0.03)
Weighted average number of common shares outstanding 77,710,685 62,838,381
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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, 2011     $ 58,754 $ 33,265,232 $ (12,039) $ (37,171,962) $ (3,860,015)
Beginning Balance, Shares at Dec. 31, 2011     58,754,110   (4,089)    
Issuance of Common stock for Debt, Shares     7,420,733        
Issuance of Common stock for Debt, Amount     7,420 1,680,306     1,687,726
Issuance of Common stock for Interest and Extensions, Shares     311,913        
Issuance of Common stock for Interest and Extensions, Amount     312 55,760     56,072
Issuance of Common stock for Services, Shares     500,000        
Issuance of Common stock for Services, Amount     500 72,000     72,500
Issuance of Common stock for Subscription Agreements, Shares     1,500,000        
Issuance of Common stock for Subscription Agreements, Amount     1,500 98,500     100,000
Issuance of Common stock for Warrants Exercised, Shares     160,000        
Issuance of Common stock for Warrant Exercised, Amount     160 38,288     38,448
Issuance of Common stock for Advertising, Shares     300,000        
Issuance of Common stock for Advertising, Amount     300 44,700     45,000
Return of Stock for Advertising Services Not Provided, Shares     (164,286)        
Return of Stock for Advertising Services Not Provided, Amount     (164) (100,050)     (100,214)
Net Loss           (1,845,323) (1,845,323)
Ending Balance, Amount at Dec. 31, 2012     68,782 35,154,736 (12,039) (39,017,285) (3,805,806)
Ending 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)    
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Statement - CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
12 Months Ended
Dec. 31, 2013
Dec. 31, 2012
Cash Flows from Operating Activities:    
Net Loss $ (4,148,088) $ (1,845,323)
Adjustments to reconcile net loss to net cash used in Operating activities:    
Depreciation and amortization 51,663 61,172
Amortization of discounts and deferred financing costs 854,149 354,398
Impairment of intangible assets    27,044
Bad debt expense 24,917   
Inventory obsolescence 244,540   
Stock and warrants issued as payment for services    153,110
Gain on settlement of liabilities (192,142) 27,437
Series D issued for services 925,787   
Common stock issued for services 275,927   
Common stock issued for loan extensions 16,612 45,748
Warrant expense 287,599 628,787
Re-acquisition of distributorship    907,872
True-up related to warrants issued in 2011 489,614   
Recognition of deferred compensation related to vested options 86,350 309,450
Gain on fair market value of derivative liabilities (365,496) (4,651,061)
Increase in allowance for uncollectible notes receivable    1,993,233
Gain on Joint Venture    27,137
Convertible debt issued for settlements 90,000   
Changes in assets and liabilities:    
(Increase) decrease in accounts receivable (42,499) 83,271
(Increase) decrease in inventory (97,831) (160,880)
(Increase) decrease in employee advances 8,212 15,308
(Increase) decrease in accrued interest receivable    (166,538)
(Increase) decrease in prepaids and other assets (64,897) (11,306)
Increase (decrease) in allowance for uncollectible interest    170,899
Increase (decrease) in accrued royalties and dividends (428,238) 375,000
Increase (decrease) in accounts payable (67,965) 200,401
Increase (decrease) in accrued liabilities (21,838) (26,299)
Increase (decrease) in accrued interest payable 251,643 254,959
Net cash flows used in operating activities (1,821,981) (1,226,181)
Cash flows from investing activities:    
Purchase of property and equipment (29,892)   
Proceeds from notes receivable - related parties    371,839
Net cash flows (used in) provided by investing activities (29,892) 371,839
Cash flows from financing activities:    
Borrowings on debt 290,244 2,110,700
Payments on debt (662,169) (1,676,853)
Borrowings on convertible debt, net of original issue discounts 1,817,400 347,500
Payments on convertible debt (331,500)   
Cash paid for debt issuance costs (9,200)   
Cash proceeds from sale of common stock    100,000
Cash proceeds from sale of series C stock 740,030   
Proceeds from exercise of warrants 5,760 15,248
Net cash flows provided by financing activities 1,850,565 896,595
(Decrease) increase in cash (1,308) 42,253
Cash and cash equivalents, beginning of period 45,861 3,608
Cash and cash equivalents, end of period 44,553 45,861
Cash paid during the period for:    
Interest 130,147 31,661
Income Taxes      
Supplemental non-cash investing and financing activities:    
Common stock issued for conversion of debt and interest 406,645 1,736,066
Series C preferred stock issued for conversion of related party debt and interest 348,600   
Series C preferred stock issued for conversion of debt and interest 1,587,600   
Resolution of derivative liabilities due to warrant exercise 48,630   
Resolution of derivative liabilities due to debt conversions 1,311,702   
Warrants reclassed to derivative liabilities 812,705   
Debt discounts due to derivative liabilities 617,399   
Debt discounts due to warrants issued with debt 51,643   
Debt discounts due to beneficial conversion feature 25,000   
Reversal of deferred compensation due to forfeiture of nonvested options 184,800   
Write-off of deferred compensation $ 38,300   
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1. NATURE OF OPERATIONS
12 Months Ended
Dec. 31, 2013
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
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.

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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
12 Months Ended
Dec. 31, 2013
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.  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 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”). In June of 2013, the board of directors voted to dissolve 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

 

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, 2013 was $13,014 and the amount at December 31, 2012 was $234,727.

 

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 $114,404 and $82,410 at December 31, 2013 and December 31, 2012, 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 consisted of $16,430 invested in the Company websites.  As of December 31, 2013, fixed assets consisted of $46,321 including furniture and fixtures, computer equipment, phone equipment and the Company websites.  These assets are depreciated using the straight line method over their estimated useful lives ranging from 3 to 5 years. The depreciation expense recorded in 2013 was $632 and the depreciation expense recorded in 2012 was $0.  The balance of accumulated depreciation was $17,062 and $16,430 at December 31, 2013 and December 31, 2012, respectively.

 

Intangible Assets

 

Intangible assets as of December 31, 2013 and 2012 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.

 

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, 2013 and 2012.

 

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 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.

 

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 convertible 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.

 

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 December 31, 2013 and 2012.

 

Recurring Fair Value Measures   Level 1     Level 2     Level 3     Total  
                         
LIABILITIES:                        
     Derivative liabilities as of December 31, 2013   $ -     $ -     $ 1,040,850     $ 1,040,850  
     Derivative liabilities as of December 31, 2012   $ -     $ -     $ 1,336,574     $ 1,336,574  

 

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 Enacted Accounting Standards

 

There were various accounting standards and interpretations issued during 2013 and 2012, 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, 2013
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, 2013
Other Significant Transactions  
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. 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 Agreement, 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 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 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 therein. 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 (see Note 5). 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 (see Note 5).

 

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.

v2.4.0.8
5. NOTES PAYABLE
12 Months Ended
Dec. 31, 2013
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. 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 is a member of the Board of Directors Secured by assets of the company and payable on October 12, 2012 with interest accrued at 5% per annum. The note accrues default interest at 18% per annum.   $ 75,000     $ 18,512  
                     

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       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.

 

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 into common stock at $0.19 per share.   $ 200,000     $ 14,115  
                     
Dr. Philip J. Rubinfeld Mr. Rubinfeld is a member of the Board of Directors Secured by assets of the company and payable on October 12, 2012 with interest accrued at 5% per annum. The note accrues default interest at 18% per annum.     100,000       7,609  
                     
Araldo A. Cossutta Mr. Cossutta is a member of the Board of Directors Secured by assets of the company and payable on October 12, 2012 with interest accrued at 5% per annum. The note accrues default interest at 18% per annum.     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  

 

   

 

Notes Payable

 

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     Unamortized 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 (including the 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, 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 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 (the notes convert automatically into common stock upon a qualified financing transaction, the notes are not convertible at the holders’ option); (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% on each draw; (i) maturity date one year from the date of each draw (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 Promissory 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 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 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 settlement expense is included in general and administrative expenses in the statement of operation for the year ended December 31, 2013. 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.

 

As of December 31, 2013, unamortized deferred financing costs totaled $12,526. 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.

 

The following is a summary of amounts due to unrelated parties, including accrued interest separately recorded, as of December 31, 2012 (not including the Debentures described below):

 

Note Payable Terms of the agreement   Principal Amount     Unamortized 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     $ 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 4 "Other 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       1,629  
                                   
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  

 

 

Debentures

 

2010 Debentures

 

During 2010, the Company issued Debentures in the aggregate principal amount of $695,000 with a maturity date of March 2013. 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 outstanding shares of the Company’s common stock.  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.  In addition, debt issuance costs of $102,850 were deferred and amortized over the term of the debt.    Interest expense on the debentures accrued at 6% per annum.

 

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 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 have been paid in full and all related discounts and debt issuance costs are fully amortized. The balance of accrued interest payable at December 31, 2013 is $0.

v2.4.0.8
6. INTANGIBLE ASSETS
12 Months Ended
Dec. 31, 2013
Goodwill and Intangible Assets Disclosure [Abstract]  
6. INTANGIBLE ASSETS

Marketing Contacts

 

On September 17, 2009, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”), whereby BioPharma became a wholly-owned subsidiary of the Company.  Pursuant to the terms of the Merger Agreement, 4,500,000 shares of the 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”) a privately held wholesale distributor of pharmaceuticals, to form Pharma Technology International, LLC (“Pharma Tech”).

 

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 agreement required a minimum of $500,000 of sales per year to maintain the exclusive right to sell the product.

 

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.

 

At December 31, 2011 the Company evaluated the asset for impairment after the minimum sales requirement under the agreement was not reached.  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 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:

 

    2013     2012  
Patent   $ 510,310     $ 510,310  
Accumulated amortization     (216,882 )     (165,851 )
Patent, net of accumulated amortization     293,428       344,459  
Total intangibles, net of accumulated amortization   $ 293,428     $ 344,459  

 

The amount amortized for the year ended December 31, 2013 and 2012 was $51,031 and $61,172, respectively.

v2.4.0.8
7. CUSTOMERS AND SUPPLIERS
12 Months Ended
Dec. 31, 2013
Notes to Financial Statements  
7. CUSTOMERS AND SUPPLIERS

WCI had one significant customer which accounted for approximately 14% of the Company’s sales in 2013 and two significant customers which accounted for 23% of sales in 2012.  In 2012, the order of the concentration for the two different customers accounted for the following percentages respectively, 13% and 10%. 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.

v2.4.0.8
8. COMMITMENTS AND CONTINGENCIES
12 Months Ended
Dec. 31, 2013
Commitments and Contingencies Disclosure [Abstract]  
8. 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, 2013 and 2012 is $375,000 and $803,238, respectively.

 

On January 8, 2014 the Company made payment in the amount of $375,000 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, 2012.

 

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 $5,736.79 per month for months 1-17, $5,865.71 for months 18-29, and $5,994.63 for months 30-41. The Company also leases real property which it uses for its marketing staff in Denver, Colorado.  The lease is a 12 month lease expiring on November 30, 2014 and requires base rent payment of $300 per month.

v2.4.0.8
9. STOCKHOLDERS EQUITY
12 Months Ended
Dec. 31, 2013
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, 2013 and 2012.

 

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, 2013 and 2012.

 

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, 2013 there are 38,232 shares of Series C Preferred Stock issued and outstanding.

 

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.

 

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.

 

The Series C preferred stock earned dividends of $6,271 during the year ended December 31, 2013. As of December 31, 2013, these dividends were not yet 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 $1,085,000 of which $925,787 was recognized during the year ended December 31, 2013 and $159,213 will be recognized over the remaining vesting periods.

 

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.

 

During the year ended December 31, 2012, the Company issued 7,420,733 common shares for the conversion of $1,687,726 of debt and accrued interest, issued 311,913 common shares associated with a Forbearance Agreement valued at $56,072, issued 500,000 common shares for services valued at $72,500, issued 1,500,000 common shares for cash proceeds of $100,000, issued 160,000 common shares for the exercise of warrants and received cash proceeds of $38,448 and the Company issued 300,000 common shares for advertising services valued at $45,000.

 

During the year ended December 31, 2012, 164,286 common shares valued at $100,214 were returned to the Company and cancelled related to advertising services that were not provided.

 

Warrants

 

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

 

At December 31, 2012, there were 12,099,968 warrants outstanding with a weighted average exercise price of $0.65.

 

A summary of the status of the warrants granted at December 31, 2013 and 2012 and changes during the years then ended is presented below:

 

For the Year Ended December 31, 2012  
    Shares     Weighted Average Exercise Price  
Outstanding at beginning of period     8,938,668     $ 0.82  
  Granted     3,321,300       0.22  
  Exercised     (160,000 )     1.00  
  Forfeited     -       -  
  Expired     -       -  
Outstanding at end of period     12,099,968     $ 0.65  
   
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  

 

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). The warrant allows the purchase 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.

 

      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       1,299,999       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       2,236,650       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       2,156,650       1.00  
$ 0.06-$1.00       15,670,143       2.7     $ 0.37       15,670,143     $ 0.37  

 

Stock Options

 

During the year ended December 31, 2012, the Company granted 850,000 stock options to employees and contractors which vest over a three year period based upon continued employment with the Company, granted 3,193,500 stock options to board members which vest immediately upon grant and granted 1,000,000 stock options to an officer and Director which vest upon certain revenue performance conditions being met by June 30, 2013. The options are exercisable over a 5 year period at $0.15 per share.

 

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, 2013 and 2012, and changes during the periods then ended is presented below:

 

For the Year Ended December 31, 2012  
    Options     Weighted Average Exercise Price  
Outstanding at beginning of period     -     $ -  
  Granted     5,043,500       0.15  
  Exercised     -       -  
  Forfeited     -       -  
  Expired     -       -  
Outstanding at end of period     5,043,500     $ 0.15  

 

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  

 

      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  
v2.4.0.8
10. DERIVATIVE LIABILITIES
12 Months Ended
Dec. 31, 2013
DerivativeInstrumentsAndHedgingActivitiesAbstract  
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 12,099,968 shares of the Company’s common stock upon exercise. As of December 31, 2013, the Company had outstanding warrants entitling the holders to purchase 15,670,143 shares of the Company’s common stock upon 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. As of December 31, 2013, the Company had outstanding convertible debt in the principal amount of $23,492.  The Company did not have any outstanding convertible debentures at December 31, 2013.

 

As of December 31, 2013 and 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 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.

  

As of December 31, 2012, the aggregate fair value of the outstanding derivative liabilities was $1,336,547. During the year ended December 31, 2013, an aggregate of 6,615,544 warrants were issued that qualified as derivative liabilities (see Note 9). The fair value of these warrants was determined to be $812,705 as of the grant date of the warrants and this amount was reclassified from equity to derivative liabilities. Also during 2013, the Company issued convertible promissory notes with an aggregate principal amount of $628,900 which qualified as derivative liabilities (see Note 5). The fair value of these conversion options was determined to be $768,736 of which $617,399 was recorded as a discount to the associated notes and $151,337 was recognized as a loss on derivative liabilities.

 

During the year ended December 31, 2013, an aggregate of 1,539,769 warrants were exercised (see Note 9). The fair value of these warrants on their date of exercise was determined to be $48,630 and this amount was reclassified to equity on the date of resolution of these derivative liabilities. Also during 2013, convertible notes with an outstanding principal amount of $901,145 were converted to common stock and Series C preferred stock. The fair value of these conversion options on their date of conversion was determined to be $1,311,702 and this amount was reclassified to equity on the date of resolution of these derivative liabilities.

 

As of December 31, 2013, the aggregate fair value of the outstanding derivative liabilities was $1,040,850. The total gain on derivative liabilities recognized for the year ended December 31, 2013 was $365,496.

 

During 2012, the Company estimated the fair value of the derivative liabilities using the American Options Binomial Method. During 2013, the Company 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. The following table represents the assumptions used in these models:

 

Year:   2012     2013  
Dividend yield:     1 %     0 %
Expected volatility   284.83% to 337.73%     106.09% to 196.26%  
Risk free interest rate   .31% to 1.01%     .07% to 1.75%  
Expected life (years)   1.00 to 5.00     0.16 to 5.00  
                 

 

The following table sets forth the changes in the fair value of derivative liabilities for the years ended December 31, 2013 and 2012:

 

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     (1,336,574 )
  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 )
v2.4.0.8
11. INCOME TAXES
12 Months Ended
Dec. 31, 2013
Income Tax Disclosure [Abstract]  
11. 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, 2013, a deferred tax asset results from the net operating loss carryover of approximately $29,300,000, based on the U.S. Corporate income tax rate of 34%.  A 100% valuation allowance has been provided for the 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 $29,300,000 with various expiration dates between 2018 and 2033 if not utilized. All tax years starting with 2010 are open for examination.

 

Current deferred tax asset:

 

    2013     2012  
Asset Reserve Accounts   $ -     $ 984,068  
Valuation allowance     -       (984,068 )
Net benefit recorded     -       -  

 

Non-current deferred tax asset:

 

    2013     2012  
34% of net operating loss carry forwards   $ 9,948,987     $ 9,214,157  
Valuation allowance     (9,948,987 )     (9,214,157 )
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.

 

    2013     2012  
Expected federal income tax benefit   $ 1,410,350     $ 627,410  
Valuation allowance     (734,830 )     (1,928,362 )
Debt Settlement Expense     -       8,940  
Impairment Loss     -       (9,195 )
Derivative Gain     124,269       1,581,360  
Amortization of debt discounts and financing costs     (290,411 )     (99,632 )
Other     198,464       (167,871 )
Stock-based compensation     (707,842 )     -  
Expiration of Net Operating Loss Carryover     -       (12,650 )
Income tax expense (benefit)   $ -     $ -  

 

The Company has no tax positions at December 31, 2013 and 2012 for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility.

 

v2.4.0.8
12. LEGAL PROCEEDINGS
12 Months Ended
Dec. 31, 2013
Commitments and Contingencies Disclosure [Abstract]  
12. 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 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 not been reset.  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.

v2.4.0.8
13. SUBSEQUENT EVENTS
12 Months Ended
Dec. 31, 2013
Subsequent Events [Abstract]  
SUBSEQUENT EVENTS

On January 8, 2014, the Company made payment of $375,000 to Applied Nutritionals, LLC for the 2013 royalties due.

 

On January 20, 2014, the Company received $50,000 from BioStructures, LLC upon FDA 510(k) clearance of the Bioactive Bone Graft Putty developed under an agreement between BioStrucutres, LLC and REsorbable Orthopedic Products, LLC.

 

During January 2014, the Company granted 350 shares of Series D preferred stock for services.

 

During January 2014, the Company issued 500,000 common shares which vest over 3 years and a 2% profit interest in the Case Management CellerateRX project for services rendered.

 

During January, 2014, the Company issued an aggregate of 1,087,762 shares of common stock for the conversion of notes payable with an aggregate principal amount of $90,000 and accrued interest payable in the amount of $3,729.

 

Between January and March 2014, the Company issued an aggregate of 31,087 shares of Series C preferred stock in exchange for aggregate cash proceeds of $2,176,010

 

During February and March, 2014, the Company issued an aggregate of 300,000 shares of common stock under the terms of a service agreement.

 

On March 10, 2014, the Company received $100,000 from BioStructures, LLC for the commercial license related to the Bioactive Bone Graft Putt developed under an agreement between BioStrucutres, LLC and REsorbable Orthopedic Products, LLC.

 

During March 2014, the Company granted an aggregate of 700,000 common shares to the Directors of the Company which vest immediately and awarded 500,000 common shares to the Chief Financial Officer of the Company which vest over three years.

 

During March 2014, the Company issued 30,000 common shares to a consultant for services.

v2.4.0.8
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)
12 Months Ended
Dec. 31, 2013
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.  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 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”). In June of 2013, the board of directors voted to dissolve 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

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, 2013 was $13,014 and the amount at December 31, 2012 was $234,727.

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 $114,404 and $82,410 at December 31, 2013 and December 31, 2012, 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 consisted of $16,430 invested in the Company websites.  As of December 31, 2013, fixed assets consisted of $46,321 including furniture and fixtures, computer equipment, phone equipment and the Company websites.  These assets are depreciated using the straight line method over their estimated useful lives ranging from 3 to 5 years. The depreciation expense recorded in 2013 was $632 and the depreciation expense recorded in 2012 was $0.  The balance of accumulated depreciation was $17,062 and $16,430 at December 31, 2013 and December 31, 2012, respectively.

INTANGIBLE ASSETS

Intangible assets as of December 31, 2013 and 2012 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.

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, 2013 and 2012.

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 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.

 

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 convertible 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.

 

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 December 31, 2013 and 2012.

 

Recurring Fair Value Measures   Level 1     Level 2     Level 3     Total  
                         
LIABILITIES:                        
     Derivative liabilities as of December 31, 2013   $ -     $ -     $ 1,040,850     $ 1,040,850  
     Derivative liabilities as of December 31, 2012   $ -     $ -     $ 1,336,574     $ 1,336,574  

 

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 ENACTED ACCOUNTING STANDARDS

There were various accounting standards and interpretations issued during 2013 and 2012, none of which are expected to have a material impact on the Company’s financial position, operations or cash flows.

v2.4.0.8
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)
12 Months Ended
Dec. 31, 2013
Summary Of Significant Accounting Policies Tables  
Schedule of fair value measurement on recurring basis
Recurring Fair Value Measures   Level 1     Level 2     Level 3     Total  
                         
LIABILITIES:                        
     Derivative liabilities as of December 31, 2013   $ -     $ -     $ 1,040,850     $ 1,040,850  
     Derivative liabilities as of December 31, 2012   $ -     $ -     $ 1,336,574     $ 1,336,574  
v2.4.0.8
5. NOTES PAYABLE (Tables)
12 Months Ended
Dec. 31, 2013
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 is a member of the Board of Directors Secured by assets of the company and payable on October 12, 2012 with interest accrued at 5% per annum. The note accrues default interest at 18% per annum.   $ 75,000     $ 18,512  
                     

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       10,743  
Total       $ 115,620     $ 29,255  

 

 

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 into common stock at $0.19 per share.   $ 200,000     $ 14,115  
                     
Dr. Philip J. Rubinfeld Mr. Rubinfeld is a member of the Board of Directors Secured by assets of the company and payable on October 12, 2012 with interest accrued at 5% per annum. The note accrues default interest at 18% per annum.     100,000       7,609  
                     
Araldo A. Cossutta Mr. Cossutta is a member of the Board of Directors Secured by assets of the company and payable on October 12, 2012 with interest accrued at 5% per annum. The note accrues default interest at 18% per annum.     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  

 

Schedule of notes payable
Note Payable Terms of the agreement   Principal Amount     Unamortized 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 (including the 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, 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 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 (the notes convert automatically into common stock upon a qualified financing transaction, the notes are not convertible at the holders’ option); (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% on each draw; (i) maturity date one year from the date of each draw (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 Promissory 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 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 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  

 

 

Note Payable Terms of the agreement   Principal Amount     Unamortized 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     $ 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