U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 31,June 30, 2015
Commission File No. 0-11808
WOUND MANAGEMENT TECHNOLOGIES, INC.
| Texas | | 59-2219994 |
| (State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification Number) |
16633 Dallas Parkway
Suite 250
Addison, Texas 75001
(Address of principal executive offices)
(972) 218-0935
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes X þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (check one)
Large accelerated filer o | | Non-accelerated filer |
Accelerated filer o | | Smaller reporting companyþ X |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No Xþ
As of May 15,August 17, 2015, 106,254,918107,247,248 shares of the Issuer's $.001 par value common stock were issued and 106,250,829107,243,159 shares were outstanding.
WOUND MANAGEMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
Form 10-Q
Quarter Ended March 31,June 30, 2015
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PART I – FINANCIAL INFORMATION
ITEM 1. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of operations should be read in conjunction with the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section and audited consolidated financial statements and related notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2014, our Quarterly Report on Form 10-Q for the three months ended March 31, 2015, and with the unaudited consolidated financial statements and related notes thereto presented in this Quarterly Report on Form 10-Q.
Forward-Looking Statements
Some of the statements contained in this report discuss future expectations, contain projections of results of operations or financial condition, or state other "forward-looking" information. The words "believe," "intend," "plan," "expect," "anticipate," "estimate," "project," "goal" and similar expressions identify such a statement was made. These statements are subject to known and unknown risks, uncertainties, and other factors that could cause the actual results to differ materially from those contemplated by the statements. The forward-looking information is based on various factors and is derived using numerous assumptions. Factors that might cause or contribute to such a discrepancy include, but are not limited to the risks discussed in this and our other SEC filings. We do not promise to update forward-looking information to reflect actual results or changes in assumptions or other factors that could affect those statements. Future events and actual results could differ materially from those expressed in, contemplated by, or underlying such forward-looking statements.
The following discussion and analysis of our financial condition is as of March 31,June 30, 2015. Our results of operations and cash flows should be read in conjunction with our unaudited financial statements and notes thereto included elsewhere in this report and the audited financial statements and the notes thereto included in our Form 10-K for the year ended December 31, 2014.2014 and our Quarterly Report on Form 10-Q for the three-months ended March 31, 2015.
Business Overview
Unless otherwise indicated, we use “WMT,” “the Company,” “we,” “our” and “us” in this report to refer to the businesses of Wound Management Technologies, Inc.
Wound Management Technologies, Inc., was organized on December 14, 2001, as a Texas corporation under the name MB Software Corporation. In March 2008, the Company changed its name to Wound Management Technologies, Inc.
The Company, through its wholly-owned subsidiary, Wound Care Innovations, LLC (WCI), markets and sells the patented CellerateRX® products in the expanding advanced wound care market. CellerateRX’s activated collagen, which is approximately 1/100th the size of native collagen, delivers the essential benefits of collagen to a wound immediately—other forms of native, intact collagen in commercially available products require time for the body to prepare the collagen for use in the wound healing process. CellerateRX is cleared by the FDA as a medical device for use on all acute and chronic wounds, except third degree burns, and is ready for distribution in both gel and powder form. CellerateRX is currently approved for reimbursement under Medicare Part B and no prescription is required.
We believe that these products are unique in composition, applicability and clinical performance, and demonstrate the ability to reduce costs associated with standard wound management. The Company is focused on delivering the CellerateRX® product line to the diabetic care and long term care markets as well as to hospitals and operating rooms. Additionally, the Company is studying the feasibility of three other markets where CellerateRX formulas may have great sales potential: dental, dermatology/plastic surgery and sunburn relief.
The Company is also pursuing additional product lines through its subsidiary, Resorbable Orthopedic Products, LLC. In September 2009, ROP acquired a patent for resorbable bone wax and bone void filler products, which offer a solution to the problem of bone wound healing in a cost effective manner. The Company on February 18, 2014 announced that the FDA had granted 510(k) clearedclearance to our submission for the resorbable orthopedic hemostat. In 2011, the Company executed a development and license agreement with BioStructures, LLC to develop products in the field of bone remodeling, based on ROP’s patent for use in the human skeletal system. This license agreement excludes the fields of 1) a resorbable hemostat (resorbable bone wax), 2) a resorbable orthopedic hemostat (resorbable bone wax) and antimicrobial dressing, and 3) veterinary orthopedic applications. The Company began receiving royalties under this agreement in the fourth quarter of 2013. Royalties will continue for the life of the patent which expires in 2023.
Management Letter
Wound Management Technologies, Inc. (the “Company”) continues to execute on its strategic growth initiatives, which is driving increased awareness and demand among a wider group of physicians as well as in other healthcare settings. The positive momentum is exciting as the Company is still in the early stages of executing its sales and marketing programs for CellerateRX ®. Management believes there are still tremendous opportunities in the market that can be addressed through its two subsidiaries, Wound Care Innovations and Resorbable Orthopedic Products.
Wound Management Technologies is pleased to report revenues of $1,013,987$745,117 for the firstsecond quarter of 2015, a gain of approximately 49%37% from $544,350 over $682,294 from the firstsecond quarter of 2014. Approximately 95%93% of revenues were from the CellerateRX ® product line and the other 5%7% of revenue occurred inrevenues were from royalties from the Resorbable Orthopedic Products, LLC subsidiary (ROP). The CellerateRX ® firstsecond quarter revenues includedrevenue increase is the result of the development of our strategic initiatives to expand our surgical product sales, adding to our sales force and continued sales to existing customers (i.e. DME, HC,Home Care, Hospitals, LTC, MD,Long Term Care, Physicians, and Rx)Wound Care Clinics) along with establishing 42 new accounts mixed between the wound care and surgical product lines.accounts. Our 2015 YTD revenues are $1,759,104, a gain of $532,460 or 43% over 2014.
On March 16, 2015 Wound Management Technologies announced receiving through a subsidiary of the company, Wound Care Innovations, LLC (“WCI”), its inaugural order from Mexico, where WCI is registered and signed a distribution agreement with VISECA Desarrollo Inmobiliario SA de CA ("VISECA"), a healthcare distributor in Mexico. CellerateRX ® received COFEPRIS approval from the Mexico Ministry of Health.
InJune 1, 2015, the Company beganand WellDyne entered into an amendment to the Agreement dated September 20, 2013, pursuant to which the Agreement was amended to, among other things: (a) eliminate certain administrative services being performed by WellDyne under the Agreement, (b) revise the terms of the administrative fee payable to WellDyne under the Agreement, and (c) provide for termination of the Agreement, effective as of September 19th of a new regional sales management strategygiven year, by written notice by either party delivered before June 15th of such year.
On June 4, 2015, the Company delivered written notice to WellDyne, terminating the Agreement effective as of September 19, 2015.
On June 15, 2015, the Company, together with certain of its subsidiaries, entered into a term loan agreement (the “Loan Agreement”) with The James W. Stuckert Revocable Trust (“SRT) and is executing on its planThe S. Oden Howell Revocable Trust (“HRT”), pursuant to phasewhich SRT made a loan to the Company in eight full-time regional sales managersthe amount of $600,000 and HRT made a loan to the Company in the amount of $600,000 under Senior Secured Convertible Promissory Notes (the “Notes”). Both SRT and HRT are controlled by year end.affiliates of the Company. The regional managers are responsible for both direct salesproceeds of the Notes were used to pay off all outstanding unpaid principal and working withaccrued but unpaid interest under the Company's distributors.Senior Secured Convertible Promissory Note issued to Brookhaven Medical, Inc. pursuant to a loan agreement dated October 11, 2013.
In closing, Wound Management Technologies is well positioned to execute on its strategic growth initiatives with a solid infrastructure in place. The Company looks forward to capitalizing on the traction it has built in the market thus far with additional investments in a full time sales force along with the sales and marketing of CellerateRX ® product and the emergence of the ROP subsidiary.
Results of Operations
For the three and six months ended March 31,June 30, 2015, compared with the three and six months ended March 31,June 30, 2014:
Revenues. The Company generated revenues for the three months ended March 31,June 30, 2015, of $1,013,987,$745,117, as compared to revenues of $682,294$544,350 for the three months ended March 31,June 30, 2014, or 49%37% increase in revenues. The Company generated revenues for the six months ended June 30, 2015, of $1,759,104, as compared to revenues of $1,226,644 for the six months ended June 30, 2014, or a 43% increase in revenues. The increase in revenues is the result of an expanded salesforce andstrategically focusing on surgical sales while expanding the successful implementationdepth of the Company’s strategic plan to introduce our products into hospitals, operating rooms and wound centers.salesforce. Additionally, the Company has recorded $50,250 in royalty revenue for the three months ended June 30, 2015, and $100,665 in royalty revenue for the six months ended June 30, 2015 from the development and license agreement the Resorbable Orthopedic Products, LLC subsidiary (ROP) executed with BioStructures, LLC in 2011.
Cost of goods sold. Cost of goods sold for the three months ended March 31,June 30, 2015, was $217,086,$205,350, as compared to costs of goods sold of $168,723$269,446 for the three months ended March 31,June 30, 2014, or a 29% increase.24% decrease. Cost of goods sold for the six months ended June 30, 2015, was $422,436, as compared to costs of goods sold of $438,169 for the six months ended June 30, 2014, or a 4% decrease. The cost of goods sold increaseddecreased as sales increased.the netted result of negotiating down the WellDyne Marketing/Shipping agreement and increase in sales.
General and administrative expenses (“G&A"). G&A expenses for the three months ended March 31,June 30, 2015, were $878,043,$868,058, as compared to G&A expenses of $913,234$1,012,633 for the three months ended March 31,June 30, 2014, or a 4%14% decrease in G&A expenses. G&A expenses for the six months ended June 30, 2015, were $1,746,101, as compared to G&A expenses of $1,925,867 for the six months ended June 30, 2014, or a 9% decrease in G&A expenses. G&A expenses decreased in 2015 as the Companyresult of decreased legal and recruitingprofession fees.
Interest expense. Interest expense was $37,683$40,037 for the three months ended March 31,June 30, 2015, as compared to $163,143$42,516 for the three months ended March 31,June 30, 2014, or a decrease of 77%6%. Interest expense was $77,720 for the six months ended June 30, 2015, as compared to $205,659 for the six months ended June 30, 2014, or a decrease of 62%. The Company paid off or converted to stock over $154,000 of interest bearing debt in the first quarter of 2014 reducing the Company’s interest expense in later periods.
Net income/loss. We had a net loss for the three months ended March 31,June 30, 2015 of $133,396,$582,320, as compared to a net loss of $545,963$775,924 for the three months ended March 31,June 30, 2014. The Company was able to reduceWe had a net loss infor the six months ended June 30, 2015 of $715,716, as compared to a net loss of $1,321,887 for the six months ended June 30, 2014 by increasing sales and reducing general and administrative expenses.
Liquidity and Capital Resources
As of March 31,June 30, 2015, we had total current assets of $1,013,583,$1,204,138, including cash of $341,644$364,497 and inventories of $345,186.$524,913. As of December 31, 2014, ourwe had total current assets of $1,210,527, includedincluding cash of $523,441 and inventories of $402,530.
As of March 31,June 30, 2015, we had total current liabilities of $2,205,733$1,376,676 including $1,592,020$687,120 of notes payable and convertible notes payable due to related party.payable. Our current liabilities also include $93,750$187,500 of current year royalties payable. As of December 31, 2014, ourwe had total current liabilities of $2,315,115 includedincluding $1,592,920 of notes payable and convertible notes payable due to related party and prior year accrued royalties payable of $324,286.$375,000.
As of March 31,June 30, 2015, our current liabilities also included derivative liabilities of $1,399$497 related to 910,000410,000 of the 10,936,84410,436,844 outstanding stock purchase warrants. AtAs of December 31, 2014, our current liabilities also included derivative liabilities totaledof $1,708 related to 910,000 of the 10,936,844 outstanding stock purchase warrants.
For the threesix months ended March 31,June 30, 2015, net cash used in operating activities was $179,064$601,312 compared to $682,920$1,091,082 used in the first threesix months of 2013.2014.
In the threesix months ended March 31,June 30, 2015, net cash used in investing activities was $708$707 compared to $4,089$4,689 used in the first threesix months of 2013.2014.
Historically, we have financed our operations primarily from the sale of debt and equity securities. In the threesix months ended March 31,June 30, 2015, net cash used inprovided by financing activities was $900.$443,075. For the threesix months ended March 31,June 30, 2014, financing activities generated $2,006,210.$2,185,810.
Off-Balance Sheet Arrangements
None.
Recent Accounting Pronouncements
For the period ended March 31,June 30, 2015, there were no other changes to our critical accounting policies asidentified in our Annual Report on Form 10-K for the year ended December 31, 2014.
Contractual Commitments
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 in the aggregate, (b) an aggregate royalty of fifteen percent (15%) of gross sales occurring during the first year of the license; (c) an additional upfront royalty of $400,000, in the aggregate, which was paid October, 2009; plus (d) an aggregate 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 of unpaid royalties as of December 31, 2014 was $324,286. These prior year royalties were paid in full in January of 2015. As of March 31,June 30, 2015, the balance of accrued royalties for the current year is $93,750.$187,500.
CONSOLIDATED BALANCE SHEETS
MARCH 31,JUNE 30, 2015 AND DECEMBER 31, 2014
| | | March 31, 2015 | | | December 31, 2014 | |
| ASSETS | | | | | | |
| CURRENT ASSETS: | | | | | | |
| Cash | | $ | 341,644 | | | $ | 523,441 | |
| Accounts receivable, net of allowance for bad debt of $20,509 and $18,462 | | | 262,126 | | | | 278,261 | |
| Inventory, net of allowance for obsolescence of $45,655 and $46,007 | | | 345,186 | | | | 402,530 | |
| Royalty receivable | | | 50,250 | | | | - | |
| Prepaid and other assets | | | 14,377 | | | | 6,295 | |
| Total Current Assets | | | 1,013,583 | | | | 1,210,527 | |
| | | | | | | | | |
| LONG-TERM ASSETS: | | | | | | | | |
| Property plant and equipment, net of accumulated depreciation of $24,607 and $22,477 | | | 44,005 | | | | 45,428 | |
| Intangible assets, net of accumulated depreciation of $280,670 and $267,913 | | | 229,640 | | | | 242,397 | |
| Total Long-Term Assets | | | 273,645 | | | | 287,825 | |
| | | | | | | | | |
| TOTAL ASSETS | | $ | 1,287,228 | | | $ | 1,498,352 | |
| | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS' DEFICIT | | | | | | | | |
| CURRENT LIABILITIES: | | | | | | | | |
| Accounts payable | | $ | 294,946 | | | $ | 210,266 | |
| Accrued royalties and dividends | | | 93,750 | | | | 324,286 | |
| Capital lease obligation | | | 4,504 | | | | 4,504 | |
| Accrued interest | | | 219,114 | | | | 181,431 | |
| Derivative liabilities | | | 1,399 | | | | 1,708 | |
| Notes payable | | | 392,020 | | | | 392,920 | |
| Convertible notes payable to related party | | | 1,200,000 | | | | 1,200,000 | |
| Total Current Liabilities | | | 2,205,733 | | | | 2,315,115 | |
| | | | | | | | | |
| LONG-TERM LIABILITIES | | | | | | | | |
| Capital lease obligation | | | 7,508 | | | | 8,633 | |
| Total Long-Term Liabilities | | | 7,508 | | | | 8,633 | |
| | | | | | | | | |
| TOTAL LIABILITIES | | | 2,213,241 | | | | 2,323,748 | |
| | | | | | | | | |
| STOCKHOLDERS' DEFICIT | | | | | | | | |
| Series A Preferred Stock, $10 par value, 5,000,000 shares authorized; none issued and outstanding | | | - | | | | - | |
| Series B Convertible Preferred Stock, $10 par value, 7,500 shares authorized; none issued and outstanding | | | - | | | | - | |
| Series C Convertible Preferred Stock, $10 par value, 100,000 shares authorized; 70,054 issued and outstanding as of March 31, 2015 and 70,411 issued and outstanding as of December 31, 2014 | | | 700,540 | | | | 704,110 | |
| Series D Convertible Preferred Stock, $10 par value, 25,000 shares authorized; none issued and outstanding | | | - | | | | - | |
| Series E Convertible Preferred Stock, $10 par value, 5,000 shares authorized; none issued and outstanding | | | - | | | | - | |
| Common Stock: $.001 par value; 250,000,000 shares authorized; 106,254,918 issued and 106,250,829 outstanding as of March 31, 2015 and 105,447,320 issued and 105,443,231 outstanding as of December 31, 2014 | | | 106,254 | | | | 105,447 | |
| Additional paid-in capital | | | 43,856,178 | | | | 43,820,636 | |
| Treasury stock | | | (12,039 | ) | | | (12,039 | ) |
| Accumulated deficit | | | (45,576,946 | ) | | | (45,443,550 | ) |
| Total Stockholders' Deficit | | | (926,013 | ) | | | (825,396 | ) |
| | | | | | | | | |
| TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT | | $ | 1,287,228 | | | $ | 1,498,352 | |
| | | June 30, 2015 | | | December 31, 2014 | |
| ASSETS | | | | | | |
| CURRENT ASSETS: | | | | | | |
| Cash | | $ | 364,497 | | | $ | 523,441 | |
| Accounts Receivable, net of allowance for bad debt of $19,395 and $18,462 | | | 208,233 | | | | 278,261 | |
| Inventory, net of allowance for obsolescence for $41,717 and $46,007 | | | 524,913 | | | | 402,530 | |
| Royalty Receivable | | | 100,500 | | | | - | |
| Prepaid and Other Assets | | | 5,995 | | | | 6,295 | |
| Total Current Assets | | | 1,204,138 | | | | 1,210,527 | |
| | | | | | | | | |
| LONG-TERM ASSETS: | | | | | | | | |
| Property Plant and Equipment, net of accumulated depreciation of $26,750 and $22,477 | | | 41,862 | | | | 45,428 | |
| Intangible Assets, net of accumulated depreciation of $293,430 and $267,913 | | | 216,882 | | | | 242,397 | |
| Total Long-Term Assets | | | 258,744 | | | | 287,825 | |
| | | | | | | | | |
| TOTAL ASSETS | | $ | 1,462,882 | | | $ | 1,498,352 | |
| | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS' DEFICIT | | | | | | | | |
| CURRENT LIABILITIES: | | | | | | | | |
| Accounts Payable | | $ | 301,457 | | | $ | 210,266 | |
| Accrued Royalties and Dividends | | | 187,500 | | | | 324,286 | |
| Capital Lease Obligation | | | 4,504 | | | | 4,504 | |
| Accrued Interest | | | 195,598 | | | | 181,431 | |
| Derivative Liabilities | | | 497 | | | | 1,708 | |
| Notes Payable | | | 687,120 | | | | 392,920 | |
| Convertible Notes Payable to Related Parties | | | - | | | | 1,200,000 | |
| Total Current Liabilities | | | 1,376,676 | | | | 2,315,115 | |
| | | | | | | | | |
| LONG-TERM LIABILITIES | | | | | | | | |
| Convertible Notes Payable to Related Parties | | | 1,200,000 | | | | - | |
| Capital Lease Obligation | | | 7,508 | | | | 8,633 | |
| Total Long-Term Liabilities | | | 1,207,508 | | | | 8,633 | |
| | | | | | | | | |
| TOTAL LIABILITIES | | | 2,584,184 | | | | 2,323,748 | |
| | | | | | | | | |
| STOCKHOLDERS' DEFICIT | | | | | | | | |
| Series A Preferred Stock, $10 par value, 5,000,000 shares authorized; none issued and outstanding | | | - | | | | - | |
| Series B Convertible Preferred Stock, $10 par value, 7,500 shares authorized; none issued and outstanding | | | - | | | | - | |
| Series C Convertible Preferred Stock, $10 par value, 100,000 shares authorized; 73,620 issued and outstanding as of June 30, 2015 and 70,411 issued and outstanding as of December 31, 2014 | | | 736,200 | | | | 704,110 | |
| Series D Convertible Preferred Stock, $10 par value, 25,000 shares authorized; none issued and outstanding | | | - | | | | - | |
| Series E Convertible Preferred Stock, $10 par value, 5,000 shares authorized; none issued and outstanding | | | - | | | | - | |
| Common Stock: $.001 par value; 250,000,000 shares authorized; 107,246,916 issued and 107,242,827 outstanding as of June 30, 2015 and 105,447,320 issued and 105,443,231 outstanding as of December 31, 2014 | | | 107,247 | | | | 105,447 | |
| Additional Paid-in Capital | | | 44,206,556 | | | | 43,820,636 | |
| Treasury Stock | | | (12,039 | ) | | | (12,039 | ) |
| Accumulated Deficit | | | (46,159,266 | ) | | | (45,443,550 | ) |
| Total Stockholders' Deficit | | | (1,121,302 | ) | | | (825,396 | ) |
| | | | | | | | | |
| TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT | | $ | 1,462,882 | | | $ | 1,498,352 | |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED MARCH 31,JUNE 30, 2015 AND 2014
| | | Three Months Ended March 31, | |
| | | 2015 | | | 2014 | |
| | | | | | | |
| REVENUES | | $ | 1,013,987 | | | $ | 682,294 | |
| | | | | | | | | |
| COST OF GOODS SOLD | | | 217,086 | | | | 168,723 | |
| | | | | | | | | |
| GROSS PROFIT | | | 796,901 | | | | 513,571 | |
| | | | | | | | | |
| OPERATING EXPENSES: | | | | | | | | |
| General and administrative expenses | | | 878,043 | | | | 913,234 | |
| Depreciation and amortization | | | 14,889 | | | | 13,975 | |
| LOSS FROM OPERATIONS: | | | (96,031 | ) | | | (413,638 | ) |
| | | | | | | | | |
| OTHER INCOME (EXPENSES): | | | | | | | | |
| Change in fair value of derivative liability | | | 309 | | | | 30,818 | |
| Other income | | | 9 | | | | - | |
| Interest expense | | | (37,683 | ) | | | (163,143 | ) |
| | | | | | | | | |
| NET LOSS | | | (133,396 | ) | | | (545,963 | ) |
| | | | | | | | | |
| Series C preferred stock dividends | | | (63,478 | ) | | | (50,117 | ) |
| | | | | | | | | |
| NET LOSS AVAILABLE TO COMMON STOCKHOLDERS | | $ | (196,874 | ) | | $ | (596,080 | ) |
| | | | | | | | | |
| Basic and diluted loss per share of common stock | | $ | (0.00 | ) | | $ | (0.01 | ) |
| | | | | | | | | |
| | | | | | | | | |
| Weighted average number of common shares outstanding | | | 105,651,948 | | | | 86,486,298 | |
| | | THREE MONTHS | | | THREE MONTHS | | | SIX MONTHS | | | SIX MONTHS | |
| | | ENDED | | | ENDED | | | ENDED | | | ENDED | |
| | | June 30, 2015 | | | June 30, 2014 | | | June 30, 2015 | | | June 30, 2014 | |
| | | | | | | | | | | | | |
| REVENUES | | $ | 745,117 | | | $ | 544,350 | | | $ | 1,759,104 | | | $ | 1,226,644 | |
| | | | | | | | | | | | | | | | | |
| COST OF GOODS SOLD | | | 205,350 | | | | 269,446 | | | | 422,436 | | | | 438,169 | |
| | | | | | | | | | | | | | | | | |
| GROSS PROFIT | | | 539,767 | | | | 274,904 | | | | 1,336,668 | | | | 788,475 | |
| | | | | | | | | | | | | | | | | |
| GENERAL AND ADMINISTRATIVE EXPENSES: | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| General and Administrative Expenses | | | 868,058 | | | | 1,012,633 | | | | 1,746,100 | | | | 1,925,867 | |
| Depreciation and Amortization | | | 14,900 | | | | 14,017 | | | | 29,790 | | | | 27,992 | |
| LOSS FROM CONTINUING OPERATIONS: | | | (343,191 | ) | | | (751,746 | ) | | | (439,222 | ) | | | (1,165,384 | ) |
| | | | | | | | | | | | | | | | | |
| OTHER INCOME (EXPENSES): | | | | | | | | | | | | | | | | |
| Change in Fair Value of Derivative Liability | | | (791 | ) | | | 18,323 | | | | (482 | ) | | | 49,141 | |
| Other Income | | | 6 | | | | 15 | | | | 15 | | | | 15 | |
| Loss on Issuance of Debt for Warrants | | | (198,307 | ) | | | - | | | | (198,307 | ) | | | - | |
| Interest Expense | | | (40,037 | ) | | | (42,516 | ) | | | (77,720 | ) | | | (205,659 | ) |
| | | | | | | | | | | | | | | | | |
| NET LOSS | | | (582,320 | ) | | | (775,924 | ) | | | (715,716 | ) | | | (1,321,887 | ) |
| | | | | | | | | | | | | | | | | |
| Series C Preferred Stock Dividends | | | (64,184 | ) | | | (59,913 | ) | | | (127,662 | ) | | | (110,030 | ) |
| | | | | | | | | | | | | | | | | |
| NET LOSS AVAILABLE TO COMMON STOCKHOLDERS | | $ | (646,504 | ) | | $ | (835,837 | ) | | $ | (843,378 | ) | | $ | (1,431,917 | ) |
| | | | | | | | | | | | | | | | | |
| Basic and diluted loss per share of common stock | | $ | (0.01 | ) | | $ | (0.01 | ) | | $ | (0.01 | ) | | $ | (0.02 | ) |
| | | | | | | | | | | | | | | | | |
| Basic and diluted weighted average number of common shares outstanding | | | 108,834,726 | | | | 87,220,868 | | | | 106,510,854 | | | | 86,855,613 | |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
WOUND MANAGEMENT TECHNOLOGIES, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE THREE MONTHS ENDED MARCH 31, 2015 AND 2014
(UNAUDITED)
| | | Three Months Ended March 31, | |
| | | 2015 | | | 2014 | |
| | | | | | | |
| Cash flows from operating activities: | | | | | | |
| Net loss | | $ | (133,396 | ) | | $ | (545,963 | ) |
| Adjustments to reconcile net loss to net cash used in operating activities | | | | | | | | |
| Depreciation and amortization | | | 14,889 | | | | 13,975 | |
| Amortization of discounts and deferred financing costs | | | - | | | | 127,135 | |
| Bad debt expense | | | 2,047 | | | | 10,970 | |
| Inventory obsolescence | | | 132 | | | | 188 | |
| Series D preferred stock issued for services | | | - | | | | 74,234 | |
| Common stock issued for services | | | 32,779 | | | | 129,443 | |
| (Gain) loss on change in fair value of derivative liabilities | | | (309 | ) | | | (30,818 | ) |
| Changes in assets and liabilities: | | | | | | | | |
| (Increase) decrease in accounts receivable | | | (36,162 | ) | | | (31,979 | ) |
| (Increase) decrease in inventory | | | 57,212 | | | | (76,276 | ) |
| (Increase) decrease in employee advances | | | - | | | | 1,980 | |
| (Increase) decrease in prepaids and other assets | | | (8,082 | ) | | | (275,067 | ) |
| Increase (decrease) in accrued royalties and dividends | | | (230,536 | ) | | | (281,250 | ) |
| Increase (decrease) in accounts payable | | | 84,679 | | | | 170,686 | |
| Increase (decrease) in accrued liabilities | | | - | | | | 926 | |
| Increase (decrease) in accrued interest payable | | | 37,683 | | | | 28,896 | |
| Net cash flows used in operating activities | | | (179,064 | ) | | | (682,920 | ) |
| | | | | | | | | |
| Cash flows from investing activities: | | | | | | | | |
| Purchase of property and equipment | | | (708 | ) | | | (4,089 | ) |
| Net cash flows used in investing activities | | | (708 | ) | | | (4,089 | ) |
| | | | | | | | | |
| Cash flows from financing activities: | | | | | | | | |
| Payments made on capital lease obligation | | | (1,125 | ) | | | - | |
| Payments on debt | | | (900 | ) | | | (20,900 | ) |
| Payments on convertible debt | | | - | | | | (44,900 | ) |
| Cash proceeds from sale of series C preferred stock | | | - | | | | 2,072,010 | |
| Net cash flows provided by (used in) financing activities | | | (2,025 | ) | | | 2,006,210 | |
| | | | | | | | | |
| Net increase (decrease) in cash | | | (181,797 | ) | | | 1,319,201 | |
| | | | | | | | | |
| Cash and cash equivalents, beginning of period | | | 523,441 | | | | 45,553 | |
| Cash and cash equivalents, end of period | | $ | 341,644 | | | $ | 1,364,754 | |
| | | | | | | | | |
| Cash paid during the period for: | | | | | | | | |
| Interest | | $ | - | | | $ | 7,112 | |
| Income taxes | | | - | | | | - | |
| | | | | | | | | |
| Supplemental non-cash investing and financing activities: | | | | | | | | |
| Common stock issued for conversion of debt and interest | | $ | - | | | $ | 93,729 | |
| Common stock issued for Series C dividends | | | 1,036 | | | | - | |
| Common stock issued for conversion of Series C Preferred Stock | | | 3,570 | | | | - | |
| Issuance of vested common stock | | | 333 | | | | | |
| Resolution of warrant derivative liabilities due to removal of convertible debt | | | - | | | | 918,580 | |
| Resolution of derivative liabilities due to debt conversions | | | - | | | | 132,417 | |
| Debt discounts due to derivative liabilities | | | - | | | | 90,000 | |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014
| | | SIX MONTHS ENDED | |
| | | June 30, | |
| | | 2015 | | | 2014 | |
| | | | | | | |
| Cash flows from operating activities: | | | | | | |
| Net loss | | $ | (715,716 | ) | | $ | (1,321,887 | ) |
| Adjustments to reconcile net loss to net cash used in operating activities | | | | | | | | |
| Depreciation and amortization | | | 29,790 | | | | 27,992 | |
| Amortization of discounts and deferred financing costs | | | - | | | | 133,907 | |
| Bad debt expense | | | 3,437 | | | | 13,765 | |
| Inventory obsolescence | | | - | | | | 90,978 | |
| Series D preferred stock issued for services | | | - | | | | 101,969 | |
| Common stock issued for services | | | 69,810 | | | | 149,769 | |
| (Gain) loss on change in fair value of derivative liabilities | | | 482 | | | | (49,141 | ) |
| Loss on issuance of debt for warrants | | | 198,307 | | | | - | |
| Changes in assets and liabilities: | | | | | | | | |
| (Increase) decrease in accounts receivable | | | 66,591 | | | | 7,464 | |
| (Increase) decrease in royalties receivable | | | (100,500 | ) | | | (13,951 | ) |
| (Increase) decrease in inventory | | | (122,383 | ) | | | (283,916 | ) |
| (Increase) decrease in employee advances | | | - | | | | 2,082 | |
| (Increase) decrease in prepaids and other assets | | | 300 | | | | 11,867 | |
| Increase (decrease) in accrued royalties and dividends | | | (136,786 | ) | | | (202,576 | ) |
| Increase (decrease) in accounts payable | | | 91,189 | | | | 175,289 | |
| Increase (decrease) in accrued liabilities | | | - | | | | 666 | |
| Increase (decrease) in accrued interest payable | | | 14,167 | | | | 64,641 | |
| Net cash flows used in operating activities | | | (601,312 | ) | | | (1,091,082 | ) |
| | | | | | | | | |
| Cash flows from investing activities: | | | | | | | | |
| Purchase of property and equipment | | | (707 | ) | | | (4,689 | ) |
| Net cash flows used in investing activities | | | (707 | ) | | | (4,689 | ) |
| | | | | | | | | |
| Cash flows from financing activities: | | | | | | | | |
| Payments made on capital lease obligation | | | (1,125 | ) | | | - | |
| Borrowings on debt | | | 96,000 | | | | - | |
| Payments on debt | | | (1,800 | ) | | | (21,800 | ) |
| Borrowings on convertible debt to related parties | | | 1,200,000 | | | | - | |
| Payments on convertible debt to related parties | | | (1,100,000 | ) | | | (44,900 | ) |
| Cash proceeds from sale of series C preferred stock | | | 250,000 | | | | 2,252,510 | |
| Net cash flows provided by financing activities | | | 443,075 | | | | 2,185,810 | |
| | | | | | | | | |
| Net increase (decrease) in cash | | | (158,944 | ) | | | 1,090,039 | |
| Cash and cash equivalents, beginning of period | | | 523,441 | | | | 45,553 | |
| Cash and cash equivalents, end of period | | $ | 364,497 | | | $ | 1,135,592 | |
| | | | | | | | | |
| Cash paid during the period for: | | | | | | | | |
| Interest | | $ | 64,000 | | | $ | 7,113 | |
| Income taxes | | | - | | | | - | |
| | | | | | | | | |
| Supplemental non-cash investing and financing activities: | | | | | | | | |
| Common stock issued for conversion of debt | | $ | - | | | $ | 93,729 | |
| Common stock issued for Series C Preferred Stock dividend | | | 60 | | | | - | |
| Common stock issued for conversion of Series C Preferred Stock | | | 9,570 | | | | - | |
| Issuance of vested common stock | | | 333 | | | | - | |
| Issuance of debt for warrants | | | 200,000 | | | | - | |
| Forgiveness of related party convertible debt | | | 100,000 | | | | - | |
| Resolution of derivative liabilities due to removal of convertible debt | | | - | | | | 918,580 | |
| Resolution of derivative liabilities due to debt conversions | | | - | | | | 132,417 | |
| Debt discounts due to derivative liabilities | | | - | | | | 90,000 | |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The terms “WMT,” “we,” “the Company,” and “us” as used in this report refer to Wound Management Technologies, Inc. The accompanying unaudited consolidated balance sheet as of March 31,June 30, 2015 and unaudited consolidated statements of operations for the three and six months ended March 31,June 30, 2015 and 2014 have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management of WMT, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six month period ended March 31,June 30, 2015, are not necessarily indicative of the results that may be expected for the year ending December 31, 2015, or any other period. These financial statements and notes should be read in conjunction with the financial statements for each of the two years ended December 31, 2014, and December 31, 2013, included in the Company’s Annual Report on Form 10-K. The accompanying consolidated balance sheet as of December 31, 2014, has been derived from the audited financial statements filed in our Form 10-K and is included for comparison purposes in the accompanying balance sheet. Certain prior year amounts have been reclassified to conform to current year presentation.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of WMT and its wholly-owned subsidiaries: Wound Care Innovations, LLC a Nevada limited liability company (“WCI”); Resorbable Orthopedic Products, LLC, a Texas limited liability company (“Resorbable); and BioPharma Management Technologies, Inc., a Texas corporation (“BioPharma”). All intercompany accounts and transactions have been eliminated.
Reclassification
Certain prior period amounts have been reclassified to conform to current period presentation.
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 March 31,June 30, 2015, the Company’s financial instruments consist of the derivative liabilities related to stock purchase warrants. The derivative liability on stock purchase warrants was valued using the Black-Scholes Option Pricing Model, a Level 3 input. The fair value of the conversion features associated with the convertible debt was estimated in accordance with ASC Topic No. 470-20-25-4. The change in fair value of the derivative liabilities is classified in other income (expense) in the statement of operations.
Our intangible assets have also been valued using the fair value accounting treatment and a description of the methodology used, including the valuation category, is described in the Company’s Annual Report on Form 10-K.
NOTE 2 - GOING CONCERN
The Company has current liabilities in excess of current assets and has a stockholders’ deficiency. The Company has had limited operations and has not been able to develop an ongoing, reliable source of revenue to fund its existence. The Company’s day-to-day expenses have been covered by proceeds obtained and services paid by the issuance of stock and notes payable. The adverse effect on the Company’s results of operations due to its lack of capital resources can be expected to continue until such time as the Company is able to generate additional capital from other sources. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.
These unaudited interim consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty. The continuation of the Company as a going concern is dependent upon the success of the Company in obtaining additional funding and the success of its future operations. The ability of the Company to achieve these objectives cannot be determined at this time.
NOTE 3 – NOTES PAYABLE
During the threesix months ended March 31,June 30, 2015, the Company paid a total of $900$1,800 to Quest Capital as part of the furniture purchase agreement in the original amount of $11,700.
On May 28, 2015 the Company borrowed $96,000 under a one year non-convertible note bearing interest at 10% per annum from Mr. Doug Taylor
On June 26, 2015, the Company entered into an Exchange Agreement with Tonaquint, Inc., a Utah corporation (“Tonaquint”), under which Tonaquint was issued a convertible promissory note (the “Note”) in exchange for the surrender of 500,000 common stock warrants originally issued by the Company to Tonaquint pursuant to a Securities Purchase Agreement dated June 21, 2011. The Note is in the original principal amount of $200,000, carries a 5% rate of interest, and matures on September 26, 2016. The Note provides for an initial cash installment payment of $10,000, with subsequent monthly cash installment payments beginning in December of 2015. Each such monthly installment payment may be made, at the Company's option, in shares of common stock. Subject to certain conditions, the number of shares issuable in lieu of cash installment payments is determined based on a conversion price equal to 90% of the five-day volume weighted average trading price of the Company's common stock. The surrendered warrants were accounted for as derivatives with a fair value of $1,693 on the date of the exchange. This resulted in a loss on the issuance of debt for warrants of $198,307 during the six months ended June 30, 2015.
NOTE 4 - 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 currently issued or outstanding.
Effective June 24, 2010, the Company filed a Certificate of Designations, Number, Voting Power, Preferences and Rights of Series B Convertible Redeemable Preferred Stock (the “Certificate”) with the Texas Secretary of State, designating 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 are currently no Series B Shares issued or outstanding.
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 March 31,June 30, 2015 and December 31, 2014, there were 70,05473,620 and 70,411 shares of Series C Preferred Stock issued and outstanding, respectively.
During the six months ended June 30, 2015, the Company issued 4,166 shares of Series C preferred stock for cash proceeds of $250,000.
On November 13, 2013, the Company filed a Certificate of Designations, Number, Voting Power, Preferences and Rights of Series D Convertible Preferred Stock (the “Certificate of Designations”), under which it designated 25,000 shares of Series D Preferred Stock. Shares of Series D Preferred Stock are not entitled to any preference with respect to dividend or upon liquidation, and will automatically convert (at a ratio of 1,000-to-1) into shares of the Company’s common stock, par value $0.001 upon approval of the Company’s stockholders (and filing of) and amendment to the Company’s Certificate of Incorporation increasing the number of authorized shares of Common Stock from 100,000,000 to 250,000,000. As of March 31,June 30, 2015 and December 31, 2014, there are no shares of Series D Preferred Stock issued and outstanding.
On May 30, 2014, the Company filed a Certificate of Designations, Number, Voting Power, Preferences and Rights of Series E Convertible Preferred Stock (The “Certificate of Designations”), under which it designated 5,000 shares of Series E Preferred Stock. Shares of Series E Preferred Stock are not entitled to any preference with respect to dividends or upon liquidation, and will automatically convert (at a ratio of 1,000 shares of Common Stock for every one share of Series E Preferred Stock) into shares of the Company’s common stock, $0.001 par value upon approval of the Company’s stockholders (and filing of) and amendment to the Company’s Certificate of Incorporation increasing the number of authorized shares of Common Stock from 100,000,000 to 250,000,000. As of March 31,June 30, 2015 and December 31, 2014, there are no shares of Series E Preferred Stock issued and outstanding.
On March 10, 2015, the Company issued 374,264 shares of common stock for the conversion of 357 shares of Series C Preferred stock and $1,036 of related dividends.
The Series C preferred stock earned dividends of $63,478$64,184 and $50,117$127,662 for the three and six months ended March 31,June 30, 2015, and 2014, respectively. As of March 31,June 30, 2015, no Series C preferred stock dividends have been declared.
Common Stock
On September 3, 2014, the Company held its annual meeting of stockholders. The stockholders approved an amendment to the Company’s Articles of Incorporation to increase the authorized shares of common stock of the Company from 100,000,000 to 250,000,000.
On March 5, 2015, the Company granted 100,000 shares of common stock which vested immediately valued at $5,970 according to the terms of a service agreement. Under the award, the nonemployee was also granted an aggregate of 800,000 additional shares which vest in tranches of 300,000, 250,000 and 250,000 upon the achievement of certain revenue targets. No expense was recognized for these additional shares during the threesix months ended March 31,June 30, 2015.
On March 10, 2015, the Company issued 374,264 shares of common stock in conversion of 357 shares of Series C Preferred stock and $1,036 of related dividends.
On May 19, 2015, the Company granted 100,000 shares of common stock which vested immediately valued at $10,000 according to the terms of a service agreement.
On May 19, 2015, the Company awarded 250,000 shares of common stock which vested immediately valued at $23,000 according to the terms of an employment agreement.
On June 19, 2015, the Company issued 642,330 shares of common stock in conversion of 600 shares of Series C Preferred stock and $2,963 of related Series C dividends.
During threesix months ended March 31,June 30, 2015, the Company recorded an aggregate of $30,840 of stock-based compensation related to the amortization of stock awards to employees and nonemployees. On May 15, 2015, the Company awarded 100,000 common to a nonemployee for services which vest after 60 days. $6,218 was expensed under this award during the six months ended June 30, 2015 which is included in the stock-based compensation of $30,840 for the period. During the six months ended June 30, 2015, the Company issued 333,334 shares of fully vested common stock under previously granted stock awards.
During three months ended March 31, 2015, the Company recorded an aggregate of $26,809 of stock-based compensation related to the amortization of stock awards to employees and nonemployees. On March 5, 2015, the Company awarded 100,000 common to a nonemployee for services which vest after 90 days. $2,178 was expensed under this award during the three months ended March 31, 2015 which is included in the stock-based compensation of $26,809 for the period.
Warrants
A summary of the status of the warrants granted for the threesix months ended March 31,June 30, 2015, and changes during the period then ended is presented below:
| For the Three Months Ended March 31, 2015 | | |
| For the Six Months Ended June 30, 2015 | | For the Six Months Ended June 30, 2015 | |
| | | Shares | | | Weighted Average Exercise Price | | | Shares | | | Weighted Average Exercise Price | |
| Outstanding at beginning of period | | | 10,936,844 | | | $ | 0.23 | | | | 10,936,844 | | | $ | 0.23 | |
| Granted | | | - | | | | - | | | | - | | | | - | |
| Exercised | | | - | | | | - | | | | - | | | | - | |
| Forfeited | | | - | | | | - | | | | (500,000 | ) | | | 0.75 | |
| Expired | | | - | | | | - | | | | - | | | | - | |
| Outstanding at end of period | | | 10,936,844 | | | $ | 0.23 | | | | 10,436,844 | | | $ | 0.21 | |
| | | | | As of March 31, 2015 | | | As of March 31, 2015 | | | | | As of June 30, 2015 | | | As of June 30, 2015 | |
| | | | | Warrants Outstanding | | | Warrants Exercisable | | | | | Warrants Outstanding | | | Warrants Exercisable | |
| Range of Exercise Prices | Range of Exercise Prices | | | Number Outstanding | | | Weighted-Average Remaining Contract Life | | | Weighted- Average Exercise Price | | | Number Exercisable | | | Weighted-Average Exercise Price | | Range of Exercise Prices | | | Number Outstanding | | | Weighted-Average Remaining Contract Life | | | Weighted- Average Exercise Price | | | Number Exercisable | | | Weighted-Average Exercise Price | |
| $ | 0.06 | | | | 4,500,000 | | | | 3.5 | | | $ | 0.06 | | | | 4,500,000 | | | $ | 0.06 | | 0.06 | | | | 4,500,000 | | | | 3.3 | | | $ | 0.06 | | | | 4,500,000 | | | $ | 0.06 | |
| | 0.08 | | | | 550,000 | | | | 2.9 | | | | 0.08 | | | | 550,000 | | | | 0.08 | | 0.08 | | | | 550,000 | | | | 2.7 | | | | 0.08 | | | | 550,000 | | | | 0.08 | |
| | 0.09 | | | | 625,000 | | | | 3.0 | | | | 0.09 | | | | 625,000 | | | | 0.09 | | 0.09 | | | | 625,000 | | | | 2.8 | | | | 0.09 | | | | 625,000 | | | | 0.09 | |
| | 0.15 | | | | 1,571,300 | | | | 2.4 | | | | 0.15 | | | | 1,571,300 | | | | 0.15 | | 0.15 | | | | 1,571,300 | | | | 2.1 | | | | 0.15 | | | | 1,571,300 | | | | 0.15 | |
| | 0.25 | | | | 120,000 | | | | 0.6 | | | | 0.25 | | | | 120,000 | | | | 0.25 | | 0.25 | | | | 120,000 | | | | 0.3 | | | | 0.25 | | | | 120,000 | | | | 0.25 | |
| | 0.40 | | | | 300,000 | | | | 0.3 | | | | 0.40 | | | | 300,000 | | | | 0.40 | | 0.40 | | | | 300,000 | | | | 0.1 | | | | 0.40 | | | | 300,000 | | | | 0.40 | |
| | 0.44 | | | | 1,515,544 | | | | 1.4 | | | | 0.44 | | | | 1,515,544 | | | | 0.44 | | 0.44 | | | | 1,515,544 | | | | 1.1 | | | | 0.44 | | | | 1,515,544 | | | | 0.44 | |
| | 0.50 | | | | 370,000 | | | | 1.0 | | | | 0.50 | | | | 370,000 | | | | 0.50 | | 0.50 | | | | 120,000 | | | | 0.3 | | | | 0.50 | | | | 120,000 | | | | 0.50 | |
| | 0.60 | | | | 975,000 | | | | 1.5 | | | | 0.60 | | | | 975,000 | | | | 0.60 | | 0.60 | | | | 975,000 | | | | 1.2 | | | | 0.60 | | | | 975,000 | | | | 0.60 | |
| | 0.75 | | | | 120,000 | | | | 0.6 | | | | 0.75 | | | | 120,000 | | | | 0.75 | | 0.75 | | | | 120,000 | | | | 0.3 | | | | 0.75 | | | | 120,000 | | | | 0.75 | |
| | 1.00 | | | | 290,000 | | | | 1.1 | | | | 1.00 | | | | 290,000 | | | | 1.00 | | 1.00 | | | | 40,000 | | | | 0.3 | | | | 1.00 | | | | 40,000 | | | | 1.00 | |
| $ | 0.06-1.00 | | | | 10,936,844 | | | | 2.5 | | | $ | 0.23 | | | | 10,936,844 | | | $ | 0.23 | | 0.06-1.00 | | | | 10,436,844 | | | | 2.3 | | | $ | 0.23 | | | | 10,436,844 | | | $ | 0.21 | |
The aggregate intrinsic value of the exercisable warrants as of March 31,June 30, 2015 was $9,000.$148,925.
Stock Options
A summary of the status of the stock options granted for the threesix month period ended March 31,June 30, 2015, and changes during the period then ended is presented below:
| For the Three Months Ended March 31, 2015 |
| | | Options | | | Weighted Average Exercise Price | |
| Outstanding at beginning of period | | | 3,943,500 | | | $ | 0.15 | |
| Granted | | | 150,000 | | | (a) | |
| Exercised | | | - | | | | - | |
| Forfeited | | | - | | | | - | |
| Expired | | | - | | | | - | |
| Outstanding at end of Period | | | 4,093,500 | | | $ | 0.15 | |
For the Six Months Ended June 30, 2015 | |
| | | Options | | | Weighted Average Exercise Price | |
| Outstanding at beginning of period | | | 3,943,500 | | | $ | 0.15 | |
| Granted | | | 150,000 | | | (a) | |
| Exercised | | | - | | | | - | |
| Forfeited | | | - | | | | - | |
| Expired | | | - | | | | - | |
| Outstanding at end of Period | | | 4,093,500 | | | $ | 0.15 | |
| | | | | As of March 31, 2015 | | | As of March 31, 2015 | | | | | As of June 30, 2015 | | | As of June 30, 2015 | |
| | | | | Stock Options Outstanding | | | Stock Options Exercisable | | | | | Stock Options Outstanding | | | Stock Options Exercisable | |
| Exercise Price | Exercise Price | | | Number Outstanding | | | Weighted-Average Remaining Contract Life | | | Weighted- Average Exercise Price | | | Number Exercisable | | | Weighted-Average Exercise Price | | Exercise Price | | | Number Outstanding | | | Weighted-Average Remaining Contract Life | | | Weighted- Average Exercise Price | | | Number Exercisable | | | Weighted-Average Exercise Price | |
| $ | 0.15 | | | | 3,943,500 | | | | 2.39 | | | | 0.15 | | | | 3,826,833 | | | $ | 0.15 | | 0.15 | | | | 3,943,500 | | | | 2.14 | | | | 0.15 | | | | 3,826,833 | | | $ | 0.15 | |
| (a) | (a) | | | | 150,000 | | | | - | | | | - | | | | - | | | | - | | (a) | | | | 150,000 | | | | - | | | | - | | | | - | | | | - | |
| $ | 0.15 | | | | 4,093,500 | | | | 2.39 | | | | 0.15 | | | | 3,826,833 | | | $ | 0.15 | | 0.15 | | | | 4,093,500 | | | | 2.14 | | | | 0.15 | | | | 3,826,833 | | | $ | 0.15 | |
| (a) | On January 1, 2015, the company granted three tranches of options, 25,000, 25,000, and 100,000 which vest upon meeting specific performance measures agreed upon. The measures include achieving three specific sales targets per month for 3 consecutive months. The exercise price and expiration date of each tranche will be set upon achieving the targets. As of the date of this filing the performance measures have not been met. As a result the exercise price is undetermined and these options are excluded from the calculation of weighted average remaining life. |
The aggregate intrinsic value of the exercisable options as of March 31,June 30, 2015 was $0.
NOTE 5 – DERIVATIVE LIABILITIES
As of December 31, 2013, the Company did not have a sufficient number of common shares authorized to fulfill the possible exercise of all outstanding warrants and the conversion of all convertible notes payable. As a result, the Company determined that the warrants and the embedded conversion features of the outstanding debt instruments did not qualify for equity classification. Accordingly, the warrants and conversion features were treated as derivative liabilities and were carried at fair value. During the year ended December 31, 2014, all of the outstanding convertible notes that qualified as derivative liabilities were paid in full or converted to common stock. As of March 31,June 30, 2015, only 910,000410,000 warrants remained as derivative liabilities due to the existence of reset provisions that qualify the instruments as derivative liabilities under FASB ASC 815.
The following table sets forth the fair value hierarchy within our financial assets and liabilities by level that they were accounted for at fair value on a recurring basis as of March 31,June 30, 2015 and December 31, 2014.
| | | | | Fair Value Measurement at March 31, 2015 | | | | | Fair Value Measurement at June 30, 2015 | |
| Liabilities: | | Carrying Value at March 31, 2015 | | | Level 1 | | | Level 2 | | | Level 3 | | | Carrying Value at June 30, 2015 | | | Level 1 | | | Level 2 | | | Level 3 | |
| Warrant derivative liabilities | | $ | 1,399 | | | $ | - | | | $ | - | | | $ | 1,399 | | | $ | 497 | | | $ | - | | | $ | - | | | $ | 497 | |
| Total | | $ | 1,399 | | | $ | - | | | $ | - | | | $ | 1,399 | | | $ | 497 | | | $ | - | | | $ | - | | | $ | 497 | |
| | | | | | | | | |
| | | | | | | Fair Value Measurement at December 31, 2014 | |
| Liabilities: | | Carrying Value at December 31, 2014 | | | Level 1 | | | Level 2 | | | Level 3 | |
| Warrant derivative liabilities | | $ | 1,708 | | | $ | - | | | $ | - | | | $ | 1,708 | |
| Total | | $ | 1,708 | | | $ | - | | | $ | - | | | $ | 1,708 | |
The Company estimates the fair value of the derivative warrant liabilities by using the Black-Scholes Option Pricing Model and the derivative liabilities related to the conversion features in the outstanding convertible notes using the lack-Scholes Option Pricing Model assuming maximum value, Level 3 inputs, with the following assumptions used:
| Dividend yield: | | 0% | |
Expected volatility | | 78% to 237% | |
Risk free interest rate | | 0.13% to 1.07% | |
Expected life (years) | | 0.58 to 2.32 | |
The following table sets forth the changes in the fair value of derivative liabilities for the threesix months ended March 31,June 30, 2015:
| Balance, December 31, 2014 | | $ | (1,708 | ) |
| Gain on change in fair value of derivative liabilities | | | 309 | |
| Balance, March 31, 2015 | | $ | (1,399 | ) |
| Balance, December 31, 2014 | | $ | (1,708 | ) |
| Derivative warrants exchanged for debt | | | 1,693 | |
| Loss on change in fair value of derivative liabilities | | | (482 | ) |
| Balance, June 30, 2015 | | $ | (497 | ) |
The aggregate gainloss on derivative liabilities for the threesix months ended March 31,June 30, 2015 was $309.$482.
NOTE 6 – RELATED PARTY TRANSACTIONS
On June 15, 2015, the Company, together with certain of its subsidiaries, entered into a term loan agreement (the “Loan Agreement”) with The James W. Stuckert Revocable Trust (“SRT) and The S. Oden Howell Revocable Trust (“HRT”), pursuant to which SRT made a loan to the Company in the amount of $600,000 and HRT made a loan to the Company in the amount of $600,000 under Senior Secured Convertible Promissory Notes (the “Notes”). Both SRT and HRT are controlled by affiliates of the Company. The Notes each carry an interest rate of 10% per annum, and (subject to various default provisions) all unpaid principal and accrued but unpaid interest under the Notes is due and payable on June 15, 2018. The Notes may be prepaid in whole or in part upon ten days’ written notice, and all unpaid principal and accrued interest under the Notes may be converted, at the option of SRT and HRT, 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 maturity.
On October 10, 2013 and October 15, 2013, the Company borrowed $1 million and $200,000 under convertible notes bearing interest at 8% per annum from Brookhaven Medical, Inc (“BMI”) where the CEO of BMI is a board member of the Company. The notes may be converted, at the option of BMI, into shares of the Company’s Series C Preferred Stock at a conversion price of $70 per share. The Company’s obligations under the first BMI Note are secured by all the assets of the Company and its subsidiaries. The notes arewere due on AprilJune 15, 2015. As of March 31,June 30, 2015 and December 31, 2014, the outstanding balance under the convertible notes to related party was $1,200,000.$0 and $1,200,000, respectively. As noted in previous filings, On June 15, 2015 the Company used proceeds from The above mentioned note (with The James W. Stuckert Revocable Trust (“SRT) and The S. Oden Howell Revocable Trust (“HRT”)) to pay $1,100,000 of outstanding unpaid principal and accrued but unpaid interest under the Senior Secured Convertible Promissory Note issued to Brookhaven Medical, Inc. pursuant to a loan agreement dated October 11, 2013. The remaining $100,000 of outstanding principal was forgiven during the six months ended June 30, 2015. This forgiveness of related party debt was recognized as a capital transaction.
On September 29, 2009, the Company entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”), by and among the Company, RSI-ACQ, LLC, a wholly-owned subsidiary of the Company (RSI), Resorbable Orthopedic Products, LLC (“Resorbable”) and Resorbable’s members, pursuant to which, RSI acquired substantially all of Resorbable’s assets, in exchange for (i) 500,000 shares of the Company’s common stock, and (ii) a royalty equal to eight percent (8%) of the net revenues generated from products sold by the Company or any of its affiliates, which products are developed from or otherwise utilize any of the patented technology acquired from Resorbable. The royalty is paid to Dr. Barry Constantine whom is an employee and hold the positon of Director of R&D.
NOTE 7 – CAPITAL LEASE OBLIGATION
In December 2014, the Company entered into a Capital Lease agreement for the purchase of a phone system. The agreement required a down payment of $2,105 and 36 monthly payments of $375. The Company recorded an asset of $13,512 and a capital lease obligation of $13,512. Aggregate payments made under the lease were $1,125 for the threesix months ended March 31,June30, 2015. At March 31,June 30, 2015 a total lease liability of $12,012 remained. Of that, $4,504 will be due in the next 12 months.
NOTE 8 - SUBSEQUENT EVENTS15
On April 17, 2015, the Company paid $48,000 of accrued interest related to the BMI Convertible notes in the combined principal amount of $1,200,000.
As a smaller reporting company, we are not required to provide this information.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit to the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms, and that information is accumulated and communicated to our management, including our principal executive and principal financial officer (whom we refer to in this periodic report as our Certifying Officer), as appropriate to allow timely decisions regarding required disclosure. Our management evaluated, with the participation of our Certifying Officer, the effectiveness of our disclosure controls and procedures as of March 31,June 30, 2015, pursuant to Rule 13a-15(b) under the Securities Exchange Act. Based upon that evaluation, our Certifying Officer concluded that, as of March 31,June 30, 2015, our disclosure controls and procedures were not effective to due to deficiencies in our controls over valuation of embedded derivatives.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We will continue to evaluate the effectiveness of internal controls and procedures on an on-going basis.
PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On November 14, 2011, Ken Link instituted litigation against the Company and Scott A. Haire in the District Court of Tarrant County Texas, 342nd Judicial District alleging default under the terms of a certain promissory note executed by Wound Management Technologies, Inc. and guaranteed by Scott A. Haire. Ken Link asserts that the unpaid balance of the note, including accrued interest as of December 4, 2011, is the sum of $355,292 plus 200,000 shares of the Company’s common stock. Mr. Link is also seeking attorney’s fees. We have disputed the claim, because we believe the contract is tainted by usury, and therefore, a usury counterclaim will more than offset the unpaid balance of the promissory note. The note, in the original principal amount of $223,500, required the payment of interest accrued at 13% per annum, an additional one-time charge of $20,000 due on maturity, the issuance of 200,000 shares of stock as interest, and a $1,000 per day late fee for each day the principal and interest is late. It is our contention that these sums make the contract usurious and the usury claims more than offset the amount of the unpaid indebtedness. Furthermore, we have filed an action for recovery of damages for usury under the Texas Finance Code for a note which was previously executed by the Company and payable to Ken Link, which was in fact paid to Mr. Link in full. In addition, Wound Management is seeking recovery of attorney’s fees pursuant to the usury provisions of the Texas Finance Code. While the amount of the promissory note remains unpaid, the counterclaims more than offset the maximum amount that could be asserted on the promissory note. The case was set for trial for the week of October 21, 2013, but after three days of trial before a jury, the judge declared a mistrial. The case has now been reset for trial for the week of July 20, 2015. Subsequent to the declaration of mistrial, Ken Link amended his pleadings and alleges now that Wound Management Technologies, Inc. never intended to pay the $223,500.00 promissory note, which included $1,000.00 per day late charge, a $20,000.00 one-time fee, and 200,000 shares of stock, and asserting a damage claim of $223,500.00 and the loss of the benefit of the bargain related to the shares of stock, plus interest as set forth in the note, exemplary damages, and attorney's fees. We are taking steps to vigorously defend this matter, however, we are unable at this time to determine the ultimate outcome of this matter or determine the effect it may have on our business, financial condition or result of operations.None.
On February 13, 2015, Wound Management Technologies, Inc. was served with a lawsuit styled Beeleve LLC v. Wound Management Technologies, Inc., in the 95th District Court of Dallas County, Texas. The action is a suit of apparently seeking the rights under a promissory note, which was originally executed to MAH Holdings, LLC. Discovery has commenced. The case is currently set for trial for October 19, 2015. We are taking steps to vigorously defend this matter, however, we are unable at this time to determine the ultimate outcome of this matter or determine the effect it may have on our business, financial condition or result of operations.
As a smaller reporting company, we are not required to provide this information.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Set forth below is information regarding the issuance and sales of the Company’s securities without registration for the three months ended March 31,June 30, 2015. The securities bear a restrictive legend and no advertising or public solicitation was involved. The Company did not purchase any of its own securities during the quarter ended March 31,June 30, 2015.
As further described in Part I – Financial Information “Notes to Unaudited Condensed Consolidated Financial
Statements” filed herewith:
On January 1,herewith, on June 26, 2015, the company granted to certain third party service providers optionsCompany entered into an Exchange Agreement with Tonaquint, Inc., a Utah corporation (“Tonaquint”), under which Tonaquint was issued a convertible promissory note (the “Note”) in exchange for the purchasesurrender of common stock warrants originally issued by the Company to Tonaquint pursuant to a totalSecurities Purchase Agreement dated June 21, 2011. The Note is in the original principal amount of 150,000$200,000, carries a 5% rate of interest, and matures on September 26, 2016. The Note provides for an initial cash installment payment of $10,000, with subsequent monthly cash installment payments beginning in December of 2015. Each such monthly installment payment may be made, at the Company's option, in shares of common stock, such options to be vested and priced based upon specific sales targets and other agreed-upon performance measures.
On March 5, 2015, the Company granted 100,000 shares of common stock valued at $5,970 according to the terms of a service agreement. Additionally, the company made grantsstock. Subject to certain third party service providersconditions, the number of shares issuable in lieu of cash installment payments is determined based on a totalconversion price equal to 90% of 800,000 shares to be vested and priced based upon specific sales targets and other agreed-upon performance measures.the five-day volume weighted average trading price of the Company's common stock.
On March 5, 2015, the Company awarded 100,000 shares of common stock to a nonemployee for services rendered.
On March 10, 2015, the Company issued 374,264 shares of common stock in conversion of 357 shares of Series C Preferred stock and $1,036 of related dividends.
The issuancesissuance described above werewas made in a private transactionstransaction or private placementsplacement intending to meet the requirements of one or more exemptions from registration. In addition to any noted exemption below, we relied upon Section 4(a)(2) of the Securities Act of 1933, as amended (the “Act”). The investors were not solicited through any form of general solicitation or advertising, the transactions being non-public offerings, and the sales were conducted in private transactions where the investor identified an investment intent as to the transaction without a view to an immediate resale of the securities; the shares were “restricted securities” in that they were both legended with reference to Rule 144 as such and the investors identified they were sophisticated as to the investment decision and in most cases we reasonably believed the investors were “accredited investors” as such term is defined under Regulation D based upon statements and information supplied to us in writing and verbally in connection with the transactions.securities. We have never utilized an underwriter for an offering of our securities and no sales commissions were paid to any third party in connection with the above-referenced sales.
None.
ITEM 4. MINE SAFETY DISCLOSURE
This item is not applicable.
ITEM 5. OTHER INFORMATION
None.
The following documents are filed as part of this Report:
| Exhibit No. | | Description |
| | | |
3.1*10.1 | | First Amendment to ArticlesShipping and Consulting Agreement (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed June 5, 2015) |
| | |
| 10.2 | | Term Loan Agreement between Wound Management Technologies, Inc. and The James W. Stuckert Revocable Trust and The S. Oden Howell Revocable Trust (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed June 18, 2015) |
| | |
| 10.3 | | Senior Secured Convertible Promissory Note in Favor of IncorporationThe James W. Stuckert Revocable Trust (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed June 18, 2015) |
| | |
| 10.4 | | Senior Secured Convertible Promissory Note in Favor of The S. Oden Howell Revocable Trust (filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed June 18, 2015) |
| | |
| | Exchange Agreement dated June 26, 2015 between Wound Management Technologies, Inc. and Tonaquint, Inc. |
| | |
| | Convertible Promissory Note dated June 26, 2015 between Wound Management Technologies, Inc. and Tonaquint, Inc. |
| | | |
| | Certification of Principal Executive Officer in accordance with 18 U.S.C. Section 1350, as adopted by Section 302 of the Sarbanes-Oxley Act of 2002* |
| | | |
| | Certification of Principal Financial Officer in accordance with 18 U.S.C. Section 1350, as adopted by Section 302 of the Sarbanes-Oxley Act of 2002* |
| | | |
| | Certification of Principal Executive Officer in accordance with 18 U.S.C. Section 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002* |
| | | |
| | Certification of Principal Financial Officer in accordance with 18 U.S.C. Section 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002* |
| | | |
| 101 | | Interactive Data Files pursuant to Rule 405 of Regulation S-T. |
* Filed herewith
Pursuant to the requirements of the Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | WOUND MANAGEMENT TECHNOLOGIES, INC. | |
| | | | |
May 15,August 17, 2015 | By: | /s/ Darren E. Stine | |
| | | Darren E. Stine, | |
| | | Chief Financial Officer | |
| | | | |
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