Notes to Financial Statements

(Unaudited)

Note 1 – Basis of Presentation, Description of Business, Significant Accounting Policies, Critical Accounting Estimates and Reclassification

Description of Business

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

The accompanying unaudited interim financial statements of Revolutions Medical Corporation have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission (“SEC”), and should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s annual report for the year ended December 31, 2013 on Form 10-K filed on April 14, 2014.

In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein.  The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosure contained in the audited consolidated financial statements for the most recent fiscal year ended December 31, 2013 have been omitted.

Significant Accounting Policies

Development Stage Company

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

Cash and Cash Equivalents

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

Accounts Receivable 

The Company records trade receivables when revenue is recognized.  The Company’s allowance for doubtful accounts is primarily determined by review of specific trade receivables.  Those accounts that are doubtful of collection are included in the allowance.  These provisions are reviewed to determine the adequacy of the allowance for doubtful accounts.  Trade receivables are charged off when there is certainty as to their being uncollectible.  Trade receivables are considered delinquent when payment has not been made within contract terms. 

The Company requires certain distributors to make a prepayment prior to beginning production or shipment of their order.  Distributors may apply such prepayments to their outstanding invoices or pay the invoice and continue to carry forward the deposit for future orders.  Such amounts are included in unearned revenue on the balance sheets.  The Company records an allowance for estimated returns as a reduction to accounts receivable and gross profit.  To date, returns have been immaterial. 

Inventory

Inventory includes only finished goods and is valued at the lower of cost or market, with cost being determined using weighted average cost.  The Company compares the average cost to the market price and records the lower value.  Management considers such factors as the amount of inventory on hand and in the distribution channel, estimated time to sell such inventory, the shelf life of inventory, and current market conditions when determining excess or obsolete inventories.  A reserve is established for any excess or obsolete inventories or they may be written off. As of March 31, 2014 and December 31, 2013, no allowance for inventory was recorded. 

Property and Equipment

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

Depreciation and amortization expense is recorded on a straight-line basis over the estimated useful life of the asset as listed below: 

Intangibles

Intangible assets include patents and trademarks, which are valued at cost and amortized on a straight-line basis over periods varying from 17 to 20 years.

Impairment of Long-lived Assets  

The Company reviews the carrying value of the long-lived assets periodically to determine if facts and circumstances exist that would suggest that assets might be impaired or that the useful lives should be modified. Among the factors the Company considers in making the evaluation are changes in market position and profitability. If facts and circumstances exist which may indicate impairment, the Company will prepare a projection of the undiscounted cash flows of the asset group and determine if the long-lived assets are recoverable based on these undiscounted cash flows. If impairment is indicated, an adjustment will be made to reduce the carrying amount of these assets to their fair value. 

Research and Development  

Research and development costs are expensed as incurred.  The Company incurred $0, $0 and $2,935,949 of research and development expenses for the three months ended March 31, 2014 and 2013, and for the period from August 16, 1996 (inception) through March 31, 2014, respectively.

Beneficial Conversion Feature  

From time to time, the Company may issue convertible notes that have conversion prices that create an embedded beneficial conversion feature on the issuance date. A beneficial conversion feature exists on the date a convertible note is issued when the fair value of the underlying common stock to which the note is convertible into is in excess of the remaining unallocated proceeds of the note after first considering the allocation of a portion of the note proceeds to the fair value of any attached equity instruments, if any related equity instruments were granted with the debt. The intrinsic value of the beneficial conversion feature is recorded as a debt discount with a corresponding amount to additional paid-in capital.  The debt discount is amortized to interest expense over the life of the note using the effective interest method. 

Derivative Instruments  

Derivatives are measured at their fair value on the balance sheet.  In determining the appropriate fair value, the Company uses the Black-Scholes-Model option pricing model (“Black-Scholes Model”).  Changes in fair value are recorded in the statement of operations. 

Fair Value of Financial Instruments  

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

The following table summarizes fair value measurements by level at March 31, 2014, for assets and liabilities measured at fair value on a recurring basis: 

The following table summarizes fair value measurements by level at December 31, 2013, for assets and liabilities measured at fair value on a recurring basis: 

Revenue Recognition

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

Share-based Compensation

The Company estimates the fair value of each stock option award at the grant date by using the Black-Scholes Model and value of common shares based on the trading price on the date of the share grant. The fair value determined represents the cost for the award and is recognized over the vesting period during which an employee is required to provide service in exchange for the award. As share-based compensation expense is recognized based on awards ultimately expected to vest, the Company reduces the expense for estimated forfeitures based on historical forfeiture rates. Previously recognized compensation costs may be adjusted to reflect the actual forfeiture rate for the entire award at the end of the vesting period. Excess tax benefits, if any, are recognized as an addition to paid-in capital. 

Income Taxes

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

Earnings (Loss) Per Common Share

Basic net income (loss) per common share is calculated by dividing net income (loss) available to common stockholders for the period by the weighted average shares of common stock outstanding during the period. Diluted net income per common share is computed by dividing the net income for the period by the weighted average number of common and common equivalent shares outstanding during the period. The calculation of diluted income (loss) per common share assumes the dilutive effect of stock options, warrants and any other potentially dilutive securities outstanding. During a loss period, the potentially dilutive securities have an anti-dilutive effect and are not included in the calculation of dilutive net loss per common share. For the three months ended March 31, 2014, potentially issuable shares, including options and warrants to purchase 11,249,008 shares of the Company’s common stock and notes payable convertible to 57,426,272 shares of the Company’s common stock have been excluded from the calculation. For the three months ended March 31, 2013, potentially issuable shares, including options and warrants to purchase 18,689,008 shares of the Company’s common stock and notes payable convertible to 8,577,214 shares of the Company’s common stock, have been excluded from the calculation.

Subsequent Events

The Company has evaluated all transactions occurring between the three months ended March 31, 2014, through the date of issuance of the financial statements for subsequent event disclosure consideration.

Critical Accounting Estimates

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

New and Pending Accounting Standards

The Company does not anticipate that any recently issued accounting pronouncements will have a significant impact on the results of operations, financial position, or cash flows of the Company. In addition, the Company is evaluating other accounting standards and exposure drafts, such as exposure drafts related to revenue recognition, leases and fair value measurements, that have been issued or proposed by the FASB or other standard setting bodies that do not require adoption until a future date to determine whether adoption will have a material impact on the Company’s financial statements.

Note 2 – Going Concern

The accompanying financial statements have been prepared assuming the Company will continue as a going concern. The Company has not established significant sources of revenue to fund the development of its business and pay operating expenses, resulting in a cumulative net loss of $45,292,722 for the period from inception (August 16, 1996) to March 31, 2014 and a working capital deficit of $8,384,181 at March 31, 2014. The ability of the Company to continue as a going concern during the next year depends on successful sales of its RevVac™ Safety Syringe and completion of the Company’s capital raising efforts to fund the development of its 1ml, 5ml and 10ml auto-retractable vacuum safety syringes. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

For the three months ended March 31, 2014 and 2013, the Company recognized depreciation and amortization expense related to property and equipment of $19,429 and $21,617, respectively.

The Company owns one U.S. patent on its vacuum safety blood drawing device issued in 2003. The Company owns two U.S. patents on its RevVac™ auto retractable vacuum safety syringe, the first issued in January 2005 and the second issued in January 2009 (see Note 10). The RevVac™ auto retractable vacuum safety syringe has international patents issued in China, Japan, and Mexico, and are pending issuance in Australia, Canada, Taiwan, and the European Union. The Company filed U.S. and international Patent Cooperation Treaty provisional patents on vacuum auto retraction designs for a prefilled safety syringe in 2011 and 2012, respectively. In 2013, the Company has decided not to pursue the issuance of its imaging segmentation software patents as written but has made improvements to the software technology and intends to file new provisional patents and copyright protection on these software improvements in the future.

For the three months ended March 31, 2014 and 2013, the Company recognized amortization expense of $960 and 2,559, respectively.

As of March 31, 2014 and December 31, 2013, the Company accrued $ 675,057 and $607,134, respectively, pursuant to state and federal payroll tax liabilities and related penalties.  Although the Company plans to settle these amounts, there is no assurance that its efforts to settle will be successful.  Tax liens in the aggregate amount of $6,164 were filed against the Company as of December 31, 2013 by the South Carolina Department of Revenue due to these delinquent payments and failure to file the required tax forms.  Tax liens in the aggregate amount of $675,057 were filed against the Company as of April 15, 2014 by the Internal Revenue Service due to these delinquent payments and failure to file the required tax forms. In October 2013, the Company obtained representation and is negotiating with the taxing authorities to resolve these liabilities.

Note 6 – Payable to Yeso-med

On December 1, 2011, the Company entered into a 5-year agreement with Wuxi Yushou Medical Appliance Co., Ltd (“Yeso-med”). Pursuant to the agreement, commencing from the date that Yeso-med demonstrates to the Company’s satisfaction that it has the capacity to commence regular production of the syringes in the 3ml size in the minimum amount of at least 2,500,000 units per month, the Company will place orders of at least 2,500,000 units per month for the term of this agreement. If the Company does not place with Yeso-med the minimum order for a single month, Yeso-med shall have the right to receive payments from the Company equal to 50% of the supply price of each unit below the minimum order amount required for that month.  The Company has the right to have the amount paid under this requirement to serve as payment against future orders provided the quantity ordered exceeds the minimum quantity for that month. In July 2012, Yeso-med met the capacity requirement. However, the Company has not yet placed an order as of March 31, 2014.  As of March 31, 2014 and December 31, 2013, a payable was recorded to Yeso-med related to this minimum purchase requirement of $3,209,055 and $2,749,075, respectively. During the three months ended March 31, 2014 and 2014, $459,980 and 484,091 was recorded as a loss on firm purchase commitments.

The payable to Yeso-med also included amounts due for product purchased of $208,501 and amounts due for equipment purchased of $289,519 as of March 31, 2014 and December 31, 2013, respectively.

Note 7 – Payable for Indemnification

On February 5, 2009, the Company entered into an Indemnification Settlement Agreement with Gifford M. Mabie, founder and former Chief Executive Officer of the Company. Pursuant to the agreement, the Company agreed to indemnify Mr. Mabie for the payment of penalties, prejudgment interest and post-judgment interest to the SEC that is part of the Final Judgment, dated March 11, 2005, in SEC v. Maxxon, Inc., Gifford M. Mabie, Jr., Thomas R. Coughlin, Jr. 02-CV-975-H(J) which resulted from actions taken in good faith by Messrs. Mabie and Coughlin in the performance of duties as an officer and directors of the Company.  The payment amount stated in the Final Judgment was $1,088,067.

The agreement specifies that the Company is to periodically issue shares of its common stock to a special account for Mr. Mabie so that shares can be sold each day the market is open until the liability is satisfied.  The special account was initially funded by common stock owned by Mr. Mabie. The total number of shares sold from the special account is limited to 5% of the total trading volume each day. A percentage equal to Mr. Mabie’s federal and state tax liabilities up to a maximum of 40% will be retained by the brokerage firm administering the special account and remitted to the Internal Revenue Service and to the Oklahoma Tax Commission or the tax commission having jurisdiction in the state in which Mr. Mabie resides. In the event that Mr. Mabie is entitled to a tax refund, the refund will be remitted to the SEC.

On December 14, 2010, the Company issued 400,000 shares of the Company’s common stock, initially valued at $184,000, to the special account. An additional 400,000 shares were issued to the special account on March 15, 2012 with a value of $140,560 determined based upon the 10-day average share price prior to the date of issuance.  At each reporting date, the Company revalues the shares held in the special account and adjusts the outstanding balance. Net increases and decreases in the value of the Company’s common shares held in the special account are recorded in the current period statement of operations. As of March 31, 2014 and December 31, 2013, the remaining principal balance, including the estimated taxes, to be paid was $1.4 million, based upon the Company’s valuation of the stock. For the three months ended March 31, 2014 and 2013, the net loss related to shares of the Company’s common stock held in the special account was $0 and $7,929, respectively. As of March 31, 2014 and December 31, 2013, there were 301,463 shares of the Company’s common stock held in the special account.

JMJ Financial

On February 22, 2011, the Company issued a convertible promissory note in the amount of $1,050,000 to JMJ Financial, Inc. (“JMJ”). The note bears interest in the form of a one-time interest charge of 8%, payable with the note’s principal amount on the maturity date, February 22, 2014. The note is convertible to the Company’s common stock at a price equal to 70% of the average of the three lowest closing market prices of the Company’s common stock for the 20 trading days prior to the conversion date. In connection with the note, the Company entered into a registration rights agreement with JMJ to provide JMJ registration rights for common shares underlying this note. The note will only be funded when the conversion price calculated on each payment date is equal to or greater than $0.015 per share and there are sufficient shares remaining in the registration statement. The principal amount owed to JMJ at March 31, 2014 and December 31, 2013 was $191,663 under the convertible promissory note. The Company analyzed the JMJ note for derivative accounting consideration and determined that the note qualifies for accounting treatment as a financial derivative and recorded an initial discount of $450,000 on the issuance date. During the three months ended March 31, 2014 and 2013, the Company recorded $11,229 and $19,726 of interest expense related to the amortization of the debt discount. At March 31, 2014 and December 31, 2013, there was $0 and $11,229, respectively, of unamortized debt discount related to the JMJ notes.  The Company is currently in litigation with JMJ. See Note 10.

Asher Enterprises

On February 28, 2014, the Company issued convertible promissory notes to Asher Enterprises for proceeds of $53,000 in cash (the “2014 Asher Note”). The note is convertible to the Company’s common stock at a conversion price equal to the greater of (1) 55% multiplied by the average of the lowest three trading prices for the Company’s common stock during the 10 trading day period ending on the latest completed trading day prior to the conversion date and (2) a fixed conversion price of $0.00005 per share. The Company analyzed the 2014 Asher Note for derivative accounting consideration and determined that the conversion feature of these notes qualify for accounting treatment as a financial derivative. The conversion feature of the note was valued at $72,298 on the issuance date. As a result, the note was fully discounted and the fair value of the conversion feature in excess of the principal amount allocated to the note in the amount of $19,298 was expensed immediately as additional interest expense. During the three months ended March 31, 2014, the Company recognized $54,360 of aggregate interest expense related to the amortization of the debt discount on all Asher notes. 

At March 31, 2014, there was $93,126 of unamortized discount related to the unconverted Asher notes with a total principal balance of $143,000.

During the first quarter of 2014, Asher Enterprises converted principal of $35,000 with accrued interest related to a note issued in 2013 into 2,440,149 shares of the Company’s common stock.

Carebourn Capital

On March 17, 2014, the Company issued a convertible promissory note to Carebourn Capital for proceeds of $15,000 in cash (“2014 Carebourn Note”). The note is convertible to the Company’s common stock at a conversion price equal to the greater of (1) 55% multiplied by the average of the lowest three trading prices for the Company’s common stock during the 10 trading day period ending on the latest completed trading day prior to the conversion date (2) a fixed conversion price of $0.00009 per share.

The Company analyzed the 2014 Carebourn Notes for derivative accounting consideration and determined that the conversion feature of these notes qualify for accounting treatment as a financial derivative. The conversion features of these notes were valued at $31,493 on the issuance date. As a result, the notes were fully discounted and the fair value of the conversion feature in excess of the principal amount allocated to the note in the amount of $16,493 was expensed immediately as additional interest expense. During the three months ended March 31 2014, the Company recognized $21,591 of aggregate interest expense related to the amortization of the debt discount on all Carebourn notes.

At March 31, 2014, there was $38,673 of unamortized discount related to the unconverted Carebourn notes with a total principal balance of $75,000.

TCA Global Credit Master Fund, LP

2013 TCA Securities Purchase Agreement

On April 26, 2013, the Company entered into a securities purchase agreement with TCA, pursuant to which, TCA shall purchase from the Company up to $2,000,000 of senior secured convertible redeemable debentures (the “Debentures”). The Debentures will be purchased in a series of closings and pursuant to the first such closing, TCA purchased that certain senior convertible redeemable debenture in the amount of $250,000. 

The Debentures were issued at 7% original issue discount and the discount of $17,500 is amortized over one year, the term of the Debentures, using the straight-line method which approximates the effective interest method due to the short term nature of the note. The note bears interest at a rate of 12% per annum and the Company shall make monthly payments of principal and interest commencing on May 26, 2013 with the first two payments only including interest. During 2013, the Company made principal payments of $77,656 and interest payments of $11,781 to TCA. As of March 31, 2014, the Company was not in compliance with the financial covenants of this credit facility as it was unable to make the scheduled principal and interest payments since November 2013. On February 24, 2014, TCA filed in a Florida court to seek unpaid monthly payments, default interest and penalties related to this facility as part of the credit facility agreement. The Company became delinquent on payments and was notified of default on January 24, 2014. The Company is working with TCA on an amicable payment of past due amounts and seeks to pay the amount left owed to TCA after it receives disbursements from legal settlements, issuance of additional shares, and or proceeds from anticipated sales.

The Debentures are convertible at a price determined by multiplying 85% of the average daily volume weighted average price of the Company’s common stock during the five business days immediately preceding the date of conversion. The Company analyzed the Debentures for derivative accounting consideration and determined that the Debentures qualify for accounting treatment as a financial derivative. The conversion feature of the Debentures was valued at $218,053 on the issuance date and recorded as debt discount. As of March 31, 2014, there was $12,072 of unamortized debt discount related to the Debentures.

The Company also issued to TCA 9,375,000 shares, which were pledged as security for the securities purchase agreement and was held with an escrow agent until such time as the full payment and performance of all of the obligations of the Company have been satisfied in accordance with the terms of the agreement. The Company also granted TCA the right to vote and receive dividends during the period the 9,375,000 shares were held by the escrow agent. The Company recorded shares issued at par value of $9,375 with an offset to additional paid-in capital.

On May 9, 2013, the Company issued 2,000,000 restricted shares to pay for the $100,000 facility fee pursuant to the 2013 TCA securities purchase agreement entered into on April 26, 2013 with TCA. TCA will return all remaining shares to the Company if total net proceeds of $100,000 are reached. The Company will pay cash or issue additional shares if a total of 2,000,000 shares are sold and net proceeds do not total $100,000. The Company has the right to redeem any shares then in TCA’s possession for an amount equal to the $100,000 facility fee less any net proceeds received by TCA from the sales of the Company’s shares. On the issuance date, the Company recorded an expense of $160,000 for the issuance of 2,000,000 shares based on the stock price. At December 31, 2013, TCA had not sold any of the 2,000,000 shares. Accordingly, during the year ended December 31, 2013, the Company accrued an additional expense of $60,000 which represents the difference between the $100,000 facility fee and the fair market value of the 2,000,000 shares at December 31, 2013 of $0.02 per share. No shares were sold by TCA during the three months ended March 31, 2014 and the stock price of the Company’s common stock was $0.02 per share at March 31, 2014.

2013 Individual Convertible Notes Payable

On September 3, 2013, the Company issued a $35,000 convertible note to an individual. The note matures one year from the date of issuance. Interest accrues at the rate of 8% per year on the outstanding principal amount to be paid at maturity. The principal amount of the Individual Convertible Notes and accrued interest are convertible into the Company’s common stock at a conversion price equal to 75% of the average of the daily volume weighted average prices of the Company's Common Stock during the five trading days immediately prior to the conversion date. The Company analyzed the note for derivative accounting consideration and determined that the conversion feature of the note qualifies for accounting treatment as a financial derivative. The conversion feature of this note was valued at $37,837 on the issuance date. As a result, the note was fully discounted and the fair value of the conversion feature in excess of the principal amount allocated to the note of $2,837 was expensed immediately as additional interest expense. During three months ended March 31, 2014, the Company recognized $9,014 of interest expense related to the amortization of the debt discount. At March 31, 2014, there was $14,384 of unamortized discount related to the note.  

On October 9, 2013, the Company issued six convertible notes in an aggregate amount of $140,862 to an individual to settle amounts owed by the Company for legal services rendered to the Company. The notes are callable at any time by the holder subsequent to the six month anniversary of the issuance date. Interest accrues at the rate of 12% per year on the outstanding principal amount to be paid at maturity. The principal amount of the note and accrued interest are convertible into the Company’s common stock at a conversion price equal to the average five trading day closing price of the Company’s common stock during the five trading days immediately prior to the conversion date multiplied by two. The Company analyzed the notes for derivative accounting consideration and determined that the conversion feature of the notes qualifies for accounting treatment as a financial derivative. The conversion feature of the notes was valued at an aggregate amount of $35,709 on the issuance date. During the three months ended March 31, 2014, the Company recognized $17,660 of interest expense related to the amortization of the debt discount. At March 31, 2014, there was $1,765 of unamortized discount related to the notes. The Company has determined that it has grounds to dispute the amounts owed to the individual for legal services rendered represented by the aggregate principal amount of the notes.

On March 17, 2014, the Company issued convertible notes to two individuals for proceeds of $15,000 each in cash. The notes mature nine months from the date of issuance. Interest accrues at the rate of 8% per year on the outstanding principal amount to be paid at maturity. The notes are convertible to the Company’s common stock at a conversion price equal to 55% multiplied by the average of the lowest three trading prices for the Company’s common stock during the 10 trading day period ending on the latest completed trading day prior to the conversion date. The Company analyzed the notes for derivative accounting consideration and determined that the conversion feature of the notes qualify for accounting treatment as a financial derivative. The conversion feature of the notes was valued at $69,376 on the issuance date. As a result, the note was fully discounted and the fair value of the conversion feature in excess of the principal amount allocated to the note of $39,376 was expensed immediately as additional interest expense. During three months ended March 31, 2014, the Company recognized $1,528 of interest expense related to the amortization of the debt discount. At March 31, 2014, there was $28,473 of unamortized discount related to the note.  

Note 9 – Derivatives – Note Conversion Feature

Due to the conversion feature contained in some of the notes the Company issued, the actual number of shares of common stock that would be required if a conversion of the notes was made through the issuance of the Company’s common stock cannot be predicted, and the Company could be required to issue an amount of shares that may cause it to exceed its authorized share amount. As a result, the conversion feature requires derivative accounting treatment and will be bifurcated from the note and “marked to market” each reporting period through the income statement. The fair value of the conversion feature of these notes was recognized as a derivative liability instrument and will be measured at fair value at each reporting period. In determining the fair value, the Company uses the Black-Scholes Model. In addition, the fair value of freestanding derivative instruments such as warrants, are also valued using the Black-Scholes Model.

The following is a summary of the activity of the derivative liability for the three months ended March 31, 2014:

The derivative liability was valued using the Black-Scholes Model with the following assumptions:

Note 10 – Commitments and Contingencies

KVM Capital Partners Investment Agreement

On June 11, 2013, the Company entered into an Investment Agreement (the “Investment Agreement”) with KVM Capital Partners (“KVM”), whereby the parties also agreed to enter into a registration rights agreement (the “Registration Rights Agreement”). Pursuant to the terms of the Investment Agreement, for a period of 36 months commencing on the trading day immediately following date of effectiveness of the Registration Statement, KVM will commit to purchase up to $1,500,000 of the Company’s common stock, pursuant to a notice from the Company (“Puts”), covering the Registrable Securities (as defined below). The purchase price of the Shares under the Investment Agreement is equal to a 22.5% percent discount to the average of the three lowest closing bids during the last seven trading days after the Company delivers to KVM a Put notice in writing requiring KVM to purchase shares of the Company, subject to the terms of the Investment Agreement.

The Registrable Securities include (1) shares of the Company’s common stock and (2) any shares of capital stock issued or issuable with respect to the Company’s common stock, if any, as a result of any stock split, stock dividend, recapitalization, exchange or similar event or otherwise, which have not been (1) included in the Registration Statement that has been declared effective by the SEC, or (2) sold under circumstances meeting all of the applicable conditions of Rule 144 (or any similar provision then in force) under the 1933 Act.

As further consideration for KVM entering into and structuring the Investment Agreement, the Company paid to KVM a $10,000 fee by issuing to KVM 250,000 restricted shares of its common stock on June 11, 2013. As of March 31, 2014, the Registration Statement filed by the Company is not effective and, accordingly, the Company has no availability under this agreement.

Maxxon/Globe Joint Venture Agreement

In September 2005, the Company filed a patent on its RevVac™ Safety Syringe with Globe Med Tech which gave a 50% ownership of this patent to the Company and 50% to Globe Med Tech. On November 3, 2005, the Company (f.k.a. Maxxon, Inc.,) and Globe Med Tech, Inc. (“Globe”) entered into a definitive joint venture agreement (the “Joint Venture Agreement”) to patent, develop, manufacture, market and distribute safety needle products throughout the world.  The Company and Globe each owned 50% of the joint venture.   The Company contributed its safety syringe technology and patent rights related thereto and Globe contributed its safety syringe IV catheter and patent rights related thereto.  In connection with the Joint Venture Agreement, the Company issued restricted shares of its common stock, valued at $625,066, to Globe.  Subsequent to December 31, 2006, the Company ended the Joint Venture Agreement and cancelled the restricted shares of common stock that were issued to Globe pursuant to the agreement.  The above noted patent was issued on January 13, 2009.

On March 1, 2007, the Company filed a lawsuit in the District Court of Tulsa County, Oklahoma against Globe to rescind, terminate and seek monetary damages for the non-fulfillment and breach of the Joint Venture Agreement, and other related agreements, in addition to an accounting of expenditures of funds under the terms and provisions of the agreements.  On October 29, 2008, the Company filed in the District Court of Harris County, Texas, a lawsuit for fraud and contempt of court for Globe and Andy Hu, individually.  On October 21, 2011, the Company was granted its request for summary judgment against Globe and awarded $311,440 and the return of 266,666 shares of the Company’s common stock by a Federal District Court in Tulsa County, Oklahoma.  In addition to the monetary award and the return of the Company’s common stock, Globe is also required to return all syringes, design files, and sample molds to the Company.  Furthermore, the Court ordered that Globe assign to the Company all rights to the patent issued on January 13, 2009 for the RevVac™ Safety Syringe.  Globe is prohibited from claiming any interest or ownership in the Company’s safety vacuum syringes going forward. 

On April 30, 2013, the Company exercised its legal rights under a writ of execution in Harris County, Texas, pursuant to which the Company seized all valuable property from Globe Med Tech’s office including 266,666 restricted shares of common stock of Revolutions Medical, all design and patent files relating to its auto retractable vacuum safety syringe, furniture, computers, phones and other office equipment and information.  Globe’s web hosting company has been notified and ordered under the judgment and writ of execution to shut down Globe’s website until all information and references of ownership, patents and awards regarding the RevVac™ Safety Syringe are removed from the website. The Company will continue to use all available legal means under the judgment until all monies are collected and the judgment is satisfied in full. On August 27, 2013, the Company cancelled the 266,666 shares. 

MIG and SPD

On September 26, 2012, the Company filed suit in South Carolina Federal District Court against Strategic Product Development ("SPD"), Richard H. Theriault, Vita S. Theriault, Darius R. Theriault, Raminta Theriault, Goddard Technologies, Inc. ("GTI") and others, claiming that the defendants purposely and materially misled and misrepresented capabilities and progress on a variety of initiatives related to the development and manufacture of the Company's RevVac™ Safety Syringe to officers and directors of Revolutions Medical, which caused a delay in its production of approximately one year. The suit further alleges that Richard H. Theriault and other defendants defrauded the Company and misappropriated funds in violation of the United States' Racketeer Influenced and Corrupt Organizations Act and that GTI improperly assigned certain rights to the Company's new provisional patents to SPD without authorization. In February, 2013 the Company changed the venue to the United States District Court of Massachusetts against GTI. On February 17, 2014, the Company amended its claims against GTI and certain employees at Goddard to include negligence and unfair trade practices both in the state of MA and in SC based upon supplemental discovery provided by Goddard’s attorney.

On January 2, 2013, the Company won its arbitration proceeding concerning its counter claims against Richard Theriault, former manufacturer, Medical Investment Group (“MIG”) and former consultant, SPD.  The monetary award included $770,000 in recoupment of production costs plus interest, legal fees and other arbitration costs, which will total approximately $1 million. In other claims, Theriault was found guilty of fraud in the inducement and breach of contract and was found to have no rights to any of the Company's proprietary technology, files, drawings, designs, patents or products. A panel of the American Arbitration Association (“Arbitrator”) determined that all production mold payments made by the Company to MIG for the manufacturing of production molds had instead been used by Mr. Theriault for other non-production related purposes. The Arbitrator ruled that the only assets in which production was funded by MIG from the Company’s production payments were $10,000 in trial molds. The equipment asset on the balance sheet was reduced by $710,000 and charged to impairment of assets in 2012 as the payments were not associated with a production or trial mold. The $770,000 award is for the recovery of damages related to these production payments.  The gain related to this award will be recorded when collected. The Company has retained counsel in Massachusetts and South Carolina to assist in efforts to collect these damages. 

On February 2, 2013, Richard H. Theriault, MIG, SPD, and other Theriault corporate entities, filed for bankruptcy in Massachusetts under Chapter 11.  The South Carolina lawsuit has been temporarily stayed. On March 13, 2013, United States Federal District Court in Massachusetts granted an injunction against Richard H. Theriault and MIG, enjoining and restraining them from transferring or alienating any assets in their possession without approval from the Court. On May 6, 2013, that court upheld its ruling in favor of continuing the injunction. On September 17, 2013 the bankruptcy court allowed the Company to lift the stay to confirm the arbitration judgment in South Carolina.

On May 7, 2014, the United States Bankruptcy Court for the District of Massachusetts (Eastern Division) entered an Order confirming the First Amended Plan of Reorganization dated February 14, 2014 filed by Richard H. Theriault. The Company expects to receive a payment of approximately $125,000 under the plan. The Company and Mr. Theriault also entered into a Settlement Agreement dated January 29, 2014 (the “Settlement Agreement”) that was part of the Plan. Pursuant to the Settlement Agreement, Mr. Theriault and MIG agreed to pay an aggregate of $320,000 plus accrued interest to the Company in quarterly payments beginning on January 1, 2015. Interest on that amount accrues at 3% beginning as of the date of the Order. The first two payments will be $26,667, the third payment will be $40,000 and each of the final nine payments will be $25,185. In return, the Company agreed to dismiss its pending action in the United States District Court of South Carolina (the S.C. Action”) against Mr. Theriault, his family members and certain of his companies within 15 days of the Order provided those defendants execute a release of all claims that they have asserted or could have asserted against the Company in the S.C. Action. The Settlement Agreement did not include the Company’s pending adversary proceeding in the Bankruptcy Court against SPD regarding a dispute involving patents for the RevVac™ pre-filled auto-retractable syringes or a release of SPD and Ira Rakatansky in United States District Court of South Carolina. The Company continues to preserve all of its legal rights against SPD.

Thomas G. O’Brien

On October 1, 2012, the Company filed suit in South Carolina Federal District Court against its former President and Director, Thomas G. O'Brien (“O’Brien”), alleging that O'Brien, as a director and officer of the Company, committed fraud, disregarded his fiduciary duties, and breached other obligations owed to the Company and its shareholders, by facilitating and negotiating contracts on behalf of the Company while at the same time sharing confidential Company information with, and receiving bribes from, Richard H. Theriault, SPD, and Medical Investment Group, (MIG). The complaint seeks to recover actual and punitive damages as well as a return of all salary paid to O'Brien under his employment agreement and over 3 million restricted shares.  On January 17, 2013, the South Carolina lawsuit was dismissed without prejudice, so the Company can pursue all of its claims against Thomas G. O'Brien in arbitration. No arbitration case is presently pending between the Company and O’Brien.

JMJ Financial, Inc.

A lawsuit was filed against the Company by Justin Keener d/b/a JMJ Financial (“JMJ”) in Miami-Dade County, Florida on March 15, 2012. The lawsuit claims that the Company breached the terms of the convertible debt agreement by failing to issue shares requested in a stock conversion by JMJ on January 9, 2012 for 1,000,000 shares and on January 30, 2012 for 1,226,049 shares.  JMJ is seeking the delivery of 2,226,049 shares of common stock of the Company, plus costs and prejudgment interest. On August 30, 2012, the Company filed its counterclaims against JMJ, which included fraud by concealment, among other claims. The Company alleges that JMJ had a responsibility and obligation under Florida law to disclose during the negotiations of the agreement the fact that Keener and JMJ had outstanding and current issues with these types of convertible notes with DTC which could do detrimental harm to liquidity and electronic transfer of the Company's stock if DTC eligibility was “chilled”. In the securities trading industry, the loss of eligibility for electronic trading, transfer, and delivery of common stock is known as a “chill”. This would severely hamper future capital raising and harm its current shareholders but would solely benefit Keener and JMJ under the default clauses in this agreement. On March 14, 2013 the Company did receive a letter from the DTC advising that a “chill” was placed on its stock. All of the JMJ share issuances were among the share issuances that the DTC identified to be reviewed. In July 2013, the Company won its motion to compel discovery from JMJ and Keener to provide all documents related to all financings with public companies that Keener and JMJ were involved, especially companies that DTC put a "chill" on their publicly traded stock and any regulatory actions or rulings against Keener and JMJ. On October 14, 2013, the DTC advised the Company that the “chill” had been lifted. If a positive settlement cannot be negotiated, the Company plans on bringing their counterclaims in a jury trial court proceeding.

SEC

On September 20, 2012, the Securities and Exchange Commission (“SEC”) filed a civil complaint in Federal District Court in Georgia against the Company and Rondald L. Wheet, the Company’s current Chief Executive Officer, alleging that between approximately August 2010 and July 2011, the Company and its Chief Executive Officer issued a series of misleading press releases that contained statements designed to convey the impression that, among other things, the Company had finalized the development of a safe and effective syringe, the syringe was slated for imminent mass manufacturing and commercial distribution, and the Company had entered into, or was on the cusp of entering into, binding mass sales and distribution agreements, including a sales agreement with the U.S. Department of Defense. However, contrary to the statements made in the Company’s press releases, the Company had not developed a safe and effective syringe ready for mass manufacturing or commercial distribution, and had not entered into any binding agreements for the sale and distribution of such a final product. The SEC’s complaint further alleges that, through the press releases, the Company artificially inflated the price of the Company’s shares, and that the Company sold shares to a third-party hedge fund at inflated prices. Among other relief, the SEC seeks an order requiring the Company to disgorge approximately $1,000,000 received from its equity line financing from August 2010 through May 2011 with Auctus Private Equity Fund, in addition to other civil penalty amounts, and the SEC is seeking an officer and director bar against its Chief Executive Officer. Discovery is currently ongoing and the Company is not able to project the possible outcome.

TCA Global Credit Master Fund, L.P.

On April 26, 2013 (the “Effective Date”), the Company finalized a securities purchase agreement with TCA. Pursuant to the terms of the purchase agreement, TCA shall purchase from the Company up to $2 million of senior secured convertible redeemable debentures.  The debentures shall be purchased in a series of closings and pursuant to the first such closing, as of the Effective Date, TCA purchased that certain senior convertible redeemable debenture in the amount of $250,000.  The Company’s obligations to TCA under the debentures are secured by that certain security agreement granting TCA an unconditional and continuing first priority security interest in all of the Company’s assets and that certain stock pledge agreement granting TCA a continuing and first priority security interest in certain stock of the Company.

Under the purchase agreement, as consideration for advisory services provided by TCA to the Company prior to the Effective Date, the Company shall pay to TCA a fee by issuing to TCA that number of shares of the Company’s common stock that equal a dollar amount of $100,000 (the “Advisory Fee Shares”).  It is the intention of the Company and TCA that the value of the Advisory Fee Shares shall equal $100,000.  In the event the value of the Advisory Fee Shares issued to TCA does not equal $100,000 after the sale of all Advisory Fee Shares, the purchase agreement provides for an adjustment provision allowing for necessary action to adjust the number of shares issued.  Additionally, TCA shall receive certain other fees pursuant to the purchase agreement.  

Note 11 – Preferred Stock and Common Stock Transactions

Preferred Stock

Shares Outstanding: Currently, 1,000,000 shares of preferred stock (“Preferred Stock”) are outstanding. Rondald L. Wheet, the Company’s Chairman and Chief Executive Officer, owns 1,000,000 shares of Series 2006 Preferred Stock. Tom O’Brien, the Company’s former President, returned 500,000 shares of Series 2009 Preferred Stock upon his resignation in 2011.

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

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

Conversion: The holders of Preferred Stock may convert each share into 1 share of common stock.

Preemption: The holders of Preferred Stock have no preemptive rights and they are not subject to further calls or assessments.

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

Redemption: There are no redemption or sinking fund provisions applicable to the Preferred Stock. 

2014 Common Stock Transactions

During the three months ended March 31, 2014, the Company issued 1,000,000 shares of common stock, valued at $36,000 based on the market price on the grant date, for consulting and legal services and issued 500,000 shares of common stock, valued at $17,500 based on the market price on the issuance date, to settle accounts payable to an attorney previously accrued.

Also, during the three months ended March 31, 2014, the Company issued 1,000,000 shares of common stock for proceeds of $20,000 in cash for the exercise of options issued to consultants.

Additionally, during the three months ended March 31, 2013, the Company issued 2,440,149 shares of common stock for the conversions of convertible notes and accrued interest totaling $36,400. The derivative fair value of $47,635 for the conversion feature of these notes was reclassified on the date of conversion to additional paid-in capital.

Note 12 – Stock Options and Warrants Outstanding

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

From time to time, the Company enters into consulting agreements to perform marketing services for the Company as it begins to enter into the production stage for the RevVac™ Safety Syringe. Consultants are obligated under the contract to promote the product within various spheres of influence. These spheres of influence include, but are not limited to, medical product distributors, hospitals, doctors and government agencies.

Consultants are issued options at a discount to the market price at the date of issuance. The amount to be determined for the consulting expense is determined based upon the options issued using the Black-Scholes Model.

During the three months ended March 31, 2014, under the terms of the Company’s 2007 Stock Option Plan, 1,000,000 options were issued for consulting services exercisable at $0.02 per share. The options have a term of 1 day and vest upon issuance. The aggregate fair value of these options equal to $17,000 was calculated using the Black-Scholes Model with the following assumptions: (1) discount rate of 0.12% (2) expected life of 1 day (3) expected volatility of 199% to 285% and (4) zero expected dividends.

The following table summarizes the stock option activity:

At March 31, 2014, there were 6,249,008 warrants outstanding. 4,166,005 of these warrants are exercisable at $0.125 and 2,083,003 are exercisable at $0.25. The warrants exercisable at $0.125 were originally to expire on March 31, 2013, but were modified to expire on June 30, 2014. The warrants exercisable at $0.25 were originally to expire on March 31 or June 30, 2013, but were modified to expire on September 30, 2014. In addition, the exercise prices of these warrants were reduced on November 20, 2013 from $0.25 to $0.125 in the case of the $0.125 warrants and from $0.50 to $0.25 in the case of the $0.25 warrants.

The following table summarizes the warrant activity:

Note 13 – Related Party Transactions

On September 1, 2009, the Company entered into a 5-year lease agreement with Osprey South, LLC (“Osprey”), to lease its corporate office space at 670 Marina Drive, Suite 301, Building F, Charleston, South Carolina, 29492.  Pursuant to the lease agreement, the Company was to pay Osprey $4,500 per month.  On July 1, 2011, the Company amended the lease agreement to include the office space adjacent to the existing office space.  Under the amended lease agreement, the lease term ends on June 30, 2016, and the Company is to pay Osprey $10,000 per month.  Rondald L. Wheet, the Company’s Chairman and Chief Executive Officer, is the sole member of Osprey.  Rent expense to Osprey was $30,000 and $30,000 for the three months ended March 31, 2014 and 2013, respectively.  Rent payable to Osprey was $104,662 and $112,962 as of March 31, 2014 and December 31, 2013, respectively.

The following table sets forth amounts owed by the Company to its executive officers listed therein for expenses paid by said officers on behalf of the Company as of March 31, 2014 and December 31, 2013.

The Company also had a convertible note payable to Mr. Olmo with principal amount of $75,000 and accrued interest of $10,113 at March 31, 2014.