NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – NATURE OF OPERATIONS
Wound
Management Technologies, Inc. was incorporated in the State of
Texas in December 2001 as MB Software, Inc. In May 2008, MB
Software, Inc. changed its name to Wound Management Technologies,
Inc. The Company distributes collagen-based wound care products to
healthcare providers such as physicians, clinics and
hospitals.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The
terms “the Company,” “we,” “us”
and “WMT” are used in this report to refer to Wound
Management Technologies, Inc. The accompanying consolidated
financial statements have been prepared in accordance with U.S.
generally accepted accounting principles.
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 Innovate OR, Inc.
(“InnovateOR”) formerly referred to as BioPharma
Management Technologies, Inc., a Texas corporation
(“BioPharma”). All intercompany accounts and
transactions have been eliminated.
USE OF ESTIMATES IN FINANCIAL STATEMENT PREPARATION
The
preparation of the financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the
disclosures of contingent assets and liabilities at the date of the
financial statements, and the amounts of revenues and expenses
during the reporting period. On a regular basis, management
evaluates these estimates and assumptions. Actual results could
differ from those estimates.
CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES
The
Company considers all highly liquid debt investments purchased with
an original maturity of three months or less to be cash
equivalents. Marketable securities include investments with
maturities greater than three months but less than one year. For
certain of the Company’s financial instruments, including
cash and cash equivalents, accounts receivable, accounts payable
and other accrued liabilities, and amounts due to related parties,
the carrying amounts approximate fair value due to their short
maturities.
INCOME / LOSS PER SHARE
The
Company computes income/loss per share in accordance with
Accounting Standards Codification “ASC” Topic No. 260,
“Earnings per Share,” which requires the Company to
present basic and dilutive income/loss per share when the effect is
dilutive. Basic income/loss per share is computed by dividing
income/loss available to common stockholders by the weighted
average number of common shares available. Diluted income/loss per
share is computed similar to basic income/loss per share except
that the denominator is increased to include the number of
additional common shares that would have been outstanding if the
potential common shares had been issued and if the additional
common shares were dilutive.
The calculation of basic and diluted net loss per share for the
years ended December 31, 2017 and 2016 are as follows:
|
|
|
Basic
net income (loss) per share:
|
|
|
Numerator:
|
|
|
Net
income (loss)
|
$
331,309
|
$
(415,747
)
|
Denominator:
|
|
|
Weighted-average
common shares outstanding
|
111,381,832
|
108,604,489
|
|
|
|
Basic
net income (loss) per share
|
$
0.00
|
$
(0.01
)
|
|
|
|
Diluted
net income (loss) per share:
|
|
|
Numerator:
|
|
|
Net
income (loss)
|
$
331,309
|
$
(415,747
)
|
Series
C dividends
|
(139,006
)
|
|
Diluted
net income (loss)
|
$
192,303
|
$
(415,747
)
|
Denominator:
|
|
|
Weighted-average
common shares outstanding
|
111,381,832
|
108,604,489
|
Common
stock warrants
|
694,834
|
-
|
Convertible
debt
|
-
|
-
|
Preferred
shares
|
96,568,871
|
-
|
Weighted
average shares used in computing diluted net income (loss) per
share
|
208,645,538
|
108,604,489
|
|
|
|
Diluted
net income (loss) per share
|
$
0.00
|
$
(0.00
)
|
The following table summarizes the potential shares of common stock
that were excluded from the computation of diluted net loss per
share for the years ended December 31, 2017 and 2016 as such shares
would have had an anti-dilutive effect:
|
|
|
Preferred
shares
|
-
|
92,915,071
|
Convertible
debt
|
19,890,414
|
18,082,186
|
REVENUE RECOGNITION
In
accordance with the guidance in “ASC” Topic No. 605,
“Revenue Recognition,” the Company recognizes revenue
when (a) persuasive evidence of an arrangement exists, (b) delivery
has occurred or services have been rendered, (c) the fee is fixed
or determinable, and (d) collectability is reasonable assured.
Revenue is recognized upon delivery. Revenue is recorded on the
gross basis, which includes handling and shipping, because the
Company has risks and rewards as a principal in the transaction
based on the following: (a) the Company maintains inventory of the
product, (b) the Company is responsible for order fulfillment, and
(c) the Company establishes the price for the product. The Company
recognizes royalty revenue in the period the royalty bearing
products are sold.
The
Company recognizes revenue based on bill and hold arrangements when
the seller has transferred to the buyer the significant risks and
rewards of ownership of the goods; the seller does not retain
effective control over the goods or continuing managerial
involvement to the degree usually associated with ownership; the
amount of revenue can be measured reliably; it is probable that the
economic benefits of the sale will flow to the seller; any costs
incurred or to be incurred related to the sale can be measured
reliably; it is probable that delivery will be made; the goods are
on hand, identified, and ready for delivery; the buyer specifically
acknowledges the deferred delivery instructions; and the usual
payment terms apply.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The
Company establishes an allowance for doubtful accounts to ensure
accounts receivable are not overstated due to uncollectability. Bad
debt reserves are maintained based on a variety of factors,
including the length of time receivables are past due and a
detailed review of certain individual customer accounts. If
circumstances related to customers change, estimates of the
recoverability of receivables would be further adjusted. The
Company recorded bad debt expense of $22,207 and $10,735 in 2017
and 2016, respectively. The allowance for doubtful accounts at
December 31, 2017 was $28,910 and the amount at December 31, 2016
was $21,947.
INVENTORIES
Inventories
are stated at the lower of cost or net realizable value, with cost
computed on a first-in, first-out basis. Inventories consist of
finished goods, powders, gels and the related packaging supplies.
The Company recorded inventory obsolescence expense of $57,483 in
2017 and $152,547 in 2016. The allowance for obsolete and
slow-moving inventory had a balance of $144,996 and $153,023 at
December 31, 2017 and December 31, 2016, respectively.
PROPERTY AND EQUIPMENT
Property
and equipment is recorded at cost. Depreciation is computed
utilizing the straight-line method over the estimated economic life
of the assets, which ranges from five to ten years. For assets sold
or otherwise disposed of, the cost and related accumulated
depreciation are removed from the accounts, and any related gain or
loss is reflected in income for the period. As of December 31,
2017, fixed assets consisted of $120,162 including furniture and
fixtures, computer equipment, phone equipment and the Company
websites. As of December 31, 2016, fixed assets consisted of
$76,267 including furniture and fixtures, computer equipment, phone
equipment and the Company websites. The depreciation expense
recorded in 2017 was $15,623 and the depreciation expense recorded
in 2016 was $9,852. The balance of accumulated depreciation was
$56,951 and $41,328 at December 31, 2017 and December 31, 2016,
respectively. The Company paid $43,895 to acquire fixed assets
during 2017.
INTANGIBLE ASSETS
As of
December 31, 2017, and 2016 intangible assets include a patent
acquired in 2009 with a historical cost of $510,310. The patent is
being amortized over its estimated useful life of 10 years using
the straight-line method. Amortization expense recognized was
$65,025 and $51,031 during 2017 and 2016. In 2017, the Company put
into service a business software. The costs to implement this
software which totaled $41,980 are included in intangible assets
and are being amortized over the initial term of the license which
is three years.
IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived
assets and certain identifiable intangibles to be held and used by
the Company are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may
not be recoverable. The Company continuously evaluates the
recoverability of its long-lived assets based on estimated future
cash flows and the estimated liquidation value of such long-lived
assets and provides for impairment if such undiscounted cash flows
are insufficient to recover the carrying amount of the long-lived
assets. If impairment exists, an adjustment is made to write the
asset down to its fair value, and a loss is recorded as the
difference between the carrying value and fair value. Fair values
are determined based on quoted market values, undiscounted cash
flows or internal and external appraisals, as applicable. Assets to
be disposed of are carried at the lower of carrying value or
estimated net realizable value. There was no impairment recorded
during the years ended December 31, 2017 and 2016.
FAIR VALUE MEASUREMENTS
As
defined in Accounting Standards Codification (“ASC”)
Topic No. 820, fair value is the price that would be received to
sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date
(exit price). The Company utilizes market data or assumptions that
market participants would use in pricing the asset or liability,
including assumptions about risk and the risks inherent in the
inputs to the valuation technique. These inputs can be readily
observable, market corroborated, or generally unobservable. ASC 820
establishes a fair value hierarchy that prioritizes the inputs used
to measure fair value. The hierarchy gives the highest priority to
unadjusted quoted prices in active markets for identical assets or
liabilities (level 1 measurement) and the lowest priority to
unobservable inputs (level 3 measurement). This fair value
measurement framework applies at both initial and subsequent
measurement.
The
three levels of the fair value hierarchy defined by ASC Topic No.
820 are as follows:
Level 1
– Quoted prices are available in active markets for identical
assets or liabilities as of the reporting date. Active markets are
those in which transactions for the asset or liability occur in
sufficient frequency and volume to provide pricing information on
an ongoing basis. Level 1 primarily consists of financial
instruments such as exchange-traded derivatives, marketable
securities and listed equities.
Level 2
– Pricing inputs are other than quoted prices in active
markets included in level 1, which are either directly or
indirectly observable as of the reported date. Level 2 includes
those financial instruments that are valued using models or other
valuation methodologies. These models are primarily
industry-standard models that consider various assumptions,
including quoted forward prices for commodities, time value,
volatility factors, and current market and contractual prices for
the underlying instruments, as well as other relevant economic
measures. Substantially all of these assumptions are observable in
the marketplace throughout the full term of the instrument, can be
derived from observable data or are supported by observable levels
at which transactions are executed in the marketplace.
Instruments
in this category generally include non-exchange-traded derivatives
such as commodity swaps, interest rate swaps, options and
collars.
Level 3
– Pricing inputs include significant inputs that are
generally less observable from objective sources. These inputs may
be used with internally developed methodologies that result in
management’s best estimate of fair value.
At
December 31, 2016 and 2015, the Company’s financial
instruments consist of the derivative liabilities related to stock
purchase warrants which were valued using the Black-Scholes Option
Pricing Model, a level 3 input.
Our
intangible assets have also been valued using the fair value
accounting treatment and a description of the methodology used,
including the valuation category, is described below in Note 5
“Intangible Assets.”
The
following table sets forth by level within the fair value hierarchy
the Company’s financial assets and liabilities that were
accounted for at fair value as of December 31, 2017 and
2016.
Recurring Fair Value Measure
|
|
|
|
|
Liabilities
|
|
|
|
|
Derivative Liabilities as of December 31, 2017
|
$
-
|
$
-
|
$
-
|
$
-
|
Derivative Liabilities as of December 31, 2016
|
$
-
|
$
-
|
$
44
|
$
44
|
DERIVATIVES
The
Company entered into derivative financial instruments to manage its
funding of current operations. Derivatives are initially recognized
at fair value at the date a derivative contract is entered into and
are subsequently re-measured to their fair value at the end of each
reporting period. The resulting gain or loss is recognized in
profit or loss immediately.
INCOME TAXES
Income
taxes are accounted for under the asset and liability method,
whereby deferred income taxes are recorded for temporary
differences between financial statement carrying amounts and the
tax basis of assets and liabilities. Deferred tax assets and
liabilities reflect the tax rates expected to be in effect for the
years in which the differences are expected to reverse. A valuation
allowance is provided if it is more likely than not that some or
all, of the deferred tax asset will not be realized.
BENEFICIAL CONVERSION FEATURE OF CONVERTIBLE NOTES
PAYABLE
The
convertible feature of certain notes payable provides for a rate of
conversion that is below the market value of the Company’s
common stock. Such a feature is normally characterized as a
"Beneficial Conversion Feature" ("BCF"). In accordance with ASC
Topic No. 470-20-25-4, the intrinsic value of the embedded
beneficial conversion feature present in a convertible instrument
shall be recognized separately at issuance by allocating a portion
of the debt equal to the intrinsic value of that feature to
additional paid in capital. When applicable, the Company records
the estimated fair value of the BCF in the consolidated financial
statements as a discount from the face amount of the notes. Such
discounts are accreted to interest expense over the term of the
notes using the effective interest method.
ADVERTISING EXPENSE
In
accordance with ASC Topic No. 720-35-25-1, the Company recognizes
advertising expenses the first time the advertising takes place.
Such costs are expensed immediately if such advertising is not
expected to occur.
SHARE-BASED COMPENSATION
The
Company accounts for stock-based compensation to employees in
accordance with FASB ASC 718. Stock-based compensation to employees
is measured at the grant date, based on the fair value of the
award, and is recognized as expense over the requisite employee
service period. The Company accounts for stock-based compensation
to other than employees in accordance with FASB ASC 505-50. Equity
instruments issued to other than employees are valued at the
earlier of a commitment date or upon completion of the services,
based on the fair value of the equity instruments and is recognized
as expense over the service period. The Company estimates the fair
value of stock-based payments using the Black-Scholes
option-pricing model for common stock options and warrants and the
closing price of the Company’s common stock for common share
issuances.
RECLASSIFICATIONS
Certain
prior period amounts have been reclassified to conform to current
period presentation.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In May
2014, the Financial Accounting Standards Board (FASB) issued
Accounting Standards Codification (ASC) 606, Revenue from Contracts
with Customers which is to be effective for reporting periods
beginning after December 15, 2017. The Company has reviewed the
pronouncement and believes it will not have a material impact on
the Company’s financial position, operations or cash
flows.
In
February 2016, the FASB issued ASC 842 Leases which is to be
effective for reporting periods beginning after December 15, 2018.
The Company is currently reviewing any impact that it will have on
the Company’s financial position, operations or cash
flows.
NOTE 3 – OTHER SIGNIFICANT TRANSACTIONS
Evolution Partners LLC Letter Agreement and Termination
Agreement
On
October 10, 2017, Wound Management Technologies, Inc. (the
“Company”) and Evolution Venture Partners LLC
(“EVP”) entered into a termination agreement (the
“Termination Agreement”) terminating, effective as of
September 29, 2017, that certain letter agreement dated April 26,
2016, (the “Agreement”), by and between the Company,
EVP, and Middlebury Securities, LLC (“Middlebury”).
Middlebury terminated its charter on or about July 27, 2016, and
therefore is not a party to the Termination Agreement. The
Agreement had an initial term of one year (with an automatic
six-month renewal term) and provided for:
●
A
$60,000 consulting fee payable upon execution of the Agreement,
refundable only upon cancellation of the Agreement by EVP during
the initial one-year term.
●
A
success fee in an amount equal to 5% of the transaction value of
any strategic transaction.
●
A
selling fee equal to 3% of the gross proceeds of any debt financing
transaction or 5% of the gross proceeds of any equity financing
transaction.
●
The
issuance to EVP of a warrant (the “Warrant”) for the
purchase of 60,000,000 shares of the Company’s common stock,
par value $0.001 per share (“Common Stock”), at an
exercise price of $0.12 per share.
The
total amount of the consulting fee and warrant expense was $818,665
and is recognized in 2016 as “Other administrative
expenses” in the Consolidated Statement of
Operations.
As of
the termination date, there were no Financing Transactions or
Strategic Transactions (as defined in the Agreement) being
considered by the Company and no such transactions
occurred.
Pursuant
to the Termination Agreement, EVP canceled the Warrant in exchange
for the Company’s issuance to EVP of 750,000 shares of the
Company’s Common Stock. There was no incremental increase in
the fair value of the modified stock-based compensation award as of
the modification date and accordingly, no additional compensation
cost was recognized.
NOTE 4 – NOTES PAYABLE
CONVERTIBLE NOTES PAYABLE – RELATED PARTIES
Funds
are advanced to the Company from various related parties as
necessary to meet working capital requirements. Below is a summary
of outstanding convertible notes due to related parties, including
accrued interest separately recorded, as of December 31, 2017 and
2016:
|
|
|
|
|
|
|
|
|
Accrued
Interest
|
|
Related
Party
|
|
Nature of
Relationship
|
|
Term of the
agreement
|
|
Principal amount
|
|
|
2017
|
|
|
2016
|
|
S. Oden
Howell Revocable Trust ("HRT")
|
|
Mr. S.
Oden Howell, Jr. became a member of the Board of Directors in June
of 2015
|
|
The
note is secured, bears interest at 10% per annum, matures June 15,
2018, and is convertible 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.
|
|
$
|
600,000
|
|
|
$
|
162,493
|
|
|
$
|
96,164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James
W. Stuckert Revocable Trust ("SRT")
|
|
Mr.
James W. Stuckert became a member of the Board of Directors in
September of 2015
|
|
The
note is secured, bears interest at 10% per annum, matures June 15,
2018, and is convertible 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.
|
|
$
|
600,000
|
|
|
$
|
162,493
|
|
|
$
|
96,164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
1,200,000
|
|
|
$
|
324,986
|
|
|
$
|
192,328
|
|
On June
15, 2015, the Company entered into term loan agreements 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.”). The Company’s obligations under the two
notes are secured by all the assets of the Company and its
subsidiaries.
NOTES PAYABLE
The
following is a summary of amounts due to unrelated parties,
including accrued interest separately recorded, as of December 31,
2017 and 2016:
|
|
|
|
Principal Amount
|
|
|
Accrued Interest
|
|
Note Payable
|
|
Terms of the agreement
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
March
4, 2011 Note Payable
|
|
223,500
note payable; (i) interest accrues at 13% per annum; (ii) maturity
date of September 4, 2011; (iii) $20,000 fee due at maturity date
with a $1,000 per day fee for each day the principal and interest
is late. This note was settled in full on November 1, 2017 (see
Note 11 "Legal Proceedings")
|
|
$
|
-
|
|
|
$
|
223,500
|
|
|
$
|
-
|
|
|
$
|
147,373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third
Quarter 2012 Secured Subordinated Promissory Notes
|
|
Three notes in the aggregate principal amount of $110,000; (i)
interest accrues at 5% per annum; (ii) maturity date of October 12,
2012; (iii) after the maturity date interest shall accrue at 18%
per annum and the company shall pay to the note holders on a pro
rata basis, an amount equal to twenty percent of the sales proceeds
received by the Company and its subsidiary, WCI, from the sale of
surgical powders, until such time as the note amounts have been
paid in full. As of December 31, 2017, all of these notes have been
repaid in full.
|
|
$
|
|
-
|
|
$
|
104,571
|
|
|
$
|
-
|
|
|
$
|
8,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September
28, 2012 Promissory Note
|
|
$51,300
note payable (i) interest accrues at 10% per annum; (ii) original
maturity date of December 31, 2012; (iii) default interest rate of
15% per annum. As of December 31, 2017, the note is paid in
full.
|
|
$
|
-
|
|
|
$
|
11,300
|
|
|
$
|
|
-
|
|
$
|
19,510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quest
Capital Investors, LLC
|
|
Furniture
purchase agreement in the original amount of $11,700 with $300
payments due each month. Secured by fixed assets of the Company. As
of December 31, 2017, the note is paid in full.
|
|
$
|
-
|
|
|
$
|
300
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 28,
2015 Promissory Note
|
|
$96,000
note payable (i) interest accrues at 10% per annum; (ii) original
maturity date of May 28, 2016; (iii) amended maturity date of June
30, 2017. As of December 31, 2017, the note is paid in
full.
|
|
$
|
-
|
|
|
$
|
74,667
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
-
|
|
|
$
|
414,338
|
|
|
$
|
-
|
|
|
$
|
175,083
|
|
During
the year ended December 31, 2016, the Company paid $26,762
principal and $49,559 in accrued interest for three of the
non-related party notes. In June and July of 2016, two of the
parties' notes were amended and they agreed to forgive a portion of
the accrued interest in the amounts of $22,943 and $7,649 for a
total of $30,592.
During
2017, the WMTI reached an agreement to settle an outstanding
payable with WellDyne Health, LLC, (“WellDyne”), a
third party that had provided shipping and consulting services on
behalf of the Company effective through September 19, 2015. As part
of that settlement, WellDyne forgave $39,709 of the outstanding
payable.
During
2017, the Company paid a total of $190,838 principal to three
non-related party note holders and reached an agreement with them
to forgive $10,937 in accrued interest. As a result, all three
notes were paid in full. The Company also settled $223,500 note
payable and $147,373 accrued interest in Common Stock, see note
11.
NOTE 5 – INTANGIBLE ASSETS
Patent
On
September 29, 2009, the Company entered into an Asset Purchase
Agreement (the “Agreement”), whereby the Company
acquired a patent from in exchange for 500,000 shares of the
Company’s common stock and the assumption of a legal fee
payable in the amount of $47,595 which is related to the patent.
Based on the guidance in ASC Topic No. 350-30, the patent was
recorded as an intangible asset of $462,715, or approximately $.93
per share plus $47,595 for the assumed liability. The intangible
asset is being amortized over an estimated ten-year useful
life.
Software Implementation
In
2017, the Company put into service a business software. The costs
to implement this software which totaled $41,980 are included in
intangible assets and are being amortized over the initial term of
the license which is three years.
The
activity for the intangible assets is summarized
below:
Cost
|
|
|
|
Balance
at December 31, 2016
|
$
510,310
|
$
-
|
$
510,310
|
Implementation
costs
|
|
41,980
|
41,980
|
Balance
at December 31, 2017
|
$
510,310
|
$
41,980
|
$
552,290
|
Accumulated amortization
|
|
|
|
Balance
at December 31, 2016
|
$
369,974
|
$
-
|
$
369,974
|
Amortization
expense
|
51,032
|
13,993
|
65,025
|
Balance
at December 31, 2017
|
$
421,006
|
$
13,993
|
$
434,999
|
Net carrying amount
|
|
|
|
Balance
at December 31, 2016
|
$
140,336
|
$
-
|
$
140,336
|
Balance
at December 31, 2017
|
$
89,304
|
$
27,987
|
$
117,291
|
NOTE 6 – CUSTOMERS AND SUPPLIERS
The
Company had one significant customer which accounted for
approximately 16% of the Company’s sales in 2017 and had two
significant customers which accounted for approximately 18% and 14%
of the Company’s sales in 2016. The loss of the sales
generated by these customers would have a significant effect on the
operations of the Company.
The
Company purchases all raw materials inventory for its principal
product from one vendor. If this vendor became unable to provide
materials in a timely manner and the Company was unable to find
alternative vendors, the Company's business, operating results and
financial condition would be materially adversely
affected.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
ROYALTY AGREEMENTS
Effective
January 3, 2008, WCI entered into separate exclusive license
agreements with both Applied Nutritionals, LLC
(“Applied”) and its founder George Petito
(“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. The licenses are limited to the human health care market,
(excluding dental and retail) for external wound care (including
surgical wounds) and include any new product developments based on
the licensed patent and processes and any continuations. Although
the term of these licenses expired on February 27, 2018, the
agreements permit WCI to continue to sell and distribute products
for a period not exceeding six (6) months from the effective
termination date.
In
consideration for the licenses, WCI agreed to pay Applied and
Petito, (in the aggregate), the following royalties, beginning
January 3, 2008: (a) an advance royalty of $100,000; (b) a royalty
of 15% of gross sales occurring during the first year of the
license; (c) an additional advance royalty of $400,000 on January
3, 2009; plus (d) a royalty of 3% of gross sales for all sales
occurring after the payment of the $400,000 advance royalty. In
addition, WCI must maintain a minimum aggregate annual royalty
payment of $375,000 for 2009 and thereafter if the royalty
percentage payments made do not meet or exceed that amount. The
amounts listed in the two preceding sentences are the aggregate of
amounts paid/owed to Applied and Petito) and the Company has paid
the minimum aggregate annual royalty payments each year since 2008,
including both 2017 and 2016. Sales of CellerateRX occurring after
the termination date are subject to the 3% royalty. The total
unpaid royalties as of December 31, 2017 and 2016, is $244,422 and
$276,916, respectively.
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 Barry Constantine Consultant LLC for
distribution to the original patent holders, (including Mr.
Constantine) and/or their heirs.
PREPAID FROM INVENTORY CONTRACT
In
November of 2016, ROP entered into a contract with the contract
manufacturer of HemaQuell® product to purchase $13,787 of
product. This amount was recorded as an asset in the “Prepaid
and Other Assets” account at December 31, 2016, based on the
contractual obligation of the parties.
OFFICE LEASE
The
Company’s corporate office is located at 1200 Summit Avenue,
Suite 414, Fort Worth, TX 76102. The lease was entered into in
March of 2017, with an effective date of May 1, 2017. The lease
expires on the last day of the fiftieth (50th) full calendar month
following the effective date (June 30, 2021). Monthly base rental
payments are as follows: months 1-2, $0; months 3-14, $7,250;
months 15-26, $7,401; months 27-38, $7,552; and months 39-50,
$7,703.
PAYABLES TO RELATED PARTIES
As of
December 31, 2017, and 2016, the Company had outstanding payable to
related parties totaling $60,000 and $93,655, respectively. The
payables are unsecured, bear no interest and due on
demand.
NOTE 8 – STOCKHOLDERS’ EQUITY
PREFERRED STOCK
There
are currently 5,000,000 shares of Series A Preferred Stock
authorized, with no shares of Series A Preferred Stock issued or
outstanding as of December 31, 2017 and 2016.
Effective
June 24, 2010, the Company filed a Certificate of Designations,
Number, Voting Power, Preferences and Rights of Series B
Convertible Redeemable Preferred Stock (the
“Certificate”) with the Texas Secretary of State,
designating 7,500 shares of Series B Preferred Stock, par value
$10.00 per share (the “Series B Shares”). The Series B
Shares rank senior to shares of all other common and preferred
stock with respect to dividends, distributions, and payments upon
dissolution. Each of the Series B Shares is convertible at the
option of the holder into shares of common stock as provided in the
Certificate. There were no Series B Shares issued or outstanding as
of December 31, 2017 and 2016.
On
October 11, 2013, the Company filed a Certificate of Designations,
Number, Voting Power, Preferences and Rights of Series C
Convertible Preferred Stock (the “Certificate of
Designations”), under which it designated 100,000 shares of
Series C Preferred Stock, par value $10.00. The Series C Preferred
Stock is entitled to accruing dividends (payable, at the
Company’s options, in either cash or stock) of 5% per annum
until October 10, 2016, and 3% per annum until October 10,
2018.
The
Series C Preferred Stock is senior to the Company’s common
stock and any other currently issued series of the Company’s
preferred stock upon liquidation and is entitled to a liquidation
preference per share equal to the original issuance price of such
shares of Series C Preferred Stock together with the amount of all
accrued but unpaid dividends thereon. Each of the Series C Shares
is convertible at the option of the holder into 1,000 shares of
common stock as provided in the Certificate. Additionally, each
holder of Series C Preferred Stock shall be entitled to vote on all
matters submitted for a vote of the holders of Common Stock a
number of votes equal to the number of full shares of Common Stock
into which such holder’s Series C shares could then be
converted. As of December 31, 2017, and December 31, 2016, there
were 85,561 and 85,646 shares of Series C Preferred Stock issued
and outstanding, respectively.
During
the year ended December 31, 2016, the Company issued 6,428 shares
of Series C preferred stock to Directors of the Company for cash
proceeds of $450,000.
On
March 10, 2017, the Company issued 715 shares of Series C preferred
stock in exchange for cash in the amount of $50,050.
During
2017, one shareholder converted 800 shares of Series C preferred
stock and dividend of $9,692 to common stock of 937,556
shares.
Series
C preferred stock dividends were $139,006 and $261,716 for the
years ended December 31, 2017 and December 31, 2016, respectively.
As of December 31, 2017, the aggregate outstanding accumulated
arrearages of cumulative dividends was $909,557, ($10.63 per
share). As of the date of this filing, $1,060,098
Series C preferred stock dividends
have been converted to 15,144,247
shares of common stock at $0.07 per
share.
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. On September 3, 2014, the
Company increased its authorized common stock to 250,000,000
shares. As a result, all outstanding Series D preferred shares were
converted to common stock.
In
November of 2013, the Company granted an aggregate of 15,000 shares
of Series D preferred stock to employees and nonemployees for
services. 9,000 of the shares were granted to employees and vested
immediately upon grant; 4,000 shares were granted to a nonemployee
and vested immediately upon grant; 1,000 of the shares were granted
to an employee and vested in equal tranches over three years
through October 1, 2016; and 1,000 of the shares were granted to a
nonemployee and vested in equal tranches over three years through
September 15, 2016. The aggregate fair value of the awards was
determined to be $1,046,669 of which $925,787 was recognized during
the year ended December 31, 2013; $79,318 was recognized during the
year ended December 31, 2014; $6,628, (net forfeitures of $19,173)
was recognized during the year ended December 31, 2015; and $8,109
was recognized during the year ended December 31, 2016. As of
October 1, 2016, all shares have vested, no further expense is to
be recognized.
During
the year ended December 31, 2014, the Company granted an aggregate
of 1,445 shares of Series D preferred stock to three nonemployees
which vested immediately upon grant. The aggregate fair value of
the awards was determined to be $157,050 which was recognized
during the year ended December 31, 2014 and no further expense is
to be recognized.
On
September 3, 2014, the Company increased its authorized common
stock to 250,000,000 shares. Accordingly, the 16,545 outstanding
shares of Series D preferred stock were automatically converted
into 16,545,000 common shares.
As of
December 31, 2017, and December 31, 2016 there were 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 December 31, 2017, there were no shares of
Series E Preferred Stock issued and outstanding.
The
Company evaluated the Series C preferred stock under FASB ASC 815
and determined that they do not qualify as derivative liabilities.
The Company then evaluated the Series C preferred stock for
beneficial conversion features under FASB ASC 470-30 and determined
that none existed.
COMMON STOCK
On
September 3, 2014, the Company held a stockholders meeting. 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 31, 2016 the Company issued 1,098,904 shares of common stock
in conversion of 1,000 shares of Series C Preferred stock and
$6,924 of related dividends.
On
October 26, 2016, the Company issued 1,150,000 shares of common
stock valued at $57,500 to employees. During the year ended
December 31, 2016, an aggregate of 499,967 common shares were
issued upon the vesting of previously granted stock awards and the
Company recorded a net reversal of $2,220 of stock-based
compensation related to the amortization of stock awards to
employees and nonemployees net of reversal of the unvested portion
of forfeited awards.
On
October 26, 2016, the Company agreed to grant three tranches of
shares of common stock, 250,000, 250,000, and 250,000 to a sales
consultant which are to be earned upon meeting specific performance
measures agreed upon. The measures include achieving three specific
sales targets per month for 3 consecutive months. The first one of
these was earned January 31
st
,
2017, and 250,000 shares were granted in March 2017.
During
the year ended December 31, 2016, an aggregate of 166,667 shares of
fully vested common stock under previously issued stock awards was
returned and cancelled. The share cancellation was recognized at
par value.
On
March 9, 2017, the Company issued 150,000 shares of common stock to
each of the Company’s then four Board Directors, (a total of
600,000 shares valued at $42,000).
On
March 10, 2017, the Company issued 250,000 shares of common stock
valued at $18,250 to a contract consultant upon achievement of
specified revenue targets which occurred January 31,
2017.
On July
31, 2017, the Company issued 937,556 shares of common stock for the
conversion of 800 shares of Series C Convertible Preferred Stock
and $9,629 of related Series C dividends
On
November 22, 2017, the Company issued 1,200,000 shares of common
stock valued at $84,000 for settlement of debt (see NOTE 11 below
for a discussion of the settlement).
On
November 22, 2017, the Company issued 750,000 shares of common
stock valued at $0 to a contract consultant upon termination of
contract (see NOTE 3 above for a discussion of the
termination).
WARRANTS
At
December 31, 2017, there were 5,100,000 warrants outstanding with a
weighted average exercise price of $0.06. At December 31, 2016,
there were 67,246,300 warrants outstanding with a weighted average
exercise price of $0.12.
A
summary of the status of the warrants granted at December 31, 2017
and 2016, and changes during the years then ended is presented
below:
For the Year Ended December 31, 2017
|
|
|
Weighted Average Exercise Price
|
Outstanding
at beginning of period
|
67,246,300
|
$
0.12
|
Granted
|
-
|
-
|
Exercised
|
-
|
-
|
Forfeited
|
(60,051,300
)
|
0.12
|
Expired
|
(2,095,000
)
|
0.13
|
Outstanding
at end of period
|
5,100,000
|
$
0.06
|
For the Year Ended December 31, 2016
|
|
|
Weighted Average Exercise Price
|
Outstanding
at beginning of period
|
9,736,844
|
$
0.19
|
Granted
|
60,000,000
|
0.12
|
Exercised
|
-
|
-
|
Forfeited
|
-
|
-
|
Expired
|
(2,490,544
)
|
0.60
|
Outstanding
at end of period
|
67,246,300
|
$
0.12
|
The
following table summarizes the outstanding warrants as of December
31, 2017:
|
|
|
|
Weighted-Average Remaining Contract Life
|
Weighted- Average Exercise Price
|
|
Weighted-Average Exercise Price
|
$
0.06
|
4,500,000
|
1
|
$
0.06
|
4,500,000
|
$
0.06
|
0.08
|
200,000
|
1
|
0.08
|
200,000
|
0.08
|
0.09
|
400,000
|
1
|
0.09
|
400,000
|
0.09
|
$
0.06 -0.09
|
5,100,000
|
1
|
$
0.06
|
5,100,000
|
$
0.06
|
The
following table summarizes the outstanding warrants as of December
31, 2016:
|
|
|
|
Weighted-Average Remaining Contract Life
|
Weighted- Average Exercise Price
|
|
Weighted-Average Exercise Price
|
$
0.06
|
4,500,000
|
2
|
$
0.06
|
4,500,000
|
$
0.06
|
0.08
|
550,000
|
1
|
0.08
|
550,000
|
0.08
|
0.09
|
625,000
|
1
|
0.09
|
625,000
|
0.09
|
0.12
|
60,000,000
|
4
|
0.12
|
12,000,000
|
0.12
|
0.15
|
1,571,300
|
1
|
0.15
|
1,571,300
|
0.15
|
$
0.06 -.15
|
67,246,300
|
4
|
$
0.12
|
19,246,300
|
$
0.12
|
STOCK OPTIONS
A
summary of the status of the stock options granted for the years
ended December 31, 2017 and 2016, and changes during the period
then ended is presented below:
For the Year Ended
December 31, 2017
|
|
|
Weighted Average Exercise Price
|
Outstanding
at beginning of period
|
1,093,500
|
$
0.15
|
Granted
|
1,150,000
|
0.06
|
Exercised
|
-
|
-
|
Forfeited
|
(150,000
)
|
|
Expired
|
(943,500
)
|
0.15
|
Outstanding
at end of period
|
1,150,000
|
$
0.06
|
For the Year Ended
December 31, 2016
|
|
|
Weighted Average Exercise Price
|
Outstanding
at beginning of period
|
1,093,500
|
$
0.15
|
Granted
|
-
|
-
|
Exercised
|
-
|
-
|
Forfeited
|
-
|
-
|
Expired
|
-
|
-
|
Outstanding
at end of period
|
1,093,500
|
$
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. 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. As of December 31,
2017, the options were forfeited.
On
December 31, 2017, the Company granted a total of 1,150,000 options
to five employees. The shares vest in equal annual
amounts over three years and the aggregate fair value of the
awards was determined to be $61,322 and no expense was
recognized.
The
following table summarizes the outstanding options as of December
31, 2017:
As of December 31,
2017
|
|
Stock Options
Outstanding
|
Stock Options Exercisable
|
|
|
|
Weighted-Average Remaining Contract Life
|
Weighted- Average Exercise Price
|
|
Weighted-Average Exercise Price
|
$
0.06
|
1,150,000
|
5
|
$
0.06
|
-
|
$
-
|
The
following table summarizes the outstanding options as of December
31, 2016:
|
|
Stock Options
Outstanding
|
Stock Options Exercisable
|
|
|
|
Weighted-Average Remaining Contract Life
|
Weighted- Average Exercise Price
|
|
Weighted-Average Exercise Price
|
$
0.15
|
943,500
|
1.75
|
$
0.15
|
943,500
|
$
0.15
|
(a)
|
150,000
|
-
|
-
|
-
|
-
|
$
0.15
|
1,093,500
|
1.63
|
$
0.15
|
943,500
|
$
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. 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. As of December 31,
2017, the options were forfeited.
NOTE 9 – DERIVATIVE LIABILITIES
During
2017 and 2016, the Company had outstanding common stock warrants
that contained anti-dilution provisions including provisions for
the adjustment of the exercise price if the Company issues common
stock or common stock equivalents at a price less than the exercise
price. In addition, the Company also had outstanding convertible
notes payable to various lenders that were convertible at discounts
ranging from 30% to 50% of the fair market value of the
Company’s common stock.
As of
December 31, 2017, the Company did not have a sufficient number of
common shares authorized to fulfill the possible exercise of all
outstanding warrants and the conversion of all outstanding
convertible notes payable. As a result, the Company determined that
the warrants and the embedded beneficial conversion features of the
debt instruments do not qualify for equity classification.
Accordingly, the warrants and conversion options are treated as
derivative liabilities and are carried at fair value. As of
December 31, 2017, no outstanding common stock warrants with
anti-dilution provision remained outstanding.
The
Company estimates the fair value of the derivative warrant
liabilities by using the Black-Scholes Option Pricing Model and the
derivative liabilities related to the conversion features in the
outstanding convertible notes using the Black-Scholes Option
Pricing Model assuming maximum value, a Level 3, input, with the
following assumptions used:
Year
|
|
2017
|
|
2016
|
|
Dividend yield:
|
|
0%
|
|
0%
|
|
Expected
volatility
|
|
127.73%
to 0%
|
|
146.67
to 110.19%
|
|
Risk
free
interest
rate
|
|
0.00 to 1.07%
|
|
0.00 to 1.07%
|
|
Expected
life
(years)
|
|
0.00 to 0.00
|
|
0.00 to 0.56
|
|
The
following table sets forth the changes in the fair value of
derivative liabilities for the years ended December 31, 2016 and
2015:
Balance, December 31, 2015
|
$
(310
)
|
Derivative
warrants exchanged for debt
|
|
Loss
on change in fair value of derivative
liabilities
|
266
|
Balance, December 31, 2016
|
(44
)
|
Loss
on change in fair value of derivative
liabilities
|
44
|
Balance, December 31, 2017
|
$
-
|
The
aggregate gain (loss) on derivative liabilities for the years ended
December 31, 2017 and December 31, 2016 was $44 and $266,
respectively.
NOTE 10 – INCOME TAXES
The
Company accounts for income taxes in accordance with ASC Topic No.
740, “Income Taxes.” This standard requires the Company
to provide a net deferred tax asset or liability equal to the
expected future tax benefit or expense of temporary reporting
differences between book and tax accounting and any available
operating loss or tax credit carry forwards.
A 100%
valuation allowance has been provided for all deferred tax assets,
as the ability of the Company to generate sufficient taxable income
in the future is uncertain.
The
unexpired net operating loss carry forward at December 31, 2017 is
approximately $34,740,000 with various expiration dates between
2019 and 2037 if not utilized. All tax years starting with 2014 are
open for examination.
On
December 22, 2017, the Tax Cuts and Jobs Act (the “Tax
Act”) significantly revised U.S. corporate income tax law by,
among other things, reducing the corporate income tax rate from 34%
to 21%. As a result of this effective tax rate change the Net
operating loss carry forward as of December 31, 2017, decreased
from $11,928,740 to $7,295,315, a decrease of $4,633,425. Because
the Company recognizes a valuation allowance for the entire
balance, there is no net impact to the Company’s balance
sheet or results of operations.
Non-current
deferred tax asset:
|
|
|
Net
operating loss carry forwards, (21% as of December 31, 2017 and 34%
as of December 31, 2016
|
$
7,295,315
|
$
11,781,690
|
Valuation
allowance
|
(7,295,315
)
|
(11,781,690
)
|
Net
non-current deferred tax asset
|
$
-
|
$
-
|
Reconciliations
of the expected federal income tax benefit based on the statutory
income tax rate of 34% to the actual benefit for the years ended
December 31, 2017 and 2016 are listed below.
|
|
|
Expected
federal income tax benefit
|
$
(112,645
)
|
$
141,354
|
Goodwill
amortization
|
142,386
|
142,386
|
Gain
on settlement of debt
|
114,757
|
-
|
NOL
carryover reduced by settlement of debt
|
(114,403
)
|
-
|
Change
in valuation allowance
|
(11,807
)
|
(5,369
)
|
Expired
capital loss carryover
|
(9,227
)
|
-
|
Other
|
(9,061
)
|
(1,720
)
|
Derivative
gain
|
-
|
90
|
Stock-based
compensation
|
-
|
(276,741
)
|
Income
tax expense (benefit)
|
$
0
|
$
0
|
The
Company has no tax positions at December 31, 2017 and 2016 for
which the ultimate deductibility is highly certain but for which
there is uncertainty about the timing of such
deductibility.
The
Company recognizes interest accrued related to unrecognized tax
benefits in interest expense and penalties in operating expenses.
During the years ended December 31, 2017 and 2016, the Company
recognized no interest and penalties.
NOTE 11 – LEGAL PROCEEDINGS
Ken Link v. Wound Management Technologies, Inc., et al.
On
November 14, 2011, Ken Link instituted litigation against Wound
Management Technologies, Inc. and Scott A. Haire in the District
Court of Tarrant County Texas, Cause No. 342-256486-11 of the 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 asserted at that point in
time that the unpaid balance of the note, including accrued
interest as of December 4, 2011, was the sum of $355,292, Mr. Link
asserted that he was entitled to receive 200,000 shares of the
Company’s common stock. Mr. Link was also seeking
attorney’s fees and interest at 13% per annum, plus $1,000
per day. We disputed the claim, because we believed the contract
was tainted by usury, and therefore, a usury counterclaim would
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 was our contention that
these sums made the contract usurious and the usury claims more
than offset the amount of the unpaid indebtedness. Furthermore, we
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 was seeking recovery of
attorney’s fees pursuant to the usury provisions of the Texas
Finance Code. While the amount of the promissory note remained
unpaid, the counterclaims more than offset the maximum amount that
could be asserted on the promissory note. The case was set for
trial the week of October 21, 2013, but after three (3) days of
trial before a jury, the judge declared a mistrial. Subsequently,
Ken Link amended his pleadings and alleged that Wound Management
Technologies, Inc. never intended to pay the $223,500 promissory
note and sought damages for fraud and the loss of the benefit of
the bargain relating to the shares of stock, plus interest as set
forth in the note, exemplary damages, and attorney's fees. The case
was subsequently reset for trial the week of December 1, 2014, and
the judge again declared a mistrial. On September 4, 2015, Ken Link
again amended his pleadings seeking the sums he says were owed to
him resulting from the advance by him in the amount of $223,500.
The case was set for trial the week of May 15, 2017. but again,
after three (3) days of trial before a jury, the judge declared a
mistrial.
The
case was subsequently reset for trial the week of October 30, 2017,
and during a break in the proceedings, (November 1, 2017), the
Company and Ken Link entered into a binding settlement agreement,
which resulted in dismissal with prejudice of all claims and
counterclaims asserted in Cause No. 342-256486-11, in exchange for
which the Company delivered to Ken Link 1,200,000 shares of Wound
Management Technologies, Inc. common stock in total satisfaction of
all obligations between the parties. As a result of this
settlement, the Note Payable to Mr. Link in the amount of $223,500
was cancelled along with accrued interest in the amount of $147,
253. The fair value of the 1,200,000 shares of common stock
issued was $84,000 based on the stock price when issued, the
Company recognized gain on settlement of debt of
$286,873.
Wound Management Technologies, Inc. v. Fox Lake Animal Hospital,
PSP:
Wound Management Technologies, Inc. instituted
litigation in Cause No. 96-263918-13 in the 96th District Court of
Tarrant County, Texas against Fox Lake Animal Hospital, PSP and
Bohdan Rudawksi, Trustee of the Fox Lake Animal Hospital, PSP. The
cause of action asserts that the loan transaction between Wound
Management Technologies, Inc. and Fox Lake Animal Hospital PSP
involved the collection of illegal usurious interest for the reason
that while the face amount of the promissory note is $39,000, but
the loan actually loaned for a 6-month period was $25,000,
resulting in an interest rate in excess of the maximum rate
permitted by the Texas Finance Code. Wound Management Technologies,
Inc. is seeking to recover the penalties authorized by the Texas
Finance Code, together with the attorney’s fees. Fox Lake
Animal Hospital and Bohdan Rudawski, Trustee have filed a
counterclaim where they allege there were misrepresentations by
Wound Management Technologies, Inc. that would be excuse them from
having to pay penalties under the Texas Finance Code for charging
usurious interest. Fox Lake Animal Hospital and Bohdan Rudawski,
Trustee further claim that actions asserted violates the Federal
Securities Exchange Act and alleged fraud and fraud in the
inducement in entering into the promissory note.
Wound Management Technologies, Inc. v. Bohdan Rudawski:
Wound Management Technologies, Inc. instituted litigation in Cause
No. 352-263856-13 in the 352nd District Court of Tarrant County,
Texas against Bohdan Rudawksi. The case has been postponed until
September of 2016. The cause of action asserts that the loan
transaction between Wound Management Technologies, Inc. and Bohdan
Rudawski involved the collection of illegal usurious interest for
the reason that while the face amount of the promissory note is
$156,000, but the loan actually loaned for a 6-month period was
$100,000, charging an effective interest rate of over 100% which
violates the provisions of the Texas Finance Code. Wound Management
Technologies, Inc. is seeking to recover the penalties authorized
by the Texas Finance Code, together with the attorney’s fees.
Bohdan Rudawski has filed an answer and alleges there was not an
absolute obligation to repay the note, attempting to defeat the
usury claim. Bohdan Rudawski has further asserted that the claims
violate the Federal Securities Exchange Act and allege fraud of
inducement in entering into the promissory note.
The
352nd Judicial District Court entered an order in December, 2016
consolidating the Bohdan Rudawski case and the Fox Lake Animal
Hospital case into the 352nd Court case.
The case was tried and went to the
jury on March 22, 2018. The jury, in response to the question
concerning the fraud counterclaim, reached a verdict that there was
no fraud, therefore, a Judgment should be entered finding that the
Defendants take nothing by virtue of their fraud
claim.
NOTE 12 – CAPITAL LEASE OBLIGATION
In
December 2014, the Company entered into a Capital Lease agreement
for the purchase of a phone system. The agreement required a down
payment of $2,105 and 36 monthly payments of $375. The Company
recorded an asset of $13,512 and a capital lease obligation of
$13,512. Aggregate payments under the capital lease were $3,766 and
$4,733 during 2017 and 2016, respectively. At December 31, 2017,
the balance was paid in full.
NOTE 13 -- SUBSEQUENT EVENTS
In
accordance with applicable accounting standards for the disclosure
of events that occur after the balance sheet date but before the
financial statements are issued, all significant events or
transactions that occurred after December 31, 2017, are outlined
below:
On
March 6, 2018 the Company issued 22,651,356 shares of common stock
for the conversion of $1,200,000 in convertible debt.
In
February and March 2018, the company issued 100,567,691 shares of
common stock for conversion of 85,561 shares of Series C
Convertible Preferred Stock and $1,050,468 of related Series C
dividends.
As of
the date of this report there are no Series C Convertible Preferred
stock shares outstanding.
In
response to the expiration of Applied Nutritionals’ patent
covering the use of hydrolyzed collagen in wound care on February
27, 2018, the Company submitted an FDA 510(k) application on March
26, 2018, seeking U.S. marketing clearance for our new internally
sourced hydrolyzed collagen.