TMCnet News
REVOLUTIONS MEDICAL CORP - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations.(Edgar Glimpses Via Acquire Media NewsEdge) This quarterly report on Form 10-Q and other reports filed by Revolutions Medical Corporation ("we," "us," "our," or the "Company") from time to time with the U.S. Securities and Exchange Commission (the "SEC") contain or may contain forward-looking statements and information that are based upon beliefs of, and information currently available to, the Company's management as well as estimates and assumptions made by Company's management. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. When used in the filings, the words "anticipate," "believe," "estimate," "expect," "future," "intend," "plan," or the negative of these terms and similar expressions as they relate to the Company or the Company's management identify forward-looking statements. Such statements reflect the current view of the Company with respect to future events and are subject to risks, uncertainties, assumptions, and other factors. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned. Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results. Our financial statements are prepared in accordance with accounting principles generally accepted in the United States ("GAAP"). These accounting principles require us to make certain estimates, judgments, and assumptions. We believe that the estimates, judgments, and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments, and assumptions are made. These estimates, judgments, and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our financial statements would be affected to the extent there are material differences between these estimates Plan of Operation The Company has begun sales of its 3ml RevVac™ safety syringe and on March 15, 2012, placed an initial monthly syringe order for 3 million units with its supplier. Yeso-med accepted the order and expects to ship all 3 million units on or before May 30, 2012. The Company has rolled out RevVac™ safety syringe product sales through introduction to distributors, advertisements through its online sales program, attendance at numerous industry trade shows and a direct marketing campaign. The Company expects to be in full scale production by September 2012 for its 1ml RevVac™ safety syringe and by November 2012 for its 5ml and 10ml sizes. This RevVac™ safety syringe uses vacuum technology to retract the needle into the plunger after use. The syringe cannot be reused once the vacuum is activated. Revolutions Medical believes its safety syringe has many advantages over its competition including price, ease of use, and safety. It should virtually eliminate accidental needle stick injuries and also aid in reducing the spread of contagious diseases. You may view a video of the syringe in use on our website at www.revolutionsmedical.com. The Company also believes that with the help of government regulation initiatives, individual state laws, and the importance of world health concerns, the safety syringe market will continue to have substantial growth into the foreseeable future. During 2010, Revolutions Medical entered into two university clinical studies utilizing its proprietary MRI software tools. These first two clinical studies are for cases involving head trauma and brain masses. These results are expected to clinically validate the use of its MRI software tools as an additional application to enhance the diagnostic confidence of physicians. In preparation for the expected commercial launch of the MRI software suite of products, the Company hired Strata Corporation in March 2012. Strata is an expert in computer software and programming and the Company believes that by the end of 2012, the first application of RevColor™, RevDisplay™ and Rev3D™ will be commercially available. The launch of this product will be a "software as a service" (SaaS) business model, where customers will log on to our secure website and send current black and white images to the Company via high speed internet (teleradiology), and the images will be sent back to the customer in color and three dimensional with auto segmentation. At first the Company will charge a per-use fee but can expand depending upon volume into monthly service agreements. Potential Revolutions Medical customers could include MRI centers, doctors, hospitals and even patients. 17 The Company is currently working on developing, enhancing and securing it proprietary MRI software tools for commercial launch. The Company believes that once clinical application validations using its MRI software suite of products including RevColor™, RevDisplay™ and Rev3D™ directed at concussions, stroke, Alzheimer's and breast disease are achieved, it will eventually aid in the enhanced diagnosis, detection, and monitoring of such diseases and afflictions. When an MRI is taken, the black and white images are sent to a picture archiving and communication system (PACS), which displays the images for a radiologist to view. By using high speed internet, these images can be securely sent to the Company's secure website, after a secure account is opened. This is called teleradiology. For a small nominal fee or monthly subscription, the Company will use its proprietary software, based upon specific parameters and information provided, and sends back the images in enhanced color and sorted in correct sequence along with the original black and white images, in a matter of minutes. A video of the MRI software can be found on the Company's website. Results of Operations For the three months ended March 31, 2012 compared to the three months ended March 31, 2011 Revenues During the three months ended March 31, 2012 and 2011, respectively, the Company had no revenues as the initial purchase orders received for syringes prior to March 31 were not able to be fully produced and shipped from the manufacturing facility prior to the end of the first quarter. The Company expects these initial orders placed in the first quarter to be completed and shipped in the second quarter of 2012. General and Administrative Expenses During the quarter ended March 31, 2012, the Company incurred $1,479,708 in general and administrative expenses, compared to $762,740 for the same period in 2011. Employee salaries were $175,250 for the quarter ended March 31, 2012, an increase of $65,000, compared to $110,750 for the same period in 2011. In addition to this, compensation costs related to the issuance of options to officers and directors during the first quarter of 2012 totaled $403,479 compared to $0 for the same period in 2011. Besides this option expense, salary expenses for management and employees increase due to the 2011 hiring of a Chief Financial Officer, Chief Operating Officer and additional sales staff. Further, consulting agreement fees and legal fees were $279,837 and $273,650, respectively, for the quarter ended March 31, 2012, a decrease in consulting fees of $153,343 and an increase in legal fees of $239,393, respectively, compared to $433,181 and $34,257, respectively, for the same period in 2011. The decrease in consulting fees was partly due to the Company's decision in 2011 to terminate the consulting agreement with Strategic Product Development ("SPD"). The increase in legal fees was due primarily to increased expenses related to securities issuance and SEC compliance along with legal expenses related to litigation and the protection of the Company's intellectual property. A total of $149,998 in prepaid consulting agreements was expensed in the quarter ended March 31, 2012, compared to $137,181 for the same period in 2011. Interest and derivative adjustments increased to $354,554 during the quarter ended March 31, 2012, compared to $119,260 for the same period in 2011. This increase is due primarily to the new convertible debt agreements entered into with individual investors during the first quarter. These agreements allow for an immediate conversion into shares of common stock and requires the debt discount recorded at the time of the agreement to be fully amortized immediately. The total amount amortized to interest expense during the first quarter for these agreements was $256,172. This is in contrast to the agreements entered into with Asher, JMJ and TCA that amortize the debt discount over a period of time. We also incurred capital expenditures in the amount of $116,098 and $359,000 during the quarter ended March 31, 2012 and 2011, respectively, for payments to complete the final design of our production molds related to the 3 ml RevVac™ safety syringe. 18 Net Loss Net loss for the quarter ended March 31, 2012, was $(1,916,164) compared to $(883,533) for the same period in 2011, as the Company incurred greater expenses primarily related to an increase in salaries, additional compensation expenses, legal fees and expenses associated with the convertible debt agreements. The Company incurred a net operating loss of $(1,561,610) during the quarter ended March 31, 2012, compared to a net operating loss of $(764,274) for the same period in 2011. Liquidity and Capital Resources As of March 31, 2012, the Company did not have and continues to not have sufficient cash on hand to pay present obligations as they become due. In addition, due to current economic conditions and the Company's related risks and uncertainties, there is no assurance that we will be able to raise additional capital on acceptable terms, if at all, to meet our current obligation over the next 12 months. Because of the foregoing, the Company's auditors have expressed substantial doubt about our ability to continue as a going concern. Net cash used for operating activities for the quarters ended March 31, 2012 and March 31, 2011, was $(1,038,427) and $(381,530), respectively. The net loss for the quarters ended March 31, 2012 and 2011 was $(1,916,164) and $(883,533), respectively. This increase is primarily attributable to the increased expense related to legal expenses, salaries and other compensation expenses, and the interest and derivative expenses related to the convertible debt agreements. Net cash used for investing activities for the quarters ended March 31, 2012 and March 31, 2011, was $(15,743) and $(377,000), respectively. This cash used for investing activities in the first quarter is a result of legal expenses related to patent development for the RevVac™ safety syringe. Net cash obtained through all financing activities for the quarter ended March 31, 2012 was $1,086,390, as compared to $791,037 for the same period in 2011. The increase in cash obtained through financing activities is primarily a result of cash received from convertible debt agreements. Cash adjustments through the payment of debt totaled $849,748 during the quarter ended March 31, 2012. Of this $849,748, an increase of $653,450 was provided from principal on first quarter 2012 convertible debt agreements. Common stock in the amount of $321,152 was issued in the first quarter of 2012 to satisfy convertible debt agreements. An increase due to the convertible debt's beneficial conversion feature as of March 31, 2012 is $177,124. A debt discount decrease of $107,286 has yet to be amortized as of March 31, 2012, and an increase from the balance of the derivative liability as of March 31, 2012, is $56,702. Adjustments as of March 31, 2012 for the liability balance for the Gifford Mabie SEC settlement were made in the amount of $145,892 based upon the issuance of 400,000 shares on March 15, 2012 and a revaluation of the unsold shares. For the first quarter, The Company received $26,775 from the exercise of options relating to consulting agreements. In order to fund the completion of the RevVac™ safety syringe production molds, we issued stock options and/or common stock when it is acceptable to third parties for services rendered in assisting us in the product distribution and marketing process. Compensation costs related to the issuance common stock to outside parties for services rendered during the year ended March 31, 2012 and 2011 were $287,375 and $301,000, respectively. Additionally, we received payments for exercised options during the quarter ended March 31, 2012, totaling $18,750, compared to $0 for the same period in 2011. 19 As of March 31, 2012, the Company did not have and continues to not have sufficient cash to pay present obligations as they become due. We are searching for additional financing to generate the liquidity necessary to continue our operations. Due to current economic conditions and the Company's risks and uncertainties, there is no assurance that we will be able to raise any additional capital on acceptable terms, if at all. Because of these uncertainties, the auditors have expressed substantial doubt about our ability to continue as a going concern. If we obtain additional funds by selling any of our equity securities or by issuing common stock to pay current or future obligations, the percentage ownership of our stockholders will be reduced, stockholders may experience additional dilution, or the equity securities may have rights preferences or privileges senior to the common stock. If adequate funds are not available to us on satisfactory terms, we may be required to cease operating or otherwise modify our business strategy. Because we do not currently generate any cash from operations and have no credit facilities available, our only means of funding is through the sale of our common stock. We presently have 250,000,000 shares of common stock authorized, of which 57,505,476 shares were issued and outstanding as of March 31, 2012. If we obtain additional funds by selling any of our equity securities or by issuing common stock to pay current or future obligations, the percentage ownership of our stockholders will be reduced, stockholders may experience additional dilution, or the equity securities may have rights preferences or privileges senior to the common stock. If adequate funds are not available to us when needed on satisfactory terms, we may be required to cease operating or otherwise modify our business strategy. Our estimated working capital requirement for the next 12 months is $3,100,000 with an estimated burn rate of $230,000 per month. This working capital requirement includes initial orders for the safety syringe expected in the 2nd quarter of 2012. The Company entered into two securities purchase agreements in the first quarter of 2012 with Asher Enterprises, pursuant to which the Company issued two convertible promissory notes to Asher Enterprises for an original principal amount of $46,000 on February 14, 2012 and $42,500 on March 23, 2012, respectively, in return for aggregate gross cash proceeds of $88,500. The notes bear interest at a rate of 8% per annum and provide for the payment of all principal and interest 9 months from the date of the notes' respective issuance. The principal amount owed to Asher Enterprises at March 31, 2012, is $184,000. This includes the two notes issued for $46,000 and $42,500 in the first quarter of 2012 and the notes from November 7, 2011 for $42,500 and from December 19, 2011 for $53,000. The notes are convertible at the election of Asher Enterprises into that number of shares of the Company's common stock determined by multiplying 55% by the average of the lowest three closing bid prices of the Company's common stock on the OTC Markets OTCQB during the 10 business days immediately preceding the date of conversion, subject to adjustment. The notes issued by Asher on November 7, 2011, December 19, 2011, February 10, 2012 and March 20, 2012 contain a beneficial conversion feature due to an amendment featuring a fixed conversion price of $0.00009 and no adjustment due to dilutive issuance. As a result, these notes were not bifurcated and valued with an embedded call option. The intrinsic value of the beneficial conversion feature is recorded as a debt discount with a corresponding amount to additional paid in capital. Additionally, the notes issued through the private placement to individual investors all contain a beneficial conversion feature due to an amendment featuring a fixed conversion price of $0.00009 and no adjustment due to dilutive issuance. The total paid in capital for this beneficial conversion feature for these agreements as of March 31, 2011 is $271,747. Of this, $168,740 is due to the agreements with Asher Enterprises and $103,006 is due to the agreements with private investors. On February 22, 2011, the Company issued a $1,050,000 Convertible Promissory Note to JMJ Financial, Inc. ("JMJ"), a private investor. The note bears interest in the form of a onetime interest charge of 8%, payable with the note's principle amount on the maturity date, February 22, 2014. All or a portion of this note's principle and interest is convertible at the option of JMJ from time to time, into shares of the Company's common stock, originally fixed at a per share conversion price equal to 70% of the average of the 3 lowest closing prices for the Company's common stock in the 20 trading days previous to the effective date of each such conversion. During the course of 2011, the Company borrowed $450,000 against this note. Over the course of the loan, JMJ elected to convert a total of $258,337 in principal from this note. The principal amount owed to JMJ at March 31, 2012, is $191,663. 20 On February 28, 2011, the Company issued a $500,000 Convertible Promissory Note to JMJ. The note bears interest in the form of a onetime interest charge of 8%, payable with the note's principle amount on the maturity date, February 28, 2014. All or a portion of this note's principle and interest is convertible at the option of JMJ from time to time, into shares of the Company's common stock, originally fixed at a per share conversion price equal to 70% of the average of the 3 lowest closing prices for the Company's common stock in the 20 trading days previous to the effective date of each such conversion. The Company entered into a securities purchase agreement in the first quarter of 2012 with TCA Global Credit Master Fund, LP ("TCA"), pursuant to which the Company issued a convertible promissory note to TCA for an original principal amount of $225,000 on January 3, 2012. The note bears interest at a rate of 12% per annum and provide for the payment of all principal and interest 12 months from the date of the note's respective issuance. The principal amount owed to TCA at March 31, 2012 is $225,000. The note is convertible at the election of TCA into that number of shares of the Company's common stock determined by multiplying 95% by the average of the two lowest daily volume weighted average prices of the Company's common stock on the OTC Markets OTCQB during the 5 business days immediately preceding the date of conversion, subject to adjustment. The Company entered into four securities purchase agreements in the first quarter of 2012 with individual investors, pursuant to which the Company issued four convertible promissory notes for an original principal amount of $189,950 on January 13, 2012, for $50,000 on February 3, 2012, for $50,000 on February 7, 2012 and for $50,000 on March 30, 2012, respectively, in return for aggregate gross cash proceeds of $339,950. The notes bear interest at a rate of 8% per annum and provide for the payment of all principal and interest 12 months from the date of the notes' respective issuance. The notes also feature detachable warrants exercisable within one year of the agreement. All warrants issued along with the convertible debt agreements are outstanding, with a total of 800,000 warrants issued at 25 cents and 400,000 warrants issued at 50 cents. In determining the cost associated with the issuance of this debt and the fair value for the warrants, the Company uses the Black-Scholes option pricing formula. The principal amount owed according to these notes as of March 31, 2011, is $239,950. The notes are convertible at the election of the individual into that number of shares of the Company's common stock determined by multiplying 75% by the average of the daily volume weighted average prices of the Company's common stock on the OTC Markets OTCQB during the 5 business days immediately preceding the date of conversion, subject to adjustment. The following table summarizes total current assets, liabilities and working capital at March 31, 2012, compared to March 31, 2011. March 31, March 31, 2012 2011 Increase/ (unaudited) (unaudited) (Decrease) Current Assets $ 545,542 $ 328,580 $ 216,962Current Liabilities $ 2,536,082 $ 2,018,518 $ 517,564 Working Capital Deficit $ (1,990,540 ) $ (1,689,938 ) $ 300,602 As of March 31, 2012, we had a working capital deficit of $1,990,540, as compared to a working capital deficit of $1,689,938 as of March 31, 2011, an increase of $300,602. Current assets increased primarily due to the litigation receivable of $311,000 from the judgment against Globe Med Tech. Factors contributing to the increase in this deficit include an increase in accounts payable due to purchase of the new production molds according to the terms of the manufacturing agreement signed with Yeso-med in December. Additionally, the issuance of the convertible notes and the embedded derivatives associated with these notes increases current liabilities to $843,204 as of March 31, 2012, as compared to a balance of $571,178 as of March 31, 2011. Other current assets include the amount related to pre-paid consulting expenses incurred through the issuance and exercise of stock options. The balance of prepaid consulting fees as of March 31, 2012, was $170,528, compared to $201,556 as of March 31, 2011. The remaining balance includes $25,000 for a short term note receivable and inventory of $1,950. 21 March 31, March 31, 2012 2011 Building $ - $ - Production machinery and equipment 1,109,199 1,142,000 Furniture and fixtures 49,147 39,847 Office equipment 4,036 2,214 Leasehold improvements 37,400 - Less: accumulated depreciation and amortization (18,275 ) (11,117 ) Property, plant and equipment, net $ 1,181,507 $ 1,172,944 Production machinery and equipment as of March 31, 2012, consisted primarily of amounts incurred in connection with the pilot molds and final molds related to the lines for the RevVac™ syringe. The Company continues to treat the amounts paid to MIG under the terminated agreement as production equipment until the outcome of the breach of contract arbitration is finalized. The Company does not currently generate any cash from operations and does not have access to traditional credit facilities; however, the Company expects product sales beginning in the second quarter of 2012. Over the next 12 months, in order to implement our business plan and meet our liquidity needs going forward, the Company may sell shares of its common stock, issue additional convertible debt notes or permit warrant exercises. If we implement any of the foregoing financing alternatives to pay current or future obligations, the percentage ownership of our stockholders will be reduced, stockholders may experience additional dilution, or the equity securities may have rights preferences or privileges senior to the common stock. If adequate funds are not available to us when needed on satisfactory terms, we may be required to cease operating or otherwise modify our business strategy. Current Liabilities consists of the following: March 31, March 31, 2012 2011 Accounts payable and credit cards $ 540,557 $ 314,853 Accrued salaries and payroll liabilities 313,802 246,225 Convertible debentures and accrued interest (net) 470,723 101,546 Note payable and accrued interest 705,657 790,552 Derivative liabilities 417,003 476,384 Other current liabilities 88,340 88,958 Total current liabilities $ 2,536,082 $ 2,018,518 The primary change in the balance to Accounts Payable is a result of the purchase agreement for the 1ml and 3ml RevVac™ safety syringe molds. Accrued salaries increased by $67,577 due to an increase in payroll tax liabilities of $193,802 and a decrease in accrued salary of $126,225. Notes payable and accrued interest are a result of the settlement and determination of a liability with Gifford Mabie and the SEC. The issuance of the convertible debt agreements resulted in an increase in convertible debentures principal balance due and derivative liabilities. Other current liabilities include an amount due to a former employee of the Company. Expected Purchase or Sale of Plant and Significant Equipment The Company expects to purchase and begin making payments for the production of the 1ml RevVac™ safety syringe molds in the second quarter of 2012. Expected Significant Changes in the Number of Employees The Company began leasing additional space in the same building as of July 1, 2011, and expects to hire between 3 to 7 office personnel to assist with operations as sales commence with the 3ml RevVac™ safety syringe. Off-Balance Sheet Arrangements We have no significant known off balance sheet arrangements. 22 |