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EX-32.2 - EXHIBIT 32.2 - Revolutions Medical CORPv306933_ex32-2.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Fiscal Year Ended: December 31, 2011

 

or

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934

 

REVOLUTIONS MEDICAL CORPORATION
(Exact name of registrant as specified in its charter)

 

Nevada 000-28629 73-1526138

(State or other jurisdiction of

incorporation or organization)

(Commission File Number)

(I.R.S. Employer Identification

Number)

 

670 MARINA DRIVE, 3RD FLOOR

CHARLESTON, SC 29492

(Address of principal executive offices, including zip code)

 

(843) 971-4848
(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:  None

 

Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.001 par value

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 the Securities Act. Yes ¨ No þ

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No þ

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the last 90 days.

Yes þ No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes ¨ No þ

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer ¨ Accelerated Filer ¨
   
Non-Accelerated Filer ¨ Smaller reporting company þ

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ

 

Issuer’s revenues for its most recent fiscal year were approximately $0.

 

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant on June 30, 2011, based on a closing price of $0.29 was approximately $14,261,788. As of March 30, 2012, the registrant had 57,505,476 shares of its common stock, par value $0.001 per share, outstanding.

 

Documents Incorporated By Reference: None.

 

 
 

 

REVOLUTIONS MEDICAL CORPORATION

FOR THE FISCAL YEAR ENDED

DECEMBER 31, 2011

 

TABLE OF CONTENTS

 

      Page
PART I      
       
Item 1. Business   4
Item 1A. Risk Factors   12
Item 1B. Unresolved Staff Comments   25
Item 2. Properties   25
Item 3. Legal Proceedings   25
Item 4. Mine Safety Disclosures   25
     
PART II    
       
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities   26
Item 6. Selected Financial Data   27
Item 7. Management’s Discussion and Analysis of Financial Condition and Results Of Operations   27
Item 7A. Quantitative And Qualitative Disclosures About Market Risk   32
Item 8. Financial Statements and Supplementary Data   32
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure   32
Item 9A. Controls and Procedures   32
Item 9B. Other Information   33
       
PART III
       
Item 10. Directors, Executive Officers and Corporate Governance   34
Item 11. Executive Compensation   36
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters   38
Item 13. Certain Relationships and Related Transactions, and Director Independence   39
Item 14. Principal Accounting Fees and Services   40
       
PART IV
       
Item 15. Exhibits, Financial Statement Schedules   41

 

2
 

 

FORWARD LOOKING STATEMENTS

 

Included in this Form 10-K are “forward-looking” statements, as well as historical information. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that the expectations reflected in these forward-looking statements will prove to be correct. Our actual results could differ materially from those anticipated in forward-looking statements as a result of certain factors, including matters described in the section titled “Risk Factors.” Forward-looking statements include those that use forward-looking terminology, such as the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “project,” “plan,” “will,” “shall,” “should,” and similar expressions, including when used in the negative. Although we believe that the expectations reflected in these forward-looking statements are reasonable and achievable, these statements involve risks and uncertainties and we cannot assure you that actual results will be consistent with these forward-looking statements. We undertake no obligation to update or revise these forward-looking statements, whether to reflect events or circumstances after the date initially filed or published, to reflect the occurrence of unanticipated events or otherwise.

 

3
 

 

PART I

 

Item 1. Business.

 

Since 1996, Revolutions Medical Corporation (“Revolutions Medical,” the “Company,” “we,” “us” or “our”) has been endeavoring to design, develop and commercialize auto retractable vacuum safety syringes. Our 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™, RevDisplay™, and RevScan™. These tools are designed to enhance general diagnostic confidence through education and research use and in the future we believe will have specific commercial applications.

 

On February 22, 2009, the Company announced that it had received notification from the Federal Drug Administration (“FDA”) that the 510(k) application for the 3ml RevVac™ safety syringe was cleared. Furthermore, FDA clearance is not needed for educational and research use of our RevDisplay™, RevColor™ and Rev3D™ MRI software tools but future applications will most likely require FDA 510(k) clearance

 

According to the Company’s manufacturing agreement with Medical Investment Group, (“MIG”), signed in September 2010, the RevVac™ auto-retractable vacuum safety syringe was required to be in full production by May 2011. On September 6, 2011, the Company terminated its manufacturing agreement with MIG and signed a Memorandum of Understanding with Wuxi Yushou Medical Appliances Co., Ltd. on September 8, 2011, for the manufacturing and supply of the Company's proprietary RevVac™ safety syringes, including the 1ml, 3ml, 5ml, and 10ml sizes. On December 1, 2011, a formal manufacturing agreement was signed between Revolutions Medical and Wuxi Yushou Medical Appliances Co., LTD. (“Yeso-med”). Yeso-med opened its new production workshop in March 2012 and began full scale manufacturing of the 3ml RevVac™ safety syringe.

 

The Company’s partnership with Yeso-med enabled the firm to establish manufacturing capabilities. In September 2011, Yeso-med began establishing a new, state-of-the-art manufacturing facility dedicated to the manufacture of safety syringes. The new facility, which began operations in March 2012, consists of 21 injection molding machines with complete assembly lines, capable of producing 100,000,000 safety syringes per year and expansion capability to produce 300,000,000 units per annum. The new facility is over 300,000 sq. ft. with a Class 8 clean room totaling over 32,000 sq. ft. Yeso-med employs over 470 employees and has been producing medical devices since 1997. The manufacturing processes have been certified by the FDA, European Community (CE Mark) and ANVISA and has been issued an ISO 13485 certificate of compliance in recognition of their current good manufacturing practices (cGMP).

 

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.

 

“MRI” refers to “Magnetic Resonance Imaging,” a widely used imaging system that safely creates many different and detailed views of selected portions of the internal anatomy. An MRI scanner is a large tunnel-shaped machine that will accommodate an adult lying down. Within the MRI scanner is a large magnet which directs harmless radio signals around sections of the body. When these signals pass through the body, they release a signal. The released signals are picked up by a receiver inside the MRI scanner and then sent to a computer. The computer analyzes the signals and converts them to a visual image that is displayed on a viewing monitor and then printed on special film. The images produced by the scanner are gray-scale images similar to an x-ray. These gray-scale images can be difficult and time consuming to “read.” A radiologist “reads” these images on film by comparing the different scans of each tissue slice, sometimes evaluating one hundred to three hundred individual gray images to obtain a diagnosis. The successful diagnosis of a condition, using MRI, depends not only on the ability of the radiologist to detect the subtle differences in shades of gray, but also the radiologist’s ability to compare visually the vast number of images.

 

4
 

 

The Company is engaged in the development of technology which can segment and reference MRI images. By “segmenting” an image, the Company’s technology will let the user select a part of the image (bone, fluid, tissue) and render that selection in three dimensions. Essentially, different components of an image are given different colors and the user can choose the color or colors to be studied, thus eliminating those portions colored with the colors being discarded. By “referencing” the image to a data base, the user can obtain similar, identified images to aid the user in interpretation of the image being studied. The Company filed four US patent applications in June of 2007, each of which received USPTO office actions during 2010 and 2011. As Revolutions Medical continues to improve and enhance its proprietary software capabilities, and as new information and technologies advance with the imaging market, the Company is ready to protect and preserve its technology by filing additional patents, copyrighting, and other protection measures.

 

The Company has launched sales of its 3ml RevVac™ safety syringe and expects to ship its first orders by the end of March 2012. This event will be the first time the Company can record sales revenues and the Company expects to ship approximately 3 million 3ml RevVac™ safety syringes per month through the end of this year. With a combination of sales orders, warrant and option holders exercising, and the recent capital financing agreement with Trafalgar, the Company expects to have enough capital to meets its financial needs in 2012.

 

Principal Markets

 

Our 3ml RevVac™ safety syringe is currently being marketed to healthcare providers in the U.S. and internationally which include, but are not limited to, acute care hospitals, alternate care facilities, doctors’ offices, clinics, emergency centers, surgical centers, convalescent hospitals, Veterans Administration facilities, military organizations, public health facilities, and prisons.

 

The syringe and needle device market continues to be a market in transition. The nature of the products comprising the market is gradually changing from standard to safety devices. The impetus for the change to safety devices is the risk that is carried with each needlestick injury which includes the transmission of over 20 blood borne pathogens, including the human immunodeficiency virus (“HIV,” which causes AIDS), hepatitis B, and hepatitis C. Because of the occupational and public health hazards posed by conventional disposable syringes, public health policy makers, domestic organizations, and government agencies have been involved in the effort to get more effective safety needle products to healthcare workers.  Federal legislation was signed into law on November 6, 2000, by former President William Jefferson Clinton.  This legislation, which became effective for most states on April 12, 2001, now requires safety needle products be used for the vast majority of procedures.  However, even with this requirement, hospitals are slow to follow the law intended to protect healthcare workers.

 

Distribution Method of Products and Services

 

In the U.S., the vast majority of decisions relating to the contracting for and purchasing of medical supplies are made by the representatives of group purchasing organizations (“GPOs”) rather than the end-users of the product (nurses, doctors, and testing personnel). GPOs and manufacturers often enter into long-term exclusive contracts which can prohibit entry in the marketplace by competitors. In the needle and syringe market, the market share leader, Becton-Dickinson, has utilized, among other things, long-term exclusive contracts which have restricted entry into the market by most of our competitors. The Company has been in direct communication and has shown samples of its RevVac™ safety syringes to many GPOs. We believe that we have a superior product compared to the competition which would allow us to penetrate the market. However, we may not be successful in obtaining any contracts with GPOs, which would severely limit our product’s marketability in the United States. See “RISK FACTORS.”

 

We presently have our 3ml RevVac™ safety syringe for sale and expect to have additional products for sale in 2012. We plan to seek distribution arrangements with established medical device distributors in the future, but there is no assurance that we will be successful in establishing or maintaining such relationships.

 

5
 

 

Presently, the Company has signed international distribution agreements with several firms. In December 2011, the Company signed agreements with DS WorldMed, Incorporated, who was granted exclusive distribution rights in South America, and CeifiT, Incorporated, who was granted exclusive distribution rights in Israel and Qatar. These entities committed to sales totaling 7 million units in the first half of 2012 and recurring sales of at least 7.5 million units per quarter beginning in the 3Q 2012 in order to retain their exclusivity rights to these territories.

 

In the first quarter of 2012, the Company signed a non-exclusive distribution agreement with Hectare Systems covering Malaysia.

 

Status of Planned Products

 

The RevVac™ safety syringe uses vacuum technology to retract the needle into the plunger immediately after use. The syringe cannot be reused once the vacuum is activated. The Company believes its safety syringe has many advantages over its competition including price, ease of use, and safety. We believe that it will help reduce accidental needle stick injuries and also aid in reducing the spread of contagious diseases. 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.

 

The Company is currently working on developing, enhancing and securing its 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 process is called teleradiology. For a nominal fee 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.

 

Competitive Business Conditions, Competitive Position and Methods of Competition

 

The safety medical device market is highly competitive. The leading manufacturers and marketers of safety medical devices are Becton-Dickinson, Covidien (Kendall Healthcare Products Company), B. Braun, Terumo Medical Corporation of Japan, Smith Medical, and Johnson & Johnson. Developers of safety medical devices, which we compete against for license and collaborative arrangements with medical device and pharmaceutical companies, include Med-Design Corporation, New Medical Technologies, Retractable Technologies, Inc., Unilife, Inc. and Specialized Health Products International. Our competitors have substantially greater assets, technical staffs, established market shares, and greater financial and operating resources than we do. There is no assurance that we can successfully compete.

 

Traditionally, competition regarding non-safety medical devices was primarily based upon price with little differentiation between products. We expect our products to compete against both safety products and non-safety products based upon safety and ease of use and disposal. Most of the safety medical devices we will compete with are priced substantially above the cost of non-safety products. Market demand for safety devices is being driven by the estimated costs associated with accidental needle sticks and by government mandates.

 

We compete primarily on the basis of product performance and quality.  We believe our competitive advantages include, but are not limited to, our superior design and innovation. We believe the RevVac™ safety syringe to be the most effective safety syringe on the market.  Our syringe products include passive safety activation, require less disposal space, and are activated while in the patient, virtually eliminating exposure to the contaminated needle. Our price per unit is competitive or even lower than the competition once all the costs incurred during the life cycle of a syringe are considered. Such life cycle costs include disposal costs, testing and treatment costs for accidental needlestick injuries, and treatment for contracted illnesses through accidental needlestick injuries.  With our unique design, the disposal costs can be drastically reduced by requiring, in certain situations, just the plunger with the retracted needle to be disposed of in a sharps container. This dramatically cuts the disposal costs compared to other safety syringes on the market that require the entire syringe to be disposed of in a sharps container.

 

6
 

 

We have several major competitors including BD and Covidien Ltd. (“Covidien”) domestically and Terumo Medical Corp. (“Terumo”), and B. Braun internationally.

 

Included as safety-engineered devices manufactured by BD are the SafetyLok™, a syringe that utilizes a tubular plastic sheath that must be manually slid over the needle after an injection, and the SafetyGlide™, a needle which utilizes a hinged lever to cover the needle tip.  BD also manufactured the Integra 3mL retracting needle product based on a license agreement with Specialized Health Products International, Inc. (formerly the Med-Design Corporation). Terumo manufactures conventional and auto-disable syringes and operates internationally with sales in more than 150 countries.

 

Both BD’s SafetyLok™ and Covidien’s Monoject® safety syringes require the use of two hands and several extra steps to activate the tubular plastic shield which must be slid and locked into place to protect the needle.  These products must be removed from the patient prior to activation, resulting in exposure to the contaminated needle.  In contrast, use of the RevVac™ syringe is identical to that of a standard syringe until the end of an injection, when the automated vacuum retraction mechanism retracts the needle directly from the patient safely into the barrel of the syringe. This allows both hands to remain safely out of harm’s way.

 

Our safety syringe products have an advantage over non-retracting safety syringes because minimal training and changes to practitioners’ normal routines are required. Use of our products also prohibits unfortunate and improper reuse. Several factors could materially and beneficially affect the marketability of our products. Demand could be increased by existing legislation and other legislative and investigative efforts. Licensing agreements could provide entry into new markets and generate additional revenue.

 

Sources of Raw Materials and the Names of Principal Suppliers

 

On December 1, 2011, the Company entered into an International Manufacturing Agreement (the “Yeso-med Agreement”) with Yeso-med. The term of the Agreement is for a period of sixty (60) months commencing on the Effective Date (the “Term”). Pursuant to the Yeso-med Agreement, during the Term, Yeso-med will serve as the Company’s exclusive manufacturer in China of the Company’s RevVac™ safety syringes, including the 1ml, 3ml, 5ml and 10ml sizes. The Company is also pursuing manufacturing capabilities outside of China.

 

The Company is obligated under the terms of the agreement to place an initial order by March 15, 2012. Commencing on the date that Yeso-med has the capacity to begin regular production of the 3ml Syringe in the minimum amount of 2,500,000 units per month, but no later than April 30, 2012, the Company will place and Yeso-med will supply orders in the minimum amount of 2,500,000 units per month, for each month during the Term. Further, commencing on the date that Yeso-med has the capacity to commence regular production of the 1ml Syringe in the minimum amount of 2,500,000 units per month, the Company will place and Yeso-med will supply orders in the minimum amount of 5,000,000 units per month, for each month during the Term, such order to consist of an agreed upon combination of 1ml and 3ml Syringes. The agreement also provides for the production of the 5ml and 10ml RevVac™ safety syringe sizes with no obligation for minimum monthly amounts. These amounts will be subject to market demand. On March 15, 2012, Revolutions Medical placed an order for 3 million 3ml RevVac™ safety syringes. Yeso-med accepted the order and expects to have all 3 million syringes shipped by April 30, 2012 in accordance with the supply agreement.

 

Dependence on One or Few Major Customers

 

We anticipate that our safety syringe will be marketed to the entire field of medical professionals. We do not anticipate being dependent on any particular customer, however, at this time we cannot know if any one customer will account for more than 1% of our anticipated safety syringe sales.

 

Patents, Trademarks, Licenses, Royalty Agreements or Labor Contracts

 

Our success depends in part on our ability to maintain proprietary protection surrounding our product candidates, technology and know-how; to operate without infringing the proprietary rights of others; and to prevent others from infringing our proprietary rights. Our policy is to seek to protect our proprietary position by filing U.S. and foreign patent applications related to our proprietary technology, including both new inventions and improvements of existing technology, that are important to the development of our business, unless this proprietary position would be better protected using trade secrets.

 

7
 

 

Our patent strategy includes obtaining patent protection, where possible, on compositions of design, methods of manufacture and methods of use. We also rely on trade secrets, know-how, continuing technological innovation, in-licensing and partnership opportunities to develop and maintain our proprietary position.

 

Reflecting our commitment to safeguarding proprietary information, we require our employees and consultants to sign confidentiality agreements.  Furthermore, we enter into research agreements in which we exchange proprietary materials and information with collaborators including material transfer agreements, research agreements, development agreements and clinical trial agreements.  These agreements prohibit unauthorized disclosure of our proprietary information.   To the extent that our consultants, contractors or collaborators use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions. We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical security of our premises and physical and electronic security of our information technology systems.

 

Even though we employ a number of safeguards to protect our proprietary information, including confidentiality agreements and implementation of physical security and electronic security of information technology systems, we cannot be assured that our proprietary information is protected. Despite our efforts to protect our proprietary information, unauthorized parties may attempt to obtain and use our proprietary information.  Policing unauthorized use of our proprietary information is difficult and the steps we have taken might not prevent misappropriation, particularly in foreign countries where the laws may not protect our proprietary rights as fully as do the laws of the U.S.

 

In some cases, litigation or other proceedings may be necessary to enforce our patents or protect our know-how or other intellectual property rights.  Any additional potential litigation is likely to result in a substantial cost to us and a diversion of our resources.  We cannot be sure that any of our patents will ultimately be held valid.  An adverse outcome in any litigation or proceeding could subject us to significant liability.

 

We focus special attention on filing patent applications for formulations and delivery regimens for our products in development to further enhance our patent exclusivity for those products. We seek to protect our proprietary technology and processes, in part, by contracting with our employees, collaborators, scientific advisors and our commercial consultants to ensure that any inventions resulting from the relationship are disclosed promptly, maintained in confidence until a patent application is filed and preferably until publication of the patent application, and assigned to us or subject to a right to obtain a license.

   

We do not know whether any of our own patent applications will result in the issuance of any patents. Furthermore, because of the extensive time required for development, testing and regulatory review of a potential product, it is possible that any related patent may expire prior to or shortly after commencing commercialization, thereby reducing the advantage of the patent to our business and products.

 

As part of our product development, we have filed or may file patent applications related to new product designs and production methods in the U.S. and in many of the major international markets.

 

Individual patents extend for varying time periods depending on the effective date of filing the patent application or the date of patent issuance, and the legal term of the patents in the countries in which they are obtained. Generally, patents issued in the U.S. are effective for:

 

·The longer of 17 years from the issue date or 20 years from the earliest effective filing date, if the patent application was filed prior to June 8, 1995; or

 

·20 years from the earliest effective filing date, if the patent application was filed on or after June 8, 1995.

 

The term of foreign patents varies in accordance with provisions of applicable local law, but typically is 20 years from the earliest effective filing date.

 

8
 

 

In September 2005, we filed an additional patent on our RevVac™ safety syringe under a joint venture agreement with Globe Med Tech which gives a 50% ownership of this patent to the Company and 50% to Globe Med Tech. The Company filed a lawsuit to rescind, terminate and seek monetary damages for the non-fulfillment and breach of the joint venture agreement and other related agreements with Globe Med Tech in March 2007, in addition to an accounting of expenditures of funds under the terms and provisions of the agreements and to give 100% ownership back to the Company (see Item 3 - Legal Proceedings and “RISK FACTORS”). This patent was issued January 13, 2009. A summary judgment hearing was held in May, 2011, in Tulsa, OK. On August 15, 2011, the District Court of Tulsa County, State of Oklahoma granted Revolutions Medical a summary judgment against Globe Medical Tech. On October 21, 2011, Revolutions Medical received journal entry of judgment. The Court requires Globe Med Tech to pay to Revolutions Medical the sum of $311,440, the return of all syringes, design files and sample molds, the return of 266,667 shares of common stock, to assign all rights to the January 2009 issued patent number 11/115,446 and to cease and be prohibited from claiming any interest or ownership to the RevVac™auto-retractable vacuum safety syringe. Globe Med Tech’s appeal was denied on December 13, 2012. Revolutions Medical is actively pursuing Globe Med Tech under this judgment to seek all relief and damages.

 

·RMCP SAFETY SYRINGE PATENTS. A U.S. patent covering our retractable safety syringe design was published on January 28, 2005. This patent will expire on April 9, 2023. The Company has filed applications for foreign patent protection for the following countries: Canada, Mexico, Taiwan, Japan, China, Australia, and in Europe. An international patent has been issued in Mexico and China. See “RISK FACTORS.”

 

·RMCP BLOOD SAMPLING DEVICE PATENT. A U.S. patent covering the Company’s blood sampling device was published on April 10, 2003. The Company has not filed any applications for foreign patent protection. See “RISK FACTORS.”

 

·The Company filed a provisional patent with the U.S. Patent and Trademark Office on May 3, 2011. This provisional patent provides additional protection for the Company’s auto-retractable vacuum technology.

 

·PATENT APPLICATIONS FOR COLOR AND 3D MRI SOFTWARE TECHNOLOGY. In June 2007, the Company filed four patent applications related to the Color and 3D MRI technology, none of which has yet been published. The Company also filed an application for foreign patent protection in Europe. All of these patent applications received office actions in 2010 and 2011. There is no assurance that any of the patent applications will be issued or that any patent protection for the Color MRI technology can or will be obtained. See “RISK FACTORS.”

 

In November 2010, the Company filed a trademark on its logo and several wordmarks for its product line which include: RevColor™, RevDisplay™, Rev3D™, RevScan™ and RevVac™.

 

On December 31, 2010, the Company completed a reworking of a worldwide exclusive license with Traxsys, LLC, for a guided navigational Breast Biopsy System (BBS). This BBS facilitates accurate and fast non-palpable lesions and micro calcification localization in the treatment of breast cancer. The BBS localization needle can be modified to use the Company’s proprietary RevVac™ safety syringe technology. Additionally, one of the patents covering the stabilization technology could be used to further enhance the Company's MRI software tools by providing for a proprietary platform for image fusion between MRI and X-Ray. This technology has already received 510(k) clearance from the FDA. After a full due diligence review of the technology, the Company sees a potential synergy between its proprietary MRI software tools and this technology for breast imaging. However, the Company has decided not to invest additional capital at this time and to focus its resources on its RevVac™ safety syringe line of products and applications for its MRI software technology. In the future, the Company could re-license this technology for future products.

 

Need for Governmental Approval

 

Pursuant to the Federal Food, Drug and Cosmetic Act, the FDA regulates the research, design, testing, manufacture, safety, labeling, storage, record keeping, advertising and promotion, distribution, and production of medical devices in the United States. The Company’s safety needle devices are considered to be medical devices, are subject to FDA regulation, and must receive FDA approval prior to sale in the United States.

 

Medical devices are classified into one of three classes, depending on the controls deemed by FDA to be necessary to reasonably ensure their safety and effectiveness. Class I devices are subject to general controls (e.g. labeling, pre-market notification and adherence to Quality System regulations, which have replaced Good Manufacturing Practice regulations.) These devices are subject to the lowest level of regulatory control. Class II devices are subject to general controls and to special controls (e.g. performance standards, post-market surveillance, patient registries, and FDA guidelines). Generally, Class III devices are those that must receive pre-market approval by the FDA to ensure their safety and effectiveness, and require clinical testing and FDA approval prior to marketing and distribution. Class III devices are the most rigorously regulated.

 

9
 

 

Generally, before a new device can be introduced into the market in the United States, the manufacturer must obtain FDA clearance through a 510(k) pre-market notification or approval of a premarket approval (“PMA”) application. If a medical device manufacturer can establish that a device is “substantially equivalent” to a legally marketed Class I, Class II device, or a Class III device for which FDA has not called for PMAs, the manufacturer may seek clearance from FDA to market the device by filing a 510(k) pre-market notification. The 510(k) pre-market notification will need to be supported by appropriate data establishing the claim of substantial equivalence to the satisfaction of the FDA.

 

If the Company or its collaborative partners cannot establish that the Company’s safety needle devices are substantially equivalent to legally marketed predicate devices, pre-market approval of the device through submission of a PMA application must be obtained. A PMA application must be supported by valid scientific evidence, including pre-clinical and clinical trial data, as well as extensive literature to demonstrate a reasonable assurance of the safety and effectiveness of the device. The PMA represents the most rigorous form of FDA regulatory approval.

 

The Medical Device User Fee and Modernization Act, enacted in 2002, authorizes the FDA to assess and collect review fees for Section 510(k) pre-market notifications and pre-market approval applications filed on or after October 1, 2002. Fees for fiscal year 2007 for small businesses (companies with less than $100 million in sales) range from $3,326 for Section 510(k) pre-market notifications to $107,008 for PMAs, although fee reductions and waivers are available for companies qualifying as small businesses.

 

There is no assurance that any of our other planned products will qualify for the 510(k) pre-market notification approval process or that the Company will have the funds necessary to seek FDA approval. There is no assurance that any of our other planned products will obtain FDA approval.

 

If FDA approval is received on future planned products, however, then the Company and/or its collaborative partner (relating to manufacturing and marketing) would also be required to comply with FDA post-market reporting requirements, including the submission of reports on certain adverse events and malfunctions, and requirements governing the promotion of medical devices. In addition, modifications to our devices may require the filing of new 510(k) submissions or pre-market approval supplements, and we will need to comply with FDA regulations governing medical device manufacturing practices. The FDA requires medical device manufacturers to register as such and subjects them to periodic FDA inspections of their manufacturing facilities. The FDA requires that medical device manufacturers produce devices in accordance with the FDA’s current Quality System Regulation (QSR), which governs the methods, facilities and controls used for the design, manufacture, testing, packaging, labeling and storage of medical devices.

 

There is a different set of regulatory requirements in place for the European Union (EU). In the EU, a company putting a medical device onto the market must comply with the requirements of the Medical Devices Directive (MDD) and affix the CE mark to the product to attest to such compliance. To achieve this, the medical devices in question must meet the “essential requirements” defined under the MDD relating to safety and performance, and the relevant company must successfully undergo a verification of its regulatory compliance by a third party standards certification provider, known as a “Notified Body.” The nature of the assessment will depend on the regulatory class of products concerned, which in turn determines the precise form of testing to be undertaken by the Notified Body.

 

The requirements of the MDD must be complied with by the “manufacturer of the device,” which is defined as the party responsible for the design, manufacture, packaging and labeling of the device before it is placed on the EU market, regardless of whether these operations are carried out by this entity or on its behalf.

 

Accordingly, where medical devices are marketed by our potential licensees or by collaborative partners under their names, compliance with the MDD will be their responsibility. In the event that we decide to manufacture devices to be distributed in the EU market under our name, all compliance responsibilities will be borne by us.

 

There may be numerous other approvals needed before our products can be sold in countries other than the United States or the European Union. There is no assurance that the Company or its collaborative partners, if any, will be successful in obtaining such approvals.

 

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Effect of Existing or Probable Governmental Regulation

 

The World Health Organization estimates that 1.3 million people die each year as a result of unsafe injection practices, which can include syringe re-use and needlestick injuries. Unsafe injection practices result in the transmission of a number of blood-borne diseases such as HIV/AIDS and hepatitis C. The U.S. Centers for Disease Control and Prevention estimates that 385,000 needlestick and other sharps-related injuries are sustained by U.S. hospital-based healthcare personnel each year. The U.S. Occupational Safety and Health Administration, or OSHA, estimates that when other secondary healthcare settings are also taken into account, there are as many as 800,000 needlestick injuries to U.S. healthcare workers each year. To help minimize the transmission of blood-borne pathogens caused by unsafe injection practices, many international healthcare and pharmaceutical markets are transitioning to the mandatory use of safety syringes.

 

In many sophisticated healthcare markets, governments are focused on the mandatory use of safety devices within healthcare facilities to protect healthcare workers from the risk of acquiring blood-borne pathogens via needlestick injuries. Regulatory actions at the federal and state level promote the use of safety needles to reduce the risk of accidental needle sticks. On July 1, 1999, California, through its state Occupational Safety and Health Administration (OSHA) program, began requiring the use of safety needles. Other states such as Texas, Tennessee, Maryland and New Jersey have passed similar legislation.

 

On November 6, 2000, President Clinton signed the Needle stick Safety and Prevention Act amending OSHA’s Blood borne Pathogens Standard to require that employers implement the use of safer medical devices in their facilities. To implement the statutory mandates in the Needle stick Safety and Prevention Act, OSHA has issued a number of further revisions to its Blood borne Pathogens Standard. The revised standard became effective on April 18, 2001. The new standard provisions impose several needle device safety requirements on employers, including:

 

·evaluation and implementation of safer needle devices as part of the re-evaluation of appropriate engineering controls during an employer’s annual review of its exposure control plan;

 

·documentation of the involvement of non-managerial, frontline employees in choosing safer needle devices; and

 

·establishment and maintenance of a sharps injury log for recording injuries from contaminated sharps.

 

On November 27, 2001, OSHA issued a compliance directive (CPL 2-2.69) that advises OSHA’s regional offices on the proper interpretation and enforcement of the revised Blood borne Pathogens Standard provisions. The compliance directive confirms that the consideration of safer needle devices, in annually reviewing and updating the exposure control plan, is a critical element of the Blood borne Pathogens Standard. The directive also stresses that the standard requires employers to use engineering controls (e.g., safer needle devices) if such controls will remove or eliminate the hazards to employees.

 

OSHA differentiates safety features in two primary ways. First, it differentiates passive safety features which “remain in effect before, during and after use” from active devices which “require the worker to activate the safety mechanism.” Second, OSHA regulations state that products with an “integrated safety design that is an integral part of the device and cannot be removed” are usually preferred to those with an accessory safety device with safety features that are “external” and “dependent on employee compliance.” We believe the majority of safety syringe products used in U.S. healthcare facilities incorporate active safety features which are not fully integrated within the barrel of the syringe.

 

The European Union has also introduced a directive in March 2010 requiring member countries to introduce laws within three years requiring the use of needlestick prevention products within healthcare facilities. Other countries such as Canada and Australia have also taken steps to encourage the use of safety syringes. As a result of this existing and proposed legislation, safety syringes are now commonly used within the healthcare facilities in a number of countries.  As a result of these regulatory actions, we anticipate that the demand for safety medical devices such as those we have designed and are designing will continue to increase for the foreseeable future.

 

Estimate of the Amount Spent on Research and Development

 

Research and development expenses were $111,832 and $257,350 in 2011 and 2010, respectively. 

 

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Costs and effects of environmental compliance

 

The Company has not spent any sums on environmental compliance and does not expect to be required to spend any sums on environmental compliance in the future, unless the Company chooses to become a manufacturer of its own products. All environmental costs would be borne by the contract manufacturer.

 

Number of total employees and number of full time employees

 

We presently have five full-time employees. Services such as product design and development and sales consulting are provided by third parties on a contract basis. Consequently, developing our business may require a greater period of time than if we had full time employees.

 

Our success depends in large measure on our ability to attract and retain capable executive officers and highly skilled employees who are in great demand.  None of our employees are represented by a labor union and we believe that our relations with our employees are generally good. Generally, our employees are at-will employees.  However, we have entered into employment agreements with certain of our executive officers.

 

Available information

 

We file electronically with the U.S. Securities and Exchange Commission (SEC) our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. We make available on our website at http://www.revolutionsmedical.com, free of charge, copies of these reports as soon as reasonably practicable after filing these reports with, or furnishing them to, the SEC.  The public can also obtain materials that we file with the SEC through the SEC’s website at http://www.sec.gov or at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549.  Information on the operation of the Public Reference Room is available by calling the SEC at 800-SEC-0330.

 

Item 1A. Risk Factors.

 

You should carefully consider the risks described below, together with all of the other information included in this report, in considering our business and prospects. The risks and uncertainties described below are not the only ones facing the Company. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations. The occurrence of any of the following risks could harm our business, financial condition or results of operations.

 

Risks Related to the Our Business and Industry

 

WE REQUIRE SUBSTANTIAL ADDITIONAL CAPITAL TO CONTINUE DEVELOPING OUR PLANNED PRODUCTS. WE MAY HAVE DIFFICULTY RAISING CAPITAL WHEN WE NEED IT, OR AT ALL. RAISING SUCH CAPITAL MAY DILUTE STOCKHOLDER VALUE. IF WE ARE UNABLE TO RAISE CAPITAL, WE MAY BE REQUIRED TO LIMIT OR CEASE OUR OPERATIONS, OR OTHERWISE MODIFY OUR BUSINESS STRATEGY.

 

We will require substantial additional capital thereafter to commercialize our planned products. Our commercialization efforts will include, but are not limited to, entering into agreements with third parties for manufacturing (including building molds, designing manufacturing processes and obtaining specialized equipment for our retractable safety syringe), marketing and distribution, and obtaining FDA and/or other regulatory approvals, all of which are necessary before our planned products can be sold and which may take a significant amount of time, if not years, to complete.

 

Due to the current economic conditions and the risks and uncertainties surrounding our Company, we may not be able to secure additional financing on acceptable terms, if at all. 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 1st quarter of 2012. 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. To the extent that services are paid for with common stock or stock options that are exercised and sold into the market, the market price of our common stock could decline and your ownership interest will be diluted. 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.

 

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IF WE DO NOT OBTAIN FDA APPROVAL FOR OUR FUTURE PLANNED PRODUCTS THEN OUR FUTURE PROSPECTS WILL BE HARMED.

 

Our future planned products may require FDA approval before they can be sold in the United States. There are some planned products for which we have not yet applied for or received FDA approval. However, we have received FDA 510(k) clearance on our 3ml RevVac™ safety syringe. Our RevColor™ and Rev3D™ MRI software technology does not require FDA approval for educational and research purposes, however, future applications may require 510(k) clearance. There is no assurance that our other planned products will qualify for the FDA’s 510(k) pre-market notification approval process. The FDA approval process can take years and be expensive, especially if a pre-market approval (PMA) is required. A PMA is much more rigorous and expensive to complete than a 510(k). In addition, the Medical Device User Fee and Modernization Act, enacted in 2002, allows the FDA to assess and collect user fees for 510(k) and for PMA applications. There is no assurance that we will qualify for fee reductions or waivers or that we will have the funds necessary to apply for or obtain FDA approval for our planned products. The FDA approval process could take a significant amount of time, if not years, to complete and there is no assurance that FDA approval will ever be obtained. If FDA approval is not obtained, then we will not be able to sell our future planned products in the United States, which would have a material adverse effect on our future business prospects.

 

OUR PLANNED PRODUCTS MAY PROVE TO BE TOO EXPENSIVE TO MANUFACTURE AND MARKET SUCCESSFULLY, WHICH WOULD HARM OUR FUTURE PROSPECTS.

 

Our planned products may prove to be too expensive to manufacture and market successfully. Market acceptance of our products will depend in large part upon our ability to demonstrate the operational and safety advantages of our product as well as the cost effectiveness of our product compared to both standard and other safety needle products. If we are unable to produce products that are competitive with standard products, we will not be able to sell our products. This could have a material adverse effect on our operations.

 

IF WE ARE NOT ABLE TO ESTABLISH MARKETING, SALES AND DISTRIBUTION ARRANGEMENTS FOR OUR SAFETY SYRINGES, THEN OUR FUTURE PROSPECTS WILL BE HARMED.

 

If we do not enter into relationships with third parties to market, sell and distribute our planned products, we will need to develop our own such capabilities. If we choose to establish a direct sales force, we will incur substantial additional expenses in developing, training and managing such an organization. We may not be able to build a sales force on a cost effective basis or at all. Any such direct marketing and sales efforts may prove to be unsuccessful. In addition, we will compete with many other companies that currently have extensive and well-funded marketing and sales operations. Our marketing and sales efforts may be unable to compete against these other companies. We may be unable to engage qualified distributors. Even if engaged, they may fail to satisfy financial or contractual obligations to us. They may fail to adequately market our products. They may cease operations with little or no notice to us or they may offer, design, manufacture or promote competing products.

 

IF WE ARE UNABLE TO PROTECT OUR FUTURE PLANNED PRODUCTS, OR TO AVOID INFRINGING ON THE RIGHTS OF OTHERS, OUR ABILITY TO COMPETE WILL BE IMPAIRED.

 

Our commercial success depends in part on our avoiding the infringement of patents and proprietary rights of other parties and developing and maintaining a proprietary position with regard to our own technologies and products. We cannot predict with certainty whether we will be able to enforce our patents. Patents that may be issued, or publications or other actions could block our ability to obtain patents or to operate as we would like. Others may develop similar technologies or duplicate technologies that we have developed or claim that we are infringing their patents.

 

Although we rely on trade secrets to protect our technology and require certain parties to execute nondisclosure and non-competition agreements, these agreements could be breached, and our remedies for breach may be inadequate. In addition, our trade secrets may otherwise become known or independently discovered by our competitors. If we lose any of our trade secrets, our business and ability to compete could be harmed.

 

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Despite our efforts to protect our proprietary rights, we face the risks that pending patent applications may not be issued, that patents issued to us may be challenged, invalidated or circumvented; that unauthorized parties may obtain and use information that we regard as proprietary; that intellectual property laws may not protect our intellectual property; and effective protection of intellectual property rights may be limited or unavailable in China, where we plan to manufacture our retractable safety syringe, or in other foreign countries where we may manufacture and/or sell our retractable safety needle devices. The lack of adequate remedies and impartiality under any foreign legal system may adversely impact our ability to protect our intellectual property.

 

We may become involved in litigation or interference proceedings declared by the U.S. Patent and Trademark Office, or oppositions or other intellectual property proceedings outside of the United States. If any of our competitors have filed patent applications or obtained patents that claim inventions that we also claim, we may have to participate in an interference proceeding to determine who has the right to a patent for these inventions in the United States. If a litigation or interference proceeding is initiated, we may have to spend significant amounts of time and money to defend our intellectual property rights or to defend against infringement claims of others. Litigation or interference proceedings could divert our management’s time and effort. Even unsuccessful claims against us could result in significant legal fees and other expenses, diversion of management time and disruption in our business. Any of these events could harm our ability to compete and adversely affect our business.

 

An adverse ruling arising out of any intellectual property dispute could invalidate or diminish our intellectual property position. An adverse ruling could also subject us to significant liability for damages, prevent us from using processes or products, or require us to license intellectual property from third parties. Costs associated with licensing arrangements entered into to resolve litigation or an interference proceeding may be substantial and could include ongoing royalties. We may not be able to obtain any necessary licenses on satisfactory terms or at all.

 

WE MUST OBTAIN REGULATORY APPROVALS IN FOREIGN JURISDICTIONS TO MARKET OUR PRODUCTS ABROAD.

 

Whether or not FDA approval has been obtained, we must secure approval for our future planned products by the comparable non-U.S. regulatory authorities prior to the commencement of marketing of the product in a foreign country. The process of obtaining these approvals will be time consuming and costly. The approval process varies from country to country and the time needed to secure additional approvals may be longer than that required for FDA approval. These applications may require the completion of pre-clinical and clinical studies and disclosure of information relating to manufacturing and controls. Unanticipated changes in existing regulations or the adoption of new regulations could affect the manufacture and marketing of our products.

 

IF WE ARE NOT ABLE TO COMPETE SUCCESSFULLY, THEN OUR BUSINESS PROSPECTS WILL BE MATERIALLY ADVERSELY AFFECTED.

 

Our retractable safety syringe, if developed and commercialized, will compete in the United States and abroad with the safety needle devices and standard non-safety needle devices manufactured and distributed by companies such as Becton Dickinson (BD), Covidien, (Kendall Healthcare Products Company), B. Braun, Terumo Medical Corporation of Japan, Smith Medical, and Johnson & Johnson. Developers of safety needle devices against which we could compete include Med-Design Corp., New Medical Technologies, Retractable Technologies, Inc., Unilife, Inc. and Specialized Health Products International, Inc. Our MRI software tools, if developed, approved and commercialized, will compete in the United States and abroad against technologies manufactured and distributed by companies such as General Electric and Siemens. Most of our competitors are substantially larger and better financed than we are and have more experience in developing medical devices and/or software than we do. These competitors may use their substantial resources to improve their current products or to develop additional products that may compete more effectively with our planned products, or may render our planned products obsolete. In addition, new competitors may develop products that compete with our planned products, or new technologies may arise that could significantly affect the demand for our planned products. Even if we are successful in bringing our planned products to market, there is no assurance that we can successfully compete. We cannot predict the development of future competitive products or companies.

 

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In the U.S., the vast majority of decisions relating to the contracting for and purchasing of medical supplies are made by the representatives of group purchasing organizations (“GPOs”), rather than the end-users of the product (nurses, doctors, and testing personnel). GPOs and manufacturers often enter into long-term exclusive contracts which can prohibit entry in the marketplace by competitors. In the needle and syringe market, the market share leader, BD, has utilized, among other things, long-term exclusive contracts which have restricted entry into the market by most of our competitors. We may not be successful in obtaining any contracts with GPO’s, which would severely limit our product’s marketability in the U.S. We will be materially adversely affected if we are unable to compete successfully.

 

WE RELY ON THIRD PARTIES FOR RESEARCH AND DEVELOPMENT ACTIVITIES NECESSARY TO COMMERCIALIZE OUR PRODUCT. THIS COULD HAVE A MATERIALLY ADVERSE EFFECT ON OUR FUTURE PROSPECTS.

 

We do not maintain our own laboratory and we do not employ our own researchers. We have contracted with third parties in the past to conduct research, development and testing activities and we expect to continue to do so in the future. Because we rely on such third parties, we have less direct control over those activities and cannot assure you that the research will be done properly or in a timely manner, or that the results will be reproducible. The cost and time to establish or locate an alternative research and development facility to develop our technology could have a materially adverse effect on our future prospects.

 

IF WE CANNOT GENERATE ADEQUATE, PROFITABLE SALES OF OUR PLANNED PRODUCTS, WE WILL NOT BE SUCCESSFUL.

 

In order to succeed, we must develop commercially viable products and sell adequate quantities at a high enough price to generate a profit. We may not accomplish these objectives. Even if we succeed in developing a commercially viable product, a number of factors may affect future sales of our product. These factors include:

 

·Whether physicians, patients and clinicians accept our product as a viable, safe alternative to the standard medical syringe;

 

·Whether the cost of our product is competitive in the medical marketplace; and

 

·Whether we successfully contract the manufacture and marketing of the syringe to third parties or develop such capabilities ourselves.

 

OUR PLANNED PRODUCTS, IF SUCCESSFULLY COMMERCIALIZED, COULD BE EXPOSED TO SIGNIFICANT PRODUCT LIABILITY CLAIMS WHICH COULD BE TIME CONSUMING AND COSTLY TO DEFEND, DIVERT MANAGEMENT ATTENTION AND ADVERSELY IMPACT OUR ABILITY TO OBTAIN AND MAINTAIN INSURANCE COVERAGE, WHICH COULD JEOPARDIZE OUR LICENSE.

 

The testing, manufacture, marketing and sale of our planned products will involve an inherent risk that product liability claims will be asserted against us. Even if we obtain product liability insurance, it may prove inadequate to cover claims and/or costs related to potential litigation. The costs and availability of product liability insurance are unknown. Product liability claims or other claims related to our planned products, regardless of their outcome, could require us to spend significant time and money in litigation or to pay significant settlement amounts or judgments. Any successful product liability or other claim may prevent us from obtaining adequate liability insurance in the future on commercially desirable or reasonable terms. In addition, product liability coverage may cease to be available in sufficient amounts or at an acceptable cost. Any inability to obtain sufficient insurance coverage at an acceptable cost or otherwise to protect against potential product liability claims could prevent or inhibit the commercialization of our planned product. A product liability claim could also significantly harm our reputation and delay market acceptance of our planned products.

 

STRINGENT, ONGOING GOVERNMENT REGULATION AND INSPECTION OF OUR PLANNED PRODUCTS COULD LEAD TO DELAYS IN MANUFACTURE, MARKETING AND SALES.

 

The FDA continues to review products even after they receive FDA approval. Manufacturing and marketing will be subject to ongoing regulation, including compliance with current Good Manufacturing Practices, adverse reporting requirements and the FDA’s general prohibitions against promoting products for unapproved or “off-label” uses. We and any third party manufacturers we may use are also subject to inspection and market surveillance by the FDA for compliance with these and other requirements. Any enforcement action resulting from failure to comply with these requirements could affect the manufacture and marketing of our planned products. In addition, the FDA can withdraw a previously approved product from the market at any time, upon receipt of newly discovered information.

 

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UNCERTAINTY OF THIRD-PARTY REIMBURSEMENT COULD AFFECT OUR ABILITY TO SELL OUR PLANNED PRODUCTS AT A PROFIT.

 

Sales of medical products largely depend on the reimbursement of patients’ medical expenses by governmental healthcare programs and private health insurers. There is no guarantee that governmental healthcare programs or private health insurers will cover the cost of some of our products, if and when they are commercially available, or permit us to sell our products at a high enough price to generate a profit.

 

OUR LIMITED OPERATING HISTORY MAKES EVALUATING OUR STOCK MORE DIFFICULT.

 

Since inception in 1996, we have engaged primarily in research and development, technology licensing, and raising capital. This limited history may not be adequate to enable you to fully assess our ability to develop and commercialize our planned products and to achieve market acceptance of our planned products and to respond to competition.

 

WE HAVE A HISTORY OF LOSSES AND EXPECT FUTURE LOSSES.

 

We have had annual losses since our inception in 1996. We expect to continue to incur losses until we can sell enough products at prices high enough to generate a profit. As of December 31, 2011, we had accumulated a deficit of $29,834,791. There is no assurance that our planned products will be commercially viable. There is no assurance that we will generate revenue from the sale of our planned products or that we will achieve or maintain profitable operations.

 

To achieve and maintain profitability, we need to generate significant revenues from our existing and future product sales. Because of the numerous risks and uncertainties associated with medical device development and commercialization, we are unable to predict the extent of any future losses.  We may never successfully commercialize any products, generate significant future revenues or achieve and sustain profitability.

 

WE HAVE RECEIVED AN AUDIT REPORT WITH A GOING CONCERN DISCLOSURE ON OUR CONSOLIDATED FINANCIAL STATEMENTS.

 

The continuation of our Company as a going concern is dependent upon our Company attaining and maintaining profitable operations and/or raising additional capital. Our independent registered public accounting firm included, in their audit report on our consolidated financial statements for the year ended December 31, 2011, an explanatory paragraph regarding the substantial doubt about our ability to continue as a going concern. Our consolidated financial statements contain additional note disclosures describing the liquidity condition of the Company. As a result of this uncertainly we may have a more difficult time obtaining necessary financing.

 

OUR SUCCESS DEPENDS IN LARGE PART ON OUR ABILITY TO SUCCESSFULLY MANUFACTURE OUR PRIMARY PRODUCT, THE REVVAC™ SAFETY SYRINGE, AND ACHIEVE SUBSTANTIAL COMMERCIAL SALES OF THIS PRODUCT TO CUSTOMERS. IF WE EXPERIENCE PROBLEMS OR DELAYS IN MANUFACTURING OR SECURING FAVORABLE AGREEMENTS TO SUPPLY THE REVVAC™ SAFETY SYRINGE TO CUSTOMERS, OUR BUSINESS, INCLUDING OUR ABILITY TO GENERATE SIGNIFICANT REVENUES, WILL BE MATERIALLY AND ADVERSELY AFFECTED.

 

Upon the scheduled completion of the development and qualification of production systems to support the manufacture and commercial sale of the RevVac™ safety syringe, we expect to commence commercial supply of the syringe to customers during the 1st quarter of 2012. Since the RevVac™ safety syringe is our primary product, any failure or significant delay in completing these activities could materially harm our business and our ability to generate any significant amount of revenues for the foreseeable future. Our ability to generate significant revenues will directly depend on our ability to negotiate successfully one or more supply agreements for the RevVac™ syringe with distributors and to begin supplying substantial quantities of the product under such agreements. We cannot predict with certainty if and when we will be able to enter into any supply agreements for the RevVac™ syringe or what the terms of any such agreements will be. If we are unable to secure favorable supply agreements for the RevVac™ syringe in a timely manner, our ability to generate significant revenues will be materially and adversely affected.

 

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OUR RESEARCH AND DEVELOPMENT AND OTHER OPERATING EXPENSES ARE SIGNIFICANT AND WE DO NOT EXPECT TO BE PROFITABLE UNLESS AND UNTIL WE BEGIN TO MANUFACTURE OUR REVVAC SAFETY SYRINGE, NEGOTIATE SUPPLY AGREEMENTS WITH DISTRIBUTORS AND BEGIN COMMERCIAL SALE OF THE REVVAC SAFETY SYRINGE.

 

We have incurred and will continue to incur significant research and development expenses for other product variants of our technology. We will also incur general and administrative expenses related to increasing our operations, expanding our sales and marketing capabilities, seeking regulatory approvals, and complying with the requirements related to being a public company in the United States. We will not be profitable unless we are successful in developing and commercializing the RevVac™ safety syringe and other new products, obtaining regulatory approvals, and manufacturing, marketing and selling commercial products.

 

OUR ABILITY TO SUCCESSFULLY MARKET AND SELL OUR SAFETY SYRINGES MAY BE IMPAIRED UNTIL WE ARE ABLE TO OFFER A FULL RANGE OF SAFETY SYRINGES IN SIZES COMMONLY USED IN ACUTE-CARE FACILITIES.

 

In addition to the 3ml RevVac™ safety syringe, our product portfolio also includes the 1ml, 5ml, and 10ml RevVac™ safety syringe sizes. Acute-care hospitals are the largest single healthcare market for clinical syringes. These facilities use a range of clinical syringes, including 1ml, 3ml and 5ml sizes, for the subcutaneous and intramuscular administration of therapeutic drugs and vaccines. We have completed development and secured regulatory approvals only for the marketing and sale of our 3ml RevVac™ safety syringe. While we intend to market the 3ml RevVac™ safety syringe to other healthcare sectors in addition to acute-care facilities, our ability to market and sell our safety syringes successfully may be impaired until we are able to offer clinical syringes in a full range of sizes.

 

OUR SUCCESS WILL DEPEND ON THE FULL COMMERCIALIZATION OF OUR CURRENT PRODUCTS, AND THE DEVELOPMENT AND COMMERCIALIZATION OF OTHER PIPELINE PRODUCTS. THERE CAN BE NO ASSURANCE THAT WE WILL BE SUCCESSFUL IN THESE EFFORTS.

 

A significant element of our strategy focuses on developing products that deliver greater benefits to pharmaceutical companies, healthcare workers and patients. The development of these products requires significant research and development, clinical evaluations and regulatory approvals. The results of our product development efforts may be affected by a number of factors, including our ability to innovate, develop and manufacture new products, complete clinical trials, obtain regulatory approvals and secure customer orders for these products. In addition, patents attained by others can preclude or delay our commercialization of a product. There can be no assurance that any products now in development, or that we may seek to develop in the future, will achieve technological feasibility, obtain regulatory approval or gain market acceptance.

 

WE MAY ENCOUNTER DIFFICULTIES MANAGING OUR GROWTH, WHICH COULD MATERIALLY HARM OUR BUSINESS.

 

We expect to expand our operations and grow our research and development, product development, regulatory, manufacturing, sales, marketing and administrative operations. This expansion has placed, and is expected to continue to place, a significant strain on our management, operational and financial resources. To manage our growth and to develop and commercialize our products, we will be required to improve existing, and implement new, operational and financial systems, procedures and controls and expand, train and manage our growing employee base. In addition, we will need to manage relationships with various manufacturers, suppliers, customers and other organizations. Our ability to manage our operations and growth will require us to improve our operational, financial and management controls, as well as our internal reporting systems and controls. We may not be able to implement such improvements to our management information, disclosure controls and procedures and internal control systems in an efficient and timely manner and may discover deficiencies in existing systems and controls. Our failure to accomplish any of these tasks could materially harm our business.

 

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WE DEPEND ON OUR EXECUTIVE OFFICERS AND KEY PERSONNEL AND THE LOSS OF THEM COULD ADVERSELY AFFECT OUR BUSINESS.

 

Our success depends upon the efforts and abilities of our executive officers and other key personnel, particularly Mr. Rondald Wheet, our Chief Executive Officer, and Vincent Olmo, our Chief Operating Officer, to provide strategic direction, manage our operations and maintain a cohesive and stable environment. Although we have employment agreements with Mr. Wheet, Mr. Olmo and other key personnel, as well as incentive compensation plans that provide various economic incentives for them to remain with us, these agreements and incentives may not be sufficient to retain them. Our ability to operate successfully and manage our potential future growth also depends significantly upon our ability to attract, retain and motivate highly skilled and qualified personnel. We face intense competition for such personnel, and we may not be able to attract, retain and motivate these individuals. The loss of our executive officers or other key personnel for any reason or our inability to hire, retain and motivate additional qualified personnel in the future could prevent us from sustaining or growing our business. In addition, we have a limited history of operations under our current officers and directors. Our officers have not worked together for an extensive length of time. If for any reason our management members cannot work efficiently as a team, our business will be adversely affected. The Company currently maintains a “key person” life insurance policy on the life of our Chief Executive Officer, Rondald Wheet, to compensate the Company for the loss of his services.

 

THE MANUFACTURING FACILITIES OF OUR SUPPLIERS MUST COMPLY WITH APPLICABLE REGULATORY REQUIREMENTS. IF THEY FAIL TO ACHIEVE OR MAINTAIN REGULATORY APPROVAL FOR THESE MANUFACTURING FACILITIES, OUR BUSINESS AND OUR RESULTS OF OPERATIONS WOULD BE HARMED.

 

Commercialization of our products requires access to, or the development of, manufacturing facilities that meet applicable regulatory standards to manufacture a sufficient supply of our products. In addition, the FDA must approve facilities that manufacture our products for U.S. commercial purposes, as well as the manufacturing processes and specifications for the product. Suppliers of components of, and products used to manufacture, our products must also comply with FDA and foreign regulatory requirements, which often require significant time, money and record-keeping and quality assurance efforts and subject us and our suppliers to potential regulatory inspections and stoppages. If our suppliers do not achieve or maintain required regulatory approval for our manufacturing operations, our commercialization efforts could be delayed, which would harm our business and our results of operations.

 

THE COSTS OF RAW MATERIALS HAVE A SIGNIFICANT IMPACT ON THE LEVEL OF EXPENSES THAT WE INCUR. IF THE PRICES OF RAW MATERIALS AND RELATED FACTORS SUCH AS ENERGY PRICES INCREASE, AND WE CANNOT PASS THOSE PRICE INCREASES ON TO OUR CUSTOMERS, OUR RESULTS OF OPERATIONS AND FINANCIAL CONDITION WOULD SUFFER.

 

We use a number of raw materials including polymer plastics. The prices of many of these raw materials, such as those sourced from petroleum-based raw materials, are cyclical and volatile. While we would generally attempt to pass along increased costs to our customers in the form of sales price increases, we might not be able to do so, for competitive or contract-related reasons or otherwise. If we are not able to set our prices to reflect the costs of our raw materials, our results of operations and our financial condition could suffer.

 

DISRUPTIONS IN THE SUPPLY OF KEY RAW MATERIALS AND DIFFICULTIES IN THE SUPPLIER QUALIFICATION PROCESS COULD ADVERSELY IMPACT OUR OPERATIONS.

 

We employ a supply chain management strategy which seeks to source components and materials from a number of established third party companies. Where possible, we seek to establish dual contracts for the supply of particular components or services. However, there is a risk that our supply lines may be interrupted in the event of a supplier production problem, material recall or financial difficulties. If one of our suppliers is unable to supply materials required for production of our products or our strategies for managing these risks are unsuccessful, we may be unable to complete the production of sufficient quantities of product to fulfill customer orders, or complete the qualification of new replacement materials for some programs in time to meet future production requirements. Prolonged disruptions in the supply of any of our key raw materials, difficulty in completing qualification of new sources of supply, or in implementing the use of replacement materials or new sources of supply, could have a material adverse effect on our results of operations, our financial condition or cash flows.

 

18
 

 

SOME COMPANIES WE MAY UTILIZE FOR THE SUPPLY OF COMPONENTS ARE ALSO COMPETITORS, AND THEY COULD ELECT TO CEASE SUPPLY RELATIONSHIPS WITH US IN THE FUTURE FOR COMPETITIVE REASONS.

 

Some companies we may utilize for the supply of components for the RevVac™ safety syringe also develop and market their own safety products. These companies may elect to cease supply relationships with us in the future for competitive reasons. This may disrupt our supply chain, cause difficulties in the qualification of new sources of supply and impair our ability to supply customer orders. Such events may have a material adverse effect on our results of operations, our financial condition or cash flows.

 

THE MEDICAL DEVICE INDUSTRY IS VERY COMPETITIVE.

 

Competition in the medical device industry is intense. We face this competition from a wide range of companies. These include large medical device companies, most of which have greater financial and human resources, distribution channels and sales and marketing capabilities than we do. Our ability to compete effectively depends upon our ability to distinguish our company and our products from our competitors and their products. Factors affecting our competitive position include, for example, product design and performance, product safety, sales, marketing and distribution capabilities, success and timing of new product development and introductions and intellectual property protection.

 

OUR COMPETITORS HAVE GREATER RESOURCES.

 

The three leading manufacturers of hypodermic syringes and blood collection products are BD, Covidien, and Terumo. All three companies offer both standard syringes and at least one safety syringe alternative. These competitors have greater financial resources, larger and more established sales and marketing and distribution organizations, and greater market influence, including long-term contracts. These competitors may be able to use these resources to improve their products through research and acquisitions or develop new products, which may compete more effectively with our products. If our competitors choose to use their resources to create products superior to ours, we may be unable to sell our products and our ability to continue operations would be weakened.

 

WE MAY BE ADVERSELY IMPACTED BY NEXT GENERATION DRUG DELIVERY TECHNOLOGIES.

 

Much of our potential sales and potential profitability depends to a large extent on the sale of drug products delivered by subcutaneous or intramuscular injection. Other device companies, and pharmaceutical companies, are attempting to develop alternative therapies or drug administration systems such as needle-free or intradermal injection technology for the treatment or prevention of various diseases. The development of new or improved products, processes or technologies by other companies may render our products or proposed products obsolete or less competitive. If the products developed in the future by our customers or potential customers use another delivery system, our sales and potential profitability could suffer. Furthermore, we will be largely reliant upon the receipt of revenues from the sale of the RevVac™ safety syringe and will not have the benefit of diversification.

 

WE MAY FACE SIGNIFICANT UNCERTAINTY IN THE INDUSTRY DUE TO GOVERNMENT HEALTHCARE REFORM.

 

The healthcare industry in the United States is subject to fundamental changes due to the ongoing healthcare reform and the political, economic and regulatory influences. In March 2010, comprehensive healthcare reform legislation was signed into law in the United States through the passage of the Patient Protection and Affordable Health Care Act and the Health Care and Education Reconciliation Act. Among other initiatives, the legislation provides for a 2.3% annual excise tax on the sale of certain medical devices in the United States, commencing in January 2013. This enacted excise tax may adversely affect our operating expenses and results of operations. In addition, various healthcare reform proposals have also emerged at the state level. We cannot predict with certainty what healthcare initiatives, if any, will be implemented at the state level, or what ultimate effect of federal healthcare reform or any future legislation or regulation may have on us or on our customers’ purchasing decisions regarding our products and services.

 

WE ARE SUBJECT TO REGULATION BY GOVERNMENTS AROUND THE WORLD, AND IF THESE REGULATIONS ARE NOT COMPLIED WITH, EXISTING AND FUTURE OPERATIONS MAY BE CURTAILED, AND WE COULD BE SUBJECT TO LIABILITY.

 

The design, development, manufacturing, marketing and labeling of our products are subject to regulation by governmental authorities in the United States, Europe and other countries, including the FDA. The regulatory process can result in required modification or withdrawal of existing products and a substantial delay in the introduction of new products. Also, it is possible that regulatory approval may not be obtained for a new product. Our business may be adversely affected by changes in the regulation of drug products and medical devices.

 

19
 

 

Our target customers are also subject to government regulations for the manufacturing, approval, marketing and labeling of medical products. An effect of the governmental regulation of our customers’ injectable drug products and manufacturing processes is that compliance with regulations makes it costly and time consuming to transition to the use of our devices for existing products, or to secure approval for pipeline products targeted for use with our devices. If regulation of our customers’ products incorporating our devices increases over time, it is likely that this would adversely affect our sales and profitability.

 

IF OUR PRODUCTS ARE FOUND TO HAVE DEFECTS OR FAIL TO MEET INDUSTRY STANDARDS, WE WILL INCUR SUBSTANTIAL LITIGATION, JUDGMENT, PRODUCT LIABILITY AND PRODUCT RECALL COSTS, WHICH WILL INCREASE OUR LOSSES AND NEGATIVELY AFFECT OUR BRAND NAME REPUTATION AND PRODUCT SALES.

 

We may be subject to liability for errors that occur with our technologies due to claims of negligence or product malfunction. Pursuant to our manufacturing agreement, the Company has the right to claim reimbursement for damages due to manufacturing defects but will have product liability insurance in place before delivery of its products. We can still suffer litigation as a result of perceived product malfunctioning, adversely affecting our reputation, planned revenue stream and company. Despite purchasing product liability insurance at the industry standard amount, product liability claims could increase our costs and adversely affect our reputation, planned revenues and, ultimately, lead to additional losses. In addition, product defects could result in product recalls and warranty claims. A product recall could delay or halt production of our product until we are able to remedy the product defects. The occurrence of any claims, judgments or product recalls will negatively affect our brand name image and product sales, lead to additional costs, and adversely affect our financial condition and results of operation.

 

INTELLECTUAL PROPERTY LITIGATION COULD BE COSTLY AND DISRUPTIVE TO US.

 

The retractable syringe product lines in which we compete are relatively new inventions with numerous companies having patents. In recent years, there have been several patent infringement suits involving other industry participants. To-date, we have not been subject to any such patent infringement suits and also hold freedom to operate reports which we believe indicate that our technology and associated products are substantially different from other known patents. There is no assurance, however, that third parties will not assert any patent, copyright, trademark and other intellectual property rights to technologies used in our business. Any claims, with or without merit, could be time-consuming, result in costly litigation, divert the efforts of our technical and management personnel or require us to pay substantial damages. If we are unsuccessful in defending ourselves against these types of claims, we may be required to do one or more of the following:

 

·stop, delay or abandon our ongoing or planned commercialization of the product that is the subject of the suit;

 

·attempt to obtain a license to sell or use the relevant technology or substitute technology, which license may not be available on reasonable terms or at all; or

 

·redesign those products that use the relevant technology.

 

IF WE ARE UNABLE TO PROTECT THE CONFIDENTIALITY OF OUR PROPRIETARY INFORMATION AND KNOW-HOW, THE VALUE OF OUR TECHNOLOGY AND PRODUCTS COULD BE ADVERSELY AFFECTED.

 

In addition to patented technology, we rely on our unpatented proprietary technology, trade secrets, processes and know-how. We generally seek to protect this information by confidentiality agreements with our employees, consultants, scientific advisors and third parties. These agreements may be breached, and we may not have adequate remedies for any such breach. In addition, our trade secrets may otherwise become known or be independently developed by competitors. To the extent that our employees, consultants or contractors use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions.

 

20
 

 

WE PURCHASE SOME OF THE KEY COMPONENTS OF OUR PRODUCTS FROM SINGLE SUPPLIERS. THE LOSS OF THESE SUPPLIERS COULD PREVENT OR DELAY SHIPMENTS OF OUR PRODUCTS OR DELAY OUR CLINICAL TRIALS OR OTHERWISE ADVERSELY AFFECT OUR BUSINESS.

 

Some of the key components of our products and related services are currently purchased from only single suppliers with which we do not have long-term contracts. Some of these suppliers may be located outside of the United States, which could make us subject to foreign export laws and U.S. import and customs statutes and regulations, thus complicating and delaying shipments of components. If necessary or desirable, we could source our product components and related services from other suppliers. However, establishing additional or replacement suppliers for these components, and obtaining any necessary regulatory clearances or approvals, could take a substantial amount of time and could result in increased costs and impair our ability to produce our products, which would adversely impact our business, operating results and prospects. If our independent contract manufacturer fails to timely deliver to us sufficient quantities of some of our products and components in a timely manner, our operations may be harmed.

 

OUR RELIANCE ON INDEPENDENT CONTRACT MANUFACTURERS TO MANUFACTURE MOST OF OUR PRODUCTS AND COMPONENTS INVOLVES SEVERAL RISKS, INCLUDING:

 

·inadequate capacity of the manufacturer’s facilities;

 

·financial difficulties experienced by manufacturers due to the recent economic recession and continuing economic uncertainty;

 

·interruptions in access to certain process technologies; and

 

·reduced control over product availability, quality, delivery schedules, manufacturing yields and costs.

 

Shortages of raw materials, production capacity or financial constraints, or delays by our contract manufacturers could negatively affect our ability to meet our production obligations and result in increased prices for affected parts. Any such reduction, constraint or delay may result in delays in shipments of our products or increases in the prices of components, either of which could have a material adverse effect on our business.

 

IF WE, OUR CONTRACT MANUFACTURERS OR OUR COMPONENT SUPPLIERS FAIL TO COMPLY WITH THE FDA’S QUALITY SYSTEM REGULATIONS, THE MANUFACTURING AND DISTRIBUTION OF OUR DEVICES COULD BE INTERRUPTED, AND OUR PRODUCT SALES AND OPERATING RESULTS COULD SUFFER.

 

We, our contract manufacturers and our component suppliers are required to comply with the FDA’s quality system regulations, which is a complex regulatory framework that covers the procedures and documentation of the design, testing, production, control, quality assurance, labeling, packaging, sterilization, storage and shipping of our devices. The FDA enforces its quality system regulations through periodic unannounced inspections. We cannot assure you that our facilities or our contract manufacturers’ or component suppliers’ facilities would pass any future quality system inspection. If our or any of our contract manufacturers’ or component suppliers’ facilities fails a quality system inspection, the manufacturing or distribution of our devices could be interrupted and our operations disrupted. Failure to take adequate and timely corrective action in response to an adverse quality system inspection could force a suspension or shutdown of our packaging and labeling operations or the manufacturing operations of our contract manufacturers, or a recall of our devices. If any of these events occurs, we may not be able to provide our customers with the quantity of RevVac™ safety syringes they require on a timely basis, our reputation could be harmed and we could lose customers, any or all of which may have a material adverse effect on our business, financial condition and results of operations.

 

OUR OPERATING RESULTS MAY BE ADVERSELY IMPACTED BY WORLDWIDE POLITICAL AND ECONOMIC UNCERTAINTIES AND SPECIFIC CONDITIONS IN THE MARKETS WE ADDRESS.

 

In the recent past, general worldwide economic conditions have experienced a downturn due to slower economic activity, concerns about inflation, increased energy costs, decreased consumer confidence, reduced corporate profits and capital spending, and adverse business conditions. Any continuation or worsening of the current global economic and financial conditions could materially adversely affect (i) our ability to raise, or the cost of, needed capital, (ii) demand for our current and future products and (iii) our ability to commercialize products. We cannot predict the timing, strength, or duration of any economic slowdown or subsequent economic recovery, worldwide, or in the display industry.

 

21
 

 

BECAUSE WE PLAN TO CONTINUE USING FOREIGN CONTRACT MANUFACTURERS, OUR OPERATING RESULTS COULD BE HARMED BY ECONOMIC, POLITICAL, REGULATORY AND OTHER FACTORS IN FOREIGN COUNTRIES.

 

We currently use a contract manufacturer in Asia to manufacture our RevVac™ safety syringe, and we plan to use foreign manufacturers to manufacture future products, where appropriate. These international operations are subject to inherent risks, which may adversely affect us, including:

 

·political and economic instability;

 

·high levels of inflation, historically the case in a number of countries in Asia;

 

·burdens and costs of compliance with a variety of foreign laws;

 

·foreign taxes;

 

·changes in tariff rates or other trade and monetary policies; and

 

·changes or volatility in currency exchange rates.

 

IF WE FAIL TO MANAGE EXPANSION EFFECTIVELY, OUR REVENUE AND EXPENSES COULD BE ADVERSELY AFFECTED.

 

Our ability to successfully offer products and implement our business plan in a rapidly evolving market requires an effective planning and management process. The growth in business and relationships with customers and other third parties has placed, and will continue to place, a significant strain on our management systems and resources. We will need to continue to improve our financial and managerial controls, reporting systems and procedures and will need to continue to train and manage our work force.

 

INCREASES IN FREIGHT AND ENERGY PRICES WOULD INCREASE OUR OPERATING COSTS AND WE MAY BE UNABLE TO PASS THESE INCREASES ON TO OUR CUSTOMERS IN THE FORM OF HIGHER PRICES, WHICH MAY ADVERSELY AFFECT OUR OPERATING RESULTS.

 

We use energy to process and transport our products. The prices for and availability of energy resources are subject to volatile market conditions, which are affected by political, economic and regulatory factors beyond our control. Our operating costs increase if energy costs, including electricity, diesel fuel and natural gas, rise. During periods of higher freight and energy costs, we may not be able to recover our operating cost increases through price increases without reducing demand for our products. In addition, we typically do not hedge our exposure to higher freight or energy prices.

 

THE MANUFACTURE OF MANY OF OUR PRODUCTS IS A HIGHLY EXACTING AND COMPLEX PROCESS, AND IF WE OR ONE OF OUR SUPPLIERS SHOULD ENCOUNTER PROBLEMS MANUFACTURING PRODUCTS, OUR BUSINESS COULD SUFFER.

 

The manufacture of many of our products is a highly exacting and complex process, in part due to strict regulatory requirements. Problems may arise during the manufacturing process for a variety of reasons, including equipment malfunction, failure to follow specific protocols and procedures, problems with raw materials, maintenance of our manufacturing environment, natural disasters, various contagious diseases and process safety issues. If problems arise during the production of a batch of product, that batch of product may have to be discarded. This could, among other things, lead to increased costs, lost sales, damage to customer relations, time and expenses being spent investigating the cause and, depending on the cause, similar losses with respect to other batches or products. If problems are not discovered before the affected product is released to the market, recall and product liability costs as well as reputational damage may also be incurred. To the extent that we or one of our suppliers experience significant manufacturing problems, this could have a material adverse effect on our business.

 

22
 

 

IF WE FAIL TO INCREASE OUR PRODUCTION AND MANUFACTURING CAPACITY TO MEET DEMAND, WE WILL BE UNABLE TO GROW AND OUR ABILITY TO PRODUCE NEW PRODUCTS AND ENTER INTO MARKETS WILL BE LIMITED.

 

Global growth and demand for our products could increase the utilization of our production and manufacturing facilities, including manufacturing capacity provided by third-party manufacturers and packaging capacity with respect to our products. If we are unable to successfully expand our production and manufacturing capacity, we will be unable to grow and expand our markets or enter into additional geographic markets or new product categories. In addition, failure to successfully expand our production and manufacturing capacity will limit our ability to introduce and distribute new products, including our existing pipeline of innovations and product improvements, or otherwise take advantage of opportunities in new markets. Further, increasing our production and manufacturing facilities requires significant investment and time to build. Delays in increasing capacity could also limit our ability to grow and materially adversely affect our business.

 

FLUCTUATIONS IN FOREGIN CURRENCY EXCHANGE RATES COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION AND RESULTS FROM OPERATIONS.

 

Changes in foreign currency exchange rates can affect the value of our assets and liabilities, and the amount of our revenues and expenses. We do not currently try to mitigate our exposure to currency exchange rate risks by using hedging transactions. We cannot predict future changes in foreign currency exchange rates, and as a result, we may suffer losses as a result of future fluctuations.

 

Risks Related to Our Common Stock

 

YOUR OWNERSHIP INTEREST MAY BE DILUTED AND THE VALUE OF THE SHARES OF OUR COMMON STOCK MAY DECLINE BY THE EXERCISE OF STOCK OPTIONS WE HAVE GRANTED OR MAY GRANT IN THE FUTURE AND BY THE COMMON STOCK WE HAVE ISSUED OR WILL ISSUE IN THE FUTURE.

 

As of March 30, 2012, there were 17,973,750 options outstanding, which consisted of options to purchase common stock at exercise prices ranging from .08-.50 cents per share, all of which are exercisable. 6,453,750 options still outstanding were granted in 2007 and 2008 at a weighted average price of .08 per share and are considered in the money as of March 30, 2012. 2,500,000 options issued in 2011 exercisable at .15 cents per share are considered in the money. An additional 1,500,000 options issued at an exercise price of .25 cents are considered in the money. 3,650,000 options issued in 2010 and 2011 at an exercise price of .30 cents are considered out of the money. 3,870,000 options exercisable at $0.50 per share are considered out of the money. 12,253,750 of the options, as of February 10, 2012, were granted to officers and directors. Additionally, under the terms of certain 2009 and 2010 private placement agreements, 1,989,900 warrants were issued with an exercise price of $0.50 cents and an expiration date of March 31, 2012. Of those warrants, 117,400 have been exercised. 1,500,000 warrants with various expiration dates and exercise prices ranging from $0.50 cents to $5.00 were issued to MIG according to the terms of the manufacturing agreement signed September 17, 2010. These warrants are presently in dispute. 600,000 warrants were issued in 2012 according to the terms of two convertible debt agreements. These warrants expire on December 31, 2012. 300,000 of these warrants are exercisable at $0.25 cents and 300,000 are exercisable at $0.50.

 

We may decide, however, to modify the terms and/or exercise price of these “out of the money” options. To the extent that the outstanding options to purchase our common stock are exercised, your ownership interest may be diluted. If the options are exercised and sold into the market, they could cause the market price of our common stock to decline.

 

From time to time the Company has issued and plans to continue to issue shares of its common stock to pay current and future obligations. During 2011, the Company issued 1,513,943 shares for services rendered. If and when, and to the extent that, those shares are sold into the market, they could cause the market price of our common stock to decline.

 

As of March 30, 2012, we had 250,000,000 shares of common stock authorized and 57,505,476 shares of common stock outstanding. The authorized but unissued shares have the same rights and privileges as the common stock presently outstanding. The unissued authorized shares can be issued without further action of the shareholders. If and when, and to the extent that, the unissued authorized shares are issued and sold into the market, they could cause the market price of our common stock to decline.

 

23
 

 

OUR STOCK PRICE IS VOLATILE AND YOUR INVESTMENT IN OUR SECURITIES COULD DECLINE IN VALUE, RESULTING IN SUBSTANTIAL LOSSES TO YOU.

 

The market price of our common stock, which is currently quoted on the OTC Markets OTCQB, has been, and may continue to be, highly volatile. Our stock began trading on the over the counter bulletin board on May 1, 2008. On April 19, 2010, the Company began trading on the OTC Markets OTCQB. Factors such as announcements of product development progress, financings, technological innovations or new products, either by us or by our competitors or third parties, as well as market conditions within the medical devices industry may have a significant impact on the market price of our common stock. In general, medical device stocks tend to be volatile even during periods of relative market stability because of the high rates of failure and substantial funding requirements associated with medical device companies. Market conditions and conditions of the medical device sector could also negatively impact the price of our common stock.

 

THE APPLICATION OF THE “PENNY STOCK” RULES COULD ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON SHARES AND INCREASE YOUR TRANSACTION COSTS TO SELL THOSE SHARES.

 

The Securities and Exchange Commission (the “SEC”) has adopted rule 3a51-1 which establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, Rule 15g-9 requires:

 

·that a broker or dealer approve a person’s account for transactions in penny stocks;

 

·the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased; and

 

·that a broker or dealer approve a person’s account for transactions in penny stocks.

 

In order to approve a person’s account for transactions in penny stocks, the broker or dealer must:

 

·obtain financial information and investment experience objectives of the person; and

 

·make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.

 

The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form:

 

·sets forth the basis on which the broker or dealer made the suitability determination; and

 

·that the broker or dealer received a signed, written agreement from the investor prior to the transaction.

 

Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.

 

AS AN ISSUER OF “PENNY STOCK,” THE PROTECTION PROVIDED BY THE FEDERAL SECURITIES LAWS RELATING TO FORWARD LOOKING STATEMENTS DOES NOT APPLY TO US.

 

Although federal securities laws provide a safe harbor for forward-looking statements made by a public company that files reports under the federal securities laws, this safe harbor is not available to issuers of penny stocks. As a result, the Company will not have the benefit of this safe harbor protection in the event of any legal action based upon a claim that the material provided by the Company contained a material misstatement of fact or was misleading in any material respect because of the Company’s failure to include any statements necessary to make the statements not misleading. Such an action could hurt our financial condition.

 

24
 

 

MR. RONDALD L. WHEET, OUR CHIEF EXECUTIVE OFFICER AND CHAIRMAN, HAS VOTING CONTROL OF THE COMPANY AND CAN UNILATERALLY MAKE BUSINESS DECISIONS FOR US. ALTHOUGH WE HAVE ONE OUTSIDE DIRECTOR, THERE ARE NO PROCEDURES IN PLACE TO RESOLVE POTENTIAL CONFLICTS AND TO EVALUATE RELATED PARTY TRANSACTIONS THAT ARE TYPICALLY REVIEWED BY INDEPENDENT DIRECTORS.

 

Because Mr. Wheet owns 1,000,000 Series 2006 Preferred shares, which gives him the right to vote 125 shares to one in addition to the shares of common stock he already owns, voting together as a single class with the Company’s common stock, he controls a majority of the Company’s common stock and can unilaterally make business decisions on our behalf. Although we appointed an outside director, there are no procedures in place to resolve potential conflicts and evaluate related party transactions that are typically reviewed by independent directors.

 

WE HAVE NOT PAID DIVIDENDS IN THE PAST AND DO NOT EXPECT TO PAY DIVIDENDS FOR THE FORESEEABLE FUTURE. ANY RETURN ON INVESTMENT MAY BE LIMITED TO THE VALUE OF OUR COMMON STOCK.

 

No cash dividends have been paid on the Company’s common stock. We expect that any income received from operations will be devoted to our future operations and growth. The Company does not expect to pay cash dividends in the near future. Payment of dividends would depend upon our profitability at the time, cash available for those dividends, and other factors as the Company’s board of directors may consider relevant. If the Company does not pay dividends, the Company’s common stock may be less valuable because a return on an investor’s investment will only occur if the Company’s stock price appreciates.

 

Item 1B. Unresolved Staff Comments.

 

Not applicable.

 

Item 2. Property.

 

On September 1, 2009, the Company entered into a five (5) year lease agreement with Osprey South, LLC (“Osprey”), to lease the property at 670 Marina Drive, Suite 301, Building F, Charleston, South Carolina, 29492. The leased property is approximately 5,000 square feet. During the course of the five (5) year lease, ending on August 31, 2014, the Company is to pay to Osprey $10,000 in monthly rental installments payable on the first day of each succeeding month.

 

Item 3. Legal Proceedings.

 

The Company is currently in arbitration in the State of South Carolina with its former manufacturer, MIG, for failure to perform under the manufacturing and supply agreement dated September 17, 2010, and the amended manufacturing and supply agreement, dated January 7, 2011.  The Company is seeking financial relief of $795,000 it paid to MIG for production class molds and proprietary tooling for the 1ml and 3ml RevVac™ safety syringes, the termination of all warrants granted, and the termination of all production rights assigned. MIG is claiming that it was production ready in accordance with the manufacturing and supply agreements. The nature of the litigation centers around MIG’s inability to produce a product that passed all compliance and quality testing parameters in the time frames outlined by the manufacturing and supply agreements. The arbitration is expected to commence in May 2012 in Charleston, SC. 

 

On March 12, 2012, the Company filed a lawsuit against Justin Keener and JMJ Financial in Charleston County, South Carolina. The Company is seeking a rescission and financial relief for the convertible debt agreement signed February 28, 2011. The Company claims that it was unable to deliver the shares requested in the common stock conversion requests, due to the risk of defaulting on the convertible debt agreement by losing Depository Trust Company “DTC” eligibility. The contract states that the Company would be considered in default of the agreement if the Company lost DTC eligibility due to a “chill” placed upon the electronic transfer of the stock. The Company had previously been made aware of other companies that had entered into similar agreements losing DTC eligibility and felt that JMJ had put the Company in an untenable position of either defaulting by losing DTC eligibility or defaulting by failing to issue the requested shares. The Company claims that JMJ’s unreasonably high demands for conversion caused a “frustration” of the principal purpose of the contract and supports the rescission of the contract and a return of the parties to their respective positions before the contract was signed.

 

A lawsuit was filed against the Company by JMJ Financial 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. JMJ is seeking the delivery of 2,226,049 shares of common stock of the Company, plus costs and prejudgment interest.

 

Other than the matters outlined above, we are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

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PART II

 

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

 

(a) Market Information

 

The Company’s Common Stock is quoted on the OTCQB under the under the symbol “RMCP.” The following table sets forth the quarterly high and low sale prices for our common shares for the last two completed fiscal years and the subsequent interim periods. The prices set forth below represent interdealer quotations, without retail markup, markdown or commission and may not be reflective of actual transactions.

 

Quarter ended  High   Low 
December 31, 2011  $0.320   $0.120 
September 30, 2011  $0.320   $0.170 
June 30, 2011  $0.445   $0.220 
March 31, 2011  $0.480   $0.330 
December 31, 2010  $0.783   $0.442 
September 30, 2010  $1.440   $0.210 
June 30, 2010  $0.420   $0.220 
March 31, 2010  $0.390   $0.260 
December 31, 2009  $0.540   $0.350 
September 30, 2009  $0.540   $0.270 
June 30, 2009  $0.650   $0.400 

 

Quotations on the OTCQB reflect bid and ask quotations, may reflect inter-dealer prices, without retail markup, markdown or commission, and may not represent actual transactions.

 

(b) Holders

 

As of March 30, 2012, there were approximately 450 holders of record of our common stock. This figure does not take into account those shareholders whose certificates are held in the name of broker-dealers or other nominees.

 

(c) Dividends

 

We have never paid any cash dividends on our common shares, and we do not anticipate that we will pay any dividends with respect to those securities in the foreseeable future. Our current business plan is to retain any future earnings to finance the expansion development of our business.

 

(d) Securities Authorized for Issuance under Equity Compensation Plan

 

The following table shows information with respect this plan as of the fiscal year ended December 31, 2011.

 

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Equity Compensation Plan Information
Plan category  Number of
securities to 
be issued upon
exercise 
of outstanding
options, 
warrants and
rights (a)
   Weighted-average 
Exercise price
of 
outstanding
options, 
warrants and
rights (b)
   Number of
securities
remaining 
available for
future issuance 
under equity
compensation 
plans
(excluding
securities 
reflected in
column (a)) (c)
 
Equity compensation plans approved by security holders   15,473,750    0.24    4,526,250 
Equity compensation plans not approved by security holders            
Total   15,473,750    0.24    4,526,250 

 

Transfer Agent

 

Our transfer agent is American Stock Transfer and Trust Company at 6201 15th Avenue, Brooklyn, NY 11219.

 

Item 6. Selected Financial Data.

 

Not applicable.

 

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

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 April 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 July 2012 for its 1ml RevVac™ safety syringe and by September 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 are 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.

 

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.

 

27
 

 

On December 31, 2010, the Company announced that it had acquired the exclusive rights to license a breast biopsy localization system. The Company recently signed a worldwide exclusive license agreement with Traxsys, Inc. for an image-guided navigation system that incorporates high accuracy breast biopsies systems (“BSS”) to conventional mammography systems, which number more than 50,000 globally. This technology has already received 510(k) market clearance by the FDA. BSS facilitates accurate and fast non-palpable lesions and micro calcification localization in the treatment of breast cancer. It is a low-cost, standalone, stereotactic image-based system which uses data from a pair of mammograms to enable radiologists to accurately position a localization needle or biopsy tool at the location of suspicious abnormalities. The system can also be modified to leverage existing popular biopsy tools. The technology can be used to provide a technology platform for future development, including multi-modal breast imaging for the image fusion of MRI and X-Ray images. After a full due diligence of the technology, the Company sees a potential synergy between its proprietary MRI software tools and this technology for breast imaging. However, the Company has decided not to invest additional capital at this time and to focus its resources on its RevVac™ safety syringe line of products and applications for its MRI software technology. In the future, the Company could re-license this technology.

 

Results of Operations

 

For the Year Ended December 31, 2011 Compared to the Year Ended December 31, 2010

 

Revenues

 

During the years ended December 31, 2011 and 2010, respectively, the Company had no revenues.

 

General and Administrative Expenses

 

During the year ended December 31, 2011, the Company incurred $3,714,214 in general and administrative expenses, compared to $2,109,555 for the same period in 2010. Employee salaries were $1,302,051 for the year ended December 31, 2011, a decrease of $64,968, compared to $1,367,019 for the same period in 2010. This salary decrease is due to the onetime charge in 2010 to salary expense for Company’s liability of $924,570 related to the SEC settlement for Gifford Mabie. Besides this one time charge, 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 $1,331,763 and $468,938, respectively, for the year ended December 31, 2011, an increase in consulting fees of $616,652 and an increase in legal fees of $294,644, respectively, compared to $715,111 and $174,294, respectively, for the same period in 2010. The increase in consulting fees was partly due to an increase in consultants retained in 2011 to begin promotion of the RevVac™ safety syringe in various markets. A total of $636,856 in prepaid consulting agreements was expensed in the year ended December 31, 2011, compared to $274,361 for the same period in 2010. Interest and derivative expenses increased to $567,081 during the year ended December 31, 2011, compared to $216,671 for the same period in 2010. This increase is due to additional convertible debt agreements with Asher Enterprises, Inc. and JMJ Financial, Inc. We also incurred capital expenditures in the amount of $379,920 and $782,376, during the year ended December 31, 2011 and 2010, respectively, for office equipment, leasehold improvements and payments to complete the pilot design and final design of our production molds related to the 3 ml RevVac™ safety syringe. Also, during the year ended December 31, 2011, the Company removed from the balance sheet equipment valued at $382,000 for the production of the 3 ml and 1 ml pilot molds, as the Company determined that these molds had not been produced and would not be produced under the terms of the contract terminated with MIG in September.

 

Net Loss

 

Net loss for the year ended December 31, 2011, was $(4,2818,278) compared to $(2,615,046) for the same period in 2010, as the Company incurred greater expenses primarily related to an increase in salaries, consulting and legal fees and expenses associated with the convertible debt agreements. The Company incurred a net operating loss of $(3,843,069) during the year ended December 31, 2011, compared to a net operating loss of $(2,372,954) for the same period in 2010.

 

28
 

 

Liquidity and Capital Resources

 

As of December 31, 2011, 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 years ended December 31, 2011 and 2010, was $(3,010,275) and $(1,208,525), respectively. The net loss for the years ended December 31, 2011 and 2010 was $(4,218,278) and $(2,615,046), respectively. This increase is primarily attributable to the increased expense related to consulting agreements, legal expenses, salaries and the interest and derivative expenses related to the convertible debt agreements.

 

Net cash used for investing activities for the years ended December 31, 2011 and 2010, was $(471,347) and $(782,375), respectively. This cash used for investing activities is a result of equipment purchases and leasehold improvements, as well as the adjustment for the 1ml and 3 ml design molds taken off of the balance sheet after the termination of the contract with MIG.

 

Net cash obtained through all financing activities for year ended December 31, 2011, was $3,416,949, as compared to $1,993,189 for the year ended December 31, 2010. The increase in cash obtained through financing activities is primarily a result of cash received from the exercise of stock options in the amount of $1,679,420. Additionally, cash adjustments through the payment of debt totaled $895,053 during the year ended December 31, 2011. Of this $895,053, an increase of $876,600 was provided from principal on the 2011 convertible debt agreements. A debt discount decrease of $215,308 has yet to be amortized as of December 31, 2011, and an increase from the balance of the derivative liability as of December 31, 2011, is $281,652. Adjustments as of December 31, 2011 for the liability balance for the Gifford Mabie SEC settlement were made in the amount of $67,072.

 

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 of stock options to outside parties for services rendered during the year ended December 31, 2011 and 2010 were $481,100 and $810,773, respectively. Additionally, we received payments for exercised options during the year ended December 31, 2011, totaling $1,679,420, compared to $96,201 for the year ended December 31, 2010. This increase is due primarily to an increase in consulting agreements and the options issued under the terms of these agreements.

 

As of December 31, 2011, 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 54,729,606 shares were issued and outstanding as of December 31, 2011. 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 1st quarter of 2012. 

 

29
 

 

The Company entered into six new securities purchase agreements in 2011 with Asher Enterprises, Inc. (“Asher Enterprises”), pursuant to which the Company issued convertible promissory notes to Asher Enterprises for an original principal amount of $60,000 on January 27, $75,000 on May 23, $40,000 on July 26, $45,000 on September 1, $42,500 on November 7, and $53,000 on December 19 in return for aggregate gross cash proceeds of $315,500. 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 note. The principal amount owed to Asher Enterprises at December 31, 2011, is $180,500. The note is 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. Over the course of the year, Asher elected to convert a total of $260,000 in principal from the notes issued on October 19, 2010 for $125,000, January 27, 2011 for $60,000 and May 23, 2011 for $75,000.

 

The notes issued by Asher on November 7, 2011 and December 19, 2011 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. For the November 7, 2011 note, this beneficial conversion feature was initially calculated at $42,500 and the beneficial conversion feature for the December 19, 2011 note calculated at $52,123.97. The debt discount is amortized to interest expense over the life of the note using the effective interest method.

 

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 year, JMJ elected to convert a total of $242,839 in principal from this note. The principal amount owed to JMJ at December 31, 2011, is $207,161.

 

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 following table summarizes total current assets, liabilities and working capital at December 31, 2011, compared to December 31, 2010.

 

   Dec. 31, 
2011 
(Audited)
   Dec. 31, 
2010 
(Audited)
   Increase/ 
(Decrease)
 
Current Assets  $653,345   $373,274   $280,071 
Current Liabilities  $2,294,274   $1,581,108   $713,166 
Working Capital Deficit  $(1,640,929)  $(1,207,834)  $433,095 

 

As of December 31, 2011, we had a working capital deficit of $1,640,929, as compared to a working capital deficit of $1,207,834 as of December 31, 2010, an increase of $433,095. 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, which increased current liabilities by $349,199, as of December 31, 2011. Additionally, the issuance of the convertible notes and the embedded derivatives associated with these notes increases current liabilities to $522,846 as of December 31, 2011, as compared to a balance of $193,841 as of December 31, 2010.

 

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 December 31, 2011, was $312,501, compared to $274,361 as of December 31, 2010. The remaining balance of $25,000 is a short term note receivable.

 

30
 

 

   Dec. 31, 
2011
   Dec. 31, 
2010
 
         
Building  $-   $- 
Production machinery and equipment   1,109,199    780,000 
Furniture and fixtures   49,147    39,847 
Office equipment   4,036    2,214 
Leasehold improvements   39,600    - 
           
Less: accumulated depreciation and amortization   (16,318)   (9,582)
Property, plant and equipment, net  $1,185,664   $812,479 

 

Production machinery and equipment as of December 31, 2011, 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 first 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:

   Dec. 31, 
2011
   Dec. 31, 
2010
 
     
Accounts payable and credit cards  $565,935   $307,195 
Accrued salaries and payroll liabilities   245,239    246,225 
Convertible debentures and accrued interest (net)   109,663    34,505 
Note payable and accrued interest   843,112    740,569 
Derivative liabilities   442,311    160,659 
           
Other current liabilities   88,014    91,955 
           
Total current liabilities  $2,294,274   $1,581,108 

 

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 for $349,199. 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

 

None.

 

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.

 

31
 

 

Off-Balance Sheet Arrangements

 

We have no significant known off balance sheet arrangements.

 

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

 

We do not hold any derivative instruments and do not engage in any hedging activities.

 

Item 8. Financial Statements and Supplementary Data.

 

Our financial statements are contained in pages F-1 through F-28 which appear at the end of this Annual Report.

 

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

 

None.

 

Item 9A. Controls and Procedures.

 

(a) Evaluation of Disclosure and Control Procedures

 

The Company’s disclosure controls and procedures are designed to ensure (i) that information required to be disclosed by the Company in the reports the Company files or submits under the Exchange Act are recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms; and (ii) that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 

Our principal executive officer evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2011, and concluded that the disclosure controls and procedures were not effective as a whole, and that the deficiency involving internal controls constituted a material weakness as discussed below.

 

(b) Management’s Assessment of Internal Control over Financial Reporting

 

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in the Exchange Act Rules 13a-15(f). A system of internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

 

Under the supervision and with the participation of management, including the principal executive officer and the principal financial officer, the Company’s management has evaluated the effectiveness of its internal control over financial reporting as of December 31, 2011, based on the criteria established in a report entitled “Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission” and the interpretive guidance issued by the Commission in Release No. 34-55929. Based on this evaluation, the Company’s management has evaluated and concluded that the Company’s internal control over financial reporting was ineffective as of December 31, 2011, and identified the following material weaknesses:

 

·There is a lack of accounting personnel with the requisite knowledge of Generally Accepted Accounting Principles in the US (“GAAP”) and the financial reporting requirements of the U.S. Securities and Exchange Commission.

 

·There are insufficient written policies and procedures to insure the correct application of accounting and financial reporting with respect to the current requirements of GAAP and SEC disclosure requirements.

 

·There is a lack of segregation of duties, in that we only had one person performing all accounting-related duties

 

Notwithstanding the existence of these material weaknesses in our internal control over financial reporting, our management believes that the consolidated financial statements included in its reports fairly present in all material respects the Company’s financial condition, results of operations and cash flows for the periods presented.

 

32
 

 

The Company will continue its assessment on a quarterly basis and as soon as we start operations we plan to hire personnel and resources to address these material weaknesses. We believe these issues can be solved with hiring in-house accounting support and plan to do so as soon as we have funds available for this. There has been no change in its internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

This annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. The Company’s registered public accounting firm was not required to issue an attestation on its internal controls over financial reporting pursuant to temporary rules of the Securities and Exchange Commission. The Company will continue to evaluate the effectiveness of internal controls and procedures on an on-going basis.

 

(c) Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Item 9B. Other Information.

 

None.

 

33
 

 

PART III

 

Item 10. Directors, Executive Officers, and Corporate Governance.

 

The following table and biographical summaries set forth information, including principal occupation and business experience, about our directors and executive officers at March 30, 2012:

 

Name   Age   Position   Officer and/or Director Since
             
Rondald Wheet   46   Chairman, Chief Executive Officer   March 2005
             
Thomas Beahm (1)   61   Director   October 2007
             
Burt Hodges   39   Chief Financial Officer   June 2011
             
Vincent Olmo   46   Chief Operating Officer   April 2011

 

(1)Thomas M. Beahm is independent as that term is defined under the Nasdaq Marketplace Rules.

 

Rondald L. Wheet

 

Rondald L. Wheet is the Chief Executive Officer and Chairman of the board of directors of Revolutions Medical Corporation and has served in this capacity since March 2005. Mr. Wheet has over 15 years’ experience in the investment banking industry. Working for several registered broker dealers, including Scott and Stringfellow and Cohig and Associates, Mr. Wheet was instrumental in the capital campaigns for several small cap companies, particularly in the medical field. Between January 2002 and March 2005, Mr. Wheet worked as an outside consultant advising numerous micro and small cap companies on capital financing, strategic partnerships, stock awareness, professional recruiting, and the mechanics of public offerings. He received a Bachelor of Science degree from the University of Towson in Finance and International Business, and he is a past President of the Metropolitan Exchange Club of Charleston, SC. In 2009, he was presented the South Carolina Palmetto Patriot Award.

 

Thomas M. Beahm

 

Thomas M. Beahm, MD, FACS, is a member of the board of directors of Revolutions Medical. Dr. Beahm is a practicing plastic surgeon, who lives in Chattanooga, Tennessee. He is an active member of the American Society of Plastic Surgeons, American College of Surgeons, and American Medical Association, and simultaneously owns and runs his own practice. In addition, he is Secretary of Integrated Voice Systems, which has software in over 130 hospitals, and is also serving on the board of Clear Image, Inc., a privately held company specializing in proprietary MRI Software and Hardware. Dr. Beahm also has experience directing plastic surgery mission work in various third world countries, coming to the aid of thousands of people in Asia, Africa, and South America. Dr. Beahm received a bachelor’s degree from Pittsburg State University in Pittsburg, KS and a medical doctorate degree from the University of Kansas. Thomas M. Beahm is independent as that term is defined under the Nasdaq Marketplace Rules.

 

Burt Hodges

 

Mr. Hodges is currently the Company’s Chief Financial Officer. In this role, Mr. Hodges has management oversight and responsibility for all financial functions and capital resources of the Company, including corporate finance, project finance, corporate accounting, and reporting and risk management. Prior to joining the Company, from December, 2004 to June, 2011, Mr. Hodges was a partner with Accel Financial Advisors, LLC and Accel Tax and Business Services, LLC (collectively, “Accel”), where he provided tax, financial reporting and management advice to corporate clients and individuals. Prior to joining Accel, from July 2000 to December 2004, Mr. Hodges served as a tax resolution specialist and financial planner at J.K. Harris & Company, a tax resolution and financial advisory firm where he worked with corporate and individual clients performing business valuations and consulting on tax and financial matters. Mr. Hodges received his BBA in Finance from the University of Georgia and his MBA from the Citadel. He is a licensed Certified Public Accountant and a Certified Financial Planner.

 

34
 

 

Vincent Olmo

 

Mr. Olmo is currently Chief Operating Officer of the Company. Mr. Olmo combines over five years of experience in information technology and operations senior management, following an eighteen year career as a delivery manager and application architect. Previously, he was involved with several large financial institutions holding various positions, including chief architect and application services executive. From 2001 through 2006, Mr. Olmo was a Chief Architect for EDS, Inc., an information services company. From 2006 to 2007, he was Vice President of Application Delivery for Realogy, Inc., a company managing franchising rights in the real estate industry. From June 2007 to April 2011, he was an Application Services Executive for Hewlett-Packard, Inc., an information services company which focuses on delivering application development and management services for Fortune 500 companies. Mr. Olmo has a Bachelor of Science degree in Electrical Engineering from Fairleigh Dickinson University and an MBA from Rutgers.

 

Board of Directors

 

Directors are elected at our annual meeting of shareholders and serve for one year until the next annual meeting of shareholders or until their successors are elected and qualified. We reimburse all directors for their expenses in connection with their activities as directors of the Company.

 

Board Leadership Structure and Role in Risk Oversight

 

Although we have not adopted a formal policy on whether the Chairman and Chief Executive Officer positions should be separate or combined, we have traditionally determined that it is in the best interests of the Company and its shareholders to combine these roles. Rondald L. Wheet has served as our Chief Executive Officer and Chairman since March 2005. Due to the small size and early stage of the Company, we believe it is currently most effective to have the Chairman and Chief Executive Officer positions combined.

 

Our board of directors is primarily responsible for overseeing our risk management processes. The board of directors receives and reviews periodic reports from management, auditors, legal counsel, and others, as considered appropriate regarding our company’s assessment of risks. The board of directors focuses on the most significant risks facing our company and our company’s general risk management strategy, and also ensures that risks undertaken by our Company are consistent with the board’s appetite for risk. While the board oversees our company’s risk management, management is responsible for day-to-day risk management processes. We believe this division of responsibilities is the most effective approach for addressing the risks facing our company and that our board leadership structure supports this approach.

 

Family Relationships

 

Mr. Olmo is the brother-in-law of Mr. Wheet. Other than the previously disclosed relationship, there are no family relationships among our directors, executive officers, or persons nominated or chosen by the Company to become directors or executive officers.

 

Subsequent Executive Relationships

 

No director or executive officer has been a director or executive officer of any business which has filed a bankruptcy petition or had a bankruptcy petition filed against it during the past five years. No director or executive officer has been convicted of a criminal offense or is the subject of a pending criminal proceeding during the past five years. No director or executive officer has been the subject of any order, judgment or decree of any court permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities during the past five years. No director or officer has been found by a court to have violated a federal or state securities or commodities law during the past five years.

 

None of our directors or executive officers or their respective immediate family members or affiliates are indebted to us.

 

35
 

 

Legal Proceedings

 

None of the members of the board of directors or other executives has been involved in any bankruptcy proceedings, criminal proceedings, any proceeding involving any possibility of enjoining or suspending members of our board of directors or other executives from engaging in any business, securities or banking activities, and have not been found to have violated, nor been accused of having violated, any Federal or State securities or commodities laws.

 

Compliance with Section 16(A) of the Exchange Act

 

Section 16(a) of the Exchange Act requires the Company’s directors, executive officers and persons who beneficially own 10% or more of a class of securities registered under Section 12 of the Exchange Act to file reports of beneficial ownership and changes in beneficial ownership with the SEC. Directors, executive officers and greater than 10% stockholders are required by the rules and regulations of the SEC to furnish the Company with copies of all reports filed by them in compliance with Section 16(a).

 

Based solely on our review of certain reports filed with the Securities and Exchange Commission pursuant to Section 16(a) of the Securities Exchange Act of 1934, as amended, the reports required to be filed with respect to transactions in our common stock during the fiscal year ended December 31, 2011, were timely.

 

Code of Ethics

 

We do not currently have a code of ethics that applies to our Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer or Controller, or persons performing similar functions. Because we have only limited business operations and four officers and directors, we believe a code of ethics would have limited utility. We intend to adopt such a code of ethics as our business operations expand and we have more directors, officers and employees.

 

Item 11. Executive Compensation.

 

The following summary compensation table sets forth all compensation awarded to, earned by, or paid to the named executive officers paid by us during the periods ended December 31, 2011, 2011 and 2010.

 

Name And 
Principal Position
  Year   Salary 
($)
   Bonus 
($)
   Stock 
Awards 
($)
   Option 
Awards 
($)
   Non-
Equity 
Incentive 
Plan 
Compen- 
sation
($)
   All
Other
Compen-
sation
($)
   Total
($)
 
Rondald L. Wheet   2011   $225,000   $40,580   $0   $162,100   $0   $0   $427,680 
Chief Executive Officer   2010   $225,000   $0   $0   $0   $0   $0   $225,000 
    2009   $225,000   $0   $0   $0   $0   $0   $225,000 
                                         
Thomas O’Brien (1)   2011   $124,970   $0   $0   $0   $0   $0   $124,970 
Former President   2010   $180,000   $0   $0   $0   $0   $0   $180,000 
    2009   $180,000   $0   $0   $0   $0   $0   $180,000 
                                         
Burt Hodges   2011   $89,375   $0   $0   $69,163   $0   $0   $158,538 
Chief Financial Officer                                        
                                         
Vincent Olmo   2011   $124,625   $0   $0   $117,588   $0   $0   $242,213 
Chief Operating Officer                                        

 

(1)Mr. O’Brien resigned from his position on September 21, 2011.

 

36
 

 

2011 OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
OPTION AWARDS  STOCK AWARDS 
Name (a)  Number of
Securities
Underlying
Unexercised
Options 
(#) 
Exercisable 
(b)
   Number of
Securities
Underlying
Unexercised
Options 
(#) 
Unexercisable
(c)
   Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)
(d)
   Option
Exercise
Price
($)
(e)
   Option
Expiration
Date
(f)
  Number
of
Shares
or Units
of
Stock
That
Have
Not
Vested
(#)
(g)
   Market
Value
of
Shares
or
Units
of
Stock
That
Have
Not
Vested
($) 
(h)
   Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested
(#)
(i)
   Equity
Incentive
Plan
Awards:
Market
or Payout
Value of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested
(#) 
(j)
 
                                            
Rondald L. Wheet
Chief Executive Officer
   6,000,000           $0.116   12/31/2013                
                                            
Thomas O’Brien (1)
Former President
                  12/31/2013                
                                            
Burt Hodges
Chief Financial Officer
   800,000           $0.426   12/31/2013                
                                            
Vincent Olmo
Chief Operating Officer
   1,000,000           $0.40   12/31/2013                
                                            
Thomas M. Beahm
Director
   1,953,750           $0.136   12/31/2013                    

 

  (1) Mr. O’Brien resigned from his position on September 21, 2011.

  

DIRECTOR COMPENSATION

 

The following summary compensation table sets forth all compensation awarded to, earned by, or paid to the named directors by us during the years ended December 31, 2011, 2010 and 2009.

Name
and
Principal
Position 

  Year  

Salary 

($)

 

Bonus 

($)

 

Stock 

Awards

($)

 

Option

Awards

($)

 

Non-Equity 

Incentive

Plan

Compensation

($) 

 

All Other 

Compensation

($)

 

Total

($)

(a)   (b)   (b)   (b)    (b)   (b)    (b)   (b)   (b)
Rondald L. Wheet     2011     $ 0     $ 0     $ 0     $ 0     $ 0     $ 0     $ 0  
Director     2010     $ 0     $ 0     $ 0     $ 0     $ 0     $ 0     $ 0  
      2009     $ 0     $ 0     $ 0     $ 0     $ 0     $ 0     $ 0  
                                                                 
Thomas M. Beahm     2011     $ 0     $ 0     $ 0     $ 81,050     $ 0     $ 0     $ 81,050  
Director     2010     $ 0     $ 0     $ 0     $ 0     $ 0     $ 0     $ 0  
      2009     $ 0     $ 0     $ 0     $ 0     $ 0     $ 0     $ 0  
                                                                 
Thomas O’Brien (1)     2011     $ 0     $ 0     $ 0     $ 0     $ 0     $ 0     $ 0  
Former Director     2010     $ 0     $ 0     $ 0     $ 0     $ 0     $ 0     $ 0  
      2009     $ 0     $ 0     $ 0     $ 0     $ 0     $ 0     $ 0  

 

  (1) Mr. O’Brien resigned from his position as a member of the board of directors on September 21, 2011.

 

Employment Agreements

 

Employment Agreement with Rondald L. Wheet, Chief Executive Officer

 

Effective March 31, 2008, the Company and Mr. Wheet, our CEO, entered into a three (3) year employment agreement. The agreement provides for an annual salary of $225,000. He is responsible for the Company’s substantive and financial reporting requirements of the Securities Exchange Act of 1934, as amended, and is specifically allowed to hire any and all professionals necessary to assist that process. The Company will provide him with all reasonable and customary fringe benefits, including, but not limited to, participation in pension plans, profit sharing plans, employee stock ownership plans, stock option plans (whether statutory or not), stock appreciation rights plans, hospitalization, medical dental disability and life insurance, car allowance, vacation and sick leave. The Company will reimburse of all his reasonable and necessary travel, entertainment or other related expenses incurred by him in carrying out his duties and responsibilities under the agreement. The Company will also provide him with a cell phone, suitable office space, and membership dues in professional organizations and for any seminars and conferences related to Company business. This employment agreement has been extended on a month-to-month periodic basis and both parties agreed to operate in good faith to work under this extension until a new employment agreement can be consummated.

 

37
 

 

Mr. Wheet may elect, by written notice to the Company, to terminate his employment with continued pay through the employment agreement term if (i) the Company sells all of its assets, (ii) the Company merges with another business entity with a change in control, (iii) more than 50% of the outstanding stock is acquired by a third party, (iv) the Company requires Mr. Wheet to relocate or assigns duties not commensurate with his position as CEO, (v) Mr. Wheet is removed from the Board of Directors and (vi) the Company defaults in making payments required to Mr. Wheet under this agreement. For two years following his resignation or termination, Mr. Wheet will not work for or provide any services in any capacity to any competitor and will not solicit any of the Company’s customers or accounts.

 

Employment Agreement with Burt Hodges, Chief Financial Officer

 

Pursuant to the Employment Agreement, Mr. Hodges is to receive as compensation (i) $165,000 in base salary; (ii) stock options to purchase 500,000 shares of the Company’s common stock at an exercise price of $0.50 per share; and (iii) other benefits consistent with other executive officers of the Company.

 

Employment Agreement with Vincent Olmo, Chief Operating Officer

 

Pursuant to the Employment Agreement, Mr. Olmo is to receive as compensation (i) $165,000 in base salary; (ii) stock options to purchase 500,000 shares of the Company’s common stock at an exercise price of $0.50 per share; and (iii) other benefits consistent with other executive officers of the Company.

 

Item 13. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

 

The following table sets forth, as of March 30, 2012, the number of shares of our common stock owned by (i) each person who is known by us to own of record or beneficially five percent (5%) or more of our outstanding shares, (ii) each of our directors, (iii) each of our executive officers and (iv) all of our directors and executive officers as a group. Unless otherwise indicated, each of the persons listed below has sole voting and investment power with respect to the shares of our common stock beneficially owned.

Name and Address (1)  

Beneficial

Relationship to Company

 

Outstanding

Common
Stock

   

Percentage of

Ownership of

Common
Stock

(3)

 
                 
Rondald L. Wheet   Chief Executive Officer, Chairman     4,312,000       7.50 %(2)
                     
Dr. Thomas Beahm   Director     2,169,599       3.77 %
                     
Burt Hodges   Chief Financial Officer     20,000 (4)     * %
                     
Vincent Olmo   Chief Operating Officer     5,000 (5)     * %
                     
Thomas O’Brien         3,645,625       6.34 %(2)
                     
Officers and Directors (4 persons)   -     6,506,599       11.31 %

 

* less than 1%

 

(1)Unless otherwise indicated, the address of each beneficial owner listed above is c/o Rondald L. Wheet, Revolutions Medical Corporation, 670 Marina Drive, 3rd Floor, Charleston, SC 29492.
(2)This percentage does not include shares of Preferred Stock or options to purchase shares of common stock.
(3)Based on 57,505,476 shares outstanding as of March 30, 2012.
(4)This total does not include options to purchase 800,000 shares of the Company’s common stock.
(5)This total does not include options to purchase 1,500,000 shares of the Company’s common stock.

 

38
 

 

 

DESCRIPTION OF SECURITIES

 

General

 

We are authorized to issue an aggregate number of 255,000,000 shares of capital stock, of which 250,000,000 shares are common stock, $0.001 par value per share, and 5,000,000 shares are preferred stock, $0.001 par value per share.

 

Common Stock

 

We are authorized to issue 250,000,000 shares of common stock, par value $0.001 per share, of which 57,505,476 shares were outstanding as of March 30, 2012.

 

Holders of our common stock are entitled to one vote per share on all matters submitted to a vote of the shareholders. Shares of our common stock do not have cumulative voting rights, which mean that the holders of a majority of the shareholder votes eligible to vote and voting for the election of the board of directors can elect all members of the board of directors. Holders of a majority of the issued and outstanding shares of common stock may take action by written consent without a meeting. Upon any liquidation, dissolution or winding up, holders of shares of our common stock are entitled to receive pro rata all of our assets available for distribution to shareholders. Holders of our common stock do not have any preemptive rights to subscribe for or to purchase any stock, obligations or other securities.

 

Preferred Stock

 

The Company has 5,000,000 shares of preferred stock ($0.001 par value) authorized. When the Company issues its preferred stock, it is designated with the year of when it is issued. As of March 30, 2012, there were 1,000,000 shares of preferred stock outstanding. On October 24, 2006, the Company designated 1,000,000 shares as Series 2006 Preferred Stock, which were then issued to Mr. Wheet, the Company’s Chief Executive Officer. Each share of preferred stock is convertible, at any time at the discretion of Mr. Wheet, into one share of the Company’s common stock for each share of series of preferred share. Each series of preferred stock has voting rights of 125 votes per share of series preferred voting together as one class with the Company’s common stock. As a result, Mr. Wheet has effective voting control of the Company’s common stock and as such can unilaterally decide on business matters. Upon conversion of the series preferred, each share of common stock resulting from the conversion shall be entitled to one vote per share-not 125 votes per share.

 

Common Stock Options and Warrants Outstanding

 

As of March 30, 2012, there were 17,973,750 options outstanding, which consisted of options to purchase common stock at exercise prices ranging from .08-.50 cents per share, all of which are exercisable. 6,453,750 options still outstanding were granted in 2007 and 2008 at a weighted average price of .08 per share and are considered in the money as of March 30, 2012. 2, 500,000 options issued in 2011 exercisable at .15 cents per share are considered in the money. An additional 1,500,000 options issued at an exercise price of .25 cents are considered in the money. 3,650,000 options issued in 2010 and 2011 at an exercise price of .30 cents are considered out of the money. 3,870,000 options exercisable at $0.50 per share are considered out of the money. 12,253,750 of the options, as of February 10, 2012, were granted to officers and directors. Additionally, under the terms of certain 2009 and 2010 private placement agreements, 1,989,900 warrants were issued with an exercise price of $0.50 cents and an expiration date of March 31, 2012. Of those warrants, 117,400 have been exercised. 1,500,000 warrants with various expiration dates and exercise prices ranging from $0.50 cents to $5.00 were issued to MIG according to the terms of the manufacturing agreement signed September 17, 2010. These warrants are presently in dispute. 600,000 warrants were issued in 2012 according to the terms of two convertible debt agreements. These warrants expire on December 31, 2012. 300,000 of these warrants are exercisable at $0.25 cents and 300,000 are exercisable at $0.50.

 

Item 13. Certain Relationships and Related Transactions, and Director Independence.

 

Related Transactions

 

On September 1, 2009, the Company entered into a five (5) year lease agreement with Osprey South, LLC (“Osprey”), to lease the property at 670 Marina Drive, Suite 301, Building F, Charleston, South Carolina, 29492. The leased property is approximately 2,395 square feet. During the course of the five (5) year lease, ending on August 31, 2014, the Company is to pay Osprey $4,500 in monthly rental installments payable on the first day of each succeeding month. On July 1, 2011, the Company entered into a lease with Osprey for the office space adjacent to the existing office space on the third floor at 670 Marina Drive. The leased property is approximately 2,395 square feet. During the course of the five (5) year lease, ending on July 1, 2016, the Company is to pay Osprey $4,500 in monthly rental installments payable on the first day of each succeeding month. The Company paid $99,608 in office rent to Osprey South, LLC for 2011. Ron Wheet, the Company’s Chief Executive Officer, is the sole member of Osprey South, LLC. The contract is a triple net lease with terms based upon market rates for class A office space at the time of the lease signing.

 

39
 

 

Director Independence

 

The common stock of the Company is currently quoted on the OTCQB, an exchange which currently does not have director independence requirements.  On an annual basis, each director and executive officer will be obligated to disclose any transactions with the Company in which a director or executive officer, or any member of his or her immediate family, have a direct or indirect material interest in accordance with Item 407(a) of Regulation S-K.  Following completion of these disclosures, the Board will make an annual determination as to the independence of each director using the current standards for “independence” that satisfy both the criteria for the Nasdaq and the American Stock Exchange.

 

As of December 31, 2011, the Board determined that the following director is independent under these standards:

 

Thomas M. Beahm

 

Item 14. Principal Accounting Fees and Services.

 

Audit Fees

 

Audit Fees consist of assurance and related services that are reasonably related to the performance of the audit or review of our financial statements. This category includes fees related to the performance of audits and attest services not required by statute or regulations, and accounts consultations regarding the application of GAAP to proposed transactions. The aggregate Audit Fees billed for the fiscal years ended December 31, 2011 and 2010 were $3,000 and $12,063, respectively.

 

Audit Related Fees

 

The aggregate fees billed for assurance and related services by our principal accountant that are reasonably related to the performance of the audit or review of our financial statements, other than those previously reported in this Item 14, for the fiscal years ended December 31, 2011 and 2010 were $18,229 and $11,000.

 

Tax Fees

 

Tax Fees consist of the aggregate fees billed for professional services rendered by our principal accounts for tax compliance, tax advice, and tax planning. These services include preparation for federal and state income tax returns. The aggregate Tax Fees billed for the fiscal years ended December 31, 2011 and 2010 were $-0- and $-0-, respectively.

 

Audit Committee Pre-Approval Policies and Procedures

 

Effective May 6, 2003, the SEC adopted rules that require that before our auditor is engaged by us to render any auditing or permitted non-audit related service, the engagement be:

 

·approved by our audit committee; or

 

·entered into pursuant to pre-approval policies and procedures established by the audit committee, provided the policies and procedures are detailed as to the particular  service,  the  audit committee is informed of each service, and such policies and procedures do not include delegation of the audit committee's responsibilities to management.

 

We do not have an audit committee. Our entire board of directors pre-approves all services provided by our independent auditors.

 

40
 

 

PART IV

 

Item 15. Exhibits, Financial Statement Schedules.

 

Exhibit No.   Description
     
3.1   Amended and Restated Articles of Incorporation, dated November 24, 2010 (filed as Exhibit 3.1 on Form 10-K for the year ended December 31, 2010, as filed with the SEC on March 30, 2011)
     
3.2   Bylaws (filed as Exhibit 2.2 to our Amended Form 10-SB filed August 15, 2001)
     
4.1   Form of Common Stock Certificate (filed as Exhibit 3.1 to our Form 10-SB filed December 23, 1999)
     
4.2   $1,050,000 Convertible Promissory Note, dated February 24, 2011 (filed as Exhibit 4.2 on Form S-1, as filed with the SEC on April 6, 2011)
     
10.1   Joint Venture Agreement with Globe, dated November 3, 2006 (as filed as Exhibit 10.1 of the Company's Form 10-QSB for the quarter ended September 30, 2006, filed with the SEC on November 17, 2006)
     
10.2   Safety Scalpel Joint Venture agreement with Globe dated August 11, 2006 (as filed as Exhibit 10.2 of the Company's Form 10-QSB for the quarter ended June 30, 2006, filed with the SEC on August 19, 2006)
     
10.3   Employment Agreement with Rondald L. Wheet (as filed as Exhibit 10.3 of the Company's Form 10-KSB for the year ended December 31, 2007)
     
10.4   Employment Agreement with Burt Hodges (as filed as Exhibit 10.1 of the Company’s Form 8-K filed June 7, 2011)
     
10.5   Mutual Release and Settlement Agreement between the Company and Gifford M. Mabie, dated April 14, 2006 (as filed as Exhibit 10.13 of the Company's Form 10-KSB for the year ended December 31, 2004, filed with the SEC on April 15, 2006)
     
10.6   Agreement and Plan of Merger between Cerro Mining Corporation and the Company. dated May 9, 1997 (filed as Exhibit 6.6 to our Form 10-SB filed December 23, 1999)
     
10.7   Agreement and Plan of Merger between Clear Image Acquisition Corporation and the Company dated January 26, 2007 (filed as Exhibit 10.6 to our Form 8-K filed January 26, 2007)
     
10.8   Employment Agreement with Vincent L. Olmo (as filed as Exhibit 10.1 to the Company's Form 8-K filed April 15, 2011)
     
10.9   Drawdown Equity Financing Agreement, dated April 22, 2010, by and between the Company and Auctus Private Equity Fund, LLC (filed as Exhibit 10.1 to our Form 8-K, filed April 26, 2010)
     
10.10   Registration Rights Agreement, dated April 22, 2010, by and between the Company and Auctus Private Equity Fund, LLC (filed as Exhibit 10.2 to our Form 8-K, filed April 26, 2010)
     
10.11   Registration Rights Agreement, dated February 24, 2011, by and between the Company and JMJ Financial, Inc. (filed as Exhibit 10.11 on Form S-1, as filed with the SEC on April 6, 2011)
     
10.12   Committed Equity Facility Agreement, dated December 29, 2011, by and between Revolutions Medical Corporation and TCA Global Credit Master Fund, LP (filed as Exhibit 10.12 to our Form S-1, filed February 14, 2012)
     
10.13   Registration Rights Agreement, dated December 29, 2011, by and between Revolutions Medical Corporation and TCA Global Credit Master Fund, LP (filed as Exhibit 10.13 to our Form S-1, filed February 14, 2012)
     
31.1   Certification by the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14 (a)). *
     
31.2   Certification by the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14 (a)). *
     
32.1   Certification by the Principal Executive Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *
     
32.2   Certification by the Principal Financial Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *

 

41
 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

  

  REVOLUTIONS MEDICAL CORPORATION
       
Date: March 30, 2012 By:  /s/ Rondald L. Wheet  
    Name: Rondald L. Wheet  
   

Title: Chief Executive Officer

      (Principal Executive Officer)

 

  

Date: March 30, 2012 By:  /s/ Burt Hodges  
    Name: Burt Hodges  
   

Title: Chief Financial Officer

      (Principal Financial Officer)

      (Principal Accounting Officer)

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Name   Position   Date
         
/s/ Rondald L. Wheet   Chief Executive Officer and Chairman   March 30, 2012
Rondald L. Wheet        
         
/s/ Dr. Thomas Beahm   Director   March 30, 2012
Dr. Thomas Beahm        
         
/s/ Burt Hodges   Chief Financial Officer   March 30, 2012
Burt Hodges        
         
/s/ Vincent Olmo   Chief Operating Officer   March 30, 2012
Vincent Olmo        

 

42
 

 

PART F/S

 

INDEX TO FINANCIAL STATEMENTS

 

AUDITED FINANCIAL STATEMENTS

 

Independent Registered Public Accounting Firm   F-2
     
Balance Sheets At December 31, 2011 and 2010   F-3
     
Statements Of Operations  From Inception (August 16, 1996) Through December 31, 2011 And For The Years Ended December 31, 2011 and 2010   F-4
     
Statements Of Cash Flows From Inception (August 16, 1996) Through December 31, 2011 And For The Years Ended December 31, 2011 and 2010   F-5 - F-6
     
Statements Of Shareholders' Equity From Inception (August 16, 1996) Through December 31, 2011   F-7- F-14
     
Notes to Financial Statements   F-15 - F-28

 

F-1
 

  

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Shareholders of Revolutions Medical Corporation:

 

We have audited the accompanying consolidated balance sheets of Revolutions Medical Corporation (formerly Maxxon, Inc.) (a development stage company) for the years ended December 31, 2011 and 2010, and the related statements of operations, shareholders’ equity, and cash flows for the years ended December 31, 2011 end 2010 and for the period from December 16, 1996 (inception) to December 31, 2011. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

 

We conducted our audit in accordance with auditing standards of the Public Company Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Revolutions Medical Corporation as of December 31, 2011, and the results of its operations and its cash flows for the years ended December 31, 2011 and 2010 and for the period from December 16, 1996 (inception) to December 31, 2011 in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency, which raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters also are described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

 

  /s/ Hood & Associates CPAs, P.C.  
     
  Hood & Associates CPAs, P.C.  
  Certified Public Accountants  
     
  March 30, 2012  
  Tulsa, Oklahoma  

 

F-2
 

  

REVOLUTIONS MEDICAL CORPORATION

 (A Development Stage Company)

 

BALANCE SHEET

As of December 31, 2011 and 2010

   As of December 31, 2011 
   2011   2010 
ASSETS          
           
Current assets:          
Cash and cash equivalents  $4,844   $69,517 
Due from litigation   311,000    0 
Prepaid expenses   312,501    278,757 
Other current assets   25,000    25,000 
Total current assets   653,345    373,274 
           
Property and equipment, net   1,185,664    812,479 
Other   116,426    25,000 
Goodwill   23,276    23,276 
           
Total assets  $1,978,711   $1,234,029 
           
LIABILITIES AND STOCKHOLDERS' EQUITY          
           
Current liabilities:          
Accounts payable and accrued liabilities  $719,901   $384,984 
Credit cards   59,217    14,167 
Accrued salaries   120,000    246,225 
Accrued interest payable   64,670    1,323 
Convertible promissory notes, net of discounts of $307,126 and $91,818, respectively   80,535    33,182 
Embedded conversion option liabilities   442,311    160,659 
Note payable for Gifford Mabie   807,640    740,569 
Total current liabilities   2,294,274    1,581,109 
           
Total liabilities   2,294,274    1,581,109 
           
Stockholders' equity:          
           
Preferred stock - $0.001 par value, 5,000,000 shares authorized; 1,000,000 shares  issued and outstanding   1,000    1,500 
Common stock - $0.001 par value; 250,000,000 shares authorized; 54,729,606 and 42,869,909 shares outstanding at December 31, 2011 and 2010, respectively.   54,730    42,870 
Treasury stock       (969)
Additional paid-in capital   29,463,498    25,226,031 
Accumulated deficit   (29,834,791)   (25,616,512)
Total stockholders' deficit   (315,563)   (347,080)
           
 Total liabilities and stockholders’ equity  $1,978,711   $1,234,029 

 

F-3
 

 

REVOLUTIONS MEDICAL CORPORATION

 (A Development Stage Company)

 

STATEMENTS OF OPERATIONS

From Inception (August 16, 1996) Through December 31, 2011 and

For The Years Ended December 31, 2011 and 2010 

 

   FROM INCEPTION
(AUGUST 16, 1996)
THROUGH
DECEMBER 31,
2011
   YEAR ENDED
DECEMBER 31,
2011
   YEAR ENDED
DECEMBER 31, 2010
 
             
Revenue  $   $   $ 
Cost of revenue            
 Gross profit (loss)            
EXPENSES               
Research and development   2,955,237    111,832    257,350 
Depreciation and Amortization   102,140    17,023    6,049 
General and administrative expenses   26,261,003    3,714,214    2,109,555 
Total operating expenses   29,318,381    3,843,069    2,372,954 
                
Operating loss   (29,318,381)   (3,843,069)   (2,372,954)
 Non-operating income (expense):               
Interest income   17,286    10     
Investment income   170,753         
Other Income   34,573        23,440 
 Interest expense and late fees   (902,193)   (567,081)   (216,671)
Embedded derivative expense   (310,720)   (250,727)   (48,861)
Gain from litigation   311,000    311,000     
Gain on extinguishment of debt   (152,914)        
Gain on disposal of assets   794         
Adjustment to fair value of derivatives   131,589    131,589     
 Total non-operating income (expense)   (699,832)   (375,209)   (242,092)
Net loss before minority interest   (30,018,213)   (4,218,278)   (2,615,046)
                
Minority interest   (183,422)        
                
Net gain/loss  $(29,834,791)  $(4,218,278)  $(2,615,046)
                
Weighted average shares outstanding   37,754,982    49,149,099    36,762,006 
                
Net loss per share (Note 1)  $(0.79)  $(0.09)  $(0.07)

 

The accompanying notes are an integral part of the interim financial statements

 

F-4
 

 

REVOLUTIONS MEDICAL CORPORATION

(A Development Stage Company)

 

STATEMENTS OF CASH FLOWS

From Inception (August 16, 1996) Through December 31, 2011 and

 For The Years Ended December 31, 2011 and 2010

 

   FROM INCEPTION
(AUGUST 16,1996)
THROUGH
DECEMBER 31, 2011 
   YEARS ENDED 
       DECEMBER 31, 2011   DECEMBER 31, 2010 
OPERATING ACTIVITIES               
Net loss  $(29,834,790)  $(4,218,278)  $(2,615,046)
Adjustments to reconcile net loss to net cash used for operating activities:               
Stock compensation expense   2,018,280         
Depreciation and amortization   91,842    6,735    6,049 
Purchase R&D - Clear Image   3,309,514         
Common stock issued for services   5,583,362    481,100    810,773 
Preferred stock issued for services   270,000         
Expenses paid by third parties   57,134         
Contribution of services by officer and employees   799,154         
Services by officer and employees paid for with non-cash consideration   694,661    527,161     
Compensation cost for option price reduction   50,000         
Amortization debt discounts   (340,308)   (215,308)   (125,000)
Amortization of options and common stock issued for services   1,775,577         
Allowance for doubtful accounts   50,900         
Gain on extinguishment of debt   (10,398)        
Write-off of Notes Receivable   14,636         
Write-off of Notes Payable   (8,239)        
Write-off of organizational costs   3,196         
Write-off of zero value investments   785,418         
Write-off of leasehold improvements and computer equipment   2,006         
Compensation costs for stock options and warrants granted to non-employees   1,573,913    368,898     
Adjustment for fair value of derivatives   (10,239)       (10,239)
SEC settlement Gifford Mabie   67,072    67,072     
Change in working capital accounts:               
(Increase) decrease in prepaid expenses   (33,744)   (33,744)     
(Increase) decrease in receivables from related parties   (95,706)   (1,600)   (25,205)
(Increase) decrease in goodwill   (23,276)        
(Increase) decrease in other receivables   (761,938)   (311,000)   (274,361)
Increase (decrease) in accrued salaries and consulting   (147,397)   (126,225)   (215,224)
Increase (decrease) in accrued interest   205,847    63,347    51,323 
Increase (decrease) in accounts payable and accrued liabilities   2,794,736    381,567    1,188,405 
                
Total operating activities   (11,118,787)   (3,010,275)   (1,208,525)
                
INVESTING ACTIVITIES               
Purchase of property and equipment   (1,229,423)   (340,321)   (782,375)
License and patents   (126,426)   (91,426)    
Investment in Ives Health Company   (251,997)   -    - 
Investment in The Health Club   (10,000)   -    - 
 Leasehold improvements   (39,600)   (39,600)    
Total investing activities   (1,657,446)   (471,347)   (782,375)

 

F-5
 

 

REVOLUTIONS MEDICAL CORPORATION

(A Development Stage Company)

 

STATEMENTS OF CASH FLOWS (Continued)

From Inception (August 16, 1996) Through December 31, 2011 and

 For The Years Ended December 31, 2011 and 2010

 

   FROM INCEPTION
(AUGUST 16,1996)
THROUGH
DECEMBER 31, 2011
   YEARS ENDED 
       DECEMBER 31,
2011
   DECEMBER 31, 2010 
             
FINANCING ACTIVITIES               
Loans from shareholders   15,707        1,800 
Repayment of loans from shareholders   (8,005)        
Repayments of Promissory Notes   57,325         
Common stock subscribed   546,500         
Sale of preferred stock for cash:   (1,000)        
Sale of common stock for cash:               
To third-party investors (prior to merger)   574,477         
To third-party investors   5,743,214    202,570    1,529,991 
From exercise of stock options and warrants   3,997,588    1,679,420    96,201 
Less: Issue Costs   (102,318)        
Common Stock issued for payment of debt   1,261,219    895,053    366,166 
Convertible debentures issued for cash   617,661    262,661     
Payment of exclusive license note payable   (100,000)        
Beneficial conversion feature   94,624    94,624     
Derivative liability   281,652    281,652     
Treasury Stock       969    (969)
Total financing activities   12,978,644    3,416,949    1,993,189 
Minority interest   (197,567)   -    - 
Change in cash   4,844    (64,673)   2,289 
Cash at beginning of period       69,517    67,228 
Cash at end of period  $4,844   $4,844   $69,517 
                
Supplemental disclosure of cash flow information:               
Cash paid for interest and taxes during the period   57,571    -    - 
                
Non-cash financing and investing activities:               
Investment in Globe Joint Venture   (637,566)   -    - 
Common stock issued to founders   7,000    -    - 
Common stock issued in connection with merger with Cerro Mining Corporation   300    -    - 
20 to 1 reverse stock split   138,188    -    - 
Common stock issued in Ives merger   346,262    -    - 
Common stock subscriptions   69,800    -    - 
Capitalized compensation cost for options granted   1,784,171    296,471    - 
Common stock issued in exchange for promissory note   676,500    -    - 
Common stock issued for payment of debt   152,553    -    - 
Common stock issued for convertible debentures   969,499    503,839    - 
Common stock issued for embedded derivatives   381,887    381,887    - 
Common stock issued for services   1,965,716    479,586    - 
Common stock issued to pay Ives debt   27,000    -    - 
Common stock issued to Clear Image shareholders under short form merger   12,208    -    - 

 

The accompanying notes are an integral part of the interim financial statements

 

F-6
 

  

REVOLUTIONS MEDICAL CORPORATION

(A Development Stage Company)

 

STATEMENTS OF STOCKHOLDERS’ EQUITY

From Inception (August 16, 1996) Through December 31, 2011

 

   Preferred
Shares
   Stock
Amount
   Common
Shares
   Stock
Amount
   Paid-In
Capital
   Deficit
Accumulated
during the
Development
Stage
   Subscription
Receivable
   Total 
Balance at Inception
(August 16, 1996)
   -    -    -    -    -    -    -    - 
Cerro Mining/Maxxon-
OK Merger:
                                        
Cerro Mining   -    -    531,000    531    (231)   -    -    300 
Maxxon-OK:                                        
Shares issued to founders   -    -    7,000,000    7,000    -    -    -    7,000 
Shares sold for cash to third-party investors   -    -    578,000    578    573,899    -    -    574,477 
Ives Transactions:                                        
Investment in Ives Health Company   -    -    311,240    311    310,951    -    -    311,261 
Investment in The Health Club   -    -    35,000    35    34,965    -    -    35,000 
Conversion of Ives Debt   -    -    18,513    19    26,981    -    -    27,000 
Issuance of Common Stock for:                                        
Cash from third-party investors   -    -    218,569    219    353,501    -    -    353,720 
Cash from related party Promissory Notes   -    -    64,500    65    128,935    -    -    129,000 
Subscriptions Receivable   -    -    52,757    53    69,747    -    -    (69,800)
Services Rendered   -    -    90,499    90    173,337    -    -    173,427 
Debentures Converted   -    -    102,673    103    74,897    -    -    75,000 
Net Income (Loss) at December 31, 1997   -    -    -    -    -    (795,376)   -    (795,376)
                                         
Balance at December 31, 1997   -    -    9,002,751    9,003    1,746,982    (795,376)   (69,800)   890,808 
Issuance of Common Stock for:                                        
Conversion of Ives Debt   -    -    44,827    45    54,955    -    -    55,000 
Cash from third- party investor   -    -    50,000    50    90,950    -    -    91,000 
Options exercised by third-parties for cash   -    -    545,867    546    359,354    -    -    359,900 
Options exercised by third-parties for services   -    -    24,133    24    18,076    -    -    18,100 
Services Rendered by third-parties   -    -    988,007    988    573,560    -    -    574,549 
Debentures Converted by third parties   -    -    548,574    549    274,451    -    -    275,000 
Settlement with related party   -    -    350,000    350    -    -    -    350 
Certificates canceled:   -    -    (91,572)   (92)   (40,173)   -    -    (40,265)
Value of Services Contributed by Officer and Employees   -    -    -    114,154         -    -    114,154 
Compensation Cost for Stock Options Granted To Non-Employees   -    -    -    -    918,187    -    -    918,187 
Cancellation of Subscriptions Receivable from related party   -    -    -    -              69,800    69,800 
Net Income (Loss) at December 31, 1998   -    -    -    -    -    (2,584,383)   -    (2,584,383)
Balance at December 31, 1998   -    -    11,462,587    11,463    4,110,497    (3,379,759)   0    742,201 

 

The accompanying notes are an integral part of the interim financial statements

 

F-7
 

  

REVOLUTIONS MEDICAL CORPORATION

(A Development Stage Company)

 

STATEMENTS OF STOCKHOLDERS’ EQUITY (continued)

From Inception (August 16, 1996) Through December 31, 2011

 

   Preferred
Shares
   Stock
Amount
   Common
Shares
   Stock
Amount
   Paid-In
Capital
   Deficit
Accumulated
during the
Development
Stage
   Subscription
Receivable
   Total 
Issuance of Common Stock for:                                        
Cash from third-party investor   -    -    390,693    390    342,034    -    -    342,424 
Less: Issue Costs   -    -    -    -    (16,743)   -    -    (16,743)
Options exercised by third-parties for cash   -    -    300,000    300    149,700    -    -    150,000 
Services Rendered by third-parties   -    -    164,069    164    166,579    -    -    166,743 
Value of Services Contributed by Officer and Employees   -    -    -    -    280,000    -    -    280,000 
Compensation Cost for Stock options Granted to Non-Employees   -    -    -    -    89,728    -    -    89,728 
Net Income (Loss) at December 31, 1999   -    -    -    -    (1,014,555)   -    -    (4,014,555)
Balance at December 31, 1999   -    -    12,317,349    12,317    5,121,795    (4,394,314)   0    739,798 
Issuance of Common Stock for:                                        
Cash from third-party investor   -    -    862,776    863    249,525    -    -    250,388 
Less: Issue CostsValue of Services Contributed by Officer and Employees   -    -    -    -    405,000    -    -    405,000 
Net Income (Loss) at December 31, 2000   -    -    -    -         (1,347,859)   -    (1,347,859)
Balance at December 31, 2000   -    -    13,180,125    13,180    5,776,320    (5,742,173)   0    47,327 
Issuance of Common Stock for:                                        
Cash from third-party investor   -    -    6,558,333    6,558    1,598,142    -    -    1,604,700 
Purchased by Employees   -    -    3,650,000    3,650    543,850    -    (547,500)   - 
Issued for Repayment of Debt   -    -    50,000    50    7,450    -    -    7,500 
Less: Issue Costs   -    -    -    -    (85,575)   -    -    (85,575)
Services Rendered by third-parties   -    -    450,000    450    422,000    -    -    422,450 
Compensation Cost of stock issued and options granted for services   -    -    200,000    200    1,487,500    -    -    1,487,700 
Compensation Cost of stock issued and options granted for services to be amortized   -    -    -    -    (1,048,754)   -    -    (1,048,754)
Net Income (Loss) at December 31, 2001   -    -    -    -    (2,199,085)   -    -    (2,199,085)
Balance at December 31, 2001   -    -    24,088,458    24,088    8,700,933    (7,941,258)   (547,500)   236,263 
Issuance of Common Stock for:                                        
Cash from third-party investor   -    -    3,625,000    3,625    358,875    -    -    362,500 
Exercise of Options   -    -    2,006,822    2,007    (2,007)   -    -    - 
Payment towards promissory note balances   -    -    -    -    -    -    102,803    102,803 
Amortized Compensation                                        
Cost of stock issued and options granted for services   -    -    -    -    759,795    -    -    759,795 
                                         
Compensation Cost of stock issued and options granted for services   -    -    1,200,000    1,200    323,300    -    -    324,500 
Net Income (Loss)at December 31, 2002   -    -             -    (1,933,676)   -    (1,933,676)
Balance at December 31, 2002   -    -    30,920,280    30,920    10,140,896    (9,874,934)   (444,697)   (147,815)

 

The accompanying notes are an integral part of the interim financial statements

 

F-8
 

  

REVOLUTIONS MEDICAL CORPORATION

(A Development Stage Company)

 

STATEMENTS OF STOCKHOLDERS’ EQUITY (continued)

From Inception (August 16, 1996) Through December 31, 2011

 

   Preferred
Shares
   Stock
Amount
   Common
Shares
   Stock
Amount
   Paid-In
Capital
   Deficit
Accumulated
during the
Development
Stage
   Subscription
Receivable
   Total 
Issuance of Common Stock for:                                
MPI settlement costs of stock issued  and options granted for services           1,140,000    1,140    139,560            140,700 
Compensation cost of stock issued and options granted for services           7,000,000    7,000    133,000            140,000 
Amortized compensation cost of stock  issued and options  granted for services                   288,959            288,959 
Indemnification cost of stock issued and options granted for services           4,000,000    4,000    76,000            80,000 
Payment towards  promissory note  balances                       69,201         69,201 
Net Income (Loss) at  December 31, 2003                       (1,391,518)       (1,391,519)
Balance at December  31, 2003           43,060,280    43,060    10,778,415    (11,266,452)   (375,496)   (820,473)
Issuance of Common Stock for:                                        
Cash from third- party investor           100,000    100    4,900            5,000 
Exercise of Options           5,866,000    5,866    248,234            254,100 
Exercise of Warrants           1,462,000    1,462    71,638        (1,000)   72,100 
Compensation cost of stock issued for services           32,850,000    32,850    881,150            914,000 
Payment towards promissory  note balances                           18,750    18,750 
Net Income (Loss) at  December 31, 2004                       (1,552,008)       (1,552,008)
Balance at December  31, 2004           83,338,280    83,338    11,984,337    (12,818,460)   (357,746)   (1,108,531)
Issuance of Common  Stock for Cash:                                        
From third-party  investors           13,039,187    13,039    277,661            290,700 
From the exercise of options           1,800,000    1,800    43,200            45,000 
Issuance of Common  Stock for  Subscription           5,200,000    5,200    28,800        (34,000)    
Common stock  issued for services           21,250,000    21,250    455,250            476,500 
Common stock  issued  pursuant to Joint Venture           5,833,331    5,833    132,000            137,833 
Value of warrants  granted  pursuant to Joint  Venture                   499,733            499,733 
Value of options  granted  for services                   130,900            130,900 
Reclassification  of receivables against amounts owed                           357,746    357,746 
Net Income (Loss) at December 31, 2005                       (1,310,783)       (1,310,783)
Balance at December  31, 2005           130,460,798    130,460    13,551,881    (14,129,243)   (34,000)   (480,902)

 

The accompanying notes are an integral part of the interim financial statements

 

F-9
 

  

REVOLUTIONS MEDICAL CORPORATION

(A Development Stage Company)

 

STATEMENTS OF STOCKHOLDERS’ EQUITY (continued)

From Inception (August 16, 1996) Through December 31, 2011

 

   Preferred
Shares
   Stock
Amount
   Common
Shares
   Stock
Amount
   Paid-In
Capital
   Deficit
Accumulated
during the
Development
Stage
   Subscription
Receivable
   Total 
Issuance of
Common Stock:
                                        
From the exercise of options for services           1,000,000    1,000                1,000 
From the exercise of options for cash           3,000,000    3,000    72,000            75,000 
From the exercise of warrants           6,000,000    6,000                 
Payment of Common Stock Subscription                           34,000    34,000 
Common Stock issued for services           5,500,000    5,500    102,000            107,500 
Preferred Stock issued for services   1,000,000    1,000            19,000            19,000 
Capital contributed by shareholder                   3,000            3,000 
Cancellation of Joint Venture with Globe                   (625,066)           (625,066)
Common stock issued to Globe then returned to treasury           (500,000)   (500)   (12,000)           (12,500)
Compensation cost for option price reduction                   50,000             
Net Income (Loss) a December 31, 2006                       (598,302)       (598,302)
Balance at December 31, 2006   1,000,000    1,000    145,460,798    145,460    13,160,815   $(14,727,545)       (1,427,270)
From the exercise of Issuance of Common Stock: Reverse stock split (1 for 20)           (138,187,826)   (138,188)   138,188             
Sale of common stock for cash:           845,000    845    299,155            300,000 
Issuance of common stock for Clear Image stock           8,273,788    8,274    3,301,241            3,309,515 
Stock compensation                   223,246            223,246 
Issuance of Common Stock:                                        
From the exercise of options for cash           125,000    125    9,875            10,000 
warrants           345,662    346    6,568            6,914 
Common Stock issued for services           1,225,000   $1,225    388,775            390,000 
Issuance of restricted stock           40,000    40   $9,960            10,000 
Net Income (Loss) at December 31, 2007                      $(4,475,017)       (4,475,017)
unknown                               (7,000)
BALANCE AT DECEMBER 31, 2007   1,000,000    1,000    18,127,422   $18,127   $17,537,824   $(19,202,563)      $(1,645,612)

 

The accompanying notes are an integral part of the interim financial statements  

 

F-10
 

 

 

 

REVOLUTIONS MEDICAL CORPORATION

(A Development Stage Company)

 

STATEMENTS OF STOCKHOLDERS’ EQUITY (continued)

From Inception (August 16, 1996) Through December 31, 2011

 

   Preferred
Shares
   Stock
Amount
   Common
Shares
   Stock
Amount
   Paid-In
Capital
   Deficit
Accumulated
during the
Development
Stage
   Subscription
Receivable
   Total 
From the exercise of Issuance of Common Stock:                                        
Sale of common stock for cash:           4,720,978   $4,722    300,101            304,823 
Issuance of Common Stock:                                        
From the exercise of options for cash           2,300,000    2,300    395,317            397,617 
Common Stock issued for services           1,419,704    1,419    258,501            259,920 
Common Stock issued for repayment of debt           271,491    271    132,759            133,030 
Common Stock issued to Clear Image investors to participate in the merger           43,600    44    12,164            12,208 
Stock compensation                   342,801            342,801 
Acquired deficit of former Minority interest now Owned 100%                                
Net Income (Loss) at December 31, 2008                       (1,335,154)       (1,335,154)
BALANCE AT DECEMBER 31, 2008   1,000,000   $1,000    26,883,195   $26,883   $18,769,691   $(20,537,771)      $(1,740,143)

 

The accompanying notes are an integral part of the interim financial statements

 

F-11
 

  

REVOLUTIONS MEDICAL CORPORATION

(A Development Stage Company)

 

STATEMENTS OF STOCKHOLDERS’ EQUITY (continued)

From Inception (August 16, 1996) Through December 31, 2011

 

   Preferred
Shares
   Stock Amount   Common
Shares
   Stock
Amount
   Paid-In
Capital
   Deficit
Accumulated
during the
Development
Stage
   Subscription
Receivable
   Total 
From the exercise of Issuance of Common Stock:                                        
Sale of common stock for cash:           7,954,424   $7,954    1,495,751            1,503,705 
From the exercise of options for cash           6,751,250    6,751    2,367,789            2,374,540 
Preferred Stock issued for services   1,500,000    1,500            268,500            268,500 
Common Stock issued for services           2,049,704    2,049    587,171            589,220 
Common Stock issued for repayment of debt           271,491    271    132,759            133,030 
Common Stock issued to Clear Image investors to participate in the merger           43,600    44    12,164            12,208 
Stock compensation                   342,801            342,801 
Acquired deficit of former Minority interest now Owned 100%                   (209,776)           (209,776)
Net Income (Loss) at December 31, 2009                       (2,463,751)       (2,463,751)
BALANCE AT DECEMBER 31, 2009   1,500,000   $1,500    35,197,891   $35,198   $22,515,983   $(23,001,468)      $(448,786)

 

The accompanying notes are an integral part of the interim financial statements

 

F-12
 

  

REVOLUTIONS MEDICAL CORPORATION

(A Development Stage Company)

 

STATEMENTS OF STOCKHOLDERS’ EQUITY (continued)

From Inception (August 16, 1996) Through December 31, 2011

 

   Preferred
Shares
   Stock
Amount
   Common
Shares
   Stock
Amount
   Paid-In
Capital
   Deficit
Accumulated
during the
Development
Stage
   Treasury Stock
Reserved
   Total 
From the exercise of Issuance of Common Stock:                                        
Sale of common stock for cash:           4,810,287   $4,810    1,525,181            1,529,991 
From the exercise of options for cash           150,000    150    37,350            37,500 
From exercise of warrants for cash           117,400    117    58,583            58,700 
Common Stock issued for services           2,194,891    2,194    558,578            560,772 
Common Stock issued for repayment of debt           799,441    799    530,039             530,838 
Common Stock issued to Clear Image investors to participate in the merger                                
Treasury Stock                           (969)   (969)
Acquired deficit of former Minority interest now Owned 100%                                
Net Income (Loss) at December 31, 2010