U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended: June 30, 2008
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
Commission File No. 0-11808
WOUND MANAGEMENT TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Texas 59-2220004
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
777 Main Street
Suite 3100
Fort Worth, Texas 76102
(Address of principal executive offices)
(817) 820-7080
(Registrant's telephone number, including area code)
MB SOFTWARE CORPORATION
(Former name, if changed since last report)
Indicate by check mark whether the registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the past 12 months (or for shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes [X] No [ ]
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
the definitions of "accelerated filer," "large accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer |_| Accelerated filer |_|
Non-accelerated filer |_| Smaller reporting company [X]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
As of August 6, 2008, 24,695,692 shares of the Issuer's $.001 par value common
stock were outstanding.
WOUND MANAGEMENT TECHNOLOGIES, INC. AND SUBSIDIARY
Form 10-Q
Quarter Ended June 30, 2008
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Consolidated Balance Sheets as of June 30, 2008 (Unaudited)
December 31, 2007 (Audited).........................................3
Consolidated Statements of Operations for the six and three months ended
June 30, 2008 and 2007 (Unaudited).....................................5
Consolidated Statements of Cash Flows for the six months ended
June 30, 2008 and 2007 (Unaudited).....................................6
Condensed Notes To Consolidated Financial Statements...........................8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS......................................................9
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK............13
ITEM 4T. CONTROLS AND PROCEDURES..............................................13
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings.................................................13
ITEM 1A. Risk Factors......................................................13
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.......13
ITEM 3. Defaults Upon Senior Securities...................................14
ITEM 4. Submission of Matters to a Vote of Security Holders...............14
ITEM 5. Other Information.................................................14
ITEM 6. Exhibits..........................................................14
SIGNATURE.....................................................................15
2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
WOUND MANAGEMENT TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
UNAUDITED FOR THE SIX MONTHS ENDED JUNE 30, 2008
AND AUDITED FOR THE YEAR ENDED DECEMBER 31, 2007
--------------------------------------------------------------------------------
ASSETS
------ June 30, December 31,
2008 2007
------------ ------------
CURRENT ASSETS:
Cash $ 92,544 $ 781
Accounts Receivable, less doubtful accounts 38,745 24,668
Line of Credit Receivable-Related Party 789,850 81,650
Inventory, less reserve for obsolescence 234,324 263,276
Other Assets 12,020 12,020
------------ ------------
Total current assets
1,167,483 382,395
Property and Equipment, Net 21,167 23,335
------------ ------------
TOTAL ASSETS $ 1,188,650 $ 405,730
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
----------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 83,296 $ 110,107
Accrued liabilities 353,594 326,649
Accrued interest 23,836 --
Accrued interest-related parties 244,998 274,680
Notes payable 710,000 10,000
Note payable -related parties 327,780 1,498,074
------------ ------------
Total current liabilities 1,743,504 2,219,510
Long-Term Liabilities -- --
------------ ------------
TOTAL LIABILITIES
1,743,504 2,219,510
Stockholders' Deficiency
Preferred stock, $10 par value,
5,000,000 shares authorized; 0 shares
issued and outstanding as of
June 30, 2008 and 1,000 outstanding
December 31, 2007
-- 10,000
3
Common stock: $0.001 par value;
100,000,000 shares authorized;
24,699,781 issued and 24,695,692
outstanding as of June 30, 2008 and
16,145,432 issued and 16,141,343
outstanding as of December 31, 2007 24,699 16,145
Additional paid-in capital 13,018,606 11,171,496
Treasury Stock (12,039) (12,039)
Accumulated deficit (13,586,120) (12,999,382)
------------ ------------
Total stockholders deficiency (554,854) (1,813,780)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
DEFICIENCY $ 1,188,650 $ 405,730
============ ============
The accompanying notes are an integral part of
these consolidated financial statements.
4
WOUND MANAGEMENT TECHNOLOGIES, INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2008 AND 2007
-------------------------------------------------------------------------------------------------------------------
Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
REVENUES: June 30, 2008 June 30, 2007 June 30, 2008 June 30, 2007
------------ ------------ ------------ ------------
Total Revenue $ 75,130 $ 300,105 $ 138,400 $ 384,046
Cost of Revenue 71,289 110,441 219,525 137,440
------------ ------------ ------------ ------------
Gross Profit(Loss) 3,841 189,664 (81,125) 246,606
GENERAL AND ADMINISTRATIVE EXPENSES:
General and Administrative Expenses 218,773 160,006 489,291 359,940
Depreciation 1,084 2,168 2,168 4,336
------------ ------------ ------------ ------------
INCOME (LOSS) FROM CONTINUING OPERATIONS:
(216,016) 27,490 (572,584) (117,670)
OTHER INCOME (EXPENSES):
Interest Income 23,275 -- 40,016 --
Interest Expense (40,764) (43,640) (54,170) (71,733)
------------ ------------ ------------ ------------
LOSS BEFORE INCOME TAXES (233,505) (16,150) (586,738) (189,403)
Current tax expense -- -- -- --
Deferred tax expense -- -- -- --
------------ ------------ ------------ ------------
NET LOSS
$ (233,505) $ (16,150) $ (586,738) $ (189,403)
Basic and diluted loss per share of common stock: $ (0.01) $ -- $ (0.03) $ (0.01)
Weighted average number of common shares outstanding 19,747,388 16,141,343 18,389,918 16,141,343
The accompanying notes are an integral part of
these consolidated financial statements.
5
WOUND MANAGEMENT TECHNOLOGIES, INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30:
------------------------------------------------------------------------------------
2008 2007
----------- -----------
Cash flows from operating activities
------------------------------------
Net loss from continuing operations $ (586,738) $ (189,403)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 2,168 4,337
Stock paid for services 50,000 --
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (14,077) (107,729)
(Increase) decrease in inventory 28,952 (106,480)
(Increase) decrease in prepaid expenses and other
assets -- (41,824)
Increase (decrease) in accounts payable and accrued
liabilities (32,657) 96,542
Increase (decrease) in royalties payable, including
related accrued interest 26,945 35,463
----------- -----------
Net cash flows used in operating activities (525,407) (309,094)
Cash flows from investing activities
------------------------------------
Increase in line of credit-Related Party (708,200) --
----------- -----------
Net cash flows used in investing activities (708,200) --
Cash flows from financing activities
------------------------------------
Net advances - related parties-line of credit 325,370 86,296
Proceeds from unrelated party notes payable 700,000 --
Sale of stock for cash 300,000 --
----------- -----------
Net cash flows provided by financing activities 1,325,370 86,296
----------- -----------
Increase (decrease) in cash 91,763 (222,798)
Cash and cash equivalents, beginning of period 781 236,301
----------- -----------
Cash and cash equivalents, end of period $ 92,544 $ 13,503
=========== ===========
Cash paid during the period for:
--------------------------------
Interest -- --
Income taxes -- --
6
Supplemental Non-cash investing and financing activities:
For the six months ended June 30, 2008:
The Company issued 490.196 shares
of Series A Preferred stock for debt
reduction of $1,495,664
The Company converted 1,490.196
shares of Series A Preferred stock for
7,600,000 shares of Common Stock.
For the six months ended June 30, 2007:
None
The accompanying notes are an integral part of
these consolidatedfinancial statements.
WOUND MANAGEMENT TECHNOLOGIES, INC. AND SUBSIDIARY
JUNE 30, 2008
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 1- BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United States
of America for interim financial information and with the instructions to Form
10-Q. They do not include all information and notes required by accounting
principles generally accepted in the United States of America for complete
financial statements.
In the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position,
results of operations and cash flows for all periods presented have been made.
Preparing financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenue and
expenses. Actual results may differ from these estimates. The results of
operations for the period ended June 30, 2008 are not necessarily indicative of
the operating results that may be expected for the entire year ending December
31, 2008. These financial statements should be read in conjunction with the
Management's Discussion and Analysis and with the Company's financial statements
and accompanying notes thereto as of and for the year ended December 31, 2007,
filed with the Company's Annual Report on Form 10-K.
NOTE 2- GOING CONCERN
The financial statements have been prepared on a going concern basis, which
contemplates realization of assets and liquidation of liabilities in the
ordinary course of business. The Company has continuously incurred losses from
operations and has a significant accumulated deficit. The appropriateness of
using the going concern basis is dependent upon the Company's ability to obtain
additional financing or equity capital and, ultimately, to achieve profitable
operations. These conditions raise substantial doubt about its ability to
continue as a going concern.
It is the Company's belief that it will continue to incur losses for at least
the next twelve months, and as a result will require additional funds from debt
or equity investments to meet such needs. To meet these objectives, management's
plans are to (i) raise capital by obtaining financing from debt financing and /
or equity financing through private placement efforts, (ii) issue common stock
for services rendered in lieu of cash payments and (iii) obtain loans from
shareholders as necessary. Without realization of additional capital or
significant revenues from operations, it would be unlikely for the Company to
continue as a going concern. The Company anticipates that its shareholders will
contribute sufficient funds to satisfy the cash needs of the Company for the
next twelve months. However, there can be no assurances to that effect, as the
Company has minimal revenues and the Company's need for capital may change
dramatically if it is successful in expanding its current business or acquiring
a new business. If the Company cannot obtain needed funds, it may be forced to
curtail or cease its activities.
Management believes that actions presently taken to revise the Company's
operating and financial requirements provide the opportunity for the Company to
continue as a going concern. The Company's future ability to achieve these
objectives cannot be determined at this time. The accompanying financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
7
WOUND MANAGEMENT TECHNOLOGIES, INC. AND SUBSIDIARY
QUARTER ENDED JUNE 30, 2008
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 3 - CURRENT NOTES PAYABLE
Accrued Total
Interest Debt
-------- --------
Island Capital $ 503 $ 10,000
Investment Firm, unsecured, payable on June 30, 2008
including interest at 10% per annum, currently in default 23,333 700,000
======== ========
$ 23,836 $710,000
======== ========
NOTE 4 - RELATED PARTY NOTES PAYABLE AND OTHER TRANSACTIONS
Notes Payable
Funds are advanced from various related parties including the Company's
President and CEO/CFO. Other shareholders fund the Company as necessary to meet
working capital requirements and expenses. The advances are made pursuant to a
note agreement that bears interest at 10% per annum, payable quarterly, and with
maturity dates through June 30, 2008 per the table below. All notes are current
liabilities and some of the notes are currently in default. Accrued interest due
to related parties included in accrued liabilities as of June 30, 2008 was
approximately $244,998. The following is a summary of amounts due to / from
related parties as of June 30, 2008:
Related party Nature of relationship Terms of the agreement Amounts due to
related parties
------------------------- ----------------------------- ----------------------------------------------- -----------------
HEB, LLC, a Nevada Scott Haire, is a Series of funds advanced under two separate, $ 325,370
Limited Liability one-percent unsecured $1 million lines of credit dated
Company Member, but the managing November 26, 2003 and November 4, 2004,
member of HEB, LLC both at 10% per annum; no maturity date,
interest payable quarterly; unused lines
available at June 30,2008 total $1,674,631.
eAppliance Payment Controlling owners in Note dated January 1, 2004 for $2,410 at 10%
Solutions, LLC a Nevada eAppliance Payment per annum; $10,000 line of credit. 2,410
Limited Liability Solutions, LLC are Cossutta
Company and Haire -----------
$ 327,780
===========
Notes Receivable
During January 2008, the Company extended a Line of Credit to HEB, LLC in the
amount of $1,000,000. Interest is accrued on outstanding balances at 10% per
annum. The amount advanced and receivable on the Line was $789,850 and $0 with
interest income of $40,016 and $0 for the six months ended June 30, 2008 and
2007 respectively.
8
NOTE 5- STOCK ISSUANCES
Effective January 1, 2008 the Company issued 490.196 shares of $10.00 par value
preferred stock for related party debt totaling $1,495,664 or $3,051.15 per
share. The following notes payable and lines of credit were converted: Scott
Haire $10,000 note dated July 11, 2005, at 10% per annum, due December 31, 2008;
Araldo Cossutta six separate, unsecured notes as follows: (i)$75,000 note dated
September 30, 2004, at 10% per annum, due December 31, 2008; (ii)$80,000 note
dated September 14, 2005, at 10% per annum, due December 31, 2008; (iii)
$350,000 note dated October 15, 2007 at 10% per annum, due December 31, 2008;
(iv) $42,000 note dated April 5, 2005 at 10% per annum, due December 31, 2008;
(v) $50,000 note dated January 4, 2006, at 10% per annum , due December 31, 2008
and (vi) $50,000 note dated January 31, 2006 due December 31, 2008. Series of
funds advanced $338,664 under two separate, unsecured $ 1 million lines of
credit dated November 26, 2003 and November 4, 2004, both from HEB, LLC at 10%
per annum; no maturity date, interest payable quarterly. Keystone Equity
Partners Investors note dated December 14, 2006 for $500,000 at 10% per annum;
due December 31, 2008.
On January 11, 2008, the Company issued 86,702 shares of common stock for cash
of $50,000 or $.58 per share.
On January 21, 2008, the Company issued 500,000 shares of common stock for
services valued at $50,000 or $.10 per share.
On January 31, 2008, the Company entered into a subscription agreement to issue
367,647 shares of common stock for cash of $250,000 or $.68 per share. The
Company has received payment on the agreement but hasn't issued the stock as of
June 30, 2008.
On May 27, 2008, 1,490.196 shares of Series A Convertible Preferred Stock, which
represented all of the Company's outstanding Series A preferred stock, were
automatically converted into an aggregate of 7,600,000 shares of common stock
when the Company filed an amendment to its Articles of Incorporation increasing
the authorized number of shares of common stock from 20,000,000 to 100,000,000.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Introduction
Management's discussion and analysis of results of operations and financial
condition is provided as a supplement to the accompanying consolidated financial
statements and footnotes to help provide an understanding of our financial
condition, changes in financial condition and results of operations.
Caution Concerning Forward-Looking Statements/Risk Factors
The following discussion should be read in conjunction with the financial
statements and the notes thereto and the other financial information appearing
elsewhere in this document. In addition to historical information, the following
discussion and other parts of this document contain certain forward-looking
information. When used in this discussion, the words "believes," "anticipates,"
"expects," and similar expressions are intended to identify forward-looking
statements. Such statements are subject to certain risks and uncertainties,
which could cause actual results to differ materially from those projected due
to a number of factors beyond our control. We do not undertake to publicly
update or revise any of our forward-looking statements even if experience or
future changes show that the indicated results or events will not be realized.
You are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. You are also urged to
carefully review and consider our discussions regarding the various factors that
affect our business, included in this section and elsewhere in this report.
Factors That Could Affect Future Results
We face an inherent risk of exposure to product liability claims in the event
that the use of our products results in injury. Such claims may include, among
others, that our products contain contaminants or include inadequate
instructions as to use or inadequate warnings concerning side effects and
interactions with other substances. We do not anticipate obtaining contractual
indemnification from parties supplying raw materials or marketing our products.
In any event, any such indemnification if obtained would be limited by our terms
and, as a practical matter, to the creditworthiness of the indemnifying party.
In the event that we do not have adequate insurance or contractual
indemnification, product liabilities relating to defective products could have a
material adverse effect on our operations and financial condition.
9
Because of our dependence upon consumer perceptions, adverse publicity
associated with illness or other adverse effects resulting from the use of our
products or any similar products distributed by other companies could have a
material adverse effect on our operations. Such adverse publicity could arise
even if the adverse effects associated with such products resulted from
consumers' failure to consume such products as directed. In addition, we may not
be able to counter the effects of negative publicity concerning the efficacy of
our products. Any such occurrence could have a negative effect on our
operations.
Other key factors that affect our operating results are as follows:
o Overall customer demand and acceptance for our various products.
o Volume of products ordered and the prices at which we sell our
products.
o Our ability to manage our cost structure for capital expenditures and
operating expenses such as salaries and benefits, freight and
royalties.
o Our ability to match operating costs to shifting volume levels.
o Increases in the cost of raw materials and other supplies.
o The impact of competitive products.
o Limitations on future financing.
o Increases in the cost of borrowings and unavailability of debt or
equity capital.
o Our inability to gain and/or hold market share.
o Exposure to and expense of resolving and defending product liability
claims and other litigation.
o Managing and maintaining growth.
o The success of product development and new product introductions into
the marketplace.
o The departure of key members of management.
o Our ability to efficiently manufacture our products.
o Unexpected customer bankruptcy.
OVERVIEW AND PLAN OF OPERATION
Our current focus is developing and marketing products for the advanced wound
care market, as pursued through our wholly-owned subsidiary, Wound Care
Innovations, LLC, a Nevada limited liability company. We hold the exclusive
worldwide license to certain patented technologies and processes related to an
advanced collagen based wound care product formulation, which we market under
the brand name "CellerateRx(TM)". These products are FDA cleared for marketing
for the following indications: pressure ulcers, diabetic ulcers, surgical
wounds, ulcers due to arterial insufficiency, traumatic wounds, 1st and 2nd
degree burns, and superficial wounds.
Our CellerateRx products are currently marketed to and being used by wound care
providers of all types. These products are also approved for reimbursement under
Medicare Part B and as a consequence, the professional medical market is, and
will remain the primary focus of our marketing and sales efforts for the
immediate future. We believe that these products are unique in composition,
applicability, clinical performance, and demonstrate the ability to reduce costs
associated with standard wound management.
We currently have limited business operations, maintaining leased offices in
Fort Worth, Texas and Fort Lauderdale, Florida. All of our major business
functions are performed by our subsidiary, Wound Care Innovations, LLC. Although
Wound Care Innovations is a product distributor, it is also responsible for
product packaging development, packaging materials, and coordination of all
processes except the actual manufacturing of the product. Wound Care Innovations
also conducts other activities that are typical of a product distributor,
including sales, marketing, customer service, and customer support. All of these
activities are run and managed out of Wound Care Innovations' Fort Lauderdale
offices.
Manufacturing of our products is conducted by Applied Nutritionals. CellerateRx
is a trademark of Applied Nutritionals, LLC. Warehousing, shipping, and physical
inventory management is outsourced to Diamond Contract Manufacturing of
Rochester, NY.
Our sales and marketing activities to date have been limited and have resulted
in a nominal revenue stream. Through these activities, we have, however, secured
product evaluations with a number of key accounts. These accounts are regional
and national healthcare provider organizations that represent strong recurring
revenue opportunities for the Company.
We currently intend to secure capital resources for expansion of staff,
inventories, marketing efforts, and research and development; however we may be
unsuccessful in our efforts to secure such capital. If we are successful in
10
raising capital, we anticipate hiring a number of management, marketing, and
clinical staffs to secure additional accounts, market to the broader US wound
care market, support customers in specific geographies, broaden our
clinical/educational programs, and evaluate retail and international market
opportunities.
Results of Operations
Six months ended June 30, 2008 and 2007
Revenues. The Company generated revenues for the six months ended June 30, 2008
of $138,400 (2007: $384,046), a decrease of approximately 64% from the same
period in 2007.
Cost of revenues and gross margin. Costs of revenues for 2008 were $219,525
(2007: $137,440) resulting in a gross margin/(loss) of ($81,125) (2007:
$246,606).
Selling, general and administrative expenses ("SGA"). SGA for 2008 were $489,291
(2007: $359,940) consisting primarily of wages, enhanced product promotions,
facility-related expenses, and outside professional services such as legal and
professional fees incurred in connection with our SEC reporting requirements. We
expect selling, general and administrative expenses to increase as we continue
to expand our marketing efforts and the number of products we offer.
LIQUIDITY AND CAPITAL RESOURCES
The Company currently has limited resources to maintain its current operations,
secure more inventories, and meet its contractual obligations. Additional
capital must be raised through equity or debt offerings. If we are unable to
obtain additional capital, we will be unable to operate our business. Effective
January 1, 2008, $1,495,664 of Company debt was cancelled in exchange for
490.196 shares of our Series A Convertible Preferred stock.
Effective January 11, 2008, we received $50,000 from the sale and issuance of
86,702 shares of our common stock and warrants to purchase common stock, and an
additional $700,000 from the sale and issuance of a convertible promissory note.
On January 31, 2008, the Company received $250,000 from the sale of 367,647
shares of common stock.
Without realization of additional capital or significant revenues from
operations, it would be unlikely for the Company to continue as a going concern.
The consolidated financial statements have been prepared on a going concern
basis, which contemplates realization of assets and liquidation of liabilities
in the ordinary course of business. The Company has continuously incurred losses
from operations and has a significant accumulated deficit. The appropriateness
of using the going concern basis is dependent upon the Company's ability to
obtain additional financing or equity capital and, ultimately, to achieve
profitable operations. These conditions raise substantial doubt about its
ability to continue as a going concern. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty and
should not be regarded as typical for normal operating periods.
It is the Company's belief that it will continue to incur nominal losses for at
least the next twelve months, and as a result will require additional funds from
debt or equity investments to meet such needs. The Company anticipates that its
officers and shareholders will contribute sufficient funds to satisfy the cash
needs of the Company for the next twelve months. However, there can be no
assurances to that effect, as the Company has insignificant revenues and the
Company's need for capital may change dramatically if it is successful in
acquiring a new business. If the Company cannot obtain needed funds, it may be
forced to curtail or cease its activities. Our future funding requirements will
depend on numerous factors, some of which are beyond the Company's control.
These factors include our ability to operate profitably, recruit and train
management and personnel, and to compete with other, better-capitalized and more
established competitors. To meet these objectives, management's plans are to (i)
raise capital by obtaining financing through private placement efforts, (ii)
issue common stock for services rendered in lieu of cash payments and (iii)
obtain loans from officers and shareholders as necessary.
The Company does not anticipate incurring significant research and development
costs, the purchase of any major equipment, or any significant changes in the
number of its employees over the next twelve months.
11
GOING CONCERN
The Company has continuously incurred losses from operations and has a
significant accumulated deficit. The appropriateness of using the going concern
basis is dependent upon the Company's ability to obtain additional financing or
equity capital and, ultimately, to achieve profitable operations. These
conditions raise substantial doubt about its ability to continue as a going
concern. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
It is the Company's belief that it will continue to incur nominal losses for at
least the next twelve months, and as a result will require additional funds from
debt or equity investments to meet such needs. Without realization of additional
capital, it would be unlikely for the Company to continue as a going concern.
The Company anticipates that its officers and shareholders will contribute
sufficient funds to satisfy the cash needs of the Company for the next twelve
months. However, there can be no assurances to that effect, as the Company has
insignificant revenues and the Company's need for capital may change
dramatically if it is successful in acquiring a new business. If the Company
cannot obtain needed funds, it may be forced to curtail or cease its activities.
To meet these objectives, management's plans are to (i) raise capital by
obtaining financing through private placement efforts; (ii) issue common stock
for services rendered in lieu of cash payments and (iii) obtain loans from
officers and shareholders as necessary.
The Company's future ability to achieve these objectives cannot be determined at
this time. The accompanying financial statements do not include any adjustments
that might result from the outcome of this uncertainty and should not be
regarded as typical for normal operating periods.
Contractual Obligations (Commitments And Contingencies)
Operating leases
The Company leases office space and office equipment under an operating lease
expiring in various years through 2009. Rental expense charged to operations for
the six months ended June 30, 2008, was approximately $24,800 (2007: $42,000).
Minimum future rental payments under non-cancelable operating leases having
remaining terms in excess of 1 year as of June 30, 2008, for each of the next
two years and in the aggregate are as follows (approximately):
2009 $ 39,000
2010 --
--------
$39,000
========
Federal Payroll Taxes
The Company is delinquent in the payment of its payroll tax liabilities with the
Internal Revenue Service. As of June 30, 2008, unpaid payroll taxes total
approximately $203,000. The Company has estimated the related penalties and
interest at approximately $145,000 computed through June 30, 2008, which are
included in current liabilities at June 30, 2008. The Company expects to pay
these delinquent payroll tax liabilities as soon as possible. The final amount
due will be subject to the statutes of limitations related to such liabilities
and to negotiations with the Internal Revenue Service.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, we are not required to provide this information.
ITEM 4T. CONTROLS AND PROCEDURES
CONTROLS AND PROCEDURES
As of the end of the period covered by this report, the Company conducted an
evaluation, under the supervision and with the participation of the principal
executive officer, who is also the principal financial officer, of the Company's
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934 (the "Exchange Act")). Based on this
evaluation, the principal executive officer/principal financial officer
concluded that the Company's disclosure controls and procedures are effective to
ensure that information required to be disclosed by the Company in reports that
12
it files or submits under the Exchange Act is recorded, processed, summarized
and reported within the time periods specified in Securities and Exchange
Commission rules and forms.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
During the second quarter of 2008, there was no change in the Company's internal
control over financial reporting that has materially affected, or is reasonably
likely to materially affect, the Company's internal control over financial
reporting.
MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal
control over financial reporting. Under the supervision and with the
participation of our management, including our chief executive officer and chief
financial officer, we evaluated the effectiveness of the design and operation of
our internal control over financial reporting based on the framework in Internal
Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on that evaluation, our chief
executive officer and chief financial officer concluded that our internal
control over financial reporting was effective as of June 30, 2008.
This quarterly report does not include an attestation report of the Company's
registered public accounting firm regarding internal control over financial
reporting. Management's report was not subject to attestation by the Company's
registered public accounting firm pursuant to temporary rules of the Securities
and Exchange Commission that permit the Company to provide only management's
report in this quarterly report.
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings - None
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
Effective January 1, 2008, $1,495,664 of Company debt was cancelled in exchange
for 490.196 shares of our Series A Convertible Preferred stock.
Effective January 11, 2008, we received $50,000 from the sale and issuance of
86,702 shares of our common stock and warrants to purchase common stock, and an
additional $700,000 from the sale and issuance of a convertible promissory note.
January 31, 2008, the Company received $250,000 from the sale of 367,647 shares
of common stock.
On May 27, 2008, 1,490.196 shares of Series A Convertible Preferred Stock, which
represented all of the Company's outstanding Series A preferred stock, were
automatically converted into an aggregate of 7,600,000 shares of common stock
when the Company filed an amendment to its Articles of Incorporation increasing
the authorized number of shares of common stock from 20,000,000 to 100,000,000.
The foregoing issuance of the shares of our common stock, the convertible
promissory notes and the warrants described above were made in private
transactions or private placements intending to meet the requirements of one or
more exemptions from registration. In addition to any noted exemption below, we
relied upon Regulation D and Section 4(2) of the Securities Act of 1933, as
amended (the "Act"). The investors were not solicited through any form of
general solicitation or advertising, the transactions being non-public
offerings, and the sales were conducted in private transactions where the
investor identified an investment intent as to the transaction without a view to
an immediate resale of the securities; the shares were "restricted securities"
in that they were both legended with reference to Rule 144 as such and the
investors identified they were sophisticated as to the investment decision and
in most cases we reasonably believed the investors were "accredited investors"
as such term is defined under Regulation D based upon statements and information
supplied to us in writing and verbally in connection with the transactions. We
have never utilized an underwriter for an offering of our securities and no
sales commissions were paid to any third party in connection with the
above-referenced sales.
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ITEM 3. Defaults Upon Senior Securities - None
ITEM 4. Submission of Matters to a Vote of Security Holders
On May 13, 2008 the Company filed an Information Statement with the Commission
in connection with a written consent of shareholders holding 12,110,148 shares
of the Company's common stock and 490.196 shares of Series A Convertible
Preferred Stock., par value $10.00 per share with respect to approving:
(1) An amendment to the Company's Articles of Incorporation to (A) rename
the Company "Wound Management Technologies, Inc., and (B) increase the
authorized number of shares of common stock from 20,000,000 to 100,000,000; and
(2) The re-election of the Company's six members of the Board of Directors
for another one-year term.
The shares of common stock and preferred stock represented by the written
consent represented approximately 60% of the votes then entitled to be cast by
shareholders with respect to the above-described actions, which was sufficient
to approve such actions. No proxies were solicited, nor received by the Company
and no votes were cast in opposition of the above described actions.
ITEM 5. Other Information - None
ITEM 6. Exhibits
(a) Exhibits
31 Certification pursuant to Rule 13a-14(a)/15d-14(a)
32 Certification of Principal Executive Officer and Principal Financial
Officer in accordance with 18 U.S.C. Section 1350, as adopted by
Section 906 of the Sarbanes-Oxley Act of 2002
SIGNATURES
Pursuant to the requirements of the Exchange Act of 1934, the registrant has
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
WOUND MANAGEMENT TECHNOLOGIES, INC.
Date: August 12, 2008 /s/ Scott A. Haire
---------------------
Scott A. Haire, Chairman of the Board,
Chief Executive Officer and President
(and Principal Financial Officer)
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