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EXCEL - IDEA: XBRL DOCUMENT - Revolutions Medical CORPFinancial_Report.xls

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q/A
(Amendment No. 2)

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

For the quarter ended: March 31, 2011

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from ___________ to____________

Commission File Number: 000-28629

REVOLUTIONS MEDICAL CORPORATION
(Exact Name of Registrant in its Charter)

NEVADA
 
73-1526138
(State or other jurisdiction of
 
(IRS Employer I.D. No.)
incorporation)
   

670 MARINA DRIVE, 3RD FLOOR
CHARLESTON, SC 29492
(Address of principal executive offices and Zip Code)

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

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 past 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes x   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   x   No   ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See the definitions 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
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 October 18, 2011, there were 52,242,644 shares outstanding of the registrant’s common stock.

 
 

 

EXPLANATORY NOTE

This Amendment No. 2 to Revolution Medical Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2011, is being provided in order to amend and restate (i) the unaudited financial statements and footnotes thereto within Item 1 – Financial Information, (ii) corresponding changes in Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations, and (iii) amendments to Item 4 – Controls and Procedures.  Such amendments referenced in (i) and (ii) above are necessary in order to include changes made to the 2010 financial statements recognizing the embedded derivatives included in the convertible debt agreement issued to Asher Enterprises, Inc.  (See NOTE 9 –RESTATEMENT).
 
 
 

 

TABLE OF CONTENTS
 
PART I - FINANCIAL INFORMATION
3
     
ITEM 1.
FINANCIAL STATEMENTS.
3
     
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
18
     
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
22
     
ITEM 4.
CONTROLS AND PROCEDURES.
22
     
PART II - OTHER INFORMATION
24
     
ITEM 1.
LEGAL PROCEEDINGS.
24
     
ITEM 1A.
RISK FACTORS.
24
     
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
24
     
ITEM 3.
DEFAULTS UPON SENIOR SECURITIES.
24
     
ITEM 4.
(REMOVED AND RESERVED).
24
     
ITEM 5.
OTHER INFORMATION.
24
     
ITEM 6.
EXHIBITS.
24

 
2

 

PART I. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS.
 
REVOLUTIONS MEDICAL CORPORATION
(A Development Stage Company)
BALANCE SHEET
(Unaudited)
 
   
March 31,
2011(Restated)
   
December 31,
2010
 
             
ASSETS
           
             
CURRENT ASSETS
           
Cash
  $ 102,024     $ 69,517  
Other Current Assets
    226,556       303,756  
NON-CURRENT ASSETS
               
Fixed Assets
    1,172,945       812,478  
Goodwill
    23,276       23,275  
Intangible Assets, Net
    40,000       25,000  
                 
TOTAL ASSETS
  $ 1,564,801     $ 1,234,028  
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
                 
CURRENT LIABILITIES
               
Accounts payable and accrued liabilities
  $ 403,811     $ 399,151  
Accrued Salaries
    246,225       246,225  
Embedded Derivative Liability
    476,383       160,659  
Notes Payable and Accrued Interest
    892,099       775,073  
                 
Total current liabilities
    2,018,518       1,581,108  
                 
Total liabilities
    2,018,518       1,581,108  
                 
SHAREHOLDERS’ DEFICIENCY
               
Preferred stock, $0.001 par value, 5,000,000 shares authorized; 1,500,000 shares issued and outstanding
    1,500       1,500  
Common stock, $0.001 par value, 250,000,000 shares authorized; 44,190,634 and 42,869,909 shares issued and outstanding at 3/31/11 and 12/31/10, respectively
    44,191       42,869  
Common Stock Subscribed
    339,750          
Treasury Stock
    (969 )     (969 )
Paid in capital
    25,622,098       25,186,271  
Deficit accumulated during the development stage
    (26,460,285 )     (25,576,751 )
                 
Total shareholders’ equity
    (453,715 )     (347,080 )
                 
TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIENCY
  $ 1,564,801     $ 1,234,028  

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

 
3

 

REVOLUTIONS MEDICAL CORPORATION
(A Development Stage Company)
STATEMENTS OF OPERATIONS
(Unaudited)

   
From
Inception
(August 16,
1996)
Through
   
Three Months Ended
March 31,
 
   
March 31,
2011(Restated)
   
2011
(Restated)
   
2010
 
Investment Income
  $ 170,753     $     $  
Other Income
    34,574       21,935        
      205,327       21,935        
EXPENSES
                       
Research and development
    2,843,406              
Purchased R&D
    3,309,515              
General and administrative
    20,000,014       762,740       227,813  
Depreciation and amortization
    86,651       1,534       1,490  
Total operating expenses
    26,239,586       764,274       229,303  
                         
Operating income (loss)
    (26,034,258 )     (742,339 )     (229,303 )
                         
Interest income
    17,277       1        
                         
Interest expense
    363,648       78,536       9,066  
                         
Gain on disposal of assets
    794              
                         
Gain on extinguishment of debt
    (152,914 )            
Adjustment to fair value of derivatives
  $ (110,958 )     (62,659 )   $ 14,266  
                         
Net loss before minority interest
    (26,643,707 )     (883,553 )     (224,103 )
                         
Minority Interest in Subsidiary Loss
    (183,422 )            
                         
Net loss
  $ (26,460,285 )   $ (883,553 )   $ (224,103 )
                         
Weighted average shares outstanding
    37,364,330       44,070,634       35,247,557  
                         
Net loss per share (Note 1)
  $ (0.71 )   $ (.02 )   $ (0.01 )

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

 
4

 
 
REVOLUTIONS MEDICAL CORPORATION
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(Unaudited)

   
From Inception
(August 16, 1996)
Through March
31,
   
Three Months Ended
March 31,
 
   
2011(Restated)
   
2011(Restated)
   
2010
 
OPERATING ACTIVITIES
                 
Loss from operations before minority interest
  $ (26,460,284 )   $ (883,533 )   $ (224,103 )
Plus non-cash charges to earnings
                       
Stock compensation expense
    2,018,280              
Depreciation and amortization
    86,641       1,534       1,490  
Adjustment to fair value of derivatives
    62,659       62,659       (14,266 )
Purchase R&D - Clear Image
    3,309,514              
Common stock issued for services
    5,278,262       301,000        
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
    167,500              
Compensation cost for option price reduction
    50,000              
Amortization of Debt Discounts
    186,612     $ 61,612       9,066  
Amortization of compensation cost for options granted to non-employees 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
    (21,934 )     (21,934 )      
Write-off of Notes Payable
    14,636              
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
    1,205,015              
Change in working capital accounts:
                       
(Increase) decrease in receivables from related parties
    (94,105 )            
Increase in other assets
    4,395       4,395        
(Increase) decrease in goodwill
    (23,276 )            
(Increase) decrease in other receivables
    (452,538 )     (1,600 )      
Increase (decrease) in accrued salaries and consulting
    51,633       72,805       15,000  
Increase (decrease) in accrued interest
    107,774       15,274        
Increase (decrease) in accounts payable and accrued liabilities
    2,419,428       6,259        
Total operating activities
    (8,490,041 )     (381,530 )     (212,813 )
INVESTING ACTIVITIES
                       
Purchase of equipment and furnishings
    (1,251,102 )     (362,000 )      
Investment in patent development
    (50,000 )     (15,000 )      
Investment in Ives Health Company
    (251,997 )            
Investment in The Health Club
    (10,000 )            
Total investing activities
    (1,563,099 )     (377,000 )     (1,509 )
FINANCING ACTIVITIES
                       
Loans from shareholders
    15,707              
Repayment of loans from shareholders
    (8,005 )            
Repayments of Promissory Notes
    57,325              
Common stock subscribed
    886,250       339,750        
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
    5,505,607       176,287       89,000  
From exercise of stock options and warrants
    2,318,168              
Common stock issued for payment of debt
    366,166                  
Less: Issue Costs
    (102,318 )            
Convertible debentures issued for cash
    630,000       275,000       75,000  
Payment of exclusive license note payable
    (100,000 )            
Treasury stock
    (969 )                
Total financing activities
    10,352,731       791,037       164,000  
Minority interest
    (197,567 )              
Change in cash
            32,507       (50,323 )
Cash at beginning of period
          69,517       67,228  
Cash at end of period
  $ 102,024     $ 102,024     $ 16,905  
(Continued)

 
5

 

REVOLUTIONS MEDICAL CORPORATION
(A Development Stage Company)
STATEMENTS OF CASH FLOWS, Continued
(Unaudited)
 
   
From
Inception
(August 16,
1996)
Through
March 31,
   
Three Months Ended
March 31,
 
   
2011
   
2011
   
2010
 
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
    409,550       339,750        
Common stock issued to extinguish debt
                   
Capitalized compensation cost for options granted
    1,487,700              
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
    569,760       379,100        
Common stock issued for services
    1,007,663       301,000        
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

 
6

 
 
REVOLUTIONS MEDICAL CORPORATION
(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS
March 31, 2011
 
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Organization and Nature of Operations

Revolutions Medical Corporation, a Nevada corporation (“the Company” or “RevMed”), 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 March 26, 2007, RevMed completed the acquisition of Clear Image Acquisition Corporation (“Acquisition Corp.”) in exchange for 8,273,788 shares of RevMed common stock.  Acquisition Corp is a company that was formed by certain shareholders of Clear Image, Inc. (“Clear Image”) in order to assemble a control block of the shares of Clear Image for the purposes of such a transaction. The sole asset of Acquisition Corp was a block of 8,260,139 shares of the Common Stock of Clear Image, a development stage company which is developing certain proprietary and patent pending technology related to color MRI scans. The block of Clear Image shares owned by Acquisition Corp represented 62.2% of Clear Image’s outstanding common stock.
 
During the fourth quarter of 2008, the Company commenced a short form merger to acquire the remaining minority interest in Clear Image.  This short form merger was completed by December 2, 2008.  The Company now owns 100% of the former Clear Image.  Clear Images assets have been consolidated on our books and all inter-company transactions have been eliminated.
 
Development Stage Company
 
Since its inception in 1996, the Company has been considered a development stage enterprise for financial reporting purposes as significant efforts have been devoted to raising capital and to research and development of various safety syringes and its proprietary MRI software tools.
 
Cash and Cash Equivalents
 
The Company considers highly liquid investments (those readily convertible to cash) purchased with original maturity dates of three months or less to be cash equivalents.

Generally Accepted Accounting Principles

On July 1, 2009 the Financial Accounting Standards Board (“FASB”) released its Accounting Standards Codification (“ASC”).  The ASC became effective for interim or annual financial statements issued after September 15, 2009.  The ASC is the single source of generally accepted accounting principles.

 
7

 

Income Taxes
 
The Company uses the liability method of accounting for income taxes as set forth in ASC 740, “Income Taxes.” Under the liability method, deferred taxes are determined based on the differences between the financial statement and tax basis of assets and liabilities at enacted tax rates in effect in the years in which the differences are expected to reverse.
 
Segment Information
 
The Company follows the guidance in ASC 280, “Segment Reporting”  The Company identifies its operating segments based on business activities, management responsibility and geographical location. During the period covered by these financial statements, the Company operated in a single business segment engaged in developing selected healthcare products.

Earnings (Loss) per Share
 
The Company computes net income per share in accordance with ASC 260, “Earnings per Share”.  Under these provision basic net income (loss) per share is calculated by dividing net income (loss) available to common stockholders for the period by the weighted average shares of common stock of the Company outstanding during the period. Diluted net income per share is computed by dividing the net income for the period by the weighted average number of common and common equivalent shares outstanding during the period. The calculation of diluted income (loss) per share of common stock assumes the dilutive effect of stock options and warrants outstanding. During a loss period, the assumed exercise of outstanding stock options and warrants has an anti-dilutive effect. Therefore, the outstanding stock options were not included in the March 31, 2011 and December 31, 2010 calculations of loss per share.
 
Use of Estimates
 
The preparation of financial statements in conformity with generally accepted principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported revenues and expenses during the reporting period.  Actual results could differ significantly from those estimates.
 
Reclassifications
 
Certain reclassifications may have been made to the prior year financial statements to conform to the current period presentation.

Valuation of Derivative Instruments

ASC 815-40 (formerly SFAS No. 133 “Accounting for derivative instruments and hedging activities”), requires that embedded derivative instruments be bifurcated and assessed, along with free-standing derivative instruments such as warrants, on their issuance date and in accordance with ASC 815-40-15 (formerly EITF 00-19 “Accounting for derivative financial instruments indexed to, and potentially settled in, a company’s own stock”) to determine whether they should be considered a derivative liability and measured at their fair value for accounting purposes.  In determining the appropriate fair value, the Company uses the Black-Scholes option pricing formula.  At March 31, 2011, the Company adjusted its derivative liability to its fair value, and reflected the change in fair value, in its statement of operations.

Fair Value Measurements

The Company measures its financial assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e. exit price), in an orderly transaction between market participants at the measurement date.  The Company categorizes its assets and liabilities measured at fair value based upon the level of judgment associated with the inputs used to measure the fair value. Level inputs, as defined by ASC 820-10, are as follows:

 
·
Level 1 – quoted prices in active markets for identical assets or liabilities.

 
·
Level 2 – other significant observable inputs for the assets or liabilities through corroboration with market data at the measurement date.

 
·
Level 3 – significant unobservable inputs that reflect management’s best estimate of what market participants would use to price the assets or liabilities at the measurement date.
 
 
8

 
 
The following table summarizes fair value measurements by level at March 31, 2011, for assets and liabilities measured at fair value on a recurring basis:

   
Level 1
   
Level 2
   
Level 3
   
Total
 
Cash and cash equivalents
  $ 102,024     $     $     $ 102,024  
                                 
Derivative liability
  $     $     $ (476,383 )   $ (476,383 )

Derivative liability was valued under the Black-Scholes model with the following assumptions:
 
Risk free interest rate
 
0.19% to 0.22
Expected life
 
0 to 3 years
 
Dividend Yield
    0 %
Volatility
 
0% to 181

The following is a reconciliation of the derivative liability:

Value at December 31, 2010
  $ 160,659  
Issuance of instruments
  $ 337,659  
Decrease in Value
  $ (21,934 )
Reclassification
  $  
Value at March 31, 2011
  $ 476,383  

Notes and Loans Payable

At March 31, 2011 and December 31, 2010, notes and loans payable consist of:

   
March 31,
2011
   
December 31,
2010
 
Convertible Promissory Note Payable to JMJ Financial, secured by the Company’s assets, one time interest charge of 8%, due February 22, 2014
  $ 215,000     $  
Convertible Promissory Note Payable to JMJ Financial, secured by the Company’s assets, one time interest charge of 8%, due February 28, 2014
           
Convertible Promissory Note Payable to Asher Enterprises secured by the Company’s assets,  interest rate of 8.0%  per annum, with payment due on or before July 21, 2011
    125,000       125,000  
Convertible Promissory Note Payable to Asher Enterprises secured by the Company’s assets,  interest rate of 8.0%  per annum, with payment due on or before October 21, 2011
    60,000        
                 
Total
    400,000       125,000  
Less: Unamortized Discount
    (305,202 )     (91,818 )
    $ 94,794     $ 33,182  

Commitments and Contingencies

JMJ Financial

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.

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.

 
9

 

Asher Enterprises, Inc.

The Company entered into a securities purchase agreement with Asher Enterprises, pursuant to which the Company issued a convertible promissory note to Asher Enterprises for an original principal amount of $60,000 on January 19, 2011.  The notes bear interest at a rate of 8% per annum and provide for the payment of all principal and interest 9 months from the date of the notes’ respective issuance.  The amount owed to Asher Enterprises at March 31, 2011, is $185,000. This includes the note issued for $60,000 in 2011 and the October, 2010 note for $125,000. The notes are convertible at the election of Asher Enterprises into that number of shares of the Company’s common stock determined by multiplying 55% by the average of the lowest three closing bid prices of the Company’s common stock on the OTC Markets OTCQB during the 10 business days immediately preceding the date of conversion, subject to adjustment.

Debt Discount

In connection with the $185,000 outstanding from Asher Enterprises pursuant to short-term notes issued on October 19, 2010 and January 19, 2011, we recorded interest expense to amortize the debt discount in the amount of $55,727 during the quarter ended March 31, 2011.

In connection with the sale of a Convertible Promissory Note Agreement on February 22, 2011, with JMJ, relating to a private placement of a total of up to $1,050,000 in principal amount, we recorded interest expense to amortize the debt discount in the amount of $5,885 during the quarter ended March 31, 2011.  This amount is based upon $215,000 we received from this agreement.

There remains a total of $305,202 of debt discount yet to be amortized as of March 31, 2011.

Gifford Mabie Settlement

On April 8, 2008, the Company entered into a Memorandum of Understanding with its former Chief Executive Officer to settle an outstanding obligation through the issuance of its common stock on a quarterly basis commencing May 8, 2008, for one year.  The value of the issuance of the common stock will be determined by the market value of the ten day average price at the time of each quarterly issuance of common stock.  During 2008, the Company issued 271,491 shares at a total value of $133,030 to partially repay this debt.

In 2010, the Company determined the final liability balance upon the complete liquidation of Mr. Mabie’s account and issued 400,000 shares of the Company’s common stock as additional repayment for this debt.  The balance for this settlement debt as of March 31, 2011 is $780,708.

The agreement reached with the SEC on behalf of Gifford Mabie specifies that the Company is to periodically issue shares to the special account for Gifford Mabie in order that 2,500 shares can be sold each day the market is open until the liability is satisfied.  When the 400,000 shares were placed in the special account on December 14, 2010, to be sold over the course of the next 160 days the market was open, an estimated value for these shares was determined based upon the 10 day average share price following the date of issuance.  As of December 31, 2010, the remaining debt to be paid was $740,568 based upon this valuation.  As of March 31, 2011, an adjustment has been made based upon a revised valuation of the shares in the account.  The debt liability as of March 31, 2011, is $780,708.

Share Based Compensation

The Company relies on the guidance provided by ASC 718, (“Share Based Payments”).  ASC 718 requires companies to expense the value of employee stock options and similar awards and applies to all outstanding and vested stock-based awards.

In computing the impact, the fair value of each option is estimated on the date of grant based on the Black-Scholes options-pricing model utilizing certain assumptions for a risk free interest rate; volatility, and expected remaining lives of the awards.  The assumptions used in calculating the fair value of share-based payment awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment.  As a result, if factors change and the Company uses different assumptions, the Company’s stock-based compensation expense could be materially different in the future.

The fair value concepts were not changed significantly in ASC 718; however, in adopting this Standard, companies were given the option to choose among alternative valuation models and amortization assumptions.  We elected to continue to use the Black-Scholes option pricing model and expense the options as compensation over the requisite service period of the grant.  We will reconsider use of the Black-Scholes model if additional information becomes available in the future that indicates another model would be more appropriate, or if grants issued in future periods have characteristics that cannot be reasonably estimated using this model.

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

Periodically, the Company issues consulting agreements to individuals who are obligated under the terms of the agreement, to market the Rev Vac safety syringe within various spheres of influence.  These spheres of influence include, but are not limited to, medical product distributors, hospitals, doctors and government agencies.  Consultants are vetted to the best of the Company’s abilities through due diligence reviews before the Company enters into any agreements.  The purpose of these reviews is to determine a consultant’s ability to market the product for the Company.

The fair value of all stock compensation issued is determined by calculating the difference between the option exercise price and the closing price at the day of the option grant.  Because the options were issued under a limited window for exercise (10 days), with very little expected volatility, no dividend yield and a negligible effect from interest, the value of the option based compensation was recorded as the difference between option exercise price and the closing share price upon the date of the grant.  A valuation of these options was performed using the Black-Scholes model and due to the limited exercise window, the value under this method is the same as the difference between option exercise price and the closing price at the day of the option grant.

 
10

 

Long-Lived Assets

Property, plant and equipment, including significant improvements, are stated at cost. Expenditures for maintenance and repairs are charged to operating expenses as incurred. When properties are retired or otherwise disposed of, the cost of the asset and the related accumulated depreciation are removed from the accounts with the resulting gain or loss being reflected in results of operations.
 
Intangible assets include patents and trademarks, which are valued at acquisition through independent appraisals. Debt issuance costs are amortized over the terms of the various agreements. Patents and trademarks are amortized on a straight-line basis over periods varying from 7 to 40 years.

In 2007, the Company acquired a 62.2% interest in Clear Image, Inc. (“Clear Image”).  Clear Image was a privately held company and was conducting research and development on Color MRI Technology.  Clear Image was not able to secure the funding needed to keep this research and development going into the future.  Clear Image had expensed the research and development costs in accordance with accounting standards in effect at the time. The Company believed it to be advantageous to acquire a controlling interest in Clear Image and keep the technology in development rather than starting all over again.  The Company exchanged approximately 8.2 million of its common shares which were trading between $0.40 and $0.50 at the time of acquisition.  To arrive at a value for the Color MRI Technology the Company and Clear Image determined the amount of funding provided for the research and development of this technology by looking at the amount expended from 1999 until the acquisition date.  The value of the Company’s stock exchanged for the controlling interest exceeded those expensed amounts by approximately $23,000 which was recorded as goodwill because there were no other assets to value.

Critical Accounting Policies

In June 2009, FASB approved the FASB Accounting Standards Codification (“the Codification”) as the single source of authoritative nongovernmental GAAP.  All existing accounting standard documents, such as FASB, American Institute of Certified Public Accountants, Emerging Issues Task Force and other related literature, excluding guidance from the SEC, have been superseded by the Codification.  All other non-grandfathered, non-SEC accounting literature not included in the Codification has become non-authoritative.  The Codification did not change GAAP, but instead introduced a new structure that combines all authoritative standards into a comprehensive, topically organized online database.  The Codification is effective for interim or annual periods ending after September 15, 2009, and impacts our financial statements as all future references to authoritative accounting literature will be referenced in accordance with the Codification.  There have been no changes to the content of our financial statements or disclosures during the quarter ended March 31, 2011, as a result of implementing the Codification.

Date of Management’s Review

Subsequent events have been evaluated through May 16, 2011, the date the financial statements were available to be issued.

 
11

 

NOTE 2 - UNCERTAINTIES
 
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. The Company is in the development stage and has not established sources of revenues to fund the development of business and pay operating expenses, resulting in a cumulative net loss of $(26,460,285) for the period from inception (August 16, 1996) to March 31, 2011. The ability of the Company to continue as a going concern during the next year depends on the successful completion of the Company’s capital raising efforts to fund the development of its retractable safety syringe. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

NOTE 3 - MAXXON/GLOBE JOINT VENTURE AGREEMENT
 
On November 3, 2005, Maxxon and Globe Med Tech, Inc. entered into a definitive joint venture agreement to patent, develop, manufacture, market and distribute safety needle products throughout the world. Maxxon and Globe each own 50% of the joint venture. Maxxon contributed its safety syringe technology and patent rights related thereto and Globe contributed its safety syringe IV catheter and patent rights related thereto. In connection with the agreement, Maxxon issued restricted shares of its common stock, valued at $625,066, to Globe. Subsequent to December 31, 2006, the Company ended the joint venture and cancelled the shares of common stock and options that were issued to Globe pursuant to the agreement. On March 1, 2007, the Company filed a lawsuit in the District Court of Tulsa County, Oklahoma against Globe Med Tech, Inc. to rescind, terminate and seek monetary damages for the non-fulfillment and breach of a joint venture agreement entered into November 3, 2005 and other related agreements, in addition to an accounting of expenditures of funds under the terms and provisions of the agreements. On May 11, 2007, a partial default judgment against Globe was granted by the District Court of Harris County, Texas. The partial default judgment as to liability only was granted with respect to the Company’s causes of action against Globe for breach of contract, conversion and common law fraud with respect to the Company’s Original Petition and Application for Temporary and Permanent Injunctions against Globe on January 30, 2007. On August 13, 2007, the Company was granted a final default judgment for permanent injunctive relief and for damages in the amount of $14,029,000 against Globe. Globe has appealed the judgment. On November 23, 2007, the Court signed an order granting Globe’s Motion for New Trial and setting aside the Final Default Judgment entered in favor of the Company on August 13, 2007.
 
On October 29, 2008, the Company filed a lawsuit in the district court of Harris county Texas, a lawsuit for fraud and contempt of court for Globe Med Tech and Andy Hu individually. In response, Globe filed a motion to stay the lawsuit based upon the forum selection clause in the joint venture agreement between RMC and Globe which provides that the exclusive forum for all disputes relating to the Joint Venture Agreement shall be Oklahoma state court/Tulsa County. Due to the Texas state district’s court’s backlog of cases and the withdrawal of Globe and Hu’s counsel, the motion to stay was not heard until May 1, 2009. The motion was granted as to Globe; however, Hu did not join in the motion and, after the May 1st hearing, filed a separate motion to stay, based upon the same grounds as Globe’s motion. Hu’s motion to stay was denied at a May 8th hearing. Accordingly, RMC intends to proceed with discovery with respect to its claims against Hu, including without limitation obtaining the deposition of key witnesses.
 
On July 15, 2010, the deposition of Andy Hu finally took place in Tulsa, OK. After reviewing the full transcript of this deposition, the Company believed there was enough strong evidence to move directly with a summary judgment filing with the District Court of Tulsa County, OK.  The Company’s attorneys, Parks and Beards, filed this summary judgment with the District Court of Tulsa County, OK on August 31, 2010. A summary judgment hearing was held on May 4, 2011. The Company is expecting a full or partial judgment ruling within a few weeks.
 
NOTE 4 - OTHER COMMITMENTS AND CONTINGENCIES

Employment Agreement with Rondald L. Wheet, CEO
 
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.

 
12

 

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. This agreement has been extended until such time when both parties can agree on new terms.

Employment Agreement with Thomas O’Brien, President

Effective October 26, 2009, the Company and Mr. O’Brien, our President, entered into a three (3) year employment agreement. The agreement provides for an annual salary of $180,000. As of March 31, 2011, the Company owed Mr. O’Brien $126,225 pursuant to his prior employment agreement.  He is responsible for the administration, supervision, management and control of the business development of the Company, including the research, development, manufacture, marketing and sales of its current products and such future products as may be added to the Company’s business from time to time. 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.

Mr. O’Brien 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 or substantially 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. O’Brien to relocate or assigns duties not commensurate with his position as the President, (v) Mr. O’Brien is removed from the Board of Directors and (vi) the Company defaults in making payments required to Mr. O’Brien under this agreement. For two years following his resignation or termination, Mr. O’Brien 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.
 
Mutual Release and Settlement Agreement with Former Chief Executive Officer

On April 8, 2008, the Company entered into a Memorandum of Understanding with its former CEO to settle an outstanding obligation through the issuance of its common stock on a quarterly basis commencing May 8, 2008, for one year. The value of the issuance of the common stock will be determined by the market value of the ten day average price at the time of each quarterly issuance of common stock.   During 2008, the Company issued 271,491 shares at a total value of $133,030 to partially repay this debt.

In May 2009, the Company completed its obligations under the Memorandum of Understanding with its former CEO.

In 2010, the Company issued 400,000 shares of the Company’s common stock as additional repayment for this debt.

 
13

 

Amounts Due Pursuant to Employment and Consulting Agreements

As of March 31, 2011, the Company had accrued approximately $246,225 pursuant to employment agreements. Although the Company plans to settle these amounts, there is no assurance that its efforts to settle will be successful. No litigation related to these previous employment agreements has been initiated or threatened. There is no assurance, however, that such litigation will not be initiated in the future.
 
Patent Applications for the Company’s Retractable Safety Syringes
 
The Company owns one (1) published patent on its Auto Retractable Vacuum RevVac safety syringe issued in January 2005 and one (1) published patent on its safety blood drawing device issued in June 2003. In January 2009, a second patent for the RevVac auto retractable vacuum safety syringe was issued by the U.S. patent office and published in April 2009 related to the Globe/Revolutions Medical Joint Venture. The Company has 50% ownership of this patent and is awaiting the Tulsa County, Oklahoma District Court’s decision on its ownership of the entire patent. The Company also filed international patent protection rights regarding the RevVac Auto Retractable Vacuum Safety Syringe in the following countries: Australia, China, Japan, Taiwan, Mexico, Canada and several countries in Europe.

The Company is also 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 currently owns four (4) separate patent applications, filed in June of 2007, each of which received USPTO office actions during 2010.  Revolutions Medical expects to receive issuances or additional office actions on some if not all of these patents over the next 12 months.
 
AMOUNTS DUE TO CONSULTANTS
 
None.
 
NOTE 5 - PREFERRED STOCK AND COMMON STOCK TRANSACTIONS
 
SERIES 2006 PREFERRED STOCK
 
Currently, 1,000,000 shares of Series 2006 Preferred Stock are outstanding. Rondald L. Wheet, our Chairman and Chief Executive Officer, has been issued the 1,000,000 shares.

SERIES 2009 PREFERRED STOCK

Currently 500,000 shares of Series 2009 Preferred Stock are outstanding.  Thomas O'Brien, our President and Director, has been issued the 500,000 shares.
 
Dividends: The holder of the Series 2006 and the Series 2009 Preferred stock is entitled to receive, ratably, dividends when, as and if declared by the board of directors out of funds legally available therefore. If any dividend or other distributions are declared on our common stock, then a dividend or other distribution must also be declared on the outstanding Series 2006 and Series 2009 Preferred stock at the same time and on the same terms and conditions, so that each holder of Series 2006 and Series 2009 Preferred stock will receive the same dividend or distribution such holder would have received if the holder had converted his Series 2006 and Series 2009 Preferred stock as of the record date for determining stockholders entitled to receive such dividend or distribution.
 
Liquidation Preference: In the event of the liquidation, dissolution or winding up, the holders of Series 2006 or 2009 Preferred stock are entitled to receive a liquidation preference of $0.001 for each share of Series 2006 or Series 2009 Preferred stock prior to payment being made to any junior stock.
 
Conversion: The holders of Series 2006 and Series 2009 Preferred stock may convert each share into 1 share of common stock.
 
Preemption: The holders of Series 2006 and Series 2009 Preferred stock have no preemptive rights and they are not subject to further calls or assessments.

 
14

 
 
Voting Rights: The holders of Series 2006 and Series 2009 Preferred stock are entitled to 125 votes for each share of common stock into which their Series 2006 and Series 2009 Preferred stock is then convertible (currently 1 share), voting together with our common stock as a single class. Cumulative voting is not permitted. Upon conversion of a Series 2006 or Series 2009 Preferred share, each share of common stock issued upon the conversion will be entitled to only one (1) vote per share.

Redemption: There are no redemption or sinking fund provisions applicable to the Series 2006 or Series 2009 Preferred stock.

BLANK CHECK PREFERRED STOCK

The Company’s Articles of Incorporation authorize its board of directors to establish one or more additional series of preferred stock and to determine, with respect to any such series of preferred stock, its terms and rights, including: the designation of each series; the voting powers, if any, associated with each such series whether dividends, if any, will be cumulative or noncumulative and the dividend rate of each series; the redemption rights and price or prices, if any, for shares of each series; and preferences and other special rights, if any, of shares of each series in the event of any liquidation, dissolution, or distribution of the Company’s assets.

2011 COMMON STOCK TRANSACTIONS

During the three months ended March 31, 2011, 520,725 shares were issued under the terms of the Drawdown Equity Financing Agreement with Auctus Private Equity, Inc. The Company received proceeds of $176,287 in connection with these share issuances.

Also during the three months ended March 31, 2011, the Company issued an additional 860,000 shares of common stock with a total value of $301,000 in lieu of cash as payment for outside services.

NOTE 6 - STOCK OPTIONS AND WARRANTS OUTSTANDING

The following tables summarize information about the stock options and warrants outstanding at March 31, 2011:

   
OPTIONS
   
WARRANTS
   
TOTAL
   
WEIGHTED
AVERAGE
EXERCISE
PRICE
 
                         
Balance at December 31, 2010
   
12,834,750
     
1,871,600
     
14,706,350
   
$
0.21
 
Granted
   
     
             
 
Exercised
   
     
             
 
Expired/Forfeited
   
                         
                                 
BALANCE AT MARCH 31, 2011
   
12,834,750
     
1,871,600
     
14,706,350
     
0.21
 

   
OPTIONS OUTSTANDING
   
EXERCISABLE
 
Range of
Exercise Price
 
Number
Outstanding at
March 31, 2011
   
Weighted
Average
Remaining
Contractual Life
   
Weighted
Average
Exercise
Price
   
Number
Exercisable at
December 31, 2011
   
Weighted
Average
Exercise
Price
 
OPTIONS
                             
0.08 - 0.25
   
9,453,750
     
1.00
   
$
0.08
     
9,453,750
   
$
0.08
 
0.26-1.00
   
3,381,000
     
3.34
     
0.54
     
3,381,000
     
0.54
 
1.00-10.00
                                       
                                         
     
12,834,750
                     
12,834,750
         

 
15

 

NOTE 7 - RELATED PARTY 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. The Company paid $13,500 in office rent to Osprey South, LLC for the first quarter of 2011. Ron Wheet 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. The lease contract is due to expire on August 31, 2014.

NOTE 8 - REVERSE STOCK SPLIT

On January 18, 2007, the Company’s name changed from Maxxon, Inc. to Revolutions Medical Corporation and the Company’s common stock was reverse split on a 20 to 1 basis which changed the number of outstanding shares of common stock from 145,560,798 to 7,272,972. The number of authorized shares of common stock was not affected by the reverse stock split and remains at 250,000,000 shares.

NOTE 9- RESTATEMENT OF FORM 10-Q

The Company made the following changes to the financial statements due to corrections in the treatment of the issuance of convertible debt agreements and settlement liability with Gifford Mabie.

The Company failed to bifurcate the convertible debt agreements issued to Asher Enterprises, Inc. according to the guidance provided by ASC 815-15-25. The Company initially treated the convertible debt as a conventional debt instrument with a beneficial conversion feature. Due to the potentially unlimited shares that could be issued at conversion of the debt agreement, the Company is required to bifurcate the agreement into a debt instrument with a call provision. All of the convertible debt agreements contain an embedded derivative that requires valuation as an embedded derivative liability on the balance sheet.  The embedded derivative was valued under the guidance of ASC 815-15.

The Company (i) improperly valued and (ii) provided insufficient disclosure for, the issuance of common stock on December 14, 2010, to partially satisfy the judgment with the Commission involving Gifford Mabie.  Because the common stock placed in the special account is sold in small lots of 2,500 shares per day, the complete liquidation of the account would require 160 consecutive days of trading.  A valuation method for the common stock was incorrectly used based upon the previous 160 days of trading prior to the issuance of shares to the special account.  This has been corrected to value the shares based upon the 10-day average price following the date of issuance. Notes payable increased by $46,834 to record the correct amount of debt satisfied through the issuance of 400,000 shares toward the Gifford Mabie settlement on December 14, 2010. The value of the shares remaining in the account is based upon the 10-day average price prior to March 31, 2011. This valuation is based upon guidance of EITF Issue No. 95-19.

Paid in capital is increased by the $104,100 due to reversal of the beneficial conversion feature improperly recorded for the convertible debt agreements. There is also a decrease of $40,139 due to the quarter ending adjustment from the Gifford Mabie liability. The remaining difference is due to prior period corrections on the Company’s 2010 10-K/A.

The accumulated deficit is increased by $62,659 due to the additional expenses resulting from the bifurcation and valuation of the embedded derivative within the convertible debt agreements with Asher Enterprises. The accumulated deficit account is also increase by $61,612 for the amortization of the debt discount on issuance of the three Asher Enterprises convertible debt agreements converted into common stock on October 18, 2010. The accumulated deficit is decreased by the gain from fair value of the derivative instruments in the amount of $21,934. For the prior year amended on the form 10-K/A, the accumulated deficit is increased by $68,841 due to the additional expenses resulting from the bifurcation and valuation of the embedded derivative within the convertible debt agreements with Asher Enterprises. The accumulated deficit account is also increase by $125,000 for the amortization of the debt discount on issuance of the three Asher Enterprises convertible debt agreements converted into common stock on October 18, 2010.

Other income was increased by $21,934 as a result of the gain in fair value from the embedded derivative. This gain is based upon Guidance of ASC 815-15 and a fair value was determined as of March 31, 2010.

Interest expense was increased by $61,612 as a result of the amortization of debt discount due to the outstanding convertible debt agreements as of March  31, 2011. Treatment of this debt is based upon the guidance of ASC 470-20-55.

An embedded derivative expense was recognized for $62,659 from the initial recording of the convertible debt agreements based upon guidance of ASC 815-15.

 
16

 

A summary of the Company’s interim condensed consolidated balance sheet and statement of operations as originally reported and as restated is as follows:
 
   
As of, and for the Three Months ended,
 
   
March 31, 2011
 
   
As
   
As Originally
       
   
Restated
   
Reported
   
Change
 
                   
Current Assets
 
$
328,580
   
$
328,580
   
$
-
 
Total Assets
   
1,564,801
     
1,564,801
     
-
 
                         
Derivative instruments
   
476,383
     
-
     
476,383
 
Note Payable and Accrued Interest
   
892,099
     
845,265
     
46,834
 
Total Liabilities
   
2,018,518
     
1,495,301
     
523,217
 
                         
Additional paid-in capital
   
25,622,098
     
25,849,137
     
(227,039
)
Accumulated deficit
   
(26,460,285
)
   
(26,164,109
)
   
(296,176
)
Total shareholders' deficit
   
(453,715
)
   
69,500
     
(523,215
)
                         
Change in fair value of derivative instruments
   
21,934
     
-
     
21,934
 
Product sales, net
   
-
     
-
     
21,934
 
Net operating  loss
   
(742,339
)
   
(764,274
)
   
21,934
 
                         
Interest expense
   
(78,536
)
   
(16,924
)
   
(61,612)
 
Embedded Derivative Expense
   
(62,659
)
   
-
     
(62,659
)
                         
Net loss applicable to common shareholders
   
(883,553
)
   
(781,198
)
   
(102,355
)
Net loss per common share
   
(0.02
)
   
(0.02
)
   
 

The Company has correspondingly adjusted its statement of changes in shareholders’ deficit, statement of cash flows and notes to financial statements as a result of these restatements.
 
During the first quarter of 2010, the Company issued one convertible debt agreement with Asher Enterprises, Inc. For the first quarter 2010 10-Q filing, this note was treated as conventional convertible debt agreement. Upon determination in August, 2011 that this convertible debt agreement required bifurcation and a fair value determination of the embedded derivative due to the fact that an unlimited number of shares could potentially be required to be issued to satisfy the obligations of the agreement, the convertible debt agreement required a fair value determination of the embedded derivative at issuance as well as at the end of each quarter. For this amended filing, the 2010 three month period in the Statements of Operations has been amended to include the changes that resulted from the bifurcation of this debt agreement.  Additionally, the Statements of Cash Flows has been amended to reflect these changes.

The following table below indicates the effect of the changes that were made to the 1st quarter of 2010 financial statements.

   
As of, and for the Three Months ended,
 
   
March 31, 2010
 
   
As
   
As Originally
       
   
Restated
   
Reported
   
Change
 
                   
Derivative instruments
   
60,734
     
0
     
60,734
 
Debt Discount
   
(65,934)
     
0
     
(65,934)
 
Total Liabilities
   
689,637
     
694,837
     
5,200
 
Accumulated deficit
   
(23,225,571
)
   
(23,230,771
)
   
5,200
 
Total shareholders' deficit
   
(583,890
)
   
(589,090)
     
5,200
 
                         
Interest expense
   
(9,066
)
   
0
     
(9,066)
 
Change in fair value of derivative instruments
   
14,266
     
0
     
14,266
 
                         
Net loss applicable to common shareholders
   
(224,103
)
   
(229,303)
     
5,200
 
Net loss per common share
   
(0.01
)
   
(0.01
)
   
--
 
 
17

 

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.

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 and actual results. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result.  The following discussion should be read in conjunction with our consolidated financial statements and notes thereto appearing elsewhere in this report.

PLAN OF OPERATION

The Company continues to move forward with the production of its 3ml Auto Retractable Vacuum Safety Syringe, the RevVac Safety Syringe, by entering into a strategic manufacturing agreement with Medical Investment Group, Inc. (“MIG”), dated September 17, 2010.  The Company expects that the first shipments of syringes should be delivered by the end of the 2nd quarter 2011.  The Company made all of its pre-production payments per this manufacturing agreement and expects to start sales of its 3ml RevVac Safety Syringe in the 2nd quarter of 2011.  The Company also amended the MIG agreement in January 2011, to include the 1ml size RevVac Safety Syringe.  The Company plans on completing all of the pre-production payments by June 30, 2011, and to start sales and delivery during the 4th quarter of 2011 for the 1ml syringe.  The Company plans to fund the manufacture process of these syringes through the use of the Auctus Equity line and the JMJ Financial convertible note.  The Company also plans to continue funding the clinical study with the Philadelphia College of Medicine, North Georgia Campus, using its proprietary MRI software tools, RevColor, RevDisplay and Rev3D with its current equity line and the JMJ Financial convertible note.  The study is expected to be completed in the 3rd quarter of 2011.

The Company completed its designs for the 5ml and 10ml RevVac safety syringe in November 2010 and completed the designs for the 1ml syringe in March 2011, with anticipated production of the 1ml beginning in the 3rd quarter of 2011 with sales and delivery expected in the fourth quarter of 2011.  The Company completed its designs on its new pre-filled syringe using its patented vacuum technology and filed an additional provisional patent on this new design on May 3, 2011.   The Company will use this new design for its interchangeable needles, RevLock, for all syringe sizes and for the new pre-filled syringes and expects to be starting this production process during the 1st quarter of 2012.  The Company expects to complete designs and launch sales for its Software as a Service (SAS) business model using its MRI software tools in the 4th quarter of 2011 on its first clinical application; concussions and head trauma.  The Company may also seek additional capital to secure a manufacturing facility in South Carolina for the production of its new pre filled safety syringes.

 
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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 help reduce 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.

The Company introduced its proprietary Color MRI software tools at the prestigious Radiological Society of North America (RSNA) show in Chicago, IL at the beginning of December 2009.  Based upon the feedback from the show validating its Software as a Service (SAS) business model, the Company is now currently working on a clinical validation studies with Dr. Keith Brown at the Philadelphia College of Medicine, north Georgia Campus.  The Company is hopeful that the many advantages that its proprietary RevColor, Rev3D and RevDisplay software tools have over the traditional black and white images will be validated with these first clinical studies. The Company can then proceed with other clinical studies directed at concussions, stroke, Alzheimer’s, abdomen and breast disease.  The Company believes that its proprietary color MRI software tools will eventually aid in the enhanced diagnosis, detection, and monitoring of such diseases and afflictions.  These first clinical studies should be completed in the 3rd quarter of 2011.

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 send 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.

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 510K 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. The BSS will be modified to use Revolutions Medical’s proprietary safety syringe technology. The Company believes that this technology has the potential to be deployed in the vast majority of more than 50,000 mammography machines that are currently in use worldwide, including more than 15,000 in the United States.

RESULTS OF OPERATION

For the quarter ended March 31, 2011 compared to March 31, 2010

During the quarters ended March 31, 2011 and 2010, the Company had no revenues and continued to focus on completion of the final molds needed to begin production of the 3ml RevVac Safety Syringe.  Related to this process, during the quarter ended March 31, 2011, the Company incurred $764,274 in general and administrative expenses, compared to $227,813 for the same period in 2010.  These expenses primarily relate to employee salaries, consulting agreements and legal fees associated with obtaining FDA approval and expenses associated with refining our current products to a production level quality.  We utilize third parties for this process.  We also incurred capital expenditures in the amount of $330,000 and $0, during the quarters ended March 31, 2011 and 2010, respectively, for payments to complete the pilot design and final design of our production molds related to the 3 ml RevVac Safety Syringe.

 
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The net loss for the quarter ended March 31, 2011, was higher than the same period of March 31, 2010, as the Company incurred greater expenses primarily related to an increase in salaries and consulting fees as the safety syringe product transitions from the development stage to the production stage.  The Company incurred a net operating loss of $742,339 during the quarter ended March 31, 2011, compared to a net operating loss of $229,303 for the same period in 2010.  The increase in net operating loss for the first quarter of 2011, compared to the first quarter of 2010 is due in most part to the increase in consulting fees related to the 3ml RevVac Safety Syringe.  During the first quarter of 2011, consulting fees totaled $383,180 compared to $51,650 for the first quarter of 2010.

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 the third party 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 quarters ended March 31, 2011 and 2010, were $301,000 and $0, respectively.  We also sell stock as needed for cash through the equity line with Auctus to be used in our operations.  During the quarters ended 2011 and 2010, we received proceeds from the exercise of stock options or sale of stock of $176,287 and $89,000, respectively.  Additionally, we received payments for exercised options at the end of the first quarter totaling $339,750, in which stock was issued in April 2011 for these options.

As of March 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.  We presently have an outstanding convertible note with JMJ Financial and an equity line agreement with Auctus, but due to the Company’s risks and uncertainties, there is no assurance that we will be successful in continuing to fund money under these financing transactions.  We may also not be able to establish new agreements.  Even if such new agreements are established, there is no assurance that they will result in any funding.  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 44,190,634 shares were issued and outstanding as of March 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.

Liquidity and Capital Resources

As of March 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 quarters ended March 31, 2011 and 2010 was $(381,530) and $(212,813), respectively.  The net loss for the years ended March 31, 2011 and 2010 was $(883,533) and $(224,103), respectively. This increase is primarily attributable to the increased expense related to consulting agreements.  During the first quarter of 2011, this expense was $383,180, compared to $51,650 for the first quarter of 2010.  Cash requirements did not increase by this amount as $175,000 in consulting agreements were paid through the issuance of stock options and another $137,180 had been prepaid through the issuance of stock options on July 1, 2010.  The remaining $71,000 in consulting agreement expense was paid in cash.

 
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Net cash used for investing activities for the quarters ended March 31, 2011 and 2010, was $(377,000) and $(1,509), respectively.  This increase in cash used for investing activities is a result of the purchase of the syringe molds in the amount of 362,000 and the purchase of a licensing agreement in the amount of $15,000.

Net cash obtained through all financing activities for quarter ended March 31, 2011, was $791,037, as compared to $164,000 for the quarter ended March 31, 2010.  The increase in cash obtained through financing activities is a result of cash received for common stock subscribed in the amount of $339,750.  Additionally, cash received through the issuance of convertible debt totaled $275,000 in the first quarter and cash received under the terms of the Drawdown Equity Financing Agreement with Auctus Private Equity, Inc. totaled $176,287.

We believe that our existing available cash and available funds through the convertible note with JMJ Financial will enable us to meet our working capital requirements for at least the next 6 months.  Our estimated working capital requirement for the next 12 months is $1,600,000 with an estimated burn rate of $135,000 per month. This working capital requirement includes initial orders for the safety syringe expected in the 2nd  quarter of 2011.

During the first quarter of 2011, the Company entered into two new convertible notes.  Under the terms of the agreement with JMJ Financial, The Company signed a convertible note on February 14, 2011, set to mature on February 14, 2014, that will provide funding in the amount of $1,050,000 if fully funded.  The Company will incur a one-time interest rate charge of 8% per annum due upon maturity date or conversion.  The embedded beneficial conversion feature of the agreement allows the lender to convert into common stock at a discount of 30% to the average of the three lowest closing prices in the 20 trading days prior to the conversion.  The Company also entered into a new note with Asher Enterprises, Inc. on January 19, 2011, that provides funding of $60,000 set to mature on October 21, 2011.  The Company will incur a one-time interest rate charge of 22% per annum due upon maturity date or conversion. The embedded beneficial conversion feature of the agreement allows the lender to convert into common stock at a discount of 45% to the average of the three lowest closing prices in the 10 trading days prior to the conversion.

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

   
March 31,
 2011
(Restated)
   
March 31,
2010
(unaudited)
   
Increase/
(Decrease)
 
Current Assets
 
$
328,580
   
$
21,301
   
$
(307,279)
 
Current Liabilities
 
$
2,018,518
   
$
689,637
   
$
1,328,881
 
Working Capital Deficit
 
$
(1,689,938
)
 
$
(668,336
)
 
$
(1,021,602
)

As of March 31, 2011, we had a working capital deficit of $1,689,938, as compared to a working capital deficit of $668,336 as of March 31, 2010, an increase of $1,021,602.  Factors contributing to the increase in this deficit include the settlement agreement reach with Gifford Mabie and the SEC which increased current liabilities by $924,568, of which $143,860 in current liabilities have been reduced through the issuance of shares to partially satisfy the judgment.  Additionally, the issuance of the convertible debt agreements increased current liabilities by $571,177 as of March 31, 2011, as compared to a convertible debt liability balance of $75,000 as of March 31, 2010.

Other current assets include the amount related to pre-paid consulting expenses incurred through the issuance and exercise of stock options July 1, 2010.  The balance of prepaid consulting fees as of March 31, 2011 was $201,555 compared to $0 as of March 31, 2010.  The remaining balance of $25,000 is a short term note receivable.

   
March 31,
2011(Restated)
   
March 31,
2010
 
                 
Building
 
$
   
$
 
Production machinery and equipment
   
1,142,000
     
 
Furniture and fixtures
   
39,847
     
39,847
 
Office equipment
   
2,214
     
1,347
 
Leasehold improvements
   
     
 
                 
     
1,183,402
     
40,934
 
Less: accumulated depreciation and amortization
   
(10,457
)
   
(4,764
)
Property, plant and equipment, net
 
$
1,172,945
   
$
36,170
 

 
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Production machinery and equipment as of March, 2011 consists primarily of amounts incurred in connection with the pilot molds and final molds related to the lines for the RevVac syringe.

The Company does not currently generate any cash from operations and does not have access to traditional credit facilities, however, the Company expects product sales beginning in the second quarter of 2011.  Over the next 12 months, we expect to rely upon funds raised from drawdowns under our equity line of credit with Auctus Private Equity, Inc. and subsequent funding under our $1,050,000 convertible promissory note with JMJ Financial in order to implement our business plan and meet our liquidity needs going forward. The Company may also sell shares of its common stock or permit warrant exercises.  We presently have 250,000,000 shares of common stock authorized, of which 44,190,634 shares were issued and outstanding as of March 31, 2011.  If we implement any of the foregoing financing alternatives to pay current or future obligations, the percentage ownership of our stockholders will be reduced, stockholders may experience additional dilution, or the equity securities may have rights preferences or privileges senior to the common stock. If adequate funds are not available to us when needed on satisfactory terms, we may be required to cease operating or otherwise modify our business strategy.

Current Liabilities consists of the following:

   
March 31,
2011(Restated)
   
March 31,
2010
 
       
Accounts Payable
 
$
296,028
   
$
53,027
 
Credit cards
   
18,826
     
 
Accrued  Salaries
   
246,226
     
476,449
 
Embedded Derivative Liability
   
476,383
     
60,734
 
Note Payable and Accrued Interest
   
892,099
     
19,066
 
                 
Other Current Liabilities
   
88,956
     
80,360
 
                 
Total current liabilities
 
$
2,018,518
   
$
689,637
 

Changes in the balance to Accounts Payable are a result of the purchase agreement for the 1ml and 3ml RevVac Safety Syringe molds. Notes payable and Accrued Interest are a result of the settlement and determination of a liability with Gifford Mabie and the SEC and the debt associated with the issuance of the convertible debt agreements. 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

None.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

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

ITEM 4.  CONTROLS AND PROCEDURES.

(a) Evaluation of Disclosure Controls and Procedures

The Company’s management, with the participation of the Company’s principal executive officer (“CEO”) and principal financial officer (“CFO”), evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report.  Based on this evaluation, the CEO and CFO concluded that, as of the end of such period, the Company’s disclosure controls and procedures were not effective to ensure that information that is required to be disclosed by the Company in the reports it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to the Company’s management, including the CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

 
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(b) 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.

 
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PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS.

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 1A.       RISK FACTORS.

We believe there are no changes that constitute material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2010, filed with the SEC on March 31, 2011.

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

There were no unregistered sales of the Company’s equity securities during the quarter ended March 31, 2011, that were not otherwise required to be disclosed in a Current Report on Form 8-K.

ITEM 3.  DEFAULT UPON SENIOR SECURITIES.

There were no defaults upon senior securities during the quarter ended March 31, 2011.

ITEM 4.  (REMOVED AND RESERVED).

ITEM 5.  OTHER INFORMATION.

None.

ITEM 6.  EXHIBITS.
 
Exhibit No.
 
Description
     
4.1
 
$1,050,000 Convertible Promissory Note, dated February 24, 2011 (as filed as Exhibit 4.2 on Form S-1, filed on April 6, 2011)
     
10.1
 
Registration Rights Agreement, dated February 24, 2011, by and between Revolutions Medical Corporation and JMJ Financial (as filed as Exhibit 10.11 on Form S-1, filed on April 6, 2011)
     
31.1
 
Certification of Principal Executive Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 302 of 2002*
     
31.2
 
Certification of Principal Financial Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 302 of 2002*
     
32.1
 
Certification of 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 of Principal Financial Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

*filed herewith

 
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SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 
REVOLUTIONS MEDICAL CORPORATION
   
       
Dated: October 21, 2011
By:
 
/s/ Rondald L. Wheet
 
Name:
 
Rondald L. Wheet
 
Title:
 
Chief Executive Officer (Principal Executive Officer)

 
Dated: October 21, 2011
By:
 
/s/ Burt Hodges
 
Name:
 
Burt Hodges
 
Title:
 
Chief Financial Officer (Principal Financial Officer, Principal Accounting Officer)
 
 
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