UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 For the quarterly period ended June 30, 2005
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the transition period from _________ to _________
Commission file number 000-21914
HEALTHRENU MEDICAL, INC.
---------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
NEVADA 84-1022287
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
12777 Jones Road, Suite 481, Houston, Texas 77070
-------------------------------------------------
(Address of principal executive offices)
(281) 890-2561
-------------------------------
(Registrant's telephone number)
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, $.001 PAR VALUE PER SHARE
Check whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes
[X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B not contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
As of August 1, 2005 the issuer had 32,585,505 shares of common stock,
$.001 par value per share outstanding.
Documents Incorporated by Reference: NONE
Transitional Small Business Disclosure Format: Yes [ ] No [X]
ITEM 1: FINANCIAL STATEMENTS
HEALTHRENU MEDICAL, INC.
FORM 10-QSB
TABLE OF CONTENTS
Page
Unaudited Condensed Financial Statements:
Unaudited Condensed Balance Sheet as of June 30,
2005 and September 30, 2004 2
Unaudited Condensed Statement of Operations for the
three months and nine months ended June 30, 2005 and 2004 3
Unaudited Condensed Statement of Stockholder's Equity (Deficit)
for the nine months ended June 30, 2005 4
Unaudited Condensed Statement of Cash Flows for the
nine months ended June 30, 2005 and 2004 5
Notes to Unaudited Condensed Financial Statements 6
HEALTHRENU MEDICAL, INC.
BALANCE SHEET
June 30, 2005 and September 30, 2004
----------
June 30, September 30,
2005 2004
ASSETS (Unaudited) (Note)
----------- -----------
Current assets:
Cash and cash equivalents $ 19,028 $ 7,560
Inventories 23,828 22,430
Accounts receivable 2,814 2,500
Prepaid expense 20,516 --
Deferred financing costs 360,000 --
----------- -----------
Total current assets 426,186 32,490
Property and equipment, net 3,422 4,048
----------- -----------
Total assets $ 429,608 $ 36,538
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 125,158 $ 131,223
Accounts payable-stockholder 2,329 2,329
Accrued liabilities 21,163 58,660
Notes payable 188,843 --
Note payable to stockholders 91,000 1,000
----------- -----------
Total current liabilities 428,493 193,212
----------- -----------
Stockholders' equity (deficit):
Convertible preferred stock, Series 2000A, $0.001 par value;
1,500,000 shares authorized, 1,763 shares issued and
outstanding at June 30, 2005 and September 30, 2004 2 2
Common stock, $.001 par value; 50,000,000 shares authorized,
31,478,505 and 22,454,451 shares issued and outstanding at
June 30, 2005 and September 30, 2004,respectively 31,479 22,455
Additional paid-in capital 2,065,512 1,635,657
Unissued common stock -- 42,511
Accumulated deficit (2,095,878) (1,857,299)
----------- -----------
Total stockholders' equity (deficit) 1,115 (156,674)
----------- -----------
Total liabilities and stockholders' equity (deficit) $ 429,608 $ 36,538
=========== ===========
Note: The balance sheet at September 30, 2004 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See accompanying notes to financial statements.
-2-
HEALTHRENU MEDICAL, INC.
UNAUDITED CONDENSED STATEMENT OF OPERATIONS
for the three months and nine months ended June 30, 2005 and 2004
----------
- ------------------------------------------- ------------------------------- -------------------------------
Three Months Ended Nine Months Ended
- ------------------------------------------- ------------------------------- -------------------------------
June 30 June 30
- ------------------------------------------- ------------------------------- -------------------------------
2005 2004 2005 2004
---- ---- ---- ----
- ------------------------------------------- ------------ ------------ ------------ ------------
Sales $ 3,044 $ -- $ 10,541 $ 27,395
- ------------------------------------------- ------------ ------------ ------------ ------------
Cost of sales 1,106 -- 3,407 13,353
- ------------------------------------------- ------------ ------------ ------------ ------------
Gross profit (loss) 1,938 -- 7,134 14,042
- ------------------------------------------- ------------ ------------ ------------ ------------
General and administrative expenses 91,727 82,604 185,487 392,090
- ------------------------------------------- ------------ ------------ ------------ ------------
Loss from operations (89,789) (82,604) (178,353) (378,048)
- ------------------------------------------- ------------ ------------ ------------ ------------
Gain on sales of assets -- -- -- 15,468
- ------------------------------------------- ------------ ------------ ------------ ------------
Interest and financing expense (60,208) -- (60,226) (400)
- ------------------------------------------- ------------ ------------ ------------ ------------
Net loss $ (149,997) $ (82,604) $ (238,579) $ (362,980)
- ------------------------------------------- ------------ ------------ ------------ ------------
- ------------------------------------------- ------------ ------------ ------------ ------------
Weighted average shares outstanding 30,142,197 19,542,667 27,622,562 18,590,192
- ------------------------------------------- ------------ ------------ ------------ ------------
Basic and diluted net loss per common share $ (0.01) $ (0.00) $ (0.01) $ (0.02)
- ------------------------------------------- ------------ ------------ ------------ ------------
See accompanying notes to financial statements.
-3-
HEALTHRENU MEDICAL, INC.
UNAUDITED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
for the nine months ended June 30, 2005
- ------------------------------- -------- --------- ------------- ----------- ------------ ------------ ---------------- ------------
Common Common Additional Common
Stock Stock Paid In Stock Accumulated
- ------------------------------- -------- --------- ------------- ----------- ------------ ------------ ---------------- ------------
Shares Amount Shares Amount Capital Committed Deficit Total
- ------------------------------- -------- --------- ------------- ----------- ------------ ------------ ---------------- ------------
- ------------------------------- -------- --------- ------------- ----------- ------------ ------------ ---------------- ------------
Balance at September 30, 2004 1,763 $ 2 22,454,451 $22,455 $1,635,657 $ 42,511 $(1,857,299) $(156,674)
- ------------------------------- -------- --------- ------------- ----------- ------------ ------------ ---------------- ------------
- ------------------------------- -------- --------- ------------- ----------- ------------ ------------ ---------------- ------------
Common stock issued as -- -- 25,000 25 725 -- -- 750
settlement
- ------------------------------- -------- --------- ------------- ----------- ------------ ------------ ---------------- ------------
- ------------------------------- -------- --------- ------------- ----------- ------------ ------------ ---------------- ------------
Common stock issued as
Payment for liabilities -- -- 2,623,850 2,624 49,888 -- -- 52,512
- ------------------------------- -------- --------- ------------- ----------- ------------ ------------ ---------------- ------------
- ------------------------------- -------- --------- ------------- ----------- ------------ ------------ ---------------- ------------
Issuance of common stock -- -- 1,585,563 1,586 40,925 (42,511) -- --
committed
- ------------------------------- -------- --------- ------------- ----------- ------------ ------------ ---------------- ------------
- ------------------------------- -------- --------- ------------- ----------- ------------ ------------ ---------------- ------------
Common stock issued for -- -- 25,000 25 2,475 -- -- 2,500
services
- ------------------------------- -------- --------- ------------- ----------- ------------ ------------ ---------------- ------------
- ------------------------------- -------- --------- ------------- ----------- ------------ ------------ ---------------- ------------
Common stock issued for cash -- -- 3,208,667 3,208 106,241 -- -- 109,449
- ------------------------------- -------- --------- ------------- ----------- ------------ ------------ ---------------- ------------
- ------------------------------- -------- --------- ------------- ----------- ------------ ------------ ---------------- ------------
Common stock issued for 1,555,974 1,556 169,601 171,157
funding
- ------------------------------- -------- --------- ------------- ----------- ------------ ------------ ---------------- ------------
- ------------------------------- -------- --------- ------------- ----------- ------------ ------------ ---------------- ------------
Effect of beneficial -- -- -- -- 60,000 -- -- 60,000
Conversion feature
- ------------------------------- -------- --------- ------------- ----------- ------------ ------------ ---------------- ------------
- ------------------------------- -------- --------- ------------- ----------- ------------ ------------ ---------------- ------------
Net loss -- -- -- -- -- -- (238,579) (238,579)
--- --- --- --- --- --- -------- --------
- ------------------------------- -------- --------- ------------- ----------- ------------ ------------ ---------------- ------------
- ------------------------------- -------- --------- ------------- ----------- ------------ ------------ ---------------- ------------
Balance at June 30, 2005 1,763 $ 2 31,478,505 $31,479 $2,065,512 $-- $(2,095,878) $ 1,115
===== === ========== ======= ========== === ============ =======
- ------------------------------- -------- --------- ------------- ----------- ------------ ------------ ---------------- ------------
See accompanying notes to financial statements.
-4-
HEALTHRENU MEDICAL, INC.
UNAUDITED CONDENSED STATEMENT OF CASH FLOWS
For the nine months ended June 30, 2005 and 2004
----------
Nine Months Ended
June 30,
2005 2004
--------- ---------
Cash flows from operating activities:
Net loss $(238,579) $(362,980)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation 1,133 5,150
Gain on sale of asset -- (15,468)
Rent expense contributed by stockholder -- 750
Stock-based compensation for services/settlement 3,250 52,950
Stock-based employee compensation -- 37,500
Effect of beneficial conversion feature 60,000 --
Changes in operating assets and liabilities:
Accounts receivable (314) (1,994)
Inventories (1,398) 15,089
Prepaid expense (20,516) (1,646)
Accounts payable and accrued liabilities 8,949 152,946
--------- ---------
Net cash used in operating activities (187,475) (117,703)
--------- ---------
Cash flows from investing activities:
Purchase of fixed assets (506) (3,498)
--------- ---------
Net cash used in investing activities (506) (3,498)
--------- ---------
Cash flows from financing activities:
Common stock issued for cash 109,449 85,500
Proceeds from note payable to stockholders 90,000 --
Payment received on stock subscription receivable -- 31,000
--------- ---------
Net cash provided by financing activities 199,449 116,500
--------- ---------
(Decrease)/Increase in cash and cash equivalents 11,468 (4,701)
Cash and cash equivalents, beginning of year 7,560 17,684
--------- ---------
Cash and cash equivalents, end of year $ 19,028 $ 12,983
========= =========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 226 $ --
========= =========
Cash paid for income taxes $ -- $ --
========= =========
Non-cash investing and financing activities:
Issuance of common stock and notes payable for
financing costs $ 360,000 $ --
========= =========
Issuance of common stock as payment of liability $ 52,512 $ 50,773
========= =========
Transfer of property for reduction in accrued liability $ -- $ 3,811
========= =========
Sale of common stock for subscription receivable $ -- $ 4,000
========= =========
See accompanying notes to financial statements
-5-
HEALTHRENU MEDICAL, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
----------
1. Interim Financial Statements
The accompanying unaudited interim financial statements have been prepared
without audit pursuant to the rules and regulations of the U.S. Securities
and Exchange commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted,
pursuant to such rules and regulations. These unaudited condensed
financial statements should be read in conjunction with the audited
financial statements and notes thereto of HealthRenu Medical, Inc. (the
"Company") included in the Company's Annual Report on Form 10-KSB for the
year ended September 30, 2004. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered
necessary for a fair presentation of financial position, results of
operations and cash flows for the interim periods presented have been
included. Operating results for the interim periods are not necessarily
indicative of the results that may be expected for the respective full
year.
2. Organization
HealthRenu Medical, Inc. (the "Company"), a Nevada corporation, is
headquartered in Houston, Texas. The Company provides raw materials to a
third party manufacturing company who produces various skin care products
that are purchased and distributed by the Company primarily to the home
health care and other medical markets throughout the United States.
The Company was originally incorporated in Delaware as Health Renu, Inc.
in 1997. In September 2003, upon completion of a recapitalization through
acquisition of a non-operating public shell, the name was changed to
HealthRenu Medical, Inc. The public shell had no significant assets or
operations at the date of acquisition. The Company assumed all liabilities
of the public shell on the date of the acquisition. The historical
financial statements presented herein are those of HealthRenu Medical,
Inc., and its predecessor, Health Renu, Inc.
The non-operating public shell used to recapitalize the Company was
originally incorporated in Colorado as American Merger Control, Inc and
subsequently adopted name changes to Ultratech Knowledge Systems, Inc.,
and AGTsports, Inc. In 2003, the Company was reincorporated in the state
of Nevada and subsequently changed its name to its current name,
HealthRenu Medical, Inc.
On February 29, 2004, the Company entered into an agreement with a
stockholder and former owner of the non-public entity to exchange 100% of
the issued and outstanding shares of Health Renu, Inc., a Delaware
corporation, and certain assets and liabilities of the Company for a
return of 25,000 shares of common stock of the Company (which the Company
has not yet received) and all proprietary trademarks, intellectual
property rights and formulas to produce its products. The gain on the
disposition of these assets and liabilities was $15,468.
3. Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect reported amounts
and related disclosures. Actual results could differ from those estimates.
Continued
-6-
HEALTHRENU MEDICAL, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
----------
3. Significant Accounting Policies, continued
Revenue Recognition
Revenue is recognized when products are shipped.
Concentrations of Credit Risk
Financial instruments which subject the Company to concentrations of
credit risk include cash and cash equivalents and accounts receivable.
The Company maintains its cash in well-known banks selected based upon
management's assessment of the banks' financial stability. Balances may
periodically exceed the $100,000 federal depository insurance limit;
however, the Company has not experienced any losses on deposits.
Accounts receivable generally arise from sales of various skin care
products to the home health care and other medical markets throughout the
United States. Collateral is generally not required for credit granted.
Cash Equivalents
For purposes of reporting cash flows, the Company considers all short-term
investments with an original maturity of three months or less to be cash
equivalents.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is provided
using the straight-line method over the estimated useful lives of the
assets, which range from three to twenty-five years. Expenditures for
major renewals and betterments that extend the original estimated economic
useful lives of the applicable assets are capitalized. Expenditures for
normal repairs and maintenance are charged to expense as incurred. The
cost and related accumulated depreciation of assets sold or otherwise
disposed of are removed from the accounts, and any gain or loss is
included in operations.
Inventories
Inventories consist of raw materials, work-in-process and finished goods
and are stated at the lower of cost or market. Cost is computed using
actual costs on a first-in, first-out basis.
Shipping and Delivery Costs
The cost of shipping and delivery are charged directly to cost of sales at
the time of shipment.
Research and Development
Research and development activities are expensed as incurred, including
costs relating to patents or rights, which may result from such
expenditures.
Continued
-7-
HEALTHRENU MEDICAL, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
----------
3. Significant Accounting Policies, continued
Income Taxes
The Company uses the liability method of accounting for income taxes.
Under this method, deferred income taxes are recorded to reflect the tax
consequences on future years of temporary differences between the tax
basis of assets and liabilities and their financial amounts at year-end.
The Company provides a valuation allowance to reduce deferred tax assets
to their net realizable value.
Loss Per Share
Basic and diluted loss per share is computed on the basis of the weighted
average number of shares of common stock outstanding during each period.
Common equivalent shares from convertible preferred stock and common stock
options and warrants are excluded from the computation as their effect
would dilute the loss per share for all periods presented. If the Company
had reported net income for the three ande nine months ended June 30, 2005
or 2004, the calculation of diluted net income per share would have
included 1,763 additional common equivalent shares for the Company's
convertible preferred stock.
Impairment of Long-Lived Assets
In the event that facts and circumstances indicate that the carrying value
of a long-lived asset, including associated intangibles, may be impaired,
an evaluation of recoverability is performed by comparing the estimated
future undiscounted cash flows associated with the asset or the asset's
estimated fair value to the asset's carrying amount to determine if a
write-down to market value or discounted cash flow is required.
Fair Value of Financial Instruments
The Company includes fair value information in the notes to financial
statements when the fair value of its financial instruments is different
from the book value. When the book value approximates fair value, no
additional disclosure is made.
Comprehensive Income
Comprehensive income includes such items as unrealized gains or losses on
certain investment securities and certain foreign currency translation
adjustments. The Company's financial statements include none of the
additional elements that affect comprehensive income. Accordingly,
comprehensive income (loss) and net income (loss) are identical.
Stock-Based Compensation
Stock-based compensation is accounted for using the intrinsic value method
prescribed in Accounting Principles Board Opinion ("APB") No. 25,
"Accounting for Stock Issued to Employees", rather than applying the fair
value method prescribed in SFAS No. 123, "Accounting for Stock-Based
Compensation", as amended by SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure".
Continued
-8-
HEALTHRENU MEDICAL, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
----------
4. Going Concern
During the nine months ended June 30, 2005, the Company has experienced
negative financial results as follows:
Net loss $ (238,579)
Negative cash flows from operations $ (187,475)
Negative working capital $ (2,307)
Accumulated deficit $(2,095,878)
Management has developed specific current and long-term plans to address
its viability as a going concern as follows:
o Effective September 2003, the Company entered into a
recapitalization transaction with a public shell to gain access to
public capital markets, to increase attractiveness of its equity and
to create liquidity for stockholders.
o The Company is also attempting to raise funds through debt and/or
equity offerings. If successful, these additional funds will be used
to pay down liabilities and to provide working capital.
o In the long-term, the Company believes that cash flows from growth
in its operations will provide the resources for continued
operations.
There can be no assurance that the Company will have the ability to
implement its business plan and ultimately attain profitability. The
Company's long-term viability as a going concern is dependent upon three
key factors, as follows:
o The Company's ability to obtain adequate sources of debt or equity
funding to meet current commitments and fund the continuation of its
business operations in the near term.
o The ability of the Company to control costs and expand revenues.
o The ability of the Company to ultimately achieve adequate
profitability and cash flows from operations to sustain its
operations.
5. Litigation
In 2004, Cause Number 825,095,"David M. Loev v. HealthRenu Medical, Inc,"
was filed against the Company in the County Court at Law No. 4, Harris
County, Texas. The amount of damages sought by David Loev is approximately
$16,600 for nonpayment of legal services he performed for the Company. The
amount has been recorded as a liability as of June 30, 2005 in the
accompanying financial statements.
6. Related Party Transaction
During the nine months ended June 30, 2005, the Company issued 2,000,000
shares of its common stock as payment of accrued compensation of $40,000
owed to an officer of the Company.
Continued
-9-
HEALTHRENU MEDICAL, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
----------
7. Convertible Notes Payable
During April and May 2005, the Company received $90,000 in the form of
convertible notes payable from certain of its officers and directors.
These notes bear interest at 8% per year and are convertible into the
Company's common stock at $0.03 per share. The notes mature on August 31,
2005. Since the conversion price was less than the fair market value of
the Company's common stock, the Company recorded a $60,000 beneficial
conversion feature which is included in interest and financing expenses in
the accompanying statement of operations for the nine months ended June
30, 2005.
8. Standby Equity Distribution Agreement
In May 2005, the Company entered into a Standby Equity Distribution
Agreement ("SEDA") with Cornell Capital Partners, L.P. ("Cornell").
Pursuant to the SEDA, the Company may periodically sell to Cornell shares
of its common stock for a purchase price of up to a maximum $10.0 million.
For each share of common stock purchased under the SEDA, Cornell will pay
the Company 97% of the lowest volume weighted average price at which its
common stock is traded for the five trading days immediately following the
notice date. The Company may request advances under the SEDA once the
underlying shares are registered under the Securities Act. Thereafter, the
Company may continue to request advances until Cornell has advanced $10.0
million or 24 months after the effective date of the registration
statement, whichever occurs first. The amount of each advance is limited
to a maximum draw down of $350,000 every five trading days. Cornell will
retain a fee of 5% of each advance under the SEDA. The Company also issued
1,465,065 shares of its common stock and a promissory note in the
principal amount of $188,843 to Cornell and issued 90,909 shares of its
common stock to a placement agent, resulting in total deferred financing
costs of $360,000 at June 30, 2005.
-10-
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
This report contains forward looking statements within the meaning of Section
27a of the Securities Act of 1933 and Section 21e of the Securities Exchange Act
of 1934. These forward looking statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from
historical results or anticipated results, including those set forth under
"Factors that may affect future results" in this Management's Discussion and
Analysis of Financial Condition and Results of Operations" and elsewhere in this
report. The following discussion and analysis should be read in conjunction with
the Company's financial statements and notes thereto included elsewhere in this
report and appearing in our annual report filed in Form 10-KSB for the year
ended September 30, 2004.
HealthRenu Medical, Inc. provides raw materials to a third party manufacturing
company who produces various of products for skin care and wound care, that is
purchased and distributed by the Company. The Company was founded by Darrell
Good with the help of a Dallas, Texas pharmaceutical firm. All HealthRenu
products are made with a heavy concentration of essential fatty acids. Essential
fatty acids have been widely reported to have significant anti-inflammatory
effects, and are currently being used in cosmetics and therapeutic vehicles. A
significant amount of research and development has occurred as well as extensive
product testing.
The Company's products are specifically used for skin care and wound care. The
Company's products are used for diabetic skin care, diabetic neuropathy,
circulation, non-healing wounds, various types of skin disorders, and arthritis.
The Company is aggressively pursuing additional uses for its products in other
areas of the medical field. For example, the Company is researching using its
products as transdermal carriers of other medications into the body, which would
result in many different applications for the Company's products
HealthRenu Medical currently has eight major products in their line, they
include:
- - - DERM-ALL GEL WOUND DRESSING
- - - SKIN RENU' LOTION
- - - SKIN RENU' SKIN THERAPY
- - - SKIN RENU' PLUS CIRCULATION FORMULA
- - - RENU' CARE SKIN-CARE WASH CREAM
- - - HEALTH RENU' SPORTS MEDICINE
- - - HEALTH RENU' DEEP RELIEF PAIN RELIEVER
- - - HEALTH RENU' FACIAL SOAP
The Company has exclusive usage of the formulas and has the right to purchase
them as well. These products have provided a very simple, cost effective way in
dealing with disorders without side affects and come with a satisfaction
guarantee to the medical field as well as to the household consumer. All
HealthRenu products are registered with the Food and Drug Administration
("FDA").
CRITICAL ACCOUNTING POLICIES
The following discussion and analysis of the Company's financial condition and
results of operations is based upon the Company's financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States. The preparation of these financial statements requires the
Company to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and related disclosure of contingent
assets and liabilities. On an on-going basis, the Company evaluates these
estimates, including those related to revenue recognition, inventories and
stock-based compensation. The Company bases its estimates on historical
experience and on various other assumptions that it believes to be reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
Of the significant accounting policies used in the preparation of the Company's
financial statements, the following are critical accounting policies, which may
involve a higher degree of judgment, complexity and estimates.
Revenue Recognition
Revenue is recognized when products are shipped.
Inventories
Inventories consist of raw materials, work-in-process and finished goods and are
stated at the lower of cost or market. Cost is computed using actual costs on a
first-in, first-out basis.
Stock-Based Compensation
Stock-based compensation is accounted for using the intrinsic value method
prescribed in Accounting Principles Board Opinion ("APB") No. 25, "Accounting
for Stock Issued to Employees", rather than applying the fair value method
prescribed in SFAS No. 123, "Accounting for Stock-Based Compensation", as
amended by SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and
Disclosure".
COMPARISON OF OPERATING RESULTS
Three Months and Nine Months Ended June 30, 2005 Compared to June 30, 2004
Revenues increased from $-0- for the three months ended June 30, 2004 to $3,044
for the three months ended June 30, 2005. The increase in revenues is due to
increased sales volume.
Revenues decreased from $27,395 for the nine months ended June 30, 2004 to
$10,541 for the nine months ended June 30, 2005. The decrease in revenues is due
to decreased sales volume.
Cost of sales increased from $-0- for the three months ended June 30, 2004 to
$1,106 for the three months ended June 30, 2005, which is consistent with the
increase in sales for the same period.
Cost of sales decreased from $13,353 for the nine months ended June 30, 2004 to
$3,407 for the nine months ended June 30, 2005, which is consistent with the
decrease in sales for the same period.
Gross profit increased from a gross profit of $-0- for the three months ended
June 30, 2004 to a gross profit of $1,938 for the three months ended June 30,
2005.
Gross profit decreased from a gross profit of $14,042 for the nine months ended
June 30, 2004 to a gross profit of $7,134 for the nine months ended June 30,
2005.
General and administrative expenses increased from $82,604 for the three months
ended June 30, 2004 to $91,727 for the three months ended June 30, 2005. The
increase in general and administrative expenses was due to an increase in
professional fees.
General and administrative expenses decreased from $392,090 for the nine months
ended June 30, 2004 to $185,487 for the nine months ended June 30, 2005. The
decrease in general and administrative expenses was due to lower costs related
to having one employee and one office location and savings attributed to
outsourcing in 2005.
The Company recorded a loss from operations of $(82,604) for the three months
ended June 30, 2004 compared to a loss from operations of $(89,789) for the
three months ended June 30, 2004. The increase in loss from operations is
principally due to the increased general and administrative expenses.
The Company recorded a loss from operations of $(378,048) for the nine months
ended June 30, 2004 compared to a loss from operations of $(178,353) for the
nine months ended June 30, 2004. The decrease in loss from operations is
principally due to the decrease in general and administrative expenses.
Interest and financing expense increased from $-0- for the three months ended
June 30, 2004 to $60,208 for the three months ended June 30, 2005. The increase
is due to the increase in notes payable and the Company recording a $60,000
beneficial conversion feature related to its convertible notes payable.
Interest and financing expense increased from $400 for the nine months ended
June 30, 2004 to $60,226 for the nine months ended June 30, 2005. The increase
is due to the increase in notes payable and the Company recording a $60,000
beneficial conversion feature related to its convertible notes payable.
Basic and diluted net loss per common share was $(0.00) for the three months
ended June 30, 2004 compared to $(0.01) for the three months ended June 30,
2005.
Basic and diluted net loss per common share was $(0.02) for the nine months
ended June 30, 2004 compared to $(0.01) for the nine months ended June 30, 2005.
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended June 30, 2005 the Company has not ever generated any
positive cash flow from its own operations due to the preliminary nature of its
operations. Consequently, the Company has been dependent on external financing
to fund its cash requirements.
As of June 30, 2005, the Company's cash totaled $19,028 and total current assets
were $426,186. Inventory at June 30, 2005 was $23,828.
As of June 30, 2005, the Company's accounts payable totaled $125,158 of which
$41,688 was payable to a former officer. Total current liabilities were
$428,493.
On May 23, 2005 the Company entered into a material definitive agreement with
Cornell Capital Partners, LP, pursuant to which the company may, at its
discretion, periodically sell to Cornell Capital shares of its common stock for
a total purchase price of up to $10,000,000. Cornell's obligation to purchase
shares of the company's common stock is subject to certain conditions, including
the Company effecting and maintaining an effective registration statement for
the shares of common stock sold under the agreement and is limited to $350,000
per weekly advance.
The Company is currently exploring all opportunities to raise the capital
necessary to develop it business operations.
There can be no assurance that any new capital would be available to the Company
or that adequate funds for the Company's operations, whether from the Company's
revenues, financial markets, or other arrangements will be available when needed
or on terms satisfactory to the Company. The Company has no commitments from
officers, directors or affiliates to provide funding. The failure of the Company
to obtain adequate additional financing may require the Company to delay,
curtail or scale back some or all of its operations, sales, marketing efforts
and research and development programs. Any additional financing may involve
dilution to the Company's then-existing shareholders.
ITEM 3. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures. Our chief executive
officer and principal financial officer, after evaluating the
effectiveness of the Company's "disclosure controls and procedures" (as
defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and
15d-15(e)) as of the end of the period covered by this annual report (the
"Evaluation Date"), has concluded that as of the Evaluation Date, our
disclosure controls and procedures were adequate and designed to ensure
that material information relating to us and our consolidated subsidiaries
would be made known to them by others within those entities.
(b) Changes in internal control over financial reporting. There were no
significant changes in our internal control over financial reporting
during the fourth fiscal quarter that materially affected, or is
reasonably likely to materially affect, our internal control over
financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We filed a lawsuit in U.S. Federal District Court for the Southern
District of Texas seeking to recover 8.1 million shares of our common
stock from the founder and principal of HealthRenu, Darrell Good, and
requesting that Mr. Good cease competing with us and soliciting our
customers. The lawsuit, among other claims, alleges breach of contract,
fraud and breach of fiduciary duty on the part of Mr. Good. A final
default judgment against Mr. Good has been entered in this case and the
court has ordered that the shares be cancelled and returned to us and that
Mr. Good is enjoined from competing with us for one year. The order
remains subject to appeal until August 28, 2005, at which time we plan to
commence and diligently pursue enforcement of the judgment unless the
order is appealed. We believe that Mr. Good would be required to post a
substantial appeal bond to appeal this order. We cannot assure you that we
will be successful in this case or even if successful, that we will be
able to recover the shares sought or prevent Mr. Good from continuing to
compete with us or to solicit our customers.
ITEM 2. CHANGES IN SECURITIES
In May 2005, the Company entered into a Standby Equity Distribution
Agreement ("SEDA") with Cornell Capital Partners, L.P. ("Cornell").
Pursuant to the SEDA, the Company may periodically sell to Cornell shares
of its common stock for a purchase price of up to a maximum $10.0 million.
For each share of common stock purchased under the SEDA, Cornell will pay
the Company 97% of the lowest volume weighted average price at which its
common stock is traded for the five trading days immediately following the
notice date. The Company may request advances under the SEDA once the
underlying shares are registered under the Securities Act. Thereafter, the
Company may continue to request advances until Cornell has advanced $10.0
million or 24 months after the effective date of the registration
statement, whichever occurs first. The amount of each advance is limited
to a maximum draw down of $350,000 every five trading days. Cornell will
retain a fee of 5% of each advance under the SEDA. The Company also issued
1,465,065 shares of its common stock and a promissory note in the
principal amount of $188,843 to Cornell and issued 90,909 shares of its
common stock to a placement agent. The common stock necessary to implement
During the three months ended June 30, 2005, the Company issued a total of
855,988 shares of common stock to an officer of the Company, certain
directors of the Company and a consultant to the Company in consideration
of services rendered to the Company, as well as 434,000 shares of common
stock to a director of the Company upon conversion of a loan of made by
the director to the Company. In addition, the Company issued a total of
116,000 shares of common stock to investors for total cash consideration
of $4,800 during the three months ended June 30,2005. The transactions
were conducted under Section 4(2) of the Securities Act of 1993 since the
sale of such securities did not involve any public offering.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
Exhibit No. Description
4.1 Standby Equity Distribution Agreement between HealthRenu
Medical, Inc. and Cornell Capital Partners, L.P. dated May
23,2005 incorporated herein by reference to Exhibit 4.1 to the
Company's Form SB-2 filed on even date herewith.
31.1 Certificate of the Chief Executive Officer and Chief Financial
Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.*
32.1 Certificate of the Chief Executive Officer and Chief Financial
Officer pursuant to Section 906 the Sarbanes-Oxley Act of
2002.*
*Filed herewith as an exhibit.
b) Reports on Form 8-K.
None
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
HEALTHRENU MEDICAL, INC.
DATED: August 15, 2005 By: /s/ Robert W. Prokos
-----------------------------
Robert W. Prokos
Chief Executive Officer and
Principal Financial Officer
In accordance with the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
NAME TITLE DATE
/s/ Robert w. Prokos Chief Executive Officer August 15, 2005
- -------------------- and Director
Robert W. Prokos (Principal Financial Officer)