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 March 31, 2004.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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Commission file number 000-21914
HEALTHRENU MEDICAL, INC.
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(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)
307 South Friendswood Drive, Suite E-1, Friendswood, Texas 77546
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(Address of principal executive offices)
(281) 996-8100
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(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-QSB
or any amendment to this Form 10-QSB. [ ]
As of May 24, 2004 the issuer had 19,549,364 shares of common stock, $.001
par value per share outstanding.
ITEM 1. FINANCIAL STATEMENTS
HEALTHRENU MEDICAL, INC.
UNAUDITED CONDENSED FINANCIAL STATEMENTS
FOR THE THREE MONTHS AND SIX MONTHS ENDED MARCH 31, 2004 AND 2003
HEALTHRENU MEDICAL, INC.
TABLE OF CONTENTS
PAGE(S)
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Unaudited Condensed Financial Statements:
Unaudited Condensed Balance Sheet as of March 31,
2004 and September 30, 2003 1
Unaudited Condensed Statement of Operations for the
three months and six months ended March 31, 2004
and 2003 2
Unaudited Condensed Statement of Stockholders' Equity
for the six months ended March 31, 2004 3
Unaudited Condensed Statement of Cash Flows for the
six months ended March 31, 2004 and 2003 4
Notes to Unaudited Condensed Financial Statements 5
HEALTHRENU MEDICAL, INC.
BALANCE SHEET
MARCH 31, 2004 AND SEPTEMBER 30, 2003
MARCH 31, SEPTEMBER 30,
2004 2003
ASSETS (UNAUDITED) (NOTE)
- --------------- ------------ ------------
Current assets:
Cash and cash equivalents $ - $ 17,684
Inventories 31,814 46,903
Employee receivable - 5,771
Other current assets 2,353 5,000
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Total current assets 34,167 75,358
Property and equipment, net 5,404 56,903
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Total assets $ 39,571 $ 132,261
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LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable and accrued liabilities $ 144,721 $ 78,604
Book Overdraft 1,283 -
Accounts payable-stockholder 3,010 3,235
Notes payable to stockholders 1,000 16,403
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Total current liabilities 150,014 98,242
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Commitments and contingencies
Stockholders' equity:
Convertible preferred stock, Series 2000A, $0.001
par value; 1,500,000 shares authorized, 1,763
shares issued and outstanding at March 31, 2004
and September 30, 2003 2 2
Common stock, $.001 par value; 50,000,000 shares
authorized, 19,499,364 and 15,506,962 shares issued
and outstanding at March 31, 2004 and September
30, 2003, respectively 19,499 15,507
Additional paid-in capital 1,391,890 674,830
Common stock committed 82,464 698,602
Stock subscription receivable - (31,000)
Accumulated deficit (1,604,298) (1,323,922)
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Total stockholders' equity (110,443) 34,019
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Total liabilities and stockholders' equity $ 39,571 $ 132,261
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Note: The balance sheet at September 30, 2003 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 unaudited condensed financial statements.
-1-
HEALTHRENU MEDICAL, INC.
UNAUDITED CONDENSED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS AND SIX MONTHS ENDED MARCH 31, 2004 AND 2003
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
---------------- ----------------
2004 2003 2004 2003
------------ ----------- ------------ -----------
Sales $ 24,498 $ 6,833 $ 27,395 $ 15,476
Cost of sales 11,294 2,923 13,353 16,068
------------ ----------- ------------ -----------
Gross profit (loss) 13,204 3,910 14,042 (592)
General and administrative expenses 188,933 13,620 309,486 32,133
------------ ----------- ------------ -----------
Loss from operations (175,729) (9,710) (295,444) (32,725)
Gain on sale of assets 15,468 - 15,468 -
Interest expense - - (400) -
------------ ----------- ------------ -----------
Net loss $ (160,261) $ (9,710) $ (280,376) $ (32,725)
============ =========== ============ ===========
Weighted average shares outstanding 19,470,518 9,067,070 18,094,740 9,029,403
============ =========== ============ ===========
Basic and diluted net loss per common
share $ (0.01) $ (0.00) $ (0.02) $ (0.00)
============ =========== ============ ===========
See accompanying notes to unaudited condensed financial statements.
-2-
HEALTHRENU MEDICAL, INC.
UNAUDITED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE SIX MONTHS ENDED MARCH 31, 2004
ADDITIONAL COMMON STOCK
PREFERRED STOCK COMMON STOCK PAID-IN STOCK SUBSCRIPTION ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMMITTED RECEIVABLE DEFICIT TOTAL
------ ------- ---------- ------- ---------- --------- ------------ ------------ --------
Balance at September 30, 2003 1,763 $ 2 15,506,962 $15,507 $ 674,830 $ 698,602 $ (31,000) $(1,323,922) $34,019
Stock issued for services - - 25,000 25 2,925 - - - 2,950
Payment of subscription
receivable - - - - - - 31,000 - 31,000
Stock issued for committed
stock - - 3,779,902 3,780 694,822 (698,602) - - -
Common stock issued for
employee compensation - - 187,500 187 18,563 - - - 18,750
Common stock committed for
employee compensation - - - - - 11,250 - - 11,250
Common stock committed for
accrued liabilities - - - - - 21,214 - - 21,214
Common stock committed for
services - - - - - 50,000 - - 50,000
Rent contributed by stockholder - - - - 750 - - - 750
Net loss - - - - - - - (280,376) (280,376)
------ ------- ---------- ------- ---------- ----------- ------------ ----------- ----------
Balance at March 31, 2004 1,763 $ 2 19,499,364 $19,499 $1,391,890 $ 82,464 $ - $(1,604,298) $(110,443)
====== ======= ========== ======= ========== =========== ============ ============ ==========
See accompanying notes to unaudited condensed financial statements.
-3-
HEALTHRENU MEDICAL, INC.
UNAUDITED CONDENSED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31, 2004 AND 2003
SIX MONTHS ENDED
MARCH 31,
-----------------
2004 2003
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Cash flows from operating activities:
Net loss $(280,376) $(32,725)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation 4,868 2,074
Gain on sale of asset (15,468) -
Stock-based compensation for services 52,950 -
Stock-based employee compensation 30,000 -
Rent contributed by stockholder 750 -
Changes in operating assets and liabilities:
Accounts receivable (1,994) 16,670
Other current assets 8,354 2,749
Inventories 15,089 4,426
Accounts payable and accrued liabilities 139,358 (609)
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Net cash used in operating activities (46,469) (7,415)
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Cash flows from investing activities:
Purchase of fixed assets (3,498) -
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Net cash used in investing activities (3,498) -
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Cash flows form financing activities:
Proceeds from stock subscription receivable 31,000 -
Proceeds from sale of stock - 4,000
Increase in book draft 1,283 -
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Net cash provided by financing activities 32,283 4,000
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Decrease in cash and cash equivalents (17,684) (3,415)
Cash and cash equivalents, beginning of period 17,684 13,128
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Cash and cash equivalents, end of period $ - $ 9,713
========== =========
Supplemental disclosure of cash flow information:
Cash paid for interest $ - $ -
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Cash paid for income taxes $ - $ -
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Non-cash investing and financing activities:
Common stock committed for payment of accrued
liabilities $ 21,214 $ -
========== =========
Sale of assets for reduction in liabilities $ 52,187 $ -
See accompanying notes to unaudited condensed financial statements
-4-
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, 2003. 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
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HealthRenu Medical, Inc. (the "Company"), a Nevada corporation, is headquartered
in Friendswood, Texas. The Company produces and distributes various skin care
products 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. 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 for a
return of 25,000 shares of common stock of the Company and all proprietary
trademarks, intellectual property rights and formulas to produce its products.
The gain on the disposition of these assets and liabilities totals was $15,468.
3. CRITICAL ACCOUNTING POLICIES
------------------------------
USE OF ESTIMATES
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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.
REVENUE RECOGNITION
--------------------
Revenue is recognized when products are shipped.
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".
-5-
HEALTHRENU MEDICAL, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS, CONTINUED
4. Going Concern
During the six months ended March 31, 2004, the Company has continued to
accumulate payables to its vendors and has experienced negative financial
results as follows:
Net loss $(280,376)
Negative cash flows from operations $(46,469)
Negative working capital $(115,847)
Accumulated deficit $(1,604,298)
Stockholders' deficit $(110,443)
Management has developed specific current and long-term plans to address its
viability as a going concern as follows:
- 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.
- The Company is also attempting to raise funds through debt and/or
equity offerings. If successful, these additional funds would be
used to pay down liabilities and to provide working capital.
- In the long-term, the Company believes that cash flows from continued
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:
- 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.
- The ability of the Company to control costs and expand revenues.
- The ability of the Company to ultimately achieve adequate
profitability and cash flows from operations to sustain its
operations.
5. EMPLOYMENT AGREEMENTS
----------------------
Effective March 1, 2004, the Company entered into an employment agreement with
its Chief Executive Officer. The three-year employment agreement provides for
an annual salary as well as a one time stock grant of 350,000 shares of common
stock of the Company as payment of accrued compensation owed to him of
approximately $21,214.
-6-
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, 2003.
HealthRenu Medical, Inc. (the "Company" or "HealthRenu") is a processor and
manufacturer of products for skin care and wound care, with a wide range of
applications. In February 2004, the Company acquired all of the proprietary
trademarks and other intellectual property rights and certain other assets
including formulas to produce the products listed below (collectively referred
to herein as the "Assets") of its wholly-owned subsidiary, Health Renu, Inc. a
Delaware Corporation ("Health Renu"), in exchange for all of the stock of Health
Renu, which stock was subsequently acquired by Darrell Good, the Company's
former President. The Assets had been used by Health Renu for medical research,
development, sales and marketing of personal skin care and wound care products.
The Company continued to use the Assets for the same purposes. Health Renu 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 currently used for skin care and wound care. The
Company's products are specifically 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 currently has eight 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' SPORT MEDICINE
- - HEALTH RENU' DEEP RELIEF PAIN RELIEVER
- - HEALTH RENU' FACIAL SOAP
These products have provided a very simple, cost effective way in dealing with
disorders without side affects and are marketed 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").
Most of the Company's sales have been from test marketing to household
consumers, nursing homes, home health care, family clinics, pharmacies, surgeons
and some hospital sales. The Company has completed the production of TV
commercials to advertise its products. The Company will begin to air the
commercials in June 2004. The Company's management expects that the TV
commercials will provide not only an increase in sales, but also name brand
recognition for the products in preparation for placing the products into
drugstore chains.
Comparison of Operating Results
Three Months Ended March 31, 2004 Compared to Three Months Ended March 31, 2003:
Sales increased from $6,833 for the three months ended March 31, 2003 to $24,498
(or 259%) for the three months ended March 31, 2004. The increase in sales was
due to a bulk sale to a distributor.
Cost of sales increased from $2,923 for the three months ended March 31, 2003 to
$11,294 (or 286%) for the three months ended March 31, 2004. The increase in
cost of sales was due to the increased sales.
Gross profit increased from $3,910 for the three months ended March 31, 2003 to
$13,204 (or 238%) for the three months ended March 31, 2004. Gross profit as a
percentage of sales ("gross profit margin") decreased to 54% for the three
months ended March 31, 2004, as compared to 57% for the three months ended March
31, 2003. The decrease in gross profit margin for the three months ended March
31, 2004, is directly attributable to the 286% increase in cost of sales that
overshadowed the 259% increase in sales.
General and administrative expenses increased to $188,933 for the three months
ended March 31, 2004 from $13,620 (or 1,287%) for the three months ended March
31, 2003. The increase in general and administrative expenses was due to costs
associated with being a publicly traded company as well as issuances of stock in
consideration for services rendered.
The Company recorded a loss from operations of $(175,729) for the three months
ended March 31, 2004 compared to a loss from operations of $(9,710) for the
three months ended March 31, 2003. The increase of loss from operations is
principally due to the increased general and administrative expenses.
The Company recognized a $15,468 gain on the sale of assets for the three months
ended March 31, 2004. The gain was attributable to the spin-off of Health Renu
to its founder and the Company's former President, Darrell Good. The Company
does not expect to realize additional gain from the sale of assets on a
continuing basis.
The Company reported a net loss of $(160,261) for the three months ended March
31, 2004 compared to a net loss of $(9,710) for the three months ended March 31,
2003. The increase in net loss is principally due to the increase in general and
administrative expenses which was partially offset by the gain on the sale of
assets.
Basic and diluted net loss per common share was $(0.01) for the three months
ended March 31, 2004 compared to $(0.00) for the three months ended March 31,
2003.
Six Months Ended March 31, 2004 Compared to Six Months Ended March 31, 2003:
Sales increased from $15,476 for the six months ended March 31, 2003 to $27,395
(or 77%) for the six months ended March 31, 2004. The increase in sales is due
to bulk sale to a distributor.
Cost of sales decreased from $16,068 for the six months ended March 31, 2003 to
$13,353 (or 17%) for the six months ended March 31, 2004.
Gross profit increased from a loss of $(592) for the six months ended March 31,
2003 to a gross profit of $14,042 for the six months ended March 31, 2004. Gross
profit margin for the six months ended March 31, 20004 was 51%.
General and administrative expenses increased to $309,486 for the six months
ended March 31, 2004 from $32,133 (or 863%) for the six months ended March 31,
2003. The increase in general and administrative expenses was due to costs
associated with being a publicly traded company as well as stock-based
compensation for professional fees and employee compensation.
The Company recorded a loss from operations of $(295,444) for the six months
ended March 31, 2004 compared to a loss from operations of $(32,725) for the six
months ended March 31, 2003. The increase of loss from operations is principally
due to the increased general and administrative expenses.
The Company reported a net loss of $(280,376) for the six months ended March 31,
2004 compared to a net loss of $(32,725) for the six months ended March 31,
2003. The increase in net loss is principally due to the increase in general and
administrative expenses.
Basic and diluted net loss per common share was $(0.02) for the six months ended
March 31, 2004 compared to $(0.00) for the six months ended March 31, 2003.
Liquidity and Capital Resources
The Company did not have any cash or cash equivalents at March 31, 2004. The
Company had total current assets of $34,167 which consisted of inventories of
$31,814 and other current assets of $2,353. The Company had total current
liabilities of $150,014 as of March 31, 2004, which consisted of accounts
payable of $146,004 and accounts and notes payable to shareholder in an
aggregate amount of $4,010.
The Company has negative net working capital of $(115,847). The ratio of current
assets to current liabilities was 23%.
The Company believes that it currently has sufficient raw material to produce
inventory with a retail value in excess of $1,300,000. Lab costs associated with
the production of this inventory are approximately $150,000 for which the
Company will need external financing.
It is imperative that the Company raise capital to implement its business plan.
The Company does not have any cash and most of its inventory is in the form of
raw materials that need to be processed. The Company will require approximately
$500,000 of additional financing to implement its business plan. At this time,
no such additional financing has been secured or identified. If the Company is
unable to obtain debt and/or equity financing upon terms that management deems
sufficiently favorable, or at all, it would have a materially adverse impact
upon the Company's ability to pursue its aggressive marketing strategy and
maintain its current operations. Without additional capital funding, the Company
will have limited ability to continue operations. If the Company does not
receive external financing, it will not be able to convert its raw materials
into finished products. Without finished products, the Company's revenue stream
would cease. In the event that the Company does not receive external financing,
the Company's management may be forced to cease operations.
The Company used the remainder of its cash during the six months ended March 31,
2004. The Company used $45,186 of cash in its operating activities for the six
months ended March 31, 2004. The cash was used to fund the Company's net loss of
$(280,376) offset by $52,950 of stock based compensation from services, $30,000
of stock-based employee compensation, $750 of rent-free office space contributed
by a majority stockholder, a $4,868 adjustment for depreciation, an $8,354
decrease in current assets, a $15,089 decrease in inventories, a $139,358
increase in accounts payable and accrued liabilities, a $15,468 unrealized gain
on the sale of assets and a $1,994 increase in accounts receivable.
The Company used $3,498 of cash to purchase fixed assets.
The Company received $31,000 of cash from stock subscriptions.
The Company is currently exploring all opportunities to raise the capital
necessary to develop its business operations. In April and May of 2004, the
Company's Chief Executive Officer invested an aggregate of $25,000 for 250,000
Shares which have not been issued as of the date of this report. In April 2004,
a Company director invested $36,000 in consideration for 360,000 shares which
have not been issued as of the date of this report. The Company is in continued
negotiations with respect to a letter of commitment for equity funding of
$500,000 to be spread out over 240 days. The details of this commitment have not
been received, so funding is not guaranteed. There is no guarantee that these
funds will be sufficient to meet the Company's immediate operating needs or that
such funds will be received at all. Until the Company has the necessary funds to
pay the laboratory costs associated with the development of its product
inventory the Company will realize only minimal sales. The laboratory process is
approximately a four week cycle. Therefore when funds are received, inventory
will be replenished within four weeks.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations
is based upon our financial statements, which have been prepared in accordance
with accounting principals generally accepted in the United States. The
preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of any contingent assets and liabilities. On an
on-going basis, we evaluate our estimates, including those related to
uncollectible receivable, investment values, income taxes, the recapitalization
and contingencies. We base our estimates on various assumptions that we believe
to be reasonable under the circumstances, the results of which form the basis
for making judgments about 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.
We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our financial
statements:
Revenue Recognition. Revenue is recognized when products are shipped, however,
the Company does market its products with a satisfaction guarantee. The Company
has not set up a reserve for returns from unsatisfied customers. In the event
that products are returned pursuant to this guarantee, the Company would have to
make an offsetting adjustment to sales revenue.
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".
ITEM 3. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures. Our chief executive
officer and chief 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"),
have concluded that as of the Evaluation Date, our disclosure controls and
procedures were adequate and designed to ensure that material information
required to be disclosed by the Company in the reports that it files or
submits under the Exchange Act of 1934 is 1) recorded, processed,
summarized and reported, within the time periods specified in the
Commission's rules and forms; and 2) accumulated and communicated to them
as appropriate to allow timely decisions regarding required disclosure.
(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
As of the date of filing of this report, the Company was not a party to, nor
aware of, any legal proceedings involving the Company.
ITEM 2. CHANGES IN SECURITIES
(c) In January 2004, the Company issued 187,500 shares of its common stock,
$.001 par value per share to its Chief Financial Officer pursuant to his
prior employment agreement which were not registered under the Securities
Act of 1933, as amended (the "Act"), The Company claims an exemption from
registration afforded by Section 4(2) of the Act since the foregoing
issuance did not involve a public offering, the recipient had access to
information that would be included in a registration statement, took the
shares for investment and not resale and the Company took appropriate
measures to restrict transfer.
In March 2004, the Company issued 50,000 shares of its common stock to an
individual in consideration for legal services rendered. The Company claims an
exemption from registration afforded by Section 4(2) of the Act since the
foregoing issuance did not involve a public offering, the recipient had access
to information that would be included in a registration statement, took the
shares for investment and not resale and the Company took appropriate measures
to restrict transfer.
ITEM 5. OTHER INFORMATION
In February 2004, the Company spun-off its wholly-owned subsidiary, Health Renu,
Inc. to the subsidiary's founder and the Company's former President, Darrell
Good. The Company acquired all of the proprietary trademarks and other
intellectual property and certain other assets of Health Renu in exchange for
all of the stock of Health Renu, which stock was distributed to Mr. Good. In
addition, Mr. Good agreed to return 25,000 shares of Company common stock to the
Company for cancellation. As of the date of this report, the 25,000 shares have
not been received by the Company for cancellation. The assets had been used by
Health Renu for medical research, development, sales and marketing of personal
skin care and wound care products. The Company has continued to use the assets
for the same purposes.
In March 2004, the Company underwent a change in its management. Darrell Good
resigned as President and was removed as a Director. Randy Mullins resigned as
Chief Executive Officer. On that same date, the remaining Directors appointed
Dr. Dianne Love as a Director, Rob Prokos as President and Chief Executive
Officer, and Randy Mullins as Chief Financial Officer.
Effective March 1, 2004, the Company entered into an employment agreement with
its Chief Executive Officer. The three-year employment agreement provides for an
annual salary of $95,000 as well as a one time stock grant of 350,000 shares of
common stock of the Company as payment of accrued compensation owed to him of
approximately $21,000 as of February 29, 2004.
In April 2004, the Company's Directors appointed Walt Zieverink as a Director to
fill a vacancy on the Company's Board of Directors.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
Exhibit No. Description
10.1 Agreement to Dispose of Health Renu *
10.2 Employment Agreement with Rob Prokos *
31.1 Certificate of the Chief Executive
Officer pursuant Section 302 of the
Sarbanes-Oxley Act of 2002 *
31.2 Certificate of the Chief Financial
Officer pursuant Section 302 of the
Sarbanes-Oxley Act of 2002 *
32.1 Certificate of the Chief Executive
Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 *
32.2 Certificate of the Chief Financial
Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 *
* Filed herewith as an exhibit.
b) Reports on Form 8-K
The Company filed one report on Form 8-K during the quarter for which this
report is filed to report the spin-off of its wholly-owned subsidiary and to
report changes in its Board of Directors and its management.
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: May 24, 2004 By: /s/ Robert Prokos
------------------------
Robert Prokos
Chief Executive 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 Prokos Chief Executive Officer May 24, 2004
- ---------------------- and Director
Robert Prokos (Principal Executive Officer)
/s/ Randy Mullins Chief Financial Officer May 24, 2004
- ---------------------- and Director
Randy Mullins (Principal Financial Officer)
EXHIBIT 10.1
AGREEMENT
This Agreement dated February 29, 2004 ("Agreement") is by and between
HealthRenu Medical, Inc., a Nevada corporation ("HRUM"), Health Renu, Inc., a
Delaware corporation ("Health Renu") and Darrell Good ("Good").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, HRUM owns 100% of the issued and outstanding shares of common
stock of Health Renu;
WHEREAS, Health Renu currently owns (and has previously owned) certain
trademarks, formulas, inventory and products.
WHEREAS, Good owns Twenty-Five Thousand (25,000) shares of common stock of
HRUM (the "HRUM Common Stock") and other shares of common stock of HRUM;
WHEREAS, HRUM desires to exchange 100% of the issued and outstanding shares
of common stock of Health Renu for the HRUM Common Stock, any trademarks,
formulas, inventory and products owned by Health Renu and the right to pursue
any trademarks or formulas previously owned by Health Renu or to which Health
Renu has had rights;
WHEREAS, Good desires to exchange the HRUM Common Stock and relinquish any
ownership rights to any trademarks, formulas, inventory or products owned by
Health Renu or to which Health Renu has had rights for 100% of the issued and
outstanding shares of common stock of Health Renu;
WHEREAS, HRUM, Health Renu and Good desire to set forth in writing the
terms and conditions of their agreement and understanding concerning the
exchange; and
NOW, THEREFORE, in consideration of the premises and the mutual covenants,
agreements, and considerations herein contained, the parties hereto agree as
follows:
1. Exchange Agreement. HRUM agrees to transfer 100% of the issued and
------------------
outstanding shares of common stock of Health Renu to Good in exchange for a)
HRUM Common Stock; b) relinquishing any rights of Good to trademarks, formulas,
inventory and products owned by Health Renu; c) forgiveness of any balances due
Health Renu from HRUM and d) the right to pursue any trademarks or formulas
previously owned by Health Renu or to which Health Renu has had rights. Good
agrees to transfer the HRUM Common Stock to HRUM and to relinquish any ownership
rights to any trademarks, formulas, inventory or products owned by Health Renu
or to which Health Renu has had rights in exchange for 100% of the issued and
outstanding shares of common stock of Health Renu.
2. Warranties and Representations of HRUM. HRUM warrants and represents to
--------------------------------------
Good that HRUM owns 100% of the common stock of Health Renu free and clear of
any claim whatsoever; HRUM has not pledged or encumbered the common stock of
Health Renu in any manner; the Common Stock is nonassessable; HRUM has granted
no right, warrant, purchase option, or any other right which directly or
indirectly affects the common stock of Health Renu; and the common stock of
Health Renu is freely assignable by HRUM to Good in accordance with this
Agreement.
3. Warranties and Representations of Good. Good warrants and represents to
--------------------------------------
HRUM that Good owns the HRUM Common Stock free and clear of any claim
whatsoever; Good has not pledged or encumbered the HRUM Common Stock in any
manner; the HRUM Common Stock is nonassessable; Good has granted no right,
warrant, purchase option, or any other right which directly or indirectly
affects the HRUM Common Stock; and the HRUM Common Stock is freely assignable by
Good to HRUM in accordance with this Agreement.
4. Warranties and Representations of Health Renu. Health Renu warrants and
---------------------------------------------
represents to HRUM that Health Renu owns such trademark(s) and such formulas,
inventory and products as attached hereto as Exhibit A; Health Renu has granted
no right, warrant, purchase option, or any other right which directly or
indirectly affects the Health Renu(TM) trademark and the formulas, inventory and
products related to such trademark, other than disclosed on Exhibit B; and the
Health Renu trademark(s) as well as the formulas, inventory and products related
to such trademark are freely assignable by Health Renu to HRUM in accordance
with this Agreement.
5. Miscellaneous
-------------
(a) Assignment. All of the terms, provisions and conditions of this
----------
Agreement shall be binding upon and shall inure to the benefit of and be
enforceable by the parties hereto and their respective successors and permitted
assigns.
(b) Applicable Law. This Agreement shall be construed in accordance
--------------
with and governed by the laws of the State of Texas, excluding any provision
which would require the use of the laws of any other jurisdiction.
(c) Entire Agreement, Amendments and Waivers. This Agreement
----------------------------------------
constitutes the entire agreement of the parties hereto and expressly supersedes
all prior and contemporaneous understandings and commitments, whether written or
oral, with respect to the subject matter hereof. No variations, modifications,
changes or extensions of this Agreement or any other terms hereof shall be
binding upon any party hereto unless set forth in a document duly executed by
such party or an authorized agent or such party.
(d) Faxed Copies. For purposes of this Agreement, a faxed signature
-------------
shall constitute an original signature.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first written above.
/s/ Darrell Good
-------------------------
DARRELL GOOD
HEALTH RENU MEDICAL, INC.
BY: Robert Prokos
-------------------------
ITS: President & CEO
-------------------------
HEALTH RENU, INC.
BY: /s/ Darrell Good
-------------------------
ITS: Owner
-------------------------
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
This Employment Agreement is made this 1st day of March 2004, by and between
HealthRenu Medical Inc., a Nevada Corporation, (hereinafter referred to as
"Company") and Robert Prokos, an individual having an address at 16510 Westwego
Trail Cypress, Texas 77429, (hereinafter referred to as "Employee").
WITNESSETH:
WHEREAS, HealthRenu Medical, Inc. desires to hire and retain Employee as
President and Chief Executive Officer of the Company and as a board member of
HealthRenu Medical, with all duties, authorities, and responsibilities as may
normally he considered attendant to such POSITION IN addition to:
- - The right to negotiate and execute contracts for the Company
- - The right to hire and fire officers and employees of the company
- - The right to sign on bank accounts and all banking matters to the company
- - The CEO does not have the right to issue company's stock, CEO has the
right to deal with other stock affairs in the company.
WHEREAS, Employee possesses the necessary skills, knowledge and abilities
to provide such services, and is desirous of accepting said position and
employment with the Company.
NOW THEREFORE, in consideration of the foregoing, of the mutual promises
between the parties as contained herein, and other good and valuable
consideration, the receipt and sufficiency OF which is hereby acknowledged, the
parties hereto, intending to be legally bound, hereby agree as follows:
I. TERM. The term of this Agreement shall be for a period of three (3) years
commencing on March 1st, 2004 and terminating on February 28, 2007. This
agreement shall only be terminated in accordance with the provisions of
Paragraph VI (six) of this Agreement.
II. DUTIES. Effective March 1st 2004, and through February 28, 2007, Employee
shall serve as President and Chief Executive Officer of HealthRenu Medical,
Inc. and devote his primary time and attention to his duties as an officer
of the Company, which duties may be augmented or restricted in accordance
with the directives of the Board of Directors of the Company. Employee
represents and warrants that he is free to accept this employment and will
exercise his best efforts in good faith with respect to his employment
hereunder.
III. COMPENSATION. Employee shall be paid an annualized base salary of $95,000
payable monthly, in arrears. During the term of this Agreement, the
Employee may be eligible to participate in performance bonuses and any
qualified or non-qualified stock option plans of the Company, as
established by the Compensation Committee of the Board of Directors of the
Company. Stock/ Option Incentives authorized for Employee pursuant to this
agreement are as follows:
Stock Compensation. 350,000 shares of common stock will be issued to
Employee in exchange for the Employee forgiving historical consulting
remuneration in the amount of $21,000due the Employee for services rendered
to the Company when the Employee acted as a consultant to the Company
IV. EXPENSES. Subject to the Company's written employee expense reimbursement
policy, the Employee shall be entitled to reimbursement for all reasonable
expenses necessarily incurred by him in the performance of his duties upon
presentation of a voucher indicating the amount and business purpose and
supported by appropriate documentation
V. BENEFITS. The Employee shall be eligible to participate in all of the
Company's health and welfare benefit programs. He shall be entitled to 30
vacation days annually according to the Company's vacation policy, and 10
personal days the timing of which shall be agreed upon between the Employee
and the Board of Directors of the Company
VI. TERMINATION. Notwithstanding any provision of the foregoing contract, the
Employee may be discharged only for Cause by the Board of Directors of the
Company at any time during the period of employment provided for in this
Agreement.
A. "Cause" shall mean a material breach of the terms of this Agreement,
including: (a) conviction of a felony involving moral turpitude; (b)
theft from the Company or any of its customers; (c) breach of the
covenant of non-competition and non-disclosure; (d) willful failure or
refusal to carry out the policies of the Company or any order or
directive of the Board of Directors of HealthRenu; or (e) the failure
by the Employee to perform all of the material duties and to comply
with the material terms and conditions required of him under this
Agreement.
B. If the Employee is discharged for cause, or voluntarily leaves the
employ of the Company during the period of active employment specified
herein, then and in any such event, all subsequent compensation
required to be paid by the Company to the Employee shall be forfeited,
and this contract and the rights of the parties shall terminate.
C. In the event the Company otherwise terminates the Employee's
employment, the Company shall be obligated to pay Employee, as a lump
sum severance payment, an amount equal to one times the Employee's
annual salary, payable in either shares or cash at the Company's
option within thirty (30) days of such termination.
D. In the event of Employee's death, his employment shall be terminated
immediately and his spouse or assigns shall receive the proceeds of
the Key Man Life insurance OR other insurance policies maintained by
the Company on Employee as determined by the Compensation Committee of
the Board of Directors of the Company.
VII. ARBITRATION. All disputes, differences, or questions arising between the
parties hereto relating to construction, price, meaning, or effect of any
cause or thing contained herein, or the rights or liabilities of the
parties respectively, or their respective successors and assigns, shall be
referred to arbitration between the parties hereto, one arbitrator to be
appointed by each party, arid the arbitrators so chosen, if by themselves
unable to agree within ten days after their appointment, choose an
additional arbitrator, without delay, and the decision in writing signed by
a majority of such arbitrators, unless patently erroneous, shall be binding
upon the parties hereto. The general procedure followed for arbitrators
shall conform to the laws of the State of Texas. The unsuccessful party in
the arbitration shall pay the expenses/costs related thereto
VIII. NOTICE. Any notice required or permitted to be given under this Agreement
shall be sufficient if in writing and if sent by certified or registered
mail, return receipt requested
IX. Rules of Construction.
A. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties pertaining to the subject matter hereof and
supercedes all negotiations, prior agreements and contemporaneous
agreements, discussions and understandings of the parties in
connection with the subject matter hereof
B. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas. Venue and Jurisdiction
shall be in Harris County, Texas.
C. AMENDMENTS No change, modification or termination of any of the terms,
provisions or conditions of this Agreement shall be effective unless
made IN writing and signed by all parties hereto, their successors or
assigns.
D. BINDING EFFECT ON SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon and shall inure to the benefit of the panics hereto and
their respective successors, personal representatives, heirs and
assigns.
E. DISCLOSURE. Employee agrees not to discuss the terms of this Agreement
to anyone during the term of this agreement except as required by law
without the express written consent of HealthRenu.
F. SEVERABILITY. if any Article, or other provision of this Agreement, or
the application thereof, is held to be invalid, illegal, or
unenforceable in any respect or for any reason, the remainder of this
Agreement, and the application of the Article, Section or Provision to
a person OR circumstance with respect to which it is valid, legal or
enforceable, shall not be affected thereby.
IN WITNESS WHEREOF, the parties hereto have executed this Employment Agreement
below, as of this 1st day of March 2004.
HEALTHRENU MEDICAL, INC.
By: /s/ Dr. Danny Sparks
-----------------------------
Dr. Danny Sparks, Chairman
THE EMPLOYEE:
ROBERT WAYNE PROKOS
By: /s/ Robert Wayne Prokos
-----------------------------
Robert Wayne Prokos
EXHIBIT 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Rob Prokos, certify that:
1. I have reviewed this Quarterly Report on Form 10-QSB of HealthRenu Medical,
Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the small business issuer as of, and for, the periods presented in this
report;
4. The small business issuer's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small
business issuer and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the small
business issuer, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the
period in which this report is being prepared;
b) Paragraph omitted in accordance with SEC transition instructions
contained in SEC Release No. 33-8238;
c) Evaluated the effectiveness of the small business issuer's disclosure
controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as
of the end of the period covered by this report based on such
evaluation; and
d) Disclosed in this report any change in the small business issuer's
internal control over financial reporting that occurred during the
small business issuer's most recent fiscal quarter (the small business
issuer's fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect,
the small business issuer's internal control over financial reporting;
and
5. The small business issuer's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the small business issuer's auditors and the audit committee
of the small business issuer's board of directors (or persons performing
the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the small business issuer's
ability to record, process, summarize and report financial
information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the small business issuer's
internal control over financial reporting.
Date: May 24, 2004
By: /s/Rob Prokos
-------------------------------
Rob Prokos,
Chief Executive Officer
EXHIBIT 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Randy Mullins certify that:
1. I have reviewed this Quarterly Report on Form 10-QSB of HealthRenu Medical,
Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the small business issuer as of, and for, the periods presented in this
report;
4. The small business issuer's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small
business issuer and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the small
business issuer, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the
period in which this report is being prepared;
b) Paragraph omitted in accordance with SEC transition instructions
contained in SEC Release No. 33-8238;
c) Evaluated the effectiveness of the small business issuer's disclosure
controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as
of the end of the period covered by this report based on such
evaluation; and
d) Disclosed in this report any change in the small business issuer's
internal control over financial reporting that occurred during the
small business issuer's most recent fiscal quarter (the small business
issuer's fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect,
the small business issuer's internal control over financial reporting;
and
5. The small business issuer's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the small business issuer's auditors and the audit committee
of the small business issuer's board of directors (or persons performing
the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the small business issuer's
ability to record, process, summarize and report financial
information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the small business issuer's
internal control over financial reporting.
Date: May 24, 2004
By: /s/ Randy Mullins
-------------------------------
Randy Mullins
Chief Financial Officer
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Rob Prokos, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of
HealthRenu Medical, Inc. on Form 10-QSB for the quarterly period ended March 31,
2004 fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 and that information contained in such Form
10-QSB fairly presents in all material respects the financial condition and
results of operations of HealthRenu Medical, Inc.
By:/s/ Rob Prokos
--------------------------
Rob Prokos
Chief Executive Officer
May 24, 2004
Exhibit 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Randy Mullins, certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly
Report of HealthRenu Medical, Inc. on Form 10-QSB for the quarterly period ended
March 31, 2004 fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934 and that information contained in such Form
10-QSB fairly presents in all material respects the financial condition and
results of operations of HealthRenu Medical, Inc.
By:/s/ Randy Mullins
--------------------------
Randy Mullins
Chief Financial Officer
May 24, 2004