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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTER ENDED SEPTEMBER 30, 2013

Commission File No. 000-52771
PURAMED BIOSCIENCE, INC.
(Exact name of registrant as specified in its charter)
 
Minnesota
 
20-5510104
(State or other jurisdiction of Incorporation or organization)
 
(IRS Employer ID Number)
 
1326 Schofield Avenue, Schofield, WI
 
54476
(Address of principal executive offices)
 
(Zip Code)
 
(715) 359-6373
(Registrant’s telephone number)
 
Check whether the Issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  YES þ NO o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES þ NO o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule12b-2 of the Exchange Act. (Check one):
 
 Large accelerated filer   þ Accelerated filer   o Non-accelerated filer o Smaller reporting company  o
 
Indicate by checkmark whether registrant is a shell company. o
 
There were 62,511,833 shares of Common Stock outstanding as of November 6, 2013.
 


 
 
 
 
 
TABLE OF CONTENTS
 
PART I – FINANCIAL INFORMATION
 
     
Item 1.
UNAUDITED CONDENSED FINANCIAL STATEMENTS
  3
 
Unaudited Condensed Balance Sheets
  3
 
Unaudited Condensed Statements of Operations
  4
 
Unaudited Condensed Statements of Cash Flows
  5
 
Notes to Condensed Unaudited Financial Statements
  6
Item 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  10
Item 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  19
Item 4.
CONTROLS AND PROCEDURES
  19
     
PART II. OTHER INFORMATION
 
      20
Item 1.
LEGAL PROCEEDINGS AND RISK FACTORS
  20
Item 1a.
RISK FACTORS
  20
Item 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  20
Item 3.
DEFAULTS UPON SENIOR SECURITIES
  20
Item 4.
MINE SAFETY DISCLOSURES
  20
Item 5.
OTHER INFORMATION
  20
ITEM 6.
EXHIBITS
  21
 
 
 
2

 
 
PART I – FINANCIAL INFORMATION
 
ITEM 1. UNAUDITED CONDENSED FINANCIAL STATEMENTS
 
PURAMED BIOSCIENCE, INC.
Unaudited Condensed Balance Sheets
 
   
September 30,
   
June 30,
 
   
2013
   
2013
 
             
ASSETS
           
             
Current Assets
           
Cash
  $ 771     $ 41,180  
Accounts Receivable
    40,757       25,119  
Inventory
    199,463       203,906  
Prepaid Expenses
    24,033       56,039  
                 
Total Current Assets
    265,024       326,244  
                 
Property and Equipment
               
Computer Software
    2,483       2,483  
Computer Hardware
    5,570       5,338  
Equipment
    2,136       2,136  
Accumulated Depreciation
    (5,662 )     (5,090 )
                 
Net Property and Equipment
    4,527       4,867  
                 
Other Assets
               
PuraMed Bioscience Products, net of accumulated
               
 amortization of $310,419 and $298,418, respectively
    25,613       37,614  
Trademarks, net of amortization of $3,157 and $2,754, respectively
    12,980       13,383  
Patents, net of amortization of $4,392 and $2,928, respectively
    90,826       89,511  
Deferred Financing Fees
    11,817       4,727  
                 
Total Other Assets
    141,236       145,235  
                 
Total Assets
  $ 410,787     $ 476,346  
                 
LIABILITIES AND STOCKHOLDERS' DEFICIT
               
                 
Current Liabilities
               
Accounts Payable
  $ 704,804     $ 627,427  
Accrued Wages - Officers
    487,987       435,326  
Accrued Expenses
    152,296       120,040  
Short-term Term Note
    525,000       525,000  
Short-term Convertible Notes, net of discount
    481,489       454,025  
Convertible Bond Payable
    598,733       598,733  
Derivative Liability - Warrants
    5,800       10,178  
Derivative Liability - Convertible Debt
    783,962       400,270  
                 
Total Current Liabilities
    3,740,071       3,170,999  
                 
Conditionally Redeemable Stock
    75,000       75,000  
                 
Stockholders' Deficit
               
Common Stock, $.001 par value, 1,000,000,000 shares authorized, 59,985,134 shares and 51,110,297 shares issued and outstanding, respectively
    59,985       51,110  
Additional Paid in Capital
    5,587,681       5,528,469  
Accumulated Deficit
    (9,051,950 )     (8,349,232 )
                 
Total Stockholders' Deficit
    (3,404,284 )     (2,769,653 )
                 
Total Liabilities and Stockholders' Deficit
  $ 410,787     $ 476,346  
                 
 
See accompanying notes to unaudited condensed financial statements.

 
3

 
 
 
PURAMED BIOSCIENCE, INC.
Unaudited Condensed Statements of Operations
 
   
Three Months Ended
 
   
September 30,
2013
   
September 30,
 2012
 
Net Revenues
  $ -     $ 27,534  
                 
Cost of Sales
    26,603       13,043  
                 
Gross Profit/(Loss)
    (26,603 )     14,491  
                 
Operating Expenses
               
Selling, General and Administrative Expenses
    43,226       55,551  
Amortization and Depreciation Expense
    14,440       12,976  
Professional Fees
    107,930       160,329  
Marketing and Advertising Expense
    22,990       247,511  
Research and Development
    -       14,600  
Salaries
    7,436       7,260  
Officers' Salaries
    60,923       77,358  
                 
Total Operating Expenses
    256,945       575,585  
                 
Income/(Loss) from Operations
    (283,548 )     (561,094 )
                 
Other Income/(Expense)
               
Interest Expense
    (125,999 )     (149,333 )
Loss on Derivative Liability
    (293,171 )     (70,237 )
                 
Other Income/(Expense)
    (419,170 )     (219,570 )
                 
Net Loss
  $ (702,718 )   $ (780,664 )
                 
Loss per Common Share - Basic
               
   and Diluted
  $ (0.01 )   $ (0.03 )
                 
Weighted Average Common Shares
               
   Outstanding - Basic and Diluted
    54,990,003       24,886,866  
                 
See accompanying notes to unaudited condensed financial statements.
               
 
 
 
 
4

 
 
 
PURAMED BIOSCIENCE, INC.
Unaudited Condensed Statements of Cash Flows

   
Three Months Ended
 
   
September 30, 2013
   
September 30, 2012
 
             
Cash flows from operating activities
           
Net loss
  $ (702,718 )   $ (780,664 )
                 
Changes in non cash working capital items:
               
Stock issued for services
    -       14,375  
Depreciation
    572       572  
Amortization of intangible assets
    13,868       12,406  
Amortization of deferred financing fees
    3,581       -  
Accretion on discount on convertible bond
    -       34,166  
Accretion on discount on convertible notes
    76,701       80,311  
Day-one loss on derivative liability
    48,092       145,716  
Loss (gain) on derivative liability
    245,079       (75,479 )
Changes in Operating assets and liabilities:
               
Accounts receivable
    (15,638 )     3,105  
Inventory
    4,443       (37,028 )
Prepaid expenses
    32,006       8,124  
Accounts payable
    77,377       (12,006 )
Accrued wages - officers
    52,661       27,300  
Accrued expenses
    33,748       (3,262 )
                 
Net cash used for operating activities
    (130,228 )     (582,364 )
                 
Cash flows from investing activities
               
Purchase of equipment
    (232 )     -  
Patent acquisition costs
    (2,779 )     (1,064 )
                 
Net cash used for investing activities
    (3,011 )     (1,064 )
                 
Cash flows from financing activities
               
Proceeds from notes
    92,830       555,000  
Proceeds from sale of stock and warrants,
               
  net of issuance costs
    -       61,350  
                 
Net cash provided by financing activities
    92,830       616,350  
                 
Net (decrease) increase in cash
    (40,409 )     32,922  
                 
Cash at beginning of the period
    41,180       562  
                 
                 
Cash at end of the period
  $ 771     $ 33,484  
                 
Supplemental disclosures of noncash investing and financing activities and other cash flow information:
 
    Short-term debt and accrued interest converted to
               
   common stock
  $ 50,730     $ 55,120  
Retirement of derivative liability
    17,357       68,981  
Issuance of derivative liability - convertible debt
    151,592       205,000  
Interest paid with cash
    14,263       32,068  
                 
                 
 
See accompanying notes to unaudited condensed financial statements.
 
 
5

 
 
PURAMED BIOSCIENCE, INC.
Notes to Condensed Unaudited Financial Statements

A. Basis of Presentation
 
The condensed balance sheets as of September 30, 2013, the condensed statements of operations for the three month periods ended September 30, 2013 and 2012 and the condensed statements of cash flows for the three month periods ended September 30, 2013 and 2012 have been prepared by PuraMed BioScience, Inc. (the "Company") without audit. In the opinion of management, all adjustments (consisting only of normal recurring accruals) necessary to present fairly the financial position as of September 30, 2013 and the results of operations and cash flows for the three month periods ended September 30, 2013 and 2012 presented herein have been made.
 
Certain information and footnote disclosures normally included in financial statements prepared in accordance with the United States generally accepted accounting principles have been condensed or omitted. These financial statements should be read in conjunction with the Company's financial statements and notes thereto for the fiscal year ended June 30, 2013 included in the Annual Report on Form 10-K of the Company filed with the SEC on October 15, 2013.
 
B. Going Concern
 
As of September 30, 2013, the Company had negative working capital and minimal funds needed to accomplish its planned business strategy or support its projected expenses. The Company plans to obtain the needed working capital primarily through debt issuances and sales of its common stock, which there is no assurance it will be able to accomplish. If the Company cannot obtain substantial working capital through debt issuances, common stock sales or other sources (if any), it will be forced to curtail its planned business operations. If the Company is unable to obtain additional financing, its ability to continue as a going concern is doubtful.
 
C. Accounting Policies
 
Loss per common share – Basic loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding. Diluted loss per common share assumes the exercise of stock options and warrants using the treasury stock method, if dilutive. Potentially dilutive shares were not included in the calculation of diluted shares, as their effect would have been antidilutive.
 
Product AmortizationPuraMed® BioScience products consist primarily of the cost of trade secrets, formulas, scientific and manufacturing know-how, trade names, marketing material and other intellectual property and are amortized on a straight-line basis over an estimated useful life of seven years.
 
Trademark AmortizationPuraMed® BioScience trademarks consist of the legal costs associated with registering our LipiGesic® and PuraMed® BioScience trademarks. As these trademarks have been approved, they are being amortized on a straight-line basis over an estimated useful life of ten years.
 
Fair Value Measurements
 
Fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company uses a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described below:
 
 
 
6

 
 
PURAMED BIOSCIENCE, INC.
Notes to Condensed Unaudited Financial Statements
 
C. Accounting Policies (continued)
 
Level 1 Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities.
 
Level 2 Other inputs that are observable directly or indirectly, such as quoted prices for similar assets and liabilities or market corroborated inputs.
 
Level 3 Unobservable inputs that are used when little or no market data is available, which require the Company to develop its own assumptions about how market participants would value the assets or liabilities.
 
Determining which category an asset or liability falls within the hierarchy requires significant judgment. The Company evaluates its hierarchy disclosure each quarter. Assets and liabilities measured at fair value on a recurring basis as of September 30, 2013 and June 30, 2013 are summarized as follows:
 
   
Fair Value as of September 30, 2013
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Liabilities
                       
Derivative Liability - Warrants
 
$
-
   
$
-
   
$
5,800
   
$
5,800
 
Derivative Liability – Convertible Debt
   
               -
     
               -
     
783,962
     
783,962
 
Total
 
$
-
   
$
-
   
$
789,762
   
$
789,762
 
 
   
Fair Value as of June 30, 2013
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Liabilities
                       
Derivative Liability - Warrants
 
$
-
   
$
-
   
$
10,178
   
$
10,178
 
Derivative Liability – Convertible Debt
   
               -
     
               -
     
400,270
     
400,270
 
Total
 
$
-
   
$
-
   
$
410,448
   
$
410,448
 
 
The following table presents the fair value reconciliation of Level 3 liabilities measured at fair value on a recurring basis during the three months ended September 30, 2013:
 
   
Fair Value Measurements Using Significant
 
   
Unobservable Inputs (Level 3)
 
         
Derivative
       
   
Derivative
   
Liability -
       
   
Liability -
   
Convertible
       
   
Warrants
   
Debt
   
Total
 
Beginning balance, July 1, 2013
 
$
10,178
   
$
400,270
   
$
410,448
 
Issuance
   
-
     
103,500
     
103,500
 
Retirements
   
-
     
(17,357
)
   
(17,357
)
(Gain) loss on derivative liability
   
      (4,378
)
   
297,549
     
293,171
 
Ending balance, September 30, 2013
 
$
5,800
   
$
783,962
   
$
789,762
 

A binomial option-pricing model was used to value the derivative liability with the following inputs:
 
 
Stock Price – The Stock Price was based on the closing price of the Company’s common stock on the valuation date. The valuation date can either be the date of issuance of the convertible debt note or the last day of a reporting period (the Valuation Date). Stock prices on the Valuation Dates ranged from $0.01 to $0.02.
 
Variable Conversion Price – The variable conversion price was based on 50% to 60% of the average of the three lowest stock bid prices out of the last 10 trading days prior to the Valuation Date.
 
Time to Maturity – The time to maturity was determined based on the length of time between the Valuation Date and the maturity of the debt.
 
Risk Free Rate – The risk free rate was based on the US treasury note rate as of the Valuation Dates with term commensurate with the remaining term of the debt. The risk free rate used was .09%.
 
Volatility – The volatility was based on the historical volatility of the Company, using a time period to calculate volatility commensurate with the Time to Maturity.
 
 
 
7

 
 
PURAMED BIOSCIENCE, INC.
Notes to Condensed Unaudited Financial Statements
 
Recently Enacted Accounting Standards
 
In July 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards (ASC) Update No. 2013-11 – Income Taxes. In April 2013, FASB issued ASC Update No. 2013-07 – Presentation of Financial Statements.  In February 2013, FASB issued ASC 2013-04, Liabilities.  In January 2013, FASB issued ASC Update No. 2013-01 – Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities.  In October 2012, FASB issued ASC Update No. 2012-04 – Technical Corrections and Improvements.  In August 2012, FASB issued ASC Update No. 2012-03 – Technical Amendments and Corrections to SEC Sections:  Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 114, Technical Amendments Pursuant to SEC Release No. 33-9250, and Corrections Related to FASB Accounting Standards Update 2010-22.  In July 2012, FASB issued Update No. 2012-02 – Intangibles – Goodwill and Other (Topic 350), testing Indefinite-Lived Intangible Assets for Impairment.
 
The Company has considered these and other recent accounting pronouncements of which the Company is aware, and the Company believes their adoption has not had, and will not have, any material impact on our financial position or results of operations.
 
D. Inventory
 
Inventory consists of raw materials and finished goods. Raw materials are the components, including boxes, inserts, liquid medicine and packaging materials that have not been combined into the final product, ready for sale. Finished goods are the final product, available for sale. The raw materials inventory will be assembled and placed in finished goods inventory when that amount is significantly reduced. Due to the lack of degradation of the material, no adjustment for obsolescence is necessary. Inventory consisted of the following as of September 30, 2013 and June 30, 2013:
 
   
September 30,
2013
   
June 30,
2013
 
Raw Materials
 
$
29,316
   
$
29,345
 
Finished Goods
   
   170,147
     
   174,561
 
Total Inventory
 
$
199,463
   
$
203,906
 
 
E. Notes Payable Transactions
 
The Company has issued various 8% secured convertible notes (the Convertible Notes). The Company has bifurcated the convertible debt agreements according to the guidance provided by ASC 815-15-25.  The principal and accrued interest for these notes is payable nine to twelve months after issuance, or such earlier date as defined in the agreement.  The notes are convertible by the holder at any time after the issue date and by the Company at any time after issue with conversion periods as defined in the agreement.  The notes are convertible into shares of the Company’s common stock at a price of 50% to 60% of the average of the three lowest closing bid prices of the stock during the defined trading day period ending one day prior to the date of conversion.  The holders are not entitled to convert any portion of the Convertible Notes to the extent that the shares to be issued in connection therewith would cause the holder’s beneficial ownership of the Company’s common stock to exceed 4.99% of the outstanding shares of the Company’s common stock.  Because of the operation of the floating conversion price and the holder’s ability to convert as described above, the Company is unable to determine at any time that number of shares into which the Convertible Notes are convertible. As of September 30, 2013, the balance of the Convertible Notes was $681,980, net of discount of $200,491.

The Convertible Notes contain customary representations and warranties, customary affirmative and negative covenants, customary anti-dilution provisions, and customary events of default that accelerate the due date of the unpaid principal amount of, and all accrued and unpaid interest on, the Convertible Notes.  A default on the Convertible Notes could lead to certain penalties, including an obligation to (a) pay all of the following, plus an additional 50% of (i) default interest, (ii) other monetary penalties, and (iii) the outstanding balance on the Convertible Notes.

The holders are entitled to have all shares issued upon conversion listed upon each national securities exchange or other automated quotation system, if any, upon which shares of the Company’s common stock are then listed.

The Company is required to carry the embedded derivatives on its balance sheet at fair value and account for any unrealized change in fair value as a component in its results of operations.  The Company valued the embedded derivatives using a binomial option-pricing model.  
 

 
 
8

 
 
PURAMED BIOSCIENCE, INC.
Notes to Condensed Unaudited Financial Statements
 
E. Notes Payable Transactions (continued)
 
The Company entered into a convertible note in the amount of $500,000 with an individual who is now a Director of the Company on November 13, 2009.  The note was convertible at $1.00 per share or 500,000 shares of common stock, which created a beneficial conversion feature.  The amount of the beneficial conversion feature was recorded as a discount and was amortized over the life of the debt.  The balance of the discount as of June 30, 2012 was $50,490. The original note expired on November 12, 2012, and a new note in the amount of $598,733 was entered into on January 31, 2013, with an interest rate of 8% and the right to pay off the note in whole or in part at any time.  The new note is not convertible and is the balance of the former note plus expenses of $98,233, paid by the Board Member on behalf of the Company.

During 2013, the Company entered into a material definitive agreement with TCA Global Credit Master Fund, LP, a Cayman Islands limited partnership (TCA), with a promissory note in the amount of $350,000.  Interest is due and payable each month at a rate of 12%.  The note has a cross default clause and has a continuing, first priority security until such time as the note is repaid.  This note is convertible only upon default.  No derivative has been recorded because the value is nominal.  As further consideration for TCA entering into and structuring the promissory note, the Company paid TCA a fee of $115,000, with consideration of 479,167 shares of common shares of the Company, which was recorded as a debt discount, and amortized over the initial term of the debt of one year.

In June 2013, TCA restructured its debt agreement with the Company, which constituted a troubled debt restructuring, with the term of the debt extended through January 1, 2014.  The principal balance of the note was increased to $368,757 (which included $14,000 of interest due to TCA) as a result of this debt restructuring.  This balance is included with short-term convertible notes.  Losses incurred as a result of this restructuring totaled $94,132, which consisted of the payment of $75,000 of common stock to TCA, the write-off of a remaining debt discount of $14,375 and an increase in the balance due to TCA of $4,757.  The common stock issued to TCA is redeemable by the Company if TCA does not realize net proceeds of at least $75,000 from the shares within a twelve month period following receipt of the shares; accordingly, it has been classified outside of permanent equity as of September 30, 2013 and June 30, 2013.

In April 2013, two notes were signed with Robert Libauer for a total of $525,000, which are due on April 1, 2014, with 8% interest compounded annually.  These notes are secured by a second position in all the Company’s assets.
 
F. Stockholders’ Deficit
 
During the three months ended September 30, 2013, the Company issued a total of 7,269,928 common shares in payment of principal and interest due on convertible notes totaling $50,730.  The shares were valued at $0.007 to $0.012 per share.

During the three months ended September 30, 2013, 1,604,909 common shares were issued in connection with the cashless exercise of warrants.

G. Subsequent Events
 
Subsequent to September 30, 2013, the Company issued convertible notes payable totaling $46,500, due with interest of 8% on dates ranging from April 1, 2014 to April 22, 2014.

 
 
9

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
The following discussion and analysis of our financial condition and plan of operations should be read and considered along with our condensed financial statements and related notes included in this Quarterly Report on Form 10-Q. Various statements have been made in this Quarterly Report on Form 10-Q that may constitute “forward-looking statements.” Forward-looking statements may also be made in the Company’s other reports filed with or furnished to the SEC and in other documents. In addition, from time to time, the Company, through its management, may make oral forward-looking statements. Forward-looking statements are subject to risks and uncertainties which could cause actual results to differ materially from such statements. The words “believe,” “expect,” “anticipate,” “optimistic,” “intend,” “plan,” “aim,” “will,” “may,” “should,” “could,” “would,” “likely” and similar expressions are intended to identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. The Company undertakes no obligation to update or revise any forward-looking statements, except as required by law.
 
Background
 
PuraMed® BioScience, Inc. (“PuraMed” or the “Company”) was incorporated in Minnesota on May 9, 2006, as a wholly-owned subsidiary of Wind Energy America, Inc. (formerly “Dotronix, Inc.”) for the purpose of engaging in the business of developing and marketing non-prescription over-the-counter healthcare products to remedy various ailments.
 
In late 2006, PuraMed’s former parent company decided to spin off its PuraMed subsidiary and related healthcare products business. Accordingly, on April 12, 2007, Wind Energy America, Inc. affected a spin-off of PuraMed to shareholders of Wind Energy America, Inc. on a pro rata dividend basis of one common share of PuraMed for each five common shares of Wind Energy America, Inc. Since April 12, 2007, the effective date of the spin-off, PuraMed and Wind Energy America, Inc. have operated separately, with their respective managements, businesses, assets and capital structures being completely independent from each other.
 
Detailed information regarding this spin-off of PuraMed from Wind Energy America, Inc. (formerly Dotronix, Inc.) is contained in a Current Report on Form 8-K and exhibit thereto which were filed with the US Securities and Exchange Commission (the “SEC”) on April 10, 2007, and can be readily accessed at the SEC website www.sec.gov or the Company’s corporate website at http://www.puramedbioscience.com/sec-filings/.
 
Overview of Business
 
The Company is engaged in the business of developing and marketing a line of non-prescription medicinal or healthcare products to be marketed through various retail channels under the LipiGesic® brand and trademark.  In an effort to add continuity to all of PuraMed’s products, the Company trademarked the brand name LipiGesic®.  The Company has recently completed all product development and design packaging for our initial three products, LipiGesic® M (Migraine), LipiGesic® H (Tension Headache) and LipiGesic® PM (Insomnia).

The Company entered the Over-The-Counter (OTC) healthcare products marketplace in December 2009, by employing “direct to consumer” marketing for our migraine remedy via television commercials and print articles.   The Company is currently undergoing substantial activities to gain broad retail distribution through mainstream drug store chains, mass merchandisers, and food chains.

The Company has maintained a retail presence in one of the top national chain drug stores, CVS, and also had a presence in Walgreens.  The Company is also in negotiations with several additional large retailers to stock our LipiGesic® M, migraine product.

PuraMed is now implementing our marketing campaign utilizing our successful clinical study.  The Company is executing our marketing campaign utilizing our clinical trials to overcome consumer and retailer skepticism and provide third party validation of our migraine products efficacy.  In addition, the Company has begun a second clinical study that focuses specifically on children and adolescents.  The Company’s overall marketing efforts will have a strong consumer emphasis including a social marketing campaign, medical community detailing and sampling, continuing medical education (CME) program for doctors and pharmacists, medical conference participation and celebrity endorsements.

 
 
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The Company also intends to continue to develop and grow our intellectual property portfolio, which is expected to substantially enhance shareholder value.  Our scientific team has gained significant and exciting evidence from our initial research and management, which we expect will assist us in the development of a new generation of botanically derived anti-inflammatory and pain management products with broad applications.

Corporate Contact Data
 
The address of the Company in suburban Wausau, Wisconsin is 1326 Schofield Avenue, P.O. Box 677, Schofield, WI 54476; our telephone number is (715) 359-6373 and our corporate and product website addresses are www.puramedbioscience.com and www.lipigesic.com, respectively.
 
LipiGesic® M
 
LipiGesic® M provides acute relief from migraine headaches, and contains the herbs feverfew and ginger as principal ingredients.  PuraMed believes that our specific formulation of these herbs for our migraine remedy is unique and proprietary, providing relief from these severe headaches in minutes.  The Company hopes that it can capture a material segment of the migraine headache remedy market.  We believe that Americans spend in excess of $6 billion annually on headache pain relievers, and that over half of sufferers of migraine headaches rely exclusively on non-prescription medications.

We believe that at least 50 million Americans suffer from chronic migraine headaches with over 20 million of them having “severe” migraine conditions.  Therefore migraine headaches constitute a severe and disabling condition for millions of people.  We further believe that the economic burden alone to the US economy is in excess of $50 billion annually.

LipiGesic® M is effective, available as a non-prescription remedy, provides a side effect profile similar to placebo, and at a significantly lower cost compared to more expensive prescription migraine drugs.
 
LipiGesic® H
 
LipiGesic® H provides relief for tension-type headaches which affect up to 90% of Americans at some point in their lives.  LipiGesic® H is a unique sublingually delivered formulation utilizing acetylsalicylic acid and St. John’s Wort.

The combination of these two ingredients provides for not only pain relief but, also relief from the anxiety that often exacerbates that pain.  Current nonprescription tension headache pills often take up to an hour to begin working and they often exhibit unwanted and dangerous side effects including stomach damage, liver damage and rebound headaches.  Prescription formulations often list even more dangerous side effects and are significantly more expensive.

Due to the use of sublingual delivery, the LipiGesic® H formulation can provide a safer, faster acting alternative, while also dramatically reducing the potential for harmful side effects.  LipiGesic® H will offer the hundreds of millions of Americans who suffer from tension type headaches relief that is superior while also lowering their cost and risks of harmful side effects.
 
LipiGesic® PM
 
LipiGesic® PM is a new class of non-prescription sleep aid without any known side effects, and contains a proprietary blend of natural ingredients including Valerian, St. John’s Wort, and Chamomile.  We believe that the proprietary blend of these ingredients provides an effective remedy for insomnia and other sleep disorders.  The non-prescription sleep aid market features products based on antihistamines, which are designed to treat allergies.

Accordingly, the LipiGesic® PM product provides a wide open market opportunity for an effective, natural alternative to prescription medications, which are somewhat addictive and often cause withdrawal symptoms and other side effects.  We plan to price LipiGesic® PM as a premium sleep aid product, which will provide us with a projected gross margin of approximately 80%.  This large margin should leave us substantial room for ample introductory promotion, product allowances and other incentives conducive to achieving rapid market penetration.

Similar to the migraine remedy market, the market for sleep aid products represents a sizable segment of the overall healthcare products marketplace.  We believe that over half of all adults in the US suffer from sleep disorders, and that many of them experience persistent insomnia.  The National Center on Sleep Disorders has reported that there are as many as 70 million problem sleepers in the U.S., with many of them suffering from chronic sleep disorders.  We believe that insomnia is second only to pain as a healthcare complaint.

 
 
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Future LipiGesic® Products
 
We have completed development of additional non-prescription products, which we intend to launch commercially over the next couple years after establishing a solid market for our initial three products.
 
Sublingual Delivery System
 
LipiGesic® M (Migraine), LipiGesic® H (Tension Headache) and LipiGesic® PM (Insomnia) are non-prescription, liquid-gel medications that will be absorbed under-the tongue known as “sublingual.” The use of sublingual delivery provides fast relief for whatever ailment or condition is being treated. Unlike the majority of pills and medications absorbed through the stomach directly, PuraMed products are placed and absorbed directly under the tongue. Advantages of sublingual dispensing of drugs and medications include faster acting absorption for quick relief, improved efficacy, less stomach upset, and fewer side effects.
 
PuraMed has secured reliable contract manufacturers to produce and package PuraMed medications in easy-to-use, sublingual dispensers. These selected contractors are experienced in the production and packaging of this type of dispenser. PuraMed believes that our benchmark use of sublingual dispensers will distinguish our products favorably in comparison to most competing OTC products now in the marketplace.
 
Regulation of PuraMed Products
 
Unlike prescription drugs or medications, non-prescription healthcare remedies such as PuraMed products do not require FDA approval prior to entering the market. They are nonetheless subject to substantial FDA and other federal regulations governing their use, labeling, advertising, manufacturing and ingredients. PuraMed believes that our current and proposed development, formulation, marketing and other practices and procedures will comply fully with all governmental regulations applicable to PuraMed products.
 
Business Structure
 
PuraMed functions primarily as a research and development, marketing and sales organization. Product manufacturing, packaging, product fulfillment and other operations are outsourced to experienced and reliable third parties through contracts monitored and controlled by PuraMed. PuraMed believes this structure reduces significantly the production costs and manufacturing time related to making the product commercially available.
 
Product Manufacturing
 
Production and packaging of PuraMed products are outsourced to various contract manufacturers known by PuraMed’s management from prior substantial business and contract dealings. Due to the business and contacts developed by PuraMed management over the past years with leading contract manufacturers, PuraMed believes it obtains professional and timely production, packaging and delivery for PuraMed products.
 
The Company outsources four main components of our production process to third-party vendors. The process begins with the sourcing of raw materials, manufacturing of the liquid-gel medicine, and testing and quality assurance of the product itself by Hillestad Pharmaceuticals (http://www.hillestadlabs.com/) in Woodruff, WI. Hillestad Pharmaceuticals is an FDA licensed prescription drug manufacturer.
 
The Company sources all of its packaging needs of the boxes, box inserts, and 6-pack retail display trays to Proteus Packaging (http://proteuspackaging.com/about-proteus) in Franklin, WI.
 
The final packaging process is completed by the Unette Corporation (http://www.unette.com/index.html) in Randolph, NJ. This includes the filling of the 3-ml applicator with the liquid-gel medication, the packing of the retail boxes, and the packaging of the master cases.
 
The Company uses Great Lakes Fulfillment (http://glfulfillment.com) in Lewiston, MA for all of our eCommerce and retail distribution needs.
 
 
 
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Clinical Trials
 
Conducting clinical trials is a very important component the Company’s marketing plan.  With our goal to get medical professionals to review, endorse, and recommend our product, clinical evidence to support the products’ claims is a prerequisite.  The Company has and will continue to attend medical trade shows that attract medical professions such as doctors, nurses, and pharmacists to present the Company’s clinical research regarding our LipiGesic® M migraine product.

The outcome of our first clinical study was extremely favorable.  After 2 hours, 64% of migraines treated with LipiGesic® M were reduced to mild or no pain.  The study concludes that sublingual (under the tongue) feverfew/ginger appears safe and effective as a first-line abortive treatment for a population of migraineurs who frequently experience mild headache prior to the onset of moderate to severe headache.  It appears to be well tolerated and has no known contraindications with other acute migraine treatments for migraine.

As a result of the success of our first clinical study the manuscript was accepted for publication in the July/August 2011 edition of the top ranked, peer reviewed, medical journal Headache, The Journal of Head and Face Pain.  It has and is expected to continue to provide us with numerous marketing and promotion opportunities that could significantly help with the retail launch of our LipiGesic® M migraine product.

Our second clinical study that focuses specifically on children and adolescents is currently in process.  There are an estimated 10 million migraine sufferers that find themselves in this demographic in the United States.  Children and adolescents that suffer with migraines have limited treatment options as many of the traditional prescription remedies have adverse side effects and are not recommended for use with children and adolescents.

A large population study of LipiGesic® M is to be conducted in cooperation with the National Headache Foundation.  The start date has yet to be determined.
 
Sales and Marketing
 
PuraMed intends to concentrate its efforts on our initial product launch of LipiGesic ® M migraine headache relief product.  When we reach a level of sales that will sustain the product and additional product offerings we will launch a second product.  All of the Company’s additional product offerings will follow the same three-phase process to market as LipiGesic® M:

Phase One Rollout: Direct Response. PuraMed has previously utilized a 60 and 120-second Direct Response Television commercial to introduce our migraine product marketed under our LipiGesic® M brand name to the American consumer.  Having refined the initial message during 2010, we are working toward a nationwide roll-out of the commercial.  To that end PuraMed has engaged Consumer Marketing Directives (CMD) as our strategic advisor.  CMD offers a broad range of campaign management services that encompasses all aspects of direct to consumer advertising.  PuraMed will also employ website and toll-free telephone access in conjunction with our TV direct response campaigns.  PuraMed performed a nationwide direct response print campaign in late 2010.  PuraMed has commenced and completed our Phase One Rollout on our migraine headache remedy.

Phase Two Rollout: Retail Drugstores.  The Company is currently undergoing substantial activities in an attempt to gain broader retail distribution for LipiGesic® M through mainstream drug store chains, mass merchandisers, and food chains.  We began retail distribution with the nation’s two largest retail chain drug stores, Walgreens and CVS, and we have continued distribution with CVS but not with Walgreens.  However, the Company is continuing our negotiations with other national retail chains in an effort to broaden our retail distribution.  Due to PuraMed’s management having extensive and good relationships with targeted retail outlets for PuraMed products, the Company believes it has the ability to place our products on the shelf in all our targeted retail outlets.  The Company is in our final stages of our phase two rollout plan now that it has gained distribution with CVS.  The Company hopes to add another national chain drug store before we begin our phase three rollout phase.

Phase Three Rollout: Further Retail Outlets.  A few months after completing the phase two rollout for its migraine remedy, PuraMed will launch phase three which will consist of expanding the retail placement of our migraine product in an additional 21,000 targeted retail outlets including mass merchandisers such as Wal-Mart and Target, food store chains such as SuperValu, Kroger and Safeway, and additional well-known regional drugstores.

PuraMed has selected its targeted retailers according to various material criteria, including cost of entry, geography, demographics and consumer preference.

After achieving material initial distribution for PuraMed products, PuraMed will initiate a comprehensive and ongoing promotional campaign directed toward consumer groups it has identified from its product rollouts.  The objective of our promotional campaign is to build consumer awareness and develop a consumer-based demand for LipiGesic® M throughout the United States.  The scope of our brand building effort will span all of the following major advertising venues.

Trade Advertising – Is expected to consist of retail POS (point-of-sale) materials, coupon redemption program, in-store promotional video, trade magazines like Pharmacy Times, key primary care and medical journals, and NACDS (National Association of Chain Drug Stores) Trade Shows.  In addition, LipiGesic® M will be featured in several key primary care and medical journals.

Medical Conferences and Meetings – A key component of the marketing effort will be directed at educating medical professionals including physicians, pharmacists, nurse practitioners and physician assistants.  Medical conferences attended by the Company this year include Diamond Headache Conference, American College of Physicians, National Conference of Nurse Practitioners, the AphA Pharmacy conference and others.

 
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Medical Spokespersons – The Company currently utilizes medical spokespersons to promote our LipiGesic® M product.  They include Dr. Roger Cady who is the founder of Headache Care Center, Clinvest and Primary Care Education Network; and Dr. Jerome Goldstein, who is a board certified medical neurologist with a special interest in the diagnosis, treatment, prevention and cure of headache.

Consumer Advertising – During 2012, print ads ran in 28 markets across the United States.  The testing of 10 and 60 second radio spots began in the first quarter of calendar year 2012.  Television news appearances featuring prominent medical figures and celebrities explaining the results and advantages of LipiGesic® M were aired and are expected to be scheduled again in the future as funding permits.

Product Sampling – The Company has developed a two-count, fold-over, sample pack sufficient to treat one migraine headache.  The scope of the sampling extends to headache specialists, primary care practitioners, veterans, and interested consumers from our social marketing and eCommerce efforts.

Special Programs - Returning Veterans – Honor Our Troops.  War veterans returning from active duty in war zone are experiencing migraines at an alarming rate.  One study indicates that soldiers were shown to have two to four times the incidence rate of migraine as compared to the general population.  In response to this the Company has been and continues to provide veterans and members of the armed forces with a free sample of LipiGesic® M.  LipiGesic® M is among the top four items requested in the America Cares Project care packages that are delivered by Honor Our Troops to US military personnel serving in Afghanistan.

Business-to-Business Initiative – American businesses lose millions of dollars each year, due to migraines, which lead to employee absenteeism or diminished performance.  The Company is initiating a business to business program to show other companies how by adding a supply of single-treatment packs of LipiGesic® M to their company first aid kits can save them money by decreasing lost production hours.

Web Presence and Social Marketing – The Company currently maintains a corporate website at www.puramedbioscience.com and a product website at www.lipigesic.com.  Our product website has gone through a substantial renovation and includes a blog, sampling program, promotional media and testimonial page.

An email campaign promoting our LipiGesic® M migraine product to 1 million “opt-in” consumers who suffer with migraine headaches was implemented in the third quarter of calendar year 2012.

The Company also began an active social marketing campaign utilizing Facebook and Twitter that started in the first quarter of calendar year 2012.  In addition to providing product information, this program is designed as a tool to direct consumers to retail locations and special promotions.
 
Intellectual Property
 
PuraMed owns and asserts proprietary intellectual property rights regarding its various products, including a patent, trademarks, formulation technology, ingredients and drug delivery procedures or methods.  The future growth and success of the Company will depend in large part upon its ability to protect its trademarks, trade names and trade secrets.  In addition to applying for certain product patents, PuraMed will rely upon trade secrets, proprietary know-how, and continuing development and innovation to compete in its OTC marketplace.  Although no claims or threats of product or patent infringement have arisen regarding PuraMed or its products, there is no assurance PuraMed will be able to protect its intellectual property effectively and any failure to do so would be harmful to PuraMed.
 
On January 2, 2013 the United States Patent Office granted a patent allowance for the PuraMed BioScience patent application number 12/144,391 entitled “Compositions and Methods for Treating and Preventing Migrainous Headaches and Associated Symptoms”. This non-provisional patent was applied for on June 23, 2008 and will provide patent protection until June 23, 2028. We believe the granting of the patent for our lead product LipiGesic M is a major milestone achievement and adds considerable value to the intellectual property portfolio of the Company. We believe this patent allowance also gives further evidence of the Company’s ability to create and develop unique products that are useful for helping millions of people suffering from difficult medical conditions.
 
Competition
 
The non-prescription healthcare market in which PuraMed is engaged is intensely competitive and PuraMed will face the same challenges as other start-up and established OTC drug companies within their respective product classes. Virtually all direct competitors to the PuraMed product line have substantially greater financial, personnel, development, marketing and other resources than those possessed by PuraMed, which places PuraMed at a definite competitive disadvantage. Main competitors of PuraMed will have substantially larger sales volumes than PuraMed expects to realize, and also greater business diversification in most cases.
 
PuraMed also must compete with numerous small companies selling products into the same mainstream marketing channels targeted by PuraMed. PuraMed also expects to encounter additional competitors emerging from time to time.
 
PuraMed believes that the principal competitive factors in its industry include quality and pricing of products, product effectiveness, customer preferences, brand awareness, and marketing and distribution networks. There is no assurance PuraMed will be able to compete successfully against current or future competitors or that the competitive pressures faced by PuraMed will not harm its business materially.
 
Employees and Facilities
 
As of November 5, 2013, PuraMed has three employees including its two executive officers, and an office manager. PuraMed anticipates hiring one or more experienced marketing personnel to support the upcoming commercial launches of its initial products.
 
 
 
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Results of Operations
 
Revenues
 
Revenues consist of wholesale and website sales of the LipiGesic® M migraine product. The wholesale revenue is reduced by coop advertising costs incurred to obtain product placement at large retail drugstores.
 
Cost of Sales
 
Cost of sales consists of merchant fees, material, packaging, freight costs and product placement expenses that exceed revenue for the units sold.
 
Operating Expenses
 
Selling, general and administrative expenses consist primarily of payroll taxes, health insurance, facility rent and administrative overhead costs.
 
Amortization and depreciation expenses consist primarily of depreciation of assets and amortization of our LipiGesic® trademark and intellectual property received during our spin-off from our parent company in April 2007.
 
Marketing and advertising expense include payments for public relations, stock promotion and advertising consistent with the commercialization of products.
 
Professional fees consist of audit, legal, transfer agent, consulting, commission and directors fees.
 
Salaries include payments to our office manager.
 
Officers’ salaries include payroll to our Chief Executive Officer, Chief Operating Officer and our Chief Financial Officer.
 
Other Income Expense
 
Other Income Expense consists of interest expense and gain/loss on derivative liability.
 
Comparison of Operations for Three Months Ended September 30, 2013 and 2012
 
Revenue
 
Net revenue for the three months ended September 30, 2013 was $0 compared to $27,534 for the three months ended September 30, 2012.  The revenue decreased due to a reduction in retail orders and additional monthly retail service charges to maintain our presence on the shelves of a national drugstore chain where we have distribution.  Sales of $22,611 for the three months ended September 30, 2013 were offset by monthly retail service charges. 
 
Cost of Sales
 
Cost of sales for the three months ended September 3, 2013 was $26,603, compared to $13,043 for the three months ended September 30, 2012. Cost of sales increased due to damaged inventory.
 
Selling, General and Administrative Expenses
 
Selling, general and administrative expenses were $43,226 and $55,551 for the three months ended September 30, 2013 and 2012, respectively. The decrease is primarily attributed to the decrease in cost of our product liability insurance policy.
 
Amortization and Depreciation
 
Amortization and depreciation expenses for the three months ended September 30, 2013 and 2012 were similar at $14,440 compared to $12,976, respectively.
 
 
 
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Professional Fees
 
Professional fees for the three months ended September 30, 2013 were $107,930 compared to $160,329 for the three months ended September 30, 2012. The decrease was attributed to the reduction in legal fees incurred.

Marketing and Advertising Expense
 
Marketing and advertising expense for the three months ended September 30, 2013 was $22,990 compared to $247,511 for the three months ended September 30, 2012. The decrease in the expenses was due to a reduction in the marketing and advertising expenditures.
 
Research and Development Expenses
 
Research and development expenses for the three months ended September 30, 2013 was $0 compared to $14,600 for the three months ended September 30, 2012. The current expense is lower due to a lack of funds available to perform clinical trials.
 
Salaries
 
Salaries for the three months ended September 30, 2013 were $7,436, relatively unchanged from $7,260 for the three months ended September 30, 2012.
 
Officers’ Salaries
 
Officers’ salaries for the three months ended September 30, 2013 and 2012 were $60,923 and $77,358, respectively. The decrease in salaries is attributed to the resignation of the Company’s Chief Financial Officer on May 15, 2013.
 
Interest Expense
 
Interest expense for the three months ended September 30, 2013 and 2012 was $125,999 and $149,333, respectively. The decrease in the expense is attributed to a reduction in the amortization of debt discounts for notes used to finance the Company.
 
Loss on Derivative Liability
 
The loss on derivative liability for the three months ended September 30, 2013 and 2012 was $293,171 and $70,237, respectively. The loss on derivative liability is the difference in value using the lattice model for the warrants between the date issued and the quarter ended September 30, 2013 and 2012.
 
Net Loss
 
Net loss for the three months ended September 30, 2013 was $702,718 compared to $780,664 for the three months ended September 30, 2012. The decrease in the loss for 2013 was due primarily to lower marketing and advertising expenses due to our lack of funds.
 
 
 
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Financial Condition, Liquidity and Capital Resources
 
As of September 30, 2013, the Company had cash of $771 and negative working capital of $3,475,047.
 
We intend to raise the funds needed to implement our plan of operation through both private sales of debt and equity securities. There is no assurance, however, that we will be successful in raising the necessary capital to implement our business plan, either through debt or equity sources.
 
Business Strategy
 
PuraMed’s business strategy going forward is to continue the advertising and promotion of its flagship migraine product LipiGesic® M in order to drive sales at our retail drug chains and to generate revenue.   PuraMed’s primary goal is to achieve continual material growth of LipiGesic® product sales through mainstream drug, mass merchandiser and food retail channels while at the same time promoting LipiGesic® brand awareness to realize substantial profitability as soon as possible. To implement this strategy, PuraMed intends to execute the following activities during the next twelve months:
 
The Successful Outcome of the Clinical Trial - The outcome of our clinical study coupled with the publication of the manuscript in the peer reviewed-medical journal “Headache, The Journal of Head and Face Pain” has proved to be very successful.  It has and is expected to continue to provide us with numerous marketing and promotion opportunities that could significantly help with the retail launch of our LipiGesic® M migraine product.  PuraMed is in the process of executing a detailed marketing plan that focuses on the medical community since the successful outcome of our clinical study trial supports such actions.  Medical marketing efforts geared toward doctors, physician’s assistants, pharmacists, etc. is expected to be very lucrative as a component in our overall marketing strategy  Our second clinical study that focuses specifically on children and adolescents is currently in process.  There are an estimated 10 million migraine sufferers that find themselves in this demographic in the United States.  Children and adolescents that suffer with migraines have limited treatment options as many of the traditional prescription remedies have adverse side effects and are not recommended for use with children and adolescents.  The successful outcome of this clinical trial would indicate LipiGesic® M as an option to children and adolescents suffering with migraines.
 
Commercialize PuraMed Products – In addition to raising the necessary funds to continue operations, PuraMed’s primary focus for the remainder of calendar year 2013 will be to gain distribution with one or more additional national chain drug stores.  In addition, the Company will be implementing a marketing campaign utilizing its successful clinical study.  The Company has begun the execution of our marketing campaign utilizing our Clinical Trials to overcome consumer and retailer skepticism and provide third party validation of our migraine products efficacy.  The Company’s marketing efforts will have a strong consumer emphasis including a Social Marketing campaign, medial community detailing and sampling, Continuing Medical Education (CME) program for doctors and pharmacists, Medical conference participation and Celebrity endorsements.   In addition our website and eCommerce efforts will be enhanced to optimize our internet sales as a result of our new marketing campaign.  PuraMed also has plans to test direct response radio advertising and upgrade its Social Marketing efforts that include Facebook, Twitter, and YouTube.
 
Expansion of Sales and Marketing Activities – PuraMed will continue to expand upon its marketing activities which have been focused toward obtaining a nationwide network of retail outlets and employing “direct to consumer” media advertising for its planned product sales, as well as promoting and building LipiGesic® brand awareness. PuraMed will participate in industry trade shows and similar events, and also will engage in substantial media advertising and direct sales media campaigns to attract and secure consumers for PuraMed products.
 
Continuation of Product Development – Besides its already developed products, PuraMed will complete development and testing of additional non-prescription drugs and nutritional supplements to be commercially launched in the future as additional LipiGesic® products.
 
 
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Assuming the Company raises the capital, we anticipate spending approximately $3,000,000 million over the next twelve months on the marketing of our migraine headache remedy along with the introduction of our second product offering regardless of any amounts of revenues we generate from product sales during this period. These funds will be spent as follows:
 
Sales and marketing expenses
 
$
2,000,000
 
Purchase of product inventory, packaging and raw materials
   
600,000
 
Research and development activities
   
100,000
 
General and administrative expenses including rent, fixed overhead and management compensation
   
300,000
 
   
$
3,000,000
 
 
Critical Accounting Policies
 
The discussion in this Plan of Operation should be considered in conjunction with our audited financial statements and related notes included in our Annual Report on Form 10-K for the year ended June 30, 2013, filed with the SEC on October 15, 2013. These financial statements have been prepared in accordance with United States Generally Accepted Accounting Principles (US GAAP).
 
The preparation of our financial statements requires us to make estimates and judgments affecting our reported amounts of assets, liabilities, revenues and expenses and related disclosures. On an ongoing basis, we will evaluate these estimates which are based on historical experience and certain assumptions we believe to be reasonable under the circumstances. Actual results may differ materially from our estimates under different assumptions or conditions.
 
Product Amortization: – PuraMed® BioScience products consist primarily of the cost of trade secrets, formulas, scientific and manufacturing know-how, trade names, marketing material and other intellectual property and are amortized on a straight-line basis over an estimated useful life of seven years. Amortization expense is expected to be $37,614 for fiscal year ending June 30, 2014.
 
Impairment – Whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable, we conduct an impairment analysis of any material intangible assets owned by us. If the results of any such impairment analysis indicate our recorded values for any such assets have declined materially, we will adjust our recorded asset valuations in all of our financial statements to reflect any such decline in value. The Company believes that no impairment existed as of September 30, 2013.
 
Stock-Based Compensation – We have issued stock-based compensation to our employees, contractors, consultants or others providing goods and services to us. The fair market value of any stock-based compensation issued for goods or services will be expensed over the period in which we receive them. Most likely any equity securities issued by us for goods and services will consist of common shares or common stock purchase warrants, which will be fully vested, non-forfeitable, and fully paid or exercisable at the date of grant. Regarding any future stock option or warrant grants, we intend to determine their fair value by using the Black-Scholes option-pricing model.
 
Derivative financial instruments – warrants – In accordance with guidance in Accounting Standards Codification (ASC) 815-40-25-1 and ASC 815-40-25-8, the Company has determined the warrants issued during 2011 have net cash settlement provisions that require classification as derivative liabilities rather than permanent equity. In accordance with such accounting rules, derivative instruments are recorded at fair value and marked-to-market each period until they are exercised or expire, with any change in the fair value charged or credited to income each period. Because these warrants do not trade in an active securities market, their fair value was estimated using a binomial option-pricing model.
 
Derivative financial instruments – conversion options – In accordance with guidance in ASC 815-15, the Company has determined the conversion options of certain short-term convertible notes require classification as derivative liabilities. In accordance with such accounting rules, derivative instruments are recorded at fair value and marked-to-market each period until they are exercised or expire, with any change in the fair value charged or credited to income each period. Their fair value was estimated using a binomial option-pricing model.
 
 
 
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
As described in the notes to condensed financial statements included in this filing (see Note C), the Company accounts for certain warrants and convertible debt instruments as derivative liabilities.  However, we do not engage in any hedging activities.
 
ITEM 4. CONTROLS AND PROCEDURES
 
The Company’s disclosure controls and procedures are designed to ensure (i) that information required to be disclosed by the Company in the reports in the Company files or submits under the Exchange Act are recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms; and (ii) that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive officer, or persons performing similar functions, as appropriate to allow timely decision regarding required disclosure.
 
Pursuant to rules adopted by the SEC as directed by Section 302 of the Sarbanes-Oxley Act of 2002, the Company’s management, with the participation of the CEO and CFO, evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) ) as of September 30, 2013. Based on that evaluation, the Company’s CEO concluded that, as of that date, the Company’s disclosure controls and procedures required by paragraph (b) of the Exchange Act Rules 13a-15d-15, were not effective. Management’s assessment identified the following material weaknesses:
 
There is a lack of accounting personnel with the requisite knowledge of US GAAP and the financial reporting requirements of the Securities and Exchange Commission.
 
There are insufficient written policies and procedures to insure the correct application of accounting and financial reporting with respect to the current requirements of US GAAP and SEC disclosure requirements.
 
There is a lack of segregation of duties, in that we only had one person performing all accounting-related duties.
 
Notwithstanding the existence of these material weaknesses in our internal control over financial reporting, our management believes that the financial statements included in its report fairly present in all material respects the Company’s financial condition, results of operations and cash flows for the periods presented.
 
The Company also disclosed these weaknesses in our Annual Report on Form 10-K for the year ended June 30, 2013, filed with the SEC on October 15, 2013. We recently added external accountants to assist in our accounting processes.
 
 
 
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PART II. OTHER INFORMATION
 
ITEM 1. LEGAL PROCEEDINGS AND RISK FACTORS
 
There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of the Company or any of our subsidiaries, threatened against or affecting the Company, our common stock, any of our subsidiaries or of the Company’s or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.
 
ITEM 1A. RISK FACTORS
 
We believe there are no changes that constitute material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended June 30, 2013, filed with the SEC on October 15, 2013.
 
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
From July 1, 2012 through June 30, 2013, the Company, through private transactions, offered and sold 430,000 shares of common stock to four individual investors for a total of $61,350 net of offering expenses. Sale of these common shares was deemed exempt from registration under Section 4(2) of the Securities Act of 1933, as amended. No advertising or general solicitation was involved and these shares were offered only to the individual purchasers who are accredited investors. Moreover, the stock certificates for these shares are legended to prevent further transfer, resale or other disposition unless registered under applicable securities laws or exempt from such registration.
 
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
 
There were no defaults upon senior securities during the quarter ended September 30, 2013.
 
ITEM 4. MINE SAFETY DISCLOSURES
 
Not applicable.
 
ITEM 5. OTHER INFORMATION
 
There is no other information required to be disclosed under this item which was not previously disclosed.
 
 
 
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ITEM 6. EXHIBITS
 
See Exhibit Index below
Exhibit Index
Quarterly report on Form 10-Q
For the quarter ended September 30, 2013
 
 
Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
 
Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
101.INS
 
XBRL Instance Document
     
101.SCH
 
Taxonomy Extension Schema Document
     
101.CAL
 
Taxonomy Extension Calculation Linkbase Document
     
101.DEF
 
Taxonomy Extension Definition Linkbase Document
     
101.LAB
 
Taxonomy Extension Label Linkbase Document
     
101.PRE
 
Taxonomy Extension Presentation Linkbase Document
 
*Filed herewith
 
 
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SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
PURAMED BIOSCIENCE, INC.
 
       
Date: November 19, 2013
By:
/s/ Russell W. Mitchell
 
   
Russell W. Mitchell
 
   
Chief Executive Officer
 
   
(Principal Executive Officer)
 
  
 
(Principal Financial Officer)
 
   
(Principal Accounting Officer)
 

 
Pursuant to requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
 
Name
 
Title
 
Date
         
/s/ Russell W. Mitchell
 
Chief Executive Officer
 
November 19, 2013
Russell W. Mitchell
 
(Principal Executive Officer, Principal Financial Officer
and Principal Accounting Officer), Director
   
         
         
/s/ James W. Higgins
 
Chief Operating Officer, Director
 
November 19, 2013
James W. Higgins
       
         
         
/s/ Charles Phillips
 
Director
 
November 19, 2013
Charles Phillips
       
 
 
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