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EX-32.1 - CERTIFICATION - Puramed Bioscience Inc.pmbs_ex321.htm
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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 March 31, 2014

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   oAccelerated filer   oNon-accelerated filer   oSmaller reporting company   þ

Indicate by checkmark whether registrant is a shell company. o

There were 1,070,272,991 shares of Common Stock outstanding as of May 13, 2014.
 

 

 
 
 
 
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
    11  
Item 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    20  
Item 4.
CONTROLS AND PROCEDURES
    20  
           
PART II. OTHER INFORMATION
       
           
Item 1.
LEGAL PROCEEDINGS AND RISK FACTORS
    21  
Item 1a.
RISK FACTORS
    21  
Item 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    21  
Item 3.
DEFAULTS UPON SENIOR SECURITIES
    21  
Item 4.
MINE SAFETY DISCLOSURES
    21  
Item 5.
OTHER INFORMATION
    21  
ITEM 6.
EXHIBITS
    22  
 
 
2

 
PART I – FINANCIAL INFORMATION
 
ITEM 1. UNAUDITED CONDENSED FINANCIAL STATEMENTS
 
PURAMED BIOSCIENCE, INC.
Unaudited Condensed Balance Sheets
 
   
March 31,
   
June 30,
 
   
2014
   
2013
 
   
(unaudited)
       
ASSETS
           
             
Current Assets:
           
Cash
  $ 2,263     $ 41,180  
Accounts Receivable
    -       25,119  
Inventory
    29,295       203,906  
Prepaid Expenses
    20,341       56,039  
Total Current Assets
    51,899       326,244  
                 
Property and Equipment:
               
Computer Software
    2,483       2,483  
Computer Hardware
    5,570       5,338  
Equipment
    2,136       2,136  
Accumulated Depreciation
    (6,804 )     (5,090 )
Net Property and Equipment
    3,385       4,867  
                 
Other Assets:
               
PuraMed Bioscience Products, net of accumulated
               
 amortization of $334,420 and $298,418, respectively
    1,612       37,614  
Trademarks, net of amortization of $4,028 and $2,754, respectively
    14,230       13,383  
Patents, net of amortization of $7,320 and $2,928, respectively
    88,147       89,511  
Deferred Financing Fees
    14,455       4,727  
Total Other Assets
    118,444       145,235  
                 
Total Assets
  173,728     476,346  
                 
LIABILITIES AND STOCKHOLDERS' DEFICIT
               
                 
Current Liabilities:
               
Accounts Payable
  $ 866,749     $ 627,427  
Accrued Wages - Officers
    427,230       435,326  
Accrued Expenses
    232,388       120,040  
Short-term Term Note
    525,000       525,000  
Short-term Convertible Notes, net of discount
    316,349       454,025  
Convertible Bond Payable
    598,733       598,733  
Derivative Liability - Warrants
    2,284       10,178  
Derivative Liability - Convertible Debt
    1,317,757       400,270  
Total Current Liabilities
    4,286,490       3,170,999  
                 
Conditionally Redeemable Stock
    190,000       75,000  
                 
Commitments and Contingencies
               
                 
Stockholders' Deficit:
               
Common Stock, $.001 par value, 1,000,000,000 shares
               
   authorized, 977,859,767 shares and 51,110,297 shares issued
               
   and outstanding, respectively
    977,860       51,110  
Additional Paid in Capital
    6,625,782       5,528,469  
Accumulated Deficit
    (11,906,404 )     (8,349,232 )
Total Stockholders' Deficit
    (4,302,762 )     (2,769,653 )
                 
Total Liabilities and Stockholders' Deficit
  173,728     476,346  
 
See accompanying notes to unaudited condensed financial statements.
 
 
3

 
PURAMED BIOSCIENCE, INC.
Unaudited Condensed Statements of Operations
 
   
Three Months Ended
   
Nine Months Ended
 
   
March 31, 2014
   
March 31, 2013
   
March 31, 2014
   
March 31, 2013
 
Net Revenues
  $ -     $ -     $ -     $ 27,534  
                                 
Cost of Sales
    3,027       5,218       415,643       33,285  
                                 
Gross Loss
    (3,027 )     (5,218 )     (415,643 )     (5,751 )
                                 
Operating Expenses
                               
Selling, General and Administrative Expenses
    142,437       83,764       240,090       189,872  
Amortization and Depreciation Expense
    14,470       14,441       43,382       40,392  
Professional Fees
    26,864       102,830       186,669       373,324  
Marketing and Advertising Expense
    (2,993 )     59,358       76,854       375,696  
Research and Development
    -       60,400       -       75,056  
Salaries
    8,206       6,688       22,638       20,988  
Officer's Salaries
    1,009,846       77,539       1,131,692       245,359  
                                 
Total Operating Expenses
    1,198,830       405,020       1,701,325       1,320,687  
                                 
Loss from Operations
    (1,201,857 )     (410,238 )     (2,116,968 )     (1,326,438 )
                                 
Other Income/(Expense)
                               
Interest Expense
    (460,815 )     (115,454 )     (756,988 )     (411,104 )
Gain (Loss) on Derivative Liability
    (281,437 )     (16,057 )     (683,216 )     95,768  
                                 
Other Expense
    (742,252 )     (131,511 )     (1,440,204 )     (315,336 )
                                 
Net Loss
  $ (1,994,109 )   $ (541,749 )   $ (3,557,172 )   $ (1,641,774 )
                                 
Loss per Common Share - Basic
                               
   and Diluted
  $ (0.00 )   $ (0.02 )   $ (0.02 )   $ (0.06 )
                                 
Weighted Average Common Shares
                               
   Outstanding - Basic and Diluted
    426,982,515       33,135,246       184,105,482       28,491,070  
 
See accompanying notes to unaudited condensed financial statements.
 
 
4

 
PURAMED BIOSCIENCE, INC.
Unaudited Condensed Statements of Cash Flows
 
   
Nine Months Ended
 
   
March 31, 2014
   
March 31, 2013
 
             
Cash flows from operating activities:
           
Net loss
  $ (3,557,172 )   $ (1,641,774 )
                 
Changes in non cash working capital items:
               
    Stock issued for services
    -       76,000  
Depreciation
    1,714       1,714  
Amortization
    41,668       38,679  
Amortization of deferred financing fees
    18,442       -  
Accretion on discount on convertible bond
    -       50,490  
Accretion on discount on convertible notes
    573,350       325,302  
Settlement of liabilities with stock-based compensation
    1,080,000       -  
Day-one loss on derivative liability
    379,531       145,716  
Loss (gain) on derivative liability
    303,685       (241,484 )
Changes in Operating assets and liabilities:
               
Accounts receivable
    25,119       3,099  
Inventory
    174,611       (31,691 )
Prepaid expenses
    35,698       (81,159 )
Accounts payable
    259,322       52,072  
Accrued wages - officers
    151,904       196,228  
Accrued expenses
    122,472       148,014  
                 
Net cash used for operating activities
    (389,656 )     (958,794 )
                 
Cash flows from investing activities:
               
Patent acquisition costs
    (3,028 )     (7,487 )
Property and equipment acquisition costs
    (232 )     -  
Trademark acquisition costs
    (2,121 )     -  
                 
Net cash used for investing activities
    (5,381 )     (7,487 )
                 
Cash flows from financing activities:
               
Proceeds from notes
    356,120       943,233  
Repayment of notes
    -       (32,500 )
Proceeds from sale of stock and warrants,
               
  net of issuance costs
    -       61,350  
                 
Net cash provided by financing activities
    356,120       972,083  
                 
Net change in cash
    (38,917 )     5,802  
                 
Cash at beginning of the period
    41,180       562  
                 
                 
Cash at end of the period
  $ 2,263     $ 6,364  
                 
Supplemental disclosures of noncash investing and financing activities and other cash flow information:
 
    Short-term debt and accrued interest converted to
               
   common stock
  $ 320,692     $ 187,713  
Common stock issued to satisfy accrued wages
               
   and accounts payable
    180,000       -  
Retirement of derivative liability - convertible debt
    565,909       262,059  
Issuance of derivative liability - convertible debt
    789,757       205,000  
Issuance of common stock for debt discount
    -       115,000  
Reclassification of contingently redeemable stock
    115,000       -  
Interest paid with cash
    14,263       69,237  
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 March 31, 2014 and June 30, 2013, the condensed statements of operations for the three and nine month periods ended March 31, 2014 and 2013 and the condensed statements of cash flows for the nine month periods ended March 31, 2014 and 2013 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  March 31, 2014 and the results of operations and cash flows for the three and nine month periods ended March 31, 2014 and 2013 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  March 31, 2014, 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 March 31, 2014 and June 30, 2013 are summarized as follows:

   
Fair Value as of March 31, 2014
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Liabilities
                       
Derivative Liability - Warrants
 
$
-
   
$
-
   
$
2,284
   
$
2,284
 
Derivative Liability – Convertible Debt
      -         -      
1,317,757
     
1,317,757
 
Total
 
$
-
   
$
-
   
$
1,320,041
   
$
1,320,041
 
 
   
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 nine months ended  March 31, 2014:
 
   
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
   
-
     
789,757
     
789,757
 
Retirements
   
-
     
(563,380
)
   
(563,380
)
Loss (Gain) on derivative liability
   
      (7,894
   
    691,110
     
683,216
 
Ending balance, March 2014
 
$
2,284
   
$
1,317,757
   
$
1,320,041
 

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 $0.002 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, management believes no additional adjustment for obsolescence is currently necessary. Inventory consisted of the following as of March 31, 2014 and June 30, 2013:
 
   
March 31,
2014
   
June 30,
2013
 
Raw Materials
 
$
29,295
   
$
29,345
 
Finished Goods
   
164,847
     
   174,561
 
Reserve for inventory obsolescence
   
(164,847
)
   
-
 
Total Inventory
 
$
29,295
   
$
203,906
 
 
E. Notes Payable Transactions
 
The Company has issued various 8% to 16% 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 March 31, 2014, the balance of the Convertible Notes was $690,451, with a discount of $374,102.

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 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 the balance of the former note plus expenses of $98,233, paid by the Board Member on behalf of the Company. As of May 12, 2014 the Company has not begun servicing this note.

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. 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 March 31, 2014 and June 30, 2013.  An additional $115,000 of shares became conditionally redeemable during the three months ended March 31, 2014, and is also classified outside of permanent equity as of March 31, 2014.

In April 2013, two notes agreements were entered into  with Robert Libauer for a total of $525,000.  These notes were due on April 1, 2014, with 8% interest compounded annually.  These notes are secured by a second position in all the Company’s assets. As of May 12, 2014, the Company has not begun servicing this note.

During the three months ended  December 31, 2013, the Company has issued various secured convertible notes totaling $96,000 with four different organizations (Asher, JMJ, Tonaquint, Brighton Capital).  The interest rates on these convertible notes vary from 8% to 22%.

During the three months ended  March 31, 2014, the Company has issued various secured convertible notes totaling $162,500  with three different organizations.  The interest rates on these convertible notes vary from 8% to 10%.

F. Stockholders’ Deficit
 
During the nine months ended March 31, 2014, the Company issued a total of  284,182,442 common shares in payment of principal and interest due on convertible notes totaling $320,692.  The shares were valued at $0.0007 to $0.028 per share.

During the nine months ended March 31, 2014, 192,567,028 common shares were issued in connection with the cashless exercise of warrants.

On February 18, 2014, the Board of Directors approved 400,000,000 shares of the Company's common stock to CEO Russell Mitchell for payment of $160,000 of the $270,000 in accrued wages due to him. The fair value of the shares was $1,120,000, and $960,000 was recorded as officers salaries.
 
On February 18, 2014, the Board of Directors approved 50,000,000 shares of the Company's common stock to Envision Marketing for payment of $20,000 of accounts payable due to them. The fair value of the shares was $140,000, and $120,000 was recorded as selling general and administrative expense.
 
 
9

 
 
PURAMED BIOSCIENCE, INC.
Notes to Condensed Unaudited Financial Statements

G. Subsequent Events

Subsequent to March 31, 2014, the Company issued convertible notes payable totaling $80,500 due with interest ranging from 8% to 12% with maturity dates ranging from being due on demand to October, 30, 2014.

Subsequent to March  31, 2014, the Company issued a total of  52,164,526 common shares in payment of principal ,  interest, and fees due on two convertible notes totaling $60,400.  The shares were valued at $0.000820 to $0.001508.

Subsequent to March 31, 2014, the Company issued a total of 7,092,199 common shares in payment for warrants on one convertible note totaling $172,500.  The shares were valued at $0.00820.

On April 24, 2014, the Company entered into a Master Exchange Agreement (the "Exchange Agreement") with an institutional investor (the "Institutional Investor") for the note initially issued by the Company to TCA, under which obligations of $579,109 were owed as of such date.
 
Pursuant to the Exchange Agreement and subject to its terms and conditions, the Institutional Investor may, from time to time, at the Institutional Investor's sole option, exchange obligations under the note, in whole or in part, for shares of the Company's common stock.  The number of common stock shares issuable to the Institutional Investor upon exchange of the obligations under the note shall be determined by dividing the applicable "Exchange Amount" (as defined in the Agreement) by the "Exchange Price" (as defined in the Agreement). On the closing date, the Institutional Investor exchanged $50,000 of the outstanding obligations under the note for 33,156,499 shares of Common Stock.
 
On March 20, 2014, the Company filed an Pre 14-A proxy with the SEC.  The proxy vote was called to increase the company’s authorized common shares from 1 billion shares to 4 billion shares.  In addition 100 million shares were to be authorized as “Preferred” stock.  On April 1, 2014, the Company filed the DEF 14-A .  On April 22, 2014  the Company issued an 8-K announcing that the share increase was approved by our shareholders.
 
On May 2, 2014 the Company filed an S-8 which included as an exhibit the 2014 Incentive Stock and Award Plan (the Plan).  500,000,000 shares of the Company’s common stock are subject to the Plan.  75,000,000 of shares under the Plan were registered with the SEC pursuant to the S-8.  Complete details of the filing can be found in the S-8 that was filed with the SEC on May 2, 2014.

Effective May 8, 2014, the Company issued a Master Convertible Promissory Note to Tonaquint, Inc, in the aggregate principal amount of $280,000.  Complete terms of the agreement are available in the Company’s 8-K that was filed with the SEC on May 8, 2014.

 
10

 

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 three additional completed 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.

PuraMed executes marketing campaigns that utilize clinical trial results to overcome consumer and retailer skepticism and to provide third-party validation of LipiGesic M’s efficacy. PuraMed has completed a second clinical study measuring the efficacy of LipiGesic M’s feverfew, ginger and olive oil formulation in pediatric and adolescent populations. The Company is currently developing a social marketing campaign, medical community detailing and sampling strategy, and is researching the implementation of a continuing medical education (CME) program for doctors and pharmacists.

The Company is attempting  to develop and grow its intellectual property and product portfolio, incorporating key cannabinoid-based products, which management believes will substantially enhance shareholder value. Our scientific team has gained significant and exciting evidence from our initial research 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.

LipiGesic® M
LipiGesic® M provides acute relief from migraine pain and associated symptoms with a formulation that contains the herbs feverfew and ginger as principal ingredients. PuraMed BioScience holds a US patent on the LipiGesic M formulation, which has been clinically tested and has been found to provide relief in 64 percent of migraine occurrences. The formulation is unique and often provides relief from severe headache pain and associated symptoms in minutes.

LipiGesic® M is effective, available as a non-prescription remedy, provides a side effect profile similar to placebo, and is significantly lower in cost compared to more expensive prescription migraine drugs.

In light of the current Food and Drug Administration warnings regarding acetaminophen, ibuprofen, and naproxen sodium, along with the recently published American Headache Society guidelines that recommend restricting the frequency of use of both prescription and non-prescription headache treatments, PuraMed believes that the adoption of LipiGesic M by the consumer and healthcare providers as a viable remedy will allow the product to capture a significant segment of the migraine headache remedy market.

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

Therefore, we believe that migraine headaches constitute a severe and disabling condition for millions of people in America ... and worldwide.
 
 
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LipiGesic® H
LipiGesic® H provides relief for tension-type headaches, which affect up to 90 percent of Americans at some point in their lives. LipiGesic® H is a unique sublingually delivered formulation utilizing acetylsalicylic acid and St. John’s Wort.

LipiGesic® PM
LipiGesic® PM is a new class of non-prescription sleep aid without any known side effects, which 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.

Future Products
We have completed development of additional non-prescription products, which we intend to launch after establishing a solid market.

Sublingual Delivery System
PuraMed’s use of sublingual delivery provides fast relief for whatever ailment or condition that is being treated. Unlike the majority of pills and medications absorbed through the stomach directly, PuraMed products are placed under the tongue and are absorbed into the bloodstream through the capillaries 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, pre-measured 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 significantly reduces 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, testing, and quality assurance of the product itself by Hillestad Pharmaceuticals (http://www.hillestadlabs.com/) in Woodruff, Wisconsin. 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, Wisconsin.
 
The final packaging process is completed by the Unette Corporation (http://www.unette.com/index.html) in Randolph, New Jersey. 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 Trial
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 professionals 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 percent 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 promotional opportunities that could significantly help with the retail launch of our LipiGesic® M migraine product.

The results of the first clinical trial were subsequently reanalyzed, and LipiGesic M was reported to have “robust efficacy” in the treatment of acute migraine and migraine associated symptoms.

The preliminary results of the second clinical study that focuses on LipiGesic M’s efficacy on the pediatric and adolescent population have been received. We expect to be submitting the results for publication within the next 12 months.

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. There are an estimated 10 million migraine sufferers that find themselves in this demographic in the United States.
 
Sales and Marketing
PuraMed intends to concentrate its efforts on its migraine headache relief product and the development of its initial cannabinoid offering. All of the Company’s additional product offerings will follow a pre-determined marketing strategy based on performance and specific milestones.

PuraMed will continue to use a variety of marketing media to increase consumer awareness of the LipiGesic M brand. There has been increased interest in the veteran’s initiative and medical sampling.

We believe the development of a new social media strategy will also increase online awareness utilizing several social media platforms to create a dialogue with consumers.

The Company is currently undertaking substantial activities in an attempt to gain broader retail distribution for LipiGesic® M through international distributors, as well.

PuraMed will continue its efforts to gain awareness in the medical community through efforts through direct marketing efforts targeted at medical professionals including physicians, pharmacists, nurse practitioners and physician assistants. This may also include attendance at medical conferences attended by Company representatives.

We believe the Company’s two-count, fold-over, sample pack sufficient to treat one migraine headache, will be a key component of the direct-mail campaign to healthcare providers, who specialize in the treatment of migraine. This program will target headache specialists, primary care practitioners, veterans, and interested consumers from our social marketing and eCommerce efforts.

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.

 
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Web Presence and Social Marketing will be aggressively implemented. The Company currently maintains a corporate website at www.puramedbioscience.com and a product website at www.lipigesic.com. Our product website will go through a substantial renovation and will include a blog, sampling program, promotional media, and testimonial page.
 
Social media marketing utilizing Facebook and Twitter is projected to increase during the third quarter of 2014. In addition to providing product information, this program is designed as a tool to direct consumers to retail locations and special promotions. In addition to social media campaigns, PuraMed plans to create e-newsletters for consumers and investors.
 
Competition
The non-prescription healthcare market in which PuraMed is engaged is intensely competitive. PuraMed faces 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.

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.
 
Future Health and Wellness Opportunities
In its mission to be primarily a research, development, marketing, and sales organization, PuraMed has been building relationships with companies to access other health and wellness products and technologies. These products and technologies address national and international needs and will expand the Company’s product offerings. PuraMed plans to distribute these products globally through strategic partnerships, manufacturing alliances, and national and international licensing and branding agreements.

These state-of-the-art technologies provide needed solutions to combat infection, provide effective and affordable pain relief, fight glaucoma, and improve appearance and brain function. These products utilize leading-edge formulations, delivery systems, and naturally derived active ingredients, for use in medical applications for both the human population and animals.

Due to PuraMed’s management having extensive and working relationships within the scientific and pharmaceutical communities, the Company believes it has the ability to produce and distribute these additional product lines to consumers through retail, direct–response, online, and wholesale distribution channels as is appropriate to the unique markets they serve.

 Employees and Facilities
As of May 10, 2014, 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.
 
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.

 
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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 March 31, 2014 and 2013
 
Revenue
 
Net revenue for the three months ended March 31, 2014 and 2013 was $0.  
 
Cost of Sales
 
Cost of sales for the three months ended March 31, 2014 was $3,027 relatively similar compared to $5,218 for the three months ended March 31, 2013.

Selling, General and Administrative Expenses
 
Selling, general and administrative expenses were $142,437 and $83,764 for the three months ended March 31, 2014 and 2013, respectively. The increase is primarily attributed to $120,000 incurred during the current quarter for 50,000,000 shares of the Company’s common stock issued to a vendor (the fair market value of the shares exceeded the $20,000 accounts payable paid by the shares by $120,000).

Amortization and Depreciation
 
Amortization and depreciation expenses for the three months ended March 31, 2014 and 2013 were similar at $14,470 compared to $14,441, respectively.
 

 
15

 
 
Professional Fees
 
Professional fees for the three months ended March 31, 2014 were $26,864 compared to $102,830 for the three months ended March 31, 2013. The decrease was attributed to the reduction in payments to professional consultants.

Marketing and Advertising Expense
 
Marketing and advertising expense for the three months ended March 31, 2014 was ($2,993) compared to $59,358 for the three months ended March 31, 2013. The decrease in the expenses was due to a reduction in the marketing and advertising expenditures and the settlement of an amount previously recorded.
 
Research and Development Expenses
 
Research and development expenses were $0 for the three months ended March 31, 2014  compared $60,400 for the three months ended March 31, 2013. The decrease was due to the fact that we did not incur any R&D expenses in the three months ended March 31, 2014.
 
Salaries
 
Salaries for the three months ended March 31, 2014 were $8,206, compared to $6,688 the three months ended March 31, 2013.  The increase is due to an increase in the number of hours worked by the Office Manager.
 
Officers’ Salaries
 
Officers’ salaries for the three months ended March 31, 2014 and 2013 were $1,009,846 and $77,539, respectively. The increase in salaries is attributed to $960,000 incurred during the current quarter for 400,000,000 shares of the Company’s common stock issued to CEO Russell Mitchell (the fair value of the shares exceeded the $160,000 accrued wages paid by the shares by $960,000).

Interest Expense  

Interest expense increased to $460,815 during the three months ended March 31, 2014 from $115,454 for the three months ended March 31, 2013. This increase was caused primarily by the increase in notes payable outstanding.

Gain (Loss) on Derivative Liability
 
The loss on derivative liability for the three months ended March 31, 2014 was $281,437 and the loss on derivative liability for the three months ended March 31, 2013 was $16,057. The increased loss on derivative liability is the difference in value as determined by using the lattice model for the notes and warrants between the date issued and the three months ended March 31, 2014 and 2013.
 
Net Loss
 
Net loss for the three months ended March 31, 2014 was $1,944,109 compared to $541,749 for the three months ended March 31, 2013. The increase in net loss was due primarily to the loss on derivative liabilities and the issuance of shares to Russ Mitchell CEO for accrued wages.
 
Comparison of Operations for Nine Months Ended March 31, 2014 and 2013
 
Revenue
 
Net revenue for the nine months ended March 31, 2014 was $0 compared to $27,534 for the nine months ended March 31, 2013.  The decrease is due to a reduction in retail orders.
 
Cost of Sales
 
Cost of sales for the nine months ended March 31, 2014 was $415,643 compared to $33,285 for the nine months ended March 31, 2013. The cost of sales increased due to the cost associated with obsolete inventory.


 
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Selling, General and Administrative Expenses
 
Selling, general and administrative expenses were $240,090 and $189,872 for the nine months ended March 31, 2014 and 2013, respectively. The increase is primarily attributed to $120,000 incurred during the current quarter for 50,000,000 shares of the Company’s common stock issued to a vendor (the fair value of the shares exceeded the $20,000 accounts payable paid by the shares by $120,000).
 
Amortization and Depreciation
 
Amortization and depreciation expenses for the nine months ended March 31, 2014 and 2013 were similar at $43,382 compared to $40,392 respectively.

Professional Fees
 
Professional fees for the nine months ended March 31, 2014 were $186,669 compared to $373,324 for the nine months ended March 31, 2013. The decrease was attributed to the reduction in consulting and legal fees incurred.

Marketing and Advertising Expense
 
Marketing and advertising expense for the nine months ended March 31, 2014 was $76,854 compared to $375,696 for the nine months ended March 31, 2013.  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 nine months ended  March 31, 2014 was $0 compared to $75,056 for the nine months ended March 31, 2013. The decrease is due to the fact that we did not incur any R&D expenses in the nine months ended March 31, 2014.
 
Salaries
 
Salaries for the nine months ended March 31, 2014 were $22,638, compared to $20,988 for the nine months ended March 31, 2013.  The increase is due to an increase in the number of hours worked by the Office Manager.
 
Officers’ Salaries
 
Officers’ salaries for the nine months ended March 31, 2014 and 2013 were $1,131,692 and $245,359, respectively. The increase in salaries is attributed to $960,000 incurred during the current quarter for 400,000,000 shares of the Company’s common stock issued to CEO Russell Mitchell (the fair value of the shares exceeded the $160,000 accrued wages paid by the shares by $960,000).
 
Interest Expense
 
Interest expense for the nine months ended March 31, 2014 and 2013 was $756,988 and $411,104, respectively. The interest expense is comprised of interest accrued for outstanding debt instruments as well as the amortization of debt discounts for notes used to finance the Company.
 
Gain (Loss) on Derivative Liability
 
The loss on derivative liability for the nine months ended March 31, 2014 was $683,216 and the gain on derivative liability for the nine months ended March 31, 2013 was $95,768. The loss or gain on derivative liability is the difference in value as determined by using the lattice model for the notes and warrants between the date issued and the nine months ended March 31, 2014 and 2013.
 
Net Loss
 
Net loss for the nine months ended March 31, 2014 was $3,557,172 compared to $1,641,774 for the nine months ended March 31, 2013.  The increase in net loss was due primarily to the loss on derivative liabilities and the issuance of shares to Russ Mitchell, CEO for accrued wages.


 
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Financial Condition, Liquidity and Capital Resources
 
As of March 31, 2014, the Company had cash of $2,263 and negative working capital of $4,234,591.
 
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 advertise and promote 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 product sales through mainstream drug, mass merchandiser and food retail channels while at the same time promoting 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: an aggressive awareness campaign, an aggressive rebranding initiative, development and distribution of several cannabinoid products, and development of strategic partnerships in the cannabinoid category.
 
The Successful Outcome of the Clinical Trial – Management believes 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 been integral in providing us with numerous marketing and promotion opportunities that establishes the validity of effectiveness and safety of our migraine product. PuraMed has revised its detailed marketing plan to focus on the medical community as well as active military and key veterans organizations. The plan will include an aggressive sampling campaign, renewed detailing, mailings and digital campaigns once
funding is obtained.

The study, re-analysis and the Drugs article are all available on our website. 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. The preliminary results of our second clinical study that focused specifically on children and adolescents have been received and the company expects to move forward with the completion of the final manuscript with the expectation of publication in medical journals within the next 12 months.

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. We expect the preliminary findings will provide additional evidence that LipiGesic M is a highly effective, very safe choice for children and adults.
 
Commercialize PuraMed Products – In addition to raising the necessary funds to continue operations, PuraMed’s primary focus for the remainder of calendar year 2014 will be to gain distribution with mainstream retail, wholesale and natural-product retailers along with a robust online and direct-sale effort.  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.
 
Continuation of Product Development – Besides its already developed products, PuraMed plans to complete development and testing of additional non-prescription drugs and nutritional supplements, including cannabis-based products to be commercially launched in the future.

Assuming the Company raises the capital, we anticipate spending approximately $2,000,000 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
 
$
1,300,000
 
Purchase of product inventory, packaging and raw materials
 
 
300,000
 
Research and development activities
 
 
100,000
 
General and administrative expenses including rent, fixed overhead and management compensation
 
 
300,000
 
 
 
$
2,000,000
 


 
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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 March 31, 2014.
 
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 March 31, 2014. 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 three months ended March 31, 2014.
 
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 March 31, 2014
 
 
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: May 20, 2014
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
 
May 20, 2014
Russell W. Mitchell
 
(Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer), Director
   
         
         
         
/s/ James W. Higgins
 
Chief Operating Officer, Director
 
May 20, 2014
James W. Higgins
       
         
         
/s/ Charles Phillips
 
Director
 
May 20, 2014
Charles Phillips
       
 
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