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PURAMED BIOSCIENCE INC. - 10-K - Management's Discussion and Analysis of Financial Condition and Results of Operations.(Edgar Glimpses Via Acquire Media NewsEdge) This Annual Report on Form 10-K contains "forward-looking statements" within in the meaning of the Securities Exchange Act of 1934 and the Securities Act of 1933. Forward looking statements typically contain words "may," "will," "expect," "anticipate," "continue," "estimate," "project," "intend," or similar other words. Statements expressing expectations regarding its future business and prospects or projections the Company makes relating to products, sales, revenues and earnings are typical of such forward-looking statements. All forward-looking statements are subject to the risks and uncertainties inherent in attempting to predict future results and activities. The Company's actual results may differ materially from those projected, stated or implied in its forward-looking statements as a result of many factors including, but not limited to, its overall industry environment, customer and retail outlet acceptance of its products, effectiveness of its marketing and promotional activities, failure to develop and commercialize new products, material delay in the introduction of products, government regulatory matters, production and/or quality control problems, product liability matters, competitive pressures, inability to raise sufficient working capital, general economic conditions and its financial condition. 16 -------------------------------------------------------------------------------- The Company's forward-looking statements relate only as of the date made by it. The Company undertakes no obligation to update or revise any such statements to reflect new circumstances or unanticipated events as they occur, and you are urged to review and consider all disclosures the Company makes in this and other reports which relate to risk factors germane to its business and industry. Plan of Operation PuraMed's business strategy going forward is to re-launch its flagship migraine product LipiGesic M using the name and branded image MigraPure®. The Company plans to begin the promotion of MigraPure with a strong online presence and sampling program that will build awareness and acceptance of the general population and in selected markets. The goal of the re-launch is to drive sales in both the online marketplace and in selected markets and to generate revenue. PuraMed's primary goal is to achieve continual material growth of MigraPure® migraine product sales through online and brick-and-mortar natural drug distribution channels, while at the same time promoting MigraPure® 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 Publication of the Clinical Trial Data - The Company believes the outcome of the Company's 2011 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 it with numerous marketing and promotion opportunities that could significantly help with the re-launch of its MigraPure migraine product. PuraMed is in the process of creating a detailed marketing strategy that focuses on the sampling and engagement of segments of the medical community. The successful outcome and subsequent re-analysis of LipiGesic M's clinical trial data is expected to be an instrumental component of those actions. Medical marketing efforts targeting specific segments of the medical community are expected to yield positive returns. The data that the Company has received regarding its clinical trial focusing on the adolescent population is expected to further underscore the validity of feverfew and ginger as an safe and effective formulation for the treatment of migraine in the youth and adolescents. Treatment options for this demographic, conservatively estimated at 10 million are limited. The traditional prescription migraine remedies have adverse side effects and are not recommended for use by children and adolescents. Commercialization PuraMed Products - In addition to raising the necessary funds to continue operations, PuraMed's primary focus for the remainder of calendar year 2014 and beginning of 2015 is expect to be to continue the re-branding process and gain distribution with one or more retail channels. The Company will work to use its clinical data, anecdotal information and an aggressive sampling campaign to overcome consumer and retailer skepticism, provide third-party validation of its migraine products efficacy and achieve retail and online placement. The Company's also plans to implement a strong online marketing campaign that expects to drive organic traffic to either The Company's online store or retail venues after the re-branding of MigraPure is complete. A three-pronged marketing strategy expects to be implemented that targets, consumers, the medication community and retailers. Each target should have marketing plans designed specifically for them to maximize awareness, encourage engagement and prompt purchase. As part of the re-launch efforts an enhanced website, electronic media campaigns and eCommerce portal is expected to optimize its internet sales. Expansion of Sales and Marketing Activities - PuraMed plans to continue working to expand and develop marketing strategies focused on gaining a network of retail outlets; implementing direct-to-consumer marketing messages; exhibiting and attending tradeshows of targeted industries, and maintaining a sampling program to build awareness and secure consumers of MigraPure. Continuation of Product Development - Besides its MigraPure product, PuraMed will work to complete development and testing of its hemp-based product line of non-prescription drugs and nutritional supplements to be commercially launched in the future as additional PuraMed products. 17 -------------------------------------------------------------------------------- Assuming the Company raises the necessary capital, it anticipates spending approximately $3.0 million over the next twelve months on the marketing of its migraine headache remedy along with the introduction of its hemp-based cannabinoid product offerings regardless of any amounts of revenues the Company generates from product sales during this period. If raised, 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 Results of Operations for the Fiscal Years Ended June 30, 2014 and 2013 Revenues Revenues were $0 and $42,807 for the fiscal years ended June 30, 2014 and 2013, respectively. The revenue decrease is due to a reduction in retail orders. Cost of Sales Cost of Sales were $443,861 and $95,334 for the fiscal years ended June 30, 2014 and 2013, respectively. The increase in cost of sales is due mainly to the write-off of obsolete inventory during the fiscal year ended June 30, 2014. Selling, General and Administrative Expenses Selling, general and administrative expenses were $288,405 and $195,209 for the fiscal years ended June 30, 2014 and 2013, respectively. Selling, general and administrative expenses for fiscal 2014 increased primarily due to a $120,000 charge for 1,250,000 shares of the Company's common stock issued to a vendor (the fair market value of the shares exceeded the $20,000 accounts payable that was settled). Amortization and Depreciation Amortization and depreciation expenses were similar at $53,110 and $54,833 for the fiscal years ended June 30, 2014 and 2013, respectively. Professional Fees Professional fees were $445,092 and $615,689 for the fiscal years ended June 30, 2014 and 2013, respectively. The decrease relates to a lower level of consulting expenses. Marketing and Advertising Expense Marketing and advertising expense were $202,447 and $661,118 for the fiscal years ended June 30, 2014 and 2013, respectively. Decreased expenses for 2014 are due primarily to the reduction of media costs associated with its product placement in retail chain drugstores. Research and Development Expenses Research and development expenses were $0 and $75,055 for the fiscal years ended June 30, 2014 and June 30, 2013, respectively. The decrease in research and development expenses is due to the cost of the Company's second clinical study during the year ended June 30, 2013. 18 -------------------------------------------------------------------------------- Salaries Salaries were $35,600 and $28,292 for the fiscal years ended June 30, 2014 and 2013, respectively. The increase in expense is because of the Officer Manager's increase in weekly hours worked due to staff changes. Officer Salaries Officer salaries were $1,228,241 and $322,897 for the fiscal years ended June 30, 2014 and 2013, respectively. The increase in salaries is attributed to $960,000 incurred during 2014 for 10,000,000 shares of the Company's common stock issued to CEO Russell Mitchell (the fair value of the shares exceeded the $160,000 of accrued wages paid by $960,000). Interest Expense Interest expense was $1,071,252 and $528,767 for the fiscal years ended June 30, 2014 and 2013, respectively. The increase in interest expense was due to the amortization of debt discounts for notes used to finance the Company's operations. Loss on Derivative Liability The loss on derivative liability is the difference in value using the lattice model for the warrants and the convertible notes' conversion features between the date issued and the current year-end. The loss for the fiscal year ended June 30, 2014 was $1,457,915 and the gain for fiscal year 2013 was $65,915, respectively. The difference was due to a higher number of financing transactions in 2014 that included derivative liabilities. Loss on Debt Restructuring During 2013, a lender restructured its debt agreement with the Company, which constituted a troubled debt restructuring. Losses incurred as a result of this restructuring totaled $94,132. Net Losses Net losses for the fiscal years ended June 30, 2014 and 2013, were $5,225,923 and $2,562,604, respectively. The increase in net losses for 2014 was primarily due to decreased sales, increased interest costs based upon debt financing and increased losses on derivative liabilities. Liquidity and Capital Resources As of June 30, 2014, the Company had cash of $48,576 and a working capital deficit of $5,253,538. The Company intends to raise the funds needed to implement its plan of operation through both private sales of debt and equity securities. There is no assurance, however, that the Company will be successful in raising the necessary capital to implement its business plan, either through debt or equity sources. Critical Accounting Policies The discussion in this Plan of Operation should be considered in conjunction with the Company's audited financial statements and related notes included in this registration statement. These financial statements have been prepared in accordance with United States Generally Accepted Accounting Principles (US GAAP). The preparation of the Company's financial statements requires it to make estimates and judgments affecting its reported amounts of assets, liabilities, revenues and expenses and related disclosures. On an ongoing basis, the Company plans to evaluate these estimates which are based on historical experience and certain assumptions the Company believes to be reasonable under the circumstances. Actual results may differ materially from its estimates under different assumptions or conditions. 19 -------------------------------------------------------------------------------- Impairment - Whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable, the Company conducts an impairment analysis of any material intangible assets owned by it. If the results of any such impairment analysis indicate its recorded values for any such assets have declined materially, the Company plans to adjust its recorded asset valuations in all of its financial statements to reflect any such decline in value. The Company believes that no impairment exists at June 30, 2014. Stock-Based Compensation - The Company has issued stock-based compensation to its employees, contractors, consultants or others providing goods and services to it. The fair market value of any stock-based compensation issued for goods or services is expensed over the period in which the Company receives them. Most likely any equity securities issued by the Company for goods and services most likely 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, the Company intends to determine their fair value by using the Black-Scholes model of valuation. 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 the 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. Off-Balance Sheet Arrangements The Company has no off-balance sheet arrangements. Recent Accounting Pronouncements On May 28, 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-09 (ASU 2014-09), Revenue from Contracts with Customers. ASU 2014-09 will require that companies recognize revenue based on the value of transferred goods or services as they occur in the contract. The ASU also will require additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, ASU 2014-09 is effective for reporting periods beginning after December 15, 2016, and early adoption is not permitted. Management is currently evaluating the impact, if any, on adopting ASU 2014-09 on the Company's results of operations or financial condition. The Company has considered this and other recent accounting pronouncements of which the Company is aware, and the Company believes their adoption has not had, and is not expected to have, any material impact on its financial position or results of operations. |