|
PURAMED BIOSCIENCE INC. - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Edgar Glimpses Via Acquire Media NewsEdge) 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.
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 gained a retail presence in two of the top national chain drug
stores, Walgreens and CVS. The number of stores now stocking our LipiGesic® M
migraine product is approaching 15,000 stores. 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.
11
--------------------------------------------------------------------------------
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 believes it will 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 $20 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 currently features products
primarily 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.
12
--------------------------------------------------------------------------------
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.
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 is 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 is 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 has obtained 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.
13
--------------------------------------------------------------------------------
The Company sources all of our packaging needs from the box, 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.
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.
We believe 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 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 5 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. After we have reached a level of
sales that will sustain the product and additional product offerings we
anticipate the launch of a second product. We plan to have all of the Company's
additional product offerings follow the same three-phase process to market as
LipiGesic® M:
Phase One Rollout: Direct Response. PuraMed has 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. 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. We plan to also employ website and
toll-free telephone access in conjunction with our TV direct response
campaigns. PuraMed began a nationwide direct response print campaign that
started in Mid-September 2010. PuraMed has commenced and completed our Phase One
Rollout on our migraine headache remedy.
Phase Two Rollout: Retail Drugstores. PuraMed 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 currently have retail distribution with two of the nation's largest
retail chain drug stores, Walgreens and CVS. 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 Walgreens and CVS. The
Company is negotiating with a final national chain drug store before we begin
our phase three rollout phase.
14
--------------------------------------------------------------------------------
Phase Three Rollout: Further Retail Outlets. After completing the phase two
rollout for our migraine remedy, PuraMed plans to 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
plans to 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 - consisting 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, each 2012 quarterly issue of
Headwise magazine that is published by the National Headache Foundation, and
NACDS (National Association of Chain Drug Stores) Trade Shows. In addition, we
plan to feature LipiGesic® M 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.
Medical Spokespersons - The Company currently utilizes four medical
spokespersons to promote our LipiGesic® M product. They include 1) Dr. Roger
Cady who is the founder of Headache Care Center, Clinvest and Primary Care
Education Network; 2) Dr. Jerome Goldstein, who is a board certified medical
neurologist with a special interest in the diagnosis, treatment, prevention and
cure of headache; 3) Cathleen London, M.D., who is a board certified family
medicine physician; and 4) Sherry Torkos, who is a holistic pharmacist, author
and lecturer.
Consumer Advertising - Print ads have run 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
have aired and will continue to be scheduled.
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 that 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.
15
--------------------------------------------------------------------------------
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.
Public Relations - The Company has hired Media Relations, Inc. as its public
relations firm, specializing in promoting OTC drugs and supplements in the
United States. They will also be responsible for our TV, radio and public
relations effort in addition to other specialized activities.
Intellectual Property
PuraMed owns and asserts proprietary intellectual property rights regarding its
various products, including 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 February 1, 2013, PuraMed has four employees including its three 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.
Results of Operations
Revenues
Revenues consist of wholesale and website sales of the LipiGesic® M migraine
product. The wholesale revenue has been to two of the largest chain drugstores
in the United States.
16
--------------------------------------------------------------------------------
Cost of Sales
Cost of sales consists of merchant fees, material, packaging and freight costs
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 and corporate controller.
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 December 31, 2012 and 2011
Revenue
Revenue for the three months ended December 31, 2012 was $0 compared to $608,676
for the three months ended December 31, 2011. The revenue decreased due to a
reduction in retail orders and additional monthly retail service charges to
maintain our presence on the shelves of the two national drugstore chains where
we have distribution.
Cost of Sales
Cost of sales for the three months ended December 31, 2012 was $15,024, compared
to $118,095 for the three months ended December 31, 2011. The cost of sales
decreased due to the reduction in orders during this quarter.
Gross profit
The gross profit for the three months ended December 31, 2012 was a negative
$15,024, compared to $490,581 for the three months ended December 31, 2011. The
decrease in gross profit is due to the reduction in retail orders during this
quarter.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $50,557 and $43,287 for the
three months ended December 31, 2012 and 2011, respectively. The increase is
primarily attributed to the increase in cost of the product liability insurance
policy required by the retailers that stock our product.
17
--------------------------------------------------------------------------------
Amortization and Depreciation
Amortization and depreciation expenses for the three months ended December 31,
2012 and 2011 were similar at $12,975 compared to $12,775.
Professional Fees
Professional fees for the three months ended December 31, 2012 were $110,165
compared to $125,146 for the three months ended December 31, 2011. The decrease
was attributed to the reduction in consulting fees paid to our retail brokers to
support the Company's product entry into retail chain drugstores.
Marketing and Advertising Expense
Marketing and advertising expense for the three months ended December 31, 2012
was $68,827 compared to $164,945 for the three months ended December 31,
2011. The decrease in the expenses was two-fold: there was a reduction in the
marketing and advertising expenditures along with a reduction in the
expenditures to finance equity funding.
Salaries
Salaries for the three months ended December 31, 2012 were $7,040 compared to
$18,535 for the three months ended December 31, 2011, which is attributed to the
moving of the corporate controller's wages from salaries to officer salaries as
the Controller was promoted to Chief Financial Officer for the current period.
Officers' Salaries
Officers' salaries for the three months ended December 31, 2012 and 2011 were
$90,462 and $108,000, respectively. The increase in salaries is attributed to
the inclusion of warrants given to the Chief Executive Officer Russell Mitchell.
Interest Expense
Interest expense for the three months ended December 31, 2012 and 2011 was
$146,316 and $120,829, respectively. The increase in the expense is attributed
to the amortization of debt discounts for notes used to finance the Company.
Gain on Derivative Liability
The gain on derivative liability for the three months ended December 31, 2012
and 2011 was $182,062 and $167,310, respectively. The gain on derivative
liability is the difference in value using the lattice model for the warrants
between the date issued and the quarter ended December 31, 2012 and 2011.
Net Loss
Net loss for the three months ended December 31, 2012 was $319,360 compared to
net income of $63,955 for the three months ended December 31, 2011. The increase
in the loss for 2012 was due to decreased sales, and the cost associated with
new distribution related to two of the nation's largest retail drugstore chains
which accounted for an increase in advertising, liability insurance and legal
expenses to support that distribution.
Comparison of Operations for Six Months Ended December 31, 2012 and 2011
Revenue
Revenue for the six months ended December 31, 2012 was $27,534 compared to
$613,931 for the six months ended December 31, 2011. The revenue decreased due
to a reduction in retail orders and additional retail service charges to
maintain our presence on the shelves of the two national drugstore chains where
we have distribution.
18
--------------------------------------------------------------------------------
Cost of Sales
Cost of sales for the six months ended December 31, 2012 was $28,067, compared
to $121,311 for the six months ended December 31, 2011. The cost of sales
decreased due to raw material costs, production and freight costs for the
reduction in retail orders to two drugstore chains.
Gross profit
The gross profit for the six months ended December 31, 2012 was a negative $533,
compared to $492,620 for the six months ended December 31, 2011. The decrease in
gross profit is due to decreasing retail orders and additional retail service
charges to maintain our presence on the shelves of two drugstore chains.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $106,108 and $66,584 for the
six months ended December 31, 2012 and 2011, respectively. The increase is
primarily attributed to the increase in cost of the product liability insurance
policy required by the new retailers of our product.
Amortization and Depreciation
Amortization and depreciation expenses for the six months ended December 31,
2012 and 2011 were similar at $25,951 compared to $25,494.
Professional Fees
Professional fees for the six months ended December 31, 2012 were $270,494
compared to $158,988 for the six months ended December 31, 2011. The increase
was attributed to additional legal and consulting fees paid to support the
Company's product entry into retail chain drugstores.
Marketing and Advertising Expense
Marketing and advertising expense for the six months ended December 31, 2012 was
$316,338 compared to $268,647 for the six months ended December 31, 2011. The
increase in the expenses was two-fold: there was an increase in the marketing
and advertising campaign necessary to support our products at the two national
drugstore chains where we have distribution and an increase in the expenditures
to finance equity funding. These increases occurred primarily during the first
three months of our fiscal year.
Research and Development Expenses
Research and development expenses for the six months ended December 31, 2012
were $14,656 compared to $2,247 for the six months ended December 31, 2011. The
current expense is higher due to the cost of the second clinical study.
Salaries
Salaries for the six months ended December 31, 2012 were $14,300 compared to
$36,803 for the six months ended December 31, 2011, which is attributed to the
moving of the corporate controller's wages from salaries to officer salaries as
the Controller was promoted to Chief Financial Officer for the current period.
19
--------------------------------------------------------------------------------
Officers' Salaries
Officers' salaries for the six months ended December 31, 2012 and 2011 were
$167,820 and $156,000, respectively. The increase in salaries is attributed to
the increase in salary for the Chief Executive Officer Russell Mitchell and the
inclusion of the Chief Financial Officer's salary.
Interest Expense
Interest expense for the six months ended December 31, 2012 and 2011 was
$295,649 and $237,874, respectively. The increase in the expense is attributed
to the amortization of debt discounts for notes used to finance the Company.
Gain on Derivative Liability
The gain on derivative liability is the difference in value using the lattice
model for the warrants between the date issued and the six months ended December
31, 2012 and 2011. The gain on derivative liability for the six months ended
December 31, 2012 and 2011 was $111,825 and $98,095, respectively.
Net Loss
Net loss for the six months ended December 31, 2012 was $1,100,024 compared to a
net loss of $362,224 for the six months ended December 31, 2011. The increase in
the loss for 2012 was due to decreased sales and the cost associated with new
distribution costs related to two of the nation's largest retail drugstore
chains which accounted for an increase in advertising, liability insurance and
legal expenses to support that distribution.
Financial Condition, Liquidity and Capital Resources
As of December 31, 2012, the Company had cash of $4,007 and negative working
capital of $1,785,062.
As in the past, we intend to raise the funds needed to implement our plan of
operation through both private sales of debt and equity securities. We believe
revenue received from the successful roll-out of our product at national retail
drug stores will now play an increased role in our capital needs. There is no
assurance, however, that we will be successful in obtaining adequate levels of
revenue or 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 chain partners 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 5 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 successful outcome of this clinical trial will provide an
opportunity to treat children and adolescents.
20
--------------------------------------------------------------------------------
Commercialize PuraMed Products - 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.
Assuming the Company raises the capital, we anticipate spending approximately
$3.0 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 12, 2012. 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 $48,005 and $37,614 for fiscal years ending June 30,
2013 and 2014, respectively.
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 exists at December 31, 2012.
21
--------------------------------------------------------------------------------
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.
[ Back To SIP Trunking Home's Homepage ]
|
NEW Bring Your Own Device
(BYOD): HTML5 and Google's WebRTC are
transforming our industry: The disaggregation of the telecom industry has long
been talked about, while available solutions remain
vertically integrated in spite of a growing industry of
standards-based individual components...
NEW SSOA - SIP Service Oriented Architecture™:
Cloud and large enterprise communications
and collaboration infrastructure: This eBook introduces eZuce's SIP Service Oriented
Architecture (SSOA). SSOA is a 'carrier-class'
system that offers the demanding global enterprise
a modern built-for-the-cloud and highly
scalable...
NEW Benefits of Broadvox VAR Partner Program: We built our Partner Program to work for you. We understand that different
types of partners have different needs, and we don't play favorites. When
you partner with Broadvox, every member of our team stands behind you
and your customers 100%... 
What's New?
