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PURAMED BIOSCIENCE INC.

Nov19

The following discussion and analysis of the Company’s financial condition andplan of operations should be read and considered along with its condensedfinancial statements and related notes included in this Quarterly Report on Form10-Q. Various statements have been made in this Quarterly Report on Form 10-Qthat may constitute "forward-looking statements." Forward-looking statements mayalso be made in the Company’s other reports filed with or furnished to the SECand in other documents. In addition, from time to time, the Company, through itsmanagement, may make oral forward-looking statements. Forward-looking statementsare subject to risks and uncertainties which could cause actual results todiffer 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 identifyforward-looking statements. Readers are cautioned not to place undue reliance onthese forward-looking statements, which speak only as of the date on which theyare made. The Company undertakes no obligation to update or revise anyforward-looking statements, except as required by law.
Background
PuraMed BioScience, Inc. ("PuraMed", "PMBS" or the "Company") was incorporatedin Minnesota on May 9, 2006, as a wholly-owned subsidiary of Wind EnergyAmerica, Inc. (formerly "Dotronix, Inc.") for the purpose of engaging in thebusiness of developing and marketing non-prescription over-the-counterhealthcare products to remedy various ailments.
In late 2006, PuraMed’s former parent company decided to spin off its PuraMedsubsidiary and related healthcare products business. Accordingly, on April 12,2007, Wind Energy America, Inc. affected a spin-off of PuraMed to shareholdersof Wind Energy America, Inc. on a pro rata dividend basis of one common share ofPuraMed 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 the respective managements, businesses, assetsand capital structures being completely independent from each other.
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Detailed information regarding this spin-off of PuraMed from Wind EnergyAmerica, Inc. (formerly Dotronix, Inc.) is contained in a Current Report on Form8-K and exhibit thereto which were filed with the US Securities and ExchangeCommission (the "SEC") on April 10, 2007, and can be readily accessed at the SECwebsite www.sec.gov or the Company’s corporate website October 7, 2014, the Financial Industry Regulatory Authority (FINRA) effectedin the marketplace (i) the change in the Company’s domicile from Minnesota toNevada and (ii) a 1-for-40 reverse stock split.
Overview of Business
The Company is engaged in the business of developing and marketing a line ofnon-prescription medicinal or healthcare products to be marketed through variousindependent and retail channels. The Company plans on re-launching its flagshipproduct, LipiGesic under the MigraPure brand and trademark. The Company hasrecently completed the product development and design packaging for the productand has created other intellectual assets to promote a successful re-launch.
In addition to MigraPure, PuraMed BioScience has created an enhanced formulationfor the relief of seizure-related headaches, which could become part of thePuraMed product line.
The Company entered the Over-The-Counter (OTC) healthcare products marketplacein December 2009, by employing "direct to consumer" marketing for the Company’smigraine remedy. The Company is currently undergoing concerted efforts tore-enter the food and drug mass marketplace.
The Company is also investigating several strategic alliances that could enablethe Company to co-market and build market share of complementary products.
MigraPure Advanced Migraine Relief (Clinically tested as LipiGesic M)
MigraPure’s patented feverfew and ginger gel provides relief for acute migraineand migraine-like headaches including sinus and hangover headaches. PuraMedbelieves that the specific formulation of these active ingredients is unique andproprietary. Clinical trial data and anecdotal evidence shows the sublingualformulation provides relief from these severe migraine headaches within minutes.
The Company hopes to capture a material segment of the migraine headache remedymarket as a natural alternative to prescription and OTC migraine medicationsthat may be less effective and induce severe and unpleasant side effects. TheCompany believes that Americans spend in excess of $6 billion annually onheadache pain relievers, and that over half of sufferers of migraine headachesrely exclusively on non-prescription medications.
The Company believes that at least 50 million Americans suffer from chronicmigraine headaches with over 20 million of them having "severe" migraineconditions. Therefore migraine headaches constitute a severe and disablingcondition for millions of people. The Company further believes that the economicburden alone to the US economy is in excess of $50 billion annually.
MigraPureis is available as a non-prescription remedy, provides a side effectprofile similar to placebo, and has a significantly lower cost compared to moreexpensive prescription migraine drugs.
Future PuraMed BioScience Products
The Company intends to complete development of additional non-prescriptionhemp-based products. The Company intends to launch these commercially over thenext couple years after establishing a solid market for MigraPure, the Company’sflagship migraine formulation. Areas to be addressed include general pain,anxiety / depression (post-traumatic stress disorder) and other inflammatorydisease states.
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Sublingual Delivery System
MigraPure Advanced Migraine Relief is a non-prescription, liquid-gel medicationthat absorbs under-the tongue. This method of delivery is known as "sublingual."This form of delivery allows the active ingredients to reach the bloodstreamwithout a substantial degradation of efficacy. Unlike the majority of pills andother oral medications which must be absorbed through the digestive track afterbeing processed through the liver, PuraMed products are placed and absorbeddirectly under the tongue. Advantages of sublingual dispensing of drugs andmedications include faster acting absorption for quick relief, improvedefficacy, less stomach upset, and fewer side effects.
PuraMed has secured reliable contract manufacturers to produce and packagePuraMed products in easy-to-use, sublingual dispensers. These selectedcontractors are experienced in the production and packaging of this type ofdispenser. PuraMed believes that its benchmark use of sublingual dispensersshould distinguish its products favorably in comparison to most competing OTCproducts now in the marketplace.
Regulation of PuraMed Products
Unlike prescription drugs or medications, non-prescription healthcare remediessuch as PuraMed products do not require FDA approval prior to entering themarket. They are nonetheless subject to substantial FDA and other federalregulations governing their use, labeling, advertising, manufacturing andingredients. PuraMed believes that its current and proposed development,formulation, marketing and other practices and procedures will comply fully withall governmental regulations applicable to PuraMed products.
Business Structure
PuraMed intends to function primarily as a research and development, marketingand sales organization. Product manufacturing, packaging, product fulfillmentand other operations intend to be outsourced to experienced and reliable thirdparties through contracts monitored and controlled by PuraMed. PuraMed believesthis structure hopefully reduces significantly the production costs andmanufacturing time related to making the product commercially available.
Product Manufacturing
Production and packaging of PuraMed products intends to be outsourced to variouscontract manufacturers known by PuraMed’s management from prior substantialbusiness and contract dealings. Due to the business and contacts developed byPuraMed management over the past years with leading contract manufacturers,PuraMed is convinced it can obtain professional and timely production, packagingand delivery of all PuraMed products.
The Company outsources four main components of the Company’s production processto third-party vendors. The process begins with the sourcing of raw materials,manufacturing of the liquid-gel medicine, testing and quality assurance of theproduct itself by Hillestad Pharmaceuticals (http://www.hillestadlabs.com/) inWoodruff, WI. Hillestad Pharmaceuticals is an FDA licensed prescription drugmanufacturer.
The Company sources all of its packaging needs including the box, box inserts,and 6-pack retail display trays to 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 ofthe 3-ml applicator with the liquid-gel medication, the packing of the retailboxes, and the packaging of the master cases.
The Company uses Great Lakes Fulfillment (http://glfulfillment.com) in Lewiston,ME for all of its e-commerce and retail distribution needs.
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Clinical Trials
Conducting clinical trials is a very important component the Company’s marketingplan. With the Company’s goal to get medical professionals to review, endorse,and recommend its product, clinical evidence to support the products’ claims isa prerequisite. The Company has and intends to continue to attend medical tradeshows that attract medical professions such as doctors, nurses, and pharmaciststo present the Company’s clinical research regarding the Company’s MigraPureAdvanced Migraine Relief formula, which was clinically tested as LipiGesic M.
The outcome of the Company’s first clinical study was extremely favorable. After2 hours post-dose (the clinical trial standard), 64% of migraines treated withthe MigraPure formula were reduced to mild or no pain. The study concludes that,"sublingual (under-the-tongue) delivery of feverfew/ginger appears safe andeffective as a first-line abortive treatment for a population of migraineurs whofrequently experience mild headache prior to the onset of moderate to severeheadache. It appears to be well tolerated and has no known contraindicationswith other acute migraine treatments for migraine."
As a result of the success and the statistical significance of the Company’sfirst clinical study, the manuscript was accepted for publication in theJuly/August 2011 edition of the top-ranked, peer-reviewed, medical journalHeadache, The Journal of Head and Face Pain.
The results of these finding were also reanalyzed. The consensus was that givena larger study, the results could have produced even greater success. Theauthors of the reanalysis stated that MigraPure (f/k/a LipiGesic M) has a robustefficacy.
The clinical trial also spawned a third article published in Drugs, a medicaljournal. It was the only OTC medication that was listed as an "Advancement" inthe treatment of migraine.
The Company expects the results of the clinical trial to provide it withnumerous marketing and promotional opportunities that positively impact there-launch of MigraPure, Advanced Migraine Relief.
The Company’s second clinical study focused specifically on children andadolescents. The preliminary data from that study Suggests that MigraPure couldprovide an excellent treatment option for many young sufferers.
There are an estimated 10 million migraine sufferers that find themselves inthis demographic in the United States. Children and adolescents that suffer withmigraines have limited treatment options as many of the traditional prescriptionremedies have adverse side effects and are not recommended for use with childrenand adolescents.
Sales and Marketing
PuraMed intends to concentrate its efforts on the Company’s initial productre-launch of MigraPure product. After the Company has reached a level of salesthat will sustain the product, an additional product offerings the launch of asecond product will result. All of the Company’s additional product offeringswill follow the same three-phase process to market as MigraPure:
Phase One Rollout: Direct Response and Sampling. The re-entry of MigraPureAdvanced Migraine Relief into the marketplace will commence with direct-responsecampaigns to targeted medical populations; distribution through selected retailoutlets, natural products stores and independent pharmacies; a military samplingprogram and an internet marketing campaign that includes organic as well as PPCefforts. In addition to the proposed marketing strategies to build awareness andproduct purchase, PuraMed is expected to implement a strong customer serviceprogram to retain loyal customers.
MigraPure’s re-entry will include a re-packaging effort that should enhance thebrand’s appeal to the public. Other products in the MigraPure product line areplanned and underway.
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When the MigraPure Advanced Migraine Relief shows sustained growth, we plan todevelop additional marketing assets promotion of the product in other targetedmedical markets and selected retail venues.
Phase Two Rollout: Retail Drugstores. Upon the successful completion of thePhase One Rollout, PuraMed plans to begin the process of working closely withmajor drug chains to sell MigraPure Advance Migraine Relief in stores across thenation with the goal of self-sustainability and revenue generation.
Phase Three Rollout: Further Retail Outlets. A few months after completing thephase two rollout for its migraine remedy, PuraMed plans to launch phase threewhich will consist of working to expand the retail placement of its migraineproduct in approximately an additional 21,000 targeted retail outlets includingmass merchandisers such as Wal-Mart and Target, food store chains such asSuperValu, Kroger and Safeway, and additional well-known regional drugstores.
PuraMed has selected these targeted retailers according to various materialcriteria, including cost of entry, geography, demographics and consumerpreference.
After achieving material initial distribution for PuraMed products, PuraMedplans to initiate a comprehensive and ongoing promotional campaign directedtoward consumer groups it has identified from its product rollouts. Theobjective of its promotional campaign is to build consumer awareness and developa consumer-based demand for MigraPure throughout the United States. The scope ofthe Company’s brand building effort is expected to span all of the followingmajor advertising venues:
Trade Advertising – Consisting of retail POS (point-of-sale) materials, couponredemption programs, in-store promotional video, pharmaceutical trade magazineslike Pharmacy Times, and Mass Market Retailer, key primary care and medicaljournals, articles in consumer-focused magazines like Headwise a publication ofthe National Headache Foundation, 2015 attendance at the NACDS (NationalAssociation of Chain Drug Stores) Trade Show and other industry events. Inaddition, MigraPure, is expected to be featured in several key primary care andmedical journals.
Medical Conferences and Meetings – A key component of the marketing effort willbe directed at educating medical professionals including physicians,pharmacists, clinicians, practitioners, nurse practitioners and physicianassistants.
Medical Spokespersons – The Company is working to identify and utilize medicalspokespersons to promote MigraPure Advanced Migraine Relief. They will includeboard certified specialists with a special interest in the diagnosis, treatment,prevention and cure of headache.
Consumer Advertising – PMBS plans to allocate monies to create media assets thatcan be leveraged on several media venues and used in several markets. This mayinclude video, print and electronic advertising that will be scheduled based onselected marketing criteria, goals and funding.
Product Sampling – The Company has developed a retail box and a two-count,fold-over, sample pack sufficient to treat one migraine headache. These itemsare used to provide samples to headache specialists, primary care practitioners,veterans, and interested consumers from its social marketing and eCommerceefforts.
Special Programs – The Company has implemented a special program for active-dutyservicemen and women and returning Veterans. The Company is currently workingwith Honoring Our Troops, Operation Gratitude, and Operation Troop Aid todistribute its current product, MigraPure.
Studies show that veterans returning from active duty combat zonesexperience migraines more often than civilians. One study indicates thatsoldiers have two to four times the incidence of migraine than the generalpopulation. Returning veterans are also at greater risk of suffering frompost-traumatic stress disorder (PTSD). Since commonly prescribed medications forPTSD are not compatible with the prescription medications normally used formigraine, these veterans are forced to choose to treat one condition or theother.
MigraPure has no known or reported drug interactions of this type, making it asafer choice for veterans suffering with migraine and PTSD.
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In response to this, the Company has been and plans to continue providingveterans and members of the armed forces with a free sample ofMigraPure. MigraPure is among the top four items requested in the America CaresProject care packages that were delivered by Honoring Our Troops to US militarypersonnel serving in Afghanistan.
Web Presence and Social Marketing – The Company currently maintains a corporatewebsite at www.puramedbioscience.com and a product website at www.lipigesic.com,which will transition to www.migrapure.com at the time of the re-launch. TheCompany plans to maintain the lipigesic.com and other URLs, but redirectvisitors to a landing page declaring the change and funnel them to theinformational pages and ecommerce site.
E-mail campaigns to targeted audience to promote MigraPure are planned forimplementation during the second quarter of 2015.
The Company plans to hire a dedicated social media content manager to direct andimplement an active social marketing campaign utilizing Facebook and Twitter andeventually other social media platforms. In addition to providing productinformation, this program is designed as a tool to direct consumers to retaillocations and special promotions.
Competition
The non-prescription healthcare market in which PuraMed is engaged is intenselycompetitive and PuraMed will face the same challenges as other start-up andestablished OTC drug companies within their respective product classes.Virtually all direct competitors to the PuraMed product line have substantiallygreater financial, personnel, development, marketing and other resources thanthose possessed by PuraMed, which places PuraMed at a definite competitivedisadvantage. Main competitors of PuraMed will have substantially larger salesvolumes than PuraMed expects to realize, and also greater businessdiversification in most cases.
PuraMed also must compete with numerous small companies selling products intothe same mainstream marketing channels targeted by PuraMed. PuraMed also expectsto encounter additional competitors emerging from time to time.
PuraMed believes that the principal competitive factors in its industry includequality and pricing of products, product effectiveness, customer preferences,brand awareness, and marketing and distribution networks. There is no assurancePuraMed will be able to compete successfully against current or futurecompetitors or that the competitive pressures faced by PuraMed will not harm itsbusiness materially.
Intellectual Property
PuraMed owns and asserts proprietary intellectual property rights regarding itsvarious products, including a patent, trademarks, formulation technology,ingredients and product delivery procedures or methods. The future growth andsuccess of the Company will depend in large part upon its ability to protect itstrademarks, trade names and trade secrets. In addition to applying for certainproduct patents, PuraMed will rely upon trade secrets, proprietary know-how, andcontinuing development and innovation to compete in its OTCmarketplace. Although no claims or threats of product or patent infringementhave arisen regarding PuraMed or its products, there is no assurance PuraMedwill be able to protect its intellectual property effectively and any failure todo so would be harmful to PuraMed.
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Employees and Facilities
As of November 4, 2014, PuraMed has three employees including its two executiveofficers, and an office manager. PuraMed anticipates hiring one or moreexperienced sales and marketing personnel to support the upcoming commerciallaunch of MigraPure within the next 12 months.
Corporate Contact Data
The address of the Company in suburban Wausau, Wisconsin, is 1326 SchofieldAvenue, P.O. Box 677, Schofield, WI 54476; the Companys’ telephone number is(715) 359-6373 and the Company’s corporate and product website addresses arewww.puramedbioscience.com and www.lipigesic.com, respectively.
Results of Operations
Revenues
Revenues consist of wholesale and website sales of the MigraPure migraineproduct. The wholesale revenue is reduced by coop advertising costs incurred toobtain product placement at large retail drugstores.
Cost of Sales
Cost of sales consists of merchant fees, material, packaging, freight costs andproduct 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 ofassets and amortization of the Company’s LipiGesic trademark and intellectualproperty received during its spin-off from the parent company in April 2007.
Marketing and advertising expense include payments for public relations, stockpromotion 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 the office manager.
Officers’ salaries include payroll to the Chief Executive Officer and ChiefOperating Officer.
Other Income Expense
Other Income Expense consists of interest expense and gain/loss on derivativeliability.
Comparison of Operations for Three Months Ended September 30, 2014 and 2013
Revenue
Net revenue for the three months ended September 30, 2014 was $3,636 compared to$0 for the three months ended September 30, 2013. The revenue increased due tointernet sales.
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Cost of Sales
Cost of sales for the three months ended September 3, 2014 was $4,932, comparedto $26,603 for the three months ended September 30, 2013. Cost of salesdecreased due to the absence of obsolete inventory write offs.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $23,774 and $43,226 for thethree months ended September 30, 2014 and 2013, respectively. The decrease isprimarily attributed to the decrease in cost of our product liability insurancepolicy.
Amortization and Depreciation
Amortization and depreciation expenses for the three months ended September 30,2014 and 2013 were $3,513 compared to $14,440, respectively. The decrease wasdue to certain intangible assets becoming fully amortized in 2014.
Professional Fees
Professional fees for the three months ended September 30, 2014 were $48,897compared to $107,930 for the three months ended September 30, 2013. The decreasewas attributed to the reduction in legal fees incurred.
Marketing and Advertising Expense
Marketing and advertising expense for the three months ended September 30, 2014was $9,770 compared to $22,900 for the three months ended September 30, 2013.The decrease in the expenses was due to a reduction in the marketing andadvertising expenditures.
Salaries
Salaries for the three months ended September 30, 2014 were $5,874, compared to$7,436 for the three months ended September 30, 2013. The decrease was due tothe decrease in hours worked by the Office Manager during this time period.
Officers’ Salaries
Officers’ salaries for the three months ended September 30, 2014 and 2013 were$42,314 and $60,923, respectively. The decrease in salaries is attributed to theresignation of the Company’s Chief Operating Officer in May of 2014, and adecrease in hours worked by the new Chief Operating Officer.
Interest Expense
Interest expense for the three months ended September 30, 2014 and 2013 was$431,930 and $125,999, respectively. The increase in the expense is attributedto an increase in the number of notes outstanding.
Loss on Derivative Liability
The loss on derivative liability for the three months ended September 30, 2014and 2013 was $255,281 and $293,171, respectively. The loss on derivativeliability is the difference in value using the lattice model for the warrantsbetween the date issued and the quarter ended September 30, 2014 and 2013.
Net Loss
Net loss for the three months ended September 30, 2014 was $822,649 compared to$702,718 for the three months ended September 30, 2013. The increase in the lossfor 2014 was due primarily to higher interest costs associated with convertibledebt.
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Financial Condition, Liquidity and Capital Resources
As of September 30, 2014, the Company had cash of $28,120 and negative workingcapital of $5,628,766.
PuraMed intends to raise the funds needed to implement the Company’s plan ofoperation through both private sales of debt and equity securities. There is noassurance, however, that the Company will be successful in raising the necessarycapital to implement the Company’s business plan, either through debt or equitysources.
Business Strategy
PuraMed’s business strategy going forward is to re-launch its flagship migraineproduct LipiGesic M using the name and branded image MigraPure. The Companyplans to begin the promotion of MigraPure with a strong online presence andsampling program that will build awareness and acceptance of the generalpopulation and in selected markets. The goal of the re-launch is to drive salesin both the online marketplace and in selected markets and to generate revenue.PuraMed’s primary goal is to achieve continual material growth of MigraPuremigraine product sales through online and brick-and-mortar natural drugdistribution channels, while at the same time promoting MigraPure brandawareness to realize substantial profitability as soon as possible. To implementthis strategy, PuraMed intends to execute the following activities during thenext twelve months:
The Publication of the Clinical Trial Data – We believe the outcome of theCompany’s 2011 clinical study coupled with the publication of the manuscript inthe 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 provideit with numerous marketing and promotion opportunities that could significantlyhelp with the re-launch of its MigraPure migraine product.
PuraMed is in the process of creating a detailed marketing strategy that focuseson the sampling and engagement of segments of the medical community. Thesuccessful outcome and subsequent re-analysis of MigraPures clinical trial datais expected to be an instrumental component of those actions. Medical marketingefforts targeting specific segments of the medical community are expected toyield positive returns.
The data that the Company has received regarding its clinical trial focusing onthe adolescent population is expected to further underscore the validity offeverfew and ginger as an safe and effective formulation for the treatment ofmigraine in the youth and adolescents. Treatment options for this demographic,conservatively estimated at 10 million are limited. The traditional prescriptionmigraine remedies have adverse side effects and are not recommended for use bychildren and adolescents.
Commercialization PuraMed Products – In addition to raising the necessary fundsto continue operations, PuraMed’s primary focus for the remainder of calendaryear 2014 and beginning of 2015 is expected to be to continue the re-brandingprocess and gain distribution with one or more retail channels. The Company willwork to use its clinical data, anecdotal information and an aggressive samplingcampaign to overcome consumer and retailer skepticism, provide third-partyvalidation of its migraine products efficacy and achieve retail and onlineplacement.
The Company’s also plans to implement a strong online marketing campaign thatexpects to drive organic traffic to either The Company’s online store or retailvenues after the re-branding of MigraPure is complete. A three-pronged marketingstrategy expects to be implemented that targets, consumers, the medicationcommunity and retailers. Each target should have marketing plans designedspecifically for them to maximize awareness, encourage engagement and promptpurchase. As part of the re-launch efforts an enhanced website, electronic mediacampaigns and eCommerce portal is expected to optimize its internet sales.
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Expansion of Sales and Marketing Activities – PuraMed plans to continue workingto expand and develop marketing strategies focused on gaining a network ofretail outlets; implementing direct-to-consumer marketing messages; exhibitingand attending tradeshows of targeted industries, and maintaining a samplingprogram to build awareness and secure consumers of MigraPure.
Continuation of Product Development – Besides its MigraPure product, PuraMedwill work to complete development and testing of its hemp-based product line ofnon-prescription drugs and nutritional supplements to be commercially launchedin the future as additional PuraMed products.
Assuming the Company raises the necessary capital, it anticipates spendingapproximately $3.0 million over the next twelve months on the marketing of itsmigraine headache remedy along with the introduction of its hemp-basedcannabinoid product offerings regardless of any amounts of revenues the Companygenerates from product sales during this period. If raised, these funds will bespent as follows:
Sales and marketing expenses $ 2,000,000Purchase of product inventory, packaging and raw materials 600,000Research and development activities 100,000General and administrative expenses including rent, fixed overhead andmanagement compensation 300,000 $ 3,000,000Critical Accounting PoliciesThe discussion in this Plan of Operation should be considered in conjunctionwith the Company’s audited financial statements and related notes included inits Annual Report on Form 10-K for the year ended June 30, 2014, filed with theSEC on October 14, 2014. These financial statements have been prepared inaccordance with United States Generally Accepted Accounting Principles (USGAAP).
The preparation of the Company’s financial statements requires us to makeestimates and judgments affecting its reported amounts of assets, liabilities,revenues and expenses and related disclosures. On an ongoing basis, PuraMed isexpecting to evaluate these estimates which are based on historical experienceand certain assumptions the Company believes to be reasonable under thecircumstances. Actual results may differ materially from the Company’s estimatesunder different assumptions or conditions.
Impairment – Whenever events or changes in circumstances indicate that thecarrying amounts may not be recoverable, The Company conducts an impairmentanalysis of any material intangible assets owned by the Company. If the resultsof any such impairment analysis indicate the Company’s recorded values for anysuch assets have declined materially, PuraMed plans to adjust its recorded assetvaluations in all of its financial statements to reflect any such decline invalue. The Company believes that no impairment existed as of September 30, 2014.
Stock-Based Compensation – PuraMed has issued stock-based compensation to theCompany’s employees, contractors, consultants or others providing goods andservices to PuraMed. The fair market value of any stock-based compensationissued for goods or services is expected to be expensed over the period in whichthe Company receives them. Most likely any equity securities issued by it forgoods and services should consist of common shares or common stock purchasewarrants, which should be fully vested, non-forfeitable, and fully paid orexercisable at the date of grant. Regarding any future stock option or warrantgrants, the Company intends to determine the fair value by using theBlack-Scholes option-pricing model.
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Derivative financial instruments – warrants – In accordance with guidance inAccounting Standards Codification (ASC) 815-40-25-1 and ASC 815-40-25-8, theCompany has determined the warrants issued during 2011 have net cash settlementprovisions that require classification as derivative liabilities rather thanpermanent equity. In accordance with such accounting rules, derivativeinstruments are recorded at fair value and marked-to-market each period untilthey are exercised or expire, with any change in the fair value charged orcredited to income each period. Because these warrants do not trade in an activesecurities market, the fair value was estimated using a binomial option-pricingmodel.
Derivative financial instruments – conversion options – In accordance withguidance in ASC 815-15, the Company has determined the conversion options ofcertain short-term convertible notes require classification as derivativeliabilities. In accordance with such accounting rules, derivative instrumentsare recorded at fair value and marked-to-market each period until they areexercised or expire, with any change in the fair value charged or credited toincome each period. The fair value was estimated using a binomial option-pricingmodel.
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