Part
I-Financial Information
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Item
1.
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Financial
Statements
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1 |
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Condensed
Consolidated Balance Sheets as of August 31, 2008 (Unaudited)
and November
30, 2007
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1
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Condensed
Consolidated Statements of Operations for the Three and Nine
Months Ended
August 31, 2008 and 2007 (Unaudited)
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2
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Condensed
Consolidated Statements of Cash Flows for the Nine Months Ended
August 31,
2008 and 2007 (Unaudited)
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3
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Condensed
Consolidated Statement of Stockholders’ Deficiency for the Nine Months
Ended August 31, 2008 (Unaudited)
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4
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Notes
to Condensed Consolidated Financial Statements as of August 31,
2008
(Unaudited)
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5
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Item
2.
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Management’s
Discussion and Analysis or Plan of Operation
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12
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Item 3 A(T).
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Controls
and Procedures
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17
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Part
II-Other Information
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Item
1.
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Legal
Proceedings
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18
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Item
2.
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Unregistered
Sales of Equity Securities and Use of Proceeds
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18
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Item
3.
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Defaults
Upon Senior Securities
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19
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Item
4.
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Submission
of Matters to a Vote of Security Holders
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19
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Item
5.
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Other
Information
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19
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Item
6.
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Exhibits
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19
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August 31,
2008
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November 30,
2007
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||||||
(Unaudited)
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(Note 1)
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||||||
ASSETS
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|||||||
Current
assets:
|
|||||||
Cash
|
$
|
3,850
|
$
|
2,077
|
|||
Accounts
receivable
|
2,876
|
4,772
|
|||||
Inventory
|
38,308
|
31,181
|
|||||
Prepaid
expenses and other current assets
|
7,292
|
7,292
|
|||||
Total
current assets
|
52,326
|
45,322
|
|||||
Property
and equipment, net of accumulated depreciation of $23,284-2008;
$20,954–2007
|
10,471
|
4,231
|
|||||
Deferred
financing costs, net of accumulated amortization of
$62,712-2008
|
76,542
|
—
|
|||||
Other
assets, net of accumulated amortization of $11,227-2008;
$9,214–2007
|
56,284
|
28,997
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|||||
TOTAL
ASSETS
|
$
|
195,623
|
$
|
78,550
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|||
LIABILITIES
AND STOCKHOLDERS’ DEFICIENCY
|
|||||||
Current
liabilities:
|
|||||||
Accounts
payable and accrued expenses
|
$
|
800,822
|
$
|
640,403
|
|||
Convertible
notes payable
|
437,234
|
—
|
|||||
Credit
cards payable
|
65,866
|
129,077
|
|||||
Lines
of credit payable
|
158,353
|
166,372
|
|||||
Due
to others
|
24,276
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50,895
|
|||||
Due
to related parties
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20,000
|
35,000
|
|||||
Due
to stockholders
|
226,757
|
201,056
|
|||||
Total
current liabilities
|
1,733,308
|
1,222,803
|
|||||
Stockholders’
deficiency:
|
|||||||
Preferred
stock, $0.001 par value, 10,000 shares authorized, no shares issued
and
outstanding
|
—
|
—
|
|||||
Common
stock, $0.001 par value; 500,000,000 shares authorized, 125,067,080
shares
issued and outstanding (115,567,080 – November 30, 2007)
|
36,500
|
27,000
|
|||||
Common
stock subscribed; no shares issued and outstanding
|
188,500
|
188,500
|
|||||
Additional
paid-in capital
|
801,497
|
500,500
|
|||||
Deferred
consulting fees
|
(101,250
|
)
|
(106,250
|
)
|
|||
Accumulated
deficit
|
(2,462,932
|
)
|
(1,754,003
|
)
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Total
stockholders’ deficiency
|
(1,537,685
|
)
|
(1,144,253
|
)
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TOTAL
LIABILITIES AND STOCKHOLDERS’ DEFICIENCY
|
$
|
195,623
|
$
|
78,550
|
|
For The Three Months Ended
|
For The Nine Months Ended
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|||||||||||
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August 31,
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August 31,
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|||||||||||
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2008
|
2007
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2008
|
2007
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|||||||||
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|||||||||||||
NET
SALES
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$
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101,142
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$
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158,363
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$
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317,146
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$
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571,041
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|||||
COST
OF SALES
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48,320
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90,660
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153,339
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268,385
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|||||||||
GROSS
PROFIT
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52,822
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67,703
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163,807
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302,656
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|||||||||
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|||||||||||||
OPERATING
EXPENSES
|
|||||||||||||
Marketing
and selling
|
58,305
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63,287
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121,908
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212,000
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|||||||||
General
and administrative
|
211,523
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155,667
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625,485
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457,453
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|||||||||
TOTAL
OPERATING EXPENSES
|
269,828
|
218,954
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747,393
|
669,453
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|||||||||
LOSS
FROM OPERATIONS
|
(217,006
|
)
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(151,251
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)
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(583,586
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)
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(366,797
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)
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|||||
|
|||||||||||||
Interest
expense
|
(58,584
|
)
|
(11,753
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)
|
(125,343
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)
|
(33,259
|
)
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|||||
NET
LOSS
|
$
|
(275,590
|
)
|
$
|
(163,004
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)
|
$
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(708,929
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)
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$
|
(400,056
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)
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|||||||||||||
Net
loss per share - basic and diluted
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$
|
0.00
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$
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0.00
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$
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(0.01
|
)
|
$
|
0.00
|
||||
Weighted
average number of shares outstanding during the period - basic and
diluted
|
124,817,080
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114,067,080
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121,066,989
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112,898,582
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Nine
months ended
|
|||||||
August 31,
|
August 31,
|
||||||
2008
|
2007
|
||||||
CASH
FLOWS USED IN OPERATING ACTIVITIES:
|
|||||||
Net
loss
|
$
|
(708,929
|
)
|
$
|
(400,056
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)
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Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|||||||
Depreciation
and amortization
|
76,744
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3,236
|
|||||
Stock-based
professional and consulting fees
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195,000
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150,000
|
|||||
Changes
in assets (increase) decrease:
|
|||||||
Accounts
receivable
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1,896
|
603
|
|||||
Inventory
|
(7,127
|
)
|
19,991
|
||||
Prepaid
expenses and other current assets
|
—
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442
|
|||||
Changes
in liabilities increase:
|
|||||||
Accounts
payable and accrued expenses
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160,419
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178,100
|
|||||
Net
cash used in operating activities
|
(281,997
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)
|
(47,684
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)
|
|||
CASH
FLOWS USED IN INVESTING ACTIVITIES:
|
|||||||
Purchase
of equipment
|
(8,570
|
)
|
—
|
||||
Purchase
of other assets
|
(10,050
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)
|
(3,270
|
)
|
|||
Net
cash used in investing activities
|
(18,620
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)
|
(3,270
|
)
|
|||
CASH
FLOWS PROVIDED BY FINANCING ACTIVITIES:
|
|||||||
Issuance
of convertible notes payable
|
450,000
|
—
|
|||||
Deferred
financing costs
|
(60,462
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)
|
—
|
||||
Repayment
of lines of credit, net
|
(8,019
|
)
|
(6,010
|
)
|
|||
Decrease
in credit card payable, net
|
(63,211
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)
|
(4,714
|
)
|
|||
Increase
(decrease) in due to others
|
(26,619
|
)
|
12,841
|
||||
Increase
(decrease) in due to related parties
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(15,000
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)
|
13,000
|
||||
Increase
in due to stockholders
|
25,701
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33,784
|
|||||
Net
cash provided by financing activities
|
302,390
|
48,901
|
|||||
NET
INCREASE (DECREASE) IN CASH
|
1,773
|
(2,053
|
)
|
||||
CASH,
BEGINNING OF PERIOD
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2,077
|
4,649
|
|||||
CASH,
END OF PERIOD
|
$
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3,850
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$
|
2,596
|
Common Stock
|
Common Stock Subscribed
|
Additional
|
Deferred
Consulting
|
Accumulated
|
|||||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
Paid-in Capital
|
Fees
|
Deficit
|
Total
|
||||||||||||||||||
BALANCE,
December 1, 2007
|
115,567,080
|
$
|
27,000
|
—
|
$
|
188,500
|
$
|
500,500
|
$
|
(106,250
|
)
|
$
|
(1,754,003
|
)
|
$
|
(1,144,253
|
)
|
||||||||
Common
stock issued in connection with an asset acquisition
|
3,500,000
|
3,500
|
—
|
—
|
15,750
|
—
|
—
|
19,250
|
|||||||||||||||||
Common
stock issued to consultants for services
|
4,250,000
|
4,250
|
—
|
—
|
185,750
|
(190,000
|
)
|
—
|
—
|
||||||||||||||||
Common
stock issued to note purchasers in connection with the issuance of
Convertible Notes
|
450,000
|
450
|
—
|
—
|
22,005
|
—
|
—
|
22,455
|
|||||||||||||||||
Common
stock issued to advisor in connection with the issuance of Convertible
Notes
|
1,300,000
|
1,300
|
—
|
—
|
19,892
|
—
|
—
|
21,192
|
|||||||||||||||||
Warrants
issued to advisor in connection with the issuance of Convertible
Notes
|
—
|
—
|
—
|
—
|
57,600
|
—
|
—
|
57,600
|
|||||||||||||||||
Amortization
of deferred consulting fees
|
—
|
—
|
—
|
—
|
—
|
195,000
|
—
|
195,000
|
|||||||||||||||||
Net
loss for the period
|
—
|
—
|
—
|
—
|
—
|
—
|
(708,929
|
)
|
(708,929
|
)
|
|||||||||||||||
BALANCE,
August 31, 2008
|
125,067,080
|
$
|
36,500
|
-
|
$
|
188,500
|
$
|
801,497
|
$
|
(101,250
|
)
|
$
|
(2,462,932
|
)
|
$
|
(1,537,685
|
)
|
a. |
Basis
of Accounting
|
b. |
Principles
of consolidation
|
c. |
Estimates
|
d.
|
Income
taxes
|
e.
|
Revenue
|
f.
|
Loss
per share
|
g.
|
Allowance
for doubtful accounts
|
h. |
Deferred
Financing Costs
|
i. |
Reclassification
|
j. |
Recent
accounting pronouncements
|
2008
|
2007
|
||||||
Income
taxes
|
$
|
—
|
$
|
—
|
|||
Interest
|
$
|
64,518
|
$
|
31,817
|
During
the nine months ended August 31, 2008 the Company
issued:
|
|
(i)
3,500,000 shares of common stock valued at $19,250 for intellectual
property rights.
|
|
(ii)
450,000 shares of common stock and 750,000 Warrants valued at $22,455
to
investors in connection with the issuance of Convertible
Notes
|
|
(iii)
1,300,000 shares of common stock valued at $21,192 to an advisor
in
connection with the issuance of Convertible Notes
|
|
(iv)
5,800,000 Warrants valued at $.01 per share, or $58,000, to an advisor
in
connection with the issuance of Convertible Notes
|
|
(v)
4,250,000 shares of common stock valued at $190,000 to consultants
for
professional services
|
During
the nine months ended August 31, 2007 the Company issued 5,500,000
shares
of common stock valued at $275,000 to consultants for professional
services
|
|
|
Ÿ |
owning
and/or marketing unique products with established clinical history
in
their country of origin, and
|
Ÿ |
a
proactive approach to meeting the regulatory changes and challenges
of the
new healthcare marketplace.
|
2008
|
2007
|
||||||
Net
sales
|
100.0
|
%
|
100.0
|
%
|
|||
Cost
of sales
|
47.8
|
57.2
|
|||||
Gross
profit
|
52.2
|
42.8
|
|||||
Operating
expenses
|
266.8
|
138.3
|
|||||
Loss
from operations
|
(214.6
|
)
|
(95.5
|
)
|
|||
Interest
expense
|
(57.9
|
)
|
(7.4
|
)
|
|||
Net
loss
|
(272.5
|
)%
|
(102.9
|
)%
|
2008
|
2007
|
||||||
Net
sales
|
100.0
|
%
|
100.0
|
%
|
|||
Cost
of sales
|
48.3
|
47.0
|
|||||
Gross
profit
|
51.7
|
53.0
|
|||||
Operating
expenses
|
235.7
|
117.3
|
|||||
Loss
from operations
|
(184.0
|
)
|
(64.3
|
)
|
|||
Interest
expense
|
(39.5
|
)
|
(5.8
|
)
|
|||
Net
loss
|
(223.5
|
)%
|
(70.1
|
)%
|
·
|
$.025
or
|
·
|
80%
of the issuance price in a qualified financing or in connection with
an
acquisition of the Company. The Notes define a qualified financing
as the
date upon which the Company completes the sale of Common Stock (or
like
security) for aggregate gross proceeds of at least $1.5 million.
|
By:
|
/s/Agnes
Olszewski.
|
|
Name:
Agnes Olszewski.
|
||
Title: President and Chief Executive Officer (Principal Executive Officer) and
|
||
Chief
Financial Officer (Principal Accounting Officer)
|
||
Date:
October 20, 2008
|
Exhibit No.
|
Description(1)
|
|
2.1
|
Fourth
Amended Plans of Reorganization for Pacific Magtron International
Corp.
and LiveWarehouse, Inc. (incorporated by reference to Exhibit 2.1
to
Pacific Magtron International Corp.’s Current Report on Form 8-K filed on
August 16, 2006).
|
|
2.2
|
Order
Approving Fourth Amended Plans of Reorganization for Pacific Magtron
International Corp. and LiveWarehouse, Inc. entered August 11, 2006
(incorporated by reference to Exhibit 2.2 to Pacific Magtron International
Corp.’s Current Report on Form 8-K filed on August 16,
2006).
|
|
2.3
|
Agreement
and Plan of Merger, dated as of September 18, 2006, by and among
Pacific
Magtron International Corp., LiveWarehouse, Inc. and Herborium, Inc.
(incorporated by reference to Exhibit 2.3 to the Company’s Current Report
on Form 8-K filed on September 22, 2006)
|
|
3(i)
|
Second
Amended and Restated Articles of Incorporation of Pacific Magtron
International Corp. (incorporated by reference to Exhibit 3(i) to
the
Company’s Current Report on Form 8-K filed on September 22,
2006)
|
|
3(ii)
|
Amended
and Restated Bylaws of Pacific Magtron International Corp. (incorporated
by reference to Exhibit 3(ii) to the Company’s Current Report on Form 8-K
filed on September 22, 2006)
|
|
4.1
|
Form
of Convertible Note (incorporated by reference to Exhibit 4.1 to
the
Company’s Current Report on Form 8-K filed on February 25,
2008)
|
|
4.2
|
Form
of Warrant (incorporated by reference to Exhibit 4.2 to the Company’s
Current Report on Form 8-K filed on February 25, 2008)
|
|
4.3
|
Form
of Registration Rights Agreement (incorporated by reference to Exhibit
4.3
to the Company’s Current Report on Form 8-K filed on February 25,
2008)
|
|
10.1
|
Form
of Subscription Agreement (incorporated by reference to Exhibit 10.1
to
the Company’s Current Report on Form 8-K filed on February 25,
2008)
|
|
31
|
Rule
13a-14(a) Certification of Chief Executive Officer and Chief Financial
Officer
|
|
32
|
Certification
of Chief Executive Officer and Chief Financial Officer pursuant to
Section
906 of the Sarbanes-Oxley Act of
2002
|