NOTE
1. INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The
accompanying condensed consolidated financial statements have been prepared
in
accordance with accounting principles generally accepted in the United States
of
America and reflect all adjustments which management believes necessary (which
include only normal recurring accruals) to present fairly the financial
position, results of operations, and cash flows of the Company. These
statements, however, do not include all information and footnotes necessary
for
a complete presentation of the Company’s consolidated financial position,
results of operations and cash flows in conformity with accounting principles
generally accepted in the United States. The interim financial statements should
be read in conjunction with the consolidated financial statements and notes
thereto, included in the Company’s audited financial statements for the fiscal
year ended November 30, 2006 included in its Annual Report on Form 10-KSB,
and
are not necessarily indicative of the results to be expected for the full year
ending November 30, 2007. The consolidated balance sheet at November 30, 2006
has been derived from the audited financial statements for fiscal
2006.
NOTE
2.
ORGANIZATION
AND NATURE OF BUSINESS
Herborium,
Inc., (the “Company”) was incorporated in the State of Delaware on June 4, 2002,
and is the surviving entity following a merger of G.O. International, Inc.,
a
New Jersey corporation, with and into the Company effective June 6, 2002. The
Company provides unique, natural and complementary healthcare related products
to consumers and healthcare professionals seeking alternative answers to the
management of healthcare issues not currently met by standard Western medicine.
Its products are botanical supplements comprised of unique herbal formulations,
referred to as botanical therapeutics, that have a record of clinical efficacy
and safety established in China; however, these products have not been evaluated
according to standards of clinical efficacy and safety applicable to
pharmaceutical products sold in the United States and other countries, and
because these products are herbal-based, they are not recognized as
pharmaceuticals by the Federal Drug Administration (the "FDA"). The Company’s
business model is based on (i) owning and/or marketing unique products with
established clinical history in their country of origin, and (ii) a proactive
approach to meeting the regulatory changes and challenges of the new healthcare
marketplace. Historically, substantially all of the Company’s revenue has been
derived from the sale of AcnEase through its corporate website.
On
September 18, 2006, Herborium was acquired by Pacific Magtron International
Corporation, Inc. (“PMIC”), a publicly traded Nevada Corporation, pursuant to a
Merger Agreement and PMIC’s plan of reorganization in bankruptcy. The
transaction was accomplished by the merger of a PMIC subsidiary into Herborium,
with Herborium as the surviving corporation (the “Merger). Under the provisions
of the Merger Agreement and the plan of reorganization, the stockholders of
Herborium exchanged 100% of their common stock of the Company for 85% of the
post-Merger PMIC common stock. The previously outstanding common shares of
PMIC
were cancelled under the plan of reorganization, and one new share of the
Company was issued in exchange for each cancelled shares held by all PMIC
shareholders, other than its majority shareholder, Advanced Communications
Technologies, Inc (“ACT”). A total of 11,454,300 shares were issued to the
shareholders of ACT in exchange for the cancellation of the PMIC shares and
ACT’s contribution of $50,000 to the bankruptcy. Shares of our common stock have
been distributed to PMIC shareholders. Following this distribution, as well
as
certain other distributions that are included in the plan of reorganization,
an
aggregate of 108,567,080 shares of common stock of Herborium Group was issued
and outstanding as of November 30, 2006. This number of shares was used in
calculations of net loss per share for all periods presented on a retroactive
basis for the three and nine months ended August 31, 2006.
The
Company’s merger with PMIC is treated as a recapitalization with no purchase
price allocation. In connection with the merger, PMIC changed its name to
Herborium Group, Inc. and adopted the fiscal year of Herborium Group, Inc.
which
is November 30.
H
ERBORIUM
G
ROUP,
I
NC.
A
ND
S
UBSIDIARIES
N
OTES
T
O
C
ONDENSED
C
ONSOLIDATED
F
INANCIAL
S
TATEMENTS
A
S
O
F
A
UGUST
31,
2007
(U
NAUDITED
)
NOTE
3.
BASIS
OF ACCOUNTING AND SIGNIFICANT ACCOUNTING
POLICIES
The
Company's condensed consolidated financial statements have been prepared on
a
going concern basis, which contemplates the realization of assets and the
settlement of liabilities in the normal course of business. The Company incurred
net losses of $400,056 for the nine months ended August 31, 2007 and $339,757
for the year ended November 30, 2006. The Company had a working capital
deficiency of $1,007,385 and $756,845 as of August 31, 2007 and November 30,
2006, respectively. Management is pursuing additional capital and debt financing
and the acquisition of the AcnEase formula (See Note 4). However, there is
no
assurance that these efforts will be successful.
Our
independent auditors have added an explanatory paragraph to their audit reports
issued in connection with our fiscal 2006 and 2005 financial statements, which
states that there is substantial doubt about our ability to continue as a going
concern. Our ability to generate sufficient profits and obtain additional
funding and pay off our obligations will determine our ability to continue
as a
going concern. Our financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
|
|
b.
|
Principles
of consolidation
|
The
condensed consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries, Herborium, Inc. and Herborium.com, Inc.
All
significant intercompany accounts and transactions are eliminated in
consolidation.
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Income
tax expense includes current and deferred federal and state taxes arising from
temporary differences between income for financial reporting and income tax
purposes, as well as from the expected realization of net operating loss
carryforwards. A valuation allowance is established when necessary to reduce
deferred tax assets to the amounts expected to be realized.
The
Company recognizes revenue when inventory is shipped to its
customers.
|
|
f.
|
Earnings
(loss) per share
|
Basic
earnings (loss) per share is computed by dividing net loss available to common
stockholders by the weighted average number of common shares outstanding for
the
period. During the three and nine months ended August 31, 2007, the Company
had
no securities convertible into common stock. The number of shares used in the
calculation of net loss per share for the three and nine months ended August
31,
2006, was presented on a retroactive basis as described in Note 2.
|
|
g.
|
Allowance
for doubtful accounts
|
The
Company makes judgments as to its ability to collect outstanding trade
receivables and provides allowances, if deemed necessary, for the portion of
receivables when collection becomes doubtful. Provisions are made based upon
a
specific review of all significant outstanding invoices.
H
ERBORIUM
G
ROUP,
I
NC.
A
ND
S
UBSIDIARIES
N
OTES
T
O
C
ONDENSED
C
ONSOLIDATED
F
INANCIAL
S
TATEMENTS
A
S
O
F
A
UGUST
31,
2007
(U
NAUDITED
)
|
|
h.
|
Recent
accounting pronouncements
|
On
June 7, 2005, the FASB issued Statement of Financial Accounting Standards
No. 154, “Accounting Changes and Error Corrections, (“SFAS 154”). A
replacement of APB Opinion No. 20, Accounting Changes,” and Statement
No. 3, “Reporting Accounting Changes in Interim Financial Statements,” SFAS
154 changes the requirements for the accounting for and reporting of a change
in
accounting principle. Previously, most voluntary changes in accounting
principles required recognition of a cumulative effect adjustment within net
income of the period of the change. SFAS 154 requires retrospective application
to prior periods’ financial statements, unless it is impracticable to determine
either the period-specific effects or the cumulative effect of the change.
SFAS
154 is effective for accounting changes made in fiscal years beginning after
December 15, 2005; however, the Statement does not change the transition
provisions of any existing accounting pronouncements. The adoption of SFAS
154
has not had a material effect on the Company’s financial position, results of
operations, or cash flows.
In
September 2006, the FASB issued Statement of Financial Accounting Standards
No.
157 - Fair Value Measurements (“SFAS 157”). SFAS 157 defines fair value,
establishes a framework for measuring fair value in generally accepted
accounting principles (“GAAP”), and expands disclosures about fair value
measurements. Prior to SFAS 157, there were different definitions of fair value
and limited guidance for applying those definitions in GAAP. Moreover, that
guidance was dispersed among the many accounting pronouncements that require
fair value measurements. SFAS 157 clarifies that the exchange price is the
price
in an orderly transaction between market participants to sell the asset or
transfer the liability in the market in which the reporting entity would
transact for the asset or liability, that is, the principal or most advantageous
market for the asset or liability. This Statement is effective for financial
statements issued for fiscal years beginning after November 15, 2007, and
interim periods within those fiscal years. The Company has evaluated the impact
that SFAS 157 will have on its financial position, results of operations and
cash flows and concluded it will not have a material impact.
In
June
2006, the FASB issued Financial Accounting Standards Board Interpretation
(“FIN”) No. 48, “Accounting for Uncertainty in Income Taxes, an
interpretation of SFAS 109.” FIN No. 48 provides a comprehensive model
for the recognition, measurement and disclosure in the financial statements
of
uncertain tax positions taken or expected to be taken on a tax return. FIN
48 is
effective for fiscal years beginning after December 31, 2006. The Company is
currently evaluating the impact this interpretation may have on its future
financial position, results of operations, earnings per share, or cash flows.
In
September 2006, the Securities and Exchange Commission issued SAB No. 108,
“Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements.” SAB No. 108 was issued
to address diversity in practice in quantifying financial statement
misstatements. Current practice allows for the evaluation of materiality on
the
basis of either (1) the error quantified as the amount by which the current
year income statement was misstated (“rollover method”) or (2) the
cumulative error quantified as the cumulative amount by which the current year
balance sheet was misstated (“iron curtain method”). The guidance provided in
SAB 108 requires both methods to be used in evaluating materiality (“dual
approach”). SAB No. 108 permits companies to initially apply its provisions
either by (1) restating prior financial statements as if the dual approach
had always been used or (2) recording the cumulative effect of initially
applying the “dual approach” as adjustments to the carrying values of assets and
liabilities as of January 1, 2006 with an offsetting adjustment recorded to
the opening balance of retained earnings. There were no matters warranting
the
Company’s consideration under the provisions of SAB No. 108 and, therefore,
it did not have an impact on the Company’s financial position, results of
operations, net loss per share or cash flows.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option
for Financial Assets and Financial Liabilities—Including an Amendment of FASB
Statement No. 115.” This Standard allows entities to voluntarily choose, at
specified election dates, to measure many financial assets and financial
liabilities (as well as certain non-financial instruments that are similar
to
financial instruments) at fair value. The election is made on an
instrument-by-instrument basis and is irrevocable. If the fair value option
is
elected for an instrument, the Statement specifies that all subsequent changes
in fair value for that instrument shall be reported in earnings. SFAS No. 159
is
effective beginning on January 1, 2008. We are currently evaluating the
impact this new Standard could have on our financial position and results of
operations.
H
ERBORIUM
G
ROUP,
I
NC.
A
ND
S
UBSIDIARIES
N
OTES
T
O
C
ONDENSED
C
ONSOLIDATED
F
INANCIAL
S
TATEMENTS
A
S
O
F
A
UGUST
31,
2007
(U
NAUDITED
)
NOTE
4.
MAJOR
SUPPLIER
The
Company purchased approximately 90% of its inventory from AH USA, its major
supplier for the three and nine month periods ended August 31, 2007 and 2006.
The Company is party to an agreement with AH USA, owner of an acne product
of
which the Company, as licensee, is the exclusive worldwide distributor.
Negotiations between the Company and AH USA are ongoing to acquire the
intellectual property rights to the product.
NOTE
5.
LINES
OF CREDIT AND CREDIT CARDS PAYABLE
The
Company has entered into four revolving line of credit agreements with
commercial banks. The credit agreements provide for aggregate borrowings of
up
to $187,500 and are payable on demand with no maturity dates set forth in the
loan agreements. Borrowings under these facilities bear interest at rates
ranging from prime plus 1.25% to 14%.
The
Company also has entered into a number of standard credit card agreements that
it uses for business expenses. Borrowings under these agreements, which have
no
set maturity dates, bear interest at rates ranging from 11.2% to
39.7%.
NOTE
6.
DUE
TO STOCKHOLDERS
Due
to
stockholders consists of unsecured non-interest bearing demand loans to the
Company with no specified terms, including the payment of interest, and,
accordingly, this liability is included in current liabilities and no interest
expense has been accrued. Repayment is not expected until such time as the
Company has adequate funds available. For the nine months ended August 31,
2007,
the amount due to stockholders, which consists of unsecured demand loans to
the
Company with no specified terms, increased by $46,784.
The
Company relies extensively on the services of Drs. Agnes P. Olszewski and James
P. Gilligan, its co-founders, who play key roles in all aspects of operations
and management and the loss of their services would materially and adversely
affect the Company’s prospects. Until the Company raises substantial financing,
neither of these key individuals will be able to receive cash compensation.
NOTE
8.
CONSULTING
AGREEMENT
On
January 19, 2007, the Board of Directors of the Company approved the Herborium
Group, Inc. 2007 Stock Plan (“Plan”) which provides for a maximum aggregate of
20 million shares of common stock to be issued upon grants of restricted stock
or upon exercise of options granted under the Plan, as compensation and
incentive to eligible employees, directors, consultants and advisors. On January
26, 2007, the Company filed a Registration Statement on Form S-8 with the
Securities and Exchange Commission in connection with the consultant’s shares.
On January 1, 2007, the Company entered into a two-year Consulting Agreement
with an individual and in consideration of the services to be provided pursuant
to the Financial Consulting Agreement, the Company agreed to initially issue
up
to 9 million shares of the Company’s common stock pursuant and subject to the
Plan, and when so issued, such shares shall be validly issued, fully paid and
non-assessable, of which 7.5 million shares will vest immediately, with 5.5
million shares being issued immediately. The remaining shares will vest over
the
term of the Consulting Agreement, and, in the event the Company acquires the
AcnEase formula, up to an additional 3 million shares could be issued per terms
of the Consulting Agreement. The shares issued and yet to be issued have been
valued at $.05 per share based on the market value on the date granted for
an
aggregate cost of $450,000, which cost will be expensed over the period of
the
agreement. Accordingly, consulting expense in the amount of $150,000 was
recorded during the nine months ended August 31, 2007.
I
TEM
2.
M
ANAGEMENT'S
D
ISCUSSION
A
ND
A
NALYSIS
O
R
P
LAN
O
F
O
PERATION
The
following is management's discussion and analysis of certain significant factors
that will or have affected our financial condition and results of operations.
The discussion should be read in conjunction with our financial statements
and
the related notes and the other financial information appearing elsewhere in
this report and included in the Company’s Annual Report on Form 10-KSB for the
year ended November 30, 2006. In addition to historical information, the
following discussion and other parts of this quarterly report contain words
such
as “may,” "estimates," "expects," "anticipates," "believes," “plan,” "grow,"
"will," “could,” "seek," “continue,” “future,” “goal,” “scheduled” and other
similar expressions that are intended to identify forward-looking information
that involves risks and uncertainties. In addition, any statements that refer
to
expectations or other characterizations of future events or circumstances are
forward-looking statements. Actual results and outcomes could differ materially
as a result of important factors including, among other things, general economic
conditions, the Company's ability to renew or replace key supply and credit
agreements, fluctuations in operating results, committed backlog, public market
and trading issues, risks associated with dependence on key personnel, and
competitive market conditions in the Company's existing lines of business,
as
well as other risks and uncertainties. See “Risk Related To Our Business” and
“Risks Related To Our Stock” below.
GENERAL
We
provide unique, natural and complementary healthcare-related products to
consumers and healthcare professionals seeking alternative answers to the
management of healthcare issues not currently met by standard Western medicine.
Our products are botanical supplements comprised of unique herbal formulations.
We select products that have a record of clinical efficacy and safety
established in China; however, these products have not been evaluated according
to standards of clinical efficacy and safety applicable to pharmaceutical
products sold in the United States and other countries, and because these
products are herbal-based, they are not recognized as pharmaceuticals by the
Federal Drug Administration (the "FDA").
Our
business model is based on:
|
|
·
|
owning
and/or marketing unique products with established clinical history
in
their country of origin, and
|
|
|
·
|
a
proactive approach to meeting the regulatory changes and challenges
of the
new healthcare marketplace.
|
FINANCIAL
CONDITION
We
had
net losses of $400,056 during the nine months ended August 31, 2007. As of
August 31, 2007, we had cash and current assets of $2,596 and $61,308,
respectively, and current liabilities of $1,068,693, with obligations
aggregating $524,558 for trade creditors and accrued expenses, $129,412 for
credit card obligations, $166,903 payable for line of credit obligations,
$34,354 for amounts due to others and $213,466 for amounts due to stockholders.
We have been operating at a loss since inception and have been funding these
losses in a number of ways, including lines of credit, credit card debt,
advances from stockholders and others and entering into subscription agreements
with “friends and family” for investment funds. While we are actively seeking a
substantial amount of equity or debt financing, we have received no commitments
for such financing. Our working capital at August 31, 2007 is not sufficient
to
meet our working capital needs for the next twelve-month period and we will
need
to obtain additional financing from one or more of the sources described above,
or an entirely new source.
Our
independent auditors have added an explanatory paragraph to their audit reports
issued in connection with our fiscal 2006 and 2005 financial statements, which
states that there is substantial doubt about our ability to continue as a going
concern. Our ability to generate sufficient profits and obtain additional
funding and pay off our obligations will determine our ability to continue
as a
going concern. Our financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
As
described above, we merged into and with PMIC and became a publicly traded
corporation; however, we have not closed, nor obtained a commitment for, the
financing that was originally contemplated to close contemporaneously with
the
closing of the merger. As a result of this lack of funding, a condition
unfavorably impacting us since inception, revenue and profitability have not
increased as we believe would have otherwise been the case. Since we have not
been able to obtain sufficient financing, we have not been able to (i) acquire
ownership of several products, particularly the intellectual property rights
to
and formulation of, our principal product, AcnEase®, (ii) market and promote our
products, (iii) conduct certain clinical trials that would further such
marketing and promotional activities and (iv) hire additional employees.
RELATED
PARTY TRANSACTIONS
During
the nine months ended August 31, 2007, the Company's amounts due to stockholders
increased by $46,784 to $213,466.
COMPARISON
OF THE THREE MONTHS ENDED AUGUST 31, 2007 TO THE THREE MONTHS ENDED AUGUST
31,
2006
Summary
Results of Operations
The
following table sets forth certain selected financial data as a percentage
of
sales for the three months ended August 31, 2007 and 2006:
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
|
100.0
|
%
|
|
100.0
|
%
|
|
Cost
of sales
|
|
|
57.2
|
|
|
40.6
|
|
|
Gross
profit
|
|
|
42.8
|
|
|
59.4
|
|
|
Operating
expenses
|
|
|
137.8
|
|
|
82.5
|
|
|
Loss
from operations before other expense
|
|
|
(95.0
|
)
|
|
(23.1
|
)
|
|
Other
expense
|
|
|
(7.4
|
)
|
|
(6.1
|
)
|
|
Provision
for income taxes
|
|
|
(
0.5
|
)
|
|
(0.3
|
)
|
|
Net
loss
|
|
|
(102.9
|
)%
|
|
(29.5
|
)%
|
Sales
Net
sales
for the three months ended August 31, 2007, were $158,363 compared to $181,711
for the three months ended August 31, 2006. The decrease of $23,348, or 12.8%,
can be attributed to a decrease in internet sales in the United Kingdom due
to a
change in local management and a strike by the primary delivery service utilized
in that country, which more than offset a modest increase in sales in other
European countries.
Gross
Profit
Gross
profit decreased to $67,703 for the three months ended August 31, 2007 compared
to $107,858 for the three months ended August 31, 2006, a decrease of $40,155
or
37.2%, with gross margin decreasing to 42.8% from 59.4% for the prior period.
The decrease in gross profit is attributable to both the decrease in sales
volume and the lower realized gross margin. This decrease in gross margin is
a
result of increased product promotions in general during the quarter, as well
as
price incentives offered in response to the delivery problems described
above.
Operating
Expenses
Total
operating expenses increased by $68,404, or 45.7%, to $218,174 for the three
months ended August 31, 2007, from $149,770 for the three months ended August
31, 2006, principally attributable to increases in consulting expense of $56,250
to expense a grant of common stock over the term of the consulting agreement,
and payroll expenses of $22,588 for officer salary expense.
Other
Income (Expense)
Interest
expense increased to $11,753 from $11,132 for the three months ended August
31,
2007 as compared with the three months ended August 31, 2006, or a minor amount
of $621, as interest rates and debt outstanding were relatively constant during
both periods.
COMPARISON
OF THE NINE MONTHS ENDED AUGUST 31, 2007 TO THE NINE MONTHS ENDED AUGUST 31,
2006
Summary
Results of Operations
The
following table sets forth certain selected financial data as a percentage
of
sales for the nine months ended August 31, 2007 and 2006:
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
|
100.0
|
%
|
|
100.0
|
%
|
|
Cost
of sales
|
|
|
40.8
|
|
|
45.6
|
|
|
Gross
profit
|
|
|
59.2
|
|
|
54.4
|
|
|
Operating
expenses
|
|
|
123.2
|
|
|
82.4
|
|
|
Loss
from operations before other expense
|
|
|
(64.0
|
)
|
|
(28.0
|
)
|
|
Other
expense
|
|
|
(5.8
|
)
|
|
(5.8
|
)
|
|
Provision
for income taxes
|
|
|
(
0.3
|
)
|
|
(0.4
|
)
|
|
Net
loss
|
|
|
(70.1
|
)%
|
|
(34.2
|
)%
|
Sales
Net
sales
for the nine months ended August 31, 2007 were $571,041 compared to $568,695
for
the nine months ended August 31, 2006. The increase of $2,345, or 0.4%, can
be
attributed to both the change in United Kingdom management and a strike by
the
primary delivery service utilized in that country in the current quarter, which
offset the modest increase in sales in other European countries and the increase
in sales experienced in the first six months of the current fiscal year due
to
increased awareness of AcnEase, the Company’s principal product, resulting from
web-based promotion activities and growth in distributor orders.
Gross
Profit
Gross
profit increased to $337,891 for the nine months ended August 31, 2007 compared
to $309,307 for the nine months ended August 31, 2006, an increase of $28,584
or
9.2%, with gross margin increasing to 59.2% from 54.4% for the prior period.
The
increase in gross profit is attributable to both the increase in net sales
and
the higher realized gross margin. This improvement in gross margin is a result
of an improvement that commenced in late fiscal 2006 in the average selling
price received for AcnEase due to a change in the mix of distribution channels
into which we sell, offset partially by the decrease in gross margin experienced
in the current quarter.
Operating
Expenses
Total
operating expenses increased by $234,427, or 50%, to $703,128 for the nine
months ended August 31, 2007, from $468,701 for the nine months ended August
31,
2006, principally attributable to increases in consulting expense of $150,000
relating to a grant of common stock over the term of the consulting agreement
and payroll expenses of $78,289 for officer salary expense, partially offset
by
a decrease in website development expenses of $18,999.
Other
Income (Expense)
Interest
expense increased to $33,259 from $33,081 for the nine months ended August
31,
2007 as compared with the nine months ended August 31, 2006, or a minor amount
of $178, as interest rates and debt outstanding were relatively constant during
both periods.
Seasonality
There
are
no seasonality factors that affect the Company.
Off-Balance
Sheet Arrangements
The
Company has no off-balance sheet arrangements that have or are reasonably likely
to have a current or future effect on the Company’s financial condition, changes
in financial condition, revenue or expenses, results of operations, liquidity,
capital expenditures or capital resources that is material to investors, and
the
Company does not have any non-consolidated special purpose
entities.
LIQUIDITY
AND CAPITAL RESOURCES
As
of
August 31, 2007, we had a cash balance of $2,596 and a negative cash flow from
operations of $47,684 for the nine-month period then ended. We have been
operating at a loss since inception and have been funding these losses in a
number of ways, including lines of credit, credit card debt, advances from
stockholders and entering into subscription agreements with “friends and family”
for investment funds. While we are actively seeking a substantial amount of
equity or debt financing, we have received no commitments for such financing.
Our working capital at August 31, 2007 is not sufficient to meet our working
capital needs for the next twelve-month period and we will need to obtain
additional financing from one or more of the sources described above, or an
entirely new source.
Our
independent auditors have added an explanatory paragraph to their audit reports
issued in connection with our fiscal 2006 and 2005 financial statements, which
states that there is substantial doubt about our ability to continue as a going
concern. Our ability to generate profits and obtain additional funding and
pay
off our obligations will determine our ability to continue as a going concern.
Our financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
Below
is
a discussion of our sources and uses of funds for the nine months ended August
31, 2007 and 2006.
Net
Cash Used In Operating Activities
Net
cash
used in operating activities was $47,684 and $27,516 in the nine months ended
August 31, 2007 and 2006, respectively. Cash used in operating activities for
the nine months ended August 31, 2007 was principally the result of a net loss
of $400,056 partially offset by an increase in accounts payable and accrued
expenses of $178,100, and non-cash expenses of 153,236. The use of cash in
operating activities for the nine months ended August 31, 2006 was principally
the result of a net loss of $194,610, partially offset by a decrease in accounts
receivable of $18,504 and an increase in accounts payable and accrued expenses
of $146,207.
Net
Cash Used In Investing Activities
Net
cash
used in investing activities was $3,270 and $7,326 in the nine months ended
August 31, 2007 and 2006, respectively
.
During
the nine months ended August 31, 2007 and 2006, cash used in investing
activities principally consisted of expenditures for other assets of $3,270
and
$6,640, respectively.
Net
Cash Provided By Financing Activities
Net
cash
provided by financing activities for the nine months ended August 31, 2007
and
2006 amounted to $48,901 and $34,660, respectively. Net cash provided by
financing activities for the nine months ended August 31, 2007 was principally
attributable to an increase of $46,784 in due to stockholders and $12,841 in
amount due to others. Net cash provided by financing activities for the nine
months ended August 31, 2006 was principally attributable to increases of
$19,714 in amount due to stockholders, $13,000 in other loans and $9,981 in
credit card debt.
Stock
Issuance and Stock Plan
On
January 1, 2007, we entered into a two-year consulting agreement with an
individual and in consideration of the financial consulting services to be
provided under this agreement, we agreed to initially issue up to nine million
shares of our common stock pursuant and subject to the Herborium Group, Inc.
2007 Stock Plan (the “Plan”). Of these shares, 7.5 million shares vested
immediately, and we have issued 5.5 million shares. The remaining shares will
vest over the term of the consulting agreement. In addition, in the event
certain transactions are consummated, up to an additional three million shares
could be issued per terms of the agreement. The shares issued and yet to be
issued have been valued at $.05 per share based on the market value on the
date
granted for an aggregate cost of $450,000, which cost will be expensed over
the
period of the agreement. Accordingly, we recorded an expense of $150,000 during
the nine months ended August 31, 2007.
Our
Board
of Directors approved the Plan on January 19, 2007. The Plan provides for a
maximum aggregate of 20 million shares of common stock to be issued upon grants
of restricted stock or upon exercise of options granted under the Plan, as
compensation and incentive to eligible employees, directors, consultants and
advisors. On January 26, 2007, we filed a Registration Statement on Form S-8
with the Securities and Exchange Commission to in connection with the
Plan.
RISK
FACTORS
Our
business and results of operations are subject to numerous risks, uncertainties
and other factors that you should be aware of, some of which are described
below
and in the section entitled “Cautionary Statement Concerning Forward-Looking
Statements.” The risks, uncertainties and other factors described below are not
the only ones facing our company. Additional risks, uncertainties and other
factors not presently known to us or that we currently deem immaterial may
also
impair our business operations. Any of the risks, uncertainties and other
factors could have a materially adverse effect on our business, financial
condition or results of operations and could cause the trading price of our
common stock to decline substantially.
Risks
Relating to Our Business
We
have a history of losses, and will incur additional
losses.
We
are a
company with a limited history of operations, and do not expect to significantly
increase ongoing revenues from operations in the immediately foreseeable future.
To date, we have not been profitable. We had a net loss of $400,056 during
the
nine months ended May 31, 2007 and $339,757 for the year ended November 30,
2006. Our losses have resulted principally from costs incurred in product
development, including product testing and selection, and from general and
administrative costs associated with our operations. While we seek to attain
profitability, we cannot be sure that we will ever achieve product and other
revenue sufficient for us to attain this objective.
With
the
exception of
AcnEase®
,
our
product candidates are in research or various stages of development. For some
of
these products we will want to conduct additional research, development and
clinical trials in order to improve our ability to advertise and differentiate
these products from others in the market place. We cannot be sure that we will
successfully research, develop, commercialize, manufacture and market any other
product candidates. We expect that these activities, together with future
general and administrative activities, will result in significant expenses
for
the foreseeable future.
We
need additional capital, which may not be available to us.
We
have
expended and will continue to expend substantial funds in the research,
development, marketing and clinical testing of our herbaceutical supplements.
In
addition, we will require funds in excess of our existing cash resources to
fund
operating deficits, develop new products, purchase additional rights to existing
products, establish and expand our manufacturing capabilities, and finance
general and administrative and research activities. In particular, we will
need
additional capital to:
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acquire
intellectual property rights relating to
AcnEase
®
and other products;
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conduct
clinical trials and fund marketing and new product
launches;
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establish
U.S. manufacturing capabilities;
and
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fund
general working capital requirements if we continue to experience
deficits.
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Due
to
market conditions, or due to our own financial condition, it is possible that
we
will be unable to obtain additional funding as and when we need it. Even if
we
are able to obtain capital, it may be on unfavorable terms or terms that
excessively dilute existing shareholders or otherwise negatively affect the
interests of existing shareholders. If we are unable to obtain additional
funding as and when needed, we could be forced to delay our development,
marketing and expansion efforts and, if we continue to experience losses,
potentially cease operations.
We
may not be able to obtain or sustain market acceptance for our services and
products.
Failure
to establish a brand and presence in the marketplace on a timely basis could
adversely affect our financial condition and operating results. Moreover, we
cannot be sure that we will successfully complete the development and
introduction of new products or product enhancements or that any new products
developed will achieve acceptance in the marketplace. We may also fail to
develop and deploy new products and product enhancements on a timely basis.
AcnEase
®
is
currently our only product providing revenues.
Government
regulation of the processing, formulation, packaging, labeling and advertising
of our products can impact our ability to market products.
Under
the
Dietary Supplement Health and Education Act of 1994, companies that manufacture
and distribute dietary supplements are limited in the statements that they
are
permitted to make about nutritional support on the product label without FDA
approval. In addition, a manufacturer of a dietary supplement must have
substantiation for any such statement made and must not claim to diagnose,
mitigate, treat, cure or prevent a specific disease or class of disease. The
product label must also contain a prominent disclaimer. These restrictions
may
restrict our flexibility in marketing our product.
The
FDA
has proposed GMPs (Good Manufacturing Practices) specifically for dietary
supplements. These new GMPs, when finalized, will be more detailed than the
GMPs
that currently apply to dietary supplements and may, among other things, require
dietary supplements to be prepared, packaged and held in compliance with certain
rules (including quality control provisions) similar to the GMPs applicable
to
drugs. There can be no assurance that, if the FDA adopts GMPs for dietary
supplements, we and/or our suppliers will be able to comply with the new rules
without incurring substantial expenses that might have a material adverse effect
on our consolidated financial position or results of operations. As a
formulator, distributor and marketer of dietary supplements, we are subject
to
the risk that one or more of the ingredients in our product may become subject
to regulatory action in the future.
The
processing, formulizing, packaging, labeling and advertising of such products,
however, are subject to regulation by one or more federal agencies including
the
FDA, the Federal Trade Commission, the Consumer Products Safety Commission,
the
Department of Agriculture and the Environmental Protection Agency. Our
activities also are subject to regulation by various agencies of the states
and
localities in which our products are sold. Among other things, such regulation
puts a burden on our ability to bring products to market. Any changes in the
current regulatory environment could impose requirements that would make
bringing new products to market more expensive or restrict the ways we can
market our products. In addition, the adoption of new regulations or changes
in
the interpretation of existing regulation may result in significant compliance
costs or discontinuation of product sales and may adversely affect our revenue.
The FDA may implement additional regulations with which we would have to comply,
which would increase expenses.
No
governmental agency or other third party makes a determination as to whether
our
products qualify as dietary supplements or not. We make this determination
based
on the ingredients contained in the products and the claims we make for the
products and if our determination is denied by any regulatory authority we
could
face significant penalties that may require us to shut down our operations.
We
face substantial competition.
The
dietary supplement industry is growing rapidly and is highly competitive.
Competition for the sale of nutritional products comes from many sources,
including specialty retailers, supermarkets, large chain discount retailers,
drug store chains and independent drug stores, health food stores, on-line
merchants, mail order companies and a variety of other participants in the
market for nutritional products. Some of our more prominent competitors include
General Nutrition Centers, Inc., NBTY, Inc., Invite Health, Vitamin World and
Vitamin Shoppe. We compete regularly with companies selling nationally
advertised brand name products and with companies that may have more expanded
product lines with much larger volume of sales. This competition could have
a
material adverse effect on our business, results of operations and financial
condition since these companies have greater financial and other resources
available to them and may possess manufacturing, distribution and marketing
capabilities far greater than our own.
Certain
existing products may become more mainstream and thereby increase competition
for those products as more participants enter the market. We may not be able
to
compete effectively and our attempt to do so may require us to reduce our
prices, which may result in lower margins. Failure to compete effectively could
adversely affect our market share, revenues and growth prospects.
Our
competitive position will be affected by the continued acceptance of our
products, our ability to attract and retain qualified personnel, future
governmental regulations affecting nutritional products, and publication of
product safety studies by the media, government and authoritative health and
medical authorities.
We
currently have no manufacturing capabilities and we are dependent upon other
companies to manufacture our products.
We
currently have no manufacturing facilities. We are dependent upon relationships
with independent manufacturers to fulfill our product needs. We use several
manufacturers for various parts of the manufacturing processes for our products.
We believe these are small privately held firms.
Because
the manufacturing processes, which our contract manufacturers perform, are
fairly standard in the industry, we believe that there are a large number of
manufacturers who could provide us with these services if our current contract
manufacturers are unavailable for any reason or seek to impose unfavorable
terms. Our ability to market and sell our products requires that such products
be manufactured in commercial quantities and in compliance with applicable
federal and state regulatory requirements. In addition, we must be able to
manufacture our products at a cost that permits us to charge a price acceptable
to the customer while also accommodating distribution costs and third-party
sales compensation. Competitors who do own their own manufacturing may have
an
advantage over us with respect to pricing, availability of product and in other
areas through their control of the manufacturing process.
We
are dependent on key management and the loss of their services could have a
material adverse impact on us.
We
have
relied extensively on the services of Drs. Agnes P. Olszewski and James P.
Gilligan, our co-founders. Drs. Olszewski and Gilligan play key roles in
our management and the loss of their services would materially and adversely
affect us and our prospects. Until we raise substantial financing, neither
of
these key individuals will spend full-time working for us. Under her employment
agreement, Dr. Olszewski is not required to do so until we have raised
$1,250,000 in financing, and under his consulting/employment agreement, Dr.
Gilligan is not required to do so until nine months after we have raised
$2,500,000 in financing. There is no assurance that we will be able to raise
such amounts and without such financing and the full-time employment of these
key executives we will in all likelihood not be able to further develop our
business and will likely continue to experience losses. The loss of services
of
either of these persons could delay or reduce our product development and
commercialization efforts and harm our ability to compete effectively.
We
may be subject to product liability claims and may not have adequate insurance
to cover such claims.
Like
other retailers, distributors and manufacturers of products that are designed
to
be ingested, we face an inherent risk of exposure to product liability claims
in
the event that the use of our products results in injury. We intend to obtain
general liability coverage of $3 to $5 million that will include product
liability coverage. Because our policies will be purchased on a year-to-year
basis, industry conditions or our own claims experience could make it difficult
for us to secure the necessary insurance at a reasonable cost. In addition,
we
may not be able to secure insurance that will be adequate to cover liabilities.
We generally do not obtain contractual indemnification from parties supplying
raw materials or marketing our products. In any event, any such indemnification
is limited by its terms and, as a practical matter, by the creditworthiness
of
the other party. In the event that we do not have adequate insurance or
contractual indemnification, liabilities relating to defective products could
require us to pay the injured parties’ damages which may be significant compared
to our net worth or revenues.
We
may be adversely affected by unfavorable publicity relating to our product
or
similar products manufactured by our competitors.
We
believe that the dietary supplement market is affected by national media
attention regarding the consumption of these products. Future scientific
research or publicity may be unfavorable to the dietary and nutritional
supplement market generally or to any particular product and may be inconsistent
with earlier favorable research or publicity. Adverse publicity associated
with
illness or other adverse effects resulting from the consumption of products
distributed by other companies that are similar to our products could reduce
consumer demand for our products and consequently our revenues. This may occur
even if the publicity does not relate to our products. Adverse publicity
directly concerning our products could be expected to have an immediate negative
effect on the market for that product.
We
depend on trade secrets to protect our proprietary technology, which may be
inadequate to protect our position.
Our
long-term success will substantially depend upon protecting our technology
from
infringement, misappropriation, discovery and duplication. We expect that we
will apply for patent protection with respect to some of our products. Since
we
do not currently have patents on our products, a competitor could replicate
our
products. Any patents that we might obtain may not provide meaningful protection
or significant competitive advantages over competing products, due to the
complexity of the legal and scientific issues involved in patent defense and
litigation. For these reasons we have elected to protect our current products
through trade secrets.
Because
of the complexity of the legal and scientific issues involved in patent
prosecutions, we cannot be sure that any future patent applications for new
products will be granted. Nor can we be sure that any patent rights that we
do
obtain will provide meaningful protection against others duplicating our
products because of the complexity of the legal and scientific issues that
could
arise in litigation over these issues. Furthermore, patent applications are
maintained in secrecy in the United States until the patents are approved,
and
in most foreign countries for a period of time following the date from which
priority is claimed. A third party’s pending patent applications may cover any
technology that we currently are developing. Additionally, if we must resort
to
legal proceedings to enforce our intellectual property rights, the proceedings
could be burdensome and expensive and could involve a high degree of risk to
our
proprietary rights if we are unsuccessful in, or cannot afford to pursue, such
proceedings.
We
rely
at present completely on trade secrets and contract law to protect our
proprietary technology. There can be no assurance that any such contract will
not be breached, or that if breached, it will have adequate remedies. Currently,
all of our products are protected by trade secrets owned by our licensor and
other third parties . We rely on such third parties to adequately protect such
trade secrets. There can be no assurance that these third parties will protect
and continue to hold the trade secrets relating to our products. Furthermore,
there can be no assurance that any of these trade secrets will not become known
or independently discovered by third parties.
There
can
be no assurance that others will not independently develop substantially
equivalent proprietary information and techniques or otherwise gain access
to
our trade secrets and know-how. In addition, we may be required to obtain
licenses to patents or other proprietary rights from third parties. There can
be
no assurance that any licenses required under any patents or proprietary rights
would be made available on acceptable terms, if at all. If we do not obtain
required licenses, we may encounter delays in product development or find that
the development, manufacture or sale of products requiring such licenses could
be foreclosed.
We
have limited the liability of our directors and officers for breaches of the
duty of care.
Our
articles of incorporation limit the liability of our directors for monetary
damages for breaches of directors’ fiduciary duty of care. This provision may
reduce the likelihood of derivative litigation against directors and may
discourage or deter shareholders or management from suing directors for breaches
of their duty of care, even though such an action, if successful, might
otherwise benefit our shareholders and us. In addition, our articles of
incorporation provide for the indemnification of directors and officers in
connection with civil, criminal, administrative or investigative proceedings
when acting in their capacities as agents for us.
Our
results of operations may be affected by changing market prices and requirements
for dietary supplements.
Our
results of operations may be affected by changing resale prices or market
requirements for dietary supplements, some of which are priced on a commodity
basis. Sales prices, and market demand for, these materials can be volatile
due
to numerous factors beyond our control, which may cause significant variability
in its period-to-period results of operations.
Our
results of operations will fluctuate.
Our
revenues and results of operations will vary from quarter to quarter in the
future. A number of factors, many of which are outside of our control, may
cause
variations in our results of operations, including:
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demand
and price for our products;
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the
timing and recognition of product sales;
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unexpected
delays in developing and introducing products;
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unexpected
delays in manufacturing our products;
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increased
expenses, whether related to marketing, product development or
administration or otherwise;
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insufficient
demand in the marketplace could cause our distributors to return
product;
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the
mix of revenues derived from products;
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the
hiring, retention and utilization of personnel; and
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general
economic factors.
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We
may not succeed in our acquisition of additional
products.
As
part
of our growth strategy, we intend to acquire and develop additional product
candidates or approved products. The success of this strategy depends upon
our
ability to identify, select and acquire bioherbaceutical products that meet
the
criteria we have established. Any product candidate we acquire or license may
require additional research and development efforts prior to commercial sale,
including extensive pre-clinical and/or clinical testing. All product candidates
are prone to the risks of failure inherent in product development, including
the
possibility that the product candidate will not be safe, non-toxic and
effective. In addition, we cannot assure that any approved products that we
develop, acquire or license will be manufactured or produced economically;
successfully commercialized; widely accepted in the marketplace or that we
will
be able to recover our significant expenditures in connection with the
development, acquisition or license of such products. In addition, proposing,
negotiating and implementing an economically viable acquisition or license
is a
lengthy and complex process. Other companies, including those with substantially
greater financial, marketing and sales resources, may compete with us for the
acquisition or license of product candidates and approved products. We may
not
be able to acquire the rights to additional product candidates and approved
products on terms that we find acceptable, or at all. In addition, if we acquire
or license product candidates from third parties, we will be dependent on third
parties to supply such products to us for sale. We could be materially adversely
affected by the failure or inability of such suppliers to meet performance,
reliability and quality standards.
Our
non-U.S. sales present special risks.
A
subcontractor in London handles fulfillment and coordinates market development
for our products in the U.K. and continental Europe. We anticipate that sales
outside the U.S. will continue to account for a significant percentage of
our
product sales and we intend to continue to expand our presence in international
markets. Non-U.S. sales are subject to a number of special risks. For example:
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sales
agreements may be difficult to enforce;
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receivables may be difficult to
collect
through a foreign country’s legal system;
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foreign countries may impose additional
withholding taxes or otherwise tax foreign income, impose tariffs
or adopt
other restrictions on foreign trade;
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intellectual property rights may
be more
difficult to enforce in foreign countries;
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terrorist activity or the outbreak
of a
pandemic disease may interrupt distribution channels or adversely
impact
customers or employees; and
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regulations may change relating
to dietary
supplements that may negatively impact the ability to market products
in
those geographical regions.
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Any
of
these events could harm our operations or operating results.
Compliance
with changing regulation of corporate governance and public disclosure will
result in additional expenses.
Changing
laws, regulations and standards relating to corporate governance and public
disclosure, including the Sarbanes-Oxley Act of 2002 and new Securities and
Exchange Commission regulations, are creating uncertainty for public companies.
Our management team will be required to invest significant management time
and
financial resources to comply with both existing and evolving standards for
public companies, which may lead to increased general and administrative
expenses and a diversion of management time and attention from revenue
generating activities to compliance activities.
It
is possible that there are claims of which we are unaware that may come to
light
in the future and cost us considerable time, effort and expense to
resolve.
It
is
possible that a claim, whether valid or not, may be asserted against us in
the
future with respect to matters arising prior to the merger. There can be
no
assurance given that some person will not devise a claim and attempt to assert
it against us in the hopes of obtaining some monetary benefit. To resolve
such a
claim, including payment, may cost us considerable time, effort and expense.
Any
of these may impair management’s implementation of the business plan with the
consequence of a loss of opportunity.
Risks
Related to Our Common Stock
Because
our common stock is traded on the OTC Bulletin Board, your ability to sell
your
shares in the secondary trading market may be limited.
Our
common stock currently is traded on the over-the-counter market on the OTC
Bulletin Board. Consequently, the liquidity of our common stock is limited,
not
only in the number of shares that are bought and sold, but also through delays
in the timing of transactions, and coverage by security analysts and the
news
media, if any, of us. As a result, prices for shares of our common stock
may be
lower than might otherwise prevail if our common stock was traded on a national
securities exchange, such as The New York Stock Exchange or The Nasdaq Stock
Market, LLC.
Our
common stock may be removed from the OTC Bulletin Board, which would likely
cause the trading price of our common stock to decline and affect our ability
to
raise capital in the future.
Under
applicable NASD Rules, if we are delinquent in our reporting obligations
three
times in a 24-month period and/or are actually removed from the OTC Bulletin
Board for failure to file two times in a 24-month period, in each case, we
would
be ineligible for quotation on the OTC Bulletin Board for a period of one
year.
On April 5, 2006, we received notice from the OTC Bulletin Board that unless
we
cured our delinquency in filing the Annual Report on Form 10-K for the year
ended December 31, 2005 prior to the expiration of the grace period (May
5,
2006), our common stock would be removed from the OTC Bulletin Board effective
May 9, 2006. We cured this delinquency with the filing of our Annual Report
on
Form 10-K on May 1, 2006. On March 2, 2007, we received notice from the OTC
Bulletin Board that unless we cured our delinquency in filing the Annual
Report
on Form 10-K for the year ended November 30, 2006 prior to the expiration
of the
grace period (April 2, 2007), our common stock would be removed from the
OTC
Bulletin Board effective April 3, 2007. We cured this delinquency with the
filing of our Annual Report on Form 10-K on March 30, 2007. To date, we have
been delinquent two times in the past 24-month period. Should quotation of
our
common stock on the OTC Bulletin Board or a similar facility cease for any
reason, the liquidity of our common stock and our ability to raise equity
capital would likely decrease.
Because
our shares are “penny stocks,” you may have difficulty selling them in the
secondary trading market.
Federal
regulations under the Exchange Act regulate the trading of so-called “penny
stocks,” which are generally defined as any security not listed on a national
securities exchange, priced at less than $5.00 per share and offered by an
issuer with limited net tangible assets and revenues. Since our common stock
currently trades on the OTC Bulletin Board at less than $5.00 per share,
our
common stock is a “penny stock” and may not be traded unless a disclosure
schedule explaining the penny stock market and the risks associated therewith
is
delivered to a potential purchaser prior to any trade.
In
addition, because our common stock is not listed on any national securities
exchange and currently trades at less than $5.00 per share, trading in our
common stock is subject to Rule 15g-9 under the Exchange Act. Under this
rule,
broker-dealers must take certain steps prior to selling a “penny stock,” which
steps include:
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obtaining
financial and investment information from the investor;
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obtaining
a written suitability questionnaire and purchase agreement signed
by the
investor; and
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providing
the investor a written identification of the shares being offered
and the
quantity of the shares.
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If
these
penny stock rules are not followed by the broker-dealer, the investor has
no
obligation to purchase the shares. The application of these comprehensive
rules
will make it more difficult for broker-dealers to sell our common stock and
our
shareholders, therefore, may have difficulty in selling their shares in the
secondary trading market.
Our
stock price has been and may continue to be volatile and an investment in
our
common stock could suffer a decline in value.
Trading
of our common stock has been sporadic, and the trading volume has generally
been
low. Even a small trading volume on a particular day or over a few days may
affect the market price of our common stock. The market price of our common
stock may fluctuate significantly in response to a number of factors, some
of
which are beyond our control. These factors include:
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announcements
of research activities and technology innovations or new products
by us or
our competitors;
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changes
in market valuation of companies in our industry
generally;
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variations
in operating results;
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changes
in governmental regulations;
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results
of research studies of our products or our competitors’
products;
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regulatory
action or inaction on our products or our competitors’
products;
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changes
in our financial estimates by securities analysts;
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general
market conditions for companies in our industry;
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broad
market fluctuations; and
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economic
conditions in the United States or abroad.
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Our
directors and executive officers own a significant number of shares of our
common stock to control our company, which could discourage or prevent a
takeover, even if an acquisition would be beneficial to our stockholders.
Certain
of our directors and our current executive officer own or control approximately
78% of our outstanding voting power. Accordingly, these stockholders,
individually and as a group, will be able to influence the outcome of
stockholder votes, involving votes concerning the election of directors,
the
adoption or amendment of provisions in our certificate of incorporation and
bylaws and the approval of certain mergers or other similar transactions,
such
as a sale of substantially all of our assets. Such control by existing
stockholders could have the effect of delaying, deferring or preventing a
change
in control of us.
We
do not pay cash dividends, so any return on an investment must come from
appreciation.
We
do not
intend to pay any cash dividends in the foreseeable future and, therefore,
any
return on an investment in our common stock must come from increases in the
fair
market value and trading price of our common stock.
We
may issue additional equity securities that will dilute our stockholders.
We
may
issue additional equity securities to raise capital and through the exercise
of
options, warrants and convertible debt that is outstanding or may be
outstanding. These additional issuances will have a dilutive effect on our
existing stockholders.
I
TEM
3
.
C
ONTROLS
A
ND
P
ROCEDURES
(A)
Evaluation Of Disclosure Controls And Procedures
Prior
to
the filing of this Report on Form 10-QSB, an evaluation was performed under
the
supervision of and with the participation of the Company’s management, including
the Chief Executive Officer and Chief Financial Officer, of the effectiveness
of
the Company’s disclosure controls and procedures. Based on the evaluation, the
Chief Executive Officer and the Chief Financial Officer have concluded that,
as
of August 31, 2007, the Company’s disclosure controls and procedures were
effective to ensure that information required to be disclosed by the Company
in
reports that it files or submits under the Securities Exchange Act of 1934,
as
amended, is recorded, processed, summarized and reported within the time
periods
specified in SEC rules and forms, and is accumulated and communicated to
the
Company’s management, as appropriate, to allow timely decisions regarding
required disclosure. It should be noted that the design of any system of
controls is based in part upon certain assumptions about the likelihood of
future events, and there can be no assurance that any design will succeed
in
achieving its stated goals under all potential future conditions, regardless
of
how remote.
(B)
Changes In Internal Controls
During
the nine months ended August 31, 2007, there were no significant changes
in the
Company’s internal control over financial reporting that have materially
affected, or are reasonably likely to materially affect, the Company’s internal
control over financial reporting.
P
ART
II-O
THER
I
NFORMATION
I
TEM
1
.
L
EGAL
P
ROCEEDINGS
None.
I
TEM
2
.
U
NREGISTERED
S
ALES
O
F
E
QUITY
S
ECURITIES
A
ND
U
SE
O
F
P
ROCEEDS
None
I
TEM
3
.
D
EFAULTS
U
PON
S
ENIOR
S
ECURITIES
None.
None.
I
TEM
5
.
O
THER
I
NFORMATION
None.
I
TEM
6
.
E
XHIBITS
|
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)
|
|
|
|
|
|
31
|
|
Rule
13a-14(a) Certification of Agnes Olszewski
|
|
|
|
|
|
32
|
|
Certification
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
(1)
In the
case of incorporation by reference to documents filed by the registrant under
the Securities Exchange Act of 1934, as amended, the registrant’s file number
under the Exchange Act is 000-25277.
In
accordance with the requirements of the Exchange Act, the registrant caused
this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
H
ERBORIUM
G
ROUP
,
I
NC.
|
|
|
|
|
|
By:
/s/ Agnes Olszewski.
|
|
|
|
|
Name:
Agnes Olszewski.
Title:
Chief Executive Officer (Principal Executive Officer)
and
Chief
Financial Officer (Principal Accounting Officer)
|
|
|
|
|
|
|
Date:
October
22, 2007
|
|
|
|
Herborium (PK) (USOTC:HBRM)
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