Pharmagen, Inc. - FORM 10-Q

Attached files

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EXCEL - IDEA: XBRL DOCUMENT - Pharmagen, Inc.	Financial_Report.xls
EX-32.1 - CERTIFICATION - Pharmagen, Inc.	phrx_ex321.htm
EX-31.1 - CERTIFICATION - Pharmagen, Inc.	phrx_ex311.htm
EX-31.2 - CERTIFICATION - Pharmagen, Inc.	phrx_ex312.htm
EX-32.2 - CERTIFICATION - Pharmagen, Inc.	phrx_ex322.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2013

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________ to _______________.

Commission file number: 000-54523

Pharmagen, Inc.

(Exact name of registrant as specified in its charter)

Nevada		27-077112
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

9337 Fraser Avenue Silver Spring, MD		20910
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (204) 898-8160

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes o No x

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	o	Accelerated filer	o

Non-accelerated filer	o	Smaller reporting company	x
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

Applicable only to issuers involved in bankruptcy proceedings during the preceding five years:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes o No o

Applicable only to corporate issuers:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of May 14, 2013, there were 381,125,288 shares of common stock, par value $0.001, issued and outstanding.

PHARMAGEN, INC.

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

ITEM 1	Financial Statements	4

ITEM 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32

ITEM 3	Quantitative and Qualitative Disclosures About Market Risk	38

ITEM 4	Controls and Procedures	38

PART II – OTHER INFORMATION

ITEM 1	Legal Proceedings	39

ITEM 1A	Risk Factors	39

ITEM 2	Unregistered Sales of Equity Securities and Use of Proceeds	39

ITEM 3	Defaults Upon Senior Securities	39

ITEM 4	Mine Safety Disclosures	39

ITEM 5	Other Information	39

ITEM 6	Exhibits	40

PART I – FINANCIAL INFORMATION

This Quarterly Report includes forward-looking statements within the meaning of the Securities Exchange Act of 1934 (the “Exchange Act”). These statements are based on management’s beliefs and assumptions, and on information currently available to management. Forward-looking statements include the information concerning our possible or assumed future results of operations set forth under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Forward-looking statements also include statements in which words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate,” “consider” or similar expressions are used.

Forward-looking statements are not guarantees of future performance. They involve risks, uncertainties and assumptions. Our future results and shareholder values may differ materially from those expressed in these forward-looking statements. Readers are cautioned not to put undue reliance on any forward-looking statements.

ITEM 1 Financial Statements

PHARMAGEN, INC.

(Formerly SUNPEAKS VENTURES, INC.)

Consolidated Financial Statements (Unaudited)

	Page

Consolidated Balance Sheets as of March 31, 2013 and December 31, 2012		5

Consolidated Statements of Operations for the three months ended March 31, 2013 and 2012		6

Consolidated Statement of Stockholders’ Deficit for the three months ended March 31, 2013 and the year ended December 31, 2012		7

Consolidated Statements of Cash Flows for the three months ended March 31, 2013 and 2012		8

Notes to Unaudited Consolidated Financial Statements		9

PHARMAGEN, INC.

(Formerly SUNPEAKS VENTURES, INC.)

CONSOLIDATED BALANCE SHEETS

(Unaudited)

	March 31, 2013			December 31, 2012
ASSETS

Current Assets
Cash	$	646,958		$	322,556
Accounts receivable		762,580			635,599
Inventory		181,619			147,373
Prepaid expenses and other current assets		270,433			282,315
Deferred financing costs, net of accumulated amortization of $204,996 and $71,908		307,043			197,964

Total Current Assets	$	2,168,633		$	1,585,807

Property and equipment, net of accumulated depreciation of $77,471 and $60,054	$	89,708		$	90,865
Goodwill		1,195,881			1,195,881
Customer relations, net of accumulated amortization of $1,230 and $0		23,714			24,944

Total Assets	$	3,477,936		$	2,897,497

LIABILITIES AND STOCKHOLDERS’ DEFICIT

Current Liabilities
Accounts payable and accrued liabilities	$	1,129,670		$	779,065
Lines of credit		414,900			414,900
Convertible line of credit, net of unamortized discount of $241,086 and $590,136		962,069			728,838
Due to related parties		200,815			148,215
Indemnification liability		500,000			100,000
Current portion of note payable		250,000			250,000
Stock payable		-			13,636
Total Current Liabilities	$	3,457,454		$	2,434,654

Convertible debt, net of unamortized discount $853,001 and $947,249	$	596,999		$	502,751
Convertible line of credit, net of unamortized discount of $509,233 and $0		90,767			-
Note payable, net of current portion		750,000			750,000
Derivative liability		2,244,201			1,901,853
Total liabilities	$	7,139,421		$	5,589,258

Commitments and contingencies

Stockholders’ Deficit
Preferred stock; Series A $0.001 par value; 25,000,000 shares authorized; 3,000,000 shares issued and outstanding	$	3,000		$	3,000
Common stock $0.001 par value; 550,000,000 shares authorized; 387,791,955 and 381,125,288 shares issued and outstanding		387,792			381,125
Additional paid in capital		417,702			165,936
Stock held in escrow		(480,303	)		(93,939	)
Accumulated deficit		(3,989,676	)		(3,147,883	)
Total Stockholders’ Deficit	$	(3,661,485	)	$	(2,691,761	)

Total Liabilities and Stockholders’ Deficit	$	3,477,936		$	2,897,497

The accompanying notes are an integral part of these consolidated financial statements

PHARMAGEN, INC.

(Formerly SUNPEAKS VENTURES, INC.)

CONSOLIDATED STATEMENT OF OPERATIONS

(Unaudited)

	Three Months Ended March 31,
	2013			2012

Revenues	$	1,721,331		$	400,803
Revenues - related party		-			77,371
Total revenues		1,721,331			478,174

Cost of Sales		(690,171	)		(265,170	)
Gross Profit		1,031,160			213,004

Operating Expenses
General and administrative		853,589			212,686
Salaries and commissions		563,286			179,022
Professional fees		269,952			41,027
Total Operating Expenses		1,686,827			432,735

Operating Loss		(655,667	)		(219,731	)

Other Income (Expenses)
Derivative gain (loss)		119,381			(102,851	)
Interest expense		(305,507	)		(20,712	)
Total Other Income (Expenses)		(186,126	)		(123,563	)

Net Loss	$	(841,793	)	$	(343,294	)

Basic and diluted loss per share	$	(0.00	)	$	(0.00	)

Weighted average common shares outstanding –basic and diluted		381,273,436			282,493,923

The accompanying notes are an integral part of these consolidated financial statements

PHARMAGEN, INC.

(Formerly SUNPEAKS VENTURES, INC.)

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT

(Unaudited)

	Preferred Stock				Common Stock						Additional Paid in			Stock Held in			Accumulated
	Shares		Amount		Shares			Amount			Capital			Escrow			Deficit			Total

Balance, December 31, 2011		3,000,000	$	3,000		200,000,000		$	200,000		$	(196,134	)	$	-			(376,615	)	$	(369,749	)

Effect of reverse merger		-		-		220,500,750			220,501			(220,501	)		-			-			-
Cancellation of shares		-		-		(50,000,000	)		(50,000	)		50,000			-			-			-
Derivative liability settlement		-		-		-			-			79,445			-			-			79,445
Common stock issued for debt financing		-		-		7,594,236			7,594			262,278			-			-			269,872
Common stock issued for equity financing		-		-		3,030,302			3,030			90,909			(93,939	)		-			-
Imputed interest on advances from related party		-		-		-			-			9,357			-			-			9,357
Forgiveness of shareholder debt		-		-		-			-			90,582			-			-			90,582
Net loss		-		-		-			-			-			-			(2,771,268	)		(2,771,268	)
Balance, December 31, 2012		3,000,000	$	3,000		381,125,288		$	381,125		$	165,936		$	(93,939	)	$	(3,147,883	)	$	(2,691,761	)

Derivative liability settlement		-		-		-			-			49,819			-			-			49,819
Common stock issued for debt financing		-		-		6,666,667			6,667			200,000			(100,000	)		-			106,667
Recognition of indemnification liability		-		-		-			-			-			(286,364	)		-			(286,364	)
Imputed interest on advances from related party		-		-		-			-			1,947			-			-			1,947
Net loss		-		-		- -			-			-			-			(841,793	)		(841,793	)
Balance, March 31, 2013		3,000,000	$	3,000		387,791,955		$	387,792		$	417,702		$	(480,303	)	$	(3,989,676	)	$	(3,661,485	)

The accompanying notes are an integral part of these consolidated financial statements

PHARMAGEN, INC.

(Formerly SUNPEAKS VENTURES, INC.)

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Three Months Ended March 31,
	2013			2012
Operating Activities
Net loss	$	(841,793	)	$	(343,294	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Change in fair value of derivative liability		(119,381	)		102,851
Imputed interest on advances from related party		1,947			2,638
Amortization of debt discount		445,613			11,918
Amortization of deferred financing costs		133,088			-
Depreciation & amortization expense		18,647			10,551
Changes in operating assets and liabilities:
Accounts receivable		(126,981	)		(12,092	)
Inventory		(34,246	)		(17,067	)
Prepaid expenses and other current assets		11,882			(155,398	)
Accounts payable and accrued liabilities		350,605			33,630
Due to related parties		-			(10,066	)
Other long term liability		-			2,274
Net Cash (Used in) Provided by Operating Activities		(160,619	)		(374,055	)

Investing Activities
Purchase of property and equipment		(16,260	)		(4,428	)
Net Cash Used in Investing Activities		(16,260	)		(4,428	)

Financing Activities
Net proceeds from advances from related parties		75,000			(20,000	)
Repayments of advances to related parties		(22,400	)		-
Net proceeds from convertible debt		-			400,000
Net proceeds from convertible lines of credit		484,181			-
Cash paid for deferred financing costs		(35,500	)		-
Net Cash Provided by Financing Activities		501,281			380,000

Net Increase (Decrease) in Cash		324,402			1,517
Cash at Beginning of Period		322,556			38,658
Cash at End of Period	$	646,958		$	40,175

Supplemental Cash Flow Information:
Interest paid	$	3,699		$	6,156
Income taxes paid	$	-		$	-

Non-Cash Financing Transactions:
Effect of reverse merger	$	-		$	220,501
Shares issued for deferred financing costs	$	206,667		$	-
Cancellation of shares	$	-		$	50,000
Allocation of convertible debt to embedded conversion derivative liabilities	$	511,548		$	400,000
Settlement of derivative liability	$	49,819		$	-
Recognition of indemnification liability	$	400,000		$	-

The accompanying notes are an integral part of these consolidated financial statements

PHARMAGEN, INC

(Formerly SUNPEAKS VENTURES, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – ORGANIZATION, DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Organization and Description of Business

Sunpeaks Ventures, Inc. (“Sunpeaks” or the “Company”) was incorporated in the State of Nevada on June 25, 2009. On February 13, 2012, pursuant to a Share Exchange Agreement (“Exchange Agreement”), the Company acquired 100% ownership interest in Healthcare Distribution Specialists LLC (“HDS”), a Delaware limited liability company, in exchange for the issuance of 200,000,000 newly-issued restricted shares of the Companies’ common stock and 3,000,000 newly-issued restricted shares of the Companies’ Class A Preferred Stock (the “Exchange Shares”), to the former owner of HDS, resulting in HDS becoming a wholly-owned subsidiary of the Company. Additionally, pursuant to the Exchange Agreement, 200,000,000 shares of the Companies’ common stock held by the Companies’ former controlling owner were cancelled. As a result of the acquisition, the former owners of HDS hold majority ownership of the Company.

For financial accounting purposes, the acquisition of HDS by the Company (referred to as the “Merger”) was a reverse acquisition of the Company by HDS and was treated as a recapitalization. Accordingly, the financial statements have been prepared to give retroactive effect of the reverse acquisition completed on February 13, 2012, and represent the operations of HDS prior to the Merger.

HDS changed its name to Pharmagen Distribution, LLC effective January 23, 2013.

As of the time of the Merger, the Company held minimal assets and was considered a non-operating public shell in the development stage. Following the Merger, the Company is no longer considered development stage and operates through one operating segment which distributes hard-to-find and specialty drugs to the healthcare provider market throughout the United States, while functioning as an aggregator of real-time market demand for these products. The Company also owns and sells a specialized over-the-counter multivitamin product called Clotamin. Clotamin is specifically designed for use by patients on Warfarin, a blood thinner that has a known interaction with the vitamin K present in standard over-the-counter multivitamins.

Prior to the Merger, on August 1, 2011, pursuant to an Amended and Restated Asset Acquisition Agreement (the “Agreement”) between HDS and Global Nutritional Research, LLC (“GNR”), HDS acquired certain assets of GNR in exchange for assumption of debt and financial obligations of GNR. Prior to the acquisition, HDS and GNR were considered entities under common control and common ownership, as control and ownership of each entity resided with HDS’s President and an immediate family member. As entities under common control, in accordance with accounting principles generally accepted in the United States (“GAAP”), the acquired assets and liabilities of GNR were recognized in the accompanying financial statements at their carrying amounts.

The Company changed its name from Sunpeaks Ventures, Inc. to Pharmagen, Inc. (trading symbol PHRX) effective January 15, 2013.

On December 13, 2012, the Company acquired Bryce Rx Laboratories (“Bryce”) through a Stock Purchase Agreement with Robert Guiliano, an individual, for the purchase of all of the outstanding securities of Bryce. Bryce specializes in the formulation of drugs that are not commercially available, require alternate delivery systems, and or dosing changes. The purchase price was One Million One Hundred Thousand Dollars ($1,100,000), payable (i) One Hundred Thousand Dollars ($100,000) at Closing, and (b) Two Hundred Fifty Thousand Dollars ($250,000) on December 31 of each of the four (4) years beginning in 2013 (See Note 5).

Bryce changed its name to Pharmagen Laboratories, Inc. effective on March 4, 2013.

NOTE 2 – GOING CONCERN

The accompanying condensed consolidated financial statements have been prepared in conformity with GAAP, which contemplates continuation of the Company as a going concern. The Company has a history of incurring net losses and at March 31, 2013 has an accumulated net loss totaling $3,989,676. At March 31, 2013, the Company held cash of $646,958. These conditions give rise to substantial doubt about the Company’s ability to continue as a going concern. These financial statements do not include adjustments relating to the recoverability and classification of reported asset amounts or the amount and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

The Company expects to finance its operations primarily through its existing cash and future financings. However, there exists substantial doubt about the Company’s ability to continue as a going concern because it will be required to obtain additional capital in the future to continue its operations and there is no assurance that the Company will be able to obtain such capital, through equity or debt financings, or any combination thereof, whether on satisfactory terms or at all. Additionally, no assurance can be given that any such financing, if obtained, will be adequate to meet the Company’s ultimate capital needs and to support its growth. If adequate capital cannot be obtained on a timely basis and on satisfactory terms, the Company’s operations would be materially negatively impacted. The Company’s ability to complete additional offerings is dependent on the state of the debt and equity markets at the time of any proposed offering, and such market’s reception of the Company and the offering terms. In addition, the Company’s ability to complete an offering may be dependent on the status of the Company’s business activities, which cannot be predicted.

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with GAAP for interim financial information, and pursuant to the instructions to Form 10-Q and Article 8 of Regulation S-X of the Securities and Exchange Commission (“SEC”). As permitted under those rules, certain footnotes or other information that are normally required by GAAP can be condensed or omitted.

The consolidated financial statements as of and for the three months ended March 31, 2013 and 2012 are unaudited. In the opinion of management, these financial statements include all adjustments, which, unless otherwise disclosed, are of a normal recurring nature, necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented. The accompanying unaudited condensed consolidated financial statements were prepared consistent with and should be read in conjunction with the financial statements of the Company for the years ended December 31, 2012 and 2011, and notes thereto included in our Form 10-K as filed with the Securities and Exchange Commission (“SEC”) on April 1, 2013.

The results for interim periods are not necessarily indicative of results for the entire year. The balance sheet at December 31, 2012 has been derived from audited financial statements; however, the notes to the financial statements do not include all of the information and notes required by GAAP for complete financial statements.

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries Pharmagen Distribution, LLC and Pharmagen Laboratories, Inc. As discussed above, for accounting purposes the acquisition of HDS by the Company was considered a reverse acquisition of the Company by HDS and was treated as a recapitalization. Accordingly, the financial statements have been prepared to give retroactive effect of the reverse acquisition completed on February 13, 2012, and represent the operations of HDS prior to the Merger. All material intercompany accounts and transactions have been eliminated upon consolidation.

Use of Estimates

The preparation of these condensed consolidated financial statements in conformity with GAAP 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 financial statements and the reported amounts of revenues and expenses during the reporting period. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

Revenue Recognition

The Company’ revenue consists of revenue from sales of pharmaceutical products. Revenue is recognized at the time when the price is fixed and determinable, persuasive evidence of an arrangement exists, the service has been provided, and collectability is assured.

Sales of Product: The Company earns product revenue from selling pharmaceutical products at the time of delivery, which is the time at which title to the product is transferred.

Sourcing and Distribution of Products, as an agent: In accordance with ASC Section 605-45-45, revenue is recognized from agent distribution sales for the net amount retained when all criteria for revenue recognition have been met. Determining whether an entity functions as an agent or a principal is a matter of judgment. The Company considers multiple indicators in the determination of whether it acts as an agent in sales transactions.

The Company acts as an agent for sales of products on behalf of HealthRite Pharmaceuticals (“HealthRite”), a company wholly owned and controlled by the President and a Director of the Company. HealthRite is a pharmacy and is therefore prohibited from distributing pharmaceuticals across state lines. During April 2012, the Company’s sales arrangement with HealthRite ceased. See NOTE 9 for additional discussion. During the three month periods ended March 31, 2013 and 2012, the Company recognized net revenue from sales to HealthRite of $0 and $77,371 based on gross sales of $0 and $180,710, respectively.

Cash and Cash Equivalents

The Company considers all highly liquid short-term investments purchased with a maturity of three months or less at the time of issuance to be cash equivalents. These investments are carried at cost which approximates fair value. At March 31, 2013 and December 31, 2012, there were no cash equivalents.

The Company had cash of $646,958 and $322,556 at March 31, 2013 and December 31, 2012, respectively.

Accounts Receivable

The Company’s accounts receivable are composed of trade receivables from customers for sales of products. Trade receivables include accounts receivable for sales of product and sourcing and distribution of product for which the Company acts as an agent, which are based on gross sales to customers.

Accounts receivable are stated at their principal balances and are non-interest bearing and unsecured. The Company maintains an allowance for doubtful accounts for the estimated probable losses on uncollectible accounts receivable.

Uncollectible accounts receivable are written off when a settlement is reached for an amount less than the outstanding historical balance or when we determine that it is highly unlikely the balance will be collected. At March 31, 2013 and December 31, 2012, the Company’s allowance for doubtful accounts was $0.

Inventory

Inventory is comprised of Clotamin and non-Clotamin and is recorded at lower of cost or market on a first-in, first-out (“FIFO”) method. The non-Clotamin is a collection of several raw materials that are used in combinations to make pharmaceutical drugs, some of which is stored in a warehouse and handled by a third party. The Company establishes inventory reserves for estimated obsolete or unmarketable inventory equal to the differences between the cost of inventory and the estimated realizable value based upon assumptions about future and market conditions. If obsolete or unmarketable inventory are identified and there are no alternate uses for the inventory, the Company will record a write-down to net realizable value in the period that the impairment is first recognized. At March 31, 2013 and December 31, 2012, the allowance for obsolete or unmarketable inventory was $0, and during the three month periods ended March 31, 2013 and 2012, the Company recognized no inventory impairments.

Property and Equipment

Property and equipment are stated at cost at date of acquisition. Depreciation is calculated on the straight-line method over the estimated useful lives of the assets. Upon retirement or disposal of assets, the asset and accumulated depreciation accounts are adjusted accordingly, and any gain or loss is reflected in earnings or loss of the respective period. Maintenance costs and repairs are expensed as incurred; significant renewals and betterments are capitalized.

Amortization of leasehold improvements is included in depreciation expense. The Company records operating lease expense on a straight-line basis. The Company amortizes leasehold improvements, including amounts funded by landlord incentives or allowances, for which the related deferred rent is amortized as a reduction of lease expense, over the shorter of their economic lives or the lease term.

The estimated useful life of each asset is as follows:

	Estimated Useful Lives

Furniture and equipment	3-7 years
Leasehold improvements	1 year

Depreciation expense for the three months ended March 31, 2013 and 2012 was $17,417 and $10,551, respectively.

Long-Lived Assets

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset, or related groups of assets, may not be fully recoverable from estimated future cash flows. Factors that might indicate a potential impairment may include, but are not limited to, significant decreases in the market value of the long-lived asset, a significant change in the long-lived asset’s physical condition, a change in industry conditions or a reduction in cash flows associated with the use of the long-lived asset.

If these or other factors indicate the carrying amount of the asset may not be recoverable, we determine whether impairment has occurred through analysis of undiscounted cash flow of the asset at the lowest level that has an identifiable cash flow. If impairment has occurred, we recognize a loss for the difference between the carrying amount and the fair value of the asset. We measure the fair value of the asset using market prices or, in the absence of market prices, based on an estimate of discounted cash flows. Cash flows are generally discounted using an interest rate commensurate with a weighted average cost of capital for a similar asset. No impairments were identified as of March 31, 2013 and December 31, 2012 or during the three month periods ended March 31, 2013 and 2012.

Goodwill and Intangible Assets

Goodwill represents the excess of the cost over the fair value of net tangible and identifiable intangible assets of acquired businesses. Goodwill is assessed for impairment by applying fair value based tests annually or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

The goodwill impairment test consists of a two-step process. The first step of the goodwill impairment test, used to identify potential impairment, compares the fair value of a reporting unit to its carrying value, including goodwill. The Company uses un-discounted cash flow models to determine the fair value of a reporting unit. If the fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired, and the second step of the impairment test is not required. The second step, if required, compares the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill. The fair value of a reporting unit is allocated to all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the price paid to acquire the reporting unit. If the carrying amount of the reporting unit's goodwill exceeds its implied fair value, an impairment charge is recognized in an amount equal to that excess.

At March 31, 2013 and December 31, 2012, the Company’s intangible assets consisted of Goodwill and Customer Relations. During the three months ended March 31, 2013 and 2012 the Company recorded amortization expense on Customer Relations of $1,230 and $0, respectively.

Deferred financing costs

Deferred financing costs include fees paid in conjunction with obtaining the convertible line of credit and are amortized over the contractual term of the related financial instrument using effective interest method.

Derivative Liability

We evaluate and account for conversion options embedded in convertible instruments in accordance with ASC 815 "Derivatives and Hedging Activities" which requires companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under other GAAP with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.

Debt Discount

Costs incurred with parties who are providing long-term financing, which include the fair value of an embedded derivative conversion feature are reflected as a debt discount and are amortized over the life of the related debt. The Company recorded debt discounts attributable to the embedded conversion derivative liabilities related to the convertible debt debentures issued during the three months ended March 31, 2013 totaling $511,548.

Financial Instruments and Fair Value Measures

The Company’s financial instruments consist principally of cash, accounts receivable, accounts payable and accrued liabilities, line of credit, convertible debt and amounts due to related parties. We believe the recorded values of our financial instruments approximate their fair values because of their nature and respective maturity dates or durations.

The Company measures fair value in accordance with ASC Topic 820, Fair Value Measurements and Disclosures, which defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy categorizes assets and liabilities measured at fair value into one of three different levels depending on the observability of the inputs employed in the measurement. The three levels are as follows:

Level 1 – Observable inputs such as quoted prices in active markets at the measurement date for identical, unrestricted assets or liabilities.

Level 2 – Other inputs that are observable, directly or indirectly, such as quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability.

Level 3 – Unobservable inputs for which there is little or no market data and which we make our own assumptions about how market participants would price the assets and liabilities.

Derivative instruments are recognized as either assets or liabilities and are measured at fair value using the Black Scholes model. The changes in the fair value of derivatives are recognized in earnings.

Shipping and Handling Costs

Shipping and handling costs incurred for inventory purchases and product shipments are included in general and administrative expenses for all periods presented.

Advertising Expenses

Advertising costs are expensed as incurred and are included in general and administrative expenses for all periods presented. Advertising expenses for the three month periods ended March 31, 2013 and 2012, were $8,972 and $47,505, respectively.

Sales Commission

The Company accrues sales commission to sales representatives when sales are made and pays it when cash is reasonably collectible from customers according to its performance based model for commission valuing. Depending on the experience of the sales representative, and whether monthly targets are met, the commission percentage range from 8-25% of the sales generated.

Concentration of Risk

The Company maintains its cash in institutions insured by the Federal Deposit Insurance Corporation (FDIC) and at times, balances may exceed government insured limits. All of the Company’s non-interest bearing cash balances were fully insured at December 31, 2012 due to a temporary federal program in effect from December 31, 2010 through December 31, 2012. Under the program, there is no limit to the amount of insurance for eligible accounts. Beginning 2013, insurance coverage will revert to $250,000 per depositor at each financial institution, and non-interest bearing cash balances may again exceed federally insured limits. At March 31, 2013, the amounts held in the banks exceeded the insured limit. The Company has never experienced any losses related to these balances.

During the three months ended March 31, 2013 three vendors accounted for 29%, 16% and 12% of purchases at Pharmagen. During the three months ended March 31, 2012, one vendor accounted for 57% of purchases at Pharmagen.

During the three months ended March 31, 2013, one customer accounted for 46% of Pharmagen sales. During the three months ended March 31, 2012, one customer accounted for 28% of Pharmagen sales. At March 31, 2013, one customer accounted for 19% and one customer for 16% of Pharmagen accounts receivable and at December 31, 2012, one customer accounted for 58% of Pharmagen’s accounts receivable.

Income Taxes

Income taxes are accounted for under the liability method. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities as measured by the enacted tax rates that will be in effect when these differences reverse. The Company provides a valuation allowance against net deferred tax assets if, based upon the available evidence, it is more-likely-than-not that the deferred tax assets will not be realized. When the Company establishes or reduces the valuation allowance against its deferred tax assets, its provision for income taxes will increase or decrease, respectively, in the period such determination is made. The Company’s policy is to recognize interest and penalties related to the estimated obligations for tax positions as a component of income tax expense.

The Company records liabilities related to uncertain tax positions in accordance with the guidance that clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements by prescribing a minimum recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Company does not believe any such uncertain tax positions currently pending will have a material adverse effect on its financial statements, although an adverse resolution of one or more of these uncertain tax positions in any period could have a material impact on the results of operations for that period.

Income (Loss) per Share

We have presented basic loss per share, computed on the basis of the weighted average number of common shares outstanding during the year, and diluted loss per share, computed on the basis of the weighted average number of common shares and all dilutive potential common shares outstanding during the year. Potential common shares result from convertible debts and convertible line of credit. However, for all years presented, all outstanding convertible notes are anti-dilutive due to the losses for the years. Anti-dilutive common stock equivalents of 119,879,899 were excluded from the loss per share computation for March 31, 2013. No common stock equivalents existed at March 31, 2012.

Comprehensive Income (Loss)

Comprehensive income (loss) is comprised of net income and other comprehensive income (loss). For the three month periods ended March 31, 2013 and 2012, the Company had no items representing other comprehensive income or loss.

Recent Accounting Pronouncements

The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.

In February 2013, the Financial Accounting Standards Board (“FASB”) issued amendments to the accounting guidance for presentation of comprehensive income to improve the reporting of reclassifications out of accumulated other comprehensive income. The amendments do not change the current requirements for reporting net income or other comprehensive income, but do require an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where the net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under GAAP that provide additional detail about these amounts. These amendments are effective prospectively for reporting periods beginning after December 15, 2012. The Company does not believe the adoption of this guidance will have a material impact on the consolidated financial statements.

Subsequent Events

The Company evaluated material events occurring between March 31, 2013 and through the date when the consolidated financial statements were issued.

NOTE 4 – MERGER

For financial accounting purposes, the Merger is accounted for as a reverse recapitalization. Reverse recapitalization accounting is attributable to a long-held position of the staff of the Securities and Exchange Commission as the acquisition of a non-operating public shell company does not qualify as a business for business combination purposes, as described in ASC Topic 805, Business Combinations. Reverse recapitalization accounting applies when a non-operating public shell company acquires a private operating company and the owners and management of the private operating company have actual or effective voting and operating control of the combined company. In the Merger transaction, The Company qualifies as a non-operating public shell company because as of the Merger date, the Company held nominal net monetary assets, consisting of cash.

A reverse recapitalization is equivalent to the issuance of stock by the private operating company for the net monetary assets of the public shell corporation accompanied by a recapitalization with accounting similar to that resulting from a reverse acquisition, except that no goodwill or other intangible assets are recorded. Under recapitalization accounting, the equity of the accounting acquirer, HDS, is presented as the equity of the combined enterprise and the capital stock account of HDS is adjusted to reflect the par value of the outstanding stock of the legal acquirer (the Company) after giving effect to the number of shares issued in the business combination. Shares retained by the Company are reflected as an issuance as of the merger date for the historical amount of the net assets of the acquired entity, which in this case is zero, on the accompanying condensed consolidated statement of stockholders’ deficit of 220,500,750 shares, which consists of the Companies shares outstanding at December 31, 2011 of 370,500,750 plus 50,000,000 shares issued by the Company immediately prior and conjunction with the Merger to settle the Companies’ debt outstanding prior to the Merger date, less 200,000,000 shares cancelled which were held by the former controlling owner of the Company.

Following the Merger, the financial statements of the Company give retroactive effect of the reverse recapitalization and represent the historical operations of HDS.

NOTE 5 – ACQUISITION

Bryce Rx Laboratories

On December 13, 2012 (“Acquisition Date”), the Company acquired Bryce Rx Laboratories (“Bryce”) through a Stock Purchase Agreement with Robert Guiliano, an individual, for the purchase of all of the outstanding securities of Bryce Rx Laboratories, Inc. The purchase price was One Million One Hundred Thousand Dollars ($1,100,000), payable (i) One Hundred Thousand Dollars ($100,000) at Closing, and (b) Two Hundred Fifty Thousand Dollars ($250,000) on December 31 of each of the four (4) years beginning in 2013. The closing date was December 13, 2012.

The cost of the acquisition was allocated to the assets acquired and liabilities assumed based on estimates of their respective fair values at the date of acquisition, December 13, 2012. The estimates of the fair value of the assets acquired, liabilities assumed and the stock issued for the acquisition were prepared with the assistance of an independent valuations consultant. The following is a summary of the purchase price allocation:

Assets acquired
Cash	$	20,000
Accounts receivable		74,067
Inventory		66,000
Customer relations		24,944
Goodwill		1,195,881
Total assets acquired		1,380,892

Liabilities assumed
Line of credit		217,460
Other current liabilities		63,432
Total liabilities assumed		280,892

Net assets acquired	$	1,100,000

Purchase price	$	1,100,000

Amortization for the customer relations for the year ended March 31, 2013 was $1,230.

NOTE 6 – DEBT

Lines of credit

The Company has a $200,000 line of credit agreement with a financial institution which bears interest at US prime rate plus 1% per annum, but in no event less than 5.5% (5.5% at March 31, 2013 and December 31, 2012), is due on demand, and is secured by all assets of the Company. As of March 31, 2013 and December 31, 2012, the Company had outstanding balances on the line of credit of $200,000. The Company is currently in good standing and was in good standing at March 31, 2013 and December 31, 212. There are no outstanding debt covenants.

On December 13, 2012, upon the acquisition of Bryce, the Company assumed two lines of credit from Bryce, an overdraft line of credit and a business line of credit which at that time had an outstanding balance of $22,410 and $195,050, respectively. The overdraft line of credit agreement has a maximum credit line of $25,000 and bears interest at 9.25%, and the business line of credit has a maximum credit line of $200,000, bears interest rate at 4.5% and expires in 2016. As of March 31, 2013 and December 31, 2012, the Company had outstanding balances on the overdraft line of credit and business line of credit of $19,850 and $195,050, respectively.

Non-interest bearing note payable

In connection with the acquisition of Bryce, the Company issued a note payable in the amount $1,000,000 to the seller. The note payable is payable in four installments at $250,000 each on December 31 beginning in 2013. Accrued imputed interest for the three months ended March 31, 2013 was $13,562.

2012 Convertible line of credit

On October 11, 2012 (“Closing Date”), the Company entered into a Senior Secured Revolving Credit Facility Agreement (the “Revolving Credit Agreement”) with TCA Global Credit Master Fund, LP (“TCA”), a Cayman Islands limited partnership. Pursuant to the Agreement, TCA agreed to loan up to $5 million to the Company for working capital purposes. The amounts borrowed pursuant to the Credit Agreement are evidenced by a Revolving Promissory Note (the “Revolving Note”), the repayment of which is secured by a Security Agreement executed by the Company and its wholly-owned subsidiary, Healthcare Distribution Specialists, LLC. Pursuant to the Security Agreements, the repayment of the Revolving Note is secured by a security interest in substantially all of the Company’s assets in favor of TCA.

On October 11, 2012, the Company advanced a total of $700,000 from the Credit Agreement and paid a commitment fee of $128,963 by issuing 3,048,781 common shares valued at then current trading price of $0.042 per share. The Company recorded the commitment fee as deferred financing costs. The deferred financing cost is amortized over the life of the Credit Agreement. During the year ended December 31, 2012 the Company amortized $57,238. The Credit Agreement carries interest at the rate of 12% per annum, increasing to 18% per annum upon the occurrence of an event of default and expires in six months following the Closing Date.

On December 12, 2012, the Company advanced another $750,000 from the Credit Agreement which matures in six months after December 12, 2012 and amended the terms. According to the amended Credit Agreement, the Company is to issue a variable number of shares that equal $150,000 and if TCA is not able to realize at least $150,000 upon sale of the shares, the Company shall issue additional common shares to TCA to make up for the shortfall (“Make-Whole Provision”) or settle any deficit in cash.

On December 12, 2012, the Company issued 4,545,454 common shares as a commitment fee for the fixed amount of $150,000. Those shares were fair valued at $140,909 at the then current trading price of $0.031 per share and recorded as deferred financing costs. The deferred financing cost is amortized over the life of the amended Credit Agreement. During the year ended December 31, 2012, the Company amortized $14,670 and during the three months ended March 31, 2013, the Company amortized $69,489.

As at December 31, 2012, the 4,545,454 shares were revalued at $136,364 using the then current trading price of the Company, and in accordance with the Make-Whole Provision, the Company recorded a stock payable of $13,636 as a liability.

During the three months ended March 31, 2013, the Company entered into a Senior Secured Credit Facility Agreement with TCA which includes a mandatory redemption feature applicable to all previous commitment fees, accordingly the Company recorded indemnification liability of $300,000 related to the $700,000 and $750,000 advances in 2012 and recorded $286,364 as shares held in escrow and reversed the $13,636 stock payable.

In addition, TCA has the right, in its sole discretion, to convert the outstanding principal and any accrued interest, fees or expenses due into shares of the Company’s Common Stock at the conversion price per share equal to the converted amount divided by 85% of the lowest daily volume weighted average price of the Company’s common stock during the five trading days immediately prior to the conversion date. The Company has evaluated the embedded conversion feature under ASC 815 and determined the embedded conversion feature to be a derivative and recorded an initial derivative liability of $415,515 for the $700,000 advance and $463,661 for the $750,000 advance as debt discount. (See Note 7) The debt discount is amortized over six months using the effective interest method.

During the year ended December 31, 2012, the Company repaid $131,026 and relieved $79,455 of related derivative liability into paid-in-capital. During the three months ended March 31, 2013, the Company repaid $115,819 and relieved $49,819 of related derivative liability into paid-in-capital. As of March 31, 2013 and December 31, 2012, the Revolving Note had a balance of $1,203,155 and $1,318,974, respectively.

As of December 31, 2012, the accrued interest and unamortized discount was $22,325 and $590,136, respectively. As of March 31, 2013 the accrued interest and unamortized discount was $60,472 and $241,086, respectively. Discount amortization for the three months ending March 31, 2013 was $349,050, of which $23,208 was additional amortization was accelerated due to repayments.

The derivatives for all convertible lines of credit were valued using the Black-Scholes option pricing model with the following assumptions:

	March 31, 2013			December 31, 2012
Market value of stock on measurement date	$	0.031		$	0.030
Risk-free interest rate		0.07	%		0.05	%
Dividend yield		0	%		0	%
Volatility factor		209	%		201	%
Term	.25 years			0.27 years

2013 Convertible line of credit

On March 29, 2013 (“Closing Date”), the Company entered into a Senior Secured Credit Facility Agreement (the “Secured Credit Agreement”) with TCA Global Credit Master Fund, LP (“TCA”), a Cayman Islands limited partnership. Pursuant to the Agreement, TCA agreed to loan up to $2 million to the Company for working capital purposes. A total of $600,000 was funded by TCA in connection with the closing. The amounts borrowed pursuant to the Credit Agreement are evidenced by a Convertible Promissory Note (the “Note”), the repayment of which is secured by a Security Agreement and each of the Company’s wholly-owned subsidiaries. Pursuant to the Security Agreements, the repayment of the Note is secured by a security interest in substantially all of the Company’s assets in favor of TCA.

The initial Note in the amount of $600,000 is due and payable along with interest thereon on June 14, 2014, and bears interest at the rate of 12% per annum, increasing to 18% per annum upon the occurrence of an event of default. The Note is convertible into the Company’s common stock at eighty five percent (85%) of the lowest VWAP during the five (5) business days immediately prior to the conversion date, subject to TCA not being able to beneficially own more than 4.99% of the Company’s outstanding common stock upon any conversion.

The Company has the right to prepay the Note, in whole or in part, provided, that the Company pays TCA an amount equal to the then outstanding amount of the Note plus 5% for repayments up until 180 days following the Closing and the then outstanding amount of the Revolving Note plus 2.5% for repayments subsequent to 180 days following the Closing.

The Company also agreed to pay TCA an investment banking fee of $100,000, payable in the form of 6,666,667 shares of common stock (the “Commitment Shares”).

The Commitment Shares are mandatorily redeemable six months after March 29, 2013 for cash in an amount equal to the $100,000 minus the amount realized by TCA as of such date. Accordingly the Company recorded an indemnification liability of $100,000 and offset to shares in escrow.

The Commitment Shares were granted on March 29, 2013. The fair value of those shares on the grant date was $206,667 valued at the then current trading price of $0.031 per share and was recorded as deferred financing cost. The deferred financing cost is amortized over the life of the Secured Credit Agreement.

According to the Secured Credit Agreement, the Company is to issue a variable number of shares that equal to a dollar amount equal to $100,000 and if TCA is not able to realize at least $100,000 upon sale of the shares, the Company shall issue additional common shares to TCA to make up for the shortfall (“Make-Whole Provision”) or settle any deficit in cash. The Company recorded the $100,000 as indemnification liability and offset to shares held in escrow.

Under the initial accounting, the Company allocated $511,548 of the $600,000 proceeds to the embedded conversion derivative liability. The proceeds allocated to the embedded conversion derivative liability were recognized as a discount to the convertible debt.

The debt discount is accreted to interest expense over the life of the convertible debentures using effective interest method. During the three months ended March 31, 2013, the Company recorded interest accretion expense of $2,315, which is included in interest expense on the accompanying consolidated statement of operations.

The fair value of the conversion features are calculated at the time of issuance and the Company records a derivative liability for the calculated value using a Black-Scholes option-pricing model. Changes in the fair value of the derivative liability are recorded in other income (expense) in the consolidated statements of operations. Upon conversion of the convertible debt to stock, the Company reclassifies the related embedded conversion derivative liability to paid- in capital.

The derivatives for convertible promissory note were valued using the Black-Scholes option pricing model with the following assumptions:

	At Issuance, March 29, 2013
Market value of stock on measurement date	$	0.031
Risk-free interest rate		0.14	%
Dividend yield		0	%
Volatility factor		209	%
Term	1.23 years

Convertible debt

2012 Convertible Debentures

During the year ended December 31, 2012, the Company issued a total $1,450,000 of convertible debentures to an investor, with various maturities from March 1, 2014 through May 16, 2014. Interest accrues at the rate of ten percent per annum and is payable at the respective maturity date in cash.

The investor is entitled to convert the accrued interest and principal of the convertible debentures into common stock of the Company at a conversion price equal to 80% of the Average Closing Price of the common stock. The Average Closing Price is set forth in the convertible debt agreements as follows: average closing price during the ten consecutive trading days immediately prior to conversion for $400,000 of convertible debt issued during the first quarter of 2012 and average closing price during the three consecutive trading days immediately prior to conversion for $1,050,000 of convertible debt issued during the second quarter of 2012. In the event the common stock of the Company trades at or above $0.30 at any time during the day for a period of ten consecutive trading days, the Company may at its option convert all or part of the convertible debt into common stock at the applicable conversion price.

Accounting for Convertible Debt

Under the initial accounting, the Company allocated the proceeds to the embedded conversion derivative liability, which exceeded the value of the convertible debt at the issuance date for $575,000 of the convertible debt issuance. For the remaining $875,000 of debt issuances, the Company allocated $617,127 of the proceeds to the embedded conversion derivative liability. The proceeds allocated to the embedded conversion derivative liability were recognized as a discount to the convertible debt. As of March 31, 2013, the Company recorded aggregate debt discounts of $1,192,127 related to the conversion rights and recorded $161,100 of expense related to the excess value of the derivative value over the value of the convertible debt.

The debt discount is accreted to interest expense over the life of the convertible debentures using effective interest method. During the three months ended March 31, 2013 and 2012, the Company recorded interest accretion expense of $94,248 and $11,918, respectively, which is included in interest expense on the accompanying consolidated statement of operations.

The derivatives for all convertible debentures were valued using the Black-Scholes option pricing model with the following assumptions:

	March 31, 2013			December 31, 2012
Market value of stock on measurement date	$	0.031		$	0.030
Risk-free interest rate		0.14	%		0.16	%
Dividend yield		0	%		0	%
Volatility factor		209	%		200	%
Term	0.96-1.19 years			1.21-1.44 years

NOTE 7 – FAIR VALUE MEASUREMENTS

Fair Value on a Recurring Basis

The following table presents the Company’s financial liabilities measured and recorded on a recurring basis at fair value on the Company’s consolidated balance sheets and their level within the fair value hierarchy as of March 31, 2013.

	Total		Level 1		Level 2		Level 3
Embedded conversion derivative liabilities	$	2,244,201	$	-	$	-	$	2,244,201
Indemnification liability	$	500,000	$	-	$	500,000	$	-

	Total		Level 1		Level 2		Level 3
Embedded conversion derivative liabilities	$	1,901,853	$	-	$	-	$	1,901,853
Stock payable	$	13,636	$	-	$	13,636	$	-
Indemnification liability	$	100,000	$	-	$	100,000	$	-

Fair Value on Non Recurring Basis

The Company’s assets measured at fair value on a nonrecurring basis as of March 31, 2013 and December 31, 2012 were as follows:

	Total		Level 1		Level 2		Level 3
Asset:
Goodwill	$	1,195,881	$	-	$	-	$	1,195,881

The following table reconciles, for the three months ended March 31, 2013, the beginning and ending balances for embedded conversion derivatives that are recognized at fair value in the consolidated financial statements:

	Significant Unobservable Inputs (Level 3)
	Quarter Ended March 31, 2013
Beginning balance	$	1,901,853
Fair value of embedded conversion derivative liabilities at issuance		511,548
Loss at issuance		-
Debt settlement		(49,819)
Gain on fair value adjustments to embedded conversion derivative liabilities		(119,381)
Balance of embedded conversion derivative liabilities, March 31, 2013		2,244,201

When the fair value of the embedded conversion derivative liability exceeds the carrying value of the convertible debentures on the issuance date, the convertible debentures is recorded at a full discount and the excess amount of the embedded derivative liability over the carrying value of the convertible debenture is recognized as a loss on derivative upon issuance. The Company has considered the provisions of ASC 480, Distinguishing Liabilities from Equity, as the conversion feature embedded in each debenture could result in the stated note principal being converted to a variable number of the Company’s common shares.

The Company believes the recorded values of its other financial instruments (consisting of cash, accounts receivable, accounts payable, accrued liabilities, line of credit and due to related parties) approximate their fair values because of their nature and respective maturity dates or durations.

NOTE 8 – EQUITY

Merger with Healthcare Distribution Specialist LLC

On February 13, 2012, Sunpeaks Ventures, Inc. (“Sunpeak”), acquired all of the membership interests of Healthcare Distribution Specialists LLC (“HDS”), a Delaware limited liability company, in exchange for the issuance of 200,000,000 newly-issued restricted shares of Sunpeaks’ common stock and 3,000,000 newly-issued restricted shares of Sunpeaks’ Class A Preferred Stock (the “Exchange Shares”), to the former owner of HDS. Following the acquisition, Sunpeak cancelled 200,000,000 shares of common stock owned by its former shareholders. As a result of the acquisition, the former owners of HDS hold majority ownership of the Company and the acquisition was treated as a recapitalization.

A reverse recapitalization is equivalent to the issuance of stock by the private operating company for the net monetary assets of the public shell corporation accompanied by a recapitalization with accounting similar to that resulting from a reverse acquisition, except that no goodwill or other intangible assets are recorded. Under recapitalization accounting, the equity of the accounting acquirer, HDS, is presented as the equity of the combined enterprise and the capital stock account of HDS is adjusted to reflect the par value of the outstanding stock of the legal acquirer (Sunpeaks) after giving effect to the number of shares issued in the business combination. Shares retained by Sunpeaks are reflected as an issuance as of the merger date for the historical amount of the net assets of the acquired entity, which in this case is zero, on the accompanying consolidated statement of stockholders’ deficit of 220,500,750 shares, which consists of Sunpeaks shares outstanding at December 31, 2011 of 370,500,750 plus 50,000,000 shares issued by Sunpeaks immediately prior and conjunction with the Merger to settle Sunpeaks’ debt outstanding prior to the Merger date, less 200,000,000 shares cancelled which were held by the former controlling owner of Sunpeaks.

Common stock

TCA Global Credit Master Fund, LP (“TCA”)

On October 11, 2012, the Company issued 3,048,781 common shares to TCA pursuant to the Credit Agreement as commitment fees (see Note 6). The Company fair valued those shares at the then current trading price of $0.042 per share for a total of $128,963.

On December 12, 2012, the Company entered into a Committed Equity Facility Agreement (“TCA Equity Agreement”) with TCA. Pursuant to the terms of the TCA Equity Agreement, TCA shall commit to purchase up to Seven Million Five Hundred Thousand Dollars ($7,500,000) of the Company’s common stock, par value $0.001 per share for a period of twenty-four (24) months commencing on the effective date of a registration statement on Form S-1. The purchase price of the shares is equal to ninety-five percent (95%) of the net aggregate sales proceeds received by TCA from the sale of the shares during the five (5) consecutive trading days after TCA is able to deposit and clear the shares TCA’s brokerage account.

According to the TCA Equity Agreement, the Company shall repurchase from TCA any unsold shares twelve months after December 12, 2012 and pay to TCA in cash an amount equal to the $100,000 minus the amount realized by TCA as of such date. Accordingly the Company recorded an indemnification liability of $100,000.

On December 12, 2012, the Company issued 3,030,302 common shares as a commitment shares, the fair value of those on the issuance date was $93,939 valued at the then current trading price of $0.031 per share and were considered held in escrow due to the indemnification liability.

In addition, the Company also issued 4,545,455 shares of common stock as commitment fee in connection with the Amended Credit Agreement (see Note 6), the Company valued those shares at the then current trading price of $0.03 per share for a total of $140,909.

As at December 31, 2012, the 4,545,454 shares were revalued at $136,364 using the then current trading price of the Company, and in accordance with the Make-Whole Provision (see Note 6), the Company recorded a stock payable of $13,636 as a liability.

During the three months ended March 31, 2013, the Company entered into a Senior Secured Credit Facility Agreement (see below) with TCA which includes a mandatorily redemption feature applicable to all previous advances, accordingly the Company recorded indemnification liability of $300,000 related to the $700,000 and $750,000 advances in 2012 and recorded $286,364 as shares held in escrow and reversed the $13,636 stock payable.

On March 29, 2013 (“Closing Date”), the Company entered into a Senior Secured Credit Facility Agreement (the “Secured Credit Agreement”) with TCA Global Credit Master Fund, LP (“TCA”), a Cayman Islands limited partnership. According to the Secured Credit Agreement, the Company agreed to pay TCA an investment banking fee of $100,000, payable in the form of 6,666,667 shares of common stock (the “Commitment Shares”).

Preferred Stock

On November 3, 2011, we designated twenty five million (25,000,000) shares of the Preferred Stock as Class A Preferred Stock. Our Class A Preferred Stock has liquidation preference over our common stock, voting rights of one hundred (100) votes per share, with each share convertible into five (5) shares of our common stock.

As of March 31, 2013, we have 3,000,000 shares of Preferred Stock A issued and outstanding.

Liquidation Preference

In the event of a voluntary or involuntary liquidation, dissolution or winding up of the Company, the holders of Class A Preferred Shares shall be entitled to receive out of the assets of the Company, whether such assets are capital or surplus of any nature, an amount equal to the stated par value less the aggregate amount of all prior distributions to its preferred shareholders made to holders of all classes of preferred shares, plus any accrued previously declared but unpaid dividends (the amount so determined being hereinafter referred to as the “Liquidation Preference”). No distribution shall be made to the holders of the common shares upon liquidation, dissolution, or winding up until after the full amount of the Liquidation Preference has been distributed or provided to the holders of the preferred shares.

If, upon such liquidation, dissolution or winding up the assets thus distributed among the preferred shareholders shall be insufficient to permit payment to such shareholders of the full amount of the liquidation preference, the entire assets of the Company shall be distributed ratably among the holders of all classes of preferred shares.

In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, when the Company has completed distribution of the full Liquidating Preference to the holders of the Class A preferred shares, the Class A Preferred shares shall be considered to have been redeemed, and thereafter, the remaining assets of the Company shall be paid in equal amounts on all outstanding shares of common stock.

Conversion Rights

At any time holders of the Class A Preferred Shares who endorse the share certificates and deliver them together with a written notice of their intent to convert to the corporation at its principal office, shall be entitled to convert such shares and receive five (5) shares of common stock for each share being converted. Such conversion is subject to the following adjustments, terms, and conditions:

If the number of outstanding shares of common stock has been decreased since the initial issuance of the Class A Preferred Shares (or series having conversion rights (by reason of any split, stock dividend, merger, consolidation or other capital change or reorganization affecting the number of outstanding shares of common stock), the number of shares of common stock to be issued on conversion to the holders, or Class A Preferred Shares shall not be adjusted unless by appropriate amendment of this article. If the number of outstanding shares of common stock has been increased since the initial issuance of the Class A Preferred Shares (or series having conversion rights (by reason of any split, stock dividend, merger, consolidation or other capital change or reorganization affecting the number of outstanding shares of common Stock), the number of shares of common stock to be issued on conversion to the holders, or Class A Preferred Shares shall equitably be adjusted by appropriate amendment of this article, and other articles as applicable.

Shares converted under this article shall not be reissued. The corporation shall at all times reserve and keep available a sufficient number of authorized but unissued common shares, and shall obtain and keep in effect any required permits to enable it to issue and deliver all common shares required to implement the conversion rights granted herein.

3)	No fractional shares shall be issued upon conversion, but the corporation shall pay cash for any fractional shares of common stock to which shareholders may be entitled at the fair value of such shares at the time of conversion. The board of directors shall determine such fair value.

Voting Rights

With respect to each matter submitted to a vote of stockholders of the Corporation, each holder of Class A Preferred Shares shall be entitled to cast that number of votes which is equivalent to the number of shares of Class A Preferred Shares owned by such holder times one hundred (100). The Company shall not, without the affirmative vote or written consent of the holders of at least a majority of the outstanding Class A Preferred Shares (i) authorize or create any additional class or series of stock ranking prior to or on a parity with the Class A Preferred Shares as to the dividends or the distribution of assets upon liquidation, or (ii) change any of the rights, privileges or preferences of the Class A Preferred Shares.

Contributed capital for debt forgiveness

During June 2012, HealthRite, a related party (see Note 9) agreed to forgive the remaining balance of $90,582 owed. The forgiveness of this debt was recorded as a contribution of capital.

Contributed capital for imputed Interest on advances from related party

At March 31, 2013 and December 31, 2012, the Company owed $125,815 and $148,215, respectively, to its President for repayment of advances. The advances are unsecured, non-interest bearing, and due on demand. The Company imputed interest expense of $1,947 and $2,638 on these advances owed during the three months ended March 31, 2013 and 2012, respectively.

NOTE 10 – RELATED PARTY TRANSACTIONS

As discussed in NOTE 3, the Company had a sales arrangement with HealthRite, a specialty pharmacy wholly owned by the Company’s President and Director. Pursuant to the arrangement, HealthRite would purchase pharmaceutical products directly from manufacturers and resells the products to the Company, who then sells the products to customers. The Company acts as an agent in the sales of HealthRite product to customers and recognizes revenue for the net amount retained.

During the three month periods ended March 31, 2013 and 2012, the Company recognized net revenue from sales to HealthRite $0 and $77,371 based on gross sales of $0 and $180,710, respectively.

During the twelve months ended December 31, 2012, the Company repaid $10,065 of the $100,647amount owed to HealthRite and the remaining balance of $90,582 was forgiven during June 2012 and recognized as an equity contribution to the Company by the Company’s President and Director. During April 2012, the Company’s sales arrangement with HealthRite ceased. At March 31, 2013 and December 31, 2012, the Company owed HealthRite $0.

At March 31, 2013 and December 31, 2012, the Company owed $125,815 and $148,215, respectively, to its President for repayment of advances. The advances are unsecured, non-interest bearing, and due on demand. The Company imputed interest expense of $1,947 and $2,638 on these advances owed during the twelve months ended March 31, 2013 and 2012, respectively.

During December 2011, the Company received an advance from a related party in the amount of $75,000, and this amount was outstanding as of December 31, 2011. The advance is unsecured, bears interest at 5.5% and was originally due on June 13, 2012. On July 6, 2012, the due date was extended to October 13, 2012. The Company paid this amount on October 12, 2012 with the proceeds from TCA.

On February 19, 2013, the Company received an advance from a related party in the amount of $75,000, and this amount was outstanding as of March 31, 2013. The advance is unsecured, bears interest at 6 % and is due on November 19, 2013.

NOTE 11 – INCOME TAXES

No provision for federal income taxes has been recognized for the three months ended March 31, 2013 and 2012 as the Company incurred a net operating loss for income tax purposes in each period and has no carryback potential.

Deferred tax assets at March 31, 2013 and December 31, 2012 totaled a net deferred tax asset of approximately $1,134,007 and $807,208, respectively, and consisted primarily of deferred tax assets resulting from net operating loss carryforwards. We have provided a full valuation allowance due to uncertainty regarding the realizability of these tax assets. At March 31, 2013, the Company has net operating loss carryforwards totaling approximately $3,335,315 million for federal income tax purposes, which may be carried forward in varying amounts until the time when they begin to expire in 2029 through 2032, but may be limited in their use due to significant changes in the Company’s ownership.

At March 31, 2013 and December 31, 2012, the Company has no uncertain tax positions.

NOTE 12 – SUBSEQUENT EVENTS

The Company has evaluated through the filing date of these consolidated financial statements and determined there is no reportable subsequent event.

ITEM 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations

Our Management’s Discussion and Analysis contains not only statements that are historical facts, but also statements that are forward-looking (within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934). Forward-looking statements are, by their very nature, uncertain and risky. These risks and uncertainties include international, national and local general economic and market conditions; demographic changes; our ability to sustain, manage, or forecast growth; our ability to successfully make and integrate acquisitions; raw material costs and availability; new product development and introduction; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; the loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; changes in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to protect technology; and other risks that might be detailed from time to time in our filings with the Securities and Exchange Commission.

Although the forward-looking statements in this Quarterly Statement reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by them. Consequently, and because forward-looking statements are inherently subject to risks and uncertainties, the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. You are urged to carefully review and consider the various disclosures made by us in this report and in our other reports as we attempt to advise interested parties of the risks and factors that may affect our business, financial condition, and results of operations and prospects.

The following discussion and analysis of financial condition and results of operations of the Company is based upon, and should be read in conjunction with, its unaudited financial statements and related notes elsewhere in this Form 10-Q, which have been prepared in accordance with accounting principles generally accepted in the United States.

Introduction

Our wholly-owned subsidiary, Pharmagen Distribution LLC (“PDS”), was formed in the State of Delaware on September 24, 2008, as Healthcare Distribution Specialists, LLC. As a result of a Share Exchange Agreement between us and PDS on February 13, 2012, PDS became our wholly-owned subsidiary, but the transaction was accounted for as a reverse merger with PDS being the accounting acquirer. In connection with this transaction we appointed new management and directors, and changed our business focus to that of PDS, which is a value-added distributor of hard-to-find and specialty drugs to the healthcare provider market, while functioning as an aggregator of real-time market demand for these products. In addition to our distribution business, we also own and sell a specialized over-the-counter multivitamin product called Clotamin.

On December 13, 2012, we acquired Bryce Laboratories, Inc., and subsequently changed its name to Pharmagen Laboratories, Inc. Pharmagen Laboratories specializes in the formulation of drugs that are not otherwise commercially available, require specialized delivery systems, or require dosing changes. Through Pharmagen Laboratories, we can fill some of our existing customer orders in-house as well as orders from third parties.

Going Concern

As a result of our financial condition, our auditors have indicated in their report to our financial statements as of December 31, 2012 their uncertainty as to our ability to continue as a going concern. In order to continue as a going concern we must effectively balance many factors and begin to generate sufficient revenue to fund our operations. If we are not able to do this we may not be able to continue as an operating company. At our current revenue and burn rate, our cash on hand will not cover our operating expenses for even the next sixty days. There is no assurance that our existing cash flow will ever be adequate to satisfy our existing operating expenses and capital requirements.

Results of Operations for the Three Months Ended March 31, 2013 compared to the Three Months Ended March 31, 2012

Introduction

Our revenues, including related party revenues, for the three months ended March 31, 2013 were $1,721,331, compared to $478,174 for the three months ended March 31, 2012. Our revenues are generated from the wholesale distribution of hard-to-find drugs, and sales from our pharmaceutical product Clotamin.

Revenues and Net Operating (Income) Loss

Our revenues (including revenues from related party), cost of sales, gross profit, operating expenses, operating loss, other expenses, and net loss for the three months ended March 31, 2013, as compared to the three months ended March 31, 2012, are as follows:

	Three Months Ended March 31, 2013			Three Months Ended March 31, 2012			Change ($)			Percentage Change (%)

Revenue	$	1,721,331			400,803		$	1,320,528			329	%
Revenues, related party		-			77,371			(77,371	)		-
Cost of Sales		(690,171	)		(265,170	)		425,001			160	%
Gross Profit	$	1,031,160			213,004		$	818,156			384	%

Operating Expenses:
General and Administrative	$	853,589			212,686		$	640,903			301	%
Salaries and commissions		563,286			179,022			384,264			215	%
Professional fees		269,952			41,027			228,925			558	%
Total Operating Expenses	$	1,686,827			432,735		$	1,254,092			290	%

Operating Loss	$	(655,667	)		(219,731	)	$	435,936			198	%

Other Expenses:
Derivative gain (loss)	$	119,381			(102,851	)	$	222,232			216	%
Interest expense		(305,507	)		(20,712	)		284,795			1,375	%
Total Other Expenses	$	(186,126	)		(123,563	)	$	62,563			51	%

Net Income (Loss)	$	(841,793	)		(343,294	)	$	498,499			145	%

Revenue

Our revenue for the three months ended March 31, 2013 increased by $1,320,528 as compared to the three months ended March 31, 2012. This increase is a result of an increase in our sales of hard-to-find drugs, which increased because of our marketing efforts and the increased number of states in which we hold licenses. On January 1, 2012, we had licenses to sell drugs in 24 states. Currently, we are licensed to sell drugs is 40 states. The more states we can sell into the greater number of purchasers, such as clinics, hospitals, etc., that we can access. For example, as of January 1, 2012, we had approximately 129 different entities to which we sold drugs, compared to over 150 entities as of January 1, 2013.

In 2011, we did not recognize a portion of our gross sales because we received it from Healthrite Pharmaceuticals because Healthrite was owned and controlled by Mackie Barch, one of our officers and our sole director, and Healthrite bore most of the risk for the purchasing and selling of the drugs, with us acting more as a sales agent for Healthrite due to licensing restrictions. In early 2012, Healthrite notified us that due to the cost and effort to maintain a pharmaceutical license it has surrendered its pharmaceutical license and will no longer be selling pharmaceuticals, effective April 10, 2012. We do not expect this action to have a material impact on our business since we now have our own direct relationship with suppliers and resellers of hard-to-find drugs, but it will allow us to recognize all the revenue from our product sales rather than having a disparity between our gross sales and the net revenue we recognize since we will no longer be sourcing the drugs from a related party.

We report revenues from sales of our hard-to-find drugs and Clotamin in one business segment. Related party revenues are sales to Healthrite Pharmaceuticals, a company wholly-owned and controlled by one of our officers and director.

Of our total revenues of $1,721,331 for the three months ended March 31, 2013, none of it was revenue generated from the markup of the drugs we purchased from Healthrite, as compared to total revenues of $478,174 for the three months ended March 31, 2012, of which $77,371, or 16%, was markup on drugs purchased from Healthrite.

We purchase our hard-to-find drugs from a wide variety of small vendors depending on the particular hard-to-find drug that is being sought. Our current vendors are small, regional pharmaceutical wholesalers. Approximately 70% of our purchase orders are for under $1,000 each. During the three months ended March 31, 2013, three vendors accounted for 29%, 16% and 12% of our product purchases, while during the three months ended March 31, 2012, one vendor accounted for 57% of our product purchases.

During the three months ended March 31, 2013, one customer accounted for 46% of our sales. During the three months ended March 31, 2012, one customer accounted for 28% of our sales. At March 31, 2013, one customer accounted for 19% and one customer for 16% of our accounts receivable and at December 31, 2012, one customer accounted for 58% of our accounts receivable.

Cost of Sales

Our cost of sales represents the direct costs attributable to the production of the operations that produce our revenues. For the three months ended March 31, 2013, our cost of sales was $690,171, or 40% of our non-related party revenue, as compared to $265,170, or 66% of non-related party revenue for the three months ended March 31, 2012. The decrease in cost of sales as a percentage of sales is a result of the particular product mix for the period and larger margins available with more volume. Our cost of sales will increase as our revenues increase, but we expect our cost of sales as percentage of revenue to remain relatively stable.

General and Administrative Expenses

General and administrative expenses increased by $640,903, or 301% for the three months ended March 31, 2013 compared the three months ended March 31, 2012. Because our general and administrative expenses consist primarily of shipping costs, costs for human resources, depreciation expense, costs of business licenses and permits, merchant services and bank fees, rent expense, and other general expenses, we expect them to increase as our operations and revenues increase.

Salaries and Commissions

Our salaries and commissions increased by $384,264, or 215% for the three months ended March 31, 2013 compared to the three months ended March 31, 2012. During the three months ended March 31, 2013, $103,012 was paid as commissions to our sales force, as compared to $50,781 for the three months ended March 31, 2012. The remaining amounts were paid to our officers, Mackie Barch and Eric Clarke, as well as the administrative staff.

Professional Fees

Our professional fees increased by $228,925, or 558%, for the three months ended March 31, 2013 as compared to the three months ended March 31, 2012. This was a result of increased costs for legal, accounting, and consulting services related to being a fully-reporting public company and the overall increase in business operations.

Interest Expense

Our interest expense increased by $284,795, or 1,375%, for the three months ended March 31, 2013 as compared to the three months ended March 31, 2012. We financed operations through a revolving credit facility with TCA Global Master Fund, which accounted for the majority of this expense.

Operating Loss; Net Loss

Our operating loss increased by $435,936, or 198%, from ($219,731) to ($655,667), for the three months ended March 31, 2013 compared to the three months ended March 31, 2012. Our net loss increased by $498,499, or 145%, from ($343,294) to ($841,793), for the three months ended March 31, 2013 as compared to the three months ended March 31, 2012. Our losses increased even though our revenues increased by $1,320,528, or 329%, during the same periods. Thus, the increase in net loss and operating loss are a result of our increase in expenses, as our general and administrative expenses increased by $640,903, or 301%, our salaries and commissions increased by $384,264, or 215%, and our professional fees increased by $228,925, or 558%. These changes in our revenues and expenses are detailed above.

Liquidity and Capital Resources

Introduction

Our principal needs for liquidity have been to fund operating losses, working capital requirements, and debt service. Our principal source of liquidity as of December 31, 2012 consisted of cash of $322,556, and available credit on our revolving credit facility, and as of March 31, 2013 was cash of $646,958 and available credit on our revolving credit facility. We expect that working capital requirements and debt service will continue to be our principal needs for liquidity over the near term. Working capital requirements are expected to increase as a result of our anticipated growth.

We have not yet established an ongoing source of revenues sufficient to cover our operating costs and allow us to continue as a going concern. Our ability to continue as a going concern is dependent on obtaining adequate capital to fund operating losses until we become profitable. If we are unable to obtain adequate capital, we could be forced to cease operations. Management’s plan to meet our operating expenses in the short term is through equity and/or debt financing, and we anticipate that our revenues will be sufficient to meet our operating expenses by December 31, 2013. However, management cannot provide any assurances that we will be successful in accomplishing any of our plans.

Our cash, current assets, total assets, current liabilities, and total liabilities as of March 31, 2013 and December 31, 2012, respectively, are as follows:

	March 31,		December 31,
	2013		2012		Change

Cash	$	646,958	$	322,556	$	324,402
Total Current Assets		2,168,633		1,585,807		582,826
Total Assets		3,477,936		2,897,497		580,439
Total Current Liabilities		3,457,454		2,434,654		1,022,800
Total Liabilities		7,139,421		5,589,258		1,550,163

Our cash increased by $324,402 as of March 31, 2013 compared to December 31, 2012 as a result of borrowing on our revolving credit facility. Total current assets increased by $582,826 for those same periods as a result of an increase in accounts receivable of $126,981, inventory of $34,246, and deferred financing costs of $109,079, offset by a decrease in prepaid expenses and other current assets of $11,882. Prepaid expenses are primarily advertising contracts to promote our Clotamin product.

The increase in our current assets resulted in a similar increase in our total assets.

Cash Requirements

We had cash available as of March 31, 2013 of $646,958. Based on our current revenues, cash on hand, and our current net monthly burn rate of approximately $150,000, we will need to continue to raise money from the issuance of equity and/or from our revolving credit facility to fund short term operations.

Sources and Uses of Cash

Operations

Our net cash used in operating activities was $160,619 for the three months ended March 31, 2013, compared to $374,055 for the three months ended March 31, 2012. For the three months ended March 31, 2013, our net cash used in operating activities consisted of our net loss of $841,793, increased primarily by a change in fair value of derivative liability (from our revolving credit facility) of $119,381, an increase in accounts receivable of $126,981 and inventory of $34,246, offset primarily by amortization of debt discount of $445,613, amortization of deferred financing costs of $133,088, and accounts payable and accrued liabilities of $350,605.

Investments

Our net cash used in investing activities was $16,260 for the three months ended March 31, 2013, compared to $4,428 for the three months ended March 31, 2012. For both periods, our net cash used in investing activities consisted of purchase of property and equipment.

Financing

Our net cash provided by financing activities was $501,281 for the three months ended March 31, 2013, compared to $380,000 for the three months ended March 31, 2012. For the three months ended March 31, 2013, our net cash provided by financing activities consisted primarily of net proceeds from convertible lines of credit of $484,181.

Off-balance sheet arrangements

As of March 31, 2013, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital resources that are material to investors.

Critical accounting policies and estimates

Our critical accounting policies are set forth in Note 3 – Summary of Significant Accounting Policies, to our financial statement footnotes.

Recent accounting pronouncements

We have evaluated recent pronouncements and do not expect their adoption to have a material impact on our financial position or statements.

ITEM 3 Quantitative and Qualitative Disclosures About Market Risk

As a smaller reporting company, we are not required to provide the information required by this Item.

ITEM 4 Controls and Procedures

(a) Disclosure Controls and Procedures

We conducted an evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as of March 31, 2013, to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities Exchange Commission’s rules and forms, including to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of March 31, 2013, our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses identified and described in our Annual Report on Internal Control Over Financial Reporting filed in our Annual Report on Form 10-K.

Our principal executive officers do not expect that our disclosure controls or internal controls will prevent all error and all fraud. Although our disclosure controls and procedures were designed to provide reasonable assurance of achieving their objectives and our principal executive officers have determined that our disclosure controls and procedures are effective at doing so, a control system, no matter how well conceived and operated, can provide only reasonable, not absolute assurance that the objectives of the system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented if there exists in an individual a desire to do so. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

(d) Changes in Internal Control over Financial Reporting

No change in our system of internal control over financial reporting occurred during the period covered by this report, the three month period ended March 31, 2013, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1 Legal Proceedings

We are not a party to or otherwise involved in any legal proceedings.

In the ordinary course of business, we are from time to time involved in various pending or threatened legal actions. The litigation process is inherently uncertain and it is possible that the resolution of such matters might have a material adverse effect upon our financial condition and/or results of operations. However, in the opinion of our management, other than as set forth herein, matters currently pending or threatened against us are not expected to have a material adverse effect on our financial position or results of operations.

ITEM 1A Risk Factors

As a smaller reporting company, we are not required to provide the information required by this Item.

ITEM 2 Unregistered Sales of Equity Securities and Use of Proceeds

There have been no events which are required to be reported under this Item.

ITEM 3 Defaults Upon Senior Securities

There have been no events which are required to be reported under this Item.

ITEM 4 Mine Safety Disclosures

Not applicable.

ITEM 5 Other Information

There have been no events which are required to be reported under this Item.

ITEM 6 Exhibits

(a) Exhibits

2.1 (5)		Amended and Restated Asset Acquisition Agreement between Amerisure Pharmaceuticals, LLC and Global Nutritional Research, LLC

2.2 (4)		Share Exchange Agreement with Healthcare Distribution Specialists, LLC dated February 13, 2012

2.3 (8)		Stock Purchase Agreement with Bryce Rx Laboratories, Inc. dated December 13, 2012

3.1 (1)		Amended and Restated Articles of Incorporation of Sunpeaks Ventures, Inc.

3.2 (2)		Bylaws of Sunpeaks Ventures, Inc.

3.3 (3)		Certificate of Amendment to Articles of Incorporation

4.1 (6)		Sunpeaks Ventures, Inc. 2012 Omnibus Stock Grant and Option Plan

4.2 (7)		Sunpeaks Ventures, Inc. Form of Non Statutory Stock Option Agreement

10.1 (9)		Senior Secured Credit Facility Agreement

10.2 (9)		Convertible Promissory Note

10.3 (9)		Security Agreement for Pharmagen, Inc.

10.4 (9)		Security Agreement for Pharmagen Distribution, LLC

10.5 (9)		Security Agreement for Pharmagen Nutriceuticals, Inc.

10.6 (9)		Security Agreement for Pharmagen Laboratories, Inc.

10.7 (9)		Guaranty Agreement for Pharmagen Distribution, LLC

10.8 (9)		Guaranty Agreement for Pharmagen Nutriceuticals, Inc.

10.9 (9)		Guaranty Agreement for Pharmagen Laboratories, Inc.

10.10 (9)		Confession of Judgment

10.11 (9)		Irrevocable Transfer Agent Instructions

10.12 (9)		Validity Guarantee

10.13 (9)		Amendment No. 2 to Senior Secured Revolving Credit Facility

10.14 (9)		Security Agreement for Pharmagen Nutriceuticals, Inc.

10.15 (9)		Security Agreement for Pharmagen Laboratories, Inc.

10.16 (9)		Guaranty Agreement for Pharmagen Nutriceuticals, Inc.

10.17 (9)		Guaranty Agreement for Pharmagen Laboratories, Inc.

10.18 (9)		Subsidiary Consent for Pharmagen Laboratories, Inc.

10.19 (9)		Subsidiary Consent for Pharmagen Laboratories, Inc.

10.20 (9)		Subsidiary Consent for Pharmagen Nutriceuticals, Inc.

10.21 (9)		Subsidiary Consent for Pharmagen Nutriceuticals, Inc.

31.1		Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer

31.2		Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer

32.1		Chief Executive Officer Certification Pursuant to 18 USC, Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Chief Financial Officer Certification Pursuant to 18 USC, Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS**		XBRL Instance Document

101.SCH**		XBRL Schema Document

101.CAL**		XBRL Calculation Linkbase Document

101.DEF**		XBRL Definition Linkbase Document

101.LAB**		XBRL Labels Linkbase Document

101.PRE**		XBRL Presentation Linkbase Document

(1)

Incorporated by reference from Exhibit 3.1 to our Current Report on Form 8-K filed with the Commission on November 4, 2011.

(2)

Incorporated by reference from Exhibit 3.2 to our Registration Statement on Form S-1 filed with the Commission on September 18, 2009.

(3)

Incorporated by reference from Exhibit 3.1 to our Current Report on Form 8-K filed with the Commission on January 14, 2013.

(4)

Incorporated by reference from Exhibit 10.10 to our Current Report on Form 8-K filed with the Commission on February 17, 2012.

(5)

Incorporated by reference from Exhibit 10.15 to our Current Report on Form 8-K filed with the Commission on July 27, 2012.

(6)

Incorporated by reference from Exhibit 4.1 to our Registration Statement on Form S-8 filed with the commission on August 3, 2012.

(7)

Incorporated by reference from Exhibit 4.2 to our Registration Statement on Form S-8 filed with the commission on August 3, 2012.

(8)

Incorporated by reference from Exhibit 2.1 to our Current Report on Form 8-K filed with the Commission on December 19, 2012.

(9)

Incorporated by reference from our Current Report on Form 8-K filed with the Commission on April 12, 2013.

** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Pharmagen, Inc.

Dated: May 15, 2013	By:	/s/ Mackie Barch
		By: Mackie Barch
		Its: President and Chief Executive Officer

Pharmagen, Inc. - FORM 10-Q - May 15, 2013

Attached files

Pharmagen, Inc. Reports