UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
FOR THE QUARTERLY PERIOD ENDED: JUNE 30, 2013

OR

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

Commission File Number: 000-53586

11678 N Huron Street, Northglenn, CO 80234
 (Address of principal executive offices, including zip code)

(720) 382-5476
(Telephone number, including area code)

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 [X]   NO [   ]

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 [   ]

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.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES [   ]  NO [X]

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

51,458,924 shares of common stock, par value $0.00001, as of July 31, 2013.

THE PULSE BEVERAGE CORPORATION
FORM 10-Q

INDEX

FORWARD-LOOKING STATEMENTS

          This Report on Form 10-Q contains forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995.  Reference is made in particular to the description of our plans and objectives for future operations, assumptions underlying such plans and objectives, and other forward-looking statements included in this report.  Such statements may be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “believe,” “estimate,” “anticipate,” “intend,” “continue,” or similar terms, variations of such terms or the negative of such terms.  Such statements are based on management’s current expectations and are subject to a number of factors and uncertainties, which could cause actual results to differ materially from those described in the forward-looking statements.  Such statements address future events and conditions concerning, among others, capital expenditures, earnings, litigation, regulatory matters, liquidity and capital resources, and accounting matters.  Actual results in each case could differ materially from those anticipated in such statements by reason of factors such as future economic conditions, changes in consumer demand, legislative, regulatory and competitive developments in markets in which we operate, results of litigation, and other circumstances affecting anticipated revenues and costs, and the risk factors set forth under the heading “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012 filed on March 29, 2013.

          Unless otherwise indicated, in this Form 10-Q, references to “we,” “our,” “us,” the “Company,” “Pulse” or the “Registrant” refer to The Pulse Beverage Corporation, a Nevada corporation.

YOU SHOULD NOT PLACE UNDUE RELIANCE ON THESE FORWARD LOOKING STATEMENTS

          The forward-looking statements made in this report on Form 10-Q relate only to events or information as of the date on which the statements are made in this report on Form 10-Q.  Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events.  You should read this report and the documents that we reference in this report, including documents referenced by incorporation, completely and with the understanding that our actual future results may be materially different from what we anticipate.

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
The Pulse Beverage Corporation
Condensed Balance Sheets

(See Notes to Financial Statements)

1

The Pulse Beverage Corporation
Condensed Statements of Operations
Three Months and Six Months Ended June 30, 2013 and 2012
(Unaudited)

(See Notes to Financial Statements)

2

The Pulse Beverage Corporation
Statements of Cash Flows
Six Months Ended June 30, 2013 and 2012
(Unaudited)

(See Notes to Financial Statements)

3

The Pulse Beverage Corporation
Notes to Financial Statements
(Unaudited)

4

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion should be read in conjunction with our financial statements and notes thereto included elsewhere in this quarterly report. This section of this report, as well as other sections, includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance. Forward-looking statements are statements not based on historical information and which relate to future operations, strategies, financial results or other developments.  Forward-looking statements are based upon estimates, forecasts and assumptions that are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control and many of which, with respect to future business decisions, are subject to change.  These uncertainties and contingencies can affect actual results and could cause actual results to differ materially from those expressed in any forward-looking statements made by us, or on our behalf.  We disclaim any obligation to update forward-looking statements.

Three months ended June 30, 2013 and 2012

The discussion that follows is derived from our unaudited condensed balance sheet as of June 30, 2013 and our audited balance sheet as of December 31, 2012 and the unaudited statements of operations for the three months ended June 30, 2013 (‘2013”) and 2012 (“2012”).

For the three months ended June 30, 2013 and 2012, our net loss, after adjustments to bring generally accepted accounting principles (GAAP) to adjusted net loss before corporation income taxes, depreciation and amortization, stock-based compensation and one-time charges (Adjusted EBITDA) was $437,000 (2012 - $327,000). This loss was, for the most part, an investment in the establishment of our extensive distribution system. This loss is relatively low considering we have only been in operations for less than two years. Most emerging growth beverage companies incur significantly larger losses in the first few years of operations after commencing product launches and do not reach one million in annual case sales until the fourth or fifth year after product launch; We expect our Natural Cabana® brand to reach the annualized one million cases threshold by the end of 2013.

We have been in operation with our first product, Natural Cabana® Lemonade, for just twenty-one months and we expect to reach the annualized one million case sale thresholds by the end of Q3 2013. We have generated significant operating revenue in a relatively short period of time on just over $8 million of financing raised to June 30, 2013. Of the $8 million in financing to date we maintained working capital of just over $4.6 million, including $2.9 million in cash. These sales attainment levels within a relatively short period of time combined with low start-up losses reflects the fact that we have employed our existing capital well. We have an excellent working capital ratio of ten to one and we will likely not need additional capital to finance the growth of our operations for our existing two brands. We are presently looking at a few strategic acquisitions and could possibly need a small financing for that purpose.  We have received several offers for additional financing so that we will have the ability to finance any future acquisitions that we are considering.

On May 2, 2013 we completed our first commercial production run of PULSE® and soon after began its introduction to our distributors and chain stores.

6

Statement of Operations – GAAP adjusted to EBITDA

Our net loss for Q2-2013 was $292,000 or $0.01 per share (Q2-2012 - $994,000 or $0.03 per share). Our loss has decreased by $702,000 as compared to Q2-2012 due mainly to the discontinuance of our equity incentive plan where we reversed out, during Q2-2013, $405,000 of accrued charges to the end of March 31, 2013 resulting in a negative $168,000 in stock based compensation as compared to $657,000 of stock based compensation in Q2-2012. Also, we have increased our operating overhead to sustain our rapid growth and adding PULSE® to our product mix.

Under the metrics employed by management to evaluate our business, “Adjusted EBITDA” explained below, that underlying loss for Q2-2013 was increased by $145,000 to $437,000 (see below). We define Adjusted EBITDA as net loss before corporation income taxes, depreciation and amortization, stock-based compensation and one-time charges.  We use Adjusted EBITDA to evaluate the underlying performance of our business, and a summary of Adjusted EBITDA, reconciling GAAP amounts (i.e., items reported in accordance with U.S. Generally Accepted Accounting Principles) to Adjusted EBITDA amounts (i.e., items included within Adjusted EBITDA as defined directly above) for Q2-2013 and Q2-2012 follows:

Q2-2013

Q2-2012

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Net Sales

Production and sales of our Natural Cabana® Lemonade started on September 23, 2011. The majority of our growth is from sales of Natural Cabana® Lemonade. During 2011 and 2012, our product development team completed the re-design, testing and flavor profiles of PULSE® functional beverages in three health platforms: Men’s Health Formula™, Women’s Health Formula™, and Heart Health Formula™. On May 2, 2013 we completed our first commercial production of PULSE® at our Coppell, Texas co-packer and soon after began its introduction to our distributors and chain stores. Sales of PULSE® to our distributors has just begun and are minimal to date.

Case sales during Q2-2013 for Natural Cabana® Lemonade increased 63% compared to Q1-2013 and 52% as compared to Q2-2012. Gross sales during Q2-2013 for Natural Cabana® Lemonade increased by 63% as compared to Q1-2013 and 48% as compared to Q2-2012.

Initial store introduction of PULSE began in May, 2013 on a limited base. We expect the remainder of 2013 revenues for both products to increase significantly due to timing of shipments into our distribution system and the increased number of regional and national chain and convenience store listings secured for Natural Cabana® Lemonade and the rollout of PULSE® into many of the same stores. Our distribution system reached nationwide ‘critical-mass’ during the latter part of 2012. Centralized purchasing for large grocery and convenience store chains has resulted in the implementation of shelf-settings and product placements to Q2-2013. These factors allowed us to approach and secure listings for our Natural Cabana® Lemonade from US national and regional grocery and convenience store chains.

During Q2-2013 grocery and convenience chain store listings for Natural Cabana® Lemonade increased by 3,000 listings to more than 14,000.

We expect to add at least an additional 6,000 listings during the remainder of 2013 based on discussions we have underway.

During Q2-2013, our gross revenues, on sales of 126,000 cases of Natural Cabana® Lemonade and 1,000 cases of PULSE® (Q2-2012 – 84,000 cases of Natural Cabana® Lemonade), before slotting fees and other promotional allowances, was $1,411,000 (Q2-2012 - $956,000), and net sales were $1,331,000 (Q2-2012 - $890,000) after slotting fees and other promotional allowances of $80,000 (Q2-2012 - $66,000). Slotting fees and other promotional allowances are approximately 7% of gross sales. This increase in case sales and revenues was accomplished during, what is considered, the initial beverage company start-up and product roll-out phase indicating a strong brand and strong consumer acceptance of Natural Cabana® Lemonade. We expect gross sales, net sales and slotting fees and promotional allowances to increase due to large chain and convenience store listings secured for Natural Cabana® Lemonade to date and expected to secure during the remainder of 2013 and the expansion of PULSE®.

Cost of Sales and Gross Profit

As a percentage of net revenue, our cost of sales for Q2-2013 was 62% as compared to 68% for Q1-2013 and 65% for Q2-2012 Our gross profit for Q2-2013 was 38% of net revenue as compared to 32% for Q1-2013 and 35% for Q2-2012.

 This improvement in cost of sales and gross profit is due to higher volumes and better efficiencies at our co-packers. Cost of sales includes raw materials, co-packing fees, warehousing finished product and lab testing. We expect all cost variables to decrease as we source raw materials at a lower cost because of volume discounts; ship our product within a 500 mile radius of our co-packers and due to lower cost glass from a mid-west supplier. We expect gross profit, as a percentage of net revenue to normalize at 40% when PULSE® has a higher weighting of sales.

8

Advertising, samples and displays

During Q2-2013, we incurred $85,000 (Q2-2012 - $34,000) in advertising, samples, sales displays and in-store sampling programs. This expense includes magazine advertising, samples shipped to distributors, in-store sampling, display racks and ice barrels, sell sheets, shelf strips and door decals. We expect this expense to increase in proportion to increase in sales as we increase our sales budget due to the expanding introduction of PULSE® at the store level which will require in-store sales and sampling programs and due to an overall increase in distribution both in the United States and internationally.

Freight-out

During Q2-2013, we incurred $139,000 or $1.09 per case as compared to $1.27 per case during Q2-2012 and $1.18 per case during Q1-2013. Freight per case is expected to decrease as we ship out of three co-packing facilities strategically placed closer to our distribution points. Our goal is to achieve less than $1.00 per case of shipping to distributors.

General and administrative (“G&A”)

General and administration expenses for Q2-2013 as compared to Q2-2012, both on a GAAP and on an Adjusted EBITDA basis, consisted of the following:

During Q2-2013, and on an Adjusted EBITDA basis, we incurred $268,000 in G&A (Q2-2012 - $170,000), an increase of $98,000. The largest increase was in travel and meals which increased by $60,000 to $115,000. This increase was due to adding salespeople and more travel by all salespeople and executives. Legal and professional fees increased by $11,000 to $29,000 due to more distribution agreements being entered into. Office expenses increased by $12,000 to $39,000 due to increased overhead.

We expect general and administrative expenses to moderately increase during the remainder of 2013.

Salaries and benefits and broker/agent’s fees

During Q2-2013 salaries and benefits and broker and agent’s fees increased by $136,000 to $356,000 (Q2-2012 - $220,000). This was due to an overall increase in administration and sales personnel. We expect this cost to increase during the remainder of 2013 and 2014 as we hire regional and district managers and additional staff for the introduction of PULSE®.

Shareholder, broker and investor relations

During Q2-2013 shareholder, broker and investor relations decreased by $34,000 to $98,000 (Q2-2012 - $131,000). This decrease was due to reducing our overall investor relations activities. We have an agreement with a consulting firm to introduce our company into the brokerage community. We paid this consulting firm $10,000 during Q2-2013 and issued common shares valued at $50,000, for total compensation of $60,000. We also have a shareholder and investor relations consulting firm that we paid $9,000 during Q2-2013 and issued common shares valued at $9,000, for total compensation of $18,000. We entered into a letter agreement with Northland Securities, Inc. to assist us in obtaining a senior exchange listing and obtain institutional financing among other services. We paid Northland $8,000 and will issue 19,000 common share purchase warrants at an average exercise price of $1.27 expiring in three years.  

9

Six months ended June 30, 2013 and 2012

The discussion that follows is derived from our unaudited condensed balance sheet as of June 30, 2013 and our audited balance sheet as of December 31, 2012 and the unaudited statements of operations and cash flows for the six months ended June 30, 2013 and 2012.

For the six months ended June 30, 2013, our net loss, after adjustments to bring generally accepted accounting principles (GAAP) to adjusted net loss before corporation income taxes, depreciation and amortization, stock-based compensation and one-time charges (Adjusted EBITDA) was $1,024,000 (six months ended June 30, 2012 - $722,000). This loss was, for the most part, an investment in the establishment of our extensive distribution system. This loss is relatively low considering we have only been in operation for less than two years. Most emerging growth beverage companies incur significantly larger losses in the first few years of operations after commencing product launches and do not reach one million in annual case sales until the fourth or fifth year after product launch. We expect our Natural Cabana® brand to reach the annualized one million cases threshold by the end of 2013.

We have been in operation with our first product, Natural Cabana® Lemonade, for just twenty-one months and we expect to reach the annualized one million case sale thresholds by the end of Q3 2013. We have generated significant operating revenue in a relatively short period of time on just over $8 million of financing raised to June 30, 2013. Of the $8 million in financing to date we maintained working capital of just over $4.6 million, including $2.9 million in cash. These sales attainment levels within a relatively short period of time combined with low start-up losses reflects the fact that we have employed our existing capital well. 

On May 2, 2013 we completed our first commercial production run of PULSE® and soon after began its introduction to our distributors and chain stores.

Statement of Operations – GAAP adjusted to EBITDA

Our net loss for the six months ended June 30, 2013 was $1,380,000 or $0.03 per share (the six months ended June 30, 2012 - $1,393,000 or $0.04 per share). Our loss has decreased by $13,000 as compared to the six months ended June 30, 2012 due mainly to the discontinuance of our equity incentive plan where we reversed out, during Q2-2013, $405,000 of accrued charges  as of March 31, 2013 resulting in a sharp reduction in stock based compensation as compared to the six months ended June 30, 2012. Also, we have increased our operating overhead to sustain our rapid growth and adding PULSE® to our product mix. Our Adjusted EBITDA loss for the six months ended June 30, 2013 was decreased by $355,000 to $1,024,000 (see below). We define Adjusted EBITDA as net loss before corporation income taxes, depreciation and amortization, stock-based compensation and one-time charges.  We use Adjusted EBITDA to evaluate the underlying performance of our business, and a summary of Adjusted EBITDA, reconciling GAAP amounts (i.e., items reported in accordance with U.S. Generally Accepted Accounting Principles) to Adjusted EBITDA amounts (i.e., items included within Adjusted EBITDA as defined directly above) for the six months ended June 30, 2013 and 2012 follows:

Six Months Ended June 30, 2013

10

Six Months Ended June 30, 2012

Net Sales

Production and sales of our Natural Cabana® Lemonade started on September 23, 2011. The majority of our growth is from sales of Natural Cabana® Lemonade. During 2011 and 2012, our product development team completed the re-design, testing and flavor profiles of PULSE® functional beverages in three health platforms: Men’s Health Formula™, Women’s Health Formula™, and Heart Health Formula™. On May 2, 2013 we completed our first commercial production of PULSE® at our Coppell, Texas co-packer and soon after began its introduction to our distributors and chain stores. Sales of PULSE® to our distributors has just begun and are minimal to date.

Initial store introduction of PULSE began in May, 2013 on a limited base. We expect the remainder of 2013 revenues for both products to increase significantly due to timing of shipments into our distribution system and the increased number of regional and national chain and convenience store listings secured for Natural Cabana® Lemonade and the rollout of PULSE® into many of the same stores. Our distribution system reached nationwide ‘critical-mass’ during the latter part of 2012. Centralized purchasing for large grocery and convenience store chains has resulted in the implementation of shelf-settings and product placements to the six months ended June 30, 2013. These factors allowed us to approach and secure listings for our Natural Cabana® Lemonade from US national and regional grocery and convenience store chains. During the latter part of 2012 and to July 31, 2013 we have approached and secured listings with regional and national grocery and convenience chain stores, and have secured listings for Natural Cabana® Lemonade in more than 14,000 stores, an increase of 7,000 stores since the start of the year. We expect to add at least an additional 6,000 listings during the remainder of 2013 based on discussions we have underway.

11

During the six months ended June 30, 2013, our gross revenues, on sales of 203,000 cases of Natural Cabana® Lemonade and 1,000 cases of PULSE® (six months ended June 30, 2012 – 117,000 cases of Natural Cabana® Lemonade), before slotting fees and other promotional allowances, was $2,278,000 (six months ended June 30, 2012 - $1,332,000), and net sales were $2,119,000 (six months ended June 30, 2012 - $1,256,000) after slotting fees and other promotional allowances of $159,000 (six months ended June 30, 2012 - $76,000). Slotting fees and other promotional allowances are approximately 7% of gross sales. This increase in case sales and revenues was accomplished during, what is considered, the initial beverage company start-up and product roll-out phase indicating a strong brand and strong consumer acceptance of Natural Cabana® Lemonade. We expect gross sales, net sales and slotting fees and promotional allowances to increase due to large chain and convenience store listings secured for Natural Cabana® Lemonade to date and expected to secure during the remainder of 2013 and the expansion of PULSE®.

Cost of Sales and Gross Profit

As a percentage of net revenue our cost of sales for the six months ended June 30, 2013 was 64% as compared to 66% for six months ended June 30, 2012. Our gross profit for the six months ended June 30, 2013 was 36% of net revenue as compared to 34% for six months ended June 30, 2012.This improvement in cost of sales and gross profit is due to higher volumes and better efficiencies at our co-packers. Cost of sales includes raw materials, co-packing fees, warehousing finished product and lab testing. We expect all cost variables to decrease as we source raw materials at a lower cost because of volume discounts; ship our product within a 500 mile radius of our co-packers and due to lower cost glass from a mid-west supplier. We expect gross profit, as a percentage of net revenue to normalize at 40% when PULSE® has a higher weighting of sales.

Advertising, samples and displays

During the six months ended June 30, 2013, we incurred $131,000 (six months ended June 30, 2012 - $40,000) in advertising, samples, sales displays and in-store sampling programs. This expense includes magazine advertising, samples shipped to distributors, in-store sampling, display racks and ice barrels, sell sheets, shelf strips and door decals. We expect this expense to increase in proportion to increase in sales as we increase our sales budget due to the expanding introduction of PULSE® at the store level which will require in-store sales and sampling programs and due to an overall increase in distribution reach both in the United States and internationally.

Freight-out

During the six months ended June 30, 2013, we incurred $231,000 or $1.13 per case as compared to $1.11 per case during six months ended June 30, 2012. Freight per case is expected to decrease as we ship out of three co-packing facilities strategically placed closer to our distribution points. Our goal is to achieve less than $1.00 per case of shipping to distributors.

General and administrative (“G&A”)

General and administration expenses for the six months ended June 30, 2013 as compared to the six months ended June 30, 2012, both on a GAAP and on an Adjusted EBITDA base, consisted of the following:

During the six months ended June 30, 2013, on an Adjusted EBITDA basis, we incurred $551,000 in G&A (six months ended June 30, 2012 - $372,000), an increase of $179,000. The largest increase was in travel and meals which increased by $109,000 to $198,000. This increase was due to adding salespeople and more travel by all salespeople and executives. Legal and  

12

professional fees increased by $18,000 to $84,000 due to more distribution agreements being entered into. Office expenses increased by $14,000 to $82,000 due to increased overhead.

We expect general and administrative expenses to moderately increase during the remainder of 2013.

Salaries and benefits and broker/agent’s fees

During the six months ended June 30, 2013 salaries and benefits and broker and agent’s fees increased by $307,000 to $669,000 (six months ended June 30, 2012 - $362,000). This was due to an overall increase in administration and sales personnel. We expect this cost to increase during the remainder of 2013 and 2014 as we hire regional and district managers and additional staff for the introduction of PULSE®.

Shareholder, broker and investor relations

During the six months ended June 30, 2013 shareholder, broker and investor relations decreased by $56,000 to $208,000 (six months ended June 30, 2012 - $264,000). This decrease was due to reducing our overall investor relations activities. We have an agreement with a consulting firm to introduce our company into the brokerage community. We paid this consulting firm $25,000 during six months ended June 30, 20123 and issued common shares valued at $124,000, for total compensation of $149,000. We also have a shareholder and investor relations consulting firm that we paid $18,000 during the six months ended June 30, 2013 and issued common shares valued at $18,000, for total compensation of $36,000. We entered into a letter agreement with Northland Securities, Inc. to assist us in obtaining a senior exchange listing and obtain institutional financing among other services. We paid Northland $8,000 and will issue 19,000 common share purchase warrants at an average exercise price of $1.27 expiring in three years.

LIQUIDITY AND CAPITAL RESOURCES

Overview

During the six months ended June 30, 2013, we increased our cash position from $745,000 as of December 31, 2012 to $2,921,000 as of June 30, 2013. As of June 30, 2013, we had working capital of $4,623,000 which included cash of $2,921,000, customer accounts receivable of $900,000, finished goods inventory of $559,000, raw materials inventory of $636,000 and other current assets of $141,000. We have no debt of any kind other than accounts payable of $478,000 and accrued expenses of $56,000.

We believe our current working capital is sufficient to cover operating losses we expect to incur until we achieve profitability, and to fund the expected growth of inventory and accounts receivable due to expected 2013 case sale levels of our Natural Cabana® Lemonade and PULSE®. We believe we have enough working capital to bring both products to profitability and we expect to be operationally cash flow positive and profitable by the end of fiscal 2013.

Our net loss for the six months ended June 30, 2013 and 2012, after adjustments to bring GAAP to adjusted EBITDA as discussed above, was $1,024,000 and $722,000, respectively. Our view is that these losses are an investment in our distribution system which, into 2013, allows us to distribute our product nationwide and into regional and national chain stores as well as internationally in Canada, Mexico, Panama and Bermuda. During the first part of 2012, we did not have the critical mass to secure chain store listings. It wasn’t until the latter part of 2012 that we were in a position to obtain such listings. As at July 31, 2013 we have secured more than 14,000 chain store listings for Natural Cabana® Lemonade. 

Our net loss for the six months ended June 30, 2013 and 2012, after adjustments to bring GAAP to adjusted EBITDA as discussed above, was $1,024,000 and $722,000, respectively. Our view is that these losses are an investment in our distribution system which, into 2013, allows us to distribute our product nationwide and into regional and national chain stores as well as internationally in Canada, Mexico, Panama and Bermuda. During the first part of 2012, we did not have the critical mass to secure chain store listings. It wasn’t until the latter part of 2012 that we were in a position to obtain such listings. As at July 31, 2013 we have secured more than 14,000 chain store listings for Natural Cabana® Lemonade, an increase of 7,000 stores since the start of the year.

Introduction of PULSE®

The PULSE® brand was originally formulated by a major healthcare company who spent in excess of $10 million in its initial development and marketing.

The PULSE® brand is designed to be scientifically impactful by incorporating ingredients which are essential to adult health, including liposome nano-dispersion technology that assists the body to best absorb the nutrition.

Pulse has commenced a PULSE® product roll-out in selected markets such as Los Angeles fitness gyms, a health food chain in North Carolina, Gelson’s in Southern California, and certain regional Walgreens.

The acceptance of the product has been very good.  It is important that the consumer be educated as to the enhanced health benefits and the importance of these health benefits to promote living healthier lives longer.

Pulse is completing the setup of its consumer friendly online shopping site allowing the beverage consumer to purchase both PULSE® and Natural Cabana® products online. This new website will help Pulse increase public awareness of its products and make the consumer aware of the PULSE® beverage health benefits.

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FUTURE GROWTH AND EXPANSION PLANS

• acquisition of beverage brands that are strategic brands that complement the product mix
• provide online shopping through a new and improved website
• complete negotiations with distribution partners in Asia for distribution of both PULSE® and Natural Cabana®
• increase brand awareness of its PULSE® brand by engaging one of the nation’s leading public relations firms
• securing additional distributors, chain stores, convenience stores and key account listings for its beverage products across United States and into additional international markets
• expanding its PULSE® brands by developing new proprietary formulations
• introducing a third blended product closely associated with the PULSE® health platform

The following table sets forth the major sources and uses of cash for the six months ended June 30, 2013 and 2012:

Cash Used in Operating Activities

During the six months ended June 30, 2013, we used $1,815,000 (2012 - $759,000) in operating activities. This was made up of our net loss of $1,380,000 (2012 - $1,393,000) less adjustments for non-cash items such as: an asset impairment charge of $7,000, shares and options issued for services of $446,000 (2012 - $602,000), and amortization and depreciation of $41,000 (2012 - $14,000) all totaling $494,000 (2012 - $628,000). We used $930,000 (2012 – $7,000 used in) in net changes in operating assets and liabilities. We used $746,000 (2012 - $454,000) due to an increase in our accounts receivable and $465,000 (2012 - $176,000) due to increases in inventory levels; both due to a significant increase in our sales and inventory build-up to meet sales orders. Accounts payable and accrued expenses increased $210,000 (2012 - $515,000) due to normal credit extended  by our suppliers. Prepaid expenses decreased by $70,000 (2012 - $122,000).

Cash Used in Investing Activities

During the six months ended June 30, 2013 we used $67,000 (2012 - $107,000) in investing activities. During the latter part of fiscal 2012 we loaned $70,500 to our co-packer in Texas to allow them to acquire a specific piece of equipment to run our products. This loan is being repaid at a rate of $0.18 per-case reduction in co-packing fees and is expected to be fully repaid at some point in 2013. We spent $28,000 on die cuts, coolers, office equipment and a delivery van. We spent $13,000 on formulation costs associated with bringing PULSE® into commercial production. These costs were associated with third party lab testing and consultants to document and review our PULSE® formulas. We also spent $11,000 advancing our trademarks for PULSE® and Natural Cabana® and we spent $18,000 to develop and launch, as of July 26, 2013, a new website including on-line shopping capabilities.

During 2011, we loaned $200,000 to Catalyst Development Inc., a related party, pursuant to a Letter Agreement of which $3,000 was repaid during 2013.

Cash Provided by Financing Activities

During the six months ended June 30, 2013, we received $4,059,000 (2012 - $999,000) from financing activities. We received $3,946,000, net of $157,000 of share issuance costs, and issued 10,256,750 common shares and 10,256,750 common share purchase warrants pursuant to our $0.40 Unit offering. We received $100,000 and issued 125,000 common shares and 125,000 common share purchase warrants pursuant to our $0.80 Unit offering. We received $12,500 and issued 25,000 common shares pursuant to a stock option being exercised by a consultant at $0.50 per share.   

Additional Capital

We have in excess of $4.6 million in working capital as at June 30, 2013, as such, we do not need additional capital to finance the growth of our operations. We also have in excess of 20,000,000 warrants outstanding at an average exercise price of $0.62 per common share which could, if exercised, raise us in excess of $12.5 million. We have no assurance, however, that our warrant holders will exercise their warrants prior to their expiry dates.

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OFF BALANCE-SHEET ARRANGEMENTS

We have not had, and at June 30, 2013, 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 expenditures or capital resources that is material to investors.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our discussion and analysis of our financial condition and results of operations are based upon our financial statements that have been prepared in accordance with generally accepted accounting principles in the United States of America ("US GAAP"). This preparation requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. US GAAP provides the framework from which to make these estimates, assumption and disclosures. We choose accounting policies within US GAAP that management believes are appropriate to accurately and fairly report our operating results and financial position in a consistent manner. Management regularly assesses these policies in light of current and forecasted economic conditions. While there are a number of significant accounting policies affecting our financial statements, we believe the critical accounting policies involving the most complex, difficult and subjective estimates and judgments are: revenue recognition, stock based compensation and use of estimates as discussed in Note 2 to the interim unaudited condensed financial statements included in Item 1 to this Form 10Q.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

There have been no recently issued Accounting Pronouncements that impact us.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

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ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

Robert Yates, who is both our chief executive officer and our chief financial officer, is responsible for establishing and maintaining our disclosure controls and procedures.  Disclosure controls and procedures means controls and other procedures that are designed to ensure that information we are required to disclose in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and to ensure that information required to be disclosed by us in those reports is accumulated and communicated to the our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.  Our chief executive officer and chief financial officer evaluated the effectiveness 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 of June 30, 2013. Based on that evaluation it was concluded that our disclosure controls and procedures were effective as of June 30, 2013.

Changes in internal controls

There were no changes in our internal controls over financial reporting that occurred during the quarter ended June 30, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

Antonio Jose Loureiro (deceased) (the “Deceased Plaintiff”) filed a Notice of Civil Claim against us and two of our former directors in the Supreme Court of British Columbia, Canada on March 5, 2012. We believe that the Supreme Court of British Columbia has no jurisdiction  over us, and furthermore, we have never been served.  The claim alleges that  our former directors breached certain oral and/or written agreements relating to the sale of certain of our securities and that (we induced such former directors to do so). The relief sought by the Plaintiff is the specific performance of such former directors to sell securities to the Plaintiff’s Estate or that we issue such securities to the Plaintiff’s Estate and, further or alternatively, unspecified damages against us and the former directors.  On January 18, 2013,  we filed a Response to the Notice of Civil Claim in the Supreme Court of British Columbia. We are of the view that the claim is completely without merit and we intend to vigorously defend against any and all claims under this lawsuit. Any potential judgment against us and awarded to the Plaintiff’s Estate is expected to be immaterial.

ITEM 1A. RISK FACTORS.

In addition to the other information set forth in this report, you should carefully consider the risks and uncertainties described in Item 1A of our 2012 Form 10-K.  In our judgment, there were no material changes in the risk factors as previously disclosed in Item 1A of our 2012 Form 10-K.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

Securities Issued in Unregistered Transactions

During the quarter ended June 30, 2013, we issued the following securities in unregistered transactions:

On May 2, 2013 we issued 18,656 common shares having a fair value of $25,000 pursuant to a services agreement. We relied on exemptions from registration under Section 4(2) of the Securities Act and/or by Rule 506 of Regulation D promulgated under the Securities Act.

On May 2, 2013 we issued 125,000 Units at $0.80 per Unit pursuant to a subscription agreement with a US accredited investor for cash proceeds of $100,000. Each Unit contained one common share and a three year common share purchase warrant to purchase one additional common share at an exercise price of $1.00 per common share expiring May 2, 2016. We relied on an exemption from registration under the Securities Act provided by Rule 506.

On May 2, 2013 we issued 10,000 common shares at $1.30 per share pursuant to an Advisory Board Agreement. We relied on an exemption from registration under the Securities Act provided by Rule 506.

On May 21, 2013 we issued 25,000 common shares pursuant to a stock option exercised by a consultant for cash proceeds of $12,500. We relied on an exemption from registration under the Securities Act provided by Rule 506.

Subsequent Sales of Unregistered Securities

None.

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ITEM 3. DEFAULT UPON SENIOR SECURITIES.

None. 

ITEM 4. MINE SAFETY DISCLOSURE

Not applicable.

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS.

The following documents are included herein:

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 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.