UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





FORM 10-Q /A





(Mark One)








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





For the quarterly period ended November 30, 2010





[ ] 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 000-53008





THERABIOGEN, INC.


(Exact name of registrant as specified in its charter)








NEVADA
98-0559606State or other jurisdiction of incorporation or organization
(I.R.S. Employer Identification No.)120 Wall Street, Suite 2401
10005New York, NY(Address of principal executive offices)
(Zip Code)





866-284-9561


(Registrant's telephone number, including area code)








(Former name, former address and former fiscal year, if changed since last report)





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.





[x]Yes [ ] 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 (s. 229.405 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   [ ] 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.





Large accelerated filer [ ]
Accelerated filer [ ]Non-accelerated filer [ ] (Do not check if a smaller reporting company)
Smaller reporting company [ x ]











Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).


[ ] Yes [x] No





APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY


PROCEEDINGGS 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 [x] No





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 January 14, 2011, we had 38,804,500 shares of common stock outstanding.























EXPLANATORY NOTE





During the performance of our annual audit for the year ended February 28, 2011, we determined that various stock option grants totaling 1,650,000 shares with an aggregate fair value of $693,000 awarded during the quarter ended August 31, 2010 were not previously reported in the Form 10-Q for that quarter which was originally filed on October 19, 2010 and amended on March 16, 2011. This amended Form 10-Q/A is being filed to record the change in the nine month financial statements due to  the additional compensation expense of $693,000 related to the awards that was reported in a Form 10-Q/A for the quarter ended August 28, 2010 filed on June 15, 2011, and to increase previously reported net loss by $693,000 and loss per share by $0.02.





INDEX





Page No.PART I. FINANCIAL INFORMATIONItem 1.
Financial Statements
1Condensed Balance Sheets – at November 30, 2010 (unaudited) and February 28, 2010
1Condensed Statements of Operations for the three and nine months ended November 30, 2010 and 2009 (unaudited)
2Condensed Statement of Shareholders’ Equity for nine months ended November 30, 2010  and 2009 (unaudited)
3Condensed Statements of Cash Flows for the nine months ended November 30, 2010 and 2009 (unaudited)
4Notes to the Condensed Financial Statements (unaudited)
5Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
13Item 3.
Quantitative and Qualitative Disclosures About Market Risk
16Item 4.
Controls and Procedures
16PART II. OTHER INFORMATIONItem 1.
Legal Proceedings
18Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
18Item 3.
Defaults Upon Senior Securities
18Item 4.
(Removed and Reserved)
18Item 5.
Other Information
18Item 6.
Exhibits
18Signatures

19

















PART I.


ITEM 1. FINANCIAL INFORMATION





THERABIOGEN, INC.BALANCE SHEETSNovember 30, 2010


February 28, 2010(unaudited)ASSETSCurrent assetsCash and cash equivalents

$
36,682


$
4,137Accounts receivable


9,810



-Inventory


142,347



14,147Note and interest receivable-related party


11,315



10,411Other - current


459



-Total current assets


200,613



28,695License,net of amortization of $232,000 and $162,000


2,196,601



2,266,207Mineral rights


7,349



7,349Goodwill



101,183



101,183Total assets

$
2,505,746


$
2,403,434LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilitiesAccounts payable and accrued expenses

$
275,083


$
99,528Notes and interest payable-related parties


825,856



343,059Note payable - net of discount of $49,000 (2010)


116,373



20,000Total current liabilities


1,217,312



462,587Notes payable-related parties


-



374,000Liability for unissued common stock


150,000



-STOCKHOLDERS' EQUITYCommon stock, $0.001 par value, 150,000,000 sharesauthorized 37,814,500  and 32,927,500 outstanding


37,815



32,927Additional paid-in capital


5,401,634



2,689,422Accumulated deficit


(4,301,015
)


(1,155,502
)Total stockholders' equity


1,138,434



1,566,847Total liabilities and stockholders' equity

$
2,505,746


$
2,403,434





See notes to condensed financial statements.








1





THERABIOGEN, INC.CONDENSED STATEMENT OF OPERATIONS(unaudited)Three Months Ended


Nine Months EndedNovember 30,


November 30,2010


2009


2010


2009Sales - net

$
278,512





$
278,512Costs and ExpensesCost of sales


282,089


$
15,468



328,493


$
84,103General and administrative


271,033



174,539



2,425,091



325,141Selling and marketing


127,377



8,000



336,395



52,762Total costs and expenses


680,499



198,807



3,089,979



462,006Operating loss


(401,987
)


(198,807
)


(2,811,467
)


(462,006
)Other expensesInterest - related party


16,664



14,543



62,630



30,863Interest -net


199,539



-



230,487



-Finance cost


25,929



-



40,929



-Total other expenses


242,132



14,543



334,046



30,863Net loss

$
(644,119
)

$
(212,550
)

$
(3,145,513
)

$
(492,869
)Net loss - per share

$
(0.02
)

$
(0.01
)

$
(0.09
)

$
(0.03
)Weighted average shares outstandingbasic and dilutive


37,277,991



18,791,000



34,806,357



18,791,000











See notes to condensed financial statements.




2







THERABIOGEN, INC.CONDENSED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY(unaudited)Additional





TotalCommon Stock


Paid-in


Accumulated


Stockholders'Number


Amount


Capital


Deficit


EquityBalance - February 28, 2010


32,927,000


$
32,927


$
2,689,422


$
(1,155,502
)

$
1,566,847Issuance of  units  of  2 shares  ofcommon stock and one  warrant


760,000



760



367,240



-



368,000Common stock issued:Cash


300,000



300



149,700



-



150,000Warrant exercise


400,000



400



-



-



400Consulting agreement


50,000



50



24,950



-



25,000Debt


497,500



498



130,451



-



130,949Conversion of debt


250,000



250



124,750



-



125,000Awards


2,525,000



2,525



1,107,475



-



1,110,000Financing


105,000



105



(14,354
)


-



(14,249
)Fair market value of warrant and option awards










693,000







693,000Beneficial conversion feature - notes payable


-



-



129,000



-



129,000Net loss for the period


-



-



-



(3,145,513
)


(3,145,513
)Balance - November 30, 2010


37,814,500


$
37,815


$
5,401,634


$
(4,301,015
)

$
1,138,434





See notes to condensed financial statements.













3






THERABIOGEN, INC.CONDENSED STATEMENTS OF CASH FLOWS(unaudited)Nine Months EndedNovember 30,2010


2009CASH FLOWS FROM OPERATING ACTIVITIESNet loss

$
(3,145,513
)

$
(492,870
)Adjustments to reconcile to net loss to net cashused in operating activitiesAmortization of debt discount


238,008



-Amortization of license costs


69,606



84,103Noncash compensation


1,843,000



-Interest


13,136



-Interest-net - related parties


62,630



30,863Changes in operating assets and liabilitiesAccounts receivable


(9,810
)


-Inventory


(128,200
)


(17,147
)Other current assets


(459
)


-Accounts payable and accrued expenses


175,555



17,344Net cash used in operating activities


(882,047
)


(377,707
)CASH FLOWS FROM INVESTING ACTIVITIESAcquisition of license


-



(75,000
)Loan


-



(10,000
)Net cash used in investing activities


-



(85,000
)CASH FLOWS FROM FINANCING ACTIVITIESNet proceeds from issuance of common stock and


608,751



150,000units (including shares to be issued)Exercise of stock warrants


400



-Proceeds from capital contribution


-



500Proceeds from issuance of indebtedness


495,000



-Proceeds from issuance of debt - related parties


57,107



328,000Repayment of indebtedness


(237,166
)


-Repayment of related party debt


(9,500
)


-Net cash provided by financing activities


914,592



478,500Net increase in cash

32,545



15,793Cash at beginning of period


4,137



871Cash at end of period
$
36,682


$
16,664SUPPLEMENTAL CASH FLOW INFORMATIONNon-cash investing and financing activitiesCommon stock issued  in connection with:extinguishment of indebtedness

$
125,000


$
-





See notes to condensed financial statements.








4





THERABIOGEN, INC.NOTES TO CONDENED FINANCIAL STATEMENTS





NOTE 1 – ORGANIZATION AND BASIS OF PRESENTATION





Nature of Operations





TheraBiogen, Inc. (formerly Kushi Resources, Inc. (“Kushi”)) (the “Company”) was incorporated on October 3, 2005, under the laws of the State of Nevada.





In November, 2009, the Company entered into an Agreement and Plan of Merger with TheraBiogen, Inc. (“Former TheraBiogen”), a Nevada corporation, which was incorporated in April 2000.  The merger closed on January 5, 2010, and, as a result of, the transaction the Company changed its name to TheraBiogen, Inc.





In July 2008, Former TheraBiogen entered into an exclusive licensing agreement with Therapeutics, Inc., to develop, manufacture, market and sell four homeopathic nasal sprays, THERAMAX®  Cold Relief, THERAMAX®  Flu Relief, THERAMAX®  Allergy Relief and THERAMAX®  Migraine Relief, on an exclusive basis in North America and, and as a result of a subsequent transaction, in July 2009, the Company has the rights for all other areas of the world. The principal of Nasal Therapeutics, Inc., Dr. Charles Hensley had also developed the ZICAM homeopathic nasal product.





The Company’s principal business activity prior to the merger was the acquisition and exploration of mineral resources in northern British Columbia, Canada.  The Company has not determined whether its properties contain mineral reserves that are economically recoverable.





Basis of Presentation and Going Concern





The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate the continuation of the Company as a going concern.  This basis of accounting contemplates the recovery of the Company’s assets and the satisfaction of liabilities in the normal course of business.  The Company has not as yet attained a level of operations which allows it to meet its current overhead and may not attain profitable operations within its first few business operating cycles, nor is there any assurance that such an operating level can ever be achieved. The Company is dependent upon obtaining additional financing adequate to fund its operations. While the Company has funded its initial operations with private placements and secured loans principally from related parties, there can be no assurance that adequate financing will continue to be available to the Company and, if available, on terms that are favorable to the Company.   The Company’s ability to continue as a going concern is also dependent on many events outside of its direct control, including, among other things improvement in the economic climate.  The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.





Interim financial statements are prepared in accordance with GAAP for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Article 10 of Regulation S-X, as appropriate. In the opinion of management, all adjustments, which are of a normal recurring nature, considered necessary for the fair presentation of financial statements for the interim period, have been included.





Operating results for the interim periods presented are not necessarily indicative of the results to be expected for a full year.







5






The condensed balance sheet at February 28, 2010 has been derived from the audited financial statements at that date but does not include all the information and footnotes required by generally accepted accounting principles for complete financial statements.





These interim condensed financial statements should be read in conjunction with the Company’s audited financial statements and notes for the period ended February 28, 2010 filed with the Securities and Exchange Commission on Form 10-K on June 17, 2010.





As described in Notes 1 and 4, effective January 5, 2010, Former TheraBiogen merged into Kushi and Kushi changed its corporate name to TheraBiogen, Inc.  For accounting purposes, this transaction was treated as an acquisition of Kushi and a recapitalization of Former TheraBiogen.  The Former TheraBiogen is the accounting acquirer and the results of its operations carryover.





For the periods from the Company’s inception (April 26, 2000) through August 31, 2010, the Company accounted for its operations as a development stage company in accordance with FASB Codification 915-205-20. During the quarter ended November 30, 2010, the Company initiated significant revenue producing activities and, as a result, determined that it was no longer a development stage company.





NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





Revenue Recognition





The Company recognizes revenue from product sales when the risks and rewards of ownership have transferred to the customer. Transfer of risks and rewards is considered to have occurred upon shipment of the finished product to retailers. Sales incentives, promotional allowances and returns are estimated and recognized as a reduction from revenue at the date of shipment based upon current agreements with customers and as the Company develops more revenues historical activity will also be utilized. The Company evaluates these estimates on a quarterly basis and revises them as necessary.








The allowance for sales incentives, promotional allowances and returns will reflect our historical experience and will be reviewed regularly to ensure that it reflects potential chargebacks from customers. The allowance as of November 30, 2010 is based upon our experience through January 14, 2011 since we have just begun our initial placements at retailers.  We will review the need for a return provision at least quarterly and adjust the reserve amounts if actual chargebacks differ materially from our reserve percentage once established.





Inventory





Inventory consists principally of deposits to the contract manufacturer of the THERAMAX®  products and bottles and spray tops purchased from a third party supplier and delivered to the Company’s contract manufacturer to be used in the final packaging of the products for distribution.  Inventory is carried at the lower of cost or market on a first in, first out basis.





License Agreement





The Company recorded as an intangible asset the cost of the license agreement entered into with Nasal Therapeutics, Inc. based on the consideration paid.  The intangible asset is amortized on a straight-line basis over the 25 year life of the agreement.  The amortization charge is included in cost of sales, and, as a result of the initiation of sales during the third quarter of 2010 prior period amortization expense has been reclassified to cost of sales for the applicable periods.  The Company evaluates for impairment when events and circumstances warrant in accordance with FASB ASC Topic 350-30, and an impairment loss will be recognized if the carrying amount of an intangible asset is not recoverable and its carrying amount exceeds its fair value. After an impairment loss is recognized, the adjusted carrying amount of the intangible asset will be its new accounting basis.









6





Goodwill





The Company recorded goodwill as the excess of the consideration paid over the estimated fair values of the assets acquired and liabilities assumed in a business combination.  The goodwill is not amortized, but is subject to an annual impairment test in accordance with FASB ASC Topic 350-20.  The two step test first determines whether the carrying amount of the reporting unit exceeds the fair value of the reporting unit.  If so, the next step is to measure the impairment loss as the difference between the implied fair value of the good will and the carrying amount of the reporting unit.





Mineral Property Costs





Mineral property exploration costs are expensed as incurred. Mineral property acquisition costs are initially capitalized when incurred. The Company assesses the carrying costs for impairment under FASB ASC Topic 350-30 (SFAS No. 144), Accounting for Impairment or Disposal of Long Lived Assets at each fiscal quarter end.  Impairment is recognized when the sum of the expected undiscounted future cash flows is less than the carrying amount of the mineral property. Impairment losses, if any, are measured as the excess of the carrying amount of the mineral property over its estimated fair value.





When it has been determined that a mineral property can be economically developed as a result of establishing proven and probable reserves, the costs then incurred to develop such property, will be capitalized. Such costs will be amortized using the units-of-production method over the estimated life of the probable reserves. If mineral properties are subsequently abandoned or impaired, any capitalized costs will be charged to operations.





Fair Value of Financial Instruments





The carrying amounts reported in the accompanying balance sheets of all financial instruments approximates their fair values because of the immediate or short-term maturity of these financial instruments or comparable interest rates of similar instruments. The Company follows newly issued accounting guidance relating to fair value measurements. This guidance establishes a framework for measuring fair value and expands disclosures about fair value measurements. This guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels as follows:





Level 1 -- quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access as of the measurement date.





Level 2 -- inputs  other than quoted  prices included  within Level  1 that are  directly  observable  for the asset or liability or  indirectly observable through corroboration  with observable  market data.





Level 3 -- unobservable inputs for the asset or liability only used when there is little, if any, market activity for the asset or liability at the measurement date.





The asset or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the unobservable inputs.





Concentration of Credit Risk





Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash deposits in bank accounts fully insured by the FDIC.  As part of its cash management process, the Company performs periodic evaluations of the relative credit standing of this financial institution. The Company has not experienced any losses in cash balances and does not believe it is exposed to any significant credit risk on its cash.









7





Accounting Estimates





The preparation of these unaudited financial statements in conformity with accounting principles generally accepted in the United States of America 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 these unaudited financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.





Per Share Information





Basic earnings per share are calculated using the weighted average number of common shares outstanding for the period presented. Diluted loss per share is the same as basic loss per share, as the effect of potentially dilutive securities (options and warrants to acquire 1,650,000 and 1,109,500 shares of common stock, respectively as well as convertible indebtedness which can be converted into a maximum of 65 million shares – see Note 6) are anti-dilutive.





Income Taxes





The Company accounts for income taxes in accordance with ASC 740, Income Taxes.  Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  A valuation allowance is recorded and deducted from deferred tax assets when the deferred tax assets are not expected to be realized based on currently available evidence.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.





Stock-Based Compensation





Compensation costs attributable to stock options or similar equity instruments granted are measured at the fair value at the grant date, and expensed over the expected vesting period.





Reclassifications





Certain reclassifications have been made to the prior year’s financial statements to be consistent with the November 30, 2010 presentation.





NOTE 3 – RESTATEMENT





Various stock option grants totaling 1,650,000 shares with an aggregate fair value of $693,000 awarded during the quarter ended August 31, 2010 were not previously reported in the Form 10-Q for that quarter which was originally filed on October 19, 2010, and amended on March 16, 2011. These financial statements have been restated to record additional compensation expense of $693,000 related to the awards, and to increase previously reported net loss by $693,000 and loss per share by $0.02.





The impact on the condensed balance sheet as of November 30, 2010 is as follows:




As previously





AsFinancial Statement Caption

Reported


Adjustment


RestatedAdditional paid-in capital

$
4,708,634


$
693,000


$
5,401,634Deficit accumulated during thedevelopment stage

$
(3,608,015
)

$
(693,000
)

$
(4,301,015
)






8







The impact on the condensed statement of operations for the nine months ended November 30, 2010 is as follows:




As previously





AsFinancial Statement Caption

Reported


Adjustment


RestatedGeneral and administrative

$
1,921,091


$
504,000


$
2,425,091Selling and marketing

$
147,395


$
189,000


$
336,395Total expenses

$
2,396,979


$
693,000


$
3,089,979Operating loss

$
(2,118,467
)

$
(693,000
)

$
(2,811,467
)Net loss

$
(2,452,513
)

$
(693,000
)

$
(3,145,513
)Net loss - per share

$
(0.07
)

$
(0.02
)

$
(0.09
)





The impact on the condensed statement of cash flows for the nine months ended November 30, 2010 is as follows:




As previously


AsFinancial Statement Caption

Reported


Adjustment


RestatedNet loss

$
(2,452,513
)

$
(693,000
)

$
(3,145,513
)Noncash compensation

$
1,150,000


$
693,000


$
1,843,000





NOTE 4 – MERGER





On November 13, 2009, the Company entered into a merger agreement with the Former TheraBiogen, which was approved unanimously by the Company's shareholders and by a majority of the shareholders of the Former TheraBiogen. The merger transaction closed on January 5, 2010.





In accordance with the merger agreement, each share of common stock of the Former TheraBiogen issued and outstanding at the time of the merger was converted into one share of the common stock of the Company.  A total of 19,091,000 shares of the Company were issued to the shareholders of the Former TheraBiogen. Additionally, an entry has been recorded to convert former TheraBiogen’s par value of $0.0001 per share to the Kushi Resources, Inc. par value of $0.001.





As a result of the merger and the corporate name change of the Company to TheraBiogen, the common shares of the Company remain listed for trading on the OTC Bulletin Board under a new trading symbol TRAB.





The purchase consideration was determined by multiplying the 41.6 percent of total post-merger shares acquired by former Kushi Resources, Inc. shareholders times the number of Former TheraBiogen, Inc. shares outstanding at the time of merger. This amount of shares was then multiplied by the estimated fair value of $0.0077 per share to arrive at purchase consideration of $61,154.





The acquisition price was allocated to the assets acquired and liabilities assumed based on the estimated fair values with the excess being recorded in goodwill. The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of acquisition:





Mineral rights

$
7,000Goodwill


101,000Accounts payable


(47,000
)$
61,000





Additionally, an entry has been recorded to convert Former TheraBiogen’s par value of $0.0001 per share to the Kushi Resources, Inc. par value of $0.001.









9





NOTE 5 – LICENSE AGREEMENT





In September 2008, the Company acquired licensing rights to the THERAMAX® products for a cash payment of $150,000 and the issuance of 15,300,000 shares of common stock.  In July 31, 2009, the Company renegotiated the terms of the license agreement, extending the territory to the entire world and the term to 25 years from July 31, 2009, and also received a transfer of all trademark rights to the THERAMAX® name in exchange for $75,000. Amortization expense related to the license is charged to cost of sales in the accompany statement of operations and amounted to $23,000 and $70,000 and $15,000 and $84,000 for the three and nine months ended November 30, 2010 and 2009, respectively.








NOTE 6 – DEFERRED TAX ASSETS





As of November 30, 2010, the Company had net operating loss (NOL) carry-forwards available to offset future taxable income of approximately $4.4 million. The utilization of the NOL carry-forwards is dependent upon the tax laws in effect at the time the NOL carry-forwards can be utilized. As of November 30, 2010, a valuation allowance of $1.7 million has been recorded against the deferred tax asset due to the uncertainty surrounding its realization caused by the Company’s recurring losses.  The change in the valuation allowance during the nine months ended November 30, 2010 was $1.3 million.  The NOL carry-forwards will expire from 2020 through 2030.





NOTE 7 – NOTES PAYABLE





The Company has entered into notes payable agreements with related parties totaling $694,000 as of November 30, 2010 with interest due under the notes aggregating $132,000.  Approximately $605,000 of the related notes payable are convertible into common shares at 75% of market price per share with a minimum of $.01 to a maximum of $.10 per share and if not paid by the due date (July 1, 2011) convert automatically. The notes are payable at maturity and bear interest rate at 16%.








As of November 30, 2010, the Company is obligated under outstanding promissory notes totaling $160,000 to unrelated parties.  The notes bear interest at 10 or 12 percent per annum, with interest and principal payable at maturity, which is principally three months from the date of issue.  In connection with the note issuances, the Company also agreed to issue the note holders a total of 300,000 shares of common stock. A discount of $63,000 based upon the estimated relative fair values of the debt and common stock was recorded as reduction of the debt for the shares issued or to be issued (included in the liability for unissued shares).  This discount will be amortized over the life of the loans using the straight line method which approximates the effective interest method. During the three and nine months ended November 30, 2010, the Company amortized $14,000 of the discount to interest expense. One note for $80,000 is collateralized by receivables to be generated from one customer and one note for $50,000 is secured by an obligation to issue 2 million shares of the Company’s common stock if payment is not made by the due date in December 2010.  Pursuant to an agreement with the lender in December 2010, the holder was issued 100,000 shares of common stock and granted a 5-year warrant to purchase common stock at $1.25; the loan’s due date was extended to June 2011; and the reservation of 2,000,000 shares of the Company’s common stock was reduced to 1,000,000 shares.








10





During the nine months ended November 30, 2010, the Company also issued promissory notes totaling $365,000 to unrelated parties.  All of the notes were payable six months from issuance with interest at 16 percent per annum.  In connection with the note issuances, the Company issued the note holders a total of 297,500 shares of common stock. The notes also had a conversion rights and holders of indebtedness aggregating $125,000 converted debt for 250,000 shares.  Holders of notes totaling $215,000 had the right to convert their notes at $.30 per share. The conversion rate was favorable to market and the Company credited paid in capital $129,000 for the beneficial conversion feature.  A discount of $224,000 based on the estimated relative fair value of the debt and the shares and the beneficial conversion feature was recorded as a reduction of debt for the shares issued.  This discount was amortized over the life of the loans using the straight line method which approximates the effective interest method. The Company redeemed the $215,000 of notes not converted in November 2010.





NOTE 8 – COMMON STOCK





During the nine months ended November 30, 2010, the Company authorized the issuance 2,555,000 shares of common stock as stock grants to directors and consultants (including 30,000 shares to be issued as of November 30, 2010 included liability for unissued shares), charging $1.1 million to consulting expense included in general and administrative expenses based upon the fair value of the shares at the time of the grant. The Company also awarded 1,650,000 warrants and stock options to directors and consultants.  These warrants and options vested upon grant and the Company charged $504,000 to general and administrative expenses and $189,000 to sales and marketing expenses based upon the fair market value of the warrants and options on date of grant.





The Company issued 426,000 shares and is obligated to issue 105,000 shares of common stock as result of a private placement of units consisting of 2 shares of common stock and a warrant to purchase a share at $1.25 per share during the nine months ended November 30, 2010.





NOTE 9 – RELATED PARTY TRANSACTIONS





As described in Note 6, the Company’s indebtedness to related parties aggregates $826,000, including interest as of November 30, 2010. A holder of $605,000 of the debt is convertible into shares of the Company’s common stock but the holder is restricted from exceeding 9.5% of common stock outstanding.





Pursuant to a consulting agreement with a shareholder, the Company was obligated to pay for financial and legal consulting services in the amount of $15,000 monthly effective January 1, 2010.  In addition, the Company rented office space at $550 per month from the shareholder.  For the nine months ended November 30, 2010 and 2009, the Company incurred consulting and rent expenses related to these agreements of $116,000 and $68,000, respectively.  In December 2010, the Company and the shareholder entered into a note agreement in which the Company agreed to pay the balance due of $30,000 in 5 monthly installments starting January 1, 2011 with interest on the unpaid balance of 6%.





All of the Company’s mineral claims are registered in the name of a former president of the Company and pursuant to a trust agreement are held in trust on behalf of the Company.








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NOTE 10.  OTHER FINANCING ARRANGEMENTS





In September 2010, we entered into a factoring agreement which will allow the Company to sell specific accounts receivable to the factor. The factor, in its sole discretion, determines whether or not it will accept the credit risk associated with a receivable and the Company surrenders all rights and control over the receivable to the factor. The factor is required to remit and advance 75% of the invoice amount for the accounts receivable purchased and pay the balance when the invoice is due less factor charges, provided the customer does not have a valid dispute related to the invoice. The maximum advance under the arrangement is $2 million.  The amount remitted to the Company by the factor equals the invoiced amount, adjusted for allowances and discounts we have provided to the customer, less factor charges of 2.5% to 7.5% of the invoiced amount for 30 to 90 days and 2% for each additional 15 days outstanding.  As of November 30, 2010, the Company has not sold any of its receivables to the factor.





In December 2010, the Company also entered into a master materials acquisition and purchase order assignment agreement with a finance company under which the Company can request the finance company to acquire materials necessary to manufacture inventory in order to fulfill the Company’s orders from customers.  The finance company charges 5 % of the material purchase order amount for each transaction for 30 days, plus its expenses related to the transaction.  The initial funding limit and term of the agreement is $225,000 and 90 days, each of these terms increase upon satisfactory repayment of advances.  The maximum advances permitted will be $1 million and the term can be extended for up to 2 years from the date of the agreement. In connection with the agreement, the Company issued   250,000 shares of the Company’s common stock and 200,000 warrants to purchase additional shares of the Company’s common stock for $0.50 per share and as an additional consideration for funding limit increases, the Company may issue up to an additional 500,000 shares of common stock and up to 600,000 warrants to purchase additional shares of common stock.





NOTE 11 - SUBSEQUENT EVENTS





In December 2010, the Company issued a promissory note due June 2011 in the amount of $50,000, bearing 12% interest and, in addition, issued 100,000 shares of the Company’s common stock to the lender and granted the holder a 5-year warrant to purchase shares of the Company’s common stock at $1.25.  The note matures in June 2011. The note is secured by an obligation of the Company to issue 1,000,000 shares of the Company’s Common Stock if the Company defaults.





See also Notes 7 and 9 for other subsequent financing events.










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ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS





You should read the following discussion and analysis of our financial condition and results of operations together with our condensed financial statements and related notes appearing elsewhere in this quarterly report on Form 10-Q.  This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions.  The actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited to those set forth under “Risk Factors” in our annual report on Form 10-k, filed with the SEC June 17, 2010.





OVERVIEW





We were incorporated on October 3, 2005 under the laws of the State of Nevada as Kushi Resources, Inc. On January 5, 2010, we merged with TheraBiogen, Inc. (the “Former TheraBiogen”).  We are the surviving entity in the merger and we changed our name to TheraBiogen, Inc.  All references in this Report to TheraBiogen or Company mean TheraBiogen, Inc., a Nevada corporation, formerly Kushi Resources Inc., unless otherwise indicated.





Under an exclusive world-wide licensing agreement with Nasal Therapeutics, Inc. (‘NTI”), the Company intends to develop, manufacture, market and sell four homeopathic nasal sprays, THERAMAX®  Cold Relief, THERAMAX®  Flu Relief, THERAMAX®  Allergy Relief and THERAMAX®  Migraine Relief. The principal of NTI, Dr. Charles Hensley also developed the homeopathic nasal product ZICAM. Dr. Hensley had also developed ZICAM Allergy and the nasal delivery systems used in the ZICAM product line extensions.





In the Company’s opinion, THERAMAX® Cold & Flu Relief homeopathic nasal spray can be considered the next generation of cold & flu relief as compared to Zicam’s cold remedy product. THERAMAX® Allergy Relief is also a nasal spray that employs a unique homeopathic approach in the treatment of allergic rhinitis (runny nose).





Starting in the quarter ended November 30, 2010, we launched two homeopathic nasal sprays into the United States over-the-counter market principally through sales to Rite Aid Pharmacy.  Our first two offerings in the launch were THERAMAX® Cold and Flu Relief and THERAMAX®.  Gross revenues from the launch were approximately $599,000; however in accordance with generally accounting principles, the Company has recorded a reserve for allowances of $320,000, principally related to a rebate program at Rite Aid in lieu of marketing expenditures by the Company.





Prior to the merger with the Former TheraBiogen, we were principally an exploration stage company engaged in the acquisition and exploration of mineral properties. We currently own a 100 percent undivided interest in a mineral property that we call the “Bee Peak Claim.” The Bee Peak Claim consists of approximately 410.65 hectares and is located in the Atlin mining district of northwest British Columbia, Canada.  We have not generated any revenues from our mineral exploration activities. There is no assurance that a commercially viable mineral deposit exists on the Bee Peak Claim. Further exploration will be required before an evaluation as to the economic feasibility of the Bee Peak Claim can be determined. The Bee Peak Claim is without known reserves. The Board of Directors has begun a study to determine whether the Company should continue this line of business.








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Going Concern





The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate the continuation of the Company as a going concern.  This basis of accounting contemplates the recovery of the Company’s assets and the satisfaction of liabilities in the normal course of business.  The Company has not as yet attained a level of operations which allows it to meet its current overhead and may not attain profitable operations within its first few business operating cycles, nor is there any assurance that such an operating level can ever be achieved. The Company is dependent upon obtaining additional financing adequate to fund its operations. While the Company has funded its initial operations with private placements and secured loans principally from related parties, there can be no assurance that adequate financing will continue to be available to the Company and, if available, on terms that are favorable to the Company.  The report of our auditors on our financial statements for the year ended February 28, 2010 includes a reference to going concern risks. The Company’s ability to continue as a going concern is also dependent on many events outside of its direct control, including, among other things improvement in the economic climate.  The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.





Results of operations





Three months ended November 30, 2010 versus three months ended November 30, 2010





The Company generated gross sales during the nine months ended November 30, 2010 of $599,000 principally to Rite Aid Pharmacy. In accordance with generally accepted accounting principles in the United States, the Company has recorded a reserve for allowances of $320,000, principally related to a customer rebate program provided by Rite Aid in lieu of a general marketing campaign by the Company.  The reserve is recorded as an offset to sales resulting in the reported net sales amount of $279,000. The allowance for sales incentives, promotional allowances and returns will reflect our historical experience and will be reviewed regularly to ensure that it reflects potential chargeback backs from customers. The allowance as of November 30, 2010 is based upon our experience through January 14, 2010 since we have just begun our initial placements at retailers.  There were no revenues prior to the quarter ended November 2010.





Expenses for the three months ended November 30, 2010 totaled $680,000 compared to $199,000 for the prior year period. Costs of sales of $282,000 in the 2010 quarter exceeded net sales principally due to the significant allowances provided during the period for a rebate program which was recorded as a reduction of sales in accordance with generally accepted accounting principles in the United States.  In addition, cost of sales was charged with the expense related to amortization of the product license fee.  Amortization of the license fees was also reclassified to cost of sales for the prior periods to correspond with this treatment as a result of the introduction of sales during this quarter.  General and administrative expenses of $271,000 in the 2010 period consisted principally of consulting fees. The interest expense of $216,000 for the three months ended November 30, 2010 increased from $15,000 in the 2009 period as a result of the increases in related party indebtedness and the amortization expense related to the discount attributable to the issuance of common stock in connection with debt offerings and beneficial conversion feature in some of the indebtedness.





Nine months ended November 30, 2010 versus nine months ended November 30, 2010





The Company generated gross sales during the nine months ended November 30, 2010 of $599,000 principally to Rite Aid Pharmacy. In accordance with generally accepted accounting principles in the United States, the Company has recorded a reserve for allowances of $320,000, principally related to a customer rebate program provided by Rite Aid in lieu of a general marketing campaign by the Company.  The reserve is recorded as an offset to sales resulting in the reported net sales amount of $279,000. The allowance for sales incentives, promotional allowances and returns will reflect our historical experience and will be reviewed regularly to ensure that it reflects potential chargeback backs from customers. The allowance as of November 30, 2010 is based upon our experience through January 14, 2011 since we have just begun our initial placements at retailers.  There were no revenues prior to the quarter ended November 2010.





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Expenses for the nine months ended November 30, 2010 totaled $3.1 million compared to $462,000 for the prior year period. Costs of sales of $328,000 in the 2010 period exceeded net sales due to the significant allowances provided during the period for a rebate program which was recorded as a reduction of sales in accordance with generally accepted accounting principles in the United States.  In addition, cost of sales was charged with the expense related to amortization of the product license fee.  Amortization of the license fees was also reclassified to cost of sales for the prior periods to correspond with this treatment as a result of the introduction of sales during this quarter.  General and administrative expenses of $2.4 million in the 2010 period consisted principally of consulting fees including non-cash charges of $1.9 million for the Board and consultant awarded stock and option grants. The interest expense for the nine months ended November 30, 2010 increased $262,000 from the 2009 period as a result of the increases in related party indebtedness and the amortization expense related to the discount attributable to the issuance of stock in connection with debt offerings and beneficial conversion feature in some of the indebtedness.





Financial Condition, Liquidity and Capital Resources





As of November 30, 2010, the Company had a negative working capital of $1,017,000.   Since inception, we generated net cash proceeds of $887,000 from equity placements and borrowed $724,000 from related parties and $258,000 from others, net of repayments of $10,000 and $237,000, respectively. In November and December 2010, we entered into two agreements which assist the Company in generating working capital by providing for factoring of our receivables and purchase order financing to allow us to make required prepayments to vendors to obtain inventory for customer orders as well as for stock. The Company has not as yet attained a level of operations which allows it to meet its current overhead and may not attain profitable operations within the next few business operating cycles, nor is there any assurance that such an operating level can ever be achieved.  The report of our auditors on our 2010 financial statements includes a reference to going concern risks. While the Company has funded its initial operations with private placements, and secured loans as well as entering into a factoring and a financing arrangement, there can be no assurance that adequate financing will continue to be available to the Company and, if available, on terms that are favorable to the Company. Our ability to continue as a going concern is also dependent on many events outside of our direct control, including, among other things, our ability to achieve our business goals and objectives, as well as improvement in the economic climate.





Cash Flows





The Company’s cash on hand at November 30, 2010 and February 28, 2010 was $37,000 and $4,000, respectively.





Operating cash flows:  Beginning in the quarter ended November 30, 2010 our operating sources of cash was from our sales of THERAMAX® products.





Net cash used in operating activities for the nine months ended November 30, 2010 was $882,000 as compared to $378,000 in the prior year period. The increase in the cash used in operating activities was principally the result of the activity to implement our business plan for the development, manufacture and distribution of THERAMAX® products.





Investing cash flows:  During the prior year period the Company extended its rights to intellectual property through and through the additional payment of $75,000 and provided a loan to the inventor of $10,000.





Financing cash flows: Net cash generated from financing activities was $915,000 and $ 479, 000 in 2010 and 2009, respectively. During both periods, the Company was able to secure capital from investors through sales of equity of $609,000 (2010) and $150,000 (2009), principally consisting of units of 2 shares and a warrant to purchase an additional share and through debt issuances to a related parties of $57,000 (2010) and $328,000 (2009) and others $495,000 (2010).  During the 2010 period the Company repaid $10,000 in related party indebtedness and $237,000 of other indebtedness.








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OFF-BALANCE SHEET ARRANGEMENTS





As of November 30, 2010 we have no off-balance sheet arrangements.





Related Parties





Information concerning related party transactions is included in the financial statements and related notes, appearing elsewhere in this quarterly report on Form 10-Q.





Critical Accounting Policies





The preparation of financial statements in conformity with generally accepted accounting principles requires our management to make estimates and assumptions that affect the reported amount 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. Actual results could differ from those estimates. Our management routinely makes judgments and estimates about the effects of matters that are inherently uncertain.





We have identified certain accounting policies, described below, that are most important to the portrayal of our current financial condition and results of operations. Our significant accounting policies are disclosed in the notes to our financial statements included in the Annual Report on Form 10-K for the year ended February 28, 2010





ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK





Not applicable





ITEM 4 – CONTROLS AND PROCEDURES





Evaluation of Disclosure Controls and Procedures





The Company is in the process of implementing disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the ‘‘Exchange Act’’), that are designed to ensure that information required to be disclosed in the Company’s Exchange Act reports are recorded, processed, summarized, and reported within the time periods specified in rules and forms of the Securities and Exchange Commission, and that such information is accumulated and communicated to our Chief Executive Officer to allow timely decisions regarding required disclosure.





As of November 30, 2010, the Chief Executive Officer carried out an assessment, of the effectiveness of the design and operation of our disclosure controls and procedure and concluded that the Company’s disclosure controls and procedures were not effective as of November 30, 2010, because of the material weakness described below.





A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.





The material weakness identified during management's assessment was the lack of sufficient resources with SEC, generally accepted accounting principles (GAAP) and tax accounting expertise. This control deficiency did not result in adjustments to the Company’s interim financial statements. However, this control deficiency could result in a material misstatement of significant accounts or disclosures that would result in a material misstatement to the Company’s interim or annual financial statements that would not be prevented or detected. Accordingly, management has determined that this control deficiency constitutes a material weakness.






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The Chief Executive Officer performed additional accounting and financial analyses and other post-closing procedures including detailed validation work with regard to balance sheet account balances, additional analysis on income statement amounts and managerial review of all significant account balances and disclosures in the Quarterly Report on Form 10-Q, to ensure that the Company’s Quarterly Report and the financial statements forming part thereof are in accordance with accounting principles generally accepted in the United States of America. Accordingly, management believes that the financial statements included in this Quarterly Report fairly present, in all material respects, the Company’s financial condition, results of operations, and cash flows for the periods presented.





Changes in Internal Control over Financial Reporting





During the three months ended November 30, 2010 there were no changes in our system of internal controls over financial reporting.









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PART II -   OTHER INFORMATION





ITEM 1   -   LEGAL PROCEEDINGS.





None.





ITEM 1A. RISK FACTORS.





In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended February 28, 2010, which could materially affect our business, financial condition and/or operating results. The risks described in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and/or operating results.





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





During the three months ended November 30, 2010, the Company continued to conduct a private placement of its common stock units containing shares and warrants and additionally offerings of indebtedness which included shares.  The offerings are exempt from registration pursuant to Rule 506 of Regulation D promulgated under the Securities Act of 1933, as amended, open to “accredited investors” as that term is defined in Rule 501 of Regulation D. The maximum to be raised is $6 million.  During the period, the Company had received $318,000 for fully paid subscriptions for units containing 636,000 shares and 318,000 warrants to purchase shares at $1.25 per share. The Company also issued 200,000 shares and is obligated to issue 100,000 shares in connection with the incurrence of indebtedness aggregating $150,000.





In December 2010 and through January 14, 2011, the Company received $ 90,000 for units containing 180,000 shares and warrants to purchase 90,000 shares at $1.25 pursuant to the above mentioned private placement. During the period, the Company also issued 300,000 shares of the Company’s common stock and warrants to acquire 200,000 shares of common stock at $1.25 in connection with the issuance of a promissory notes aggregating $180,000. Further, in connection with a financing the Company issued 250,000 shares and a warrant to purchase 200,000 shares of common stock at $.50 per share





ITEM 3   -   DEFAULTS UPON SENIOR SECURITIES





None





ITEM 4   -   (Removed and Reserved)








ITEM 5   -   OTHER INFORMATION





None





ITEM 6   -   EXHIBITS AND REPORTS ON FORM 8-K





(a) Exhibits





Exhibit

Description31.1

Certification of Chief Executive and Principal Financial Offcer32.1

Section 1350 Certification









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SIGNATURES





Pursuant to the requirements of Section 13 or 15(d) 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 on June 15, 2011.





TheraBiogen, Inc.By:
/s/ Kelly T. HickelChief Executive Officer

















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