UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the Quarter Ended June 30, 2015

 

[   ]                  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  000-52886

EASTGATE BIOTECH CORP.

(Exact name of registrant as specified in its charter)

 

 

2203-65 Harbour Square | Toronto, Ontario | Canada M5J 2L4

(Address of principal executive offices)

(647) 692-0652

(Registrant's 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 past 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).  ¹   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

Large accelerated filer                                                [  ]                                                Accelerated filer                                                      [  ]

Non-accelerated filer                                                  [  ]                                                Smaller reporting company                                   [X]

(Do not check if a smaller reporting company)

 

Class	Outstanding as of  August 19, 2015
Common Stock, $0.00001 par value	202,700,510

 

TABLE OF CONTENTS

 

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Table of Contents

PART  I   —   FINANCIAL INFORMATION

Item 1.                          Financial Statements

The accompanying unaudited balance sheet of Eastgate Biotech Corp. at June 30, 2015, related unaudited statements of operations and cash flows for the periods ended June 30, 2015 and 2014 have been prepared by management in conformity with United States generally accepted accounting principles.  In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations and financial position have been included and all such adjustments are of a normal recurring nature.  It is suggested that these financial statements be read in conjunction with the financial statements and notes thereto included in the Company's December 31, 2014 audited financial statements.  Operating results for the period ended June 30, 2015, are not necessarily indicative of the results that can be expected for the fiscal year ending December 31, 2015 or any other subsequent period.

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

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

 

EASTGATE BIOTECH CORP.

Notes to Condensed Consolidated Financial Statements

June 30, 2015 and December 31, 2014

NOTE 1 - CONDENSED FINANCIAL STATEMENTS

 

The accompanying financial statements have been prepared by the Eastgate Biotech Corp without audit.  In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows at June 30, 2015, and for all periods presented herein have been made.

 

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted.  It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company's December 31, 2014 audited financial statements.  The results of operations for the periods ended June 30, 2015 and 2014 are not necessarily indicative of the operating results for the full years.

NOTE 2 - GOING CONCERN

The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate continuation of the Company as a going concern.  However, the Company has accumulated deficit of $9,992,069 as of June 30, 2015.  The Company currently has limited liquidity, and has not completed its efforts to establish a stabilized source of revenues sufficient to cover operating costs over an extended period of time, raising substantial doubt about its ability to continue as a going concern.

Management anticipates that the Company will be dependent, for the near future, on additional investment capital to fund operating expenses The Company intends to position itself so that it may be able to raise additional funds through the capital markets. In light of management's efforts, there are no assurances that the Company will be successful in this or any of its endeavors or become financially viable and continue as a going concern.

NOTE 3 – SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements include the accounts of Eastgate Biotech Corp. and its wholly-owned subsidiary Eastgate Pharmaceuticals Inc. All intercompany accounts and transactions have been eliminated in consolidation.

The preparation of 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 at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

For purposes of the statement of cash flows, the Company considers all highly liquid instruments purchased with a maturity of three months or less to be cash equivalents to the extent the funds are not being held for investment purposes.

The Company expenses research and development costs to operations as incurred. Research and development expenses are comprised of costs incurred in performing research and development activities, including employee-related expenses; laboratory supplies and other direct expenses; third-party contractual costs relating to nonclinical studies and related contract manufacturing expenses, development of manufacturing processes and regulatory registration.

NOTE 6 – STOCKHOLDERS' EQUITY

On January 5, 2015, the Company issued 8,146,225 Units of its securities in satisfaction of accrued liabilities comprised of $325,849 of compensation owed to eight directors and members of management at the price of $0.04 per share.  Each Unit consisted of one share of common stock and a five year warrant to purchase one share of common stock at an exercise price of $0.04 per share.  As a result of this transaction, the Company issued 8,146,225 shares of common stock and 8,146,225 warrants to purchase our common stock.

 

In January 2015, the Company issued a total of 3,700,000 shares of common stock to consultants for services rendered at the price of $0.035 per share.

 

On February 12, 2015, the Company issued a total of 15,250,000 shares of common stock to employees and consultants for services rendered at the price of $0.0286 per share.

 

In March 2015, the Company issued a total of 8,683,333 shares of common stock to consultants for services rendered at the price of $0.033 per share.

 

During the quarter ended March 31, 2015, the Company issued a total of 977,233 shares of common stock to consultants for services rendered at the price ranging from $0.06 to $0.50 per share.

 

During the quarter ended March 31, 2015, the Company issued 1,770,346 shares of common stock to two officers and an employee as part of their compensation at the price of $0.055 per share.

 

On May 22, 2015, the Company issued 62,285,718 shares of common stock in satisfaction of accrued liabilities comprised of $436,000 of compensation owed to the eight who are directors, officers and members of management at the market price of $0.007 per share. 

 

On June 19, 2015, the Company issued 15,000,000 shares of common stock to a director and two officers in recognition of the progress made in the development platform being used in various pharmaceutical and natural products.  The shares were issued at the price of $0.0149 per shares.

 

As of March 31, 2015, the Company had 25,418,525 warrants to purchase common stock.  All outstanding warrants have a weighted average price of $0.11 per share and have a weighted average remaining life of 4.25 years.

 

 

NOTE 7– SUBSEQUENT EVENTS

 

In accordance with ASC 855 Company management reviewed all material events through the date of this report and determined that there are no material subsequent events to report except as described below:

 

 

Item 2.                Management's Discussion and Analysis of Financial Condition and Results of Operations

 

Results of Operations

The following selected comparative financial information has been derived from and should be read in conjunction with the company's financial statements for the three months ended March 31, 2015 and 2014.

 

	For the Three Months ended									For the Six Months ended
	June 30									June 30
		2015				2014				2015				2014
Revenues		$	58,543			$	-			$	58,543				-
Cost of sales			8,430				-				8,430				-
Gross profit			50,113				-				50,113				-
Operating Expenses
Professional fees			46,783				53,092				97,203				102,998
Research & development			297,858				267,794				693,978				385,491
General & administrative			455,427				1,519,177				1,509,702				2,328,715
Marketing and selling			50,551				29,844				319,736				34,804
Total operating expenses			850,619				1,869,907				2,620,619				2,852,008
Loss from operations			(800,506	)			(1,869,907	)			(2,570,506	)			(2,852,008	)
Interest income			(26,703	)			(22,821	)			(49,353	)			(44,935	)
Net loss		$	(827,209	)		$	(1,892,728	)		$	(2,619,859	)		$	(2,896,943	)
										June 30				December 31
											2015				2014
Total assets										$	205,747			$	482,935
Working Capital										$	(2,017,109	)		$	(1,541,521	)

Liquidity and Capital Resources

At June 30, 2015 we had a working capital deficit of $2,017,109, which is an increase of $475,588 from the December 31, 2014 deficit balance of $1,541,521.  The increase in the deficit is largely a result of the loss for the six months of $2,619,859 netted by common stock issued for services and common stock issued to convert liabilities of $1,077,743 and $761,849 respectively, as well as $159,750 of additional advances from the CEO.  The reaming difference of $144,929 is made up of balance asset and liability fluctuations.

Expenses incurred during 2015 have been paid for by related parties including our current CEO and President as well as through the gross profit on sales in the second quarter. Because we have no cash reserves or revenue source, we expect to continue to rely on the stockholders and equity raises to pay expenses until such time as we can generate sufficient cash flows to pay our ongoing operational costs. There is no assurance that the company will continue to obtain equity raises before the company develops revenue sources with sufficient cash flow to pay expense.

During the six months ended June 30, 2015 the stockholders contributed a net amount of $152,252, made up of $159,750 advanced in cash less $1,962 of expenses paid by the company on behalf of the related party and $5,536 of cash paid back to the related party.  At June 30, 2015 and December 31, 2014, we had cash on hand of $0 and $286,481, respectively.  At June 30, 2015 we had notes payable - related party of $1,158,642, compared to $1,006,391 at December 31, 2014.  The increase represents additional contributions from stockholders during the six months ended June 30, 2015.  Accrued interest – related party at June 30, 2015 was $232,198 compared to $182,845 at December 31, 2014, which increase reflects the added interest of $49,353 in the related party payable.  Accounts payable and accrued liabilities increased by $38,159 from $299,099 at December 31, 2014, to $327,258 at June 30, 2015, primarily a result of the fact the company is in a fund raising situation.

In the opinion of management, inflation has not and will not have a material effect on our operations until such time as we successfully complete an acquisition or merger.  At that time, management will evaluate the possible effects of inflation related to our business and operations.

At June 30, 2015, we had a stockholders' deficit of $1,892,427 compared to a stockholders' deficit of $1,398,275 at December 31, 2014.  The increase in stockholders' deficit is primarily attributed to operating loss in the six month period ended June 30, 2015.

As of August 6, 2015, we had bank indebtedness $4,152.  We believe that our available cash combined with continued advances from related parties will be sufficient to carry on general corporate functions for the next nine months, although we will need to limit cash outlays for research and product development until we can secure additional funds.  We are presently investigating possible funding opportunities to arrange for additional funds, although we do not have any definitive agreement or arrangement for such funds.  We expect that additional funding to proceed with development of the intellectual property acquired in 2015 will most likely be from the sale of securities or from stockholder loans. We may not be successful in our efforts to obtain equity financing to carry out our business plan and there is doubt regarding our ability to complete our planned development program.  We estimate that cash requirements for the next twelve months will be approximately $5,000,000.  In the past year, we have relied on advances from related parties and the gross profit from sales for financing our operations. We continue to explore potential funding opportunities, which may be in the form of debt or the sale of equity securities. In the event we are unsuccessful in arranging for outside funding, we will most likely continue to rely on related parties as well as the gross profit on sales to provide funding, although there are no firm commitments or agreements with any related party to provide funds in the future.

Net Operating Loss

We have accumulated a net operating loss carryforward of approximately $2,875,099 as of December 31, 2014.  This loss carry forward may be offset against future taxable income through the year 2033.  The use of these losses to reduce future income taxes will depend on the generation of sufficient taxable income prior to the expiration of the net operating loss carryforwards.  In the event of certain changes in control, there will be an annual limitation on the amount of net operating loss carryforwards that can be used.  No tax benefit has been reported in the financial statements for the year ended December 31, 2014 or the three month period ended March 31, 2015 because it has been fully offset by a valuation reserve.  The use of future tax benefit is undeterminable because we presently have no operations.

Recent Accounting Pronouncements

 

        In June 2014, the Financial Accounting Standards Board issued Accounting Standards Update No. 2014-10, which eliminated certain financial reporting requirements of companies previously identified as "Development Stage Entities" (Topic 915). The amendments in this ASU simplify accounting guidance by removing all incremental financial reporting requirements for development stage entities. The amendments also reduce data maintenance and, for those entities subject to audit, audit costs by eliminating the requirement for development stage entities to present inception-to-date information in the statements of income, cash flows, and shareholder equity.   Early application of each of the amendments is permitted for any annual reporting period or interim period for which the entity's financial statements have not yet been issued (public business entities) or made available for issuance (other entities). Upon adoption, entities will no longer present or disclose any information required by Topic 915.  The Company has adopted this standard and will not report inception to date financial information.

 

The company has evaluated other recent accounting pronouncements and their adoption has not had nor is expected to have a material impact on the company's financial position or statements.

Off-Balance Sheet Arrangements

We have no 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 stockholders.

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Plan of Operation

Following the closing of a patent acquisition agreement (the "Acquisition Agreement") in 2012, we have become engaged in the development and ultimate formulation of other novel formulations of natural compounds and pharmaceutical products that have limitations in effective use for human consumption.  We believe our self-emulsifying drug delivery technology can improve the efficacy of existing products and formulations based on natural or well-established compounds and known biologically active compounds. We intend to conduct our research and development through collaborative programs. We anticipate relying on arrangements with third party drug developers such as contract research organizations and clinical research sites for a significant portion of our product development efforts.

The Acquisition Agreement enabled us to acquire certain products, formulas, processes, proprietary technology and/or patents and patent applications related to pharmaceutical, nutraceutical, food supplements and consumer health products. We have not formulated any final products or receive approvals from any regulatory agencies or generated any revenues from product sales. We have not been profitable since our inception through the current date.

We expect to incur significant operating losses for the next several years and until we are able to formulate a commercially viable product.  We also expect to continue to incur significant operating and capital expenditures and anticipate that our expenses will increase substantially in the foreseeable future as we:

·	Continue to undertake formulation of novel products and subsequent preclinical and clinical trials for our product candidates;

·	Seek regulatory approvals for our product candidates;

·	Develop, formulate, manufacture and commercialize our products;

·	Implement additional internal systems and develop new infrastructure;

·	Acquire or in-license additional products or technologies, or expand the use of our technology;

·	Maintain, defend and expand the scope of our intellectual property; and

·	Hire qualified personnel.

Future product revenue will depend on our ability to develops, receive regulatory approvals for, and successfully market, our product candidates. In the event that our development efforts result in regulatory approval and successful commercialization of our product candidates, we will generate revenue from direct sales of our products and/or, if we license our products to future collaborators, from the receipt of license fees and royalties from licensed products.

Management estimates that our research and development expenses for the next 12 months will be approximately $3.0 million, primarily for research and pilot studies.  We also estimate that other expenses, including personnel, general and administrative and miscellaneous expenses could be as much as $2.0 million during the same time period.  Because we currently have no revenues, most likely the only source of funding these expenses will be through the private sale of our securities, either equity or debt.  We are currently exploring possible funding sources, but we have not entered into any arrangements or agreements for funding as of this time.  If we are unable to raise the necessary funding, our research and development plans will be delayed indefinitely.  There can be no assurance that we will be able to raise the funds necessary to carry out our business plan on terms favorable to the company, or at all.

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Forward-Looking and Cautionary Statements

Statements contained in this report which are not historical facts, may be considered "forward-looking statements," which term is defined by the Private Securities Litigation Reform Act of 1995.  Any "safe harbor under this Act does not apply to a "penny stock" issuer, which definition would include the company.  Forward-looking statements are based on current expectations and the current economic environment.  We caution readers that such forward-looking statements are not guarantees of future performance. Unknown risks and uncertainties as well as other uncontrollable or unknown factors could cause actual results to materially differ from the results, performance or expectations expressed or implied by such forward-looking statements.

Item 3.                Quantitative and Qualitative Disclosures About Market Risk.

This item is not required for a smaller reporting company.

 Item 4.                Controls and Procedures.

Evaluation of Disclosure Controls and Procedures.  Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.  Disclosure and control procedures are also designed to ensure that such information is accumulated and communicated to management, including the chief executive officer and chief financial officer, to allow timely decisions regarding required disclosures.

As of the end of the period covered by this quarterly report, we carried out an evaluation, under the supervision and with the participation of management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures.  In designing and evaluating the disclosure controls and procedures, management recognizes that there are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures.  Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their desired control objectives.  Additionally, in evaluating and implementing possible controls and procedures, management is required to apply its reasonable judgment.  Based on the evaluation described above, our management, including our chief executive officer and chief financial officer, concluded that, as of June 30, 2015, our disclosure controls and procedures were not effective due to a lack of adequate segregation of duties and the absence of an audit committee.

Changes in Internal Control Over Financial Reporting.  Management has evaluated whether any change in our internal control over financial reporting occurred during the quarter ended June 30, 2015. Based on its evaluation, management, including the chief executive officer and chief financial officer, has concluded that there has been no change in our internal control over financial reporting during the quarter ended June 30, 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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On May 22, 2015, we issued a total of 62,285,718 shares to management and directors in satisfaction of accrued liabilities at the price of $0.007 per share.   The issuance of these securities was deemed to be exempt from the registration requirements of the Securities Act of 1933, as amended by virtue of Section 4(a)(2) thereof, as a transaction by an issuer not involving a public offering.

 

Item 3.                Defaults Upon Senior Securities

This Item is not applicable.

Item 4.                Mine Safety Disclosures

This Item is not applicable.

Item 5.                Other Information

This Item is not applicable.

Item 6.                Exhibits

Exhibit 31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.2	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 101	Interactive Data File.

 

	EASTGATE BIOTECH CORP.
Date:  August 19, 2015	By:  /S/   Anna Gluskin
	Anna Gluskin
	Chief Executive Officer
	(Principal Executive Officer)

 

Date:  August 19, 2015	By:  /S/   Brian Lukian
	Brian Lukian
	Chief Financial Officer
	(Principal Accounting Officer)