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EX-32 - PEAK PHARMACEUTICALS, INC.exh322.htm
EX-32 - PEAK PHARMACEUTICALS, INC.exh321.htm
EX-31 - PEAK PHARMACEUTICALS, INC.exh311.htm
EX-31 - PEAK PHARMACEUTICALS, INC.exh312.htm





UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q


 (Mark One)

x

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

 

For the quarterly period ended December 31, 2015

 

¨

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

 

For the transition period from _______ to _______

 


Peak Pharmaceuticals, Inc.

(Exact name of registrant as specified in its charter)

 

Nevada

005-87668

26-1973257

(State or other jurisdiction of incorporation)

(Commission File Number)

(IRS Employer Identification Number)


700 N. Colorado Blvd., #734

Denver, CO 80206

(Address of principal executive offices)


12635 E. Montview Blvd., Suite 137

Aurora, CO 80045

(Former Address of principal executive offices)


Registrant’s telephone number, including area code: 303.415.2558

 

 

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.

 

Large accelerated filer

o

Accelerated filer

o

Non-accelerated filer

o

Smaller reporting company

x

(Do not check if a smaller Reporting company)

 

 

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

 

There were 78,363,562 shares of the issuers common stock outstanding as of February 17, 2016.





 

PEAK PHARMACEUTICALS, INC.

 

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2015

TABLE OF CONTENTS


 

 

 

PAGE

 

 

 

 

 

 

PART I - FINANCIAL INFORMATION

 

 

 

 

 

 

 

 

Item 1.

Financial Statements

 

 

3

 

 

 

 

 

 

 

Item 2.

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

 

 

4

 

 

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

 

8

 

 

 

 

 

 

 

Item 4.

Controls and Procedures

 

 

8

 

 

 

 

 

 

 

PART II - OTHER INFORMATION

 

 

 

 

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

 

10

 

 

 

 

 

 

 

Item 1A.

Risk Factors

 

 

10

 

 

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

 

10

 

 

 

 

 

 

 

Item 3.

Defaults Upon Senior Securities

 

 

10

 

 

 

 

 

 

 

Item 4.

Mine Safety Disclosures

 

 

10

 

 

 

 

 

 

 

Item 5.

Other Information

 

 

10

 

 

 

 

 

 

 

Item 6.

Exhibits

 

 

10

 

 

 

 

 

 

 

SIGNATURES

 

 

12

 

 



2






 

 

PART I – FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

 

 

PAGE

 

 

 

 

 

Consolidated Condensed Balance Sheets as of December 31, 2015 (unaudited) and September 30, 2015

 

 

F-1

 

 

 

 

 

 

Consolidated Condensed Statements of Operations for the three months ended December 31, 2015 and 2014 (unaudited)

 

 

F-2

 

 

 

 

 

 

Consolidated Condensed Statements of Cash Flows for the three months ended December 31, 2015 and 2014 (unaudited)

 

 

F-3

 

 

 

 

 

 

Notes to Consolidated Condensed Financial Statements (unaudited)

 

 

F-4

 

 


 

 




3







Peak Pharmaceuticals, Inc.

Condensed Consolidated Balance Sheets

 

 

 

December 31,

 

September 30,

 

 

2015

 

2015

 

 

(Unaudited)

 

(Audited)

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

   Cash

 

$

62,108 

 

$

201,656 

   Prepaid expenses

 

 

7,500 

 

 

7,250 

   Deposit

 

 

2,500 

 

 

2,500 

Assets of discontinued operations held for sale

 

 

 

 

50,383 

     Total current assets

 

 

72,108 

 

 

261,789 

Fixed assets, net of depreciation

 

 

972 

 

 

1,336 

Intangible assets, net of amortization

 

 

15,264 

 

 

18,245 

Total Assets

 

$

88,344 

 

$

281,370 

 

 

 

 

 

 

 

Liabilities and stockholders' deficit

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

   Accounts payable

 

$

50,136 

 

$

43,238 

   Accounts payable - related parties

 

 

47,833 

 

 

27,000 

   Accrued liabilities

 

 

31,543 

 

 

39,151 

Liabilities of discontinued operations held for sale

 

 

 

 

179,243 

     Total current liabilities

 

 

129,512 

 

 

288,632 

Total Liabilities

 

 

129,512 

 

 

288,632 

 

 

 

 

 

 

 

Stockholders’ Deficit

 

 

 

 

 

 

Preferred stock, $.00001 par value, 25,000,000 shares authorized, none issued or outstanding

 

 

 

 

 

 

Common stock, $0.0001 par value, 325,000,000 shares authorized, 78,363,562 shares issued and outstanding, as of December 31, 2015 and September 30, 2015

 

 

7,836 

 

 

7,836 

Additional paid in capital

 

 

6,432,050 

 

 

6,151,997 

Accumulated deficit

 

 

(6,481,054)

 

 

(6,167,095)

Total Stockholders’ Deficit

 

 

(41,168)

 

 

(7,262)

Total Liabilities and Stockholders’ Deficit

 

$

88,344 

 

$

281,370 

 

 

 

 

 

 

 

See the accompanying notes to the condensed consolidated financial statements




F-1





Peak Pharmaceuticals, Inc.

Condensed Consolidated Statements of Operations

For the Three Months Ended December 31, 2015 and 2014

(Unaudited)

 

 

 

 

 

 

 

 

 

2015

 

2014

Operating expenses:

 

 

 

 

 

 

  General and administrative

 

$

381,712 

 

$

840,321 

  Depreciation and amortization

 

 

3,346 

 

 

2,917 

Total operating expenses

 

 

385,058 

 

 

843,238 

 

 

 

 

 

 

 

Operating loss

 

 

(385,058)

 

 

(843,238)

 

 

 

 

 

 

 

Other income (expenses)

 

 

 

 

 

 

Interest

 

 

 

 

(260)

Total other income (expenses)

 

 

 

 

(260)

 

 

 

 

 

 

 

Loss from continuing operations

 

 

(385,058)

 

 

(843,498)

 

 

 

 

 

 

 

Income from operations of discontinued Canna-Pet component (including gain on disposal of $80,903 in 2015)

 

 

71,099 

 

 

28,272 

 

 

 

 

 

 

 

Net loss

 

$

(313,959)

 

$

(815,226)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per share information - basic and fully diluted:

 

 

 

 

 

 

   Weighted average shares outstanding

 

 

78,363,562 

 

 

78,189,649 

   Net (loss) per share

 

$

(0.00)

 

$

(0.01)

 

 

 

 

 

 

 

See the accompanying notes to the condensed consolidated financial statements





F-2





Peak Pharmaceuticals, Inc.

Consolidated Condensed Statements of Cash Flows

For the Three Months Ended December 31, 2015 and 2014

(Unaudited)

 

 

 

2015

 

2014

Net cash used in operating activities

 

$

(139,548)

 

$

(169,447)

 

 

 

 

 

 

 

Net cash provided by financing activities

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by investing activities

 

 

 

 

 

 

 

 

 

 

 

Net change in cash

 

 

(139,548)

 

 

(169,447)

Cash, beginning of period

 

 

201,656 

 

 

451,431 

Cash, end of period

 

$

62,108 

 

$

281,984 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

    Cash paid for interest

 

$

 

$

260 

    Cash paid for income taxes

 

$

 

$

 

 

 

 

 

 

 

Non-cash investing activities

 

 

 

 

 

 

    Gain on disposal of Canna-Pet (See note 2)   

 

$

$80,903 

 

$

 

 

 

 

 

 

 

Non-cash financing activities

 

 

 

 

 

 

    Common shares issued for services

 

$

 

$

36,000 

 

 

 

 

 

 

 

See the accompanying notes to the condensed consolidated financial statements




F-3




Peak Pharmaceuticals, Inc.

Notes to Consolidated Condensed Financial Statements

December 31, 2015 and 2014

(Unaudited)



Note 1 – Summary of Significant Accounting Policies


Throughout this report, the terms “our,” “we,” “us,” and the “Company” refer to Peak Pharmaceuticals, Inc. and its subsidiary.  The accompanying unaudited condensed consolidated financial statements of Peak Pharmaceuticals, Inc., at December 31, 2015 and 2014 have been prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial statements, instructions to Form 10-Q, and Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in our annual report on Form 10-K for the year ended September 30, 2015. In management's opinion, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation to make our financial statements not misleading have been included. The results of operations for the periods ended December 31, 2015 and 2014 presented are not necessarily indicative of the results to be expected for the full year.


The Company was incorporated in Nevada on December 18, 2007.  After a number of name changes on December 23, 2014, we again changed our name to Peak Pharmaceuticals, Inc.  This name change was made to make our name more consistent with our business operations and plans relating to development, manufacturing and marketing of hemp-based nutraceutical and supplement products for the human and animal health markets.  On October 1, 2015 we discontinued certain operations of the Company.


Financial statements prepared in conformity with GAAP contemplate a company’s continuation as a going concern. We have incurred net losses since inception. In addition, we have an accumulated deficit of $6,481,054 as of December 31, 2015. This condition raises substantial doubt as to our ability to continue as a going concern. In response to these conditions, we are evaluating raising additional capital through the sale of equity securities, through an offering of debt securities or through borrowings from financial institutions or individuals. These financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.


Reclassification

Certain amounts from prior year have been reclassified for consistency with the presentation of the three months ended December 31, 2015. These reclassifications had no effect on the reported results of operations.


Basis of Consolidation

The consolidated financial statements include the financial statements of the Company and our wholly owned subsidiary Peak BioPharma Corp. All inter-company balances and transactions among the companies have been eliminated upon consolidation.


Use of Estimates

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and revenues and expenses during the periods reported. Actual results may differ from these estimates.


Cash and Cash Equivalents

We consider all highly liquid investments with an original maturity of three months or less, at the time of purchase, to be cash equivalents.


Financial Instruments

Our financial instruments consist of cash, and payables. The carrying values of these instruments approximate fair value because of the short term maturities of these instruments.


Inventory

Inventory, which is included in assets of discontinued operations held for sale, consists of finished goods and is carried at the lower of cost or market on a first in first out basis.


Fair Value Measurements

Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC)” Topic 820, Fair Value Measurements and Disclosures ("ASC 820"), provides a comprehensive framework for measuring fair value and expands disclosures which are required about fair value measurements. Specifically, ASC 820 sets forth a definition of fair value and establishes a hierarchy prioritizing the inputs to valuation techniques, giving the highest priority to quoted prices in active markets for identical assets and liabilities and the lowest priority to unobservable value inputs. ASC 820 defines the hierarchy as follows:

 



F-4




Peak Pharmaceuticals, Inc.

Notes to Consolidated Condensed Financial Statements

December 31, 2015 and 2014

(Unaudited)



Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reported date. The types of assets and liabilities included in Level 1 are highly liquid and actively traded instruments with quoted prices, such as equities listed on the New York Stock Exchange.

 

Level 2 – Pricing inputs are other than quoted prices in active markets, but are either directly or indirectly observable as of the reported date. The types of assets and liabilities in Level 2 are typically either comparable to actively traded securities or contracts, or priced with models using highly observable inputs.

 

Level 3 – Significant inputs to pricing that are unobservable as of the reporting date. The types of assets and liabilities included in Level 3 are those with inputs requiring significant management judgment or estimation, such as complex and subjective models and forecasts used to determine the fair value of financial transmission rights.


Intangible asset

Intangible asset is our website and is being amortized over the expected useful life which we estimate to be three years.  Amortization expense charged to operations for the three months ended December 31, 2015 and 2014, were $2,981 and $2,917, respectively.


Long-lived assets

On a periodic basis, management assesses whether there are any indicators that the value of our long-lived assets may be impaired. An asset’s value may be impaired only if management’s estimate of the aggregate future cash flows, on an undiscounted basis, to be generated by the asset are less than the carrying value of the asset.


Our only longed lived assets are our website and computer equipment.  If impairment has occurred, the loss is measured as the excess of the carrying amount of the asset over its fair value.  Our estimates of aggregate future cash flows expected to be generated by our long-lived asset are based on a number of assumptions that are subject to economic and market uncertainties. As these factors are difficult to predict and are subject to future events that may alter management’s assumptions, the future cash flows estimated by management in their impairment analyses may not be achieved. As of December 31, 2015, there was no asset impairment.


Revenue Recognition

We recognize revenue from products sold when there is persuasive evidence of an arrangement, delivery has occurred or services have been rendered, the sales price is determinable and collection is reasonably assured.


Revenue represents the sale of products and related shipping fees.


Cost of Revenue

Cost of revenue includes the cost of products sold attributable to the revenue.


Shipping costs

Shipping costs are included in general and administrative expenses.


Research and Development

Expenditures for research activities relating to product development and improvement are charged to expense as incurred. We incurred $532 in research and development expenses for the three months ended December 31, 2014.  There were no research and development costs in the three months ended December 31, 2015.


Loss per Share

We calculate net loss per share in accordance with ASC Topic 260, Earnings per Share. Basic net loss per share is computed by dividing net loss by the weighted average number of shares of Common Stock outstanding for the period, and diluted earnings per share is computed by including Common Stock equivalents outstanding for the period in the denominator. At December 31, 2015 and 2014 any equivalents would have been anti-dilutive as we had losses for the periods then ended.


Recent Pronouncements

From time to time, new accounting pronouncements are issued that we adopt as of the specified effective date. We believe that the impact of recently issued standards that are not yet effective may have an impact on our results of operations and financial position. ASU Update 2014-15 Presentation of Financial Statements-Going Concern (Sub Topic 205-40) issued August 27, 2014 by FASB defines management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern. The additional disclosure requirement is effective after December 15, 2016 and will be evaluated as to impact and implemented accordingly.



F-5




Peak Pharmaceuticals, Inc.

Notes to Consolidated Condensed Financial Statements

December 31, 2015 and 2014

(Unaudited)




In addition, the FASB issued Accounting Standards Update No. 2014-09 (Revenue from Contracts with Customers), which is effective for annual reporting periods beginning after December 15, 2016. We have not yet assessed the impact, if any, of adopting this standard.



Note 2 - Discontinued Operations


Based upon recent regulatory activity related to imposition of restrictions and limitations on the sale of hemp-based health products for pets, we elected to terminate our license agreement with Canna-Pet effective as of October 1, 2015, and to cease all operations relating to sale of hemp-based products for pets.


On October 12, 2015, we entered into an agreement for the termination (“Termination Agreement”) of the Canna-Pet License Agreement, effectively selling the discontinued operations. The Termination Agreement contained the following provisions:


·

Termination of License. The parties agreed to terminate the Canna-Pet License Agreement effective as of October 1, 2015.  This termination was made by mutual agreement of the parties pursuant to and in accordance with the provisions of the License Agreement.

 

 

·

Return of Licensed Intellectual Property.  We agreed to return all Licensed Intellectual Property to the Licensor, Canna-Pet, LLC, and our right to use all, or any portion, of the Licensed Intellectual Property ceased effective as of October 1, 2015.  Pursuant to the terms of the License Agreement, the Licensed Intellectual Property included the brand name “Canna-Pet” and certain related intellectual property, including, but not limited, trademarks and copyrights, formulations, recipes, production processes and systems, websites, domain names, customer lists, supplier lists trade secrets and know-how, and other related intellectual property.

 

 

·

Return of Other Property.  In addition to return of the Licensed Intellectual Property, we agreed to transfer to Licensor all product inventory, Colorado hemp with permits and authorization, all production/fulfillment contracts, all e-commerce accounts and processing, all NDA and Research Agreements and any and all other property in our possession which was used by us in the conduct of our business related to production and sale of medical cannabis products for pets made from hemp and low-THC cannabis plants.

 

 

·

Office Space, Equipment and Employees.  In conjunction with the execution of the Termination Agreement, we granted the Licensor the right to use our office space, for the three-month period from October 1, 2015 through December 31, 2015, on a rent-free basis.

 

 

·

Consideration.  As consideration for the cancellation of the Canna-Pet License Agreement and the return of other property, as described above, the Licensor agreed to waive payment by us and to release us from liability for payment of any and all unpaid royalties, invoices and other amounts which were otherwise currently due and payable by us to Licensor for sales of Canna-Pet products for all periods through and including September 30, 2015.

 

 

·

Collections. On October 15, 2015, we forwarded to Licensor all payments received by us after September 30, 2015 (net of amounts received by us for taxes, duties, governmental charges, freight or shipping charges, and the like) for Canna-Pet products sold on or after October 1, 2015.





F-6




Peak Pharmaceuticals, Inc.

Notes to Consolidated Condensed Financial Statements

December 31, 2015 and 2014

(Unaudited)



The following is a summary of the net assets sold as initially determined at Septembers 30, 2015 and updated October 15, 2015:


 

 

October 15, 2015

 

September 30, 2015

Inventory

 

$

45,436

 

$

41,705

Prepaid expenses

 

 

8,821

 

 

Deposits

 

 

8,179

 

 

8,678

Total assets

 

 

62,436

 

 

50,383

 

 

 

 

 

 

 

Accounts payable

 

 

103,548

 

 

124,396

Royalty payable

 

 

39,506

 

 

39,506

Accrued liabilities

 

 

285

 

 

15,341

 

 

 

143,339

 

 

179,243

 

 

 

 

 

 

 

 

 

$

80,903

 

$

128,860


The income from discontinued operations presented in the statements of operations consist of the following for the three-month periods ended December 31, 2015 and 2014, respectively:


 

2015

 

2014

Revenues

$

 

184,024 

Cost of goods sold

 

 

 

(43,972)

General and administrative expenses

 

(9,804)

 

 

(111,780)

Gain on disposal of discontinued operations

 

80,903 

 

 

 

$

71,099

 

28,272 



Note 3 - Intangibles


Intangibles at December 31, 2015 and September 30, 2015, consists of a Website, $35,000, less accumulated amortization of $19,736 and $16,755, respectively.  The website is being amortized over three years.  


Estimated future amortization expense related to intangible property as of December 31, 2015 is as follows:

 

 

 

 

Years ending September 30,

 

 

 

2016

 

$

8,750

2017

 

 

6514

 

 

$

15,264



Note 4 – Related Party Transactions


Parties, which can be corporations or individuals, are considered to be related if we have the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Companies are also considered to be related if they are subject to common control or common significant influence.


Accounts payable – related parties are the amounts payable to officers and directors of the Company for reimbursement of expenses they incurred on behalf of the Company as well as Director fees and salaries.



Note 5 – Commitments and Contingencies


Operating Lease

We leased office and lab space under an operating lease, which originally expires August 31, 2016.  The lease may be cancelled upon



F-7




Peak Pharmaceuticals, Inc.

Notes to Consolidated Condensed Financial Statements

December 31, 2015 and 2014

(Unaudited)



a 30-day notice.  During November, 2015 we exercised our right to cancel and notified the landlord that we would vacate the premises.


Rent expense was $3,880 and $6,331 for the three months ended December 31, 2015 and 2014, respectively.



Note 6 – Stockholders’ Equity


On December 22, 2014, pursuant to a Placement Agent Agreement, we issued 200,000 restricted shares of our common stock. The shares were valued at $36,000, $0.18 per share, the trading value, and charged to equity based compensation for the three months ended December 31, 2014.



Note 7 – Options


In March 2014, we issued non-qualified options to purchase 2,916,000 shares of our common stock for services rendered to a director of the Company. The options have a term of 10 years, are exercisable at $0.0067 per share and vested when they were issued.


The fair value of the options, estimated at the date of grant using the Black-Scholes option pricing model was $9,078. The options have been expensed as equity based compensation. The following assumptions were used in the Black-Scholes option pricing model:


Expected life (in years)

 

10

Volatility (based on a comparable companies)

 

123%

Risk Free interest rate

 

2.73%

Dividend yield (on common stock)

 


In May 2014, we issued non-qualified options to purchase 4,500,000 shares of our common stock to certain officers of the Company. The options are exercisable at $0.20 per share and have graded vesting over 4 years.


The fair value of the options, estimated at the date of grant using the Black-Scholes option pricing model was $4,415,649.  The following assumptions were used in the Black-Scholes option pricing model:


Expected life (in years)

10

Volatility (based on a comparable companies)

123%

Risk Free interest rate

2.56%

Dividend yield (on common stock)


As per guidance in the ASC Topic 718, Compensation - Stock Compensation (“ASC 718”), we are amortizing the fair value of the options on a straight line basis over the requisite service period for each separately vesting portion of the award as if the award was, in-substance, multiple awards (graded vesting attribution method).


The estimated future expense related to existing stock options is a follows:

Years ending September 30,

 

 

 

 

 

2016

$

602,713

2017

 

407,886

2018

 

86,961

 

$

1,097,660




F-8




Peak Pharmaceuticals, Inc.

Notes to Consolidated Condensed Financial Statements

December 31, 2015 and 2014

(Unaudited)



The following is a summary of outstanding stock options issued to employees and directors as of December 31, 2015:


 

Number of Options

 

Exercise price per share

 

Average remaining term in years

 

Aggregate intrinsic value at date of grant

 

 

 

 

 

 

 

 

Outstanding October 1, 2014

7,416,000

 

 

$0.0067 - $0.20

 

 

 

-  

Issued

-  

 

 

 

 

 

 

-  

Cancelled

-  

 

 

 

 

 

 

-  

Outstanding September 30, 2015

7,416,000

 

 

$0.0067 - $0.20

 

8.57

 

-  

Issued

-  

 

 

 

 

 

 

-  

Cancelled

-  

 

 

 

 

 

 

-  

Outstanding December 31, 2015

7,416,000

 

 

 

 

 

 

-  

Exercisable

4,666,000

 

 

$0.0067 - $0.20

 

8.27

 

-  



The following is a summary of outstanding stock options issued to non-employees, excluding directors, as of December 31, 2015:


 

Number of Options

 

Exercise price per share

 

Average remaining term in years

 

Aggregate intrinsic value at date of grant

 

 

 

 

 

 

 

 

Outstanding October 1, 2014

375,000 

 

 

$0.0067

 

 

 

-  

Issued

-  

 

 

 

 

 

 

-  

Cancelled

-  

 

 

 

 

 

 

-  

Outstanding September 30, 2015

375,000 

 

 

$0.0067

 

 

 

-  

Issued

-  

 

 

 

 

 

 

-  

Cancelled

-  

 

 

 

 

 

 

-  

Outstanding December 31, 2015

375,000

 

 

 

 

 

 

-  

Exercisable

375,000 

 

 

$0.0067

 

7.79

 

-  


Total equity based compensation for the three months ended December 31, 2015 and 2014 was $280,053 and $657,988, respectively.



Note 8 – Income Tax


We account for income taxes in interim periods in accordance with ASC Topic 740, Income Taxes (“ASC 740”). We have determined an estimated annual effective tax rate. The rate will be revised, if necessary, as of the end of each successive interim period during our fiscal year to our best current estimate. As of December 31, 2015 the estimated effective tax rate for the year will be zero.

 

There are open statutes of limitations for taxing authorities in federal and state jurisdictions to audit our tax returns from 2011 through the current period. Our policy is to account for income tax related interest and penalties in income tax expense in the statement of operations. There have been no income tax related interest or penalties assessed or recorded.

 

ASC 740 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This pronouncement also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.


For the three months ended December 31, 2015 and 2014 we did not have any interest and penalties associated with tax positions. As



F-9




Peak Pharmaceuticals, Inc.

Notes to Consolidated Condensed Financial Statements

December 31, 2015 and 2014

(Unaudited)



of December 31, 2015 we did not have any significant unrecognized uncertain tax positions.



Note 9 - Subsequent Events


Management has evaluated all activity and concluded that no subsequent events have occurred that would require recognition in these financial statements or disclosure in the notes to these financial statements.



F-10







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


SPECIAL NOTE OF CAUTION REGARDING FORWARD-LOOKING STATEMENTS


This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts included in this Quarterly Report on Form 10-Q, including without limitation, statements in this Management’s Discussion and Analysis of Financial Condition and Results of Operations regarding our financial position, estimated working capital, business strategy, the plans and objectives of our management for future operations and those statements preceded by, followed by or that otherwise include the words “believe”, “expects”, “anticipates”, “intends”, “estimates”, “projects”, “target”, “goal”, “plans”, “objective”, “should”, or similar expressions or variations on such expressions are forward-looking statements. We can give no assurances that the assumptions upon which the forward-looking statements are based will prove to be correct. Because forward-looking statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by the forward-looking statements. There are a number of risks, uncertainties and other important factors that could cause our actual results to differ materially from the forward-looking statements, including, but not limited to, the availability and pricing of additional capital to finance operations.

 

Except as otherwise required by the federal securities laws, we disclaim any obligations or undertaking to publicly release any updates or revisions to any forward-looking statement contained in this Quarterly Report on Form 10-Q to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

 

The following discussion should be read in conjunction with our audited consolidated financial statements and the accompanying notes included elsewhere in this Annual Report. The following discussion contains forward-looking statements that involve risks and uncertainties.



Overview


We were incorporated as Surf A Movie Solutions, Inc. in Nevada on December 18, 2007, to engage in the business of the development, sales and marketing of online video stores. We were not successful in our efforts and have ceased this line of business.

 

On October 10, 2013, we entered into a Joint Venture Agreement with Produced Water Solutions, Inc., a Colorado corporation, in the business of providing economically and environmentally sound solutions for the treatment and recycling of wastewater resulting principally from oil and gas exploration and production activities.  As a result of our research of the business opportunities, on December 31, 2013 we determined not to move forward with this line of business.

 

In early March 2014 we entered into the business of developing, manufacturing and marketing pharmaceutical level products containing phytocannabinoids, an abundant and pharmaceutically active component of industrial hemp, for the prevention and alleviation of various conditions and diseases. In connection therewith, on March 17, 2014 we changed our name to Cannabis Therapy Corporation.   On December 23, 2014, we changed our name to Peak Pharmaceuticals, Inc.  All of our business operations are carried on through our wholly-owned subsidiary, Peak BioPharma Corp., a Colorado corporation.  


On July 29, 2014, through our wholly-owned subsidiary, Peak BioPharma Corp., we entered into a License Agreement (the “License Agreement”) with Canna-Pet, LLC, (“Licensor”) a Washington limited liability company, which owns the brand name “Canna-Pet” and certain related intellectual property including, but not limited to, trademarks and copyrights, formulations, recipes, production processes and systems, websites, domain names, customer lists, supplier lists, trade secrets and know-how, and other related intellectual property (collectively, the “Licensed Intellectual Property”), used by Licensor in the conduct of its business related to the production and sale of medical products made from industrial hemp which are intended exclusively for consumption by pets. Pursuant to the License Agreement, Licensor granted to us a perpetual, exclusive, world-wide license to use the Licensed Intellectual Property in conjunction with our business and the production and sale of medical products made from industrial hemp as well as the right to sublicense the Licensed Intellectual Property to third parties. The License Agreement gives us the right to produce and sell existing products utilizing the Licensed Intellectual Property and to develop new products, jointly with Licensor or otherwise, based upon the Licensed Intellectual Property. The License Agreement provided us with an immediate revenue source and access to Licensor’s customer base. During the term of the license, all intellectual property rights in and to the Licensed Intellectual Property remain the exclusive property of Licensor.


In consideration of the grant of the license, we have agreed to pay Licensor license fees in the form of royalty payments calculated on the basis of gross proceeds received by us from sales of products manufactured, marketed or sold by us utilizing the Licensed Intellectual Property or any subsequently developed intellectual property which is jointly owned by us and Licensor.



4






 

We began selling Canna-Pet products in October 2014.


Based upon recent regulatory activity related to imposition of restrictions and limitations on the sale of hemp-based health products for pets, we elected to terminate our license agreement with Canna-Pet effective as of October 1, 2015, and to cease all operations relating to sale of hemp-based products for pets.


On October 12, 2015, we entered into an agreement for the termination (“Termination Agreement”) of the Canna-Pet License Agreement, effectively selling the discontinued operations. The Termination Agreement contained the following provisions:


·

Termination of License. The parties agreed to terminate the Canna-Pet License Agreement effective as of October 1, 2015.  This termination was made by mutual agreement of the parties pursuant to and in accordance with the provisions of the License Agreement.

 

 

·

Return of Licensed Intellectual Property.  We agreed to return all Licensed Intellectual Property to the Licensor, Canna-Pet, LLC, and our right to use all, or any portion, of the Licensed Intellectual Property ceased effective as of October 1, 2015.  Pursuant to the terms of the License Agreement, the Licensed Intellectual Property included the brand name “Canna-Pet” and certain related intellectual property, including, but not limited, trademarks and copyrights, formulations, recipes, production processes and systems, websites, domain names, customer lists, supplier lists trade secrets and know-how, and other related intellectual property.

 

 

·

Return of Other Property.  In addition to return of the Licensed Intellectual Property, we agreed to transfer to Licensor all product inventory, Colorado hemp with permits and authorization, all production/fulfillment contracts, all e-commerce accounts and processing, all NDA and Research Agreements and any and all other property in our possession which was used by us in the conduct of our business related to production and sale of medical cannabis products for pets made from hemp and low-THC cannabis plants.

 

 

·

Office Space, Equipment and Employees.  In conjunction with the execution of the Termination Agreement, we granted the Licensor the right to use our office space, for the three-month period from October 1, 2015 through December 31, 2015, on a rent-free basis.

 

 

·

Consideration.  As consideration for the cancellation of the Canna-Pet License Agreement and the return of other property, as described above, the Licensor agreed to waive payment by us and to release us from liability for payment of any and all unpaid royalties, invoices and other amounts which were otherwise currently due and payable by us to Licensor for sales of Canna-Pet products for all periods through and including September 30, 2015.

 

 

·

Collections. On October 15, 2015, we forwarded to Licensor all payments received by us after September 30, 2015 (net of amounts received by us for taxes, duties, governmental charges, freight or shipping charges, and the like) for Canna-Pet products sold on or after October 1, 2015.


The following is a summary of the net assets sold as initially determined at Septembers 30, 2015 and updated October 15, 2015:


 

 

October 15, 2015

 

September 30, 2015

Inventory

 

$

45,436

 

$

41,705

Prepaid expenses

 

 

8,821

 

 

Deposits

 

 

8,179

 

 

8,678

Total assets

 

 

62,436

 

 

50,383

 

 

 

 

 

 

 

Accounts payable

 

 

103,548

 

 

124,396

Royalty payable

 

 

39,506

 

 

39,506

Accrued liabilities

 

 

285

 

 

15,341

 

 

 

143,339

 

 

179,243

 

 

 

 

 

 

 

 

 

$

80,903

 

$

128,860


Critical Accounting Policies and Estimates


Our financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the



5






disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.


We regularly evaluate the accounting policies and estimates that we use to prepare our financial statements. A complete summary of these policies is included in the notes to our financial statements. In general, management’s estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.


Recent Pronouncements


From time to time, new accounting pronouncements are issued that we adopt as of the specified effective date. We believe that the impact of recently issued standards that are not yet effective may have an impact on our results of operations and financial position.  ASU Update 2014-15 Presentation of Financial Statements-Going Concern (Sub Topic 205-40) issued August 27, 2014 by FASB defines management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern. The additional disclosure requirement is effective after December 15, 2016 and will be evaluated as to impact and implemented accordingly.


In addition, the FASB issued Accounting Standards Update No. 2014-09 (Revenue from Contracts with Customers), which is effective for annual reporting periods beginning after December 15, 2016. We have not yet assessed the impact, if any, of adopting this standard.



Results of Operations


Results of Operation for Three Months Ended December 31, 2015 as Compared to the Three Months Ended December 31, 2014

(References to 2015 and 2014 are to the three months ended December 31, 2015 and 2014 respectively, unless otherwise specified.)


Our Canna-Pet business segment began operations in October 2014.  As a result of recent regulatory activity related to imposition of restrictions and limitations on the sale of hemp-based health products for pets, on October 1, 2015, we elected to terminate our license agreement with Canna-Pet and to cease all operations relating to sale of hemp-based products for pets.


The income from discontinued operations presented in the statements of operations consist of the following for the three-month periods ended December 31, 2015 and 2014:


 

2015

 

2014

Revenues

$

 

184,024 

Cost of goods sold

 

 

 

(43,972)

General and administrative expenses

 

(9,804)

 

 

(111,780)

Gain on disposal of discontinued operations

 

80,903 

 

 

 

$

71,099

 

28,272 


There were no operations of our discontinued business in 2015.


General and administrative expenses from continuing corporate operations for the three month periods ended December 31, 2015 and 2014 were as follows:


 

 

2015

 

2014

 

Difference

Stock based compensation

 

$

280,053

 

$

657,988

 

$

(377,935)

Personnel cost

 

 

45,297

 

 

28,562

 

 

16,735

Legal and professional fees

 

 

25,848

 

 

67,841

 

 

(41,993)

Insurance

 

 

14,750

 

 

9,338

 

 

5,412

IR/PR

 

 

3,660

 

 

50,007

 

 

(46,347)

Other general and administrative costs

 

 

12,104

 

 

26,585

 

 

(14,481)

 

 

$

381,712

 

 

840,321

 

$

(458,609)


The equity based compensation was from the amortization of previously issued stock option to officers and directors.  Seven million four hundred sixteen thousand (7,416,000) options are outstanding, and vest over varying periods.  The options are exercisable



6






through 2024 at prices ranging from $0.0067 to $0.20.  Four million six hundred sixty-six thousand (4,666,000) of the outstanding options are currently exercisable.  In addition, during the three months ended December 31, 2014, we issued 200,000 restricted shares of our common stock to an investment banking firm. The shares were valued at $36,000, or $0.18 per share, the trading value as of the date of issuance.


During 2015 we had two full time employees as compared to one full time employ in 2014.  We currently have one part time employee and do not anticipate hiring in the near future.


Legal and professional fees were incurred in connection with the changes in our business and the costs of being a public company. We anticipate that legal and professional fees will continue to decrease during the immediate future.


Insurance increase as a result of extending one of our policies for three months.  


Other general and administrative costs include costs such as IT costs, travel, communications, and office expenses.  These costs decreased as a result of decreased activity due to discontinuing Canna-Pet operations.


We had a loss from continuing operations of $385,058 for 2015 as compared to $843,498 for 2014.


For 2015 we had a net loss of $313,959 as compared to $815,226 for 2014.



Liquidity and Capital Resources


Financial statements prepared in conformity with GAAP contemplate a company’s continuation as a going concern. We have incurred net losses since inception. In addition, we have an accumulated deficit of $6,481,054 as of December 31, 2015. This condition raises substantial doubt as to our ability to continue as a going concern. In response to these conditions, we are evaluating raising additional capital through the sale of equity securities, through an offering of debt securities or through borrowings from financial institutions or individuals. These financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.


We discontinued our Canna-Pet operation which was our source of continuing cash flow.  We are exploring business opportunities using hemp based products.


We expect that we will need to raise funds in order to effectuate our business plan. We may seek additional investors to purchase our stock to provide us with working capital to fund our operations. There can be no assurance that additional capital will be available to us at all or on acceptable terms. We may seek to raise the required capital by other means. We may have to issue debt or equity or enter into a strategic arrangement with a third party. We currently have no agreements, arrangements or understandings with any person to obtain funds through bank loans, lines of credit or any other sources. Since we have no such arrangements or plans currently in effect, our inability to raise funds will have a severe negative impact on our ability to remain a viable company.


At December 31, 2015, cash was $62,108.


Net cash used in operating activities was $139,548 for the three months ended December 31, 2015, as compared to net cash used of $169,447 for the three months ended December 31, 2014. The decrease in net cash used in operations was primarily due to our change in operating plans and the revenue generated from the sale of our products.


There were no cash investing activities during the three-month periods ended December 31, 2015 and 2014.


There were no cash financing activities during the three-month ended December 31, 2015 and 2014.  


There is no assurance that we will be able to obtain any financing or enter into any form of credit arrangement. Although we may be offered such financing, the terms may not be acceptable to us. If we are not able to secure financing, or if it is offered to us on unacceptable terms, our business plan may have to be modified or curtailed or certain aspects of it may need to be terminated. There is no assurance that even with financing we will be able to achieve our goals.





7






Off Balance Sheet Arrangements

 

None.


Contractual Obligations

 

Not applicable.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures that are designed to ensure that material information required to be disclosed in our periodic reports filed under the Securities Exchange Act of 1934, as amended, or 1934 Act, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and to ensure that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer as appropriate, to allow timely decisions regarding required disclosure. At the end of the quarter ended December 31, 2015 we carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and the principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures.  


We do not have an audit committee: While we are not currently obligated to have an audit committee, including a member who is an “audit committee financial expert,” as defined in Item 407 of Regulation S-K, under applicable regulations or listing standards; however, it is management’s view that such a committee is an important internal control over financial reporting, the lack of which may result in ineffective oversight in the establishment and monitoring of internal controls and procedures.


Based on this evaluation, we determined that as of December 31, 2015, our disclosure controls and procedures were not effective due to the following:


We do not have a majority of independent directors on our board of directors, which may result in ineffective oversight in the establishment and monitoring of required internal controls and procedures.


Inadequate Segregation of Duties: We have an inadequate number of personnel to properly implement control procedures.


Due to the size and lack of resources of our Company we have not fully developed formal accounting policies and procedures.


We have not properly complied with all aspects of the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 2013.


 

Limitations on Effectiveness of Controls and Procedures

 

Our management, including our Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer), does not expect that our disclosure controls and procedures will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include, but are not limited to, the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

 



8






Changes in Internal Controls

 

During the fiscal quarter ended December 31, 2015, there have been no changes in our internal control over financial reporting that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.





9






 

PART II – OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

From time to time we may be a defendant and plaintiff in various legal proceedings arising in the normal course of our business. We are currently not a party to any material legal proceedings or government actions, including any bankruptcy, receivership, or similar proceedings. In addition, we are not aware of any known litigation or liabilities involving the operators of our properties that could affect our operations. Furthermore, as of the date of this Quarterly Report, our management is not aware of any proceedings to which any of our directors, officers, or affiliates, or any associate of any such director, officer, affiliate, or security holder is a party adverse to our company or has a material interest adverse to us.

 

ITEM 1A. RISK FACTORS

 

Not applicable.

 

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

 

None


ITEM 3. DEFAULTS UPON SENIOR SECURITIES


None.


ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION


None


ITEM 6. EXHIBITS

 

In reviewing the agreements included as exhibits to this Form 10-Q, please remember that they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about the Company or the other parties to the agreements. The agreements may contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the parties to the applicable agreement and:

 

·  

should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate;

 

·  

have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;

 

·  

may apply standards of materiality in a way that is different from what may be viewed as material to you or other investors; and

 

·  

were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments.

 

Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. Additional information about the Company may be found elsewhere in this Form 10-Q and the Company’s other public filings, which are available without charge through the SEC’s website at http://www.sec.gov.

 



10






The following exhibits are included as part of this report:

 

Exhibit No.

 

Description

 

 

 

31.1

 

Certification of Principal Executive Officer pursuant to Section 302 the Sarbanes-Oxley Act of 2002

 

 

 

31.2

 

Certification of Principal Financial Officer pursuant to Section 302 the Sarbanes-Oxley Act of 2002

 

 

 

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

 

 

 

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

 

 

 

101

 

SCH XBRL Schema Document

 

 

 

101

 

INS XBRL Instance Document

 

 

 

101

 

CAL XBRL Taxonomy Extension Calculation Linkbase Document

 

 

 

101

 

LAB XBRL Taxonomy Extension Label Linkbase Document

 

 

 

101

 

PRE XBRL Taxonomy Extension Presentation Linkbase Document

 

 

 

101

 

DEF XBRL Taxonomy Extension Definition Linkbase Document




________________

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

 



11







SIGNATURES

 

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

 

 

 

Peak Pharmaceuticals, Inc.

 

 

 

 

 

 

Date: February 18, 2016

 

By:

/s/ Arnold Tinter

 

 

 

 

Arnold Tinter

 

 

 

 

Chief Executive Officer

 

 

 

 

 

 

 

 

Peak Pharmaceuticals, Inc.

 

 

 

 

 

 

Date: February 18, 2016

 

By:

/s/ Arnold Tinter

 

 

 

 

Arnold Tinter

 

 

 

 

Chief Financial Officer

 

 

 

 



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