UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10–Q

 

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

 

For the quarterly period ended August 31, 2015

 

or

 

[   ] 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: 000-55074

 

 

PANTHER BIOTECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
Nevada		33-1221758
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
888 Prospect Street, Suite 200, La Jolla, CA 92037
(Address of principal executive offices)
(858) 263-2744
(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.  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 (Check one).

 

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

 

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

 

As of April 21, 2016, there were 6,617,060 shares of the issuer's common stock, par value $0.001, outstanding.

 

 

PANTHER BIOTECHNOLOGY, INC.

 

FORM 10-Q

 

FOR THE THREE MONTHS ENDED AUGUST 31, 2015 AND 2014

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	17
	ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	19
	ITEM 4.	CONTROLS AND PROCEDURES	19
PART II – OTHER INFORMATION
	ITEM 1.	LEGAL PROCEEDINGS	21
	ITEM 1A.	RISK FACTORS	21
	ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	21
	ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	21
	ITEM 4.	MINE SAFETY DISCLOSURES	21
	ITEM 5.	OTHER INFORMATION	21
	ITEM 6.	EXHIBITS	22
SIGNATURES			23

 

 

 

 

 

 

 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission ("SEC"), and should be read in conjunction with the audited financial statements and notes thereto contained in our Company's Form 10-K, filed with the SEC on January 22, 2016. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the periods presented have been reflected herein. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year ended May 31, 2016.

 

 

PANTHER BIOTECHNOLOGY, INC.

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

FOR THE THREE MONTHS ENDED AUGUST 31, 2015 AND 2014

 

(UNAUDITED)

 

 

	Page
Consolidated Balance Sheets	4
Consolidated Statements of Operations	5
Consolidated Statements of Cash Flows	6
Notes to Consolidated Financial Statements	7

 

 

PANTHER BIOTECHNOLOGY, INC.

Consolidated Balance Sheets

(Unaudited)

 

		August 31,				May 31,
		2015				2015
ASSETS
Current Assets
Cash		$	186,972			$	22,815
Prepaid expenses			–				20,000
Current assets from discontinued operations			–				112,196
Total current assets			186,972				155,011
Non-Current Assets
Intangible assets, net			270,575				400,840
Total non-current assets			270,575				400,840
Total Assets		$	457,547			$	555,851
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts payable and accrued liabilities		$	103,480			$	37,004
Accounts payable – related parties			23,947				24,071
Stock payable			3,291,503				4,528,383
Related party advances			87,500				87,500
Convertible note payable, net			3,071				–
Derivative liabilities			365,756				–
Current liabilities from discontinued operations			–				40,512
Total current liabilities			3,875,257				4,717,470
Commitments and contingencies
Stockholders' Deficit
Preferred stock, $0.001 par value; 10,000,000 shares authorized; 0 shares issued and outstanding			–				–
Common stock, $0.001 par value; 100,000,000 shares authorized; 6,584,060 and 4,662,500 shares issued and outstanding, respectively			6,584				4,663
Additional paid-in capital			6,948,854				49,587
Accumulated deficit			(10,373,148	)			(4,215,869	)
Total stockholders' deficit			(3,417,710	)			(4,161,619	)
Total Liabilities and Stockholders' Deficit		$	457,547			$	555,851

 

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

 

 

PANTHER BIOTECHNOLOGY, INC.

Consolidated Statements of Operations

For the Three Months Ended August 31, 2015 and 2014

(Unaudited)

 

		2015				2014
Revenue		$	–			$	–
Operating expenses:
General and administrative expenses			5,646,884				6,237
Depreciation and amortization expense			13,778				68
Impairment of intangible assets			390,487				–
Total operating expenses			6,051,149				6,305
Operating Loss			(6,051,149	)			(6,305	)
Other (income) expense:
Loss on sale of subsidiary			80,194				–
Change in derivative liabilities			(15,239	)			–
Interest expense, net			41,175				–
Total other expenses			106,130				–
Net loss from continuing operations			(6,157,279	)			(6,305	)
Net income from discontinued operations			–				1,720
Net loss		$	(6,157,279	)		$	(4,585	)
Net loss per common share, basic and diluted		$	(1.06	)		$	(0.00	)
Weighted average number of common shares outstanding, basic and diluted			5,832,614				4,468,733

 

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

 

 

PANTHER BIOTECHNOLOGY, INC.

Consolidated Statements of Cash Flows

For the Three Months Ended August 31, 2015 and 2014

(Unaudited)

 

		2015				2014
Cash flows from operating activities:
Net loss		$	(6,157,279	)		$	(4,585	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense			13,778				68
Stock-based compensation			5,551,303				–
Impairment of intangible assets			390,487				–
Loss on sale of subsidiary			80,194				–
Change in derivative liabilities			(15,239	)			–
Amortization of debt discount and deferred financing costs			3,071				–
Changes in operating assets and liabilities:
Prepaid expenses			20,000				–
Accounts payable and accrued liabilities			57,966				–
Accounts payable – related parties			(124	)			–
Net cash used in operating activities from continuing operations			(55,843	)			(4,517	)
Net cash used in operating activities from discontinued operations			–				(1,720	)
Net cash used in operating activities			(55,843	)			(6,237	)
Cash flows from financing activities:
Proceeds from related party advances			–				10,000
Proceeds from issuance of convertible note payable			220,000				–
Net cash provided by financing activities from continuing operations			220,000				10,000
Net cash provided by financing activities from discontinued operations			–				–
Net cash provided by financing activities			220,000				10,000
Net increase in cash and cash equivalents			164,157				3,763
Cash and cash equivalents at beginning of period			22,815				2,244
Cash and cash equivalents at end of period		$	186,972			$	6,007
Supplemental disclosure of cash flow information:
Interest paid		$	–			$	–
Taxes paid		$	–			$	–
Non-cash Investing and Financing Activities:
Initial valuation of derivative on convertible debt recorded as paid-in capital		$	380,995			$	–
Original issue discount on convertible debt		$	220,000			$	–
Accrued deferred financing costs		$	5,000			$	–
Common stock issued for stock payable		$	1,236,880			$	–
Common stock issued for intangible assets		$	274,000			$	–

 

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

 

 

PANTHER BIOTECHNOLOGY, INC.

Notes to Consolidated Financial Statements

(Unaudited)

 

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS

 

Organization and Business Activity

 

Panther Biotechnology, Inc. (the “Company”) was incorporated in the State of Nevada on July 11, 2011.  The Company was originally incorporated as New Era Filing Services Inc., changed its name to NEF Enterprises, Inc. on October 4, 2011 and then changed its name to Panther Biotechnology, Inc. on May 29, 2014.  The Company incorporated a wholly-owned subsidiary, PubCo Reporting Services, Inc., formerly known as New Era Filing Services, Inc., in Florida on November 20, 2012.

 

The Company is an early stage bio-medical technology company that pursues and is continuing to pursue in-licensing of certain technologies so that they may be able to develop those technologies for treatments of patients with cancer.  Panther’s current purpose is to better serve the unmet medical needs of patients with the most difficult to treat cancers.  Panther’s mission is to identify, license and acquire unique molecules that are designed to heal without causing harm and are either optimized derivatives of existing products, repurposed approved products or new classes of drugs.

 

The Company’s prior operations, through its wholly-owned subsidiary, PubCo Reporting Services, Inc. (“PubCo”), which is in the Securities Exchange Commission compliance filing services, was sold as of June 1, 2015 and is reflected as discontinued operations in these consolidated financial statements.

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Unaudited Interim Consolidated Financial Statements

 

The accompanying unaudited interim consolidated financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission ("SEC"). and should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company's latest annual report filed with the SEC on Form 10-K. In the opinion of management, all adjustments, consisting of normal recurring adjustments necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the unaudited interim consolidated financial statements that would substantially duplicate the disclosures contained in the audited consolidated financial statements for fiscal year 2015, as reported in the Form 10-K, have been omitted.

 

Basis of Consolidation

 

The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, PubCo Reporting Services, Inc. All significant intercompany balances and transactions have been eliminated in these consolidated financial statements.

 

Basis of Presentation

 

The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America (“GAAP”).  These consolidated financial statements include all adjustments that, in the opinion of management, are necessary in order to make the financial statements not misleading.

 

Discontinued Operations

 

In accordance with Accounting Standards Codification (ASC) 205-20, Presentation of Financial Statements - Discontinued Operations, the Company reported the results of our PubCo subsidiary operations as discontinued operations.   On June 1, 2105, the Company sold its PubCo subsidiary.

 

Use of Estimates

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period.  Actual results could differ from those estimates. The Company’s periodic filings with the Securities and Exchange Commission include, where applicable, disclosures of estimates, assumptions, uncertainties and markets that could affect the financial statements and future operations of the Company.

 

 

Cash and Cash Equivalents

 

The Company considers all highly liquid investments with original maturities of less than three months, which are readily convertible to known amounts of cash and which, in the opinion of management, are subject to an insignificant risk of loss in value, to be cash equivalents.  

 

Intangible Assets

 

Intangible assets are amortized using the straight-line method over their estimated period of benefit. We evaluate the recoverability of intangible assets periodically and take into account events or circumstances that warrant revised estimates of useful lives or that indicate that impairment exists. All of our intangible assets are subject to amortization. Impairment of $390,487 related to intangible assets was identified for the three months ended August 31, 2015.

 

Impairment of Long-Lived Assets

 

The Company reviews the carrying value of its long-lived assets annually or whenever events or changes in circumstances indicate that the historical cost-carrying value of an asset may no longer be appropriate. The Company assesses recoverability of the carrying value of the asset by estimating the future net undiscounted cash flows expected to result from the asset, including eventual disposition. If the future net undiscounted cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset’s carrying value and estimated fair value.

 

Fair Value of Financial Instruments

 

The Company adopted the framework for measuring fair value that establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:

 

Basis of Fair Value Measurement

 

·

Level 1 - Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

·

Level 2 - Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the asset or the liability; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.

·

Level 3 - Unobservable inputs reflect the Company’s own assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.

 

The Company believes that the fair value of its financial instruments comprising cash, accounts payable, and convertible notes approximate their carrying amounts. As of August 31, 2015 and May 31, 2015, the Company had no Level 1 or Level 2 financial assets or liabilities, and Level 3 financial assets consisted of the Company’s derivative liability.

 

The following table presents the fair value measurement information for the Company as of August 31, 2015:

 

		Carrying Amount				Level 1				Level 2				Level 3
Derivative liability		$	365,756			$	–			$	–			$	365,756

 

The following table presents the fair value measurement information for the Company as of May 31, 2015:

 

Carrying Amount

Level 1

Level 2

Level 3

Derivative liability

$

–

$

–

$

–

$

–

 

Income Taxes

 

Deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax basis of assets and liabilities and the tax rates in effect when these differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

 

 

Share-based Expenses

 

Share-based transactions for employee services include incurring liabilities, or issuing or offering to issue shares, options, and other equity instruments such as employee stock ownership plans and stock appreciation rights. Share-based payments to employees, including grants of employee stock options, are recognized as compensation expense in the financial statements based on their fair values. That expense is recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period).

 

Measurement of share-based payment transactions with non-employees is based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair value of the share-based payment transaction is determined at the earlier of performance commitment date or performance completion date.

 

Loss per Share

 

Basic loss per common share equals net loss divided by weighted average common shares outstanding during the period. Diluted loss per share includes the impact on dilution from all contingently issuable shares, including options, warrants and convertible securities. The common stock equivalents from contingent shares are determined by the treasury stock method. The Company incurred net losses for the years ended May 31, 2015 and 2014, and therefore, basic and diluted loss per share for those periods are the same as all potential common equivalent shares would be antidilutive. For the three months ended August 31, 2015, the Company had 33,000 common stock warrants outstanding that were excluded from the calculation of diluted net loss per share because to do so would be anti-dilutive.

 

Recent Accounting Pronouncements

 

In April 2015, the FASB issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs, and in August 2015 issued ASU No. 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements. Under ASU 2015-03, debt issuance costs reported on the consolidated balance sheet would be reflected as a direct deduction from the related debt liability rather than as an asset. While ASU 2015-03 addresses costs related to term debt, ASU No. 2015-15 provides clarification regarding costs to secure revolving lines of credit, which are, at the outset, not associated with an outstanding borrowing. ASU No. 2015-15 provides commentary that the SEC staff would not object to an entity deferring and presenting costs associated with line-of-credit arrangements as an asset and subsequently amortizing them ratably over the term of the revolving debt arrangement. The Company has elected to implement ASU No. 2015-03 early and the financial statements as of August 31, 2015 reflect the early adoption.

 

The Company does not expect the adoption of any other recently issued accounting pronouncements to have a significant impact on its financial position, results of operations or cash flows.

 

Subsequent Events

 

The Company has evaluated all transactions through the date the consolidated financial statements were issued for subsequent event disclosure consideration.

 

NOTE 3 – GOING CONCERN AND LIQUIDITY CONSIDERATIONS

 

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As of August 31, 2015, the Company has a cumulative net loss since inception of $10,373,148, negative working capital of $3,688,285 and is currently in default on its convertible debt. The Company has required additional capital raises and advances from shareholders to support its operations. These factors raise substantial doubt about the ability of the Company to continue as a going concern for a reasonable period of time. The Company's continuation as a going concern is dependent upon its ability to raise sufficient capital to fund its operations until such time as it can generate revenues. No assurance can be given that the Company will be successful in these efforts.

 

The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

NOTE 4 – COMMITMENTS AND CONTINGENCIES

 

License Agreement with Northwestern University

 

On January 26, 2015, the Company entered into a license agreement with Northwestern University (“Northwestern”). Northwestern is the owner of certain patents and grants for cancer treatments of which the Company has obtained an exclusive license under a Patent Rights agreement and a non-exclusive license under a Know-How agreement (together the “Licensed Product”) (“the Northwestern License”).

 

 

According to the agreement, the Company must reach the following milestones to maintain the licenses:

 

	a)	Raise funds of at least $3 million by January 26, 2016.
	b)	Initiate good laboratory practices in preclinical studies with a Licensed Product within 18 months of the closing date;
	c)	File an Investigational new drug application within 4 years of the closing date;
	d)	First dosing of a patient in a phase I clinical trial for a Licensed Product within 5 years of the closing date;
	e)	First dosing of a patient in a phase II clinical trial for a Licensed Product within 6 years of the closing date;
	f)	First dosing of a patient in a phase III clinical trial for a Licensed Product within eight years of the closing date;
	g)	Submit a new drug application for a Licensed Product within 10 years of the closing date;
	h)	Complete and submit to Northwestern a business plan for commercialization of a Licensed Product within 1 year of submission of a new drug application (“NDA”) for such Licensed Product.

 

In consideration of the license granted by Northwestern, the Company shall pay to Northwestern the following:

 

a)

A non-creditable, non-refundable licensing fee of $24,000 within 30 days of the closing date. The license fee was paid during the year ended May 31, 2014. On January 26, 2015, the license deposit was capitalized as part of the intangible license purchase upon closing of the transaction.

 

b)

In partial consideration of the grant of the exclusive rights and license to the assigned patent rights and non-exclusive license to the know-how of Northwestern, the Company agreed to issue Northwestern a number of shares of its common stock that will represent 2% of the total outstanding shares of the Company and, in consideration of Dr. Sui Huang’s role as co-founder and in anticipation of entering into a research agreement with Northwestern to support research in Dr. Sui Huang’s laboratory, the Company will issue to Dr. Sui Huang a number of shares of common stock that will represent 2% of the total outstanding shares of the Company; The fair value of the 186,282 common shares, based on the January 26, 2015 closing stock price of $2.01, was $374,427.  The Company recorded an intangible license asset in the amount of $187,214 for the shares owed to Northwestern and recorded share-based compensation of $187,213 for the shares owed to Dr. Sui Huang. As of May 31, 2015 and August 31, 2015, none of these shares had been issued and a stock payable in the amount of $374,427 was recorded. On September 12, 2015, one of the Company’s shareholders, and former Chairman of the Board, transferred 186,282 common shares of his own on behalf of the Company for the 4% of outstanding shares to be issued above.

 

c)

The Company shall pay to Northwestern a non-creditable, non-refundable annual maintenance fee on each anniversary of the closing date according to the following schedule until the Company receives regulatory approval from the Federal Drug Administration (or foreign equivalent) (“Regulatory Approval”) of the first Licensed Product(s):

 

Time Periods		Amount
1st anniversary		$0
2nd-4th anniversaries		$7,000
5th and 6th anniversaries		$25,000
7th anniversary and each year thereafter		$50,000

 

In the first full calendar year following Regulatory Approval, Northwestern shall credit 1/12 of the annual maintenance fee paid by the Company against the minimal royalty payments (see item (e) below) due for each full month remaining between January 1 of that year and the anniversary of the closing date.

 

d)

The following non-creditable and non-refundable milestone payments upon the achievement of particular milestones in the development of Licensed Products (none of which have occurred as of May 31, 2015 and through the date of this filing):

 

	(1)	$25,000 upon filing of Investigational new drug application for a Licensed Product
	(2)	$50,000 upon dosing first patient in Phase I trial (or foreign equivalent) for a Licensed Product
	(3)	$100,000 upon dosing first patient in Phase II trial (or foreign equivalent) for a Licensed Product
	(4)	$250,000 upon dosing first patient in Phase III trial (or foreign equivalent) for a Licensed Product
	(5)	$1,500,000 upon Regulatory Approval of a Licensed Product

 

e)

Beginning the first full calendar year after Regulatory Approval of a Licensed Product in the United States, Canada, Japan, France, Germany, United Kingdom, Australia, or Italy, or the year 2025, whichever comes first, the Company shall pay to Northwestern minimum royalty payments of $200,000 per year, on a quarterly basis.

 

f)

The Company will reimburse Northwestern's out of pocket patent expenses totaling approximately $25,000 as of November 18, 2014. All future patent costs for the preparation, filing, prosecution, and maintenance of the Patent rights, shall be borne by the Company. Payment of out of pocket patent expenses will be deferred until the earlier of a) the date the Company closes on its first round of financing after the closing date or b) one year from the closing date.  None of these events have occurred as of May 31, 2015 and through the date of this filing and the $25,000 reimbursement remains in deferral.

 

 

g)

A running royalty of (a) 5% of net sales of Licensed Products if such Licensed Product is covered by patent rights in the country where such Licensed Product is manufactured or sold and (b) 2% of net sales of Licensed Products in all other countries. In the event that Licensee enters into other license agreements) with third parties with respect to intellectual property which in the Company's opinion is legally required for the manufacture, use or sale of Licensed Product(s), the Company may offset amounts paid to such third parties against earned royalties due Northwestern hereunder, by reducing Licensee's obligation to Northwestern by 0.25% for each 1% of royalty rate payable to third parties; provided, however, that in no event will the royalty rate otherwise due to Northwestern be less than 2.5%;

 

h)

In addition to the running royalties described above, 15% of any payments, including, but not limited to, sublicense issue fees or milestones received from sub licensees as consideration for Patent Rights or Licensed Products prior to filing of an NDA; 5% after filing an NDA;

 

i)

In the event of a corporate partnership for the development and/or commercialization of a Licensed Product, 10% of any payments received from such corporate partner as consideration for patent rights or Licensed Products. Payments received by the Company for equity and payments allocated solely for research are excluded;

 

j)

The Company subject to certain payments if the Company issues sublicenses, permit assignments on the agreement, or in the event of a corporate partnership for the development and /or commercialization of a licensed product;

 

k)

In the event of a permitted assignment of the agreement, 10% of any payments received from such assignee as consideration for patent rights or Licensed Products.

 

The agreement will continue in effect, on a country-by country basis, until the expiration of the last to expire of patent rights.  

 

The Northwestern License required that the Company raise $3,000,000 dollars prior to the one year anniversary of the agreement on January 26, 2016. The Company did not raise the requisite amount of capital and is in default on the license agreement. Although the Company has not received a notice of default from Northwestern regarding the default, in the first quarter of fiscal year 2016, the Company recognized an impairment charge of $198,820 related to the Northwestern License, which represents the net book value of the intangible asset. However, we maintain a close relationship with Northwestern, as they are a significant shareholder in the Company, and the Inventor of the Licensed Products sits on our Board of Directors as well as a Professor of Hematology at the Feinberg Medical School (Northwestern’s medical school).

 

Blue Print Partners Group

 

On April 7, 2015, the Company entered into a twelve-month consulting agreement with Blue Print Partners and its principal, Tim Boyd, to assist in, among other items, the daily merger and acquisition activities of the Company, raising capital, and the possible acquisition of pre-identified biotech assets. Mr. Boyd was to be paid a signing fee of 6,250 shares of the Company’s common stock with a fair value of $50,000 on closing and a retainer of $12,500 per month plus out-of-pocket costs. Mr. Boyd would also have been entitled to various success fees ranging from seven percent (7%) to ten percent (10%), based on the type of transaction, of the total value of any transaction, and would be payable in shares of the Company’s common stock. Mr. Boyd would have earned a success fee of $100,000 plus 10% of the transaction value in the Company’s stock in the event of a closing of a transaction of an acquisition of an agreed upon target company, a success fee upon the closing of a financing of 5% cash or 10% in Company stock (7% cash or 12% stock for Mezzanine or Equity financing) if Boyd had introduced us to the investor or lender, or a success fee of $100,000 on the sale of any of the Company assets through Mr. Boyd. None of these potential targets had been met by Mr. Boyd prior to the termination of this Agreement.  Due to Mr. Boyd’s improper and unauthorized activities in a number of transactions, the Company terminated this agreement on August 18, 2015, and informed Mr. Boyd he would not be receiving any shares and the Company demanded the return of $10,000 delivered to Mr. Boyd for the purposes of legal fees for a possible transaction.  The Company has instituted legal proceedings against Mr. Boyd due to a pattern of conduct by Mr. Boyd after the consulting agreement was signed that the Company believes was wholly improper and is seeking significant damages from Mr. Boyd for damages caused due to his actions.  The Company recorded a stock payable of $50,000 for the 6,250 signing fee shares and accrued $25,000 for the April and May retainer amounts due under the agreement as of May 31, 2015. During the three months ended August 31, 2015, the Company accrued an additional $37,500 for monthly retainers, pending resolution of this matter. On July 6, 2015, the Company issued 6,250 common shares for the $50,000 stock payable recorded as of May 31, 2015.

 

License Agreement with University of Rochester

 

On April 16, 2015, the Company entered into an exclusive patent license agreement with University of Rochester (“Rochester”). Rochester grants to the Company a worldwide exclusive, royalty-bearing license, with the right to sublicense, for patents and technology related to the treatment of diabetes (the “Patent Products”). According to the agreement, the Company will reimburse Rochester for all mutually agreed fees and costs relating to the filing, prosecution, and maintenance of patent applications, including without limitation, interferences, oppositions, and reexaminations, and the maintenance and defense of patents in patent rights, including fees and cost incurred on, and after the closing date of the agreement.

 

As partial consideration for the rights conveyed by Rochester under this agreement, the Company agreed to issue 25,437 shares of the Company’s common stock to Rochester as a one-time, non-refundable, non-creditable license issue fee valued at $200,000 based upon the average price per share during the week preceding the closing date, which was $7.86. Rochester may not transfer the shares before August 30, 2016.  The Company capitalized the $200,000 as an intangible license asset on the consolidated balance sheet. As of May 31, 2015, the shares had not been issued and a stock payable of $200,000 was recorded. On July 6, 2015, the Company issued 25,437 common shares to settle the $200,000 stock payable recorded as of May 31, 2015.

 

 

In addition to the above license fee, for the term of the agreement on an annual basis measured from the closing date of the agreement, the Company will pay at the beginning of the following year a non-refundable minimum annual maintenance fee of $15,000 in cash or Company stock each year prior to the onset of clinical trials. Rochester will waive the pre-clinical trial annual maintenance fee if the Company spends at least $200,000 annually on the drug development that would enhance the patent rights conveyed. After onset of clinical trials, the Company will pay a non-refundable minimum annual maintenance fee of $25,000 in cash or Company stock each year or part of year until the first product is commercialized and sales royalty payments begin. Annual maintenance fees paid in cash will be credited against the costs of maintaining the Patent Rights for that year.

 

During the term of this Agreement, the Company agreed to pay to Rochester an earned royalty of 5% of the first $10,000,000, 4% of the second $10,000,000, 3% of the third $10,000,000, 2% of the fourth $10,000,000 in net sales revenue produced from Patent Products, and l % of all remaining net sales revenue produced from Patent Products. Earned royalty payments are due and payable within 30 days of the end of each calendar quarter.

 

The Company agreed to pay to Rochester 50% of all cash and non-cash consideration derived from sublicenses granted by the Company in Patent Products, excluding earned royalties, loans, equity investments, and research and development support.

 

The Company agreed to pay Rochester the milestone payments per product as set forth below:

 

	a)	If the Company sponsors Phase I, II and III clinical trials, the Company will pay $500,000 within 30 days of approval of any Patent Product;
	b)	If the Company sells a controlling interest in or sublicenses substantially all of the Patent Products before the initiation of Phase II clinical trial, the Company will pay:

 

	1)	$200,000 within 30 days of initiation of Phase II clinical trial;
	2)	$200,000 within 30 days of initiation of Phase III clinical trial; and
	3)	$300,000 within 30 days of approval of a Patent Product

 

As of August 31, 2015, and through the date of this filing, none of the milestones noted above for Rochester have been met.

 

The term of this Agreement will commence on the closing date and will end upon the latest of (i) expiration of the last-to-expire valid claim of the Patent Products; or (ii) the 10-year anniversary of commercial launch of any Patent Product.

 

Alchemia Oncology / Blueprint Partners Dispute

 

On June 27, 2015, the Company entered into a binding term sheet to acquire Alchemia Oncology Pty LTD (“Alchemia”), a subsidiary of Alchemia LTD listed on the Australian Stock Exchange (the “Alchemia Term Sheet”). The transaction was brought to the Company by Tim Boyd of Blueprint Partners, whom the Company engaged to seek potential acquisitions of Australian biotechnology candidates on a success fee basis, see Note 4. Mr. Boyd identified and negotiated directly with Alchemia and agreed on the transaction terms. Mr. Boyd subsequently presented those terms to the Company. Mr. Boyd guaranteed the due diligence and a financing of $10,000,000 should the Company engage in the transaction, with a short term guarantee of $500,000 simply to execute the term sheet. The agreement that Mr. Boyd negotiated required a final mutually agreed upon asset purchase agreement containing certain milestone achievements in the short term, including but not limited to, a filing of an S-1 registration statement and applying for a listing on the NASDAQ. The acquisition consideration was $15,000,000 worth of the Company’s common shares. The guaranteed price of the first tranche of the Blueprint Partners financing was $5 per share. The Company believed the transaction to be of minimal risk.  However, the initial failure of Blueprint to deliver the financing, of which an initial $500,000 was guaranteed with five days from the date of the signing of the term sheet, resulted in the failure to achieve certain milestones per the term sheet which then subjected the Company to a breakup fee of $500,000. The Company takes the position that it is not liable if such fee were ever pursued due to the failure of Blueprint to deliver the financing. The Company was unable to agree upon the terms of the asset purchase agreement as well as unable to achieve the milestones on a timely basis due to both Alchemia withholding critical data and Mr. Boyd improperly misrepresenting his ability to deliver the requisite financing concurrent with the execution of the term sheet. In addition, the Company discovered questionable board relationships and practices amongst Alchemia and Mr. Boyd. Also, certain statements and actions from Alchemia appeared contradictory to the expectations of the relationship. The Company made every attempt to resolve the situation, however, the Company suspects that possible collusion amongst the parties made the transaction absolutely impossible to consummate. Currently there is no negotiation or agreement in place. The Company believes it is entitled to damages and has initiated litigation against Tim Boyd and Blueprint Partners and is evaluating whether other parties should be part of the litigation in any capacity. This is not expected to have a material impact on the Company.

 

In December 2015, the Company received a demand letter for payment under the Alchemia Term Sheet demanding $500,000 for the breakup fee and an additional $75,000 for operational expenses. The Company has delivered a demand letter to Alchemia asserting its rights to void the agreement in light of irregularities that have been brought to the Company’s attention. Neither Alchemia nor the Company have initiated legal action regarding the Alchemia Term Sheet. The Company intends to mount a vigorous defense in the event that suit is brought by Alchemia and will pursue counterclaims against Alchemia in the event a lawsuit is filed against the Company by Alchemia.

 

 

Faulk Pharmaceuticals

 

On July 14, 2015, the Company closed on an asset acquisition agreement with Faulk Pharmaceuticals, Inc. (“Faulk”). The assets include 23 granted patents owned by Faulk, related to the treatment of cancer, virus infections, and treatment of parasitic infections.

.

The Company issued 50,000 shares of restricted common stock, with a fair market value of $274,000 based on our stock closing price of $5.48. The shares may be sold by Faulk, assigned or transferred in accordance with securities laws and vest monthly over the following schedule:

 

	1)	33% of the shares beginning 6 months after the closing date
	2)	an additional 33% of the shares beginning 9 months after the closing date
	3)	the remaining 34% of the shares beginning 12 months after the closing date

 

For each calendar year continuing until the date that is 10 years after the expiration of the last of the patents conveyed to the Company, a royalty on net revenue received by the Company in that year from the sales or licenses of any products commercialized by the Company, its successors or assignees as a direct result of the assets acquired or the technology or processes related to the assets acquired, in the following amount:

 

	1)	5% of the first $10,000,000 in such net revenue;
	2)	4% of the second $10,000,000 in such net revenue
	3)	3% of the third $10,000,000 in such net revenue
	4)	2% of the forth $10,000,000 in such net revenue and
	5)	1% of such net revenue in excess of $40,000,000

 

NOTE 5 – INTANGIBLE ASSETS

 

Intangible assets consisted of the following as of August 31, 2015 and May 31, 2015:

 

		August 31, 2015				May 31, 2015
Intangible license - Northwestern University (see Note 4)		$	214,121			$	214,121
Intangible license - Rochester University (see Note 4)			200,000				200,000
Patents - Faulk Pharmaceuticals (see Note 4)			274,000				–
Accumulated amortization and impairment			(417,546	)			(13,281	)
Intangible assets, net		$	270,575			$	400,840

 

The Company is amortizing all of the intangible assets over the 10 year term of the related agreements. The Company recorded amortization of $13,778 and $0, respectively, for the three months ended August 31, 2015 and 2014.

 

The Northwestern License required that the Company raise $3,000,000 prior to the one-year anniversary of the agreement on January 26, 2016. The Company did not raise the requisite amount of capital and is in default on the license agreement. Although the Company has not received a notice of default from Northwestern regarding the default, the Company recognized an impairment charge of $198,820 related to the Northwestern License, which represents the net book value of the intangible license.

 

The University of Rochester License required that the Company spend $200,000 annually on drug development or pay an annual maintenance fee of $15,000 in cash or an equivalent number of the Company’s common stock. The Company has defaulted on these requirements. Although the Company has not received a notice of default from Rochester regarding the default, the Company recognized an impairment charge of $191,667 related to the Rochester License, which represents the net book value of the intangible license.

 

NOTE 6 – RELATED PARTY TRANSACTIONS

 

As of August 31, 2015 and May 31, 2015, total advances from certain officers, directors and shareholders of the Company were $87,500, which was used for payment of general operating expenses.  The related parties advances have no conversion provisions into equity, are due on demand and do not accrue interest.

 

As of August 31, 2015 and May 31, 2015, the Company recorded invoices for legal fees from the law firm of our former chief financial officer totaling $23,947, and $24,071, respectively, and included them in related party payables. In March 2016, the former chief financial officer resigned his position with the Company and agreed to refund $40,000 in legal fees paid to his law firm.

 

 

NOTE 7 – STOCK PAYABLE

 

During the three months ended August 31, 2015, the Company issued 320,511 common shares for the settlement of $1,236,880 of stock payable recorded as of May 31, 2015. 

 

Note 8 – Convertible Note Payable

 

		August 31,				May 31,
Description		2015				2015
On August 20, 2015, the Company executed a convertible note payable in the original principal amount of $247,000 for net proceeds of $220,000, payable on March 31, 2018 bearing interest at 10% per annum. This note is convertible into the Company’s common stock at $7.50 per share unless the market capitalization of the Company falls below $15,000,000, at which point the conversion price will equal the market price of the Company’s common stock on the date of conversion. On October 29, 2015, the market capitalization of the Company fell below $15,000,000 and the variable conversion feature became permanent. The note is unsecured.
Convertible note payable		$	247,000			$	–
Less: Original issue discount			(22,000	)			–
Less: Debt discount from derivative liability			(220,000	)			–
Less: Deferred financing cost			(5,000	)			–
Add: Amortization of debt discount and deferred financing cost			3,071				–
Total convertible notes payable, net		$	3,071			$	–

 

On March 30, 2016, the Company received a notice of default, as of August 29, 2015, from our convertible note holder. The default occurred when we failed to file our Form 10-K and 10-Q’s on a timely basis. As a result of the default, the interest rate of the debt was increased to 22% on August 29, 2015 and the Company incurred additional penalty interest in the amount of $37,122 during the three months ended August 31, 2015, $43,930 during the three months ended November 30, 2015 and $179,680 during the three months ended February 29, 2016, for a total accrued interest of $260,732. The total amount due to the lender for principal and accrued interest, as a result of the default, is $507,732 as of February 29, 2016.

 

Note 9 – Derivative LiabilitIES

 

On August 20, 2015, the Company issued a convertible note agreement with a variable conversion feature that gave rise to an embedded derivative instrument. The derivative feature has been valued using a binomial lattice-based option valuation model using holding period assumptions developed from the Company's business plan and management assumptions, and expected volatility from comparable companies including OTC Pink® and small-cap companies. Increases or decreases in the Company's share price, the volatility of the share price, changes in interest rates in general, and the passage of time will all impact the value of the derivative instrument. The Company re-values the derivative instrument at the end of each reporting period and any changes are reflected as changes in derivative liabilities in the consolidated statements of operations. The assumptions used are as follows:

 

	August 20, 2015		August 31, 2015
Market value of common stock on measurement date (1)	$5.20		$5.20
Adjusted conversion price (2)	$3.5108		$3.5108
Risk free interest rate (3)	0.74%		0.74%
Life of the note in years	2.477 years		2.477 years
Expected volatility (4)	259.60%		259.60%
Expected dividend yield (5)	–		–

  

(1) The market value of common stock is based on closing market price as of initial valuation date.

(2) The adjusted conversion price is calculated based on conversion terms described in the note agreement.

(3) The risk-free interest rate was determined by management using the 2 year Treasury Bill as of the respective Offering or measurement date.

(4) The volatility factor was estimated by management using the historical volatilities of the Company’s stock.

(5) Management determined the dividend yield to be 0% based upon its expectation that it will not pay dividends for the foreseeable future.

 

The initial valuation of the derivative liability was $380,995 on August 20, 2015, the date of the initial valuation, and $365,756 on August 31, 2015. The decrease of $15,239 in the derivative liability was recorded on the consolidated statements of operations.

 

 

NOTE 10 – DISCONTINUED OPERATIONS

 

On June 1, 2015, the Company sold its interest in its PubCo subsidiary for $10 to the management of Pubco. The Company recorded a loss of $80,194 on the sale of PubCo. The Company had reclassified the results of Pubco to discontinued operations.

 

The summarized operating results for discontinued operations for PubCo are as follows:

 

		For the Three Months Ended August 31,
		2015				2014
Revenue		$	–			$	75,097
Cost of revenue			–				19,586
Gross profit			–				55,511
Operating Expenses
Selling, general and administrative			–				53,791
Total operating expenses			–				53,791
Net income		$	–			$	1,720

Summary of assets and liabilities of discontinued operations is as follows:

 

Balance Sheet Data:		As of August 31, 2015				As of May 31, 2015
Cash		$	–			$	59,987
Receivables		$	–			$	46,295
Prepaid expenses		$	–			$	5,914
Total assets		$	–			$	112,196
Total liabilities		$	–			$	40,512

 

NOTE 11 – STOCKHOLDERS' EQUITY

 

On July 6, 2015, the Company issued 50,000 shares of its common stock to Faulk Pharmaceuticals, Inc. in accordance with a license agreement, see Note 4. The fair market value of the stock on the date of grant was $274,000.

 

During the three months ended August 31, 2015, the Company issued 320,511 common shares for the settlement of $1,236,880 of stock payable recorded as of May 31, 2015 for share-based compensation and purchase of intangibles.

 

During the three months ended August 31, 2015, the Company issued 1,551,049 common shares to unrelated parties for services. The fair value of the stock on grant date was $5,551,302, and was recorded as share-based compensation.

 

NOTE 12 – SUBSEQUENT EVENTS

 

On August 28, 2015, the Company entered into a Stock Purchase Agreement with a private non-affiliated investor to sell 33,000 shares of the Company’s common stock, at a price of $5.00 per share.  The closing occurred on September 3, 2015 when the shares were issued and the cash was received.  The investor also received a common stock purchase warrant for the right to purchase 33,000 shares at a purchase price of $6.00 per share.  The fair market value of the warrant was $171,600 on the date of grant. The warrant expires on August 27, 2020. 

 

Excelsior Global Advisors

 

On September 1, 2015, the Company entered into a Master Services Agreement with Excelsior Global Advisors LLC (“Excelsior”).  Excelsior will provide investor relations services in consideration for:

 

	(a)	$35,000 cash payment due on signing and the 1st day of each month, subject to (c) below.
	(b)	15,000 shares of the Company’s common stock that will be eligible for Rule 144 as promulgated under the Securities Act of 1933, as amended, earned on the first day of the month and deliverable by the 20th day of each month during the term of this agreement.
	(c)	Excelsior acknowledges that the Company will defer the cash payment due each month until the Company raises a minimum of $3 million. This deferment will not last more than 3 months.
	(d)	The Company will reimburse Consultant for any pre-approved, in writing, travel or other expenses and the Consultant shall submit such expenses to the Company monthly for reimbursement.

 

 

The parties have reached an oral understanding that the cash compensation will be deferred until such time as the Company is current in its SEC filings and able to enter into a search for financing transactions. The initial term of the Master Services Agreement is six (6) months with an additional six-month continuation unless terminated by either party in writing.

 

As of the date of this filing, the Company owed Excelsior 120,000 common shares under this agreement which have not been issued.

 

On September 12, 2015, a shareholder of the Company issued 674,622 shares of his own on the Company’s behalf for the settlement of $3,231,216 of stock payable recorded as of May 31, 2015.  Of these shares, 488,340 were related to services and 186,282 were for the Company’s license purchase from Northwestern University.

 

Officer Compensation

 

In November 2015, the Compensation Committee authorized compensation for Mr. Levine, the Chief Executive Officer of the Company and Mr. Ruben, the Chief Financial Officer and General Counsel of the Company, as follows:

 

	·	A $25,000 lump sum payment to be payable in November or December 2015 (which was paid)
	·	2016 salary established at $15,000 per month commencing January 15, 2016
	·	Healthcare reimbursement of $1,000 per month
	·	2016 bonus, if warranted, will be determined at the discretion of the compensation committee of the Board of Directors and paid in a lump sum in November or December 2016.

 

Loan Default

 

On March 30, 2016, the Company received a notice of default, as of August 29, 2015, from our convertible note holder. The default occurred when we failed to file our Form 10-K and 10-Q’s on a timely basis. As a result of the default, the interest rate of the debt was increased to 22% and the Company incurred additional penalty interest in the amount of $37,122 during the three months ended August 31, 2015, $43,930 during the three months ended November 30, 2015 and $179,680 during the three months ended February 29, 2016, for a total accrued interest of $260,732. The total amount due to the lender for principal and accrued interest, as a result of the default, is $507,732 as of February 29, 2016.

 

 

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

 

Forward-Looking Statements

 

Except for historical information, this report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.  Such forward-looking statements involve risks and uncertainties, including, among other things, statements regarding our business strategy, future revenues and anticipated costs and expenses.  Such forward-looking statements include, among others, those statements including the words "expects," "anticipates," "intends," "believes" and similar language.  Our actual results may differ significantly from those projected in the forward-looking statements.  Factors that might cause or contribute to such differences include, but are not limited to, those discussed herein as well as in the "Description of Business – Risk Factors" section in our Annual Report, Form 10-K, as filed on January 22, 2016.  You should carefully review the risks described in our Annual Report and in other documents we file from time to time with the Securities and Exchange Commission.  You are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this report.  We undertake no obligation to publicly release any revisions to the forward-looking statements or reflect events or circumstances after the date of this document.

 

Although we believe that the expectations reflected in these forward-looking statements are based on reasonable assumptions, there are a number of risks and uncertainties that could cause actual results to differ materially from such forward-looking statements.

 

All references in this Form 10-Q to the "Company," "NEF Enterprises," "Panther Biotechnology"  "we," "us," or "our" are to Panther Biotechnology, Inc.

 

Results of Operations

 

The following table provides selected financial data about our Company as of August 31, 2015 and May 31, 2015.

 

Balance Sheet Data:		August 31, 2015				May 31, 2015				Increase (Decrease)
Cash		$	186,972			$	22,815			$	164,157
Prepaid expenses		$	–			$	20,000			$	(20,000	)
Current assets from discontinued operations		$	–			$	112,196			$	(112,196	)
Total assets		$	457,547			$	555,857			$	(98,310	)
Total liabilities		$	3,875,257			$	4,717,470			$	(842,213	)
Stockholders' deficit		$	(3,417,710	)		$	(4,161,619	)		$	743,909

 

The increase in cash is attributed to the borrowings of $220,000 during the three-month period ended August 31, 2015.  The decrease in current assets from discontinued operations was due to the sale of our PubCo subsidiary in June 2015.  Our liabilities decreased $847,353 due to shares issued to settle the stock payable.

 

The following summary of our results of operations, for the three months ended August 31, 2015 and 2014, should be read in conjunction with our consolidated financial statements, as included in this Form 10-Q.

 

The following summarizes our results of operations for the three months ended August 31, 2015 compared to the three months ended August 31, 2014:

 

		2015				2014
Revenue		$	–			$	–
Total operating expenses			6,051,149				6,305
Other (income) expense			106,130				(1,720	)
Net loss		$	(6,157,279	)		$	(4,585	)

 

 

Revenue

 

Subsequent to the sale of our subsidiary, PubCo, we have no sources of revenue.

 

Expenses

 

Operating expenses for the three months ended August 31, 2015, increased $6,044,844 compared to the comparative period in 2014, from $6,305 to $6,051,149. The increase in expenses can be primarily attributed to an increase in share-based compensation of $5,551,303, and in increase in general and administrative expenses of $89,344. Share-based compensation relates to officer and director compensation and investor relations. Depreciation and amortization increased $13,710 compared to the comparative period in 2014, from $68 to $13,778. The increase is due to amortization of intangible assets. Impairment of intangibles increased $390,487, from $0 to $390,487 as a result of the impairment of the University of Rochester and Northwestern University licenses.

 

Other expenses related to the loss on sale of subsidiary of $80,194, change in derivative liability of $15,239 and net interest expense of $41, 175, none of which were incurred in the prior year.

 

Limited Operating History; Need for Additional Capital

 

There is limited historical financial information about us on which to base an evaluation of our performance. We are a development stage company and generated limited revenues from operations.  We cannot guarantee we will be successful in our business operations.  Our business is subject to risks inherent in the establishment of a new business enterprise, including limited capital resources, possible delays in our rebranding efforts, and possible cost overruns due to the price and cost increases in supplies and services.

 

Liquidity and Capital Resources

 

Currently we do not have sufficient capital to fund our business development for the next 12 months. We feel we do have enough funds to cover our operating expenses for the next 12 months.  We have no committed source of outside future financing. Our current directors have provided some funds to cover some of the Company's costs.

 

Working Capital

 

		As of				As of
		August 31,				May 31,
		2015				2015
Current assets		$	186,972			$	155,011
Current liabilities			3,875,257				4,717,470
Working capital deficit		$	(3,688,285	)		$	(4,562,459	)

 

Cash Flows

 

		For The Three Months Ended August 31,
		2015				2014
Cash flows used in operating activities		$	(55,843	)		$	(6,237	)
Cash flows provided by financing activities			220,000				10,000
Net increase in cash		$	164,157			$	3,763

 

 

As of August 31, 2015, the Company's cash balance was $186,972 compared to $22,815 as of May 31, 2015 and our total assets were $457,547 compared with $555,851 as of May 31, 2015. The increase in cash was due the proceeds from a convertible note payable during the quarter. The change in total assets was primarily due to acquisition of licenses and subsequent impairment of these likenesses during the three-month period ended August 31, 2015.

 

As of August 31, 2015, the Company had total liabilities of $3,875,257 compared with $4,717,470 as of May 31, 2015.  Our liabilities decreased $842,213 due to the issuance of common stock to settle stock payable.

 

As of August 31, 2015, the Company had a working capital deficit of $3,688,285 compared with $4,562,459 as of May 31, 2015. The decrease in our working capital deficit was primarily attributed to the issuance of a convertible note offset by a debt discount and reductions in stock payable. We are currently in default on our convertible note payable. If the Company is unable to cure the default, it may be required to seek additional financing to repay such debt renegotiate the debt on less favorable terms.

 

We are currently in default on our term sheet with Alchemia and received a demand letter from them for the breakup fee of $500,000 and an additional $75,000 for operational expenses. The Company disputes the validity of agreement and is prepared to mount a vigorous defense in support of its position.

 

In March 2016, we reached a settlement and separation agreement with our former chief financial officer whereby he would resign from his position and refund to the Company $40,000 in legal fees paid by the Company to his law firm.

 

Cash Flow from Operating Activities

 

During the three months ended August 31, 2015, the Company used $55,843 in operating activities, compared to the $6,237 of cash used by operating activities during the three months ended August 31, 2014.

 

Cash Flow from Financing Activities

 

During the three months ended August 31, 2015, the Company received $220,000 in cash from financing activities due to proceeds from issuance of a convertible note, compared to cash provided by financing activities of $10,000 for the three months ended August 31, 2014, due from advances made by certain shareholders.

 

Critical Accounting Policies

 

We prepare our consolidated financial statements in conformity with GAAP, which requires management to make certain estimates and apply judgments. We base our estimates and judgments on historical experience, current trends and other factors that management believes to be important at the time the consolidated financial statements are prepared. Due to the need to make estimates about the effect of matters that are inherently uncertain, materially different amounts could be reported under different conditions or using different assumptions. On a regular basis, we review our critical accounting policies and how they are applied in the preparation of our consolidated financial statements.

 

While we believe that the historical experience, current trends and other factors considered support the preparation of our consolidated financial statements in conformity with GAAP, actual results could differ from our estimates and such differences could be material.

 

Off-Balance Sheet Arrangements

 

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

 

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

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

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

As of August 31, 2015, management assessed the effectiveness of our internal control over financial reporting based on the criteria for effective internal control over financial reporting established in Internal Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") and SEC guidance on conducting such assessments. Based on that evaluation, they concluded that, during the period covered by this report, such internal controls and procedures were not effective to detect the inappropriate application of US GAAP rules as more fully described below. This was due to deficiencies that existed in the design or operation of our internal controls over financial reporting that adversely affected our internal controls and that may be considered to be material weaknesses.

 

The matters involving internal controls and procedures that our management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were: (1) lack of a functioning audit committee, (2) lack of a majority of outside directors on our board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures; (3) inadequate segregation of duties consistent with control objectives; (4) management dominated by a single individual without adequate compensating controls and (5) the inability of the Company to timely file its required filings with the SEC. The aforementioned material weaknesses were identified by our Chief Executive and Financial Officer in connection with the review of our financial statements as of August 31, 2015.

 

Management believes that the material weaknesses set forth above did not have an effect on our financial results. However, management believes that the lack of a functioning audit committee, which has been rectified as of the filing date of this document, and the lack of a majority of outside directors on our board of directors, which has also been rectified by the filing date of this document, results in ineffective oversight in the establishment and monitoring of required internal controls and procedures, which could result in a material misstatement in our financial statements in future periods.

 

Changes in Internal Controls

 

There have been no changes in our internal controls over financial reporting identified in connection with the evaluation required by paragraph (d) of Securities Exchange Act Rule 13a-15 or Rule 15d-15 that occurred in the quarter ended August 31, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II – OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

On July 1, 2015, Panther announced that it had entered into a letter of intent to acquire Alchemia Oncology Pty LTD, a subsidiary of Alchemia LTD listed on the Australian Stock Exchange. The transaction was brought to Panther Biotechnology by Tim Boyd of Blueprint Partners in Santa Monica and Venice, California, whom Panther engaged to seek potential acquisitions of Australian biotechnology candidates on a success fee basis. Mr. Boyd identified and negotiated directly with Alchemia and agreed on the transaction terms. Mr. Boyd subsequently presented those terms to Panther Biotechnology. Mr. Boyd guaranteed the due diligence and guaranteed a financing of $10,000,000 should Panther engage in the transaction with a short term guarantee of $500,000 simply to execute the term sheet. The agreement that Mr. Boyd negotiated required a final mutually agreed upon asset purchase agreement containing certain milestone achievements in the short term, including but not limited to a filing of an S-1 registration statement and applying for a listing on the NASDAQ. The acquisition consideration was $15,000,000 worth of Panther Biotechnology common shares which were generally trading around $5 per share during the relevant time. The guaranteed price of the first tranche of the Blueprint Partners financing was $5 per share. Panther believed the transaction to be of minimal risk.  However, initial failure of Blueprint to deliver the financing resulted in the failure to achieve certain milestones per the term sheet which then possibly subjected Panther to a break fee of $500,000 (which Panther takes the position that it is not liable if such fee were ever pursued). Panther was unable to agree upon the terms of the asset purchase agreement as well as unable to achieve the milestones on a timely basis due to both Alchemia withholding critical data and Mr. Boyd improperly misrepresenting his ability to deliver the requisite financing concurrent with the execution of the term sheet. In addition, Panther discovered questionable board relationships and practices amongst themselves and Mr. Boyd. Also, certain statements and actions from Alchemia appeared contradictory to the expectations of the relationship. During the relevant time, Panther made every attempt to understand and resolve the situation, however, Panther suspects that possible collusion amongst the parties made the transaction absolutely impossible to consummate. Although Panther is still willing to explore a relationship with Alchemia and remains interested in how the technology was originally represented, currently there is no negotiation or agreement in place. Panther believes it is entitled to damages. Panther has initiated litigation against Tim Boyd and Blueprint Partners and is determining whether other parties should be part of the litigation in any capacity. This is not expected to have a material impact on Panther.

 

ITEM 1A. RISK FACTORS

 

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

 

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

 

On August 28, 2015, the Company entered into a Stock Purchase Agreement with a private non-affiliated investor to sell 33,000 shares of the Company’s common stock, at a price of $5.00 per share.  The shares were issued on September 3, 2015. The investor also received a common stock purchase warrant for the right to purchase 33,000 shares at a purchase price of $6.00 per share.  The warrant expires on August 27, 2020.

 

The issuances of the above securities were deemed to be exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”).

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

On March 30, 2016, the Company received a notice of default from the lender of our secured convertible note holder. The total amount of principal and accrued interest due to the lender as a result of the default is $507,732 as of February 29, 2016 and the interest rate of the debt increased to 22%.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

None.

 

 

ITEM 6. EXHIBITS

 

Exhibit Number		Description
(3)		(i) Articles of incorporation, (ii) Bylaws
3.1		Articles of Incorporation (Incorporated by reference to our Registration Statement on Form S-1 filed on February 6, 2013)
3.3		Bylaws (Incorporated by reference to our Registration Statement on Form S-1 filed on February 6, 2013)
(10)		Material Contracts
10.1		License Agreement between Northwestern University and the Company dated January 26, 2015 incorporated by reference and previously filed as an exhibit with Form 10-K for the year ended May 31, 2014 dated June 15, 2015.
10.2		Exclusive License Agreement between the University of Rochester and the Company dated March 31, 2105 incorporated by reference and previously filed as an exhibit with Form 10-K for the year ended May 31, 2014 dated June 15, 2015.
10.3		Asset Purchase Agreement between Faulk Pharmaceuticals, Inc. and the Company dated April 6, 2015 incorporated by reference and previously filed as an exhibit with Form 10-K for the year ended May 31, 2014 dated June 15, 2015.
10.4 +		Securities Purchase Agreement dated as of August 20, 2015, by and between the Company and Typenex Co-Investment, LLC and all related notes, security agreements, etc.
10.5 +		Master Services Agreement dated September 1, 2015 by and between Excelsior Global Advisors LLC and the Company.
(14)		Code of Ethics
14.1		Incorporated by reference and previously filed as an exhibit with Form 10-K for the year ended May 31, 2013 filing dated August 29, 2013.
(31)		Rule 13a-14(d)/15d-14(d) Certifications
31.1*		Section 302 Certification under the Sarbanes-Oxley Act of 2002 of the Principal Executive Officer
31.2*		Section 302 Certification under the Sarbanes-Oxley Act of 2002 of the Principal Financial Officer
(32)		Section 1350 Certifications
32.1*		Section 906 Certification under the Sarbanes-Oxley Act of 2002 of the Principal Executive Officer
32.2*		Section 906 Certification under the Sarbanes-Oxley Act of 2002 of the Principal Financial Officer
101**		Interactive Data Files
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document
*		Filed herewith
+		Filed with Form 10-K for the year ended May 31, 2015 on January 22, 2016.
**		Furnished herewith. Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of any registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, and otherwise are not subject to liability under those sections.

 

 

SIGNATURES

 

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

 

 

	PANTHER BIOTECHNOLOGY, INC.
Dated: April 22, 2016
	/s/ Evan Levine
	Evan Levine,
	President and Chief Executive Officer