Cantabio Pharmaceuticals Inc. - FORM 10-Q - February 10, 2017

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EX-32.2 - CERTIFICATION BY PFO - Cantabio Pharmaceuticals Inc.pfo_certificate.htm
EX-32.1 - CERTIFICATION BY PEO - Cantabio Pharmaceuticals Inc.peo_certificate.htm
EX-31.2 - CERTIFICATION BY CFO - Cantabio Pharmaceuticals Inc.cfo_certificate1.htm
EX-31.1 - CERTIFICATION BY CEO - Cantabio Pharmaceuticals Inc.ceo_certificate1.htm
EX-10.1 - LOAN AGREEMENT - Cantabio Pharmaceuticals Inc.loan_agreement.htm
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

X
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 2016
 
 
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: 000-54905

Cantabio Pharmaceuticals Inc.
(Exact name of registrant as specified in its charter)

Delaware
000-54905
99-0373067
(State or other jurisdiction of incorporation)
(Commission File Number)
(IRS Employer Identification No.)
 
 
 
1250 Oakmead Pkwy
Sunnyvale, California
(Address of principal executive offices)
 
 
94085
(Zip Code)
 
408-501-8893
Registrant’s telephone number, including area code

N/A
(Former name or former address, if changed since last report)

Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  X Yes  ☐No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§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).     X Yes  ☐No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
☐
 
Accelerated filer
☐
Non-accelerated filer   
☐
(Do not check if a smaller reporting company)
Smaller reporting company
X

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

As of February 2, 2017, there were 26,805,270 shares of the issuer’s common stock issued and outstanding.

 
 

 


CANTABIO PHARMACEUTICALS, INC

FORM 10-Q

TABLE OF CONTENTS

 
 
 
PART I - FINANCIAL INFORMATION
 
 
 
 
 
Item 1.
Condensed Consolidated Interim Financial Statements (Unaudited)
 
 
 
 
 
Condensed Consolidated Balance Sheets as of December 31, 2016 and March 31, 2016
2
 
 
 
 
Condensed Consolidated Statements of Operations for the three and nine months ended December 31, 2016 and 2015
3
     
 
Condensed Consolidated Statements of Cash Flows for the nine months ended December 31, 2016 and 2015
4
 
 
 
 
Notes to Condensed Consolidated Financial Statements
5
 
 
 
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
8
 
 
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
9
 
 
 
Item 4.
Controls and Procedures
9
 
 
 
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
 
11


 
 1

 

 



 PART I – FINANCIAL INFORMATION
CANTABIO PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
 
 
  
December 31,
    
March
31,
  
 
  
2016
    
2016
  
 
            
ASSETS     
            
Current assets     
            
     Cash
  
$
10,795
    
$
52,110
  
Total Current Assets     
    
10,795
      
52,110
  
 
                
      TOTAL ASSETS     
  
$
10,795
    
$
52,110
  
 
                
LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT)     
                
Current liabilities     
                
     Accounts payable and accrued expenses
    
377,516
      
225,498
  
     Accrued technology access fee
    
184,440
      
173,414
  
     Due to officers
    
-
      
6,420
  
     Notes payable to related party
    
45,346
      
16,562
  
                 
      TOTAL LIABILITIES     
  
$
607,302
    
$
421,894
  
 
                
Stockholders' Equity (Deficit)     
                
     Common stock, $0.001 par value, (250,000,000 shares authorized 26,805,270 shares issued and outstanding as of December 31, 2016 and March 31, 2016)
    
26,805
      
26,805
  
     Stock subscriptions
    
1,060,000
      
500,000
  
     Additional paid in capital
    
99,324
      
99,324
  
     Accumulated deficit
    
(1,782,636
)
    
(995,913
)
Total Stockholders' Equity (Deficit)
    
(596,507
)
    
(369,784
)
                 
TOTAL LIABILITIES & STOCKHOLDERS' (DEFICIT)     
  
$
10,795
    
$
52,110
  
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 

 
2

 



CANTABIO PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
                        
 
                        
 
  
For the three months ended December 31,
    
For the nine months ended December 31,
  
 
  
2016
    
2015
    
2016
    
2015
  
Operating expenses:
                        
Research & development
  
$
86,872
    
$
4,370
    
$
268,674
    
$
6,695
  
General & administrative
    
136,927
      
169,027
      
506,676
      
420,423
  
Total operating expenses
    
223,799
      
173,397
      
775,350
      
427,118
  
Loss from operations
    
(223.799
)
    
(173,397
)
    
(775,350
)
    
(427,118
)
Other income (expense):
                                
Interest expense
    
(3,508
)
    
-
      
(11,372
)
    
-
  
Gain on extinguishment of obligation
            
107,884
              
107,884
  
Total other income (expense), net
    
(3,508
)
    
107,884
      
(11,372
)
    
107,884
  
Net loss
  
$
(227,307
)
  
$
(65,513
)
  
$
(786,722
)
  
$
(319,234
)
 
                                
Net loss per share - basic and diluted
  
$
(0.01
)
  
$
(0.00
)
  
$
(0.03
)
  
$
(0.02
)
 
                                
Weighted average shares outstanding, basic and diluted
    
26,805,000
      
14,824,000
      
26,805,000
      
14,824,000
  
 
                                

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
 
3 


 




 
 
 


  

CANTABIO PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
 
   
Nine months ended
  
 
  
December 31,
    
December 31,
  
 
  
2016
    
2015
  
Cash Flows From Operating Activities
            
Net loss
  
$
(786,722
)
  
$
(319,234
)
Adjustments to reconcile net loss to cash used in operating activities:
                
    Accretion to notes payable to related party
    
346
      
-
  
Changes in operating assets and liabilities:
                
    Accounts payable and accrued expenses
    
152,017
      
(156,513
)
    Accrued technology access fee
    
11,026
      
89,429
  
    Due to officers
    
(6,420
)
    
2,713
  
     Net cash used in operating activities
    
(629,753
)
    
(383,605
)
Cash Flows From Financing Activities
                
     Proceeds from notes payable related party
    
55,022
      
34,253
  
     Repayment to notes payable to related party
    
(26,584
)
    
-
  
     Stock subscriptions
    
560,000
      
450,000
  
  Net cash provided by financing activities
    
588,438
      
484,253
  
                 
  Net increase (decrease) in cash
    
(41,315
)
    
100,648
  
 
                
  Cash at beginning of period
    
52,110
      
209
  
                 
  Cash at end of period
  
$
10,795
    
$
100,857
  
 
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


 
4

 



CANTABIO PHARMACEUTICALS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

NOTE 1 – ORGANIZATION AND DESCRIPTION OF THE BUSINESS
 
Cantabio Pharmaceuticals Inc. (the “Company” or “Cantabio”) is a preclinical stage biotechnology company focusing on commercializing novel therapies and the intellectual property generated from research and development activities for Parkinson’s disease (PD) and Alzheimer’s disease (AD).  The Company’s strategy involves integration of therapeutic focus, the targeting of family biophysics, drug discovery technology and expertise into an innovative drug discovery approach, all of which synergize to identify and develop small molecule pharmacological chaperones for clinical trials. In addition, the Company’s research efforts concentrate on the development of therapeutic proteins that can pass through the blood-brain barrier and supplement in vivo levels of proteins which display loss of function during disease conditions.

NOTE 2 – LIQUIDITY AND GOING CONCERN
 
The accompanying financial statements have been prepared in conformity with the accounting principles generally accepted in the United States of America (“U.S. GAAP”) which contemplate continuation of the Company as a going concern. As of December 31, 2016, the Company had a working capital deficit of $0.6 million and historical and expected cash outflows from operations. These factors and others raise substantial doubt about the Company's ability to continue as a going concern.

The ability of the Company to continue as a going concern is dependent upon its ability to raise additional capital and achieve profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Basis of Presentation
The accompanying unaudited condensed consolidated interim financial statements include the accounts of the Company and its subsidiaries. All material intercompany balances and transactions have been eliminated.

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with U.S. GAAP for interim financial information and pursuant to the instructions to Form 10-Q and Article 8 of Regulation S-X of the Securities and Exchange Commission (“SEC”) and on the same basis as the Company prepares its annual audited consolidated financial statements. The condensed consolidated balance sheet as of December 31, 2016, condensed consolidated statements of operations for the three and nine months ended December 31, 2016 and 2015, and the condensed consolidated statements of cash flows for the nine months ended December 31, 2016 and 2015 are unaudited, but include all adjustments, consisting only of normal recurring adjustments, which the Company considers necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented. The results for the three and nine months ended December 31, 2016 are not necessarily indicative of results to be expected for the year ended December 31, 2016 or for any future interim period. The condensed consolidated balance sheet at December 31, 2016 has been derived from audited financial statements; however, it does not include all of the information and notes required by U.S. GAAP for complete financial statements.

The accompanying interim period unaudited condensed financial statements and related financial information included in this Quarterly Report on Form 10-Q should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Form 10-K.

5




There have been no material changes in the Company’s significant accounting policies to those previously disclosed in the 2016 Annual Report.

Adoption of Recent Accounting Pronouncements

Fiscal 2017 Accounting Pronouncement Adoptions
 
Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern  
 
In August 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU No. 2014-15”) that will require management to evaluate whether there are conditions and events that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the financial statements are issued on both an interim and annual basis. Management will be required to provide certain footnote disclosures if it concludes that substantial doubt exists or when its plans alleviate substantial doubt about the Company’s ability to continue as a going concern. The Company adopted ASU No. 2014-15 in the first quarter of fiscal 2017, and its adoption did not have a material impact on the Company’s financial statements.

Recent Accounting Pronouncements

Fiscal 2019 Accounting Pronouncement Adoptions
 
Leases
 
In February 2016, the FASB issued ASU No. 2016-02, Leases ("ASU 2016-02"). The standard amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. ASU 2016-02 will be effective beginning in the first quarter of 2019. Early adoption of ASU 2016-02 is permitted. The new leases standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. The Company is currently evaluating the impact of adopting ASU 2016-02 on our consolidated financial statements.

NOTE 4 – NOTES PAYABLE TO RELATED PARTY

Gergely Toth
On September 13, 2016, Gergely Toth, the Company CEO, advanced the Company approximately $10,000 under a note.  The note bore no interest and was payable on demand.  That note was repaid on October 18, 2016.


Eden Professional Ltd
On July 22, 2016, the Company repaid approximately $15,000 to satisfy a loan note from Eden Professional Ltd, the service company of the Company CFO.

Max Zhu
On December 8, 2016, Max Zhu, an investor and consultant to the Company, advanced the Company $45,000 under a note.  The note is repayable within six months.  The note attracts interest at 13% up to the end of the term, and 18% thereafter.




6

 

NOTE 5 – RELATED PARTY TRANSACTIONS
 

Consulting agreements with Company directors  
On July 1, 2016, the Company entered into consulting agreements with Toth and Associates Ltd for Dr. Toth to act as the Company’s CEO (monthly salary approximately $12,000), with Capro Ltd for Dr. Thomas Sawyer to act as the Company’s COO (monthly salary approximately $10,000), and with Eden Professional Ltd for Mr. Simon Peace to act as the Company’s CFO (monthly salary approximately $6,000).  

The Company incurred consulting fees for the nine months ended December 31, 2016, and held balances payable at December 31, 2016, as follows:
   
Expense recognized in the 3 months to
December 31, 2016
    
Expense recognized in
the 9 months to
December 31, 2016
    
Accounts payable
at December 31, 2016
  
   
Fees
    
Fees
        
Toth and Associates Ltd
  
$
36,000
    
$
108,000
    
$
98,000
  
Capro Ltd
  
$
30,000
    
$
90,000
    
$
83,000
  
Eden Professional Ltd
  
$
19,000
    
$
57,000
    
$
75,000
  
Total
  
$
85,000
    
$
255,000
    
$
256,000
  

NOTE 6 – CAPITAL STOCK
 
Stock Subscriptions
On October 17, 2016 the Company received investment funds of $75,000 under a syndicate agreement. In the nine months to December 31, 2016, the Company received stock subscriptions totalling $560,000 from a syndicate of investors who signed a memorandum of understanding on April 12, 2015, a subscription agreement on October 31, 2015, and an addendum to the October 2015 subscription agreement (the Syndicate).


NOTE 7 – SUBSEQUENT EVENTS

Definitive Funding Agreement
On January 25, 2017, the Company entered into a definitive agreement with an affiliate investment fund managed by Yorkville Advisors Global for the sale of up to $600,000 of convertible debentures. The Company closed on the initial tranche of $300,000 on January 25, 2017 and is scheduled to close on an additional $150,000 upon the filing of a registration statement registering for resale the shares of common stock underlying the convertible debentures and an additional $150,000 upon the effectiveness of such registration statement. The conversion of the Yorkville debentures shall be at the lower of $0.3107 or a 7% discount to market, with a floor price of $0.10.

Gergely Toth
On January 3, 2017, Gergely Toth advanced the Company approximately $4,000 under a note.  The note bore no interest and was payable on demand.  That note was repaid on February 1, 2017.



7




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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes included elsewhere in this report.

This Quarterly Report contains forward-looking statements about our business, financial condition and prospects that reflect management’s assumptions and beliefs based on information currently available.  The expectations indicated by such forward-looking statements might not be realized.  If any of our management’s assumptions should prove incorrect, or if any of the risks and uncertainties underlying such expectations should materialize, our actual results may differ materially from those indicated by the forward-looking statements.

The key factors that are not within our control and that may have a direct bearing on operating results include, but are not limited to, managements’ ability to raise capital in the future, the retention of key employees and changes in the regulation of our industry.  There may be other risks and circumstances that management may be unable to predict.

When used in this Quarterly Report, words such as, "believes," "expects," "intends," "plans," "anticipates," "estimates" and similar expressions are intended to identify forward-looking statements, although there may be certain forward-looking statements not accompanied by such expressions.

If we are unsuccessful in raising the additional proceeds through a private placement offering, we will then have to seek capital from other sources such as debt financing, which may not be available to us. However, if such financing were available, we would likely have to pay additional costs associated with high risk loans and be subject to an above market interest rate. At such time these funds are required, management would evaluate the terms of such debt financing and determine whether the business could manage the debt load. If we cannot raise additional proceeds via a private placement of our common stock or secure debt financing we would be required to cease as a business. As a result, investors in our common stock would lose all of their investment.


Results of Operations for the three and nine months ended December 31, 2016, as compared to the three and nine months ended December 31, 2015.

Our operating expenses were $223,799 for the three months ended December 31, 2016 from $173,397 in the three months ended December 31, 2015.  This increase was primarily the result of R&D activities resulting in a total R&D spend of $86,872 in the three months to December 31, 2016 compared with $4,370 spend on R&D in the same period in 2015.  There was a decrease of $32,100 in General and Administrative expenses primarily due to higher costs in 2015 driven by merger activities. 

Operating expenses in the nine months to December rose in 2016 to $775,350 from $427,118 in the same period in 2015.  Again this is due to commencement of R&D activities during 2016 together with the purchase of certain R&D licenses, driving R&D expense up to $268,674 in 2016 from $6,695 in 2015.  We saw increases in G&A expenses to $506,676 in the nine months to December 2016 compared with $420,423 for the same period in 2015, largely caused by increases in legal and professional expenses relating to corporate filings, investor relations activities and rent.

We experienced Other expense in the three months ended December 31, 2016 of $3,508 from interest relating to a technology license.  An Other income gain for the same period of 2015 of $107,884 was as a result of renegotiating a liability connected to certain technology licenses.  In the nine months to December 31, 2016 Other expense was $11,372 of interest again relating to a technology license.  The nine months to December 31, 2015 saw an Other income gain of $107,884 upon renegotiation of a liability.
 
As we had no revenues or additional losses in either period, our net losses were the same as our total expenses.
 

 
8
 

 

Liquidity and Capital Resources
 
At December 31, 2016, we had $10,795 in current assets, consisting entirely of cash on hand. Our total current liabilities as of December 31, 2016, were $607,302. Thus, we had negative working capital of $596,507 as of December 31, 2016.
 
Cash Flows from Financing Activities. During the nine months ended December 31, 2016, financing activities provided $560,000 in proceeds for the future issuance of common stock, and $55,022 from loan notes, partially offset by $26,584 paid in satisfaction of loan notes.  This compares to $450,000 in proceeds for future issuance of common stock and $34,253 from loan notes during the same period last year.
 
Cash Flows from Operating Activities. During the nine months ended December 31, 2016, operating activities used $629,754 of cash, compared with $383,605 during the same period last year.

Our financial statements indicate there is substantial doubt about our ability to continue as a going concern as we are dependent on our ability to obtain ongoing financing and ultimately to generate sufficient cash flow to meet our obligations on a timely basis. We can give no assurance that our plans and efforts to achieve the above steps will be successful.

The cost of maintaining our reporting status is estimated to be $120,000 over the next year. If we are unable to obtain necessary financing, we will likely be required to curtail our development plans which could cause us to become dormant.  Any investment previously made could be lost in its entirety.  Any additional equity financing may involve substantial dilution to our then existing stockholders.
 
OFF BALANCE SHEET ARRANGEMENTS
 
The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company's financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

Item 3. Quantitative and Qualitative Disclosures about Market Risk
 
Not applicable.
 
Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures.  We maintain a set of disclosure controls and procedures designed to ensure that information required to be disclosed by us in the reports filed under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms.  Disclosure controls are also designed with the objective of ensuring that this information is accumulated and communicated to our management, including our chief executive officer and our chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.  We evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. As a result of this evaluation, management concluded that our disclosure controls and procedures were not effective for the period ended March 31, 2016, due to the following:

1.            Lack of Segregation of Duties:  Management is aware that there is a lack of segregation of accounting duties as a result of limited personnel.

2.            Lack of Functioning Audit Committee:  We do not have an Audit Committee; our board of directors as a whole currently acts as our Audit Committee.  We do not have an independent director.

Changes in internal controls. There were no changes in our internal control over financial reporting that occurred during the fiscal quarter covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
 
9
   

 
 

 


PART II:  OTHER INFORMATION

Item 1. Legal Proceedings.

None.
 
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3.  Defaults Upon Senior Securities

None.

Item 4.  Mine Safety Disclosures

None

Item 5.  Other Information

None.

Item 6.  Exhibits
 
10.1 Loan Agreement made between Cantabio Pharmaceuticals, Inc. and Dr. Max Zhu dated December 8, 2016
31.1
Certification of Principal Executive Officer and Acting Principal Accounting Officer pursuant to Rule 13a-14 and 15d-14 of the Securities Exchange Act of 1934
31.2
Certification of Chief Financial Officer pursuant to Rule 13a-14 and 15d-14 of the Securities Exchange Act of 1934
32.1
Certification of the Principal Executive Officer and Acting Principal Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2
Certification of the Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


Exhibit 101
101.INS - XBRL Instance Document (1)
101.SCH - XBRL Taxonomy Extension Schema Document (1)
101.CAL - XBRL Taxonomy Extension Calculation Linkbase Document (1)
101.DEF - XBRL Taxonomy Extension Definition Linkbase Document (1)
101.LAB - XBRL Taxonomy Extension Label Linkbase Document (1)
101.PRE - XBRL Taxonomy Extension Presentation Linkbase Document (1)



 
10

 



SIGNATURES

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

By: /s/ Gergely Toth
       Gergely Toth
Its: President, Chief Executive Officer, Director (Principal Executive Officer).
February 10, 2017

By: /s/ Simon Peace
       Simon Peace
Its: Chief Financial Officer, Director (Principal Accounting Officer)
February 10, 2017
 

11


 

Cantabio Pharmaceuticals Inc. Reports