Attached files
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM 10-K
(Mark
One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the
Fiscal Year Ended: September 30,
2016
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 005-87668
PEAK PHARMACEUTICALS, INC.
(Exact
name of registrant as specified in its charter)
Nevada
|
26-1973257
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State
or other jurisdiction
|
(I.R.S.
Employer
|
of
incorporation or organization
|
Identification
No.)
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14201 N. Hayden Road, Suite A-1, Scottsdale, AZ 85260
(Address of principal executive offices) (Zip
Code)
Registrant’s
telephone number, including area code: (480)
659-6404
700 N. Colorado Blvd., #734, Denver, CO 80206
(Former
address of principal executive offices)
Securities
registered pursuant to Section 12(b) of the Act:
Title
of Each Class
|
Name of
each exchange on which registered
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None
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N/A
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Securities
registered pursuant to section 12(g) of the Act:
Shares of common stock with a par value of $0.0001
(Title
of class)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.
Yes
☐ No ☒
Indicate
by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act.
Yes ☒ No
☐
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
☐ No ☒
1
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 ☒ No
☐
Indicate
by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (§ 229.405 of this chapter) is not
contained herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. ☒
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 ☒
|
Indicate
by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Act).
Yes
☐ No ☒
The
registrant had 78,363,567 shares of common stock outstanding as of
September 12, 2017.
2
TABLE OF CONTENTS
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Page
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PART I
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ITEM 1.
BUSINESS
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4
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ITEM
1A. RISK FACTORS
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7
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ITEM
1B. UNRESOLVED STAFF COMMENTS
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10
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ITEM 2.
PROPERTIES
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10
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ITEM 3.
LEGAL PROCEEDINGS
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10
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ITEM 4.
MINE SAFETY DISCLOSURES
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11
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PART II
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ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
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11
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ITEM 6.
SELECTED FINANCIAL DATA
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12
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ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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12
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ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
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19
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ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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19
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ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
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19
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ITEM
9A. CONTROLS AND PROCEDURES
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19
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ITEM
9B. OTHER INFORMATION
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20
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PART III
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ITEM
10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
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21
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ITEM
11. EXECUTIVE COMPENSATION
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22
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ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
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24
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ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
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25
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ITEM
14. PRINCIPAL ACCOUNTING FEES AND SERVICES
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26
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PART IV
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ITEM
15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
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28
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SIGNATURES
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29
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3
PART I
ITEM 1. BUSINESS
Forward-Looking Statements
This Annual Report on Form 10-K includes a number of
forward-looking statements that reflect management's current views
with respect to future events and financial performance.
Forward-looking statements are projections in respect of future
events or our future financial performance. In some cases, you can
identify forward-looking statements by terminology such as
“may,” “should,” “expects,”
“plans,” “anticipates,”
“believes,” “estimates,”
“predicts,” “potential” or
“continue” or the negative of these terms or other
comparable terminology. Those statements include statements
regarding the intent, belief or current expectations of us and
members of our management team as well as the assumptions on which
such statements are based. Prospective investors are cautioned that
any such forward-looking statements are not guarantees of future
performance and involve risk and uncertainties, and that actual
results may differ materially from those contemplated by such
forward-looking statements. Forward-looking statements made
in this Annual Report on Form 10-K include statements
about:
●
the plans and
objectives of management for future operations, including plans or
objectives relating to the development of our business plan to
merge or acquire another operating business;
●
a projection of
income (including income/loss), earnings (including earnings/loss)
per share, capital expenditures, dividends, capital structure or
other financial items;
●
our future
financial performance, including any such statement contained in a
discussion and analysis of financial condition by management or in
the results of operations included pursuant to the rules and
regulations of the Securities and Exchange Commission
(“SEC”); and
●
the assumptions
underlying or relating to any statement described in points
above.
These
statements are only predictions and involve known and unknown
risks, uncertainties and other factors, including the risks in the
section entitled “Risk Factors” set forth in this
Annual Report on Form 10-K for the year ended September 30, 2016,
any of which may cause our company’s or our industry’s
actual results, levels of activity, performance or achievements to
be materially different from any future results, levels of
activity, performance or achievements expressed or implied by these
forward-looking statements. These risks may cause the
Company’s or its industry’s actual results, levels of
activity or performance to be materially different from any future
results, levels of activity or performance expressed or implied by
these forward-looking statements.
Readers are urged to carefully review and consider the various
disclosures made by us in this report and in our other reports
filed with the Securities and Exchange Commission. We undertake no
obligation to update or revise forward-looking statements to
reflect changed assumptions, the occurrence of unanticipated events
or changes in the future operating results over time except as
required by law. We believe that our assumptions are based upon
reasonable data derived from and known about our business and
operations. No assurances are made that actual results of
operations or the results of our future activities will not differ
materially from our assumptions.
As used
in this Annual Report on Form 10-K and unless otherwise indicated,
the terms “Peak,” “we,” “us,”
“our,” or the “Company” refer to Peak
Pharmaceuticals, Inc. and its Subsidiary, Peak BioPharma Corp.
Unless otherwise specified, all dollar amounts are expressed in
United States dollars. Our common stock is currently listed on the
OTC Markets, QB Tier, under the symbol
“PKPH.”
Corporate History and Overview
We were
first incorporated in Nevada as Surf A Movie Solutions, Inc. on
December 18, 2007 to engage in the business of the development sale
and marketing of online video sales. We were not successful in our
efforts and discontinued this line of business. Since that time and
until August 8, 2014, we were a “shell company” (as
such term is defined in Rule 12b2 under the Exchange
Act).
On
August 30, 2013, we changed our name to Frac Water Systems, Inc.
and on October 10, 2013 we decided to engage in the business of
providing economically and environmentally sound solutions for the
treatment and recycling of wastewater resulting principally from
oil and gas exploration and production activities. Due to our
research of the business opportunities, on December 31, 2013 we
determined not to move forward with this line of
business.
4
In
early March 2014, we decided to enter in to the business of
developing, manufacturing and marketing pharmaceutical level
products containing phytocannabinnoids, an abundant and
pharmaceutically active component of industrial hemp, for the
prevention and alleviation of various conditions and diseases. In
connection therewith, on March 17, 2014, we changed our name to
Cannabis Therapy Corporation and on March 24, 2014 changed our
trading symbol on OTC Markets to “CTCO”. On December
23, 2014, we changed our name to Peak Pharmaceuticals, Inc. and our
trading symbol changed to “PKPH” on February 5,
2015.
Since
early March 2014 we had been operating as a biopharmaceutical
and nutraceutical company seeking to develop, manufacture, market
and sell safe, high quality, medicinal products based on extracts
from hemp. Our primary initial focus was on exploitation of the
exclusive license we received from CannaPet, LLC, a developer
of ingestible health products for pets made from hemp. We had also
taken initial steps related to development of
overthecounter, THCfree, hemp based products for
the human market for the prevention and alleviation of symptoms
associated with inflammatory and autoimmune diseases.
Recently, hemp cultivation was legalized in 11 states, including
Colorado, and, on a limited basis, at the federal level as part of
the Agricultural Act of 2014 (the “2014 US Farm Bill”)
passed in February 2014, which sets the agricultural product apart
from marijuana. Industrial hemp has THC content below 0.3%,
compared to the 120% typically found in
marijuana.
On July
29, 2014, through our whollyowned subsidiary, Peak BioPharma
Corp., we entered into a License Agreement (the “License
Agreement”) with CannaPet, LLC,
(“Licensor”) a Washington limited liability
corporation. They own the brand name “CannaPet”
and certain related intellectual property including, but not
limited to, trademarks and copyrights, formulations, recipes,
production processes and systems, websites, domain names, customer
lists, supplier lists, trade secrets and knowhow, and other
related intellectual property (collectively, the “Licensed
Intellectual Property”). This is used by the Licensor in the
conduct of its business related to the production and sale of
medical products made from industrial hemp, which are intended
exclusively for consumption by pets. Pursuant to the License
Agreement, the Licensor granted to us a perpetual, exclusive,
worldwide license to use the Licensed Intellectual Property
in conjunction with our business and the production and sale of
medical products made from industrial hemp, as well as the right to
sublicense the Licensed Intellectual Property to third parties. The
License Agreement gave us the right to produce and sell existing
products utilizing the Licensed Intellectual Property and to
develop new products, jointly with Licensor or otherwise, based
upon the Licensed Intellectual Property. The License Agreement
provided us with an immediate revenue source and access to
Licensor’s customer base. The License Agreement specified
that during the term of the license, all intellectual property
rights in and to the Licensed Intellectual Property remain the
exclusive property of Licensor.
Based
upon regulatory activity related to imposition of restrictions and
limitations on the sale and marketing of hempbased health
products for the veterinary market, on October 1, 2015, we elected
to terminate our license agreement with CannaPet and cease
all operations relating to sale of hempbased products for
animals. Furthermore, based on advice from the Food and Drug
Administration, as well as our regulatory counsel, we decided to
revise our strategy and discontinue all efforts to develop and
market hempbased health products.
On
October 12, 2015, we entered into an agreement for the termination
(“Termination Agreement”) of the License Agreement,
effectively selling the discontinued operations. The Termination
Agreement contained the following provisions:
●
Termination of
License: The parties agreed to terminate the License Agreement
effective as of October 1, 2015, this termination was made by
mutual agreement of the parties pursuant to and in accordance with
the provisions of the License Agreement.
●
Return of Licensed
Intellectual Property: We agreed to return all Licensed
Intellectual Property to the Licensor, and our right to use all, or
any portion, of the Licensed Intellectual Property ceased effective
as of October 1, 2015, Pursuant to the terms of the License
Agreement, the Licensed Intellectual Property included the brand
name “Canna-Pet” and certain related intellectual
property, including, but not limited, trademarks and copyrights,
formulations, recipes, production processes and systems, websites,
domain names, customer lists, supplier lists trade secrets and
know- how, and other related intellectual property.
5
●
Return of Other
Property: In addition to return of the Licensed Intellectual
Property, we agreed to transfer to Licensor all product inventory,
Colorado hemp with permits and authorization, all
production/fulfillment contracts, all e-commerce accounts and
processing, all non-disclosure and research agreements and any and
all other property in our possession which was used by us in the
conduct of our business related to production and sale of medical
cannabis products for pets made from hemp and low-THC cannabis
plants.
●
Office Space,
Equipment and Employees: In conjunction with the execution of the
Termination Agreement, we granted the Licensor the right to use our
office space, for the three-month period from October 1, 2015
through December 31, 2015, on a rent-free basis.
●
Consideration: As
consideration for the cancellation of the License Agreement and the
return of other property, as described above, the Licensor agreed
to waive payment by us and to release us from liability for payment
of any and all unpaid royalties, invoices and other amounts which
were otherwise currently due and payable by us to Licensor for
sales of Canna-Pet products for all periods through and including
September 30, 2015.
●
Collections: On
October 15, 2015, we forwarded to the Licensor all payments
received by us after September 30, 2015 (net of amounts received by
us for taxes, duties, governmental charges, freight or shipping
charges, and the like) for Canna- Pet products sold on or after
October 1, 2015.
The
following is a summary of the net assets sold as initially
determined at Septembers 30, 2015 and updated October 15,
2015:
|
October
15, 2015
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September
30, 2015
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Inventory
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$45,436
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$41,705
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Prepaid
Expenses
|
8,821
|
-
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Deposits
|
8,179
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8,678
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Total
assets
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$62,436
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$50,383
|
|
|
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Accounts
payable
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103,548
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124,396
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Royalties
payable
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39,506
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39,506
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Accrued
liabilities
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285
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15,341
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Total
liabilities
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143,339
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179,243
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Net assets
sold
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$80,903
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$128,860
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Furthermore,
based on advice from the Food and Drug Administration, as well as
our regulatory counsel, we decided to revise our strategy and
discontinue all efforts to develop and market hemp based health
products. We currently are pursuing acquiring or merging with an
entity with significant operations in order to create a viable
business model and value for our shareholders.
All of
our business operations are carried on through our wholly owned
subsidiary, Peak BioPharma Corp., a Colorado corporation.
Throughout this Report, unless otherwise noted or required by the
context, references to “the Company,” “us,”
“we,” “our,” and similar terms refers to
Peak Pharmaceuticals, Inc. and our wholly owned subsidiary, Peak
BioPharma Corp.
We
currently have authorized 350,000,000 shares of capital stock,
consisting of (i) 325,000,000 shares of common stock, and (ii)
25,000,000 shares of “blank check” Preferred
Stock.
On
August 15, 2012, our board of directors and stockholders owning a
majority of our outstanding common shares, authorized a 50 for 1
forward stock split of our issued and outstanding common stock. The
forward split became effective on September 27, 2012. Due to the
forward split, each outstanding share was split into 50 shares. On
March 11, 2014, our board of directors authorized a 1.5 for 1
forward stock split of our common stock in the form of a dividend.
In connection therewith, our shareholders of record as of the close
of business on March 28, 2014 received an additional 0.5 share of
our common stock for each share of our issued and outstanding
common stock held by them on such date. The forward stock split
became effective on April 1, 2014.
6
Strategy and Outlook
If we
can raise sufficient capital, of which there can be no assurance,
our business strategy is to actively pursue additional
opportunities and operating companies to merge with or acquire in
furtherance of a profitable business and to build value for our
shareholders.
Employees
As of
the date of this report we have 1 employee, Neil Reithinger, our
principal executive officer.
Subsidiaries
All of
our business operations are carried on through our
whollyowned subsidiary, Peak BioPharma Corp., a Colorado
corporation.
Intellectual Property
We do
not presently own any intellectual property.
Government Regulation
Based
upon the regulatory activity related to imposition of restrictions
and limitations on the sale and marketing of hempbased health
products for the veterinary market, on October 1, 2015, we elected
to terminate our license agreement with CannaPet and cease
all operations relating to sale of hempbased products for
animals. Furthermore, based on advice from the Food and Drug
Administration, as well as our regulatory counsel, we decided to
revise our strategy and discontinue all efforts to develop and
market hempbased health products. As a result, we are
currently not subject to any government regulation.
ITEM 1A. RISK FACTORS
An
investment in our common stock involves a number of very
significant risks. You should carefully consider the following
risks and uncertainties in addition to other information in this
report in evaluating our company and its business before purchasing
shares of our company’s common stock. Our business, operating
results and financial condition could be seriously harmed due to
any of the following risks. You could lose all or part of your
investment due to any of these risks.
Risks Related to Our Company
We have a limited operating history upon which investors can
evaluate our future prospects. We may never attain
profitability.
Given
our limited operating history, management has little basis on which
to forecast future demand for our products and out anticipated
revenues. Our anticipated and future expense levels are based
largely on estimates of planned operations and future revenues
rather than experience. It is difficult to accurately forecast
future revenues because our revenues to date have been from the
CannaPet business, which we elected to terminate as of
October 1, 2015, subsequent to the fiscal year ended September 30,
2015.
We have a history of losses and we may not achieve or sustain
profitability in the future.
We have
incurred losses in each fiscal year since our incorporation in
2007. We anticipate that our operating expenses will increase in
the foreseeable future as we continue to explore operating
companies to merge with or acquire. These efforts may prove more
expensive than we currently anticipate, and we may not succeed in
generating sufficient revenues to offset these higher expenses. If
we are unable to do so, we and our business, financial condition
and operating results could be materially and adversely
affected.
7
We will require additional working capital in order to continue
operations and we may not be able to secure the necessary
additional financing.
We will
require additional working capital in order to continue to remain
compliant under the Exchange Act and to continue to explore future
business opportunities. We cannot be sure that this additional
financing, if needed, will be available on acceptable terms or at
all. Furthermore, any debt financing, if available, may involve
restrictive covenants, which may limit our operating flexibility
with respect to business matters. If additional funds are raised
through the issuance of equity securities, the percentage ownership
of our existing shareholders will be reduced, our shareholders may
experience additional dilution in net book value, and such equity
securities may have rights, preferences, or privileges senior to
those of our existing shareholders. If adequate funds are not
available on acceptable terms, or at all, we will be unable to
develop or enhance our products and services, take advantage of
future opportunities, repay debt obligations as they become due, or
respond to competitive pressures, any of which would have a
material adverse effect on our business, prospects, financial
condition, and results of operations.
Our independent registered public accounting firm has expressed
doubt about our ability to continue as a going
concern.
Our
historical financial statements have been prepared under the
assumption that we will continue as a going concern. Our
independent registered public accounting firm has issued a report
that included an explanatory paragraph referring to our recurring
net losses and accumulated deficit, and expressing substantial
doubt in our ability to continue as a going concern. Our ability to
continue as a going concern is dependent upon our ability to merge
or acquire an operating business and obtain additional equity or
debt financing or other capital and, ultimately, to generate
revenue. Our financial statements do not include any adjustments
that might result from the outcome of this uncertainty. However, if
adequate funds are not available to us when we need it, and we are
unable to find an operating company to merge with or acquire, we
will be required to curtail our operations which would, in turn,
further raise substantial doubt about our ability to continue as a
going concern.
Risks Related to Investment
You may experience dilution of your ownership interests because of
the future issuance of additional shares of our common or preferred
stock or other securities that are convertible into or exercisable
for our common or preferred stock.
Any
future issuance of our equity or equity backed securities may
dilute then current stockholders’ ownership percentages and
could also result in a decrease in the fair market value of our
equity securities, because our assets would be owned by a larger
pool of outstanding equity. As described above, we may need to
raise additional capital through public or private offerings of our
common or preferred stock or other securities that are convertible
into or exercisable for our common or preferred stock. We may also
issue such securities related to hiring or retaining employees and
consultants as payment to providers of goods and services, in
connection with future acquisitions or for other business purposes.
Our Board may at any time authorize the issuance of additional
common or preferred stock without common stockholder approval,
subject only to the total number of authorized common and preferred
shares set forth in our articles of incorporation. The terms of
equity securities issued by us in future transactions may be more
favorable to new investors, and may include dividend and/or
liquidation preferences, superior voting rights and the issuance of
warrants or other derivative securities, which may have a further
dilutive effect. Also, the future issuance of any such additional
shares of common or preferred stock or other securities may create
downward pressure on the trading price of our common stock. There
can be no assurance that any such future issuances will not be at a
price (or exercise prices) below the price at which shares of our
common stock are then traded.
We may be unable to raise enough capital through sales of our
equity and debt securities to implement our business
plan.
We will
be largely dependent on capital raised through sales of our equity
and debt securities. Currently, we have not made any arrangements
to raise additional cash, and we cannot assure you that we will be
able to raise the working capital as needed on terms acceptable to
us, if at all. If we are unable to raise capital as needed, we will
be unable to continue operations or to implement our business plan,
and will be required to cease our operations entirely.
8
The ability of our Board to issue additional stock may prevent or
make more difficult certain transactions, including a sale or
merger of the Company.
We
currently have authorized 350,000,000 shares of capital stock
consisting of (i) 325,000,000 shares of common stock, and (ii)
25,000,000 shares of "blank check" Preferred Stock. As a result,
our Board is authorized to issue up to 25,000,000 shares of
preferred stock with powers, rights and preferences designated by
it. See “Preferred Stock” in the section of this Report
titled “Description of Securities.” Shares of voting or
convertible preferred stock could be issued, or rights to purchase
such shares could be issued, to create voting impediments or to
frustrate persons seeking to affect a takeover or otherwise gain
control of the Company. The ability of the Board to issue such
additional shares of Preferred Stock, with rights and preferences
it deems advisable, could discourage an attempt by a party to
acquire control of the Company by tender offer or other means. Such
issuances could therefore deprive stockholders of benefits that
could result from such an attempt, such as the realization of a
premium over the market price for their shares in a tender offer or
the temporary increase in market price that such an attempt could
cause. Moreover, the issuance of such additional shares of
preferred stock to persons friendly to the Board could make it more
difficult to remove incumbent managers and directors from office
even if such change were to be favorable to stockholders
generally.
Restrictions on the use of Rule 144 by Shell Companies or Former
Shell Companies could affect your ability to resale our
shares.
Historically,
the SEC has taken the position that Rule 144 under the Securities
Act, as amended, is not available for the resale of securities
initially issued by companies that are, or previously were, shell
companies like us, to their promoters or affiliates despite
technical compliance with the requirements of Rule 144. The SEC has
codified and expanded this position in its amendments to Rule 144
which became effective on February 15, 2008 which amendments apply
to securities acquired both before and after that date, by
prohibiting the use of Rule 144 for resale of securities issued by
shell companies (other than business transaction related shell
companies) or issuers that have been at any time previously a shell
company unless all of the following conditions are
met:
●
the issuer of the
securities that was formerly a shell company has ceased to be a
shell company.
●
the issuer of the
securities is subject to the reporting requirements of Section 13
or 15(d) of the Exchange Act.
●
the issuer of the
securities has filed all Exchange Act reports and material required
to be filed, as applicable, during the preceding 12 months (or such
shorter period that the issuer was required to file such reports
and materials), other than Form 8K reports. and
●
at least one year
has elapsed from the time that the issuer filed current Form 10
type information with the SEC reflecting its status as an entity
that is not a shell company.
Should
we fail to satisfy the initial listing standards of the national
exchanges, or our common stock is otherwise rejected for listing
and remains listed on the OTC Markets or suspended from the OTC
Markets, the trading price of our common stock could suffer and the
trading market for our common stock may be less liquid and our
common stock price may be subject to increased
volatility.
Our common stock is subject to the “penny stock” rules
of the SEC and the trading market in the securities is limited,
which makes transactions in the stock cumbersome and may reduce the
value of an investment in the stock.
The SEC
has adopted Rule 15g9 which establishes the definition of a
“penny stock,” for the purposes relevant to us, as any
equity security that has a market price of less than $5.00 per
share or with an exercise price of less than $5.00 per share,
subject to certain exceptions. For any transaction involving a
penny stock, unless exempt, the rules require:
●
that a broker or
dealer approve a person’s account for transactions in penny
stocks. and
●
the broker or
dealer receives from the investor a written agreement to the
transaction, setting forth the identity and quantity of the penny
stock to be purchased.
In
order to approve a person’s account for transactions in penny
stocks, the broker or dealer must:
9
●
obtain financial
information and investment experience objectives of the person.
and
●
make a reasonable
determination that the transactions in penny stocks are suitable
for that person and the person has sufficient knowledge and
experience in financial matters to be capable of evaluating the
risks of transactions in penny stocks.
The
broker or dealer must also deliver, prior to any transaction in a
penny stock, a disclosure schedule prescribed by the SEC relating
to the penny stock market, which, in highlight form sets
forth:
●
the basis on which
the broker or dealer made the suitability determination.
and
●
that the broker or
dealer received a signed, written agreement from the investor prior
to the transaction.
Generally,
brokers may be less willing to execute transactions in securities
subject to the “penny stock” rules. This may make it
more difficult for investors to dispose of common stock and cause a
decline in the market value of stock.
Disclosure
also must be made about the risks of investing in penny stocks in
both public offerings and in secondary trading and about the
commissions payable to both the brokerdealer and the
registered representative, current quotations for the securities
and the rights and remedies available to an investor in cases of
fraud in penny stock transactions. Finally, monthly statements must
be sent disclosing recent price information for the penny stock
held in the account and information on the limited market in penny
stocks. If we remain subject to the penny stock rules for any
significant period, it could have an adverse effect on the market,
if any, for our securities. If our securities are subject to the
penny stock rules, investors will find it more difficult to dispose
of our securities.
We do not anticipate paying dividends on our common stock, and
investors may lose the entire amount of their
investment.
To
date, cash dividends have not been declared or paid on our common
stock, and we do not anticipate such a declaration or payment for
the foreseeable future. We expect to use future earnings, if any,
to fund business growth. Therefore, stockholders will not receive
any funds absent a sale of their shares of common stock, subject to
the limitation outlined herein. If we do not pay dividends, our
common stock may be less valuable because a return on your
investment will only occur if our stock price appreciates. We
cannot assure stockholders of a positive return on their investment
when they sell their shares, nor can we assure that stockholders
will not lose the entire amount of their investment.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not
Applicable.
ITEM 2. PROPERTIES
Our
principal executive offices are located at 14201 N. Hayden Road,
Suite A-1, Scottsdale, AZ 85260. Our registered agent is Nevada
Agency and Transfer Company, 50 West Liberty Street, Suite 880
Reno, NV 89501.
Intellectual Property
We do
not presently own any intellectual property.
ITEM 3. LEGAL PROCEEDINGS
From
time to time, we may become involved in various lawsuits and legal
proceedings which arise in the ordinary course of business.
However, litigation is subject to inherent uncertainties, and an
adverse result in these or other matters may arise from time to
time that may harm business. We are currently not aware of any
pending legal proceedings to which we are a party or of which any
of our property is the subject, nor are we aware of any such
proceedings that are contemplated by any governmental
authority.
10
ITEM 4. MINE SAFETY DISCLOSURES
Not
applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
Market information
From
May 17, 2010 until September 11, 2013, our shares of common stock
were quoted on the OTC Bulletin Board and the OTCQB, under the
stock symbol “SURF,” from September 12, 2013 until
March 23, 2014, under the symbol “FWSI,” from March 24,
2014 until February 4, 2015 under the symbol “CTCO,”
and since February 5, 2015 under the symbol “PKPH.” The
following table shows the reported high and low closing bid prices
per share for our common stock based on information provided by the
OTC Markets. The over-the-counter market quotations set forth for
our common stock reflect interdealer prices, without retail
markup, markdown or commission and may not necessarily
represent actual transactions.
Quarter Ended
|
Bid High
|
Bid Low
|
September 30,
2016
|
$
0.210
|
$
0.017
|
June
30, 2016
|
$
0.340
|
$
0.060
|
March
31, 2016
|
$
0.100
|
$
0.050
|
December 31,
2015
|
$
0.215
|
$
0.055
|
September 30,
2015
|
$
0.300
|
$
0.110
|
June
30, 2015
|
$
0.280
|
$
0.110
|
March
31, 2015
|
$
0.750
|
$
0.110
|
December 31,
2014
|
$
0.700
|
$
0.140
|
Transfer Agent
The
transfer agent and registrar for our common stock is Securities
Transfer Corporation, 2901 N Dallas Parkway, Suite 380, Plano,
Texas 75093. Their phone number is (469) 633-0101 and their website
is www.stctransfer.com.
Holders of Common Stock
As of
the date of this Report, we have
78,363,567 shares of common stock issued and
outstanding held by approximately 19 stockholders of
record.
Registration Rights
There
were no registration rights as of September 30, 2016.
Dividends
We have
never paid any cash dividends on our capital stock and do not
anticipate paying any cash dividends on our common stock in the
foreseeable future. We intend to retain future earnings to fund
ongoing operations and future capital requirements. Any future
determination to pay cash dividends will be at the discretion of
our Board and will be dependent upon financial condition, results
of operations, capital requirements and such other factors as the
Board deems relevant.
11
ITEM 6. SELECTED FINANCIAL DATA
Not
applicable.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Cautionary Notice Regarding Forward Looking Statements
The
information contained in Item 7 contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. Actual results may materially differ from those projected
in the forward-looking statements because of certain risks and
uncertainties set forth in this report. Although management
believes that the assumptions made and expectations reflected in
the forward-looking statements are reasonable, there is no
assurance that the underlying assumptions will, in fact, prove to
be correct or that actual results will not be different from
expectations expressed in this report.
We
desire to take advantage of the “safe harbor”
provisions of the Private Securities Litigation Reform Act of 1995.
This filing contains a number of forward-looking statements that
reflect management’s current views and expectations with
respect to our business, strategies, products, future results and
events, and financial performance. All statements made in this
filing other than statements of historical fact, including
statements addressing operating performance, clinical developments
which management expects or anticipates will or may occur in the
future, including statements related to our technology, market
expectations, future revenues, financing alternatives, statements
expressing general optimism about future operating results, and
non-historical information, are forward looking statements. In
particular, the words “believe,” “expect,”
“intend,” “anticipate,”
“estimate,” “may,” variations of such
words, and similar expressions identify forward-looking statements,
but are not the exclusive means of identifying such statements, and
their absence does not mean that the statement is not
forward-looking. These forward-looking statements are subject to
certain risks and uncertainties, including those discussed below.
Our actual results, performance or achievements could differ
materially from historical results as well as those expressed in,
anticipated, or implied by these forward-looking statements. We do
not undertake any obligation to revise these forward-looking
statements to reflect any future events or
circumstances.
Readers
should not place undue reliance on these forward-looking
statements, which are based on management’s current
expectations and projections about future events. They are not
guarantees of future performance, are subject to risks,
uncertainties and assumptions (including those described below),
and apply only as of the date of this filing. Our actual results,
performance or achievements could differ materially from the
results expressed in, or implied by, these forward-looking
statements. Factors which could cause or contribute to such
differences include, but are not limited to, the risks to be
discussed in this Annual Report on Form 10-K, information in press
releases, and other communications to shareholders issued by us
from time to time. We undertake no obligation to publicly update or
revise any forward-looking statements, whether because of new
information, future events, or otherwise.
Use of Generally Accepted Accounting Principles
(“GAAP”) Financial Measures
We use
United States GAAP financial measures in the section of this report
captioned “Management’s Discussion and Analysis or Plan
of Operation” (MD&A), unless otherwise noted. All the
GAAP financial measures used by us in this report relate to the
inclusion of financial information. This discussion and analysis
should be read in conjunction with our financial statements and the
notes thereto included elsewhere in this annual report. All
references to dollar amounts in this section are in United States
dollars, unless expressly stated otherwise. Please see our
“Risk Factors” for a list of our risk
factors.
Overview
This
subsection of MD&A provides an overview of the important
factors that management focuses on in evaluating our businesses,
financial condition and operating performance, our overall business
strategy and our financial results for the periods
covered.
12
Results of Operations
Comparison of the Twelve Months Ended September 30, 2016 to the
Twelve Months Ended September 30, 2015
Revenue
For the
years ended September 30, 2016 and 2015, there was no
revenue.
Expenses
The
Company’s expenses for the years ended September 30, 2016 and
2015, are summarized as follows:
|
Year
ended September 30,
|
|
|
2016
|
2015
|
|
|
|
General and
administrative
|
$189,928
|
$462,688
|
Depreciation and
amortization
|
18,974
|
11,893
|
Stock based
compensation
|
(1,296,431)
|
1,864,297
|
Total operating
expenses
|
$(1,087,529)
|
$2,338,878
|
The
decrease in general and administrative expenses for the year ended
September 30, 2016, compared to the year ended September 30, 2015
of $272,760 is due to the termination of the license agreement with
Canna-Pet, LLC and the overall reduction related to the operation
of that business. The increase in depreciation & amortization
of $7,081 for year ended September 30, 2016 compared to 2015, is
due to the remainder of the website being amortized and a true-up
entry for discontinued operations. The decrease in equity based
compensation of $3,160,728 for the year ended September 30, 2016
compared to 2015 was due to the forfeiture and reversal of stock
options to officers.
Discontinued Operations
Our
Canna-Pet business segment began operations in October 2014. Due to
recent regulatory activity related to imposition of restrictions
and limitations on the sale of hemp-based health products for pets,
on October 1, 2015, we elected to terminate our license agreement
with Canna-Pet, LLC and to cease all operations relating to sale of
hemp-based products for pets.
The
income (loss) from discontinued operations presented in the
statements of operations consists of the following for the year
ended periods ended September 30, 2016 & 2015:
|
Year
ended September 30,
|
|
|
2016
|
2015
|
Revenues
|
$-
|
$1,039,393
|
Cost of goods
sold
|
-
|
(305,295)
|
General and
administrative
|
(6,197)
|
(700,160)
|
Gain on disposal of
discontinued operations
|
80,903
|
-
|
Depreciation
|
-
|
(850)
|
Interest
|
-
|
(48)
|
Total operating
expenses
|
$74,706
|
$33,040
|
13
Other Income (Expense)
|
Year
ended September 30,
|
|
|
2016
|
2015
|
Interest
Expense
|
$-
|
$2,202
|
|
|
|
Total operating
expenses
|
$-
|
$2,202
|
The
decrease in other expense for the year ended September 30, 2016
compared to the prior year is mainly attributable to the scaling
down of operations and termination of the license agreement with
Canna-Pet.
Liquidity and Capital Resources
Working Capital
The
following table sets forth a summary of changes in working capital
for the twelve months ended September 30, 2016 and
2015:
|
Year
ended September 30,
|
|
|
2016
|
2015
|
Current
Assets
|
$1,304
|
$261,789
|
Current
Liabilities
|
142,762
|
288,632
|
Working
capital
|
$(141,458)
|
$(26,843)
|
The
decrease in current assets is mainly due to a decrease in cash
resulting from cash used in operating activities of $200,352 during
the year ended September 30, 2016. The decrease in current
liabilities is due primarily from the elimination of the
liabilities related to discontinued operations during the year
ended September 30, 2016.
Cash Flows
The
following table sets forth a summary of changes in cash flows for
the twelve months ended September 30, 2016 and 2015:
|
Twelve
Months Ended September 30,
|
|
|
2016
|
2015
|
Net cash used in
operating activities
|
$(200,352)
|
$(247,589)
|
Net cash provided
by (used in) investing activities
|
-
|
-
|
Net cash provided
by financing activities
|
-
|
(2,186)
|
Change in
cash
|
$(200,352)
|
$(249,775)
|
The
increase in net cash used in operating activities is mainly due to
the scaled down business operations after the termination and
discontinued operations of Canna-Pet.
Net
cash used in operations for the twelve months ended September 30,
2016 was $200,352 mainly due to payments of general and
administrative expenses during this period.
We need
to raise additional operating capital on an immediate basis.
Although the expenses of our operations have been significantly
reduced due to the termination of the license agreement as outline
in Note 3 of the financial statements, we need to still evaluate
raising additional capital through the sale of equity securities,
through an offering of debt securities or through borrowing from
individuals. There can be no assurance that such a plan will be
successful.
As of
the date of this filing, we do not have enough sufficient cash on
hand to cover our operating expenses through the next quarter. In
the absence of any ongoing commercial operations, we need enough
cash to pay certain outside professionals to maintain our
compliance under the Securities Act of 1934. Management anticipates
that it will require an additional $30,000 over the next twelve
months to cover such costs.
14
Going Concern
The
audited consolidated financial statements contained in this annual
report have been prepared assuming that the Company will continue
as a going concern. Since inception, the Company has financed its
operations primarily through proceeds from the issuance of common
stock and convertible notes payable. As of September 30, 2016, the
Company had an accumulated deficit of $5,004,860. During the twelve
months ended September 30, 2016 and 2015, the Company incurred net
income and losses of $1,162,235 and $2,308,040, respectively, and
used cash in operating activities of $200,352 and $247,589,
respectively. These conditions raise substantial doubt about the
Company’s ability to continue as a going concern. Presently,
we do not have sufficient cash resources to meet our plans for the
next twelve months. These factors raise substantial doubt about the
Company’s ability to continue as a going concern. The audited
consolidated financial statements do not include any adjustments
that may be necessary should the Company be unable to continue as a
going concern. Our continuation as a going concern is dependent on
our ability to obtain additional financing as may be required and
ultimately to attain profitability.
Cash Requirements
Management
anticipates that it will require an additional $30,000 over the
next twelve months to cover costs. This amount could increase if we
encounter difficulties that we cannot anticipate at this time or if
we acquire other businesses. As of the date of this filing, we had
cash and cash equivalents of approximately $15,000. There can be no
assurance, however, that financing will be available or, if it is
available, that we will be able to structure such financing on
terms acceptable to us and that it will be sufficient to fund our
cash requirements until we can reach a level of profitable
operations and positive cash flows. Even if we are able to raise
the funds required, it is possible that we could incur unexpected
costs and expenses or experience unexpected cash requirements that
would force us to seek additional financing. If additional
financing is not available or is not available on acceptable terms,
we will have to curtail our operations.
Off-Balance Sheet Arrangements
We have
no off-balance sheet arrangements.
Effects of Inflation
We do
not believe that inflation has had a material impact on our
business, revenues or operating results during the periods
presented.
Critical Accounting Policies and Estimates
Our
financial statements and accompanying notes have been prepared in
accordance with United States generally accepted accounting
principles applied on a consistent basis. The preparation of
financial statements in conformity with U.S. generally accepted
accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting periods.
We
regularly evaluate the accounting policies and estimates that we
use to prepare our financial statements. A complete summary of
these policies is included in the notes to our financial
statements. In general, management’s estimates are based on
historical experience, on information from third party
professionals, and on various other assumptions that are believed
to be reasonable under the facts and circumstances. Actual results
could differ from those estimates made by management.
Cash
The
Company considers all highly liquid investments with an original
maturity of three months or less when purchased to be cash
equivalents. As of September 2016, the Company does not have any
cash equivalents.
15
Accounts Receivable
The
company does not presently have any Accounts
Receivable.
Non-controlling Interest
None
Net Loss Per Share of Common Stock
The
Company has adopted ASC Topic 260
Earnings per Share, which provides for calculation of
“basic” and “diluted” earnings (loss) per
share. Basic earnings (loss) per share includes no dilution and is
computed by dividing net income (loss) available to common
shareholders by the weighted average common shares outstanding for
the period. Diluted earnings (loss) per share reflect the potential
dilution of securities that could share in the earnings of an
entity similar to fully diluted earnings (loss) per share. The
Company excludes equity instruments from the calculation of diluted
earnings per share if the effect of including such instruments is
anti-dilutive. As of September 30, 2016, the Company has 3,291,000
stock options outstanding. As of September 30, 2015, the Company
had 7,791,000 stock options outstanding.
Income Taxes
The
provision for income taxes is determined in accordance with the
provisions of ASC Topic 740, Accounting for Income Taxes
(“ASC 740”). Under this method, deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax basis. Deferred tax assets and liabilities are
measured using enacted income tax rates expected to apply to
taxable income in the years in which those temporary differences
are expected to be recovered or settled. Any effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
ASC 740
prescribes a comprehensive model for how companies should
recognize, measure, present, and disclose in their financial
statements, uncertain tax positions taken or expected to be taken
on a tax return. Under ASC 740, tax positions must initially be
recognized in the financial statements when it is more likely than
not the position will be sustained upon examination by the tax
authorities. Such tax positions must initially and subsequently be
measured as the largest amount of tax benefit that has a greater
than 50% likelihood of being realized upon ultimate settlement with
the tax authority assuming full knowledge of the position and
relevant facts.
For the
years ended September 30, 2016 and 2015 we did not have any
interest and penalties or any significant unrecognized uncertain
tax positions.
Stock-Based Compensation
We
periodically issue stock options and warrants to employees and
non-employees in non-capital raising transactions for services and
for financing costs. We account for stock option and warrant grants
issued and vesting to employees based on ASC 718 Compensation—Stock
Compensation, where the award is measured at its fair value
at the date of grant and is amortized ratably over the service
period. We account for stock option and warrant grants issued and
vesting to non-employees in accordance with ASC 505 Equity, where the value of the
stock compensation is based upon the measurement date as determined
at either (a) the date at which a performance commitment is
reached, or (b) at the date at which the necessary performance to
earn the equity instruments is complete.
16
Fair Value Measurements
During
the fiscal year ended September 30, 2016, the Company adopted
guidance which defines fair value, establishes a framework for
using fair value to measure financial assets and liabilities on a
recurring basis, and expands disclosures about fair value
measurements. The Company has also applied the guidance to
non-financial assets and liabilities measured at fair value on a
non-recurring basis, which includes goodwill and intangible assets.
The guidance establishes a hierarchy for inputs used in measuring
fair value that maximizes the use of observable inputs and
minimizes the use of unobservable inputs by requiring that the most
observable inputs be used when available. Observable inputs are
inputs that market participants would use in pricing the asset or
liability developed based on market data obtained from sources
independent sources. Unobservable inputs are inputs that reflect
Peak’s assumptions of what market participants would use in
pricing the asset or liability developed based on the best
information available in the circumstances. The hierarchy is broken
down into three levels based on the reliability of the inputs as
follows:
Level 1
- Valuation is based upon unadjusted quoted market prices for
identical assets or liabilities in accessible active
markets.
Level 2
- Valuation is based upon quoted prices for similar assets or
liabilities in active markets; quoted prices for identical or
similar assets or liabilities in inactive markets; or valuations
based on models where the significant inputs are observable in the
market.
Level 3
- Valuation is based on models where significant inputs are not
observable. The unobservable inputs reflect a company’s own
assumptions about the inputs that market participants would
use.
The
Company’s financial instruments consist of cash, accounts
receivable, notes receivable, accounts payable, notes payable,
accrued liabilities and derivative liabilities. The estimated fair
value of cash, accounts receivable, notes receivable, accounts
payable, notes payable and accrued liabilities approximate their
carrying amounts due to the short-term nature of these
instruments.
Certain
non-financial assets are measured at fair value on a nonrecurring
basis. Accordingly, these assets are not measured and adjusted to
fair value on an ongoing basis but are subject to periodic
impairment tests. These items primarily include long-lived assets,
goodwill and other intangible assets.
Goodwill
The
Company periodically reviews the carrying value of intangible
assets not subject to amortization, including goodwill, to
determine whether impairment may exist. Goodwill and certain
intangible assets are assessed annually, or when certain triggering
events occur, for impairment using fair value measurement
techniques. These events could include a significant change in the
business climate, legal factors, a decline in operating
performance, competition, sale or disposition of a significant
portion of the business, or other factors. Specifically, goodwill
impairment is determined using a two-step process. The first step
of the goodwill impairment test is used to identify potential
impairment by comparing the fair value of a reporting unit with its
carrying amount, including goodwill. The Company uses level 3
inputs and a discounted cash flow methodology to estimate the fair
value of a reporting unit. A discounted cash flow analysis requires
one to make various judgmental assumptions including assumptions
about future cash flows, growth rates, and discount rates. The
assumptions about future cash flows and growth rates are based on
the Company’s budget and long-term plans. Discount rate
assumptions are based on an assessment of the risk inherent in the
respective reporting units. If the fair value of a reporting unit
exceeds its carrying amount, goodwill of the reporting unit is
considered not impaired and the second step of the impairment test
is unnecessary. If the carrying amount of a reporting unit exceeds
its fair value, the second step of the goodwill impairment test is
performed to measure the amount of impairment loss, if any. The
second step of the goodwill impairment test compares the implied
fair value of the reporting unit’s goodwill with the carrying
amount of that goodwill. If the carrying amount of the reporting
unit’s goodwill exceeds the implied fair value of that
goodwill, an impairment loss is recognized in an amount equal to
that excess. The implied fair value of goodwill is determined in
the same manner as the amount of goodwill recognized in a business
combination. That is, the fair value of the reporting unit is
allocated to all the assets and liabilities of that unit (including
any unrecognized intangible assets) as if the reporting unit had
been acquired in a business combination and the fair value of the
reporting unit was the purchase price paid to acquire the reporting
unit.
17
Concentrations of Credit Risk
The
Company maintains deposits in a financial institution which is
insured by the Federal Deposit Insurance Corporation
(“FDIC”). At various times, the Company has deposits in
this financial institution in excess of the amount insured by the
FDIC. The Company has not experienced any losses related to these
balances and believes its credit risk to be minimal.
Newly Issued Accounting Pronouncements
In May
2014, the Financial Accounting Standards Board (“FASB”)
issued Accounting Standards Update No. 2014-09 (ASU 2014-09)
"Revenue from Contracts with Customers." ASU 2014-09 will supersede
most current revenue recognition guidance, including
industry-specific guidance. The underlying principle is that an
entity will recognize revenue upon the transfer of goods or
services to customers in an amount that the entity expects to be
entitled to in exchange for those goods or services. The guidance
provides a five- step analysis of transactions to determine when
and how revenue is recognized. Other major provisions include
capitalization of certain contract costs, consideration of the time
value of money in the transaction price, and allowing estimates of
variable consideration to be recognized before contingencies are
resolved in certain circumstances. The guidance also requires
enhanced disclosures regarding the nature, amount, timing and
uncertainty of revenue and cash flows arising from an
entity’s contracts with customers. The guidance is effective
for the interim and annual periods beginning on or after December
15, 2016 (early adoption is not permitted). The guidance permits
the use of either a retrospective or cumulative effect transition
method. On July 9, 2015, the FASB decided to delay the effective
date of the new revenue standard by one year. The FASB also agreed
to allow entities to choose to adopt the standard as of the
original effective date. The Company is currently evaluating the
impact of this standard.
In
August 2014, the FASB issued ASU 2014-15, Presentation of Financial
Statements-Going Concern (Subtopic 205-40): Disclosure of
Uncertainties about an Entity’s Ability to Continue as a
Going Concern. ASU 2014-15 defines management’s
responsibility to evaluate whether there is substantial doubt about
an organization’s ability to continue as a going concern and
to provide related footnote disclosures. The amendments in this ASU
are effective for the annual period ending after December 15, 2016,
and for annual periods and interim periods thereafter, although
early adoption is permitted. This guidance is not expected to have
an impact on the financial statements of the Company. If any event
occurs in future periods that could affect our ability to continue
as going concern, we will provide appropriate disclosures as
required by ASU 2014-15.
In July
2015, the Financial Accounting Standards Board (“FASB”)
issued Accounting Standards Update No. 2015-11 (ASU 2015-11),
Simplifying the Measurement of Inventory. According to ASU 2015-11,
an entity should measure inventory within the scope of this update
at the lower of cost and net realizable value. Net realizable value
is the estimated selling prices in the ordinary course of business,
less reasonably predictable costs of completion, disposal, and
transportation. Subsequent measurement is unchanged for inventory
measured using LIFO or the retail inventory method. The amendments
in ASU 2015-11 more closely align the measurement of inventory in
GAAP with the measurement of inventory in International Financial
Reporting Standards (IFRS). The Board has amended some of the other
guidance in Topic 330 to more clearly articulate the requirements
for the measurement and disclosure of inventory. However, the Board
does not intend for those clarifications to result in any changes
in practice. Other than the change in the subsequent measurement
guidance from the lower of cost or market to the lower of cost and
net realizable value for inventory within the scope of ASU 2015-11,
there are no other substantive changes to the guidance on
measurement of inventory. For public business entities, the
amendments in ASU 2015-11 are effective for fiscal years beginning
after December 15, 2016, including interim periods within those
fiscal years. The amendments in ASU 2015-11 should be applied
prospectively with earlier application permitted as of the
beginning of an interim or annual reporting period. The Company
elected to early adopt the above. The adoption doesn’t have a
significant impact on the Company’s consolidated financial
position or results of operations.
During
November 2015, the FASB issued ASU 2015-17, Balance Sheet
Classification of Deferred Taxes, which simplifies the presentation
of deferred income taxes. ASU 2015-17 provides presentation
requirements to classify deferred tax assets and liabilities as
noncurrent in a classified statement of financial position. The
standard is effective for fiscal years beginning after December 15,
2016, including interim periods within that reporting period. Early
adoption is permitted for any interim and annual financial
statements that have not yet been issued. We early adopted ASU
2015-17 effective December 31, 2015 on a prospective basis. The
adoption did not have a significant impact on the Company’s
consolidated financial position or results of
operations.
18
In
January 2016, the FASB issued ASU 2016-01, Financial Instruments
– Overall: Recognition and Measurement of Financial Assets
and Financial Liabilities. The pronouncement requires equity
investments (except those accounted for under the equity method of
accounting, or those that result in consolidation of the investee)
to be measured at fair value with changes in fair value recognized
in net income. ASU 2016-01 requires public business entities to use
the exit price notion when measuring the fair value of financial
instruments for disclosure purposes, requires separate presentation
of financial assets and financial liabilities by measurement
category and form of financial asset, and eliminates the
requirement for public business entities to disclose the method(s)
and significant assumptions used to estimate the fair value that is
required to be disclosed for financial instruments measured at
amortized cost. These changes become effective for the Company's
fiscal year beginning January 1, 2018. The expected adoption method
of ASU 2016-01 is being evaluated by the Company and the adoption
is not expected to have a significant impact on the Company’s
consolidated financial position or results of
operations.
In
February 2016, the FASB issued ASU 2016-02, Leases (Topic 842),
which supersedes the existing guidance for lease accounting, Leases
(Topic 840). ASU 2016-02 requires lessees to recognize leases on
their balance sheets, and leaves lessor accounting largely
unchanged. The amendments in this ASU are effective for fiscal
years beginning after December 15, 2018 and interim periods within
those fiscal years. Early application is permitted for all
entities. ASU 2016-02 requires a modified retrospective approach
for all leases existing at, or entered into after, the date of
initial application, with an option to elect to use certain
transition relief. The Company is currently evaluating the impact
of this new standard on its consolidated financial
statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Not
applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The
information called for by Item 8 is included following the "Index
to Financial Statements" on page F-1 contained in this annual
report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Under
the supervision and with the participation of our senior
management, including our Chief Executive Officer and our Chief
Financial Officer, we performed an evaluation of the effectiveness
of our disclosure controls and procedures, as defined in Rules
13a15(e) and 15d15(e) under the Exchange Act, as of the
end of the period covered by this annual report (the
“Evaluation Date”). Based on this evaluation, our Chief
Executive Officer who is also our Chief Financial Officer concluded
that, as of September 30, 2016, our disclosure controls and
procedures were not effective to provide reasonable assurance that
material information required to be disclosed by us in the reports
filed or submitted by us under the Exchange Act is (i) recorded,
processed, summarized and reported within the time periods
specified in the SEC’s rules and forms and (ii) accumulated
and communicated to the Chief Executive Officer and Chief Financial
Officer, as appropriate to allow timely decisions regarding
disclosure.
Management’s Report on Internal Control over Financial
Reporting
As of
September 30, 2016, 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.
19
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:
(i)
lack of a
functioning audit committee;
(ii)
inadequate
segregation of duties consistent with control objectives;
and
(iii)
ineffective
controls over period-end financial disclosure and reporting
processes.
The
aforementioned material weaknesses were identified by our Chief
Executive and Financial Officer in connection with the review of
our financial statements as of September 30, 2016.
Management
believes the weaknesses identified above have not had any material
effect on our financial statements. However, we are currently
reviewing our disclosure controls and procedures related to these
material weaknesses and expect to implement changes as soon as
practicable and as resources allow, including identifying specific
areas within our governance, accounting and financial reporting
processes to add adequate resources to remediate these material
weaknesses.
Changes in Internal Control Over Financial Reporting
There
were no changes in our internal control over financial reporting
during the year ended September 30, 2016 that have materially
affected, or are reasonably likely to materially affect our
internal control over financial reporting.
Management’s Remediation Plan
Subject to raising additional working capital, we plan to
take steps to enhance and improve the design of our internal
control over financial reporting. During the period covered by this
annual report on Form 10-K, we have not been able to remediate the
material weaknesses identified above. To remediate such weaknesses,
we plan to implement the following changes in the next fiscal year
once we have identified a suitable business to acquire and as our
capital resources allow:
(i)
appoint additional
qualified personnel to address inadequate segregation of duties and
ineffective risk management and implement modifications to our
financial controls to address such inadequacies;
(ii)
adopt sufficient
written policies and procedures for accounting and financial
reporting; and
(iii)
appoint independent
board members and a functioning audit committee
The
remediation efforts set out in (i) is largely dependent upon our
company identifying and acquiring a suitable operating business and
securing additional financing to cover the costs of hiring the
requisite personnel and implementing the changes required. If we
are unsuccessful in such endeavors, remediation efforts may be
delayed. Because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance
that all control issues, if any, within our company have been
detected. These inherent limitations include the realities that
judgments in decision-making can be faulty and that breakdowns can
occur because of simple error or mistake.
Management
believes that despite our material weaknesses set forth above, our
financial statements for the year ended September 30, 2016 are
fairly stated, in all material respects, in accordance with US
GAAP.
ITEM 9B. OTHER INFORMATION
None.
20
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
Directors and Executive Officers, Promoters and Control
Persons
Set
forth below is the present director and executive officer of the
Company. Except as set forth below, there are no other persons who
have been nominated or chosen to become directors nor are there any
other persons who have been chosen to become executive officers.
Other than as set forth below, there are no arrangements or
understandings between any of the directors, officers and other
persons pursuant to which such person was selected as a director or
an officer.
Name
|
Position Held with Company
|
Age
|
Date First Elected or
Appointed
|
Neil
Reithinger (1)
|
Chief
Executive Officer, Chief Financial Officer and
Director
|
46
|
April
6, 2016
|
Notes
(1)
|
On
April 6, 2016, the Board of Directors of the Company accepted the
resignation of Arnold Tinter as Chief Executive Officer and Chief
Financial Officer, effective as of March 31, 2016, and in
accordance with the provisions of Section 4.4 of the
Company’s Bylaws, appointed Neil Reithinger as Chief
Executive Officer and Chief Financial Officer, to fill the
vacancies created by the resignation of Mr. Tinter. Furthermore, in
accordance with the provisions of Section 3.6 of the
Company’s Bylaws, Neil Reithinger was appointed as a member
of the Company’s Board of Directors to fill the vacancy
created by the resignation of Vered Caplan, to serve for the
remainder of her unexpired term as a director, and thereafter until
his successor has been duly elected and qualified.
|
Business Experience
The
following is a brief account of the education and business
experience of Neil Reithinger, our sole officer and director,
during the past five years, indicating his principal occupation
during the period, and the name and principal business of the
organization by which he was employed.
Neil Reithinger – Chief Executive Officer, Chief Financial
Officer and Director
Mr.
Reithinger is the Founder and President of Eventus Advisory Group,
LLC (“Eventus”), a private, CFO-services firm
incorporated in Arizona that specializes in capital advisory and
SEC compliance for publicly-traded and emerging growth companies, a
firm he founded in 2009. He is also the President of Eventus
Consulting, P.C., a registered CPA firm in Arizona, a firm he
founded in 2012. He has also been Chief Financial Officer,
Secretary and Treasurer of Orgenesis Inc. since August 2014. Mr.
Reithinger earned a B.S. in Accounting from the University of
Arizona and is a Certified Public Accountant. He is a Member of the
American Institute of Certified Public Accountants and the Arizona
Society of Certified Public Accountants.
Family Relationships
Being
our sole officer and director, there are no family relationships
that are relevant.
Significant Employees
We do
not have other significant employees.
Committees of Board of Directors
There
are currently no committees of the Board of Directors.
21
Term of Office
Our
directors cease to hold office immediately before their election at
an annual general meeting or their appointment by the unanimous
resolution of our shareholders, but are eligible for reelection or
reappointment. Notwithstanding the foregoing, our directors hold
office until their successors are elected or appointed, or until
their deaths, resignations or removals. Our officers hold office at
the discretion of our board of directors, or until their deaths,
resignations or removals.
Potential Conflicts of Interest
We are
not aware of any conflicts of interest with our directors and
officers.
Director Independence
We are
not currently subject to listing requirements of any national
securities exchange or interdealer quotation system which has
requirements that a majority of the Board be
“independent” and, as a result, we are not at this time
required to have our Board comprised of a majority of
“Independent Directors.” Currently, we have one
director, Neil Reithinger, who is not “independent”
within the definition of independence provided in the Marketplace
Rules of The NASDAQ Stock Market.
Section 16(a) Beneficial Ownership Compliance
Section
16(a) of the Securities Exchange Act, as amended, requires our
executive officers and directors, and persons who own more than 10%
of our common stock, to file reports regarding ownership of, and
transactions in, our securities with the Securities and Exchange
Commission and to provide us with copies of those filings. Based
solely on our review of the copies of such forms received by us, or
written representations from certain reporting persons, during the
year ended September 30, 2016, the filing requirements applicable
to its officers, directors and greater than 10% beneficial owners
were complied.
Code of Ethics
In
December 2013, we adopted a Code of Ethics that applies to our
principal executive officer, principal financial officer, principal
accounting officer or controller, persons performing similar
functions as well as to our directors and employees. A copy of our
Code of Ethics was filed as Exhibit 14.1 to our Annual Report on
Form 10K for the fiscal year ended September 30, 2013, as
filed with the Securities and Exchange Commission on December 27,
2013.
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation
The
following table sets forth information concerning the total
compensation paid or accrued by us during the two fiscal years
ended September 30, 2016, and 2015 to (i) all individuals that
served as our principal executive officer or acted in a similar
capacity for us at any time during the fiscal year ended September
30, 2016. (ii) all individuals that were serving as executive
officers of ours at the end of the fiscal year ended September 30,
2016 that received annual compensation during the fiscal year ended
September 30, 2016 in excess of $100,000. and (iii) all individuals
not serving as executive officers of ours at the end of the fiscal
year ended September 30, 2016 that received annual compensation
during the fiscal year ended September 30, 2016 in excess of
$100,000.
22
Name and
Principal
Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Nonequity
Incentive
Plan
Compensa-
tion
($)
|
Change in
Pension Value
and Non
Qualified
Deferred
Compensation
Earnings
($)
|
All Other
Compensa
tion
($)
|
Total
($)
|
Neil
Reithinger
CEO
& CFO 1
|
2016
2015
|
-
-
|
-
-
|
-
-
|
-
-
|
-
-
|
-
-
|
-
-
|
-
-
|
Soren
Mogelsvang,
CEO 1
|
2016
2015
|
$
43,750
-
|
-
-
|
-
-
|
-
-
|
-
-
|
-
-
|
-
-
|
$
43,750
-
|
Arnold
Tinter,
CFO
1
|
2016
2015
|
-
-
|
-
-
|
-
-
|
-
-
|
-
-
|
-
-
|
-
-
|
-
-
|
Notes
(1)
|
During
the year ended September 30, 2016, Mr. Mogelsvang & Mr. Tinter
tenured their resignations as the Chief Executive and Chief
Financial Officer. Neil Reithinger was appointed as Chief Executive
and Chief Financial Officer on April 6, 2016. No officers received
compensation through fiscal year end September 30,
2016.
|
Outstanding Equity Awards at Fiscal Year End
The
following table summarizes the outstanding equity awards held by
each named executive officer of our company as of September 30,
2016.
|
Number of
Securities
Underlying
Unexercised
Options
(#) Exercisable
|
Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(#)
|
Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)
|
Option
Exercise
Price
($)
|
Option
Expir-
ation
Date
|
Number of
Shares or
Units
of
Stock that
have
not
Vested
(#)
|
Market
Value
of
Shares
or
Units
of
Stock
that
have
not
Vested
(#)
|
Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units or
Other
Rights
that
have
not
Vested
(#)
|
Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares, Units
or
Other
Rights that
Have
not
Vested
($)
|
Soren
Mogelsvang
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
Arnold
Tinter
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
Neil
Reithinger
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
23
Retirement or Similar Benefit Plans
There
are no arrangements or plans in which we provide retirement or
similar benefits for our directors or executive
officers.
Resignation, Retirement, Other Termination, or Change in Control
Arrangements
We have
no contract, agreement, plan or arrangement, whether written or
unwritten, that provides for payments to our directors or executive
officers at, following, or in connection with the resignation,
retirement or other termination of our directors or executive
officers, or a change in control of our company or a change in our
directors’ or executive officers’ responsibilities
following a change in control.
Director Compensation
The
following table sets forth for each director certain information
concerning his compensation for the year ended September 30,
2016.
|
Fees
Earned or
Paid in
Cash
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-Equity
Incentive Plan
Compensation
($)
|
Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings
($)
|
All other
Compensation
($)
|
Total
($)
|
Neil
Reithinger
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
Cohava
Gelber
|
$12,000
|
-
|
-
|
-
|
-
|
-
|
$12,000
|
Guy
Yachin
|
$12,000
|
-
|
-
|
-
|
-
|
-
|
$12,000
|
We have
no plans in place and have never maintained any plans that provide
for the payment of retirement benefits or benefits that will be
paid primarily following retirement including, but not limited to,
tax qualified deferred benefit plans, supplemental executive
retirement plans, tax qualified deferred contribution plans and
nonqualified deferred contribution plans. Similarly, we have no
contracts, agreements, plans or arrangements, whether written or
unwritten, that provide for payments to the named executive
officers or any other persons following, or in connection with the
resignation, retirement or other termination of a named executive
officer, or a change in control of us or a change in a named
executive officer’s responsibilities following a change in
control.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The
following tables set forth, as of September 30, 2016 certain
information with respect to the beneficial ownership of our common
stock by each stockholder known by us to be the beneficial owner of
more than 5% of our common stock and by each of our current
directors and executive officers. Each person has sole voting and
investment power with respect to the shares of common stock, except
as otherwise indicated. Beneficial ownership consists of a direct
interest in the shares of common stock, except as otherwise
indicated.
24
In the
following tables, we have determined the number and percentage of
shares beneficially owned in accordance with Rule 13d3 of the
Securities Exchange Act of 1934 based on information provided to us
by our controlling stockholder, executive officers and directors,
and this information does not necessarily indicate beneficial
ownership for any other purpose. In determining the number of
shares of our common stock beneficially owned by a person and the
percentage ownership of that person, we include any shares as to
which the person has sole or shared voting power or investment
power, as well as any shares subject to warrants or options held by
that person that are currently exercisable or exercisable within 60
days.
Security Ownership of Certain Beneficial Holders
Title of Class
|
Name and Address of
Beneficial Owner
|
Amount and Nature of
Beneficial Ownership
|
Percent of
Class(1)(2)
|
Common
Stock
|
Aaron
Gelber
14645
Sulky Court Run
Mokesville, VA
20181
|
14,939,999
Direct
|
19.06%
|
Common
Stock
|
Iris
Yachin
7
Orchard Way North
Potomac, MD
20854
|
14,939,999
Direct
|
19.06%
|
Common
Stock
|
Talal
Yassin
3040
Rosebery Ave
West
Vancouver BC, Canada
V7V
349
|
4,871,319
Direct
|
6.22%
|
|
Total Beneficial Holders as a
Group
|
34,751,317
Direct
|
44.34%
|
Security Ownership of Management
Title of Class
|
Name and Address of
Beneficial Owner
|
Amount and Nature of
Beneficial Ownership
|
Percent of
Class (1)(2)
|
Common
Stock
|
Neil
Reithinger
14201
N Hayden Road, Suite A-1
Scottsdale, AZ
85260
|
-
|
-
|
Common
Stock
|
Directors & Executive Officers
as a group (1 person)
|
-
|
-
|
Notes
(1)
|
Percentages are
based upon 78,363,567 shares of our common stock issued and
outstanding as of September 30, 2016.
|
|
|
(2)
|
Beneficial
ownership is determined in accordance with the rules of the SEC and
generally includes voting or investment power with respect to
securities. Shares of common stock underlying options, warrants or
notes currently exercisable or convertible or exercisable within 60
days of September 30, 2016 are deemed outstanding for the purpose
of computing the percentage of the person holding such option,
warrant or note but are not deemed outstanding for computing the
percentage of any other person.
|
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE
Transactions with Related Persons
Except
as set out below, as of September 30, 2016, there have been no
transactions, or currently proposed transactions, in which we were
or are to be a participant and the amount involved exceeds the
lesser of $120,000 or one percent of the average of our total
assets at year end for the last two completed fiscal years, and in
which any of the following persons had or will have a direct or
indirect material interest:
25
●
any director or
executive officer of our company;
●
any person who
beneficially owns, directly or indirectly, shares carrying more
than 5% of the voting rights attached to our outstanding shares of
common stock;
●
any promoters and
control persons; and
●
any member of the
immediate family (including spouse, parents, children, siblings and
in laws) of any of the foregoing persons.
In
connection with the approval of our 2014 Equity Incentive Plan on
May 22, 2014, our Board of Directors granted 4,000,000
nonstatutory stock options under the 2014 Plan with an
exercise price of $0.20 per share to our President and Chief
Executive Officer, Soren Mogelsvang, and granted 500,000
nonstatutory stock options under the 2014 Plan with an
exercise price of $0.20 per share to our Treasurer and Chief
Financial Officer, Arnold Tinter.
On June
26, 2014, we entered into a Services Agreement with Caerus
Discovery, LLC. (See “Description of Business –
Research Services Agreement”). Cohava Gelber, one of our
directors, is the Chief Executive Officer, President and Principal
Equity Holder of Caerus. Soren Mogelsvang, our President, Chief
Executive Officer and a director previously served as Caerus’
Vice President of Research and Development.
Name of Related Party
|
Relationship with the Company
|
Soren
Mogelsvang
|
Former
President and Chief Executive Officer
|
Guy
Yachin
|
Former
Board Member
|
Cohava
Gelber
|
Former
Director
|
|
September
30, 2016
|
September
30, 2015
|
Soren
Mogelsvang
|
$43,750
|
$-
|
Guy
Yachin
|
12,000
|
-
|
Cohava
Gelber
|
12,000
|
-
|
|
$67,750
|
$-
|
Named Executive Officers and Current Directors
For
information regarding compensation for our named executive officers
and current directors, see “Executive
Compensation.”
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Audit and Accounting Fees
Effective
July 12, 2016, Eide Bailly LLP (“Eide Bailly”) resigned
as our independent registered public accounting firm. On March 17,
2017, we engaged Dale Matheson Carr-Hilton Labonte LLP
(“DMCL”) as our new independent registered public
accounting firm. The following table sets forth the fees billed to
the Company for professional services rendered by Eide Bailly and
DMCL, respectively, for each of the years ended September 30, 2016
and 2015:
|
DMCL
|
EIDE
BAILLY
|
||
Services
|
2016
|
2015
|
2016
|
2015
|
Audit
fees
|
$-
|
$-
|
$26,500
|
$-
|
Audit related
fees
|
-
|
-
|
-
|
-
|
Tax
fees
|
-
|
-
|
-
|
-
|
All other
fees
|
-
|
-
|
-
|
-
|
Total
fees
|
$-
|
$-
|
$26,500
|
$-
|
26
Audit Fees
The
audit fees were paid for the audit services of our annual and
quarterly reports and issuing consents for our registration
statements.
Pre-Approval Policies and Procedures
Our
board of directors preapproves all services provided by our
independent registered public accounting firm. All of the above
services and fees were reviewed and approved by the board of
directors before the respective services were rendered. Our board
of directors has considered the nature and amount of fees billed
and believes that the provision of services for activities
unrelated to the audit is compatible with maintaining their
respective independence.
27
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Exhibit
|
|
Number
|
Description
|
(2)
|
Plan of acquisition, reorganization, arrangement, liquidation or
succession
|
2.1
|
Articles of Merger
(incorporated by reference to our Registration Statement on Form
8-K filed on September 5, 2013)
|
2.2
|
Agreement and Plan
of Merger (incorporated by reference to our Registration Statement
on Form 8-K filed on September 5, 2013)
|
2.1
|
Articles of Merger
(incorporated by reference to our Registration Statement on Form
8-K filed on March 20, 2014)
|
2.2
|
Agreement and Plan
of Merger (incorporated by reference to our Registration Statement
on Form 8-K filed on March 20, 2014)
|
2.1
|
Articles of Merger
(incorporated by reference to our Registration Statement on Form
8-K filed on December 30, 2014)
|
2.2
|
Agreement and Plan
of Merger (incorporated by reference to our Registration Statement
on Form 8-K filed on December 30, 2014)
|
(3)
|
(i) Articles of Incorporation; and (ii) Bylaws
|
3.1
|
Articles of
Incorporation (incorporated by reference to our Registration
Statement on Form S-1 filed on December 29, 2008)
|
3.1.2
|
Certificate of
Amendment to Articles of Incorporation (incorporated by reference
to our Registration Statement on Form 10-K filed on December 26,
2012)
|
3.1.3
|
Certificate of
Change (incorporated by reference to our Registration Statement on
Form 10-K filed on December 26, 2012)
|
3.2
|
Bylaws
(incorporated by reference to our Registration Statement on Form
S-1 filed on December 29, 2008)
|
(4)
|
Instruments Defining the Rights of Security Holders, Including
Indentures
|
4.1
|
Specimen Common
Stock Certificate (incorporated by reference to our Registration
Statement on Form S-1 filed on December 29, 2008)
|
4.1
|
Form
of Registrant’s 10% Senior Convertible Promissory Note
(incorporated by reference to our Registration Statement on Form
8-K filed on October 17, 2013)
|
(16)
|
Letter Regarding Change in Certifying Accountant
|
16.1
|
Responsive Letter
from Eide Bailly LLP (incorporated by reference to our Registration
Statement on Form 8-K filed on July 18, 2016)
|
(31)
|
Rule 13a-14(a)/15d-14(a) Certification
|
(32)
|
Section 1350 Certification
|
(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.
|
|
|
**
|
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.
|
28
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly
authorized.
PEAK PHARMACEUTICALS
By: /s/
Neil Reithinger
|
|
Neil
Reithinger
|
|
Chief
Executive Officer & Chief Financial Officer
|
|
Date:
September 12, 2017
|
|
29
PEAK PHARMACEUTICALS, INC.
CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 30,
2016
TABLE OF CONTENTS
|
Page
|
|
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
F-2
|
|
|
CONSOLIDATED
FINANCIAL STATEMENTS:
|
|
|
|
Consolidated
Balance Sheets
|
F-3
|
|
|
Consolidated
Statements of Operations
|
F-4
|
|
|
Consolidated
Statements of Shareholders’ Deficit
|
F-5
|
|
|
Consolidated
Statements of Cash Flows
|
F-6
|
|
|
Notes
to Consolidated Financial Statements
|
F-7
|
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the
Stockholders and Board of Directors of Peak Pharmaceuticals,
Inc.
We have
audited the accompanying consolidated balance sheet of Peak
Pharmaceuticals, Inc. (the “Company”) as of September
30, 2016 and the related consolidated statements of operations,
stockholders' deficit and cash flows for the year then ended. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We
conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards
require that we plan and perform an audit to obtain reasonable
assurance whether the financial statements are free of material
misstatement. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial
reporting. Our audit included consideration of internal control
over financial reporting as a basis for designing audit procedures
that are appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the Company's
internal control over financial reporting. Accordingly, we express
no such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our
opinion.
In our
opinion, based on our audit, these consolidated financial
statements present fairly, in all material respects, the financial
position of Peak Pharmaceuticals, Inc. as of September 30, 2016 and
the results of its operations and its cash flows for the year then
ended in conformity with accounting principles generally accepted
in the United States of America.
The
accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note
3 to the consolidated financial statements, the Company has a
working capital deficiency, has incurred losses since inception,
and has negative cash flows from operations. The Company requires
additional funds to meet its obligations and the costs of its
operations. These factors raise substantial doubt about the
Company's ability to continue as a going concern. Management's
plans in this regard are described in Note 3. The consolidated
financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
The
consolidated financial statements of Peak Pharmaceuticals, Inc. for
the year ended September 30, 2015 were audited by another auditor
who expressed an unmodified opinion on those financial statements
on January 12, 2016.
DALE
MATHESON CARR-HILTON LABONTE LLP
CHARTERED
PROFESSIONAL ACCOUNTANTS
Vancouver,
Canada
September
12, 2017
F-2
PEAK PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
|
As of
September 30,
|
|
|
2016
|
2015
|
|
|
|
Assets
|
|
|
Current
assets:
|
|
|
Cash
|
$1,304
|
$201,656
|
Prepaid
expenses
|
-
|
7,250
|
Assets
of discontinued operations held for sale
|
-
|
50,383
|
Total
current assets
|
1,304
|
259,289
|
Fixed
assets, net of depreciation
|
-
|
1,336
|
Intangible
assets, net of amortization
|
-
|
18,245
|
Deposit
|
-
|
2,500
|
Total
Assets
|
$1,304
|
$281,370
|
|
|
|
Liabilities
and stockholders' deficit
|
|
|
Liabilities
|
|
|
Accounts
payable
|
$82,526
|
$43,238
|
Accounts
payable - related parties
|
47,877
|
27,000
|
Accrued
liabilities
|
12,359
|
39,151
|
Liabilities
of discontinued operations held for sale
|
-
|
179,243
|
Total
current liabilities
|
142,762
|
288,632
|
Total
Liabilities
|
142,762
|
288,632
|
|
|
|
Stockholders’
Deficit
|
|
|
Preferred
stock, $.00001 par value, 25,000,000 authorized, none issued or
outstanding
|
-
|
-
|
Common
stock, $0.0001 par value, 325,000,000 shares authorized, 78,363,562
shares issued and outstanding, as of September 30, 2016 and
2015
|
7,836
|
7,836
|
Additional
paid in capital
|
4,855,566
|
6,151,997
|
Accumulated
deficit
|
(5,004,860)
|
(6,167,095)
|
Total
Stockholders’ Deficit
|
(141,458)
|
(7,262)
|
Total
Liabilities and Stockholders’ (Deficit)
|
$1,304
|
$281,370
|
The
accompanying footnotes are an integral part of these consolidated
financial statements.
F-3
PEAK PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
|
For the
Years Ended September 30,
|
|
|
2016
|
2015
|
|
|
|
Operating
expenses (recovery):
|
|
|
General
and administrative
|
$189,928
|
$462,688
|
Amortization
|
18,974
|
11,893
|
Equity
based compensation
|
(1,296,431)
|
1,864,297
|
Total
operating expenses (recovery)
|
(1,087,529)
|
2,338,878
|
|
|
|
Operating
income (loss)
|
1,087,529
|
(2,338,878)
|
|
|
|
Other
expenses
|
|
|
Interest
|
-
|
(2,202)
|
Total
other expenses
|
-
|
(2,202)
|
|
|
|
Loss
from continuing operations
|
1,087,529
|
(2,341,080)
|
|
|
|
Income
from operations of discontinued Canna-Pet component (including gain
on disposal of $80,903 for the year ended September, 30,
2016)
|
74,706
|
33,040
|
|
|
|
Net
and comprehensive income (loss)
|
$1,162,235
|
$(2,308,040)
|
|
|
|
Per
share information - basic and fully diluted:
|
|
|
Basic
weighted average shares outstanding
|
78,363,562
|
78,276,605
|
Diluted
weighted average shares outstanding
|
80,919,572
|
78,276,605
|
|
|
|
Continuing
operations:
|
|
|
Net
income (loss) per share - basic and diluted
|
$0.01
|
$(0.03)
|
|
|
|
Discontinued
operations:
|
|
|
Net
income (loss) per share - basic and diluted
|
$0.00
|
$0.00
|
The
accompanying footnotes are an integral part of these condensed
consolidated financial statements.
F-4
PEAK PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDER’ DEFICIT
|
Common
Stock
|
Additional
Paid
|
Accumulated
|
|
|
|
Shares
|
Amount
|
In
Capital
|
Deficit
|
Total
|
Balance,
September 30, 2014
|
78,163,562
|
$7,816
|
$4,287,720
|
$(3,859,055)
|
$436,481
|
|
|
|
|
|
|
Shares
issued for services to non-employees
|
200,000
|
20
|
35,980
|
-
|
36,000
|
Equity
based compensation
|
-
|
-
|
1,828,297
|
-
|
1,828,297
|
Net
loss
|
-
|
-
|
-
|
(2,308,040)
|
(2,308,040)
|
Balance,
September 30, 2015
|
78,363,562
|
7,836
|
6,151,997
|
(6,167,095)
|
(7,262)
|
|
|
|
|
|
|
Equity
based compensation, net of forfeitures
|
-
|
-
|
(1,296,431)
|
-
|
(1,296,431)
|
Net
income
|
-
|
-
|
-
|
1,162,235
|
1,162,235
|
Balance,
September 30, 2016
|
78,363,562
|
$7,836
|
$4,855,566
|
$(5,004,860)
|
$(141,458)
|
The
accompanying footnotes are an integral part of these condensed
consolidated financial statements.
F-5
PEAK PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
For the
Years Ended September 30,
|
|
|
2016
|
2015
|
Cash
flows from operating activities
|
|
|
Net
income (loss)
|
$1,162,235
|
$(2,308,040)
|
Adjustment to reconcile net loss to net cash used in operating
activities:
|
|
|
Depreciation
|
729
|
850
|
Amortization
of Website
|
18,245
|
11,894
|
Shares
issued for services to non-employee
|
-
|
36,000
|
Equity
based compensation
|
(1,296,431)
|
1,828,297
|
Other
|
607
|
-
|
Change
in operating assets and liabilities
|
|
|
Prepaid
expenses
|
7,250
|
(412)
|
Deposits
|
2,500
|
-
|
Assets
of disconinued operations held for sale
|
50,383
|
(50,383)
|
Liabilities
of disconinued operations held for sale
|
(179,243)
|
179,243
|
Accounts
payable and accrued liabilities
|
(14,504)
|
38,855
|
Accounts
payable - related parties
|
47,877
|
16,107
|
Net
cash used in operating activities
|
(200,352)
|
(247,589)
|
|
|
|
Cash
flows from investing activities
|
|
|
Purchase
of equipment
|
-
|
(2,186)
|
Net
cash provided by investing activities
|
-
|
(2,186)
|
|
|
|
|
|
|
Net
change in cash
|
(200,352)
|
(249,775)
|
Cash,
beginning of period
|
201,656
|
451,431
|
Cash,
end of period
|
$1,304
|
$201,656
|
|
|
|
Supplemental
disclusre of cash flow information
|
|
|
Cash
paid for interst
|
$2,250
|
$2,250
|
Cash
paid for income taxes
|
$-
|
$-
|
The
accompanying footnotes are an integral part of these condensed
consolidated financial statements.
F-6
PEAK PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED SEPTEMBER 30, 2016
NOTE 1 - NATURE OF OPERATIONS
The
Company was incorporated in Nevada on December 18, 2007. After a
number of name changes, we again changed our name to Peak
Pharmaceuticals, Inc. on December 23, 2014. This name was
consistent with our business operations and plans relating to
development, manufacturing and marketing of hemp-based
nutraceutical and supplement products for the human and animal
health markets. On October 1, 2015, we discontinued certain
operations of the Company.
Throughout
this report, the terms “our,” “we,”
“us,” and the “Company” refer to Peak
Pharmaceuticals, Inc. and its subsidiary, Peak BioPharma
Corp.
NOTE 2 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING
POLICIES
Basis of Presentation
The
accompanying audited consolidated financial statements of the
Company have been prepared in accordance with accounting principles
generally accepted in the United States of America (“U.S.
GAAP”).
Basis of Consolidation
The
consolidated financial statements include the financial statements
of the Company and our wholly owned subsidiary Peak BioPharma Corp.
All inter-company balances and transactions among the companies
have been eliminated upon consolidation.
Use of Estimates
The
preparation of consolidated financial statements in conformity with
U.S. GAAP requires management to make estimates and assumptions
that affect the amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts
of expenses during the reporting period. Actual results could
differ from those estimates.
Significant
estimates made in connection with the accompanying consolidated
financial statements include the estimate of valuation of
stock-based compensation, and valuation allowances against net
deferred tax assets.
Revenue Recognition and Cost of Sales
We
recognize revenue from products sold when there is persuasive
evidence of an arrangement, delivery has occurred or services have
been rendered, the sales price is determinable and collection is
reasonably assured. Revenue represents the sale of products and
related shipping fees. Revenue is included in income from
operations of BioPharma’s discontinued CannaPet
component, Cost of sales includes the cost of products sold and
shipping costs attributable to the revenue. Cost of sales is
included in income from operations of BioPharma’s
discontinued CannaPet component.
Cash and Cash Equivalents
The
Company considers all highly liquid investments with an original
maturity of three months or less when purchased to be cash
equivalents. As of September 30, 2016, the Company does not have
any cash equivalents.
Inventory
Inventory,
which is included in assets of discontinued operations held for
sale, is stated at the lower of cost or market on a first in first
out basis.
F-7
Equipment
Equipment
consists of computer equipment and is recorded at cost less
accumulated depreciation. The Company’s equipment is
amortized on a straight-line basis over its estimated
life.
Net Loss Per Share of Common Stock
The
Company follows ASC Topic 260
Earnings per Share, which provides for calculation of
“basic” and “diluted” earnings (loss) per
share. Basic earnings (loss) per share includes no dilution and is
computed by dividing net income (loss) available to common
shareholders by the weighted average common shares outstanding for
the period. Diluted earnings (loss) per share reflect the potential
dilution of securities that could share in the earnings of an
entity similar to fully diluted earnings (loss) per share. The
Company excludes equity instruments from the calculation of diluted
earnings per share if the effect of including such instruments is
anti-dilutive. As of September 30, 2016, the Company has 3,291,000
stock options outstanding and no warrants outstanding. As of
September 30, 2015, the Company had 7,791,000 stock options
outstanding and no warrants outstanding.
Income Taxes
Income
taxes are provided based upon the liability method of accounting
pursuant to the ASC Topic 740
Income Taxes. Under this approach, deferred income taxes are
recorded to reflect the tax consequences in future years of
differences between the tax basis of assets and liabilities and
their financial reporting amounts at each year-end. A valuation
allowance is recorded against the deferred tax asset if management
does not believe the Company has met the “more likely than
not” standard to allow recognition of such an
asset.
Equity Based Payments
Equity
based payments are accounted for in accordance with ASC Topic 718, Compensation – Stock
Compensation. The compensation cost is based upon fair value
of the equity instrument at the date grant. The fair value has been
estimated using the BlackSholes option pricing model. In
addition, payments made to nonemployees are accounted for in
accordance with ASC Topic 505,
EquityBased payments to
NonEmployees.
Fair Value Measurements
Financial
Accounting Standards Board (“FASB”) ASC Topic 820, Fair Value Measurements and
Disclosures ("ASC 820"), provides a comprehensive framework
for measuring fair value and expands disclosures which are required
about fair value measurements. Specifically, ASC 820 sets forth a
definition of fair value and establishes a hierarchy prioritizing
the inputs to valuation techniques, giving the highest priority to
quoted prices in active markets for identical assets and
liabilities and the lowest priority to unobservable value inputs.
ASC 820 defines the hierarchy as follows:
Level 1
- Quoted prices are available in active markets for identical
assets or liabilities as of the reported date. The types of assets
and liabilities included in Level 1 are highly liquid and actively
traded instruments with quoted prices.
Level 2
- Pricing inputs are other than quoted prices in active markets,
but are either directly or indirectly observable as of the reported
date. The types of assets and liabilities in Level 2 are typically
either comparable to actively traded securities or contracts, or
priced with models using highly observable inputs.
Level 3
- Significant inputs to pricing that are unobservable as of the
reporting date. The types of assets and liabilities included in
Level 3 are those with inputs requiring significant management
judgment or estimation, such as complex and subjective models and
forecasts used to determine the fair value of financial
transmission rights.
The
Company’s financial instruments consist of cash, accounts
receivable, and accounts payable. The estimated fair value of these
financial instruments approximate their carrying amounts due to the
short-term nature of these instruments.
F-8
Certain
non-financial assets are measured at fair value on a nonrecurring
basis. Accordingly, these assets are not measured and adjusted to
fair value on an ongoing basis, but are subject to periodic
impairment tests. These items primarily include long-lived assets
and other intangible assets.
Intangible Asset
The
intangible asset is our website that was being amortized over the
expected useful life which we estimated to be three years. During
the year ended September 30, 2016, it was determined the website is
fully impaired as it is no longer used and as such we expensed the
remaining balance to amortization expense. Amortization expense
charged to operations for the twelve-month period ended September
30, 2016 and 2015, was $18,245 and $11,894,
respectively.
Long-lived Assets
On a
periodic basis, management assesses whether there are any
indicators that the value of our long-lived assets may be impaired.
An asset’s value may be impaired only if management’s
estimate of the aggregate future cash flows, on an undiscounted
basis, to be generated by the asset are less than the carrying
value of the asset.
Our
only long lived assets are our website and computer equipment. If
impairment has occurred, the loss is measured as the excess of the
carrying amount of the asset over its fair value. Our estimates of
aggregate future cash flows expected to be generated by our
long-lived asset are based on several assumptions that are subject
to economic and market uncertainties. As these factors are
difficult to predict, and are subject to future events that may
alter management’s assumptions, the future cash flows
estimated by management in their impairment analyses may not be
achieved. During the twelve months ended September 30, 2016, we
charged $18,245 to amortization expense for the impairment of our
website.
Recently Issued Accounting Pronouncements
From
time to time, new accounting pronouncements are issued that we
adopt as of the specified effective date. We believe that the
impact of recently issued standards that are not yet effective may
have an impact on our results of operations and financial position.
The FASB issued Accounting Standards Update (“ASU”)
201415 Presentation of Financial Statements Going
Concern (Sub Topic 20540) issued August 27, 2014 defines
management’s responsibility to evaluate whether there is
substantial doubt about an organization’s ability to continue
as a going concern. The additional disclosure requirement is
effective after December 15, 2016 and will be evaluated as to
impact and implemented accordingly.
In
addition, the FASB issued ASU No. 201409 (Revenue from
Contracts with Customers), which is effective for annual reporting
periods beginning after December 15, 2016. We have not yet assessed
the impact, if any, of adopting this standard.
NOTE 3 – GOING CONCERN AND MANAGEMENT’S LIQUIDITY
PLANS
As of
September 30, 2016, and 2015, the Company had an accumulated
deficit of $5,004,860 and $6,167,095 respectively. The Company has
a working capital deficiency of $141,458. During the years ended
September 30, 2016 and 2015, the Company used cash in operating
activities of $200,352 and $247,589, respectively. These conditions
raise substantial doubt about the Company’s ability to
continue as a going concern. The Company recognizes it will need to
raise additional capital in order to fund operations, and meet its
payment obligations. There is no assurance that additional
financing will be available when needed or that management will be
able to obtain financing on terms acceptable to the Company and
whether the Company will generate revenues, become profitable and
generate positive operating cash flow. If the Company is unable to
raise sufficient additional funds on favorable terms, it will have
to develop and implement a plan to further extend payables and to
raise capital through the issuance of debt or equity on less
favorable terms until sufficient additional capital is raised to
support further operations. There can be no assurance that such a
plan will be successful.
F-9
Accordingly,
the accompanying consolidated financial statements have been
prepared in conformity with U.S. GAAP, which contemplates
continuation of the Company as a going concern and the realization
of assets and the satisfaction of liabilities in the normal course
of business. The carrying amounts of assets and liabilities
presented in the consolidated financial statements do not
necessarily represent realizable or settlement values. The
consolidated financial statements do not include any adjustments
that might result from the outcome of this
uncertainty.
NOTE 4 – DISCONTINUED OPERATIONS
Based
upon recent regulatory activity related to imposition of
restrictions and limitations on the sale of hemp-based health
products for pets, we elected to terminate our license agreement
with the Licensor, effective as of October 1, 2015, and to cease
all operations relating to sale of hemp-based products for
pets.
On
October 12, 2015, we entered into an agreement for the termination
(“Termination Agreement”) of the License Agreement,
effectively selling the discontinued operations. The Termination
Agreement contained the following provisions:
●
Termination of
License: The parties agreed to terminate the License Agreement
effective as of October 1, 2015, this termination was made by
mutual agreement of the parties pursuant to and in accordance with
the provisions of the License Agreement.
●
Return of Licensed
Intellectual Property: We agreed to return all Licensed
Intellectual Property to the Licensor, and our right to use all, or
any portion, of the Licensed Intellectual Property ceased effective
as of October 1, 2015, pursuant to the terms of the License
Agreement, the Licensed Intellectual Property included the brand
name “Canna-Pet” and certain related intellectual
property, including, but not limited, trademarks and copyrights,
formulations, recipes, production processes and systems, websites,
domain names, customer lists, supplier lists trade secrets and
know- how, and other related intellectual property.
●
Return of Other
Property: In addition to return of the Licensed Intellectual
Property, we agreed to transfer to Licensor all product inventory,
Colorado hemp with permits and authorization, all
production/fulfillment contracts, all e-commerce accounts and
processing, all non-disclosure and research agreements and any and
all other property in our possession which was used by us in the
conduct of our business related to production and sale of medical
cannabis products for pets made from hemp and low-THC cannabis
plants.
●
Office Space and
Equipment: In conjunction with the execution of the Termination
Agreement, we granted the Licensor the right to use our office
space, for the three-month period from October 1, 2015 through
December 31, 2015, on a rent-free basis.
●
Consideration: As
consideration for the cancellation of the License Agreement and the
return of other property, as described above, the Licensor agreed
to waive payment by us and to release us from liability for payment
of any and all unpaid royalties, invoices and other amounts which
were otherwise currently due and payable by us to Licensor for
sales of Canna-Pet products for all periods through and including
September 30, 2016.
●
Collections: On
October 15, 2015, we forwarded to the Licensor all payments
received by us after September 30, 2015 (net of amounts received by
us for taxes, duties, governmental charges, freight or shipping
charges, and the like) for Canna- Pet products sold on or after
October 1, 2015.
F-10
The
following is a summary of the net assets sold as initially
determined at Septembers 30, 2015:
|
September 30,
2015
|
Inventory
|
$41,705
|
Prepaid
expenses
|
-
|
Deposits
|
8,678
|
Total
assets
|
$50,383
|
|
|
Accounts
payable
|
124,396
|
Royalties
payable
|
39,506
|
Accrued
liabilities
|
15,341
|
Total
liabilities
|
179,243
|
Net assets
sold
|
$128,860
|
The
income from discontinued operations presented in the statements of
operations consists of the following for the twelve-month periods
ended September 30, 2016 and 2015, respectively:
|
2016
|
2015
|
Revenues
|
$-
|
$1,039,393
|
Cost of goods
sold
|
-
|
(305,295)
|
General and
administrative expenses, including depreciation and
amortization
|
(6,197)
|
(700,106)
|
Depreciation
|
-
|
(850)
|
Interest
expense
|
-
|
(48)
|
Gain on disposal of
discontinued operations
|
80,903
|
-
|
Income from
discontinued operations
|
$74,706
|
$33,040
|
NOTE 5 – INTANGIBLE ASSETS
Intangible
assets at September 30, 2016 and September 30, 2015, consist of
website costs of $35,000, less accumulated amortization of $35,000
and $16,755, respectively. The website costs have been fully
amortized.
NOTE 6 – RELATED PARTY TRANSACTIONS
Parties,
which can be corporations or individuals, are considered to be
related if they have the ability, directly or indirectly, to
control the other party or exercise significant influence over the
other party in making financial and operating decisions. Companies
are also considered to be related if they are subject to common
control or common significant influence.
Accounts
payable – related parties are the amounts payable to officers
and directors of the Company for reimbursement of expenses they
incurred on behalf of the Company as well as Directors’ fees
and salaries. Included in general and administrative expense for
the years ended September 30, 2016 and September 30, 2015 are
$24,000 and $94,647 of consulting fees, $24,000 and $0 of
Directors’ fees, and $46,355 and $187,409 of salaries to paid
to officers and directors of the Company,
respectively.
NOTE 7 – COMMITMENTS AND CONTINGENCIES
We have
no commitments or contingencies as of September 30, 2016.
Commitments that existed at September 30, 2015 ceased to exist
during the year ended September 30, 2016.
NOTE 8 – COMMON STOCK
We had
no preferred or common stock transactions during the year ended
September 30, 2016.
F-11
On
December 22, 2014, pursuant to a Placement Agent Agreement, we
issued 200,000 restricted shares of our common stock. The shares
were valued at $36,000, $0.18 per share, the trading value, and
charged to stock based compensation.
NOTE 9 - OPTIONS
No
stock options were granted during the years ended September 30,
2016 and 2015.
As per
guidance in the ASC Topic 718, Compensation - Stock Compensation
(“ASC 718”), we are amortizing the fair value of the
options on a straight-line basis over the requisite service period
for each separately vesting portion of the award as if the award
was, in-substance, multiple awards (graded vesting attribution
method).
During
the year ended September 30, 2016, officers holding 4,500,000
options resigned and the options were no longer exercisable. In
accordance with ASC 718, previously expensed equity based
compensation which requisite service will not be provided and are
forfeited and reversed. As a result, previously recorded equity
based compensation of $1,296,431 was reversed and credited to
equity based compensation expense during the year ended September
30, 2016.
The
following is a summary of outstanding stock options issued to
employees and directors as of September 30, 2016:
|
Number
of Options
|
|
Exercise
Price per
Share
|
|
Average
Remaining
Term
in
Years
|
|
Aggregate
Intrinsic
Value
at Date
of
Grant
|
|
|
|
|
|
|
|
|
Outstanding
October 1, 2014
|
7,416,000
|
|
$0.0067
- $0.20
|
|
|
|
-
|
Issued
|
-
|
|
|
|
|
|
-
|
Cancelled
|
-
|
|
|
|
|
|
-
|
Outstanding
September 30, 2015
|
7,416,000
|
|
$0.0067
- $0.20
|
|
|
|
-
|
Issued
|
-
|
|
|
|
|
|
-
|
Cancelled
|
(4,500,000)
|
|
|
|
|
|
-
|
Outstanding
September 30, 2016
|
2,916,000
|
|
$0.0067
|
|
7.45
|
|
-
|
Exercisable
|
2,916,000
|
|
$0.0067
|
|
7.45
|
|
-
|
The
following is a summary of outstanding stock options issued to
non-employees, excluding directors, as of September 30,
2016:
|
Number
of Options
|
|
Exercise
Price per
Share
|
|
Average
Remaining
Term
in
Years
|
|
Aggregate
Intrinsic
Value
at Date
of
Grant
|
|
|
|
|
|
|
|
|
Outstanding
October 1, 2014
|
375,000
|
|
$0.0067
|
|
|
|
-
|
Issued
|
-
|
|
|
|
|
|
-
|
Cancelled
|
-
|
|
|
|
|
|
-
|
Outstanding
September 30, 2015
|
375,000
|
|
$0.0067
|
|
|
|
-
|
Issued
|
-
|
|
|
|
|
|
-
|
Cancelled
|
-
|
|
|
|
|
|
-
|
Outstanding
September 30, 2016
|
375,000
|
|
|
|
|
|
-
|
Exercisable
|
375,000
|
|
$0.0067
|
|
7.22
|
|
-
|
Total
equity based compensation for the twelve months ended September 30,
2016 and 2015 was ($1,296,431) and $1,864,297,
respectively.
F-12
NOTE 9 – DEFERRED INCOME TAX
Deferred
income tax provision for the years ended September 30, 2016 and
2015 is summarized below:
|
2016
|
2015
|
Federal
|
$(64,500)
|
$(155,900)
|
State
|
(5,900)
|
(14,200)
|
Total
deferred
|
(70,400)
|
(170,100)
|
Increase in
valuation allowance
|
70,400
|
170,100
|
|
$-
|
$-
|
The
provision for income taxes differs from the amount computed by
applying the statutory federal income tax rate before provision for
income taxes. The sources and tax effect of the differences are as
follows:
|
2016
|
2015
|
Income tax
provision – federal rate
|
34.0%
|
34.0%
|
State income taxes,
net of federal benefit
|
3.1%
|
3.1%
|
Effect of net
operating loss
|
(37.1%)
|
(37.1%)
|
|
-
|
-
|
The net
deferred income tax assets at September 30, 2016 and 2015 were
$382,200 and $311,800, respectively.
ASC 740
requires a valuation allowance to reduce the deferred tax assets
reported if, based on the weight of evidence, it is more than
likely than not that some portion or all of the deferred tax assets
will not be recognized. After consideration of all the evidence,
both positive and negative, management has determined that a full
valuation allowance at September 30, 2016 and 2015, respectively,
is necessary to reduce the deferred tax assets to the amount that
more likely than not be realized. The change in valuation allowance
for the current year is $70,400.
As of
September 30, 2016, we have a net operating loss carry forward of
approximately $1,030,100 (2015: $840,500). The loss will be
available to offset future taxable income. If not used, this carry
forward will expire in 2036.
There
are open statutes of limitations for taxing authorities in federal
and state jurisdictions to audit our tax returns from 2011 through
the current period. Our policy is to account for income tax related
interest and penalties in income tax expense in the statement of
operations. There have been no income tax related interest or
penalties assessed or recorded.
ASC 740
prescribes a recognition threshold and measurement attribute for
the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. This
pronouncement also provides guidance on derecognition,
classification, interest and penalties, accounting in interim
periods, disclosure, and transition.
For the
year ended September 30, 2016 and 2015 we did not have any interest
and penalties associated with tax positions. As of September 30,
2016 we did not have any significant unrecognized uncertain tax
positions.
NOTE 10 – RECLASSIFICATION OF COMPARATIVE
FIGURES
Certain
prior year amounts included in the consolidated statements of
operations have been reclassified to conform to the current year
presentation. Such reclassifications had no impact on previously
reported net loss.
F-13